Heat or power: how to increase the use of energy wood at the lowest costs?

We compute the optimal subsidy level to fuelwood consumption that makes it possible to achieve the French biomass energy consumption target. In this view, we model the competitions and trade-offs between the consumption of fuelwood for heat (FW-H) and the consumption of fuelwood for power generation (FW-E). To do so, we couple a forest sector model with an electricity simulation model and we test different scenarios combining FW-H and FW-E that account for contrasted potential rise in carbon price and potential reduction in the number of nuclear plants. We assess the implications of these scenarios on (1) the budgetary costs for the Government, (2) the industrial wood producers, profits, (3) the costs savings in power sector for the different scenarios tested and (4) the carbon balance. We show that the scenario with the highest carbon price and the lowest number of nuclear plants is the less expensive from a budgetary perspective. Indeed, when associated with a high carbon price, co-firing may increase FW-E demand with lower subsidy level, which enables reducing the cost of reaching the target. However, in this case, FW-E crowds-out part of FW-H which may cause political economy issues. From a carbon balance perspective, a FW-H only scenario better performs than any other scenario that combines FW-H and FW-E due to the relatively low emissions factors of alternative technologies for electricity generation, in particular nuclear energy.