As European countries gear up to meet renewable energy goals of 20 percent by 2020, demand for wood pellets is expected to rise. According to Argus Media, that number is expected to hit 32 million tons per year by 2016. By 2020, this number could be somewhere between 115 and 335 million tons per year, according to an article in Biofuels, Bioproducts and Biorefining. Both of these estimates eclipse the 11 million tons of pellets consumed by the EU in 2009.
European utilities are certainly making progress toward their 2020 goals. RWE’s recent announcement that it would repower its UK power station at Tilbury, is one example. The plant, which was headed for closure due to EU environmental regulations, will generate 750 MW of electricity using pellets it will import from its Georgia Biomass wood pellet facility. The conversion is scheduled for completion this winter.
RWE’s decision to construct its own pellet manufacturing facility in the United States may be the beginning of a trend in vertical integration.Georgia Biomass Chief Financial Officer Sam Kang told Biomass Power and Thermal magazine’s Lisa Gibson that there were three reasons the company made this decision:
- Security of supply. RWE wanted to avoid the experiences of Dutch utility Essent (which it had recently acquired). According to Kang, Essent “had instances when people don’t deliver because the price of sawdust or shipping went up. Little things like that happen and we just don’t want to be open to that.”
- Quality. Essent found that pellets shipped from the US weren’t always high quality enough to allow them to receive the subsidies provided by EU governments, a key element of their profitability.
- Price risk. Through vertical integration, many causes of price volatility are removed from the supply chain, leading to greater price stabilization and improved profitability.
At the same time, independent commercial scale pellet manufacturing is growing quickly, especially in the Southeast. Among those well established in the field are Green Circle, Fram Renewables, and Enviva.
Enviva continues to grow. The company already operates two facilities in Mississippi, and they are now in the process of building a new wood pellet manufacturing facility in Hertford County, North Carolina. Once fully operational, the new Ahoskie facility is expected to reach a production capacity of 330,000 tons, most of which will be exported to Europe.
Westervelt Company recently announced it will be joining the fray. Its first large wood pellet production facility, near Aliceville, Alabama will initially produce about 275,000 tons of pellets from southern yellow pine residue. Production is expected to rise to 550,000 tons per year. Company owned and third party wood will make up the raw material for the facility. Construction is expected to begin later this year, and products will be ready for market in early 2012.
Point Bio Energy LLC's proposed pellet facility at the Port of Greater Baton Rouge, Louisiana will produce 500,000 tons annually of wood pellets from local sources of woody biomass. The timeline for the project has yet to be solidified. Some reports indicated construction will begin this summer and production will begin by the last quarter of 2011. The company’s website, however, says production will start June 2012. Most of the output will be exported to Europe.
Industry watchers are following the acquisition of Dixie Pellets’ assets by Zilkha Biomass Energy. Zilkha hasn’t yet disclosed its plans for the acquisition.
Will these companies experience some of the problems that Dixie Pellets did, the problems that RWE’s Zang outlined? A new organization of commercial pellet producers has been started to make sure this doesn’t happen. The US Industrial Pellet Association (USIPA) was formed by Enviva, Fram, Green Circle and Westervelt in February. One of the goals of the organization, according to Executive Director Seth Ginther, is to develop certification standards for industrial wood pellets to ensure the quality of the pellets is consistent with European requirements. The association will also work on sustainability frameworks and consistency in contracts.
The last hurdle for large scale export of pellets to European markets will be price. Forest2Market president, Pete Stewart, points out that there is often a gap between the true cost of producing a pellet here in the US and what Europeans are willing to pay. “On one hand, European utilities say they can’t get consistent deliveries at a good price,” he says. “But on the other hand, they won’t pay the price to get a quality product over there. The current price of export pellets doesn’t take into account consistency or strict adherence to quality measures and that might be the disconnect between the markets.”
Still, the evidence is clear. Opportunities now abound in the commercial pellet manufacturing sector. In a recent presentation at the International Biomass Conference and Expo, the USIPA’s Ginther discussed the reasons that the Southeast is the ideal supplier of wood pellets to Europe:
- Shipping costs. The cost of shipping pellets to the Amsterdam-Rotterdam-Antwerp region from the Southeast US is approximately $36/ton. Compare this to $67/ton from southwestern Canada and $44/ton from Brazil.
- Climate. Supply from countries like Russia can suffer disruptions during extended winter weather. In the South, trees can be harvested year round. Trees also grow more quickly in more temperate climates.
- Robust infrastructure. Due to wood and paper products markets in the South, there is an ample infrastructure and labor force to support additional industry.
As we get closer to 2020, and demand for renewable energy grows, the US industrial pellet sector will too. Currently, the US is the No. 2 producer of wood pellets in the world. According to the American Biomass Trade Cooperative, however, the US exports just 20 percent of the pellets it produces. Clearly, that is on track to change.
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