Renewable Energy from Woody Biomass: Opportunities and Policy options for the Wairarapa Region more

1 Renewable Energy from Woody Biomass: Opportunities and Policy options for the Wairarapa Region ENVI529: Nigel Taptiklis Environmental Studies, School of Earth Sciences, Victoria University of Wellington, PO Box 600, Wellington, New Zealand. Email nigel.taptiklis@gmail.com Abstract Climate change, oil depletion and the financial crisis are issues that can be addressed simultaneously and in an integrated manner. New Zealand has a bounty of land that is marginally economic or unsuited to pasture, that if planted in trees could supply enough energy to meet New Zealand’s heat and liquid fuel requirements. Wood chips and compressed pellets are emerging forms of wood fuel that are price competitive with alternative heating fuels such as diesel, gas, coal and electricity. The Wairarapa region of the southern North Island has considerable land area, a wood processing industry and is close to a main population centre. This study assesses whether there is a sufficient volume of wood processing residues in the Wairarapa to support a wood chip or pellet supplier; what barriers a fledgling wood chip or pellet fuel supplier would face; and what policy measures are suited to addressing such barriers. Quantifying and locating and volume of residue available is difficult, and that a ‘chicken and egg’ paradox exists, where it would be difficult for a supplier to establish without a market, and difficult for a market to form without a supplier. A significant amount of research and development has been conducted and some policy incentives are in place. However incentives to help incorporate non-market values into consumer decisions are missing. With a detailed regional assessment linking prospective consumers, suppliers and residues to correct the ‘chicken and egg’ paradox, and targeted economic correction of non-market values, a wood pellet plant in the Wairarapa may be a viable start to a bioenergy supply industry in the southern North Island. Keywords: Biomass; wood residue; wood fuel; energy; barriers; policy Introduction The current global issues of Climate change and oil depletion are interconnected through energy use. In addition to these pressing issues we concurrently face a deepening financial crisis. The United Nations Environment Programme (UNEP) emphasises that it is possible to address these issues simultaneously and in an integrated manner; “Mobilizing and re-focusing the global economy towards investments in clean technologies and 'natural' infrastructure such as forests and soils is the best bet for real growth, combating climate change and triggering an employment boom in the 21st century” (UNEP 2009). New Zealand has a bounty of agricultural land suitable for growing forests, including 3.6 million hectares of hill country land that is unsuited to pasture (Hall et al. 2009). This land could be converted to plantation forests with the intent of providing greater energy security (Hall et al. 2009), while addressing job shortages and the need for carbon neutral energy and carbon sequestration. The economic viability of bioenergy production from forests becomes more viable when revenue streams such as sawn logs and carbon benefits are included, since the returns will be higher and the investment risk reduced (Hall et al. 2009). A recent analysis suggests that should the price of petrol reach $2.75 2 per litre, and an emissions trading scheme affect the viability of sheep and beef farming, as much as four million hectares of sheep and beef and scrub land would provide better returns if converted to forests for the production of bioethanol (Hall et al. 2009). Utilising woody biomass for energy has received considerable research attention recently. Crown Research Institute Scion (formerly Forest Research) and its partners (Landcare, CRL Energy, NIWA, Waste Solutions, NZCEE and Fuel Technology Ltd) have produced a detailed and comprehensive information resource on bioenergy options for New Zealand. The Energy Efficiency and Conservation Authority (EECA) have made much of this information available online through the Bioenergy Knowledge Center (BKC) at http://www.bkc.co.nz. Recent background research by Scion and others provides the opportunity to start looking at the potential for bioenergy production on a regional scale. In particular wood chips and compressed pellets are emerging forms of wood fuel that are price competitive with alternative heating fuels such as diesel, gas, coal and electricity. This study assesses whether there is a sufficient volume of residues in the Wairarapa Region (Figure 1) to support a wood chip or pellet supplier; what barriers a fledgling wood chip or pellet fuel supplier would face; and what policy measures are suited to addressing such barriers. Figure 1. The Wairarapa was chosen as a focus for this study since it is close to a main population center and has the largest land area within the greater Wellington Region (GWRC 2003). Background In 2007 New Zealand’s energy demand was 517 petajoules (PJ) (MED 2008). Liquid fuels comprised 250 PJ of this total and electricity 150 PJ (MED 2008). Energy derived from plant or animal material is termed biofuel, and where the material originates from sustainably-managed resources such as plantation forests or production residues it is considered renewable (Hall and Gifford 2007). In 2007 wood supplied 36 PJ of New Zealand’s energy (MED 2008), or 7 %. In comparison wind turbines currently supply 3.4 3 PJ of electricity (NZWEA 2009). Woody biomass can be processed to provide solid, liquid or gaseous fuels with key advantages over fossil fuels: in addition to being renewable, biomass is widely distributed, and utilises and/or mitigates wastes (Hall and Gifford 2007). Liquid biofuels from forests start to become cost effective as oil reaches US$180/barrel and forests can yield significantly more fuel per hectare and per annum than arable crops such as canola (Hall and Gifford 2007). Currently the most common and cost efficient use of woody biomass is to burn it for heat (Hall and Gifford 2007). Scion’s research indicates that 2.8 million hectares of forest estate would be required to meet New Zealand’s current liquid fuel demand, and an additional 700’000 hectares would supply current heat demand (Hall and Gifford 2007). Wood pellets are supplied as a heating fuel to homes, institutions and industrial or commercial heat users. New Zealand’s first wood pellet manufacturing plant was built at Rolleston, near Christchurch in 2002 (Cunningham 2002). This plant was purchased the following year by State owned enterprise Solid Energy, which is now one of a growing number of wood pellet manufacturers in New Zealand. Pellet manufactures are also located in Auckland, Huntly, Hastings, and Invercargill (BANZ 2009). Wood pellets are a highly standardised fuel available in either 6mm or 10mm diameter cylinders with a moisture content of less than 10% for most applications (BANZ 2009b). A Consumer Magazine report in 2007 into heating options showed that wood pellets were the “least polluting form of heating for normal home use” (Whitely 2007), and that the running costs of a pellet fire is similar to a heat pump or modern wood burner at 7-9cents per kwh (Whitely 2007, 2007b). An estimate for a winery in Central Otago was 8-10cents per kWh including delivery, for pellets with an energy density of 19 gigajoules (GJ) per tonne and 7% moisture content. This equates to $25 per GJ and $475 per tonne of pellets. The cost of gas for the same application was 16cents per kWh ($44.45 per GJ) (TGL 2009). Woodchips are suited to larger commercial and industrial heating requirements and can be produced much more cheaply than pellets. However the consistency in size and water content of woodchips is much more variable than pellets (BANZ 2009b). Woodchip burners can easily be converted to burn wood pellets, but not vice versa (TGL 2009). The cost estimate of chips for the winery in Central Otago was 4-5 cents per kWh (including delivery) for chips with 30% moisture content and an energy density of 13.2 GJ per tonne (TGL 2009). This equates to $12.50 per GJ at $165 per tonne of chips. The efficiency of burning wood fuel is affected by its moisture content (EECA et al. 2007). Four kilojoules of energy is required to raise the temperature of one litre of water by one degree celcius, and another 300 joules is required to convert water from a liquid state to steam. For example the water in one tonne of wood chips with a moisture content of 30% will absorb around 8% of the heat generated during combustion and this heat will leave via the chimney. Therefore wood that is well seasoned will burn more efficiently. 4 Aim and Objectives The aim of this study is to answer the following question: Is there a sufficient volume of wood residue in the Wairarapa to establish a wood chip or pellet industry? Answering this question necessitated breaking it into two main objectives as follows Objective 1; a) How much woody biomass is currently available in the Wairarapa? b) Would a Wairarapa bioenergy plant be economically viable? Objective 2; a) What barriers would a wood chip or pellet fuel supplier face? b) What policy options are available to address these barriers? Methods Information was gathered from Government, Industry and Crown research Institute publications, websites and personnel (Ministry for the Environment, Ministry of Economic Development, Scion, Energy Efficiency and Conservation Authority, Bioenergy Knowledge Center, Bioenergy Association of New Zealand), and peer-reviewed journal articles. Search engines used were Web of Knowledge, Science Direct, Google and Google Scholar. Search keywords: Objective 1: Firewood; wood residue; wood pellets; wood chips; Lpg; coal; price; supply; bioenergy; forest; economic Objective 2: Wood; residues; biomass; policy; renewable energy; barriers. Results: Objective 1 1 a) Current Availability of Wood Residues Around 3.5 million tonnes of wood processing residue is produced every year in New Zealand. The vast majority of this material is already utilised by pulp mills, panel plants and sawmills for energy or further production requirements (Hall and Gifford 2007). However, of an estimated 267’000 tonnes of wood residues produced in the Southern North Island (Wairarapa, Wellington and Kapiti Coast), only around half is currently used, leaving 137’000 tonnes per annum of processing residues available for alternative use (Hodgson and Hall 2007). In contrast, the Nelson/Marborough and the West Coast regions have a deficit of 41’000 tonnes and zero surplus respectively, and in addition to processing residues, use logging residue to supplement demand from their panel mills. Nationally the use of logging-derived residues by wood processors has increased from around 50,000 tonnes in 2000 to an estimated 250,000 tonnes in 2007 (Hodgson and Hall 2007). In 2005 the amount of logging residue left at landing sites and on the cut-over area in New Zealand was estimated at over two million tonnes (Hall and Gifford 2007). Some of 5 this material is suitable for energy production, and some is of higher value to pulp or panel plants. The volume of residue left behind on landings and cut-overs on flat or rolling terrain is 4.5% and 15% respectively in addition to the extracted volume; and on steep terrain harvested by haulers 8% is left at landing sites and 21% on the cut-over (EECA et al. 2007). Log harvest intentions for the Wairarapa between 2007 and 2010 average around 700’000m3; with a total of 2’100’000m3 for the Southern North Island (Wakelin and Hock 2007). The density of Pinus radiata varies considerably, ranging from 350 to 600 kg/m3 (MfE 2009). If 6% of the harvest residues were easily recoverable, this would produce 15 - 25’000 tonnes of fuel from the Wairarapa, and 46 - 78’000 tonnes from the Southern North Island. Figure 2. Plateau Bark’s WoodWeta converting reject logs and logging residues into boiler fuel. The WoodWeta is based in the Bay of Plenty, and also operates at the Rotorua Landfill and the Kawerau pulp and paper mill (EECA et al. 2007). 1 b) Economic assessment A Hogger such as the WoodWeta pictured above costs around $700’000 (EECA et al. 2007), add a front end loader and 20 tonne excavator at $150’000 each, and the set-up costs for recovering logging residues would be $1 million. Recent analysis of a residue recovery operation indicates that 50,000 tonnes p.a. of accessible residues are required for investment in a hogger supplying boiler fuel to be viable (EECA et al. 2007). The WoodWeta is estimated to be able to process only 30’000 tonnes per year; however other hoggers do have the capacity to produce 50’000 tonnes (EECA et al. 2007). Another option is a mobile chipper ($250,000) powered by a tractor (Figure 3). Such a unit purchased by Ernslaw Bioenergy in Canterbury is capable of producing 13 tonnes of woodchips per hour (EECA 2009a). Currently forest residues make up a small portion of 6 the material that hoggers in New Zealand are processing, with hoggers also contracted for processing municipal green waste, and producing compost, pulp chip for paper mills, animal bedding products and landscaping bark (EECA et al. 2007). Separation of residues by value can increase the economic performance of the recovery operation (EECA et al. 2007). Figure 3. Ernslaw Bioenergy's mobile chipper, Canterbury New Zealand (EECA 2009a). Energy Prices to Commercial Consumers For commercial applications pellets or chips must compete with electricity and gas and may need to be competitive with coal. • • • o o Gas, 45kg LPG bottles delivered to Masterton ca. $50 per GJ (Domestic and commercial same price, no reticulated supply) (Rockgas 20.05.09) Commercial electricity price for the Wairarapa ca. $61 per GJ (MED 2008b). Coal*, bulk supply $5 to $7 per GJ (EECA et al. 2007). Boiler fuel from hoggers $2.50 to $5 per GJ (EECA et al. 2007). Commercial wood pellets $13 per GJ ($250t, 19GJ/t) The final price to consumers is highly dependant on transport distance, and consumers that are located closer to the wood fuel supplier will pay much less for wood fuel than those further away. The majority of the Wairarapa is within 60km of Masterton, and Coal is not a significant fuel source in the Wellington region, which includes the Wairarapa (GWRC 2000). * 7 Wellington and Palmerston are 100km in either direction. The Bioenergy Knowledge Center (BKC) has a range of bioenergy calculators, including one for transporting forest residue, a truck and trailer, transporting chip with a 30% moisture content 100km on a highway adds $1.65 per GJ to the consumer’s cost (BKC 2009). A number of different commercial applications for wood fuel have been assessed and data on some examples is presented below in Table 1. Table 1. Simple payback periods for a range commercial wood fuel applications. Application Region Wood Fuel and quantity required Chips 1200-2700t Chips 600-1700t 8000t Pellets12000t Chips Chips 1000t 13t Pellets Chips 200-400t 115t Chips Alternative Fuel Capital Costs Simple Payback Sewerage Sludge Drying (Living Energy 2008) Swimming Pool (Living Energy 2008b) Dairy Factory (EECA 2007) Wellington Gas $1’250’000 2.7 years Auckland Waikato Gas Gas $375’000 $3.8 million 3.9 years 5 years Factory (EECA 2009b) Winery (TGL 2009) Retirement village (Living Energy 2008b) Institution/Commercial Premises (Pickering 2009) Dairy Farm (Miettinen 2008) Canterbury Otago Auckland Canterbury Gas Gas Gas $990’000 $27’000 $750’000 $290’000 5.5 years 10 years 11 years 25 years (C02 at $30/t) n/a † * Coal 73t Pellets Otago 34t Chips 23t Pellets Electricity $142’000 The pellet system which cost $600 p.a. more for fuel than the coal option (incl. $30/t CO2) was recommended by the consultant based on other factors. † The heating requirements of this dairy farm were considered insufficient to justify the expense of the assessed boiler systems. * 8 Pellet Production The estimated set-up cost for a standard pellet mill is around $1.25 million, including a front end loader (table 2). Neilson et al. (2004) assessed the economics of establishing a pellet plant and found that the break even point is just below the production of 1,500 tonnes of wood pellets p.a. at the commercial market price of $250 per tonne, or 900 tonnes at $350 for the retail market (45’000 20kg sacks), converting production residue sourced at $10/tonne, with 10% depreciation and a 10 year time period. Table 2. Assumed capital investment for a standard wood pellet plant (Neilson et al. 2004). Pellet Plant Components Front end loader Heat plant including boiler and bag filter Pellet machine Storage silo’s, wet and dry sawdust Sawdust dryer Other technical parts New Buildings Engineering costs and contingencies Total technical investment Costs (NZD) $150’000.00 $0.00 425’000.00 $100’000.00 $200’000.00 $75’000.00 $100’000.00 $200’000.00 $1’250’000.00 The plant assessed by Neilson et. al. (2004) has a capacity of 1.8 tonnes of pellets per hour, while one currently listed on Trademe states a capacity of 4 tonnes per hour (Trademe 2009). Assuming 2 tonnes per hour, 8 hours of production 5 days per week, a low output scenario produces 80 tonnes of pellets per week and 4000 tonnes per year (50 weeks). 80 tonnes of pellets per week is equivalent to 4000 20kg bags, or enough for up to 2000 homes for a year. Should a high output be required, the plant could produce around 14’000 tonnes on a 24hr 6 days per week basis. Table 3 shows the possible and average revenue for the low and high output scenarios, combined with retail and commercial market prices. The Internal Rate of Return (IRR) over 10 years for the low output commercial price scenario is 80%. Table 3. Pellet plant revenue by output scenario and market. Scenario Low Output High Output Retail $350/t $1’400’000 $4’900’000 Commercial $250/t $1’000’000 $3’500’000 9 Energy Prices to Domestic Consumers Wood pellets for household heating must be priced to compete with domestic electricity, gas and firewood options. Firewood consumers who source their own wood at little cost will have a price advantage over all other options. • • • o Average domestic electricity price for the Wairarapa $64 per GJ (MED 2009). Gas, 45kg LPG bottles (no reticulated supply) delivered to Masterton ca. $50 per GJ (Rockgas May 2009). Split-pine firewood for home use $22 per GJ (14.6GJ/tonne 4m3/t at $80m3 20% moisture) (Estcourt 2009). Domestic supply wood pellets $24 to $25 per GJ / $475 tonne (EECA et al. 2007) Efficiency is a critical consideration in assessing the amount of heat a consumer receives for their money. A modern wood fireplace is 65% to 77% efficient, while a modern wood pellet fireplace is up to 92% efficient (MfE 2009b). Depending on the efficiency of the burner, one GJ of heat into a house from firewood will cost ca. $32 (70% efficient), and one GJ from wood pellets will cost ca. $28 (90% efficient). At these prices a properly installed 300% efficient heat pump is the only other system capable of competing with wood pellets on running costs, since one GJ of heating will cost ca. $21. Annual space heating demand in New Zealand varies from around 6MWh in Auckland to 12MWh in Southland (Neilson et al. 2004). Table 4. Average winter daytime temperature and inferred annual space heating requirement for the Wairarapa region (Based on data from Neilson et al. 2004 and MfE 2008). Region Average winter daytime temperature 12 – 17 °C 8 – 12 °C 11 – 14 °C Annual space heating requirements 6MWh 12MWh 9MWh (inferred) Auckland Southland Wairarapa The Wairarapa region is in the south of the North Island, where inland central towns experience frequent winter frosts. 9MWh is equivalent to 32GJ - pellets to supply this amount of heat would cost $896, and firewood would cost $1024, with the difference being $128. Supplying the same amount of heat with a 100% efficient electric heater would cost $2’048; and from a 300% efficient heat pump would cost $614. A pellet burner is currently more expensive than a wood burner by around $1500 installed (Bertram 2009). Given the savings in fuel costs, the simple payback period for the difference between a wood pellet and a log burner is $1500/$128 = 12 years. 10 Results: Objective 2 Barriers to greater utilisation of woody biomass Barriers are economic, regulatory or institutional conditions that retard investment in a desired technology; identifying and implementing policy to address such conditions encourages a more optimal level of investment. Barriers to the adoption of renewable energy tend to be situation-specific to a particular technology, region or country. Beck and Martinot (2004) place common barriers within three categories as shown in Table 5. Table 5. Common barriers to the adoption of renewable energy technologies in relation to a Wairarapa wood fuel industry (adapted from Beck and Martinot 2004) Category Common Barriers Subsidies for competing fuels Initial setup costs Situation-specific context (NZ and/or Wairarapa) Wood pellets are already competitive with gas, subsidies or ‘privileged exemptions’ may apply to coal, but coal is not commonly used in the region (WRC 2000). Pellet burners cost more than log-burners. Significant initial setup costs for boilers and costs in converting coal boilers to burn pellets. Risk of future fluctuations in fossil-fuel price assessment ignored in economic comparisons (oil, diesel and gas). High electricity prices in NZ due to market power of ‘gentailers’ (beneficial for alternatives). Smaller projects may face high transactions costs compared with larger scale projects Cost of Greenhouse gas emissions not yet faced by polluters in New Zealand. n/a Costs and Pricing Difficulty of fuel price risk assessment Unfavorable power pricing rules Transaction costs Environmental externalities Lack of legal framework for independent power producers Restrictions on siting and construction * Legal and Regulatory NZ ranked second equal with Singapore for ease and efficiency in dealing with construction permits (World Bank 2009). Derelict land is available near the Wairarapa’s two main wood processors (Forest enterprises 2000). * Transmission access Utility interconnection requirements Liability insurance requirements Lack of access to credit Market Performance Perceived technology performance * * May apply to new pellet or chip production venture, particularly during recession. May be an issue in establishing a consumer market due to initial limited number of fuel suppliers. * Not applicable as this study is not assessing the co-generation of electricity for the grid. 11 uncertainty and risk Lack of technical or commercial skills and information Info required on economics of hogger or chipper, and local info regarding location, accessibility and price of production or logging residues. 12 Hall and Gifford (2007) identify further situation-specific barriers relevant to utilising forest or production residues for bioenergy feedstock. These barriers include: • • • • • • Accurately quantifying the amount of residue available: residue volumes are not reported or centrally recorded, and can be commercially sensitive. Guaranteeing security of supply. Mismatches in supply and demand at a local level. Variable quality of delivered fuels (Chips and hog-fuel), need to introduce system of paying by energy content, rather than weight. Nutrient removal from forests. Integrating residue recovery with conventional harvesting. Policy options and rationale Accelerating the adoption of renewable energy technology has many social and economic co-benefits; from reducing the cost of energy and the demand on oil and gas, to reducing greenhouse gas emissions, increasing energy security and creating new jobs (Pathways, Kelly 2007). Government support is an essential element in streamlining the uptake of new technology or for assisting the flow of energy into the economy. Hydropower and geothermal energy achieved their current market role with substantial government support (IEA 2004), and the World Bank and International Energy Agency estimate global fossil fuel subsidies to be in the order of $100 to $200 billion (Beck and Martinot 2004). For example the New Zealand Government recently extended the tax exemption on the profits of non-resident operators of offshore rigs and seismic vessels for another five years; and as part of a wider push to encourage exploration, announced a $20 million injection into government-funded seismic data acquisition (NZ Herald 14/05/09). European countries such as Germany and Sweden have considerable experience in utilising woody biomass for energy. Plieninger et al. (2009) assessed the development of the biofuels industry in Brandenburg in Germany, population 2.6 million (Eurostat 2002). Brandenburg more than tripled bioenergy supply between 1999 and 2005 and now has 15 wood fuel power plants of 5 to 20MW capacity and has an additional 870 wood-heat projects of one to five megawatts. The power plants consume 1.1 million tonnes of wood residues per year, producing 126.3MW of electricity (Plieninger et al. 2009). The primary sources of biomass for the power plants and heat projects are wood from the recycling industry and residues from the wood-industry, and used wood is now a resource rather than a waste (Plieninger et al. 2009). Brandenburg’s success is attributed to strong support by national and regional policy, rising prices for fossil energy sources, and the co-operation of committed individuals and groups (Plieninger et al. 2009). Key policies were a target of doubling biofuels production by 2010 (base year 2000) supported by a minimum remuneration policy (Plieninger et al. 2009). Hillring (2002) assessed the development of the wood fuel industry in Sweden, which increased eight-fold over 15 years. The wood fuel market in Sweden is dominated by around 100 large wood-fired district heating plants, and Sweden consumed 165 PJ of wood fuel in 2000. Hillring (2002) attributes Sweden’s success in utilising wood fuel to government policy adopted in the 1990’s, including a tax on carbon dioxide. In Sweden the market dominance of a few large pulp producers’ results in lower than optimal prices for biomass and the district heating sector occasionally outbids the pulp and paper 13 sector for biomass (Sunderholm and Lundmark 2009). Should bioenergy demand compete with wood processors for forest raw material, timber mill production would decline, resulting in less processing residues available for either timber mills or energy plants (Sunderholm and Lundmark 2009). The lesson here is that policy makers should focus on correcting market failure by focusing on values not priced in the market, rather than on the allocation of resources per se (Sunderholm and Lundmark 2009). Sunderholm and Lundmark (2009) highlight two types of market failure that necessitate intervention in biomass markets, the first being negative environmental externalities; for example providing incentives to households and firms to take into account the effect of energy decisions on air quality and atmospheric CO2 concentrations. The second is correcting for positive externalities and technological learning. The rational here is that knowledge generated by a firm diffuses through to society, with the private benefit of that knowledge to the firm being less than the total benefit received by society (Sunderholm and Lundmark 2009). Therefore, even if policy to correct environmental externalities is in place, the level of associated Research and Development (R&D) will likely be too low – thus technology and environmental policy are compliments, and both are necessary (Sunderholm and Lundmark 2009). However rather than supporting one technology over another, a policy instrument should encourage competition between such technologies: for example both carbon capture and storage and bioenergy mitigate CO2 emissions (Sunderholm and Lundmark 2009). One way to maximize the benefits of R&D support is to identify technology clusters and focus support on common knowledge requirements (Sunderholm and Lundmark 2009). Analysis and Discussion How much woody biomass is currently available in the Wairarapa? The estimate of 137’000 tonnes of production residues in the Southern North Island produced by Hodgson and Hall (2007) was based on data from a small number of mills and is indicative only. However this is a significant volume of residue, as the entire wood pellet industry currently uses an estimated 200’000 tonnes of residues per year (Hodgson and Hall 2007). If this residue was burned as chip (13.2 GJ/t), it would produce 57 MW of energy; to put this in context, New Zealand’s wind farms currently produce around 108 MW of electricity per year. If this ‘waste’ residue were used to displace an equivalent amount of direct heating by natural gas, nearly 29’000 tonnes of CO2 would be avoided. In addition, Hodgson and Hall (2007) predict that the volume of residue produced in the Southern North Island will more than double by 2030. However, an accurate estimate of the amount of processing residue available in the Wairarapa is needed. The harvest residue estimates are also indicative. Based on the information accessed for this study at least 60’000 tonnes of residue should be accessible at landing sites in the Southern North Island, with 20’000 tonnes in the Wairarapa. More landing site residue will be available if the majority of the terrain is steep and hauler logged, and a significantly greater volume of cut-over residue will be accessible on flat or rolling terrain. A closer analysis of the terrain of forested areas in the Wairarapa and Southern North Island would enable a better estimate. Would a Wairarapa bioenergy plant be economically viable? 14 Based on the analysis of a wood pellet plant by Neilson et al. (2004), production of 900 tonnes of pellets for the retail market is required per year to break even. This would be enough to supply from 300 to 450 homes, and gives an internal rate of return of 22%. With the nearest pellet manufacturers in Taupo and the Hawke’s Bay, a Wairarapa supplier could competitively supply the southern North Island, and there are 160’000 households in the Wellington Region (Stats 2001), and reticulated natural gas is available in some places at $50GJ (MED 2007). Heat pumps are more cost competitive than wood pellet burners, however preference may be a large factor in choosing between heat pumps and wood or pellet burners, since heat pumps do not provide the aesthetics or radiant heat of a fireplace. As with heat pumps, there will be various preferences and circumstances, such as convenience, access to cheap firewood, or availability of storage space that will be important considerations in deciding between pellet or log burners. 1500 tonnes of pellets is required to break even at the commercial price of $250/t enough fuel to supply up to 100 commercial customers. Converting 100 commercial customers from LPG to pellets is a significant amount of work in itself; but would save these businesses over $1’000’000 per year in fuel costs; and displace 456t of CO2, worth over $13’000 at $30t. Wood chips would be even more competitive than pellets as very little coal is used in the Wellington region and chips would be displacing gas at $50GJ for bottled LPG and around $20GJ for reticulated gas to commercial consumers (MED 2007). The economics of a hogger or chipper are more complex due to the variety of work available for these operations. The study by EECA et al. (2007) indicates that for a hogger to be economically viable from logging residues only, 50’000 tonnes per annum would be required; this is within the estimate of 60’000 tonnes available from southern North Island landing sites, but towards the limit of the capacity of these machines, especially if many site changes were required. However differentiating material by value would significantly improve the economic viability of a hogger. In addition, coal is not a significant fuel in the Wellington region so chips and hog fuel may get a better price, since the primary alternative is gas. What barriers would a wood chip or pellet fuel supplier face? The lack of a pellet or chip supplier within the southern north island is a barrier in itself to adopting pellet or chip burners and boilers. Distributing wood fuels requires transport, which can add a significant proportion to the cost to the consumer (Neilson and Estcourt 2003). David Bertram at The Heat Shop in Masterton stated that he had stocked and sold wood pellets in the past, but that these were sourced from Rotorua, and the transport costs resulted in the pellets being prohibitively priced (Bertram 2009). This barrier is essentially a ‘chicken and egg’ paradox, whereby consumers can’t utilise wood fuel without a supplier, and a supplier has no market unless consumers purchase pellet or chip burners or boilers. What policy options are available to address these barriers? European countries such as Sweden and Germany have considerable experience in utilising woody biomass for energy. As a technology taker New Zealand is able to learn from European examples. The work by Scion and partners represents the required correction of positive externalities and technological learning highlighted by Sunderholm and Lundmark (2009). However the correction of the negative environmental 15 externalities of carbon dioxide emissions is a gaping policy chasm in New Zealand. This is in contrast with the European experience, where some places have had carbon emissions policies for over a decade. While pellets and chips are already cost competitive with other heating fuels, an Emissions Trading Scheme is a primary policy instrument that is lacking in New Zealand. Otago Regional Council is subsidising pellet fires and insulation as part of a “Clean Heat Clean Air Warm Home” assistance programme, with households able to upgrade old and inefficient woodburners for modern pellet burners (ORC 2009). In the recent budget announcement the Government announced a package of up to $1500 for home insulation, and $500 for “sufficiently insulated homes” to purchase a clean heating device – including pellet burners (Dom Post 28.05.09). However, without a pellet supplier in the Southern North Island, the price of pellets is likely to be less competitive, and this region will miss an opportunity to widely adopt pellet heating. Some regions have a shortage of production residue and others a surplus. However due to transport costs, competition between energy and paper or panel plants will be delayed considerably, since shortages of residue exists where there are pulp and panel plants, and energy plants will establish where surplus residues are available. Further research to establish where the primary sources of processing residue are located within the southern North Island is urgently required, as this would determine the location of a pellet supplier, and facilitate the development of a market. Research could also assist in addressing the chicken and egg paradox; by conducting a regional assessment of available wood residues; finding out which commercial heat consumers in the region are keen to make a switch; and linking consumers with potential suppliers. Such projects have been carried out by Manukau City Council to assess the benefits for waste, carbon dioxide and energy cost reductions in Council heating and cooling applications (Living Energy 2008b); and Kapiti Coast District Council to assess the feasibility of converting its Wastewater Sewerage Sludge Drying Plant to wood fuel (Living Energy 2008). Conclusion In conclusion it is difficult to assess with certainty whether there is a sufficient volume of residues in the Wairarapa to support a wood chip or pellet supplier. However, based on the volume of timber processed, and the average quantity resides from processing, a more detailed regional assessment is warranted. The current market for wood pellets or chips is likely to be minimal at best, since there is no local supplier and the costs of transport can decrease the competitiveness of chips or pellets compared with other heating fuels. Where air quality is an issue a subsidy for pellet burners can help correct for the extra reduction in air pollution that pellet burners achieve over log burners, this subsidy should also apply to heat pumps, to avoid favoring one mitigation technology over another. Key beneficial non-market values such as avoided landfill methane, carbon dioxide and particulate emissions could form the basis for a graduated subsidy for the best performing clean heat devices. As major heat consumers, Councils themselves could assess where savings could be made in switching to wood fuel, and also assess the availability of wood residues, as Manukau and Kapiti Coast Councils have done. 16 With a Government incentive for households to upgrade to cleaner heating now in place, a wood pellet supplier is urgently required in the southern North Island so that a market for wood pellets can develop. Regional government assistance would be justified by the fact that a wood pellet market would displace fossil fuel use and divert waste from landfills, where it would otherwise produce methane. A wood pellet market would also provide significant energy cost savings for constituents and businesses, and cleaner air and improved health. 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