What do the changes to the UK s Renewables Obligation mean for pellets?

Transcription

1 What do the changes to the UK s Renewables Obligation mean for pellets? Residual Wood Conference Vancouver 27 October 2011

2 Hawkins Wright s woody biomass services Forest Energy Monitor > Published six times a year covering developments in international woody biomass and pellet markets Consulting > Strategic advice > Feasibility studies > Market due diligence > Feedstock demand and supply > Price forecasting Multi-client studies > A strategic assessment of UK investments in biomass power > Energy from Forests > Supply Chain Economics of Biomass Torrefaction (Autumn 2011)

3 Agenda UK policy background Proposed changes to the Renewables Obligation What they mean for wood pellet suppliers

4 The UK s 2020 renewable energy target Meeting the UK s 15% Renewable Energy Target... TWh % pa growth All Renewable % Renewable % of renewables All Energy Energy Energy renewable Energy renewable Electricity % % 15% Heat % % 21% Transport % % 15% Total Final Energy Consumption 1, % 1, % 16% Source: DECC The burden of meeting the UK s 15% renewable energy target will fall most heavily on electricity. By 2020, about 30% of UK electricity generation will need to come from renewable sources, up from 5.7% in 2008 and 8.5% in the first half of 2009

5 The UK s Carbon Budget million t CO2e Meeting greenhouse gas emission targets in the UK UK greenhouse gas emissions Kyoto target ( ) : 682 million tco 2 e/year 1st Budget : nd Budget : rd Budget : NEW 4th Budget : Likely that first Carbon Budget ( ) will be met purely by the effects of the recession. Second, third budgets will be more challenging if an economic recovery causes emissions to rise again. Fourth budget requires a step change in the pace of emission reductions. Requires emissions to in to be 50% less than in Under the Climate Change Act, emissions in 2050 must be <159 million tco 2 e, 80% less than in target : 159 million tco 2 e/year Source: Hawkins Wright research

6 Carbon intensity of electricity generation To meet the UK s long term GHG emission target (-80% by 2050), electricity generation must be almost completely decarbonised by the 2030s 800 Carbon intensity (kgco2e/mwh) Actual Indicative trajectory 100 0

7 Electricity generation fuel mix Achieving these objectives means replacing virtually all coal-fired generating capacity over the next 25 years, unless equipped with CCS Other Biomass million tonnes oil equivalent Wind Hydro Nuclear Natural gas Oil Coal

8 An emerging energy gap Electricity generating capacity from existing UK plants GW Existing capacity, 2010 Other A quarter of the UK s GW Natural gas Nuclear Coal/oil generating capacity is due to close by GW of new generating capacity will be required by just to maintain capacity at current levels

9 The Renewables Obligation How it works The RO obliges electricity suppliers (companies that sell electricity to businesses and households) to source a set percentage of their electricity from a renewable source > In 2011/12 this percentage is 12.4%, next year 15.8% Electricity generators are awarded Renewable Obligation Certificates (ROCs) for every megawatt of renewable electricity generated. These have a market value, currently ~ 45/MWh The generators sell the ROCs to the suppliers who then submit them to the regulator to demonstrate that they have met their obligation (or not, in which case they pay a penalty) The supplier adds the cost of the purchased ROCs to the electricity price; i.e the customer pays in the end The number of ROCs that a generator receives is banded according to the renewable technology. (Bands are reviewed every five years, but once a plant is accredited to the RO, its entitlement to ROCs is grandfathered for 20 years.)

10 Levelised costs of renewable electricity in 2015 Co-firing and converting coal plants to 100% biomass are amongst the cheapest renewable energy technologies 250 UK Pounds/MWh UK 55/MWh - the current price of baseload power in the UK ( Sep 2011) Source: Arup, for DECC

11 The ROC banding review The government s proposals There are currently two main bands that are of interest to pellet suppliers: cofiring and dedicated biomass The review has added two new bands: enhanced co-firing at >15% and biomass conversion of existing coal-fired plants Enhanced co-firing is seen as a stepping stone to full conversion, enabling multiunit coal power stations to convert individual units one at a time. The dedicated biomass band is set at a level that will encourage smaller, cheaper (<50MW) projects to go ahead. But it might discourage some larger ones. Scotland is proposing to put a cap (not yet specified) on the size of dedicated electricity-only dedicated plant eligible for ROCs ROCs per MWh DECC s proposed ROC bands from April 2013 Current band From April 2013 Co-firing (standard, <15%) Enhanced co-firing (>15%) 1.0 Biomass conversion 1.0 Dedicated biomass (1.4 from 2016)

12 Coal to biomass conversion opportunity There is currently 28 GW of coal-fired electricity capacity in the UK Six plants are due to close by 2015, but this still leaves about 21GW Conversion to biomass can be achieved at much lower capex than a new-build large-scale dedicated power plant: about 0.6 million/mw v million/mw respectively* As well as RWE npower, it is in the public domain that a number of utilities are looking at the conversion opportunities: Drax Power, Scottish & Southern, E.ON, EDF, Eggborough Power, Rio Tinto DECC estimates that up to 2.6GW of biomass power could result from conversions by Could be more.. *according to DECC data RWE npower is converting its Tilbury power station (east of London) to 100% biomass, with a generating capacity of 750 MW. It stopped burning coal in May 2011 and it will start burning pellets in December Pellets will be sourced from RWE s 750,000 t/y Georgia Biomass plant in the southern US.

13 Conclusions Health Warning These are the government s proposed new ROC bands from April They are not yet set in stone. Consultation will continue until January. The final decision will come in the spring (maybe!) The proposals show a focus on value for money incentivising technologies that deliver renewable electricity quickly at the lowest cost. Cofiring is therefore now back in favour, particularly if it leads to full conversion of coal to biomass This is a very positive development for pellet suppliers, and even more so for any suppliers of torrefied biomass. Torrefied fuel would allow coal plants to be converted at minimum capex. DECC s estimate of up to 2.6 GW of biomass conversion capacity generating 18.5 TWh/y would require up to the equivalent of 10 million t/y of wood pellet. The outlook for the many large dedicated biomass power projects in the UK is less certain. Some will be disappointed that the allocation has not been increased from 1.5 ROCs, and that it will drop to 1.4 from There is nothing to stop them proceeding if they can live with this level of support, but how many can?

14 Thank you Contact: John Bingham Hawkins Wright Ltd. 2A Blake Mews, Kew Richmond, Surrey, TW9 3GA United Kingdom Tel: +44 (20) Web: