FutureMetrics analyzes changes in South Korean pellet market

By Erin Voegele | August 12, 2019

FutureMetrics has published a new white paper on recent developments in the South Korean industrial wood pellets market, updating an analysis the company published two years ago. The changes could dampen demand for wood pellets.

According to FutureMetrics, South Korea’s policy on renewable energy certificates (RECs) has changed over the past two years. The number of RECs that can be accrued per megawatt-hour (MWh) has been redefined and the schedule for the ramp-up in the percentage of renewable energy that major utilities have to produce has been revised. Utilities must now meet a 10 percent goal by 2023 rather than in 2022. According to report author William Strauss, more significant changes have been made to the REC weightings per MWh.

“Growth in co-firing, which has been the mainstay of the past growth in the S. Korean wood pellet markets is no longer supported,” Strauss wrote, noting that wood pellets in general are less supported by the new REC weightings. Support for woody solid recovered fuel was significantly lowered he said, while support for domestic wood pellets has been increased. REC weightings for palm kernel shells have also changed.

“The net effect of the policy changes is to dampen current demand for imported wood pellets and to significantly lower expectations for growth in future demand,” Strauss wrote. “Since Vietnam is the major supplier to S. Korea…, this has led to an oversupply of pellets in Vietnam and that has caused a significant decline in the spot FOB prices of pellets from Vietnam.”

Strauss notes it is currently unknown how South Korean policy will evolve. However, under current policy, is said is likely that the growth in demand for wood pellets will be dampened with respect to forecasts made a year or two ago.

FutureMetrics has also developed a dashboard that allows the user to experiment with inputs to see the effects on power plant cash flows, and thus pellet demand, in both South Korea and Japan. Both the white paper and dashboard are available on the FutureMetrics website