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  1. Description of product and technology:
    For this assignment I have chosen the topic of pellet usage in the state of North Rhein Westphalia, NRW for short. Since it is one of the biggest factors in heating of private households. Wood pellets are a type of bio-fuel, which consists of compressed wooden biomass. The biomass used often comes from byproducts of sawmills like sawdust or wooden waste like old furniture. There are however pellets that are made from timber directly. In this case the bark has to be removed to lower the amount of ash in the final product. This is important, because any non-wood materials in the pellets will affect their energy efficiency and can also damage the furnace which is used for the incineration. The furnaces used for this are mostly fully automatic. They have some kind of ignition, which can be a glow ignition, that is used to light the pellets on fire. The furnace then proceeds to raise the room temperature to a point that the owner has set him- or herself. If the amount of fuel in the furnace is not sufficient, it can automatically refill the chamber from the storage unit. The air necessary for the most efficient burning is also delivered via an automated system. Traditionally many private households, especially in the country side would use firewood as primary source of heat. With a growing population, there are a few advantages that pellets have as oppose to regular firewood. Firstly, they can be transported more efficiently, because they act more homogeneous. And secondly, they can be produced using wood waste, so the wood is used more efficiently.

  2. Description of the market:
    The market for wood pellets has been growing since 2003. This is due to the increasing number of private households heating with wood pellets, which can be seen in fig.2. The diagram shows a rapid increase with a few big changes in 2005, 2009 and 2017. Before 2017 the growth seems to have lost momentum, which could indicate that the effects of policy measures were starting to decrease. But as we can see in fig.1, the prices for oil have spiked in the beginning of 2017 which is likely to be the main driving force behind the increase in pellet heating systems in private households. Another factor are the low costs of wood pellets compared to fossil fuels. From 2004 forwards wood pellets ("Holzpellets") have almost always been cheaper, as fig.1 suggest. Here we have the pretax price in euro cent per kWh in the years 2002 till 2017. For this comparison a price for oil ("Heizöl") was used that would have to be paid for a delivery of 3000 liters. The pellet price used was for five tons and a distance of 50 km of transportation and the gas price for 33.540 kWh including basic fee. We can see that fossil gas prices are relatively stable. Looking at the changes in oil and pellet prices it becomes clear that the oil price affects the number of pellet heating systems built. One example was mentioned earlier, in 2017 the oil price rose, which promoted growth in the pellet industry. One year earlier the oil price was much lower and the number of pellet furnaces almost stagnated.
    ImageImage
    fig.1 Prices of different energies in Germany from 2002 to 2017 [4]                                                  fig.2 Utilization of pellets in NRW from 2003 to 2017 [4]     

    At the international level, Germany is one of the largest European producers with 2 millions tonnes produced in 2015. It produces 20% of the pellets. Nowadays, the production of Germans pellets has slightly decreased because of the unfavorable conditions. On the other hand, its consumption is not the highest. To satisfy its needs, Germany imports from Austria and mainly from France. It also exports to all the member countries of the European Union [7;8]. 


    fig.3 Balance of pellet volumes for the major European country markets in 2009 [8]

  3. Description of policy measures:
    To promote the use of pellets for heat production in private households the German government used incentives on the installation. In a press release on the 25.01.2016 the "Energy Agentur NRW" ,which is the energy agency of the state, an overview of the policy measures was shown (source: Energy Agentur NRW 2016):
    These measures belong to a program called "Aktion Holzpellets" which was started by the energy agency of the state. It involves companies that install pellet furnaces, specialize on pellet production or marketing. The Government of Germany has launched the so called "Marktanreizprogramm" or "MAP" for short that is used to promote the usage of pellet heating systems in both existing houses and those which are being built. This program uses incentives for the consumer as motivation to use a pellet heating system. The MAP also awards the installation of solar thermal panels for warm water production. Consumers can get additional incentives from the states own program called "progress NRW". In this case it is compulsory to have a pellet heating system that uses a specific type of storage and solar thermal panels. If a consumer is able to part take in both programs, he/she gets an additional bonus. Additionally, there is a third program which works in combination with the MAP. It is called "Anreizprogramm Energieeffizienz" or "APEE" and becomes effective when a very old or inefficient fossil fuel heating system is replaced. According to their example a household of one family would be able to get 9400€ for installing a pellet heating system with buffer storage and a solar thermal panel of ten square meters. This calculation does not feature the APEE however. This includes 20% of the MAP sum and a blanket sum of 600€. The exact incentives of the MAP can be seen in this table:

       fig.4: Incentives of the MAP [9]

  4. Evaluation:
    For me these figures show that the policy method of incentives, has worked quite well in the state of NRW. In the near future their will probably be the point at which the number of pellet heating systems almost stagnates. In my mind this would not be a big problem, because the change has already happened, which is in itself positive. Also, the never-ending increase in pellet furnaces would result in a growing pellet demand, which at some point can not be supplied by local forests or even the entire country. At this point there would be a growing import of wood and/or pellets from outside of Germany. This might be beneficial for the economy and for the industry, but it misses the point of the use of pellets. As far as I know the change from fossil fuels to pellets has been made because of the low impact on CO2 emissions by pellets. If, however more pellets would be imported, the emissions that are linked to the use of pellets would rise again and therefore just swap the emissions from private households to transportation.
    There is also a problem that arises when pellets are imported. That is the control of the forest management in the supplying countries. It might be hard to find out, where exactly the wood has been cut and the circumstances behind it. A German newspaper published an article in 2016, which focused on the issues of an increased pellet use. It says that the pellet use in Germany increases but the timber production stays the same. Meanwhile in neighboring countries the timber production increases massively (source: Welt.de 2016). The following figure shows the annual timber production in cubic meters in Germany:

                      fig.5 Logging in Germany [10]

    This means for me that there must be a growing import of pellets, which increases the risk of illegal deforestation or just a forest management, that is not meant to keep the forests in good condition.
    Another possible change could be, that wood pellets gain more trust in society, as the prices have been relatively stable. The summer 2018 was very hot in Germany which caused low water levels of many rivers. Some rivers are used as a means of transportation for fuel, which meant that the ships could not carry the usual amount. This intern caused the prices of gasoline and also oil to increase. The increase in oil that is used for heating was 15%, according to an article from "Spiegel" which was published 29.09.2018 [3]. These fluctuations could lead to an increasing number of pellet users.

  5. References:
    [1]: Energy Agentur NRW 2016 ( https://www.energieagentur.nrw/bioenergie/pellets__noch_nie_war_die_foerderung_in_nrw_attraktiver ; date: 23.01.2019)
    [2]: Welt.de 2016 (https://www.welt.de/wissenschaft/umwelt/article153440851/Die-naive-Sorglosigkeit-der-Holzpellets-Heizer.html ; date: 23.01.2019)
    [3]: Spiegel 2018 (http://www.spiegel.de/wirtschaft/unternehmen/oelpreis-heizoel-wird-immer-teurer-schuld-ist-der-hitzesommer-a-1230636.html ; date 23.01.2019)
    [4]: Markets and price (https://www.aktion-holzpellets.de/pellet-1x1/markt-preise/ ; date: 23.01.2019)
    [7]: International biomass trade; Blas Mola-Yudego
    [8]: The European wood pellet markets current status and prospects for 2020
    [9]: Bafa Förderung 2019 (https://www.bafa-förderung.de/foerderprogramm_pelletheizungen.htm ; date: 23.01.2019)
    [10]: Umwelt Bundesamt (https://wwpellet heating nrw.pngw.umweltbundesamt.de/daten/land-forstwirtschaft/forstwirtschaft#textpart-1 ; date: 23.01.2019)     
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