How to address a scattered market? The case of Italy

How to address a scattered market? The case of Italy Bruxelles, 13 TH MAY 2014 Annalisa Paniz

Contents Who is AIEL? Is the ENplus certification supported by the Italian companies? What is the Pellet market situation? What is the heating market in Italy? What are the current Pellet support schemes?

The main Italian association of Wood Energy Chain WHO IS AIEL?

AIEL: Structure and organisation Wood Energy Chain Association (300 members) Representing the companies interests from Forestry to chimney

Who are our 300 members? 150 companies (Plants Designers, Installers, Farms, Mechanic industries, banks, ESCo, etc) 100 companies involved into the Working Groups: Biomass Producers, Pellets Producers and Traders, Small scale heating appliances' producers, Biomass Boilers producers, mini CHP producers, Biogas plants producers, etc) 50 public and private bodies (Research Institutes, Universities, Municipalities, Provinces (Landers), Energy agencies, Embassies, Foundations, etc)

HOW IS THE SITUATION OF ENPLUS IN ITALY?

EN PLUS CERTIFIED PELLET AT GLOBAL LEVEL 2013: 10 Million tons of pellets were used in Europe for heating purposes Germany 2013 105 producers in Europa, Canada and USA 2013: ALMOST 4 MILLION TONS OF PELLET WERE ENPLUS CERTIFIED ALL OVER THE WORD

How will develop ENplus in Italy? After Germany and Austria, Italy was the third EU country where the ENplus certification was implemented. 200.000 tons produced 600.000 tons traded 8.000 tons deliverided with autotank In less than 3 years the certification is becoming even more a point of reference

Geminati Pierino IT011

For now we are the only Association who is doing so

For now we are the only Association who is doing so

The biggest European Market for domestic use THE ITALIAN PELLET MARKET

Development of global pellet production

Development of global pellet production In 2013 for the first time in Europe the consumption for heating purposes has overtaken the consumption for the electricity power generation. 10 Million tons of pellets were consumed for heating purposes and 9 Million tons for power generation. Rakos, ARGUS Conference

How big is the Italian consumption? Italy: the biggest European pellet market TOTAL CONSUMPTION 2013 3,2 MILLIONS TON The domestic consumption represents 96%

How many plants are installed? Big plants: At least 20 (> 1MW) Boilers 2.500 (35 kw 1 MW) 1-2 GW Stoves and inserts: 1,9 Million (21% second house) 15,2 GW Boilers 200.000 (up to 35 kw) 5 GW

Over 3,5 Million tons in 2015 Annual growth 200-300.000 tons

Some Market Considerations Around 15% of the total biomass domestic installations (around 10,6 millions of heating systems) are fed with pellets Bagged pellet represents slightly less the total consumption. A significant high number of boilers are still fed with bagged pellets Bulk pellet transported with silo trucks is no more than 20.000 t The expected increase of this market sector is higher than the average growth of pellet market thanks to the increase of pellet boilers trade The market is fragmented: it is possible to buy pellets in every single shop, from mini market to Great dealers, from hardware store to hobby centres. According to the heating market growth expectations and the National Renewable Energy Action Plan statement, the use of pellets will reach 3,5 Mt in 2015 and 5 Mt in 2020

Selling of biomass boilers Number of boilers 2013: over 22.000 boilers were sold, more than double compared with 2009 Pellet boilers are the market driver. In 2013, 4 times compared to 2009 ASSEMBLEA GCMB VERONA 5 dicembre 2013

Selling of pellet boilers In 2013 were sold over 13.000 pellet boilers, mainly (95%) with a nominal heating output of 35 kw (vs. 3.600 boilers of 2009) 2009-2013 Trend ( ) +268% Total number: 39.000 Total power: 1.160 MW +47% ASSEMBLEA GCMB VERONA 5 dicembre 2013

What kind of boilers were substituted with new biomass boilers installed in 2012? 6.500 Biomass boilers were installed in substitution of existing boilers in single heating plants Data source: REF-E. Elab. AIEL (2014)

What kind of boilers were substituted with new biomass boilers installed in 2012? 1.900 Biomass boilers were installed in substitution of existing boilers in centralized heating prlants

Selling of biomass stoves In 2012 were sold around 330.000 biomass stoves, inserts, roomheaters, cookers, etc 190.000 were pellets heating appliances

THE HEATING SECTOR IN ITALY. A BIG POTENTIALITY FOR BIOMASS

Stock of Single Heating systems installed in 2011 Data source: Istat, elab REF-E 2013 560.000 heating oil boilers 13.900.000 natural gas boilers 1.562.000 LPG boilers

Stock of Centralized Heating systems installed in 2011 Data source: Istat, elab REF-E 2013 124.000 heating oil boilers 467.200 natural gas boilers 38.000 LPG boilers

Installation of single heating system in existing buildings for producing the 100% of the requested heat Data source: REF-E (2014) Heating oil and LPG are installed when there is no natural gas grid Biomass stoves and boilers are installed also in case of natural gas grid

ITALY: AN IMPORT ORIENTED COUNTRY

Production and Consumption: an opposite trend kt Eurostat production 2012 750.000 t IMPORT 2014: + 200.000 t (?) Elab. AIEL su dati GAD, GCMB; GPDPENplus

Italy is an Import oriented country Pellets importation is growing every year. Italian suppliers are more than 40, but only 10-12 of them represent 90% of the total amount. The remaining countries can be considered spot suppliers ; their relevance to the whole supply is very low and unstable. Eurostat. Elab. L. Baù - AIEL

Italy is an Import oriented country Importation flows are very relevant in the Italian pellet market, representing over 80% of total supply. They compensate the reduction of production and allow the national supply to satisfy the increasing national demand. Security of supply will become the main challenge in the close future. How are importation flows developing?

In 2013 starts A NEW ORGANISATION OF THE ITALIAN PELLET MARKET

What are the main changes? Commercial partners (importation flows) Logistic of supply (harbours) Bulk pellets imported oversea by vessel is increased and the number of international companies operating in our country is growing as well. More than a few Italian harbours (e.g. Napoli, Gaeta, Livorno, Civitavecchia, Savona, Ravenna) are currently equipped with fines removers and bagging facilities At least 600.000 tons are expected to arrive by vessel in 2014 The distribution chain (too fragmentised), stronger role of Department stores (+150% compared to 2012) Pellet prices

Import in 2013: some considerations ITALY DEPENDS STRONGLY FROM THE IMPORTATIONS The export availability of the consolidated suppliers is lower compared with the previous years, due to the increase of internal consumption AUSTRIA, CROAZIA, SLOVENIA, AUSTRIA 2012 2013 Production 893.000 t 935.000 t Internal Consumption 785.000 t 900.000 t Difference 108.000 t 35.000 t Fonte: EPC 2013

Million of tons The USA pellet production for export will increase in the coming years Pellet production in Canada and USA Seth Walker RISI - June 2012 Wood pellet exports from North America to Europe have doubled in two years to reach 4.7 million tons in 2013 with the US South accounting for 63% of the volume Wood Resources International LLC

USA 2012 2013 Production 4.100.000 t 4.800.000 t Internal consumption The production capacity of USA Some USA pellet production sites are entirely destined to the Italian market / to the export to Italy 2.200.000 t 2.300.000 t Difference 1.900.000 t 2.500.000 t Source: EPC 2013 But PFI estimates that the real domestic consumption of pellet for heating purposes in 2013 has reached 3 Million tons

WOOD PELLET COMPETITIVE POSITION

The importance of the heating costs Heating represents an important cost element for Italian families. In order to maintain a competitive position in the heating market, pellets has to be both a cheap and effective choice. It means that the market expectations are: Pellets price advantage compared to fossil-based fuel (in particular the ones that are mainly used for the residential heating) Optimizing heating devices performance by using high quality wood pellets

Primary Energy Cost Pellets vs other heating fuels VAT and taxes included, delivery included /MWh The cost advantage is decreasing January, 2014 April 2014: the price of certified pellets in bulk is higher than the pellet in small bags. How the Ukraine crisis will act on natural gas price?

Pellet price comparison. Italy vs. other EU countries Bulk pellets by trucks ( /t, delivery included, VAT excluded) Source: EPC 2013 How is the pellet price developing? December, 2013

Pellet price comparison. Italy vs. other EU countries 15 kg pellet bags ( /t, wholesale, VAT excluded) Source: EPC 2013 What is the maximum level of price that can attract the end consumers?

THE CURRENT PELLET SUPPORT SCHEMES

Some Preliminary information There is no specific support scheme specifically for pellets. The support of using pellet is included in other general systems Pellet is supported trough two different schemes 1. 2. Tax deduction. The deduction is allowed in 10 years for the 50% of expenses incurred for buying and installing a pellet stove. This support is included into the Ristrutturazione edilizia Feed-in-tariffs for heating and cooling, known as Conto termico is a scheme of support for small-scale projects of energy efficiency improvement and production of thermal energy from Renewables. The decree allocates every year 700 million for projects implemented by private parties

Feed-in-tariffs Conto termico : short overview This Feed-in-Tariffs, came into force on 3 January 2013 and implemented the Legislative Decree no. 28 /2011 which is the Italian application of the EU Directive RED 28/2009 Eligible projects concern Replacement of heating systems fed with heating oil, coke or biomass (NO NATURAL GAS) with new renewable-energy systems biomass boilers or local space heaters. In some cases is possible replacing also LPG heating systems What kind of biomass is allowed? Wood pellets certified in accordance with EN 14961-2 Wood chips (in accordance with EN 14961-4) Wood logs (in accordance with EN 14961-5) Other not chemically treated biomass (in accordance with Dlgs 152/06)

Eligible parties are public administrations Feed-in-tariffs Conto termico : short overview private parties: individuals, apartment block owners and parties with business or agricultural income Minimum requirements for heating systems Certified in accordance with PPBT mg/nm 3 (13% O 2 ) CO g/nm 3 (13% O 2 ) Performance % Pellet stoves EN 14785 40 0,25 > 85 Pellet boilers EN 303-5 Class 5 30 0,25 > 87 + logpn

Feed-in-tariffs Conto termico : short overview The incentive is based on Nominal power (kw) Supposed using hours (based on Climatic zones) Coefficient of incentives (C i ) Level of emissions (Different coefficients of performance C e 1 1,2 1,5) The incentive will be paid yearly in 2 years for stoves and 5 years for boilers.

Examples for pellet stoves (< 35 kw)

Examples for pellet boilers (< 35 kw)

CONCLUSIONS

Conclusions Italy is the biggest European Market for the domestic use of pellets Italy is depending strongly from the importation The market logistics and organisation are changing and in the close future North America will become the major supplier Security of supply and stability of prices are the main challenges for the future

THANKS! paniz.aiel@cia.it www.aiel.cia.it