F2M Market Watch

European Demand for Wood Fiber
Posted on July 20, 2009 by Suz-Anne Kinney

Recently, the Wall Street Journal’s Russell Gold reported that the wood pellet industry in the United States is being driven largely by European utility companies. European Union member countries are required to produce 20 percent of their electricity from renewable sources by 2020. Because of this standard, the European Union imported nearly $100 million wood pellets and other wood fuels in 1Q2009, which Gold points out is 62 percent higher than 1Q2008.

Wood pellets are in high demand because they are ideal for co-firing with coal. The pellets are dry enough that they can be re-pulverized and then burned at much the same rate that pulverized coal burns. In addition, pellets meet phyto-sanitary requirements for export, and they are easily shipped.

Two companies we’ve reported on often were among the first large scale pellet producers to recognize this market opportunity: the Green Circle Bio Energy plant in Cottondale, Fla., and the Dixie Pellet plant in Selma, Ala. With a capacity of 500,000 tons per year each, these plants are shipping hundreds of thousands of tons of product to Europe. In addition, Gold notes that Green Circle would like to build a second large plant in the United States (though the plant is currently on hold until financing can be found), and Phoenix Renewable Energy plans to break ground on a 250,000 ton per year plant in Camden, Ark., in August.

European demand for wood chips may be following the same path. In mid-July, MGT Power Limited, a UK-based energy company, received approval from the British government to build a 295 MW biomass power plant in Northeast England. For dedicated biomass plants, wood chips are a more energy efficient option, as no energy is expended manufacturing or pulverizing pellets. MGT plans to source wood chips from multiple locations: the southern United States, Brazil, the Baltic countries and Scotland. The plant is scheduled to open in 2012, and the company is already in advanced discussions with suppliers here in the U.S. (Read the press release from MGT Power here.)

How certain is this source of demand for US forest owners? On one hand, the economics of importing wood fiber from overseas to produce energy may seem shaky. Since the Kyoto Protocols were signed, however, EU governments have offered subsidies and incentives for renewable energy production. And for countries like England, which have dwindling supplies of traditional energy resources and minimal solar capability, wood fiber is a good option. With the lack of security associated with other energy sources—liquid natural gas, for instance—government incentives are likely to remain in place for the foreseeable future.

In addition, since 29 states have enacted renewable electricity standards, domestic demand is likely to increase as well. This will increase exponentially if the federal standard outlined in the American Clean Energy and Security Act now being considered in Congress is enacted. While the more controversial cap and trade portion of the bill will likely face the chopping block in the Senate and during the reconciliation process (in which compromises are reached to blend the House and Senate versions of the bill), renewable energy standards may sneak through largely as is.

Currently, the House-approved bill requires retail electricity suppliers (those selling over 4 million MWH to consumers annually) to meet the following federal standards via a combination of renewable energy sources and energy efficiency (renewable energy must be at least three-quarters of the total):

2012-2013: 6 percent
2014-2015: 9.5 percent
2016-2017: 13 percent
2018-2019: 16.5 percent
2020-2039: 20 percent

As reported by Gold, Phoenix Renewable Energy’s development director, Steve Walker believes the pellets they manufacture will be diverted from European to American markets should these standards be enacted.

Source:
Gold, Russell. “Wood Pellets Catching Fire as a Renewable Energy Source.” Wall Street Journal July 7, 2009. http://online.wsj.com/article/SB124691728110402383.html



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