Biomass power generators face challenges amid gov’t policy shift

Wood biomass “wood pellets”.

South Korea’s biomass power industry is confronting new challenges as the government considers reducing the renewable energy certificate (REC) weighting for imported biomass materials. RECs are certificates that verify the supply of energy from renewable sources, with higher weightings allowing power producers to accumulate more RECs per unit of energy generated.

If the government follows through with the proposed reduction in REC weightings for imported biomass, Korean power plants may have to switch to more expensive locally sourced wood pellets and industry insiders warn this shift would put financial pressure on operators. The domestic supply of biomass raw materials amounted to 1.06 million tons in 2023, far short of the 4.26 million tons required by the market, according to government data on Wednesday.

One industry official noted the price disparity between domestic and imported biomass. “Domestic suppliers charge 350,000 won ($253.62) per ton annually, while imported biomass costs around 200,000 won per ton. From a pricing perspective, it makes sense to use the cheaper imported materials,” the official said.

However, some biomass operators are finding it increasingly difficult to rely on imported materials due to the policy changes. Using cheaper imported biomass now results in lower REC earnings. The government halved the REC weighting for imported materials in 2018 to promote domestic production. Under the current rules, a biomass power plant earns one REC for every megawatt-hour (MWh) of electricity produced, and RECs are currently valued at 75,095 won each. If a plant operates under a 2.0 weighting, producing 100 MWh of energy results in 200 RECs, effectively doubling their earnings.

For plants that use imported biomass in mixed-fuel operations, the REC weighting is set at 1.0. However, if these operators switch to dedicated biomass production, the weighting drops to 0.5, slashing their REC income by half and impacting their financial performance. This creates a challenging environment for businesses that are already struggling to adapt to policy shifts.

The industry warns that the government’s plan to further reduce REC weightings could destabilize the entire biomass ecosystem by raising operating costs. Some operators are also concerned about the potential impact on long-term supply agreements and REC sales contracts. One company that has invested billions of won in a new plant, scheduled to start operations in 2025, expressed frustration with the uncertainty surrounding government policies.

In contrast, domestic biomass producers argue that protecting local industries should take precedence. They are urging the government to lower the REC weighting for imported materials even further, encouraging power plants to increase their reliance on local wood pellets.

Meanwhile, the industry’s biomass power association is preparing to establish a third-party certification committee. The association aims to collaborate with policymakers to transition to either a national certification system or a global standard framework for biomass production.

Biomass power plants generate electricity by burning wood pellets, which are made from ground, dried, and compressed waste wood. These pellets offer a lower greenhouse gas footprint and higher energy density compared to coal.