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August 14, 2013 11:32 pm
The UK biomass industry received a shot in the arm this week, as a Danish pension fund pledged to invest £128m in a new 40 megawatt power plant at Brigg in Lincolnshire to generate electricity from straw.
But the good news masked a difficult outlook for the sector. A more accurate indicator came on Monday, when RWE npower closed a coal-fired power plant at Tilbury, Essex, which had previously been planned for conversion into one of the world’s largest biomass power stations.
Biomass, once seen as pivotal to Britain’s hopes of meeting its renewable energy targets, is hitting the buffers as the government rethinks support for the sector. Its waning fortunes have come as a shock to many in the renewables sector, which had viewed biomass as among the most promising non-fossil fuels.
Coal-fired plant operators, threatened with shutdown under stringent EU environmental laws, found they could extend their life by burning wood pellets.
Some green groups have long questioned the benefits of growing trees and crops for fuel, fearing it could lead to deforestation. However, the main reason for the sour mood in the sector is not environmental opposition but doubts over government subsidies.
Many developers had hoped their projects would qualify for the coalition’s new system of support for low-carbon technologies, the so-called “contracts for difference”, or CFDs.
But in a recent consultation document, the government said new dedicated biomass plants that produce electricity but not heat – most of those now on the drawing board – should not be eligible for CFDs.
The Department of Energy and Climate Change said it continued to support the conversion of old coal plants to biomass, which it said “provide value for money and help to meet [the UK’s] climate targets”.
But it said government analysis showed that new-build dedicated biomass plants offered less value for money, measured by carbon savings per pound spent, compared with other renewable technologies such as offshore wind. That judgment has caused dismay in the industry.
“It’s damped the mood,” says David Hostert of Bloomberg New Energy Finance. “Projects that have been in limbo for the last four to five years are now even further away from financing.”
Biomass was long central to the UK’s ambitions of deriving 15 per cent of its overall energy from renewable sources by 2020.
Ministers say bioenergy, which includes biofuels such as ethanol as well as biomass, has the potential to provide about 30 per cent of the 2020 target.
Some progress has been made. A government scheme, the Renewable Heat Incentive, which helps businesses meet the cost of installing technologies such as heat pumps and biomass boilers, has been largely successful.
Biomass is also expanding fast in combined heat and power projects, such as on-site power generation initiatives at supermarkets, although subsidies may be harder to obtain after next year, when the rules will be tightened.
Despite the setback at Tilbury, which failed to qualify for a subsidy, other projects to convert existing coal-fired plants are going ahead with government support. Drax, which has a 4000MW coal-fired power plant in Yorkshire, has launched a £750m investment programme to switch three of its six units to wood pellets. Eggborough, a 2000MW coal-fired plant in Yorkshire, is also pressing on with a conversion plan.
But other projects, especially those aiming for generating capacity of more than 60MW, are struggling.
“Some people are on their knees,” says Paul Thompson, head of policy at the Renewable Energy Association.
The government has also introduced a 400MW cap for new dedicated capacity, with the result that enthusiasm for biomass has been severely dented.
“A year-and-a-half ago people hoped there would be an explosion of investment in the sector,” says Bloomberg’s Mr Hostert.
“Now the outlook is still good compared to other countries in Europe but certainly not as rosy as it was 18 months ago.”
Drax begins £700m conversion to wood pellets
The biomass industry may be on the ropes, but some big projects are moving ahead, writes Guy Chazan.
Drax, which operates the largest coal-fired power station in the UK, has launched a £700m programme to convert three of its six generating units from coal to biomass: the first came on stream at the beginning of April.
The project will transform Drax from the largest carbon emitter by site in the UK to one of the largest clean-energy plants in the world. Drax is building four silos, each bigger than the Royal Albert Hall, to store imported wood pellets. A chunk of the investment will go on building a wood pellet factory in the US southeast to supply Drax’s boilers.
Renewable energy company Eco2 is also marching ahead. It received £128m this week from PensionDanmark, a leading Danish institutional investor, to back its plan for a power station in Lincolnshire that will be fuelled by straw, and will provide enough energy to supply 70,000 households.
PensionDanmark’s joint venture partner, Danish industrial group BWSC, is committing a further £32m to complete funding of the £160m project.
But other schemes are falling by the wayside. RWE npower announced this week that it was closing its Tilbury B Power Station after 46 years of operation. It had planned to convert the coal-fired plant to biomass, a move that would have given it a further 10-12 years of life. But it ditched the idea after failing to qualify for a “contract for difference”, the government’s new subsidy for renewable energy.
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