European Pellet Buyers Group

The Industrial Wood Pellet Buyers (IWPB) met in Copenhagen in mid-September 2011, where Robert Tarcon and I represented the Wood Pellet Association of Canada (WPAC). Tarcon is general manager of Premium Pellet and a WPAC director.

IWPB is a group of Europe’s largest power utilities, including GDF Suez, Vattenfall, Dong Energy, Eon, RWE-Essent, Drax, and Delta. Fortum was a member until recently, but dropped out due to differences on how best to demonstrate sustainability. IWPB’s goal is to “facilitate trade between utilities through uniform contracting.” To accomplish this, the group’s objectives are to create a standard contract for wood pellet trading, to create uniform specifications for industrial wood pellets, and to create common sustainability criteria.

Until the most recent meeting, wood pellet producers were not allowed to participate, leading us to view the IWPB utilities as colluding to control the pellet market by dictating pellet specifications, contracts, and sustainability verification procedures to producers. Producers were meant to adhere to decisions imposed on them by IWPB.

Finally, in June 2010, IWPB decided that pellet producers should have a voice in the organization. It invited WPAC to represent Canadian producers, the U.S. Industrial Pellet Association as the voice of U.S. producers, and the European Pellet Council on behalf of European producers. The September meeting was the first time that pellet producers could participate. As their representatives, we were pleased with how positively we were received by the utilities. We were genuinely able to be heard and to contribute constructively.

Following is an update on IWPB activities.

Standard Contracts
IWPB intends to implement a standard contract for individual and multiple spot transactions. Long-term agreements will continue to be negotiated bilaterally and will not be subject to this standard contract.

The European Federation of Energy Traders uses a standard contract known as the General Agreement Concerning the Delivery and Acceptance of Electricity. IWPB legal counsel presented a modified-for-pellets version of that contract for discussion. After much debate, it was agreed that a number of changes would be made and then the contract would be distributed to the IWPB members for review before the next meeting.

In preparation for the next IWPB meeting, WPAC will look for feedback from its membership once we receive the revised contract, and will seek legal advice on contract terms.

Pellet Specifications
IWPB proposes three industrial pellet grades to be adopted by all utilities: I1, I2, and I3. The grades are generally differentiated on the basis of ash content, chlorine, durability, fines, and particle size distribution. It was agreed that the latest version of the specifications would be produced and distributed to IWPB members for review before the next meeting.

Again, once the latest draft of the specifications arrives, WPAC will be distributing it to its membership for comment to prepare a response for the next IWPB meeting.

Feedstock Sustainability
IWPB plans to develop a new common sustainability verification system to replace those systems currently in use by Drax, RWE-Essent, and Electrabel. All producers will be required to adhere to the new system. Discussions are still at an early stage. Sustainability principles to be included are:

• Greenhouse gas savings with respect to fossil fuels;
• Maintenance of carbon stocks;
• Maintenance of biodiversity;
• Protection of soil, water, and air quality;
• Avoidance of competition with local food and water supply;
• Respect for property rights and contributions to local prosperity and social welfare; and
• Demonstration of corporate responsibility.

WPAC is pleased with the recent direction of IWPB that enables producers’ participation alongside the utilities in developing standard contracts, uniform pellet standards, and sustainability criteria. Following each IWPB meeting, WPAC will be reporting back to its membership and seeking instruction to negotiate on its behalf as these pellet market developments go forward. This gives producers a say on important issues critical to their industry.
The next IWPB meeting is scheduled for November 8, 2011, in Amsterdam.

Gordon Murray is executive director of the Wood Pellet Association of Canada (www.pellet.org ) and can be reached at 250-837-8821 or gord@pellet.org.