Vivergo shutters UK plant over government E10 inaction

8 Dec 2017 | John McGarrity

Vivergo said this week it will cease bioethanol production at its £350 million Saltend plant in north-eastern England — just five years after it started production over what it claims is government inaction to mandate a 10% blend of ethanol in fuel sold in the UK.

Vivergo did not say whether or if the plant will return online, saying it was taking it down for the “foreseeable future”, although added that it would be conducting annual maintenance while the plant is offline.

“We reluctantly welcomed the Government’s Renewable Transport Fuel obligation proposals in September, but have remained extremely concerned that there is no roll-out framework for E10 in the UK, the absence of which could have serious consequences for the long-term future of the UK bioethanol industry,” the statement said.

The company said it was prompted by a steeper slide in prices over the last few weeks and repeated delays by the UK government to mandate the use of E10 biofuels.

Ethanol for delivery in the Netherlands is hovering around 13-month lows at €460/mt as deregulation of the EU sugar industry has increased supply of ethanol.

The Vivergo decision means the European ethanol market looks likely to become less long following the decision.

“The announcement has had a bit of an impact, [ethanol] prices at the front of the curve have [recently] been really quite weak,” one trader said.

Economically, the trader added, UK wheat is “hard to work with” (i.e the price of feedstock had become too high) and margins had been “under pressure”.

E10 is a biofuel made up of 90% regular unleaded and 10% ethanol, but hasn’t yet received the explicit backing of the UK’s Department for Transport.

Even though a DfT policy document in September indicated its support for E10, at present the government doesn’t favour a particular type of biofuel to meet its 9.75% target for 2020.

Moreover, the DfT is mulling limits on the volume of crops used to produce biofuels at 2%, a move that would instead favour biofuel made from waste.

The Saltend plant has nameplate capacity of 420 million litres of bioethanol a year but the facility is likely to have been running below full capacity before the decision was made to suspend production at the plant.

Vivergo warned in March this year the plant had become increasingly uneconomic.

Saltend currently employs 150 people and is a major source of income for hundreds of UK farmers.

The remaining operators in the market would be expected to reap the benefits of any rise in prices following the removal of Vivergo’s supply, but in the longer term will have to deal with the same regulatory uncertainties that eroded Vivergo’s margins.

Ensus Limited, which is owned by Germany-headquartered CropEnergies, has the capacity to produce up to 450m litres a year and in the past few years has suspended production for long periods in response to weak prices.

“Delays in the increase of the RTFO Obligation and in the introduction of E10 have been major factors for all players,” said Clare Wenner, a former lobbyist for the renewable energy sector.

The RTFO obligation (and therefore the size of the overall biofuels market in the UK) was meant to have reached a 10% share of overall transport fuel use by 2020 but has been capped at 4.75% (by volume) since 2014, Wenner explained.

This 4.75% is less than half the size of the market promised by the original legislation and has had to be shared between bioethanol and biodiesel.

Meanwhile, producers have also been hamstrung by current bioethanol overcapacity in the EU, particularly in view of the disappearance of production limits on sugar producers, which took effect earlier this year.

“Major sugar beet producers in the EU are raising production and looking for new markets,” Wenner said, referring to the possibility that supply of feedstock will rise even further.

On December 18 a gathering of EU energy ministers will discuss revisions to the Renewable Energy Directive, with drafts set to be voted on by the European Parliament (EP) in January next year.

The EP’s ENVI Committee favours a phaseout of crop-based biofuels by 2030, but the European Council (Member States) has said previously it wants crop-based biofuels to account for 7% of road transport energy use.  The EU Commission has proposed the cap be reduced to 3.8% by 2030.