Economy, Energy and Tourism Committee

Meeting date: Wednesday, March 6, 2013

Official Report 560KB pdf

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Subordinate Legislation

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Renewables Obligation (Scotland) Amendment Order 2013 [Draft]

Under item 3, we are taking evidence on the draft Renewables Obligation (Scotland) Amendment Order 2013. I welcome our panel of witnesses: John Paterson, chairman of the Wood Panel Industries Federation; Almuth Ernsting, co-director of Biofuelwatch and the European focal point of the Global Forest Coalition; Marcus Whately of Estover Energy; and Fergus Tickell, managing director of Northern Energy Developments Ltd.

Before we come to questions, would any of the witnesses like to make a brief introductory statement? We can start on the left and work our way along.

I am chairman of the Wood Panel Industries Federation, which represents all United Kingdom manufacturing of wood-based panels, including products such as chipboard, oriented strand board and medium-density fibreboard. There are six large manufacturing sites in the UK, including three in Scotland. Employment in the industry stands at approximately 200,200, with around 7,900 full-time equivalent jobs dependent on our sector.

My day job is timber sourcing manager for Egger Forestry Products Ltd, which is one of the federation’s member companies, so I am on the front line in competing with energy generators for wood. We and our colleagues in the wider wood-processing industry—which includes sawmilling—are extremely concerned about the growth of large-scale biomass electricity stations.

Although the term “biomass” technically includes short-term rotation crops and other agricultural material, wood is and will continue to be the chief source of biomass. Our key concerns include the carbon impact of burning wood rather than processing it into products such as kitchens and furniture or using it for house construction; the inefficiency of burning virgin fibre for electricity, in which three quarters of the energy ends up going up the chimney; and the serious threat that highly subsidised energy companies entering the already heavily subscribed wood market pose to the wood-processing industries.

Scotland’s forest industries provide an important economic benefit to rural economies, but the wood harvest is finite, and it is important that we use it in ways that provide the best economic, employment and carbon outcomes. The Scottish Government has recognised the importance of our sector and the impact that biomass electricity plants could have on the industry. The proposed 15MW cap on all new non-combined heat and power biomass plants is a positive step forward, and we would like the UK Government to adopt the cap too.

We hope that the Government will build on that by ensuring that large co-firing and converted coal plants do not target local supplies of wood, and by supporting the wood-processing sector as it seeks to invest further in the Scottish economy.

I am a co-director of Biofuelwatch. My written submission and my presentation today are on behalf of Biofuelwatch, Friends of the Earth Scotland and Grangemouth community council.

Members will be aware that although all those organisations strongly support subsidies for sustainable renewables that deliver real climate benefits, we have serious concerns that the current biomass ROCs proposals are incompatible with the Scottish Government’s stated position on bioenergy.

As we have shown in our more detailed written submission, the wording of the proposals allows for an unlimited number of small and medium-sized electricity-only power plants, which can have efficiencies as low as 20 per cent.

Potentially more seriously, the proposed cap exempts power stations of any size if they use just a nominal amount of heat, perhaps to dry their wood chips. If a power station achieves the low standard of just 35 per cent efficiency—in some cases even less—a five-year exemption would follow, during which it would not have to supply any heat or even meet that low standard. By comparison, the European Union renewable energy directive clearly states that a Government should only support biomass with at least 70 per cent conversion efficiencies—twice as efficient as what is contained in the current proposals.

We believe that the proposed rules will not only result in the waste of scarce resources, with resources being used highly inefficiently, but will also incentivise companies to use those resources primarily for electricity, not heat—in the heat sector, efficiency rates tend to be much higher than in the electricity sector. The proposed rules will also offer financial support to large, centralised power stations that rely on economies of scale. That is expected to lead to large-scale imports of wood chips and pellets made from whole trees, and to competition with industries in the UK that require round wood, both from the UK and abroad.

Large-scale, low-efficiency power stations that are primarily electricity generating have been shown in a growing number of scientific studies to be damaging for forests, the climate and communities. We referred to those studies in our written submission.

We believe that the proposals are incompatible with the Scottish Government’s commitment to sustainability, genuine carbon reductions and climate justice. We hope that committee members will want to explore all options to procure an amendment to the wording of the biomass ROCs provisions, even at this late stage. Thank you.

Thank you for the opportunity to speak to the committee about our company and the Renewables Obligation (Scotland) Amendment Order 2013, which we welcome. We believe our approach to biomass delivers plants that are sustainable, beneficial to Scotland and merit support.

First, all our projects are combined heat and power. We develop them as partnerships or consortiums including industrial-scale heat users, such as the Arjowiggins Stoneywood paper mill just outside Aberdeen or the Macallan distillery at Craigellachie in Moray, and, just as importantly, local forestry growers. That ensures that we have a long-term local fuel source for the plants and that the benefits to the forestry industry that the plants bring are felt locally. As a result we have enormous support from the local forestry sector, which sees the projects as a huge opportunity to re-energise the sector.

The large industrial heat users need to find sustainable, secure and cost-effective energy if they are to thrive in a competitive global market, and we believe that the projects provide that energy in an efficient and sustainable way. They make the best use of the local wood resource, both in terms of sustainability and the carbon savings that derive from each tonne of wood used, and they support traditional industry and forestry jobs.

We welcome the order, as it supports combined heat and power projects at the right scale.

I am happy to answer any questions. Thank you.

11:15

I am the managing director of Northern Energy Developments. I also sit on the Scottish Enterprise forest and timber technologies leadership group, and I am chairman of the Argyll timber transport group—which hints that I come at the biomass issue from a forestry perspective.

We have three small to medium-scale biomass projects that have been consented to in Argyll, and one in the central Highlands. All of the projects are close to the forest resource and are scaled to match the sustainable supply of wood from that resource. They are away from the competitive elements that Mr Paterson has described, with the wood-panel sector taking advantage of short transport links. It is a well-established global rule of thumb that one should not move timber for an energy project more than 50km on the back of a lorry, otherwise it means getting into carbon deficit.

We were very pleased that the Scottish Government took heed of the concerns of the panel sector and the smaller renewables sector about capping the scale of projects that will receive support under the obligation. We think that the 15MW cap is not unreasonable. In response to the consultation, we supported a 10MW cap, which was the original proposal from the Scottish Government. We think that that is the best way of balancing local and sustainable use of resources and the important development of the heat market throughout Scotland.

I look forward to your questions.

So that my understanding is clear, Mr Paterson, Mr Whately and Mr Tickell, you are generally supportive of the draft order as it stands; but you feel that it is too lenient, Ms Ernsting. Is that fair?

Witnesses indicated agreement.

The submission from Estover Energy states:

“Estover believes there is a significant local oversupply of low-grade wood in Northern Scotland, and intends to use this to fuel these plants.”

Is that view shared by Mr Paterson?

We have to be careful with some of the statistics, even though they are Forestry Commission statistics. This is a matter of biological availability versus what is economically available. The small-scale plants are a very important part of local rural economies. A lot of policy has been built on the fact that a huge amount of wood is available for various projects, and we have to be very careful about that. My industry and the sawmilling industry have plans for eventual expansion when the economy turns round, particularly in house construction. The amount that has been stated as being available might not be the actual sum by a long way, however.

In previous presentations on biomass, I have heard that almost every country that intended to use it intended to import wood from elsewhere. Is that the case? If every country in the world that intends to use biomass intends to import it, we might think that there must be a bit of an issue.

I am not acquainted with the position in the north of Scotland, but I am well acquainted with the wood supply in the vicinity of the projects that we have developed. As I said, there are two in Argyll—one in mid-Argyll and one in Cowal—and another near Killin, and they all use about 70,000 tonnes of green wood a year. We appointed a well-respected independent forestry consultant to assess the potential available wood fuel within the catchment areas, and from that work it is clear that there is a significant oversupply of material within those catchments. What Mr Paterson says regarding caution is absolutely correct, however. One has to consider the specific circumstances very carefully.

In Argyll, transport cost is a fundamental aspect of securing the volumes of material for local projects. If I send a tonne of low-grade wood to one of John Paterson’s plants in Auchinleck, 40 per cent of the price would go on transporting it. If one cuts those transport distances, one can pull much more currently unused wood out of the forestry industry.

If I may, convener, I will give a specific and rather extreme example of this. We are developing a fourth project on the island of Arran. At the moment, the Forestry Commission is forced to export timber by sea from the island over to Caledonian Paper and the Eggers plant at a substantial loss. There is 40,000 tonnes of sustainable supply of this kind of material on the island, which is being exported at a loss. If a local market is created that takes out those transport costs, the Forestry Commission will not lose money on that material but will make money on it.

I do not want to go into the statistics in too much detail, but the forecast in our submission is based on the Forestry Commission’s production forecasts, rather than the biological availability. Last year the Forestry Commission produced a 13-year update.

Thank you for clarifying that.

I have some general comments to make. First, although not every country building a biomass industry is looking at imports, the UK as a whole has one of the most ambitious import plans worldwide. According to the Forestry Commission statistics, we already rely on 80 per cent net imports for all the wood and wood products used across the UK. Although the Scottish Government’s documents refer to the possibility of raising up to another 1 million tonnes of wood in Scotland, that is a very limited resource if one looks at the UK-wide biomass industry forecasts, which show that between 60 million and 80 or 90 million tonnes of wood would be required, compared with the 10 million tonnes that are currently available UK-wide.

I want to ask Ms Ernsting more questions. The Scottish Government is proposing an energy efficiency level of 35 per cent, while the EU is being more ambitious and aiming higher. You referred to Denmark in your submission. What are they doing in Denmark that enables them to achieve such high efficiency levels?

To my knowledge, there has been a lot of investment in district heating over quite a long period. I am sorry that I do not have the figures in front of me, but there are well over 300 district-heating based CHP plants, which tend to be pretty small scale, are decentralised and are used primarily to supply heat for housing. The figures that I have seen reported state that they have about 80 per cent efficiencies. They are not all biomass plants; about 50 per cent are biomass plants. I do not have all the statistics in my head; they are in the submission. That is a very different model from what we have seen so far across the UK.

The company that I work for is Austria based. In Austria, they do not get subsidies if they achieve below 65 per cent efficiencies. The reason why they are achieving those efficiency levels is that the plants are combined heat and power plants. With electricity-only plants, you are looking at 30 per cent efficiencies. With combined heat and power, you get 70 per cent-plus efficiencies.

The Estover submission states:

“The capacity ceiling is set at such a low level that electricity-only plant will not be economic and will not be built.”

The intended effect is that we do not encourage electricity-only plants, is it not? That is for various other reasons.

Perhaps you could let Mr Whately and Mr Tickell answer, because they are keen to come in.

It is simply not the case that electricity-only plants are not commercially viable. They are if certain circumstances are put in place to ensure that they are. As I alluded to earlier, the key issue is taking out the cost base—that relates to both environmental and economic costs. If you take out the transport cost and go where the timber is, you can make small-scale electricity-only projects stand up. The building of some distribution-connected, small-scale, electricity-only plants provides a vital part of the energy mix, and the cap is a very important signal in that regard.

There are issues around CHP in many rural areas. Estover Energy is doing a good job in identifying opportunities in the north, but one must acknowledge that, in places such as Argyll and the west Highlands, there is at present virtually no capacity at all to match the available resource and heat load of bioenergy use on any scale. It is incredibly difficult to find locations where that works out.

Our view is that we can build electricity-only projects very viably on a commercial basis in those areas, and then use the leftover low-grade heat—we can argue about efficiencies and inefficiencies, but people forget that coal-fired power stations work at only 30 to 35 per cent efficiency—to attract sustainable activity adjacent to those sites. We are working with communities and local businesses to do just that with the projects for which we have consent.

I want to respond on the point about efficiency, which is a word that is bandied around a lot. First, to be clear, we are talking about efficiency rather than capacity factor, so CHP is not comparable with wind, which might have a capacity factor of 30 per cent. For CHP plants, the equivalent capacity factor is perhaps 92 per cent, as it is base-load energy that is generating all the time.

Secondly, the figure of 35 per cent efficiency can be achieved—although our projects are much more efficient than that—under the good-quality CHP regulations because a project that delivers such efficiency would save more carbon per tonne of wood than would a heat-only project. It is not because some huge allowance is made so that those projects can be much less efficient, but because a CHP project—even at only 35 per cent efficiency—is still, from a carbon point of view, a better use of the wood resource than a heat-only project that is 80 per cent efficient. It is important to focus on the carbon savings rather than on the overall figure for efficiency.

I think that the 70 per cent figure from the European Union comes from article 13(6) in the building regulations section of the EU renewable energy directive.

The committee is keen to ensure that we achieve our renewable heat target, hence the focus on that issue. Can I ask one more question, convener?

Briefly, please.

Biofuelwatch’s submission states:

“unlimited amounts of co-firing and the conversion of coal power station units to biomass are to be subsidised regardless of efficiency levels.”

Is that a loophole in the legislation that we need to examine? Why will there be subsidy regardless of efficiency?

That is what the proposals say. For co-firing and conversions, the Scottish Government proposes simply to adopt the ROCs rules that are currently proposed by DECC, and those proposals foresee no efficiency standards of any type.

In England, consent has been received for plans to convert coal power station capacity, which will require pellets made from about 50 million tonnes of green wood—five times the entire UK’s production—to be burned every single year.

The only future coal power station that exists in Scotland is Longannet. Although we are not aware that Scottish Power has any plans to convert any units to biomass, we nonetheless think that offering substantial subsidies for that type of biomass conversion is not compatible with the Scottish Government’s objectives. If that happened, the scale of such plants would mean that they would be virtually entirely reliant on imports.

11:30

I have quite a few questions. I will try to keep them concise and I ask whoever responds to return the favour, please.

First, I want to get the megawattage of the projects that the two operators have referred to. Mr Tickell, you referred to small-scale projects. What sort of megawattage are we talking about?

The three schemes that have been consented are 5.5MW electrical each. The smallest scheme that we are developing, on Arran, is just over 2MW. We have a fifth project in the pipeline, which is likely to be in the range of 8MW to 10MW.

Estover’s written submission mentioned two projects being developed: the one with The Macallan in Moray; and I will not even try to pronounce the one close to Aberdeen. What sort of megawattage are those ones?

They are both consented. The one in Moray is about 12MW; the one in Aberdeen is about 15MW.

That is helpful—thank you.

It seems from the Biofuelwatch submission that the main ask concerns efficiency. I understand that there is a request for 70 per cent efficiency, although the rules as currently proposed require only 35 per cent efficiency. Why is biomass not environmentally friendly at 35 per cent whereas, if you up the efficiency to 70 per cent, it suddenly is?

Efficiency is one of our concerns, but it is by no means the only one. We previously issued a briefing on the matter with various other organisations. We are concerned about having an unlimited power station size as well as about low efficiency levels—those are two separate things.

We have serious concerns about subsidising large power stations of unlimited size. In reality, if efficiency is something like 35 per cent, the model that that encourages tends to be one of really large, centralised power stations, and those are the ones that rely on imports. There are direct links between the model that is chosen, efficiency levels and scale. Our major concern is over the sustainability and impact of encouraging large-scale reliance on wood-based biomass electricity and a big-power-station model.

Can you clarify for me why 10 small 70 per cent efficient plants would be better than one large one of an equivalent wattage? I do not see why size is an issue.

On the capping of size and import reliance, importing in bulk on ships means a large scale—and that does not make a huge amount of sense for small, decentralised schemes. Those that seek to work in that way are primarily the ones that are near ports. Those are very different models from something that is 70 per cent efficient and that is primarily built for heat delivery—genuine CHP.

We have concerns over the lack of a cap, even for efficient plants, and we have concerns over the efficiency ratings.

It might be helpful for the member to know that we have considered issues around scale and timber transport, and we have investigated why small, localised projects are better. Our estimates are that, if the wood was to go to our projects rather than to centralised energy projects, in effect that would take just under 400,000 lorry kilometres per year from the public roads per project. That is an enormously significant contribution to sustainability and to the performance of the Scottish rural economy.

We would agree with that. The Wood Panel Industries Federation’s concern is about the large scale. On the point about 35 per cent efficiency, we would agree that that could mean a large electricity producer producing a little bit of off-heat, too. Although that scale would be predicated on imports, all the companies are still talking about taking 10 to 20 per cent of the domestic timber, too. That is a massive amount of timber, and the result could be the displacement of our industry. At present, our industry is the largest producer of renewable heat energy. We produce about 2.4TW per annum, which could be displaced, with the demise of our industry.

I will move on to a different question. It is a technical one, and I have asked it of the minister. How should we consider the carbon emissions of biomass? The Government has a decarbonisation target, which has come down to 50g of CO2 equivalent per kilowatt hour. Should we consider biomass to be zero carbon or some other number?

Forestry has been recognised as one of the key contributors towards carbon sequestration and storage. Mr Paterson alluded to the long-term locking up of carbon in wood products used in building.

The member should realise that forestry is one of the most regulated industries in Scotland and indeed in the UK. There is a requirement to replant almost every area of woodland that is felled. Although carbon is clearly produced during the process of felling and harvesting, moving the wood and turning it into a product, whether that is energy or furniture, there is an immediate resequestration of the carbon released from wood energy projects, whether that is for heat, combined heat and power, or electricity. Theoretically, that is a very short-term carbon cycle, unlike for the utilisation of long-term carbon sinks—the use of hydrocarbons.

We could compare the use of wood for energy and its being put into a product for carbon sequestration, but it has never been judged in that way. The argument is that it could take 50 years to get the carbon debt back if we burn the wood.

There are a large and growing number of studies that ought to be reflected in carbon accounting. They show the absolute urgency of taking account of carbon debt. That is especially the case with burning wood from whole trees—trees logged for that purpose. The duration of the debt is in the order of decades, and potentially even centuries in some cases. Climate scientists are showing that carbon emissions and carbon levels have to be brought down very soon to avoid the worst impact of climate change.

If we create an unsustainable demand for wood, the result is likely to be similar to that with biofuels. That could lead to further intensive logging, destructive logging practices and a permanent land use change worldwide—and that could result in significant overall emissions.

First, on carbon emissions, the answer depends what comparison we are making. In many places in Scotland, forest residue is simply left on the ground or burned where it lies to clear the site. It must be better to burn it to generate energy rather than to burn it where it is left.

There is frankly no question of anybody burning saw logs that would go to a sawmill—whole-tree harvesting—in Scotland. The industry is incredibly well regulated but, frankly, the more important point is that it could not be afforded. Saw-log prices are much higher than those for low-grade wood. Considering the matter commercially, the carbon calculation figures for deciding whether to clear huge swathes of saw-log forestry and burn it all are irrelevant. We are talking about the calculations for the residue from the process, which otherwise goes to waste or is not managed at all. Its use is acknowledged by the forestry industry to be hugely beneficial.

The second point, on whether to build one large project rather than 10 small ones, comes down to the heat load. We look for uses for the heat and, bluntly, we make more money from selling heat than we do from selling electricity in a CHP plant. If we can find good heat loads, such as at the Macallan distillery and the Arjowiggins paper mill, we size the project appropriately to give the right balance of heat and electricity. To build something 10 times as large would require a vast heat load, which we do not have.

The environmental credentials of a proposed project in Leith—with which I was quite familiar as it was near my constituency—stated that the fuel for the project would comprise mostly virgin woodchip or pellet. Given that those industries are heavily regulated in Scotland, I take it that they are not as heavily regulated abroad, and that is where the importing of such products would come in.

To be clear, the residue can still be what is classed as virgin woodchip. For example, it can come from a standing tree that has been cut down. Half or two thirds of that goes to the saw mill and the residue is lower grade wood. It has not been turned into a product and then been waste from a construction site. It is still virgin wood, which is what we are talking about. We look only at domestic Scottish wood resources, so I cannot speak for what imports might comprise.

The Leith proposal and three other pending proposals mention North America as the likely main source of imports. There has been a lot of research by conservation non-governmental organisations in the United States into where the pellets and woodchips exported to Europe come from. The NGOs have provided clear evidence—we can send round an extra web link to this—that the pellets and woodchips come from whole trees that have been logged in the southern US, including from biodiverse forest. Some of that is going to English power stations, and we do not want to see it go to Scottish power stations.

The Westminster situation is different as there is no cap. Quite a lot of power stations are going ahead with full-scale conversion or large-scale co-firing. There is no restriction on the import of that timber from Scotland, so we could see a situation in which there are large volumes going from the north to the English power stations.

My last question is whether you see any regulatory lever open to the Scottish Government to control where feedstock for the biomass plants comes from, if approved. Is that within the powers of the Scottish Parliament?

We have lobbied for quite a while on the banding to look at the feedstocks to encourage the use of the lower-quality material that Mr Whately mentioned—for example, the very tops and the branches. Westminster felt that that was too complicated, but it would be a solution to look at the actual level in the type of feedstock and to weight the subsidy towards material that is more difficult to bring into the supply chain.

I agree with what Mr Paterson says. However, by getting the projects located in the right area, there would be a commercial imperative to use the poorer material, because doing so takes out the dreaded transport costs. That wood will come out if forest owners can make a bit of money out of it, because it has been processed as part of normal harvesting operations anyway.

I confess that I do not know the fine detail, but there are biomass sustainability criteria that any biomass user over a particular scale has to meet. Those criteria include the nature of the fuel, the costs of producing that fuel, and carbon displacement, including transport costs. Utilising the sustainability criteria is important.

The Leith project was mentioned, and I know that there were some attempts by the developers to find a way around the competition regulations. A planning consent cannot impose the condition that fuel must be taken from a specific location—that would be against competition regulations. Attempts were made to look at ways of using the planning system, but that is extremely difficult and is not an efficient or effective way of regulating the use of fuel or the scale of plant.

11:45

We elaborated on sustainability standards in our submission, but I want to say that we really feel that sustainability is as much a matter of demand and scale as it is a matter of sourcing for particular developments.

We have listed many flaws with the proposed sustainability standards, but I understand that they do not form part of the current amendment order and that another instrument will come before the committee before October. The current order does not include biomass sustainability standards.

Can I do a Mike MacKenzie and ask one more question quickly?

You have eaten up an enormous amount of time, but you can ask a very brief question.

Does Estover Energy have plans to work on plants of above 15MW?

No.

Did you hear the question?

Yes—I replied no. It was a short answer.

I am sorry—I did not hear your answer.

I can say more if you would like.

No—that is fine.

Ms Ernsting, your submission quotes what the energy minister said about ROCs banding. He referred to the

“finite supply of wood, and our belief that there should be a greater focus on biomass in smaller scale energy projects wherever possible”

and he said that

“the responses to our consultation reflected that.”

You say:

“Sadly, the actual provisions put forward in the draft Renewables Obligation (Scotland) Amendment Order 2013 do not reflect this declared objective”.

You also say that the proposal

“goes against the EU Renewable Energy Directive”

and you explain efficiency issues.

I am confused, because paragraph 13 of the ROS policy note says:

“The ROS, in tandem with the other UK Obligations, forms an important part of the UK’s compliance with the European Directive on the promotion of energy produced from renewable sources”.

Who is right—you or the Scottish Government?

I am sorry; I did not get all of your question—can I just double check whether I have got it right?

You contest whether the ROS complies with the European directive; the policy note says that it does. Somebody must be right.

One question is whether the ROS works towards the UK meeting its renewable energy target in general. We must be aware that the EU has agreed no mandatory sustainability or greenhouse gas and sustainability standards. The European Commission is discussing such standards, but they are not part of the renewable energy directive.

Article 13(6) of the RED says that member states should promote biomass conversion only at a minimum rate of 70 per cent. As the minister has confirmed, the proposed requirement in Scotland would be for 35 per cent at the most.

Thank you—I think.

I will ask about the ceiling for electricity-only biomass, which is in the order. The Government consulted on a 10MW electricity-only ceiling, which was moved to 15MW for the order that was laid. My reading of the consultation process is that few people asked for an increase from 10MW. Do you welcome the increase? What is the thinking behind it, when most of the consultation responses supported 10MW or less?

In my consultation response, I welcomed the 10MW cap. That is an appropriate scale for electricity-only plants that aspire to use fuel only from a specific and limited catchment area of about 50km—as I said, that is the limit for moving such material before we start getting into carbon issues.

I would rather have a 15MW cap than no cap at all, but I personally would have been happy if the 10MW cap had stayed. Obviously, I cannot speak for the Government on why that was subsequently increased to 15MW, but a cap at that level is better than no cap at all.

We think that 15MW is the right level for the cap. The main problem that we see is that the cap on the size of electricity-only plants is de facto a cap on the size of CHP projects because when financiers and banks look at such projects they ask what happens if there is an interruption to the heat demand for the project. Obviously, a project in that situation would make less money, and the banks do not want that to happen. However, if we built a CHP project that was perfectly sized for a larger heat load and there was an interruption so that the heat load disappeared, the project would revert to being an electricity-only project, which would therefore lose all its support under the proposal.

We, Macallan and Arjowiggins are proposing CHP projects, but if they are over the cap size, we will not be able to build them. We strongly believe that that is the case. Therefore, a 15MW cap for electricity-only plants will also allow us to build 15MW CHP plants.

I do not have the details in front of me, but my recollection is that the order allows for an interruption for heat that could go on for years rather than for weeks or months.

Yes, the order includes a process that allows for up to five years for a replacement heat user to be found. In our view, that does not actually help us. It is nice to know that there is general support for CHP, but the finance is based on the 20-year support from the renewable obligation. Clearly, the finance providers will not look at a project and say that it is viable if it has only five years of support. The problem is that, in the locations that we are looking at, if there is a problem with Macallan there is little else in that area that could use the heat load.

Could the provision not be used as a loophole for electricity-only plants at—or beyond—15MW?

Our view—we may slightly differ with Fergus Tickell on this—is that an electricity-only plant is viable in specific remote locations where there are not heat loads. We are not looking at projects in Argyll, because there are not the right industrial heat loads to make the best use of the wood resource there. In those areas, we probably need to look at electricity-only plants. Why would anyone build an electricity-only plant near a CHP plant, which is clearly a better project? I think that the loophole is there only if CHP becomes impossible for some reason.

Let me briefly supplement and clarify what has been said. It is more expensive per megawatt to build a CHP plant that is designed to provide a dedicated supply for, say, the Macallan distillery. That is a more expensive process because of the equipment, as it is more technologically difficult to match heat and electricity supply. That is why our sorts of projects can be built smaller in the correct location, and that is why I took the view that a 10MW cap is suitable for our kinds of projects, where we are building plant to provide electricity but hoping to develop heat load afterwards. It is more expensive to build a dedicated CHP plant adjacent to an existing heat user.

On whether the cap should be 10MW or 15MW, as I mentioned at the beginning biomass electricity-only power stations can have an efficiency of as low as 20 per cent. That means that 80 per cent of the energy contained in scarce resource is being wasted entirely as uncaptured heat. We really do not think that such inefficient use of biomass should be supported or subsidised. We were quite concerned to see the cap raised even further, but our big concern is that, even where the cap applies, the requirements are still extremely weak.

We probably agree with Fergus Tickell’s point. We were happy enough when the cap was 10MW. Then it was raised to 15MW. At least it is a cap, and we are happy with that.

We also have some concerns about the efficiency of larger scale projects. If such a plant was running at 35 per cent efficiency and suddenly there was no heat market, it could mean a large electricity-generating plant burning a lot of wood inefficiently.

My question is probably for Mr Whately and Mr Tickell. One of the big concerns that we expressed in our report on the Government’s renewable energy targets concerned planning. We had an illuminating conversation this morning. How au fait are the planners with the demands of the renewables obligations in terms of how they approach biomass plants, whether 10MW, 12MW of 15MW?

The planners are very au fait. They are probably made au fait with the requirements thanks to the efforts of some of my colleagues on the panel. It means that we are held closely to account through the planning process on exactly what projects are being designed, as well as why and on what scale they are being designed.

We have had generally good relations with planning authorities. For the two projects that we consented in Argyll, we had very good planning officials who understood the projects well.

We had a very bad experience in Highland Council’s area with one project for which we did not get consent. It is probably the worst planning experience that I have had in 30 years of undertaking planning applications of one sort or another.

Rather counterintuitively, the best planning process through which we have gone for one of our consented projects was in the Loch Lomond and the Trossachs national park, where the planners were astonishingly communicative and receptive to the concept. Ultimately, the project was consented without a single objection from any member of the community.

How involved are the community? How do you communicate and ensure that the community is involved?

We held community council meetings and engaged with the community from the outset. Of course, some communities are more receptive than others.

How do the communities benefit from having a biomass plant of whatever scale in their midst?

That is a good question, actually. From my perspective, the localisation of the wood supply is extremely important because it creates greater levels of economic activity within the 50km radius that I have talked about a few times.

It is estimated, not by me but in some work by Highlands and Islands Enterprise, that each of the projects of our type and location will create up to 30 jobs. That is a mix of direct, indirect and induced jobs. That is a highly significant number of jobs in such relatively remote rural areas, and the effect runs through into the forestry industry, which is an extremely important sector in those areas.

I talked earlier about the presence of a project that was built as an electricity-only plant being used to encourage additional development. For example, in our project in the national park near Killin, we have had discussions with the local community about drying firewood and woodchips to help push forward the local heat market. We have also talked about potentially developing some horticultural activity. At a site in Cowal, we are talking to the local waste management company about ways of improving the way that it manages waste at the waste management site next door.

There are many benefits that can be delivered to local communities through localised projects.

Do the communities benefit financially in any way?

That is not something that we have been asked. It is interesting that most of the local communities are interested in sustainable economic development rather than a simple cash handout. We have never been asked for one—that is the honest truth—although I know that it now happens in the wind sector as a matter of routine.

Handout is an unfortunate term, which has been discussed with some of the developers. Has any thought been given to communities participating in the project, perhaps even having an equity stake?

We have discussed that internally, and we would not be unreceptive to it. It depends heavily on the nature of the community and what its aspirations are.

12:00

We are moving a little bit away from the terms of the order. Rhoda Grant has a question.

I wish to ask about the impact of importing wood fuel on world wood prices. How might that impact on your industries?

That is an interesting point. There have been discussions about the globalisation of the wood products sector. Our company’s wood costs have gone up by 50 per cent over the past six years. A lot of that has been driven by extra demand for material, 80 per cent of which demand has been from the biomass sector. That is already affecting our wood price.

We have some questions about the large-scale importing of wood pellets and how that will pan out. Fuel security prompts one question. We understand that the United States and Canada have their own ideas about the building of power stations and heat plants, and I cannot imagine that a huge volume of the shipments going to Europe would not be diverted to nearby plants—it is a bit like the local model that we have been discussing.

There are indeed concerns and questions about what would happen to wood prices.

Are the other witnesses concerned? We have been discussing small-scale plants that are using wood that is uneconomical to ship out at the moment. Were world wood fuel prices to go up at some point, shipping it would become economical.

My view is that having a local plant with short transport links delivers a built-in competitive advantage in perpetuity. As John Paterson has just said, much of the world trade in wood for energy is in the form of pellets. There is no indication at all that much of the wood that we would be utilising—the lowest grade of material from our forest sector—could or would be turned into wood pellets. There is a burgeoning pellet sector in Scotland, producing about 250,000 tonnes of pellets a year—I think that was the most recent figure. Of that, about 18,000 tonnes is being used in Scotland, and the rest is already being exported. It would seem that there are no supply restrictions on the development of the local heat market using pellets. The pellets are there.

Woodchips are another matter—they are what we would utilise in our projects, and they are generally not moved over very large distances, as they tend still to be slightly higher in moisture content and not of a quality that can be used for smaller, house-scale energy systems or, indeed, for co-firing in very large projects such as Drax or Longannet, if it was to go in that direction.

From the forestry growers’ perspective, a rather different picture is painted when it comes to pricing. The Forestry Commission has published statistics, but the prices have fallen by about 70 per cent over the past 25 years. The big problem is the small number of large customers—in some local areas there could be a monopoly—so not much of the money feeds back to the person who is investing and working in the forest. We need to drive more demand here to improve Scotland’s forests, rather than worrying about bringing them under more management or about what might be happening internationally.

I will speak about the global market impact. As the name of our organisation suggests, originally we were primarily concerned with biofuels. That was some years ago, as the biofuel commodity market developed earlier than the global biomass traded market. The rise of that massive new global biofuel commodity market has had a knock-on effect on other industries and markets and on global food prices that has been more severe than anything that anybody whom I know expected back in 2005 or 2006, when we started.

It is worth noting that the development of a global biomass trade that is import reliant is in its infancy. In the UK, the conversion plants in England alone will import more pellets than were produced worldwide in, say, 2010. Given that, we think that the knock-on effect on global wood prices and on all the industries that depend on wood might well be pretty severe.

We must move on, as we are already behind the clock.

Uncharacteristically, I will restrict myself to one question.

I do not believe it.

The question is fairly general. The written evidence has introduced the committee to the concept of the circular supply chain or the circular economy. One of Mr Paterson’s members would have supplied the material for the table that is in front of us. When the committee wears it out, we could give it to Mr Tickell. I do not think that that goes on to a great degree at the moment, but is it a possibility for the future? Mr Paterson would get first dibs, then Mr Tickell would get the material.

We support the hierarchy of wood. If wood can be used in a product and eventually—maybe not the first time round, as we might like to recycle it first into another new wood product—used as a fuel wood, we support that. We have always supported the hierarchy and the final use for energy or thermal purposes.

I will point out an issue that people who are not well versed in the forestry and timber sector perhaps do not really appreciate. When saw logs are taken into a sawmill to be sawn, only about 50 to 60 per cent of the material comes out as sawn timber. There is also a range of co-products, in the form of bark, chips and sawdust, of which John Paterson’s members make a great deal of use. Such material can also be used in the energy sector.

It is worth pointing out that most sawmills are centrally located, as are the large board mills. If the Forestry Commission is right to say that the peak production from our forests is not the 7.3 million tonnes that it predicted in the last but one round of production forecasts, but 10 million tonnes—and if most of that increase is in saw-log production—the implication is that 1 million to 1.5 million tonnes of co-products could come into the market, which we would expect the panel industry to use first. That would leave projects of our scale and our location to use and create a market for the lower-grade material that is sitting in our forests, waiting to be used for energy.

Some of our members need roundwood to produce OSB.

I have found the discussion informative. I presume that all the witnesses responded to the ROS consultation. Did they comment on other aspects, such as wave and tidal stream energy?

For our part—

A yes or no answer would be fine.

Witnesses: No.

Thank you, Margaret.

I have one issue that we have not covered. Mr Paterson mentioned that the restrictions will apply in Scotland only and that similar restrictions will not apply in the rest of the UK. Does that have consequences for the sector? For example, could it drive investment south of the border?

There are potential consequences. We have the good fortune—I guess—of having relatively poor infrastructure for the bulk movement of timber or any other product from the west coast of Scotland, where our forests are.

My biggest concern is the movement of the co-products, which I mentioned a few moments ago, south of the border, allowing England and Wales to meet their targets using primary product from Scotland. That material could and should be used much more effectively for energy and the panel sector, and be kept in Scotland to add value here, rather than being transported at cost to add value somewhere else.

I think that investment in the south will predominantly be in the conversion of existing coal plants.

A particular paper plant has a project that will need 500,000 tonnes of wood a year to burn for energy. The plant is in Workington, in Cumbria, but it will draw on Scottish resource.

I think that the answer is to encourage the right scale of local projects for combined heat and power that will support industry. If we have the right local projects, they will use the local resource. Transport costs rise with distance. That obviously incentivises everyone to use their local resource, which will support everything in the right areas. If the incentives are wrong, things will be taken 200 miles in a lorry. If we have the right incentives, we should be okay.

The consequences of a cap would depend on how effective the cap was and what difference it made compared to not having a cap. Because the current proposed efficiency setting is so exceedingly low, we do not feel that its effect would be much different from not having a cap. A target of 35 per cent efficiency can be met with quite minor technical investment, but it is not much different from not having a cap.

We will have to call a halt there. I am grateful to the witnesses for coming along and I thank them for their evidence, which has been helpful to the committee.

We will have a short suspension to allow the witnesses to leave.

12:12 Meeting suspended.

12:15 On resuming—