Indonesia’s largest private energy firm Medco Group will expand its forestry business by producing renewable energy wood pellets, for which it sees a rising demand on the international market, a senior government official said.
“We’ve approved PT. Medcopapua Industri Lestari [PT. MIL], a subsidiary of the Medco Group, to produce 200,000 tons of wood pellets per year starting next year,” Hadi Daryanto, director general of forest production development at the ministry of forestry said here over the weekend.
He said that unlike coal, which is not renewable and a rather dirty fuel, wood pellets are cheaper and cleaner. “But I’m not sure whether the pellets will be exported or for their [Medco’s] own use.”
He could not specify how much finance the Group would invest in the production of the pellets as the company asked for project approval together with the production of wood chips in Papua province.
“What I can tell you is that PT. MIL will invest more than Rp 922 billion to produce 200,000 tons of wood pellets per year and 1.8 million tons of wood chips per year starting next year,” he said.
Medco could not be reached for comments on the expansion plan.
According to Hadi, previously the Medco Group had asked permission to produce a total of 2 million tons of wood chips per year.
“The wood chip plant has been in operation for some months but is not yet at full capacity.
“Then recently, they have asked for a license to diversify production so that they can produce 1.8 million tons of wood chips and 200,000 tons of wood pellets,” he said without further elaboration.
According to him, the company has noted rising demand for biomass fuel and decided to convert parts of its wood chip production to produce wood pellets. He pointed out that the firm would need about 5 million cubic meters of logs per year as raw materials to feed the two wood chip and pellet plants in Papua.
All of the raw materials will be supplied by PT. Selaras Inti Semesta, which is also a subsidiary of the Medco Group, and has a forest concession in the province.
PT. Selaras Inti Semesta has allocated more than Rp 20 trillion to develop almost 300,000 hectares of production forests (HTI) in the East Nusa Tenggara, West Nusa Tenggara, and Papua provinces as the government has decided that in the next few years forestry-related industries should get their raw materials from production forests (HTI) or from community forests (HTR) rather than from natural forests.
According to him, as the world is tending toward adopting green business practices and fossil fuels are declining, demand for wood pellets as a source of renewable energy will continue to rise.
Beside being cheaper and cleaner, rising demand also reflected the benefits companies could get from using renewable energy fuel sources to attract carbon credits on international markets.
Wood Resources Quarterly, a market report released in March 2009 by Wood Resources International, an international consulting company on the forest industry, said that world production of wood pellets reached almost 10 million tons last year. It predicted that in the next five years total production will double as more countries and companies would adopt green business strategies, while fossil fuel prices continued to rise.
The report said Europe is still the biggest market for wood pellets, which are mostly supplied by Canada.
But as the market in the United States is surging due to greener policies being adopted by the Obama administration, the US will buy more wood pellets from Canada, leaving Europe short of supply.
In Asia, the South Korean government had adopted a green energy policy, which will require it to replace the use of coal with wood pellets. “South Korea uses 8 million tons of coal per year and its government is committed to replace five percent of this with wood pellets as a first step. Coal is certainly [traditionally] a very dirty fuel. That’s why they are replacing it with renewable energy sources,” Hadi said, adding that this means the country will need 400,000 tons of wood pellets per year.
He noted that as a result a number of companies in the country were seeking approvals from the Indonesian government to invest in forestry related renewable energy.
One of them, PT Solar Park Indonesia has got an approval from the government to develop production forests in Sumatra and Java, and it has built a US$6 million wood pellet plant in Wonosobo, Central Java, which has a production capacity of 10 tons per hour.
So far, he said, only the Korean company and Medco had developed the wood pellet industry in Indonesia. “But considering the rising demand, more and more companies will be seeking to invest in the business,” he said.
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