The UK is the world’s biggest biomass market but the recently elected government is rapidly dismantling support for the fuel, putting plans for new US wood pellet plants in jeopardy. Yet the arrival of President Barack Obama’s Clean Power Plan could bring fresh hope to the industry.
First, UK energy ministry Decc ring-fenced support for coal-to-biomass conversions in a separate pot under its contract for difference scheme — but did not allocate it any funds this year. Then, finance minister George Osborne scrapped the climate change levy exemption for renewable power, cutting into the profitability of biomass burn. And, while the industry was still reeling from this, Decc announced that it would slash subsidies under the renewables obligation scheme for future biomass conversions and co-firing plants.
The combination of tax rises and lower subsidies is undermining the business case for biomass in the UK, to the extent that some industry participants are prepared to walk away. Developers of UK biomass projects are ready and willing to find new markets, and many see potentially lucrative opportunities elsewhere in Europe and within the US. Europe’s largest biomass buyer Drax says its fourth unit is less likely to convert from coal to biomass because of this lack of subsidy support.
The UK market will still remain the largest industrial market in the world for the foreseeable future, owing largely to Drax’s existing three biomass units, RWE’s planned Lynemouth conversion and MGT Power’s planned combined heat and power plant. But it is time for the biomass market to look elsewhere for new growth, and it need look no further than the US — a country that has been principally involved as the source, not the consumer of industrial pellets.
Under Obama’s Clean Power Plan outlined at the end of July, US states may use so-called ‘qualified biomass’ — biomass feedstock that is demonstrated as a method to control CO2 levels — as a component of their plans. The Environmental Protection Agency (EPA) will determine what constitutes qualified biomass feedstock in its review of state plans, expected by 2017.
Coal producers’ market share in the US is declining amid plentiful and cheap natural gas. Coal-fired plants could embrace co-firing as part of their compliance strategy, and would not have to look far to find wood pellet fibre baskets. This would also help assuage a chief concern of NGOs, which lament the environmental impact of shipping wood pellets across the Atlantic Ocean.
A domestic industrial wood pellet market, pending a favourable outcome from the EPA, would help soak up the significant amount of new production capacity planned in the US in the coming years. Of course, it is not without political risk, as many politicians are already working to dismantle Obama’s plan. But those industry participants that have been frustrated by the UK hindering support for biomass can take solace in the fact that the US is paving the way for more biomass burn.