A new era for the wood chip market
The wood chip for energy market is starting to see some significant changes due to the advent of some large projects which could open up new supply markets. Traditionally wood chips have been used across Europe for power and heat generation in small-scale plants, often no larger than 20MW, using locally-sourced wood. It makes sense if you are using locally-sourced wood not to process that wood into to say wood pellet form but instead transport it directly to the plant.
However, since 2016 we’ve seen a trend for larger wood chip combined heat and power (CHP) projects. Stockholm Exergi, formerly Fortum Värme, was first out of the gates with its Vartan 130MWe/280MWth plant in Stockholm, which opened in spring 2016. At the time, it was the largest wood chip CHP plant in Europe. It uses around 1Mt/y (green tonnes) of wood chips. Denmark’s Ørsted, formerly known as Dong Energy, has shifted its focus away from wood pellets, choosing wood chips for its latest fossil fuel plant conversions. Its Skærbæk unit #3 95MWe/320MWth CHP plant started operations ahead of the 2017/18 winter, using approximately 450kt/y depending on heat demand. Ørsted also has plans to convert its Asnæs unit #6 and Esbjerg plants to wood chips. In France, Uniper is commissioning its 150MWe/500MWth Gardanne plant which will use around 850kt/y of wood chips. Finland’s TSE began cofiring biomass at its 146MWe/250MWth multi-fuel CHP plant in late 2017 and plans to increase its biomass use to around 60-70% by the end of 2018, which will be equivalent to around 1Mt/y of wood chips.
Looking ahead, Danish utility HOFOR will bring online its 150MWe/500MWth BIO4 Amager plant in 2019/20, which alone will consume 1.2Mt/y of chips.
Smaller plants using locally-sourced wood has mean that, unlike wood pellets, the development of an international market has been limited. However, the wood chip market could be about to experience change. The new projects over 50MWe are unlikely to fulfil all their requirements from local resources alone. That issue was further highlighted this winter when tough weather conditions hampered forest harvesting in the Baltic region and caused a significant shortage of wood chips and pushed users to source elsewhere. The economies of scale that come with these larger volumes will help expand existing supply markets and open up new regions.
West Africa is already a source of wood chips for energy in Europe and has been for several years, albeit in fairly small volumes. Just last year French utility Engie began importing wood chips from Cameroon, in partnership with Afriren, for its own use and trade. Russia has abundant resources and is becoming more important but logistical challenges and a lack of infrastructure will limit its expansion. Utilities are also actively considering the Americas but phytosanitary requirements for some tree species adds complications and cost.
Sustainability certification and greenhouse gas (GHG) emission limitations for wood chips for energy use can and will prove problematic for end-users looking to source from further afield. Countries have their own GHG emission thresholds for biomass use which will limit the distance wood chips can be transported, while the introduction of mandatory limits in the EU’s Renewable Energy Directive II (RED II) could be of greater concern still. Although not finalised yet, the European Parliament has proposed introducing a GHG savings threshold of 70% compared to fossil fuels from 2021 and 80% from 2026. Even shipping on Supramaxes and Panamaxes might not be enough to negate the emissions, in which case the viability of transporting chips long distances may be limited from 2021.
Another interesting development is an increased interest in alternative forms of biomass. Many of the new projects have or will install boilers which are more flexible in the feedstocks they can use. For some, the boiler guarantee periods will limit the type of biomass that can be used initially, but once they expire the utilities will be free to experiment with different fuels. The types of biomass being mooted include citrus fruit wood, olive oil by-products, sunflower husk pellets, bagasse pellets and waste wood.
Beyond Europe, Asia is becoming a more interesting market for wood chips, driven by potential in Japan and South Korea. Supported by Japan’s Feed-in-Tariff subsidy scheme, a huge pipeline of biomass projects is building in Japan. It is not yet clear the fuel make-up of all the planned projects and which ones will progress but as one of the largest wood chip importers for pulp and paper, Japan will increase its use of wood chips for energy production. South Korea also has a number of planned wood chip projects but likely changes to the Renewable Energy Certificate (REC) value weightings for biomass, which is expected to be announced soon, could impact the financial viability of the new builds. To find out more about the growing Asian market please see Hawkins Wright’s new Asia-Pacific Biomass Supply and Demand to 2030 multi-client report, due out March 2018.
A version of this article also appears in the March/April 2018 issue of Bioenergy Insight magazine.