Six Sources of Energy One Energy System

8/20/2019 Six Sources of Energy One Energy System

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Six Sources of Energy –One Energy System

Vattenfall’s Energy Portfolioand the European Energy System


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A book by Vattenfall AB

Design: Pontén & Engwall

Illustrations: Svenska GrafikbyrånPhotos: Anders Holmberg Gorgen, Tomas Bergman, Vattenfall AB, Johnér, Istock and Scanpix.

Print: Alloffset, Stockholm, February 2011


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4 | SIX SOURCES OF ENERGY

INTRODUCTION

Introduction

The Energy Triangle ..........................................................................7Competitiveness ............................................................................. 8Security of supply ........................................................................... 8Climate and environment ........................................................ 10Balancing the three dimensions .......................................... 11

The European Energy System .................................................. 12

The energy system – from energysource to end-users ................................................................... 13Electricity – an energy carrier on the rise .......................13A common energy policy for Europe ..................................15

New trends on the European energy market ................15Emissions trading – a way to reduceCO

2emissions .................................................................................15

Vattenfall’s Energy Portfolio .................................................... 16

Vattenfall’s strategic direction .............................................16Vattenfall Group ............................................................................18Strategy to reduce CO

2 exposure .......................................18

Improving end-use efficiency and reducingenvironmental impact ................................................................19Six energy sources in Vattenfall’s energy mix ............. 20

Glossary .............................................................................................. 98

Biomass

The Energy Triangle – Biomass ............................................................24The Development of Biomass Power Generation ....................... 25

An old energy source with new applications ............................. 25Definition of biomass and bioenergy.............................................. 25

Biomass Becomes Electricity and Heat ........................................... 26

Co-firing biomass with coal ................................................................. 26Different biofuels in power generation ......................................... 26

Biomass in Europe ....................................................................................... 28

An energy source with growth potential ...................................... 28Biomass – Opportunities and Challenges ...................................... 29

Large land areas required ..................................................................... 29Managing sustainable biomass ......................................................... 29A continuing carbon cycle makes biomasscarbon neutral ............................................................................................. 29Biodiversity an important issue ......................................................... 29Political support varies ........................................................................... 29

The Future of Biomass .............................................................................. 30

Untapped potential but increased importsstill needed .................................................................................................... 30Uncertainty about future investments ......................................... 30Cost competitiveness dependent on

the price of CO2 emissions ................................................................... 30A developing market ................................................................................ 30Biomass technology under constant development .............. 31National conditions decisive ............................................................... 31

Vattenfall and Biomass ............................................................................ 32

Vattenfall’s biomass operations ....................................................... 32Sourcing sustainable biomass – rubber trees from Liberia ..... 32Vattenfall’s biomass operations going forward....................... 32Toward a sustainable biomass production ................................. 33

Summary .......................................................................................................... 33

Coal PowerThe Energy Triangle – Coal Power ...................................................... 36

The History of Coal ..................................................................................... 37

An energy source with long history ................................................. 37Coal in many forms .................................................................................... 37

How a Coal-fired Power Plant Works ................................................ 38

Coal becomes electricity ...................................................................... 38Coal extraction – how it works .......................................................... 38Coal technology under constant development ....................... 39

Coal Power in Europe................................................................................. 40The Future of Coal Power ....................................... .......................... ....... 41

Carbon Capture and Storage –underground storage of CO

2 .............................................................. 41

CCS technology – separation, transport and storage ........ 42CCS technology going forward ......................................................... 43Co-firing of biomass a way to reduce emissions ...................... 43

Vattenfall and Coal Power ...................................................................... 44

Vattenfall’s coal power operations ................................................. 44Vattenfall’s coal power operations going forward ................. 44Strategy to reduce CO

2

exposure .................................................... 44Vattenfall’s investments in CCS ....................................................... 45

Summary .......................................................................................................... 45

Vattenfall AB (publ)SE-162 87 Stockholm, SwedenVisitors: Sturegatan 10Telephone: +46 8 739 50 00

For more information, please visit www.vattenfall.com


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INTRODUCTION

ONE ENERGY SYSTEM | 5

Hydro Power

The Energy Triangle – Hydro Power ...................................................48The History of Hydro Power....................................................................49

Sweden – an example of the significanceof hydro power ............................................................................................. 49Global and local considerations conflict ...................................... 50

How a Hydro Power Plant Works .......................... ......................... ...... 51

Hydro power’s significance as balancing power ..................... 52Long useful life and low operating costs ...................................... 52Environmental consideration and fish conservation ............ 52

Hydro Power in Europe.............................................................................. 53

Hydro power in European countries ............................................... 53Safety and environmental considerations .................................. 53New technology brings more hydro power to Europe ........... 53

The Future of Hydro Power ........................................... ......................... . 54

Great potential for small-scale hydro power ............................. 54Pumping power increases system reliability ............................. 55Ocean waves are an untapped resource ..................................... 55Tidal energy – a blend of old and new technology .................. 55Osmotic power – an innovative idea withgreat potential ............................................................................................. 55New technologies on the way – but the traditional

ones remain important ........................................................................... 55Vattenfall and Hydro Power ................................................................... 56

Vattenfall’s hydro power operations .............................................. 56Vattenfall’s hydro power operations going forward.............. 57

Summary .......................................................................................................... 57

Natural Gas

The Energy Triangle – Natural Gas ..................................................... 60

The History of Natural Gas ..................................................................... 61Natural gas – a fossil energy source .............................................. 61Extraction and deposits in the world .............................................. 62Europe’s natural gas network............................................................. 62European gas market reform .............................................................. 62

The Natural Gas Value Chain ................................................................. 63

Application fields of natural gas ....................................................... 63Natural gas extraction – how it works ........................................... 63Transport and distribution of natural gas .................................... 64Natural gas becomes electricity and heat .................................. 64

Natural Gas in Europe ............................................................................... 65

Continued import dependence in Europe ................................... 65The Future of Natural Gas ....................................................................... 66

A fossil gas with future potential ...................................................... 66Natural gas technology under constantdevelopment................................................................................................. 66Large variations in price ........................................................................ 66The development of public opinion and policy .......................... 67

Vattenfall and Natural Gas ..................................................................... 68

Vattenfall’s natural gas operations................................................. 68Vattenfall’s natural gas operations going forward ................ 68

Toward a climate neutral energy supply ....................................... 69Summary .......................................................................................................... 69

Nuclear Power

The Energy Triangle – Nuclear Power ............................................... 72The History of Nuclear Power................................................................ 73

Massive nuclear expansion in the 1960s and 1970s ............. 73Nuclear accidents impacted public opinion ............................... 73Comprehensive safety developments .......................................... 74

How a Nuclear Power Plant Works ..................................................... 75

Splitting an atomic nucleus.................................................................. 75From uranium mine to nuclear fuel ................................................... 75Waste management – from reactor to terminal storage .... 75

Nuclear Power in Europe.......................................................................... 77

Nuclear power a crucial part of EU’selectricity generation ............................................................................. 77Major differences between European countries .................... 77Nuclear power on the rise ..................................................................... 77

Constructing a Nuclear Power Plant ................................................. 78

The financial conditions of nuclear power .................................. 78Planning – site selection ........................................................................ 78Availability of nuclear power plant designs ................................ 78Storage of spent nuclear fuel ............................................................. 79

The Future of Nuclear Power ................................................................. 80

A new generation of nuclear power ................................................ 80

Development of generation IV reactors ....................................... 80Fusion energy – an energy source of the future? .................... 81

Vattenfall and Nuclear Power ............................................................... 82

Vattenfall’s nuclear power operations .......................................... 82Vattenfall’s nuclear power operations going forward ......... 83

Summary .......................................................................................................... 83

Wind Power

The Energy Triangle – Wind Power ....................... .......................... .... 86

The History of Wind Power ..................................................................... 87How Wind Power Works ........................ .......................... ......................... 88

Wind turbines today ................................................................................. 88Wind farms .................................................................................................... 89Wind power and electricity generation ........................................ 89Good wind position is a project ’s first step ................................. 89Wind Speed ................................................................................................... 90Offshore construction presents special challenges ............ 90

Wind Power in Europe ............................................................................... 91

Strong growth ............................................................................................. 91Support systems promote expansion

of European wind power .................................................................................. 92Germany and Spain lead the pack .................................................... 92Extensive authorisation process in European countries.... 93

The Future of Wind Power ........................ .......................... ..................... 94Increasingly large wind farms in the future ................................. 94New demands on future electricity system – smart grids .. 95EU continues to invest in wind power ............................................. 95

Vattenfall and Wind Power ..................................................................... 96Vattenfall’s wind power operations ................................................ 96Vattenfall’s wind power operations going forward ................ 96Smart grids – an important tool for increasing the

share of wind power in the energy mix ........................................... 97Summary .......................................................................................................... 97


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6 | LOREM IPSUM 20116 | SIX SOURCES OF ENERGY

This chapter introduces the Energy Triangle, a model used to illustrate the balance

between three key dimensions in society’s need for energy – competitiveness,

security of supply and environment and climate. The chapter also includes an intro-

duction to the European energy system and an overview of Vattenfall’s energyportfolio.

INTRODUCTION


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INTRODUCTION


In supplying society with its energy needs, a balance must be struck between three key dimensions: competi-

tiveness, security of supply, and the environment and climate. In other words: How much are we ready to pay

for our energy? How much energy does society need? And what impact on the environment are we willing to

accept? This ”energy triangle” illustrates the pros and cons of each energy source and the need for a mix of

complementary energy sources in power production. Currently, no single energy source is optimal from all

dimensions; each has advantages and disadvantages.

The Energy Triangle

The Energy Triangle

Climate and environment

All energy sources have environmental impact during their lifecycles. Combustion of energy sources, particularly fossi l fuels, gen-erates CO

2 emissions and contributes to global warming. In the long

run, emissions from power production will need to be close to zero ifgreenhouse gas levels in the atmosphere are to be stabilised .

Competitiveness

Energy is a fundamental input to economic activity, and thusto human welfare and progress. The costs of producing energyvary between different energy sources and technologies.A competitive energy mix will keep overall costs as low aspossible given the available resources.

Security of supply

Fuel shortages and unreliable electricity systems cause societaland economic problems. Securing supply means guaranteeingthat primary energy is available, and that delivered energy isreliable, essentially 100 per cent of the time. This is both a politicaland a technical challenge.


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Competitiveness

Energy is a fundamental input to economic activity, and there-

fore to human welfare and progress. Historically, decreasingcosts of energy have helped to stimulate economic growth, and

today many industries must manage their energy costs in order

to compete in the global marketplace. Energy costs can be kept

low by improving the efficiency of energy end-use, or by lower-

ing the costs of power generation.

The costs to produce energy carriers such as electricity, heat

and fuels vary between different energy sources and technolo-

gies. Broadly speaking, power production costs are comprised

of capital costs and operating costs. Capital costs includefinancing power plant construction, and operating costs

include fuel inputs and power plant maintenance.

Societies generally seek out an energy mix that will keep the

overall costs of delivered energy as low and stable as possi-

ble for households and businesses. Managing capital costs is

usually a question of scale and time: power plants that deliver

large volumes of energy over many decades can spread out

the costs of capital investments. Managing operating costs is

usually done through securing cheap and reliable fuels andmaintaining technically efficient systems.

A competitive energy mix will keep overall costs as low as

possible given the available resources. Large hydro plants,

for example, require huge capital investments but produce a

great deal of electricity over a long period of time, and there-

fore have a low overall cost. Typically, countries that have rivers

in mountainous regions have therefore elected to build hydro

power. Coal and nuclear plants can also be built at large-scale

and have long life spans, and coal and uranium have traditionally

been relatively inexpensive. Gas-fired power plants have facedhigher fuel costs but can be built economically at a smaller

scale, thus decreasing capital costs. Wind farms are expensive

to construct and have shorter life spans, but have no associated

fuel costs.

Historically, electricity costs have been kept at their lowest by

building capital-intensive energy infrastructure that lasts many

decades. In time, flexible and distributed technologies may make

other options more cost-competitive. But keeping energy costs

manageable will continue to be a priority for most societies.

Security of supply

Energy’s role in the economy is such that access to energy

needs to be secure. Shortages of fuels and unreliable electri-

city systems have tended to cause problems for societies and

economies. Fuel for transportation, fuel for heating, and electri-

city for lighting and critical infrastructure must be available

at all times to deliver the standard of living expected in many

countries. Securing supply therefore means guaranteeing that

primary energy is available, and that delivered energy is reliable,

essentially 100 per cent of the time. This is a major political and

technical challenge.

Security of supply in a country’s energy system is closely linked

to energy self-sufficiency. For countries that are dependent on

importing large amounts of primary energy, relationships with

their energy-exporting counterparts are key to maintaining a


INTRODUCTION

Historically, electricity costs

have been kept at their lowest by

building capital-intensive energy

infrastructure that lasts many

decades. In time, flexible and

distributed technologies may

make other options more cost-

competitive. But keeping energy

costs manageable will continue

to be a priority for most societies.


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stable level of energy availability. In these cases, foreign and

national security policies are closely intertwined with energy

policy. Since there is a risk that geopolitical factors may cause a

disruption in primary energy supply, most countries endeavour

to use domestic energy sources to the greatest extent possible.

The graph above provides an overview of the energy dependency

of a sample of European countries, showing the share of total

energy consumption that is imported from other countries.

In terms of electricity generation, security of supply entails

using secure sources of primary energy in power plants and

delivering the electricity reliably, when and where it is needed.

Options for storing electricity are currently limited, which means

that a balance must be continuously struck between generation

and consumption. Identical amounts of electricity are produced

and consumed within the system at any given time, creating a

need for delivery assurance in electricity generation.

To meet the portion of society’s electricity demand that is

stable over time, we need power plants that can continuous-

ly produce large quantities of electricity (”baseload power”).

Large-scale nuclear, fossil-based, and hydro power stations

can provide this kind of power.

Most renewable energy sources, such as wind and solar

power, are intermittent. They can only provide electricity under

the right conditions, and are therefore not able to function

as baseload power. Solar cells and wind turbines, for example,

produce energy when the sun shines or the wind blows.

INTRODUCTION


Energy dependency is defined as the net amount of energy imported , divided

by gross energy consumption. Source: Eurostat, Energy Yearly Statistics 2010

Energy dependency (2008)

n Denmark -37% (net exporter)

n France 51%n Germany 61%

n Netherlands 38%

n Poland 20%

n Spain 81%

n Sweden 37%

n UK 21%

n Finland 55%

100

80

60

40

20

0

– 20

– 40

%


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or oil, can play a role as a bridging technology. To reduce the

climate impact of power plants, old plants can be replaced with

new, more efficient ones. In the long term, fossil power plantscan be equipped with technology that prevents the release of

CO2 into the atmosphere (CCS, Carbon Capture and Storage,

technology).

In the long run, emissions from power generation will need to

be close to zero if we are to stabilise greenhouse gas levels. Given

the long life span of most energy infrastructure, achieving this

requires long-term planning on the part of the business community

and policy makers.

Balancing the three dimensions

Achieving cost-competitiveness, securing supply and minimising

the energy system’s impact on the environment and climate

requires some trade-offs. These trade-offs are not identical for

each energy source, and energy technology characteristics

change over time. Nonetheless, improving one dimension of the

energy system often entails making sacrifices along another

dimension. For instance, sourcing cost-competitive energy mayincrease a country’s dependence on unstable energy imports,

and using fossil fuels to improve security of supply will have a

negative climate impact. And managing environmental impact

frequently entails increased costs. ”Win-win-win” solutions

do exist, particularly in terms of improved energy efficiency.

Technological developments and improved electricity network

design will deliver even more. Today, however, balancing the

three points of the triangle requires a mix of complementary

energy sources. Finding the balance between these threedimensions is ultimately a societal and political decision.

INTRODUCTION



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Access to energy plays a key role in economic development and

welfare throughout the world. Since the 1800’s, technological

breakthroughs such as electricity and the internal combustion

engine have altered and improved the way we use energy, laying

the foundation for today’s society, industries and transportation.

The modern energy system is central to much of what we take for

granted today and electricity is a prerequisite for life as we know it.

Hospitals need electricity to function; we need electricity for food

production and food storage, to communicate with each othervia mobile phones and computers, to heat our homes and to get

clean drinking water from our taps. Electricity is also needed

for industrial and household processes and is often much more

efficient than fossil-based processes, making it a better option

from an environmental perspective.

The energy supply’s central role in society has placed energy

issues high on political agendas throughout the world. Issues

regarding types of energy to use, power plant location and

energy import/export are largely controlled through political

decisions, which include national security considerations. Energy

policy is also closely linked to climate policy and efforts to

reduce greenhouse gas emissions. Energy consumption in

its various forms (e.g., transportation, heating and electricity

consumption) accounts for approximately two-thirds of global

greenhouse gas emissions and is thus an important factor in

efforts to stem global warming.2

The world’s energy demands have grown dramatically in

recent decades. Total global energy consumption has nearly

tripled since 1965.3 In 2008, the EU accounted for 14 per cent

of the total global energy demand and is therefore an important

player in the global energy system.4

Although per capita energy consumption has not increased

to the same extent, and although energy systems have become

more efficient, the Earth’s population (and thus total energy

demand) continues to grow. There is a clear correlation between

economic development and energy consumption; when pro-

duction increases rapidly, there is a surge in energy demand.

But the correlation between growth and energy consumption

becomes weaker as countries become more affluent.

The energy mix in the European Union’s electricity generation

is dominated by fossil energy sources. Oil, coal and natural gas

account for 54 per cent of EU electricity generation. Coal and

nuclear are the two largest energy sources, each constituting

The European Energy System

MTOE – Million Tonnes of Oil Equivalent – is a unit of energy commonly used for comparisonsof energy content between different energy sources


INTRODUCTION

Global energy consumption (1965-2009)

Source: BP Statistical Review of World Energy, 2010

Asia & Pacific

Africa

Middle East

Central & South America

North America

Europe & Eurasia

1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

12,000

10,000

8,000

6,000

4,000

2,000

0

MTOE


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INTRODUCTION


28 per cent of electricity generation. Hydro power constitutes

11 per cent, biomass and waste three per cent and wind power

four per cent. On a global level, fossil fuels play an even more

important role, constituting about two-thirds of total electricity

generation.5

The energy system – from energy source to end-users

A modern energy system can be viewed as a value chain that

starts with theenergy source (e.g., wind, water, oil) and concludeswith end-use. In order for us to utilise the energy stored in energy

sources, they must be converted into energy carriers. An energy

carrier is a material or process that is used to store and/or trans-

port energy. The most common energy carriers are electricity

and oil.6

After the conversion process, energy carriers are transported

through a distribution system to the end-user. Power networks

and electric cables are used to transport electricity, while distri-

bution systems for fuel include the use of tankers and lorries.

Energy end-use is normally divided into three sectors: industry,

transport and housing. Since a large amount of the energy

supplied to power plants cannot be utilised and is lost during

energy conversion and distribution, final consumption in the

energy system is considerably lower than the amount of energy

supplied from the energy sources at the beginning of the value

chain. Of the total amount of energy supplied, less than half is

utilised in the end-use process. In order to lower the amount of

energy lost during conversion and distribution, energy research

is largely focused on making these processes more efficient.

Electricity – an energy carrier on the riseElectricity is an energy carrier that is efficient in transporting

energy over long distances. It also has an extremely wide range

of applications as compared to motor fuel, for example, which is

used solely to run vehicles. The share of electricity in final energy

consumption in EU countries increased from 16 per cent in 1990

to over 20 per cent in 2008.7

The electricity system links electricity-producing power plants

with electricity-consuming end-users via a power network. Power

plants produce electricity by converting energy from different

energy sources, while end-users consume electricity by doing

things like running industrial machinery or turning the lights on at

home.

The electricity system

The electricity system links electricity-producing power

stations with electricity-consuming end-users via a powernetwork.


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The composition of different energy sources in the electricity

system is usually referred to as the energy mix . European coun-

tries differ significantly in terms of the energy mix used in elec-tricity generation. Geographical and geological conditions,

combined with political decisions and public opinion, form the

basis of energy mix composition in each country. For instance,

Sweden’s geographical conditions (many rivers and great dif-

ferences in altitudes) mean that the country can use a large

amount of hydro power in its energy system. Similarly, large coal

reserves in Poland mean that coal power dominates Poland’s

electricity generation, while large-scale hydro power is not part

of their energy system. Geothermal energy is dependent ongeological conditions and plays a significant role in some parts

of the world (e.g., Iceland). The use of solar power is progressing

rapidly (albeit from low base levels), especially in hot and sunny

regions.

Apart from geographical and geological conditions, public

opinion is quite significant in determining the composition of

a country’s energy mix. This is particularly evident in terms of

nuclear power. In France, for instance, there has historically been

broad acceptance of nuclear power, and this has contributed

to nuclear’s current position as the predominant energy source

in France’s energy mix. Conversely, in Denmark there has been

strong, long-standing opposition to nuclear power; nuclear is

therefore not part of the Danish energy supply. In other countries,


INTRODUCTION

According to British researchers, the Internet consumes three to

five per cent of annual global electricity supply, or between 600 and

1,000 TWh. In comparison, India’s total annual electricity genera-

tion is around 830 TWh.

The EU energy mix in electricity generation (2008)

Wind 4%

Hydro 10%

Nuclear 28%

Biomass & waste 3%

Natural Gas 24%

Oil 3%

Coal 28%

4%

3%

3%

28%

24%

10%

28%

Source: IEA, World Energy Outlook 2010


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such as Sweden, public opinion on nuclear power has become more positive. In the

summer of 2010 the Swedish Parlament passed a bill lifting the ban on new reactors.

A common energy policy for Europe

A number of EU processes and decisions in recent years have resulted in the develop-

ment of a common European energy policy. Due to the need for a coherent strategy

to meet the challenges facing the European energy system, the EU has an increas-

ing amount of influence on member states’ national energy policies.

The common energy policy focuses on securing long-term energy supply, halting

climate change and building the foundation of a competitive energy sector. This is

accomplished in part by harmonising the European electricity markets, as electricity

trading between countries is currently complicated by varying technical standards

and power network designs. Security of supply is particularly important considering

the fact that the EU currently imports over half of its energy needs.

In the area of climate change, a 20-20-20 goal has been established. This goal

forms the basis of the EU’s climate efforts through the year 2020. The goal is to

increase the proportion of renewable energy sources used in the energy mix to 20

per cent, reduce CO2 emissions by 20 per cent from 1990 levels, and make energy

consumption 20 per cent more efficient.8

New trends on the European energy market

Demand on the European energy market fell sharply in 2009 due to the financial

crisis and a slowdown in industrial production. The electricity consumption growth

rate is expected to be weak in the future, and it

will most likely take more than 10 years for

electricity consumption to reach 2008 levels.

Several factors contribute to weak long-term

growth. Many energy-intensive manufacturing

industries have relocated from Europe to Asia,

and the growing European service sector does

not require such large amounts of energy. The

EU goal of making energy consumption 20 per

cent more efficient is also expected to have

a negative impact on electricity demand.

Even so, the share of electricity in total energy

consumption is likely to increase given the fact

that electricity in the long term is expected to replace, for example, petrol as the

primary fuel for cars.

On the supply side, the trend is expected to move from the centralised produc-

tion of today to a larger share of renewable energy sources and decentralisation ofproduction. The EU’s transition to auctioning emission rights as of 2013, as opposed

to allocating them free of charge, is expected to accelerate the trend. Higher costs

for emitting CO2 into the atmosphere will strengthen the competitiveness of energy

sources that emit relatively little CO2. But fossil energy sources will continue to play

an important role in many countries in terms of meeting energy needs and assuring

the energy supply.

INTRODUCTION


EMISSIONS TRADING – A WAY

TO REDUCE CO2 EMISSIONS

The EU’s Emissions Trading Scheme waslaunched in January 2005, the world’s first

large-scale trading system for greenhouse

gas emissions. Under the scheme, each

member state sets a cap on the total allow-

able amount of carbon dioxide emissions. To

ensure that the cap is not exceeded, emis-

sion rights are distributed to industries and

energy companies that cause emissions. If a

company produces CO2 emissions below the

mandatory cap, it can save its emission rights

for the next period or may sell the surplus

to other companies that need to emit more.

The system rewards companies that reduce

their emissions by allowing them to sell their

remaining emission rights, while companies

that need to emit more are penalised by being

forced to purchase more emission rights.

The next trading period under the trading

scheme starts in 2013 and will incorporate a

number of changes. The aviation sector will

be included in the system and a common, EU-

wide cap on the total allowable amount of

CO2 emissions will be set. The long-term plan

is to gradually increase in the proportion of

auctioned emission rights, with all emission

rights sold via auction by the year 2030.

The share of electricity in total

energy consumption is likely

to increase given the fact that

electricity in the long termis expected to replace, for

example, petrol as the primary

fuel for cars.


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Vattenfall’s energy mix reflects the energy mix in the countries

in which Vattenfall operates. Within this framework, Vatten-

fall continuously strives to improve its operations by making

them cleaner, safer and more efficient. Vattenfall’s approach is

based on the inherent strengths and weaknesses found in each

particular form of energy and on existing political and societal

expectations.

Vattenfall’s German operations are based on nuclear and

coal power since these energy sources feature prominently inGermany’s energy mix. Similarly, the Swedish operations are

based on hydro and nuclear power, sources that account for

89 per cent of Swedish electricity generation overall.9 The

Netherlands has large natural gas resources, and Vattenfall’s

generation of electricity and heat in the Netherlands is more

than 40 per cent gas-based. In Great Britain, which has an ambi-

tious development scheme for offshore wind power, Vattenfall

is one of the major offshore wind operators. Poland’s energy

system is based almost entirely on coal, which is why Vattenfall

is active in Polish coal power.

Vattenfall’s strategic direction

Vattenfall’s vision is to create a strong and diversified Europe-

an energy portfolio with sustainable and increased profits andsignificant growth options, and to be among the leaders in

developing environmentally sustainable energy production.

Vattenfall has grown substantially over the past decade,

going from around 13,000 employees in 2000 to roughly 38,000

in 2010. Following a period of expansion, Vattenfall is now

Vattenfall’s Energy Portfolio

Source: IEA Statistics, Electricity generation 2010; Vattenfall Annual Report 2009

Electricity generation (2008)

Wind

Hydro

Nuclear

Biomass & waste

Natural Gas

Oil

Coal

Germany

Wind: 6%Hydro: 4%Nuclear: 23%Biomass & waste: 5%Natural Gas: 14%Oil: 1%

Coal: 46%Total: 637 TWh

Germany Sweden

The Netherlands

Wind 4%Hydro 0%Nuclear 4%Biomass & waste 6%Natural Gas 59%Oil 2%Coal 25%Total: 108 TWh

The

Netherlands

Vattenfall

VattenfallVattenfall

Vattenfall’s electricitygeneration in the NetherlandsTotal: 14 TWh

Vattenfall’s electricitygeneration in GermanyTotal: 69 TWh

Sweden

Wind 1%Hydro 46%Nuclear 43%Biomass & waste 7%Natural Gas 0%Oil 1%

Coal 1%Total: 150 TWh

Vattenfall’s electricitygeneration in SwedenTotal: 80 TWh


INTRODUCTION


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entering a consolidation phase. Over the coming years Vatten-

fall will focus on its core markets (i.e., markets in which Vatten-

fall holds a strong position). Today, Vattenfall’s core markets

are Germany, Sweden and the Netherlands. Vattenfall holds a

top-three position in these markets, which provides economies

of scale and allows Vattenfall to play a significant role in poli-

cy-related discussions at the national and EU levels. Vattenfall

also considers the United Kingdom to be an important growth

market, based chiefly on Vattenfall’s strong position in offshorewind power there.

Vattenfall will remain an integrated but generation-focused

utility with a diversified generation portfolio, and will increase

the share of low-emitting and renewable electricity generation

in its portfolio.

In coming years, organic growth within generation will be

focused towards wind, nuclear and gas-fired power plants,

and on hydro power if possible. Vattenfall will also invest in bio-

mass co-firing in existing hard coal-fired power plants, based

on the anticipated availability of future support. This will allow

Vattenfall to reduce its current high CO2 exposure, which will

entail major emitter costs in the future. Vattenfall’s portfolio

emissions will be reduced more rapidly than the market average

towards the EU’s 2020 targets.

Electricity generation (2008)

The WorldWind 1%Hydro 16%Nuclear 13%Biomass & waste 1%Natural Gas 21%Oil 5%Coal 41%Total: 20,183 TWh

Source: IEA World Energy Outlook 2010; Vattenfall Annual Report 2009

The World

EU

Wind

Hydro

Nuclear

Biomass & waste

Natural Gas

Oil

Coal

EUWind 4%Hydro 10%Nuclear 28%Biomass & waste 3%Natural Gas 24%Oil 3%Coal 28%Total: 3,339 TWh

VattenfallWind 1%Hydro 24%Nuclear 28%Biomass & waste 1%Natural Gas 3%Oil 0%Coal 43%Total: 162.1 TWh

INTRODUCTION


Vattenfall


18/100

Strategy to reduce CO2 exposure

Vattenfall intends to significantly reduce its CO2 exposure by 2020. Carbon dioxide

emissions represent a cost to Vattenfall. The EU Emissions Trading Scheme is push-ing the market towards reduced CO2 emissions by levying a cost on CO

2 released

into the atmosphere. Companies with high CO2 emissions are therefore subject to

large financial exposure. Vattenfall is a large emitter in Europe. In order to reduce its

high exposure to the price of CO2, Vattenfall intends to cut its CO

2 exposure from 90

million tonnes in 2010 to 65 million tonnes by 2020.

Vattenfall’s strategy for reducing its CO2 exposure has three main parts:

n Divestments. Not only driven by Vattenfall’s intention to reduce its CO2 exposure,

but also focused on businesses where Vattenfall is not the most suitable owner.Divestments are expected to reduce exposure by 12 to 14 million tonnes per

year.

n Replacement of hard coal with biomass to achieve a reduction of 8 to 10 million

tonnes. An extensive biomass programme is underway and has already produced

good results.

n Lower utilisation rates of older coal-fired plants, and replacement of non-com-

mercial plants with gas, biomass, or CCS when commercially viable. Anticipated

reduction of 12 to 14 million tonnes per year.

Completion of the new Moorburg and Boxberg power plants will cause a slight increase

in emissions during the next few years, after which emissions will be gradually reduced

through 2020. Phase two of the Nuon Magnum multi-fuel plant will also be pursued.

110

100

90

80

70

60

50

40

30

20

10

0

2010 Boxberg, Divest- Co-firing Replace- 2020Moorburg ments of biomass ment of non-

and coal commercial plants

90

10 12-14

8-10

12-14

65

Vattenfall’s strategy for reducing CO2 exposure 2010-2020


INTRODUCTION

VATTENFALL GROUP

Vattenfall is one of Europe’s largestelectricity generators and its largestheat producer. Consolidatedannualised sales as of September2010 totalled SEK 223 billion.

Vattenfall’s main products areelectricity, heat and gas. In theareas of electricity and heat,Vattenfall works in all parts of the

value chain: generation, distribu-tion and sales. In the gas area,Vattenfall is primarily active insales. Vattenfall is also engaged inenergy trading and lignite mining.

The Group has approximately38,000 employees. The parentcompany, Vattenfall AB, is wholly-owned by the Swedish state. Core

markets are Sweden, Germany andthe Netherlands. In 2010 opera-tions were also conducted in Bel-gium, Denmark, Finland, Poland andthe UK. Key facts and figures

n Net sales: SEK 223.4 billioni

n Operating profit: SEK 39.3billioni,ii

n Total assets as of 30 September2010: SEK 528.7 billion

n Electricity generation: 169.8TWh i

n Heat sales: 42.0 TWhi

n Gas sales: 55.7 TWhi

n Total number of employees asof 30 September: 38,438iii

n Customers as of 31 December

2009: 7.5 million electricitycustomers, 2.1 million naturalgas customers and 5.7 millionelectricity network customers

i) Latest 12-month figure as of

30 September 2010

ii) Excluding items affectingcomparability

iii) FTE (Full Time Equivalents)

Mtonnes


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20/100

Six energy sources in Vattenfall’s energy mix

Vattenfall’s mix of six energy sources is one of the strongest and most diversified

portfolios in Europe, and provides significant growth options. Vattenfall’s breadthallows a high degree of flexibility and risk diversification. It also gives Vattenfall the

strength needed to explore new solutions, such as development of Carbon Capture

and Storage (CCS) technology.

BIOMASS PROVIDES GOOD POTENTIAL

TO REDUCE CO2 EMISSIONS

Biomass is a renewable energy source that has the potential to play a key role in

reducing CO2 emissions from existing coal power plants in Europe, and can be usedto produce both heat and electricity. Vattenfall has a long history of working with

biomass in producing heat, and plans to increase co-firing of biomass in coal power

plants to reduce fossil emissions of CO2. Vattenfall intends to allocate significant

resources and efforts to building a substantial, highly reliable and sustainable

biomass supply chain.

Biomass co-firing provides good potential for reducing CO2 exposure, but is

dependent on support systems for economic competitiveness. Vattenfall intends to

grow in the area of biomass.

n Biomass can help Vattenfall reduce fossil CO2 emissions

n Vattenfall intends to grow in the area of biomass

n The utilisation of biomass is dependent on support systems

➜ Read more on page 32

COAL POWER IS THE CORNERSTONE OF THE

EUROPEAN ENERGY SYSTEM

Coal is a cornerstone of the European energy system due to its economic attractive-

ness and characteristics that allow stable and secure large-scale electricity genera-

tion. Vattenfall will optimise its existing production portfolio and make investments

to improve efficiency and reduce CO2 emissions in current plants. The Boxberg and

Moorburg projects will be completed and phase two of the Nuon Magnum multi-fuel

plant will be pursued, but no other coal-fired plants will be built until they can be built

with CCS. In general, coal will become a smaller part of Vattenfall’s portfolio after

2015, through asset divestment, fuel replacement and switching away from non-

commercial plants after 2020. Vattenfall also plans to increase co-firing of biomass

in coal-fired plants.

Vattenfall has built a pilot plant for carbon dioxide capture at the lignite-fired

power plant at Schwarze Pumpe, Germany. The next step will be a full-scale demon-

stration plant at Jänschwalde in Germany. Through Nuon, Vattenfall is also building a

pilot plant at the Willem Alexander power plant in Buggenum, Netherlands.

n Vattenfall will optimise its existing coal portfolio

n The construction of Boxberg and Moorburg, and possibly Nuon Magnum,

will be finalised

n Increased co-firing with biomass and implementation of CCS technology will be

significant for Vattenfall


INTRODUCTION



21/100

INTRODUCTION


HYDRO POWER IS INCREASINGLY

ATTRACTIVE

Hydro power is a renewable energy source that is economical lyattractive, provides security of supply and has low levels of CO2

emissions. Vattenfall has century-long roots in hydro power

and continues to hold a leading position in Sweden. Vattenfall

retains its commitment to hydro power, and intends to grow

through acquisitions in Central and Western Europe when

possible.

Hydro power is increasingly attractive, particularly in light of

the fact that the French market is opening up to competition.

As one of Europe’s largest operators, Vattenfall has a clear

competitive advantage.

n Hydro power is a renewable energy source that can provide

large volumes of both baseload power and balancing power

n Vattenfall is one of the largest operators in Europe and has

a clear competitive advantage

n Vattenfall intends to grow within hydro when possible


NATURAL GAS IS A BRIDGING FUEL TO

A SUSTAINABLE ENERGY SYSTEM

Natural gas is a growing energy source in Europe that is eco-

nomically attractive and provides flexibili ty and security of sup-

ply. It also has lower specific CO2 emissions than other fossil

fuels. Natural gas is a new energy source for Vattenfall that

provides increased security of supply and gives Vattenfall a

more balanced portfolio that better reflects the European

energy mix.

Gas-fired power is a bridging fuel to a sustainable energysystem. It will become more competitive in relation to, for exam-

ple, coal-fired plants as CO2 prices rise. Vattenfall will maintain

its current portfolio and will continuously monitor the potential

for longer-term growth.

n Lower specific emissions than other fossil-fired plants and

becomes more competitive as CO2 prices rise

n The flexibility of natural gas works well with an increasing

share of wind power

n Vattenfall will maintain its current portfolio and will conti-

nuously monitor the potential for longer-term growth


NUCLEAR POWER IS GAINING INCREASED

SUPPORT IN EUROPE

Nuclear power plays a vital role in many European countries dueto its economic attractiveness, security of supply and low CO2

emissions. Vattenfall has played a major role in constructing

Swedish nuclear power plants, and is an owner of nuclear power

in Germany. Vattenfall aims to maintain its current nuclear

positions in Sweden and Germany and to keep its options open

for future growth. Vattenfall is intensifying its efforts to achieve

impeccable safety and availability levels.

Nuclear power is gaining increased support in Europe.

Vattenfall, as a prominent operator, has a clear advantage.

n Nuclear power provides large volumes of electricity with

low CO2 emissions

n Vattenfall has a competitive advantage as one of the

prominent operators

n Vattenfall will keep its options for growth in the nuclear

power area open


WIND POWER HAS SIGNIFICANT GROWTH

OPPORTUNITIES

Wind power is the fastest growing energy source in Europe and

plays a key role in the achievement of the European Union’s cli-

mate goals. Vattenfall is Sweden’s largest wind power opera-

tor and the largest operator of offshore wind power in Europe.

Vattenfall will continue to expand offshore wind in the North Sea

countries (the UK, Germany, the Netherlands) and onshore wind

in prioritised markets.

Vattenfall sees significant growth opportunities within windpower, though profitability is dependent on support systems. In

terms of offshore wind, Vattenfall has a competitive advantage

and intends to grow further.

n Vattenfall has a competitive advantage in offshore wind

n Vattenfall sees significant growth opportunities within wind

power

n Currently dependent on support system


Footnotes – Introduction

1 More detailed information about Life-Cycle Assessments for Vattenfall ś Swedishelectricity generation can be found on www.vattenfall.com

2 International Energy Association (IEA), World Energy Outlook 20093 BP Statistical Review of World Energy, 20104 IEA, World Energy Outlook 2010

5 Ibid.6 BP, op. cit.7 IEA, 2010, op.cit.8 Read more about the EU’s climate goals on www.energy.eu9 Swedish Energy Agency, Energy in Sweden: Facts and Figures, 2009


22/100

22 | SIX FORMS OF ENERGY22 | SIX SOURCES OF ENERGY

Bioenergy is a form of stored solar energy, collected

by plants through photosynthesis. Biomass is an

organic material that contains bioenergy. Biomass

is a renewable energy source used to produce elec-

tricity, heat and fuel. Biomass and waste constitute

roughly three per cent of total electricity genera-

tion in the EU.

BIOMASS


23/100



24/100


BIOMASS

The Energy Triangle – Biomass

Security of supply

Fuel shortages and unreliable electricity systems cause

societal and economic problems. Securing supply means

guaranteeing that primary energy is available, and that

delivered energy is reliable, essentially 100 per cent of the

time. This is both a political and a technical challenge.

Biomass can be converted into a stable and reliablesupply of electricity and heat. Biomass can be securely

sourced on small scales, but supply of larger volumes

is currently difficult to secure. One important step is

to establish a global trade and certification system.

Biomass resources are geographically diversified and

political risk is limited.

Competitiveness

Energy is a fundamental input to economic activity, and

thus to human welfare and progress. The costs of produc-

ing energy vary between different energy sources and

technologies. A competitive energy mix will keep overall

costs as low as possible given the available resources.

Using biomass to produce electricity is currently moreexpensive than using energy sources such as coal,

gas or nuclear power. The global biomass supply chain

is developing and, over time, technological and logisti-

cal improvements will bring down prices. An increased

CO2price will also improve the economic competitive-

ness of biomass.

Climate and environment

All energy sources have environmental impact during their life cycles. Combustion of

energy sources, particularly fossil fuels, generates CO2 emissions and contributes to

global warming. In the long run, emissions from power production will need to be close

to zero if greenhouse gas levels in the atmosphere are to be stabilised.

By using biomass in power production instead of fossil fuels, CO2 emissions canbe significantly reduced. Carbon dioxide is emitted into the atmosphere when

biomass is burned, but when biomass grows it binds carbon dioxide through pho-

tosynthesis. Properly managed biomass is therefore carbon neutral over time.


25/100

An old energy source with new applications

Biomass is a renewable energy source that has been used as fuel for tens of thou-

sands of years. Wood and other plant parts have been used since the dawn of man to

prepare food and provide heat. Biomass is still the main type of fuel for the 1.4 billion

people across the globe that lack access to electricity, in the form of wood burned in

stoves, fires and other basic cooking devices.

Development of the different areas of application for biomass has made great

strides in recent decades, and there are now a variety of methods for converting

biomass into heat and electricity; everything from pellets for household heating

to agricultural waste used to produce electricity in commercial power plants.

However, despite the development in recent

decades, biomass for large-scale electricity

generation still constitutes a minor portion of

total global biomass consumption for energy

purposes. It is still a new technology, and its

potential is substantial.1

The share of biomass in the energy mixremains limited in many countries and is

largely influenced by geographic and geolo-

gical conditions. Biomass is used primarily in

countries with extensive forest industries, where residues such as branches, wood

chips and sawdust can be used to produce both electricity and heat. Countries with

large agricultural industries and industries that produce waste products that can

be used as biofuels also have potential to increase their use of biomass.

Interest in biomass within the energy industry has increased in recent years due

to its climatically advantageous characteristics. Replacing fossil fuels with biomasspresents potential for reducing the amount of CO

2 emitted by electricity and heat

production in Europe. In the long term, biomass is likely to play an important role in

the European energy mix.

BIOMASS


The Development of Biomass

Power Generation

Interest in biomass within the

energy industry has increased

in recent years due to its

climatically advantageouscharacteristics.

DEFINITION OF BIOMASS

AND BIOENERGY

Biomass is used to produce electricity,heat and fuel.

Bioenergy is actually a form of stored

solar energy, collected by plants through

photosynthesis. Bioenergy is present in

living organisms in the form of carbon

compounds. Bioenergy is also a generic

term for electricity and heat production

processes that use biofuels.

Biomass is an organic material thatcontains bioenergy. Biomass can be any-

thing from energy crops to agricultural or

forestry residues and waste. Common to

these substances is an origin in photo-

synthesis and, as opposed to biofuels, the

lack of any chemical conversion process.

Biofuel is a generic term for the fuel used

to extract bioenergy. Biofuel can be

various types of biomass, such as wood

or chips, or fuel extracted from biomass,

such as ethanol produced from sugar

cane.

Among the fields of application for

biomass, the focus here is on biomass

used for electricity and heat production.


26/100


BIOMASS

Biomass becomes electricity and heat

At a biomass-fired power plant, biomass is converted to elec-

tricity and heat. The heating is done by burning biomass in a

boiler. The most common types of boilers are hot water boilers

and steam boilers. Wood chips, refuse and other types of

biomass are used in the boilers, in the same way that fossil fuels

such as coal, natural gas and oil are used.

Co-firing biomass with coal

Co-firing biomass with coal (i.e., replacing a portion of coal with

biomass) is an effective method of using biomass for energy

purposes. Most of Europe’s coal-fired plants could be adapted

to burn between 10 and 20 per cent biomass.2 Since many kinds

of biomass have a lower energy content than, for example, hard

coal, using a greater percentage of biomass in the fuel mix risks

impairing the plant’s efficiency.

Recent research calculates that if the full potential of bio-

mass is realised, the EU’s power generation from biomass could

increase by 50 to 90 TWh per year. This corresponds to 1.5 to

2.5 per cent of the EU’s total electricity generation. Using bio-

mass in the fuel mix of existing coal plants could in turn reduce

CO2 emissions by approximately 85 million tonnes per year,

equivalent to five to 10 per cent of the total reductions needed

to achieve the EU ’s 2020 climate goals.3

The amount of biomass that can be mixed with coal depends

in part on the type of biomass used. The availability of suitable

biofuels such as pellets, chips and agricultural residues also

limits the amount of biomass that can be used.

Different biofuels in power generationThe biofuels that are used today for heat and electricity genera-

tion are primarily derived from forest products, waste and other

residues from the agricultural and forest industries. Farmed

energy crops have thus far had a difficult time competing in

terms of price with other types of biomass, such as forest pro-

ducts and waste.

Forest products

Wood fuel from forests and plantations constitutes the majority

of today’s biomass, equivalent to approximately 770 TWh

of primary energy per year in Europe.4 Roughly half is comprised

Biomass Becomes Electricity and Heat

Fuel is stored in a bunker for further transportto the boiler. In the bo iler, water is heated to hightemperature under pressure. The steam tem-perature can reach up to 550°C. Steam from theboiler powers the turbine, which is connected tothe generator. Steam that has passed throughthe turbine heats distr ict heating water, which isdistributed through the district heating network’spiping.

Storage forbiomass

Hot waterboiler

Flue gascleaning

Ash

Water

Turbine

Generator

Chimney

Steam

Districtheatingnetwork


27/100

BIOMASS


of residues from the forest industry, sawmills and pulp manufac-

turing that can be utilised for power generation during combus-

tion.

Pellets and briquettes are another type of biofuel. These

fuels are manufactured by compressing waste material, such as

sawdust, bark or higher-grade biomass. They are highly suitable

for export as they have the advantage of being easy to trans-

port. Pellets and briquettes are often used as fuel in households

with boilers and stoves. In much of the world today, waste pro-

ducts from industry and sawmills are left in the forest. Utilisa-

tion of these waste products could increase power generation

by 170 TWh by the year 2020.5

Energy crops

Energy crops are grown by farming and used for power genera-

tion. Today, energy crops are cultivated on roughly 50,000 hec-

tares in the EU and provide 3 TWh of primary energy for heating

and electricity.

Different types of biofuel are derived from energy crops.

Tropical countries primarily produce ethanol from sugar cane.

Starchy crops such as sugar beets and potatoes are fermented

to produce ethanol or diesel. Energy crops can also be used with

other types of waste to produce biogas. Today’s biogas plants

can process a variety of different types of waste generated by,

e.g., the agricultural industry and farming.

One of the advantages of energy crops is that they do not

require the use of chemicals to the extent that food crops do. In

Europe, most energy crops are produced locally and thus do not

have negative side effects, such as long transports.

Waste, by-products and residues

Residues include manure, sewage, sludge and other degra-

dable waste. Residues constitute the second largest source

of biomass today, after wood fuel, contributing approximately

210 TWh per year. Forecasts show that this amount can be

increased to 370 TWh by the year 2020. Liquid biomass waste,

such as manure, household waste and sewage plant residues,

can be digested to biogas.6


28/100


BIOMASS

Renewable energy sources provided approximately 18 per cent

of the EU’s electricity generation in 2008. Biomass and waste

constituted approximately 18 per cent of this amount, or rough-

ly three per cent of total electricity generation. In 2009, biomass

and wind power were the most important renewable energy

sources for electricity generation in the EU, after hydro power.7

The number of power plants in Europe that run solely on bio-

mass is expected to increase dramatically in coming years. In

addition, biomass is used along with coal in many coal-fired

power plants throughout Europe. The most and the largest

investments in biomass power to date have been made in coun-

tries that are most able to use residues from the forest indus-

try, mainly Sweden and Finland. But countries such as Germany,

Hungary and Austria also have many biomass plants.

In Europe, biomass power investments are expected to

increase dramatically in coming years. Expansion will continue

in Scandinavia, which already has a well-established use of bio-

mass for electricity and heat production, though probably not

at the previous pace.

An energy source with growth potential

As a renewable energy source, biomass has potential to con-

tribute to reducing CO2 emissions within the European power

generation industry. Studies show that the most common types

of biomass used for electricity and/or heat production can con-

tribute towards a reduction of CO2 emissions by 55 to 98 per

cent over fossil fuels.8 After wind power, biomass power is the fastest grow-

ing energy source in Europe. Over 100 TWh of electricity wasproduced with biomass and waste in the EU in 2008, more

than ten times as much as in 1990. The European Commission

expects that biomass power’s contribution to European electri-

city generation will double over the next ten years. Global use of

biomass is also expected to double by 2020.9

The EU’s official scenario for renewable power generation

assumes that electricity and heat production from biomass will

be 850 TWh higher in 2020 than in 2007, signifying a twofold

increase over today’s level of 800 TWh.10 However, nearly 70per cent of the biomass utilised today is burned directly for heat

(e.g., in the industrial sector) and is neither sold nor distributed.

The expected growth of biomass is equivalent to the growth

of all other aggregate renewable energy sources within Europe.

The current rate of growth, 35 TWh per year, is only one-third of

that required to achieve the established 2020 goals. If growth

proceeds at the current rate, total growth by 2020 will be 300

TWh, a significant number, albeit 550 TWh lower than the

targets.11

Biomass in Europe

Source: McKinsey, Vattenfall, Sveaskog, Södra, European Climate Foundation(2010): Biomass for Heat and Power – Oppor tunity and Economics

Role of biomass in meeting Europe’s renewable energytargets – European Commission scenario

EU-27 final energy consumption, TWh

2007 2020scenario

Growthin energyfrombiomass

Growthin otherrenewableenergy

Hydro

Wind

Solar, geothermal,tidal and wave

Biofuels fortransport

Biomassand waste

800

310

1,330

220

850

850

3,030

1,650

380

280

370

350

n Biomass and wasten Other renewable energy

Source: IEA Statistics, Electricity Generation, 2010

Share of biomass and waste in electricity generation (2008)

14

12

10

8

6

4

2

0

%

n Denmark 11%

n France 1%

n Germany 4%

n Netherlands 6%

n Poland 2%

n Spain 1%

n Sweden 7%

n UK 3%

n Finland 14%


29/100


Expanding the use of biomass may have both positive and nega-

tive consequences for the climate and the environment. Many

challenges remain in place.

Large land areas required

A study by the UN Food and Agriculture Organisation (FAO)

shows that there is technically enough land to double the area

of biomass plantations by the year 2020. But available land area

is not necessarily equatable with actual biomass availability.

A mobilisation of biomass supply on a global level is required if

demand by year 2020 is to be met.

Due to the fact that energy crops often attract higher subsi-

dies for the landowner, there is a risk that increased demand for

biomass will impact global food production and lead to increased

food prices. Biomass plantations also use large land areas and

may, if not properly managed, compete with other interests such

as forestry industry and biodiversity.

Projects are being initiated around the world aimed at ensur-

ing the availability of biomass for new and existing power plants.

Meanwhile, an entirely new commodity market is developing

where developing countries in particular see an opportunity to

find a market for their ”green gold”. This trend could force down

food production and may endanger natural forests if clear trade

and certification systems are not established on both the local

and global level.

Managing sustainable biomass

If biomass is to contribute to the reduction of CO2 emissions inthe future, cultivation and production must be carried out in a

controlled, sustainable manner. There are still no international

criteria defining sustainable biomass. The goal is to establish a

functioning system that guarantees that biomass production

is carried out in an environmentally and climate neutral man-

ner, regardless of whether the product is domestic or imported.

Such a system must also take all involved parties into account,

from local residents of the producing country to the energy

companies that purchase biomass. Managing this balance hasbecome crucial for politicians and decision makers.

A continuing carbon cycle makes biomass carbon neutral

Carbon dioxide is emitted into the atmosphere when biomass

is burned, in the same way as when fossil fuels are burned. But

when biomass grows it binds carbon dioxide through photosyn-

thesis. The carbon dioxide released through biomass combus-

tion is captured by growing biomass. Properly managed bio-

mass is therefore carbon neutral over time. Biomass power may

give rise to temporary “carbon dioxide debts” since it may take a

long time for slow-growing forests to re-capture the amount of

carbon dioxide released through combustion.

Biomass production methods and long transport distances

are other factors that impact carbon dioxide emissions. It is

therefore important to take the entire value chain into consi-

deration, from production to power plant to replanting. A future

challenge is to identify calculation methods to determine the

level of emissions created by power generation.

The generation of electricity with biomass produces flue

gases that must be cleaned before they are emitted into the

atmosphere. This is done by utilising well-developed techniques

such as flue gas washing and particulate filters.

Biodiversity an important issue

Large-scale cultivation of biomass can have an indirect impact

on biodiversity. Indirect land-use effects occur when biomass

production displaces certain activities to other areas leading to

unwanted negative impacts, such as deforestation. The carbon

impact of indirect land-use change is difficult to measure and

there is currently no consensus on how this should be done.

The extensive use of biomass in the form of logging residue

from the forestry industry may lead to land acidification, nutrient

depletion and reduced biodiversity. One method to counteract

nutrient depletion and land acidification is to return the ash

formed by the combustion of biofuels. The ash contains nutrients

such as potassium and phosphorous. The natural balance is

restored more rapidly if this ash is restored to the place wherethe biomass was grown.

Biomass produced from waste or agricultural residues carries

the least environmental risks from production and does not affect

biodiversity.

Political support varies

As an energy source, biomass receives varying degrees of poli-

tical support among European countries. Meanwhile, the need

increases for clear criteria for sustainable development. Thereare several advantages to having an increased share of biomass

in the energy system. In addition to environmental and climate

advantages and the opportunity to reduce dependency on

fossil fuels, an increased use of biomass is viewed as positive for

regional development. New jobs are created and farmers have

the option of diversifying their crops.

Discussions currently underway indicate the need for a clear

framework of binding sustainability criteria that take environ-

mental, social and economic aspects into consideration.

BIOMASS

Biomass – Opportunities and Challenges


30/100


BIOMASS

Untapped potential but increased imports still needed

There is potential across Europe to cultivate various energy

crops for electricity and heat production. However, forecasts

show that Europe will have to import biomass if it is to meet

the EU’s 2020 goals. Even under the most optimistic forecasts,

the estimated total deficit of biomass corresponds to 150 to

750 TWh. Imports of biomass to Europe will consist primarily

of pellets, which are suitable for long-distance transports. The

achievement of 2020 goals will require 30 to 150 million tonnes

of pellets per year, or the output from 50 to 300 large-scale

pellet mills.12

Uncertainty about future investments

The cultivation of energy crops in Europe has remained at a sta-

ble level over the past five years and a limited number of major

investments are planned for the future. It is therefore unlike-

ly that the goals will be achieved, chiefly because there is no

demand at the price level required for profitable production due

to the uncertainty surrounding the future role of biomass in the

European energy system.

The lead time for this type of investment and conversion is

five to ten years, which means that immediate action is required

if the European biomass supply is to increase at a sufficiently

rapid pace.

Cost competitiveness dependent on the price of CO2

emissions

Another limiting factor, in addition to biomass availability, is

price. It is currently more expensive to produce electricity from

biomass than from fossil fuels such as coal. The price difference

is affected by various types of economic control instruments

such as emission rights for CO2. Increased CO

2 prices would

therefore hasten the conversion of the energy system to the

benefit of biomass.

From a cost perspective, there is great potential for improve-

ment in moving from small-scale to large-scale biofuel pro-

duction. Increased volumes can produce economies of scale

throughout the value chain and cost efficiency measures can

boost the competitiveness of biomass relative to coal and gas.

A developing market

International trade in biomass for power generation is still limi-

ted, although it is expected to increase. This highlights the need

for establishing a standardised global system for trade and

The Future of Biomass

O f f s h o r e w i n d 2

Bi omas s ar chet y pes

Fossil al terna ti ves 1 Onshore wind

Source: McKinsey, Vattenfall, Sveaskog, Södra,

European Climate Foundation (2010): Biomassfor Heat and Power – Opportunity and Economics

Cost competitiveness of biomass over time

Average cost, EUR per MWh electricity

160

140

120

100

80

60

40

20

0

2007CO

2 price: 15 EUR/tonne

1 Hard coal condensing and natural ga s CCGT. Assumes fixed fossil fuel prices over time, coal 75 US D per tonne(54 EUR per tonne), natural gas 20 EUR per MWh. Coal plant efficiency 40%, gas CCGT 55%.

2 Not including grid connections

2015CO

2 price: 20-30 EUR/tonne

2020CO

2 price: 30-50 EUR/tonne

Ø 66


31/100


BIOMASS

certification. Biomass origin is crucial to the establishment of a

long-term, sustainable trade in biofuels. Extracted biomass, for

instance, must be replaced with new biomass (i.e., replanted) in

order to be classified as a renewable type of energy and a good

environmental alternative.

Future increases in biomass trade will most likely mean that

fuel is produced far from where it is consumed. Production chain

quality assurance will therefore be extremely important going

forward. A system similar to the forest industry’s, for instance,

would limit many of the social and environmental risks asso-

ciated with large-scale biomass production.

Biomass technology under constant development

Several different production technologies have been developed

to convert biomass into heat and electricity. The different meth-

ods of refining biomass are under constant development with a

focus on continuous streamlining. The conversion of raw mate-

rial into more energy-dense forms facilitates transport, stor-

age and use through the rest of the value chain. One example

currently under development that would simplify future imports

is the thermal processing of biofuels to produce a more efficient

type of pellet with a higher energy value.

National conditions decisive

The direction of development for biomass use in different coun-

tries is determined by several factors; for example, the way

in which a country values its dependency on oil and natural

gas imports, and the existence of non-biomass options. Other

factors include domestic alternative energy supply options and

existing infrastructure for supplying energy.

International biomass trade

Ethanol

Wood pellets

Palm oil & agricultural residuesSource: IEA, Bioenergy Annual Report 2009


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Vattenfall’s biomass operations

Vattenfall is one of the world’s largest purchasers of biomassfor power generation. The biomass used by Vattenfall is com-

prised primarily of household and industrial waste (over 60 per

cent) and forestry industry residue (30 per cent). The remainder

is comprised chiefly of agricultural residues.

Over 40 of Vattenfall’s heating and power plants are po-

wered entirely or partially by biomass. Vattenfall uses a total

of three million tonnes of biomass per year, placing Vattenfall in

an industry-leading position. The use of biomass in Vattenfall’s

plants will increase substantially when large-scale co-firing is

implemented.

Vattenfall runs several biomass projects in Europe. In Germany,

biomass-fired power plants are being planned in Berlin and

Hamburg. In Poland, the Zeran and Siekierki combined heating

and power plants are increasing the use of biomass and will use

400,000 tonnes by 2013. Co-firing will be stepped up in several

other countries as well, including the Netherlands. New biomass

plants are also being planned (e.g., in Denmark). For a full list of

Vattenfall’s biomass power plants, please see the production

site at www.vattenfall.com/powerplants.

Sourcing sustainable biomass - rubber trees from Liberia

Vattenfall’s need for biomass is increasing and volumes availa-

ble in Europe are not sufficient . Vattenfall is therefore develop-

ing an international portfolio of projects to secure sourcing of

the required volumes. An attractive option, both economically

and environmentally, is the use of unproductive rubber trees

from plantations in Liberia.

Liberia is a country with a large resource of rubber trees, and

rubber export is a key component in plans to revitalise the econo-

my. The rubber trees are cultivated in plantations and typically

produce latex when they are between 7 and 30 years of age, after

which they are harvested and replaced by new trees. The prac-

tice has been to let these harvested trees rot or to burn them on

site, with some of the wood used for charcoal production.

Buchanan Renewables, a Canadian-owned company based

in Liberia, has developed a biomass business based on making

wood chips from these non-productive trees. In 2010, Vattenfall

acquired 30 per cent of Buchanan Renewables Fuel together

with Swedfund, the Swedish government’s company for invest-

ments in developing countries, in order to secure the supply of

large volumes of sustainable wood chips. Purchasing the trees

that are no longer producing rubber, and which would in anycase be disposed of, is an environmentally and economically

efficient option.

Vattenfall’s biomass operations going forward

Biomass plays a central role in Vattenfall’s efforts to reduce its

CO2 exposure. In the medium term, biomass is the renewable

energy source with the most growth potential. Since biomass

can be co-fired in coal plants, it is an effective way of reducing

CO2 emissions. Vattenfall’s goal is to burn four million tonnes of

BIOMASS

Vattenfall and Biomass

Biomass is a renewable energy source that can be used to produce both heat and electricity. It can poten-

tially play a key role in reducing CO2 emissions from existing European coal power plants. Vattenfall has a

long history of working with biomass heat production, and plans to increase co-firing of biomass in coal-fired

power plants to reduce CO2 emissions. Vattenfall intends to allocate significant resources and efforts to

build a substantial, highly reliable and sustainable biomass supply chain.


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SUMMARY

• Biomass is a renewable energy source that

has the potential to reduce CO 2 emissions,for example through co-firing in existing

coal power plants in Europe

• The biomass used in heat and electricity

generation today is primarily derived from

forest products, waste and other residues

from the agricultural and forest industries

• Using biomass to produce electricity is cur-

rently more expensive than using energy

sources such as coal, gas or nuclear power.The global biomass supply chain is develo-

ping and, over time, technological and

logistical improvements will bring down

prices. An increased CO2 price will also

improve the economic competitiveness of

biomass

�

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