Energy and Climate Change CommitteeWritten evidence submitted by Ecuity Consulting LLP (BIO11)

This evidence is submitted by a group of leading stakeholders from across the biomass supply chain (BDR Thermea, CPL Industries, Econergy—A British Gas Company, Grant, Veissmann, Wessex and Windhager).

Executive Summary

01. Biomass has significant potential to meet all of the UK’s energy policy objectives. The displacement of fossil fuel in the off-grid heating market with carbon neutral biomass will result in a significant reduction in carbon dioxide emissions. The development of the biomass boiler market will stimulate demand for wood pellets which in turn will provide the commercial drivers for further improvements in the husbandry of the UK’s woodlands, providing a secure domestic sustainable biomass resource. The growth in biomass for heating will also provide new employment opportunities across the biomass supply chain and, in particular, substantially reduce the energy costs of consumers facing fuel poverty in the off-grid heating market.

02. The biomass sector has invested heavily in wood pellet manufacturing and distribution equipment in preparedness for the growth of the biomass boiler sector, and is ready to rapidly respond to the anticipated increase in market demand. However uncertainty surrounding Government incentive schemes is hindering the uptake of biomass boilers. Sales of oil boilers are actually on the increase, yet each oil boiler sale represents a lost opportunity to decarbonise not just today but potentially for the next 15 years. The early remediation of incentive scheme uncertainties will advance the positive contribution biomass can make to carbon objectives, fuel poverty and the UK economy.

03. This group of stakeholders strongly recommend that a distinction be made between biomass for heating and the wider category of bioenergy for transport and power. Without such a distinction we feel there is a risk that the potential for biomass boilers to decarbonise off-grid heating will be marginalised. Further this group supports the registration of approved stainable biomass suppliers and the certification of future biomass imports in compliance with EU sustainability standards.

Evidence in Response to the Questions Posed

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

04. Biomass boilers are the renewable technology particularly suited to domestic and commercial “hard to treat” properties—these tend to be larger rural properties (ranging from private houses to social housing, nursing homes, hotels and schools) that are not connected to the gas grid and currently use electricity, heating oil or LPG for their heating needs.

05. These properties are facing the highest heating costs. “The UK average cost of heating a typical three bedroom house is around 50% higher with heating oil and 100% higher with LPG than with mains gas. This has been a contributing factor in causing a higher proportion of off-grid households to be in fuel poverty (32% compared to 15% of on-grid households).”1 The price of wood pellets is lower and less volatile than heating oil and LPG, therefore the conversion of these properties to biomass boilers will provide substantial energy cost savings for consumers.

06. An Office of Fair Trading study identified that fuel switching in the off-grid market is not readily feasible primarily due to the upfront cost of installing a new heating system and the disruption that would entail2—this is especially so where the heating system is embedded in the building construction. Biomass boilers however have a high flow temperature lending themselves more suitable to retrofitting to an existing heat system without having to upgrade radiators, valves and pipe work.

07. And, unlike electric driven heat pumps, biomass boilers don’t impose an additional electrical load. This is a distinct advantage as often these rural properties are in remote locations at the peripherals of the electrical network with limited delivery capability. Considerable investment is already needed to reinforce the electricity transmission and distribution networks to accommodate inflexible renewable power generation.3 It is in the interests of all stakeholders to ensure that these investment funds are used in the most cost effective way to maximise the benefits for the UK economy.

08. The government’s expectations are the only expectations that could be held; biomass is the most suitable renewable technology for the decarbonisation of the off-grid market.

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

Are genuine carbon reductions being achieved?

09. Biomass is a carbon neutral fuel in that the carbon released through its combustion is equivalent to that captured during growth. Replacing an oil or LPG fired boiler with a biomass boiler is a genuine carbon reduction.

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

10. The UK biomass boiler sector is still in its infancy. The costs of a biomass boiler installation will fall with economies of market scale, but given the tough economic climate consumers are not taking their investment decisions lightly. The uptake of biomass boilers under the RHPP is an indication that the financials can be made to work by those consumers motivated to reduce their fuel costs as well as their carbon emissions. However the biomass boiler sector could be contributing considerably more to carbon emission objectives were it not for the uncertainty surrounding the Governments incentive schemes. The launch of the domestic RHI has been delayed to 2014 and the eligibility of trusts, charities and church owned properties for RHI funding is unclear.

11. This uncertainty is proving to be a hindrance to the wider market uptake of biomass boilers. This is evidenced by a recent press release of the Oil Firing Technical Association (OFTEC) in which they report that “sales of oil boilers in the first quarter of 2013 increased by 22% compared with the first three months of last year. Sales at the end of 2012 also showed an improvement on the previous year.”4

12. Opportunities to decarbonise the off-grid market are being lost not just today but potentially for the next 15 years, given an average boiler service life of between 15–20 years. This is why the resolution of the uncertainties surrounding the Governments incentive schemes is urgently needed to advance the contribution of biomass boilers to carbon emissions objectives.

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

13. This group of stakeholders is concerned that the emphasis being placed on bioenergy for transport and power generation will detract from biomass for heating needs. We would like to see a distinction made between biomass for heating needs and bioenergy which covers a ranging of products from biofuels to biomethane.

14. As expanded upon in item 16 the development of a domestic wood pellet market will enable further improvements in the husbandry of UK woodlands. Potentially creating a secure and self sustaining domestic biomass industry in harmony with the countryside and creating rural employment opportunities.

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

15. Biomass pellets are manufactured from sustainable managed woodlands (softwood) with waste products of the wood manufacturing industry ie sawdust from sawmilling or leftovers from logging (tree tops, side branches) contributing significantly. The woodlands tend to be on less productive land and therefore have little or no impact on food production.

16. The UK tax rules associated with woodland investments and inheritance have led to wider ownership but may not have brought about an improvement in the management of the wood and associated land. The biomass materials from such woodlands are generally not suitable for the construction industry. However a growing domestic market for biomass will provide a commercial outlet, leading to improvements in the preservation and management of existing woodlands and potentially encourage the development of more on land not suitable for food production.

What challenges are there to scaling up the use of biomass in the UK (ie regulation, feedstocks, sustainability, supply chain and financing)?

17. This group of stakeholders is aware of companies who have invested heavily in wood pellet manufacturing and distribution equipment which is now lying redundant pending the launch of the biomass market—the strength of the Euro has stopped any export opportunities. The UK supply chain for wood pellets is ready and waiting to rapidly respond to growth in the biomass boiler market.

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

18. The UK has an annual production capability of circa 400—500 thousand tonnes of EN plus A1 pellets. Whilst current demand for pellets from the heating sector is between 70 and 80 thousand tonnes, there is little risk of major importation in the foreseeable future or until the market has achieved significant growth on the back of a successful domestic RHI. In time a percentage of wood pellets will be imported, these must however be compliant with EU standards.

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?

19. The move towards a register of vendors for sustainable biomass is regarded as essential by this group of stakeholders.

20. As is certification of biomass imports for the country of origin and compliance with EU sustainability criteria.

April 2013