On draft alignment of typical conditions of supply of biomass and conditions of trade in biomass products

BALTPOOL, as the operator of the energy exchange, was authorised by the National Energy Regulatory Council, by letter No R2-(KA)-354 of 13 January 2023, to harmonise the provisions of the Typical Conditions of Supply of Biomass with the provisions of points 9 and 9¹ of the Procedure for the Control of the Quality Requirements of Solid Biofuel Quality.

Draft amendments to the Conditions of Supply and the Conditions of Trade in Biomass Products have also been prepared, considering the issues that arose during the last heating season in the execution of transactions on the exchange, as well as the comments and suggestions made by the biomass market participants regarding the improvement of the legal regulation:

1. Draft standard terms and conditions for the Typical Conditions of Supply of Biomass (with track changes).

2. Draft terms and conditions for the Conditions of Trade in Biomass Products (with track changes).

The main changes proposed are:

1. Removing the ability to reduce the volume of standard trades due to weather conditions, respectively moving the ability to reduce volume of relevant trades to a non-standard trading condition.

To provide market participants with:

1. More clarity in transactions.
2. The possibility of not assessing a risk premium due to possible weather-related reductions in the volume of trades for standard trades.
3. The ability to separately assess the downside risk of a trade when entering the relevant non-standard trade.

It is proposed to remove from the Standard Terms of Trade the provision on the possibility to reduce the volume of standard transactions by up to 20% due to weather conditions, while at the same time creating a non-standard clause “Permitted reduction of transaction volume by up to 20%”, which would give buyers the right to unilaterally reduce the volume of such transactions by up to 20% in the case of concluded transactions. This clause would allow for monthly, quarterly, and semi-annual delivery period transactions. The reduction could be made by means of a material information notice, but no justification would be required.

2. In the event of breakdowns of installations using biomass, buyer will be obliged to provide a notification of material information, including the rectification of the failure.

In the event of a plant failure, the buyer will be required to provide two Significant Information notices to stop the supply of biofuels:

1. In the event of a breakdown of installations (as before).
2. After the breakdown is fixed. This Significant Information notice will need to include information on the reduction in the amount of energy produced or consumed as a result of the failure or the amount of biomass and/or other energy resources consumed. Accordingly, the total amount of biomass to be delivered under the transaction will be reduced by this actual reduction in biomass due to the malfunction.

3. Provisions are clarified for cases where buyers delay the submission of quality reports.

The provisions on the consequences of late submission of quality reports by buyer are clarified in the light of suggestions from market participants:

1. It is stipulated that if a buyer is late in submitting the report within 7 working days after the end of the delivery week, such buyer will not be able to apply discounts in case the quality of the biomass does not comply with the product specifications.
2. If the buyer misses this deadline and fails to submit the quality report even after 5 working days from the seller’s reminder, the biomass delivered by the seller will be deemed to have met the best possible biomass quality indicators.

4. Splitting auctions by country of buyers.

In order to ensure the efficiency of auctions held in different countries, it is proposed that trading sessions should be organised separately in each country, i.e. when sellers reduce the price of their orders placed from the sites registered in the country concerned, the auction phase would be extended only in that country. For example, if a seller lowers the price to sell biomass in the Vilnius region, this will not extend the auctions for the purchase and sale of biomass in the Riga or Tallinn regions.

5. Obliging certain buyers to provide delivery schedules in advance of expected delivery.

Buyers who are obliged by the National Energy Regulatory Council under the Description to declare the planned time of delivery/unloading of biofuel at least 24 hours before the planned delivery of the biomass, are obliged to coordinate the relevant delivery schedules in the Electronic Trading System (hereinafter referred to as the ‘ETS‘).

6. Listing of a new SM4 product on the energy exchange.

In view of the demand expressed by market participants for an even lower-quality product, which could for example be made from bark alone, it is proposed to list an additional product “SM4”’ which would be allowed to have an ash content of up to 7 % and a small particle fraction of up to 30 %.

Please submit your comments and observations, if any, no later than 31 May 2023 to [email protected].