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European Biomass Demand Continues to Grow Domestic Markets Face Uncertainty
Legislation and funding uncertainty loom over the domestic market while a boom in the European market soaks up North American supply. What is the future for both markets when it comes to wood pellets and biomass for energy? By DeAnna Stephens Baker Date Posted: 7/1/2013 Wood-based energy markets have seen significant growth over the past decade – a trend which is expected to continue, driven by renewable energy policy in the U.S. and abroad. However, unless some significant changes are made in Washington, foreign policies, which are currently larger market drivers than domestic policy, will continue to hold the place of the major cause of demand for U.S. woody biomass. The North American wood pellet export industry has grown exponentially in a relatively short period of time with the export value increasing from an estimated $40 million in 2004 to almost $400 million in 2012, according to the Wood Resource Quarterly (WRQ). Most of these exports have gone to Europe where aggressive renewable energy policies in many countries are fueling the demand, pushing pellet prices close to, or at, record-high levels in all the major markets in the first quarter of 2013. European Policies and Demand Last yeat saw a record volume of 3.2 million tons of pellets exported from North America to Europe, according to the North American Wood Fiber Review. Much of this has been due to the European Union’s 20-20-20 targets of reducing greenhouse gas (GHG) emissions by 20%, increasing consumption of energy from renewable sources to 20%, and improving energy efficiency by 20% by 2020. “One of the cheapest ways to go about meeting these targets was to take existing coal capacity and either co-fire with wood pellets or convert it to burn wood pellets,” said Seth Walker, an associate bioenergy economist at RISI. However, the incentive to burn wood pellets has decreased over the past year in Europe due to a glut in carbon credits. This glut was caused by the emissions trading scheme that was set up in Europe prior to the recession. When overall energy usage dropped during the recession, the use of carbon credits did as well, creating an oversupply of credits. “Within the past year or so, the carbon market absolutely tanked,” said Walker. “So right now the price of carbon is extremely low throughout Europe…and there isn’t a ton of incentive for most power companies to burn wood pellets right now.” This does not mean that the demand from Europe is dropping off; but it may be shifting to the United Kingdom where analysts expect that the majority of future development will be centered. In July 2012 the UK released new rules for its renewables obligation certificates (ROC) which are issued to power generators for producing renewable energy, with different categories of generation receiving a different number of ROCs per megawatt hours generated. The 2012 rules are favorable to dedicated biomass power generation, awarding two ROCs for dedicated biomass electricity generation with combined heat and power and 1.5 ROCs for dedicated biomass electricity generation, but only 0.5 ROC for co-firing. Several UK power plants have already been converted from coal to biomass and more are in the process of doing so, including Drax Power Station, the largest coal-fired power station in the country. Drax plans to transform itself into a predominantly biomass-fueled generator, initially converting three of its six generating units to run on biomass. The first unit came online in April and the next unit is scheduled for conversion next year. About 70% of U.S. pellet exports are already going to the UK and with almost all of the biomass used by large-scale power plants being imported due to a limited supply of domestic raw material, demand is expected to rise. “Each of those facilities is a huge source of demand,” said Walker. “Drax would use about 7.5 billion tons of pellets, which is more than double the entire consumption for one U.S. power plant.” Demand has already started to ramp up and is expected to increase quickly in the next five years, likely over one million tons annually. Many of the new biomass facilities that have been announced in western Europe will be coming online by 2016, after which demand will probably start leveling out. “The question is what will be the level of attrition among those projects, given how the carbon trade pans out,” said William Perritt, executive editor of RISI’s Wood Biomass Market Report. Unlike many European countries, the United States does not have a national renewable energy standard (RES). Congress has considered a RES in the past, but never gotten real traction on one. Many industry analysts expect that the United States will eventually pass a federal RES, but that it will not happen within the next few years due to the current political landscape. Farm Bill At present, the inclusion of funding for the Biomass Crop Assistance Program (BCAP) in the farm bill is one of the biggest legislative issues that the biomass industry is watching. The farm bill is a bundle of legislation that Congress usually passes every five years to set national agriculture, nutrition, conservation and forestry policy. The last farm bill expired in December and a partial extension of several programs was passed as part of the fiscal cliff deal after the House failed to bring a five-year bill to the floor. The Senate passed its version of the farm bill in early June, and as of press time the House had scheduled floor debate on its version. However, the two versions have significant funding differences. The Senate’s $955 billion bill calls for over $1 billion in mandatory funding of renewable and clean energy programs over 10 years, including $38 million annually to BCAP for five years as well as $26 million in annual mandatory funding and $30 million in annual discretionary funding for biomass research and development. In contrast, the House version eliminates mandatory funding and reauthorizes programs at reduced discretionary funding levels. It completely eliminates BCAP’s collection, harvest, storage, and transportation (CHST) payments – a move the agriculture committee said was done to prioritize funding for the establishment of dedicated energy crops. Many in the biomass industry prefer the Senate version due to the mandatory BCAP funding. However, other industry groups, such as the American Forest & Paper Association (AF&PA), oppose mandated funding, preferring the discretionary funding of the House bill. “AF&PA believes that the free market should determine the highest and best use of biomass,” said Donna Harman, president and chief executive officer. Reconciling these differences could cause a delay in final passage of a farm bill. However, with the temporary program extensions set to expire in September, there is a lot of pressure for Congress to pass a five year farm bill, and it is expected to be completed by the end of summer. The leaders from the Senate agricultural committee may be in a good position when it comes to negotiating a compromise of the two versions, due to the passage of their version with a filibuster proof majority. Tax Parity Members of the biomass industry are also continuing to lobby for the biomass sector to receive tax parity with other types of renewable energy. In 2009, under the American Recovery and Reinvestment Act, wood-fired biomass power plants were given only half the production tax credit that other renewable energy sources received and for only five years – half the time period that the other sources were given. According to the Biomass Thermal Energy Council (BTEC), there are currently about 80 different energy-related tax provisions in federal law. “Unfortunately, none of these incentives extends to high efficiency biomass thermal energy, despite the fact that biomass thermal energy fulfills all the same public policy objectives as other renewable energy sources, and despite the fact that the Internal Revenue Code recognizes other thermal technologies such as solar and geothermal,” said Joseph Seymor, executive director of BTEC in a letter to the Energy Tax Reform Working Group. “The end result is an unlevel energy landscape that promotes certain technologies over others, both limiting consumers’ energy choices and their ability to utilize local fuels from landowners and farmers.” Not only does this disparity in tax incentives put biomass at a competitive disadvantage compared to other types of renewable energy, but it can also discourage development in an industry that already has tight profit margins. The effort has received some attention recently from both President Obama’s budget proposal and a piece of Senate legislation. In his proposed 2014 fiscal year budget, President Obama included a permanent extension of the production tax credit for renewable energy sources. The credit is currently scheduled to expire at the end of the year. If a permanent extension is passed, it could go a long way toward helping new biomass facilities secure needed investments for construction by providing the stability and continuity that would help attract private investment. The Biomass Thermal Utilization Act of 2013 would amend the federal tax code to incentivize biomass energy, as it already does for several other forms of renewable energy. Currently, a number of renewable energy technologies qualify for investment tax credits for capital costs incurred in residential and commercial installations. This legislation seeks to achieve equal treatment between those renewable systems and thermal biomass systems. One provision of the bill would include high-efficiency biomass heating technology in the 30% residential renewable energy investment tax credit. The second provision is a tiered tax credit for 15% or 30% of the installed cost of biomass-fueled heating systems for commercial or industrial applications. Because biomass thermal technologies have comparatively high up front capital costs, these investment credits can help overcome the investment hurdle and help build the market. Tailoring Rule A close eye is also being kept on the Environmental Protection Agency’s (EPA) progress on the decision of whether or not to require GHG permits for biomass-fired sources under the Clean Air Act’s Prevention of Significant Discharge (PSD) Tailoring rule. Currently, EPA has no standards for the regulation of GHG emissions from biomass-to-electricity facilities. However, that could change when EPA makes the decision that it deferred in 2011 for up to three years to provide time to study the science and policy of regulating biomass emissions and determine whether a Clean Air Act permit is required. A decision is expected soon and the outcome of the decision could have a significant impact on the biomass industry. “The prudent course for EPA to take, and one with real potential for climate change mitigation, is to pursue amendments to the Tailoring Rule that incorporate the carbon benefits of forest bioenergy in the broadest and simplest terms,” said Dave Tenney, president and chief executive officer of the National Alliance of Forest Owners (NAFO). Wood-based energy has had a difficult time being accepted as a renewable energy option in the United States largely due to the aggressive campaigns that have been mounted against it by many environmental and competing industry groups. “There’s a dilemma in people’s minds about using wood-based energy,” said Dr. Burton English, professor of agricultural economics at the University of Tennessee. “The demand for energy is so large that we could do this wrong and hurt the environment and people are afraid of that. So we’ve been spending a great deal of effort to make sure that the systems we plan for are indeed sustainable. And that’s the key: bioenergy is bearing a cross that other fuels don’t have on them.” That burden is made worse by policies and regulations that create uncertainty for the entire biomass supply chain. And until that uncertainty is dealt with, it will continue to inhibit the growth of domestic demand. “We’ve seen what happens in the last three or four years when uncertainty is there,” said English. “We have uncertainty in policy; we have uncertainty in fuel prices; we have uncertainty in the whole area of energy and we need some policies that reduce that uncertainty.” Wood Pellet Logistics Expand The rising and expected demand from Europe for wood pellets is driving developments in infrastructure and logistics – especially in the Southeast United States where a number of new pellet plants and port facilities are currently in various building and planning stages. “Investment in pellet mills and port infrastructure is in the tens to hundreds of millions of dollars,” said Pete Madden, vice president of renewable energy and supply chain at Plum Creek. According to Madden, states are actively trying to attract that investment capital with a variety of incentives for companies that locate their mills in their states, along with investments in the port infrastructure. “There currently are only a handful of U.S. ports that are capable of handling wood pellets,” said Madden. “These ports require pellet storage and handling facilities that are capable of keeping the pellets dry with fire protection and dust abatement systems. This infrastructure will take time to develop along with the added complexity of keeping the ports properly dredged (if necessary).” Some of the most recently announced pellet-related port projects include: • the Port of Wilmington’s agreement with Enviva for a $35 million wood-pellet storage and shipping facility; • a potential agreement between International WoodFuels and the Port of Morehead City for a project costing up to $15 million to build pellet storage domes and update an existing rail unloading station; • the $28 million to $30 million facility ($10 million is being funded by the state of Mississippi) being built at the Port of Pascagoula that will include a system, storage silos and a ship loader for receiving and shipping wood pellets; • a plan by Drax Biomass plans to build a port-side storage and loading facility, capable of accommodating delivery of pellets by rail and truck, at the Port of Greater Baton Rouge, with the capacity to store approximately 80,000 metric tons of biomass pellets. The planned biomass production facilities in the region are even more numerous. Some of the most notable ones include the facilities planned by European countries. German Pellets is planning a 500,000 metric ton pellet manufacturing plant in Woodville, Tx. and a 1 million metric ton plant in Urania, La. Drax Biomass also has plans for two pellet manufacturing facilities – one each in Gloster, Miss. and Morehouse Parish, La. Full operations at both are expected to start next year with a combined capacity to produce 900,000 metric tons of biomass pellets. Even with the planned port facilities, the planned pellet capacity is growing faster than the port capacity, which could make port infrastructure an even larger problem for pellet exporters in the near term. But with new facilities being announced often, the logistical efficiency of the industry could increase. “Without additional port capacity (some of which is planned) pellet capacity announcements in the south could outstrip port capacity development, exacerbating the problem,” said Madden. “The industrial pellet industry is still emerging and one could expect as other projects come online the costs of supplying pellets in the global marketplace should trend lower as supply chain efficiencies increase.” Continue reading
U.S. Forest Management Policy Must Evolve To Meet Bioenergy Targets
Jun 19, 2013 U.S. forest management policy must evolve to meet bioenergy targets In order to keep pace with the burgeoning demand for renewable energy, forest management policy in the U.S. must change to address environmental sustainability issues, according to an article by a University of Illinois expert in bioenergy law. Unless the forestry sector can tailor sustainable forest management policies specifically to forest-to-energy feedstocks, its role in helping the country broaden its energy portfolio – and by extension, meeting ambitious bioenergy targets – may be limited in large part because of uncertainty about whether existing policies can effectively constrain overharvesting, said Jody Endres, a professor of bioenergy, environmental and natural resources law at Illinois. “Because we have a federal system of government, we don’t have a one-size-fits-all policy on land use and biofuels,” said Endres, who also is an affiliate of the Energy Biosciences Institute, a collaboration between the U. of I., the University of California at Berkeley, the Lawrence Berkeley National Laboratory and the energy company BP. “In a lot of environmental and natural resources law in the U.S., the primary role lies with the states to manage private land. But we also have national-level problems, like climate change, biodiversity and water-quality issues, which span jurisdictions. In other words, ecosystem services are not confined to a single state’s jurisdiction. So we have this crazy-quilt system in the U.S. that needs to be untangled.” The paper, which was published in the Vermont Law Review, was written to pinpoint what U.S. policy looks like, “which is very complicated because of the intermingling of state and federal policy,” Endres said. “We don’t have a coordinated public, state or federal policy in the U.S. about what sustainability means in the bioenergy context,” she said. “We don’t have one overarching policy that says, ‘This is how you assess land for biodiversity, or for water quality.’ So this patchwork of policies really makes it difficult for outsiders like European regulators looking in. A lot of misperceptions grow out of that.” According to Endres, the U.S. needs to craft some sort of integrated standard that covers not only the purpose-grown, short-rotation biomass crops such as the perennial grass miscanthus, but also forested plantations and seminatural environments, and be able to assess whether there are actually some ecological and climate benefits for getting those lands into the bioenergy system. “Those are the problems that bioenergy in the U.S. is facing, and it’s all really very nascent, but we know it’s problematic,” she said. “How do we translate that into a policy and into a sustainability certification? How do we make it economic while also providing an on-ramp for consideration of the ecological properties of forests in terms of larger scale landscapes and connectivity? That’s yet to be decided, but the paper lays it out what the points of contention look like.” It’s an interesting conversation to have in the U.S., because unlike Europe, “we still have some natural or seminatural forest left,” Endres said. “Ultimately, the goal is for U.S. forestry interests to access the European bioenergy, which may involve an additional level of certification or verification. We certainly have mandates here in the U.S., but they’re becoming much more stringent about certification in Europe.” According to Endres, there are two main certification programs in the U.S. – the Forest Stewardship Council and the Sustainable Forestry Initiative. “Those are the two dueling standards in the U.S., but what they don’t do is address bioenergy applications specifically, and that’s mainly the carbon foot-printing of managing forests for bioenergy,” she said. “Through all of these bioenergy policies, one of the main goals is to reduce greenhouse gas emissions. But we’re not there yet in terms of how to design a policy that chooses the appropriate measurement methodology for carbon fluxes within forests, because what you really want is a net greenhouse gas reduction. Private standards have not determined yet how to account for that – the science is still nascent on the effects of sustainability standards, as well as the time horizons for accounting in comparison to business as usual.” Assessing whether a land is natural, seminatural or a plantation is also something that the U.S. doesn’t do neatly in one overarching bioenergy policy. “We need to be able to classify land so we know whether or not we can access it for bioenergy applications that would be additional to, for example, lumber or paper, although those markets have been in general decline over the past decade,” Endres said. “The renewable energy directive in Europe is not going away. Forest product industries are actually gearing up to access those markets, and ultimately consumers, especially the type who go to big-box stores and look for sustainability certification on two-by-fours and other products, will likely want to see that forests aren’t overharvested. The European Union also may want to see that in some type of formal certification.” Thus, bioenergy now carries the burden, whether justified or not, to address perceived shortfalls in sustainable forest management, Endres said. “It is simply not enough in policy design, given the historically highly charged debate about forest sustainability, to make assumptions that existing sustainable forest management policies provide the assurances necessary for stakeholders, particularly environmental and wildlife organizations, to support forest-based bioenergy initiatives,” she said. “The main environmental groups are very concerned with over-sourcing from natural and seminatural private forest lands and federal lands. And they were actually successful at the federal level at keeping federal forests off-limits from the Renewable Fuel Standard.” According to Endres, forest policy since the early 1970s has grappled with how to manage forests holistically, “so I applaud bioenergy for bringing that conversation to the forefront on how we can really manage forests in a more informed, connected way at the ecosystem level,” she said. “We could really learn a lot from Brazil’s Forest Code protections for water quality and habitat connectivity derived from forests simply because they’ve been under the microscope since the 1990s for how they’ve managed their forests, including the Amazon rainforest,” she said. “But with the emergence of bioenergy, the whole world is going to participate in that conversation, and I see that dialogue as paradigm changing, as something that will ultimately benefit both the environment and humanity.” The Energy Biosciences Institute supported the research. Source: UI Urbana-Champaign Continue reading
Institutional Trees… A New Species?
June 14, 2013 Sustainable Asset Management (Investorideas.com renewable energy newswire) It has long been understood that trees are a very important part of our planet and they remain one of the few natural resources that touch all our lives on a daily basis, whether a piece of wood in the home, the floor we walk on, a book we are reading, or even the feint rustle of leaves in the air as we stroll along; we all benefit from trees. We need them, and yet we all know they are under threat. Despite the efforts over the years of governments, politicians, business magnates and even celebrities, the growing commercial demand for timber, crop land for food and biomass, combined with other demands on forest resources & related products, mean that large natural forests remain under serious threat; some of the most treasured species are in danger of extinction. More recently trees and timber have become a mainstream part of our everyday investments. Hedge funds and pension funds have long been investing in forestry & timber plantations along with their associated supply chains; these have even outperformed stock markets for over a century. During the last decade pioneering companies like Asia Plantation Capital have made plantations and trees more accessible to both large and smaller investors who can now buy plantations and have them managed on their behalf to reap the future returns from this amazing natural resource . In fact many analysts, the United Nations and a growing number of those same business magnates now agree on one common solution that always succeeds; “Show a man how to make money from a problem and let the money solve it”. One shining example of this is the threatened agarwood tree. Harvested in the wild to near extinction due to traditional uses now exasperated by modern trends and high global demand for fine fragrance and medicines produced from this rarest of trees and the natural oil it produces, Oud. Despite the fact it was made illegal to harvest in the wild by international convention (CITES) more than ten years ago, commercial demand today has the species as a wild natural tree teetering on extinction. A combination of science, research, practical experimentation and a huge amount of investment has been salvation for the agarwood tree, now a shining example of an international environmentally successful and commercial project which has the ability to; safeguard and protect the species; supply global demand in a sustainable way whilst generating revenue; guarantees the future of a rare species whilst benefiting the economies of fragile forest communities often dangerously driven to illegal logging simply to feed and care for their families. Asia Plantation Capital (APC) has not only become the market leaders in sustainable agarwood, along with other plantation industries such as teak, but also major campaigners, lobbyists and educators to the global markets on its importance. Sponsoring and supporting related industry events such as IFEAT (the International Federation of Essential Oils and Aroma Trades) annual conventions, and reintroducing the agarwood species to Sri Lanka where it had all but been wiped out in the wild by illegal loggers, as well as taking the largest promotional stand at the recent UN World Teak Conference held in Bangkok showcasing their advanced plantation monitoring systems. One company that has spotted APC, and more importantly studied and researched its agarwood plantation model, is Singapore based Sustainable Asset Management. After almost six months of due diligence, inspection visits, meetings with end users and Institutional Investors, Sustainable Asset Management (SAM) has developed what they believe is one of the most carefully structured and balanced forestry investment products available today for HNWI and institutional investors looking at exposure to the asset class as part of a risk balanced portfolio; that’s right, trees are now a risk assessed asset class! Adam Sprague, Head of Risk Analyses at SAM, clarifies “we decided some time ago that we wanted to find a solid and structured investment wrapper for forestry and plantations which meets all the criteria of stringent institutional and high net worth sophisticated investors. We are working on teak projects, biomass, palm oil and various other proven forest sector and timber related assets; but whilst they are good none of them had the credentials of directly protecting an endangered species as with the agarwood story, and as part of the process creating a new sustainable industry which benefits the investors at the top of the chain all the way down to the local communities on the ground; a net new economy in fact. Whilst most investors will confirm it’s the bottom line that really matters, i.e. how much return you can get for your buck, being able to invest in a product that not only provides all the required financial benefits and security but becomes a real force for good is hard to find.” What SAM have done is listen to their institutional clients and create a product that mixes limited numbers of mature CITES approved agarwood trees, in themselves relatively hard to find and valuable from the outset, with new plantings thereby creating a 7 to 8 year investment horizon which has capital growth and income throughout. A unique financial product in a sector where returns are usually either annual and low, or long term and potentially high. This is a balanced structure of income and future returns creating a risk weighted portfolio product with an income of around 8% and variable final IRR of 12 to 24%. The product is available to funds and sophisticated HNWI investors only in minimum tranches of US$500,000 and presently SAM have access to around US$50million in inventory only which will be managed by APC with leverage from their proven from soil to oil programme. About Sustainable Asset Management: Sustainable Asset Management is a private Singapore based company funded by Africasia Private Equity. Africasia focus on providing seed capital and funding for companies within the agricultural domain. Sustainable Asset Management now advises on and deals with all the project evaluation and due diligence of businesses Africasia considers investing in, as well as offering the same service to private investors, institutions and alternative fund managers. www.sustainable.com.sg About Asia Plantation Capital Asia Plantation Capital is an owner and operator of a diverse range of commercial plantation and farming businesses across the Asia-Pacific region and globally, part of the Asia Plantation Capital Group of associated companies. Their focus is on multicultural and diverse plantation projects geared to the domestic and commercial demands of the countries in which they operate. Working closely with and supporting fragile local communities is an underlying core principle of the APC business, providing social and cultural support as well as investment to move these communities away from traditional deforestation and illegal logging activities as a main income source. Established officially in 2008, although operating privately since 2002, the group now has plantation and agricultural projects on four continents with operational projects at various stages in Thailand, Malaysia, Laos, India, Cambodia, Sri Lanka, Mozambique, The Gambia, North America and Europe. www.asiaplantationcapital.com For further information please contact: Mark Wills – Managing Director Sustainable Asset Management Park View Square, 600 North Bridge Road, #12-04, Parkview Square , Singapore 188788 Tel: +(65) 6299 4998 // Email: mark@sustainable.com.sg // www.sustainable.com.sg Stuart Andrews – Public Relations at Sustainable Options Ltd 1 Bromley Lane, Chislehurst, Kent , BR7 6LH , United Kingdom Tel: +(44) 7921 264557 // Email: info@sustainableoptions.eu SUSTAINABLE OPTIONS LTD 1 Bromley Lane, Chislehurst, Kent , BR7 6LH , United Kingdom Tel: +44 (0)7921 264557 www.sustainableoptions.eu Disclaimer: The following news is paid for and /or published as information only for our readers.Investorideas.com is a third party publisher of news and research. Our sites do not make recommendations, but offer information portals to research news, articles, stock lists and recent research. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities . All Investment involves risk and possible loss of all investment. Disclaimer in full , Investorideas.com Disclosure Please read individual disclosures for featured stocks. Continue reading
