Case Study 18
Swedish Government Programmme for Biomass Boiler Conversions in the Baltic
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)
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.
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.
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.
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.
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.
Martinot, E. 1999: Renewable Energy in Russia: Markets, Development and Technology
Transfer. Renewable & Sustainable Energy Reviews, 3, 49-75.
Swedish National Energy Administration (STEM), Stockholm, Sweden.