Exploring the Market for Bioenergy and Biocarbon Products in the Era of Global Decarbonization

The demand to lower the earth's temperature by reducing greenhouse gas concentrations through various global agreements such as the Paris Agreement and Net Zero Emissions (NZE) 2050, followed by technical follow-up through decarbonization for various sectors and industries, continues. This is the driving force for increasing renewable fuels, especially those based on biomass or bioenergy products, which have been implemented, but are experiencing dynamics in the form of fluctuations in demand and prices. Bioenergy, with its numerous advantages and uniqueness as a renewable energy, cannot be replaced in this era of global decarbonization, even though in the near future some subsidies for biomass fuels or bioenergy will be eliminated.

This is closely related to a government's decarbonization priorities, particularly among the various emerging options. Bioenergy products can vary in quality, but all have their own market segments within specific industries. Furthermore, the sustainability of biomass sources is also a crucial aspect in the business and use of bioenergy, and is strictly enforced by standards such as GGL, FSC, SBP, RED III, and SURE. Industrial groups such as cement, iron and steel, chemicals, and even the aviation sector, which previously relied 100% on fossil fuels or energy sources, are gradually shifting to renewable energy sources.

Bioenergy products such as industrial wood pellets and industrial wood briquettes are primarily marketed in the power generation industry and as fuel for industrial boilers. Industrial wood pellets are very popular and are produced in larger quantities than industrial wood briquettes. Due to the elimination of subsidies and the implementation of sustainability certification, biomass fuel producers are required to produce better quality products using environmentally friendly and accountable raw materials. This also applies to bioenergy derived from agricultural waste, which generally lacks sustainability certification at large production capacities.

Biomass power plants operating near carbon neutrality can then be upgraded to carbon-negative operation, or atmospheric carbon dioxide removal (CDR) by adding carbon dioxide capture and storage (CCS) equipment. Biomass power plants equipped with CCS devices are popularly called BECCS (Bio-Energy Carbon Capture and Storage). It is predicted that the BECCS era will not be far off, and countries with biomass power plants can easily upgrade to BECCS. Expensive CCS equipment and low carbon credit revenue from CDR remain current obstacles. Japan, with around 300 biomass power plants, has great potential to upgrade to BECCS. And as a biomass power plant, the need for fuel will always be needed, such as wood pellets and PKS (palm kernel shells). For more details, read here.

One successful example of BECCS is the Stockholm Exergi BECCS project. BECCS illustrates how existing biomass power generation infrastructure can be leveraged to generate sustainable carbon dioxide sequestration. The Stockholm project, based on sustainably sourced biomass fuel, secured one of the world’s largest carbon sequestration deals with Microsoft, a significant contract worth SEK 500 million (~89 billion rupiah). Their model integrates carbon capture with a district heating system, maximizing energy efficiency while achieving permanent carbon dioxide sequestration.

Similarly, several other large industries, such as cement, aluminum, and chemicals, are also gradually decarbonizing. Biomass fuels, such as wood pellets and agricultural/plantation waste like palm kernel shells (PKS), are preferred in this sector. Besides their high energy content, these biomass fuels are more affordable than derivatives like torrefied biomass and charcoal/biochar. With the gradual transition or decarbonization of these industries, the demand for biomass fuels will also continue to increase.

Meanwhile, biocarbon products such as torrified biomass (biocoal) and carbonized biomass (biochar/charcoal) are starting to attract attention and are expected to reach mass production levels in the near future. Power plants typically favor biocoal due to its higher energy content, hydrophobicity, which allows it to be stored in open areas like coal, and ease of crushing (high grindability index). Meanwhile, biochar/charcoal, especially in the iron and steel industry, is highly suitable for producing low-carbon steel and even green steel. The reductant for blast furnaces, which previously used coke from coal, can be replaced by charcoal or biochar. Charcoal or biochar with high purity (fixed carbon >85%) and low impurities are required for blast furnace reductants. For more details on this, please read here and here.

Meanwhile, the use of biomass for sustainable aviation fuel or SAF (Sustainable Aviation Fuel) is also very possible. This is because currently there are three leading production processes for SAF production: HEFA (Hydro-processed Esters and Fatty Acids), FT (Fischer-Tropsch), and ATJ (Alcohol to Jet Fuel). Biomass through thermochemical processes, namely in FT (Fischer-Tropsch) and biochemical processes, namely in ATJ (Alcohol to Jet Fuel), can be used as raw material or feedstock. Meanwhile, the raw material or feedstock for the HEFA process is not solid biomass but vegetable oil, used cooking oil, animal fats, and so on. So the broad application of biomass as various important energy sources in the era of global decarbonization is a driving force for biomass production both through the forestry sector and sustainable agriculture/plantations.

 

Export-Oriented Large Capacity Wood Pellet Production

Availability of raw materials and market control are the two absolute main things that must be fulfilled so that the wood pellet production business can be sustainable. Investing in expensive equipment will be useless if the two things mentioned above are not met. In large capacity wood pellet production, the quality of the production equipment used is very important. The production goal of achieving large capacity will be achieved if it is carried out with an efficient and safe production process so that production costs are low. Production equipment that is capable of working non-stop 24 hours, easy operation and maintenance with good performance is vital. Regarding raw materials, apart from continuous availability, there are 2 important things that need to be considered, namely the consistency of raw materials and cheap logistics to the location of the wood pellet factory.

Mapping the potential of raw materials needs to be done well, as well as the wood pellet market. Wood pellet raw materials from one type of wood (single material) are certainly easier than mixed raw materials from several types of wood. This is related to the composition of the mixture, which of course is not a problem if the raw material is from one type of wood (single material) which is homogeneous. To strive for homogeneous raw materials, this can be done by creating energy plantations, while mixed raw materials can be taken from several wood processing sources such as sawmills and so on. Energy plantations that can be multifunctional so that they provide many benefits. This can be done by maintaining a balance between wood productivity for wood pellet production, environmental functions in the form of maintaining erosion and groundwater, and the volume of wood harvested must not exceed the growth rate or be at least the same (carbon balance) and the use of by-products for additional revenue such as utilization leaves for animal feed and honey from beekeeping.

 

Meanwhile, from a market aspect, a number of requirements also need to be met so that sustainable transactions occur. Apart from technical factors in the form of wood pellet specifications and production volume, non-technical factors such as sources of raw materials related to environmental sustainability are also often required nowadays. Users of wood pellets abroad, especially power plants, are in decarbonization efforts through cofiring programs with coal. Sustainable decarbonization efforts usually require environmental certificates such as FSC regarding the source of the raw materials used. This is to prove that the renewable fuel chain, especially wood pellets, indeed complies with mutually acceptable environmental sustainability standards. There are certain countries that impose long contracts for the purchase or procurement of their wood pellets, but there are also those that choose short-term contracts. The typical buyer or market for wood pellets also needs to be given special attention.

Export Wood Pellets to Japan, Is It Possible?

The consumption of biomass fuels especially wood pellets in Japan continues to increase over time according to the target of 4-6 GW in 2030. Supply of wood pellets for Japan, especially from Canada, have a volume of more than 250 thousand tons annually. The use of wood pellets is mainly for fuel generating electricity (read the background here). Wood pellet producers in Asia are also increasing, but the fact is that not many of them can export to Japan. Japan applies strict standards for the quality of wood pellets and also guarantees that wood pellets are produced in an environmentally friendly manner as evidenced by a sustainability certificate in the form of FSC. Another factor that makes it difficult to export wood pellets to Japan is the application of long contracts with fixed purchase prices for a certain time. That is because with the FIT (Feed in Tarrif) policy, the selling price of electricity produced is also fixed for 20 years with prices depending on the type of fuel. In addition, the volume of shipment needed is also quite large, which is 10 thousand tons for each shipment. This has consequences for the capacity of the wood pellet plant.

Then how about the track record of export wood pellets from Indonesia? It turns out that wood pellet exports from Indonesia to Japan are still very minimal, in general only for the trial phase. This is very different from other biomass fuel commodities namely palm kernel shells (PKS) whose export volume to Japan alone is estimated at more than 1 million tons annually. Why did it happen? First, the average wood pellet producer in Indonesia is still in small capacity or less than 5000 tons / month. In addition, the majority of raw materials used come from sawdust from sawmills and wood wastes from the wood processing industries. This condition also makes it very difficult or impossible to obtain a sustainability certificate because it is very difficult to trace the source of wood from its origin. Second, the amount of PKS is abundant in palm oil mills because it is one of the solid wastes from palm mills or CPO production. With national CPO production estimated to reach more than 40 million tons / year, the resulting PKS are estimated to reach more than 10 million / year and only through a simple process can the PKS be exported. Technically, PKS also have many similarities with wood pellets for technical specifications such as heating value, size, etc., as well as having advantages namely of easier handling and lower prices.

One scenario to be able to export wood pellets to Japan, is the production of wood pellets from energy plantations. With an energy plantation, the origin of the wood so that all aspects of its cultivation can be clearly monitored and verified so that certificates like FSC can be easily obtained. The supply of raw materials can also be guaranteed and it is possible for large capacity production. To optimize the energy plantation can also be integrated with sheep, cattle and goat farms and honey beekeeping. The three important aspects for human life, namely food, energy and water can be done with these activities, for more details can be read here.

Another alternative is to produce EFB pellets or palm oil empty fruit bunches pellet, but EFB pellets are not a wood pellet group, because they originate not from woody biomass, but from agricultural waste so they are called agricultural waste pellets or agro-waste pellets. The quality of agro-waste pellets is generally lower than that of wood pellets mainly because of the higher ash content and the lower heating value. In addition to the technical factors above, there are important things to consider for the production of EFB pellets is the availability of electricity. This is because palm oil mills are generally in remote locations making it difficult to get electricity supply, while electricity produced by palm oil mills is also inadequate when used for EFB pellet production. To be able to produce electricity, namely by producing biogas from POME (palm oil mill effluents), and for more details, please read here.

Wood Pellet Certificate Standards

As a trading commodity that is becoming a world trend, many wood pellet standards are implemented. Basically the wood pellet standard covers only two things, namely quality and sustainability which are mostly related to environmental aspects. Many aspects of quality are related to the technical aspects of the production of wood pellets and also the raw materials used. A number of countries or certain institutions apply the quality aspects that they can receive for these wood pellet products. The application of wood pellet quality standards is also related to the use of wood pellets or more specifically technology or equipment to consume or use wood pellets as fuel. Based on this, usually the market segments are also differentiated, namely for industries and households. The industry segment has its own specifications which are slightly different from households. Some quality standards are widely used today: ENplus, DINplus, PFI, ITEBE, Onorm and CANplus. Following are the quality tables:

The second type of standard is about sustainability and now it has also begun to be widely applied, especially for the trade in large quantities of wood pellets. Sustainability standards include the practice of cultivating trees whose wood is a source of wood pellets. In terms of its implementation there are a number of countries that buy wood pellets that are very concerned about this sustainability standard, but there are also those who do not pay much attention to it. Japan is an example of one of the countries in Asia that is very concerned about the issue of sustainability standards. Some sustainability standards that are widely used today: FSC, PEFC and so on.

Prospective wood pellet producers must pay attention to the problem above, because it is closely related to the market or trade in wood pellets. Without being able to map the market comprehensively, it is very possible that the production of wood pellets will be constrained. For example wood pellet producers will target their markets in Asia, especially in Japan and Korea, even though the market characteristics of wood pellets in Japan and Korea are different.