EVENT World of Pellets

World of PELLETS

World Sustainable Energy Days was held in Wels, Austria, in early April. The three-day event hosted multiple conferences and workshops, including the European Pellet Conference.

PHOTO: OÖ ENERGIESPARVERBAND

The recent European Pellet Conference in Wels, Austria, included international pellet market updates. BY KATIE SCHROEDER

The landscape of the wood pellet industry has been impacted greatly by Russia’s attack on Ukraine. In early April at the European Pellet Conference, representatives of countries across the globe discussed the current state of their pellet markets, including Japan, Brazil, Austria, Germain and Spain. The session was moderated by Gordon Murray, executive director of the Wood Pellet Association of Canada. Club and CEO of Lab Forest Inc. reported on Japan’s wood pellet market, which is largely driven by the country’s feed-in tariff. Production is growing a small amount each year, he said, with a total of about 137 factories that collectively produce about 150,000 tons annually. “So, each mill produces a very small amount of fuel,” he said, adding that about half of production is made from sawdust.

Most of the pellets consumed in Japan are used for power generation, which is “increasing rapidly,” from 3.5 gigawatts in 2019 to an estimated 4.1 gigawatts in 2025, he said. The

heating industry is still small—in 2020, only 1,857 Japanese pellet stoves were sold in the country, and even fewer imported pellet stoves were sold—a total of 438 units. There are about 1,000 operating pellet boilers and another 1,000 wood chip boilers in commercial industry sectors, according to Kojima. “There are very few pellet boilers working in the single-family houses because we don’t use hot water central heating systems,” Kojima said. “So, this is our challenge—to install [more] pellet boilers in single-family houses.” Heating oil is cheaper than wood pellets right now, he added.

Japan has two national pellet quality standards, the Japan Industrial Standard and the Japan Agricultural Standard, the latter of which will be published this year and is based on the European standard. According to Japan wood pellet association, Kojima said, there are eight production facilities certified under the old standard that will be changing over to the JAS standard.

Pellets are primarily used at power plants due to the feed-in tariff, Kojima reiterated, and growing pellet imports from Vietnam and Canada—and soon, the U.S.— will rise from 3 million to 6 million tons annually. One issue of concern is that these power plants don’t utilize the generated heat, Kojima said, which he would like to see change with more combined-heat-andpower application.

Kojima emphasized that the price of pellets in the domestic market is currently quite high, which may be a hindrance on future growth of the sector. He concluded by emphasizing the importance of energy security in context of the uncertainty caused by the Russian invasion of Ukraine and COVID-19.

Forestry Management in Brazil

Afonso Bertucci, a representative from Brazil’s Braspell Bioenergia, discussed Brazil’s superior forestry management and its wood pellet production potential. Currently, he said, the country only produces a small volume of pellets, “1 million tons per year in 30 factories,” but that number will rise significantly in the next few years, according to Bertucci.

The country’s goal is to be carbon neutral by 2050, and Bertucci said forest plantations—and, potentially, wood pellets—will play a key role. Bertucci outlined the plan for this forest-based bioenergy program in his presentation, explaining the plant requirements which include the establishment of environmental debates, bilateral agreements and long-term contracts with offtakers, technological agreements with international companies and consolidating carbon dioxide credits market with global coverage. Bertucci said Brazil’s forest plantations have supplied the pulp and paper industry traditionally, but in the future, there will be high consumption in biorefineries, especially in second-generation ethanol. In the white pellet sector, traditional markets include power plants and heating, but there are emerging markets like the cement industry, Bertucci said. Brazil is also looking at opportunities in hydrogen, he added.

With outstanding figures for forest productivity, Bertucci said Brazil has the potential to produce 1 billion tons of wood pellets annually. When asked if he sees any short-term potential in helping fill the supply shortage expected in Europe during the next couple of years as a result of Russia’s invasion of the Ukraine, Bertucci was doubtful, given the timeline of the three large-scale production facilities currently under construction in the Rio Grande region. “In the short-term, I cannot see any possibility, because Brazil exports approximately 600,000 tons and all of it is contract, and there are no existing factories to expend additional supply from,” he said. The next facility will be complete in two years, he said, and it will be able to supply large volumes to both the export and residential markets. As

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for wood chips, he added, there is a chance for Brazil to supply some volumes to Europe.

Market Pressures in Germany

In Germany, there has been a rush on pellet stoves as a way to compensate for rising electricity prices. Martin Bentele, representing the German Pellet Association DEPV, spoke about the pellet market in Germany, which he said is one of the leading pellet markets in the world. “As far as pellet production is concerned ... 3.3 million tons were produced in Germany, and 2.9 million tons were consumed in Germany,” Bentele said. Many efforts have been made toward quality assurance, he said, offering that nearly 150 pellet producers have received the European ENplus certification for quality.

As an exporting country, Germany has not needed much in the way of imports in the past. However, with the impacts the war in Ukraine has had on the market, imports have become more necessary, Bentele said. There has been increased interest in pellet heating systems throughout the country due to the high cost of oil, as well as government legislation that bans the use of gas heating in the future. Bentele explained that imports are becoming harder to acquire since foreign companies are selling their stock at home as demand increases due to high electricity prices. “It’s going to get harder to get imports, and the other thing is that low-grade quality will have to be accepted in order to cover the rising demand for industrial plants,” he said. “I don’t have a crystal ball, so I can’t tell you what the end result will be, but in terms of security of supply we’re going to have to really try very, very hard.”

Supply Security in Austria

Christian Rakos, president of the World Bioenergy Organization, and CEO of ProPellets Austria and Save Energy Austria, gave updates on the Austrian market. Over the past 10 to 15 years, the market for pellet heating has fluctuated significantly with the price of oil, primarily consisting households that are moving from heating with oil to pellets. He explained that fluctuating oil prices and environmental impacts are leading homeowners to choose wood pellet heating as a more secure option, and businesses, too. “All the companies that are now worried about the development of gas supply security, of gas prices, of heating oil prices, are now rushing to go for pellets and that is going to have a very serious impact on pellet demand,” Rakos said.

Rakos also discussed Austria’s exports and imports, as well as the issue of pellet storage. Austria exported nearly 900,000 tons of pellets, primarily to Italy. The country imports about 100,000 from Germany, the Czech Republic and Romania, from Austrian companies sited in those countries. Rakos explained that there are concerns it may be difficult to acquire pellets for some traders in upcoming moths. “This

is an issue that our association has been dealing with for a long time. It’s the issue of pellet storage and supply security,” he said. The competitive pellet market in Austria has led to producers being unwilling to have extra inventory. “And that has an economic reason—having inventory is, first of all costly, and secondly, it’s also risky because if you’re stuck with the inventory because of a warm winter, the pellets you put into the storage in the fall may be significantly devalued in springtime when usually pellet prices decline.” Due market conditions, there have been serious concerns about supply security, and for this reason, Rakos and other members of pellet market have been lobbying for a requirement that all pellet producers have 10% of the inventory from last winter stored at the beginning of winter. “I think that would be very important for the future of our market, because supply failure would be just catastrophic, we cannot afford that,” he said. With the current concerns about pellet shortages due to the invasion of Ukraine, Rakos hopes that the legislation will get through to make this requirement a reality.

“Brown Gold” in Spain

Pablo Rodero Masdemont, representative the Spanish Bioenergy Association (Avebiom), and president of the European Pellet Council, explained that Spain is primarily importing pellets from Portugal. Recently, wood pellets have attracted the media’s attention, inspiring headlines calling pellets “brown gold.” The rewards of growing demand are being somewhat negated by the rising cost of electricity, however, as it now makes up almost 20% of production cost. The government has suggested capping the price, but Rodero said he is not sure whether that will actually help. “Many other producers in Spain are hoping or waiting what the government will introduce a new price of electricity or new support to this, but not only pellets; it is all industries,” he said. “So, I guess there will be some measures, but I don’t know if they will be enough.” Rodero explained that the Spanish pellet market is expected to be tight, even as the demand increases.

The troubled times coming off of years of a global pandemic and currently a war in Ukraine, have led to a measure of uncertainty for pellet producers looking to the future. The unrest has led many European producers to brace themselves for a tight winter with high demand from consumers. However, this situation does provide bioenergy producers an opportunity to show how renewable fuels can bring more reliability and lower cost to consumers. Rakos summed this up well, adding, “The new thing is supply security, which is really driving markets absolutely crazy. So, price differential is huge, but I think even if that drops again, people will just be frightened off to continue with oil and gas, especially industries. And I believe that we’ll see massively growing demand for biomass.”

The next European Pellet Conference will be held March 1-2, 2023, in Wels, Austria.

Author: Katie Schroeder katie.schroeder@bbiinternational.com

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