THE FEM BIOMASS COFIRING INDEX (BCI)
The Biomass Cofiring Index (BCI) is a tool that we have developed to track the competitiveness of cofiring biomass, relative to burning coal, in a typical European electricity generating plant. Given the scale of Europe’s renewable electricity targets – and the flexibility of power producers to switch between feedstocks – it is an analysis that has a bearing on the price which cofiring generators will be willing to pay for biomass as well as on the formation of policy instruments designed to promote biomass electricity production.
The calculation of the BCI, using values on 30 April 2009, is illustrated in the chart. Starting in the bottom left hand corner it incorporates, first, the spot price of coal (€6.88/MWh – or €48.01/t – cif ARA). To this is added the price of emission allowances needed to cover the carbon emitted by the combustion of a MWh of coal (€4.86/MWh-coal). An adjustment is then made to reflect the lower combustion efficiency of biomass (in this case wood) relative to coal. The result is the Biomass Co-firing Index (or BCI), the price per MWh of biomass, at which, before all national incentives, subsidies and penalties, the co-firing value of biomass equals that of the coal which it displaces. On 30 April 2009 the BCI stood at €10.45/MWh cif ARA.
Clearly every generator will have different technical parameters and the level at which biomass is competitive with coal will differ between plants. Logistics will also be an important influence. Nevertheless the intention of the BCI is to provide a simple benchmark which can be used to analyse the impact of changing economic conditions on a typical European co-firing power plant. The BCI is analysed in every issues of Forest Energy Monitor and is reported weekly on www.forestenergymonitor.com. Subscribers to Forest Energy Monitor have access to historical BCI data back to January 2007.
THE BCI PELLET SPREAD
Once the BCI has been established it can be compared with the market price of biomass, the difference between the two being what we have termed the BCI Spread. For example, the price of wood pellets for May delivery quoted by ENDEX was €131.59/t cif ARA, or €27.88/MWh (assuming a calorific value of 17 GJ or 4.72 MWh/t). Therefore, the BCI Pellet Spread was €17.43/MWh (27.88 minus 10.45).
It is this spread – the difference between the market price of biomass and its co-firing value – which must be bridged by policy instruments if co-firing is to be commercially attractive to electricity generators. Different countries have different ways of supporting renewable technologies: feed-in tarrifs, green certificates, etc. In the UK the gap is bridged by a system of tradable Renewable Obligation Certificates (ROCs) and Climate Change Levy Exemption Certificates (LECs). Other European countries use different instruments, or none, which helps to explain the enthusiasm for co-firing, or the lack of it, in different countries.
The historical development of the BCI is illustrated below.
THE CALCULATION OF THE FEM BIOMASS COFIRING INDEX (BCI)
Source: Hawkins Wright (Forest Energy Monitor)