Biomass Renewable Energy
The biomass renewable energy sector has certain advantages over other renewable energy sources such as solar and wind energy. Biomass does not suffer from the intermittent flow of power due to night time or windless conditions. This article will discuss some of the most important factors when investing in a wood based biomass renewable energy business. The same principles will apply to other biomass types.
Important Factors to Consider before Committing the Investment Raised for a New Biomass Renewable Energy Business
Building new biomass renewable energy businesses requires careful due diligence and planning. There have been many examples of a new biomass renewable energy business raising funding for a project, building the energy plant and getting ready for production only to find out that the supply of raw material is not available in the volumes needed to make the business financially sustainable. This may sound ridiculous, but it has happened. Companies or people who enter the biomass renewable energy sector often have no experience of biomass and have taken it for granted that the raw material will just be there. This is where careful and realistic due diligence becomes essential. Considering that the price tag for a new biomass renewable energy plant starts in the region of £30 million it is worthwhile taking into consideration the following factors before spending begins:
Find a location where there is adequate future supply, 20 years plus.
Who will be competing for the raw material within the raw material supply area?
Who are the suppliers of the raw material, do they have a long term plan?
Can you set up long term supply agreements, 10 years, 20 years?
What are the possible factors that could influence the raw material supply price?
This may not necessarily come from another biomass renewable energy supplier, but come from an indirect user of the biomass feedstock.
Are there government incentives to invest in biomass renewable energy and will this bring in unexpected competition for raw material?
What purchase price for the raw material will be factored into the return on investment calculation?
It is very tempting to assign a low or current market price. However, once you start to purchase significant volumes you risk changing the raw material supply balance in the market place and can easily introduce unplanned for competing demand with the inevitable escalation in raw material pricing. Since raw material will account for typically 50% of the business operating costs this is a factor that must be analysed in great detail.
Will the location make sense for transporting to the end user?
If the biomass plant is producing electricity then proximity to an electrical grid connection will be necessary. Otherwise very expensive grid connections will have to be put in place.
If the biomass plant is producing a solid fuel then transport cost to the end customer must be considered. Biomass is not very dense and even a 44 foot articulated lorry will incur a considerable cost if it has to transport the length of the country.
The list of things to consider, goes on and on and requires great focus if a biomass renewable energy business is to be financially viable.
Where to Locate a Wood Fibre Powered Biomass Renewable Business
Source: UK Forestry
The map above identifies where trees grow in the UK. It is obvious where the densities are highest. Scotland is the primary source of wood fibre in the UK. Wales also has important supplies. The down side with these areas is that they are generally remote from larges centres of population. However, it is more cost effective to site a biomass renewable energy plant nearer the source of raw material than to the end user. This is due to the fact that raw material has a lower density than a manufactured biomass solid fuel, thus optimising the cost of transport to the business. If the biomass renewable energy business is generating electricity then proximity to the national grid becomes an important factor. The map below outlines the high voltage national grid. Using a similar map with the 11KV network laid out will help find a suitable location for a biomass renewable energy plant that generates and exports electricity.
Source: National Grid
Next a map with the transport infrastructure will be required, shown below for Scotland.
Source: Scotland Forestry
Now generate a map with the main users of wood fibre identified by location and annual volume consumed, shown below for Scotland.
Source: Scotland Forestry
This process of generating maps identifying the location and annual consumption rates for more variables should continue. Once all maps have been generated the process of pinpointing a suitable location can begin. In essence the maps will be overlaid one on top of the other. The optimised location will be identified where all of the factors that will impact the ROI, positively or negatively, are minimised or maximised.
The optimised solution for maximising the ROI for a biomass renewable energy investment is a function of many variables:
And the optimised solution is given by:
= Solution for optimised ROI.
= the harvested cost of the raw material per m3 or per Tonne
= the transport cost of the raw material to the plant per m3 or per Tonne
= the cost per metre for installing an electrical connection to the national grid
= the transport per Tonne for solid renewable energy fuel to the end user
= technology choice to maximise ROC’s1 payments.
= one of several other variables
- Renewable Obligation Certificates are tradable certificates, earned by renewable energy operators. The number of ROC’s earned depends upon the technology used.
The above is a differential equation where some of the variables have to be maximised while others have to be minimised. Putting the effort in up front to develop and optimise this equation will provide for the highest ROI from a project.
Plant Layout and Technology Choice – Raw Material Processing End
The plant layout and equipment used will depend to a large degree on the nature of the biomass raw material. Wood based biomass raw material can be delivered in several forms such as: logs in the form of tree trunks; wood chip; shredded bark; un-shredded bark; sawdust. Part of the due diligence will be to understand exactly what the mix of raw material will be. If logs are delivered with bark on then the bark will have to be removed with a debarking process. The logs will then have to be chipped and possibly milled down into sawdust. Wood chip may have to be milled down into sawdust if it is being used to make a solid biomass fuel. Un-shredded bark will have to be shredded so that it can be handled by the various processes in the plant. Logs require the greatest amount of processing before they can be converted into electricity, heat or a solid fuel. Getting the ratio of log mix to other forms of wood biomass raw material wrong can easily make an investment non-viable. Upgrading log processing equipment may be required if the log mix ratio is higher than originally planned for at the design phase. Apparently simple things like the raw material storage space can change dramatically if the biomass raw material mix is out of line with the original project plan. This could result in insufficient storage space leading to a situation where extra space has to be rented or to extra deliveries of smaller quantities of raw material. If the volume of wood chip and/or sawdust is higher than originally planned then extra covered storage with concreted flooring will most likely be necessary. Unexpected changes like the above can easily end up costing millions to fix or result in a long term underperformance of the biomass renewable energy business.
Environmental Considerations for a Wood Fibre Powered Biomass Renewable Business
When applying for a permit to build a biomass renewable energy plant an environmental impact audit will be required. One aspect that is impossible to ascertain before the plant is built will be the level of noise that will be experienced by the local community. Biomass processing machinery is extremely noisy and may run 24/7. It will be essential to fully understand the national and local laws and codes pertaining to noise levels emanating from the plant. A heavy duty full log wood chipper running during normal operation can generate 110dB noise levels constantly. If during the due diligence and project planning phase this is not taken into consideration then expensive sound proofing will have to be retrofitted. Worse still there may be local laws prohibiting any noise during the night time from, for example, 22:00 until 06:00.
The above outlines the level of attention to detail required for a due diligence to successfully identify the optimum location for maximising the ROI when setting up a biomass renewable energy business in the UK. To be successful overseas the same level of attention to detail is required. Very accurate translation and interpreting will be required when working with foreign national officials, consultants, construction firms, etc. to avoid any misunderstanding, especially when it comes to sourcing a long term raw material supply. Understanding the fine print in national and local standards, laws and by-laws will greatly reduce the risk being taken by the investor. Constructive Translations can provide this level of guarantee to a client. For the most important aspects of a contract a “certified translation” translation would be recommended.