The cost of meeting UK Government and EU regulations is doubling the cost of producing electricity at the Lynemouth Power plant.
With further regulatory cost increases on the way, the owner of the 400MW coal-fired power station on the Northumberland coast says it will not be feasible to operate it beyond 2015.
On purchasing the plant in 2012 new owner’s, German utility giant RWE, said it planned to replace coal with biomass as its source fuel.
No decision has yet been taken to press ahead with the £100m conversion and the deadline date for making the decision is looming.
Jonathan Scott, commercial director at Lynemouth Power, outlined the company’s current position and the impact it could have on its 128 staff.
He said: “RWE will operate the power station on coal until a decision is made on conversion. We can meet the cost of legislation until 2016, but will not be able to do so after that.
“We cannot continue to operate the plant on coal after that date and a decision will therefore have to be made on the conversion of the plant by early 2014.
“The cost of meeting legislation led to Rio Tinto’s decision to close the adjoining aluminium smelter.
“It’s critical time for us. We have to make this conversion in order to avoid the closure of the power station.”
The conversion will cost more than £100m in capital expenditure and commitments at local ports.
Scott continued: “We are confident it can be done, but we cannot afford to wait too long as we are looking at signing supply chain contracts and we will need to have these in place in good time.”
The biomass industry is viewed by many as the perfect bridge to a low-carbon future and its growth has been encouraged with Government subsidies.
However, the industry has yet to gather significant momentum in the UK and last week RWE said it would halt its on-going biomass conversion of its 750MW plant at Tilbury, Essex, and close the plant, with the loss of more than 200 jobs.
In recent months, RWE has reined in capital expenditure with debts of over 30 billion euros. It pulled out of the ï¿½10bn Horizon nuclear project earlier this year.
The Tilbury conversion had been delayed last year delayed due to a fire in the wood storage area, which was blamed on increased oxygen levels igniting wood dust particles - biomass is prone to self-ignition.
It also says Government prevarication on energy policy is impacting on investor appetite for renewables.
But Scott highlighted significant differences between Lynemouth and Tilbury which give grounds for optimism the conversion will proceed.
Five years ago, the Tilbury plant opted out of the EU Large Combustion Plant Directive (LCPD), which aims to cut air pollutants such as sulphur, and as such, was scheduled to close this year without the biomass conversion.
The previous owners of the Lynemouth Power plant Rio Tinto made adjustments to the plant and paid an additional levy for emitting pollutants.
Scott said: “Unlike Tilbury, Lynemouth Power is opted into the EU LCPD and is therefore able to run until December 2015 without limitation on its operating hours.
“Furthermore and despite RWE’s main board announcing a significant cost reduction programme, the conversion of Lynemouth requires significantly less capital expenditure than Tilbury.”
Ian Lavery, MP for Wansbeck, says he had expected the conversion to biomass to have taken place by now, but still has confidence in the future of the plant, and believes the delay is down to market forces.
“Coal is very cheap at the moment. The glut of US shale gas has seen the global price of coal fall to its lowest price for years.
“It’s only natural for the power generators to want to maximize their profits, and as long as it’s done within the law they should be allowed to do so.
“Even if it was just for a two-week period, these companies are pretty smart and will want to do all they can to reduce their costs.
“However, I have no doubts about the future of the plant and believe they are prepared to press ahead with the conversion to biomass.”
In the North East, there are no large scale biomass power generation plants in operation, but there are a number at various stages in the planning process.
Close to the Lynemouth site, at the Port of Blyth, RES (Renewable Energy Systems) is proposing a ï¿½250m biomass facility and plans have been announced for biomass facilities on the north bank of the Tyne.
On Teesside, Sembcorp successfully operates a 40MW biomass plant at Wilton, on Teesside, and there is a 17.5MW plant in Chilton, South Durham. These two plants combined can power around 40,000 homes
The Port of Tyne plays a major role in the UK biomass industry as the importer of wood pellets for the Drax Power station complex in Yorkshire, which was the first to partially convert to wood pellets.
Earlier this year, the Port of Tyne announced ï¿½180m plans to develop new facilities to handle the import of wood pellets, which could create up to 900 construction jobs and 300 full-time operational jobs.
Lynemouth says it will need to import around 1.5m tonnes of wood pellets every year, and is in talks with both the Tyne and Blyth ports.
Last month, the Government agreed to maintain the existing biomass subsidy levels which see it pay almost twice the market price for electricity from biomass plants.
These need to be confirmed in the Energy Bill later this year and be approved by the European Union – and this process is vital to RWE’s stance on Lynemouth.
Scott added: “The issue here is one of gaining the required level of certainty to deliver a positive investment decision in what is likely to be a very tight timescale subject to the UK legislative process and EU State Aid clearance.
“While the Government has cleared the way and created some certainty with the strike prices under the EMR (Electricity Market Initiative) proposals, these still have to pass the EU State Aid regulations and if there is any slippage then it will only hamper our progress.”
Chris Lawson, senior development project manager for RES in UK & Ireland said its plans for the plant at Battleship Wharf, Blyth, “are progressing well” and he expects a Government decision next month.
Whether RES will be competing for wood pellets with Lynemouth Power hangs in the balance.
Scott added: “RWE are keen on investing in low-carbon power generation, but they have to show investment can be justified. RWE recently pulled out of the Horizon nuclear project and funding is one of the big challenges we face.”
Rio Tinto, the previous owners of Lynemouth Power, opted to sell the power station and close the neighbouring aluminium smelter following the introduction of new UK Government charges for emitting carbon dioxide.
At the time of the introduction of this escalating levy, known as the Carbon Floor Price, Rio Tinto said it, and the existing EU regulatory costs, would wipe out the plant’s annual ï¿½40m profits.
The closure of the aluminium smelter led to the loss of 550 jobs. The North East is hoping the 128 workers at Lynemouth Power do not suffer the same fate.
FOR AND AGAINST: WHAT THE EXPERTS SAY
Lord Ridley, the recently elected peer from the Blagdon Estate in Northumberland, is a leading science journalist and author.
Why not biomass? First, because it is not a low-carbon fuel. Burning wood emits even more carbon than burning coal for a given amount of energy generated.
The argument that this does not matter because trees regrow as coal seams do not is irrelevant – forests take up to a century to absorb as much CO2 as is emitted when they are burned.
So emissions will actually rise for decades if we switch from coal to biomass, even more if we switch from gas to biomass.
Second, most of it will have to be imported because there's nowhere near enough wood produced in this country to fuel our electricity demand.
Third, biomass needs subsidising because it is so expensive to burn, so it will put up electricity prices which will add to fuel poverty and drive away jobs.
Fourth, it produces smoke that adds to air pollution.
Chris Lawson, Senior Development Project Manager for RES in UK & Ireland, which is behind the North Blyth Biomass Power Station.
Biomass is widely recognised as a low carbon, renewable fuel that has the potential to significantly decrease carbon emissions from the energy system in the UK.
The proposed North Blyth Biomass Power Station will use fuel drawn from a range of sustainable sources.
The wood-based biomass fuels will come in the form of wood chip, pellet or briquette and may be produced from sustainably-sourced domestic or imported forestry material, dedicated energy crops or non-recyclable waste wood.
Non-recyclable waste wood will be also be used at North Blyth, drawn from sources that may otherwise be landfilled.
The project will be looking to use UK-sourced forestry material that is appropriate for this type of project.
A vibrant UK biomass industry has significant potential to encourage improved management of domestic forestry, which in turn, can enhance biodiversity within woodland ecosystems.
The North Blyth Biomass Power Station, being located in the UK, will be subject to some of the toughest sustainability standards in the world.
RES hopes the introduction of these standards will give stakeholders confidence that the industry is delivering sustainable, renewable and low carbon energy.
BIOMASS 'THE IDEAL RENEWABLE FUEL'
Biomass has been identified as the ideal renewable fuel to bridge the transition to a low-carbon electricity network.
This is despite having around the same carbon dioxide emissions as the coal it replaces in many power stations at over 850g per kw/h. Both are well above the 350g per kw/h from gas-fired power stations.
Its renewable credentials are based on the presumption the wood will be replaced pro rata, which will capture the released carbon dioxide. Carbon dioxide is one of the greenhouse gases and these are said to be responsible for rising global temperatures.
This biomass renewable equation has corralled an unholy alliance of supporters.
Governments across Europe see it as an ideal way to achieve renewable energy objectives with the power generated more reliable than wind or solar, which are dependent on the weather.
Unlike new solar or wind farms, coal-fired power stations are already linked to the grid and readily convertible and the price paid for the electricity is subsidised by the Government.
These subsidies have again been confirmed in the latest strike price announcement meaning generators will be paid £105 for the next five years compared to the current wholesale price of around £55.