Fabian Schipfer

Commoditization of Biomass Markets

Abstract Commodities are intermediate goods available in standardized qualities that are traded on competitive and liquid international markets. In this chapter, we analyze the current status and trajectories in biomass markets to discern to what extent solid biomass fuels are becoming commoditized. We present five criteria that are key indicators in the process towards commoditization and market maturity. These indicators are then used as a framework to understand biomass market developments, with particular focus on wood pellet markets, and identify current obstacles to market maturity. We continuously draw comparisons with developments in fossil fuel markets with the dramatic developments in crude oil markets from the late 1960s to the mid-1980s used as a key example. In both the crude oil example and in the wood pellet discussion, the successful establishment of a futures contract is seen as a litmus test of the commoditization process. We find several similarities between historical and current fossil fuel markets and wood pellet markets in the reliance of vertical integration as a risk management tool and in how rigid fuel quality standards are perceived as obstacles to market liquidity. However, biomass markets also have particular characteristics that are not present in fossil fuel markets, especially the need for sustainability and traceability in supply chains. These are essential features of biomass fuels since their attractiveness to a very high degree relies on their being superior to fossil fuels in terms of lifecycle environmental performance. However, they do make the process of commoditization more difficult. For future discussions on biomass market developments, the tension here must be addressed.

Biomass Supply and Trade Opportunities of Preprocessed Biomass for Power Generation

International trade of solid biomass is expected to increase significantly given the global distribution of biomass resources and anticipated expansion of bioenergy deployment in key global power markets. Given the unique characteristics of biomass, its long-distance trade requires optimized logistics to facilitate competitive delivery value chains. Preprocessing biomass via pelletizing, torrefaction, and hydrothermal carbonization potentially improves bioenergy supply economics as illustrated by two case studies in this chapter. The case studies presented in this chapter compare woody and herbaceous biomass value chains and demonstrate that it is feasible and desirable in current conditions to establish large-scale conversion plants close to mature electricity markets and source preprocessed biomass from the international market. In the short term, conventional pellets are expected to play an important role as the internationally traded solid biomass commodity and feedstock in biopower production. In the near future, torrefied pellets may become the dominant and preferred internationally traded solid biomass commodity as the technology is commercialized. Hydrothermal carbonization technology is also still under development, but has the potential to unlock additional feedstock from wet biomass streams. Successful deployment of these technologies is expected to improve bioenergy supply chains in terms of costs and greenhouse gas impacts. Local bioenergy markets are also expected to develop, and provide localized opportunities for local biomass production and use. Utilization of herbaceous biomass and agricultural residues for power production is a promising option, but its application in cofiring is yet to be proven on a wide commercial scale. The analysis of agricultural residue mobilization in South Africa demonstrates that preprocessing also plays a major role in improving biomass delivery costs and subsequent electricity generation costs in local markets.