Investing in infrastructure to create a low carbon economy

TheBusinessDesk.com, in partnership with Drax and DLA Piper, has examined the challenges and opportunities that the low carbon economy presents for Yorkshire.

Click here to download the supplement.

LARGE-SCALE developments have transformed parts of the region, but changes to the funding landscape could affect future plans.

Creating a low carbon economy requires a lot of factors to come together – technical innovation, political will, an efficient marketplace are some of the most important – but top of the list is investment.
The requirements are so radically different that it demands huge amounts of money to be spent on infrastructure to finance what is needed to bring the ambitions to reality.
Already hundreds of millions of pounds have been spent across Yorkshire just by two companies, Drax and Associated British Ports, as they worked in partnership. The power station operator has been focused on decarbonising for more than 10 years as it planned to secure the long-term future of the plant.
“It came from the feeling that when we looked at the shape of the world, the future of coal to some degree was limited but also that limit would tighten not loosen – so there was a huge threat to the business,” said Drax’s group commercial director Paul Taylor.
“The business was simply a coal-fired power station, so 100% of our earnings were dependent on the profitability of burning coal to make power. It was the pressure on coal that led us to this three-strand strategy to decarbonise the business.
“We started by buying and burning biomass and we felt we could take that to scale. we started to look at how we could change the power station significantly and we are well on track – this summer we will have converted half the station to biomass.
“We invested in the plant to make it more efficient. That’s fairly straightforward – more efficient, less carbon – which we did by changing the turbines. That was a £100m project that made it 10% more efficient.
“The third thing was for us to look at carbon capture storage because ultimately if you can find a commercial solution to carbon capture storage then burning coal, or indeed biomass, works well into the future.”
The investments are not limited to Drax’s site near Selby, but are having an impact across the region. Associated British Ports (ABP) has also invested heavily as it handles ever-larger volumes of biomass through the Humber ports of Immingham, Hull and Goole.

The largest part of the project is the creation of the Immingham Renewable Fuels Terminal, a dedicated import facility which will be able to unload Panamax-size bulk carriers and store wood pellets in silos which can hold up to 100,000 tonnes. It is due for completion at the end of this year.

“The Immingham renewable fuels terminal will provide Drax with a route to the station for up to 6m tonnes of biomass a year”, said ABP’s head of projects Simon Brett. “The Hull biomass plant gives Drax a further 1-1.5m tonnes route to the station.

 
“Our investment to support Drax’s activity just in biomass has been nearly £140m, backed up by long-term commitments by Drax, which is by far the largest customer in the port of Immingham.
The Humber’s energy estuary, the umbrella term for the research, development and innovation in the renewable energy sector that has clustered in East Yorkshire, has gathered momentum, helped by investments by big players.
Mr Brett said: “We are currently dipping our hands in our pockets to the tune of £140m, Siemens is spending a further £160-£170m on a new facility in Hull. I think what this shows is we have spent in the last seven years about £300m on the energy industry on the Humber – and what it backs up is the change from the traditional gas and coal sectors to the renewable technology is expensive.
“The reason it is expensive is because the infrastructure doesn’t exist, or didn’t exist, and renewable technology needs a completely different set of infrastructure to what traditional forms of energy do.”
The developments by Drax, ABP, Siemens and others are well progressed but uncertainty around future funding schemes and incentives makes it harder for companies to commit to such large-scale projects, as fundraising becomes trickier.

Contracts for Difference (CFDs) had become established and were designed to incentivise low carbon investments by creating certainty and stability around future revenue, but funding changes 
“What the difficulty has been for raising finance for renewable energy is that the regulatory regime has been in a state of flux for a couple of years now with the move to CFDs, which has caused difficulties for any investment and finance in renewable energy,” said Natasha Luther-Jones, energy partner at DLA Piper.
“It is very difficult for people to commit to financing when they are unsure what level of subsidy they will get going forward.  Historically we have had the ROC [Renewable Obligation Certificate] regimes and the feed-in tariff regimes and investors and financiers have known that if their energy plant is energised by a certain date they will receive a certain level of subsidy”
“Things have been financed because we are still in the world of the ROC regime but the issue going forward will be how certain we are as to how big the pot will be for CFDs for different technologies.”
 

 

 

Click here to sign up to receive our new South West business news...
Close