Bioenergy commodity pricing: barriers and opportunities

715 views
609 views

Published on

Bioenergy commodity pricing: barriers and opportunities, presented in Bioenergy Trading Conference in Copenhangen. Presentation can be received on request

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
715
On SlideShare
0
From Embeds
0
Number of Embeds
23
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Bioenergy commodity pricing: barriers and opportunities

  1. 1. Organized bioenergy commoditypricing: Barriers andopportunitiesOctober 2011Jinke van Dam ConsultancyAssociate from SQ Consult
  2. 2. Contents1.  About Jinke van Dam Consultancy / SQ Consult2.  Current trends3.  Diversity of the market4.  The subsidy trap5.  Price volatility6.  Need to control upstream business (or not?)7.  Certification and sustainability requirements8.  Opportunities for moving towards an organized global commodity market
  3. 3. 1. SQ Consult / Jinke van Dam Consultancy  Independent Consultant on Sustainable biomass, bioenergy and biobased materials  Associate from SQ Consult   SQ Consult in short   Areas of expertise Our mission is to deliver sustainable quality to our clients. We help them meet the challenges of climate change, sustainability and energy transition by designing solutions which suits their culture and organization.
  4. 4. SQ Consult in short  SQ Consult is an independent consultancy firm specialized in sustainable energy development, climate change and energy transition  We are the strongest and most integrated virtual network in sustainability in Europe; with presence in the United States of America and Latin America  Our experts are recognized at international level, each with more than ten years experience in sustainability and/or energy Country presence: Netherlands, Spain, France, Germany, Switzerland, Italy, Portugal, Denmark, Lithuania, USA, Peru, Chile, Colombia and Costa Rica
  5. 5. Areas of expertise •  Strategy for the development of new energySustainable energies matrices using bioenergy, wind, hydro, solar, etc. •  Sustainability systems for different renewable energy chains •  Mitigation and adaptation policies strategies •  Carbon market mechanisms (EU ETS and other Climate change cap-and-trade systems, CDM, voluntary markets, new market mechanisms – NAMAs, sectoral) •  International climate negotiations (EU, global) •  In industry and built environmentEnergy use •  Policy and strategy for energy saving and •  Rationalization of the use of conventional forms of efficiency energy (including gas and electricity storage)
  6. 6. Contents1.  About Jinke van Dam Consultancy / SQ Consult2.  Current trends3.  Diversity of the market4.  The subsidy trap5.  Price volatility6.  Need to control upstream business (or not?)7.  Certification and sustainability requirements8.  Opportunities for moving towards an organized global commodity market
  7. 7. 2. Current trends:-  Growing value of bioenergy to the worlds energy matrix;-  Global economic crisis;-  Potentially large industry: Forecast December 2010 Pike Research > steady growth investments in next 5 years rising from $28.2 billion annually in 2010 to $33.7 billion by 2016-  Development of sustainability regulations and principles in markets;-  Managing the economics of sustainable production and its verifiable certification is a key need.
  8. 8. Urgent challenges bioenergyindustry:Developing the commercial strength to exist without long-termgovernment incentives, even as demand falters, andConstant and sufficient provision of sustainable feedstock in avolatile, capital-constrained and very risky global marketplace.
  9. 9. 3. Diversity of the market“Common  theme  throughout  the  North  American  Biomass  Pellet  Export  Conference  (September  2011):    “despite  its  rapid  growth  poten,al,  the  pellet  industry  is  s,ll  vola,le  and  unpredictable.  “ This  is  a  tough  business,”  Wood  varies  not  just  by  tree,  he  added,  but  also  by  region  and  species….”  ©  hSp://www.biomassmagazine.com/ar,cles/5787/global-­‐pellet-­‐industry-­‐on-­‐the-­‐rise-­‐sustainability-­‐key       Regional  varia,on  in  markets  (small,  middle,  large)     Regional  or  interna,onal  supply  of  biomass  (logis,cs)     Differences  in  subsidies  and  taxes  
  10. 10. Characteris*cs  of  Europe’s  major  pellet  market  types  (Sikkema  et  al,  2011)   Netherlands               Sweden                       Germany,   Austria                      
  11. 11. Diversity of the marketCIF  prices  of  bulk  pellets  for  large  scale  power  produc,on  in  the  Netherlands,  United  Kingdom  and  for  medium  scale  district  hea,ng  &  CHP  in  Scandinavia   Differences  in  price  se[ngs  (historic   vs.  one  month  ahead),  Due  to   subsidies,  Sweden  can  allow   Higher  pellet  prices  than  Netherlands   ©  Sikkema  et  al,  2011  
  12. 12. Diversity of the marketPrices  of  bulk  pellets  for  residen,al  hea,ng  in  Europe  (incl.  delivery  and  VAT)   Seasonality   Conversion  Swedish   Krona  to  Euro   Rising  prices  raw  material   ©  Sikkema  et  al,  2011  
  13. 13. 4. The subsidy “trap”   Bioenergy  products  live  trapped  in  the  vicious  loop  of  subsidies  and  incen,ves  (and   uncertain,es  in  policies).       On  one  hand,  heavily  imported  subsidized  biofuels  AND  fossil  fuels  destroy  any  compe,,ve   industry  and  inhibit  its  healthy  growth.     On  the  other  hand,  subsidies  are  s,ll  needed  to  overcome  the  economic  costs  from   logis,cal,  distribu,on  and  trade  barriers  while  achieving  at  the  same  ,me  both  mandated   produc,on  and  blend.    Limits  an  even  level-­‐playing  field  of  our  energy   resources;      Hampers  development  compe,,ve  markets  
  14. 14. The subsidy trap Overview  of  ques,onnaire  responses  on   import/export  tariffs  Junginger  M.,  Dam  J.  van,  et  al  (2011)  
  15. 15. 5. Price volatility Many  factors  influencing  the  price  level  of  bioenergy   Conversion   product  and  its  varia,on  (some  of  them  shown)   rates   Weather   Fuel  /  Oil   Climate   price   change   Fer,lizer   price   Price  Bioenergy   (Lack  of)   product   Specula,ons   investment   Demand   And…many  interrela*ons!  (Piesse  et  al,  2009)   Government   policies  
  16. 16. Price volatility Rela,on  between  US-­‐ Euro  rate   Price  premium  longer   term  contracts   ©  Sikkema  et  al,  2011  
  17. 17. Price volatility agricultural commodities Conversion   rates   Weather   Fuel  /  Oil   Climate   price   change   Fer,lizer   price   Price  Bioenergy   (Lack  of)   product   Specula,ons   investment   Demand   Price  food   commodity  (Piesse  et  al,  2009)   Government   policies   Food  prices   See  also  the  sustainability  discussion!!!  
  18. 18. Price volatilityCauses  of  maize  price  increases  since  2004  in  the  US  (B.A.  Babcock,  2011):   Expansion  influenced  by  crude  oil  prices   (high  profitability),  investment  and   market  driven   Other  forces:  weather,   food  demand   Subsidies:  Influence  small  –  s,mulates   expansion,  surplus  on  price  levels   Note:  So@ening  effect  from  crop  price  maize  to  final  retain  (food  price)  
  19. 19. Price volatility The  graph  below  shows  the  clear  correla,on  between  the  price  of  crude  oil  and  the   UN  FFAO  Food  Price  Index.  
  20. 20. Price volatilitySeveral  chains  of  ac,ons  can  be  iden,fied,  all  influencing  the  impact  of  biofuel  produc,on  on  cereal  prices  >  difficult  to  dis,nguish  the  final  price  effect  caused  by  the  ini,al  increase  in  biofuel  produc,on,  (©  H.  Langeveld,  2011)   Transparency  desired!  
  21. 21. 6. Control upstream businessDeterminants  for  backward  integra*on  of  business  (R  Bansal,  2009):      High  Input  Cost  –  Feedstock  >  70%  of  the  total  cost      Hedging  Future  Con,ngencies:  For  companies  with  large  geographical   range,  hedging  the  future  risk  associated  with  availability  and  price  of   feedstock      More  likely  when  the  downstream  firm  such  as  the  biofuel  producer   commits  to  large  investments  in  assets  such  as  refineries.      Backward  integra,on  will  insulate  companies  from  excesses  of  feedstock   supply  due  to  market  forces  of  demand  and  supply.      Ex  Post  Lock-­‐in  -­‐  Firms  integrated  to  avoid  bargaining  problems  arising   from  dependency  with  the  feedstock  suppliers.  
  22. 22. Control upstream business Examples:   Investment  in  large  parcels  of  land  for  low-­‐cost  biomass  supplies   Large  European  u,li,es  invest  in  pellets  facili,es  in  other  con,nents  to  have  control   of  the  full  value  chain  to  keep  their  business  successful:     RWE  AG  started  with  the  construc,on  of  the  world  biggest  plant  for  wood  pellets   in  the  U.S.  state  of  Georgia.       RWE  is  also  inves,ng  in  port  facili,es.     Energy  companies  like  Essent/RWE  have  their  own  trading  unit  within  their   company  examining  origins  of  biomass  and  tes,ng  pellets  for  large  scale  co-­‐firing.    
  23. 23. Control upstream businessAdvantages   Risks  and  disadvantages  Ensures  beSer  control  on  the  supply  chain   Diver,ng  aSen,on  from  key  business  Minimize  the  exposure  to  the  risk  of   By  going  upstream,  energy  companies  also  demand  and  price  fluctua,ons   assume  the  risks  of  dedicated  biomass   suppliers  (e.g.  flooding)  Facilita,ng  faster  decision-­‐making  and   Inaccessibility  of  cheaper  feedstock  in  implementa,on  process.   market  (spot  prices)  Easier  to  implement  process  innova,ons   (R  Bansal,  2009)  
  24. 24. 7. Certification and sustainabilityrequirements  Information required through chain on characteristics and source of origin  Chain of Custody  Independent auditing system  Still many uncertainties…… Administra,ve  burden?   Costs?   Requirements  (future)?  
  25. 25. Uncertainties for biofuels:  Expected ILUC crop factor in Europe for biofuels in next years  Transposition EU-RED to national legislation UK: Renewable Energy Directive (RED) and Fuel Quality Directive (FQD) will be transposed via (currently draft) The Renewable Transport Fuel Obligations (Amendment) Order 2011 FRANCE: RED and FQD transposed on September 16, 2011. The national sustainability system for biofuels and bioliquids will be regulated by a Decree. SPAIN: RED and FQD will be transposed via Royal Decree. This Royal Decree will also establish the principles for the Spanish National Sustainability Verification System. Etc….  Recognition of certification systems ongoing (now 7 recognized on European level, 20 more in submission phase)
  26. 26. Uncertainties for solid biomass:Key results Consultation EC obligatory sustainability criteria for solidbiomass:  Increased reliance on third countries for meeting targets;  New policy developments have influence as FLEG(T), EU Timber Logging Regulation (also Lacey Act in US);  Impacts on (developing) national biomass sustainability schemes; generally considered to be negative on average EU biomass costs;  Majority supports binding sustainability criteria for solid biomass and biogas;  Replies on scope sustainability criteria are mixed
  27. 27. Uncertainties for solid biomass:Ini*a*ve   Target  group   Descrip*on  IWPBI   Large  energy  companies,   Standardiza,on  in  contract,   mainly  in  Northern   quality  and  sustainability   Europe   requirements  EN-­‐PLUS-­‐GREEN   Pellet  producers  and   Standardiza,on  in  quality  and   users  in  Europe   sustainability  requirements      Blue  Angel   Voluntary  label  in   Sustainability  requirements  for   Germany   wood  chips  and  pellets  Green  Gold  Label   Essent/RWE  -­‐  extending   Sustainability  requirements  solid   biomass  DRAX   Own  company   Sustainability  requirements  solid   biomass  Other  standards  as  Laborelec,  FSC,  PEFC,  na,onal  forestry  schemes….  
  28. 28. 8. Moving towards an organized global commoditymarket:Overcoming the subsidy trap….o  A long term, stable political environment is needed for a market to develop instead of short-term, unpredictable subsidies.o  Incentives for de-carbonization should replace subsidieso  Addressing domestic and international barriers instead of subsidies as:   Consolidation of the upstream infrastructure   Financial security agreements   Infrastructure for settlement and clearing services is needed   Harmonization of product requirements
  29. 29. Moving towards an organized global commodity market:Price transparency and tempering volatilityExchange  markets  (under  development)  and  price  indexes   Bioethanol   Biodiesel   Solid  biomass   Chicago  Ethanol  Swap   Rapeseed,  palm  and  soy   APX-­‐Endex,  Bal,c  Wood   Futures   biodiesel  Swap  Futures   pellet  price  index,  FOEX   (RME  and  FAME  Argus   biodiesel  FOB   RoSerdam)   Subject  to  the  rules  and   Subject  to  the  rules  and   APX-­‐ENDEX,  the  Anglo-­‐ regula,ons  of  the  New   regula,ons  of  the  New   Dutch  energy  exchange;   York  Mercan,le   York  Mercan,le   Bal,c  based  on  exports   Exchange  (NYMEX)   Exchange  (NYMEX)   from  RIGA;  FOEX  for   Nordic  countries  
  30. 30. All  ENDEX  Wood  Pellets  seSlement  prices  are  based  on  delivery  CIF  RoSerdam    Product  specifica,ons  establish  possibility  to  prove  sustainable  produc,on  with  labels  or  cer,ficates.  
  31. 31. Moving towards an organized global commodity market:Integration of certification   Requires  standardiza,on  of  quality  and  sustainability  requirements:   THIS  IS  KEY!     The  obliga,on  of  providing  all  needed  cer,fica,on  is  passed  on   mostly  through  the  feedstock  traders  /  exchange  market  who  can   take  on  them  as  sanitary  or  quality  cer,fica,ons.    Facilita,on  in  administra,on:  Informa,on  pathways  to  be  developed   in  the  biofuel  companies  are  less  complicated  
  32. 32. Moving towards an organized global commodity market:Facilitating trade and volumes   Takes  over  upstream  risks;       Energy  companies  deal  directly  with  a  trader       Constant  supply  feedstock  without  many   complica,ons     BeSer  security  of  price.   ROLE  OF  TRADER  /     Exchange  market  
  33. 33. “Common  theme  throughout  the  North  American  Biomass  Pellet  Export  Conference  (September  2011):    “despite  its  rapid  growth  poten,al,  the  pellet  industry  is  s,ll  vola,le  and  unpredictable.  “ This  is  a  tough  business,”  Wood  varies  not  just  by  tree,  he  added,  but  also  by  region  and  species….”   ©  hSp://www.biomassmagazine.com/ar,cles/5787/global-­‐pellet-­‐industry-­‐on-­‐the-­‐rise-­‐sustainability-­‐key     Moving towards an organized global commodity market: “We  are  in  the  right  *me  for  market  future  exchanges,  brokers,  traders   and  key  users  to  come  together  and  make  the  first  steps  in  organizing   the  rules  for  such  market  and  infrastructure,  and  for  puUng  the   needed  pressure  on  the  demand  side  to  accelerate  the  transi*on”.   NewsleSer  SQ  Consult  “Roadmap  to  an  organized  global  commodity  market  of   bioenergy  carriers”  
  34. 34. THANK YOU!More information: Jinke van Dam Consultancy Bunnik, the Netherlands E: jinke@jvdconsultancy.com / j.vandam@sqconsult.com Skype: jinkevandam Associate from SQ Consult

×