BY MILES THOMAS, DIRECTOR, SAVILLS ENERGY
According to the European Biomass Association’s recent statistical report (AEBIOM Bioenergy Outlook 2013, published December 2013), bioenergy remains the biggest player among renewables in Europe, accounting for almost 62% of European renewables and showing steady growth patterns across the different market segments. Biomass alone accounted for 8.4% of the total final energy consumption in Europe in 2011. According to AEBIOM, biomass will be by far the most important source of renewable energy in Europe by 2020, covering 56.5% of all renewables.
In line with the National Renewable Energy Action Plans (NREAPs), published by each European Union Member State, the total contribution of bioenergy in 2020 will be 138.3 Mtoe and heating will continue to be the most important sector for bioenergy in 2020, accounting for 65% of the total. Indeed, more than 50% of energy consumed in Europe, from all sources, is used for the generation of heat for domestic and industrial purposes.
In the coming years, as demand is expected to increase for bioenergy, more feedstock will be required. International trade in biomass and biomass intermediates, such as pellets, will play a vital role in matching supply and demand in different regions in Europe. Understanding the implications and the security of this widening supply chain is integral to biomass heat and power, as a significant number of plants seek their feedstock from outside of their own borders.
A number of challenges remain in place in order to achieve the Renewable Energy Directive 2020 targets. Among them: regulation, feedstock, sustainability, supply chain and, crucially, financing. In addition, there have been concerns raised about the availability and price of sustainably-sourced biomass, the relationship between bioenergy and other uses of land, the competing uses for biomass materials and the environmental impacts on air quality, biodiversity and water resources.
The majority of these concerns are focused around the sourcing of the feedstock, its type and the security of the supply chain, which will have grown to include 23 million tonnes of biomass materials in the UK alone by 2020, according to research commissioned by the Department for Energy and Climate Change (DECC). Operating at such a large scale, it is understandable why there has been hesitance on the part of some investors to risk their capital on unsecured feedstock supplies, particularly where supply chains are complex and cover various jurisdictions. Understanding the implications and the security of this widening supply chain is key.
While the utilities and infrastructure funds remain keen to acquire de-risked projects and operational bioenergy plants, the lessons of the first stage of biomass development have long since changed their entry point into the market. Investors at the development stage now require a much higher degree of robustness in the financial model, particularly around the issue of feedstock procurement, much earlier in the development process.
This is about assessing what type of feedstock, whether sourced in the UK, Europe or further afield, is going to offer the long-term security of supply needed to make a plant viable. Furthermore, deciding where that plant needs to be located in order to minimise the costly transport of bulky feedstocks, while offering an optimal grid location and, at the same time, a realistic prospect in planning terms.
Many of the current feedstocks are traded under long-term bi-lateral contracts, whose length may vary from 12 months to 15 years. The quality of the counterparty(s) to those contracts is also fundamental but, with the addition of a professional supply chain manager to the strategy, an operator should be able to bridge the ‘risk gap’ between having many shorter contracts with poorer counterparties and fewer, long-term supply agreements with investment grade suppliers.
The regulatory and fiduciary framework in which the plant must operate must also be thoroughly investigated. Security of feedstock supply is absolutely critical, making the choice to contract locally or from the global market a critical one. (The decision-making process requires balancing storage and supply chain costs.) Many early developers assumed that there was a ready supply market that could provide biomass fuel to any plant, whether from domestic or international sources. This was a mistaken assumption; in reality the market remains complex.
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