Expert forecasts: what should we expect in the next heating season?

As published by the international biomass exchange Baltpool, the last record-long heating season was the cheapest in Lithuania and the most expensive in Estonia.  The turnover of energy sold this season amounted to 4 million MWh, compared to 3 million MWh during the same period in 2019-2020. Experts say that the prices of the next heating season will depend on sanctions against Belarus, which is one of the largest exporters supplying biomass to the Baltic countries.

According to the data collected by Baltpool, last heating season, the average biomass supply price in Lithuania was 10.89 EUR/MWh, in Latvia – 12.15 EUR/MWh, and in Estonia – 12.90 EUR/MWh.

“Looking at the average prices of the entire season in the Baltic region, we see that biomass prices were the lowest in Lithuania and the highest in Estonia. According to the latest data, biomass prices in Latvia are currently lower, so it seems that the next heating season in Lithuania may be more expensive, and Latvian biomass participants may be interested in selling more biomass to the Lithuanian market,” said A. Smaliukas, CEO of the International Biomass Exchange Baltpool.

Biomass import from Belarus will affect the next season

Wood chips were among the most popular biomass products during the last two heating seasons, which comprised only about a quarter of the total amount of biomass sold on the exchange several years ago. “We have noticed that this product has dominated the exchange for several years in a row, and buyers are demanding higher quality wood chips. This has led to a significant increase in imports of this product from Belarus, which is truly of good quality. However, if the recent events in Belarus will result in restricted imports, the ability to secure the required amount of higher quality wood chips for biomass will remain rather limited for Lithuania and somewhat for Latvia,” said V. Jonutis, Head of the Trade Division at Baltpool.

Igors Krasavcevs, Head of Forest Information Centre in Latvia, also warns about possible changes in wood chip prices. “Since Lithuania imports a lot of its wood chips from Belarus, and in the second half of this year the supply chain of this product may change, its prices in the market may jump up,” the Latvian expert said.

According to the data of Baltpool, biomass import volumes have not yet decreased, exceeding 250 thousand tons in the first quarter of 2021, however the situation may change soon after the recent events in Belarus.

How much will the next heating season cost?

“At the moment, it would be difficult to make any accurate estimations. Only 8% of long-term biomass contracts have been concluded for the next season. This is a very small number compared to last year. It is obvious that the market is still watching and waiting, and the exchange participants are analysing the prices of last year’s summer and winter seasons. According to the current long-term and short-term contracts, the average price of biomass is 13.13 euros per MWh, but it is possible that the average price will increase to 15-16 euros per MWh in the next heating season,” said V. Jonutis.

According to V. Jonutis, the price of wood chips is determined by two main factors: weather conditions and storage volumes. “At the moment, with such rainy weather, biomass warehouses should be full if we want to expect good prices. If suppliers have small warehouses and the weather is bad, the prices are high,” V. Jonutis noted.

The demand for biomass is growing in the Baltic States

Igors Krasavcevs, Head of Forest Information Centre in Latvia, noted while overviewing the Baltic biomass market that the demand for biomass is growing in the region with each year, and is estimated to continue growing even further in the coming years. “This will be influenced by the development of new cogeneration power plants in Lithuania and Latvia, and the changing situation in Estonia, which plans to switch from shale gas to more sustainable types of biomass – wood chips and biomass made from waste wood – in the next 2-3 years in order to meet the requirements of the Green Deal. In recent years, the annual consumption of shale gas in Estonia has been around 12 million tonnes,” I. Krasavcevs said.

According to the expert, the situation is different in Latvia, where around 2 million m3 of biomass is used in the industrial sector, and about 3 million m3 is used to meet central heating needs. The situation in Latvia will change even more over the next few years, and the demand for biomass will increase with the construction and launch of a new 48 MW central heating power plant in Riga.

The demand for biomass in Lithuania will increase in 2022-2023 with the construction of a new cogeneration power plant in Vilnius, the capacity of which will reach 200 MW.

The number of international exchange participants has tripled

Last season, the number of contracts concluded by foreign participants on the international biomass exchange has tripled, particularly in terms of Latvia and Estonia.  There are currently 453 registered participants on the Baltpool Exchange, 117 of which are from foreign countries. Some of the largest buyers of biomass are well-known energy companies in the region, such as Ignitis, Stockhom Exergi, Enea, Enefit, Vilnius Combined Heat and Power Plant, Liepajas Energija, Riga Bioenergija, etc.

“Participants from Latvia and Estonia have been trading on the exchange since 2018, and last year participants from Denmark and Sweden have also joined the platform. And we have a partner in Sweden – Svebio. A Finnish exchange Finbex has been launched, where we now also operate via our Finnish partner. The growing number of exchange participants allows us to ensure more stable and favourable biomass prices,” A.Smaliukas noted.

Focusing on trade in sustainable biomass

According to the CEO of Baltpool, the demand for sustainable biomass is continuously growing in Europe, thus a lot of efforts have been recently made to simplify trade processes and create even better conditions for market participants to trade in sustainable biomass.

Two new tools will be implemented on the biomass trading platform in the near future, which will make it easier for suppliers to provide data verifying compliance with the RED II sustainability requirements, and a CO2 footprint calculation tool will also be introduced shortly after in order to provide real-time data on CO2 emissions from the production and delivery of biomass.