MGT has secured its expected wood pellet demand from US biomass producer Enviva in a sterling-denominated contract, avoiding currency risk. But the project is well behind schedule and a start date has been proposed that is beyond the deadline put forward by government-owned Low Carbon Contracts, which manages the CFD contracts. So far Low Carbon Contracts has allowed extensions to the project’s timeline, but a government looking to balance the books could encourage it to be stricter with deadlines in the future.
But Lynemouth is on track, and gained EU state-aid approval in December. A contract for over half its expected 1.4mn t/yr demand has been secured with Enviva — 20pc denominated in sterling, with the remainder in dollars. But, as a Czech company, how keen will EPH be to continue to invest in a market untethered by EU regulations?
Meanwhile Drax is still waiting for the outcome of an EU state aid investigation into the CFD it was granted for its unit 1 conversion back in April 2014. With the UK set to be bound by EU law for at least the next two years, it is likely that the results of that investigation will determine whether or not Drax is permitted to receive the CFD subsidy, whether Brexit proceeds or not. But the uncertainty thrown up by the referendum and its outcome, in the UK and in Brussels, is unlikely to have sped up the decision.
But even that well outweighs the emerging demand in other European countries. The biggest new potential source of European demand is the Netherlands, where SDE+ subsidies are expected to support up to 3.5mn t/yr of wood pellet demand for power generation, raising the country’s current generation needs from zero. But, as in the UK, those projects are dependent on government policy and subsidies – which have not all been granted yet.
Even if none of the UK projects in the works were to come online, as long as the existing demand could be maintained — barring retrospective cuts to existing subsidies, or new policies that made biomass burn in the UK simply unaffordable — the UK market will remain the centre of industrial biomass demand in Europe for the foreseeable future.