Biomass Energy

David Mowat Excerpts

Wednesday 24th February 2016 Westminster Hall

[Nigel Adams (Selby and Ainsty) (Con)]

I beg to move,

That this House has considered biomass as a source of renewable energy.

It is a pleasure to serve under your chairmanship, Mr Crausby. I am delighted to have secured this important and timely debate. I am also thrilled that, at this early hour, lots of colleagues from across parties and borders have come to participate.

It has been less than a year since the Conservative party secured a clear mandate from the British people to govern. One of the core commitments that we made in the run-up to the general election, which we repeat regularly, is that it is important to keep energy bills as low as possible for consumers and to promote competition in the energy market. Indeed, those same themes featured in the speech given by my right hon. Friend the Secretary of State for Energy and Climate Change to the Institute of Civil Engineers in November. It was referred to as the “reset” speech because it set out the Government’s direction of travel on energy policy over the coming years.

The two themes of affordability and competition are at the core of today’s debate. Like many of us, I am fully committed to ensuring that my constituents have an energy grid that is secure, reliable and affordable. The question, of course, is how we go about achieving that. Last week NERA, an independent economic research consultancy, and Imperial College London published a significant and insightful piece of research that considered the very issues we are discussing. The research was commissioned by Drax, which, as many Members will realise by now—if they do not, they have not been listening very hard for the past six years—operates a power station in my constituency. I grew up looking at the cooling towers. Drax power station generates between 8% and 14% of the UK’s electricity and, perhaps surprisingly, it is the UK’s single largest source of renewable energy thanks to its gradual conversion away from coal to sustainable biomass generation.

The report revealed that around £2 billion-worth of savings could be passed on to the consumer if the Government allowed biomass to compete in future renewable auctions. That £2 billion would equate to an average saving on each and every household bill throughout the land of between £73 and £84. That saving, which I believe any reasonable person—energy expert or otherwise —would argue is significant, stems from the fact that on a whole-system cost basis, biomass is without doubt the cheapest form of renewable energy available to us today. The concept of whole-system cost is important. It has attracted a lot of interest and discussion in recent months and, on that basis, merits further consideration today.

Much of current Government policy is skewed towards assessing the affordability of different technologies based on what is known as the levelised cost, a narrow metric that only captures the cost of an energy project from construction through its lifetime. However, as the NERA report highlights, a number of globalised costs sit outside the umbrella of levelised costs and are not currently captured by Government policy. I think I can fairly describe them as hidden costs. They are associated with more and more intermittent renewable technologies, such as wind and solar, coming on to the grid, and are ultimately passed on to our energy bills. For example, when the wind stops blowing and the sun stops shining, which it tends to do on these islands, the energy generated by wind and solar drops significantly. That forces the hand of National Grid, the system operator, to pay a back-up generator—usually gas—to switch on and generate power to fill the void. Clearly that action comes with an associated cost.

Because intermittent renewables are unreliable, they require much larger amounts of back-up than traditional coal or nuclear power stations, which have far greater control over how much electricity they generate and when. Again, that comes with an associated cost. The failure to capture those costs when evaluating the price tags of different renewables is doubly disadvantageous. On the one hand, intermittent technologies benefit by looking cheaper on paper than they really are; on the other hand, technologies that are more flexible and reliable and have higher availability are handicapped by not being able to demonstrate the financial benefits and value they bring to the system. That is unquestionably the very definition of a perverse outcome.

If the associated costs, which are great, were added up properly and allocated proportionately to the technologies that generate them, the NERA-Imperial report shows that one renewable technology emerges as considerably more affordable than any other: biomass generation. I should say that I shall focus my comments largely on power generation. I understand that colleagues may wish to discuss the heat side of biomass, which is just as important, but if they will forgive me, I will confine my remarks to the generation side.

The report shows that if a renewable auction was held later this year and the Government allowed biomass to compete with other renewables on a level playing field, it could deliver a strike price that was between £8 and £13 per megawatt-hour cheaper than onshore wind, and £43 per megawatt-hour cheaper than offshore wind. Why is biomass so much cheaper than other technologies when the hidden system costs are taken into consideration? One of the principal reasons is that biomass energy is a flexible source of generation, which can ramp up or down the levels of electricity it produces at short notice in response to the demands of the energy grid. Having that flexibility in place, on the scale that a full power station provides, is hugely important. In fact, the more flexibility we have in the system in the coming decades, the lower will be the costs we incur as more and more intermittent renewables come on to the grid.

The Committee on Climate Change, an independent and well-respected voice on energy issues, stated in its recent report on the future of the UK power sector:

“Flexibility can help to meet the challenges of integrating low-carbon technologies. Flexibility can provide low-carbon sources of system reserve and response to minimise the need for partloaded unabated gas plant, with associated emissions savings. Flexible systems also allow renewables and nuclear output to better match demand by shifting demand…supply…or both”.

In the UK, only one other technology can provide the same level and scale of flexibility as biomass, and that is gas generation. However, as its usage has demonstrated over recent years, biomass has a far lower carbon footprint than gas on a life-cycle basis. Furthermore, as many colleagues will be aware, because of low commodity prices the market conditions are currently sufficiently challenging that the economics of building new gas-fired power stations from scratch does not stack up. There has been a dearth of new plants coming forward.

That brings me to the second reason why biomass is so much cheaper on a whole-system costs basis. Unlike many of the options touted as the solutions to our energy future—such as new nuclear, new gas, new wind and new solar—biomass generation re-uses the infrastructure we already have in place by converting and upgrading power stations to use compressed wood pellets instead of coal. Some colleagues present are old enough to remember the Central Electricity Generating Board building coal power stations, which are scattered all around the country—or rather, at least some of them are left. I vividly remember Drax B being built; in fact, members of my family were involved in its construction. Using such assets, which the taxpayer has already paid for, negates the need to build expensive new transmission lines or spend money to make existing transmission infrastructure more resilient.

All that is particularly pertinent given the fact that we are going through a volatile period when coal power stations are closing across the country. Eggborough in my constituency announced its intention to consult on closure, and Ferrybridge, just across the border, is going. In recent months, Fiddlers Ferry and Rugeley announced their intention to close or, at best, to operate on a very limited basis. I am delighted that my hon. Friend the Member for Cannock Chase (Amanda Milling) is here, as she represents Rugeley and is very concerned about the future of that plant and its workforce.

Such closures are terrible news for the communities in those areas and for the UK’s energy security. Since the beginning of this year, 2.5 GW of coal closures have been announced on top of the 4.9 GW announced last year, so a significant amount of power is coming off the grid. Those closures are creating genuine concerns about security of supply, and in recent months have forced National Grid to rely on expensive emergency measures to manage the grid and keep our lights on—the most recent event was in November. I am sure colleagues will be in equal measure surprised and concerned to hear that Drax is the last power station in the UK, and the only station between Yorkshire and Iceland, that can provide a black-start service, which is effectively a kick-start to the grid in the event of a blackout.

If the Government are committed to taking coal off the grid by 2025, as they have indicated, the quickest and most affordable way to do so is to enable more coal power stations to convert to biomass. That is not only the quickest and cheapest way to decarbonise our power sector, but a means of keeping existing stations on the grid, thereby ensuring that the communities that have enjoyed the social and economic benefits from those power stations for many years can continue to do so. There is a clear and compelling case, based on the analysis by NERA and Imperial College, for the Government to look hard at whole-system costs when considering which technologies to back or to allow to bid. I understand that the Department commissioned Frontier Economics to do work on that topic, which is very welcome, and that the Minister committed to publishing the results of that report in the first half of this year. That is unquestionably a step in the right direction and I thank her for it, but will she assure hon. Members that her Department will utilise the body of research on whole-system costs to inform Government policy?

The Secretary of State said clearly in her reset speech in November that,

“we also want intermittent generators to be responsible for the pressures they add to the system when the wind does not blow or the sun does not shine. Only when different technologies face their full costs can we achieve a more competitive market”—

hear, hear. Does the Minister agree that this issue can be sensibly addressed through the policy options outlined in the NERA-Imperial report? It states that we should introduce either an administrative solution that handicaps renewable technologies in future contracts for difference auctions based on their systems cost, or a market-based solution that allows renewables to bid into the capacity market and CfD auctions, thereby exposing them to market prices that better reflect their true system costs.

Will the Minister allow biomass to compete in upcoming CfD auctions, either on a level playing field—which seems perfectly reasonable—or on the terms I just described? Alternatively, for the sake of simplicity and expediency, will she work with the existing CfD pot structure that she inherited from the coalition? The CfD auctions are designed around three pots: one for established technologies such as onshore wind, one for less-established, higher-risk technologies such as offshore wind, and one for biomass. Why do the Government not simply transfer a portion of the funding allocated to pot 2 to the dedicated biomass pot in this autumn’s CfD auction? The Department could do that very simply without any significant regulatory or legislative changes. It would complement, rather than undermine, the Government’s strategy for supporting offshore wind by producing the system benefits that I described, which would benefit all generators in the system. That solution would also mean that fewer power stations have to join what one industry analyst recently referred to as

“the Strategic Balancing Reserve dole queue”—

an absurd situation in which renewables are rewarded for forcing coal off the grid, while National Grid has to pay through the nose for an SBR contract to ensure that coal power stations remain available as a contingency option.

As I said earlier, up to £2.2 billion-worth of savings could be passed on to the consumer by allowing just 500 MW of further biomass conversion—effectively one unit. The greater flexibility that biomass provides to the system will make it cheaper to integrate other intermittent renewables, such as wind and solar, into the grid, if that is the Government’s strategy.

[David Mowat (Warrington South) (Con)]

My hon. Friend is making a very important speech about biomass and the fact that it is the only dispatchable renewable. Will the Minister address the fact that the Government removed all subsidies from biomass stations unless they are 100% biomass? Fiddlers Ferry on my patch was keen to combine coal and biomass in the same unit, but there is no subsidy for that. Is there not a risk that the Government are making the perfect the enemy of the good?

[Nigel Adams]

My hon. Friend makes a very sensible point. Many of the stations that generate from biomass—certainly Drax, two of whose units now generate solely from biomass—have used coal firing as a way of learning about the technology. That is a perfectly sensible thing for a power station to want to do. I, for one, would like to see support in that area, so that is a particularly good point.

Converting stations to biomass is the quickest, most affordable way to get coal off the system and achieve what the Department says it wants to achieve. In less than three years, Drax has become the largest decarbonisation project in Europe; previously, it was called the dirtiest power station in Europe. It generates 12% of our renewable energy. I am delighted that the company has managed to protect the 850 or so jobs that are currently based in the power station, although colleagues may have read a Telegraph article this week that appears to imply that half of the station is under threat. I hope the Minister and her Department noticed that, because such threats are not normally hollow.

The company re-skilled its employees in the use of that exciting new renewable fuel in the place of coal, and invested hundreds of millions of pounds in a supply chain that includes new import facilities, four of our ports and 200 new rail wagons, which I had the pleasure of launching at the National Railway Museum. Those rail wagons, which hon. Members will have seen adorning and adding to the beauty of the north and east Yorkshire countryside, were purchased from Britain’s last independent rail wagon manufacturer, WH Davis. It really does add value to the UK economy. The Chancellor often refers to the northern powerhouse. The UK biomass industry is unquestionably the power behind the northern powerhouse, and it will continue to power it for many years to come.

These issues are at the core of a number of concepts that I hold dear as a Conservative: competition, security and fairness. The clock is ticking, so the Government must take meaningful and decisive action. They have committed to holding three CfD auctions between now and 2020, the first of which is due at the end of the year. For the reasons I have outlined, if the Government allow biomass to compete in those auctions on a level playing field with other technologies, they could save taxpayers billions of pounds and make the UK energy grid more secure in the process. To continue with the status quo would be inconsistent with my party’s oft-repeated commitment to securing the country’s renewable future at the least cost to consumers. I urge the Minister and the Government to think carefully about this issue.

--- Later in debate ---

[Ronnie Cowan]

The hon. Gentleman has either read my mind or read my speech over my shoulder, because I was about to move on to the renewable heat incentive. I was particularly disappointed by the Chancellor’s announcement that spending on the RHI would be some £690 million less than previously forecast by the Office for Budget Responsibility. The UK Government’s own reports have shown that the RHI has been an important tool in pushing forward the decarbonisation agenda. Data issued by the Department of Energy and Climate Change found that two thirds of users would not have installed renewable heat technology without the RHI. It is therefore difficult to understand why the UK Government feel it necessary to make these changes, which are being imposed against expert industry advice and to the detriment of jobs, investment and the environment.

I regret that we can only scratch the surface of this broad subject in the time available today. I would like to discuss a range of further issues given the opportunity, including how best to incentivise biomass use, address air quality concerns and ensure biomass producers are fairly treated through the tendering and procurement process. Most importantly, I want to see the UK Government abandon their policy of managed decline in support for renewables.

[David Mowat]

The hon. Gentleman has a list of things that the UK Government need to do to enable Scotland to meet its ambitious renewables targets, but, as of this morning, we have a fiscal framework. Is he aware that the Scottish Government intend to put money into such schemes? Presumably they can now do that.

[Ronnie Cowan]

I have not read the entirety of the fiscal framework at this point in time, but there are some issues that are reserved and will have to be handled through Westminster.

[David Mowat]

Maybe I am misinformed, but my understanding is that this is a reserved matter, but the Scottish Government will be free to invest in their own choices. If this was one of those choices, they could do so.

--- Later in debate ---

[Callum McCaig (Aberdeen South) (SNP)]

My understanding of the devolution framework is that when something is within the competence of the UK Government, the Scottish Government are unable to invest in it. There are specific exemptions in the Scotland Bill for topping up benefits, but there is nothing about energy. We are talking in a purely hypothetical way about something that is impossible.

[David Mowat]

rose—

[Mr David Crausby (in the Chair)]

Order. It is not really in order to intervene on an intervention, unless Mr Cowan allows you to do so. Are you allowing Mr Mowat to intervene, Mr Cowan?

--- Later in debate ---

[Philip Boswell]

That is certainly an option that any sensible leader would consider when thinking about future policy. I agree that it is vital to retain a sensible balance.

The hon. Gentleman mentioned how critical research and development is to the development of the industry. I understand that the Government are doing something about that. Indeed, the UK Government set out policies to support the use of biomass in energy generation in their UK biomass strategy published in 2012, which noted:

“It is widely recognised that bioenergy has an important role to play if the UK is to meet its low carbon objectives by 2050. Excluding biomass from the energy mix would significantly increase the cost of decarbonising our energy system—an increase estimated by recent analysis at £44 billion. As set out in the 2011 UK Renewable Energy Road map, bioenergy is also an important part of the Government’s plans to meet the Renewable Energy Directive objectives in 2020.”

Nevertheless, biomass, like all other proven renewable energy sources, is being neglected for the UK Government’s preferred options of nuclear and unconventional gas, which of course means we will not meet our climate change targets as set out in the Climate Change Act 2008.

[David Mowat]

The hon. Gentleman and his colleague, the hon. Member for Inverclyde, both made the point that Scotland has outperformed many parts of Europe—everyone except Sweden, I think we heard—with its decarbonisation initiatives, yet we also hear that that is a reserved matter, so such policy is for the UK Government. I am interested to understand how in that case the credit for doing so well is due to the Scottish Government, not the UK Government. I would point out, as the hon. Member for Ynys Môn (Albert Owen) did, that, of all the devolved Administrations and England, Scotland has the highest percentage of electricity generated from nuclear. It is a long road to replace that.

[Mr David Crausby (in the Chair)]

Order. That is a long intervention.

--- Later in debate ---

[Dr Whitehead]

I thank the hon. Gentleman for that clarification, but perhaps I can also make a little clarification for him. He mentioned the NERA and Imperial College London report about system integration costs. That is an important report, but he should also know that a similar report from NERA and Imperial College London was produced about three months before the report that he mentioned. It so happened that the client for the other report was the Committee on Climate Change, as opposed to Drax. The questions that were asked in the two reports, which had identical authors at almost identical times, were slightly different and therefore produced fairly different results for overall system integration costs. Essentially, one looked at how biomass would relate to the system as it stands; the other looked at how it might relate to system changes.

One thing I am sure the hon. Gentleman would endorse is the extent to which system changes have to take place to ensure that those changes in the mix are integrated into the system as a whole—so, the periods over which energy is sourced, and what happens with transmission charges and how they may be levied in future for a particular location.

[David Mowat]

I hear what the hon. Gentleman is saying. Does he not accept, though, that it is a fact that intermittent forms of energy require back-up and that there is an associated cost that is not reflected in the CfD structure at the moment, which I think is the point that was being made?

[Dr Whitehead]

The hon. Gentleman is absolutely correct. There are system integration cost differentials between different forms of renewable energy. My point is that, depending on which report people read, those are not the same as they might appear to be between renewables. Indeed, what is undertaken in how the system works as a whole can substantially mitigate the different costs, so that, as we evolve the system, we can be in a much better position to ensure that the suite of different renewables—which, as my hon. Friend the Member for Ynys Môn mentioned, is so important for future low-carbon deployment—can properly be deployed happily alongside one another, as a suite of measures to ensure that we move towards a decarbonised economy.

I recognise that we have limited time this morning, so I want to turn briefly to the point the hon. Member for Selby and Ainsty made about the level playing field that is necessary for biomass. It is undoubtedly the case, given the measures that are in place at the moment for the enhancement of renewable energy, that there is not a level playing field. There is an overall problem with that suite of measures because of the levy control framework and the extent to which hardly anybody is likely to get a contract for difference for their project over the next period. Indeed, the hon. Gentleman will be aware that some biomass plants got contracts under the early investment decisions, prior to the new form of CfDs coming into being. However, when it comes to the efficiency of biomass, allying that with CHP schemes to ensure that biomass can get 15-year contracts under the CfD arrangements, even if the heat source is not there for 15 years, is an important change that would need to be made to CfD arrangements for the future.

As for the renewable heat incentive, the fact that there are no guarantees for tariffs between commencement and completion of a project if a biomass plant is trying to go for RHI seems to be an omission for the future that should be rectified as far as their admission to those arrangements—