Walker notes that the ramp up is slow because of the enormous volume of pel-lets the company requires. “It’s really not the technical constraint of converting the boiler, it’s getting all the infrastructure in place to be able to get seven million tonnes of pellets to one power plant.” Drax was unable to secure a contract for difference (CFD) for its third conver-sion but Walker doesn’t expect that will put an end to the project. “Their argu-ment in court was that they needed the contract for difference not to make the unit make financial sense for them but to make it easier and more bankable to sign contracts to encourage developers.” The loss will set the project back but the issues should be resolved in time. The company has also announced that it is considering converting another unit to biomass. “I’m pretty skeptical about a fourth unit from them but we’ll see,” Walker adds. New legislation will come into effect in 2018 that will limit large con-versions in the U.K. but projects that are currently underway will not be impacted. Denmark, on the other hand, is look-ing to increase its use of wood pellets in the aim of phasing out coal by 2025 with several coal CHP stations targeted for conversion to biomass. Because these large plants have traditionally relied on imported coal, they are well positioned to receive more wood pellet imports. The Netherlands’ use of renewable en-ergy sources is low in comparison to other European countries. The Dutch want to grow their share of renewable energy use from four to 14 per cent by 2020. It plans to achieve this partially by cofiring pellets at large coal power plants but only if they come from sustainable forestry practices. They have a committee working on the details of these regulations. “The U.S. is pushing hard against this because their certification levels are extremely low and they’re going to have a harder time meet-ing this than us,” Murray explains. There is currently only one power plant that is set up to cofire wood pellets but once the regulations are established, the other utilities will determine whether or not to do conversions. “While we would see it as a competi-tive advantage, the size of the total supply may be so small that the utilities decide not to go ahead with it,” Murray says. “It’s my worry that those boards may conclude that there is too much supply risk because the conditions are too onerous and all the U.S. supply is taken off the table.” This is a developing story that we’ll follow over the coming months. A CHILL IN THE HEATING MARKET While the industrial wood pellet market won’t be impacted by the volatility in oil prices, the heating market will react as oil becomes cheaper than pellets around the world. While homeowners won’t switch back to heating oil from pellets, cheap oil may remove the incentive for those con-sidering a pellet stove. This will inhibit domestic growth over the short term. Last year, around 150,000 tonnes were used domestically, while 180,000 tonnes of Canadian pellets were sold into the U.S. Walker says he will be watching how the markets develop in Europe, how-ever, where the falling euro is making American products more expensive for European consumers. “You’ve got record low heating prices so it’s going to be in-teresting to see how that effects demand over the next year or two for the heating market in Europe.” Walker explains that Italy was the second biggest market for Canadian producers last year. TRADE INTO ASIA In March 2014, the government of Flan-ders, in Belgium, cut off the subsidies it had issued for electricity generated from imported wood pellets from Electrabel for its Max Green Rodenhuize biomass power plant in Ghent. The company shut down the power plant until a new agree-ment was reached in August. Electrabel, a subsidiary of GDF Suez, had some long-term contracts with Canadian pellet pro-ducers that were FOB Vancouver. It was able to trade these pellets into the Korean market on a tender basis because its facil-ity did not need the pellets. “They got lucky in that they found a fairly convenient customer for those pel-lets because Korea was ramping up at the right time when they had extra pellets available on the West coast,” Walker said. “A lot of the trade that’s happened (a cou-ple hundred thousand tonnes probably this year going from Vancouver to Korea) is not negotiated by Canadian producers, it’s negotiated by European utilities that still have these long-term contracts.” South Korea implemented a Renewable Portfolio Standard in 2012 with renew-able energy taking up two per cent of the country’s energy mix. Over the next 10 to 15 years, the country plans to increase the portion of renewable energy it uses to ten per cent. This has initiated rapid growth in this market – a year over year increase of 519 per cent and Canada has provided a significant source for this growth. The challenge faced by Canadian com-panies in this market is the South Korean tender system that prioritizes price over quality. An additional challenge is that North American pellet producers are looking for stability through long-term contracts. Walker predicts that European utilities with long-term contracts with B.C. pellet producers will continue to facilitate trade between Canada and the growing Korean market. The Wood Pellet Association of Canada is trying to make it easier for Canadian pellet producers do sell directly into Korea. It will participate in a trade mission to Korea in February in the hopes of open-ing up a dialogue. “Mr. Ed Fast, the minister of inter-national trade, is going over and we’re hopeful that he might help us with that issue because he’s going to be meeting with his counterparts in Korea and we’ll have some of our members on that trip,” Murray explains. Though trade into the South Korean market does not provide long-term sta-bility, trade into the Japanese market is well established for Canadian producers. Japan has introduced feed-in tariffs for renewable energy and the majority of its wood pellet imports are already from B.C. There is significant potential for increased co-firing as the country aims to reduce its dependence on coal. And while South Korea is not focused on sustainability, Japan is increasingly focused on sustain-able pellet sources. A cheap loonie is making Canadian wood pellets affordable, while sustain-able forestry practices make them desir-able. Together, it adds up to good news. for pellet producers across the country. • For more information about the domestic, North American and global pellet markets, visit canadianbiomassmagazine.ca JANUARY/FEBRUARY 2015 12 Canadian BIOMASS
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