Pellet Fuel Progress Made In Ukraine

1. The Ukrainian biomass pellet fuel market drives and barriers
According to IEA Statistics, total energy production in Ukraine in 2008 constituted 3.4 EJ (total primary energy supply was 5.7 EJ). Electricity and heat energy production equaled 0.69 EJ and 0.53 EJ correspondingly. Presently, natural gas makes the major contribution to Ukraine’s total primary energy consumption (37%) followed by coal (26%), nuclear energy (17%) and oil products (17.5%). The share of renewables in the total energy consumption is 2.5%, including large hydro 2% and biomass (mainly firewood and peat) 0.5%, with the most promising and easily accessible forms of biomass such as wood wastes, cereals straw and sunflowers husk. In May, 2009 The Ukrainian Parliament passed a law providing a ten-year profit tax exemption for enterprises dealing with production and sale of biofuels, including wood pellets. In particular, the producers of biofuels as well as producers of heat, combined heat, and power from biofuels have been free of the relevant profit tax since the beginning of 2010 for a 10-year period. The second law is the Law of Ukraine ‘On Amendments’to the Law of Ukraine ‘On Energy Industry With Regard to Encouraging Use of Alternative Energy Sources’. The law determined the green tariff for power produced from renewable energy sources. The minimum green tariff for electricity generated from biomass is 12.39 € cents/kWh, which is over two times higher than the regular retail tariff for the consumers of electricity. Comparison with other European green tariff shows that the value of Ukrainian green tariffs for biomass plants is quite high. This new laws offer the opportunities for renewable energy development at Ukraine.


 
Driving forces
1) Production costs are significantly lower than in the EU (around 40-50 euro/ton)
2) Big potential for domestic consumption development
3) Government support (“green tariff” introduction, tax law)
4) Some regions have a biomass (wood) potential
5) Huge potential for agro-pellet production
Barriers
1) Lack of raw materials at a good price (in some regions) 
2) Outdated / low-quality equipment
3) Low production capacities of the producers
4) Part of Ukrainian pellets is below the EN-plus and EN-B standard 
5) Some logistics problems (reasonable price vehicles are not always available)
6) High cost of the heating equipment operating on pellets/briquettes.  


Read:How to start a pellet plant
 
2. Production capacity and feedstock
The first specified pellet plant in Ukraine started to operate approximately in 2005. The number of pellet and briquette plants is growing rapidly. In 2009 in Ukraine there were about 50 plants for the production of pellets. However, in 2009 due to resource problems, as well as unfavorable  external conditions, a substantial part of them idle or working irregular with low load. Some companies ceased their operations or are going to do it in case of continued unfavorable market situation. According to the research, in 2010 there were about 71 plants for the production of pellets in Ukraine. The share of wood pellets constitutes only 30-35% of total production; the rest is occupied by pellets from sunflower husk and other agriculture residues. Ukraine planned to build more than 10 pellet plants in the two years of 2009 and 2010. In general, Ukrainian pellet production is agri-pellet oriented. In 2009 wood pellet production was 44,000 tons and total pellet production was more than 235,000 tons. In 2010 production growth has been continued. According to Fuel Alternative, total production (agri-pellets, wood pellets and briquettes) in 2010 was 640,000 tones. Wood pellet export in 2010 reached 87,000 tons. Given the fact that Ukraine exports around 90% of their pellets, it was estimated that wood pellet production in 2010 was approximately 95,000 tons.

READ: BIOMASS PELLET MARKET IN BALTIC STATES SUCH AS ESTONIA, LATVIA AND LITHUANIA
 
Around 15.6 % of Ukrainian territory is covered by forests. Forest covered area amounts to 9.4 million hectares. Polesye and Carpathians are the main forest areas in Ukraine. Annual harvesting of merchantable wood comprises about 15 million m3. The potential resource of wood biomass for energy in Ukraine amounts to 7.0-7.5 million m3 annually. It includes saw-mill by-products (2.8-3.0 million m3 per year), logging residues (branches, crowns remains etc. (1.7-2.0 million m3 per year), firewood (1.5-2.0 million m3 per year) and about 1.0 million m3 per year of technical timber (pulpwood, small logs) which is currently exported. In general, utilization of forest growth in Ukraine is substantially lower than in other European countries. The utilization rate of annual forest net growth in Ukraine is about 40-50%. The annual theoretical and technical production potentials for forest biomass consists 312PJ and 90PJ accordingly. Experts have different opinions about solid biofuel potential in Ukraine. The production potential of wood pellets in Ukraine varies according to source from one to two million tons per year. Ukraine has vast area of underutilized agricultural land. There are different views on straw potential estimation in Ukraine. According to the one methodology, Ukraine had about 9.2 million tons of straw available for alternative use in 2009. Ukraine has vast area of underutilized agricultural land. There are different views on straw potential estimation in Ukraine. According to the one methodology, Ukraine had about 9.2 million tones of straw available for alternative use in 2009. According to Fuel Alternative every year in Ukraine forming more than 20 million tons straw resource; half of it is burned at the fields. Consequently, each year from 10 million tons of straw it’s possible to produce around 8 million tons of biofuel. According to other source potential of agro-pellets is evaluated to be 12 millions tons per year. Most probably, that calculation was based on energy equivalents methodology, as according to that methodology, the available amount of straw in Ukraine was 13.6 million tons (in 2009).
 
3. Consumption
Domestic consumption was around 15% for agro-pellets and around 10% (9% in 2009 and 12% in 2010) for wood pellets. The main wood pellet consumers are small factories (transforming their timber waste into energy), wood processing companies, food processing plants, agro-product processing companies and private buildings. Over 20 straw fired boilers, mostly below 1 MW, are in operation in rural areas. About 500 modern biomass wood boilers, mostly below 2 MW, are already installed, and over 1,000 old boilers, which were converted from coal and oil to biomass, operate on enterprises of forest and wood processing industry. Typical wood pellet and wood briquettes price in Ukraine was 70 € and 61 € per ton five or six years ago accordingly. Regardless of low domestic demands, the rapid development of alternative energy in the EU has created the preconditions for development of Ukrainian pellet market.

READ: PELLET FUEL MARKET DEVELOPMENT IN POLAND
 
4. Trade and logistic aspects
Ukrainian pellet market is export-oriented. More than 80% of Ukrainian pellets are exported to Northern and Eastern Europe. The major importer of Ukrainian wood and agro-pellets is Poland.  According to Fuel Alternative data, solid biofuel export from Ukraine in 2010 increased remarkably comparing to 2009. Wood pellets export increased 134.6 % to 87,100 tones. There are several sea ports in Ukraine, but transport net logistic is not updated, which complicates the regional transportation. Ukrainian pellets are exported overseas though Baltic ports (Klaipeda and Liepaya (Lithiania), Vetspils (Latvia), Paldiski (Estonia), Sillamae (Estonia), and Tallinn (Estonia). Probably, some pellets go via Black Sea ports, but this is not a systematic path. Pellets are also transported to Europe by trucks and via railway. According to many experts opinion, most of the pellets will be exported during the next years. However, in Ukraine, the number of boilers, working on biomass, including wood pellet is increasing, but it is still relatively small.

READ: HOW TO START A BIOMASS PELLET PLANT BUSINESS
 
5. Pellets quality and standard
There is no Ukrainian standard for pellet production. Provided the fact that almost 90 % of pellets are exported to EU-countries, it’s logical to assume that Ukrainian producers are using EU pellet standards. 
 


6. Price trends
Straw pellet prices in Ukraine currently vary between € 60-125 /ton while wood pellet prices range from € 80 to 160 € per ton. According to other source in 2009, wood pellet price ranged from € 70- 100€ per ton (FCA condition). The average price of pellets, sold to Poland (FCA) in 2009, was about € 86 per ton. The second volume of export of Ukrainian pellets was in Germany last year, by the average price € 116.6 per ton. 

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