Who can forget Tom Hank’s exultations in the film “Castaway” where after a long period of failure he successfully manufactures fire on his desolate island. It was a game changing advancement for the character, providing energy for warmth on cold days, for boiling nasty bacteria out of drinking water, and of course hot food. It’s widely known that wood burning fires have been solutions to many problems over the course of human history, but what you may not realize is wood-sourced energy also plays a major role in the energy transition.

tom hanks

Wood-sourced energy, or biomass, has come a long way even if the concept remains the same. As shown below, today the multi-stage process involves the pulverizing, drying, and milling of raw wood materials into a standardized unit size. The resulting product therefore burns much cleaner and more efficient than a traditional log of wood and is transported far more easily to demand centers. Demand centers these days are power plants that have converted to wood pellets from coal. This may be confusing to some who consider coal-to-wood switching as a step backward (or at least sideways) from where we were, and not in the spirit of the energy transition.


Source: GEMCO Energy

However, there is more than meets the eye. Since the raw materials (wood) are allowed to regrow into forests the process is renewable. Over the life of the new growth forest the process can also extract more carbon from the atmosphere than carbon emitted by burning wood pellets from the harvested wood. Enviva Partners (ticker: EVA) has been laying out the environmental attributes of wood pellets for many years now. Relative to Southern PRB coal, EVA’s wood pellets generate far less ash and less sulfur while providing a similar heat content. In addition, lifecycle GHG emissions for wood pellets are 87% and 71% lower than coal and natural gas respectively, and currently enjoy a lower cost of electricity (LCOE) than solar and wind. Finally, we’ve often discussed intermittency issues with solar and wind, a problem wood-sourced energy can help solve. The reliability of wood-sourced energy (>90% capacity factor) can provide reliable, baseload electricity that reduces or replaces coal consumption, provides backup for wind and solar, and helps supply meet the challenges of rising power demand.

pellet chart

pellet charts

Source: Enviva Partners (EVA)

There are several countries leaning on the conversion of coal plants to wood pellets as a way to meet their carbon reduction goals. Western Europe leads the world in wood pellet consumption, with the U.K., Italy, and Denmark among the largest consumers. Increasingly Asia is seen as a growing demand center, led by Japan and South Korea. The opportunity set continues to grow. In fact, the International Energy Agency’s (IEA) most recent report published in May 2021 forecasts “modern solid bioenergy” (code: wood pellets) will grow 5.3% annually from 2020-30 and 2.8% annually from 2020-50. Wood pellet market share is expected to grow +9% from today (5%) to 2050 (14%), coming in third only to solar (+19%) and wind (+15%) among renewables.

energy table

Source: Energy Information Administration (EIA)

The United States is a major exporter of wood pellets (mostly to Europe) thanks to the inexpensive wood grown in the southeast U.S. At this point the economics do not support converting U.S. coal power plants to wood pellets, though we never say never. If rolling blackouts in California and Texas spread to the rest of the nation and Main Street blames solar and wind, there will be a popular revolt against closing reliable power generation. In the event this happens, it may become good politics and public policy to push for the re-opening and conversion of old coal power plants to wood pellets. Is Tom Hanks available for a “Castaway” sequel?

RENEW Performance Tracker

Eagle Global Renewables Infra Index

perf 6.21

Source: Bloomberg

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