APPENDIX 6: VISIT TO ELEAN AND THETFORD
POWER STATIONS
Friday 30 January 2004
The party consisted of Lord Methuen, Lord Oxburgh
(Chairman) and Baroness Perry of Southwark. In attendance were
Christopher Johnson (Clerk) and Jonathan Radcliffe (Specialist
Assistant).
The Committee was welcomed by Malcolm Chilton, Commercial
Director of Energy Power Resources (EPR), which owns both Elean
and Thetford Power Stations. He made some introductory remarks
about EPR:
- EPR was started in 1997 with venture
capital and private investment;
- EPR generated 130 MW-120 MW from burning 1Mt
of biomass, though the company also operated two wind farms;
- The company had a turnover of £60 million,
but no plans to develop further plant;
- The company also had an interest in Energy from
Waste, but this was handicapped partly by planning procedures,
and partly by the fact that EfW, even the biomass element, was
excluded from the Renewables Obligation.
Elean Power Station, Ely
Elean Power Station is the world's largest straw-fired
power station, generating 36 MW of electricity. After a tour of
the plant, the Committee had an informal discussion with Malcolm
Chilton and the station manager, Chris Stockton. Their general
view was that the 2010 targets would not be met. They believed
that when the Government set the ROC buy-out price at 3p/kWh they
calculated that that figure would deliver the target—however,
it was now clear that this calculation had been wrong. There was
a view that an increase in the buy-out price of around 2p/kWh
was necessary to reach the targets, though the Government could
reduce the cost by focusing on particular technologies such as
biomass. Such changes should be made soon, given the long lead-time
for new projects—the 2005-06 review would be too late.
In discussion the following further points were made:
The power station was essentially similar to a coal-fired
one, on a smaller scale. Straw is used as a fuel to heat water,
creating steam at 520°C and 97 bar to drive turbines. A small
amount of natural gas was burnt (approximately 6 percent of the
total) as a support fuel. The plant operated at 32.5 percent efficiency,
with a load factor over 90 percent.
220,000 tonnes of straw were burnt each year, delivered
in the form of half-tonne Hesston bales from a maximum radius
of 60 miles, costing £35 per tonne at the power station door.
The price paid to farmers for straw in the field was some £2 per
tonne—the rest of the cost was made up of baling, storage,
transportation etc.
The low calorific value of straw meant a large volume
was required: two barns on site held three days' fuel, and many
local holding sites were used to store straw for up to twelve
months. Some 12 percent of the stock was lost due to arson (costing
some £400,000 in the last year) or weather damage.
Tonnage contracts with individual farmers accounted
for 120,000 tonnes, 100,000 tonnes came from EPR's own Anglian
Straw company.
The logistics of ensuring a regular fuel supply were
critical. The effects of weather conditions in this regard (for
example, wetting straw) had not been fully appreciated when the
initial viability studies were carried out.
The turnkey cost for constructing the plant was £47.2
million; the overall indebtedness was £55 million. The company
did not expect to show a return on this investment for 15 years.
The plant had a NFFO contract, through to 2013, with
the Non-Fossil Purchasing Agency to supply electricity at 6p/kWh.
The NFPA retained revenue generated by selling on ROCs, which
was ultimately passed on to the Treasury. If this money could
instead be recycled to generators it would make a crucial difference
to their economic position.
The security provided by NFFO contracts was reassuring
for banks, when compared with the value of ROCs, which were not
guaranteed. This made new investment under the RO less likely.
Furthermore, though prices were guaranteed by NFFO contracts,
they were not varied to take account of changes in the regulatory
environment. Such changes, for instance the introduction of the
EU Waste Incineration Directive, could see existing renewable
generators going under.
The price of electricity was 1.5-2 p/kWh less than
would be required to make new biomass development commercially
attractive. Despite being the biggest generator of electricity
from biomass in the United Kingdom, and even though there was
capacity for five more straw-burning plants in the United Kingdom,
EPR was not considering any new developments.
The economic case for investing in energy crops was
weak, thanks partly to the higher cost of fuel. Another factor
was the high initial investment in planting crops such as miscanthus
or willow coppice, with the prospect of a three-year wait before
there was any return.
The ARBRE plant (which EPR liquidated) had a very
complex fuel chain and used new technology, operating at less
than 20 percent efficiency.
Capital grants were not thought to be the best incentive
when operating costs are greater than revenue. The industry would
therefore prefer a blend of targeted capital grants and other
revenue support mechanisms.
Thetford Power Station
Before looking around the plant the Committee heard
a presentation by Mr David Raubenheimer, Operations Director for
EPR. He made the following points:
Thetford had been in operation since 1999. The plant
was slightly larger than Elean rated at 38.5 MW, and burnt poultry
litter. It had taken three years to develop to the start of construction
and a further two and a half years to construct and commission.
Poultry litter had a lower calorific value than straw—some
450,000 tonnes per annum were required to fuel the plant. This
litter generally had to come from barn-reared chickens, which
by scratching the litter could partially dry it. Litter from battery
chickens was less usable. The litter was sourced from about 100
farms, most local, though some were from as far away as Anglesey.
Contractors cleared out the barns once birds were removed for
slaughter.
If the litter was not sold to EPR, it would typically
be stored and used as fertiliser by the farmer. However, this
carried animal health risks, and the removal and incineration
of the litter helped to break disease cycles. In practice the
litter was worthless to the farmers, who were prepared to supply
it for a nominal price on the basis that their barns were cleared.
The cost to the company to collect it and transport it to the
plant was about £10 per tonne.
Once the litter had been burned it was made into
fertiliser, which was rich in phosphates. Sale of fertiliser contributed
up to 10 percent of the plant's revenue.
The market for supply of biomass had been significantly
destabilised in recent months. The decision to extend co-firing
eligibility for ROCs had both undermined the confidence of potential
investors in renewables and weakened the position of renewable
generators in the energy crops market, since suppliers now saw
an alternative market in coal-fired plants. Such plants were able
to import biomass fuel and pay significantly more for it, whereas
EPR was limited geographically in sourcing fuel.
In addition, strict carbon monoxide (CO) emissions
targets required under the Waste Incineration Directive threatened
to undermine the company—compliance would cost the company
some £9 million. Government grants to cover these compliance
costs would be welcome.
Consistently low CO emissions were hard to achieve
with variable biomass fuel, and the requirement would be to test
every half hour rather than averaging results over longer periods
as for coal fired plant. The CO targets were principally directed
at commercial and municipal waste where high levels of CO would
indicate inefficient combustion, potentially allowing dioxins
into the atmosphere. In contrast, at Thetford dioxins were measured
at one-tenth of allowed limits. Thetford emitted less than one
milligram of dioxin in 2002 compared to one gram for a typical
coal fired power station, and dioxin emissions per kWh from biomass
plants were only a fraction of those from coal fired plant. However,
coal fired power stations were completely unaffected by the Waste
Incineration Directive.
The difference in the definition of permitted renewable
fuel sources between NFFO contracts, which were rigidly defined,
and ROCs, which were more flexible, was unhelpful. Ofgem had refused
to allow the plant to use chicken feathers to supplement chicken
litter, because the feathers were recovered by the plant which
plucked the carcasses, and were thus held to be industrial, not
agricultural, waste. As a result the feathers ended up in landfill.
ROCs were unsuitable for independent developers—they
were more suitable to companies with an interest in the supply
side as well. In addition the TXU failure and the recent changes
to the Renewables Obligation before it had even completed its
first billing cycle had significantly undermined confidence in
ROCs and fixed price contracts. Long-term projections of the value
of ROCs were difficult—as a result 15-year contracts with
investors were likely to be at a very discounted price.
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