In recent month we have heard a lot about biomass being the next big economic driver for Southeast Alaska energy and perhaps new life for the timber industry. It’s a favorite among politicians, bureaucrats, environmentalists and the Sealaska Corporation. The state of Alaska is promoting biomass to reduce our dependence on imported fuel oil. The Forest Service is making biomass an integral part of their planned forest restoration economy. Biomass also lets environmentalists openly support development while enforcing the Roadless Rule or seeking more de-facto wilderness via in the Sealaska lands legislation.
So with all of this support it is not surprising that biomass dominates the Alaska Energy Authority (AEA) recent draft “Southeast Integrated Resource Plan.” Unfortunately this plan does not adequately address the real economic feasibility of biomass. In fact, the plan only takes a 30,000 foot view of the issue. Recommendations for biomass are simply based on possible cost savings between imported pellets and fuel oil. Other proven options such as new hydro projects are generally dismissed as too expensive. Likewise, alternate energies such as heat pumps are not given fair and equal treatment.
Even with the biomass bias, the cost comparison between imported pellets and fuel oil is flawed. First, pellets’ costs are artificially low and appear to exclude transportation costs. Second, probable price increases for pellets are not forecasted. Simply, fuel oil costs are demonized and comparisons with alternate energy are glossed over.
On the other hand, the AEA plan is quite honest about the uncertainties of a new regional pellet industry. In theory the region could support 1-4 pellet mills depending upon how many residents are willing to convert to pellet boilers and stoves. The AEA plan assumes an 80 percent conversion to pellet heat at a cost of over a half billion dollars. It further assumes sufficient conversion subsidies are available. However, at least one initial customer survey suggests that such a massive conversion is too optimistic.
More important, establishing a regional pellet industry will face major hurdles. Like old-growth, the region’s abundant timber does not mean it is economically feasible. The most feasible fiber supply for current pellet producers are sawmill residues, which have sufficient wood quality and very low procurement costs. However, this material is relatively limited in Southeast — even after 100-plus years of sawmilling.
Other pellet fiber sources could include thinned material from second-growth forests that are associated with Forest Service stewardship/restoration projects. However, the costs to cut and ship this material to a mill have to be next to zero — which is hardly the true cost. Also, the cost of whole tree chipping will be very prohibitive. So this means the natural economic scale of a Southeast Alaska pellet industry is small — basically a Mom and Pop operation and one not easily financed with private money.
Consequently, to establish a larger pellet industry will require two or three additional large subsidies. First, there needs to be a capital subsidy to buy land and build mills. Second, there needs to be operations subsidy to get raw material to the pellet mills (i.e. Forest Service restoration/stewardship contracts). Third, there may be a need for another subsidy at the retail level if the local mills cannot compete with imported pellets.
In any case, AEA’s plan, which costs more than $500,000, does not meaningfully evaluate our future energy options. Unfortunately, it merely attempts to sell the region on biomass. Such an approach discriminates against viable alternatives, such as heat pumps. It may increase future hydro cost as well by delaying development.
• Mehrkens is a retired forest economist who lives in Auke Bay.