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Bridging a Demand Gap

Sumitomo Corp. and Cosan Biomassa see an opportunity for pelletized Brazilian sugarcane biomass in Japan’s power market and beyond.
By Katie Fletcher | November 11, 2016

Grown in tropical to subtropical regions, vast fields of sugarcane—with stalks reaching heights of 10 to 24 feet—function like large solar panels by trapping the sun’s energy in the form of sugar and biomass. Five centuries ago, this tall perennial grass was introduced to Brazil’s temperate climate when the country was a colony of Portugal. Production took off, landing Brazil the title of world’s largest producer by the 17th century. Although the country didn’t hold this title for some decades between then and now, Brazil has remained the lead sugarcane producer ever since it reclaimed this status in the ’70’s, following the government’s introduction of the National Program of Alcohol to promote the use of sugarcane for ethanol use in automobiles. Sugarcane drives the Brazilian economy, bringing in billions in revenue from its use in sweeteners, ethanol, alcohols and even power production.

Juicy cane stalks have long been valued for their sugar content, but it’s the byproducts from cane sugar processing where untapped potential resides. Leftover bagasse and straw from sugarcane have served as a fuel source in power generation boilers in Brazil for decades. Still, even with sugarcane mills running on sugarcane biomass, there is significantly more than can be put to efficient use. In the past, harvesters would burn off the cane’s blades and leaves prior to cutting the cane but, due to air pollution, this practice is no longer acceptable. Now, a nearly foot-thick cushion of biomass is left in the field post-harvest. Sugarcane yields a great deal of biomass—for example, corn produces about 3 to 4 tons of straw per hectare (around 1 ton per acre) and sugarcane produces about 20 (8). “If we develop a market for this, the sugarcane mills can be retrofitted to run a lot more efficiently, use a lot less energy and have this biomass available for other uses,” says Mark Lyra, Cosan CEO. Brazilian company Cosan Biomassa S.A., a subsidiary of Cosan S.A. Industria e Comercio, was formed in 2010 to do just that. The company’s been working to commercialize its bagasse and straw pellet production, and market it around the world. Late last year, Cosan successfully commenced production at its first commercial-scale (175,000-ton annual capacity) plant.

On the other side of the globe, Japan-based Sumitomo Corp. shares Cosan Biomassa’s vision, investing in a stake of up to 20 percent of the biomass fuel manufacturing business. “In light of the growing demand of biomass in Japan, we see vast availability of raw materials of sugarcane waste, as sugarcane should cater to the Japanese market in the near future,” says Satoshi Ishikawa, deputy general manager of Sumitomo Corp.’s materials and supplies business development and promotion department.

Japan has abundant biomass resources itself, but they aren’t currently economical to extract and use, according to the Global Agricultural Information Network report on Japan released by USDA Foreign Agricultural Service. The report details that Japan’s government recognizes it must increase the production scale of wood pellets and wood chips to become competitive in the global market, as the cost of using domestically produced wood pellets and wood chips is currently more expensive for power companies than those that are imported. Unless the domestic market becomes competitive, it’s projected wood pellet and palm kernel shell (PKS) imports are likely to increase, along with biomass cofiring at power facilities. Since the shutdown of most of the country’s nuclear plants post-Fukushima, power companies have been increasingly promoting renewable energy and using pellets for thermal power generation as part of Japan’s 2030 long-term targets for self-sufficiency rates, electricity costs and greenhouse gas (GHG) emissions. Since April, corporations that acquired biomass power plants are also eligible for a tax reduction as part of the government’s proactive policy to increase biomass energy.

Joining Forces
Sumitomo Corp. regards biomass energy as a promising source of renewable energy, and started importing biomass fuel for power generation for the first time in Japan in 2008. Sumitomo Corp.’s subsidiary Summit Energy is considered a front-runner of biomass power generation in Japan, with its three biomass cofiring power plants: Summit Myojo, which is operational, and Summit Handa and Summit Sakata, which are both under construction, commissioning in mid-2017 and -’18, respectively. Summit Energy is aiming for its Handa and Sakata plants to achieve 100 percent biomass use in the future. Although Summit Energy, through Sumitomo Corp., already has biomass suppliers to serve these plant’s feedstock demands, Sumitomo invested in Cosan Biomassa looking at the broader demand opportunity.

Sumitomo has been in search of competitive and sustainable resources outside of Japan to supplement domestic biomass resources and to step into the European market, where the bulk of pellet fuel demand exists. The company regards Cosan Biomassa as an ideal resource to fulfill both needs. Japan is projected to import 10 to 20 million tons of pelletized biomass by 2030. “Cosan and Sumitomo believe that a significant portion of this demand will be met by biomass sugarcane available in Brazil,” Ishikawa says. “Sugarcane productivity in Brazil and the use of waste as raw materials creates a unique sustainability opportunity in the world, and the joint venture came to meet this demand.”

Five years ago, the companies began forming the foundation of their joint venture. “Since then, it became very clear that both Cosan and Sumitomo shared the same view on the market, the focus on the long-term and, finally, yet importantly, the same values on sustainability,” Ishikawa says.

The two companies formalized the creation of the JV in a ceremony at the Brazilian Embassy in Tokyo this past February, supporting Cosan’s claim as the first company in the world to produce and market biomass pellets produced from straw and bagasse from sugarcane. “I think the real benefit of biomass pellets is to substitute coal in coal-fired plants,” Lyra says. Right now, the JV is looking toward established markets that have already indicated the direction they’re heading with fundamental policies to support biomass like the U.K., Netherlands, Belgium, Japan, etc. Lyra also foresees cofiring opportunity within the U.S. and Germany. “I think the awareness that biomass is a sustainable, dispatchable energy is growing among policy makers and society, in general,” he notes. Lyra believes countries with a large install base for coal power will start cofiring around 5 to 10 percent and gradually ramp up as technical hurdles are overcome and the sustainable supply of fuel is guaranteed and developed.

Burn tests of sugarcane pellets have been conducted in labs around the world. According to Ishikawa, the use of sugarcane biomass pellets in Japan reduces GHG emissions by 94 percent when compared to coal. Also, in comparison to wood pellets, “they perform in a very similar way and, so far, we haven’t identified any major differences,” Ishikawa adds, including the extent of modifications power plants would require for cofiring. According to Lyra, their target is to have a product that technically meets the specifications needed to burn in high-efficiency pulverized coal facilities.

The real value Lyra sees their biomass product bringing to the table is diversity of supply. The JV referenced a study published by the European Commission earlier this year that indicated within the next five years, global demand for biomass pellets will jump from 25 million tons sold today to about 40 million. Currently, the main raw material in the industry comes from wood grown in Europe, the U.S. and Canada, but Sumitomo and Cosan believe sugarcane biomass could help fulfill that demand, if and when it’s limited. “Since wood pellets are a developed and established commodity, of course, consumers will opt for wood pellets first because it’s a known fuel, it’s a known technology,” Lyra concedes. “For companies that want to have diversity, want to improve on their supply security by diversifying into a different fiber basket, I think we have a real value proposition.”

At this point, the JV has a trial shipment of bagasse pellet sales to the EU market under negotiation to occur in 2017. “I hope that bringing this additional feedstock into the market adds diversity, adds security of supply, adds sustainability, and that as a nation, reaches the policy makers and the utilities so they can feel more confident that there will be sustainable biomass available in large quantities in the long run.”

Brazil’s Sugarcane Empire
Brazil produces approximately 650 million tons of sugarcane annually, which amasses about 80 million dry tons of wasted biomass in the sugarcane sector alone that could be used to produce pellets. “This biomass is either being burned inefficiently or simply left in the fields to rot, generating a lot of methane gas and a much bigger greenhouse effect then it would if it was properly collected, pelletized and burned,” Lyra says. He adds that the trend is for sugar production to rise in coming years, with new varieties of sugarcane plants that are cheaper to produce and yield more biomass per acre. In this case, the availability of raw material for sugarcane biomass pellets could double in the next 10 years. The most promising use for this growing amount of residue lies outside the domestic market, and Lyra reasons Brazil is positioned to become the Saudi Arabia of renewable energy. “When we talk about pelletizing biomass, the main market for that would be the export market, because we already have a very clean energy mix domestically,” Lyra says.

After cane mills squeeze out every ounce of sugary juice, as much as 30 percent of that cane weight ends up as fibrous, wet bagasse that has a moisture content of about 40 to 50 percent. Bagasse works well for power generation due to its high energy content and burning quality. Even though sugarcane mills burn dried bagasse and straw as a fuel, only about 70 of the approximately 400 mills in Brazil are generating and exporting excess energy to the grid, according to Lyra. Entering the power business can be cost prohibitive for a number of mills, whether a mill lacks critical mass to justify the investment of additional power generation capacity, or its location is too far from the power grid and connecting would be costly. Lyra says that “today the mills that are located close to the grid and that have the critical mass to sell this kind of energy to the grid are already doing so.”

Bottom line, cane mills are not burning or selling all of the surplus raw material, resulting in Brazil’s current accumulation of millions of tons of bagasse and straw. Cosan isn’t the only one that has tried pelletizing this material—a number of pellet producers have tried to capitalize on the low-cost, high-value feedstock of cane bagasse. However, current pellet prices have kept many from pursuing production unless they have a long-term vision in mind. Back in 2010, Cosan began producing its pellets at pilot scale. Five years later, it commissioned its commercial-scale plant in the federal state of São Paulo, an area with one of the highest concentrations of sugarcane production.

Through the participation of Sumitomo Corp., Cosan Biomassa will increase its exports to Japan and Europe along with increased domestic sales. There is the potential for 45 million tons of sugarcane pellet production per year from the sugarcane farms in Sao Paulo state alone. With this abundant availability, the venture aims to increase production to 2 million tons by 2025, and as much as 8 million tons in the future, subject to future growth of the market as well as a satisfactory return. 

From a 5,000-foot view, Lyra acknowledges pelletizing sugarcane bagasse and straw is pretty much the same as pelletizing wood, but “the devil is in the details.” He says, “As far as the mechanical characteristics, we definitely benchmark the highest level of wood pellets out there—I think we have some advantages in that category.” Where it differs is in the chemical characteristics, but Lyra shares that sugarcane pellets do not possess quite as complicated a chemistry as what people know as an agri pellet.

After the sugarcane bagasse is put through a washing process to remove all of the sugar molecules, a high concentration of cellulose and lignin is left, “actually very close to wood with some differences,” Lyra says. Cosan Biomassa actually produces two products—a bagasse pellet and a pellet from sugarcane straw. Bagasse comes out of the sugarcane mills and Cosan dries it, runs the material through a cleaning process, grinds it and then pelletizes it. Sugarcane straw is collected from the fields using balers. “We bring these bales to our pellet plant and we process the bales to make pellets,” Lyra explains. “They have slightly different mechanical and chemical properties and it really depends on the market which product we have more demand for. Today, we are able to produce both.” Cosan developed the overall pelletizing process in-house, but “selected suppliers amongst the best in the world for different pieces of the puzzle,” Lyra says.

Power for an Island Country
Although the EU has led biomass pellet consumption to date, Japan has promising government support. The country has established its energy plan for fiscal year (FY) 2030—the projected energy mix including 22 to 24 percent from all renewable energy sources with biomass making up 3.7 to 4.6 percent. The Japanese government says nuclear will get 20 to 22 percent of the energy mix, but some analysis suggests this may be unlikely unless many of the shutdown nuclear plants come back online. If this is the case, the government has indicated that renewables will serve as the nuclear replacement, and biomass is a baseload option.

Japan also introduced a feed-in tariff (FIT) system in 2012 to promote renewable energy generation from independent power producers, requiring utilities to purchase power generated from renewable energy at a fixed price for 10 to 20 years. FIT rates are reviewed every fiscal year and adjusted accordingly. The current FIT for imported biomass is about 24 yen per kilowatt hour (kWh) (22 cents per kWh at recent exchange rates) and the length of the contract is for 20 years. According to the GAIN report on Japan, since the system was introduced, the number of power generating facilities using renewable energy has steadily increased, and Japanese biomass consumption is projected to positively rise from 2017 and 2018. Demand could grow up to several million tons a year, mostly imported from overseas and supported by the FIT scheme. In the case that more biomass will be needed to replace coal or reduce CO2 emissions, then total demand will be well-over 10 million tons a year.

The Japanese government also proposed to revise measures within the Act on Rational Use of Energy—known as the Energy Conservation Act—this year. One of the key components of the new measures is the judgement of standard for new power generation facilities, and new energy efficiency benchmarks for electric power generation businesses. Japanese government set these to improve efficiency of thermal power generation facilities. Also, the government is restructuring the energy supply system aiming at lowering the electricity emission factor in FY 2030 by about 35 percent from FY 2013 to 0.37 kilogram CO2 equivalent per kWh.

Ishikawa believes that “in light of the company’s integrated supply chain of electricity from fuel feedstock, power generation, power wholesale and retail, it is important to take an initiative and keep up with FY 2030 Energy Mix for the company’s energy business and biomass power generation likewise.” He adds, “We see sugarcane pellet (residue) should bridge a demand gap between an availability of wood pellets and Japanese policy targets.”

Author: Katie Fletcher
Associate Editor, Pellet Mill Magazine
701-738-4920
kfletcher@bbiinternational.com