Wood energy use – where are markets and policy taking us? MOBILE TEL:

Regional Cluster facilitators South Scotland – Charlie Fulton Mid Scotland – Steve Luker, North East Scotland – Claire Glaister - ; Highlands and Islands – Stewart Meikle

RENEWABLES IN CONTEXT 8% of EU total energy comes from renewables 1.5% of UK total energy comes from renewables Wood Fuels Other bioenergy c100M t wood

Policy drivers: UK renewable energy strategy In Spring 2009 the UK set a target of 15% of energy to be renewable by At the moment it is 1.5%. A step change is required. 10 times bigger! How is this to be delivered?

What is role of wood energy in delivering the UK RES target? (......around 20% planned)

Scottish Renewable Energy Targets to 2020 Heat looks small ?

Markets and market share in Scotland – the importance of heat Renewable heat Renewable electricity

Scottish renewable heat policy for wood energy? The Scottish Government has indicated it will set a target of 11% for renewable heat (9TWhs) by 2020The Scottish Government has indicated it will set a target of 11% for renewable heat (9TWhs) by 2020 SRF (April 09) Report – Renewable Heat in Scotland: 2020 Vision suggests 50% of this 9TWhs is wood fuelSRF (April 09) Report – Renewable Heat in Scotland: 2020 Vision suggests 50% of this 9TWhs is wood fuel But 97% of EU’s renewable heat is wood fuelBut 97% of EU’s renewable heat is wood fuel So between c2million and c3.9million tonnes of wood fuel use by 2020 to meet 11% Scottish target.So between c2million and c3.9million tonnes of wood fuel use by 2020 to meet 11% Scottish target.

What are the implications for Scotland in the heat market in meeting policy targets? Target to 2020 Million tonnes pa of wood fuel use Installed capacity required Total investment required in £Millions Annual no. of schemes required (e.g. hospitals, large schools, leisure centres) UK target applied by pop proxy 0.55m tonnes 690MW£412.5M140 (£41M pa) Scottish target - low 2m tonnes2500MW£1,500M500 (£150M pa) Scottish target - high 3.9m tonnes 4875MW£2,900M975 (£290M pa)

What it is New financial support mechanism which will be created for renewable heat projects UK national scheme driven by UK Government Powers in the Energy Act 2008 allow the setting up of RHI System Design The system design is being studied by UK government and so is not determined Timescale Introduced by April 2011 Potential elements Payment to generators of renewable heat Payment levied on those not using renewable heat In principle, similar to Renewable Obligation for electricity The most important market driver? The Renewable Heat Incentive

Unclear issues How payments will be made How payments fund will be gathered/levied How payments will be administered Through a central administration e.g. OFGEM as per ROCs? Relationship with existing grant schemes Can recipients of grants gain access to scheme? Can they keep grant? Level of payment Level required to be an incentive that will support target achievement Size Limit Currently no size limit Currently no indication if payment level could be related to size The Renewable Heat Incentive

What might the RHI mean for market development? Bulk delivered fuel costs in £\MWhs £TAX RHI?

The markets -heat energy use

Paybacks – 500KW boiler in secondary school Gas without RHI: £200,000 capital cost Saves £10,500\year over gas 20 year payback 20 year payback Gas + RHI £200,000 capital cost Saves £48,000\year over gas 4year payback

A key policy driver - ROCs One tonne of green wood = c 2MWhs, but only 40% used One ROC is worth around £40

Driven by ROC and RHI what is the market doing or planning in Scotland ? DevelopmentStatus\commentsUse green tonnes 44MW electricity – Eon Lockerbie Operational500,000 25MW CHP – UPM Shotton Operational400,000 (e) 8MW CHP – Balcas Invergordon Under development20,000 (e) 25MW electricity – Scottish Power Longanett Planned70,000 (e) Charlesfield First CHP - Borders Planned70,000 Northern Energy Developments Planned85,000 (e) Longanett and Cockenzie – co-fire Formerly operational? 15MW Scottish public sector heat Operational15,000 (e) Puffin Pellets - Banffshire Under development for 25,000t of pellets75,000 (e) Brites Pellets - Balcas Invergordon Under development for 100,000t of pellets 300,000 (e) Arbuthnott Wood Pellets - Kincardinshire Under development for 15,000t of pellets45,000 (e) Domestic logs FCS figures using population proxy40,000 (e) Hunterston - Ayrshire Planned cofire1,500,000 (e) SSE\Forth Ports Announced £1billion x 4 100MW plants – Dundee, Rosyth, Grangemouth, Leith 4,000,000 (e) Scottish heat market by 2020 Forecast at mid range2,000,000 (e) Combined total 9,115,000

UK biomass power plant plans?

UK biomass power plant plans? = - 12million tonnes of pellets pa (or) - 20 million tonnes of green wood chips pa

Conclusions Policy expects the renewables sector to be TEN times larger by 2020Policy expects the renewables sector to be TEN times larger by 2020 Policy expects wood energy to provide a fifth of UK renewable energyPolicy expects wood energy to provide a fifth of UK renewable energy Policy expects the Scottish heat market to use between 2million and 3.9million tonnes a year of wood fuel by 2020 – at a good price?Policy expects the Scottish heat market to use between 2million and 3.9million tonnes a year of wood fuel by 2020 – at a good price? Policy expects a massive (undefined) expansion in the use of wood fuel for electricity – at a lower price?Policy expects a massive (undefined) expansion in the use of wood fuel for electricity – at a lower price? ROCs, RHI, carbon trading and rising fossil fuel costs may drive this?ROCs, RHI, carbon trading and rising fossil fuel costs may drive this?

Conclusions Policy targets are rarely met – especially 10 years ahead!Policy targets are rarely met – especially 10 years ahead! Most of the wood (biomass) for electricity could be importedMost of the wood (biomass) for electricity could be imported The RHI is a tax and must survive -intact -a change in GovernmentThe RHI is a tax and must survive -intact -a change in Government Even the smallest policy target for (Scottish) heat requires £150 million capital investment per annum for 10 years – this swamps the capacity of the installers and is not likely at presentEven the smallest policy target for (Scottish) heat requires £150 million capital investment per annum for 10 years – this swamps the capacity of the installers and is not likely at present The cost of fossil fuel will be the key determinant in rates of market growth – not policy targetsThe cost of fossil fuel will be the key determinant in rates of market growth – not policy targets Growth in wood energy use will not be as massive as predicted and should be sustainable in the heat marketGrowth in wood energy use will not be as massive as predicted and should be sustainable in the heat market