Energy and Climate Change CommitteeWritten evidence submitted by Forth Energy (BIO14)

Overview of Forth Energy and Summary of Views

1. Forth Energy, a joint venture between Forth Ports Limited and SSE plc, plans to develop three high-efficiency, wood-fuelled Combined Heat and Power (CHP) plants in Scotland. The plants will be situated at the Ports of Grangemouth, Dundee and Rosyth. Together they will have the capability to deliver 300 MW of reliable, controllable, renewable electricity to the national grid and up to 260 MW of renewable heat to neighbouring industrial and commercial users, and to new district heating networks. The combined output of the plants can deliver around 30% of the Scottish Government’s 2020 renewable heat target and approximately 6% of the renewable electricity target, and can contribute to the UK’s target of providing 15% of its energy demand from renewable sources by 2020.

2. Forth Energy welcomes the opportunity to provide evidence to the Committee’s Bio-energy one-off session.1 In response to the specific terms of reference set out by the Committee, Forth Energy’s views are that:

CHP plants fuelled by sustainably-sourced biomass can play a significant role in meeting both the UK’s decarbonisation and renewable energy targets.

Renewable, low-carbon electricity generation from biomass CHP plants has a valuable role within a well-balanced and diverse UK generation portfolio.

Large-scale biomass CHP plants, located in industrial and urban areas, have the potential to make a major contribution to the UK’s renewable heat ambitions.

Policies and proposals should further promote the deployment of biomass CHP plants, by increasing certainty and reducing the risks faced by developers, investors and lenders.

Government must create regulatory clarity and stability, giving industry the long-term certainty needed to develop biomass CHP projects and lenders and investors the confidence to provide financial support.

3. Our comments below address the questions covered within the Committee’s terms of reference in the context of the biomass CHP plants Forth Energy proposes to develop.

Q1 What contribution can biomass make towards the UK’s decarbonisation and renewable energy targets? Are the Government’s expectations reasonable in this regard?

4. The UK has committed to an 80% reduction in greenhouse gas emissions by 2050 and to providing 15% of energy demand from renewable sources by 2020. Combined Heat and Power (CHP) plants fuelled by sustainably-sourced biomass can play a significant role in meeting both the UK’s decarbonisation and renewable energy targets.

Biomass CHP contribution to UK decarbonisation targets

5. CHP plants utilise energy efficient technologies to achieve significant primary energy savings (ie reduced fuel consumption) compared with the separate generation of electricity and heat. Our proposed Grangemouth CHP plant, for example, can deliver primary energy savings in the order of 24%. Increased deployment of CHP technology can therefore deliver a sustained reduction in the UK’s energy consumption and hence carbon emissions.

6. As well as the primary energy savings, renewable CHP plants, fuelled by biomass, can deliver significant emissions savings relative to fossil-fuelled CHP plants. To demonstrate this, Forth Energy commissioned the Scottish Institute for Sustainable Technology (SISTech) to undertake a time-dependant study of the carbon emissions from the proposed Grangemouth biomass CHP plant under a range of realistic fuelling scenarios.2 The study included all emissions from land-use change, harvesting, processing, transportation and combustion of the biomass fuel, netting off the CO₂ absorbed by subsequent biomass regrowth. It found that the Grangemouth biomass plant can deliver atmospheric CO₂ savings within five to eight years (depending on the biomass type and source location) compared to a state-of-the-art gas-fired CHP plant. Over the 20 year minimum lifetime of the plant, the cumulative atmospheric CO₂ reduction compared to a new gas CHP plant is in the order of 4 to 7 Mt.

Biomass CHP contribution to UK renewable energy targets—electricity generation

7. Renewable, low-carbon electricity generation from biomass CHP plants has a valuable role within a well-balanced and diverse UK generation portfolio. It will complement the expected large increase in intermittent renewable generation technologies and improve security of supply by providing controllable and reliable electricity, without requiring fossil-fuelled back-up capacity. New-build dedicated biomass CHP plants can maintain the UK’s diversity of fuel type and source locations, both in the short-term and as the interim technology of co-firing biomass at coal plants declines.

8. Whilst we support the work to develop and commercialise Carbon Capture and Storage (CCS) for fossil-fuelled plants, it is yet to be proven on a large-scale and is only likely to deliver low-carbon generation in the long-term. In contrast, biomass is a proven renewable generation technology which can provide reliable and controllable generation and reduce overall atmospheric carbon emissions in the short to medium-term when compared to coal, oil and gas-fired generation capacity.

Biomass CHP contribution to UK renewable energy targets—heat production

9. Forth Energy welcomes DECC’s recent publication of the Future of Heating report3 and the Scottish Government’s intent to develop a longer-term strategic vision on heat and a Heat Generation Policy Statement, as described in the updated 2020 Renewable Routemap.4 Together, these help to provide clarity on the UK and Scottish Governments’ strategies, policies and proposals for delivering a substantial increase in the deployment of renewable heat. We suggest that these documents are supplemented by greater quantitative analysis, setting out the potential evolution to 2030 of renewable heat capacity and energy production, by each technology.

10. Forth Energy believes that large-scale biomass CHP plants, located in industrial and urban areas, have the potential to make a major contribution to the UK’s renewable heat ambitions, particularly in the short to medium-term during which other technologies cannot be deployed at scale and cannot meet the diverse heat requirements of industrial, commercial and domestic users. Biomass CHP is a well-established technology that can be delivered at a wide range of scales suitable to the local energy need. Whilst small-scale plants are generally most appropriate for meeting the energy requirements of rural locations, large-scale CHP plants are required to reduce energy consumption in, and emissions from, energy intensive industrial and urban areas.

Q2 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?

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

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

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

Carbon reductions from biomass CHP plants

11. Our response to Q1 highlights the significant carbon emissions reductions that can be achieved by biomass CHP plants. Over the 20 year minimum lifetime of our Grangemouth plant, the cumulative atmospheric CO₂ reduction compared to a new gas-fired CHP plant is in the order of 4 to 7 Mt. The saving relative to the EU fossil-fuel standards for electricity and heat is even greater and is in the order of 12 to 15 Mt.

12. DECC’s recent biomass sustainability consultation proposed that dedicated biomass plants (with or without CHP) must achieve an emissions intensity below 240 kgCO₂eq/MWh for electricity production to be eligible for support under the Renewables Obligation (RO).5 This represents a carbon saving of at least 66% relative to the EU fossil fuel standard emissions intensity for electricity of 712 kgCO₂eq/MWh and is the most onerous level of carbon saving from biomass required by any EU Member State. It is further proposed reducing this maximum intensity to 200 kgCO₂eq/MWh from 2020, a carbon saving of at least 72% relative to the EU fossil fuel standard.

13. Forth Energy supports the introduction of robust and meaningful emissions intensity limits. However, we urge the Government response to the consultation to provide industry with the certainty it needs to allow long-term fuel supply contracts, with emissions intensity limits defined for the tenor of the contract, to be put in place. Such contracts are a pre-requisite of raising the project finance needed to construct the plant. Specifically, the emissions intensity limit (or trajectory) must be grandfathered at the point of accreditation under the appropriate renewables support mechanism (RO or Feed-in Tariff with Contract for Differences (FiT CfD)) and any future changes to emissions intensity limits must only apply to new plants and have sufficient lead time (in the order of 4 years) so as not to impact on those plants which have already achieved financial close but not accreditation.

Cost effectiveness of biomass plants

14. Over the period 2013 to 2017, biomass plants will receive between 0.4 and 0.5 ROC/MWh less support than the marginal renewable electricity technology of offshore wind. Support for heat from large-scale biomass plants available under the Renewable Heat Incentive (RHI) is the lowest level for all supported technologies. However, the electricity biomass plants supply is both reliable and controllable, unlike intermittent renewable technologies, including offshore wind. In addition biomass plants bring increased economic benefits relative to other renewable technologies, as described in the next section.

15. Accordingly biomass plants represent good value for money to the consumer compared with the marginal renewable technology.

Benefit to the economy of biomass CHP plants

16. The construction and operation of new dedicated biomass plants will make a significant contribution to the UK economy. Forth Energy’s three biomass CHP plants represent a combined investment in the order of £1 billion and each could provide around 300 to 500 jobs during a 3 year construction period and 70 jobs during the minimum 20 years of operation. The Gross Value Added to the local economy from each plant has been estimated at £26 million per annum.

17. All three plants could attract inward investment to their industrial hinterlands from companies seeking supplies of renewable, low-carbon energy. Feasibility studies have been conducted into the construction of a district heating network from each plant, providing low-carbon heating and hot-water to domestic and commercial premises.

18. Increased deployment of biomass energy projects can secure existing forestry jobs as traditional pulp and paper markets decline and can provide a new market for low-grade virgin wood or diseased wood that is currently left in the forest to decompose, releasing carbon in the process. This in turn can increase the active management of forests, improving their properties as carbon sinks.

Wider potential impacts of biomass plants

19. To address the wider potential impacts of greater biomass use, DECC’s recent biomass sustainability consultation proposed the introduction of sustainable forest management criteria based on the UK Government’s public procurement policy for wood.6 The definition document for Legal and Sustainable7 within the policy specifically addresses the need to ensure that biodiversity is protected and maintained (sections 2.3 and 2.6) and that full regard is given to certain social criteria (section 3).

20. The recent introduction of the EU Timber Regulation, which aims to further reduce the risk of illegally harvested timber being placed on the EU market, requires operators to assess and mitigate the risk of being delivered illegally harvested timber, develop and maintain a system of due diligence and maintain comprehensive records of all fuel transactions. Forth Energy considers these to be best practices in respect of biomass fuel purchasing which will increase assurance that fuel comes from legal and sustainable sources.

Government bioenergy policy

21. Due to the significant benefits arising from biomass CHP plants relative to electricity and heat only plants, Forth Energy believes that Government policies and proposals should further promote the deployment of biomass CHP plants, by increasing certainty and reducing the risks faced by developers, investors and lenders. This is discussed in greater detail in our response to Q3.

Q3 What challenges are there to scaling up the use of biomass in the UK (ie regulation, feedstocks, sustainability, supply chain and financing)?

22. The principal challenge to increasing the deployment of biomass within the UK is the degree of regulatory uncertainty currently faced by developers, investors and lenders. Those issues specific to new dedicated biomass CHP include the ongoing consultations on biomass sustainability criteria, CHP Quality Assurance (CHPQA) standards and the potential new CHP tariff under the RHI.

23. Forth Energy supports these reviews and has responded to each of the consultations. However, we urge the Government to ensure its responses to these consultations create regulatory clarity and stability, giving industry the long-term certainty needed to develop biomass CHP projects and lenders and investors the confidence to provide financial support. In particular we believe that any new biomass sustainability and CHPQA criteria must be grandfathered at the time of accreditation under the renewable support mechanism (either RO or FiT CfD). This would allow developers to enter into the long-term contracts required to address fuel supply and price risk and would provide them with the assurance that the plant design will meet the CHPQA criteria throughout its operational lifetime. Both of these are necessary to ensure that the renewable support mechanisms are “bankable” for the raising of project finance.

24. Regarding the RHI we strongly support the Government’s proposals for a specific CHP tariff to recognise the additional capital costs and the benefits from primary energy and carbon savings of CHP plants, compared with heat-only plants. However, we urge the Government to continue addressing the difficulties in introducing an Enhanced Preliminary Accreditation (EPA, ie “tariff booking”) process to ensure that developers have sufficient certainty regarding the RHI tariff they will receive when seeking to raise finance for a project. In the continued absence of EPA lenders will discount the RHI revenue, increasing the cost and difficulty of raising finance for CHP plants.

Q4 To what extent will UK be able to provide its own biomass and how much is likely to be imported?

25. Forth Energy recognises the limited availability of biomass in the UK and that much of this resource is already consumed by other sectors. Accordingly we intend to import sustainably-sourced woody biomass to our CHP plants, which are located at ports to avoid the emissions and costs of onward land transportation. Whilst importing fuel increases the transportation distance compared with using domestic sources, the carbon emissions from shipping are considerably lower than those from road-based transportation.8 It should also be noted that much of the fossil-fuel that biomass will replace is also imported into the UK.

26. Demand for biomass is expected to increase over the next two decades, particularly as European countries seek to meet their targets for renewable energy. Although Europe currently satisfies the bulk of its demand for biomass internally, increasing volumes will need to be imported to meet the projected increase in demand. SISTech has undertaken a study to determine the potential for non-European countries to provide these imports. The report concludes that the European requirement could be satisfied from only a small proportion of the woody-biomass that the studied countries could produce sustainably.9 Furthermore, this is generally from regions which are already forested (requiring no change in land use), and where the infrastructure is already in place to manage exports to Europe.

27. More recently a Poyry report10 examined the available supply of sustainable biomass in specific regions. Its key findings stated “It is Poyry’s view that there is sufficient biomass available globally to supply the emerging demand of the UK and European bioenergy sector, and the anticipated growth in demand from other global regions, while still meeting applicable sustainability criteria” (page 3).

28. Thus there is sufficient global supply to meet the increase in woody biomass demand from sustainable sources.

29. Forth Energy also commissioned the Fraser of Allander Institute to examine a range of scenarios for the growth of renewable heat in Scotland through to 2020 and beyond and the implications for biomass utilisation.11 Whilst this study was specifically focused on Scotland’s renewable heat target, it provides some useful indicators for the UK’s requirement for imported biomass. The study concluded that “In current circumstances it would appear very difficult for Scotland to achieve the 11% renewable heat target by 2020 using indigenous resources alone.” and “Given current constraints Scotland would be likely to find it very difficult to set and achieve higher post-2020 targets that go beyond 11% for renewable heat without imported biomass” (page 11).

30. Accordingly Forth Energy believes that Government policies should explicitly recognise the substantial contribution that renewable energy plants, fuelled by imported sustainably-sourced biomass, can make towards the UK’s renewable energy and emissions targets. This is particularly true of plants located at ports which avoid the costs and emissions arising from the onward transportation of the imported fuel.

Q5 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?

31. Forth Energy considers that the UK has taken a leading role in ensuring biomass use for energy production is sustainable, whether the biomass is domestic or imported.

32. As stated in our response to Q2, the proposals in DECC’s recent biomass sustainability consultation aim to ensure that significant carbon savings are achieved by biomass plants and that due regard is given to wider potential sustainability issues such as biodiversity and social criteria.

33. The recent introduction of the EU Timber Regulation requires operators to assess and mitigate the risk of being delivered illegally harvested timber, develop and maintain a system of due diligence and maintain comprehensive records of all fuel transactions. These practices will further increase assurance that biomass fuel comes from legal and sustainable sources.

34. Forth Energy has established that sufficient sustainably-sourced biomass resources are available globally from an existing and growing market. This has been demonstrated both through direct engagement with reputable and credible fuel suppliers, and by the biomass supply and demand modelling described in our response to Q4.

April 2013