As of today, the reference price of natural gas for the Iberian peninsula stands at 215 €/MWh. This is 14 times the price of 1 year ago.
We are facing the biggest energy crisis since the 1970s and the survival of many companies is at risk.
It should be remembered that this price increase cannot be attributed exclusively to the invasion of Ukraine. Prices have been gradually rising throughout 2021 and before the outbreak of the conflict were stabilised at around 75 €/MWh (4 times the average of the previous 5 years).
As soon as gas supply contracts start to expire or are terminated, consumer companies will consider two options: passing on the price to the final product or taking on the loss in expected profits, although it is likely to be a combination of both.
This technology has been used for years in all types of industries: chemical, canning, wood processing, among others, in a reliable manner and guaranteeing production rates of more than 8,200 hours/year.
But what is the payback period for an industrial biomass boiler at current natural gas prices?
Due to the paradigm shift in energy costs, with current prices of natural gas and oil per barrel, the investment will pay for itself within a few months.
Let us look at a concrete example:
- Industrial boiler with an installed capacity of 5 MW.
- Working hours: 6,500 hours per year.
- Gas price: 10 c€/kWh (100 €/MWh).
- Biomass price: 1.8 c€/kWh (18 €/MWh) equivalent to woodchip at 65 €/Tn with a PCI of 3.100 kcal/kg
It is not easy to give a figure for the volume of investment, as each factory would have, in addition to the boiler itself, its own adaptation costs such as civil works, auxiliary services and project planning costs. We will therefore take a conservative figure of €2,000,000.
With this input data, taking into account a biomass boiler efficiency of 85%, the payback period would be 12 months.
The cost of increased self-consumption of a biomass boiler should be added to this period, although it would have a negligible impact on the calculation.
What would be the return on investment of an industrial biomass boiler at other gas prices?
The high volatility in the price of natural gas forces us to ask ourselves this question. The table below shows the different amortisation periods for different natural gas prices:
As can be seen, the payback periods are quite reasonable for natural gas prices above 4 c€/kWh.
Without pretending to be energy market specialists, in our opinion, natural gas does not seem likely to recover the €20-30/MWh level in the short term.
Europe is already determined to wean itself off Russian gas as soon as possible. This means more LNG and more gas from Algeria and the US, solutions that will tend to keep gas prices high.
Finally, it is necessary to bear in mind the future extension of CO2 emission allowances, which already affects installations above 20 MW and certain industries.
In the near future, industries with smaller installed boiler capacities will also have to pay for the CO2 emissions generated by their fossil fuel boilers, which will represent an added cost to production.
In short, it can be said that if this crisis is teaching us anything, it is that companies have no choice but to take control of their energy destiny and stop depending on a resource subject to geopolitical ups and downs over which they have no control.