Bioenergy Symposium, Kyoto Dec. 3,1997
Considerable changes have taken place within the Swedish energy system in recent years. Biofuels, for example, are steadily capturing greater market share. The most dramatic changes in biofuels have occurred in the district heating sector. Processed or upgraded fuels such as briquettes and pellets have become increasingly attractive heating alternatives in the single-family house sector. This development has come about largely as a result of Sweden's long-term national energy policy, which states that the Swedish energy system, as far as possible, must be based on domestic and renewable energy sources with a minimum of detrimental impact on environment. Today's basic and overall strategy seeks to utilise the pricing system of the competitive market to realise this program and to allocate energy resources. One consequence of this mode of thinking is the internalisation of environmental costs in the pricing system. Another consequence is the Swedish electricity market reform that came into force this year. Many companies are now using the "greenness" of their products as a sales argument in their marketing. In the new competitive market, much attention has come to rest on the concept of "green energy" in general and on "green electricity" in particular. In a "bottom-to-top" perspective the behaviour and preferences of consumers will be of considerable importance to energy supply companies.
Sweden's total energy supply has been relatively stable since 1970 with an annual supply of about 460 TWh. i.e. 52 MWh per capita and year. However, as illustrated in figure 1, considerable changes have occurred within the energy system during these years :
Figure 1. Total energy supply in Sweden, 1970-1995, TWh
In 1995 the total energy supply amounted to 468 TWh. Losses accounted for about 9 %. Figure 2 illustrates the total final energy consumption in 1995. by sector. The residential, commercial and service sectors accounted for roughly 18 MWh per capita. For internal transport, per capita energy consumption was 10 MWh.
Figure 2. Total final energy use in Sweden in 1995 by sector
In 1995, biofuels, peat etc. accounted for roughly 84 TWh, i.e. almost 10 MWh per capita. Fuels included in this category, and mostly produced in Sweden, are:
As seen in figure 3, they are used in four main areas:
Figure 3. Bioenergy use in Sweden 1995 by sector
For economic reasons the forest industry has always used its by-products for heat and electricity production. Figure 4 shows the use of biofuels, peat etc. in industry 1980-l995.
Figure 4. Use of biofuels, peat etc. in industry, 1980-1995, TWh
The most dramatic changes in biofuels have occurred in the district heating sector. As shown in figure 5, the use of wood fuels and peat in 1980 was virtually zero. In 1995 they accounted for about 20 TWh. The use of wood fuels by the district heating sector residues and forest by-products. The market for processed or upgraded fuels such as briquettes and pellets is also growing; in the district heating sector and in the single-family house sector as well.
Figure 5. Use of biofuels, peat etc. in district heating, 1980-1995, Twh
Why has Sweden experienced such growth in the bioenergy market over the last 15 years? Most local and individual bioenergy investment decisions are based on business considerations in the local competitive heating markets. Taxes and charges are playing a central role. Today's growing bioenergy market is in fact the natural outcome of a long-term national energy policy.
Sweden's long-term national energy policy, adopted in the late 70s, states that the Swedish energy system, as far as possible, must be based on domestic and renewable energy sources with a minimum detrimental impact on the environment. This program has gradually been implemented over the years and is proving more and more successful as public concern over environmental issues grows stronger.
What energy policy control measures have been adopted to realise this program?
Historically, the energy market has largely consisted of regional and local monopolies. Thus energy investments have mainly been influenced by notions that are derived from a p]armed economy. Today, the basic and overall strategy is to utilise the qualities of the pricing system in a competitive market to allocate energy recourses. All fuels or all energy sources must in principle compete on their own merits. Environmental costs are internalised in the pricing system. A national energy and environmental policy cannot be pursued without taking regard to the limits imposed by conditions in the international market, and by European integration in particular. Nevertheless, as will be described later in this paper, taxes and charges play a central role in the financial calculations of different energy supply options.
The Swedish electricity market reform came into force on January 1 1996 as a consequence of this new approach. A clear separation has been made between production and trade in electricity, on the one hand, and the grid and local network operations on the other. Network operators are so-called natural monopolies and are therefore still regulated. Their task is to distribute electricity at a reasonable cost and on non- discriminatory basis, regardless of who is the producer, trader or endcustomer. Trade in electricity is not the object of special legislation.
Among other things the new competitive electricity market has brought the concept of "green electricity" to the fore. a concept that is being intensively debated. Power companies that are owners of what is regarded as green energy sources are proudly advertising and offering their green electricity production. Other suppliers with fossil or nuclear power production are trying to convince consumers that "green electricity" is pure nonsense. Whatever the case, a competitive market allows the customer to bring great influence to bear in determining to what extent electricity will be generated from renewables, e.g. bioenergy fuels, in the future.
To a great extent. the Swedish energy market reform is aimed at transferring the market forces from the political to the private sphere. Energy issues are nevertheless of considerable national political concern because of nuclear power. which has become something of a political soap opera (Sweden had a referendum on this 1980). The debate was once again resurrected during the 'reform work. The Energy Commission (a parl iamentary commission set up by the Government in 1994) submitted its final report in December 1996. Whatever their attitude to nuclear power. all the political parties are taking a positive stance on bioenergy.
Other political control measures to promote bioenergy have also been adopted: financing basic R&D programs. grants for prototypes or demonstration plants, grants for construction or reconstruction of ful]-scale DH or CHP plants, educational programs and information.
The Energy Commission recommends continued support for R&D programs and projects within the bioenergy field. In the efforts being made to find more efficient electricity production technologies. special focus has come to rest on the further development of biofuel gasification.
Probably the most important measure used to promote bioenergy has been the gradual internalisation of environmental externalities in the pricing system. Taxes, energy-taxes and C02-taxes are elements of decisive importance when producers are planning, calculating and deciding about new plants. An evident example can be seen in the price relationship between renewable wood fuels and solid fossil fuel coal. as illustrated in figure 6. The fuel cost of coal is about 0.8 c./kWh without taxes, and 4,0 c./kWh with taxes (C02-tax. S-tax. energy tax and VAT). Wood fuels cost about 1.5 c./kWh without taxes, and 2.0 c./kWh with tax (VAT only). Industry and the greenhouse cultivation sector are subject to a lower rate of taxation. Otherwise they would be at a competitive disadvantage vis-a-vis their non-domestic competitors.
Figure 6. Fuel prices, taxes and changes in Sweden 1995, c./kWh (USD 1 = SEK 6.8)
According to official reports and other studies. Sweden's physical potential to harness wood fuels for heat and electric power generation is as much as ten times its current level. However. there are still problems to be solved: ecological restrictions. the return of ashes. and the development of forestry technology among other things.
There is also considerable potential for biofuels that could be produced within the farming sector. Studies on feasible contributions from energy crops are much debated. and potential figures are very difficult to estimate. This market analysis is strongly linked to agricultural policy in general and the future use of cultivated land.
Many Swedish companies are now promoting the "greenness" of their products as a sales argument in their marketing. Often, companies apply to national or international environmental organisations to get their products examined and approved, giving them the right to mark their products with a special sign (e.g. the picture of a swan, a peregrine falcon etc.).
Bioenergy fulfils the criteria for environmentally acceptable manufacturing. Bioenergy or "green energy" may in this context be seen as a means to satisfy consumer preferences in a competitive market.
This concept accords with the core idea of Agenda 21 (the international commitment of the UNCED conference in Rio de Janeiro, June 1992). All of Sweden's 288 local authorities have accepted and adopted the mission of Agenda 21 . Local Agenda 21 committees, mostly chaired by high-ranking politicians, are busy working with local Agenda 21 programs. As regards energy, these programs generally include a discussion of possible energy conservation measures and future options to increase the use of renewable energy sources as well. In addition to serving as an investigative and planning instrument. the local Agenda 21 program is expected to influence public opinion and promote knowledge and awareness of environmental issues among the general public.
Already, for example. there is growing interest in wood firing, partly as a result of local information activities. More and more owners of single-family houses have already changed or are considering changing their oilburner to a wood pellets burner, or to a new boiler with wood log firing combined with a heating water storage tank. Both alternatives are examples of technologies that meet today's rather stringent environmental regulations on wood firing. In 1994 about 12 TWh were produced from wood fuels in single-family houses.
In that "bottom-to-top" planning perspective. which will be strongly encouraged and supported at local level. the behaviour and preferences of the market players will be of considerable importance in the future of energy supplying companies.The care of scarce and finite resources, the issue of recycling and circulation. and the goal of a sustainable environment and climate will influence consumer choice including future options in a competitive new energy market.
1 R. E. Leckström, Swedish Association of Local Authorities, S-118 82 Stockholm, Sweden e-mail: Rogert.Leckstrom@svekom.se and member of the board of the Swedish Bioenergy Association (SVEBIO), www.svebio.se
2 From Energy in Sweden 1996. NUTEK (National Board for Industrial and Technical Development)