TIM TILLSON, head of sustainability at accountants KPMG in East Anglia, examines the prospects for biomass enterprises in the region

WHEN travelling around East Anglia, it is difficult not to be struck by the way that old and new industries sit alongside each other, demonstrating how the economy in our region is changing.

The region is leading the UK’s green agenda, with the East Anglia Array set to be the UK’s second biggest wind farm from 2020 plus nearby nuclear sites and research into carbon capture and storage.

However, whilst wind power is one of the most mature and recognised green technologies, East Anglia’s agricultural heritage also offers excellent opportunities in biofuels, one of the least publicised forms of renewable energy.

The most surprising finding from a recent survey by KPMG, Powering Ahead: 2010, was the change in appetite from last year’s findings with biomass as popular as solar and wind. In fact, the survey found that biomass is the most attractive type of renewable energy source with 37% respondents intending to invest in this area; closely followed by solar at 36% and onshore wind at 35%;

While wind is still seeing enormous deal activity at the moment, our research has shown that dealmakers, particularly the large companies such as the utilities, are looking for the next global trend and biomass looks set to be the “new wind”.

Biomass plants have the potential to yield much higher returns than other renewable sources. A well-executed biomass plant can deliver substantially greater economies of scale than wind, and the heat generated from incineration can supply neighbouring buildings, creating another revenue stream.

More broadly, the potential for biomass to operate as a base load power source provides advantages in comparison to intermittent technologies such as wind and solar in large scale electricity system integration.

However, investors in biomass have important challenges to address, in particular focusing around the visibility of long term fuel supply and pricing. These challenges are hampering the availability of funding for many projects.

Furthermore, securing funding for construction is no mean feat in the current environment with lenders requiring a “turnkey” construction contract, which effectively guarantees the construction cost and delivery program for projects, with clear contractor penalties if there are delays.

Unfortunately, turnkey contracts in biomass do come at a price, adding up to 20% to the capital cost.

Despite the fuel and construction challenges, it is interesting to see that the companies with the money to support their convictions are driving biomass forward alongside their wind and solar portfolios, which are arguably easier to deliver in the short to medium term.