Market Opportunity for wood pellets

The market for Biomass in pellet form is experiencing exponential growth, driven by a number of factors.

• The rising costs of energy from fossil fuels
• Government subsidy through the Renewable Heat Incentive
• A social movement towards green power generation
• The efficiency of burning pellets

The wood energy market is forecast to increase from the 2m/t/pa in 2008 to over 25 m/t p.a. by 2017.

Market and Drivers

The UK has set the highest Green House Gas Emissions Target in Europe which commits it to:

• Increase the share of energy used from renewable sources from 3% in 2007 to 15% by 2020.
• Grow renewable electricity  generation from 5.3% in 2007 to  30-35% by 2020

Other directives that assist in promoting renewable forms of fuel are:

• National Energy Security promotes national sources of energy above imports.
• Targeted reduction of net co2 emissions by using renewable energy sources for power generation.
• Targeted reduction of Nox and Sox emissions from coal fired power stations legislation allows coal powered stations to double their remaining life expectancy by switching to pellet co-fired generation.
• The renewable heat incentive which is a government subsidy available to everyone where the consumer is paid an annual sum for the fossil fuel they are not burning.

These drivers mean the market for wood energy products is set for strong growth from 2m/t in 2008 – 25m/t by 2017

Currently over 80% of biomass pellets sold in the UK are imported which only serves to decrease the CO2 efficiency of the fuel rather than increase it if it was locally sourced and manufactured.

The market for renewable energy in the UK is being driven very firmly by parliament, which has signed up to the EU target of providing at least 20% of energy from renewable sources by 2020.  The Government’s own target, is that 10% of electricity should be generated from renewable sources by 2010, although official statistics indicate that by the end of 2008 the industry had only managed to achieve 5.5%.

This commitment has been backed by legislation since 2002 when the Renewables Obligation was introduced, which binds energy suppliers to provide an increasing proportion of electricity from renewable sources -rising to 15% by 2015.

More recently, the 2008 Climate change Act formalised the Government’s aim to reduce UK carbon emissions by 80%.  As described in the white paper The UK Low Carbon Transition Plan published on 15 July 2009 this aim is highly reliant on more widespread introduction of a range of renewable technologies.

According to the Department of Energy and Climate Change all this means that some 35 GW of new renewable energy capacity is needed by 2020.  This will demand an investment of some £100 billion in renewable energy generation and distribution infrastructure.  Given the nature of renewable energy and for reasons of efficiency and security the bulk of this investment will be in a diversified range of smaller Decentralised Energy Plants.  Massive centralised power stations continue to serve a purpose, but they are inflexible for modern demands and vulnerable to fuel supply and terrorist risks if relied on in isolation.

In the same way the Government has acted aggressively to change UK waste management practices.  In particular landfill use is being progressively discouraged through the imposition of landfill tax.  Waste contractors are taxed at a rate of £40 for every tonne of municipal waste sent to landfill, which is rising at a rate of £8per year to £72/per tonne in 2013/14.   The Landfill Allowance Trading scheme is another measure, imposed to force local authorities to take responsibility for the amount of waste landfill in their areas.  Finally, the planning and permitting systems are being used to make the process of opening a new landfill site increasingly onerous. The waste policy review of 2011 has suggested a consultation to take place in 2012 on the introduction of restrictions on landfilling of waste wood.

As the Government is compelling energy suppliers to source renewable energy whilst inhibiting waste contractors from using landfill there is clearly a golden opportunity for companies that can generate energy from waste. The RICS paper Energy From Waste (August 2009) advises that a business case can been argued for almost 500 new energy-from-waste plants across the UK in a range of size and technology types providing a total of 2.5 GW.

Wood fuel use in London is set to increase as modern wood chip and wood pellet boilers and CHP plants are installed and commissioned in response to planning requirements for on-site renewable energy generation, the desire of business to reduce carbon dioxide (CO2) emissions and the increased cost of fossil fuels. Policy drivers come both from some local councils and from the Mayor of London’s requirement for larger developments to achieve a 20% reduction in CO2 emissions through the use of on-site renewables. The onsite renewables requirement was raised from 10 to 20 percent in spring 2008 when the revised London Plan was published. This increase is expected to increase the demand for wood derived heat and power.  Approximately 10-15MW ( requiring 50,000 – 75,000t per annum  of pellets ) of wood fuel proposals are currently being developed in the London Boroughs supporting the evidence from the GLA and the local authorities that there is an ever growing number of organisations are looking at wood fuel as an option and that this is only likely to grow in the future[1].

The Renewable Heat Incentive

Heating accounts for 47% of total UK final energy consumption and more than three- quarters of energy use across all non-transport sectors. Of the 47% half of the energy is used for domestic heating and hot water.

Increasing renewable heat is a key to the UK meeting its renewable energy targets, reducing carbon emissions, ensuring energy security and helping to build a low carbon economy. The RHI will help accelerate deployment by providing a financial incentive to install renewable heating in place of fossil fuels. The first phase is a long term tariff (20 years) to  support the big emitters in the non-domestic sector as it sees this as the easiest way to meet the targets and is the most cost effective way of increasing the level of renewable heat.

It is also providing support to the domestic sector by making payments to households who install renewable heating; the first phase will be a subsidy for equipment with a later phase of RHI providing a long term tariff support with the introduction of the green deal for homes in 2012. The green deal will look to make every home more efficient through better insulation. Support is focused on primary heating systems such as heat pumps and biomass boilers being installed in households not on the gas grid, where fossil fuels like heating oil are both expensive and have higher carbon content. There are approx 2 million homes not on the gas grid.

Solid and gaseous biomass has the greatest potential of all the renewable heating solutions to deliver significant and cost effective carbon savings.

Solid biomass typically delivers high greenhouse gas savings of around 60% when compared to the EU fossil fuel average, the figure is significantly higher for forestry residues by –products and waste biomass.

As a result the government expects solid and gaseous biomass to deliver over a third of the predicted seven fold growth in renewable heat resulting from the RHI.

The tariffs are calculated to;

• Compensate for the additional cost of the technology over fossil fuel heating
• Provide an incentive to overcome non-financial barriers
• Provide a return on the capital invested of 12%

The Code for Sustainable homes which was implemented on 1st May 2008  could provide a further driver for demand as all new homes built after 2015 need to comply to the code, which currently requires developers to install CHP ( combined heat and power ) plants that use Biomass as a fuel.