Wood chips for energy: The challenge of standardisation
The European wood chip for energy market is undergoing a transformation as several large-scale wood chip-fired power projects come online. However, it remains to be seen whether the rapidly expanding seaborne trade of wood chips for energy will change how the market operates and if it will support the commodification of the fuel.
Since 2016 four large new wood chip-fired plants have come online, largely reliant on imported wood chips, an almost unheard of situation prior to that time (see my previous blog for more details on those new projects). The chip market has traditionally been dominated (and still is) by small and medium scale CHP and district heating plants using local wood resources. The shift to larger plants sourcing from much further afield will dramatically change the dynamics of the market.
By analysing the pipeline of CHP and heat plants under construction we have identified at least a further 2.5M green tonnes of seaborne chip demand in Europe in just the next year or two. This surge in wood chip import requirements leaves many questions about how the market will change, where supply will come from and whether a liquid spot market will develop?
Could the answers be found in the wood pellet market? The international trade of wood pellets has existed for over ten years now but still lacks the liquidity and standardisation evident in other commodity markets. And there is no doubt that it is much further advanced than the wood chip market.
It is clear to many in the market that standardisation, be that standardisation of specification, quality testing procedures or units used; should it be green tonnes, bone-dry tonnes, gigajoules or cubic metres? Answers to such questions is vital if the market is to mature and evolve. This concern was highlighted during discussions between key market participants at Bioenergy Europe’s inaugural wood chip working group in Brussels last week.
If we look to the wood pellet market, it is evident that the adoption by industrial end-users of the I2 standard early in the process helped develop a spot market – albeit not as liquid as many would hope for. Although far from perfect, the I2 standard provides a basic specification which contracts and discussions are based upon. Even so, almost every industrial pellet buyer has its own requirements aside from the I2 specification. Could a similar specification work in the wood chip market? Could Bioenergy Europe’s own certification scheme GoodChips provide a solution?
The crux of the problem seems to be that almost every wood chip boiler, even when operated by the same company, requires a different specification of chips, making standardisation especially challenging. Many end-users find their options are restricted by the terms of the guarantee stipulated by their boiler manufacturer. Some market players have suggested pushing back on boiler manufacturers and encouraging them to loosen their guarantee specifications.
More recently, companies – particularly those installing larger plants – are choosing boilers which have greater fuel flexibility. For example, Ørsted’s wood chip boiler at its new Asnæs plant is a lot more fuel flexible than its older ones at Skærbæk and Herning. It is this variation in the technology used by operational power plants that creates increasing disparity in acceptable fuel specifications.
Looking ahead, it will be the actions of the industry and the ability of stakeholders to work together which will determine if standardisation can be achieved.
One challenge in developing a more standardised, commoditised chips for energy market is the fragmentation and opaqueness in the market. Buyers and sellers can often work in isolation, focussing on one-to-one relationships, with little interaction and knowledge of the wider market. We at Hawkins Wright have recently published a new multi-client report shedding new light onto this growing market. Our report Wood chips for energy examines existing and expected seaborne wood chip demand globally, analyses wood chip trade flows, details key supply regions and provides a breakdown of the economics and competitiveness of the energy sector versus other chip end-users. For more information or to subscribe please visit here or get in touch at firstname.lastname@example.org.