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Bioenergy Future Forecast
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Perspective – World View Businesses based on wood fibre/residuals as the feedstock have great promise with many historical models that are well proven in terms of sustainability and profitability. Examples would be the production of energy and green chemicals •
2% of US generating capacity (US Energy Administration September 1, 2010)
•
Pine chemicals industry is >$5 billion in high value markets
•
To date transportation fuels is not proven but a vast array of companies are attempting to penetrate this huge market
Customers (CP companies such as P&G, L’Oreal and Colgate and Industrial companies such as 3M, Dow, GM and Boeing) are very focused on “Green”. The challenge in Green is finding economical and efficient feed-stocks and processes for producing products Hydrocarbon replacement opportunity is also driven by security of supply issues
Bioenergy is base load power source which is a major green power differentiator
2
Copyright 2011 © Tandem Expansion. Strictly Confidential.
UPM’s View of Bio Value Opportunity Value Added
Nano Products Biochemicals
Biofuels for transport
Bioenergy – heat and electricity
Labels and composites Volume
Pulp, paper, plywood and timber products Wood-based biomass procurement and logistics
3
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Adoption Hurdles Wood fibre/residues will face competition from other carbon containing material such as MSW and Agricultural Waste and from biological processes including algae – lots of $s being spent. Market wants feedstock flexibility Cost and availability of material as well as science will likely impact on long term viability Political Will and Policy will also be huge driver to determine winners in energy area – US inclusion of biomass in RPS, GHG regulations, BC carbon tax, targeted spending (Denmark) etc. Security of Supply, Energy Efficiency and Environmental Drivers Big capital market challenge for biomass will continue to be proving cost and availability of fibre over long term (no futures market) and economical conversion technology (no need for Government subsidies). Large scale infrastructure projects will remain capital constrained and very competitive (lots of ideas) due to time to market and lack of proven commercial operations (no Project Finance Debt) Natural Gas price will impact adoption rate (geographic) Public acceptance 4
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Capital Market Constrained Public finances strained and unlikely to improve in short term •
Mismatch between government time in power and length of FIT subsidies? (Goldman Sachs).
•
Greater risk of change/default (Spain/UK)
Venture Capital fund raising is declining with 2010 the lowest level since 2003 •
Trend is towards fewer funds raising smaller amounts
•
% going to Clean Tech remains constant at 17% (Canada and USA)
•
Investment outflow is greatly exceeding new inflow to funds (2010 - $21.8 B invested versus $12.3 B raised)
Corporations have strong balance sheets and a desire for growth. They also possess infrastructure, customers, business, operating and technology knowhow which can accelerate time to market, broaden market access and improve quality of technology solution
5
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Natural gas prices have an impact Natural gas spot price very volatile with conflicting views on outlook... 1. Higher demand from power generation (e.g. less nuclear), and industrial demand 2. Environmental restrictions on fracking 3. Convergence of gas & oil prices
$8 - $10 / MMBTU
1. Excess supply – horizontal fracking and LNG (Qatar) 2. Reduction in NA industrial demand 3. Limited storage
$4 / MMBTU
... and prices vary depending on distribution costs and geography Industrial Nat Gas Price By State, Jan 2010
Cost of Nat Gas Relative to USA
$25.00 $20.00 $15.00 $10.00 $5.00 $6
Canada Taiwan France Japan Russia Brazil
90.5% 161.9% 140.9% 154.5% 26.1% 205.3%
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Source: IEA
Likely Ingredients for Success Backward integration into fibre will be a big advantage (forest product companies and collection systems – Harvest Power) Small versus big – easier to execute Financing Community/Stakeholders Acceptance Permitting Proof of availability of feedstock Captive use – energy/chemicals - CHP Business model and partnership selection will be critical - greatly reduce the risk, time to market, adoption hurdles and increases the likelihood of success Choice of business model(s) will dictate possible partnerships Seller of feedstock
Technology developer/licensor Facility operator Product seller 7
Copyright 2011 © Tandem Expansion. Strictly Confidential.
CHP Will Play a Bigger Role in US Energy Production 2/3 of fuel used to generate power in US is lost as heat (DOE 2007) Current US production from CHP of 9% compared to average fossil based electric supply generation results in (2006 Existing CHP - 9% of U.S. Capacity 85 GW) •
Reduced Annual Energy Consumption With CHP 1.9 Quads
•
Total Annual CO2 Reduction 248 MMT
•
Carbon Saved 68 MMT
•
Number of Car Equivalents Taken Off Road 45 million
A move to 20% would mean (2030 CHP – 20% of U.S. Capacity 240.9 GW) •
Reduced Annual Energy Consumption With CHP 5.3 Quads
•
Total Annual CO2 Reduction 848 MMT
•
Carbon Saved 231 MMT
•
Number of Car Equivalents Taken Off Road 154 million
Source: DOE
8
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Contribution of CHP to Total National Power Generation (%)
Source: Danish Energy Authority and IEA – “CHP: Evaluating the Benefits of Greater Global Investment” (2008) 9
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Perspective – World View Businesses based on wood fibre/residuals as the feedstock have great promise with many historical models that are well proven in terms of sustainability and profitability. Examples would be the production of energy and green chemicals •
2% of US generating capacity (US Energy Administration September 1, 2010)
•
Pine chemicals industry is >$5 billion in high value markets
•
To date transportation fuels is not proven but a vast array of companies are attempting to penetrate this huge market
Customers (CP companies such as P&G, L’Oreal and Colgate and Industrial companies such as 3M, Dow, GM and Boeing) are very focused on “Green”. The challenge in Green is finding economical and efficient feed-stocks and processes for producing products Hydrocarbon replacement opportunity is also driven by security of supply issues
Bioenergy is base load power source which is a major green power differentiator
2
Copyright 2011 © Tandem Expansion. Strictly Confidential.
UPM’s View of Bio Value Opportunity Value Added
Nano Products Biochemicals
Biofuels for transport
Bioenergy – heat and electricity
Labels and composites Volume
Pulp, paper, plywood and timber products Wood-based biomass procurement and logistics
3
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Adoption Hurdles Wood fibre/residues will face competition from other carbon containing material such as MSW and Agricultural Waste and from biological processes including algae – lots of $s being spent. Market wants feedstock flexibility Cost and availability of material as well as science will likely impact on long term viability Political Will and Policy will also be huge driver to determine winners in energy area – US inclusion of biomass in RPS, GHG regulations, BC carbon tax, targeted spending (Denmark) etc. Security of Supply, Energy Efficiency and Environmental Drivers Big capital market challenge for biomass will continue to be proving cost and availability of fibre over long term (no futures market) and economical conversion technology (no need for Government subsidies). Large scale infrastructure projects will remain capital constrained and very competitive (lots of ideas) due to time to market and lack of proven commercial operations (no Project Finance Debt) Natural Gas price will impact adoption rate (geographic) Public acceptance 4
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Capital Market Constrained Public finances strained and unlikely to improve in short term •
Mismatch between government time in power and length of FIT subsidies? (Goldman Sachs).
•
Greater risk of change/default (Spain/UK)
Venture Capital fund raising is declining with 2010 the lowest level since 2003 •
Trend is towards fewer funds raising smaller amounts
•
% going to Clean Tech remains constant at 17% (Canada and USA)
•
Investment outflow is greatly exceeding new inflow to funds (2010 - $21.8 B invested versus $12.3 B raised)
Corporations have strong balance sheets and a desire for growth. They also possess infrastructure, customers, business, operating and technology knowhow which can accelerate time to market, broaden market access and improve quality of technology solution
5
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Natural gas prices have an impact Natural gas spot price very volatile with conflicting views on outlook... 1. Higher demand from power generation (e.g. less nuclear), and industrial demand 2. Environmental restrictions on fracking 3. Convergence of gas & oil prices
$8 - $10 / MMBTU
1. Excess supply – horizontal fracking and LNG (Qatar) 2. Reduction in NA industrial demand 3. Limited storage
$4 / MMBTU
... and prices vary depending on distribution costs and geography Industrial Nat Gas Price By State, Jan 2010
Cost of Nat Gas Relative to USA
$25.00 $20.00 $15.00 $10.00 $5.00 $6
Canada Taiwan France Japan Russia Brazil
90.5% 161.9% 140.9% 154.5% 26.1% 205.3%
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Source: IEA
Likely Ingredients for Success Backward integration into fibre will be a big advantage (forest product companies and collection systems – Harvest Power) Small versus big – easier to execute Financing Community/Stakeholders Acceptance Permitting Proof of availability of feedstock Captive use – energy/chemicals - CHP Business model and partnership selection will be critical - greatly reduce the risk, time to market, adoption hurdles and increases the likelihood of success Choice of business model(s) will dictate possible partnerships Seller of feedstock
Technology developer/licensor Facility operator Product seller 7
Copyright 2011 © Tandem Expansion. Strictly Confidential.
CHP Will Play a Bigger Role in US Energy Production 2/3 of fuel used to generate power in US is lost as heat (DOE 2007) Current US production from CHP of 9% compared to average fossil based electric supply generation results in (2006 Existing CHP - 9% of U.S. Capacity 85 GW) •
Reduced Annual Energy Consumption With CHP 1.9 Quads
•
Total Annual CO2 Reduction 248 MMT
•
Carbon Saved 68 MMT
•
Number of Car Equivalents Taken Off Road 45 million
A move to 20% would mean (2030 CHP – 20% of U.S. Capacity 240.9 GW) •
Reduced Annual Energy Consumption With CHP 5.3 Quads
•
Total Annual CO2 Reduction 848 MMT
•
Carbon Saved 231 MMT
•
Number of Car Equivalents Taken Off Road 154 million
Source: DOE
8
Copyright 2011 © Tandem Expansion. Strictly Confidential.
Contribution of CHP to Total National Power Generation (%)
Source: Danish Energy Authority and IEA – “CHP: Evaluating the Benefits of Greater Global Investment” (2008) 9
Copyright 2011 © Tandem Expansion. Strictly Confidential.
