How to estimate the competitiveness and emissions of European biomass boiler investments

Fastmarkets’ Director of EMEA mill intelligence, Ville Henttonen, uses a case study to explain how mill intelligence tools can estimate the cost competitiveness and fossil CO2 emissions of energy transition related investments

Most of the base data and estimates shown in this article were produced using Fastmarkets’ online databases Analytical Cornerstone and Asset Database. All the discussed data are Fastmarkets’ own estimates, based on publicly available information.

Case study example: European recycled containerboard mill

In this case study example, a recycled containerboard producer invested approximately 40 million euros into a biomass boiler at its European mill, which houses one average-size machine with a width of 5.0 m and a capacity of around 250,000 tonnes/year.

Before the investment, the mill was fueled with purchased natural gas and, to a small share, biogas from the effluent treatment plant. After the investment, the two existing natural gas boilers remained at the mill as a backup.

The biomass boiler is primarily fed by two major types of fuel. The bio-based fiber fractions of the on-site recycling rejects, which prior to the investment were disposed, count roughly one-fourth of the boiler infeed mass. The balance consists of purchased discarded wood which is collected in a radius of below 100 kilometers. Both of these fuels are estimated to have zero direct fossil CO2 emissions.

The other reject fractions of recycling are mainly plastics and metals, which in this case are disposed of against an assumed fee.

Comparison with and without investment

To evaluate the competitiveness of this investment, a typical exercise is to compare the estimated costs and CO2 emissions with and without it. In our Analytical Cornerstone cost benchmarking tool, this is easy to do, as historical consumption levels are available for comparison, even at the more recent unit cost level.

Given that a single quarter may have significant outliers from the medium-term average, comparing several quarters or annual averages, rather than just a specific quarter, gives a better understanding of the competitiveness.

The annual average cost comparison in 2019-2022, with and without the biomass boiler investment, is shown in the chart below.

Case 1 assumes the biomass boiler investment in 2018, at average industrial user prices of electricity and natural gas, as per reported by Eurostat. In Case 2, there is a biomass investment and energy prices have been replaced by their spot prices. Case 3 and Case 4 assume that there wasn’t a biomass boiler investment, with energy at average and spot prices, respectively.

The cash manufacturing cost analysis includes six categories: fiber, chemicals, energy, labor, recycling reject disposal and other. Fiber and chemical costs are assumed to be the same in both cases for our benchmark product, which is a regular recycled corrugating medium, as the product specification or the paper machine operation does not change. The value of fossil CO2 emission rights has been excluded from this cost analysis.

The investment is likely to reduce cost and fossil CO2 emissions

Altogether, the investment is estimated to reduce gas consumption and therefore direct fossil CO2 emissions by around 90%. Steam consumption is assumed to be quite consistent in both cases, while electricity consumption is likely to somewhat increase in the biomass boiler investment, due to the requirements of solid biomass handling. Even if the prices of biomass have increased in many European regions, they have generally remained more stable than those of fossil fuels and electricity.

At very low electricity and natural gas prices in 2019 and 2020, the competitiveness of the investment may have seemed questionable. However, the benefits became clearer already in 2021 and especially in 2022, when the European spot prices of natural gas and electricity increased to historical highs. Without the boiler investment and especially if this mill would have been at the mercy of spot-priced natural gas and electricity, operational conditions in 2022 could have been unbearable.

Analyzing the capital cost of a biomass investment

Many users of our energy consumption tools also want to analyze the capital cost of the investment. For that, we need to assume factors like the deprecation period, the weighted average cost of capital (WACC) and the investment sum. In this particular case, where the investment sum was known to be 40 million euros, the simulation with typical factors would give a visible, but still very reasonable, addition to the capital cost.

When we combine the cash cost and capital cost into total direct cost, we can conclude that the biomass boiler investment has been competitive, except for extremely low energy cost periods. In addition to these cost benefits, biomass boiler investments also significantly reduce direct fossil CO2 emissions, in this particular case around 300 kg/tonne.

At the spot price of EU carbon permits, which since 2019 has fluctuated in the range of around 20-100 EUR/tonne of fossil CO2, the value of the saved emissions would have been some 6-30 EUR/tonne of paper.

To discover more about our Analytical Cornerstone and energy consumption tool talk to our team today. The tool facilitates carbon emissions benchmarking and offers consumption estimates by machines at every mill and for every product produced.

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