HAWKINS WRIGHT
HAWKINS WRIGHT
HAWKINS WRIGHT HAWKINS WRIGHT
Global wood pellet market outlook
Fiona (McDermo.) Ma.hews
WPAC Annual Conference Halifax, November 2015
HAWKINS WRIGHT
Consultants to international pulp, paper and bioenergy industries
www.hawkinswright.com
HAWKINS WRIGHT
Global wood pellet production About 28Mt in 2015… (Heating = 15Mt, Industrial = 13Mt)
Source: REN21, FAO and Hawkins Wright
HAWKINS WRIGHT
Industrial market growth 2014-15: +1.7Mt Heat market growth 2014-15: +1.3Mt
9.611.0
12.7 13.1 13.614.9
22.624.5
27.6
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10
15
20
25
30
2013 2014 2015f 2013 2014 2015f 2013 2014 2015f
Industrial (power, CHP,district heating)
Heat (residential &commercial)
TOTAL
Pellet d
eman
d, m
illion tonn
es
Russia & CIS
Asia
North America
Other Europe
EU28
Global total
Source: Hawkins Wright. The Outlook for Wood Pellets
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Global demand breakdown - 2015 EU28 accounts for 77% of global market (industrial + heat)
Source: Hawkins Wright. The Outlook for Wood Pellets
United Kingdom46%
Sweden13%
Denmark12%
Belgium9%
Other EU7%
Japan1%
South Korea10%
Rest of the world2%
Industrial wood pellet demand in
2015~13 million tonnes
Italy20%
Germany14%
France8%
Austria6%Sweden
4%Denmark
4%
Other EU14%
North America21%
Other9%
Heating pellet demand in 2015
~ 15 million tonnes
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United Kingdom
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1000
2000
3000
4000
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6000
7000
2013 2014 2015
thou
sand
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nes
• A new Conservative government was elected in May. • It has wasted no time taking steps to:
• Control overspending in the Levy Control Framework (the budget that caps spending on support for renewable electricity)
• Deliver on election promises (e.g. to end support for onshore wind)
• At the same time many policies supporting renewable energy have been reduced or removed: • Grandfathering of ROC entitlements for
biomass conversion & cofiring • Closing early the RO for offshore wind and
large solar projects • Removing renewable electricity’s exemption
from the climate change levy • Postponing this autumn’s CfD auction
HAWKINS WRIGHT
United Kingdom – is there any money left in the budget?
• The LCF budget of £7.9bn in 2020/21 is at risk of being exceeded • but uncertainties in costs (e.g. due to electricity prices, unpredictable output
from offshore wind) make it difficult to forecast accurately
• UK’s climate advisors – the CCC – believe there may yet be sufficient funding to support another 7-12TWh of renewable electricity deployment
• This suggests that future CfD auctions are not impossible, but the power ultimately lies with the treasury • There may be an announcement as part of the spending review at end-Nov
In the meantime…
Company Capacity (MW)
Support mechanism
Pellets Mt/y Start date
Drax Power 1st unit 630 RO 2.5 Q2 2013 Opera?onal, 100% pellets
2nd unit 630 RO 2.5 2014 Opera?onal, 100% pellets
3rd unit 630 Early CfD (or RO) 2.5 2015 Opera?onal, cofiring >85%
Awai?ng state aid clearance
4th unit CfD? Feasibility study. Depends on funding being available
Lynemouth (RWE) 420 Early CfD 1.6 Mid-‐2017? Awai?ng state aid clearance
MGT Power Biomass CHP 295 Early CfD 1.1 2019? Awai?ng financial close
TOTAL 2,700 10.2
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Belgium
• GDF Suez’s ‘Max Green’ station is operating again following last year’s suspension of green certificate entitlements. Pellet consumption is expected to return to ~1.1Mt in 2015.
• E.ON has agreed to sell its coal fired station at Langerlo to German Pellets. • An interesting example of downstream
integration. • Once converted (in 2017-18) Langerlo will
need ~1.8Mt/y of pellets. • Our forecast has been revised up to 3.0Mt in
2020.
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• Dutch pellet consumption will be virtually zero in 2015, down from >1Mt/y at its peak.
• Cofiring of biomass with coal was included in the SDE+ support scheme from 2015.
• But the scheme was oversubscribed (€7.7bn of applications versus budget of €3.5bn) and no cofiring projects were awarded support.
• However the budget for 2016 has more than doubled (to €8bn), meaning cofiring projects will have a better chance next year.
• Indeed, cofiring will be essential if the Netherlands is to meet its targets. We retain our demand forecast of ~3.25Mt in 2020.
• Additional opportunities for biomass use for industrial heat and for biochemicals.
The Netherlands
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Denmark
• Danish industrial pellet consumption in 2015 will be ~1.5Mt
• A few murmurings from the new government that its predecessor’s low carbon agenda may be scaled back; e.g. a minor reduction in GHG emission target
• But this has no implications for Dong’s biomass conversion projects at Studstrup and Avedøre (pellets).
• Increased pellet demand will be seen in 2016 and 2017 when these projects are completed.
• Pellet demand in 2020 is forecast to be 3.0Mt.
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Sweden
• Swedish industrial pellet consumption will be at ~1.6Mt in 2015.
• Sweden main policy instruments are its ‘green certificate’ system of supporting renewable energy and stringent carbon and energy taxes which promote energy efficiency and discourage fossil fuel consumption.
• Carbon tax is due to be increased from January 2016, and then again in January 2018, driving increased biomass consumption for process heat and district heating.
• In turn driving growth in consumption of pellets.
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2013 2014 2015
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South Korea
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• Korean imports rose to 1.9Mt in 2014 (+282%) driven by the Renewable Portfolio Standard (RPS).
• Imports mainly from Vietnam, Malaysia and Canada.
• The tender system used to procure fuel puts all the focus on price, currently ~$110/t CIF.
• Demand has declined to ~1.3Mt in 2015, and will likely be stable in 2016.
• Future growth will be constrained by a 30% cap on the proportion of the RPS that can be met by biomass.
• Nevertheless our forecast sees demand recovering to ~2.7Mt in 2020.
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Korean trade documentation requirements
• Unlike European utilities, Korean buyers are not yet concerned with wood pellet sustainability.
• Their priority is ensuring that pellets are composed entirely of wood > in the past some Asian pellet producers have added rice husks, but these are
classed as ‘waste’ and are subject to strict environmental regulations
• At the start of 2015 the Korean gencos introduced a requirement for suppliers to provide FSC/PEFC chain of custody certificates > Some of these certificates were found to be fraudulent
• The Korea Forest Promotion Institute (KOPFI) decided to instead require suppliers to
provide evidence based on the Apostille Convention > This involved pellet exporters providing government-issued tenure documents
and fibre supply contracts
• These burdensome requirements prevented Canadian suppliers from legally exporting to Korea, as Canada is not a member of the Apostille Convention.
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Total Asian imports Q1-Q3 2015 = 1.1Mt (v. 1.3Mt in Q1-Q3 2014)
thousand tonnes Korea Japan
TOTAL Q1-‐Q3 2015
TOTAL Q1-‐Q3 2014
change % change
Vietnam 669 18 687 456 +231 +51% Canada 77 70 147 369 -‐223 -‐60% Malaysia 100 0 100 124 -‐24 -‐20% Russia 59 0 59 28 +31 +113% China 3 42 45 167 -‐ 123 -‐73% Indonesia 34 0 35 42 -‐ 8 -‐18% USA 21 0 21 82 -‐ 61 -‐74% Thailand 19 0 19 50 -‐ 31 -‐62% Other 5 0 5 8 -‐3 -‐34% TOTAL Q1-‐Q3 2015 988 130 1,118 1,327 -‐209 -‐16%
TOTAL Q1-‐Q3 2014 1,251 76 1,327
change -‐263 +54 -‐209 % change -‐21% +71% -‐16%
• Canadian exports to Korea fell by 74% Jan-Sep 2015
• After lobbying by WPAC, in September 2015 the Korean authorities changed the trade requirements.
• A new verification process has been implemented since 5 October, whereby the importer must complete a checklist with information relating to the fibre source and its origin.
• This should reopen the Korean market to Canadian suppliers (though low demand and prices remain a problem)
Source: Korean and Japanese customs data
HAWKINS WRIGHT
Global industrial wood pellet demand outlook Central forecast: ~29Mt in 2020 (v. ~13Mt in 2015)
Source: Hawkins Wright. The Outlook for Wood Pellets
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2013 2014 2015 2016 2017 2018 2019 2020
Glob
al indu
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l pellet d
emand, m
illion tonn
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United Kingdom
Rest of the World
South Korea
Japan
Other EU
Netherlands
Belgium
Denmark
Sweden
HAWKINS WRIGHT
Global heating pellet demand outlook Central forecast: ~17-18Mt in 2017 (v. ~15Mt in 2014)
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2
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Glob
al heatin
g pe
llet d
emand, m
illion tonn
es Asia
Russia & CIS
North America
Other Europe
Other EU28
United Kingdom
Sweden
Denmark
Austria
France
Germany
Italy
Source: Hawkins Wright. The Outlook for Wood Pellets
HAWKINS WRIGHT
Final thoughts: “How can biomass become a leading renewable energy source globally”
• Better public and political awareness – increased campaigning and lobbying
• Continue to prove sustainability (particularly at large scale)
• Push for better recognition of the wider system benefits of biomass power > Baseload, dispatchable, doesn’t require fossil backup > What is the best way to compensate biomass for these services?
(need to better understand full system costs)
HAWKINS WRIGHT
Conclusions…
• In 2014 the global pellet market was ~25Mt. In 2015 this will rise to 27-28Mt.
• This growth in both the heating and industrial pellet markets is occurring despite some challenging conditions: > Low oil & carbon prices / strong US dollar / policy uncertainty
• The increase in pellet demand (and subsequently supply) in Asia has been rapid.
• But the Korean market is volatile and subject to similar policy uncertainty as Europe. > S.Korean demand will likely not return to growth until 2017
• Japanese buyers are more likely to enter into long term contracts with North American producers than Korean gencos (e.g. recent 10 year Sumitomo/Engie contract for 100kt/y).
• Long term market prospects remain very positive, with growth expected in both industrial and heating demand.
HAWKINS WRIGHT
HAWKINS WRIGHT
HAWKINS WRIGHT HAWKINS WRIGHT
Thank you for listening…
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