Feasibility assessment: Wood pellet raw material from Canadian

RESEARCH REPORT VTT-R-10283-08

Feasibility assessment:

Wood pellet raw material from Canadian British Columbia Authors: Camilla Wiik, VTT

Veli-Pekka Heiskanen, VTT Markku Kallio, VTT Perttu Anttila, Metla

Confidentiality: Public


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Cover page photo: Lodgepole pine log truck and forest damage, Prince George, British Columbia, Canada. By: Ronald F. Billings, Texas Forest Service, Bugwood.org


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Preface

This feasibility assessment is part of the project Global Forest Energy Resources, Sustainable Biomass Supply and Markets for Bioenergy Technology (GloEner). The project is part of the ClimBus programme, which is funded by the Finnish Technology Development Agency Tekes. Additional project funding is provided by John Deere Forestry Oy, Metso Power Oy, Neste Oil Oyj, Pentin Paja Oy, Stora Enso Oyj, and Vapo Oyj. The GloEner project aims to create new markets and business opportunities for Finnish bioenergy technology in, for instance, North America. The goal is to facilitate technology transfer to new markets of Finnish machine and system suppliers in the forest energy sector. One prerequisite of market expansion is to gain knowledge of local conditions and the local market in the target area. The present study focuses on the province of British Columbia in western Canada, with a vast biomass potential which is at least partially unutilised. Information about the bioenergy sector in the target area, including raw material resources and infrastructure of biofuel production – in this case wood pellet production, is necessary for the analysis of the market, as well as assessment of feasibility in entering the market. This feasibility assessment is prepared in cooperation by VTT – Technical Research Centre of Finland and Metla – Finnish Forest Research Institute, as well as members of the steering group: Marjatta Aarniala, Tekes, Jatta Jussila, Technopolis Oyj, Janne Häikiö, Pentin Paja Oy, Jorma Kaukoaho, Stora Enso Metsä, Jouni Kinni, Metso Power Oy, Pekka Leppänen, John Deere, Kari Mutka, Vapo Oy and Riitta Lempiäinen, Neste Oil Oyj. Jyväskylä 19.1.2009 Authors


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Contents

Preface ........................................................................................................................3

Currency rates .............................................................................................................5

Introduction..................................................................................................................6

1 Forests and wood energy .......................................................................................7

1.1 Forest resources .............................................................................................7 1.2 Forest types ....................................................................................................7 1.3 Forest management and certification..............................................................9 1.4 Wood energy...................................................................................................9

2 Forest industry and industry residues...................................................................10

2.1 Forest industry ..............................................................................................10 2.2 Forest industry residues................................................................................11 2.3 Other applications for industrial wood residues.............................................12

3 Pine beetle infected forests as sources of raw material........................................13

3.1 Availability of mountain pine beetle infested wood........................................14 3.2 Feasibility of technologies for utilising mountain pine beetle-killed wood......16

4 Importing plant products to the European Union ..................................................17

5 Pellet production in Canada .................................................................................18

5.1 Current situation............................................................................................18 5.2 Future situation .............................................................................................22 5.3 Pellet production technology.........................................................................22

6 Pellet plant investment costs ................................................................................24

7 Pellet production costs .........................................................................................26

8 Pellet transport costs ............................................................................................30

8.1 Truck transport..............................................................................................30 8.2 Train transport...............................................................................................32 8.3 Sea transport ................................................................................................32 8.4 Total costs of transportation..........................................................................33

9 The total costs ......................................................................................................36

Conclusions ...............................................................................................................38

References ................................................................................................................40

Appendices


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Currency rates

1 € (euro) = 1.26 US$ (U.S. dollar)

1 US$ (U.S. dollar) = 1.24 C$ (Canadian dollar)

Given currency exchange rates are used in the calculations in sections 6–9. The exchange rates were chosen based on the date of the cost data used in the report.


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Introduction

The worldwide production of pellets has been estimated as 6.5 million tonnes annually. Currently, Canada produces approximately 1.5 million tonnes of pellets. Most Canadian pellets are either consumed in the U.S.A. or shipped to Europe, where the price level is higher. The European consumption of pellets is 5 million tonnes – 4 million tonnes of pellets are produced in Europe. Pellets are imported to Europe from both North and South America. The forest resources of Canada are the third largest in the world. With one-fifth of the total Canadian forest area, the westernmost province of British Columbia has significant forest energy potential. Traditionally, Canadians have utilised wood energy by burning log wood in their stoves and fireplaces. Based on 2007 figures, more than 90% of the wood energy is utilised in industrial incinerators and heat and power plants. The interest in producing commercial woody biomass products, such as pellets, is a relatively new, but rapidly increasing trend. Several new or expanded pellet production units have been built each year. At the moment, the major source of pellet raw material is residues from other industrial processes, such as sawmilling. Sawdust is readily available in British Columbia, with nearly 200 sawmills that are producing almost half of all the timber in the country. In addition to sawdust, another potential source of pellet raw material is ‘standing dead wood’, which is found in the forests of interior British Columbia. Standing dead wood, also called mountain pine beetle-killed wood consists of lodgepole pine trees that are infested by the mountain pine beetle. The infestation reached its top in 2005 and based on predictions it will subside around 2009. Even so, the cumulative volume of killed pine trees will continue to increase for several years after that. The dead trees can be commercially utilised as timber only for a limited time. At the time being, the volume of dead wood already exceeds the capacity of the logging and milling industry. In this study, both raw materials – industrial woody residues and mountain pine beetle-killed wood – are considered for the production of pellets in British Columbia. The current trend places the largest growth of pellet consumption in Europe, owing to the renewable energy targets of the European Union. Therefore, the feasibility assessment of the pellet production chain includes overseas transport to Europe. Most of the exported Canadian pellets are consumed in the Netherlands and Sweden, primarily in large combustion plants.


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1 Forests and wood energy

1.1 Forest resources

Looking at the entire country, Canada has the third largest forest resources in the world [FAO 2006]. The westernmost province of British Columbia has vast forest resources with 59 million hectares of forests [BCMoFOR 2006]. Compared to Finnish forests (total area 22 million hectares), the forest area of British Columbia is nearly three times as large. The forests of British Columbia correspond to one-fifth of the total Canadian forest area of 310 million hectares. The growing stock of all Canadian forests is 33×109 m3, all of which is commercial. [FAO 2006] In British Columbia, actual timber production forest account for 25 million hectares of the total forest area of roughly 60 million hectares. Timber production forests are defined as forests from which timber has been, or is expected to be, harvested. Annually, only 1% of British Columbian forests, corresponding to about 0.2 million hectares are harvested for timber production. [Natural Resources Canada 2008, Vold 2003] In Canada, the area of unpreserved forest is 294.8 million hectares, and could therefore be available for commercial harvesting. Just under half (143.7 million hectares) of this potentially harvestable area is subject to forest management. Annually, 0.9 million hectares are harvested. Half of harvested forests are regenerated naturally, 43% are replanted and only a few percent are direct-seeded. [EUBIONET2 2007] The government of British Columbia owns almost all forest land with a 95% provincial government ownership of the land in the province.

1.2 Forest types

The range of forests in British Columbia is very diverse (Figure 1). There are large areas of montane forests in the middle, boreal forests in the north parts, coastal forests in the south-western coastal region, and columbia forests near the provincial border of Alberta in the south-eastern part. Smaller areas are covered by subalpine forests and tundra. Figure 2 gives the main ecozones in the province of British Columbia. They are:

• The Pacific Maritime ecozone along the Pacific coast: Temperate rain forests due to heavy rainfall and mild winters Most productive forests, as well as biggest and oldest trees of Canada Hemlock forests dominate

• The Montane Cordillera ecozone in central and eastern parts:

Varying vegetation Most important trees: fir, spruce, pine

• The Boreal Cordillera ecozone in the northern parts:

Roughly half of the area is covered by forest Most important trees: fir, spruce, pine


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Figure 1. Forest types in Canada. [Natural Resources Canada 2003b]

Coniferous forests are predominant in all ecozones in British Columbia (Figure 2). The forests of British Columbia are 82% softwood, 13% mixed wood and 5% hardwood. [Natural Resources Canada 2008]

Figure 2. The main ecozones of British Columbia are Pacific Maritime, Montane Cordillera and Boreal Cordillera. The map also shows the distribution of coniferous versus mixed forest in the province. [Natural Resources Canada 2003a]


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1.3 Forest management and certification

In 2005, the estimated removals of industrial round wood were about 220 million m3 and removals of fuel wood 4 million m3 in Canada. [FAO 2006] In June 2006, the area of certified Canadian forests accounted for some 120 million hectares of forest. These forests are certified under at least one of the three forest specific certification systems available in Canada: The Canadian forest specific certification systems are Canadian Standards Association (CSA), Forest Stewardship Council (FSC) and Sustainable Forestry Initiative (SFI). All of these engage aboriginal peoples and local communities; for greater transparency they also require annual audits and public disclosure of assessment reports. [EUBIONET2 2007] British Columbia is the world leader in third-party forest certification with 52 million hectares of certified forest. [Natural Resources Canada 2008, Canadian Sustainable Forestry Certification Coalition 2008]

1.4 Wood energy

In Canada, wood energy corresponds to 3.8% (10.3 Mtoe) of the total primary energy supply, which is 269 Mtoe. Canadian heat and power plants, industry and private households use 48 million m3 of wood for energy annually. Industry uses half of this (Figure 3). Private households use 3 million m3 (6%); this wood comes directly from the forests. Wood energy is almost entirely (94%) produced from industrial residues, which are combusted in heat and power plants and in industry. [Steierer et al. 2007]

Figure 3. Canadian sources of wood fuel (direct: from forests; indirect: industrial residues) and users of wood energy. [Steierer et al. 2007]


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2 Forest industry and industry residues

2.1 Forest industry

Based on 2002 figures, almost half of the timber production in Canada was situated in British Columbia (Figure 4). The total volume of timber production in 2002 was 73.0 million m3, of which nearly all (98.6%) was softwood. The major types of softwood trees used were spruce, pine, fir, hemlock, and various types of cedar. [Natural Resources Canada 2004]

British Columbia / Columbie-Britannique

46%

British Columbia / Columbie-Britannique

46%

Figure 4. Canadian production of timber by region. [Natural Resources Canada 2004]

Figure 5. Forest product mills in British Columbia in 2003. [Lee, Stanojevic & Gysbers 2004]

Figure 5 shows the forest product mills in British Columbia including establishments primarily engaged in manufacturing products from wood, such as sawmills processing logs into timber, wood preserving mills, mills manufacturing veneers, plywood, reconstituted wood panel products and other wood products. Table 1 lists sawmills in different size categories. Companies operating sawmills with a minimum production capacity that exceeds 1 000 m3/year are listed in Appendix 1.


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Table 1. Number of sawmills in different size categories based on the production capacity.

ia Canada,

[Natural Resources Canada 2004]

Size of mill (m3 of timber British produced annually) Columb total

10 000 to 29 999 49 195

30 000 to 99 999 34 139

100 000 to 299 999 42 116

More than 300 000 60 98

All 185 548

It has been estimated that the Canadian timber industry produces 81 million m3 timber

heoretically, it is possible to calculate the amount of sawdust and shavings as half the

ased on the “Canada Biomass-Bioenergy report”, the pulp mills and sawmills of British

Table 2. Inventory of pulp mill and sawmill residues in British Columbia and Canada in the

duction, Residue surplus, Bark Piles,

2.2 Forest industry residues

products annually. During the processing of round wood into construction wood in sawmills, usually 65–75% of the round wood is converted into saw dust, bark and other residues. Board production alone can not fully utilise the large amount of sawmill residues, and thus the surplus is or can be converted into wood pellets. The ideal raw material for the production of pellets is sawdust and shavings, which corresponds to approximately 15% of the round wood after sawmilling. [EUBIONET2 2007] Tvolume of produced timber, equalling 40 million m3 [EUBIONET2 2007]. In the province of British Columbia, producing 46% of Canadian timber, the corresponding volume of sawdust and shavings can thus be estimated as 18 million m3. BColumbia produced 6.6 million bone-dry tonnes (BDt, equivalent to oven dry tonnes) of bark, sawdust and shavings in 2004 (Table 2). This amount corresponds to roughly 44 million m3 (moisture: 50%; bulk density: 300 kg/m3), which quite nicely fits the theoretical value (18 million m3) considering that the residue also includes bark, and not only sawdust and shavings. The total Canadian surplus of residues was 2.7 million tonnes (18 million m3) corresponding to 13% of the residue production. In British Columbia, the proportion of surplus residues was higher, almost 28% of the residue production. In 2004, the surplus residues in British Columbia corresponded to 1.8 million tonnes (12 million m3). However, the start-up of two large co-generation facilities and the approval of plans for a large pellet plant will decrease the surplus. The biomass and bioenergy report estimates that these actions will decrease the mill residue surplus from 1.8 to 1.3 million tonnes (9 million m3) [Bradley 2006a]. The most recent estimate from 2008 on the availability of mill residues is 550 000 BDt, equalling 1 million tonnes of material with a moisture content of 45 % [Bradley 2008].

end of 2004. [Bradley 2006a]

Residue pro×106 BDt/a ×106 BDt/a ×106 BDt

British Columbia 1%) ) 6.6 (3 1.8 (66% –

Total, Canada 2 15.7 (100%) 1.2 (100%) 2.7 (100%)


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The locations of pulp and paper mills, and panel mills in British Columbia are presented in Figure 6 and Figure 7, respectively.

Figure 6. Pulp and paper mills in British Columbia in 2003. [Lee, Stanojevic & Gysbers 2004]

Figure 7. Panel mills in British Columbia in 2003. [Lee, Stanojevic & Gysbers 2004]

2.3 Other applications for industrial wood residues

The surplus of forest industry residues, not processed into panel and board, can alternatively be converted into bio-oil by pyrolysis. In Canada, DynaMotive has developed pyrolysis technology into commercially available modular installations capable of processing up to 200 tonnes of wood per day. Further, gas turbine technology capable of utilising pyrolysis oil is being developed. Such gas turbines allow high-efficiency electricity production from pyrolysis oil. [Dynamotive Energy Systems 2007] In the fast pyrolysis process, the prepared dry feedstock (<10% moisture, particle size 1-2 mm) is fed into the bubbling fluid-bed reactor, which is heated to 450–500 °C in the absence of oxygen. After vaporisation, the resulting gases pass into a cyclone where solid particles (char) are extracted. The BioOil condenses and falls into the product tank, while non-condensable gases are returned to the reactor to maintain process heating. The entire reaction from injection to quenching takes only two seconds. Two commercial products, BioOil (60–75 w-%) and char (15–20 w-%), are produced, along with non-condensable gases (10–20 w-%). Yields vary depending on the feedstock composition. The non-condensable gases are recycled and supply a major part of the energy required by the process. [Dynamotive Energy Systems 2007]


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3 Pine beetle infected forests as sources of raw material

As a result of the high proportion of mature lodgepole pine forests, as well as recent mild winters and dry summers, the province of British Columbia has been hit by a severe epidemic of mountain pine beetle (Dendroctonus ponderosae Hopkins). The mountain pine beetle bores its way through the bark of the tree and into the phloem layer, where it feeds and lays its eggs (Figure 8). As a result, the tree’s supply of water and nutrients is cut off and it will starve to death (Figure 9).

Figure 8. Mountain pine beetle pupae. Photo: David McComb, USDA Forest Service, United States

Figure 9. Cross-section of infested lodgepole pine in Prince George, British Columbia. Phtoto: Ronald F. Billings, Texas Forest Service, Bugwood.org


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3.1 Availability of mountain pine beetle infested wood

Altogether, approximately 13 million hectares of forests have been infested. The outbreak reached its top in 2005 and had killed 435 millions m3 of pine by that time in British Columbia. The current infested area is shown in Figure 14. It has been projected that the infestation will continue to kill over 80 million m3 per year until 2009, after which it will rapidly subside and will be over by 2018 [Walton et al. 2007]. Figure 10 projects the cumulative volume of beetle-killed wood, showing the levelling-off effect after 2015.

Figure 10. Cumulative volume of pine killed as a result of mountain pine beetle infestation in the timber harvesting landbase in British Columbia. [Eng et al. 2005]

Although dead trees can be used as timber for some time, eventually drying and decaying will hinder their use in forest industry. In addition, huge fuel loads subject the forests to fire hazard. Over 90% of the electricity in British Columbia is produced by hydropower. Due to aforementioned reasons there is also an interest in using beetle-killed timber for energy. [BCMoEMPR 2007, BCMoEMPR 2008] The amount of dead standing fuel wood depends on the shelf-life of pine wood in each biogeoclimatic subzone. In areas where shelf-life is short, i.e. decaying is fast, there will be no fuel wood left after 15 years. On the contrary, in areas where shelf-life is long, 80% of the initial volume could still be used as fuel after 15 years [MacDonald 2006]. It has been estimated that from 200 to 500 million m3 of timber would go unharvested [Kumar, Flynn & Sokhansaj 2005a, Tampier et al. 2006]. The annual availability would be 1–3 million m3 or 0.6–1.9 million tonnes (moisture: 25%; density: 620 kg/m3), when assuming that this timber could be harvested until 2025 (within 15 years) and that 10% of the volume could be harvested with current infrastructure or only with minor investments. It must be borne in mind that beetle-killed pine and related residues are only a temporary source of energy wood. According to Tampier [Tampier et al. 2006], there would be more than 300 million m3 of beetle-killed pine available in 2011, after which the availability would decrease (Figure 11). During recent years, the annual allowable cut has been increased in British Columbia, but it is expected to decrease below the pre-outbreak level by the period 2015–2017 [Stennes, McBeath 2006].


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Figure 11. Cumulative availability of still harvestable beetle-killed pine (bugwood) not expected to be harvested at current and future harvest levels. It was assumed that trees can no longer be harvested 15 years after they die. [Tampier et al. 2006]

A report by IEA Bioenergy Task 38 modelled the wood feedstock composition over the period 2006–2019 of a pellet plant producing 132 000 BDt (bone dry tonne = oven dry tonne) pellets annually. In the beginning the main feedstock was sawmill residues. Mountain pine beetle-killed wood soon replaced one-third of the residue feedstock. Later the amount of the mountain pine beetle-killed feedstock gradually declined, being replaced by afforestation wood (Figure 12). [Bradley 2006b]

Figure 12. Modelling of the wood feedstock of a plant producing 132 000 BDt pellets annually. [Bradley 2006b]

If industrial residues (section 2.2; annual surplus: 1 million tonnes) and mountain pine beetle-killed wood (annual availability: 0.6–1.9 million tonnes) are added up, totalling 1.6–2.9 million tonnes annually, and completely dedicated to pellet production, there would be raw material for 10–20 new pellet plants with the annual capacity of 100 000 tonnes (raw material requirement: 150 000 tonnes) in British Columbia.


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3.2 Feasibility of technologies for utilising mountain pine beetle-killed wood

The economical feasibility of technologies for converting beetle-killed pine wood to energy depends largely on the procurement costs [Tampier et al. 2006]. At higher costs, only use in small-scale CHP plants and gasification to make ethanol proved to be feasible (Table 3).

Table 3. Feasibility of energy technologies utilising beetle-killed pine [Tampier et al. 2006]. CHP = Combined Heat and Power, SNG = Synthetic Natural Gas

Technology Cost-effective Comments

Pellets Some scenarios work, but not at high feedstock costs

Commercial Limited domestic market due to concerns about particulate emissions. Potential in UK at high prices, but un-quantified. Coal plant may want to buy pellets for image reasons; biomass is competitive with natural gas as a fuel

Cellulignin Briquettes

Local use works at lower feedstock cost

Commercial in Brazil Depends on whether CL can be accepted as a substitute to natural gas in industrial and residential applications, and on natural gas prices

Yes: off-grid, under 2 MW

Pre-commercial Costing depends on technology; small CHP reviewed is a new BC technology

CHP

On-grid: Yes, at lower feedstock cost; only marginal at $40/m³

Depends on emission credits and RPP Incentive, as well as power sales price

Bio-Liquid No Pre-commercial High harvesting costs negate ROI; Bio-liquid market needs to be developed

Ethanol Yes, at lower feedstock cost

Pre-commercial High uncertainty with respect to production cost and value of co-products; first demonstration plant in BC expected by 2007

Methanol Yes, with H2 addition Conceptual

SNG No Conceptual Requires higher natural gas price to break even

Kumar et al. evaluated availability of forest fuel and cost of producing electricity at two locations in British Columbia. The authors recommend building a 300 MW plant in Quesnel, where the cost of power would be about C$70 per MWh. Procurement cost per m3 (including felling, skidding, silviculture, roads and infrastructure, overheads, chipping and hauling) would be C$26. The plant would need 63 million m3 (solid) of wood chip during its 20 years lifetime, i.e. about 3 million m3 per year. Compared to the total estimate of available wood, this can be considered low. Thus, there would be enough fuel for even more plants in British Columbia. [Kumar, Flynn & Sokhansaj 2005a] Stennes and McBeath gave a more pessimistic estimate of the cost of power. They estimated that the cost would be C$124 per MWh in a 100 MW plant. However, the increase in costs may be largely due to the size of the plant (cf. [Kumar, Flynn & Sokhansaj 2005a]). An alternative use for beetle-killed pine is co-firing with coal, whereupon the procurement costs would be C$83 per MWh plus C$2 per MWh for upgrading coal facilities. The third


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alternative would be to pelletize the fuel wood and ship it to Europe. Because of rapid expansion of this sector, this could be low-risk alternative. [Stennes, McBeath 2006] A later study took a closer look at the procurement costs. For stands with less than 50% fuel wood, existing whole tree harvesting method followed by a separate operation to comminute logging residues was assumed. Respective procurement costs would be then C$45–54/ODt. For stands with 50–95% fuel wood, processing at terminal was assumed. The costs for the system would be C$63–70/ODt. For stands with more than 95% fuel wood, chipping at roadside landing was assumed at a cost of C$53–56/ODt. To the costs of the last two systems also road development and silvicultural costs (C$30–41/ODt) should be included. [MacDonald 2006]

4 Importing plant products to the European Union

Directive 2000/29/EC specifies the special requirements for the introduction of plant products into member states of the European Union. [Directive 2000/29/EC 2000] Section 1.2 of Annex IV, Part A of directive 2000/29/EC specifies the requirements for wood of conifers (Coniferales), in the form of chips, particles, sawdust, shavings, wood waste and scrap obtained in whole or part from these conifers, originating in Canada, China, Japan, the Republic of Korea, Mexico, Taiwan and the USA, where Bursaphelenchus xylophilus (Steiner et Bührer) Nickle et al. is known to occur. These requirements are [Directive 2000/29/EC 2000]:

a) appropriate heat treatment to achieve a minimum core temperature of 56 °C for at least 30 minutes, or

b) appropriate fumigation conducted in accordance with a specified procedure. For timber, there is the additional alternative of treatment by chemical pressure impregnation, after which the wood can be imported into the European Union. [Directive 2000/29/EC 2000] Based on information from the Finnish supervisory authority, Evira (Finnish Food Safety Authority), the import of coniferous wood chips originating from North America requires treatment by fumigation or heat treatment (56°C, 30 minutes). Methyl bromide has been used for fumigation, but it is not approved by the European Commission for the treatment against organisms harmful for plants, thus leaving heat treatment as the only option. However, the heat treatment of wood chips at a minimum core temperature of 56°C for at least 30 minutes does not seem to be implementable in practise. [Nurmi 2008] Each shipment of coniferous wood chips from North America that enters the European Union, needs to undergo health inspection by the authorities. This includes taking samples of the wood material; the samples are tested for different harmful organisms such as the pine wood nematode (Bursaphelenchus xylophilus; Finnish: mäntyankeroinen), but also different fungi and beetles. The problem with the heat treatment of wood chips is that fungi are not extinguished at temperatures of 56°C. In conclusion, the whole shipment may be refused even in the absence of the pine wood nematode, due to other harmful organisms. [Nurmi 2008] Sweden has applied for special permission from the European Commission for the import of coniferous wood chips from North America, based on new suggested treatments aimed at preventing the spreading of harmful organisms. There are several suggested treatments, including at least fumigation by phosphine (PH3, phosphane, phosphamine) and winter

http://www.evira.fi/portal/en/

http://www.evira.fi/portal/en/


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import. If the application is accepted, it will benefit all parties interested in the import of North American coniferous wood chips. Thus, the current situation can change in the near future. [Nurmi 2008] Import of North American wood pellets is not considered to risk plant health within the European Union. Thus, pellet shipments are not health inspected and no special treatment of the pellets is required prior to import. [Nurmi 2008]

5 Pellet production in Canada

5.1 Current situation

Figure 13 shows the 2006 situation of pellet plants in Canada, including the plants that were currently operating, being constructed as well as those being planned. In 2006, the annual production of pellets reached 1.4 million tonnes. The recent upgrading of plants in Princeton and Armstrong has added further to these numbers. [Peksa-Blanchard et al. 2007]

Figure 13. Pellet plants in Canada 2006: current (red), being constructed (green) and planned plants (blue). The most important ports of export are marked with a star. [Swaan 2006]

The map in Figure 14 shows different kinds of bioenergy facilities in the province of British Columbia, including power plants, pellet plants, gasification plants, biodiesel production plants and research facilities. The map also indicates the land area that is infested by the mountain pine beetle.


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Figure 14. Existing bioenergy facilities in British Columbia, including power plants, pellet plants, gasification plants, biodiesel production plants and research facilities. Pine beetle infested land area in yellow. [BCMoEMPR 2008]

Figure 15 presents the 2006 situation for pellet plants in British Columbia, with seven established plants, one pellet plant being constructed and four more proposals for new pellet plants [Swaan 2006]. The locations of sawmills in relation to pellet mills in British Columbia is shown in Figure 16. There are several pellet plants with a production capacity in the 200 000 tonne range. The average European plant size amounts to 7 500 tonnes annually, compared to the average plant size of 50 000–60 000 tonnes annually in Canada. Canadian pellet plants are located near world class sawmills, generating comparably larger volumes of sawdust, planer shavings and other whitewood residues than European sawmills. Further, these pellet plants have been designed to serve the export market. [EUBIONET2 2007] In late 2006, the Houston Pellet Limited Partnership completed their wood pellet production facility in Houston, British Columbia. The partners are Canadian Forest Products Ltd. (Canfor), Pinnacle Pellet Inc., and the Moricetown Band. The wood pellet production facility is located adjacent to Canadian Forest Products Ltd. sawmill. Canfor is a leading Canadian integrated forest products company based in Vancouver with interests in over 33 facilities. Canfor’s main products are timber, oriented stand board (OSB), plywood, softwood kraft pulp, and high-performance kraft paper. The company runs 13 sawmills, three panel production units and five pulp mills in British Columbia [Canfor]. Pinnacle Pellet Inc. is a privately held company based in Quesnel, British Columbia, producing high quality pine wood fuel pellets, wood litter, compressed wood shavings, and MDF wood products. Pinnacle Pellet currently operates production facilities at four locations in British Columbia: Quesnel,


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Williams Lake, Houston (as part of the Houston Pellet Limited Partnership), and Armstrong, producing 500 000 tonnes of pellets annually. In January 2008, the Pioneer Family Timber Partnership and Pinnacle Pellet Inc. announced the formation of a partnership, which acquired the shares of Tall Oil Canada. The purchase included the four harvesting licenses of Tall Oil Canada, totalling 1 million m3 per year of timber in the mountain pine beetle infested regions between Vanderhoof and Quesnel. [Pinnacle Pellet Inc. 2008]

Figure 15. Wood pellet plants in British Columbia in 2006. [Swaan 2006]

Houston

Vanderhoof

Prince GeorgeQuesnel

Williams Lake

ArmstrongWest Bank

Princeton

Houston

Vanderhoof

Prince GeorgeQuesnel

Williams Lake

ArmstrongWest Bank

Princeton

Figure 16. Sawmills and pellet mills in British Columbia. Softwood sawmills are shown in yellow and approximate locations of pellet mills in red. [Natural Resources Canada 2003a]


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Pepke reports the total worldwide production and consumption as 4.5 million tonnes in 2007 [Pepke 2008]. Figure 17 gives numbers separately for Europe and North America. Another estimate of the worldwide pellet production and consumption is presented in Figure 18, indicating the current situation of 2008 as 6.5 million tonnes of pellets in total. Figure 18 also shows the export trends between continents. In North America, Canadian plants produce 60% of the pellets, but nearly 90% of the North American pellet consumers are in the U.S.A. The surplus of the Canadian production is exported to Europe. In 2006, the overseas export of Canadian pellets was 625 000 tonnes. The major part, 500 000 tonnes were exported from the Canadian west coast. [Swaan 2006] The important export ports of British Columbia are located in Vancouver and Prince Rupert, also shown on the map in Figure 13.

Figure 17. Worldwide pellet consumption and production numbers. [Pepke 2008]

Figure 18. The current worldwide production and consumption of pellets. [Pino Vivanco 2008]


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5.2 Future situation

As consumption of wood pellets is expected to increase, there must be an equal increase in production volumes. Worldwide, the pellet consumption is predicted to be in the range between 6.5 and 10 million tonnes in 2010 [EUBIONET2 2007, Pepke 2008]. Much of the increase is triggered by the renewable energy targets of the European Union, requiring utilisation of large quantities of biomass. Canada has an important role, as it is expected to meet the increasing pellet demand of the future by building new pellet production capacity. According to Pepke [Pepke 2008], the North American production volume could be around 3 million tonnes in 2010. Even higher numbers can be found – the EUBIONET2 project suggested that the Canadian production could be as high as 6 million tonnes per year by 2010. Expansion of the pellet industry has already started: four wood pellet producers in northern British Columbia have tripled in size during the last years. [EUBIONET2 2007]

5.3 Pellet production technology

By-products from sawmills and other wood processing industries, such as woodchips, sawdust and bark, are typically used as raw material in pellet manufacturing. Normally, chemical additives are not used, since natural wood lignin serves as a binder. Sometimes small quantities of starch are added. Pellets have several good qualities. The compressed volume (or in other words, higher energy density) makes pellets an attractive fuel in terms of transport. Transport is comparably cost-effective due to fewer deliveries. Other good qualities are consistent size and low moisture content. Low moisture makes it possible to store pellets without significant degradation. Pellets can be used together with automated feeding systems. Versatility of use means that pellets are suitable for both large-scale and small-scale combustion. Pellets can also be used in quite different types of stoves and boilers. Moreover, pellets are easy to handle and ignite, and their combustion results in lower emissions and less ash compared to other wood fuels. The core process of the wood pellet plant can be divided into five stages (Figure 19), which are described below. Drying Wet woodchips or sawdust usually have a moisture content of 50–65%. The moisture content of the raw material affects the drying costs significantly. Some moisture is necessary for the pelletising process, where moisture acts as one of the binding agents. However, too much moisture makes the feedstock slippery and can result in lower pellet quality when the material is not properly pressed together during the process. Typically, the raw material is dried to about 10–12% moisture content. Pellets normally contain 8–12% moisture. Drying is a critical stage of the pelletising process; the right level of moisture is needed to achieve an optimum performance of the pellet press (mill) and also to minimize wear on the press die and rollers. All kinds of dryers – drum dryers, steam dryers (direct or indirect) and hot air dryers – are currently in use.


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Figure 19. The core process of the wood pellet plant is divided into five stages: Drying, milling, pressing, cooling and screening. [Hoque et al. 2006]

Milling In a second stage, the raw material is milled to produce uniform material for the pellet mill. A hammer mill is normally used. The diameter of the produced pellets defines the screen size of the hammer mill. An electric motor is most often used as power for the hammer mill. Due to heat generated during milling, more moisture evaporates from the raw material. Pressing After drying and milling, the raw material passes a permanent magnet, which removes ferrous metals. The raw material is then fed into the press chamber of the pellet press (mill). Loose material enters the pelletising cavity, and then die rotation and roller pressure force the material through the holes of the die compressing the woody raw material into pellets. Desired pellet length is obtained by adjustable knives. There are different types of dies – flat-dies and vertically mounted ring dies. Steam conditioning can be used if steam is available. Then, the steam is applied to the raw material before it enters the press. The high temperature during this stage further enhances the binding properties of natural lignin in wood. Cooling The temperature of wood pellets leaving the pellet mill is about 100°C. Pellets need to be cooled down to about 25°C. Cooling of the pellets makes them harder and more stable, so that they maintain their quality during storage and handling. A counter current pellet cooler is used. Screening During the final stage in the pellet plant, the fines are separated from the pellets with a vibratory pellet screen. The fines can be returned to the process. The pellets are ready for storage or packing after the screening stage. There are different sizes of pellet bags, which can be automatically packed. Pellets can also be stored in a silo and delivered in bulk. Wood pellet production and logistics are shown in Figure 20.


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Figure 20. The entire wood pellet production chain from the forest to the user.

6 Pellet plant investment costs

The investment cost of a pellet plant with the annual capacity of 100 000 tonnes was estimated based on previous knowledge. Experiences from European, mainly Scandinavian, pellet plants and pellet plant manufacturers was utilised. Figure 21 shows the estimated investment cost structure.

Estimated investment cost: Plant producing 100 000 tonnes

Drying; 33 %

Hammer mill; 9 %

Pellet mill; 28 %

Loading equipment; 7 %

Buildings; 9 %

Planning; 2 %

Plant monitoring, control; 1 %

Other equipment;12 %

Figure 21. Estimated investment cost structure of a pellet production plant.


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The estimation is based on the annual capital cost of each plant sub-operation, equipment or building. These were calculated with the help of the estimated annual interest rate of 6% and assumed life expectancies as indicated in Table 4, according to equations 1 and 2. The capital cost, which is later used in the calculation of annual operating and production cost, is estimated as US$7 per produced tonne of pellets for a plant with the annual capacity of 100 000 tonnes.

( )

( ) 1 i1i 1i factor recovery Capital n

n

−++

=

, where i = interest rate n = number of annuities (1)

cost Investment factor recovery Capital cost capital Annual ×= (2)

Table 4. Approximate investment costs, life expectancies, capital recovery factors and annual capital costs of plant sub-operations, equipment or buildings.

Including Approximate investment cost

Life (years, n) CRF

Approximate annual capital cost

Sub-operation, equipment or building

solid fuel burner, rotary drum dryer, drying fan, multicyclone 1 976 000 12 0.1193 236 000 Drying

Hammer mill 494 000 10 0.1359 67 000

Pellet mill 1 482 000 10 0.1359 201 000

pellet cooler, screen shaker, packaging & storage, others 692 000 12 0.1193 82 000 Other equipment

Loading equipment front end loader, fork lift 364 000 10 0.1359 49 000

Buildings buildings, landuse 790 000 25 0.0782 62 000

Planning 45 000 5 0.2374 11 000

Plant monitoring, control 54 000 10 0.1359 7 000

Total 5 897 000 716 000 CRF – capital recovery factor

For comparison, the cost structure suggested by Hoque et al. [Hoque et al. 2006] is included in Figure 22. The data of Appendix 2 was modified slightly to make it similar to the calculated case (Table 4), by omitting the investment cost for a truck. As a result, the capital cost in the reference case is estimated as US$4.1 per produced tonne of pellets for a plant with the annual capacity of 100 000 tonnes. This is US$0.4 lower than the unit capital cost including the truck as reported by Hoque et al. The calculated investment cost (capital cost), US$7/tonne of produced pellets, accounts for 14% of the total operating and production costs (see section 7). A 15% increase in investment costs will increase the total production costs by US$1/tonne.


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Reference investment cost: Plant producing 100 000 tonnes

Drying; 38 %

Hammer mill; 4 %

Pellet mill; 25 %

Other equipment; 18 %


Buildings; 3 %

Figure 22. Reference investment cost structure of a pellet production plant. [Hoque et al. 2006]

7 Pellet production costs

A study by Hoque et al. [Hoque et al. 2006] focuses on the pellet production in British Columbia, as well as the export of these pellets to Sweden or the Netherlands. Analysis of transport and supply logistics is included. The total production cost of pellets was US$46.8 per metric tonne, including the capital investment cost of US$4.5/tonne. The operating cost totalled US$42.3 based on the parameters given in Appendix 3, and the operating and production costs as specified in Appendix 4. Mill gate prices for pellets, with a net caloric value of 18.5 GJ/tonne, are reported as approximately $100/tonne or €80/tonne by the EUBIONET2 project. Production costs were estimated to be between $60/tonne and $75/tonne (€50–€60/tonne), of which the raw material cost accounts for $20–$30/tonne. It is further approximated that drying consumes 20% of the sawdust. [EUBIONET2 2007]

Table 5. Parameters used in analysis of operating and production costs of a pellet plant with the annual capacity of 100 000 tonnes.

Pellet raw material Sawdust, with 40% moisture content

Raw material cost 15 US$/tonne (including trucking)

Moisture content of pellets 10%

Annual operating hours 7500 hours (24 h/day in 3 shifts; 7 days/week)

Burner fuel for drying Wood shavings, with 10% moisture content

Wood shaving cost 40 US$/tonne

Labour cost 20 US$/h

Electricity cost 0.032 US$/kWh


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For the purpose of this report, the parameters listed in Table 5 were used in the following calculation of the annual operating and production costs of a pellet plant with the annual capacity of 100 000 tonnes. The pellet raw material is sawdust, with a moisture content of 40%. Consequently, the annual consumption of sawdust is 150 000 tonnes, yielding 100 000 tonnes of pellets with a moisture content of 10%. The cost of raw material at the given price (US$15/tonne) accounts for 44% of the total operating and production costs. Calculation of drying costs assumes utilisation of dry industrial woody residue as shavings (moisture content: 10%) in a solid biofuel burner connected to a flue gas dryer. A typical fuel requirement is 3050 kJ/kg evaporated water. In general, this means that 15% of the incoming biofuel is used in the drying process. The drying cost also includes electricity corresponding to 100 kWh/tonne of pellets produced [Andersson, Harvey & Berntsson 2006]. The purchase price of the shavings (moisture content: 10%) is US$40/tonne – the resulting contribution of the dryer fuel and dryer electricity to the total cost structure is 14%. The operating cost for the hammer mill, the pellet mill and other operations – including cooling, screening, packing and conveyers, was calculated from the price of electricity (US$0.032/kWh). The electricity consumption for these operations was estimated as 37, 76 and 35 kWh/tonne of produced pellets, respectively. Together these contribute to roughly 9% of the annual operating and production costs. Loading equipment includes power for a fork lift and a front end loader, and the annual cost (US$195 000) has been adapted from Hoque et al. [Hoque et al. 2006]. Likewise, annual personnel costs were adapted from this source with a slight modification. The personnel includes 16 people, receiving an hourly salary of US$20, which is calculated as US$40 000/annually for the regular worker. The capital costs were estimated in the previous section of this report and account for 14% of the total annual operating and production costs. The unit production cost based on the above procedure is estimated as US$51/tonne of produced pellets. Plant maintenance and service costs are not included. The overall estimated cost structure of a pellet plant case an annual capacity of 100 000 tons is shown in Figure 23.

Calculated estimate: Plant producing 100 000 tonnes

Drying; 14 %

Pellet raw material; 44 %

Hammer mill;2 %

Pellet mill; 5 %

Other operations; 2 %


Personnel cost; 15 %

Capital costs;14 %

Figure 23. Estimated operating and production cost structure of a pellet production plant.


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Figure 24 represents a reference estimate of the pellet production costs in British Columbia based on the on the parameters given in Appendix 3, and the operating and production costs specified in Appendix 4. The indicated cost of labour is slightly modified, in order to make the calculation comparable to the calculation presented in this report. Also, the operating and investment cost for a truck are omitted. In the Canadian study, the unit production cost was estimated as US$47 per tonne of pellets produced. After the modifications – the adjustment of the personnel cost and exclusion of the truck – the unit production cost could be calculated as US$44 per tonne of pellets produced. It is not clear whether or not the figures of the reference case include maintenance and service costs. [Hoque et al. 2006]

Reference estimate: Plant producing 100 000 tonnes

Pellet raw material; 51 %

Personnel cost; 17 %

Capital costs;9 %

Other operations; 1 %

Pellet mill; 1 %

Hammer mill;1 % Drying; 14 %


Figure 24. Reference estimate for operating and production cost structure of a pellet production plant. [Hoque et al. 2006]

The estimates – the calculated estimate and the reference estimate described above – are further studied, in order to establish the effect of raw material and dryer fuel price fluctuations. Table 6 indicates the raw material and fuel prices used in the calculations. The “current” price, which was used in previous calculations, is marked with bold. In case C, the raw material composition is assumed to be 70% sawdust (moisture content: 40%) and 30% mountain pine beetle-killed wood (moisture content: 25%, according to [Byrne, Stonestreet & Peter 2005]). The total delivery costs of mountain pine beetle-killed wood according to three sources are presented in Appendix 6.


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Table 6. Assumed raw material and dryer fuel price variations for establishing sensitivity of the total pellet production costs to these.

Cases Raw material 1 Raw material 2 Dryer fuelA Sawdust Shavings 1 - Price, US$/tonne 10 27 2 - Price, US$/tonne 15 40 3 - Price, US$/tonne 30 80 B Sawdust Shavings 1 - Price, US$/tonne 10 27 2 - Price, US$/tonne 15 40 3 - Price, US$/tonne 30 80 C Sawdust, 70% MPB, 30% Shavings 1 - Price, US$/tonne 15 29,50 40 2 - Price, US$/tonne 15 37,50 40 3 - Price, US$/tonne 15 46,50 40 D Sawdust, 70% MPB, 30% Shavings 1 - Price, US$/tonne 10 37,50 27 2 - Price, US$/tonne 15 37,50 40 3 - Price, US$/tonne 30 37,50 80 MPB mountain pine beetle-killed wood

Based on the price range for the raw material and dryer fuel, the sensitivity of the total pellet production cost to the price fluctuations is evaluated. The results are depicted in Figure 25.

0,00

20,00

40,00

60,00

80,00

100,00

0 1 2 3

Prod

uctio

n co

st o

f pel

lets

, US$

/tonn

e

Pellet production costs (US$/tonne of pellets)

Min. price

Current average /Medium

Max.price

A 42.29 51.10 77.63

B 34.36 43.71 71.93

C 54.97 57.85 61.09

D 51.29 57.85 77.63

4

A - Calculated case, sawdust and dryer fuel price variesB - Reference case, sawdust and dryer fuel price variesC - 30% MPB-killed wood (3 prices), 70% sawdust at current price, dryer fuel at current priceD - 30% MPB-killed wood at current average, 70% sawdust + dryer fuel at varying price

Figure 25. Sensitivity analysis of the total pellet production cost to the price fluctuations of the pellet raw material and dryer fuel. Cases A, C and D are based on the calculated scenario as described (Figure 23), and case B on the reference scenario (Figure 24).


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8 Pellet transport costs

The transportation links for pellets manufactured in British Columbia that are intended for European consumption are:

• transport to export port (railway, or combination of truck and railway) • overseas transport • possible inland transport in Europe (truck or barge)

The production and transportation logistics are described by in Figure 26.

Figure 26. Production and transportation logistics of wood pellets from the Canadian forest to the European market. [Magelli et al.]

In the study by Hoque et al. [Hoque et al. 2006], the cost of transport and supply logistics is estimated as US$96.1 or 89.1 per tonne of pellets for exporting to Sweden and the Netherlands, respectively. The EUBIONET2 project reports that the transport costs of pellets manufactured in British Columbia to export port and ship loading amount to €35/tonne, and that sea shipping by bulk carrier to Rotterdam will cost approximately €25/tonne. This sums up to €60/tonne, equalling US$76/tonne. It is concluded that the Rotterdam CIF price, including cost, insurance and freight, would then add up to €140/tonne. Longer transportation distances make Scandinavian CIF tariffs slightly higher. [EUBIONET2 2007]

8.1 Truck transport

Truck transport is generally applied for relatively short distances (< 100 km). The advantage is that trucks can reach remote areas of the production sites, where for instance train or ship infrastructure is absent. The cost and utilised truck capacities depend on the distances, scale, dedication, and legislation. [Hoque et al. 2006] Truck transports from a terminal or pellet plant to the export harbour are likely to be dedicated, meaning that the trucks are only used for biomass transport and are thus empty on their return.


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Trucks can be used in three cases of supply logistics of wood pellets [Suurs 2002]:

1. Transport from the production site to the central gathering point 2. Transport from the central gathering point to the export terminal 3. Transport from the import terminal to the energy conversion plant

It is noteworthy that the third transport link might differ from the first two, because it is in another country. Table 7 gives different maximum gross combination weights in Europe.

Table 7. Allowed gross combination weights (GWC). [Suurs 2002]

Location GCW (tonnes)

Load capacity(tonnes)

Sweden / Finland 60 40

Norway 50 30

Europe 40 25

Table 8 lists the characteristics of some truck types utilised in Europe. Suurs concluded that the type of truck is less important for the truck cost, which is more sensitive to the bulk density and moisture content of the cargo. [Suurs 2002]

Table 8. Characteristics of different truck types. [Suurs 2002]

Truck type Dutch bulk Swedish bulk Chemical tanker * Pellets truck

Truck capacity max (ton) 25 40 25 35

Truck capacity max (m3) 120 130 33 80

Average speed (km/h) 65 65 65 65

Fuel use (L diesel/100 km) 34 45 45 45

Km-costs (€/km) 1.24 0.85 1.24 1.1 * km-costs and fuel use are assumed to be equal to solid bulk transports

The specially designed pellet truck (Table 8) is solely used for transporting pellets. Pellet trucks can quickly facilitate a large number of households with heating fuel [Suurs 2002]. The Swedish bulk truck has the largest capacity, thus being able to transport pellets at cheaper price. Average speed and transfer time are also important in truck transport. The average speed for all trucks was reported as 65 km/h. Suurs assumed a value of 260 m3/h for the loading or unloading of pellets. The time for each transport cycle depends on the average speed and loading rate. [Suurs 2002] As a conclusion, the costs for truck transportation for the total amount of biofuel include truck-kilometres, transfer costs (two-way trips), as well as loading and unloading (0.5 €/m3 assumed). Suurs found that specific truck transport costs for pellets are €4.1/tonne (dry matter) and €11.1/tonne (dry matter), for distances of 50 km and 200 km, respectively. The study also indicated that pellets are cheaper to transport than wood chips – the cost for wood chips was more than double at the same moisture content. [Suurs 2002]


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8.2 Train transport

Train transport is applicable for longer distances (>100 km). Suurs reported that a train is able to carry a volume of 2500 m3, weighing 1000 tonnes, with an average speed of 75 km/h. Factors affecting the price are: the availability of return-freights, the total volume of transport in the same direction, the transfer terminal policies and the route. Thus, it not easy to give a price estimate covering all possible situations. Table 9 gives a general estimate of train transport costs. [Suurs 2002]

Table 9. Train transport costs for pellets including transfer (€/tonne (dry matter)). [Suurs 2002]

Biomass form 500 km 1000 km 1500 km 2000 km

Pellets 9.0 12.8 16.7 20.5

Table 10 lists locations and raw material transportation distance of pellet plants in British Columbia. Four of six pellet factories listed are at railhead. Hoque et al. states that Vancouver Port is the nearest harbour from the pellet plants in British Columbia. The distance from the Prince George and Vanderhoof areas to Vancouver Port is 1275 km and 1386 km, respectively [Hoque et al. 2006]. The port of Prince Rupert is also connected to the transcontinental railway network of CN Rail. The distance from Prince George or Vanderhoof to Prince Rupert Port by train is of the same magnitude as that to Vancouver Port.

Table 10. Existing pellet plants in British Columbia, their locations and raw material transportation distance. [Magelli et al.]

Raw material Plant location Pellet plants % of raw

materials Distance from mills (km) Nearest city Distance to

railhead (km)

45 1

40 2 Pacific Bio Energy (to be installed)

15 75

Prince George At railhead

60 On-site (pipeline)Premium Pellet

40 50 Vanderhoof At railhead

80 4 Westwood Fiber

20 80 Kelowna 5

Princeton Co-Gen 100 1 Kelowna 150

Pinnacle Pellet 100 10 Quesnel At railhead

Pinnacle Pellet 100 1 Williams Lake At railhead

8.3 Sea transport

The sea route from Vancouver to Rotterdam is 8 920 miles (16 500 km; 1 nautical mile = 1.852 km) through the Panama Canal and 6 980 (12 900 km) miles through the Northern Sea Route [The Northern Sea Route]. The report of Suurs assumes an average distance of 10 000 km from Canada to Europe [Suurs 2002]. This distance could, however, concern transportation from the Canadian west coast and not the east coast of British Columbia.


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The size of ocean cargo ships ranges from less than one thousand to hundreds of thousands tonnes dead weight (dwt). Table 11 presents the characteristics of different types of ships for transportation of pellets. CV-I and CV-II are conventional bulk carriers of different sizes. The Tornator is a bulk vessel as well, but of a smaller size. The ship assigned “Pellets” is a large capacity bulk vessel used by Citadel Shipping for intercontinental pellets transport, however, it is not dedicated to this type of cargo only. [Suurs 2002]

Table 11. Characteristics of different ships. [Suurs 2002]

Cargo ship type CV-I CV-II Tornator “Pellets”

Capacity (tonne) – – – 22 000

Capacity (m3) 21 300 42 600 7 000 30 000

Dead weight (tonne) 15 000 30 000 5 000 25 000

Vessel costs (×106 €) 11.9 15.2 11 16

Life time (year) 25 25 25 25

Fuel use HFO (tonne/km) 0.03 0.04 0.015 0.04 HFO heavy fuel oil

The larger the cargo capacity of a vessel, the smaller the total number of transports needed. If the ship is specially dedicated to carrying biomass, then it cannot be used effectively on the return trip. Ships designed to carry out more general tasks can be used to take return freights. [Suurs 2002] Exact prices for the sea transport of pellets are difficult to find. The costs consist of capital costs, operating and maintenance costs, fuel costs, transfer costs and port charges. The loading and unloading rate of ocean carriers has been estimated as 100 tonnes/h for pellets. Pellets can be loaded with spouts at speeds of about 500–1000 tonne/h, however, the unloading is much slower. The cost for loading or unloading of pellets has been estimated as €2.6–4.3/tonne. In 2001, port charges in Sweden were €0.54/tonne of cargo in Sweden, whereas the Dutch equivalent in 2000 was about 0.68 €/tonne. Table 12 gives one estimate of the total costs of sea transport for pellets. [Suurs 2002]

Table 12. Total specific costs of sea transport (assumed vessel type: CV-II; see Table 11) in €/tonne (dry mass). [Suurs 2002]

Distance 1 500 km 10 000 km

Dedicated no yes no yes

Pellets 12 13–16 21 27–39

8.4 Total costs of transportation

The results of the study of Hoque et al. for the transportation costs of pellets from British Columbia to Europe are given in Table 13 [Hoque et al. 2006]. These figures are also assumed for the purposes of this report.


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Table 13. Costs of pellet transportation for 100 500 tonnes of pellets produced in British Columbia. [Hoque et al. 2006]

Export to the Netherlands Export to Sweden

US$/tonne US$/a US$/tonne US$/a

Transportation to Vancouver Port 21.50 2 160 750 21.50 2 160 750

Transfer, intermediate storage & loading 10.50 1 055 250 10.50 1 055 250

Vancouver Port to import port by sea transportation 45.00 4 522 500 52.00 5 226 000

Transfer, handling and transportation to energy plant 12.12 1 218 060 12.12 1 218 060

Total 89.12 8 956 560 96.12 9 660 060

The effect of fluctuating fuel prices on the total cost of pellet transportation can be evaluated based on maximum and minimum fuel prices. The graphs for diesel (No 2) and residual fuel oil 180 (heavy fuel oil) prices (Daily Los Angeles, CA, Spot Price FOB) are used for this purpose (see Figure 27 and Figure 28, respectively).

Figure 27. Daily spot prices of diesel (No 2) in Los Angeles, California. [Energy Information Administration of the U.S. Government]

Figure 28. Daily spot prices of residual fuel oil 180 (heavy fuel oil) in Los Angeles, California. [Energy Information Administration of the U.S. Government]


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The current price level was selected as the price of the respective fuel on 26 September 2008. In Table 14, the fuel cost for each transportation mode is established. With the current price level, the total fuel cost is US$39. With the minimum price level, the cost is only US$8, whereas the maximum fuel price results in total fuel costs of US$49.

Table 14. Fuel cost of pellet transportation with current, minimum and maximum fuel prices.

Pellet factory to railhead To port Sea transport To power

plant TOTAL, US$/tonne

By Truck Train Cargo ship Truck

Distance, km 50 1 300 16 500 150

Cargo capacity, tonnes 40 1 000 25 000 40

Required transports 2 500 100 4 2 500

Total kilometres 125 000 130 000 66 000 375 000

Fuel consumption, L/100 km 45 830 6 700 45

Total fuel consumption, L 56 250 1 079 000 4 422 000 168 750

Fuel consputiom/km 1 125 415 268 1 125

Fuel Diesel Diesel Heavy fuel oil Diesel

Fuel price, US$/L 0.81 0.81 0.65 0.81

Total, US$ 45 563 873 990 2 874 300 136 688

CU

RR

EN

T

Total, US$/tonne 0.46 8.74 28.74 1.37 39.31

Fuel price, US$/L 0.18 0.18 0.13 0.18

Total, US$ 10 125 194 220 574 860 30 375 MIN

Total, US$/tonne 0.10 1.94 5.75 0.30 8.09

Fuel price, US$/L 1.06 1.06 0.79 1.06

Total, US$ 59 625 1 143 740 3 493 380 178 875

MA

X

Total, US$/tonne 0.60 11.44 34.93 1.79 48.76

It has been estimated that at the current fuel prices, the contribution of fuel to the total transportation cost is roughly 50–60% [World Shipping Council]. In this sense, the calculated US$39 for the cost fuel over the entire pellet transport chain seems quite accurate, however still on the low side. Comparison of the results of Table 14 gives quite a good picture of how fuel prices will affect transportation costs in general. If all other transportation related costs stay constant, it can be estimated that the minimum level, US$8 corresponds to 17% of the total transportation costs, and that the maximum level, US$49 corresponds to 55% – based on the assumption that the current fuel cost corresponds to 50% of the total transportation cost (Table 15). In the light of Table 14 and Table 15, the range of overall transportation costs to the Netherlands lies between US$53 (60% of US$89) and US$100 (112%), and to Sweden between US$58 (60% of US$96) and US$108 (112%).

Table 15. Fuel costs in proportion to the total transportation cost when other costs are constant (current fuel cost fixed as 50% of the total).

Fuel cost, US$ Accounts for X% of total

Total cost of transportation, US$

Current 39.31 50 (fixed) 78.62 (100%)

Minimum 8.09 17 47.40 (60%)

Maximum 48.76 55 88.07 (112%)


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9 The total costs

The total estimated costs for producing pellets from industrial woody residue in British Columbia and transportation to power plants in the Netherlands or Sweden is given in Table 16.

Table 16. Total cost in US$/tonne for pellet production in British Columbia and transportation to Europe.

Export to

The Netherlands Sweden

Capital cost 7 7

Production cost 44 44

Transportation cost 89 96

Total (US$) 140 147

Total (€) 111 117

The EUBIONET2 project reported that the price level of Canadian pellets for power companies and district heating plants in the Netherlands and Denmark is €140/tonne. Prices for large customers (> 5 tonnes per delivery) in Denmark, Sweden and Germany, are approximately €180/tonne delivery included [EUBIONET2 2007]. Hoque et al. carried out profitability analysis, concluding that the internal rates of return for the two cases, export to the Netherlands and Sweden, are 37% and 24%, respectively. The payout period is then 3 years and 4 years, respectively. The calculation is presented in Appendix 5 [Hoque et al. 2006]. However, the sales price was quite low, only US$150.5 or €119, which implies that some of the numbers used might be outdated. In Table 17 and Table 18 the income, cash flow, investment payback time and internal rate of return are calculated. With the sale price of 140 and 150 €/tonne for the Netherlands and Sweden, respectively, the internal rate of return is 15% and 18%, whereas the payback time in both cases is a little over three years.

Table 17. Analysis of incomes and cash flow for producing pellets and exporting to the Netherlands and Sweden.

Items Amounts in € (the Netherlands)

Amounts in € (Sweden)

Sale price, €/tonne 140 150

A Total sales 14 070 000 15 075 000

B Operating cost (US$44+US$89/96 per tonne) 10 608 333 11 166 667

C Operational income, A-B 3 461 667 3 908 333

D Depreciation (US$7/tonne) 558 333 558 333

E Profit before tax, C-D 2 903 333 3 350 000

F Tax to state, 35% on profit 1 016 167 1 172 500

G Net income, E-F 1 887 167 2 177 500

H Cash flow (Net income, G + Depreciation, D) 2 445 500 2 735 833


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Table 18. Analysis of internal rate of return and pay back time of investment for producing pellets and exporting to the Netherlands and Sweden.

Pellets exported to: The Netherlands Sweden

Time Cash flow Cumulated cash flow

Payback time, years

Cash flow Cumulated cash flow

Payback time, years

Investment cost 0 -5 897 000 -5 897 000 N/A -5 897 000 -5 897 000 N/A

Year 1 1 2 445 500 -3 451 500 N/A 2 735 833 -3 161 167 N/A

Year 2 2 2 445 500 -1 006 000 N/A 2 735 833 -425 334 N/A

Year 3 3 2 445 500 1 439 500 3.4 2 735 833 2 310 499 3.2

Year 4 4 2 445 500 3 885 000 3.4 2 735 833 5 046 332 3.2

MIRR - Internal rate of return 15 % 18 %

MIRR is calculated by Microsoft Excel with the finance rate of 6% (rate paid for the money used (-) in the cash flows) and the reinvest rate of 3% (rate received for the money (+) in the cash flows when you reinvest them).


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Conclusions

The availability of pellet raw material appears to be quite good in the interior and south of British Columbia. The most feasible location for new pellet plants is in the vicinity of existing large sawmills. The industrial residue surplus in the whole province of British Columbia was estimated as 1 million tonnes in 2008. Sawmills are located in the interior (Houston – Vanderhoof – Prince George – Quesnel – Williams Lake area) and the south of the province (Armstrong – Princeton area), but also in the Vancouver region. The Vancouver region lacks pellet production units. Several pulp and paper mills, as well as panel mills are located near Vancouver. Unharvested mountain pine beetle-killed wood was estimated as 200–500 million m3. If one assumes that this could be harvested until 2025 and that 10% of the volume could be harvested with current infrastructure or only with minor investments, the annual availability could be between 1 and 3 million m3 (0.6–1.9 million tonnes). If industrial residues and mountain pine beetle-killed wood are added up, totalling 1.6–2.9 million tonnes annually, and completely dedicated to pellet production, there would be raw material for 10–20 new pellet plants with the annual capacity of 100 000 tonnes (raw material requirement: 150 000 tonnes) in British Columbia. However, it seems quite likely that some part of this material will be used directly for power generation. Building a new plant is most feasible in the above-mentioned areas due to the raw material availability and existing infrastructure. Investment costs of a pellet plant producing 100 000 tonnes of pellets annually were estimated as US$5 900 000 in this study. The estimate is based primarily on experiences from Europe. The investment costs presented in the reference case, US$3 800 000, seem low. The investment costs (capital costs) account for 14% of the total operating and production costs. A 15% increase in investment costs will increase production costs by US$1/tonne, and will still not be crucial for the whole. The operating and production costs were estimated as US$51/tonne of produced pellets, of which the raw material accounted for nearly half (44%). The second most important cost factor was personnel costs (15%), whereas drying and capital costs accounted for 14% each. Other operations only accounted for 13% of the total cost structure. In the reference case operating and production costs were estimated as US$44/tonne (modified to be comparable). The effect of raw material price fluctuations on the production cost was studied by assuming the minimum value of US$10/sawdust tonne and the maximum of US$40/tonne. The current price used in the overall calculations was US$15/tonne. If the price of both raw material (sawdust) and dryer fuel (shavings) rises significantly – with 100% (price is doubled) – then the production costs climb close to US$80/tonne of produced pellets. Furthermore, the effect of replacing 30% of the sawdust raw material with mountain pine beetle-killed wood was investigated. The effect of sawdust price fluctuations on the total production costs is less dramatic when 30% of sawdust is replaced by mountain pine beetle-killed wood, which is not expected to be subject to significant price fluctuations. Transportation costs, including truck and train transportation to the export port, overseas transportation to Europe, and truck transportation from the import port to the power plant, are US$89 (the Netherlands) and US$96 (Sweden) per tonne of pellets. Since fuel has been reported to be a major transportation cost factor, the effect of varying fuel prices was studied. It was concluded that long-time minima and maxima of fuel prices indicate that transportation costs may vary in the range of US$53–100 and US$58–108 per tonne of pellets exported to the Netherlands and Sweden, respectively.


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In the light of the maximum predicted production cost (US$78) and the maximum predicted transportation cost (US$100/108), the feasibility of the entire chain should be questioned. The overall maximum costs (production and transport) per pellet tonne would be US$178 or €141 (the Netherlands) and US$186 or €148 (Sweden), which is quite close to the sale price – €140 and €150, respectively – used in section 9. The likelihood of this scenario has not been evaluated. However, with the current, reported level of costs and prices, the production of pellets in British Columbia and transportation of the pellets to Europe appears to be feasible. The payback time for the investment was established as roughly three years. The internal rate of return was calculated based on estimated cash flows with Microsoft Excel – it was 15–18% depending on the case.


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Appendix 1

Companies in the province of British Columbia with sawmills with a minimum production capacity that exceeds 1 000 m3/year. [Lee, Stanojevic & Gysbers 2004, Sawmill Database 2008]

Company Number of Sawmills

AbitibiBowater 1

Canfor 13

Doman 9

Domtar 7

Hamton Affiliates 2

International Forest Products 6

Pope & Talbot 4

Riverside 5

Slocan 10

Tembec 3

Tolko Industries Ltd 6

Weldwood 3

Weyerhaeuser 12

West Fraser Timber Co Ltd 9


Appendix 2

Capital cost for a pellet production plant. [Hoque et al. 2006]

Items Purchase cost, PC (US$)

Installation cost, IC(US$)

Life (year) CRF Annuity

(US$)

Specific capital cost(US$/tonne)

Solid fuel burner 184 545 92 272 10 0.1359 37 611 0.374

Rotary drum dryer 566 813 340 088 15 0.1030 93 377 0.929

Drying Fan 49 766 19 906 10 0.1359 9 466 0.094

Multiclone 49 766 19 906 15 0.1030 7 174 0.071

Hammer mill 95 881 38 352 10 0.1359 18 238 0.181

Pellet mill 510 760 255 380 10 0.1359 104 094 1.036

Pellet cooler 51 050 38 288 15 0.1030 9 198 0.092

Screen shaker 38 352 23 011 10 0.1359 8 337 0.083

Packaging unit 138 380 30 863 10 0.1359 22 994 0.229

Storage bin 38 352 23011 20 0.0872 5 350 0.053

Misc. equipment 170 112 68 045 10 0.1359 32 358 0.322

Front end loader 200 000 10 0.1359 27 174 0.270

Fork lift 164 000 10 0.1359 22 282 0.222

Truck 400 000 15 0.1030 41 185 0.410

Office building 72 051 20 0.0872 6 282 0.063

Land use 80 000 25 0.0782 6 258 0.062

Total 2 809 829 949 125

Total capital cost 3 758 954 4.49


Appendix 3

Parameters used in analysis of operating and production costs of pellet production. [Hoque et al. 2006]

Production site Prince George, Vanderhoof area of British Columbia

Pellet production rate 13.4 tonne/h, i.e. 100 500 tonne/a

Raw materials Saw dust of 40% moisture content

Raw material cost 15 US$/tonne (including trucking)

Moisture content of pellets 10%

Annual operating hour 7500 hours

Operating hour 24 hours, 3 shifts, and 7 days in a week

Burner fuel Wood shavings of 10% moisture content

Wood shaving cost 40 US$/tonne

Labour cost 20 US$/h

Electricity cost 0.032 US$/kWh


Appendix 4

Annual operating cost and unit costs for the annual production of 100 000 tonnes of pellets from sawdust. [Hoque et al. 2006]

Description Annual use Annual cost(US$/a)

Unit cost (US$/tonne)

Raw materials 25.91 Sawdust 150 750 tonne/year 2 261 250 Truck fuel 441 kW 342 711

Drying 6.54 Solid fuel burner 24.12 MMBTU 11 629 Rotary drum dryer 22.05 kW 16 628 Dryer fan 70,000 scfm 27 455 Multiclone 995 Fuel consumption Shavings 1914 kg/h 459 429 Front end loader 136 348 Ash disposal 4 881

Hammer mill (electrical) 106 kW 27 531 0.27 Pellet mill 63 135 0.63 Pellet cooler 9 841 0.10 Screening 2 531 0.03 Packing 0.64

Packaging unit 5 201 Bagging bin 212 Fork lift 58 820

Pellet storage 767 0.01 Miscellaneous equipment 0.16

Screw feeder, size reduction 2 436 Screw feeder, pelleting 2 436 Bucket elevator 3 164 Screw conveyor 8 421

Personnel cost 8.03 Drying 1 people, 3 shift 120 000 Pelleting 1 people, 3 shift 120 000 Packing 4 people, 1 shift 186 880 Extra labor 1 people, 3 shift 120 000 Secretary 1 people, annual 40 000 Manager 1 people, annual 100 000 Supervisor 2 people, annual 120 000

Land use and building 0.02 Repair and maintenance 2 401

Total operating cost/tonne 42.34


Appendix 5

Profitability analysis of exporting pellets to the Netherlands and Sweden. [Hoque et al. 2006]

Items Amounts in US$ (the Netherlands)

Amounts in US$ (Sweden)

A Revenue (sale price: US$150.5) 15 225 750 15 225 750

B Operating Cost 13 211 663 13 915 163

C Operational Income, A-B 2 014 087 13 10 587

D Depreciation 451 379 451 379

E Profit Before Tax, C-D 1 562 708 859 208

F Tax To State, 35% on Profit 546 948 300 723

G Net Income, E-F 1 015 760 558 485

H Cash Flow ( Net Income + Depreciation) 1 467 139 1 009 864

I Internal Rate of Return 37% 24%

J Payout Period 3 years 4 years


Appendix 6

Delivery costs (C$, Canadian dollar) of mountain pine beetle-killed wood. [Kumar, Flynn & Sokhansanj 2005]

Components Kumar et al., 2005b

Kumar et al., 2005a

Stennes and McBeath, 2005

Felling ($/m3) 6.00 2.33

Skidding ($/m3) 3.00 2.13

Delimbing ($/m3) 2.23 2.93

Tree-to-truck ($/m3) 9.00 6.69 16.65

Silviculture ($/m3) 3.15 3.15 3.51

Roads and infrastructure ($/m3) 3.90 3.90 3.88

Overheads ($/m3) 5.00 5.00 6.82

Chipping ($/m3) 5.00 1.88 3.27

Hauling ($/m3) 6.76 5.09 7.02

Total delivered cost ($/m3) 32.81 25.71 41.15

Documents

Feasibility assessment: Wood pellet raw material from Canadian