Feeding the 300

Securing sustainable feedstocks for the 300 biomass plants planned is absolutely critical for the sector's success. Miles Thomas discusses.

Biomass generation has to date had a rocky journey with little tangible progress in terms of delivering viable UK plants, despite a huge amount of planning activity.

While utilities and infrastructure funds remain keen to acquire biomass power stations, the lessons of the first stage of development have changed their entry point into the market. Investors require a higher degree of robustness in the financial model, particularly around the issue of feedstock procurement over the plant’s operation.

Many early developers assumed there was a ready supply market that could provide wood fuel to any plant, whether from domestic or international sources. They were mistaken and in reality the market remains complex.

The upside of this is that the second generation of biomass developers (largely sub-50MW) can readily be examined for robustness. Savills has developed a shortlist of key screening criteria to identify a sound development model. Developers that pass this test are a smaller group than would have been the case a few years ago, but are more likely to proceed.

The security of feedstock supplies at the volumes required is key. The impact on agricultural production, particularly the diversion of land away from food to energy crops; the physical constraints of the UK’s forestry capacity; and a reluctance by investment grade European foresters to contract for long enough on a pricing structure that provides long-term visibility have all conspired to undermine the future of biomass.

But this should not detract from the long-term viability of plants. Technologies are generally well proven on a global platform and generally deliver capacity at baseload, which wind and solar cannot. It is this

24/7 capacity, alongside intermittent technologies and new efficient gas plants, that the UK needs to ensure security of supply and deliver the carbon reduction demanded by the government.

So what are the realities in terms of feeding the

300-plus biomass plants planned in the UK, according to figures from the Department of Energy and Climate Change (Decc)? If you consider the dynamics of solid biomass (such as straw or wood), required for larger combustion plants, the first thing to appreciate is that the volumes required to service a market of more than 170 plants of 25MW or over cannot sensibly and sustainably be delivered from the UK.

By law, 15 per cent of all the UK’s energy must come from renewable sources by 2020. It will take around 7.5 million tonnes of biomass to meet a 1 per cent share of this target, raising concerns about the effect this could have on land use and the environment, particularly if large areas of land are given over to the production of dedicated energy crops.

The reality is that biomass feedstocks are sourced from a global market and already much of the volume required for the heat generation market is imported. In this fledgling market most projects are seeking bilateral long-term agreements.

To release the larger projects that were consented in the first phase and to underpin the smaller projects that have come forward since, a more liquid feedstock market for standardised products is needed. A brokered market offering the opportunity for hedging and transparency is most likely to provide funders the comfort they need to invest.

At the domestic level, the earliest dedicated biomass combustion plants have been straw-fired with built-in flexibility to accept woodchip. Straw is an agricultural residue, and as such offers a flexible source for plant developers, as well as stability and a hedge to growers, depending on the index strategy adopted.

This is important when volatility in the crop market heavily influences a grower’s strategy year by year. From growers’ perspective, flexible sources such as straw will generally look more attractive because the inclusion of dedicated crops, such as miscanthus, adds complexity and risk to growing strategies.

In its modelling, Decc found it difficult to predict feedstock prices for large-scale generation with any certainty, because the market is yet to mature in the UK. In its scenario planning, though, location had a vital role to play, not only in the long-term viability of a plant but also its ability to demonstrate a strong environmental performance. Many non-governmental organisations assess projects on complete lifecycle, environmental impact and end-to-end supply chain performance.

In terms of the demands on UK land use, Decc’s studies show that feedstocks could provide about a third of potential bioenergy supply in 2020, but by 2030 this will have fallen to 10 per cent, due to the large increase in international supply and likely development of the traded market.

Even where landowners commit thousands of acres to dedicated biomass feedstock, there is little doubt that plants will not be able to contract enough from the UK. An acceptance of this at all levels, particularly regulatory and planning, is essential.

With large variations in type of feedstock, the reliance on imports and therefore the complexity of supply chains that have to be factored in makes it difficult for investors, and those planning projects, to assess how they will perform in the long-term. This lack of long-term visibility is a fundamental issue.

What does all of this mean in practical terms? Ultimately, it is vital that both biomass plant operators and landowners make a full risk assessment of the feedstock issue. For the developer, this is about assessing what type of feedstock to select, where to procure it, and where to locate the plant to minimise transport costs, while offering an optimal grid location and a realistic prospect in planning terms.

For a feedstock provider, pricing and flexibility are key, but factors such as land values at different locations, quality of land for different types of crops and so on, will all play their part in the decision whether to grow dedicated energy crops.

Once the decision has been made to dedicate land to the supply of energy crops, growers need to negotiate agreements with generators. To establish long-term supply agreements at the right price, there needs to be a balance between a range of factors, including the flexibility of land, supply chain issues and storage costs. Get it right, and this is an exciting commercial and environmental opportunity.

Miles Thomas is head of operations at Savills Energy

This article first appeared in Utility Week’s print edition of 4 May 2012.

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