NW Europe biomass burn on track for record high

Biomass-fired generation at major European utilities is on track to reach a record high this year, and strong forward power prices offer an incentive for biomass burn to remain strong in 2022.

Overall biomass-fired generation in the UK, Denmark, the Netherlands, Belgium and France may increase by up to 587MW on an average hourly basis this year to 4GW, Argus calculates. This would be equivalent to 5.06TWh, or about 1.1mn t, of additional biomass burn at northwest European utilities this year compared with last year.

Biomass-fired output in January-November rose to 2.2GW in the UK, from 2.1GW a year earlier, with the largest jump at the 2.6GW dedicated Drax power plant, data from the National Grid's BMRS site show. And it rose to a combined 1.1GW in Denmark, Belgium and France from 900MW over the same periods, including power plants with capacities of 100MW or higher, according to Entso-E generation data.

The largest annual increase for January-November was recorded as 220MW in Denmark, as firming power prices bolstered biomass burn at Danish utilities in the summer months. Unusually cold weather in April-May also supported heating demand and lower wind output supported biomass burn even more in the summer season.

Biomass-fired burn in Belgium fell, in line with the closure of French utility Engie's 80MW biomass-fired Les Awirs power plant in August 2020. Engie operates the 205MW Rodenhuize facility in Belgium, which is the country's largest dedicated pellet-fired plant.

Estimations for all of 2021 assume generation in December at the highest monthly average for the year in the UK, Denmark, Belgium and France.

For the Netherlands, where key output data are available on a quarterly basis, generation for October-December at the RWE-operated 630MW Amer co-fired plant was assumed flat from a year earlier at 453MW. And output at RWE's 1.5GW Eemshaven co-fired plant was assumed flat from July-September, when biomass burn reached the highest for any quarter at 296MW. Eemshaven was off line in May-November 2020 following several technical issues.

Given this, combined co-fired biomass generation at these two plants — the largest biomass consumers in the Netherlands — may jump by 226MW on the year to 636MW for all of 2021, which would be the largest annual increase for any country in northwest Europe. Denmark and the UK could follow with year-on-year jumps of 215MW and 153MW, to 562MW and 2.2GW, respectively (see table). These would be record highs for biomass burn for power in all of the three countries.

Outlook strong for 2022

Current power prices in key European markets suggest biomass-fired generation may remain strong in 2022, although there would be less scope for year-on-year increases because of capacity limitations.

The UK's over-the-counter baseload power price for 2022 delivery — calculated as the average of constituent quarters — closed at €202.34/MWh on 7 December, well above the average day-ahead price of €136.76/MWh so far this year and €41.67/MWh for all of 2020. And the UK front-quarter contract rose to close to its record high earlier this year to €314.07/MWh on 7 December. This would allow for a high profit margin given the break-even price — at which it generates at zero profit — for a 40pc-efficient dedicated pellet-fired power plant at €101.21/MWh on 1 December.

The shape of the forward power curve is similar for other northwest European markets, offering an incentive for strong biomass-fired generation in the continent next year. The Dutch and French front-year base-load contracts closed at €166.50/MWh and €195.25/MWh, respectively, on 7 December.

Further on the upside, clean dark spreads for 40pc or more-efficient coal-fired units continue to hold a wide premium over clean spark spreads for 55pc-efficient gas-fired units for 2022 delivery, suggesting coal will take priority over gas in the power merit order. As a result, generation is likely to remain strong at coal and biomass co-fired plants, particularly in the Netherlands.

Firming coal prices and the EU emissions trading system allowances rising to fresh record highs this week continued to significantly support the cost of generating coal-fired power. The emissions-adjusted breakeven coal price for a 40pc-efficient unit — using the API 2 coal index close on the day — rose to €113.92/MWh on 7 December and widened its premium to the breakeven pellet price to nearly €13.00/MWh, from €103.47/MWh and €2.27/MWh, respectively, on 1 December.

Coal-fired generation costs holding a premium over biomass offer an incentive for co-fired plants in northwest Europe to keep biomass burn at technical and legal capacity for the remainder of the 2021-22 winter season.

Biomass burn up in rest of Europe

Biomass-fired generation is also on track to rise year on year in other European countries (see table).

Combined output in Finland, Italy, Portugal, Spain, the Czech Republic and Poland may rise by about 120MW to 2.8GW this year, which would be equivalent to an additional burn of 200,000t of pellets for power generation. Estimations assume output in December at the highest monthly average earlier this year for each country.

Of these, only Poland is expected to see a year-on-year drop, as more competitive domestic lignite has replaced biomass burn at some major co-fired plants so far this year.

By Erisa Senerdem

UK, Dutch OTC forward power curve €/MWh

Clean dark spreads at wide premium to clean sparks €/MWh