FIT and Biomass Demand in Japan

November 28
th
, 2012
Hidetoshi Iguchi
Bio Energy Business Team
Mitsubishi Corporation
2012 CanBio Annual Conference
I. Target of Biomass Electricity and Heat
- how much biomass demand we can expect under government policy?
II. Current movement of Law and Policy in Japan
III. Feed in Tariff for Biomass Electricity
- background and outlook of Feed in Tariff system in Japan
IV. Political Support for Biomass Electricity
V. FAQ about FIT
- who will be a primary buyer of biomass under FIT?
VI. Biomass availability in Japan
- do we need to import biomass from overseas to meet government target?
VII. Rough economics of biomass power plant
VIII. Project Timeline
IX. Biomass demand growth under FIT and the future
- how quickly will biomass demand increase?
Quick overview:
Proprietary & Confidential 3
Introduction
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2005 2020 2030 2050
Biomass Power Generation 4,620 8,600 9,070 10,020
- Conventional biomass 2,040 5,860 6,330 7,280
- Black liquor, const. waste 2,580 2,740 2,740 2,740
Biomass Heat 4,700 8,870 9,370 25,870
- Conventional biomass 0 2,000 2,500 19,000
- Other biomass 1,420 2,580 2,580 2,580
- Waste materials 1,140 2,010 2,010 2,010
- Black liquor, const. waste 2,140 2,280 2,280 2,280
0
5,000
10,000
15,000
20,000
25,000
30,000
2005 2020 2030 2050
Biomass Power
Biomass Heat
Oil Equivalent (,000KL)
Oil Equivalent (,000KL)
Target of Biomass Electricity and Heat
Biomass Power Generation 4,584 13,167 14,224 16,358
Biomass Heat 0 4,494 5,618 42,693
Total 4,584 17,661 19,842 59,128
Rough Conversion of Conventional
biomass volume to pellet ton
Pellet ton (,000MT)
No obligation or law for biomass heat as of 2012.
Some subsidy system available for small projects.
Target of Biomass Electricity and Heat
2009 : Ministry of Economy, Trade and Industry
+ 13 million pellet ton
+ 8.6 million pellet ton without biomass heat
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Current movement of Law and Policy in Japan
2003 RPS Law
- Obligate utilities to use Renewable Energy
2009 Law of Advancing the Energy Supply System
- Increase non-fossil-fuel energy utilization to 50% , including nuclear power
2010 Review of Energy & Resources Policy (Jun/18, 2010 Cabinet Approval Obtained)
- Energy independence ratio from 38% to 70%
- Zero-emission power source (nuclear and renewable energy) ratio from 34% to 70% by 2030
- 10% renewable energy by 2020
- New energy supply shall be constituted of domestic supply and import
- Coal is necessary for stable and economical supply of energy and for stabilizing the grid.
- Promote biomass co-firing
2011 The Japanese government had to review its Energy policy since Fukushima nuclear incident
2012 Feed In Tariff Scheme for Renewable Energy
(20XX government support for biomass heat ?? )
(Apr.~Mar)
2007 2008 2009 2010 2011 2012* 2013 2014
GWh 8,670 9,270 10,380 12,430 12,820 3,205 ? ?
* 2012 Apr. Jun., RPS target for 2013 onward is under review.
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FIT in Japan
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Back Ground
Since the introduction of RPS system in 2003, electric power supply by renewable energy has doubled
Ever since the surplus electricity purchase system (FIT) for residential PV was introduced in 2009, the installation capacity
has largely increased from 2.14million kWh in 2008 to 4.91 million kWh in 2011.
New FIT system is expected to contribute for increasing renewable energy.
FIT for Biomass
(1) Tariff per kWh : 13 ~ 32/kWh (about USc16 ~ USc40/kWh) depending on the feedstock
(2) Duration : 20 years
(3) Long-term energy supply-demand outlook (maximum case)
- Targeting installed capacity of approx. 2.17 million kW by 2020
(4) Issues
- Competitiveness in terms of material utilization etc.
- Stable supply of raw materials for massive installation
(5) Notes
- RPS for general electric utility companies
(*)
are to remain after FIT, which is currently under review
- Co-firing at existing coal power plant can also apply FIT
- Dedicated biomass power plant which has been subsidized by government can also apply FIT
- Wood pellet will be categorized as general wood material (24/kWh)
Feed in Tariff for Biomass Electricity
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Unutilized Wood
(1)
General Wood
Waste materials
(2)
Sewage sludge
Recycled Wood
Cost
Installation Cost 410,000/kW 410,000/kW 310,000/kW 350,000/kW
Operation and Maintenance 27,000/kW 27,000/kW 22,000/kW 27,000/kW
Expected IRR (before tax) 8% 4% 4% 4%
FiT (/kWh) 32 24 17 13
(US$/kWh) 0.4 0.3 0.21 0.16
20 years
Recycled
Wood
Sewage
Waste
Materials
General
Wood
(incl. PKS,
imported
wood chip)
Unutilized
Wood
13/kWh 17/kWh 32/kWh 24/kWh
C
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Tariff (/kWh)
10 20 30
Feed in Tariff for renewable energy (biomass)
(1) Forest residue, Timber from forest thinning etc.
(2) Excluding wood wastes
(3) Pricing Committee set up with the experts from the public sector has contributed significantly in the enforcement of the FIT system.
The Committee has prepared a draft in April, then the government called public comments for two months.
METI (Ministry of Economy, Trade and Industry)
Diversification of energy mix
Increase energy independence ratio
Promote renewable energy as non-fossil fuel
MAFF (Ministry of Agriculture, Forestry and Fisheries)
Vitalize domestic forest industry
Create new job, especially in Tohoku rural areas
(stop depopulation from agriculture)
MOE (Ministry of Environment)
CO2 reduction
Recycle, utilization and management of disaster
waste in Tohoku
MLIT (Ministry of Land, Infrastructure,
Transport and Tourism)
Recovery and Rehabilitation of Tohoku area.
Utilization of Sewage sludge
Biomass Energy has a potential to create
new industry, job and value, especially
in Tohoku area
9
Energy Security
Creation of new
industry/employment
MOE
Ministry of the
Environment
METI
Ministry of Economy,
Trade and Industry
MLIT
Ministry of Land,
Infrastructure,
Transport and Tourism
Vitalize domestic
forest industry
Development of rural
economy
CO2 reduction
Recycle/management
of disaster waste in
Tohoku
Biomass
Energy
Industry
Legislation
Support
Forestry
Management
Environmental
Assessment
Political Support for Biomass Energy
Proprietary & Confidential
MAFF
Ministry of Agriculture,
Forestry and Fisheries
Recovery/Rehabilitation
of Tohoku
Utilization of Sewage
sludge.
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1. Obligation of General Electric Utility companies (major utility companies)
Unlike the RPS scheme, General Electric Utility is not obligated to generate renewable power under FIT but obligated to
buy all the renewable electricity generated by wholesale electric utilities, IPPs and other power producers.
2. Co-Firing
Co-Firing with fossil fuel is included in FIT system, to be calculated based on calorific value.
3. Existing biomass power plants
Existing biomass power plant, regardless dedicated or co-firing,will be able to apply FIT.
- if it has already been granted subsidy from federal and/or local government, FIT rate will be adjusted.
- if it sells renewable power for General Electric Utilities under RPS scheme, it shall apply switching the facility to FIT
(subject to general electric utilities acceptance and government approval)
4. Foreign biomass
Foreign woody biomass (except recycled wood) to be categorized into general wood biomass, regardless it is unutilized
material or not.
5. Sustainability
All the biomass users shall prove the sustainability of biomass, with third parties certificate.
6. Duration of tariff rate
20 years. But the indicated tariff will only be valid for the projects applied by the end of Mar 31
st
2013. (METI will review the
tariff table every year)
FAQ about FIT
As shown in the chart below, available domestic biomass for direct-burning is estimated around 14.6 million dry-ton.
While considering the difficulties/economics to collect those biomass, we estimate the actual available volume would be 4.2
million dry ton, or 4.6 million pellet ton.
If biomass demand will increase as targeted in Slide 4 (another 13.1 million pellet-ton) by 2020, we can expect to import 8.5
million pellet ton of foreign biomass in this scenario.
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Biomass Availability in Japan
0 10,000 20,000 30,000
Sewage Sludge
Food Waste
Livestock Manure
Black Liquor
Sawmill Residue
Construction Waste
Agricultural Residue
Paper
Forest Residue
(,000 dry ton
Available
Utilized
Available To be utilized
Forest Residue 8,000 2,400
Paper 4,860 1,215
Agricultural Residue 1,785 595
Total 14,645 4,210
4.2million dry ton of domestic biomass (4.6million
pellet ton of biomass) can be utilized.
Another 13.1 million pellet ton of biomass to be
required to meet Japanese government target by 2020.
i.e. 8.5million pellet ton of biomass to be imported.
B
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(,000 dry ton)
Domestic Biomass Availability
Based on the premises provided by the Pricing Committee, in order to expect 10% IRR, theoretical pellet price (CIF Japan)
would be around $175/ton when FIT is 24/kWh for imported biomass pellet.
Premises
(Revenue is only from the electricity sales)
Capacity Factor 90%
Generation Efficiency 35%
Plant Cost 410,000/kW
O&M 27,000/kWh
Debt ratio 70%
/US$ 80/US$
Project period 10years
Rough Economics 0%
2%
4%
6%
8%
10%
12%
14%
1
5
0
1
6
0
1
7
0
1
8
0
1
9
0
2
0
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0
2
2
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3
0
2
4
0
2
5
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2
6
0
2
7
0
Dedicated Biomass Power Plant
(Project IRR)
IRR (FiT \24/kWh)
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Pellet Price US$/MT CIF
Rough Economics / Biomass dedicated power plant
Pellet (CIF $/ton) 175 195 215
IRR 10% 8% 6%
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Project Timeline
Planning Phase
Government approval
Contracts
Construction Phase
Commissioning
Start Operation
Location, Equipment, Grid Connection
Environmental Assessment
Projection, Due Diligence
PPA, Grid connection etc.
Construction
Order Equipment
Funding
Lead time
Small/medium hydro 2-3 years
Geothermal 9-13 years
Wind 4-5 years
Off-shore wind n/a
Biomass (Dedicated 3-4 years
Biomass (Co-firing 1.5 years
Solar PV (residential) 2-3 months
Solar PV (industrial) 1 year
Lead-time General model of renewable energy development6
National Policy Unit, Cabinet Secretariat, 2012
Biomass power generation would require 1.5 to 4 years
lead-time to start up the project.
Current
Most of the Biomass electricity comes from RPS obligation
and in-house power
Short Term
RPS power to be replaced by FIT
Excess power supply from in-house generator will be
sold to grid under FIT
IPPs will start co-firing of biomass to enjoy FIT
Mid Term
Newly developed biomass project will start operation
Long Term
More biomass power will be developed by IPPs both
co-firing and dedicated
Biomass heat to be developed with economically,
or by new policies.
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Biomass demand growth under FIT and the future
Mid term Long term
B
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E
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Short term Current
RPS biomass
In-house power
New biomass (FIT)
Biomass heat
Replacement of RPS and In-house power for FIT
Rough Image of biomass demand growth
(excluding black liquor, waste materials)
FIT for Biomass
The tariff for biomass is reasonable to encourage biomass power generation in Japan.
If the tariff rate is to be reviewed and lowered in the future, the biomass power generation is to be slowed down.
Demand
We are expecting, at least additional 8 million pellet tons of biomass demand by 2020, 4 million pellet tons from domestic
and 4 million tons from overseas.
Domestic biomass utilization is the first priority.
Various biomass will be imported not only by pellet but by other biomass such as PKS or wood chips.
Potential Customers
Existing biomass power plants (both dedicated / co-firing) in short term
Newly developed biomass power plants under FIT (more co-firing at IPP)
Biomass heat in the future, subject to new program
Dedicated biomass power plants would be designed using domestic biomass
More pellet demand will be expected in co-firing at coal power plants
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Conclusions and Issues
Contacts;
For more information, please feel free to contact;
Hidetoshi IGUCHI
Manager, Bioenergy Business Team,
Mitsubishi Corporation
Email; hidetoshi.iguchi@mitsubishicorp.com
Phone; +81-3-3210-7446
Fax; +81-3-3210-8041
Proprietary & Confidential 16
Thank you for listening to this presentation
Mitsubishi Biomass Pellet Business Outlook;
Trading
200,000MT of pellet in EU and Asia
Investment
, Japan)
Founded in : 2007
Capacity : Over 15,000t/y
Activities : Production & sales of Pellets
Feedstock : 100% Cedar bark
Invested in : 2008
Shareholders : VIS NOVA GmbH(55%), MC (45%)
Activities : Bio Pellet trading.
Web-site : www.vis-nova.de
Forest Energy Kadogawa
Vis Nova Trading GmbH (Germany)