Certification and Sustainability, Impact on the Woodpellet Trade

Transcription

1 Certification and Sustainability, Impact on the Woodpellet Trade RWE Supply & Trading RWE Supply & Trading 01/05/2012 PAGE 1

2 PRESENTATION SUMMARY 1. Introduction to RWE 2. Europe - Key Market Drivers; Sustainability 3. Certification - RWE s Green Gold Label Standard 4. Supply & Demand of Woodpellets 5. Impact on the Woodpellet Trade RWE Supply & Trading RWE Supply & Trading 01/05/2012 PAGE 2

3 1. Introduction to RWE RWE Supply & Trading RWE Supply & Trading 01/05/2012 PAGE 3

4 RWE is a successful and fully integrated utility > RWE serves 22 million electricity customers and 13 million gas customers in Europe* > RWE has leading market positions in Germany, UK, Czech Republic, Netherlands and Hungary > RWE had 58 bn revenues, 9 bn earnings and 6 bn investment in 2008 > RWE has 51,200 MW electricity generation capacity (gas, coal, nuclear, renewables) > RWE employs 77,000 people in 13 countries worldwide * All figures are inclusive Essent which became part of the RWE Group in October RWE Supply & Trading 01/05/2012 PAGE 4

5 RWE Downstream, Midstream, Upstream > RWE Power Plants: RWE has been co-firing biomass since 2002 > Amer (2 X 650 MW) Europe s largest co-firing plant, feedstock mainly wood pellets 1 million tons biomass/year > Aberthaw (3 x 500 MW) Capability up to 40te/hr across 2 units (i.e. up to 4% by energy) Direct injection: Combination of pre-processed and part processed solid fuels. (Sawdust, PKE, Shea Meal, Woodchip) > Didcot (4 x 500 MW) Current capability approx 3% by energy. Fuel Diet restricted to pre processed biofuels including PKE, Sawdust, PKE, Shea Meal, Olive Residues etc Main Scheme operational Q co-milled > Tilbury (3 x 335MW) Plant was converted to burn biomass - over 2 mil tons per year, started up end 2011 Capable of firing solid and liquid biofuels > RWE Supply & Trading: Procures international biomass > RWE Georgia Biomass: Produces 750,000 mt/year of pellets RWE Supply & Trading 01/05/2012 PAGE 5

6 Our view is that our integrated supply chain ensures reliable supply Initial core business Current expanded core business Sourcing Own use Fuel production Local storage Freight Centralised storage Third parties > Further vertical integration will increase security of supply and better supply chain optimization. It will also provide more flexibility for trading and allow secured supply to 3rd parties. RWE Supply & Trading 01/05/2012 PAGE 6

7 RWE Essent owns Amer, Europe s largest co-firing power plant Biomass unloading and temporary storage Amer 8 (645 MWe, 250MW heat) 300kT biomass co-firing /y 525 GWh Wood gasifier ( 33 MWe) 90kT biomass /y 130 GWh Amer 9 (600 MWe, 350 MW heat) 600kT biomass co-firing /y 1150 GWh 7 RWE Supply & Trading 01/05/2012 PAGE 7

8 Georgia Biomass Georgia Biomass Waycross Storage - Savannah 750kt wood pellet plant, Waycross, GA > RWE Innogy upstream investment > Capacity 750,000 tonnes a year > Commissioning Q > 100% RWE owned > Shipped out of Savannah, GA > 50,000 tonnes of dedicated wood pellet storage > RWE Supply & Trading manage all sales and marketing RWE Supply & Trading 01/05/2012 PAGE 8

9 RWE Supply & Trading (RWEST) > RWEST > RWEST is the interface to the market for biomass commodities > Integrated Freight & Logistics team to manage and optimise delivery schedules to power plants > Risk and credit management systems to ensure consistent deliveries > Innovative deal structures to hedge commodity risks > Consistently seeks to improve product designs and efficiencies. RWE supply & Trading will be the first to use Bio Coal on a commercial scale. The first quantities will be used in the power plants at the beginning of 2011 > Principal Investments, with a focus on investment where RWE has deep knowledge of the commodity and or ability to bring physical trading capability and reduce risk for the asset > BIOFUEL DESK > RWE Supply & Trading manages a portfolio of around 2.0 million mt > Support and develop projects within RWE > Start to develop third party business and trades > Risk manage commodity project risks: Freight, FX Fuel supply contracts, credit RWE Supply & Trading 01/05/2012 PAGE 9

10 Security of supply can be achieved - RWE experience > Guaranteed supply: RWE Supply & Trading is able to offer its customers mid to long term (5 year) fixed price wood pellet contracts Contracts will be structured to suit the customer s specific needs, for example delivery point, tolerance on volume, specification, off-site storage > Benefit to biomass generator: With the RWE contract, providing guaranteed supply to the customer, generators can make commitments about their future renewable generation > Other solid biomass fuels can be used too: RWE normally recommends the contract is structured to also allow for sourcing of alternative solid and liquid biomass fuels Local agricultural co-products, for example olive husks and fruit shells/bunches are used in biomass generation globally These products are not available in the same quantities as wood pellets, are often seasonal and have chemical and physical properties to manage. However, they should be seen as potentially lower cost, and interesting for fuel mix optimization RWE Supply & Trading 01/05/2012 PAGE 10

11 2. EUROPE: Key Market Drivers; Sustainability RWE Supply & Trading RWE Supply & Trading 01/05/2012 PAGE 11

12 Key Market Drivers for European Buyers Risks associated to import & use Sustainability criteria External competition > Price & quality risk > Target: saving CO2 > US/Asian demand multi sourcing policy, 5 years term contract and binding contract specifications RWE Supply & Trading 01/05/2012 PAGE 12

13 Key Market Drivers: Price and Quality Risks PRICE RISKS QUALITY RISKS ~35% of pellet cost can be hedged ~45% of pellet cost cannot be hedged Logistics Maintenance > Shipping costs > FX risks > Fuel costs > Raw material > Temperature > Emergency storage exit > Dust and ash specifications > Boiler requirements Five year supply contract to limit price exposure Contract specifications for pellets must be binding, quality of suppliers RWE Supply & Trading 01/05/2012 PAGE 13

14 Key Market Drivers: Sustainability The Biomass perspective on its importance The concepts Combustion of biomass should be good for the planet The actions Develop sustainability policies that validate the whole supply chain Source biomass from counterparties and regions that have established and trusted standards Forests should not be negatively impacted by use of biomass as a fuel Carbon emissions should be lower due to combustion of biomass Go to the forest and validate wood sourcing plans and deliveries Confirm that forests are re-grown / replanted Review if suppliers meet globally acceptable standards like FSC sourcing Calculate all of the carbon and GHG emissions from the wood sourcing to the combustion facility Compare the emitted carbon from biomass sourcing to the replaced emissions (e.g. in the UK a combination of coal, gas, oil and other fuels in the electricity balance) RWE s biomass sourcing team continuously challenges itself to understand the implications of sourcing biomass and uses sustainability to hold itself and its suppliers to be best in class RWE Supply & Trading 01/05/2012 PAGE 14

15 Key Market Drivers: External Competition US South, Asia - potential competitors for Europe in future Share of Canada in European demand 35% 30% 25% 20% 15% 10% 5% 0% 33% 22% By 2015, US South & Canada should represent 76% of the EU suppliers A sudden change in developments in the US South or Asian demand would push upward the pellet price in Europe, which could lead to: 60% Share of US South in European demand 50% 40% 30% 20% 10% 0% 40% 54% Multi sourcing policy of European utilities Secure 5 years term supply contracts RWE Supply & Trading 01/05/2012 PAGE 15

16 3. Certification: RWE s Green Gold Label Standard RWE Supply & Trading RWE Supply & Trading 01/05/2012 PAGE 16

17 Green Gold Label (GGL) > Green Gold Label is a certificate system for sustainable biomass > GGL covers production, processing, transport, final energy transformation > GGL offers standards for specific parts of the supply chain as well as standards for track and trace > GGL is owned by the independent Green Gold Label Foundation, established by RWE/Essent and Control Union in 2001 RWE Supply & Trading 01/05/2012 PAGE 17

18 GGL process GGL process for solid biomass Who: Raw material supplier External certificates GGL2: Agri GGL5: Wood GGL7: Conservation Who: Power Company GGL6: Raw material source Fuel production Transport Power production Who: Fuel producer/trader Who: Fuel supplier/trader Who: Producer, Trader, Power Company GGL1: Source + Process GGL4: Source + Process + Transport GGL8: Greenhouse Gas Balance RWE Supply & Trading 01/05/2012 PAGE 18

19 Challenges we encounter with certification > Some suppliers have many small raw material suppliers and tracking tracing not always possible to ultimate source > As we continuously add new suppliers, we will always have some suppliers under certification > Certified Sustainable under GGL* Certified Under certification To be certified 80% > For single (spot) cargoes, full certification is relative large effort and counterparty is not always keen to do their share Recent years % certified % 49% 68% 73% 80% * Percentage = tonnes certified / tonnes purchased by Essent in 2010 RWE Supply & Trading 01/05/2012 PAGE 19

20 Sustainability and Certification: Practical application today the role of the auditor Use independent auditors Control Union, SGS or Inspectorate are all used to validate and verify that suppliers are conforming to the required sustainability standards Focus on wood sourcing Assess if the raw material is sustainably cultivated and harvested Compliance with one of the existing forestry or agricultural standards accepted under GGL is obligatory (e.g. FSC, PEFC, CAS-SFM, SFI) Monitor the process Trace the physical flow of product from the forest to sale point (e.g. port) Focus on incoming products, quality, safety and contamination control at the processing facility and outbound logistics Calculate CO2 footprint Calculate the CO2 emissions from each facility to the power station Detailed calculation based on actual fuel and power invoices at each site (including port), confirmed distances and fuel used for all transportation Focus on type of wood used and differentiate between residues and round wood, as in forest emissions are greater for round wood RWE Supply & Trading 01/05/2012 PAGE 20

21 4. Supply and Demand of Wood pellets RWE Supply & Trading RWE Supply & Trading 01/05/2012 PAGE 21

22 Expected world trade flow 2015 From Canada West mt From Canada East mt Total European demand served mt mt From Portugal From the US mt mt From Baltics mt Total Asian demand served mt From Brazil mt From West Africa 2015 <0.1 mt From Australia mt RWE Supply & Trading 01/05/2012 PAGE 22

23 Present State of the Wood pellet Trade > World wood pellet trade is currently driven by European demand Stimulated by adequate subsidy system in UK, The Netherlands, Belgium, Sweden and Denmark > Many biomass power plant projects are expected to develop in The UK and The Netherlands in the coming years but Market participants watching for 2013, as subsidy will be reviewed Security of supply on other biomass types is still an issue > Wood pellets now offer security of supply unlike other types of biomass RWE Supply & Trading 01/05/2012 PAGE 23

24 EUROPE - Demand Environment Expected Wood pellet European demand Millions EUROPE demand will grow ~ 9 Mt by > Demand in 2012 is less than 6 Mil tonnes and yearly growth is above 20%, depending on subsidies > The UK experiences the strongest expected growth between ~ 9 Mtonnes expected RWE Supply & Trading 01/05/2012 PAGE 24

25 FAR EAST Demand Environment > Korea - significant demand potential due to RPS; has to import to meet demand RPS Policy will drive demand in Korea from 2012 onwards Wood pellets likely to represent significant share of total renewable fuels used to reach the target, several million tons of imports in coming years possible Timing of demand not completely clear; RPS policy favours standalone biomass plants over co-firing Sustainable supplies possible from Canada to meet demand > Japan - situation is unclear post tsunami Some end users have already been using wood pellets to co-fire with coal Import volume is still relatively small Japan nuclear policy and renewable policy may be the catalyst to drive demand, once it is clear > Asia - demand will grow quickly if policies support renewable biomass plants of various sizes will be built in China, Korea, Japan, Malaysia, Vietnam etc demand can be met primarily by domestic feedstock supply, which is cheap RWE Supply & Trading 01/05/2012 PAGE 25

26 WORLD - Supply Environment Millions Supply production capacity Russia Australia US Brazil West Africa Europe CA > Supply capacity in the largest sustainable wood baskets will develop significantly over the next 5 years Canada will add more than 2 M tonnes US South: +5 M tonnes New entrant Brazil will add an extra 2 Mt on pellets from the energy crop Eucalyptus Australian/Asian additional supply contribution is unclear (750 Ktons) > The American continent is expected to be the dominant supplier to the European market About ~11 Mt new production capacity is forecasted by 2015 RWE Supply & Trading 01/05/2012 PAGE 26

27 ASIA Immediate Supply Environment Uncertain; > South East Asia Feedstock cost, cost of production and freight relatively low compared to Canada supply Small scale pelletizer plants have been/are being built Potentially large source of feed stocks Sustainability is the key question > China Feedstock and cost of production in China is expected to be relatively low China is building biomass plants fed by local supply Will China become an exporter of cheap pellets? Sustainability? > Australia and New Zealand Developing sustainable supply markets Pricing can be competitive Able to meet sustainability criteria Can they survive the wait for significant demand to surface? RWE Supply & Trading 01/05/2012 PAGE 27

28 5. Impact on The Pellet Trade RWE Supply & Trading RWE Supply & Trading 01/05/2012 PAGE 28

29 IMPACT ON WOODPELLET DEMAND Possible Scenarios Asia: High Demand Low Supply Case (Asia has high demand, Asian supplies small) Asian Demand: Canadian pellets will meet initial Asian demand (secure supply source, certified, sustainable) Price Impact: a) Competition from Asia for Canadian pellets may drive European prices higher in short/mid term b) Korean prices possibly determined by: Europe price netback to Canada plus freight to Japan/Korea Sustainability: Wildcard: No impact on price as supply is small Australia/New Zealand Supply RWE Supply & Trading 01/05/2012 PAGE 29

30 IMPACT ON WOODPELLET DEMAND Possible Scenarios Asia: High Demand High Supply Case (Asia has high demand, Asian supplies plentiful) (Sustainability is not important) Asian Demand: a) Canadian pellets will meet initial Asian demand (short term); could be replaced by cheaper Asian production as it comes on-stream b) Asian buyers will initially have difficulties balancing issues of security of supply from reliable sources, against potential lower cost supplies from Asian producers with little track record Price Impact: a) Competition from Asia may drive European prices higher in the short term only b) Over the mid term Korean prices will ease as more Asian supplies come on to the market c) If low cost Asian supplies exceed demand, Korean price will fall further d) Korean prices possibly determined by: Asian cost + freight Without meeting sustainability criteria, Asian pellets will remain in Asia; Canadian pellets will move to Europe RWE Supply & Trading 01/05/2012 PAGE 30

31 IMPACT ON WOOD PELLET DEMAND Possible Scenarios Asia: High Demand High Supply Case (Asia has high demand, Asian supplies plentiful) (Sustainability is important) Asian Demand: a) Canadian pellets will meet initial Asian demand (short term); will be replaced by cheaper Asian production, but only if certified and sustainable b) Asian buyers will have difficulties balancing issues of security of supply from reliable sustainable sources, against Asian supplies which need to prove sustainability c) There will be a greater reliance on Canadian supplies for a longer time Price Impact: a) Competition from Asian demand will drive European prices higher in short term b) Over the mid term may ease only if sustainable Asian supplies come to the market c) If low cost sustainable Asian supplies exceed demand, European prices will ease d) Price in Korea (and Europe) will be determined by Asian cost + freight If sustainable, Asian pellets will compete for European markets (supplies exceed demand), and may impact prices worldwide RWE Supply & Trading 01/05/2012 PAGE 31

32 Sustainability - Key Messages Sustainability is big in Europe, not big yet in Asia It is inevitable that sustainability becomes important in Asia in time Europe is already studying possibility for Standard pellet trade contracts: Specifications, Terms and Sustainability Many companies in Asia are already aware of their carbon footprint; they have to prepare for certification and sustainability standards when contracting pellets Ignoring sustainability in order to save cost, is primarily morally wrong in our view, but also has big reputational risks as European players found out in the early 2000 s. Public opinion changed within months from: Wow, sustainable energy to Those guys from the power plants are destroying rainforests NGO s play a huge role in public awareness of sustainability, and cannot be ignored either We are happy to share our experiences on the Green Gold Label and Sustainability as Asia embarks on this new path RWE Supply & Trading 01/05/2012 PAGE 32

33 Some Uncertainties may make things interesting! POTENTIAL GAME CHANGERS Policies for Korea have been outlined, but what are the uncertainties in implementation? - Timing? Volumes? Compliance? will tell the story.. What role will biomass play in Japans industry? - Japan s nuclear policy going forwards? - LNG has taken off in a big way. Will biomass be given a larger role or will it be solar next? South East Asia is the logical supply point for Japan/Korea, but only small scale plants built so far - Will investments in large scale plants take place before or after demand appears? - What role will Sustainability play? How much importance attached to sustainability by the regulators and industry? Larger Asian Pellet plants will start being built once demand kicks surfaces: - Such projects need time to reach production - What will the lag be between demand and supply? How will the industry continue develop and progress in Australia and New Zealand and and China? RWE Supply & Trading 01/05/2012 PAGE 33

34 Thank you for your attention! Thank you for your attention! singapore mobile: RWE Supply & Trading 01/05/2012 PAGE 34