Energy and Climate Change CommitteeWritten evidence submitted by RWE npower (BIO07)

RWE welcomes the opportunity to submit evidence to the Energy and Climate Change Committee’s Bioenergy Inquiry. We are responding on behalf of RWE companies operating in the UK:

RWE npower, the UK energy retail business, supplies gas, electricity and energy services to around 6.5 million households and businesses across the UK.

RWE Generation SE, which pools the generation entities and engineering expertise of RWE Power in Germany, RWE Essent in the Netherlands and RWE npower in the UK. In the UK, the power generation fleet generates over 10% of the UK’s total electricity supply from its gas, coal, oil and biomass-fired power stations, and manages a portfolio of combined heat and power (CHP) plants across the country.

RWE npower renewables, the UK subsidiary of RWE Innogy, is one of the UK’s leading renewable energy developers with an operational portfolio in the UK of 500MW and a potential UK development portfolio of over 7,700MW, including wind farms, hydro plant and biomass generation to produce sustainable electricity.

RWE Supply & Trading is one of the leading companies in European energy trading and is responsible for all of RWE’s activities on the international procurement and wholesale markets for energy.

Our response focuses on the use of biomass in the electricity sector.

Summary

We support the principles of the Government’s Bioenergy Strategy and the decision to focus on specific low risk energy pathways.

While the Government’s expectations with regard to the electricity sector seem reasonable, it could be affected by a number of uncertainties such as the attitude of investors to risk and the development of biomass supply chains.

The recent changes to Renewables Obligation (RO) legislation will introduce greater flexibility for potential biomass generators and enable a cost effective contribution from this technology in the short to medium term.

The publication of pragmatic sustainability criteria in a timely manner that will protect against any loss of biodiversity and maintain food security is required.

It is important that sustainability criteria are consistent across the European Union in order to allow the development of cost effective supply chains.

Detailed Comments

What contribution can biomass make towards decarbonisation and renewable energy targets? Are the Government’s expectations reasonable in this regard?

1. We support the four principles of the Government’s Bioenergy Strategy namely that:

Bioenergy polices should deliver genuine carbon reductions that help meet UK carbon emissions to 2050 and beyond,

Bioenergy support should be carbon cost effective compared to alternative technologies,

Support must maximise overall benefits and minimise costs across the economy,

The effect of policy support should be assessed regularly for its impact on food security and biodiversity.

2. We agree that the development of CHP and Energy from Waste generation, the conversion of existing coal fired power stations and the use of biomass in heating and transport are low-risk energy deployment pathways that will allow development of the energy sector.

3. Within the electricity sector, the key constraints are likely to be the attitude of investors to risk such as sustainability criteria, the availability of biomass supplies and changes to the regulatory landscape. These factors will increase the level of perceived risk of investments.

How well have the Government’s bioenergy principles (set out in the 2012 Bioenergy Strategy) been translated into policy?

4. The conversion of existing coal plant to biomass is a sensible short to medium strategy to lower UK carbon emissions. At the same time, we support the introduction of the capacity cap on the development of new electricity-only dedicated biomass generators to avoid any long-term technology lock-in.

5. The levels of the Renewables Obligation proposed with effect from April 2013 are sufficient to enable the development of the most economic plant conversions from coal to biomass. The proposal to introduce “unit by unit” accreditation rather than “whole station” accreditation is also welcome as it introduces greater flexibility for investors.

6. However, while the Government has provided incentives under the Renewables Obligation to progress towards full unit conversion from coal to biomass there remain uncertainties regarding the requirements necessary to retain support. These require resolution.

7. We welcome the explicit inclusion of biomass conversions in DECC’s recent invitation to developers to participate in the Final Investment Decision Enabling programme. We look forward to the planned publication of Investment Contracts and strike prices in July. We would urge the Government to move swiftly and decisively in order that developers have a clear framework within which to invest in biomass projects under the new Contracts for Difference (CfD) regime prior to full implementation of Electricity Market Reform (EMR).

8. In the absence of compelling investment cases for full conversion, the lower capital expenditure associated with standard co-firing has its place as a legitimate, cost effective, carbon abatement technology in its own right.

9. Unfortunately, recent changes to the Renewables Obligation will, according to DECC’s impact analysis result in the cessation of standard co-firing. This could be viewed as contrary to the principles of the UK Bioenergy Strategy.

10. We are concerned that the Government’s conclusions on sustainability criteria for solid biomass used in electricity generation are still outstanding. We understand that the Government intend to issue further proposals towards the end of April. Until these criteria are established, together with an effective date of implementation, it is difficult for generators to invest in long-term contracts.

11. It is also important that these criteria are consistent with those in the rest of Europe in order that an effective supply chain can develop.

Are genuine carbon reductions being achieved?

12. Yes, it can be clearly demonstrated that when biomass is used for the production of electricity in place of coal, genuine carbon dioxide (CO2) reductions result in all credible scenarios.

13. The target CO2 savings compared the EU fossil fuel comparator for the use of biomass is 65%. Using Ofgem’s UK Biomass and Biogas Carbon Calculator, typical CO2 emission savings for direct biomass shipments from the following countries are:

USA: within the range of 71 to 76% savings.

Canada: within the range of 74% to 78%.

EU: within the range of 75% to 85%.

14. It is important that sustainability criteria are pragmatic and deliverable for the key wood producing regions and recognise existing laws and practices which address sustainability concerns at the local level. It is also important that targets are credible, ie they achieve the dual objectives of encouraging efficiency and sustainable practices in manufacturing and use of fuels.

15. The biomass supply chain recognises that sustainability concerns must be fully addressed in order for the sector to ensure stakeholder credibility. To date significant progress has been made with the widespread use of voluntary certification and verification schemes such as Green Gold Label, the common use of Life Cycle Analysis (LCA) for wood pellets, the application of the Ofgem’s UK Biomass and Biogas Carbon Calculator, and the active development of the multi-stakeholder initiatives such as Industrial Wood Pellet Buyers Standards.

16. However it is important that Government recognises that whilst it is possible for biomass to result in an unfavourable LCA in extreme cases, the use of whole trees can result in significant carbon savings from the use of thinnings and plantations in areas of fast growing, actively managed forestry.

17. It is clear that despite the relatively slow development of sustainability criteria by the Government, the implementation of standards by the industry is making substantial progress. We would like to see similar sustainability standards introduced for all wood used in the UK in line with the recommendation of Climate Change Committee.

Is Bioenergy making a cost effective contribution to carbon emission objectives?

18. We support the Government view that bioenergy is more cost effective in the short to medium term than some of the alternatives. The Levy Control Framework currently caps the level of support for renewable technologies. The Renewable Obligation Certificate (ROC) banding support available for offshore wind from 2013 is 2 ROCs/MWh whereas that available for coal conversions is 1ROC/MWh and 0.3ROC/MWh for low level co-firing. If sufficient conversions materialise, and are capable of meeting the proposed minimum Greenhouse Gas (GHG) saving of 65%, the result will be a greater volume of low carbon generation for the limited funds available.

19. In the longer term it is anticipated that technological improvements will lead to a lowering of the level of support required for offshore wind and other developing technologies. This will allow greater deployment of these technologies at a time when converted coal plant may be closing.

Is support for bioenergy maximising the overall benefit to the economy?

20. Yes. Support for bioenergy has maintained significant employment in existing power stations and ancillary services such as port infrastructure that would otherwise have closed. At the same time additional highly skilled jobs have been created in the construction industry during the conversion process.

21. Projects that utilise domestic woody biomass have the potential to encourage the active management of additional forestry which further increases employment and encourages biodiversity.

22. We support the view that the UK Bioenergy Strategy gives geopolitical advantages and at the same time enhances security of supply by providing a low carbon source of controllable and despatchable energy that can mitigate against intermittent renewable energy sources.

Is sufficient attention being given to potential impacts in other areas, such as food security and biodiversity?

23. Yes. As long as wood is sourced from sustainable forestry there will be little or no adverse impact on food security and biodiversity. The wood pellets used by large scale conversions are sourced from appropriately managed sources in three main areas: by-products of sawmills; thinnings from forest management; and wood for which there is no other available buyer.

24. In many cases, where there is no market for wood, the land on which it is grown would otherwise be left unmanaged (with extremely negative consequences ecologically and in terms of carbon); be subject to sale; change of use (for example conversion to agriculture), or in some of the worst cases industrial development. Therefore the creation of a market for forestry products results in the land being more likely to remain under active management thus safeguarding biodiversity.

25. Pragmatic sustainability proposals that are consistent with the rest of Europe will allow the development of international trade and ensure that the use of biomass is cost effective for customers.

What challenges are there to scaling up the use of biomass and how much is likely to be imported?

26. Smaller plant may use locally sourced UK biomass. This will be largely waste wood with small proportions of virgin wood. Larger scale conversions require the use of significant homogenous feed stocks (approximately 0.6 tonnes per MWh). This is usually met by the use of imported wood pellets.

27. While the remuneration for conversion and enhanced co-firing bands supports the use of these premium products, biomass utilisation below 50% (standard co-firing) is not sufficiently rewarded to allow use of these premium fuels. If these assets are to contribute to a reduction in carbon emissions, they are likely to utilise UK sourced biomass.

To what extent will UK be able to provide its own biomass and how much is likely to be imported?

28. Biomass sourced from UK woodlands provides an opportunity to improve woodland management and create new jobs in the forestry sector. Currently a significant proportion of UK woodlands are unmanaged, which has contributed to a long-term decline in biodiversity.

29. It is possible that the UK could increase the production of biomass; however the low level of RO support for standard co-firing will restrict its use within existing assets. It is not anticipated that it will be economic to use woody biomass in large-scale generation plant therefore usage of these fuel is likely to be restricted to niche, local projects.

What factors will have to be addressed to ensure that biomass is sustainable and to what extent is it possible to assess the sustainability of imported biomass?

30. As a company we support and encourage the sustainable cultivation, production, procurement, processing, transport, and use of biomass along the entire value chain for energy purposes. To this end the following policy has been drawn up by RWE for the procurement and use of biomass

Only biomass that does not have negative effects on people, society, and the environment will be used.

Biomass sources selected for energy use must make a significant contribution to climate protection, considering all essential process steps in the value chain.

This Code of Conduct will be observed and adhered to along the entire value chain.

The principles of the UN Global Compact will be followed along the entire value chain. In particular this includes respecting the rights of others as expressed in the UN Universal Declaration of Human Rights as well as labour, economic and social rights, taking a precautionary stance with regard to the environment, and a strong commitment against corruption and bribery.

Stakeholders will be actively consulted on relevant impacts on local communities in the neighborhood of biomass facilities and plantations.

Information will be published on the sustainability of the biomass used in the Corporate Responsibility report.

Biomass which is procured for third parties for physical use is subject to the same standards.

31. It is our view that where possible sustainability criteria should make use of existing standards where these are sufficiently robust. They should also take into account local circumstances recognising the differences in approaches between countries eg Canada v USA. Whilst it appears that DECC have taken on board messages on the necessary changes to the UK Government Timber Procurement Policy in order for it to be applicable to wood fuel, the absence of a Government response means that we are unable to comment on the appropriateness of pending sustainability standards.

32. If changes are to be introduced beyond current proposals, these should only be made after consultation with industry and stakeholders. The criteria adopted in the UK must be consistent with the rest of Europe.

April 2013