BM11 - 2008-08-08 Deloitte Pellet Cost Study
BM11 - 2008-08-08 Deloitte Pellet Cost Study
BM11 - 2008-08-08 Deloitte Pellet Cost Study
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1. Introduction
Introduction
Overview of the Deloitte Engagement
Westwind Forest Stewardship Inc., in cooperation with six other Sustainable Forest License
management companies (SFL or SFLs) in the Ontario Great Lakes / St. Lawrence
(GLSL) region and the Ontario Ministry of Natural Resources (MNR), are exploring
opportunities to utilize lower quality timber products available for harvest (biofibre
including merchantable unmarketable wood and tops) within each of these forests.
With rising fossil fuel prices and carbon emission policies being implemented by
governments around the world, particularly in the EU under the Kyoto Protocol, there is a
growing global demand for alternative, low carbon, renewable fuel sources.
Wood pellets provide a clean, diversified energy solution and while Canada is already a
major producer and exporter of wood pellets, Ontario, through its skilled forestry sector
and underutilized biofibre, has an opportunity to be a significant contributor to this
growing industry.
Deloitte & Touche LLP has been engaged by Westwind Forest Stewardship Inc. as a
coordinating body to carry out a cost study with regard to encouraging a wood pellet
industry in the GLSL region, including an analysis of available fibre supply, potential plant
locations, pellet plant capital outlays, operating costs, and financing costs.
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Introduction
Purpose and limitations of this Report
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Introduction
Approach
The study followed the approach laid out below, which carries through in the flow of this
report. Details of each step can be found on the following slide:
Synergies and
Fibre Supply and
Other
Harvest Costs
Considerations
Wood
Pellet
Plant Cost
Study
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Introduction
Methodology
Review and mine MNR Determine key needs Conduct extensive Review of broad
data on Crown fibre and constraints, research on wood infrastructure
leading to criteria for pellet plant process, requirements
Provide SFLs with
long and short lists components and costs
summary data for Trends in market
review and collect Interview SFLs and Develop financial contracts
known private and MNR to apply criteria model and review for
Opportunities for
First Nations volumes and determine long list gaps and opportunities
synergies
Follow up with SFLs Review fibre supply Customize model for
Review of refined
and MNR regarding findings and other each selected site
pellet product and
any discrepancies and considerations for
Finalize model and potential applications
confirm final volumes short list and final site
conduct sensitivity
for this study recommendations Moisture content
analysis
considerations
Sources
This report sites a number of references throughout, details of which can be found in
Appendix D.
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2. Background
Background
SFLs participating in the wood pellet plant cost study
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Background
Overview of the wood pellet industry
Wood pellets are a near carbon neutral source of renewable bio fuel used for both heat
and power generation:
Home and commercial heating systems can be easily fit or retrofit with pellet burning
furnaces (small and medium scale use);
Existing coal fired power plants can be converted to fire or co-fire wood pellets with
minimal capital investment (large scale use) and significant emissions reductions; and
Wood pellet manufacturing plants are being built in conjunction with Combined Heat and
Power (CHP) plants in both Europe and North America that use a portion of the pellets
produced to generate power, which is sold into the grid, use part of the power generated
parasitically, and distribute the heat through a district heating system to local
businesses and institutions.
Wood pellets are readily transportable by sea, rail, and road. This leaves few markets, if
any, inaccessible.
As a clean, renewable, high energy density, portable, and easy to use energy source,
wood pellet demand is expected to increase steadily over the next decade, including
through the expansion of major potential markets such as Asia and Eastern Europe.
A January 2008 Standard & Poors Industry Survey1 on the paper and forest products
sector noted opportunities in biofuels and large scale production of biomass as one of the
more promising opportunities for the forest products industry, particularly given rising
fossil fuel prices and increasing environmental concerns.
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Background
Wood pellet global production and markets
A November 2007 IEA Bioenergy2 report on global wood pellet markets cites the largest
producer of wood pellets globally as Sweden, followed by the United States and Canada,
with the latter driven by export opportunities due to low domestic sales.
Russia is noted as having the potential to be one of the largest exporters of wood pellets
but its success will be largely dependent on economic and political considerations,
including the issue of significant tariffs recently increased to 15% on wood exports to
Europe.
Major international wood pellet markets include Sweden, along with Austria, Italy,
German, the Netherlands, Denmark and Belgium. Because biomass carbon credits follow
the end user rather than the producer under the Kyoto Protocol, the report notes, these
countries will likely continue to be predominantly importers of wood pellets.
The chart on the right shows annual pellet
consumption for Scandinavian, European
and North American countries by end use.
While Canada noticeably consumes very
little, a June 2008 presentation by
proPellets Austria3, concluded that "Canada
is in a very good position to become an
important player in the international pellet
market.
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Background
The wood pellet price opportunity
In a June 2008 presentation4, Pinnacle Pellet Inc. described what it referred to as the
Pellet Price Opportunity, which illustrates the equivalent price of one tonne of wood
pellets, on an energy output basis, as compared to oil and natural gas.
At current energy prices, there is a clear fuel cost advantage associated with the
consumption of wood pellets versus oil and natural gas. A considerable drop in oil and
natural gas prices would be required before price parity were reached. Similarly, wood
pellets pricing has room to grow as it is increasingly integrated into energy markets.
Oil Equivalent
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Background
The Canadian wood pellet industry
European imports of wood pellets from Canada are expected to continue to grow
considerably over the next five to ten years.
With production capacity in Canada currently at close to 2 million tonnes per year and with
an abundance of saw mill residue and biofibre, as well as the prospect of several hundred
tonnes of annual output being added annually over the next several years, Canada is
expected to keep pace with this growing international market and has an opportunity to
stake its claim as the global leader supplying the industry.
Canadian Wood Pellet Production
(Wood Pellet Association of Canada, July 2008)
3.5
3.0
2.5
$000's
2.0
1.5
1.0
0.5
0.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
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Background
Opportunities to develop a wood pellet industry in
GLSL Region
Over the course of several decades, economic and non-economic forces have converged
leading to mill closures, job losses and the underutilization of bio fibre in Ontarios forests.
As one Canadian attendee noted at the recent World Bioenergy 2008 conference in
Sweden, "the wood and forestry sector is going broke by relying on conventional
markets.5
A 2006 report published by the Canadian Council of Forest Ministers6 set out a series
observations where the Council saw opportunity in a forest industry restructuring,
including:
Moving beyond being a low cost producer towards new value added products that are
increasing in demand and offer opportunities for healthy profit margins;
Being in a position to "climb the learning curve quickly" on new products to "capture as
much value as possible" early on; and
Being able to "pioneer the industry into some exciting new forest based specialty
products.
The report also recognized bio-mass fuels as a key value added product in the
R&D/Introductory phase at the time. While the wood pellet industry has grown
considerably since then, there remains an opportunity for Ontarios forestry industry to be
at the forefront in developing new technologies and products as the industry expands.
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Background
Opportunities to develop a wood pellet industry in
GLSL Region
Significant volumes of biofibre in Ontarios forests are, for a variety of reasons, not
currently being utilized.
MNR recognizes this biofibre availability as both an economic and environmental
opportunity for the province of Ontario, supporting rural and northern communities
through job creation and tackling climate change through the encouragement of a clean,
renewable source of energy.
In a Directive issued on August 13th, 20087, MNR set out goals and objectives for a policy
guiding the use of forest biofibre to help:
Create and support new opportunities for the forestry sector by supporting the
development and use of new technologies and products to diversify Ontarios economy;
and
Encourage the use of biofibre to reduce Ontarios dependence on fossil fuels while
simultaneously reducing energy costs.
The Directive also specifically notes the strong interest of the Ontario Power Authority in
considering the potential of biopower to produce heat and electricity for the provinces
energy needs.
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Background
Wood pellet production process and key risks
The wood pellet production process can be broken down into three elements: Raw material
supply, production, and markets.
While the production risks are mostly manageable, there are key external risks on
opposite ends of the process that must be considered and addressed where possible.
Can be mitigated
materials
(Biofibre) Haulage costs
Competing technologies
Renewed and emerging forest product
sectors
Manageable
Internal:
Chipping/ Packaging
Screening Drying Pelletizing Cooling Distribution
Grinding or Storing
mitigate
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Background
Wood pellet production process and key risks
Screening The material is screened to remove stones, metal, or other similar material
Raw material is forced through the die hole of the pelletizing machine to
produce pellets
Pelletizing
A great amount of pressure is required to ensure high pellet quality
Pellets at this stage are both hot and soft
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3. Fibre Supply
Fibre supply
Methodology
MS Access databases and GIS data provided were mined for relevant information
Data was pulled and sorted by:
Forest
Species
Merchantable unmarketable round wood v. cut tops v. bypassed tops
Excel file containing the above was distributed to SFL managers for each of the seven
forests participating in the study
SFL managers were asked to confirm data and/or provide any changes
SFL managers responses were received electronically and confirmed verbally, with any
significant anomalies from the data provided discussed
Cubic metres (m3) were converted to oven dried tonnes (ODT) to determine approximate
potential wood pellet production, net of dryer fuel supply (tops), per forest
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Fibre supply
Overview of region being covered
The GLSL region has a wealth of tree species. Six species groups are being considered for
the purposes of this study, including both merchantable unmarketable round wood, their
tops, and bypassed tops (those left behind in the harvest of merchantable marketable
round wood).
The chart below shows the breakdown of species across the seven studied forests with a
detailed breakdown found in appendix B:
12% 4%
23% White Birch
Other Conif ers
Poplar
Each of the above species can be utilized in the pelletizing process. The only significant
difference for pelletizing purposes is moisture content of the incoming fibre, which can be
smoothed out by managing fibre intake and in the drying process.
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Fibre supply
Fibre supply input assumptions
The November 2007 IEA Bioenergy8 report on global wood pellet markets and industry
notes that fibre supply is one of the greatest areas of concern for a pelleting facility, with
availability the main determinant of a plant's scale.
Fibre Supply:
Can be affected by stand accessibility, logging practices, top removal restrictions, etc.
Does not include private forest or First Nations forest, both of which can have a
significant impact on the recommended plant sizes and locations, except for:
Sudbury, where the NSwakamok hold 17% of the Sudbury forest; and
Nipissing First Nation, which is estimated to have 16,516 m3 available annually.
In the cases of Nipissing, Sudbury, and Temagami, 70% of the available fibre supply
represents assigned but not utilized round wood volumes. Removing these volumes
from the available annual fibre supply would leave the following:
Merchentable &
Forest All In (m3) Tops (m3)
Unmarketable (m3)
Nipissing 196,825 150,820 46,005
Sudbury 113,762 78,255 35,507
Temagami 60,434 44,138 16,296
Total 371,021 273,213 97,808
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Fibre supply
Fibre supply and pellet production
Total annual available fibre, as provided by MNR and confirmed or adjusted by SFL
management, is as follows:
Fibre supply (tops) for dryer fuel (m3) @ 17.5% of total fibre supply 293,485
A conversion factor of 1:0.515 has been applied to convert green m3 to oven dried tonnes
(ODT).
Total potential pellet production of approximately 712,540 tonnes from available fibre
supply is net of the tops required to fuel the dryers but includes the remaining available
tops as calculated above.
Note that only tops are used as fuel for the dryers. The above shows that more than 60%
of tops are used for drying, with the balance put toward pellet production.
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Fibre supply
Private forests
Private forest fibre supply and availability is difficult to ascertain as most have not
developed a Forest Management Plan (FMP) and are not required to do so.
Efforts are continuously being made by both the federal and provincial governments to
encourage land owners to develop an FMP in support of the forestry industry and forest
renewal and sustainability. Programs include:
support from government and the private sector in developing FMPs on private land;
and
special tax considerations for private landowners with sustainable FMPs in place.
Depending on the location of private forest, its size, and use, estimates of what might
reasonably be made available for harvest can vary significantly. For example:
Some forests have active cottage associations that are often against allowing their
forests to be harvested for a variety of reasons, making private wood increasingly
difficult to source;
Landowners in more rural areas often see their forests as a source of income and
recognize the importance of a sustainable forest management plan and renewal
program; and
Much of the private forest in the north is owned by forestry companies who have FMPs in
place but whose wood is committed to their own operations in the areas.
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Fibre supply
Private forests
The following best estimates were gathered from participating SFL management and
converted to tonnes of pellets, net the fibre required for fueling the drying process:
Private Land Round & Tops (m3) Fuel Required (m3) Total Pellets (tonnes)
Bancroft-Minden 20,000 3,500 8,498
French-Severn 10,000 1,750 4,249
Mazinaw-Lanark 400,000 70,000 169,950
Nipissing Forest - - -
Ottawa Valley Forest 81,336 14,234 34,558
Sudbury Forest - - -
Temagami - - -
Totals 511,336 89,484 217,254
Due to the difficulty in ascertaining private forest fibre availability discussed on the
previous slide, this studys focus for plant recommendations is based solely on Crown
merchantable unmarketable fibre (and tops) within the study area, except where
otherwise noted.
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Fibre supply
First Nations
Many of the forest areas owned by First Nations do not have FMPs in place and as a result,
official numbers are difficult to determine.
The First Nations communities across Ontario are extremely interested in participating in
the fostering of a sustainable and active forestry industry.
First Nations communities are active with management boards of the SFLs for the forests
in which they hold land.
First Nations support can provide investment, fibre supply and a skilled work force for
wood pellet plants.
Estimated fibre availability in the GLSL region from First Nations includes:
French-Severn: 5,000 m3 per year
Nipissing: 16,516 m3 per year
Sudbury: 17% of the forest (included in Crown volumes for the purposes of this study)
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Fibre supply
Harvest cost input assumptions
Where harvest costs do not include slashing/bucking, a $4/m3 charge has been added for
consistency.
Haulage costs have been provided as approximates and for each forest are based on a
varying range of distance, up to 150kms/one way/per m3. Where the haulage cost
provided was for a significantly lower distance, it was increased proportionally to represent
a 100-150km range for consistency.
Renewal and Stumpage fees are as per MNRs May 2008 document Evaluation Process for
Biofibre Volume and Value Calculations.9
Where no administration cost is included, it has been embedded by the SFL in the harvest
cost numbers.
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Fibre supply
Harvest cost per m3 by forest
Fibre supply costs were assembled through a survey of forest managers who worked with
SFL board members and industry participants operating in their respective forests to
gather representative data.
The resultant fibre supply cost by forest and major component are as follows:
Harvest Cost $ 24.50 $ 12.20 $ 21.00 $ 12.20 $ 17.00 $ 12.20 $ 12.20 $ 15.90
Road Const. & Maint. $ 5.50 $ 6.00 $ 5.00 $ 6.00 $ 3.25 $ 6.00 $ 6.00 $ 5.39
Haulage (m3/ ~100 kms) $ 16.00 $ 12.00 $ 16.00 $ 12.00 $ 12.50 $ 12.00 $ 12.00 $ 13.21
Renewal Fees $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25
Stumpage Fee $ 1.07 $ 1.07 $ 1.07 $ 1.07 $ 1.07 $ 1.07 $ 1.07 $ 1.07
Total delivered cost / m3 $ 50.13 $ 40.83 $ 49.07 $ 40.33 $ 37.17 $ 40.33 $ 40.33 $ 42.60
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4. Site selection
Site selection
Methodology
Step 3: Analyze
Short list
Identify Recommended
Sites
final list will consist of multiple sites with varying output levels
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Site selection
Step 1: Identify long list
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Site selection
Step 2: Identify short list
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Site selection
Potential ports
Deep water ports are critical to the export of wood pellets to Europe, currently the worlds
largest market. Proximity and accessibility to deep water ports is an important
consideration in locating pellet plants to help reduce logistic challenges and transportation
costs to market.
The following deep water ports (at least 20-25 feet) were identified through discussion
with MNR and the SFLs as potential ports (some currently operating at limited capacity)
from which to ship wood pellets produced in the GLSL Region:
Bowmanville
Britt
Cornwall
Fisher Harbour
Owen Sound
Parry Sound
Prescott (active port with capacity and bulk handling facilities, direct rail access and
operating ethanol plant)
Thessalon
Each of the above along with the short list of pellet plant sites is identified in the map on
the following slide.
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Site selection
Short list of plant sites with potential ports
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Site selection
Step 3: Identify recommended sites
Based on the potential for approximately 712,540 tonnes of pellet production from
available round wood and tops:
Six plants are recommended, with optimal efficient plant sizes ranging from 100,000 to
150,000 tonnes per year
Each plant will be located and sized based on the fibre supply basket within an
approximately 150km range
This will allow for a small amount of excess capacity at each plant that can utilize fibre
from:
Private forest;
First Nations forest;
Algonquin forest; and
Forests outside the study area in Ontario and/or Quebec.
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Site selection
Final site recommendations
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Site selection
Final site recommendations and output levels
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Site selection
Final site recommendations and output levels
Site Location Fibre Source Pellet Fibre Supply (m3) Pellet Output (tonnes) Fibre Source and Pellet Fibre
Renfrew Mazinaw-Lanark 92,442 47,608
Ottawa Valley 33,551 17,279 Supply refer to the
Bancroft-Minden 55,859 28,767 originating forest and
Total 12,323 93,654
Plant size 100,000 respective annual volumes.
South River French-Severn 78,078 40,210 Pellet Output refers to the
Nipissing 122,019 62,840 tonnes of wood pellets
Total 13,496 103,050
Plant size 110,000 produced from the
Britt French-Severn 78,078 40,210
remaining Fibre Supply.
Sudbury 59,311 30,545
Nipissing 73,211 37,704
Plants are sized with excess
Total 2,993 108,459 capacity that can be filled by
Plant size 110,000
a number of sources
Sudbury Sudbury 276,782 142,543 discussed earlier.
Total 14,480 142,543
Plant size 150,000 In addition, if alternate sites
Sturgeon Falls Nipissing 97,615 50,272 or plant output levels are
Temagami 74,230 38,229 desired, Pellet Fibre Supply
Sudbury 59,311 30,545
Total 1,854 119,045 can be reallocated
Plant size 120,000 accordingly to
North Bay Nipissing 195,230 100,543 accommodate.
Nipissing First Nation 13,626 7,017
Temagami 74,230 38,229
Total 8,177 145,789
plant size 150,000
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Site selection
Additional considerations
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5. Capital costs
Capital costs
Input assumptions
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Capital costs
Optional items
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6. Operating &
maintenance costs
Operating and maintenance costs
Input assumptions
Operating period:
24 hours per day, 7 days per week (if need be, 5 or 6 days per week but always 24 hours per day)
10% annual downtime for scheduled and unscheduled maintenance
Approximately 8,000 hours per year of operations
Labour:
8-12 staff per shift, plus administration, for an average of 25-30 jobs created per plant
Skilled labour rates ranging from $20 to $30 per hour
Price per tonne output varies with plant capacity (~$10 per tonne at 150,000 tonnes per year)
Based on information from pellet plant developer, BC Biomass Energy Primer and industry sources
Total staff
Estimated Labour Requirements Staff per shift Number of shifts Rate per hour Per employee Total amount
required
General Manager 1 1 1 $ 30 $ 78,840 78,840
Plant operators 1 3 3 $ 25 $ 65,700 197,100
Mill wrights 2 3 6 $ 20 $ 52,560 315,360
Material handling 2 3 6 $ 20 $ 52,560 315,360
Logistics 1 1 1 $ 20 $ 52,560 52,560
Maintenance 1 3 3 $ 20 $ 52,560 157,680
Electrician / Programmers 1 3 3 $ 25 $ 65,700 197,100
Finance & Admin 3 1 3 $ 25 $ 65,700 197,100
Total $ 1,511,100
Grinding:
Fibre supply for pellets (at plant): $5 per ODT equivalent
Fibre supply for dryer fuel (in bush): $10 per ODT equivalent
Based on information from forest industry participants and wood pellet industry sources
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Operating and maintenance costs
Input assumptions
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Operating and maintenance costs
Input assumptions
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7. Financing
Pellet plant financing
Input assumptions
Pellet plants are built, financed and operated by private sector entities, sometimes in
partnership with other forestry industry partners but most often as independents.
Project timing
Planning to commissioning typically 12-18 months
Construction assumed to begin in 2009, lasting a period of 1 year
Debt to equity ratios: 50:50
require the backing of well financed and highly experienced ownership
Return on equity: 20%
Pellet plants require experienced management with specialized backgrounds. Given the
risk involved and the amount of equity required to set up and operate a pellet plant, a
reasonably high return will be required to attract willing parties.
For financial modeling purposes a terminal value equal to the initial equity investment is
applied to the project in year 10
Debt terms: 10 years
Debt can be financed by traditional banks at standard rates however terms beyond 10
years are unlikely to garner favourable rates, if accessible at all
Rate of interest: 8.00%
Based on July 2008 Government of Canada benchmark bond yield, monthly series, 10 yr
(V122543) at 3.81%
Risk premium of 4.19% based on Deloitte's current experience with projects of similar
risk in the forestry sector
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Pellet plant financing
Opportunities for financial assistance
Government assistance programs can in some cases be accessed where applicable, for
example:
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8. Findings and analysis
Findings
Review of input assumptions
Based on the fibre supply distribution, site recommendations and input assumptions, a
cost per tonne has been calculated for each of the six recommended wood pellet plants.
Cost per tonne is based on:
Maximum efficient plant size of 100,000 to 150,000 tonnes of pellets per year;
Final list of 6 plant sites, narrowed down from an initial list of 33 potential sites;
Disbursement of several forests' fibre supplies to multiple plants based on geographic
distribution and average distance per forest to the recommended plant locations; and
Total proposed plant capacity, including excess beyond noted available fibre supply.
After separating the required tops for dryer fuel, the remaining tops are pelletized and
represent approximately 12% of the overall available annual fibre supply for pellet
production. For simplification, these remaining tops have been combined with the
merchantable unmarketable fibre supply and priced at their originating forests harvest
cost.
Taxes have not been accounted for in these models.
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Findings
Cost per tonne per proposed plant
The resultant costs per tonne are as follows and are presented in both 2008 (current)
costs and 2010 (year of commissioning) inflation adjusted costs:
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Findings
Cost per tonne breakdown
The 2010 inflation adjusted average cost per tonne on a base case 150,000 tonne per year
plant, applying an average harvest cost to fibre supply, can be broken down as follows:
10%
Fibre supply
4%
Dryer fuel
4%
2% Grinding
Energy
3%
Labour
3% 50%
Materials & operational maint.
Repairs & lifecycle main.
6%
Loading for bulk shippment
Principal repayment
6% Interest expense
Equity draw
4%
8%
Three inputs of particular note are fibre supply, which represents 50% of the cost per
tonne, equity draw, accounting for 10% of the cost per tonne, and dryer fuel at 8% of the
overall cost per tonne.
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Analysis
Sensitivity
The chart below shows the sensitivity of key, non-variable inputs to the 2010 base case
cost per tonne of $172.12 ($166.66 in 2008), with equity return and debt term having the
most pronounced impacts.
$185.00
$160.00
0% 20% 40% 60% 80% 100% 120% 140% 160% 180%
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Analysis
Sensitivity
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Analysis
Consideration of cost feasibility
Spot prices for bulk deliveries in Europe fluctuate widely by country and by supply and demand dynamics.
A group of European industry participants has started the PELLETS@LAS Project whose goal is to create
transparency in the European pellet market by addressing information gaps , removing supply bottlenecks,
reducing fluctuations in spot prices, and addressing quality assurance and consistency.
In a May 2008 report12, PELLETS@LAS noted the following recent historic pricing:
January 2008 spot bulk prices at European ports range from 125 - 190 (~$196 - $298 CDN)
January 2008 loose delivery prices to European households range from 165 - 255 (~$259 - $400 CDN)
An August 2007 factsheet prepared by SenterNovem13 in the Netherlands noted CIF price per tonne to Rotterdam
at 140 (~$219 CDN)
The European Pellet Centre14 noted prices of 180 (~$283 CDN) for large customers in Denmark, Sweden and
Germany, delivery included.
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Analysis
Consideration of cost feasibility
According to the Pellet Fuels Institute April 2008 Market Update Industry Survey15:
Market prices in Canada currently average $170-$180 CDN per tonne; and
Market prices in the North East US currently average $120-$179 CDN per tonne
In order for a pellet plant to be feasible, transportation costs, logistics costs, and middleman or retailer
markups must be recoverable in the spread between the cost per tonne to produce and the market price.
Transportation cost considerations can include:
Hauling to local port for shipment and from port to purchaser in Europe or Asia
Shipping by rail to US market
Shipping by rail or transport to distributors or directly to power generating facilities in Ontario that
have been retrofit to co-fire low carbon emitting wood pellets
When compared to existing pellet plants, it is important to note that most current operations utilize saw
mill residue and residue from other wood product processors/manufacturers, resulting in considerably
lower fibre supply costs:
Fibre supply: no harvesting and lower transportation costs (often located near supply mills);
Capital: no need for chipping equipment; and
Operating: no labour or energy for chipping, less dryer fuel required per tonne of pellets.
While the spread may initially appear close, further investigation into market prices, transportation and
logistic costs to market are critical to determining feasibility. While there appears to be room between
the cost of production and current market prices, both in Europe and North America, the unpredictability
of the current spot markets make forecasting feasibility on tight margins particularly difficult.
If demand continues to rise as predicted however, markets will find themselves either adapting to
additional costs, such as whole log chipping and Russian tariffs, or accelerating the development of
newer, more efficient technologies, and the Ontario forestry industry has the opportunity to be at the
forefront in both respects.
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8. Other considerations
Other considerations
Contract structuring
Commercial sales contracts are trending towards pricing in BTU or MW value;
When priced in cubic metres or tonnes, moisture levels and HHV can be manipulated. These
specifications should be noted in contracts only as minimum acceptable levels with the benefit of the
same size and consistency for the end user; and
ISO Standard M28/95 has been established for thermal value measurement consistency and should be
used as the standard in sales contracts.
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Other considerations
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Other considerations
Torrefied pellets
According to the BC Biomass Energy Primer, torrefied wood pellets are an emerging technology developed in the
Netherlands, with an energy density some 20% higher than commercial wood pellets and consuming only half
the electricity in production.
Thermo chemically treated pellets, while not yet widely produced or used and still under study, are designed to:
increase energy density, reducing transportation costs;
reduce biological activity;
reduce smoke production;
withstand up to twice the crushing force of normal wood pellets; and
store longer and be more forgiving to fluctuating temperatures and humidity levels.
Topell, a torrefied pellet manufacturer in the Netherlands points out that "all fibrous biomasses are suitable for
torrefaction resulting in a higher feedstock flexibility and thus in the opportunity to process low valued raw
materials to a high value biocoal."
This would link well with the recent MNR directive encouraging the use of biofibres in creating renewable, carbon
neutral fuel sources for power generation and further development of the technology might find support under
programs contemplated by MNR stemming from this directive.
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Appendix A:
Premium pellet specifications
Premium pellet specifications
(as per MNR Terms of Reference)
All pellets are to be produced to meet current typical wood pellet specifications (all values,
as received):
Gross Calorific Value (HHV): > 19MJ/kg
Moisture: < 5%
Ash < 1%
Bulk Density > 650 kg/m3
Particle Size Distribution 100% < 3mm
(dust in pellet) 95% < 2mm
75% < 1.5mm
50% < 1mm
Pellet Size < 10mm diameter
< 40mm length
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Appendix B:
Fibre supply
Fibre supply
Breakdown of species by forest
The following is a breakdown of Crown forest fibre supply by species considered for the
wood pellet cost study, including round wood and tops, as confirmed by forest
management:
White/Red Spruce-Pine- Tolerant
Forest White Birch Other Conifer Poplar All In
Pine Fir Hardwoods
SFL Manager Estimates
Bancroft-Minden Forest 3,879 2,398 17,424 9,527 5,255 29,225 67,708
French-Severn Forest 6,760 15,210 18,590 27,040 21,125 100,555 189,280
Mazinaw-Lanark Forest 7,758 5,129 25,954 10,785 5,435 56,990 112,051
Nipissing Forest 63,024 18,569 180,481 32,714 166,841 129,976 591,605
Ottawa Valley Forest 6,174 696 5,543 2,523 1,589 24,144 40,668
Sudbury Forest 63,297 7,580 119,590 79,408 190,896 18,506 479,277
Temagami 51,985 12,013 32,282 37,096 27,346 19,230 179,952
202,877 61,595 399,864 199,092 418,487 378,626 1,660,541
12% 4%
23% White Birch
Other Conif ers
Poplar
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Appendix C:
Fibre supply haulage distances
Fibre supply haulage distances
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Appendix D:
References
References
1. Standard & Poors, Industry Surveys: Paper & Forest Products, January 2008
2. IEA Bioenergy, Global Wood Pellets Markets and Industry: Policy Drivers, Market Status
and Raw Material Potential, November 2007
3. proPellets Austria, Production and market trends and EU perspective, June 2008
4. Pinnacle Pellet Inc., Canadian Pellet Production for Worldwide Markets, June 2008
5. Biofuels Canada, On the Path to a Bioenergy-Rich Future, August/September 2008
6. Canadian Council of Forest Managers, Facing the Challenges of Forest Industry
Restructuring, October 2006
7. Government of Ontario, Ministry of Natural Resources, Forest Management Directives
and Procedures: Forest Biofibre Allocation and Use (Directive FOR 03 02 01), August
13, 2008
8. IEA Bioenergy, see 2 above
9. Government of Ontario, Ministry of Natural Resources, Evaluation process for biofibre
volume and value calculations, May 6, 2008
10. Government of Ontario, Ministry of Natural Resources, Forest Sector Prosperity Fund,
http://www.mnr.gov.on.ca/en/Business/Forests/2ColumnSubPage/STEL02_167208.html
11. Government of Ontario, Ministry of Natural Resources, Loan Guarantee Program,
http://www.mnr.gov.on.ca/en/Business/Forests/2ColumnSubPage/STEL02_167204.html
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References
12. THE PELLETS@LAS PROJECT, A Comprehensive European Pellet Market Overview, May
2008
13. SenterNovem, EUBIONET2: Factsheet 10 the Netherlands: Wood Pellets from
Canada, August 2007
14. Ibid
15. Pellet Fuels Institute Newsletter, 2008 Issue #1, Page 6
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