A Dutch Dilemma

The Netherlands’ under-debate energy policies could create an additional 3.5 million tons of annual pellet demand or introduce inefficiencies that will put the market out of reach for most North American producers.
By Tim Portz | January 14, 2015

The Netherlands, just twice the size of Massachusetts with roughly 17 million citizens, lags well-behind most of its fellow European Union member countries in growing the renewable share of its overall energy portfolio. Renewables comprise just 4 percent of total energy consumed and the Dutch government continues to work towards a policy environment that will more than triple its share by 2020. As 2014 drew to a close, the pellet industry watched from some remove as a working group populated by the Dutch government, non-governmental organizations (NGOs) and the country’s utilities tried to reach consensus on the particulars of a new policy framework, as well as the sustainability requirements that affect co-firing of woody biomass with coal. Optimistically, the policy may yield an annual Dutch pellet demand of nearly 3.5 million tons per year, but without a voice on the assembled working group, industry insiders are concerned that misguided sustainability requirements may blunt its market-generating intent.

Reasons for Excitement
The enthusiasm and excitement around the promise of new Dutch pellet demand is easy to understand. Pellet producers see the new policy discussions as a way to rekindle demand initially created in the mid-2000s when a different feed-in subsidy, the MEP premium, was passed and implemented. The program was closed in 2006 and the contracts that it created have expired or will in 2015.

The Netherlands is also well positioned from an infrastructure perspective. The country serves as an important trade hub for Western Europe, bolstered by the region’s largest and busiest ports. The port of Rotterdam is a massive complex covering over 46 square miles that remains Europe's busiest port. The port is connected to an impressive system of rivers and waterways that can be leveraged to deliver pellets efficiently by barge. Finally, because of the now-shuttered MEP program, co-firing with wood pellets has an antecedent in the Netherlands. RWE/Essent’s Amer power plant is one example of a large coal station with deep experience in co-firing biomass. The facility began co-firing with biomass in earnest in 2001, ultimately growing its annual consumption to nearly 800,000 tons by 2010. The successful deployment of biomass co-firing at Amer serves as a strong proof of concept for the owner’s of the country’s other coal assets.

All together, there are seven coal stations in the Netherlands with a total capacity of nearly 7,000 MW. According to Peter-Paul Schouwenberg, Manager Environment-Regulatory Affairs at RWE, the NGO’s that are participating in the policy formation are generally opposed to coal stations, and are willing to entertain biomass co-firing only because of the strategy's ability to reduce CO2 emissions. Additionally, NGOs, energy companies, and Dutch policy makers all believe that robust sustainability criteria must be followed.

State of Play
The policy instrument driving all of this excitement, the SDE-plus (Stimuleringsregeling duurzam energieproductie), is a production-based subsidy that bridges the revenue gap for power producers between fossil-fuel based energy and a renewable alternative, including biomass co-firing. The SDE-plus is the policy manifestation of a comprehensive energy vision statement published in September of 2013 called the Energy Agreement for Sustainable Growth. This agreement offered a road map to both reduce energy consumption and increase the energy share of renewables in the country to 14 percent by 2020, aligning the Dutch trajectory with broader EU climate change mitigation targets. The agreement was developed in the tradition of a bottom-up consensus-building approach common in the Netherlands, known as the polder model. This same model was used to develop the SDE-plus program, and continues to be used to develop the sustainability requirements for biomass that Dutch power generators will have to adhere to in order to receive their production subsidies.

“We set up an expert group between utilities, NGOs and government who have been working on the sustainability criteria since January of the year (2014). They should be ready by the end of this year,” says Schouwenberg. “The expert group included government, the Ministry of Economic Affairs and the Ministry of Infrastructure and Environment. All utilities were involved including EON, Vattenfall, EDF-Suez, Eneco, RWE/Essent. From an NGO perspective, it was the WNF, the Dutch branch of the World Wildlife Fund, Greenpeace, and the Dutch NGO Natuur & Milieu.”

While this collaborative approach is responsible for creating a policy environment incentivizing pellet-derived power, industry proponents feel there is a danger in the market ending up out of reach because of misguided sustainability requirements uninformed by the voices of North American pellet producers or the forest products industry that supplies them with wood fiber.

“Let’s talk about the process of the establishing a sustainability criteria. In strong contrast, and I can’t overstate this enough, in strong contrast to the process we watched unfold in the United Kingdom, which was open, transparent, and had an incredibly high level of stakeholder engagement, the Dutch have gone in the complete opposite direction,” says Seth Ginther, executive director of the U.S. Industrial Pellet Association.

The risk, Ginther points out, extends well beyond the Dutch pellet market. “We want as open and free a market as possible. We want to tear down the barriers to entry and any obstacles that are put in the way so we have a truly open and commoditized market. Part of doing that is harmonizing sustainability criteria. The European Union has decided not do that at the EU level and has left these decisions to the member states. What you end up with is member states doing different things and if they’re not careful, inevitably it ends up creating a fragmented set of policies that de-harmonizes everything. All that does is hinder trade.”

To fully appreciate the challenge that Ginther and others see, it is helpful to examine the world’s largest globally traded commodities. Fossil fuels like coal and crude oil and agricultural products like corn, wheat and cotton are all efficiently traded at massive volumes. This efficiency can be attributed to the commodity’s common attributes. As a result, these commodities can always be found in the global marketplace, traded and re-traded with ease. As countries begin to place restrictions on these commodities trade becomes less efficient. Look no further than the growing trade restrictions on the genetically modified agricultural products. As these restrictions grow, the requirements for keeping these commodities separated from their non GMO equivalents introduce new costs for producers and traders.

Recognizing the risks that Ginther and others have articulated, a group of European utilities that are or will be using wood pellets has formed the Sustainable Biomass Partnership. The organization was formed by the utilities to drive the European Union member countries toward a harmonized set of sustainability requirements. 

“The whole idea was to try and get some conformity throughout the various countries that use wood pellets,” says Arnold Dale, vice president of bioenergy at the global forest products trading firm Ekman. “Now we have the Dutch saying, ‘No. We don’t want to look at what other people are doing, we want to come up with our own dedicated system.’ My fear is it’s going to be very, very strict and difficult for manufacturers to comply with, or if not difficult, certainly time-consuming. They’re going to be asking the most detailed questions and demanding minutiae about the supply of the raw materials to the wood pellet manufacturers. I do worry about that.”

Certification Bottleneck
The concerns for Ginther and his constituents do not stem from management practices they believe will be required. Industry advocates and their partners in the forestry sector point to a robust collection of federal and state laws and long-followed best management practices already in place. Instead, industry concern hinges on sustainability programs that mandate forest certification. Certification, not widely practiced in North America, adds cost for landowners and these increased costs strain the economics of managing forests. While no formal announcement has yet been made public, the momentum in the policy discussions from the Dutch seem to be leaning toward certification.

“If you look at the energy agreement, it certainly indicates that we should develop sustainability criteria based on existing forest management systems to bracket the Forest Stewardship Council and the NTA (Netherlands Technical Agreement) 8080, ” says Schouwenberg. The NTA 8080 is a certification scheme that includes carbon emissions reductions, land use changes, biodiversity and the working conditions along the biomass supply chain.

The challenge for pellet producers if the Dutch implement a policy that demands certified content will be finding enough wood fiber grown on certified lands. According to a report published on the Forest Stewardship Council website as of November 2014, just 35 million acres of U.S. forests are currently certified, or just under 5 percent of total forest acres. The problem is more vexing when certification levels in the prime pellet producing region in the U.S., the southeast, are considered. “At best, the level of certified content in the U.S. Southeast is at 1 percent right now,” says Ginther.

At the heart of the entire debate is the belief held by NGOs that increased demand for wood pellets will result in deforestation. NGOs see certification as the only way to ensure that this unintended consequence can be avoided. The pellet industry, North American foresters, global forest products traders and the utilities pursuing co-firing to generate lower carbon power see it differently.

“The real story here is the U.S. small landowner,” offers Ginther. “The fascinating thing is that when you look at what the Dutch are attempting to do with their sustainability, they are working to ensure that forests are regenerated and replanted. However, by creating too tight of criteria, calling for forest-level certification, what the policy will actually do is have an adverse effect on what they’re trying to do. It will actually lead to less of that because they have reduced the market opportunities for these landowners. That’s a fascinating concept to me.”

This Just In
In the final days of the 2014, Pellet Mill Magazine was provided a copy of a letter authored by H.G.J. Kamp, the Dutch Minister for Economic Affairs. The letter, written to the Chair of the Dutch House of Representatives on December 24, 2014, establishes while Dutch NGOs and Dutch utilities were able to agree on sustainability criteria, they were not able to agree on an implementation timetable or the certification process.

In the letter, Kamp acknowledges the difficulty in devising a plan that would “achieve an ambitious set of sustainability criteria while creating an investment climate that gives companies the confidence to invest”.

Kamp then outlines a step-wise plan that would result in “all of the biomass used as fuel for co-firing” being able to clearly demonstrate sustainability at the “forest-site” level. Kamp's plan begins immediately requiring that fiber coming from forest tracts larger than 1000 hectares (2400 acres) having to demonstrate sustainability via certification.  Over time, the size of the tracts required to prove sustainability drops to 2000 acres in 2020 and 1200 acres in 2022. Materials coming from tracts smaller than 1200 acres will be “demonstrated at the pellet mill level”.

The decision is not irreversible as Kamp notes in the letter, but he reminds the Dutch house that final regulations for the SDE-plus program need to be published by the end of January 2015.
The ability of the Dutch to achieve their renewable targets hinges on the ratification of the sustainability criteria. “The Dutch have a 14% renewable energy target for 2020,” Ginter says. “I’ve been told if they can’t agree on a doable sustainability program, they will only be able to achieve 8 or 9 %. I believe the Dutch are painting themselves into a corner where they will not be able to attain their renewable energy targets in 2020 if North American producers are not allowed to participate in the market.”

Author: Tim Portz
Executive Editor, Pellet Mill Magazine