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

In 2003, nearly 70 per cent of Austria’s domestically produced power came from renewable sources. Biomass fuelled 11.2 per cent of Austria’s total primary energy supply and 21 per cent of heat production, according to International Energy Agency (IEA) statistics. Not only do forests grow back, they absorb carbon dioxide from the air as they grow.

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

Biomass energy is a growing business in Austria, sustaining a new market in wood pellet supply, and building a technology cluster that increasingly exports its services. Forestry, the second largest sector after tourism, has a growing stock of wood and is keen to put by-products – chips, sawdust and low-grade logs – to use.

It is no surprise, then, that the Austrian presidency of the EU has put biomass high on its agenda. Wolfgang Schuessel, the Austrian chancellor, told the European parliament on January 18 that Europe must diversify energy supplies to reduce its dependence on imports, especially after Russia’s gas dispute with Ukraine.

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

The use of biomass energy “started as a grassroots movement”, says Reinhard Madlener, a senior energy economist at the Swiss Federal Institute of Technology.

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

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

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

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

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

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

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

Less thickly-wooded countries are already exploring other options. Kerrin Buckley, at the Bangor Centre for Alternative Land Use in Wales, says crops such as willow and miscanthus could grow even in damp, isolated North Wales.

So Austria’s support for biomass and its focus on localised heating schemes could provide a template for other European markets too far from forests for transporting pellets to be viable.

Its genesis in rural communities should appeal to European farmers seeking more profitable non-food crops as Common Agricultural Policy subsidies are separated from production.

Copyright The Financial Times Limited 2017. All rights reserved.
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