2018 May/June Pellet Mill Magazine

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MAY/JUNE 2018

Rolling Out

Innovation Drinor’s New Biomass Dewatering Technology Page 18

Plus: In-Depth Sustainability Perspectives Page 10

Pellets’ Place in the Expanding Asian Market Page 24

www.biomassmagazine.com/pellets

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PFI Annual Conference Sunday, June 24 – Tuesday, June 26, 2018 Marriott Myrtle Beach Resort & Spa at Grand Dunes Myrtle Beach, South Carolina

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ave you had a long winter? Join us this summer for two days of educational sessions, industry exhibits, extensive networking opportunities, and a golf tournament on a top-notch course. The PFI Annual Conference highlights the various applications of densified biomass, as well as trends and best practices within the densified biomass industry. We’ll see you in Myrtle Beach!

Contents »

MAY/JUNE 2018 | VOLUME 8 | ISSUE 3

Pellet Mill Magazine

Advertiser Index

27 2019 International Biomass Conference & Expo 19 Alfred H. Knight North America 18 Andritz Feed & Biofuel A/S 28 Astec, Inc. 23 Biomass Magazine's Webinar Series 8 CPM Global Biomass Group 24 Evergreen Engineering 9 GreCon, Inc.

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14 Industrial Bulk Lubricants (a Dansons company) 12 Lubrication Engineers, Inc.

FEATURES 10 SUSTAINABILITY The Ideological Divide

13 PAL s.r.l. 2 Pellet Fuels Institute

Drastically different viewpoints exist between environmental groups and manufacturers of forest products such as the wood pellet industry. By Ron Kotrba

15 Q-Team 21 RUF Briquetting Systems

16 TECHNOLOGY Pressing for Wider Profit Margins

25 Uzelac Industries

Swedish company Drinor AB is proving the capabilities of its continuous dewatering press. By Anna Simet

COVER

Drinor’s first industrial-scale continuous dewatering press stands ready for transport to Swedish pellet plant Rindi Pellets. The installation was complete in February, and testing is ongoing.

CONTRIBUTION 22 GLOBAL MARKETS Wood Pellets in the Emerging Asian Biomass Market

Asia’s demand for biomass is rapidly growing, but wood pellets’ role and countries of origin remains to be seen. By Rachael Levinson

PHOTO: DRINOR AB

04 EDITOR’S NOTE COPYRIGHT © 2018 by BBI International

The “S” Word, Points and Counterpoints By Anna Simet

05 EVENTS 06 COLUMN

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Please recycle this magazine and remove inserts or samples before recycling

07 COLUMN

Busy Time for ISO TC 238 By Chris Wiberg

08 BUSINESS BRIEFS 26 MARKETPLACE

Mathematics of Demand By Tim Portz

MAY/JUNE 2018 | PELLET MILL MAGAZINE 3

« Editor's Note

The “S” Word, Points and Counterpoints

Anna Simet

EDITOR asimet@bbiinternational.com

Biomass’ carbon neutrality and forest sustainability have been two topics of heated debate, especially over the past decade, as the global wood pellet industry has flourished. Largely, there are two starkly different viewpoints, either pro or antibiomass, with seemingly little room for compromise. When Senior Editor Ron Kotrba proposed writing a balanced article detailing both sides of the argument, we knew it was important to do just that—balance, as objectively as possible, both sides of the equation. As an advocacy trade journal, that can be tricky to do, without much bias. Our readers are mostly the people who work on this topic and in the trenches of this industry every day—scientists, foresters, appliance and equipment manufacturers, plant managers, etc.—and along with their passion for biomass energy and wood pellets comes a great deal of frustration, when someone on the outside doesn’t understand, or—particularly when it’s a member of the media writing a flashy headline—portray industry dynamics. I believe Kotrba hit the nail on the head, when it comes to thoughtfully presenting both viewpoints. For his page 11-feature “The Ideological Divide,” Kotrba spoke with a number of sources on each side, including the Dogwood Alliance, Sustainable Forestry Initiative, the Nebraska Forest Service, Enviva, Spacial Informatics Group and more. In it, Thomas Buchholz, a senior scientist who leads SIG’s forest and agriculture team, pointed to one of the biggest challenges the biomass industry faces with this argument—its size, and the fact that there will always be some poor examples to point at, even though there are many, many great examples to highlight. “With biomass, we can point to horrible examples from sustainability and carbon perspectives, down to other systems that are no-brainers in terms of carbon friendliness and sustainability,” he said, adding that, acknowledging these kinds of cases—instead of ignoring or denying them—and hard-lining against them as an industry, may be best way to exemplify what it really stands for. As Kotrba writes, “Closemindedness, particularly when affixed to hardline positions and unbendable philosophies, cannot bridge ideological gaps. Sometimes, nothing can.” Also in this issue, we have included a broader piece on wood pellets and their role in the growing Asian bioenergy market, and a story detailing a promising biomass dewatering technology, as we have tied feedstock logistics into this sustainability theme. They go hand in hand, after all, and the industry can’t continue to grow and succeed without being smart and innovative about both.

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Industry Events »

Editorial

PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com EDITOR Anna Simet asimet@bbiinternational.com SENIOR EDITOR Ron Kotrba rkotrba@bbiinternational.com STAFF WRITER Patrick C. Miller pmiller@bbiinternational.com ONLINE NEWS EDITOR Erin Voegele evoegele@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

Art

ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Raquel Boushee rboushee@bbiinternational.com

Publishing & Sales

CEO Joe Bryan jbryan@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 Dave Austin daustin@bbiinternational.com CIRCULATION MANAGER Jessica Tiller jtiller@bbiinternational.com MARKETING & ADVERTISING MANAGER Marla DeFoe mdefoe@bbiinternational.com

EDITORIAL BOARD

Stan Elliot Pacific Coast Pellets Bruce Lisle Energex Corp. Derek Nelson Forest Business Network T.J. Morice TNT Ventures LLC Tim Portz Pellet Fuels Institute

EUBCE 2018 – 26th European Biomass Conference and Exhibition

May 14-18, 2018

Copenhagen, Denmark

As one of the world’s leading R&D conferences combined with an international exhibition, the EUBCE represents the leading platform for the collection, exchange and dissemination of scientific knowhow in the field of biomass. The conference program will address topics from biomass itself to bioliquids and biofuels for heat and electricity, transport and biobased products, covering all aspects of each value chain, from supply and logistics to conversion technologies, from industrial application of research results to impacts on the environment, from market and trade aspects to policy strategies, not least to the role of biomass as a source in integrated energy systems. +39 055 5002280 ext. 221 | www.eubce.com

Advanced Biofuels Conference

June 11-13, 2018

CenturyLink Center Omaha Omaha, Nebraska

With a vertically integrated program and audience, the Advanced Biofuels Conference is tailored for industry professionals engaged in producing, developing and deploying advanced biofuels including cellulosic ethanol, biobased platform chemicals, polymers and other renewable molecules that have the potential to meet or exceed the performance of petroleum-derived products. 866-746-8385 | www.advancedbiofuelsconference.com

2019 International Biomass Conference & Expo

March 18-20, 2019

Savanah International Trade & Convention Center Savanah, Georgia

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 onestop shop––the world’s premier educational and networking junction for all biomass industries. (866) 746-8385 | www.biomassconference.com

Subscriptions to Pellet Mill Magazine are free of charge—distributed bimonthly—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 701-746-5367. 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.

MAY/JUNE 2018 | PELLET MILL MAGAZINE 5

« Column

Mathematics of Demand BY TIM PORTZ

In April, at the International Biomass Conference & Expo in Atlanta, I participated in my first biomass industry association roundtable to discuss the relative strengths of our industry segments, and the news of the day. I was joined onstage by colleagues from the Biomass Power Association, American Biogas Council, Biomass Thermal Energy Council and the Renewable Thermal Coalition. The panel provided me another opportunity to talk about Operation 100k, the Pellet Fuels Institute’s strategic initiative to reestablish 100,000 as the annual floor for heating appliance sales. As I was preparing my notes that morning, I wondered if it would be possible to calculate what the market would look like had Operation 100k been launched a decade ago, and been successful. Very quickly, I had a spreadsheet open, and was populating cells with sales figures that I found in the June 2017 issue of Hearth & Home Magazine. I then built a formula that would calculate the overage and shortfall each year. Incidentally, pellet appliance sales eclipsed the 100,000 unit mark just one time in the past 10 years (141,208 in 2008). Even with 2008’s overage, the industry missed a 100,000-applianceper-year average from 2008-‘17 by nearly 350,000 units. From there, I went to work on quantifying the annual impact of those missed sales. To better understand the impact of our fuel manufacturer members, I calculated an estimated lost demand by assuming pellet consumption for each of those appliances at 2 to 3 tons per year, giving me a range of 700,000 and 1.05 million tons. At the average wholesale price of $185 per ton, that represents between $129 and $195 million in revenue, to say nothing of the $40 million to $60 million dollars of margin that our downstream retail partners would have generated (calculated from the average retail price per ton, less the average wholesale price per ton). Together, the total falls somewhere between $170 million and $250 million in lost revenue per year. Our industry cannot afford to let another decade of lackluster appliance sales pass. Our journey toward 100,000 annual pellet appliance sales seems daunting in

6 PELLET MILL MAGAZINE | MAY/JUNE 2018

the face of the numbers from the past decade, but nevertheless, shoring up demand by focusing on appliance sales is priority one. Our members operate businesses that need to run as near to their production capacity as possible to maximize their profit potential. Operation 100k recognizes that, and puts market expansion right in the middle of what the PFI dedicates itself to. The most obvious challenge we’ll have to confront as we work to turn demand around is our lack of touchpoints with consumers when they are making home and space heating decisions. Pellet manufacturers get involved in heating the homes of consumers only after they have decided upon a pellet-burning appliance. If a consumer selects an appliance that uses a nonpellet fuel source, wood pellet demand is unaffected. As an industry, we’ve got to figure out a way to get the value of pellet heat in front of customers earlier in their decision-making process. This is the challenge that PFI has resolved to overcome. The good news is that our members have strong relationships with the specialty hearth retailers in their markets. If our industry has any chance of meaningfully impacting the demand side of this business, we’ll have to revisit those relationships, and develop a strong argument for why and how retailers should and can move more pellet-burning appliances. We don’t know all of the answers, and we’ll be the first to admit that, but the more that we think about this question of “How do we grow the market for our product?,” the more certain we are that it is the right one to be asking. Author: Tim Portz Executive Director, Pellet Fuels Institute tim@pelletheat.org www.pelletheat.org

Column »

Busy Time for ISO TC 238 BY CHRIS WIBERG

As many pellet manufacturers are likely aware, ISO TC 238 is the International Standards Organization Technical Committee through which numerous countries around the world are working together to develop standards for solid biofuels. While the efforts of ISO TC 238 are ongoing, they are greatly accelerated each year during the annual plenary and working group meetings, which are being held in Espoo, Finland, May 28 to June 1. This year, the U.S. will be represented by three delegates, including Scott Cedarquist, administrator of the American Society of Agricultural and Biological Engineers’ U.S. Technical Advisory Group (ASABE is the direct representative of ANSI), Georgia Biomass’s Ritu Linhart, who is active on multiple ISO TC 238 Working Groups, and me, Chris Wiberg of Timber Products Inspection/ Biomass Energy Lab, and chairman of the U.S. TAG. These efforts are being sponsored by the Pellet Fuels Institute, as well as the employer of each delegate. While there are always projects at different levels of development within ISO TC 238, this year, there are some projects of significant interest. An issue has been raised with the test method for determining fines content–ISO 18846. This method has been challenged as not being representative of the true amount of fines in the sample tested. The reasons behind this challenge are complicated, so it is anticipated that this method will be reviewed in detail, and could be altered, and/or a new method created, which could change the way fines are measured. We are expecting this to be a significant point of discussion and debate within the assigned working group. This issue is of particular interest to wood pellet producers who supply export power markets, due to an emphasis on fines content as part of contractual requirements. This project is expected to be jointly led by the U.S. and U.K. A U.S.-led project of interest is a New Work Item Proposal for the determination of water sorption, and its effect on durability in thermally treated biomass fuel pellets. For biomass thermal treatment technology initiatives, a common selling point is that the material becomes water resistant and can be stored outside. This test method is designed to determine how much water sorption occurs in thermally treated biomass fuel pellets when immersed in water, and also assesses the durability of the product both before and after immersion. A weathered durability index is calculated as the difference between the durability of the as-received sample and the durability of the wetted product. Additionally, the amount of fines created as a result of immersion is reported as “weathered fines.” This project is in its very early stages. Also in development is a test method for hardgrove grindability in thermally treated biomass. The coal industry has long since had a test method for hardgrove grindability

index, which is used to assess the hardness of coal and how much energy is required to grind it to a certain particle size. This test method has been of little use for the biomass industry due to the fibrous nature of biomass, which does not pulverize under pressure as coal does. The biomass industry is still in need of a similar test to determine grinding energy, and years of effort have not been fruitful—until now. This method has been proposed by Germany as a new work item, and is applicable to thermally treated biomass, as it has properties similar to coal. Yet another initiative that will be discussed is a test method for ash fusibility. This method has been in development for several years, and with successful validations over the past year, it is finally taking shape. Ash fusibility (the melting of ash into slag) is very complicated, and it is worth noting that when the European method for ash fusibility was published in 2006, it was published as a technical specification, and not as a complete standard. This was due to issues with repeatability/reproducibility. This new method brings consistency to the measuring process, and has gone through great effort to assure consistent interpretation by computer systems and analysts in the laboratories. It will likely be another year before final publication, however, this method is well on its way to publication. The project is being led by Austria. There are several other initiatives in the works, including a simplified sampling method proposed by Germany for small-scale applications, a French proposal for modifying the wood chip specification standard (ISO 17225-4) to include a table for industrial grade wood chips, and several safety standards that have been developing over the past few years, some of which are now approaching publication. In conclusion, there is a lot going on within ISO TC 238. The U.S. Technical Advisory Group currently has approximately 50 members and is administered by ASABE. We are always looking for interested individuals to join our efforts in reviewing these standards as they are developed, to ensure they are well-thought-out, and reflective of U.S. interests in the global solid biofuels industry. If you would like to join the TAG, please contact Scott Cedarquist at ASABE (cedarq@asabe.org). Author: Chris Wiberg Manager, Biomass Energy Laboratory 218-428-3583 cwiberg@tpinspection.com

MAY/JUNE 2018 | PELLET MILL MAGAZINE 7

Business Briefs

PEOPLE, PRODUCTS & PARTNERSHIPS

BioPower Sustainable Energy acquires Atikokan pellet plant BioPower Sustainable Energy Corp., a subsidiary of True North Timber, has acquired the assets of the former Rentech pellet plant in Atikokan, Ontario. The company plans to sell both commercial pellets and residential heating pellets. True North Timber agreed to acquire the assets of the Atikokan plant in December. The acquisition was completed Jan. 22. According to BioPower Sustainable Energy, the purchase allowed 25 local jobs to be maintained. Documents filed with the U.S. Securities and Exchange Commission in December indicate the base purchase price for the Atikokan assets was CAD $3.2 million. The facility began operations in late 2014. At that time, Rentech said the nameplate capacity of the facility was 100,000 metric tons (MT). The facility supplied 45,000 MT per year to Ontario Power Generation.

Northern Forest Center wins industry award

The NFC’s Maura Adams, left, accepts the Excellence in Bioenergy Award from Anna Simet, editor of Biomass Magazine.

BBI International and Biomass Magazine named its annual industry award winners at the 11th International Biomass Conference & Expo in Atlanta, Georgia, in mid-April, naming the Northern Forest

Center as recipient of its Excellence in Bioenergy Award. The Excellence in Bioenergy award recognizes dynamic leaders in industry, academia and public policy that are fundamental to the growth of the bioenergy industry, demonstrating the drive and effort to help clear financial, technological or political hurdles that stymie expansion of the bioenergy industry. The Northern Forest Center has been instrumental in expanding modern wood heat in the Northeast U.S., with forest health and sustainability as the cornerstones of its work. Over the past 11 years, the NFC’s programs have helped to secure and leverage $189 million for projects that benefit the region’s communities, economy and forest stewardship, including support for 150 automated wood pellet heating systems. Accepting the award on behalf of the NFC was Maura Adams.

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Business Briefs »

Pinnacle enters new off-take contracts with Japanese customers On May 2, Pinnacle Renewable Holdings Inc. released first quarter 2018 financial results, reporting it generated record first quarter revenue, and announcing it has entered into new off-take contracts with customers in Japan. During the company’s accompanying investor call, Robert McCurdy, chief executive officer of Pinnacle, discussed three contracts Pinnacle entered into during the quarter with customers in Japan. The first is an off-take contract with Ube for 70,000 metric tons per year (MTPY) of industrial wood pellets, with deliveries scheduled to begin in late 2019. The second is a long-term, take-or-pay contract that was signed April 23 with Tsusho Corp., a group member of Toyota. Under the Tsusho contract, Pinnacle will supply 30,000 MTPY of industrial wood pellets beginning in late

2021 for use in a Japanese power generation plant. Also on April 23, Pinnacle entered into a long-term, take-or-pay contract with Sumitomo Corp. for the supply of 75,000 MTPY of industrial wood pellets beginning in late 2022, for use in a Japan thermal power generation plant that is being converted to run on biomass.

Michigan Wood Fuels

Michigan Wood Fuels joins PFI The Pellet Fuels Institute announced it has welcomed pellet manufacturer Michi-

gan Wood Fuels back to the association. “We couldn’t be happier that Michigan Wood Fuels has made the decision to reengage with the Pellet Fuels Institute,” said PFI Executive Director Tim Portz. “If the PFI is going to be successful in its efforts to grow the market opportunity for our members, we have to have as many producers on board as we can.” “Michigan Wood Fuels is delighted to join the PFI,” said Ben Rose, CEO of Michigan Wood Fuels. “We look forward to working together with PFI to expand the market and educate the public about the benefits of pellets and their many uses.” Michigan Wood Fuels is a fully integrated, hardwood pellet production facility located in Holland, Michigan, with an annual production capacity of 50,000 tons.

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 asimet@bbiinternational.com. Please include your name and telephone number in all correspondence.

MAY/JUNE 2018 | PELLET MILL MAGAZINE 9

« Sustainability

The Ideological

DI V I DE Understanding the positions of those opposed to the wood pellet industry is critical to overcoming and reconciling differences. BY RON KOTRBA

T

he inability to see the world through other points of view is treacherous to relationships. Closemindedness, particularly when affixed to hardline positions and unbendable philosophies, cannot bridge ideological gaps. Sometimes, nothing can. The phenomenon of two individuals viewing the same situation and interpreting it very differently is as old as the human experience itself. Respect for other interpretations, even though disagreement exists, is critical to building solid relationships and is often beneficial in collaborations. Many in the biomass industry consider themselves environmentalists—champions of clean, renewable energy whose lifework benefits society and the planet. “I like to say I’ve been an environmentalist much longer than I’ve been a forester,” says Heather Nobert, a

forester and forest product marketing coordinator with the Nebraska Forest Service. It wasn’t so long ago when biomass advocates were more universally recognized with this designation than today, but somewhere along the way, something changed. It’s difficult to pinpoint when or how. Maybe a couple of isolated incidents by a few bad actors became sensationalized in effective campaigns, and over time, this was perpetuated by misconceptions or misperceptions, and what was perhaps once a small fissure between environmentalists and biomass proponents became a grand ideological divide. Fundamental differences exist between environmental groups and manufacturers of forest products such as the wood pellet industry. Even seemingly simple definitions, such as what a “healthy forest” is, or whether bio-

10 PELLET MILL MAGAZINE | MAY/JUNE 2018

mass is carbon-neutral, become vastly complex. “While landowners prioritize maximizing economic output from their forests, which usually means maximizing growth rates of commercially valuable individual trees, environmentalists prioritize ecosystem values, like biodiversity and the potential for forests to provide natural habitat and long-term carbon storage,” says John Upton, a features journalist with Climate Central. “It’s hard to reconcile these values, which is why I think the two sides are almost always at war with each other. And because these values are so hard to reconcile, the greatest opportunities for compromise on land management seem to come from dividing land into areas that are protected, and areas that are used for commercial purposes, with decisions about land designations guided by the dual goal of maximizing both natural

Sustainability » and financial payoffs. I just don’t see much common ground among landowners or foresters and environmentalists when it comes to metrics of forest health—they will look at the same trees but see different forests.” Thomas Buchholz is a senior scientist with the think tank Spatial Informatics Group, leading its forest and agriculture team. “The challenge with biomass is it’s a very wide field,” Buchholz says. “With biomass, we can point to horrible examples from sustainability and carbon perspectives, down to other systems that are no-brainers in terms of carbon friendliness and sustainability.” Buchholz stresses this issue is not black and white. “What really pains me is when I see biomass advocates go for a very black-and-white picture—‘biomass from forests is carbon-neutral, period,’” he says. “The industry should point out clear examples where it’s not carbon neutral, and then firewall itself against them while making the case for biomass management.” Buchholz is based in Missoula, Montana, an area he says has suffered the past 15 years from poor fire management. “It’s very clear that when you look at the carbon implications of doing nothing, forests will go up in smoke,” he says. The National Science Foundation recently shared new research published in Ecohydrology that forest thinning through fires or mechanical means may not only reduce wildfire intensity, but also save Buchholz billions of gallons of water lost to evapotranspiration, easing water shortages in droughts. The U.S. Forest Service says that up to 8 of the 21 million acres it manages in California need immediate restoration. Another 58 million acres nationally also require restoration. While forest thinning reduces the carbon stock initially, Buchholz says this can be very beneficial to forest health. “A thinned forest will sequester less carbon initially, but when fire strikes, the loss of carbon is reduced so storage capacity is buffered,” he says. “The forest is more resilient, and fires not as volatile. And in many cases, it’s a no-brainer to use that material from fuel thinnings to produce power or heat, rather than pile-burning it, like what’s going on now.” Dogwood Alliance is an environmental group focused exclusively on issues facing the Southeast U.S. and is strongly opposed to development of the wood pellet industry. “I

think first and foremost, what’s happening in North Carolina and Southeast Virginia where there’s been a huge expansion of industrial wood pellet manufacturing is completely unsustainable,” says Adam Colette, Dogwood Alliance program director. “We should not be logging forests to ship pellets overseas to burn for electricity. That’s not an efficient use of our resources.” There is a misperception by some that, as Colette says, forests are being logged for pellets, but this simply isn’t the case. The Sustainable Forestry Initiative is an organization providing certification for forestlands with requirements to protect water quality, wildlife habitats and replanting trees post-harvest. SFI provides two broad types of certifications: One is for companies or organizations that own or manage forestlands; and the second is for fiber sourcing, for those such as paper companies, sawmills or pellet producers who source directly from forests. “In the Southeast, there is usually a mix of products coming off the lands in any given harvest,” says Nadine Block, SFI chief operating officer. “The larger trees are going to sawmills, and the smaller trees that are not mature, or that were thinned, might be going to pellet or paper mills. I think it’s worth considering the economics. The pellet industry is going after low-value material. Pellet mills aren’t able to pay for big trees, the economics don’t bear out. Larger trees go to higher-value markets.” Enviva, considered the world’s largest wood pellet producer, can produce 3 million tons of pellets annually, with another 1.2 million tons of capacity under construction. The company operates in the U.S. Southeast and has become a target for Dogwood Alliance. Jennifer Jenkins, vice president of Enviva and chief sustainability officer, affirms Block’s position. “Landowners don’t typically grow or harvest timber for wood pellets,” Jenkins says. “Forest owners are rational, economic actors and want to produce as much sawtimber as possible to maximize their revenue per acre, since sawtimber is worth many multiples of what pulpwood is worth. The wood that Enviva takes is the lowest-quality wood from a given harvest.”

Certified Sustainable

Enviva holds multiple third-party chainof-custody certifications, including Forest Stewardship Council, Programme for the Endorsement of Forest Certification, and SFI. “We are also certified under the Sustainable Biomass Program,” Jenkins says. “The local

forest products markets are integrated such that a variety of products are produced from the same forest tract. Our Track & Trace data confirm that, on average, we receive about 30 percent of the wood produced Jenkins during a timber harvest. That number is relatively low because the wood we procure is a byproduct of a traditional sawtimber harvest. This is low-grade wood fiber, often diseased or crooked, or the tops, limbs, slash and understory that doesn’t have higher value elsewhere.” Certification holds forest owners responsible for what happens on the ground, but as Block says, it does not speak to specific markets. Colette says Dogwood Alliance recognizes FSC certification as the strongest system. It worked with major paper producers in the South to increase FSC intake and map endangered areas around mills to keep loggers from harvesting in those sensitive areas. “When we talk about certification, there’s a difference between traditional and additional demand,” Colette says. “If we add up the new pellet mills that have popped up in Southeast Virginia and North Carolina, and combine that with the fact that we’ve had mill transitions in the area but no major mill closures, we’re adding another 5 to 6 million greenwood tons of market demand. That’s a massive increase. And end-use is a big deal here. Certifications don’t look at end use, they certify activity on the ground. In the case of biomass, it’s being burnt in power stations, pumping all that carbon into the atmosphere. There are deep debates on carbon, but the science is clear from our perspective that it’s bad for the climate. We don’t believe something can be certified as sustainable whose primary goal is to address climate change, when in fact, the exact opposite is happening.” On the surface, it seems rather clear biomass, with its relatively short lifecycle and ability to store atmospheric carbon, is carbon beneficial. “It’s hard to quantify long-term carbon Nobert storage,” Nobert says. “It depends on the species and whether they’re being cut after 20, 40 or 100 years, as the carbon sequestration in each of those will be different. And also, from

MAY/JUNE 2018 | PELLET MILL MAGAZINE 11

« Sustainability our national leadership there’s still no consensus. Furthermore, the government offers incentives and subsidies for wind and solar, but they haven’t done the same for biomass, so that tends to sway public opinion.” Buchholz says he is frustrated that certification bodies have not gotten more involved in the biomass debate over the past 10 years. “In the end, it comes back to the question of sustainability vs. carbon,” he says. “Biomass can be good from a carbon standpoint, but horrible sustainability-wise, and vice versa. Biomass from an FSC-certified forest might mean it’s coming from a management system that’s very sustainable, but does very little from a carbon context. I think the carbon aspect cannot be disconnected from the forest-management piece of it. It should be held up against the same standards.” According to Jenkins, Enviva’s pellets are both sustainable and carbon-beneficial. “Our responsible wood sourcing [guidelines] lay out precisely and in great detail the steps we take to ensure that our wood is procured sustainably,” she says. “We are proud of the work we have done to ensure and promote responsible sourcing, and we continuously strive to do even better.” Regarding greenhouse gas emis-

sions (GHGs), Jenkins lays out three simple facts. “One, forests will be managed to produce wood products for human use regardless if any particular segment of the forest products industry exists,” she says. “Two, landowners respond to robust forest products markets by planting more trees. And three, there is an empirically proven, positive relationship between forest harvest and forest growth. It’s worth noting that even after accounting for all of the uses of forest products—for any purpose—forest inventory in the Southeast U.S. has more than doubled since 1953. I think anyone with any degree of intellectual honesty should conclude that wood pellets are carbonbeneficial on a life-cycle basis.”

Role of Markets

Despite additional markets such as pellets—and perhaps even because of them— Nobert says the growth of trees in U.S. forests continues to outpace harvesting. “One trend we’re seeing is the forests we have now have a greater volume of biomass than they did 70 years ago,” she says. “That’s a complicated, complex answer to the question why, but when we implement appropriate management, we see trees grow bigger and faster.”

Block says data proves this. “We see more growth than mortality across the U.S., including the Southeast,” she says. “We recognize it’s not just about acres, but well-managed forests. That’s where certification comes into play. We want more growth than harvesting, but other factors, such as biodiversity and water quality, need to go hand in hand. Research ties markets to overall growth. Where we’ve seen a decline in markets—for example, the recession and housing crisis of the late 2000s—this puts negative pressure on forestland. Landowners have choices, many driven by economics, so if markets decline, they begin to look at alternatives. Forestlands in the pathway of urban sprawl, for instance, can be lost.” Colette says Dogwood Alliance does not see losing forestlands to development in the Southeast as a concern. “For these rural areas in the South, development is not a big threat,” he says. “We’re not talking about suburban Atlanta here. Remote areas would love to have any kind of development, so large tree tracts converted to apartment complexes is not a legitimate argument here. We need economic development there, but not like this. These people are saying, ‘Give me a Burger King.’”

Sustainability » Interestingly, Burger King is owned by Restaurant Brands International, and in advance of its annual general meeting of shareholders in June, international consumer group SumOfUs submitted a shareholder proposal on behalf of the British Columbia Government and Service Employees’ Union (BCGEU) calling on RBI to issue annual reports to investors providing quantitative metrics on supply chain impacts on deforestation, including progress on time-bound goals for reducing such impacts. “As a shareholder, we want to see RBI set measurable goals and clear timelines for reducing its supply chain impacts on deforestation, thereby improving the sustainability of its business practices,” says Stephanie Smith, BCGEU president. Landowners in Nebraska pay up to $1,000 an acre to manage forestland, Nobert says. “That’s where markets come into play,” she says. “Right now in Nebraska, there’s not a lot of markets for wood, so there’s not a lot of incentives for landowners to manage their land. They have to pay to do that and can’t recover these costs without markets. Where we see strong markets, we see more incentives to manage land and keep forests healthy and resilient.” She says two-thirds of 1Nebraska IMALPALGroup_PelletMill_2018_Mar-Apr.pdf 05/03/2018 for17:26:43

estland owners do not plan to sell their land. “They’re not harvesting, turning a profit and dumping,” she says. “They’re harvesting for sustainable forestry for their kids, grandkids— it’s legacy property, basically. They want to improve the health and resiliency of their forests, and they’re paying to do that. We see what happens when there is no harvesting—we get overly dense forests. And we know that’s not working for us. We also see that if we harvest and don’t manage for regrowth, sometimes, depending on the location, invasive species will overtake the natives. So we need to manage for that. That’s one of the easiest arguments to understand why regrowth management is needed, and why we need to sustainably harvest and promote forest health.” While Colette says Dogwood Alliance does not believe the development argument applies to the Southeast, he recognizes the threat of forestland being lost to agriculture. “The ag markets argument really applies to landowners already managing industrial-scale plantations,” he says. “Enviva is primarily sourcing hardwood, and because Enviva exists, there are more knocks on doors to small family landowners and more cutting.” Enviva’s use of wood harvested from bottomland for-

ests is particularly contentious for Dogwood Alliance, Colette says, from an ecological perspective. “The highest value of these wetland forests is in the services they provide in terms of flood protection, water quality, carbon sequestration and biodiversity,” he says. “According to our new report, those are 15 times more valuable than those wetland forests would be logged.” Jenkins notes that bottomlands make up only about 2 percent of Enviva’s sourcing enterprise-wide. “Bottomland forests are part of the working forest landscape in the areas where we operate, and there are good ways to harvest these working forests to provide incentives for landowners to keep these forests as forests, without doing harm to the environment or the overall ecosystem,” she says. Enviva has worked with its stakeholders to develop robust processes to ensure it doesn’t purchase from forests that are especially sensitive, which it deems high conservation value. It also does not purchase from lands that, once harvested, will be converted to other uses. “And we also know that in many cases, harvest of a low-quality tract will enable regeneration of higher-valued trees such as cypress,” Jenkins says. “As we do for all of our purchases, we agree to purchase from bottom-

« Sustainability lands only when we believe that harvest is the best outcome for that tract of land. We’ve also made tangible commitments to wetland forest conservation through our Enviva Forest Conservation Fund, and in the first three years of the program we’ve contributed to protecting more than 10,000 acres of sensitive forests.” According to Enviva’s Track & Trace data, from 2011-’16, forest area in its supply base has increased by more than 300,000 acres, and forest inventory by 150,000 tons. “The Southeast U.S. is one of the world’s most important timber baskets, and the region is responsible for one-sixth of the timber production that occurs globally every year,” Jenkins says. “The forests in this region are owned overwhelmingly by private landowners who manage forestland to provide the steady stream of wood products that our economy and society depend on, while producing income for their families over time. The forest products industry is an important contributor to local economic health in the areas where we operate. The industry provides jobs for local residents and income for landowners, providing them with economic incentives to replant and keep their land forested, rather than converting the land to other uses.” She says only about 17 percent of forestland in the Southeast is certified to any standard. “We recognized the need to go beyond certification to provide assurance that we conduct the most responsible sourcing possible,” Jenkins says. “We implemented our industry-leading Track & Trace program in order to give our customers and stakeholders more visibility into our sourcing practices because we want people to know where our wood is coming from. We invite everyone to take a look at our website, where we publish—tract-by-tract— our sourcing data as evidence of our commitment to transparency.”

Mixed Landscape

Colette says there is a big difference between natural forests and plantations. “We firmly hold the stance that a plantation is not a forest,” he says. “It’s a collection of trees meant to be logged. Oftentimes, when sustainable forest management or issues of sustainability are brought up, the whole focus is on deforestation—losing forestland. What is often forgotten about is the other ‘D’ word, which is degradation of our forests. The major issue in the Southeast is, a degraded forest is a vulnerable forest. When natural forests are cut and converted to monoculture pine forests, this technically still counts as forested

14 PELLET MILL MAGAZINE | MAY/JUNE 2018

land, but we’ve degraded its ability to be a resilient ecosystem. We’ve created not a deforested landscape, but a degraded one. And when forests are degraded, we open them up to additional threats, such as insect infestation and fire.” When Europeans first came to North America, there were huge forests covering the entire continent. “No one was ‘managing’ these forests,” Colette says. “I understand the dynamics of increased population, but the idea that we must manage nature because nature can’t manage itself—we’re forgetting how life on this planet was created.” Nobert says since many of our old-growth forests were cut centuries ago, it would take a minimum of 400 years to reestablish them as they were when settlers arrived in North America. “There’s a process of succession,” she says. “Unfortunately, it’s hard to mimic that through management.” What is important to remember about managed forests, Nobert says, is unlike agricultural crops, the tree species grown—whether in the West or Southeast—are native to the area. “So if we’re harvesting eastern hardwoods that naturally regenerate, we’re mimicking disturbances that would naturally happen through tornados or wildfires,” she says. “It’s probably safe to say our forests are not as diverse as they used to be, and with increased diversity you get increased resiliency, but I wouldn’t say our forests are suffering or are in poor condition. They’re still providing the valuable ecosystem services we need.” Recognizing the need for a mixed landscape is important. “Not every forest can or should be protected and locked up solely for recreational or ecological value,” Block says. “Our society demands products and benefits from services that come from these forests— paper, wood and packaging, as well as clean water, air, biodiversity and wildlife habitats— so keep in mind the need, hope and desire for different types of forests.” “To me,” Colette says, “a working forest means a forest that is providing feedstocks to the timber industry.” Block says we must recognize working and managed forests provide environmenBlock tal benefits too. “It shouldn’t be thought of as a dichotomy, where only products come from working forests and environmental benefits only from standing

Sustainability » forests,” she says. “If they’re managed well, forests can produce products such as paper, pellets, sawtimber and environmental benefits like clean water, wildlife and clean air. It’s important to look at forests that way.” Roughly 300 million acres of forestland are certified to the SFI forest management standard. “That’s a huge landscape, a living lab if you will, to try and measure these benefits we’ve talked about,” Block says, adding that SFI is working with nonprofits and universities to quantify these benefits.

Coming Together

Ultimately, Colette says humans must deal with their consumption issues. “What are our limits of sustainability?” he asks. “When you add all that additional Colette demand onto the marketplace, can you continue to certify that as sustainable? There’s been a lot of work to source third-party certified wood for traditional demand, and now you can’t add all this additional demand on top and call it sustainable.” Colette asserts forests in the U.S. Southeast are four times more disturbed than South American rainforests. “They’re degraded,” he says. “It’s a huge problem. We have to recognize that. Some would have us believe that all forestland is the same, but this is clearly not the case.” For biomass and environmental groups such as Dogwood Alliance to ever see eye-toeye on the big picture and work toward resolving their differences rather than having an adversarial relationship, Colette says the woody biomass industry must come clean about its real carbon impacts. “That has been an area where we’ve had real hang-ups,” he says. “If we start from that place, this would open the door to further conversation where we could work together.” Enviva’s position is that this is not an “us-vs.-them” issue. “We engage in a very constructive way on a daily basis with a wide range of environmental organizations and stakeholders interested in environmental stewardship, including the American Forest Foundation, The Nature Conservancy, The Longleaf Alliance, The Forest Trust, and The Forest Stewards Guild, to name just a few, and we are actively seeking new partnerships,” Jenkins says. “The purpose of this engagement—and why we make it a priority—is to

share scientific expertise on sustainable forestry, to get objective feedback on how we’re doing, and gather constructive input on how we can do even better. We strive for continuous improvement and have implemented and continue to implement ideas and suggestions from our partners in the environmental community. It’s true there are certain groups that do not wish to work with us to improve sustainability, but these are outliers in the environmental community.” SFI’s perspective is that focusing on particular markets—this one is good and that one is bad—misses the point. “The key issue,” Block says, “is to look at forests and make sure they’re well-managed, utilize them and ensure we have markets in place to provide incentives to keep forests as forests and appropriate measures in place to ensure thriving forests well into the future.” Buchholz says it would help to mend the ideological divide if organizations like Dogwood Alliance or Sierra Club, and those in the biomass industry, would accept the validity of each other’s arguments, realize the breadth of biomass, and individualize arguments on a case-by-case basis. The Sierra Club ignored numerous requests to participate in this discussion. Any sort of sustainability certification is “always a good move” for pellet producers, Nobert says. “I think part of the reason biomass and forestry in general get a bad reputation is our emotional connection to forests and trees,” she says. “It hurts to cut trees down. Overcoming that emotionality by understanding the full cycle is one way to break down those barriers.” She adds that the most legitimate oppositional argument to the woody biomass industry is the issue of carbon storage and intensity—because it can be so variable. “For the pellet industry, working to address that would be my No.1 priority,” Nobert says. “Biomass and forestry professionals, the reason we get into this field is because we do consider ourselves environmentalists. Most of us have gone through training for that. We want the same thing as a lot of environmental groups—protecting our natural resources for generations. That’s the one thing we can lose sight of when we get into the weeds of carbon accounting, emissions and forest management plans.” Author: Ron Kotrba Senior Editor, Pellet Mill Magazine 218-745-8347 rkotrba@bbiinternational.com

MAY/JUNE 2018 | PELLET MILL MAGAZINE 15

« Technology

Drinor’s Alexander Thelander and Carl Romlin stand next to the company’s first continuous dewatering press installation at Rindi Pellets in Vansbro, Sweden. PHOTO: DRINOR AB

16 PELLET MILL MAGAZINE | MAY/JUNE 2018

Technology »

PRESSING FOR WIDER

PROFIT MARGINS Swedish company Drinor has developed a machine it believes could be a game-changer for pellet production. BY ANNA SIMET

MAY/JUNE 2018 | PELLET MILL MAGAZINE 17

« Policy

« Technology

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Drinor’s patented technology squeezes water out of biomass using a mechanical process involving a pair of rollers and a perforated steel sheet. PHOTO: THOMAS WIKLUND

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18 PELLET MILL MAGAZINE | MAY/JUNE 2018

I

n the bioenergy sector, the most promising of concepts can be incredibly challenging to successfully scale, and many end up in the proverbial graveyard of innovative ideas. But for Sweden-based Drinor, the light at the end of the commercialization tunnel is visible. And, in their opinion, it’s very bright. Drinor’s patented technology, which squeezes water out of biomass via a mechanical process involving a pair of rollers and a perforated steel sheet, has been evolving the past seven years. It’s a simple concept—perhaps nearly too simple to believe without skepticism that it will make the incredible difference in operational costs that Drinor believes it can. Sefan Sobota of Switzerland is the man behind the initial concept, having realized the idea after seeing large stacks of residuals in Swedish Forests. The intention wasn’t always to focus on the pellet industry—at the beginning, the impetus was to figure out a way such that the Värmland region’s robust pulp and paper industry could save money, beginning with a team of engineers, economists and

forestry experts, and resulting in development of Drinor AB. “The idea began as a way to reduce transportation costs, allowing a wider transport range,” explains Alexander Thelander, sales executive. “In Karlstad, everyone breathes pulp and paper, and biomass.” “The pellet [sector] doesn’t have big profit margins, and there is a demand for a solution to increase profits,” he continues. “It’s hoped that the dewatering press will be able to contribute to this in particular—we think it will be most effective here. Our goal for past three years has been to prove, with a full-scale industrial machine installed in a pellet mill, that it works.”

Proving the Concept

Traditional drying methods draw water out of biomass via heat, Thelander says, but with Drinor’s technology, material is pressed at about 13,000 psi in a roller nip, allowing for about half of the water to be squeezed out, prior to sending it to the dryer. He compares the technology to hanging a saturated rag out to dry, versus tightly wringing it out, then setting it out to dry.

Technology Âť At its R&D headquarters in Karlstad, a pilot continuous dewatering press (CDP) is available for testing, and tailor-made trials. And using a Swedish Energy Agency grant of SEK 4 million ($467,000), the small team at Drinor—just three, for now—implemented a large-scale demonstration unit at a pellet plant, Rindi Pellets, and has results to share. “It’s a 70,000-ton-per-year mill, and we installed it in February,â€? Thelander says. “The goal was to make sure we covered their needs, by processing about 20 tons of material per hour, and reaching the low 40 percent moisture content range.â€? Testing, which is being done in partnership with Karlstad University and the Swedish Energy Agency, has indicated moisture ranges as low as 37 percent, and the machine is now running continuously. “When you put a new machine into place, you think there might be a lot of problems—there always are when you go from very small-scale to much bigger—but we have had great results so far, and we expect a lot from the trials,â€? Thelander says. What might be of particular interest to producers located in regions that experience harsh winter conditions is how the machine has handled frozen material. “We weren’t sure how it would test,â€? Thelander says. In -20 degrees Celsius (-4 degrees Fahrenheit), with an efficiency loss of only about 3 to 4 percent, the water still leaves the material. “It’s great for regions where things are difficult in the winter, and they experience a loss in capacity,â€? he adds.

Talking Numbers

Overall, Drinor believes that, when retrofitting an existing pellet plant with a CDP—removing 55 to 60 percent of moisture—operational costs can be reduced by about half. At least, for a typical pellet plant in Sweden. “It’s mostly with the dryers— that energy use that goes away,� Thelander explains. “The energy need for our machine is almost nothing, which makes a big difference in the numbers,� Thelander says. The machines have a small footprint— about 25 square meters—and another benefit is that once material has been processed, it’s much softer. “We’re doing trials with hammer mills right now, to study the effects,� Thelander says. “The operational costs we talk about are all across the pro-

Testing of the CDP, which is being done in partnership with Karlstad University and the Swedish Energy Agency, has indicated processed biomass moisture ranges as low as 37 percent. PHOTO: THOMAS WIKLUND

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MAY/JUNE 2018 | PELLET MILL MAGAZINE 19

« Technology

The combination of force and pressure from the CDP results in a much softer biomass material, requiring less hammermilling and providing additional benefits for purposes beyond pellet manufacturing, such as enzymatic treatment. PHOTO: THOMAS WIKLUND

cess—including the dryers, hammer mills, and material handling, as it gets lighter.” Pellet tests and comparison between dewatered and nonprocessed sawdust have been performed, and so far, results show equal or better quality and performance in comparison to conventionally dried biomass—in particular, ash content. Pellets made from material processed by the CDP have tested at a 20 percent reduction in ash content. “We wondered why that was initially,” Thelander says. “But it became obvious—if you dry saltwater, the salt is still left there. Since we squeeze the water out, a lot of stuff comes out with the water, the things that usually become ash, so now that’s handled in the water stream.” An additional benefit of installing a CDP in a retrofit situation is upscaling capacity, according to Thelander. “It’s much faster, pressing the water out, so you can upscale your dryer and almost double the capacity.” For a new build, the capital costs—considering the smaller space requirements, less handling of equipment, and reduced expenditures for RTOs and thermal dryers, The-

lander says a 50 percent cost cut in capital costs could be achieved—about $30 million in cost savings on a $100 million plant. “If you put the press first in the whole [supply] chain, it will affect all of the process steps,” he adds. “A question that we got recently was, how could this affect the actual cost of pellets—we think it could be up to 30 percent, which would have a great effect on the market, especially private markets—we’re not only focusing on industrial use. If the costs can be cut like that, perhaps it will have an effect on demand for pellets, as a result.” And the pellet market isn’t the only industry the CDP could have implications on. Besides chips, sawdust has been successfully tested, as well as bagasse, and Drinor sees sawmills, biomass contractors, heat and power plants, as well as ethanol and biogas plants as other potential markets. The combination of force and pressure—resulting in a much softer material, as aforementioned— affects materials in such a way that it makes it particularly suitable for enzymatic treatment before biomass is processed into industrial sugars or biogas, as the enzymes or other ad-

20 PELLET MILL MAGAZINE | MARCH/APRIL 2018

ditives have access to the core of the material, and the cracked cell structure will increase the process yield, Drinor believes. The water pressed out of the material contains carbohydrates, the level of which depends on the chosen process, and the water itself can work as an substrate for biogas production. Jonas Berghel, an environmental and energy systems professor at Karlstad University, has followed the technology for the past several years, and believes in it. “Drinor has moved the border of possibilities for mechanical dewatering of biomass,” he says. “I’m sure this will be a difference-maker for energy use within a couple of years.” Maybe even sooner. Right now, an initial zero series of machines are being developed and produced for customers signed up on a queuing list, manufacturing of which is being done by an experienced European machine developer working with Drinor, which hopes to replicate this business model elsewhere. “We’re a small company, so we’re not looking to do everything ourselves,” Thelander says. “It’s a patented technique, so we’re looking for partners around the globe to license it. We want to further develop the process, because there are other possibilities for the machine—so many interesting fields. In the U.S. and Canada, we want to tell everyone what we’re doing, but we would like to find people to do this with.” “It’s an intensive phase, but we’ve had so much fun moving this forward,” adds Carl Romlin, financial executive at Drinor. “We’re planning for the next move regarding investment, focusing on building a strong knowhow in terms of our R&D, and letting others help us with manufacturing and installation.” But realistically, how soon could a CDP be available? “We hope to get more machines in the market during the fall,” Thelander says. “When it comes to the American market, it’s just getting our partner agreements together—it won’t be too long.” Author: Anna Simet Editor, Pellet Mill Magazine asimet@bbiinternational.com 701-738-4961

Technology »

Swedish Plant Industrial Savings: Doing the Math A pellet plant producing 100,000 tons of wood pellets per year from sawdust with 54 percent moisture content evaporates 96,000 tons of water in the dryer annually. The energy consumption for the dryer is approximately 75 to 93 gigawatt-hours (GWh) per annum (/a). A reduction of the moisture content from 54 percent to 38 percent before drying reduces the amount of water to be evaporated by 51,000 tons/a, corresponding to an energy saving of 41 to 51 GWh/a. Many fuel pellet plants are nonintegrated, meaning that the energy for drying must be provided by burning biomass, the value of which, in the plant scenario above, is at least in the region of 8 to 10 MSEK/a ($940,000 to $1.2 million). The annual electrical power consumption would be some 3.2 GWh, corresponding to some 1.3 MSEK/a ($150,000). The net savings, without consideration of costs for capital and maintenance, would amount to 7 to 9 MSEK/a, or $820,000 to $1.1 million). SOURCE: COPOLIA

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MAY/JUNE 2018 | PELLET MILL MAGAZINE 21

South Korea and Japan 2017 wood pellet imports. SOURCE: CUSTOM DATA

Wood Pellets in the Emerging Asian Biomass Market BY RACHEAL LEVINSON

CONTRIBUTION: The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Pellet Mill Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

22 PELLET MILL MAGAZINE | MAY/JUNE 2018

Contribution Âť

T

here is no doubt that Asia’s demand for biomass is growing rapidly, but a big unknown is how much of a role wood pellets will play in meeting the emerging demand, and where will those pellets come from. Wood pellet imports into South Korea and Japan have grown exponentially in the past few years. In 2017, South Korea imported 2.4 metric tons (MT) of wood pellets, 20 times what was imported in 2012. Japan is currently a smaller market, but its growth has also been impressive. Japan imported over 0.5 MT in 2017, a seven-fold increase from 2012. South Korea’s biomass demand has been supported by its renewable portfolio standard, which requires all energy companies with an installed capacity exceeding 500 MW to obtain an increasing share of their electricity from renewable energy

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sources. To satisfy their RPS requirements, generators can either produce their own renewable energy, or purchase renewable energy certificates (RECs) from other renewable energy generators. Failure to meet the RPS target results in a fine of 1.5 times the traded price of RECs. A handful of independent power producers (IPPs) have begun producing power from biomass to earn RECs, and sell them to generators obligated under the RPS. The RECs are weighted depending on the technology. For example, producing power in a dedicated wood pellet or woodchip-fired biomass plant would earn 1.5 RECs per megawatt-hour, whereas using palm kernel shells (PKS) would earn 1 REC/MWh. Cofiring of any biomass fuel earns fixed support of 1REC/MWh. However, much uncertainty currently surrounds the Korean subsidy system. The government is considering changing the REC weightings of certain technologies includ-

ing wood pellets, which could mean their value is significantly reduced. This would almost certainly jeopardize several IPP biomass projects. An announcement on the new values had been expected in April, but was delayed. As of early May, a new date is yet to be set. In Japan, the market has evolved differently from South Korea, and instead has been supported by a feed-in-tariff (FIT) scheme that provides a 20-year subsidy to firms producing renewable energy. Biomass, specifically under the general wood category, has proved hugely popular. By March 2017, almost 12 GW of biomass projects had been approved under the FIT scheme, far exceeding the quantity envisaged under Japan’s Best Energy Mix 2030 scenario of 2.7 to 4 GW. The huge scale of this potential growth in biomass demand has, understandably, drawn a lot of attention. Biomass produc-

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MAY/JUNE 2018 | PELLET MILL MAGAZINE 23

« Contribution

Historic biomass demand in Japan and South Korea, 2015-‘17. SOURCE: KOSIS, MAFF, HAWKINS WRIGHT RESEARCH

ers and users worldwide are looking keenly to Asia, and wish to understand how the growing market may impact existing global trade flows. The outlook for Asian biomass demand is far from certain, however, and a wide range of variables could feasibly con-

strain its growth. Hawkins Wright therefore wanted to establish the true nature of the emerging biomass market. Over several months, we carried out extensive fieldwork, site visits, meetings, quantitative and qualitative analysis. This research has provided us with unique insights that are published in

24 PELLET MILL MAGAZINE | MAY/JUNE 2018

a new, multiclient report, “Strategic Assessment of Asian Pacific Biomass Demand and Supply out to 2030.” An important part of that study was identifying viable sources of available biomass that could meet the needs of this new market. We wanted to determine not just how much biomass will be needed, but where it will come from. Currently, a lot of the region’s biomass demand is from coal-fired power plants cofiring wood pellets. But looking ahead, a growing proportion of the new demand will consist of dedicated biomass plants. Those dedicated plants will utilize circulated fluidized bed boilers, which are much more fuel flexible then pulverized coal boilers, and therefore not restricted to using just wood pellets. It could be assumed that generators will therefore source more local, cheaper alternative biomass such as PKS or wood chips, however, we have concluded that wood pellets will continue to play a very important role. We see great potential for wood pellets to fulfill the growing demand, and we predict a large percentage will come from North American suppliers. One major factor fueling our prediction is that many of the

Contribution »

dedicated plants in Japan and South Korea will be developed by IPPs funded by debt. If a project developer intends to finance a power project with debt, lenders will almost certainly want a secure feedstock supply contract to be agreed with a bankable counterparty. Conversely, a project financed by a parent company’s balance sheet, or a utility intending to cofire biomass with coal at fairly low rates, may deem a long-term fuel contract unnecessary or too expensive. From our research, we have identified a number of companies that could be deemed bankable, but none are currently in Southeast Asia. Therefore, Asian buyers looking for bankable supply may need to source wood pellets from North America, where there are creditworthy, large-scale producers with a reliable track record. That trend is already evident in the high interest that Japan has shown in western Canada. But at the point where all affordable supply in Canada is utilized, the Japanese will start to look elsewhere in North America. The U.S. South is an obvious choice, given its 8 MT of installed, industrial-grade nameplate capacity. Already, U.S. wood pellet producer Enviva has secured contracts with Japanese buy-

ers. However, challenging logistics and high transport costs will be a barrier to producers in the U.S. South wanting to export to Asia, and how well those challenges can be overcome will influence how much supply can be secured. Meanwhile, some South Korean IPPs planning dedicated biomass power plants could follow a similar train of thought to their Japanese counterparties. However, it is unlikely the five South Korean gencos will change their purchasing habits. They cofire wood pellets at low rates (3 to 5 percent) at a few of their coal-fired stations, and are obligated to purchase via a tender system. This system has favored low-cost supply, with no importance put on security or quality, and has helped establish the SE Asian supply market, specifically Vietnam’s dominance in the region. Vietnam accounted for 62 percent of South Korea’s imports in 2017, sending over 1.5 MT. Another factor likely to encourage demand for wood pellets is the high level of competition for biomass supply in SE Asia. From our experience in the pulp and paper industry, it is clear that wood chip supply is under pressure in the region, and although there are abundant resources of PKS, trans-

portation limitations and its current use by palm oil mills will severely limit exports. There will be a role for SE Asian wood pellet suppliers, too, especially once a more liquid spot market emerges in the region, though that is not to say long-term contracts will not be signed with SE Asian suppliers. In the near-term, however, as the large pipeline of Asian projects work toward securing financing, we predict more contracts will be signed with North American suppliers. Time will show whether suppliers in SE Asia are able to demonstrate sufficient creditworthiness to increase their contracted supply volumes. For a more detailed analysis of the Asian Pacific market, including demand forecasts, in-depth analysis of feedstock resources (including pellets, chips and PKS), biomass supply costs and paying capabilities, contact Hawkins Wright to learn more about our new report. Author: Rachael Levinson Biomass Research Manager, Hawkins Wright Ltd. rachael@hawkinswright.com www.hawkinswright.com

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