A Commercial Feasibility Study of Renewable Methanol

Production from Biomass Gasification in Iceland

Jón Örn Jónsson

MSc in Sustainable Energy and Business

Supervisors: Kristján Vigfússon Reykjavík University

Guðrún Sævarsdóttir School of Business/REYST
K.C. Tran January 2010
A Commercial Feasibility Study of Renewable Methanol Production from Biomass
Gasification in Iceland

30 ECTS thesis submitted in partial fulfilment of a Master of Science degree in Sustainable

Energy and Business

Copyright © 2010
All rights reserved

School of Business/REYST
Reykjavík University
Menntavegur 1
IS-101 Reykjavik
Iceland

Telephone: (354) 599-6200

Bibliographic information:
Jón Örn Jónsson, 2010, A Commercial Feasibility Study of Renewable Methanol Production
from Biomass Gasification in Iceland., Master thesis, Reykjavik Energy Graduate School of
Sustainable Systems, Reykjavik University & University of Iceland.

ISBN XX

Printing: ver. 1
Reykjavik, Iceland, 28 January 2010
Abstract
This feasibility study is made to evaluate the potential of building biomass gasification to
methanol fuel plant in Iceland. Biomass gasification and methanol production consists of
three steps: hydrogen production, biomass gasification and methanol synthesis. The
process is known as liquid phase methanol synthesis or Fisher-Tropsch synthesis and
consists of a catalyst reposition and combining carbons and hydrogen to form methanol.
The intention is to use off-peak renewable electricity produced from Icelandic hydro or
geothermal plants in the electrolysis of water producing renewable hydrogen and oxygen.
The relatively reasonable price of renewable electric power in Iceland makes Iceland an
ideal location for the production of liquid fuels through gasification. Gasification
technology consists of a gasifier that turns hydrocarbon feedstock into gas by adding heat
and pressure carefully monitoring the amount of oxygen entering makes the difference
between a combustor and a gasifier. Gasification with the use of oxygen in is one of the
most effective ways to harness the energy of the sun stored within biomass. Catalysts
operate by rearranging the atoms of the gas into alkenes or alcohols. The biomass
feedstock addressed in this feasibility study is black liquor, wood and MSW. Two sets of
models have been constructed a mole balance model to simulate the biomass gasification
and financial model. The conclusion of this study is that MSW gasification to liquid fuel
production is feasible, but the import of biomass is not feasible unless the total cost of the
biomass imported is below € 193 per ton.
 Dedication

Dedicated to my unborn daughter.

Table of contents:

List of Figures .................................................................................................................... xii

List of Tables ..................................................................................................................... xiii

List of equations ................................................................................................................ xiv

Abbreviations ..................................................................................................................... xv

Acknowledgements ........................................................................................................... xvi

1 Introduction ................................................................................................................... 17

2 The Process .................................................................................................................... 18

2.1 Electrolysers........................................................................................................... 19
2.2 Gasification ............................................................................................................ 22
2.3 Gasifiers ................................................................................................................. 25
2.4 Synthesis ................................................................................................................ 31
2.4.1 Liquid Phase Methanol synthesis (LPMeOH) ............................................ 32
2.4.2 Fischer-Tropsch synthesis ............................................................................ 33

3 Biomass feedstock ......................................................................................................... 33

3.1 Black liquor............................................................................................................ 35
3.2 Timber .................................................................................................................... 41
3.2.1 Icelandic timber ........................................................................................... 41
3.2.2 International timber ...................................................................................... 42
3.3 Municipal Solid Waste........................................................................................... 44

4 Biomass import. ............................................................................................................ 48

4.1 Taxes on biomass imports in Iceland. .................................................................... 48

5 Fuel Markets ................................................................................................................. 50

5.1 Fuel taxes in Iceland. ............................................................................................. 50
5.2 Methanol fuel potential in Iceland ......................................................................... 53

6 Economic evaluation ..................................................................................................... 55

6.1 Other assumptions.................................................................................................. 59
6.2 Investment calculations.......................................................................................... 59

7 Further considerations ................................................................................................. 67

8 Results & Conclusion.................................................................................................... 69

References........................................................................................................................... 73

xi
List of Figures
Figure 1 - The role of electrolysis and gasification. ............................................................ 19

Figure 2 – Hydrogen production with the use of electrolyser. ............................................ 20

Figure 3- Flow diagram of gasification of biomass feedstock to liquid Methanol. ............ 24

Figure 4 - Fixed bed direct gasifiers ................................................................................... 26

Figure 5 - Fluidised bed gasifiers ....................................................................................... 27

Figure 6 – Entrained flow gasifier....................................................................................... 28

Figure 7 - Different types of biomass.................................................................................. 34

Figure 8 - Biomass to liquid fuel cost. ................................................................................ 35

Figure 9 - Flow diagram of chemical recovery in kraft pulping process ........................... 36

Figure 10 - Black liquor gasification and fuel production ................................................. 37

Figure 11 - A combined-cycle generating system. ............................................................. 38

Figure 12 - Lignin price compared to electric price ............................................................ 40

Figure 13 - Potential wood slash in the next 90 years, ........................................................ 41

Figure 14 – MSW treatment facilities in Iceland ................................................................ 44

Figure 15 - Icelandic mixed household waste composition from 1999-2003 ..................... 46

Figure 16 – MSW cost analysis........................................................................................... 60

Figure 17 – MSW debt service coverage ............................................................................ 61

Figure 18 - MSW net present value. ................................................................................... 62

Figure 19 – WACC ............................................................................................................. 62

Figure 20 – ROE, ROIC and Current ratio.......................................................................... 63

Figure 21 - Sensitivity of investment according to discount rate ........................................ 64

Figure 22 – Sensitivity of investment to the nominal interest rate of loan. ........................ 65

Figure 23 - Sensitivity of investment according to price of sold methanol ........................ 65

Figure 24 - Sensitivity of investment according to variable cost ........................................ 66

Figure 25 - Cost composition of biomass feedstock ........................................................... 70

xii
List of Tables
Table 1 - Total hydrogen needed in kg. ............................................................................... 20

Table 2 - Example of cost Break down of GtL ................................................................... 29

Table 3 - Scaling down GtL units to apropriate size ........................................................... 30

Table 4 - Estimated price of a 300 Adt/day GtL fuel unit in million €-euro ....................... 31

Table 5 - The largest production countries of black liquor in the world ............................. 38

Table 6 - Black liquor gas composition ............................................................................... 40

Table 7 - Average price of tradable biomass within EU-15 ............................................... 42

Table 8 - Gas composition of sawdust, organic matter and wood. ..................................... 43

Table 9 - Price of wood based biomass. .............................................................................. 43

Table 10 – Potential waste feedstock .................................................................................. 45

Table 11 - MSW cost estimate. ........................................................................................... 47

Table 12 - MSW gas composition and mol weight. ............................................................ 47

Table 13 - Domestic taxes ISK on gasoline ........................................................................ 51

Table 14 – Domestic taxes in ISK on Diesel ....................................................................... 52

Table 15 - Carbon dioxide per liter ..................................................................................... 53

Table 16 - Gas compostion and mol weight of selected biomass from the P-EFG-O2...... 55

Table 17 - Waste gas composition in precentage and in kilo mols. .................................... 56

Table 18 - Total methanol produced in liters. ..................................................................... 57

Table 19 - Variable cost break down. .................................................................................. 57

Table 20 – 3Point PERT analysis ........................................................................................ 58

Table 21 - Value of investment ........................................................................................... 60

xiii
List of equations
Equation 1 - Balancing carbons and hydrogen in the production of methanol. .................. 17

Equation 2 - Water separation ............................................................................................. 19

Equation 3 - Hydrogen gas formation ................................................................................. 19

Equation 4 - Oxygen gas formation .................................................................................... 20

Equation 5 - Average energy conversion efficiency ........................................................... 23

Equation 6 - Methane steam-reforming reaction................................................................. 25

Equation 7 - Scaling equation ............................................................................................. 30

Equation 8 - Hydrogenation ................................................................................................ 32

Equation 9 - Methanol dehydration & water gas shift reaction .......................................... 32

Equation 10 - Fischer-Tropsch process ............................................................................... 33

xiv
Abbreviations
Adt Air Dry Tonne
ASU Air Separation Unit
ATM Atmosphere
BFW Boiler Feed Water
CAPM Capital Asset Pricing Model
CF Cash Flow
DME Di-Methyl Ether
DOE U.S. Department of Energy
EUR Euro
FC Fixed Capital
FFV Flexible Fuel Vehicle
FTD Fischer-Tropsch Diesel
FX Foreign Exchange Market
GHG Green House Gases
GtL Gasification to Liquid
HRSG Heat Recovery Steam Generator
ICC Icelandic Container Company
LHV Low Heating Value
LP Liquid Phase
LPG Liquid Petroleum Gas
MSW Municipal Solid Waste
NPV Net Present Value
NREL National Renewable Energy Laboratory
P-EFG-O2 Pressurized Oxygen Blown Direct Entrained Flow Gasifier
ROE Return on Equity
ROIC Return on Investment Capital
SI Spark Ignition
SRU Sulphur Recovery Unit
USD US Dollar
VC Variable Cost
WACC Weighted Average Cost of Capital
WTW Well-To-Wheel

xv
Acknowledgements
I wish to thank my family for their love, devotion and endurance. Edda Lilja Sveinsdóttir
and Reykjavík Energy for their support, Kristján Vigfússon, Guðrún Sævarsdóttir and K.C
Tran for their mentoring.

xvi
1 Introduction
Gasification is a well-known Process where carbon based feedstock is partially burned,
producing a gaseous mixture that may be used either directly as a fuel, or as feedstock in
another process e.g. synthetic fuel production. The production of gas through gasification
used in vehicles has been known since the beginning of 1900. Actions against the German
army led to large shortages of petroleum in the first and second world wars, which lead to
the development of gas driven vehicles. Also as a response to the fuel shortage, processes
for synthetic fuel production were developed, most notably the Fisher Tropsch process
through which Germany produced volumes of fuel during the Second World War.
Gasification is the first step of the Fisher Tropsch process, as coal is gasified to form a
synthesis gas, which is a feedstock for the process. The gasification process is therefore an
established method that offers a wide range of utilization. Gasification of a biomass
feedstock is the process of an incomplete exothermic combustion of biomass with oxygen
leading to the production of a gas that manly contains carbon monoxide (CO), carbon
dioxide (CO2), hydrogen (H2) and methane (CH4). This gas known as producer gas is
today used in many countries both developed and undeveloped as a direct source of house
heating or by powering gas turbines in the production of electricity.

Another option is to use the gas produced in the process to form different liquid
hydrocarbons. The process is known as liquid phase methanol synthesis or Fisher-Tropsch
synthesis and consists typically of a catalyst reposition and combining carbons and
hydrogen at a certain pressure and a certain temperature to form e.g. methanol (CH3OH).
This can also be done to form other chemical reactions such as ethanol (CH3CH2OH) or
glycerol (C3H5 (OH)3). In this process there is a need for additional hydrogen in order to
balance the equations such as shown in Equation 1.

Equation 1 - Balancing carbons and hydrogen in the production of methanol.

CO  2H2 CH3OH

CO2 3H2 CH3OH  H2O


The use of stranded or off-peak renewable electricity produced from Icelandic hydro plants
 producing renewable hydrogen and oxygen is a viable solution
in the electrolysis of water

17
in the production of additional hydrogen. Relatively reasonable price of renewable electric
power in Iceland makes Iceland an ideal location for the production of liquid fuels through
gasification.

This M.Sc. thesis evaluates the feasibility of building an Icelandic gasification plant with
pre-treatment, gas cleaning unit and synthesis island with the intention of producing and
selling a renewable liquid fuel in Iceland.

2 The Process
The process consists of three major steps: hydrogen production, biomass gasification and
combining step one and two in step three the methanol synthesis, also shown in Figure 1.
The hydrogen production is in this case done through conventional electrolysis of water.
Even though cheaper methods of hydrogen production exists e.g. with chemical reactions
from methane, the need for pure oxygen in the gasification process also exists thus both
products from the electrolysis are being used. Adding to this the access to reasonable
renewable electricity is also a large contributor to the use of electrolysers. After the
production of hydrogen and oxygen the next step is the gasification of biomass. The
gasification in this case is done with an entrained flow gasifier due to the fuel flexibility
and high scaling factor of the gasifier. The entrained flow gasifier is also one of the most
commonly applied gasifier designs due to reliability and long continuous operations
without failure. The last step is the synthesis of gases produced in the previous step into
liquid fuel. This is done with a catalyst of Copper (Cu), Zinc Oxide (ZnO) and Aluminium
oxide (Al2O3) where carbon monoxide and carbon dioxide are connected with hydrogen to
form a liquid fuel. Another method is the well-known Fisher-Tropsch synthesis that uses
mainly Cobalt and Iron catalysts. Both methods can be applied here depending on the
product that one wishes to produce.

18
 Figure 1 - The role of electrolysis and gasification.

2.1Electrolysers
An Electrolyser uses DC electricity to convert pure water into hydrogen and oxygen gases.
This process is well known and the efficiency is close to 90%. The negative charge of the
cathode pushes the electrons into the water. At the anode side the positive charge tries to
absorb the electrons. Since the conductivity of water is low the water molecules are
separated into positively charged hydrogen ion, H+ and a negative hydroxide ion, OH- as
shown in Equation 2.

Equation 2 - Water separation

H2O H   OH 

In Equation 3 the positively charged hydrogen picks up a negatively charged electron e-


and neutralizes as H. The hydrogen atom combines with another hydrogen atom to form a
hydrogen gas molecule H2.

Equation 3 - Hydrogen gas formation

2H   2e  H  H H2



19
The negatively charged hydroxide ion is attracted to the positive anode. There the anode
removes the negative electron and the hydroxide connects with three other hydroxides to
form one molecule of oxygen and two molecules of water this is shown in Equation 4.

Equation 4 - Oxygen gas formation

4OH  O2  2H2O  4e 

The whole process of hydrogen production is shown in Figure 2.



Figure 2 – Hydrogen production with the use of electrolyser.

The electrolysers of today are not produced in volume and each electrolyser is practically
hand made by order. The cost per electrolyser is therefore still quite high even though the
technology for producing electrolysers has been well known for quite a time. The expected
price of a Proton-Exchange Membrane (PEM) electrolyser producing from 30 m3 to
almost 300 m3 of hydrogen per day is expected to be around 600 $/kW to 1000 $/kW
(Smith & Newborough, 2004). The challenge of today’s research and development is to
achieve the same high efficiency but at much lower cost. Many goals have been set and it
is estimated that there will be a dramatic cut in cost as the production increases. Goals have
been set both by the European Hydrogen and Fuel Cell programme and also in the US,
were the unit cost of electrolyser is estimated to drop below 300 $ per kW by the end of
year 2010.(Smith & Newborough, 2004). The down side of this is that few things today are
acting as stimulants to the hydrogen economy. The hydrogen economy that few years back
was thought to be the backbone of the alternative fuel economy has hit many hurdles and
there still seems to be a long way to go for a hydrogen economy. Therefore it is hard to

20
predict the size of the future hydrogen markets and the price of electrolysers will still
remain somewhat unclear. For this case a three-point estimate was used to determine the
price of the electrolysers. These estimates were based on both literature sources and
research the highest in the three point estimate was €4000 per Nm3 or close to €950 per
kW given by Raymond Schmid at Hydrogenics (www.hydrogenics.com) a company
specialising in the production of electrolysers. The two other values used where close to
€690 per kW and where found through literature research €691 per kW from an article by
Smith and Newborough: Low-cost polymer electrolysers and electrolyser implementation
scenarios for carbon abatement(Smith & Newborough, 2004) and the lowest price was
NREL: Hydrogen supply: Cost estimate fro Hydrogen pathways – Scoping
analysis(Simbeck & Chang, 2002). The energy consumption is the largest factor of the
operating cost of an electrolyser. The cost of electricity ranges from 80-90% of total
operating cost thus Iceland being a prime location for the operation of electrolysers due to
the low cost of renewable electricity. Reduction in energy consumption is therefore a vital
factor in the competitiveness of the electrolyser against other methods of hydrogen
production. In this case the energy consumption has been estimated to be 4.2 kWh per
Nm3 based on report from Hydrogen Technologies a subsidiary of Statoil Hydro the
Norwegian energy company (Hydrogen, 2008). Due to energy losses and differences in
efficiency it is fair to estimate the energy consumption from 4.1-5.0 kWh per Nm3. The
capacity range is practically unlimited determined only by the number of cells employed.
The maximum size of modern electrolysers is around 230 cells in one single electrolyser
having an output of 485 Nm3 of hydrogen per hr and at the same time 242,5 Nm3 of
oxygen. Each cell produces 2,11 Nm3 per hr and therefore one can determine the size of
the plant by dividing 2,11 with the amount of hydrogen needed and again with 230 to find
the amount of units. In this case the assumption is made that 1 kg of hydrogen equals 11,13
Nm3 of hydrogen and depending on the feedstock different quantity of hydrogen is needed
as shown in Table 1. The amount of electrolyser units needed for this case assuming a
maximum need of 17.200 tons of hydrogen per year are approximately 50 units or 11.500
cells with the total cost of around € 82.21 million.

21
 Table 1 - Total hydrogen needed in kg.

The objective is to utilize stranded renewable energy available in the Icelandic electric grid
and potentially in the future other more unstable sources of renewable energy such as
wind, wave and tidal in the production of hydrogen and oxygen as previously mentioned
using the oxygen in the process of gasification of biomass in the production of synthetic
fuels.

2.2 Gasification
The process of producing synthesis gas through gasification is in itself a simple process.
The reaction of a hydrocarbon feedstock up to temperatures over >700°C with oxygen will
produce a synthesis gas. The process is an exothermic reaction with no need for external
source of energy and no additional fluid e.g. water. Gasification is applicable to almost all
hydrocarbons providing the user with a variety of alternative feedstock. Today millions of
homes are energy self-sufficient utilizing homemade gas as their only source of energy.
Even though the gasification technology as the electrolysis technology has been known for
a long time great advances have been taking place in the last decades, maximising the
efficiency with modern technology. The gasification technology consists of a gasifier that
turns hydrocarbon feedstock into gas by adding heat and pressure. The ability of carefully
monitoring the amount of oxygen entering makes the difference between a combustor and
a gasifier. While the combustor burns its feedstock completely the gasifier burns its
feedstock only partially performing an act called “partial oxidation”. Gasification can be
defined as thermal degradation in the presence of an externally supplied oxidizing (oxygen
containing) agent e.g. air, steam, oxygen (Kavalov & Peteves, 2005)

High temperature and plasma gasification are methods that could in the future have huge
impact on the recycling of carbons. The ability of being able to tear atoms from each other
forming a gas and then to rearrange them into liquid fuels in multiple options gives us a

22
highly effective tool in the fight against anthropogenic greenhouse gas emissions. With
traditional gasification better efficiencies are achieved, this is done by recovering the
chemicals in the gas. When a biomass feedstock is incinerated the only product is heat.
Better use of the feedstock can be gained with the partial combustion at temperatures
above >1200°C by converting the biomass feedstock into synthesis gas the energy
contained within the biomass will be utilized in a more efficient way and less polluting.
This high temperature gasification is already widely used in the Nordic countries, though
in particular in Sweden where 25% of all energy produced comes from biomass.

The average energy conversion efficiency of a wood gasifier is about 60-70% and is
defined as shown in Equation 5.

Equation 5 - Average energy conversion efficiency

2,5(m 3 )  5,4(MJ /m 3 )
Gas   68%
19,80(MJ /kg)  1(kg)

Where on average 1 kg of biomass produces about 2,5m3 of producer gas consuming 1,5m3
of air. Average 
calorific value of 1kg of wood is 5,4 MJ/m3. Average calorific value of
wood (dry) is 19,8 MJ/kg (Rajvanshi, 1986). A simplified schematic flow diagram of
gasification could look somewhat like illustration in Figure 3. Into the gasifier there are
two inflows one of biomass and the other the oxidant that in this case is 99,5% pure
oxygen produced through the electrolysis of water.

23
 Figure 3- Flow diagram of gasification of biomass feedstock to liquid Methanol.

The ratio in this case is assumed 0,4 kg of oxygen for every kg of feedstock. Before
entering the gasifier the feedstock is run through a drying system, which reduces the
humidity of the feedstock and increases the efficiency by raising the LHV of the feedstock.
More humidity in the feedstock means more energy needed for gasification of the
feedstock and higher decomposition of the biomass reduces the amount of undesirable
hydrocarbon formation. The drying system operates as a heat exchanger and can as a
source of heat utilize e.g. steam, hot water, gas or waste heat from the system. Grinding
system cuts the feedstock down to less than <1mm particles before entering the gasifier. At
last the feeder makes sure that an even amount of feedstock is entering the gasifier. The
gasifier is in this case assumed to be an entrained-flow gasifier due to its high input
capacity of 3000 air dried tons per day but mainly due to its high operating heat of the
gasification which is assumed to be around 1300-1400 °C. The high temperature is very
positive due to the secondary cracking of tars reducing the production of tars (Jinsong, et
al., 2009). The high temperature makes it possible to shorten the residence time of the
biomass as well as preventing the formation of undesirable chemical reactions. Due to the
short residence time the biomass should be pre-treated and almost in dust particle size less
than 1mm. (Kavalov & Peteves, 2005)

24
These stable parameters were used in order to know the ratios of carbon monoxide, carbon
dioxide, hydrogen, methane and other lesser materials in the gas produced from the
hydrocarbon feedstock selected. The gas produced is then led through a gas-cleaning unit,
sulphur handling and processing on to the synthesis island. Sulphur affects the work of the
catalyst and must therefore be thoroughly cleaned from the gas. Carbon monoxide, carbon
dioxide and hydrogen are then led through the catalyst for the production of methanol.
Methane can be directly reformed to methanol by the addition of oxygen converted to
carbon monoxide and hydrogen via the steam-reforming reaction as shown in Equation 6.

Equation 6 - Methane steam-reforming reaction

CH4  H2O CO  3H2

The carbon monoxide and hydrogen car subsequently be used as synthesis gas for further
processing. 

2.3 Gasifiers
Many gasification methods are available for synthesis gas production. Gasifiers
(Hamelinck & Faaij, 2001) can be divided into three categories: fixed bed, fluidised bed
and entrained flow. Fixed bed can further be divided into two groups updraft or downdraft.
Depending on whether the gas exits the gasifier at the bottom or from the top. The
fluidised bed can also be further divided into two groups the bubbling or the circulating.
The fixed bed and fluidised bed operate at atmospheric pressure are therefore mostly
suitable for energy production. Figure 4 shows fixed bed gasifiers were the left side
gasifier is an updraft gasifier and the right side gasifier is a downdraft. The main
constraints to the use of both fixed bed and fluidised bed gasifiers are due to low scaling of
up to 10 MW for the updraft fixed bed and low temperatures from 800-1000°C for the
fluidised bed. In addition to this there is low flexibility of fuel usage where the properties
of the fuels have to be well defined. Figure 5 shows the two types of fluidised bed gasifiers
the bubbling on the left and the circulating on the right.

Setting up the gasification model for the study presented in this thesis, the pressurized
oxygen-blown direct entrained flow gasifier was chosen. Studies from Jinsong Zhou et. al.,
Kavalov & Peteves and Van der Drift, Boerrigter, Coda, Cieplik, & Hemmes all support

25
that the pressurised oxygen-blown direct entrained flow gasifier appears to be most
appropriate for gasification in the production of synthesis gas used in the biomass to liquid
fuel process. The pressurized oxygen-blown direct entrained flow gasifier is not restricted
due to scaling as other gasifiers, where the production capacity can be of hundreds of MW.

Figure 4 - Fixed bed direct gasifiers (Belgiorno, De Feo, Della Rocca, & Napoli, 2002).

26
 Figure 5 - Fluidised bed gasifiers (Belgiorno, De Feo, Della Rocca, & Napoli, 2002)

The technology has been used in the gasification of coal for some time and is considered
mature even though the gasification of biomass is new. The pressurized oxygen-blown
direct entrained flow gasifier operates with a pressure of 10 - 60 bar (Kavalov & Peteves,
2005) and at higher temperatures resulting in much shorter residence time for whatever
fuel used in the process.

The biomass fuel is injected together with preheated oxygen and in some cases steam into
the pressurized cabinet. The oxygen, which in this case stems from the electrolysis of
water, uses more energy in the production than a regular air-separating unit (ASU), which
is more commonly used. But the use of pure oxygen as an oxidizing agent for methanol
production is preferred even though the cost is higher than using air. This is due to the high
cost and energy intensity of cleaning the raw gas (Kavalov & Peteves, 2005). The
preheated oxygen together with the pulverized biomass feedstock forms a thick cloud of
particles and it is here the reaction takes place. The high operating temperatures are one of
the entrained flow gasifier strengths but also one of its downsides due to the high
temperature of the gas when it exits the gas outlet energy is wasted in cooling the gas down
before cleaning, this energy can be harnessed with the use of a steam turbine. The basic
idea is that in temperatures above 1250-1300 °C, sodium carbonate will not form because

27
it decomposes into sodium oxide and sodium fumes leading to the complete gasification of
the biomass feedstock to CO, H2, CO2. The high temperature reduces the amount of
methane (CH4) too, increases the efficiency of carbon conversion and as mentioned before
cracks secondary tar, which is therefore not found in the raw gas exiting the gasifier. The
entrained flow gasifier has a substantially higher need for oxygen than other gasifiers.
Granulated slag exits from the bottom and is removed and can be used a fertilizer.

The pressurized oxygen-blown direct entrained flow gasifier can effectively be used on a
wide variety of fuels such as biomass, fossils, wastes and even animal carcasses. This wide
variety of fuels can be grinded and fed into the gasifier increasing the value of the gasifier
through the diversity of fuel usage. One of the materials that this study covers is municipal
solid waste (MSW). The pressurized oxygen-blown direct entrained flow gasifier seems
therefore to be a perfect fit for this case. Figure 5 shows a pressurized oxygen-blown direct
entrained flow gasifier.

Figure 6 – Entrained flow gasifier

The qualities of the pressurized oxygen-blown direct entrained flow gasifier in the
production of synthesis gas are:

28
  Versatile fuel usage.
 Endurance.
 Oxygen for a cleaner synthesis gas.
 High temperatures.
 Elevated pressure for shorter residence time of feedstock.
 Highest efficiency (feedstock particles smaller than 1mm).
Table 2, shows one of the gasification to liquid (GtL) unit cost breakdowns used as input
into the financial model and base for the three point cost estimate.

Table 2 - Example of cost Break down of GtL (Hamelinck & Faaij, 2001)

29
In this feasibility study, focus is set on the downdraft entrained flow gasifier with grinded
pulverized solid biomass as feedstock even though the gasifier is well adoptable to a liquid
fuel or slurry. The versatility of the gasifier is in this case the single most important
attribute while deciding upon what type of gasifier to be chosen. Since the object of the
case is to evaluate different types of feedstock. Table 3 shows the scaling of three different
gasification plants that were used as reference in the cost estimate from 2000 air-dried tons
per day down to the assumed size of plant of 300 air-dried tons per day.

Table 3 - Scaling down GtL units to apropriate size

When scaling down the gasification to liquid units the synergies of a larger plant where
accounted for by using a scaling equation shown as Equation 7 that assumes that the
relation of capital cost and the size of the plant would not be linear.

Equation 7 - Scaling equation

I = Cost for a specific plant size P.

Ik = Cost for the same plant size Pk.
x = Relation between plant with size Pk and plant of size P. (Nilsson, 2008)

The single largest investment lies in the cost of the GtL unit of the total investment cost.
Table 4 shows the total cost estimate for a scaled down 300 air-dried tons per day
gasification unit assumed in the building of the plant all numbers are in millions of 2008
EUR. The estimated cost of a GtL unit assumed in this study is € 83.05 millions.

30
 Table 4 - Estimated price of a 300 Adt/day GtL fuel unit in million €-euro

The size of 300 air-dried tons per day was determined by two factors. The potential size of
the Icelandic methanol fuel market is assumed to be around 10% of the total fuel market
and the potential yearly availability of a domestic biomass or waste of around 100.000
tons. 300 air-dried tons (Adt) per day with 95% operational efficiency gives a yearly
production of 100.000 tons. The Icelandic average usage of oil per year is around 34 PJ
converted over to methanol that would be around 2 billion litre of methanol assuming the
energy density of 17.9 MJ per litre. Assuming the availability of 100.000 tons of domestic
biomass or waste leads to around 8% total market supply or 152 million litre of methanol
or 137.000 ton of methanol with energy density of methanol assumed being 19.9 MJ per
kg.

The most important of building a gasifier in Iceland is the access to reasonably priced
renewable energy. The quality of the biomass feedstock entering the gasifier has a
substantial impact on the overall efficiency of the gasifier and thus the access to cheap
electricity largely affects the cost of the pre-treatment of grinding and drying the feedstock
as well as the production of hydrogen and oxygen. The pre-treatment has a direct effect on
the quality of the synthesis gas delivered to the synthesis island

2.4 Synthesis
After the gasification the gas cleaning, processing and synthesis take place. Synthesis of
biomass was first discovered in the beginning of the 19th century when hydrogen and
carbon monoxide was passed through an Iron, Cobalt and Nickel catalyst in the attempt to
produce methane. The synthesis island is where the raw gases are led together with
hydrogen to form the desired synthetic fuel. Catalysis of Copper and Zinc Oxide are used
in the production of methanol where the CO2 and CO is mixed with hydrogen at pressure
and temperatures from above 100 °C. The gasification process shows that the ratio of
oxygen / biomass feedstock should be around 0,4 to get the highest concentration of CO
from the biomass. Different from generating power, the calorific value of the raw gas is not

31
of importance. Rather the amount of carbon monoxide and hydrogen are the most
important factors, the higher amounts the better (Kavalov & Peteves, 2005).

2.4.1 Liquid Phase Methanol synthesis (LPMeOH)

The liquid phase methanol synthesis was first discovered in the 1970s. Where methanol is
produced by the addition of hydrogen to carbon monoxide and carbon dioxide in contact
with a suitable catalyst also known as hydrogenation, as shown in Equation 8.

Equation 8 - Hydrogenation

CO  2H 2  CH 3OH
CO2  3H 2  CH 3OH  H 2O

During the production heat is formed and has to be removed in order of prolonging the life

of the catalyst and to optimize the reaction rate. Due to this heat loss (exothermic reaction)
a reduction in molar volume exists and equilibrium is reached with a higher pressure and
lower temperature (Lee & Sardesai, 2005). The liquid phase methanol synthesis is based
on a single reaction, as shown in Equation 9, but with a three-step synthesis the potential is
to produce both methanol and Di-Methyl Ether (DME). With alterations to the
hydrogenation synthesis catalyst (Cu/ZnO/Al2O3) to a methanol dehydration catalyst (c-
Al2O3) there is an option of producing any ratio of methanol/DME ranging from 5% to
95%. The three-step synthesis is shown in Equation 9.

Equation 9 - Methanol dehydration & water gas shift reaction

2H 2  CO  CH 3OH
2CH 3OH  CH 3OCH3  H 2O
CO  H 2O  CO2  H 2

The three-step process is based on dual-catalytic synthesis in a single reactor stage, where
 and water gas shift reactions takes place over catalysts methanol
the methanol synthesis
dehydration reaction takes place over c-Al2O3 catalyst. The co-production of DME and
methanol can increase the single-stage reactor productivity by as much as 80%. High
conversions leads to less need of auxiliary equipment such as a recycle loop and thus lower
cost in energy. One of the incentives for using liquid phase methanol synthesis is that
investment cost is projected to be up to 25% (Hamelinck & Faaij, 2001) cheaper than for

32
the gas phase process and further more the operating cost is lower. This can be directly
linked to cost of electricity again supporting the Icelandic location.

2.4.2 Fischer-Tropsch synthesis

The Fischer-Tropsch process is a well-known process that has operated since before World
War II. In 1923 Fischer and Tropsch used alkalized iron in the production of a liquid
hydrocarbon. After this discovery the process of producing liquid hydrocarbons with a
metal catalyst is called the Fischer-Tropsch synthesis (Spath & Dayton, 2003). To day the
Fischer-Tropsch process is mostly used on natural gas resources in South Africa. The
reaction of CO and hydrogen are done through an Iron or Cobalt catalyst in the process of
producing a synthetic fuel or synthetic oil. The Fischer-Tropsch chemical reaction is
explained in Equation 10.

Equation 10 - Fischer-Tropsch process

nCO  (2n 1)H2 Cn H(2n 2)  nH2O

The catalyst works with rearranging the atoms of the carbons into hydrocarbons with
 atoms into alkenes or alcohols. The simplest alkenes rearranged are
2,6,10 or 18 carbon
e.g. Methane (CH4), Ethane (C2H6) and Butane (C4H10) and the simplest alcohols would
then be Methanol (CH3OH), Ethanol (C2H5OH) and Butanol (C4H9OH). Where the
original carbon monoxide and hydrogen is in this case produced through the gasification of
biomass. The Fischer-Tropsch reaction operates at temperatures of 150-300°C and at
pressure from 1 atm. to several tens of atm. (Speight, 2008). There is a direct link between
higher temperature and pressure and the velocity of reactions and level of conversion rate.

In this study the focus will be on the liquid phase methanol synthesis. The specific cost of
the gas cleaning, processing and LP methanol synthesis is based on the three GtL unit
examples is assumed 40% of the GtL process cost or € 33.22 million.

3 Biomass feedstock
The use of biomass in the generation of heat is one of the oldest forms of energy
production. It has from the dawn of mankind fuelled the progress of man. Biomass is in the

33
simplest sense a way of storing solar energy that man has today managed to turn into heat,
electricity or fuel. The solar energy is through photosynthesis stored in the chemical bond
of biomass and is unleashed through fermentation, gasification or combined heat and
power generation. Gasification with the use of oxygen in is one of the most effective ways
to harness the energy stored within biomass. Today the European Union is a world leader
in the use of biomass while US is increasing its effort in providing a better environment for
the biomass industry. Wood pellets in the US are manly used residentially where as in the
EU wood pellets are also used in for industrial use. The major economic incentive for the
use of biomass is the price of oil and gas. Interest for biomass is directly linked with the
rise and fall of oil and gas prices but due to government intervention that seems to be a
changing ground. Federal support as EU has done for decades is needed to bridge the
industrial and commercial cap in the US.

Figure 7 - Different types of biomass.

Biomass can come in different forms as shown in Figure 7. In this chapter an evaluation of
three types of biomass feedstock with the intention of producing synthesis gas will be
done. The biomass feedstock is black liquor an industrial residue, timber a forest residue
and municipal solid waste (MSW). Biomass feedstock is either primary or secondary,
where the secondary feedstock is a by-product from a primary feedstock such as timber
being primary feedstock and sawdust being secondary. In the pulp and paper industry black
liquor is a secondary feedstock, whereas municipal waste can be considered a secondary
biomass since its primary use as a commodity has been fulfilled.

34
Here the accessibility, price along with quality of the feedstock will be assessed. In the
case of biomass some of the factors that have to be assessed are:

 Land quality,
 Risk of crop,
 Harvesting,
 Field transport,
 Road transport,

The cost associated with biomass is separated into three main phases as shown in Figure 8.
The first phase has to do with work in the field where the planting, harvesting and
accumulation of biomass at one common site. The second phase is the transportation of
biomass from the field to the storage site; this includes all transportation cost such as field
transport, road transport, storage, collecting, cargo, shipping and storage while
transporting. Third phase is where the pre-treatment of drying and chipping of the biomass
takes place and the actual conversion of biomass over to liquid. Average cost of phase 1
and 2 is 5 euro per GJ of biomass and according to the same article the price of Biomass to
liquid is 16.1 Euro per GJ (Müller-Langer, Vogel, & Brauer, 2008)

Figure 8 - Biomass to liquid fuel cost.

3.1Black liquor
In the kraft pulping process, wood is converted into a wood pulp. By cooking the wood in
a solution of sodium hydroxide or sodium sulphide a solution that is usually called white
liquor, lignin is separated from the cellulose. The cellulose is then removed as pulp and
used to produce cardboard and paper, while the remaining liquid known as weak black
liquor, containing lignin and carbohydrates is concentrated to 65-80% solid. The strong

35
black liquor is then burned in a recovery boiler generating heat for the production of high-
pressure steam. The steam is used in a turbine to produce electricity through a conventional
steam-turbine process. The smelt that comes from the recovery boiler is dissolved in water
forming liquid called green liquor. The green liquor is then through chemical reactions
turned into white liquor saving the pulp mill the purchase of expensive chemicals and
closing the loop as shown in Figure 9.

Figure 9 - Flow diagram of chemical recovery in kraft pulping process (Ekbom, Lindblom, Berglin, &
Ahlvik, 2003)

Black liquor has until recently only been burned in recovery boilers. These recovery
boilers recover both the energy and the chemicals from black liquor. However the thermal
efficiency of recovery boilers is relatively low but the amount of recovered chemicals such
as green liquor, which is of great value for the pulp mills, is relatively high. Other solutions
with higher thermal efficiency, such as gasification instead of recovery boilers, have been
in development for a long time. The focus has thus over recent years shifted from recovery
boilers to gasification in combination with synthetic fuel production, as shown in Figure 10
or to drive a steam turbine in a combined-cycle plant for power production as shown in
Figure 11. Due to corrosion issues the pulp and paper industry have rather relied on the
simplicity and robustness of the recovery boiler instead of investing in the gasification
alternative.

36
Figure 10 - Black liquor gasification and fuel production (Ekbom, Lindblom, Berglin, & Ahlvik, 2003)

Since black liquor contains around half of the energy content of the wood used in the kraft
pulping process the energy that black liquor produces is around half of the energy the
adjoined paper mill needs. Energy is also recovered from other wood residuals that are not
used in the kraft pulping process but are just burned for the energy, such as bark and other
wood residues. In addition to this in the US the alternative fuel tax credit allows the paper
mills to mix black liquor with diesel oil used to generate the other half of the energy
needed thus claiming that they use an alternative fuel and this way receiving a tax credit,
which amounts to about $150 - $200 per ton of pulp, as a result there is no trading with
black liquor and little accessibility to black liquor. Where there is no market, there is no
price and after an extensive search through both interviews and literature no reference to a
current price of black liquor was found. This is probably due to the fact that the only
suppliers of black liquor are the pulp and paper industry and there is not real incentive for
the pulp and paper industry to produce a surplus of black liquor.

37
 Figure 11 - A combined-cycle generating system. (Ekbom, Lindblom, Berglin, & Ahlvik, 2003)

Table 5 shows that the largest countries in black liquor production are USA, Canada,
Sweden and Finland. The middle column shows the amount of black liquor produced in
each country. Together these countries produce over 128 million tonnes of black liquor.
The column on the right shows the potential amount of methanol that could be produce
from the black liquor. The net heating value of black liquor after the reduction of energy
used to transform the sulphate to sulphide in green liquor is 12.29 MJ/kg dry solid.
(Ekbom, Lindblom, Berglin, & Ahlvik, 2003)

Table 5 - The largest production countries of black liquor in the world

The increase in oil and gas prices over the resent years has made the option of producing
synthetic fuel through black liquor gasification an interesting alternative. The estimated
cost of synthetic fuels from black liquor gasification is at the same level as petrol and
diesel when the oil price is 35 dollars per barrel. The price will be even more competitive
when the oil price is higher. The total amount of synthetic fuel that can be made at the pulp

38
mills in Sweden corresponds to about 25% of the Swedish consumption of diesel and
petrol.(Ekbom, Lindblom, Berglin, & Ahlvik, 2003)

The price of black liquor could be estimated by other means. If we assume that that salts
are recovered and recycled back to the pulping unit then; a price calculation of the Black
liquor could perhaps be based on the value of the heat evolved for generation of steam and
electric power or simply if the black liquor energy is withdrawn for other production, the
withdrawn energy has to be replaced by burning other biomass fuels. Therefore the
assumption could be made that the cost of black liquor might be the equivalent to the price
the mill would have to pay for the amount of lost electric energy and heat production that
other wise would be produced. Another alternative to price black liquor is to assume the
difference in profitability between two alternatives, that is to say the profitability of selling
the lignin produced from black liquor or the cost of electricity purchased to supplement the
loss of energy lost by selling lignin, this depends on the electricity price and the lignin
price added the cost of CO2 for delignification. When lignin is priced to around 15
€/MW·h, increased electric production is more profitable at high electricity prices but at
low electricity prices selling lignin could generate higher profits than electric generation.
(Olsson, Axelsson, & Berntsson, 2008) Profitability of lignin is considerably lower than
for electric production at high electricity prices. If lignin is valued at a price above 25
€/MW·h, lignin is competitive with electric generation at high electricity prices. The price
ratio of lignin versus added electric generation has to be below 1.9-2.3 as shown in Figure
12 such that selling lignin is more profitable than electric generation. The price of lignin
has to be substantially more expensive than the biomass used in electric production if it is
to be profitable. (Olsson, Axelsson, & Berntsson, 2008) The assumption can therefore be
made that both the poor accessibility and the lack of current price makes black liquor not a
suitable biomass in the production of bio fuels. Other problems that have to be dealt with
are e.g. storage and transportation since the storage and transportation of 65-80% solid
black liquor has to be kept at a certain temperature. Transporting weaker black liquor could
solve the transport problem. That would on the other hand result in transportation cost that
are 4-5 times more expensive since weak black liquor would contain less solids.

39
 Figure 12 - Lignin price compared to electric price(Olsson, Axelsson, & Berntsson, 2008)

The price for black liquor that is used in the financial model is based on the lignin price
provided by Marcus Olsson giving a range from 10-25 €/MW·h. Assuming that lignin has
the heating value of 23.7 MJ/kg (6.57 MW·h/tonne), the price become 66 - 164 €/ton. The
price of black liquor has been calculated by using the three point method with the
optimistic price being 66 €/ton, pessimistic 164 €/ton and the most likely 98 €/ton these
number have been divided by 2 since the net heating value of black liquor is around 12 or
half of that of lignin. This gives black liquor the price of 65.52 /ton which has been used in
the financial model. The gas composition (Kavalov & Peteves, 2005) of black liquor after
being gasified and used in the production simulation model can be seen in Figure 6.

Table 6 - Black liquor gas composition

40
3.2 Timber
3.2.1 Icelandic timber

The Icelandic market for timber is not large and subsequently the price of timber residues
is high or ISK 8,000 - 12,000 (€ 63-94) per m3. This price is an absolute minimum for the
Icelandic forest company can cover its expenses. The price depends on how easily the trees
can be taken from the site. This again depends on the position of the site as well as weather
conditions and terrain and distance from road. In addition to this is the transport from
forest site to production site. The transportation is assumed to range between ISK 1,500-
5,000 per m3 of timber depending on the distance. One square meter of Icelandic timber
weighs around 700-900 kg depending on tree species and season of the year. Here the
average wet weight of 800 kg/m3 is used. The weight of dry timber grown in Iceland is on
average from 300 – 600 kg/m3 and depends as well on the type of tree species. The amount
Icelandic forests could provide, as a source of fuel for gasification is not more than 5,000
m3 per year or around 4,000 tons. This figure is estimated to have grown up to 100,000 m3
by 2050 or around 80,000 tons. Figure 13 shows the highest potential wood production that
can be sustainably harnessed from the Icelandic woods till the end of this century.

Figure 13 - Potential wood slash in the next 90 years, Source: Ólafur Eggertson and Arnór Snorrason
from Mógilsá.

41
Here the X-axis represents years and the Y-axis amount in metric cubes (m3) of
sustainably harnessed timber. The reality is probably lower all depending on the price of
timber. The numbers on the Y-axis are numbers in m3, the more volatile line is showing
yearly numbers while the more stable line shows an 5 year accumulated average. The jump
around year 2080 shows when the first farmers plantings are due in tree felling. High price
and low supply rule out the use of Icelandic timber as a potential feedstock for the
gasification. It is therefore evident that Icelandic forestry residues will not in the near
future be able to support even a small-scale gasifier as suggested in this study.

3.2.2 International timber

Timber has at the present time a large potential in being a good feedstock for the
production of a bio fuel and therefore the import of timber as a feedstock will be
considered. Timber comes in various sizes and shapes and has been through the years one
of the most stable sources of feedstock available for energy production. The International
Energy Agency has set up a database of different compositions of wood and wood residues
that are used as fuels today. There is almost unlimited availability of international wood
based fuel, which is the opposite to black liquor, the market is active providing good
information about the price of wood in €/GJ. In this study information made available by
the European Biomass Industry Association (EUBIA) as shown in Table 7 is used for price
comparison.

Table 7 - Average price of tradable biomass within EU-15 (EUBIA, 2007)

Table 7 shows the prices € per GJ of wood fuels (4.3 €/GJ) and dry agricultural residues (3
€/GJ), these prices are used to represent the prices of sawdust and organic matter used in
the financial model. In order to establish the heating value of sawdust and organic matter
the International Energy Agency biomass database was used and here the median of the
gross calorific value was used. For sawdust the database gives the median gross calorific
value of 19,271 kJ/Kg. For organic matter a fuel type called “mixed sample” was used with

42
the median gross calorific value of 17,260 kJ/Kg. It is then assumed that the moisture
content of sawdust is 20% and that the mixed sample is green wood with a 50% moisture
content, which lowers the gross calorific value by 20% and 50%. This results in the price
of sawdust being most likely 66.29 €/ton and organic matter 25.89 €/ton.

Using timber as biomass feedstock has many good qualities such as great accessibility, low
price and an established transportation system. No substantial obstacles have been seen in
the use of international timber as a feedstock for synthesis fuel production in Iceland. The
only problems one could encounter are import barriers, which will be addressed in chapter
4. The gas composition of sawdust, (Jinsong, et al., 2009) organic matter (Kavalov &
Peteves, 2005) and wood (Gunnarsson, 1998) that was used in the production simulation is
shown in Table 8. These gas compositions along with the cost estimates shown in Table 9
where the basis for the production and feasibility calculations for sawdust, organic matter
and domestic timber in the financial report.

Table 8 - Gas composition of sawdust, organic matter and wood.

Table 9 - Price of wood based biomass.

43
3.3Municipal Solid Waste
In Iceland much of the MSW is sorted and exported in large quantities abroad. Recyclable
waste such as plastic bottles and aluminium cans are mostly shipped to the Netherlands and
to North America. Birgir Kristjánsson, manager of The environment department of the
Icelandic Container Company (ICC) claims that it is a fair estimate that waste from
households in Iceland is around 210-230 kg per inhabitant per year and that the total
amount of MSW including waste from commercial, industrial and institutional sources
amounts to 1000 kg per inhabitant per year. According The Environment and Food Agency
of Iceland (UST) 2005 the total amount of MSW that was land filled in the year 2002 was
150.000 tons or 525 kg/capita(Kamsma & Meyles, 2005). The population of Iceland has
since 2002 surpassed 300.000 and it is therefore fair to say that the amount landfill today is
close to 160.000 tons. The price of MSW is as of today subsidized with € 110 per ton.
Companies are being paid for the removal and disposal of waste. Therefore one can
assume that the price of MSW used as feedstock for gasification lies in the cost of the pre-
treatment and the sorting of the waste into different feedstock e.g. papers, plastics, metals,
glass and so on. According to The Environment Agency of Iceland there are today 45
places in all parts of Iceland that collect MSW and either incinerate or use landfills as a
way of disposing MSW as shown in Figure 14.

Figure 14 – MSW treatment facilities in Iceland(Kamsma & Meyles, 2005)

44
The disposal of MSW is a global waste problem. Landfills pose a threat to the nature and
the inhabitants of the surrounding areas with groundwater contamination and methane gas
pollution. Around the world millions of tons of MSW are being landfilled per year
providing communal long-term problems. Instead of landfilling the production of heat
from MSW could provide electricity through steam turbines or directly as house heating. A
rough assumption can be made that 6 tons of MSW equals 4 MW·h (Halldórsdóttir, 2006)
of electricity made from a conventional MSW incineration this means that if we would
only take what is used for land fill in Iceland 160/6= 26.7 x 4 = 106.8 MW·h of electricity
could be saved. This has partly been done in the Westman Islands and in the region of
Húsavík in the North East part of Iceland. MSW is not the only waste that can be used as
fuel, other examples of waste feedstock that can also be used to fuel the process are shown
in Table 10. This variety of waste can be used as carbon feedstock in gasification and thus
help solving existing environmental problems by producing valuable energy resources and
providing a cost efficient way of waste disposal. The pre-treatment of waste will result in a
homogeneous carbon based feedstock that can be further processed into raw gas.

Table 10 – Potential waste feedstock

Using waste as feedstock does not only provide the community with a local solution for
waste management, it is also an alternative step towards the fulfilment of EU directive
1999/31/EC which Iceland is compelled to enforce. The directive focuses on the negative
impact of landfill of waste and formulates a standard procedure for the mitigation of effects
on the environment. In the directive it states that all landfill must be categorized in three
groups of chemically inactive, non-hazardous and hazardous waste. The directive also
states that all waste shall be treated before landfill. The directive gives the opportunity to
further categorize and process MSW e.g. with gasification. (The council of the European
Union, 1999)

45
SORPA has over the years kept yearly record of the composition of mixed household
waste Figure 15 shows the composition of the household waste over a 4 year period from
1999-2003, it shows that over half of the waste from Icelandic households is either garden,
food, wood, paper or cardboard. This can easily be used as a feedstock without substantial
sorting to produce a quality raw gas.

Figure 15 - Icelandic mixed household waste composition from 1999-2003(Kamsma & Meyles, 2005)

The raw gas that is created in the gasifier from MSW can be burned without further
processing. However the amounts of contaminants are high and therefore the producer gas
would need to be cleaned before burning. Since these contaminants already need to be
cleaned it is assumed that it would add more value to the process if the raw gas would be
converted to FT liquids or diesel. The use of MSW as fuel for gasification is well known
and a matured technology. The amount that can be gasified ranges from 2 tons per day up
to over 2500 tons and is therefore well adjustable to the size of the feedstock available in
Iceland. Icelandic municipalities use a considerable amount of their tax income in paying
for the disposal of waste through private or public companies. These companies then sort
and dispose the MSW with the use of landfill or incineration as previously shown in figure
14. The cost estimate for MSW used in the financial model is therefore based on the
assumption that waste is an expense for municipalities. Estimates were plugged into a three
point estimate where the most likely value was zero - 0 €/ton the most optimistic was 7.85
€/ton and the pessimistic value was 1.96 €/ton this resulted in a price per ton estimate of

46
1.71 €/ton of MSW that was used in the financial model as shown in Table 11 - MSW cost
estimate. The gas composition of MSW in this case is as shown in Table 12 - MSW gas
composition and mol weight.

Table 11 - MSW cost estimate.

Table 12 - MSW gas composition and mol weight.

47
4 Biomass import.

4.1 Taxes on biomass imports in Iceland.

When importing biomass of any kind into Iceland an import tax has to be paid. The
Directorate of Customs has thoroughly divided all goods into 21 sections with numerous
subchapters. After examining these sections and chapters the most likely chapter that
applies to the import of black liquor would be section VI, chapter 38, sub chapter 04
(3804.0000) addressing the import of residual lye from the manufacture of wood pulp.
Addressing timber section IX does this and chapter 44 and subchapter 03.20 (4403.2000)
go even further. Addressing unprocessed wood or roughly beheaded. Since the import of
biomass into Iceland as a feedstock has never been done before, the only thing available
for comparison are plant import such as trees or other plants that have been imported to
Iceland over the years. Each and every product is register under a certain tax number thus
determining the category of tax the product falls in and the taxes that will be demanded. A
24.5% VAT is demanded on timber, sawdust and black liquor. MSW is domestic and
therefore it is assumed that no VAT is charged.

There is also the issue of import restrictions due to plant disease prevention and no
biomass can be imported unless thoroughly examined for diseases and carrying a bill of
health. There is always the risk of plant diseases in the imported biomass that can be of
danger to existing Icelandic plants and animals. Protocol nr 416/2002 covers about
precautions against the import of infected plants and animals where it states a ban against
the import of hay, grass, root mass, fertilizers for animals and turf (paragraph 3, section G).
Even though there is not a direct ban on the import of black liquor it can be assumed that
the temperatures which black liquor is produced at and the chemicals used in the process
have effectively disinfected the black liquor and therefore it is safe to import. There is
however a restriction in the import of green liquor as it is categorized according to
paragraph 184/2002 as hazardous waste from the production of paper or paper mass. This
means that black liquor could be categorized along with the green liquor as hazardous
waste. This would complicate severely the import since very strict rules apply for the
import of hazardous waste. ( The Icelandic Ministry for the Environment, 2002)

48
Plant biomass such as imports of trees and dry agricultural residues might be submitted to
some restrictions. According to protocol nr 189/1990 on the import and export of plants
and plant products it is stated that a ban to the import of soil, composted soil, unprocessed
or cut tree bark and farm animal fertilizers (paragraph 4) as well as in the appendix III it
further states a ban to the import of living plants with bark such as Populous (Populous),
Birch (Betula), Willow (Salix), Pine (Pinus), and other coniferous or softwood trees.
Sawdust however and other bark free products are already being imported for stables and
therefore should not pose a problem. In the case of importing biomass such as grass and
hey that has been in contact with farm animals the approval of the Icelandic Food and
Veterinary Authority (MAST) is needed. A bill of health is therefore needed in the import
of all imported biomass with the exception of bark free wood, whether the intention is to
further cultivation or just for Christmas decoration. The assumption can therefore be made
that the import of biomass with the exception of bark free wood in any form will have to be
accompanied by a bill of health even though the sole purpose of the import is gasification.

49
5 Fuel Markets
The Icelandic fuel market consist today of five fuel types, gasoline, diesel, electricity,
methane and hydrogen. Due to high fossil fuel prices, alternative fuels have been entering
the Icelandic markets over the last years. These alternative fuels all have in common that
they are today being produced from domestic resources, the electricity as well as the
hydrogen comes from Icelandic hydro and geothermal plants. The methane comes from
extracted natural gases from the SORPA landfills just out side Reykjavik. To day the
alternative fuel market in Iceland is rather limited this is manly due to few filling stations
and the lack of government support in import of alternative or flexible fuel vehicles. Since
both electric cars and gas cars are not based on a liquid fuel their energy storage and
energy utilization are somewhat different from the regular SI motors. Synthetic fuels like
methanol is different to the other alternative fuels offered to the Icelandic market due to the
ability of utilizing the existing fossil fuel infrastructure. The highest value of produced
liquid methanol fuel is assumed to be for domestic use. Therefore a more detailed look will
be taken into the domestic market.

5.1 Fuel taxes in Iceland.

The government taxes on fuels have often been criticized for being to high in Iceland
compared to our fellow Nordic countries. On each litre of lead free gasoline there is a
government tax that amounts to 42,23 ISK. This amount has been unchanged since 2003
but is at percent up for revision where as the implementation of a carbon tax is being
discussed. The amount of 42,23 is divided into two sections where the larger part or 32,95
is earmarked The Icelandic Road Administration (ICERA) and the rest runs directly to the
government as a tax. (Finance, 2008) In Table 13 and Table 14 the price from pump of
both unleaded gasoline and diesel have been illustrated with the addition of the proposed
carbon tax. The pump price is the pump price of both unleaded gasoline and diesel on the
day that the calculations where made plus the additional carbon tax. The price of unleaded
gasoline being 185,6 ISK that day, then adding the carbon tax of 2,60 ISK results in a
pump price of 188,2.

50
 Table 13 - Domestic taxes ISK on gasoline

Further calculation have been made to strip the gasoline of its taxes in order to find a
realistic price in EUR that might give a view on what the price for domestic sale of
renewable methanol to the retailer might look like. This is done by calculating the price per
mega joule (MJ) in one litre of gasoline and then multiplying the price with the amount of
MJ per kg of methanol. This is done because all calculations in the financial model are
based on weight in grams and also to compare the domestic selling price of the renewable
methanol with the price of exported renewable methanol. The average exchange rate of
2008 ISK/EUR 127.46 has been used to convert over to Euros and adjusted for inflation
resulting in a price of EUR 459.4 per ton renewable methanol. This means that even
though the calculations in the financial model are based on a renewable methanol price of
EUR 350.64 per ton the price for domestic sales of renewable methanol could go as high as
EUR 459.4 per ton.

51
 Table 14 – Domestic taxes in ISK on Diesel

The taxation on fuels today as mentioned before is based on taxes for ICERA and the
Icelandic government. They are not based on environmental issues and therefore we are
bound to see some changes in taxes as more and more vehicles use alternative fuels. As of
today alternative fuels are not taxed in Iceland and therefore the assumption can be made
that even higher earnings can be received per ton on the domestic market. The price used
in the financial model is a price to the retailer and not to the consumer and therefore price
before taxation is assumed.
By adding the resent carbon tax of 2,6 ISK on gasoline and 2,9 (The Icelandic Parlament,
2009)on oil such as diesel Iceland is following the lead of the other Nordic countries that
have already implemented carbon taxation. In Table 13 and Table 15 the tax share is quite
similar in the Nordic countries apart from Iceland but the then again the prices less all
taxes is much higher as well. The carbon tax comes in the form of an environmental tax
much in the same spirit as the other Nordic countries and would only is subjected to the
carbon content of fossil fuels. The price of the tax will have a strong relation to the trading
price of CO2 emissions. As shown in Table 15, CO2 emissions per litre of diesel are higher
than of motor gasoline, explaining the reasons for the tax being higher on diesel.

52
According to Table 15 there is a 12,68% higher amount of CO2 per litre of diesel fuel that
is not in relation with the difference of 10,34% between the gasoline tax of ISK 2,6 and the
diesel tax of ISK 2,9. However if the energy content of the fuels is taken into account the
difference is only 10,6%. The carbon tax does cover fuels for ships and airplanes and
rightfully should since it is estimated that two thirds of the CO2 emissions from transport
come from these two industries.

Table 15 - Carbon dioxide per liter

5.2 Methanol fuel potential in Iceland

The Icelandic potential in methanol production is yet to be discovered and could in the
future need better mapping. But methanol has great potential in Iceland in becoming one of
the alternative energy resources, why methanol? Methanol is also known as wood fuel, it is
colourless and tasteless but has a sweet smell and is extremely poisonous where only 10 ml
can blind a person and 100 ml is lethal when digested. A three-year research done by Dr.
Kurian Pan, Chinese academy of sciences concluded that methanol is safer than petrol. Not
only has methanol been proven safer but also the public perception towards methanol is
better that towards e.g. hydrogen. The benefit lies furthermore in the reduction of CO2,
and lowering the import of oil, supporting both the Icelandic economy and domestic
production of methanol right now without large changes to the fuel infrastructure. The
average Icelandic consumption of oil between the years 2001 and to a predicted
consumption of year 2050 is 812 thousand tones per year. This makes out 33.98 PJ. This is
the total consumption of airplanes, cars, trucks, fishing vessels and transportation vessels.
According to predictions from the Icelandic energy council the amount of oil used for cars
and trucks is around 300 thousand tons.

Methanol is the simplest alcohol containing only 1 carbon atom with an octane rating of
106. Methanol, if blended into gasoline it will not only improve the fuel economy and
acceleration but also decrease carbon emissions through improved combustion
characteristics of the fuel blend. As a result of technological advances, most vehicles
currently in circulation in the European union are capable of using a low bio-fuel blend

53
without any problem. The most recent technological developments make it possible to use
higher percentages of bio-fuel in the blend. Some countries are already using bio-fuel
blends of 10% and higher. Blending domestically produced methanol into fuel has large
potential in Iceland; flex-fuel vehicles are able to run on any range of methanol and
gasoline providing a cleaner burn. Most of the known methanol fuels are M-5, M-10 and
M-85 giving the proportions of methanol that has been added into the gasoline respectively
5%, 10% and 85%.

The price of biomass fuels is subject to domestic political decisions regarding

environmental or preferential taxes, subsidies, or trade with emissions quotas. For example
in Sweden, where a tax of fossil carbon dioxide was introduced in the early nineties, which
lead to a rapid increase in the use of wood pellets as a fuel. Sweden also has a system
based on green electrical certificates, which give the producer of electricity from
renewable fuels, a green certificate for every produced MW·h of energy. These certificates
can later be sold on the market and the price has fluctuated around 20 EUR/certificate for
the last five years. (Nilsson, 2008)

The low price of oil has until recently; set a barrier for the production of alternative cars. In
the last few years increasing prices of gasoline and oil have made research for other
alternative fuels more feasible from the economic point of view. The recent fall of the
Icelandic krona supports the potential Icelandic methanol fuel economy and the current
trade balance.

54
6 Economic evaluation
When working on the economic evaluation two sets of models have been constructed. The
first is a mole balance model and it is constructed in order to of simulate the biomass
gasification process for the production of methanol, and get an overview of the material
streams within the process, feedstock and products. First the gas composition is estimated
on the basis of literature. The gas composition of sawdust is based on Biomass–oxygen
gasification in a high-temperature entrained-flow gasifier (Jinsong, et al., 2009), black
liquor and organic matter is based on from Status and perspectives of biomass-to-liquid
fuels in the European Union (Kavalov & Peteves, 2005). The composition of gasified
waste is from Characteristics of oxygen-blown gasification for combustible waste in a
fixed-bed gasifier (Na, Park, Kim, Lee, & Kim, 2003) and wood is from the use of domestic
energy sources in the production of liquid fuel (Gunnarsson, 1998). All Gas compositions
are shown in Table 16 where the molar mass has been calculated from the percentage of
the gas composition. In the case of the waste, to take an example, the gas composition is
16% Hydrogen, 43% Carbon monoxide, 29% Carbon dioxide and 12% Methane.

Table 16 - Gas compostion and mol weight of selected biomass from the P-EFG-O2.

Multiplying these percentages with the molar mass of H2 (2.016 g), CO (28.010 g), CO2
(44.010 g), CH4 (16.043 g) gives the weight of one gas mol for each feedstock, for waste
27.055 grams per mol. The mol weight is then divided into the total amount of feedstock in
this simulation the total amount of feedstock is 147.000.000 kg where 105.000.000 kg are
biomass feedstock and 42.000.000 kg are oxygen feedstock. The mol weight of e.g. waste
being 27.055 grams per mol and divided into the total feedstock, with the composition as
earlier stated resulting in a categorization as shown in Table 17 presented in Kilo mol or
thousands of moles. This was also done with the other biomass feedstock, sawdust, black
liquor, timber and organic matter.

55
 Table 17 - Waste gas composition in precentage and in kilo mols.

The amount of produced carbon monoxide, carbon dioxide and hydrogen is now known
and from each biomass feedstock the amount of methanol produced can be calculated
given the assumption that the ratio of carbon monoxide and hydrogen was 1/2 and the ratio
of carbon dioxide and hydrogen was 1/3. Table 16 shows us the total methanol production
in kilos, joules and in litres. The total production for each feedstock is close to 150.000.000
litres as shown in Table 18, therefore the assumption has been made in the financial model
to use 150.000.000 as starting production the first two years followed by an assumed 25%
increase in year 3 and an assumed 20% increase in year 4 reaching 250.000.000 litres and
staying constant for the rest of the financial model, which is around 175.000 tons of
biomass gasified.

56
 Table 18 - Total methanol produced in liters.

Knowing the production of carbon monoxide, carbon dioxide and hydrogen level from the
gasification gives the opportunity to calculate how much additional hydrogen is needed to
balance the methanol production. This additional hydrogen shows us how much water and
electricity is needed in order to produce the additional hydrogen and the cost that is
associated with this production. Table 19 shows the variable cost breakdown of the price
per ton of different feedstock as mentioned in specified chapters and the costs for the
feedstock that is imported but as well for the national transportation cost of the domestic
feedstock. The cost of energy and the cost of water of base production and the additional
cost resulting in a total estimated variable cost per feedstock e.g. MSW with a total cost
estimation of €182.76 per ton.

Table 19 - Variable cost break down.

The cost of producing methanol is calculated by the total annual cost of the investment
divided by the amount of methanol produced in tons. The annual cost of the investment
consists of:

57
  O&M,
 The price of feedstock,
 The price of delivery
 The price of electricity,
 The price of water supplied.
The total annual cost of investment is calculated by an estimation, based on knowledge of
the cost of major items of equipment as found in literature. The uncertainty range is
therefore considerable but with the use of 3point PERT analysis shown in Table 20 of
such estimates the effort was made to keep the estimates close to the actual cost. The
installed investment costs for the separate GtL units are added up to one sum. The same
has been done with the investment costs for electrolysis unit as well as cost of land and
design. The unit investments depend on the size of the components by scaling from known
scales in literature (see Table 3), using Equation 7 - Scaling equation.

Table 20 – 3Point PERT analysis

According to the first model the production is simulated based on the assumption that
oxygen and biomass are fed in to the gasifier at a certain ratio producing 150.000.000 litres
of methanol. The second model is a financial model used to evaluate the profitability of
the investment based on the results of the production model. This model consists of cost
analysis of the installation of gasification to liquid fuel system, but also the cost of
electrolysers to be installed and other costs such as land, design and insurance. As
mentioned in chapter 2.1 cost estimates from three different gasification units based on
literature were used as a base for the cost analysis. All cost were and converted to Euros

58
2008 and then scaled down to 300 air dried ton (Adt/d), this cost was the added into three
point estimate in order to get the most accurate cost assumptions.

6.1 Other assumptions

Other financial assumptions have been made to the base case financial model and have
been presented in previous chapters, they are. The investment cost of electrolyser € 82.21
million, gasification to liquid fuel system € 83.05 million and other costs € 2.77 million.
Working capital was assumed 20% of investment cost. Since the investment is long-term it
is financed with 20% equity and 80% FX loan, which is according to Árni Magnússon,
director of sustainable energy at Íslandsbanki, reasonable in normal capital market
conditions. However, the current capital market condition would probably demand for a
higher equity ratio of 30/70 or even 40/60. The lifetime of the loan stretches over 20 years,
bearing 10% nominal interests and a 15% return on equity. The tax rate has been decided
18% and the weighted average cost of capital (WACC) is therefore 9.56% and is used as
discount rate. The sales price has a reference to the European market price and has been
assumed € 350.64 per ton based on a 3 point calculation from a median price from
Methanex of € 321.17 per ton (http://www.methanex.com/products/ methanolprice.html)
plus an assumed subsidy in the form of government certificates and tax reductions. The
sales price increases between years with 2%, which is assumed inflation in the EU, and
Iceland. The variable cost depends on the feedstock used as mentioned earlier in table 16
and does not increase with inflation due to assumed better production efficiencies between
years. Other assumptions that have been made in this simulation are that there is a
possibility of scaling down the gasifier and that the gases produced are homogenous and do
not deflect from the composition presented.

6.2 Investment calculations

When using the above-mentioned assumptions for income that is the sales price of 350.64
and cost with the different variable costs based on sole production of methanol for the
Icelandic market Scenario 1 was created as shown in Table 21. It shows that municipal
solid waste (MSW) is the case winner and gives the highest NPV or € 16.04 million.
Domestic timber and imported sawdust, organic matter and black liquor show all negative
NPV but organic matter shows a small 3% internal rate of return. Thus Sawdust, black

59
liquor, organic matter and timber will not be discussed any further and the emphasis will
be on dismantling the MSW.

Table 21 - Value of investment

Looking closer at the MSW we see that the variable cost is the largest cost factor with 49%
of the total cost. Followed by the company cash and operations & maintenance cost this is
shown in Figure 16. It can be assumed that the variable costs are mostly paid in ISK while
the paid dividend, repayment of loan, paid interests and O&M cost are mostly costs mostly
paid in foreign currency. The assumption can therefore be made that the investment is
naturally well hedged against currency fluctuations.

Figure 16 – MSW cost analysis.

The MSW debt service coverage in Figure 17 shows that it takes around 3 years for the
investment to meet its debt obligations. After these three years and if there is no other debt
the investment has the strength to service its debts. This ratio also tells us that the

60
investment is generating enough cash to support higher debt ratio and that the investment
should be able to get good access to capital.

Figure 17 – MSW debt service coverage

Figure 18 shows the value of the investment. The NPV of total CF breaks zero after 27
years where it has repaid the initial investment and ends as earlier mentioned with a
positive NPV of € 16 million. The positive NVP is an indication that the investment is
feasible and that it is an investment worth continuing. The NVP consist of future cash
flows that have been discounted back to present time and is therefore a good indication of
the value of the investment and an indication of a selling price.

61
 Figure 18 - MSW net present value.

For this investment there is a discount rate of 9.56 based on a calculated weighted average
cost of capital as shown in Figure 19.

Figure 19 – WACC

Figure 20 shows ROE, the return on shareholders equity shows how well the investment
generates profit from the equity put into the investment. The general trend is that capital-
intensive investments have low ROE. The ROIC shows the efficient allocation of the
company funds in cash flow generating investments this along with the current ratio, which
shows the company ability to meet its short-term debt is a good way of evaluating the
quality and the liquidity of the investment.

62
 Figure 20 – ROE, ROIC and Current ratio

In Figure 21 the sensitivity of the investment has been calculated as if the discount rate had
either dropped by 50% or been raised by 50%. It shows that the investment with all other
parameters unchanged can with stand increases in the discount rate up by 20% to 11.5%. It
also shows that if the discount rate would drop by 50% down to 4.6% the value of the
investment would grow to € 84.8 million. It also shows that there is an exponential
function between the discount rate and the NPV.

63
 Figure 21 - Sensitivity of investment according to discount rate

In Figure 22 the sensitivity of the investment has been calculated as if the nominal interest
rate of the loan has been lowered by 50% or been raised by 50%. It shows that the
investment with all other parameters unchanged is vulnerable towards an increase in
interest rates. A 10% nominal interest as assumed in the financial model, this is on the
other hand quite high. It can therefore be assumed that interests are likely to drop resulting
in a more positive NVP as shown. A 1% lower nominal interest rate the value of the
investment would grow to € 31.6 million.

64
 Figure 22 – Sensitivity of investment to the nominal interest rate of loan.

Figure 23 shows the sensitivity of the investment towards price and it is clear that the
sensitivity is very high. A 10% lower sales price to € 316 per ton methanol will result in a
negative NVP of € -45.3 million. An increase to the price of 10% to € 386 per ton
methanol will increase the value of the investment by almost € 60 million to € 75.9 million.
It is clear that the highest sensitivity is towards the sales price of the methanol and
therefore holding the largest risk factor in the project.

Figure 23 - Sensitivity of investment according to price of sold methanol

65
Figure 24 shows that a 10% higher variable cost will result in a negative NVP of € -13.8
million. It is therefore fair to assume that the additional cost of exporting the fuel to the EU
would not be profitable in this case assuming the sales price of around € 350 per ton
renewable methanol. It also shows that there is no investment opportunity where VC is €
193 per ton, meaning that with all other assumptions kept unchanged the biomass cost
indifferent to what kind of biomass or if it is domestic or imported can not surpass the cost
of € 193 per ton in order for the investment to stay profitable with a sales price of € 350
per ton renewable methanol.

Figure 24 - Sensitivity of investment according to variable cost

66
7 Further considerations
The future does not lie in the sole use of fossil fuels for public transportation. The use of
alternative fuels is gaining ground and to day there are around 100 cars on Icelandic roads
using methane and over 20 cars using hydrogen.

In this research different biomass feedstock have been evaluated with the intention of
analyzing their financial feasibility. This biomass source can come from other organic
matter, waste, coal or biogas just to name a few. Further studies could be done on what
would be the most appropriate biomass for the Icelandic market. Even though the ultimate
goal is to have a nation that is driving on 100% renewable fuel the path toward this will be
taken in steps. One of the steps that can be taken towards CO2 reduction is to blend
methanol with existing gasoline thus no swift changes need to be made to the Icelandic car
fleet. Further studies will be needed into how we are to meet the targets set by the EU.

Selling electric energy through cable to the Faroe Islands or even all the way to Scotland.
The Nor-Ned project done by the Norwegian and Dutch electric companies connecting
Norway and The Netherland with a 700 MW electric cable has given some hope that in the
future Iceland can be a net exporter of energy to Europe. To day the Icelandic government
has been very keen on making deals with aluminium companies selling the electricity for a
low price stating that this way we are able to export the surplus Icelandic energy without
building cables. Alumina is simply imported to Iceland and aluminium is exported. This
large production of aluminium has given Iceland bad publicity and a lot of heated debates
have sprung between in favour of aluminium smelters and those how support heavy
industry and those against. Further studies need to be made on the feasibility of exporting
energy as liquid hydrogen or methanol. This would not only give a positive environmental
image of the Icelandic people but might be a step towards fuel independency.

Methanol has already proven that it can be one of the floras of alternative fuels offered to
the consumer. The need for alternative fuels is greater than the potential competition
between the electric car and the methanol fuel. Methanol might be a better substitute than
electricity to the long distance transport, boats or airplanes but electricity a better fuel
substitute than methanol to the short distance inner city transportation. The future will most
certainly not rely on one dominant fuel but the utilization of different fuel all depending on

67
the purpose. Adding to the gasification to liquid fuel process the value of an alternative
waste management has not been done. Further work can be done into the assessment of the
actual value of using MSW as feedstock for gasification.

Plasma gasification has not been mentioned here for the simple reason that the focus of this
thesis was to provide a viable solution with established technology and well-known
methods. Further considerations are to analyse in greater detail the real cost of biomass
import, and if it is feasible to import biomass for gasification in the co-production of
methanol with CRI geothermal CO2 sequestration and methanol production. Other options
could be to look into the feasibility of biomass gasification without synthetic fuel
production. The largest costs are in the electrolysis and raw gas cleaning and processing.
Would it be more profitable to just produce LPG from the raw gas? These are
considerations that are open to more research in the area of gasification in Iceland. My
conclusion is that building of a small gasifier here in Iceland is of great interest both in the
field of waste management, fuel production and potentially a very good investment.

68
8 Results & Conclusion
Gasification is a well-mastered technology to day, which offers multiple options in energy
production both through heat and through the production of synthetic fuels. The recycling
of carbon, hydrogen and methane into fuels to drive our vehicles is another way of
harnessing the energy of the sun. Combining carbons from gasification with renewable
hydrogen in the production of liquid methanol is also a way of energy storage. Better use
of the harnessed energy from the Icelandic renewable resources can be done with better use
of the stranded or off peak energy. Even though the cities go to sleep, the river still flows,
heat keeps boiling underneath our feet, and the steam still blows. This stranded energy can
be used in the production of renewable hydrogen. Even though the use of hydrogen has not
come as far as other alternative vehicle fuels the need for hydrogen in the gasification to
liquid process is still viable as an option to off peak energy storage.

This feasibility study was initially targeted to find an alternative use of the electric energy
produced from the vast renewable energy resources Iceland possesses. An alternative that
could provide a renewable utilization to the energy that is today sold at a relatively
reasonable price to industries such as the aluminium smelters. The first idea was initially
based on the same financial concept as the aluminium smelters that is the import of a good
in this case biomass instead of Alumina and the use of the low cost electric energy to add
further value to the production of biomass to fuel. Much like the Alumina is turned into
Aluminium with electrolysis the intention was to use water electrolysis to produce oxygen
and hydrogen for use in the gasification of biomass in the production of a liquid fuel. The
conclusion of this feasibility study now shows that it can be feasible to utilize the low price
of electric energy that is ready and available in Iceland in the production of renewable
methanol. As shown in Figure 25 around 40-80% of the biomass to methanol process
expenses in this feasibility study is in the electrolysis of water in the production of oxygen
and hydrogen. These numbers do not include the energy needed in the pre-treatment of the
biomass such as the drying and grinding. The feasibility study shows that with an
investment of almost € 170 million and a sales price of € 350 per ton the biomass variable
cost may not surpass € 193 per ton to make the venture feasible. Adding the assumed cost
of import/export of € 37 per ton to the biomass variable cost the renewable methanol sales
price would have to be over € 420 per ton in order for the investment to be profitable. If the
price of MSW would be subsidized with municipal taxes of € 110 per ton such as it is in

69
Iceland with MSW, reducing the variable cost to € 109 the renewable methanol sales price
would have to be over € 272 for the investment to be profitable.

Figure 25 - Cost composition of biomass feedstock

Can the use of stranded or off-peak renewable electricity produced from Icelandic hydro
plants lead to a feasible investment in the biomass gasification to liquid fuel production
process in Iceland? The answer is positive, with the substantial need of electrolysis of
water producing renewable hydrogen and oxygen in the production makes Iceland an
attractive option.

The results show that from the five biomass feedstock options that were used in this
feasibility study, that it is only feasible to use domestic MSW as biomass feedstock in the
production of methanol. This is manly due to the low variable cost of the MSW but also du
to lower transport cost and no VAT. Not only will the use of MSW provides us with a
domestic fuel production but also adds an additional solution to the problem of waste
management. However this is not a short-term investment and even though the invest does
show a small profit after 5 years it does not have a positive NPV until after 27 operating
years. The conclusion of this study is that MSW gasification to liquid fuel production is
feasible in Iceland but the import of biomass such as black liquor or sawdust to Iceland

70
with the intention of GtL is not feasible unless the total cost of the biomass imported is
below € 193 per ton. In addition a higher price could possibly be obtained if the methanol
produced would not be exported but sold in the domestic fuel market. An investment of
almost € 200 million is a long-term investment that would need government subsidies to be
more attractive as an investment. Relatively reasonable price of renewable electric power
in Iceland makes Iceland an ideal location for the production of energy intensive products
such hydrogen much needed in the liquid fuels through gasification process.

This M.Sc. thesis has evaluated the feasibility of building an Icelandic gasification plant
with pre-treatment, gas cleaning unit and synthesis island with the intention of producing
and selling a renewable liquid fuel in Iceland.

71
72
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