The UK wood waste to energy market. An Anthesis overview of today s market, and projections for the future.

Transcription

1 The UK wood waste to energy market An Anthesis overview of today s market, and projections for the future. Published February 2017

2 Disclaimer Anthesis (UK) Limited has taken all reasonable care in the research and preparation of this document to ensure that all cited facts, statistics, calculations and analytics are as representative as possible within the defined scope, nature and scale of the study. Anthesis (UK) Limited offers no warranty or guarantee with respect to information presented, whether it be provided by Anthesis (UK) Limited or a third party, and cannot be held responsible for any decisions or actions that are made on the basis of any of the content provided herein. It should be noted that certain cited data and facts may be timebound and hence subject to change over time; the date of writing and publication should, therefore, be taken into account in this regard. 1

3 1 About Anthesis Group Anthesis is a specialist global sustainability services and solutions provider founded on the belief that sustainable business practices are at the heart of longterm commercial success. We develop value-driven sustainability strategy which is underpinned by technical experience and delivered by innovative, collaborative teams across the world. We not only develop solutions for clients, but act as a delivery partner too. We combine the reach of big consultancies with the deep expertise of our practice leaders from across the globe. Anthesis brings together expertise from countries around the world and has offices in the US, Canada, UK, Germany, Sweden, Middle East, China and the Philippines. It has a track record of pioneering new approaches to sustainability. Find out more at 2

4 1.1 Anthesis waste sector expertise For further information on wood waste sector expertise, contact: Claudia Amos Associate Director M: +44 (0) Peter Scholes Principal Consultant M: +44 (0) Anthesis is well known in the waste industry sector and among sector investors, and has established key working relationships with blue chip waste management companies, regional waste companies, and wood waste suppliers throughout the UK. Anthesis professionals work across the waste, recycling and energy-from-waste sectors in the UK and Europe, with specific experience of undertaking feedstock and waste market assessments for the commercial due diligence of waste and biomass infrastructure projects, including those with a focus on wood waste. We specialize in commercial due diligence, technology and market assessments, but where we differ from many other consultancies is that we can bring together all parts of the supply chain to help develop suitable resource efficient infrastructure solutions to meet local market requirements. The majority of our recent studies have been part of an overall due diligence process and have included general market assessments, key anchor supplier and supply chain evaluations as well as business plan and fuel agreement assessments to enable funders to assess the risk associated with the proposed investment. Anthesis has undertaken commercial due diligence on more than ten wood waste- and biomass-to-energy facilities, in addition to a wide range of other projects for refuse-derived fuel (RDF) and mixed residual feedstock energy-from-waste. We have also conducted an extensive amount of work on more general wasterelated commercial due diligence and market research for materials recycling facilities, anaerobic digestion, invessel composting, as well as RDF and solid-recovered fuel (SRF) production facilities. 3

5 Glossary C&D C&I CA CHP Defra EEG (2017) HWRC IED LA LACW MDF Mt Mtpa ODT RDF ROF SRF tpa Construction and demolition waste Commercial and industrial waste Civic amenity sites Combined heat and power Department of the Environment, Food, and Rural Affairs Revised German renewable electricity legislation (Gesetz zur Einführung von Ausschreibungen für Strom aus erneuerbaren Energien und zu weiteren Änderungen des Rechts der erneuerbaren Energien.) Household Waste Recycling Centre Industrial Emissions Directive (formerly known as Waste Incineration Directive; WID) Local authority Local authority collected waste Medium-density fibreboard Megatonne; one million tonnes Million tonnes per annum Oven dry tonnes Refuse-derived fuel; fuel of varying grades produced from the processing of residual waste streams Renewables Obligation Certificate Solid-recovered fuel made to customer specifications or required CEN standards Tonnes per annum

6 Contents 1 About Anthesis Group Anthesis waste sector expertise 3 2 An overview of the UK national wood waste to energy market (report summary) Establishing wood waste arisings figures Factors behind the uncertainty around wood waste arisings and lack of public data sets Conclusions 13 3 UK national wood waste supply Expected size of UK wood waste market according to the literature Data sources for wood waste arisings Recorded wood waste arisings in Estimated future wood waste arisings 22 4 UK national wood waste demand Sectors using wood waste Demand for wood waste-generated energy 25 5 Future UK wood waste availability and market pricing Future modelling Closing the gap between supply and demand: the conclusions 31 6 Impact on market pricing trends Growing price stability in future 35 Appendix 1 References 38 5

7 Figures Figure 1: Timeline of wood waste arisings estimates 8 Figure 2: UK national wood waste supply chain 10 Figure 3: Growth in wood waste capacity and arisings Figure 4: Growth scenario analysis using Anthesis wood market estimates Figure 5: Map of key wood energy-from-waste facilities in the UK Figure 6: Growth in wood waste capacity and arisings (identical to Figure 3) Tables Table 1: Wood waste sources and types 20 Table 2: Anthesis estimates of baseline wood waste market (2014; all figures in tpa) Table 3: Projected wood waste arisings estimates across different scenarios (Mtpa) Table 4: Summary of wood waste and biomass capacity in the UK (Rounded to the next Mtpa)*

8 2 An overview of the UK national wood waste to energy market (report summary) A large number of wood waste to power plants reached financial close between 2014 and They are to be built under the Renewable Obligation Certification by March The promise of these new plants has led to much discussion about closing the wood waste capacity gap in the near future; the capacity gap refers to the current difference between wood waste supply and demand, with supply currently exceeding demand. There is also discussion around the impact of these new plants on wood waste availability, and in particular wood fuel pricing, which is agreed in longterm contracts by developers, fuel suppliers, plant owners and operators. While the clean wood biomass sector very much depends on imports, the wood waste market is a UK-led market relying on domestic supply of feedstock. 7

9 2.1 Establishing wood waste arisings figures In 2015, Anthesis undertook a detailed wood waste literature review assessing the wood waste market information publicly available for evaluation. Figure 1, shows the range of data sources reviewed, and that there is much variability in the wood waste arisings figures that have been published over the past seven years estimates vary between 4.1 and 10.6 Mtpa. This variability demonstrates that there are significant knowledge gaps across the sector. Of these estimates, the later figures were developed during the economic recession and range from 4.1 to 5.6 Mtpa and likely to underestimate current arisings. Despite the significant range, all of the historic reports seem to utilize the same base data sets for the analysis; for example, the Pöyry report in 2009 (supplemented by some primary research), the Tolvik 2011 report (supplemented by further data analysis), and the WRAP 2011 report all refer to unpublished datasets held by WRAP from Economic period Boom Recession Recovery Estimated tonnage (a) 4.1/ (b) projected 4.8 Data year Report Defra 2005 ERM* 2007 WRAP 2009 (a) Tolvik 2011 (b) WRAP 2011 Defra 2012 Tolvik 2011 * This figure is noted in the DEFRA 2008 report as an estimate by ERM, as quoted in the Waste Strategy for England 2007 Figure 1: Timeline of wood waste arisings estimates 8

10 2.2 Factors behind the uncertainty around wood waste arisings and lack of public data sets The Forestry Commission estimated in 2016 that ~10.3 Mtpa of newly-sawn wood and panel board are being produced in the UK. The wood waste industry has a complex supply chain that involves numerous sectors, and is dependent on a number of interrelated factors. Wood waste arisings are not driven by demand for wood waste-derived products; instead, they are driven by consumer behavior and macro-economics, and the industry s ability to collect, process, and manage wood waste. While wood consumption in the UK is well understood and recorded, there are no detailed up-to-date datasets tracing the actual volume of annual wood waste arisings from the different sources e.g. local authority, commercial industrial and construction and demolition sectors. The Forestry Commission i estimated in 2016 that ~10.3 Mtpa of newly-sawn wood and panel board are being produced in the UK, as shown in Figure 2. These UK wood volumes, plus wood imports, are processed and manufactured into a wide variety of products, before being used by private households, businesses and public sector organizations; when these users are finished with the wooden products, they are discarded as waste. Of course, a certain amount of the new products are displacing old wood from the use cycle; however, the amount of wood that accumulates within the system, and the amount displaced each year by new wood or other materials, is uncertain. The time lag between consumption and waste production is driven by the economic climate and the general growth in consumption, as well as patterns in consumer and business behavior. 9

11 UK harvesting UK soft & hard wood deliveries (green tonnes) not incl. pulp mills Arboriculture residues ~10.3Mtpa ~Sawnwood 3.6 Mtpa Wood products Imported ~21.1 Mtpa (est. 7.2 million wood fuels) incl. sawn wood, wood based panels, wood chips, char coal and pellets etc. ~Woodbased panels 3.1 Mtpa ~2.2 Mtpa other wood products (e.g. fuel wood/ round wood Exported ~1.9 Mtpa incl. delivered roundwood, sawn wood & panels Production & imports from previous years ~28.1 Mtpa* Annual processing residues Timelag between annual production, consumption & disposal unknown ~5.7 Mtpa wood waste reported in 2015 from: Waste wood arisings Local Authority Collections (LACW) Construction & Demolition Sector (C&D) Commercial & Industrial Sector (C&I) ~4.3 Mtpa in 2015 Production residues Panel board Waste wood end markets Animal bedding incl. equine services Mulches, soil conditioners, composting Wood waste to energy (UK) Pathways & coverings Export Landfill Data sources: 1. Forestry Commission, UK Wood Production and Trade: Forestry Commission, UK Wood Production and Trade: WRAP (2009) Wood Waste Market in the UK, Poyry report 4. WRAP (2011) Wood Waste Market Situation Report Figure 2: UK national wood waste supply chain Key: Wood production inputs Wood products manufactured/consumed Waste wood arisings Waste wood end markets *Not incl. ~4 Mtpa paper and paper board products Mtpa figures without specified moisture content 10

12 2.2 Continued Anthesis estimates total wood waste arisings of ~5.7 Mtpa in Only controlled or regulated waste streams are traced through the UK Duty of Care regime and covered by waste regulations, which oblige waste producers to account for waste management activities. Some wood residues are not considered as wastes by the regulators, instead classed as biomass, or non-waste residues which are reused, or recycled on location. These volumes do not enter the controlled waste stream and are therefore not recorded. Similarly, some of the wood waste processing and end-user markets produce their own production wastes and wood waste fines that are not taken into account when estimating the wood waste arisings. In summary, there is limited up to date and detailed data available on these waste streams. For example, the Forestry Commission s Forestry Statistics ii identify 2 Mtpa of fuel wood being produced in the UK for domestic consumption and export and an estimated 7.2 Mt of wood pellets were imported during 2016 (up from 6.5 Mt imported in 2015). iii However, these 9.2 Mt are related to virgin wood arising in addition to the waste wood stream, and therefore not included in wood waste statistics. Similarly, some of the wood waste processing and end-user markets produce their own wastes, and there is no accurate information available for this. Using the latest recorded information from 2015, Anthesis estimates the total wood waste arisings of ~5.7 Mtpa in This estimate is based on the recorded actual wood waste streams, as well as estimates of wood waste content in the different mixed waste streams (from LA, C&I and C&D sources); these estimates may not accurately reflect the actual waste composition and the volume of wood waste arisings currently going to landfill. 11

13 2.2 Continued With the changing market dynamics, the segregation of more low quality wood waste from mixed waste streams is expected to become more viable. The time lag between wood product consumption and wood waste production is unknown as a lot of wood waste is used in construction, furniture etc. There is no data available which details the percentage of annual wood product consumption that become wood wastes per annum, nor how much wood waste is being landfilled every year as mixed (or residual) wastes (and which could otherwise be segregated for recycling and recovery purposes). In addition, many figures used are historic and, as landfill has reduced considerably in the past 2 5 years, increasing (landfill) costs are expected to have diverted more wood away from the residual waste stream. Today, it is more likely that only wood waste that is not economically viable for processing is being disposed of via landfill. With the changing market dynamics, even low quality wood based products such as mediumdensity fiberboard (MDF) are expected to become viable for segregation and reprocessing. The increased pressure to divert waste from landfill, and the shrinking landfill capacity, will continue to create an increased need for alternative disposal methods. While a landfill ban for waste wood is not planned at UK or national (i.e. Wales) level, the EU Circularity Package (published on 2 December 2015) requires 65% recycling rates for public sector municipal waste and 75% packaging recycling targets, with wood packaging being a key waste stream. However, with the UK s impending exit from the EU, it is not clear if the EU Circularity Package is likely to be transposed into UK statute, nor whether similar targets are likely to be implemented in the UK. Therefore, recycling and recovery of wood waste in future is likely to be mainly driven by the economic business case for the collection, segregation and reprocessing of the different wood waste grades. 12

14 2.3 Conclusions These plants are mainly focused on lower quality wood waste, while the recycling industry is focusing on high quality wood wastes. The recycling of good quality wood waste is expected to remain stable due to favourable pricing for good quality wood waste into these sectors. In conclusion, the latest generation of wood energyfrom-waste plants is expected to close the capacity gap within the next 3 5 years, if all of the facilities currently under construction are being constructed and operated to meet their designed capacity and energy outputs. As these plants are mainly focused on lower quality wood waste, the recycling industry is focusing on high quality wood wastes, and is assumed to be stable. It is assumed that export demand is met by selling wood waste that is not able to be sold in the domestic market, but the role of exports will very much depend on market gate fees, foreign exchange rates and European demand for UK wood and wood waste-derived fuels. The timing of the capacity gap for wood waste finally closing will depend on: The true baseline wood waste arisings, and growth in arisings that can be aggregated for processing, in particular from the C&I and C&D sectors The amount of wood waste being recycled in the panel board and animal bedding sector, The number of wood energy-from-waste plants likely to be delivered on time to meet their ROC deadline of March 2017 or March 2018, The amount of wood waste actually being processed in the plants which open in The current market structure and dynamics are shifting, with increased demand for lower grade wood wastes, and increased wood waste energy recovery capacity, making this a volatile market driven by supply and demand, as well as the intervention of key players establishing market position through securing long term off-take contracts. These are the key barriers to sourcing wood waste that is currently being landfilled, as wood aggregators and processors only source sufficient wood waste to satisfy current outlets to minimize their business risk and exposure to fluctuating gate fees. 13

15 Tonnes of wood waste (millions) Known wood waste arisings Wood waste expected to be recycled in panelboard and animal bedding sector Wood waste capacity with planning approval expected to be operational Wood waste capacity operational & under construction Figure 3: Growth in wood waste capacity and arisings Continued There is a clear first-mover advantage for facilities being delivered based on viable feedstock contracts and support from the ROC subsidy regime. This is because future renewable support via Contract for Difference (CfD) for wood waste facilities producing electricity is uncertain, and government announcements have consistently reduced future renewable subsidies and support for carbon reduction infrastructure in the waste and biomass sector. At the same time, there is a clear trend towards decentralization of energy supply, SMART Cities and alternative models for securing renewable energy; the public sector is supporting heat networks and alternative energy production to ensure energy supply for the public, which could promote further interest in biomass developments using clean wood or wood waste, where available. 1 Existing capacity includes plants that are operational and under construction in autumn 2016, the planned facilities are energy-from-wood waste with planning approval, but not yet under construction at the time of writing. 14

16 3 UK national wood waste supply The current wood waste data used in the market place is mainly historic and derived from a range of sources. As well as waste market information, sources include forestry and wood waste recycling organizations, and general waste arisings information from municipal, C&I and C&D sources. Little primary research has been undertaken in the past five years to establish the UK s annual wood waste arisings due to the complexity of the supply chain and lack of regional and national surveys. 15

17 3.1 Expected size of UK wood waste market according to the literature Publicly available wood waste estimates vary significantly from Mt of wood waste annually Anthesis carried out a literature review in 2015 which showed that publicly-available wood waste estimates vary significantly, from 4.1 to 10.6 Mt of wood waste annually (Figure 1). This uncertainty mainly stems from the lack of primary data sets for wood waste arisings from the C&I and C&D sectors, as well as the traceability of wood processing residues not classified as wastes. The lower estimates come from research carried out during , ranging from 4.1 to 5.6 Mtpa. These figures were published through WRAP- and Defra-funded research carried out using 2007 WRAP data sets collected during the economic recession, and therefore can only provide an indication of the availability of wood waste in the UK at that time. None of these lower-end estimates are based on detailed market surveys or up-to-date wood waste arisings data, and therefore carry an additional level of uncertainty. Due to the limitations and historic nature of the existing datasets, it is difficult to assess the research and projections in order to evaluate how accurately the historic reports can provide a baseline for the current market size. The most recent national report which does not rely on the 2007 WRAP figures was published by the Wood Fuel Task Force iv in Scotland. This report estimates that the overall wood waste arisings will remain constant in Scotland from , at 602,200 oven dry tonnes (ODT) per annum 2. Assuming 20% moisture content, this could be equivalent to 723,000 tpa of available wood waste in Scotland, of which an estimated 250,000 tpa (208,000 ODT) is currently recovered, with the remainder going to landfill 3v. Assuming that Scotland represents 7.2% 8.3% of the UK market (as suggested by the Pöyry 2009 and WRAP 2011 reports), this means that the total UK arisings could be 8-10 Mtpa depending on the market share assumptions and moisture content. Wood waste arisings published in the 2015 Veolia Circular Revolution report vi state that every year 10 million tonnes of wood is disposed of in the UK... using their own research in partnership with the Imperial College London. 2 This does not include 350,000 tpa of arboriculture and forestry arisings. 3V The moisture content of wood is normally expressed as a percentage, and is calculated as: the difference between the weight of a sample of wet (green) wood and the weight of the same sample after oven drying (to remove all moisture), divided by the oven-dry weight, all multiplied by 100, 16

18 3.1.1 Insights from Anthesis research The anecdotal industry evidence suggests that the currently available arising figures are likely to underestimate the actual size of the wood waste market. Anthesis has gathered additional information from small and large scale wood waste aggregators, hauliers and processors during supply chain interviews for commercial due diligence and feedstock assessments. During this engagement, the view has been presented that there is more wood waste from C&D activities in the market than originally predicted in national reports, due to material going through exempt waste facilities not reporting annual waste figures. In addition, overall C&D arisings can vary considerably year-to-year depending upon the amount of housebuilding, infrastructure and other projects carried out in each year, therefore variations in line with the economic cycle are likely and a number of surveys have been undertaken in times of economic recession, which makes forecasting to date challenging. These industry players have indicated that the amount of separated wood waste currently recorded is being artificially limited and carefully managed to match the demand and availability of wood waste outlets, especially for lower grade wood waste. The majority of these industry players confirm that they would be able to source more wood waste if they could secure more outlet capacity; however, a lot of this wood is lower quality, i.e. MDF, panel boards, etc. This anecdotal industry evidence suggests that the currently available arising figures are likely to underestimate the actual size of the wood waste market. 17

19 3.1.1 Continued Brexit has already resulted in considerable volatility in currency and associated markets, a reluctance of foreign investments to get involved in UK construction projects, and this is likely to prevail in the months, and possibly years, ahead. It must also be taken into account that since the early wood waste surveys and predictions, the overall economy and industry has recovered and experienced some growth in all relevant sectors in past years. However, it is not clear at this stage how economic growth will be affected by the UK s vote to leave the EU. Brexit has already resulted in considerable volatility in currency and associated markets, a reluctance of foreign investments to get involved in UK construction projects, and this is likely to prevail in the months, and possibly years, ahead. As a result, this potentially favors wood waste exports from the UK to other countries as a cheaper option for wood waste processors, as the non-eu UK industry will be competing with EU-driven wood waste gate fees and wood waste-derived fuel pricing agreed in the pre- Brexit market place. However, as a considerable amount of processing machinery and equipment comes from Europe, it is possible that the capital and operating costs for wood waste fuel production might also increase, therefore negating any gains made from favorable export conditions. In addition, we expect the changes in national biomass subsidies in continental Europe, such as the EEG 2017, which came into force on the 1st January 2017 in Germany, to have an impact on wood waste and biomass imports and exports. 18

20 3.2 Data sources for wood waste arisings There are few up-todate estimates for C&I and C&D wood waste available, due to commercial confidentiality and lack of reliable primary data, changing waste flows, and shortterm non-contractual arrangements ( gentleman s agreements ) Non-hazardous wood waste that is potentially suitable for energy recovery and recycling comes from three key supply sectors, as shown in Table 1 (overleaf). Of these, the wood waste collected by LAs through their networks of Household Waste Recycling Centres (HWRC) and Civic Amenity (CA) sites provides the most accurate data sets. While some LA recycling and recovery points accept trade waste, most do not, and therefore the majority of building and renovation industry waste is not covered by these statistics. There are few up-to-date estimates for C&I and C&D wood waste available, due to commercial confidentiality and lack of reliable primary data, changing waste flows, and short-term non-contractual arrangements ( gentleman s agreements ). While some production wastes arise consistently each year, there are time lags and uncertainty as to when wood end products that are used in the construction sector (including building materials, furniture, fittings, panel board, etc.) will enter the waste stream; unknown wood waste quantities are recovered either on-site or through additional separation activities from waste management contractors. 19

21 Table 1: Wood waste sources and types Wood waste source Wood waste types & descriptions Source of information Anthesis view of data quality LAs (HWRC and CA sites) Wood waste collected from HWRCs, including fencing materials, furniture, scrap wood, laminates, MDF etc. Defra-accredited WasteDataFlow system, where wood waste data is reported quarterly by LAs acting as the responsible waste collection and disposal entity. Good quality, but the actual composition of wood waste going to landfill is not recorded. C&I Wood waste is delivered to, or collected by, waste hauliers, waste skip and management companies, and directly from wood waste processors. Sourced from commercial business such as manufacturers, retailers, fabricators, office based businesses and wood processors (including sawmills). Estimates are based on surveys and metaanalysis conducted The most recent primary data gathering exercise was undertaken by WRAP in Additionally, estimates come from the Defra C&I waste arisings survey 2011 (data from 2009 survey). There is considerable uncertainty around the historic nature and lack of reliable data sets regarding the total amounts and wood waste composition. C&D Wood waste is delivered to, or collected by, waste hauliers, waste management companies, and wood waste processors. As for C&I wood waste, estimates are based on surveys and metaanalysis conducted The most recent primary data gathering exercise was undertaken by WRAP in There is considerable uncertainty around wood waste arisings from this sector because the data is very historic, with expected year-onyear variations, and there are no further national survey updates available. 20

22 3.3 Recorded wood waste arisings in 2014 The most recently-available data from public records 4 (WasteDataFlow, and Defra C&I Surveys) at the time of Anthesis analysis enabled us to estimate 2015 wood waste arisings. This analysis suggests that there was a total of approximately 5.7 Mt of recorded wood waste arising in the UK in 2015, as broken down in Table 2. Table 2: Anthesis estimates of baseline wood waste market (2014/15; all figures in tpa) Region LA wood waste Separate C&I wood waste Wood in C&I mixed waste C&D wood waste Total wood waste England 668,000 1,217, ,000 2,022,000 4,767,000 Wales 67,000 90,000 76,000 81, ,000 Scotland 74,000 99,000 71, , ,000 Northern Ireland 55,000 42,000 30,000 54, ,000 Grand total 864,000 1,448,000 1,037,000 2,355,000 5,704,000 4 LA-separated wood waste estimates are based on the most recently available actual wood waste figures (2012 for Scotland and Northern Ireland, 2013 for England and Wales); these are taken from WasteDataFlow, and assume no loss of wood waste to landfill through the residual stream. C&I figures are based upon the relevant national surveys, uprated to 2012, estimating volumes of separated wood waste, and the wood waste proportion in mixed waste going to landfill. C&D estimates are taken from the 2009 WRAP Wood Waste Market in the UK report. Where there were gaps in national data, these were filled by apportioning data from other UK devolved nations, based upon the % of UK wood waste arisings given in Table 2. 21

23 3.4 Estimated future wood waste arisings Using this Anthesis estimate of 5.7 Mt total wood waste arisings in 2015, Anthesis has modelled different growth factors that are driving wood waste arisings. The scenarios for the potential UK wood waste arisings through to 2030 are shown in Table 3 and Figure 4. Table 3: Projected wood waste arisings estimates across different scenarios (Mtpa) Scenario Population Growth (ONS, 2012) Economic Growth (avg. 0.71%) High Waste Growth (avg % p.a.) Low Waste Growth (avg % p.a.) Tonnes (millions) Population Growth (ONS, 2012) 2 Economic (avg 0.71%) 1 High Growth (avg % p.a.) Low Growth (avg % p.a.) Figure 4: Growth scenario analysis using Anthesis wood market estimates For example, in 2025, it is expected that the total wood waste arisings could be approximately Mtpa if the general waste growth assumptions are applied to the baseline wood waste arisings recorded in the historic data sets, depending on economic growth in key industry sectors, wood consumptions and waste generation. 22

24 4 UK national wood waste demand Wood wastes are being used in four primary demand sectors, namely: Recycling in panel board manufacture; Recycling in animal bedding; Energy recovery in domestic wood biomass facilities; Export for panel board industry and energy recovery in continental Europe. 23

25 4.1 Demand from established re-use, recycling and export sectors The recycling industry is mainly focused on high quality, clean wood waste, which is expected to grow modestly in the future, as the UK panel board industry is fairly static and wood waste in animal bedding is still a fairly immature market focused on higher grade wood wastes with little contamination. The Wood Waste Recycler Association 5 estimated that in 2015 nearly 3.5 Mtpa of wood waste were being recycled and recovered, with 1.5 Mtpa of this wood waste expected to be processed in the recycling sectors (panel board and animal bedding) in the UK and the remainder being used in energy production or exported. The recycling industry is mainly focused on high quality, clean wood waste, which is expected to grow modestly in the future, as the UK panel board industry is fairly static and wood waste in animal bedding is still a fairly immature market focused on higher grade wood wastes with little contamination. Similarly, it is expected that exporting wood wastes will continue to some extent in the medium- to long-term due to demand in Northern Europe. However, it is likely that a significant proportion of this volume could be redirected to UK facilities for economic reasons once increased capacity is available, particularly for wood wastes generated in the western half of the UK, away from the primary exporting ports in the East of England. Export markets can be very competitive on cost, and therefore distort domestic competition short term and affect spot market pricing to access feedstock. These uncertainties are much the same across most UK industries, which have to work with global financial pressures and dropping commodity prices, as well as the recent currency fluctuations in response to Brexit. 5 Discussions with the Wood Recyclers Association (WRA) about their member wood recycling and recovery amalgamated statistics 24

26 4.2 Demand for wood waste-generated energy No further annual energy statements have been produced and the policy direction for waste and renewable energy in the UK is currently unclear. The key area of demand growth in the wood waste sector is the domestic wood energy-from-waste market, which is mainly focused on producing electricity, with heat usage being a secondary energy product. The Government s Annual Energy Statement 2014 did not specifically mention wood waste to energy, but acknowledged that biomass, when sourced sustainably, can provide a cost-effective, low carbon and controllable source of renewable energy. No further annual energy statements have been produced and the policy direction for waste and renewable energy in the UK is currently unclear. An estimated 6.3 billion has been invested over in the overall biomass sector (including anaerobic digestion), and further investments of billion are expected by 2020 vii. However, these statements were made before both the 2015 Government announcements to reduce subsidies and support for renewable and carbon reduction projects in the overall biomass and waste sector, and the 2016 Brexit decision. Of course, these political announcements have created uncertainty regarding the future viability of investment and the level of risk associated with these investments. The new CfD auctions taking place this March/April 2017 might provide a short term boost to investments, but the Renewable Heat Incentive (RHI) and feed-in tariffs are facing continued reduction of tariffs and subsidy revisions in line with government spending cuts and austerity measures. No further annual energy statements have been produced and the policy direction of renewable energy in the UK is unclear, in particular after the new 2016 Government approved the development of the Hinkley Point C nuclear power station in Somerset. 25

27 4.2 Continued Nevertheless, the clean biomass sector has experienced strong growth in the past 3-5 years to an estimated 3 Mtpa capacity to date. This increased capacity includes conversions of large power stations changing from coal to clean biomass (virgin wood, straw, energy crops etc.) as well as small-scale non-domestic installations to provide more sustainable on-site energy solutions using standard biomass boilers. Most facilities require chipped or pelletized clean biomass, produced from virgin timber residues, to operate efficiently; as such, they are not regulated as a waste facility, and therefore are not permitted to take waste wood fuels produced from controlled waste streams under the UK waste regulations. Anthesis research suggests that another 12 Mtpa of clean biomass power plants have planning approval and could be developed in due course, if sufficient clean wood waste can be imported and processed economically. Table 4: Summary of wood waste and biomass capacity in the UK (Rounded to the next Mtpa)* Status Wood waste Clean biomass Total Operational, and under construction for start of operation in 2017/2018 Planning approval received and potentially operational by 2020/ Total * According the Anthesis waste facility database

28 4.2 Continued Another 1 million tonnes of wood waste capacity has planning permission and might be installed in due course based on CfD, RHI and direct CHP arrangements with energy users. Similarly the dedicated wood waste energy from waste capacity has nearly tripled from 0.8 Mtpa in 2013 to an estimated 2.3 Mtpa in 2016, potentially increasing to 4.4 Mtpa by 2018 and 4.7 Mtpa by 2020, taking into account facilities currently operational or under construction to meet their ROC delivery deadlines, as shown in Table 4, with key facilities summarized in Figure 5. Another 1 million tonnes of wood waste capacity has planning permission and might be installed in due course based on CfD, RHI and direct CHP arrangements with energy users. In addition to dedicated wood energy-from-waste schemes, there is currently Mtpa of multi-fuel capacity in the UK, either with a range of feedstocks or where the intended feedstock mixture ratio between residual waste, RDF and wood waste is unknown. These plants are unlikely to take any source-segregated wood waste, as RDF and other waste fuels are generating gate fee incomes and so are a preferable input to these plants. Figure 5 shows a UK map of key wood waste to energy facilities currently operational and under Figure 5: Map of key wood energy-from-waste facilities in the UK 27

29 5 Future UK wood waste availability and market pricing A large number of wood waste to power plants reached financial close between 2014 and They are to be built under the Renewable Obligation Certification by March The promise of these new plants has led to much discussion about closing the wood waste capacity gap in the near future; the capacity gap refers to the current difference between wood waste supply and demand, with supply currently exceeding demand. There is also discussion around the impact of these new plants on wood waste availability, and in particular wood fuel pricing, which is agreed in longterm contracts by developers, fuel suppliers, plant owners and operators. While the clean wood biomass sector very much depends on imports, the wood waste market is a UK-led market relying on domestic supply of feedstock. 28

30 5.1 Future modelling The modelling assumes that recycling of good quality wood waste will remain stable due to favourable pricing for good quality wood waste into these sectors. The impact on export of wood waste of differing qualities has not been presented in this report due to the complexity of the export markets. Tonnes of wood waste (millions) Known wood waste arisings Wood waste expected to be recycled in panelboard and animal bedding sector Wood waste capacity with planning approval expected to be operational Wood waste capacity operational & under construction Figure 6: Growth in wood waste capacity and arisings (identical to Figure 3 in report summary section) 29

31 5.1 Continued There are considerable uncertainties regarding base line values and future growth rates that will drive overall wood waste arisings in the C&I and C&D sectors. There is little consensus on the national wood waste capacity gap, as the total baseline volume of UK wood waste arisings in the UK are not well known. There are considerable uncertainties regarding base line values and future growth rates that will drive overall wood waste arisings in the C&I and C&D sectors. This is also in combination with the challenges of forecasting future capacity developments based on planning permissions, as these are very much influenced by government policy and economic conditions, which affect environmental approvals, investments and plant delivery. Nevertheless, the national gap is closing between wood waste arisings and dedicated wood waste capacity based on the currently available data and industry knowledge. While there is some regional need for wood waste to energy capacity, the increasing transport network for biomass logistics will enable cost effective transfer of wood waste across the country via roads, sea and the rail network. 30

32 5.2 Closing the gap between supply and demand: the conclusions The timing of the capacity gap for wood waste finally closing will depend on: The time lag and dynamics between wood consumption and wood waste arisings are not clear and the historical nature of the wood waste statistics and the absence of detailed industry data leave only logical assumptions, which suggest that there is more wood waste arising from the C&I and C&D sectors than the available data sets include; this is backed up by local and regional anecdotal evidence from wood waste processors and waste management companies. The true baseline wood waste arisings, and growth in arisings, in particular from the C&I and C&D sectors. As already discussed, these remain uncertain, particularly the wood waste arisings in the C&D sector, which is still improving its waste management practices and landfill diversion to reduce costs and meet their sustainability aspirations. The forestry and wood industry statistics 7 imply that the UK consumes over 28 Mtpa green tonnes of wood as sawn wood, wood panels, round wood fuels etc. per annum, which have a moisture content of 30-60% depending on wood species and treatment. The 5.7 Mtpa wood waste recorded in waste statistics only show less than a quarter of the wood consumed is captured as wood waste, which is expected to have a moisture content of 15 25% depending on wood waste type and storage. Due to the differences in moisture content, a detailed comparison would only be possible when oven dry tonnages are measured and compared. Even these indicative figures suggest that each year significant amounts of wood are accumulating over time as more buildings are constructed and furnished. However, the UK population has only grown by less than 1% and the construction industry has contracted and recovered several times in the past five years, which does not suggest a considerable increase in the UK built environment. However, as the total content of wood in the built environment is unknown, it is not possible to make a detailed calculation or comparison. The time lag and dynamics between wood consumption and wood waste arisings are not clear and the historical nature of the wood waste statistics and the absence of detailed industry data leave only logical assumptions, which suggest that there is more wood waste arising from the C&I and C&D sectors than the available data sets include; this is backed up by local and regional anecdotal evidence from wood waste processors and waste management companies. 6 Existing capacity includes plants that are operational and under construction in autumn 2016, the planned facilities are energy-from-wood waste with planning approval, but not yet under construction at the time of writing. 7 Forestry Facts & Figures 2016, IFOS-Statistics, Forest Research, September

33 5.2 Continued It is not clear if plants failing to meet their ROC deadlines will be likely to receive CfD support in future or can be readily adapted to CHP and heat etc. to receive RHI support. Alternatively. facilities might have to be adapted to other feedstocks such as RDF/SRF, and thus entering a completely different market sector. The amount of wood waste being recycled in the panel board and animal bedding sector, mainly using clean waste wood grades as well as virgin residues from forestry and saw mill operations. The Wood Recyclers Association has not published revised wood waste recycling statistics since 2013 and there have been some significant closures of panel board mills in the past five years, which has been partially compensated by growth in the animal bedding and equine sectors, keeping wood waste recycling figures stable. The EU s Circular Economy proposals would require the UK implement a packaging waste recycling target of 75% for the wood stream by 2030, which could mean an increase in wood waste recycling. However, this timeframe would be beyond the UK Brexit timeline and therefore is unlikely to apply. The economics for wood waste recycling have been favorable, with good quality materials being sold as products and receiving some government support via the packaging recycling notes (PRN) system. The number of wood energy-from-waste plants likely to be delivered on time to meet their ROC deadline of March 2017 or March A number of facilities only achieved financial close in summer/autumn 2016, leaving very short lead times for construction and commissioning of some immature technologies that are new in the UK market place. When the ROC scheme ends, subsidies will be available under the next tranche of the CfD subsidy programme for plants starting operation by 2021, but only for plants which produce both heat and power (i.e. CHP), and which win support under the CfD auction mechanism in March/ April It is not clear if plants failing to meet their ROC deadlines will be likely to receive CfD support in future or can be readily adapted to CHP and heat etc. to receive RHI support. Alternatively. facilities might have to be adapted to other feedstocks such as RDF/SRF, and thus entering a completely different market sector. For example, an attrition rate of only 10% would mean 0.5 Mtpa less wood waste capacity being delivered, and an equivalent capacity gap in the market to be filled by exports or the domestic energy from wood waste capacity currently being developed. 32

34 5.2 Continued The latest generation of wood energyfrom-waste plants is expected to close the capacity gap within the next 3 5 years, if all of the facilities currently under construction are being constructed and operated to meet their designed capacity and energy outputs. The amount of wood waste actually being processed in the plants which open in Many of these plants are applying new technologies using gasification techniques, which may take some time to achieve full commissioning, reach design capacity, and energy production targets. This might lead to wood waste fuels being produced as per the feedstock agreement, but potentially needing alternative outlets in the UK and abroad until the dedicated energy-from-waste plant can process wood waste as planned. In conclusion, the latest generation of wood energyfrom-waste plants is expected to close the capacity gap within the next 3 5 years, if all of the facilities currently under construction are being constructed and operated to meet their designed capacity and energy outputs. As these plants are mainly focused on lower quality wood waste, the recycling industry is focusing on high quality wood wastes, and is assumed to be stable. It is assumed that export demand is met by selling wood waste that is not able to be sold in the domestic market, but the role of exports will very much depend on market gate fees, foreign exchange rates and European demand for UK wood and wood waste-derived fuels. 33

35 6 Impact on market pricing trends Over the past two to three years, wood waste demand and pricing to end markets in the UK and Europe has been volatile. Fluctuating prices are caused by seasonal variation, changes in export demand and a lack of wood waste end markets in the UK. To date, UK wood waste processors have been managing wood waste input and wood fuel outputs in line with ad-hoc and short-term end-market demands, to avoid having to store wood waste, or prepared wood fuel, for longer periods of time than necessary. 34

36 6.1 Growing price stability in future The fuel suppliers ability to pay and offer competitive wood waste prices in the market is of critical importance to national wood waste gate fee trends and drivers, as the wood waste processors with access to outlets control supply to energy-fromwaste plants. These reactive market dynamics are now changing as all of the new plants currently under construction have secured long-term feedstock supplies using one or more key anchor suppliers; these suppliers are tasked with sourcing wood waste and preparing wood wastederived fuel to the required specifications. This means demand will become more predictable as tied to longterm contracts and prices for wood waste-derived fuels, which will provide more stable conditions for wood waste market prices in return. Many of the long-term fuel supply agreements include regular market pricing reviews, or significant market change mechanisms. These aim to address the current uncertainty and price fluctuations in the wood waste market, and the expected changes to wood waste gate fees and market dynamics triggered by the respective market indicators agreed in the contracts. The fuel suppliers ability to pay and offer competitive wood waste prices in the market is of critical importance to national wood waste gate fee trends and drivers, as the wood waste processors with access to outlets control supply to energy-from-waste plants. The actual feedstock price payments will be linked to bilateral negotiations and individual fuel supply agreement pricing mechanisms, in addition to reflecting the ability of wood waste processors to set viable gate fees in the market that enable the sourcing of sufficient quality wood waste. These long-term commitments will significantly change the market dynamics, especially when the capacity gap is closing and export demand and pricing is more volatile and uncertain than domestic pricing arrangements. 35

37 6.1 Continued The majority of key UK wood waste processors have committed to a number of long-term wood waste fuel supply agreements in the last 12 to 24 months, to provide and deliver prepared wood waste feedstock to new energy recovery plants. In order to service these contracts from 2017/18 onwards, the wood waste industry will need to provide a good quality fuel consistently over the term of the contract. This is expected to lead to greater segregation of lower grade wood wastes from mixed waste streams, but could also mean less segregation of wood waste into individual grades, and a greater focus on the blending of the grades to produce a fuel (from all wood waste grades) to an agreed specification. At the same time, further low quality MDF and other wood products might become worth segregating from the mixed residual stream and be available to the energy from wood waste industry. These market forces may grow even stronger with the increased numbers, and geographic spread, of wood biomass-to-energy facilities in the UK. The majority of key UK wood waste processors have committed to a number of long-term wood waste fuel supply agreements in the last 12 to 24 months, to provide and deliver prepared wood waste feedstock to new energy recovery plants. Some already have sufficient capacity to process the required tonnages (which are currently being exported), but many will have to increase their wood waste processing capacity to meet the demands of the new generation of domestic energy-from-waste plants. The Environment Agency Fire Prevention Plan Guidance viii requirements have introduced another cost factor, which is expected to increase processing costs and reduce margins for wood waste processors. The actual impact will depend on individual circumstances and readiness to comply with increased monitoring and wood management requirements on one or more sites to meet the wood waste and wood fuel storage ratios. In some cases, this might lead to site expansions or additional processing and storage sites to be set up to meet the contracted demand throughout the year and accommodate for seasonality of the wood waste trade, as well as additional haulage costs to move material between sites and to the end destination. 36

38 6.1 Continued Industry players expect that gate fees will continue to be volatile for the next two to three years, before the market begins to balance, when the gap between supply and demand will reduce. While market logic would suggest that gate fees could drop below zero if the fuel payments to processors sufficiently cover the wood processors cost base, most industry players do not expect the gate fees for Grade B and C wood waste to deteriorate to such a degree in the short- to medium-term future. The processing cost for wood waste to fuel might even increase as the Environment Agency s Fire Prevention Plan Guidance requirements mean higher costs per unit for many market players, as less waste can be stored and processed on-site, and potentially additional sites need to be established to meet all the relevant requirements throughout the seasons. In addition, Brexit and the weak pound sterling might increase capital expenses for buying European processing and logistics equipment. Industry players expect that gate fees will continue to be volatile for the next two to three years, before the market begins to balance, when the gap between supply and demand will reduce. While the panel board sector will need to protect their market share and make the segregation of clean wood waste grades worthwhile, the export market will need to become more competitive as Europe has high requirements for wood feedstock. As continental Europe has had considerable requirements for wood waste feedstock from the UK, in particular during the winter months. The outcomes of Brexit will also significantly shape the overall trading relationships and pricing for transfrontier shipments of wastes. 37

39 Appendix 1 References Published by Report title 1 DEFRA (2008) Waste Wood as Biomass Fuel 2 WRAP (2009) Wood Waste Market in the UK, written by Poyry 3 Tolvik (2011) Briefing Report: The UK Waste Wood Market 4 WRAP (2011) 5 WRA (2016) 6 DEFRA (2012) 7 WRAP (2012) Market Situation Report: Realising the value of recovered wood Discussions with the Wood Recyclers Association (WRA) about their member wood recycling and recovery amalgamated statistics (December 2016) An Assessment of the Environmental Impact of Management Options for Waste Wood, written by Ricardo AEA The Business Case for Wood Waste Collection Hubs, written by CO2 Sense & Trada Technology 8 WRAP (2012) Landfill Bans: Feasibility Research, written by Eunomia 9 10 European Commission (2013) Remade Scotland (2011) Eurostat forestry statistics overview 2013 The supply of wood for renewable energy production in Scotland, written by Wood Fuel Task Force 2 11 Woodfuel Wales (2014) 12 DEFRA (2012) 13 DEFRA (2006) 14 DEFRA (2007) 15 Remade Scotland (2009) 16 WRAP (2005) 17 Veolia (2014) Wales Biomass Market Assessment & Supply Factors, written by Equis Energy Wood waste: A short review of recent research (This report provides an overview of reports 2 7) Carbon Balances and Energy Impacts of the Management of UK Wastes, written by ERM and Golder Associates Waste Strategy for England 2007, resented to Parliament by the Secretary of State for Environment, Food and Rural Affairs Arisings of Waste Wood from the Scottish Waste Management Industry for the Development of the Biomass Industry, report submitted to Scottish Government Reference document on the status of wood waste arisings and management in the UK The Circular Revolution. An Imperial College London Report commissioned by Veolia 38

40 Web sources referenced throughout i Forestry Statistics forestry/infd-7aqdgc ii ForestryStatistics2015.pdf/$FILE/ForestryStatistics2015. pdf iii USDA Foreign Agriculture Service s Global Agricultural Information Network research iv woodfueltaskforceupdatereport_2011.pdf v vi The Circular Revolution. An Imperial College London Report commissioned by Veolia, documents/2015/07/living_circular_brochure. pdf vii Annual Energy Statement 2014, DECC October 2014 viii The Environment Agency Fire Prevention Plan Guidance - fire-prevention-plans-environmental-permits/fireprevention-plans-environmental-permits 39

41 For further information on wood waste sector expertise, contact: Claudia Amos Associate Director M: +44 (0) Peter Scholes Principal Consultant M: +44 (0)