The Sexy Fuel

http://www.biomassmagazine.com/articles/5494/the-sexy-fuel

 

Why isn’t biomass sexier in the U.S.? I’ve been told it’s the “sexy fuel” in Germany, and again I wonder: when will we catch up?

 

By Lisa Gibson | May 02, 2011

 

Why isn’t biomass sexier in the U.S.? I’ve been told it’s the “sexy fuel” in Germany, and again I wonder: when will we catch up?

Germany increased its number of pellet-fueled heating plants from 3,000 in the year 2000 to about 125,000 in 2009, mostly in residential and small-scale commercial applications. That’s an astonishing climb in nine short years and it’s not the only European country to exponentially increase its wood pellet use recently.

Andrea Stahl, commercial specialist with the U.S. and Foreign Commercial Service in Germany, told me that the energy change encompasses much more than just feedstock, but also energy efficiency, changed mobility concepts and change of lifestyle. Her wording is so splendid that I won’t try to paraphrase: “Being resourceful no longer has the stigma of being uncool, funless, wearing self-knitted baggy clothes and munching dust-dry cereal.” Instead it’s quite the opposite. It’s a status symbol to own a smart car, buy eco-friendly foods and wear eco-friendly clothing. Fine. I get it. German hippies are cool.

So how do we make hippies cool in the U.S.? I realize that’s a gross stereotypical generalization, but all kidding aside, I think you see where I’m going with this. I’ve said it before and I’ll say it again and again: we need incentives; reasons to produce and use pellets that come with meaningful benefits. And apparently, that needs to come hand in hand with an attitude adjustment. We have a ways to go, but it seems the wheels are beginning to turn, albeit painfully slowly.

For instance, Vermont is working on an incentive for residential pellet heat in lieu of oil to spur use of the local, clean alternative. In the face of biomass plant proposal cancellations, including one in Pownal, Vt., I have to admit I got a little giddy when I heard about this incentive and hope it catches on elsewhere in the country. And the USDA recently held an open solicitation for proposals to study the feasibility of providing crop insurance to producers of biomass feedstocks like corn stover, straw and woody biomass. Crop insurance for biomass? Yes please.

Alright, so wood pellets are slowly getting a little sexier in the U.S. and export opportunities up the quotient a bit more. Global pellet markets, specifically in Europe, are booming and expected to continue their climb to the top of the world’s renewables pedestal.

And you knew this was coming: Biomass Power & Thermal’s International Biomass Conference & Expo this week in St. Louis will of course touch on those global opportunities more than once. Most notable, though, is Wednesday’s plenary session “From Here to There and There to Here: Examining Global Project Development,” which features four speakers including the U.S. Industrial Pellet Association’s executive director, Seth Ginther. For more information on the conference, visit www.biomassconference.com. It’s important to note that the recent foul weather in the region will not affect the conference, and the airport is back to full operation following the beating it took from an enormous tornado.

So since we haven’t caught up to Germany in wood pellet use, I suppose the plus side is we have plenty of room to grow. And I’m über excited to see where that growth takes us.   

Lack of federal loan guarantees slows alternative energy development

http://michiganmessenger.com/48707/lack-of-federal-loan-guarantees-slows-alternative-energy-development

 

By Eartha Jane Melzer | 05.02.11 | 2:56 pm

A solar cell manufacturing factory near Saginaw, a cellulosic ethanol plant in the Upper Peninsula and a renewable energy park at the former Ford Wixom Assembly Plant are among the Michigan alternative energy projects that say they have been delayed because they haven’t been able to secure expected federal loan guarantees.

The Detroit Free Press reports that the stalled projects, if actualized, would bring $1.2 billion in new investment in the state and more than 3,800 potential jobs.

Production that was supposed to start late this year [at the Ford Wixom renewable energy plant] has been delayed as Clairvoyant Energy and Xtreme Power, the companies behind the project, are still trying to line up the financing needed to buy the 320-acre property. So far, they have not succeeded in obtaining a loan guarantee from the U.S. Department of Energy.

David Hardee, Clairvoyant’s CEO, said the companies hope to complete the purchase of the plant at the end of this year, 12 months behind schedule. The firms are seeking loans from several banks in case they don’t get the loan guarantee. The first phase of the $600-million project will require investments of $250 million.

“Everything’s on track in Wixom,” Hardee said, noting that the companies have received the state environmental permits required for the deal.

The Free Press reports that clean energy companies feel they need federal loan guarantees because it is difficult to find private investors willing to fund expensive new technologies without a track record of success. But some are frustrated with the difficulty of obtaining government backed loans.

Last year, the U.S. Government Accountability Office examined the loan guarantee program and found that the Energy Department “has treated applicants inconsistently, favoring some and disadvantaging others.”
The lengthy approval process for the guarantees also has caused frustration, prompting eight renewable energy trade groups to send Energy Secretary Steven Chu a letter in September that expressed their concerns.

“It’s been difficult for companies,” said Martin Dober, the Michigan Economic Development Corp.’s senior vice president of entrepreneurship and innovation. “You can put a lot of time in this process and not come up with a good result.”

North Carolina awards $1.6M to 15 biofuels projects

http://biofuelsdigest.com/bdigest/2011/04/29/north-carolina-awards-1-6m-to-15-biofuels-projects/

Jim Lane | April 29, 2011 |

In North Carolina, the Biofuels Center of North Carolina has awarded $1.6 million for 15 projects statewide to accelerate the commercialization of renewable liquid fuels. Awards are made through the 2011 Statewide Biofuels Development Grants Program. By 2017, 10% of North Carolina’s liquid transportation fuels is expected to come from biofuels grown and produced within the state. The Center received 58 pre-proposals totaling more than $5.2 million from 23 institutions following its December 2010 request for proposals.
The complete list of grant awards follows:

Regional woody biomass analyses:

* $50,000  ~  Assess Potential of Woody Biomass for Advanced Biofuels Production  ~  North Carolina’s Eastern Region  ~  Kinston

* $50,000  ~  Regional Site Assessment of Woody Biomass Resources for N.C.’s Northeast Region  ~  North Carolina’s NE Economic Development Commission  ~  Edenton

* $50,000  ~  Regional Analysis of Assets for Biofuels Firm  ~  Charlotte Regional Partnership  ~  Charlotte

* $50,000  ~  Extraction and Refinement of Oils from Biodiesel Feedstocks  ~ North Carolina’s Southeast Region  ~  Elizabethtown

These four regions will work with forestry consultants to assess the availability of woody biomass in their respective regions. The strategy is a three-phase approach that will provide a regional assessment suggesting the optimum two sites per region, the validated infrastructure required for a biofuels production facility, and a detailed woody biomass assessment for the selected sites.

Municipal solid waste projects:

* $145,988  ~  Assessment of Municipal Solid Wastes into Biofuels via Pyrolysis  ~  N.C. A&T State University  ~  Greensboro

This project will assess the conversion of municipal solid waste into bio-oil using pyrolysis, analyzing the technical and economic feasibilities.

* $93,119  ~  Utilizing Municipal Solid Waste as a Biofuels Feedstock  ~  Environmental Research and Education Foundation  ~  Raleigh

This project will explore the use of gasification that can be used on about 60 percent of solid municipal waste (MSW). It will also study the process of MSW into liquid fuels compared to other forms of energy from MSW.

Energy grasses projects:

* $133,776  ~  Native and Non-Native Mouse Interactions in Switchgrass – Pine Systems  ~  UNC-Greensboro  ~  Greensboro

This project will assess if there are sustainability issues with intercropping. Certain mouse species function as “canaries in the coal mine,” giving warning if there are sustainability issues.

* $85,542  ~  Suitability of N.C. Piedmont Soils for Bioenergy Crop Production  ~  N.C. State University’s Soil Science Department  ~  Mills River

This project will study the effects of perennial bioenergy grasses on soil chemistry and physical properties.

* $150,000  ~  Expanding Piedmont Perennial Grass Production Through Grower Engagement  ~  N.C.
State University’s Biological and Agricultural Engineering Department  ~  Jackson Springs, Salisbury, and Reidsville.

This project will provide equipment assistance to growers; build a collaboration between growers, seed and tissue providers, and biomass consumers; and develop a comprehensive marketing plan to help link producers and potential consumers.

Production innovations:

* $149,488  ~  Sorghum Biofuels: A Route to Commercialization in North Carolina  ~  N.C. State University’s Biological and Agricultural Engineering Department  ~  Roper

This project will analyze sorghum as a source of biomass. Sorghums contain high levels of fermentable sugars and significant cellulose materials while requiring relatively low agronomic input. The grant will also study the impact of second harvests in industrial-scale production.

* $97,088  ~  Environmental Protection and Biofuels Production on Waste Application Fields  ~  N.C. State University’s Forestry and Environmental Resources Department  ~  Gibson and Jacksonville

This project will analyze the state’s potential acreage for waste application. It also will demonstrate using the fields for biocrop production and pollutant mitigation, and evaluate economic value of the strategies.

* $144,082  ~  Pilot Scale Continuous Flow Microwave Pretreatment of Grasses  ~  N.C. State University’s Food, Bioprocessing, and Nutrition Sciences Department  ~  Raleigh

Microwave heating technologies have been shown to be effective as a pre-treatment of feedstocks such as grasses to enhance hydrolysis and remove lignin. This project will study how continuous flow microwave using a patented technology may increase commercialization.  It will include validation of the process.

* $148,419  ~  Loblolly Pine Biomass Cropping Study  ~  N.C. State University’s Forestry and Environmental Resources Department  ~  Butner

This project will test Loblolly pine varieties for the potential use as feedstock in the Piedmont region.
* $119,675  ~  Cooking Oil Recycling Program  ~  Metropolitan Sewerage District of Buncombe County  ~  Asheville

This project will analyze increasing access to a low-cost feedstock by providing public collection sites. The grant will also study the impact of public education programs in multiple communities.

* $145,665  ~  Efficient Biodiesel Production from Inexpensive Feedstocks  ~  Wake Forest University  ~  Winston-Salem

This project will study a newly developed enzyme and technology to replace acid pre-treatment.

Pellet Projects: Developers plan to build two pellet mills in Virginia.

http://biomassmagazine.com/articles/5482/pellet-projects/

 

By Lisa Gibson | April 29, 2011

 

Wood Fuel Developers LLC, an affiliate of Industrial TurnAround Corp., is developing two wood pellet facilities in Virginia, having received multiple grants.

The company announced its plans for Greensville County in January of 2010, armed with more than $3.5 million in federal and state funds, and planning to invest $18.7 million itself, according to ITAC. The company reported that the project received $1 million from the American Recovery and Reinvestment Act, along with $2.3 million from the Greensville County Industrial Development Authority for construction of the plant and site improvements and infrastructure, $175,000 from the Governors Opportunity Fund and $175,000 from Tobacco Region Opportunity Funds.

Also, in January, Virginia Gov. Bob McDonnell announced a new $8.6 million pellet mill undertaking for Wood Fuel Developers in Sussex County, with another $185,000 in state funds from the governor’s office and Tobacco Region Opportunity Funds. Wood Bioenergy US, a Forisk Consulting report, said the company will convert a former particleboard plant in the Sussex County town of Waverly into a pellet plant.

Ideas for Investing in Cellulosic Ethanol

http://seekingalpha.com/article/266556-ideas-for-investing-in-cellulosic-ethanol

 

April 29, 2011  |   

By Tony D’Altorio

Biofuel certainly seems like an up and coming global growth industry.

The International Energy Agency sees worldwide consumption increasing from an annual 55 million tons of oil equivalent to 750 million in 2050.

Right now, biofuel makes up a mere two percent of the transportation fuel market. But analysts expect it to increase to 27 percent in four decades.

Here in the U.S., however, the issue is controversial. Rising corn prices have renewed debate over ethanol, a corn-based fuel for vehicles
.
The argument comes down to a matter of food vs. fuel. After all, the U.S. uses 40 percent of its corn crop to create ethanol every year.

That demand is one of the factors driving up corn prices around the world.

Fortunately, there is a viable alternative in cellulosic ethanol.

Cellulosic Ethanol

Cellulosic ethanol, a second-generation ethanol, is derived from agricultural waste. Because it comes from straw husks, sugar cane off-cuts and the like, it does not compete with food production.

McKinsey predicts this market will amount to $75 – $140 billion worldwide by 2020. The consultancy firm sees this happening as the U.S., Europe, China and others promote biofuels to reduce carbon emissions and oil dependency.

But the cellulosic ethanol industry has not taken off yet.

Doubts about its economic viability remain. And the U.S. corn industry has objected too, since it doesn’t like competing for space at the government trough.

Yet Italy just began construction on the world’s first commercial-scale production facility. Due for completion next year, the plant will have a 13 million gallon per year capacity.

With production costs around $2.50 a gallon – similar to corn-based ethanol – it will be competitive with current fuel prices.

Before this point, the U.S. had the lead in this new market. President Obama had aimed for 250 million gallons this year alone, but his administration cut the target to just 6.6 million after delays to planned U.S. production facilities.

And now, Europe, China and Brazil all have plans to start full-scale production by 2013.

DuPont and Danisco

Because of its nearly $6 billion takeover bid for the number two company in the cellulosic ethanol industry, DuPont (NYSE: DD) looks likely to come out ahead in this market.

Its target, the Danish company Danisco ADR (Other OTC: DNSCY.PK), makes food ingredients. It also produces enzymes that allow biomass, such as switchgrass, to ferment into ethanol.

The two companies already jointly develop cellulosic ethanol at a demonstration plant in Tennessee. But the planned acquisition would give DuPont full control.

Currently, the fuel contributes a fraction of Danisco’s $2.67 billion of annual revenues. But if second-generation ethanol fulfills even a fraction of its forecast potential, it could transform the company’s growth prospects.

The same goes for Novozymes ADR (Other OTC: NVZMY.PK), the market leader. It invests heavily in the fuel and plans to build a demonstration plant in China this year.

Enzyme makers expect just a sliver of the billions the industry should generate. But analysts think it could still double the size of the market to over $5 billion annually.

If so, Danisco seems like a wise acquisition for DuPont to make. Though the deal could still fail…
Danisco shareholders don’t seem to like the offer. They think DuPont should pay more for the company’s green energy potential.

In order to win over those investors, DuPont will probably have to raise its bid. But even so, that takeover will pay off in the long term.

Disclosure: Investment U expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees and agents of Investment U (and affiliated companies) must wait 24 hours after an initial trade recommendation is published on online - or 72 hours after a direct mail publication is sent - before acting on that recommendation.

Making Ends Meet

http://biomassmagazine.com/articles/5460/making-ends-meet/

 

North American pellet manufacturers talk about supply, demand and competition.

 

By Anna Austin | April 28, 2011

In the wood pellet industry there is always competition for raw material and for making sales. It doesn’t matter if you’re just a small guy, because in this industry, the small guys matter. One or two new small-scale producers in the right area can wreak havoc on the sales of a pre-existing plant.

That’s the perspective of Chris Sharron, owner of Western Oregon Wood Products.  “A lot of the smaller ones can add up to quite a bit of tonnage,” Sharron says.

And, they may have advantages over large-scale manufacturers, one being that they don’t have a lot of production to sell so lags in market demand don’t affect them as much. “A sawmill plant utilizing its own materials doesn’t have transportation costs to bring materials to the plant,” he says. “A lot of them are using their own byproducts that are kiln dried, so there are also no drying costs. They can be highly competitive although they aren’t very big, and they take little mouthfuls out of the market in a particular region that some former supplier was supplying into.”

WOWP, which was started by Sharron and his brother in 1985, operates two pellet plants in Banks and Columbia City, Ore., which have a combined annual capacity of 80,000 tons. Seeing the industry evolve over the decades, Sharron says there was a period of rapid growth several years ago, but in the past couple of years things have become rather flat. “There’s been an increased demand over the years, especially in the past five years, but it hasn’t been real steady growth,” Sharron says. “It’s spiky. Fossil fuel costs go up, and if the economy is conducive to where people have jobs and disposable income, they might look at an alternative way to heat their homes, one being a pellet stove.”

When that happens, demand can increase at a quick pace and there may be spot shortages of fuel, which potential developers can misconstrue as a beckoning opportunity. “[Shortages] hit the headlines and people decide pellet making is a business they should get into,” Sharron says. “What they don’t realize is that there is a lag time in putting the project together—permitting and installing the equipment—and by the time they’re ready to turn the keys and start bagging fuel, the industry has cycled back the other way, and there’s an oversupply. That’s kind of what’s happened in the past few years. It’s highly competitive now, because the market hasn’t grown enough.”

To put that into perspective, Sharron says that there were roughly 40,000 new pellet stoves sold in the U.S. last year, and a general rule of thumb is that on average, a stove uses 2 tons of pellets per year. That equals an additional demand of 80,000 tons annually. “There are a number of plants where just they by themselves are producing that or more,” he says.

Charlie Niebling, general manager of New England Wood Pellet, says pellet demand was off the charts in 2008 because of the big run-up in fossil energy pricing, but things slowed down in 2009, and 2010 was a soft year for the company. Despite that fact, he says things are beginning to pick up again.

Supplying Close to Home

New England Wood Pellet operates three plants in Jaffrey, N.H., Schuyler, N.Y., and Deposit, N.Y., which have a combined capacity of about 250,000 tons per year when running at full tilt.

Much like WOWP, most of the pellet volume produced at NEWP ends up in residential heating applications—about 98 percent. Despite the fact that U.S. pellet exports are being touted by the government as a great opportunity, Niebling says it is unlikely that the company will ever ship overseas, as long as the domestic market is strong enough. “Philosophically, we strongly believe in focusing our efforts on solving America’s energy challenges, not Europe’s, and from a practical standpoint it’s something that is very difficult to do viably from the Northeast U.S.”

That’s because of the region’s high wood material costs, and its lack of port facilities set up for bulk cargo shipping of pellets. “Our plants aren’t conveniently located near port facilities; we have a lot of inland freight,” Niebling says. “Where it works in this country is where there is less expensive wood feedstocks, and rail to get the product to a port, one that can stage a large volume for bulk cargo shipping. The Northeast just doesn’t have the circumstances that are well-suited to that, given the current pricing overseas.”

Sharron says that with the nature of pellets—a relatively low value versus bulk and weight—freight is a big issue, so most pellet plants only have the ability to distribute regionally. “Being here in western Oregon, our markets are Washington, Oregon, California, Nevada and Idaho and Utah a little bit, but past that point we’re not very competitive due to that freight issue.”

WOWP has looked at many opportunities to ship overseas and has had a lot of inquiries over the years, but it just doesn’t pencil out, Sharron says. “The value on the other end will only bear so much,” he says. “By today’s standards, we’re not a huge producer, so we don’t have the economies of scale that some of the other exporters do have.  Alongside that, the raw material costs in this area are not conducive to getting things to balance out, certainly not to Europe or the Asian markets, where some activity is starting.”

 For Pinnacle Renewable Energy in British Columbia, shipping overseas makes the most sense for the company for a number of reasons, one being the close proximity of its plants to rail and ports.

 Pinnacle has six plants in B.C. that produce a total of 1.1 million metric tons per year. The company ships about 90 percent of its product overseas to the large-scale industrial power generation sectors in both Asia and Europe, but mainly to Europe, according to Leroy Reitsma, Pinnacle’s chief operating officer.

Reitsma says demand has slowed in advance of new legislation being defined and introduced in both Asia and Europe, but indications for future demand remain strong.

The company’s plant development model has kept it from experiencing some of the obstacles other manufacturers are facing, such as stiff competition for raw materials and transportation costs. All of Pinnacle’s plants are strategically located close to Canadian sawmills, and have formed material supply relationships with them. “Fiber pricing is more a function of local economic factors, due to the high price of transporting raw residuals,” Reitsma says.    

Competing for Raw Material

In an industry that is a branch of the larger biomass power industry, wood resources of all kinds are sought after for different purposes. “We compete for our feedstock, there is no question about it,” Niebling says. “When our plants are at 100 percent capacity, we are dependent on round wood chips, and then we’re competing much more directly with the pulp and paper industry. Also to some extent, [we compete with] the biomass power plants we have up this way, although we have a slightly different feedstock need than they have because they can use a much lower quality chip than we can to make a premium grade pellet.”

Michael Curci, business development manager for Indeck Energy, says competition for feedstock is always a source of concern in the region where the company operates. Indeck has a two-year old, 90,000-ton pellet manufacturing facility in Ladysmith, Wis., that sells about 60 percent of its product for residential use, the rest commercial and industrial.

“There are three pellet mills within close proximity to us, and there are some proposed biomass power plants in the area that are under review by the state, so it’s something we have to keep an eye on,” Curci says. “If prices go up with more competition, pellet prices will reflect that. That won’t be the case at any individual production facility, but across the board in our region.”

 The cost of raw material is a cyclical issue, Sharron says. “Our two plants rely on byproducts or residuals from sawmilling operations, for the most part,” he says. “In these past few years, with the housing and construction markets being soft, a lot of the area sawmills have curtailed production or even shut down completely, so there’s less supply on the market.”

A big competitor for the materials WOWP uses is the composite/particle board industry, but it has been affected by the depressed wood product industry as well. “They aren’t as stiff a competitor as they have been at other times,” Sharron says. “On the other hand, pulp mills also use the same fiber, and their markets have been relatively strong, so there’s always something, depending on the cycle.”

Niebling says raw material prices float, according to what fossil fuel prices are doing. “If oil and propane prices keep going up, and there’s enough margin for the retailer, the distributor and manufacturer to operate profitably even with higher wood costs, that price threshold can be higher than it is today.”

Some plants can afford to pay more for their raw materials than others, Sharron says. “That depends on a lot of things, such as debt service,” he says. “If it’s a new plant, it probably has a higher debt load and it might not be able to afford as much as an older manufacturer who doesn’t carry as much debt. It’s all relative to what the value of a finished product is at a given time.”

When competition for wood fiber material is fierce and prices are high, looking for alternative feedstocks is an appealing idea on the surface, but it isn’t as easy as it sounds.

Searching for Alternatives

“We’ve looked at [alternative feedstocks], but never seriously, because when you design and build plants like we have, you do it to handle one type of feedstock,” Niebling says. “The handling, conveying, refining and processing of biomass is unique to each individual type of feedstock. When you start to introduce different types of materials it changes your plant performance. You have to understand how those different feedstocks affect operations.”

Furthermore, the residential market is still the major market in the U.S., and there aren’t many appliances or pellet stoves that can handle the quality characteristics of an ag-based pellet, which has higher ash content and is more prone to clinkering. “You may not even be able to manufacture a lower grade pellet that you would have to sell for less, because some lower quality materials are more expensive to turn into a pellet, unless it’s offset by the cost of the raw material at the gate,” Sharron says. “That might be less of an issue on a commercial or industrial basis, but no matter what the pellet is made of, we’re competing with coal and it’s extremely difficult to compete with the cost of a Btu of coal.”

 Those in the industry know that making pellets is a low-margin proposition. “There’s not a lot of profit in it and there isn’t a lot of room for inefficiency, so we’ve been reluctant to consider blends or to make different types of pellets from other feedstocks,” Niebling says. “We want to get really good at doing one thing, but that doesn’t mean that won’t change in the future. If wood gets really expensive and suddenly hybrid willow or poplar starts to look more attractive, we’d consider that. I don’t see it any time soon, but if this industry grows the way we believe it will, we might all be looking at a variety of feedstocks.”

Author: Anna Austin
Associate Editor, Pellet Mill Magazine
(701) 738-4968
aaustin@bbiinternational.com

Pellet Pitfalls

http://biomassmagazine.com/articles/5459/pellet-pitfalls/

 

German utility RWE Innogy is building a wood pellet mill in the Southeast U.S. to supply fuel for its parent company’s power plants in Europe. The move could be an indication of the challenges in consistently shipping high-quality pellets overseas.

 

By Lisa Gibson | April 28, 2011

 

The Southeast U.S. offers an abundance of wood resources for pellet manufacturers and several have taken up residence there to utilize that supply chain. Some larger facilities are shipping their pellets overseas to better-developed markets in Europe that incentiveize industrial biomass use. While the U.S. pellet export market seems to be evolving and more companies are trying to break into it, one particular European utility has opted to come halfway around the world and operate its own pellet plant, shipping its product to its own European utilities.

Georgia Biomass in Waycross, Ga., is in its precommissioning phase and expects to begin shipping pellets in the second quarter of this year, according to Chief Financial Officer Sam Kang. The mill will produce about 750,000 metric tons of pellets per year for internal use by subsidiaries of German utility RWE, including recently acquired Dutch utility Essent, one of the largest pellet users in the world. With the marriage of Essent and RWE, Georgia Biomass—a subsidiary of RWE Innogy—completes the loop.

Of course the Southeast has ample resources and strict, reliable sustainability codes, but why not just purchase the pellets from U.S. producers already operating there?

Supply, Quality, Price

Many pellet mills, not just in the U.S., are privately funded and may not be well-capitalized, Kang says. Mills with thin margins or those that are kept afloat shipment-by-shipment can’t always provide security of supply, one of three main reasons RWE is constructing its own mill. Pellet mills with credit problems can run out of cash, putting their off-takers at risk of insufficient fuel supply. “[Essent has] had instances when people don’t deliver because the price of sawdust or shipping went up, for instance,” he says. “Little things like that happen and we just don’t want to be open to that.”

The next reason for an internal pellet plant is no surprise: quality. “Quality is very important and is one reason we did invest in our own pellet facility here in the U.S.,” Kang says. “We want to make sure we get the same consistent good quality.” Ash content, fines and calorific value are a few of the important elements, he says. “Yes, Essent has turned away shipments because of quality.” Contracts specify quality parameters for the delivered fuel and the buyer can and most likely will refuse a shipment if it does not meet those specifications. “Based on that, if there was any opportunity to renege on a contract, [the customer] would, and rightfully so,” says John Swaan, chief operating officer for Green Frontiers Energy Group. “If the criteria aren’t met, they have every right to refuse a shipment.”

“We’ve made tens of millions of euros in investments to convert existing coal plants to be able to cofire, so we want to be able to make sure that we will also be receiving those high-quality pellets so we get subsidies to repay our investments,” Kang says.

Quality problems can arise when using poor raw materials or having inadequate cooling in the pelletizing, storage and handling processes, according to Swaan. “You cannot pile up residue, process it, bring it in and expect it’ll be magically altered and refined to something that’s suitable,” he says. “Junk in is still junk out.” Management of the raw material is crucial, he adds, and handling it correctly, in the case of forest residues, means avoiding scraping it through the forest floor and pushing it into piles. “As soon as you contaminate it with dirt, obviously you’re going to have some issues.” While the problem isn’t common in U.S. pellet mills, it has happened in the past and is a lesson today’s manufacturers can learn from others’ mistakes. “What the industry has to learn … in North America is that even though it’s an industrial pellet, it still means that you need quality residues,” Swaan says.

The final major driver in RWE’s decision to develop Georgia Biomass is price risk. “Part of vertical integration is that then you would be insensitive to large price movements,” Kang explains.

But supply, quality and price aside, Georgia represents an ideal location because it has sustainably grown and harvested desirable trees as crops for decades. “We specifically chose Georgia in the Southeast U.S. for the southern pine,” Kang says. The tree is abundant, and has ideal calorific value for RWE’s processes. “More trees are grown than cut down each year,” he says. “We’re looking for long-term production here.”

It goes without saying that not all U.S. pellet manufacturers are guilty of supply and quality issues, and many are successfully shipping pellets to Europe fairly frequently, such as Green Circle BioEnergy Inc. in Florida and Fram Renewable Fuels LLC in Georgia. Some say success in export markets depends on proximity to wood supply and port access. “European buyers are the same as buyers the world over,” says Harold Arnold, president of Fram Renewable Fuels. “They want the product at the lowest possible price. Not every project in every location can be profitable. All have their unique problems and conditions.”

Similarly, the hardships RWE and Essent have endured with suppliers are not attributable only to North America. “It can happen anywhere,” Kang says, adding that the economics, logistics, fiber sustainability and material quality in the U.S. simply represented the best opportunity for RWE and its internal pellet demand at the time it made its investment decision.


Disconnect?


But while some European pellet customers might say suppliers and brokers aren’t following through on their quality, volume and price commitments, it’s possible they simply don’t understand the cost of delivering a consistent quality product overseas, says Pete Stewart, president and CEO of Forest2Market, a provider of market trend and industry information for forest products and bioenergy. “On one hand, European utilities say they can’t get consistent deliveries at a good price,” he says. “But on the other hand, they won’t pay the price to get a quality product over there.”

Stewart doesn’t consider RWE to be one of those ill-informed utilities. “They pretty much understand the cost,” he says, adding RWE might not fully nail down exact cost figures until it begins shipping commercial quantities from Georgia. “Right now, their costs to manufacture and deliver a pellet is way in excess of market price, so they’ll certainly be losing on [Georgia Biomass], or they could easily replace the volume in that plant with market-based product, but that doesn’t mean they can replicate the quality of their product in the market, or the timeliness of delivery,” he says. Timeliness and quality are major components of cost, he adds. “I would suggest the price right now doesn’t really take into account consistency or strict adherence to quality measures and that might be the disconnect between the markets and what it really costs to get a decent product to a location in Europe.”

The U.S. is the No. 2 producer of wood pellets in the world, but only exports 20 percent of its product, according to the American Biomass Trade Cooperative (ABTc). In comparison, Canada exports about 80 percent of its product. International investors are indeed reluctant to work with American producers because of shipping hurdles and the inability to secure on-time and undamaged product, according to the cooperative. In accordance with RWE’s reasoning, that security of supply is the primary concern of foreign pellet customers, according to Scott Miller, founder and president of bioenergy marketing and consulting firm The Miller and De Wulf Corp., and marketing consultant for the ABTc. Among other initiatives, the cooperative seeks to serve as a middleman between American biomass product manufacturers and foreign customers, marketing and connecting the two.

“We will definitely be trying to streamline communication across the pond,” Miller says. The possible pricing disconnect is one element of biomass exporting that the cooperative could tackle with its work. “It’s an understandable concern,” he says.

In the thick of it, though, the view might be much different. “That’s just typical business,” Arnold says of the suggested pricing disparity. “I don’t think there’s a disconnect. I think it’s just the long-term situation in business.” The buyer will never propose to pay more than the market price, he adds. “It’s capitalism at its best.”

There is substantial risk involved in the pellet export industry, specifically for startups, which account for a significant portion of manufacturers in the U.S., Kang says. But Georgia Biomass avoids that risk by supplying its own internal demand, although Kang says selling to third parties is an option if excess supply exists after RWE’s demands are met. Even though RWE’s mill means reduced interest in the global pellet market, Kang is still hoping for the success of pellet producers because it builds stability in that market. “I would be very happy to see the success of all the pellet producers because it only helps the whole industry,” he says.

But it is a tough business to be in, Arnold cautions. “Wood pelleting is not a get-rich-quick scheme,” he says. “It is capital intensive and dirty, dusty manufacturing at its best.” He adds that the hype surrounding the wood pellet industry and its export potential has led many project developers to believe pellet manufacturing is a business with guaranteed profits. “Unfortunately it is not,” he says. “The same discipline must be applied to the pellet business as any other. You can make a little money at it, but there’s an awful lot of hard work to do it.”

Author: Lisa Gibson
Associate Editor, Pellet Mill Magazine
(701) 738-4952
mailto:lgibson@bbiinternational.com