Biomass energy growth flags as official support wavers15/08/2013
By Guy Chazan
The UK biomass industry received a shot in the arm this week, as a Danish pension fundpledged 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.”