north american bioenergy update - fastmarkets risi · • global pellet market update • us...

© Copyright 2016 RISI, Inc. | Proprietary Information

North American Bioenergy Update

Seth WalkerSenior Economist, [email protected]@BioEconomist

North American Forest Product ConferenceOctober 2016

• Biomass and the Clean Power Plan

• Global pellet market update• US domestic wood pellet markets

• Outlook for pellet production

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North American Bioenergy Update


Brief Introduction:The Clean Power Plan (CPP)• Plan for emissions reduction, not renewable energy

• Targets based on the so‐called best system for emission reduction (BSER) for existing coal and gas power plants

• States—at least those that are cooperating—are given a fair bit of leeway in determining how to meet targets

• Including how to treat biogenic emissions (CO2from biomass)

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Current Status of CPP• Supreme court put a stay on implementation of CPP until DC

Circuit hears challenges (West Virginia v EPA) Last action Antonin Scalia took before his death

• Three‐judge panel originally scheduled to hear case in June• Now “en banc” – the whole bench (not really) on September

27• Nine justices to hear case: two Clinton, four Bush, three

Obama• Regardless, likely to be appealed to SCOTUS• If we are still at eight justices, 4‐4 tie reverts to DC Circuit

decision• At this point, likely comes down to presidential election

Both supreme court justice and direction of EPA

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Energy Information Administration (EIA) Forecasts

© Copyright 2015 RISI, Inc. | Proprietary Information5

• Generation from renewables in 2020 would be just 1% higher under the Clean Power Plan scenario

• Natural gas would jump to 32% compared to 26% in the reference case

Who Produces Biomass Power in the United States?• In 2015, 64% of wood‐based

biomass power generation came from the forest products industry Includes both wood and

wood‐derived fuels (aka black liquor)

• Stand‐alone biomass power usually only makes sense with additional state‐level support Several existing plants idle


05

1015202530354045

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Electricity Generated from Wood and Wood‐Based Fuels

Million MWh

Independent Power Producers

Forest Products Industry

Current State of Biomass Power Plants• South Atlantic leading

recent growth in wood biomass power production Gainesville Renewable Energy Dominion Virginia Power

• Slowing down in difficult environment First half of 2016

• South Atlantic down 17% year‐over‐year

• USA down 10% year‐over‐year


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2001

2002

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2004

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2006

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2011

2012

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2014

2015

Electricity from Wood and Wood‐Based Fuels – Power Producers

Million MWh

SouthWestNorth CentralNortheast

Wood Pellet Exports from North America

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• UK market share increased from 40% in 2012 to 82% in 1H16• Netherlands all but disappeared• Italy, Korea and Japan more important for Canadian producers

01234567

2012 2013 2014 2015

Million Metric

Ton

s

UK Belgium Netherlands Italy Korea Japan Denmark Other

Wood Pellet Imports


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1

2

3

4

5

6

7

UK Denmark Italy Korea Belgium Japan ROW

Million Metric

Ton

s

2012

2013

2014

2015

2015 YTD

2016 YTD

Wood Pellet Imports


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1

2

3

4

5

6

7


Million Metric

Ton

s

2012

2013

2014

2015

2015 YTD

2016 YTD

UK has provided most of the recent growth

Wood Pellet Imports


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1

2

3

4

5

6

7


Million Metric

Ton

s

2012

2013

2014

2015

2015 YTD

2016 YTD

Other main industrial markets – stable

Wood Pellet Imports


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5

6

7


Million Metric

Ton

s

2012

2013

2014

2015

2015 YTD

2016 YTD

European heating markets impacted by warm winters

and low oil prices

Wood Pellet Imports


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1

2

3

4

5

6

7


Million Metric

Ton

s

2012

2013

2014

2015

2015 YTD

2016 YTD

Korean market saw exponential growth from

2012‐2014 before falling off

Wood Pellet Imports


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2

3

4

5

6

7


Million Metric

Ton

s

2012

2013

2014

2015

2015 YTD

2016 YTD

Japanese market shows promise and recent strong growth, albeit from a very

small base

‐

100,000

200,000

300,000

MT

Wood Pellet Imports


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1

2

3

4

5

6

7


Million Metric

Ton

s

2012

2013

2014

2015

2015 YTD

2016 YTD

Global headwinds include low oil prices and recent warm

winters

European Pellet Markets

Industrial Displacing coal with wood pellets UK, Denmark, Belgium, Netherlands

• Significant reliance on coal

• Lack of domestic biomass resources

Heating Primarily displacing oil, also gas, cordwood, electricity In home pellet stoves and boilers Largest markets

• Italy, Germany, Austria, France, Denmark


Both markets approximately 10 million metric tons per year


• Policy Transition from Renewables Obligation (RO) to Contracts for Difference

(CfD) European Commission state aid investigation Limited uncertainty surrounding Brexit

• Outlook Drax – largest coal fired power plant in Europe

• Now 50% biomass on three out of six 660 MW units• More than 7 million tonnes of pellets per year

Lynemouth ‐ 420 MW power station• Sold from Rio Tinto Alcan to RWE then to EPH (Czech Republic)• 1.5 million tonnes per year

MGT Power – 299 MW Greenfield CHP in Tees• Recently announced 15‐year 1 million tonne per year agreement with Enviva

United Kingdom

Belgium


Policy: Green Certificate programMarket Development2006: Les Awirs in Antwerp – 80 MW 2011: Rodenhuize (Max Green) in Ghent – 200 MW (pictured)Future: E.ON in Antwerp – 300 MWLangerlo Electrabel ‐> E.ON ‐> German Pellets ‐> Graanul Invest

Denmark


Heat > Power – 63% of the population gets heat from district heatingFewer than 10 remaining large central power stations – several already converted to biomass

energinet.dk


• Dong – Avedore, Unit 2 The “world’s most efficient thermal power station” 49% thermal efficiency for power up to 94% for CHP, up to 1 million tonnes of

pellets per year Unit 1 Conversion ongoing – additional 600,000‐700,000 tonnes per year

• Hofor – Amager (City of Copenhagen) Unit 1 uses approximately 300,000 tonnes of pellets per year Unit 4 under construction – 1.2 million tonnes of wood chips per year

• Dong – Herning 80 MW CHP – mix of chips and pellets

• Dong – Studstrup – ongoing conversion 285 MW Unit 3 – 800,000 tonnes of pellets per year

• Dong – Skaerbaek – upcoming conversion 392 MW > 1 million tonnes of wood chips per year

Danish Biomass Consuming Central Power Stations

Netherlands• 2011 “MEP” program

replaced by SDE+ Co‐firing would not

qualify until sustainability criteria established

• 2015 – sustainability criteria released (including 25 PJ cap) No contracts for co‐firing

were awarded (budget over‐subscribed)

• 2016 – two facilities awarded contracts under the SDE+


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Netherlands Pellet Co‐Firing and Renewable Electricity Targets

Million Metric Tons

Pellet Co‐Firing

% Renewable Electricity


Netherlands Biomass Sustainability• Timberland certification (FSC or PEFC) required for all Forest Management Units (FMUs) over 1,000 hectares Exemption decreases to 500 hectares in 2022 and no exemption in 2026

• Indirect Land Use Change (ILUC) Short (<40 yrs) rotation forest

• Established prior to 2008 – OK• After 2008 on natural or mixed forest – Not OK• After 2008 on agricultural or grass land – depends…

• Additional requirements include carbon stock tracking, maximum amount of volume that can go to bioenergy, soil conservation criteria, etc.

European Industrial Pellet Markets

• RISI projection Roughly double from 10 million tonnes in 2015 to 20 million tonnes in 2020

• Growth rate to slow Opportunities for coal to biomass conversions drying up


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5

10

15

20

25

European Industrial Pellet DemandMillion Metric Tonnes

OtherSwedenDenmarkBelgiumNetherlandsUK

EU Heating Markets

05101520253035

c/kW

h

Comparative Heating Fuel Prices in Select EU Countries

Electricity LPG Fuel OilNatural Gas Wood Pellets

• Motivated by economics more than policy Cost savings over

heating oil has deteriorated

• Italy – biggest market More than 2 million

pellet stoves installed Pellets still

significantly cheaper than oil (40c/l excise tax)


European Pellet Heating Headwinds

Winters 2013‐2014 and 2014‐2015 were the two warmest on record for much of Continental Europe


2,500

2,700

2,900

3,100

3,300

3,500

3,700

3,900

Heating Degree Days in the EU 27/28

EU Average ‐ Annual

EU Average ‐ 1980‐2015

‐13%

Economic Headwinds for European Pellet Markets: Oil Prices and Exchange Rates


200220240260280300320340360380400

150

170

190

210

230

250

270

290

FOEX PIX Continental Pellet Prices

EUR/MT, USD/MT

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10

20

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90

Brent Crude Oil PricesEUR/BRL

‐22%

‐38%

Asian Industrial Pellet Markets


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700

Korean Quarterly Pellet Imports by SourceThousand Metric Tons

VietnamNorth AmericaOther SE AsiaChinaRussiaOther

0

20

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60

80

100

120

Japanese Quarterly Pellet Imports by SourceThousand Metric Tons

CanadaVietnamChinaOther


Policy – Renewable Portfolio Standard for five regional GENCOs

Renewable electricity to increase from 2% in 2012 to 10% in 2024

Public tender system – regulatory and customary

Outlook – pellet co‐firing 2014: Market was hot, prices were high, traders took on contracts with large Canadian producers

• Imports were significantly higher than actually demand from tenders

2015‐present: Total collapse in prices, nearly all volume from Vietnam and Southeast Asia

GENCOs have shown price sensitivity, will issue tenders only to the point of keeping prices manageable

Korean Wood Pellet Market


Policy: Feed‐in Tariff (FiT) for renewable energy from Independent Power Producers (IPPs)

Biomass: ¥24/kWh for 20 years

Outlook: Co‐firing and biomass CHPs Large General Electric Utilities (GEUs) have been co‐firing small amounts

for several years – old RPS Starting in November 2015 (Showa Shell) mid‐sized CHP plants using

imported biomass start to come on line, 1‐1.5 million tonnes Co‐firing offers the most upside

• 20 GW of new coal capacity slated to come on line over the next 10 years– Fukushima

• JVs offer GEUs opportunity to potential qualify for FiT• Co‐firing could be essentially “mandated” • 10% co‐firing at just new coal plants would be over 7 million tonnes

Japanese Wood Pellet Market


Japanese Wood Pellet Co‐Firing Potential

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2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Pellet D

eman

d for C

o‐Firin

g ‐Million MT

Cumulative New

Coa

l Cap

acity

‐GW

Cumulative New Coal Cap.

Pellet DemandAll New CoalIPP / JVIPP Only

US Domestic Pellet Market

40%

50%

60%

70%

80%

90%

0.0

1.0

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5.0

Ope

ratin

g Ra

te

Million Short Ton

s

US Domestic Facing Pellet Capacity, Demand and Operating Rate

North Central Northeast South West Demand Operating Rate


2005‐2008: Strong demand growth – capacity utilization over 80%2009‐2012: Capacity overshoots demand – utilization rate bottoms out at 47%2013‐2014: Cooler winters, slowdown in capacity growth – supply and demand become more balanced2015‐2016: Warmest winter on record in the Northeast, low oil prices, some capacity increase – prices and capacity utilization rate plummet, many mills idle

Outlook for US Wood Pellet Production

• Continued increase in industrial pellet production Growth rate will slow from exponential to linear (and eventually flatten)

• Potential for development on West Coast for Japanese market > 2020


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1220

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18

Million Metric

Ton

s

North Central

Northeast

West

South ‐ Residential

South ‐ Industrial

RISI Special Study:Global Pellet Demand Outlookwww.risi.com/globalpelletdemand

Thank you for your attention!For more information:

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North American Bioenergy 5-Year Forecastwww.risi.com/bio5


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