Unlike the organic matter it was in a previous life, the UK biomass industry has shown little sign of breaking down despite the political and economic obstacles to delivering viable UK plants.
All biomass investors require a high degree of financial robustness, particularly around feedstock procurement. Many early developers mistakenly assumed there was a ready supply market that could provide wood fuel (or fibre) to any plant, whether from domestic or international sources. In reality the market remains complex.
Fears over the security of feedstock supply at the volumes required have delayed progress. 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 – and on a pricing structure that provides long-term visibility – have undermined the future of biomass.
Biomass plants generally deliver capacity at ‘baseload’ which wind and solar cannot. This 24/ 7/ 365 capacity, alongside new efficient gas plants the UK needs to ensure security of supply can deliver on the Government’s ambitious carbon reduction targets – a cut of 34 per cent by 2020 against a 1990 baseline. The push to deliver renewable generation in time is gathering pace and, with no one-size fits all solution, landowners and investors need to unpick the complexities of the market, the planning and regulatory framework and infrastructure constraints if profitable progress is to be made.
The volumes required to service a predicted market of more than 170 plants of over 25 MW cannot sensibly and sustainably 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.
The reality is that biomass feedstocks are being sourced globally and the volume required for the heat generation market is imported. To release the larger projects that were consented in ‘the first phase’ and to underpin those smaller projects that have come forward since, a more liquid feedstock market for standardised products needs to grow. A brokered market offering the opportunity for hedging and transparency could normalise the market and provide longer-term reassurance to investors.
Domestically, the earliest dedicated biomass combustion plants have been straw-fired with built-in flexibility to accept woodchip. Straw, an agricultural residue, offers a flexible source for plant developers as well as stability.
Location had a vital role to play in not only the long-term viability of a plant but its ability to demonstrate a strong environmental performance, with many NGOs assessing projects on complete lifecycle, environmental impact and end-to-end supply chain performance.
In terms of the demands on UK land use, the Department of Energy and Climate Change (DECC) predicts that UK 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 increase in international supply.
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.
Ultimately it is vital that both biomass plant operator and landowners make a full risk assessment of the feedstock issue.
For the plant developer, this is about assessing what type of feedstock, whether sourced in the UK, or abroad, is going to offer the long-term security of supply needed to make the plant viable and where that plant needs to be located to minimise the costly transport of bulky feedstocks, whilst offering an optimal grid location and a realistic prospect in planning.
Get, it right and this is an exciting and growing opportunity delivering both commercial success and environmental benefit. Get it wrong and it could be a very costly exercise.
Savills Energy is a dedicated real estate service created to specifically assist the inception, planning, development and continued operation of assets and infrastructure connected to the energy production and storage sector.