Pellet Mill Magazine - May/June 2016

MAY/JUNE 2016

www.biomassmagazine.com/pellets

Plus:Wood Fiber Review

Page 14

AND: Pellet Project Advice

Page 24

Road to Sustainability

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

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 [email protected] 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.

Educational Sessions Industry Exhibits Networking Opportunities

Register Today

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

MAY/JUNE 2016 | PELLET MILL MAGAZINE 3

Contents

MAY/JUNE 2016 | VOLUME 6 | ISSUE 3

FEATURES14 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 BusinessThe 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

CONTRIBUTION24 PROJECT PRACTICALITY

Feedstock and Supply Chain Sustainability Bigger isnt always better, especially with the bankability and sustainability of pellet projects.By Stan Kinsman

Pellet Mill MagazineAdvertiser Index19

28

5

13

12

10

18

9

27

2

8

11

16

22

Andritz Feed & Biofuel A/S

Astec, Inc.

BBI Project Development

Biomass Magazine Webinar Series

Bliss Industries, Inc.

CPM Global Biomass Group

Evergreen Engineering

Industrial Bulk Lubricants (a Dansons company)

International Biomass Conference & Expo

Pellet Fuels Institute

PRODESA

RUF Briquetting Systems

Trinity Packaging Corporation

Vecoplan LLC

04 EDITORS NOTEMore Art Than Science By Tim Portz

05 INDUSTRY EVENTS06 HEATING MATTERS

Coming to Terms With Sustainability By Charlie Niebling

07 MARKET OUTLOOKChange the GameBy Michele Rebiere

08 BUSINESS BRIEFS

10 NEWS26 MARKETPLACE

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

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 [email protected] 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.

Educational Sessions Industry Exhibits Networking Opportunities

Register Today

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

4 PELLET MILL MAGAZINE | MAY/JUNE 2016

More Art Than Science Inbound feedstock is the lifeblood of a pellet

mill. It is also a plants single, largest annual expen-diture. A pellet mills financial success hinges on

its ability to effectively source, receive and handle the requisite amount of raw materials in a cost-effective 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 histori-cal buyers vanish as pulp and paper production diminishes and moves offshore or more recently as biomass facilities in their markets idle, unable to compete with ultra-low fossil fuel derived power.

This issue of Pellet Mill Magazine looks closely at the industrys relationship with feedstock, the

market dynamics currently impacting both feedstock buyers and sellers, and the simul-taneous 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 cal-culations 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 Kotrbas page-20 story, The Cost of Doing Business, is one weve been looking forward to writing since Westervelt Renewable Energy announced at last years 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 disci-pline at Westervelt, making SBP certification a logical progression in its business mod-el. Westervelts willingness to readily engage with certification is to be applauded, but

Kotrbas 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, chal-

lenges the assertion that bigger is better in industrial pellet production. While building 500,000-ton pellet production facilities certainly leverages economies of scale, Kins-man argues that they introduce an inbound feedstock challenge that can be very dif-ficult 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 suc-ceed in the industry, a mastery of feedstock procurement is not an aim, its a require-ment.

Tim PortzVICE PRESIDENT OF CONTENT & EXECUTIVE [email protected]

EditorialPRESIDENT & EDITOR IN CHIEF

Tom Bryan [email protected]

VICE PRESIDENT OF CONTENT & EXECUTIVE EDITORTim Portz [email protected]

SENIOR EDITORRon Kotrba [email protected]

ASSOCIATE EDITORKatie Fletcher [email protected]

CONTRIBUTING EDITORAnna Simet [email protected]

NEWS EDITORErin Voegele [email protected]

COPY EDITOR Jan Tellmann [email protected]

ArtART DIRECTOR

Jaci Satterlund [email protected]

GRAPHIC DESIGNERLindsey Noble [email protected]

Publishing & SalesCHAIRMAN

Mike Bryan [email protected]

CEOJoe Bryan [email protected]

VICE PRESIDENT OF OPERATIONSMatthew Spoor [email protected]

SALES & MARKETING DIRECTORJohn Nelson [email protected]

BUSINESS DEVELOPMENT DIRECTORHoward Brockhouse [email protected]

SENIOR ACCOUNT MANAGERChip Shereck [email protected]

ACCOUNT MANAGERJeff Hogan [email protected]

CIRCULATION MANAGER Jessica Tiller [email protected]

MARKETING & ADVERTISING MANAGERMarla DeFoe [email protected]

Editorial Board MembersT.J. Morice, Marth Companies Stan Elliot, Pacific Coast Pellets

Thomas Plaugher, Appalachian Wood PelletsChad Schumacher, Superior Pellet Fuels

Lori Hamer, Hamer Pellet Fuel

Subscriptions to Pellet Mill Magazine are free of chargedistributed quarterlyto Biomass Magazine subscribers.To subscribe, visit www.BiomassMagazine.com or you can send your mailing address to Pellet Mill Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Back Issues & Reprints Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or [email protected]. 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 [email protected]. 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 [email protected]. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

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Editor's Note


Industry Events

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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.

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

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2016 International Fuel Ethanol Workshop & ExpoJune 20-23, 2016Wisconsin CenterMilwaukee, WisconsinFrom its inception, the mission of the event has remained constant: The FEW delivers timely presentations with a strong focus on commercial-scale ethanol productionfrom quality control and yield maximization to regulatory compliance and fiscal management. The FEW is also the ethanol industrys premier forum for unveiling new technologies and research findings. The program extensively covers cellulosic ethanol while remaining committed to optimizing existing grain ethanol operations.

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National Advanced Biofuels Conference & ExpoJune 20-23, 2016Wisconsin CenterMilwaukee, WisconsinThe 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 chemicalstechnology scale-up, project finance, policy, national markets and morewith a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry.

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2017 International Biomass Conference & ExpoApril 10-12, 2017Minneapolis Convention CenterMinneapolis, MinnesotaOrganized 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. Its a true one-stop shopthe worlds premier educational and networking junction for all biomass industries.

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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 dif-ferent answers. Its an arbitrary concept that defies objective and unambiguous definition.

Ive been thinking a lot about sustainability and what it means to Americas heating pellet industry. To me, sustain-ability 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 every-thing 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. Its 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 green-house gas implications of our fuel. While EPAs Clean Power Plan is focused on electric generation, the implications of this regulatory juggernaut are equally profound to the heat-ing pellet industry. Whatever EPA decides will trickle down and impact us.

If our country decides to regulate carbon, and regula-tors 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 carbon-beneficial, we will be on the outside looking in, while other non-emitting renewables flourish.

I, for one, endorse the notion that if Americas forests are stable or growing, when viewed in total, then American use of wood biomass to make energy is by definition carbon- beneficial. If the wood we use is being replenished in grow-ing, healthy forests, then we are not adding any net carbon emissions to the atmosphere. Science shows this is the case.

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 Eng-land Wood Pellets three plants in New Hampshire and New York. Most of our feedstock then, as now, came from other wood product manufacturing residuals: sawdust, chips, shav-ings 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 round-wood chips, for their reputation for quality work, clean oper-ations 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 forestrymore than any prescriptive regulation ever will.

This may not satisfy many of the antibiomass energy ad-vocates. Its important that our industry discusses this chal-lenge openly, as future growth in pellet manufacturing will rely more and more on low-grade roundwood chips derived from forestry operations. If we dont embrace public no-tions of what is sustainable, we may risk losing our license to operate.

Author: Charlie NieblingConsultant and Partner

Innovative Natural Resource Solutions LLC 603-965-5434

[email protected]

Heating Matters


Market Outlook

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 industrys 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 sustain-ability is key, as well, to ensure a robust trading market can occur. Most good traders make money in poor markets and this com-modity 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 met-ric 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 single-handedly 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 pel-let stoves has slowed the past few years. According to Hearth, Patio & Barbecue Association data, pellet stove sales have flat- lined. By contrast, in 2008, pellet stoves were on target to over-take 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 dis-rupted 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 promotion-al 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 cre-ated the perfect storm and casualties of all sizes. This did not come without warning. Industry detractors have been predict-ing this for years. Particularly, the dramatic increase of new pel-let 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 unprec-edented 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) generat-ing 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 bio-mass 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 doesnt exclusively threaten the coal in-dustry. Cofiring allows for the reduction of greenhouse gases without eliminating coals 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 consumersless than 1 cent per kilowatt hour. And for the producers, a new demand of over 100,000 metric tons of pel-lets 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 long-term 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

[email protected]

Change the GameBY MICHELE REBIERE


PEOPLE, PRODUCTS & PARTNERSHIPSBusiness Briefs

& 0 < &0 0< &< &0< .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 companys Zilkha black pellet product and to improve process performance.

SBP appoints CEOThe 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 lead-ership and management of SBP, including engagement with its many stakeholders, such as biomass supply chain actors, policy mak-ers and environmental non-governmental organizations. The current executive direc-tor, Peter Wilson, will take up the new post of standards director with Simon Arm-strong continuing as technical director.

UNTHA announces new shredderAustrian-based UNTHA has an-

nounced a new electric-drive shredder. The UNTHA XR shredder has been designed and engineered to increase capacity, profit-ability and safety levels in the wood recycling and biomass market. A slow-speed, high-torque 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 screen-ing systems.

Doppstadt appoints Ecoverse as exclusive distributor

Doppstadt has appointed Ecoverse Industries as the exclusive distributor for all Doppstadt sales and rentals in Califor-nia, Oregon, Washington, Arizona, Idaho, Montana and Hawaii. Ecoverse has worked alongside Doppstadt in the North Ameri-can 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, Ecov-erse 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 Cali-fornia, Santa Barbara,

as director of Lawrence Berkeley National Laboratory. Witherell is a leading physicist with a distinguished career in teaching, re-search and managing complex organizations. He has received numerous honors and rec-ognitions 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 memberAEG 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.

Witherell


ACE Group launches dedicated renewable environmental policy for companies in UK, Ireland

ACE Group has launched ACE Renew-able 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 capabili-ties. ACE Renewable Energy Environmental Protection covers the full spectrum of envi-ronmental risks faced by renewable energy companies, providing seamless coverage. It is available to energy producers in every re-newable 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 an-nounced that it has been awarded a con-tract to supply a biomass dust combustion plant for Finnish utility company Seinjoen 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, includ-ing 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, elec-trification, 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 an-nounced 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 com-pany plans to build and deliver the equip-ment in the additional order during 2016.

BTEC appoints new executive director

The board of directors of the Bio-mass Thermal Energy Council has appointed Jeff Serfass to take over for Joel Stronberg as BTECs executive director. Serfass led the organization in its formative years in 2009 and 2010 and has continued to provide guid-ance as BTECs senior advisor.

Business Briefs

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 [email protected]. Please include your name and telephone number in all correspondence.

Serfass

Pellet News

Sumitomo Corp. has signed a contract to acquire up to 20 percent of Cosan Biomassa S.A., a subsidiary of Brazil-based Cosan S.A. Industria e Comercio that produces sugar-cane 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 devel-oped a 175,000-ton-per-year production plant, which com-menced commercial production in December.

Through the agreement with Sumitomo, Cosan Biomas-sa 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 mil-lion tons of sugarcane pellets per year. The venture aims to produce 2 million tons by 2025 and up to 8 million tons lon-ger-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.

Japan company invests in Brazilian sugarcane pellet production

In February, U.K.-based NERA Economic Consulting and Impe-rial College prepared an analysis for Drax Group plc that makes the case for allowing biomass conversions to compete for contracts for differ-ence (CfD). The report finds U.K. consumers could save more than 2 billion ($2.8 billion) if the U.K. gov-ernment-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 ana-lyzed the impact of system integra-

tion costs (SICs) of renewable tech-nologies and assessed potential policy reforms the government could con-sider 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 costsome tech-nologies can add 10 percent or more to the cost of electricityand 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.

Analysis: Biomass subsidies could offer significant savings in the UK

7KHUHVDVD\LQJWKDWJHWVWRVVHGDURXQGDORWKHUHWMXVWUXQV2XUKDPPHUPLOOVDQGSHOOHWPLOOVDUHQWWKHSUHWWLHVW%XWWKH\UHURFNVROLG$QGWKH\UXQ\HDUDIWHU\HDUDIWHU\HDU%XWWMXVWUXQVLVQWMXVWDERXWRXUSURGXFWVWVDERXWRXUFRPSDQ\ZKLFKOLWHUDOO\VSDQVFHQWXULHV$QGLWVDERXWRXURQJRLQJUHODWLRQVKLSVZLWKRXUFXVWRPHUVKRZZHOODOZD\VEHWKHUHIRU\RX*LYHXVDFDOODQGQGRXWMXVWKRZ&30FDQUXQIRU\RX */2%$/%,20$66*5283Your Partner in Productivity&30(XURSH%9ZZZFSPHXURSHQO&30%LRPDVV*URXSZZZFSPQHW&OLHQW&30%LRPDVV3XEOLFDWLRQ3HOOHW0LOO0DJD]LQH2UGHU/LQHQVHUWLRQ'DWH0D\-XQH$G6L]H+DOISJ&[&UHDWLYH%LR-5+DPPHUSIC under medium flexibility scenario Technology LCOE1 SIC2 average 2020-2030 WSC3 SIC as % of WSCOnshore wind 100 10-14 110-114 9-13%Offshore wind 132 10 142 7%Solar PV 123 12 135 9%Biomass conversion 108 -1 107 -1%1 Levilized cost of electricity2 System integration costs 3 Whole system costsSOURCE: NERA ECONOMIC CONSULTING AND IMPERIAL COLLEGE


Pellet News

This spring, U.K.-based Energy Technologies Insti-tute 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 ac-tions without which the infrastructure required would not keep pace with bioenergy demand. The ETI noted the in-frastructure pathways developed through the project will take into consideration how biomass logistics infrastruc-ture 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 invest-ment will need to be made to ensure sufficient quantities of biomass can be imported, stored, transported, pro-cessed and distributed to end users, Evans said.

ETI project aims to improve UK biomass logistics

7KHUHVDVD\LQJWKDWJHWVWRVVHGDURXQGDORWKHUHWMXVWUXQV2XUKDPPHUPLOOVDQGSHOOHWPLOOVDUHQWWKHSUHWWLHVW%XWWKH\UHURFNVROLG$QGWKH\UXQ\HDUDIWHU\HDUDIWHU\HDU%XWWMXVWUXQVLVQWMXVWDERXWRXUSURGXFWVWVDERXWRXUFRPSDQ\ZKLFKOLWHUDOO\VSDQVFHQWXULHV$QGLWVDERXWRXURQJRLQJUHODWLRQVKLSVZLWKRXUFXVWRPHUVKRZZHOODOZD\VEHWKHUHIRU\RX*LYHXVDFDOODQGQGRXWMXVWKRZ&30FDQUXQIRU\RX */2%$/%,20$66*5283Your Partner in Productivity&30(XURSH%9ZZZFSPHXURSHQO&30%LRPDVV*URXSZZZFSPQHW&OLHQW&30%LRPDVV3XEOLFDWLRQ3HOOHW0LOO0DJD]LQH2UGHU/LQHQVHUWLRQ'DWH0D\-XQH$G6L]H+DOISJ&[&UHDWLYH%LR-5+DPPHU C AT C H T H E MARKET SHARE YOUVE BEEN MISSING

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from fireplaces and stoves to fire pits. Briquettes will open doors to new markets and growth opportunities for your business, and because they can be made from materials you already process (and then some), its 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?

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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*

*Source: Hearth, Patio, & Barbecue Association based on appliance shipments from 1998-2011.

In March, the Port of Tyne an-nounced 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 ves-sel 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

via the ports 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 en-ergy in 2010, said Steven Harrison, chief operating officer at the Port of Tyne. The significant investments in the ports infrastructure in recent years have enabled us to accommodate some of the worlds largest cargo ships and the MV Agnes represents a mile-stone in terms of our ability to handle such large cargoes on the Tyne.

Port of Tyne reports record pellet shipment

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


Pellet News

The U.K. Department of Energy and Climate Change has released pro-visional 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 clo-sure of Ironbridge in November. Plant biomass accounted for 2.6 GW of ca-pacity, 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 ac-counted for 23 percent, nuclear ac-counted for 21 percent and renewables accounted for a record 25 percent. Bio-energy accounted for 35 percent of the renewables share.

UK DECC: Bioenergy production reached a record 29 terawatt hours in 2015

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 bio-mass 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. The experts invited by the EPA to testify on the potential role for biomass in the Clean Power Plan held a thoughtful, substan-tive discussion on biomass power, said Bob Cleaves, president of BPA. The EPA should be commended for its thoughtful selection of panelists who spoke on the many areas of impact surrounding biomass, including bio-genic carbon, forest sustainability and public health.

The EPA was expected to post speaker presentations to its website following the event.

EPA workshop focuses on role of biomass in the CPP

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U.K. 2015 renewable electricity generation TWh % change compared to 2014

Onshore wind 23.0 +23.7Offshore wind 17.4 +29.9Hydro 6.3 +7.4Solar PV 7.6 +86.6Bioenergy (including cofiring) 29.0 27.8All renewables 83.3 +28.9

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


Pellet News

The U.S. Department of Energy has released its first annual energy em-ployment analysis. The report focuses on how changes in Americas energy profile are affecting national employment in the nations energy sectors.

An estimated 3.64 million Ameri-cans currently work in traditional energy industries, including production, trans-mission, distribution and storage. Of those workers, 600,000 contribute to the production of low-carbon electricity, in-cluding renewable energy, nuclear energy and low-emission natural gas.

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

DOE publishes energy employment report*$,10$;,080(;32685(&217$&7,1)2:(%,1$56(5,(6 / L Y H 2 Q ' H P D Q GZZZ%LRPDVV0DJD]LQHFRPSDJHVZHELQDUz:HEVLWHz$OOHPDLOVz$GYHUWLVHPHQWVz:HELQDUSDJHRQ%LRPDVV0DJD]LQHFRPz2Q'HPDQGPDWHULDOz$WWHQGHH,QIRUPDWLRQ6SRQVRU)HDWXUHG2Q &RQWDFWXVWRGD\IRUPRUHLQIRUPDWLRQVHUYLFH#EELLQWHUQDWLRQDOFRPRUTotal electric power generation and fuelsTotal electric powerBioenergy/biomassTotal fuels Woody biomassEnergy employment statistics 1,606,066666,28018,804938,78618,031SOURCE: U.S. DEPARTMENT OF ENERGY The U.S. EPA is continuing work to finalize its draft framework for biogenic carbon emissions. This spring, the EPAs chartered Scientific Advisory Board held a public meeting where it conducted a quality re-view 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 con-siders the clarity, completeness and scientific quality of draft reports developed by SAB committees and panels. During the review, the chartered SAB deter-mines whether the draft report is ready to be trans-mitted 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 boards discussion and comments on the draft report. The EPA is working with members to determine a schedule.EPA continues work on biogenic carbon emissions framework


Market

Stockpiled inventory throughout the pellet supply chain is putting downward pressure on raw material pricesa possible advantage for some producers long-term.

BY KATIE FLETCHER

FEEDSTOCK: The Single, Biggest Contributor

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


Market

Combine a number of dependent variables, many character-ized by uncertaintydiesel cost, stumpage and weather, to name a fewand youre on your way to linking the com-plexities that accompany forecasting occurrences in the pel-let 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, everyones 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 log-ging force was decimated, leading to retirements, attrition and less ef-ficient operations closing shop. Efficiency and market access were key during the lean times, Perritt says. Over time, equipment in the field con-tinued 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 an-other 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 cant 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, theyre 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 sup-pliers in the field, Perritt believes, but there are always those who are shortsighted and may take advantage of the situation. You dont 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 num-ber 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.

Market

Industry UpdateIts 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 Euro-pean spot-heating markets. As the pellet in-dustry grows, producers turn their attention to securing a sustainable feedstock supply chain for both an increasing export market and lo-cal heat markets that must weather cyclical up-turns and downturns.

The pellet industry got its start in the 70s, in part, because of the oil embargo making pel-lets 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 de-mand for pellet fuel. Increased fossil fuel prices over the past decade provided the founda-tion the pellet industry needed to grow upon. Now, its a great concern because this industry is truly cyclical based upon what oil prices are doing, says Chad Schumacher, general man-ager 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 unpre-dictable 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 Julythere 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 Nio (warm) is expected to continue through spring or early summer, but meanwhile the National Oceanic and Atmospheric Administration is-sued a La Nia (cold) watch, reporting condi-tions are favorable for La Nia to emerge within six months.

Even though its 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, in-dustry 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 pel-lets 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 pel-lets adequately able to serve air quality particu-late matter regulations; wider acceptance of fuel standards; a maturing overall supply chain, ad-dressing 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 trad-ers 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 VarianceEast to west, wood fiber baskets and the

markets they serve vary, but when market dy-namics like low fossil fuel and warm weather span nationwide, commonalities in how the regions are impacted can surface. Perhaps evi-denced 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

Duane Terwilliger, manager with Instant-Heat Wood Pellets in Addison, New York, says their steady suppliers dont 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.

Schumachers Superior Pellet Fuels 35,000-ton-capacity plant in Fairbanks, Alaska, sources about 90 percent Spruce softwood, with some Aspen. Interior Alaskas timber in-dustry is small. In fact, Schumacher says, really

the only material competing for his raw materi-al 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 part-ners with a local harvesting operation that puts the raw material into log form at a landing, af-ter 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 transport-ing. Schumacher says in some situations he di-rectly 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 under-standing of the stumpage value that needs to be attributed to that raw material procurement cost, Schumacher explains.

This cost understanding presents an op-portunity Superior Pellet Fuels enjoys to more effectively navigate market dynamics. In to-days situationwhen I have an absolutely full yardthe laws of supply and demand come

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.


Market

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 ex-perienced a reduction of 15 percent in raw material procurement costs. Rather than re-ducing 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 op-erations as well as the amount of volume in the yard. At todays production levels, I have three years of raw material supply sitting in my yard, and really it is too much, Schum-acher says. Im 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 pro-duce are doing so merely to maintain supplier relationships. For producers who utilize re-sidual material from sawmilling operations, they realize that while they may not need ma-terial 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 custom-ers could impact the whole timber industry. The pellet industry is a large user of many of these byproducts, and when we can't uti-lize them effectively, as many have come to rely on cost, everybody panics, Morice says. In some cases, they may have limited ad-ditional 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 hav-ing to spend money to dispose of it, that's a financial game changer.

Pulp and paper mill closures also fac-tor into wood price. William Strauss, CEO of FutureMetrics, says, In Maine, where I live, weve had five pulp mill closures in the past two years, so thats a huge loss of de-mand 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 pel-let producers because the cost of making a pellet has also dropped dramatically. Wood prices in Maine for residuals in March, ac-cording 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

Table 1North American Wood Biomass Price AveragesUS (US$/green ton, del.) 1Q 2016 4Q 2015 3Q 2015 2Q 2015 1Q 2015 % change 2016/15Northeast

New England $31 31 31 31 34 -9%Pennsylvania/New York $27 27 29 30 30 -10%Lake States $26 26 26 27 30 -13%Pacific NorthwestOregon $20 20 20 21 21 -5%Washington $19 21 21 20 20 -5%South CentalIn-woods $23 23 23 23 23 0%Mill residue $21 21 21 21 21 0%South Atlantic

In-woods $24 24 24 24 24 0%Mill residue $22 22 22 22 22 0%Canada (C$/green tonne, del.)Western (British Columbia) $18 19 18 19 20 -10%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


Market

has experienced a long, steady decline and its more recently that theres 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 gal-lon. 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 PointAs feedstock is the single, largest ex-

pense that any plant has, Morice says, if that goes down, by rights the end product should go down. Schumacher believes the raw mate-rial price doesnt really help anyone today, but it enables the industry to be in a much better position in the foreseeable future. Every-thing about having a lot of raw material and cheaper raw material coming into the yard is an economic advantage, he says. Its a large risk because its a financial commitment, but its 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 RISIs March North American Woodfiber & Biomass Markets report, nearly every region, with the excep-tion 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 grow-ing European export market as just one of the reasons it hasnt been experiencing quite the same pricing trends in its wood fiber and biomass markets. Nevertheless, increased in-ventory 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 pro-curement cost could provide the opportu-nity 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 ar-eas 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 FletcherAssociate Editor, Pellet Mill Magazine

701-738-4920 [email protected]

Table 2North American Pellet Grade Wood Prices

1Q 2016 4Q 2015 3Q 2015 2Q 2015 1Q 2015 % change 2016/15US softwood (US$/green ton, del.)

South Atlantic $33 33 33 33 33 0%South Central $33 33 33 33 32 3%Northeast $35 35 36 38 38 -8%Pacific Northwest $22 23 23 24 24 -8%US hardwood

South Atlantic $31 31 31 31 31 0%South Central $30 30 30 30 30 0%Northeast $40 40 45 46 47 -15%Lake States $35r 37 37 40 38 -8%Canada (C$/odmt, FOB sawmill)

British Columbia, softwood $39 43 41 42 43 -9%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 tonSOURCE: RISI INC. MARCH 2016 NORTH AMERICAN WOODFIBER & BIOMASS MARKETS REPORT


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

The Cost of Doing Business L

ast September, Westervelt Renew-able Energy LLC, a 300,000-ton-plus wood pellet facility located in Aliceville, Alabama, became the first

U.S. pellet producer to achieve certification from the Sustainable Biomass Partnership. SBP certifi-cation is a relatively new scheme to demonstrate legal, sustainable biomass sourcing. The organi-zation was created in 2013 to further the work of the former Initiative of Wood Pellet Buyers and its development of a standard biomass trad-ing agreement focusing on pellet specifications, trading terms and sustainability criteria.

There is currently no agreed definition of sustainability amongst the EU member states, says Melanie Wedgbury, the SBP com-

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


Sustainability

munications and information officer. Some member states, such as Belgium, Denmark, the Netherlands and the U.K. have, or are develop-ing, their own sustainability criteria and regula-tions. Wedgbury says an effective mechanism is needed to enable producers and users of woody biomass for energy production to demonstrate compliance with regulatory requirements, in-cluding 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 col-lection and communication of such data.

Westervelt Renewable Energy began op-erations 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 re-source organization founded in 1884 committed to sustainable forestry practices, says Alicia Cra-mer, 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 en-ergy. Westervelt sought SBP certification, ac-cording 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, mean-ing product interchangeability regardless of the country in which its used.

Program Protocol SBP fully recognizes the credibility of exist-

ing, 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 de-veloped standards and a certification system, the SBP Framework, to overcome these challenges and address the gaps.

Six standards make up the SBP require-ments. For the biomass to be SBP-compliant, all standards must be met and processes followed, Wedgbury says. The six standards are 1) Feed-stock Compliance Standard; 2) Verification of SBP-compliant Feedstock; 3) Certification Sys-tems/Requirements for Certification Bodies; 4) Chain of Custody; 5) Collection and Commu-nication 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 pro-ducer would be a pellet mill such as Westervelt Renewable Energy. They are assessed for compliance with the SBP requirements, specifi-cally that the feedstock it uses is compliant with SBP requirementsessentially that it is sourced both legally and sustainably, Wedgbury says. The assessment must be carried out by an inde-pendent third-party certification body. FSC- or PEFC-certified feedstock, including feedstock with a certification claim from FSC- or PEFC-approved schemes, is automatically SBP-compli-ant. All other feedstock must be evaluated. Stan-dard 1 is what the feedstock is evaluated against and Standard 2 defines how the evaluation of feedstock should be conducted. Producers dem-onstrating 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 pro-ducer 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, bio-mass 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 dem-onstrates feedstock origin, then they and each element in the supply chainincluding trade, transport and processingrequires chain-of-custody 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 re-quired 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 de-manded by the regulatory requirements of certain EU member states, SBP defines the re-quirements and options for collecting data that must accompany SBP-compliant biomass, she says. Again, as with the chain of custody in-formation, 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 en-ergy 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.

Westervelts PerspectiveCurrently 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 pro-ducer, and among the first globally, to achieve SBP certification in this relatively new, evolving


Sustainability

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3HOOHW0LOO0DJD]LQH+DOISDJHLVODQG&schemeone that was certainly in development as Westervelt sought certificationthe process was not as streamlined or efficient as it is now. A pellet producer starting down the path today will find this to be a smoother and relatively quicker journey than it was for us, says Mike Williams, project director for The Westervelt Company. For our company, this was a multiyear process that began with a small group of U.S. Indus-trial Pellet Association producer and landowner members, along with producers from other

countries, meeting with SBPs Assurance Frame-work 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 impor-tant 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.

The formal certification process began in

late 2014 with a readiness review conducted by a certification body to ensure Westervelt was prepared to proceed with a formal audit. This was particularly important because the standard was new to Westervelt, the certifica-tion body, and to SBP, Williams says, adding that SBPs technical director participated in the audit along with a third-party consultant engaged by the certification body to monitor their work. Our certification body, NSF In-ternational, was selected because of its exten-sive knowledge of our companys forest and sustainability practices, of forest sustainability and certification systems in general, and its commitment to take on this new standard, Williams says. Although NSF is very familiar with our company, it approached this as if no prior audits had been conducted and required that everything be verifiedit was not simply a matter of pointing to an existing certifica-tion to avoid harvest site visits or other key audit requirements. It was very thorough. He adds that the comprehensive approach met Westervelts desire to deliver a robust, objec-tive 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 ownerpellets is not its primary businessthe companys sustain-ability practices were already well-established. They form the underlying foundation and evidence required to satisfy a majority of SBP Framework requirements, he says. This is one reason we were comfortable taking an early step toward certification. Having been audited to several forestry and chain of custo-dy certifications over more than a 10-year pe-riod, Williams says Westervelt was confident at the outset that its practices were comprehen-sive and robust. We were pleased to have this validated through the SBP audit process, he says. However, because of specific European country reporting requirements, it was neces-sary 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 conserva-tion value when conducting logger training.

Prior to SBP certification, Westervelts company-owned forests were already certified to both SFI and FSC standards, and it holds PEFC, SFI and FSC chain-of-custody certifica-tions. In addition to SBP Framework certifica-tion, Westervelt is also certified to the Green Gold Label chain-of-custody and processing standard.

Because SBP builds on existing sustainabil-ity 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 de-tailed, he says, and second, we felt a third-party assessment would add credibility. Williams notes that its also important to keep in mind that standards revisions and maintenance of green-house gas data is an ongoing activity that must be managed.

Costs to gain SBP certification will vary depending on a producers 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 har-vest 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 re-port review and applications, which certifying bodies will most likely seek to recover from pro-ducers. 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 pro-ducers supplying wood chips with an SBP claim will be assessed a per-ton fee of 0.08. Non-producers 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 sup-plying 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 its always beneficial to objectively review findings to determine what can be learned, and how processes can be fur-ther improved. Wedgbury says SBP accepts all constructive criticism and the program is devel-oping at an extraordinarily fast pacefaster 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 au-dits, acceptance of common standards by Euro-pean regulators, and increased product fungibil-ity. In this business, proving sustainability is part of the cost of doing business and is not some-thing that is going to lead to a premium price, he says.

Author: Ron KotrbaSenior Editor, Pellet Mill Magazine

[email protected]


Feedstock and Supply Chain Sustainability

Project Practicality

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

Ecological and economic sus-tainability issues have, and will continue to have, widespread effects on biomass market dy-namics.

A range of issues concerning sustain-ability, and the concept of sustainability,

has ecological and economic dimensions. For example, there is the issue of the qual-ity and reliability of feedstock supply. Feed-stock sustainability generally looks at sus-tainable 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 re-covered for the biomass market, but rather left on the forest floor to rot, mainly due

PHOTO: BIOTECH ENERGY INC.

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).


Project Practicality

to the lack of manufacturing and transpor-tation 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 im-pact costs for wood chips and pellets, and the ability to obtain additional supply for large-scale plants. Supply chain sustainabil-ity also is predicated on these same factors. With feedstock supply, however, there are only so many wood baskets, and they are fi-nite in size. The primary difference between feedstock supply and supply chain sustain-ability 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 pel-let 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 develop-ers. Many project developers seek to cap-ture contracts for both the supply of fiber and the offtake for product. In some cas-es, 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 proj-ects. There is a new way of thinking for project development that begins with the endfinancial viability and funding first. This is not only confusing, but goes against everything almost everyone understands about project fundingbigger 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 re-cord and capabilities to develop the projects and negotiate the large offtake contracts.

The due diligence demanded by inves-tors 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 capabil-ity to financially back their contractual ob-ligations.

Sustainability, as it relates to both feed-stock and supply chain, is governed by the financial constraints placed on projects by investors, which have a much lower toler-ance for risk than we would like to believe. When we talk about sustainability we think of longevity.

Bigger isnt 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 tremen-dous rate for locally sourced, premium products that are financially and ecologi-cally 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 ex-pected, which will not only help producers with spare manufacturing capacity fill that gap, but will see an increasing requirement for new, smaller-capacity producers posi-tioned 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 finan-cial viability of power producers, which is why few offtake contracts have been nego-tiated. Today, power producers are looking at hybrid pellet products that offer higher Btu content and durability to withstand en-vironmental impacts during transportation, storage and material handling. The hybrid pellet market is quite new and suitable for larger commercial, industrial and institu-tional customers to fuel their biomass com-bined-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 sig-nificantly lower risk because of their abil-ity 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 pro-duction, and rarely get completed. Small-scale projects come with less risk, often making their development more bankable and sustainable.

Author: Stan KinsmanCEO, Biotech Energy Inc.

[email protected]


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