Matthew Rivers, director of fuel at Drax, spoke briefly about the UK electricity generator’s coal-to-biomass conversion projects, and then proceeded to fire off warning shots as to the potential growth of the UK (and European) industrial wood pellet-fed power market to an audience composed of mostly U.S. industrial wood pellet producers at the fourth annual Exporting Pellets Conference hosted and produced by the U.S. Industrial Pellet Assn. October 1-3 at the Fontainebleau Miami Beach Hotel.
Rivers noted that one burner unit has been fully converted from coal to biomass, a second one is running with mostly biomass along with some coal, which will be fully converted soon, a third unit conversion should be completed in 2016, and the conversion of a fourth unit is planned but not a certainty. Currently regulatory support only entails the first three conversions, representing 4 million tonnes of pellets annually, Rivers said, and it’s questionable whether there’s available funding for future conversions in the UK, noting that the UK Levy Control Framework sets an absolute cap on renewable spending and “there’s no evident appetite” for more biomass.
Then Rivers hit hard: “The prospective scale of the European industrial market continues to be substantially over-stated,” he said.
“The U.S. industrial pellet sector is important,” Rivers added. “It is not on the stellar growth trajectory assumed by too many in this room.”
Looking at his co-participants on the Utilities Panel, including representatives from GDF Suez, RWE, Dong Energy and Vattenfall, Rivers said the numbers simply don’t add up to match the aggressive forecasts. Rivers also cautioned that such forecasts draw considerable attention from opposition groups.
Rivers’ comments echoed that of an earlier speaker, Nigel Adams, a member of the British Parliament from Selby. Adams noted that the majority of the UK populace appears to support the usage of biomass in renewable energy.
However, he cautioned that in the UK, biomass power may be “as large as it will get” once the known conversion projects are completed. Adams, too, disputed demand forecasts. “Are we in danger of getting slightly carried away?” he asked, adding, “The rapid growth pace is likely coming to an end for pellets in the UK.”
Adams said attacks from groups opposing wood pellets will continue, but the industry must continue to counter this criticism and provide accurate information that these facilities “do not lead to higher accumulation of carbon in the atmosphere.”
Jens Price Wolf, director of Thermal Power Asset Management and Development, Dong Energy of Denmark, said there’s considerable potential for the conversion of the country’s aging plants to biomass fuel. Dong has recently converted a unit at its Avedore Power Station, adding extra wood pellet grinding machinery.
“It allows aging plant capacity to have a life into the future,” Wolf said. “Coal as we know is dead in our jurisdiction.”
John Bingham, director, Hawkins Wright, provided the company’s outlook, noting that global wood pellet production will be 25 million tonnes in 2014 (11 million industrial and 14 million non-industrial heating). In 2013, the UK led wood pellet demand with 36% of the 9.8 million tonnes of industrial pellet demand, followed by Sweden (16%), Belgium and Denmark (each 13%) and The Netherlands (10%).
Bingham said five large scale biomass power projects are still in the works in the UK, but it is unlikely that more will come forward. “Nevertheless the UK will be the world’s major pellet market for the foreseeable future.” Meanwhile Bingham noted that the UK energy policy is unnecessarily complicated, citing various aspects of the program such as Contracts for Difference, capacity markets, carbon taxes, and Levy Control Framework caps.
In addition to aggressive pellet demand in The Netherlands, 3-3.5 million tonnes by 2017-1018, Bingham said Denmark could see a demand in pellets from 1.3 million tonnes to 3.5 million by 2018-2020. Belgium, which has about 1 million tonnes of consumption mainly at the Electrabel power station, could see through new projects an annual pellet consumption of 3 million tonnes by 2020.
South Korea is emerging, with pellet imports expected to be 1.3-1.5 million tonnes in 2014, driven by the requirements of Korea’s Renewable Portfolio Standard, which requires generating companies to meet an annually escalating renewable obligation or pay a penalty. Vietnam and Canada have been the main suppliers for Korea, followed by China, Malaysia, Thailand and the U.S. making some gains.
Bingham concluded that global industrial grade pellet demand is likely to plateau at around 36 million tonnes from 2020 onward. He also pointed to a steady growth in the residential/commercial heating pellet market.
Seth Walker, bioenergy economist with RISI, following the lively discussions involving wood pellet demand forecasts, began his presentation by delivering the statement that had caused much discussion: “Globally, wood pellet demand is projected to grow from an estimated 23 million metric tons in 2014 to 50 million metric tons in 2014.” The forecast includes European heating, European industrial, Asia industrial and North America, with European industrial pellet demand more than doubling by 2024 to 20 million tonnes. European heating demand increases from 10 million to 17 million in 2024.
The European pellet heating market is quietly on the rise, Walker noted.
William Strauss, principal at FutureMetrics, spoke on the potential for power plant conversions in North America. “The potential for significant growth in the industrial pellet market is in the conversion of North American pulverized coal power plants,” Strauss said.
“There are hundreds that can be converted economically and can produce low cost, dispatchable, and job creating electricity,” Strauss said.
Strauss said there are 428 operating pulverized coal plants in the U.S. (greater than 50 MW), with a median age of 48, and 77% of the plants are older than 35 years. Strauss said assuming that any conversion from coal to wood pellet fuel will be plants that are older than 35 years, the primary new major capital cost for a conversion from coal to wood pellet fuel would be the fuel storage and handling systems.
A Finance Panel featured representatives from RBC Capital Markets, Ewing Bemiss, GSO Capital Partners, Stern Brothers, Hancock Renewable Energy Group and Riverstone Holdings.
Carl Williams, managing director at Riverstone Holdings, said one of the keys to the company’s renewable energy direction is selecting partners. “You measure the character of your partner, the alignment of interests. We’re about building businesses and it’s as much about what our partner is as what they’re trying to do.”
Patrick Fleury, principal, GSO Capital Partners, said of the wood bioenergy industry, “It’s a relatively young industry with a few folks who are experienced and others trying to make it work.” He said his firm’s confidence in the experienced leadership at Rentech, for example, provided comfort to GSO Capital Partners in its investment in Rentech.