Energy and Climate Change CommitteeWritten evidence submitted by GDF SUEZ Energy UK—Europe (BIO24)

(i) About GDF SUEZ Energy International

GDF SUEZ Energy International (formerly known as International Power) is responsible for GDF SUEZ’s energy activities in 30 countries across six regions worldwide (Latin America, North America, the Middle East, Turkey & Africa, UK-Europe, Asia, and Australia).

Together with power generation, we are also active in closely linked businesses including downstream LNG, gas distribution, desalination and retail. GDF SUEZ Energy International has a strong presence in its markets with 77 GW gross capacity in operation and a significant programme of 8 GW gross capacity of projects under construction as at 31 December 2012.

The UK-Europe region (GDF SUEZ Energy UK-Europe) has 8.6 GW net ownership capacity in operation, which includes over 5.8 GW of plant in the UK market made up of a mixed portfolio of assets—coal, gas, CHP, wind, a small diesel plant, and the UK’s foremost pumped storage facility. Several of these assets are owned and operated in partnership with Mitsui & Co. Ltd.

The generation assets represent just under 9% of the UK’s installed capacity, making GDF SUEZ Energy UK-Europe the country’s largest independent power producer. The company also has a retail supply business and a significant gas supply business in the UK, both serving the Industrial and Commercial sector.

In the UK, GDF SUEZ Energy UK-Europe is seeking to convert its Rugeley coal-fired plant in Staffordshire to biomass. The company plans to fully convert both units (500 MW each) by Q1 2015, with sources of biomass to be imported to the UK from overseas. GDF SUEZ Energy UK-Europe received planning permission for the conversion in January 2013.

In answering the Select Committee’s questions below, we have specifically considered solid biomass as this is the type of fuel GDF SUEZ Energy UK-Europe,1 in partnership with Mitsui & Co. Ltd, in the UK is seeking to procure as part of its plans to convert Rugeley coal-fired power station.

(ii) Summary Key points

Sustainable management of forests is fundamental for GDF SUEZ in sourcing supplies of biomass for the conversion of Rugeley coal-fired power station. Without sustainable supplies of biomass, the company believes the policy of using biomass to meet decarbonisation and renewable targets will be jeopardised.

GDF SUEZ believes the use of biomass for electricity generation will make a significant contribution to the UK Government’s decarbonisation and renewable targets.

The use of biomass in electricity generation is not a new activity—solid biomass is already used in dedicated biomass plant in Europe and here in the UK.

In maintaining biodiversity it is important that biomass is not be sourced from raw material obtained from land with high carbon stock such as wetlands, peatlands, primary forests or protected habitats.

(iii) Questions

Question 1—What contribution can biomass make towards the UK’s decarbonisation and renewable energy targets? Are the Government’s expectations reasonable in this regard?

1. Up to 6 existing coal-fired power plants could convert to solid biomass by 2020.2 This could mean up to 7GW of converted biomass plant in the UK. At an assumed annual load factor of, for example, 60%, this would provide almost 37TWh of renewable electricity each year. Forecast electricity generation stands at approximately 350TWh in 2020,3 so this represents over 10% of supply. Government has stated a target range of 33TWh to 50TWh from all biomass sources by 2020. It is therefore apparent that biomass can play a significant role in meeting Government’s renewable targets.

2. GDF SUEZ believes biomass can also play a significant role in meeting Government’s decarbonisation targets. The company has commissioned an independent Life-Cycle Analysis (LCA) for biomass conversion at our Rugeley power station, which shows solid biomass supplies will be able to meet Government proposed criteria of 240g/kWh CO₂ emissions by 2020.

3. In addition, a House of Commons Postnote update from 2011 also states, “Recent research has considered various options for replacing up to 10% of coal with biomass. It found that the biomass component reduces GHG emissions by 88 to 97% compared to the coal it displaces.”4

4. We believe Government expectations regarding the contribution of biomass to UK decarbonisation and renewable targets are therefore reasonable.

Question 2—How well have the Government’s bioenergy principles (set out in the 2012 Bioenergy Strategy) been translated into policy?

(a) Are genuine carbon reductions being achieved?

5. Analysis suggests a need to invest in 30–40GW of low-carbon capacity in the decade post 2020 (The 4th Carbon Budget, Committee on Climate Change) to replace ageing plant and to meet growth demand.

6. GDF SUEZ favours the use of sustainable biomass and sustainably managed forests which avoids the potential detrimental effects on the environment and social welfare. To demonstrate our commitment, the company has undertaken an independent lifecycle analysis (LCA) of biomass power generation at Rugeley Power station, which includes sourcing biomass from forestry residues and by-products. Alternate sources of bio-energy, of whole tree harvesting from lower value timber that is grown and harvested specifically for the bio-energy market, has also been analysed.

7. As discussed in point (2) above, the LCA report concludes that operating Rugeley power station on 100% biomass would meet the UK’s sustainability requirement for the proposed maximum lifecycle of emissions of 240g CO₂eq/kWh under the 2020 levels. This is a significant reduction on the LCA studies for coal and gas fired electricity generation. Conventional coal combustion systems result in emissions in the order of >1000gCO₂eq/kWh.5 Current gas powered electricity generation has a LCA in the region of 500gCO₂eq/kWh. Thus biomass represents a significant reduction in CO₂ emissions.

8. The proposed 240g CO₂eq/kWh equates to a reduction of 60% compared to the average EU emissions from power generation on a life-cycle basis.

9. Thus, when compared with fossil fuels, biomass has the potential to play an essential role in the UK’s low carbon future in addition to providing secure and affordable energy.

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

10. We believe biomass provides one of the most cost effective contributions to carbon emission objectives.

11. Following the recent ROC banding review, biomass conversions will receive 1ROC/MWh for generation, with co-firing ranging between 0.5ROCs/MWh and 1ROC/MWh, and dedicated biomass at 1.5ROC/MWh, falling to 1.4 in 2016. This compares favourably to other forms of renewable technology, such as onshore wind (0.9ROCs/MWh) and offshore wind (1.5ROCs/MWh). Biomass represents one of the least costly sources of renewable energy for each unit of electricity produced.

12. Given the potential scale of generation from biomass sources as discussed in Question 1 above, this demonstrates the cost-effectiveness of biomass in carbon emission objectives and for the wider UK economy.

13. Biomass conversions can provide a reliable supply of both firm and baseload generation to the UK electricity market. The provision of firm power helps address future security of supply concerns, particularly as larger volumes of intermittent generation are likely to be commissioned over the next 15 years. In other words, converted biomass plant will be able to contribute to filling gaps in supply as intermittent generation varies in load. This will help maintain security of electricity supply, which in turn will help support the economy and economic growth.

(c) Is support for bioenergy maximising the overall benefit to the economy?

14. WWF and the European Biomass Industry Association (AEBIOM) produced a report in 2004 showing that using biomass fuel derived from agriculture and forest waste, instead of coal, to generate electricity, could reduce carbon dioxide emissions by about one billion tonnes. The report stated that the production of biomass will create up to 400,000 jobs worldwide by 2020, particularly in rural areas.

15. The company’s plans to convert Rugeley Power Station from coal to biomass will also bring benefits to local economies. We anticipate the conversion employing several hundred people employed directly as part of the construction of new equipment at site. Furthermore, we estimate new and existing people employed as part of the investment at ports, and roles safeguarded in rail logistics. It is likely the conversion will also lead to indirect jobs being created further along supply chains as capital equipment is manufactured for installation at the plant.

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

16. The Energy Services Industry has learnt valuable lessons from the debates within the bioliquid industry, in particular the palm oil sector. GDF SUEZ therefore supports the incorporation of sustainability criteria into biomass procurement.

17. In assessing sustainability across the life cycle of a project, land use issues, which include; protection of biodiversity, not procuring biomass from protected areas, ensuring that all biomass is legally sourced and does not endanger food supply all need to be considered.

18. Improvements to woodland management may enhance biodiversity by providing more rides and edges, encouraging tree regeneration and coppice reinstatement and providing temporary open areas and thickets.

Question 3—What challenges are there to scaling up the use of biomass in the UK (ie regulation, feedstocks, sustainability, supply chain and financing)?

19. The current wood demand in the UK is 30Mt, the majority of which is imported and of which 0.7Mt is currently used in power generation. As discussed in Question 1, a further 36TWh of electricity could be supplied from biomass conversions by 2020. This represents a further 18Mt of solid biomass used in electricity generation each year by 2020.6

20. In scaling to this level, GDF SUEZ agrees that the key issues for the future of biomass are regulation, feedstocks, sustainability criteria, supply chain and financing. The company also believes that incentives for biomass generation are a key issue.

21. On incentives, the RO mechanism is already known to generators. However, Government is seeking to provide other incentives to encourage the growth of biomass generation, in particular through the conversion of existing coal-fired plant through the offer of Investment Contracts (CfDs). GDF SUEZ welcomes Government’s decision to offer a one-off choice to operators of accredited co-firing plant between the RO mechanism, and an Investment Contract.

22. At the time of writing, further detail regarding Investment Contracts under FID Enabling for Renewables needs to be finalised. Investment Contracts will arguably provide a more certain form of renewable offtake compared to the RO, particularly as a contract will have a fixed strike price and duration. Therefore, to encourage further scaling up of the use of biomass, we support Government plans to offer operators seeking to convert coal plant to biomass the one-off choice.

23. As a company we will continue to comply with all relevant regulation. We believe that sustainability issues are key for operators. Setting and achieving robust sustainability criteria will help develop trust in biomass as a sustainable alternative to fossil fuels.

24. Stimulation of a sustainable supply chain may require a workforce, including installers, forestry staff and hauliers, primarily concentrated in rural areas. As many of these jobs are likely to be part time they will support economically challenged communities. Involvement of private business will be key to realising the economic opportunity presented.

Question 4—To what extent will the UK be able to provide its own biomass and how much is likely to be imported?

25. World production of biomass (wood) was estimated by the Food and Agriculture organisation of the United Nations (FAO), at just over 2.5 billion metric tonnes in 2007 (FAOStat, 2009) and 2.9 billion metric tons in 2008.

26. The current wood demand in the UK is 30Mt; the majority is imported. Power generation uses 0.7Mt (Committee on Climate Change, 2011). As discussed in Question 3, a further 18Mt of biomass could be used for electricity generation each year by 2020.

27. Even with the Forestry Commission’s target to bring an additional 2Mt of biomass to market (equates to 0.4Mt of carbon saved per annum), annually, by 2020, representing 50% of the estimated un-harvested available material in English woodland; the UK will require imported biomass to meet demand.

28. GDF SUEZ believes that there are very few additional wood pellet production capacities in Europe and only US and Canadian suppliers could actually meet the increasing demand from current and prospective UK biomass generators on economically reasonable terms.

29. GDF SUEZ’s plans for conversion at Rugeley power station include no purchasing of wood supplies in the UK, but to import biomass from overseas. This is recognised in our procurement strategy.

Question 5—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. GDF SUEZ believes that an EU-wide sustainability scheme would provide reliable evidence to the general public that biomass is a sustainable fuel. However, it would be crucial to introduce a grandfathering clause so as to continue to provide investors with legal certainty. If sustainability criteria are not implemented at EU level, it is likely that each Member State will develop individual criteria and initiatives, with the UK being the most advanced. The concern here is that it will be difficult to compare criteria between areas with potentially diverse initiatives. This may lead to unfair advantage in parts of the EU which may have less stringent criteria. Therefore, GDF SUEZ asks for long term visibility and predictability for investment in general.

31. GDF SUEZ feels it is important that there is public acceptance of biomass as a fuel source to replace coal in order to help achieve the UKs legally binding renewable targets. Setting, and achieving, meaningful and robust sustainability criteria will help develop this trust in biomass as a sustainable alternative to coal fired generation.

32. GDF SUEZ believes that it would be more appropriate and practical to implement a scheme whereby suppliers (instead of forest owners) could be accredited. A more universal and widespread scheme that once implemented would still deliver robust sustainability criteria, instead of the UK Government’s public procurement policy, would provide stability in criteria that is needed to encourage industry, such as the scheme being developed by the Initiative Wood Pellet Buyers (IWPB).

33. Since 2010, major European energy utilities (as well as pellet producers and the European wood industry) have been collaborating on development of the IWPB, with the aim of facilitating trade between utilities through uniform contracting. To accomplish this, IWPB established a standard contract for wood pellet trading, uniform specifications for industrial wood pellets, and common sustainability criteria. The latter is now being developed to establish a common sustainability scheme, signposting a route to develop European-wide acceptability and consistency, setting level playing fields based on a robust policy and thereby establishing credibility for biomass operations of all participants.

34. As indicated in our response to Question 2d, the Issues such as biodiversity, soil protection, water quality, carbon stock and greenhouse gas balance are all issues which require consideration with respect to sustainability.

35. Best practice in forestry management ensures that carbon stocks are maintained which in itself leads to sustainable forest management. Wood used for wood pellets tends to come from the relatively low-value part of wood including sawdust or forest residue. Forest managers do not grow wood for pellet production, but rather for the high value part of the wood (known as the “saw-log”)—this means there is no economic incentive to take action to satisfy the criteria (for example, obtaining forestry management certificates) in order to sell the wood to the pellet suppliers, unless the buyers of the high-value part of wood require it.

36. These issues can be addressed by operators by ensuring that appropriate contracts are in place, that suppliers are meeting sustainability criteria, and that verification occurs through inspections and independent audits throughout the supply chain.

April 2013