Cultivating Sri Lankin Supply

With its quarter-century-long civil war over for a decade now, Sri Lanka is poised to enter the Asian wood pellet theater armed with Gliricidia and passionate developers.
By Ron Kotrba | December 04, 2018

Sri Lanka, the island nation off the southern tip of India, is not considered a hotbed of wood pellet activity. But if Lucky Dissanayake has her way, this may soon change. Born in Sri Lanka, Dissanayake owned a London-based book publishing company in the 2000s, two decades after the bloody civil war broke out between the Sri Lankan government and the Liberation Tigers of Tamil Eelam. In 2006, Dissanayake published Paul Brown’s “Global Warning: The Last Chance for Change.” The year she devoted to developing Brown’s book sparked Dissanayake’s interest in renewable energy. In 2009—the year the civil war ended—Dissanayake spent her own funds and two years researching renewable energy options for Sri Lanka. Afterward, in 2012, she founded Biomass Group Ltd., a Singapore-based holding company, and incorporated its primary operating company, Biomass Ventures Pte. Ltd. The vision was—and still is—to develop and demonstrate a renewable energy model in her birth country of Sri Lanka that benefits the environment, increases energy options, improves the economy and empowers small farmers.

At the heart of Biomass Ventures’ operations is Gliricidia Sepium, a rapidly growing, short-rotation tree found wild throughout Sri Lanka. According to Alexis Corblin, Biomass Ventures’ head of certification and sustainable development goals (SDG) reporting, Gliricidia is a native plant of Mexico and Central America. “Gliricidia was introduced to Sri Lanka in the 18th Century to provide shade to coffee plants, of which Sri Lanka was once the world’s largest producer,” Corblin tells Pellet Mill Magazine. “Now it is pervasive across the country.” He says Gliricidia has adapted to a wide range of agroclimatic and soil conditions and can be cultivated all over Sri Lanka except in coastal areas, on mountain tops and in arid areas.

“In Sri Lanka, Gliricidia Sepium is historically grown as a boundary fence tree, which does not require any special agronomic practices or care of pest control measures due to some inherited genetic characteristics,” Corblin says. It is a drought-tolerant tree crop that absorbs nitrogen from the atmosphere with the least intake of soil nutrients. “Gliricidia is a nitrogen-fixing soil improver,” he says. “In addition to its use as live fencing by smallholders, its leaves and bark can be used as a highly effective organic fertilizer and pesticide, and it’s highly effective for intercropping as a shade tree.” 

With offices in Colombo, Polonnaruwa, Puttalam and a network of field offices across the Northern and North Central provinces of Sri Lanka, and a network of staff working directly with its farmer-suppliers, Biomass Ventures’ ultimate goal is to build a robust supply chain from the ground up to feed pellet production for export and domestic power. In order to effectively divide the labor and perform the necessary overall functions of Dissanayake’s grand vision, three Sri Lanka-based subsidiaries have been, or soon will be, formed under Biomass Ventures: Biomass Supplies, Trinco Pellets and Dendro Power.

Supplies
Biomass Supplies is tasked with developing an adequate supply chain of Gliricidia based on an outgrower, or contract farming, basis. Corblin says Biomass Supplies is inherently scalable thanks to its robust systems and the outgrower model that provides multiple socioeconomic benefits for its partners, which in turn helps ensure security of supply. “Biomass Supplies maintains positive, long-term relationships with our farmer-suppliers as they are the center of our operations,” Corblin says. “Initially, farmers were wary, but we have diligently worked to gain their trust over the past five years. We have organized more than 700 training programs where we share knowledge on how Gliricidia can increase soil productivity while reducing erosion and soil contamination associated with the use of chemical fertilizers, therefore enhancing food production.”

Dissanayake says Biomass Supplies’ 50,000 outgrower partners have planted roughly 100 million Gliricidia trees to date. “That is approximately 2,000 trees per smallholder farmer on their triple fences and intercropped with their cash crops,” she says, adding that the farmers use the leaves to make fertilizer, pesticide and fungicide. Come harvest time, the farmers do not fell whole trees. “We are only interested in harvesting the branches,” Dissanayake tells Pellet Mill Magazine. She says how this works is straight forward. “Farmers cut the branches on their smallholder plots and bring them to designated collection centers where they are paid for the fuelwood and transport costs. We collect from there.” Dissanayake says the 100 million trees are currently growing 1 million metric tons of biomass fuelwood—branches that are growing thicker on the tree—that ultimately will be converted into pellets and then power. By partnering with companies and institutions, Biomass Supplies has access to another 200,000 smallholder farmers in addition to the 50,000 currently engaged. “We are targeting registration of 500,000 smallholder farmers,” Dissanayake says, “so the aim is to plant 1 billion trees and have 15 million tons per annum of growing fuelwood in Sri Lanka.” These farmers are being registered as part of the multistage PLanT platform deployment.

All over the world, farming and supply chain management have become high-tech operations, and Biomass Ventures’ work in Sri Lanka is no different. Information technology is driving inventory management and harvesting data through development and deployment of what’s called the PLanT platform, Stage 1 of which is currently underway. PLanT stands for produce, logistics and traceability. “PLanT supports supply chain transparency, sustainability verification, audit requirements, and automation of tasks,” Corblin says. “The PLanT platform forms the backbone and provides the possibility for Biomass Supplies to scale in Sri Lanka. PLanT acts as a hub with developed application program interfaces and partner management that will enable partners to integrate their offerings—for example, social impact certification and research, agricultural advice, market and weather information, soil monitoring, satellite and drone imaging and so forth.”

PLanT is being developed in stages, the first of which has been deployed “to support the field officer network and the training, prospecting, registration and management of farmers, their land parcels and relevant crops,” Corblin explains. “PLanT development is now focused on the second stage to support the management of biomass and produce buyers, thus enabling us to increase farmer incomes. Further development stages are scheduled through late 2019 supporting value-added supply chain processing, impact measurement and supply chain traceability.”

Biomass Supplies’ revenue will come from the sale of biomass feedstock to Trinco Pellets and Dendro Power, along with other potential revenue streams such as carbon credits. “Afforestation and reforestation create a carbon sink for which the company intends to approach the global carbon market,” Corblin says. The first phase of this process is to achieve Verified Carbon Standard/Climate Community and Biodiversity Standard certification. “This is issued for those private- and public-sector projects that support climate action and sustainable development with standards, tools and programs that credibly, transparently and robustly assess environmental and social impacts,” he says. “Working toward this goal, Biomass Supplies started its affiliation with South Pole Group in June 2017.” South Pole Group is a Swiss carbon finance consultancy founded in 2006. “Since then, South Pole Group and Biomass Supplies have collaborated to develop the project document that will be submitted for VCS/CCBS accreditation, therefore registering our carbon credits as verified carbon units,” Corblin says, adding that its carbon credits from Gliridicia plantings will be ready for sale in 2020. 

Corblin says based on current working assumptions, including a projected 1 billion Gliricidia trees with a rotation age of 20 years, existing allometric equations to calculate the growing rate, and after discounting the buffer for permanence risk, the long-term average verified carbon units calculated by South Pole are 5,249,381 tCO2eq over 30 years. “If we consider that 100 trees produce 1 ton of biomass annually, 1 billion trees will generate 5,249,381 tCO2eq, and an assumed price of $10 per tCO2eq on the voluntary carbon market, then the total potential financial benefits through the voluntary carbon market is $52.5 million over 30 years,” Corblin says. “These funds will be used by the Biomass Foundation to develop agricultural support systems such as cascading water tanks, drip irrigation systems, flood and drought insurance, and more.”

Since 2013, Biomass Supplies has been educating and training farmer-suppliers on how they can achieve immediate financial savings on their agrochemical inputs by using Gliricidia. “This patient approach has yielded outstanding results,” Corblin says. “Relationships have also been cemented with farmer organizations, state-owned coconut plantations and private plantations, the Catholic Church, Buddhist temples, and the Sri Lankan branches of the Air Force, Army, Navy and Civil Defense Force to supply Gliricidia biomass feedstock.”

The company has also been making deliveries of Gliricidia sticks to local industries near Trincomalee since 2013. “These companies are involved in garment manufacturing and require steam generated by biomass boilers,” Corblin says. “This has enabled Biomass Supplies to develop grassroots-level communications with farmers and gain critical insights into how best to organize collections and supply logistics from our farmer-suppliers.”

Furthermore, Biomass Supplies has exported and tested 300 tons of Gliricidia sticks to a coal-fired power plant in Japan. The company also achieved certification by the Roundtable on Sustainable Biomaterials in 2015.

Pellets and Power
In 2016, Trinco Pellets was incorporated as a Board of Investments company. The aim of Trinco Pellets is to produce and market sustainability-certified biomass chips and white and black pellets that directly displace coal consumption. “[Trinco] Pellets aims to sell its product under long-term contracts to the high-value Japanese market, earning valuable foreign exchange,” Corblin says. “We have set a target of 150,000 tons of exports per year from a pellet manufacturing facility at Trincomalee, and then 150,000 tons of exports from Hambantota port.” He says these goals are to be completed in stages from 2021-’22.

Seeger Green Energy completed a prefeasibility study for Biomass Ventures in 2016 on pelleting Gliricidia. The company then hired German consulting firm Plant Engineering GmbH as its owner-engineering resource. Corblin says Plant Engineering designed a 150,000-ton pellet facility in March 2017, completed the request for proposal and obtained competitive offers from several European EPC contractors.

Since then, Biomass Ventures has identified available private land sites to build pellet processing centers. It has qualified Gliricidia with Japan’s Ministry of Economy, Trade and Industry under the ¥24 tariff and held negotiations with several Japanese trading houses. “There have been more than 35 investor visits to Sri Lanka to see our operations,” Corblin says. For several years, Biomass Group has been proactively pursuing discussions with multiple funding sources, including a number of Japanese trading houses, Japanese banks and development finance institutions, which, according to Corblin, have expressed strong interest and support for investment pending further development. This April, the company closed on a 35-year lease for seven acres at the BOI-approved Kappalthurai Industrial Estate, 10 kilometers from Trincomalee Harbor.

Corblin says Trinco Pellets has long planned for initial pellet production to begin in the fourth quarter of 2019, but he says it is likely that exportation of pellets will be delayed until 2020-’21. “The delays are a result of the delays in biomass power development in Japan,” he says. “To contain risk, the intention is to sign a long-term offtake contract for pellet sales to commence in 2020-’21 and use this contract to fund immediate purchase of the equipment.”

Biomass Ventures’ Dendro Power division has yet to be incorporated. The plan is to develop Sri Lankan power production using domestically grown Gliricidia feedstock to add power to the national grid from at least four 10-megawatt (MW) plants, each contracted for 20 years with the Ceylon Electricity Board. “Biomass Group plans to install its power stations adjacent to pellet processing centers to make use of the waste heat for feedstock drying,” Corblin says. “This is still work in development.” Ultimately, the group has the optimistic goal to generate 340 MW of wood power by 2025.

Between 2011 and 2017, Biomass Group has raised funding from 26 investors. In September 2017, it concluded an investment deal from InfraCo Asia under its codevelopment program.

InfraCo Asia
InfraCo Asia is a commercially managed infrastructure development and investment company of the Private Infrastructure Development Group, a multiowner organization that promotes private infrastructure investment in developing countries through specialized finance and project development facilities. Dissanayake first became acquainted with InfraCo Asia at a conference in Singapore in 2015 and reached out with a proposal to invest in the Sri Lankan project. According to Lindsey Zouein, communications advisor for InfraCo Asia, InfraCo Asia’s mandate is to stimulate greater private-sector investment in South and Southeast Asia. “To achieve this aim, InfraCo Asia funds development activities by taking an equity stake with a focus on socially responsible and commercially viable infrastructure projects that contribute to economic growth, social development and poverty reduction,” Zouein says. InfraCo Asia is currently funded by three members of PIDG: the Australian Department of Foreign Affairs and Trade, the Swiss State Secretariat for Economic Affairs (SECO) and the U.K. Department for International Development (UKAid).

InfraCo Asia invested $2.44 million in Biomass Ventures under its codevelopment program. The investment was in the form of a convertible loan. “Consistent with its mandate, InfraCo Asia provided catalytic funding to Biomass Ventures at an early, high-risk stage of project development when other private players were not willing to invest,” Zouein says. “This allowed the supply business to scale up and also allowed the pellet business to start taking shape. InfraCo Asia also brings with it a disciplined approach to project development that leads to capacity building with respect to internal processes and also an introduction to international investors and lenders through InfraCo Asia’s extensive network. The company also requires all investee companies to strictly adhere to the International Finance Corp.’s performance standards, and also follow InfraCo Asia’s procurement policy that is based on transparency, competitiveness and value for money.”

The investment, according to Zouein, has been used for strengthening the team, further developing Biomass Supplies and for the establishment of the proprietary PLanT platform. Furthermore, InfraCo Asia’s investment “has made Biomass Ventures of interest to institutional investors,” Zouein says. “It has also allowed Biomass Ventures to build more robust processes internally and adhere to international standards of project development.”

Three criteria must be met before InfraCo Asia makes an investment: commercial viability, development impact, and additionality. “During the investment screening process, this project scored high in all three aspects,” Zouein tells Pellet Mill Magazine. “However, the development impact area is where this project stands out in particular. The number of farmers that will benefit directly from this project in terms of increased income levels on a longer-term basis is an important metric for InfraCo Asia. Furthermore, the majority of the beneficiaries are women and given the focus that InfraCo Asia and PIDG have on promoting gender equality, this project is an important example of how a project could be designed to benefit women in the community.”

This is also the first project in which InfraCo Asia has invested in the biomass sector. The investment will help build its experience in what Zouein says is generally one of the riskiest sectors in the renewable energy space. “This is also InfraCo Asia’s second foray into Sri Lanka and will allow it to better understand the regulatory, commercial and political landscape in order to increase its exposure in a country that is now on the path to growth after decades of internal conflict,” she says.

Zouein says the Sri Lankan project continues to make progress towards financial close of the first pellet production facility. “The first requirement,” she says, “is to get an offtake contract or spot contract and then proceed on pellet plant funding.” 

Changing Asia’s Biomass Landscape
Corblin highlights that Japan’s main Asian suppliers of wood pellets are Vietnam and Malaysia. “South and Southeast Asian countries are attractive supply sources where production capacity can be expanded,” he says, “but [some of them] draw on a mixture of unsustainable sources, such as roundwood from fast-growing forestry plantations, residues from wood processing industries, and other residue sources such as rubber wood plantations—all with related environmental and social negative impacts such as deforestation, loss of habitats, loss of biodiversity, migration and so forth.

Vietnamese raw material, for example, is mainly supplied by mill residues from the country’s rapidly growing wood products industry, itself heavily dependent on imported timber.”

Palm kernel shells (PKS) are major competition to wood pellets in Asia for power generation. “PKS are obviously linked to one of the main commodities driving deforestation in the producer countries,” Corblin says. “Despite a theoretical potential of approximately 15 million tons of PKS in Indonesia and Malaysia, only a limited share of these volumes will be available in the long run to meet demand.” He says the PKS market will experience considerable changes in the future. “Increased mobilization efforts from international buyers in combination with often-challenging inland logistics, and further increasing domestic demand for PKS as biomass fuel are likely to result in considerable price increases,” Corblin says.

Compared to Europe, and looking at the ongoing international and academic debate over the large-scale use of wood to produce energy, Corblin says the emerging Asian market may have a more varied appetite for different forms of biomass. “The sustainability of biomass supply, commercially, socially and environmentally, or the greenhouse gas emissions of different feedstock supply chains, could become key criteria for Asian buyers,” he says. “Biomass Supplies’ ethical biomass provides social, environmental and economic cobenefits that other biomass sources do not deliver, and therefore offers a responsible alternative to monocultivation, forest biomass and waste residues. We are promoting an alternative approach that will play a significant role in the biomass business globally.”
 
Author: Ron Kotrba
Senior Editor, Pellet Mill Magazine
218-745-8347
rkotrba@bbiinternational.com