GLOBAL REPORT

Austria Puts Its Energy Into Plant Power
High-tech boilers and biomass fuels are providing electricity and heat in
the nation.

By Delphine Strauss
Financial Times

February 13, 2006

Wood smoke curling from chimneys of an Alpine village encapsulates the
picture postcard image of Austria. But the reality is fast becoming more
high-tech: sleek, smoke-free boilers burning wood pellets or other biomass
fuels to heat villages, factories and urban housing, with a neutral effect
on carbon emissions.

In 2003, nearly 70% of Austria's domestically produced power came from
renewable sources. Biomass fueled 11.2% of Austria's total primary energy
supply and 21% of heat production, according to International Energy Agency
statistics.

As businesses in Europe struggle with mounting energy costs, worries over
supplies and pressure to reduce carbon dioxide emissions, Austria's biomass
proponents are keen to show that small-scale schemes offer an economic
solution. With almost half of Austria covered in forests, wood-fired heating
schemes have grown in popularity. Even the fashionable Lech ski resort has a
biomass plant that provides 90% of its heat.

Biomass energy is a growing business in Austria, sustaining a new market for
wood pellets and building a technology cluster that increasingly exports its
services.

Forestry, Austria's second-largest economic sector after tourism, has a
growing stock of wood and is keen to put by-products < chips, sawdust and
low-grade logs < to use. And not only do forests grow back, they absorb
carbon dioxide from the air as they grow.

It is no surprise, then, that the Austrian presidency of the European Union
has put biomass high on its agenda. Chancellor Wolfgang Schuessel told the
European Parliament on Jan. 18 that Europe must diversify energy supplies to
reduce its dependence on imports, especially after Russia's dispute with
Ukraine over natural gas.

Austria's commitment to biomass stems from concerns over energy security <
Austria relies on imports for two-thirds of its supply and has banned
nuclear generation < as well as environmental targets and a wish to support
rural jobs.

The use of biomass energy "started as a grass-roots movement," said Reinhard
Madlener, a senior energy economist at the Swiss Federal Institute of
Technology.

Over time the design of plants that could be smelly and inefficient
improved, arousing the interest of mainstream energy suppliers. A new market
in wood pellets < compressed sawdust that is dryer, cleaner and easier to
transport than other biomass fuels < was key to the spread of domestic
biomass boilers.

Nonetheless, government support has been crucial to the development of an
industry in which the start-up costs of building boilers are high, and
transporting fuel over long distances uneconomic.

Austria supports biomass through subsidies of up to 50% of investment costs,
funding for research and development, and legislation matching a 4% target
for renewable electricity with a guaranteed price for suppliers.

With these incentives, and new technology that can support larger projects,
big utility companies are starting to take an interest. Siemens' power
generation division is building Europe's largest wood-fired power plant in
Vienna, due to supply 5,000 households with electricity and 12,000 with
heat.

EVN, the leading energy supplier in the country's largest province of Lower
Austria, is building two biomass heat and power plants and says its
environmental business made up 14% of total sales in 2005.

Taxes make natural gas more expensive than pellets in Austria, especially
after the recent surge in gas prices, but the cost of installing boilers has
raised doubts over the market's ability to survive without subsidy.

Volatility in oil and gas prices and the stability of a local wood supply
could change this logic. For businesses investing in a system lasting 10 to
15 years, said Kasimir Nemestothy from the Austrian Energy Agency, "it makes
sense to reduce the risk by choosing the fuel with the least price
volatility."

Copyright 2006 Los Angeles Times