Economic Impacts Resulting From Co-Firing Biomass Feedstocks in Southeastern U.S. Coal-Fired Plants

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ECONOMIC IMPACTS RESULTING

FROM CO-FIRING BIOMASS

FEEDSTOCKS IN SOUTHEASTERN

UNITED STATES COAL-FIRED

PLANTS

Burton English, Jamey Menard, Marie

Walsh, and Kim Jensen

Professor, Research Associate, Adjunct

Professor, and Professor, University of

Tennessee.

1

BACKGROUND

Acid rain damage to forests-

Great Smoky Mountains higher elevations rainfall is up to 10 times as acidic as normal precipitation in the park and fog is often 100

Electricity from Coal times more acidic

US electricity from coal-firing>50% of electricity

generated

Southeast 60% from coal-firing (DOE/EIA, 2001)

Share of air emissions from coal burning

2/3 sulfur dioxide (SO

2

1/3 carbon dioxide (CO

)

1/4 nitrogen oxide (NO

2 x

)

)

also adds particulate matter in the air

Biomass feedstocks

agriculture residues

dedicated energy crops

forest residues

urban wood wastes

wood mill wastes

have lower emission levels of sulfur or sulfur compounds and can potentially reduce nitrogen oxide emissions

2

BACKGROUND

Biomass crops raised for the purposes of energy

production is carbon neutral

With co-firing, rather than 100 percent biomass use,

continuous supply of biomass is not as critical

(Demirbas)

Credits for offsetting SO

emissions, currently priced at $100 per ton, provide an incentive for co-firing

(Comer et al.)

Costs of conversion of power plants for co-firing are

relatively modest, depends on % percent co-fired

Power companies also have potential to obtain

marketable value through offsetting CO for greenhouse gas mitigation. Replacing coal (a net

CO emitter) with biomass (a net zero CO emitter) while maintaining

3

BACKGROUND

DOE projects that by 2025, biomass

electricity production will increase from 38 billion to 78 billion kWhs

Electricity from municipal solid waste,

including waste combustion and landfill gas, is projected to increase from 22 billion to 34 billion kWhs

Factors likely to facilitate this growth

include:

changing air pollution standards

potential benefits to rural economies

capacity pressures on solid waste

facilities

forest fire control policies to limit the

amount of understory brush

4

Study Scenarios

Feedstocks forest residues primary mill residues agricultural residues dedicated energy crops (switchgrass) urban wood wastes

Base $0

2% Co fire 15% Co fire

Low Carbon

Tax $70

High Carbon

Tax $120

Economic

Impacts

producing/collecting/transporting the feedstock retrofitting the coal-fired utilities for burning the feedstock operating co-fired utilities coal displaced from burning the feedstock

5

Study Area

• Power plants studied were associated with Southeastern

Electric Reliability Council

(SERC)

• 8 states – AL, GA, KY, MS, NC,

SC, TN, VA

• Trading regions within the eight states were identified. These regions were based on the

Bureau of Economic Analysis

Trading Areas

84

76

83

73

77

72

75

82

69

70

49

48

17

16

13

15

47

74

78

71

43

79

39

44

40

45

46

42

23

18

41

24

27

26

19

22

25

38

28

21

80

36

35

37

29

/

13

14

20

20

20

Economic Trading Areas

Plants AL, GA, KY,

MS, NC, SC, TN, VA

6

Modeling System

ORIBAS

• GIS-based transportation model

• estimates delivered costs of biomass to power plant facilities

Price of

Feed

Stock

Cost and Location of Bio-based Resource

Transportation Expense

ORCED

• dynamic electricity distribution model estimates price utilities can pay for biomass feedstocks

• models the electrical system for a region by matching the supplies and demands for two seasons of a single year

Location of

Power plant

IMPLAN

• uses input-output analysis to derive estimated economic impacts

• creates a picture of a regional economy to describe flows of goods and services to and from industries and institutions

7

ORIBAS

• GIS-based transportation model used to estimate the delivered costs of biomass to hypothetical power plant facilities (Graham et al., Noon et al.)

• Complete road network for each state

• Waste, residues, and dedicated crop feedstocks are distributed across each county for a given state

• Location and level of demand for residue

• Attempts to supply the bio-based feedstocks to the power plant at lowest cost

8

ORCED

• Dynamic electricity distribution model estimates price utilities can pay for feedstocks

• Models electrical system for region by S and D for two seasons of a single year

• Supplies are defined by up to 51 plants, extensive definitions of their operations, costs, and emissions

• Demands are defined by load duration curves for each season, with gradually increasing demands based on hourly demands

• As amount of residues demanded increases, cost of fuel for generation increases

• Coal costs at each plant vary by scenario depending on emission costs prescribed by a given scenario

• A maximum price is determined for residue at the plant gate

• Price then used to determine if sufficient quantities of residue exists to

• Each ton of SO x produced has a negative value of $142 meet the amount demanded by the co-fire scenario also, there is a $2,374 per ton

NO x pollutant value in addition

IMPLAN

• Input-output analysis creates a picture of a regional economy to describe flows of goods and services to and from industries and institutions

•Direct impacts-changes in final demand for a sector’s product

• Indirect impacts-change in inter-industry purchases due to the change in final demand from the industry directly affected

• Induced impacts-changes in the incomes of households and other institutions and the resulting increases/decreases in spending power as a result of the change in final demand

Impacts are estimated for

A. One-time only impact in the

Construction Sector

B. Annual Operating Cost

Impacts

1) Electrical generation

2) Growing/collecting of the bio-based feedstock

3) Transportation

4) Coal mining

10

A. One Time Conversion Costs

• 2 % co-fire

• 15% co-fire

$50/kw

$200/kw

• Plant capacity x capacity factor=kilowatts produced.

• Kilowatts produced x co-fire level assumed (2% or 15%) x either the $50 or $200 investment cost=total investment

• Million dollar investment was proportioned through the economy and assigned to the appropriate IMPLAN industry sectors (Van Dyke)

• Each ETA was then impacted with a million dollar investment for both the 2% and 15% co-firing scenarios

• To determine the impact of the investment stage within an

ETA, the total investment required for all power plants within the ETA expressed in millions of dollars was multiplied by the multiplier for TIO, employment, and value added

11

B. Annual Operating Costs

Impacts of the change in operating costs for the facilities in the study also required the identification of the IMPLAN industry sectors to capture the change in annual costs that would occur at the power plant facility

1) Power Generation -IMPLAN sector representing electricity production was modified to reflect an increase in annual machinery repair expenditures, and employment compensation was increased to reflect the additional labor requirements

12

2) Bio-based Feedstock Costs

• For each of the feedstocks, costs were distributed across the appropriate

IMPLAN input sectors

• Non-labor costs were used to adjust the current production function of the sector most likely to provide the output

13

2) Bio-based Feedstock Costs

• A new model was created for each biobased feedstock with adjusted production function coefficients reflecting the new activity in the economy

14

2) Bio-based Feedstock Costs

• Total industry output, employment, and value-added multipliers were then generated for each bio-based feedstock

• These multipliers were multiplied by the cost of producing/collecting the feedstock that ORIBAS indicated would be used by the power plant and the economic impact that co-firing would have in the areas where the feedstock originated was estimated

15

Proprietary Income Impacts

• Value paid for the bio-based feedstock was predetermined and based on the scenario characteristics

• The difference between the predetermined value and the cost of growing/collecting the residue was estimated and assumed to impact the sector’s proprietary income that generated the feedstock

• An impact analysis on proprietary income was conducted in each ETA. The multiplier generated times the total change in proprietary income served as an estimate of the impacts that would occur as a result of an increase in profit with in the region

16

3) Transportation

• Total transportation sector impacts were determined by summing costs of the amount transported to the facility over all trips and residue types

• The result was a change in total industry output

• Input-output multipliers for the BEA’s in which the power plants are located were then used to estimate the impact on the economy, the job market, and valueadded

17

4) Coal Mining

• Decrease in coal use with co-firing

• Decrease in final demands on coal mining sector

18

Results

• Residue Use and Energy Production

• Characteristics of Coal Replaced

• Economic Impacts

– Total Industry Output

– Jobs

– Value-added

19

Feedstock

Energy

Content

Total

Residue

Low Carbon/Co-fire

2%

Ag. Residue

Forest Residue

Mill Waste

Dedicated Crop

Urban Waste

MMBtu/ton metric dry tons

15

16.5

16.5

15.5

16.5

Total

Low Carbon/Co-fire 15%

Ag. Residue 15

17,537

931,078

722,643

1,658,249

791,379

4,120,886

90,950

Forest Residue

Mill Waste

Dedicated Crop

Urban Waste

16.5

16.5

15.5

Total

16.5

High Carbon/Co-fire 2%

Ag. Residue 15

Forest Residue

Mill Waste

16.5

16.5

7,773,136

5,860,687

6,321,000

3,688,579

23,734,352

18,945

Dedicated Crop

Urban Waste

High Carbon/Co-fire 15%

Ag. Residue

Forest Residue

Total

15.5

16.5

15

16.5

861,089

705,602

1,625,695

748,939

3,960,271

143,958

7,012,248

Mill Waste

Dedicated Crop

Urban Waste

16.5

15.5

Total

16.5

7,315,194

11,021,469

3,537,423

29,030,290

Total energy

Content

MMBtu

263,051

15,362,794

11,923,610

25,702,860

13,057,755

66,310,069

1,364,246

128,256,751

96,701,331

97,975,497

60,861,558

385,159,383

284,178

14,207,975

11,642,426

25,198,279

12,357,493

63,690,351

2,159,363

115,702,088

120,700,694

170,832,762

58,367,474

467,762,380

Electricity

Produced

From

Residues

Kwh

4,163

3,411

7,383

3,621

18,661

633

33,901

35,365

50,054

17,102

137,054

77

4,501

3,494

7,531

3,826

19,429

400

37,579

28,333

28,707

17,832

112,852

83

20

Agricultural Residues -- Low Carbon 2%

/

Agricultural Residues -- Low Carbon 15%

/

Agricultural Residues

(Tons)

0 - 2,500

2,500 - 5,000

5,000 - 10,000

10,000 - 25,000

25,000 - 50,000

Agricultural Residues -- High Carbon 2%

/

Agricultural Residues -- High Carbon 15%

/

21

Forest Residues -- Low Carbon 2%

/

Forest Residues -- Low Carbon 15%

/

Forest Residues

(Tons)

0 - 30,000

30,000 - 60,000

60,000 - 90,000

90,000 - 120,000

> 120,000

Forest Residues -- High Carbon 2%

/

Forest Residues -- High Carbon 15%

/

22

Mill Residues -- Low Carbon 2%

/

Mill Residues -- Low Carbon 15%

/

Mill Residues

(Tons)

0 - 60,000

60,000 - 120,000

120,000 - 180,000

180,000 - 240,000

> 240,000

Mill Residues -- High Carbon 2%

/

Mill Residues -- High Carbon 15%

/

23

Switchgrass Residues -- Low Carbon 2%

/

Switchgrass Residues -- Low Carbon 15%

/

Switchgrass

(Tons)

0 - 30,000

30,000 - 60,000

60,000 - 90,000

90,000 - 120,000

> 120,000

Switchgrass Residues -- High Carbon 2%

/

Switchgrass Residues -- High Carbon 15%

/

24

Urban Wastes -- Low Carbon 2%

/

Urban Wastes -- Low Carbon 15%

/

Urban Wastes

(Tons)

0 - 35,000

35,000 - 70,000

70,000 - 105,000

105,000 - 140,000

> 140,000

Urban Wastes -- High Carbon 2%

/

Urban Wastes -- High Carbon 15%

/

25

Characteristics of Coal Replaced by Bio-Based

Feedstocks

Base-2% co-fire

Low Carbon, 2% co-fire

Low Carbon, 15%co-fire

High Carbon, 2% co-fire

High Carbon, 15%co-fire

Coal Replaced tons

355,412

3,251,073

18,198,976

3,251,073

23,987,425

Sulfur

%

0.94

1.33

1.24

1.33

1.32

Coal Value dollars

$12,487,292

$91,389,091

$525,177,225

$91,389,091

$678,951,258

Sulfur Replaced tons

3,344

43,160

225,992

43,160

317,708

26

Impacts by Sector and Scenario

Base

Low Carbon

2%

Low Carbon

15%

High Carbon

2%

High Carbon

15%

Total Industry Output ($1,000)

Transportation

Operating

Coal Replacement

Bio-based Feedstocks

Total Annual Impact

Investment (Non-annual)

$2,995

$1,011

($15,512)

$18,854

$7,349

$7,577

$29,862

$9,231

($110,063)

$331,425

$260,455

$71,204

$432,973

$51,556

($596,173)

$1,516,413

$1,404,770

$1,830,102

$27,559

$9,231

($110,063)

$330,239

$256,967

$71,204

$533,618

$68,154

($805,137)

$2,458,748

$2,255,383

$2,367,249

Jobs

Transportation

Operating

Coal Replacement

Bio-based Feedstocks

Total Annual Jobs

Investment (Non-annual)

Value Added ($1,000)

Transportation

Operating

Coal Replacement

Bio-based Feedstocks

Total Annual Impact

Investment (Non-annual)

34.9

8

-126.9

180.8

96.8

67.8

342.1

71.7

-899.6

4,368.10

3,882.30

631

$1,514

$467

($7,980)

$9,031

$3,032

$3,344

$15,042

$4,237

($56,193)

$127,288

$90,375

$32,248

5,042.90

407.4

-4,881.90

20,195.40

20,763.80

19,210.40

315.7

71.7

-899.6

4,368.90

3,856.70

631

6,095.90

530.5

-6,586.50

32,570.60

32,610.50

24,559.10

$216,183

$23,632

($304,500)

$595,140

$530,456

$962,418

$13,886

$4,237

($56,193)

$126,773

$88,704

$32,248

$269,693

$31,298

($411,191)

$941,027

27

$1,249,153

Key Findings

2% co-fire, some plants do find residue at

lower costs than coal plus sulfur emissions costs

15% co-fire, paying sulfur emissions cost

is more economical than burning residue

Are areas now that would benefit from

generating electricity using forest residues, mill wastes, and urban wastes

In fact, nearly 2,500-kilowatt hours of

electricity are produced using these residues replacing 355,000 tons of coal

Each state, with the exception of

Kentucky, consumes some residue

28

Key Findings

Low Carbon and High Carbon emissions

cost scenarios-amount of residues consumed will significantly increase from

4 million metric dry tons (Base) to 23

(Low Carbon) and 29 (High Carbon) million metric dry tons

Estimated $1.4 to $2.2 billion impact that

occurs to the Southeast Region under the

15% co-fire levels with Low Carbon and

High Carbon emission cost scenarios, respectively. Concurrent with this increase in economic activity is an estimated increase of 25,000 jobs

29

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