Develop Malaysia, develop palm oil biomass, develop bioenergy: the primer

Biofuels 

The EU target of 20% renewable energy in 2020 includes an obligatory mandate of 10% biofuels. This created a biofuels market of approximately 36 million ton of oil equivalents. Despite strong headwinds from unfavorable economics and continued concerns and uncertainties about the sustainability performance of these fuels, the market has been growing steadily. The 2010 biofuels use in the EU reached 12.6 Mtoe.

Similar blending mandates are in place in other countries. Malaysia e.g. has a B5 blending mandate for palm oil derived biodiesel. Full implementation of the mandate would yield an annual market of 500,000 tons, but actual consumption figures are much lower (2-4,000 metric tons), according to Cefic (Facts and Figures 2011).

This is explained by the recent implementation of the B5 mandate (started in mid 2011) and the subsidized fuel prices at the pump. The government therefore has to pay for the additional production costs of biodiesel. This is an unattractive situation with the current high feedstock (CPO) prices. Malaysia did invest significantly in biodiesel production facilities to develop a new export product.

However, production is almost at a standstill (15,000 metric tons in 2011) compared to the installed capacity (2.6 Mmtons). Export markets are not developing due to several reasons, including high feedstock prices, existing trade tariff structures, sustainability concerns and technical specifications. The latter two arguments specifically affect access to the EU market. Biodiesel production facilities standing idle can be retrofitted into biobased chemicals producing units to obtain a return on investment and generate economically more attractive products.

Bio-electricity and heat

The EU mandate of 20% renewable energy in 2020 also creates a substantial market for solid biomass products for the production of electricity and heat.

One biomass product that has entered the market are industrial wood pellets. These are made of compressed wood fiber and can be used for co-firing in coal-fired power utilities or as a standalone fuel in dedicated biomass boilers. Projections for future use in 2020 range anywhere between 20 to 90 Mmtons.

Resources in the EU are limited and the industry has been looking at North-America for supply. In fact, industrial wood pellets imports into the EU have doubled in only two years time to 3.4 Mmtons in 2011. However, EU technical specifications are largely based on the use of soft wood materials. Low ash content of 1-2% is among the most critical parameters.

The use of wood pellets is economically non-competitive with its fossil counterpart coal: the production of electricity from wood pellets costs 92 €/MWh versus 39 €/MWh for coal. Also, existing regulatory and policy measures to promote the use wood pellets have been unstable and fragmented.

To improve this situation many countries consider or have started to implement Feed-in-Tariffs. Here, governments will carry the financial burden of the compensation cost. Apart from countries in the EU, Malaysia, The Philippines and most recently Japan have also introduced this incentive measure.

Alternatively, introduction of an obligation, comparable to the biofuels blending mandate, would involve the market place to finance the additional costs.

Table 2. Comparison of EU wood pellets specifications with PKS

To improve the use of oil palm biomass as a fuel, torrefaction can be applied. This is a method to modify the biomass into ‘coal-like’ material under high temperature and low oxygen conditions. Alternatively, pre-treatment technologies for oil palm biomass are being developed to improve the fuel characteristics of the biomass, e.g. by removing the minerals.