FutureMetrics has published a new white paper on the Japanese industrial wood pellet market. The report predicts most of demand growth for industrial wood pellets after 2019 will come from Japan and South Korea.  

According to FutureMetrics, the Japanese and South Korean markets for industrial wood pellets are both driven by policy. The policies are different, but both create demand for industrial wood pellets as a replacement for coal in power plants.

In Japan, pellet buyers are supported by a long-term feed-in-tariff (FIT) and prefer long-term offtake contracts with set terms for prices. According to the report, Japanese policies require that suppliers show that the pellet supply chain meets sustainability criteria. As a result, buyers from Japan prefer to engage with parties from countries with strong rule of law, strong management practices, and stable macroeconomic conditions.

Alternatively, FutureMetrics indicates pellet buyers from South Korea are incentivized by the need to comply with renewable portfolio standards (RPS), and from carbon trading in the Korea Emissions Trading scheme (KETs). They are currently seeking the lowest cost pathway to compliance, said FutureMetrics in the report. Some RPS requirements have been met with wind and solar generation, with some met by cofiring pellets. To date, the report notes that South Korea has procured pellet fuel under a short-term tendering strategy that has producers competing several times per year to win bids to individual utility buyers. According to FutureMetrics, South Korean buyers prefer short-term supply contracts from low-cost producers.

The report includes a detailed analysis of Japanese policy and how it is expected to drive demand for industrial wood pellets. A full copy of the report, authored by Willian Strauss, can be downloaded from the FutureMetrics website.