Expert View: Fields full of willows as power stations switch to energy crops

Most UK coal-fired power stations have announced plans to burn more energy crops such as willow chippings in their boilers. Recent changes to the subsidy scheme for renewable energy have boosted the attractiveness of wood and dried grasses to supplant coal.

Drax, the Yorkshire power station producing 7 per cent of the country's electricity, says it wants to buy 1.5 million tons a year of energy crops to replace some of the 10 million tons of fossil fuel it burns. Powergen's parent company, E.ON, has announced plans to build a dedicated wood-burning power station in Sheffield. Much of the fuel will come from new willow plantings around the city.

The generators have done their sums carefully. It may cost three times as much to buy wood as it does coal, but each 1,000 kilowatt hours they produce gets them a subsidy of about £48. In addition, using renewable crops reduces the need to buy carbon allowances, saving another £10.

These subsidies mean that, in effect, their fuel costs them nothing. The large power stations will have to install equipment to shred the wood into a fine dust to mix with the coal, but otherwise the impact on their operations will be extremely limited. Unsurprisingly, the generators are vacuuming up all the supplies of biological energy that they can find.

The energy crops boost is a deliberate move by the Government. Coal-fired power stations are huge emitters of greenhouse gases, but crops are almost carbon-neutral as they absorb CO2 when growing and release it back to the atmosphere when burnt.

The full effect of the incentives for farmers to plant willow and grasses is only just beginning to be understood. If 10 per cent of the coal used in power stations is replaced by crops, up to eight million tons will be burnt every year. And it may not stop there: Drax is talking about getting 20 per cent of its electricity from renewable sources eventually. Some will come from wood waste that would have gone to landfill, but most of the fuel will be newly grown on agricultural land.

To get eight million tons of energy crops, willow and grasses will be planted on well over half a million hectares of land, or a 10th of the UK's total cropland. What's more, energy crops will be concentrated around the major power stations – it doesn't make financial sense to transport the crops over long distances. Drax, which is likely to be the most important purchaser, will focus on getting farmers to convert land to willow in the North Yorkshire and Humberside areas.

The price of wheat has been hitting new global highs and UK farmers can get twice as much as they did only a couple of years ago. But the renewable energy subsidy is so generous that Drax and other power stations could, at least in theory, afford to pay more for the willow than a farmer could get from wheat, even at today's extraordinary prices.

What's more, wheat requires labour and fertiliser, but willow can be left largely untouched for year after year. Indeed, agents for the major electricity generators offer to take over the responsibility for growing the tree, leaving the farmer to bank a cheque. So we can eventually expect many hectares to be turned over to energy crops, pushing out foodstuffs.

Of course the generosity of the Government's energy crops scheme will not last for ever. But in order to encourage plantings of willow and the energy-rich grass called miscanthus, the electricity generators are offering 10-year contracts with guaranteed prices. The prices offered do not yet exceed this year's wheat returns, but it won't be long before competition bids up the price. The position around Drax will be particularly interesting: the proposed BP biofuels plant at Hull, 30 miles away, will need a million tons of local wheat for its ethanol.

Here's my investment tip for 2008: buy a plot of good-quality agricultural land half way between Drax and Hull. If there was ever a good time to be a Humberside farmer, it may be now.

Chris Goodall's 'How to Live a Low-carbon Life' is published by Earthscan at £14.99. C.goodall@which.net