Biomass Trading Floor - Business Study

Wood Biomass Trading Floor Business Study
by
ENVIROMAC
and
SUSTAINABLE DEVELOPMENT
BIOMASS
RENEWABLE ENERGY
April 2010
This report was commissioned by Forestry Commission Scotland for the Regional Biomass Advice Network (RBAN) , in partnership with Scottish Government, Scottish Enterprise and Forest Research. RBAN is part-funded by the European Regional Development Fund.
This report was completed by:

Steve Luker Steve Luker Associates Ltd 7 DOUNE CRESCENT NEWTON MEARNS GLASGOW G77 5NR www.stevelukerassociates.co.uk OFFICE: 0141 416 4230 MOBILE TEL: 07970 522160 EMAIL: steveluker@hotmail.com SKYPE: steve luker Tel: (+44) 0131 473 2330 Fax: (+44) 0131 473 2326 Mob: (+44) 0780 133 7590 Angus Macpherson Managing Director Enviromac Hudson House, 8 Albany Street Edinburgh EH1 3QB
Contents
Summary ........................................................................................................................................................ 5 The purpose of the scoping study is to examine the issues associated with developing an internet based woody biomass trading floor a market place. This builds on one of the recommendations of Wood Fuel Task Force report published in 2008 and covers: ........................................................................................... 5 What is an internet based biomass trading floor? ........................................................................................ 5 Some advantages of a biomass trading system .......................................................................................... 5 What changes are happening that create a role for an exchange?.............................................................. 6 Sector questionnaire ................................................................................................................................... 6 Comparator review ...................................................................................................................................... 6 Industry attitudes ......................................................................................................................................... 7 Outline business plan .................................................................................................................................. 7 Anticipated challenges ................................................................................................................................ 7 The development of a trading floor and the next steps ................................................................................ 8 1.0 Introduction and context ............................................................................................................................ 9 1.1 1.2 1.3 1.4 2.1 2.2 2.3 3.1 3.2 3.3 3.4 3.5 4.1 4.2 4.3 4.4 Purpose and methodology .............................................................................................................. 9 EU renewable energy targets and the demand for wood ............................................................... 10 UK and Scottish context ................................................................................................................ 11 Summary and analysis of biomass use by 2020 ........................................................................... 13 Introduction ................................................................................................................................... 19 Objectives of websites................................................................................................................... 19 Location and materials .................................................................................................................. 20 Industry questionnaires ................................................................................................................. 22 Workshop ...................................................................................................................................... 26 Summary comments ..................................................................................................................... 27 Potential impacts on other sectors ................................................................................................ 28 Conclusion .................................................................................................................................... 29 Trading issues ............................................................................................................................... 30 How exchanges work .................................................................................................................... 31 Anticipated challenges .................................................................................................................. 33 Outline business plan .................................................................................................................... 33
2.0 Comparator review.................................................................................................................................. 19
3.0 Survey and industry attitudes .................................................................................................................. 22
4.0 A wood energy trading exchange ............................................................................................................ 30
5.0 Costed proposals for the development of a trading floor ......................................................................... 35 Appendix 1: Market based use estimates ..................................................................................................... 37 Appendix 2: Forecast of prospective users ................................................................................................... 39 Appendix 3: List of companies surveyed ....................................................................................................... 44 Appendix 4: Questionnaire and accompanying letter .................................................................................... 46 Appendix 5: Websites surveyed. ................................................................................................................... 48
Appendix 6: Woodfuel specifications ............................................................................................................ 49 Appendix 7: Website ..................................................................................................................................... 50 Appendix 8: Detailed breakdown of potential participants and number of market operators required ........... 57 Index of figures: Figure 1 EU wood use and supply by 2020 Figure 2 UK renewable mix by 2020 Figure 3 UK wood supply and use 2020 Figure 4 Renewable heat targets in Scotland by 2020 Figure 5 Forecast wood use UK 2020 Figure 6 Forecast wood use Scotland 2020 Figure 7 Estimated current wood energy use Figure 8 UK forecast of wood use Figure 9 Scottish forecast of wood use Figure 10 Buyers in the UK by 2020 Figure 11 Buyers in Scotland by 2020 Figure 12 Sellers in Scotland by 2020 Figure 13 Sellers in Scotland by 2020 Figure 14 Forecast of wood energy use Figure 15 Forecast of wood buyers and sellers Figure 16 Scottish wood energy use Figure 17 Scottish wood energy buyers and sellers Figure 18 Aspirations of identified websites Figure 19 Target markets of websites Figure 20 Materials traded Figure 21 Numbers of materials covered per website Figure 22 Would you use a biomass exchange? Figure 23 What materials should an exchange focus on? Figure 24 What type of biomass would you trade? Figure 25 Cause of disputes Figure 26 Volumes of sales Figure 27 Contract terms Figure 28 Worksop attendees Figure 29 Website front page Figure 30 Cost plan 10 11 12 12 13 13 14 14 15 15 15 15 15 16 17 17 18 20 20 21 21 22 23 23 24 25 25 26 31 36
Summary
The purpose of the scoping study is to examine the issues associated with developing an internet based woody biomass trading floor a market place. This builds on one of the recommendations of Wood Fuel Task Force report published in 2008 and covers: An analysis of similar systems elsewhere An assessment of industry attitudes to a biomass trading floor through face to face interviews, a workshop and questionnaires. An outline business plan for a biomass trading floor and key requirements for successful implementation. Costed proposals for the delivery of trading floor to an operational level initially focusing on Central Scotland
What is an internet based biomass trading floor?

An internet based biomass trading floor is a forum through which buyers and sellers of biomass trade using a common set of rules. As a result trading between multiple users is swift, simple and secure and enables buyers and sellers to buy and sell at the best available prices. It increases trading flexibility, certainty and price transparency which then becomes the benchmark for material availability. The internet provides real time transaction information and allows the market place to be taken to the market rather than all market participants having to come to a single physical location. Electronic communications provide an auditable trail of all transactions from order to final delivery. The operation of a trading floor could be funded by a mixture of joining fees, annual subscriptions and transaction fees. The costs of detailed development and the setting up of the trading floor will require at risk development funds from the public and private sector. Successful sites (trading other commodities) work because they achieve a critical level of liquidity, the scale of transaction volumes and continuous demand and supply that are required to enable the trading site to achieve credibility and to work sustainably. The size of the market is a crucial element in identifying whether or not a marketplace can achieve critical liquidity, as is the number of buyers and sellers. This critical level frequently takes between 5 and 7 years to achieve.
Some advantages of a biomass trading system

Trading standardised contracts and reporting their traded price and volume creates price transparency which informs and potentially stimulates new or uncertain market entrants. Common rules provide a level playing field for all businesses large or small introducing the ability to trade flexibly at a low cost based on equal market knowledge. The regulated environment provides a template for dispute resolution. The use of standardised contracts allows a transparent transaction price to be developed. The participation criteria for an exchange can be used to raise standards.
Allows the development of trading forward and future contracts which provide both counter-parties with certainty of price and volume at a known date in the future.
What changes are happening that create a role for an exchange?

The regulatory drive towards biomass within the Renewables Obligation and the Renewable Heat Incentive suggest that the demand and supply patterns of biomass and wood energy products in particular will both change and increase significantly over the next decade. In the United Kingdom there could be a supply shortfall of 22 million tonnes pa, which represents 55% of total forecast wood use. As a result the sector is looking for a forum in which to be able to focus demand and supply, identify distribution imbalances, maintain quality standards and encourage new entrants
Sector questionnaire
In July 2009 we issued a letter and questionnaire to 51 companies identified as potential buyers or sellers of wood biomass in Scotland. We obtained 25 replies and 20 competed questionnaires. The results showed: 50% could see benefits of a biomass trading floor and would use it to buy or sell. A trading mechanism for more than just clean wood was preferred. Wood chips followed by pellets followed by logs were the commodities most likely to be traded. Quality was the most frequent cause of disputes. A third of respondents traded less than 1,000 tonnes a month, 11% traded in excess of 25,000 tonnes. A variety of contracts were used for trading with bespoke the most frequent.
As anticipated it was apparent that for many businesses a biomass trading system was little understood.
Comparator review
A rapid comparator review was carried out on sixteen websites in Asia, Europe and USA, operating on regional, national and international basis. It established that: there were information and introduction/matching sites there are no established biomass trading floors. Although some websites and publications produce biomass price indices, real time trading is not available to the sector at present. sites covered a range of biomass products with pellets and woodchips being the most popular sometimes provided a list of suppliers and
Industry attitudes
We followed up the questionnaire with a series of face to face interviews and we held a workshop on 5 October 2009 which was attended by a range of the consulted companies and other interested parties. The results of this process established that the (wood energy) sector did not have any fundamental concerns over the concept of a biomass trading system and in some cases there was considerable enthusiasm. At the workshop and during the interviews we found that most companies expressed a willingness to consider using a trading system alongside their current methods of buying or selling biomass.
1 th
Outline business plan

Initially the biomass trading floor would provide market places for 3 commodities: Conditioned woodchips for the heat market. Low grade wood chips for the power market. Pellets for both the heat and power market.
Its creation would be split into 3 phases: Phase 1: Development of the trading database 6 months Phase 2: Operation of the prototype 18 months Phase 3: Achieving critical liquidity 36 to 60 months To succeed the exchange will need to attract a critical number of buyers and sellers and traded volume - liquidity. At a minimum this would be sufficient for the exchange to be financially sustainable.
Anticipated challenges
The development of trading floor would need to overcome a series of challenges, these include: The trading floor being considered a threat rather than an ally by the sector. The participation criteria being too onerous.
These challenges can be overcome by effective consultation prior to launch, the development of an efficient operational (IT) system and on-going communication and marketing post launch. While integrity and confidentiality are critical at all times, the most important skill at launch is an effective marketing campaign.
With: Dan Gates Econergy Ltd, Gordon Callander Callander Sawmills, Paul Cookson Sustainable Wood Solutions, Alan Massey
Buccleuch Natural Fuels, George Webb Norbord, Ross Cook/Robert Leask Procurement Scotland, Iain MacKinnon/Trevor Jackson Charlesfield, Deborah Keedy Drax Biomass Procurement Manager.
The development of a trading floor and the next steps

The development of a trading system requires significant resources to be deployed to achieve liquidity and in particular over the initial 2 to 3 years. It is envisaged that the prototype phase would be free to participants to encourage take up. In time confidence in the system would increase sufficiently to establish trading volumes that would be high enough to introduce fees and ultimately make the system self sustaining. Experience from launching previous trading floors suggests that this might take several years. The table below shows a potential spend profile2 over years 1 to 3. Year 2010 1 Income to trading platform Running costs Deficit % market traded through market place Tonnes of biomass traded Employees 0.00 225,000 -225,000 0. 5% 2011 2 0.00 200,000 -200,000 1.2% 2012 3 125,000 200,000 -75,000 2.96% Total 75,000 625,000 -500,000
20,000 24
50,000 4
150,000 4
The development of a trading platform could require funding over a number of years and in a prudent scenario as shown above 500,000 of support funding in the first 3 years. A decision to close or significantly alter the project could be made after year 2. Overall it is anticipated the cost of reaching a liquid market is in the region of 1.1 million over 7 years. This might be partially secured through SRDP, KTP or EU funds . This requires further investigation. Private sector finance support could contribute to these costs as well. If liquidity is achieved these funds could be repaid by year 10. It should be noted that no provision in these figures has been made for inflation. Initially it is anticipated given the potential size of the heat market in particular that a project manager and a team of three market developers would be required. While it is possible to reduce or combine employment roles for reasons of financial expediency, to do so increases the risk that the period to achieve critical liquidity either takes longer or is never achieved. The cost could also be reduced (or income generated earlier) if once it is developed, the sector committed early to trading contracts through the trading platform.
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Spread over 3 years: IT Set up costs 75,000, Employment costs 412,500, Overheads 137,500 (including Project Overview, Marketing, Legal, Administration, Settlement, Accounting and IT support, Accommodation, Telephones, Travel, etc) 3 Scottish Rural Development Programme, Knowledge Transfer Project and European Union
1.0 Introduction and context

1.1 Purpose and methodology
The purpose of the scoping study is to examine the issues associated with developing an internet based biomass trading floor a market place. This builds on one of the recommendations of Wood Fuel Task Force report published in 2008. In detail the scoping study is to: 1. Carry out a survey on the potential of a biomass trading floor in Scotland looking specifically at how a trading floor would: help create greater transparency in the market; promote trading of standardised biomass products and identify the most suitable forms of biomass that could be traded. support forward/future markets for biomass products. monitor trends in feedstock sourcing and provide a reporting system on usage encourage long term relationships; provide a role model / mentoring opportunity for advice between businesses from existing to new and pre-start up. assist new suppliers and end users in entering the woodfuel market identify potential barriers to suppliers using the trading floor and suggest how these barriers could be addressed 2. aid in conflict resolution around fuel specifications, quantities and other potential issues
Identify similar trading systems currently in place trading biomass and how they could be used to develop a similar system in Scotland.
3.
Assess industry attitudes to a biomass trading system by a suitable survey. This should be Scotland-wide, involving as many companies as feasibly possible whilst taking into account the budget for the project.
4.
Produce an outline business plan for a successful biomass trading floor and key requirements for successful implementation.
5.
Produce costed proposals for the delivery of the trading floor to an operational level initially focusing on Central Scotland.
The successful development of a biomass trading floor will need the support and participation of both buyers and sellers. We have assessed industry attitudes to a biomass trading system by a questionnaire, which was sent by email and hard copy and followed up by e-mail and telephone, a workshop open to those e-mailed and other interested parties and face to face interviews. As anticipated, it was apparent from an early stage that for many in the sector the concept and advantages of a biomass trading system were little understood.
The feedback from the sector was analysed and knowledge of the current and potential size of the market was used to develop an outline business plan and costed proposals.
1.2
EU renewable energy targets and the demand for wood
The size of the market is a critical element in identifying whether or not a trading floor can achieve critical liquidity, as is the number of potential buyers and sellers. There are a number of regulatory changes which suggest that the demand and supply patterns will both change and increase significantly over the next decade which stimulated the recommendation by the Wood Fuel Task Force to investigate the development of an internet based trading floor. This part of the report provides a rapid appraisal forecast of the growth of traded volumes. The EU has recently set challenging targets for the increased use of renewable energy by 2020. In overall terms renewable energy must meet 20% of total energy use by 2020 (rising from the 2005 use of 8.5%). This overall target is expressed in different ways in each member state and for that reason it is not possible to determine a precise target for the use of wood in meeting this target. However at present 58% of the EUs renewable energy comes from wood. It can be assumed this percentage will fall to 44% by 2020 as the relative share of other renewable technologies will grow to meet the 2020 renewables targets. Based upon this assumption the table that follows shows the EU wide forecast5 use of wood in millions of cubic metres for the year 2020. The use of wood for energy at 538 million cubic metres is based on meeting stated renewable energy targets in each member state. The use of wood for existing markets at 523 million cubic metres is based on the European Forest Sector Outlook Study (EFSOS) in each member state, as is the total forecast supply of wood all for the year 2020.
6 4
Figure 1 EU wood use and supply by 2020

4 5 6
UNECE report March 2008: Wood resources availability and demands II: future wood flows in the forest and energy sector UNECE report March 2008: Wood resources availability and demands II: future wood flows in the forest and energy sector One green tonne of wood chips is about equal to one cubic metre of wood.
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By 2020 this forecast predicts that there will be deficit of 237 million cubic metres of wood, 22.34% of the total forecast wood demand, in the EU. In 2005 the existing wood energy market was around 332 million cubic metres, (in 2020 it is forecast to be 538 million cubic metres) so the main cause of the forecast deficit is a significant increase in the use of wood for energy driven by the renewable energy targets.
1.3
UK and Scottish context
At the UK and Scottish level a number of incentives, targets and policies will affect the use of wood for energy. The proposed Renewable Heat Incentive is a new financial support mechanism that will be created for renewable heat projects. It is a UK national scheme driven by UK Government to be introduced by April 2011. It comprises a payment to generators of renewable heat, the payment will reflect the amount of renewable heat generated in KW\MW hours. This should increase the demand for wood chips and pellets for heating. The UK Renewable Energy Strategy proposes that renewable energy should rise from 1.5% in 2006 to 15% by 2020. The breakdown of this is shown below. Biomass heat, electricity and co-firing total 19% of this. In very approximate terms this is equal to an annual use of 25 million tonnes of wood biomass (green)
Figure 2 UK renewable mix by 2020
It is very difficult to obtain reliable forecasts on the use of wood energy. This is illustrated by the fact that the UK Renewable Energy Strategy mentioned above is not consistent with the UNECE report March 2008: Wood resources availability and demands II: future wood flows in the forest and energy sector. Using the UNCE report the table below shows that by 2020 the UK will have a demand for wood of 42 million cubic metres, but a supply of 20 million cubic metres. The forecast defecit is therefore 22 million cubic metres or 55% of the total forecast demand. This is a signficantly worse situation than for the EU as a whole and suggests the UK will require more than twice as much wood as it can produce to meet its renewable energy targets. This appears to
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be an unsustainable position. It would be made worse by the overall EU position, as these markets will also need more wood than they can supply thus creating demand for exports at the same as domestic demand is massively exceeding supply
Figure 3 UK wood supply and use 2020
The UNCE figures are based upon a whole range of assumptions - notably that renewable energy targets are met. As noted they are also not consistent with other published data sources. However they do indicate that the availability of wood for energy will reduce and the demand for wood for energy will rise. This suggests a trading platform would have a valuable role going forward. In Scotland the 2009 Scottish Government Renewable Action Plan offers an explicit short term target and this means 170 commercial scale wood energy schemes should be installed in the next 2 years. This is based upon meeting the 2% interim milestone for renewable heat in 2011 (and that wood remains at the 90% share of that). In August 2009 the Climate Change (Scotland) Act 2009 received Royal Assent and established an 80% emissions reduction target by 2050. This has been characterised as the largest legally binding reduction target any Country has ever set. As a result Councils now appear legally obliged to reduce their emissions from 2010. The table below shows an estimate of the capacity, number and investment cost of wood energy schemes that would be required each year and in total to meet the current Scottish renewable energy heat target (the range results from how it is assessed). Target to 2020 Million tonnes pa wood use Millions Scottish heat low Scottish heat high 2.0 m tonnes 3.9 m tonnes 2,500MW 4,875MW 1,500 M 2,900 M 500 (150 M pa) 975 (290 M pa) Installed capacity Total investment Annual no. of schemes
Figure 4 Renewable heat targets in Scotland by 2020
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The overall importance of wood energy as part of renewable energy, the fiscal drivers and policy targets indicate that at EU, UK and Scottish levels wood energy will be traded in ever greater volumes over the next 10 years.
1.4
Summary and analysis of biomass use by 2020

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The scope of this study precludes a detailed and comprehensive examination of biomass use ; however using our professional judgement we suggest a low medium and high forecast for wood biomass use now and to 2020. To help develop these forecasts we have compiled a simple snap shot of existing, planned and announced biomass projects in Scotland: this shows that potential demand could rise to over 8.6 million tonnes pa. These figures are presented in detail in Appendix 1. This snap shot contains projects that have been announced but of course may not end up being built. The other forecasts presented in earlier sections of this report show different estimates of forecast biomass use and the table that follows summarises the range of biomass use forecasts that we have identified as part of developing this report. Region UK UK UK UK UK 20M 5M 20M 11M 34.5M 25M Heat Power Total use 29M Comments UNCE report Hawkins Wright from announcements Unattributed Unattributed UK RES
Figure 5 Forecast wood use UK 2020
Region Scotland Scotland Scotland Scotland
Heat 1M 3.9M 2M 2M
Power
Total Use
Comments Climate change programme Scottish heat (high) Scottish heat (low)
0.5M
2.5M
UK RES using population proxy
Figure 6 Forecast wood use Scotland 2020
All these forecasts represent an unprecedented growth in biomass use from the current use of biomass of about 3.25 million tonnes a year (UK wide).
This is a large task and is probably required on an Industry agreed basis in any event
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A breakdown of current estimated wood biomass use is shown below: Estimated current wood fuel use - UK8 User Heat Users Co-firing Pellet makers CHP Power Total Amount in Millions of tonnes (green) 0.2 million tonnes 0.2 million tonnes 0.52 million tonnes 1.02 million tonnes 1.31 million tonnes 3.25 million tonnes
Figure 7 Estimated current wood energy use
The growth in biomass use from around 3.25 million tonnes per annum to anywhere between 11 million to 34.5 million tonnes per annum over 10 years is suggested by policy objectives. However we view such growth as extremely optimistic and clearly out of line with the available resources from forestry and recycled wood. It is only possible to meet them by accessing currently untapped supply such as very high levels of imports and massive new planting of energy crops and by providing a dramatically new environment to encourage high levels of capital investment. Therefore for the business planning purposes of this report we have produced a much more cautious low, medium and high forecast table of biomass use and the numbers of buyers and sellers. This is intended to illustrate a range of biomass use in total for the UK and Scotland and provides a framework to consider how a trading platform might develop. The forecast use is much lower than in the preceding tables primarily because we consider the policy targets are not likely to be met, not all announced projects will be developed and biomass resources will constrain growth. If market growth is higher the development costs of the trading platform could be lower than estimated in this report (as the traded volumes could be higher but so could the numbers of buyers and sellers that require to be serviced which would increase the costs). UK Low Medium High Figure 8 UK forecast of wood use Heat 1M 4M 8M Power 6M 6.5M 10M Total use 7M 10.5M 18M
These figures are our estimates and exclude imported non woody biomass
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Scotland Low Medium High Figure 9 Scottish forecast of wood use
Heat 0.3M 1M 2M
Power 1.5M 4M 8M
Total use 1.8M 5M 10M
UK Woodchips Low Medium High 940 3,784 7,520
Heat Pellets 60 242 480 Woodchips 56 62 94
Power Pellets 4 4 6
Figure 10 Buyers in the UK by 2020
Scotland Woodchips Low Medium High Figure 11 Buyers in Scotland by 2020 240 800 1,600
Power Pellets 1 3 6
UK Woodchips Low Medium High 188 756 1,504
Power Pellets 4 4 6
Figure 12 Sellers in Scotland by 2020
Scotland Woodchips Low Medium High 48 160 320
Power Pellets 0 4 6
Figure 13 Sellers in Scotland by 2020
Our judgement is that the medium forecast is most probable for both the UK and Scotland. This is explored in a little more detail below.
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UK Medium forecast in Thousands of Tonnes by 2020 The table below is a forecast of annual biomass use to 2020. The key assumptions are: Relative size of the heat and power markets in the UK is 38% and 62% of the total market respectively and remains constant 6% of both markets are supplied by pellets and this remains constant as each market grows. The relative source of supply is split 90%:10% of overall supply in 2010 between domestic and imports (excluding Drax) and changes on a straight line variation year on year to 50%:50% of total supply by 2020. The average buyer of chips and pellets for the heat market buys 1,000 tonnes per annum. The average seller or importer of chips or pellets sells 5,000 tonnes per annum. The average buyer, seller or importer of chips and pellets for the power market turns over 100,000 tonnes per annum.
UK '000 tonnes Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Heat Chips 94% 1,160.90 1,276.99 1,462.02 1,647.05 1,832.08 2,017.11 2,202.14 2,311.98 2,421.82 3,027.27 3,784.18 Pellets 6% 74.10 81.51 93.32 105.13 116.94 128.75 140.56 147.57 154.58 193.23 241.54 38% Total 100% 1,235.00 1,358.50 1,555.34 1,752.18 1,949.02 2,145.86 2,342.70 2,459.55 2,576.40 3,220.50 4,025.72 Power Chips 94% 1,894.10 2,083.51 2,385.40 2,687.29 2,989.18 3,291.07 3,592.96 3,772.17 3,951.38 4,939.23 6,174.18 Pellets 6% 120.90 132.99 152.26 171.53 190.80 210.07 229.34 240.78 252.22 315.27 394.10 62% Total 100% 2,015.00 2,216.50 2,537.66 2,858.82 3,179.98 3,501.14 3,822.30 4,012.95 4,203.60 5,254.50 6,568.28 Total '000 tonnes per annum 3,250 3,575 4,093 4,611 5,129 5,647 6,165 6,472.50 6,780 8,475 10,594 Domestic Import
2,925.00 3,074.50 3,356.26 3,596.58 3,795.46 3,952.90 4,068.90 4,012.95 3,932.40 4,576.50 5,297.00
90.00% 86.00% 82.00% 78.00% 74.00% 70.00% 66.00% 62.00% 58.00% 54.00% 50.00%
325.00 500.50 736.74 1,014.42 1,333.54 1,694.10 2,096.10 2,459.55 2,847.60 3,898.50 5,297.00
10.00% 14.00% 18.00% 22.00% 26.00% 30.00% 34.00% 38.00% 42.00% 46.00% 50.00%
Figure 14 Forecast of wood energy use
UK Year '000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018
Buyer s
Heat Chips
Sellers Importer s Buyers
Power Pellets
Chips
Pellets
Sellers Importer s
1 1,161 1,277 1,462 1,647 1,832 2,017 2,202 2,312 2,422
5 209 220 240 257 271 282 291 287 281
5 23 36 53 72 95 121 150 176 203
1 74 82 93 105 117 129 141 148 155
5 13 14 15 16 17 18 19 18 18
5 1 2 3 5 6 8 10 11 13
100 19 21 24 27 30 33 36 38 40
100 17 18 20 21 22 23 24 23 23
100 2 3 4 6 8 10 12 14 17
100 1 1 2 2 2 2 2 2 3
100 1 1 1 1 1 1 2 1 1
100 0 0 0 0 0 1 1 1 1
16
2019 2020
3,027 3,784
327 378
279 378
193 242
21 24
18 24
49 62
27 31
23 31
3 4
2 2
1 2
Figure 15 Forecast of wood buyers and sellers
Scottish Medium forecast for biomass use The starting point is that current use of biomass is about 1 million tonnes a year and this will grow to 5 million tonnes by 2020. The key assumptions are: Relative size of the heat and power markets in Scotland is 20% and 80% of the total market respectively and remains constant. 10% of the total market is supplied by pellets and this remains constant as each market grows. By tonnage expansion into the power market increases at a ratio of 3:2 in comparsion to the heat market. The relative source of supply is split 90%:10% of overall supply in 2010 between domestic and imports and changes on a straight line variation year on year to 50%:50% of total supply by 2020. The average buyer of chips and pellets for the heat market buys 1,000 tonnes per annum. The average seller or importer of chips and pellets to the heat market sells 5,000 tonnes per annum. The average buyer, seller or importer of chips and pellets for the power market turns over 100,000 tonnes per annum.
Scotland '000 tonnes Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Chips 80% 160.00 192.00 224.00 272.00 320.00 400.00 480.00 560.00 640.00 720.00 800.00 Heat Pellets 20% 40.00 48.00 56.00 68.00 80.00 100.00 120.00 140.00 160.00 180.00 200.00 20% Total 100% 200.00 240.00 280.00 340.00 400.00 500.00 600.00 700.00 800.00 900.00 1,000.00 Chips 92.5% 740.00 888.00 1,036.00 1,258.00 1,480.00 1,850.00 2,220.00 2,590.00 2,960.00 3,330.00 3,700.00 Power Pellets 7.5% 60.00 72.00 84.00 102.00 120.00 150.00 180.00 210.00 240.00 270.00 300.00 80% Total 100% 800.00 960.00 1,120.00 1,360.00 1,600.00 2,000.00 2,400.00 2,800.00 3,200.00 3,600.00 4,000.00 1,000.00 1,200.00 1,400.00 1,700.00 2,000.00 2,500.00 3,000.00 3,500.00 4,000.00 4,500.00 5,000.00 900.00 1,032.00 1,148.00 1,326.00 1,480.00 1,750.00 1,980.00 2,170.00 2,320.00 2,430.00 2,500.00 90.00% 86.00% 82.00% 78.00% 74.00% 70.00% 66.00% 62.00% 58.00% 54.00% 50.00% 100.00 168.00 252.00 374.00 520.00 750.00 1,020.00 1,330.00 1,680.00 2,070.00 2,500.00 10.00% 14.00% 18.00% 22.00% 26.00% 30.00% 34.00% 38.00% 42.00% 46.00% 50.00% Total '000 tonnes per annum Domestic Import
Figure 16 Scottish wood energy use
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Scotland Year '000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Buyers
Heat Chips
Sellers Importers Buyers
Power Pellets
Chips
Pellets
Sellers Importers
1 160 192 224 272 320 400 480 560 640 720 800
5 29 33 37 42 47 56 63 69 74 78 80
5 3 5 8 12 17 24 33 43 54 66 80
1 40 48 56 68 80 100 120 140 160 180 200
5 7 8 9 11 12 14 16 17 19 19 20
5 1 1 2 3 4 6 8 11 13 17 20
100 7 9 10 13 15 19 22 26 30 33 37
100 7 8 8 10 11 13 15 16 17 18 19
100 1 1 2 3 4 6 8 10 12 15 19
100 1 1 1 1 1 2 2 2 2 3 3
100 1 1 1 1 1 1 1 1 1 1 2
100 0 0 0 0 0 0 1 1 1 1 2
Figure 17 Scottish wood energy buyers and sellers
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2.0 Comparator review

2.1 Introduction
A comparator review was carried out of 16 websites, which are listed at Appendix 5. It established that there are no already established biomass trading floors trading standardised contracts, of the 3 sites that aspired to do so one has yet to launch a contract, although it stated an intention to do so in October 2008, one was launched in 2005 but appears moribund and one has closed. These are 5 websites (and sector publications) which produce biomass price information in the form of indices these are primarily focused on wood pellets, but real time trading is not available to the industry at present.
2.2
Objectives of websites
After evaluation of these existing sites we were able to breakdown the main objectives of each into 4 categories: Introduction/Matching These sites either take the form of trade association websites listing potential buyers and sellers of biomass material or allowed users to place advertisements in the sites stating what they had available or wanted. Once the introduction had been made the website took no further responsibility for the transaction and had no method of either reporting or validating that a transaction had taken place. Hence they were unable to create any price or volume information. As a generality those sites that allowed advertisements to be placed appeared to be poorly managed without any time limit placed on advertisements or a requirement for advertisements to be either refreshed or removed when they were no longer up to date. Index These sites are trying to create credible pricing indices. These are a useful tool with which to benchmark prices and are widely used in many commodity markets. However the major problem about indices is that you cannot trade through an index and frequently there are suggestions of price manipulation. Trading floors are the only location where you have confidence that a price is a transaction price and that you are buying or selling at the best available price at that time. Transaction These are sites with standardised rules for trading with all participants in the market. Brokerage These are sites through which trading can take place with any individual broker, who are trading on their own account. Although these may show prices they are solely the best available price available from that broker at that time necessitating a potential buyer or seller to do further research to identify the best available price in the market at any time. Brokers can offer bespoke contracts while these offer flexibility they also increases the likelihood of dispute or default.
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Figure 18 Aspirations of identified websites
2.3
Location and materials
The identified websites operated in Asia, Europe and the United States of America. Only one, EDF, claimed to operate in more than one continent. In Europe the majority aspired to provide a service to the whole of Europe rather than a single nation or region. Whereas in the United States they preferred to cover a state or a region rather country wide. The same applied in Asia. None of the sites were particularly easy to identify a search via google identifies only 2 in the top 10 links for Biomass Trading Floor and none seemed to particularly busy or successful from a trading perspective.
Figure 19 Target markets of websites
20
Figure 20 Materials traded Apart from those that specialised in pellets all websites covered more than one biomass material with the majority covering at least three.
Figure 21 Numbers of materials covered per website
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3.0 Survey and industry attitudes

3.1 Industry questionnaires
We consider it likely that organisations like Councils, the NHS and Educational Institutes are not going to be early participants in trading platform as they often buy heat and other services rather than just buying biomass. We anticipate that the following will be more likely to be early entrants to a biomass trading system: Specialist woodfuel suppliers Sawmills Forestry Management Companies Wood Pellet Mills Wood Recycling companies Energy Utility companies Biomass installers Rural estates, farmers and forestry landowners Haulage contractors Pallet suppliers
Therefore we assessed their attitudes to a biomass trading system via a letter and questionnaire issued in July 2009. A full list of the 51 companies we contacted is shown in Appendix 3. The letter and questionnaire were initially sent by email. They were followed up with a postal copy, then chased up by email prompting returns and finally by telephone. The questions were open allowing respondents to give opinions as well as simple yes and no answers. We obtained 25 replies and 20 competed questionnaires (a 50% response rate from the sector). The charts below show a summary of the survey results.
Figure 22 Would you use a biomass exchange?
50% indicated that they would use an exchange to buy or sell biomass. Unfortunately of those that did not respond positively most did not indicate whether it was the lack of benefit perceived that would restrict their willingness to
22
trade or whether they would not trade under any circumstances. One responder said that they liked the idea of guaranteed payments. Another suggested that it would maximise the amount of biomass products being utilised.
Figure 23 What materials should an exchange focus on?
The majority of those that responded wished more than clean wood to be traded through the exchange.
Figure 24 What type of biomass would you trade?
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There was a wide diversity of materials that those who responded wished to be traded through the exchange. This reflects information gathered from the comparator review which showed a wide diversity of materials being traded/of interest, although in our review woodchips were of greater interest than pellets. However while from one perspective this is encouraging from another it creates potential challenges because it fragmentises the market. At an early stage it was identified that only the trading of wood chips for both the heat and power (and potentially chipboard) markets and pellets are feasible at this stage within standardised contracts through a biomass trading floor as they have commonly accepted and used specifications for them. Other biomass would require a different, less standardised trading system probably closer to an introduction arena. Such a system could be developed but it would need to be in a parallel with trading standardised contracts.
9
Figure 25 Cause of disputes
The most frequent cause of dispute is the quality of the chip. This might be partially attributed to the specification not being understood by both buyer and seller. It may also relate to the time when the quality is checked or how the quality is checked. For example if quality is checked purely on heat output then it may be part of the heat process that is operating inefficiently rather than the quality of the chips. Further investigation is needed. This is an area on which a trading floor will need to focus at all levels, specification, measurement and validation to minimise the potential for disputes.
See Appendix 6
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Figure 26 Volumes of sales
The survey probably accurately reflects todays wood biomass sector in Scotland. While the largest number of those that responded came from the sub-1,000 tonne a month group, the majority of both buyers and sellers are handling more than 12,000 tonnes per month which probably correctly suggests that the Scottish biomass market is currently focused on the power market.
Figure 27 Contract terms
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This shows that there are a wide range of contracts used to trade biomass which have been developed to reflect individual circumstances. While this shows willingness, and possibly pragmatism, within the sector to adapt to meet customer requirements, the impact of this variety is to obfuscate prices. As a consequence the true price, supply or demand for biomass is far from clear for either investors or new entrants. This creates a potential barrier to investment or entry.
3.2
Workshop
To augment the questionnaires a workshop was held in Glasgow on 5th October 2009. The attendees are listed below. We are very grateful for the time and effort of these attendees.
Company Reith Partners (Woodfuel) Ltd Sustainable Wood Solutions Callendar Estate Health Facilities Scotland RTS Wood Fuel Scottish Renewables Wood Recyclers Association Forestry Commission Scotland Steve Luker Associates Ltd The Environment Exchange Figure 28 Worksop attendees
Forename Jamie Paul Guy John Iain Daniel Peter Virginia Steve Angus
Surname Reith Cookson Wedderburn Dunlop Stewart Borisewitz Butt Harden Luker Macpherson
The workshop provided a forum to offer views on the idea of trading platform. This was augmented with face to face meetings with the following, who we would also like to express our thanks to: Dan Gates Econergy Ltd, Gordon Callander Callander Sawmills, Paul Cookson Sustainable Wood Solutions, Alan Massey Buccleuch Natural Fuels, George Webb Norbord, Ross Cook/Robert Leask Procurement Scotland Iain MacKinnon/Trevor Jenkins Charlesfield Deborah Keedy Drax Biomass Procurement Manager.
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3.3
Summary comments
During the questionnaire, workshop and interview process we obtained a number of specific comments. Answers are shown where appropriate. These are summarised below: It is possible to purchase and trade roundwood and standing timber already? Yes. The Forestry Commission runs such a site. However none of the identified sites operate a contract based multiple transaction forum. How would an exchange comply with public sector tender needs under OJEU for example? Public Sector organisations use other exchanges. An exchange provides a multiple tendering forum in which a buyer or seller can get the best available price at any time. The limitation of tenderers is only imposed by the participation criteria. An exchange may offer a place for buyers and sellers to gain market\price information. Correct. It will. Long term power contracts and heat supply agreements are most common. Correct. However very rarely are these contracts inclusive of a long term market price. An exchange will provide the facility for allowing contracted partners to buy and sell biomass at a known price for a known quantity to be delivered at a known time in the future. Complex bespoke contract terms are required and may not fit in an Exchange. Correct. Complex bespoke contracts are not suited to trading through an exchange. However one aspect of any biomass contract will be the biomass price. It is this that can be secured through the exchange. As a consequence the overall contract could become less complex and more secure. Need to measure carbon and sustainability factors. These can either be assumed to be factored into the price or can be included in the participation criteria while remaining mindful that these should not be made so onerous that participants are unable to join. A wood fuel association is a better step The development of a wood fuel association is a potential concurrent activity and some of the websites identified appear to be aspiring to that destination. On many occasions the development of the trading rules in an exchange is done by an external organisation such as a trade association. Dispute resolution is interesting, Quality Assurance is important and the area where most fuel supply problems occur. Quite subjective, unless following say the new CEN Standard. But who decides? Quality is a very important issue. It needs to be identifiable, measurable and verifiable. This an area which will require further research prior to the launch of the exchange however at all times it must be remembered that although the exchange may wish to lead the sector in dispute resolution in this area ultimately it must reflect the needs and accepted norms of the market.
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There are several proposed biomass indexes. These are being developed by the private sector and a race is developing as to which one will be become the accepted price index. It will probably be focussed on pellets initially. This comment has been confirmed by the website analysis.
How do we allow for green miles and the carbon impact of travel distance? As previously these can either be assumed to be factored into the price or can be included in the participation criteria while remaining mindful that these should not be made so onerous that participants are unable to join.
Can we include turn around time in the contract There is no reason why it should not be included and it would appear sensible to do so. However as stated previously at all times it must be remembered that although the exchange may wish to lead the sector in dispute resolution in this area ultimately it must reflect the needs and accepted norms of the market.
Should it be Scottish only suppliers? While it can be limited there is a crucial balance to be achieved between limitation of potential participations and achieving critical liquidity. It may also be difficult to define Scottish suppliers.
The recycled wood specification needs clarifications This may restrict the ability for it to be traded through an anonymous website. However ultimately the specification only needs to reflect the requirements and accepted norms of the market.
How do we ensure sustainability in the feed stock supply? This could be included in the participation criteria. Further guidance would be required on what was desired and acceptable.
Should we include logs at roadside? This is a possibility once an acceptable contract for trading has been developed.
Is this to be seen as an extension of the on-line tendered site currently operated by the Forestry Commission who would run and operate the Exchange and what incentives to abandon the old ways? No the indications are that the Forestry Commission wish the development of the Exchange to be independent from them. The Exchange operator has not as yet been appointed. It has been suggested that an eighteen month period without trading fees should be used to encourage the sector to abandon old ways.
3.4
Potential impacts on other sectors
There was little discussion on the potential impact on other sectors of the development of a biomass trading exchange. The majority of discussion was focused on the impact on the timber market as a whole of the introduction of the renewable heat incentive and how the biomass market might reduce the quantity of material available for other uses within the timber industry. If this were to occur an economist would suggest
28
that timber prices would rise and ultimately the market in other materials would contract as a consequence, since the biomass market is legally obliged to expand, until the market came into equilibrium again. This Doomsday scenario is based on the assumption that the timber supply market is finite and inelastic because of the length of time it takes for trees to grow. However in fact it may well be that if an identifiable transaction price was widely available through a trading exchange new sources of wood would become available from currently unidentified or non-commercial sites which would increase the supply and bring the market into equilibrium at both a lower price to the inelastic model and without the need for the other markets to contract. This applies equally to the primary and the secondary raw material supplies. The unpredicted increase in supply has been shown to occur in other fuel supplies such as oil, gas and coal all of which are currently traded through exchanges with transparent transaction prices - as is carbon. Bearing this in mind the development of a biomass exchange could be considered to be a vital component to allow the timber industry to compete commercially in the fuel sector against other fuel suppliers.
3.5
Conclusion
The results of this consultation process established that the (wood energy) sector did not have any fundamental concerns over the concept of a biomass trading system and in some cases there was considerable enthusiasm. As anticipated it was apparent that for many businesses a biomass trading system was little understood and therefore the extent of enthusiasm for such a system was initially variable, with some respondents indicating that they did not see how it would help their business. At the workshop and during the interviews we found that most companies expressed a willingness to consider using a trading system alongside their current methods of buying or selling biomass.
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4.0 A wood energy trading exchange

4.1 Trading issues
The introduction of a trading floor will require the initiation of standardised contracts to facilitate swift, secure, dispute free trading. Further investigation is required as to what form that contract should take. Critical issues will be: Collected or delivered: Quality: What size of chip? What level of moisture is acceptable? What level of contaminants is acceptable what are they? What is unacceptable? How is it measured? When is it measured? How can it be verified? When? next week, next month, next year? What times are suitable for collection or delivery? what limitations should be imposed? Who is responsible for loading or unloading? What is access like? what restrictions are there on vehicles? What is the likely turn around time? what limitations should be imposed? What load size can be accepted? what delivery mechanism? What happens if it is an imported delivery or the collection is exported?
Payment: In what currency? How? electronically, cheques? When? on delivery, on order, other? When should deposits be paid? Be necessary?
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Default: What are the late payment/delivery terms? Interest, penalties? How to resolve disputes on quality? What right of appeal? To whom?
In addition to creating standard trading rules about how and when orders can be matched, how and when they can be entered, when they should expire, how disputes with the trading floor should be resolved, etc.
4.2
How exchanges work
A typical set of web based entry options is illustrated below and the process is shown in more detail in appendix 7:
SELLER OF WOOD CHIP a typical price offer?

BIOMASS TYPE WOOD CHIPS PELLETS BIOMASS SPECIFICATION MOISTURE CONTENT W40 PARTICLE SIZE G50 SOURCE OF WOOD VIRGIN SOFTWOOD DENSITY S200 ASH CONTENT A1 DELIVERY OPTIONS SELF DISCHARGING VEHICLES 120M3 WALKING FLOOR TIPPER OTHER DOUBLE HOOK BINS LOAD VOLUMES 21 TO 25 TONNES OVER 25 TONNES CONTRACT DETAILS DELIVERY DISTANCE TO SPECIFIED POSTCODES PAYMENT MEASUREMENT ODT FREQUENCY/DURATION 1 LOAD A WEEK MORE THAN 1 LOAD A WEEK 5 WEEKS OR OVER
PRICE
53.75/TONNE 2 WEEKS
Figure 29 Website front page An internet based biomass trading floor is a forum in which buyers and sellers of biomass trade using a common set of rules. As a result trading between multiple users is swift, simple and secure and enables buyers and sellers to buy and sell at the best available prices. It also increases trading flexibility, certainty and price transparency which then becomes the benchmark for material availability. The internet provides real time transaction information and allows the market place to be taken to the market rather than everyone in the market having to come to a physical location. Electronic communications provide an auditable trail of all transactions from order to final delivery. The service is open to all so long as they meet eligibility criteria. Individual transactions are anonymous and confidential although inevitably for a physical market the final delivery or collection point for the traded material is known to the buying and selling counter-parties.
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Confidence in this regulated environment is provided by clear participation requirements whether that is regulatory, financial, logistic or quality and an acceptance of the trading rules particularly the framework for resolving disputes. Participants can either enter orders, time limited offers to buy and sell agreed volumes at given prices (to given specifications and delivery locations within a specified time frame), over recorded telephone lines to market operators or enter them direct into the website which allows them to view real time counter orders. Settlement and clearing of payments and the overseeing of delivery of the material are integrated within the market place service. The trading of wood chips and pellets is feasible at this stage as there are common specifications, other biomass such as wastes, slurries and agricultural by products are not suited to this form of market place and have not been considered by this study. Successful sites (trading other commodities) work because they achieve a critical level of liquidity, the scale of transaction volumes and continuous demand and supply that are required to enable the trading site to work sustainably and to achieve credibility. This can take between 5 and 7 years to achieve. Some advantages of a biomass trading system The use of standardised contracts allows a transparent transaction price to be developed. This in turn can be used as a benchmark to industry both to reflect supply or demand and informs and potentially stimulates new or uncertain entrants or investment as necessary. Common rules provide a level playing field for all businesses large or small introducing the ability to trade flexibly at a low cost based on equal market knowledge. Transparency of availability resolves short-term shortages of supply. Companies could use the trading system to sell unused stock or to meet unexpected additional demand or shortfall of supply or meet specifications that cannot be met in the short term. It might also solve haulage or production problems or aid growth without new marketing investment. The regulated environment provides a template for dispute resolution around fuel specifications, quantities and other potential issues. The participation criteria for an exchange can be used to raise standards. To achieve these standards will require mentoring of both new entrants and current operators. While this potentially provides a barrier to entry for those that are unwilling or unable to meet these standards, a commitment to meeting these standards shows the intention of maintaining a long term relationship with the exchange and as a consequence with all those that trade through it. This can then be reflected through trading forward and future contracts which provide both counter-parties with certainty of price and volume at a known date in the future. They do not provide a crystal ball of what prices might be at any point in the future. Forward markets do reduce both price and supply risk. This provides increased security to both the supply chain and the end market. This in turn will encourage the sector to make longer term commitments and over time improve quality standards. The provision of a forward price picture provides confidence to all and gives new market entrants reliable information with which to plan.
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4.3
Anticipated challenges
To achieve critical liquidity the development of trading floor would need to overcome a series of challenges, these include: The sector is unable to distinguish between a market-place, a secure environment in which to trade, and a broker, a competitor. As a result they are either unwilling to use it or they use it but are unwilling to place market reflective orders. The sector will not accept dispute resolution mechanisms. As a result confidence in the trading floor as a secure environment to trade is eroded. Identified commodities for trading are not actually traded in the open market as a result there is nothing to trade through the market place. Participation criteria and/or contractual obligations do not reflect (or improve on) underlying trading conditions in the market and hence create a barrier to entry. It would appear that in earlier attempts to provide a biomass trading exchange some or all of these challenges have not been addressed but all can be overcome and have been in the past by: effective consultation prior to launch, the development of an efficient operational (IT) system on-going communication and marketing post launch.
While integrity and confidentiality are critical at all times, the most important skill at launch is an effective marketing campaign. To successfully achieve these ingredients to success leadership, time, sufficient funds and industry support are required.
4.4
Outline business plan
Initially the biomass trading floor would provide market places for 3 commodities: Conditioned woodchips for the heat market. Low grade wood chips for the power market. Pellets for both the heat and power market.
Its creation would be split into 3 phases: Phase 1: Development of the trading database 6 months Phase 2: Operation of the prototype 18 months Phase 3: Achieving critical liquidity 36 to 60 months Employment Phase 1: Project Manager, 1 Market Development executive
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Phases 2 and 3: Project Manager, 3 Market Development executives Phase 1 would require the development of: A standardised contract, participation criteria and trading rules An IT system to reflect these A high profile campaign to launch the concept and encourage entrants. Potential users to trade through the prototype
Phase 2 would last 18 months and would require: The launch of the prototype A high profile media campaign to launch the prototype and encourage new entrants. Personal one to one relationship development and instruction to encourage trading by users Settlement and delivery of all traded contracts Provision of market information to users and the wider market through as appropriate the website, daily, weekly and quarterly bulletins Adjustment of the standardised contract, participation criteria and trading rules to reflect issues identified by the users Adjustment of the IT system to reflect these changes Phase 3 would last 3 to 5 years and would require: Launch of final system Trading by users Settlement and delivery of all traded contracts Encouragement of additional users Provision of market information to users and the wider market Maintenance of rules and IT system as necessary After phase 1 the most significant expense is employment costs of the project leader, two external marketing/sales executives to encourage companies to join and one internal market operator to encourage participants to trade, As the number of participants increase so the balance of these roles will alter. While it is possible to reduce or combine these roles for reasons of financial expediency, to do so increases the risk that the period to achieve critical mass either takes longer or is never achieved.
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5.0 Costed proposals for the development of a trading floor

Based on the assumptions of the size of the market and the number of buyers and sellers outlined as the most probable in section 1., the following costs for the development of a trading floor are proposed for years 1 3 (e.g. to the end of the first operational year). By that stage it is assumed that 25% of the buyers and 60% of the sellers have been recruited and 3% of the total UK market for woodchips and pellets is traded through the biomass exchange. The wider market will continue to use other means of trading such as through brokers or direct bi-lateral trading but will accept that the exchange price is a credible reflection of the current market price at any moment in time and will accept the exchanges quality and dispute resolution standards. It is assumed that one market operator would manage 200 companies, either buyers or sellers, with a database established which allows any market operator to take responsibility for any participant or prospective participant. As time develops the emphasis will move from external marketing to encourage participants to join to internal marketing to encourage participants to trade. At all times market operators will act in the best interests of both their clients and the market to ensure that a fair and orderly market and a credible price are maintained. It is assumed that a market development executive/market operator would be paid 25,000 per annum. It is assumed that there will be a senior development executive who will be responsible for managing the complete project including co-ordinating the media and marketing campaign who will be paid 35,000 per annum. Employment costs (NI, pension, PHI and life insurance) equate to a further 33.33%. Overheads such as overall project management, marketing literature, advertising, accommodation, heat, light, travel, subsistence, settlement, accounting and legal services have been bulked together at 12,500 per head per annum. IT maintenance services are included in these overheads but development costs will be additional. An estimate of 75,000 has been allocated in year one for the development of the trading database and the complimentary database of contacts. It is envisaged that initial trading would be free to participants to encourage take up. In time confidence in the system would increase sufficiently to establish trading volumes that would be high enough to introduce fees and make the system self sustaining. Experience from launching previous trading floors suggests that this might take several years. In these assumptions we plan to introduce a trading fee of 1.00 per tonne in year 3. This will be split equally between the buyer and the seller and will only be charged on the successful completion of the contract. Daily, weekly and monthly bulletins are distributed to participants and a quarterly information bulletin is distributed to the wider market as well as a fully operational website with the ability to trade interactively/on-line. A high profile media campaign would be maintained as would one to one telephone and on site marketing and instruction by the development team/market operators. The assumption is that consultants would ensure that potential participants met the participation criteria for the trading floor and would be paid for by the potential participants. Hence the trading floor would solely be accepting participants upon the recommendation of these consultants that would have been pre-trained to understand the standards required and in particular the quality and verification criteria for the commodity. The table below shows a potential spend profile10.
10
A detailed breakdown of prospective participants and market operators can be seen at Appendix 8
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Year Tonnage Market penetration Woodchip Pellets Total Tonnage Charge per tonne Total Income
2010
2011
2012
Cumulative
0.83% 25,504 1,628 27,132
1.67% 56,253 3,591 59,843
2.96% 113,859 7,268 121,126 1.00 121,126.25 208,101
121,126.25
Buyers Market penetration Take up Sellers Market penetration Take up Total participants 20% 123 248 40% 245 452 60% 368 763 10% 126 15% 207 25% 395
Expenses Employment Project Manager Market Operators Total salary costs Employment overheads Total employment costs Number 1 3 4 33.33% Cost 35,000.00 25,000.00 35,000.00 50,000.00 85,000.00 28,333.33 113,333.33 35,000.00 75,000.00 110,000.00 36,666.67 146,666.67 35,000.00 75,000.00 105,000.00 200,000.00 305,000.00 101,666.67 406,666.67
110,000.00 36,666.67
146,666.67
Operational overhead
12,500.00
37,500.00
50,000.00
50,000.00
137,500.00
IT Development
75,000.00
75,000.00
75,000.00
Total expenses
225,833.33
196,666.67
196,666.67
619,166.67
Net profit
- 225,833.33
- 196,666.67
- 75,540.41
- 498,040.41
Figure 30 Cost plan As can be seen the development of a trading platform could require funding over a number of years and in a prudent scenario as shown above 500,000 of support funding in the first 3 years. Overall it is anticipated the cost of reaching a critical mass is in the region of 1million over 7 years, although a decision to close or significantly alter the project could be made after year 2. Preliminary investigation suggests that this might be partially secured through SRDP, KTP or EU funds but further investigation is required. Private sector finance support could contribute to these costs as well. If critical mass is achieved these funds could be repaid by year 10. The cost could be reduced (or income generated earlier) if once it is developed, the sector committed early to trading contracts through the market-place.
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Appendix 1: Market based use estimates

The table below, which we have compiled for this report, shows from a simple snap shot of announced biomass projects in Scotland that potential demand could rise to over 8.6 million tonnes. Development 44MW electricity Eon Lockerbie 25MW CHP UPM Shotton 8MW CHP Balcas Invergordon 25MW electricity Scottish Power Longanett Longanett and Cockenzie co-fire 15MW Scottish public sector heat Puffin Pellets - Banffshire Brites Pellets - Balcas Invergordon Arbuthnott Wood Pellets - Kincardinshire Domestic logs Hunterston - Ayrshire SSE\Forth Ports Scottish heat market by 2020 Combined total Status\comments Operational Operational Under development Planned Formerly operational Operational Under development for 25,000t of pellets Under development for 100,000t of pellets Under development for 15,000t of pellets FCS figures using population proxy Planned cofire Announced 1billion x 4 100MW plants Dundee, Rosyth, Grangemouth, Leith Forecast low Use tonnes pa 500,000 40,000 20,000 (e) 70,000 (e) ? 15,000 (e) 75,000 (e) 300,000 (e) 45,000 (e) 40,000 (e) 1,500,000 (e) 4,000,000 (e) 2,000,000 (e) 8,605,000
Other use estimates deploy different methods for forecasting use. For example Scotlands Climate Change Programme estimates that 0.75m green tonnes of wood will be used for bioenergy by 2010, rising to 1 million green tonnes by 2020.
Another recently published source of information is shown in the table below (produced by Hawkins Wright in summer 2009). Using this estimate 20 million tonnes of wood chips would be needed for the UK power market.
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We are also aware of other research (not yet published) that indicates new UK based planned projects could use as much as 34.5 million tonnes of wood energy, with 11 million tonnes more likely. The same research estimates that current use is 3.25 million tonnes a year (with a further 2.8 million tonnes being co-fired at Drax via imported biomass).
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Appendix 2: Forecast of prospective users

The tables below are based upon the volumes forecast in this report. They assume that in the heat market a typical buyer is purchasing 1,000 tonnes per contract (effectively a year) in the heat market and 100,000 tonnes per contract (a year) in the power market. A typical seller might mange 5 1000 tonne contracts a year, but in the power market sellers and buyers are equal due to the large volumes. High, medium and low forecast UK buyers to 2020 UK- High Year 000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Chips Buyers 1 1,358 2,538 2,905 3,273 3,641 4,008 4,376 4,594 4,813 6,016 7,520 Heat Pellets Buyers 1 87 162 185 209 232 256 279 293 307 384 480 Chips Buyers 100 17 32 36 41 46 50 55 57 60 75 94 Power Pellets Buyers 100 1 2 2 3 3 3 3 4 4 5 6
UK- Medium Year 000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Chips Buyers 1 1,161 1,277 1,462 1,647 1,832 2,017 2,202 2,312 2,422 3,027 3,784
Heat Pellets Buyers 1 74 82 93 105 117 129 141 148 155 193 242 Chips Buyers 100 19 21 24 27 30 33 36 38 40 49 62
Power Pellets Buyers 100 1 1 2 2 2 2 2 2 3 3 4
UK- Low Year 000 tonnes per Chips Buyers
Heat Pellets Buyers Chips Buyers
Power Pellets Buyers
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annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
1 436 436 436 436 455 501 547 574 602 752 940
1 28 28 28 28 29 32 35 37 38 48 60
100 26 26 26 26 27 30 33 34 36 45 56
100 2 2 2 2 2 2 2 2 2 3 4
High, medium and low forecast Scottish buyers to 2020 Scotland - High Chips Year 000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Buyers 1 160 384 448 544 640 800 960 1,120 1,280 1,440 1,600 Heat Pellets Buyers 1 40 96 112 136 160 200 240 280 320 360 400 Chips Buyers 100 7 18 21 25 30 37 44 52 59 67 74 Power Pellets Buyers 100 1 1 2 2 2 3 4 4 5 5 6
Scotland - Medium Chips Year 000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 Buyers 1 160 192 224 272 320 400 480 560
Heat Pellets Buyers 1 40 48 56 68 80 100 120 140 Chips Buyers 100 7 9 10 13 15 19 22 26
Power Pellets Buyers 100 1 1 1 1 1 2 2 2
40
2018 2019 2020
640 720 800
160 180 200
30 33 37
2 3 3
Scotland - Low Chips Year 000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Buyers 1 160 168 176 184 192 200 208 216 224 232 240
Heat Pellets Buyers 1 40 42 44 46 48 50 52 54 56 58 60 Chips Buyers 100 7 8 8 9 9 9 10 10 10 11 11
Power Pellets Buyers 100 1 1 1 1 1 1 1 1 1 1 1
High, medium and low forecast UK sellers by 2020 UK- High Year 000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sellers 5 244 436 476 511 539 561 578 570 558 650 752 Chips Importers 5 27 71 105 144 189 241 298 349 404 553 752 Sellers 5 16 28 30 33 34 36 37 36 36 41 48 Heat Pellets Importers 5 2 5 7 9 12 15 19 22 26 35 48 Sellers 100 15 27 30 32 34 35 36 36 35 41 47 Chips Importers 100 2 4 7 9 12 15 19 22 25 35 47 Sellers 100 1 2 2 2 2 2 2 2 2 3 3 Power Pellets Importers 100 0 0 0 1 1 1 1 1 2 2 3
UK- Medium Year 000 tonnes per annum 2010 2011 Sellers 5 209 220 Chips
Heat Pellets Sellers 5 13 14 Importers 5 1 2 Sellers 100 17 18 Chips Importers 5 23 36
Power Pellets Sellers 100 1 1 Importers 100 0 0 Importers 100 2 3
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2012 2013 2014 2015 2016 2017 2018 2019 2020
240 257 271 282 291 287 281 327 378
53 72 95 121 150 176 203 279 378
15 16 17 18 19 18 18 21 24
3 5 6 8 10 11 13 18 24
20 21 22 23 24 23 23 27 31
4 6 8 10 12 14 17 23 31
1 1 1 1 2 1 1 2 2
0 0 0 1 1 1 1 1 2
UK- Low Year 000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sellers 5 79 75 72 68 67 70 72 71 70 81 94 Chips
Heat Pellets Sellers 5 5 5 5 4 4 4 5 5 4 5 6 Importers 5 1 1 1 1 2 2 2 3 3 4 6 Sellers 100 24 23 21 20 20 21 22 21 21 24 28 Chips Importers 5 9 12 16 19 24 30 37 44 51 69 94
Power Pellets Sellers 100 2 1 1 1 1 1 1 1 1 2 2 Importers 100 0 0 0 0 0 1 1 1 1 1 2 Importers 100 3 4 5 6 7 9 11 13 15 21 28
High, medium and low forecast Scottish sellers by 2020 Scotland High Year 000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sellers 5 29 66 73 85 95 112 127 139 148 156 160 Heat Chips Importers 5 3 11 16 24 33 48 65 85 108 132 160 Sellers 5 7 17 18 21 24 28 32 35 37 39 40 Pellets Importers 5 1 3 4 6 8 12 16 21 27 33 40 Sellers 100 7 15 17 20 22 26 29 32 34 36 37 Chips Importers 100 1 2 4 6 8 11 15 20 25 31 37 Sellers 100 1 1 1 2 2 2 2 3 3 3 3 Power Pellets Importers 100 0 0 0 0 1 1 1 2 2 2 3
42
Scotland Medium Year 000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sellers 5 29 33 37 42 47 56 63 69 74 78 80
Heat Chips Importers 5 3 5 8 12 17 24 33 43 54 66 80 Pellets Sellers 5 7 8 9 11 12 14 16 17 19 19 20 Importers 5 1 1 2 3 4 6 8 11 13 17 20 Sellers 100 7 8 8 10 11 13 15 16 17 18 19 Chips
Power Pellets Sellers 100 1 1 1 1 1 1 1 1 1 1 2 Importers 100 0 0 0 0 0 0 1 1 1 1 2
Importers 100 1 1 2 3 4 6 8 10 12 15 19
Scotland Low Year 000 tonnes per annum 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sellers 5 29 29 29 29 28 28 27 27 26 25 24
Heat Chips Importers 5 3 5 6 8 10 12 14 16 19 21 24 Pellets Sellers 5 7 7 7 7 7 7 7 7 6 6 6 Importers 5 1 1 2 2 2 3 4 4 5 5 6 Sellers 100 7 7 7 7 7 6 6 6 6 6 6 Chips
Power Pellets Sellers 100 1 1 1 1 1 1 1 1 0 0 0 Importers 100 0 0 0 0 0 0 0 0 0 0 0
Importers 100 1 1 1 2 2 3 3 4 4 5 6
43
Appendix 3: List of companies surveyed

Company Arbuthnott Wood Pellets Ltd Andrew Nicol Angus Biofuels Alvie Estate Arniston Energy Ltd AW Jenkinson Forest Products Ayrshire and Arran Health Board Balcas Ltd Binn Skips Ltd BSW Sawmills Ltd Buccleuch Natural Fuels Ltd Callendar Estate Charlesfield First LLP Confor D J Laing (Contracts) Ltd E.ON UK Plc Econergy Ltd Egger (Barony) Ltd Euroforest Grampian Heat & Power Harper Transport Health Facilities Scotland Highland Wood Energy Howie Forest Products Ltd Iggesund Paperboard Ltd James Jones M McKenzie Manco Energy Ltd Norbord Ltd Northern Energy Developments Pallet Logistics Ltd Pentland Plants Perthshire Biofuels Reith Partners (Woodfuel) Ltd RES Fuels RTS Wood Fuel Scottish and Southern Energy Scottish Power Renewables Scottish Renewables Scottish Woodfuels Group Ltd Scottish Woodlands Ltd Tracey Timber Recycling Ltd Tullis Russell UPM Tilhill Steve Lavery Steve Roebuck Fergus Tickell Michael Richard Spray Helen Taylor Jamie Reith Neil Bond Iain Stewart Chris May Denis Newman Daniel Borisewitz Peter Walker Ralland Browne Jim Walker Bryan Harper John Dunlop Brunp Berardelli Hamish Macleod Gavin Davidson Tom Bruce Jones Mark Hayton Mark Hartnett Philip Wallace Name Keith Arbuthnott Andrew Nicol Bill Watson Jamie Williamson John Goffin Angie McArthur Iain McInally Alistair McGlynn John Ferguson Andrew Smith Andy Wiseman Iain Ross Iain MacKinnon Jamie Farquhar Email keith@hotstovies.com andrew@andrewnicol.com bill@ballindarg.co.uk info@alvie-estate.co.uk john.goffin@uk.bp.com angiem@awjwoodwaste.co.uk iain.mcinally@aaaht.scot.nhs.uk alistair.mcglynn@balcas.com enquiries@binnskips.co.uk andrew.smith@bsw.co.uk awiseman@buccleuch.com office@callendarestate.co.uk iain.mackinnon@charlesfieldfirst.co.uk jamie.farquhar@confor.org.uk djl@djlaing.co.uk philip.wallace@eon-uk.com sales@econergy.ltd.uk mark.hayton@egger.com mark.hartnett@euroforest.co.uk info@grampianheatandpower.co.uk bryan@harpercontracts.com john.dunlop@hfs.scot.nhs.uk info@highlandwoodenergy.co.uk hmacleod@howie-forest.co.uk Gavin.Davidson@iggesundpaperboard.com TR.BruceJones@JamesJones.co.uk mckenziepentland@btconnect.com info@mancoenergy.com steve.roebuck@norbord.net fergus@energydevelopments.co.uk michael@palletlogistics.co.uk info@pentlandbiomass.com info@perthshirebiofuels.co.uk info@woodforwarmth.co.uk neil.bond@res-ltd.com iain.stewart@rts.ltd.uk christopher.may@scottish-southern.co.uk renewables@scottishpower.com daniel@scottishrenewables.com info@scottishwoodfuels.org ralland.browne@scottishwoodlands.co.uk jim.walker@wmtracey.co.uk papermakers@trg.co.uk steve.lavery@upm-kymmene.com
44
Viridor Enviroscot Ltd Wood Energy Binn Skips Ltd Wood Recyclers Association
Brian Clark Dan Gates Peter Butt
bclark@viridor-waste.co.uk dan.gates@woodenergyltd.co.uk mel@binnskips.co.uk p.butt@woodrecyclers.org
45
Appendix 4: Questionnaire and accompanying letter

Enviromac Hudson House 8 Albany Street Edinburgh EH1 3QB Tel: 0131 473 2331 Fax: 0131 473 2326 E-mail: angus.macpherson@t2e.co.uk X XXX YYY Ltd ZZZ Road Scotland August 2009 Dear, Biomass Exchange Scoping Study Enviromac and Steve Luker Associates have been commissioned by Forestry Commission Scotland to look into the feasibility of developing an exchange or market-place for biomass buyers and sellers. I have been involved in the development of a number of other market-places while Steve is well known to many of you through his involvement in the Forest Industries Cluster and his work in the wood energy market. Many associate the development of an exchange with derivative products such as options or futures contracts but at the very simplest an exchange would provide a regulated transaction forum in which biomass products can be bought and sold using a common code of conduct. It could serve as a means of aggregating supply and demand but need not be the sole means of transacting. It could provide dispute resolution services as well as increase the security and swiftness of settlement procedures. Creating a biomass exchange could also offer up to the minute good quality transaction based price and volume information which can be used to increase the confidence of those wishing to invest in the biomass market both as buyers and sellers. An important issue is that a biomass exchange could develop and be moulded to meet the needs of its users as the biomass market grows. To see how an internet based market-place might work for you please log into The Environment Exchanges demonstration website at http://demo.t2e.co.uk/ This study is focussing on wood fuels, although we would be interested to establish the degree to which other biomass fuels could be traded through an exchange, hence we are approaching those involved in growing, harvesting and processing wood, both primary and secondary, as well as potential end users such as biomass heat and/or power generators to gauge their interest in and views on a biomass exchange. We would be extremely grateful if you could take a few moments to complete and return to Steve by 28 August 2009 the attached questionnaire. If you have any questions about the study or the questionnaire, please do not hesitate from contacting either me or Steve on 07970 522160 or steveluker@hotmail.com. All replies to the questionnaire will be treated in strict commercial confidence. If you prefer to offer views by telephone please feel free to call me or Steve. We hope to follow up this letter and questionnaire with selected meetings in September and if you wish to learn more about how the study is developing please come to the workshop that we are planning (in Edinburgh) in the week commencing 28 September 2009 details of which I will send to you closer to the time. Yours
46
Biomass Exchange Study Questionnaire Please return by 28 August Would you consider using an Exchange to buy or sell biomass products and do you perceive any benefits?
th
Should an Exchange focus on clean wood biomass fuels or encompass other biomass as well?
What type of biomass products would you be most likely to buy or sell (e.g. logs, pellets, wood chips)?
What are the most frequent causes of contract disputes and how are they resolved?
What volumes of biomass are you buying or selling per month?
Under what contract terms do you buy or sell biomass (duration, indexation, specification etc)?
Please provide any other comments (feel free to continue on another sheet)
Completed questionnaires should be returned to: Steve Luker Associates Ltd, 7 Doune Crescent, Newton Mearns, Glasgow, G77 5NR; MOBILE TEL: 07970 522160: EMAIL: steveluker@hotmail.com
47
Appendix 5: Websites surveyed.

http://www.asiabiomass.jp/english/topics/0910_02.html http://www.biomassenergycentre.org.uk http://www.biomassxchange.com/ http://www.bioxchange.co.uk/ http://www.edftrading.com/fullArticle.aspx?m=36 http://www.endex.nl/index.php?a=150 http://www.fey.org.uk/site/WIPBiomass/BiomassPriceIndex/tabid/174/language/en-GB/Default.aspx http://www.forestenergymonitor.com/ http://www.foex.fi/bioenergy/default.asp http://www.nabiomassexchange.com/ http://www.nef.org.uk/logpile/ http://www.pelletcentre.info http://www.upwoodybiomass.org/markets.asp http://www.usewoodfuel.co.uk/ http://www.woodpellets.com/ http://res.borzen.si/DesktopDefault.aspx
48
Appendix 6: Woodfuel specifications

The specification of wood fuel will be determined by the combustion plant. Each combustion plant will have a bespoke fuel specification that reflects how that plant is designed and built. For example some power plants are designed to combust contaminated wood fuel or use ground-up pellets to inject wood dust and some small heating boilers must have very dry chips of even particle size. In practice these variations in specification coalesce around 3 basic commodities: Conditioned wood chips for the heat market Low grade wood chips for the power market Pellets for the heat and power market We have used these 3 commodities to develop our projections on trading volumes and market development. Each commodity is described below: Conditioned wood chips for the heat market Wood chips supplied to the heat market need to be made from clean wood, chipped to small and regular particle sizes and dried to under 35% moisture content. Often they must be delivered in specialist vehicles to purpose made hoppers and silos in relatively small volumes. The wood chips must always meet this standard to combust in the boilers and any problems in the specification of the wood chips quickly affects the generation of heat or the efficiency of that heat generation. This generally means recycled wood cannot be used and that round logs must be stored and air-dried for 12 to 18 months before chipping. The standard specification in this market is W35 and G50. Low grade wood chips for the power market Wood chips supplied to the power market can come from a variety of wood sources including recycled or contaminated wood. It can vary in moisture content up to 55%. It can vary in particle size and even quite large chunks of wood will be handled in a large power station. A high content of brash and branches could be included. Deliveries are always in large articulated lorries with walking floors. The standard specification in this market is W50 and G120. Recovered wood can be used by this sector although specifications are still in the process of being agreed. Pellets for the heat and power market Extruding raw sawdust through a dye produces pellets. To manufacture pellets successfully, the raw sawdust has to have the correct particle size distribution, usually 3-5mm. This is achieved by passing the raw material through a hammer mill and recycling the heavier fractions. Pellets can be manufactured from wood sources, including: Virgin sawdust from the core of trees or from processing untreated timber Whole tree chippings, including bark Recycled wood Other biomass material, including straw, coppiced wood, and other recycled material. Generally however most pellets are manufactured direct from sawdust produced as a by-product of the saw milling industry. Pellets are under 10% moisture content and so contain more energy per tonne than wood chips. Despite this in comparison to wood chips they are more expensive to produce and therefore more costly to purchase in terms of delivered energy cost. Pellets have mostly been used in the heat market, however in the UK there is a large cofiring market where pellets are mixed with coal in existing thermal coal fired power stations. Appendix 7 The images below provide an indication of how a website might appear and operate. It shows the web pages in order and the type of entry data we would expect.
49
Appendix 7: Website
The Biomass Exchange Website

MENU OF OPTIONS on the website
BIOMASS TYPE WOOD CHIPS PELLETS BIOMASS SPECIFICATION MOISTURE CONTENT PARTICLE SIZE SOURCE OF WOOD DENSITY ASH CONTENT DELIVERY OPTIONS SELF DISCHARGING VEHICLES OTHER LOAD VOLUMES CONTRACT DETAILS DELIVERY LOCATION(S) PAYMENT MEASUREMENT FREQUENCY/DURATION
PRICE
/PER TONNE
Entry Options biomass specification

MOISTURE CONTENT
W20 W30 W35 W40 W50
Quality class designation W20 W30 W35 W40 W50 Moisture content (wet basis) <20% 20% - 30% 30% - 35% 35% - 40% 40% - 50% Description Air dry Storable Storable within limits Wet Green (freshly harvested)
50

PARTICLE SIZE
G30 G50 G100 G120 G150
Chip designation G30 G50 G100 G120 G150 <4% of particles <1 mm <1 mm <1 mm <1 mm <1 mm <20% of particles 1 - 3 mm 1 - 6 mm 1 - 11 mm 1 - 63 mm 1 - 100 mm 60 - 100% of particles 3 - 16 mm 6 - 32 mm 11 - 63 mm 63 - 100 mm 100 - 130 mm <20% of particles >16 mm >32 mm >63 mm >100 mm >130 mm Max. area cm2 3 5 10 12 15 Max. length cm 8.5 12 25 30 40

SOURCE OF WOOD
Sawmill coproduct Virgin softwood Virgin hardwood Energy Crops Recycled (Grade 1 to 2) Contaminated (Grade 3 and 4)
Note all wood chips must be clean (other than Contaminated chips)
51

DENSITY
S160 S200 S250
Material density in kg/m3
Chip designation
Density definition
S160 S200 S250
<160 160 - 250 >250
Low Medium High
Entry Options delivery options

SELF DISCHARGING VEHICLES
WALKING FLOOR 120 M3 OTHER WALKING FLOOR TIPPERS
WHAT ABOUT FIBRE LOGS?
52
Entry Options Delivery Options

HOOK BINS
SINGLE DOUBLE SUPPLIED BY PURCHASER

BAGS, BLOWERS, SCISSOR LIFT OR CLAM GRABS
YES NO OTHER
53

LOAD VOLUMES
Over 25 tonnes 21 to 25 tonnes 16 to 20 tonnes 11 to 15 tonnes 10 tonnes or under
Entry Options Contract Details

DELIVERY LOCATION(S)
POSTCODE
54
Entry Options Contract terms

Payment measurement
Through heat meter ODT GJ Per Tonne/given MC
Entry Options Contract terms

FREQUENCY/DURATION
1 LOAD PER WEEK MORE THAN ONE LOAD PER WEEK SINGLE LOAD OTHER (SPECIFY) NO. OF WEEKS SPECIFY WEEKS
55
Entry Options Price
PRICE
ENTER AMOUNT/tonnes PERIOD OF OFFER ( 1 WEEK) PERIOD OF OFFER ( 2 WEEKS) PERIOD OF OFFER ( 3 WEEKS)
SELLER OF WOOD CHIP a typical price offer?

BIOMASS TYPE WOOD CHIPS PELLETS BIOMASS SPECIFICATION MOISTURE CONTENT W40 PARTICLE SIZE G50 SOURCE OF WOOD VIRGIN SOFTWOOD DENSITY S200 ASH CONTENT A1 DELIVERY OPTIONS SELF DISCHARGING VEHICLES 120M3 WALKING FLOOR TIPPER OTHER DOUBLE HOOK BINS LOAD VOLUMES 21 TO 25 TONNES OVER 25 TONNES CONTRACT DETAILS DELIVERY DISTANCE TO SPECIFIED POSTCODES PAYMENT MEASUREMENT ODT FREQUENCY/DURATION 1 LOAD A WEEK MORE THAN 1 LOAD A WEEK 5 WEEKS OR OVER
PRICE
53.75/TONNE 2 WEEKS
56
Appendix 8: Detailed breakdown of potential participants and number of market operators required
Buyers Woodchip Pellets Total Medium Medium Medium 2010 1,180 75 1,255 2011 1,298 83 1,381 2012 1,486 95 1,581
Buyers Take-up High Overall Total Medium Low High Medium Total Medium Low 20% 10% 5% 251 126 63 40% 15% 10% 552 207 138 60% 25% 15% 948 395 237
Woodchip Pellets Overall Total
Medium Medium Medium
251 16 267
276 18 294
316 20 336
Sellers Take-up High Overall Total Medium Low High Overall Total High Market place operators Project Managers Senior Manager Medium Market place operators Project Managers Senior Manager Low Market place operators Project Managers Senior Manager Medium Low 1 per 200 8 4 1 per 200 8 4 1 per 200 8 4 1 1 0 1 1 0 2 1 0 1 1 0 2 1 0 3 1 0 2 1 0 4 1 0 6 1 0 30% 20% 15% 80 53 40 55% 40% 30% 162 118 88 80% 60% 45% 269 202 151
57

Biomass Trading Floor - Business Study

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Wood Biomass Trading Floor Business Study

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Wood Biomass Trading Floor Business Study

This report was completed by:

Wood Biomass Trading Floor Business Study

2.0 Comparator review.................................................................................................................................. 19

3.0 Survey and industry attitudes .................................................................................................................. 22

4.0 A wood energy trading exchange ............................................................................................................ 30

Wood Biomass Trading Floor Business Study

Wood Biomass Trading Floor Business Study

What is an internet based biomass trading floor?

Some advantages of a biomass trading system

Wood Biomass Trading Floor Business Study

What changes are happening that create a role for an exchange?

Wood Biomass Trading Floor Business Study

Outline business plan

Wood Biomass Trading Floor Business Study

The development of a trading floor and the next steps

Wood Biomass Trading Floor Business Study

1.0 Introduction and context

Wood Biomass Trading Floor Business Study

EU renewable energy targets and the demand for wood

Figure 1 EU wood use and supply by 2020

Wood Biomass Trading Floor Business Study

UK and Scottish context

Figure 2 UK renewable mix by 2020

Wood Biomass Trading Floor Business Study

Figure 3 UK wood supply and use 2020

Figure 4 Renewable heat targets in Scotland by 2020

Wood Biomass Trading Floor Business Study

Summary and analysis of biomass use by 2020

Figure 5 Forecast wood use UK 2020

Region Scotland Scotland Scotland Scotland

UK RES using population proxy

Figure 6 Forecast wood use Scotland 2020

Wood Biomass Trading Floor Business Study

Figure 7 Estimated current wood energy use

Wood Biomass Trading Floor Business Study

Scotland Low Medium High Figure 9 Scottish forecast of wood use

Total use 1.8M 5M 10M

UK Woodchips Low Medium High 940 3,784 7,520

Heat Pellets 60 242 480 Woodchips 56 62 94

Figure 10 Buyers in the UK by 2020

Heat Pellets 60 200 400 Woodchips 11 37 74

UK Woodchips Low Medium High 188 756 1,504

Heat Pellets 12 48 96 Woodchips 56 62 94

Figure 12 Sellers in Scotland by 2020

Scotland Woodchips Low Medium High 48 160 320

Heat Pellets 12 40 80 Woodchips 12 38 74

Figure 13 Sellers in Scotland by 2020

Wood Biomass Trading Floor Business Study

Figure 14 Forecast of wood energy use

1 1,161 1,277 1,462 1,647 1,832 2,017 2,202 2,312 2,422

5 209 220 240 257 271 282 291 287 281

5 23 36 53 72 95 121 150 176 203

1 74 82 93 105 117 129 141 148 155

Wood Biomass Trading Floor Business Study

Figure 15 Forecast of wood buyers and sellers

Figure 16 Scottish wood energy use

Wood Biomass Trading Floor Business Study

1 40 48 56 68 80 100 120 140 160 180 200

Figure 17 Scottish wood energy buyers and sellers