Process Industry Energy Projects in a Climate Change Conscious Economy

Doctoral thesis, 2004

Most industrial process plants consume large amounts of energy (usually in the form of steam and electricity) to produce demanded goods, such as beer or paper. However, combustion of fossil fuels has negative external effects on the Earth’s climate. In a climate change conscious economy such externalities can be addressed through incentive-based policy instruments. As a result, fossil fuel prices can be expected to increase, as well as prices for electricity and climate change neutral fuels such as biofuel. Many studies have shown the substantial potential for energy savings in process plants. Most process plants are energy market actors as a result of e.g. on-site electricity cogeneration, delivery of excess heat to district heating networks, or trading on emerging biofuel markets. Thus, energy projects at process plants will be affected by climate policy. This thesis addresses the issue of evaluating process industry energy projects given an uncertain, but climate conscious, development of the energy market. The perspective of industrial decision-making applies primarily. The main emphasis is put on development of analysis methods and tools, including classification of influencing parameters, systematic energy market scenario approaches, system boundary considerations, cost-effectiveness graphical tools for CO2 reduction assessment, and a biofuel price-setting model adopting a constant electricity-to-biofuel price ratio for the Nordic countries. The thesis includes several applied studies conducted considering the Nordic energy market and its assumed climate conscious future development. The results show that energy projects in process plants can be cost-competitive compared to other measures for reducing CO2 emissions in the Nordic countries. The results for specific studies of pulp mill energy systems indicate that biofuel saving measures in pulp mills are both economically competitive and robust and thus entail only a small risk with respect to uncertain development of future climate policy. It should, however, be noted that total CO2 emissions associated with pulp mill biofuel savings may increase or decrease depending on the future development of the Nordic energy market. For industrial combined heat and power (CHP) the results are complex. The applied studies illustrate the importance of choice of emissions baseline for electricity and/or biofuel usage for determining the total CO2 emissions consequences of energy projects.