As countries across Europe start to turn away from coal, the thought of burning wood for power instead initially looked appealing to plant operators as a relatively easy way to prolong their infrastructure.
Industry has generally hyped the burning of wood for energy as a green investment. However, investors should no longer rely on biomass projects to boost the environmental credentials of their investment portfolio – nor on a stable future for biomass as a power source.
Investors should no longer rely on biomass projects to boost the environmental credentials of their investment portfolio
Once you dig deeper, the large-scale burning of wood for energy is quickly exposed as expensive and problematic for the climate.
These two major pitfalls should stop responsible investors in their tracks.
Biomass – the cost-efficient ‘transition’ fuel?
Today, power plants that burn wood rely on massive public subsidies to remain financially viable. But this support from the UK Government will end by 2027. So – what future for large-scale biomass after 2027? The largest biomass-burning power station in Europe is asking itself this same question.
Since Drax invested in the conversion of three of its six coal units to biomass, UK subsidies have shrunk. Whilst the company will convert a fourth unit to biomass, this won’t receive the same level of subsidies as its first three, meaning it will have to be effectively used as a back-up.
Drax is an example of a company which has received enormous subsidies under previous support schemes – in 2017 just shy of a staggering £2m every single day. But the UK Government has since tightened its purse strings. In January 2018, the Department of Business, Energy and Industrial Strategy (BEIS) reduced the subsidies available to new large-scale biomass under the Renewables Obligation Order, starting its transition away from this expensive and problematic energy source.
In June, the UK Government limited the other primary subsidy available to biomass, known as the Contract for Difference (CfD), by setting far more stringent efficiency criteria for large-scale biomass plants and excluding power-only plants altogether.
Operators that were lucky enough to grab subsidies under the old schemes must now focus on how to reduce costs, to make sure their biomass units are still commercially viable when subsidies expire in 10 years’ time. In Drax’s latest Annual Report, the focus is clearly on how to reduce the cost of its wood pellet supply. How it will reduce costs to the extent needed, however, remains unclear.And for new biomass plants, the financial headwinds are approaching gale-force. Principally, it is clear that the subsidy gravy train is unlikely to keep rolling.
In addition, recent evidence from Chatham House shows that biomass is not competitive against ‘true renewables’ on a price basis. There have been significant drops in the cost of true renewable energies, like solar and wind, in the past five years. In 2016, the costs of electricity from biomass across its whole lifecycle (the ‘levelised cost of electricity’) were already higher than the equivalent costs for solar and onshore wind and only slightly less than offshore wind.
Biomass – the green answer to coal?
The reduction in public subsidies exposes a drop in government confidence in biomass as part of a climate mitigation scenario, due to its shaky environmental credentials. UK policy support was predicated on biomass being a renewable energy that efficiently reduces carbon emissions. However, according to BEIS in September 2017, “carbon savings from biomass conversion or co-firing are low or non-existent, and the cost of any savings is high”.
Assumed carbon savings from biomass stem from the presumption that the biomass lifecycle is carbon-neutral: the theory goes that as forests regrow, they will eventually reabsorb the carbon dioxide released instantly from burning trees. Therefore, UK policies do not require biomass power plants to account for the carbon released from burning biomass.
This is an accounting cheat. If you were on a strict diet, ate a doughnut and didn’t write down the calories because you intended to go on a run later in the year, it would not mean you haven’t ingested those calories. Similarly, just because you do not count the carbon emissions from burning biomass – even if you plan to replant trees – it does not mean they were not emitted. And just as no one’s watching to make sure you go on that run, or how far you go, there is no obligation on biomass power stations to replant forests.
In fact, when burnt, wood usually releases more carbon into the atmosphere per unit of energy than coal. And even when trees are replaced, it can take up to 100 years for trees to regrow and soak up as much carbon as was released from harvesting, processing, transporting and burning them. This means biomass burning increases greenhouse gases in the short-term, just when we need to be reducing them to avoid disastrous climate impacts.
For these reasons, ClientEarth has called for the EU to strip biomass of its carbon-neutral status. Once the policy catches up with the science, this is likely to spell the end of large-scale biomass.
Investors in wood-burning power plants must pay heed. Investing in biomass is not the green investment it is touted to be – it is bad for the climate and looks likely to carry growing investment risk.
Caroline Haywood, Law and policy advisor on climate and forests, ClientEarth