Surplus Conditions, Why Import? Does Not Make Sense!!!

It is common practice that a country always protects its domestic products. Developing and increasing the quality and quantity of domestic products is one of the country's responsibilities in the economic field. It is strange and implausible when a country has a surplus of certain products, but on the other hand it imports similar products. This, of course, besides damaging the economy also directly affects the producers. The easiest example is in food or agricultural products. As an agricultural country producing rice when the surplus is clear, there is no need to import. Rice produced by farmers is not bought as well as sugar cane and so on, if at the same time a surplus such as a harvest is imported similar products. This is an economic murder for these farmers.

When the market goes increasingly liberal, the chances of cheating are also getting bigger. It could be that a country makes a hoax that discredits certain state products to protect the country's products. Especially if this is done by a large influential country. Of course this has a negative impact on the target country products so that the product does not sell well in the market or at a minimum the price falls. The evil trade politics are mostly done to bring down business opponents. Such efforts should not be carried out, but can use other better methods such as providing incentives for producers or users of domestic products. This further encourages the use of domestic products and revives the country's economy without harming other countries.

Recently Korea made a slight revision of the use of wood pellet fuels. Wood pellets produced from within the country are prioritized over imported products. This has encouraged the growth of the wood pellet industry in the country. With the large amount of wood pellet needs, it is very likely that the country will still not be able to meet its needs due to the lack of raw materials related to its natural factors. This is how it keeps them imported. But with this policy, Korea has taken sides with its domestic industry. As more and more countries in the world use wood pellets, wood pellet producers can also choose buyers at the best prices.

Delay in the Construction of Biomass Power Plant in Japan and Its Impact on PKS Supply from Indonesia and Malaysia

An ambitious program always requires careful preparation to achieve the goals as expected. Moreover, the ambitious program is related to a strategic sector such as energy, so preparation also needs to be more serious. Hurry to be realized immediately and reach the target will further aggravate the situation and bring losses in the end. This readiness also involves many parties so that synchronization is not easy and supporting infrastructure. One of the ambitious programs in the energy sector, especially renewable energy and more specifically the use of biomass, is a power generation program in Japan. Japan as the most energy-dependent country, the sustainability of energy supply is very important, so government policy is needed for this. After the tragedy or accident at the Fukushima nuclear plant in March 2011, Japan began using renewable energy as an important energy source. The use of biomass as an energy source is targeted at 4-6 GW by 2030, and even this condition spurs developers so that there is a surplus of almost 3 times as much. This condition makes a special policy to control this so that not all are approved for the development of the power plants.

Regarding the use of biomass as an energy source, European Union countries even put a portion of biomass at 70% in their renewable energy program. The first RED (Renewable Energy Directive) program from the European Union will end in 2020. RED I aims to reduce emissions by 20% and the use of renewable energy to reach 20% by 2020, the program is also well known for its 20-20-20 target. At present the European Union has also prepared RED II to replace RED I which will soon be over. At the RED II the target to be achieved is a 30% reduction in emissions and 32% renewable energy use. For biomass energy, Europe is currently the largest producer of wood pellets, estimated at 13.5 million tons / year while consuming 18.8 million tons / year year, meaning there is still a shortfall of 5.3 million tons / year. America and Canada are the main suppliers of wood pellet needs of European countries with the majority of the use of wood pellets for electricity generation. Indonesia as a tropical country and rich in various biomass, especially woody biomass, has the potential to become the world's leading producer of wood pellets. Along with the increasing portion of renewable energy in the RED II program that will be proclaimed, the use of wood pellets is also getting bigger.

Map of Japan's biomass power plant status, red means it's already operating, yellow means that in the development stage, blue means planning.

Japan applies FIT (feed in tarrif) to encourage the use of renewable energy in electricity production. FIT has been implemented since 2012 and there are significant differences regarding the company's interest in the FIT. There has been a surge in interest of up to tens of times compared to before it was implemented by FIT with the number of power plants reaching 1,028 in 2017 or 5 years after the application of FIT. The highest surge of interest in solar power plants is solar PV up to more than 10 times, while for biomass it has jumped about 3 times. PKS is even a favorite fuel for the power plants. In March 2017, 38% of the FITs approved in the "general wood" category used PKS as their fuel or energy source. This makes export PKS can be a very attractive business opportunity. Electricity production costs also decreased with the implementation of the FIT. The biggest reduction in costs in solar PV power plants reached 38%, while in biomass power plants with an average capacity of 19 MW there was a 16% reduction in costs. While a review of the environmental aspects of carbon emissions (CO2 reduction) has also decreased by 6 points.

In 2019, it was originally planned that most of the power plants that had been built had been operating, but this year there were still many power plants not yet operating. This means there is a delay than planned. There are many factors that cause delays in both technical aspects such as connection to the grid and manufacturing the equipment and non-technical aspects such as capital and the availability of biomass fuel supplies. One example on the equipment side is that there are only 4 or 5 boiler manufacturers for power plants in the country so overwhelmed with high demand. Many of these power plants use biomass fuel in the form of wood pellets and PKS. For wood pellets Indonesia also has a great opportunity as will be done by Sri Lanka, for more details can be read here. As for PKS as the largest CPO producer in the world with palm oil plantations reaching 12 million hectares, Indonesia's potential is very large, second in Malaysia, with palm oil plantations reaching 5 million hectares.

PKS exports from Indonesia had a downturn some time ago due to high export duties ( tax plus levy) which totaled $ 17 per ton, whereas this did not happen in Malaysia because it was not charged as in Indonesia. Export duty out of PKS in Indonesia is associated with CPO prices. Many parties actually want the PKS exit duty in Indonesia to be eliminated as in Malaysia or at a minimum reduced so that it can be more competitive. This is because PKS is waste and exporting is part of the waste solution. The 15% decline in CPO prices in the international market turned out to have reduced PKS export levies to 0 so that they only paid $ 7 per ton of tax. But when CPO prices rise, the export duty (export tariff) also rises. Based on the Regulation of the Indonesian Minister of Finance (PMK) No. 152 / PMK.05 / 2018 which has been in effect since December 4, 2018, the government levy to be zero (US $ 0 / ton) all export levy rates if international CPO prices are below US $ 570 / ton. Meanwhile, if the CPO price is in the range of US $ 570-US $ 619 / ton, then the PKS export levy becomes US $ 5 / ton, whereas if the international CPO price has returned to normal, which is above US $ 619 / ton, PKS export levies become $ 10 / ton. If added with a tax of US $ 7 / ton, then when CPO prices are below US $ 570 then only tax is worth US $ 7 / ton like now, but later when CPO prices rise in the range of US $ 570-US $ 619 / ton, then export taxes and levies become US $ 12 / ton, whereas when CPO prices have been above US $ 619 / ton, PKS export taxes and levies have become US $ 17 / ton. Higher taxes and export levies make PKS prices less competitive.

PKS exporters who have collected a lot of PKS in the hope that they can be sent or exported in large numbers by 2019 are disappointed. Expectations and plans did not match reality. Japan is still continuing the FIT program but the realization is expected to have a delay. The collection and accumulation of PKS for a long time will not only damage the PKS if it is piled up too long, but of course it will cost more for storage. The planned realization, which was supposed to be 2019 but backwards become 2022-2023, would certainly wait for very long 3-4 years for the storage of the PKS. Whereas for wood pellet fuels for 3-4 years, it can be used to make energy plantations and wood pellet factories. The potential of industrial plantations (HTI) for energy plantations and production of wood pellets in Indonesia is very large, for more details can be read here.

Wood Pellet, PKS and Biomass Power Plant Market in Japan

PKS (Palm Kernel Shell) to be a hot topic of renewable energy source or fuel commodity currently in Japan. This is because PKS is the cheapest biomass fuel and is currently still available in large quantities. PKS is a waste of palm oil mill from CPO production. So it is automatically PKS is widely available in areas of palm oil mill or CPO producers, namely in Indonesia, Malaysia, and Thailand. Selection of PKS as fuel also its characteristics that can be poured, high calorific value and high density also. 

What about wood pellets? The world's leading producer of wood pellets today, certainly not Indonesia or other Southeast Asian countries, but North American and Scandinavian countries. Even for Indonesia itself wood pellet is a new thing, so its production capacity also not big. Wood pellet price is more expensive than PKS. Most wood pellets are produced in Indonesia from wood waste such as sawdust, wood shaving, plywood waste and so on. The development potential for quantity enlargement is also very possible with energy plantations. Technically the properties of wood pellets are not much different from the PKS.

Japan biomass power plant status map, red means already operating, yellow means in the development stage, blue means in the planning.

Biomass is one of the alternatives  fuel of power plants in Japan, following the accident or destruction of the Fukushima nuclear power plant (NPP) in 2011.  PKS becomes the favorite choice of biomass power plants there. Most of these biomass power plants use PKS as their energy source, and only a few operate with wood pellets. The large number of biomass power plants built, automatically also requires a lot of fuel supply. Most of the biomass power plants are built in 2015 and by 2017 some of them are in operation and by 2019 it is estimated that they are all operating, so it can be imagined the need and competition to get the supply of the PKS.

Japan is a country that almost all rely on imports to meet domestic needs, this is because the potential of the natural resources is minimum there, including the energy sector. With a population of approximately half of Indonesia, their energy consumption is almost 5 times Indonesia, so practical energy needs including fuel is also huge. The biomass power plant that uses wood pellets predicts that in the next 1 - 2 years there will be a shortage of supply of PKS, so early on it has anticipated, although at present the advantage of selling electricity is smaller, because of its more expensive raw material (wood pellet) prices. With this experience they will confident if next years wood pellets become more common fuel. 

PKS must meet the specifications before being exported to the destination country. Some key specifications for PKS are: moisture content, calorific value and impurities or contaminants (foreign materials). All three variables must meet a certain level to achieve export quality. Japanese markets or their consumers generally require contaminants from 0.5 to 2%, while European 2% - 3%. A simple process can be done to get the quality of the PKS as above. Japan usually buys with a volume of 10,000 tonnes per shipment or their import, so for PKS providers must prepare a sufficient stockpile for the PKS. The location of PKS stockpile that close to the seaport is the ideal condition to facilitate transportation to shipment. 

Wood pelletproduction process is more complex than PKS, so wood pellet is categorized as finished product. PKS can be said raw product because of its industry activity is very minimal and simple, as explained above. In the production process of wood pellet will include selection of raw materials and the properties namely : cleanliness, drought, size, shape and hardness. Based on the characteristics of these raw materials, the next process varies until become the wood pellet products. The wood pellet production process is very much like the wood briquette. The quality of wood pellet is generally viewed from its density, calorific value and ash content. Indonesia wood pellet export is not as big as PKS, it is also because of the limited producers of wood pellet itself. Japan buys wood pellets from Indonesia mostly for testing on their biomass power plants. Shipping or export by container is still common in wood pellet commodity because the volume is still small.

For short-term orientation exporting PKS is a profitable business. This PKS some time ago only waste that contaminate and unworthy then large amount of it only used for road hardening and so on, but currently become a “hot” commodity.  Wood pellets with raw materials from energy plantations by planting the legume types such as calliandra are medium-term solutions to meet biomass fuel needs in Japan.  Torrefaction followed by densification can be a long-term orientation, so the torrified pellets product is superior to wood pellets because it can save transportation and facilitate handling, hydrophobic and higher calorific value.

Torrified Pellets

Government Regulation namely Indonesian Minister of Finance Regulation No. 67/2010 on Stipulation of Export Goods Subject to export duties (BK = Export Duties) have purpose to push downstream or production of various derivative products from oil palm including PKS. But the fact is not much that happened in the field related to PKS. In fact, many PKS providers are experiencing setbacks and even closed their businesses. This BK has made the price of PKS higher, thus making the market demand decrease. The higher the BK for the raw product and the lower the BK for the finished product the downstreaming will be faster, but it must be done through the process gradually, well-planned and comprehensive. Ideally the BK for the finished product is zero percent. Does the government ask people to wait next 2 years when PKS prices are high because their needs are projected to rise sharply? We don't know. While the best scenario is to reduce taxes so that the industries can grow so then they can start develop new products. Torrefaction of PKS becomes torrified PKS becomes the best solution for next development, because upgrading of PKS quality will give more economic value added. Carbonization or pyrolysis of PKS to PKS charcoal (PKSC = palm kernel shell charcoal) and then followed by densification into PKS charcoal pellets is also an attractive alternative.