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Svebio expects bullish bioenergy market to persist

Svebio expects bullish bioenergy market to persist
Record prices despite off-season - on June 21, 2022 woodchip prices reached an all-time high at Baltpool International Biomass Exchange despite it being the summer season (graphic courtesy Baltpool).

The transition to renewable bioenergy is now taking place on a broad front in Europe. The high prices of fossil energy combined with increased costs for Emission Trading System (EU-ETS) allowances make it profitable to switch to biomass for energy in all types of installations says Gustav Melin, CEO of the Swedish Bioenergy Association (Svebio).

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As the demand for woodchips and pellets is rising, increased fuel production and investments in chipping equipment and logistics solutions are required to meet the needs.

In Lithuania, forest chips were traded for EUR 29.3 per MWh on June 21, which is the highest ever price on the Baltpool International Biomass Exchange. The total value of forest chips traded during the day was EUR 3.3 million, said Gustav Melin.

The Lithuanian market is a small fuel market but in good contact with other European fuel markets. The Baltic market has been affected by a decrease in fuel supply from Russia and Belarus already since the summer of 2021 followed by an absence of fuel supply from these countries after the start of the Ukrainian war.

In addition, a large biomass-fired combined heat and power plant in Vilnius will be inaugurated during the year. As a result, the Baltic countries have begun to look at importing fuel via the Baltic Sea.

However, the increase in the price of woodchips is not confined to the Baltic States. According to the Argus Index, the spot price on forest chips delivered CIF to North West European ports was around EUR 46 per MWh in June 2022 compared with around EUR 21 per MWh in June 2021.

Prices are, according to the Argus Index in June 2022, by far the highest prices ever for forest chips in Europe.

Switch from coal to biomass

What then is behind this rise in demand and prices taking place? According to Gustav Melin, bioenergy markets are primarily being driven by the profitability of switching from coal to woodchips or pellets in plants that have to buy emission allowances to burn coal.

For example, district heating plants larger than 20 MW and coal-fired power plants that produce electricity.

There are many of these plants across Europe, particularly in Eastern Europe, where they are now switching to woodchips in existing coal-fired boilers. It is profitable to blend as much biomass in the fuel as the plant can handle.

Stockpiled logging residues
Logging residues stockpiled at roadside awaiting chipping.

The share of biomass, in turn, depends on the characteristics of the individual plant in combination with the quality and moisture content of the fuel. The current EU-ETS price of EUR 84 per tonne of carbon dioxide (CO2) means an emission cost of around EUR 24 per MWh of heat if coal is burned.

A switch to solid biomass fuels becomes very beneficial and explains the rush for woodchips, demolition wood, and pellets.

Bullish forecast

According to the Swedish Bioenergy Association (Svebio), the bioenergy market will continue to remain bullish for several years to come.

In order to cope with the increased demand and reduce imports of Russian fossil energy to Europe, there is great potential to increase the production of forest chips.

Gustav Melin
Gustav Melin, CEO of the Swedish Bioenergy Association (photo courtesy Erik Cronberg).

Various forms of bioenergy are the easiest and most competitive alternative to Russian fossil energy. There are plenty of sustainable biomass volumes across Europe, but it now needs to be invested in production capacity to increase supply, meet demand and get more reasonable prices.

Together with this expansion in production capacity all producers need to handle and fulfill the implemented sustainability criteria. In most European countries, there has previously been no particular demand for forest chips – now the demand has exploded.

The big question is currently whether the increase in demand will persist or if the market will fall back after the war in Ukraine ends?

Svebio notes that the answer is essentially governed by two factors:

  • The long-term price of EU ETS allowances – The price of allowances is now steadily above EUR 80 per tonne of CO2. The EU has the ambition to continue to strengthen the EU-ETS scheme and there are currently policy proposals in this direction. Svebio estimates that it is most likely that the cost of allowances will continue at least at a level of EUR 60 per tonne but may even increase further from today’s level of EUR 84 per tonne.
  • The price of natural gas – Europe has been painfully reminded of what dependence on Russian natural gas means. Svebio thinks that it is unlikely that after the war ends, Europe will return to buying the same volumes of natural gas (from Russia) as before the war. The EU has already signed agreements on liquefied natural gas (LNG) supply by boat from Qatar and the United States (US). The cost per energy unit in these contracts will certainly be higher than the historical costs of natural gas via pipelines from Russia.

Overall, the prices of fossil energy for electricity and heat production in Europe will be higher than before and we foresee a high demand market for biomass for energy for many years to come, ended Gustav Melin.

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