Biomass Pellet Market Developed in Finland

1. Biomass pellet market drives and barriers
Overview
The RES Directive of the EU has set 38% as a target for the share of renewable energy in final energy consumption in Finland in 2020. In 2005, the realised share of renewable energy was 29%. Forest biomass is the most important source of renewable energy in Finland, covering approximately 80% of the renewable energy used. Most forest-based bioenergy (over 75%) is generated from by-products of the forest industry (black liquor, bark, and sawdust). The rest of the wood energy is generated from wood biomass that is sourced from forests for energy purposes (firewood and forest chips). The proportion of wood pellets has been negligible. However, the aim of the government is to treble the domestic consumption of wood pellets to over 400 thousand tons/yr by 2020.


Past development and drivers for pellet export

The fact that the taxation of fossil fuels in energy production or subsidies for electricity from biomass have been considerably higher in the main export countries (Sweden and Denmark) than in Finland has made the exportation of pellets economical. In Sweden and Denmark, the taxation of fossil fuels in heat production has been much higher than in Finland, and wood pellets are mainly used as a substitute for coal in district heating and for oil in space heating. In the UK and Belgium, renewable energy production is strongly subsidized through energy policy measures and pellets are primary co-fired in large coal-fired power plants. In 2000–2006, the market price of pellets in Finland was remarkably lower than in Sweden and Denmark. The difference in market prices of pellets between Finland and its main export countries for pellets could be considered to illustrate the transport costs of pellets. Wood pellets are exported almost totally by means of maritime transport. As bulk material, pellets are relatively easy to transport, and ports suitable for dry-cargo vessel and barges can be utilised in the export shipping. The ample underutilised port capacity that is suitable for handling and transport of pellets has facilitated the export of pellets. In 2007–2008, pellets’ price in Finland increased, approaching the prices of Sweden and Denmark. One explanation for the increase in pellet prices in Finland has been the rapid decline in the forest industry in 2008, which resulted in a raw material shortage in pellet mills and led to several mills’ stoppages in production. The narrowing difference of pellet prices between Finland, on one hand, and Sweden and Denmark weakens the attractiveness of pellet export in Finland.

READ: PELLET FUEL MARKET IN SWEDEN
2. Production capacity and feedstock
Wood pellet production in Finland started in 1998. The Finnish pellet industry was founded on export supplying pellets to Sweden, where pellet markets were developing rapidly at the time. Since then, pellet production has increased steadily, climbing to 376,000 t (6.3 PJ) in 2008. The majority of Finnish pellet production has been consumed abroad. At the beginning of 2011, there were 24 wood pellet mills in operation. The total production capacity of the pellet mills is approximately 700 000 t/yr. In Finland, pellets have mainly been manufactured from dry by-products from the sawn timber refining industry. This has allowed simpler processes for manufacturing pellets, as there is no need for drying of the raw material.

READ: BIOMASS PELLET MARKET IN GERMANY
In 2009, Finland was the fifth largest sawn timber producer in Europe after Germany, Russia, Sweden and Austria. In 2008- 2009, global economical depression caused a remarkable (20-30%) reduction in the production of forest industry compared to past years’ figures. In 2009, Finnish sawmills consumed 18.4 million solid m3 of logs (including bark) and produced 7.6 Mm3 of sawn timber. The production of sawn timber yields approximately 12% bark and 13% of sawdust as by-products from raw wood. Sawdust and bark are moist, with an average moisture content of around 55%; therefore, they need to be dried before the pelletising process. The total volume of bark was 2.2 million solid m3 and sawdust 2.4 million solid m3, which would theoretically be in supply for 0.9 Mt pellet production from bark and for 1.0 Mt pellet production from sawdust. However, the bark that sawmills produce is currently consumed almost entirely in energy production in heating and compiden heat and power (CHP) plants. Sawdust is utilised partly as raw material in wood panel production and in pulp mills and partly as fuel in power and heating plants. Only a minor proportion is utilised in pellet production. The newest pellet mills in Finland are equipped with a drying process, so the use of sawdust will increase in pellet production.

In 2009, the domestic consumption of sawn timber in Finland was approximately 4 Mm3, of which industrial use accounted for approximately 2.5 Mm3(In this context, industrial use refers to utilisation for other than construction and packing purposes). Approximately 0.6 Mm3, a quarter of the volume of sawn timber refined by industry, ends up as by-products, which is enough for approximately 0.25 Mt of pellet production annually. Only some of this volume can be utilised in pellet production – thus its competitive use as fuel in heating and power plants. Increasing pellet production will demand expansion of the raw materials to include sawdust and forest chips. Furthermore, the expanding wood pellet mills will have to compete for raw material with other users of by-products. Recently established pellet mills are equipped with a drying process and utilise moist raw materials.

3. Consumption
In 2004–2009, domestic consumption of wood pellets more than trebled and was approximately half of the production. The number of private small-scale pellet users in 2009 was estimated at 20,000. In 2009, about 40% of the domestic consumption of pellets in Finland took place in small boilers whose thermal output is less than 25 kW. Pellets have not been competitive with heavy fuel oil or coal as fuel in heating and power plants, and they are mainly used in applications where light fuel oil is an alternative fuel, typically in the heating of dwellings and small public or industrial buildings. The consumption of wood pellets is still at a modest level in Finland compared to the usage potential.

READ: BIOMASS PELLET FUEL MARKET IN DANMARK
Approximately 50 PJ of light fuel oil is consumed for the direct heating of Finnish dwellings each year. Estimations have showed that the annual domestic consumption of wood pellets could be raised to 1–1.5 million tons (17.5–26 PJ) by replacing a part of the consumption of light fuel oil with the use of pellets. In addition, a remarkable although less economically feasible potential use for pellets lies in substituting coal in power plants. In recent years, the average consumption of coal in energy production in Finland has been approximately 200 PJ. Coal-fired power plants using pulverized combustion, e.g. in the Helsinki metropolitan area, could increase their use of pellets to even 2–3% of their fuel use without great technical changes in the burning systems if pellet use becomes economically competitive with coal. The largest Finnish coal-fired power plants are found in coastal areas with their own coal ports, which could be used for shipping pellets, if needed.

The Finnish Pellet Energy Association has set a target number of domestic pellet consumers of nearly 80,000 (75,000 single family houses and 4,000 industrial users) and a domestic pellet consumption target of approximately 1.5 Mt/yr by 2020. The consumption target of Pellet Energy Association is much higher than the government’s target indication in National Renewable Energy Action Plan (400,000 t/yr).

4. Trade and logistic aspects
Since the beginning of industrial pellet production in Finland the number of export countries of pellets has increased resulting from booming pellet markets in Europe. In addition to Sweden, Finnish pellets have been exported e.g. to Denmark, the Netherlands, the UK and Belgium. In 2009, total pellet export form Finland was 146 thousand tons and the major export countries were 80 thousand tons in Sweden,51 thousand tons in Danmark and5 thousand tons in the UK respectively.In 2010, total biomass pellet export from Finland was 167thousand tons and the major export countries wereSweden of82 thousand tons,Denmark of72 thousand tons andGermany of 5 thousand tons, separately.

In 2008, the statistics reported the import of wood pellets to Finland (10 thousand tons) for the first time. Imported pellet came from Russia and the Baltic states. In 2009 the total import of pellets was 50 thousand tons of which approximately 40 thousand tons came from Russia. In 2010, the import of pellets declined to 17 thousands tons of which about 10 thousands came from Russia and seven thousands from the Baltic states The wood pellets are exported from Finland almost totally by means of maritime transport. As bulk material, wood pellets are relatively easy to transport and ports suitable for dry-cargo vessels and barges can be utilized in the transportations. Available indoor storage and material handling equipment for dry bulk in a port facilitate the loading of pellets into the vessel. There is plenty of underutilized port capacity in Finland available for the handling and transportation of biomass pellets.

5. Pellets quality and standard
Finnish wood pellet markets apply to European wood pellet standards, namely, EN 14961-2 the most important pellet standard, and is so called product standard for non-industrial use of pellets. Practically, all indigenous round wood used by the forest industry is currently certified (mainly according to PEFC system and partly FCS). Certified raw material allows wood pellets to be labelled with the PEFC or FCS logo.

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