1 demand and supply considerations for bioenergy penetration in the uk using a markal model and a...

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Demand and supply considerations for bioenergy penetration in the UK

Using a MARKAL model and a Market Segment Analysiswww.tsec-biosys.ac.uk

Sophie JablonskiImperial Centre for Energy Policy and Technology

(ICEPT)

Biomass role in the UK energy futures The Royal Society, London: 28th & 29th July 2009

TSEC BiosysTSEC Biosys


http://www.tsec-biosys.ac.uk/



Context and Objectives



Overall Objectives• Explore the possible long-term contribution of bioenergy

to the UK energy system

– Design and apply a systematic framework with expert input to assess the potential UK bioenergy demand

– Formulate different scenarios and analyse corresponding bioenergy penetration

– Relate scenarios to evolving policy context



Methodology



A systematic approach to assess UK bioenergy supply & demand

DEMAND CONSTRAINTS FOR BIOENERGY IN THE UK

Market segment analysis / modellingFormulation of hypotheses on bioenergy levels of market penetration

SUPPLY CONSTRAINTS FOR BIOENERGY IN THE UK

Supply chain modelling / analysis(including spatial, sustainability analysis)Technology modellingResource assessment modelling

QUALITATIVE INSIGHTS FOR SCENARIOS

Narratives problem structuringDevelopment of storylines

QUANTITATIVE INSIGHTS FOR SCENARIOS

BIOSYS-MARKAL modelling runs and results

FORMULATION OF TSEC-BIOSYS BIOENERGY SCENARIOS

ENVIRONMENTAL AND SUSTAINABILITY CONSTRAINTS FOR

BIOENERGY IN THE UKEnvironmental sustainabilityGreenhouse gas balancesStakeholders engagement



Market segment analysisBIOENERGY MARKET SEGMENTATION (1)

Segmentation of the market based on various geographic and non-geographic characteristics (called “segmenting dimensions”)

IDENTIFICATION OF KEY FACTORS (2)

Identification of the key factors which can affect (positively or negatively) the uptake of bioenergy technologies at the project level, for example (heat sector):

• Technical factors

• Economical factors

• Organisational factors(environmental, social, behavioural, etc.)

X Y…

…

1. Technical potential

2. Economic potential

3. Implementationpotential



MARKAL modelling

UK-MARKAL“BIOSYS-MARKAL”

With updated bioenergy module

MARKAL MODELLING INPUTS

Updated UK-MARKAL inputs with regards to bioenergy: domestic/imported resources, technologies' characteristics, etc.

Use of standard UK-MARKAL other inputs: energy sources, technology characteristics, existing policies, etc.

Definition of constraints (environmental, policies etc.) to be implemented for the running of scenarios

MARKAL MODELLING OUTPUTS

Levels of bioenergy penetration in the three main final consumption sectors (heat, power and transport fuels)

Technology and fuel mix

Sustainability issues (land-use change& availability, carbon emissions etc.)

Other implications for the energy system

Components of an Energy System ModelComponents of an Energy System Model

** Energy systemtopology & organization

RES

0

25

50

75

100

125

150

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

GWh** Numerical data Time Series

P P

O P

Q P

BHKW S BHKW Coal BHKW

BHKW CO Coal BHKW

BHKW H BHKW Coal BHKW

_ _

_ _

_ _ _

2

2

** Mathematical structure– transformation equations– bounds, constraints– user defined relations

GAMS Model

** Scenarios and strategies Cases



Application and results: MARKAL modelling



Specific objectives: MARKAL modelling

• Explore the prospects for bioenergy in the UK energy system in the long-term, and how this is affected by sustainable energy policy objectives – Improve the modelling of bioenergy technologies and pathways

in an energy systems model (UK-MARKAL)– Provide better quantitative insights

• No UK energy systems model has undertaken a detailed analysis of the contribution of bioenergy pathways– In particular within integrated scenarios of low carbon and

energy security policy objectives.



Constructing the BIOSYS-MARKAL model

Starch crops

Sugar crops

Wet residues and agro-industrial bio-wastes

Dry animal

residues

Ligno-cellulosic dry biomass, incl. agro-industrial waste, residues and straw (incl.

pellets*)

Oily crops and vegetal oils

Fermentation

Anaerobic Digestion

Treatment & EnzymaticHydrolysis

(Fast) pyrolysis

Hydrogenation

Esterification

Gasification

Combustion

DistillationRefining to

bio-methane Fisher-Tropsch

Bio-dieselBio-

HydrogenBio-

methane

Hydrogen synthesis

Bio-ethanol

Heat, electricity, transport (energy services demand)

Pelletisation*

Upgrade to LFO

Bio-LFO

Landfill gasSewage gas

Bio-ethanol and bio-diesel (imported)

Hydrolysis

• Includes changes in structure of bioenergy module– Some added technologies

/ paths (e.g. pelletisation, heat technologies, aviation bio-kerosene)– Some neglected pathways

(e.g. algal oil, dark fermentation, gas vehicles)

• Detailed data review for all bioenergy technologies– Datasets update to reflect

expert-informed, up-to-date, UK-specificbioenergy knowledge and expectations



“World Markets”Markal Base Case

BIOSYS 1

“Environmentally conscious

energy autonomy”BIOSYS 3

“Global sustainability”

BIOSYS 4

“Energyindependence

above all”BIOSYS 2

High UK energy system independence

(reliability / security)

Low UK energy system independence(reliability / security)

Low environment / sustainability

ambition

High environment / sustainability

ambition

Modelled scenarios BIOSYS1-4: overview


TSEC BiosysTSEC BiosysBIOSYS1: Bioenergy resources

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Domestic starch and oil crops

BIOSYS 1: BIOMASS RESOURCE GRAPH

Domestic grass (dry) biomass (crops and residues)

Domestic wood (dry) biomass (crops, residues, “clean”waste)

Domestic “wet” biomass (OFMSW, food and drink waste from industry, sludge…)

Imported wood biomass (pellets, chips)

Imported bio-ethanol

Imported bio-oil (pyrolysis, vegetable)

Imported bio-diesel


TSEC BiosysTSEC BiosysBIOSYS1->4 bioenergy resources

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Imported bio-diesel

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(1) Domestic starch and oil crops







Imported bio-diesel

(1)

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Imported bio-diesel

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Imported bio-diesel

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TSEC BiosysTSEC BiosysBIOSYS1: Bioenergy final uses

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Transport bio-diesel

Transport bio-ethanol

Bio-electricity

Industrial bio-heat

Service bio-heat

Residential bio-heat


TSEC BiosysTSEC BiosysBIOSYS1->4 bioenergy final uses

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Bio-electricity

Industrial bio-heat

Service bio-heat


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Bio-electricity

Industrial bio-heat

Service bio-heat


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Bio-electricity

Industrial bio-heat

Service bio-heat


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Bio-electricity

Industrial bio-heat

Service bio-heat


1

2 3

4


TSEC BiosysTSEC BiosysLinking resources to end-uses

• Use of wood biomass to heat is the most dominant pathway (esp. in BIOSYS 1 & 2)

• Use of grass biomass significant to produce industrial heat and / or 2nd gen biofuels

• Wet biomass to energy via AD biogas also important for power (& heat) production and /or injection into the natural gas grid (mostly in 3)

• Some pathways of “refined” (imported) liquid biomass to energy play a role (bio-oil, bio-ethanol, bio-diesel)

• Other important non-bioenergy pathways– In BIOSYS 1 & 2: Coal to power; natural gas to heat (<MT); oil to transport;

no nuclear >MT– In BIOSYS 3 & 4: renewable to power + nuclear; decarbonised power to all

end uses > MT



Discussion: MARKAL modelling


TSEC BiosysTSEC BiosysBio-heat contribution

• Bio-heat contribution is higher for BIOSYS scenarios than in other studies (MT / LT) – has the bio-heat role been overlooked?– RES mentions 2% heat from biogas and 6% from solid biomass in 2020

– only in line with BIOSYS 1 (9%)– No studies looked at bio-heat pathways for LT in details – BIOSYS

contribution very high (30-50% except for 3)

• Underpinning bio-heat penetration are very large increases in biomass resources – bioenergy farming stimulation, logistics & infrastructure are key– Domestic bioenergy crops production appears cost effective in modelled

conditions (esp. in 2) BUT actual land uptake likely to be limited by (inter alia) farmers perceptions and competitions from other markets

– Large imports of woodchips and pellets in BIOSYS 3 & 4 – to accommodate and transport to final uses


TSEC BiosysTSEC BiosysBio-heat contribution (2)

• Role of wet biomass / biogas injection in the gas grid only up to 1% of heat mix by 2020 – planning and expectations over this pathway need careful consideration– Most significant role for the service and industrial heat sectors – for

low carbon futures– Influence of the natural gas grid assets’ “lifetime” important

determinant of the actual biogas heat role

• Balance between bio-heat in different sectors (residential, industrial, service) significantly variable – support in all sectors needed– High deployment of residential bio-heat affected by demand

constraints (space availability, organisational capability etc.)– Policy objectives balance the use of bio-heat in different sectors



Bio-fuels (for transport) contribution

• Contribution of bio-fuels to transport largely stimulated by RTFO (in line with other studies) – bio-fuels costly to produce and supply– In BIOSYS 3 become LT cost effective low carbon option in

competition with electricity

• Imported bio-fuels appear the most cost effective resource for such pathway – ST/MT availability key limitation

• Domestic processing of bio-fuels (notably 2nd generation) needed in the MT – technology development status could be a bottleneck– Could imply a larger role for 1st generation bio-fuels, at least in

the ST & MT


TSEC BiosysTSEC BiosysBio-electricity contribution

• Lower role (esp. co-firing) than suggested in comparative modelling exercises & studies – lifetime cost-effectiveness of bio-electricity lower than alternative pathways (notably renewables)– The possibility to use multi-fuels could enhance actual potential– Logistical advantages not modelled as economic drivers– Policy instruments (e.g. ROCs) could change the game– Developing a portfolio of low carbon options could include

biomass beyond cost effectiveness


TSEC BiosysTSEC BiosysMain messages: MARKAL

• New BIOSYS-MARKAL model used to run four scenarios constructed along the pillars of UK energy policy objectives– Results analysed in terms of bioenergy resources use and bioenergy

pathways penetration in different end use sectors (heat, electricity and transport fuel)

• Findings suggest that the complexity of different bioenergy pathways may have been overlooked in previous modelling exercises– A range of bioenergy pathways - notably bio-heat and bio-fuels for

transport - may have a much wider potential role to play

• The extent to which this potential is fulfilled will be further determined by resources availability, market segment constraints, and policy measures to improve deployment



Looking in more details: Market Segment Analysis (residential heat sector)


TSEC BiosysTSEC BiosysSpecific objectives: Market

Segment Analysis

• Estimate the potential demand for bio-heat at present

• Assess its short- to medium- term potential (2020)

• Formulation of explorative scenarios (“hypotheses”)



Residential sector HeatUnited Kingdom

Micro Small Medium Large

Low CFMedium

CFLow CF

MediumCF

1/3 PNo

1/3 PNo

1/3 PNo

1/3 P

Low CF

1/3 P1/3 P

Geographic market segmenting dimensions

No1/3 P

Scale

Capacity factor

Third party

A B C D E F GA* B* C* D* E* F* G*

X-Large

MediumCF

1/3 P

H H*

Non-geographic segmenting dimensionsUnited Kingdom

Rural Urban

Naturalgas

Area characterisation

Displaced fossil fuel (main)

Oil / coal ElectricityNatural

gasOil (coal) Electricity

New / retrofitDevelopment characterisation

SegmentationSemi detached

30%

Terraced26%

Flat14%

Detached22%

Bungalow8%

Gas81%

Oil7%

Renew ables and w aste

1%

District heating

0%

Solid fuel2%

Electricity9%


TSEC BiosysTSEC BiosysKey factors of bioenergy uptake .

NB: Detailed list of key factors and their descriptions can be found in the project’s publications

Key factors categories

Heat marketResidential (R), Service (S), Industrial (I)

Power market

Technical R/S: Space availability (-)

I: Technology availability (- for high temperature heat), fuel supply constraint / quantity (- for large scale)

Technology availability (-): some market segments not covered, like small scale CHP)

System response time (-)

Economic R/S: Capital costs (-), eligibility for incentive programmes (-)

I: Potential for carbon displacement (+)

Eligibility for / revenues or costs from carbon trading (+)

ROC

Organisational R/S: social acceptability (+), fuel infrastructure availability (-)

S: employment creation (+)

I: Social acceptability, Organisational capability (both – for larger scale)

Policies/legislation for bioenergy deployment (-/+?)

Familiarity with the technology / organisational capability (- except for co-firing)

Grid connection & planning (-)



Qualitative assessment

• Matrix– Assumptions; Summary

• Most attractive branches– Medium to large scale

installations managed by district heating companies (esp. cogeneration units can get financial incentive based on trading schemes and obligations

• BUT barrier posed by space availability and incumbent fuel infrastructure

MARKET SEGMENTS (UK)

Code A A* B B* C C* D D* E E* F F* G G* H H*

1 o - - o - o o o o o o o o o o o o

2 o - - o - - o - - o - - o o o o o o o o

3 o o o o o o o o o o o o o o o o

4 o o o o o o o o o o o o - - - - - -

5 - - - - o o o o o o o o o o o o

6 - - - - -- - - o o - - - - o o o o o o o o TE

CH

NIC

AL


8 - - - - -- - - - - - - - - - - - - - - - - - -

9 + + + + + + + + + + + + + + + +

10 o + o o + + o o + + + + + + o +

11 o o o o + + o o + + + + + + + +

12 - - - - - - - - - - - - - - - -

13 + + + + + + + + + + + + + + + +




17 o o o o o + o o o + o o o + o +

18 o o o o o o o o o o o o + + + +

19 o o o o - - o o - - - - - - - -

20 o o o o + + o o + + + + o o o o

21 o - - o - o o o o o o o o o o o o

EC

ON

OM

IC

22 o + o + o + o + o + o + o + o o

23 + + + + + + + + + + + + + + + +

24 + + + + + + + + + + + + + + + +


26 + + + + + + + + + + + + + + + +

27 o o o o o o o o o o o o - - - -

28 - - - - o o - - - - o o -- - - o o o o

29 - - - - -- - - - - - - - - - - -- - - -- - - - - - - - - - -



32 o o o o + + + + + + + + + + + +

KE

Y F

AC

TO

RS

OR

GA

NIS

AT

ION

AL

33 o o o o - - - - - - - - - - - -



0.00

0.50

1.00

1.50

2.00

0.50 1.00 1.50 2.00

Wood pellets 10 kW Wood pellets 25 kW

Wood logs 10 kW Wood logs 25 kW

UK Case A Natural gas displaced fuel

0.00

0.50

1.00

1.50

2.00

0.50 1.00 1.50 2.00

Wood pellets 10 kW Wood pellets 25 kW

Wood logs 10 kW Wood logs 25 kW

UK Case A Oil displaced fuel

Quantitative assessment• Snapshot of competitiveness of bioenergy

– Profitability index (PI)– Fossil fuel / biomass combinations– Sensitivity to changes in key parameters

• Bio-heat can be profitable against fossil fuel heat in some market segments– Smaller scale investments less profitable: limited

leverage from lower operating costs– Intervention of 1/3 party (notably in district

heating) makes bio-heat less attractive -heat less attractive

– Investments w. lower-costs biomass fuels (e.g. straw bales, or wood chips) more profitable than w. refined fuel (e.g. pellets)

– Natural gas the hardest contender– Present policy incentives benefit bio-heat in

larger scale CHP plants

Biomass against Natural gas

Biomass against Heating Oil



Hypotheses on residential bio-heat potential

• Three different scenarios, i.e. conservative, the middle and the optimistic– Penetration varies between 1.5% and 20% of residential heat market

• Overall (residential) bio-heat potential of the UK appears low. – Combination of high barriers

from the technical point of view and a ratherunattractive economicpicture

– Influence of the residential heat market’s present structure (ltd larger heat-only & CHP or DH)


TSEC BiosysTSEC BiosysMain messages: bio-heat MSA

• Not all demand segments react the same way to a given policy and economic environment– Biomass is already cost competitive in some market segments but…

there are important barriers to biomass technologies adoption which are non-economic

– Log / pellets boilers are the technologies which can penetrate the residential / service market in the short term

• The residential bio-heat market exhibits low levels of growth, with the bulk of the market in the next decades remaining mainly a “retrofit” one, and very few “new installations” built– ST/MT bio-heat potential strongly influenced by the present market

structure (including the relative size of different branches)• The results of our assessment suggest an extremely

fragmented market – (Privately owned and managed) micro- & small-scale individual

installations represent >90% of the residential market– It is likely the situation will stay this way unless major changes happen



Concluding comments


TSEC BiosysTSEC BiosysLinkage MSA & MARKAL

• MSA -> MARKAL– Understanding non-economic key factors (modelling of

penetration constraints) for the short to medium term– Modelling of the economics at the segment level (and of the

detailed incentives)– Refining the model structure (technology availability,

characterisation, chains hierarchy etc.)

• MARKAL -> MSA– Competition between different energy sectors– Testing of “energy system”-wide policies– Understanding implications of penetration levels (modelling of

supply constraints)– Long-term horizon (modelling tool to 2050)


TSEC BiosysTSEC BiosysCombined messages MSA /

MARKAL - res bio-heat potentialMARKAL MSA

Present

Calibrated to current penetration levels (1%)

Penetration closest to conservative hypothesis (2%)

Woodchips/woodlogs boilers small/medium scale in rural areas

Short to medium

term

Penetration 9-17% (143-265 PJ) is cost effective in all scenarios (lowest is BIOSYS 1)

Higher penetration involves indirect bio-heat options (e.g. biogas, district heating)

Getting to 9% penetration needs tackling barriers between conservative and middle hypotheses

Deployment of woodchips, woodlogs and pellets boilers

Long term

Penetration can reach up to 919 PJ (BIOSYS 2)

Strong competition with other low carbon options can phase bio-heat out of the mix

With current market structure, barriers and options such levels of penetration are not possible



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Thank you for your attention!



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