| © UPMU The BIG picture Matthew Rivers 1 Tuesday, 11 August 2015

| © UPMU 1.EU Regulation on climate change 2.Demand for biomass 3.Supply in UK 4.What can this mean ? 2 Tuesday, 11 August 2015

R.E.D. is not a colour, or an instruction to stop – but it is a challenge !

| © UPMU The Renewable Energy Directive (2009) defines the ambition of the EU to tackle climate change. Global political lead in tackling climate change Secure 20% of final energy consumption across EU 27 from renewables by 2020 Plus 20% reduction in energy use – efficiency hence Use all forms of renewables - solar, wind, hydro and biomass. Delivery of national targets is matter for Member States 4

| © UPMU 5 To meet EU targets : biomass sources dominate ~1,600 TWh heat and power estimated to come from biomass plus ~ 328 TWh of biomass based biofuels demand SOURCE: European Commission; Europower and heat 2020 Final Energy Consumption (FEC) from different renewables Heat and power from biomass Total FEC from RED Biofuels mandates Heat and power Power from hydro 70555Power from wind 40Solar power 40Solar heat 13 Geothermal power and heat TWh

| © UPMU 2010 all Member States published National Renewable Energy Action Plans. UK starts from low base 3% and targets 15% by 2020 – x3 electricity generation. 6

| © UPMU Responding to this expectation are a number of large, planned biomass boilers for electricity. There are many more smaller scale boilers being installed and operating 7 Tuesday, 11 August 2015 Can be 2 Million tonnes per annum demand

| © UPMU UK technology intentions – for heating and cooling (Ktoe) Scale of increase for solid biomass is even more dramatic A proportion of biomass is described as ‘’in households’’ which is shown to increase from 10% in 2010 to 25% of total biomass used in District heating is expected to increase from 42 to 230 Ktoe = substantial growing demand for wood for heating Likely to be fragmented, local and small scale units 8 Source: Table 11 of UK NREAP

| © UPMU Then there is the biofuels mandate ….. Where to now? The Economist, 30 th October 2010.

| © UPMU 10 Feed Stock Processes Products The biofuels agenda requires 10% of liquid fuels to be from renewables by 2020 There are several different concepts – just moving to pre-commercial phase with 2G which can also use wood as feedstock 1G: Sugar & Starch 1G: Oleic Acid 2G: Cellulose Sugar cane Sugar beet CornWheat Rapeseed PalmSoya GrassBagasseSludgeWood 1G 2G 1.5/2G Hydro treatment Gasification Enzymatic/acid hydrolysis Fischer-Tropsch Fuel ethanol  10% gasoline blend  E85 for FFV cars  30% less energy  % less CO 2 Methyl ester diesel  7% diesel blend  10% less energy  % less CO 2 Transesterification Fermentation Synthetic gasoline 90% less CO 2 Synthetic biodiesel  high performance  % less CO 2 1G 2G

| © UPMU - 355– –170515– –260720–800340–420 ~380 Current forest biomass supply Mobilization Net imports Recovered wood Estimated supply Estimated gap Estimated demand Non-traditional demand (energy) Traditional demand Paper Wood products SupplyDemand ? What about supply ? EU impact on Europe wide woody biomass demand-supply balance in ‘conventional’ forest industry Demand exceeds supply – there is only one way for price  An opportunity for new businesses

| © UPMU In UK all biomass domestic production is remarkably stable. As our living standards increase we import more – mainly food - most/all can be re-used for energy at some point. 12 Tuesday, 11 August 2015 UK domestic biomass production and imports Data from Office for National Statistics

| © UPMU 13 Industrial roundwood Firewood/Wood Fuel 780k UK wood flow (M m³) in – rough numbers can sustain 12 M tonnes of forest harvest and 5 M recycled wood : when demand can be easily double that amount Exported SRW Drop to 416 km k 6.27 MT Pulpwood Wood based panels Fencing Energy wood biomass Sawn timber By products Recycled wood 5.4 to 5.52 Pellets Pulpwood Wood based panels Fencing Logs for wood products Heat Electricity RCP 3.99 million –UK 4.85 million Export 1.81million potential 456k Forest biomass Total removal Annual felling potential till Forest residues Small wood Stumps Branches Arb Arisings SRC 456k 0.46 By products Forest energy potential ~2.75 * *Forestry Commission 2.87 MT Sawn timber

| © UPMU 14 POLITICS EU 20 Subsidies to change the opera- tional environ- ment Increasing competition for wood and higher prices Estimation of EU-27 woody biomass gap Mm³ Globalization of energy wood bio- mass market Role of waste and agriculture as energy source will increase Competition with the traditional forest industry will intensify Of course outcomes are uncertain - but a clear opportunity is to use national resources to better effect : which also contributes to energy security. Role of waste and other burn- able material as energy source will increase Political target adjustment (= failure ?) Increase in wood supply in EU

| © UPMU The element that I am spending my time on Key flows in shipped wood chips and biomass – recent history Wood pellets (M tonne, 2010 [2009] ) Pulp chips to Japan (BDMT) Pulp chips to China (BDMT, 2010 [2009] ) Chips to Europe (BDMT) Vietnam,Thailand + Indonesia 3.9 [ 2.0] 0.7 [0.5] 0.9 [0.5] Total Pacific basin chip 18 M bdmt p.a. Total Europe chip 2 M bdmt p.a.

| © UPMU What does this mean to us all ? Higher personal energy bills ! – because generators are steered to deliver Government obligations + recover all costs from the consumer 16 Tuesday, August 11, 2015

| © UPM Summary Sceptic or not -> doesn’t matter because Climate change Is in place : UK implementing via Green Bank, ROC, FiT, RHI Regulatory action - mandatory Energy use and emissions costs – vehicles ? By-product use and value Understand and support your clients Do the right thing for Homo Sapiens. Threat or opportunity ? Of course both 17

| © UPM UPM Local supply specialists advantaged through backward integration – utilising wastes Supply Aggregation& localtrading Processing Demand No direct involvement, may have long-term relationships with demand-side players Typical involvement Key competitive advantage Supply specialist value chain + Strong backward integration towards supply May have some own processing capacity, e.g. sorting, chipping or drying to add value to product + Consider characteristics/scale of input material and balance to market Aggregates supply from fragmented sources + Locally well-known players and sourcing footprint + Close relationships with stakeholders + Developed logistics, access to sources Takes supply from fragmented sources + Supply control/engagement