Contracts for Difference squeezing out Biomass Renewables

Matt Drew, Managing Director, Saxlund International
Matt Drew, Managing Director, Saxlund International


Contracts for Difference are squeezing out biomass renewables – warns European leader in biomass combustion and fuel handling.

Southampton, 26 October 2015: “Biomass Energy projects using UK waste wood should have a long term beneficial role as part of the UK’s future energy mix, as they do in Scandinavia and other parts of Europe,” says Matt Drew, Managing Director, Saxlund International. “After all it’s a base-load non-fluctuating energy source with the potential to provide low cost heat and power for industry and domestic use.”

Drew, whose company is part of the Swedish Saxlund International Holding energy and environmental technology group, believes that: “As we move from Renewable Obligations to Contracts for Difference (CfD) investor confidence is suddenly faltering at the very time when biomass renewables in the UK seemed to be gaining ground and this is likely to have a damaging effect on the take up of biomass EfW projects, especially the more beneficial small to medium size plants where local industries and communities can benefit.”

Drew thinks the complexity, length and opaque nature of the CfD process is the root of the problem. Already this is sending a signal to potential investors who will be unwilling to invest time, energy and capital in planning potential Biomass investments if the CfD process remains unsupportive. “A bidding process that pitches biomass against alternative technologies in this way clearly needs re-evaluation,” he believes.

“The way that funding is split under CfDs into three pots is partly to blame,” according to Drew. Biomass Energy with CHP for example shares Pot 2 for ‘Less Established Technologies’ with Offshore Wind. But experience so far however has seen the dominance of Offshore Wind completely denying awards to biomass schemes.

The results from the first CfD auction were quite striking. Of the 27 contracts awarded, none were to Biomass Energy. Of the Pot 2 allocation it was totally dominated by two Offshore Wind Projects totalling 1,162MWe. In addition, there were three Advanced Conversion Technology (ACT) projects awarded totalling 62MWe. However, it meant that no CfD’s were awarded to Biomass CHP projects which were effectively squeezed from the Pot.

Further doubts were sewn in July when DECC announced the postponement of the next CfD auction round as this can create further uncertainty for investors. Drew concludes: “If the government believes that biomass energy solutions using waste wood and other renewables should play a part in a balanced and secure UK energy future then the CfD process should needs to be more supportive.”

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed