Monday, April 29, 2013

Between a Rock and a Hard Place* – Wood-Fired Electricity in New Hampshire – Part 3

In my post, It Don't Come Easy, we took a look at the revenue side of the wood-fired electricity business in New Hampshire and we determined that later this year the biomass plants could be earning about $100/MWh for the electricity they produce. Half of this amount will come from selling electricity into the wholesale markets in New England and the other half will come from the sale of renewable energy credits, RECs. Their revenue stream is very much dependent on the high prices which presently exist in the REC market, but I expressed some concerns that the flood of RECs coming from the Berlin plant could have a downward impact on REC pricing. As a reader of this blog, Bob Baker, pointed out to me just this past week, there is another dark cloud looming on the horizon. Within New England, the REC market is an interstate one, and in Connecticut the local utilities purchase a lot of out-of-state RECs in order to meet their renewable energy quotas and avoid the fines levied through the alternative compliance payments. It has been reported that in 2010 that 76% (!) of the Class 1 series of Connecticut RECs have come from wood-fired plants in New Hampshire and Maine. 
One of the fundamental principles of economics is that of unintended consequences. This economic principle states that the actions of individuals, organizations and governments often have unintended and unexpected consequences. The REC program in Connecticut is a very good example of the unintended consequences of a well-meant program to support renewable energy in Connecticut that has ended up providing support for older, out-of-state renewable energy operations. Utility regulators in Connecticut are naturally grumpy that they are not helping newer Connecticut renewable energy companies, the price of renewable electricity is high (due to high REC prices) and they are supporting wood-fired plants in New Hampshire and Maine that were already in place before the establishment of the REC program. As a result, they are now looking to modify their renewable energy incentive programs in ways that would, in essence, exclude the older out-of-state wood plants. This would leave the NH wood-fired power plants looking at substantially smaller and less attractive markets for their RECs and as a result REC prices could plummet. 
We have spent quite a bit of time looking at the revenue side of the wood-fired electricity business and it is time we got down to looking at the cost side. An enterprise in the commodity business is termed a price taking business. Price takers, selling an undifferentiated product, such as electricity, accept the prevailing price the market offers. They are not a company like Apple which sells a unique product and who can, for the most part, set the price for that product. Price taking businesses can be very successful, but they require a laser-like focus on costs and, in the case of wood-fired power plants, the costs for producing electricity are considerable. Let's take a closer look. 
Woodchips are presently selling for about $30/ton and, based on Energy Information Agency (EIA) data for biomass plants in NH, it appears to take about 1.7 tons of woodchips to generate one megawatt hour of electricity. This is a lot of wood and is a result of the low energy content of green woodchips, which contain as much as 50% moisture, as well as the low conversion efficiencies of these operations, which I noted in a previous post was only about 23%. 

Using 1.7 tons of woodchips at $30/ton, means that the fuel cost alone is $51 per megawatt hour of produced electricity. The other costs these plants face include labor, operating and maintenance costs other than fuel, depreciation and financing costs. My very rough estimate of their cost structure per MWh of produced electricity is shown in the table below.

I might be high on the depreciation and finance costs but my estimate is that their costs are of the order of $80 to $90 per MWh. If they are earning $100/MWh from a combination of electricity and REC sales, this means that these operations are earning a profit of $10 to $20/MWh at this time. It is important to note that my estimates are based on my research, engineering judgment and business experience and are, at best, rough approximations. The actual financial information for these wood-fired operations is confidential and correctly so. However, if better information is publically available I would be interested in learning about it.
This cost structure does indicate that these plants are not viable based on just selling electricity at $50/MWh. They unquestionably need the RECs to remain in business, and moreover, they need attractive REC pricing. Anything below $30 to $40/MWh for REC pricing could lead to unprofitability and could be hugely damaging.
However, the high dependence of their costs on woodchips is cause for concern. Even a relatively limited increase of $6/ton in woodchip prices at 1.7 tons/MWh leads to a cost increase of $10/MWh which gets close to putting these plants underwater, profit-wise. Therefore, wood plant operators worry a lot about woodchip prices and their escalation. Here they have two major concerns. The first is that woodchip prices are highly dependent on diesel fuel costs. As noted in Songs from the Wood, wood harvesting, chipping and transportation involves a lot of high powered machinery and is therefore fossil-fuel intensive and woodchip prices, in large part, reflect prevailing diesel fuel prices. This is demonstrated in the chart below which shows there is a strong long-term correlation between diesel costs and woodchip prices. As the diesel price, plotted in blue, increases, the woodchip price, plotted in red, follows and rises accordingly. In the long term diesel prices are bound to increase and so we can expect to see woodchip prices increase as well.

The other woodchip price concern the existing wood-fired plants face is the startup of the large Berlin biomass plant later this year. As noted in Knock on Wood, this plant is a behemoth and it will increase woodchip consumption in the State by almost 50%. This increase in demand is bound to put upward pressure on woodchip prices. The price increase will be somewhat moderated by trucking in woodchips from out-of-state sources but I suspect that the pending Berlin plant start-up is cause for concern at the smaller wood-fired operations. The wood-fired power plants are faced with a challenging future and they are likely to find themselves squeezed between falling revenues and rising fuel costs.
So what could they do? Here are some options for consideration:
  1. Lobby aggressively for the expansion of renewable energy programs that favor wood-fired energy and that would support high REC prices or even seek some other form of outright subsidy. Without significant subsidies, through RECs or other means, wood-fired power plants are likely to reach the point of unprofitability.
  2. Figure out a way to use that 67% of waste heat and consider the implementation of district heating programs in the vicinities of the plants. The challenge is that these plants are in rural communities and getting the waste heat to local communities in the form of hot water will require long and very expensive pipe runs. Perhaps projects like low income housing, trailer parks, nursing homes, industrial parks, or heat intensive industries could be considered for development nearby these power plants so that the waste heat could be harvested and used.
  3. Consider the investment in new technology to improve conversion efficiencies but it must be understood that these investments would be in the tens to hundreds of millions of dollars with long, long payback periods. These investments could include installation of unit operations to pre-dry woodchips using the waste heat or even entirely new technologies that involve the gasification of wood to produce a combustible gas that could then be fired in combined cycle gas turbine units. However, according to the EIA, these newer wood-fired technologies would cost of the order of 4 to 8 times that of an equivalent natural gas-fired electricity operation. Energy companies would be hard pressed to make this investment in renewable energy unless they were assured of a higher price for electricity through a favorable power purchase agreement or subsidy.  
Many of these ideas are a stretch but, in the meantime, I am sure legislative developments in Connecticut as well as the low costs of electricity, created by low natural gas prices, are keeping the owners and managers of these wood-fired power plants awake at night. Perhaps expanding renewable energy subsidies to support home grown and produced NH energy is not necessarily a bad idea, however, we do need to think through the unintended consequences of these subsidies beforehand, rather than after the fact like the folks in Connecticut. I am concerned that without substantial subsidies, through RECs or other means, our smaller wood-fired power plants will find themselves being squeezed between lower revenues and higher costs – the proverbial rock and hard place* with nowhere to turn.

Many folks believe that subsidies are the wrong way to go and that renewable energy plants need to compete in an open competitive energy market alongside fossil fuel operations. I do not agree with that approach and I believe we need to support renewable energy through subsidies even if it means paying more for the fossil fuel based energy we presently use. There are even some that say renewable energy subsidies are OK but that wood-fired electricity should not be subsidized because it is a "dirty" form of renewable energy owing to the fossil fuel used in harvesting, transporting and chipping the wood. Again, I don't agree because the reality is that every type of renewable energy is "dirty" in one form or another. When it comes to energy, there is no free lunch. There is an environmental and social impact associated with every form of energy utilization, renewable or not. What we need to do as a society is decide which of those impacts we are willing to live with and to make decisions about subsidies that will provide good options for future generations instead of leaving them with depleted oil wells, piles of poorly stored nuclear waste and exhausted coal mines. We need to think long term and not just about our children. We need to think about our children's great grandchildren. Making good decisions today that will give future generations viable energy options is an enormous responsibility and not one we can push off anymore.
Until next week, remember to turn off the lights when you leave the room.
Mike Mooiman
Franklin Pierce University

(*Rock and a Hard Place is a great rock and roll tune by the Rolling Stones from their Steel Wheels album which came out in 1989 after the rift between Mick Jagger and Keith Richards was repaired. To my mind this was the last decent album the Stones put out, but it pales in comparison to Sticky Fingers, my personal favorite. However debating the best Stones album would be worthy of a blog by itself.)

Sunday, April 21, 2013

It Don’t Come Easy* - Wood-Fired Electricity in New Hampshire – Part 2

As I have been learning about the wood-based electricity industry in New Hampshire, I have come to appreciate that this industry is an important part of the State's economy. The wood-fired power plants generate electricity from a renewable energy source we harvest right here in NH and, in the process, they support the livelihoods of foresters, wood harvesters, equipment dealers, sawmills and many other associated industries. As important as these biomass plants are, they are facing some significant operating challenges. In an earlier post, Songs from the Woods, I noted that operating wood-fired electricity plants in NH were built in the late 1980s and, through state renewable energy incentive programs, were able sign 20-year contracts with our largest electrical utility company, Public Services of New Hampshire (PSNH), to sell electricity at attractive and pre-agreed rates. 

Twenty years have now gone by, and a few years ago many of these contracts came to the end of their terms. At this time, PSNH did not want to extend the purchase agreements as the contracted purchase price of electricity was higher than what PSNH could get selling that electricity on the local wholesale electricity market in New England, known as ISO-New England. At the same time, the plans for the large Berlin biomass electricity plant were coming together, and the developer of this plant began negotiating with PSNH for a power purchase agreement, which was a critical step in getting funding for the project. The operating wood-fired power plants took advantage of the opportunity, and in 2010 and 2011 they campaigned against PSNH signing a rate order to purchase electricity from the Berlin wood-fired power plant. In a compromise with PSNH, five of the six smaller biomass plants managed to negotiate for 20-month power purchase agreements to sell electricity direclty to PSNH, thereby giving them some additional time to adjust to selling electricity at prevailing wholesale electricity prices. These agreements allowed PSNH to contract with Berlin Biopower and the project was able to secure financing and move forward.

This year we come to the end of those 20-month power purchase agreements. The wood-fired power plants are now faced with the reality of having to sell electricity into the New England wholesale electricity market just like any other merchant electricity producer. Like any other business, these biomass power plants are faced with the two most fundamental issues that any for-profit enterprise has to deal with: the first is the price they can sell their product for and the second is the cost of producing that product.
Let's start with the price for their product. Later this year these wood-fired power plants will only be able to sell the electricity they produce at the prevailing rates in the ISO-New England wholesale market. These prices do fluctuate and the historical values for wholesale energy prices for NH are shown in the chart below. Over the 10-year span of the data, it can be seen that there is considerable fluctuation in prices and even recently, in January and February of this year, we had a spell where prices spiked. This particular price spike occurred because we are heavily dependent on natural gas for electricity generation in New England and during the cold spells there is additional demand for natural gas for home heating. With limited natural gas pipeline capacity and increased demand, prices for natural gas spiked and electricity prices followed. However, despite these occasional spikes, there is an overall downward trend in wholesale electricity prices over the past decade. This is show by the red linear trend line I have overlaid on the price data: it is clear that we have gone from an average price of $62 per megawatt hour (MWh) to $49/MWh – a 20% decrease in the price of electricity. (A megawatt hour is roughly the amount of electricity an average US home uses per month.) This downward trend has, in large part, been driven by low natural gas prices. This past summer, wholesale prices were even lower and averaged about $30/MWh. Natural gas prices have risen substantially from their market lows last year and, as a result, we are not likely to see electricity prices this low for a while.

Lower prices for their product is part of the headwind that the wood-fired power plants are facing. Fortunately, they have access to another source of revenue. Because burning wood to generate electricity is considered to be renewable energy production, these operations are able to sell the renewable attributes of their production to counterparties who need these attributes to meet certain obligations. These renewable energy attributes, called renewable energy certificates (RECs) or green tags, are traded separately from the underlying electricity. For example, a NH wood-fired electricity plant can sell each megawatt hour of electricity for the prevailing price on the wholesale electricity market, say for $50 a megawatt hour, and then they can sell the renewable energy attribute for each megawatt of renewable energy produced. Each megawatt of renewable electricity gets assigned a unique certificate number and a date of production and it then becomes a tradable instrument - a REC that can be bought and sold like a stock or bond. The counterparty who buys this REC could, for example,  be a state-regulated utility in Connecticut that is required to produce 20% of their electricity from renewable energy sources. If the utility does not have the renewable operations to meet that goal, they can purchase the renewable energy certificates from a facility out of State that does produce renewable energy.
If the state-regulated utilities do not meet their renewable energy quotas, they are required to make what are termed "alternative compliance payments" to their state for every megawatt hour of renewable energy they did not produce or source. These alternative compliance payments are essentially fines to encourage the utilities to produce or support renewable energy, but one thing they do do is put a cap on the REC market. Once REC prices exceed the alternative compliance payments, the utility will elect to pay the fine, i.e., the alternative compliance payment. Generally speaking, the REC market is a complicated one as there are different classes in each state for these RECs, depending on how the renewable energy is produced; there are different local markets in each state and there are also different alternative compliance payments in each state. This is a topic we can perhaps cover sometime in a future blog.
As it turns out, a great deal of the RECs from the wood-fired power plants in NH are sold into the Connecticut market, where local utilities purchase them in order to meet their renewable energy obligations. If these utilities cannot generate sufficient renewable power themselves or purchase the equivalent RECs, they have to pay an alternative compliance payment of $55 per MWh to the State of Connecticut. As I have discovered, sales for these RECs go through brokers who work to match buyers and sellers and, in the process, they take a commission. Much of the trading information on these RECs is considered to be proprietary and it proved to be difficult to find recent market data. However, a call I made to a broker who deals in RECs for the Connecticut market, indicated that he had a shortage of NH biomass-based RECs and was willing to pay up to $55/MWh (the cap price created by the alternative compliance payment) for 2012-based RECs.
For the biomass electricity producers in NH this is good news as the REC market is presently in their favor. This has not always been the case. The chart below shows how pricing in the various state-based REC markets has fluctuated over the past few years. This chart only shows information to May 2012 but it does indicate that in 2010/2011 there was a fallow period when the RECs in the New England market were trading at a low of $15/MWh. Since then prices have increased. The most current data on this chart indicate that RECs in the Connecticut market were trading for $48 in May 2012 and, as I noted above, prices have now risen further to close to $55/MWh.

Prices have risen because demand for NH-based biomass RECs exceeds the supply, which is always a good situation for a supplier of a product. I was not able to determine how large the NH biomass REC demand overhang was, but, as an operating producer of biomass electricity in NH, I would be concerned about the start-up of the Berlin biomass plant. Wood burning-wise, this plant is a behemoth, and is three to four times the capacity of the average NH wood-burning plant. This plant will be producing a great deal of renewable energy and a boatload of NH biomass RECs. There is likely to be considerable impact on the REC market when this additional supply becomes available.
When we look at the revenue stream for these biomass plants, it is clear that they have two products to sell. They have electricity which they will be selling into the wholesale market, where prices are now of the order of $50/MWh, and they have the associated RECs that they sell into the New England state compliance markets and where prices are presently close to $55/MWh. So, in total, the NH biomass plants are earning approximately $100 to $105/MWh, which is certainly more than what a fossil fuel-based electricity generator, that can only sell electricity with no accompanying RECs, will earn. In some respects biomass plants are better off, revenue-wise, than a fossil fuel plant but there is some apprehension associated with their revenue streams. Specifically, their concerns are:
  • There has been a long-term downward trend in the price of electricity with some recent large decreases driven by cheap natural gas. With the recent increase of natural gas prices, electricity producers are hoping that local wholesale prices may stabilize or even see an increase.
  • The REC market for NH biomass has improved since 2011, but the availability of a lot of RECs from the large Berlin biomass plant could put downward pressure on REC pricing later this year.

On top of these revenue concerns, biomass plants also have to deal with the second central business issue and that is the cost of producing electricity. Even here, the biomass plants are facing challenges. Prices for their fuel, wood chips, have increased, and the Berlin biomass plant is certain to put  additional upward pressure on this market - but that is the topic for next week's post. Clearly, it don't come easy* if you are running a biomass electricity plant in New Hampshire.

Until next time, remember to turn off the lights when you leave the room. You will be saving energy, water and trees.

Mike Mooiman
Franklin Pierce University

(* It Don't Come Easy was a 1971 hit record for Ringo Starr recorded after the breakup of the Beatles and it has become his signature tune. It was written by George Harrison and the original recording featured Steven Stills on piano. Here it is from the Concert for Bangladesh and it was also recorded by the Smithereens, a highly underrated and still performing New Jersey group from the 1980s.)


Monday, April 15, 2013

Knock on Wood* – Using Wood for Energy in New Hampshire

In my blog post Songs from the Wood, we took a first look at the business of generating electricity from wood. I am impressed at how much electricity we generate from our forests, and I believe there is more opportunity to use the natural resources of NH for energy purposes. In this post, I dig a little deeper to understand just how much energy we could sustainably harvest from New Hampshire's forests. This is an important issue as we have more and more homes and commercial enterprises changing over to wood for space heating applications and we also have the very large Berlin-based biomass plant that will be firing up sometime this year. We need to be sure that we do not overtax our forests and end up depleting them in a rush for biomass-based energy. 

To understand how much biomass we could harvest from our forests, we need to understand the extent of our forest reserves, their growth rate and the other products that are produced from this resource. In NH we have 5.7 million acres of land, of which 81% is considered to be viable timberland. This has not always been the case, and the history of New Hampshire's forest reserves is a fascinating one. The chart below, which is taken from "The Economic Importance of New Hampshire's Forest-Based Economy – 2011," produced by the Northeast State Forester Association (NEFA), shows the long-term forest coverage for NH all the way back to the 1600s.

In the 1600s, before the European settlers arrived, it is estimated that over 90% of NH was forested, but then as the settlers moved in and started aggressively harvesting the forests and converting them to farmland, the forest coverage decreased to just below 50% in the 1850s. In the latter half of the 19th Century, we then had migration out to the West to develop the wide open western farmland. At the same time, we had the move from agrarian to industrial livelihoods prompted by the industrial revolution. These factors reduced our aggressive forest harvesting here in New Hampshire and over the next 100 years the forests naturally recovered to about 90% coverage in the 1950s. Since then, development for homes and businesses has nibbled away at forest acreage but we are still at an impressive 84% of coverage.
The USDA Forest Services estimates that the 4.6 million acres of viable timberland in New Hampshire translates into 304 million green tons of tree-based biomass - or what they refer to as "growing stock". The forest stock grows by about 2.2% per year, so the net annual growth is about 6.6 million tons. This is the amount of forest-based biomass we could sustainably harvest from our forest without depleting this natural resource.
We don't just harvest trees to produce wood chips for electricity generation. Trees are harvested to produce lumber, pulp for paper making, firewood for home heating and woodchips which are used to produce wood pellets as well as electricity. Based on 2009 and 2010 data, my estimate of wood usage for these various applications is shown in the table below.
My data and analyses suggest that we are using about 3.9 million green tons of wood based biomass per year or 59% of the sustainable harvest amount.
It should be noted that my forest utilization numbers are somewhat higher than the 2.8 million ton figure reported by NEFA in their 2011 report. Their figures suggest that we are only using 40% of the wood that we could sustainably harvest. The differences in the two sets of figures are, in part, due to some gross simplifications that I applied as I assumed that all wood harvesting and wood utilization happens in State. However, there is a considerable amount of wood that is exported out of State for further processing - such as that which is transported to the wood pulp operations in Maine. Also some wood-fired electricity plants will, depending on their geographic location and local woodchip prices, bring in woodchips from out of state. Regardless of the exact number, both utilization figures are relatively low, which means that our forests are growing and maturing and we also have substantial capacity for further sustainable utilization of our forests.
Let's now consider future usage of our forest resources. Presently the NH wood-fired power plants consume approximately 1.8 million tons of wood chips per year. The Berlin-based, Burgess Biopower operation, the State's largest biomass burning operation, will add another 750,000 tons to the wood chip usage when it starts up this year.
We also need to take into account that wood usage for home and commercial heating applications is increasing in NH. According to 2010 US Census data, there are approximately 515,000 occupied housing units in New Hampshire and 33,470 or 6.5% of the occupied residences are heated primarily with wood. Wood usage in these residences is captured in the wood pellet and cordwood data presented in the table above.
If we assume that, in an extreme case, 50% of the remaining homes in NH were converted to wood-fired heat, this would represent an additional 240,000 homes. Assuming the average NH home consumes 850 gallons of oil per year for heat, this would be equivalent to a consumption of ~6 tons of wood pellets per year per home. Overall, this would result in an increased wood pellet usage of approximately 1.45 million tons, which would require ~2.9 million of green tons of harvested wood. If we add these future applications to the existing wood usage for the State, we get the data shown in the table below. The totals indicate that usage could, in the extreme case I present, climb to 7.5 million tons - which would exceed the sustainable harvest limit by 15%. Naturally in an extreme situation like this, economics would kick in, wood prices would rise and wood would be drawn in from neighboring states and even from Canada
The scenario of 50% of the homes in the State using wood for heat is clearly an extreme one, but it does indicate that we need to be proactive and cautious about our wood- based resources. It appears that, if land development is well planned and we maintain our large acreages of woodland and we responsibly utilize our forests, we are, in the near term, far from overburdening the woods. There is available biomass capacity and, knock on wood, we should be OK for the near future for increased utilization of forest-based biomass.
Even though I am urging caution in the long-term utilization of our forests, there is another potential application for wood-based energy in NH that is worth consideration. With the growing aversion to renewable energy projects in the State, I have become intrigued with the possibility of using even more wood by using a combination of wood and coal, so called "co-firing", in some of the large coal-fired burners in the State. The Europeans do a fair amount of co-firing of wood and coal and this would be another way for us to use a home-grown fuel source as well as a way to meet some of our renewable energy portfolio requirements. It would also reduce the carbon footprint of NH's coal-fired operations. I will take the opportunity in a future blog to explore this possibility in more detail.
Until next time, remember to turn off the lights when you leave the room. You will be saving energy, water and trees.

Mike Mooiman
Franklin Pierce University
(*Knock on Wood is a song recorded by Eddie Floyd on the Stax label in 1966. It has been covered by a number of artists including Otis Redding and David Bowie. A disco version was also recorded by Amii Stewart which became a big hit during the late 1970s. Here is a great live version of the tune featuring Eddie Floyd with the Blues Brothers Band.)

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Monday, April 8, 2013

Songs from the Wood* - Wood Fired Electricity in New Hampshire – Part 1

In my last post we took a look at energy sources and costs for home heating, and we saw how relatively inexpensive wood is compared to most other fuel sources in New Hampshire at the moment. Only natural gas is cheaper on a dollar per heat content basis. Wood as a fuel is particularly intriguing in the New Hampshire context. A great deal of NH is forested. In fact, 84% of the State is forested and, of the 5.7 million acres of land in New Hampshire, 81% is viable timberland. Therefore, tree harvesting for electricity or home heating applications is a way we can use a local in-state resource to reduce imports of fossil fuels like coal, oil or natural gas. Utilization of NH forests also provides a lot of local jobs and, over the 20 to 30 year life of a tree, wood combustion does have a lower carbon footprint when compared to fossil fuels. 

Many folks believe that, over the long term, the use of wood for energy purposes can be viewed as being carbon neutral. In other words, the carbon dioxide that is released in the combustion of wood is offset by the carbon that was absorbed by the tree during the process of photosynthesis which converted the carbon dioxide into the organic matrix of the tree. This is not entirely correct as there is not a one-to-one correspondence of carbon dioxide in = carbon dioxide out. We have to take into account that a great deal of fossil fuel energy is used to manage the forest, harvest the wood, transport it and convert it into a form, such as firewood, woodchips or wood pellets, which can then be combusted. As a result, the total amount of carbon emitted in utilizing wood as a fuel source is greater than that absorbed during photosynthesis.
We generate a good amount of electricity in New Hampshire from the combustion of wood. In 2011 we produced 1.03 million megawatt hours (MWh) of electricity from wood-fired operations, which is equivalent to 5.1% of the total electricity produced in the State. There are presently seven wood-burning plants that generate electricity from wood chips in New Hampshire and this year we should see the commissioning of the State's largest wood-fired power plant, the Burgess Biopower plant, which is located in Berlin on the site of the old Frasier Paper Mill. This new power plant will increase the overall percentage of electricity generated from wood from 5.1 to 7.5%.
The map below shows the location of the various wood-fired electricity plants in NH and the table that follows provides the key for the locations shown on the map as well as information about the various operations.

The data in the table show that most of the wood-fired power plants are smaller operations with capacities of the order of 15 to 20 MW. At this time, the largest operating plant in the state is the 50 MW Northern Wood Power plant. This facility is owned by our largest utility company, Public Service of New Hampshire, PSNH, and is located in Portsmouth on the Schiller power plant site. This plant was started up in 2006, when PSNH converted one of the three large boilers at the Schiller station from coal to a wood chip fuel source. Most of the other wood-fired operations were built in the late 1980s when New Hampshire was encouraging home grown energy and PSNH was required to sign 20-year power purchase agreements with these new wood-fired operations. Over time, there has been a fair amount of change in the ownership of some of these plants as the attractions and economics of renewable energy have waxed and waned.
The generation of electricity from wood is an intriguing business and one that is full of opportunities and challenges – some of which I will discuss my next post. In the figure below I have sketched the value chain for the wood-fired electricity business, along with some of the important inputs and outputs.

In the first step, we have the lengthy process of tree growing and the incorporation of carbon into the organic matrix of the tree and sunlight into stored chemical energy – both of which will eventually be released during combustion. Active and scientific forest management is required to allow trees to grow to their full potential. This has to be done while countering insect infestations, drought, fire and a host of other problems. The average life of a tree is typically 20 years before it is harvested.
In step 2, we have the harvesting of trees from public and private lands. This process is now highly mechanized and involves large machines to take down the trees, remove the brush and load them for transportation. Because it is highly mechanized, a lot of fossil fuel, in the form of diesel and gasoline, is used, so there is a net energy input into this step.
In step 3, the logs are transported to the saw mills where they are converted into lumber, wood chips for paper pulp, wood chips for combustion and waste sawdust. A great deal of the waste sawdust is converted into wood pellets which many folks use as fuel in their wood-fired home furnaces. The sawmill conversion process is also highly mechanized and automated, and it too requires a large energy input. I will note that it is possible to combine the harvesting and chipping operations right on site where the trees are harvested. In these operations, the trees are taken down and are immediately run through a large wood chipper. The wood chips are then directly loaded onto trucks for transportation to the wood-fired power plants, thus bypassing the saw mills.
Finally in step 4, wood chips from the saw mills or chipping operations are then transported to the wood-burning plant, where they are stored in enormous storage piles. The wood chips then become the fuel for the power plant, and they are burned in large furnaces where the heat is used to boil water. The steam is then used to drive a turbine which drives an electrical generator that produces electricity. Other than wood chips, there are inputs of water and skilled labor as well as fossil fuels used to transport the wood chips into the feeders.
These wood-burning operations produce electricity that is fed into the electrical grid but an enormous amount of waste heat is produced as well. In a previous post, I provided data that showed that only a small fraction, 23%, of the chemical energy in wood is converted into electricity. In contrast, coal-fired power plants have conversion efficiencies of 31% and natural gas plants, on average, have efficiencies of 45%. The 77% of waste heat from these wood-fired operations is dissipated by the evaporation of water and by the hot gases exiting the tall emissions stacks from these operations.
A fact that is not often appreciated is that a lot of water is utilized in the production of electricity. The water is used to produce steam and to cool the off-gases and, as such, a lot of water is lost to the atmosphere via evaporation. It has been estimated that water consumption for electricity generation is of the order of 4000 to 8000 gallons per MWh of electricity produced. One megawatt hour represents the approximate monthly electricity consumption for a US home so every month your electricity usage results in the consumption of 4000 to 8000 gallons of water. However, it should be noted that the water consumption numbers for wood-fired power plants are substantially lower. Saving on water consumption is just another reason to turn off the lights and save electricity. A point I often make to students in the Franklin Pierce University MBA in Energy and Sustainability Studies program is that if you are in the energy business, you are in the water business as well.
A small amount of wood ash is produced from these operations and this is a valuable soil additive that is used by local farmers.
So if we step back and look at the energy and carbon dioxide flow aspects of the wood-fired electricity business, it is clear that it is a lengthy and involved pipeline from photosynthesis to electricity. It takes time, money, energy, labor, and fossil fuels to get forests to incorporate sunlight and carbon dioxide into the body of tree and for us to release that energy (and carbon dioxide). As a result of all the various fossil fuel-based energy inputs all along the way, it is clear that wood burning cannot be viewed as entirely carbon neutral. However for us, here in forested NH, wood does represent a better fuel source than imported fossil fuels which have no offsetting carbon absorption and the wood-fired electricity does provide a lot of jobs and livelihoods as we move along the chain from photosynthesis to electricity. Now if we could only do something about that 77% of wasted energy…..
In my next post I will take a brief look at the economics of producing electricity from wood, and I will wrestle with the issue of just how much wood could we burn in New Hampshire before we overtax our forests. In the meantime, remember that it takes a lot of fossil fuel, labor and water to convert the chemical energy in wood into electricity we use in our homes. Many times the songs we play in our homes on our CD players are powered by our forests. These, indeed, might be Songs from the Wood.
Until next time, remember to turn off the lights when you leave the room. You will be saving energy and water.

Mike Mooiman
Franklin Pierce University

(*Songs from the Wood was the title of and a song from Jethro Tull's tenth album. This album, with its distinct British folk rock sound, was quite a departure from Tull's earlier heavy rock and blues influenced recordings. This recording cemented Jethro Tull's reputation as a bunch of odd ducks making interesting and influential music. The cover art on the album also features the results of some wood harvesting. An old tune but worth a listen).