GLOBAL PELLET MARKETS & GROWTH OF BIOMASS CO-FIRING

BIOMASS PELLET TRADE ASIA, JAKARTA

September 27, 2010 Saku Rantanen, Head of Bioenergy, Asia-Pacific

AGENDA

Short Pyry Introduction Market Fundamentals Production and Consumption Trade Flows and Industry Players Growth of Biomass Co-firing Price Trends

BIOMASS PELLET TRADE ASIA 27 September 2010

THE POYRY GROUP: CONSULTING AND ENGINEERING

The global thought leader in engineering balanced sustainability for a complex world Net sales in 2009 EUR 674 million Listed on the NASDAQ OMX Helsinki since 1997 7,000 experts in about 50 countries Project experience in more than 100 countries 17,000 projects annually

BIOMASS PELLET TRADE ASIA 27 September 2010

SELECTED EXAMPLE PELLET PROJECTS

2010 2010 2010 2010 2009 2009 2009 2009 2009 2009 Evaluation of pellet market opportunities and future trends. Technical and economical assessment of pellet production and valuation of market opportunities. Evaluation of biomass price development and future trends in biomass consumption. Assessment of biomass availability development and biomass trade trends in the future. Business strategy development and market evaluation of wood pellet market in the UK. Assessment of business opportunities and due diligence and of a large scale pellet production. Global pellet supply and demand assessment and detailed market analysis, multiclient study. Development of sales strategy and advisory services for solid biofuel producer. Wood biomass potential in Romania and business opportunities identification. Technological assessment of torrefaction viability and evaluation of business potential.

Source: Buhler Group

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PELLET MARKET FUNDAMENTALS

GLOBAL PELLET MARKETS & GROWTH OF BIOMASS CO-FIRING

September 27, 2010 Saku Rantanen

WOOD PELLET PRODUCT DESCRIPTION

Densified biomass typically produced from forest
industry residues Pure or white pellets Sawdust, woodchips, or wood shavings (softwood) Bark or brown pellets Harvesting residues Recovered wood High density transporting efficiency Hygroscopic and need to be stored and transported carefully in order to prevent exposure to moisture The energy content of 4.8 MWh/t

Source: Finnish Pellet Association

BIOMASS PELLET TRADE ASIA 27 September 2010 6

GLOBAL PRODUCTION AND CONSUMPTION

GLOBAL PELLET MARKETS & GROWTH OF BIOMASS CO-FIRING

September 27, 2010 Saku Rantanen

GLOBAL PELLET CONSUMPTION 2008 AND 2015 OUTLOOK

Estimated growth 12 million tonnes in 2008 26 million tonnes by 2015 CAGR of 12%
9.0 5.3 2.0 North America Western Europe Eastern 0.3 0.9 Europe <0.1 0.1 Russia

15.5

0.1 0.4

China 3.4 0.2 SE Asia and Oceania

South <0.1 0.3 America

Million tonnes 2008 2015

GLOBAL PELLET PRODUCTION AND RAW MATERIAL AVAILABILITY, 2008-2015

9.7 7.7 6.3 2.2 2.9 North America Western Europe 1.7 Eastern Europe 0.6 1.4 Russia

0.1 0.4

China

2.2 <0.1 South America Production (million tonnes) 2008 2015

Woody biomass availability
Increasing harvest potential Stable harvest potential

2.4 1.4 SE Asia and 0.1 Oceania

Stable harvest potential but in high demand Raw material deficit

CAPACITY INCREASE HOTSPOTS

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PELLET TRADE FLOWS & INDUSTRY PLAYERS

GLOBAL PELLET MARKETS & GROWTH OF BIOMASS CO-FIRING

September 27, 2010 Saku Rantanen

WORLD PELLET TRADE FLOWS IN 2008 AND EMERGING FLOWS

600 500 200 1,300 *

600 1,300 100

50

Trade flows in 1,000 tonnes, >50,000 Current Emerging * Intra Western European net trade

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TOP 15 GLOBAL PLAYERS

Pellet production capacities in 2015

Suzano Energia Renovvel Plantation Energy Australia Intrinergy German Pellets JCE Group Magnolia Biopow er VAPO Vyborgskaya Cellulose Graanul Invest RWE Pinnacle Pellet Canadian Bio Pellets General Biofuels Point Bio Energy Lantmnnen Agroenergi 0 500 1,000 1,500 2009 2,000 Planned/decided 2,500 3,000 3,500

1,000 metric tonnes

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GROWTH OF BIOMASS CO-FIRING

GLOBAL PELLET MARKETS & GROWTH OF BIOMASS CO-FIRING

September 27, 2010 Saku Rantanen

MARKET SEGMENTATION

Source: Finnish Pellet Association

Residential users (small) Private residences 4-8 tonnes per household/a High quality wood pellets Bulk and large sacks

Commercial users (medium) Industrial and office buildings,

schools, hotels Annual consumption 100-500 tonnes Bulk or in large sacks Ash content up to 2%

Industrial users (large) CHP, district heating Mainly mixed with coal,
chips and peat. Annual consumption can be up to 400,000 tonnes Bulk pellets Higher levels of impurities and ash

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MARKET SEGMENTATION EXAMPLES

The pellet market initially developed to serve residential heating demand. The commercial and industrial sectors by comparison are relatively young market segments, and expected to demonstrate the highest growth potential.

Residential

Commercial

Industrial

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Sweden

Italy

Belgium

BIOMASS PELLET TRADE ASIA 27 September 2010

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INTRODUCTION TO CO-FIRING
Combusting biomass and coal Commonly used in
UK, Netherlands, Belgium and Japan

Pellets can be milled together with coal Alternatives: woodchips, sawdust, straw,
recovered wood, peat etc. Typical co-firing levels are 3-10%

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CO-FIRING POTENTIAL
Current global pellet consumption is
12 million tonnes If 5% of coal replaced with pellets the demand would be Europe 45 million tonnes US 70 million tonnes Japan and Korea 15 million tonnes Potential more than 10 times the current global pellet market
35% 30% 25% 20% 15% 10% 5% 0%

Share of total coal consumed in primary energy production, 2007

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CO-FIRING ECONOMICS

Pellets compare financially unfavorable to coal

Without governmental subsidy schemes, not economically viable solution

The economics closely linked to

Biomass pricing, carbon certificates and subsidies

Government support systems

Renewable portfolio standard Feed-in tariff Feed-in premium, Green certificate trading, Quota system, Fiscal incentives, Other subsidies

The wood pellet market has largely been created by renewable energy policies
Can be defined as artificial

Pellet prices are seen as a main obstacle for large-scale co-firing of pellets

BIOMASS PELLET TRADE ASIA 27 September 2010

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PRICE TRENDS

GLOBAL PELLET MARKETS & GROWTH OF BIOMASS CO-FIRING

September 27, 2010 Saku Rantanen

PRICE LEVELS

Industrial pellets (CIF Rotterdam)

EUR/tonne 160
ENDEX 1 front Calendar Wood Pellet contracts, CIF Rotterdam

Residential pellets (incl. VAT and delivery)

EUR/tonne 260

140
240

Sweden

Germany

Italy

120
220

100

200

80

180

60 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09

160 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09

Source: Pellets@tlas

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RISKS

GLOBAL PELLET MARKETS & GROWTH OF BIOMASS CO-FIRING

September 27, 2010 Saku Rantanen

RISKS, INDONESIAN PERSPECTIVE

Feedstock security Feedstock pricing Feedstock sustainability Logistics Low entry barriers New major capacity announcement will
create a risk of unhealthy overcapacity Industrial wood pellets compete with wood chips for a market share Japan and Korean markets still uncertain

First mover advantages start to be shared

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MARKETS IN ASIA-PACIFIC

GLOBAL PELLET MARKETS & GROWTH OF BIOMASS CO-FIRING

September 27, 2010 Saku Rantanen

PELLETS IN ASIA-PACIFIC

Existing pellet production Australia, China, Japan Emerging in several SE-Asian countries Demand mainly from South Korea Japan China and Australia holds great potential but
political will missing Raw material availability Indonesia Australia

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CONCLUSIONS

Europe will keep the leadership position in

the near future In many areas the market is still at nascent stage South-East Asia has great feedstock potential Fast growing market provides business opportunities Key risks Feedstock security and pricing Logistics Off-take Operational experience

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PYRY COVERS THE ENTIRE VALUE CHAIN FROM BIOMASS TO PRODUCTS

Logistics

Collecting and harvesting

Processing

Clean and Green Energy and Fuels with Pyry

Energy / Biorefinery

Resources

Replanting Fuels

Chemical Refining and Energy Use

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THANK YOU!

CONTACT: NAME: SAKU RANTANEN TITLE: HEAD OF BIOENERGY, ASIA-PACIFIC MAIL: SAKU.RANTANEN@POYRY.COM PHONE: +65 9650 2889
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