July 27, 2012, New York, NY — New UK government subsidies that provide a more attractive incentive for dedicated biomass units than for those co-firing with mixed fuels could create a contest to lock in North American supply of industrial wood pellets.
U.S. and Canadian pellet producers are still parsing through the information to gauge emerging demand, but the initial reaction is that the new rules will help grow the industry.
“It is going to be a race. Those [utilities] who can secure the supply will move forward with conversions,” one major U.S. producer said.
By offering lower subsidies for running a mixed-fuel portfolio, the UK government is attempting to steer coal-fired electric generators toward fully dedicated biomass-fired units, which means that some utilities will have to lock in larger volumes.
Large UK-based biomass consumers such as German firms Eon and RWE have a diverse generation portfolio and will be opportunistic in their fuel contracting, but US producers say most buyers are still trying to collate the information themselves and are in the process of realigning strategies.
The new rules are also expected to boost Scandinavian interest in North American tonnage. The Scandinavian market can usually find pellets cheaper and closer by, but with European producers running at full capacity, utilities such as Denamark's Dong and Sweden's Vattenfall may be forced into competition with UK utilities.
Prices for North American tonnage are expected to rise slightly during the remainder of this year, with the UK subsidies supporting this rise, but most quotes for fourth-quarter 2012 supply are still close to $185/t delivered to northwestern Europe.
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