New growth opportunities in Asia for biomass suppliers
Rapidly increasing demand for biomass in north-east Asia is opening a potentially huge new market for biomass suppliers globally. In 2016, South Korean, Japanese and Chinese imports of wood pellets and palm kernel shells (PKS) totalled over 3 million tonnes, 350% more than four years earlier. Meanwhile approximately 500 thousand tonnes of imported wood chips were used for energy generation in Asia in 2016, alongside more than 20 million dry tonnes of chips that were imported to Japan and China for pulp and paper production.
Biomass demand in these countries will expand quickly over the next decade as policy mechanisms seek to boost the output of renewable energy and reduce reliance on ageing coal and nuclear plants. Hawkins Wright research suggests that industrial wood pellet demand alone will exceed that in Europe by the late 2020s, with consumption of woodchips and PKS increasing significantly too.
However, the anticipated rate of demand growth in Asia raises valid questions about the availability of secure, sustainable and affordable supplies of feedstock. Wood pellets, chips and PKS are the favoured fuels, but it is not yet clear what proportions of the market each of these will account for. Furthermore, if demand were to reach high-deployment scenario levels - such as Japan’s aim for up to 4GW of biomass power – then other, more unconventional, solid biomass fuels will need to be considered too.
The pipeline of biomass power projects in north-east Asia is huge. Certified woody biomass capacity under Japan’s Feed-in Tariff reached almost 12GW in March 2017, more than triple the country’s policy goal for 2030. These projects are being driven by a seemingly generous tariff of ¥21/kWh ($0.19/kWh), guaranteed for twenty years. However, this fixed tariff is not adjusted for inflation, making it challenging to assess Japanese buyers’ feedstock paying capability in two decades’ time.
Although these headline figures for planned biomass capacity are eye-watering, not all of it will be realised. The pipeline includes many large and well-resourced projects from serious investors. For example, Chubu’s 1.1GW Taketoyo coal plant, which intends to cofire wood pellets from 2022, and J-Power’s 600MW Takehara plant which is preparing to cofire biomass from 2020. However, there is also a big pipeline of smaller cofiring and dedicated biomass plants, many of which speculatively secured FiT certification despite being at a very early stage of development.
In South Korea, low-rate cofiring has been the technology of choice in the country’s Renewable Portfolio Standard scheme to date, but there is growing interest in dedicated biomass plants and full conversion of coal units to biomass. KOEN, for example, completed the conversion of a 125MW coal unit in Yeongdong in 2017 and will convert a second unit of 200MW by 2020. With Hangyang Energy, GS Corp, Gunjang Energy and others all planning to construct dedicated biomass power plants, we have identified Korean projects requiring over six million tonnes per year of wood pellets alone, with further demand for woodchips and PKS too.
The shape of the future Asian-Pacific biomass market will be determined by the technology and fuel choices of these utilities, gencos and independent power producers. The relative advantages and disadvantages of different biomass feedstocks will need to be carefully evaluated by Asian buyers, as they look to minimise their short and long-term fuel supply risks. Some of them will choose to install fuel-flexible boilers, which may allow them to respond to fluctuations in the availability or cost of different biomass types. However, this option will not suit all projects and some will rely more heavily on long term contracts to manage their fuel supply risks. Others will look to vertical integration and upstream investments to assert control over their own fuel supplies.
Likewise, there will not be a one-size-fits-all model for biomass suppliers selling into the Asian-Pacific market. Wood pellet, woodchip and PKS producers and traders in multiple continents will have an opportunity to export to new buyers in Asia. Understanding the nature of this demand and their own fuel’s competitive advantages will be key to these companies securing a share of this new market.
At Hawkins Wright we are analysing developments in the Asian-Pacific biomass market closely. Through our extensive network of contacts and on-the-ground research we are building up a picture of long term biomass supply and demand in Asia. This research will be presented in a new multi-client report that will be published in Q1 2018. This report will provide essential information and analysis for any company looking to do business in this exciting and rapidly growing market. More information is available here www.hawkinswright.com/bioenergy/asian-pacific-biomass.