Forests cover 31 per cent or almost 2 million hectares (ha) of the Lithuanian territory. Still the forest sector accounts for only some 3 per cent of the country’s GDP. Lithuanian forests are characterized by a good variety of tree species, though pine, spruce and birch compose 80 per cent of the stands. The growing stock has more than doubled in the past few decades thanks to the strict control of fellings and expansion of forest areas. Today, the growing stock totals 371 million m3, with an average of 193 m3 per hectare, and annual increment of 6.3 m3 per hectare. Over recent years, felling amounted to some 5 million m3 annually. However, according to experts, an annual cut of 6.2 million m3 or more could be maintained in the next ten years.

The low intensity of forest management practices in Lithuania has resulted in relatively dense forest stands. Consequently, the felling generally yields large volumes of firewood. Fuelwood is often handled in the same way as e. g. pulpwood, which implies considerable costs and reduces the overall profitability of forest management. There are, therefore, good reasons to improve this practice. Better management, including new practices for fuel collection and handling, could con­tribute to the overall improvement of the economy of forestry activities.

There is a large need for measures such as precommercial and commercial thinning, particularly as the volumes from clear cutting seem to be increasing. In 2001, the total cutting reached 5.7 million m3, but Lithuania has enough wood resources and favorable age structure of stands to increase the wood supply significantly in the near future. If forest management practices are changed towards shorter rotation ages and more intensive precommercial and commercial thinning methods, significant expansion of the fuelwood supply can be achieved. In addition, improved economic use of abandoned agricultural land is possible. For a long time, former agricultural areas have been naturally afforested, mostly with nonindustrial species, but a better choice of species and new management practices can develop these areas for the production of woodfuel and industrial wood.

In Lithuania, fuelwood is mostly used for heating in households. Lately, biomass — based district heating systems have been developed. Sawmills have supplied most of the fuelwood used in district-heating plants, while the forest sector has played a minor role as supplier. Biofuel markets are still limited in the country, but are evolving, not least due to expanding import markets in other countries of the region, for example, Sweden. The structure of wood consumption is changing. Consumption of woodfuel increased more than twice in the household sector during the 1990s and is expected to increase further. The conversion of boilers, particularly for district heating, has been a major drive of this tendency.

The forest ownership structure has changed considerably after the restoration of independence in Lithuania in 1991. Since the beginning of the land reform, owner­ship rights were restored to more than 165000 forest owners, who now control approximately 531000 ha or 26 per cent of the total forest area. The process of forest restitution is still proceeding and it is expected that, after completion of the land reform, private owners will control about half of the total forest area. Private forests are usually small and the average area of a private forest holding is 4.4 ha.

Management of private forestland is a new phenomenon in Lithuania and so is forest owners’ associations. There are two separate private forest owners’ asso­ciations established in the country today but no more than one per cent of the private forest owners are members. The new forest owners need to comply with official policies for the sector but live under severe economic constraints. Associations can provide various services for members including information and consultancy, education in silviculture and forest management, and representation of the interests of private forest owners. Nevertheless, private forest owners are reluctant to join interest organizations because they do not seem to see the benefits. In particular, the idea of cooperatives do not seem very attractive to potential members.

The forest authorities in Lithuania have recently been restructured. At present, the Forest Department at the Ministry of Environment is the institution responsible for the Forest act and formulation of strategies, recommendations and guidelines to forest-related activities. Regional Forest Control Units under the State Environ­mental Inspection, which is subordinated to the Ministry of Environment, are responsible for implementation and extension of services, including compliance of rules and regulations under the legal act by public and private forest owners.

Another institution with a large influence on public-owned forests is the General Forest Enterprise. The institution is subordinated to the Ministry of Environment and is responsible for the management of forty-two commercial State Forest Enterprises. Forest Enterprise is the basic forest management unit responsible for the implementation of forest management plans in state forests. State Forest Enterprises are responsible for all forest activities related to regeneration, tending and protection of forests; forest utilization including harvesting operations, construction and reha­bilitation of production facilities and buildings; road construction and maintenance of land drainage systems; recreation and equipment; and all other forest-related activities. Forests that have been set aside for privatization under the land reform are not being managed at all at the moment, and felling is forbidden in these areas.

Though little has been done to assess the most appropriate instruments to enhance woodfuel production in Lithuania, and to evaluate fiscal and economic implications of such instruments, the country’s efforts to conform to policies and practices of the European Union could come as an advantage to bioenergy utiliza­tion. Yet, as further discussed in the last section, this is no guarantee and will depend on combined national efforts towards policy integration, energy efficiency and renewable energy, and the focus put on the promotion of bioenergy options.

The classification system requires a detailed terminology of the biofuel sources, which considers not only the kind of biomass (woody biomass, herbaceous biomass etc.) but also its origin (i. e. logging residues, energy plantation wood, whole trees). This information mentions important conclusions on the biofuel properties (i. e. the ash content of forest wood mainly depends on the amount of bark).

However, besides the terminology, some biofuel properties have to be further classified. To identify the biofuel quality, the shape and size, density, moisture content and ash content of the parameters are reckoned as the most relevant (Rosch and Kaltschmitt, 2001; Rijpkema, 2001). These are further explained here. The importance of other biofuel properties (i. e. content of different elements, ash melting behavior) depends on the type of solid biofuel, the specific conditions at the combustion plant, the emissions control etc. For most of the currently used woodfuels, these properties have no significant relevance and thus should be taken into consideration only under particular circumstances. Approaches to quality assurance are discussed in the next section and exemplified through the case of straw.

Shape and size. The mechanical properties of solid biofuels are relevant for trans­portation and reaction at the conversion plant. In practice the shape and size vary widely i. e. between milled biofuels (i. e. wood flour), compressed biofuels (i. e. straw pellets), cut biofuels (i. e. chips) and baled biofuels (i. e. straw bales). Those different types of fuels need specific equipment for production, transportation, storage, feeding and combustion. For example, the trouble-free handling of chips is limited by a certain amount of over-sized particles as well as a certain amount of very fine particles (dust). A wide range of particle sizes can cause trouble in fully automated feeding systems due to bridging, obstruction or adhesion.

Density. There are two different types of density which are relevant for solid biofuels. The particle density describes the density of the material itself and is relevant for the combustion process (i. e. evaporation rate, energy density etc.), some feeding aspects (i. e. for pneumatic equipment) and storage. The particle density can only be varied by producing compressed biofuels and is used to describe the quality of those products (i. e. high particle density is an indicator for a high pellet quality). The bulk density is defined as the ratio of dry material to bulk volume and is relevant for the volume needed for transportation and storage.

Moisture content. The moisture content of solid biofuels varies within a wide range For example, the moisture content of woodfuels depends on the time of harvesting the location, type and duration of the storage and the fuel preparation. It varies frorr less than 10 per cent (residues from wood processing industry) up to 50 per cent (forest wood chips). The moisture content is relevant not only for the heating value but also for the storage conditions, the combustion temperature and the amount ol exhaust gas.

Ash content. The ash content of solid biofuels depends on the type of biomass anc the impurities. It is relevant for the heating value and to decide whether the biofuel i: appropriate for use in particular combustion plants.

Arnaldo Walter, Monica R. Souza[10] and Andre Faaij

9.1. WHY COFIRING?

The term cofiring has been often applied to designate the combined use of fuels in power plants as well as in industrial steam boilers. A special case is the combined use of biomass and fossil fuels, the most acknowledged idea being the mix of biomass and coal in power plants. In some countries, such as the United States, The Nether­lands, Austria and Finland, cofiring biomass and fossil fuel has been commercially practiced for power production since the mid-1990s.

Environmental issues, mainly those concerned with mitigation of airborne emis­sions (carbon dioxide and other gaseous pollutants, especially sulfur oxides), are the main reasons for pursuing efforts on coftring. Owing to substantial reduction of technical and economic risks, cofiring has also been considered as the first step in enhancing biomass utilization for power generation in some countries. With cofiring, for instance, it is possible to take advantage of the relatively high efficiency of large coal boilers without incurring a large investment (Sondreal et al., 2001).

Cofiring biomass and natural gas has been considered to a less extent so far, and no significant commercial experience has been identified. Recently, a report on cofiring biomass-derived fuels and natural gas in gas turbines has been released in The Netherlands (De Kant and Bodegom, 2000). The research has focused on the technical feasibility and the potential of cofiring low-heating-content fuels and natural gas over different power configurations. Gas turbine constraints and required adaptations have been inventoried with the gas turbine suppliers. Likewise, a similar study was developed some years ago at the National Renewable Energy Laboratory — NREL in the United States, but only a preliminary analysis of technical options was conducted at that time (Spath, 1995).

Considering the biomass use, the term cofiring has been applied in a widespread sense. Strictly, cofiring corresponds to burning a mix of fuels in the same thermal device. However, cofiring has also been understood as: (i) biomass or fossil fuel use to complement the main fuel supply; (ii) biomass use to increase plant capacity, burning fuels without mixing; and even (iii) when biomass is used to full substitution of a fossil fuel in an existing power plant.

This chapter describes a research focused on opportunities for developing power production from sugarcane residues (sugarcane bagasse and sugarcane trash, i. e. leaves and tops of the plant) based on cofiring with natural gas. The three technical alternatives presented are based on the wide definition of cofiring mentioned earlier.

As discussed earlier, project risks and financing prices are positively correlated. Thus factors that reduce the overall project risks will automatically reduce the price for project finance. This is what carbon finance can possibly do. We now look at the main identified risk mitigants commonly attributed to carbon rights in a project. Some of these carbon right characteristics and different roles will be further analyzed in the subsequent case-study discussion.

• ERPAs are long-term contracts denominated in hard currency. They work as a natural hedge for foreign exchange risk, and reduce the lender’s exposure to local currency depreciation. This specific risk mitigation is extremely relevant for projects which operate in domestic markets and do not have access to the cheaper international loans (i. e. sources of hard currency revenue streams can increase the interest of investors and banks to participate in a project).

• Lenders who finance projects based on the production and sale of the borrower’s commodities are also bearing the risk of fluctuation in the price of these goods (i. e. the same amount of goods may not cover the entire loan if the price of these goods drops). Therefore, while there is no price fluctuation for the emission reductions in the ERPAs, this can assure a constant and predictable contract value potentially able to be used as guarantee or debt-service repayment to the lender.

• Lenders are extremely concerned about the creditworthiness of the borrower’s clients, who will ultimately generate the revenue streams of the borrower. The ability to provide creditworthy off-takers from a project decreases therefore some of the project-related risks. In this respect, the World Bank is considered a low risk buyer by most lenders.

• Lenders may attribute a large portion of their overall risk evaluation to the borrower’s local government and actions that may hinder or prevent a loan repayment in hard currency (i. e. local currency convertibility to hard currency and transfer overseas), as well as their confiscation and nationalization of goods, and expropriation of assets, which threaten the sponsor’s capacity to produce and export goods. The payment for carbon rights directly into the lender’s account eliminates currency risk. Also, the existence of a government letter of approval (LoA) requested at an early stage in the process minimizes the risk of subsequent interference by the borrower’s government with the generation and remission of emission reductions to buyers.

In the past, most governments and donor agencies considered fuelwood as a mere energy demand and supply problem (RWEDP, 1993). The diagnosis of the problems and design for solutions have been based on simple models of supply and demand, i. e. gap theory (Soussan, 1993). This has led to programs for planting trees, reducing consumption through the introduction of improved cooking stoves, and upgrading of the quality of biomass fuels.

The approach adopted for the dissemination of improved cooking stove (ICS) was essentially technology-focused, and with a few notable exceptions in the plains, these efforts have failed to have lasting impact on fuelwood scarcity. The failure of such technology-focused attempts has been documented in Rijal (1996) and RWEDP (1997). These interventions ignored the multiplicity of existing traditional techno­logies and disregarded sociocultural values. Since consumption of fuelwood was perceived as the main cause of deforestation, other factors such as collection of fodder for livestock, land needs for cultivation, and large-scale felling of timber, never received appropriate attention. Alleviation of human drudgery, improvement of deteriorating health conditions and the problems of soil fertility were never considered seriously.

The frequent failure of many such policy initiatives has led to a reappraisal of the fuelwood crisis. A number of studies (Soussan, 1993; RWEDP and ICIMOD, 1997) argue that biomass fuel production and use are intimately integrated into broader processes of resource management in local production systems. Fuelwood problems are likely to emerge gradually, as people respond to a variety of resource stresses. This means that fuelwood stress rarely manifests itself as a simple shortage of fuel (Soussan, 1993).

The issues of control over decisions concerning land and other resources are at the heart of effective fuelwood policies and programs in the context of mountain areas. In previous attempts, local and national governments have failed to establish the conditions that would allow efficient and sustainable allocation of land and resources for woods and cropland, or wood production and food (Durning, 1993; FAO, 1993; WWF and IUCN, 1996).

Although activities to be undertaken in any fuelwood strategy will vary according to prevailing local conditions in the mountain areas of each particular country, in general policy interventions should seek the following (Soussan, 1993; WWF and IUCN, 1996; RWEDP, 1997; Rijal, 1999):

• To secure property rights, and especially ensure the rights of those groups experiencing the worst problems over access to fuelwood resources. This should include customary and communal rights as well as private property rights.

• To improve market functions by eliminating policy-induced distortions in the prices of different types of energy resources and technologies. For example, decision makers are never concerned with the prevailing subsidy on commercial fuels (electricity and petroleum fuels) but always emphasize the commercializa­tion of new and renewable energy technologies. All kinds of energy resources and technologies should be judged by providing a level playing field.

• To improve access to, and management of various renewable energy tech­nologies and commercial fuels so that the options are made available for the mountain people to make appropriate decisions about their energy requirements.

• To bring the voice of the community to the fore, and build effective institutional structures to give the actors on the ground a real control over the decisions that affect their lives.

There is a need to develop specific fuelwood sector strategies that can capture the local specificity of fuelwood problems and opportunities in mountain areas. This should be accompanied by (Rijal, 1996; Soussan, 1993; RWEDP, 1997):

• Improvement on information, including the creation of a database at the lowest level of planning so as to understand the dynamics of biomass fuel production and use in mountain areas;

• Strengthening of the capability of fuelwood planning institutions at local and national levels to create an effective implementation capacity;

• Strengthening of coordination between different agencies as fuelwood issues are inherently cross-sectoral in nature; and

• Efforts to involve local people more (particularly women) in the planning and implementation of forestry and fuelwood programs.

Movement in this direction has begun in recent years, and a number of issues are emerging in the context of hill and mountain areas of Nepal. Some of these issues are also relevant in other countries of the HKH region. A few examples of critical issues are mentioned here.

• A community forestry program was being implemented in Nepal based on the demand of forestry users’ groups. The program involved the transfer of forests to the users’ groups and had a demand-driven approach. After the promulgation of the Forestry Act 1993 and the Forestry Regulation 1995, the Department of Forest rushed to formalize the forest users’ groups and to hand over forest patches to the communities. This was done without a proper assessment of the wood energy needs of different groups. At this point, the program took a more conservationist approach focused on the formalization of property rights. The richer section of the population took control of the forest users’ groups after they received legal status. As a result, poorer groups were given limited access to forest resources, which led to further marginalization.

• It is important to pay attention to the sustainability of supply and demand of fuelwood, including also other forest products such as medicinal herbs, fodder, and timber. This should be considered under various forest management types such as community forest, leasehold forest, social forestry, Joint Forest Management, and private forest. There are more than 200 community forestry users’ groups and other types of forest management practices within a district (1000-2000 km2) of Nepal. Within a particular district some of the user groups are large (300 people) but have ownership of small patches of forest (10-15 ha). Meanwhile, some user groups are small (20-50 people) but own 100 ha or more. In the former case, women and vulnerable groups (low caste) have limited access and, in many instances, are bound to collect fuelwood from government forests for their own consumption, or to sell in the village or other markets and make their livelihoods. In the latter case, there is a surplus generation of cash income as the result of sales of forest produce, which has been the cause of many conflicts.

• Another important issue that needs consideration refers to the costs and benefits of forest management interventions (including clean energy development, community forestry and watershed management) and related environmental services. While such costs and benefits are envisaged within the boundaries of the upstream areas and communities, most of the benefits would accrue to the communities living in the adjoining plains or valleys. What kind of policies and institutional arrangements would allow transfer of these benefits to the upstream communities, so that the cost they bear for interventions is reduced? There is need to develop methodologies that better assess and help to distribute the social costs and benefits of development interventions in upstream and downstream communities.

The aforementioned issues need to be carefully examined. Central to these issues is the possibility to capture the diversity and dynamism of local fuelwood and energy situation in the mountains in a broader context of community development. This is a key to making program interventions relevant and responsive to the needs of the mountain people rather than let them become hostages of any particular set of vested interests.

A broader framework for the management of forest resources in mountain areas can help meet daily energy needs better while also reducing the rate of deforestation, reducing the loss of life due to land slides, increasing the crop productivity by reducing soil erosion and loss of soil nutrient, and balancing the seasonal fluctuation of water levels in the streams and rivers originating from mountains. In addition, such a framework shall also help to reduce flooding of the adjoining plains, regulating the flow of water and timber for people residing in the plain areas.

The technological options available can be broadly categorized into two main groups, conventional steam cycle based plants and those based on wood gasification technology. The conventional steam cycle power plants are based on proven technology refined over several decades. The overall plant efficiency of the system is in the range of 18-22 per cent. Typical capacities offered with this conventional technology vary between 10 kW and a few hundreds of MW.

There are a number of technological options available to employ air gasification of wood. Down draft fixed bed gasifier, feeding a diesel engine was considered for small-scale power plants ranging from lOOkW. The overall plant efficiency of this system is around 22 per cent. For the range 5-10 MW, two technical options, i. e. pressurized fluidized bed gasification/steam injected gas turbine and pressurized fluidized bed gasification/diesel engine combinations are available. The overall plant efficiencies of these systems are approximately 29 and 34 per cent respectively. For large scale applications it is suitable to use the pressurized fluidized bed gasifier feeding a steam injected gas turbine where the overall plant efficiency can be around 30 per cent (Sipila, 1996; Solantasta, 1995).

Although it offers a high overall efficiency in the range of 30 per cent or above for medium-sized power plants (MW scale), wood gasification-based technology used in biomass-based plants is relatively new and only few plants are in operation on a commercial scale in this region. Therefore, considering the technical feasibility within Sri Lanka, plants operating on conventional steam cycle technology are found to be more appropriate for biomass-based electricity generation systems in the country.

Total biofuel consumption in Lithuania amounted to 3.3 million m3 in 2001 (Department of Statistics to the Government of the Republic of Lithuania, Statistics Lithuania 2002) which generated some 7.3 TWh of energy (Ministry of Economy of the Republic of Lithuania, Energy Agency 2002). Biofuels were mostly used in the form of firewood, in addition to being used as sawdust briquettes, peat and other primary solid fuels. The large majority of the biofuels, about 90 per cent, were used for heating the households. The rest was used in commercial and public services, industries and other minor applications. Of the total, only a very small portion was used in district-heating plants (Energy balance 1999, Statistics Lithuania 2000). As mentioned before, the utilization of biomass for district heating is recent and started first in 1994.

Of the residues generated in sawmills, half goes to households, some 17 per cent are used in boiler houses, 17 per cent are used internally in the sawmills and 13 per cent goes to pulp and board industries. When it comes to the evaluation of total wood waste potential, the figures are less trustworthy. In any case, for strategic purposes, technical and economic availability for collection and transportation to boiler houses or densified woodfuel production plants needs to be considered together with the introduction of new practices and construction of new infrastructure.

It is important to notice how market forces are rapidly leading to new attitudes and practices. One interesting development is the increasing production of wood pellets and briquettes. Figure 7.1 illustrates this development in the last few years. From a very small production in the early 1990s, briquette and pellet production have expanded very rapidly. Most of these products are exported to Germany, Denmark, Sweden and Norway. In the local market, the price of pellets is about half of what it can reach in export markets even if prices have doubled since 1994. Thus raw materials that were simply being wasted before have now found a competitive market as a result of market forces and changing energy policies in Europe.

In principle, the expansion of wood-based industries tends to generate more residues, thus there should be no need for conflict among different users. However, competing uses for waste from processing industries, including producers of densified fuels, board factories and pulp producers, leave no optimism for large amounts of residues to be left for heating plants. Truly, the wood-processing industry in Lithuania will have to be restructured to be able to compete in open European markets, but this will also lead to a larger internal use of residues to dry the products. All in all, expansion of logging activities and general restructuring and efficiency improvement of sawmills shall result in an increase between 10 and 20 per cent only in the amount of residues generated from wood processing in the near future.

Thus, to achieve sustainability in the supply of wood fuels, especially in con­nection with conversion of oil — and coal-fired boilers in district-heating systems to biofuels, wood fuels supplied directly from forests will be very much needed. A significant shift towards greater utilization of wood-based energy will also require modifications in present policies including taxes and subsidies on energy sources. Careful attention needs to be paid to avoid potential conflict of interests between agricultural and forest activities, as well as wood-based industries in general.

The European standards for sampling, sample reduction and sample treatment art regarded as important and this area seems to be a weak point within the process tc determine fuel properties. There are doubts in different EU countries whether the samples drawn from the lorry or conveyor belt can be regarded as being repre­sentative for the delivered fuel load. The moisture content, which is the main fue property to measure the value of the fuel, can show great variation within a single truckload. If the sample shows a different moisture content from that of the average of the truckload, the calculation of the energy content and thus the calculated price to be paid for the biofuel can be misleading.

Brazil is the largest producer of sugarcane in the world. The production in the harvest season of 2000-2001 reached 252 million tons, but it was as large as 315 million tons in the harvest season of 1999-2000. In that period, the amount of bagasse available at the sugar mills reached 780 PJ. Bagasse is inefficiently consumed in the cogeneration systems of sugarcane mills, generating steam that is first used to produce power and, subsequently, to fulfil process thermal demand. In addition, a small amount of the bagasse is traded and used as fuel by other industrial branches, but these market opportunities are constrained by transport costs and the low prices of fuel oil. In addition, this market tends to be further reduced, as natural gas is made available.

Tops and leaves of the sugarcane plant — the so-called sugarcane trash — are currently burned in the field before manual harvesting. Since this practice will be gradually reduced in the next 10-12 years for environmental reasons, it is pre­dicted that the availability of sugarcane residues in Brazil will steadily increase. Sugarcane trash shall be recovered from the fields through mechanic harvesting, a technology that has been introduced in Brazil in the last few years. Potentially the availability of sugarcane trash is as large as bagasse, but topographic constraints will determine how much is economically recoverable (see also Braunbeck et al., Chapter 6).

Based on opportunity costs for sugarcane bagasse and on predicted costs for sugarcane trash recovery, it is foreseen that the cost of this biomass would be lower than 2 USS/GJ and, in some cases, even lower than 1 USS/GJ. Despite the focus given to sugarcane residues in this study, a wide range of biomass could obviously be used for the purpose of cofiring, such as wood chips, bark, thinnings, sawdust, various agriculture residues, etc.

In Brazil, the installed electricity generation capacity is largely based on hydropower. It is estimated that almost 80 per cent of the current capacity (slightly larger than 85 GW) corresponds to hydropower plants. Clearly this enormous dep­endency on just one energy source is risky and a diversification of power sources is advisable. In fact, in 2001, due to lack of investments in power generation and to a drier summer than usual, power shortages have occurred. Power production from biomass provides both an opportunity for diversification and for expanding the use of renewables in the Brazilian matrix.

Natural gas power plants shall be built in Brazil in the next 5 to 10 years, fostered by governmental policies. Brazilian natural gas reserves are small but the supply is enlarged through imports from Bolivia and, possibly, from Argentina in the near future. As the natural gas market is not yet well developed, thermal power plants have been considered necessary to assure the feasibility of pipeline projects. This would allow the consumption of a large amount of natural gas during the early years of a “take-or-pay” contract.

Additionally, it is important to bear the perspective of private developers in mind, the main investors after privatization and deregulation of the electricity sector. Natural gas thermal power plants appear to be the main option of investment due to the short construction time of the plants, relatively low capital costs ($/kW installed), high efficiency, and large availability. On the other hand, investors identify a risky picture due to the necessity of bulk imports of natural gas and the instability of the Brazilian economy. Medium — to long-term fluctuations of natural gas prices are obviously a matter of concern for investors. The combined use of natural gas with biomass can reduce these risks and increase the fuel flexibility of new power gen­eration capacity. This point is especially relevant in a natural gas market that is still under development.

Two additional points should be observed concerning the natural gas supply. First, the brand new Bolivia-Brazil pipeline crosses — or is relatively close to — the region where approximately 60 to 65 per cent of the Brazilian sugarcane production takes place. Second, as the natural gas market is further developed, and better opportunities for natural gas consumption arise — for instance, on premium markets such as the residential and industrial sectors — biomass could replace natural gas on thermoelectric power plants that shall be built during the early years of the pipeline operation. The period required for the development of a new natural gas market is around ten years.

Competitiveness of electricity production from biomass will strongly depend on the development of new conversion technologies and on the scale of power plants. Future power production from biomass could be based on gasification, for example. Gas turbines are power devices that have some important attributes: reasonable thermal efficiency and initial capital costs that are not as affected by scale effects. It is expected that, with the not-yet-commercially-available BIG-CC cycles (Biomass Gasification Integrated to Combined Cycles), the efficiency of electricity production could reach about 35 to 45 per cent (Walter et al., 2000).

Performance penalties associated with gas turbine adaptation to gasified biomass are meaningful. Biomass-derived gas from air-blown gasifiers has only about 8 to 10 per cent of the energy content of natural gas, resulting in larger mass flow through gas turbines. As a consequence, technical problems can occur, such as compressor surge, increased thermal and mechanical loads on compressor airfoils, the need of an adapted combustion/injection system and problems with flame stability (Rodrigues et al., 2003a). Regarding the BIG-CC technology, cofiring with natural gas is here mainly proposed as a short-term approach to cope with penalties on both effi­ciency and power resulting from gas turbine derating. The expansion of power plant capacities due to cofiring is also an important contribution for the competitiveness of electricity production from biomass (Rodrigues et al., 2003b).

However, the BIG-CC is not the only technical option for cofired biomass and natural gas plants. Commercial and proven technologies could be used as well. For instance, biomass could be fired independently from natural gas, producing steam in conventional boilers. In addition, steam production would be complemented from HRSGs — heat recovery steam generators — and both streams could be mixed to feed steam turbines of combined cycles. Furthermore, from strategic and economic points of view, electricity production from cofiring natural gas and biomass could be effectively developed as an alternative for the reduction of GHG emissions.

The Plantar project in Brazil

The Plantar project in Brazil is one of the projects from which the Prototype Carbon Fund is buying greenhouse gas emission reductions. The Plantar project consists of the substitution of coal in the pig-iron industry (see also Fujihara et al., Chapter 14). The project aims to establish Eucalyptus plantations in degraded pasture areas. After harvesting, the timber is carbonized to produce charcoal, which is subsequently mixed with mineral iron in furnaces to produce pig iron. Due to the long lead time necessary for the eucalyptus to mature it would take up to eight years before this project could generate any cash-flow income.

Without CDM, Plantar was a project with up to eight years of implementation phase before it could start generating financial returns. In addition, three more years would potentially have been required by the project to fully pay back the investment. The project finance would require the same eight years of grace period, plus three years for amortization in order to match the usual project needs. Unfortunately, there were no loans or Country Risk Insurance available in Brazil for such a long period at any price. In these circumstances, the project was unbankable.

However, the project’s eligibility to the Kyoto Protocol and the World Bank’s Emission Reductions Purchase Agreement (ERPA) committing to acquire the emission reductions resulting from the project provided anticipated sources of revenue streams to be used for amortization of loan’s debt service, already starting in the second year. Based on this new feature, a financial loan was structured.

In the Plantar project, the nominal value of the ERPA contract between the World Bank (as trustee of the Prototype Carbon Fund or PCF) and the project sponsor (Plantar) was anticipated by a commercial lender (Rabobank Brazil) to Plantar, the latter being both recipient of the loan and seller of the emission reductions. It was structured in a way that the expected payment for the emission reductions (in this case made by the PCF) would perfectly match the loan’s amortization schedule. This transaction is similar to the common “export pre­payment” structure used in the lending sector, although it could also be correctly defined as a “monetization of the ERPA receivables”. Figure 13.2 illustrates the above-mentioned financing structure.

The loan was structured in a way that the World Bank would pay for the emission reductions directly into the lender’s account, therefore reducing credit and currency risk in the structure. The anticipated sources of revenue streams provided by emission reductions in the project, the absence of currency convertibility and

transferability, and the intangibility of those emission reductions led the transaction to be rated by the lender as “Credit-risk free”, resulting in the elimination of the obligation to obtain any insurance. Therefore, the project became bankable, and the loan became attractive to the lender. In addition, the credit risk mitigation also resulted in a reduction in the overall risk perception by the lender, which could provide an attractive loan to the company.