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UK co-firing faces subsidy challenge

August 10, 2012, London, UK — UK power generators co-firing biomass with coal would need to use a ratio of more than 85pc biomass from April next year to be more profitable than coal, after the government confirmed new subsidy levels in July.


August 10, 2012
By Argus Media

Current subsidy levels for co-firing give 0.5 renewable obligation certificate (Rocs) per MWh of electricity produced, regardless of the ratio, meaning power generators lose €6.50/MWh compared with burning coal at today's prices, based on a plant efficiency of 34pc.

The new subsidy levels, which grades Roc bands depending on how much biomass is co-fired on a unit-by-unit basis, mean that at today's prices a unit would have to burn between 85pc and 100pc biomass to qualify for enough subsidy to be profitable compared with coal, according to Argus data.

Power generators co-firing at these levels would receive 0.7 Roc/MWh, or €4.06/MWh more for burning biomass over coal. Generators that convert to 100pc biomass will receive almost €20/MWh more than coal with a full Roc/MWh.

But co-firing at a ratio of less than 50pc biomass — which covers the majority of the UK's co-firing plants — will reduce subsidies to 0.3 Roc/MWh in the 2013-14 financial year, indicating that coal would be €10.56/MWh more profitable than before the previous Roc banding.

Co-firing economics could become increasingly tighter next year, if current pricing trends continue. Coal clean dark spreads have widened to €12.77/MWh from €4.76/MWh in the past year, based on a plant efficiency of 34pc. Coal prices have averaged $93.53/t so far this month, compared with $124.77/t a year earlier.

Similarly, emissions prices have fallen sharply since last year because of a huge oversupply of allowances in the market. The EU emissions trading scheme allowance contract for December delivery has averaged €7.14/t this month, down from €12.24/t in August 2011.

Pellet prices are showing signs of recovery after recent weakness, with the Argus cif northwest Europe index increasing every week since 27 June, when it hit a year low of €123.50/t. And the Argus forward curve shows prices rising to a midpoint of €136/t by the second quarter of next year, when the new co-firing bands come into force.

But co-firing subsidies will increase as the Roc banding period — 2013-17 — progresses. The subsidy for those using a ratio of less than half biomass will increase to 0.5Roc/MWh in the 2015-16 financial year. The subsidy for those using between 85pc and less than 100pc biomass will rise to 0.9Roc/MWh from 2014.

Please visit ArgusMedia.com or more information.

Copyright © 2012 Argus Media Ltd. All rights reserved. By reading this article, you agree that you will not copy or reproduce any part of its contents (including, but not limited to single prices or any other individual items of data) in any form or for any purpose whatsoever without prior consent of the publisher.


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