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St Andrews University Biomass Plant Not Economically Viable

November 24, 2015

By Paul Homewood 

 

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http://www.thecourier.co.uk/news/local/fife/st-andrews-university-reveals-25m-guardbridge-biomass-plan-1.168283

 

 

In 2013, St Andrews University announced plans to build a biomass plant, as The Courier reported:

 

St Andrews University hopes to slash its energy bills and create an “economic centre in Fife” by building a £25 million “green” centre.

Rising fuel bills represent a “major threat” to investment for teaching and research, according to Scotland’s oldest university.

The proposed renewable energy project at Guardbridge would generate power through wood-fuelled biomass, then pump hot water four miles underground to heat and cool labs and residences in St Andrews.

The centre, at the site of the former Curtis Fine Papers mill, would also become a “knowledge exchange hub” and create employment.

The Scottish Funding Council is supporting the Sustainable Power and Research Campus (SPARC) project with a £10m grant.

Confirming that planning permission for SPARC was being sought, the university said that, alongside plans for a six-turbine wind power development at Kenly to the east of St Andrews, the scheme would support the institution’s bid to become the UK’s first carbon-neutral university.

 

The project has since received the go ahead, so I thought I would take a look at the economics. Under FOI, the University provided the Final Business Case.

 

 

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As might have been expected, St Andrews was placing great emphasis on “Carbon Impact”. One reason might be the fact that they have to pay £300,000 a year under the Carbon Reduction Commitment. This is the scheme which forces all large public and private sector organisations to pay the govt for every tonne of CO2 they emit. (See here for details).

 

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Now for the nitty gritty:

 

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The capital cost of the scheme is £21.1 million. This is being part funded with a grant of £10 million, and the balance by a low interest loan, effectively from the EIB, at a subsidised rate of only 2%.

As we will see, without this grant and interest subsidy, the project would have been a non starter.

 

 

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With interest and depreciation therefore based on only £11 million, the projected savings were:

 

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In simple terms, in October 2014, when the ITT (Invitation to Tender) stage was taking place, there would have been no savings at all. (For some reason, they were loathe to put a figure in the cost column, but it would have meant an annual loss of £188,000).

In any proper business, the project would have filed in the bin there and then. Even under their Base Case scenario, the annual saving of £7000 would not warrant the investment.

 

[There appears to be an error in the Executive Summary, which gives a saving of £0.080m on heat, but then adds this to a saving of £0.1m, for extending heating system lives, to arrive at a total of £0.107m. They clearly meant £0.007m, as spelt out below]

                   

 

 

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They are clearly betting the bank on gas prices increasing rapidly in years to come, a belief that is utterly without foundation. Should universities be speculating like this?

But even at October 2013 prices, the project is still not viable, in any rational sense of the word. A saving of £392k pa gives less than a 2% ROC, and this despite a ridiculously rate of interest on the Amber loan.

Furthermore, the savings include £100k a year from paying less for the carbon reduction commitment.

If a proper rate of interest had been paid on the full capital employed, and without the skewing produced by the carbon commitment, the project would have ended up losing hundreds of thousands a year.

There are opportunities listed, which may improve savings, but there are also risks. None more so than the acknowledged need to refinance the Amber loan at 9 years. Whether there will be the political will, or the market conditions, to refinance at 2% is highly uncertain.

In any event, even given the advantageous funding, there is no economic justification at all for the scheme. Whoever has allowed this to go ahead is guilty of a criminal misuse of public funds.

 

 

FOOTNOTE

Carbon Reduction Commitment

I thought I would briefly discuss this scheme. This is how the Carbon Trust describe it:

 

The CRC Energy Efficiency Scheme (also referred to as the ‘CRC scheme’ or ‘CRC’) is a mandatory carbon emissions reporting and pricing scheme to cover large public and private sector organisations in the UK (excluding state funded schools in England from April 2013), that use more than 6,000MWh per year of electricity and have at least one half-hourly meter settled on the half-hourly electricity market.

The scheme is managed, on behalf of the UK Government’s Department of Energy & Climate Change (DECC), by the Environment Agency (in England), by Natural Resources Wales (in Wales), by the Scottish Environment Protection Agency (in Scotland), and by the Northern Ireland Environment Agency (in Northern Ireland). 

The scheme is divided into a number of phases, with each phase lasting five years. Currently, the scheme is in its second phase running from April 2014 to March 2019.

How it works

The CRC comprises three primary elements:

1. Emissions reporting requirement

Participants in the CRC need to measure and report their electricity and gas supplies annually, via the online CRC registry following a specific set of measurement rules. The CRC registry then calculates CRC emissions in tonnes of carbon dioxide (CO2) from the data submitted for each participant.

The CRC scheme applies to emissions not already covered by Climate Change Agreements (CCAs) and the EU Emissions Trading System (EU ETS).

In addition to reporting their electricity and gas supplies, organisations are required to answer a set of corporate responsibility questions and keep evidence with records of their supplies as well as other relevant information. 

2. A carbon price

The scheme requires participants to buy allowances for every tonne of carbon they emit (relating to electricity and gas), as reported under the scheme.

Participants are required to buy allowances from the Government or, if available, from the secondary market each year to cover their reported emissions. This means that organisations that decrease their emissions can lower their costs under the CRC. A failure to surrender sufficient allowances will result in a financial penalty.

During phase 2 (which started in April 2014), there are two sales of allowances for each compliance year. The first sale at the start of a compliance year is based on predicted emissions at a lower price. The second is a "buy to comply" sale after the end of the compliance year at an expected higher price.

The price of the allowances for the 2014-15 compliance year was set at £15.60 per tonne of CO2 for the forecast sale and £16.40 per tonne of CO2 at the “buy to comply” sale. All future allowance prices will be published on the Environment Agency’s CRC web pages.

3. Publishing of information on participants’ energy use and emissions

The energy use and emissions of all participants are published for each compliance year as part of the Annual Report Publication (ARP), which will also report emissions from previous years for all participants.

Background to the scheme

The sectors targeted by the Carbon Reduction Commitment Energy Efficiency scheme generate over 10% of UK CO2 emissions, around 55 MtCO2. The CRC Energy Efficiency scheme aims to reduce non-traded carbon emissions by 17 million tonnes by 2027. It supports the UK Government’s objective to achieve an 80% reduction in UK carbon emissions by 2050.

 

At 55 MtCO2, the scheme pulls in revenue of about £800 million a year for the government. But for the public sector organisations, it is simply a merry-go-round, whereby the Treasury gives money to, say, the NHS, for them to give it back again.

However, when, as in this case, St Andrews University spends money on a scheme so as to avoid paying for its CO2, the public purse loses out.

The CRC scheme simply ends up diverting funds away from projects that would yield a decent economic benefit, and into ones that are basket cases. This is a misallocation of public money.

21 Comments leave one →
  1. November 24, 2015 6:35 pm

    There must be huge risk here from the future price of wood pellets, which will be in great demand from govts scrambling to meet their “targets”, the passport to green heaven.

  2. A C Osborn permalink
    November 24, 2015 6:40 pm

    Do they actually believe that “bio mass” prices will stay stable?

  3. November 24, 2015 6:44 pm

    Are any estimates provided on the the thousands of acres of forest that will be cut down to provide fuel? –AGF

    • November 24, 2015 7:09 pm

      They claim that wood will be provided by farms within 50 km, the farmers being able (or forced?) to plant new trees. Hmm, how well do new trees grow near tree stumps? Some farmers will see it as a way of getting paid to clear wooded areas, to plant food crops.

      Typical green virtue seeking for a tiny tax-payer funded minority, there will never be enough space to grow enough energy biomass to generate more than a token amount of energy.

    • November 24, 2015 7:14 pm

      They talk of 17000 tonnes a year of timber sourced locally. I’ll leave it to others to work out how many acres this is!

      • November 24, 2015 7:32 pm

        Unless they only intend using offcuts (and that will account for a considerable acreage) all they will be doing is forcing up the prices for timber used in other industries like construction and board materials.

      • Ben Vorlich permalink
        November 25, 2015 8:59 am

        As St Andrews is at the eastern end of the Fife Peninsular then about one third of the area within 50km circle is sea. The land extends as far west as Stirling and as far north as Stonehaven and as far south as Galashiels. Quite a large chunk of Eastern Scotland. Is anyone else planning to use wood from the same area – Longannet for instance?

      • November 25, 2015 1:11 pm

        If they planted willow/poplar and used short rotation coppicing and 10,000 “stools” per hectare then they could havrest 13 tonnes oven dried timber per hectare per year. So for 17000 tonnes they would need 3230 acres. But I expect they will try and buy “forest residues” from existing forestry. Odd that the final business plan has no details on biomass sourcing

  4. Joe Public permalink
    November 24, 2015 7:04 pm

    Could the biomass demand from St Andrews be the reason Drax imports its biomass from across the pond?

    • November 25, 2015 10:23 am

      Drax in a lecture last night gave their reason as , the British wood products biz objects to local wood being used for eco-fuel cos it pushes up the price of their raw material.
      See Graham Strouts posting on facebook

  5. AndyG55 permalink
    November 24, 2015 7:48 pm

    There is lots of really old biomass available. They just have to dig it up.

  6. November 24, 2015 8:35 pm

    This really is taxpayer robbery in plain sight, £25 million of capital cost to provide heat to a few hundred public sector buildings, with a smokescreen of green jobs and saving the planet.

  7. November 25, 2015 9:27 am

    Clearly a project concept driven by greenness rather than sense. District heating pipework systems are very expensive and the heating system should be near the users not miles away.

    According to local newspaper reports this scheme is already underway, if so it represents a gross waste of tax-payers money.

    The documentation is very thin on technical and real commercial content, all green-savings, apple-pie etc.

    However, the plant is apparently sized at 6.5 MW thermal, a very small unit. It is to be housed in an existing building so it is hard to see how the plant cost of £ 7.2m was arrived at. A gas fired boiler house with two boilers would have cost less than £200,000, even wood fired heaters should not cost more than £1m, but there is no breakdown of the plant price in the documents I found.

    A gas-engine based co-generation system producing over 5 MWe (as well as the 6.5 MW heat) could have been installed for this cost and that would have produced genuine savings, as it does at Dundee University.

    I think that mad-cows-disease has been replaced by mad-carbon-disease in the UK.

  8. November 25, 2015 10:24 am

    And in future news the project, burnt down, the uni collected the insurance money and decided not to rebuild it.

  9. November 25, 2015 2:23 pm

    This is a bit like returning to the feudal system, in which peasants toiled and handed over their produce to the laird. Now, peasants will toil and hand over wood, for other peasants to feed into a wood-fired boiler, to provide heat for the public sector elite sitting in their comfy ivory towers, while other town residents have to pay full whack for gas, including “green” taxes.

  10. Billy Liar permalink
    November 25, 2015 10:51 pm

    The savings won’t even pay for 1/5th of the Vice-Chancellors salary, let alone all his expenses, residence, gardener, golf club dues, etc.

  11. Brian H permalink
    November 26, 2015 6:11 am

    Paying for (producing) CO2 is insane from the get-go.

  12. John permalink
    November 26, 2015 9:40 am

    There’s something tremendously Golgafrinchum about this. You can see, a few years down the line, when the subsidies have run out, St Andrews having to chop down woodlands to keep their Biomass generator running.

    “We had to destroy the forest in order to save it.”

  13. November 26, 2015 9:56 pm

    To Peter2108 above.Coppicing produces lots of CO2 due to constant turnover of soil.
    Rapid growth trees need lots of water and fertiliser and associated runoff(to the sea?).Engineering charts that I have seen indicate that the burning of wood produces about a third more CO2 than the burning of coal.
    The energy density of wood is less than coal,thus more volume of wood needed for same energy output.
    Coppicing is usually for seven year growth.
    How long does it take to burn a seven year(small)tree.
    Think of Nov.5th.
    Why dont they burn all the brains that have been removed instead

  14. November 27, 2015 9:29 am

    I am doing a MOOC on thermodynamics and asked about the 4 mile distance of the pipes for heat to university. The reponse was:

    4 miles sounds very far, I agree. It all depends on the type of the mechanism used to carry heat. My guess is that they will be using some pipes made out of copper or other metals with great heat loss properties, which turns out usually to be very expensive. It also depends on the temperature they obtain, because heat loss is proportional to the delta T (T of the heat – T of the ambient). Usually, with biomasses, you don’t get very high temperatures, so that could be another way they limit heat loss throughout the system. Interesting topic, nonetheless!

    Noted that they could not get a private sector partner partl;y because of the distance from Guardbridge to University.

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