Biofuels & Renewable Energy /
Biomass: Aeternum's Business Model /
It is almost certain that the UK faces the threat of a
significant energy gap by 2025. By 2025 a ¼ (21GWe) of the
UK's existing electricity generating capacity will have closed.
These forced closures apply to both the aging Coal fired power
stations and all but one of theUK's nuclear power stations as a
result of compliance with European environmental
In the midst of these closures, even at current levels Renewable
electricity supply must grow by 15% p.a through to 2020, to meet
climate change and renewable energy targets.
The UK government is seeking renewables to accommodate at least
117 TWh/y of electricity by 2020, 30% of all UK electricity
consumption. This rate is unfeasible at current levels of
investment in the sector. Over £200billion of investment is
needed by 2020 to secure supply and meet targets.
Biomass power in the UK is expected to supply 10% of total
electricity by 2020 (25% of renewable electricity supply) with the
Planned investments into biomass power required to secure base load
power to ensure grid stability.
Most of the UK Utility focused on Renewable Energy from Biomass
have made broad estimates of the future biomass requirements of
their respective projects. Since the majority of UK biomass
power plant's' will source 100% of feedstock from abroad,
each project must ensure it achieves the requisite security,
longevitiy, and price stability.
Independent research opposite indicates the feedstock
requirements of each of the 28 live Biomass projects over 50MW.
This suggests that if all 28 projects are eventually completed as
planned, their annual requirement for feedstock 23.6 million
tonnes per annum.
Each power plant's expected feedstock demand is broken down
between imports and domesticUKsources. Of the twenty-eight >50
MWe projects that are planned 87% are likely to rely on imported
Evidently, the larger the plant, the greater its reliance on
imports. The UK's 14 largest projects have a combined biomass
feedstock requirement of 17.2 million tpe/y respectively. Biomass
Feedstock Requirements for UK Power.
The feedstock requirements of the 28 plants broken down by three
categories of solid biomass: wood chips; wood pellets; and other
Some of the projects have already developed quite detailed
feedstock sourcing strategies and have supply contracts in place if
not already signed. Others are only just beginning to think about
the subject. However, even the more advanced projects are keen to
maintain as much feedstock flexibility as possible.
Wood pellets are likely to be a vital component of the co-firing
feedstock at existing coal-fired plants in the UK. The two
new co-firing projects (at Drax and at Peel Energy's Ayrshire
plants) are likely to be the biggest users of pellets.
However an increasing number of dedicated projects are including
pellets in the feedstock mix.
Co-firing biomass with coal is a relatively quick and
inexpensive method of generating renewable electricity. We suspect
that in time it will receive more attention and support
fromUKpolicy makers than it has done lately.
Since the allocation of Renewable Obligation Certificates for
co-firing was halved in April 2009 the demand has faltered - but
this is forecast to change substantially given the current delays
in dedicated Biomass Power.
The UK Government will be forced to follow the European
example and encourage more substantial co-firing (up to 50% in some
cases) of the existing coal fired power stations rather than
closure. Given the current price signals, the volume could increase
Large Combustion Plant Directive (LCPD), six of the UKs
coal-fired power stations must close by 2015 reducing the
UK's coal-fired generating capacity to 21.1 GWe.
The ease of financing renewable energy investments is closely
associated with the political risks that these investments
Feedstock supply risk is often an equally important
concern for investors.
Despite the recession and the financial crisis, there is still a
significant appetite for renewable energy investments. Globally,
the rapid growth in investment in new 'clean' energy assets has
stalled, but investment has held steady at over $100 billion in
each of the past two years
In theUK, a recent survey found that investors saw renewable
energy as the most attractive environmental investment opportunity,
though their enthusiasm will certainly have to scale new heights if
the UK energy industry is to attract the £200 billion of investment
that is said to be required by 2020.
An investment in a large biomass power plant is perceived to be
more complicated than an investment in some other renewable energy
assets developers of biomass power projects must work harder to
de-risk their projects.
The larger of the biomass power plants planned for theUKwill be
the largest of such plants in the world.
The circulating fluidised bed boiler technology that all of
theUKplants will be using is already employed at large scale
throughout the world. The large plants proposed for theUKare not
much larger than some that are already operating, the largest being
that of Alholmens Kraft AB inFinland.
As a low value, high volume, commodity, the profitable supply of
biomass is largely about logistics. The import volumes that are
potentially involved are massive; if they all go ahead, this will
be equivalent to about 28 million t/y of green wood
Assuming an average cargo size of 40,000 t, this import
requirement would require 700 fully-laden chip carriers to arrive
in the UK each year, or one every 12 hours, 365 days a year. This
gives some sense of the investment required in shipping and port
handling capacity, if all the biomass power projects are to be
It also explains why several of the biomass project developers
are teaming up with port operators (e.g. SSE/Forth Ports and
DONG/ABP), and why financiers are keen to see a credible
logistics/shipping strategy in the project proposals that are
presented to them.
At the moment, while the global economy is still emerging from
recession, shipping capacity is not generally a constraint.
However, it should be remembered that the world's fleet of
specialised woodchip carriers is relatively small and aging. The
fleet is almost wholly controlled by Japanese trading companies and
pulp and paper producers. In recent years,Japan's wood chip imports
have declined, creating opportunities for ships to be redeployed to
other areas and routes. Nevertheless, the capacity of the fleet is
finite and although it is possible for wood chips to be transported
in standard bulk carriers - albeit at a higher cost, usually -
freight costs are a risk that the biomass power projects will need
Of the many challenges that a biomass power project will need to
overcome, arguably the most important concerns feedstock. This is
not to imply that we believe that feedstock risk is in any sense
unmanageable, it is just that feedstock is the one area of a
project that a developer should put most effort into getting
This is much the same as at a typical coal-fired or gas-fired
power station. But there is a big difference: whereas a new coal or
gas plant can quite easily tap into pre-existing and well-developed
feedstock supply chains, a new biomass plant must expect to develop
a supply chain from scratch.
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