In 2012, as Gangnam Style alerted the world to Korean pop, Seoul also made waves in the biomass sector. With a roaring economy to feed, Southeast Asia's emerging powerhouse opted to insert a sizeable slice of wood into its energy mix.

An overwhelming reliance on imported fossil fuels provides a compelling motive for embracing renewables. Although ranked 109th globally by land mass, South Korea is in the top ten for power consumption, despite lacking its own fuel reserves.

Under a compulsory quota introduced last year, South Korea’s power generators must now deliver 2 percent of their energy from renewables. With each year this renewable portfolio standard (RPS) will now ratchet up, reaching 10 percent in 2022.

Wind, solar and hydropower feature in Seoul’s plans for a securer energy supply but biomass is expected to deliver the lion’s share of new clean capacity – as much as 60 percent, according to some estimates. 

In wood pellets, Korea has implemented a programme that covers the construction of eight new pellet plants. In addition, with only limited opportunities to generate feedstock from its domestic sawmilling industry, the government has set a goal of importing 5 million tonnes of pellets by 2020. By then, 75-80 percent of pellets consumed in the country are expected to be imported.

South Korea’s energy companies have been exploring opportunities to import pellets from Australia, Vietnam, Indonesia, Canada and the US. In July 2012, Korea Electric Power (KEP) set out to become the first to buy wood pellets to meet its renewable energy quota with a tender for 15,000 tonnes.

Meanwhile, driven by a different set of priorities, South Korea’s great regional rival has also expanded its profile for biomass producers. In the aftermath of the Fukushima nuclear disaster, Japan is eyeing all renewables to dilute its heavy reliance on nuclear power.

In Japan, solar is expected to far outshine other renewable technologies. Yet biomass featured in the feed-in tariffs (FiTs) introduced on 1 July 2012, amid talk from Economy, Trade and Industry Minister Yukio Edano of ‘the first year of renewable energy’. 

For biomass power, the tariffs set a purchase price for 20 years of 40.95 yen ($0.45)/kWh for gasification, 13.65 yen ($0.15)/kWh by recycled wood and 33.6 yen ($0.37)/kWh by un-used wood. 

In November, the tariffs apparently made their mark with the decision by Sumitomo Osaka Cement Co. to cut its dependence on coal by using more biomass such as wood chips at its Tochigi and Kochi plants. Within three years, the company aims to raise the share of wood and industrial waste in its fuel from a third up to 40 percent, with a longer-term goal of 50 percent. 

Where Will Asia Find Its Feedstocks? 

But biomass in Asia shares many of the uncertainties that still unsettle the sector in its European heartland. How much Asia will drive global demand for feedstock is uncertain, even without questioning the consistency of government policy. 

For Hakan Ekstrom of Wood Resources International, legislative shifts in Japan and South Korea do indeed herald a shift in markets. 

‘Korea will need plenty of pellets and most of it will be imported,’ he told REW. ‘Japan also will need more biomass but, at least initially, it will likely be in the form of domestic forest and industry biomass.’ 

So what could an expansion in Asia’s wood-fired generation mean for global trade in wood pellets? In North America, the forestry industry is following developments with apparent confidence in a new market opportunity. Gordon Murray, executive director of the Wood Pellet Association of Canada, sees South Korea as potentially offering a market of 9 million tonnes by 2020. 

While Canada will have to compete with nearer countries such as Vietnam, Cambodia, Laos, Malaysia and Indonesia as well as New Zealand and Australia, he points out that Vancouver is only 8000 km from Incheon, less than half the 16,500 km from Vancouver to Rotterdam, currently its largest market. 

In the U.S., meanwhile, a report by the U.S. Department of Agriculture (USDA) in May 2012 puts wood pellets as a good fit with President Obama’s goal of doubling exports to $2 trillion by 2015. China, Japan and South Korea all emerge as potential wood pellet market, albeit with some reservations.

‘Of the three markets, China has the potential to become the largest wood pellet market in Asia,’ concludes the report. ‘Its economy is strong, energy demand is growing, and the Chinese government is looking for solutions to substitute renewable energy for coal. Additionally, the Chinese currency has appreciated against the US dollar, making US wood pellets easier to sell in the Chinese market.’

That said, China currently imports ‘a very small quantity of wood pellets from North America’. Wood pellet demand in China comes from the industrial energy market, so market development efforts should target government energy officials and coal-fired power plants.

In South Korea, wood pellet exporters can count on a flourishing economy to drive wood pellet demand for co-firing with coal, finds the report. But imports are still low and Seoul also appears to be pursuing a wood pellet strategy of joint development with other Asian countries.

‘Overall, wood pellet demand will increase in South Korea, but it is difficult to predict what portion will be imported from North America,’ conclude the USDA’s researchers. 

As in China, Japan’s demand for wood pellets in largely driven by industrial energy. But Kansai Electric Power Corporation has established an encouraging co-firing model. ‘Because Japanese power utilities are held to Kyoto Protocol emission-reduction standards, there is a strong possibility that other electric utilities will follow Kansai Electric’s lead and use more wood pellets as a substitute for coal,’ finds the report. 

Asia’s Global Role in Biomass

In their recent forecasts for biomass pellets in Asia, Silvio Mergner and Matt Bovelander are now making predictions for short-term demand shifts. 

‘We are suggesting a short term development of biomass demand growth from the current 200 000 tonnes pellet equivalent in Korea to 1.8-2.0 million tonnes pellet equivalent by 2015,’ Bovelander told REW. ‘In Japan the current demand for biomass is 1.5 million tonne pellet equivalent and we see this will move to 3.0-3.5 million by 2015.’

While Taiwan market’s market is showing movement – and countries like China, Thailand, Indonesia and Malaysia use plenty of biomass – Japan and South Korea look set to dominate the sector in Asia, and are alone in driving international trade, added Bovelander, who heads Poyry's bioenergy consulting business in the Asia-Pacific.

But the impact of this looming surge in biomass demand is unlikely to reverberate around the globe. ‘Markets in Japan and Korea will not really compete with Europe at this stage,’ said Bovelander. 

North American and Canadian producers may eye Asia with interest but they already have long term contracts in place with Europe. Uncommitted supply is limited. Secondly, Japan and Korea lack the infrastructure for large-scale 'panamax' type pellet transport, for which North American suppliers are geared. Thirdly, prices in Korea are too low, while in Japan they are 'ok' but not hugely exciting.

‘Finally, Korean and Japanese buyers of pellets will source from Asia first,’ he adds. ‘It is likely that only in the next few years will they need to look seriously further abroad for their supply – to Australia, New Zealand and North West Canada.’

This article is abridged. For the full version, look out for the January-February edition of Renewable Energy World magazine – or why not subscribe. 

Lead image: Biomass pellets via Shutterstock