Reducing Greenhouse Gas Emissions through the Use of Biomass Energy in Northwest Slovakia

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Reducing Greenhouse Gas Emissions through the Use
of Biomass Energy in Northwest Slovakia
Slovak success story
Sub-regional Workshop for GEF Focal Points in
Europe and the CIS Dubrovnik, Croatia 11-13
February 2009
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Basic project information

• Objective
• To reduce GHG emissions and to promote the
  adoption of renewable energy sources
• GEF implementing agency UNDP
• Total budget (MSP) US 8.5 mil.
• US 973,500 GEF grant,
• US 7.5 mil. co-financing
• Duration 3 years
• March 2003 December 2006 (finished 3 months
  earlier)

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Country background

• Project area Žilina and Trencín Regions in the
  northwest part of the country
• covers 6,788 4,502 square kilometers (23 of
  Slovakias area)
• 52 of the region is densely forested
• compared with 40 forest density for the entire
  country
• At the time of project approval, more than 2,000
  sawmills, forestry companies, and wood processing
  firms active in the region
• produce over 200,000 tons of biomass residuals
  annually
• The project was designed to use these wood
  residuals

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Project outcome 1

• Create a sustainable wood pellet market in the
  region of Northwest Slovakia.
• construct a Central Processing Unit (CPU) for
  wood-pellet production,
• create a transport system for wood-waste residue
  supply and pellet delivery,
• Create a sufficiently large customer base to
  ensure adequate cash flow.

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Project outcome 2

• Provide a replicable, economically viable, and
  environmentally friendly source of heat in 44
  public buildings
• Replace existing coal/coke boilers with
  wood-pellet fired boilers.
• Upgrade of the heating system

One of the public buildings heated in Stará
Lubochna (Sanatorium Fatra)
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Project outcome 3

• Contribute to increase of biomass use as fuel
  source for heating
• Awareness raising
• Acquisition of new customers replacing coal/coke
  boilers resp. connected to the established pellet
  boiler rooms

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Implementation arrangements

• National Execution
• National Executing Agency
• Ministry of Environment of the SR
• Supervisory role
• National Implementing Agency
• BIOMASA association
• Day-to-day management

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Project budget
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Key results

• 20 137 tons CO2 saved annually
• 8 000 tons of fossil fuels consumption annually
  replaced
• by consumption of 4 500 tons of pellets in
  boilers operated by BIOMASA
• Further reduction of fossil fuels can be assumed
  in other boiler rooms that purchase BIOMASA
  pellets (sales in Slovak and foreign markets).

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Boiler rooms supplied by heat and pellets from
BIOMASA Association
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Wood pellet market

• Pellet production unit constructed within 20
  months after the project start
• 2005 production 3,800 tons
• 2007 production 12,000 tons (full capacity)
• 20,000 tons of wood waste from the region
  re-utilized

• long term contracts for
• heat delivery (25)
• Sale of pellets (30)
• wood waste residue purchase (30)

BIOMASA Offices and Central Processing Unit
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Heating system reconstruction

• 44 new pellet automatic boilers installed
• 100 coal/coke boilers in 54 old boiler rooms
  replaced by modern pellet automatic boilers (from
  7 kW to 2,5 MW)
• Boilers centrally operated and maintained,
  pellets supply centrally managed - system of heat
  supply from BIOMASA (full service to members
  instead of pure sale of pellets)

• Better heating quality in buildings
• Energy efficiency measures,
• modernization and regulations of heating systems
  (regulating valves, windows, doors and radiators
  replacement additional thermal outside
  insulation)
• New heating operational regulations introduced
• Heating costs savings (20-30)

One of the boilers installed in Slanicka Osada
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Increased use of biomass for heating

• 12 new consumers replaced their fossil boilers
  and are connected to BIOMASA heat supply system

Some elements of the system for pellet delivery

• 20 other new businesses, public buildings and
  households outside the projects converted to
  pellets and are regularly supplied by pellets
  from BIOMASA

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Challenges to financial planning

• The dramatic change in the price of the saw dust
  raw material
• The higher than expected investment costs.

• The extensive exchange rate fluctuation on the
  USD between 2000 and 2004,
• the final amount received from GEF in USD
  converted to SKK was much lower than the planned
  amount

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Challenges to financial planning 2

• Financing through several financial grants, which
  needed to be synchronized
• EU Program LIFE Environment
• Austrian Environmental fund managed by
  Kommunalkredit Public Consulting
• bank loan (higher than planned)
• Conditions of other donors resulted in the need
  to complete the project earlier

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Challenges to financial planning 3

• Need for additional sources of financing to
  cover
• the higher investment project costs
• The drop-out of GEF sources
• extreme exchange rate changes from the project
  planning phase to the end of its implementation)
• the originally planned co-funding (Danish Fund)
  lost as a result of significant delays with the
  GEF approval processes
• Slovakia was not eligible any more

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Opportunities and challenges not addressed

• The speeding up and scaling up of the market
  transformation process for biomass in Slovakia
  will largely be dependent on the emergence of a
  more enabling policy environment for alternative
  energy sources to natural gas in Slovakia.
• The design of the project could have been more
  robust to include a separate high level policy
  dialogue component to ensure that adequate market
  incentives are in place at the national level to
  support the efforts in production and awareness
  raising by BIOMASA.

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Opportunities and challenges

• Survey on SK situation in 2006 (BIOMASA, 2007)
• total production capacity in Slovakia
• 72,000 tons per year for 2006,
• actual production
• 45,000 tons per year,
• pellet consumption
• estimated at 9,000 tons per year,
• local market for pellet production developing
  slowly
• Production to rely on export market

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Sustainability

• continued and financially viable operations at
  BIOMASA so that pellet remains a credible
  energy source in the national market
• ability of BIOMASA to sustain its cash flow amid
  depressed pellet prices
• Difficult predictability of cash flow in a market
  not yet mature
• Increasing production capacity on the global
  market decreased the price on the external market
• Local price has to compete with subsidized
  natural gas price
• Warm winter in 2006 further depressed the demand
  (and price) for pellets

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Problem

• With adequate cash flow, a producer would wait
  until the pellet price goes up again - within the
  year and over the years
• BUT
• BIOMASA
• does not have the cash flow
• does not have storage capacity
• Subsidizes the heating price to members from the
  pellet production operation

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Measures to improve sustainability

• Subsidies for heat prices for BIOMASA members
  reduced
• Expanding BIOMASA pellet storage capacity at the
  Central Processing Unit
• Set up an emergency line of credit to help to
  overcome fluctuations in the price for pellets in
  its first few years of full operation, so that it
  capitalize on seasonal price fluctuations rather
  than be a victim of them

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Lessons learnt 1

• Overdesign of old boilers capacity
• 29 MW of old boilers replaced by 13 MW of new
  pellet boilers
• the first phase boilers were significantly
  over-dimensioned
• realized demand only being 2/3 of what was
  predicted
• In the second phase load calculations were
  reduced by 30
• the second phase boilers still have a
  significant reserve capacity.
• negative impact on
• cash flow management
• unit cost associated with the reduction of CO2
  emission

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Lessons learnt 1 Heat production capacity

• Attention must be given to the process of
  consumption and capacity estimates
• Many smaller demonstration projects reduce the
  risk of failure
• Phased approach to support the learning process
• Follow-up
• Further pellet boiler grid connection from the
  BIOMASA association members

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Lessons learnt 2

• Associative and publicly led management of pellet
  and heat production
• The project implementation profited from having a
  local association, which
• Covered different roles awareness raising,
  decision-making, management and financial
  perspective,
• Associated the key local stakeholders.

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Lessons learnt 2Set-up

• The coupling of pellet production and development
  of a local/national base market for pellet
  distribution and consumption to kick start the
  market transformation process is a strategy that
  can clearly facilitate the market transformation
  process and its continued development.
• When designing an initiative aimed at market
  transformation, plans must ensure that adequate
  resources and appropriate institutional
  structures are set up to promote cooperation and
  high level dialogue on enabling policies to
  complement actions on the ground
• Associations of municipalities have easier access
  to EU structural funding for infrastructure
  projects (oriented to large investments)

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Lessons learnt 3

• In order to provide reliable data on CO2 emission
  reductions for GEF projects, adequate baseline
  and monitoring and reporting systems must be
  systematized.
• Consider different factors taht are likely to
  change with time
• Raw material (when biomass residues become a
  commodity, prices rapidly increase)
• heat prices,
• fossil fuel prices that the project has to
  compete with,
• demand,
• labor costs.
• Energy efficiency measures should be implemented
  before (or together with) the specification and
  installation of heating systems.

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Successful project ?

• Conclusion of the independent Final Evaluation
• (Project)...can be considered a success story by
  UNDP and GEF in bringing about market change in
  favor of biomass energy production and use in
  Slovakia.

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• Thank you!
• For more information see
• www.biomasa.sk
• or contact
• Klara Tothova, CST Environmental
  Officer    UNDP, Europe and the CIS   
  Bratislava Regional Centre    Grosslingova 35,
  81109 Bratislava, Slovak Republic    Tel  421
  2 59337 220     Fax [phone]   
  klara.tothova_at_undp.org     www.undp.org/europeand
  cis