Summary
• The UK target is to reduce CO2 emissions by 80% by 2050 compared to 1990.
• The EU has a target of 20% of energy from renewable sources by 2020.
• Unharvested woodlands and wood waste could provide more wood fuel.
• The Energy Act provides incentives for renewable heat and energy.

The Climate Change Act 2008 set the ambitious target of reducing UK carbon emissions by 80% by 2050, compared to 1990. Effectively this will require an enormous reduction in heat and energy consumption, as well as tremendous growth in renewable energy. To achieve this, we will need every appropriate renewable energy solution to play its full part – and this includes wood fuel.

The price of wood fuel in its many forms already compares favourably with other major fuel types such as gas and oil, but the upfront capital costs are typically much higher. So like all renewable energy alternatives, some positive intervention is needed to stimulate the market to grow fast enough to achieve the ambitious goals being set. However, there are so many policies and incentives in place that it is quite bewildering to assess the likely impact on the market.

A significant piece of legislation is the Energy Act 2008 which creates the powers to establish or strengthen a number of important financial mechanisms to incentivise equally both renewable energy and heat. Two of the incentives created under this Act are of particular interest to the wood industry: Feed in Tariffs (FITs) and Renewables Heat Incentive (RHI).

Growing the market

FITs have proved extremely successful in rapidly growing the market for renewable energy in countries like Germany, where the person or company generating the energy is paid a tariff for each unit of renewable energy.

The RHI will apply to a range of technologies, including biomass, heat from waste and microgeneration, for example, solar hot water. There isn’t a market for heat in the same way that there is for electricity – most homeowners buy gas or oil and then convert it into heat using domestic boilers – so the government has decided to use a second tariff scheme, this time to incentivise renewable heat production, applicable to any size of operation. A payment would be made for every unit of renewable heat produced. The amounts, tiers and front-end weighting (required to help pay off the capital costs quickly) have yet to be decided.

Both FITs and RHIs are planned to be introduced by summer 2010, but the details have yet to be agreed and government consultation is taking place this summer. Of crucial importance are the price levels. Suggestions range from 2p to more than 15p per kWh. As funding has to come from somewhere, all non-renewable heat/energy users could be faced with a levy of as much as 10% on their energy bills – bound to be unpopular. Non-renewable energy producers supplying business customers already pay a similar levy in the form of tax.

Biomass is clearly seen as playing a major role in meeting the EU target of 20% of energy supply coming from renewable sources by 2020. Although wood is not the only form of biomass fuel, it is significant. The Forestry Commission has therefore produced its own Wood Fuel Strategy for England 2007 to elaborate on some of the issues specific to wood and forestry raised in the DTI/Defra UK Biomass Strategy 2007.

Unharvested woodlands

One key goal is to increase the wood fuel from unharvested woodlands in England by two million wet tonnes (ie as felled). At present only 40% of the annual increment in England’s woodland is harvested and used for any specific purpose, including fuel. The target increase represents just 50% of the available unharvested material and should therefore be quite feasible, but the most obvious hurdle is communicating with 50,000-80,000 landowners who collectively manage this resource.

Other wood sources recognised within the FC strategy include:

• wood waste – some 6-7.5 million tonnes currently go to landfill;
• arboricultural arisings – 68% do not currently find a market;
• new woodland creation.

A range of capital grants, including one for bioenergy, was on offer from government to make renewable energy schemes for large users in England commercially attractive. However, the fifth round finished at the end of April, with nothing more planned at the time of writing. The government aims to use FITs and RHIs as the primary financial tool for incentivising capital investment in this area, but of major concern in the renewable energy sector is that there will be a gap of 12 months or more before the new mechanisms come into operation.

One thing is certain: companies planning to invest in renewable energy production need to do their homework.