On Fire

Seven years after California’s emergency proclamation to expedite the use of high-hazard forest material at bioenergy facilities, some progress is imminent—but why has it taken so long?
By Anna Simet | July 27, 2021

February 2020 was the driest February on record in California. Just one-fifth of an inch of precipitation fell, according to National Oceanic and Atmospheric Administration data. January/February were the second driest on record—in the thick of the state’s “rainy season”—and it’s no coincidence the worst wildfires in recorded history followed. Scientific consensus is that not only less precipitation is falling, but the rainy season has progressively started later each year, now about a month after it did 60 years ago. These climate trend changes, according to researchers, are exacerbating droughts, the ripple effects of which include wildfires of an unprecedented caliber, and adverse water shortage effects on the environment and economy. In mid-June of this year, the National Weather Service warned of a record-breaking and dangerous heat wave in the Pacific Northwest, spurring thunderstorms and high winds in areas already under reg flag warnings, perfect conditions to spark wildfires.

All this turmoil further emphasizes the need to treat forests and remove high-hazard material—dead and dying trees—a topic that has garnered much attention over the years, but overall seen little execution, for many reasons. A concept that seems straightforward is quite the opposite; it is a complicated, costly puzzle that foresters, project developers, state leaders, technology providers, loggers and others have been working to piece together.

One of the greatest challenges to developing bioenergy from woody biomass, particularly in this scenario, is the high cost. Current market-based pricing mechanisms for electricity, transportation and waste management do not fully cover the cost to collect and transport biomass feedstock to the site of utilization, according to Cal Fire, the organization charged with protecting the long-term health and productivity of California’s forestlands. That hindrance, coupled with the fact that those pricing mechanisms have not adequately monetized the nonmarket benefits to local communities and the state, as well as regulatory requirements complexities inhibiting financial investments, have stymied progress.

Moving Forward
According to Cal Fire’s tally, more than 4.2 million acres burned in the 9,900-plus incidents that occurred in 2020, with 33 fatalities and greater than 10,000 structures damaged or destroyed by the fires. The organization is a backer of forest biomass for energy and all the components it brings to the table: renewable energy, greenhouse gas reductions, forest health and adaptation, wildfire and habitat protection and job creation in rural economies. Justin Britton, Calfire division chief, tells Biomass Magazine that CalFire has high hopes for its new wood products and bioenergy program, which he says was initiated about a year ago.

Britton, who has a degree in forestry and masters in forest ecology, says there aren’t many success stories to point to yet, as the program is in its infancy, but that Cal Fire is in the process of building out its program guidelines and procedures, with intentions of a solicitation later this summer.  Britton agrees that cost is a project prohibitor, as biomass often can’t compete with cheaper fuels like natural gas. “Programs like BioRAM and BioMAT help adjust the rates to make it more competitive, but that gets passed to ratepayers,” he says. “California pays more for power than anywhere else, for that reason. That’s a challenge, but these programs are assuming that the cost of getting that material out of the woods and processing it is worth the benefits like wildfire avoidance, forest health improvement, and the economic benefits. It’s a time to shine for biomass and other wood processing in general, because everyone has recognized the fact that we need to manage our forests. If we have markets and outlets for that material, the forest management will happen.”

Britton highlights the difficult regulatory environment in California, which also slows down progress. “You’re looking at a few years, and on the investment side, you have raising capital and secure supply agreements. From what I have heard, everyone wants the supply agreements for the length of time the facility is going to be operational, but it’s really hard to get that, to guarantee that supply. And oftentimes, they’re relying on supply from both public and private sources. That’s one of the biggest hurdles.”

Britton says there are initiatives underway to include small sawmills with biomass facilities, which would not only process more material, but provide an economical source of feedstock for the biomass plant. “It’s a win-win in that sort of campus approach, and it’s what we would love to see,” he says, adding that looking ahead, recent funding announcements made by the state would provide access to ample funding with low-interest financing, which will hopefully jump-start projects or get them over the finish line to begin moving material. “What we ultimately want to see are good plans for facilities to be sustainable [after the grant period, if applicable] so they can continue to have an impact.”

Britton says 2020 was a very impactful year in California when it comes to recognition of the urgent matter of managing the forests. “It didn’t matter where you were in the state, you were breathing smoke all summer long,” he says. “The need to do something became very real for a lot of people. If we don’t do something, we’ll be breathing smoke. With the federal support coming out in favor of forest management across the state, even though they may not know exactly what the ‘right’ something is, they have to rely on the professionals who do. We’re being called on to make a difference, and it’s going to be a positive difference for the state’s forests, hopefully well past my tenure. It’s an exciting time, and hopefully we’ll be able to point to a lot of success stories moving forward.”

Britton reiterates that most often, the conversation circles back to cost, which varies per acre across the state according to conditions of the landscape. Very little data has been available in terms of actual process and transportation costs, but those vested in the issue have been trying to change that. Recently, a detailed study was done on exactly that—federal forest restoration with wood utilization, costs in the northern Sierra Nevada.

Looking at Cost
Camille Swezy, forester, completed the study, “Linking Federal Forest Restoration with Wood Utilization: Modeling Biomass Prices and Analyzing Forest Restoration Costs in the Northern Sierra Nevada,” as part of her master’s degree. She says that despite all the efforts to make biomass energy happen—BioRAM and BioMAT—as well as state and federal-level policies to treat landscapes and increase scale, nobody has numbers to show what it actually costs to get it from the land that requires treatment to the point of use. “I hear about prices that cogens would pay for material, but there isn’t any proof that they’re actually sourcing material from the landscapes in need of being thinning,” she says.

So why not simply cut it down and haul it to a power plant? “That would be great—if we could afford it,” she says. “Everybody knows biomass is expensive, but on top of that, there’s the cost of logging and size reduction, and all the overhead costs a contractor has to pay. Ideally, we could get it out and to a cogen facility, but in examples such as my area—close to the Honey Lake power plant—they can’t take that much material, even though it’s a pretty sizeable plant. I work for a chipper operator in this area and we’re on a monthly quota for how many loads we can do, and we’re only working on forest restoration-type projects, so it’s not so simple.

The objective of the Swezy’s study was to identify costs of forest restoration treatments on federally managed land in the Northern Sierra, evaluating several harvest scenarios and transportation distances, and also to gain an understanding of what market prices for biomass have to be in order to support restoration and bioenergy efforts.

In summary, findings were that biomass harvest, chip and hauling costs were wildly ranging—from $55 per bone dry ton up to $118, depending on the scenario. For restoration activities such as mechanical fuels reduction in the Sierra Nevada region, costs can range from $300 to $1,200 per acre. The study specifically evaluates Crescent Mills Campus, an integrated product campus in Plumas County, which has a purpose of accepting biomass material and generating value-added products for bioenergy and other wood products. A 3-MW BioMAT facility is planned for development on-site. Based on this example, generalized conclusions were that for a contractor to cut, skid, chip and haul the biomass, it equates to about $71 per bone dry ton (BDT), considering necessary profit, overhead and contingency to the contractor. This price that isn’t feasible; currently, the study finds, small-scale systems in the BioMAT program will find economics difficult at more than $40 per BDT. Higher contract prices in programs like BioMAT and BioRAM could help, Swezy says, but it may not be feasible to get them any higher without a substantial subsidy or payment. However, she emphasizes it’s important to recognize the point isn’t just for renewable energy, but for all the other benefits.  

The study finds that “the cost of harvesting, chipping, and hauling biomass (particularly in the absence of integrated harvesting) far exceeds the market prices for this material, and without proper investment in forest health, restoration work on USFS landscapes will not get done at a pace and scale that matches statewide or national goals.” That pace has been set at treating one million acres per year by 2025.

The study’s final conclusion is that the gap between costs of forest restoration and current market prices for delivered biomass suggest that local contractors should be further engaged in regional conversations about the need to increase the pace and scale of forest restoration on the landscape, as “those who will be performing this work across the landscape are a critical stakeholder group.”

For the Burney Mountain Hat-Creek Bioenergy and North Fork Community Power, time, patience, collaboration and strategy have been critical to getting off the ground. Both projects are BioMAT program participants. Todd Sloat, a wetlands ecologist by trade but leading the Burney-Hat project, agrees with Swezy’s remarks about the cost being the crux of the issue. “Especially if it’s just feedstock and no saw logs associated with it ... there is a lot of fuel that needs to be removed, and having a business entity that can do that and keep that going on a regular basis is challenge, he says.

End of the Tunnel
The Burney-Hat project is part of a cluster project resulting from a collaborative formed in 2009, Sloat says. “At the time, we lost Burney Mountain Power and Big Valley Lumber Company, and it was clear that losing this infrastructure was having a negative effect on many of our partners who treated acres on the landscape—the opposite trend that should have been happening.”

After working with partners in the Resource Conservation District, a grant allowed initial assessments to evaluate the possibility of some small-scale bioenergy facilities. “We also looked at reviving some large-scale facilities but didn’t have much success finding a site,” Sloat says. “At that time, the BioMAT program had been developed and we looked at as favorable.”

After securing a Wood Innovation Grant from the Forest Service, the team advocated for a bioenergy cluster project that would involve the development and location of three or four systems ranging from 3 to 5 MW. The first has secured a power purchase agreement, according to Sloat, and purchased a portion of its equipment. Construction is expected to begin in the fall. “The second entity is getting ready to submit a Conditional Use Permit,” he says. “We’ll continue to search for one other site, if not two. We have a couple of sites identified, but those [projects] are in earlier stages. We’ll keep working on them as long as BioMAT is still going, and that there is allocation for forest feedstock.”

Sloat says that while it has taken a long time for BioMAT projects to get off the ground, he believes it is a viable program. “I think we’re finally starting to see a lot of movement. There is a model that has been difficult to figure out—related to a public-private partnership whereby a private entity develops the facility in partnership with the Forest Service—and that might be a small sawmill and a biofuels or bioenergy facility. Until we really get that model going to scale, something that can be duplicated, we’ll struggle to get to the pace of scale we want to treat, and the number of acres that needs to be treated. Even then, it could still be challenging because of the capital and new technology involved. To me, a small sawmill with cogeneration is still the best solution for somebody completely surrounded by federal ground.”

For Greg Stangl, CEO of Phoenix Energy, development of its 3-MW bioenergy plant in North Fork, has been “a crazy adventure—just mind-numbingly crazy,” he says. “It saddens me that it took this long to get here, when seven years ago they said this is an emergency, but the hopeful tone here is that we have finally seemed to remove the structural barriers to rolling this out.”

 That series of hurdles included, but was not limited to, complications on the utility side of the equation, and—ironically—the exact driving force of the project: wildfires. “During last year’s fire season, the Forest Service ended up taking over our property to serve as the fire basis for the area,” Stangl says. “We were glad to do that, but I have to joke about this—I mean, you have got to be kidding me. Now we can’t work, because we have a bunch of fire trucks on the construction site.”

An arduous finance process and the pandemic were also factors, although the project’s timing just slightly outpaced a potentially lengthy delay. “I am surprised at how impactful COVID-19 has been on the whole supply chain,” Stangl says. “We completed financing right before covid became very real. Had it happened two or three months earlier, we never would have pulled this off. We closed financing in December.”

Stangl says when it comes to project finance, bank debt in particular has seemed to take a promising turn, which could help projects get built more quickly. “I had three offers for bank debt on the next project—out of the projects I have worked on, I have never had that many offers at the same time. When did our first [non-BioMAT] project, we had to use some crazy government lending program for recycling to make it happen, and now we just go to regular banks. So that is a meaningful change. To me, that is a hopeful sign that the markets are there, and that finally, we seem to have removed most of the obstacles.

In other words, the log jam seems to have broken, from Stangl’s perspective. “I sure hope so, because yet again, we’re one more year in and again telling people this is going to be our year. But one challenge we have is the equity markets. We have great access to debt, but poor access to equity capital, and I think a lot of that is owing to the fact that it is so many years later, and there are still no projects. We have been doing this for years, and we are in construction on the very first one; it’s not even running yet.”

Stangl says his team is aiming to reach financial close on another project in a couple of months, a positive indicator of a shift in projects’ development pace. “However, we’re still at the rate of one project every other year,” he says. “If you look at how we started, we built in 2011 and then 2013, and then they created the BioMAT program, and we didn’t build again until now.”

As for the issue of BioMAT contract prices, Stangl has a fresh perspective: they are enough, and developers need to get creative with their feedstock processing models. “Let’s be honest, if you can’t make money in the power business at 19.972 cents, then you probably shouldn’t be making power,” he says. “That’s a high price. I’m not saying there isn’t a template for higher prices, but higher prices kind of annoy citizens, which is something to cognizant of.”

As for fuel, Stangl says wood chips in a contract equates to a facility paying $40 to $50 per ton, for a good price. However, if logs are accepted on-site, the facility itself could get paid $250 a load to take the material. “That’s the difference between $50 and negative $10,” he says. “A $60 spread just for asking for it in the contract.”

Stangl acknowledges the numbers are not entirely accurate because the facility can’t use logs, but he’s adamant that even with on-site processing costs, free logs are the real opportunity. “Of course, I can’t finance these things without a contract for fuel,” he says. “If you figure $8 a ton to grind, $4 a ton to screen, and then throw some profit margin in there for somebody not in the fuel-making business, maybe the price is really the difference between $40 and $50 dollar a ton, verses $0 to $10 ton. That’s still a huge difference between the prices of getting a contract or just opening my gate. It’s an issue that seems like it should and can get fixed. If they want to pay us more for power that’s great, but a higher price for electricity is not what’s stopping these things from rolling out faster.”

A way to increase profit margins, Stangl says, and perhaps make a project viable long-term, is producing value-added products—specifically, biochar. “Biochar is coming increasingly important—it added extraordinary value to first plant, which was a surprise and helped the plant make it,” he says. “As carbon policies become mor important, we’re likely to see increasing value from that. I joke that I run a biochar company that makes electricity. Nobody would give me a dollar to make biochar, but they still will lend us money for a 20-year PPA.”

In a world of six-cent solar and natural gas that has never been cheaper, Stangl adds, plants should not rely on future of 20-cent power purchase contracts to stay viable. “The way we make this sustainable is by figuring out how to monetize other areas so that when the power prices go down, we’re still here,” he says. “I think that’s something we really have to do going forward.”
 
 
Author: Anna Simet
Editor, Biomass Magazine
asimet@bbiinternational.com
701-738-4961