In July, Japan imported 52,000 tons of wood pellets, eclipsing the previous monthly high of 51, 500 tons set in December 2015. Additionally, monthly volumes in 2016 have been more consistent in contrast to the peaks and valleys that defined 2014 and 2015. As a result, Japan is expected to finish 2016 having imported between 350,000 and 400,000 tons of wood pellets and producers around the world are optimistic that Japan&rsquo;s wood pellet demand is set to rise steadily to 1 million tons per year within the next handful of years.
The on-again, off-again nature of Japan&rsquo;s pellet imports has been replaced by steady monthly volumes largely because of what industry analysts think will be the first of perhaps a dozen dedicated biomass power or biomass combined-heat-and-power (CHP) facilities came online in November 2015. The 49 MW Showa Shell biomass power plant in the Kanagawa prefecture, just south of Tokyo, will generate enough power for 89,000 homes, all from biomass.
&ldquo;That plant will use around 150,000 to 200,000 tons of pellets per year,&rdquo; says Seth Walker, senior economist at RISI. &ldquo;So that is a step change from when the market was using 80,000 tons per year for limited cofiring and other uses.&rdquo; The facility in Showa Shell is the kind of independent power producer currently eligible to receive a feed-in tariff (FIT) established by the country&rsquo;s Ministry of Economy, Trade and Industry in 2012.
The program obligates large utilities to buy increasing amounts of renewable power under long-term contracts. The price per kilowatt hour for power from wood pellets is 24 yen (22 cents per kWh) and the duration of these offtake agreements is set at 20 years.
&ldquo;The feed-in tariff at today&rsquo;s exchange rate is somewhere around 24 [yen] a kWh, which is extremely generous,&rdquo; says William Strauss, president at FutureMetrics. &ldquo;You can afford some pretty expensive fuel when you are paid that much for your electricity.&rdquo;
The long-term FIT contracts, like the one enjoyed by the operators at Showa Shell, are, in turn, generating long-term pellet offtake agreements, a far more palatable business scenario for North American producers than the short-term tender arrangements favored by South Korean buyers.
&ldquo;I&rsquo;ve gotten the impression that Korean buyers are fine to burn $100 per ton Vietnamese pellets as long as they can get them and as many as they can get to meet their Renewable Portfolio Standard,&rdquo; Walker says. &ldquo;The Japanese on the other hand are able to offer contracts for as long as the Europeans or even longer to pellet producers.&rdquo;
This is all welcome news to Canadian producers and serves as a nice salve against the disappointment they experienced in South Korea as they watched the bulk of the market get gobbled up by low-cost producers in Vietnam. For now, Canada is the clear market leader for wood pellets delivered to Japan. According to the UN Comtrade database, Canada contributed 158,000 of the 190,000 tons of wood pellets Japan imported through July, or 83 percent of the total volume.
&ldquo;The Japanese, in general, value long-term security of supply and a counterparty that they know is legally logging and is procuring sustainable feedstock through some sort of monitoring scheme,&rdquo; Strauss says. &ldquo;The Canadians have all of that.&rdquo; Palm Kernel Shell Still, to say that Canadian wood pellet producers are the clear market leader in Japan is only half right and misses a key part of the biomass story inside the country. The same FIT program that has underwritten demand for wood pellets has also led to a dramatic increase in imports of palm kernel shell (PKS) a byproduct of palm oil production. The UN Comtrade database shows that PKS imports into Japan nearly doubled in 2015 to over 450,000 tons and the monthly average in 2016 through July is 50,000 tons per month.
Virtually all of Japan&rsquo;s imported PKS volumes originate in Indonesia or Malaysia, with Malaysia enjoying a slight advantage over Indonesia with 195,000 tons exported to Japan against Indonesia&rsquo;s 150,000 tons. PKS volumes are also moving at a significant discount to wood pellets with monthly per-ton averages hovering around $100 per ton, roughly half the price being paid for wood pellets. Whether PKS can keep pace and grow in proportion with the more hopeful forecasts for biomass demand in Japan remains to be seen but it is important to note that PKS availability is tightly correlated to palm oil production.
&ldquo;There&rsquo;s some concern about the sustainability of supply,&rdquo; Strauss says. &ldquo;In last week&rsquo;s Argus Biomass Report there was a story about reaching the limits of PKS supply. Some reckoning the limit is maybe 1 million tons per year.&rdquo;
Gordon Murray, executive director at the Wood Pellet Association of Canada, has been directed by his membership to make the most of the foothold they have in Japan. &ldquo;My charge is to make sure that the Japanese customers understand that Canadian pellets are available, that they are high quality and that there is an established supply chain with reputable suppliers who are stable and well-financed, and that our fiber is sourced from the most sustainably managed forests anywhere,&rdquo; he says. &ldquo;We&rsquo;re not going to lower our standards to try to compete on price with low-cost producers in Southeast Asia. We&rsquo;ll go about growing our business by building on our strengths.&rdquo; Beyond Independent Power Producers Murray&rsquo;s members and biomass producers throughout the world are all speculating on likely demand growth trajectories in Japan. For now, Japan&rsquo;s FIT program is limited to independent power producers operating smaller, dedicated biomass power or biomass CHP facilities. &ldquo;The jump in imported volumes late last year was from Showa Shell coming online,&rdquo; Walker says. &ldquo;There are a few more of those in the pipeline and those plants are getting their 24 yen per KWh, 20-year contracts, I think. Some of those are using domestic biomass, but moving forward, some others are looking at wood chips and wood pellets and, just on the pellet side, I think that could be roughly a million-ton market.&rdquo;
While steady growth to 1 million tons per year would certainly be a shot in the arm for Canadian producers, optimistic forecasts suggest that number is more likely a floor than a ceiling. The upside will ultimately be determined by Japan&rsquo;s embrace of large-scale biomass cofiring as a means to its energy and environmental goals. Japan&rsquo;s Uncertain Energy Future The emergence and growth of biomass and wood pellet demand inside Japan is set against the backdrop of a country at a crossroads with its energy future. In 2011, an earthquake and tsunami significantly damaged some of the country&rsquo;s nuclear power stations, most notably at Fukushima, resulting in the worst nuclear disaster since Chernobyl. Shortly after the disaster, public opinion surrounding nuclear power plummeted and Japan&rsquo;s entire nuclear fleet shut down in May of 2012. At least two reactors have been restarted but a sizeable void in power capacity remains.
&ldquo;After Fukushima, Japan dramatically ratcheted down their nuclear power production and liquid natural gas (LNG) became the new baseload,&rdquo; Walker says. &ldquo;They are now running all of their LNG plants and their coal plants at full baseload capacity. They&rsquo;ve been fortunate because the drop in global oil and fossil fuel prices means this hasn&rsquo;t really hurt them. LNG, though, is killing them even now with oil prices that are so low.&rdquo;
Desperate for an affordable base-load power solution to fill in the gap left by rolling out nuclear power, the Japanese announced this summer an aggressive program to build nearly 30 gigawatts (GW) of coal-derived power online in the next dozen years.&nbsp; This plan, announced early this summer, was met with surprise and for many observers disappointment as they saw it as a total departure from the trend toward low-carbon and renewable power most industrialized countries are pursuing.
In some ways, the expansion of coal paired with an interest to also drive carbon out of the whole system may well be a boon for wood pellet producers. &ldquo;Everyone from our industry is pulling for biomass cofiring in Japan,&rdquo; Walker says. &ldquo;But I&rsquo;ve had a hard time getting a straight answer as to what really motivates cofiring in Japan. Some of the Japanese I&rsquo;ve talked to have suggested that cofiring will be mandated there. I&rsquo;m inferring that what they mean by that is they are going to set emissions targets for new coal facilities that are so stringent they aren&rsquo;t going to be able to meet them without cofiring.&rdquo;
This expansion of coal power also flies in the face of a rolling energy policy Japan has developed, typically referred to as the Best Energy Mix. The targets have Japan retreating from a reliance on fossil fuel sources by bringing its nuclear power production back online and significantly expanding the role of renewables. This plan, like similar plans in other countries, has generated resistance inside the country as opponents express concern over the economic impact of higher overall energy costs.
&ldquo;Nobody in Japan that I&rsquo;ve ever talked to, from utility guys to the trading houses, thinks that they will ever get past 10 to 12 percent nuclear. And the way the best energy mix goes is that if it isn&rsquo;t nuclear then it has to be renewable because they want no carbon emissions from that power,&rdquo; Strauss says. &ldquo;If nuclear doesn&rsquo;t make it up to 22 percent then the difference has to be made up with a low-carbon solution. Nuclear is baseload so the only way you are going to make up for that deficit with a low-carbon baseload power is with pellets.&rdquo;
Each of the potential pathways the Japanese are considering offers opportunity to not only the industrial wood pellet market, but to other biomass commodities as well. If the Japanese double down on coal by building new assets, cofiring with biomass may be deployed to bring those plants in line with the emission targets regulators set for them. If they heed the urgings of proponents of decarbonized energy platforms and abandon their plans for new coal assets, carbon could be driven out of their existing fleet with pellet cofiring and the greater deployment of stand-alone biomass assets.
For Strauss, the latter approach seems the most plausible one, and for producers, the one that comes with the most opportunity for them.&nbsp; Strauss says, &ldquo;This adds up to a pretty significant opportunity, easily 10 million tons per year if, in fact, Japan follows through on its Best Energy Mix policy and it could be way more than that.&rdquo; Author: Tim Portz Executive Editor, Pellet Mill Magazine 701-738-4969 tportz@bbiinternational.com

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As wood pellet imports in Japan begin to accelerate, industry professionals offer cautious optimism that an Asian market opportunity for North American producers has arrived. 

Japan's Rising Pellet Sun

Thailand has several policies in place that help promote the production and use of renewable energy, according to the International Energy Agency. In 2009, the government implemented the Renewable Energy Development Plan (2008-&rsquo;22) and in June 2015 the country passed the Thailand Alternative Energy Development Plan (2015-&rsquo;36).
Agriculture is big in Thailand. According to Chinese pellet mill maker Zhengzhou Fanway Machinery Manufacturing Co. Ltd., which supplies biomass and wood pellet mills to Thailand, in one year Thailand can produce 6 million tons of rice husk and more than 25 million tons of sugarcane bagasse. Oil palm and wood wastes are two more sources of abundant biomass in the country. The materials are primarily collected from rice, sugar and oil palm mills, and the wood processing industries, respectively. Sugarcane and rice are more concentrated in the northern and northeastern regions of the country, while the southern region has higher concentrations of oil palm processing.
As the pelleting of nonwood biomass in Thailand gains popularity, the country&rsquo;s wood pellet manufacturing industry is rather established. &ldquo;The growing global demand of wood pellets, especially in the Asian Market, stimulates the wood pellet manufacturing industry in Thailand,&rdquo; ZFMM states. &ldquo;There are many good, quality wood pellet producers in Thailand and most of their wood pellets are exported to East Asia, such as South Korea and Japan. Thus, Thailand has mastered the biomass pellet producing technology.&rdquo;
In 2014, Thailand exported nearly 111,000 metric tons of wood pellets, according to the Food and Agriculture Organization of the United Nations Statistics Division (FAOSTAT). In 2015, however, Thai exports of wood pellets dropped considerably, to 25,429 tons. Contributing to Thai wood pellet exports to Japan and South Korea is BioPellets Thailand Co. Ltd.
Company CEO Kitti Chulasamaya says, in 2015, BioPellets directly exported 600 tons to South Korea and 100 tons to Japan. This year, the company has exported 400 tons to China, but it has changed how it does business compared to previous years. &ldquo;We are positioning ourselves to be a producer and not do our own marketing,&rdquo; Chulasamaya says, &ldquo;so we are selling to a trader.&rdquo; Rather than selling direct into the Korean and Japanese markets, BioPellets now primarily sells its wood pellets to traders who then determine where the product goes.
BioPellets operates three pellet mills in Thailand with a total production capacity of 18,000 tons, Chulasamaya says, adding that the company plans to double capacity to 36,000 tons. The company uses rubber wood, eucalyptus, local pine wood, leaucana, arcacia and some hardwood mix as feedstock, Chulasamaya says.
According to FAOSTAT, Thailand&rsquo;s cumulative wood pellet production has grown from 20,000 tons in 2013 to 115,000 tons in 2015.
Chulasamaya says domestic consumption of wood pellets in Thailand, mostly in industrial boilers, is climbing each year, &ldquo;especially for manufacturers of public companies,&rdquo; he says. &ldquo;But small industry has still not grown up much, as they are concerned about the cost much more than the environment.&rdquo; He says common boiler fuel continues to be oil and gas on the fossil-fuel side, and palm kernel shells, wood chips, sawdust and other wood residues on the renewable side. He says some power plants may eventually move to using wood pellets, but today, if they are using renewables, it is often rice hulls and wood chips.
FAOSTAT estimates that in 2013, Thailand imported about 1,000 tons of wood pellets. This figure ticked up to 1,331 tons for 2014 and 2015.
On Thai policy to promote wood pellet production and consumption, the National News Bureau of Thailand reported on Feb. 1, 2015, that the government was considering a plan to promote the use of wood pellets in Thai industry to lessen reliance on imported fuel. The plan included government investment of 30 to 50 percent of the cost to replace factory boilers with ones capable of utilizing wood pellets. &ldquo;This move will help to increase domestic consumption of wood pellets,&rdquo; ZFMM says. &ldquo;Therefore, it is good news for Thailand wood pellet manufacturers, especially ones who want to start biomass pellets businesses. Along with the large amount of available biomass resources, mature biomass pellet production technology and affordable pellet making machines, it will promote the development of Thailand&rsquo;s wood pellet market.&rdquo;
Chulasamaya says Thailand&rsquo;s industry ministry has the funds and budget for factories seeking to change their oil or gas boiler to one that combusts wood pellets, &ldquo;but that government support is not announced well-enough, and then people don&rsquo;t know,&rdquo; he says. &ldquo;Moreover, that support is not just for wood pellets, but for all renewable energy, of which most funds go to support ethanol, solar and biogas.&rdquo;
He says wood pellet production in Thailand started only four to five years ago, &ldquo;but the first-generation of wood pellet investors, most of them shut down their own factories due to technology problems, which has left less than six [first-generation] producers,&rdquo; Chulasamaya says. &ldquo;Some of them turned to trading, and some of them that still operate are not full capacity because they are fixing their own machines and running the [mill] for just a routine and sell small amounts, but if you ask them to invest in new technology, they would not for sure. Now [Thailand] is on the second- or third-generation of pellet producers and the first-generation producers are still involved as advisors,&rdquo; he says.
Indonesia FAOSTAT data show that Indonesian wood pellet manufacturing doubled from 2013 to 2014, jumping from 40,000 tons to 80,000 tons in a year. Data estimates suggest a leveling off in Indonesian wood pellet production in 2015, remaining at 80,000 tons. In total, Indonesia exported slightly more than 37,000 tons in 2013, more than doubling to nearly 76,000 tons in 2014, with FAOSTAT estimates at roughly the same tonnage for 2015. A majority of Indonesian wood pellet exports are going to South Korea. According to a presentation given Jan. 28 by Gordon Murray, executive director of the Wood Pellet Association of Canada, at the Western Forest Industry Conference, Indonesia exported 63,000 tons of wood pellets to South Korea in 2014 and an estimated 61,000 in 2015, based on Global Trade Atlas data.
Interestingly, Indonesia imports of wood pellets also nearly doubled from 2013 to 2014, but volumes are extremely low. The country imported 18 tons in 2013 and 35 tons in 2014, according to FAOSTAT.
One Indonesian wood pellet producer is PT South Pacific. Steven Eyskens, the director of PT South Pacific Indonesia who is of Belgian nationality, says he&rsquo;s worked in Indonesia for more than 15 years, starting in wood production and then opening a furniture factory producing furniture for export. &ldquo;As I am located in a main furniture area, I was running into several companies that had waste problems with their sawdust and wood waste,&rdquo; he says. &ldquo;After communicating with several Korean companies, and a European pellet mill manufacturer, we decided to start a pellet mill in 2013 when the Korean market was booming.&rdquo;
PT South Pacific currently has one operating pellet mill in Indonesia, with an additional four locations secured to build more factories, Eyskens says. &ldquo;We are running now a 10-ton-per-hour mill setup, which we will use as well as a training center in the future to train the staff to work in the new mills we are planning to build,&rdquo; he says. &ldquo;As we grow, we are hoping that from our four main target centers, we can produce up to 300,000 tons per year.&rdquo;
Feedstock used by PT South Pacific for its wood pellets include wood waste from furniture manufacturing, including coreboard, species of which are albasia, mango, mahogany and pine. &ldquo;For the past few weeks we have been trying to work with the forestry department to put in plantations for glericidia sepium, a fast growing wood species,&rdquo; he says. &ldquo;I know some colleagues who are pelletizing rubber wood and different hardwoods from flooring and building industries.&rdquo;
Most of PT South Pacific&rsquo;s pellet production is exported to South Korea, China and Japan, Eyskens says, &ldquo;and we have buyers from Europe as well.&rdquo; One big initiative at the company is local implementation of wood pellet cooking stoves, called Mimi Moto, which has received a four-tier rating from the Global Alliance for Clean Cookstoves&mdash;the highest ever received, Eyskens says. The company is seeking distribution and nongovernmental organization partners in the cookstove market.
SingPellet Pte. Ltd. is a pellet producer incorporated in Singapore and operating in West Sumatra, Indonesia. Company director Wikkie Netten says SingPellet&rsquo;s mill is scaled to produce up to 2,000 tons a month. &ldquo;We are a pellet producer that provides woody biomass to industrial-scale customers to serve the Asian market,&rdquo; Netten says. &ldquo;As we set our sights on becoming the leading producer in Asia, we invest heavily in sustaining our feedstock security. We target to provide long-term supply to our clients from our vast 21,000-hectare (51,892 acres) plantation.&rdquo; She says SingPellet is test-bedding various species of short-rotation coppice for its replanting program, an endeavor anticipated to provide future feedstock supply, though the company currently relies on native species. She adds that all of the wood pellets SingPellet manufactures are currently being exported to Japan. &ldquo;Long-term supply contracts and the scaling up of our production are in negotiations at the moment,&rdquo; Netten adds.
Eyskens says 15 Indonesian wood pellet producers are registered to export to China. China, Malaysia, South Korea China&rsquo;s wood pellet production nearly doubled from 2013 to 2014, from 200,000 to 370,000 tons, according to FAOSTAT data. While 2015 production estimates show a leveling off, the country&rsquo;s exportation of wood pellets skyrocketed from 2013 to 2014, jumping from a mere 3,293 tons in 2013 to 165,654 tons in 2014. Nearly all of the increase in production from 200,000 to 370,000 tons from 2013 to 2014 went to exports. However, though Chinese exports hit record highs in 2014, they nosedived a year later. In 2015, Chinese exports sank to 52,025 tons. According to an Argus Biomass Markets report, this marked reduction in Chinese exports was in large part due to cheaper Vietnamese competition carving out market share in the demanding South Korean pellet market. Murray and his use of GTA data suggest that nearly all of China&rsquo;s 2015 exports&mdash;51,000 of 52,025 tons&mdash;were shipped to Japan. China imported just 85 tons of wood pellets in 2013, FAOSTAT data estimate. One year later, however, this figure ballooned exponentially to 7,353 tons.
In Malaysia, wood pellet production more than doubled from 2013 to 2014, arrowing up from an estimated 85,000 to 180,000 tons in just one year. As in China, official data show Malaysia&rsquo;s exports took the lion&rsquo;s share of its new production. In 2013, Malaysia exported 81,142 tons, rocketing to 168,588 tons in 2014. Essentially all of Malaysia&rsquo;s 2014 exports, which constitute nearly 94 percent of its total domestic production, went to South Korea, according to Murray and his use of GTA data. Imports into Malaysia fell significantly from 2013 to 2014 as well, but both years&rsquo; figures were relatively low at 534 tons and 396 tons, respectively.
Pellet Association Malaysia Chairman Sree Renganathan was reluctant to share any national data on his country&rsquo;s wood pellet industry with Pellet Mill Magazine, even though FAOSTAT makes estimates and official data available. &ldquo;We are a two-year-old industry in Malaysia, and we are getting strong challenges from Vietnam, Thailand and Indonesia due to lower pricing offered by them,&rdquo; Renganathan says. &ldquo;However, we [have an advantage] since we have plenty of oil palm biomass material. At the moment, the total quantity of production and members I am not keen to reveal&mdash;unless I see it can benefit my members.&rdquo;
In the granddaddy of all Asian wood pellet consumption markets, South Korea imports rallied from 122,447 tons in 2012 to 484,668 tons in 2013 to an impressive 1.85 million tons in 2014, according to official FAOSTAT data. Imports backed off in 2015, down to 1.47 million tons. Domestic production estimates are stagnant from 2012-&lsquo;15 at 15,000 tons annually. Exports dropped from 20 tons in 2012 to estimates of 1 ton per year subsequently. According to Murray and his GTA data, 743,000 tons and 1.03 million tons of wood pellets entered South Korea from Vietnam alone in 2014 and 2015, respectively. Author: Ron Kotrba Senior Editor, Biomass Magazine 218-745-8347 rkotrba@bbiinternational.com

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Pellet Mill Magazine reviews Asian wood pellet production,
export and import markets of Thailand, Indonesia, China,
Malaysia and South Korea. 

Asian Wood Pellet Producer & Market Snapshot

Grown in tropical to subtropical regions, vast fields of sugarcane&mdash;with stalks reaching heights of 10 to 24 feet&mdash;function like large solar panels by trapping the sun&rsquo;s energy in the form of sugar and biomass. Five centuries ago, this tall perennial grass was introduced to Brazil&rsquo;s temperate climate when the country was a colony of Portugal. Production took off, landing Brazil the title of world&rsquo;s largest producer by the 17th century. Although the country didn&rsquo;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 &rsquo;70&rsquo;s, following the government&rsquo;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&rsquo;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&rsquo;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&mdash;for example, corn produces about 3 to 4 tons of straw per hectare (around 1 ton per acre) and sugarcane produces about 20 (8). &ldquo;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,&rdquo; 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&rsquo;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&rsquo;s vision, investing in a stake of up to 20 percent of the biomass fuel manufacturing business. &ldquo;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,&rdquo; says Satoshi Ishikawa, deputy general manager of Sumitomo Corp.&rsquo;s materials and supplies business development and promotion department.
Japan has abundant biomass resources itself, but they aren&rsquo;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&rsquo;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&rsquo;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&rsquo;s nuclear plants post-Fukushima, power companies have been increasingly promoting renewable energy and using pellets for thermal power generation as part of Japan&rsquo;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&rsquo;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.&rsquo;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 -&rsquo;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&rsquo;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. &ldquo;Cosan and Sumitomo believe that a significant portion of this demand will be met by biomass sugarcane available in Brazil,&rdquo; Ishikawa says. &ldquo;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.&rdquo;
Five years ago, the companies began forming the foundation of their joint venture. &ldquo;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,&rdquo; 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&rsquo;s claim as the first company in the world to produce and market biomass pellets produced from straw and bagasse from sugarcane. &ldquo;I think the real benefit of biomass pellets is to substitute coal in coal-fired plants,&rdquo; Lyra says. Right now, the JV is looking toward established markets that have already indicated the direction they&rsquo;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. &ldquo;I think the awareness that biomass is a sustainable, dispatchable energy is growing among policy makers and society, in general,&rdquo; 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, &ldquo;they perform in a very similar way and, so far, we haven&rsquo;t identified any major differences,&rdquo; 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&rsquo;s limited. &ldquo;Since wood pellets are a developed and established commodity, of course, consumers will opt for wood pellets first because it&rsquo;s a known fuel, it&rsquo;s a known technology,&rdquo; Lyra concedes. &ldquo;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.&rdquo;
At this point, the JV has a trial shipment of bagasse pellet sales to the EU market under negotiation to occur in 2017. &ldquo;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.&rdquo; Brazil&rsquo;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. &ldquo;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,&rdquo; 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. &ldquo;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,&rdquo; 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 &ldquo;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.&rdquo;
Bottom line, cane mills are not burning or selling all of the surplus raw material, resulting in Brazil&rsquo;s current accumulation of millions of tons of bagasse and straw. Cosan isn&rsquo;t the only one that has tried pelletizing this material&mdash;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 S&atilde;o 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.&nbsp;
From a 5,000-foot view, Lyra acknowledges pelletizing sugarcane bagasse and straw is pretty much the same as pelletizing wood, but &ldquo;the devil is in the details.&rdquo; He says, &ldquo;As far as the mechanical characteristics, we definitely benchmark the highest level of wood pellets out there&mdash;I think we have some advantages in that category.&rdquo; 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, &ldquo;actually very close to wood with some differences,&rdquo; Lyra says. Cosan Biomassa actually produces two products&mdash;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. &ldquo;We bring these bales to our pellet plant and we process the bales to make pellets,&rdquo; Lyra explains. &ldquo;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.&rdquo; Cosan developed the overall pelletizing process in-house, but &ldquo;selected suppliers amongst the best in the world for different pieces of the puzzle,&rdquo; 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&mdash;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&mdash;known as the Energy Conservation Act&mdash;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 &ldquo;in light of the company&rsquo;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&rsquo;s energy business and biomass power generation likewise.&rdquo; He adds, &ldquo;We see sugarcane pellet (residue) should bridge a demand gap between an availability of wood pellets and Japanese policy targets.&rdquo; Author: Katie Fletcher Associate Editor, Pellet Mill Magazine 701-738-4920 kfletcher@bbiinternational.com

Cosan Biomassa currently obtains its sugarcane biomass feedstock for pellet production from RaÃ­zen, its joint venture with Shell, but will also consider working with third-party suppliers in the future. 

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Cosan Biomassa began commercial production at its 175,000-metric-ton-per-year plant in JaÃº, SÃ£o Paulo state, Brazil, late last year. 

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Sumitomo Corp. and Cosan Biomassa see an opportunity for pelletized Brazilian sugarcane biomass in Japan's power market and beyond. 

Bridging a Demand  Gap

Canfor Corp. recently celebrated the opening of its two new pellet plants collocated at sawmill sites in Chetwynd and Fort St. John near Vancouver, British Columbia. The Chetwynd plant has the capacity to produce 100,000 metric tons per year, while the Fort St. John facility can produce 75,000 metric tons annually.
The pellet plants primarily source sawmill residue from the adjacent sawmills as feedstock. A portion of feedstock is also sourced from the open market and other Canfor sawmilling operations.
The Chetwynd facility has a 3 MW combined-heat-and-power (CHP) unit. Approximately 20 percent of the heat from the system is used to generate an estimated 21,000 MWh of electricity annually. The remaining 80 percent is used to dry sawdust prior to its use as a feedstock for pellet production.

Canfor opens 2 pellet mills in British Columbia

The USDA Foreign Agricultural Service recently released a Global Agricultural Information Network report on Japan&rsquo;s renewable fuel industry, which includes data on wood pellet market development, imports and exports.
According to the report, the country&rsquo;s production and importation of wood pellets is increasing, along with palm kernel shell (PKS) imports. While the country has abundant biomass resources, they aren&rsquo;t currently economical to extract and use, the report says. Therefore, wood pellet and PKS imports are likely to increase in coming years as biomass cofiring at power facilities increases under the country&rsquo;s feed-in tariff system, which was introduced in 2012 and aims to promote renewable energy and heat at power plants.
The report also said Japan&rsquo;s government recognizes it must increase the production scale of wood pellets to become competitive in the global market, as the cost of using domestically produced wood pellets is currently more expensive for power companies than imported wood pellets. Since the shutdown of most of the country&rsquo;s nuclear plants post-Fukushima, power companies have been increasingly using pellets for thermal power generation.

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Report discusses Japan's pellet market

On Sept. 8, California Gov. Edmund G. Brown Jr. signed legislation to extend the state&rsquo;s greenhouse gas (GHG) reduction targets through 2030. The bill, SB 32, sets a target to reduce GHG emissions to 40 percent below 1990 levels by 2030. The Low Carbon Fuel Standard and cap-and-trade program are among the climate programs that have been extended.
The California Biomass Energy Alliance has spoken out in support of the bill. &ldquo;CBEA applauds the legislature and the governor for their work to reduce greenhouse gas emissions,&rdquo; said Julee Malinowski-Ball, executive director of the CBEA. &ldquo;California has always been a leader in protecting the environment and today&rsquo;s actions bolster that position.&rdquo;
&ldquo;The biomass industry will continue to be an essential tool in reducing greenhouse gas by providing clean, green renewable energy,&rdquo; Malinowski-Ball continued.

California extends GHG reduction targets

The USDA Foreign Agricultural Service recently released a Global Agricultural Information Network report on the Canadian pellet industry that notes the country&rsquo;s production capacity far exceeds domestic demand, most of which is being exported. In 2015, about 2 million metric tons of the 2.15 million tons of wood pellets produced in Canada were exported, with 74 percent going to the United Kingdom. In 2016, according to the report, year-to-date data indicates there is increased demand from Japan as it seeks to reduce emissions in its heat and power sectors.
The report also finds that while Canadian pellet consumption has remained relatively steady over the past several years, in 2015-&rsquo;16, low oil prices have reduced residential demand. However, government initiatives involving the use of wood pellets as a coal replacement are likely to make domestic consumption jump in 2016 and 2017.

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Report details Canadian pellet industry data

Doosan Heavy Industries &amp; Construction is converting the Korea-based Yeongdong Thermal Power Plant Unit 1 to biomass. Doosan was contracted by Korea South-East Power to complete the project in November 2015. The conversion is currently underway, with completion scheduled for spring 2017 and first fire expected just after the new year. The original 125 MW capacity of the facility is being maintained.&nbsp;
Once the conversion is complete, the unit will be able to burn up to 100 percent coal or 100 percent biomass, with 95 percent of that being wood pellets and the remaining 5 percent being wood chips or palm kernel shells (PKS), said Graham Welford, sales director at Doosan Babcock.
According to Welford, upgrades being made to the unit include fuel-handling changes that are required to handle biomass, along with a step change in safety equipment compared to coal. &ldquo;In the boiler house, we have replaced the coal mills, added new burners, PF piping and combustion systems because the old anthracite firing system based on tube ball mills was inappropriate for biomass,&rdquo; he added.

Doosan progresses with biomass conversion in Korea

Oxford Economics recently released a report that details the total impact of Drax Group on the U.K. economy, reporting that Drax contributed approximately &pound;1.2 billion ($1.58 billion) to the U.K.&rsquo;s gross domestic product (GDP) in 2015 while supporting an estimated 14,150 jobs throughout the country. The total impact takes into consideration supply chain activities and the wages that the company&rsquo;s staff and suppliers&rsquo; staff spend in the wider consumer economy. The direct GDP impact of Drax in 2015, primarily its wages and sum profit, was &pound;284 million. In addition, the company directly employed nearly 1,300 people.
&ldquo;This report shows Drax is supporting more than 14,000 jobs across the U.K., with the vast majority resulting from our upgrades to biomass technology,&rdquo; said Dorothy Thompson, CEO of the Drax Group. &ldquo;The economic benefit has reached all parts of the country&hellip;Drax is now the U.K.&rsquo;s biggest single generator of renewable power. With the right support from government, we aim to upgrade more of our electricity production to using compressed wood pellets. This would provide a further boost to the U.K. economy, and deliver increased carbon savings.&rdquo;

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Report quantifies impact of Drax conversion 

The U.S. Forest Service Rocky Mountain Research Station has released a set of studies evaluating nearly 40 years of data on the impacts of biomass utilization on soil, tree and plant recovery. The analysis found minimal impact using certain forest harvesting techniques.
Initiated in 1974, the study evaluated the ecological consequences of large-scale biomass harvesting using three different tree removal techniques: group selection, or the removal of small groups of trees; clearcut, or removal of all timber; and shelterwood, or the retention of some trees for shade and structure. All methods were performed using cable logging. On all three sites, the soil was left relatively undisturbed from the harvesting and varying amounts of down wood were left to promote soil organic matter and wildlife habitat. Prescribed fire was applied to some sites to reduce fuels and fire danger. The sites were then tracked over 38 years.
&ldquo;We did not find any clear evidence that intensive biomass removal negatively impacted these sites, nearly 40 years later these sites were healthy and had minimal observable impact,&rdquo; said Woongsoon Jang, a research scientist on the study from the University of Montana.

Study evaluates biomass harvesting methods 

MGT Teesside Ltd. recently announced it has finalized financing arrangements for the Tees Renewable Energy Plant, a 299 MW combined-heat-and-power (CHP) facility under development in the U.K. The power plant will be located on land within the Teesport Estate near Middlesbrough in northeast England.
In August, the company said site preparation work was set to begin within weeks, followed by main construction a few months later. Commercial operations are currently expected to begin in 2020.
Later that month, PX Engineering Consultants Ltd., part of the PX Group, announced it has awarded P&ouml;yry with the technical services assignment for its technical owner&rsquo;s engineering contract with MGT Power Ltd. for the project. In addition, Fortum has signed a 10-year operation and maintenance agreement with MGT Teesside for the facility.

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Development begins on 299 MW biomass CHP project in the UK 

1. Smith Flooring achieves PFI Standards Program qualification The Pellet Fuels Institute recently announced the qualification of pellet fuel manufacturer Smith Flooring of Mountain View, Missouri, into the PFI Standards Program. Smith Flooring was qualified by accredited auditing agency Timber Products Inspection. 2. Chadwick-BaRoss joins Barko distribution network Barko Hydraulics LLC has added Chadwick-BaRoss Inc. to its distribution network for all forestry equipment product lines. With five locations across Maine, Massachusetts and New Hampshire, Chadwick-BaRoss will carry Barko equipment for the New England region. 3. Fecon announces mobile balancing systems Fecon has announced new mobile balancing systems, the FMB-100 and FMB-200. The mobile balancing systems can work on any make or model of forestry mulcher. 4. POSCO ICT, KOEN to establish nitrogen oxide emissions reduction system POSCO ICT and the Yeongdong division of Korea South-East Power Co. (KOEN) have agreed to jointly establish a system for reducing the nitrogen oxide emissions from units 1 and 2 of the Yeongdong thermal power plant. POSCO ICT will build eco-friendly infrastructure that reduces nitrogen oxide emissions from the thermal power plant into nitrogen and water by triggering a chemical reaction in the nitrogen oxides. POSCO ICT will take on the whole process, from design and construction to test run. As a result of the improvements, nitrogen oxide emissions are expected to be reduced by up to 90 percent. The Yeongdong division of KOEN is working to extend the life of unit 2 by upgrading it into an eco-friendly plant that can reduce air pollution. The division is also converting unit 1 into a biomass power plant. That conversion project is expected to be complete in early 2017.
5. PHI Group to acquire pellet plant PHI Group, a U.S. public company focused on conventional energy and renewables, recently announced that it has signed a letter of intent to acquire a wood pellet manufacturing company in the Southeast U.S. The identity of the target company has not been released. PHI Group, however, said the company owns a 36,000 square-foot manufacturing plant and storage facility that was constructed in 2009, on 18 acres, and went into production in 2010. Annual production is approximately 100,000 metric tons per year. 6. Snow Timber Pellets qualified into PFI Standards Program The Pellet Fuels Institute recently announced the qualification of Snow Timber Pellets of Hurley, Wisconsin, into the Pellet Fuels Institute Standards Program. The PFI Standards Program is a third-party accreditation program providing specifications for residential- and commercial-grade pellet fuel, now representing 14 pellet manufacturing companies with a combined 28 facilities. 7. CBD to supply fuel conveying system to Lynemouth Clyde Bergemann (CBD) has been chosen to deliver the pneumatic conveying system to the Lynemouth biomass conversion. CBD has been supporting the conversion project with customers Sir Robert Alpine construction and civil engineering company, and end-user Lynemouth Power Ltd., since late 2011. The system utilizes state-of-the-art Clyde Bergemann Screw Injector and loss-in-weight technology, and conveys the wood pellets from each of the three new day silos to the inlet of the fuel mills. 8. New Biomass Energy acquires interest in torrefaction plant New Biomass Energy has acquired the majority interest in a Quitman, Mississippi,&nbsp; torrefaction plant and plans to continue the production of torrefied biomass. Initial production at the Quitman plant was expected to supply 2,000 to 3,000 tons of torrefied wood for a test burn at Portland General Electric&rsquo;s plant in Boardman, Oregon, in fall 2016. 9. Integrated Global Services awarded contract by Drax Integrated Global Services, a leader in the development and application of high-velocity thermal spray solutions for corrosion and erosion problems in mission critical equipment, has been awarded a long-term contract with Drax Power Station. Drax operates six power generation units, producing approximately 8 percent of Great Britain&rsquo;s electric power demands. Almost half of the station has been upgraded to burn wood pellets. The units suffer from wastage on evaporator walls due to fireside corrosion. Waste on pressure parts can lead to unplanned outages. To address this wastage, Drax had the option of changing out pressure parts or extending component life with the use of high-velocity metal coating. The plant selected to engage IGS to apply a proprietary high-velocity arc spray coating. The first project was successfully implemented in May, during which IGS protected more than 400 square meters of surface with its process. 10. ASGCO announces belt cleaning system ASGCO has announced the availability of its Super-Skalper HD, a belt-cleaning system for high-speed, high-volume conveyors. Available in several blade configurations, ASGCO&rsquo;s Super-Skalper HD can tackle tough carry-back applications. The one-piece mounting tube and E-Z Torque Tensioner applies consistent and proper pressure ensuring constant cleaning contact throughout the life of the blade.&nbsp; In addition, the blade-wear indicator allows blade wear to be monitored without having to shut down the system for inspection and can be done in minutes, without tools.
11. Barko adds to dealer network Barko Hydraulics LLC has announced the addition of Newlons International Sales LLC to its dealer network for all forestry equipment product lines. Located in Elkins, West Virginia, Newlons will carry Barko equipment for all of West Virginia and two counties in Maryland. Newlons International was founded in 1958 and has been a dealer for International trucks since 1968. The company has also carried agricultural, construction and other industrial product lines at various times throughout its history. Newlons will carry the full line of Barko forestry products, including loaders, harvesters and feller bunchers, industrial wheeled tractors, forwarders and biomass chippers. 12. PFI updates labeling system for standards program Pellet Fuels Institute has announced a change in the labeling system for its PFI Standards Program to accommodate the common practice of private labeling. Under the new system, if a qualified pellet fuel manufacturer is working with a retailer or distributer who wishes to use a privately labeled bag that does not credit the wood pellet manufacturer, then the wood pellet producer is able to contact their inspection agency to request an additional registration number to be used specifically for private labeling purposes. The inspection agency will review the request to assure that the additional registration number is used only for the designated production facility and that the pellet fuel manufacturer will maintain control of all bag printing. Once approved, the inspection agency will issue a new quality mark with the additional registration number to be used only on privately labeled bags.
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Business Briefs

2016 has been a busy year for the pellet industry and the agenda we covered at our 6th Annual Exporting Pellets Conference certainly reflected that.&nbsp; We were excited to be back at the Fontainebleau Miami Beach hotel to welcome 400 of our closest bioenergy friends to Miami Nov. 6-8.
The growing support here in the U.S. for the sustainability and economic benefits of our industry has been astounding.&nbsp; We were thrilled to have U.S. Forest Service chief Tom Tidwell and Rep. Bruce Westerman, R-Ark., participating in our keynote panel.&nbsp; Nigel Adams, MP for the Selby and Ainsty constituency represented in U.K. Parliament&rsquo;s House of Commons, and arguably our biggest cheerleader in the U.K., joined them for an animated discussion on biomass perspectives from across the Atlantic.&nbsp; Enviva chairman and CEO John Keppler moderated the panel, and they shared their thoughts on how the pellet export industry is mutually beneficial for both the U.S. and the U.K. and what our trade relationship may look like after Brexit.
We also introduced several new panels into our agenda this year, including a panel highlighting the new Lynemouth and MGT biomass power generation projects.&nbsp; These two major projects have reached financial close during a slower market period, and we explored how these projects overcame hurdles to come to fruition and how this impacts market growth moving forward. This panel included participants involved directly in the financing and development of these two projects and their insights were nothing short of eye-opening.
Looking to the future, we always want to provide room in our agenda for new markets, and this year that was the Japanese market. Having just returned from a trip to Japan, I can tell you that this market potentially holds a great deal of opportunity for our industry here in the U.S.&nbsp; With the potential to import 10 million metric tons of pellets for power generation and a serious interest in long-term supply agreements, Japan may present a growth prospect for U.S. producers.&nbsp; This panel focused on policy, trade and supply chain issues, and what it will take for the U.S. to become a competitive player in this market.&nbsp;
Of course, our agenda also included some of our traditionally most-popular sessions, including the European power generators panel and the U.S. biomass producers panel.&nbsp; The insights provided from these two groups are always interesting and this year we had some new topics to discuss, such as Brexit and currency issues in trading.
We also aimed to provide sustainability policy updates across Europe and here at home in the U.S.&nbsp; There are a lot of questions still: Will the Netherlands recognize globally accepted sustainability certifications that rely on a risk-based approach, or will the country go its own way and isolate itself when it comes to security of supply?&nbsp; What will the new EU bioenergy policy look like?&nbsp; What is going on with the EPA Clean Power Plan and what will the U.S. Supreme Court have to say?&nbsp; Our agenda provided analysis from policy and legal experts on all of this and more.
As with every year, we aspired for our agenda to provide a snapshot of the industry and what to expect over the next 12 months.&nbsp; Right now, that picture is looking pretty busy for the year ahead.&nbsp;
Check out the full agenda on our website&mdash;www.theusipa.org/conference&mdash;and for those of you who attended the conference, we hope you enjoyed your time in Miami. Author: Seth Ginther Executive Director U.S. Industrial Pellet Association 804-771-9540 sginther@hf-law.com

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The U.S. Industrial Pellet Association recently held its annual conference in Miami, and USIPA executive director, Seth Ginther, reviews the people who attended and important topics discussed.

2016 USIPA Conference   

Over the past five years, South Korea has become a sizeable import market for wood pellets. Its biomass cofiring operations now need between 1.5 million to 1.8 million metric tons per year.
However, demand growth has stagnated for the past 32 months in South Korea and demand from Japan remains marginal, with imports of just 230,000 metric tons in 2015 and an expected 400,000 metric tons in 2016. The majority of pellets supplied into South Korea originate from Vietnam and Malaysia and price levels appear to have hit a new low, at $95 to $100 per metric ton delivered.&nbsp; Pellets delivered into Japan are mainly being supplied from Canada, with average delivery prices reaching $207 per metric ton.
Does Asia Pacific really hold the potential to develop into the next hot spot of the global pellet industry?
We see increasing interest from our clients trying to develop supply chain solutions in the Asia-Pacific region, usually a strong signal that demand levels may be on the rise again. The outlook from P&ouml;yry's Global Pellet Market Model shows that biomass import demand is expected to grow considerably, especially in Japan, driven by a pipeline of more than 2.9 GW of consented and generously supported biomass plants. Of course, not all of these projects will import their fuel, and not all of it will be wood pellets, as wood chips and agricultural residues (such as palm kernel shells) can be viable and attractive alternatives. Nevertheless, we do see Japanese wood pellet demand reaching 5.4 million metric tons by 2030, and potentially even room for up to 7.9 million metric tons if wood pellets can secure a higher share of the biomass market. South Korea also has further room for growth, driven by increasing biomass cofiring activities. Strategic plans from power generators indicate that wood pellet imports are likely to reach between 3.6 and 10.2 million metric tons by 2024 and remain stable thereafter out to 2030, adding to the overall demand in Asia Pacific.
It should be kept in mind that the level of uncertainty in the Asia-Pacific pellet market is still rather high. Each development needs close monitoring and supply chain participants must be highly adaptable or secured through robust long-term agreements. Factors such as the interplay between biomass cofired power production costs and those of competing alternative renewable technologies will affect the South Korean Renewable Portfolio Standard and hence demand. The Japanese market generally offers more stability through feed-in tariffs with a 20-year life span, but final investment decisions for many projects are still to be made, let alone decisions on their fuel supply chains.
As a result of a combination of highly competitive tender processes, low container-freight rates, and only limited requirements for pellet fuel quality and raw material sustainability, prices for wood pellets delivered into South Korea have reached a historic low of $95 per metric ton. While this appears to make pellets competitive, we believe such low price levels are unsustainable in any expansion of the supply basis in Asia Pacific. Vietnam will not be able to substantially increase pellet production based on low- or zero-cost sawmill residues and other countries with higher production and logistics costs will set new market-price levels.
To meet the growth in demand will require a substantial expansion of the supply base, offering interesting opportunities for a range of stakeholders in the wood pellet supply chain. Indonesia, Malaysia and Thailand are attractive sources of supply where production capacity can be expanded drawing on a mixture of roundwood from fast-growing forestry plantations, residues from wood processing industries, and other residue sources such as rubberwood plantations. Far East Russia could also emerge as another supply base due to its surplus of sawmill residues and its forestry biomass. However, issues around political instability and counterparty risk will need to be taken into account, and substantial investments will have to be made to develop this supply basket.
It is unlikely that the development in Asia Pacific will offer real opportunities for suppliers from the U.S. Southeast, due to their uncompetitive delivered-cost structure even when operating at their marginal cost level. In contrast, suppliers from Western Canada may be competitive, and if they are, U.S. suppliers may benefit by gaining a higher share of the Atlantic market.
Asia Pacific undoubtedly offers many good opportunities for new suppliers and challenges for buyers due to increasing competition. How the market dynamics will play out is yet to be seen and, just as the Atlantic market evolved, it will certainly surprise people.
Countries that are currently viewed as supply sources may develop their own demand for industrial wood fuel.&nbsp; The expected increase of financial incentives offered to Indonesian biomass plant developers, in addition to an increase of supported plant sizes, is just a recent example. The introduction of obligation or support schemes for biomass cofiring in China or Australia is purely speculative at the moment, but also has the potential to throw the market into a completely different direction.
Long-term supply and price security will be crucial for buyers and, in some cases, direct upstream investments or joint ventures might be the only way to achieve this. Suppliers will need to hedge their bets. Constant and vigilant market monitoring and the assessment of new developments through analysis of market scenarios will be key for all market participants. Author: Dr. Hannes Lechner Senior Principal, P&ouml;yry Management Consulting +44 7876 348 262 hannes.lechner@poyry.com

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The Asia Pacific market could hold potential to develop into the next hot spot of the global pellet industry, and PÃ¶yry Management Consulting shares that demand levels may be on the rise again.

Asia Pacific Market – From Flatlining to Boom?  

Last year, our team at Pellet Mill Magazine produced its first issue dedicated to Asian pellet consumption and production. Nearly a year before that, we dedicated nearly the entire issue to South Korea and its rapidly expanding appetite for wood pellets. In the 12 months between, the excitement surrounding South Korea as a beachhead for North American pellet producers in Asia has waned. Through our interviews and research, we discovered that South Korea relied on a system of traders and tender offers to buy pellets instead of the long-term offtake agreements North American producers rely upon to finance new facilities or the expansion of existing production assets. Additionally, virtually all of South Korea&rsquo;s demand was being met by ultralow-cost pellets produced in Vietnam with prices rumored to hover just above the $100-per-ton mark. North American producers were left to watch as demand grew inside of this once-promising market without positively impacting their operations at all.
This year, we turned our attention to Japan. The mood surrounding this Asian market newcomer lies in stark contrast to where the collective industry mood ended up regarding South Korea. The industry observers our team spoke to while producing this issue all pointed to a handful of the same key differentiators between the South Korean and Japanese pellet markets and why they generated so much optimism from North American producers. Underpinning the optimism is a feed-in tariff for biomass power that has been described as &ldquo;very generous&rdquo; more than once. These feed-in tariffs offer independent power producers 10- or 20-year guarantees, and in turn, they&rsquo;ve sought to lock up supply with similar long-term deals.
Between 2014 and 2015, pellet volumes imported by Japan doubled to over 200,000 tons and analysts expect 2016 to finish between 350,000 and 400,000 tons, nearly doubling again. In July, Japan imported over 50,000 tons, a new high-water mark and an indicator our sources think is a sure sign that the Japanese market is on its way to 1 million-ton-per-year volumes.&nbsp;
The buzz surrounding Japan is not limited to North American producers, however, and both <a href="http://biomassmagazine.com/articles/13881/bridging-a-demand-gap">Katie Fletcher&rsquo;s</a> and <a href="http://biomassmagazine.com/articles/13880/asian-wood-pellet-producer-market-snapshot">Ron Kotrba&rsquo;s </a>stories make it clear that the race to capture market share in Japan is very much global. Current trade figures show the Japanese market is dominated by Canadian producers, but production is ramping up in Brazil and throughout Southeast Asia, all being driven by potent optimism that real, near-term market expansion in Japan is upon us.
Tim Portz Vice President of Content &amp; Executive Editor tportz@bbiinternational.com

Vice President of Content & Executive Editor
tportz@bbiinternational.com

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Last year's Asian production and consumption themed issue zeroed in on the excitement surrounding potential South Korean pellet demand, now Japan's wood pellet appetite has the potential to rapidly expand, making it this year's focus.

November/December 2016

Business Briefs

Business Briefs

Columns

2016 USIPA Conference

Asia Pacific Market – From Flatlining to Boom?

Asian Market Reboot

Featured

Japan's Rising Pellet Sun

Asian Wood Pellet Producer & Market Snapshot

Bridging a Demand Gap

November/December 2016.css-7jxktu{position:absolute;bottom:0px;left:0px;right:0px;height:3px;border-radius:3px;background-color:var(--chakra-colors-brandBlack);}

Business Briefs

Business Briefs

Columns

2016 USIPA Conference

Asia Pacific Market – From Flatlining to Boom?

Asian Market Reboot

Featured

Japan's Rising Pellet Sun

Asian Wood Pellet Producer & Market Snapshot

Bridging a Demand Gap

November/December 2016