Global pellet market forecasts optimistic at WPAC 2015

By Katie Fletcher | November 04, 2015

The third annual Wood Pellet Association of Canada conference held in Halifax, Nova Scotia, Nov. 3-5, opened with a discussion on shifting markets in the global pellet industry.

The panel included presentations from Fiona McDermott, research manager with Hawkins Wright; William Strauss, CEO of FutureMetrics; Mike Burns, assistant deputy manager with the Government of Northwest Territories; and Gillies Gauthier with the European Pellet Council.

The panel began with a macro view of the industry, focusing on Europe. The discussion then concentrated on European market opportunities and uses for pellets, particularly in the heat market. The panel moved on to discuss Canadian pellet applications in the NWT, and wrapped up with Strauss talking about decarbonizing the power sector, as well as supplying data on North American markets.

McDermott kicked off the conference with an overview of the global wood pellet market. She shared Hawkins Wright data of global wood pellet production. In total, wood pellet production is about 28 million tons, comprised of 15 million tons used for heating in the residential and small-commercial sectors and 13 million tons of pellets used in the industrial sector for power generation, combined-heat-and-power applications and large district heating projects. “The pellet industry has sustained regular, significant growth over the last 15 years,” McDermott said.

She added that in the industrial sector, Europe is the most significant market, accounting for over 80 percent of global demand this year. Asia is another significant market, but did decline slightly in 2015.

McDermott shared how the demand for heating pellets has evolved over the past two years. This year, Hawkins Wright estimates the demand for heating pellets has risen by 1.3 million tons and there has been industrial market growth of 1.7 million tons. Europe is the biggest market for heating pellets, and another large market is North America with a smaller market in Asia. Overall, McDermott said, the market for pellets is about 27.6 million tons with growth of about 3 million tons over the past 12 months.

McDermott touched on funding in the U.K. for renewable energy. The new conservative government the U.K. has had since May has placed a stamp on energy policy, McDermott said. “Ultimately it all comes down to funding, and the main question facing the U.K. energy industry is whether there is any money left in the budget to support renewable electricity deployment.”

She added that there have been conflicting assessments of whether there is actually any money left in the budget. “More recently, the Committee of Climate Change has published their own estimates, and they suggest there could potentially be sufficient money left in the budget to support a further 7 to 12 terawatt hours of renewable electricity and deployment,” McDermott said. “This would clearly be very positive for the industry and would potentially permit future contract for difference (CfD) auctions taking place.” 

Drax Power Station is the major end user and has converted two units fully to biomass each which uses about 2.5 million tons. A third converted unit is already using over 85 percent biomass, and is just waiting on the CfD. Drax is considering converting a fourth unit, but this is contingent on if there is any money left for future CfD auctions. According to McDermott, the U.K. industrial pellet market demands just over 10 million tons. “Because of this, it will remain the major industrial pellet market globally for some time to come,” she said.

Other industrial pellet markets covered included Belgium, the Netherlands, Denmark and Sweden. In Belgium, McDermott mentioned the sale of Eon’s Langerlo coal-fired power plant to German Pellets. “Once this conversion is complete, it would require about 1.8 million tons of pellets per year,” she said.

Beyond Europe, Asian markets were discussed. The South Korean market is one of the newer markets for biomass. Demand rose significantly in 2014 from about 400,000 tons to 1.9 million tons, driven by the renewable portfolio standard (RPS) policy. Imports to Korea came mainly from Vietnam, Malaysia and Canada.

McDermott notes that the tender system the Korean buyers use to purchase pellets puts all of the focus on price, and this has pushed prices extremely low and arguably at the expense of quality. “We think demand in Korea will remain stable over the next year,” McDermott said.

She explained that at the start of 2015, Korean gencos introduced a requirement for suppliers to provide FSC and PEFC chain-of-custody certificates, but some of those were found to be fraudulent. As a result, the Korea Forest Promotion Institute decided to require suppliers to provide evidence based on the Apostille Convention that involved pellet exporters to provide government-issued tenure documents and fiber supply contracts. As a consequence, Canadian exports fell by 74 percent over January through September of this year.

Since then, after WPAC’s lobbying in September of this year, the Korean authorities changed the trade requirements. A new verification process has been implemented since Oct. 5, whereby the importer must complete a checklist with information relating to the fiber source and its origin. “This should reopen the Korean market to Canadian suppliers, though low demand and prices remain a problem,” McDermott said.

She shared that the Korean market is volatile and subject to similar policy uncertainty as Europe, and that South Korean demand will likely not return to growth until 2017, although long-term prospects remain positive. McDermott mentioned that Japanese buyers may serve as a better long-term opportunity for North American producers than Korean gencos.

Gauthier with EPC focused on European heat markets. He said, most of the pellets used in Europe are to produce heat—around 65 percent. “The development of the industrial sector is going well and is important, but it’s not the only one because it is fragile due to changes in the policy framework,” Gauthier said.

He discussed data in the European Biomass Association (AEBIOM) annual statistical report, providing an outlook on European bioenergy for 2015. In his presentation, he mentioned that mild winters and other factors such as the low price of heating oil, the competition with other technologies and the contracting sales of pellet heating appliances have impacted the sector, because pellet production is mainly dedicated to the heat market.

“This market is extremely weather dependent,” Gauthier said. “For the moment, the domestic market has slightly decreased because of the winter.”

However, he said that the commercial sector is growing. “I think the domestic market is going to continue to grow, we’ve seen some countries where it is growing, but the commercial heating market is definitely something very interesting to have a look on because it is a good in-between the industrial sector and the domestic sector. It’s less weather dependent for some applications.”

Gauthier concluded by saying that the heating market is strong and growing, but does have its challenges. “We strongly believe there is good potential in the medium-scale sector,” Gauthier said.

Burns discussed the current status of biomass in the NWT. He shared that the region currently has 80 commercial wood pellet boiler installations ranging from 50 kW to 950 kW and 1,000 residential pellet stoves. Prices for a 40-pound bag of pellets range from $4.50 to $6 per bag, coming predominately from Northern Alberta. Prices range from $300 to $540 a ton in bulk. Burns said, NWT consumes approximately 21,000 metric tons of pellets per year.

Strauss rounded off the content of the opening panel at WPAC’s 2015 conference. One of the subject areas he discussed was the Clean Power Plan. “The Clean Power Plan is enabling legislation,” Strauss said. “Typically, from what I’m hearing from legal opinion, is that this legislation is probably going to survive legal challenges.”

Strauss said that each state has to submit a plan to mitigate carbon emissions from their power sector by about 32 percent from 2005 levels by 2030, beginning in 2022. Strauss believes most states will develop state implementation plans, because otherwise they will have to go by the federal implementation plan. “We think it’s really important now, because these plans have to be submitted in the next year or two, that we work with some states, key states, to make sure that inside these plans there is language confirming cofiring in coal plants,” Strauss said.

Other panels of the day included discussions about commercial biomass solutions in Canada, quality and sustainability issues surrounding wood pellets and safety measures in the pellet sector.

During the panel discussing quality and sustainability issues surrounding the pellet industry, Deborah Keedy with Drax Power focused much of her presentation on the Sustainable Biomass Partnership. “We’ve experienced a lot of frustration with trying to get things moving,” Keedy said. Now, both NEPCon and NSF International have become SBP-approved certification bodies. Also, Westervelt Renewable Energy, SBE Latvia Ltd. and AKZ Ltd. are certified biomass producers. “We are starting to see the fruits bear.”

Keedy said Drax’s aim is for the SBP to be the primary measure for sustainability by the end of 2016. After the panel, discussion of the SBP continued. Gordon Murray, executive director of WPAC, said, “What I’m a bit concerned about now is that SBP has kind of gone off on its own, created an advisory board.” He added that producers are currently feeling a little left out, and don’t want to lose the ability to participate in the process moving forward.

Murray followed Keedy on the panel by discussing new biomass sustainability requirements in the Netherlands. Chris Wiberg with the Biomass Energy Laboratory shared his take on the U.S. new source performance standards for new residential wood heat appliances, which he wrote about in a column this summer.

This year’s conference hosted just over 200 attendees with 30 exhibitors and a pellet truck on display by Groupe Savoie. Since August 2015, over 500 tons were delivered to residential and commercial users from Groupe Savoie’s pellet plant via its pellet trucks.