Pellet market country report Baltic countries ESTONIA ... · Pellet market country report Baltic countries ... (wood pellets) .....17 4. Pellet production ... Pellet producers focused

Development and promotion of a transparent European Pellets Market

Creation of a European real-time Pellets Atlas

Pellet market country report

Baltic countries

ESTONIA / LATVIA / LITHUANIA

Copyright © LETEK – South Estonian Centre of Renewable Energy

Pilve 16

51015, Märja, Tartu County, Estonia

October 2009

Prepared by LETEK

Marek Muiste

Maria Habicht

Contact [email protected]

[email protected]

Tel. +372-7300 327

This report is available at the pellets@las website at www.pelletsatlas.info

The pellets@las project is supported by the European Commission under the EIE programme (EIE/06/020/SI2.448557). The sole responsibility for the content of this report lies with the authors. It does not necessarily reflect the opinion of the European Communities. The European Commission is not responsible for any use that may be made of the information contained therein.

Country report Baltic States: Estonia, Latvia, Lithuania

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TABLE OF CONTENTS

1. Summary ...........................................................................4

2. Pellet markets in the Baltics............................................6

2.1. Estonian pellet market.................................................................6

2.2. Latvian pellet market .................................................................12

2.3. Lithuanian pellet market ............................................................14

3. History of market development (wood pellets) ...........17

4. Pellet production ............................................................19

5. Pellet trade and logistics ...............................................22

6. Pellet consumption ........................................................23

7. Mixed biomass pellets ...................................................25

8. Legal framework & Policy..............................................27

9. Barriers and solutions ...................................................31


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1. Summary

The pellet market as a part of the bioenergy sector has great impact on the implementation of European Union (EU) and United Nations climate policies. Estonia and Latvia have been participating in this market for many years and have seen many changes concerning pellet market development. During the last years the produced amount of pellets has stabilized in Estonia and Latvia at around 350,000 tons per year which equals up to 6 % of the total European production.

Estonia, Latvia and Lithuania have agreed to several international environmental obligations such as the United Nations Framework Convention on Climate change, the alliance with the European Union and its legislation etc. This and also the development of the bioenergy sector have brought significant increase of the use of bioenergy in those countries. In 2005, the average share of green energy in total energy consumption was 8.5 % in the EU, 34.9 % in Latvia, 18 % in Estonia and 15 % in Lithuania. The targets for 2020 are 20 % in the EU, 42 % in Latvia, 25 % in Estonia and 23 % in Lithuania.

Pellet production provides great opportunities to liquidate the large amount of forest resources in Estonia, Latvia and Finland (also in Lithuania). About 50 % of the Estonian, 50 % of the Latvian and 32 % of the Lithuanian territory is covered by forests. Cheap labor and especially low energy costs in Estonia and Latvia (but also generally good conditions for investments and low taxes) gave them good starting positions for entering the pellet market at the end of 1990’s. From the start on those countries had been export markets, mostly to the Nordic region (Sweden and Denmark). This has many reasons one of which is that the owners of production facilities (investors) are often from that region (e.g. Vapo from Finland – although today their pellet production in their Estonian company Tootsi Turvas has stopped) or have long existing cooperation with that region. But the main reasons for focusing Nordic countries are that they are close, have a high demand and good price levels.

Although there are many similarities of the Estonian, Latvian and Finnish pellet market the development of the markets has been very different. The Finnish pellet market started as an export market (orientated to Sweden) but has more and more developed a domestic demand. Today almost half of the production is used domestically. In Estonia and Latvia that has never happened and domestic domestic demand remained insignificant. The reason is that there are many barriers to pellet market development while the Finnish government has made huge efforts to overcome those. In the same time neither in Estonia nor in Latvia the pellet market is supported.

There is still a high potential for developing the domestic consumption in Estonia, Latvia and Lithuania. There is a long tradition for using timber for heating purposes (12.5 % of harvested timber in Latvia), as there is a huge wood resource (ca. 10 million m3 in Latvia) that could be used for pelletizing. In Estonia more than half of the annual increment (around 13 million m3) is not be used. Moving from traditional firewood stoves to twice as efficient (and environment friendly) pellet heaters could save money and provide benefits to the environment on the long term, reduce the


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risk of fire accidents and create jobs on local levels. A lack of support schemes, equipment (or high equipment price levels), infrastructure and lacking awareness are the problems that are hampering the development of domestic pellet markets.

One of the important factors influencing the pellet market has been the import of timber from Russia. Lower prizes and good quality raw material caused the wood industry to focus on imported resources. This also applies to a number of pellet producers that are combining industrial by-products, wood waste, forest residues and timber. The consumption of non-renewable fuels for raw material transport has the effect that the environmental benefits from pellets usage become questionable.


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2. Pellet markets in the Baltics

Figure 1: Pellet market actors in Baltic States (Google maps).

A general driver for pellet market development in the Baltic States is the great demand for wood products and bioenergy at global and regional levels.

2.1. Estonian pellet market

The biggest share of renewables use is found in the household sector (71.5 % of consumtion).


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Figure 2: Final energy and non-energy consumption by fuel and sector, 2006 [European Communities / Eurostat 2009].

The total area of Estonia without Lake Peipsi is 4.37 million ha and 50.6 % of this area is covered by forests. The biggest forest owner is the state with 0.8 million ha. About half of the state owned forests and ca. one third of the private forests is softwood which is a high quality raw material for the pellet industry. Until 2040 the planned logging is ca. 13.1 million m3 per year but the real logging has been 5.31 million m3 in 2006 and 6.9 million m3 (1.55 million m3 for heating and 1.1 million m3 waste) which means that about half of the annual increment is not used.

Table 1: Wood waste in Estonia 2004-2007. y. [Estonian Institute of Economic Research – EIER 2007]

Year 2004 2005 2006 2007

Total amount of wood waste, 1000 tons 2 462 2 868 2 404 2 908

The average logging amount for heating purposes between 2002 and 2006 has been 1.71 million m3 and one third of this has been spruce.

With 225 kg the Estonian pellet production per capita was the largest in the world in 2006, followed by Sweden (160 kg) and Latvia (153 kg). There has been a slight increase of production every year and in 2007 the produced amount was 338,000 tons (+15 % as compared to 2006).


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Table 2: Total production of pellets in Estonia between 2004 and 2007. y. [EIER 2007]

Year 2004 2005 2006 2007

Total amount of produced pellets,

x 1000 tons 202 259 293 338

per capita, kg/y 157 199 225 289

There are six main pellet factories in Estonia and the pellet industry is one of the biggest users of wood residues. The total production capacity installed in Estonia in 2008 can be estimated at 485,000 tons.

Table 3: Major Estonian pellet producers [EIER 2007].

Company name Production capacity, x 1000 tons

AS Graanul Invest 150

AS Hansa Graanul 100

AS Kalvi mõis 100

Most of produced pellets are exported. In 2007, about 350,000 tons of produced pellets and briquettes was exported (no imported), mainly to Denmark and Sweden.

Table 4: Export of wood pellets and briquettes 2004-2007. y. x 1000 tons [EIER 2007].

Amount, 1000 tons Sales, m EEK

Year 2004 2005 2006 2007 2004 2005 2006 2007

Export 200 260 309 350 200 265 521 627

After the rise of VAT in July 2007 the pellet prizes have been stable during 2008. The average end-consumer price was around € 181 per ton (VAT incl.).


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Figure 3: Estonian pellet actors [Google Maps].

Figure 4: Pellet producers focused to Estonian capital city as the centre of logistics and trading [Google Maps].


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160

165

170

175

180

185

190

195

200E

UR

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n

Jan

Feb

Mar

ch Apr

May

June

July

Aug

Sep

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Feb

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ch Apr

May

June

July

Aug

Sep

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May

June

July

Aug

Sep

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2007 2008 2009

Figure 5: Pellet price of loose (bulk) pellets 2007-2009 [IERE/Author 2007].


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Table 5: The balance of wood pellets and briquettes production and consumption in Estonia 2004-2007. y. (1000 tons) [EIER 2007].

Year 2004 2005 2006 2007

Reserves at the start of the year 25 31 27 8

Total production of pellets and briquettes

212 267 302 387

Import 0 0 0 0

Total resource of pellets and briquettes

237 298 329 395

Export 200 260 309 350

Domestic consumption 6 11 12 16

incl. for heating 6 11 12 15

incl. boiler houses 2 5 2 3

house heating 4 6 10 12

other consumption 0 0 0 1

Total export and consumption 206 271 321 366

Reserves at the end of the year 31 27 8 29

Total usage of wood pellets and briquettes

237 298 329 395

Domestic consumption for heating per capita

4,4 7,4 8,9 11,9

Support schemes – Estonia

Main scheme: feed-in tariff system.

Comments: feed-in tariffs paid for 7 -12 years but not beyond 2015. Equal feed-in tariff level for all technologies. Relatively low feed-in tariffs make new renewable investments very difficult [DG-TREN 2008].


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2.2. Latvian pellet market

Latvia is leading in using renewable energy in their energy mix.

The biggest share of renewables is used in the household sector (73.8 % of consumption).

Figure 6: Final energy and non-energy consumption by fuel and sector, 2006 [European Communities / Eurostat 2009]

Figure 7: . Latvian pellet actors (violet marks) [Google Maps].


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Figure 8: Pellet producers focused to Latvian capital city as the centre of logistics and trading [Google Maps].

It is estimated that pellet production capacities of more than 740,000 tons annually were installed in Latvia in 2008. However, probably less than 400,000 tons were produced. The amount of pellets exported in 2008 is still impressive since only slightly more than 10 % of the production are used domestically.

Support schemes – Latvia

Main scheme: quota obligation system (since 2002) combined with feed-in tariffs.

Comments: Frequent policy changes and the short duration of guaranteed feed-in tariffs have resulted in high investment uncertainty. The main policy instrument was reformed in 2007, maintaining the basic structure of the scheme. At national level there are yearly quotas and a mandatory purchase framework is set up for RES-E (combined with tendering for wind). The quantity of RES-E sold under the scheme is limited. A quota system (without TGC) typically defines small RES-E amounts to be installed. A high feed-in tariff scheme for wind and small hydropower plants (less than 2 MW) was phased out in January 2003 [DG-TREN 2008].


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2.3. Lithuanian pellet market

Lithuania is the largest of the Baltic countries and provides some industrial infrastructure that is lacking elsewhere in the region, such as oil refining and chemicals [European Communities 2009]. The bioenergy market in Lithuania is very different to those in Latvia and Estonia. The main difference is that bioenergy products are less traded internationally. Less raw materials are imported and the share of firewood export was 3.5 % of the total consumption in 2003 (most of the export is industrial roundwood). Exports go to Scandinavian countries, Germany and UK. The demand for bioenergy is slightly higher (9 % of the total consumption) than the EU average. Still it is much lower than in Latvia or in Estonia. The biggest share of bioenergy is used in the household sector (30.2 %).

Figure 9: Final energy and non-energy consumption by fuel and sector, 2006 [European Communities / Eurostat 2009].

One of the problematic issues for developing the pellet market is the lack of raw material. The annual increment of forests is about 6.4 million m3. The roundwood production was 6.2 million m3 in 2007 – higher than in Estonia with twice the annual increment. It has reached the maximum level but inhibits the build-up of additional resources. Wood pellets as a by-product depend on the whole sector.

The installed pellet production capacity amounted to around 150,000 tons in 2008. The utilization rate is relatively high in Lithuania and it can be estimated that roughly 120,000 tons were produced, mainly for the export since domestic consumption remains low at around 20,000 tons.


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Figure 10: Lithuanian pellet actors [Google Maps].

Figure 11: Pellet producers focused to Lithuanian capital city as the centre of logistics and trading [Google Maps].


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Support schemes – Lithuania

Main scheme: feed-in tariffs combined with a purchase obligation.

Comments: Relatively high fixed feed-in tariffs for hydro (< 10 MW), wind, biomass, guaranteed for 10 years. Closure of the Ignalina nuclear plant which currently supplies the largest share of electricity in Lithuania will strongly affect electricity prices and thus the competitiveness of renewables as well as the support for renewables. Investment programmes limited to companies registered in Lithuania [DG-TREN 2008].


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3. History of market development (wood pellets)

Table 6: The Baltic pellet market actors during the pellets@las project (2007-2009).

A

t th

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tart

Ad

ded

du

rin

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rk

To

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Fin

ish

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g b

ut

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ate

On

th

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ork

Estonia 9 1 10 1 1 3 6

Latvia 23 17 40 3 13 16 2 22

Lithuania 40 7 47 12 10 22 7 18

Total 72 25 97 16 23 39 12 46

Pellet production in the Baltic States started at the beginning of the 21th century. It was related to foreign investments and increasing demand in the Baltic Sea Region (Sweden, Denmark etc.). The original know-how is also based on Scandinavian experience. From the beginning the pellets from Baltic States had a good position in the Nordic market, due to lower production costs (mainly lower energy prizes and salaries).

The further development was related to the growth of the overall wood industry and increasing fossil fuel prices.

The pellet industry was growing until 2007. Afterwards regression was observed. Until the end of 2008 many companies have closed down or changed their profile. The most important reasons are:

• Unfavorable economical development especially concerning international markets;

• Energy prices are dropping – the feasibility of new investments is low;

• Timber import from Russia is decreasing and the increasing custom duties are rising the price of the raw material;

• Domestic forest resource is underused in most of the classes – partly because of tougher market regulations and also the large amount of small scale forest owners who do not always possess the needed technology (as there is a big share of small-scale forest owners).

The pellet markets in Estonia, Latvia and Lithuania are well functioning systems with own strategies, infrastructure, R&D and people. But they are strictly exporting markets although importing raw materials is very common. Domestic consumption did not develop like it has for example in Finland. The development of a large


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domestic market would have helped decreasing the market risks. For now some of the risks have affected the industry and caused regression.

Pellet export from Estonia has grown from 200,000 tons in 2004 up to 350,000 tons in 2007 (80 % and 90 % of the production respectively). This growth is more related to market mechanisms than to technical developments since the capacities for these volumes has been available at least for some years.

It can be presumed that with the production volume of 338,000 tons in 2007 the Estonian pellet market has reached the absolute maximum. Per capita production in Estonia was the largest in this year. It is not likely that these levels will be exceeded in the next years. At the same time Estonia, Latvia and Lithuania have huge unused potentials for using pellets for domestic consumption.

For developing domestic markets more active state policies are required. For example Lithuania, where the nuclear energy facility is closed down, has the unique chance to cover large shares of the electricity market with RES by exploiting its wood pellet potential. Very clear and strong political support is needed but not evident. Also other Baltic states are facing the need to modernize the energy infrastructure from the Soviet time. This way the use of renewable energy resources could be increased. Again this does not seem to be happening in Estonia or in Latvia.


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4. Pellet production

Drivers

• No universal international regulation;

• Low level of renewable energy used to pellet production;

• Relatively low energy costs of production;

• Relatively low costs of production – like salaries;

• Raw material – there is a wood resource available and cheap labor and energy costs can make the price competitive;

• No “whole value chain” based view in pellet industry in Baltic states.

Table 4.1.

Table 7: Estonian pellet producers 2007-2009.y. Covered are those market actors that have finished the pellet producing.

AS Graanul Invest 10149 Tallinn Toompuiestee 33A

Derketa Invest OÜ 10313 Tallinn Paljassaare tee 28E

Flex Heat AS 46202 Lääne-Virumaa, Väike-Maarja Community Ebavere village

Hansa Graanul AS 68613 Valgamaa, Helme vald Patküla

Kronopal OÜ 48306 Jõgeva Tartu mnt 3A

Pelletiveski OÜ 11624 Tallinn Pärnu mnt 238

SJ OÜ 48305 Jõgeva Tallinna mnt 15

Tapor Trade OÜ 11622 Tallinn Liiva 23

Tootsi Turvas AS 87501 Pärnumaa,Tootsi Tööstuse 1

Qcell OÜ 75301 Assaku Veski tee 16A


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Table 8: Latvian pellet producers 2007-2009.y.A

Ezergrava 4035 Ainazi Brivibas 24

Graanul Invest 4718 EzeriĦi, P.O. Launkalne, Launkalnes municipality, Valka district - -

Granulu Serviss 3913 Bauskas region, Iecava “Jaunlūči”

Komiss 1016 Riga Daugavgrivas soseja 6

Kurzemes granulas LTD 3602 Ventspils Kustes dambis 22

Latgran SIA 5134 Jaunjelgava, Aizkraukles Raj Meža iela 4B

Latgranula 2141 Incukalns, Riga district Rupniecibas Street 10

Latsin 5134 Jaunjelgava, Aizkraukles district Meza 4

Latvall SIA Bauska District Iecava

Latvijas granulas 1024 Riga Vangazu 12-1

Malkas Pasaule SIA 1058 Riga Tomsona 4-17

Marama 3405 Liepaja Flotes 16

MARKO KEA SIA 2118 StopiĦu novads, Rīgas rajons Ražotne MARKO

Nelss 1010 Riga Republikas laukums 2

Remars Granula 1015 Riga Gāles 2

RPM 1003 Riga Maza krasta 83

SBE Latvia Ltd 3285 Talsi raj Griki, Lauciena

Sia "Varpas 1" 4701 Valkas pagasts, Valkas rajons “Silkalni”

SIA “Vidzemes Granulas”

4409 Gulbenes region “Malānijas”, BeĜavas pagasts

SIA Gaujas Granulas 1030 Riga Traleru Street 2a

SIA Vidzemes Bioenerăija

4410 Gulbenes region “Malānijas”, BeĜavas pagasts

SIA Zemgales Granulas 3913 Bauskas region, Iecava “Jaunlūči”

Tekolat 1039 Riga Raunas 19

Varpa 5601 Kraslava Zindras 15

Wood energy Latvia 1011 Riga Aleksandra Caka 83/85

A Baltic producing markets are quite dynamic. The overview includes both already closed (2007-2008), newly constructed and planned pellet plants (2009). The actual number of producers in 2008 is estimated at about 15 pellet factories and real production is also derived from those pellet factories (Bioenergy International, 2008).


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Table 9: Lithuanian pellet producers 2007-2009.y.B

UAB "MK laivyba" LT-92121 Klaip÷da Plytų g. 12

UAB Apvalūs medžio gaminiai LT-21386 Zabakos K., Vievio sen., Elektr÷nų sav.

UAB Arifarma LT-60246 G÷luva, Raseinių r.

UAB Baldlitas LT-38254 Ramygalos m., Panev÷žio r. Vienkiemio g. 6

UAB Baltic wood LT- 89327 Krucių k., Tirkšlių sen., Mažeikių r.

UAB Baltwoods LT-27101 Grigišk÷s, Vilnius Vilniaus g. 10

UAB Biodela LT-03229 Vilnius Vytenio g. 50

BIOGRA UAB LT-28613 Utena Taikos 86-19

UAB Biofuelz LT-59126 Prienai Laisv÷s a. 4

UAB BIONOVUS 09308 Vilnius Konctitucijos pr 7

UAB Domoflor LT-01101 Vilnius Tilto 35/4-17

UAB Domus Novella LT-01102 Vilnius Gedimino Avenue 1

ECOHEAT LT-03120 Vilnius Savanorių pr. 36-86

UAB EW Produktai Vilnius

UAB Gairelita LT-82043 Radvilliškis Žironų g. 12

UAB Graanul Invest LT-62175 Alytus Artojų g. 3A

UAB Granulita LT-82323 Baisogala Radviliškio raj. Mokyklos g. 22

UAB Granulta Kurš÷nai

UAB Holz RIVA Garliava, Kauno raj Dobilų g. 13

UAB Interlinija LT-45433 Kaunas Volungių g. 20

UAB Pellet bricket LT-18175 Pabrad÷ Šlaito g. 5

D. Urbiko firma DDD ("Ugnies linija") LT-90104 Varkalių k. Plung÷s r.

UAB Verinvesta LT-08221 Vilnius Kalvarijų g. 125

UAB Vikmaka LT-89224 Mažeikiai Respublikos g. 20-16

VI-SI LT-02244 Vilnius Kirtimu 51

UAB Wood chips LT-76247 Šiauliai Elnio g. 7

Woodimexus LTD LT-06227 Vilnius M.Pretorijaus st. 1-19

UAB Žaliamiškis LT-03223 Vilnius Švitrigailos g. 8/14

B Baltic producing markets are quite dynamic. The overview includes both already closed (2007-2008), newly constructed and planned pellet plants (2009). The actual number of producers in 2008 is estimated at about 6 pellet factories and real production is also derived from those pellet factories (Bioenergy International, 2008).


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5. Pellet trade and logistics

Drivers

• Related to export – the domestic consumption of wood pellets is almost non-existing in the Baltic states;

• Related to import – existence of imported timber in the market;

• Related to infrastructure needed for logistics – ports, railroads and motorways have a critical impact on the pellet industry.

The establishment of the pellet industry in the Baltic States is very typical and follows the example of Finland where also foreign (Swedish) investors started to produce pellets to fulfill the need of other markets. As it is a normal process to cross the market cap on the production site it also follows the typical scenario of trade based economy. The facilities are located near transport infrastructures and strongly integrated in large scale trade routes. Although the price is not calculated based on the local economical situation but on the situation of the target area the producer benefits from the lower costs of resources and/or work (facility workers, experts, R&D staff etc).

According to regional peculiarities the main transport mode is mixed but international ship transport over the Baltic Sea strongly dominates. Local transport is done by trucks and railway. These logistics of pellet products cause a significant output of non-renewable CO2. As it also requires extra energy for long-distance logistics the already relatively low energy payback ratio for the pellets from Estonia, Latvia and Lithuania is further reduced.


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6. Pellet consumption

Drivers

• Higher price in international markets;

• Higher price than other RES (woodchips for example);

• Lack of domestic equipment producers/consultants/experts;

• Lack of easy and good quality supply chain for any target group.

There is relatively low domestic pellet consumption in Estonia, Latvia and Lithuania.

Table 10: Estonian wood pellet and briquettes consumption in 2004-2007.y. (1000 tons) [EIRE 2007]

Year 2004 2005 2006 2007

Export 200 260 309 350

Domestic consumption 6 11 12 16

incl. for heating 6 11 12 15

incl. boiler houses 2 5 2 3

house heating 4 6 10 12

other consumption 0 0 0 1

Total export and consumption 206 271 321 366

Reserves at the end of the year 31 27 8 29

Total usage of wood pellets and briquettes 237 298 329 395

Domestic consumption for heating per capita

4,4 7,4 8,9 11,9

Domestic consumption of pellets and briquettes in Estonia was (in 2007) about 16,000 tons of which 15,000 tons were used in heat production. There was no electricity production from pellets. About 80 % of domestic heat produced from pellets and briquettes was produced in households and only about 20 % in boiler houses but still briquettes are preferred. The energy equivalent of heat produced from pellets and briquettes is 260 TJ [EIRE 2007].

There are many reasons why the domestic consumption has not reached the level of domestic production. One of those is the price. Using other bioenergy materials for energy production (e.g. wood chips) is more cost effective. Pellets are a convenient solution as a higher level of automation is possible but this convenience is partly lost when there is no quality supply chain. The quality of supply is important as the pellets are more fragile then for instance wood chips. On the other hand there will be no


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supply infrastructure if there is no critical demand. Strong external support (state, region, EU) is needed to overcome this situation.

If we look at the maps of pellet actors we see a great dependence on large scale trade networks. Most of the facilities are located near the transport infrastructures for better logistics of raw material and the product. It is especially visible in Latvia. This model is excellent for the exporting market but requires extra levels for domestic marketing.


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7. Mixed biomass pellets

For a long time there were two separate concepts of using biomass in energy production in Estonia, Latvia and Lithuania. The main concept was that there is no need for processing raw materials and they were used after crushing (wood chips). It also was the way the wood waste was used in small-scale energy production as it has the best price value.

The other concept was mainly applied in peat industry as they used to produce peat briquettes for individual heating systems. Briquettes are mostly used in non-automated systems for example in ordinary household ovens. Today there is a small market also for wood briquettes.

The idea of producing pellets from other materials than wood is quite new in Estonia, Latvia and Lithuania. There has been some research about the topic which has identified some more or less important problems. One of the main problems is that although pellets from straw or other stubbles look almost like wood pellets (especially if the materials are mixed) and although the production process is similar, they still cannot be used the same way as wood pellets. Those materials burn very differently as compared to wood and will ruin an ordinary wood boiler due to a different ash structure. The development of special mixed material boilers is still at research stage.

The potential for using straw as a raw material for energy producing is high. The technical potential could be 0.57 million tons in Latvia and 1.7 million tons in Lithuania (about 25 PJ). In Estonia the sum of the energy from straw, agricultural waste, landfill gas, energy forest and wet field plans was estimated at up to 72 PJ [Miskinis et al 2006].

Besides wood, there are two basic types of biomass considered for energy production and there has been research on both of them: agricultural residues like wheat straw, rye straw and non-agricultural feedstocks like reed.

There is no industrial/large scale manufacturer for MBP nor is there a normal MBP market in Estonia.

Experiments show that generating chips and briquettes from wheat straw and rye straw can be similar to processing wood but it is not so easy with reed. For this reason mixed biomass is used for more compact and quality fractions.

Figure 12: Wheat straw (left), ray straw (middle) and reed’s briquette (right)

made with a special press BIOMASSER BS06 [Olt et al 2008].

In most cases sawdust and wood is used but in some cases mixing with different biomaterials is also possible and this is one of the fields of research.

In Estonia the amount of agricultural straw was ca. 810,000 tons in 2007 [Olt, Kiviloo & Laur 2008] and the potential for reed is 105,000 tons [Kask & Kask 2007]. For energy producing 894 tons of straw were used in 2007 which is about 0.1 % of the


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whole straw production. So there is some potential for MBP markets to develop although there are both technological and economical barriers. Also high expertise is required both in research and production.

Factors hampering market development

For peat pellets usually milled peat is used. The technology is similar to wood pelletizing and the same machinery can be used. Peat pellets could be made in swamps or in factories where dryer pellets could be produced. There is still no peat pellet market in the Baltic States as peat is traditionally used crushed or briquetted (households). With increasing popularity of wood pellets also the peat pellet market will hopefully develop.

The main problem with straw pellets (stubbles) is the ash. Although the theoretical consistency of straw dry matter is similar to wood (but the fuel value is smaller) the practical consistency depends strongly on that particular moment when the field has been harvested. For example chlorine contents vary between 0.14 (early harvest) up to 0.97 % (late harvest).

Table 11: Consistency in dry matter of straw [Vares et al 2005].

Consistency of an element in dry matter, %

Variety Average value

C 45-47 46

H 5,8-6,0 5,9

N 0,4-0,6 0,5

O 39-41 40

S 0,01-0,13 0,08

Cl 0,14-0,97 0,31

The amount of ash is comparatively high and its melting point is low (735-840°C) – much lower than with wood chips. Both the corrosion (from high chlorine) and melted ash are the main problems when using mixed straw pellets in normal boilers. Straw briquettes and pellets have the advantage to provide small weight to volume ratio as compared to unprocessed straw. Still the technology is new and has not reached the markets yet.


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8. Legal framework & Policy

There is no special legislation concerning pellets as a product. But there is a wide legal framework that deals with biofuels and bioenergy. On the front of environmental and energy regulations EU directives implement the EU climate policy. Estonia, Latvia and Lithuania are also part of the United Nations Framework Convention on Climate Change and the Kyoto protocol. The local regulations like the national energy laws are harmonized with EU regulations (most important is Directive 2001/77/EC which is the main regulative act about renewable energy sources).

EU regulations concerning the pellet market framework [DG-TREN 2008]

• Directive 2001/77/EC (OJ L 283, 27.10.2001) of the European Parliament and of the Council on the promotion of electricity produced from renewable energy sources in the internal market. The Directive sets a 21 % indicative share of electricity produced from renewable energy sources in total Community electricity consumption by 2010. It defines national indicative targets for each Member State, encourages the use of national support schemes, the elimination of administrative barriers and grid system integration, and lays down the obligation to issue renewable energy producers with guarantees of origin if they request them. With current policies and efforts in place, it can be expected that a share of 19% by 2010 –rather than the 21% aimed at - will be reached.

• Directive 2003/30/EC (OJ L 123, 17.5.2003) of the European Parliament and of the Council on the promotion of the use of biofuels or other renewable fuels for transport: the Directive sets a target of 5.75 % of biofuels of all petrol and diesel for transport placed on the market by 31 December 2010. Member States were required to set indicative targets for 2005, taking a reference value of 2% into account. This interim indicative target has not been achieved. Biofuels counted to 1 % of transport fuel in 2005. The Commission's conclusion according to the assessment of the progress is that the target for 2010 is not likely to be achieved- expectations are for a share of about 4.2%.

• Provisions of the former 2001/77/EC and 2003/30/EC Directives that overlap with the provisions of the new Directive will be deleted at the moment of transposition; those that deal with targets and reporting for 2010 will remain in force until 31 December 2011.

• Directive 2003/96/EC restructuring the Community framework for taxation of energy products and electricity lays down a legal framework for fiscal and other national measures to promote biofuels. It contains specific provisions for reducing tax rates on energy from biomass and allowing for tax differentiation as a promotional measure. Other possible measures include the promotion of biofuels in public transport and information campaigns on the benefits and availability of biofuels. In Estonia, the Act on Alcohol, Tobacco and Fuel Excise Duties contains fiscal incentives to promote the use of biofuels [Kulovesi 2008].

• Proposal (January 2008) for a new Directive on the promotion of the use of energy from renewable sources in which (Annex I) the renewable energy consumption and targets are following:


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Table 12: Energy consumption from renewable energy sources in 2005 and target 2020 [DG-TREN 2008 modified by author].

Country RES energy consumption 2005 Target 2020

Estonia 18% 25%

Latvia 34.9% 42%

Lithuania 15% 23%

EU average 8% 21%

National bioenergy market policies in Estonia

Estonian targets on sustainable energy management are:

• 20 % of the electricity produced in CHP (cogeneration) for 2020;

• 5.1 % of energy by 2010 from RES;

• 25 % of energy produced from renewable sources for 2020;

• Improving transport sector to use more biofuels.

These are the strategic objectives of the Long-Term Development Plan for the Fuel and Energy Sector until 2015 (2004).

The Long-Term Fuel and Energy Sector Development Plan envisages, inter alia, the following steps towards the development of the Estonian fuel and energy sector [Kulovesi 2008]:

• increasing the proportion of peat, biofuels and wind power in the primary energy balance and decreasing the consumption of oil shale;

• continuing to increase the proportion of renewable energy beyond 2015;

• preserving the existing combined heat and power generation capacity and encouraging the establishment of new capacities. By the year 020, the proportion of electricity produced through CHP increases from 13 % to 20 %.;

• developing measures necessary to enable the use of renewable liquid fuels in the transport sector.

The Estonian Electricity Market Development Plan 2005-2015, adopted in 2006 on the basis of the Electricity Market Act, complements the Long-Term Fuel and Energy Sector Development Plan. It specifies the following targets for electricity production from renewable sources up to 2015 [Kulovesi 2008]:

Table 13: Solid biofuels in electricity production in Estonia

YEAR 2005 2010 2015

TARGET 0.2% 2.5% 3.0%


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Estonia has adopted a number of policies and regulations relevant to the use of bioenergy. In line with EU’s energy and climate policies, Estonia has established a target to increase the use of renewable energy by 2010 and the Electricity Market Act contains incentives to promote electricity production from renewable sources as well as the co-generation of heat and power. In line with the EU’s policy to promote biofuels in the transport sector, the Alcohol, Tobacco and Fuel Excise Duty Act exempts biofuels from the fuel excise duty and biomass is also exempt for the pollution charge for carbon dioxide under the Environmental Charges Act [Kulovesi 2008].

Estonia also participates in the EU’s Emissions Trading Scheme (ETS), which sets a price for carbon dioxide emissions, thereby increasing the economic attractiveness of bioenergy in comparison to fossil fuels. As an Annex I country under the United Nations Framework Convention on Climate Change (UNFCCC) and a party to the Kyoto Protocol, Estonia has a quantitative greenhouse gas emissions reduction commitment for the period from 2008 to 2012. It can also participate in Joint Implementation (JI) and emission trading under the Kyoto Protocol, and is currently hosting four JI projects using bioenergy [Kulovesi 2008].

National bioenergy market policies in Latvia

Energy policy documents in Latvia are [Miskinis et al 2005]:

• National Energy Program,

• Law on Energy,

• National Program for Production and Use of Bio-fuel in Latvia,

• Law on Biofuel.

As wood is one of the common local resources in Latvia its importance is reflected in the National Energy Program. Prioritizing rational and balanced usage of RES and environmental influences the program sets strategic goals and relates them with the implementation measures until 2020.

The Latvian Law of energy tries to restructure the existing energy industry. One of the key points is prioritizing co-generation as an efficient way of energy production. The target is to bring different energy sources in use and also provide highly efficient and more environmental friendly energy to the market.

For fulfilling the goals of the National Energy Program considering the usage of bio-resources for energy production, a separate National Program for the Production and Use of Biofuels in Latvia was developed by the Ministry of Agriculture (2003). It deals with agricultural bio-resources, generation of biogas, production of biofuels (from rapeseed oil) and the promotion of the usage of bioenergy in Latvia. For implementing this strategy a separate Law on Biofuel (2005) was generated which is the main regulation also for wood based bioenergy.

National bioenergy market policies in Lithuania

Relevant Lithuanian energy policy documents are [Minskinis et al 2005]:


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• National Energy Strategy,

• National Energy Efficiency Program,

• Procedure for Purchasing Heat from Independent Suppliers to Heat Supply Networks,

• Procedure for Promoting Generation and Purchasing of Electricity Produced Using Renewable and Waste Energy Sources,

• Regulations on Public Services Obligations,

• Program on the Promotion of Biofuel Production and Consumption in 2004–2010.

To reduce the dependency on foreign energy resources is one of the goals of the energy strategy. The implementation of that strategy means also increasing the energy security, reducing the environmental footprint and promoting the usage of RES. In the main focus of this strategy is the wood based bioenergy. For the implementation of the strategy, the Law on Energy was established as the main regulative document.

Lithuanian relevant legal framework are [Minskinis et al 2005]:

• National Energy Strategy (RES 12% in consumption for 2010),

• Law on Biofuel, Biofuels for Transport and Bio-oils,

• Law on Excise Taxes,

• Law on Pollution Taxes,

• Law on Electricity,

• Law on Heat.

The implementation of the strategies in bioenergy is declared in a Program of Promotion of Bio-fuel Production and Consumption in 2004–2010 (Program, 2004).

The share of renewable energy was 15 % of the total consumption in 2005. That means that the National Energy Strategy has been successful. The next target will be 23 % for the 2020. This is also realistic as the Lithuanian energy market will change rapidly after 2010. This is the deadline for replacing nuclear energy with something different. There is strong pressure to replace the needed energy by gas based co-generation but it is also a unique opportunity to dramatically increase the usage of RES by such a short time.


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9. Barriers and solutions

The bioenergy market in Baltic States is rather unique. Estonia and especially Latvia have the good share of renewables in their energy mix and also Lithuania uses a larger RES share than the European Union average. Estonia and Latvia have strong pellet markets (Estonia has the biggest amount of produced pellets per capita in the world) but like in Lithuania the markets are focused only on exports. Domestic pellet consumption is still marginal today. Although the countries have significant resources of straw (and other agricultural energy crops) there is no industrial mixed biomass pellet production in that region.

The most important reason for this kind of market model is the prize of pellets. Pellets are costly and there is also a general lack of awareness concerning the possibilities of using pellets in households, boiler houses and small scale energy production units. It is hard to convince the house owners to invest in pellet stoves/boilers but it is more likely that they will invest first positive experiences are available.

The market model has taken advantage from relatively low production costs of pellets in Estonia, Latvia and Lithuania for years now which made these countries internationally competitive. But these conditions cannot be relied upon forever.

A good example how to lower the risks in the Baltic pellet markets is the “Finnish example”. The Finnish market started as a typical export oriented market but has evolved during the last years. Today almost half of the produced pellets are consumed domestically. The Finnish government and the Finnish pellet sector have made large efforts to turn the orientation of the market from the export to a shared model where domestic consumption helps to stabilize the fluctuations in the international market. This is a lesson also worth learning in Estonia, Latvia and Lithuania.

The domestic Baltic market has a huge potential for the local pellet producers/traders but it is unlikely that they cannot succeed alone. They need national governments as partners in this process to develop a more environmentally friendly energy sector. It is clear that existing support schemes have not been successful in terms of generating a domestic pellet market. Something more efficient is needed here. Also the pellet producers should focus more on reducing energy intensity and usage of non-renewable energy in the process of pellet production. Only this way the energy sector can reduce the pressure on the environment and impacts on climate change.

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