“Power and Heat from Peat – Peat in Finnish Energy Policy” (Part 2 of 6)

While most of the publication “Power and Heat from Peat – Peat in Finnish Energy Policy” is written in the Finnish language, the following six English summaries give valuable insight into this largely unknown energy source. Vapo Oy is the largest producer of Peat Fuel in Finland.

Peat as an Energy Source before the First Oil Crisis – Summary

The subject of this study – biomass energy (e.g. wood, peat, reed canary grass, crops and waste) – is an area that has raised expectations in countries with extensive forest and peatland resources and fields. In spite of its CO2 emissions, biomass combustion is generally considered to be greenhouse gas-neutral because it is part of the contemporary carbon cycle (Randolph & Masters 2008).

However, peat is an exception among biomass-based fuels; it has been classified as a fossil fuel by the EU and as a slowly renewable biomass fuel by the Finnish government and the Finnish and Swedish peat industries. Thus it is not globally accepted that peat can be classified as a slowly renewable energy source or even as a biomass. Patrick Crill, Atte Korhola and Ken Hargreaves, all internationally recognised peatland and climate change experts, suggested in 2000 that peat should be classified as a biomass fuel, so as to distinguish it from biofuels (such as wood) and from fossil fuels (such as coal, lignite and oil shale) (Crill, Korhola and Hargreaves 2000).

However, their reasoning and conclusions have been criticized by environmental movements. The discussion on the classification of peat is still on going. Based on research by Finnish and Swedish scientists in the early 2000s, the IPCC placed peat fuel in a separate category, “peat”, occupying an intermediate position between biomass and lignite. On the whole, peat is still an energy source the definitions of which vary enormously between countries and also political parties.

Using peat as an alternative to firewood for cooking and heating is a centuries-old tradition in temperate and boreal regions of Europe, in particular in Scandinavia, the Baltic countries, Poland, Russia, the UK, Ireland, the Netherlands and Germany. There is evidence of peat use in the UK and the Netherlands in the 17th and 18th centuries, related to the vast development of manufacturing industries and their expanding need for power. (E.g. Winchester 2000, van de Griendt 2002 and Corneliesse 2008)

However, modern mechanical peat production began in the 1860s when Weber, a German engineer, invented a peat compressor. Based on German peat harvesting inventions, the mass production of peat fuel for industrial and municipal power plants spread, principally in Russia, Germany, Ireland, Denmark, Sweden, Estonia and Finland. (The New York Times, September 17, 1903)

The increased use of peat fuel was not permanent, however; in terms of available energy resources worldwide, the 20th century was to be the century of coal, crude oil and natural gas.

The increasing use of natural gas and oil as cooking and heating fuels during the 20th century resulted in decreased use of peat for such domestic purposes. High demand for electricity, however, locally stimulated the development of large electric power plants fuelled by peat. Peat was especially competitive for power plants in the 60-200 MW range, which necessitated the reclamation of vast areas of peat for large-scale peat extraction (Andriesse 1988).

In the 1950s, Germany shifted from using peat fuel to coal and natural gas in power and heat generation, as did the other peat-producing countries with the exception of the Soviet Union and Ireland, where peat-fired power plants were state-subsidised, making the use of peat cost effective for the energy industry in comparison with coal or crude oil. Coal and crude oil were to define the reference prices for peat fuel after the early 20th century. Thus coal and crude oil became competing fuels with peat fuel for power and heat generation.

There are three fundamental reasons why peat fuel became less competitive against existing fuels and coal and crude oil. First, because of its high moisture ratio peat fuel has a lower heating value than coal or oil fuels, making coal or oil fuels more cost-effective in power generation or transportation. Secondly, peat combustion technology was rather underdeveloped until the 1970s as far as small boilers (i.e. those less than 20 MW) were concerned. Thirdly, there was little research into peatland usage in comparison with the situation in the late 20th century, causing widespread ignorance as to the use of peat as a fuel in both Finland and Sweden in the early 20th century.

The use of peat fuel was highly concentrated from the end of the Second World War up to the first oil crisis. Three countries, i.e. the Soviet Union, Ireland and Finland, made up almost 100% of peat fuel production in Europe in 1971.

With low oil and coal prices, peat utilisation in Germany and Sweden from the 1950s shifted from using peat as a fuel to using it as a growing medium or plant nutrient. In Finland, peat production and the use of peat as a fuel was state-subsidised in the late 1940s. Local peat producers benefited from the state’s price guarantees for sod peat, which was used as a fuel for railway engines. These subsidies ended in 1953 when imports of Polish and German coal resumed. Most peat-producing companies did not survive and the use of peat as a fuel declined.

In Finland in the 1960s it seemed that peat fuel was about to lose out permanently to coal and oil. But the energy shock of 1973 led to a clear change in Finnish energy policy. In fact, Finland lacked an explicit energy policy in before 1973, apart from the policies of the state energy companies IVO Oy and Neste Oy. The formulation of a new energy policy was also encouraged by the OECD in the early 1970s, a time of extensive demand-side growth due to the final breakthrough of domestic appliances and rapid expansion of the Finnish forest and metals industries, the emergence of environmental movements, and a more global institutional environment, culminating in membership of the IMF (1948), GATT (1950) and OECD (1969) and associate membership of EFTA (1961).

Soon after the first oil crisis and long afterwards, Finnish energy policy rested on four pillars: 1. reduced oil consumption, 2. introduction of nuclear power, 3. imports of Soviet natural gas and electric power, and 4. energy saving. As oil was mostly used in transportation or CHP plants, fossil oil consumption could only be cut in combined heat and power production since otherwise there were no real alternatives to petroleum.

The increased use of peat as a fuel was fostered by state regulation. In 1971, the Finnish government adopted a plan for peat fuel production, aiming at an annual production of 10 million m³ by 1980 by the state-owned and state funded Vapo, which was founded in 1945 as the State Fuel Office. Before the 1970s, Vapo’s task was to produce firewood for state institutions and kindling and railway sleepers, but in 1969 Vapo began peat production. After the first oil crisis, Vapo’s peat production target was doubled. At the same time, peat fuel was subsidised by through the tax system and laws supporting the use of domestic fuels, including low-cost public loans and investment aid for peat-fuelled power plants.

Since the 1970s, the use of peat as a fuel has been championed in the Nordic countries because it is widely considered to increase employment in rural areas. It is also widely considered that peat as a domestic source of energy will shore up the security of energy supply and reduce oil dependency, especially where the co-generation of heat and power is concerned.

Being very dependent on forest industry exports, Finland regulated the market in forestry products through various policy instruments. Thus peat fuel was not only a substitute for oil but also contributed to increasing use of forest material purely as an energy source.

The breakthrough in peat utilisation in Finland in the early 1970s was also connected to national security in terms of security of energy supply. Consequently it came to involve government ownership and funding. After all, investment possibilities were limited in Finland in the 1970s. Firstly, there were no facilities to attract foreign money into the growing peat industry because foreign direct investments were severely restricted in Finland until 1991. Secondly, there were few possibilities to attract local market capital for peat-producing companies because the initial capital needs are substantial and there is no guarantee of profit in the following four years.

An important turning point in the Finnish peat industry in the late 1960s was the merger between Vapo and Suo Oy, which was a peat-producing company owned by the state-owned electricity company IVO Oy. IVO Oy aimed to build a nuclear plant in the 1970s and thus dropped its plans for a peat-fuelled conventional power plant. Vapo continued and developed the peat fuel production of Suo Oy. By the end of the 1970s, Vapo was the biggest peat producing company in Finland.