Page 1


Shoring Up Supply Japan’s Growing Pellet Fuel Appetite Page 10

Plus: Asian Market Opportunity, Hurdles Page 24

Research Yields New Pellet Technology Page 20




April 16-18, 2018 Cobb Galleria Centre Atlanta, GA



Contents »


Pellet Mill Magazine

Advertiser Index

2 2018 International Biomass Conference & Expo 23 Andritz Feed & Biofuel A/S 28 Astec, Inc. 13 BinMaster Level Controls 27 Biomass Magazine Top News 12 Bliss Industries, Inc. 15 CPM Global Biomass Group 17 Evergreen Engineering 22 Industrial Bulk Lubricants (a Dansons company) 18 Timber Products Inspection/Biomass Energy Laboratories


FEATURE 10 POLICY Biomass in Japan’s Best Energy Mix

Japan's drastic energy overhaul is leading to significant demand of woody biomass imports, a renewable energy category that pellets are expected to lead. By Anna Simet and Tim Portz

CONTRIBUTIONS 20 TECHNOLOGY Molding a New Pellet Design

A Queen’s University research project aimed at producing a pipeline-friendly pellet has resulted in the development of a new kind of torrefied fuel. By Jason Hendry


Japanese wood pellet consumers tour Pinnacle Renewable Energy's Westview Terminal in Prince Rupert, British Columbia. Canada is, by far, the leading importer of wood pellets to Japan. PHOTO: VAUGHAN BASSETT, PINNACLE RENEWABLE ENERGY

24 MARKETS The Asian Biomass Market: Challenges and Opportunities Ahead

The expectation of significant biomass demand in some Asian countries offers opportunities for a range of stakeholders across the global biomass supply chain. By Pedro Campilho


The Industry’s Second, More Challenging Act By Tim Portz

05 EVENTS 06 COLUMN COPYRIGHT © 2017 by BBI International

Japan’s Energy Industry Embraces Biomass By Seth Walker


Assessing the Climate Benefits of Wood Heat By John Gunn



Please recycle this magazine and remove inserts or samples before recycling


« Editor's Note

The Industry’s Second, More Challenging Act

Tim Portz


For the second time in two years, Japanese wood pellet demand dominated the conversations at the U.S. Industrial Pellet Association’s annual conference. This year, the conference was moved to Las Vegas, and most attendees attributed this to an interest in making the conference a little easier for, and a little more attractive to, Japanese attendees. While never officially confirmed by anyone from USIPA, deliberately shaping the conference to foster more dialogue with buyers in Japan would be hard to argue against. On the conference’s opening day, Bill Strauss with FutureMetrics, quoted in our comprehensive review of the Japanese market inside this issue, presented a bar graph charting the growth of industrial wood pellet sector through 2025. The graph projected the industry to grow aggressively, at a rate of nearly 3 million tons per year. A closer examination of the chart reveals that this impressive growth trajectory hinges on Asian demand, predominantly in Japan and South Korea. His analysis shows pellet volumes in South Korea and Japan swelling to over 17 million tons by 2025, or roughly the size of the entire industrial market right now. This issue of Pellet Mill Magazine makes it clear that while the policy drivers behind these anticipated volumes support industrywide excitement about the opportunity, the practical reality of growing these markets to their exciting potential is another thing altogether. Throughout the discussions in Vegas, I found myself comparing and contrasting the opportunity for the industrial pellet industry in Japan to the market that can be credited for the rise of industrial pellet production in North America in the first place—the United Kingdom. While the industry may not have said so at the time, it could not have asked for a better customer to build itself upon than the Drax Power Station. Together, Drax’s scale and singularity answered many of the questions the industry is still struggling with in Japan. The investments that needed to be made in port logistics and rail transport could all be tied to Drax, and by extension, the financial support of the conversion by the British government. This derisking catalyzed massive investments and the expected volumes began to flow. The Japanese market will look nothing like the market in the U.K. There is no Japanese equivalent of Drax, and as a result, the industry and its logistical partners will have to find new ways to answer the same questions.


Industry Events »




ART DIRECTOR Jaci Satterlund GRAPHIC DESIGNER Raquel Boushee

Publishing & Sales



Stan Elliot Pacific Coast Pellets Chad Schumacher Superior Pellet Fuels Bruce Lisle Energex Corp. Derek Nelson Forest Business Network T.J. Morice TNT Ventures LLC

2018 International Biomass Conference & Expo

APRIL 16-18, 2018 Cobb Galleria Centre Atlanta, Georgia

Organized by BBI International and produced by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true onestop shop––the world’s premier educational and networking junction for all biomass industries. (866) 746-8385 |

Advanced Biofuels Conference

June 11-13, 2018

CenturyLink Center Omaha Omaha, Nebraska

With a vertically integrated program and audience, the Advanced Biofuels Conference is tailored for industry professionals engaged in producing, developing and deploying advanced biofuels including cellulosic ethanol, biobased platform chemicals, polymers and other renewable molecules that have the potential to meet or exceed the performance of petroleum-derived products. 866-746-8385 |

EUBCE 2018 – 26th European Biomass Conference and Exhibition

May 14-18, 2018

Copenhagen, Denmark

As one of the world’s leading R&D conference combined with an international exhibition, the EUBCE represents the leading platform for the collection, exchange and dissemination of scientific knowhow in the field of biomass. The Conference Programme will address topics from biomass itself to bioliquids and biofuels for heat and electricity, transport and biobased products, covering all aspects of each value chain, from supply and logistics to conversion technologies, from industrial application of research results to impacts on the environment, from market and trade aspects to policy strategies, not least to the role of biomass as a source in integrated energy systems. +39 055 5002280 ext. 221 |

Subscriptions to Pellet Mill Magazine are free of charge—distributed bimonthly—to Biomass Magazine subscribers.To subscribe, visit or you can send your mailing address to Pellet Mill Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Back Issues & Reprints Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or Advertising Pellet Mill Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Pellet Mill Magazine advertising opportunities, please contact us at 866-746-8385 or Letters to the Editor We welcome letters to the editor. Send to Pellet Mill Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to Please include your name, address and phone number. Letters may be edited for clarity and/or space.


« Global Markets

Japan’s Energy Industry Embraces Biomass BY SETH WALKER

Japan’s energy system has undergone several transitions over the past century, in response to changing market conditions and political and environmental shocks, and is experiencing one such transition right now. Regulators are balancing sensitive political, economic and environmental challenges as they look to build a “Best Energy Mix” for the year 2030. The Best Energy Mix, revealed in an energy plan by the Ministry of Economy, Trade and Industry earlier this year, includes plans to restart selected nuclear facilities, new coal development, and a renewable energy goal of to 23 percent by 2030. Excluding hydroelectric generation, which has been stable for decades, Japan’s generation from wind, solar, biomass and geothermal is set to increase from less than 1 percent in 2010 to 14 percent in 2030. Biomass is projected to account for nearly 30 percent of Japan’s renewable power in 2030, and over 4 percent of the nation’s total power. Much of that will likely come from imported wood pellets. Before World War II, Japan relied heavily on domestic coal as its primary energy source. It was imported oil, however, that fueled Japan’s rapid economic growth from the mid1950s until the oil crisis of 1973. By then, imported oil accounted for 73 percent of Japan’s electricity production. The oil crisis led to Japan diversifying its electricity mix with nuclear power, imported coal and liquefied natural gas (LNG), displacing much of its reliance on oil. By 2010, oil accounted for just 7 percent of electricity generation with nuclear, LNG and coal representing 84 percent. Japan’s energy system faced another shock on March 11, 2011, when the Great East Japan Earthquake struck off the coast of Miyagi prefecture. The earthquake and ensuing tsunamis caused massive destruction, killing nearly 16,000 people and damaging over 400,000 buildings, including the Fukushima Daiichi Nuclear Power Plant. At the Fukushima NPP, cooling systems failed, leading to a meltdown of three of the plant’s six reactors and a reevaluation of nuclear power by the Japanese public and regulators. After the Fukushima Daiichi Nuclear Disaster, regulators began the process of shutting down the country’s NPP, all 54 of which were closed in two years. In August 2015, regulators started allowing recommissioning of selected, lowrisk reactors, beginning with the restart of the Sendai NPP. As of early November, a total of five NPPs have resumed operation. In the aftermath of the disaster, Japan significantly increased its use of LNG imports to supplement displaced nuclear energy. In the five years since the disaster, LNG imports have increased 28 percent, compared to the five years prior to the disaster. In 2016, LNG accounted for 42 percent


of Japan’s electricity, up from 29 percent in 2010. Moving forward, METI has laid out a plan called the “Best Energy Mix” for 2030, which includes 21 percent nuclear energy, 27 percent LNG, 26 percent coal, 3 percent oil and 23 percent renewables. Renewable energy in Japan is promoted by the country’s feed-in tariff (FIT) system, which provides independent power producers (IPP) a set power price over an extended contract period. The FIT for larger (greater than 2 MW) biomass power plants is a 20-year contract with prices ranging from 20 ¥/kWh ($0.18/kWh) for “general wood,” which includes wood pellets, to 32 ¥/kWh ($0.28/kWh) for domestic, unutilized biomass. Due to an overwhelming response, the FIT for general wood was lowered in October from 24 ¥/kWh ($0.21/kWh), though dozens of projects have already been awarded FITs, and will enjoy the higher rate. In a new FutureMetrics study, more than 130 biomass IPP projects are analyzed. These projects, if successful, would use 4.5 million metric tons (MT) of pellets, 3.3 million MT of palm kernel shells and 10.2 million MT of domestic and imported wood chips. In addition to pellet demand from biomass IPPs, Japan could see a significant market for pellet cofiring at its coal plants. As a way of making Japan’s increasing reliance on coal more politically and environmentally palatable, regulators have set Best Available Technology standards for thermal power plants. The BAT for coal plants is considered UltraSupercritical generation. About two-thirds of Japan’s current coal fleet does not meet the USC standard, and one way to comply is cofiring wood pellets. Plant efficiency is calculated by dividing energy output by energy input. METI has allowed energy input from biomass cofiring to be deducted from coal fuel input. Essentially, the plant’s efficiency is calculated by only its coal input. Just to meet this standard, Japan’s existing fleet would need to cofire nearly 4 million MT of wood pellets. Japanese regulators are in a difficult situation, balancing sensitive political, economic and environmental concerns, while planning for the future composition of the country’s electricity grid. In the post-Fukushima era, a balanced approach to energy will take shape, one that is likely to include a significant amount of biomass and wood pellets. Author: Seth Walker Senior Economist, FutureMetrics LLC 617-702-2418

Thermal Assessments »

Assessing the Climate Benefits of Wood Heat BY JOHN GUNN

Wood pellet heat is a new and growing heating alternative in the U.S., and it has been proposed as a climatebeneficial energy source to replace fossil fuels, though little work has been done to assess this claim. The opportunity for switching to wood pellet heat is particularly great for the Northern Forest region of Maine, New Hampshire, Vermont and New York, which is home to more than 2 million people who live in rural communities, larger towns and small cities surrounded by the largest intact forest in the eastern U.S. Around 42 percent of all energy consumed is for space heating, and the predominance is derived from fossil fuels. A recent commentary I wrote emphasized the need to do the math to figure out if switching energy pathways from fossil to woody biomass will have the climate benefits that many assume it will. I have been working on this issue since the 2010 Manomet study, which addressed this question for proposed stand-alone biomass electric plants in Massachusetts. Through that study and subsequent work, we have learned three key lessons when it comes to the question of emissions generated by switching from fossil fuels to wood: It matters what kind of energy is being produced, and what kind of fossil fuel is being replaced, if at all; where the energy feedstocks come from matters (e.g., tops and limbs from harvests already happening, or new harvests of whole trees); and how we manage the forest—at both the stand and landscape scales—will influence whether emissions benefits will accrue in the short term, long term, or not at all. Much of the research conducted to date to study the potential greenhouse gas (GHG) impacts of switching from fossil-fuel derived energy to woody biomass energy has focused on the electricity sector, and has not addressed comprehensively the thermal uses of wood.

The new paper I co-authored with colleagues from the Spatial Informatics Group–Natural Assets Laboratory in the journal Energy explores these first two points when the heating source of homes in New England is switched from fossil fuels such as heating oil and propane to wood pellets derived from local mills. This work was conducted at the request of the Northern Forest Center, a Concord, New Hampshire-based NGO that promotes wood pellet heat as an economic development tool that reduces heating costs, supports local forest sector jobs, and reduces dependence on fossil fuels. The Northern Forest Center wanted to know if it can feel confident about the atmospheric benefits of using wood pellets for heat in the region. Our conclusions support that notion. Some key findings from the research include: • Pellets from sawmill residues showed strongest GHG benefits compared to fossil fuel. • Making pellets from up to 75 percent pulpwood and 25 percent sawmill residue produced benefits. • Shifting existing harvest of pulpwood volume to pellets is climate beneficial. • Market scenarios decreasing or increasing harvest levels greatly affected results. This work was supported by funding from the Northern Forest Center, USDA Rural Development, and in-kind support by Spatial Informatics Group LLC. Partial funding was provided by the New Hampshire Agricultural Experiment Station. The paper is available for download or pdf—contact me for a copy. Author: John Gunn Research Assistant Professor of Forest Management NH Agricultural Experiment Station & UNH Cooperative Extension 603-862-2353


Business Briefs


of hauling 16 tons of pellets with fully pneumatic delivery system, was funded in part by a $94,000 grant from the Vermont Clean Energy Development Fund. Vermont Renewable Fuels delivers bulk wood pellets throughout Vermont and surrounding areas providing over 1,300 tons of heating fuel to customers each year. They travel over 25,000 miles every heating season delivering to both residential and commercial venues.

Gardiner to replace Thompson as Drax CEO Drax Group plc recently announced that Will Gardiner will be named group chief Gardiner executive, effective Jan. 1. His appointment follows Dorothy Thompson’s decision to step down from the position at the end of the year. Gardiner joined Thompson Drax as group chief financial officer and member of the board in November 2015. A notice released by Drax states the board has kept succession planning well under review, and his appointment to group chief executive comes after a thorough selection process involving internal and external candidates. “Drax Group plays a strategic role in the U.K. electricity sector generating around 16 percent of U.K. renewable electricity, is a world leader in the production of wood pellets and is a leading challenger brand in the supply of electricity to businesses,” Thompson said. “I retire knowing the group is in excellent shape. It has the right strategy, the right team and in Will, the right leader.” The board will now begin the process to appoint a new group chief financial officer, and will review the option to make an appointment on an interim basis.

Canada pellet exports nearly double Canada’s National Energy Board reported that the country’s wood pellet exports increased by 46 percent between 2015 and 2016. The growth is attributed to growing global demand for biomass-fired electricity generation to replace coal-fired generation. Over the past five years, NEB said Canadian wood pellet exports have increased by 73 percent, growing from just under 1.37 billion kilograms (1.369 million metric tons) in 2012 to 2.373 billion kilograms in 2016. By weight, Canada is now the second largest wood pellet exporter, following the U.S. The U.K. is the primary destination for Canadian wood pellets, followed by Japan and the U.S. Approximately 70 percent of Canadian exports are destined for the U.K., with 11 percent shipped to Japan and 7 percent supplied to the U.S. The remaining 12 percent of exports are split between 11 other countries. The NEB attributes growth in exports to the U.S., in part, to response to growing biomass electricity generation in the U.S.

Bulk pellet delivery capacity expands in Vermont In early November, Vermont Renewable Fuels purchased a new bulk pellet delivery truck. The 2017 Kenworth, capable

Drax sells Billington Bioenergy Drax has sold Billington Bioenergy—a distributor of wood pellets in the U.K. heating market—to Aggregated Micro Power Holdings, an AIM-listed energy company

specializing in the sale of wood fuels and the development of distributed energy assets, including biomass boilers and battery storage. Consideration for the transaction is £2 million ($263.8 million), comprised of £1.6 million of shares in AMPH and £400,000 of cash. The sale of BBE is aligned with Drax's retail strategy, focused on the I&C and SME energy markets. However, through its shareholding in AMPH, Drax will retain an interest in the U.K. heating market, whilst gaining exposure to the development of small-scale distributed energy assets. Pinnacle Renewable Energy’s McCurdy wins award Rob McCurdy, CEO of Pinnacle ReMcCurdy newable Energy Inc., has been named is Ernst & Young Entrepreneur of the Year 2017 Pacific winner. Before joining Pinnacle, McCurdy held positions across the globe spanning chemical, construction materials and mining industries. Most recently, he was the India managing director for a world-leading producer of building materials. McCurdy became Pinnacle CEO in August 2012, leading major transformation and improvement changes in the organization’s safety and culture. Under his leadership, Pinnacle has improved its safety rate by 90 percent, significantly increased employee engagement, and improved EBITDA results by over 100 percent. Today, Pinnacle is the world’s thirdlargest producer of wood pellets, shipping over 1.4 million metric tons per year from its seven B.C. locations, and the company is currently expanding into Alberta.

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Business Briefs »

As the Pacific region’s EY Entrepreneur of the Year 2017, Rob will compete with top entrepreneurs from other Canadian regions for the national honor of Canada’s EY Entrepreneur of the Year 2017. Stefanik introduces tax credit for biomass, biogas Rep. Elise Stefanik, R-N.Y., recently introduced the Renewable Electricity Tax Stefanik Credit Equalization Act, which aims to extend the Section 45 production tax credit (PTC) for electricity produced from closed-loop biomass, openloop biomass, geothermal, municipal solid waste, qualified hydropower facilities and marine and hydrokinetic facilities. The Section 45 PTC for closed-loop biomass, open-loop biomass, geothermal, municipal solid waste, qualified hydropower facilities and marine and hydrokinetic facilities expired Dec. 31, 2016. However, production tax credits for wind and solar were granted long-term extensions in late 2015. Stefanik issued statements that explained the bill’s extension would be on the same terms and for the same time and phase-out schedule as was provided to Section 48 solar energy property in 2015. The tax credit for solar currently stands at 30 percent for projects that begin construction before the end of 2019 and phases down to 10 percent for projects that begin construction before the end of 2022. The Biomass Power Association, American Biogas Council and Energy Recovery Council are among the groups that have spoken out in support of Stefanik’s bill.

Billington Bioenergy, Forest Fuels join forces Forest Fuels has joined forces with Billington Bioenergy, under the ownership of AMP plc, providing Solly the U.K. with its most comprehensive wood fuel distribution network to date. While the two brands will continue to operate independently, behind the scenes they Pearson will immediately combine their expertise and distribution resources. “This is an exceptional development, not only for Forest Fuels but also for the wood fuel industry as a whole,” said Peter Solly, Forest Fuels managing director. “Customers from both companies will now have access to an even more comprehensive and efficient wood fuel supply chain. We’ll have more local depots, additional numbers of specialized delivery vehicles, and an increased number of specialists on hand to deal with enquiries. We are delighted to welcome Billington’s 34 staff members to the team.” Previously owned by Drax, Billington has built a strong and well-regarded business in the wood pellet market in England over the past 10 years. As well as supplying around 130,000 metric tons (MT) per year of wood pellets, Forest Fuels also supplies around 70,000 MT of wood chips. Billington Bioenergy supplies around 40,000 MT of wood pellets. "This is wonderful news for Billington and for our customers,” said Roger Pearson, Billington Bioenergy managing director. “Billington Bioenergy has always endeavored to

provide and deliver the very highest-quality wood fuel for our customers—by joining forces with Forest Fuels we are in an even stronger position to do this.”

Gainesville Renewable Energy Center

GREC sells 102.5-MW biomass facility to GRU Gainesville Renewable Energy Center, a partnership of Energy Management Inc., BayCorp Holdings, Starwood Energy and Fagen Power LLC, has sold its 102.5MW biomass facility to Gainesville Regional Utilities for $750 million. The GREC facility reached commercial operation in 2013 and sold all of its energy, capacity and environmental attributes to GRU under a 30year power purchase agreement. Jim Gordon, CEO of GREC, remarked, “Our biomass project had an excellent safety, environmental, and operating history. The sale was prompted by the recognition that both GREC and GRU could unlock enhanced value through this transaction.”


« Policy


Policy »

Biomass in Japan’s

BEST ENERGY MIX Demand for imported biomass is expected to surge in Japan, in the midst of an aggressive energy landscape overhaul. BY ANNA SIMET


s an island nation, Japan faces the same energy challenges that many of them do—a lack of resources, and a resulting high dependence on imports. Though the country is smaller in size than California, it’s home to more than 127 million people, well over triple the population, and ranks fifth worldwide for energy consumption per capita. Post-2011 Great East Japan Earthquake, ensuing Fukushima disaster, and a rapid shutdown of the country’s nuclear plants, Japan is making an aggressive push to transform its power sector. At the heart of the transition is the government’s Strategic Energy Plan, which, approved in April 2014, is centered on stabilizing and diversifying the county’s energy supply, as well as economic efficiency, energy conservation and carbon emission reductions. It includes upping its renewable energy consumption from 10 percent pre-Earthquake to 22 to 24 percent by 2030, with a feed-in tariff system as its key driving force. The tariff system replaced Japan’s renewable portfolio standard, and requires electric utility operators to purchase power from renewable sources, for prices and durations set by the Minister of Economy, Trade and Industry. For bioenergy, the prices have been so alluring that a firestorm of projects have been submitted for approval from the METI, and as a result, has attracted the attention of stakeholders across the global supply chain. NOVEMBER/DECEMBER 2017 | PELLET MILL MAGAZINE 11

ÂŤ Policy

Incentive Structure

Japan’s feed-in tariff system includes solar, geothermal, wind, hydroelectric and bioenergy, which is categorized into three groups—woody biomass and ag residue, waste and biogas. Woody biomass is further divided into two subcategories— “unutilized wood,� or material from forest thinning and forest residues, and “ordinary wood and agricultural residues� which includes imported fuel like wood pellets. The renewable resource combination that is part of what has been dubbed the country’s Best Energy Mix, and for a project to earn the incentive, it must first obtain accreditation, or approval, from METI. Each renewable resource has its own particular requirements, but there are several common denominators—each facility must be able to maintain its expected capacity during the anticipated term of the agreement with the electric utility; the facility must be capable of accurately measuring the renewable electricity sup-

plied; the functions and operations of the facility must be specifically identified and reported to METI; and the installation and operating costs of the facility must be recorded accurately and periodically filed with METI. Once a project is accredited, it may enter into an agreement with an electric utility, the terms of which are determined by METI. Electric utilities are obligated to accept requests from renewable energy producers to sign a contract to purchase its power at a fixed price, for a long-term period guaranteed by the government. While bioenergy’s slice of renewable energy capacity has been set at up to 4.6 percent of Japan’s renewable energy mix, or 7.3 GW, if the number of currently accredited projects all came to fruition, that number would be significantly higher. That, however, is a very unlikely scenario. “The project pipeline in Japan is what I would call oversubscribed,� says William Strauss of consulting firm FutureMetrics.

“If you add up all of the projects, the amount of power that would be produced is way more than the government envisioned for that slice of the energy mix.� According to the Renewable Energy Institute, by the end of 2016, greater than 8.7 GW of bioenergy—800-plus projects—were registered under the FIT, closing in on twice the amount specified in the country’s energy plan. Just from 2015 to 2016, registered capacity increased fivefold, a surge that was caused by a looming cut to feed-in tariff prices. Strauss says he believes the excess proposed capacity issue will self-correct, as many of the projects are based on Malaysian and Indonesian crude palm oil (CPO), which has been under intense scrutiny for alleged rainforest deforestation. “Almost half are based on CPO, and some are based on palm kernel shells (PKS),� he says. “The problem with those is that most of these IPP [independent power producer] projects will require financing—they will need

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Japan’s 2030 Best Energy Mix Coal 26%

LNG 27%

Nuclear 20-22%


Oil 3% Wind Oil 32%%

Renewable 22-24%

Biomass 4-6%

Hydro 9%


debt to be built—and the lenders are very risk averse. They want a long-term fuel supply agreement in place, so there’s a lot of certainty that the project will able to produce electricity and enjoy the benefits of the FIT for 20 years.� That kind of certainty is harder to secure with CPO or PKS, as their supply chains are not mature—like wood pellets, for example—and therefore, there is risk in fuel supply, according to Strauss. “There are no large counterparties to do a deal with for a long-term supply of fuel,� he says. “So the expectation is that many projects in the pipeline will never be built, and a good portion of those will be CPO and PKS.� In fact, it’s likely that only about 30 percent of approved projects will achieve operations, says Takanobu Aikawa, researcher at the Japan Woody Biomass Energy Association. And though PKS has been speculated as a rival fuel source to pellets, like Strauss, Aikawa says he doesn’t believe it will be a main fuel for the Japanese power market, for the same reasons. Most of the projects that come to fruition, Aikawa says, will use wood pellets.

While Japan’s energy plan specifies that biomass material must be sustainably sourced, what that designation entails is still being determined, and power producers aren’t likely to take chances on their long-term fuel sources not meeting the criteria. Aiwaka points to a recent government report, which revealed that there are a lot of power plants that have proposed to use palm oil, and it invoked severe criticism of the energy plan. “Therefore, the government will require an internationally recognized certification scheme, such as RSPO for all palm oil projects,� Aikawa says. “Regarding solid biomass—wood chips and pellets—the government has been requiring forest certification so far, but this palm oil scandal could strengthen its verification process.� There are domestic wood chip projects proposed as well, but they, too, involve challenges, Strauss says, and again, mostly in terms of demonstrating sustainability. “It’s a difficult market,� says Strauss, on domestic wood chips. “The landownership structure, and harvesting wood—it’s not easy to go in and do managed forestry like we see in North





« Policy

Operating Renewable Capacity Under FIT 12

Photovoltaic <10kW Photovoltaic > 10kW Wind Small hydro Geothermal Bioenergy




6 4 2 0

Photovoltaic < 10kW Photovoltaic > 10kW Wind Small hydro Geothermal Bioenergy Total





1.77 FY2012





0.97 0.70 0.06 0.00 0.00 0.03 1.77

1.31 5.74 0.05 0.00 0.00 0.09 7.19

0.82 8.57 0.22 0.08 0.00 0.10 9.80

0.85 8.31 0.15 0.07 0.01 0.29 9.68

0.79 5.44 0.31 0.08 0.00 0.33 6.96

America. So some of the domestic wood chip projects will never be built, either.” But when it comes to projects utilizing domestic resources, Aikawa adds, wood chips will be the leading fuel. As plans progress, power producers that invest in sustainable procurement systems together with forestry sector will gain an advantage, he says. “The same is true for imported biomass—this kind of longterm strategy will be a key to success.” In all of this, there is good news for the wood pellet industry. “There are many long-term fuel supply agreements to be had, and that will support the project financing for these IPPs,” Strauss says, adding, compared to current global wood pellet production of about 60 million tons, it’s estimated new projects in Japan will create new demand for 4 million to 5 million tons—and maybe even more. For now, the majority of wood pellet imports consumed in Japan are shipped from Canada. Producers there have found

themselves at an advantage to those in the Southeast U.S., a region that has taken the biggest bite out of the bustling European market, but has not been able to capitalize on opportunities in Japan—at least, not yet.

Pellet Demand, Supply

In 2016, Canadian wood pellet exports to Japan surpassed 272,000 metric tons. That number is well above its exporting counterparties south of the border, but pales in comparison to the 1.6 million-plus metric tons the country exported that year to Europe, which still takes in around 80 percent of Canada’s total pellet exports. Out of the roughly 347,000 metric tons of wood pellets imported into Japan in 2016, around 75 percent was imported from Canada. That number dipped a bit to around 65 percent in 2017, with Vietnam picking up a little market share, but still a distant second, followed by China.


The most obvious advantage that Canadian producers have is proximity to Japan, says Gordon Murray, executive director of the Wood Pellet Association of Canada. “Our pellet plants are closer, and we have a reputation of high quality,” he says. As aforementioned, sustainability is a big concern to the Japanese project developers, and Canada is best in class when it comes to forestry management. “They appreciate our almost universal forest certification,” Murray says. In Canada, most of the forests are government-owned, and close attention is paid to wood leaving crown lands. “They have pretty rigorous methodologies on setting the allowable cut every year, to guarantee the forests are being sustainably managed,” Strauss says. “The Southeast U.S. doesn’t have the level of forest certification that western Canada does, it’s more risk-based, and that’s why the Sustainable Biomass Partnership is so popular with producers there.” Both Murray and Strauss emphasize that the Japanese value relationships, and Strauss adds that many western Canadian producers have longstanding relationships with Japanese companies. “There is a large presence already trading into Japan and western Canada for lumber and other forest product materials,” he says. “Vancouver is a big hub for trading, so those relationships kind of carried over into the wood pellet space, and that matters when doing business in Japan, that buildup of trust.” Those kinds of relationships could lead to strategies similar to the one recently deployed by Sumitomo Corp., which recently purchased a 48 percent stake in pellet producer Pacific Bioenergy Corp. PBEC operates facilities at three British Columbia locations—Prince George, Chetwynd and Ft. St John—and collectively produces more than 550,000 metric tons of pellets annually, the bulk of which has been exported to customers in Asia and Europe. “Sumitomo is looking to increase their biomass presence in Japan,

Policy Âť


Quantity (Metric Tons) 2012










Jan-Apr 2016

Jan-Apr 2017


232,425 346,855





146,150 260,935
















































Indonesia United States




*/2%$/ %,20$66*5283 Your Partner in Productivity


« Policy

Japanese refiner Showa Shell Sekiyu Kabushiki Kaisha’s first biomass power project in Japan began operations in 2015. Like many projects approved under the FIT have proposed, the 49-MW facility uses wood pellets and palm kernel shells as fuel. PHOTO: SHOWA SHELL


and the investment in Pacific Bioenergy is one way of securing supply,” Murray says. “Other companies have formed strategic relationships with the Japanese trading houses, and whether they become ownership stakes, I couldn’t speculate, but in terms of having secure relationships with the trading houses, that is key.” While Vietnam gained some market share in 2016, there are questions about the industry’s sustainability practices there, and that may be a hindrance on further growth. “Most of their production is going to South Korea, which has less strict sustainability criteria, but that’s changing,” says Strauss. “There could be some sustainability concerns with Vietnam, but on an opportunistic level, if the Japanese are looking to fill in some low-cost supply on a spot basis, they might continue to turn to them,” Murray adds. “But if they want to make sure they have a reliable, secure and long-term supply, and are willing to pay a bit of a premium, we’re pretty optimistic we’ll be able to hold market share. We still want to balance our production into Europe, to make sure we’re being prudent in terms of having diverse portfolio of customers, but definitely, we want to continue to benefit from our competitive advantage going into Japan. They value the sustainability, they value long-term, reliable supply, and we can offer all of those things. We aim to just keep building on that.” Strauss says he believes that, though there is the challenge of longer distances by ship, Southeast U.S. producers like Enviva, which now has an office in Tokyo, are strategizing to become suppliers into Japan. “I expect they will have some success. Overall, North America will continue to play a significant role in that market I think, but there will be other players.” Pinnacle Renewable Energy is one Canadian producer taking advantage of the bustling Japanese market. The longest-established wood pellet producer in Canada, Pinnacle is the world’s third-largest pellet producer, with nearly 1.5 million tons of annual capacity, and with current construc-

Policy »

Registered Renewable Capacity Under FIT 45


40 Photovoltaic <10kW Photovoltaic > 10kW Wind Small hydro Geothermal Bioenergy

35 30 25 20





tion and expansion projects, that number will exceed 2 million tons in 2018. “Pinnacle is working flat out on a number of wood pellet fuel supply proposals in Japan,” says Vaughan Bassett, senior vice president of sales and logistics. “There is serious interest in long-term Canadian supply because of our proximity, quality, sustainability and actual track record in Japan.” Bassett notes the different dynamic between making deals with customers in Japan versus Europe, where the company sends the bulk of its exported production. “The Japanese have a very much longerterm commitment to biomass than we have seen in Europe or the U.K.,” he says. “This is supported by the FIT, which is good for 20 years, versus 11 years in the U.K., for example. So wood pellet supply contracts that we are negotiating today in Japan start from around 2020, and will have a contract term of 10 to 20 years, taking them out to 2040 and beyond.” Bassett adds that although Pinnacle expects subsidy support to continue in Europe, right now, it is only guaranteed to somewhere between 2024 and 2026. “Therefore, contracting certainty can’t extend beyond this time in Europe, currently,” he says. “This is unsatisfactory for European biomass users, but plays neatly



10 5 0 Photovoltaic < 10kW Photovoltaic > 10kW Wind Small hydro Geothermal Bioenergy Total






1.42 15.99 0.80 0.07 0.00 0.19 18.47

1.27 36.41 0.24 0.23 0.01 1.37 39.53

1.10 17.18 1.25 0.36 0.06 0.46 20.41

0.86 5.71 0.55 0.12 0.01 1.67 8.92

0.85 3.76 4.13 0.34 0.01 8.72 17.81

into the Japanese requirements. Those wood pellet suppliers that are able to swing production from Europe to Japan will likely

do so over time, to take advantage of the longer subsidy horizon available there. Pinnacle is well situated in this respect.”


« Policy

For those North American producers seeing success with locking in long-term supply agreements with Japanese power producers, Strauss advises them to err on the side of caution, to safeguard themselves against one of a couple perceived flaws of the FIT.

Challenges With, Opportunities Beyond the FIT

The FIT has provided a generous subsidy—especially projects approved prior to October of this year. “It was 24 yen per kilowatt-hour (kWh)—now lowered to 21 yen, until they adjust it again,” Strauss says. “That translates into about $200 per megawatt-hour, depending on the exchange rate. They [power producers] can afford to pay for pretty expensive fuel, getting that much money for electricity sales.”

However, that rate is fixed over 20 years, and there is no adjustment for potential inflation. That leaves both sides of the equation in a bit of a predicament. “The power station has to make a deal on fuel supply such that the price of the pellets, or fuel, doesn’t increase so much over the term of the contract, that it takes away the margins,” Strauss explains. “In the early days of the contract, you’re getting 21 yen per kWh, and let’s say with pellets, it is 10 yen per kWh for generation costs. If pellet costs go up every year, at some point, if your total cost of generation exceeds 21 yen per kWh, you’re losing money. So the contracts have to be such that—the deal with the pellet supplier—has a known starting rate, and some kind of a fixed, annual escalator and terms such that at the end of it, the fuel cost isn’t so high that it kills the profit margins for the generator.”

That transfers the inflation risk to the pellet producers, who must ensure that the cost of producing pellets doesn’t increase faster than the fixed escalation rates. “And that’s a challenge,” Strauss remarks. “There hasn’t been much escalation in recent year—in fact, none in Japan, and low in North America—but suppose wood costs go up, or diesel fuel costs rise a lot—then their cost of producing pellets will go up, but the price they are getting for them is already fixed by that offtake agreement. So producers need to be careful in the kinds of deals they make, and also make sure that they do not see their profit margins go negative.” Another flaw of the FIT, Aikawa says, is that it does not incentivize combinedheat-and-power. Few of the power plants that have begun operating thus far have been designed to utilize any heat, and electric-only plants typically operated at an electric efficiency of 20 to 40 percent, while CHP plants are near 80 percent, according to Aikawa. Profitability would improve if the plants sold heat—for example, as district heating—but as the FIT stands now, there is a reliance on the high rates, and the FIT applies only to electricity production. While the FIT isn’t perfect, it is still in early, evolving stages, and will undoubtedly be a major catalyst in achieving Japan’s long-term energy strategy. In the meantime, for biomass use, the biggest question that remains is what kind of sustainability requirements the government will enforce, and how carbon footprints will be measured. “That’s still sort of a work in progress right now,” Strauss reiterates. “The FIT says you must have sustainably sourced fuel, but the definition of what that means has to be fully fleshed out. We’ll just have to wait and see where Japan goes with that.” Author: Anna Simet Managing Editor, Pellet Mill Magazine 701-738-4961



Policy »


With industrial pellet producers in both Canada and the U.S. counting on Japanese demand to deliver the annual volumes being forecast by many marketplace observers, the differences between this new demand center, and the industry’s first—the United Kingdom—are becoming more and more evident. In many ways, the industrial wood pellet industry couldn’t have asked for a better platform upon which to build than the Drax Power Station. The conversions at Drax created demand for millions of tons of wood pellets, all at the same location underwritten by the U.K.’s Contracts for Difference (CfD) scheme. The demand at Drax gave investors in the U.S. confidence to build not only production assets, but also vital port infrastructure. Similarly, ports in the U.K. were more than happy to invest in wood pellet handling and storage capabilities, particularly in the face of withering coal business. The Drax Power Station, almost by itself, enabled the industrial wood pellet sector to get off the ground in North America. The opportunity in Japan promises to be the sector’s much-anticipated sequel, but the situation there lies in stark contrast to the opportunity presented to the sector by Drax. Brodie Govan, a biomass broker at Voyage Power, is arguably the most active wood pellet broker in the Japanese market, helping to arrange the first long-term wood pellet offtake agreement in Japan. From Govan’s perspective, one of the biggest challenges in the Japanese market right now is understanding which of the many projects being discussed and planned will ultimately be built. This reality is having the biggest impact on investment

in port infrastructure. “There is such a lengthy list of projects in the pipeline that I’m not sure the ports know which ones to take note of,” he says. “They are inundated with potential projects, and I think it’s difficult to see which ones will come to fruition in the end.” Being able to efficiently discharge pellets, handle and store pellets from a vessel is no small thing. At this year’s Exporting Pellets conference, hosted by the U.S. Industrial Pellet Association, the challenge of limited port infrastructure was a frequent topic of conversation. “It comes down to the cost of the vessel per day,” Govan says. “Each port has a different discharge rate that they can take those pellets from the ship into the port. In Europe, it’s probably around 10,000 tons per day. Then, a handy-sized vessel will come in, and be gone again in a few days. In Japan, if you are bringing in a larger vessel with 45,000-50,000 tons—which is pretty much what you have to do make it work pricewise, from shipments from the U.S. East Coast—and you’ve got a discharge rate of maybe 3,000 to 4,000 tons per day, a vessel is sitting at a port for maybe 10 days, and the cost of that is just prohibitive.” There are additional factors are contributing to slower rate of investment at Japan’s ports. Coal volumes in Japanese ports have remained stable recently, while volumes in the U.K. have not. “Some of these ports in the U.K. that Drax is using for inbound wood pellets had really lost quite a bit of coal business,” Govan says. “They didn’t really have a choice. They had to convert to biomass to bring in new business. I’m guessing a lot of these ports in Japan don’t have that problem.” Govan’s observation is supported

by trade data—since 2012, Japan’s coal imports have been stable with inbound coal volumes hovering around 180 million tons each year, the vast majority of those tons being bituminous coal. The U.K.’s coal volumes, while paling in comparison to Japan’s, nevertheless show a steep decline beginning in 2015, when imported volumes fell from 25 million to 15 million, and again to 6 million in 2016, just 20 percent of the volume the country brought in 2012. These falling volumes hit ports hard, and their willingness to invest in wood pellet infrastructure is easy to understand. For now, Japan’s port infrastructure is stuck in a bit of a chicken-and-egg situation. Without a certain, bankable project, the motivation for a Japanese port to invest in wood pellet infrastructure just isn’t there, and without necessary infrastructure with which to receive wood pellets, projects needing significant volumes find themselves answering difficult questions about certainty of supply. Ultimately, Govan sees this situation working itself out, when one or more of Japan’s very large diversified trading companies, like Mitsui or Mitsubishi enter the marketplace. “Some of these large trading houses already own ports,” he says. “If they don’t own ports, they have very good relationships with the ports, a stake in them, or they will make the necessary investments at a port to handle these volumes.” Govan says that, for now, this may leave some of the smaller projects and independent power producers on the sidelines, waiting on larger players to fund the infrastructure they’ll need for their inbound feedstocks.


Queens University researchers have produced a spherical pellet that is highly durable, hydrophobic and resistant to impact and abrasion. Now, an industrial partner is sought to advance the technology.. PHOTO: QUEENS UNIVERSITY

Molding a New Pellet Design What began as a project focused on developing pellets that could be shipped via pipeline led to the development of a new type of torrefied pellet that has increased bulk energy density, durability, and resistance to moisture. BY JASON HENDRY

CONTRIBUTION: The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Pellet Mill Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).


Technology »


he original idea for a research project at Queen’s University in Kingston Canada, was to develop a wood pellet with the ideal characteristics for shipping in a pipeline. According Andrew Pollard, professor at the Department of Mechanical & Materials Engineering at Queen’s University in Kingston, to make that work, the pellet would require a spherical shape, to maximize packing within the pipeline. The pellet would also need to be highly durable, and resistant to impact and abrasion with the pipeline and with other pellets. And, of course, they would have to be capable of being submerged in water—the proposed carrier within the pipeline—for prolonged periods. At the time, such a pellet did not exist, and so the team at Queen’s initiated a research project to develop its own. Immediately, torrefaction was of interest, as pellets made using this process not only had increased energy density, but also improved hardness and, perhaps most importantly, hydrophobicity. However, the cylindrical shape of existing torrefied pellets was not optimal for use in a pipeline, and the fractured ends served as sites for water ingress and the generation of particulates or fines. To survive being shipped through pipelines, the pellets would require a continuous, smooth and impervious outer surface that would minimize damage and water ingress. To achieve this, the team made pellets by compressing the biomass between two hemispherical dies, as opposed to extruding material through a die, as with conventional pellets. Another variation to conventional processing involved torrefying the biomass within the mold cavity prior to compressing, by heating the

mold to a set temperature over a period of time, and then pressing the pellet. Interestingly, the team found that offgassing of the sample created an environment within the mold/die that prevented air from interacting with the heated sample, such that an inert atmosphere was not needed during the torrefaction step. The first pellets produced were dark brown in color, consistent with torrefied pellets, and had a smooth, hard and shiny outer surface. Unfortunately, they also had a weak equatorial plane, and were thus prone to breaking into two halves. Not deterred, because the other attributes of the pellet halves countered many of the weaknesses of cylindrical pellets, the team focused its attention on the interactions between the biomass particles within the mold during compression, and determined that the weak equatorial plane resulted from insufficient particle-to-particle contact. Improved mixing amongst the biomass fibers was needed, and Pollard and the team redesigned the mold/die to function similar to an ice cream scoop. Subsequent pellets had the same impervious outer surface, but were significantly more robust, as evident from a modified impact test— for example, throwing the pellets against a concrete floor; they bounced with no effect on integrity. However, torrefying the biomass within the mold/die makes scaling the process to an industrial capacity difficult, if not impossible, and so the team changed its focus to determining whether the steps of torrefaction and pelletization could be decoupled, while still achieving the same, robust pellets. To help, the team brought in David Strong, Queens professor and chair in design engineering at the Natural Scienc-

es and Engineering Research Council. Strong’s assessment was that to be relevant industrially, the team needed to minimize the time the biomass spent in the mold/ die, meaning either Pollard pretorrefying the biomass and loading it into the mold while still hot, or significantly increasing the heating rate of the biomass within the mold. The first option was fraught with material handling challenges, particularly within a university lab setting, so the team focused on the latter. However, conventional thinking at the time was that the heating rate during torrefaction could not exceed 50 degrees Celsius, and that once cooled, the torrefied material was “set,” and could not be brought back to a state to form a robust pellet. The researchers challenged these assumptions, and through a series of experiments, demonstrated that biomass that had been previously torrefied and cooled could be rapidly reheated and compressed to form robust pellets consistent in quality with those obtained using the original process. This was a key finding that enabled the team to further develop the process to work equally well with either raw or pretorrefied biomass, with a near-zero hold time in the compression cycle. Multiple types of biomass, both woody and nonwoody, have been successfully used in this process including poplar, switch grass, weed canary grass, oat hulls and hemp.


« Technology

Torrefied Cylindrical Pellet* Pellet Density (kg/m3)

Q' Pellet


1302 – 1366

Bulk Density (kg/m3)

750 – 850

964 – 1011**

Gross Calorific Value (MJ/kg)***

20 – 22

19 – 22

15.0 – 18.7

18.3 – 22.2

Bulk Energy Density (GJ/m3)

* P. C. A. Bergman, "Combined torrefaction and pelletisation: The TOP process," ECN, Tech. Rep. ECN-C--05-073, 2005 ** Calculated using packing factor of 0.74 *** As received

As it turns out, the properties of Queen’s pellets, dubbed Q’Pellets, are also ideally suited for more traditional applications, such as cofiring with coal in the generation of electricity, and as a low-carbon fuel alternative in the production of cement. As with conventional torrefied pellets, the Q’Pellets, when compared to white or untorrefied

pellets, have increased energy density, improved hardness and friability, and hydrophobicity. However, the compression molding process used for the Q’Pellets results in increased density that, together with their spherical shape and improved packing, leads to an increase in bulk density and therefore, bulk energy density. The Q’Pellets also have a continuous,

'As it turns out, the properties of Queen’s pellets, dubbed Q’Pellets, are also ideally suited for more traditional applications, such as cofiring with coal in the generation of electricity, and as a low-carbon fuel alternative in the production of cement.'


Technology Âť

smooth and impervious outer surface that minimizes the generation of dust, thereby mitigating the problem of dust explosions. And further, their shell-like surface minimizes the ingress of waterâ&#x20AC;&#x201D;anecdotally, the team is aware of a Qâ&#x20AC;&#x2122;Pellet that survived a year and a half while being submerged in water, without any loss of durability. To assess the commercial potential of the Qâ&#x20AC;&#x2122;Pellets, a spreadsheet-based model was developed to enable a techno-economic analysis and a simplified life-cycle analysis of Qâ&#x20AC;&#x2122;Pellets, cylindrical torrefied pellets and cylindrical white pellets. A case study based on a hypothetical, commercial-scale plant built in Williams Lake, British Columbia, with product delivery in Rotterdam, Netherlands, was developed to compare the production of each pellet type based on their internal rates of return, and lifecycle greenhouse gas emissions. The Qâ&#x20AC;&#x2122;Pellets had the highest modeled internal rate of return at 12.7 percent, with white pellets at 11.1 percent, and torrefied pellets at 8 percent. The simplified life-cycle analysis showed that Qâ&#x20AC;&#x2122;Pellets had the lowest life cycle greenhouse gas emissions of the three products, 6.96 kgCO2eq/GJ, compared to 21.50 kgCO2eq/ GJ for white pellets and 10.08 kgCO2eq/ GJ for torrefied pellets. At these levels of life-cycle greenhouse gas emissions, white pellets are above the maximum life cycle emissions to be considered sustainable under EU regulations. Sensitivity analysis was performed on the model by modifying input variables, indicating that white pellets are more sensitive to uncontrollable market variables, especially pellet sale prices, raw biomass prices and

transportation costs. A Monte Carlo analysis was also performed, which showed that white pellet production is less predictable, and more likely to Strong lead to a negative internal rate of return compared to Qâ&#x20AC;&#x2122;Pellet production. The advantages of the Qâ&#x20AC;&#x2122;Pellet are clear, with increased bulk energy density, superior properties and reduced lifecycle greenhouse gas emissions. However, the Qâ&#x20AC;&#x2122;Pellet technology is still in a relatively early stage of development, and more work is needed to advance its technology readiness level. Both Pollard and Strong acknowledge that this will be best achieved by collaborating with an industrial partner that has a different, yet complimentary set of skills, to move the technology forward. As such, the universityâ&#x20AC;&#x2122;s technology transfer office has been working to help identify industrial partners interested in developing and commercializing the Qâ&#x20AC;&#x2122;Pellet technology. With an issued U.S. patent covering the Qâ&#x20AC;&#x2122;Pellet mold/die design, and significant processing knowhow and expertise, the team believes that it has built a strong foundation upon which a new and proprietary pelletizing platform can be built. Authors: Jason Hendry Assistant Director of Commercial Development Queens University, Office of Partnerships and Innovation 613-533-6000





The Asian Biomass Market:

Challenges and Opportunities Ahead BY PEDRO CAMPILHO


he bioenergy market in Asia Pacific is still fairly immature compared to the European market. However, recent developments have led to expectations of significant demand development that could lead to this region quickly surpassing the European market in terms of traded volumes. As of March 2017, the amount of certified capacity under â&#x20AC;&#x153;gen-

eral wood and agriculture wasteâ&#x20AC;? has, with 11.4 GW, already far surpassed the bioenergy targets initially defined by the Japanese government (2.7 to 4.0 GWe). If all the projects awarded feed-in tariff (FIT) contracts under this category go ahead, biomass demand could reach 47 million oven dry metric tons (ODMT) by 2021. Announced bioenergy projects in South Korea are also expected to increase cur-

rent wood biomass import demand from 2 million ODMT to up to 12 million ODMT by 2024.

Biomass Sourcing Strategies

Bioenergy projects in Asia Pacific are mainly targeting industrial wood pellets, woodchips and palm kernel shells (PKS) as biomass fuel. As these feedstocks all have different characteristics, the tech-

CONTRIBUTION: The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Pellet Mill Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).


Markets Âť

nical design of each bioenergy plant will need to be tailored according to the biomass feedstock mix, in order to maximize efficiencies and minimize operating costs. Detailed trade-off analysis, covering different biomass supply chains and technical designs, will afford developers and their investors a better understanding of expected returns and underlying risks, and help define risk mitigation strategies. Even though some project developers have already formulated biomass sourcing strategies, the actual implementation of these strategies may yet change in reaction to future market conditions and requirements brought forward by investors. The Japanese market is especially characterized by a high level of uncertainty regarding preferred biomass fuel assortments, and stakeholders will have to develop in-depth market knowledge and prepare strategies covering a range of potential future market scenarios. Despite a theoretical potential of approximately 15 million metric tons of PKS in Indonesia and Malaysia, only a limited share of these volumes will be available in the long run to meet demand from Japan and South Korea. The PKS market will experience considerable changes going forward; increased mobilization efforts from international buyers in combination with often challenging inland logistics, and further increasing domestic demand for PKS as biomass fuel, are likely to result in considerable price increases. The majority of biomass fuel imports into Japan and South Korea will need to come in the form of industrial wood pellets or wood chips, both of which largely come from the same fiber resource base. Thus, before defining long-term biomass sourcing strategies, a detailed understanding of current and future wood fiber availability in potential supply regions is required, in order to develop a clear understanding of the risk of upcoming fiber shortages and price increases. Such assessments will also need to consider compet-

ing demand from and market expectations of other wood consuming industries, such as pulp and paper, and wood products. For example, the Japanese and Chinese pulp and paper industries, both of which are currently importing around 10 million ODMT of wood chips per year, might be wary of the increasing demand pressure, and its effect on international wood chip markets.

Supply Chain Opportunity

Additional challenges come from the short timelines for developing and implementing sourcing strategies, as projects in Japan have a window of only three years from receiving a FIT contract to the start of operations. This does not allow for the development of significant additional forest plantation resources, and buyers will have to contend for the existing resource base in the short- to medium-term. Competition for existing supply opportunities will be intense, and buyers will have to mobilize resources from further afield, with associated higher transport costs. Not only could this increase supply costs, at least initially, it could also lead to less favorable carbon footprints, negating some of the positive impact bioenergy can have on net carbon emissions in the power sector. Project cancellations can also be expected, as developers are likely to struggle to secure long-term supply contracts for the required biomass assortments at affordable price levels. The expectation of significant demand increases in Japan and South Korea offers interesting opportunities for a range of stakeholders across wood pellet and wood chip supply chains. Indonesia, Malaysia, Thailand and Vietnam are attractive supply sources 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 rubber wood plantations. Other regions, such as the Russian Far East, west-

ern Canada, Brazil and Australia are also expected to play important roles as potential supply regions, due to an existing biomass surplus and the potential for establishment Campilho of new plantations. Several developers of bioenergy projects in Japan and South Korea have also shown intent to invest upstream, by acquiring or co-investing in existing biomass supply projects, or by developing their own greenfield projects. However, any upstream integration strategy that does not cover the full supply chain still leaves the risk of increasing biomass raw material prices, or even supply shortages, potentially increasing investorsâ&#x20AC;&#x2122; exposure to risk. Only full upstream integration strategies, similar to strategies employed by Japanese pulp and paper producers, can provide a high level of supply and price security. In any case, such ventures will require comprehensive project due diligence covering all aspects of the supply chain, followed by a sound implementation strategy to successfully secure financing. The Japanese and South Korean biopower sectors are set to be the driving force behind substantial changes in dynamics for international biomass markets, and stakeholders will have to tackle considerable uncertainties. Resource owners, biomass suppliers, and bioenergy producers need to develop a sound understanding of short-, medium- and long-term price trends for each biomass assortment to avoid entering into unfavorable or unsustainable long-term fuel supply agreements. Authors: Pedro Campilho Senior Consultant PĂśyry Management Consultancy


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2017 November/December Pellet Mill Magazine  

The Asian Production & Consumption issue

2017 November/December Pellet Mill Magazine  

The Asian Production & Consumption issue