A Giant Step

The pellet industry will grow by nearly 33 percent during the next two years, as foreign demand drives investment in new capacity and distribution infrastructure.
By Tim Portz | March 12, 2014

More than 4 million metric tons of new wood pellet production capacity are currently under construction throughout North America, over 3 million tons of which are scheduled to come on line this year, and 600,000 tons by spring. Such capacity growth is unprecedented in the North American pellet industry, which is comprised of some 160 facilities, with a total installed capacity of around 13 million metric tons. Not only will the capacity added this year grow the industry’s output  by nearly 25 percent in just one year, but facilities scheduled to come on line in 2015 will bring the two-year expansion closer to 33 percent.

While unprecedented within the pellet sector, this kind of monumental growth is not without antecedent in the broader renewable energy sector. In 2007 and 2008, the ethanol industry grew from around 6.5 billion gallons of production capacity to over 9 billion gallons. By 2009, the industry had brought on line enough production capacity to achieve over 10 billion gallons of production in the industry’s history.

While growth in the ethanol industry’s construction capacity was characterized largely by the construction of scores of facilities with similar capacities, growth in the pellet sector is largely coming from the construction of a much smaller fleet of supersized plants. Whereas the average installed capacity in the pellet industry’s existing 159 operational plants is under 80,000 tons per year, the planned capacity at the production facilities scheduled to come on line in the next two years is 350,000-plus metric tons per year.

Experienced Producers, New Capacity

The vast majority of under-construction capacity is represented by producers already engaged in pellet production. ––Fram Renewable Fuel LLC, Enviva LP, German Pellets GmbH, Drax Biomass, and Zilkha Biomass Energy––developers who are engaging in follow-up efforts to add to their existing capacities. Still, there are plants under construction that represent a company’s first production effort. Vulcan Renewables, with an initial planned capacity of nearly 150,000 metric tons, is Vulcan’s first facility. 

Christopher Kim, president, acknowledges that Vulcan’s facility isn’t coming on line without tremendous input from experienced vendors like pellet mill manufacturer Amandus Kahl, or his more experienced colleagues. “Industry leaders such as Harold Arnold of Fram and Ken Ciarletta of Enova, back when he was with Georgia Biomass, gave us valuable advice that really helped. Being able to go to these veterans for advice when you are just coming online is priceless for a startup [company] like ours,” says Kim.

Vulcan’s planned capacity is unique amongst the projects currently being built. The veterans, alongside whom Kim and other newcomers are building capacity, come from an anchor of experienced producers with nearly 2 million tons of North American production capacity already to their name. And while Drax—with more than 1 million tons of capacity under construction—has no current North American capacity, the company built, owns and operates a 100,000-ton-per-year pellet facility just down the road from its massive power station in Yorkshire, England. This facility in the town of Goole converts mostly straw and energy crop inputs into pellets, leaving Drax atop a very short list of producers with deep experience processing those feedstocks.

Drax Moves Upstream

Drax will not have to rely upon straw or miscanthus inputs for either of its production facilities in the U.S. The two facilities under construction near northern Louisiana’s Bastrop, and Gloster, in southeast Mississippi, are being built in robust wood baskets. While the United Kingdom-based power producer’s foray into U.S.-based pellet production may have surprised some, Drax saw it as a part of a natural progression to become the world’s largest producer of biomass-derived power.

“A secure supply chain is key to Drax’s biomass strategy to become a predominantly biomass-fueled provider of renewable power,” notes Matt Rivers, director of fuel procurement at Drax. “It was evident that investment was needed throughout the entire supply chain. The self-supply of some proportion of the needed biomass makes good business sense if Drax is to secure the total volume required to fuel three converted units at Drax Power Station.”

Construction of the two facilities began in the second half of last year and both are scheduled to come on line in 2015, with the Amite BioEnergy facility in southwestern Mississippi scheduled to begin operations during the first quarter, and Morehouse BioEnergy facility in the second quarter. The Drax team will draw on both the experience of building the pellet facility in Goole and continued capital projects at the power station to guide them as they select technology vendors to establish their pellet production facilities stateside. “Although not at the scale of those being built in the U.S., much experience was gained through constructing and operating that [Goole] plant to make us well-placed to select the right partners to work with,” says Rivers.

Repurpose on Purpose

The Drax production sites, a welcome addition to the job-hungry rural communities in which they are being built, are both greenfield construction sites with ready access to both abundant feedstock and robust existing and planned freight infrastructure at the Port of Baton Rouge.

Other producers have shown an appetite for acquiring cast-off forest product facilities or the abandoned efforts of earlier pellet developers. Two facilities currently under construction by Rentech Inc. are both conversions of decommissioned Weyerhauser fiber mills in Ontario, Canada. The German Pellets Louisiana facility under construction near LaSalle, La., is a conversion of a previous fiberboard facility, and the Zilkha Biomass-Selma facility was purchased out of bankruptcy in 2010 from Dixie Pellets.

For pellet production newcomer Ren-tech, these reclamation efforts are just one piece of a carefully executed strategy that aligns existing production resources of opportunity, the right supply chain expertise and exclusive port  infrastructure with an executed off-take agreement with a creditworthy buyer. The majority of the planned capacity of both Rentech’s Wawa and Atikokan production facilities is already spoken for in two separate offtake agreements. Virtually all the production at Wawa will make its way to the boilers at Drax’s power station, and 45,000 tons of production at Atikokan will stay in Ontario, feeding the recently converted Ontario Power Generation station in Atikokan.

To Market, To Market

For pellet producers, brownfield redevelopment offers a number of advantages, including built-in access to vital transport and shipping infrastructure. Virtually all of the pellets produced by the facilities being built in the next two years will be burned in foreign boilers. As a result, well-considered and cost-effective pathways to ports are crucial. In many instances, producers are also making investments in infrastructure at the ports their pellets will move through.

In the case of Vulcan Renewables, production capacity will come on line before ports are ready to handle the new volume. Until the Port of Jacksonville is ready to handle and load pellets into bulk cargo vessels, Vulcan Renewables will utilize an interim shipping strategy of filling shipping containers and loading pellets onto container vessels the plant is capable of loading.

The output from Fram’s Hazelhurst, Ga., facility will move through the Port of Brunswick, which handles the production from its Appling County facility. Pellet storage and handling services at the Port of Brunswick are handled by Montreal-based stevedoring company Logistec. Recognizing the existing channel depth would eventually create a bottleneck, the Georgia Ports Authority recently added six feet of depth to the shipping channel, which will allow a larger class of bulk vessel to berth and take on these new tons.

Looking Forward

The massive capacity build-out the ethanol industry experienced in 2007 and 2008 was marked by a relatively abrupt slow-down, and just three short years later, the number of ethanol plants under active construction was less than 10. The installed capacity began to equal, roughly, the size of the mandated market and groundbreakings naturally slowed to a trickle.

The funnel of pellet production projects under development but not yet under active construction numbered as high as 27 facilities with more than 7 million tons early last year. As the industry continues to grow, however, questions about the resiliency of this marketplace momentum are beginning to surface. The required volume from U.K.-based power producers is significant, but the risk of having demand tied up in one or two planned facilities is already apparent. In December, the conversion of the massive Eggborough Power Station, which would have created another infusion of Drax-like demand, was omitted from a list of projects deemed provisionally affordable. Stakeholders are already working to get the Eggborough conversion back on track, but demand volatility of this sort is certain to impact the development of projects not yet underway. Eggborough’s fate will have little bearing on the production class of 2014, however, and regardless of demand trajectory at the year’s conclusion, it will go down as a year of unprecedented expansion in the biomass industry’s hottest sector.

Author: Tim Portz
Executive Editor, Biomass Magazine