1. Influence of coal price on the biomass market
Working in the biomass field has never been easy. When we first started in this industry in 2011, very few would actually understand what we were doing. However, this is one of the oldest ways to produce electricity. We are talking about 1884’s technology! When “modern” steam turbines were invented, the only way to produce steam would be coal or Agri-waste boilers…
Before Covid and the global energy crisis that we are facing today, Biomass – or the use of Agro-residues or waste from agriculture – was not so popular or well known. Mainly because most of our colleagues were using wood chips or forest base residues. Then in this context, the problem of sustainability was rightly raised by the community and detractors. It is quite difficult to ensure the traceability and the origin of the wood used and to really compensate for cutting down trees by planting new ones. It is even harder to avoid monocultures and create/replace previously destroyed ecosystems.
Hence Biomass was not seen as an industry that could be scaled up without having a tremendous negative impact or an unsustainable supply chain in the long term. The additional difficulty was the low energy density that would induce a high logistic cost and the inconsistency of production, granulometry, and quality.
All these factors made coal the preferred option for many years, in the world, but also in the Philippines. Bank and investors would feel reassured by coal’s consistent, cheap, and reliable pricing. They would develop baseload power plants of 300MWe and above, huge boilers burning 2,700 MT of coal per day.
The Philippines’ legal framework would also protect the investors with a tariff structure of “pass-through” where the price of coal or oil would be directly back- charged to the electrical cooperative, hence to the end user. The perfect setup to attract investors and bank loans with cheap interest rates. And this is without surprise that we have seen in the Philippines the coal market dominates the energy industry for years.
Philippines’ electricity production was 52% coal in 2018, versus less than 1% for biomass!
At the time, it was hard to resist the temptation of changing strategy and working on the “main” market, the “traditional” way of producing power.
Most especially that electricity is not the only energy produced by coal or biomass. Heat for processes (steam or flue gas) is representing approximately two third of the potential market.
It is less known by the public because they are not in touch with factories on a day- to-day basis, but almost all products need steam or heat at some point in their fabrication: Steel needs to be melted and extruded, the food needs to be cooked, and alcohol needs to be distilled. And those are just examples, there are thousands of other applications for heat in modern factories.
According to IEA, two third of the industrial energy demand is industrial heat. This is one-fifth of global energy consumption. And it is produced mainly by coal, oil, or gas.
With the sudden increase in coal prices in 2021, all industries have been facing a substantial increase in production costs. From an approximately stable 50 to 100 USD/MT, the coal suddenly passed the 400USD/MT.
This, combined with the commitment to the Paris Agreement, and the awakening of some industries regarding their carbon footprint, has created a shift of mindset in industry owners and managers.
Coal is considered to release more gCO2 per kWh of electricity produced than any other type of power production. It is almost 4 times higher than biomass, according to World Nuclear Association.
The CO2 release by coal alone is evaluated at around 14 billion per year. This is the main problem to solve if we want to reduce carbon emissions.
What if there were a way to reduce, or at least maintain, their energy cost while showing effort in reducing their carbon footprint?
Biomass started to sink in as a viable solution for industries that for a long time looked at biomass as a costly and non-viable option.
Biomass to generate heat was already existing, of course. Actually, before covid, the IRENA was already evaluating the heat market to be 46% of the total global Renewable Energy market with 34% for biomass. This is higher than the global market for PV solar and wind combined!
The demand for biomass, mainly represented below by wood industrial pellets increase and its price also doubled in less than 6 months.
This did not solve all the problems. It actually put pressure on the biomass industry which is now challenged on its sustainability and scalability once again.
Napier grass plantation (regenerative plants) would be planted with the support of local communities and be used as raw material for our pellet production and biomass plants.
The team would select only agricultural waste to be pelletized or directly used, like Rice Husk, Bagasse, Coconut Husk, or other wastes. The idea is to inspire faith in our industrial clients that our product is sustainable and not from illegal lagging. Our policy of transparency and monitoring allows our partners to visit and understand where and how our biomass is produced/collected.
In conclusion, the 2022 energy crisis has been positive for the biomass industry, with an increase in demand and a quite stable production cost (if we use our own biomass energy to produce pellets). However, it also raised several questions:
How to maintain sustainable production of biomass without increasing deforestation and carbon release in the atmosphere?
How could industries convert while minimizing their risk and financial exposure without reinvesting massively?
How to use efficiently our energy and resources in general?
The next article of this series related to the Biomass market evolution in the Philippines since 2015, will be related to the way Industries could convert from Coal or other fossil fuels energy to biomass for their process steam.