Why investing in biomass could be risky business

Cheaper wind and solar are likely to be safer investment choices than expensive biomass

In 2017, $6.3 billion were invested in biomass energy. But research by a group of NGOs suggests that this money could be better spent. They have issued a warning to investors, explaining why those wanting to finance a cleaner and greener future, as well as getting a good return on their investment, could be wise to steer clear of biomass.

A growing body of evidence shows that forest biomass is far from being a low carbon, let alone a carbon neutral energy source. Rather, it is linked to accelerating forest and biodiversity destruction, as well as to air pollution that harms public health. A letter by 800 scientists to EU policy makers, as well as a statement by over 130 civil society organisations about these problems are good examples of the shifting image of biomass. Reputational risks can easily translate into financial risks in today’s world and this is not the only reason to be cautious about investing in biomass.

First and foremost, electricity from biomass is becoming more expensive compared to other renewables. While the costs of solar and wind keep declining, those of biomass energy are doing exactly the opposite. Already in 2017, the levelised cost of electricity production with photovoltaic solar panels and onshore wind was less than that of biomass, and even offshore wind has come down to the same level as biomass power.

The cost structure of these renewable energy sources is fundamentally different as the costs of solar and wind power incur mostly upfront at the construction stage. For biomass this is only the beginning — similar to coal and gas. A large share of the costs will only materialise during the operational phase of the bioenergy plants: the continuous sourcing of trees, crops or biomass residues for burning accounts for 20-50% of operational costs.

Constant or even rising high operating costs lead to the second financial risk of biomass energy: its high dependence on public subsidies, whether in the form of tax credits, feed-in tariffs or other forms of support. All of the evidence we have found shows that all larger plants burning forest biomass today benefit from such direct or indirect subsidies. This leaves them vulnerable when there is a disruption in the flow of green electricity subsidies, as was the case with Belgium’s biggest biomass plant, MaxGreen. We have also seen plants being quietly shut down when subsidies or tax credits have run out, as has been the case with one of the converted coal power plants of Dominion Power in Virginia, US.

Thirdly, even with high subsidies in place, several large biomass power plants have been associated with substantial financial losses. Most famously, even the annual biomass subsidies of £729 million did not manage to keep the Drax power station in the UK from incurring a net loss in 2017 and the first half of 2018. In the Netherlands, Uniper received €930 million of subsidies for burning coal with biomass in one of its power plants, but the book value of the same plant nevertheless halved.

Finally, technical failures and accidents caused by wood chips and pellets self-heating and igniting during storage can also cause significant financial losses, such as happened at DONG’s (now Ørsted) power station in Copenhagen back in 2016. And many “state of the art” biomass plants experience regular problems — one of the biggest coal to biomass conversions in Gardanne, France is reported to not have operated for more than two weeks without technical interruptions since it started running.

In short, caution is increasingly warranted where forest biomass is concerned. For safer investments in renewable energy generation, cheaper solar and wind power are likely to be a much safer choice.

Peg Putt is coordinator of the forest, climate and biomass working group of the Environmental Paper Network. She has campaigned on forest conservation and climate protection for 35 years and has been CEO of the Australian NGO Markets For Change, a Green Party MP and is on the Tasmanian Honour Roll of Women for Service to the Environment.

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