News Ticker


Biopower and Biofuels: A State of Disarray or Opportunity?

An entire quarter of 2012 has gone by, and it is time to evaluate where the United States is headed with the development of bio-based fuels and energy.

A quick review of news articles could lead one to surmise that bioenergy is in complete disarray due to the sluggish energy economy, a weak set of federal incentives, and a fairly sudden development of huge natural gas resources. Further analysis, however, reveals that the real state of the bioenergy industry is fairly complex and not as bad as it seems.

Today, the primary driver for biofuels development in the United States is the second version of the 2007 U.S. Energy Independence and Security Act, now called by most, the Renewable Fuel Standard II (RFS2). The production tax credit incentive for ethanol is gone, and a similar tax credit for biodiesel is set to expire at the end of this year. The RFS2 rule is the only federal incentive remaining for biofuels. It states that 36 billion gallons of renewable fuel must be generated by 2022 and oil companies must purchase Renewable Identification Number (RIN) credits if they do not produce and use enough biofuels. A large portion of the 36 billion gallons must come from cellulosic biomass such as wood or straw. This rule states that 8.65 million gallons of cellulosic biofuels needs to be offered by distributors this year, which some are challenging as an unachievable requirement. Corn ethanol and vegetable oil-derived biodiesel are the only commercially available biofuels in the United States. Compounding the issue is lower demand in general for gasoline, so naturally the 10% blend of ethanol that is in most gasoline today is also in less demand. Overall, there is some amount of disarray in the bio-based fuels business this year.

Bio-based electricity is a different story, as the level of biopower output/consumption in the United States has remained stable for several years. About 3% of electricity and heat continues to be provided by biomass. The primary driver for electricity and heat production from biomass remains individual state-promoted renewable portfolio standards (RPSs). Twenty-seven states mandate renewable energy production by their utilities. That leaves 23 states either with no RPS or an alternate energy production standard which includes energy from biomass technologies or from advanced fossil fuel technologies such as coal gasification. Most renewable electricity production in the United States still comes from hydroelectric or wind resources.

For some states, an RPS has attracted development of smaller (20–50 MW) baseload biomass power plants. For other regions, communities have incentivized new biomass plants using local venture drives and grassroots support. These new biomass power plants have essentially replaced older units related to the pulp and paper industry. This offset or build one–close one scenario is one reason why the level of biopower remains about 3% nationally.

One unexpected impact on biomass-derived power, and perhaps on biofuels, is the fairly sudden increase of low-cost natural gas. In some states, RPSs are written to stimulate the development of wind, solar, and hydroelectric power, leaving biopower to compete in the electricity market against well-established coal generation and ever-increasing natural gas combined-cycle generation. With the upswing of low-cost natural gas, biomass has a more ferocious competitor. Some will say that we have seen these upswings and downturns before so nothing is different, but the data being presented seem supportive of a long-term sustained level of growing natural gas supplies with costs remaining stable. Of course, some new wrench could be thrown into this argument tomorrow, and these projections could all become nonsensical.

The bottom-line message is one of caution, not disarray. RPS incentives and green-minded communities are stirring up business for biomass. At a recent conference, several presenters from the northeastern United States described nine different biopower projects, six of which were all fully funded, all completely permitted and in some phase of construction. In each case, the biomass supply was well resourced at a reasonable cost for sustainable supply; the local communities were behind the projects; pollutant emissions were well within limits and certainly lower than comparable coal or oil-fired plants; and investors were satisfied with the margins of return. In these types of niche opportunities, biomass power systems are finding ground and proving their worth both environmentally and economically. This is not a picture of disarray.

By Chris J. Zygarlicke, Deputy Associate Director for Research, Energy & Environmental Research Center (EERC)