Swedish Government Programmme for Biomass Boiler Conversions in the Baltic States
Eric Martinot, Stockholm Environment Institute--Boston,
11 Arlington St., Boston, MA 02116 ; martinot@seib.org

Keywords: Baltic States, district heating, biomass, capacity building, developed country to countries-in-transition (CEITs)

Summary
Technology for utilising local biomass fuels in the Baltic States was transferred from Swedish firms to local Baltic heating enterprises. The projects were considered highly viable from an economic and financial perspective. In addition to providing financing and risk-reduction mechanisms, Sweden provided capacity building that emphasized new managerial and financial skills that did not exist in the formerly planned economies. Joint ventures in the host countries were established.

Background
In 1993, the Swedish government, through the agency NUTEK (Swedish National Board for Industrial and Technical Development) began a programme to assist district-heat-supply companies in the Baltic region (Northwest Russia, Poland, Estonia, Latvia, and Lithuania) to convert coal-fired and oil-fired heating boilers to burn local biomass fuels. The technology is well-proven, having been used at 4,000 sites in Sweden and in several other countries over 25 years. The technology is compatible with many of the small boilers used in the Baltics, an important factor for the viability of the programme. One programme goal was to reduce CO2, SO2, and NOx emissions on a sustainable basis through cost-effective projects. Another goal was to encourage partnerships between Swedish and Baltic commercial firms and promote technology transfer of boiler conversion technology to the Baltic firms.

Approach
The programme was designed to overcome key barriers to technology transfer: lack of financing, project performance risks, unavailability of the technology in the Baltics, lack of understanding by boiler owners of the feasibility and economic benefits of the technology, missing management skills, and lack of financial analysis and competitive-bidding procurement capabilities.

NUTEK administered financing of the boiler conversion projects with 10-year loans at 7-8% interest and a three-year grace period. NUTEK reduced project performance risk associated with future biomass fuel prices by guaranteeing a 15% minimum fuel-cost reduction independent of relative biomass and oil prices. NUTEK provided technical assistance, in the form of local consultants able to speak the local languages, for understanding the technical feasibility and economic benefits of the boiler conversions. NUTEK staff also provided technical assistance to boiler owners for issuing tenders, evaluating bids, selecting suppliers, negotiating biofuels supply contracts, and operating the converted boilers. Boiler owners were responsible for making decisions and applying for participation in the programme, and awarding equipment bids. They are also responsible for repaying the loan to the Swedish government. Almost SEK 300 million was spent on the programme, mostly as loans.

To encourage joint ventures between Swedish and Baltic companies, the programme encouraged foreign firms to have a local Baltic partner when bidding on the projects, and to include local suppliers and service firms whenever possible.

Impacts
The first conversion, a 6 MW boiler in Estonia, was completed in 1993 in a six-month period. By 1997, about 30 boiler conversion projects had been completed. These projects were considered highly viable from an economic and financial perspective, with simple payback times of about 3 to 6 years at the beginning of the programme. As the prices of biomass fuels increased over time relative to conventional fuels, payback times increased but remained attractive.

The programme has been successful in promoting technology transfer, capacity building, and institutional development in the Baltics. The programme has helped create a self-sustaining biomass-equipment industry, biomass-fuel markets and supply infrastructure, and a positive public attitude toward biomass fuels. A commercial biomass-fuel market did not exist in these countries prior to the programme, but the programme has now provided a market for industrial wood wastes. Two major joint ventures between Baltic and Swedish manufacturers were established, and a third Baltic manufacturer forged technology cooperation links with Swedish and Danish firms.


Lessons Learned
Technology transfer has been greatly facilitated by the capacities built among local companies--especially the managerial and financial skills that were lacking in the formerly planned economies. The success of the programme results from providing not just financing, but also technical assistance for learning how to make the most effective use of capital, estimate costs, conduct financial rate-of-return evaluations, bid and evaluate international tenders, write contracts, and manage the projects. Projects have had low per-ton carbon abatement costs. Sweden has chosen to finance projects primarily by Project financing through loans on favourable terms rather than grants has promoted commercial accountability and sustainability of the projects.


Bibliography
Martinot, E. 1999: Renewable Energy in Russia: Markets, Development and Technology Transfer. Renewable & Sustainable Energy Reviews, 3, 49-75.

Contact
Swedish National Energy Administration (STEM), Stockholm, Sweden.

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