SEPTEMBER/OCTOBER 2016
Where the RUBBER Meets the ROAD Retailers Key in Domestic Pellet Distribution Page 16
Plus: Pivotal
Offshore Port Developments Page 22
AND:
Pellet Outlook Post-UK Referendum Page 26
www.biomassmagazine.com/pellets
2770 Welborn Street Pelham, AL 35124 205-663-5330 www.processbarron.com
Bulk Materials Handling
Air & Gas Handling
hSolid Fuel Receiving, Storage, & Delivery hFuel Storage and Metering Bins hCircular & Traveling Screw Reclaimers hScrew & Drag Reclaim Systems h Fuel Screening & Hog Towers h Custom Belt, Screw, & Drag Conveyors hComplete Turnkey Systems
h Centrifugal Fans h Fan Balancing & Vibration Analysis h Dampers – Control & Isolation h Expansion Joints – Fabric & Metal h Mechanical Dust Collectors h Ductwork & Stacks h Economizers & Air Heaters h Bulk Materials Handling
Contents »
Pellet Mill Magazine
Advertiser Index
SEPTEMBER/OCTOBER 2016 | VOLUME 6 | ISSUE 5
24 Andritz Feed & Biofuel A/S 32 Astec, Inc. 30 Biomass Magazine Webinar Series 31 BBI Project Development 20 Biomass Industry Directory 19 Bliss Industries, Inc. 5 BRUKS Rockwood 29 CPM Global Biomass Group 13 EBM Manufacturing 21 Evergreen Manufacturing 15 GreCon, Inc. 18 IMALPAL Group 11 Industrial Bulk Lubricants (a Dansons company) 9 International Biomass Conference & Expo 2017 25 NDC Technologies Ltd 2 ProcessBarron 10 PRODESA 27 Tramco, Inc. 12 Trinity Packaging Corporation 14 Uzelac Industries 28 Vecoplan LLC
PHOTO: DRISCOLL PHOTOGRAPHY
FEATURES
16 PROFILE Riding the Wave
Retailers connect wood pellets to their end user, and having the right amount in stock at the right time is more of an art than a science in this variable product’s marketplace. By Ron Kotrba
22 PORTS Doubling Down
Wood pellets have generated multimillion-dollar investments at ports, including notable infrastructure at the Port of Tyne to service Drax and new capacity for the Lynemouth Power Station. By Tim Portz
DEPARTMENT 26 UNITED KINGDOM Business as Usual
Although the vote’s been cast, the U.K.’s exit won’t be final for a few years, and even with a government overhaul, climate change remains its focus. By Katie Fletcher
04 EDITOR’S NOTE
The Business End of the Supply Chain By Tim Portz
05 INDUSTRY EVENTS 06 INDUSTRY GUIDANCE
What Next for the Atlantic Pellet Market? By Hannes Lechner
07 TESTING GROUNDS
Private Labeling Provisions By Chris Wiberg
ON THE COVER
CUSTOMER CATERERS: Kevin Haley co-owns Squier Lumber & Hardware Inc. in Monson, Massachusetts, with his brother Chris, and for more than 20 years, they have taken the time to learn the dynamics of their customers’ wood pellet demands. PHOTO: DRISCOLL PHOTOGRAPHY
08 MARKET OUTLOOK
Distribution Model Cost Savings By Michele Rebiere
10 BUSINESS BRIEFS 12 NEWS 30 MARKETPLACE SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 3
« Editor's Note
The Business End of the Supply Chain For nearly three years, the team at Pellet Mill Magazine has been looking for the right story about a business that relies on wood pellet revenues to make its operation go around. I’m happy to report that we’ve finally succeeded, and Ron Kotrba’s page-16 feature on Monson, Massachusetts-based Squier Lumber tells the story. While Pellet Mill Magazine has historically trained the vast majority of its editorial gaze on Tim Portz the manufacturing and global distribution of VICE PRESIDENT OF CONTENT & wood pellets, we’re well aware that a significant EXECUTIVE EDITOR tportz@bbiinternational.com share of the wood pellets produced in North America each year are purchased by individuals to heat their homes, from places like Squier Lumber. I reached out to Chris Haley, a co-owner of Squier Lumber, to introduce our title and Kotrba, who would be conducting the interview. Haley warned me that he’d tell Kotrba exactly how things were, which was exactly what I had hoped for. I did wonder what Haley was thinking about when he offered his warning. Kotrba’s piece offers no clear land mines. Instead, it shares the story of a business that was formed a decade after the Civil War that is now working to stay relevant. Haley told Kotrba that selling pellets to his customers was an experiment with the intent of keeping customers and cash flowing in the months when home projects reached their lowest ebb. The experiment paid off and now Haley’s biggest concern is whether his business is too reliant on pellet and pellet stove revenues. Kotrba’s story puts a face on the challenges and uncertainty of selling a heating product in an era of mild winters and rock bottom heating oil prices, challenges that Haley works to manage the best he can but must ultimately, simply accept as a reality of his operation. The real gems within the story, however are the details Kotrba uncovered while talking with Haley. We’ve rarely talked with producers about branding, but Haley brought it to Kotrba’s attention, calling it an “underappreciated facet of the business.” Finally, the story does a superb job of outlining the challenges pellet retailers face after a lackluster heating season. Haley wonders aloud if it is worse to have too much product or too little. Ultimately, he decides that both are equally bad and will go forward into this year’s heating season playing the vital role of connecting producers to consumers.
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 Kelli Curran, Curran Renewable Energy Derek Nelson, Forest Business Network Subscriptions to Pellet Mill Magazine are free of charge—distributed quarterly—to Biomass Magazine subscribers.To subscribe, visit www. BiomassMagazine.com or you can send your mailing address to Pellet Mill Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-7465367. Back Issues & Reprints Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising Pellet Mill Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Pellet Mill Magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Pellet Mill Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to asimet@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.
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4 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2016
Industry Events » Heating the Midwest
October 11-13, 2016 Island Resort and Casino Harris, Michigan
This regionally focused event has become an important annual gathering for biomass heating professionals in the upper Midwest. This year’s conference begins with a tour of two biomass heating installations and Messersmith Manufacturing Inc., a biomass boiler production facility. This year’s event will also feature a two-part technical workshop offered in conjunction with the conference. www.heatingthemidwest.org
Christianson & Associates’ Biofuels Financial Conference
October 17-18, 2016 Hyatt Regency Minneapolis Minneapolis, Minnesota
Produced by Christianson & Associates and organized by BBI International, this year’s Biofuels Financial Conference is focused on the best ways to explore new options in today’s changing ethanol and biodiesel industries. By understanding risks associated with various technology and marketing initiatives, and by exploring various options for making the best use of capital and resources, we’ll learn how to create a well-managed plan for growth and change—a plan that maximizes profitability while ensuring future stability and meeting the expectations of all stakeholders. 866-746-8385 | www.biofuelsfinancialconference.com
6th Annual Exporting Pellets Conference
November 6-8, 2016
Fontainebleau Miami Beach Hotel Miami, Florida
Join us in Miami for USIPA’s 6th Annual Exporting Pellets Conference. This is the only U.S. conference sponsored by the industrial wood pellet industry for the industrial wood pellet industry. The conference provides the opportunity to network with executives and professionals from across the industry. Scheduled speakers and panelists include all major European utilities, major U.S. producers, and experts in all areas of the supply chain. 804-775-5894 | www.theusipa.org/conference
2017 International Biomass Conference & Expo
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
ÂŤ Industry Guidance
What Next for the Atlantic Pellet Market? BY HANNES LECHNER
Following expectations of optimistic growth in the European industrial pellet market in recent years, the industry mood has since cooled. Many independent pellet project developers have been left disappointed and have abandoned projects as a result, while some existing smaller producers are starting to feel the pressure. Demand development largely stalled in 2015 and 2016, with investment decisions being delayed. On the other hand, new pellet mill capacity continued and continues to come online, such as the two 450,000-metric-ton mills operated by Drax Power and the 450,000-metric-ton mill operated by The Navigator Company group. The result is a long market with a current overcapacity of about 3 million metric tons in the Atlantic market, which is expected to clear up slowly. Premium pellet markets in North America and Europe were also not strong enough to absorb significant volumes, providing little relief for industrial pellet producers. In addition, Russian producers are increasingly supplying into the European premium pellet market due to favorable exchange rate developments and potentially low input feedstock costs. Pellets from this region are reportedly also of very good quality. The insolvency of the two U.S. subsidiaries of German Pellets is the starkest sign of the challenging market situation, even though other factors may have contributed to these insolvencies. Other, mostly smaller, producers are also feeling the pressure from the current market situation, and we would not be surprised to see further consolidation in the market over the course of this year. It’s not all doom and gloom. There is some light on the horizon with the conversion of Lynemouth Power Station in Great Britain (1.6 million metric tons per annum starting in 2019), which is now under way, and MGT Power (1.3 million metric tons per annum starting in 2019) reportedly being close to securing the required third-party financing. The announced conversion of the Langerlo power station in Belgium could bring additional demand of 1.7 million metric tons per year, but timelines for this project are unclear and demand is not likely to come into the market until the end of 2018.
6 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2016
Whilst these three projects would help to bring the market back into balance again and remove the existing overcapacity, it is our understanding that the majority of these volumes are already fully contracted out to established market leaders in the wood pellet sector, some of whom have further expansion plans, limiting the opportunities for smaller producers or independent project developers. The only real game changer for the European market would be an unlocking of demand from the Dutch cofiring market, which is expected to add up to 3.2 million metric tons of demand per year. In the last SDE+ auction round, RWE and ENGIE were awarded subsidy contracts for their Amer 9 and Maasvlakte 4 plants, respectively. Whether they will actually implement their cofiring plans, however, depends on outstanding decisions regarding the general future of coal stations in the Netherlands. The Dutch government announced that they are considering plans to close all coal stations by 2020, with a decision on this topic expected before the next elections in March. The big question for U.S. suppliers is if they will be successful in increasing their market share further or if producers from other regions will be able to compete more successfully. Project developers in Russia and Brazil have the advantage of good availability to sustainable biomass resources and attractive exchange rates that allow them to offer competitive price levels. It is yet to be seen if investors will be quick to capitalize on this advantage, or if the exchange rate and other businessrelated risks are perceived as too high, deterring any future investments. In this case, U.S. suppliers and project developers may still have a good chance to successfully establish themselves in this growing industry sector. Author: Dr. Hannes Lechner Senior Principal, PĂśyry Management Consulting +44 7876 348 262 hannes.lechner@poyry.com
Testing Grounds »
Private Labeling Provisions BY CHRIS WIBERG
As part of the Pellet Fuels Institute’s Standards Program, a registration number is issued to each qualifying pellet fuel manufacturer. The registration number, along with the production facility information, is published on the PFI website, which provides a complete list of all production facilities qualified under the program. It was originally intended that only one registration number would be issued to each manufacturing facility; however, it was not anticipated that this would result in issues for retailers or distributors who sell wood pellets under their own private label. PFI’s Standards Program has recently made provisions for issuing additional registration numbers to qualified producers who are selling wood pellets to retailers or distributors who require anonymity on behalf of the producer. I will explain. … But first, let’s be clear as to what we are referring to as private labeling. Private labeling is the practice of selling your own brand of wood pellets without actually manufacturing wood pellets yourself. Essentially, the retailer or distributor purchases wood pellets from a manufacturer and has the producer package the product in the retailer’s or distributor’s own privately labeled bags. Private labeling is quite common in commerce. For example, if you purchased a Maytag clothes dryer in recent years, it may have actually been manufactured by Frigidaire. Another example is a whisky distillery in Kentucky whose product is sold by dozens of distributors under their own brands. The label simply says “Bottled by” and then the label lists the company that bottled the whisky rather than the actual distiller of the whisky. Like numerous other industries, private labeling regularly occurs with the wood pellet industry. The problem we have encountered is that if the bag of wood pellets includes the manufacturer’s PFI Standards Program quality mark, then the producer’s registration number will appear on the bag, which discloses to the customer which manufacturer actually produced the product. While in many cases this is considered acceptable and may even be preferred, in others, it is clear the retailer or distributor would prefer the producer to remain anonymous, citing issues with customers calling the production facility directly for questions or concerns regarding the product they sell. This issue was reviewed by PFI as well as by the PFI Standards Program accreditation body—the American Lumber Standards Committee—and, as a result, new provisions have been made to assure private labeling can still be private if desired by the retailer or distributor.
PFI’s new private labeling provisions are as follows. If a qualified pellet fuel manufacturer is working with a retailer or distributor who wishes to use privately labeled bags that keep the wood pellet manufacturer anonymous, then the wood pellet producer will need to contact their inspection agency to request an additional registration number to be used specifically for private labeling purposes. The inspection agency will review the request to assure that the additional registration number is used only for the designated production facility and that the pellet fuel manufacturer will maintain control of all bag printing. Once approved, the inspection agency will issue a new quality mark with the additional registration number to be used only on privately labeled bags. To assure that consumers can still have the ability to investigate the validity of private label registration numbers, PFI’s website now includes a list of all registration numbers issued by inspection agencies for private labeling purposes. These can be found on the same web page as the full list of PFI Standards Program qualified producers. If consumers do have questions or concerns regarding privately labeled product, they are encouraged to contact the retailer or distributor of the product or make use of contact information printed on the bag for the purpose of asking questions. If this is not successful in resolving problems and consumers wish to take their concern to the next level, then PFI can be contacted and the concern will be relayed to the inspection agency that issued the associated registration number. The new PFI Standards Program private labeling provisions are intended to allow for pellet commerce as it has historically been conducted, while maintaining the integrity of the program by ensuring that the audit trail is fully upheld. These new provisions also assure that privately labeled product is covered by the PFI Standards Program without requiring retailers and distributors to become qualified themselves. Essentially, qualified pellet fuel producers are held accountable for the complete trade of their product whether quality marked under their original registration number or under a registration number issued for private labeling purposes. To view a list of registration numbers currently issued for private labeling purposes, please visit the PFI website at www.pelletheat.org/qualified-production-facilities. Author: Chris Wiberg Lab Director, Timber Products Inspection/Biomass Energy Lab 218-428-3583 cwiberg@tpinspection.com
SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 7
« Market Outlook
Distribution Model Cost Savings BY MICHELE REBIERE
Over the past year, pellet producers in Europe and North America were hit by a one-two punch that few saw coming. First, an unseasonably warm winter in the major North American markets, and second, an oversupply of pellets in Europe. In the latter case, the surplus in the residential market was also weather related. However, in the industrial sector, despite warnings of a drop in forecast demand by the European power market, new production continued to come on-stream. At the end of it all, it points to an industry with significant volatility, despite the relative stability that had started to emerge. With the Argus Wood Pellet Index down over 25 percent in less than a year, export producers who are active in the spot market are faced with the daunting challenge of reducing operational costs to avoid shut downs. Yet, the largest cost components―labor, fiber and processing costs―have been carefully combed over and are unlikely to yield any substantial savings. With little to gain on the manufacturing side, attention turns to the markets in order to generate higher revenue per ton. Identifying new customers takes time, however, and will not improve a producer’s income statement in the short term. One often overlooked area of potential savings is in distribution costs, which can represent up to 20 percent of total cost. On a delivered-to-customer basis, this increases to over 35 percent. In 2015, the shipment of North American wood pellets across the ocean represented over $100 million in cost alone. Distribution costs, although strictly defined as costs associated with delivering from the production unit to end user, can include more than just shipping and storage. Particularly if we examine the various distribution models, and there are potential savings in all areas that need to be considered. In broad terms, there are three major distribution models in the pellet industry today: Direct Export: The majority of the world’s largest producers relies almost exclusively on this distribution model and is highly sensitive to freight rate fluctuations. Yet, with today’s low ocean freight costs, the unexpected demurrage, dead freight, sampling and overtime costs on loading can have an even greater relative impact on expenses. These costs need to be budgeted, negotiated and carefully managed. Domestic Direct: In North America, there is a limited number of companies in the residential market, such as Woodpellets.com LLC., that distribute direct to the consumer. However, this distribution model also encompasses the commercial sector, where some producers have built a healthy business around the sale of pellets directly to hospitals, schools and churches. Bulk delivery in trucks is becoming more common, as it is in Europe today, and by limiting the number of loadings and handlings, unexpected costs can be reduced. 8 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2016
Domestic-Tiered Distribution: The least developed logistically, and yet the most widely-used distribution model in North America, domestic-tiered distribution has the most potential cost savings. As the supply chain participants expand, as it does in this model, the downward pressure on margins increases. Broadly speaking, there are multiple transport methods (e.g. rail and truck in each delivery), discounts, commissions and even some advertising costs to be considered in this producer-to-retail-to-end-user model. One identifiable savings is the reduction of commonly used retail discounts. Discounts for pick up by customers or volume discounts can be removed for top-selling brands, for instance, and over time, can be phased out altogether. These are methods used in early stage distribution models and once eliminated, can yield savings for the retailer, which ultimately frees up some margin upstream in the supply chain. In Europe, distribution challenges come in different forms, as there is a series of smaller plants with closer proximity to customers. Yet, there are more tiers in the supply chain, including a well-developed trading network. Currently, there are over 100 ENPlus-certified traders in Europe. Some large, with a couple of examples handling over 700,000 tons per year, but many are small, regionalized players which, depending on aggregation and storage, could mean reduced distribution costs. For example, the Port of Rotterdam, which handles pellets for Germany, Italy, Belgium, Austria and other regions’ product is distributed via ship-to-ship and intermodal transfers. There are ways to emulate the European model, in time, for North America. One interesting consideration is utilizing the U.S. inland waterway system as an alternative to rail. Inland barges are already accustomed to handling weather-sensitive commodities, and according to Mid-Ship Group, a ton of pellets could travel 500 miles by barge (compared to 200 by rail or 60 by truck) per gallon of fuel. Ultimately, this could result in substantial savings for producers. And although the inland waterways are currently used primarily for export shipment of wood pellets, domestic distribution is not far away. Just as today, one of the major criteria for the selection of a pellet plant location is closeness to a port or rail siding, proximity to the inland waterway system could prove to be a major consideration. Rome was not built in a day, and just like its mature industry counterparts, the pellet industry supply chain needs to take a long-term view in building efficiencies, while seeking to find short-term cost savings in distribution. Author: Michele Rebiere CFO, Viridis Energy Inc. Former President, Wood Pellet Association of Canada 604-669-7831 mrebiere@viridisenergy.ca
SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 9
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Business Briefs
PEOPLE, PRODUCTS & PARTNERSHIPS
Evergreen Engineering celebrated the grand opening of its Atlanta office July 1. PHOTO: EVERGREEN ENGINEERING
Evergreen Engineering opens new location Eugene, Oregon-based Evergreen Engineering Inc. has opened a branch office in Atlanta, Georgia, to pursue opportunities in the southeastern U.S. The office celebrated its grand opening July 1. Energy Trust of Oregon names executive director Energy Trust of Oregon has announced its board of directors appointed Michael Colgrove as its new executive director, effective Aug. 15. Colgrove will lead Colgrove the organization in continuing to deliver the cleanest, lowestcost energy available for 1.5 million utility customers in Oregon and southwest Washington. Colgrove sucHarris ceeds Margie Harris, who is retiring after leading the organization since its inception in 2001. Colgrove joins Energy Trust after 15 years with the New York State Energy Research and Development Authority, where he was both the director of the New York City office and director of multifamily programs. Fecon announces mobile balancing systems Fecon has announced new mobile balancing systems, the FMB-100 and FMB-200. The mobile balancing systems can work on any make or model of forestry mulcher. 10 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2016
NDC Technologies introduces PrediktIR gauge NDC Technologies, a global provider of precision measurement and control solutions, has introduced its new PrediktIR gauge for the on-line moisture measurement of wood-sourced biofuel products such as woodchips, pellets and sawdust. The PrediktIR gauge meets the demands of biofuel processors looking for a basic online moisture measurement solution that is dependable, stable and accurate. The gauge is based on NDCâ&#x20AC;&#x2122;s optical filter technology. It delivers continuous biofuel moisture content information in real time, enabling operators to adjust the airflow to the furnace to optimize combustion and automatically control the drying process, without having to wait for lab sample results. PrediktIR offers long-term instrument stability and basic yet accurate moisture measurements independent of changes in ambient conditions such as lighting, temperature or humidity. This moisture gauge also provides tolerance to physical process changes, such as pass height. Biomass Systems Supply named Twinheat distributor Chico, California-based Biomass Systems Supply announced it has been named the exclusive distributor for Twinheat Biomass Boilers in the U.S. For more than 35 years, Twinheat, a Danish manufacturing company, has been developing and manufacturing biofuel burner systems and fully automatic silo systems for both industrial plants and private customers. Twinheat has more than 13,000 installations across the globe, offering systems that range from 10 to 250 kW. PFI qualifies NWP's plants into standards program The Pellet Fuels Institute recently announced the qualification of two new pellet fuels manufacturing facilities owned by Northeast Wood Products into the Pellet Fuels Institute Standards Program. The two facilities, located in Ligonier, Indiana, and Peebles, Ohio, are the 25th and 26th facilities qualified by the program; NWPâ&#x20AC;&#x2122;s facility in Jasper, Tennessee, was previously qualified.
Drax Biomass facilities earn SBP certifications The first Sustainable Biomass Partnership certificates issued by SCS Global Services, a global third-party certifier, were recently presented to Drax Biomass Inc. for its Morehouse BioEnergy pellet plant, located near Bastrop, Louisiana, and its Amite BioEnergy wood pellet manufacturing facility, located in Gloster, Mississippi. Each facility is equipped to produce up to 450,000 metric tons of wood pellets each year. The wood is Southern Yellow Pine sourced primarily from nearby privately owned working forests that have supported the regionâ&#x20AC;&#x2122;s forest-based economies for many decades. Thinnings, low-value roundwood, and harvesting residues are gathered and stored, then debarked and chipped. Woodchips are screened for size consistency, then dried and further processed into compressed pellets of uniform moisture, ash content and calorific value. The assessment by SCS included a comprehensive evaluation of each stage of the sourcing and manufacturing process, as well as an audit of Drax Biomassâ&#x20AC;&#x2122;s Baton Rouge Transit storage and shipping facility. US Endowment for Forestry updates database, mapping tool The U.S. Endowment for Forestry and Communities recently launched a revitalized wood bioenergy facility database and mapping tool. The site, www.wood2energy. org, is the most comprehensive database of its kind in North America. The site aggregates facility-level data to deliver a unique perspective of the wood bioenergy industry. With separate, clickable layers and simple symbology organizing data by facility type, size, operational status, and additional detailed information for each data point, users have the ability to plot and contextualize data from the macrolevel down to the site-level. The endowment engaged Ecostrat Inc. to develop and manage data delivery using GIS mapping technology to render the very large, complex dataset in a simple, user-friendly way. The data itself, which has been aggregated from the public domain (existing databases, industry publications, re-
ports, press releases, newsletters, etc.), will be updated on an ongoing basis by the Ecostrat data management team. Given the scale of this project and the dynamic nature of the market segments covered, anyone with information to fill gaps or fix errors is asked to support the overall effort by contacting Ecostrat with information. Government app to aid renewable energy exports The U.S. Departments of State, Commerce and Energy are inviting U.S.-based suppliers and providers of clean energy, smart grid and energy efficiency solutions to participate in an interactive directory of renewable energy and energy efficiency solutions. An interagency team representing the three departments has developed a beta version of an interactive app to serve as a mobile business directory for U.S. clean energy exports. The app highlights deployments of sustainable technologies and systems at U.S. diplomatic missions and provides potential business partners around the world with a searchable interface to find information on potential U.S. technology and service providers. The app is expected to be available in mobile app stores around Oct. 1. Target users of the app include foreign service officers and foreign commercial service officers and their energy sector stakeholders in international markets. Georgia Biomass earns qualifications Georgia Biomass, a subsidiary of RWE, has achieved qualification under the Pellet Fuels Institute Standards Program for its 750,000-metric-ton-per-year pellet plant in Waycross, Georgia. In parallel, Georgia Biomass has also successfully completed its ENplus A1 recertification audit. This makes Georgia Biomass the first industrial-scale producer in North America with both ENplus A1 and PFI quality certifications.
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.
SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 11
Pellet News Research finds likely solution for pellet-derived carbon monoxide
1 BILLION DRY TONS OF
Clarkson University researchers believe they have figured out the cause of wood pellet-derived carbon monoxide (CO), and a potential solution. Research performed by Philip Hopke, director of the Center for Air Resources Engineering and Science at Clarkson University, and coauthor Mohammad Arifur Rahman, found that hydroxyl radicals, neutral forms of the hydroxide ion that are highly reactive, are formed as a byproduct of the autoxidation of unsaturated compounds in the wood pellet’s fiber—fatty acids and terpenes (organic compounds produced by plants). When these radicals react with hemicellulose, the research found, it results in CO generation at potentially dangerous levels when pellets are stored in confined spaces. The research concluded that if autoxidation initiation can be eliminated, CO offgassing from pellets would be substantially reduced. According to the paper, “destruction of the reactive compounds with ozone led to a suppression of CO formation, suggesting an approach to process the wood fiber that would result in low or no CO emission wood pellets.”
1.1
SUSTAINABLE BIOMASS has the potential to produce MILLION
direct jobs
85 BILLION kWh of electricity and
1,050 TRILLION
50
BILLION gallons of biofuels
Btu of thermal energy
50
400
pounds of biobased chemicals and bioproducts
tons of CO2e reductions annually
BILLION
MILLION
DOE releases update of billion-ton study The U.S. Department of Energy and Oak Ridge National Laboratory have released the 2016 Billion-Ton Report, finding the U.S. has the potential to sustainably produce at least 1 billion dry tons of nonfood biomass resources annually by 2040. These renewable resources include agricultural, forestry and algal biomass, as well as waste. They encompass the current and future potential of biomass, from currently available logging and crop residues to future available algae and dedicat-
ed energy crops—all useable for the production of biofuel, biopower and bioproducts. New to the 2016 report are novel assessments of potential biomass supplies from algae; from new energy crops, such as miscanthus, energy cane, eucalyptus; and from municipal solid waste. For the first time, the report also considers how the cost of preprocessing and transporting biomass to the biorefinery may impact feedstock availability.
Pellet News »
AURI publishes feasibility guide on biomass cooling The Agricultural Utilization Research Institute has announced the availability of a new feasibility study that shows biomass cooling can be a viable option for small-to-medium sized commercial, industrial and residential units. The study explains that increasing temperatures—particularly in the Midwest—are expected to lead to large energy cost increases due to expenditures associated with switching from heating demand to cooling demand over the next five to 25 years. While biomass cooling technologies currently exist, the study indicates they are currently deployed only on a large commercial scale. However, biomass cooling may be an attractive option for smaller-scale installations. The study notes current economic data “substantiates biomass cooling is a viable option and worth consideration, particularly if constructing a new building or retrofitting a current system where piping is in place.” The report concludes that biomass offers a competitive, and often lower-
Estimated capital costs of 30-ton cooling system Biomass boiler
$68,378
Absorption chiller
$65,000
Control system
$14,000
Cooling tower
$5,040
TOTAL
$152,418
Pipelining and installation costs
$17,3391
GRAND TOTAL
$325,890
SOURCE: AURI
cost alternative to traditional energy sources. When compared to conventional electricity, the use of wood pellets was found to result in a cost savings of $63.22 per month, with a cost savings of $64.12 per month when compared to propane. Other agricultural biomass sources, such as corn cobs, could provide similar cost savings.
UK eliminates Department of Energy and Climate Change, establishes Department of Business, Energy and Industrial Strategy Newly appointed U.K. Prime Minister Theresa May has abolished the U.K. Department of Energy and Climate Change. The functions of the department will be transferred to other government departments, including the newly formed Department of Business, Energy and Industrial Strategy, for which Greg Clark has been appointed secretary. The abolishment of the DECC is part of a larger ministerial overhaul implemented by May shortly after she was appointed to replace former Prime Minister David Cameron. Cameron officially announced his resignation July 11 and was replaced by May on July 13. He first indicated he would leave his post as prime minister immediately after the June 23 Brexit referendum, in which the U.K. voted 51.9 percent to 48.1 percent to leave the European Union.
SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 13
« Pellet News
ESTIMATED GLOBAL WOOD PELLET PRODUTION
Report highlights Russian pellet potential
(in million tons) 30 25
20 15
10 5 0 1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
WBA report shows importance of bioenergy to Europe A recent study published by the World Bioenergy Association addresses the challenges European cities are facing within global climate mitigation policy and explains the contributions biomass can offer to reduce the use of fossil fuels. Within the report, WBA discusses natural gas consumption and imports, noting natural gas was shown to have 19,600 metric tons more in CO2 emissions compared to wood pellets, both measured in the quantity of 100,000 gigawatt-hours (GWh) of primary energy. Although natural gas production is shrinking in Europe, European forests
are growing. According to WBA, 290 million cubic meters of wood could be harvested annually from forest for wood supply without decreasing the live wood volume below its replacement. With forest growth, pellet production has also grown steadily. From 2004 to 2014, global pellet production grew 21 percent annually from 4 million metric tons to 27.1 million metric tons. Main producing regions in Europe accounted for 16.2 million metric tons in 2014 and North America 8 million metric tons. In the next 15 years, global pellet production is forecast to surpass 50 million metric tons.
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A report recently filed with the USDA Foreign Agricultural Service’s Global Agricultural Information Network provided an overview of the Russian federation’s biofuels industry, including data on likely growth with wood pellet production and exports. In 2016 and 2017, Russian production of wood pellets is forecast to increase about 5 to 7 percent. In the mid-term, domestic demand is forecast to increase at 10 to 12 percent annually. In addition, EU’s growing interest in biofuels is increasing demand for wood pellets. According to the GAIN report, this will continue to be a major incentive for Russia to increase production of wood pellets. Currently, Russia is the third largest exporter of wood pellets to the EU, following the U.S. and Canada. According to Russian Customs Service, export of wood pellets from Russia in 2015 was 934,000 metric tons, an increase of more than 6 percent from 2014. The leading destination was Denmark, followed by Sweden, Germany and South Korea. Russia accounts for a 6 percent share of world wood pellet exports. Russia ranks eighth in the world for total wood pellet production, with 3 percent of total wood pellet production.
Years.
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REA: UK incentive cuts put CHP investment at risk The U.K. Department for Business, Energy and Industrial Strategy laid an amendment in Parliament to the Renewable Heat Incentive on July 7 to reduce support for biomass combined-heatand-power (CHP) systems. The changes in support are specifically targeted at biomass CHP plants that use less than 20 percent of their fuel for electricity production, with the other 80 percent being used for renewable heat. This change affects all plants applying on or after Aug. 1, which gave industry only 21 days’ notice. Neither former U.K. Department of Energy and Climate Change or the new DBEIS had formally consulted with relevant trade associations or directly with industry on this specific change prior to laying the new amendment in Parliament, surprising many in the industry and putting a number of projects at risk. The U.K. Renewable Energy Association said it surveyed 36 companies that are developing biomass CHP projects in the U.K. Of those companies, 34 had already made major equipment orders for the construction of their facilities or put down nonrefundable deposits; 25 companies have reported that the changes laid before Parliament will have a “very negative” impact on their project, with an additional eight reporting it will have a “negative” impact.
Estimated EU pellet production, supply and demand (1,000 MT) 2015 Production
2016
2017
13,500
14,000
14,500
Imports
7,172
7,500
8,000
Exports
138
180
200
Consumption
20,500
21,500
22,500
Production capacity
19,000
19,500
20,000
71%
72%
73%
Capacity use SOURCE: USDA FAS GAIN
Report features EU pellet data A report recently filed with the USDA Foreign Agriculture Service’s Global Agricultural Information Network provides an overview of the European Union’s biofuel market, including data on wood pellets. The report explains that the EU is the world’s largest wood pellet market, with approximately 20.5 million metric tons of pellets consumed in 2015. Approximately 65 percent of that volume is used for heat and 35 percent for power.
Demand is expected to increase to 22.5 million metric tons in 2017. The EU currently accounts for approximately 75 percent of the global market for wood pellets. The EU is also the world’s biggest producer of pellets, featuring approximately 50 percent of global production. When compared to North American pellet plants, however, EU plants are primarily small- or medium-sized.
SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 15
« Profile
HOMETOWN PROUD: Squier Lumber, the oldest continuously operating business in Monson, Massachusetts, has been operating at the same location for nearly 150 years and prides itself in its customer service. PHOTO: DRISCOLL PHOTOGRAPHY
EARLY ADOPTERS: Brothers Chris (left) and Kevin Haley, co-owners of the nearly 150-year-old Squier Lumber & Hardware Inc. in Monson, Massachusetts, started retailing wood pellets more than 20 years ago. PHOTO: DRISCOLL PHOTOGRAPHY
Riding the
WAVE L
ong before smartphones, the internet, television, or even motion pictures, before an airplane ever took flight or the world’s first automobile sputtered down an unpaved road, Squier Lumber & Hardware Inc. thrived in the small manufacturing town of Monson, Massachusetts. Established in 1874 on the heels of the Industrial Revolution, the business is a fixture in the southcentral Massachusetts town of 8,500 residents, proudly boasting the designation of Monson’s oldest continuously operating business. Just two families, three generations each, have owned and operated Squier Lumber in its nearly century-and-a-half-long history. In 1942, third-generation owner Robert Squier sold the business to Frank Haley. Today, the sprawling lumber and hardware store is still being run by the third generation of Haleys, co-owned by brothers Kevin and Chris.
Squier Lumber & Hardware Inc., a longtime staple in Monson, Massachusetts, and surrounding communities, more recently has evolved into one of the premier independent pellet retailers in the U.S. Northeast. BY RON KOTRBA
In its early days, Squier Lumber made a name for itself selling coal, grain and hay. The business has evolved over the years, moving into building materials, lumber, fuel oil and, more recently, wood pellets and pellet stoves. With a company as old as Squier Lumber, “recent” is a relative word though, considering it started retailing wood pellets more than 20 years ago. “Back in the day, in 1994-’95, we were basically a lumber yard, and they tend to not be as busy in the winter, spring or fall,” Chris Haley tells Pellet Mill Magazine. “So we asked ourselves, ‘What can we sell in the winter that we can stay busy with to keep productivity as high as possible?’ We had sold stoves. My father sold them in the ’70s during the oil embargo—’73 I think—and he did real well with them. But when the mid-’80s rolled around, he got out of the stove business. But the need to be as productive as possible still existed.”
16 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2016
The company’s introduction to retailing pellets began with taking a chance, as Haley recounts, by ordering a single load of Energex product retailing at $150 a ton. “I didn’t know if it’d work,” Haley says. “I remember asking my dad in ’94 what he thought of ordering wood pellets. He said, ‘You never know until you try.’ Thank God we tried. To everyone’s surprise, it sold. We weren’t making a lot of margins, but we wanted to see how this new thing called wood pellets would sell. We sold fuel oil and coal. We sold coal for 100 years. But pellets fit with what we were doing—and people started buying.” The load of Energex worked as Squier Lumber had hoped. “At that time, we were a lumber yard that also sold pellets,” Haley says. “And—it’s funny—in the ensuing 20 years, the pellet thing grew uninterrupted since then. So now, we are more of a pellet supplier that also sells lumber.”
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Today, wood pellets and pellet stoves sales represent 60 to 70 percent of Squier Lumber’s business, depending on the year. “They’re absolutely vital to our business,” Haley says. “It’s ironic. The reason we got into pellet sales was to be diversified. Here we are, 20 years later, and we are less diversified. You take opportunities as they are presented to you. There’s only so much you can make happen. If a wave is appearing beneath you, you better ride it. I thank God for that wave. It was much bigger than us, but we caught it at the right time.” Haley says in its best years the store sells more than 10,000 tons of pellets out of its single retail location in what town administrator Evan Brassard—a Squier Lumber wood pellet and lumber customer—calls the bedroom community of Monson. The town lies on the Connecticut border just 15 miles east of Springfield, 34 miles west-southwest of Worcester and 75 miles west of Boston. Squier Lumber’s customer base expands far beyond the town of Monson. It delivers upwards of 70 percent of its pellet sales, and the store owns three delivery trucks with forklifts. “Our wood pellet and pellet stove customers come from as far as Worcester in the center of the state, to almost the western edge of the state, down into Connecticut—almost to Hartford—and then north almost to the VermontNew Hampshire border,” Haley says. “We run a hardware store and a lumber yard, and for that stuff our market is smaller. But for stoves and pellets, we can attract people from farther away.” Even so, Squier Lumber is putting pellets in people’s trucks every weekend, Haley says. “We sell bags or trailer loads at a time, and everything in between.” The store carries eight to 10 brands of wood pellets, and one brand of wood pellet
APPLIANCE-LOYAL: While Squier Lumber sells various cordwood and coal stoves, the only brand of pellet stoves it sells is Harman. PHOTO: DRISCOLL PHOTOGRAPHY
stoves. “We only sell Harman pellet stoves,” Haley says. “It’s the best pellet stove out there. We had the opportunity to get in early and establish a knowledge base with that product, and we never saw the need to move on to a different brand.” He says a big Harman dealer can sell 300 pellet stoves a year while smaller ones may sell less than 20. “It all depends on strategy,” he says. “We’re a very large Harman stove dealer, not the largest by far, but sizable.” The store also sells cordwood stoves, Hitzer and Blaze King, but Haley says Squier Lumber only moves 5 to 10 percent the volume of cordwood stoves compared to pellet appliances. To get the best pricing to pass savings onto its customers, Haley says Squier Lumber buys directly from the mills when possible. “Our biggest supplier is New England Wood Pellet—it probably has been for 15 years,” he says. “Pellets is more so getting to be a low-margin commodity business. In most cases, there’s not a lot of room in the middle, and there’s really no value to be added. Fortunately, we have some experience in the lumber business, and there’s no place in the middle for people to be taking their piece of the action. In certain cases, however, the mill makes arrangements with people to do marketing and sales, and they get an exclusive. So, if I want to buy a particular brand, that’s how they distribute it and I have no choice but to buy through a distributor. But if they add value and the mill is happy, then it’s all good.” Squier Lumber’s per-ton pricing of wood pellets ranges from $219 to $359. “The interesting thing is that, before two or three years ago,
we never sold a ton for more than $300,” Haley says. “We didn’t think it’d be possible. We didn’t think customers would buy pellets that expensive. Our customer base is not extravagant, they’re not wealthy. They’re middle-income people who want to save money. We took some chances and convinced some customers to try higher-end product that performed really well. Honestly, the super-premium end has grown much more than the premium. It has less than half-a-percent ash. People just don’t want the hassle of cleaning their stove all the time. We’ve been successful in that end of the market.” While town administrator Brassard says no big box stores are located in Monson, some of Squier Lumber’s pellet customers are from cities where big box stores are prevalent. “Honestly, I feel we do a good job relative to our competition,” Haley says. “We are diversified and that allows us to be more competitive. We actually care about the business. With big box stores, it’s hard to talk with people. It’s hard to get people to pick up the phone. The stove business is a bit technical and sometimes there’s a fair amount of money to invest, so people want to talk with people—at least in this business. Even about the pellets themselves. We carry eight to 10 brands of pellets and people want to know, ‘Hey, what do you think?’ So I say, ‘Whatever you want in a pellet, we have it.’” He makes the analogy of supermarkets, which sell multiple brands of soft drinks: Coke, Pepsi, Royal Crown and others. “They sell them all because they’re not in the business of telling people what cola to drink,” Haley says. “Some want the cheapest, say RC, while some
SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 17
« Profile
like Coke and others like Pepsi. If a customer says, ‘I’m on a fixed income and I need to save money,’ they need the cheapest pellet possible so we say, ‘Here you go.’ Maybe they will need to clean their stove more often though. Others may want the cleanest pellet possible, so we say, ‘Okay, here you go, but they’re $100 more a ton, but if it’s good for you, then it’s good for me.’” He says pellet customers are very brandloyal. “When someone finally gets a pellet they like, they stay loyal for whatever reason,” he says. “Branding by the manufacturer—it’s an unappreciated facet of the business. It’s very important.” Brassard says he buys 4 tons of pellets from Squier Lumber every winter. “I buy New England Wood Pellet brand pellets,” he says. “That’s my steady brand. I picked them up from the store once, but ever since, I just have them delivered.” Brassard says he first got into pellets five years ago after he and his PALGroup_PelletMill_Set-Oct.pdf 17/08/2016 wife bought a1house with07:42:06 a large fireplace, into which they installed a Harman pellet insert. He says he buys his pellets exclusively from Squier Lumber. “They’re a great community partner
to have,” Brassard says. “They’re generous, and they help support the town,” whether it’s through Boy Scouts projects or supplying building materials for other community endeavors. “And when I need to buy lumber, I go to them,” Brassard says. “The quality of lumber is better, and they do a great job of steering you toward the best material to buy for the application. That’s the difference between them and a big box store. They take you out into the lumberyard to help you pick the best piece out of the pile, not just what’s on top. They’re good, hometown people.”
Uncertainty Ahead
Despite sustained low oil prices and mild late-year temperatures, 2015 was a good year for Squier Lumber, Haley says, “even though toward the end it got soft,” he adds. “All that stuff—warm temperatures, oil prices—it’s all coming to roost this year. But you gotta ride the wave when you can. We’ll see what’ll happen, it’s hard for us to say. The way we tend to do things is we order a fair amount of product in the spring, and we work to promote it by trying to give a break in the spring through early-buy
18 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2016
pricing.” The company sends out 5,000 postcards to its big customers in the spring, in addition to two mass mailing circulars to 25,000 people. “And then, usually in the fall, we do the same thing,” Haley says. And even though the company is nearly 150 years old, it has leveraged modern sales and marketing techniques through its website and social media, such as Facebook, where Squier Lumber reaches out to its pellet customers. “We also do some online business,” Haley says. “It’s not a big part of our business, but we have that availability. There’s no sales channel we don’t do. We do mills direct where we are the middle man. We’re here to sell stuff, so as long as we can dictate the terms, we’ll sell anything.” Even though Haley says 2016 is not shaping up to be a great year for pellet sales, the company still purchased “a fair amount of product” this past spring, as Haley puts it. “Our customers come to expect that, and it helps even out the flow of business throughout the year,” he says. “We can’t deliver all our pellets in October, so we have to incentivize in the spring.” Haley says the store would typically rely
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able doing now. The range of possible outcomes is not the same. I remember saying in the pellet yard just a couple of years ago, â&#x20AC;&#x2DC;We wonâ&#x20AC;&#x2122;t have enough for the season, and I canâ&#x20AC;&#x2122;t get any more.â&#x20AC;&#x2122; We had years like that. This year, weâ&#x20AC;&#x2122;re in August now, and while I canâ&#x20AC;&#x2122;t say whatâ&#x20AC;&#x2122;ll happen in the fall, thereâ&#x20AC;&#x2122;s nothing to indicate so far this year that August will be busy.â&#x20AC;? August is one of four to five busy months for pellet sales at Squier Lumber, along with April, May, September and October. â&#x20AC;&#x153;I CUSTOMER SERVICE: Co-owner Chris Haley (right) says whatever a customer desires in a pellet, Squier Lumber delivers. He says when keep looking at 15 years of sales a customer finds a brand of pellets they like, they stick with it. history on the computer, looking PHOTO: DRISCOLL PHOTOGRAPHY for patterns, and August is not going to be a busy month unless itâ&#x20AC;&#x2122;s on arbitrage of pricing spring to fall, and if it toward the end,â&#x20AC;? he says. â&#x20AC;&#x153;I just donâ&#x20AC;&#x2122;t see it at bought 50 to 70 percent of last yearâ&#x20AC;&#x2122;s sales in the moment. I say that with the idea that Septhe spring, he would be fairly confident there tember could be crazy busy. Even if I felt that, was not a huge risk involved. â&#x20AC;&#x153;But in the past thereâ&#x20AC;&#x2122;s nothing I can do about it because Iâ&#x20AC;&#x2122;m year to 18 months, the confidence level in this afraid to make a big purchase for fear I would industryâ&#x20AC;&#x201D;our confidenceâ&#x20AC;&#x201D;has been basically be wrong. As a retailer I have that luxury, but shattered,â&#x20AC;? he says. â&#x20AC;&#x153;What we were comfortmills donâ&#x20AC;&#x2122;t have that. The problem is the same, able doing in the past, weâ&#x20AC;&#x2122;re not so comfort-
itâ&#x20AC;&#x2122;s just at a higher level for themâ&#x20AC;&#x201D;their exposure is a lot greater than mine. Traditionally August is a very good month. I donâ&#x20AC;&#x2122;t think so this year. September might be. Usually of those five months, thereâ&#x20AC;&#x2122;s two very good months, either April or May, and in a rare year, both are good. And one of the three fall months is usually good, but I donâ&#x20AC;&#x2122;t know which.â&#x20AC;? With heightened uncertainty, Haley says sales could be down 50 percent this winter, or there could be massive shortages. â&#x20AC;&#x153;Nobody knows,â&#x20AC;? he says. â&#x20AC;&#x153;When youâ&#x20AC;&#x2122;re faced with that level of uncertainty, you have to be careful of making existential bets on where the market will be in December. Even though thereâ&#x20AC;&#x2122;s a good chance thereâ&#x20AC;&#x2122;ll be a shortage in the fall, it could also be down 50 percent. But we donâ&#x20AC;&#x2122;t want them to go bad and be in that position if thereâ&#x20AC;&#x2122;s declining sales. But the bigger problem is a lack of enthusiasm and confidence in what you thought you knew.â&#x20AC;? Thatâ&#x20AC;&#x2122;s the dilemma: does the company order hard in hopes of a good season or order soft in fear of a bad one? Which is worse, having too much product or not enough? â&#x20AC;&#x153;Both are equally bad,â&#x20AC;? Haley says. â&#x20AC;&#x153;A couple of years
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$0
« Profile
ago, we made the biggest mistake of not preordering pellets. The mills want to deal with people who support them all year long. If we said two years ago we were not going to buy in the spring but people wanted product in the fall, it would not work out so well for us. We did a ton of business because we had access to pellets. If we didn’t do that, there would have been a big opportunity cost because we would not have enough pellets to sell. We are here to sell stuff, we need to have product. If we don’t, that’s a major problem.” On the other hand, having tons of product in stock that doesn’t sell costs beaucoup dollars. “Pellets go bad,” Haley says. “You’ve six months of plastic, then it starts breaking down under the ultraviolet light, and then the pellets get damaged. We get snow, and then it melts and turns to ice, it breaks the plastic and water leaks into the pellets. It cost us $200 and when it gets wet, now it is 2 tons of wet sawdust that we have to call and get into a dumpster. That ton that went bad ends up costing us $500. So if we have too many pellets and we can’t sell them all, they go bad and then it’s really hard to sell that product to people who feel they don’t need it. You can discount steaks—people love a 10-percent discount on T-bones—but pellets don’t have a high response to discounts. You have to give them away to get rid of them, if you’re lucky. If you’re not lucky, you have to pay to get rid of them.” He says the company built a large three-sided building last year to protect pellet stock from the elements.
NEW SPACE: Squier Lumber erected a new three-sided storage building just last year to house pellet stock and to keep them out of the weather, since sunlight, moisture and ice are detrimental to their longevity. PHOTO: DRISCOLL PHOTOGRAPHY
Haley says retailing pellets has turned into more of an art than science. “We used to know how many people were bringing pellets into the Northeast, and how much, and what it means for our business,” he says. “Now pellets is such a big business, it’s impossible to know 50 percent of what’s going on. We make the best decisions on the best information we have. More and more though, the ability to make accurate decisions is more difficult because of the volatility, and we don’t have all the information we used to. It’s become too big with too many data points. Some mills are now teetering on the edge, and no one cares. It means others are less overstocked than they would have been otherwise. You can’t know anything with any certainty. No one can. Anyone who represents that they do doesn’t know what they’re talking
about, or they’re trying to manipulate you. But it’s valuable to know that you don’t know. The natural reaction is to not do anything—or not do anything that’s going to put us in jeopardy.” The uncertainty retailers like Squier Lumber face cannot be minimized, Haley says. “It’s a big challenge because we’re part of an international energy system,” he laments. “So, if the price of oil fluctuates for whatever reason—a hurricane in the Gulf, insurrection in the Middle East, a weak or strong dollar—we’re a tiny flea on the tail of that dog, so we get whipped around on the price of oil. Beyond that, as with any business, whether it’s pellets or burgers, it used to be that you had 200 things to do, and if you did 100 of them right, you’d be successful. Now, there’s 2,000 things to do and you have to do 1,700 of them right to be success-
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20 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2016
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ROOM TO GROW: In the early 1990s, the company purchased additional land that is now used to store wood pellets on. PHOTO: DRISCOLL PHOTOGRAPHY
ful. Whatever business you’re in, it’s a lot more complicated now, there’s a lot more to be cognizant of, and you just can’t screw up as much as you used to be able to. It’s so consequential to what happens to you. Those things are part and parcel of whatever business you’re in. It doesn’t get easier or simpler. It’s just the nature of the beast.” Prior to five years ago, big box stores were not that invested in pellets, Haley says. “They would put high prices on their products and they didn’t know, or care, what they were selling,” he says. “They weren’t good with their customers. Then they got religion five years ago and now they’re focused on it— and they’re pretty good at it. And they have the luxury of selling stuff below cost. Like they say about the stock market, it can stay irrational long after going bankrupt. The same is true with the big box stores. That’s the biggest thing over the past five years. The market has gotten bigger, but so has the competition. It’s not an equal playing field really. It’s rare for me to get a price concession from the mill, and we’re big. And if I do get one, I have to perform. I have to take and pay for it. When I take it in the spring, my deal is I might sell it, but I can’t say that, even though that’s what big box stores say. My deal is, when can I start shipping your 5,000 tons of product? It’s not a level playing field. If I start suggesting I can sell 50,000 tons, like them, then maybe they would treat us differently.” Haley says he would feel bad for anyone
seeking to delve into the pellet retail business today. “When we made our investments, pellets were growing by leaps and bounds,” he says. “We were optimistic and growing, and pellets were ready to take over the world. It was easy to buy a $250,000 truck and forklift in that scenario. Now, it’s a lot more difficult because a lot of the growth in the industry has already happened. It may be a while, if we ever see that again. I am privileged to have seen this business grow from nothing into something. So the stuff we benefited from doesn’t necessarily apply today. I would tell that guy to care about the business, invest in the business, but not so much that it causes him to go broke. Capital is a wonderful thing. And I would say be different than the big box stores.” Being good to customers is important, he says, but it’s also imperative to be good to suppliers. “It works in your favor,” he says. “They remember that.” Though in its best years Squier Lumber sells well over 10,000 tons of pellets, it sells “substantially less than that” in the bad years, Haley says. As far as last season goes, he says the business had some left over, “but not a whole lot,” he explains. “It wasn’t crippling, so we can deal with it without too much of a problem. What happens going forward is concerning though. But if you got a wave, ride it.” Author: Ron Kotrba Senior Editor, Pellet Mill Magazine 218-745-8347 rkotrba@bbiinternational.com
SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 21
« PORTS
STATE-OF-THE-ART STORAGE: This storage shed built at Hull, a port in the Associated British Ports family, employs a wide array of the latest fire and spark detection technologies, as well as robust carbon monoxide monitoring systems and fire suppression systems. This new £4 million ($5.3 million) facility complements the massive investments ABP has already made in pellet receiving, handling and storage infrastructure. Pictured is Craig Barbour, general manager, Humber Terminal, Associated British Ports. PHOTO: ASSOCIATED BRITISH PORTS
22 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2016
PORTS »
Doubling DOWN As Drax Power Station’s biomass metamorphosis comes of age and new conversions come online, investment and innovation in Britain’s ports maintain momentum. BY TIM PORTZ
I
n 2010, the United Kingdom imported just over a half million metric tons of wood pellets. Drax Power Station, the kingdom’s largest coal-fired power plant, had just begun burning wood pellets in one of the world’s largest decarbonization efforts ever undertaken. With virtually no domestic wood pellet industry to speak of, the country’s vast network of ports would be called upon to receive imports of wood pellets to keep an uninterrupted flow headed for Drax. Among the first ports to invest in pellet handling infrastructure was the Port of Tyne. “We spent most of 2010 getting ourselves up and running and were able to receive our first pellets in September of that year,” says Steven Harrison, chief operating officer at Port of Tyne. Those volumes were the first that stemmed from the port’s agreement with Drax, signed in November of 2009, to handle up to 1.4 million tons of wood pellets per year. Once the contract was signed, the port began work on the necessary infrastructure to receive, store and efficiently load wood pellets into waiting trains. That September, the port was ready, using existing cranes to offload pellets from a vessel into custom hoppers designed to control dust at the quay and finally into flat storage inside a covered warehouse. The system was relatively simple but effective and established the port as the country’s first real player in industrial wood pellet receiving and handling. Other ports weren’t far behind. By 2012 and 2013, ports on the country’s eastern seaboard were making their own investments as Drax sought to diversify its supply chain partners. About 150 miles south of the Port of Tyne, pellet infrastructure investments were happening at several of the ports along the Humber estuary including Hull, Immingham and Grimsby. In April of 2013, Graham Construction was awarded a contract to build the Immingham Renewable Fuels Terminal, while just inland, Spencer Group was at work building silos and a rail loading terminal that would allow Hull to handle nearly 1 million tons of pellets per year. The year of 2014 saw pellet imports to the United Kingdom swell to nearly
SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 23
« PORTS
MAKING ROOM: Concrete piles were driven into the Tyne riverbed to allow for a 125-meter suspended quay extension (visible in the left-hand portion of the photo). This extension allowed for the port to have four vessels berth at the quay simultaneously. PHOTO: PORT OF TYNE
5 million and in 2015 that number rose to 6.5 million tons. The continued growth in imported pellet volumes is almost certain to continue as a conversion project at 420 MW Lynemouth Power and MGT Teeside Ltd.’s 299 MW combined-heat-and-power project have both been approved for Contract for Difference contracts from the British government. Together, the growth of existing demand at Drax and the promise of these new volumes has catalyzed another wave of investment within the country’s port complex. These most recent projects make it clear that both contractors and port operators have learned a great deal since receiving their first shiploads of pellets and are driving those discoveries into new project designs.
Infrastructure Investment 2.0
In May, during its annual general meeting, the Port of Tyne announced that it had secured a contract with Lynemouth Power Ltd. to handle up to 1.8 million tons of pellets annually. This new contract was partially responsible for £25 million ($33 million) worth of infrastructure invest24 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2016
ment the port has made recently. The bulk of this investment was an extension of the Riverside Quay by 125 meters. “This is the single, biggest investment we have made since we built Europe's first purpose-built wood pellet facilities back in 2010, and it will significantly increase the port's capacity to handle increased volumes of cargoes. Extending the length of the quay will increase the berthing capacity by almost 20 percent, enabling up to four large cargo ships to berth simultaneously,” states Andrew Moffat, CEO of the Port of Tyne in a statement issued by the port earlier this year. In addition to the quay extension, 75,000 tons of storage capacity in three concrete silos, enclosed conveyors and a rail loading silo are also being built. The Port of Tyne is contributing £13 million to this portion of the project with the remainder being contributed by LPL. The silos, Harrison notes, tie into the port’s need to distinguish one load of pellets from another. “Once the material gets to a power station, they are less concerned with segregating individual cargoes, so they
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can afford to put the pellets into one homogenous pile,â&#x20AC;? Harrison says. â&#x20AC;&#x153;Whereas, we are very much trying to segregate shipments because we need to be able to trace pellets, not only back to the pellet mill that produced them, but also to the forests where the fiber came from. This approach allows for better segregation of cargoes.â&#x20AC;? At Hull and Immingham, Associated British Ports has already invested ÂŁ130 million in wood pellet handling infrastructure. Late last year, an additional ÂŁ4 million was invested in a state-of-the-art bulk storage warehouse. The facility, designed to handle and store dry bulk cargo, is loaded with design features to minimize the risk of fire and explosion, including an incipient aspirating fire detection system, internal LED lighting, an expanding foam fire suppression system, a smoke extraction system, and an internal and external mist/air system to control fugitive dust. Most recently, a new player has emerged within Britainâ&#x20AC;&#x2122;s port complex, with Peel Ports announcing that it had dispatched its 400th rail shipment of wood pellets to Drax. The milestone was reached
just seven months after opening the first phase of a biomass terminal that earlier releases from the port valued at ÂŁ100 million. Graham Construction was awarded the contract to construct the facility, making the company arguably the largest constructor of wood pellet handling and storage facilities worldwide. â&#x20AC;&#x153;This project builds on the experience we have gained from building similar facilities on the east coast of England,â&#x20AC;? states Leo Martin, executive director at Graham Construction in a release. â&#x20AC;&#x153;We will be designing and building a state-of-the-art plant which will employ industry-leading technologies to ensure that the facility can be safely operated and maintained.â&#x20AC;? There can be no doubt that pellet volumes are a boon to the countryâ&#x20AC;&#x2122;s busy ports. Harrison offers that pellets have grown to represent a significant percentage of the portâ&#x20AC;&#x2122;s dry bulk business and this year pellets will represent over 50 percent of Tyneâ&#x20AC;&#x2122;s dry bulk volume. There is another side to that same coin, however. Long before wood pellets were identified as a practical means to meet the countryâ&#x20AC;&#x2122;s decarbonization goals, these same ports handled coal imports. â&#x20AC;&#x153;With the U.K.â&#x20AC;&#x2122;s energy policy shifting away from the reliance upon fossil fuels, we predicted that coal volumes would be gradually replaced by wood pellets," Harrison says. "Accordingly, coal reduced from 3.6 million metric tons in 2012 to 1.4 million metric tons in 2015.â&#x20AC;? Viewed in that way, the innovation and investment in pellet handling infrastructure within Britain was vital if the ports were to continue to meet their financial goals, as the countryâ&#x20AC;&#x2122;s intention to turn away from coal-derived power was clear. For Harrison and his colleagues at Port of Tyne, the transition was abrupt. â&#x20AC;&#x153;The rate of the reduction in coal volumes has happened faster than anyone anticipated, and we might yet see more coal handled as the U.K.â&#x20AC;&#x2122;s energy supply continues to move toward alternative sources of power generation.â&#x20AC;? Author: Tim Portz Executive Editor, Pellet Mill Magazine 701-738-4969 tportz@bbiinternational.com
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SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 25
« UNITED KINGDOM
Business as Usual Big U.K. government alterations ensued the vote to leave the EU, but for some area biomass suppliers and end users little has changed. BY KATIE FLETCHER
T
he only thing certain in the United Kingdom’s post-EU reality is uncertainty. Implications that the June 23 referendum—in which the U.K. voted 51.9 percent to 48.1 percent to leave the European Union—could have on wood pellet trade and environmental policy remain largely unknown. Even so, there are those with ties to the U.K. biomass industry that maintain a business-as-usual mentality. Drax Group plc CEO, Dorothy Thompson, shared in the company’s half-year results that the vote by the U.K. electorate to leave the EU presents “no immediate risk to Drax.” However, the impact a prolonged period of uncertainty
may have on the regulatory framework in which Drax operates raises concern. U.K. government changes have also sparked apprehension amongst some, but Drax “looks forward to remaking its case to the new U.K. government” on the importance of biomass to serve Britain’s need for affordable decarbonization. Still, some have expressed worry that recently elected Prime Minister Theresa May’s abolishment of the Department of Energy and Climate Change will sway investor confidence in the U.K. energy sector. Much of DECC’s functions are now handled within the newly established Department of Business, Energy and Industrial
26 PELLET MILL MAGAZINE | SEPTEMBER/OCTOBER 2016
Strategy, which, by doing so, actually puts it in a far more important category, according to Neil Harrison, vice chairman of the U.K.-based Wood Heat Association. “Before, DECC was a little, standalone department that had a relatively small budget—90 percent of which was gobbled up with nuclear decommissioning costs from power plants that have been built since the 1950s,” Harrison says. “Now, it’s actually gone into a much larger department with a much larger overall budget and a higher profile—it’s overall importance as a topic has probably grown greater.” Historically, the treasury called the shots for DECC and in the preceding lead-
UNITED KINGDOM »
ership was “very much in the pockets of the fossil fuel industry,” Harrison says. He adds that now the biomass industry is buoyed up by the ministers who’ve been given seats in the department and are responsible for energy, as they’ve generally voted in support of renewable energy in Parliament. Although there has been a shift away from renewables toward fossil fuels and nuclear over the past four or five years of government, Harrison says, “we’re now hopeful—with change in leadership in the Tory party—we’ll actually see some positive changes back toward a more environmentally conscious and supportive environment for renewables.” Brexit vote aftermath contains bright spots for biomass, but the whole referendum has created an epic undertaking for the country. Something Harrison says will take 10 years to unpick, likening it to if the United States decided it was no longer going to be “united” and the states would independently rule themselves. One of the most immediate and direct effects since Brexit has been the plunge of the pound against the euro and U.S. dollar, creating not only a possible economic challenge for trade within the pellet industry, but also a harder economic case for biomass within the domestic heat market. The leave vote has only managed to challenge the already
‛However we choose to leave the EU, let me be clear: We remain committed to dealing with climate change.’ - Amber Rudd, U.K. home secretary
flat market low oil prices have brought upon the bioenergy industry. “When the backbone of your installation sector is selling European-sourced equipment and that then jumps in price because of the impact of the exchange rate, you get a lot less for your money now because you’re buying euros and the exchange rate is significantly different,” Harrison explains. “You’re making a difficult sell even more difficult as a result of Brexit.” U.K.’s domestic pellet heat market has felt the drag down of the euro post-Brexit, but, for big biomass suppliers and consumers like Drax, already contracted volumes of pellets have largely left business as usual.
A Drax spokesperson emphasizes that a “secure supply chain is crucial” and to help with this security Drax sources its wood pellets “from a range of suppliers.” The spokesperson adds, “We also have longterm hedging in place with our biomass suppliers.” It’s believed that for the foreseeable future the U.K. will remain the driving force behind pellet demand for power generation. “The U.K. is going to continue to need to import an enormous amount of fiber to meet its energy needs,” Harrison says. “There will be a need for baseload, and biomass is the best low-carbon way of doing that, particularly, if you look at wider energy policy in the U.K., where they actually have aspirations to electrify heat production and electrify the transport sector, so we need more power production and biomass is a good way to do that with existing assets.” Further, the U.K., remains part of the EU for at least the next two years. The twoyear countdown doesn’t begin until Prime Minister May invokes Article 50 of the Lisbon Treaty, beginning the process of withdrawal, which, she says, isn’t likely to happen until next year at the earliest. Until then, commitments made to renewable energy as part of the U.K.’s standing EU obligations will not change. Even once the U.K.’s leave
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SEPTEMBER/OCTOBER 2016 | PELLET MILL MAGAZINE 27
ÂŤ UNITED KINGDOM
is final, Harrison reminds us that the U.K. is the only country in the world to have legally binding climate change targets written into its own law. â&#x20AC;&#x153;The U.K. has legally commit0DJD]LQHted itself regardless if itâ&#x20AC;&#x2122;s a member of the ODQG &EU or not to meet targets,â&#x20AC;? he says. The Climate Change Act in 2008 was not imposed on the U.K. by the EU, it was delivered with cross-party support by the U.K. Parliament. Former Secretary of State for Energy and Climate Change, Amber
Rudd, emphasized this point in a speech to the Business and Climate Change Summit following the EU referendum. She says, â&#x20AC;&#x153;However we choose to leave the EU, let me be clear: We remain committed to dealing with climate change.â&#x20AC;? Rudd was appointed home secretary in Theresa Mayâ&#x20AC;&#x2122;s first ministry on July 13. Another reinforcement comes with the Committee on Carbon Changeâ&#x20AC;&#x2122;s release of its fifth carbon budget, laying out a 57 per-
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cent reduction in carbon emissions from 1990 levels during 2027-â&#x20AC;&#x2DC;32. Rudd calling it â&#x20AC;&#x153;an important building block of our economyâ&#x20AC;&#x2122;s future.â&#x20AC;? The confirmation of the carbon budget gives the renewables industry and investors more long-term confidence, but will need to be backed up by supportive policies that will unlock investment in much needed new energy infrastructure. As a subsidized industry that depends on government policy, this is especially important for the industrial market for pellets. Luckily, it appears pending state aid approval regarding the awarding of a contract for difference (CfD) for Draxâ&#x20AC;&#x2122;s third 645 MW coal-to-biomass conversion will not be impacted, and Drax expects to secure approval this fall. In fact, Harrison says, the removal of governance under state aid regulations could mean more rapid decisions made for coal conversion to biomass. Two other projects awarded CfD subsidies from the European Commissionâ&#x20AC;&#x201D;EPHâ&#x20AC;&#x2122;s 420 MW Lynemouth coal-to-biomass conversion and MGT Powerâ&#x20AC;&#x2122;s 299 MW Teeside combined-heatand-power (CHP) plantâ&#x20AC;&#x201D;are moving forward. Last December, state aid was approved for the Lynemouth Power Station and EPH intends to complete the conversion next year. Enviva Partners LP recently announced a 9.5-year contract to supply 800,000 metric tons of pellets per year to Lynemouth, and just this August, Enviva Wilmington Holdings LLC confirmed its 15-year take-or-pay offtake contract to annually supply 1 million metric tons of wood pellets to MGT Teeside Ltd.â&#x20AC;&#x2122;s CHP plant, which just finalized financing agreements. During Envivaâ&#x20AC;&#x2122;s second quarter financial earnings call, company chairman and CEO, John Keppler, stated that he believes â&#x20AC;&#x153;capital markets were surprisedâ&#x20AC;? by the outcome of the recent referendum of the U.K. on its EU membership, and it â&#x20AC;&#x153;certainly created some volatility in the financial market.â&#x20AC;? Even so, within industry, â&#x20AC;&#x153;it seems to be largely business as usual for the biomass power generators in the U.K.,â&#x20AC;? he says. â&#x20AC;&#x153;The ROCs (renewable
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â&#x20AC;&#x203A;There will be a need for baseload, and biomass is the best low-carbon way of doing that.â&#x20AC;&#x2122; - Neil Harrison, WHA vice chairman
obligation certificates) and CfDsâ&#x20AC;&#x201D;the primary mechanisms received by our customers in the U.K.â&#x20AC;&#x201D;are entrained in U.K. law, not based on EU regulation, and we do not expect Brexit to impact our firm, long-term offtake contracts.â&#x20AC;? Astec Inc. reported in its recent earnings call that it hasnâ&#x20AC;&#x2122;t seen any impact, but is keeping an eye on its pellet business, as the U.K. is the biggest driver for that business right now. Astec CEO, Ben Brock, says, theyâ&#x20AC;&#x2122;re talking with customers who are do-
ing business there, and â&#x20AC;&#x153;they do not think that will affect what they are doing.â&#x20AC;? Another consideration is the fate of the Hinkley Point nuclear power stationâ&#x20AC;&#x201D;one of the most expensive endeavors to date in the U.K., according to Harrison. The champagne was on ice, but with a change of leadership in the Tory and governing party, the decision to move forward has been put on hold for another few months. â&#x20AC;&#x153;That would mean, if that conversion didnâ&#x20AC;&#x2122;t go ahead, that some more coal conversion to biomass might actually be a good way to deliver lowcarbon energy,â&#x20AC;? he says. For now, until Article 50 has been triggered and there is some clarity on the terms of U.K.â&#x20AC;&#x2122;s exit, concerns and questions linger. Although the details have yet to be sorted out, one thing is clear: U.K. remains committed to climate change initiatives and using wood pellets, amongst others, as a means of reaching them. As the pellet market leader, Drax says, â&#x20AC;&#x153;The U.K.â&#x20AC;&#x2122;s commit-
ment to renewables has been driven by U.K. policy makers and we will continue to work closely with the U.K. government on delivering cleaner energy.â&#x20AC;? While support for wood pelletâ&#x20AC;&#x2122;s industrial market hinges on upcoming coal conversion projects and pellet volumes secured through long-term offtake contacts, pellets for heat, like here in the U.S., need some market momentum. â&#x20AC;&#x153;Generally, the picture for biomass is pretty positive, but I think we all need oil prices to turn around to demonstrate biomass is cheaper, as oil is artificially lower at the moment,â&#x20AC;? Harrison says. â&#x20AC;&#x153;We need to go back to where itâ&#x20AC;&#x2122;s meant to be, and then weâ&#x20AC;&#x2122;ll be back to business as usual.â&#x20AC;? Author: Katie Fletcher Associate Editor, Pellet Mill Magazine 701-738-4920 kfletcher@bbiinternational.com
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