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Making the Most of Biomass Cogeneration Opportunities

By Todd Taylor
Whether you believe in climate change or support carbon cap and trade, one thing we can all agree on is that being more efficient and productive with your existing resources is a good idea. A key component of a drive for efficiency is looking at all of your inputs and outputs, especially those considered waste and a cost center, and finding ways to reduce costly inputs and increase revenue producing outputs. For companies that have significant electricity or natural gas needs coupled with access to biomass resources, biomass cogeneration may make a great deal of sense.

A simple explanation of how biomass cogeneration works can be taken from window manufacturer Andersen Corp. In 2005, executives at Andersen's Bayport, Minn., plant grew concerned that their growing need for steam could not continue to be met by the utility and their own existing, but old, wood boiler. Because Andersen generates a large amount of wood waste in its operations, it made sense to utilize that wood for its steam needs in a cogeneration plant. By mid-2007, the Bayport plant was producing all of its own steam and the plant won a 2007 Minnesota Environmental Initiative Award and was profiled in the October 2007 issue of this magazine.

Pulp and paper companies can utilize black liquor or wood residues, others can use their organic wastes, while still others can arrange to buy biomass from surrounding providers. Many communities are increasingly looking to utilize their garbage as a feedstock for renewable energy for gasification or anaerobic digestion. Grocery store chains are looking to use their waste food in anaerobic digestion systems to produce renewable natural gas. Old railroad ties, tires, diseased trees, rice hulls, corn stover and other biomass materials are being considered as feedstock for power production, turning what could otherwise have been an expense into a cost savings or even a revenue generator.

The potential benefits to a well-engineered and run cogeneration system include reducing or eliminating purchases of electricity or steam from third parties, reducing or eliminating disposal costs of "waste" biomass and, possibly, the ability to sell excess electricity generation to the grid. When evaluating these potential benefits, make sure to evaluate current utility contracts, including whether you may need a standby power agreement in case your system suffers a failure. Selling excess electricity to the grid sounds great, but may not be that easy because not every state permits net metering and sales back to the grid. Even if they do, you will have to negotiate a power purchase agreement with the utility and may have to arrange for connection to the transmission system, depending on the size of your project. Biomass power is typically considered renewable and usually eligible for preferential treatment under state renewable portfolio standards.

Another potentially significant, but as of yet mostly unrealized, benefit to biomass cogeneration could be reducing the carbon footprint of your business. While the battle within the U.S. EPA and other agencies about whether biomass should receive any benefits under a carbon cap-and-trade system rages, it seems likely that reducing the carbon footprint of a sizable facility formerly powered by coal or natural gas by using biomass cogeneration should result in significant savings as well as afford an opportunity to sell the resulting credits in a new carbon cap-and-trade market.

If you decide that biomass cogeneration may be right for you, here are some things to consider. First, make sure the equipment and technology you will be using is suitable for your needs and feedstock. There have been a number of recent instances where a technology was not properly paired to a facility and feedstock supply, resulting in significant losses and even litigation. Not every technology is suited to every need. If you expect to be involved in developing some of your own technology or solutions, work out the ownership of any jointly developed intellectual property up front with the technology provider. Make sure to research state, local and federal incentives carefully. On the surface, many of these incentives look terrific, but there are often hidden costs and pitfalls that may make them far harder to obtain than you may think. Be aware of potential community opposition. Unfortunately, biomass power is starting to experience local opposition. Be proactive and engage key stakeholders early. Part of engaging key stakeholders is determining early on what permits will be required and being aware of the costs and timelines to acquire those permits. An experienced adviser can help you navigate these issues and make sure your project is a success.

Todd Taylor is a shareholder in Fredrikson & Byron's corporate, renewable energy, securities and emerging business groups. Reach him at ttaylor@fredlaw.com or (612) 492-7355.
 

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