0242-A1

Costs of Wood Biofuel Preparation and Use for Private Forest Owners - The Case of Slovenia

Nike Krajnc^[1]

Abstract

Wood biomass is an important source of energy in rural areas. Unfortunately the majority of technologies for preparation and usage of wood biomass are out of date. The selection of technology depends on the annual heating costs. We estimated the direct costs for machinery (chainsaw, farm tractor, chipper, fire wood processor) and for four different types of furnaces. Direct costs of wood biofuel preparation depend on the technology selected. The highest are costs of wood chip preparation. In this paper, six different modernization projects were compared with each other. Modernization projects include necessary investment in machinery and furnace. The projects differ according to the type of fuel (chips, logs, heating oil), the manner of fuel preparation (machine or manual) and the central heating furnaces. The differences among different technologies related to the total and explicit heating costs were examined. As no advantages of modern technologies were considered in this evaluation, the calculations are less favourable for modern technologies than they might be if greater alternative costs were considered. Due to the long temporal dimension appropriate for comparing durable systems, the cash flow of separate projects throughout the entire life span was also compared.

1 Introduction

Slovenia is a small country with more than 56 % of land covered with forests, and with traditional use of wood for heating and cooking. The share of woody biomass in primary energy in Slovenia is only 4% but more than 30 % of all households in Slovenia are still using wood for heating or cooking. The contribution of wood biofuels to national energy usage would probably be >4% if Slovenia had adequate data about the use of wood biomass for bioenergy in rural areas, e.g. among forest owners. We can maintain that wood biomass is an important source of energy for this part of Slovenian population (15 % of all Slovenians own forest). If we are talking about wood biofuel use in Slovenia we can conclude that problem lies in quality (effective use) and not in quantity. At the moment old, outdated technologies predominate in Slovenia. The main characteristics of these technologies include: low efficiency, higher emissions, lower quality of living, hard and time consuming work (preparation of fuel wood). These are the main reasons why Slovenians have indicated a wish to switch to fossil fuels.

The heating season in Slovenia lasts from October to the end of April, and in some areas (Alpine and Dinaric regions), it is even longer. So heating costs represent an important item in household annual budget. Only a few years ago heating oil was cheaper then fuel wood. However, following the transition to a market economy, this has changed. The objective of this paper is to compare the costs of different technologies of preparing and using fuel wood. The main comparisons will evaluate old versus new technologies, and other fossil fuels versus wood fuels.

2 Methodology

Economic analyses employed in this study include:

• calculations of direct costs of machinery and central heating furnaces (costs per product unit);

• annual costs connected with heating (costs and income in the heating season);

• cash flow of the projects in the entire period of their duration (current value of yields).

To estimate machinery costs, we calculated direct costs (fuel, lubricants, regular spare parts, depreciation, regular maintenance, insurance and interest for the invested capital) of machines per product unit. We considered all machines that have to be used in the biofuel preparation process. We calculated costs for chainsaw, tractor, chipper and firewood processor.

We also calculated direct costs of different heating furnaces, including: modern wood chips furnaces, modern logs furnace, outdated logs furnace, and modern heating oil furnace.

In this paper, six different modernisation projects are compared. The projects differ by the type of fuel (chips, logs, heating oil), by the manner of fuel preparation (machine or manual) and by type of central heating furnace. Thus we wished to present the differences among separate technologies regarding the preparation and use of fuels.

In the assessment of annual heating costs, two different calculation methods were applied. In the first, all possible costs connected with the process of preparation and use of fuel were considered. In the second method, however, only explicit costs (explicit costs are costs which occur as cash flow out of household budget) for the forest owner were taken into consideration. In both cases all labour was considered as a cost, as well as direct costs of machinery and furnaces. In the integral evaluation, the purchase of fuel (wood or heating oil) was allowed for as an opportunist cost.

When evaluating whether to purchase a new heating system, the consumer should be aware that this would be a long-term decision, for the longevity of heating systems should be at least 20 years. Due to the long temporal dimension, cash flow of separate projects in the course of the entire life span was also compared. Dynamic methods were applied in this analysis, the most applicable amongst them being the current value method. Here the expected inflows (differences between expected annual income and costs) must be discounted to derive the net present value (NPV). Most suitable among the economic efficiency indicators of separate projects turned out to be: net present value, profitability of expenses (expenses and the necessary investments), internal degree of savings, and repayment period. Due to the lack of space in this article only part of calculations will be presented.

3 Results and discussion

3.1 Directs costs of wood biomass preparation and use

Direct costs of machinery include: costs for fuel, costs of lubricants, costs of regular spare parts, depreciation, regular maintenance, insurance and interest for the invested capital.

Direct costs of biofuel preparation (Table 1) depend on the technology selected. In our case we have direct costs of chainsow (for felling, delimbing and bucking), farm tractor (for skidding) and chipper or fuel wood processor (for fuels preparation (chipping and chopping)). This study assumes that wood fuels derived only from low quality round wood from private forests.

Table 1 Direct costs of machinery

We estimated that chippers and fuel wood processors were used at least 100 hour per year. Apparently there is a problem of annual utilisation of this machinery on small farms. Owners of chippers and fuel wood processors need to consider alternatives for increasing revenues to offset investment costs; however, this was not considered here.

We calculated and compared costs of four different heating furnaces (modern wood chip furnaces, modern log furnace, outdated log furnace, modern heating oil furnace (Table 2)). Use of electricity, depreciation, regular maintenance, insurance and interest for the invested capital were considered. Heating furnace costs differ from among furnace types due to both purchase price and annual utilisation. Annual utilisation is lower for outdated log furnaces, because although the operator must load wood every few hours, it doesn’t work automatically if they are not home. In our calculation we estimated that the heating season is 5 months, daily utilisation is 20 hours for modern technologies, and 14 hours for outdated log furnaces. The direct purchase price of modern technologies are very high (Table 2).

Table 2 Direct costs of different heating furnaces

The direct cost of outdated log furnaces is the lowest, but in this calculation we didn’t include indirect costs. Indirect costs are very high due to: lower efficiency, time consuming work (daily loading and leaning of a furnace), higher emissions of CO, and a lot of soot and ash. If these indirect costs were included, then the relative cost of the systems considered would change.

3.2 Annual heating costs

To compare among different heating systems we made the following assumptions, including: start up investments, direct costs of machinery and stoves, heating space, annual amount of fuel needed. For our model calculation we assumed that average annual use of fuel for a one-family house with 100 m² of heating space and five months heating season is: 30 loose m³ of wood chips or 14 stacked m³ of wood logs, or 10 m³ of round wood, or 2800 l of heating oil. In case of old technology annual amount of fuel is higher: 15 stacked m³ of fuel logs, or 10,5 m³ of round wood.

Annual heating cost consist of: all direct costs in different phases of biofuel preparation, costs of fuel (heating oil), direct costs of biofuel use (direct cost of different heating furnaces), and cost of work. In this calculation two different methods were applied. In the first, all possible costs connected with the process of preparation and use of fuel were considered (total costs). In the second method, however, only costs explicit for the owner (they occur as cash flow out) were taken into consideration. Explicit costs do not include depreciation and interest for the invested capital.

We compared six different modernisation projects (Table 3):

• Project No. 1: farmer will buy medium size chipper (9.000 €) and modern wood chip furnace (8.800 €);

• Project No. 2: farmer will buy modern wood chip furnace (8.800 €) and hire someone for preparation of wood chips;

• Project No. 3: farmer will buy fuel wood processor (7.000 €) and modern logs furnace (6.000 €);

• Project No. 4: farmer will buy modern log furnace (6.000 €) and hire someone for preparation of wood fuel;

• Project No. 5: farmer will buy outdated log furnace (1.500 €), and prepare fuel wood in the traditional way;

• Project No. 6: farmer will buy modern heating oil furnace (1.800 €);

The greatest differences between the projects occur due to the required investments for machinery (projects No. 1 and No. 3) and furnaces (all projects). Investments for modern wood chips furnaces are six times greater than investment for an outdated log furnace, and five times greater than investment for a modern heating oil furnace. Such great differences can be reduced only with an appropriate subsidy system and very attractive credits.

Table 3 Total and explicit annual heating costs

Substantial differences between annual costs in both evaluation methods (Table 3) occurred due to depreciation, interest on the invested means, and due to the costs of wood purchase. It is very important for the owner to consider annual explicit costs associated with heating, where depreciation of machinery and furnaces must of course also be taken into account (Figure 1).

Figure 1 Structure of explicit heating costs (€/heating season) of six different modernisation projects

The highest are explicit costs in sixth project. In this case, the owner will not incur labour costs to heat his home, but will have to buy oil every year. And if we look what will happen in next 20 years, we can see that expenses are the highest in this case (Figure 2 - E-P6).

Figure 2 Investments and cumulative value of net present value (expenses) in lifetime (20 years) for six different projects

In case of net present value method the expected inflows (differences between expected annual income and costs) were converted (discounted) into current value (Figure 2). Comparison of expected revenue show that modern technologies have excessively high relative purchase price. We recommend government to consider stimulating introduction of these technologies through a system of subsidies.

As no advantages of modern technologies (smaller physical strain, lesser time consumption, greater utilisation, automatic heating, lesser emissions, etc.) were considered in this evaluation, the calculations are less favourable for modern technologies than they might be if greater alternative costs were considered. The main deficiencies of outdated log technologies are most often justification for a switch to fossil fuels.

If the owner were eligible for a 50% subsidy for the purchase of modern technologies, the return on investment associated with these projects changes a great deal, particularly the indicators of the effectiveness of the projects that envisage purchase of a modern log furnace. The period of repayment in these projects is 12 years, while the internal degree of savings compared with the project that envisages a switch to heating oil is more than 40 % (in spite of the start-up investments, these projects guarantee 40 % savings in comparison with heating oil). The only problem remains the profitability of the projects that envisage purchase of wood chip furnaces.

The return on investment of the projects that envisage a switch to wood chips increases substantially only when subsidies for the purchase of furnaces (to the amount of 30 %) and greater production of heating energy are taken into account. If we anticipate that a furnace will be optimally utilised in the course of the entire year (heating of water in the summer months), the return on investment of the project is greater. The repayment period decreases to less than 10 years. In view of the calculations, we can thus conclude that the projects that envisage a switch to wood chips have adequate return on investment only if greater amounts of energy are required (rural tourism, wood drying, large heating surfaces, great water consumption) and under the hypothesis that the owner is subsidised for at least 30 % of the initial investment.

In the future we would like to prepare a programme for special advice giving for forest owners. The purpose of such advice giving is transfer of knowledge on the potentials of wood biomass on somebody’s estate, various technologies for the preparation of wood biomass and its use, and economy of various technologies. With this advice-giving we wish to make the owners aware of the value of wood applicable for energy-producing purposes, i.e. wood he actually owns and would in case of switching to fossil fuels remain mostly unused (low quality wood that is difficult to sell). Advice giving regarding an effective use of wood biomass is very complex and encroaches upon a number of spheres. And due to the extent of the needed knowledge it is no doubt demanding but necessary for promotion of effective use of wood biofuel.

4 Bibliography

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