Oliver Edberg – 23rd October 2012

Opportunities For Biomass Heating Solutions

Major provider of environment and energy consultancy and advice

to the private sector

Advised DECC on Global bio-energy resource,

RHI, FIT, CRC

Auditor for the RHI schemeCHP Quality Assurance

Guidance on Air Quality & Biomass

Bioenergy Capital Grants Scheme

South West Biomass Capital Grants Scheme

AEA

Biomass heating under the RHI What is biomass? When is biomass heating attractive? Points to be aware of when considering

biomass: Fuel Supply Air Quality Sustainability

Overview

RHI Installations

Biogas

Solid

Biomas

s Boil

er

Deep

Geoth

erm

al

GSHP

Mun

icipa

l Soli

d W

aste

Solar T

herm

al

WSHP

Bio-M

etha

ne0

20

40

60

80

100

120

0

50

100

150

200

250

300

350

400

Installed Capacity (MW) No of installations

Cap

acit

y (M

W)

No

of

inst

alla

tio

ns

Source: Ofgem public RHI report (based upon accredited sites up to October 2012)

RHI Tariffs Table

Tariff Name Eligible Technology Eligible Sizes Tier New tariff (pence/ kWhth) - from

1.4.12

Small Commercial biomass

Solid biomass including solid biomass contained in municipal solid waste (incl. CHP)

Less than 200 kWth

Tier 1 8.3 Tier 2 2.1

Medium Commercial Biomass

200 kWth and above; less than 1,000 kWth

Tier 1 5.1

Tier 2 2.1

Large Commercial Biomass

1,000 kWth and above N/A 1

Small Commercial heat pumps

Ground-source heat pumps; Water Source heat pumps; deep geothermal

Less than 100 kWth

N/A 4.7

Large Commercial heat pumps

100 kWth and above N/A 3.4

All solar collectors

Solar collectors Less than 200 kWth

N/A 8.9

Biomethane and biogas combustion

Biomethane injection and biogas combustion, except from landfill gas

Biomethane all scales, biogas combustion less than 200 kWth

N/A 7.1

Why is biomass attractive?

The economics of biomass heating under the RHI are favourable under the right conditions.

Illustrative example in table below, site specifics influence cost significantly

Assumptions:

Boiler size 500kW

Gas 3p/kWh

Oil 5.5p/kWh

Woodchip 2.1p/kWh

Pellets 4.3p/kWh

Additional CAPEX

Biomass fuel cost

Fossil fuel cost

Fuel saving

RHI payments Tier 1

RHI payments Tier 2

Annual saving

Simple Payback

Biomass wood chip v natural gas £202,500 £16,050 £22,500 £6,450 £33,507 £1,953 £41,910 4.8

Biomass wood pellet v natural gas £202,500 £32,550 £22,500 -£10,050 £33,507 £1,953 £25,410 8.0Biomass wood chip v oil £202,500 £16,050 £41,250 £25,200 £33,507 £1,953 £60,660 3.3Biomass wood pellet v oil £202,500 £32,550 £41,250 £8,700 £33,507 £1,953 £44,160 4.6

Proposed New Developments Under RHI

Consultation on proposed introduction of ‘new technologies’ (response deadline 7th December 2012):

Biomass and Bioliquid Combined Heat and Power Heat from biomass CHP of 4.1p/kWh based on our current evidence. Biomass CHP to include bioliquids at the same tariff of 4.1p/kWh. Must meet CHPQA requirements

Biomass Direct Air Heating Tariff of 2.1p/kWh under 1MW.Tariff over 1MW of 1p/kWh or less.

Biomass heating: Types of Drivers

Reduce energy bills

Invest capital and generate financial returns

Reduce greenhouse gas emissions

Improve corporate image

Enhance energy security

Address fuel poverty

Biomass Heating: Types of Risk

Financial risks, capital costs, energy prices, credit risks and inflation

Development risks, the costs of undertaking feasibility and the risk of planning

Construction risks, construction costs and long lead in times Technology risks, particularly around efficiency and reliability of the

technology Operational risks, operational and maintenance costs, fuel

availability Policy risks, changes to renewable energy policy and incentive

structures = investment returns

What is biomass? – Fuel Characteristics

Feedstock Issues Alternative markets

Virgin wood pellet

Premium fuel suitable for all applications but expensive. Handles and burns predictably. V low ash. Internationally traded commodity. Closest Bioenergy gets to oil convenience

None

Virgin Wood chip

Not all virgin wood is same quality/ specification. Price influenced by specification and processing.

Paper sector; FurnitureConstruction; Panel board

Energy Crops Not suitable for very small boilers due to ash sintering:Miscanthus has high ash content.

Alternative use for land for other agricultural crops.Miscanthus: equine bedding

Agricultural residues (dry)

Straw - high alkali metal and ash content, not suitable for smaller boilersVariable resource – price lower than wood but harvest & weather dependent

Animal Bedding; some agricultural residues are used in animal feed.

Food residues Consider Anaerobic Digestion for wet residues.Storage of waste products on a food production site (smell, degradation, vermin). Too wet for combustion

Animal feed

Waste wood Level of wood treatment such as fungicides and paints. Treated wood falls under the Waste Incineration DirectiveDust may be an issue in processing. Low price

Animal bedding & mulch (high value markets)Panelboard (for better quality waste wood)

Mixed waste, SRF

Only biomass content eligible for incentives and biomass content difficult to demonstrate.Chlorine content, high ash, metal content, variable CV. Low or negative price

Often already in long term contract to landfill or incineration. SRF production increasing - may be opportunities.

Specific issues for biomass

Wide range of biomass fuels BUT characteristics differ and influence processing

and conversion

Clear specification of fuel is important The larger the boiler the more fuel

flexible it is. Feedstock properties Storage facilities are important

Need to consider degradation, dust, sparks, self heating and contamination in storage

Air Quality

Laxå Sweden (2010) Collapse of storage silo due to a fire. The silo collapsed because the fire was put out by water that made the pellets swell.

Internal heating resulting in fire in pellet storage

Images courtesy of IEA Bioenergy Task 32

Choice of Project Site

Highest heat utilisation rate – best payback and system performance

Type of fuel replaced – sites using LPG and oil are best to replace in terms of financial savings and payback, but replacing gas now effective due to the RHI

Feedstock Regional capacity The fuel will need to be processed/seasoned – how

will it arrive from the supplier

Available space and access – sufficient room for boiler to be housed and feedstock to be stored and accessed

Heat demand

Cos

t of f

uel

Increasing biomass heating suitability

The impact of fuel type, size and load factor on the cost of heat

Domestic small commercial large commercial large industrial Size 15kW 140 500 5000 Fuel mix 100% pellets Pellets or clean

chips 100% Clean chips 70% Clean

chips/30% waste chips

Capex £/MW installed

620 523 387 288

Load factor 20% 30% 30% 60% Typical cost of heat

12 9.5 6 2.4

The cost of biomass heating is a strong function of scale

Biomass boiler examples

Step grate system Batch fired log boiler

Fuel Delivery

Fuel Storage

Fuel risk mitigation

Financiers see supply and price as major risk factors in plant development. Cost of risk may have major impact on development costs

To decrease risk contractual negotiation should consider: Need to secure supply over long term Contracts aimed at mitigating risks for ALL parties:

Need to ensure supplier can meet their costs, the need for investment in infrastructure and achieve attractive margin

Need to recognise that suppliers costs may change with time, as may market for biomass

Other fuel risk mitigation options: Spread supply across three or four suppliers Build in flexibility for storage at peak times Build in re-negotiation clauses triggered by changes in price indexes or on an annual basis Include some option to buy on spot market Build in flexibility to use different fuels in conversion stage

Fuel costs per kWh

From Biomass Energy Centre Website

UK Bioenergy demand: Past and projection

2005 2006 2007 2008 20090.0

0.5

1.0

1.5

2.0

2.5

3.0

Cofiring

Biomass stand alone electricity

Industrial heat

Domestic heat

Mill

ion

OD

T p

er

an

nu

m

Data source: derived from DUKES

Planned large biomass electricity projects are all looking to source biomass from overseas

2010 2020 20300

1

2

3

4

5

6

7

Million O

DT p

er

annum

Data source: Adapted from ‘The UK Supply Curve for Renewable Heat’ NERA/AEA 2009

Large growth in biomass (a 6.6 fold increase) for heating but quite small in terms of the potential resource

Projected wood fuel use under the RHI

UK Biomass Supply to 2030: total UK biomass potential

201020152020202520300.0

5.0

10.0

15.0

20.0

25.0

30.0

UK Biomass resource including waste wood and energy crops

Energy CropsWaste woodUK forestry derived resourceProjected biomass heating RHI

Mil

lio

n O

DT

/p.a

Source: Results based upon research conducted by AEA for DECC (2011), report publically available from DECC’s RHI webpage

Compliance with air quality legislation

Right place in AQMA planning requirements will be stricterin Smoke Control Area must be exempt applianceless impact in rural areas

Right kitLow emission technology Clean high quality fuelLarger boilers with enhanced cleanupBest configuration and operation – log boilers need accumulators.

Right abatement>45.4 kg wood combustion/hour must be agreed with Local Authority

Right chimney>45.4 kg wood combustion/hour height must be agreed with Local AuthoritySufficient height to disperse emissions adequately, may need calculation

Guidance for LAs (and everyone else)www.lacors.gov.uk

Sustainable fuels and the RHI

Bioenergy could contribute over 33% of the predicted seven-fold growth in renewable heat by 2020

BUT It must be Environmentally SUSTAINABLE

The need for sustainability is recognised and accepted by policymakers – incentives will not be paid for unsustainable fuel and corporate reputation could suffer.

Requirements of RHI Sustainable feedstocks will be a requirement of the RHI for all boilers over 1MW output. Initial compliance is by reporting only with mandatory compliance and sanctions from 2013 Non compliant fuel will equal loss of incentive payments and damaged corporate reputation

Sustainability is a significant regulatory risk to the business

Sustainability risk of some fuels

Risk of excessive impact from land use change

Risk of excessive impact from Life cycle GHG balance

Wood chip from N America low low Pellets from N America low medium Small round wood from UK woodland low low EU grown and processed wood products

low low

SE Asia/ undetermined origin high medium Waste derived fuels zero zero Agricultural residues zero zero

RHI sustainability

Ofgem regulate RHI, including sustainability Reporting requirements for RHI are for schemes

>1MWth: Type of biomassFormat e.g. pelletMass/VolumeWhether or not it is a by-product/residueCountry of originDoes it meet an Environmental QA scheme (energy crops only)

Sustainability Proposals in RHI Consultation (1)

The greenhouse gas (GHG) emissions target for the lifecycle assessment of biomass heat should be 125.28 kg CO2eq per MWh

For woodfuel the ‘land criteria’ should be as set as the criteria used for the UK public procurement policy for timber,

For non-wood fuel the ‘land criteria’ should be as set out under the Renewable Energy Directive

Perennial energy crops planted to meet the sustainability requirements set under the Energy Crops Scheme for England, or its equivalent, should be considered as meeting the land criteria

The use of wastes for heat generation should be exempt from the sustainability criteria

Sustainability Proposals in RHI Consultation (2)

To develop a registered suppliers scheme to provide a simple route for smaller biomass heat installations to demonstrate they meet the sustainability criteria

To require biomass heat installations below 1 MWth to meet the sustainability criteria from April 2014

As part of the approved supplier list a level of boiler efficiency should be assumed

The use of woody biomass sourced from the same estate as where the boiler is housed should be deemed sustainable, and this should be managed through a simple registration process

Sustainability Positives

Sourcing from the locality strengthens company/ community links.

Wood fuel creates employment in local forestry and agriculture and as a result wealth in the local community. There is no revenue leakage from the locality.

Managing woodland for fuel is positive for its ecology. Opening the canopy increases biodiversity.

All of the above can be used to enhance corporate reputation A good neighbour? A carbon neutral company? Working together with your local community?

Conclusions

Biomass is a growing market Not suitable for every organisation but can be highly attractive in

reducing carbon, energy bills and for PR. Consider alternative fuel options, particularly any wastes or residues

you produce Be flexible in fuel capability with your equipment choice if you can There are risks, but you should be able to adopt strategies to

mitigate against them Fuel prices may vary but you should be able to negotiate contracts

for large proportion of supply that mitigate against price fluctuations for all parties

Do not ignore sustainability – it will become increasingly important

QUESTIONS PLEASE

AEAOliver EdbergSenior Consultant

AEAMarble Arch Tower 55 Bryanston StreetLondon W1H 7AA

Tel: +44 (0)870 190 2945Mob: +44 (0)7425622772E: oliver.edberg@uk.aeat.com W: www.aeat.co.uk

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