August 19, 2002 — ‘Sustainable development’ is the catchphrase of the new millennium. Backed by governmental incentives and progressive legislation, the use of environment-friendly, ‘green’ energy sources is receiving a major shot in the arm. Against this backdrop, biomass is expected to play a critical role in the renewable energy sector.
One of the primary drivers in the uptake of biomass over the next decade is likely to be the 1997 European Union (EU) White Paper on renewable energy sources (RES). This seminal directive envisages RES as constituting 12 per cent of the total energy production by 2010.
Biomass energy is regarded as a key contributor in achieving this objective. Accordingly, it is projected to account for 90 million tonnes of oil equivalent (Mtoe) of the expanded commitment to the use of RES. Moreover, the EU White Paper has mandated an investment of à¢â€š¬ 165 billion in RES until 2010, of which à¢â€š¬84 billion will be ploughed into biomass plants.
In April 2002, the European Commission drew up a preliminary energy plan, ‘Intelligent Energy for Europe’, that proposes increased funding for RES. This draft action programme recommends a 40 per cent increase to the Alterner and Save efficiency scheme for the period 2003 to 2006. It further envisions a financial outlay of à¢â€š¬215 million over four years, with Alterner and Save budgets increasing to à¢â€š¬86 million and à¢â€š¬75 million respectively.
The European Climate Change Programme highlights the role of agriculture as a provider of renewable raw materials to the energy and industrial sector. With EU’s common agricultural policy coalescing around sustainability, the use of biomass energy is expected to receive an additional boost.
Such EU-wide initiatives have been reinforced by country-specific incentives being provided by national governments.
“Individual governments will launch a raft of measures into the medium term that will provide the impetus to expand the biomass power sector over the next decades. Some governments already have such incentives in place. For example, Germany has varying regional fixed-price subsidies for biomass plants, which have helped drive the market recently,” explains Ian French, Industry Analyst with Frost & Sullivan (www.power.frost.com), the international marketing consulting company.
While the commitment to renewable energy exists, the implementation of initiatives could take a little longer. “A lack of agricultural and energy policy integration impedes the widespread development of biomass energy. More specifically, installation costs, fuel generation and fuel logistics problems hinder opportunities for market growth,” noted French.
There are encouraging signs that these challenges will be overcome. Favourable government incentives are already driving sector investments. Moreover, the high cost per kW is steadily declining, further expanding the potential for new installations across Europe.
According to Frost & Sullivan’s research, revenues touched $715 million in 2001 from an addition of approximately 1,000 MWh to the installed base. Installed capacity levels are projected to rise to over 60,000 MWth in 2020, reflecting a significant compound annual growth rate (CAGR) over this period.
Most revenues, in terms of output, were generated in the 30 to 50 MWth range from 1998 to 2001. Frost & Sullivan expects demand to increase to some extent in the higher ranges as markets expand, although output will be restricted in many plants due to the unfeasible rates of fuel supplies.
Indeed, until all feedstock resources are exploited to achieve sufficient volumes, the full potential of biomass energy will go unrealised. Therefore, development of energy crops will be vital to augment feedstock derived from waste or industrial by-products. This, in turn, presupposes the development of coordinated, multi-disciplinary policy efforts on a Europe wide basis.
Apart from internal challenges relating to feedstock volumes, external threats from conventional energy sector and other renewable energy technologies, such as wind power, loom large. Wind power has outstripped initial EU projections, and is now viewed as the main source of ‘green’ energy.
“Wind power only provides electricity and its production is predominantly intermittent. Biomass energy facilities, in contrast, are usually installed as combined heat and power (CHP) schemes and can deliver energy on demand. This will prove a more attractive option to many end-users,” points out Mr French.
Scandinavia is a significant market for biomass plants, boasting the highest volume of installed capacity and accounting for over 55 per cent of the total capacity between 1998 and 2001.
However, Germany is currently the fastest growing market in Europe, with Italy also registering sizeable increases in demand. Mounting energy needs, the requirement for greater renewable energy capacity, and the imperative of greater energy security are expected to expand the installed bases of biomass energy throughout Europe.
As the demand for biomass increases, the competitive environment is expected to become more dynamic. Larger companies such as Kverner and Foster Wheeler, which have been able to leverage their well-established pan-European distribution channels, dominate the market currently. Many smaller companies typically cater to regional markets but are likely to expand as growth opportunities beckon.
Increased energy security is of paramount concern to Europe, which is desperate to reduce its dependence on finite, oil-based energy sources. The volatility of the oil-producing Middle East region has further underlined the need to conceive viable, renewable energy alternatives.
And, with governments appraising their future energy policies in light of these politico-environmental considerations, the demand for enhanced renewable energy capacity is bound to flourish.
Report Code: 3940
Publication Date: August 2002
Frost & Sullivan is an international marketing consulting company that monitors a comprehensive spectrum of high-tech markets for trends, market measurements and strategies. This ongoing research is utilised to complement a series of research publications to support industry participants with customised consulting needs. Interviews and free executive summaries are available to the press.
For more information contact:
Kristina Menzefricke, Public Relations Department
Tel. +44 (0) 20 7343 8376
Fax. +44 (0) 20 7343 8380