Biomass forced drying – milking the RHI?
According to DECC’s: Renewable Heat Incentive quarterly statistical release, deployment to December 2015 – published in January this year, “…as at 31 December 2015, a total of 15,134 full applications to join the scheme had been received since it launched in November 2011, with a combined capacity of [solid biomass only] 2,395 MW”.
As a woodchip biomass producer, this should surely be music to our ears, more installations, higher demand…business must be booming right? But, what if, the majority of the new applications in 2015 and 2016 were coming from biomass dryers rather than traditional heat users? Not only do we believe this to be the case, but the level of dying capacity is likely far outweigh the demand for the chip that can be dried by it.
According to boiler installers, almost the only business they have been doing over the past 12 months has been for medium scale (200kW-1MW) installations and the vast majority of these are for drying floors, often with no fixed idea of what the heat will be used for (i.e. no established market). There is a limit to the current demand for dried woodchip utilising 90m3 walking floor deliveries which is what these new ‘drying hubs’ need in order to break even on the chip production side and maximise the RHI payments. It is believed by some that this limit has already been breached mathematically. So what do you do if you need the RHI income to continue to roll in, but still don’t have enough demand for the product coming out of the dryer? Possibly you could just pop it outside and allow the rain to get into it so that it needs drying again or, better still, why not dry the air rather than expensive to produce, store and distribute, woodchip?
Now, this could also seem like sour grapes from a competitor in a very tight margin business, but in fact NFE have a biomass dryer of our own. This 560kW machine runs on Grade-A recycled wood and tree surgery bi-product as well as some of the brash and ‘lop and top’ that we produce from our own harvesting operations. This dryer allows us to augment the existing air-drying or seasoning that we use for the vast majority of our chip to get the moisture down from our standard 25-30% which is optimal for most of our customers’ boilers, to 15-20% for specialist customers that require this lower moisture fuel.
Our real concern comes in two forms; firstly, the lack of requirement for these companies to make even a small margin means that the biomass drying chip producer does not mind about their cost for raw materials (round wood or hacker chip) and consequently, the price of this starts to drift upwards. The same is true for external chipping services and other cost inputs. This could have the effect of driving costs up for legitimate, long-term chip producers and make the market reliant on a subsidy based business model.
Secondly, these models assume that the dryer will be working at a constant rate for 20 years summer or winter. This means that as the biomass boilers get older, and there are increased breakdowns , the volumes predicted initially will not be reached (affecting the end user) and also, the ‘just-in-time’ style production straight from dryer to customer is much harder to keep up with in the winter months where 70% of the demand is. Customers would be wise to keep their options open rather than signing up to 3yr+ contracts as these guys may need to revise their output figures and more than likely, their prices in the near future.