May 17, 2011 | General

Biomass Energy Outlook: Relatively Local Self-Reliance


BioCycle May 2011, Vol. 52, No. 5, p. 53
Mark Jenner

THE BioCycle Conference in San Diego, California last month was a great place to be. For me it is a time to reconnect with all my bio heroes. I even met a couple who had met two years ago at the 50th Anniversary BioCycle Conference and had recently gotten married. That adds a new cycle-of-life dimension to my image of BioCycle.
It was also nice to be a part of the program. I made three points during my presentation on the state of the U.S. carbon economy. First, the economy appears to be picking up again. Second, the top-down carbon policies seem to be floundering as much as stimulating. It’s hard to tell if they are doing more harm than good. This is an interesting testament on just how difficult it is to write a transparent policy that works. My third point was that local environmental, energy and economic benefits look like they are driving the success of the carbon economy.
There are significant economic reasons why both large centralized, multinational companies and local, distributed enterprises are successful. Transporting and storing biomass is bulky and costly. Higher processing and storage costs require higher energy prices to make bioenergy work – even on a local level.
The word “local” has multiple meanings. Locally-grown can imply not imported from a foreign nation or even a neighboring state. In the case of biomass economics, local is a relative term, meaning within a specific radius of the point of origin. “Local” is defined mathematically as an interval around a point on the line with specific characteristics. In other words, local is simply “relatively close.” This broad definition allows “local” to reflect a community or region in which biomass can be both produced and utilized. We often use a 50-mile radius to describe a source of biomass supply for a project. A large urban area may place landfills in a 100-mile radius out from urban centers. It would be handy if we could set the area of interest at a flexible level, depending on the context.

MAKING A “MESO” OUT OF ECONOMICS
Local issues fit conveniently into a regional economic framework, but regional economics is kind of a patchwork of microeconomics and macroeconomics. Microeconomics deals with individual firms and projects – a close examination of a specific case. Macroeconomics is focused at the cumulative interaction of many markets. Last month at the BioCycle Conference, composting champion Dan Noble asked me if I’d heard of “mesoeconomics,” a term being used to describe regional economics – sort of in between the microeconomics of individual projects and the macroeconomics of entire state and federal economies. The term was new to me, but I was immediately hooked.
Mesoeconomics defines flexible, physical regional boundaries. It contains a subset of microeconomics, e.g., focused value-added feasibility studies and economy-wide, cumulative, multimarket macroeconomics we get from the Gross Domestic Product (GDP) and job multipliers. Therefore, it becomes a natural grouping for local (community or region) biomass development. Discussing both micro and macroeconomic effects within a specific region is really the only way to effectively characterize biomass benefits and risks.
A pitfall that occurs routinely in energy economic analyses is the assignment of historical prices in a completely new situation. The cost of biomass production for a conventional boiler will not be the same for an integrated combined heat and power project using a gasification technology. Large utilities often give cost assessments accurately based on years of experience. The challenge is smaller distributed generation projects will have different kinds of economics than a centralized system. Meaningful regional economics requires a sea-change of perspective. For example, hauling municipal solid waste 50 to 100 miles to a landfill takes on a different meaning when the price of diesel fuel could be double what it was just a few years ago.
Mesoeconomics is an ideal framework to consider the differences of economies of scale and scope. Scale economies focus on asset specialization and work very well in single output facilities like traditional power plants. Referring to asset costs in terms of dollar per unit of output is a good measure of specialization. Economies of scope, on the other hand, reflect asset diversification – how many outputs one can get from a single asset. An anaerobic digester system that receives a tipping fee on the input side and adds value to manure or other residuals as energy, solids, nutrients, heat and a potential source of water cannot be represented accurately only as a cost per kilowatt-hour.
Summing up multiple benefits and efficiencies within a multioutput system provides economic benefits for the complete system of assets. Working with a regional or meso-economic approach allows a wide variety of possibilities to manifest themselves, such as valuation of water savings, recycled organic nutrients or nonenergy use of digested solids. Mesoeconomics allows both the scale and scope effects to work together. Economic success of local biomass projects is dependent on the interaction and integration with other neighboring resources that are not on-site.
Local projects have an economic advantage over larger centralized projects because they are able to market directly to end-users, entering a retail market, rather than market their products (heat, natural gas, or electricity) into a wholesale market. They can cut out the middleman and lower the cost of transportation. Local production and use of biomass and organics can have a great advantage over traditional centralized distribution markets.
These benefits and risks of both local and centralized industries appear to fit quite nicely into the emerging concept of meso-economic. Mesoeconomics legitimizes the ideal framework for regional economic evaluations and allows recognition that regional projects are not exclusively micro and macroeconomics.

Mark Jenner, PhD, and Biomass Rules, LLC, has joined the California Biomass Collaborative. Burning Bio News and other biomass information is available at www.biomassrules.com.


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