Is bio-coal an economic alternative to traditional coal – or how close? Tim Sklar looks at the numbers, and finds that selecting bio-Coal over thermal coal can be a hard choice without clean energy mandates



By Biofuels Digest contributor Tim Sklar

Background

For some time, thermal coal fired power plants all over the world have been under pressure to reduce emissions of carbon dioxide (CO2), sulfur hexafluoride (SF6) and other toxic substances. Many approaches are available for achieving such reductions, but no one approach is without trade-offs. The basic choices for power plant operators reducing polluting emissions include such measures as:

• Using cleaner coal;

• Installing pollution control equipment to trap and sequester emissions;

• Changing over to boilers that burn natural gas;

• Installing co-generation equipment that uses gas turbines, not steam from coal;

• Cutting back operations of high polluting coal fired boilers and expand boiler capacity that will reduce overall emissions;

• Continuing existing practices and pay the penalties and fines imposed for non-compliance; and

• Replacing all or part of the thermal coal now used with a renewable fuel.

Obviously, these are not either/or options but should be evaluated in combination and over time.

Renewable Fuels Options

In following the progress being made in the field of renewable fuels, there is widespread agreement that renewable fuels made from woody biomass are often quite practical when used as an adjunct fuel in coal-fired boilers. The most common woody biomass based fuels used in this way include dried wood chips, wood pellets and torrefied wood (a.k.a., bio-coal). But of these three, only bio-coal can be used as a drop-in substitute for thermal coal, with little if any modification being required to existing coal fired boilers and coal feeding systems.

Bio-coal Issues

It would seem that bio-coal is the obvious choice if the renewable fuels route is to be taken for reducing emissions at coal fired power plants.

The primary issue to be overcome is the cost of thermal coal vs. the expected cost of bio-coal. It is a fact that thermal coal is still a very economic fuel and it is highly probable that the premium that will have to be paid for bio-coal will more than likely be of significance for many years to come.

Another issue is the fact that bio-coal availability will be in short supply for the next several years and the price will more than likely remain high due to supply-demand imbalances. Considering that commercial scale torrefaction processes are just now being commissioned, bio-coal plants are few and far between and the technologies being used are still evolving. Although the cost effectiveness of processing biomass into bio-coal may improve, it is expected that it will take time to add sufficient bio-coal capacity and improve efficiency.

Further, there will be limits in availability of woody biomass for use in making bio-fuels, and if the use of bio-coal increases dramatically, it could affect the cost of acquiring woody biomass as a bio-coal feedstock. There are only a limited number of locations in which timber harvesting takes place in the US and those that use forest products for competing uses, such as paper and lumber used in construction and manufactured wood products, are expected to keep woody biomass prices high.

Finally, the widespread use of other cellulosic materials in making bio-fuels such as bio-coal is not likely to happen any time soon. One would think that added use of woody biomass used as a feedstock for making bio-coal should stimulate demand for cellulosic crops. Although most torrefaction process have been able to produce bio-coal from switch-grass, miscanthus and eucalyptus, no commercial bio-coal plants have yet been modified to store and pre-treat these materials, before they can be torrefied. As a consequence, a market for cellulosic crops has yet to develop in the US and dedicated cellulosic crops are not yet being planted. The issue is when will dedicated agri-crops will become a factor in reducing demand for forest product used in making bio-coal. It is a chicken and egg situation; so do not hold your breath waiting.

Rationale for Paying a “Bio-coal Premium”

Under the assumption that woody bio-mass will not cost less in the next several years, and based on the metrics and costs associated with building and operating bio-coal plants, it appears that a premium will still have to be paid to use bio-coal as a replacement for thermal coal.

If it is bad economics to use bio-coal in lieu of thermal coal, why should it even be considered?

First, the “premium” to be paid is only part of the “economic” equation.

Second, coal prices are expected to continue to trend upward as demand is still increasing on a world-wide basis, driven in part by demand in emerging economies in China and South Asia.

Third, demand for clean coal will increase, as will its cost. Ongoing global warming and other environmental concerns will continue to put pressure on governments for promulgation of more, not less environmental regulations. This should also support the increased demand for bio-coal, as it is considered to be a “clean coal”.

In the European Union (EU), the carbon tax is already playing a major role in stimulating the use of renewable fuels, such as bio-coal. Because this tax scheme adds 20% to 30% to the cost of burning thermal coal in the hundreds of utilities, cement plants and other industrial users of thermal coal throughout the EU, these users have an incentive to pay a premium for bio-coal. They are now reducing their tax exposure or selling carbon credits to reduce thermal coal costs, and to offset the premium they pay to their bio-coal suppliers.

In the US, there is no carbon tax in place, and the political uncertainties surrounding passage of cap and trade or related tax regimens cannot be counted upon to offset the premium that will have to be paid for bio-coal. But there are a number of other costs that US thermal coal users will have to incur, if they decide to continue to burn coal. These costs have to be considered on a case-by-case basis and once calculated, they add to the cost of burning thermal coal. In other words, these added costs make burning thermal coal less attractive, when compared to using bio-coal in the fuel mix. Thus the rate increases power plants will have to pass through to their customers for using some bio-coal could become inconsequential.

An Estimate of the Impact on Fuel Costs When Using Bio-Coal

In order to compute the impact of the bio-coal premium on overall fuel costs, estimates had to be made:

• To determine the average delivered price a typical US coal fired power plant is currently paying for thermal coal;

• To project the range of prices expected in 2014, the time when bio-coal would most likely be available;

• To determine the cost of producing bio-coal using metrics and costs obtained from two technology providers that have commercial scale plant projects underway;

• To estimate the price that a bio-coal plant operator would have to pay for an ongoing supply of woody biomass;

• To estimate the cost of making bio-coal from woody biomass using available commercial scale torrefaction technology; and,

• To set a bio-coal price that would have to be charged to insure bio-coal plant owners an adequate return on their investment.

By the Numbers

Expected Increase in the Cost of Fuel If Torrified WoodTotally or Partially Replaces for Thermal Coal Base Case Case 2 Case 3 Case 4 Coal Price Increase Assumption: 7% > ’13 7% > ’13 ~20%> ’13 ~20%> ’13 Est Yr. 2014 Coal Price-FOB P’Plant 89.88 89.88 100 100 Cost of Pollution Control Assumptions Capital Cost Required 10,000,000 20,000,000 10,000,000 20,000,000 Amort. of P’Control Costs @ 10% pa 1,000,000 2,000,000 1,000,000 2,000,000 Coal Burned (tpy) 150,000 150,000 150,000 150,000 mort of P’Control Costs $/MT 6.67 13.33 6.67 13.33 Cost of Burning 100% Coal 96.55 103.21 106.67 113.33 Est. BTU Adjusted Bio-Coal Cost/t 192 Premium Paid for TW (Bio-coal) % TW Used 100% 102.12 102.12 92 92 50% 51.06 51.06 46 46 30% 30.64 30.64 27.6 27.6 10% 10.21 10.21 9.2 9.2 Note: No Pollution Ctl Cost if 100% TW burned % Increase in Cost of Fuel 100% 106% 99% 86% 81% 50% 53% 49% 43% 41% 30% 32% 30% 26% 24% 10% 11% 10% 9% 8%

The Bottom Line

Estimated Impact

As suggested in the above exhibit, it may be too costly to burn a fuel mix that has less than 30% coal. If as in Case 4, where the cost of burning coal is the highest, the percentage impact on the cost of burning 100% coal is only 24% when 30% bio-coal is used and 8% when 10% bio-coal is used.

Future Impact

If a carbon tax in some form is imposed on thermal coal fired power plants in the US or if pollution controls needed become higher than the estimates used or if penalties imposed cannot be avoided, the bio-coal premium paid by power plants should become less consequential and be less of an impediment for using more bio-coal.

Selecting Bio-Coal Over Thermal Coal Is A Hard Choice To Make

As hard as it has been for bio-coal technology providers to perfect their processes, it will be equally as hard to back away from the use of a known fuel such as thermal fuel in favor of an untried higher-cost fuel obtained from a lesser known and less proven sources. Who said it would be easy.

Disclaimer

The purpose of preparing and presenting the calculation methodology is to provide a framework for all thermal coal users to better evaluate the economic implications of using bio-coal in various combinations with thermal coal.

Conclusions reached in this article were based on observations of the calculations presented. These calculation used the author’s own estimates that were derived from data that was available in the public domain in combination with interpolations drawn from sets of confidential data the author has been able to obtain, as well as the author’s own sets of assumptions.

To make informed decisions of this type and to properly assess the amount and types of renewable fuel that should be used. Power plant managements will need to use as much of plant specific information that is relevant. And they should insist that project specific analyses be independently performed and the results presented independently verified by qualified professionals.

Estimates and Assumptions Made and Calculation Methodology Used

To test the impact on the cost of burning coal versus the cost of replacing various percentages of thermal coal with more expensive bio-coal:

• Two estimates were made as to how much it would cost to install pollution control equipment at a typical power plant;

• Two estimates were made as to the cost to be paid for thermal coal in 2014; and

• Four assumptions were made as to the percentage of bio-coal (TW) that should be used in conjunction with thermal coal.

Using the differences between the cost of burning 100% thermal coal and the estimated prices to be paid for bio-coal, bio-coal premiums were calculated. These “premiums” were measured against the cost of burning 100% coal and the Premiums were restated as percentage increases over the cost of thermal coal burned. These percentages are a way of determining the relative impact of using various mixes of bio-coal on overall fuel costs.

How Data Used Was Developed

In determining the delivered price of coal, published thermal coal contract prices for years 2010 through 2013 were obtained from four publications for coal being delivered to the ARA ports in Northern Europe and the average price was net back to the US east coast. A separate search of US DoE’s EIA web site provided average US thermal coal prices at the mine for years 2010 through 2013. These were then adjusted to reflect delivery to the power plant. These two sets of coal prices were comparable, with Year 2011 estimated to be $61/ton increasing to $84/ton by Year 2013.

In projecting coal prices for Year 2014, Year 2013 prices were increased by 7% for use in Cases 1 and 2 and by 20% for use in Cases 3 and 4.

In determining the cost of woody biomass, information recently obtained from a US forest products procurement consortium was used. They had estimated pulpwood chips at $35/gt and wood wastes at $28/gt, with a composite mix costing $31.50/gt. At 50% moisture the cost/t of TW produced was estimated at $78.75/t.

Two sets of operating cost data were used to derive $32.50/t as the average cost of conversion of woody biomass into TW.

The total cost of TW that was estimated at ~$138/t, was increased to $160/t of TW to reflect realization of an average profit of 14%.

The $160/t for bio-coal having a BTU content of 10,00/lb. was “grossed up” to reflect the 12,000 BTU/lb. content contained in thermal coal, resulting an equivalent price of $192/t.

The cost of installing pollution control equipment on the 150,000 tpy coal fired power plant was arbitrarily estimated to be $10 million, in Cases 1 and 3, and $20 million, in Cases 2 and 4. Obviously, real estimates would be needed in each power plant situation being evaluated.

These pollution control costs were added to the coal price to determine the cost of burning 100% coal. It was also assumed that unless 100% bio-coal were burned all the time, the capital costs for pollution control would have to be spent.

The premium paid for TW was easily calculated by subtracting either the cost of coal or the cost of burning coal from the $192/t to be paid for bio-coal. The percentage increase in the cost of fuel was derived by dividing the premium by the cost of burning 100% coal.

S.K.”Tim” Sklar is President of Sklar & Associates, Biofuels Project Developers