– Things get better with age, remarked Harold Arnold, USIPA Chairman and President of Fram Renewable Fuels in his opening address of USIPA’s 5th Annual Exporting Pellets Conference in Miami Beach, Florida. This year’s edition was characterised by mature reflection and a sober outlook. It was the best yet in terms of dedicating time to a much broader discussion on industrial pellet markets other than the European utility sector in general and the UK in particular.
Make no mistake, Miami Beach was by all accounts the place to be. Driven by 2020 targets, the energy sector in the European Union (EU) remains the largest volume market for industrial pellets and US producers’ major suppliers for the foreseeable future – foreseeable being the operative word. Arnold continued his address to describe how far and fast the US industrial pellet industry has moved since the first conference, which was held just five years ago in New Orleans. He noted several milestones including safety, sustainability, standards and scale, the roll-out of production- and supply-chain capacity all adding up to US$ billions in investment capital. In a word “remarkable” as Harald Arnold put it.
Thinking beyond the fire
Arnold’s milestones also indicate a degree of industry maturation. Coupled with the final Clean Power Plan (CPP) issued 3 August requiring the US power sector as a whole to reduce greenhouse gas (GHG) emissions by 32 percent from 2005 levels by 2030, not to mention movements in other non-subsidised markets for woody lignin-based applications, such as the chemical industry, it was very timely that such topics were also on the “exporting pellets” conference agenda to be “explored”. Judging from the questions and comments heard during the event, it was also a welcome development.
Providing an inspirational and well-received insight into the latter, Dr Federico M. Berruti, Consultant, McKinsey & Company, reminded delegates that there are numerous pathways to consider for extracting the most value from biomass and three “investment horizons” for biomass technologies; proven, emerging and demonstration. Pelletising falls into the first category, pellets are well proven, have a transportation cost advantage over other solid biomass forms and a near-commodity.
– We should learn from the crude oil world. The largest share of revenues from petroleum refining comes from the smallest share of end-use, speciality fuels and chemicals, explained Berruti before ending with a recent example of Canadian cellulose to glucose research using pellets.
Wilco van der Lans, Senior Business Developer Industry and Energy, Port of Rotterdam, the Netherlands took the train of thought one step further; van der Lans is also Project Manager for the Rotterdam Biorefinery concept. The objective is to set-up a second-generation integrated ligno-cellulosic project using 1 million tonnes-per-annum of pellets as feedstock. It makes much more sense than it may first sound. Rotterdam is the location of the largest refining, petro-chemical and chemical industry cluster in Europe, the supply-chains and other infrastructures already exist, also of course for pellets. A parallel can be drawn to liquid biofuels and refining majors like Neste.
First SBP certified producer
Nonetheless a key and popular feature of the conference are the producer and utility market panels whereby moderated panellists share views on the current (and conventional) markets for pellets, supply and demand forecasts all within the bounds of competition and anti-trust limitations. Sustainability was discussed. Deborah Keedy, arguably the world’s single largest pellet buyer in her role as Head of Biomass Procurement at Drax Power, remarked that ”we want all of our producers to be SBP [Sustainable Biomass Partnership] certified by 2016.” A tough call given that news only emerged during the event that The Westervelt Company had become the first SBP certified producer.
What’s happening in the UK?
As at previous editions John Bingham, Director, Hawkins Wright, provided the backdrop for market panel discussions with an outlook on industrial wood pellet markets in Europe and Asia. Being policy driven markets, political risk and policy uncertainty remain an almost constant macro-challenge but so too did “plummeting” energy and weak carbon prices compounded by a strong US$ translating to a 15 percent increase in the cost of pellets for those buying with EUR.
On the upside side Bingham noted that the market as a whole has continued to grow, progress can be reported on some large power projects, there have been some positive policy developments such as in the Netherlands and perhaps more importantly as a result there is an improvement in long-term visibility. The big question on many minds: what more (or less) can be expected from the new Conservative regime in the UK now that it has full control over energy policy for the first time in almost a decade?
– The immediate priorities have been to control overspending in the Levy Control Framework (LCF), the budget that caps spending on support for renewable electricity. But note that as a whole these cost cutting measures are not aimed at biomass specifically, he explained.
Other forms of support that affect pellets have been reduced or removed including grandfathering of renewable obligation certificates (ROC) for conversion and co-firing, removing renewable electricity’s exemption from the climate change levy (CCL), and postponing the autumn contract for difference (CfD) auction. With the 2015/2016 capacity margin down to around 1.5 percent, there will be plenty to report on from next year’s USIPA, 6-8 November 2016.