There is one fuel that is often overlooked as a sustainable energy source, and that’s biomass (used to produce “bioenergy”). The extent to which bioenergy is used may come as a surprise to many.
According to the International Energy Agency, bioenergy is the largest source of renewable energy globally, accounting for 55% of renewable energy and 6% of global energy supply. Further, bioenergy has increased by 7% per year between 2010 and 2021.
A common response to biomass is: how can burning biological matter be sustainable or carbon neutral? But biomass, in terms of its carbon emissions, is conceptually circular. The tree used to produce the biomass has absorbed all the carbon that is released on burning, so over a typical cycle of 30 years, there is no net addition to carbon in the atmosphere, unlike burning fossil fuels. Better still, advances in carbon capture technology mean that carbon can be captured and then permanently sequestered. In this way, biomass goes from being carbon neutral to carbon negative.
Responsible biomass companies, including those based here in the UK, source certified wood waste from the forestry industry, which produces vast quantities of low-grade wood and sawmill residue that cannot be used commercially but can be used to produce biomass pellets. This material is effectively a waste product and so its use in the production of bioenergy ensures the reuse of a material that has already been harvested and would otherwise have had little or no use. Additionally, the removal of waste wood material from the forest floor reduces wildfire risk.
While there is still a carbon cost of making and transporting pellets, this is a fraction of the carbon released by burning coal or gas. Using the biomass close to where it is produced, in a raw unpelletised form, makes it even more environmentally friendly. Once you factor in the security of supply benefits of biomass – bioenergy can meet demand whatever the weather– it plays an important part in the future energy mix that provides secure and low carbon power. In addition, many coal power stations are “co-firing” with biomass, and this has led to increased demand for biomass pellets from Asia.
Although using forestry waste may be dismissed by some as simply burning trees, investors should bear in mind that forest coverage in the US and Canada is stable, and new trees are planted to replace those felled, making this a sustainable resource. North American forestry is a heavily regulated industry with strict environmental standards.
Investment opportunities
There are relatively few available investment possibilities for retail investors as this remains a niche area. Perhaps the best-known player in the industry is Drax Group, which is in the interesting position of being both a biomass pellet producer in North America, while also being a large consumer of biomass at its Drax power station in Yorkshire, where it plans to add carbon capture technology. Another option would be US pellet producer Enviva.
The US Inflation Reduction Act is supportive of bioenergy, and given the substantial North American forestry industry, it is likely that the major investment opportunities will be located there. Drax for instance, is planning to build two new biomass generation and carbon capture plants in the US.
Alternatively, investors may access the several forestry investments available, both individual equities and forestry funds.
When it comes to the viability of a sustainable energy market, we must not fall into the trap of making the perfect the enemy of the good. While our future energy mix must pay more heed to cost, security and carbon emissions, biomass should be taken seriously as an important fuel source and an essential part of the renewable energy mix.
