Over the past year, pellet producers in Europe and North America were hit by a one-two punch that few saw coming. First, an unseasonably warm winter in the major North American markets, and second, an oversupply of pellets in Europe. In the latter case, the surplus in the residential market was also weather related. However, in the industrial sector, despite warnings of a drop in forecast demand by the European power market, new production continued to come on-stream. At the end of it all, it points to an industry with significant volatility, despite the relative stability that had started to emerge.
With the Argus Wood Pellet Index down over 25 percent in less than a year, export producers who are active in the spot market are faced with the daunting challenge of reducing operational costs to avoid shut downs. Yet, the largest cost componentsâ€•labor, fiber and processing costsâ€•have been carefully combed over and are unlikely to yield any substantial savings. With little to gain on the manufacturing side, attention turns to the markets in order to generate higher revenue per ton. Identifying new customers takes time, however, and will not improve a producer&rsquo;s income statement in the short term.
One often overlooked area of potential savings is in distribution costs, which can represent up to 20 percent of total cost. On a delivered-to-customer basis, this increases to over 35 percent. In 2015, the shipment of North American wood pellets across the ocean represented over $100 million in cost alone.
Distribution costs, although strictly defined as costs associated with delivering from the production unit to end user, can include more than just shipping and storage. Particularly if we examine the various distribution models, and there are potential savings in all areas that need to be considered.
In broad terms, there are three major distribution models in the pellet industry today:
Direct Export: The majority of the world&rsquo;s largest producers relies almost exclusively on this distribution model and is highly sensitive to freight rate fluctuations. Yet, with today&rsquo;s low ocean freight costs, the unexpected demurrage, dead freight, sampling and overtime costs on loading can have an even greater relative impact on expenses. These costs need to be budgeted, negotiated and carefully managed.
Domestic Direct: In North America, there is a limited number of companies in the residential market, such as Woodpellets.com LLC., that distribute direct to the consumer. However, this distribution model also encompasses the commercial sector, where some producers have built a healthy business around the sale of pellets directly to hospitals, schools and churches. Bulk delivery in trucks is becoming more common, as it is in Europe today, and by limiting the number of loadings and handlings, unexpected costs can be reduced.
Domestic-Tiered Distribution: The least developed logistically, and yet the most widely-used distribution model in North America, domestic-tiered distribution has the most potential cost savings. As the supply chain participants expand, as it does in this model, the downward pressure on margins increases. Broadly speaking, there are multiple transport methods (e.g. rail and truck in each delivery), discounts, commissions and even some advertising costs to be considered in this producer-to-retail-to-end-user model. One identifiable savings is the reduction of commonly used retail discounts. Discounts for pick up by customers or volume discounts can be removed for top-selling brands, for instance, and over time, can be phased out altogether. These are methods used in early stage distribution models and once eliminated, can yield savings for the retailer, which ultimately frees up some margin upstream in the supply chain.
In Europe, distribution challenges come in different forms, as there is a series of smaller plants with closer proximity to customers. Yet, there are more tiers in the supply chain, including a well-developed trading network. Currently, there are over 100 ENPlus-certified traders in Europe. Some large, with a couple of examples handling over 700,000 tons per year, but many are small, regionalized players which, depending on aggregation and storage, could mean reduced distribution costs. For example, the Port of Rotterdam, which handles pellets for Germany, Italy, Belgium, Austria and other regions&rsquo; product is distributed via ship-to-ship and intermodal transfers.
There are ways to emulate the European model, in time, for North America. One interesting consideration is utilizing the U.S. inland waterway system as an alternative to rail. Inland barges are already accustomed to handling weather-sensitive commodities, and according to Mid-Ship Group, a ton of pellets could travel 500 miles by barge (compared to 200 by rail or 60 by truck) per gallon of fuel. Ultimately, this could result in substantial savings for producers. And although the inland waterways are currently used primarily for export shipment of wood pellets, domestic distribution is not far away. Just as today, one of the major criteria for the selection of a pellet plant location is closeness to a port or rail siding, proximity to the inland waterway system could prove to be a major consideration.
Rome was not built in a day, and just like its mature industry counterparts, the pellet industry supply chain needs to take a long-term view in building efficiencies, while seeking to find short-term cost savings in distribution. Author: Michele Rebiere CFO, Viridis Energy Inc. Former President, Wood Pellet Association of Canada 604-669-7831 mrebiere@viridisenergy.ca

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Rebiere highlights three major distribution models in the pellet industry today and how short-term potential savings can be realized in these costs for pellet producers to build long-term efficiencies.

Distribution Model Cost Savings  

The only thing certain in the United Kingdom&rsquo;s post-EU reality is uncertainty. Implications that the June 23 referendum&mdash;in which the U.K. voted 51.9 percent to 48.1 percent to leave the European Union&mdash;could have on wood pellet trade and environmental policy remain largely unknown. Even so, there are those with ties to the U.K. biomass industry that maintain a business-as-usual mentality. Drax Group plc CEO, Dorothy Thompson, shared in the company&rsquo;s half-year results that the vote by the U.K. electorate to leave the EU presents &ldquo;no immediate risk to Drax.&rdquo; However, the impact a prolonged period of uncertainty may have on the regulatory framework in which Drax operates raises concern. U.K. government changes have also sparked apprehension amongst some, but Drax &ldquo;looks forward to remaking its case to the new U.K. government&rdquo; on the importance of biomass to serve Britain&rsquo;s need for affordable decarbonization.
Still, some have expressed worry that recently elected Prime Minister Theresa May&rsquo;s abolishment of the Department of Energy and Climate Change will sway investor confidence in the U.K. energy sector. Much of DECC&rsquo;s functions are now handled within the newly established Department of Business, Energy and Industrial Strategy, which, by doing so, actually puts it in a far more important category, according to Neil Harrison, vice chairman of the U.K.-based Wood Heat Association. &ldquo;Before, DECC was a little, standalone department that had a relatively small budget&mdash;90 percent of which was gobbled up with nuclear decommissioning costs from power plants that have been built since the 1950s,&rdquo; Harrison says. &ldquo;Now, it&rsquo;s actually gone into a much larger department with a much larger overall budget and a higher profile&mdash;it&rsquo;s overall importance as a topic has probably grown greater.&rdquo;
Historically, the treasury called the shots for DECC and in the preceding leadership was &ldquo;very much in the pockets of the fossil fuel industry,&rdquo; Harrison says. He adds that now the biomass industry is buoyed up by the ministers who&rsquo;ve been given seats in the department and are responsible for energy, as they&rsquo;ve generally voted in support of renewable energy in Parliament. Although there has been a shift away from renewables toward fossil fuels and nuclear over the past four or five years of government, Harrison says, &ldquo;we&rsquo;re now hopeful&mdash;with change in leadership in the Tory party&mdash;we&rsquo;ll actually see some positive changes back toward a more environmentally conscious and supportive environment for renewables.&rdquo;
Brexit vote aftermath contains bright spots for biomass, but the whole referendum has created an epic undertaking for the country. Something Harrison says will take 10 years to unpick, likening it to if the United States decided it was no longer going to be &ldquo;united&rdquo; and the states would independently rule themselves. One of the most immediate and direct effects since Brexit has been the plunge of the pound against the euro and U.S. dollar, creating not only a possible economic challenge for trade within the pellet industry, but also a harder economic case for biomass within the domestic heat market. The leave vote has only managed to challenge the already flat market low oil prices have brought upon the bioenergy industry. &ldquo;When the backbone of your installation sector is selling European-sourced equipment and that then jumps in price because of the impact of the exchange rate, you get a lot less for your money now because you&rsquo;re buying euros and the exchange rate is significantly different,&rdquo; Harrison explains. &ldquo;You&rsquo;re making a difficult sell even more difficult as a result of Brexit.&rdquo;
U.K.&rsquo;s domestic pellet heat market has felt the drag down of the euro post-Brexit, but, for big biomass suppliers and consumers like Drax, already contracted volumes of pellets have largely left business as usual. A Drax spokesperson emphasizes that a &ldquo;secure supply chain is crucial&rdquo; and to help with this security Drax sources its wood pellets &ldquo;from a range of suppliers.&rdquo; The spokesperson adds, &ldquo;We also have long-term hedging in place with our biomass suppliers.&rdquo;
It&rsquo;s believed that for the foreseeable future the U.K. will remain the driving force behind pellet demand for power generation. &ldquo;The U.K. is going to continue to need to import an enormous amount of fiber to meet its energy needs,&rdquo; Harrison says. &ldquo;There will be a need for baseload, and biomass is the best low-carbon way of doing that, particularly, if you look at wider energy policy in the U.K., where they actually have aspirations to electrify heat production and electrify the transport sector, so we need more power production and biomass is a good way to do that with existing assets.&rdquo;
Further, the U.K., remains part of the EU for at least the next two years. The two-year countdown doesn&rsquo;t begin until Prime Minister May invokes Article 50 of the Lisbon Treaty, beginning the process of withdrawal, which, she says, isn&rsquo;t likely to happen until next year at the earliest. Until then, commitments made to renewable energy as part of the U.K.&rsquo;s standing EU obligations will not change. Even once the U.K.&rsquo;s leave is final, Harrison reminds us that the U.K. is the only country in the world to have legally binding climate change targets written into its own law. &ldquo;The U.K. has legally committed itself regardless if it&rsquo;s a member of the EU or not to meet targets,&rdquo; he says.
The Climate Change Act in 2008 was not imposed on the U.K. by the EU, it was delivered with cross-party support by the U.K. Parliament. Former Secretary of State for Energy and Climate Change, Amber Rudd, emphasized this point in a speech to the Business and Climate Change Summit following the EU referendum. She says, &ldquo;However we choose to leave the EU, let me be clear: We remain committed to dealing with climate change.&rdquo; Rudd was appointed home secretary in Theresa May&rsquo;s first ministry on July 13.
Another reinforcement comes with the Committee on Carbon Change&rsquo;s release of its fifth carbon budget, laying out a 57 percent reduction in carbon emissions from 1990 levels during 2027-&lsquo;32. Rudd calling it &ldquo;an important building block of our economy&rsquo;s future.&rdquo; The confirmation of the carbon budget gives the renewables industry and investors more long-term confidence, but will need to be backed up by supportive policies that will unlock investment in much needed new energy infrastructure.
As a subsidized industry that depends on government policy, this is especially important for the industrial market for pellets. Luckily, it appears pending state aid approval regarding the awarding of a contract for difference (CfD) for Drax&rsquo;s third 645 MW coal-to-biomass conversion will not be impacted, and Drax expects to secure approval this fall. In fact, Harrison says, the removal of governance under state aid regulations could mean more rapid decisions made for coal conversion to biomass. Two other projects awarded CfD subsidies from the European Commission&mdash;EPH&rsquo;s 420 MW Lynemouth coal-to-biomass conversion and MGT Power&rsquo;s 299 MW Teeside combined-heat-and-power (CHP) plant&mdash;are moving forward. Last December, state aid was approved for the Lynemouth Power Station and EPH intends to complete the conversion next year. Enviva Partners LP recently announced a 9.5-year contract to supply 800,000 metric tons of pellets per year to Lynemouth, and just this August, Enviva Wilmington Holdings LLC confirmed its 15-year take-or-pay offtake contract to annually supply 1 million metric tons of wood pellets to MGT Teeside Ltd.&rsquo;s CHP plant, which just finalized financing agreements. During Enviva&rsquo;s second quarter financial earnings call, company chairman and CEO, John Keppler, stated that he believes &ldquo;capital markets were surprised&rdquo; by the outcome of the recent referendum of the U.K. on its EU membership, and it &ldquo;certainly created some volatility in the financial market.&rdquo; Even so, within industry, &ldquo;it seems to be largely business as usual for the biomass power generators in the U.K.,&rdquo; he says. &ldquo;The ROCs (renewable obligation certificates) and CfDs&mdash;the primary mechanisms received by our customers in the U.K.&mdash;are entrained in U.K. law, not based on EU regulation, and we do not expect Brexit to impact our firm, long-term offtake contracts.&rdquo;
Astec Inc. reported in its recent earnings call that it hasn&rsquo;t seen any impact, but is keeping an eye on its pellet business, as the U.K. is the biggest driver for that business right now. Astec CEO, Ben Brock, says, they&rsquo;re talking with customers who are doing business there, and &ldquo;they do not think that will affect what they are doing.&rdquo;
Another consideration is the fate of the Hinkley Point nuclear power station&mdash;one of the most expensive endeavors to date in the U.K., according to Harrison. The champagne was on ice, but with a change of leadership in the Tory and governing party, the decision to move forward has been put on hold for another few months. &ldquo;That would mean, if that conversion didn&rsquo;t go ahead, that some more coal conversion to biomass might actually be a good way to deliver low-carbon energy,&rdquo; he says.
For now, until Article 50 has been triggered and there is some clarity on the terms of U.K.&rsquo;s exit, concerns and questions linger. Although the details have yet to be sorted out, one thing is clear: U.K. remains committed to climate change initiatives and using wood pellets, amongst others, as a means of reaching them. As the pellet market leader, Drax says, &ldquo;The U.K.&rsquo;s commitment to renewables has been driven by U.K. policy makers and we will continue to work closely with the U.K. government on delivering cleaner energy.&rdquo;
While support for wood pellet&rsquo;s industrial market hinges on upcoming coal conversion projects and pellet volumes secured through long-term offtake contacts, pellets for heat, like here in the U.S., need some market momentum. &ldquo;Generally, the picture for biomass is pretty positive, but I think we all need oil prices to turn around to demonstrate biomass is cheaper, as oil is artificially lower at the moment,&rdquo; Harrison says. &ldquo;We need to go back to where it&rsquo;s meant to be, and then we&rsquo;ll be back to business as usual.&rdquo; Author: Katie Fletcher Associate Editor, Pellet Mill Magazine 701-738-4920 kfletcher@bbiinternational.com

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Big U.K. government alterations ensued the vote to leave the EU, but for some area biomass suppliers and end users little has changed. 

Business as Usual

In 2010, the United Kingdom imported just over a half million metric tons of wood pellets. Drax Power Station, the kingdom&rsquo;s largest coal-fired power plant, had just begun burning wood pellets in one of the world&rsquo;s largest decarbonization efforts ever undertaken. With virtually no domestic wood pellet industry to speak of, the country&rsquo;s vast network of ports would be called upon to receive imports of wood pellets to keep an uninterrupted flow headed for Drax.
Among the first ports to invest in pellet handling infrastructure was the Port of Tyne. &ldquo;We spent most of 2010 getting ourselves up and running and were able to receive our first pellets in September of that year,&rdquo; says Steven Harrison, chief operating officer at Port of Tyne. Those volumes were the first that stemmed from the port&rsquo;s agreement with Drax, signed in November of 2009, to handle up to 1.4 million tons of wood pellets per year. Once the contract was signed, the port began work on the necessary infrastructure to receive, store and efficiently load wood pellets into waiting trains. That September, the port was ready, using existing cranes to offload pellets from a vessel into custom hoppers designed to control dust at the quay and finally into flat storage inside a covered warehouse.&nbsp; The system was relatively simple but effective and established the port as the country&rsquo;s first real player in industrial wood pellet receiving and handling. Other ports weren&rsquo;t far behind.
By 2012 and 2013, ports on the country&rsquo;s eastern seaboard were making their own investments as Drax sought to diversify its supply chain partners. About 150 miles south of the Port of Tyne, pellet infrastructure investments were happening at several of the ports along the Humber estuary including Hull, Immingham and Grimsby. In April of 2013, Graham Construction was awarded a contract to build the Immingham Renewable Fuels Terminal, while just inland, Spencer Group was at work building silos and a rail loading terminal that would allow Hull to handle nearly 1 million tons of pellets per year.
The year of 2014 saw pellet imports to the United Kingdom swell to nearly 5 million and in 2015 that number rose to 6.5 million tons. The continued growth in imported pellet volumes is almost certain to continue as a conversion project at 420 MW Lynemouth Power and MGT Teeside Ltd.&rsquo;s 299 MW combined-heat-and-power project have both been approved for Contract for Difference contracts from the British government. Together, the growth of existing demand at Drax and the promise of these new volumes has catalyzed another wave of investment within the country&rsquo;s port complex. These most recent projects make it clear that both contractors and port operators have learned a great deal since receiving their first shiploads of pellets and are driving those discoveries into new project designs. Infrastructure Investment 2.0 In May, during its annual general meeting, the Port of Tyne announced that it had secured a contract with Lynemouth Power Ltd. to handle up to 1.8 million tons of pellets annually. This new contract was partially responsible for &pound;25 million ($33 million) worth of infrastructure investment the port has made recently. The bulk of this investment was an extension of the Riverside Quay by 125 meters. &ldquo;This is the single, biggest investment we have made since we built Europe's first purpose-built wood pellet facilities back in 2010, and it will significantly increase the port's capacity to handle increased volumes of cargoes. Extending the length of the quay will increase the berthing capacity by almost 20 percent, enabling up to four large cargo ships to berth simultaneously,&rdquo; states Andrew Moffat, CEO of the Port of Tyne in a statement issued by the port earlier this year.
In addition to the quay extension, 75,000 tons of storage capacity in three concrete silos, enclosed conveyors and a rail loading silo are also being built. The Port of Tyne is contributing &pound;13 million to this portion of the project with the remainder being contributed by LPL.
The silos, Harrison notes, tie into the port&rsquo;s need to distinguish one load of pellets from another. &ldquo;Once the material gets to a power station, they are less concerned with segregating individual cargoes, so they can afford to put the pellets into one homogenous pile,&rdquo; Harrison says. &ldquo;Whereas, we are very much trying to segregate shipments because we need to be able to trace pellets, not only back to the pellet mill that produced them, but also to the forests where the fiber came from. This approach allows for better segregation of cargoes.&rdquo;
At Hull and Immingham, Associated British Ports has already invested &pound;130 million in wood pellet handling infrastructure. Late last year, an additional &pound;4 million was invested in a state-of-the-art bulk storage warehouse. The facility, designed to handle and store dry bulk cargo, is loaded with design features to minimize the risk of fire and explosion, including an incipient aspirating fire detection system, internal LED lighting, an expanding foam fire suppression system, a smoke extraction system, and an internal and external mist/air system to control fugitive dust.
Most recently, a new player has emerged within Britain&rsquo;s port complex, with Peel Ports announcing that it had dispatched its 400th rail shipment of wood pellets to Drax. The milestone was reached just seven months after opening the first phase of a biomass terminal that earlier releases from the port valued at &pound;100 million.
Graham Construction was awarded the contract to construct the facility, making the company arguably the largest constructor of wood pellet handling and storage facilities worldwide. &ldquo;This project builds on the experience we have gained from building similar facilities on the east coast of England,&rdquo; states Leo Martin, executive director at Graham Construction in a release. &ldquo;We will be designing and building a state-of-the-art plant which will employ industry-leading technologies to ensure that the facility can be safely operated and maintained.&rdquo;
There can be no doubt that pellet volumes are a boon to the country&rsquo;s busy ports. Harrison offers that pellets have grown to represent a significant percentage of the port&rsquo;s dry bulk business and this year pellets will represent over 50 percent of Tyne&rsquo;s dry bulk volume. There is another side to that same coin, however. Long before wood pellets were identified as a practical means to meet the country&rsquo;s decarbonization goals, these same ports handled coal imports.
&ldquo;With the U.K.&rsquo;s energy policy shifting away from the reliance upon fossil fuels, we predicted that coal volumes would be gradually replaced by wood pellets," Harrison says. "Accordingly, coal reduced from 3.6 million metric tons in 2012 to 1.4 million metric tons in 2015.&rdquo;
Viewed in that way, the innovation and investment in pellet handling infrastructure within Britain was vital if the ports were to continue to meet their financial goals, as the country&rsquo;s intention to turn away from coal-derived power was clear. For Harrison and his colleagues at Port of Tyne, the transition was abrupt. &ldquo;The rate of the reduction in coal volumes has happened faster than anyone anticipated, and we might yet see more coal handled as the U.K.&rsquo;s energy supply continues to move toward alternative sources of power generation.&rdquo; Author: Tim Portz Executive Editor, Pellet Mill Magazine 701-738-4969 tportz@bbiinternational.com

This storage shed built at Hull, a port in the Associated British Ports family, employs a wide array of the latest fire and spark detection technologies, as well as robust carbon monoxide monitoring systems and fire suppression systems. This new Â£4 

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Concrete piles were driven into the Tyne riverbed to allow for a 125-meter suspended quay extension (visible in the left-hand portion of the photo). This extension allowed for the port to have four vessels berth at the quay simultaneously.

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As Drax Power Station's biomass metamorphosis comes of age and new conversions come online, investment and innovation in Britain's ports maintain momentum.

Doubling Down

Brothers Chris (left) and Kevin Haley, co-owners of the nearly 150-year-old Squier Lumber & Hardware Inc. in Monson, Massachusetts, started retailing wood pellets more than 20 years ago.

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While Squier Lumber sells various cordwood and coal stoves, the only brand of pellet stoves it sells is Harman. 

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In the early 1990s, the company purchased additional land that is now used to store wood pellets on. 

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Squier Lumber erected a new three-sided storage building just last year to house pellet stock and to keep them out of the weather, since sunlight, moisture and ice are detrimental to their longevity. 

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Co-owner Chris Haley (right) says whatever a customer desires in a pellet, Squier Lumber delivers. He says when a customer finds a brand of pellets they like, they stick with it. 

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Squier Lumber, the oldest continuously operating business in Monson, Massachusetts, has been operating at the same location for nearly 150 years and prides itself in its customer service.

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Squier Lumber & Hardware Inc., a longtime staple in Monson, Massachusetts, and surrounding communities, more recently has evolved into one of the premier independent pellet retailers in the U.S. Northeast. 

Riding the Wave

The U.K. Department for Business, Energy and Industrial Strategy laid an amendment in Parliament to the Renewable Heat Incentive on July 7 to reduce support for biomass combined-heat-and-power (CHP) systems.
The changes in support are specifically targeted at biomass CHP plants that use less than 20 percent of their fuel for electricity production, with the other 80 percent being used for renewable heat. This change affects all plants applying on or after Aug. 1, which gave industry only 21 days&rsquo; notice. Neither former U.K. Department of Energy and Climate Change or the new DBEIS had formally consulted with relevant trade associations or directly with industry on this specific change prior to laying the new amendment in Parliament, surprising many in the industry and putting a number of projects at risk.
The U.K. Renewable Energy Association said it surveyed 36 companies that are developing biomass CHP projects in the U.K. Of those companies, 34 had already made major equipment orders for the construction of their facilities or put down nonrefundable deposits; 25 companies have reported that the changes laid before Parliament will have a &ldquo;very negative&rdquo; impact on their project, with&nbsp; an additional eight reporting it will have a &ldquo;negative&rdquo; impact.

REA: UK incentive cuts put CHP investment at risk

A report recently filed with the USDA Foreign Agriculture Service&rsquo;s Global Agricultural Information Network provides an overview of the European Union&rsquo;s biofuel market, including data on wood pellets.
The report explains that the EU is the world&rsquo;s largest wood pellet market, with approximately 20.5 million metric tons of pellets consumed in 2015. Approximately&nbsp; 65 percent of that volume is used&nbsp; for heat and 35 percent for power. Demand is expected to increase to 22.5 million metric tons in 2017. The EU currently accounts for approximately 75 percent of the global market for wood pellets. The EU is also the world&rsquo;s biggest producer of pellets, featuring approximately 50 percent of global production. When compared to North American pellet plants, however, EU plants are primarily small- or medium-sized.

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Report features EU pellet data

A report recently filed with the USDA Foreign Agricultural Service&rsquo;s Global Agricultural Information Network provided an overview of the Russian federation&rsquo;s biofuels industry, including data on likely growth with wood pellet production and exports.
In 2016 and 2017, Russian production of wood pellets is forecast to increase about 5 to 7 percent. In the mid-term, domestic demand is forecast to increase at 10 to 12 percent annually. In addition, EU&rsquo;s growing interest in biofuels is increasing demand for wood pellets. According to the GAIN report, this will continue to be a major incentive for Russia to increase production of wood pellets.
Currently, Russia is the third largest exporter of wood pellets to the EU, following the U.S. and Canada. According to Russian Customs Service, export of wood pellets from Russia in 2015 was 934,000 metric tons, an increase of more than 6 percent from 2014. The leading destination was Denmark, followed by Sweden, Germany and South Korea. Russia accounts for a 6 percent share of world wood pellet exports. Russia ranks eighth in the world for total wood pellet production, with 3 percent of total wood pellet production.

Report highlights Russian pellet potential  

A recent study published by the World Bioenergy Association addresses the challenges European cities are facing within global climate mitigation policy and explains the contributions biomass can offer to reduce the use of fossil fuels.
Within the report, WBA discusses natural gas consumption and imports, noting natural gas was shown to have 19,600 metric tons more in CO2 emissions compared to wood pellets, both measured in the quantity of 100,000 gigawatt-hours (GWh) of primary energy.&nbsp;
Although natural gas production is shrinking in Europe, European forests are growing. According to WBA, 290 million cubic meters of wood could be harvested annually from forest for wood supply without decreasing the live wood volume below its replacement. With forest growth, pellet production has also grown steadily. From 2004 to 2014, global pellet production grew 21 percent annually from 4 million metric tons to 27.1 million metric tons. Main producing regions in Europe accounted for 16.2 million metric tons in 2014 and North America 8 million metric tons. In the next 15 years, global pellet production is forecast to surpass 50 million metric tons.

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WBA report shows importance of bioenergy to Europe

Newly appointed U.K. Prime Minister Theresa May has abolished the U.K. Department of Energy and Climate Change. The functions of the department will be transferred to other government departments, including the newly formed Department of Business, Energy and Industrial Strategy, for which Greg Clark has been appointed secretary.
The abolishment of the DECC is part of a larger ministerial overhaul implemented by May shortly after she was appointed to replace former Prime Minister David Cameron. Cameron officially announced his resignation July 11 and was replaced by May on July 13. He first indicated he would leave his post as prime minister immediately after the June 23 Brexit referendum, in which the U.K. voted 51.9 percent to 48.1 percent to leave the European Union.

UK eliminates Department of Energy and Climate Change, establishes Department of Business, Energy and Industrial Strategy 

The Agricultural Utilization Research Institute has announced the availability of a new feasibility study that shows biomass cooling can be a viable option for small-to-medium sized commercial, industrial and residential units.
The study explains that increasing temperatures&mdash;particularly in the Midwest&mdash;are expected to lead to large energy cost increases due to expenditures associated with switching from heating demand to cooling demand over the next five to 25 years. While biomass cooling technologies currently exist, the study indicates they are currently deployed only on a large commercial scale. However, biomass cooling may be an attractive option for smaller-scale installations. The study notes current economic data &ldquo;substantiates biomass cooling is a viable option and worth consideration, particularly if constructing a new building or retrofitting a current system where piping is in place.&rdquo;
The report concludes that biomass offers a competitive, and often lowercost alternative to traditional energy sources. When compared to conventional electricity, the use of wood pellets was found to result in a cost savings of $63.22 per month, with a cost savings of $64.12 per month when compared to propane. Other agricultural biomass sources, such as corn cobs, could provide similar cost savings.

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AURI publishes feasibility guide on biomass cooling

The U.S. Department of Energy and Oak Ridge National Laboratory have released the 2016 Billion-Ton Report, finding the U.S. has the potential to sustainably produce at least 1 billion dry tons of nonfood biomass resources annually by 2040.
These renewable resources include agricultural, forestry and algal biomass, as well as waste. They encompass the current and future potential of biomass, from currently available logging and crop residues to future available algae and dedicated energy crops&mdash;all useable for the production of biofuel, biopower and bioproducts.
New to the 2016 report are novel assessments of potential biomass supplies from algae; from new energy crops, such as miscanthus, energy cane, eucalyptus; and from municipal solid waste. For the first time, the report also considers how the cost of preprocessing and transporting biomass to the biorefinery may impact feedstock availability.

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DOE releases update of billion-ton study 

Clarkson University researchers believe they have figured out the cause of wood pellet-derived carbon monoxide (CO), and a potential solution.
Research performed by Philip Hopke, director of the Center for Air Resources Engineering and Science at Clarkson University, and coauthor Mohammad Arifur Rahman, found that hydroxyl radicals, neutral forms of the hydroxide ion that are highly reactive, are formed as a byproduct of the autoxidation of unsaturated compounds in the wood pellet&rsquo;s fiber&mdash;fatty acids and terpenes (organic compounds produced by plants). When these radicals react with hemicellulose, the research found, it results in CO generation at potentially dangerous levels when pellets are stored in confined spaces.
The research concluded that if autoxidation initiation can be eliminated, CO offgassing from pellets would be substantially reduced. According to the paper, &ldquo;destruction of the reactive compounds with ozone led to a suppression of CO formation, suggesting an approach to process the wood fiber that would result in low or no CO emission wood pellets.&rdquo;

Research finds likely solution for pellet-derived carbon monoxide

1. Evergreen Engineering opens new location Eugene, Oregon-based Evergreen Engineering Inc. has opened a branch office in Atlanta, Georgia, to pursue opportunities in the southeastern U.S. The office celebrated its grand opening July 1. 2. Energy Trust of Oregon names executive director Energy Trust of Oregon has announced its board of directors appointed Michael Colgrove as its new executive director, effective Aug. 15. Colgrove will lead the organization in continuing to deliver the cleanest, lowest-cost energy available for 1.5 million utility customers in Oregon and southwest Washington. Colgrove succeeds Margie Harris, who is retiring after leading the organization since its inception in 2001. Colgrove joins Energy Trust after 15 years with the New York State Energy Research and Development Authority, where he was both the director of the New York City office and director of multifamily programs. 3. Fecon announces mobile balancing systems Fecon has announced new mobile balancing systems, the FMB-100 and FMB-200. The mobile balancing systems can work on any make or model of forestry mulcher.
4. NDC Technologies introduces PrediktIR gauge NDC Technologies, a global provider of precision measurement and control solutions, has introduced its new PrediktIR gauge for the on-line moisture measurement of wood-sourced biofuel products such as woodchips, pellets and sawdust. The PrediktIR gauge meets the demands of biofuel processors looking for a basic on-line moisture measurement solution that is dependable, stable and accurate. The gauge is based on NDC&rsquo;s optical filter technology. It delivers continuous biofuel moisture content information in real time, enabling operators to adjust the airflow to the furnace to optimize combustion and automatically control the drying process, without having to wait for lab sample results. PrediktIR offers long-term instrument stability and basic yet accurate moisture measurements independent of changes in ambient conditions such as lighting, temperature or humidity. This moisture gauge also provides tolerance to physical process changes, such as pass height. 5. Biomass Systems Supply named Twinheat distributor Chico, California-based Biomass Systems Supply announced it has been named the exclusive distributor for Twinheat Biomass Boilers in the U.S. For more than 35 years, Twinheat, a Danish manufacturing company, has been developing and manufacturing biofuel burner systems and fully automatic silo systems for both industrial plants and private customers. Twinheat has more than 13,000 installations across the globe, offering systems that range from 10 to 250 kW. 6. PFI qualifies NWP's plants into standards program The Pellet Fuels Institute recently announced the qualification of two new pellet fuels manufacturing facilities owned by Northeast Wood Products into the Pellet Fuels Institute Standards Program. The two facilities, located in Ligonier, Indiana, and Peebles, Ohio, are the 25th and 26th facilities qualified by the program; NWP&rsquo;s facility in Jasper, Tennessee, was previously qualified.
7. Drax Biomass facilities earn SBP certifications The first Sustainable Biomass Partnership certificates issued by SCS Global Services, a global third-party certifier, were recently presented to Drax Biomass Inc. for its Morehouse BioEnergy pellet plant, located near Bastrop, Louisiana, and its Amite BioEnergy wood pellet manufacturing facility, located in Gloster, Mississippi. Each facility is equipped to produce up to 450,000 metric tons of wood pellets each year. The wood is Southern Yellow Pine sourced primarily from nearby privately owned working forests that have supported the region&rsquo;s forest-based economies for many decades.&nbsp; Thinnings, low-value roundwood, and harvesting residues are gathered and stored, then debarked and chipped.&nbsp; Woodchips are screened for size consistency, then dried and further processed into compressed pellets of uniform moisture, ash content and calorific value. The assessment by SCS included a comprehensive evaluation of each stage of the sourcing and manufacturing process, as well as an audit of Drax Biomass&rsquo;s Baton Rouge Transit storage and shipping facility. 8. US Endowment for Forestry updates database, mapping tool The U.S. Endowment for Forestry and Communities recently launched a revitalized wood bioenergy facility database and mapping tool. The site, www.wood2energy.org, is the most comprehensive database of its kind in North America. The site aggregates facility-level data to deliver a unique perspective of the wood bioenergy industry. With separate, clickable layers and simple symbology organizing data by facility type, size, operational status, and additional detailed information for each data point, users have the ability to plot and contextualize data from the macrolevel down to the site-level. The endowment engaged Ecostrat Inc. to develop and manage data delivery using GIS mapping technology to render the very large, complex dataset in a simple, user-friendly way. The data itself, which has been aggregated from the public domain (existing databases, industry publications, reports, press releases, newsletters, etc.), will be updated on an ongoing basis by the Ecostrat data management team. Given the scale of this project and the dynamic nature of the market segments covered, anyone with information to fill gaps or fix errors is asked to support the overall effort by contacting Ecostrat with information. 9. Government app to aid renewable energy exports The U.S. Departments of State, Commerce and Energy are inviting U.S.-based suppliers and providers of clean energy, smart grid and energy efficiency solutions to participate in an interactive directory of renewable energy and energy efficiency solutions. An interagency team representing the three departments has developed a beta version of an interactive app to serve as a mobile business directory for U.S. clean energy exports. The app highlights deployments of sustainable technologies and systems at U.S. diplomatic missions and provides potential business partners around the world with a searchable interface to find information on potential U.S. technology and service providers. The app is expected to be available in mobile app stores around Oct. 1. Target users of the app include foreign service officers and foreign commercial service officers and their energy sector stakeholders in international markets. 10. Georgia Biomass earns qualifications&nbsp; Georgia Biomass, a subsidiary of RWE, has achieved qualification under the Pellet Fuels Institute Standards Program for its 750,000-metric-ton-per-year pellet plant in Waycross, Georgia. In parallel, Georgia Biomass has also successfully completed its ENplus A1 recertification audit. This makes Georgia Biomass the first industrial-scale producer in North America with both ENplus A1 and PFI quality certifications.
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1.
Evergreen Engineering celebrated the grand opening of its Atlanta office July 1.

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Business Briefs

As part of the Pellet Fuels Institute&rsquo;s Standards Program, a registration number is issued to each qualifying pellet fuel manufacturer. The registration number, along with the production facility information, is published on the PFI website, which provides a complete list of all production facilities qualified under the program. It was originally intended that only one registration number would be issued to each manufacturing facility; however, it was not anticipated that this would result in issues for retailers or distributors who sell wood pellets under their own private label. PFI&rsquo;s Standards Program has recently made provisions for issuing additional registration numbers to qualified producers who are selling wood pellets to retailers or distributors who require anonymity on behalf of the producer. I will explain. &hellip;&nbsp;
But first, let&rsquo;s be clear as to what we are referring to as private labeling. Private labeling is the practice of selling your own brand of wood pellets without actually manufacturing wood pellets yourself. Essentially, the retailer or distributor&nbsp; purchases wood pellets from a manufacturer and has the producer package the product in the retailer&rsquo;s or distributor&rsquo;s own privately labeled bags. Private labeling is quite common in commerce. For example, if you purchased a Maytag clothes dryer in recent years, it may have actually been manufactured by Frigidaire. Another example is a whisky distillery in Kentucky whose product is sold by dozens of distributors&nbsp; under their own brands. The label simply says &ldquo;Bottled by&rdquo; and then the label lists the company that bottled the whisky rather than the actual distiller of the whisky. Like numerous other industries, private labeling regularly occurs with the wood pellet industry.
The problem we have encountered is that if the bag of wood pellets includes the manufacturer&rsquo;s PFI Standards Program quality mark, then the producer&rsquo;s registration number will appear on the bag, which discloses to the customer which manufacturer actually produced the product. While in many cases this is considered acceptable and may even be preferred, in others, it is clear the retailer or distributor would prefer the producer to remain anonymous, citing issues with customers calling the production facility directly for questions or concerns regarding the product they sell. This issue was reviewed by PFI as well as by the PFI Standards Program accreditation body&mdash;the American Lumber Standards Committee&mdash;and, as a result, new provisions have been made to assure private labeling can still be private if desired by the retailer or distributor.
PFI&rsquo;s new private labeling provisions are as follows. If a qualified pellet fuel manufacturer is working with a retailer or distributor who wishes to use privately labeled bags that keep the wood pellet manufacturer anonymous, then the wood pellet producer will need to contact their inspection agency to request an additional registration number to be used specifically for private labeling purposes. The inspection agency will review the request to assure that the additional registration number is used only for the designated production facility and that the pellet fuel manufacturer will maintain control of all bag printing. Once approved, the inspection agency will issue a new quality mark with the additional registration number to be used only on privately labeled bags.
To assure that consumers can still have the ability to investigate the validity of private label registration numbers, PFI&rsquo;s website now includes a list of all registration numbers issued by inspection agencies for private labeling purposes. These can be found on the same web page as the full list of PFI Standards Program qualified producers. If consumers do have questions or concerns regarding privately labeled product, they are encouraged to contact the retailer or distributor of the product or make use of contact information printed on the bag for the purpose of asking questions. If this is not successful in resolving problems and consumers wish to take their concern to the next level, then PFI can be contacted and the concern will be relayed to the inspection agency that issued the associated registration number.
The new PFI Standards Program private labeling provisions are intended to allow for pellet commerce as it has historically been conducted, while maintaining the integrity of the program by ensuring that the audit trail is fully upheld. These new provisions also assure that privately labeled product is covered by the PFI Standards Program without requiring retailers and distributors to become qualified themselves. Essentially, qualified pellet fuel producers are held accountable for the complete trade of their product whether quality marked under their original registration number or under a registration number issued for private labeling purposes. To view a list of registration numbers currently issued for private labeling purposes, please visit the PFI website at www.pelletheat.org/qualified-production-facilities. Author: Chris Wiberg Lab Director, Timber Products Inspection/Biomass Energy Lab 218-428-3583 cwiberg@tpinspection.com

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PFI's Standards Program has recently made private labeling provisions for issuing additional registration numbers to qualified producers who are selling wood pellets to retailers or distributors who require anonymity on behalf of the producer. 

Private Labeling Provisions

Following expectations of optimistic growth in the European industrial pellet market in recent years, the industry mood has since cooled. Many independent pellet project developers have been left disappointed and have abandoned projects as a result, while some existing smaller producers are starting to feel the pressure. Demand development largely stalled in 2015 and 2016, with investment decisions being delayed.&nbsp; On the other hand, new pellet mill capacity continued and continues to come online, such as the two 450,000-metric-ton mills operated by Drax Power and the 450,000-metric-ton mill operated by The Navigator Company group.
The result is a long market with a current overcapacity of about 3 million metric tons in the Atlantic market, which is expected to clear up slowly. Premium pellet markets in North America and Europe were also not strong enough to absorb significant volumes, providing little relief for industrial pellet producers. In addition, Russian producers are increasingly supplying into the European premium pellet market due to favorable exchange rate developments and potentially low input feedstock costs. Pellets from this region are reportedly also of very good quality.
The insolvency of the two U.S. subsidiaries of German Pellets is the starkest sign of the challenging market situation, even though other factors may have contributed to these insolvencies. Other, mostly smaller, producers are also feeling the pressure from the current market situation, and we would not be surprised to see further consolidation in the market over the course of this year.
It&rsquo;s not all doom and gloom. There is some light on the horizon with the conversion of Lynemouth Power Station in Great Britain (1.6 million metric tons per annum starting in 2019), which is now under way, and MGT Power (1.3 million metric tons per annum starting in 2019) reportedly being close to securing the required third-party financing. The announced conversion of the Langerlo power station in Belgium could bring additional demand of 1.7 million metric tons per year, but timelines for this project are unclear and demand is not likely to come into the market until the end of 2018.
Whilst these three projects would help to bring the market back into balance again and remove the existing overcapacity, it is our understanding that the majority of these volumes are already fully contracted out to established market leaders in the wood pellet sector, some of whom have further expansion plans, limiting the opportunities for smaller producers or independent project developers.
The only real game changer for the European market would be an unlocking of demand from the Dutch cofiring market, which is expected to add up to 3.2 million metric tons of demand per year. In the last SDE+ auction round, RWE and ENGIE were awarded subsidy contracts for their Amer 9 and Maasvlakte 4 plants, respectively. Whether they will actually implement their cofiring plans, however, depends on outstanding decisions regarding the general future of coal stations in the Netherlands. The Dutch government announced that they are considering plans to close all coal stations by 2020, with a decision on this topic expected before the next elections in March.
The big question for U.S. suppliers is if they will be successful in increasing their market share further or if producers from other regions will be able to compete more successfully. Project developers in Russia and Brazil have the advantage of good availability to sustainable biomass resources and attractive exchange rates that allow them to offer competitive price levels. It is yet to be seen if investors will be quick to capitalize on this advantage, or if the exchange rate and other business-related risks are perceived as too high, deterring any future investments. In this case, U.S. suppliers and project developers may still have a good chance to successfully establish themselves in this growing industry sector. Author: Dr. Hannes Lechner Senior Principal, P&ouml;yry Management Consulting +44 7876 348 262 hannes.lechner@poyry.com

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Although there is currently an overcapacity in the Atlantic pellet market, it's expected to clear up slowly, and as the three major European biomass conversion projects come online, they may help bring the market back to balance. 

What Next for the Atlantic Pellet Market? 

For nearly three years, the team at Pellet Mill Magazine has been looking for the right story about a business that relies on wood pellet revenues to make its operation go around. I&rsquo;m happy to report that we&rsquo;ve finally succeeded, and Ron Kotrba&rsquo;s <a href="http://biomassmagazine.com/articles/13634/riding-the-wave">feature</a> on Monson, Massachusetts-based Squier Lumber tells the story.
While Pellet Mill Magazine has historically trained the vast majority of its editorial gaze on the manufacturing and global distribution of wood pellets, we&rsquo;re well aware that a significant share of the wood pellets produced in North America each year are purchased by individuals to heat their homes, from places like Squier Lumber.
I reached out to Chris Haley, a co-owner of Squier Lumber, to introduce our title and Kotrba, who would be conducting the interview. Haley warned me that he&rsquo;d tell Kotrba exactly how things were, which was exactly what I had hoped for. I did wonder what Haley was thinking about when he offered his warning. Kotrba&rsquo;s piece offers no clear land mines. Instead, it shares the story of a business that was formed a decade after the Civil War that is now working to stay relevant. Haley told Kotrba that selling pellets to his customers was an experiment with the intent of keeping customers and cash flowing in the months when home projects reached their lowest ebb. The experiment paid off and now Haley&rsquo;s biggest concern is whether his business is too reliant on pellet and pellet stove revenues.
Kotrba&rsquo;s story puts a face on the challenges and uncertainty of selling a heating product in an era of mild winters and rock bottom heating oil prices, challenges that Haley works to manage the best he can but must ultimately, simply accept as a reality of his operation. The real gems within the story, however are the details Kotrba uncovered while talking with Haley. We&rsquo;ve rarely talked with producers about branding, but Haley brought it to Kotrba&rsquo;s attention, calling it an &ldquo;underappreciated facet of the business.&rdquo;
Finally, the story does a superb job of outlining the challenges pellet retailers face after a lackluster heating season. Haley wonders aloud if it is worse to have too much product or too little. Ultimately, he decides that both are equally bad and will go forward into this year&rsquo;s heating season playing the vital role of connecting producers to consumers.
TIM PORTZ VICE PRESIDENT OF CONTENT &amp; EXECUTIVE EDITOR tportz@bbiinternational.com

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One of the stories in this issue tells the story of wood pellet retailer Squier Lumber's history in distributing wood pellets; the journey they took building their business to where it's at today and the foreseen challenges for the future.

September/October 2016

Business Briefs

Business Briefs

Columns

Distribution Model Cost Savings

Private Labeling Provisions

What Next for the Atlantic Pellet Market?

The Business End of the Supply Chain

Featured

Doubling Down

Riding the Wave

Departments

Business as Usual

September/October 2016.css-7jxktu{position:absolute;bottom:0px;left:0px;right:0px;height:3px;border-radius:3px;background-color:var(--chakra-colors-brandBlack);}

Business Briefs

Business Briefs

Columns

Distribution Model Cost Savings

Private Labeling Provisions

What Next for the Atlantic Pellet Market?

The Business End of the Supply Chain

Featured

Doubling Down

Riding the Wave

Departments

Business as Usual

September/October 2016