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SY Energy starts up South Korea's largest pellet plant

25 Jul 2017, 6.55 am GMT

SY Energy starts up South Korea's largest pellet plant

Singapore, 24 July (Argus) — South Korean energy company SY Energy is performing test runs on its new 300,000 t/yr wood pellet producing facility in Jincheon, Chungcheongbuk-do province, and plans to reach full capacity by September.

The facility will be the country's largest wood pellet production plant, SY Energy chief executive Kim Ji-Yeung said. The plant is running at 400 t/day during the current test phase and should increase to 960 t/d after the launch, he said.

Raw materials for the facility will be provided by local trading firm LS Network, which will also be the main distributor of SY Energy's wood pellets in the region.

Raw materials will be provided from high-quality "unused wood biomass sources" and SY Energy will be the first domestic producer to use such sources in the country, Kim said. The company's wood pellets will be initially targeted at power generation companies. "We have not decided if sales will be on a spot or long-term basis yet, but we would prefer long-term contracts," he said.

The new plant will be SY Energy's second wood pellet production facility. Its first plant, also in Chungcheongbuk-do province, produces around 20,000 t/yr of wood pellets. Based on current output, SY Energy's parent company, Shinyoung E&P, is already South Korea's largest producer of wood pellets, holding around one-fifth of the domestic market share. South Korea has more than 20 companies producing a combined volume of 85,000-100,000 t/yr of wood pellets, market participants estimate.

Domestic wood pellet demand is expected to increase in the years ahead given a spate of new biomass-burning projects scheduled to come on line in the country.

South Korea's wood pellet imports climbed to 1.72mn t in 2016, up by 17pc from 1.47mn t a year earlier, after independent power producer Gunjang Energy opened its 250MW coal-fired power plant project in Gunsan, which co-fires with wood pellets. Wood pellet imports could reach as much as 2.2mn t this year as utilities gear up to comply with an escalating renewable portfolio standard.

Planned new demand projects include two dedicated plants by utility Korea Midland Power (Komipo) and construction company Hanyang alongside state-controlled nuclear power producer KNHP, as well as the conversion of utility Korea South East Power's (Koen) two coal-fired units at its Yeongdong power plant. The three projects alone will increase demand by 3.6mn t/yr when they are all operating by 2020.

The timings for the new start-ups in 2020 could create "ferocious competition in acquiring wood pellets", particularly for project developers that have yet to put term contracts in place to buy large volumes for the years ahead, traders said. Based on the current pipeline, South Korean wood pellet demand could reach at least 6mn t/yr by 2020, Argus calculations show.

SY Energy estimates the country's wood pellet demand could be as high as 8mn t/yr by 2022, although various government estimates are lower.

Despite the potential demand, domestic wood pellet producers will face a number of obstacles, Kim said, including an unstable renewable energy credit (REC) policy. The REC credit weighting for different technologies is reviewed every three years, meaning possible revisions on the RECs earned for burning wood pellets and other biomass sources in the future. And biomass will face competition from other renewable energy sources, such as wind and solar.

The distinction made by state-controlled generation companies in their treatment of wood pellets and biomass solid recovered fuel (SRF) pellets is also challenging. Much confusion exists in South Korea in the treatment of wood pellets, which are made from pure wood sources, and bio-SRF pellets made from waste wood and SRF, which includes a mixture of other pelletised products, Kim said. Various South Korean government ministries, forestry organisations and international standards differ in their classification of bio-SRF and SRF pellets, with some not classifying them as biomass.

"In South Korea, there is too much dependence on wood pellets from abroad, which does not leave enough room for development of domestic sources," Kim said. The government should provide more incentives for domestic production as local supply would "reduce carbon emissions compared with imported sources and be more environmentally friendly", he said.

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