Proposal for Woody Biomass Power Generation under the Feed-in
Tariff Program
April 23, 2012
Japan Renewable Energy Foundation 1

Points about the Proposal
In a FIT program, purchasing woody biomass-derived electricity at fixed prices isan effective means of promoting efficient utilization of forest resources. At the sametime, however, the existing lumber utilization system could crumble, potentiallyleading to interference with sustainable use of forest resources, if excessively hightariffs are established.
In determining tariffs and categories to be purchased, our policy should be firmly
based on the sustainable use of forest resources such as: taking into account life cycle
assessment (LCA) in terms of global warming measures; including efficient use of heat;and continuing application of cascading use. To be specific, we present the following
proposals.


Determine tariffs based on cascading use of biomass in order to avoid competition

between material and energetic biomass use,
Determine tariffs prioritizing cogeneration,
Determine higher tariffs for small and medium-sized facilities, andDetermine tariffs for each fuel type.
Proposed tariffs for unused woody biomass power generation
Category
Tariff

1,000 kW to 20,000 kW (excluding 1,000 kW)
Initial 2 years
Subsidies
3rd or later
providedyears
20 to 25 yen
About 17 yen
20 yen or less

1,000 kW or less
Initial 2 years
Subsidies
provided
30 to 35 yen
About 25 yen

1. Details of the proposal
11 This proposal was compiled with cooperation of the following people: Mr. Keiji Kajiyama of Fuji

Research Institute, Chair Miyuki Tomari of NPO Biomass Industry and Society Network, Dr. Hironao
Matsubara of NPO Institute for Sustainable Energy Policies (ISEP), Professor Emeritus Minoru
Kumazaki of Tsukuba University, and Mr. Aikawa Takanobu of Mitsubishi UFJ Research andConsulting.

1(1) Determining tariffs based on cascading use of biomass

To avoid competition between material and energetic biomass use, we should exclusively use
byproducts when using woody biomass as fuel. To be precise, tariffs should be determined insuch a way that portions of wood that can be used for lumber, plywood, or paper products areused as lumber while the portions that are inevitably produced in the lumber production process
as less valuable material are used as fuel.



Through full use of byproducts, we would be able to reduce costs incurred in the processes
from tree trimming to lumber production, thereby reducing tariffs,

Specifically, we propose that tariffs should be set to or below the level of prices of raw woodfor paper wood chips (about 4,000 yen/ton with a wet basis moisture content of 50%) to avoid atightening supply-demand balance for biomass as production materials.

＜Use of wood byproducts＞“Use of wood byproducts” means the use for energy of part of wood discarded
and remaining after the whole wood is cut down, transported, and made into
products. Or, it also means the use for energy of low-quality wood cut down andtransported using the same processing system as installed for producing lumber
and plywood products. In the former case, costs are incurred in connection withcollection, chipping, and transport of wood for energy, but no expense arises inrelation to wood cutting, transport, or wood processing. In the latter case, fixed
expenses for transport, installation, and cleaning of machines do not arise. Thus
wood that was once left unused can be used efficiently.
To use wood for energy, we need machines to collect and chip trees. With aconventional system, we are able to transport only wood sections of thinned trees
from the mountain. Thus, under the conventional system, we have to use wood
portions for lumber, plywood, and paper products for energy. This means that morecosts are incurred and, in addition, we cannot utilize waste wood. Waste wood
generated in the lumber and plywood production process at a factory is also a wood
byproduct.

(2) Determining tariffs prioritizing cogeneration


If woody biomass is used in mono-generation, we obtain an energy use efficiency of only about
20%. On the other hand, if we use wood biomass in cogeneration and produce heat andelectricity simultaneously, we can expect total energy efficiency of 65 to 85%.

Thus, the sameamount of wood produces more energy to replace fossil fuel, helping Japan to reduce its
2dependence on imports or decrease the outflow of Japan’s wealth.
In the German FIT program, prioritizing cogeneration for efficiency use of biomass resources
and contributing to regional economy, lower tariffs are granted for mono-generation (11.0 eurocent≒12.1 yen per kWh in the case of a 5,000kW2 facility) while higher tariffs are provided
for cogeneration, in order to encourage effective utilization of heat (11.0 euro cent +4.0 eurocent =15 euro cent≒16.5 yen per kWh).

2

Exchange rate is: 1€＝110 yen

3Additional tariffs applied to biomass cogeneration facilities under the German FIT program
Facility size

Tariffs (kWh)Additional tariffs for cogeneration

Up to 150 kW

14.3 euro cent

Up to 500 kW

12.3 euro cent11.0 euro cent

Up to 5,000 kW+6.0 euro cent+5.0 euro cent (500 to 750 kW)+4.0 euro cent (750 to 5,000 kW)

to 20,000 kW

6.0 euro centNo additional tariffs

Source: German FIT law (EEG Section 27, Annex2)
Higher total energy efficiency after introduction of heat generation would effectively reduce
CO2 (by 60 to 70%).

Because small and medium-sized cogeneration facilities are installed atheat-consuming sites and regions, they are capable of supplying both heat and electricity forthemselves in an emergency.
Specifically, to guarantee an IRR of 8% in a case in which 1,000-20,000 kW facilities use
unused woody biomass, tariffs should be 20 to 25 yen /kW for initial 2 years (about 17 yen if a
50% subsidy is provided for initial investment).



After the initial two years, the efficient utilization of byproducts would be realized. As prices ofraw wood and wood chips decrease, it would be desirable to reduce tariffs in the 3 rd or later
years to 20 yen/kWh or lower levels.



By contrast, in a case in which 1,000-kW or smaller facilities use unused woody biomass, initial
tariffs should be 30 to 35 yen /kWh, when calculated in the same manner (about 25 yen if a
50% subsidy is provided for initial investment).

Proposed tariffs for power generation using unused woody biomass
Category
Tariff

1,000 kW to 20,000 kW (excluding 1,000 kW)
Initial 2 years
Subsidies
3rd or later years
provided
20 to 25 yen
about 17 yen
20 yen or less4

1,000 kW or less
Initial 2 years
Subsidies
provided
30 to 35 yen
about 25 yen

Estimation of cost reduction by cogeneration[yen/kWh]
Reduction of net
cost by sale of heat

Heat sales

Fuel cost

Cost reduction
by cogeneration
Cost reduction
by efficientutilization of
byproduct

Profit(IRR 8%)Operation &maintenancecost
CapitalchargeModel plant of Cost
Verification Committee

Reference plantinterviewed in the
Procurement Price
Calculation Committee

Cogeneration model
plant

Cogeneration and chip
price reduction(For details of calculation, refer to the last page)(3) Determine higher tariffs for small and medium-sized facilities


Large-scale power generation facilities could face with following problems:

Except for power generations locating in a lumber mill3, fuel must be procured from awide diversity of sources and supplies, making it difficult for large facilities to maintainstable fuel procurement, and

Most projects will be undertaken by major enterprises, which would fail to encourage
small projects involving small distributed power generation units typical of biomassenergy4.

Power generation facilities in Japan locating in lumber mills that utilize lumber waste and otherbyproducts are already operating 5,000kW or larger power generation systems.
4 Proposal by the Iwate Woody Biomass Study Group (“Policy Recommendations on Creation of a New
Community and Promotion of Woody Biomass, July 2011) divides the uses of Iwate woody biomass into
three categories: (a) use by individual household, (b) use by small and medium-sized facilities, and (c)use by large facilities or power equipment. The group’s recommendations focus on (a) and (b), not on (c)because the group considers that policy (c) would be practical only for regions meeting special
requirements.
3

5



As shown in reference cases provided below, generation of 5,000 kW using unused biomass
would require an extensive deforestation. The central government is set to radically reform
Japan’s forestry under the Forests and Forestry Restoration Plan5. There may be some time;
however, before the supply system is firmly in place. Any hasty increase in energy consumption
could lead to extensive forest destruction.



Because large-scale projects could arouse concern over the sustainability of forests, higher
tariffs should be granted to small and medium-sized facilities to diffuse them more widely.

In Germany, FITis limited to facilities of up to 20,000 kW. This German scheme should betaken into consideration when Japan determines preferential tariffs for facilities under the FIT
program.

<Reference： Estimation of forest area needed for stable operation of large biomass power
generation facilities>
・ Biomass power generation of 5,000 kW is estimated to need 60,000 tons of wood chips
annually (or log equivalent of about 70,000 m3）.
・ If 40% of wood is used as fuel after the rest is used for lumber, plywood, or paper products,
then 180,000 m3 of wood must be produced.
・ To produce the same volume of wood by clear-cutting of a forest, we would need 450 ha offorest area, assuming that lumber volume of 400 m3 can be taken per hectare.
・ The clear-cutting process could not only destroy the ecosystem, causing substantial burden
on the environment, but also incur a cost of 2.0 million yen per hectare in subsequent
reafforestation. Thus, reafforestation of 450 ha would cost 900 million yen.
・ On the other hand, to obtain 70,000 m3 of wood by thinning, we would need 2,000 ha,
assuming that 35 m3 of fuel is obtained per hectare. In fact, there is no single region where
thinning is conducted on such a scale.
・ In this regard, depending on tariffs under the FIT scheme, lumber production for fuel would
be more profitable, resulting in wider random clear-cutting.
・ That is, wider proliferation of biomass power generation could accelerate forest destruction,
and a resulting increase in CO2 emissions could lead to heavy burden on people and growing
government expenditure.
Source: Mr. Keiji Kajiyama, Fujitsu Research Institute5

http://www.rinya.maff.go.jp/j/kikaku/saisei/index.html

6

(4) Setting tariffs for different fuel types


Different tariffs should apply to unused biomass (e.g. forest waste wood), factory
waste wood (e.g. lumber waste), and waste (e.g. construction waste wood) because
they significantly vary in fuel procurement cost. Fuel procurement cost is low for
factory waste wood as many lumber mills use wood chips and other material for fuel.
For this reason, low tariffs should be set, compared with unused biomass. Also,
similar low tariffs should be set for waste.

72．Principles for biomass utilization
With respect to the use of biomass resources for energy, the government committee6 for the
Feed in Tariffs Program recognizes the importance of deliberate review of this issue and suggeststhat the FIT program be designed on the basis of the following principles:(a) Maintain cascading use of biomass (avoid competition between material and energetic
biomass use),(b) Secure traceability (identify fuel sources),(c) Secure sustainable use (avoid destroying forests or adversely affecting biodiversity), and(d) Use fuel sources that can contribute to global warming countermeasures from an LCA
point of view.

New Energy Subcommittee/ Electricity Industry Subcommittee of the Advisory
Committee on Natural Resources and Energy
68

<Reference: An excerpt of a 2011 Report of the Feed in Tariffs Program Subcommittee>(3) Requirements for biomass power generation

Biomass used as fuel for biomass power generation contains portions that could otherwise be
used as raw materials for other purposes. Any new FIT program introduced could significantly affectthe supply-demand balance of biomass used for conventional purposes, which could result inresource shortages and price surges (photovoltaic and wind power generation would not cause suchproblems).
Some types of biomass that could be used as fuel may raise concerns over forest destruction or
adverse biodiversity effect. In formulating a FIT program, consideration should be given to these
problems.
In addition, we should note that if any biomass used as fuel under the new program increases
GHG emissions fromcollection and transport of the biomass, then it would frustrate the purpose of

the new program.
In determining whether to cover power from certain biomass power generation facilities, wemust ensure that (1) any conversion of biomass from conventional purposes to power generation
purposes does not lead to supply shortages for conventional purposes or price surges in the biomass
market, (2) the sustainable use of biomass is realized, and (3) it contributes to global warming
prevention from a perspective of life cycle assessment (LCA)Note. Specific measures should beformulated on the basis of practical considerations of how to establish and verify requirements forindividual biomass fuels supplied to power generation.
To help verify such requirements, it is also important to set up a traceability scheme to enable
identification of the origin of individual biomass fuels.

To promote biomass power generation, the Ministry of Economy, Trade and Industry is
required to work out an appropriate selection procedure and other specific schemes in cooperation
with other concerned agencies.

Note: Wood waste from forest harvesting, most of which is unused for existing purposes, may fallunder (1), (2), and (3) above.

9

<Reference: “Principles for Promotion of Sustainable Utilization Biomass in Japan—to
Design an Appropriate FIT Program” by NPO Biomass Industry Society Network and otherorganizations, February 2012>
・ To avoid serious impact of accelerating global climate change, the utilization of biomassenergy should be promoted aggressively. However, we should endeavor to ensuresustainable utilization by taking the characteristics of biomass energy into account.
・ The Act on Special Measures concerning Renewable Energy (the FIT Program) andother various policies relating to the utilization of renewable energy sources should taketheir sustainability into consideration. The private sector should also give similar
considerations to this issue.
・ In this regard, environmental NGOs and other organizations engaged in promoting
sustainable biomass utilization Japan present the following proposals:
1．Contribution to reduction of greenhouse gas (GHG)
・ The utilization of biomass energy must contribute to GHG reduction, which is the top
objective of Japan’s climate control policy.
・ Calculation of GHG reductions must cover all phases from land utilization to energy
conversion and utilization even if biomass is produced and consumed in different
countries.
・ Based on the above calculation principle, it is required to set up the lowest threshold for
GHG reductions in order to promote utilization of waste wood and surplus materials
from existing production systems not involving change to land use and encouragecogeneration and efficient utilization of heat.
2．Protection of healthy ecosystems and promotion of utilization
・ Healthy conditions of the ecosystem must be preserved and promoted for biomass
production, while maintaining its biodiversity.
・ For that purpose, we must ensure legitimacy, protect ecosystems worth preserving, andmaintain harmony among various ecosystem services.
3．Economic and social considerations
・ Appropriate utilization biomass energy is expected to help revitalize the agricultural andforestry sector. In an FIT program, under which people are required to shoulder social
burden, an integrated approach should be taken to improve energy security andrevitalize the regional economy.
・ For that purpose, fundamental initiatives should be taken first, including strengthening
governance by improving the transparency and efficiency of the administrative systemand businesses, such as the forestry business, that use ecosystem services. In addition,
the FIT program should encourage regional initiatives to promote small distributed
facilities, by providing preferential treatment to such facilities, including varying tariffs
for different power-generating capacities and favorable treatment of cogeneration
facilities.

10

(Reference) Estimates for generation model plants utilizing unused woody biomass

Basic data
Electricity
KW
Heat
KW
Utilized capacity (individually planned)
Utilized capacity (comparative standard)
Capital charge (in tens of thousands of yen)
Electricity%
Efficiency
Heat%
Operating time
Electricityh(individually planned)
Electricity(@ standard operating
rate)
Heat
h
(individually planned)
Heat(@ comparative
standard energy
efficiency)
Fuel consumption
Moisture percentage(individually planned)
Moisture percentage(comparative standard)
Fuel consumption (@ equivalent standard moisture
percentage)
Fuel cost (individual plan @ individuallyplanned moisture percentage)yen/tFuel cost (individual plan @ equivalent standard
moisture percentage)
Fuel cost (comparative standard @ equivalent
standard moisture percentage)
Actual electricity generated
MWh(individually planned)
Electricity generated
MWhCaptive electricity
MWhActual electricity generated
MWh(@ comparative standard)
Electricity generated
MWhCaptive electricity
MWhHeat consumption (individually planned) MWh
Total energy efficiency (individually planned)
Total energy efficiency (comparative standard)
Heat consumptionMWh(@ standard energy efficiency)
Annual cost of power generation
Depreciation(20 years)(in tens of thousands of yen)
Operation and maintenance cost(in tens of thousands of yen)
Administrative cost(in tens of thousands of yen)
Personnel cost (in tens of thousands of yen)
Other (including insurance premiums)(in tens of thousands of yen)
Fuel cost (individually planned)(in tens of thousands of yen)
Fuel cost (comparative standard)(in tens of thousands of yen)
Total (@ comparative standard)
Cost per KWh
Cost of power generation(individually planned)
yen/KWh
Cost of power generation(@ comparative standard)
Heat sales(in tens of thousands of yen)(individually planned)
Heat sales (@ comparative standard)
Actual cost of power generation(individually planned)
yen/KWh
Actual cost of power generation(@ comparative standard)
yen/KWh
Profit (IRR8%)
yen/KWh
Tariff (individually requested)
yen/KWh
Tariff (@ comparative standard)
yen/KWh
Installed capacity

Cost
Verification
Committee
model plant

Corporate
plant
interviewed(a) Model
plant +
cogeneration(b) Model
plant +
cogeneration+ initial 50%
subsidy(c) Model plant+cogeneration+ reduced chip
prices(d) Small or
medium-sized
failure +cogeneration(e) Small or
medium-sized
failure +cogeneration +initial 50% subsidy

5,000
80%
85%
210,000
20%
7,008

5,700
93%
85%
245,385
25.5%
8,147

5,000
10,00080%85%
282,000
20%
30%
7,008

5,000
10,00080%85%
141,000
20%
30%
7,008

5,000
10,00080%85%
282,000
20%
30%
7,008

800
1,300
91%
85%
116,000
30%
50%
8,000

800
1,300
91%
85%
58,000
30%
50%
8,000

7,446

7,446

7,446

7,446

7,446

7,446

7,446

3,500

3,500

3,500

5,600

5,600

42,04816%

60,00040%

42,04816%

42,04816%

42,048
16%

8,400
50%

8,400
50%

16%

16%

16%

16%

16%

16%

16%

42,04842,85742,04842,04842,048

5,000

5,000

12,00012,00012,00012,000

9,000

8,000

8,000

12,00016,80012,00012,0009,000

13,44013,44013,44013,44013,44013,4409,000

13,44013,44030,48539,00730,48530,48530,485

5,760

5,760

35,0404,555
30,48546,4377,430
35,65135,0404,555
32,39035,0404,555
32,39035,0404,555
32,390

6,400
640
5,361

6,400
640
5,361

35,040
4,555
20%
20%
-

42,442
6,791
0
25.5%
25.5%
-

37,2304,840
55,84550%
50%
55,84537,2304,840
55,84550%
50%
55,84537,2304,840
55,84550%
50%
55,845

5,957
596
7,700
74%
50%
3,971

5,957
596
7,700
74%
50%
3,971

7,000

12,26914,1007,050

14,100

5,800

2,900

15,80015,80020,54020,54020,540

3,700

3,700

8,800

9,300

11,44011,44011,440

3,100

3,100

7,000

6,000

9,100

9,100

9,100

600

600

50,45872,00050,45850,45837,843

6,720

6,720

56,51357,60056,51356,51337,843

6,720

6,720

79,31385,66991,153

84,103

72,483

16,22013,320

24.9

25.4

27.9

25.6

23.8

28.2

23.1

26.0

22.0

29.9

27.6

23.8

28.2

23.1

0

0

29,01029,01029,010

4,000

4,000

24.9

0
25.4

37,15327.9

37,15325.6

37,153
23.8

2,642
21.2

2,642
16.2

26.0

22.0

17.7

15.4

11.6

23.6

18.5

-

6.41
31.8
28.4

4.8
22.5

1.4
16.8

4.8
16.4

13.0
36.6

7.0
25.5

11

Source: Procurement Prices Determination Committee’s 4th meeting, Material 5
Note:・To unify conditions, the utilized capacity of facility, the operating time, and the moisture content of chip were
adjusted (provided as “comparative standard”).

・The Cost Verification Committee model plant will be depreciated for 30 years.

・Construction costs in (a) includes those for cogeneration facilities.

・For cogeneration, heat consumption is assumed so that total efficiency is 50%.

・

Sales price of heat is assumed to be 6.7 yen/kWh.

＜For inquiry about this proposal, please contact us＞

Japan Renewable Energy Foundation (Contact: Mano ）TEL 03-6895-1020

FAX：03-6895-1021

E-mail: info@jref.or.jp

12

URL: http://jref.or.jp/