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FORUM FOR RENEWABLE ENERGY DEVELOPMENT IN SCOTLAND - PROMOTING AND ACCELERATING THE MARKET PENETRATION OF BIOMASS TECHNOLOGY IN SCOTLAND
THE DEMAND SIDE
Potential Markets
48. Crucial to the commercial success of the biomass sector in Scotland will be its ability to secure a market for its output. The risks are however two fold - cost of fuel supplied to a project and the value of its output. The GBROs are the mechanism by which producers of renewable electricity secure a market for their product. Currently, there is no incentive for heat generated by biomass plant other than capital support for small scale community/householder projects under the Scottish Community and Householder Renewables Initiative.
49. Typically, a Power Purchase Agreement (PPA) will vary between one and twelve years in length, with little incentive for suppliers to enter into agreements beyond this level given the uncertainty of Renewable Obligation Certificate (ROC) values beyond 2015. Generally, an electricity supplier will agree to a 'must take all' output from a generator but without any obligation on the generator to provide a specified volume. This has implications for the market value of power produced but given the relative 'firmness' of power from biomass plants compared to other forms of intermittent renewable electricity generation it should be able to attract a better wholesale value. The actual value of a PPA is split into a number of different and variable elements, including market value of power, ROC value, ROC recycle payment, Levy Exemption Certificate and embedded benefits. The most valuable element of the PPA is the ROC. BEG welcomes the recent announcements by the DTI and the Scottish Executive that the level of the GBROs will increase in the period to 2015-16, and that the GBROs will continue in place until 2027. Biomass-generated electricity is marginally economic, under current market conditions. Stimulation of a long term market is unlikely to be achieved without additional capital support.
48. The introduction of an Emissions Trading Scheme on 1 January 2005 could offer a further market support mechanism for biomass as under the proposed scheme rules it would realise the full value of carbon trading. The current market levels for carbon suggest that it will trade in a range between _8-9 per tonne of CO2.
Financial Support Mechanisms
51. The report produced by Future Energy Solutions has identified the availability of a number of financial support schemes for biomass plant. These are summarised at Annex C.
52. The economic appraisal carried out for BEG (see Annex D) identifies a strong case for Government support for the biomass sector. Without it, it is unlikely that the private sector would be willing to invest in new biomass power plant and economic potential would be lost. The Executive's objective of meeting its renewable electricity targets through a mix of renewable energy technologies would also be undermined.
53. The existing support schemes, and the market support mechanisms of the GBROs and the Climate Change Levy are valuable. However, the FES study has found that despite efforts to stimulate biomass, the market is not yet commercial and merits further intervention to try and catalyse activity to grow and develop this sector.
54. It is essential that the Scottish Executive and the DTI should consider how best to provide the necessary capital support for biomass energy. The current DTI biomass capital grant scheme has been valuable in providing assistance to power generation projects and various larger heating projects, and we recommend that the DTI continues to keep it under review. The aim should be to enhance the scheme and target areas such as Scotland which have immediately available supplies of biomass wood fuels. Very small projects - at community and householder level - are supported by the Scottish Executive's Scottish Community and Householder Renewables Initiative. The Scottish Executive has recently announced that this Initiative is to be extended for a further three years. In addition, consideration could be given to creating a technology research and development fund aimed at supporting biomass manufacturing capability and a Scottish presence in technology leadership. The role of the ITI Energy will be important in this respect.
55. Where there is a steady demand for heat as well as power generation, then a complementary income stream from heat sales is available to improve the viability of the biomass plant capital investment. CHP plants are inherently more energy efficient in converting primary energy (in this case, wood fuels) to electricity and usable heat (up to 85% efficient conversion compared to 30-35% conversion efficiency from primary energy to electricity only). It follows that public sector support for biomass projects involving power generation should be biased to favour CHP. There is, in our view, a need for the Executive to provide some measure of capital support for good quality biomass CHP projects as well as for infrastructure investment (e.g. chippers, dryers, harvesters, boilers etc). This fits with the findings of the FES study which concluded that gaps in existing support mechanisms have resulted in little support in these areas in particular.
Actions
- The Scottish Executive and the DTI should acknowledge the continuing need for public sector support for biomass plants for CHP and power generation of all sizes and should give an early commitment that they will work to determine how that need can be met.
- The Scottish Executive should consider how to meet the need for public sector support for CHP plants in particular and also for support infrastructure.
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