UK Coal-to-Pellet Conversions Ahead
In December, the U.K. Department of Energy & Climate Change revealed the names of 10 renewable energy projects that would receive government help, including four biomass projects that were designated provisionally affordable. The four biomass projects included the Lynemouth Power Station conversion, the Tees Renewable Energy dedicated biomass project with combined-heat-and-power, the Drax 2nd Conversion Unit and Drax 3rd Conversion Unit.
In 2013, the U.K. imported 1.5 million metric tons of U.S. pellets, more than the combined total of the rest of the EU imports from the U.S. If finalized, the Lynemouth conversion from coal to biomass would be expected to use approximately 1.5 million metric tons of sustainably sourced wood pellets per year. That is much smaller, though, than the project left off the list, the Eggborough conversion that would have potentially used as many pellets as the Drax conversion.
The Latest on Lynemouth
The DECC confirmed the Lynemouth project met the minimum criteria for an investment contract under its Final Investment Decision (FID) Enabling program, part of the government’s proposed Contract for Differences mechanism aimed at supporting major low-carbon energy projects.
“This is a good step forward for Lynemouth Power, but there are a number of steps remaining before we can make a final investment decision,” says Bob Huntington, Lynemouth Power’s managing director. “It gives us the confidence that the project would be commercially viable.”
Lynemouth Power Station will use sustainably sourced wood pellets, primarily imported from North America and European states in the Baltics as well as Portugal and Russia. “The biomass will be purchased from suppliers with robust sustainability credentials assured by the Green Gold Label, or similar global certificate systems, for all stages in the production, processing and transportation of sustainable biomass,” Huntington says. “Biomass is a carbon-neutral technology and converting Lynemouth Power Station to use biomass will bring a number of environmental benefits. It will result in a substantial reduction in the amount of ash created by the power station; a biomass plant would have significantly lower emissions of sulfur oxides and nitrogen oxides; and it would save approximately 700,000 metric tons of CO2 compared to continuing to burn coal.”
RWE Group purchased the coal plant in December 2012, when the Lynemouth plant already had received planning consent. The final investment decision is due to be made during the first quarter and, if favorable, construction will begin this summer with completion projected by the end of 2015.
“During construction, this project will lead to hundreds of jobs and in the long term create tens of highly skilled roles in biomass generation,” Huntington says. “The station has always played an important role in the local community and we hope to continue in this legacy.”
What’s Up With Tees?
MGT Power Ltd. reports its proposed Tees Renewable Energy Plant will be one of the world’s largest dedicated biomass power stations when completed. Located in Teesport in northeast England, company information says the 275 MW plant will generate enough carbon-neutral electricity to power around 600,000 homes. “As it will operate base-load, it will produce in one year as much green electricity as the largest 1,000 MW wind farm projects, and save 1.2 million [metric tons] of CO2 from being emitted every year,” a company news release says. “The station will help to meet the EU's renewable energy target of 20 percent by 2020, accounting for 5.5 percent of the U.K.'s target.”
According to Ben Elsworth, MGT Power CEO, since the company secured the government’s approval to construct the Tees Renewable Energy Plant in July of 2009, it has been working on project financing and arranging the main contracts for the plant’s design and construction. The Tees Renewable Energy Plant is expected to enter commercial operation in 2015.
Drax Power Station is currently the largest single emitter of carbon dioxide in the U.K., but conversion of half of its generating capacity to sustainable biomass will see its emissions reduced by around 10 million metric tons. The station will use a range of biomass feedstocks, the majority being wood pellets shipped from the U.S.
The 700 million pound ($1.5 billion) biomass conversion project is in the midst of transitioning three of the six-660 MW power generation units at Drax’s power station in North Yorkshire to biomass. The conversion of one unit was completed in 2013 and the conversion of the second unit is on track for completion in the second quarter of this year, with the third scheduled for completion in 2016.
The UK Goal
These renewable energy projects are all part of the U.K.’s attempt to meet its 2020 renewable energy targets. All countries in the European Union are aiming for 20 percent of their energy needs to come from renewable sources by 2020.
Although several sources report the U.K. is in danger of not meeting that goal, a recent DECC report shows Britain’s latest Renewable Energy Roadmap is on the path to success. According to the report, “the government’s commitment to cost-effective renewable energy as part of a diverse, low-carbon and secure energy mix is as strong as ever. Alongside gas and low-carbon transport fuels, nuclear power and carbon capture and storage (CCS), renewable energy provides energy security, helps us meet our decarbonization objectives and brings green growth to all parts of the U.K.” Since 2012, the U.K. has made good progress towards its goal, delivering 15 percent of its energy demand from renewable sources.
“We are fully committed to achieving this target and have seen a significant amount of deployment to date, particularly in the renewable electricity sector,” the report reads. “This was demonstrated in 2012 when more than 4 percent of the U.K.’s energy came from renewable sources—above our interim target. We will continue to monitor our progress towards the target, ensuring that we have measures in place to reach our goal.”
In 2013, the DECC announced changes, prioritizing shared funding across technology groups above the previous key priorities of least cost and speed to deliver, explains Nigel Adams, member of parliament and parliamentary private secretary to the Leader of the House of Lords. “Originally, the DECC came up with a list of 16 projects that qualified for FID Enabling and whittled it down to just 10, based on criteria that included cost-effectiveness, project readiness and supply chain support, and contribution to energy security,” he says. “On the 19th of December, 10 of the projects were told they were ‘provisionally affordable’ and able to access the FID Enabling process.”
A surprising omission to the list was the Eggborough Power Plant in his district, which is now in danger of closing. Eggborough would have been a huge boost for pellet imports at an estimated 6 million metric tons, or more, of demand. For consumers, the loss of Eggborough to the U.K. grid could mean a price spike of 38 pounds on their bills.
“Eggborough’s conversion represents 750 million pounds of inward investment across the region which will be lost if the project does not proceed,” Adams says. “The conversion would safeguard the 800 existing jobs onsite as well as create many new jobs in the supply chain. The conversion would also support thousands of jobs in the global supply chain from companies that provide (amongst others) rail, ports, logistics and engineering services.”
Eggborough’s Next Steps
A big proponent for the Eggborough plant, which was set to begin work on the conversion this spring, Adams says he was taken by surprise, as was Eggborough and a number of other stakeholders across government and industry when it wasn’t on the U.K. DECC’s list of 10. Currently, Eggborough is investigating its options. Adams says timing will be a critical, with a resolution needed as quickly as possible. As things currently stand, the future of Eggborough Power Station is uncertain.
“Eggborough will need to find a solution in collaboration with government. Should this not occur, the most probable outcome now is that the plant will no longer be supplying power to the grid beyond 2015 and the U.K. will lose circa 4 percent of capacity just at the time when its regulator, Ofgem, estimates the country could, under given circumstances, have a capacity margin of less than 2 percent, a figure which includes Eggborough’s output,” Adams says. “In short, there would a real danger of the ‘lights going out’ in the U.K. should Eggborough, in conjunction with government, not find a solution for conversion.”
The UK Process
For many in the U.S., the U.K.’s renewable energy programs and regulatory system are something of a mystery. The Renewables Obligation is the existing, market-based support mechanism for renewable projects in the U.K. Tradeable RO certificates are awarded for each megawatt hour of renewable energy generated. That process is being phased out in March 2017, Adams explains, to be replaced with a new mechanism designed to support all low-carbon projects (including CCS and nuclear) called Contracts for Difference, part of the Electricity Market Reform proposals that are designed to decarbonize the electricity sector, ensure security of supply and provide value for the consumer. “In order to prevent a hiatus in investment and encourage early take up of the new support mechanism, the government introduced the Final Investment Decision Enabling process,” Adams says.
For American pellet exporters, it is a big disappointment that Eggborough didn’t make the DECC’s initial list of 10, although understanding the importance of the power plant’s output to meeting U.K. demand offers hope for a reversal in the final list. Learning more about the projects that did make the list suggests U.K. pellet demand will continue to grow.
Author: Keith Loria