Japanese policy will drive significant demand growth for industrial wood pellets

While globally Europe is the largest producer and consumer of wood pellets, a new brief of a coming market report from US-headed international pellet industry consultancy, FutureMetrics LLC, suggests that the majority of demand growth for industrial wood pellets post 2019 is likely to come from Japan and South Korea.

Both are policy driven markets and, although the policies and how the supply for those wood pellets is secured in each country are quite different, both policies result in creating a demand for industrial wood pellets as a coal replacement in power plants.

Figures during a conference in Tokyo in May earlier this year pegged total Japanese wood pellet imports 2016 to around 350 000 tonnes and South Korean imports to about 2 million tonnes, the latter including 230 000 or so tonnes of so-called “woody bio SRF pellets”.

Focusing on Japan, the brief explains how the country is guiding the power generation industry with four interlinked areas of policy:

• carbon reduction
• the “best energy mix for 2030” required minimum efficiency for power generation,
• required minimum efficiency for power generation
• the Feed-in Tariff (FIT), the only policy instrument that provides a monetary incentive

Japanese government agencies expect that the country will need about 1 065 million MWh’s of electricity in 2030 of which 23 percent is to be met from renewables. Within renewables, biomass is expected to have a 4.3 percent or 6.15 GW nameplate installed capacity.

Numerous projects are planned and many are currently either co-firing wood pellets or running dedicated systems using pellets, low-grade biomass such as woodchip, forest residues, recycled wood, or palm kernel shell (PKS), a residue from the oil palm industry.

Strauss points out that if 30 percent of that 6.15 GW’s i.e. 1.845 GW’s are generated using pellets then Japan will have an annual consumption demand of about 7.4 million tonnes.

Pellets option for PC boilers

Strauss highlights that most of the currently running dedicated systems are relatively small circulating fluidized bed (CFB) boilers that do not have pulverized fuel systems. Though CFB boilers can burn a wide range of biomass fuels, including wood pellets it is likely that most will use PKS as this is not pulverizable and cannot be used in pulverised coal (PC) boilers. Instead, Strauss suggests that it will be the larger >200 MWe PC power stations that will be co-firing wood pellets.

The large power stations owned by the major Japanese utilities are being guided into decarbonization with the limits on carbon dioxide (CO2) per MWh, with compliance to the “best energy mix”, and with improved efficiency that allows the wood pellet generated share of the total power output to “improve” efficiency.

The 20-year duration of the generous FIT rate will support long-term and stable demand for industrial wood pellets.

“Best energy mix” is reached at 10 percent

Due to the carbon policy, the “best energy mix” policy, and the required minimum efficiency requirement, some of the major power generators will be forced to co-fire with pellets. The major power generators who need to co-fire pellets at their existing power stations will likely be allowed to benefit from the FIT for the MWh’s generated by pellets and co-fire at the rate of up to about 15-20 percent.

However, at a 10 percent co-firing ratio, it is possible to reach the “best energy mix” criteria. At a co-firing ratio of 10 percent by selected major utility power plants, the demand for wood pellets is expected to exceed 7 million tonnes per year.

Thus, as Strauss concludes, there is an expected large and stable market in Japan that will bring about the significant potential for healthy sustainable growth in industrial pellet production.