The divergent biomass procurement strategies of Japanese and Korean utilities
by
Fiona Matthews
Aug 18, 2017
Recent developments in the biomass market have highlighted the divergent approaches used by Japanese and South Korean utilities to secure biomass fuel. While South Korean generating companies (‘gencos’) obtain their fuel through periodic open tenders, Japanese buyers have shown a preference for purchasing biomass through secure, long-term supply contracts.
The reasons behind the different approaches are numerous. The transparent tender process used by state-owned Korean gencos is a means to avoid corruption. It places all the focus on price, and provides flexibility to buyers whose demand for biomass is linked to uncertain government policies (namely the Renewable Portfolio Standard). In contrast, Japanese biomass power projects are backed by 20-year subsidy support from the country’s Feed-in Tariff. As such, Japanese buyers want to ensure that their biomass comes from a reliable, credit-worthy counterparty. Some players in the Japanese market have gone further, by making direct upstream investments.
Sumitomo has acquired a stake in Pacific Bioenergy
In July, Japanese trading house Sumitomo Corporation further consolidated its role in the biomass supply chain, by acquiring a 48% stake in Canadian wood pellet manufacturer Pacific BioEnergy Corporation. The value of Sumitomo's investment in Pacific Bioenergy was not disclosed. Concurrently, Pacific Bioenergy bought back the 34% interest in the company previously held by its "European partner", which is understood to be Engie. (Engie, previously GDF Suez, bought a minority stake in Pacific BioEnergy in February 2010.)
Pacific Bioenergy was established in 1994 with the construction of the company’s 350kt/y Prince George pellet mill. In addition to its own production, Pacific Bioenergy also markets industrial pellets produced by other manufacturers, reportedly amounting to an annual sales volume of over 550kt. This is Sumitomo’s second upstream investment in biomass. In February 2016 the company acquired 20% of Cosan’s Brazillian pellet business. The Cosan joint-venture aims to produce 2Mt/y of pellets from sugarcane bagasse by 2025 (see FEM #60 p.8). Both ventures will help to ensure Sumitomo has secure, reliable access to biomass for the Japanese market.
Sumitomo’s wholly owned subsidiary, Summit Energy, has three biomass power projects in the country. Its most recent – the 75MW Handa plant – began operating this year and burns a combination of woodchips and PKS.
Korean biomass tenders begin to falter
Meanwhile, the Korean gencos appear to be finding it increasingly difficult to satisfy their requirements for spot and short term industrial pellet supply. All five genco’s (KOEN, EWP, KOWPEO, KOSPO, KOMIPO) have at some point in the past few months been forced to retender for requested biomass volumes. Although it is clear that rising prices have caused some gencos to reissue tenders when bids failed to come in within their intended budgets, other factors are also at play.
In a recent tender for 52,000t of biomass (revised down from 63,000t originally) for delivery to its Ha-dong power plant between August and September, KOSPO decreased the minimum energy content criteria from 4.2kcal/kg (17.5GJ/t) to 3.96kcal/kg (16.6GJ/t). This is presumably because sufficient fuel (be it wood pellet or woody biomass SRF) was unavailable on the market at the higher quality parameter, for an acceptable price.
A total of 360,000t of biomass has been requested by the gencos in June and July for delivery before the end of the year. Subscribers to Forest Energy Monitor can find more information in Issue #76 p.8.