Global Pellet Market Update: Canadian Perspective

Seth Walker, Bioenergy EconomistNovember 2014

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Global Pellet Demand

• European Industrial• European Heating • Asian Industrial• North American

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Where’s all this going?

New RISI Study: “Globally, wood pellet demand is projected to grow from an estimated 23 million metric tons in 2014 to 50 million metric tons in 2024.”

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Global Pellet Market DevelopmentMillion Tonnes

North AmericaAsia IndustrialEuropean IndustrialEuropean Heating

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Introduction to European Industrial Pellet Market• Motivated by policies that support renewable energy

and/or emissions reductions• 2009 EU Climate and Energy Package

– So-called “20/20/20” targets• 20% reduction in GHG emissions• Raising the share of energy from renewables to 20%• 20% improvements in energy efficiency

– Each member state had to produce a National Renewable Energy Action Plan (NREAP) to achieve their targets

• Industrial pellet markets tend to have three characteristics– Reliance on coal– Lack of domestic biomass sources – Additional support for biomass (RPS, FIT, CO2 tax (or floor))

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United Kingdom

– Policy• Renewables Obligation (RO)• Contracts for Difference (CfD)

– Guaranteed price for electricity • Currently £105/MWh

– Selected Facilities• Drax: 3 x 630 MW (maybe 4)

– 2.3 million tonnes each• E.ON Ironbridge 2 x 300 MW – one closed due to fire

– 1.0 million tonnes through 2015• RWE Lynnemouth: 400 MW

– 1.4 million tonnes demand

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Denmark

– Policy• FIT on electricity• Biggest driver is fuel tax exemption for thermal

– Combined heat and power and heating plants• 60% of the Danish population• 16 large central power stations (9 Dong)• Avedore Unit 2

– 440MW main boiler, up to 1.1 million tonnes

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Netherlands

– Policy• SDE+: Similar to CfD, minimum price for electricity

– Sustainability debate; resolving• ILUC, Carbon Accounting, etc.• 2013 pellet imports 540,000 tonnes, down from over 1

million tonnes in 2012• Future: cap on pellet co-firing 25 PJ = ~3.7 million

tonnes – RWE, Electrabel, E.ON all involved in co-firing

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Belgium

– Policy• Primarily RPS – Green Certificates• Capital Region, Flanders, Wallonia – different standards• Recent disagreement with regulators and forest

products industry in Flanders– Resulted in the idling of Ghent for much of the year– Now resolved

– Plants that have or are considering conversion or greenfield

• Electrabel: Ghent, Liege• E.ON: Antwerp, Genk• Bee Power Ghent

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European Industrial Market Outlook

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European Industrial Pellet DemandMillion Tonnes

Other SwedenDenmark BelgiumNetherlands UK

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European Pellet Heating Market Based on Economics• Primary reason for growth

– Relative cost vs other forms of space heating

• Pellets average ~€260/tonne across Europe – About 5.4 ₵/kWh– Natural gas second @ 6.8₵/kWh,

~26% more expensive• 2014 EU heating market

– Italy: 2.7 million tonnes– Germany: 2.0 million tonnes– Sweden: 1.5 million tonnes– Austria: 950,000 tonnes– France: 870,000 tonnes– Denmark: 620,000 tonnes– Other: 1.2 million tonnes

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Space Heating Cost Cents per kWh by Country and Fuel Type

ElectricityLPGFuel OilNatural GasWood Pellets

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European Pellet Heating Outlook

• Continued strong, but decelerating growth

• Where will pellets come from?– Euro exchange rate presents

concerns– Germany/Austria become net

exporters– Prices

• Global energy commodities ↓• Pellets ?

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European Premium Pellet DemandMillion Tonnes

Other EUDenmarkFranceAustriaSwedenGermany

Growth Profile for European Pellet Heating Demand

• Example: Germany• Past 10 years

– 20,000→40,000 units/yr• Next 10 years

– Growth projected to remain steady at current levels

– Not projected to continue to accelerate

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GermanyPellet Appliance Stock and Shipments

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Appliance StockAppliance Shipments

Current Situation: Asia• South Korea

– Renewable Portfolio Standard• Started 2012 @ 2%• 10% goal 2022-2027

– Rapid Growth• Second quarter: 581,000 tonnes• Year-over-year increase: 519%

– Challenge: tender system• Japan

– Feed-in tariffs for renewables– Co-firing ~20,000 tonnes per

quarter– Could be greater opportunity from

small independent producers

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Korean Pellet Imports by SourceQuarterly, Thousand Tonnes

OtherUnited StatesRussiaIndonesiaThailandMalaysiaChinaCanadaVietnam

Korean Pellet Market Potential

Baseline Forecast:– Coal plants will meet 100% of

their RPS with biomass co-firing– 50/50 split

• Pellets • Woodchips and other

– Coal plants will not purchase RECs from other producers to meet RPS (downside risk)

– Coal plants will not co-fire more than enough to meet their RPS and sell RECs (upside risk)

– No cap on co-firing

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Baseline Demand Forecast

Pellet Co-Firing

Coal Generation

Pellet Demand

North American Demand

• USA– Post bubble growth– Increasing demand – Natural gas main story

• Canada– Much smaller market– Atikokan

• More Industrial?– Leave that to Bill

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United StatesPellet Appliance Stock and Shipments

Thousands

Stock of Pellet StovesPellet Stove Shipments

North American supply to account for majority growth

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North American Pellet Export Destinations

• The UK absorbs most of the industrial market, ~3.6 million tonnes in 2014

• Italy and South Korea increase significance– #2 and #3 destinations from Canada

• The pie itself is growing– 2012: 3.3 million tonnes– 2013: 4.5 million tonnes– 2014A: 5.3 million tonnes

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68%5%

9%

1%4% 6%

7%

2014 YTD

UKNetherlandsBelgiumJapanS. KoreaItalyOther

60%

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12%2%3% 8%

11%

2013

45%

23%

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3%0%3%

11%

2012

Significance of emerging markets in Canada

• Emerging and diversifying markets present opportunity for BC producers especially– Proximity to Asia– Flexibility from rolling

contract expirations• Mature market

– High quality softwood pellets made from residuals• EN+• Sustainability

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Quarterly Canadian Wood Pellet Exports to Italy and Korea

Thousand Tonnes

KoreaItaly

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

Thank you for your attention!For more information:

North American Bioenergy 5-Year Forecast

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Contact Information

Seth WalkerBioenergy EconomistRISIBedford, MAswalker@risi.com+1.781.734.8992Twitter @BioEconomist

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