Biomass Feasibility Project Final Report - Xcel Energy

alone. A decade or two from now, even newer technologies may emerge that render these
speculations moot.
Any of these technologies can be used to generate electricity. To date, both syngas from
biomass gasification and bio-oil from fast pyrolysis have been used to fuel power generation in
commercial facilities (Kotrba, 2005; Stephens, 2006). Two cellulosic ethanol facilities recently
rewarded funding by the DOE are designed to generate electricity as well as bio-fuel (DOE,
2007).
Response to the Impossibility of Predicting the Future Development of Biomass Energy
In the face of rapid change, policy makers can encourage the use of biomass best by letting
market forces decide the most economically successful combinations of applications and
technologies. Policy makers can benefit from computer models that explore consequences of
policy decisions, like one that Sandia National Laboratories is designing for the Minnesota Bio-
Business Alliance. But they must bear in mind that even sophisticated computer tools are not
crystal balls. Contingency always has ruled human affairs, and that won’t change any time
soon.
Broad and Narrow Policy Measures
Broad Policy Measures
Broad policy measures use financial incentives or regulatory pressures to encourage the
development of renewable energy. They depend on the profit motive and the need to comply
with regulatory pressures to move private enterprise in a publicly beneficial direction.
Renewable Energy Standard
A good example of a broad policy measure is Minnesota’s aggressive renewable energy
standards law of 2007 setting clearly-defined goals for electric utilities without prescribing the
means to reach them. The law requires that 25% of utilities’ retail sales must come from
renewable fuels by the year 2025 except Xcel Energy, whose goal is 30% by 2020. The standard
ramps up gradually over the years until it reaches those levels. The statute defines renewables
broadly, including as biomass fuels things like municipal solid waste, and leaves each utility to
decide how it wants to configure its portfolio of renewables. Xcel Energy is counting mostly on
wind, while Minnesota Power, due to location and load demands, will probably use as much
biomass as possible.
Even though wind will be by far the pre-eminent renewable fuel that utilities will use to meet the
standard, the statute will encourage biomass projects too because they will count as much as
wind power in the renewable portfolio. This motivation may make utilities willing to pay more for
biomass power, provide technical expertise to project developers, minimize transaction costs,
and minimize barriers arising from transmission. The renewable energy credit tracking system will
give independent biomass power producers a way to market their renewable energy credits
and improve their financial results.
Production Incentives or Tax Credits
Electricity generated with biomass fuels may be eligible for federal production tax credits and
on-farm anaerobic digesters qualify for Minnesota’s Renewable Energy Production Incentive.
Production tax credits and incentives have been powerful drivers of the wind industry in the
Identifying Effective Biomass Strategies: Page 149
Quantifying Minnesota’s Resources and Evaluating Future Opportunities