Trading biomass with assurance
Like most energy majors, Norway-based Statkraft runs a trading division for financial and physical energy trading. Except that it did not trade with biomass. That all changed in 2012. Today its biomass trading unit consists of eight staff and a ”physical asset” in Tofte, Norway all poised to take up a strong market position.
The third largest power producer in the Nordics and a global hydropower major, Norway-headed Statkraft is as the name suggests owned by the Norwegian state. The company has also emerged as a European wind power major. In total, the company has around 18.5 GW of installed generation capacity in over 350 plants or installations across four continents. With over 56 TWh power per annum, 99 percent of which is renewable, it is Europe’s largest green power producer.
What is perhaps less known outside of Scandinavia is that Statkraft develops- owns and operates district heating and cooling plants. Currently, it has almost 800 MWth installed capacity at 31 plants in Norway and Sweden all running on biomass.
Tofte biomass hub
Securing fuel supply to its thermal business area would appear a logical reason for Statkraft to set up a biomass trading business division in late 2012. Yet the business has grown to employ eight staff and include a “physical asset”, the Tofte pulp mill site on the Olso fjord waterfront in southern Norway. A look on the map as to where these heating and cooling facilities are located in relation to Tofte along with having the trading office headquartered in the UK suggests there is much more to it than that.
– We set up in late 2012 on the back of projected European pellet demand said to grow to around 20 million tonnes by 2020 or so. As traders we felt that biomass was the missing leg of our renewable energy business, we had the necessary in-house trading expertise, the internal infrastructure and financial instruments as well as buyer/user experience from our energy facilities, said Christopher Moore, Head of Biomass Trading and Origination at Statkraft.
Biomass contracts with insurance
The first trades came about during 2013 – 2014 providing clients with diverse agri-bulk biomass such as shea shell, olive pulp and straw pellets.
– The first 18 months were spent getting the business set up and aligned internally, honing our raison d’être and points of differentiation in the marketplace. It may seem like a long time but we’re part of a large state owned organisation with a long-term view on its businesses and we were in no hurry to ”flip deals”, said Chris.
The first trades in wood pellets came about in 2014 – 2015 with amongst others shipments going from Scotland to the Netherlands and from Portugal to the UK. The latter, a direct result of the UK Renewable Heat Incentive (RHI), a support scheme to stimulate a switch to renewable sources for domestic and commercial heating.
– As we’re asset light in that we don’t own and operate wood pellet plants so we are in a better position to work with market swing volumes. In other words when the market expands we can bring in volume and when it contracts we can stay clear, he explained.
Biomass bankability key
According to Chris this works with the typical spot trade but also with long term contracts with specific volumes over a given period of time. And not just for pellets but woodchips too.
– The latter form is where we are different because we can offer long term pellet or woodchip supply contracts with “insurance” with respect to the contracted price, volumes and delivery. In other words we provide bankability, which can be critical for biomass projects, said Chris.
Unlike in the Nordic countries where biomass heat and power projects tend to be financed by companies and municipalities, this is not often the case in other countries.
– Typically in the UK, a renewable energy project developer would need a power purchase agreement (PPA) or say an energy purchase agreement and, in the case of biomass, a fuel supply contract agreement in place in order to approach a bank for project finance. We can and do provide one or other or both, he said.
In the UK, Statkraft has already 150 long term (15-year) PPA’s in place for on- and offshore wind, hydro and biomass projects such as the two straw-fired Eco2 projects, Sleaford- and Briggs Renewable Energy plants.
Statkraft may be asset light in pellet terms but for woodchip it’s a different story. In 2013 it acquired Tofte from the Swedish forest owners association industry division Södra Cell, developing it into a biomass hub for logs, woodchips and pellets. It officially opened for business in August 2015 with the first 3 000 m3 consignment of woodchips to a “leading Danish utility” in Denmark. Given the near-term woodchip demand growth in the Baltic Sea Region, around 3.7 million tonnes to 2020, spurred by recently commissioned facilities as well as projects under construction by Danish, Finnish and Swedish energy utilities, it would appear a prudent move.
Sustainability and GHG
Statkraft is Forest Stewardship Council (FSC), Programme for Endorsement of Forest Certification (PEFC) and EnPlus certified since 2013. A first for the industry is that as of November 3, it became the first international woodchip producer, supplier and trader to be certified under the Sustainable Biomass Partnership (SBP) certification scheme.
– We are proud of all our other certifications as we can now prove that we fullfill all legal, regulatory and sustainable requirements along the value chain from harvesting, transport, processing, storage and shipping, remarked Moore.
A tangible benefit for Statkraft having to track and record the sustainability data including greenhouse (GHG) gas emissions from the place of harvest of the roundwood right to the delivery to the customer is the ability to customise fuel sources with customer GHG reduction requirements over and above forest sustainability, based on actual data rather than default values. This is in addition to being able to tailor fuel quality, physical and financial services.
In addition, Statkraft and Södra formed Silva Green Fuel AS in February 2015. The ambition of the joint-venture (JV) company is to establish “future production of second-generation biofuels” at Tofte. Again it would seem to be a well-placed move and, although Chris Moore had no comment, one can speculate that perhaps pyrolysis oil may become the second-generation biofuel in question given Statkraft’s business in the energy sector rather than transportation fuels.
What is not speculative is that the biomass hub is under strong development and at full capacity will be able to handle around 600 000 tonnes biomass per annum. Operating 24/7, the 35 ha site has five deep water and short sea ice-free berths, can store 100 000 m3 roundwood and 50 000 tonnes of woodchip on site. From Tofte most major wood importing ports can be reached within two days sailing. Chris also pitched an interest in sourcing sawmill residues revealing that the company has “well advanced” plans to develop additional port-based biomass hubs in the Baltics and Iberia.
– I can’t say much other than to confirm that the basic premise and business model is similar to Tofte and that we expect to announce these locations during the first half of 2017. Also we’re opening a sales office in Denmark, ended Chris Moore.