Links to Economic Concepts

Employment generation and Rural development

Since most bio-power facilities use agricultural and forestry residuals, majority of these plants are located in rural areas where there is an abundance of these resources. These rural communities are usually characterized by high unemployment and slow economic growth. These biomass electricity facilities bring with them jobs, which provide good comparative wages. This allows money to stay within the local (rural) community and also adds to the local tax base. Interestingly, bio-power can bring with it additional markets for farm produce. Existing products (e.g., manure, crop residues) that were previously without a market can now be used to produce bio-power. In this way, increasing use of this energy source should only have benefits for farm income.

Each biomass power facility successfully generates up to two jobs for every one megawatt of plant capacity. There are jobs for handling, harvesting, transporting, and utilization of biomass that are created. This can be translated into a total of 7,000 jobs within the existing biomass facilities, plus another 7,000 jobs outside the plants, in the rural areas. In other words, this industry tends to be more labor-intensive than other forms of energy.

Research & Development

In order to increase the competitiveness of the bio-power industry in the market for energy, the first big step that has to be made must be done with the intention of reducing total costs and expanding plant sizes. There is huge scope to do this.

Today’s bio-power capacity is based on the combustion/steam turbine technology. The average size of these plants is 20 MW and the efficiency, on average, is 20%. The small size of these existing bio-power plants results in higher capital costs per kilowatt-hour of electricity generated.

Huge investments in R&D, that can help reduce the high capital costs and the subsequent efficiency disadvantages, need to be made. The R&D must focus on finding new potential feedstock, improving on existing combustion technologies, or finding new methods for harvesting and preparing bio-power.

Additionally, supporting R&D on processing of biomass resources in order to achieve higher density, higher heating value, and better suitability for transport is important. This is another important step that will help total costs by cutting down on transport costs.

Marshall’s Theories of Agglomeration

Biomass Resources in the United States

The bio-power industry provides strong support for Marshallian theories of agglomeration. The idea that firms/industries tend to locate near one another, or co-agglomerate, is supported by the bio-power industry. Since biomass resources are abundant across the eastern half of the US, it is of no surprise that the majority of functioning bio-power plants are located there. A reason for the clustering of bio-power plants in the eastern half of the United States is predominantly a result of natural advantages.

Marshall emphasized the importance of transport costs in industry agglomeration. One of the major challenges associated with using biomass for the purpose of electricity generation is including the cost to transport the biomass resources to the power plant. Generating electricity from biomass would be most cost effective if the bio-power plants were located near the essential feedstock. This would, undoubtedly, reflect gains that could be made when proximity helps reduce transport costs. In this case, the bio-power plants will locate near their resources in order to save transporting costs.

There may be another possible cause for industrial agglomeration in which industries tend to locate near one another. In this context, it is important to note that co-generation, which is a bio-power processing technology, simultaneously generates both electricity and heat. This process is said to be very effective in areas where both electricity and hot water are needed, because the heat (produced as a by-product) can be reused. The exhaust heat can be used for industrial uses, such as heat needed in pulp and paper mills, or even for district heating. This could result in these other industries (such as pulp and paper mills) locating near the bio-power plants. This is, indeed, a form of industrial agglomeration.

Patenting in the Biomass-to-electricity Industry

With the advancement of biomass-related technology, both researchers and entrepreneurs are now exploring new methods to convert biomass resources into electricity. There is a lot of funding and research that is going into finding new or improving on current technologies used for the processing of bio-power. It is in every firm’s interest to develop and advance renewable energy from bio-power by utilizing their own patents. Patents are definitely a way for firms to increase their incentive to invest in R&D and avoid the spillover of technology related information.

Patenting rates by sub-sector since 1976
Source: “Who Owns Our Low Carbon Future?”

The rate of patents peaked after the twin oil shocks in the 1970s and early 1980s and dipped in the middle of the 1990s. Since 1995, there has been a steady growth in patent rates. An interesting fact is that the different biomass electricity generating technologies have different patent rates associated with them. The various bio-power technologies have emerged via different pathways. Combustion-based technologies are relatively old and mature, with patenting rates steadily increasing since the late 1970s. On the other hand, gasification based systems are relatively new and are only seen as maturing today, with patenting rates accelerating since 2000 as can be seen in this figure.

As bio-power seems to be gaining popularity around the globe and there are an increasing number of firms investing in R&D to develop new technologies for it, it only makes sense that patenting rates associated with the different technologies are accelerating. An increase in patent rates means that firms will increase investment in R&D activities as now they will be able to appropriate social gains stemming from their innovations.

The table below shows the top patent holders in the biomass power industry today:

Biomass-to-electricity top patent holders
Source: “Who Owns Our Low Carbon Future?”

Japan turns out to be the leading location for biomass-to-electricity patents, then followed by the United States. This reflects the leading role of Japanese companies in this area, but it can also be explained by the existing behavioral differences as Japanese companies are perceives as reckless patent filers. The patent activity adopted by Japanese companies puts Japan at the forefront.


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