Biomass Power Potential in Japan

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FIT and Biomass Demand in Japan

November 28 th, 2012Hidetoshi IguchiBio Energy Business TeamMitsubishi Corporation

2012 CanBio Annual Conference


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I. Target of Biomass Electricity and Heat- how much biomass demand we can expect under government policy?

II. Current movement of Law and Policy in Japan

III. Feed in Tariff for Biomass Electricity- background and outlook of Feed in Tariff system in Japan

IV. Political Support for Biomass ElectricityV. FAQ about FIT

- who will be a primary buyer of biomass under FIT?

VI. Biomass availability in Japan- do we need to import biomass from overseas to meet government target?

VII. Rough economics of biomass power plantVIII. Project TimelineIX. Biomass demand growth under FIT and the future

- how quickly will biomass demand increase?

Quick overview:


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Proprietary & Confidential 3

Introduction


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2005 2020 2030 2050

Biomass Power Generation 4,620 8,600 9,070 10,020

- Conventional biomass 2,040 5,860 6,330 7,280

- Black liquor, const. waste 2,580 2,740 2,740 2,740

Biomass Heat 4,700 8,870 9,370 25,870

- Conventional biomass 0 2,000 2,500 19,000

- Other biomass 1,420 2,580 2,580 2,580

- Waste materials 1,140 2,010 2,010 2,010

- Black liquor, const. waste 2,140 2,280 2,280 2,280

0

5,000

10,000

15,000

20,000

25,000

30,000

2005 2020 2030 2050

Biomass Power

Biomass Heat

Oil Equivalent (,000KL)

Oil Equivalent (,000KL)

Target of Biomass Electricity and Heat

Biomass Power Generation 4,584 13,167 14,224 16,358

Biomass Heat 0 4,494 5,618 42,693

Total 4,584 17,661 19,842 59,128

Rough Conversion of Conventionalbiomass volume to pellet ton

Pellet ton (,000MT)

No obligation or law for biomass heat as of 2012.Some subsidy system available for small projects.

Target of Biomass Electricity and Heat

2009 : Ministry of Economy, Trade and Industry

+ 13 million pellet ton+ 8.6 million pellet ton without biomass heat


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Current movement of Law and Policy in Japan

2003 RPS Law- Obligate utilities to use Renewable Energy

2009 Law of Advancing the Energy Supply System- Increase non-fossil-fuel energy utilization to 50% , including nuclear power

2010 Review of Energy & Resources Policy (Jun/18, 2010 Cabinet Approval Obtained)- Energy independence ratio from 38% to 70%- Zero-emission power source (nuclear and renewable energy) ratio from 34% to 70% by 2030- 10% renewable energy by 2020- New energy supply shall be constituted of domestic supply and import- Coal is necessary for stable and economical supply of energy and for stabilizing the grid.- Promote biomass co-firing

2011 The Japanese government had to review its Energy policy since Fukushima nuclear incident

2012 Feed In Tariff Scheme for Renewable Energy

(20XX government support for biomass heat ?? )

(Apr.~Mar) 2007 2008 2009 2010 2011 2012* 2013 2014

GWh 8,670 9,270 10,380 12,430 12,820 3,205 ? ?

* 2012 Apr. Jun., RPS target for 2013 onward is under review.


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FIT in Japan


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Back Ground

Since the introduction of RPS system in 2003, electric power supply by renewable energy has doubled

Ever since the surplus electricity purchase system (FIT) for residential PV was introduced in 2009, the installation capacity

has largely increased from 2.14million kWh in 2008 to 4.91 million kWh in 2011.New FIT system is expected to contribute for increasing renewable energy.

FIT for Biomass

(1) Tariff per kWh : 13 ~ 32/kWh (about USc16 ~ USc40/kWh) depending on the feedstock

(2) Duration : 20 years

(3) Long-term energy supply-demand outlook (maximum case)- Targeting installed capacity of approx. 2.17 million kW by 2020

(4) Issues

- Competitiveness in terms of material utilization etc.

- Stable supply of raw materials for massive installation

(5) Notes- RPS for general electric utility companies (*) are to remain after FIT, which is currently under review

- Co-firing at existing coal power plant can also apply FIT

- Dedicated biomass power plant which has been subsidized by government can also apply FIT

- Wood pellet will be categorized as general wood material (24/kWh)

Feed in Tariff for Biomass Electricity


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Unutilized Wood (1) General WoodWaste materials (2)

Sewage sludgeRecycled Wood

Cost Installation Cost 410,000/kW 410,000/kW 310,000/kW 350,000/kW

Operation and Maintenance 27,000/kW 27,000/kW 22,000/kW 27,000/kWExpected IRR (before tax) 8% 4% 4% 4%

FiT (/kWh) 32 24 17 13

(US$/kWh) 0.4 0.3 0.21 0.16

20 years

RecycledWood

Sewage

Waste

Materials

GeneralWood

(incl. PKS,importedwood chip) Unutilized

Wood

13/kWh 17/kWh 32/kWh 24/kWh

C a p a c i

t y

Tariff (/kWh)10 20 30

Feed in Tariff for renewable energy (biomass)

(1) Forest residue, Timber from forest thinning etc.

(2) Excluding wood wastes(3) Pricing Committee set up with the experts from the public sector has contributed significantly in the enforcement of the FIT system.

The Committee has prepared a draft in April, then the government called public comments for two months.


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METI (Ministry of Economy, Trade and Industry) Diversification of energy mix Increase energy independence ratio Promote renewable energy as non-fossil fuel

MAFF (Ministry of Agriculture, Forestry and Fisheries) Vitalize domestic forest industry Create new job, especially in Tohoku rural areas

(stop depopulation from agriculture)

MOE (Ministry of Environment) CO2 reduction Recycle, utilization and management of disaster

waste in Tohoku

MLIT (Ministry of Land, Infrastructure,Transport and Tourism)

Recovery and Rehabilitation of Tohoku area. Utilization of Sewage sludge

Biomass Energy has a potential to createnew industry, job and value, especiallyin Tohoku area

9

Energy SecurityCreation of newindustry/employment

MOEMinistry of theEnvironment

METIMinistry of Economy,Trade and Industry

MLITMinistry of Land,

Infrastructure,Transport and Tourism

Vitalize domesticforest industryDevelopment of rural

economy

CO2 reductionRecycle/managementof disaster waste inTohoku

BiomassEnergy

Industry

LegislationSupport

ForestryManagement

EnvironmentalAssessment

Political Support for Biomass Energy

Proprietary & Confidential

MAFFMinistry of Agriculture,Forestry and Fisheries

Recovery/Rehabilitationof TohokuUtilization of Sewagesludge.


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1. Obligation of General Electric Utility companies (major utility companies)Unlike the RPS scheme, General Electric Utility is not obligated to generate renewable power under FIT but obligated tobuy all the renewable electricity generated by wholesale electric utilities, IPPs and other power producers.

2. Co-FiringCo-Firing with fossil fuel is included in FIT system, to be calculated based on calorific value.

3. Existing biomass power plantsExisting biomass power plant, regardless dedicated or co-firing,will be able to apply FIT.- if it has already been granted subsidy from federal and/or local government, FIT rate will be adjusted.

- if it sells renewable power for General Electric Utilities under RPS scheme, it shall apply switching the facility to FIT(subject to general electric utilities acceptance and government approval)

4. Foreign biomassForeign woody biomass (except recycled wood) to be categorized into general wood biomass , regardless it is unutilizedmaterial or not.

5. SustainabilityAll the biomass users shall prove the sustainability of biomass , with third parties certificate.

6. Duration of tariff rate20 years. But the indicated tariff will only be valid for the projects applied by the end of Mar 31 st 2013. (METI will review thetariff table every year)

FAQ about FIT


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As shown in the chart below, available domestic biomass for direct-burning is estimated around 14.6 million dry-ton.

While considering the difficulties/economics to collect those biomass, we estimate the actual available volume would be 4.2million dry ton, or 4.6 million pellet ton.

If biomass demand will increase as targeted in Slide 4 (another 13.1 million pellet-ton) by 2020, we can expect to import 8.5million pellet ton of foreign biomass in this scenario.


Biomass Availability in Japan

0 10,000 20,000 30,000

Sewage Sludge

Food Waste

Livestock Manure

Black Liquor

Sawmill Residue

Construction Waste

Agricultural Residue

PaperForest Residue

(,000 dry ton

AvailableUtilized

Available To be utilized

Forest Residue 8,000 2,400

Paper 4,860 1,215

Agricultural Residue 1,785 595

Total 14,645 4,210

4.2million dry ton of domestic biomass (4.6millionpellet ton of biomass) can be utilized.

Another 13.1 million pellet ton of biomass to berequired to meet Japanese government target by 2020.

i.e. 8.5million pellet ton of biomass to be imported.

B i o m a s s

f o r

d i r e c t

b u r n i n g

M e t

h a n e

(,000 dry ton)

Domestic Biomass Availability


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Based on the premises provided by the Pricing Committee, in order to expect 10% IRR, theoretical pellet price (CIF Japan)would be around $175/ton when FIT is 24/kWh for imported biomass pellet.

Premises(Revenue is only from the electricity sales)

Capacity Factor 90%

Generation Efficiency 35%

Plant Cost 410,000/kW

O&M 27,000/kWh

Debt ratio 70%

/US$ 80/US$

Project period 10years

Rough Economics 0%

2%

4%

6%

8%

10%

12%

14%

1 5 0

1 6 0

1 7 0

1 8 0

1 9 0

2 0 0

2 1 0

2 2 0

2 3 0

2 4 0

2 5 0

2 6 0

2 7 0

Dedicated Biomass Power Plant(Project IRR)

IRR (FiT \24/kWh)


Pellet Price US$/MT CIF

Rough Economics / Biomass dedicated power plant

Pellet (CIF $/ton) 175 195 215

IRR 10% 8% 6%


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Current Most of the Biomass electricity comes from RPS obligation

and in-house power

Short Term RPS power to be replaced by FIT Excess power supply from in-house generator will be

sold to grid under FIT IPPs will start co-firing of biomass to enjoy FIT

Mid Term Newly developed biomass project will start operation

Long Term

More biomass power will be developed by IPPs bothco-firing and dedicated

Biomass heat to be developed with economically,

or by new policies.


Biomass demand growth under FIT and the future

Mid term Long term

B i o m a s s E n e r g y

Short termCurrent

RPS biomass

In-house power

New biomass (FIT)

Biomass heat

Replacement of RPS and In-house power for FIT

Rough Image of biomass demand growth(excluding black liquor, waste materials)


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FIT for Biomass The tariff for biomass is reasonable to encourage biomass power generation in Japan.

If the tariff rate is to be reviewed and lowered in the future, the biomass power generation is to be slowed down.

Demand We are expecting, at least additional 8 million pellet tons of biomass demand by 2020, 4 million pellet tons from domestic

and 4 million tons from overseas.

Domestic biomass utilization is the first priority.

Various biomass will be imported not only by pellet but by other biomass such as PKS or wood chips.

Potential Customers Existing biomass power plants (both dedicated / co-firing) in short term

Newly developed biomass power plants under FIT (more co-firing at IPP) Biomass heat in the future, subject to new program

Dedicated biomass power plants would be designed using domestic biomass

More pellet demand will be expected in co-firing at coal power plants


Conclusions and Issues


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Contacts;

For more information, please feel free to contact;

Hidetoshi IGUCHI

Manager, Bioenergy Business Team,

Mitsubishi Corporation

Email; [email protected]

Phone; +81-3-3210-7446

Fax; +81-3-3210-8041


Thank you for listening to this presentation

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Founded in : 2007Capacity : Over 15,000t/yActivities : Production & sales of PelletsFeedstock : 100% Cedar bark

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Biomass Power Potential in Japan