Pulp and Energy business line
The Pulp and Energy business line supplies pulp mills, process islands (i.e., the equipment for the different stages of the production line), such as fiber lines and recovery islands, and process equipment for customers using chemical and mechanical pulping technologies; as well as bio-power plants, power boiler islands and related environmental systems, such as flue gas cleaning solutions; and biomass conversion technology-based solutions, such as gasification of biomass and waste, lignin separation technology and pyrolysis, primarily for the pulp, paper and energy industries.
The Pulp and Energy business line's customers are mainly mechanical and chemical pulp producers (global pulp and paper producers, major regional companies and smaller, local companies) as well as companies in the panelboard industry. The most important geographic markets are South America and Asia (China in particular), where the majority of new projects have been located.
Deliveries in Pulp and Energy business line are typically project based. Valmet typically enters into a bidding process for new projects. A typical pulp mill project lasts between 12 and 24 months and includes project management, engineering, manufacturing, delivery and start-up of equipment and a responsibility for achieving agreed process parameters. The scope of contracts varies from equipment supply only to the delivery of full EPC scope (Engineering, Procurement and Construction, excluding civil works). Sales are typically under fixed price contracts.
Growth in board and tissue consumption are contributing to the demand for pulp. Since recycling rates cannot grow indefinitely, there is demand for virgin wood pulp. Large new pulp mills are being built, mostly in South America and Asia, but there are business opportunities also in the Nordic countries. Upgrades, rebuilds and conversions of the installed base will continue in North America and Europe, with some of these projects including large deliveries of new pulp equipment and technologies. In European, North American and South American pulp mills, there is also growing interest in new technologies, e.g. for lignin separation and its further refining.
For Valmet, the energy market means biomass power boilers, where our focus is on pulp and paper industries globally and the power generation segment in Europe, North America and Asia-Pacific.
Demand for bioenergy is driven by growing global energy consumption, increasing interest in renewable and sustainable energy, the competitiveness of different energy sources, and security of supply. Especially in Northern Europe, combined heat and power generation solutions are increasing the attractiveness of bioenergy, and in all markets multifuel solutions provide fuel flexibility for customers. The multifuel solutions market continues to grow in Asia-Pacific and Eastern Europe. Also repowering, fuel conversions and refurbishment of aging plants are opening up new business opportunities.
In Europe, advanced environmental regulations have fueled the biomass-based energy market, but the recession has weakened the market. Long-term drivers of bioenergy are threatened also by uncertainty in regulatory policies, incentives and acceptance. In North America, shale gas-based energy production has reduced the market’s interest in bioenergy investments, but there are still occasional bioenergy projects. In emerging markets, bioenergy production is mostly based on low-cost solutions for agro-fuels; however, there are increasing opportunities for bio- and multifuel solutions in Asia-Pacific. The South American market is challenging for global players due to local competitors.
Source: Valmet Capital Markets Day 2016
Growth in paper, board, and tissue consumption in Asia
The increasing standard of living in Asia, and subsequent increase in demand for paper, board and tissue based products, is expected by the company to increase the demand for fiber to be used as raw material in manufacturing processes. This, in turn, is expected by the company to create demand for rebuilds and new pulp process equipment.
Need for virgin wood pulp, as recycling rates can not grow infinitely
Demand for paper, board and tissue is growing fastest in Asia, especially China and India, which do not have sufficient indigenous fiber resources (source: Pöyry, 2012). The consumption of recovered paper is expected to grow somewhat faster than the paper industry on average between 2010 and 2025 (source: Pöyry, 2012). Rising marginal costs and decreasing quality of collected recovered paper will eventually curb the growth rates, particularly toward the end of the forecast period through 2025 (source: Pöyry, 2012).
Increased size of pulp lines and mills
Valmet estimates that the typical greenfield pulp mill size has increased from an average capacity of approximately 0.7 to 1.0 million metric tons of pulp per year between 2000 and 2007 to approximately 1.3 to 1.5 million metric tons of pulp per year between 2007 and 2013. Valmet expects this trend to benefit technology providers, such as Valmet and Andritz Corporation (“Andritz”) with good references of large project deliveries and a comprehensive product offering covering complete plant solutions. Valmet considers the barriers to entry into this market to be high due to the size and investment levels needed for a greenfield project. Customers typically prefer suppliers with strong references and sufficient resources.
Growth in energy consumption
Global electricity demand is forecasted to grow 2.2 percent annually from 18,443 TWh in 2010 to 31,859 TWh in 2035. Fossil fuels are expected to continue to be the predominant fuel used for energy production, but the share of fossil fuels in energy production is expected to decrease from 68 percent in 2010 to 58 percent in 2035. (source: IEA, 2012).
Demand for sustainable energy
Biomass provides an attractive long-term alternative to fossil fuel-based energy production due to the renewability of biomass and because it is carbon dioxide neutral. Compared to other renewable energy sources, such as wind and solar power, which are intermittent energy sources, biomass-based power generation provides continuous base load power. Baseload power plants are production facilities typically used to meet a given region’s continuous energy demand, and produce energy at a constant rate, usually at a low cost relative to other production facilities available to the system. In 2011, biomass-based electricity generation represented approximately 1.6 percent of global generation, but is forecast to grow 6.9 percent annually between 2011 and 2018 (source: IEA, 2013) (which the company estimates is more than twice as fast as growth in total electricity production based on IEA forecasts).
Modernization of aging plants
Valmet believes that there are significant market opportunities for new biomass conversion technologies based on government and consumer support for renewable energy and biomass-based renewable products, such as bio-plastic, activated carbon, low cost carbon fibers and resins. The growth of the market will be dependent on several factors, including the speed of maturity and development of the technology, cost of new technology, cost of biomass, value of end products and government incentives and regulation.
Valmet has experienced increasing commercial interest from companies around the world for its new biomass conversion technology solutions. The primary target markets for these products are Europe and North America as well as Brazil in the mid term. The development of biomass conversion technologies is being supported by government mandates and regulations, including in the EU, the United States and Brazil.
Incentives and regulation
The aim to reduce emissions and mitigate climate change has resulted in targeted reductions of carbon dioxide emissions and use of fossil fuel-based energy production in many countries. Policy decisions are also impacted by governments’ objectives to increase the energy security and decrease dependence on imported energy.
Various countries have introduced subsidies to promote the use of renewable energy solutions, such as bioenergy. For example, the EU has, in its Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC, set a target of a 20 percent share of energy from renewable sources in overall EU energy consumption by 2020.
Continued economic uncertainty in the EU and the inability to finance further carbon dioxide reductions have, however, resulted in uncertainty regarding the enforcement of this directive. This uncertainty combined with the economic slowdown has led to a significant decline in the price of carbon dioxide emission allowances and an oversupply of allowance. These trends currently favor fossil fuel-based energy generation over renewable alternatives.
Certain Asian countries have also taken actions to reduce the carbon dioxide emissions. For example, China’s current five-year plan targets 13,000 MW of biomass power production capacity by 2015, a substantial increase from the 5,500 MW installed biomass-based power production capacity in 2010.