South Korea’s 2021 imported wood pellet demand may remain stable from last year at 3mn t as the container shortage issue will not be resolved soon and the government continues to support the use of unused woody biomass, according to the country’s national institute of forest science (NIFoS).
There have been difficulties arranging shipments from Vietnam, a major wood pellet supplier in Asia-Pacific, to South Korea since November 2020. China’s economic recovery, the slow return of empty containers from the US and Europe to Asia-Pacific amid the Covid-19 pandemic and a diversion of many containers for shipping medical supplies have all contributed to the container shortage issue. Shipment delays have been reported and the container shortage issue will not be resolved quickly, Soomin Lee, a forestry research scientist at NIFoS.
Higher freight rates as a result of tight container availability, which translates to higher prices for state-owned utilities and independent power plants, may lower demand for imported wood pellets, Lee said. The fob Vietnam wood pellet spot price at $97.50/t and the cfr Gwangyang spot price is at $116.06/t on 27 January, leaving the spread at $18.56/t, an almost fivefold increase from a spread of just $3.94/t on 4 November 2020.
South Korea will also have more capacity to produce unused woody biomass, which is domestic woody forest biomass that will otherwise not be used in any industrial function in the country. Lee estimates that the country will add 300,000 t/yr of capacity to produce unused woody biomass this year, taking its total capacity to 700,000 t/yr.
Prices for unused woody biomass sought through 2019-20 tenders from state-owned utilities were stable at around 350,000 South Korean won/t ($313.44/t) on a delivered duty paid (ddp) basis, compared with the winning price for imported wood pellets at around the mid-$130s/t on a ddp basis in Korea Southern Power’s (Kospo) tender on 25 January.
But the amount of renewable energy credits (RECs) that state-owned utilities can earn from co-firing with unused woody biomass is 1.5 REC/MWh, three times higher than the amount of RECs that utilities can earn from co-firing with imported wood pellets. This makes co-firing with imported wood pellets less competitive, and Lee expects state-owned utilities to use more unused woody biomass this year.
The South Korean government plans to also revise the REC incentive scheme this year, which can affect the country’s demand for imported wood pellets, Lee said. The REC incentive scheme is revised every three years. The last time South Korea revised the scheme was in 2018. The exact revision schedule for this year has not been disclosed.
But the import demand projection is conservative, and it is possible that South Korea will import more than 3mn t of wood pellets in 2021. This is because South Korea’s renewable portfolio standard obligation, which power plants with capacity of over 500MW must meet, rose to 9pc this year from 7pc in 2020, and there may also be additional demand from new biomass-fired power plants that started operations last year, Lee said.
South Korea’s 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.
Independent power producer (IPP) GS EPS started commercial operations at its 105MW biomass-fired power plant Dangjin No.2 in December. Fellow IPP CGN Daesan Power is testing operations at its 109MW biomass-fired power plant in Daesan after receiving its first cargo from Canadian wood pellet producer Pinnacle in August under a long-term contract.
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