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WOODFUELS AND THE LOCAL ECONOMY 5 EURES,
2005 June 14th, Joensuu, Finland Lasse
Okkonen North Karelia Polytechnic lasse.okkonen_at_nc
p.fi
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ECONOMIC IMPACT ASSESSMENT

• An economic impact assessment traces spending
  through the economy and measures the cumulative
  effects of that spending
• The size of the impact region can vary from
  entire country level to province or municipality
  levels
• Estimation of economic impacts of a project can
  be helpful process for understanding the
  potential benefits of various forms of growth
• Not always specific amounts gives likely order
  of magnitude of impacts
• Economic impacts are only one piece of a puzzle
  in a broader decision-making also
  socio-ecological impacts should be considered
  (SSE sustainability)

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MEASURING ECONOMIC IMPACTS (After
Government of Ontario 2004)

• Economic impacts are almost never contained
  within the boundaries of a single municipality
  some of the economic costs and benefits leak
  beyond the municipal boundaries
• It is essential to estimate the proportion of
  employment and spending that will occur in the
  municipality
• There are several measures of economic impacts
• Employment levels (jobs)
• Value added (or gross regional product)
• Aggregate wages or salaries
• Wealth (including property values)
• Business output (sales volume or spending)
• Here the focus is on employment and income
  effects

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DIRECT, INDIRECT AND INDUCED IMPACTS

• One form of economic activity almost always leads
  to others
• Economic impact direct impacts indirect
  impacts induced impacts
• Direct impacts
• The initial, immediate economic activities
  generated by a project or development (jobs and
  income)
• Indirect impacts
• Production, employment and income changes
  occurring in other businesses or industries in
  the region that supply inputs to the project
  industry
• Induced impacts
• Effect of the households spending in the local
  economy as the result of direct and indirect
  effects from an economic activity (e.g. employees
  spend their new income in the region)

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MULTIPLIERS

• The multiplier effect is the relationship of one
  form of economic activity and the total
  additional activity it generates
• Estimates how much additional economic activity
  results from an investment the total impacts are
  larger than initial, direct impacts
• Multipliers can vary between sector and by region
• Sophisticated economic impact models (I-O models)
  calculate multipliers for each sector of the
  economy and for different geographical regions
• The multiplier values
• National impacts avg. 2,5 - 3,5
• Provincial impacts avg. 2,0 2,5
• Local area, municipalities avg. 1,5 - 2,0

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PRACTICAL EXAMPLES WHAT IS THE SCALE OF
IMPACTS? (1 MW 2 jobs?)

• BIOSEM Scenarios for 2 MW biomass heat system,
  Ortenaukreis, Baden-Württemberg (Becker 1999)
• Net additional labor income 80 000 - 86 000
• Net additional profit 22 000 30 000
• Total net additional income and profit 102 000
  116 000
• Direct jobs generated 2,9 jobs
• Indirect jobs generated 1,1 -1,4 jobs
• Induced jobs 0,6 - 0,9 jobs
• Total jobs 4,8 - 5,2 jobs
• Finland, the municipality of Perho, energy
  cooperative, 1,5 MW biomass heat system (Ahonen
  2004)
• Estimation of the local net additional income and
  profit 51 300
• Local direct incomes approximately 55 of the
  total impact
• Direct employment 2,5 jobs
• Indirect employment 0,5 jobs

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PRACTICAL EXAMPLES WHAT IS THE SCALE OF
IMPACTS? (1 MW 2 jobs?)

• BIOSEM case study for 1 MWe combined heat and
  power plant, Fermanagh, Northern Ireland (ETSU
  1999)
• Different impacts in feedstock and conversion
  components of the project
• Regional development perspective Severely
  Disadvantaged Less Favoured Area
• Net additional labor income (after tax) 52 696
• Net additional profit (after tax) 33 108
• Net additional regional income and profit 85 804
  
• Additional regional income resulting from the
  respending of additional regional income 24 445
  
• Net additional regional income after the first
  multiplier round approximately 110 000
• Net additional direct jobs 2,4 jobs
• Net additional indirect jobs 0,5 jobs
• Net additional induced jobs 1,4 jobs
• Total net additional jobs 4,3 jobs
• Reduced income in feedstock production, if
  production is switched from suckler cows to short
  rotation coppice production
• Important to complement and diversify existing
  production

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CONCLUSIONS

• Small-scale bioenergy plants result in
  significant employment and income gains because
  they do not displace conventional large scale
  energy supply systems
• They should neither damage the supply-chains of
  competing activities
• Induced impacts (investments and employment) are
  significant and much of them take place in the
  service sector
• Local fuels and operations important to ensure
  rural development effects (minimising the
  leakages)
• Regional/local fuel resources and supply-chains
• Local entrepreneurs
• Local development objectives and challenges
  should be considered in the planning process of
  heating schemes/projects

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REFERENCES

• Ahonen, A. 2004. Pienpuuhakkeen ja
  hakkuutähdehakkuun energiakäytön sosio-ekonomiset
  vaikutukset. Case-tarkastelu. Puuenergian
  teknologiaohjelman päätösseminaari. Oulun
  yliopisto, maaliskuu 2004.
• Becker, R. 1999. BIOSEM German Case-Study.
  Final Report for the Concerted Action under the
  FAIR Program. Available at http//www.etsu.com/bi
  osem/GERMREP.pdf.
• ETSU (Renewable and Energy Efficiency
  Organisation). 1999. Conclusions from the UK Case
  Study. BIOSEM (Biomass Socio-Economic Multiplier)
  case studies. Available at http//www.etsu.com/bi
  osem/html/case_studies.htm.
• Government of Ontario. 2004. Assessing Financial
  and Economic Impacts A Guide to Informed
  Decision-Making. Available at http//www.reddi.ma
  h.gov.on.ca.
• Myles, H. 2001. Socio-Economic Modelling of
  Bio-Energy Systems. In Domac, J. K. Richards
  2001. Socio-Economic Aspects of Bioenergy
  Systems Challenges and Opportunities.
  Proceedings of the IEA Task 29 Workshop.

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HEAT ENERGY ENTREPREUNERSHIPS IN FINLAND 5
EURES, 2005 June 14th, Joensuu, Finland Asko
Puhakka, Lasse Okkonen, Mikko Helin North Karelia
Polytechnic lasse.okkonen_at_ncp.fi
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HEAT ENERGY ENTREPRENEURSHIP AS A NEW OPERATIONAL
MODEL

• During the starting phase of heat energy
  entrepreneurship, in 1990s, entrepreneurs gained
  experiences by heating small-scale units, such as
  local schools and rest-homes
• The main operations included fuel supply for the
  boiler and also some control and maintenance
  work. Total volume of the business was low.
• Nowadays established heat entrepreneurs are ready
  to invest for new heating plants, which makes it
  possible for a customer to buy the heating as a
  service very comparable to district heating

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OPERATIONAL MODELS

• An entrepreneur or a group of entrepreneurs
  invests and owns a heating plant and also takes
  care of the fuel supply and maintenance work.
• Entrepreneur sells heat energy for the customer
  as a comprehensive service and the price for the
  heat is set in relation to the energy unit
  (/MWh)
• Municipality or the customer owns the heating
  plant and energy entrepreneurs take care of the
  fuel supply and technical maintenance work
• Municipality, as an investor of the plant, has
  the main economic risk.
• Entrepreneurs risk is limited to the own
  business activity and complying with the contract
  rules

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HEATING PLANTS TAKEN CARE BY THE HEAT ENERGY
ENTREPRENEURS
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PLANT SIZE DISTRIBUTION
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BUILDING YEAR OF THE PLANTS USING WOODCHIPS AND
TAKEN CARE BY THE HEAT ENERGY ENTREPRENEURS
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BUSINESS VOLUME OF THE HEAT ENERGY ENTERPRISE

• Example 500 kW
• Solid fuel boiler 500 kW
• Fuel Woodchips
• Amount of produced heat/a 1200 MWh
• Annual fuel consumption 1900 m³ (loose)
• Heated building volume Approximately 27 000 m³
• Length of the grid 400 m
• Investment costs of the plant 267 000 VAT
• Business volume
• Total price of the heat 48 / MWh, containing
• 28 heat production maintenance work
• 20 capital costs
• Annual business volume 48 1200 MWh 57 600

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HEAT ENERGY BUSINESS SEVERAL STAKEHOLDERS AND
CHALLENGES

• Municipality and heat energy entrepreneurs
  providing the service
• Owners and the equitable owners of the real
  estates
• Actors along the raw-material supply-chain
• Requirements of the municipal energy solution
• Multiple objectives politics, environment,
  attitudes, economy, technology
• Heat energy entrepreneurs compete with large
  energy companies
• Challenging situation
• Demands know-how on technology, economics,
  legislation, negotiation skills etc.

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ACQUISITION PROCESS OF THE HEATING PLANT

• The scaling of the heating plant according to the
  total heating load is very essential
• Aim is to cover from 80 to 90 from the total
  energy demand by using bioenergy

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REQUIREMENTS OF THE PUBLIC ACQUISITION PROCESS

• Acquisition process competitive tendering
• Purchasing criteria price, quality,
  environmental impacts can be noticed as a new
  criteria!
• Tendering process and the decision complying
  with the rules and technicalities
• Also several issues to consider when calculating
  the profitability
• Repayment period
• Interest rate
• Other alternative fuels

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BARRIERS AND DRIVERS FOR WOODFUEL MARKET
DEVELOPMENT Lasse Okkonen North Karelia
Polytechnic lasse.okkonen_at_ncp.fi
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BARRIERS AND DRIVERS FOR MARKET DEVELOPMENT

• Integration with other industries
• Scale effects
• Competition within the sector
• Competition with other businesses
• National policy
• Local policy and opinion
• (Roos, Hektor, Graham Rakos 1998)

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INTEGRATION WITH OTHER INDUSTRIES/BUSINESSES

• By integration is meant both formal and informal
  stable business relations
• Most of the current bioenergy activities are
  integrated with other industries, that is by
  using other industries products as fuel
• Biofuels may be residues from forest industries
  (e.g. black liquor), from agricultural processes
  or municipal solid wastes
• The use of existing structures is also relevant
  machines, infrastructure, know-how, dealer
  networks etc.
• Integration can be used 1) to get cheap input
  factors, and 2) reduce transaction costs and
  risks of operation
• Experiences have shown that in regions where
  bioenergy markets have been able to grow, the
  positive complementarity effects between
  bioenergy production and partner industry have
  been more important than the competition for the
  biomass between the sectors. e.g. Finnish forest
  industry and woodfuel based heating

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SCALE EFFECTS

• As the market grows, bioenergy industry can take
  advantages of the scale effects
• New markets will be created for specialists, such
  as consultants, fuel dealers and brokers
  specialists will improve the overall market
  performance
• Also larger series of equipment and machinery, as
  well as larger volumes of fuels will reduce
  production costs
• Growing markets will also have more incentives
  for spending to the research and development,
  marketing of the products and standardization,
  which will lead to the more active cooperation
  efforts and quality control
• Growing markets reduce costs at different stages
  of the supply-chain and create a kind of positive
  loop

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COMPETITION WITHIN THE SECTOR

• For a new bioenergy technology, competition is
  essential for technological development
• When markets are competitive? There are many
  sellers and many buyers, but also few
  restrictions to entering the business
• If markets are competitive both in technology
  and in contracting, gradual learning and
  innovation will take place and a variety of
  technical solutions and contracting practices
  will be tested in the race of shares of the
  growing market
• Potential contradiction between the scale effects
  and competition In order to exploit some of the
  scale effects, e.g. in marketing or
  standardization, the market players have to
  cooperate and reduce competition in some areas
• Small bioenergy industry faces though competition
  from other energy forms ? Best strategy may be to
  put cooperation with other bioenergy businesses
  before internal competition in order to meet the
  bigger threat of the competing energy technology

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COMPETITION WITH OTHER BUSINESSES

• For a new bioenergy investor, the competition
  with other businesses is probably the most
  important factor to consider
• Competition takes place
• In the market inputs a bioenergy plant may
  compete with another biomass buyer, e.g. a
  pulp-and-paper plant or board industry
• In the consumer markets competition from other
  energy sources, e.g. oil, gas or electricity
• An established energy industry may also introduce
  barriers for market entry for bioenergy
  competitors by using strategic market operations
  or by influencing to the energy policy
• How to confront the competition
• Locality, local support, competitive price,
  environmental qualities, reliability etc.

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NATIONAL ENERGY POLICY

• Does countrys energy policy favour or disfavour
  bioenergy development?
• Often incentives and disincentives are used
  simultaneously
• Most bioenergy markets depend energy policy
  support, through subsidies, grants, tax support
  or other incentives
• However, the main incentive is the rising price
  of fossil fuels, especially light fuel oil
• Very crucial point is the stability of energy
  policies how much bioenergy promoters can
  influence the policy design, how stabile is the
  policy
• Dependency of subsidies also causes risks if the
  stability is missing
• History Small-scale biomass heating systems are
  easier to establish in regions with oil or solid
  fuels boiler tradition (comparison e.g. natural
  gas grid)

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LOCAL POLICY AND PUBLIC OPINION

• Local political support is also crucial factor
  for success
• Expediting investments
• Improving public relations
• Increasing local demand
• Local actor network based entrepreneurships often
  accepted by the public and they also have very
  positive local economic impacts (employment,
  income)
• Energy cooperatives
• Cooperation models with industries

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CONCLUSIONS THE USE OF THE FRAMEWORK

• Very general but also robust theoretical
  framework for discussion of drivers and barriers
  of bioenergy markets can be easily applied to
  various forms of bioenergy
• For a final investment decision more detailed
  investment calculations are needed
• Can be used in policy, in describing the drivers
  and barriers of new investments, a profile of a
  bioenergy enterprise can be described
• See also Roos, Hektor, Graham Rakos 1998.
  Factors for Bioenergy Market Development. Paper
  presented at BioEnergy 98 Expanding Bioenergy
  Partnerships, Madison, Wisconsin.

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