Biomass Energy And The Real Asian Tigers
BMI View : We have witnessed a significant increase in biomass generation in Asia over the last two years, with most of the growth concentrated in a number of countries, such as China. There are several reasons for the rise in biomass energy generation in the region - namely, the rapid growth in electricity consumption in the region, an inability for commercial-scale infrastructure investments to keep pace with consumption growth, and a greater emphasis on reducing emissions and reliance on fuel imports. China currently leads the region in terms of current biomass energy generation, but we see significant growth potential for biomass in countries such as Australia and India.
We have witnessed a significant increase in biomass generation in Asia over the last two years. At present, China is the clear leader in terms of current biomass energy utilisation, but countries such as Australia and India also display strong potential for growth.
|Growth Concentrated In Several Countries|
|Asia - 2012 (estimate) Biomass and Waste Generation By Country, TWh|
We believe that there are several reasons for the rise in biomass energy generation in the region. One of the main reasons is a rapid growth in electricity consumption within the region, especially among developing economies. As power infrastructure investment in these countries struggle to keep pace with consumption growth, federal and state-level governments are turning to alternative and rapidly-implemented forms of generation such as biomass energy to fulfil electricity demands. Meanwhile, developed countries are looking to reduce emissions and their reliance on fuel imports, further driving growth in biomass energy generation.
That said, we note that the direction and pace of biomass developments in the countries are extremely different. For instance, biomass and waste generation in Taiwan is used mainly to dispose of municipal solid waste (MSW), and the country has over 20 large MSW incineration plants with more than 500MW of installed capacity. We believe that there is limited growth potential for biomass energy in Taiwan as the country's economy and population is relatively stable, thus limiting the growth in MSW available for incineration.
In contrast, biomass generation has grown in Japan as the country seeks to reduce its reliance on nuclear energy and costly imported fuels. In July 2012, the Japanese government introduced an attractive feed-in tariff scheme for most forms of renewable energy including biomass technologies which led to a sudden surge of interest in developing biomass capacity. For instance, in December 2012, Japanese papermaker Oji Holdings announced its decision to invest JPY20bn (US$229mn) to build two biomass plants in Japan ( see our online service, January 03 2013, 'Diversification Into Renewables Not Without Risks',). We expect private interests in biomass and other forms of renewable energy to continue in the near future, and are forecasting modest growth in Japan's biomass generation sector over the next two years.
|Sector||Technology||Scale||Tariff (JPY/kWh)||Payment Period (Years)||Expected Revision|
|Source: BMI's Feed-In Tariff Database.|
|Wind||Onshore and Offshore||<20kW||57.75||20||13-Jul|
|Wind||Onshore and Offshore||>20kW||23.1||20||13-Jul|
|Hydro||200kW >≤ 1MW||30.45||20||13-Jul|
|Hydro||1MW >≤ 30MW||25.5||20||13-Jul|
|Biomass||Sewage sludge/Municipal Waste||17.85||20||13-Jul|
Biomass generation in Singapore serves a slightly different purpose. The country currently has one biomass and waste plant - it opened in April 2012 - and was built at a cost of SGD34mn (US$27mn) by Singapore's Sembcorp Industries . We believe that the main purpose of this plant is to diversify Singapore's energy mix, as the country imports all of its energy needs - the country uses four offshore gas pipelines to meet nearly 80% of its energy needs. This reliance on imported gas exposes Singapore to significant price and supply risks, and the development of other electricity alternatives could hedge again this exposure. In fact, Tuas Power is looking to develop a 160MW biomass and clean coal cogeneration plant ( see our online service, January 14 2013, 'Renewable Energy: Numerous Opportunities, Several Threats').
China: The Regional Leader
While China holds the leadership position in terms of regional biomass generation, we highlight that most of the growth in biomass energy generation came over the last three years. This is due to the significant growth in China's electricity consumption over the period, as well as the clear targets and supportive policies outlined by the country's 11 th and 12 th Five-Year Plans.
|Growth Mainly From 2010 - 2013|
|China - Biomass and Waste Generation, TWh (LHS); Growth % y-o-y (RHS)|
In its 12 th Five-Year Plan, China had set a target to increase its renewable energy use to the equivalent of 478mn tonnes of standard coal by 2015. Biomass energy production is expected to account for over 10% of total renewables, or an estimated equivalent of 50mn tonnes of coal.
Despite these ambitious government plans, we believe that the potential for biomass energy generation in China is limited. One of the main problems, as outlined by the Biomass Energy Research Institute of Dalian University of Technology in China, is the collection and pre-treatment of cheap non-grain raw materials. For instance, canola oil in Germany and soya bean oil in the US can be used to produce biodiesel, but these uses are not legally permitted in China. Additionally, most of Chinese agriculture is based around small farms, according to Shiping Qin from the Energy Research Institute of National Development and Reform Council. This creates significant difficulty in the collection of raw materials, and is likely to increase costs for biomass energy production. We do note that China could circumvent these problems by importing feedstock for biomass energy production, but we believe that it might not be economical to do so.
Australia - Significant Potential For Growth
We believe that there is significant potential for growth for biomass electricity generation in Australia. At present, biomass energy accounts for less than 1% of electricity generation, and most of the country's 50 biomass-fired plants are located in Queensland. Additionally, the Australian Clean Energy Council claims that only 50% of the cane biomass available for use is collected and utilised.
One of the main reasons for the slow adoption of biomass energy is a lack of government incentives. There are no federal level incentives for biomass generation besides the country's Renewable Energy Target of 20% renewable energy by 2020. At a state-level, only one of the country's eight states and territories (Victoria) has an official feed-in tariff programme for biomass energy.
|Sector||Scale||State||Tariff (AUD/KWh)||Cumulative Capacity Limit||Payment Period (Years)||Expected Revision|
|Source: BMI's Feed-In Tariff Database.|
|Solar||≤5kW||Victoria||0.6||100MW||15||January 01 2012|
|Solar||≤100kW||Victoria||Project specific||100MW||15||July 13 2012|
|Wind||≤100kW||Victoria||Project specific||100MW||15||July 13 2012|
|Hydro||≤100kW||Victoria||Project specific||100MW||15||July 13 2012|
|Biomass||≤100kW||Victoria||Project specific||100MW||15||July 13 2012|
|Solar||≤30kW||South Australia||0.44||na||20||January 26 2012|
|Solar||≤30kW||South Australia||0.231||na||20||June 30 2012|
|Solar||≤30kW||South Australia||0.258||na||20||June 30 2013|
|Solar||≤30kW||South Australia||0.272||na||20||June 30 2014|
|Solar||≤30kW||ACT||0.457||na||20||June 01 2011|
|Wind||≤30kW||ACT||0.457||na||20||June 01 2011|
|Solar||30kW >≤ 30MW||ACT||0.457||na||20||April 01 2011|
|Wind||30kW >≤ 30MW||ACT||0.3427||na||20||na|
|Solar||na||Western Australia||0.4||na||na||June 30 2011|
|Solar||na||Queensland||0.44||na||na||January 01 2028|
|Solar||na||New South Wales||0.6||na||7||na|
|Solar||na||New South Wales||0.2||na||7||na|
In our opinion, biomass generation in Australia could grow significantly if the government provides the right incentives. Although deserts and semi-arid land account for nearly 70% of Australia's total land mass, several species of plants in the eucalypt species are able to grow in these conditions and can readily be used for biomass generation. One of Australia's largest utilities, Delta Electricity, has already embarked on an AUD200mn (US$211) project to grow oil mallee eucalypts as an energy crop in central New South Wales. The company has already engaged 10 farmers, and also conducted a trial burn at this level. We also see room for biomass generation to take root in states other than Queensland.
Small-Scale Biomass Generation In Developing Countries
We believe that there is substantial room for growth in many developing countries such as India and Indonesia. Power consumption in these countries is expected to grow significantly, and existing infrastructure and infrastructure investments will be unable to keep pace with consumption growth. This lack of infrastructure opens an avenue for electricity generation at a smaller scale such as micro-grids. Additionally, many under-developed regions rely on costly portable diesel-fired generators for electricity, and shifting to biomass could help reduce costs and vulnerability to external supply shocks.
In India, many villages and smaller towns are not currently connected to the main grid, and have no access to electricity. This has created a market niche for private companies such as Gram Power, Mera Gao Power and Omnigrid Micropower to develop village micro-grids by installing a few biomass digesters or solar panels. This allows villages to have access to electricity, thus improving the quality of life and productivity for both consumers and businesses. Additionally, these systems are modular, and more power sources can be added to meet growing electricity demands.
Indonesia is also a significant consumer of traditional biomass in its residential sector, especially in remote areas that lack connection to the country's energy transmission networks. In 2011, Indonesia consumed over two quadrillion British thermal units of biomass energy, and the government hopes to increase renewable energy production for the purpose of generating electricity for domestic consumption.