FIT Company breaks cover
February 28, 2010
The UK’s Feed in Tariffs for low carbon energy production are about to come into effect and in a bid to steal a march on any potential competitors one specialist supply company has broken cover.
Ownergy seems to have a business model eerily similar to one that I suggested last June in my post Energy Ideas Part Two. Not only is it going to do all the technical assessment, design and installation, but its also offering management and finance for the installations and will be covering all technologies that attract an FIT.
The guy who is running it, Phillip Wolfe, is a big cheese in the Renewable Energy Association and seems to have had a big hand in the design of the FITs in the first place, so I doubt that he’s a regular reader of this blog. Who says that only the major energy companies can capture government policy mechanisms 
Plastic Fantastic
February 5, 2010
I briefly mentioned the interplay between the plastic industry and the demand for oil, well the Financial Times recently did a piece on petrochemical prices that has shed a lot of light on the subject for me. Unfortunately the piece is behind a paywall, but you may be able to get to it with a free trial subscription.
The main thrust of the matter is that the major petrochemicals that plastics are made from (naptha, benzene, ethylene and propylene) are under massive and rising demand pressure from Asia. So much so that the FT reports that an index of their prices has risen by 150% in the last year, now don’t get too excited. Just before that year started the same index as reporting an all-time low as demand stagnated during the recession. The story of surging demand is also told by this Indian site in a bit more detail.
My point is this; running oil refineries is an expensive, energy intensive, dirty (in terms of emissions) and sometimes economically uncertain business. The price volatility of the raw natural resources (including water) is multiplied by the energy intensive nature of its processing and carbon emissions pricing. Also the demand for the products is dependent on macro-economics that, to a large part, are tied to crude oil prices as well. It seems to me that the price risks that ‘oil as fuel’ users face are minor when compared to those that ‘oil as feedstock’ users face.
The demand imbalances that cause supply price shocks, like the one we are seeing now, are temporary and transient as we can see from this paper from the Middle Eastern Economic Survey, so long as they are not coupled with oil price rises. However, since most mid to long term forecasts show oil price rising steadily we can reasonably expect the price of petrochemicals to rise as a function of the raw material price rises, possibly a multiple of oil price rises.
Lets have a little context;
China currently imports around 21m tonnes of oil per month or 200m tonnes for 2009 (and rising fast). Some estimates see global peak consumption of around 100m barrels per day, thats roughly 5,000m tonnes per year, against today’s 85m barrels per day (4,250m tonnes per year).
Lets compare that to our main petrochemicals;
naptha – 215m tonnes per year
benzene – 10m tonnes per year
ethylene – 25m tonnes per year
propylene – 15m tonnes per year
That’s a total of 265m tonnes of the products per year or, in broad terms, a similar amount of oil to that which China will be using in 2010-2011. I pose the question – what happens to global oil prices if you take China out of the equation ?
So here’s where bio-plastics and biomass derived chemical feedstocks come in. China and India are the two main marginal consumers, they swing oil prices by their increases in consumption. Take ‘a’ China out of that equation and my strong guess is that your oil price volatility drops by a significant amount.
So by replacing petrochemicals with bio-mass derived petrochemicals you can actually have a disproportionate effect on energy price security, because you have taken the price and volatility multiplier that is refining out of the equation.
Of course you still need the energy and the water, but your raw material would be forestry products or agricultural byproducts. These are generally grown in climates where water isn’t a major issue, but you would need to be a little careful over both water supplies and food production.
Anyone fancy setting up a bio-petro-chemical production facility in the Canadian forests (to supply North America) or the Russian Tiga (to supply Chindia) ?
Got even more wood ?
February 3, 2010
So DECC has launched a consultation document package for its Renewable Heat Initiative (RHI)
Lots of good stuff in there, but the bit that I’d like to comment on is the incentivisation of wood chip/wood pellets for domestic heating.
Feel free to correct me if I’m wrong but to me this provision looks like a commitment to an effective long term taxation of the rural poor. Its a bit counter-intuitive at first sight, after all how could an incentive to use local renewable biomass result in higher bills ? Well, its all to do with having a limited land package available to provide that biomass.
There is a distinction in the consultation between biomass that originates from wood, that which comes from grown for energy crops and that which is the result of existing agricultural processes (such as straw), but what concerns me is the interaction between existing managed woodland and possible new energy crops such as mycanthus and willow. The problem is that the RHI incentives only relate to pellet or chip burning boilers effectively replacing fossil-fuel burning boilers and central heating. Standing hardwood doesn’t make economic sense for pelletisation or chipping, its wears the machinery and takes more time and energy to produce and harvest.
What the consultation leaves out (and I can’t find mentioned anywhere in the document package) is the economic impact on existing wood users and those who cannot replace boilers. In other words me !
My situation is as follows: I live in a little village in Cornwall that is a good 10km from the nearest gas main. Most houses in the village use coal or wood to supplement Economy-7 electric heating. In many ways its a typical granite-built miners village. No cellars, very little outside space, houses are well over 100 years old (so low ceilings) and built of thick solid stone walls. Speaking for myself only; I don’t have a boiler, just an immersion heater that I turn on if and when I need hot water. I don’t have central heating, just a single electric storage heater that is powered by Economy-7 over-night. I rent the cottage and have only a small amount of space outside. I am not unusual in this county.
What I do have is a nice big fireplace that I can settle down in front of in the evening. I burn wood in that grate and buy my wood from local suppliers or one of the many local shops who sell 5kg bags of split logs over the counter.
My concern is that if pelletised or chipped wood becomes a lucrative product, managed woodland in the area will shift towards those products and away from larger trunked species suitable for splitting and domestic use. It’ll take time, I don’t expect to see the price that I pay for wood to rocket overnight, but the house that I live in will be around for at least another 100 years so the issue is not gong to go away. Over the 20-50 year timescale, by shifting the forestry from bulk wood to processed chip you will see a price differential mount that penalises those living in houses that cannot be physically altered to accommodate pellet burning boilers. These houses are generally smaller, cheaper and occupied by those less able to cope with price rises. Effectively this is an incentive that will put the rural poor at a greater disadvantage than ever.
I like the idea of increasing biomass use as I previously stated in Got Wood ?, but this particular policy seems poorly devised.
Psychic ?
December 2, 2009
I’m getting some serious vibes here. That’s three announcements from DECC in the last month or so immediately following three posts here.
First CCS, next biomass and now smart meters. Check the dates if you don’t believe me.
CCS
Engagingenergy.com - Carbon Capture & Snorage 15th Nov
DECC – Queen’s speech & Energy Bill 18th Nov
Biomass
Engagingenergy.com – ‘Got Wood ?’ 23rd Nov in the morning
DECC – Press release 23rd Nov in the afternoon
Smart meters
Engagingenergy.com – ‘Smart, sassy and just a little bit too forward electricity and water meters’ I should have said gas of course, but it was my understanding that the safety implications of installing smart gas meters made it a bit too difficult at this point. That seems to be reflected by the consultation response published today – 20th November
DECC – Press release 2nd Dec
Ed. If you want to chat just give me ring
Got wood ?
November 23, 2009
Now that I’m a rural type with an open fire and only electricity to back it up (I’ve always had gas or oil as a third fuel before), I’m starting to look at wood with a bit more interest.
Though not strictly energy-related I was struck by the potential of liquid wood, which is not some elixir sold under the counter in Soho, but a bio-plastic that apparently can be injection-moulded into a variety of remarkably unattractive items. I think that the German engineers need to hand this one over to the Italian or British designers now or it will be relegated to butt-ugly functional grommits.
Of course the hunt is on by several industries that use crude oil as a chemical feedstock rather than a fuel to find a raw material that has less price volatility and more security in its supply chain. Plastics is probably the largest volume with approx 100m tonnes being used every year. Not all of that comes directly from crude oil, there are other chemicals added to give it colour or specific performance qualities and inert fillers to add bulk, but its still a lot of oil and I wonder what the economic dynamic would be if even just 25% of the plastics industry headed for the woods ?
Its not one of the best known of the UK’s energy intiatives, but apparently 15% of renewable energy is supposed to come from biomass by 2020 and dedicated biomass production and generation is currently one of the most heavily inentivised energy production mechanisms in the UK. It gets between 1.5 and 2 ROCs (Renewables Obligation Certificates) per MWh generated. I think that’s fair enough. Its not as if you can incentivise it through capital investment in fuel/production capacity, as you would be able to do with nuclear or wind or coal, after all how much do a few saplings cost ? Even fast-growing mycanthus, willow and poplar take a few years to get to maturity and all are subject to the whims of weather and disease.
As this map shows, biomass generation is still pretty small scale with only just 2GW planned (compared to 25+GW of offshore wind), and the ‘large’ dedicated power plants, such as Prenergy’s planned 350MWe Port Talbot plant, are looking for security of supply using imported wood chips. I know that Drax’s co-fired capacity is set to go up to half a GW, but it uses ‘residues’ rather than grown for energy biomass, so to me it feels more like a giant incinerator, sorry, waste co-generation project.
I know that the Welsh National Forest AKA Woodlands for Wales is a really central part of the Red Dragon’s strategic economic plans, but its a long-play. A new Wylfa may even have been constructed by the time the sustainable forest economy has been built. However, looking at this report from the Land Use Policy Group would suggest that sustainable managed forestry as a part of an integrated energy/economy/environment strategy might work better (and cheaper) than what Wales has right now. Until then, expect the first shipment of wood chips from the Baltic or Canada to be unloading in Port Talbot some time in 2011.
I don’t know about you but wood feels good for Wales. It seems like an appropriate scale. I wish that it wasn’t but the steel industry is on its last legs, so the really big point consumers just don’t seem to be around any more. My grandad and dad were born in Cardiff and Barry respectively after my great-grandad settled in Cardiff just after the Great War, so I have an affection for what is truly the Land of my Fathers and its good to see the Assembly taking a long view on how best to live in Wales.
Update
DECC has just put out this statement on primary biomass projects. The funding is tiny at £1.5m, but as I mentioned its tricky to find large capital projects in this space and it looks like this is aimed at providing things similar to the German model where wood collection and delivery is guarenteed at a state or district level to put security of supply on a par with other fuels.
