Large Scale Drax Biomass project falters as 'Grandfathering Right's' confusion lingers to the advantage of Bioflame
20 February 2010
The exclusion of biomass from grandfathering rights under the ROC banding rules has effectively stopped all new medium to large scale biomass projects in their tracks, making it now impossible for the UK to meet it's renewable energy quota from biomass unless Lord Hunt acts soon.
Drax has announced this week that it has shelved its ambitious plans to become Europe's largest biomass power generator sending shock waves around the sector. A great deal of lobbying muscle is being exerted by the large scale biomass developers such as Drax on government to clear-up the grandfathering issue and to do it soon. An announcement is expected from DECC in March but Bioflame has learnt that this is only likely to be an announcement of a consultation paper. With the likelihood of a new government being in power post May it looks like this matter will not be cleared up until Christmas 2010 - if ever.
At first glance this might look like bad news for all biomass project funding however small-scale projects like ours that do not rely on enhanced ROC payments to cover long term funding can still prosper. Some new funders who are not expert in the market may be put off funding small biomass projects but Bioflame is confident that the strength of the fuel supply and the high returns delivered by the Bioflame business model will be enough to retain existing funders and give Bioflame an ever increasing lead on the rest of the low grade waste biomass to energy market.
It is our view that if the government want to really get behind biomass as an alternative energy source then the ROC banding will need to be increased to 2 ROCs (from the current 1.5 ROC for dedicated biomass plant). Whilst lack of grandfathering rights certainly adds risk to a project from a funders point of view, if as with Bioflame, the business model is strong enough to work on a reduced ROC scale then this state of uncertainty that has smothered most plant funding will actually be to our advantage as the likelihood is that the banding will be increased in the short term simply to catch up with the original renewable output targets set. This would enhance the value of the already highly profitable roll-out plan that Bioflame has embarked on and found funding for.