2017 Wood Pellet Outlook: Out Of The Woods?

The global wood pellet market has endured a challenging 2016. Acute oversupply in both industrial and heating sectors, combined with relatively warm temperatures and overrunning maintenance issues at Drax have pressured operating rates and led to a record drop in prices. While certain players have taken steps to rebalance the market, fundamentals remain weak moving […]

The global wood pellet market has endured a challenging 2016. Acute oversupply in both industrial and heating sectors, combined with relatively warm temperatures and overrunning maintenance issues at Drax have pressured operating rates and led to a record drop in prices. While certain players have taken steps to rebalance the market, fundamentals remain weak moving into 2017.

Despite the currently sober sentiment, there is plenty to look forward to this year. From a regulatory and policy standpoint 2017 is likely to be a year that shapes the future of the pellet market, at least in Europe.

In January, the Netherlands is expected to publish the verification protocol for biomass sustainability, announce the results of the autumn 2016 SDE+ auction, and clarify its position on a coal phase out. Together, these announcements will determine whether the country will add 3.5 million tons of annual demand to the European landscape over the next few years or not. Meanwhile, negotiations will start for the European Commission’s winter package of proposals, including EU-wide biomass sustainability criteria and the second Renewable Energy Directive covering 2021-2030 (REDII). And in the UK, Article 50 will be triggered opening up formal negotiations for the UK’s exit from the EU. Although these negotiations will continue beyond 2017, by this time next year we would expect to see the potential paths ahead with more clarity.

In April, the UK will also hold its second contract for difference (CfD) auction for installations commissioning in 2021/22. We are unlikely to see many biomass installations bid for support in this auction. Biomass power-only is no longer supported, there is currently no funding allocated for the biomass conversions pot, and there is no guarantee that the Renewable Heat Incentive (support for the heat portion of biomass combined heat and power) will continue past 2020/21, making it financially difficult for biomass CHP installations. However, the department for Business, Energy & Industrial Strategy (BEIS) is currently investigating whether and how it would be appropriate to support future biomass conversions in the UK, and we expect to hear whether the RHI will be extended in the Spring Budget – both of which could lead to increased applications for biomass support in the further two CfD auctions during the remainder of this Parliament.

From Bioenergy Insight: http://www.bioenergy-news.com/display_news/11736/2017_outlook_out_of_the_woods/

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