The global market for sawdust particles has seen a dramatic increase over the past decade, with data from the Food and Agriculture Organization of the United Nations show that the annual growth rate for the last five years is about 9.3% per year: from about 19.5 million tonnes in 2012 to about 28.6 million in 2016 Ton.Europe is still the largest producer of sawdust particles in the world.
It is estimated that the total demand for industrial pellets used to replace coal for power generation will be about 14.2 million tons in 2016. This corresponds to 40,000 tons of bulk carrier daily.
It is expected that the majority of wood pellet demand growth after 2019 will come from Japan and South Korea.
Japan and South Korea
The market for industrial sawdust particles in Japan and South Korea is driven by different policies, however, both of which have increased the demand for industrial wood pellets as a coal substitute for power plants.
How each country guarantees the supply of these wood pellets is also quite different.
Japanese buyers, with the support of long-term feed-in tariffs (FITs), are more inclined to buy long-term contracts and to conclude price fixing terms.Japanese policy is based on the decarbonization of the power sector, requiring suppliers to demonstrate that the supply chain is sustainable As a result, Japanese buyers are more willing to trade with suppliers in a regulated country (to meet the durability, consistency and safety of supply agreements), robust forest management practices and stable macroeconomic conditions.
South Korean buyers are required to comply with South Korean Renewable Energy Certificates (RECs) backed by Renewable Energy Portfolio Standards (RPS) and carbon trading of South Korean Emissions Trading Systems (KETs), who are currently looking for the most cost-effective compliance path. Some RPS Of the total is satisfied by wind and solar power, while others are met by co-firing particles. So far, South Korea has purchased pellet fuel through a short-term bidding strategy and manufacturers bid several times a year to win bids for individual utility buyers. South Korean buyers prefer short-term supply contracts to low-cost producers.
Japanese policy
Japan is formulating four related policies for its power generation industry:
Carbon reduction
· The Best Energy Structure 2030
· Power generation efficiency requirements
· Feed-in tariff
The only policy instrument that provides financial incentives is FIT.
Carbon Targets - Japan has achieved its goal of reducing carbon dioxide emissions by requiring all electricity companies to reduce their CO2 / kWh by 35% and their carbon dioxide emissions from 0.57 kgCO2 / kWh to 0.37 kgCO2 / kWh by 2030. This is A voluntary goal, but several major utility units have been co-firing wood pellets.
Several powdered coal (PC) power plants currently have co-firing of sawdust particles in Japan, while others are currently discussing the supply of pellet fuels with major manufacturers, which currently total about 18,700 MWs of power plants being co-fired or discussing fuel supplies. Shows the particle demand of these plants at the three co-firing rates at which the plant may need to make improvements and / or adaptations to the mill, burner, pneumatic fuel delivery system, and some other components .
It is unlikely that the co-firing ratio for a large utility unit will exceed 15%, as discussed in more detail in the FIT chapter.
Voluntary policies on reducing carbon emissions may change the required emission reductions, and Japan has promised to reach an international agreement on reducing carbon dioxide emissions by 27% by 2030.
Some of the CO2 reductions will be made through renewable energy and nuclear energy, and the government's energy portfolio goals show how to do that.
Best Energy Structure - Analysis by the Japanese Government (from METI) predicts that the country needs about 1.065 billion MWhs by 2030. The government's strategic plan includes a breakdown of the energy structure expected by 2030. The country is expected to generate electricity according to the breakdown shown in the chart .
In the area of renewable energy, biomass annually accounts for 4.3% of 245 million MWhs of renewable energy quotas, as shown in the chart.
In order to meet the demand in 2030, Japan's biomass power generation capacity has to exceed 6,000 MWs. If 30% of the 6,150 MWs (ie 1,845 MWs) are produced from particulates, then Japan will consume about 7.4 million tons of particulates each year. One level is consistent with the 10% co-firing ratio.
Minimum Generation Efficiency Requirements - Japanese regulators have set minimum power efficiency requirements for all large-scale coal-fired power plants with a minimum requirement of 41% and will meet the requirements by 2030. Currently, only ultra-supercritical pulverized coal sets meet this requirement.
Japan's Ministry of Economy, Trade and Industry (METI) allows the formula for calculating efficiency to be modified to encourage the use of woodchips particles as a substitute for coal to 'change' efficiency calculations. Generally, efficiency (or heat rate) is based on the relationship between energy output and energy input. For example, if you put 100 MWs of energy into a boiler to produce 35 MWs of electricity, the efficiency is 35%.
The modification to the calculation is to allow subtraction of any MWhs produced by sawdust particles from the denominator. Therefore, the calculation for this example is now:
If the power plant produces 35 MWhs with a total power of 100 MWhs, the power generation is 15 MWhs and the power plant efficiency is 35 / (100-15) = 41%. In other words, a PC plant less than 41 percent efficient can co-burn the wood pellets to achieve The minimum efficiency requirements.
The chart shows the estimated number of wood pellets that are needed to estimate the minimum efficiency required, and the continued operation of supercritical and subcritical power plants will have to use particulate fuel to meet this requirement for no other reason.
At 17GJ / tonne of particles, these selected power plants will have to consume about 2.13 million tonnes of pellet fuel.
Feed-in tariffs - Of the four policy instruments in Japan, FIT provides direct financial support to power generating companies to compensate for the higher cost of generating electricity from pellet fuel.
The FIT policy was launched in July 2012. According to FIT, power transmission and distribution companies are obliged to buy fixed-price renewable energy for a fixed period of time.The cost of purchasing renewable energy is paid by power users at the national average electricity surcharge .
Japan's Ministry of Economy, Trade and Industry (MIT) has reviewed the purchase price of FIT since 2012. FIT prices for solar PV have been reduced and there are some new categories of wind, hydro and biomass energy.
The FIT for pellet power generation will be reduced from ¥ 24 / kWh in October 2017 to ¥ 21 / kWh (~ $ 0.22 / kWh to $ 0.19 / kWh). The FIT will last for 20 years, however, FIT is not adjusted for inflation, which is a fixed-pay-per-MWh for 20 years.
Although there is no cap on the size of a new power plant that is FIT compliant, there is in fact a limitation that a full environmental assessment is not required if the plant's power is less than 110 MWs and a year or two for small plants. The proposed plant with a capacity greater than 110 MWs will require a minimum of five years of full assessment, with most current and planned FIT projects being smaller independent power producers (IPPs).
Some major power plants will be forced to co-pellets due to carbon policies, 'best energy mix' policies and minimum efficiency requirements The main generating units at existing power plants require co-pellets that may benefit from FIT MWhs) and co-fired at rates as high as 15-20% However, as noted above, the 'Best Energy Combination' standard can be achieved at a co-firing ratio of 10%.
If the co-firing ratio of major utility plants is 10%, the annual demand for wood pellets is expected to exceed 7 million tonnes.
Japan's growth
There are many projects currently under way, many of which are now dedicated systems for co-firing wood chips or pellets, low-grade biomass or palm kernel shell (PKS).
Most of the specialized systems currently in operation are relatively small CFB boilers without a pulverized fuel system.Circulated fluidized bed boilers can burn a variety of biomass fuels, including wood pellets, but most may Use palm kernel shell (PKS). PKS can not be crushed and can not be used in PC boiler (see Japan PKS demand chart).
There are many small IPP plants that are using or planning to use PKS or other non-comminuted fuel in circulating fluidized bed boilers, but there are also many larger PC plants that will co-burn with wood pellets.The chart shows co-firing rates of 1 %, 5% and 15% of annual particle demand.
The chart shows actual demand for 2016 and projected demand for 2017. Canada continues to be a major supplier of sawdust particles to Japan and is expected to become a major supplier by 2020.
A significant portion of Japan's present biomass demand is met by the import of palm kernel shells (PKS), which are shown in the chart, and all PKS imported to Japan are from Indonesia or Malaysia.
in conclusion
Large power plants owned by major Japanese utility companies are decarburizing at the goal of limiting carbon dioxide emissions per megawatt, meeting the requirements of the 'best energy mix' and increasing efficiency so that the total power output from sawdust particles Partially 'improve' efficiency.
FIT's 20-year term, starting from very generous rates, is more than twice the average Japanese spot rate and will support the long-term and steady demand for industrial sawdust particles (spot prices may exceed $ in hot summer months) 25 / kWh, but the average price for a year is under ¥ 10 / kWh) However, long-term agreements with Japanese buyers may require a known initial price and a fixed price due to the FIT policy of up to 20 years.
Given a fixed starting price and a steady growth each year, the risk of inflation will be borne by the producer. Understanding the risks and setting the terms of the agreement are crucial to the continuity of the transaction. Nevertheless, the Japanese market is expected to be large and A stable market presents great potential for the healthy and sustainable growth of industrial particle production.
