Analysis of Economic Efficiency on Production of Wood Pellet in Korea

Abstract

Recently, in order to encounter national energy security and climate change according to high oil prices and Convention on Climate Change, “Low Carbon Green Growth” is promoted as government wide policy and Korea has a plan to expand development and supply of self–supportable new & renewable energy resource strategically. In the National Energy Plan, it is planned to expand new renewable energy supply rate up to 11% and allocate 31% of this energy to bio energy (Ministry for Food, Agriculture, Forestry, and Fisheries, 2008). In development and supply of new & renewable energy, the wood pellet, a forest biomass, is evaluated as possible to create visible outcome in early stage and having relatively high contribution level in mid and long term. IPCC recommends to substitute bio energy for fossil fuel, assessing that among the alternatives of climate change, the forest had higher flexibility and cost effectiveness (Forest Service, 2010). Wood pellet is recognized as an effective alternative for substituting fossil fuel and reducing greenhouse gas and authorized as a carbon neutral alternative energy with no carbon emission in the Convention on Climate Change (Forest Service, 2009). Accordingly, Forest Service plans to substitute wood pellet for heating of 140,000 farm houses and 37% of controlled horticulture by 2020 and produce and supply 1 million ton of wood pellet using domestic materials through expansion of forest management product collection by establishing wood pellet energy utilization measures and domestic demand of the wood pellet is expected to increase continuously (Forest Service, 2010). Additionally, with Renewable Portfolio Standards (RPS) since 2012, it is prospected that future expansion of new renewable energy market will bring increase of demand on wood pellet. Although traditional new renewable energy market focused on solar and wind power, it is prospected that due to introduction of the RPS, new and renewable energy sources with higher RECs (Renewable Energy Certificates) weight, unit price competitive power, facility scalability and electric power generation efficiency will be selected (Korea Environment Institute, 2011). According to Samsung Economic Research Institute, it is expected that when evaluating with 2 axes of RECs weight and power generation efficiency and facility capacity, the market in marine wind power, tidal power, lignocelluloses biomass single firing power generation will be expanded (Samsung Economic Research Institute, 2011). Like this, while the demand of wood pellet is forecasted to continue to increase due to its supply expansion policy and related systems, it is actually difficult to expand and industrialize the supply of wood pellet without security of economical efficiency in its production. Besides for wood pellet related socioeconomic previous studies, Korea Forest Policy Research Association (2003) executed studies on economic efficiency, environmentality, and convenience of heating boiler system and the Ministry of Agriculture and Forestry (2005) conducted economic analysis on thermal energy production Analysis of Economic Efficiency on Production of Wood Pellet in Korea