Select Committee on Science and Technology Fourth Report


Friday 30 January 2004

The party consisted of Lord Methuen, Lord Oxburgh (Chairman) and Baroness Perry of Southwark. In attendance were Christopher Johnson (Clerk) and Jonathan Radcliffe (Specialist Assistant).

The Committee was welcomed by Malcolm Chilton, Commercial Director of Energy Power Resources (EPR), which owns both Elean and Thetford Power Stations. He made some introductory remarks about EPR:

  • EPR was started in 1997 with venture capital and private investment;
  • EPR generated 130 MW-120 MW from burning 1Mt of biomass, though the company also operated two wind farms;
  • The company had a turnover of £60 million, but no plans to develop further plant;
  • The company also had an interest in Energy from Waste, but this was handicapped partly by planning procedures, and partly by the fact that EfW, even the biomass element, was excluded from the Renewables Obligation.

Elean Power Station, Ely

Elean Power Station is the world's largest straw-fired power station, generating 36 MW of electricity. After a tour of the plant, the Committee had an informal discussion with Malcolm Chilton and the station manager, Chris Stockton. Their general view was that the 2010 targets would not be met. They believed that when the Government set the ROC buy-out price at 3p/kWh they calculated that that figure would deliver the target—however, it was now clear that this calculation had been wrong. There was a view that an increase in the buy-out price of around 2p/kWh was necessary to reach the targets, though the Government could reduce the cost by focusing on particular technologies such as biomass. Such changes should be made soon, given the long lead-time for new projects—the 2005-06 review would be too late.

In discussion the following further points were made:

The power station was essentially similar to a coal-fired one, on a smaller scale. Straw is used as a fuel to heat water, creating steam at 520°C and 97 bar to drive turbines. A small amount of natural gas was burnt (approximately 6 percent of the total) as a support fuel. The plant operated at 32.5 percent efficiency, with a load factor over 90 percent.

220,000 tonnes of straw were burnt each year, delivered in the form of half-tonne Hesston bales from a maximum radius of 60 miles, costing £35 per tonne at the power station door. The price paid to farmers for straw in the field was some £2 per tonne—the rest of the cost was made up of baling, storage, transportation etc.

The low calorific value of straw meant a large volume was required: two barns on site held three days' fuel, and many local holding sites were used to store straw for up to twelve months. Some 12 percent of the stock was lost due to arson (costing some £400,000 in the last year) or weather damage.

Tonnage contracts with individual farmers accounted for 120,000 tonnes, 100,000 tonnes came from EPR's own Anglian Straw company.

The logistics of ensuring a regular fuel supply were critical. The effects of weather conditions in this regard (for example, wetting straw) had not been fully appreciated when the initial viability studies were carried out.

The turnkey cost for constructing the plant was £47.2 million; the overall indebtedness was £55 million. The company did not expect to show a return on this investment for 15 years.

The plant had a NFFO contract, through to 2013, with the Non-Fossil Purchasing Agency to supply electricity at 6p/kWh. The NFPA retained revenue generated by selling on ROCs, which was ultimately passed on to the Treasury. If this money could instead be recycled to generators it would make a crucial difference to their economic position.

The security provided by NFFO contracts was reassuring for banks, when compared with the value of ROCs, which were not guaranteed. This made new investment under the RO less likely. Furthermore, though prices were guaranteed by NFFO contracts, they were not varied to take account of changes in the regulatory environment. Such changes, for instance the introduction of the EU Waste Incineration Directive, could see existing renewable generators going under.

The price of electricity was 1.5-2 p/kWh less than would be required to make new biomass development commercially attractive. Despite being the biggest generator of electricity from biomass in the United Kingdom, and even though there was capacity for five more straw-burning plants in the United Kingdom, EPR was not considering any new developments.

The economic case for investing in energy crops was weak, thanks partly to the higher cost of fuel. Another factor was the high initial investment in planting crops such as miscanthus or willow coppice, with the prospect of a three-year wait before there was any return.

The ARBRE plant (which EPR liquidated) had a very complex fuel chain and used new technology, operating at less than 20 percent efficiency.

Capital grants were not thought to be the best incentive when operating costs are greater than revenue. The industry would therefore prefer a blend of targeted capital grants and other revenue support mechanisms.

Thetford Power Station

Before looking around the plant the Committee heard a presentation by Mr David Raubenheimer, Operations Director for EPR. He made the following points:

Thetford had been in operation since 1999. The plant was slightly larger than Elean rated at 38.5 MW, and burnt poultry litter. It had taken three years to develop to the start of construction and a further two and a half years to construct and commission.

Poultry litter had a lower calorific value than straw—some 450,000 tonnes per annum were required to fuel the plant. This litter generally had to come from barn-reared chickens, which by scratching the litter could partially dry it. Litter from battery chickens was less usable. The litter was sourced from about 100 farms, most local, though some were from as far away as Anglesey. Contractors cleared out the barns once birds were removed for slaughter.

If the litter was not sold to EPR, it would typically be stored and used as fertiliser by the farmer. However, this carried animal health risks, and the removal and incineration of the litter helped to break disease cycles. In practice the litter was worthless to the farmers, who were prepared to supply it for a nominal price on the basis that their barns were cleared. The cost to the company to collect it and transport it to the plant was about £10 per tonne.

Once the litter had been burned it was made into fertiliser, which was rich in phosphates. Sale of fertiliser contributed up to 10 percent of the plant's revenue.

The market for supply of biomass had been significantly destabilised in recent months. The decision to extend co-firing eligibility for ROCs had both undermined the confidence of potential investors in renewables and weakened the position of renewable generators in the energy crops market, since suppliers now saw an alternative market in coal-fired plants. Such plants were able to import biomass fuel and pay significantly more for it, whereas EPR was limited geographically in sourcing fuel.

In addition, strict carbon monoxide (CO) emissions targets required under the Waste Incineration Directive threatened to undermine the company—compliance would cost the company some £9 million. Government grants to cover these compliance costs would be welcome.

Consistently low CO emissions were hard to achieve with variable biomass fuel, and the requirement would be to test every half hour rather than averaging results over longer periods as for coal fired plant. The CO targets were principally directed at commercial and municipal waste where high levels of CO would indicate inefficient combustion, potentially allowing dioxins into the atmosphere. In contrast, at Thetford dioxins were measured at one-tenth of allowed limits. Thetford emitted less than one milligram of dioxin in 2002 compared to one gram for a typical coal fired power station, and dioxin emissions per kWh from biomass plants were only a fraction of those from coal fired plant. However, coal fired power stations were completely unaffected by the Waste Incineration Directive.

The difference in the definition of permitted renewable fuel sources between NFFO contracts, which were rigidly defined, and ROCs, which were more flexible, was unhelpful. Ofgem had refused to allow the plant to use chicken feathers to supplement chicken litter, because the feathers were recovered by the plant which plucked the carcasses, and were thus held to be industrial, not agricultural, waste. As a result the feathers ended up in landfill.

ROCs were unsuitable for independent developers—they were more suitable to companies with an interest in the supply side as well. In addition the TXU failure and the recent changes to the Renewables Obligation before it had even completed its first billing cycle had significantly undermined confidence in ROCs and fixed price contracts. Long-term projections of the value of ROCs were difficult—as a result 15-year contracts with investors were likely to be at a very discounted price.

previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries index

© Parliamentary copyright 2004