Biomass is valued in the renewable energy mix for its constant supply, but small, local plants close to their feedstock remain the easiest to finance, writes Sarah Rundell.
Since 1974 Drax, the UK’s biggest power station responsible for generating 8% of the country’s electricity, has been fuelled by coal. Now the giant Yorkshire-based plant is in the process of converting half of its six generating units to run on biomass in a bid to become the UK’s largest renewable energy generator.
This flagship conversion, combined with a spike in the number of smaller scale projects, makes it look like more biomass, historically more difficult to develop than other renewables, is finally coming on stream. However the wave of interest is more attributable to UK developers pushing projects through before the regulatory environment changes, altering the subsidy on offer for low carbon technologies, while the conversion of large-scale, coal-fired power plants to biomass has hit the buffers on worries over the green credentials of these big schemes.
Large-scale biomass has stoked a vibrant trade in wood pellets in recent years. Demand for feedstock from giant projects like Drax is met by pellets sourced from forests in the US and Canada, where Drax is also investing in its supply chain, building two pellet production facilities in Louisiana and Mississippi. Drax will need an estimated 7 million tonnes of wood pellets annually once it has converted its three boilers. “Drax currently operate two fully-converted units with an annual biomass feedstock for each of unit of 2 to 2.3 million tonnes. Current demand is around 4 to 4.6 million tonnes of wood pellets per year,” says a Drax spokesperson.
According to Wood Resources International (WRI), a Seattle-based research consultancy, demand for biomass in Europe increased North American pellet exports from 800,000 tonnes in 2011 to 2.9 million tonnes in 2013, with most demand from the UK, where new port infrastructure such as the £60mn Immingham Renewable Fuels Terminal is preparing to handle the influx.
“The market is absolutely driven by the incentives,” says Florida-based Morten Neraas, CEO of Green Circle Bio Energy Inc, the second-largest wood pellet manufacturer in the world, referring to the UK subsidy scheme that supports companies burning wood pellets to generate electricity such as Drax. “Our exports have grown tremendously over the last few years, particularly to Europe where we predict annual exports of between 8 and 10 million tonnes in coming years. The UK is our biggest market, followed by Denmark and Belgium; the Netherlands is also growing again.” Although US Exim helps finance wood pellet exports, Neraas says Green Circle uses commercial financing through its own relationship banks.
New markets are emerging for US pellet manufacturers as biomass projects come on stream in Japan and South Korea too. Since the 2011 earthquake, Japan’s 50-odd nuclear plants remain offline. The government renewed its feed-in tariff (FIT) in 2012 and set new renewable energy targets that have stoked a biomass boom. Although the government is targeting the biggest increases for solar power generation, biomass will also jump, rising a forecast fivefold by 2030. It’s a strategy that has already caused a spike in demand for US pellets, with Japan and South Korea importing 100,000 tonnes from British Columbia in the second quarter of 2014, up three-fold on the same period in 2010 to 2012.
“Practically all wood pellets produced in British Columbia since the first major pellet plant was built over 15 years ago have been consumed by energy companies in Europe.”
“Since late 2013 there has been a shift in direction for some of the pellets manufactured in the province; rather than being sent to the UK or the Netherlands, they are being shipped to markets in Asia, a trip that is only about half as far,” says the WRI. Green Circle Bio Energy’s Neraas says pellet prices aren’t high enough in Asia to divert his pellets from European buyers just yet. “The pellet prices have got to rise before we can justify shipping to Asia,” he says.
New markets in Asia could help offset any impact of changing dynamics in the European biomass market. Importing wood pellets from abroad has given large-scale biomass like Drax and the EU’s other big nine wood-burning utilities an image problem. Campaigners argue that it’s not emissions-free: cutting down forests releases carbon that new plantations may not grow fast enough to counterbalance, whilst importing pellets incurs its own carbon footprint since trees are harvested and transported from the US and Canada to European markets. “Forest-rich countries like Scandinavia won’t have to import feedstock but large projects in the UK and other countries in southern Europe will have to import the majority of their biomass from overseas,” says Kenneth Richter, a campaigner for Friends of the Earth, one of the groups lobbying the EU to introduce a sustainability criteria to biomass that would pass limits on how much can be burnt.
With large projects coming on line in the Netherlands, Belgium, Denmark and Poland, Europe will have more installed biomass capacity than any other region. However, in the UK, the number of big projects may have plateaued, argues Roland Vetter at CF Partners, an advisory and trading firm. “There will be a limit on further biomass conversions of large-scale coal-fired power stations beyond the current plans because the political will isn’t there and these projects are expensive for the consumer,” he predicts. “I think that large-scale biomass doesn’t make ecological sense. The high subsidy means that biomass is shipped to the UK, where the government needs it to meet the EU 2020 emission targets.”
It’s the kind of criticism of the UK subsidy system that has prompted the government to rethink the support it offers big biomass. Plans for biomass conversion at coal-fired Eggborough in North Yorkshire, recently sold to Czech energy group EPH, have stalled after the government didn’t include conversion of its three units in an early awarding of contracts under its new subsidy system Contracts for Difference, CfD, which will replace renewable obligation certificates, (ROCs). In the same process Drax finally lost its subsidy to help fund conversion of its second unit, in a process that went to appeal.
In all, only three biomass developments were selected for CfD in the early awards which approved eight large-scale renewable power schemes in all. It’s flashed warning lights for biomass developers counting on generous subsidies to bolster their projects.
The same policy uncertainty explains the recent spate of activity for 20MW to 50MW biomass projects too. A swathe of schemes are racing to get under way before CfD are introduced in 2017. The government has already said it won’t offer CfD for all biomass. CfD will only be available for biomass plants that are part of combined heat and power (CHP) schemes, which would complicate the preferred rural location for biomass projects. Now developers looking to the new CfD regime are also concerned about the auction process which requires renewable projects bid for their subsidy, unlike under the current system. In what has become known as the “ROC cliff” in a nod to the unknowns that surround the subsidy environment for biomass under CfD, developers are rushing to secure the last batch of subsidies under ROC. If qualifying developments are underway with steps like planning permission and proven grid connections in place, they qualify for an 18-month extension beyond the 2017 deadline. “Investors are keen to get over the line to guarantee ROC and RHI revenue rather than depend on the auction process under CfD,” says Darren Walsh at law firm DLA Piper, referring to the renewable heat initiative, another subsidy available for renewable energy developers.
Recent developments out of the starting blocks include transport and energy group Stobart’s £110mn deal to build a 19MW biomass plant at its Widnes multi-modal site. The deal has bought together the same investors as the 15MW Evermore Renewable Energy project in Northern Ireland. Burmeister & Wain Scandinavian Contractor (BWSC) the Danish power plant specialist is developing the Widnes plant with financing supported by Danish ECA Eksport Kredit Fonden (EKF). “The UK is a main market because of the current subsidy system that is encouraging investment in biomass. The potential for biomass in the UK is now. I don’t want to speculate on the future,” says Mathias Kolringen, chief underwriter at EKF. Other projects racing to get underway include the sustainable straw-fired 44.2MW Snetterton project, also backed by a coalition of Danish investors with BWSC expertise, with completion set for spring 2017.
Nexterra, a Canadian cleantech company specialising in energy-from-waste gasification systems, is another developer to get a UK project underway before the subsidy change. The Birmingham-based 10MW development will run off waste wood – although Nexterra technology can support other feedstock, including sewage – which it will convert into electricity using gasification technology, a form of advanced thermal treatment of waste. The carbon-based material in the waste is converted into a gas used to raise steam to produce electricity that will power an estimated 17,000 homes. “Nexterra has gone after the UK market because of the government price support mechanism and the higher price of natural gas,” says Rod Lever at Export Development Canada (EDC), which has supported the company’s first UK investment which qualified as an Advanced Conversion Technology (ACT) receiving the highest band of ROC.
Canada’s EDC says cleantech is one of the country’s growth sectors with more than half of the industry’s revenues coming from exports.
Nexterra and others are expanding outside the region because cheap shale gas in the US and few subsidies on offer in local markets make exporting their technologies the best growth path. “The gas coming out of Nexterra’s system is a substitute for natural gas but the US is flooded with gas. Biomass gasification is more expensive than natural gas and there is no price support mechanism for it,” explains Lever, who says that Canada’s cleantech companies are exploring other markets in Japan and China too. “The challenge in China is how to have that technology transfer without having your
IP stolen,” says Lever, just returned from a trade mission to China which is targeting 30GW of installed biomass generation by 2020. Although shale gas discoveries in the US have stalled interest in biomass, Danish ECA EKF notes interest for pilot waste to energy projects in the US.
One of the biggest challenges for biomass developers is guaranteeing access to feedstock and putting in the infrastructure to transport and store it. Although biomass technology is proven, upscaling to bigger plants brings logistical challenges that need mitigating before projects go ahead.
In the UK the conversion of coal-fired power plants to biomass, once touted by the government as the answer to meeting the EU’s 2020 emission targets, has stalled on environmental and cost concerns over feedstock. Although a number of smaller schemes are underway, uncertainties in the next subsidy system have unnerved developers.