A Yankee in King Arthur’s Court
While traveling overseas for his work nearly half of each month, Seth Ginther has conversations with customers and policymakers in places including the U.K., The Hague, Belgium and Denmark. His work as executive director of the U.S. Industrial Pellet Association has placed him on the leading edge of a historic market opportunity for U.S. based-pellet producers.
It seems the worm has turned with anticipated European demand for U.S. pellets. What has contributed to this change from market potential to market reality?
Without a doubt, it has been policy certainty, or a market signal toward policy certainty, in various member states of the EU. This past summer, the U.K. indicated it will extend subsidy for the use of solid biomass for energy in the U.K. through the ROC (Renewable Obligation Certificate) scheme. Belgium has made similar moves in the past few months. I just returned from a meeting at The Hague in the Netherlands with the Ministries of Energy and Economics, and they’ve indicated that the prospects are good that the Netherlands will extend their co-firing subsidy as well. Denmark also has policy framework in place for our product. All of these policy developments move us toward market certainty, as our industry, after all, is based on policy created by the EU and its member states. Moreover, each of these countries has made significant capital investment in the supply chain infrastructure that efficiently supports the industry, including ports and storage facilities. The combination of all of these factors has created an enormous market demand for industrial wood pellets manufactured in the U.S.
Where in Europe are you spending the majority of your time?
The majority of my work in Europe takes place in the U.K., Belgium, the Netherlands and Denmark. This isn’t surprising, as those places are where markets have developed for our industry. Also, Asian markets are currently developing, and we have done some work in Seoul, South Korea, trying to further develop those markets.
You are unique among association leaders, as you’ve had to develop policy fluency in foreign countries. How have you worked through what must be a steep learning curve?
It is actually fascinating work that I enjoy immensely. The old saying “Do what you love and it won’t seem like work” definitely applies here. It is fascinating because the general policies are driven by and set at the EU level in Brussels. Accordingly, there needs to be a deep working knowledge of Brussels, the institution of EU Parliament, and all of it players, as well as the international treaties and laws that come out of Brussels. Within that backdrop, you have each EU member state that sets its own national laws, and those regulations must comply with EU law. This sets up a working landscape where you have to be fluent in international law at the EU level, and also at the member state level. I’ve been practicing law for 15 years now, and by far, this has been the most fascinating work of my career to date.
U.S. bioenergy industry professionals often look to European bioenergy policy with envy as it seems to create more fertile landscape for development. Is their envy justified?
I think so. The Europeans are so far ahead of the U.S. when it comes to bioenergy policy development that it is mind-boggling. The reality of climate change is no longer debated in the EU; it is simply part of their DNA. Accordingly, they have the support for, and enacted the policies necessary to meet their collective goal of having significant positive impact on climate change. This naturally sets up a very favorable environment for investment in and development of the assets necessary for them to meet their goals.
Is U.S. capacity and port infrastructure ready to fulfill European demand, or are continued investments necessary?
There is still a need for significant investment in the U.S., in the form of capital for new facilities. As the European policy certainty continues to develop, I think we will see more capital come off the sidelines to fund new projects and infrastructure, both private equity and debt capital. Additionally, there are numerous players in the supply chain making the infrastructure investments required for the U.S. to meet European demand—for example, ports and railroads.
How important is the ROC program in the U.K. to the demand for U.S. produced pellets? Where does biomass stand relative to satisfying requirements of this program?
The U.K. ROC scheme and the U.K. tax policy on carbon are the policies that create the foundation for the economics of the industrial wood pellet business work between the U.S. and the U.K. It is extremely important, and USIPA has done an incredible amount of work interacting with U.K. policy makers and other stakeholders to ensure that they can sustainably source solid biomass fuel from the US. While solid biomass fuel is not the only solution to the U.K. meeting its renewable energy goals, it is certainly a key part of the solution. The ROC banding scheme and tax policy on carbon allow U.K. utilities to keep a number of coal operated power plants online while cofiring industrial wood pellets alongside coal. This keeps assets that have years of life left in them operating, which means jobs for U.K. citizens not only at the plant, but also in the supply chain getting the pellets from the ships to the plant.
Where does the sustainability question of U.S. pellets lie with European customers? Are these requirements consistent across the subcontinent, or do they vary from country to country?
At the current time, there is no harmonized EU sustainability criteria for solid biomass in Europe. The current state of play is that each EU member state is left to interpret the Renewable Energy Directive 17, which is actually a criteria designed for liquid biofuels. As industry members know, liquid biofuels and solid biofuels are two completely different animals. Accordingly, it has led to much confusion across member states, and our producers are meeting sustainability requirements on a member state-by-member state basis. This is terribly inefficient; we are strong advocates of harmonized EU sustainability criteria for solid biofuels. We expect a further consultation out of the EU on this issue later this spring.
Are there other global markets that your constituents are eyeing for even greater opportunity?
There is clearly a market development opportunity in Asia, namely South Korea and Japan. Conservative estimates for industrial wood pellet demand for Asia hovers around 5 million metric tons per year over the next several years. The key for the U.S. to be able to supply that demand will be for the Asian utilities to get comfortable with signing long-term contracts. A long-term contract is the key to getting a new plant financed, so Asian utilities need to supply those contracts if they expect U.S. financiers and others to back U.S. projects. I think that Asian utilities are beginning to recognize this concept, and they understand that they will not be able to meet their demands with spot trades. If that market develops, it will be very exciting for the U.S. industry.