U.S. biomass prices affected by BCAP

May 10, 2010, Seattle, WA – The cost for wood biomass fell in two of the major U.S.
markets the first quarter of 2010, partly because of the federal Biomass Crop
Assistance Program (BCAP), according to the North American Wood Fiber Review (NAWFR).
The federal government is currently considering different programs for how to
contribute to an increased use of renewable energy sources.

Northern
California is home to the largest concentration of stand-alone biomass plants
in North America. In the 1970s, the state witnessed an explosive rise in the
number of plants because of high interest in alternatives to fossil fuels. This
period was followed in the early 1980s by a dramatic drop in the number of
operating plants because of waning interest in green energy and falling oil
prices, reports the NAWFR. During the past
few years, there has been a resurgence in this sector, as attitudes and
regulations have favoured renewable energy. As a result, demand for biomass,
including forest residues, urban wood, hog fuel, and agricultural waste, has
increased.

Northern
New England is also home to a large number of stand-alone biomass plants, many
of which have been operating for more than 20 years. Unlike the wide variety of
biomass sources found in California, this region – primarily Maine and New
Hampshire – has historically consumed low-quality forest thinning material.

The
U.S. federal government initiated BCAP last year with the intention of
alleviating biomass costs in an effort to bring more raw materials to the
market. This program is now in a holding pattern, as it is suspended for
reconfiguration. Funds allocated during the second half of 2009 and the first
quarter of 2010 for the initial phase totalled over USD $500 million. However,
by late April, only $170 million had been paid out. It is expected that BCAP
will be reinstated later this fall and that the full matching payments of up to
$45/BDT may target facilities converting biomass to cellulosic ethanol, new
facilities, and plants that switch from fossil fuels to biomass fuel. Existing
facilities may receive reduced payments. More about this program is covered in
the latest NAWFR.

California
has been one of the few states where the BCAP program seemed to have had the
intended effect, which was to bring additional volumes of forest residues and reduce
the delivered costs. In the first quarter of 2010, prices fell almost 30% from
the previous quarter, according to the NAWFR.

Biomass
prices in Northern New England peaked at about the same time as fossil fuel prices
in 2008, which emphasizes the price sensitivity to total energy usage and
prices of fossil fuels. As in California, BCAP was instrumental in New England
in moving biomass prices downward during the first quarter of 2010.

Much
uncertainty surrounds the biomass market in the United States right now.
However, two developments are certain: demand for biomass will increase in the
coming years, and local and federal governments will continue to be involved in
the gradual transition from fossil fuels towards increasing usage of renewable
energy.