Comparing the cost of biomass and fossil fuels is complex, depending on location, technology, and the inclusion of external costs. Biomass is organic material, such as wood or agricultural waste, used to generate energy. Fossil fuels are hydrocarbons like coal and natural gas, formed over millions of years. An accurate comparison requires moving beyond the raw commodity price to consider the full economic life cycle of the power generation system.
Comparing Initial Fuel and Feedstock Pricing
The raw price of energy feedstocks reflects fundamental differences in market structure. Fossil fuel prices are set by global commodity markets, leading to significant volatility influenced by geopolitical events and supply changes. A natural gas price surge, for example, can quickly make biomass more attractive in the short term.
Biomass pricing is far more regional and less standardized, determined primarily by local supply chains and transport distance. The cost of wood pellets, an internationally traded form, can range widely from low-cost residues (\\(10 per ton) to higher-grade pellets (up to \\)160 per ton). Since biomass has a lower energy density than fossil fuels, transportation costs are a much larger fraction of the final delivered price per unit of energy. However, a localized, cheap source of wood waste can result in a fuel cost per million British thermal units (MMBtu) that is significantly lower than natural gas or oil in specific applications like steam production.
Capital Investment and Operational Expenditure
Biomass facilities generally demand a higher initial capital investment than comparable natural gas plants. Constructing a dedicated biomass power plant, for instance, can require a capital expenditure (CapEx) estimated between \\(3,500 and \\)4,400 per kilowatt (kW) of capacity. This figure is substantially higher than the CapEx for a new natural gas combined-cycle plant, which falls between \\(1,060 and \\)1,150 per kW.
The higher CapEx for biomass is due to the specialized equipment needed for handling a heterogeneous fuel source. This includes complex systems for storage, drying, pre-processing, and feeding the varied organic material into the boiler. Fossil fuel plants benefit from well-established, standardized infrastructure and automated fuel delivery systems.
Operational expenditure (OpEx) also tends to be greater for biomass facilities due to the fuel’s nature. Biomass plants incur higher maintenance and labor costs because they must constantly manage the fuel’s inconsistent quality and the extensive ash disposal required after combustion. Fixed operations and maintenance costs for biomass can range from 2% to 7% of the initial installed costs per year. This contrasts with the lower labor and maintenance needs of highly automated natural gas facilities, which manage the flow of a consistent, homogenous fuel.
The Impact of Government Policy and Subsidies
The market cost of both energy sources is significantly influenced by government policies and interventions. Biomass cost-competitiveness is often achieved through direct or indirect government support designed to promote renewable energy adoption. These mechanisms include renewable energy credits, preferential tariffs, and mandates requiring utilities to source a percentage of power from renewables.
These policies lower the financial risk and increase revenue certainty for biomass projects, making them viable even if the raw generation cost is higher than fossil fuels. Conversely, the low cost of fossil fuels has been maintained by massive historical and ongoing subsidies, both explicit and implicit. Explicit subsidies include direct financial support, tax breaks, and favorable royalty rates for extraction.
Implicit subsidies, which are often much larger, involve the government not charging for the environmental and health costs associated with burning fossil fuels. The introduction of carbon pricing, such as a carbon tax or an emissions trading system (ETS), fundamentally alters this balance by monetizing pollution costs. Imposing a cost on carbon emissions immediately increases the operating cost of coal and gas plants. This can make biomass—often classified as carbon-neutral—immediately cost-competitive.
Assessing the Total Cost of Ownership
To achieve a true comparison of long-term costs, economists use the Levelized Cost of Energy (LCOE). LCOE calculates the average revenue per unit of electricity required to recover all costs of building and operating a power plant over its lifetime. The metric incorporates CapEx, OpEx, fuel costs, and financing costs, providing a single figure for comparison.
Under current market conditions, especially in regions without a significant carbon price, natural gas combined-cycle plants often exhibit a lower LCOE than biomass facilities. This is primarily due to the lower capital investment and the consistency of the fuel source. However, the largest factor influencing the LCOE for biomass is the feedstock cost, which can account for up to 60% of the total levelized cost.
In regions with a robust supply chain for low-cost agricultural or forest residues, or where strong renewable energy mandates and generous subsidies are in place, the LCOE of biomass can be competitive. Furthermore, the rising cost of carbon allowances in jurisdictions with strong climate policy is projected to substantially increase the LCOE for new coal and gas plants over the next two decades. This policy-driven shift can make biomass an economically preferable option compared to high-carbon fossil fuels.