2018 January/February Pellet Mill Magazine

JANUARY/FEBRUARY 2018

Export

Expertise

Q&A with Enviva’s John Keppler Page 20

Plus: EU Pellet Market Overview Page 13

US Producers Reports Solid Season Page 24

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April 16-18, 2018 Cobb Galleria Centre, Atlanta, GA Pre-Conference April 16, 2018 Cobb Galleria Centre, Atlanta, GA

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Contents »

JANUARY/FEBRUARY 2018 | VOLUME 8 | ISSUE 1

Pellet Mill Magazine

Advertiser Index

2 2018 International Biomass Conference & Expo 27 2018 Advanced Biofuels Conference 23 Andritz Feed & Biofuel A/S 28 Astec, Inc. 6 Biomass Magazine's Top News 15 CPM Global Biomass Group 17 GreCon Inc. 22 Industrial Bulk Lubricants (a Dansons company) 7 Pellet Producer Wall Map

WESTVIEW

FEATURES 12 EUROPEAN UNION An Evolving Market

The European Union has been a development boon to the North American wood pellet market, but its continued influence on growth is unclear.

By Anna Simet

20 Q&A Navigating the EU Landscape

Pellet Mill Magazine interviews John Keppler, Enviva chairman and CEO, about the company’s development over the past decade, and what’s on the horizon for the pellet manufacturing giant.

By Patrick C. Miller

COVER

Enviva’s Port of Wilmington terminal on the Cape Fear River can host a wide variety of vessels, up to a 42-foot draft. The port can receive, store, and load wood pellets for export, and serves as the shipment point for woody biomass fuels manufactured at the nearby Sampson County facility, as well as third-party wood pellets. It includes two wood pellet storage domes with capacities of 45,000 metric tons each.

DEPARTMENT 24 DOMESTIC HEAT Coming Out Hot

Frigid weather and rising fossil fuel prices have U.S. pellet producers ready to deem the 2017-’18 season as solid.

By Anna Simet

PHOTO: ENVIVA

04 EDITOR’S NOTE

The Original Export Market Driver

By Anna Simet

05 EVENTS 08 COLUMN COPYRIGHT © 2018 by BBI International

Taking the Wheel

By Tim Portz

09 COLUMN

Fighting Pellet Silo Fires

By Frank Hedlund and Jeffrey Nichols

TM

Please recycle this magazine and remove inserts or samples before recycling

10 BUSINESS BRIEFS 26 MARKETPLACE JANUARY/FEBRUARY 2018 | PELLET MILL MAGAZINE 3

« Editor's Note

Letter to the Editor »

The Original Major Market Driver Markets and policy are always changing. That presents both opportunities and challenges to the wood pellet industry, as well as for those who follow and report on it. After writing my page-12 article, “A Shifting Market,” which aligns with this month’s theme of European production and conAnna Simet sumption, some important policy votes ocEDITOR curred in the European Parliament. While asimet@bbiinternational.com nothing is final yet, there were some new, positive developments—hence the addendum at the end of the story, shortly before this issue hit the printer.

While my article provides an overview on the past, current and future landscape of European wood pellet markets, it’s nicely complimented by staff writer Patrick Miller’s Q&A with Enviva Chairman and CEO John Keppler, who discusses the metamorphosis the company has gone through over the past decade, and the challenges it has faced while navigating the European export market. EU demand for industrial wood pellets has been the foundation of Enviva’s incredible growth, and the company sent its first shipment of wood pellets—10,000 tons—to Europe in 2007, owning just one acquired plant at the time. Fast forward to 2018, and the Enviva’s annual capacity will soon total over 4 million metric tons annually. Its portfolio includes 45,000 tons of state-of-the-art storage capacity, a deep-water marine terminal at the Port of Chesapeake, six operating plants—the majority of which have been built from the ground up—and another under construction.

While Keppler discusses the Asian opportunities his company is also engaging in, he is quick to say that he believes new demand in Europe is far from over, and identifies several potential driving forces. Without new demand, wood pellet consumption in the EU is expected to plateau, and then taper off. But for now, especially being domestic production is much less than demand, North American imports will be needed for the foreseeable future.

Also in this issue, you’ll find “Coming Out Hot,” on page 25, for which I briefly chatted with several U.S. wood pellet producers who sell into the domestic market.

The past couple of heating seasons have been a rocky for many U.S. manufacturers because of warmer temperatures and cheap oil and natural gas, but the brutal cold this winter has brought so far has finally turned the tide, it seems. Sales are up and inventory is low, they told me, and I look forward to hearing more from them postseason, after the numbers have been crunched.

Much like the markets on the other side of the globe, things in the domestic sector can change in a very short time frame. Policy and advocacy aside, sometimes, the only thing left to do is watch, hope and wait.

4 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

Incidents are not Inevitable As leaders in the wood pellet industry, we would like to present an alternate view of process safety and fire prevention from what is represented in recent article, “Mitigating Pellet Silo Fires,” published in July 2017.

We strongly believe any article intended to correctly represent our industry’s view of fire prevention should align with the philosophy we embrace, which is that every incident is preventable.

We as an industry are, and must be, committed to the goal of zero safety incidents throughout our entire value chain, from forest floor to our customer’s burner tip. The implication that fire incidents are inevitable is careless, and suggests those within our industry tolerate and accept risk to our associates and assets. This is absolutely counter to what we as industry leaders truly believe, advocate and promote. We believe your readers deserve to clearly understand and appreciate that as an industry, we are focused on prevention, not excuses for when safety incidents happen.

We have an unwavering commitment to safety.

Collectively, we share best practices and key learnings through the USIPA Safety Committee, and direct contact between companies at all levels. We invest deeply in training, prevention and root cause analysis. We routinely work together to scrutinize, remediate and learn from any incident to ensure it never happens again, and establish best practices for safety within our facilities.

There is no substitute for preparedness, prevention and continuous improvement.

As an industry, we are responsible for ensuring the safety of our employees, our facilities and the communities in which we operate, and accepting anything less than zero safety incidents is flatly unacceptable.

We welcome the opportunity to further discuss safety and fire prevention in our facilities, and the work that we are doing every day to continuously improve.

Harold Arnold, President, Fram Renewable Fuels Seth Ginther, Executive Director, U.S. Industrial Pellet Association John Keppler, Chairman and CEO, Enviva Brian Louma, President & CEO, the Westervelt Company Pete Madden, CEO, Drax Biomass Thomas Meth, Chairman, U.S. Industrial Pellet Association António Porto Monteiro, CEO, Colombo Energy Tom Reilley, Chairman, Highland Pellets James Roecker, CEO, Georgia Biomass

Industry Events »

Editorial

PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com EDITOR Anna Simet asimet@bbiinternational.com SENIOR EDITOR Ron Kotrba rkotrba@bbiinternational.com STAFF WRITER Patrick C. MIller pmiller@bbiinternational.com ONLINE NEWS EDITOR Erin Voegele evoegele@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

Art

ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Raquel Boushee rboushee@bbiinternational.com

Publishing & Sales

CEO Joe Bryan jbryan@bbiinternational.com VICE PRESIDENT OF OPERATIONS Matthew Spoor mspoor@bbiinternational.com SALES & MARKETING DIRECTOR John Nelson jnelson@bbiinternational.com BUSINESS DEVELOPMENT DIRECTOR Howard Brockhouse hbrockhouse@bbiinternational.com SENIOR ACCOUNT MANAGER Chip Shereck cshereck@bbiinternational.com CIRCULATION MANAGER Jessica Tiller jtiller@bbiinternational.com MARKETING & ADVERTISING MANAGER Marla DeFoe mdefoe@bbiinternational.com

EDITORIAL BOARD

Stan Elliot Pacific Coast Pellets Chad Schumacher Superior Pellet Fuels Bruce Lisle Energex Corp.

Derek Nelson Forest Business Network T.J. Morice TNT Ventures LLC Tim Portz Pellet Fuels Institut

2018 International Biomass Conference & Expo

APRIL 16-18, 2018 Cobb Galleria Centre Atlanta, Georgia

Organized by BBI International and produced by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true onestop shop––the world’s premier educational and networking junction for all biomass industries.

(866) 746-8385 | www.biomassconference.com

Advanced Biofuels Conference

June 11-13, 2018

CenturyLink Center Omaha Omaha, Nebraska

With a vertically integrated program and audience, the Advanced Biofuels Conference is tailored for industry professionals engaged in producing, developing and deploying advanced biofuels including cellulosic ethanol, biobased platform chemicals, polymers and other renewable molecules that have the potential to meet or exceed the performance of petroleum-derived products.

866-746-8385 | www.advancedbiofuelsconference.com

EUBCE 2018 – 26th European Biomass Conference and Exhibition

May 14-18, 2018

Copenhagen, Denmark

As one of the world’s leading R&D conferences combined with an international exhibition, the EUBCE represents the leading platform for the collection, exchange and dissemination of scientific knowhow in the field of biomass. The conference program will address topics from biomass itself to bioliquids and biofuels for heat and electricity, transport and biobased products, covering all aspects of each value chain, from supply and logistics to conversion technologies, from industrial application of research results to impacts on the environment, from market and trade aspects to policy strategies, not least to the role of biomass as a source in integrated energy systems. +39 055 5002280 ext. 221 | www.eubce.com

Subscriptions to Pellet Mill Magazine are free of charge—distributed bimonthly—to Biomass Magazine subscribers.To subscribe, visit www.BiomassMagazine.com or you can send your mailing address to Pellet Mill Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203.

You can also fax a subscription form to 701-746-5367. Back Issues & Reprints Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising Pellet Mill Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Pellet Mill Magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Pellet Mill Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to asimet@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

JANUARY/FEBRUARY 2018 | PELLET MILL MAGAZINE 5

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« Column

Taking the Wheel

BY TIM PORTZ

Early this year, I began my tenure as executive director of the Pellet Fuels Institute, representing not only the men and women who own and operate wood pellet facilities, but also the broader vendor community that supports these producers. I’m thrilled to take on this challenge, and look forward to the work ahead.

I’m excited about representing the PFI for three main reasons. First, the producer members of the PFI operate manufacturing facilities in the U.S. I’m a big fan of American manufacturing, and I am intimately aware of how vital manufacturing jobs are to the rural parts of this country. I grew up in rural Iowa, and in the late 1970s and early ‘80s, my hometown of 2,500 people had four different manufacturing facilities in its industrial park.

Hundreds of people enjoyed skilled labor jobs that paid good, middle-class wages. With the exception of one, all of those factories have since closed, and my hometown is still reeling from the economic shock of those lost jobs.

Pellet manufacturing puts people to work, typically in rural places, and I can think of no better endeavor than to do what I can to perpetuate this economic engine.

Second, I’m a firm believer that the single best way to maintain a strong inventory of forests in this country is to ensure they continue to have real economic value. Pellet manufacturing plays an important role in the broader forest products supply chain, shoring up value for the residual fiber streams that are generated every day by sawmills, cabinet shops and flooring manufacturers.

Pellet manufacturing drives the forest products industry closer toward the reality of using the “whole tree,” which ultimately wins us all fans in the general public.

Finally, I believe the use of fossil fuels for energy is increasing carbon dioxide levels in the atmosphere, changing our climate. A decade ago, this is what brought

8 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

me to the biomass industry. Generating more of our energy from biogenic sources is vital if we’re ever going to turn this ship of climate change that we are on.

My first priority in 2018 is making it clear to our membership that the PFI is engaged in a daily effort to raise the visibility and profile of pellet as a heating option to consumers. This cannot be overstated or emphasized enough. There is very little the PFI can do about the weather or the prices of heating fuels that wood pellets compete with, but the PFI can get busy waving the flag of pellet heat. Our market grows each time a new homeowner, business owner or farm owner makes a decision to install a pellet heating appliance. This is fundamental to our market growth, and it is an effort the PFI and its board is committed to undertaking in the coming year.

Our producer members deserve to feel the tailwinds of their association championing the products they manufacture, and working to win new customers. It is that simple.

While I have known and written about the professionals in the wood pellet industry for nearly a decade, during the past several weeks, I’ve had the opportunity to speak with them in a new context. Their passion for their businesses and industry is contagious, and I look forward to representing them in the coming year.

Here’s hoping this cold winter goes on and on and on…

Author: Tim Portz Executive Director, Pellet Fuels Institute tim@pelletheat.org 651-398-9154

Column »

Fighting Pellet Silo Fires

BY FRANK HEDLUND AND JEFFREY NICHOLS

Smoldering fires in wood pellets storages can occur for a number of reasons. There are plenty of examples in industry where pellets self-heat deep inside an undisturbed pile. Another known cause is mechanical friction heat, e.g., in a roller bearing, which can ignite dust particles. Embers can be difficult to detect, and they can travel in conveyor systems, starting fires in storage areas.

Oftentimes, smoldering fires in bulk storage silos can’t be fought with water. Realize that putting water from sprinkler or deluge systems will only cause damage to the silo, and is ineffective in suppressing deep-seated fires, as the water will generally tunnel down through the outside of the material instead of wetting it through.

Alternative firefighting strategies use injection of inert gases to suppress combustion. Inert gases—the most commonly available in large quantities are nitrogen and carbon dioxide—can deplete the oxygen available for combustion and quench the pyrolysis.

Oxygen-deficient, smoldering fires produce pyrolysis gases, such as carbon monoxide, which is poisonous and flammable.

The presence of unburnt pyrolysis gases is a known hazard to firefighters. If a compartment fire has little or no ventilation, leading to an oxygen-deficient environment, large amounts of unburnt gases will accumulate. These gases may remain at a temperature hotter than the auto-ignition temperature, and sudden access to air—for example, breaking a window or opening a door—may result in large flames rapidly expanding toward the source of oxygen, known as a backdraft.

Carbon monoxide has an unusually wide flammability interval, the lower and upper flammability limits are 12.5 to 74 percent by volume. Mixtures of pyrolysis gases and air at temperatures below the auto-ignition temperature may therefore be in the ignitable range, and able to cause an explosion, if they meet an ignition source. Carbon dioxide may provide that source of ignition.

A real example is an explosion that occurred in a wood pellet silo in Norway. It was half full, with an inventory of about 3,500 m³ of wood pellets. The pellets had self-ignited, and started a smoldering fire deep inside the pile. The first indications of trouble came about midnight, when sensors in the pile registered elevated temperatures. Later, an alarm sounded from the silo's fixed carbon monoxide detector.

Firefighters were quick to order a shipment of nitrogen to inject into the silo to quench the fire. For a number of reasons,

the tanker truck was estimated to arrive about noon. A revised estimate pushed the arrival time to late afternoon, at the earliest.

Firefighters are men of action, and it is easy to imagine the difficulty of standing idle next to a burning silo, merely waiting for a truck to arrive. Unable to wait, firefighters began collecting CO2 bottles from nearby power stations and industries. Only 22 bottles were available, about 220 m³ of CO2, just 5 percent of the headspace volume. Although the effect of CO2 injection was thought to be limited because of the limited quantities available, out of sheer frustration, a CO2 attack was decided, in the hope that it at least might attenuate the fire until nitrogen supplies arrived.

A ladder on the silo led to a fixed platform that provided access to an inspection hatch in the roof. The firefighters decided to manually discharge the CO2 bottles though this hatch opening, and when discharging the fifth CO2 cylinder, the silo exploded.

The firefighters were briefly enveloped in flames, but fortunately, their personal protective equipment offered excellent protection, and they suffered minor burn injuries only. Static discharges from the CO2 bottles may have ignited the pyrolysis gasses. It is conceivable that the firefighters themselves inadvertently introduced the source of ignition that led to the explosion, which easily could have killed them had the blast been strong enough.

The electrostatic hazard of CO2 is widely underappreciated, across countries. The situation appears particularly grave for NFPA 12 on carbon dioxide extinguishing systems, which gives ill-conceived advice on the application of CO2 to deep-seated fires involving solids subject to smouldering. NFPA 69 and NFPA 850 should also be revised to highlight the hazard In the past, major explosions have been attributed to electrostatic ignition of flammable vapors during the release of CO2 for fire-prevention purposes. The most dramatic explosion may have been an explosion of a U.S. Air Force underground tank with JP-4 in 1954, which killed 37 people. The victims were officials, technicians and contractors who were standing on the roof of the tank while carrying out acceptance tests of the tank's novel carbon dioxide fire extinguishing system. Unfortunately, there is evidence to suggest that those early lessons learned have, at least partly, passed out of sight.

Author: Jeff Nichols Managing Partner, Industrial Fire Prevention jnichols@industrialfireprevention.com 770-266-7223

JANUARY/FEBRUARY 2018 | PELLET MILL MAGAZINE 9

Business Briefs

PEOPLE, PRODUCTS & PARTNERSHIPS

Portz joins PFI as executive director The Pellet Fuels Institute has hired Tim Portz to serve as the organization’s executive director. Portz, based in Minneapolis, Portz joins PFI with a wealth of industry knowledge from his previous role as longtime executive editor of Biomass Magazine and Pellet Mill Magazine.

Portz has been a renewable industry observer, reporter, and commentator for nearly a decade. Throughout his career, Portz has established himself as a consistent and outspoken champion for biomass energy. During his tenure at BBI International, Portz was also responsible for developing the agendas of the International Biomass Conference & Expo and the International Fuel Ethanol Workshop, developing strong relationships with experts and vendors across those industries. Prior to his career in renewables, Portz worked in sales and sales management for RR Donnelley, a global printing company. Portz attended the University of Iowa, graduating with a bachelor’s degree of fine arts.

Enviva forms new joint venture, acquires plant Enviva Holdings LP’s development subsidiary, Enviva Development Holdings LLC, entered into a new joint venture, Enviva JV Development Company, LLC with affiliates of The John Hancock Life Insurance to acquire, develop and construct wood pellet production plants and deepwater marine terminals in the Southeast U.S. The new joint venture will be managed by Enviva and supported by the Hancock Renewable Energy Group, a unit of the Hancock Natural Resource Group.

In addition, the joint venture has agreed to acquire a wood pellet production plant in Greenwood, South Carolina, and related assets from the Navigator Company, S.A., a large Portuguese paper and pulp company, subject to certain customary closing conditions. The acquisition is expected to close in the first half of 2018.

Bogers named B&W Vølund managing director Effective Jan. 2, Babcock & Wilcox Enterprises Inc. Bogers appointed Koen W. Bogers as managing director of its Denmark-based renewable energy subsidiary, Babcock & Wilcox Vølund.

Bogers most recently served as senior executive vice president of Siemens Building Technologies’ Middle East division, located in Dubai. Before assuming his current role in 2015, he joined Siemens in 1996, serving in positions including project management positions in the Power Generation and Oil & Gas divisions and managing director positions in the Industry Solutions and Building Technologies divisions of Siemens Netherlands.

Bogers holds master’s degrees in business economics from Erasmus University Rotterdam, and electrical engineering from the Technical University Delft. He will be based in B&W Vølund’s Glostrup, Denmark, office, near Copenhagen.

Rentech sells NEWP, Atikokan pellet plants Lignetics of New England Inc. has purchased U.S. wood pellet business New Eng-

land Wood Pellets from Rentech Inc., which recently filed for bankruptcy.

Lignetics will acquire substantially all of the NEWP assets, and assume certain specified liabilities of Rentech, for a purchase price of $35 million. The purchase of NEWP adds to Lignetics current annual capacity of 650,000 tons. The company purchased the Marth Companies in May, which included four pellet plants and trucking assets. The NEWP acquisition will bring Lignetics’ total pellet plant count to 12, with facilities located all across the U.S. Rentech’s Atikokan facility will be purchased by Ontario Inc., an affiliate of True North Timber, a forest resources company in Ontario, according to Rentech’s bankruptcy filing. Pursuant to the Atikokan asset purchase agreement, Ontario Inc. has agreed to acquire substantially all of the assets and assume certain CAD$3.2 million.

Pinnacle Renewable Energy files for IPO in Canada On Dec. 15, Canadian pellet producer Pinnacle Renewable Energy filed a preliminary prospectus with securities regulatory authorities in Canada for a proposed initial public offering (IPO) of common shares.

Information released by Pinnacle indicates the offering contemplates a primary offering of common shares from treasury and a secondary offering of common shares by certain existing shareholders, including entities affiliated with ONCAP, the middle-market private equity platform of Onex Corp. The offering is being co-led

by CIBC Capital Markets and RBC Capital Markets, together with BMO Nesbitt Burns Inc. and Scotia Capital Inc., as joint bookrunners, and National Bank Financial Inc., GMP Securities L.P., Raymond James Ltd. and HSBC Securities (Canada) Inc., as underwriters.

SHARE YOUR INDUSTRY NEWS: To be included in the Business Briefs, send information (including photos and logos, if available) to Business Briefs, Pellet Mill Magazine, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You may also email information to asimet@bbiinternational.com. Please include your name and telephone number in all correspondence.

10 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

Business Briefs »

Pinnacle currently operates six pellet facilities, located in the British Columbia cities of Armstrong, Williams Lake, Meadowbank/Hixon, Houston, Burns Lake, and Lavington. The company also has a port terminal and new production facilities under development in Entwistle, Alberta, and Smithers, British Columbia.

LaSalle BioEnergy

Drax Urania plant begins pellet production Drax Biomass Inc., a leading manufacturer of sustainably sourced compressed wood pellets, has begun startup production at its newest facility, LaSalle BioEnergy in Urania, Louisiana.

LaSalle BioEnergy will employ approximately 78 employees and is the third pellet plant in DBI’s portfolio, which also includes Morehouse BioEnergy in Bastrop, Louisiana, and Amite BioEnergy in Gloster, Mississippi. The wood pellet manufacturing facility, which is roughly 160 miles northwest of Baton Rouge can produce approximately 450,000 metric tons of wood pellets per year.

A series of upgrades and repairs have been ongoing at the plant since the acquisition in early April 2017, supporting a further investment of more than $20 million for the region. The asset was a strategic investment considering LaSalle BioEnergy’s proximity to an abundant wood basket and its production capacity that supports DBI’s strategy of increasing self-supply.

SCS Global Services Accredited for SBP Certification SCS Global Services has become the third certification body to be accredited

by Accreditation Services International for Sustainable Biomass Partnership certification services.

ASI, the appointed accreditation body for the SBP certification system, has undertaken a thorough assessment of the processes and procedures in place at SCS, and is satisfied that the accreditation requirements for the SBP certification system have been met.

The ASI accreditation process starts with a desk review of supporting documentation from the certification body, and is followed by an on-site head office assessment. The last stage is a witness assessment of a certification body audit. A recommendation decision is then submitted to the ASI Accreditation Committee, with the final accreditation decision taken by the ASI managing director.

As of Jan. 1, certification bodies must become accredited by ASI if they wish to provide SBP certification services to their clients and prospective clients. The requirement applies to all certification bodies, including those that are currently SBP-approved.

Pellet exports highlight of Port of Prince Rupert 2017 cargo Cargo moving through the Port of Prince Rupert rose to a record volume of 24.1 million metric tons (MT) in 2017, anchored by 26 percent growth in its intermodal container business and growth of dry bulk cargo volumes.

Overall tonnage through the port was up 28 percent from 2016, and exceeds the previous record high of 23 million MT set

in 2013. One of the 2017 terminal highlights includes Prince Rupert’s Westview Terminal, where wood pellets saw a significant increase, up 22 percent to 1.1 million MT, representing the export of nearly half of Canada’s entire wood pellet production.

Adams joins BTEC board of directors Maura Adams, program director for the Northern Forest Center, has been Adams elected to the Biomass Thermal Energy Council board of directors. Adams will join the group of thermal biomass industry partners, advocates and stakeholders in advancing the sustainable use of wood and agricultural biomass for clean, efficient heat and combined heat and power.

The Biomass Thermal Energy Council is an association of biomass fuel producers, appliance manufacturers and distributors, supply chain companies and nonprofit organizations that view biomass thermal energy as a renewable, responsible, clean and energy-efficient pathway to meeting America’s energy needs. BTEC engages in research, education, and public advocacy for the fastgrowing biomass thermal energy industry.

The Northern Forest Center stated it is thrilled for Maura as she joins the board, and added that her experience, expertise and determination will serve BTEC and its members well.

JANUARY/FEBRUARY 2018 | PELLET MILL MAGAZINE 11

« Markets

A Shifting MARKET

The EU pellet industry may have more growing to do, but just how much, only time and policy will tell.

BY ANNA SIMET

12 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

Markets »

JANUARY/FEBRUARY 2018 | PELLET MILL MAGAZINE 13

« Markets

W

hen the EU government passed lofty greenhouse gas reduction and renewable energy goals over a decade ago, ensuing market forecasts for future wood pellet consumption were glamorous. Out of the woodwork came an inordinate number of global players looking to seize a slice of opportunity. While some achieved success, others were not able to gain share in a difficult-to-navigate export market, on top of running a business that requires even more than just passion, patience and perseverance to successfully maintain—or grow.

With North America leading the pack of wood pellet exporters by a landslide, production there has grown exponentially over the years. EU consumption has remained a significant catalyst, but is expected to level out in few years, leading suppliers to eye new opportunities in Asia. But while new markets are on the horizon, the EU remains a powerful force for now, and is expected to remain a key driver for at least the next few years, with many large-scale, pellet-consuming projects slated to come online by 2020.

Production, Consumption Trends

In 2016, nearly 29 million metric tons (MT) of wood were manufactured globally. The EU produced close to half that, at 14 million MT, meeting 65 percent of its domestic demand of 21.7 million MT in 2016. The remaining 35 percent was mostly shipped from North America, with small amounts from other areas, including Russia.

While close to the same size as the U.S., in contrast, wood pellet production is spread out across many member states in the EU, and not concentrated in a specific region. EU production trended upward for many years due to growing demand, but following a 4.5 percent growth spurt between 2014 and 2015 (13.5 to 14.1 MT),

production levels dipped to 14 MT in 2016, a slight decrease of about 0.4 percent, according to Gilles Gauthier, manager of the European Pellet Council. “Adverse weather conditions was the main factor in the stagnation for 2016, with the expansion in underdeveloped markets acting as a mitigating factor,” he says. “One thing to note is that the industrial market is less weather-dependent, and shows a continuous upward trend over the years.”

According to the European Biomass Association’s annual report, of the 21.7 million MT of wood pellets consumed in the EU in 2016, 61.7 percent was used for heat—residential (42.6 percent), commercial (11.8 percent) and heat from combined heat and power (CHP). (7.3 percent). Power plants consumed the remaining 38.3 percent.

Fiona Matthews, research manager with Hawkins Wright, says that since the drivers of the domestic and commercial sectors are very different, they have grown at much different rates. “We expect much slower growth in the residential heating market,” she says. “The industrial market is characterized by a very small number of individual users, each of whom consume very large volumes. Although industrial pellet demand will rise significantly as a result of two new projects coming online—Lynemouth and MGT Power—we do not currently envisage any additional demand growth there.”

Five new industrial-scale pellet-consuming projects are expected to come online between 2018 and 2020, the largest user being EPH in Lynemouth, United Kingdom. The 420-MW, coal-fired power plant is being converted to use up to 1.6 million MT tons of wood pellets, and is due to come online in early 2018. A handful of projects set to come online in the Netherlands this year will create about 1.5 million MT of new demand, and finally, MGT

14 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

Power’s 299-MWe project in the U.K. will consume about 1.1 MT, beginning in 2020.

Unlike most of the pellet-using power projects, MGT was purpose-built, points out Seth Walker, senior economist at FutureMetrics. “A lot of these projects are coal plants that are being converted to extend their service life, and using wood pellets was not meant to be a permanent solution,” he says. “I think demand will probably plateau for the next couple of years.”

Utilities in various member states are interested in converting to wood pellets, but interest is all it is, at least for now. “We still get inquiries from our utility clients all over Europe, some Spanish, Portuguese, German and France coal stations, looking to covert to biomass,” says Hannes Lechner, senior principal at Pöyry Management Consulting. “These countries have fallen out of favor with coal, and have ambitions to close them fairly quickly. The only option they have for survival is converting to biomass, but they also need the appropriate support system, and this is usually where it falls over.

The government isn’t too keen on support for large-scale, import-based biomass projects.”

These potential conversion considerations aside, like Walker, Lechner says that demand is set to level off by 2020, followed by a stable period. And from 2026 onward, demand is expected to contract. “It will contract quite significantly, especially during 2027, when support for Drax and Lynemouth comes to an end,” Lechner says.

“This could have quite a significant impact on U.S. suppliers, and potentially, European suppliers form Portugal and the Baltics.

Unless, of course, things change. But as the intent of the scheme stands at the moment, demand will contract significantly.”

In preparation for shifting markets, Canadian suppliers are already contracting and partnering with Japanese companies, as is U.S. supplier Enviva, Lechner points out,

Markets »

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though U.S. Southeast producers may face challenges in finding the success in Asia that they did in Europe. “If you look at the supply cost curve for wood pellets going into Japan and South Korea, the U.S. isn’t well positioned,” he says. “They are rather expensive compared to the supply coming in from countries like Malaysia, Indonesia and Russia, and that’s where we see growth potential going forward. Suppliers at the high end of the cost curve might find it difficult to compete in this emerging Asian market longer-term, and so they will have to do something about it—perhaps switching to the U.S. West Coast, where biomass is somewhat limited and can be expensive, or establish a platform in Asia Pacific directly, taking their expertise and know-how to where the market is.”

While industrial pellet growth in Europe slows, Walker says he believes it’s likely that a pickup in residential, commercial or small-scale CHP or district heating is in store. “[Residential/commercial] Demand and growth has been slow for a few years because of competing fuel prices and warmer winters, so there was really no impetus to switch,” Walker says. In the U.K., these markets have been largely driven by financial subsidies provided by the Renewable Heat Incentive, but changes to the rules and support schemes, Matthew says, “have caused demand growth to come in fits and starts.”

The RHI has undergone some controversy regarding implementation flaws and significant overspending, but has been largely successful. “The issues really arose in northern Ireland,” Lechner says. “In England, Wales and Scotland, there were no issues of mismanagement or overspend.

It is a very generous incentive scheme, and it has been brought down already, but the government is still quite supportive of RHI,” he says. “If you want to decarbonize

Loaded with wood pellets, Panamax-class vessel Popo S arrives at Port of Immingham, the U.K.’s largest port by tonnage, from Pinnacle Renewable Energy’s Westview Terminal in Prince Rupert, British Columbia PHOTO: ASSOCIATED BRITISH PORTS

your energy system, for heat generation and cooling, biomass is one of the few viable options. We expect further growth in the biomass heating market in the U.K., maybe not at the attractive levels we have seen, but definitely growth. The ambition would be to supply this growth with domestic resources, and avoid imports and the dependence on international markets as much as possible.”

Most European countries have defined their energy and carbon reduction goals out to 2020, and what lies beyond then is murky— at least, for now. “What we see is more EU countries looking at the biomass resources they have domestically, how much biomass heat growth it can really support, and how much should be incentivized,” Lechner says. “As we gather, they aren’t looking at incentivizing importing biomass for the domestic market over long distances, because then you’re getting into sustainability and footprint discussions, and this is what politicians are quite wary of, at the moment.”

However, according to Lechner, costwise, the economics of imported wood pellets for domestic heating markets are actually quite favorable in some instances.

“Mostly because of high raw material costs

16 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

in a lot of EU countries, and pellet mills are typically smaller-scale, and don’t have the efficiencies of the 200,000-ton or half million-ton that you find in North America.

Suppliers could compete in the market, but demand would have to increase quite a bit.”

Right now, continued growth in both the industrial and domestic EU markets— beyond 2020—is hinged largely on policy.

Policies to Watch

2018 will be a crucial year for the future development of renewable energies after 2020, Gauthier says. “In fact, EU policy makers are discussing a very important legislative package that will shape the future legislative framework for renewables, including bioenergy, for the period 2020-’30,” he says.

For bioenergy, there are some important developments that could become opportunities or challenges for the sector, depending on the outcome of negotiations.

Gauthier identifies the first as sustainability criteria for solid and gaseous biomass.

“Until 2020, only biofuels are subject to sustainability criteria,” he explains. “The currently discussed legislation is foreseeing sustainability requirements for solid bio-

Markets »

JANUARY/FEBRUARY 2018 | PELLET MILL MAGAZINE 17

« Markets

mass, including pellets. The most probable outcome is that only installations above 20 MW will have to comply with these requirements, but the text is still under discussion and other thresholds, like 1 MW, are considered.”

Another important policy piece is development of a renewable target in the heating and cooling (H&C) sector, and improved energy performance for buildings, according to Gauthier. “A new focus on decarbonizing the H&C sector can represent important market opportunities for pellet deployment, especially at residential level,” he says. “However, this new focus also brings concerns about biomass emissions and air quality linked to an increased use of bioheat, especially in decentralized stoves and boilers.”

Finally, conversations are underway place restrictions on power production from biomass CHP, and Gauthier says that if implemented, it could hamper member

states from producing power from only biomass, and halt cofiring efforts.

Policies and subsidy schemes that continue to drive the residential and commercial EU wood pellet market, besides the U.K. RHI, according to Matthews, include the French Fonds Chaleur heat scheme, the Irish renewable heat support scheme, the Italian Conto Termico, and biomass boiler grants in countries including Austria, Germany, Poland and Holland.

In the industrial sector, the U.K. Renewable Obligation and Contracts for Difference policies, the Dutch SDE+, and the Danish heat tax are all important policy drivers, she adds.

On challenges beyond policy, things are always changing in the short-term, Matthew says. “The supply-demand balance is currently rather tight, especially in the heating market, which has struggled due to low inventories, consolidation in Italy, and sudden cold snaps in some regions. The long-

18 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

term trends remain in place though, with the biggest issue being the possible impact of rising Asian demand.”

If the heating sector continues to grow and the industrial projects materialize, Gauthier agrees, then the main challenge may be ensuring sufficient production capacity to avoid any tension on the market.

For now, consumption levels in all of Europe are a lot higher than production—55 percent higher in 2016 , according to Gauthier,—and therefore, U.S. imports of wood pellets are needed. “Competition between U.S. and EU producers remains marginal,” he says. “However, the main factor for this absence of competition is the type of market U.S. pellets are destined for—EU products are largely used on the individual and mid-scale markets, and U.S. pellets are shipped mainly to large-scale, industrial users.”

And driving home Matthew’s point that the market changes quickly, Walker points

Markets »

out that several years ago, it was projected that within just a few years, Germany would become net importers of wood pellets, which is not the case today. “It shifted in the other direction—growth stalled in that market, and appliance sales went down,” he says. “Everything looks different now than it did a few years ago.”

And finally, the EU commission can change rules at any time, Lechner points out. “Things can change very quickly, and very significantly—there are a lot of ifs and uncertainty,” he adds. “For example, if Germany should really go for biomass cofiring, very high demand could unfold quickly. Same with Spanish and Portuguese coal power stations. They’re busy lobbying their governments, and we’ll have to see where it goes. It’s a rather uncertain future, but probably more upsides than downsides.

Suppliers have to be very wary of this cliff edge in 2026 and ‘27, because it’s not that far out any more. They have to really gear

up and find a strategy to survive, and not be left with stranded assets.”

Editor’s note: At press time, the U.K. government released its response to consultation of cost control for further biomass conversions under the Renewable Obligation. The response proposes applying a cap at the power station level across ROC units, rather than imposing a cap on ROC support for future biomass unit conversions. In response, Drax announced it would convert a fourth unit to wood pellets, with plans to complete the work in the second half of 2019. Each of Drax’s existing converted units consumes approximately 2.3 million metric tons of wood pellets annually. The fourth unit will likely operate with lower availability than the three existing converted units, as Drax intends to run it at periods of higher demand.

At the same time, the European Parliament confirmed and improved the revision of the Renewable Energy Directive and the

Energy Efficiency Directive, to guarantee sustainability of bioenergy consumed in the EU for the period 2021-‘30. The European Biomass Association issued remarks of approval, stating that the approach will allow solid biomass to keep playing a key role in the European energy transition while providing coherent and realistic sustainability safeguards, but that the bioenergy sector will have to remain cautious in Parliament trilogue negotiations.

Author: Anna Simet Editor, Pellet Mill Magazine asimet@bbiinternational.com 701-738-4961

JANUARY/FEBRUARY 2018 | PELLET MILL MAGAZINE 19

« Q&A

John Keppler, Enviva chairman and CEO PHOTO: ENVIVA

Navigating the European

L ANDSCAPE

John Keppler, Enviva’s chairman and CEO, discusses the European wood pellet market, expansion plans and future opportunities.

BY PATRICK C. MILLER 20 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

Q&A »

F

or more than a decade John Keppler, Enviva co-founder, chairman and CEO, has managed the company’s strategic direction.

He’s led the company’s growth from startup to becoming the world’s largest producer of industrial wood pellets.

Enviva has operations in Mississippi, Alabama, North Carolina, Virginia and Florida. Its facilities include nearly 3 million metric tons of production capacity and a 600,000-ton plant under construction. Its processing facilities export to customers in the European Union through wood pellet port facilities in Chesapeake, Virginia, and Wilmington, North Carolina, as well as deep-water marine terminals in Panama City, Florida, and Mobile, Alabama.

In January, Enviva announced the formation of a joint venture with affiliates of The John Hancock Life Insurance Co. called the Enviva JV Development Co. It will to acquire, develop and construct wood pellet production plants and deep-water marine terminals in the Southeastern United States. The joint venture announced its intent to acquire a wood pellet production plant in Greenwood, South Carolina.

In an interview with Pellet Mill Magazine, Keppler answered questions on the challenges of breaking into the European wood pellet market and future opportunities for Enviva, not only in Europe, but also in Asia.

What percentage of Enviva’s wood pellet production is exported to European markets? How were you able to gain such a foothold there? Was there a learning curve in successfully entering the European market?

Today, our customers are mostly European electricity and heat/power producers seeking to decrease their dependence on traditional fossil fuels, such as coal, and reduce their emissions of carbon dioxide and other pollutants. European nations have adopted aggressive, mandatory renewable energy targets. Several countries, including the U.K., have put additional regulations in place that are designed to phase out many coal plants altogether. Since existing coalfired infrastructure can be converted to use wood biomass instead, Enviva provides a

reliable, cost-effective and environmentally beneficial means of meeting these objectives. I will say that although the preponderance of our production is delivered into Europe, the Asian market is growing very rapidly, and we have shipments scheduled for customers in Japan already this year.

We entered the industrial wood pellet business in 2007, and have formed lasting relationships with a reliable customer base.

At the start, these relationships were complementary to sales to heating customers.

In 2009, however, the European Renewable Energy Directive provided a more substantial opportunity for utility-scale conversions, and we were asked by our customers to create a larger-scale operation that could provide a ratable supply at a predictable cost position. Shortly thereafter, we acquired our first pellet production facility in Amory, Mississippi, (2010) and built our first pellet production facility in Ahoskie, North Carolina, (2011). Our total production capacity is now almost 3 million metric tons per year (MTPY), with a 600,000 MTPY plant under construction and an announced, but not yet closed, acquisition of an additional plant that will add another 600,000 MTPY to our portfolio.

Yes, there was a learning curve in successfully entering the European market.

It was not merely a matter of successfully manufacturing wood pellets—we had to master the entire supply chain. I distinctively recall two key decisions: the first was vertically integrating our own deep-water marine terminal at the Port of Chesapeake, which allowed us to gain control of the supply chain.

The second was when we innovated from purely a third-party certification focused approach to sustainability and sustainable forestry practices to an integrated approach of certification, conservation and transparency. In doing so, we developed and launched a proprietary data system, Track & Trace. T&T is a first-of-its-kind system that documents our forestry and supply chain activities on a tract-by-tract basis and allows us to track every ton of wood we buy back to its origin in the forest or sawmill.

We publish the T&T data on our website to ensure that it is available publicly and accessible by all of our stakeholders.

These are a few of the early, key elements that ensured that were able to quickly and effectively serve the market and build a differentiated, leadership position in the industry.

When did Enviva send its first shipment of wood pellets to Europe?

Can you describe that experience?

Our first shipment (a 10,000-ton ship) took place in November 2010. This was an exciting and significant achievement, one nearly matched by the loading of our first ship from our own deep-water marine terminal at the Port of Chesapeake, the following December (2011).

The facility, originally an Alcoa-built alumina import terminal, was purchased in February 2011. Our goal was to load a ship the same year—which we did. The ship, the Daishin Maru, carried 30,000 metric tons of wood pellets to Europe and demonstrated the remarkable capabilities of Enviva: within 10 short months, we constructed 45,000 tons of state-of-the-art storage capacity and converted an import terminal to an export facility, loaded a full shipment with high-quality wood pellets from a production facility completed and commissioned contemporaneously with the port and sailed the vessel to a customer to arrive within the designated arrival window.

How do you see the European wood pellet market evolving in the next five or 10 years? Demand is expected to plateau—are there other markets that Enviva is eyeing? How do the recent acquisition of the Greenwood plant and Enviva’s plans to build more plants and deep-water facilities align with future plans?

We see significant industrial pellet growth potential in Europe, both in the short and long term. The Netherlands market is ramping up, both for cofiring and industrial heat, and we’re seeing that Denmark, the U.K. and Belgium continue to pursue new specific biomass electricity and CHP projects. Germany, Poland, and Ireland also represent utility-scale opportunities and across Europe, we also expect growth in combined-heat-and-power applications and in residential thermal markets.

JANUARY/FEBRUARY 2018 | PELLET MILL MAGAZINE 21

« Q&A

In the 2020s, we see further growth driven by the EU’s Renewable Energy Directives II. RED II’s objectives are focused on efficient and dispatchable assets that provide vital system services complementing wind and solar energy at a national, regional or city level. We are confident that U.S wood pellet exports will continue to play a key role in meeting Europe’s energy and climate objectives—while ensuring grid reliability—well into the future (as was reaffirmed by the positive Jan. 17 vote by the European Parliament on the RED II terms regarding biomass).

We also expect to see strong growth in Japan, where demand for long-term supply of imported wood pellets continues to grow as several utilities and trading houses have announced new cofired and dedicated biomass projects. Japan is targeting 6 to 7.5 gigawatts (GW) of biomass-fired capacity, which represents demand for 15 to 20 MTPY of biomass, as part of its expected power source mix for 2030. Demand for the 2017 feed-in tariff program for projects fueled by imported biomass significantly exceeded expectations, as applications were submitted for more than 15 GW of biomass-fired capacity.

Regarding our recent announcement, the new joint venture aligns perfectly with our strategy to develop and construct new production plants and marine terminals to grow our production capacity, in order to serve the growing Asian and European markets.

Are there any policy issues that Enviva is particularly interested in— for example, uniform sustainability definitions across EU countries?

We pride ourselves on producing world class pellets, which means that we seek to deliver the highest quality for our customers, while ensuring the forests we source from are growing and healthy. Enviva foresters and staff across the enterprise dedicate significant time and effort to maintaining our various certifications, which demonstrate the sustainability of our sourcing and pellet production.

Certification provides our customers with independent confirmation that En22 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

viva is doing the right thing and is being held accountable.

Presently, Enviva maintains three types of certifications: Chain of custody certification, which validates that Enviva adheres to the highest industry standards of responsible fiber procurement, which includes provisions for preserving biodiversity, contractual requirements for the use of forestry best management practices, legal and regulatory compliance, and management oversight and participation in sustainability processes.

Forest management certification validates that a landowner is managing his or her land according to commonly accepted management principles. As Enviva expands into additional countries and markets, we must increase our customers’ access to certified wood.

The Sustainable Biomass Partnership certification is more product-specific, establishing sustainability standards for wood pellet and wood chip production for industrial, large-scale energy production.

What do you think it is that has made Enviva so successful in the wood pellet business? We have seen the rise and fall of a lot of companies over the past decade. Are there strategies you’ve employed that set your company apart from others?

We don’t define ourselves as a “wood pellet business.” We view ourselves as a critical supply chain partner to major power generators seeking to improve the environmental profile of energy generation.

That means that nothing we do can interrupt their delivery of energy to their customers, nor our delivery of renewable resources to them for fuel. For starters, that means a relentless focus on safety, quality and reliability, and a culture of continuous improvement for each of those disciplines.

But it’s our values that drive our business behavior. We care about keeping people safe, on hiring and developing the best people, on integrity, determination, accountability and on promoting healthy forests in the areas in which we operate. These values have served us very well. They have

Q&A Âť

allowed us to build trusting relationships with all of our stakeholders, from our employees and our suppliers, to our local communities and all the folks who support our supply chain, to customers, and regulators overseas.

The industry is maturing, and weâ&#x20AC;&#x2122;re helping to set the standard for safety, sustainability, quality, efficiency and reliability.

Has Envivaâ&#x20AC;&#x2122;s Track and Trace program and its sustainability policies helped your company market its products in Europe? How? Absolutely. Our customers depend upon us to deliver a consistent and sustainable product, as well as to contribute to the health of forest lands. This starts with thoroughly understanding our supply chain and, to do so, we launched the Track & Trace program.

Track & Trace is a proprietary and innovative system that quite literally tracks and traces every truckload of wood procured from the forest or sawmill back to its source. It provides a detailed, tract-level understanding of the characteristics of the wood. We know the precise condition of the forest, the location of the harvest site, who owns the land, the type of forest, how it was harvested, the number of years since the last harvest, the number of acres harvested and the percentage of the total harvested volume for each tract. This allows us to make informed sourcing and procurement decisions and to share the information publicly.

Transparency is critical to building trustâ&#x20AC;&#x201D;we are consistently reviewing and improving our practices and we are happy to engage with stakeholders to continue to improve and share information about our sourcing systems. Our Track & Trace data is a pillar of our commitment to transparency and an important element of Envivaâ&#x20AC;&#x2122;s Responsible Wood Supply Program.

As a major player in the wood pellet industry, can you discuss what the main challenges have been?

Weâ&#x20AC;&#x2122;re in what I would call a â&#x20AC;&#x153;juvenileâ&#x20AC;? industry and we have had to work through many engineering challenges without the benefit of a century of best practices to

fall back on. Itâ&#x20AC;&#x2122;s taken a lot of perseverance and problem-solving. Iâ&#x20AC;&#x2122;m very proud of our culture of continuous improvement that has allowed us to continue to grow the production capacity at each plant, and make substantial improvements in quality while maintaining a relentless prioritization of safety.

Another challenge has been building a reliable and scalable supply chain that connects landowners in the Southeast U.S. to customers around the world. This involved all the normal logistical challenges of moving goods, but also doing so with the lowest possible energy footprint, and developing a comprehensive program of education, certification, and transparency to ensure that all the wood fiber we purchase comes from sustainably managed forests.

The last thing Iâ&#x20AC;&#x2122;ll mention is more of an opportunity than a challenge. As the company and industry grow, we have a stronger voice to tell what has sometimes been seen as a complex story. We have a chance to educate the public about the science our industry is built on. Biomass produced sustainably in Southeast U.S. is playing an increasingly important role in improving the environmental profile of energy generation and in providing economic benefits to communities. Itâ&#x20AC;&#x2122;s a powerful story about the carbon benefits of replacing coal with biomass, and about the positive relationship between the rates of forest harvest and forest regrowth.

Author: Patrick C. Miller Staff Writer, Pellet Mill Magazine pmiller@bbiinternational.com 701-738-4923

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JANUARY/FEBRUARY 2018 | PELLET MILL MAGAZINE 23

Coming out HOT

After several consecutive soft winters, signs point to a rebound for most U.S. pellet manufacturers.

BY ANNA SIMET

A

combination of record-breaking cold and rocketing heating fuel prices have nearly made it official—the 2017-’18 heating season will serve as a healthy rebound for Northeast wood pellet businesses, and likely a solid season across the board for U.S. producers.

The week ending Jan. 6 was approximately 34 percent colder than normal for the U.S., with parts of the eastern U.S. at 62 percent colder than average. Limitations

on regional national gas in New England resulted in spiking prices and increased oil burning for electricity generation. In New York, utility Central Hudson informed customers that record amounts of natural gas were consumed by customers during an intense cold snap beginning on Jan. 5—breaking records on two consecutive days—and advised customers to turn down the heat when leaving their homes, as widespread demand was causing gas and electric supply costs to surge. That same week, ISO

24 PELLET MILL MAGAZINE | JANUARY/FEBRUARY 2018

New England released statements issuing concerns about the distribution of fuel inventories across the region, and emission limits for some generators for the remainder of the winter. “Because of the region’s heavy reliance on oil-fired power plants for the past 12 days, several are running low and fuel replenishment will be critical for these facilities, especially if the region encounters another cold snap soon after this one…a few power plants have reported that they are nearing their emissions limita-

Domestic Heat » tions. The cold weather continues to affect wholesale energy prices, as well as the types of power plants that are being used to meet demand.”

The U.S. EIA recently released its Winter Fuel Outlook, reporting that for all major home heating fuels, costs will rise this winter because of expected colder weather and higher energy costs. Increases will vary by fuel, with natural gas expenditures forecast to rise by 12 percent, home heating oil by 17 percent, electricity by 8 percent, and propane by 18 percent. In the Northeast, the U.S. region most reliant on heating oil at 21 percent, the EIA expects households using primarily with heating oil to spend an average of $215 more this winter than last winter, reflecting retail prices that are 25 cents per gallon higher, and consumption 6 percent higher than last winter. In the scenario that assumes a 10 percent colderthan-forecast winter, projected expenditures are $397 (32 percent) higher than last winter, according to the EIA. The report does not include the expected increase in cost for homeowners using wood pellets, which provide more cost stability than traditional heating fuels, a benefit often presented to customers as a major advantage.

According to the New Hampshire Office of Strategic Initiative’s Weekly Heating Fuel Report, for the week of Jan. 8, the average price per ton of wood pellets in-state was about $275 per ton.

Stephen Faehner, CEO of American Wood Fibers, which operates plants in Ohio, Virginia and Wisconsin, says Maryland, where AWF is headquartered, has experienced an unusually cold winter, with 20 days below freezing. Inventory is low and pellets have been moving quickly, he says, especially when compared to the last few winters. While a boost to the industry, Faehner says, the extreme cold also presents challenges, one of which the length of time it can take to get a plant serviced when in need of repairs, as operating in subzero temperatures can be problematic.

In Mifflintown, Pennsylvania, Bruce Lisle, president and CEO of 100,000-annual-ton producer Energex, is enthusiastic about business this winter. “We’re back to normal,” he says. “Our heating degree days in the Northeast and Mid-Atlantic are up about 16 to 17 percent from last year, even

Heating Fuel Prices per Million Btu Fuel Price (in dollars)

Fuel Price (dollars per million Btu)

Cord Wood ($250/cord)

$11.36

Wood Pellets ($260/ton)

$15.64

Natural Gas ($1.69/therm)

$16.92

Heating Oil ($2.94/gallon)

$21.20

Kerosene ($3.54/gallon)

$26.22

Propane ($2.81/gallon)

$30.77

Electricity (baseboard) (15-18 cents/kwh)

$43.94-$52.75

SOURCE: MAINE GOVERNOR’S ENERGY OFFICE, JAN. 19

though that’s only about two or three percent less than what they determine to be normal. We’re selling a lot more fuel, no question. Especially coming back after the Christmas holiday when the weather hit— it really hit hard.”

Up in the north Northeast, Maine Fuel Pellet Alliance Executive Director Bill Bell says Maine producers Maine Woods Pellets and Lignetics of Maine also report a solid, busy season, including calls from customers who they hadn’t heard from in a long time, “with many new orders and outbound shipments being made.”

Out on the West Coast, which experienced a well-above-average season last winter, business isn’t quite as momentous as last year, but still solid, says Stan Elliot, vice president of sales and marketing at 45,000-ton-per-year Pacific Coast Pellets, and chairman of the Pellet Fuels Institute.

“We haven’t had the extreme cold that we had last year, but it’s been cold enough so that inventory levels for retail, distribution and homeowners were so low that we got off to a really strong start in August and September,” he says. “And we had good, cold weather in October and November, so the ball kept rolling.”

Now, Elliot says, a handful of producers in the West are at point where they have run out of all inventory. “It’s almost a perfect scenario for most folks,” he says.

“We have had enough for most of the season, and none left on the ground, so they are shipping as they produce. That means everyone will probably end up fairly clean, which is the goal for most pellet producers.”

Elliot says an exception is that, because there hasn’t been the intense cold that there was last year, lower-quality pellets aren’t moving well. “Medium- or high-quality no problem, but if you are lower range, there isn’t that pull, simply because people are able to get the brand they want, and don’t have to settle for a lower-grade pellet. Last year, everyone sold everything.”

Elliot adds that some West Coast business is starting to go to the Northeast.

“Some are gaining sales by shipping out there,” he says. “We have referred a few people to try to help them out…a couple of producers like us are sending some East.

In quieter years, we usually do that up until November, then we gauge the status of our markets, and shut those shipments off, because we need it in our home markets.”

Faehner says that during some routine checks—for example, a recent visit to some Kentucky retailers—stores have been out of pellets. “There are a couple of big box outlets there, and they didn’t have any pellets,” he says. “Retailers are very reluctant to buy later in the season, because they don’t want to get stuck with inventory.

We’ve been offering customers split loads to help with that, but we need to watch this, because it is a trend that could work against us.”

Author: Anna Simet Editor, Pellet Mill Magazine asimet@bbiinternational.com 701-738-4961

JANUARY/FEBRUARY 2018 | PELLET MILL MAGAZINE 25

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