Assessing Biomass Feasibility

Biomass Market Analysis in Scotland

Introduction

To establish the larger context to which the Barony College project will be undertaken an outline of the current biomass market in Scotland will be offered. In order to provide the closest relevance to the organisation consideration will be given only to wood chip/pellet heating applications. An outline of the potential resource, its economic value and the structure of the market will be given. The current barriers present which are inhibiting more widespread utilisation of biomass will also be highlighted. Finally an overview of potential solutions to overcome these is given.

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Market Outline

Within the European Union approximately 63% of renewable energy is sourced from biomass1; In Scotland however this figure is far lower. This should not imply that there is an insufficient resource. Scotland has 267,800 ha of woodland which accounts for 17% of land cover. This resource is also set to grow as forests mature and activities to meet the Scottish Parliament’s target of 25% coverage by 2050 are activated. It is thought there is potential for a supply of 700,000 – 1million oven dried tonnes (odt) of biomass per annum.

Management of these forests and ‘waste’ from secondary sawmill products etc will ensure an adequate resource for market expansion. These products have a value; projected to be £15 (odt) for waste and £15-30 odt for forest residues2. It should be noted however that “the cost of wood fuel varies accordingly with the amount of processing and transport required” (Environment and Rural Development Committee, 2006).

The Scottish biomass market is at an early stage of development and can hence be classified as a “developing but immature market” (Environment and Rural Development Committee, 2006). In 2005 it was estimated there was in the region of fifty wood fuel heat only schemes (4.6 MW total rating) utilising 3,000 – 5,000 odt of biomass per year3. There is significant potential to increase this number of instillations however. The Sustainable Development Commission Scotland (SDCS) estimates that readily available resources could meet 5-11% of domestic space/water heating requirements.

Biomass should have a readily captive market in remote areas, predominantly in the West and North of Scotland, which do not have access to a mains gas supply. The result of this is a reliance of fuels such as oil, coal, Liquefied Petroleum Gas (LPG) or electric storage heating. The first three of these are known to vary considerably in price over short periods of time. Estimating the cost of wood fuels can be complicated and is dependant on factors such as their source, moisture content, transport distance, type of system utilised etc. As the table and two graphs (figure one) below highlight however, wood chip and pellets are already distinctly competitive with existing fossil fuels. Especially in the case of wood chip, where a slight increase in the cost of mains gas would leave it as the cheapest heating fuel on the market.

Fuel
Price (pence/kWh)
Natural Gas
1.56 – 2.01
Coal
1.77 – 2.39
Oil
2.88 – 3.21
LPG
2.56 – 5.07
Electricity (‘Economy 7’)
7.04 – 9.84

Table 1. Fossil Fuel Prices for Domestic Customers in Scotland (2005)

Fig 1. Biomass Comparison Cost Increase Projections4

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Benefits

“The establishment of a viable biomass sector would help secure all the benefits that forestry can bring to Scottish rural development” (Forum for Renewable Energy Development in Scotland, 2005). For example: -

• Greater utilisation of a local fuel source will provide greater security of supply and therefore reduce dependence on imported fossil fuels.
• Biomass heating fuelled by competitively priced local sources can help to combat Fuel Poverty, especially in off-gas areas, and fulfil the Scottish Executives target to eradicate it by 2016.
• An income from forestry by-products would encourage more active management of forest areas i.e. thinning.
• Conversion of forestry wastes, brash/lop and top, into a cash crop.
• “Mega-Watt for Mega-Watt, wood fuel heating creates between 5-10 more jobs than other renewable technologies” (SDCS, 2005).

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Supply Chain

One of the fundamental hurdles to overcome in terms of establishing widespread biomass utilisation will be the development of a coherent supply chain. There are a significant number of stages which must be undertaken before wood chips/pellets can start to generate renewable heat, as shown in figure two. Furthermore many of these include different actors. The current ‘immature’ state of the market is, to an extent, explained by the “limit to the extent to which a stable connection has so far been made between suppliers, infrastructure and demand” (Environment and Rural Development Committee, 2006). At present many supply chains are fragmented and uncoordinated.

Fig 2. Supply Chain Outline5

As the diagram above shows there are many different organisations that must interact to complete the chain. This even extends to the end users who must join together to express an interest in utilising biomass. Added complications are also present in that the majority of biomass heating systems are manufactured abroad while there is a skills shortage as regards the best harvesting, processing practices etc to maximise efficiency.

The preparation of biomass fuel bears a cost to the producer. The Forestry Commission state that harvesting costs of wood fuel from forests are typically £10-13 per green tonne, with chipping £10 per oven dried tonne (cited Scottish Executive, 2006). Dawson et al (2005, cited Scottish Executive, 2006) estimate drying costs at £7.50 per oven dried tonne. Pelletisation obviously incurs higher costs due to the additional heating and compression required.

The final transportation costs of biomass fuels are also significant due to their lower energy density compared to fossil fuels necessitating more deliveries. Indicative road haulage costs are shown below (€/odt):

Distance/ Fuel
Logs (45% MC)
Chips (45% MC)
Pellets (10% MC)
50km
7.9
12.4
4.1
200km
20.8
24.1
11.1

Table 2. Source, Suurs (2002) cited Scottish Executive 2006

Pellets incur lower transportation costs since they are a more energy dense fuel. It is estimated that forest residues have a mean economic transport distance of 30-50km (Royal Commission on Environmental Pollution, 2004).

Indicative fuel costs for biomass are shown below6: -
• High quality wood chip (30% MC) £77 odt & circa 1.6p/kWh.
• Poor quality wood Chip (55% MC) £42-49 odt & circa 1.56p/kWh.
• Pellets (10% MC) £150 odt & circa 3.07p/kWh.
There is obviously further scope for reduction in these prices as the supply market matures and economies of scale arise. For example there is no pellet producing fuel facility currently in Scotland.

The challenge of growing the biomass industry therefore is presented with a fundamental problem. End users will be unlikely to consider biomass if there is not an established fuel supply infrastructure in the area. While on the other hand what incentive is there to supply a product if there is no current demand for it? This paradox increases the requirement for clear communication between suppliers and end users and the presence of a facilitating body.

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Barriers

Apart from the inherent problems in trying to establish a supply chain there are several other factors inhibiting biomass utilisation currently present. Firstly wood fuel systems are of a higher capital cost then conventional fossil fuels, in some cases five times as much7. One of the determining factors of this is the fact that large fuel stores and fuel delivery systems are likely to require the construction of a separate boiler house. This will also deter the use of biomass technology in locations with limited available space i.e. SME Businesses. Furthermore the fact that the majority of systems are manufactured abroad8 further raises costs.

In some cases harvesting of forest management by-products (branches lop and top) is complicated by the definition of waste in the ‘EU Council Directive on Waste.’ Classification as waste introduces added restrictions as regards the requirement for a registered carrier for transport and a licence before combustion. Planning processes are also complicated. It is thought this directive is being applied more rigorously in the UK than other European countries9.

Confusion has also arisen as regards the level of value added tax (VAT) to apply to wood fuel. At present a reduced rate of 5% VAT only applies to solid substances utilised solely as a fuel. Since wood products have many applications the level of VAT liable needs to be clarified.

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Incentives

To overcome these barriers it is clear that a number of incentives, policies and programmes will need to be initiated. According to the ‘Forum for Renewable Energy Development in Scotland’ (FREDS) the biomass market “is not yet commercial and merits further intervention to catalyse activity.”

The Forestry Commission has played a crucial role in pairing supply and demand through the ‘Highland Woodfuel Development Programme’; this has developed seven clusters of biomass activity in the Highlands and activity has now been rolled out nationwide. Developing in clusters is sensible since “evidence indicates that the economics, and sustainability credentials, of biomass are critically related to the proximity of demand, processing infrastructure and fuel supply sources” (Environment and Rural Development Committee, 2006). Biomass is not a concentrated enough energy form to justify long distance transportation; road transport typically having an environmental impact of .18 -.27 kg CO2/odt/km10. Developing in this fashion also gives suppliers and end users the guarantees they require, in the form of supply contracts, before investing in plant and processing equipment.

There is a wide range of different funding schemes to support biomass and attempt to bridge the capital cost difference between a biomass system and its fossil fuel alternative. However feedback suggests “this support is not currently adequate to deliver the desirable level of wood fuel heating in Scotland” (SDCS, 2005). In response to this the Scottish Executive has recently announced the ‘Scottish Biomass Support Scheme’, a pot of £7.5million to be allocated by March 2008 to suppliers and end users.

It is clear the public sector can play a key role in stimulating demand for biomass as a fuel source due to its jurisdiction over a wide range of high demand buildings such as schools, hospitals and prisons. There is also large potential to link these in with social housing which would have a duel role in combating fuel poverty.

The Forestry Commission has also started the ‘Ignite Woodfuel Training Programme’ to attempt to address any skills shortage there may be in the Forestry industry as regards biomass fuel processing.

It is clear however there is still much more which can be done to raise awareness of biomass benefits, remove obstacles i.e. those caused by the ‘EU Council Directive on Waste’ and provide further financial incentives i.e. fiscal measures. The power to enact these lies mainly with central government.

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Footnotes

  1. Environment and Rural Development Committee, 2006
  2. The Royal Commission on Environmental Pollution, 2004
  3. Sustainable Development Commission Scotland, 2005
  4. Both Table & Graphs: Sustainable Development Commission Scotland, 2005
  5. P. Le Feuvre (2007)
  6. Figures from Sustainable Development Commission Scotland (2005), Forestry Commission (cited Scottish Executive, 2006) & Rippengal (2005, cited Scottish Executive, 2006).
  7. Sustainable Development Commission Scotland, 2005
  8. Typically Scandinavia and Germany
  9. Forum for Renewable Energy Development in Scotland, 2005
  10. Forum for Renewable Energy Development in Scotland, 2005

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References

Forum for Renewable Energy Development in Scotland, 2005. 'Promoting and Accelerating the Market Penetration of Biomass Technology in Scotland,' Edinburgh: Scottish Executive.

The Royal Commission on Environmental Pollution, 2004. 'Biomass as a Renewable Energy Source.' London: The Royal Commission on Environmental Pollution.

Environment and Rural Development Committee, 2006. 'Inquiry into Developments in the Biomass Industry.' Edinburgh: Scottish Parliament, Vol 1- Report SP Paper 530.

Sustainable Development Commission Scotland, 2005. 'Wood Fuel for Warmth.' Edinburgh: Scottish Executive.

Scottish Executive Environmental & Rural Affairs Committee, 2006. 'Review of Greenhouse Gas Life Cycle Emissions, Air Pollution Impacts and Economics of Biomass Production and Consumption in Scotland.' Scottish Executive: Edinburgh.

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