Burgeoning Biomass Importer

Biomass is sure to play a significant role in the U.K.’s energy portfolio as about 163 biomass power stations—ranging from 1 to 400 megawatt hours of capacity—are either in operation, under construction or awaiting approval.
By Huw Kidwell | April 28, 2011

The face of power generation in the U.K. is rapidly evolving. With the U.K. government committed to generating heat and power from renewable resources as part of the European Union Renewable Energy Directive, there is a target of increasing renewable energy use seven-fold from 2008 levels. Certainly by 2020, the U.K. target is to generate 20 percent of its power using renewable sources (the U.K. government has actually set a target of 30 percent for power and 12 percent of heat from renewable sources). Another moot factor is an aging U.K. power generation infrastructure, with a significant number of U.K. coal-fired power stations coming to the end of their operational lives under the EU Large Combustion Plant Directive (closures due in 2015). Since 2006-’07, there has been a new focus on alternative energy sources to fossil fuels such as biomass, wind, solar, tidal and nuclear. The future of energy in the U.K. will contain elements of all these with a common goal of minimizing carbon production and encouraging renewability.

The Importance of Biomass

According to the 2007 U.K. biomass strategy document, renewable energy should come from sustainable biomass sources including newly managed woodland, rapid-growth willow coppice, waste wood from the timber industry, waste biomass (straw and vegetable material), organic slurry, manure, blue-green algae slurry and biofuel crops. The Directory of U.K. Biomass Generation Plants released a report in June 2010 (compiled by Enagri), which estimated that large-scale biomass power production could provide 15 to 17 percent of U.K. anticipated electrical demand by 2020 (about 60 terawatt hours (TWh)) and that the biomass fuel market could be worth £5.3 billion ($8.5 billion) in 2020 requiring 50 million to 60 million metric tons of feedstock each year (depending upon calorific value). Biomass will surely play a significant role in the future of U.K. energy with around 163 biomass power stations (1 to 400 megawatt hour (MWh) capacity) either in operation, under construction or awaiting approval.

Solid Biomass Market Drivers

Currently, the solid biomass market in the U.K. consists of two areas: domestic heating using equipment imported from Europe, where the biomass heating market is more mature, and large-scale power generation where the majority of solid biomass is used for cofiring with coal. The driving force behind cofiring of biomass (split between pellets, wood chips and waste biomass from agriculture or industry) is the Renewable Obligation Certificate. In 2005, the U.K. government passed The Renewable Obligation Order 2005, which required energy companies to derive 6.7 percent of the energy they provide to their customers from renewable sources (rising to 10 percent by 2010). The law requires an energy provider to generate the required renewable energy itself, or offset by buying the energy from someone who has. Renewable power generators receive ROCs for each MWh of electricity generated and these can be traded on the open market (values have achieved £53.27 per MWh (April 2008 auction).

Cofiring for coal power stations was a viable proposition until 2009 when the rules changed, meaning that the amount of ROCs a company could claim was reduced from the original figure of 2 ROCs per MWh down to 0.5 ROC per MWh. This has meant, since 2009, that the use of biomass for cofiring is less lucrative than previously (being much more dependent on the price of pellets or other biomass material). Of course, using biomass alone for energy production is eligible for different levels of ROCs, up to a level of 2 ROCs per MWh (firing biomass alone gains 1.5 ROCs, and biomass for generation with combined heat and power gives 2 ROCs).

The 2011 Renewable Heat Incentive policy outlined on March 10 will revolutionize the way heat is generated and used in buildings and homes across the U.K. by providing a financial support scheme for generating clean heat and power (introduced for large power stations, commercial heating systems, and even domestic and small-scale business heat and feed-in systems). The scheme will provide a payable tariff for each kilowatt hour (KWh) generated using renewable sources. For biomass, the scheme is split into small, medium and large installations that will receive payments estimated at 7.6 pence (12 cents) per KWh for small to around 2.6 pence per KWh for large. This scheme will be introduced by theU.K. government this summer and will be in use until 2020.

Biomass in the UK

The U.K. is a small island with finite forestry resources and a rising demand for fuel from large-scale biomass energy plants is expected to leave the U.K. reliant on net imports of wood chips and pellets by 2012. A report titled “Wood Fibre Availability and Demand in Britain 2007-2025” from the Confederation of Forest Industries has highlighted the potential in the U.K. biomass market. The study predicts that demand for wood chips and pellets is likely to rise to about 27 million metric tons per year if the majority of new biomass plants in the pipeline are constructed and this will cause price rises in other timber-related industries such as furniture. The British wood fiber sector is set to expand rapidly to a production peak of just over 20 million metric tons by 2019 with production then declining.

It is also estimated that by 2017 U.K. demand for wood chips and pellets will be 50 million metric tons, almost double the present size of the global wood fiber biomass trade. With recovered wood providing around 3 million metric tons per year, importation of wood pellets and chips into the U.K. is expected to be around 27 million metric tons. Pellets are preferred by many commercial users because of their consistent quality (Green Gold Certification) and ease of handling, but for commercial users price is key and other imported material such as peanut kernel, palm kernel expeller, shea or olive residue, or straw may offer better economics (dependent upon calorific value).

Imported Biomass

The value of imported biomass in the form of pellets will be to support the biomass deficit in the U.K. via seven- to 10-year bulk supply “bankable” contracts. The majority of large biomass power stations are being built or planned near portside areas or near biomass sources (44 MWh Stevens Croft in Lockerbie, which has large forest resources) and as such the transportation of pellets/biomass is simplified. Figures from the Wood Pellet Association of Canada have shown that transport costs between Vancouver and Rotterdam were about $100 per metric ton in 2007 and so this has to be taken into consideration when establishing a new biomass supply chain.

The energy used by the shipping method of biomass may be of great concern to environmental organizations and also the government, but all is not lost as Ireland-based B9 Shipping is developing cargo vessels fitted with Rolls Royce spark ignition engines, which will run on biogas and a soft sail system (100 percent renewable energy). These new cargo vessels would placate the environmental lobby and probably be cost effective as well. Many advocates of biomass power continue to argue, however, that to maximize the carbon emission savings from wood-fired power plants, it is necessary to use supplies of wood chips and pellets sourced near to the facility.

Perspective from UK Industry

According to John Bingham, chief analyst for the Forest Energy Monitor at Hawkins Wright, currently U.K. power generating companies are undecided about whether to use pellets or wood chips as their major imported biomass source. Bingham added “there are around 30 major biomass power generating projects that will go ahead in the medium term and a lot more in slower development or awaiting planning permission or finance.” Nigel Blandford is the senior sector development manager of the biomass project for Envirolink Northwest, which is designed to show potential biomass energy investors what grants and incentives are available to set up new projects in the region. Blandford reiterated Bingham’s view that U.K. markets are undecided about which biomass material to use and that it would probably come down to cost, quality and transportation, and for cofiring, the market price of bulk coal. Bingham adds his belief that pellets have more consistent quality, particularly for the domestic market, and if they can be supplied “‘torrified,” the power stations find that they are more energy dense and that crushing and atomizing them to burn is much easier.

“The U.K. biomass market is weak at the moment, with only modest growth in the past 24 months but a lot is expected in the coming years,” says Jon Westmacott, managing director of Land Energy, a leading U.K. pellet producer. “Capital grants have been pulled for biomass projects and this will make a big difference to timescales. I don’t deal with the cofiring market, as the price-point they expect is too low, and for this reason the domestic market is more lucrative ... new U.S. producers should remember there is a lot of competition from Europe as they have been leaders in fuel pellet technology for the past 15 years ... Although pellet prices have risen in the past 12 months, demand is still weak and the majority of our business will be with medium to small companies who are installing biomass boilers for heat.” Richard Smith, the managing director of Verdo Renewables, a pellet producer and renewable energy consultancy, points out that the U.K. market is not a bottomless pit and there is a lot of competition in the world pellet market. For example, a Russian pellet plant with a 1 million metric ton capacity will be on-line imminently. “Pellet production plants are going bust all over Europe because the demand is not there and it is cheaper to burn coal. Of course the renewable incentive scheme may make a huge difference but not immediately,” he says.

The potential of the U.K. market as a net importer of biomass pellets cannot be denied with the number of biomass plants in planning or under construction. At the current time the pellet market in the U.K. is still maturing both from a power generation and domestic heating viewpoint. The U.K. market needs to be encouraged and relationships should be developed with the power generation companies to potentially supply the biomass they will certainly need in the near future.

Author: Huw Kidwell
Freelance Journalist