HAWKINS WRIGHT - Pellet · PDF fileHAWKINS WRIGHT Global demand breakdown - 2015 EU28 accounts...
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HAWKINS WRIGHT
HAWKINS WRIGHT
HAWKINS WRIGHT HAWKINS WRIGHT
Global wood pellet market outlook
Fiona (McDermo.) Ma.hews
WPAC Annual Conference Halifax, November 2015
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HAWKINS WRIGHT
Consultants to international pulp, paper and bioenergy industries
www.hawkinswright.com
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HAWKINS WRIGHT
Global wood pellet production About 28Mt in 2015… (Heating = 15Mt, Industrial = 13Mt)
Source: REN21, FAO and Hawkins Wright
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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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2013 2014 2015f 2013 2014 2015f 2013 2014 2015f
Industrial (power, CHP,district heating)
Heat (residential &commercial)
TOTAL
Pellet d
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illion tonn
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Russia & CIS
Asia
North America
Other Europe
EU28
Global total
Source: Hawkins Wright. The Outlook for Wood Pellets
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HAWKINS WRIGHT
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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• 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
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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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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
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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
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emand, m
illion tonn
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United Kingdom
Rest of the World
South Korea
Japan
Other EU
Netherlands
Belgium
Denmark
Sweden
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HAWKINS WRIGHT
Global heating pellet demand outlook Central forecast: ~17-18Mt in 2017 (v. ~15Mt in 2014)
-‐
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llet d
emand, m
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Russia & CIS
North America
Other Europe
Other EU28
United Kingdom
Sweden
Denmark
Austria
France
Germany
Italy
Source: Hawkins Wright. The Outlook for Wood Pellets
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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)
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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.
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HAWKINS WRIGHT
HAWKINS WRIGHT
HAWKINS WRIGHT HAWKINS WRIGHT
Thank you for listening…
www.hawkinswright.com
M: +44 7809 888300
T: +44 20 8747 5840