Biomass, the term for any plant or animal material, is renewable because it can be reproduced in a short amount of time relative to crude oil for example. As long as we have plants, we can use them to power the world.
Since there are very few places on Earth without plants, theoretically biomass can be used for energy generation in almost any country. Global capacity for biomass has been steadily rising since the early 2010s and we are seeing more use of bioenergy for electricity, heating and transportation.1 While solid biomass and traditional use of it i.e. combustion dominates, modern uses such as biofuel production through cogeneration is becoming more popular.2 Biomass is the leading renewable energy source in the EU, especially for heating and cooling, with Sweden, Latvia and Poland as the primary consumers.3 And after wind, biomass is Britain’s second largest source of renewable energy.
We know it’s popular but how does plant waste power machines?
How does biomass generate electricity?
While plants harvest energy from the sun, we can’t use their energy without first turning them into biofuels, typically by combustion. This all happens in a boiler-steam turbine complex:
- Burning biomass produces steam.
- This steam is contained in the boiler, eventually the pressure from building a volume of steam will force the connected turbine to spin;
- The movement of the turbine causes an electricity generator to turn on;
- Therefore, electric current flows through the system.
Although biomass could be used anywhere, countries with rich agroforestry are going to be the main beneficiaries from this energy source. In this entry we are examining the market of a future leader in biomass renewable energy generation – Southeast Asia, particularly the ASEAN community.
In 2019 Asia used more solid biomass for power than any other continent.4 Much of the region’s agricultural biomass materials, such as palm kernel shell, bagasse, rice husk and wood chips or pellets (to name a few) comes from the 10 ASEAN states which have the potential to produce over 500 million tonnes per year or over 8000 million gigajoules of energy from biomass.5 Of course, the opportunities for energy generation differ across the subcontinent, presenting different ways to reduce the carbon exposure and risk of your business operations.
What is carbon risk?
Carbon risk is the possible loss a business can face as the global economy moves from a brown (oil dependent) economy to a green economy. In other words, the probability that the value of your supply chains, investments and business models will change based on the carbon emissions involved in each of them, especially in the event of changes to carbon pricing. Your business’ carbon exposure will inform much of its carbon risk. Using different energy sources can minimise your carbon risk. One region with rich biomass energy diversity is Southeast Asia.
What are Southeast Asia’s biomass renewable energy stocks?
Since almost all Southeast Asian countries are big agriculture-based economies, they have a lot of agriculture residues at their disposal. For example:
- Palm kernels
- Empty palm fruit bunches
- Cassava chips, to be converted into ethanol
- Wood chips or pellets
- Rice husks/ pellets/ straws
- Coconut residue
Advantages of biomass
- Biofuels are less carbon intensive than fossil fuels
- Our energy services offering helps you develop on-site steam and energy generation. This can help you save on cost per energy unit overtime because generating energy in-house can be cheaper than buying from the grid, and the investment in equipment for generation of steam and energy can be outsourced to an energy operating partner or a CZ-approved lender.
- Biomass has a long shelf-life; it can be stored for a year or more which means it serves as physical energy storage to guarantee energy supply.
Disadvantages of biomass
- If you are new to using biomass, you will need secure supply which can be difficult to structure because it involves constant physical biomass supply and pricing can be volatile. But CZ is a reliable partner in sourcing, funding and operating your long-term biomass supply.
- Farming plant material for the sole purpose of converting them to biofuels is disadvantageous because it requires a lot of land mass and water. Biomass energy is most environmentally beneficial when it is generated from waste products
- Like many renewable energy sources, biomass is not a zero-carbon solution
The cost of biomass energy
The marginal cost of renewable energy production varies from country to country but in situations where global fossil fuel prices are higher, biomass becomes a more attractive option; like in 2022, when coal and crude oil prices rose by more than 300% and 50% respectively making biomass more competitive than it has ever been.6,7 Still, solar energy remains the cheapest option in Southeast Asia meaning it will likely beat biomass in the race for expansion.
How does the ASEAN biomass energy market work?
In 2016 the 10 ASEAN states committed to reaching 23% renewable energy by 2025.8 When considering the volumes of biomass stock they possess alone, this seems achievable. However, many renewable energy markets in ASEAN countries are government regulated, meaning investment from private companies is limited, and to an extent, so is market expansion. For example, in Thailand and Vietnam private energy generators can only sell national grid-connected energy projects to the government. It is possible for a private company to sell its energy to another private company; however, this is usually under a private purchase agreement (PPA) arrangement whereby private energy operators can sell directly to the consumer if it is on-site direct generation.
But there are also countries, like Singapore, with an unregulated market and more generation and trading of renewable energy credits (RECs – more on that later) while many of the nations with a larger agroforestry industry, and therefore more biomass materials, tend to have less active REC markets and limited large scale biofuel energy generation.
How renewable energy credits work in the ASEAN economic community
If you’re unfamiliar with REC trading structures here’s a brief summary: a country sets a system whereby a monetary value is attached to a certain volume of CO2 emissions that is avoided when renewable energy is used in place of fossil fuels. REC markets are voluntary market that lets you sell on-grid energy volumes to the national grid, which is government operated. This means you don’t have to lose money from unused energy. It is good practice to generate and consume RECs is the same country. In other parts of the world, consumers may choose to buy RECs to offset some of their carbon emissions, but this is less likely in SE Asia because REC are just getting started meaning supply is quite low to warrant this type of trading. Still, deregulation is coming which will spur trading of RECs as more generators jump on board because of more favourable pricing and trading around these instruments.
If you’re really into this stuff, we explain this concept in-depth in this blog on the US and Brazilian ethanol markets (the two largest in the world).
Why should my business use renewables in Southeast Asia?
Deregulation is coming imminently in Vietnam and Thailand (both of which we operate in, along with Singapore) which means the market could become more favourable for newcomers. As we mentioned earlier, this region also has the potential to become a major world biofuel producer.
What biomass business does Czarnikow do in Southeast Asia?
For the 15 years we have pioneered the creation of green and brownfield co-generation projects, acting as a financial advisor to co-generators looking to raise capital for steam and energy supply. Our Corporate Finance team will also manage the installation and operations for your electricity generation project using biofuels from waste. For example, using bagasse, a by-product of milling sugarcane, to turn power milling machinery. On-site generation like this is particularly helpful for industrial consumers that already have lots of biomass available because, as you can imagine, you need a constant supply of biomass to generate energy this way.
The Southeast Asia biomass space is full of opportunities for a company looking to get ahead of the biomass boom by benefiting from a long-term investment in renewable energy for its operations, and therefore reduce its carbon risk. The big question is what Thailand’s and Vietnam’s energy markets will look like when deregulation comes in the next three years.
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- International Renewable Energy Association. Bioenergy. Available at: Bioenergy (irena.org)
- International Energy Agency, 2021. IEA Bioenergy Countries’ Report – Update 2021. Available at: CountriesReport2021_final.pdf (ieabioenergy.com)
- European Commission. Biomass. Available at: Biomass (europa.eu)
- World Bioenergy Association, 2021. Global Bioenergy Statistics 2021. Available at: 211214 WBA GBS 2021.pdf (worldbioenergy.org)
- ASEAN, 2021. Asean Strategy on Sustainable Biomass Energy for Agriculture Communities and Rural Development In 2020-2030 FAFD-53.-Biomass-Energy-Strategy-ASEAN-2020-2030-Final-Draft-210820.pdf
- Markets Insider, 2022. Coal Price Today. Available at: Coal PRICE Today | Coal Spot Price Chart | Live Price of Coal per Ounce | Markets Insider (businessinsider.com)
- Markets Insider, 2022. Crude Oil Price (Brent) Today. Available at: Crude Oil Price Today | BRENT OIL PRICE CHART | OIL PRICE PER BARREL | Markets Insider (businessinsider.com)
- Ben Kritz, 2016. Renewables must reach 23% of energy mix by 2025. The Manila Times. Available at: Renewables must reach 23% of energy mix by 2025 | The Manila Times