Analysis of the Energy & Environmental Economics of Maine’s Biomass Industry Prepared for the State of Maine GOVERNOR’S ENERGY OFFICE October 2017 Prepared By: Innovative Natural Meister Consultants Group Resource Solutions LLC 63 Federal Street, Suite 5 1 Center Plaza, Suite 320 Portland, ME 04101 Boston, MA 02108 207-233-9910 (617) 934-4847 www.inrsllc.com http://www.mc-group.com/ TABLE OF CONTENTS Executive Summary………………………………………………………………………………………………………………………………………..4 SECTION 1 Introduction ........................................................................................................................................................ 7 SECTION 2 State of the Maine Biomass INdustry ......................................................................................................... 8 2.1.1 Biomass Facilities in Maine ................................................................................................................................. 8 2.1.2 Biomass as a Part of Maine’s Forest Industry .............................................................................................. 11 2.1.3 Employment in Maine’s Biomass Industry ................................................................................................. 20 2.1.4 Economics of Biomass Power.......................................................................................................................... 21 2.1.5 Revenue and Expenses ..................................................................................................................................... 30 SECTION 3 Policy Drivers and Barriers .......................................................................................................................... 35 3.1 Barriers ....................................................................................................................................................................... 35 3.1.1 Barrier: Low and fluctuating energy prices ................................................................................................ 36 3.1.2 Barrier: Uncertain greenhouse gas (GHG) emission impacts ............................................................... 38 3.1.3 Barrier: Uncertain policy environment ......................................................................................................... 40 3.1.4 Barrier: Tightening air emission and efficiency requirements ............................................................. 42 3.2 Drivers ......................................................................................................................................................................... 43 3.2.1 Origins of Maine’s Biomass Plants. ............................................................................................................... 43 3.2.2 State Level Renewable Portfolio Standards ............................................................................................... 43 3.2.3 Combined Heat and Power ............................................................................................................................ 49 3.2.4 Emerging Markets ............................................................................................................................................... 51 Appendicies Appendix A…………………………………………………………………………………………………………………………………………………..52 Appendix B…………………………………………………………………………………………………………………………………………………..53 Appendix C…………………………………………………………………………………………………………………………………………………..56 Appendix D…………………………………………………………………………………………………………………………………………………..57 About the Authors……………………………………………………………………………………………………………………………………….64 Page | 2 TABLE OF FIGURES Figure 1. New England Historic and Futures Wholesale Electricity Pricing, 2010 – 2022, $ per MWH ..................... 4 Figure 2. Economics of Biomass Power Generation in Maine, 2017 (generic) .................................................................. 5 Figure 3. Operating Biomass Electricity Plants in Maine .......................................................................................................... 8 Figure 4. Operating and Closed Major Markets for Biomass ................................................................................................. 9 Figure 5. Maine Timber Harvest by Product, 2010 – 2016 (green tons) ............................................................................. 11 Figure 6. Products and Relative Value from Harvested Trees .............................................................................................. 12 Figure 7. Volume and Stumpage Value of Harvested Timber, Maine, 2014 .................................................................... 13 Figure 8. Biomass as a Percentage of Total Maine Timber Harvest, 2010 – 2016 .......................................................... 13 Figure 9. Biomass sorted on a landing for chipping................................................................................................................ 14 Figure 10. Biomass being chipped on a landing ....................................................................................................................... 14 Figure 11. Pulpwood Use at Maine Mills (estimated), 2011 – 2016, green tons ............................................................... 15 Figure 12. Lost Maine Markets for Low-Grade Wood since 2014 (green tons, estimated) ......................................... 16 Figure 13. Wood Flow from a Timber Harvest ........................................................................................................................... 16 Figure 14. Location of Major Sawmills in Maine ........................................................................................................................ 18 Figure 15. Maine Sawmill Consumption (MBF) and Mill Residual Use at Maine Pulp Mills (tons), 2010-2016 ..... 19 Figure 16. Products from Biomass Electricity .............................................................................................................................. 21 Figure 17. New England Historic and Futures Wholesale Electricity Pricing, 2010 – 2022, $ per MWH ................. 22 Figure 18. New England Wholesale Electricity Pricing – Trailing 12 Month Average, 2014 – 2018, $ per MWH . 23 Figure 19. Reported Prices for Connecticut Class 1 RECs, 2015 – 2017. .............................................................................24 Figure 20. Components of Biomass Operations & Maintenance Costs ............................................................................ 27 Figure 21. Average Biomass Fuel Cost ($ per Green Ton, Delivered), Northern New England, 2008-2016 .......... 29 Figure 22. Economics of Biomass Power Generation in Maine, 2017 (generic) .............................................................. 30 Figure 23. Economics of ReEnergy Facilities, Maine PUC Contract, $ per MWH, modelled ...................................... 33 Figure 24. Economics of Stored Solar Facilities, Maine PUC Contract, $ per MWH, modelled ................................34 Figure 25: Monthly average natural gas spot prices in Maine, 2008-2016 ....................................................................... 37 Figure 26. Maine Biomass Facilities Qualified for Maine Class 1 RECs ............................................................................. 44 Figure 27. Survey respondent affiliations with the Maine forest industry ......................................................................... 52 TABLE OF TABLES Table 1. Fuel Cost per Ton and per MWh, estimated at 1.7 green tons per MWh .......................................................... 5 Table 2. Operating and Closed Major Maine Markets for Biomass ................................................................................... 10 Table 3. Major Maine Sawmills and Estimated Lumber Production (million board feet) ............................................ 17 Table 4. Employment Associated with Maine Biomass (estimated) ................................................................................... 20 Table 5. Maine Biomass Facilities Qualifications in New England RPS Programs .......................................................... 25 Table 6. Modelled Capacity Payments, ISO-New England .................................................................................................... 26 Table 7. Fuel Cost per Ton and per MWh, estimated at 1.7 green tons per MWh ........................................................ 28 Table 8. Maine Biomass Procurement Contracts ...................................................................................................................... 31 Table 9. Capital Investment Requirements in Maine PUC Contracts ................................................................................. 32 Table 10. Renewable Portfolio Standard Requirements by State ........................................................................................48 Page | 3 ANALYSIS OF THE ENERGY & ENVIRONMENTAL ECONOMICS OF MAINE’S BIOMASS INDUSTRY EXECUTIVE SUMMARY The biomass electricity market can provide a range of energy security, economic development, job creation, and forest management benefits to the State of Maine. This report discusses the role of biomass in Maine’s forest industry, including its significant employment benefits. It evaluates the current economics of biomass power generation and discusses barrier and drivers to industry growth. Biomass electricity facilities