U.S. pellet producers who are selling into export markets in Europe are coming off an eventful year that’s seen demand continue to grow—though not as quickly as some had hoped—and some certainty gained concerning the UK market and its renewable energy utilization goals going forward. Meanwhile, industrial pellet capacity in the U.S. continues to zoom upward as new plants came on line last year, while even newer plant projects were announced.
In 2012, a big impact on North America’s industrial pellet industry came from the United Kingdom’s Dept. of Energy and Climate Change (DECC), which published a “consultation” decision on the direction of British renewable energy policy for the near future.
Concerning the growth of the UK’s renewable energy utilization and the role of biomass as fuel, the decision was long-awaited and added to uncertainty on both sides of the Atlantic for pellet and power producers alike. Ultimately, the DECC decision cut both ways: halting some projects in the UK, but providing the certainty to allow multiple pellet mill projects in the U.S. to go forward.
In essence, the DECC’s decision going forward favors the continued growth of biomass co-firing and biomass conversion at existing UK coal-burning power plants, while placing a cap on generating capacity coming on line for new, dedicated biomass power plants. The non-legislative cap, which covers the next five years, is set at 400 MW for new, dedicated biomass generating capacity that will be supported under the country’s Renewable Obligation Certificate (ROC) system.
Through the UK’s Renewables Obligation (RO) program, licensed electricity suppliers are required to source a percentage of the electricity supplied from eligible renewable sources, including both dedicated and co-fired biomass. This percentage increases up to 15.4% by 2015-16.
The ROCs are issued for each MWh of renewable electricity generated and are tradable. Companies comply with the program by acquiring ROCs from generation or purchase, or paying a buy-out price. In this way a market value is provided for electricity generation from renewable sources while providing incentives for electricity producers and users to increase renewable energy usage.
By establishing the 400 MW cap on new, dedicated biomass generating capacity, DECC officials believe there will be more progress made in the process of taking coal-fired generating capacity off-line (or converting it), while at the same time upholding ROC value.
According to a DECC statement, “We are determined to strike the right balance between encouraging investment in renewable electricity and ensuring value for consumers.”
Due to its “non-legislative” nature, the cap on dedicated biomass generating capacity can be exceeded. But once the 400 MW level has been reached, UK biomass generating plants coming on line afterward may be subject to lose some of the incentives that plants under the cap enjoy. According to the DECC decision, once the cap is reached, the DECC will entertain another round of public comment “consultations” on how to proceed with incentives and the impact new dedicated biomass generating capacity will have on the ROC program.
As part of the decision, and because of inherently better energy utilization ratios, combined heat and power generating facilities (CHP) are exempt from the UK’s dedicated biomass generating cap once they receive certification under the DECC’s CHP Quality Assurance Program.
Though the final DECC decision wasn’t released until mid December 2012, the initial proposals announced in September provided the certainty that may have led to several project announcements on this side of water:
Enova followed up in December with an export terminal lease agreement with Georgia Kaolin Terminals in Savannah to use the facility for pellet storage and shipment. The terminal’s extensive infrastructure and rail handling system give Enova the largest Atlantic Coast shipping capacity of any single industrial pellet producer selling to the UK and European market, company officials say.
After the DECC proposals were published, Drax officials (see interview page 8) announced the company was shelving plans to build three new dedicated biomass generating plants in the UK and would instead go with a project to convert half of its existing massive 4,000 MW plant at Selby (Western Europe’s largest coal-burning plant) to burn wood pellets. First of the three-phase conversion project will go on line this year, and will be completed by 2017. Afterward, the company plans to make a decision on converting the remainder of the plant to wood pellets.
Meanwhile, on this side of the Atlantic in December, Drax Biomass International announced projects to build large pellet plants at Gloster, Miss. (Amite BioEnergy) and Morehouse Parish, La. (Morehouse BioEnergy), with a combined annual production of 900,000 metric tons.
Drax Biomass is beginning construction on the two plants the first half of this year, and both are scheduled to come on line in 2014. Drax Biomass is also developing a pellet storage and loading facility on property leased from the Port of Greater Baton Rouge that can store up to 80,000 metric tons of pellets.
Additional industrial wood pellet plants all either announced earlier last year or started up in 2012 include:
According to a “Southern Timber Market Trends” study by Tom Harris, Sara Baldwin, John Smith and Robert Simmons of the D.B. Warnell School of Forest Resources at the University of Georgia, presented in May 2012 to the Forest Landowners Assn., at the time there were 29 operating wood pellet mills in the Southern U.S., with a combined capacity of about 3.2 million tons.
From that level, Southern U.S. industrial pellet capacity is set to more than double through 2014. The most recent major announcements made since mid 2012 (mentioned at the top of this article) represent 3.8 million tons from just five companies alone.
And the mills are getting bigger: Of the 29 pellet plants cited in the study, 21 of them had capacities of less than 100,000 annually. Of the plants announced the second half of 2012, average capacity was more than 400,000 tons annually.
The stage is being set for several years of overcapacity, some say. Harold Arnold, President of Fram Renewable Fuels, notes the fire last year at the large RWE generating plant at Tilbury in the UK. The February blaze took the 750 MW all-biomass plant offline for months, and left an estimated 1 million tons of pellets stranded, causing price decreases.
“The unexpected fire set the stage for a flooding of the market with over-production,” Arnold says. “Our company fared better than some because of existing contracts in place, but the market even today continues to be saturated with oversupply.”
Arnold says he’s still looking for more signs the projected demand growth will materialize. “The hoped for increase in demand from the UK market is still just that, with no real movement. We plan to continue working on our production costs and manufacturing methods to drive cost from the process.”
Exports of wood pellets from the U.S. to the European Union (EU) doubled from 2009-2011, and the EU took in an estimated 1.5 million tons of U.S. wood pellets in 2012, according to Wood Resources International (WRI). Projections for the future of EU pellet consumption vary, but all are pointing well upward, from a rough consensus among third-party observers of 15-20 million tons annually by 2020, to projections by some European interest groups of pellet usage in the 60-80 million ton range across the EU by that time.
In fact, WRI noted in December that the U.S. had become the world’s largest pellet exporter in 2012, surpassing Canada largely on the strength of increased capacity in the Southeastern U.S. Total North American exports to the EU (including Southeastern U.S. and Canada, set a record 760,000 tons in the second quarter 2012, with shipments from the U.S. South rising 13%.