Development and Opportunities in the Bioenergy...

Development and Opportunities in the Bioenergy Sector

Meeting of the EOS Softwood working groupBrussels

September 7, 2010

Andreas TeirAssociate Principal

Pöyry Management Consulting

Meeting of the EOS Softwood working group - Sept 7, 2010Pöyry Management Consulting - Andreas Teir3

Key messages

• The world is changing from “cheap” oil-based growth towards a low carbon bio-economy

• The next decade will see an enormous increase in demand for woody biomass in Europe

• European biomass alone will not meet the new demand levels

• The development creates opportunities for the forest products industry

• Action is needed to benefit from this unique development

Mega Trends:Development Towards a Bio-economy


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1850 1890 1930 1970 2010 2050

Billions of people

Historical estimate ActualUN estimate (medium) UN estimate (high)UN estimate (low)

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1850 1890 1930 1970 2010 2050

Billions of people


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1850 1890 1930 1970 2010 2050

Billions of people


World population reaches 9 billion in 2050, 70% live in urban areasThe planet has experienced rapid population growth and urbanisation since the second half of the 20th century.

Megacities (population >5 million) 1985

No. of megacities = 27

5 million

20 million

10 million

5 million

20 million

10 million



5 million

20 million

10 million

5 million

20 million

10 million



5 million

20 million

10 million

5 million

20 million

10 million


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15

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1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Actual

EIA 2009

Shell 2009

Hubbert model

We are near peak oil

Billion barrels per year

At the current consumption level the estimated 1250 billion barrels of global crude oil reserves would last approximately 42 years.

Historical development Scenarios

Source: Trendlines Research


CCS in powergeneration

Renewables

Nuclear

CCS in industry

Biofuels

Electricityend-use efficiency

End-useefficiency

Energy efficiency is a key element in climate change mitigation

Smart technologies and incentive mechanisms are the key enablers Biggest challenges in China and India

-1 0 1 2 3 4 5 6 7

OECD Europe

OECD Pacific

Other E.Europe

Africa

Russia

OECD North America

Latin America

Other Asia

Middle East

India

China

Gigatonnes

3.1%

4.1%

3.0%

1.9%

2.1%

0.3%

1.0%

1.4%

0.9%

0.01%

-0.1%

% Average annual rate of growth

20

25

30

35

40

45Gigatonnes

2006 2010 2015 2020 2025 2030

Reference scenario550 Policy scenario450 Policy scenario

“End-use energy efficiency is the largest contributor to CO2 emissions abatement in 2030, accounting more than 50 % of the total savings”

– World Energy Outlook 2009

Source: IEA, World Energy Outlook 2009


Mankind is consuming more than the capacity of our planet

Future scenariosAssuming business as usual, by 2040 the world would be utilising twice the resources created by the planet.

People currently consume approximately 1.5 times the resources generated by the planet.

Source: Global Footprint Network, www.footprintnetwork.org

Earth’s bio-capacityIt is mainly the developed countries such as the US, most European countries, India, China, Japan, that are utilising resources over their assumed bio-capacity.


When did we reach our biomass consumption budget?

Source:

Our world becomes increasingly resource limited – the competition for biomass and other resources will intensify.


A bio-economy brings new opportunities

Biomass Products

Multitude ofconventional techno-logies and processes

Multitude of emerging technologies and processes

Future focuson wood

New market and product options have emerged in addition to conventional products produced from wood.

Conversion

Conventionalproducts

Bioenergy

Newbio-products

Woody Biomass:Demand Drivers, Limitations and Trade Flows


Policies are driving the new biomass demand The EU target of 20% renewable energy by 2020 requires considerable investments into the use of biomass and other renewable energy sources.

• Wood is a significant source of fuel (today 48%)

• Large economies have a high burden, e.g. UK.

• It will be challenging to meet the targets, despite the efforts and political will.

0 10 20 30 40 50 60

Sweden

Finland

Austria

France

Spain

Germany

Czech Rep

Poland

Italy

Netherlands

Belgium

United Kingdom

- % renewables from final energy consumption -

Share in 2007Increase to 2020

Overall EU target20%

Som

e Ex

ampl

es

8x

4x

4x

3x

EU renewable energy targets by country


New dedicated biomass energy capacity emerging rapidly20

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2007

2008

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2016

Prenergy(Port Talbot)

350MW

MGT Power(Teesside)

300MW

E.ON(Lockerbie)

44MW

MGT Power(Tyneside)

300MWE.ON(Bristol)150MW

Sembcorp(Wilton)30MW

Drax(Selby Co-firing)

500MW

Drax(Selby)300MW

Drax(Immingham)

300MW

Drax(Hull)

300MW

Helius(Bristol)100MW

AngleseyAluminium(Holyhead)

300MW

RWE(Stallingborough)

65MW

Express Power(Tilbury)60MW

UPM(Shotton)

20MW

UPM(Caledonian)

26MW

Planned facilities

Operational facilities

When (and if) all planned investments in the UK are implemented by 2016, a demand for in excess of 25 million gmt of biomass will be needed.

Forth Energy(Dundee)100MW

Forth Energy(Rosyth)100MW

Forth Energy(Grangemouth)

100MW

Forth Energy(Leith)100MW

Ayrshire Power(Hunterston)

240MW

Welsh Power (Newport) 49MW


Increasing demand for co-firing in existing (coal) power plants

Source: Pöyry multiclient on wood pellets 2010

Strong and increasing demand for wood pellets from the European coal based industry as co-firing viewed as necessary to reach CO2 targets.

Lignite54 %

Hard coal46 %

820 million

t/a

45 million tonnes/year = ca 4 times world production in 2008

= ca 6 times pellet production in EU-27 2008

5 %* co-firing of coal with

pellets

Lignite54 %

Hard coal46 %

European Coal Consumption by coal type, 2007

820 million

t/a

45 million tonnes/year = ~4 times world

production in 2008

5 %* co-firing of coal with

pellets WoodPellets5%

Coal


Woody biomass will be increasingly traded around the worldThe global export trade of woodchips reached 20 million odt in 2008. Current trade is mostly to the Pacific Rim, but the Atlantic trade is expected to grow significantly in order to meet biomass demand in Europe.

INTRA-EUROPEANTRADE

Biomass trade trends (illustrative)


New world-scale pellet plants targeting the European market

The EU RES directive sets very high targets for renewable energy consumption in member countries. It is challenging to meet European bioenergy targets with domestic supply and therefore several companies are looking into supplying the European market with biomass exported from overseas.The first of these major projects are starting-up this year and several others are planned to start-up in the next few years.

2011750 000Waycross, GA, USA

RWE Innogy

2010450 000Averøy, Norway

Biowood

2011-2014

1 000 000x 3

BrazilSuzano

2011-2012

900 000Waynesville, GA, USA

Magnolia Biopower

2010900 000Vyborg, Russia

VyborgskayaCellulose

Planned Start-up

Capacity t/a

LocationCompany

Several large pellet mill projects have been announced aiming to supply Europe with renewable biobased fuels.

Major pellet mill projects

What is the Threat?

Who will get the fibre? Who can pay?

Changing Wood Paying Capabilityin the New Environment

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Wood Paying Capability (WPC)

– Biomass deficit – stronger competition for biomass

– Wood and biomass imports are needed

– Imports will ease the pain, but…competition will be intense if targets are to be met

– Industry WPC will set the price in the market

– Segments with ability to pay for the fibre will prevail

– Segments with low WPC will face risk of closure

The renewable energy targets will strong shape the competitiveness of biomass based industries.


Bioenergy support schemes boosts WPC of energy sectorSubsidies and support mechanism for renewable electricity production are substantial in several EU members states.

50 70 90 110 130 150 170 190

The CzechRepublic

Spain

Slovakia

Germany

France

Price of electricity in feed-in tariff schemes (EUR/MWh)

Examples of Current Revenues from Electricity Generated from Biomass

50 70 90 110 130 150 170 190

UK

Italy

Poland

Price of electricity in tradable certificate schemes (EUR/MWh)

Average market price for electricity around

EUR 50-60/MWh

Average market price for electricity around

EUR 50-60/MWh

Estimated average revenue of sold electricity and green certificate* Tendering system applied

Illustrative


Examples of Wood Paying Capability of Energy SectorWPC varies significantly from country to country. WPC is estimated to increase overtime.

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Country 1 Country 2 Country 3 Country 4 Country 5

Wood Paying Capability range in 2010 WPC range, EUR/MWh

Wood paying capability trend towards 2020


Survival of the Fittest – Wood prices rising with new demandNew and rapidly increasing demand will raise prices for wood to a new level, if supply can not be increased in the long term. Any end-user with a lower WPC is forced out of the market.

2010

Price 2010

Aggregated demand and price forecasting

Illustrative

2020

Price 2020

Supply 2010

EU

R /

odt

(odt)

The price at which it is possible to sustainably import biomass in the long run imposes a cap on possible price increases in a specific market.

Supply 2020


Ability to pay for wood is changing in a new environmentA number of new factors will influence the competitiveness of fibre between traditional and new biomass consuming segments.

Wood paying capability

What are the Opportunitiesfor the European Sawmill Industry?

Opportunities and Initiatives by the Forest Products Industry


Opportunities for European Sawmill Industry

Near term:

– Large upside for solid wood biofuel supply for industrial bioenergyproduction

– Biopower and bio-CHP at existing facilities

– Business cooperation with utilities e.g. co-investment

– Utilisation of existing supply chain– Increased harvesting of forest

residues

Longer term:

– Readiness and monitoring of new technology and products

– Next generation liquid biofuels– Biochemicals– Nano-fibres


Opportunities for saw mills with biofuels

• Several companies are developing technologies that can be used to transform saw mill residues into liquid biofuels, including:

– KL Energy– ST1 Biofuels

• The chemical process involves utilisingenzymes to hydrolyse and ferment the lignocellulosic material into ethanol. Some of the most known developers are:

– Novozymes– Genencor

• Forest industry companies have also announced plans on utilising the residues created at their saw mills for biofuel production.

Biofuel production from saw mill residues

Saw mill residues are a wanted feedstock for future advanced biofuel production due to their homogeneous and suitable nature for processing.


Biocrudeproduction

BioCrude

Bark

Woodresidues

Pulp & PaperMill

WoodHandling

Barkboiler

PowerSteam

Crude Oil

BioElectricity

Paper andMarket pulp

BioChemicals

Biofuel

Forest Resourse Sawmill

PowerHeat

Sawnwood

Solid wood based fuels

Wood processing bi-products

Industry and processingLand and forests

Electricity, CO2

Several options for integrating biofuel & energy & chemicalsA forest biorefinery utilizes the incoming biomass and other raw materials effectively for simultaneous production of fibres, chemicals and energy.


‘Return on Site’ – Capturing Opportunities at Existing Mills

Bioenergy-driven ‘Return on Site’

Considerations:– Market outlook for new bio-products– Mill platform for conversion or new

units, e.g.:• Existing infrastructure• Production synergies• Additional raw material potential

– Maturity of new technologies and processes

– Licensing possibilities– Partnership opportunities– Capital intensity vs. cash flow vs.

return

Summary

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SummaryBioenergy an opportunity for the FPI that comes with a tail

• Bioenergy is here to stay

• Forest products industry at centre stage

• New business opportunities and broadening of revenue streams

• Competition for wood will add cost, need for cost competitive new biomass streams for bioenergy

• Wood has a good story to tell as a sustainable construction material


Finally – Questions to think about

• Are the strategic and investment plans of my company in line with the development in the bioenergy sector?

• Are there investment opportunities for small-scale bio-CHP production close to my operations?

• Are there opportunities to pool by-product streams with other saw mills for larger bioenergyinvestments?

• What critical choices are needed in the next few years to secure a targeted position?

What opportunities or threats do the Renewable Energy National Action Plans bring to my business?


Thank youAndreas TeirAssociate PrincipalHead of Global Bioenergy PracticePöyry Management Consulting

[email protected]

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