Wednesday, 04 November 2015

DP CleanTech White Paper (Abstract) - The Status of the Biomass Industry in China:Past Mistakes and Future Opportunities

After 10 years of unpredictable and uneven progress, the agri-based biomass to power industry in China is set for rapid and sustained growth. 

Key variables in biomass power plant economics are increasingly assured, and, provided that lessons from the past are well learnt there is a clear potential for above-normal profit returns in the industry.  

The full white paper on The Status of the Biomass Industry in China can be downloaded here


The biomass industry challenges in China

From 2004 – 2012, the biomass industry in China went through an accelerated cycle of growth to stagnation.  The initial growth could not be sustained because it was undermined by 3 fundamental factors.

Firstly, the biomass technology that was selected by many operators was not well suited to the fuels available.  This only became apparent after a few years of declining performance.   Secondly, the complexities of fuel supply and logistics were misunderstood and underestimated.  Finally, the problems that arose from the initial frenzied growth were misconstrued as inherent problems with biomass combustion technologies and the industry, which stifled genuine progress.

Biomass industry in China could be set for sustainable growth

These related factors combined to create some high profile failures, which have had a subsequent negative effect on investor confidence, bankability of projects and therefore the growth of the industry. Some projects were demonstrably more successful, and with hindsight the reasons for this were largely due to the use of a superior combustion technology; a more rigorous approach to plant design and operation and a longer term approach to investment.  These are key learning points for all players in the industry.

The outlook is positive for straw biomass in China

Today, a combination of socio-economic factors, government policies and a more sophisticated approach to biomass investment are in place to drive a new, positive business cycle.  Provided the lessons of the past are heeded, the biomass industry in China appears poised for renewed, and more considered growth.

                            Wood chip                                                    Wheat straw             

Wood chip biomass fuel could fuel the growth of biomass industry in China    Wheat straw biomass in China is under utilized                                       

The truly renewable nature of straw biomass and the huge underutilization of existing biomass resources have long been recognised by the Chinese government. Today, less than 5% of available straw biomass in China is effectively utilized for biomass to energy (compared to over 85% in Denmark).  The Government has clearly outlined its ambitions for renewable energy and biomass power as key elements of the energy portfolio.  The wider context for energy planning is the high level economic plan, which in China is published every 5 years (The Five Year Plan).  Currently in its 12th iteration, with the 13th expected within 2016, the plan has become increasingly focused on three overarching goals, each of which directly affects the future of the biomass to power industry.

1. Food security for the nation
2. Social redistribution of wealth from rich to poor and urban to rural dwellers
3. Improving and managing environmental pollution

  The first biomass power plant in China - DPCT/NBE Shanxian power plant

The first biomass power plant in China – DPCT/NBE Shanxian power plant

The goal of achieving food security the highest priority and the foundation needed to realize the other objectives.  Every measure taken to increase agricultural productivity (whether land change, industrialization, mechanization, education, and crop yield improvement) has a direct and immediate impact on the agri-biomass industry by increasing availability and affordability of feedstock.  Feedstock represents 30% of plant operating costs and therefore plays a major part in plant economics.  It also impacts directly on rural incomes, driving social and economic progress in local communities. The curbing of environmental pollution is also a direct benefit of enhanced straw biomass collection and utilisation.

                                          Biomass fuel collection

Biomass fuel collection

The long term outlook for straw biomass production and utilisation is undoubtedly positive.  However this benefit can only be fully and effectively exploited by technologies designed to handle the corrosive nature of straw biomass fuels; and by owners/operators who understand that plants must have high and consistent levels of efficiency and availability to be profitable.  This must drive their decision making to focus on the whole power plant solution and the long term picture.

We would make the very strong case that investing in the agricultural biomass industry in China is a de facto investment that parallels the Chinese Government’s primary agenda.  The 20+ year investment horizon for power plants is well matched to the outcome of the government’s agri-policies, and we also believe that FiT support will continue.  However in order to ensure maximum profitability it is clear that the “mistakes made” must become “lessons learned”.  Shrewd operators and investors who have recognized this are starting to emerge and take advantage of the significant opportunities being presented in biomass in China.    As an industry pioneer, DP CleanTech is committed to be at the forefront of this change, ensuring that the industry is stronger and more sustainable for stakeholders and beneficiaries.

Planning for successful straw biomass energy solutions

In summary, we would assert that the following points are the key considerations for any developer or stakeholder (investor/ financial lender/ company) who is reviewing the future opportunities for biomass power plant investments in China.  
• Biomass to energy offers substantial profit potential
• However, the skills in successfully developing and managing a biomass plant are quite distinct from those required for a conventional fossil fuel power plant
• Long term fuel availability is a major factor in power plant economics. Existing agricultural policies in China highly favour a future that is centred on straw availability and affordable utilization. The relative price of wood-based feedstock is likely to increase over time
• Key characteristics of straw biomass agri-residues are high chloride levels; low ash melt points and varying densities.  Combustion boilers and auxiliary plant equipment must be designed for these properties.
• Power plants must be designed and built with maximum fuel flexibility
• Design and build power plants that are as efficient as possible as an ‘insurance’ against future fuel and energy price variability
• A 20+ year investment horizon must consider the implications of all the above to ensure that the right technology is selected; and that the project is designed and executed as a total “fuel to stack” solution.

Modern biomass: A world of potential


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