Examination of Witnesses (Questions 146-159)
PHILIP WOLFE,
MALCOLM CHILTON,
ALAN RAYMANT,
PETER DICKSON
AND ROBERT
SMITH
10 SEPTEMBER 2003
Q146 Chairman: Gentlemen, welcome
to the Committee. For the record, Philip Wolfe is the Chief Executive
Officer of the Renewable Power Association. Malcolm Chilton comes
from Energy Power Resources. Alan Raymant is from Powergen. Peter
Dickson, United Utilities Green Energy Limited. Robert Smith is
from Renewable Fuels Ltd. Welcome. You have heard what has gone
on before and you know what this inquiry is about. Could you give
us an outline of your involvement in energy from biomass at the
moment and the applications which you envisage for it?
Mr Wolfe: Yes. The Renewable Power
Association represents producers of primarily electricity from
renewables. One of the most important prospective sources of renewable
power is biomass. It is not necessarily one you hear most about,
lots get spoken of wind and solar and these sorts of things. Biomass,
however, is particularly important because it is one of the largest
non-intermittent renewable sources and therefore it avoids a lot
of the inherent problems or weaknesses associated with some of
the renewables, in that some of them are intermittent. We represent
producers of energy from biomass, of electricity from biomass,
by two main methods. One is dedicated biomass plants, and, for
example, Malcolm Chilton's company, EPRL, run a plant near Ely,
which generates power from straw, and also biomass generation
through co-firing, which is introducing biomass into fossil fuel-fired
plants, primarily coal-fired plants, and Powergen, amongst others,
generate renewable power through that method.
Q147 Chairman: What role do you envisage
playing in the development of energy from biomass? I guess you
have answered that really, have you not, in what you have said
just now?
Mr Wolfe: Biomass energy can be,
and must be really, a significant proportion of the increasing
renewable power that is to come forward. Having said that, at
the moment biomass is not expanding to any significant extent
in the UK at all, compared with other forms of renewable generation,
due to some structural weaknesses in the market-place which I
think we outlined in our written submission. So at the moment,
as we see it, biomass is not progressing as it needs to.
Q148 Chairman: To what do you attribute
that?
Mr Wolfe: There are quite a number
of contributory factors. One is the way in which the renewables
market is progressing generally. There are issues with the transition
to the Renewables Obligation which, on the whole, is a mechanism
of which we are strongly supportive, but that does bring issues
concerning financeability, in particular, of new plant, and biomass
certainly suffers from that. Another issue is the non-existence
at this stage of an established fuel chain for biomass. At the
moment there are farmers there ready and willing to grow energy
crops, there are power stations ready and willing to burn such
energy crops, but there is nothing in-between the two and it is
not realistic to expect power generators to go and contract with
individual farmers to get their fuel supplies, and equally it
is not realistic for the farmers to go and market their products
direct to generators. There needs to be this tier in-between to
provide economic and reliable energy supplies into the generating
stations and that does not exist at the moment. Finally, there
is the issue of economics. Because the market is not yet established,
the initial supply of energy crops into this sector will be comparatively
more expensive than other sources. In the longer term that may
be soluble but in the short term, because the fuel chain is not
yet established, there will be competitiveness issues.
Q149 Chairman: Can I ask Mr Chilton
a specific question, because I notice your company is involved
with the plant at Ely to which you have just referred. I live
near Saffron Walden and some of my local farmers use big bales,
which go off to your plant to be burned, and, of course, these
big bales go on very big lorries, which use a great deal of diesel
fuel and knock the hell out of very small country lanes in order
to get there. How do you draw the environmental balance and the
cost/benefit and the fuel cost/benefit in doing this, because
I am rather against this because I do not like these great lorries
chewing up all the little country lanes around where I live? This
is NIMBYism, but politicians ought to represent the rest of the
population.
Mr Chilton: Yes, it does sound
like NIMBYism, I must say. It is very difficult, actually, as
a developer of a wide range of renewable power technologies, to
find complete acceptance of anything that the industry does. When
a power station is located, usually there are planning issues
associated with that and local acceptance issues from the people
who live nearby, and clearly transport of fuels to a site is one
of the key disamenities, if you like, associated with building
these plants. I think the only way to overcome this is to ensure
these plants are sized appropriately, so the economies of scale
can go only so far. Biomass is not a dense fuel and therefore
requires a lot more transport than, say, coal would to a coal-fired
power station, so these plants have to be sized appropriately,
they have to be located where the fuel is. At Ely, for instance,
where our straw power plant takes 200,000 tonnes per year of straw,
we draw straw from within a 60-mile radius, most of it within
a 30-mile radius, but within that area we take only five% of the
available straw supply.
Q150 Chairman: Does it operate throughout
the year?
Mr Chilton: Yes, it does. Clearly,
straw is available at only certain times of the year, so we have
a big storage issue, that the straw has to be stored throughout
the year, but that is okay, straw stores very well, it does not
deteriorate too badly.
Q151 Chairman: It can be stored outside,
I take it?
Mr Chilton: It has to be stored
outside, yes.
Q152 Chairman: It is so densely packed
that the outer layer gets lost?
Mr Chilton: Yes, we lose the outer
layer. It depends on the weather but we can lose the outer layer,
and usually that goes to composting, so it is not completely lost.
Chairman: I am in favour of composting.
Q153 Alan Simpson: I am sure, Chairman,
that the nuclear power station we are about to announce for Saffron
Walden will make a big difference to the number of lorries. I
am interested in trying to make connections from the evidence
we were given, as a Committee, when we went to Brazil, where they
were taking us through just the economics of their energy and
fuel production process, massively focused on the development
of biofuels. They were making the point that the efficiency of
that process is increased dramatically if the energy for the fuel
production also comes from the energy crop that is grown. I am
wondering why, in the submissions that you have made, you feel,
and you say, that in the UK there is a very limited amount of
energy crop production. What do we have to do to change our focus,
to engage with the same sort of ecological impact thinking which
clearly Brazil has been doing? They were able to show us that,
in fact, now, the costs for them of growing the sugar cane and
producing the fuel from the sugar cane gives them a carbon gain
which is greater than the carbon emitted by the burning of the
fuel. What have we got to do in the UK to begin to shift the nature
of our market to make biomass a part of the biofuels equation?
Mr Wolfe: Firstly, we have to
break what we referred to in our evidence as a Catch 22 situation.
At the moment, there are no energy crops being planted to go into
power generation because there are no, or very few, dedicated
biomass-burning plants. At the same time, there is no new capacity
going in because there is no established fuel crop chain. So both
sides of that prospective customer/supplier relationship perceive
the risks as being too high because they are relying on something
which does not happen on the other side of the barrier, if you
like, take place, so both of them see excessive risk in that.
We do believe that, prospectively, it is a role for Government
to help break that particular log-jam, and fund the establishment
of the fuel chain. Therefore, remembering we represent primarily
power generation, the ability to supply our members with a reliable
and economic fuel source is the thing which, from our side of
the argument, would go a long way towards breaking the log-jam,
making investment in new generating capacity stack up.
Q154 Alan Simpson: Can I focus quite
specifically on some other points which have been made in the
submissions about the question of co-firing. What we know is that,
under the Renewables Obligation, co-firing will receive support
only until 2011, and, from 2006, that 75% of the biomass used
in it must come from energy crops. But in the submission from
Powergen I think you make it clear that sufficient energy crop
will not be available to enable generators to meet the 75% energy
crop requirement for co-firing of biomass by 2006. The two questions
really which spring to mind from that are, first of all, you said
that co-firing is a better path for us to be pursuing than stand-alone
energy production, and, if so, how do we get to that point where
we can meet the requirement?
Mr Wolfe: There are several things.
Certainly we see co-firing as one prospective way of unblocking
this log-jam. I am not sure we would say that co-firing is better
or worse than stand-alone, we feel that both have a role to play.
Certainly in the longer term we would expect co-firing to diminish
progressively as coal-fired power stations reduce their contribution
to the UK energy mix, assuming that these sorts of trends, trailed
in the White Paper, take place. So in the longer term co-firing
is likely to diminish, but certainly in the foreseeable future
it may well be a significant tool to unblocking the Catch 22 that
we have talked about. Secondly, doubtless you are aware that,
in a consultation published just last week on amendments to the
Renewables Obligation, proposals have been put forward to relax
some of the timescales with respect to co-firing and the percentage
of energy crops to give added time to the energy crop supply chain
to build itself to realistic levels, to enable those to be met.
So there is now discussion on extending both the 2006 date and
also on changing the 75% fuel crop eligibility to levels which
make it more realistic for the energy crop industry to be able
to achieve those. Provided that those do not impact seriously
on financeability more generally, and that is an issue to watch
carefully, provided that we can overcome that particular thing,
then those changes may well prove beneficial for the energy crop
market.
Mr Raymant: From our point of
view, both co-firing and dedicated biomass plants are going to
be important if the renewable energy target is going to be met.
Co-firing is the only realistic economic means of burning biomass
for renewable energy generation, as it stands currently, and therefore
we think it is very important that it is allowed to continue,
in order to allow the fuel supply chain to develop and for farmers
to start growing crops in greater quantities. In the longer term,
obviously, as Philip said, as generation from coal-fired power
stations declines and as the plants get older then clearly we
would need to replace that generation with generation from dedicated
biomass plants. From our perspective, we are developing both options,
but I have to say that the only one which is economic at the moment
is co-firing.
Q155 Alan Simpson: A lot of groups
are starting to say to us that we have to begin our measurements
of environmental impact in terms of ecological footprinting. In
terms of your own assessments about co-firing, as opposed to stand-alone
biomass generators, have you begun to look at not just the economics
of the current market-place but which offers the greater prospects
of environmental gain?
Mr Raymant: Not specifically,
no, because I think our main focus is on meeting the requirements
of the Renewables Obligation, which, in effect, is looking to
source renewable energy by the most economic means possible, obviously
within the rules set out in that Obligation. Therefore, I guess
it is not something that we have looked at specifically to date.
One point I would make is that, clearly, co-firing is constrained
by the geography and logistics of the existing power plants anyway,
so there are natural constraints on what you can do with those
existing power plants, but they are as efficient as any new plant
that you could build because of the economies of scale that you
get with those large installations. Therefore, inevitably, it
becomes a balance between have you got the plant in the right
location, hence minimising transportation impact, compared with
the benefits you get from utilising existing assets.
Q156 Mr Mitchell: The costs and the
amount of subsidy and support necessary for biomass power stations,
United Utilities suggest that the capital grants scheme takes
care of the extra capital costs, is that right?
Mr Dickson: Yes.
Q157 Mr Mitchell: What needs to be
covered is the extra costs of bringing in and gathering the fuel;
is that right also?
Mr Dickson: Yes. Our position
currently is that the bioenergy capital grants scheme, which was
administered last year through DEFRA, certainly has a major beneficial
effect for stand-alone projects, and it is stand-alone rather
than co-firing in which we are interested. But there remains a
gap, and that gap can be explained by talking about the additional
costs of production and supply of fuel to the plant, and that
is what we have tried to quantify in the submission which I put
in.
Q158 Mr Mitchell: That is the basic
reason why there has been so little take-up?
Mr Dickson: Take-up of the bioenergy
capital grants scheme, yes. Certainly, at present, once the switch
happened from the NFFO-assisted projects to the Renewables Obligation,
with the capital grants to support biomass, there has been a failure
to promote many projects. Our position is that, at the minute,
the gap still exists; once the grants have been awarded there
remains still a viability gap before projects can be developed.
Q159 Mr Mitchell: The figure you
quote, of £15 per megawatt hour, how is that arrived at,
is that a generally-accepted figure, or is it an opening bid,
or what?
Mr Dickson: That is a figure which
has been talked of through the industry for some time, and that
figure itself covers the premium which exists on the fuel, it
can be talked of as a "risk premium" on the production
of fuel. That covers the lack of experience, the need to develop
further the harvesting techniques, the haulage techniques, to
develop further high-yield crops, it covers all those sorts of
issues, where the gap exists currently.
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