Great Expectations: Asian Renewable Energy Plans
Speculation on biomass potential in the Asian markets has become a regular conversation among wood pellet industry participants. And despite the wildly high forecasts over the past five years, most North American producers have experienced uninspired results. Just as with Europe, it is important to separate the hype from the facts, allowing investors, producers, traders and supply chain partners to plan accordingly.
Recently, a group of industry participants attended the U.S. Pellet Industrial Association conference. Every year, a similar group converges in cities in North America and Europe to attend Argus Biomass and the Wood Pellet Association of Canada conferences, in addition to USIPA. Although participants come together for a variety of reasons, one of the high points is the market outlook segments of the conferences. This year, at USIPA, John Bingham of Hawkins Wright, consultants to international pulp, paper and bioenergy industries, provided just that.
According to Hawkins Wright, worldwide industrial demand for wood pellets in 2015 exceeded 13 million metric tons. Although Europe remains the leader, with the majority of consumption, South Korea and Japan combined now measure 16 percent of worldwide demand. South Korea demand rose 7 percent from 1.9 million metric tons in 2014 to 2.03 million metric tons in 2015, forecasting to grow to 2.7 million over the next five years. Most noteworthy was the sharp increase of imports, almost 300 percent.
Although the growth is still in single digits, the 2012 renewable portfolio standard (RPS) has the ability to set in motion more impressive growth. RPS requires power producers with a capacity greater than 500 MW to generate 10 percent of their total power from renewable energy by 2022. The largest Asian biomass power plant today stands at 105 MW. Based in the South Korean province of South Chungcheong, this GS EPS project took three years and $254 million to convert. Currently, this biomass plant is fueled by agricultural waste product including palm kernel shell (PKS).
Clearly, all the growth cannot be expected to come from South Korea, despite the RPS. After all, according to Mc Kinsey & Company analysis, the demand for wood pellet biomass in Asia is expected to reach 10 million tons per year by 2025.
In 2012, Japan also rolled out a new initiative to boost renewable energy growth in the country. The feed-in tariff (FIT) system provides generators with preset premiums on renewables for 20 years. As a result, Japan’s expected installed renewable energy capacity is almost 400 GW by 2025, according to a study from research firm GlobalData that forecasts an increase in cumulative capacity from 317.5 to 389.8 GW over the next 10 years. Although the majority of installed capacity is expected to come from thermal generation, it is anticipated that biomass, wind and solar will also play a key role. In fact, according to the Biomass Industrial Society Network, 80 wood biomass generation projects received approval in 2014. Most of these projects are cofire plants that will utilize coal and wood pellet biomass. This would increase the biomass consumption to approximately 30 million cubic meters.
Despite the forecasts generated by RPS and FIT, in South Korea and Japan, all eyes are on China, with high expectations over the two decades. According to Kyung-Ah Park, head of Goldman Sachs environmental markets group, almost half of China’s cities experienced acid rain in 2013 and a 100 percent increase in days of haze, year over year. As the world’s largest emitter of greenhouse gases, China has pledged to peak emissions by 2030. The country is positioning itself to be the leader in clean energy deployment. Goldman Sachs believes that China will continue to reduce the role of coal in its primary energy consumption by promoting the development of clean energy including nuclear power, hydro, wind, solar, biofuel and natural gas, with an estimated decline of coal use by 62 percent in 2020. As a baseload power, biomass stands to be a reliable option for China as it furthers its renewable agenda.
With over 300 terawatt hours of worldwide electricity generated by biomass today, and the highest growth of electricity production per unit of gross domestic product in Southeast Asia, the prospects for biomass are astonishing. Although it may be difficult to predict when Asia overtakes Europe in consumption of biomass, it’s clear that this will occur.
Author: Michele Rebiere
President, Wood Pellet Association of Canada
CFO, Viridis Energy Inc.