Richard Smith, UK managing director of Verdo Renewables, which last year spent £10 million setting up a plant to make pellets in Grangemouth, believes that the country will go from using around 25,000 tonnes of them today to one million in “a relatively short space of time”.
Although another industry source described this as “ambitious”, Mr Smith said it would be driven by the Department of Energy and Climate Change’s (DECC) Renewable Heat Incentive (RHI), which will pay consumers and businesses for generating heat from renewable sources from next April.
Together with subsidies for wood-fired boilers and other renewable heat technologies such as ground heat pumps, the RHI aims to overcome the fact that boilers for renewables are considerably more expensive than boilers that burn fossil fuels.
This is seen as necessary to raise the contribution of renewable heat in Scotland from 1.4% of total heating to 11% by 2020, in line with government targets.
“While there’s a growing awareness of wood pellets as a heating fuel, the market here is very much in its infancy,” said Mr Smith.
“In Germany, about 150,000 homes and a huge number of businesses are using wood pellets as a central heating fuel. Consumption in Germany is about 1.6 million tonnes a year.
“If you also look at other European markets like Denmark [where Verdo’s parent company is based], a market of one million tonnes in the UK is entirely feasible.”
Stuart Goodall, the chief executive of the Confederation of Forest Industries, said: “That’s quite an ambitious target. It will rely on a big explosion in people installing wood pellet burners in small businesses and the public sector, not to mention demand from big biomass plants and coal-fired power stations to reduce carbon output. The question is whether they will go for chips or pellets.”
Verdo is only targeting small businesses, the public sector and domestic customers. Its Grangemouth plant will make 55,000 tonnes of pellets a year plus 15,000 tonnes of briquettes, which are reconstituted small logs for burning that will be marketed to domestic customers.
It will need to persuade customers that the smaller storage requirements and easy handling adequately make up for the fact that they are more expensive than chips.
Although there are numerous chip producers in the central belt, the nearest pellet producers are Puffin Pellets in Banff, Aberdeenshire, and Balcas of Invergordon, which is Mr Smith’s former employer.
Verdo Grangemouth employs 20 people and is currently exporting all of its produce to its parent company in Denmark, but hopes to gradually phase this out.
Mr Smith said: “The export levels will drop very quickly as the local market grows. I would be very surprised if
we were exporting within three years, and if it was two years that would be even better.”
He rejected suggestions that waste wood prices would rise dangerously on the back of plans by the likes of Forth Energy to build giant wood-fired combined heat and power plants around the country, which the Forestry Commission has predicted will see a 150% rise in UK wood imports from 20 million to 50 million by 2015.
He said that Verdo would be shielded by long-term supply deals that it had reached with sawdust suppliers in the central belt, including one that ties in the supplier for 15 years.
He said: “Have we taken a risk? Yes we have, but Verdo has been doing this in Denmark since the Second World War. I spent many years in the grain trade, where prices varied between £60 and £150 per tonne.
“I don’t think we’ll see fluctuations like that in this industry.”
Mr Goodall said: “Smaller renewable energy developers are pausing and asking themselves whether they will be able to secure supplies.
“Verdo will require about 140,000 tonnes of wood a year to hit their capacity production.
“Each of Forth Energy’s plants will require about one million tonnes. It’s up to Verdo whether it thinks that’s a threat to it or not, but it will be in a competitive situation for wood supply.”
