Energy Industry Entrepreneurs

Economics of Biomass Energy

Written by Gautam Patil for Gaebler Ventures

Unlike thermal or hydel power, biomass energy does not enjoy presence of established markets for its raw material. So far this has discouraged deployment of biomass power projects on a very large scale. The economics of this source could change drastically with innovations and research in establishment of a sustainable supply chain of biomass.

It would be naive to simply compare the cost of biomass -- which by itself may only be a conjecture -- with current electricity tariff rates.

Firstly, biomass does not enjoy the presence of well established markets for its raw material (like coal and gas markets) and thus there is a lot of scope for price efficiency through commoditization.

Secondly, there are hardly any biomass power projects to match the scale of utility power projects and thus gains through economies of scale may not have been realized fully.

Thirdly, certain biomass sources lend themselves better for process heat applications than electricity generation.

Lastly, in processes like 'co-firing' which involve firing of biomass along with coal to produce equivalent amount of heat, biomass helps tide over supply constraints and mitigates supply risks through diversification.

The Potential of Biomass Energy

As there are a multitude of biomass sources and processes (pyrolysis, gasification, hydrogenation etc); establishing the economics of biomass is a very elaborate exercise.

Most metrics obtained will be specific to the combination of the biomass source and the process used. Some of the latest technologies can however be studied to understand the best that biomass could have to offer.

Gasification is an old technology but is beginning to garner more interest with increasing crude prices and a stress on lower emissions. It basically involves combustion of organic waste and coal with insufficient air. This produces combustible gases (CO and H2) and char and is also characterized by higher efficiency of extraction (about 75%) than simple burning of the waste (this yields an efficiency of only about 25%). A gasification plant built in Sweden in 1993 has been able to achieve an efficiency of 83%.

This technology has great potential in both developed countries (marked by large amounts of organic waste) and developing countries (parts of which still use wood as their primary fuel). In cost computations, it is important to internalize benefits related to better waste management, emission reductions and reduced deforestation. For institutional uses, like large scale cooking, this technology has been found to be cost effective even over subsidized cooking gas.

Since turbines typically have only 25%-30% efficiency in electricity generation; direct usage of the heat when possible is a better option. The capital cost for capacity installation is comparable with that required for other power projects. 1 MW biomass gasification facilities set up in India have been found to have a payback period of 3 to 4 years. Thus, cost and reliability of raw material acquisition are two important factors dictating the financial viability of this technology.

Advances in biochemistry have helped develop technologies which use enzymes and other special chemicals to 'digest' organic and inorganic waste to produce products of commercial value like oil, fertilizers and combustible gases.

Most of these technologies are in nascent stages and have not been fully tested on a commercial scale. The simplest form of this technology is the biogas plant which simply allows biomass to decay and produce methane which is a combustible gas. Research is likely to make this process more efficient and yield more valuable byproducts. To be sure, the supply of raw materials and development of low cost and scalable processes - use of high end manufacturing and sophisticated equipment could escalate costs of capacity installation - will dictate the economics of such technologies.

In fact, for all variants of biomass energy, a variety of direct and indirect factors like raw material supply, advances in research, crude prices, policy making, subsidies and regulations will dictate the economics of this source.

Regardless of how the market evolves, one thing is certain. Biomass energy has tremendous potential to spawn businesses at grass root levels and generate large scale employment while making a valued contribution to solving the current global energy crisis.

Gautam Patil is a recent MBA graduate from the Indian Institute of Management, Bangalore. In addition to serving as a contributing writer for, he will join the consulting firm Oliver Wyman at their London office.

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