Pellet Mill Magazine January/February 2016

Page 1

January/February 2016

Eastern Europe’s

Emerging

Exports

Plus: Russia Lumbers

Baltic States Quietly Dominate Pellet-Heat Market Page 16

Toward Pellet Production Page 24

AND:

Lynemouth Power Gets Go-Ahead Page 32

www.biomassmagazine.com/pellets www.biomassmagazine.com/pellets

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Contents »

Pellet Mill Magazine

Advertiser Index

JANUARY/FEBRUARY 2016 | VOLUME 6 | ISSUE 1

23 Andritz Feed & Biofuel A/S 36 Astec, Inc. 5 BBI Project Development 15 Bliss Industries, Inc. 2 CPM Global Biomass Group 13 EBM Manufacturing 14 EURONEXT 31 Global Pellet Market Outlook Summit 11 Industrial Bulk Lubricants (a Dansons company) 35 International Biomass Conference & Expo 2016 21 NDC Technologies Ltd. 9 Pellet Producer Map 10 PRODESA 30 RUF Briquetting Systems 12 Trinity Packaging Corporation 28 Vecoplan LLC 29 Victam International B.V.

FEATURES 16

BALTIC NATIONS

Baltic Boom

Estonia, Latvia and Lithuania, though small in size, boast prominent pellet production and exportation volumes in European Union. By Katie Fletcher

24 RUSSIA Waking Up the Bear

Its large inventory of standing forests suggests strong pellet-production potential for Russia––when its infrastructure catches up. By Tim Portz

32 CONVERSION Lynemouth's Long and Winding Road

A coal-fired power plant in England's far north continues along a winding path toward what industry proponents hope will be a conversion to biomass inputs. By Tim Portz

DEPARTMENTS 04 EDITOR’S NOTE

Bullish on the Baltics By Tim Portz

05 INDUSTRY EVENTS 06 MARKET OUTLOOK

What the World Can Learn From Europe By Michele Rebiere

07 GLOBAL PERSPECTIVE

Paris and Pellets: Riding the Winds of Change By Christiane Egger

ON THE COVER

Production Prominence: OÜ Osula Graanul, the subsidiary of AS Graanul Invest, constructed a 250,000-metric-ton-per-year pellet plant in southern Estonia’s Võrumaa, Sõmerpalu County in 2014. Today, Graanul Invest owns 11 pellet mills throughout the Baltic region. PHOTO: AS GRAANUL INVEST

08 INDUSTRIAL INSIGHT Facts Matter By Seth Ginther

10 BUSINESS BRIEFS 12 NEWS 34 MARKETPLACE JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 3

« Editor's Note

Bullish on the Baltics What’s happening with the wood pellet industry in the Baltics is worthy of your attention. The frigid waters of the Baltic Sea connect Scandinavia to northern and eastern Europe, and Russia’s western port complex. In aggregate, the region—just a few days sail from most of the markets of interest in the European Union—exported over 4 million tons of wood pellets in 2014 with additional production capacity well on its way. This issue starts with “Baltic Boom,” Associate Editor Katie Fletcher’s review of pelTim Portz VICE PRESIDENT OF CONTENT & let production in the Baltic countries of LatEXECUTIVE EDITOR via, Estonia and Lithuania. Roughly the size tportz@bbiinternational.com of two West Virginias and a couple of New Jerseys, these countries have established themselves as real players in the European pellet trade and have ambitious growth planned. Fletcher began her research with arguably the most knowledgeable person about the wood pellet sector in the world, fortuitously, for the purposes of her story, a Latvian, Arnold Dale. Dale made it clear while presenting at this year’s Wood Pellet Association of Canada general meeting that the producers in the Baltics were formidable competitors. If the 2.65 million tons of pellets Fletcher reports these countries produced in 2014 doesn’t impress you, the over 500,000 tons of capacity under construction that Dale rattles off on page 19 will. The Baltics seem almost purpose-built for pellet production boasting “abundant forest land, low costs of production, port accessibility, low energy costs and low taxes.” Fletcher’s story makes it clear that the Baltic trade will grow at least as quickly as European demand, and perhaps even faster. St. Petersburg sits at the end of the Gulf of Finland, the easternmost arm of the Baltic Sea. I learned while writing my page-24 feature, “Waking up the Bear,” that, for now at least, this port handles more pellet volume than any other port in Russia, and is likely to see increased traffic as Russia’s pellet industry continues to grow. If read together, the stark differences between Russia and the Baltic countries can be fully considered. Latvia, Lithuania and Estonia are the size of small U.S. states while Russia is almost as large as the U.S. and Canada combined. The enormity of Russia’s forest resource might initially indicate unlimited potential for the industry, but it is actually the Russian pellet industry’s biggest challenge and one that will have to be overcome if Russia hopes to match the pace of growth of its Baltic neighbors.

Editorial

PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com VICE PRESIDENT OF CONTENT & EXECUTIVE EDITOR Tim Portz tportz@bbiinternational.com SENIOR EDITOR Ron Kotrba rkotrba@bbiinternational.com ASSOCIATE EDITOR Katie Fletcher kfletcher@bbiinternational.com CONTRIBUTING EDITOR Anna Simet asimet@bbiinternational.com NEWS EDITOR Erin Vogele evoegele@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

Art

ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Lindsey Noble lnoble@bbiinternational.com

Publishing & Sales

CHAIRMAN Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com VICE PRESIDENT OF OPERATIONS Matthew Spoor mspoor@bbiinternational.com SALES & MARKETING DIRECTOR John Nelson jnelson@bbiinternational.com BUSINESS DEVELOPMENT DIRECTOR Howard Brockhouse hbrockhouse@bbiinternational.com SENIOR ACCOUNT MANAGER Chip Shereck cshereck@bbiinternational.com ACCOUNT MANAGER Jeff Hogan jhogan@bbiinternational.com CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com Marketing & Advertising Manager Marla DeFoe mdefoe@bbiinternational.com Subscriptions to Pellet Mill Magazine are free of charge—distributed quarterly—to Biomass Magazine subscribers.To subscribe, visit www. BiomassMagazine.com or you can send your mailing address to Pellet Mill Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-7465367. Back Issues & Reprints Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising Pellet Mill Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Pellet Mill Magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Pellet Mill Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to asimet@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

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COPYRIGHT © 2016 by BBI International

4 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

Industry Events »

Global Pellet Market Outlook Summit

April 11, 2016

STRATEGY STRATEGY IS THE COORDINATION OF ALL ACTIVITIES TO ACHIEVE A SHARED VISION

Charlotte Convention Center Charlotte, North Carolina

The Global Pellet Market Outlook Summit will offer attendees a one-day, intensive exploration of the biomass industry’s most dynamic market segment. Fueled by global policies aimed at reducing the carbon intensity of energy products, the market for wood pellets has grown steadily since the early 2000s. While industry forecasts about the rate of growth may vary, the consensus is that global demand will continue to rise for the next decade. 866-746-8385 | www.biomassconference.com

International Biomass Conference & Expo

APRIL 11-14, 2016

Charlotte Convention Center Charlotte, North Carolina Organized by BBI International and produced by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop—the world’s premier educational and networking junction for all biomass industries. 866-746-8385 | www.biomassconference.com

International Fuel Ethanol Workshop & Expo

JUNE 20-23, 2016 Wisconsin Center Milwaukee, Wisconsin

The FEW provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. The FEW is the largest, longest running ethanol conference in the world—and the only event powered by Ethanol Producer Magazine.

Are You Looking to Develop a Bioenergy Project? BBI Project Development can provide the information and answers you need to move your project forward whether you are starting from project conception or looking to modify an existing facility. Our experience and knowledge in the conventional and advanced biofuels and bioenergy industries is unsurpassed. After all, Biomass is our Business.

Engineering and Project Development services offered: • Conceptual and Preliminary Designs for Advanced Biofuels • Process Modeling • Technology Due Diligence • Bank/Independent Engineer • Engineering Studies • Feasibility Studies • Business Plans • Project Management • Feedstock Resource Assessments and Procurement Plans • Product and Co-product Marketing Plans • Site Selection and Site Development • EPC Contractor Selection and Contract Negotiations • Coordination of Permitting • Strategy and Assistance for Raising Equity • Assistance in Obtaining Debt Financing • Economic Impact Analysis

Contact Us Today. 866-746-8385 - service@bbiinternational.com

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« Market Outlook

What the World Can Learn From Europe BY MICHELE REBIERE

The Paris Climate Conference marked the end of 2015 with one of the most significant forums in recent years. No event in the past decade has more effectively shone a spotlight on the importance of reducing greenhouse gas (GHG) emissions around the world. Almost 200 nations converged in a region that leads the way in the adoption of renewable energy. In particular, host country France is an exemplary citizen, as it is one of the few countries to generate over 90 percent of its electricity from zero-carbon sources without compromising standard of living. When the EU set its energy directive of 20 percent of energy from renewable sources, several years ago, each EU nation had a target that ranged from 10 to 49 percent. The advancements in Europe served as first-rate backdrop for countries such as China and the U.S. Although the focus was not on wood pellets or any specific form of renewable energy, countries that have signed on can draw upon European experience. Wood pellets represents a considerable portion of the renewable energy sources in Europe, despite the fact that consumption of pellets exceeds production by almost 40 percent. This fact allows regions with limited forestry resources to comprehend a zerocarbon, baseload power from wood pellets. Europe imports over 5 million tons a year of wood pellets, chips and other wood products such as firewood from North America. This is the highest import from any region in the world. According to the European Biomass Association (Aebiom) 2015 Report, demand last year was almost 19 million tons. Three countries exceeded 1 million tons per year of wood pellet consumption for heating, with Italy taking the lead. Although the USDA’s Global Agricultural Information Network estimates the Italian market higher than Aebiom, at 3.4 million tons compared with 2.9 million. The majority of Italian imports are from Austria, with Canada the second largest, as well as Germany and several eastern European countries.

6 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

Sweden is among the top five consumers of wood pellets, with more than half of the use for commercial heating rather than home heating. This is not the case in the majority of the top-tier pellet consumers. Germany has set a mandate to not allow any new homes to be built that rely on fossil fuels for heating. Despite lower oil prices, wood pellet heating remains the lowest cost option per kilowatt hour in countries such as Denmark, Austria and France. Although last year’s growth was lower than in the past, RISI reports compound annual growth rate of 16.5 percent in the 10 years prior. While the heat market is significant, the real strides in GHG emission reduction will be in the zero-carbon power generation sector. Although most of the European industrial consumption has taken place in the U.K., 2015 was a year of change impacting the levy control framework and contracts for difference. However, the recent decision of the European Commission to approve state aid to Lynemouth is a positive development. The U.K. support for the conversion of this coal station to biomass has been confirmed by the EC, which sets the tone for subsequent conversions including potentially Drax’s fourth unit. The world needs to see more flagship conversions on the heels of this historic conference! Author: Michele Rebiere President, Wood Pellet Association of Canada CFO, Viridis Energy Inc. 604-669-7831 mrebiere@viridisenergy.ca

Global Perspective »

Paris and Pellets: Riding the Winds of Change BY CHRISTIANE EGGER

A few weeks ago in Paris, a potentially historical climate agreement was signed and sent a strong message about the important changes that are to come to the worldwide energy sector. The 195 participating nations showed their commitment to reducing greenhouse gases in order to limit the rise in global temperatures. An ambitious transition toward renewable energy sources has been announced with the goal of weaning our societies off fossil fuels by the end of the century. Political decisions, such as those made in Paris, offer a chance for change—although not a certainty of change. Actors need to come together to make the change happen. More importantly, actors need to play their cards right. The pellet sector could undoubtedly play a more important role in the transformation of the energy systems in many countries around the globe. Its task now is to position itself strategically in order to take advantage of this opportunity and secure its place on the front line! In Europe, bioenergy and especially wood energy, including pellets, have a clear place in climate and energy policies. The recently published statistical report "European Bioenergy Outlook" from the European Biomass Association (Aebiom) reveals interesting facts on the current state of the bioenergy sector in Europe. The role of bioenergy has steadily increased over the past decade and now represents over 61 percent of all renewable energy consumed in Europe: 75 percent of it is bioheat, 13 percent bioelectricity and 12 percent transport fuels. Bioenergy has doubled in the past 15 years and another 30 percent growth is expected by 2020, according to the energy action plans of the member states. Wood pellets play a strategic role in this transformation. With more than 13.5 million tons of wood pellets produced, the EU is the world's largest producer of wood pellets (about 50 percent of world production shares). Europe is also the world's largest pellet consumer, responsible for about 75 percent of the worldwide consumption. This development is mostly a result of energy and climate policies, resulting from Europe's long-standing com-

mitment to reduce climate gas emissions and to create jobs through vibrant renewable energy industries. Each member state has agreed to achieve a specific percentage of renewable energy in its total energy consumption by 2020. Progress is rigorously monitored and not meeting the targets can result in court procedures and ultimately hefty fines. Each member state decides how it wants to achieve its targets and what its renewable energy mix looks like. In the past, electricity generation was at the focus of most countries' policy decisions and the main interest was in wind or solar energy. However, in recent years, many countries started to realize that the transition of the heating sector—which accounts for 40 percent of Europe's energy demand—is as important for achieving member state targets and often less capital intensive. And in heating, biomass is the most important renewable energy source. The Paris agreement will provide an additional impetus to drive the transformation of global energy systems toward clean and affordable energy for its citizens and businesses. Making sure that the pellet sector has its rightful place in the transition process in Europe, North America and other parts of the world requires leadership and an industry that is willing to respond to the challenge. Many players in the pellet sector are already rolling up their sleeves. They are ready to find ways for the industry to further bloom. The European Pellet Conference (www.pellets16.eu), which takes place from Feb. 24-25 in Wels, Austria, is a good place to start! This conference is the largest annual pellet event worldwide and the meeting place for the global pellet community. Come join 600 experts to discuss how we can best achieve flourishing development of the pellet sector together! Now that political commitments have been taken, let's make the change happen! Author: Christiane Egger Deputy Manager, OÖ Energiesparverband, Manager Oekoenergie-Cluster (Energy Agency of Upper Austria) Phone: +43 732 7720 14380 Email: christiane.egger@esv.or.at

JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 7

« Industrial Insight

Facts Matter BY SETH GINTHER Over the past several months, you will have noticed an increased social media presence by the United States Industrial Pellet Association and many of our members through Twitter, Facebook and other social networking mediums. If you have been following along, you know that we have adopted the hashtag (#factsmatter). We chose that hashtag as a beacon of our messages on Twitter because it’s emblematic of the necessity to cut through all the white noise out there and continue to advance our case based on facts, data and evidence. John Adams, the second president of the United States and one of our nation’s Founding Fathers, once said, “Facts are stubborn things; and whatever may be our wishes, our inclinations or the dictates of our passion, they cannot alter the state of facts and evidence.” Our detractors in the extreme environmental NGO community should take heed of President Adams’ words. No matter how hard those groups try to distort the facts to their needs, and no matter how passionately they do it, facts and datadriven evidence will continue to win the day. Accordingly, we have taken to social media to actively and openly call out proprietors of misstatement of fact, innuendo and uninformed opinion as it relates to our industry. It appears that policy makers, scientists and academics, both here in the U.S. and in Europe, are also pushing back on those who distort the facts, or cannot provide data-driven evidence for their assertions. Early last summer, USDA’s acting chief economist, Robert Johannson authored a blog post supporting biomass for energy based on the facts. In it, Johannson states, “[a]n industry that can reduce greenhouse gas (GHG) emissions, increase forest growth and create jobs sounds too good to be true. But that is the reality of the emerging wood pellets market in the Southern U.S. That conclusion is supported by independent academic assessments of wood bioenergy, including a recent study that specifically focused on European pellet demand conducted by researchers at Duke and North Carolina State Universities. Those researchers found that increasing demand for wood pellets resulted in more forest area, more forest investment, large GHG reductions and little change in forest carbon inventories.” Similarly, U.K. Secretary of State for Energy Amber Rudd felt compelled to openly push back to the Natural Resources Defense Council in November penning an open letter to the president of the NRDC, in which Rudd cites U.K. support for biomass for energy is based on evidence. NRDC and other extreme organizations have long distorted the actual facts on forest markets and sustainability. In the letter, the Secretary of State says, “[E]vidence shows that economic factors also make it unlikely that forests would be cut down for the sole purpose of bio-

8 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

mass—it would not be affordable for a forester to do so. Highquality wood such as saw logs and timber production command a significantly higher market price than residues, which makes high quality wood unattractive and unaffordable for use as fuel. Therefore, market forces, both here and abroad, should mean mixed use of wood continues, with only lower-value and low-quality wood residues being commonly used for energy.” In December, the European Commission concluded that U.K. support for the conversion of Lynemouth power station from coal to biomass complies with EU state aid rules based on the evidence presented to the commission. The commission found that the project will further EU environmental and energy goals. In its press release, the commission states that its investigation also did not find any evidence of market distortion in the global wood pellets market…and it is satisfied that the measures will not lead to undue distortions of competition in the market for other wood-based products. Independent academics and scientists are also using data and evidence to support the benefits of biomass for energy. In a peer-reviewed research paper co-authored by Dr. Madhu Khanna (who is also the chair of the EPA Scientific Advisory Board on Biogenic Carbon), a team of leading scientists, found “across different scenarios of high and low pellet demand that can be met with either forest biomass only or with forest and agricultural biomass, we find that the GHG intensity of pellet-based electricity is 74 to 85 percent lower than that of coal-based electricity.” Again, the leading scientists’ conclusions were based on evidence. Indeed, the authors went to great pains within the research paper to point out that the extreme environmental NGO backed “studies” showing increased carbon emissions with the use of biomass for energy distort the data, facts and evidence. Dr. Khanna and her co-authors state, “these [eNGO] assessments were…based on commercially unlikely scenarios involving the use of whole trees for biomass and foregoing high-value uses for timber…” Noted American author Ralph Waldo Emerson wrote, “[i]f a man will kick a fact out of the window, when he comes back he finds it again in the chimney corner.” Said another way, facts matter and the more factual data we as an industry put out there, the harder it is to ignore. Join us as we band together and continue to put the facts, data and evidence forward. Facts matter and so does your participation. Follow us on Twitter @pellets4energy and like our Facebook page. Author: Seth Ginther Executive Director U.S. Industrial Pellet Association 804-771-9540 sginther@hf-law.com

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Business Briefs

PEOPLE, PRODUCTS & PARTNERSHIPS

Drax adds director Drax has announced that Andy Koss, chief executive of Drax Power Ltd., has been appointed as a director of the company, effective Jan. 1. Koss joined Drax in 2005 and has held senior roles in finance and regulation. Peter Emery, group operations director at Drax, was scheduled to leave the company and cease to be a director on Dec. 31. His departure follows the completion of the transition to the new executive management structure announced earlier in the year. Enviva Partners acquires pellet plant Enviva Partners LP has acquired a 510,000-ton-per-year pellet plant located in Southampton County, Virginia. The facility was developed by its sponsor, Enviva Holdings LP, under a joint venture with affiliates of John Hancock Life Insurance Co. The Southampton facility began operations in November 2013. It is one of five pellet plants owned by Enviva prior to the initial public offering (IPO) filed by Enviva Partners LP in October 2014. At the time the IPO was filed, the company indicated Enviva Holdings LP would retain ownership of the Southampton facility. When Enviva Partners LP began trading on the New York Stock Exchange in April 2015, the company noted Enviva Holdings would grant it a five-year right of first offer to acquire the Southampton plant. SaraRasa signs offtake agreement SaraRasa, an associate company of Dovre Group plc, has signed an offtake agreement with CellMark Energy, a part of Swedish CellMark AB that is focused on renewable energy production and logistics. Under the agreement, CellMark Energy will purchase a majority portion of the wood pellets produced by SaraRasa. The end users of the pellets are in South Korea and Japan. The value of the agreement is a minimum of $1.5 million. 10 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

Enviva establishes forest conservation fund Enviva Holdings LP has announced the establishment of the Enviva Forest Conservation Fund, a $5 million, 10-year program designed to protect tens of thousands of acres of bottomland forests in northeast North Carolina and southeast Virginia. The fund, administered by the U.S. Endowment for Forestry and Communities, will award matching-fund grants to nonprofit organizations to protect ecologically sensitive areas and conserve working forests. ITA announces clean energy directory app for US exporters The International Trade Administration has announced the U.S. Departments of State, Commerce and Energy are offering an opportunity for U.S.-based suppliers of clean energy, smart grid and energy efficiency systems to participate in the launch of an interactive directory of renewable energy and energy efficiency solutions. Through an interagency team, the departments have developed a beta version of an interactive app to serve as a mobile business directory for U.S. clean energy exporters. Users targeted by the app include foreign service officers and foreign commercial service officers and their energy stakeholders in international markets. USDA awards grants for corn stover, wood pellet projects The USDA recently awarded Virginiabased Engel Family Farms a planning grant of $73,400 under its Rural Development Value-Added Producer Grant program to determine the feasibility of producing energy pellets from corn stover. New Mexico-based Mt. Taylor Machine LLC was also granted $194,809 under the program to assist in the processing of wood slabs into wood pellets.

Exergex joins PFI standards program The Pellet Fuels Institute has announced the qualification of Energex into the Pellet Fuels Institute Standards Program, a third-party accreditation program providing specifications for residential and commercial-grade pellet fuel. Energex has qualified its Mifflintown, Pennsylvania, and LacMegantic, Quebec, facilities, becoming the eighth company to join the PFI Standards Program. The PFI Standards Program now counts 15 qualified pellet manufacturing facilities across North America. In qualifying for the Standards Program, Energex joins existing members New England Wood Pellet, Curran Renewable Energy, American Wood Fibers, Lignetics Inc., Marth Peshtigo Pellet Co., Forest Energy Corp., and Indeck Ladysmith. Kingdom Biofuels opens wood pellet mill Kingdom Biofuels has announced the opening of a 12,000-ton-per-year wood pellet mill in Lancaster County, Pennsylvania. The plant will provide local residents with heating fuel. The plant was expected to celebrate its grand opening in January. Maine Energy Systems introduces pellet furnace Maine Energy Systems recently announced the North American release of the MESys AutoPellet Air, a modulating fully-automatic wood pellet hot air furnace. The units are being built in Bethel, Maine, by MESys and were collaboratively designed and developed with European pellet pioneer, OkoFEN. The AutoPellet Air has a rated maximum output of approximately 100,000 Btu. The unit’s design is similar to the existing MESys AutoPellet boiler, which is commonly used for baseboard or radiant floor heating, and only requires the simple task of emptying of an ash container two to four times annually.

Global Green Bank Network formed A group of six green banks and two nonprofit groups recently announced plans to establish a Green Bank Network to help increase and accelerate investment in renewable energy and energy efficiency around the world. Green banks are public entities created to partner with the private sector to increase investment in clean energy and bring clean energy financing into the mainstream. The founding partners of the Green Bank Network include the U.K. Green Investment Bank, the Connecticut Green Bank, N.Y. Green Bank, the Japan-based Green Fund, Malaysian Green Energy Corp., and Australia-based Clean Energy Finance Corp. The National Resources Defense Council and Coalition for Green Capital have been appointed to spearhead creation of the network. ClimateWorks Foundation has agreed to provide seed funding. The Organization for Economic Co-operation and Development will use its convening power to facilitate the sharing of experience between green banks and countries interested in creating them, building on the OECD-Bloomberg Philanthropies green banks policy guide released in December. Round for a Reason announces combustion chamber patent South Dakota-based Round for a Reason LLC has received a patent, U.S. Patent No. 9,182,116, for a new combustion chamber concept, known an Efficient Solid Fuel Burning Appliance. The ESFBA is a vertical cylinder combustion chamber that burns solid biomass fuels. When compared to similarly shaped appliances, the ESFBA features a stronger cylinder shape, increased internal pressure, more efficient heat distribution and a smaller footprint. The combustion chamber allows for many feedstocks and applications, including forced-air furnace, boiler, free-standing stove and indoor or outdoor placement. SHARE YOUR INDUSTRY NEWS: To be included in the Business Briefs, send information (including photos and logos, if available) to Business Briefs, Pellet Mill Magazine, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You may also email information to evoegele@bbiinternational.com. Please include your name and telephone number in all correspondence.

JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 11

Pellet News UK to close coal-fired power stations The U.K. government has announced plans to close all coal-fired stations by 2025. Although bioenergy was not specifically mentioned in the government’s announcement, Drax Group plc notes moving away from coal could present a significant opportunity for biomass. On Nov. 18, the U.K. Department of Energy and Climate Change announced it intends to close its coal-fired power stations by 2025 and restrict their use by 2023. In a statement accompanying the announcement, Energy and Climate Change Secretary Amber Rudd stressed energy security comes first. “We are tackling a legacy of underinvestment and aging power stations which we need to replace with alternatives that are reliable, good value for money, and help to reduce our emissions,” she said. Rudd’s speech focused primarily on the role of natural gas, nuclear and offshore wind in reaching its goal. Dorothy Thompson, CEO of Drax, said her company welcomes the consultation and the greater clarity it provides on future policy. “Over the last decade we’ve

EPA plans workshop on role of biomass in CPP

U.K 2014 electricity Oil & Other production 3% Renewables

30%

Gas

30%

Coal

30%

Nuclear

19%

SOURCE: U.K. DEPARTMENT OF ENERGY AND CLIMATE CHANGE

developed the latest technology to transform our power station and more than half the electricity we generate now comes from sustainable biomass,” Thompson continued. “Coal and gas still produce the majority of our electricity and a truly diverse energy mix, including sustainable biomass, is the key to keeping the lights on in an affordable way. Getting coal off the system presents a huge opportunity for government to use existing power stations to generate affordable electricity using sustainable biomass.”

In mid-November, Janet McCabe, U.S. EPA acting assistant administrator for the Office of Air and Radiation, published a blog addressing the potential role of biomass in the Clean Power Plan. The EPA is expected to hold a workshop on the topic in early 2016. According to McCabe, since the CPP was issued, states and stakeholders have shown a strong interest in the role of biomass to help hit targets. Many states are seeking to understand how to craft plans that will be federally approvable under the final CPP guidelines, she said. “To respond to this interest and to support state and stakeholder efforts to incorporate bioenergy in their CPP plans, we will be holding a public workshop in early 2016 for stakeholders to share their successes, experiences and approaches to deploying biomass in ways that have been, and can be, carbon beneficial,” McCabe wrote. “Biomass derived from land that is managed under programs that ensure the longterm maintenance of healthy forests can serve as an integral part of a broader forestry-based climate strategy, so the CPP expressly includes bioenergy as an option for states and utilities in CPP compliance. It reflects the fact that, in many cases, biomass and bioenergy products in the power system can be an integral part of state programs and foster responsible land management and renewable energy.”

Pellet News Âť

Pellet exports no threat to Southern forests A new report has determined the U.S. export of industrial wood pellets to meet renewable energy goals in the European Union does not pose a

U.S. South wood Total removal of wood in the U.S. South for all markets 3.3%

Total forest area

threat to the sustainability of southern U.S. forests. The report, commissioned by the U.S. Endowment for Forestry and Communities, National Alliance of Forest Owners and U.S. Industrial Pellet removals Association, was conductRemovals for ed by independent forest export pellet analysts and economists production using U.S. government and 0.08% marketplace data. Due to the recent advent of the export pellet mill marketplace, some question the impact these mills are having on pine and hardwood pulpwood forest inventory and wood fiber prices in the U.S. South. The report’s data finds that these impacts are minimal and that export pellet demand in and of itself does not drive price changes.

Study: Export of pellets more environmentally friendly than coal Research conducted by a University of Illinois expert in environmental economics has found that even after accounting for factors ranging from harvesting to transportation across the Atlantic Ocean, wood pellets still trump coal by a wide margin in carbon emissions savings. The report, co-written by Madhu Khanna, a professor of agricultural and consumer economics at Illinois, determined the greenhouse gas (GHG) intensity of wood pellet-based electricity is between 74 and 85 percent lower than that of coal-based electricity. While there have been concerns that U.S. pellet exports will increase the harvest of trees in the Southeast, and that production and transport of pellets to Europe will result in a product with minimal GHG savings when compared to coal, the researchers found that across different scenarios of high and low demand for pellets, the GHG intensity of pellet-based electricity generated from forest biomass such as pulpwood and milling residues is still significantly less than that of coal-based electricity.

JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 13

« Pellet News

EU approves state aid for Lynemouth conversion

Pellet stove study measures emission levels

pellet-hopper size on manufacturer websites and promotional literature. The Alliance tested the England Stove Works 25-PDCVC, the Enviro M55 insert, the Harman Accentra 52i insert, the Piazzetta Sabrina, the Quadra-Fire Mt. Vernon AE, and the Ravelli RV80. The group assessed each stove on its cleanliness, efficiency, maintenance, heat output and visibility of glass. The overall winner was the Quadra-Fire Mt. Vernon AE, which received top marks in three of the five categories. The Harman Accentra received top marks in two of the five categories.

A recent 30-day independent assessment of popular pellet stoves conducted by the Alliance for Green Heat has determined that pellet stoves, unlike most wood stoves, can achieve low levels of emissions in real-world settings that are in line with laboratory results. The alliance tested the pellet stoves to approximate how they would perform in the real world. The group found that half the stoves operated as clean at the end of the 30-day test as they did at the beginning, and the others were Stove settings for 30-day test only slightly dirtier. Low 39% (281.83 hours) The study also found a lack Medium 37% (262.55 hours) of accepted reporting standards, High 18% (127.75 hours) leading to exaggerated claims 6% (46.37 hours) about efficiency, Btu output and Off SOURCE: ALLIANCE FOR GREEN HEAT

In December, the European Commission announced that U.K. support for the conversion of the Lynemouth power station from coal to biomass complies with EU state aid rules. An investigation had been ongoing since February 2015. The investigation aimed to ensure public funds used to support the project are limited to what is necessary and do not result in overcompensation. The investigation was also to assess whether the positive effects of the conversion in achieving EU energy and environmental objectives outweigh potential competition distortions in the market for biomass. The commission said it is now satisfied that the submitted parameters are robust and present no risk of overcompensation. The commission also indicated its investigation did not find any evidence of market distortion in the global wood pellets market and noted it is satisfied that the measures will not lead to undue distortions of competition in the market for other wood-based products. The Lynemouth conversion is one of eight renewable energy projects selected for the first contracts under the U.K.’s electric market reforms. Those projects, including the 299 MW biomass-fired Teesside Renewable Energy project, a Drax biomass unit conversion, and five offshore wind projects, signed contracts in June 2014. Only the Drax conversion is still awaiting state aid approval.

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Pellet News Âť

UK to extend, reform RHI

In late November, the U.K. government published its spending review, which includes details of the Department of Energy and Climate Change’s budget for the next four years. The budget includes funding for the Renewable Heat Incentive. According to information published by the DECC, the government will extend RHI funding to 1.15 billion British pounds ($1.74 billion) in 2021 and reform the program to improve value for money. In his spending review and autumn statement of 2015 speech, Chancellor George Osborne indicated reforms to the RHI will deliver 700 million British pounds in savings. Responding to the release of the spending review, Nina Skorupska, chief executive of the U.K. Renewable Energy Association, said, “We welcome the government’s commitment to renewable heat and are pleased they have listened to industry and our members, but the devil will be in the detail.� “Our members recognized the need to make savings and presented to Treasury and DECC how we could optimize the RHI budget. A cut of 700m British pounds is large, but we look forward to working with the government on reforming this crucial area,� Skorupska continued. “We still have a large challenge in hitting our renewable heat targets, and the RHI alone won’t achieve it, heat networks, energy efficiency and Green Gas still have a large part to play.�

Approximate cost of heating per kWh #2 heating oil Propane (residential) Pellets (bag prices) Electricity

$0.075 $0.10 $0.055 $0.124-0.180

SOURCE: FUTUREMETRICS

Paper explores Canadian pellet heating market A recent paper by FutureMetrics outlines reasons for the small size of the Canadian wood pellet industry, which include a small domestic heating market, low prices of electricity in some provinces and unfamiliarity with pellet heat technology. The entire Canadian wood pellet heating market is about the size of the Northeast U.S. market, according to FutureMetrics, at about 360,000 metric tons per year. In contrast, the U.S. consumes about 3.3 million tons for heat each year, in pellet stoves

and boilers, or about 10 times more than Canada. The paper points out that most homes in Canada, aside from Prince Edward Island and Nova Scotia, use electricity or natural gas for heat. FutureMetrics suggests that may be because electricity is traditional and “consumers are more or less unware of the value of using a pellet stove to offset costs or a pellet furnace/ boiler to do their central heating.� That won’t last for long, according to the paper, as the firm predicts wood pellet heat will expand rapidly in Newfoundland and Labrador, which currently pays the most per person for heating.

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« BALTIC NATIONS

Baltic Boom

Although still not large consumers of pellets, the Baltic states’ increasing production capacities have resounded in the export market. BY KATIE FLETCHER

O

n the Eastern shore of the Baltic Sea, Estonia, Latvia and Lithuania have remained almost unrecognized players in the wood pellet export market compared to large exporters like the U.S., Canada and Russia. Even so, Latvia, though drastically smaller in size, has become the leading exporter in the European Union and neighboring Estonia is 2014’s fourth largest. Much of Lithuania’s land is dedicated to agriculture, but even so, the country has been increasing its exports, distributing roughly 300,000 tons in 2014. Thirty-five percent of aggregate EU28 exports in 2014 came from the Baltic states—20 percent from Latvia, 10 percent Estonia and 5 percent Lithuania. Globally, 27.1 million metric tons of pellets were produced in 2014, about half, or 13.5 million, produced in the EU. Total production in the Baltic states amounted to 2.65 million tons in 2014, much of which was exported. Russia and the Baltic states combined produced 4.15 million tons of wood pellets during 2014. Producers in countries like the Baltics and Russia can more easily distribute their production to serve local European markets as opposed to oversea producers. Russian and Baltic pellet competition was discussed at the 2015 Wood Pellet Association of Canada conference in Halifax, Nova Scotia. “Those are the guys you are really competing with, because a vast majority of

BIG BALTIC PRESENCE: OÜ Osula Invest is one of four pellet mills the EU’s largest pellet producer Graanul Invest operates in Estonia. This 250,000-tonper-year capacity mill resides in the southern part of the country near Varese. PHOTO: AS GRAANUL INVEST

16 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

BALTIC NATIONS »

JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 17

« BALTIC NATIONS

what is consumed in Europe is consumed locally,” says Arnold Dale, vice president of the bioenergy division with Ekman Group, addressing mainly North American producers at the conference. With new mills in the pipeline, the Baltic states, increased presence in the European pellet industry may place this region on the radar as significant pellet producers and exporters, especially to serve local heating markets. “The outlook is quite optimistic with several new plants currently under construction in Latvia, which will add another 350,000 metric tons of production,” Dale says. “In Estonia, there are also a couple of projects, which will add 150,000 metric tons, and in Lithuania an expansion project at one of the existing producers will add 30,000 metric tons.” Abundant forest land, relatively low costs of production, port accessibility, low energy costs and low taxes make conditions for pellet production quite favorable in the Baltic states. As for consumption, the domestic wood pellet market remains relatively small and mostly serviced by local small producers. One reason for this is Baltic cities have district heating systems and the biomass used for heat is largely inexpensive wood chips. Wood chips are also used for combined-heat-and-power (CHP) plants.

Latvia Takes Lead

Pellet production in the Baltics started in the late ‘90s when Swedish company SBE decided to invest in a wood pellet mill in Latvia, according to Dale with Ekman Group. SBE Latvia Ltd. is still Swedish-owned and is now part of Agroenergi Neova Pellets AB Group. Dale says the total production of this group is about 600,000 metric tons annually. The wood pellet industry in Latvia evolved out of the sawmilling industry, and has grown rapidly over the past 10 years. Another leading wood pellet producer in the Baltic countries—currently the largest in the EU—is AS Graanul Invest. “I think there are two sets of investors in this business, one group has invested in one mill and runs it (often connected to sawmills) and

PREMIUM PRODUCT: Lithuania has a small pellet industry and premium, residential pellets make up the majority of production. Two large producers in the country are AS Graanul Invest and Granulita UAB, which sell much of their product into the Italian heating market. PHOTO: RADVILISKIO MASINU GAMYKLA

the second group is independent producers who see that as a principal business line,” says Raul Kirjanen, Graanul Invest CEO. The stepping stone that helped Graanul gain largest producer status in the EU was the acquisition of Latvia-based producer SIA Latgran in July. Latgran was the largest pellet producer in Latvia with four mills reaching an estimated 600,000 tons of pellet production in 2015. Graanul Invest now operates 11 pellet plants in total—four in Estonia, six in Latvia and one in Lithuania. Kirjanen estimates the company will produce 2.15 million metric tons of wood pellets in 2016. As the acquisition of Latgran took place mid-2015, Kirjanen says the company’s production for the year is around 1.6 million metric tons, 99 percent of which was exported. “Acquisition of Latgran gives us a lot of synergies in logistics, sales and procurement,” he says. “We will also be able to enter into bigger and longer-term agreements with our combined volume.” AS Graanul has four CHP plants today and a fifth should be finalized in the second quarter of 2016. All of them are in

18 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

the company’s existing pellet mills. “We use forest chips as fuel and generate heat and electricity for our pellet plants,” Kirjanen says. “In my opinion, it is very important that the greenhouse gas footprint of pellet production is minimized and CHP technology based on local biomass is the best way to achieve this.” Following its acquisition of Latgran, AS Graanul Invest plans to continue to grow. Kirjanen says in 2016 the company will build one more mill in Latvia—250,000 metric tons per year—and is expanding two existing mills. He adds that the company is looking internationally, but it is still too early to disclose details. Joining SBE and Graanul Invest, Newfuels is another large producer in Latvia. Altogether, Latvia is home to 23 mills, making it the main Baltic producer, which produced 1.35 million tons of mostly industrial grade pellets last year. Production was largely exported to Denmark (500,000 metric tons) and the U.K. (600,000 metric tons), while the remaining pellets were distributed in Sweden, Italy and others. Latvia produces

BALTIC NATIONS »

PRODUCTION BEGINNINGS: Raul Kirjanen serves as CEO of AS Graanul Invest. The company began construction on its first pellet mill—105,000-ton capacity—in 2004 in Imavere, Estonia, and the mill’s four presses became operational the following year. PHOTO: AS GRAANUL INVEST

about 550,000 tons of premium pellets annually, approximately 40 percent of total production, which varies annually. Because a vast majority of Latvia’s production is exported, its domestic market remains relatively small, around 100,000 metric tons. Besides its pellets, significant amounts of transit move through Latvia—estimated at up to 80 percent. The country’s largest ports include Riga, Ventspils and Liepaja. Graanul Invest’s main export port is Riga. Oil, oil products and coal account for more than 60 percent of seashore transportation. Feedstock to make pellets across the Baltic region mainly comes from two sources. Graanul Invest gets approximately 50 percent of its feedstock from the sawmill industry residues and 50 percent from lowquality roundwood, which varies amongst Graanul’s plants. These two sources are used for pellet production feedstock across the Baltics. Forest growth used as pellet production comes from coniferous softwood mainly pine and spruce with small amounts of alder, aspen and birch also used. In Latvia, 38 percent comes from

spruce, followed by 29 percent from birch and 19 percent pine. According to Dale, Latvia has an abundance of natural forest growth. Over the past 14 years, the amount of standing wood in the forests of Latvia has increased by approximately 125 million cubic meters or 23 percent. In fact, forest resources are growing faster than demand for wood to create energy—in the Baltic Sea region every year by over 140 million cubic meters (fellings vs. increment). Approximately 60 percent of Latvia is covered in forest growth with a population of only about 2 million people, according to Didzis Palejs, a member of the board and one of the founders of the Latvian Biomass Association or LATbio. Pellet prices in Latvia fluctuate from producer to producer, but Palejs estimates the average sales price for bagged pellets— 15-kilogram bags of premium class ENplus A1 certified pellets—is around 130 or 140 euros ($141 to $152) per ton ex works (named place of delivery, placing the maximum obligation on the buyer and minimum obligations on the seller). Dale says for the

residential market, the average price of ENplus A1 pellets in the Baltic states is 150 euros ex works. Industrial pellets average around 115 to 124 euros per metric ton free on board prices in Latvia, depending on the producer and contract. Two interesting developments Palejs draws attention to when discussing current and upcoming developments in the Latvian pellet industry are the location of new pellet mills and changes in the logistical chains due to the Russian embargo. He says one of the latest tendencies is to build new mills deeper inland, more than 100 kilometers from the harbors, making these mills more competitive to consider roundwood for raw material. Due to the lack of local consumption for low-grade roundwood, the possibility of future pellet production creating a demand for the product could help the woodworking industry stay competitive, according to Palejs. Another change Palejs is seeing is in the logistical chains due to the Russian aggression in the Ukraine and the Russian sanctions against Europe and other countries locally. He says transport westward from the Baltics is getting more expensive, because the Russian sanctions have decreased the flow of cargo toward Russia. “It’s hard to get the transportation of pellets by truck to Western Europe, because it’s hard to get trucks to pay higher prices,” Palejs says. “Because of this, pellet producers are looking at changing their logistical chains. They are now using container transportation, meaning they export their goods by the container or in bulk overseas.”

Estonian and Lithuanian Industries

Estonia and Lithuania have smaller pellet production capacities than Latvia, but the industries are comparable in many ways. Pellet business began in Estonia a little less than 20 years ago, evolving out of the animal feed industry. The markets at that time were Sweden and Denmark. Estonia had limited pellet production until a few years ago and has grown rapidly since, producing 1 million tons in 16 mills in 2014. Ac-

JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 19

« BALTIC NATIONS

Baltic Exports Baltic states are increasingly shipping pellets across the Baltic Sea to various port destinations. Riga to Copenhagen 478 nautical miles

Time: 2 Days

Riga to Immingham 1,070 nautical miles Time: 4 Days 11 Hours Ventspils to Sundsvall 325 nautical miles

Time: 1 Day 9 Hours

Liepaja to Stockholm 216 nautical miles

Time: 22 Hours

Trondheim

Tallinn to Trelleborg

490 nautical miles

Time: 2 Days 1 Hour

Klaipeda to Rostock

346 nautical miles

Time: 1 Day 11 Hours

2014 Production

Latvia 1.35 million tons in 23 mills

G

NORWAY

Lithuania 350,000 tons in 10 mills Estonia 1 million tons in 16 mills

Sundsvall

SWEDEN

Oslo

Stockholm

Domestic Market 30,000 tons

Stavanger Skagerrak

50,000 tons Kattegat

100,000 tons

DENMARK

Copenhagen Malmo

Malmö

Koge

UNITED KINGDOM

Immingham

Source: Ekman & Co AB

20 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

Kiel

Lubeck Rostock

GERMANY

Trelleborg

BALTIC NATIONS Âť

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Gulf of Bothnia Vyborg

Helsinki

Turku

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LiepĂŁja

Ust-Luga

Tallinn

Baltic Sea

St. Petersburg

ESTONIA Population 1.3 million

Ventspils

Klaipeda

Riga

RUSSIA

LATVIA Population 2 million

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JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 21

« BALTIC NATIONS

Remigijus Lapinskas, current member of the board and previous president of the Lithuanian Biomass Energy Association or Litbioma. “Biomass is the best, local and renewable resource for addressing the demand for heat.” The biomass used for heat is mostly used in the form of wood chips, however, not pellets. Wood chips are the cheapest biomass for Lithuania’s district heating systems. Litbioma estimates that this year biomass will overcome the market share of gas in district heating at 55 percent. In the next few years, Lapinskas says they estimate only 20 percent or a maximum of 30 percent of district heat will be produced with gas. Currently, biomass plays a minor role in the production of electricity, but it’s anticipated 15 to 20 percent of electricity will be produced from biomass in the coming years, up from its current 2 percent.

Baltic Roundup EUROPEAN EQUIPMENT: Radviliskis Machine Factory is the only company with a factory in the Baltic states that designs and produces equipment for pellet production. The factory also manufactures agricultural equipment and processes a variety of metalwork operations. PHOTO: RADVILISKIO MASINU GAMYKLA

cording to Kirjanen, Estonian production is growing at the pace of 300,000 tons per year, but he thinks it will reach its available raw material limit at around 2 million tons per year. In addition to Graanul Invest, Estonia has two big producers at 100,000 metric tons or more, Stora Enso and Purutuli. Like Latvia, Estonia’s domestic market is small in comparison to its exports, at an estimated 50,000 metric tons. The country’s main export markets are Sweden, Denmark, Italy and the U.K. Kirjanen believes around 30 percent of the pellets produced are premium and 70 percent industrial. Over half of Estonia’s imports and exports are transported by sea, nearly 70 percent of sea freight is transit, and in the Port of Tallinn it reaches up to 76 percent. The country’s largest ports include Tallinn—primarily oil and oil products—and Sillamae, an all-purpose port and the most eastern EU port. Although most of Graanul Invest’s production is exported through

Latvia’s Riga port, the company also uses the Port of Tallinn and Port of Pärnu in Estonia. Further south, Lithuania is the smallest producer of the three producing roughly 350,000 metric tons in 10 mills during 2014, due, in part, to the country’s more favorable conditions for farming. Much of Lithuania’s production is premium-quality bagged and delivered by truck predominantly to Italy, Germany and Denmark. Lithuania’s ports deal with large amounts of transit—42 percent—much of which comes from Belarus. The largest ports in the country include the all-purpose Port of Klaipeda and Butinge port. Following the trend of the other Baltic countries, the Lithuanian domestic market is small, estimated around 30,000 to 50,000 metric tons per year. Domestically, Lithuania uses around 10 terawatt hours (TWh) of electricity and 20 TWh of heat. “Heat is the most important energy source for Lithuania,” says

22 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

Overall, producers within the Baltic states generally run mills in the 70,000 to 90,000 range with a couple that produce around 200,000 metric tons annually. According to Dale, there are also quite a few tiny producers that are typically attached to a sawmill and produce less than 10,000 tons per year. Pellet quality and certifications have also become widespread amongst producers. Organizations like LATbio and Litbioma have programs helping these certifications move forward. Most, if not all, of the producers who export residential quality wood pellets have become ENplus certified, and there are 27 ENplus producers in the Baltics—10 in Latvia, nine in Lithuania and eight in Estonia. Producers like Graanul Invest have also looked at the sustainable biomass partnership (SBP) certification framework in addition to their Forest Stewardship Council and Programme for the Endorsement of Forest Certification schemes. “Our customers are interested in this certification and, of course, we are looking at it,” Kirjanen says. “However, the way the certification is built up makes it very difficult for us to use it. It is very easy to use if we would use roundwood

BALTIC NATIONS »

instead of residues, but for me this seems to be the least sustainable solution.” He adds that wood pellet production initially started in Scandinavia as a way to utilize and give value to the residues and low-quality wood that is not needed for any other industry. “If we now need to move away from residues to use logs because that is needed for certification purposes, then the certification scheme does not make any sense, as I see it,” Kirjanen says. “It seems to me that they have realized it themselves as well, and hopefully there will be a solution to the problem.” Kirjanen mentioned the upcoming Dutch system as a reasonable approach where residues are exempt from certification and roundwood has to be certified. According to LATbio, within 10 years the Baltic Sea region is expecting large increases of biomass consumption, more than 25 million tons. However, further growth depends on policy development and weather condition dynamics. There are few, if any, incentives in the Baltics for biomass, especially pellets, which doesn’t help the already low local pellet consumption. According to Dale, there is a reduction in value-added tax for private households using biomass, instead of 22 percent, consumers pay 10 percent. In Latvia, Palejs says there are feed-in tariffs for electricity, but they are rather limited. Palejs believes if people are wealthy enough, they’ll make the investment to switch from firewood to pellets. LATbio estimates Latvian biomass consumption in 10 years could be 6 million tons per year of wood chips for district heat and CHP and 3 million tons per year of pellets for residential installations. Likewise, increases are expected in Lithuania and Estonia, with LATbio estimating over 5 million tons of wood chips and 4 million tons of pellets consumed each year, and over 5 million tons per year of wood chips and 2 million tons of pellets annually in Estonia. As for nearby Russia, Dale says the country does not impact Baltic pellet producers in a major way. “Some saw-

mills import logs from Russia, but this is a very limited supply,” he says. Dale does share that “Byelorussian production is increasing rapidly and several Latvian and Lithuanian pellet producers are currently constructing wood pellet plants in Byelorussia.” He says that this year, Byelorussian pellet exports to the EU will be around 125,000 metric tons, and once the new mills are operational, this figure will more than double to over 300,000 metric tons. The European wood pellet market is the world’s largest market and Dale doesn’t foresee that changing. Although Europe is still the world’s largest wood pellet producer, with 50 percent of global production, Dale says North America may overtake Europe in time. In addition to the Baltic states, production volumes in nearly all European countries are showing healthy increases. Dale says that consumption in the power market has leveled off. “It looks like 2016 will be a tough year for industrial pellet producers,” he says. Consumption in the CHP and heat markets are showing good growth, however, and more wood pellet manufacturers are selling into heat and power markets. The Baltic states, led by Latvia, are on track to continue the boom they set off in these markets, utilizing the region’s abundant raw material and port accessibility. “It has been growing very rapidly—especially within the last 10 years,” Palejs says. “Before, it was a minor industry, but then when the pellet industry in Western and Central Europe was starting to develop, the demand for pellets was rising, and we already had the experience in pellet production in the industry.” Author: Katie Fletcher Associate Editor, Pellet Mill Magazine 701-738-4920 kfletcher@bbiinternational.com

JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 23

« RUSSIA

24 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

RUSSIA »

Waking Up the Bear As demand for wood pellets continues to grow across Europe, Russia’s wood pellet industry asserts itself to earn its fair market share, constrained only by a lack of adequate infrastructure. BY TIM PORTZ

I

n many ways, Russia’s enormity is a burden. The country is roughly twice the size of the United States, with half the population. The massive country, reaching east from Europe nearly 6,000 miles to the Bering Strait is loaded with natural resources including the world’s largest forests. One-fifth of forested lands are within Russia, much of it boreal forest, which the Russians call taiga. The predominant species in Russia are pine, spruce and larch, a cone-bearing tree that loses it leaves in autumn. This massive inventory at 3 million acres is more forest than can be found in the United States and Canada combined. Despite nearly 50 percent of the land mass in Russia being covered in trees, the forest products industry in Russia is relatively insignificant, generating just over 1 percent of the country’s gross domestic product. The reality is that while Russia is practically covered in trees, it isn’t covered in roads. Russia’s forested areas are remote, subject to long winters with frigid temperatures and consequently home to almost no one. Rail lines in the interior of the country are scarce and those that exist can be found only along the southern borders of these dense tracts of forests.

FROM RUSSIA WITH LOVE: The Port of St. Petersburg is a vital component of the growing wood pellet industry within the country. For now, no other ports handle more pellet volume than St. Petersburg, although ports at Vyborg and Ust-Luga are both handling growing volumes and rivaling St. Petersburg for the top spot.

JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 25

RUSSIA PELLET IMPORTS/EXPORTS

+27% From 2013

TOP 5 IMPORTERS OF RUSSIAN PELLETS IN 2014

(IN TONS)

+23% From 2013

+202% From 2013

+32% From 2013

+24% From 2013

ITALY

DENMARK

388,394

55,434

SWEDEN

FINLAND

220,703

45,073 145 Facilities 620,000

70 Facilities 400,000 280,000

430,000

97Facilities 570,000 405,000

65 Facilities

2010

120 Facilities 120 Facilities 718,000

935,000

520,000

730,000

2011

2012

335,000

2009

215,000

2007

2008

26 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

WOOD PELLET FACILITIES IN RUSSIA PRODUCTION (TONS)

EXPORTS (TONS)

825,210 Total Imports European Union

+43% From 2013

OTHER EUROPEAN COUNTRIES

220,703

103 Facilities

98 Facilities 1.36 MILLION 1.01 MILLION

1.01 MILLION 750,000

98 Facilities 1.185 MILLION 890,000

2013

2014 2015

RUSSIA »

Despite all this, Russia is steadily growing its pellet industry and emerging as one of the largest exporters of wood pellets in the world. While Russia’s enormity and lack of infrastructure provides plenty of challenges for its forest products industry, it does enjoy a handful of key geographic advantages, particularly in the context of the growing European pellet market. The Baltic Sea, nestled between Scandinavia and northern Europe reaches eastward toward Russia and finds land at St. Petersburg, providing the country with an access port to pellet buyers throughout Europe. Pellet-carrying vessels departing the port of St. Petersburg are just a few-days sail from ports of call in Finland, Sweden and Denmark. Stockholm is just over a 24hour sail nearly straight west from St. Petersburg. Russia has made the most of this proximity and Sweden and Denmark together represent over half of Russia’s current export volume. Still, industry advocates and traders inside Russia see more opportunity. Ports in established and growing pellet buying countries like the Netherlands and the United Kingdom are just another day or two more at sea beyond Russia’s current Scandinavian customers, and producers and traders are determined to earn a piece of that business as well.

Establishing An Industry

Dr. Olga Rakitova has been following and advocating for the Russian pellet industry nearly since it started. “The pellet industry started in the early 2000s when the first 6 plants were constructed in the Leningrad area (the region of Russia that surrounds the port of St. Petersburg),” Rakitova tells Pellet Mill Magazine. “Europe had a need for pellets and the Russians started production. Then more and more pellet plants were installed in Russia― mostly in the northwest near the bor-

der with Finland.” The learning curve for producers in Russia was steep and the first producers made mistakes and learned costly lessons. “The first companies bought pellet presses designed for agriculture, which was an early mistake and eventually some of them replaced them with presses designed to handle wood fiber,” she says. The industry found its footing and grew throughout the early 2000s, gaining real momentum late in the decade, adding plants, growing capacity and exporting larger and larger volumes. The Russian Federal Statistical Service (Rosstat) reports that, between 2007 and 2010, the number of pellet facilities operating inside Russia more than doubled, growing from 65 plants to nearly 150. An exact number is difficult to obtain as many plants produce very small volumes, which are sold as animal bedding, cat litter or are aggregated by pellet brokers. “I would say right now there are around 20 to 30 pellet facilities actively making pellets for export to Europe,” Rakitova says. In 2010, the Russian pellet industry went supersized as the Vyborgskaya Forest Corporation announced the construction of what was to become the world’s largest pellet production facility northwest of St. Petersburg, near the border of Finland. The plant was massive in every way, boasting the world’s largest woodyard, 24 hammer mills and 36 Andritz pellet presses. At full capacity, the facility would be capable of producing 1 million tons of pellets. Roundwood is ferried to the facility on river vessels making the plant the first in Russia to handle and process whole logs. Since its commissioning, the plant has struggled to maintain steady production and stopped producing at all for a period of time in 2013. “They (Vyborgskaya) are located in the harbor, but not in the most densely forested regions of the country so they have struggled to

Sources: Russian Federal Statistics Service (Rosstat), Federal Forestry Agency, Eurostat

JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 27

ÂŤ RUSSIA

consistently get adequate feedstock,� Rakitova says. The dip in Russian pellet production in 2013 is largely attributed to the stoppage at Vyborgskaya. Still, the construction of the plant 0DJD]LQHmarked an inflection point in the Russian pellet ODQG &industry; the end of the industry’s adolescence and the beginnings of the Russian pellet industry’s emergence as a major global player.

Maturation Process

As the industry inside Russia and oppor-

tunities within the Baltics grew, the pellet trade began to attract the attention of commodities brokers and traders. One of them, Copenhagen Merchants, saw an opportunity to leverage its experience gained over 30 years of trading and moving grain around the region in the wood pellet business. Copenhagen Merchants began working in the pellet business in 2006, aggregating and bagging wood pellets in a few terminals. In 2009, together with minority partner Sergei Genkin, the company formed CM

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Biomass and began trading significant volumes of wood pellets. Today, the company trades nearly 700,000 tons of wood pellets each year, a substantial amount of that Russian-produced pellets. “We are the biggest trader exporting wood pellets out of Russia,� Genkin says. “I would reckon for this year we’ll move about 250,000 tons of Russian pellets.� Genkin manages pellet purchasing and logistics, working with roughly 30 different producers inside Russia. “Probably the biggest difference between how this business is structured in Russia when compared to the United States is in Russia we have a very small number of big suppliers, mostly around 100,000 tons, about 30 midscale suppliers, and the rest are very small suppliers, making around 500 to 1,000 tons per month,� he says. Genkin works with his stable of producers connecting them to pellet buyers in the United Kingdom, Belgium, the Netherlands, Denmark and Germany. “The majority of our volume is shipped out of the port of St. Petersburg,� Genkin says. “We have a longterm agreement with the port. We currently have two warehouses and the third is under construction right now. In total, we are going to have about 25,000 tons of storage capacity at the port.� As CM Biomass trades in both premium and industrial pellets, its warehouse facility must be able to isolate inventories from one another. Genkin estimates that about 170,000 tons of CM Biomass’s annual volume moves through St. Petersburg as bulk shipments. The vessels operating in the Baltic Sea are much smaller than the handy-sized ships so prevalent in North American pellet ports. “It’s all coasters,� Genkin says. “Their capacity is between 3,000 and 6,000 tons.�

Compare and Contrast

When asked to compare the Russian pellet industry to its North American counterpart, Genkin immediately points to Russia’s lagging infrastructure. “In terms of logistics, it’s just completely different,� he says. “In Russia, we have some inland pellet facilities that in some cases are 4,000 miles from the port in St. Petersburg. So, it takes a minimum of two weeks to get to the port from where the pellets are produced.� A comparable scenario

RUSSIA Âť in North America is difficult to imagine, but a rail shipment from Miami to Juneau comes pretty close. Despite the incredible distance, these remote sections of Russia, mostly in Siberia, seem likely to yield Russia’s next major wave of production capacity. “Siberia is probably the biggest deposit of raw materials for the manufacturing of wood pellets,â€? Genkin says. “At this point, we are buying everything we can in Siberia, almost everything that is produced there.â€? For Genkin, pellets produced in Siberia represent the highest quality available in Russian pellet inventories. “It stems from the fact that trees that are growing in extremely cold weather, the density of their fiber is extremely high,â€? he offers. “Their durability is about 99 percent and their net calorific value is often 18 and more. It is a very, very high quality wood pellet.â€? Rakitova too sees tremendous opportunity for growth in Siberia, despite the challenges. “They have started to build big pellet plants in Siberia,â€? she says. “From my point of view, the region will be the second biggest pellet producing region within Russia very soon.â€? Rakitova allows that freight costs will constrain the flow of pellets from Siberia. “Right now it costs about 50 euros ($54) per ton to deliver pellets to the port of Ust-Luga (another port dealing in pellets northwest of St. Petersburg),â€? she says. In spite of these costs, given stagnant wages within Russia, the lack of an export tariff on wood pellets and a devalued ruble, profits can be made.

“SBP certification is a must to engage in European markets,� he says. Certification schemes are not new to Russia, in fact, the country trails only Canada in terms of certified forest acreage. “We are SBP audited, and we are just waiting for the certificate,� Genkin says. “As for our suppliers, we have started the whole process in the spring of this year. We have our own sustainability team inside the company dedicated to this particular process. Currently, we have

about six companies in the pipeline and we have two companies already audited and we are expecting for them to obtain the certificate in a week or so.� Simon Armstrong, technical director at the Sustainable Biomass Partnership, confirms that there is strong interest in certification across the region. “Eleven biomass producers in Russia and five in Belarus have announced that they plan to undergo an SBP audit,� he says. While Armstrong would not disclose where those

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Changing Requirements

The increased demand for wood pellets within Europe, driven largely by EU member country decarbonization efforts, has brought increased public scrutiny and calls for assurances that wood pellets are produced in a sustainable manner. A group of European utilities, seeing that a fractured set of sustainability requirements would bring crippling inefficiency to the industry, formed the Sustainable Biomass Partnership to design and implement a certification framework that would satisfy the regulators inside every pellet-buying country in the region, if not the world. The producers Genkin works with are already working toward their certifications.

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JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 29

« RUSSIA

producers were in the process, he did share that as of press time no SBP certificates have been issued in Russia. It is worth noting that only three producers have been granted certificates, Westervelt Renewable Energy in Alabama and two pellet facilities in neighboring Latvia. While CM Biomass is working proactively to achieve SBP certification and help their producers gain certifications themselves, there are consequences. “Since the new certification regulation is in place, it’s getting more and more difficult to keep the small suppliers,” Genkin says. CM Biomass buys pellets from as many as 20 smaller producers and to sell those aggregated volumes in Europe, those producers will have to undergo certification as well. CM Biomass’s certification does not cover its smaller producers. “The whole story about SBP is about the chain,” offers Genkin. “No matter who is the umbrella for all of the small producers, the whole idea is about drilling down to the bottom.” In Genkin’s view, this will make

the economics for smaller producers difficult to manage. “In the long run, inevitably, they will have to close down,” he says.

The Future

In 2007, Russia exported less than a quarter of a million tons of wood pellets. In 2014, the country exported just under 900,000. More capacity continues to come online, although the picture here is less clear. In late 2013 and early 2014, some outlets reported that German Pellets intended to build a 500,000-ton pellet facility in Nizhny Novgorod. In October, German Pellets released a statement that the company would not be investing in Russia in the near future and Anne Leibold, public affairs for German Pellets told Pellet Mill Magazine in an email, “It is correct that we have been looking at a pellet project in Nizhny Novgorod but it has not become effective yet. For the time being, we are not proceeding with project.” No one would argue that the opportunity

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is there for the Russian pellet industry. Industry experts believe that Russia’s share of the European import market is around 18 percent and Russian exports are growing at double-digit rates, and while opinions differ on where the European and global market for pellets will ultimately plateau, almost no one believes it’s likely to contract any time soon. For now, Russia’s wood pellet industry is overachieving relative to the rest of the forest products industries within the country. Whether Russia will be able to continue along its growth path will largely hinge on its willingness to invest in the infrastructure necessary to capture the value of its abundant forest resource. Author: Tim Portz Executive Editor, Pellet Mill Magazine 701-738-4969 tportz@bbiinternational.com

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ÂŤ CONVERSION

TAPPED FOR A NEW ROLE: For 40 years the vast majority of power produced by the Lynemouth Power Station served an adjacent aluminum smelter. In 2012, the smelter closed and all of Lynemouth's output flowed onto the national grid. Now, with a new owner, pellet producers hope that long discussed plans for a conversion to biomass will become a reality. PHOTO: MARTIN SHARMAN

Lynemouth’s Long and Winding Road Built to support a shuttered aluminum smelter, the U.K. power station on the shores of the North Sea in Northumberland County has a new owner and a new shot at a complete transition to biomass. BY TIM PORTZ

32 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2016

T

ucked between the city of Newcastle upon Tyne and the Scottish border lies Northumberland, the northernmost and most sparsely populated county in England. While Northumberland is home to just 300,000 people, it is also home to a coal-fired power station that in the past three years has captured and held the attention of the entire wood pellet industry. The Lynemouth Power Station, overlooking the North Sea just southeast of the village of Lynemouth, was built in the late 1960s to support a new aluminum

CONVERSION »

smelter proposed by Canadian mining and aluminum manufacturer Alcan (Alcan was purchased in 2007 by Rio Tinto and is now Rio Tinto Alcan). Alcan was granted permission to build the smelting facility, but to meet the 310 MW of electrical power the plant needed a dedicated power plant would have to be built as well. The facility was designed to generate the 310 MW plus an additional 110, which would be placed onto the national grid. Both the power station and the Alcan smelter were commissioned and brought online in March 1972. In March of 2012, Alcan decommissioned the smelting operation and all of Lynemouth’s generation began flowing to the national grid. By the end of that same year, Alcan had closed on a sale of the facility to the German energy company RWE.

Biomass Beginnings

Well before the closure of the smelter and sale of the power station, the inclusion of biomass was considered and tested in small volumes at Lynemouth. In the mid2000s, biomass was identified as a means of driving down the facility’s carbon dioxide output. Small volumes of biomass were first introduced into the facility in 2003 and, in 2004, Lynemouth cofired 10,000 tons of biomass materials, a miniscule amount when considering the plant’s 1.2 million-ton annual coal demand. Biomass was clearly at the forefront of considerations when the plant changed hands in late 2012/early 2013 and may well have represented the new owner’s best chance to secure a long-term future for the facility. In company statements issued shortly after the sale was finalized, then plant manager Bob Huntington offers, “We are looking at the option to convert to biomass and will make a decision on whether to proceed with this plan in early 2013.” As the plant’s new owners, RWE was hoping to leverage its experience converting the Tilbury Power Station (now closed) to biomass at Lynemouth. Late in 2013, the Department of Energy and Climate Change notified plant owners that the conversion of the facility

had been tabbed by the DECC as one of six biomass conversion projects that would progress toward a final investment decision to be supported by the U.K. contract for difference (CfD) price support program. This decision was met with excitement not only by local politicians hoping to preserve the remaining jobs at the once sprawling facility, but also North American wood pellet producers, as the plant—if fully converted to wood pellets—would require nearly 1.5 million tons of wood pellets annually. Not all biomass projects under consideration made it beyond this step, and the conversion of three boiler units at Eggborough was cut from the list, effectively ending speculation that it would soon be a buyer of wood pellets. Later that month, the excitement around the project was once again bolstered as DECC concluded that the project at Lynemouth was worthy of continued development, finding the project provisionally affordable. In June of 2014, Lynemouth signed a contract with the government to deliver low-carbon electricity to the national grid. Despite this, the project at Lynemouth still had approvals to gain before the British government could begin to spend additional dollars for any biomass-derived power produced from the plant. As a member of the European Union, the subsidization of the facility would have to be reviewed by the European Commission to ensure that these public monies were limited to only the necessary investments and that Lynemouth and its owners were not overcompensated for its power. In early 2015, the EC found that initial cost estimates may have been too conservative, the rates of return too high and that the increased demand for wood pellets might distort the global market. On Dec. 1, 2015, however, the EC announced that its inquiry found that British support of the conversion complied with European Union state aid rules and that “the commission is now satisfied that the submitted parameters are robust and present no risk of overcompensation.” Additionally, the EC noted that its investigation did not yield any evidence that

a market distortion in the wood pellet sector was likely to arise from the subsidization of the conversion. The decision seemed to pave the way for the conversion, guaranteeing that the plant would be supported by the CfD program through 2027. In a press release, managing director Vaun Campbell says, “This is fantastic news for the Lynemouth project and the stations 134-strong workforce. As a full coal-to-biomass conversion, this project is a win win for all involved. The northeast region and the local economy also benefit as supply chains and other infrastructure are created.” Echoing the sentiment of many, Campbell continued, saying, “It has been a long journey with delays to the decision impacting the project but we can finally now move toward hopefully making an investment decision.”

One More Change

Days before press time, the winding path to Lynemouth’s eventual conversion to biomass feedstocks took yet another turn as RWE announced that it had sold the facility to a Czechoslovakian energy firm EPH. Since the announcement, EPH has stated publicly that it fully intends to continue with the plant’s conversion plans and hopes to have the facility fully converted and online by 2017. EPH owns production assets throughout Europe and, in January 2015, closed on the purchase of the Eggborough Power Station, a plant long-considered to be a likely target for biomass conversion. For now, plant employees and contractors are anxious to begin the conversion work and pellet producers will have to trust that EPH’s purchase decision was fueled in part by EC’s determination that the U.K.’s support of Lynemouth complied with state aid rules and would essentially be guaranteed a positive rate of return until 2027. Author: Tim Portz Executive Editor, Pellet Mill Magazine 701-738-4969 tportz@bbiinternational.com

JANUARY/FEBRUARY 2016 | PELLET MILL MAGAZINE 33

ÂŤ Marketplace

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