Global Wood Pellet Markets: Forecasts for Demand and What about “black” pellets?

Presented by William Strauss, PhD President, FutureMetrics Director, Maine Energy Systems Chief Economist, Biomass Thermal Energy Council June 16, 2016

FutureMetrics

Consultants to the World’s Leading Companies in the Wood Pellet Sector “Intelligent Analysis and Thought Leadership for the Pellet Sector”





8 Airport Road Bethel, ME 04217, USA www.FutureMetrics.com

Senior Leadership

William Strauss

John Swaan

Les OQen

40 years of making thermal power from MSW and wood. Recipient of the 2012 InternaConal Excellence in Bioenergy Award.

The “grandfather of wood pellets”. Recipient of the 2014 InternaConal Founders Award for pioneering in the wood pellet sector.

The leader in the development of the US bulk heaCng pellet markets. Founder of Maine Energy Systems: North Americas largest pellet boiler and bulk fuel supply company.





FutureMetrics - Globally Respected Consultants in the Wood Pellet Sector



Why Wood Pellets are an Easy SubsRtute for Coal in Pulverized Coal Power Plants •  Wood pellets are upgraded solid fuel made from biomass. •  They are grindable. •  They are dry (~6% moisture content). •  They handle easily. •  They have an energy density of ~18 Gigajoules/tonne. At low co-firing raRos (less than ~6% white wood pellets) no modificaRons are required. In some applicaRons, advanced wood pellets can be used at 100% with almost no modificaRons. More on this later…

Some conversaRons about drop in coal replacement gravitate toward “bio-coal”. Bio-coal is essenRally biomass that has been through a process that removes much of the volaRle organic compounds (VOC). The process results in darker (someRmes black) material that has a higher energy density than wood pellets. There are two common conversion technologies: TorrefacCon Steam Explosion (thermally treated) More on torrefacEon and steam explosion later…

White wood pellets are the default subsRtuRon for coal in PC power plants. Steam exploded pellets, which are waterproof, are breaking into the market. The “cost per unit of energy” or $/GJ is the key metric. White Pellets

Brown (steam exploded) Pellets

Black (torrefied) Pellets

What about Ag Residues?

FutureMetrics specializes in wood pellets because we think they are the best alternaRve renewable low carbon solid fuel for pulverized coal power plants.

Issues with other feedstocks: •  High in chlorine – corrosion issues

•  High in minerals and dirt – erosion issues •  Low ash fusion temperature – slagging and fouling •  Low bulk density – costly to transport in terms of $/GJ – large volume needed for fuel storage •  Grindablity •  High moisture content if not upgraded to pellets or pre-dried

Source: “Ash-related Problems during Biomass CombusRon and PossibiliRes for a Sustainable Ash URlizaRon”, Friedrich Biedermann and Ingwald Obernberger, Austrian Bioenergy Centre GmbH, Sept., 2006

Combined HeaRng and Industrial Markets

Industrial Market - TradiRonal Best Case! 35,000

Industrial Wood Pellet Demand Forecast for the Europe, the UK, Korea, Japan, Canada, and US (thousands of metric tonnes)

UK

Netherlands

Belgium

Denmark

Sweden

Other

Korea

Japan

30,000

25,000 3000

3800

4800

5500

6800

8000

9000

10000

10000

2000

20,000

15,000

500 100

10,000

100

1500

100

100

5,000

1300

0 2010

2011

2012

3400

4200

5000

2013

2014

2015

7000

7500

2016

2017

9000

10000

10000

10000

10000

10000

2018

2019

2020

2021 2022 2023 2024 2025 source: analysis by FutureMetrics

Worst Case! (compare to 32 million MT on previous slide)

Previous slides did NOT include potenRal industrial wood pellet markets in the US and Canada!

PotenRal (and US and Japan could be larger!) 50,000

Industrial Wood Pellet Demand Forecast for the Europe, the UK, Korea, Japan, Canada, and US (thousands of metric tonnes)

UK

Netherlands

Belgium

Denmark

Sweden

Other

Korea

Japan

Canada

US

45,000 40,000

9000 6800

35,000

3500 2000

30,000 25,000

3000

3800

4800

5500

6800

8000

9000

10000

10000

10000

2000

20,000 15,000

10,000

100

100

100

1300

2010

2011

2012

1500

7000

7500

2016

2017

100

5,000 0

500

3400

4200

5000

2013

2014

2015

9000

10000

10000

10000

10000

2018

2019

2020

2021 2022 2023 2024 2025 source: analysis by FutureMetrics

Canada – Alberta and Ontario US – Clean Power Plan

PotenRal for US Industrial Pellet Demand

Dashboard is free to use at the FutureMetrics website.

ProducRon Capacity is Ahead of Market Demand North American ProducRon Capacity

Industrial Wood Pellets Spot Price - May 2009 thru early June 2016 Jan-16, $214

US $/MT

Canadian $/MT

Jun-16, $158

January-16 June-16

Gap between Canadian and US $63.12 $34.32

Jan-16, $151

Jun-16, $124

May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16

$225 $220 $215 $210 $205 $200 $195 $190 $185 $180 $175 $170 $165 $160 $155 $150 $145 $140 $135 $130 $125 $120

(CIF ARA - at Euro exchange rate at each data point)

source: Argus Biomass Report, analysis by FutureMetrics

The Bad News… US and Canada Industrial Pellets - Supply and Demand 14,000,000 13,000,000

12,000,000 11,000,000

3,000,000

Production Capacity (at 80% of Nameplate) Exports

2,500,000

Excess Supply - Right Axis

10,000,000 2,000,000

9,000,000 8,000,000 7,000,000

1,500,000

6,000,000 5,000,000

1,000,000

4,000,000 3,000,000 500,000

2,000,000

1,000,000 -

2012

2013

2014

2015

2016

source: Exports 2012-2014 data from UN Food and Ag Database, November, 2015; 2015-16 forecast by FutureMetrics; Capacity based on BBI database information from 2013 to present; Analysis by FutureMetrics

The Good News… US and Canada Industrial Pellets - Supply and Demand - to EU and UK forecast assumes some supply to Lynemouth, MGT, Langerlo, and Dutch markets

16,000,000 15,000,000

14,000,000

Exports

13,000,000

Excess Supply - Right Axis

3,000,000

FORECAST

Production Capacity (at 80% of Nameplate)

2,500,000

12,000,000 11,000,000

2,000,000

10,000,000 9,000,000 8,000,000

1,500,000

7,000,000 6,000,000 1,000,000

5,000,000 4,000,000

3,000,000

500,000

2,000,000 1,000,000 -

2012

2013

2014

2015

2016

2017

2018

2019

2020

source: Exports 2012-2014 data from UN Food and Ag Database, November, 2015; 2015-16 forecast by FutureMetrics; Capacity based on BBI database information from 2013 to present; Analysis and forecast by FutureMetrics

What are the key changes that are required to modify a pulverized coal power plant to be able to co-fire industrial wood pellets?

•  At low blend raRos (less than 6% pellets to coal), no modificaRons are required. •  At higher blend raRos some modificaRons are required: •  Dedicated dry storage for the pellet fuel (silos or domes) •  Fuel processing and transport to the burners •  Burners •  Ash handling

Dashboard is free to use at the FutureMetrics website.

There are many large power staRons that have been modified to co-fire (blending pellets and coal) or full fire (100% pellet fuel).

There are several world class firms that have extensive experience in the design, engineering, and implementaRon of power plant modificaRons. Ramboll - EPC for modificaRons and conversions with a long list of successful co-firing and full firing projects www.Ramboll.com Doosan Babcock – Fuel processing, handling, and burners for co-firing and full firing www.DoosanBabcock.com Drax Power – Power plant operaRons at equal or beQer reliability than coal and no deraRng with co-firing and full firing www.drax.com/about-us/our-businesses/drax-power

OPG’s ARkokan 100% White Pellet Fueled Power StaRon

OPG’s Thunder Bay staRon – A super peaking plant that runs on 100% steam exploded advanced wood pellets

Waterproof Arbaflame pellets have sat in the coal yard over winter with no degradaRon.

LYNEMOUTH UK BIOCONVERSION RAMBOLL - OWNERS ENGINEER DOOSAN-BABCOCK - EPC

Al

Drax Power Sta,on – Three 645 MW lines running on wood pellets Boiler and generator

-  3 unit conversion Transfer tower Transfer tower

-  No impact on efficiency and no loss of output

Screening building

- Flexible output from 200MW to 645MW per unit

Screening building

Storage domes

Screening building

Rail unloading

Rail unloading

Storage domes

Will “black” pellets improve the economics? Both torrefacRon and steam explosion result in higher energy density and higher bulk density pellets. In both processes, a comparison of the incoming wood and final densified product proves that the loss of mass is greater than the loss of energy. The change in bulk and energy densiRes are advantageous to logisRcs. More tons per unit of volume and more energy per ton lowers the delivery cost per unit of energy.

But will the advantages of the improvement in densiCes outweigh the increased costs of producCon?

This analysis will measure the energy by gigajoules (GJ) per metric tonne. The power plants are buying energy.

The analysis will assume that the buyer is willing to pay the same price per GJ for any of the three types of pellets. More on the economic advantage of waterproofness later.

Assuming a cost of $17/tonne for a 45,000 tonne shipload of steam exploded pellets, the esRmated costs per tonne for shipping pellets are shown below. GJ/Tonne

White Torrefied Steam Ex.

17.5 22.0 19.5

kg/m3

GJ/m3

Tonnes on Ship

GJ Onboard

650 11.38 39,000 682,500 650 14.30 39,000 858,000 750 14.63 45,000 877,500

Shipping $/Tonne

Shipping Price per GJ

$17.00 $ 0.971 $17.00 $ 0.773 $14.73 $ 0.756

The assumed revenue is $160/tonne FOB.

Net value of pellets at foreign port White Torrefied Steam Exploded

$5,187,000 $6,691,286 $6,820,821

Margin over white pellets $0 $1,504,286 $1,633,821

As would be expected, the total value of a delivered shipload of higher bulk and energy density fuel is higher than for white pellets.

However, producing torrefied and steam exploded pellets requires higher costs. Per tonne of pellets - feedstock and fuel at 50% and pellets at 5% moisture content Dryer fuel consumption (odt) Steam consumption (tonnes of Steam per tonne of Pellets) Additional wood for reactor steam (odt) Wood needed to make tonne of pellets (odt) Total wood to make a tonne of pellets (odt) Green Wood at 50% moisture content/tonne of pellets

Torrefied

Steam Exploded

White

0.000

0.000

0.133

0.000 0.000 1.420 1.420

1.400 0.211 1.150 1.361

0.000 0.000 0.950 1.083

2.840

2.722

2.165

More Wood Needed The analysis assumes that pellet feedstock is $36/green tonne, and fuel for drying and for steam generaRon for the steam exploded process, if needed, is lower grade hog fuel at a cost of $20/tonne.

GJ on board

Wood Cost per GJ

$2,874,668 682,500 $3,987,360 858,000 $4,105,800 877,500

$4.212 $4.647 $4.679

Wood Cost

White Torrefied Steam Ex.

Value of pellets at foreign port in $/GJ White Torrefied Steam Ex.

$7.600 $7.799 $7.809

Net Per GJ before Dry Storage

Total Cost per GJ

-

$6.859 $7.207 $8.151

=

$0.741 $0.592 -$0.342

The net of value at the port (not yet delivered to the power staRon) minus the total cost to get the pellets to the port is shown. Under the assumpCons used in this analysis, white pellets have the best outcome. Steam exploded pellets have a negaCve value.

If no wood is used for steam generaRon, then steam exploded pellets show posiRve net. However, energy from some source is needed for the thermal treatment and drying. Per tonne of pellets - feedstock and fuel at 50% and pellets at 5% moisture content Dryer fuel consumption (odt) Steam consumption (tonnes of Steam per tonne of Pellets) Additional wood for reactor steam (odt) Wood needed to make tonne of pellets (odt) Total wood to make a tonne of pellets (odt) Green Wood at 50% moisture content/tonne of pellets

Value of pellets at foreign port in $/GJ White Torrefied Steam Ex.

$7.600 $7.799 $7.809

Steam Exploded

Torrefied 0.000

0.000

0.133

0.000 0.000 1.420 1.420

1.400 0.000 1.150 1.150

0.000 0.000 0.950 1.083

2.840

2.300

2.165

Net Per GJ before Dry Storage

Total Cost per GJ

-

$6.859 $7.207 $7.719

White

=

$0.741 $0.592 $0.091

Ignoring the source of energy for thermal treatment and moneRzing the avoided cost of dry storage*, steam exploded pellets show an advantage. A rigorous mass and energy balance analysis will reveal the actual relaRve values. Wood needed for steam reactor

No wood needed for steam reactor

Net Per GJ Net including Cost of Dry before Dry Dry Waterproof? Storage/GJ Storage Storage/GJ White Torrefied Steam Ex.

$0.741 $ 0.71 $0.592 $ 0.57 -$0.342 $ -

$0.028 $0.025 -$0.342

No No Yes

Net Per GJ Net including Cost of Dry before Dry Dry Waterproof? Storage/GJ Storage Storage/GJ White Torrefied Steam Ex.

$0.741 $ 0.71 $0.592 $ 0.57 $0.091 $ -

$0.028 $0.025 $0.091

White pellets are sRll the lowest cost fuel per GJ *Dry storage costs are based on $300 per kW of generaRng capacity amorRzed over 10 years at a 7% discount rate.

No No Yes

For drop in coal replacement for pulverized coal systems, pellets of any color work at low co-firing rates. How much lower the energy density of pellets are versus coal dictates the co-firing raRo at which changes to the fuel feed systems and burners are required. Can “black” pellets provide cheaper fuel and work beQer? This analysis suggests that there is sRll work to be done… The input values used in this analysis will be different for different technologies.

Thank You! www.FutureMetrics.com William Strauss, PhD My home in western Maine is in this photo. All of the forest you see is SFI cerRfied and is managed and used for Rmber harvesRng.