Burning biomass - managing demand for wood pellets
Driven by EU renewables targets, demand for biomass wood pellets is set to soar over the next decade as utilities displace coal-ﬁred generation.
While power utilities can and do burn hundreds of different types of biomass – literally almost any old rubbish such as chicken litter, peanut husks and olive stones – the most cost-effective biomass to displace coal in co-firing and conversion plants in large volumes is usually wood pellets.
At present, the global trade of wood pellets is a manageable 10–12 million tonnes per year. However, the use of pellets is rising rapidly, driven by EU targets. Around half of the EU’s target for providing 20% of energy from renewable sources by 2020 will be made up by biomass, according to member states’ national action plans.
Sourcing wood pellets
Utilities are used to purchase commodities towards the end of the supply chain, for example at the port of loading or discharge, on a long-term basis. At present this is simply not possible on a viable scale. Securing biomass is very difficult because there is no tradition of commitment to long-term contracts with suppliers, at least not of the kind to which the energy business is accustomed.
Some utilities have recognised the upstream risks by building and operating their own pelletisation plants to increase security of supply. RWE Innogy, for example, operates a 750,000 tonnes per year plant in the US city of Waycross, Georgia.
However, this still leaves them fully exposed to fibre risks and therefore the price and volume of biomass is difficult to secure in the long term, as Diekumo Anthony, Biomass Fuel Developer at E.ON Climate and Renewables, Germany, explains.
Anthony says, ‘The primary feedstock of pelletisation plants is sawmill residue and forestry residues such as bark. They are byproducts of another market altogether. The entire biomass fuel supply chain on the power side is reliant on subsidies, while upstream the feedstock is led by the demand for timber from the US construction industry.
‘So the entire supply chain is floating in the middle of two uncertainties. The key players, the people who have control of the factors that create these risks, are not utilities or the biggest users of the product. Therefore, the price and volume of the feedstock for wood pellets is completely dependent on other markets. That presents huge risks in developing a secure biomass supply chain.’
The bulk of feedstock for wood pellets in North America, which accounts for two thirds of EU imports, comes from small landowners, with the rest coming from a handful of large forestry product companies traditionally supplying pulp, paper or other wood-based products. Anthony suggests that the only way to manage fibre risks is to take control of the supply chain as far upstream as possible, and partnering with forestry product suppliers owning vast tracts of forest.
Big role for forestry product companies
One such company is Weyerhaeuser Solutions. The Washington State-based company is the world’s largest private sector owner of softwood timberland, managing more than 20 million acres of forest in the USA and Canada, and one of the largest pulp and paper companies in the world. James Leitheiser, Director of Global Business Services for Weyerhaeuser, believes the power industry is needlessly reinventing the wheel by manufacturing a product it does not truly understand.
Leitheiser says, ‘Forty or 50 years ago, North America saw the same thing in the paper industry. Paper companies owned forestry assets for security, but once the industry matured, the supply and demand flow of raw materials changed.
‘The paper supply chain does not exist in a vacuum – it is integrated with traditional forestry products. The economics of the supply chain mean that biomass has to be integrated into these products as well. The paper industry has already learnt these lessons.’
In other words, says Leitheiser, utilities should leave wood pellet manufacture to forestry product companies that can harness the natural economies of scale in terms of feedstock and expertise to offer long-term security of supply. Weyerhaeuser is pushing what it calls its Resource Forward model, which it says would reduce project risk and commercial risk for investors.
In this model, a large timberland owner with strategically located resources would bring the supply chain forward via an institutional investor to provide stable, relatively low-cost capital to build a pelletisation plant in conjunction with an offtake partner. The offtake partner could be a utility, or it may be a biomass supply intermediary, such as a commodity trader, an energy company or an agribusiness, delivering wood pellets to port. This ‘Biomass, Inc’ model is proving very attractive to investors. Dr Chris Rowland, Senior Research Analyst at Ecofin, a global investment management company specialising in energy, says biomass is on the cusp of a huge change. ‘Many companies are eyeing investment in the biomass feedstock supply chain. We see potential in investing in assets along the entire chain, owning forestry, pelletisation plants, as well as storage facilities at UK ports.’
An important challenge that the industry has to overcome is the lack of international standardisation of wood pellets. Peter Rechberger, General Manager of the European Pellet Council, says wood pellets need to become a clearly defined commodity in order to compete against fossil fuels. ‘There is no European Standard for industrial pellets yet, although the power sector has virtually defined its own industrial pellet qualities – I1, I2 and I3. We are working with the Initiative for Wood Pellet Buyers (IWPB) to include industrial grade certification as part of PellCert, which aims to develop an ENplus-compatible certification scheme for industrial wood pellets that also incorporates sustainability.’
Sustainability, sustainability, sustainability
Sustainability is absolutely critical to the biomass industry and utilities are acutely aware of this. Hitherto, many UK utilities have effectively self-certified their biomass as sustainable. The sustainability policy of British generator Drax, for example, dictates that it will not burn any biomass that does not reduce CO2 versus the coal alternative.
As demand grows, however, an increasing volume of fresh wood will be needed from forests, the use of which for sourcing biomass is coming under stricter control from the EU. RWE npower, which operates the illfated Tilbury coal-to-biomass conversion plant that caught fire on 27 February 2012, says demand in the UK alone could reach 11–12 million tonnes by 2015, equivalent to 22–23 million tonnes of fresh wood. Of this, 16 million tonnes is expected to be sourced from the USA, four million tonnes from Brazil and three million tonnes from Europe.
Sawmill residues can only be expected to provide 50% of the fibre for this volume of wood pellet production, according to Karine Culerier, Senior Market Analyst at RWE Supply and Trading. ‘More and more volume from sustainability-certified forests will be needed,’ she says.
Culerier notes that at the end of 2011 the UK adapted the Renewable Energy Directive for biofuels and bioliquids for its sustainability criteria for solid biomass, thus prohibiting extraction from primary forests, peatlands, wetlands, grasslands and land for nature preservation. Crucially, forests with a land use change after January 2008 will not qualify for ROC (Renewable Obligation Certificate) support.
This change has given the sustainability issue a boost, she says, and commercial forest thinning is developing with a positive impact on sustainable forestry standards. Thinning limits the competition for water, sunlight and nutrients between trees, while removal of poorly formed or diseased trees is also beneficial to the health of a stand.
Culerier is also concerned that the numerous environmentalists who oppose biomass-fired power generation are not taking a long-term view of carbon neutrality. ‘The virtuous circle of biomass carbon neutrality takes 30 years because of the time taken to replenish the trees harvested,’ she says.
The increasing volume of fresh wood required has also boosted sustainability schemes such as the Green Gold Label, which requires forest sustainability certification. The trouble is that there are dozens of schemes – 67, according to a study by University of Utrecht in the Netherlands – and it is slowing down development of the supply chain.
Jorrit Hachmer, Vice President of Biofuel Trading and Development at RWE, is pressing for a single, European-wide sustainability scheme. ‘The lack of one is harming the industry,’ he says. ‘We need to convince the public that biomass is sustainable. Without public support, there is no industry.’
It has yet to be proven whether utilities will be able to source enough biomass on a sustainable basis. The UK is essentially conducting a very large experiment to see if it can.
Initiative for Wood Pellet Buyers (IWPB) - www.laborelec.be/ENG/initiative-wood-pellet-buyers-iwpb