COMMITTEE FOR AGRICULTURE AND RURAL DEVELOPMENT
OFFICIAL REPORT
(Hansard)
Inquiry into Renewable Energy and Alternative Land Use
22 May 2008
Members present for all or part of the proceedings:
Dr William McCrea (Chairperson)
Mr P J Bradley
Mr Allan Bresland
Mr Willie Clarke
Mr William Irwin
Mr George Savage
Witnesses:
Mr Geoff Smyth (Carbon Trust)
The Chairperson (Dr W McCrea):
I welcome Geoff Smyth, who will make a presentation on behalf of the Carbon Trust, after which, we will come to the questions that members want to put. Thank you very much for coming.
Mr Geoff Smyth (Carbon Trust):
Thank you Chairman, and good morning everyone. The Carbon Trust is an independent but Government-funded company, set up as part of the UK’s climate change programme in 2001. Our mission is to accelerate the move toward a low-carbon economy, and we are doing this by commercialising low-carbon technologies and by helping organisations to reduce their carbon emissions. Locally, we are funded through Invest NI and the Department of Enterprise, Trade and Investment — and Invest NI is represented on the board of the Carbon Trust in a non-executive capacity.
Since 2002, the Carbon Trust has worked with several hundred local businesses and public-sector organisations to deliver substantial cost-effective carbon savings. For example, our work has realised annual energy-cost savings to local businesses in excess of £50 million a year, and that will deliver lifetime cost savings to those businesses of over £250 million pounds.
Concurrent with that are the carbon savings: we have saved local businesses in excess of 450,000 tons of CO2 per annum, with lifetime savings in excess of 2∙2 million tons. We have also catalysed investment by those businesses in low-carbon technologies, energy efficiency, and renewable energy, in excess of £70 million. Our interest-free loans scheme has made available in excess of £6∙5 million to local companies to implement carbon-reduction measures, many of which relate to the use of biomass.
There are increasing numbers of policies and regulations relating to the imperative for carbon reduction. At an international level, we have the United Nations framework convention on climate change, which gave rise to the Kyoto protocol, and put pressure, at an international level, on nations to reduce their carbon emissions. At the European level, we have the EU’s declaration for reducing emissions by 20% by 2020, possibly rising to 30%. At the UK level, we have the Climate Change Bill, which sets mandatory targets for a 60% cut in carbon emissions by 2050. That figure may be reviewed to become as high as 80%.
Locally there are some very challenging targets within DETI’s strategic energy framework of June 2004, and more recently, the Office of the First Minister and deputy First Minister’s sustainable development strategy, which is setting a target of a 30% reduction in Northern Ireland’s carbon emissions by 2025. The strategy also outlines some very challenging targets relating to renewable energy. Some 40% of electricity should come from indigenous renewable energy sources by 2025 — 25% of that from non-wind sources; that will be addressed principally through the use of biomass. These are very challenging targets.
The move to a low-carbon economy presents plenty of opportunities. If managed properly, as borne out in the Stern Review, it can provide an economic benefit to nations that are decarbonising. The earlier action is taken, the better and more advantageous it will be — the longer it is delayed, the more costly it will become. Intelligent management is required to ensure that the move happens in a cost-optimal way. That requires careful policy implementation and a focus on making the transition at the lowest cost.
I am happy to take questions.
The Chairperson:
You sent the Committee a copy of the annexe to the ‘Northern Ireland Vision Study’, which examines the prospects of bioenergy up to 2050. The first section deals with the opportunity for fuels from forestry operations and timber processing. Will you summarise the importance of that sector and the future of bioenergy in Northern Ireland?
Mr Smyth:
At the moment, because the bioenergy market in Northern Ireland is quite immature, arisings from sawmill conversion and forestry residue are quite significant in the whole bioenergy envelope. Those arisings could amount to around 250,000 tons per annum, and that would be against the backdrop of 500,000 tons in total; so proportionally, it is very significant.
Our study looked forward to 2025 and 2050, and over that time the importance of forest residue and sawmill arisings diminishes as energy crops increase and come online. It is possible to go from a situation today, where those account for around 50% of the bioenergy resource — for clarification, I am excluding waste-wood resources in that — to the position in which they become minority players by 2025 and 2050. The aspiration and challenge must be to ensure that energy crops come on stream at volume within that timeframe.
The technical potential from sawmill and forestry residue is limited as regards how much wood can be processed locally, and the arisings from forestry management. However, energy crops should dominate in the future if there is going to be a viable bioenergy market in Northern Ireland.
The Chairperson:
In your presentation you said that the whole issue will take careful, intelligent management. Who do you think is best placed to provide that?
Mr Smyth:
That is a very good question. One of my frustrations, and one of the key challenges for all Administrations, is the recognition of the cross-cutting nature of the climate change problem/ opportunity. It impacts across all Government Departments; and to deliver an optimal solution for carbon reductions is going to require very careful co-ordination across Departments to ensure that there are no conflicts in the end objectives.
The Chairperson:
Whenever the responsibility is spread across all Departments; that is often a good reason to do nothing.
Mr Smyth:
Perhaps that has informed some action, or inaction, in the past.
The Chairperson:
So, what do we do? Someone must take the lead.
Mr Smyth:
I agree. If I were to pin my hopes on anything, it would be on the outworking of the sustainable development strategy. If OFMDFM — the Ministry at the centre — is to take ownership of, and deliver on, the sustainable development strategy, it must take the opportunity to work constructively with other Departments to deliver on that common objective.
OFMDFM has specified that there should be a 30% cut in CO2 emissions by 2025. That will not happen by accident, and it will not happen in a business-as-usual scenario. It will only happen if all Departments are aligned to achieve the objective and if they formulate and climate-proof their policies to that end.
Mr Bresland:
Your study addresses the potential of anaerobic digestion to deal with farm waste and, at the same time, generate useful bioenergy. What are the relative benefits of farm-scale digesters and centralised facilities? Which option is better for Northern Ireland?
Mr Smyth:
It is worth making clear that delivering carbon reductions comes at various costs. Implementing some measures can be cost-negative as they will save money. Other measures to reduce carbon emissions will require significant investment. Typically, for immature or early-stage technologies, benefits can be gained from delivering plant at scale. The capital cost of small farm-scale anaerobic digestion plants is significantly higher than that of a centralised plant.
A few years ago, the Carbon Trust carried out research on waste arising from the agricultural sector and the potential for using that material to generate clean electricity — green energy. We concluded that it was more cost-effective to have several larger, strategically-located, plants to address farm waste, rather than numerous small farm-level plants. Centralised plants also have the benefit of being able to take other waste in the locality, specifically, and importantly, the high-calorific waste that is generated by food businesses, hotels and restaurants, etc. Such waste can be valuable in improving gas yields from anaerobic digestion plants.
At present, our view is that a small number of centralised anaerobic digestion plants — about 10 — strategically located across Northern Ireland would offer a better solution with regard to the cost of carbon than individual or small farm-scale plants.
The Chairperson:
Would people operating such plants not need the skills and knowledge to do so? Such skills would not necessarily be available across the whole country. Trailing waste products around the country is not necessarily a good idea either.
Mr Smyth:
You make two very good points. There is a capacity constraint as regards the knowledge and skills required to design, construct and operate anaerobic digester plants. Trucking waste great distances would defeat the purpose of trying to minimise carbon emissions. Our analysis suggested that, if there were 10 plants strategically located around Northern Ireland, the transportation distances would make sense as regards the overall carbon footprint of the operation.
One of the Carbon Trust’s businesses is hoping to deliver Northern Ireland’s first commercial central anaerobic digestion plant at Omagh Meats. We hope that that will catalyse the marketplace and give people confidence to start rolling out such plants across Northern Ireland.
The Chairperson:
When will that happen?
Mr Smyth:
We are awaiting the conclusion of DETI’s processes to obtain some grant funding from the environment and renewable energy fund (EREF). When that funding is in place, we envisage a construction period of around 18 months.
Mr W Clarke:
Given the high cost of fossil fuels, we will never be in a better position to introduce renewable energy, and the market is dictating that we move in that direction. Part of our inquiry concerns the relative importance of heat, electricity and liquid fuels from renewable sources. However, the debate in Europe — and probably the world — is the contrast between food shortages and the production of cereal crops for ethanol, and how we can introduce biofuels. What are your thoughts on that?
Mr Smyth:
There are a lot of issues around that. You are absolutely right to point out the competing pressures for land resource — the concerns about the scarcity of food and the move towards energy crops. As regards the hierarchy of value from a carbon perspective, we looked at the issue a couple of years back and carried out a significant study into bioenergy across the UK.
At that point, which was in 2005, we firmly concluded that the best use of available biomass in the UK would be towards displacing the use of oil for heating applications. The next cost-effective measure would be the generation of electricity using biomass through combined heat and power systems and using the waste heat associated with that. Firmly at the bottom of the hierarchy was the use of biomaterial for the generation of liquid fuels for road transportation purposes.
Using the existing generation of biofuel technology — bioethanol and biodiesel — one would be talking about a carbon cost of 10 times that of using bioenergy to displace oil for heating applications. We do not think that there will be a sustainable industry using the existing conversion technologies to generate liquid fuels. We are focused on the next generation — the more advanced bioenergy for road transportation fuels.
Recently, we issued a call to UK industry for expressions of interest in coming up with ideas to deliver the pyrolysis challenge, which is to take woody biomass material and convert it into an oil feedstock that can be fed into existing refinery infrastructure. The advanced biofuels have the opportunity to deliver cost-effective carbon and compete with the incumbent petroleum products.
At this stage, producing heat locally would be the best use of the material, as regards cost-effectiveness and carbon, followed by combined heat and power systems, electricity-only schemes and biofuels.
It is also worth giving a sense of what the opportunity is. Because energy crops are low-energy density, we will never have enough land — or we will never be able to plant enough material — to deliver significant amounts of energy in Northern Ireland, and that fact must be recognised. It is likely to be a minority player, but a significant player. We can derive substantial economic value and significant cost savings from it, but it will never give us energy independence.
Mr W Clarke:
The European Parliament’s energy from renewable sources directive mentions reducing the use of petroleum products by 10% and introducing biofuels, and there has been much debate about that. However, I see the production of biogas as having the potential to fill that gap through biomethane, which is similar to what Allan Bresland was talking about when he mentioned anaerobic digestion. There is also an opportunity to go a step further, break that down and introduce hydrogen fuel cells.
There is potential to be self-sufficient on the island of Ireland, although I do not believe that we have sufficient capability in the North to sustain wind-turbine technology and anaerobic digestion. A spatial strategy is needed to deal with the matter on an all-island basis. What are your views on that?
Mr Smyth:
We have not considered the matter from an all-island perspective, but I would be surprised if enough land would be available to allow the island to achieve energy independence.
Mr W Clarke:
That is why I suggest throwing everything into the mix — for example, wind power and hydro energy.
Mr Smyth:
Given the existing technologies at our disposal, I do not believe that it is doable. It may become achievable with the new technologies that are becoming available — for example, fuel cells and the emerging hydrogen economy — but it would be at a cost. We must ensure that the move to a low-carbon future is done in the most cost-advantageous manner possible.
Historically, energy prices in Northern Ireland have been high compared to those in the UK and Europe. Attempting to solve the problem with elaborate, expensive and immature technologies will simply force the price of energy higher. Already, some businesses in Northern Ireland are struggling as a result of high energy costs, so we would not advocate that route.
Taking carbon out of the system involves a cost; therefore, all cost-effective technologies should be deployed first, and we should be vigilant for emerging low-carbon technologies. The Carbon Trust is playing a leading role in developing many such technologies — for example, we have made significant advances and investments in fuel-cell technology, which uses hydrogen as an energy vector, as well as with centralised anaerobic digestion, that is used for combined heat and power systems. It is all achievable technically, but currently there is a cost involved.
It is true that the fact that high energy prices are providing more opportunities to develop renewable technologies. The best value will be achieved by displacing oil-fired, fossil-fuel systems with bioenergy systems, so that should be the focus of any policy.
Mr W Clarke:
I agree with you entirely on that, but my point is that oil is running out and oil-producing countries are going to keep whatever oil reserves that they have for themselves by making it so expensive that no other country will be able to afford it. If we do not have fossil fuels and we do not start investing in renewable technology now, how will we run our cars? That is what the people in the street are asking. How are we going to be self-sustainable on the island of Ireland? The number of people in fuel poverty is going through the roof — I anticipate that, last year the number of people suffering from fuel poverty in the North has doubled. How are we going to run our cars if we do not invest in renewable technology now? I apologise for labouring the point.
Mr Smyth:
Some existing technologies can, and do, take carbon out, but I must stress that there is a cost implication. Fuel poverty is not unrelated to this matter. Throwing expensive technologies and solutions at the problem will cause the cost of energy to increase, and someone will have to pay for that. Energy businesses are not philanthropic or altruistic organisations — they want to generate a profit. Therefore, setting the wrong policy objectives and forcing the use of immature and costly technologies will mean that we will all end up paying for that, which will result in more fuel poverty.
I have not seen any study that indicates that Northern Ireland or the island of Ireland could become energy self-sufficient. A couple of years ago, the Carbon Trust did a study to see whether it is possible to achieve the objective of removing 60% of the carbon in our systems in a cost-effective manner. We concluded that it is achievable technically and economically.
Typically, energy-efficiency interventions — improving the efficiency with which we use or conserve energy; better energy management, using modern, efficient lighting, heating and refrigeration systems — have a net positive value. That means that they result in a cost saving and that businesses and public sector that invest in energy-efficiency measures enjoy an economic benefit, as it saves them money.
The other extreme of technologies, includes, for example, the current generation of solar photovoltaic and solar panels that can be seen on some roofs, which have been grant assisted in Northern Ireland and elsewhere. The cost of abating one tonne of carbon going into the atmosphere using that technology is approximately £18,000. The economic payback of such systems using existing technologies is non-existent. The design life of the kit is approximately 20 to 25 years, and the economic payback period is in excess of 80 years. That illustrates the significant cost of deploying such technologies, and the fact that they achieve limited carbon savings.
Mr W Clarke:
Surely, just like the low-energy light bulb, the technology for solar panels will improve.
Mr Smyth:
Absolutely, and that has to be the focus: innovative research and development. We have spent close to £10 million on a project that is aimed at delivering the next generation of photovoltaic technology. That is an area of possible interest to the Agri-Food and Biosciences Institute, and to the Department of Agriculture and Rural Development more generally.
Third generation photovoltaic, as it is called, is based on organic systems. We are attempting to replicate what plants are good at: converting sunlight, through photosynthesis, into chemical energy. A significant amount of funding has been invested into commercialising that next generation technology. The aim is to reduce costs, and the policy objective is to reduce carbon emissions in a cost-effective manner.
Mr Irwin:
How important is bioenergy in contributing to the reduction of Northern Ireland’s carbon footprint?
Mr Smyth:
As I said earlier, bioenergy will be a minority player. Annually, Northern Ireland consumes approximately a total of 40 terawatt hours of energy — and I apologise for the use of horrible units. By excluding the energy that is used for road transportation and for electricity generation, the figure is reduced to approximately 21 terawatt hours of direct energy requirements, which is principally provided by coal, oil and gas. That is the incumbent technologies that biomass would be competing against.
If just 1% of that energy requirement were delivered through bioenergy, for example, wood chip from short-rotation coppice, it would require approximately 70,000 tons of wood chip per annum, which would mean, at 10 tons per hectare, approximately 7,000 hectares in plantation, producing wood chip every year. We do not have that capacity at the moment. A few years ago, DARD’s short-rotation coppice challenge fund probably established approximately 800 hectares.
To deliver just 1% of Northern Ireland’s direct end-use requirement to displace fossil fuels, approximately 7,000 hectares will be required. If we extrapolate that into delivering 5%, 10% or 50%, we would run out of land mass very quickly.
Energy crops are a minority player, and contribute well under 1% of Northern Ireland’s energy requirement. Our vision study, which looks ahead to 2050, indicates that an aggressive carbon-reduction-focused policy, utilising all available land resource to grow, for example, short-rotation coppice willow, will require approximately 70,000 hectares in plantation, which would generate approximately 1 million tons per annum. That would equate to approximately 15% of Northern Ireland’s energy requirement by 2050.
That assumes that the energy requirement remains static against the increase in population. If that were coupled with an aggressive policy on energy efficiency to reduce carbon, it would become proportionately more significant. However, the technical resource will always be limited because it depends on how much land is available and what yield can be achieved from that land. Energy crops are currently a minority player, but they could be significant, and there are genuine opportunities to stimulate, catalyse and encourage the development of a sustainable bioenergy market. The public sector has a leadership role to play in helping to achieve that.
Mr P J Bradley:
I thank the Carbon Trust for its report, and I welcome Mr Smyth’s informative comments. Much work is going on behind the scenes that we were not aware of. I welcome the recognition that food production should not be sidelined. On day one of the inquiry I expressed concern that we might get carried away on the biomass swell and that food production would be forgotten about. I am still concerned about that, but the report makes some recommendations for policies to stimulate growth in Northern Ireland. You mentioned three recommendations in particular: more capital grants; a presumption for renewable energy in public-sector purchasing; and more support for energy crops. Can you develop that point?
Mr Smyth:
When the initial piece of work was carried out in 2004 and 2005, one of the key obstacles to the development of bioenergy markets was the capital cost of the plant, which is significantly more expensive than the incumbent technologies. In order to encourage end-users, businesses and public-sector organisations to move away from fossil-fuel boiler plants and install, for example, biomass boiler plants, the capital-cost difference must be managed or bridged in some way, shape or form. When we carried out that initial work, we felt that the use of capital grants to pump-prime the market would be a sensible policy intervention.
Since then, our thinking has developed. Through our biomass heat accelerator, we studied quite a few bioenergy projects across the UK, and we sense a correlation between the availability of capital grants for such projects and the end cost of those projects. It appears that, where capital grants are available, they simply get latched on to the cost of the project. That has the opposite effect to what is desired. Instead of pump-priming the market and encouraging some scale and volume and therefore pulling costs down, short-term thinking in some quarters of the industry may lead to profit being taken from that capital grant.
We would like to revisit that. Any intervention should be focused on the outcome and on challenging the industry to engineer value and cut the costs of deployment. For the industry to be sustainable, it must compete with incumbent technologies at minimum cost to the public purse. Capital grants may have a short-term role to play, but probably not in the long term.
One key area of policy intervention that we advocate is the role of the public sector, which is a significant energy user in Northern Ireland. Fossil-fuel usage by the public sector in Northern Ireland is around 1·34 terawatt hours a year. That equates to in excess of 400,000 tons per annum of biomass, or over 40,000 hectares in plantation. One can see a very easy win there, and it would address a number of objectives that are part of the sustainable development strategy, which aims to make the Government estate carbon-neutral by 2015. The strategy has objectives to encourage and foster an indigenous renewable energy industry.
Through its procurement policies, the public sector in Northern Ireland could pull through a supply of bioenergy and deliver on multiple objectives. That would help Northern Ireland to move towards a carbon-neutral estate and it would provide confidence to the farmers and growers, which would enable them to make informed choices about what to use their land for — food crops, energy crops, or a mix of the two. Currently, there are significant economic incentives for farm businesses to plant energy crops, due to high energy prices. However, the cost of food has also increased recently, which is good news for that sector of the industry.
If the public sector in Northern Ireland set out its stall and indicated that energy would be procured from carbon-neutral or low-carbon sources, farmers would start investing and planting energy crops, because they would see that there was an end use for those crops. A big barrier that consistently occurs is the chicken-and-egg scenario — farmers do not grow those crops because there are no end markets, and end users will not invest in the technology because there are concerns over the security of supply. The public sector could demonstrate leadership by aligning its procurement policies with its stated climate change and broader environmental policies.
The Chairperson:
You mentioned support for those who grow energy crops — surely the bottom line for farmers is that those crops will make them money?
Mr Smyth:
Absolutely.
The Chairperson:
How can we ensure that the farmers who grow those crops do not find themselves in the position in which they have been on past occasions — when they produced something that did not provide a financial return?
Mr Smyth:
That is the absolute nub of the issue. If the public sector — in totality, or a large swathe of it — announced that it would procure bioenergy for the foreseeable future, that would send a signal to farmers to grow those crops. You are correct to highlight the economics of the situation. Currently, against oil at $130 per barrel —
The Chairperson:
Let us be frank about that. The general public wants cheaper fuel. Therefore, they want somebody to produce that cheaper fuel. If we are referring to crops, that somebody will be the farmer. The farmers have been producing food and selling it at a price below what it costs to rear stock. Most of the general public will want them to do this as well, so that they can have cheaper energy and fuel. As long as the public is getting cheap fuel, it does not really matter that farmers lose money. How can you ensure that farmers get a return on their investments?
Mr Smyth:
A number of mechanisms could be deployed through procurement. I am sorry for harping back to the public sector, but if the public sector was to procure its energy with the aspiration of it being carbon-neutral or low-carbon, that would deliver on what we are trying to achieve. The current price of oil is approximately 50p per litre. The break point for growing woodchip energy crops is approximately 22p per litre.
If the market price for that energy is 50p per litre, there is a huge profit margin if the farmer can produce it at the equivalent of 22p per litre. It could be index-linked to fossil-fuel prices; the farmer could sell the energy at 10% below spot market oil prices. That allows for a healthy margin, and there are not many people suggesting that oil will bottom out any time soon, anywhere close to 20p per litre. The growers should take confidence from that. In addition, there would be a cost saving to the public sector if it procured bioenergy from clean energy sources at a lower cost than the incumbent fossil-fuel sources. It is a win all round.
Mr P J Bradley:
It is OK talking about the 50p in comparison to the 21p or 22p that the farmer might receive. However, from other farming enterprises, we know how much the farmers receive compared to what consumers pay. How much of that 22p would be carried through to the farmers? Would they receive that 22p before it is consumed?
Mr Smyth:
It depends on the business model for delivering that fuel to the end-user. Co-operatives growing energy crops, investing in equipment to harvest, dry, and transport the crops may deal directly with end-users or go through an intermediary. The shorter the supply chain, the better the value to the farmer. Nothing prevents farmers from contracting bilaterally with large energy end-users, or collectively, through a co-operative, and selling into the marketplace.
Mr P J Bradley:
What about processors, supermarkets and so on?
Mr Smyth:
On the food side, when it goes through an intermediary, the value to the farmer is going to be eroded. We are not talking here about materials that farmers would have problems producing. If they are growing, harvesting and chipping willow, then baling, transporting or storing it, not much is needed to ensure that the bulk of that value is returned to the primary producer. The same applies to other energy crops.
Mr Savage:
Do you have any specific policy recommendations for DARD that would encourage the adoption of renewables on family farms and rural businesses?
Mr Smyth:
If DARD is already doing so, I urge it to continue. However, any policy intervention should be costed and optimised. A lot of technologies deliver carbon savings and renewable energy, but at a prime cost. I encourage a focus on the main aim. If the end objective is reducing carbon emissions and cutting energy costs, it should work with the College of Food, Agriculture and Rural Enterprise (CAFRE) — an organisation with which we have engaged — in order to ensure that energy use is kept to an essential level.
Businesses must consider whether focusing on energy efficiency will save them money and then look at cost-effective renewable energy technologies, which are most likely to include bio-energy for heat applications and the use of large-scale wind energy on their land. It is unlikely to involve more exotic technologies such as solar energy or ground-source heat pumps. Therefore, coming back to the energy hierarchy; businesses should minimise the energy they need, optimise its use, and then search out cost-effective renewable technologies.
Mr Savage:
You mentioned anaerobic digestion earlier. I know of one that was working successfully and solving a lot of problems, but caused a smell problem. Therefore, solving one problem created another. Is there any way around that?
Mr Smyth:
A modern, well-designed, central anaerobic or anaerobic digestion plant will not cause odour problems. Technology has moved on. There should not be an odour problem with any of those plants. Hopefully, that will be tested when the Omagh Renewable Energy plant becomes operational and passes the “sniffer” test.
Mr W Clarke:
The whole idea of anaerobic digestion is to collect the gas — the methane. You are hardly likely to let it escape.
Mr Smyth:
You are correct; the value is the gas yield from the digestate. It has other virtues that we have not yet touched upon. They include adding value to the rural economy though the end product of anaerobic systems. Waste is put in, clean energy is generated, carbon and methane emissions are reduced, and valuable soil fertilisers and nutrients are produced that can go back to the farmers.
Mr Savage:
That installation was working well, but the community objected and the planners denied it permission to operate. That problem appears to be insurmountable. It works very well in England, but it does not seem to work here. A fortune was spent on it, but the planners turned it down and nearly put those people out of business.
The Chairperson:
Thank you for your presentation, which has certainly provided the inquiry with considerably more helpful information. Do you have anything more that you wish to say?
Mr Smyth:
Thank you for the opportunity to address the Committee, and I hope that my presentation has been helpful. If there are any follow-up questions, please do not hesitate to contact me.