Market Penetration of Biomass Fuels for Electricity Generation

The electric power sector is a main source of carbon dioxide (CO2) emissions that contribute to global warming. In the U.S., fossil fuel fired power plants are responsible for about 38% of the total CO2 emissions from all sources. Switching a significant portion of the U.S. electricity generating capacity from fossil fuels to biomass fuels would help reduce CO2 emissions from the electric power industries. At present, biomass accounts for only about 1% of the fuel used for electricity generation in the U.S. In contrast, coal alone accounts for about 50%, and nuclear, natural gas and petroleum explain for about 20%, 16% and 3% respectively of the fuels used for electricity generation. There are a number of factors that may influence the extent to which biomass fuels are to penetrate the electricity market: facility needs, growth in electricity demand, prices of fossil fuels and advances in technology. Electricity is generally produced in large, expensive and long-lived facilities. However new facilities or capitals are often built to meet demand growth. Capitals can be generally said to have a given productive lifetime. As new capital investment occurs and older capital is retired, electricity producers will have opportunities to substitute away from fossil fuels. Thus, an increase in the market penetration of biomass power will likely occur when existing fossil power plants are retired and replaced by new and less carbon intensive power plants. The market penetration of biomass electricity will also depend on a strong growth in electricity demand due to economic and population growth, availability and prices of fuels, environmental considerations and technological advances. Specifically, this paper will look at the potential for biomass penetration into the electricity market considering: a) prices of fossil fuels such as coal, natural gas and petroleum for power production, b) the capital turnover rate for existing stock of fossil power plants, c) changes in technologies which could facilitate the use of biomass as fuels for electricity generation