Commercial Productions of Biofuels

Current biofuels scheme

In 2005, oil represented 56% of Ireland’s total primary energy requirement, all of which had to be imported. As a result of security of supply concerns and climate change mitigation at a wider EU level, in 2003, the EU issued a Biofuels Directive which had a requirement that by the end of 2010, 5.75% by energy content of all petrol and diesel used for transport purposes must originate from renewable sources. As part of this measure, the Directive also required member states to have a biofuels penetration of 2% by 2005.

In order to make biofuels economical for sale relative to mineral petrol and diesel, an amount of excise relief needs to be provided by the government. With this in mind, in 2005, the Irish government set up a scheme to grant excise relief for the production of 16 million litres of biofuels or just over 14,000 tonnes. As a result, eight individual biofuels projects were set up for sale and distribution of the fuel. However, this was not enough to stimulate large scale production and by the end of 2005, the amount of biofuels sold in the Irish market was 0.1%. As a result, the EU issued a letter of formal notice against Ireland. Following this notice, in Budget 2006, Ireland announced an incentive scheme of excise relief to achieve 2.2% fuel substitution by 2008. This took the form of a scheme whereby companies would submit applications to the government for a portion of excise relief, up to a combined national total of €200 million until 2010. The government then picked those companies that it thought would be likely to build biofuel plants based on answers to a questionnaire submitted by companies. This was at odds with a number of other European countries which awarded excise relief to fuel actually sold in the country rather than fuel that was proposed to be sold. For example, in the UK, all biofuel sold is awarded 20p per litre excise relief but unlike Ireland, there is no cap on the amount of fuel that can be awarded such relief. In addition, oil companies will be penalised if they do not blend a portion biofuels in their products. However, from the EU’s perspective, because Ireland demonstrated some level of progress towards meeting the 2003 Biofuels Directive, the EU subsequently dropped formal proceedings against the country in April 2006.

In 2006, Bioverda announced that it would be investing €50 million in a new biofuel production facility in Cork harbour. This would complement its existing biofuel developments in the UK, Spain, Germany and the United States. Once complete in 2008, the Irish facility will be able to produce around 200,000 tonnes of biodiesel per year. Subsequently however, Bioverda was not awarded any excise relief by the Irish government. As mentioned previously, the €200 million was awarded to companies based on answers to a written questionnaire. The Department of Communications Marine and Natural Resources (DCMNR) who ran the scheme did not meet with any of the applicants or test the claims made in the submissions. As one of the only applicants with experience in developing and operating biofuel facilities, Bioverda now finds itself in the difficult position of being locked out of the Irish marketplace as it will not be able to sell any of its product without excise relief. As a result, all of the facility’s product will be sold in the UK and European markets. Bioverda was not alone however. Of the companies awarded excise relief in the original 2005 Scheme, the majority were not supported in the 2006 Scheme and subsequently are likely to face difficulty continuing as biofuels operators in Ireland. Ireland’s existing piecemeal approach to biofuels production means that companies like Bioverda will find it impossible to sell product into Ireland and will be operating in spite of any government assistance rather than because of it.

From a policy perspective, there is a significant danger of concluding that because Ireland is not likely to become self sufficient in biofuels crop production (such as rapeseed), that Irish biofuel targets should not exceed EU minimum targets. It is fundamentally wrong to conclude that biofuel use in Ireland should be equivalent to the amount of biofuels actually produced in Ireland. In the case of biodiesel, it is important to note that given the highly desirable properties of rapeseed oil for cold flow operation as well as its higher value on the world vegetable oil markets, rapeseed oil will always form a key and critical portion of any biofuels mix, with the remainder coming from various overseas supplies such as soya bean oil, sunflower oil and palm oil etc. Therefore, by mixing higher quality indigenously produced rapeseed oil with other potentially imported (and sustainable) vegetable oils, a greater proportion of sustainable and long term biodiesel can be produced in Ireland. This still addresses the key issues of supporting Irish farmers by utilising whatever can be produced in Ireland as well as helping to mitigate security of supply, diversification of risk and climate change issues.

Given the arguments above, Bioverda is firmly of the view that the EU minimum targets of 2% by 2005 and 5.75% by 2010 should be considered by Ireland to be just that, minimum targets. As previously mentioned, it is widely acknowledged that in order to make biofuels economical for sale relative to mineral petrol and diesel, an amount of excise relief needs to be provided by the government in order for biofuels to be sold. As a result, biofuels developers will only be able to sell biodiesel into the Irish market equivalent to the volume of excise relief awarded to them. However, the way the current Biofuels Scheme is designed with a limited amount of excise relief being awarded to specific companies, any additional biofuels produced in Ireland can not be sold in Ireland. This effectively provides a maximum cap on the amount of biofuels that can be sold in the country.

In addition, unless Irish biofuel plants are producing product at a highly efficient and large scale, the portion of biofuel that is not awarded excise relief will not be able to compete effectively in a European context and those facilities will become uneconomical in the medium term. Even with an expansion of the current Scheme, this would not be enough to guarantee any one large-scale facility financial viability. Further, the current Scheme means that projects are unlikely to be able to obtain finance from the capital markets given the high degree of uncertainty behind this particular type of regulatory support Scheme.

It is Bioverda’s opinion that the best way to effectively stimulate long term, sustainable and economic liquid biofuels use in Ireland is to place a mandatory requirement on hydrocarbon companies to provide a blend of 5.75% biofuels by 2008/2009. However in addition, the actual target for biofuels use needs to be increased beyond 5.75% and most importantly, the current Biofuels Scheme must be opened to any company who sells biofuel in Ireland. This latter point is of critical importance if Ireland is to grow a long term and sustainable indigenous supply chain and to enable Ireland to compete for biofuels sales relative to its European neighbours.

It is also worth noting that the Department of Transport has committed to integrating sustainability considerations into the development and delivery of transport policy. Sustainability considerations should also form a core part of any biofuels obligation scheme. This is vital if biofuel companies are to be encouraged to source feedstocks from sustainable sources thereby maximising the amount of CO2 savings occurring on a field to forecourt basis. The current Biofuels Scheme does not prevent companies from sourcing low cost, environmentally destructive and unsustainable feedstocks from foreign countries and this needs to be addressed. If this is not addressed in the near future, those companies who source more expensive but sustainable supplies will effectively become penalised in the market as well as insuring that any climate change benefits become negated.

Critical energy infrastructure incentives

If Ireland is going to successfully meet its proposed targets of 15% of electricity production to be met by renewable energy sources by 2010 and 30% by 2020, a number of barriers will need to be overcome. These are barriers that Bioverda has direct experience in while trying to develop energy projects, particularly renewable energy projects in Ireland. Some of these barriers are outlined below:

As an example, as mentioned previously, Bioverda is currently engaged in the process of obtaining full planning permission for the development of a large scale centralised anaerobic digestion / combined waste and power facility in Co. Cork. Such a large scale facility would provide a piece of critical infrastructure in the form of greenhouse gas abatement, renewable energy generation and a large scale alternative and acceptable disposal route for liquid wastes.

Several independent assessments have concluded that large scale anaerobic digestion as a source of renewable energy are difficult to justify as financially viable stand-alone projects. In order to enable this type of project to become economic reality, and in recognition of the climate change and energy security benefits, it is vital that the Government recognises that in certain instances (such as large scale anaerobic digestion), certain projects need additional incentives, for example by using the Kyoto Flexible Mechanisms. These projects could easily be structured so that the credits are issued under the Unilateral Joint Implementation process whereby a portion of the credits are retained by the government and left within the ‘budget of allowances’. This would reward both parties, stimulate an investment that would otherwise not necessarily have occurred and encourage a project that is additional to CO₂ abatement measures that would already have occurred.

Planning

Bioverda’s experience in developing the anaerobic digestion facility in County Cork has shown that the planning process in Ireland is heavily biased against similar projects that contribute to security of supply and carbon abatement, and could be considered critical infrastructure. Throughout the planning process, the emphasis has been placed on that of waste rather than energy. While Bioverda’s point of view is that this project is a strategic renewable energy and GHG abatement facility with significant waste management benefits, the planners are currently forced to take the view that it is primarily a waste facility with some additional energy and environmental benefits.

The planning application system should allow for consultation of the full potential benefits that would be realised from such an energy project. As it currently stands in the planning process, there are no provisions to fully describe the positive effects of such a development. For example, any benefits that may be outlined in an Environmental Impact Statement are site specific and do not cater for the fact that the facility will result in increased security of supply as well as reduction of greenhouse gases.

As previously mentioned, there has been little or no acknowledgement in the planning process of the importance of infrastructure in terms of meeting Ireland’s strategic energy requirements, climate change obligations or renewable energy requirements. The Energy Green Paper must take account of these planning matters where they relate to key infrastructure that contribute to energy infrastructure and climate change mitigation. As an example this issue may come under the auspices of the Ministerial Bioenergy Task Force.

Government supported renewable energy projects

In the past the DCMNR has provided support, initially through the Alternative Energy Requirement (AER) schemes and more recently through the Renewable Energy Feed in Tariff (REFIT) programme. Whilst these mechanisms are to be welcomed by generators of renewable energy, Bioverda’s view is that:

The ‘Reference Prices’ for the tariffs are too low to attract investment and should be increased to match those in other parts of the EU for energy generated from renewable sources. In addition the process of assessing applications for inclusion in these schemes can be very lengthy. The period of time from the point of the applicant’s submission to the award of the support scheme and subsequently to the point where electricity is commercially exported onto the grid is unduly protracted and requires shortening.