In the whole of Sweden, district heating supplies 46 TWh, or 49 per cent of the total heat consumption in the country. Though this is a very significant accomplishment, there is still a large untapped potential for small-scale district heating in the country as a whole. Our analysis of three counties illustrates that assertion. Considering clusters of 500 x 500 m2 and a minimum heat demand of 0.5 GWh, the potential is as high as 28 per cent in Orebro, 42 per cent in Kalmar and 47 per cent in Vasternorrland compared with the total heat demand in these counties. Moving the limit to 1.0 GWh gives a potential 31, 22 and 39 per cent in the three counties respectively.

The numbers obtained are very impressive. For the purpose of illustration, if we use the percentage found in Orebro (28%) to estimate the total potential for

additional small-scale biofueled district heating in Sweden, we arrive at additional 26 TWh for the country as a whole. Although the method applied here to verify the existing potential for new district-heating systems is basically fuel neutral, our starting point is that the heat should be supplied from small-scale CHP units fueled with biomass and connected to the existing electricity grid.

In areas without district heating or electric heating, the heat supply is decen­tralized today with a furnace in nearly each building. Once these individual systems are centralized into small-scale clusters, it is possible to cogenerate heat and power. In comparison with the dominating power supply today, the new contribution from each cluster and small CHP will be small, but a program to tap this potential can result in significant additions of heat and power to the system as a whole. The national power system will benefit from the new heat and power supply in two ways: through a decrease in the consumption of electricity for heating purposes, and an increase in the capacity for electricity generation from the new small-scale CHP units.

To calculate the consequences for the power system, one must contrast the added heat and power from biomass-fueled CHPs with the energy carriers that are being used today. We have two rough estimates, one for our small region in Kalmar and one for the whole of Sweden. In both cases we use 500 x 500 m2 clusters with at least 0.5 GWh heat demand.

In our small region, small-scale district heating and CHPs can substitute 64 GWh of today’s heat consumption of 102 GWh. In one of the places in the region, heat is supplied by 60 per cent oil, 25 per cent electricity and 15 per cent firewood (Sandberg, 2001a, b). Applying those figures on the 64 GWh in the 53 clusters identified in the small region gives a substitution effect of 38 GWh from oil, 16 GWh from electricity and 10 GWh from firewood. The 16 GWh electricity are equivalent to a production capacity of 3 MW.

With an average heat demand of 1.2 GWh in each cluster and 3000 h operation time per year, we need a furnace with 400 kW heat capacity (Fredriksen and Werner, 1993). The power capacity can be assumed to be 100 кW or 5 MW for all clusters. With an operation time of 4000 h a year, the power production will be 20 GWh per year. Thus in our small region only, small-scale district heating fueled

by biomass-based CHP can add 8 MW of power capacity, or 36GWh of electricity to the grid. .

For the whole of Sweden we have estimated the potential for small-scale district heating and CHP at 26TWh. In 2000, the heat consumption outside district heating systems was 22 TWh or 42 per cent from electricity, 20 TWh or 39 per cent from oil and lOTWh or 19 per cent from biomass, mostly firewood (SCB, 2001). Thus the consumption of electricity for heating can be reduced by 11 TWh (42 per cent of 26 TWh), which is equivalent to 2.2 GW of generation capacity.

At the same time that electricity demand for heating is reduced, the installed capacity and generation of electricity can increase. To substitute 26 TWh with heat from a small-scale CHP, an installed heat capacity of 8.50 GW is necessary. The power capacity can be assumed to be 2.15 GW which, with an operation time of 4000 h a year, gives 8.5 TWh (Fredriksen and Werner, 1993). Thus a broad program to install small-scale district heating based on bio-fueled district heating and CHPs could result in 19.5 TWh of added electricity out of an increased capacity of 4.35 GW. In addition, we should not forget the reduced distribution losses: for 19.5 TWh, losses are estimated at 1.5 TWh.

Alexandre Kossoy[16]

13.1. INTRODUCTION

The Carbon Finance Business, CFB, at the World Bank provides a means of leveraging new private and public investment into projects that reduce greenhouse gas emissions, thereby mitigating climate change and promoting sustainable devel­opment. Carbon finance is the general term applied to financing seeking to purchase greenhouse gas emission reductions to offset emissions in the OECD countries.

Commitments of carbon finance for the purchase of carbon have grown rapidly since the first carbon purchases began less than seven years ago. The global market for greenhouse gas emission reductions through project-based transactions has been estimated at a cumulative 300 million tons of carbon dioxide equivalent since its inception in 1996 and until mid-2004. Asia now represents half of the supply of project-based emission reductions, with Latin America coming second at 27 per cent. Volumes are expected to continue growing as countries that have already ratified the Kyoto Protocol work to meet their commitments, and as national and regional markets for emission reductions are put into place, notably in Canada and the European Union.

The CFB uses money contributed by governments and companies in OECD countries to purchase project-based greenhouse gas emission reductions in devel­oping countries and countries with economies in transition. The emission reductions are purchased through one of the CFB’s carbon funds on behalf of the contributor, and within the framework of the Kyoto Protocol’s Clean Development Mechanism or Joint Implementation (see also Silveira, Chapter 12). By early 2005, the CFB could count on more than US$ 850 million in nine carbon funds.

Unlike other World Bank development products, the CFB does not lend or grant resources to projects, but rather contracts to purchase emission reductions in the form of a commercial transaction, paying for them annually once they have been

verified by a third party auditor, and the verification report delivered to the World Bank. One of the roles of the Bank’s CFB is to catalyze a global carbon market that reduces transaction costs, supports sustainable development and reaches the poorer communities of the developing world.

The Bank’s carbon finance operations have demonstrated opportunities for collaborating across sectors, and have served as a catalyst to bring climate issues to bear in projects relating to bioenergy, rural electrification, renewable energy, urban infrastructure, forestry, and water resource management. A vital element of this work has been to ensure that developing countries and economies in transition are key players in the emerging carbon market for greenhouse gas emission reductions. This chapter discusses how the World Bank Carbon Finance Business has dealt with project constraints, also providing concrete examples.

The choice of particular energy forms in the mountains is the result of fuel availability and access to particular energy resources and technologies at afford­able prices. In this context, forest is and will remain the mainstay of energy sources in the mountain areas in the foreseeable future. Figure 5.2 shows the forest and energy linkages in the region. The contribution of fuelwood amounts to more than 80 per cent of the total energy requirement in Nepal and Bhutan, 66 per cent in India, 52 per cent in Pakistan and 29 per cent in China within the HKH region.

There is evidence of increasing use of biomass resources other than fuelwood such as agriculture residues and animal dung as a source of energy in the HKH region. Table 5.3 indicates the use of these other fuels in the region. Their use emerges mainly as the result of a decreasing supply of fuelwood, and depicts the stress under which forest resources are. The shift is also due to the low affordability of the mountain people (see also Figure 5.1). The transition from biomass to commercial energy forms is at a slow pace in the region due to price and nonprice factors as well as nonsuitability of technological options and lack of appropriate forest management.

Forest resources are being extracted far beyond their regenerative capacity in many parts of the HKH region. The few exceptions are isolated pockets such as eastern mountains of India and western part of Nepal, and places where accessibility limits the extraction of fuelwood and timber. Availability of forest resources within the HKH region of China is high (1.2 ha per capita) but, because of the incon­venience of transportation, people tend to use fuelwood available locally. This has

resulted in overexploitation of nearby forests. If explored on a sustainable basis, the fuelwood from the accessible forest area meets only about 35 per cent of the total demand for fuelwood.

There is a substantial difference in recorded forest area and actual forest cover in the hills and mountains of India, whereas the difference between recorded and actual forest cover is only about 2 per cent if aggregated for the whole HKH region in the country (see Table 5.4). The per capita forest area available in the HKH region of India amounts to 0.6 ha, while it is 0.85 ha in the eastern part and 0.32 ha in the western part of the HKH. The situation differs widely if examined at district or state level. For example, the availability of forest area per capita in Arunachal Pradesh is 7.9 ha, 0.34 ha in Jammu and Kashmir and 0.38 ha in Uttarakhand, while it is 1.3 ha in Uttarkashi and 0.23 ha in Nainital district.

The per capita accessible forest area of Nepal amounts to 0.37 ha in the mountains, and 0.29 ha in the hills. In terms of mapped forest area (i. e. includes area for potential forest regeneration), 0.93 ha per capita is available in the mountains, and 0.58 ha in the hills. The estimated quantity of fuelwood supply that can be obtained on a sustainable basis in Nepal amounts to 7.5 million air-dried tons (i. e. 366 kg per capita), instead of the average fuelwood consumption of 640 kg per capita. However, the fuelwood balance at district level shows different patterns. Fuelwood is in surplus in some of the districts in Western Nepal, while it is in short supply in central hills.

Public forest in the mountain areas of Pakistan (76 per cent of total forest area in Pakistan) provides most fuelwood required for domestic and industrial purposes of the country. About 14 per cent of the Northern mountains of Pakistan are covered by forest, though a significant variation from 15 to 60 per cent in forest cover is observed, when analyzed at the district level. The total sustainable supply of fuel — wood in Pakistan is less than 40 per cent of the total demand but, in the fuelwood supply and demand balance for the Northern mountains, supply exceeds demand by 1.6 times.

As discussed earlier a minimum of 450 000 ha of land need to be set aside for homesteads during the next 25 years to meet the population growth until it stabilizes. This results in a drop of maximum land availability for energy plantations to 1.2 million hectares. In addition, increasing economic activities including expansion of the agricultural sector and restricted water availability for plantation establish­ment make it necessary to exclude a considerable extent of land out of what is
identified as the maximum available land area for energy plantations. Only then can one estimate the actual availability of fuelwood for possible biomass-based electricity generation in Sri Lanka.

Semida Silveira and Lars Andersson

7.1. BILATERAL COOPERATION FOR KNOW-HOW AND TECHNOLOGY TRANSFER

Biomass resources in the Baltic Sea Region are large, providing good ground for bioenergy. The interest to use local energy resources has increased significantly in the past few years, and many activities have taken place towards biomass utilization since the early 1990s. Nevertheless, significant amounts of forest residues are still unused and many opportunities remain to be explored. Lack of adequate logistic systems for harvesting, collecting and transporting biofuels constrains a broader use of these resources. Competition with other low-cost fuels and lack of supporting policies also hinder the development of bioenergy systems in the region.

Varied national regulations and taxation of fuels, lack of proper biofuel standards, limited financing opportunities for new projects, the need for upgraded infrastructure for logistics and new energy-related technologies are some of the barriers that need to be addressed to enhance the dynamics of bioenergy markets in the Baltic region. Meanwhile, sharpened environmental requirements, rising costs for imported fuels, and concerns about regional development and balance of trade are strong motives helping promote local fuels, thus opening a window of oppor­tunity for biomass.

In fact, despite hindrances, increased trade activities with biofuels have been observed in the Baltic, and a number of bilateral and multilateral cooperation projects have been successfully carried out, emulating the experiences of neighboring countries. Since the efforts to increase biomass utilization have been particularly successful in Nordic countries, the accumulated know-how and experience is finding its way into the whole Baltic Sea Region. While initial efforts were particularly focused on biomass-based technologies for energy generation, the new steps have a broader focus and evaluate ways for an efficient organization of whole bioenergy systems at the regional level.

95 Bioenergy — Realizing the Potential

© 2005 Dr Semida Silveira Published by Elsevier Ltd. All rights reserved.

This chapter is based on a bilateral project developed between the Swedish Forest Administration and the Forest Department and the Ministry of Environment in Lithuania, with the support of the Swedish Energy Agency. The project has a starting point in the Lithuanian resource potential and institutional framework on the one hand, and the Swedish experiences with bioenergy systems, on the other hand. It looks at how the application of Swedish know-how in the form of mech­anization and management practices can boost biofuel production in Lithuanian forests and help enhance bioenergy utilization in the country. A summary of the major issues assessed and evaluated are provided, indicating not only the complexity, but also the level of understanding and know-how accumulation that has been reached about biomass-based systems.

Initially, a feasibility study was carried out in the eastern part of Lithuania to identify conditions for the utilization of woodfuel within the seven state forest enterprises. The purpose was to find appropriate methods for profitable horizontal and vertical integration of the handling of forest fuels, and ways to integrate them into ordinary forestry and energy supply systems. The recommendations evolved into a demonstration project in Rokiskis state forest enterprise and capacity-building programs for continued cooperation and further development of the Lithuanian biomass potential.

The development of a terminology standard is based on the fact that biofuels are produced from different sources, have different nature, types and properties, and that the purpose is its conversion into bioenergy. Terms for sampling, testing and classification are also important. A strong cooperation takes place with the other working groups to guarantee that the final terms chosen are the most relevant.

Small-scale biofueled district heating and CHPs can make a substantial contribution to building a sustainable energy system based on renewable resources, as demon­strated in this study. In Sweden, a total of 21 TWh electricity can be added if the existing potential is tapped, which corresponds to 14 per cent more electricity in the grid, or an added installed capacity of 15 per cent. Electricity that is released from heating systems can be used more efficiently to provide other energy services. This is definitely a very significant development of the Swedish power system. Moreover 10 TWh oil and 5 TWh firewood are substituted by sustainable biomass. In countries with large heat demand and where district heating systems are not being as largely used, the contribution of such small-scale systems could be even greater.

Small-scale CHPs are interesting solutions in combination with other small-scale energy techniques. Throughout the year, solar energy and bioenergy complement each other in an ideal way due to seasonal variations of resource availability and energy needs. In local energy systems with small-scale hydro or wind power, bio­fueled CHPs can be a cornerstone.

The distributed power production has also the advantage to reduce the vulner­ability of the power system. In the case of failure of large centralized units or due to distribution disruptions, the local power can be used to keep vital functions in operation. This will reduce the need for other back-up systems. In the cases where fossil fuels are being used for heating, the utilization of biomass-based systems will imply significant reduction of greenhouse gases. Finally, the establishment and operation of small-scale district heating and CHP units can help promote regional development, contributing to job generation for systems operations, for example, along the whole biofuel production chain, and related activities.

Project sponsors face many uncertainties before deciding to invest their time and resources in new projects. Uncertainties such as government taxation, sales quotas, limited access to new technologies, political and economic instability, subsidies avail­able, and local currency fluctuation are among the many variables that need to be assessed. Assessing these factors becomes even more critical when considering invest­ments in developing countries, where the impact of external factors may threaten the continuity of the business and influence the viability and success of the project.

Under different perspectives and not necessarily at equivalent proportions, lenders and borrowers share the risks involved in a financial transaction from the lender’s disbursement up to the liquidation by the borrower or guarantor. At unexpected local or international financial crises during the lifetime of a loan, additional risks are added to the basket of existing risks being shared by those institutions. The likelihood of any factor to occur that might negatively affect the borrower’s capacity to repay its loan is taken into account and “priced” into the total premium charged by the lender. These factors are commonly combined into the so-called Country Risk, also called sovereign and political risk.

Figure 13.1 shows a breakdown of risks, as adopted by financial institutions. The country risk includes every potential constraint for local currency convertibility to hard currency equivalents, cash transferability, asset expropriation, confiscation or nationalization of goods, governmental caps on exports (i. e. increase in local market supply), and a sudden increase in taxation on trade or cash payments abroad. Those risks are beyond the borrower’s responsibility, but they largely affect their

Credit base (all companies related to the borrower)

Legal framework, financial structure, guarantees Sector, company (or project) competitive strength

Confiscation, expropriation, nationalization (CEN)

Cash convertibility and transferability

Others such as banking moratorium, war, revolution, etc.

capacity to produce and sell the goods being used to repay loans or they restrict the cash transfer to the lender’s account.

Due to the risks involved, financial institutions set up criteria for loans in countries where those risks are more likely to happen. These criteria are normally defined in terms of a maximum cash amount available for loans. Since the risk is directly linked to the duration of the loan, more restrictive limitations are imposed on long-term transactions, unless the country risks can be mitigated. The most common way to mitigate Country Risk is by the acquisition of Country Risk Insurance for long-term deals from insurers, development banks or export credit agencies.

A Country Risk Insurance typically covers expropriation acts (confiscation, nationalization, requisition and sequestration), restrictions for currency convert­ibility and transfer, political violence, civil commotion, civil war, rebellion, riot, sabotage, strike, war and terrorism. Even if one or some risks are irrelevant for a specific country they are offered as part of a package, which are typically not customized. The insurance premium is directly related to the features of the transaction and the risk perception in that specific country. However, during economic turmoil, the premium of the insurance increases sharply and its availability is drastically reduced.

Therefore, a bank’s internal requirement for country risk coverage can sometimes become a deal-breaker for any of the involved parties, either due to a tenor limitation for the banks (i. e. the availability of long-term funding may disappear) or due to the price limitation for the borrowers or project sponsors. Invariably, the cost for such insurance is always passed on to borrowers, thus increasing the total cost of the loan.

What type of energy use pattern or mix is environmentally safe, economically sound, and culturally inoffensive in the mountains is a major policy issue being faced by the planners as well as beneficiaries of forests in the HKH region. In this context, a number of issues need to be considered and dealt with when promoting a fuelwood program to achieve sustainability. These issues are (Rijal, 1996, 1999):

• Prevailing unsustainable trends of energy supply and demand;

• Nonharmonious energy transitions towards noncommercial, low quality energy forms and/or towards nonrenewable fossil fuels;

• Wrong choice of energy resources and technologies as a result of lack of perspective related to both quality and quantity of energy in program design;

• Ignorance of biophysical aspects of mountain areas;

• Weak gender participation in decision making;

• Lack of understanding of sociocultural issues;

• Lack of suitable institutional framework to promote decentralized renewable energy technologies; and

• Methodological dilemma to internalize environmental concerns.

Ignoring these issues have led and will continue to lead to environmental conse­quences. The impacts are not limited to the decrease in forest cover and quality in the hills and mountains but involves also decrease in soil fertility, agricultural productivity, and water availability in springs, and increase in soil erosion and landslides (Myint and Hofer, 1998). Some research studies have also indicated that the decrease in forest cover may have led to a series of environmental damage downstream (Durning, 1993; Shen and Contreras-Harmosilla, 1995; RWEDP, 1993; Rijal, 1996).

Improved accessibility in some mountain areas through the construction of physical infrastructure has led to better living conditions with improved social infrastructure. However, this has come at the cost of encroachment around pro­ductive forests and their utilization to meet the timber and fuelwood requirements of the plains. Initially, mountain people were not aware of this situation and the cash flow was welcome. Many mountain settlers moved out to exploit better opportunities in the plains, and this hampered the diversification of mountain economies. Inappropriate forest policies applied in the mountains led to further dismantling of traditional and indigenous practices of managing forest resources (FAO, 1993).

Considering factors such as the local climate and soils, a number of species have been identified as appropriate for available lands in Sri Lanka. These species offer a high degree of certainty to produce firewood for biomass-based thermal power plants (see Table 10.2).

Except the Eucalyptus species mentioned in Table 10.2, all others are legumes that enrich soils by fixing atmospheric nitrogen. This also indicates their ability to grow in poor sites, and lower the requirements for fertilizers. Therefore, these species are very much suited for degraded sites found in the dry and intermediate zones in Sri Lanka (Evans, 1992; Ariyadasa, 1996; FAO, 1993, 1997).

Biomass production from different species are shown in Table 10.3. Although commercial-scale short-rotation energy plantations are rare in Sri Lanka, the growth parameters of the existing fuelwood plantations could be used to determine the potential biomass yields of the recommended species in future short-rotation planta­tions. The yield-estimates given in Table 10.3 are based on actual field data collected from different plantations situated in different parts of the country.

Biomass production of Eucalyptus robusta is similar to that of Eucalyptus grandis while Acacia mangium is similar to Acacia auruculiformis (Perlack et al.). Leucaena leucocephalla would produce about 8-10 dry tons/ha under Sri Lankan conditions. The average yield during different harvesting periods in a newly established energy plantation in Sri Lanka are given in Table 10.4 (Gunaratne and Heenkenda, 1993).

This gives an annual average yield of 10 dry tons per hectare, with a total of about

7.5 MWh of annual energy per hectare at an overall plant efficiency of 18 per cent, and a З-year rotation of the fuelwood plantation.