Analysis - UK rail, ports face squeeze from biomass imports
London, 10 May (Argus) — The UK's growing biomass imports could put increasing pressure on its rail and port logistics, adding to existing concerns about the potential introduction of freight specific rail charges for the industry.
New projects in the UK could bring up to an estimated 30mn t year of wood pellets into the country within five years if they all successfully come on line, creating the need for significant investment to convert the supply chain to handle biomass, while still accommodating significant coal imports into the country.
The new biomass generation capacity is located at coal-fired power stations that have converted units to burn wood pellets, meaning it will use existing coal rail infrastructure for transport links.
The main concern surrounds the cost of converting the supply chain to handle biomass, rather than capacity requirements. “Capacity is not a problem, the existing rail network should be able to handle the increase in volumes as it can operate throughout the night,” UK rail freight operator group Freight on Rail manager Philippa Edmunds told Argus. “The issue is with converting and building the supply chain to handle biomass — considerable investment will be needed and government policy needs to be in line with this.”
Several market participants have expressed concerns that there will be a higher risk of bottlenecks on the rail network — for every wagon of coal, approximately 1.5 railcars would be needs to transport the same volume of biomass. There is also the issue of keeping wood pellets stored correctly and not exposed to rain during the unloading and transporting process, which could add significant delays during the UK winter season. This is already causing some congestion at ports, which have reported week-long waiting times over the past few months as wet weather slows unloading.
At the port of Immingham, work has begun to work towards improving storage and handling capacity. The Immingham Renewable Fuels Terminal is under development to handle Panamax-size bulk carriers which will service up to 3mn t/yr of wood pellets. Once completed, the facility will be able to store up to 100,000t of wood pellets, with four storage silos having a total capacity of 168,00m³. Work is also being carried out at the ports of Hull and Goole to increase storage capacity.
It appears that several investors are waiting to see whether rail freight charges will be implemented before committing to invest in converting the supply chain. The proposed rail freight charges for biomass, which may come into force in 2016, could ease any pressure on existing infrastructure as it may become too expensive to move pellets by rail and push people out of the market as road transport is not a viable alternative.
The Office of Rail Regulation (ORR) is due to reveal its decision on whether it will implement rail freight charges for the biomass industry on 12 June, after the consultation period closed on 28 March. The proposals would enter biomass into the same category as coal, capping the charge at £4.04/thousand gross tonne miles, with a gradual phase in — 20pc in April 2016, 60pc in April 2017 and 100pc in April 2018.
The ORR held a consultation last year to review the charges that freight operators must pay to use the British rail network and decided that new charges were required after work discovered that £280mn-400mn ($430mn-615mn) of wear and tear is caused by rail freight each year.
“We believe that the ORR's proposal to increase freight charges contravenes the government's policy to encourage the conversion of existing coal-fired power stations,” Edmunds said. “At the moment, there is an inconsistent message from government with its regulator proposing increased transportation charges which could undermine an important source of energy for the UK.”
Those in favour of the implementation say the similarity of the logistics chain for coal and biomass make it more complicated to introduce different freight charges for each commodity. And they say it would take out some investment uncertainty from the biomass market, which is also awaiting key sustainability criteria from the UK government before large-scale investment can move forward.
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