Pellet Mill Magazine - May/June 2016 by BBI International

MAY/JUNE 2016

Road to Sustainability Westervelt Renewable Energy attains certified producer status under Sustainable Biomass Partnership Page 20

Plus: Wood Fiber Review Page 14

AND:

Pellet Project Advice

Page 24

www.biomassmagazine.com/pellets

July 24-26, 2016 The Omni Grove Park Inn Asheville, North Carolina

• Educational Sessions • Industry Exhibits • Networking Opportunities

Visit www.pelletheat.org/pfi-annual-conference for more information Key Topics: • Enhancing Pellet Operations • Preparing for OSHA Inspections • Exporting Pellets • Policies & Regulations Impacting the Industry • Pellet Fuel Standards

Who should attend: • Pellet Fuel Manufacturers • Industry Suppliers • Equipment Manufacturers • Pellet Buyers from International Markets • Retailers and Distributors • Federal, state, and local government biomass experts • Anyone interested in learning more about the densified biomass industry

For more information, contact PFI at office@pelletheat.org. The Pellet Fuels Institute, located in Seattle, Washington, is a North American trade association promoting energy independence through the efficient use of clean, renewable, densified biomass fuel. For more information, contact the Pellet Fuels Institute at (703) 522-6778 or visit www.pelletheat.org.

Contents »

Pellet Mill Magazine

Advertiser Index

MAY/JUNE 2016 | VOLUME 6 | ISSUE 3

19 Andritz Feed & Biofuel A/S 28 Astec, Inc. 5 BBI Project Development 13 Biomass Magazine Webinar Series 12 Bliss Industries, Inc. 10 CPM Global Biomass Group 18 Evergreen Engineering 9 Industrial Bulk Lubricants (a Dansons company) 27 International Biomass Conference & Expo 2 Pellet Fuels Institute 8 PRODESA 11 RUF Briquetting Systems 16 Trinity Packaging Corporation 22 Vecoplan LLC

MARKET

Feedstock: The Single, Biggest Contributor

Decreased pellet consumption has led to stockpiled fiber inventory and price changes throughout the supply chain. By Katie Fletcher

20 SUSTAINABILITY The Cost of Doing Business

The Sustainable Biomass Partnership is busy at work, with U.S. pellet producer Westervelt Renewable Energy checked off its list of producers to certify. By Ron Kotrba

CONTRIBUTION

24 PROJECT PRACTICALITY Feedstock and Supply Chain Sustainability

Bigger isn’t always better, especially with the bankability and sustainability of pellet projects. By Stan Kinsman

04 EDITOR’S NOTE

More Art Than Science By Tim Portz

05 INDUSTRY EVENTS 06 HEATING MATTERS

Coming to Terms With Sustainability By Charlie Niebling

ON THE COVER

SBP-CERTIFIED: In September, Westervelt Renewable Energy achieved Sustainable Biomass Partnership certification to ensure the sustainable sourcing of its fiber, typically within a 90-mile radius of the pellet mill in Aliceville, Alabama. PHOTO: THE WESTERVELT COMPANY

07 MARKET OUTLOOK Change the Game By Michele Rebiere

08 BUSINESS BRIEFS 10 NEWS 26 MARKETPLACE MAY/JUNE 2016 | PELLET MILL MAGAZINE 3

« Editor's Note

More Art Than Science Inbound feedstock is the lifeblood of a pellet mill. It is also a plant’s single, largest annual expenditure. A pellet mill’s financial success hinges on its ability to effectively source, receive and handle the requisite amount of raw materials in a costeffective manner. Moreover, the pellet industry has emerged as a vital component in the broader forest products sector, generating real value for sawmill residuals and precommercial thinnings, which, in some instances, are seeing their historical buyers vanish as pulp and paper production diminishes and moves offshore or more recently Tim Portz VICE PRESIDENT OF CONTENT & as biomass facilities in their markets idle, unable to EXECUTIVE EDITOR compete with ultra-low fossil fuel derived power. tportz@bbiinternational.com This issue of Pellet Mill Magazine looks closely at the industry’s relationship with feedstock, the market dynamics currently impacting both feedstock buyers and sellers, and the simultaneous requirements the industry is facing to assure foreign buyers that its feedstock program is not only sustainable but documented in such a way that robust carbon calculations can be made if required by the end user. Each story in this issue aligns with, and explores in greater depth, some feedstock themes that continue to emerge from our discussions with producers. Ron Kotrba’s page-20 story, “The Cost of Doing Business,” is one we’ve been looking forward to writing since Westervelt Renewable Energy announced at last year’s Exporting Pellets Conference that it had achieved certification under the Sustainable Biomass Partnership program, making Westervelt the first U.S.-based producer to do so. Kotrba discovered that certification is a well-understood and institutionalized discipline at Westervelt, making SBP certification a logical progression in its business model. Westervelt’s willingness to readily engage with certification is to be applauded, but Kotrba’s story makes it clear that there are very real costs associated with certification that for now net Westervelt only market access, not a marketplace premium. The page-24 contribution from Stan Kinsman, CEO of Biotech Energy, challenges the assertion that bigger is better in industrial pellet production. While building 500,000-ton pellet production facilities certainly leverages economies of scale, Kinsman argues that they introduce an inbound feedstock challenge that can be very difficult to overcome. As a result, Kinsman argues, investors are taking note and exiting projects or asking their development partners to consider smaller production facilities with more manageable feedstock requirements. Any conversation with a pellet producer will inevitably lead to a reference of the business being more of an art than a science, and this issue makes it clear that to succeed in the industry, a mastery of feedstock procurement is not an aim, it’s a requirement.

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 Voegele 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 Tiller jtiller@bbiinternational.com MARKETING & ADVERTISING MANAGER Marla DeFoe mdefoe@bbiinternational.com

Editorial Board Members

T.J. Morice, Marth Companies Stan Elliot, Pacific Coast Pellets Thomas Plaugher, Appalachian Wood Pellets Chad Schumacher, Superior Pellet Fuels Lori Hamer, Hamer Pellet Fuel 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.

Please recycle this magazine and remove inserts or samples before recycling TM

4 PELLET MILL MAGAZINE | MAY/JUNE 2016

Industry Events »

2016 International Fuel Ethanol Workshop & Expo

June 20-23, 2016 Wisconsin Center Milwaukee, Wisconsin

From its inception, the mission of the event has remained constant: The FEW delivers timely presentations with a strong focus on commercial-scale ethanol production―from quality control and yield maximization to regulatory compliance and fiscal management. The FEW is also the ethanol industry’s premier forum for unveiling new technologies and research findings. The program extensively covers cellulosic ethanol while remaining committed to optimizing existing grain ethanol operations. 866-746-8385 | www.fuelethanolworkshop.com

National Advanced Biofuels Conference & Expo

June 20-23, 2016 Wisconsin Center Milwaukee, Wisconsin

The 6th annual National Advanced Biofuels Conference & Expo will take place June 20-23, 2016, at the Wisconsin Center in Milwaukee, Wisconsin. Produced by BBI International, this national event will feature the world of advanced biofuels and biobased chemicals—technology scale-up, project finance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry. 866-746-8385 | www.advancedbiofuelsconference.com

2017 International Biomass Conference & Expo

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

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

April 10-12, 2017

Minneapolis Convention Center Minneapolis, Minnesota 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

www.BBIProjectDevelopment.com

MAY/JUNE 2016 | PELLET MILL MAGAZINE 5

« Heating Matters

Coming to Terms With Sustainability BY CHARLIE NIEBLING

Sustainability: What does that word mean to you? If you ask a hundred people, you likely will get a hundred different answers. It’s an arbitrary concept that defies objective and unambiguous definition. I’ve been thinking a lot about sustainability and what it means to America’s heating pellet industry. To me, sustainability means the ability to use finite but renewable forest and agricultural biomass resources, while continuing to enjoy healthy growth that does not diminish the future availability of these resources. Although, the word sustainability may be difficult to define, our industry has to come to terms with the concept of sustainability, and incorporate its consideration into everything we do, especially how we source our pellet feedstocks. Whether we like it or not, heating with pellet fuel exists by virtue of a social license, granted by citizens, taxpayers, policy makers, advocates and regulators. This license can be taken away. It’s clear that one thing many people care about is the sustainability of their energy resources. Whether they can define it in a way that is clear and enforceable is another matter. They know they want sustainable energy, and we had better run our businesses in a way that meets this expectation or we risk being marginalized by policy or regulation. Nowhere is this license more immediately being tested than in how our country decides to characterize the greenhouse gas implications of our fuel. While EPA’s Clean Power Plan is focused on electric generation, the implications of this regulatory juggernaut are equally profound to the heating pellet industry. Whatever EPA decides will trickle down and impact us. If our country decides to regulate carbon, and regulators deem biomass energy carbon beneficial, we will be an important and desirable contributor to a carbon-constrained economy. If regulators decide biomass energy is not carbonbeneficial, we will be on the outside looking in, while other “non-emitting” renewables flourish. I, for one, endorse the notion that if America’s forests are stable or growing, when viewed in total, then American use of wood biomass to make energy is by definition carbonbeneficial. If the wood we use is being replenished in growing, healthy forests, then we are not adding any net carbon emissions to the atmosphere. Science shows this is the case.

6 PELLET MILL MAGAZINE | MAY/JUNE 2016

But many environmental advocates insist it is a far more complicated equation than this. They are looking for rigid, prescriptive and site-specific standards that can be imposed on those who use wood to make energy fuels. As one who has been around this question for nearly three decades, I can tell you this is easier said than done. Pellet manufacturers had better be thinking proactively about where we source our wood. For the better part of the last decade, I supervised wood procurement for New England Wood Pellet’s three plants in New Hampshire and New York. Most of our feedstock then, as now, came from other wood product manufacturing residuals: sawdust, chips, shavings and grindings from lumber, flooring, cabinetry, millwork and furniture manufacturing. The carbon bean counters, regardless of ideology, pretty much view residuals favorably from a greenhouse gas standpoint. But if you use any roundwood chips direct from forest management operations, it gets more complicated. NEWP has chosen to advance the cause of sustainability by carefully selecting the contractors from whom they purchase roundwood chips, for their reputation for quality work, clean operations and careful attention to professional forestry practices. We have no interest in being associated with indiscriminate harvest operations. For us, sustainability comes down to our ability to exercise professional judgment in whom we choose to do business in meeting our feedstock needs. And, at an even more basic level, I firmly believe that simply providing a stable, well-paying market for low-quality wood resources advances the cause of sustainable forestry— more than any prescriptive regulation ever will. This may not satisfy many of the antibiomass energy advocates. It’s important that our industry discusses this challenge openly, as future growth in pellet manufacturing will rely more and more on low-grade roundwood chips derived from forestry operations. If we don’t embrace public notions of what is sustainable, we may risk losing our license to operate. Author: Charlie Niebling Consultant and Partner Innovative Natural Resource Solutions LLC 603-965-5434 niebling@inrsllc.com

Market Outlook »

Change the Game BY MICHELE REBIERE

For years, we have discussed the benefits of diversification in the pellet industry. This discussion has been met with a level of dismissal from some of the large players and embraced by others. Most large North American producers have relied on the stability of long-term export contracts to power generators. Smaller producers have focused on the premium residential market, and have been content with the predictability and solid growth. But for the first time in the industry’s brief history, both major sectors have experienced lower demand and depressed prices. It is a wake-up call for the industry. Diversification is one of the most important tools to combat this issue, despite the fact that, short-term, all sectors are impacted. But sustainability is key, as well, to ensure a robust trading market can occur. Most good traders make money in poor markets and this commodity must have similar characteristics. More than anything else, we need to develop the North American industrial market. Most North American producers (of more than 250,000 metric tons of capacity) focus on export, with the majority of the volume locked into long-term utility contracts. Yet, there has been a fairly significant volume of export product available for the spot market which, until recently, displayed an abundance of European buyers. Hawkins Wright reported a staggering drop in new low-carbon generation projects in the U.K. alone during the past few years. This drop in demand for pellets has singlehandedly changed the landscape of European export. Smaller North American producers also experienced a blow. While focused on the premium residential market, these producers have been content with the predictability and solid growth in the residential market. Yet, in the U.S., growth of pellet stoves has slowed the past few years. According to Hearth, Patio & Barbecue Association data, pellet stove sales have flatlined. By contrast, in 2008, pellet stoves were on target to overtake sales of wood stoves. Instead, growth slowed and by 2012, new sales plunged to 55 percent of the five-year trend. Though, pellet stoves will cross the 1 million units installed threshold during the next few years, the concern of slowed sales has disrupted the predictability factor most have relied upon. Although there is certainly a cross over, few producers have concerned themselves with developing an understanding of other market behaviors and the benefits of diversification. Specifically, exporters tend to think less about buying patterns of consumers, shelf appeal, credit quality and store promotional support. Conversely, residential pellet producers are aware of the challenges of export but are less knowledgeable with charterparty terms, discharge analysis and daily loading rates. Producers must have knowledge of the demand, logistics and characteristics of each market to develop a solid diversification strategy. However, even with a diversified business this year no one was immune. A combination of effects culminated in many

producers scrambling to find solutions. Rock-bottom oil prices, an unusually warm winter in North America, slower stove sales, an increase in new capacity and a lackluster export market created the perfect storm and casualties of all sizes. This did not come without warning. Industry detractors have been predicting this for years. Particularly, the dramatic increase of new pellet plants coming onstream in the U.S. to fill the once forecast 50 million tons of annual demand in Europe and other parts of the world. But other events were foreseen, such as the subsidy challenges in the U.K. and other parts of Europe and unprecedented prices in new markets such as South Korea. Just like every financial market, cycles repeat, so how do we learn from this and protect the future of our industry in North America? One of the most critical elements will be to accelerate the development of a domestic industrial market. In Canada, a success story exists in Ontario, when the province became the first jurisdiction in the world to phase out coal. Ontario Power Generation has its first full conversion (coal to pellets) generating power to the grid and the capital cost of the retrofit was low, at approximately $170 million. This month, the Wood Pellet Association of Canada hosted a cofiring workshop in Alberta, the heart of the coal country, to educate on the benefits of biomass cofiring. In the U.S., the opportunity for a prosperous industrial pellet segment is noteworthy. More than 75 percent of pulverized coal plants are 35 or more years old and could extend their economic lives by years. Biomass, specifically pellets, is one of the few renewable energy sources that doesn’t exclusively threaten the coal industry. Cofiring allows for the reduction of greenhouse gases without eliminating coal’s place in generation. In fact, for a 400 MW unit, cofiring at a 90/10 ratio will result in at least a 10 percent reduction in CO2, with only a modest increase in cost to consumers—less than 1 cent per kilowatt hour. And for the producers, a new demand of over 100,000 metric tons of pellets per year is created. In states like Kentucky, the opportunity exists to create a market that dwarfs the U.S. Northeast. Developing the support for biomass in the coal sector requires education, information and persistence. Our industry needs to embrace diversification and band together to invest in our domestic future and reduce export dependence. Although subsidies are critical for global growth of our industry, we can begin to support low-carbon generation at home. This longterm development effort of a domestic industrial market will ensure that pellet producers of all sizes can prosper. Author: Michele Rebiere President, Wood Pellet Association of Canada CFO, Viridis Energy Inc. 604-669-7831 mrebiere@viridisenergy.ca

MAY/JUNE 2016 | PELLET MILL MAGAZINE 7

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Business Briefs

PEOPLE, PRODUCTS & PARTNERSHIPS

NDC Technologies delivers equipment to Zilkha NDC Technologies has delivered an in-process Near-Infrared (NIR) moisture monitoring system to Zilkha Biomass Energy. The system solution includes the installation of multiple NDC CM710e NIR moisture gauges with HMIs and operator workstations to better control the quality of the companyâ&#x20AC;&#x2122;s Zilkha black pellet product and to improve process performance. SBP appoints CEO The Sustainable Biomass Partnership has appointed Carsten Huljus as CEO. Huljus is experienced in forest management and chain of custody certification schemes. As CEO, he will be responsible for the leadership and management of SBP, including engagement with its many stakeholders, such as biomass supply chain actors, policy makers and environmental non-governmental organizations. The current executive director, Peter Wilson, will take up the new post of standards director with Simon Armstrong continuing as technical director. UNTHA announces new shredder Austrian-based UNTHA has announced a new electric-drive shredder. The UNTHA XR shredder has been designed and engineered to increase capacity, profitability and safety levels in the wood recycling and biomass market. A slow-speed, hightorque drive allows the XR to consistently process up to 40 metric tons of wood per hour. The system significantly minimizes dust levels, which reduces the risk of fire. It is available as either a static or mobile solution. According to UNTHA, its trials have shown the XR produces fines as low as 5 percent. As a result, the shredder yields up to 20 percent more saleable biomass material per ton than other solutions, often without the need for any additional screening systems.

8 PELLET MILL MAGAZINE | MAY/JUNE 2016

Doppstadt appoints Ecoverse as exclusive distributor Doppstadt has appointed Ecoverse Industries as the exclusive distributor for all Doppstadt sales and rentals in California, Oregon, Washington, Arizona, Idaho, Montana and Hawaii. Ecoverse has worked alongside Doppstadt in the North American market for more than 13 years and has strong experience with Doppstadt products and their application across the market. In addition to supplying new machines, Ecoverse will also provide service parts and full aftermarket support for all new and existing Doppstadt customers, including technician and field training to support the complete Doppstadt product range. Director of LBNL appointed The University of California Board of Regents has approved Michael Witherell, vice chancellor for research at University of CaliWitherell fornia, Santa Barbara, as director of Lawrence Berkeley National Laboratory. Witherell is a leading physicist with a distinguished career in teaching, research and managing complex organizations. He has received numerous honors and recognitions for his scientific contributions and achievements. He is the former director of the Fermi National Accelerator Laboratory in northern Illinois and currently holds the presidential chair in physics at the University of California, Santa Barbara. AEG CoalSwith adds team member AEG CoalSwitch, the renewable energy division of Active Energy Group Plc, has appointed Dan Shaw as director of business development. Shaw has more than 25 years of experience in the mining, minerals and chemical industries. He previously served as director of new ventures and corporate development at Harsco Metals & Minerals, a division of Harsco Corp.

ACE Group launches dedicated renewable environmental policy for companies in UK, Ireland ACE Group has launched ACE Renewable Energy Environmental Protection, the first dedicated environmental policy for companies in the renewable energy industry in the U.K. and Ireland, as ACE continues to invest in its environmental risk capabilities. ACE Renewable Energy Environmental Protection covers the full spectrum of environmental risks faced by renewable energy companies, providing seamless coverage. It is available to energy producers in every renewable sector, including solar, onshore and offshore wind, tidal, hydro, waste-to-energy, biofuel and landfill gas extraction. Amec Foster Wheeler supplies dust combustion plant to Finnish utility Amec Foster Wheeler recently announced that it has been awarded a contract to supply a biomass dust combustion plant for Finnish utility company Seinäjoen Energia Oy. The plant will be operated as backup for a peak load district heating plant, increasing capacity to 120 MW thermal (MWth). Heavy fuel oil combustion will be replaced with biomass-based fuels, including wood pellets, wood briquette, bark and forest residue pellets, dried forest residues, agrofuel pellets, peat pellets and coal as a reserve fuel. Installation work was expected to begin this spring, with the plant handed over for commercial operation in December. Amec Foster Wheeler noted its work scope includes the supply of a new 90 MWth biomass pellet dust boiler with auxiliary equipment, modification of the existing oil-fired boiler to 30 MWth wood pellet firing, storage silos and handling equipment for biomass fuels, fuel gas cleaning systems, stack modifications to the boiler house, electrification, instrumentation and automation installed and commissioned.

Morbark announces acquisition Morbark LLC has been acquired by an affiliate of Stellex Capital Management. The acquisition is focused on providing growth, capital and resources to significantly expand the company in the future. Astec Industries announces pellet order Astec Industries Inc. recently announced it has received an order for the final $122.5 million of a pellet plant order for Highland Pellets, along with a related deposit on that order. The company also received the remainder of the contracted payment on the first $30 million order. Astec noted it previously announced receipt of the initial $30 million order in August 2015. The company plans to build and deliver the equipment in the additional order during 2016. BTEC appoints new executive director The board of directors of the Biomass Thermal Energy Council has appointed Jeff Serfass to take Serfass over for Joel Stronberg as BTEC’s executive director. Serfass led the organization in its formative years in 2009 and 2010 and has continued to provide guidance as BTEC’s senior advisor. 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.

MAY/JUNE 2016 | PELLET MILL MAGAZINE 9

Pellet News Japan company invests in Brazilian sugarcane pellet production Sumitomo Corp. has signed a contract to acquire up to 20 percent of Cosan Biomassa S.A., a subsidiary of Brazilbased Cosan S.A. Industria e Comercio that produces sugarcane pellets for use in power generation. Cosan Biomassa has developed a pellet fuel made from sugarcane residues, such as bagasse from the sugar mill and straw left over in the sugarcane field. The company has developed a 175,000-ton-per-year production plant, which commenced commercial production in December. Through the agreement with Sumitomo, Cosan Biomassa is expected to increase its exports to Japan and Europe, along with increased domestic sales. According to information released by the companies, the Sao Paulo state of Brazil has the potential to produce 45 million tons of sugarcane pellets per year. The venture aims to produce 2 million tons by 2025 and up to 8 million tons longer-term, subject to market growth and a satisfactory return. Sumitomo started importing biomass fuel for power generation to Japan in 2008. Its subsidiary, Summit Energy Corp., has been managing a biomass power plant and plans to build more.

SIC under medium flexibility scenario Technology

LCOE1

SIC2 average 2020-2030

WSC3

SIC as % of WSC

Onshore wind

100

10-14

110-114

9-13%

Offshore wind

132

142

Solar PV

123

135

Biomass conversion

108

-1

107

-1%

Levilized cost of electricity System integration costs 3 Whole system costs 1 2

SOURCE: NERA ECONOMIC CONSULTING AND IMPERIAL COLLEGE

Analysis: Biomass subsidies could offer significant savings in the UK In February, U.K.-based NERA Economic Consulting and Imperial College prepared an analysis for Drax Group plc that makes the case for allowing biomass conversions to compete for contracts for difference (CfD). The report finds U.K. consumers could save more than ÂŁ2 billion ($2.8 billion) if the U.K. government-planned renewable energy auctions are opened up to include a wider mix of technologies. Drax commissioned the report to examine different options for the design of future CfD auctions. NERA and Imperial College analyzed the impact of system integra-

tion costs (SICs) of renewable technologies and assessed potential policy reforms the government could consider to better reflect these costs. The report quantifies the SICs in order to arrive at estimates of the whole system costs imposed by different technologies. The report concludes that SICs are a potentially significant part of the overall costâ&#x20AC;&#x201D;some technologies can add 10 percent or more to the cost of electricityâ&#x20AC;&#x201D;and they need to be taken into account by the government in its policy decisions if it is truly to control the impact on consumer bills.

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ETI project aims to improve UK biomass logistics This spring, U.K.-based Energy Technologies Institute announced it was seeking partners for a six-month bioenergy project that aims to improve the understanding of the future of biomass logistics in the U.K. Application proposals were accepted through late April. The project develops infrastructure pathways for different bioenergy scenarios through 2050 and aims to identify key points and actions needed to support the sector through that time, particularly scenario-resilient actions without which the infrastructure required would not keep pace with bioenergy demand. The ETI noted the infrastructure pathways developed through the project will take into consideration how biomass logistics infrastructure has developed to date and will identify lessons that can be learned from the development of other relevant sectors, such as oil, coal and other commodities. Hannah Evans, bioenergy strategy analyst at ETI, said the bioenergy sector has seen significant growth in recent years and is expected to play a valuable role in meeting the U.K.’s 2050 greenhouse gas targets. “While supply has been able to keep up with demand to date, as the bioenergy sector continues to grow, further investment will need to be made to ensure sufficient quantities of biomass can be imported, stored, transported, processed and distributed to end users,” Evans said.

Pellet News »

SETTING NEW RECORDS: The Port of Tyne reported the NV Agnes delivered a record shipment of pellets in March. PHOTO: PORT OF TYNE

Port of Tyne reports record pellet shipment In March, the Port of Tyne announced it had recorded the largest cargo of wood pellets handled in a single shipment at the port. The wood pellets are destined for U.K.-based Drax Power. The MV Agnes bulk cargo vessel delivered a record 57,845 metric tons of wood pellets from Virginia to the port. At 225 meters long, the MV Agnes is the largest wood pellet vessel handled to date at the Port of Tyne. The ship was unloaded over six days. The pellets will be stored at the port and supplied to Drax on demand

C AT C H T H E

MARKET SHARE

via the port’s direct rail terminal. “The Port was the first to work in partnership with Drax in handling large volumes of wood pellets as it began to convert from coal-derived electricity generation to renewable energy in 2010,” said Steven Harrison, chief operating officer at the Port of Tyne. “The significant investments in the port’s infrastructure in recent years have enabled us to accommodate some of the world’s largest cargo ships and the MV Agnes represents a milestone in terms of our ability to handle such large cargoes on the Tyne.”

The Total U.S. Wood-Burning Appliance Market (including fireplaces, freestanding stoves, and inserts)

13% Market Share Pellet Appliances*

87% Market Share Briquette-Friendly Appliances*

YO U ’ V E B E E N M I SS I N G

Versati wood and biomass briquettes are quickly becoming Versatile a go g go-to -to biofuel for consumers all over the U.S. They are clean, clea eaan, af affordable, and can be used in any wood-burning device from from fr m fi fireplace fireplaces and stoves to fire pits. Briquettes will open doors to new markets and d growth oppo opportunities for your business, and because they can be made from materials you already process (and then some), it’s simple to get started. Plus, with substantial savings on energy, maintenance, and labor, briquettes are cheaper to make per ton than pellets! What are you waiting for? For more information call 440-779-2747 or visit www.ruf-briquetter.com and catch the market share you’ve been missing! *Source: Hearth, Patio, & Barbecue Association – based on appliance shipments from 1998-2011.

MAY/JUNE 2016 | PELLET MILL MAGAZINE 11

ÂŤ Pellet News

U.K. 2015 renewable electricity generation

EPA workshop focuses on role of biomass in the CPP

Onshore wind Offshore wind Hydro Solar PV Bioenergy (including cofiring) All renewables

In April, the U.S. EPA held a workshop on the role of biomass in the Clean Power Plan. The event featured scientific and policy experts who testified on the essential role biomass will play for many states as they design implementation plans to comply with the CPP. The Biomass Power Association spoke out following the event, commending the EPA for its efforts. â&#x20AC;&#x153;The experts invited by the EPA to testify on the potential role for biomass in the Clean Power Plan held a thoughtful, substantive discussion on biomass power,â&#x20AC;? said Bob Cleaves, president of BPA. â&#x20AC;&#x153;The EPA should be commended for its thoughtful selection of panelists who spoke on the many areas of impact surrounding biomass, including biogenic carbon, forest sustainability and public health.â&#x20AC;? The EPA was expected to post speaker presentations to its website following the event.

TWh 23.0 17.4 6.3 7.6 29.0 83.3

% change compared to 2014 +23.7 +29.9 +7.4 +86.6 27.8 +28.9

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

UK DECC: Bioenergy production reached a record 29 terawatt hours in 2015 The U.K. Department of Energy and Climate Change has released provisional energy data for 2015, reporting renewable electricity generation reached 83.3 terawatt hours (TWh) last year, up 29 percent from 2014, with bioenergy up 28 percent, reaching a record 29 TWh. Generation from plant biomass increased from 13.1 TWh in 2014 to 18.8 TWh in 2015, largely due to the full conversion of a third unit at Drax from coal to biomass. Renewable electricity capacity was at 30 GW at the end of the year, up 22 percent, or 5.4 GW, when compared to 2014. Bioenergy capacity increased by

13.8 percent last year despite the closure of Ironbridge in November. Plant biomass accounted for 2.6 GW of capacity, with anaerobic digestion (AD) at 259 MW, non-AD animal biomass at 111 MW, energy-from-waste at 896 MW, sewage sludge digestion at 216 MW, and landfill gas at 1.06 GW. Of electricity generated last year, gas accounted for 30 percent, coal accounted for 23 percent, nuclear accounted for 21 percent and renewables accounted for a record 25 percent. Bioenergy accounted for 35 percent of the renewables share.

PLANNING YOUR NEXT PROJECT? Bliss Industries has the experience combined with 21st century technologies for your size-reduction or pelleting needs. Call today! Bliss Industries, LLC is a leading manufacturer of pelleting, cooling and size reduction equipment. Founded in 1981, Bliss Industries maintains a reputation of manufacturing the most efficient, reliable and well-built equipment in the industry. Developed from a design concept proven worldwide, the range of Pioneer Pellet Mills continues to expand. Overall reliability, maximum efficiency, ease of operation and maintenance combine to provide lower operating costs to each owner. With the ability to provide a wide range of die sizes, die speeds and drive power, Bliss can more than meet your requirements for high quality at a reasonable cost. Proudly Manufactured in the USA

Impacting Industries Worldwide.

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12 PELLET MILL MAGAZINE | MAY/JUNE 2016 %/ & LQGG

Energy employment statistics Total electric power generation and fuels

1,606,066

Total electric power

666,280 Bioenergy/biomass

18,804

Total fuels

938,786 Woody biomass

18,031

SOURCE: U.S. DEPARTMENT OF ENERGY

DOE publishes energy employment report The U.S. Department of Energy has released its first annual energy employment analysis. The report focuses on how changes in Americaâ&#x20AC;&#x2122;s energy profile are affecting national employment in the nationâ&#x20AC;&#x2122;s energy sectors. An estimated 3.64 million Americans currently work in traditional energy industries, including production, transmission, distribution and storage. Of those workers, 600,000 contribute to the production of low-carbon electricity, including renewable energy, nuclear energy and low-emission natural gas.

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Regarding biobased renewables, the report indicates that the entire U.S. agriculture and forestry industry employs approximately 700,00 workers, with about 20 percent of those jobs contained within â&#x20AC;&#x153;detailedâ&#x20AC;? energy-related industry subsectors that could include businesses working directly with generation and fuel technologies. â&#x20AC;&#x153;These detailed industries include corn and sugarcane farming, used for ethanol and biodiesel production, and logging or other forestry services, which contribute to woody biomass and pellet fuel,â&#x20AC;? said the DOE in the report. â&#x20AC;&#x153;Of these industries, about 18,000 agriculture and forestry employees work to support electric power generation and fuel production.â&#x20AC;?

Pellet News Âť EPA continues work on biogenic carbon emissions framework The U.S. EPA is continuing work to finalize its draft framework for biogenic carbon emissions. This spring, the EPAâ&#x20AC;&#x2122;s chartered Scientific Advisory Board held a public meeting where it conducted a quality review of the updated draft report on the accounting framework for biogenic carbon emissions. An EPA spokesman explained the quality review is a standard process whereby the chartered SAB considers the clarity, completeness and scientific quality of draft reports developed by SAB committees and panels. During the review, the chartered SAB determines whether the draft report is ready to be transmitted to the EPA administrator. With regard to the draft report on the accounting framework for biogenic carbon emissions, the EPA spokesman said the SAB identified several issues and has requested the Biogenic Carbon Emissions Panel address those concerns and resubmit the report for another quality review by SAB. According to the EPA spokesman, several members of the SAB will work with the panel to respond to the boardâ&#x20AC;&#x2122;s discussion and comments on the draft report. The EPA is working with members to determine a schedule.

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MAY/JUNE 2016 | PELLET MILL MAGAZINE 13

« Market

FEEDSTOCK FUNDAMENTALS: The wood yard at Great Lakes Renewable Energy illustrates the critical importance of feedstock for producers. Inbound feedstock is segregated by type and species and drawn into the facility as needed. This Wisconsin-based plant handles a large number of different species to facilitate barbecue pellet production, a growing product line for the plant. PHOTO: TIM PORTZ, BBI INTERNATIONAL

FEEDSTOCK: The Single, Biggest Contributor Stockpiled inventory throughout the pellet supply chain is putting downward pressure on raw material prices—a possible advantage for some producers long-term. BY KATIE FLETCHER

14 PELLET MILL MAGAZINE | MAY/JUNE 2016

Market »

ombine a number of dependent variables, many characterized by uncertainty―diesel cost, stumpage and weather, to name a few―and you’re on your way to linking the complexities that accompany forecasting occurrences in the pellet feedstock supply chain. Price is a function of multiple market drivers. Pellet demand, in and of itself, does not drive inventory or price changes, but a combination of supply and demand factors, such as restrictions in the supply chain and weather, does. Since the beginning of the year, pellet mills and sawmills have been trying to figure out how to stop the supply infrastructure from really being hurt, and sawmills are reluctant to move pricing too much on wood supplies. “There is downward pressure right now, everyone’s feeling it,” says William Perritt, senior editor of the North American Woodfiber & Biomass Markets report with RISI Inc. After the housing crash in 2008, supply infrastructure for the logging force was decimated, leading to retirements, attrition and less efficient operations closing shop. Efficiency and market access were key during the lean times, Perritt says. Over time, equipment in the field continued to age. However, in the past 18 to 24 months, there has been reinvestment, Perritt says, and now many companies are geared up with newer forwarders, processors, skidders, etc., while the industry faces another wave of impediments. Warm weather and low fuel oil have nearly halted pellet production for the domestic heat market, some retraction in pulp and paper production has occurred and certain sawmills have closed because they can’t get rid of residual material. “Sawmilling has grown from an industry that depended on its finished products for all of its profit to getting accustomed to having a market for chips, shavings and sawdust, and a lot of them have survived on those things once they picked up in significant value after 2005-‘06, moving forward with pellets and biomass energy,” Perritt explains. “Now, they’re facing stockpiles of raw material.” Many pellet producers and pulpwood buyers have tried to stay the course on pricing, as much as they can, to not hurt the remaining suppliers in the field, Perritt believes, but there are always those who are shortsighted and may take advantage of the situation. “You don’t want to alienate suppliers or cause them to go under for fear that down the road when things turn around they could find themselves shunned from the marketplace,” Perritt says. “There is sort of a dance that is going on right now.” Across North America, this dance has taken place in quarter one of the year and has moved into quarter two, in some regions more than others, but, even by the time this is read, the situation may be subsiding in many areas. Raw material is the single, biggest contributor to densified fuel, says pellet producer T.J. Morice, vice president of marketing and operations with Wisconsin-based Marth Companies. Thus, when a number of market drivers change the value of raw material, it will impact the product that material creates. The downward pricing trend on feedstock reported during March may allow some producers to price their pellets more competitively in the future.

MAY/JUNE 2016 | PELLET MILL MAGAZINE 15

« Market

Industry Update

It’s been the tale of two heating seasons for regions consuming pellets for heat, with the tale not ending the way in which producers had hoped. Political uncertainty, both stateside and overseas, makes it hard to predict what role pellets will play for industrial power generation. Additionally, pellet prices and exchange rates have kept U.S. producers from serving European spot-heating markets. As the pellet industry grows, producers turn their attention to securing a sustainable feedstock supply chain for both an increasing export market and local heat markets that must weather cyclical upturns and downturns. The pellet industry got its start in the 70s, in part, because of the oil embargo making pellets an economically attractive fuel. Sustained low fuel prices over the next few decades kept the industry from taking off, but fuel oil started climbing in the early 2000s and with it the demand for pellet fuel. Increased fossil fuel prices over the past decade provided the foundation the pellet industry needed to grow upon. “Now, it’s a great concern because this industry is truly cyclical based upon what oil prices are doing,” says Chad Schumacher, general manager of Superior Pellet Fuels LLC. In January, oil prices hit a low of nearly $25 a barrel and home heating oil was available at $1.39 a gallon. This price point meant wood

pellets were no longer a low-cost option, and these falling commodity prices left stores and retailers with diminishing value on purchased wood pellets. Retailers are now left avoiding substantial commitments for next season or waiting on the sidelines to see what happens. Fossil fuel prices could shoot up as quickly as they went down, however, and since January crude oil has increased to nearly $44 a barrel. Weather, as another cyclical and unpredictable factor, compounds the uncertainty. Christian Bach, founder of North American Biomass, notes that it was warmer on Christmas Eve in New England than on the Fourth of July—there was a 20 percent decrease in weather heating days that has led to an oversupply in the supply chain. Inventory is stacking up, and only time will tell what the shakeout will be. If you follow weather predictions, the current El Niño (warm) is expected to continue through spring or early summer, but meanwhile the National Oceanic and Atmospheric Administration issued a La Niña (cold) watch, reporting conditions are favorable for La Niña to emerge within six months. Even though it’s hard to avoid getting caught up in the conditions here and now, one can look at the big picture and find numerous bright spots in past progress and future potential for the pellet industry. Over the past 10 years, industry as a whole has posted double-digit com-

pounded growth, with 30 million tons produced globally last year. New plants have come online and more than 8 million additional tons of pellets will be needed by 2019 for European power generation. The U.S. heating pellet industry has experienced expanded state policy support; combustion technology improvement, with pellets adequately able to serve air quality particulate matter regulations; wider acceptance of fuel standards; a maturing overall supply chain, addressing “shortages”; and healthy consolidation within the industry. But, for now, Bach identifies what is needed for this season: lower pricing from producers, lower expectations from traders and lower margins from retail sales. Actions that could help U.S. local heat markets include the passing of the Biomass Thermal Utilization Act and extending tax credits, putting biomass heating on parity with other renewables.

Wood Basket Variance

East to west, wood fiber baskets and the markets they serve vary, but when market dynamics like low fossil fuel and warm weather span nationwide, commonalities in how the regions are impacted can surface. Perhaps evidenced by the fact that producers operating in the heart of Alaska, central Wisconsin and southern New York concur when they say their raw material prices have dropped and, in some cases, dropped significantly.

Market »

MAPPING TOOL: Since January 2015, Ecostrat has been managing data collection, maintenance and updating the Wood2Energy GIS platform to assess local, regional and national woody biomass demand trends. The new database is anticipated to be launched this year. PHOTO: ECOSTRAT INC.

Duane Terwilliger, manager with InstantHeat Wood Pellets in Addison, New York, says their steady suppliers don’t necessarily like the change in prices but understand that it is important to survive this market where there are ups and downs. “We held out as long as we could on lowering the feedstock price, but finally had to make adjustments in pricing and manufacturing of pellets, because inventory levels are too high,” Terwilliger says. Schumacher’s Superior Pellet Fuels 35,000-ton-capacity plant in Fairbanks, Alaska, sources about 90 percent Spruce softwood, with some Aspen. Interior Alaska’s timber industry is small. In fact, Schumacher says, really

the only material competing for his raw material supply is the firewood market. As a producer in Alaska, Schumacher varies from his industry colleagues in that he experiences some of the highest raw material, labor and power costs in the country. The Fairbanks plant hosts an open yard for buying product in round log form from local harvesters, but in order to guarantee supply on an annual basis the company partners with a local harvesting operation that puts the raw material into log form at a landing, after which it is transported by Schumacher and his crew. “We make sure we have the material in the yard by controlling our own destiny in that aspect,” Schumacher says. By doing this,

he adds, the company can experience the direct cost of operating in the woods and transporting. Schumacher says in some situations he directly negotiates for a timber sale held by the state of Alaska, and in other cases, the logger negotiates depending on the area of the state it falls in. “That gives me an immediate understanding of the stumpage value that needs to be attributed to that raw material procurement cost,” Schumacher explains. This cost understanding presents an opportunity Superior Pellet Fuels enjoys to more effectively navigate market dynamics. “In today’s situation—when I have an absolutely full yard―the laws of supply and demand come

MAY/JUNE 2016 | PELLET MILL MAGAZINE 17

« Market Table 1

North American Wood Biomass Price Averages US (US$/green ton, del.)

1Q 2016

4Q 2015

3Q 2015

2Q 2015

1Q 2015

% change 2016/15

New England

$31

-9%

Pennsylvania/New York

$27

-10%

Lake States

$26

-13%

Oregon

$20

-5%

Washington

$19

-5%

In-woods

$23

Mill residue

$21

In-woods

$24

Mill residue

$22

$18

-10%

Northeast

Pacific Northwest

South Cental

South Atlantic

Canada (C$/green tonne, del.) Western (British Columbia)

Wood biomass includes: Sawmill residual dust, shavings, and chips; bark; screenings; whole tree chips from limbs, tops, and limited stem material; and grindings from thinnings and land clearing. SOURCE: RISI INC. MARCH 2016 NORTH AMERICAN WOODFIBER & BIOMASS MARKETS REPORT

18 PELLET MILL MAGAZINE | MAY/JUNE 2016

into play,” Schumacher says. “A decrease in the purchase price still allows loggers to bring the material to market and the lower price justifies the financial investment on my end.” Overall, the Alaskan operation has experienced a reduction of 15 percent in raw material procurement costs. Rather than reducing the price more, however, Schumacher says the facility will probably stop accepting raw material for a time, partly due to the wet seasonal breakup that will slow logging operations as well as the amount of volume in the yard. “At today’s production levels, I have three years of raw material supply sitting in my yard, and really it is too much,” Schumacher says. “I’m at risk now of seeing the integrity of that raw material deteriorate to the point where it could cost me in the long run in regards to the quality of my pellets. An increase in market demand this next heating season would solve this concern.” Producers across North America are in similar situations, and some who can produce are doing so merely to maintain supplier relationships. For producers who utilize residual material from sawmilling operations, they realize that while they may not need material from the sawmill short-term, they need to maintain long-term partnerships with their mills to guarantee future supply. Some producers, however, do not have the financial stamina to continue purchasing raw material and running their operations to sustain suppliers. Sawmills’ dependency on

their pulpwood and pellet producer customers could impact the whole timber industry. “The pellet industry is a large user of many of these byproducts, and when we can't utilize them effectively, as many have come to rely on cost, everybody panics,” Morice says. “In some cases, they may have limited additional markets or nowhere else to go with the byproducts so you could potentially shut down certain mills.” Morice adds that many mills employ a high number of people and when all of a sudden they go from making $20 to $40 a ton on their byproduct to having to spend money to dispose of it, that's a financial game changer. Pulp and paper mill closures also factor into wood price. William Strauss, CEO of FutureMetrics, says, “In Maine, where I live, we’ve had five pulp mill closures in the past two years, so that’s a huge loss of demand from pulpwood.” He adds that “over 2 million green tons per year of pulpwood demand has evaporated from the market, so wood prices have dropped dramatically.” Strauss says this is actually good for pellet producers because the cost of making a pellet has also dropped dramatically. Wood prices in Maine for residuals in March, according to Strauss, were down $5 to $10 per ton, which translates into roughly $10 to $20 lower cost of materials per ton of pellets (assuming about 2-1 green wood to pellets ratio). The pulp and paper industry in Maine

Market » Table 2

North American Pellet Grade Wood Prices 1Q 2016

4Q 2015

3Q 2015

2Q 2015

1Q 2015

% change 2016/15 0%

US softwood (US$/green ton, del.) South Atlantic

$33

South Central

$33

Northeast

$35

-8%

Pacific Northwest

$22

-8%

South Atlantic

$31

South Central

$30

Northeast

$40

-15%

Lake States

$35r

-8%

$39

-9%

US hardwood

Canada (C$/odmt, FOB sawmill) British Columbia, softwood

Average prices for clean sawmill residuals (including chips, shavings, and dust) of a grade typically used in the manufacture of pellets and pulp. Does not include hog fuel material. odmt = dry metric ton SOURCE: RISI INC. MARCH 2016 NORTH AMERICAN WOODFIBER & BIOMASS MARKETS REPORT

has experienced a long, steady decline and it’s more recently that there’s been a pretty heavy decline in wood demand, plummeting prices, Strauss says. He predicts that if heating oil stays below $2 per ton, producers will lower their current prices (around $190 to $250 per ton, depending on region) by at least $10 to $20 per ton to make pellets more competitive with heating oil. At the end of March, Strauss reported Maine heating oil was $1.45 per gallon. At the current pricing, he says, heating oil would have to climb to $2.05 per gallon for the two fuels to be at parity.

Price Point

As feedstock is the single, largest expense that any plant has, Morice says, if that goes down, by rights the end product should go down. Schumacher believes the raw material price doesn’t really help anyone today, but it enables the industry to be in a much better position in the foreseeable future. “Everything about having a lot of raw material and cheaper raw material coming into the yard is an economic advantage,” he says. “It’s a large risk because it’s a financial commitment, but it’s a huge advantage for that pellet producer to improve their efficiency, improve their raw material consumption and decrease the cost of that raw material supply.” According to RISI’s March North American Woodfiber & Biomass Markets report, nearly every region, with the exception of the South Central and South Atlantic regions, experienced a decline in the average price of wood biomass per delivered green

ton from quarter one 2015 to 2016 (Table 1). Overall, there was also a decline or little change in U.S. softwood and hardwood pellet grade prices from quarter one of last year to this year (Table 2). Different market dynamics exist in the South, with some pellet producers shipping contracted cargoes of pellets to the growing European export market as just one of the reasons it hasn’t been experiencing quite the same pricing trends in its wood fiber and biomass markets. Nevertheless, increased inventory levels throughout the supply chain have put downward pressure on pricing in many regions. As raw material is the single, biggest contributor to pellet price, looking long-term, the decrease in raw material procurement cost could provide the opportunity for producers to make their pellets more cost-competitive. As for the current status of the industry, Morice believes what producers are going through is an anomaly, but will not quickly leave all areas either. “I think many areas will be feeling this for 12 to 24 months,” he says. “The effects of overinventoried and overvalued product with the recent warm winter underuse will take time to filter through. In many areas, the weighted average cost that a plant will have to go through in order to alleviate their overages is going to take time, especially in light of where fossil fuel prices are likely to be for some time.” Author: Katie Fletcher Associate Editor, Pellet Mill Magazine 701-738-4920 kfletcher@bbiinternational.com

MAY/JUNE 2016 | PELLET MILL MAGAZINE 19

TRAILBLAZER: Westervelt Renewable Energy LLC, a large pellet mill in Alabama owned by The Westervelt Company, a land resource organization, became the first U.S. pellet producer to achieve certification by the Sustainable Biomass Partnership in September. PHOTO: THE WESTERVELT COMPANY

The Cost of L Doing Business As the Sustainable Biomass Partnership gains momentum, the first U.S. pellet producer to achieve accreditation shares its journey to this status. BY RON KOTRBA

20 PELLET MILL MAGAZINE | MAY/JUNE 2016

ast September, Westervelt Renewable Energy LLC, a 300,000-tonplus wood pellet facility located in Aliceville, Alabama, became the first U.S. pellet producer to achieve certification from the Sustainable Biomass Partnership. SBP certification is a relatively new scheme to demonstrate legal, sustainable biomass sourcing. The organization was created in 2013 to further the work of the former Initiative of Wood Pellet Buyers and its development of a standard biomass trading agreement focusing on pellet specifications, trading terms and sustainability criteria. â&#x20AC;&#x153;There is currently no agreed definition of sustainability amongst the EU member states,â&#x20AC;? says Melanie Wedgbury, the SBP com-

Sustainability »

munications and information officer. “Some member states, such as Belgium, Denmark, the Netherlands and the U.K. have, or are developing, their own sustainability criteria and regulations.” Wedgbury says an effective mechanism is needed to enable producers and users of woody biomass for energy production to demonstrate compliance with regulatory requirements, including sustainability. The SBP Framework provides such a tool. “There is also a focus on carbon reduction and effectively demonstrating that through carbon accounting,” Wedgbury says. “The SBP Framework also enables the collection and communication of such data.” Westervelt Renewable Energy began operations in 2013 as SBP was getting its start. The Alabama pellet mill, which uses roundwood thinnings and residual chips as feedstock, is owned by The Westervelt Company, a land resource organization founded in 1884 committed to sustainable forestry practices, says Alicia Cramer, president of Westervelt Renewable Energy and parent company vice president of business development. The mill stores finished pellets in on-site silos and its location on the Tombigbee River provides direct access for barge shipment to the Port of Mobile and destination markets in Europe. The parent organization operates in multiple arenas and industries including timber and natural resources, Southern Yellow Pine lumber, ecological services and renewable energy. Westervelt sought SBP certification, according to Cramer, because of its customers’ mandate to demonstrate to regulators the legality and sustainability of feedstock at all points in the supply chain, from forest to combustion. “SBP is a defined pathway to achieving this objective,” Cramer says. “SBP certification ensures a level playing field across the producer market and allows for greater product fungibility,” meaning product interchangeability regardless of the country in which it’s used.

Program Protocol

SBP fully recognizes the credibility of existing, proven forest certification programs such as the Forest Stewardship Council, the Programme for Endorsement of Forest Certification, the Sustainable Forest Initiative and the American Tree Farm System, and Wedgbury says SBP does not intend to compete with or replicate

them. “There is, however, limited uptake of certification in some key forest source areas or wood baskets,” she says, “and the schemes themselves do not yet cover all the key regulatory requirements faced by users of woody biomass for energy production. Therefore, SBP has developed standards and a certification system, the SBP Framework, to overcome these challenges and address the gaps.” Six standards make up the SBP requirements. For the biomass to be SBP-compliant, all standards must be met and processes followed, Wedgbury says. The six standards are 1) Feedstock Compliance Standard; 2) Verification of SBP-compliant Feedstock; 3) Certification Systems/Requirements for Certification Bodies; 4) Chain of Custody; 5) Collection and Communication of Data; and 6) Energy and Carbon Balance Calculation. Wedgbury says biomass producers are assessed against Standards 1, 2, 4 and 5, and biomass traders are assessed against Standards 4 and 5. “Under the SBP Framework, the biomass producer is the first point of certification,” Wedgbury says. An example of a biomass producer would be a pellet mill such as Westervelt Renewable Energy. “They are assessed for compliance with the SBP requirements, specifically that the feedstock it uses is compliant with SBP requirements—essentially that it is sourced both legally and sustainably,” Wedgbury says. The assessment must be carried out by an independent third-party certification body. FSC- or PEFC-certified feedstock, including feedstock with a certification claim from FSC- or PEFCapproved schemes, is automatically SBP-compliant. All other feedstock must be evaluated. Standard 1 is what the feedstock is evaluated against and Standard 2 defines how the evaluation of feedstock should be conducted. Producers demonstrating compliance receive a certificate and can make the claim that the biomass it produces is SBP-compliant. The feedstock supply base evaluation is a risk-based approach. The biomass producer must carry out a risk assessment to identify the risk of compliance with each indicator detailed in Standard 1. Each indicator is scored as either a low or specified risk. For specified risks, the producer is required to install measures to mitigate risks to deem them low. The mitigation measures

must also be monitored. During risk assessment, the producer must consult with stakeholders and provide a public summary for transparency. Biomass users (e.g., power plants) have to show legal and sustainability credentials of the material to comply with regulatory requirements. Wedgbury says under the SBP Framework, biomass users will be able to provide evidence that the biomass is sustainable by linking back to the feedstock harvested and including information related to each step of the supply chain, from origin through trade, transport and processing. Wedgbury says once the producer demonstrates feedstock origin, then they and each element in the supply chain—including trade, transport and processing—requires chain-ofcustody certification by independent third-party certification bodies, if those organizations or their customers take legal ownership of the product and wish to make SBP claims about their product. Standard 4 details the systems required and establishes limits to how feedstock and biomass may be mixed. “In order to meet the growing need for various greenhouse gas and profiling data demanded by the regulatory requirements of certain EU member states, SBP defines the requirements and options for collecting data that must accompany SBP-compliant biomass,” she says. “Again, as with the chain of custody information, all parties that take legal ownership of the biomass and wish to sell the biomass as SBP-compliant with certified greenhouse gas and profiling data must obtain certification by an independent third-party certification body.” Standard 5 specifies how required data are to be collected and transmitted along the supply chain. Standard 6 allows for the certification of the energy and carbon balance calculation. Wedgbury adds that certification bodies provide third-party independent assurance that the SBP Framework is adhered to, providing confidence in the legal and sustainable sourcing of woody biomass.

Westervelt’s Perspective

Currently 16 biomass producers, three of which are located in the U.S., and two biomass traders hold SBP certification, Wedgbury says. With Westervelt being the first U.S. pellet producer, and among the first globally, to achieve SBP certification in this relatively new, evolving

MAY/JUNE 2016 | PELLET MILL MAGAZINE 21

ÂŤ Sustainability

schemeâ&#x20AC;&#x201D;one that was certainly in development as Westervelt sought certificationâ&#x20AC;&#x201D;the process was not as streamlined or efficient as it is now. â&#x20AC;&#x153;A pellet producer starting down the path today will 0DJD]LQHfind this to be a smoother and relatively quicker ODQG &journey than it was for us,â&#x20AC;? says Mike Williams, project director for The Westervelt Company. â&#x20AC;&#x153;For our company, this was a multiyear process that began with a small group of U.S. Industrial Pellet Association producer and landowner members, along with producers from other

countries, meeting with SBPâ&#x20AC;&#x2122;s Assurance Framework Development Group as they developed the initial draft standard. What followed was a series of workshops that allowed for a detailed information exchange, which ultimately led to the standard we have today. This was very important because we were able to accurately portray the reality of the U.S. forest sector and dispel the myth that it is unregulated and without oversight of any type.â&#x20AC;? The formal certification process began in

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(336) 891-0858 â&#x20AC;˘ vecoplanllc.com 22 PELLET MILL MAGAZINE | MAY/JUNE 2016

late 2014 with a readiness review conducted by a certification body to ensure Westervelt was prepared to proceed with a formal audit. â&#x20AC;&#x153;This was particularly important because the standard was new to Westervelt, the certification body, and to SBP,â&#x20AC;? Williams says, adding that SBPâ&#x20AC;&#x2122;s technical director participated in the audit along with a third-party consultant engaged by the certification body to monitor their work. â&#x20AC;&#x153;Our certification body, NSF International, was selected because of its extensive knowledge of our companyâ&#x20AC;&#x2122;s forest and sustainability practices, of forest sustainability and certification systems in general, and its commitment to take on this new standard,â&#x20AC;? Williams says. â&#x20AC;&#x153;Although NSF is very familiar with our company, it approached this as if no prior audits had been conducted and required that everything be verifiedâ&#x20AC;&#x201D;it was not simply a matter of pointing to an existing certification to avoid harvest site visits or other key audit requirements. It was very thorough.â&#x20AC;? He adds that the comprehensive approach met Westerveltâ&#x20AC;&#x2122;s desire to deliver a robust, objective and defensible audit process. Gaps identified during the readiness review were resolved and the base audit was conducted in late February 2015, followed by the greenhouse gas verification in April 2015. Once approved by the certification body, it was submitted to SBP for technical review and certification was complete by September 2015. Williams says because Westervelt is first and foremost a land ownerâ&#x20AC;&#x201D;pellets is not its primary businessâ&#x20AC;&#x201D;the companyâ&#x20AC;&#x2122;s sustainability practices were already well-established. â&#x20AC;&#x153;They form the underlying foundation and evidence required to satisfy a majority of SBP Framework requirements,â&#x20AC;? he says. â&#x20AC;&#x153;This is one reason we were comfortable taking an early step toward certification.â&#x20AC;? Having been audited to several forestry and chain of custody certifications over more than a 10-year period, Williams says Westervelt was confident at the outset that its practices were comprehensive and robust. â&#x20AC;&#x153;We were pleased to have this validated through the SBP audit process,â&#x20AC;? he says. However, because of specific European country reporting requirements, it was necessary in some cases to be more granular in its collection and reporting of data, Williams says.

NEW GROWTH: The Westervelt Company manages 17 acres of 2.5 generation improved loblolly pine seed orchard. The orchard will provide enough seed to meet its annual reforestation needs. PHOTO: THE WESTERVELT COMPANY

“Fortunately, these were relatively minor changes to our systems,” he explains. “We also reinforced the focus on areas where the potential for land use change exists and in areas of high conservation value when conducting logger training.” Prior to SBP certification, Westervelt’s company-owned forests were already certified to both SFI and FSC standards, and it holds PEFC, SFI and FSC chain-of-custody certifications. In addition to SBP Framework certification, Westervelt is also certified to the Green Gold Label chain-of-custody and processing standard. Because SBP builds on existing sustainability practices, many of the resources needed were already in place at Westervelt, so Williams says it was unnecessary to hire additional, dedicated personnel for the new certification process. For a couple of reasons, however, the company did hire a third-party consultant for development of the supply-base evaluation and risk assessment. “First, the task was very time-consuming and detailed,” he says, “and second, we felt a third-party assessment would add credibility.” Williams notes that it’s also important to keep in mind that standards revisions and maintenance of greenhouse gas data is an ongoing activity that must be managed. Costs to gain SBP certification will vary depending on a producer’s existing certifications and practices. “In our situation, we are able to

integrate the SBP certification audit into our regular audit cycle, which increases the amount of man-days required but does not result in a separate audit,” Williams says. “Essentially, the certification body is qualified to audit to multiple standards when reviewing records, visiting harvest sites and so forth. SBP is not free, but it will hopefully become an incremental cost for us.” Full certification audits occur every five years and are more costly than the surveillance audits that occur during interim years, Williams says. In addition, SBP recently announced a schedule implementing new fees related to report review and applications, which certifying bodies will most likely seek to recover from producers. The new fees, effective this October, also impact pellet producers directly via a per-ton fee of €0.15 (17 cents) for all biomass supplied with an SBP claim. Come April 2017, biomass producers supplying wood chips with an SBP claim will be assessed a per-ton fee of €0.08. Nonproducers holding a chain of custody certificate from SBP, such as traders, pay an annual fixed fee of up to €25,000 a year. Micro entities supplying less than 100,000 tons pay nothing, and entities supplying between 100,000 and 249,999 tons are assessed an annual fixed fee of €10,000. The most challenging aspect of the overall process for Westervelt, according to Williams, was prior to approval of the standard itself and dates back to the producer meetings with

AFDG. “Many European regulators are only familiar with FSC and do not have an in-depth understanding of SFI and ATFS certifications,” he says. “The concept of multiple small forest landowners and their ability or willingness to pursue certification continues to be an issue. We hope to make further progress on this as the standard evolves.” While Westervelt encountered no major barriers to success in SBP certification, Williams says from his perspective it’s always beneficial to objectively review findings to determine what can be learned, and how processes can be further improved. Wedgbury says SBP accepts all constructive criticism and the program is developing “at an extraordinarily fast pace”—faster than any other scheme on the market. Ultimately, Williams says the company hopes to achieve three key outcomes from SBP certification: Elimination of multiple utility audits, acceptance of common standards by European regulators, and increased product fungibility. “In this business, proving sustainability is part of the cost of doing business and is not something that is going to lead to a premium price,” he says. Author: Ron Kotrba Senior Editor, Pellet Mill Magazine 218-745-8347 rkotrba@bbiinternational.com

MAY/JUNE 2016 | PELLET MILL MAGAZINE 23

ÂŤ Project Practicality

PHOTO: BIOTECH ENERGY INC.

Feedstock and Supply Chain Sustainability Sustainability factors weigh heavily on biomass projects, in development or in operation, and some have led seasoned investors and operators to cease operations. BY STAN KINSMAN

cological and economic sustainability issues have, and will continue to have, widespread effects on biomass market dy-

namics. A range of issues concerning sustainability, and the concept of sustainability,

has ecological and economic dimensions. For example, there is the issue of the quality and reliability of feedstock supply. Feedstock sustainability generally looks at sustainable forestry practices as they relate to regrowth for reharvesting. Although this now is better controlled through legislation

regulating the permitting for harvesting in some jurisdictions, a lot of work remains to ensure adequate fiber supply in the future. The industry produces millions of tons of suitable fiber annually that is never recovered for the biomass market, but rather left on the forest floor to rot, mainly due

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).

24 PELLET MILL MAGAZINE | MAY/JUNE 2016

Project Practicality »

to the lack of manufacturing and transportation infrastructure in close proximity to the fiber. Then again, there is the ecological concern of how much forest residue can be harvested and how much should be left on the forest floor as part of the nutrient cycle. Feedstock supply largely is driven by the quantity of biomass in the wood basket from which it is harvested, the harvesting methods and the transportation distance to the end-user markets. All these factors impact costs for wood chips and pellets, and the ability to obtain additional supply for large-scale plants. Supply chain sustainability also is predicated on these same factors. With feedstock supply, however, there are only so many wood baskets, and they are finite in size. The primary difference between feedstock supply and supply chain sustainability is that feedstock supply relates only to the front-end supply. Sustainability in the supply chain relates to the entire value chain, from the feedstock supply to the sales contracts and end users. Supply and demand changes in the marketplace can impact profitability for pellet producers, which leads investors to be more cautious in investing in new pellet facilities, and causing other investors to pull out completely leaving the developers with undeveloped projects. The markets have experienced dynamic changes the past few years in supply and demand. There has been both feast and famine in the markets; high demand for product with little ability to supply the demand to surplus materials, and product in the market leaving many producers running at a fraction of their manufacturing capacity. One of the primary reasons for this is the development of large (350,000- to 500,000-ton-per-year) plants being built to capture the larger offtake agreements, which are slow to be realized, if at all. Bankability of projects sometimes is an afterthought to some degree for developers. Many project developers seek to capture contracts for both the supply of fiber and the offtake for product. In some cases, millions of dollars are invested in seed

capital to acquire these contracts and the procurement of land purchases or leases, design and engineering services, planning and permitting, etc., before the funding is approved. The biomass industry is not alone with this mindset as it relates to developing projects. There is a new way of thinking for project development that begins with the end—financial viability and funding first. This is not only confusing, but goes against everything almost everyone understands about project funding—bigger is better, contracts in hand mean bankability, put all the pieces together and it will get funded. The exception for this rule are the large companies that have the financial track record and capabilities to develop the projects and negotiate the large offtake contracts. The due diligence demanded by investors and banks today scrutinize every aspect of a proposed project that not only looks at the supply and offtake agreements, but also at the agreements and contracts of the entities with which the project developer has agreements and their financial capability to financially back their contractual obligations. Sustainability, as it relates to both feedstock and supply chain, is governed by the financial constraints placed on projects by investors, which have a much lower tolerance for risk than we would like to believe. When we talk about sustainability we think of longevity. Bigger isn’t always better. The most sustainable projects are those that are smaller, near the supply and demand, which means boatloads of pellets are not being shipped overseas. The biomass marketplace in North America is growing at a tremendous rate for locally sourced, premium products that are financially and ecologically sustainable. New pellet-fueled thermal energy systems are being introduced and sold at an ever-increasing rate, which will have a direct impact on the local supply for quality pellets. Although the demand for fuel required by these systems is not likely to put any im-

mediate stress on the capability to supply the demand locally, a steady growth is expected, which will not only help producers with spare manufacturing capacity fill that gap, but will see an increasing requirement for new, smaller-capacity producers positioned more locally to these markets. The white pellet market today has no shortage of product in North America. However, the cost of utilization for large bulk sales remains just beyond the financial viability of power producers, which is why few offtake contracts have been negotiated. Today, power producers are looking at hybrid pellet products that offer higher Btu content and durability to withstand environmental impacts during transportation, storage and material handling. The hybrid pellet market is quite new and suitable for larger commercial, industrial and institutional customers to fuel their biomass combined-heat-and-power systems. Projects seen as smaller, those with a capacity in the range of 100,000 to 150,000 tons per year, are actually at the largest end of the scale as it relates to sustainability, including sustainability of biomass supply and throughout the supply chain, as well as getting investors and banks onboard. Projects in this size range come with significantly lower risk because of their ability to obtain offtake agreements locally that do not require extravagant equipment and infrastructure to move the product to the end users. If there is any one piece of advice I would give prospective project developers, it would be: Large-scale projects come with a large-scale risk, from conception to production, and rarely get completed. Smallscale projects come with less risk, often making their development more bankable and sustainable. Author: Stan Kinsman CEO, Biotech Energy Inc. 1-905-449-7225 stan.kinsman@biotech-energy.com

MAY/JUNE 2016 | PELLET MILL MAGAZINE 25

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