As utilities and Independent Power Producers explore displacing coal with wood pellets in pulverized coal boilers, it is important to think about the incentive structures and opportunities available to help offset increased costs.

1. Wood Pellets – Co‐Firing With Coal
How to Compensate Generators for the
Higher Cost of Generation
Eric Kingsley
Innovative Natural Resource Solutions LLC
kingsley@inrsllc.com
Phone 207‐233‐9910
June 2015

2. Innovative Natural Resource Solutions LLC
• Based in New Hampshire and Maine, a region with 25+ years of
continuous biomass power experience, and pellet mills for 15+ years
• Based in the forest industry – work at the intersection of forest
industry, energy and economic development
• My focus is on feedstock supply for biomass electric, thermal, pellet
and liquid fuel projects
• Structured over a dozen long‐term supply agreements
• Clients include utilities, merchant generators, investors, developers,
and industries
• Supported conversion of four coal plants to biomass, and currently
working with a coal and wood co‐fired unit
• Conduct work in all regions of North America
• www.inrsllc.com

4. Ways to support additional cost of co‐firing
or conversion to wood pellets
•Renewable Energy Certificates (recap)
•Carbon Credits
•Other emissions credits
•Production Tax Credit (Section 45)

5. Ways to support additional cost of co‐firing
or conversion to wood pellets
•Renewable Energy Certificates (recap)
•Carbon Credits
•Other emissions credits
•Production Tax Credit (Section 45)

6. Renewable Power
1 MWH
Electricity
1 MWH
Renewable Energy Certificate
1 REC

7. Renewable Portfolio Standard Policies
www.dsireusa.org / June 2015
WA: 15% x 2020*
OR: 25%x 2025*
(large utilities)
CA: 33%
x 2020
MT: 15% x 2015
NV: 25% x
2025* UT: 20% x
2025*†
AZ: 15% x
2025*
ND: 10% x 2015
NM: 20%x 2020
(IOUs)
HI: 100% x 2045
CO: 30% by 2020
(IOUs) *†
OK: 15% x
2015
MN:26.5%
x 2025 (IOUs)
31.5% x 2020 (Xcel)
MI: 10% x
2015*†WI: 10%
2015
MO:15% x
2021
IA: 105 MW IN:
10% x
2025†
IL: 25%
x 2026
OH: 12.5%
x 2026
NC: 12.5% x 2021 (IOUs)
VA: 15%
x 2025†
KS: 20% x 2020
ME: 40% x 2017
28 States + Washington
DC + 3 territories have a
Renewable Portfolio
Standard
(9 states and 1 territories have
renewable portfolio goals)
Renewable portfolio standard
Renewable portfolio goal Includes non-renewable alternative resources* Extra credit for solar or customer-sited renewables
†
U.S. Territories
DC
TX: 5,880 MW x 2015*
SD: 10% x 2015
SC: 2% 2021
NMI: 20% x 2016
PR: 20% x 2035
Guam: 25% x 2035
USVI: 30% x 2025
NH: 24.8 x 2025
VT: 20% x 2017
MA: 15% x 2020(new resources)
6.03% x 2016 (existing resources)
RI: 14.5% x 2019
CT: 27% x 2020
NY: 29% x 2015
PA: 18% x 2021†
NJ: 20.38% RE x 2020
+ 4.1% solar by 2027
DE: 25% x 2026*
MD: 20% x 2022
DC: 20% x 2020

8. What is a Renewable Energy Certificate?
From NH PUC rules (most states have something similar)
A renewable energy certificate encompasses all “non‐price
characteristics of the electrical…energy output of a unit including, but
not limited to, the unit's location, fuel type, actual emissions, vintage,
and portfolio standard eligibility.”

9. REC Pricing is Extremely Market‐Dependent
$0
$10
$20
$30
$40
$50
$60
MA CT NH Maine RI . NJ PA MD DC
Tier 1 REC Pricing by State
2014 2015 2016

10. Things to know about RECs
• Every state RPS is unique – know the
language in and out (NH example)
• Qualification is usually binary
• The market is not just your state, but
usually any state you can deliver to
(e.g., ISO‐New, or PJM)
• Policies created by legislatures can be
abolished by legislatures

11. Ways to support additional cost of co‐firing
or conversion to wood pellets
•Renewable Energy Certificates (recap)
•Carbon Credits
•Other emissions credits
•Production Tax Credit (Section 45)

12. Carbon is an emerging market in the U.S.
• Current function carbon markets are:
• RGGI (at right)
• California (CARB)
• More will come – but it will be a slow
process, heavily lobbied and litigated

13. Two Basic Ways to Value Carbon
Positive
• Get paid for doing something
• If you reduce carbon, you get
paid
• May be incompatible with REC
sales, because the emissions
attributes have already been
sold bundled with the REC
Negative
• Get charged (“fined” in the press
release) for each unit of carbon
emitted
• Puts biomass at a competitive
advantage if it does not get
charged (forest carbon
accounting question)
• Compatible with the sale of RECs

14. Carbon Accounting for Biomass
• Not the subject of this presentation, and a complex and disputed
matter
• All sides have “100 scientists” on their side
• Appears that EPA will be issuing opinion soon
• Expect most biomass – maybe all – to be considered “carbon neutral” for
power plant emissions accounting
• Likely to involve state or regional sustainability oversight
• Even then, some states will mess things up
• Incomplete at this time
• Recognition of carbon neutrality of biomass important for accounting

16. Ways to support additional cost of co‐firing
or conversion to wood pellets
•Renewable Energy Certificates (recap)
•Carbon Credits
•Other emissions credits
•Production Tax Credit (Section 45)

18. Other (not carbon) Emissions Credits
• Pretty thin market right now
• Market‐based reductions are not how most pollutants are
regulated in most areas
• Have same positive / negative issue as seen in carbon
• Because the REC already had the emissions attributes embedded
in them
• If they existed, could be monetized uniquely (so, carbon +
NOx + SO2 + …)
• Also, if unicorns existed, they could be monetized uniquely

19. Ways to support additional cost of co‐firing
or conversion to wood pellets
•Renewable Energy Certificates (recap)
•Carbon Credits
•Other emissions credits
•Production Tax Credit (Section 45)

20. Production Tax Credits (Section 45)
• A federal tax credit
• Currently expired, but that happens with astounding regularity
• Provides a $0.015 / kwh tax credit for qualifying technologies
• Solar
• Wind
• Closed‐loop biomass (including co‐firing with closed‐loop biomass)
• Anaerobic digestion
• Credit lasts for 10 years
• Adjusted annually for inflation
• Current value $0.022 / kwh
• Open‐Loop Biomass receives credit at half rate
• Current value $0.011 / kwh
• No co‐firing allowance

21. Closed Loop Biomass
• Biomass grown specifically to be
used in energy production
• “Dedicated Energy Crop”
• Usually short‐rotation
• Long the fascination of
universities around the country
• Very challenging economics
• Does not exist at meaningful
scale in the wood pellet or
biomass electric industry

22. Open Loop Biomass
• Available in the real world
• What almost all wood pellets are
made from
• Generates as co‐product (or by‐
product) of other operations
• Sawdust and chips from lumber
manufacturing
• Tops and branches from logging
• Unmerchantable stems during
logging
• Not eligible for PTC

24. When using RECs and PTC, biomass can be
competitive baseload generation
Testimony of Diane Lupold, Dominion
CASE NO. PUE‐2011‐00073
http://www.scc.virginia.gov/docketsearch/DOCS/2fzn01!.PDF

25. Ways to support additional cost of co‐firing or
conversion to wood pellets
• Regulatory systems do not yet (fully) consider co‐firing with
wood pellets
• A number of programs designed when co‐firing with wood
existing only in Power Point
• Some significant ways to support or incent generation, but
regulatory support systems need to be modified to allow (or
even encourage) the use of wood pellets in coal plants –
either for co‐firing or full re‐powering

26. Eric Kingsley
Innovative Natural Resource Solutions LLC
Phone 207‐233‐9910
kingsley@inrsllc.com