South Korea's total demand for imported wood pellets should expand next year with two new independent biomass-fired power plants starting operations at the end of this year.
The country's imported wood pellet demand could increase by up to 3.7mn t in 2021 compared with an expected 3mn t this year. Independent power producer (IPP) GS EPS is expected to start commercial operations at its 105MW biomass-fired power plant Dangjin No.2 in December, while fellow IPP CGN Daesan Power is also expected to start commercial operations at its 109MW biomass-fired power plant by the end of this year, South Korean conglomerate Samsung C&T's senior professional Ted Kim told the Argus Biomass Live — Virtual Conference 2020.
GS EPS started a test run of its Dangjin No.2 biomass power plant in August. The plant is expected to consume 300,000 t/yr of imported wood pellets and 200,000 t/yr of domestic wood chips once it starts commercial operations.
CGN Daesan received its first cargo from Canadian wood pellet producer Pinnacle in August under its long-term contract for testing at its 109MW biomass-fired power plant in Daesan. CGN Daesan's plant is expected to consume around 500,000 t/yr of wood pellets once it starts commercial operations by the end of this year.
Combined IPP demand grows
Combined demand for imported wood pellets for co-firing from power plants Gunjang Energy, Hanwha Energy and OCI SE, along with dedicated plants — such as newbuilds GS EPS's Dangjin No.2 and CGN Daesan — will reach 2.08mn t in 2021, according to Kim.
South Korean state-controlled utility Korea South East Power (Koen) started commissioning its 200MW Yeongdong No.2 unit in August, which has been converted to a 100pc dedicated biomass power plant. This project followed the conversion of Koen's 175MW Yeongdong No.1 unit to 100pc biomass in 2017.
Koen is currently accepting bid applications for a tender seeking 250,000t of imported wood pellets for delivery over 1 December 2020-30 April 2021 for the Yeongdong No.1 and No.2 units. The closing date for bid applications is tomorrow.
Combined demand for imported wood pellets from state-controlled utilities Koen, Korea Southern Power and Korea Western Power could be around 1.62mn t in 2021, Kim predicted.
EWP, Komipo change strategy
But South Korea's overall increase in demand for imported wood pellets will be offset by a significant drop in demand from state-owned utilities East West Power (EWP) and Korea Midland Power (Komipo), which are switching to 100pc unused woody biomass consumption.
EWP decided not to use imported wood pellets from the second half of this year, Kim said. EWP issued tenders for a combined 60,000t of imported wood pellets and 34,000t of domestic unused woody biomass last year, while it has issued tenders for a total 51,000t of unused woody biomass so far this year.
Komipo plans not to use imported wood pellets from next year, he said. Komipo issued a tender in September for 33,000t of domestic unused woody biomass for delivery from a mutually negotiated date with the seller until February 2021.
Demand for unused woody biomass from state-owned utilities has grown since South Korea's ministry of trade, industry and energy lowered the amount of renewable energy credits (RECs) that state-owned utilities can earn by co-firing with wood pellets from 1 REC/MWh to 0.5 REC/MWh from July.
Unused woody biomass is domestic woody forest biomass that will otherwise not be used in any industrial function in South Korea. Raw materials that can be used in unused woody biomass include by-products of harvesting, tree renewal and logging from mountains and forests, by-products from pest control such as the removal of pest-infected trees, by-products from pruning for tree management and by-products that cannot be used for wood production because they have been damaged by forest fires, according to the Korea forest service. Kim forecast that the unused woody biomass market could grow to as much as 1mn t in the future.
It is possible to see more policy changes about biomass use in the future that might render demand for imported wood pellets even more volatile, Kim added.
Low REC, SMP prices
The recent lower electricity prices and REC spot prices in South Korea are also likely to be another factor in reducing the country's imported wood pellet demand.
South Korea's electricity price, known as the system marginal price (SMP), fell as a result of the Covid-19 pandemic and reduced the profitability of selling electricity, undermining demand for imported wood pellets from state-owned utilities and IPPs.
The average SMP price for September was 55.94 Korean won per kWh ($0.05/kWh), 30pc lower than last year's September average SMP price at W79.64/kWh, according to Korea power exchange data.
South Korean REC spot prices have remained weak so far this year, affecting IPP wood pellet demand. The average price of REC spot prices for September was W45,422/REC, 21pc lower from W57,229/REC on the average price of September 2019, according to Korea power exchange data.
South Korean IPP spot demand for imported wood pellets is largely driven by SMP and REC prices. But Kim does not expect an increase in IPPs' demand for imported wood pellets from current operating co-fired plants in the near future because of persistent lower prices for SMP and RECs.
