PRESS RELEASE

The UK’s demand for woodchips for electricity generation
could exceed 40 million tonnes per year

27 July 2010

The annual feedstock requirements of the largest biomass power projects being planned in the UK could exceed 40 million green tonnes of woodchips according to a new report from Hawkins Wright*. Given the UK’s limited wood resources, the big biomass power plants will source the majority, if not all, of their feedstock from overseas. If all the projects go ahead, this import requirement would transform the UK into the world’s biggest wood chip market, at least on a par with Japan which has for years dominated the global market for wood chips.

The supply of renewable electricity in the UK must increase fourfold in the next ten years to meet Britain’s energy security, climate change and renewable energy targets. For this to happen, however, the rate of growth in renewable electricity production will need to double from 8% pa over the past four years to 15% pa over the next decade, an acceleration which is impossible without major changes to government policy.

Biomass power could make a significant contribution to the growth in capacity: projects comprising 6-7GW of biopower capacity are at various stages of planning in the UK. As the only source of ‘always-on’ base-load renewable electricity, biomass complements other invariably intermittent renewable energy technologies such as wind, solar, wave etc.

However, significant constraints and risks are still holding back these developments. Political risks are the foremost concern for project developers. This partly stems from the uncertain intentions of the new UK government, but there are also some systemic political risks which threaten to undermine the confidence of investors.

John Bingham, Research Director of Hawkins Wright said: “We need to see a step-change in the government’s support for renewable energy if the targets are to be reached. Developers of biomass power projects are looking to the new UK government for a ‘root-and-branch’ reform of the UK energy market, one that will enable them to earn a financial return that is high enough to attract incremental investment into the sector.”

Financial risks are also proving an obstacle for investors in biomass power in particular. Financing institutions often perceive biomass as commercially more complicated – and therefore risky – than technologies such as wind energy. Hawkins Wright’s study concludes that developers of biomass power projects seem to be struggling to de-risk their projects to the satisfaction of the banks.

John Bingham said: “Part of the problem is that potential financiers have unrealistic expectations about the risks they are prepared to shoulder, particularly with regard to feedstock supplies .The market for biomass is immature, fragmented and has notoriously opaque pricing. In time, the international market for biomass will become deeper and more transparent, but in the short term feedstock supply risk will remain a big concern for the banks that will be asked to finance the biomass power projects.”

For more information, contact:
John Bingham, Research Director. Tel: +44 20 8747 5844
Email: john.bingham@hawkinswright.com
Web: www.hawkinswright.com

* “A strategic assessment of UK investments in biomass power”, Hawkins Wright Ltd. July 2010. This 138 page multi-client report examines the factors driving the development of biomass power capacity in the UK and assesses the commercial implications for project developers, biomass suppliers and competing users of feedstock. The report includes profiles of 28 projects with a capacity greater than 50 MW.
See www.forestenergymonitor.com/UK_biomass_power_multi-client