Biomass Pellet Production & Market Across Baltic States

Pellet mill application all over the Baltic States: Estonia, Latvia and Lithuania
1. Overview of market driving forces and potentials
Currently, wood pellets are mainly imported from the U.S., Canada, and Russia. Emerging wood pellet exporters are Australia, South Africa and countries in South America. Biomass Associations in Europe expect that the consumption of high-quality wood pellets for heating purposes will increase from over 7 million tons in 2011 to 13 million tons in 2015 and 22 million tons in 2020. The growth of this market is driven by the competitiveness of wood pellets compared to conventional fossil fuels, such as natural gas and oil.

The Baltic States, especially Estonia, Latvia and Lithuania, are significant and interesting wood pellet producers. Rich forest area, cheap labor, low energy cost and low taxes in Baltic States are quite good conditions for wood pellet production. National energy production and consumption in the Baltic States depends on country-specific energy production means, established supply routes and infrastructures, as well as on specific economic and political considerations. In the primary energy supply, each of the Baltic States has a specific feature that distinguishes it from the other two and makes it unique. Renewable Energy is promoted and supported by governments in Baltic States, which are committed to renewable energy targets of the European Union. Besides National targets for RES share, in all this countries feed-in-tariff for renewable energy production is in power. The bioenergy market in Baltic States is rather unique. Estonia and especially Latvia have high share of renewables in their energy mix and also Lithuania uses a larger RES share than the European Union average. Estonia and Latvia have strong pellet markets (Estonia has the biggest volume of produced pellets per capita in the world) but like in Lithuania the production of pellets are mainly focused on exports. Main driving forces for pellet production and trade in Baltic States include as follows:

•Relatively low costs of production (raw material salaries and energy);
•Raw material – there is a wood resource available and cheap labor and energy costs can make the price competitive;
•Big ports for pellet transport in Sillamae (Estonia), Klaipeda (Lithiania), Liepaya, Vetspils (Latvia), and Paldiski (Estonia).

However, there are still much more potentials for the countries to develop biomass pellet fuel market at home and abroad in the years to come. The potentials include establishment of a comprehensive system of domestic equipment producers/consultants/experts, setup of easy and good quality supply chain for any target group and stimulation of big domestic consumers.



Estonian wood pellet market
The Estonian electricity production is based on a small number of large fossil-fuel power plants.  Oil shale share in Estonian power production consist 88%. Furthermore, natural gas, oil shale gas, shale oil, diesel oil, wood and peat are used as fuels; also, small hydropower plants and a growing number of wind turbines are in operation. Dominant sources of renewable energy in Estonia are solid biomass, biofules and small-scale hydro power; which cover around half of the country’s renewable energy sources. Since 2003, installed wind power had increased and reached one third of country's RES. Until 2007 the share of renewable energy remained around 1%, then 2.1% in 2008 and 6.1 % in 2009 respectively. 

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Latvian biomass pellet market
The Latvian electricity system is based on hydropower and co-generation of fossil fuels (mainly natural gas and coal to some extent). In total, 59% of the electricity produced in Latvia comes from hydro power. The proportion of electricity generated by renewable energy sources in Latvia is among the highest in EU. Large-scale hydro-energy is the dominant renewable energy source accounting for 94% of all renewable production. Small-scale hydro- and onshore wind power recorded production growth in recent years. The biggest potential is properly within biomass, this is already another important energy resource in Latvia, and the share of biomass in the energy production is expected to rise in the future. Latvia is one of the largest producers of pellets in Europe. There are around 20 pellet plants with total capacity of 750 thousand tons/year. Moreover the ports of this country are the major trans-shipment points for Russian and CIS countries pellets to Europe. Most of Latvian pellet mills are located near Riga. Previously, the largest pellet company in Latvia was the Baltic Bioenergy Group, which was completely closed. Today the major players of pellet market in the country are Graanul Invest and Latgran as Graanul Invest announced some new pellet mill construction project with production yield of about 180,000 tones/year having been set up already in Incukalns (Latvia). The plant will also have a CHP unit mainly using forest residues as a fuel. Operation was started in July 2011 and had reached a full capacity by the mid of 2012. This plant will be the seventh for AS Graanul Invest and will increase their production capacity to 640 000 tones of pellets annually. Also, Latgran (another big pellet producer) will open a 140 tons/year plant at southeast of Latvia in the near future.

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Lithuanian pellet fuel market
Up until recently, the Lithuanian electricity system is dominated by nuclear power production. Nuclear power share in electricity generation in 2009 accounted for 71%. However, at the end of 2009, main source of Lithuanian’s electricity in the Ignalina Nuclear Power Plant was closed and Lithuania has been facing difficult choices about where to find new sources of electricity. Hydro power is the dominating source of renewable electricity generation in Lithuania. In 2009 70% of green energy was generated by hydropower plants while wind farms generated 20% and bio fuel 10% separately. According to Lithuanian National Energy Strategy, the main emphasis of the renewable energy development will be on biomass. Lithuania had increased biomass-based electricity production from 100 GWh/yr in 2009 to 1,200 GWh/yr in 2020. In Lithuania, production of wood pellets started since 1999. The techno-economical potential for bioenergy use in Latvia is estimated to be 214 PJ per year and production of refined biomass fuels is 6.5 PJ annually. The bioenergy market in Lithuania is very different to those in Latvia and Estonia. The main difference is that bioenergy products are less traded internationally. Lithuania has planned to significantly increase pellets production in the next 10 years. By 2020 biomass is targeted to cover up to 70% of heat energy and 6% of electricity. In 2008, production capacity of pellets reached 120 thousand tons per year. About almost all pellets are exported abroad. The annual volume of tree felling in Lithuania is around 6 million cubic meters. The consumption of wood fuel and wood waste fuel is around 3.7 million cubic meters. Wood accounts for 6 percent of the total energy produced in Lithuania. It is estimated that 1.5 million tones of biomass could be extracted from forest resources. The largest potential for forest fuel resources is located in the southeastern portion of the country.

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 2. Production capacity and feedstock
Pellet production in the Baltic States started at the beginning of the 21st century. It was based on foreign investments and increasing demands in the Baltic Sea Region (Sweden, Denmark etc.). The original know-how was also based on Scandinavian experience. From the beginning, pellets from Baltic States had a good position in the Nordic market, due to lower production costs (mainly lower energy prices and salaries). The further development was related to the growth of the overall wood industry and increasing fossil fuel prices.The share of Estonia in the production of renewable energy in agriculture and in forestry is small, compared with EU-25. In 2009, the production of wood pellets was 45% bigger than in 2008. A range of bio-energy and CHP projects were initiated in 2009, where several plants have been built and more are in the under construction. About 52% (2,217,000 ha) of the Estonian, 53.8% (3,354,000 ha) of the Latvian and 34.5% (2,160,000 ha) of the Lithuanian territories are covered by forests. Wood industry is one of the largest industries in Estonia. Over 1,000 enterprises engage in wood processing and manufacture of wood products. Estonia has ample forest resources yet the amount of wood waste generated annually is still only 4-5 million cubic meters. Total primary energy content of biomass in Estonia, which could be used for energy production, exceeds 20 TWh annually. 

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3. Consumption
There is relatively low domestic pellet consumption in Estonia, Latvia and Lithuania, because there is no large-scale consumers and their domestic market are not well-developed. Unfortunately, there is lack of comprehensive data about pellet consumption in Lithuania. According to Pellet Atlas project data in 2008 Lithuanian wood pellet consumption was 20,000 tons/year. It’s around 15% of total Lithuanian production. Wood pellet consumption in Estonia is low. According to statistics, Estonia in 2009 year had 95% of the produced pellets exported to other countries in the EU. We have every reason to believe that domestic consumption was around 20,000 tons in 2009. In Latvia in 2008, consumption was almost 80,000. According to Latvia Statistics, in 2009 alone, wood pellet consumption was decreased by 23% compare to 2008. Consequently, wood pellet consumption in 2009 was approximately 60,000 tons annually. 


 
4. Trade and logistic aspects
Today pellet market in Baltic States is still strongly export oriented. Major export directions of Baltic pellets are Scandinavian countries, Germany and UK. Wood pellets import from other countries to Baltic States is negligibly small compared to Baltic’s export to EU. Essentially, it’s possible to mention only import from Belarus to Lithuania according to Eurostat in 2010 it was around 24,000 tones. The major export flows from Eastern Europe originate from Russia and the Baltic States. The majority of pellet exports to Europe takes place through St. Petersburg harbor in North-west Russia and via Riga harbor in Latvia. Average export prices in Riga had gone up on an annual basis to about 119 € per ton by the end of 2009, and the average shipping costs from Riga to Denmark, as estimated by involved pellet actors, were about20 € per tone. According to regional peculiarities, the main transport mode is mixed but international ship transport over the Baltic Sea strongly dominates. Local transport is done by trucks and railway. These logistics of pellet products cause a significant output of non-renewable CO2. As it also requires extra energy for long-distance logistics, the already relatively low energy payback ratio for the pellets from Estonia, Latvia and Lithuania is further reduced.

READ: Suggestions on how to start a biomass pellet production Line
 
5. Pellets quality and standard
There is no special wood pellet standard in Baltic States. Given the fact that the major part of Baltic pellets is exported to Denmark and Germany, therefore it is possible to assume that Baltic’s producers using those countries pellets standards. From January 2010, ENplus (for private pellets) and EN-B (for industrial pellets) were introduced, consequently Baltic producers start manufacture pellet products in accordance with this new pan-European standard.

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