South Korean wood pellet demand set to grow, but will long-term agreements?

Demand for industrial wood pellets in South Korea is set to grow ‘significantly’ over the next fifty years, according to a new white paper from FutureMetrics.

Despite this continued growth, South Korean utilities are likely to stick to short-term tendering strategies for securing wood pellet fuel for the foreseeable future, even though the lack of long-term agreements presents challenges on the supply side.

Authored by William Strauss, the white paper explains the growth in demand for industrial wood pellets in South Korea and why it is expected to continue.

Strauss describes how South Korea’s Renewable Portfolio Standard (RPS) requires the country’s 13 largest power companies to steadily increase their renewable energy mix over the period 2012 – 2024.

“Some of that renewable power is being generated from new wind and solar installations. However, the growth in the South Korean demand for electricity and the relatively low cost to modify a PC power plant to use pellets has resulted in a rapid increase in wood pellet co-firing” writes Strauss.

“South Korean utilities that convert plants for full-firing wood pellets will be very profitable.”

As demand for wood pellets in South Korea continues to increase, Strauss suggests “it is difficult to conceive of how pellet production capacity matching the expected S. Korean demand can be deployed without long-term agreements.”

He speculates that a change in policy regarding long-term agreements could be on the cards.

“Perhaps there will be change in policy in South Korea. That is a distinct possibility. Without a policy change, there is currently no long-term guarantee to the revenue per MWh from the South Korean RPS. All other nations that have a developed pellet co-firing or full-firing power markets have policies that support and de-risk long-term pellet supply agreements.”

 

This article was written by Daryl Worthington, assistant editor of Bioenergy Insight