Determination of the Potential Market Size and Opportunities for Biomass-to-Electricity Projects in China

Robert D. Perlack, Ph.D., Energy Division; Oak Ridge National Laboratory; Oak Ridge, Tennessee 37831

From the Proceedings, Second Biomass Conference of the Americas: Energy, Environment, Agriculture, and Industry; pages 49-54. Meeting held August 21-24, 1995, Portland, Oregon; published by National Renewable Energy Laboratory, Golden, Colorado.

Efforts are currently underway to assess the market potential and prospects for the U.S. private sector in biomass energy development in Yunnan Province. Among the specific objectives of the study are to: estimate the likely market size and competitiveness of biomass energy; assess the viability of U.S. private sector ventures; assess non-economic factors (e.g., resource, environmental, social, political, institutional) that could affect the viability of biomass energy; and recommend appropriate actions to help stimulate biomass initiatives. Feasibility studies show that biomass projects in Yunnan Province are financially and technically viable. Biomass can be grown and converted to electricity at costs lower than other alternatives. These projects if implemented can ease power shortages and help to sustain the region's economic growth. The external environmental benefits of integrated biomass projects are also potentially significant. This paper summarizes a two-step screening and rank-ordering process that is being used to identify the best candidate projects for possible U.S. private sector investment. The process uses a set of initial screens to eliminate projects that are not technically feasible to develop. The remaining projects are then rank-ordered using a multicriteria technique.

Energy use in rural China is typical of most rapidly industrializing developing countries. There is a household sector that is highly dependent on traditional biomass sources of energy -- firewood and agricultural residues (straw); and a growing industrial sector that meets its energy needs from both traditional and modern sources of energy.(1) In both of these sectors there are critical energy shortages that have led to worsening environmental conditions. The presence of shortages also means that existing industrial capacity is underutilized and/or good development projects are not proceeding at all.

The Joint Institute for Energy and Environment (JIEE) has been cooperating with Yunnan authorities since 1989 to investigate the possibility of using biomass to generate electricity.(2) Five teams of researchers have worked with Chinese experts and officials from Yunnan Province to plan, evaluate, and implement biomass-to-electricity projects.(3) Results of prefeasibility studies show that biomass-to-electricity projects in Yunnan Province are financially and technically viable. Biomass can be grown and converted to electricity at costs lower than other alternatives and can yield internal rates of return in excess of 15%. Study teams judged that biomass energy can ease power shortages and help sustain the region's economic growth, now averaging 8-10% annually.(4) Also, the external environmental benefits of biomass-to-electricity projects are potentially large, if replicated on region-wide scale. At present, tree plantations are being established in Yunnan Province and some plans are being made to co-fire existing sugar mills with bagasse and wood for year-round power production, and to construct stand-alone biomass-fired facilities.

Currently, there is a study underway to assess the market potential and prospects for the U.S. private sector in biomass energy development in Yunnan Province.(5) Among the specific objectives of this study are to: estimate the likely market size and competitiveness of biomass energy; assess the viability of U.S. private sector ventures; assess non-economic factors (e.g., resource, environmental, social, political, institutional) that could affect the relevancy of biomass energy; and recommend appropriate actions to help condition and stimulate biomass energy initiatives. This paper addresses the general approach that is being used to identify and rank-order biomass-to-electricity projects in Yunnan Province. The next section provides an overview of the screening and rank-ordering approach and some initial results.(6) The final section of the paper provides some conclusions and discusses future work.

A multicriteria screening model is being used to provide a rational and systematic procedure to identify the best investment opportunities for biomass-to-electricity projects in Yunnan Province. Past assessment efforts have identified two general types of projects. These are the conversion of agricultural processing mills (primarily sugar mills) to cogenerate heat and export power and the development of stand-alone biomass-to-electricity plants. The multicriteria screening model uses a two step approach:

• multiple technical screens (filters) to eliminate projects that are not technically viable,(7)
• and a multicriteria decision model to rank order the candidate list of biomass-to-electricity
• projects. A flowchart of this general approach is shown in Table 1.

The results from the first step are a list of technically feasible or candidate projects. The technical screens include:

• unavailability of land for biomass plantations (or existing feedstocks) within a 25 km of a mill site;
• no need for power (e.g., availability of inexpensive hydropower);
• development cost is prohibited or the plant is too small;
• the area is too remote or inaccessible;
• there are lower-cost alternatives available (hydro or coal); and
• there is no local management capability and/or there is a lack of interest in biomass on the part of local institutions.

The projects that survive the screening are considered to be technically feasible in that they possess either a mill location or an area to grow plantation trees and there is minimum infrastructure and a perceived need for the power. At this step, no indication of viability has been made, only technical feasibility.

The second step in the screening framework is to apply a multicriteria decision model to rank order the candidate projects. Multiattribute value theory (MAVT) is the most widely used approach for solving multicriteria ranking problems.(8) The basic MAVT decision model can be represented as follows:

where V(Xj) is the overall additive value function for candidate biomass-to-electricity projectj, wi is the weight assigned to criterion I, vi is the single attribute value function for xi, xi is the measurement on attribute I for project j, and n is the number of criteria.

The model is made operational in the following sequence of steps:

• define candidate projects (projects from initial technical screens) and decision criteria (hierarchy);
• evaluate each project separately on each criterion (scaling);
• assign weights to the criteria;
• aggregate the criterion weights and the single-criterion evaluations of the projects to obtain an overall measure of value or worth (e.g., additive value function);
• conduct sensitivity analyses;
• and rank order projects and determine potential market size.

In performing the actual ranking, four criteria are being used. These criteria are:

• the internal rate of return on the project,
• a biomass resource index,
• an index of the need for power, and
• a qualitative assessment of local capabilities to organize and implement the project.

Once appropriate scaling functions are developed and each screened project is evaluated, weights are assigned to the criteria. Table 2 summarizes one rank-ordering of potential projects that is based on assigning a weight of 4 on internal rate of return, a weight of 3 on the need for power, a weight of 2 on local capability to organize and implement the project, and a weight of 1 on biomass resources.

This rank-ordering is preliminary and could change with refinement of the criteria indices. The ranking is also sensitive to the choice of weights.(9) Different weights will produce different rankings. Sensitivity analyses are currently being performed.

Of interest to the U.S. private sector will be a rank-ordered list of specific candidate biomass projects. The JIEE is developing and refining this list as part of their current market assessment activities. Sensitivity analyses are also currently underway. Final projects results will be available this summer. In general, it was found that the two-step approach used to rank order projects was useful. It provided a systematic way to eliminate projects that would be difficult to implement and it provided a rational approach to prioritize specific projects for investment. However, the approach is data intensive and could not have been implemented without the cooperation and support of the Yunnan Environmental Science Institute.

1. Households account for about two-thirds of total rural energy use of which about 80% is firewood and agricultural residues (straw). Households consume slightly more than half of the rural commercial energy. About a quarter of total rural energy consumption or slightly more than half of the rural commercial energy goes to township enterprises. China's rural areas also produce a significant amount of the energy they consume. Return to text

2. The JIEE is comprised of Oak Ridge National Laboratory, the Tennessee Valley Authority, and the University of Tennessee. The JIEE is physically housed at the University of Tennessee. Return to text

3. The following major reports have been produced based on this cooperation:
Perlack, R.D., J.W. Ranney, and M. Russell, Biomass Energy Development in Yunnan Province, China, Oak Ridge National Laboratory, ORNL/TM-11791, Oak Ridge Tennessee, June 1991.
Russell, M., D. Jantzen, and Z. Shen, Electricity form Biomass: Two Potential Chinese Projects, Joint Institute for Energy and Environment, University of Tennessee, Knoxville, December 1991.
Jantzen, D. and M. Russell, Biomass-to-Electricity Projects in Yunnan Province, People's Republic of China, Joint Institute for Energy and Environment, University of Tennessee, Knoxville, June 1992. Return to text

4. Yunnan has officially expressed its desire to attract foreign companies to boost its economy in several sectors, including energy (Yunnan Foreign Trade and Economic Cooperation Bureau). Yunnan, which is landlocked in a country where economic development is focused on the coast, has joined Myanmar, Thailand, Laos, Cambodia, and VietNam (collectively the Mekong Six) to promote greater economic cooperation and trade. The Mekong Six have plentiful and motivated cheap labor and abundant natural resources, but lack infrastructure including power. Return to text

5. The market assessment and identification of investment opportunities in Yunnan is being undertaken in cooperation with the Yunnan Environmental Science Institute, Kunming. Return to text

6. A full report of the results of the market study can be found in Perlack R. D., et al., Opportunities for Biomass-to-Electricity Investments in Yunnan Province, China, forthcoming. Return to text

7. The number of potential applications is large. In Yunnan there are over 75 sugar mills for possible cogeneration and 128 counties that could be sites for stand-alone biomass electric facilities. Return to text

8. A detailed discussion of multicriteria decision making can be found in Perlack et al., Prototype Framework for R&D Decisions, Working Draft, Oak Ridge National Laboratory, December 1994. Return to text

9. It was hoped that final results of the screening and ranking exercise would be completed in time for the publication of these proceedings. However, a final report on the determination of opportunities for investment in biomass-to-electricity projects will be available from the author. Return to text