global review woody biomass situation and …1. demand (biomass chips and wood pellets) it is...

Global Review of Dedicated Woody Biomass Plantations:

Current Situation and Outlook to 2020

Produced for JOPP By RISI

February 15, 2013

Contents Ⅰ. Introduction ............................................................................................................................... ......... 1

Ⅱ. Current Overview of Demand and Supply of Woody Biomass ............................................................ 2

1. Demand (biomass chips and wood pellets) ....................................................................................... 2

A. Western Europe ............................................................................................................................. 2

B. USA............................................................................................................................ ..................... 6

C. North Asia ............................................................................................................................... ....... 7

D. Other ............................................................................................................................... ............... 9

ⅰ. South America ............................................................................................................................. 9

ⅱ. Africa ............................................................................................................................... ........... 10

ⅲ. Oceania ............................................................................................................................... ....... 10

• Australia ............................................................................................................................... ........ 10

• New Zealand ............................................................................................................................... . 11

2. Supply (biomass chips and wood pellets): ...................................................................................... 11

A. Western Europe ........................................................................................................................... 12

B. Western Russia ............................................................................................................................ 12

C. USA and Canada ........................................................................................................................... 13

D. Brazil ............................................................................................................................... ............. 14

E. Other ............................................................................................................................... ............. 14

ⅰ. Oceania ............................................................................................................................... ....... 14

• Australia ............................................................................................................................... ........ 14

• New Zealand ............................................................................................................................... . 17

ⅱ. Southeast Asia ........................................................................................................................... 17

ⅲ. Africa ............................................................................................................................... ........... 18

3. Sources of information on biomass prices .......................................................................................... 18

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Dedicated Woody Biomass Plantations

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A. Europe ............................................................................................................................... ........... 18

B. North America ............................................................................................................................. 19

Ⅲ. Forecast for Demand and Supply of Woody Biomass ........................................................................ 20

1. Primary Drivers for Biomass Demand ............................................................................................. 20

A. Government Policy ...................................................................................................................... 20

ⅰ. Biomass Power (heat and electricity) ........................................................................................ 20

ⅱ. Biofuels....................................................................................................................... ................ 21

B. Market economics ....................................................................................................................... 22

2. Database of announced biomass energy projects (2011‐2016) ...................................................... 23

A. Europe ............................................................................................................................... ........... 23

B. USA............................................................................................................................ ................... 23

3. Database of announced new wood pellet projects (2013 ‐2016) ................................................... 24

A. USA and Canada .......................................................................................................................... 24

B. Russia ............................................................................................................................... ............ 25

C. Brazil ............................................................................................................................... ............. 25

D. Other ............................................................................................................................... ............. 25

4. Forecast of biomass fiber demand to 2020 ..................................................................................... 26

A. Europe ............................................................................................................................... ........... 26

B. USA............................................................................................................................ ................... 27

C. North Asia ............................................................................................................................... ..... 28

5. Discussion of supply sources of biomass fiber to 2020 ................................................................... 30

A. Mill residues ............................................................................................................................... .. 30

B. Logging residues .......................................................................................................................... 31

C. Dedicated woody biomass crops ................................................................................................. 31

Ⅳ. Details on the Current Role of Dedicated Biomass Plantations ......................................................... 33

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1. Area of dedicated woody biomass plantations ............................................................................... 33

A. By species ............................................................................................................................... ...... 33

ⅰ. Eucalyptus ............................................................................................................................... ... 33

ⅱ. Poplar ............................................................................................................................... .......... 34

ⅲ. Willow ............................................................................................................................... ......... 34

ⅳ. Robinia ............................................................................................................................... ........ 35

ⅴ. Other ............................................................................................................................... ........... 35

B. By country ............................................................................................................................... ..... 36

2. Estimated contribution of dedicated woody biomass plantations to global biomass supply ......... 36

3. Considerations for site selection for dedicated woody biomass plantations: ................................ 37

4. Tree species utilized for dedicated woody biomass plantations .................................................... 38

A. Poplar ............................................................................................................................... ............ 39

B. Eucalyptus ............................................................................................................................... ..... 39

C. Willow ............................................................................................................................... ........... 39

5. Alternatives to woody biomass ....................................................................................................... 40

A. Miscanthus ............................................................................................................................... .... 40

B. Switchgrass ............................................................................................................................... ... 42

C. Arundo donax .............................................................................................................................. 42

D. Reed Canary Grass (Phalaris arundinacea) .................................................................................. 42

Ⅴ. Cost Structure and Management Systems for Dedicated Woody Biomass Plantations .................... 43

1. Case studies with detailed cost and profitability analysis ............................................................... 43

A. Europe ............................................................................................................................... ........... 43

ⅰ. Introduction ............................................................................................................................... 43

ⅱ. Germany – Poplars and Willows ................................................................................................ 46

ⅲ. Sweden ‐ Willows ....................................................................................................................... 49

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ⅳ. Hungary – Willow and Poplar .................................................................................................... 52

ⅴ. Poland – Willow and Poplar ....................................................................................................... 54

ⅵ. Romania – Poplar and Robinia ................................................................................................... 56

ⅶ. Spain ‐ Paulownia and Eucalyptus ............................................................................................. 56

ⅷ. United Kingdom ......................................................................................................................... 59

ⅸ. Ukraine ............................................................................................................................... ........ 60

B. USA............................................................................................................................ ................... 61

ⅰ. Hybrid Poplar ............................................................................................................................. 61

ⅱ. Willow ............................................................................................................................... ......... 62

ⅲ. Eucalyptus ............................................................................................................................... ... 64

C. Brazil ............................................................................................................................... ............. 65

ⅰ. Eucalyptus high‐density planting ............................................................................................... 65

ⅱ. Eucalyptus pulpwood density planting ...................................................................................... 69

D. Africa ............................................................................................................................... ............. 70

ⅰ. East Africa Eucalyptus ................................................................................................................ 70

ⅱ. West Africa ‐ Rubberwood ......................................................................................................... 71

E. Other ............................................................................................................................... ............. 72

2. Subsidies ............................................................................................................................... ........... 73

A. Summary of incentives currently available ................................................................................. 73

ⅰ. Europe: ............................................................................................................................... ........ 73

ⅱ. USA ............................................................................................................................... .............. 76

ⅲ. Other ............................................................................................................................... ........... 76

3. Examples of “successful” dedicated woody biomass plantations ................................................... 77

A. Which are considered successful? ............................................................................................... 77

B. Importance of “co‐products” for dedicated biomass energy plantations ................................... 79

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Ⅵ. Outlook for Future Development of Dedicated Woody Biomass Plantations ................................... 80

1. Which species will be most commonly utilized? ......................................................................... 83

2. Which countries will likely see the most investment in dedicated wood biomass plantations, and why? ............................................................................................................................... .............. 84

A. Brazil ............................................................................................................................... ............. 84

B. US South ............................................................................................................................... ....... 85

C. Southeast Asia ............................................................................................................................. 85

D. Africa ............................................................................................................................... ............. 86

Appendix ............................................................................................................................... ...................... 87

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Ⅰ. Introduction

This report was undertaken on behalf of the Japan Overseas Plantation Center for Pulpwood, to assess the role of dedicated woody biomass plantations in meeting current and future demand for biomass fiber for energy production. In addition to building on past work on this subject completed by RISI, our effort has included new original research, and on‐site visits in 2012 to dedicated woody biomass plantations in several regions of the USA, Brazil, Chile and Germany.

This report is organized by topic, with each section broken into discussions by region.

• Section II: This section gives an overview of the current supply of, and demand for, woody biomass in the key regions of interest, namely Western Europe, the USA, North Asia and “Other regions” which include South America, Africa and Oceania. This section also includes information on sources of information for biomass prices.

• Section III: Next, the report focuses on forecasts of future demand for and supply of woody biomass, again broken out by region. Forecasts of demand are highly variable, and will in most cases depend on government policies and whether these are applied consistently or change over time.

• Section IV: provides details on the current role of dedicated plantations in meeting global demand for biomass, including a review of species planted by country.

• Section V: details plantation establishment costs and management regimes used with different species and in different regions of the world for dedicated woody biomass plantations.

• Section VI: presents our conclusions and outlook for the future role of dedicated woody biomass plantations around the world.

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Ⅱ. Current Overview of Demand and Supply of Woody Biomass

1. Demand (biomass chips and wood pellets)

It is difficult to source global statistics on biomass demand, as most international surveys include a broad range of fuels in what they term “biomass”. That is, these typically include agricultural waste and often municipal solid waste, and will include liquid biofuels (e.g. corn ethanol) as well as solid biomass fuels. Global estimates of energy production indicate that demand for biomass has actually declined over the past 30‐40 years, as a share of total energy consumption. For example, the International Energy Agency in their 2012 Key World Energy Statistics1, indicate that total primary energy supply in 1973 included 10.5% “biofuels and waste” and only 0.1% “other” (other renewable energy sources such as geothermal, wind, solar, other non‐hydro renewables). By 2010, biofuels and waste had fallen to just 10% of the world’s total primary energy supply, while “Other” had increased to 0.9%. Of course, global statistics mask some major changes within certain countries. In particular, the importance of biofuels may have declined in some respects due to conversion from fuelwood to fossil fuels for cooking and heating by individual families2, but production of industrial scale biomass electricity and heating has definitely increased. Below, we focus on trends in individual regions and countries, which provide a better perspective on industrial biomass energy demand than most global studies.

A. Western Europe

European demand for wood biomass is primarily driven by the European Commission's 2020 strategy for energy and climate change. The strategy calls for three goals:

• 20% reduction in greenhouse gas emissions from 1990 levels

• 20% of energy from renewable sources

• 20% increase in energy efficiency

In order to meet these objectives, the EU has set specific targets for each member state, reflecting different situations and circumstances in each country. These targets range from a low of 10% renewable energy in Malta to a high of 49% in Sweden. Table 1, on the following page, shows the renewable energy target share for each country in 2020, and the actual share of renewable energy in each country in 2005 and 2010.

Biomass energy, particularly wood energy, is one of the lowest‐cost options for meeting these goals. Biomass power is expected to supply 68% of Europe's renewable energy consumption in 2020, accounting for 70% of the increase between 2010 and 2020, based on the PRIMES model developed by the Energy‐Economic‐Environment Laboratory at the National Technical University of Athens (Fig 1).

1 http://www.iea.org/publications/freepublications/publication/kwes.pdf 2 For example, one source reports that in 2005, an estimated 44 GW of biomass energy were consumed in the form of electricity, compared with 220 GW of biomass consumed for heating and cooking. http://en.wikipedia.org/wiki/World_energy_consumption

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Figure 1 European Renewable Energy Consumption – PRIMES Model Scenario, 1990‐2020F

TWh Primary

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2,000

2,500

3,000

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1990 1995 2000 2005 2010 2015F 2020F

Geothermal

Solar

Hydro

Wind

Biomass & Waste

Source: Capros et al (2008) for European Commission.

2005 Actual 2010 Actual 2020 TargetAustria 23.3% 34.0% 34%Belgium 2.2% 4.6% 13%Bulgaria 9.4% 13.8% 16%Cyprus 2.9% 4.8% 13%Czech Republic 6.1% 9.2% 13%Denmark 17.0% 22.2% 30%Estonia 18.0% 24.3% 25%Finland 28.5% 32.2% 38%France 10.3% 11.9% 23%Germany 5.8% 11.0% 18%Greece 6.9% 9.2% 18%Hungary 4.3% 8.1% 13%Ireland 3.1% 5.5% 16%Italy 5.2% 10.1% 17%Latvia 34.9% 32.6% 42%Lithuania 15.0% 19.7% 23%Luxembourg 0.9% 2.8% 11%Malta 0.0% 0.4% 10%Netherlands 2.4% 3.8% 14%Poland 7.2% 9.4% 15%Portugal 20.5% 24.6% 31%Romania 17.8% 23.4% 24%Slovak Republic 6.7% 9.8% 14%Slovenia 16.0% 19.8% 25%Spain 8.7% 13.8% 20%Sweden 39.8% 47.9% 49%UK 1.3% 3.2% 15%EU27 6.9% 12.4% 20%

EU: National Targets for the Share of Energy from Renewable Sources in 2020Table 1

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Approximately two‐thirds of European renewable energy is sourced from some type of biomass. This includes 79.0 million toe (tonnes of oil equivalent) of primary energy production from solid biomass, and 67.0 TWh3 of electricity production from biomass (Table 2). An estimated 36% of electricity production from biomass in Europe is in stand‐alone electricity generating plants, while 64% of the electricity is produced in combined heat and power plants. Germany is the leading producer of primary energy and electricity from biomass. In total, Poyry estimates that European demand for biomass in 2010 was about 200 million bdt (bone‐dry tonnes), including 180 million bdt of woody biomass and 20 million bdt of agricultural biomass. The vast majority of biomass consumption in Europe would be mill residues (chips, sawdust, shavings and bark), although forest residues account for a substantial share of biomass fiber consumed in the Nordic countries. In contrast, wood pellet consumption makes up only about 10% of biomass consumption. Biomass from dedicated woody energy crops makes up less than 0.5% of total biomass consumption in this region.

Biomass consumers include a large component for “district heating”, which is typically power stations in the 10‐20 MW range providing heating to local consumers. However, some district heating plants are quite big, for example Statkraft has one plant in Norway that is 300 MW in size. The major pulp and paper companies are also major producers and consumers of biomass energy, typically in cogeneration facilities at their mills. This has primarily been in the Nordic countries, but in recent years companies such as ENCE in southern Europe have also greatly increased their output of biomass energy, including in new stand‐alone power plants. Finally, the major power producers in the EU, such as RWE, E.On, Drax, Dong Energy, Vatenfall and Electrabel are rapidly expanding their output of energy based on biomass. Imports of biomass have been a relatively minor portion of biomass consumption (less than 10%) but this source is becoming more important.

Table 2

Primary Energy and Electricity Production from Biomass in the EU27, 2010Primary Energy in Million toe, Electricity in TWh

2009 2010 % Change Stand-Alone CHP

Germany 11.2 12.2 9.0% 7.52 3.21

France 9.4 10.5 11.9% 0.41 0.95

Sweden 8.6 9.2 6.7% 0.00 9.28

Finland 6.5 7.7 18.6% 0.87 8.51

Poland 5.2 5.9 13.0% 0.00 5.91

Spain 4.5 4.8 5.7% 0.56 1.90

Austria 4.1 4.5 10.5% 1.26 2.07

Romania 3.8 3.6 -6.6% 0.01 0.00

Italy 2.8 3.0 9.4% 1.54 0.72

Portugal 2.9 2.6 -9.6% 0.67 1.56

Czech Republic 2.0 2.1 6.4% 0.60 0.90

Latvia 1.7 1.7 0.1% 0.00 0.01

Denmark 1.4 1.7 16.5% 0.00 3.32

Hungary 1.5 1.5 1.4% 1.79 0.20

United Kingdom 1.4 1.4 6.3% 4.58 0.00

Netherlands 1.0 1.0 1.9% 2.45 1.75

Other 5.5 5.7 49.0% 2.14 2.34

European Union 73.4 79.0 24.39 42.61

Primary Energy Production Electicity Production

Note: CHP = Combined Heat and Power

3 TWh = Terra‐watt hour, equal to 1.0 billion kWh or 1.0 million MWh.

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Almost all imports of biomass into Europe have been in wood pellet form, rather than wood chips. From 2000‐2005, North American suppliers did export biomass chips to Europe, primarily to Italy, with volumes reaching 200,000 tonnes per year. However, these were found to be in violation of EU regulations which require heat‐treating of softwood chips prior to export to the EU, and the shipments were halted. In 2011 and 2012, there have been relatively small volumes of rubberwood chips imported into Norway, Denmark, Poland and Belgium, from sources in Liberia and Ghana. In total, these shipments reached 210,000 tonnes in 2011, and will likely reach about 250,000 tonnes in 2012.

However, imports of wood pellets will be well over 4.0 million tonnes in 2012, up from only 1.8 million tonnes in 2009. Denmark had been the leading importer of wood pellets in Europe, but has reportedly been replaced by faster growing demand in the UK, the Netherlands and Belgium in the past several years. Figure 2 illustrates the trend in wood pellet import volume (from outside the EU), while Figure 3 shows the estimated imports by country in 2012, according to data supplied by Hawkins Wright. With the EU restrictions on wood chip imports, it is clear that the vast majority of biomass imports will continue to be in wood pellet form.

We note that different sources of information on the wood pellet trade frequently have conflicting information. For example, the Global Trade Atlas reports that Denmark is still the leading importer of wood pellets, with more than 1.1 million tonnes of pellet imports in the first seven months of 2012. This compares with imports of around 0.7 million tonnes in the Netherlands and also in the UK, in the same time period. In contrast, Hawkins‐Wright report that the UK is the leading importer of wood pellets in Europe, with 30%, followed by the Netherlands with 24%, and Denmark reportedly accounts for only 9% of the pellet import trade. RISI has looked into these discrepancies, and it appears that the trade data is often underestimated because some suppliers have been using incorrect Harmonized Codes to record shipments (e.g., one major supplier from Georgia in the USA was using the code for metal pellets, not wood pellets). For the purposes of this report, these statistical differences are not significant: the major point is that the volume of biomass trade has been growing very rapidly, and is expected to continue growing rapidly in the years ahead. For Europe, it is quite clear that the majority of this trade will be wood pellets.

Figure 2

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Figure 3

UK30%

Netherlands24%

Belgium16%

Denmark9%

Sweden7%

Italy6%

Poland4%

Other4%

EU Imports of Wood Pellets, 2012

Source: Hawkins‐Wright

B. USA

According to the US Energy Information Administration, biomass “has played a relatively small role in terms of the overall U.S. energy picture, supplying 3.2 quadrillion Btu4 of energy out of a total of 98.5 quadrillion Btu in 2000. The vast majority of it is used in the pulp and paper industries, where residues from production processes are combusted to produce steam and electricity. The industrial cogeneration sector consumed almost 2.0 quadrillion Btu of biomass in 2000.”5

In the USA, RISI estimates that production of biomass power (heat and electricity) was 1,541 MW in 2011, up from 1,351 MW in 2009. Production of wood pellets has increased at a faster rate, jumping from 3.0 million tonnes in 2009 to 4.6 million tonnes in 2011. Approximately 80% of wood pellet production in 2011 was consumed domestically, and 20% exported. However, most of the new expansion in wood pellet production in 2011 and beyond is aimed at the export market, with only modest expansion expected in domestic demand. Production of biofuels in 2011 in the USA was only 1.0 million gallons. In 2011, a total of 16.7 million dry tonnes of biomass was consumed in the USA, including 36% for wood pellet production, 63% for electricity generation, and less than 1% for biofuels. This does not include an estimated 20 million dry tonnes which was consumed at forest industry manufacturing facilities, primarily pulp and paper plants, to produce heat and electricity for the plant’s own consumption.

4 Btu = British thermal units, a traditional unit of energy equal to 1,055 joules. 5 http://www.eia.gov/oiaf/analysispaper/biomass/

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C. North Asia

Japan has had relatively modest targets when it comes to renewable energy. The country had a target to produce 4% of its energy from non‐hydro renewable sources by 2020. However, with passage of the new Feed‐In‐Tariff in 2012, there are now strong incentives to develop biomass power (along with other renewable) in Japan. The primary market for wood biomass imports is likely co‐firing with coal. Several facilities are currently testing co‐firing of 3% wood pellets with coal. The agency for Natural Resources and Energy plans to start testing co‐firing of up to 5% wood pellets. If 5% of Japan's coal capacity was displaced with pellets, the country would need approximately 6.5 million tonnes of wood pellets.

Japanese imports of wood pellets have been relatively consistent at around 60,000 tonnes per year (tpy) for the past several years, although the volume in 2012 has apparently increased by about 20‐25%. These imports mostly went to Kansai Electric Power Co. under their long‐term agreement with Pinnacle Pellet, a wood pellet producer in British Columbia, Canada. In addition to wood pellet imports, Chubu Electric also imported some biomass chips (again from British Columbia), although these volumes have been relatively modest. In addition, Tepco had a 100,000 tpy wood pellet supply contract with Australian based Plantation Energy, but this was cancelled in 2010 after the earthquake. Plantation Energy subsequently went into receivership (as it probably would have done, even without that cancellation ‐ also see Oceania supply for some more detail).

We understand that wood pellet consumption development and plans in Japan were very much disrupted by 2010 earthquake and tsunami, and the subsequent Government‐ industry review of nuclear and other power generation strategies. However, we also understand that some facilities are “pellet ready” should their owners decide to reactivate earlier plans; e.g. we understand Tepco’s plant at Matsura, which uses around 4.0 million tpy of coal has all the infrastructure in place to accept 300‐400,000 tpy of pellets at any time. Also, see http://www.asiabiomass.jp/english/topics/1002_01.html.

Korea enacted a Renewable Portfolio Standard in 2010, requiring large power companies to source specified levels of power from renewable sources. As coal is the major fuel currently used in Korea, the large power companies are trying to move quickly to increase co‐firing with wood pellets. Imports of wood pellets in Korea have been substantially less than in Japan, at less than 30,000 tonnes in 2011. In late 2012, several Korean companies were attempting to tender imports of wood pellets, and these companies estimate that volumes may reach 100,000 tonnes by year end, although we think this may be ambitious.6 Nevertheless, it is clear that the country is making a major effort to boost imports of biomass, all of which are expected to be in pellet form.

There appears to be increasing activity by Korean utilities and industrial firms in exploring possible future woody biomass/pellet supplies in Asia and Oceania; and even perhaps considering investing in renewable biomass “substitute” projects in regions like Europe. For example, MGT Power, a UK biomass

6 As with European data, Korean data on wood pellets may not be reliable due to errors in compiling data. According to official sources, wood pellet imports in 2012 included 41,000 tonnes from Russia and about 70,000 tonnes from Southeast Asia. However, companies involved in the business believe that actual shipments were less, including about 30,000 tonnes from Russia and 20‐30,000 tonnes from Southeast Asia.

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power station developer, has reportedly signed a deal with three South Korean companies to co‐develop its proposed £600m Tees Renewable Energy Plant at Teesport7.

Figure 4 below indicates the trend in imports of wood pellets in Japan and Korea. In 2012 Korea has jumped ahead of Japan, but we believe Japanese companies will accelerate imports in the next several years.

7 Financial Times, Nov. 18, 2012. However, we understand that this agreement is subject to current on‐going due diligence, and the project may not achieve funding with its Korean partners.

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Figure 4

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KoreaJapan

Source: Global Trade Atlas

D. Other

ⅰ. South America

The market for wood pellets in South America is extremely small, and we do not believe there is a single pellet mill of more than 30,000 tonnes capacity currently operating in the region8. According to Poyry, total production of wood pellets in South America is less than 100,000 tonnes. However, the consumption of wood for energy is quite large, based not on government policies as in Europe and North Asia, but on market economics. The cost of alternative sources of energy are relatively high, so the use of wood is seen as the most economical option.

By far the largest use of plantation wood in energy consumption is in Brazil. For example, in 2011 the consumption of industrial fuelwood was nearly 45 million m3, or 26% of the total consumption of industrial roundwood from planted forests. The consumers of this wood were primarily large agricultural companies, such as Cargill, Bunge, ADM and others who dry and process crops like soybeans prior to exporting. But there are many large consumers of wood bioenergy in Brazil, including textile companies, brick producers, chemical companies such as Dow Chemical and many others. The majority of these consumers purchase roundwood, but increasingly new facilities are set up to purchase woodchips as well. Currently, the vast majority of wood consumed for energy includes tops and small pieces not suitable for pulp or other products, but in parts of the country (especially far from the ports) many farmers are growing wood in plantations where the objective is solely to produce fuelwood. Some

8 For example, the Swedish firm JCE built a 50,000 tonne per year pellet plant in Chile, but it has not been successful‐‐‐ it is too far from the European market, and the market in Chile is much too small to support such a facility.

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investment companies, such as Energia Florestal (a subsidiary of the giant Spanish company, the Esteve Group) are partnering with large grain companies to establish dedicated eucalyptus biomass plantations close to their processing centers.

In addition, companies like Plantar are becoming very large in woody biomass production. For example, it has a joint venture with the Lorenzten family to plant 100,000 ha of eucalyptus. Most of their planting is in Minas Gerais or farther north, primarily for charcoal and energy wood.

Another 17 million m3 of plantation wood, all eucalyptus, was consumed to make charcoal for the steel industry.9 This wood is from plantations which are dedicated to the objective of producing charcoal, and this sector has recently attracted major investments from international timberland investment companies, such as Brookfield Asset Management (Canada), Regions Timberland (USA), Cambium (UK) and others. In total, Brazil has a larger area of trees planted for the biomass energy sector than the rest of the world combined.

ⅱ. Africa

There are not really any plantations in Africa which have been established exclusively for biomass energy production, but there have been at least two companies establish dedicated tree biomass production companies in the last five years – with decidedly mixed results. Increasingly projects are seeking to utilize wood waste from plantations and manufacturing operations to produce energy. For example, in Liberia the company Buchanan Renewables was in the process of building a 38 MW power plant to produce electricity from rubberwood chips, but this may have been shelved. We discuss this in more detail later in the Report

ⅲ. Oceania

• Australia

Australia has developed a very large plantation eucalyptus resource over the last 15‐20 years, almost exclusively grown for the North Asian woodchip export trade. Early plantation developers included several Japanese paper and associated companies, and in 2012 JOPP reports a total of 20 projects with 131,000 ha planted, and with an ultimate target of 183,000 ha. However, with (slowly) deteriorating hardwood woodchip markets in Japan, and cheaper sources available from South East Asia, it is unlikely that further expansion will occur. Indeed it would be understandable if some existing plantations are not re‐established after harvest, with land sold back to farming/agriculture. In the context of the topic of this report, it would also be understandable if some Japanese company’s considered an alternative biomass future for some of their pulpwood plantation areas.

9 In Brazil, the steel industry uses either charcoal or coking coal to convert iron ore into pig iron, an intermediate product in making steel.

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Huge expansion of this resource later occurred with retail MIS funds establishing some 750,000 ha of eucalyptus pulpwood plantations. This initiative later turned out to be disastrous, with several large companies failing and retail investors and bankers losing perhaps A$ five billion. The fallout is still occurring several years after the first company failure.

Australia is very well endowed with huge reserves of both thermal and coking coal, and indeed is the world’s largest coal exporter. The availability of such volumes of very cheap coal has been a major disincentive to grow any form of biomass for heating or power production. Some minor efforts have been made, but not measurable to date. A change to Australia’s approach to climate change, with a carbon cost being introduced in 2012 may start, over time, to shift the thinking of Australian power producers and may yet encourage the use of non woody and woody biomass. However, this change is very recent, so it is too early to identify any serious initiatives in 2012.

• New Zealand

New Zealand has a thriving pine sawlog plantation industry. However, it has not developed a large (like Australia) hardwood plantation industry. This is probably due to its proximity to Australia and the tendency for regular arrivals of damaging insects and fungi from the prevailing winds carrying pests over from Australia’s native eucalyptus forests. Much of the pulpwood eucalyptus planted in the North Island failed due a combination of a pest and a disease (both new to New Zealand in the last decade). Marubeni attempted to develop a pulpwood acacia resource in Northland but that has stalled. There is a modest area of pulpwood eucalyptus owned by Japanese interests in Southland.

New Zealand has the luxury of generating most of its electrical power from renewable hydroelectricity, with measurable additional power generated from (also “renewable”) geothermal power. It also has sufficient coal to feed some coal fired stations. Thus, for different reasons but like Australia, there has never been any real incentive to grow any biomass crops for heat or power; and is not likely to be. Indeed with the recent closure/threatened closure of major industrial power users, including newsprint and aluminium, New Zealand may have surplus power for many years. As a result, a number of planned wind power projects have been deferred or cancelled. With a largely hilly topography, reasonable areas of flat to gently rolling land will likely to be used for the hugely profitable dairy industry, or for agriculture, so it will not likely be economic to plant woody (or non woody) biomass crops for biomass exports. A (small) exception may be a new miscanthus project which has recently commenced (see later), but probably for domestic use only.

2. Supply (biomass chips and wood pellets):

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A. Western Europe

Western Europe does not export biomass, but is a net importer. In addition to imports, the region is also a major producer of biomass. For example, production of wood pellets in the EU27 has increased from 840,000 tonnes in 2000 to 9.3 million tonnes in 2010 and to more than 10 million tonnes in 2011 (Figure 5).

Figure 5

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Wood Pellet Production in Europe

Source: IEA Bioenergy Task Force 40

B. Western Russia

Following the USA and Canada, western Russia has emerged as the next largest supplier of biomass to the EU. Exports of wood pellets, sawdust and wood waste has increased rapidly, from about 200,000 tonnes in 2004 to nearly 1.0 million tonnes in 2011 (Figure 6). In 2012, Russian customs data began distinguishing between wood pellets and other woody biomass like sawdust and wood waste, revealing that approximately 65% of total biomass exports to Europe were in wood pellet form. We estimate that in 2012, total exports of wood pellets to Europe will be between 600‐700,000 tonnes, with most of this coming from the Vyborgskaya Cellulose pellet plant, located on the Russian‐Finnish border. This plant has a nominal capacity of 900,000 tonnes per year, which would make it the world’s largest pellet plant, although we understand that the plant until recently had been running at less than half of its rated capacity. There are a number of smaller wood pellet plants in Russia. For example, the US Foreign Agricultural Service estimates that there are between 140 and 200 pellet mills operating in Russia, with a total capacity of 2.3 million tonnes. It is likely that many of these mills are not operating, or are too far from Europe to supply wood pellets at competitive prices. Certainly it is quite clear that over the last several years, by far the fastest growing supply sources of biomass for the European market are the USA and Canada.

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Figure 6

Source: Global Trade Atlas

C. USA and Canada

Total biomass supply in North America includes a large volume of wood fiber utilized at pulp mills and wood processing plants to produce heat and sometimes both heat and electricity. For example, in 2008 the forest products industry consumed approximately 18.2 million BDMT for energy production. In addition to the wood consumed by industry for its own needs, we estimate that an additional 12.8 million BDMT of wood was consumed to make wood pellets or electricity at biomass plants in the USA in 2011, and another 4.0 million BDMT was consumed in Canada for the same purposes.

For international trade, the key statistics involve production of wood pellets, since biomass heat and energy are not traded internationally. Production of wood pellets in the USA increased from 2.7 million tonnes in 2009 to an estimated 5.0 million tonnes in 2012, while production of wood pellets in Canada approximately doubled over the same time period, from 1.3 million tonnes in 2009 to 2.6 million tonnes in 2012. In the Appendix to this report, we have included a complete database of existing wood pellet production facilities in North America, including those just starting up in 2012. In the USA, there are 126 wood pellet plants with a total capacity of 7.1 million metric tonnes per year. In Canada, there are 38 plants with a total capacity of 3.0 million tonnes.

Wood pellet exports from North America10 increased at an even faster pace than total production, as domestic demand has grown relatively slowly. Exports of wood pellets from Canada increased from 564,000 tonnes in 2007 to 1.4 million tonnes in 2011, and increased further to an estimated 1.7 million tonnes in 2012. Wood pellet exports from the USA only began in 2007, with about 80,000 tonnes, but

10 Including only shipments to destinations outside North America; not including cross‐border trade between Canada and the USA.

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jumped to 1.3 million tonnes in 2011 and expanded further to an estimated 1.8 million tonnes in 2012 (Figure 7).

Figure 7

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D. Brazil

When European power producers first began looking overseas for sources of biomass for Europe, many assumed that Brazil would become a major supplier. However, this has certainly not been the case to date. For example, for the first nine months of 2012, Brazilian customs reports a total of only 6 tonnes of pellets being exported, and only 54 tonnes of sawdust and wood waste. Several years ago, the major Brazilian pulp producer Suzano announced a project to build three huge wood pellet plants in northeast Brazil, each with a capacity of 1.0 million tonnes. The company established a new subsidiary, Suzano Renewable Energy, to establish dedicated biomass plantations, and to date reports more than 20,000 ha have been established for this purpose. However, as of the end of October 2012, the company has “no progress” to report on establishment of the proposed wood pellet plants. Reportedly they are waiting for “outside investors” to build the factories, but no equipment has yet been ordered. In summary, Brazil is currently supplying effectively no biomass to international markets, and will likely not do much more in 2013 either.

E. Other

ⅰ. Oceania

• Australia

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The Australian (now failed) Plantation Energy (PE) pellet company case study is perhaps a useful guide to examining the reality as opposed to the promotion behind many wood pellet plant and pellet export economics in several counties. PE was formed in the mid‐ 2000s when it commenced planning for an ambitious program to build and operate several wood‐pellet plants around Australia. It later attracted capital from US‐based Denham Capital, and proceeded to build one plant in Albany in West Australia (close to the woodchip chipping plant of APEC). The company also began to import other pellet production machinery for a planned seven pellet plants around Australia. Denham Capital injected over US$ 100 million into its Australian venture, including $29 million into pellet plants, $9 million into Albany port storage facilities and $10 million into new boxed pellet trains. In addition it injected $43 million into operating expenses. It purchased seven wood pellet production “trains” (each capable of producing 125,000 tonnes per year (tpy) of pellets), from Amadandus Kahl of Germany. Of these, two are “mothballed operational” at Albany, five are stored around Australia (at Mt Baker WA, Laverton WA and Portland VIC) and the seventh train remains at the Kahl factory in Germany. Each is worth around A$ 3.0 million, and includes a grinding plant, pelleting and cooling plant and electrical/servicing equipment. They do not include a drier.

Plantation Energy’s WA wood raw material included around 120,000 tpy of eucalyptus residues gathered after infield whole tree chipping, and around 60,000 tpy of radiata pine (thinnings/residues) woodchips/sawdust. PE planned to initially export pellets to Europe, and signed two short term (2010‐2011) contracts with Electrobel in Europe for 100,000 tpy at a price of around 133 Euro per tonne delivered Holland; and another contract with Essent Trading for 75,000 tpy at 132.5 Euro per tonne delivered Holland. However, difficulty in sourcing acceptable raw material (which was made worse by the failure of West Australian woodchip exports to attract markets, so reducing resides available); and very bad economics meant that it only actually shipped a fraction of this contracted volume. Trade statistics indicate that PE exported 11,000 tonnes of wood pellets to Europe in 2009, 67,000 tonnes in 2011, and one final shipment of 14,000 tonnes in February 2012. Not long after it closed its doors. In 2011 it contracted with Mitsui to deliver pellets to TEPCO, starting with a planned volume of 27,000 tonnes in 2012 and rising to 171,000 tonnes in 2015.

However a combination of costs exceeding prices and the 2011 Japanese earthquake (which caused the cancellation of the contract prior to the commencement of deliveries); resulted in the failure of PE, and the closure of its only operating plant in Albany.

Needless to say, PE’s fortunes were never good, and only got progressively worse. It lost an estimated 11 million Euro in Australian fiscal year 2011 (its holding company is registered in Holland) and this deteriorated into FY 2012. One estimated cost and revenue structure, illustrated in Table 3 for the shipment of pellets to either Europe or Japan is self‐explanatory.

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Table 3 Estimated Operating Margin for Europe pellets (A$ per tonne of pellets)

Item FY 2011 Sales Price 179 Less Shipping Cost 49 Net Price FOB 130 Cost of Sales Wood Residues (delivered and chipped) 60 Running Cost (Drying + Production) 37 Direct Labour 15 Freight to Port 3 Storage and Loading 8 R&M 31 Inventory adjustment 25 Fees (Leases, Rates) 13 Additional Port Loading 8

Operating Margin $/tonne pellets ‐70 Note: Data in table may not add exactly because they have been rounded off

A more recent analysis of this operation (with presumably lower cost estimates than PE endured) includes a revenue (FOB) of A$ 144 per tonne of pellets, less a cost of fiber at $60, variable costs of $30 and fixed costs of $50 ‐‐ leaving a net gain of $4 per tonne pellets, although whether these proposed cost reduction suggestions could have been achieved is open to doubt. This is an example of a wood pellet plant project made in hell from its concept through to its execution and eventual demise. The promoters did not understand the true costs of producing wood pellets, including how much of the raw material was needed to fuel a gas fired drier. They did not appreciate the problems of quality using low value eucalyptus residues, and did not have any guaranteed wood supply. In late 2012 the plant is up for sale. A “mothballed” price might be $30‐40 million, with a scrap price of less than$10 million. Another (still boxed up) partial pellet mill sits in storage in Melbourne. There are no other significant pellet mills operating in Australia.

One shipment of biomass chips was made by Gunns to Chubu Electric in Japan, in late 2010, but that trade has not been repeated. (Chubu instead has been sourcing biomass chips from Fibreco in Canada.)

In late 2012 there are number of promoters and pellet producers/users investigating both the re‐start of the WA pellet plant, and new plants in Australia. There are three motivations:

• The existing WA plant may be available for purchase at a very low price. • Very sluggish softwood woodchip export demand to Asia, which has left large volumes of radiata

pine thinnings and clearfell pulpwood residues “stranded” (especially in the Green Triangle area of VIC‐SA) without a market following the closure of a small pulp mill there in 2011; and it

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appears even worse (maybe in the very short term only) for plantation eucalyptus fibre in WA and the Green Triangle.

• The huge planned increases in pellet demand looming in Korea (see above). However, it remains to be seen whether Australians can be competitive in this market, or if they will suffer the same cost & FX problems experienced in the woodchip export sector.

• New Zealand

Some years ago, New Zealand coal producing and exporting State Owned Enterprise (SOE), Solid Energy formed a biomass subsidiary called Nature’s Flame. It built two small domestic retail pellet plants at Rolleston (SI) and Rotorua (NI), and one industrial scale plant at Taupo (NI). The initial plans for the industrial plant were ambitious – to start at a capacity of 125,000 tpy of pellets and to increase that in stages to 300,000 tpy and to 500,000 tpy. Initial shipments were to be to Europe as high quality retail pellets; and then to ship some industrial pellets to both Europe and Japan. However, these plans have since collapsed; together with the export coal price which has financially stressed Solid Energy (which the Government planned to sell, but now will not be worth much). Both retail plants are closed. Solid Energy cannot a afford a NZ$25 million boiler to make Taupo viable for exports, and it is now making only a small volume of domestic pellets ‐‐ after earlier exporting only minimal volumes. ⅱ. Southeast Asia

Finally, in Southeast Asia a number of very small pellet producers have exported wood pellets to Japan and Korea. For example, in the first nine months of 2012, South Korea reportedly imported 16,800 tonnes of wood pellets from Malaysia, 15,500 tonnes from Vietnam and 4,400 tonnes from Indonesia. One European company, Eneco, was reportedly involved in a joint venture to build a 150,000 tonne pellet mill in Vietnam, but recently withdrew from the project. Other small projects are being reported in late 2012.

One area where Southeast Asia has great potential to expand in biomass supply is by utilizing waste from oil palm production. For example, EFB, or empty fruit bunches, can be used as biomass directly, or could be converted into pellets. In Malaysia, for example, an estimated 15‐20 million tonnes of EFB are produced annually and are currently burnt in incinerators to obtain bunch ash or dumped for mulching in oil palm plantations. Thailand has an estimated 1.2 million tonnes of EFB available for energy production, but this pales in comparison to the volume of other agricultural residues available, which include 3.6 million tonnes of rice husk, 9.8 million tonnes of rice straw, 4.5 million tonnes of bagasse, 20.4 million tonnes of sugar cane leaves, 10.6 million tonnes of cassava waste, and 21.4 million tonnes of palm oil fronds. This report is not focused on agricultural waste, but the point is that in some regions of the world, like Southeast Asia, the volume of agricultural waste available for biomass energy production is much greater than the volume of wood for energy, whether from logging residues, mill waste streams, or dedicated wood energy plantations.

Another waste product from the oil palm production process which can be used as biomass, in competition with wood and wood pellets, is palm kernel shells (PKS). Palm kernel shells are the shell fractions left after the nut has been removed after crushing in the palm oil mill. Kernel shells are a

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fibrous material and can be easily handled in bulk directly from the product line to the end use. Moisture content is low, typically 10‐11%. PKS contain residues of palm oil, so suppliers claim that it has slightly higher heating value than average lignocellulosic biomass like woodchips or wood pellets. This product is typically traded internationally without pelletizing. For example, we know that Sumitomo Forestry received five vessels of PKS in 2012. In addition, several of the power plants in the UK and Netherlands have imported PKS from Indonesia and Malaysia. In 2009, we know that Malaysia alone produced nearly 6 million tonnes of PKS, much of which was exported.

ⅲ. Africa

Exports of biomass from Africa in 2011‐2012 have included rubberwood chips from Liberia and Ghana, and wood pellet exports from South Africa. The EU reports that through the end of July 2012, two countries (the UK and Netherlands) had imported 59,000 tonnes of wood pellets from South Africa. Export volumes of 60‐100,000 tonnes per year from South Africa can be made on a regular basis. From Liberia, the company Buchanan Renewables has been exporting rubberwood chips to energy producers in Europe, growing from 44,000 green tonnes in 2009 to 210,000 tonnes in 2011. These chips went to several countries, including Denmark, Finland, Sweden and Poland. One of the investors in this Liberian company was the Swedish energy company Vattenfall, but in 2012 Vattenfall withdrew their investment, citing serious problems with chip quality and high moisture content. Another company (Africa Renewables) began exporting rubberwood chips from Ghana to Denmark in 2012, and had completed 3 shipments totalling 43,000 green tonnes by August.

3. Sources of information on biomass prices

A. Europe

Published sources on wood pellet prices in Europe include several public web sites. The longest time series is available from the Austrian association ProPellets (www.propellets.at), which indicates prices for delivered pellets at the retail level in bulk shipments of 6 tonnes. In Germany, wood pellet prices are reported by the association C.A.R.M.E.N., www.carmen‐ev.de/dt/energie/pellets/pelletpreise.html. The Swedish Energy Agency reports prices quarterly for large‐scale users in SEK/MWh, and www.pelletspris.com reports prices in the Swedish retail market.

There is little direct price reporting on bulk shipments of industrial pellets, but since November 2008, ENDEX11 has published what they term "reference prices for industrial wood pellet products." This is actually a price index for wood pellets, CIF Rotterdam, based on an ENDEX polling of futures contracts among a sample of buyers. Some Dutch pellet brokers report that this index may be a "useful indicator of market trends," but that buyers and sellers are not yet tying their contracts to this index. This index can be viewed at the ENDEX web site, after a free registration process.

11 ENDEX is an energy exchange, operating spot and futures markets for electricity and natural gas in the Netherlands, the United Kingdom and Belgium.. This is more similar to the Chicago Board of Trade or other commodity exchanges than it is to exchanges like NYSE where stocks and bonds are purchased and sold. To learn more about their wood pellet price index, see www.endex.nl/index.php?a=150.

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FOEX has also developed a pellet price index, PIX Pellet Nordic CIF Index, which focuses on wood pellets sold to industrial end‐users (big power plants and to a sample of local and regional mid‐sized users). Their aim is to eventually develop a pan‐European pellet price index, but the current index is based on pellet prices CIF Baltic Sea port or North Sea Port (for sea transport) and DDU (for truck or rail transport). According to FOEX, these are for the latest month's delivery prices for wood pellets with diameter of 6‐10 mm, maximum ash content of 3%, moisture content below 10% and net calorific value ≥ 16.5 GJ/t.12

In Europe, there are two publications which also monitor wood pellet pricing. Argus Biomass Markets (a weekly publication) includes several indexes and prices for wood pellets delivered to northwest Europe.13 Hawkins Wright publishes the monthly Forest Energy Monitor, which publishes wood pellet prices from some of the sources listed above. One feature of this publication is the Biomass Co‐firing Index, which tracks "the competitiveness of co‐firing biomass, relative to burning coal, in a typical European electricity generating plant."14

B. North America

RISI's Wood Biomass Market Report (WBMR) reports prices for "pellet grade fiber," the raw material input to wood pellets (clean sawmill residuals) as well as prices for “wood biomass”, which is also called “hog fuel” (includes sawmill residues with bark, as well as whole‐tree chips from logging and land‐clearing). In addition, this report now also reports prices for “premium pellets”, those used for home heating, which are collected in collaboration with the Pellet Fuels Institute. 15 Wood Resources International also publishes the North American Wood Fiber Review, which publishes prices for “woody biomass” (hog fuel, or chips mixed with bark) for several regions in the USA.16

12 http://www.foex.fi/index.php?page=pix‐rcp. 13 www.argusmedia.com. 14 www.hawkinswright.com/forestenergy. 15 Contact is William Perritt, at email [email protected]. 16 Contact is Hakan Ekstrom at email wri‐ltd.com.

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Ⅲ. Forecast for Demand and Supply of Woody Biomass

1. Primary Drivers for Biomass Demand

A. Government Policy

ⅰ. Biomass Power (heat and electricity)

As discussed in section II, all of the EU countries have targets for renewable energy by 2020. While there are no specific targets for biomass energy, many of the EU countries have support programs which provide incentives for the production of energy from biomass. Incentives include both support payments for the use of biomass to produce energy, often through feed‐in tariffs, and also mandates to produce a specified share of energy output from renewable sources, which include biomass. Finally, the European cap and trade system for carbon provides a strong negative incentive to avoid emissions of greenhouse gases, which can, for example, induce coal‐fired power plants to reduce emissions through co‐firing with biomass or even complete conversion to biomass.

In North America, by far the major producer of biomass power is the forest products industry, with most of this generated by pulp and paper mills. This has not been done in response to any government energy policies, although government regulations on waste discharge were certainly a strong incentive for companies to develop more economic outlets for their waste products like black liquor17. There are no national Renewable Portfolio Standards in either the USA or Canada, so there are no national targets promoting or mandating renewable energy. Many of the individual states and provinces do have their own Renewable Portfolio Standards, requiring a specified level of energy from renewable sources, by a particular target year. However, each of these is different, and the point is that there is no cohesive policy to promote biomass power (heat or electricity) in North America.

For example, there are 17 different incentive programs for renewable energy at the federal level in the United States. This compares with a total of over 400 programs at the state level (see the section on state Renewable Portfolio Standards later in this chapter). In addition, county and local governments may provide tax breaks and/or infrastructure developments to attract wood pellet manufacturers, biomass or other renewable power production facilities, etc. to their area. The federal programs include three personal tax credits, four corporate tax credit programs, three grant programs, five loan guarantee programs, one industry support program and one production tax credit. The most important federal

17 In 2009, pulp companies in the USA did take advantage of a loophole in the tax code, under the so‐called “Black Liquor Tax Credit”, to obtain hundreds of millions of dollars in tax credits for burning their black liquor for energy. However, that loophole was closed, and did not really influence companies to produce biomass energy‐‐‐ the pulp companies were already burning their black liquor for energy, and this was merely a one‐time windfall for the industry.

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programs have been the Renewable Electricity Production Tax Credit (originally enacted in 1992) and the Business Energy Investment Tax Credit (enacted in October 2008).18 Federal grants to develop biorefineries have also given a major boost to the bioenergy sector (see later section on support mechanisms for renewable energy).

It is not the intention of this report to provide full details on all these subsidy programs. Readers can obtain complete details on these at www.dsireusa.org.

Despite this lack of consistent policy support, many new biomass power projects have been announced, based on either the current state and provincial mandates or the expectation of future federal support. Since 2007, a total of 112 new biomass power projects have been announced in the USA, with a combined annual wood requirement of 32.8 million green metric tonnes, and 31 new biomass power projects have been announced in Canada, with a combined annual wood requirement of 8.4 million green metric tonnes.

ⅱ. Biofuels

The EU energy targets for 2020 also include transportation fuels, and just as is the case with biomass energy for heat and electricity, there are various incentives in place to support the production of biofuels as renewable transportation fuels, to meet the 10% target for transport fuels. However, the use of biofuels to meet renewable energy targets in Europe has met stiff opposition from a number of leading environmental groups and other NGOs19. A key concern has been that these targets should not induce a shift in land‐use from agriculture to producing crops dedicated for biofuels, which could drive up food prices. In September, 2012, the EU issued a draft report calling for a cap of 5.0% for transport fuels from biomass sources by 2020, up only slightly from the current 4.5% and only half of the original target. Even this was not enough for some NGOs, who want biofuel support incentives to be abandoned altogether.

In the USA, in contrast to the situation with biomass power, the country does have a national mandate for biofuels. The Energy Policy Act of 2005 established the national Renewable Fuels Standard (RFS), which required the blending of renewable fuels into the nation’s motor vehicle fuel supply. In 2007, the Energy Independence and Security Act (EISA) amended the RFS, requiring that the volume of renewable fuel blended into gasoline increase significantly. As per the amended “Final Rule” in March 2010, these blended targets are projected to increase from 9.0 billion gallons in 2008 to 36 billion gallons in 2022 (Figure 11). These new standards are referred to as RFS2. This federal Renewable Fuels Standard mandate for the blending of biofuels is not a direct subsidy to the biofuels industry; however, it does create a guaranteed market, and is the most substantive stimulus for biofuels industry development in US history. Additionally, the Congressional Research Service counts 22 programs or incentives available

18 The Production Tax Credit was extended for several years by a number of acts of Congress, but was due to expire at the end of 2012. However, at the last minute this tax credit was extended until the end of 2013. 19 For example, see Oxfam’s opposition to the biofuels target, which they claim will raise food prices around the world and thus endanger poor people, http://www.guardian.co.uk/global‐development/2012/sep/17/european‐biofuel‐targets‐contributing‐global‐hunger.

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at the federal level to support biofuels, administered by five different departments: Environmental Protection Agency (EPA), US Department of Agriculture (USDA), Department of Energy (DOE), Internal Revenue Service (IRS), and Customs and Border Protection. These programs include tax credits, loan guarantees, grants and other programs.

The RFS 2022 target of 36 billion gallons of renewable fuel includes a maximum of 15 billion gallons of first generation "conventional biofuels” (i.e., mostly corn ethanol) and another 21 billion gallons of "advanced biofuels" (16 billion gallons of cellulosic ethanol, 4 billion gallons of undifferentiated biofuels, and 1 billion gallons of biodiesel). Initially, the RFS2 targets were overly ambitious, for example they projected that by 2012 the volume of cellulosic ethanol production in the USA would be 500 million gallons. However, each year the Environmental Protection Agency adjusts these blending targets, based on the actual capacity to produce cellulosic ethanol in the country. In 2012, the target was adjusted downward to less than 9 million gallons, so it is apparent that this segment of the biomass energy industry is developing much slower than many had predicted. Figure 8 shows RISI’s current forecast on the development of biofuels in North America. While we are currently only forecasting that production in the USA will reach 360 million gallons by 2017 (as opposed to the government mandate of 16 billion gallons by 2022), we note that some RISI clients believe that our forecast is still “too optimistic.” However, RISI projects that by 2017; only 13% of biomass fiber demand in the USA will be to produce biofuels, compared with 40% for wood pellets and 47% for biomass power (heat and electricity).

Figure 8

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B. Market economics

Unlike in Europe, North America or North Asia, where demand for biomass power is basically being driven by government policies (and could not be self‐sustaining without government incentives, mandates and subsidies), in parts of Latin America biomass energy has been developing simply because it is a less expensive alternative source of energy compared with diesel or natural gas. The very large

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consumption of biomass for energy in Brazil was explained in earlier in this report. Biomass projects are also being developed in Uruguay and Chile, and even Paraguay. In all three countries, there is no domestic production of oil, so the use of wood for energy directly replaces expensive, imported diesel fuel, so it is relatively easy to show that wood is the lower cost energy source. In Argentina, artificially low energy prices have discouraged much investment in biomass power.

In Asia, we have previously discussed the policies in Japan and Korea to stimulate production of energy from renewable sources, including biomass. Even Governments like the previously (and some say still) “wild West” Sarawak government in Malaysia are now starting to look to increasing biomass power generation. For instance in November 2012, the Sarawak government announced 22 applications for licences to generate biomass fired power from palm oil and wood processing mill operators, with a combined annual output of 130 MW. Also BBC Biogas Sdn Bhd has plans to build a bioreactor to make biogas from oil palm EFB in Sarawak. [Source – Malaysian Government News, Nov 5)]

2. Database of announced biomass energy projects (2011-2016)

A. Europe

In the Appendix, we have included RISI’s database of announced biomass energy project in Europe. We have included some of those announced and built in 2007‐2011, as well as several projects which have been cancelled after announcement, to indicate that this is a rapidly changing landscape and difficult to have precise numbers. Many projects have been announced with no estimate of actual start‐up date, and we expect that many of these new projects, especially stand‐alone electricity projects not belonging to existing major power producers, will never be able to obtain financing.

By far the largest number of new biomass energy projects have been announced in the UK, due in part to the subsidy programs awarded by the government in that country. Looking only at projects in the UK with projected start up of 2012 – 2016 (or not yet specified), if all of these projects were constructed, the total new demand for wood for biomass energy would be about 53 million green tonnes. This compares to a total wood harvest in the UK of less than 10 million tonnes, which implies a massive volume of wood biomass imports will be required. It is this anticipated surge in demand for woody biomass imports that has stimulated a major rush to build new wood pellet capacity in the United States and Canada.

B. USA

We have included RISI’s complete database of announced biomass power plants in North America in the Appendix, including all plants which have started up between 2007 and 2011, and all of the new announced projects, whether or not these have fixed start‐up dates or not. New projects which are projected to start up from 2012 through 2015/16 (or with start‐up date “unspecified”) in Canada include 22 projects, with an estimated additional wood demand of 4.9 million BDMT. New projects announced in the USA included 89 plants with a combined total new wood demand of nearly 29 million BDMT. Figure 9 below does not include biomass power plants which began operations prior to 2007.

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Figure 9

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3. Database of announced new wood pellet projects (2013 -2016)

A. USA and Canada

RISI maintains a database of announced new wood pellet projects in North America. We caution that just because a company announces that it intends to build a pellet plant, not all such projects can obtain necessary permits and/or financing. Thus, there is no assurance that all announced new wood pellet plants will in fact be built and start operations. However, the rush to announce new projects does give a good indication of the enthusiasm that is pushing estimates of future biomass demand. We have included a table in the Appendix to this report that includes the announced new wood pellet plants, and their announced capacities. In Canada, 11 new plants are scheduled to be built, with total capacity of 1.1 million tonnes. In the USA, a total of 29 new plants have been announced, with a combined capacity of 7.7 million tonnes. The vast majority of these new plants are located in the US South.

A key point is that most of the large new pellet plants proposed/being built in the South are based on consumption of pulplogs, rather than sawmill residues. As pellet production expands in this region, and as OSB production recovers from its very low levels of 2008‐2011, demand for pulplogs in this region is likely to result in higher prices for wood. Whether or not all of these wood pellet producers can remain competitive even with higher wood costs, remains to be seen.

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B. Russia

One of the biggest wood pellet plants in the world is the Vyborgskaya Cellulose mill, with capacity of 950,000 tonnes. While this mill is only running at about 50% capacity, other companies have major plans for further new investment. For example, the company Russia Wood Pellets has announced that it intends to develop three million tonnes of wood pellet capacity, all aimed at the EU market. But Russia has a history of being a difficult country for investment in the forest products sector. For decades, Nordic pulp and paper companies have been studying investments in new pulp mills in Russia, but to date none have been installed. The only new pulp line has been one recently completed in Siberia by International Paper and Ilim Pulp. The point is that while there is unquestionably a large volume of low grade and waste wood that is suitable for pellet production in Russia, the outlook for supply of wood pellets is still questionable. Given the logistics and access to the European market, it seems likely that Russia will be remain the third largest supplier of biomass fiber to Europe, trailing the USA and Canada, but well ahead of southern hemisphere producers like Brazil.

C. Brazil

As described elsewhere, production of wood pellets in Brazil has been surprisingly limited. As of November 2012, there is still no progress on Suzano’s announced project to build 3.0 million tonnes of wood pellet capacity in northeast Brazil. Another group in Brazil, the Colleman Group, announced in April 2012 that it would invest US$16 million to develop wood pellet production in southern Brazil. However, their press release claimed that they would produce 1.0 million tonnes of pellets, which is impossible with the low level of investment announced (which would require closer to US$150 million investment). So to date, we cannot point to a single firm project for large new wood pellet production in the region.

D. Other

Several Korean companies have announced major afforestation projects in Indonesia, to establish a raw material base for production of wood pellets for export to Korea. For example,

• The Korea Green Promotion Agency (KGPA) signed a Memorandum of Understanding (MOU) concerning cooperation for wood biomass development and utilization with the Korindo Group in Indonesia (June 2009). KGPA intends to establish a wood pellet processing facility in the area of Korindo's plantations in Kalimantan, and will provide toll processing services subject to an agreement with Korindo. However, since the investment of Oji Paper in this Korindo project, a new woodchipping operation has been set up with woodchip exports to commence in second quarter 2013. There has been no further news on development of any wood pellet plant connected to this project.

• Medco Energi, Indonesia's largest private oil and gas producer, has a 1.0 million ha concession in Merauke in Papua province, where they had originally intended to establish a pulp mill. Medco has reportedly dropped plans for its pulp and paper mill and instead announced it was trying to develop a US$70 million facility to produce wood pellets. The South Korean LG International Corporation has taken a 32% stake in Medco's operation in Papua, and the company has begun exporting small volumes of woodchips. Eventually, wood pellet plants are likely to be built, says LG International, but no firm time table has been announced.

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• Another company, Korean‐based PT Taiyoung Engreen, has pledged to invest Rupiah 3.9 trillion (US$423 million) to develop production forests and wood pellet plants in Gunung Mas, in Central Kalimantan, pending government approval.

Some of these plans involve very large areas of new plantations, but there is no certainty that any of these projects will come to fruition.

4. Forecast of biomass fiber demand to 2020

A. Europe

There are a variety of forecasts of biomass fiber demand in Europe, with a wide range of estimates. John Bingham, of Hawkins Wright and editor of their Biomass Report, does a good job of illustrating this point in the table below. At the moment, the major push for new biomass demand is coming in the UK, due to reasons outlined in the section above on biomass support payments and subsidies. Bingham forecasts that by 2020, demand in the UK for industrial wood pellets (i.e., not including demand for home heating) is likely to be about 20 million tonnes per year, with additional European demand of about 15 million tonnes per year (Table 4).

Table 4

European Industrial Wood Pellet Demand, 2020Million tonnes

Low Base High

UK 12 20 >30

Germany 0 0 >??

Other Europe 12 15 18

Total Europe 24 35 >55

Source: Hawkins Wright

The Canadian Wood Pellet Association projects that European wood pellet demand will reach 25 million tonnes by 2019, which is relatively close to the Hawkins‐Wright forecast. The CWPA notes that some forecasters project total European wood pellet demand will reach close to 100 million tonnes, a figure that we believe is far too high. However, total coal consumption in Europe is about 1.3 billion tonnes, and so replacing only 15% of coal demand with pellets could mean a market for 200 million tonnes of pellets! The European Biomass Energy Association (AEBIOM) forecast that wood pellet consumption in the EU could reach 50 million tonnes of wood pellets, which would likely include around 30 million tonnes of imports.

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Sikkema, et al20, estimated that the total demand for biomass in the EU in 2020 could range from 115 million green metric tonnes (GMT) up to 315 million GMT per year, with imports ranging from zero (assuming maximum forestry utilization in the EU) up to a high of 60 million tonnes of pellets imported21. The IEA Bioenergy Task Force 4022 estimated total EU biomass demand at 35 million GMT by 2020 (incremental growth), with imports ranging from 16 million tonnes to 33 million tonnes.

The IPCC estimated that global primary energy production from biomass in 2008 was 50 EJ, and that this was forecast to increase to 80 exajoules (EJ)23 by 2030. Of this total, IPCC estimated that perhaps 25% will come from dedicated energy crops, including both woody biomass crops and other energy crops (e.g. rapeseed, miscanthus, etc.). Marc de Wit24 reports that between 2005 and 2010, Europe’s total primary energy production from biomass increased by 53%, from 3.0 to 4.6 EJ/year. According to the National Renewable Action Plans produced by each EU country, primary energy production from biomass is expected to reach 6.2 EJ/year by 2020. De Wit estimates that the maximum theoretical total of woody biomass that could be produced in Europe with short rotation cropping is 11 EJ in 2030, however in his opinion a realistic total is perhaps only one‐fifth of this, or about 2.2 EJ. Even this lower figure marks a dramatic increase over the estimated 0.25 EJ of cumulative production through 2010, including both willow (0.037 EJ) and poplar (0.214 EJ).

The IEA forecasts that global bioenergy supply will increase from 50 EJ today to 160 EJ by 2050, including 100 EJ for heat and electricity. This trend is consistent across many other studies‐‐‐ virtually all academic researchers are forecasting a major expansion in biomass demand, both in Europe and globally.

B. USA

Demand for biomass fiber in North America is unlikely to increase as rapidly as in some countries, due to lack of coordinated government support. However, demand for biomass for wood pellet production is accelerating quickly, based primarily on demand for pellets for export to Europe. The following chart is not total demand for biomass in North America, as it does not include fiber consumed at sawmills and pulp and paper facilities for heat and electricity, it only includes electricity generation sold into the grid (Figure 10). For example, we know that just in the USA, demand for biomass fiber from forest industry operations was over 20 million BDMT in 2011, and will likely increase slowly. But the biggest increases in demand are those shown, for wood pellet production and electricity generation, with lesser increases expected in demand for wood for production of cellulosic biofuels. In total, RISI projects that demand

20 Sikkema, R., M. Steiner, M. Junginger, W. Heigl, M. T. Hansen, & A. Faaij (2011) The European Wood Pellet Markets: Current Status and Prospects for 2020. Biofuels, Bioproducts and Biorefineries 5: 250–278. 21 Note: biomass fiber (chips, sawdust, etc.) is typically measured in green tonnes (GMT), but since wood pellets are dried to about 6% moisture content, weight is simply measured in “tonnes”, not described as either “green tonnes” or “dry tonnes”. 22 IEA Bioenergy Task 40 (2011) Global Wood Pellet Industry Market and Trade Study [Online] Available at <http://www.bioenergytrade.org/downloads/t40-global-wood-pellet-market-study_final.pdf> Accessed 07-05-2012. 23 An exajoule is equal to 1018 joules. 24 Marc de Wit, “Bioenergy development pathways for Europe: Potentials, costs and environmental impacts”, PhD Dissertation, September 2011, Utrecht University, Netherlands, 217 p.

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for biomass fiber from these sectors will more than double between 2011 and 2017, from 17 million BDMT to 36 million BDMT.

Figure 10

0

10

20

30

40

2009 2010 2011 2012 2013 2014 2015 2016 2017

Million BD

MT

Forecast of North American Biomass Demand

Cellulosic Biofuels

Electricity Generation

Wood Pellets

Source: RISI

Another source, the Energy Information Administration (EIA, a unit of the federal US government) projects that biomass will generate 15.3 billion kilowatt‐hours of electricity, or 0.3 percent of the projected 5,476 billion kilowatt‐hours of total generation, in 202025.

C. North Asia

Japanese demand for biomass has been limited, but the new Feed‐in Tariff indicates very favorable rates for biomass power development. Unlike Korea (see below), where companies have seemingly committed to developing biomass power using pellets, it is quite possible in Japan that biomass power will expand using a combination of both woodchips and pellets, including both domestic sources and a large volume of imports. Some sources reference a biomass power target in Japan of 6 GW26 by 2030; this would equate to roughly 30 million tonnes of wood pellets (or equivalent in chips). It seems likely that the eventual development will be less than this, but these figures indicate the scale of possible demand.

South Korea’s government approved a Renewable Portfolio Standard in March 2010 which requires all large power producers (with more than 500 MW generating capacity) to obtain a specified level of energy from renewable sources. This required share of renewable energy increases from 2% in 2012 to 8% in 2018 and to 10% in 2022. 25 http://www.eia.gov/oiaf/analysispaper/biomass/ 26 GW = gigawatt, equal to 1,000 MW.

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A consultant working with Korean utilities and industrial companies in 2012 (Kerry Ellem ‐ [email protected]) reports that:

• The major Korean utilities are effectively State Owned Enterprises (SOEs) and so are likely to heed the Government’s direction.

• In addition to the above legislation, the Government has recently directed some 300 industrial firms to “clean up their energy acts” in the next five years, or face mandatory clean energy legislation. Many of these firms run 1‐10 MW coal fired boilers, and the consultant believes that most will move to 100% pellet utilisation if they can.

• Already in 2012 at least one Korean company is investigating specific projects to make 500,000 tonnes per year (tpy) of pellets in Australia for import to Korea (e.g. coal producer Kyundong Development Company) ‐ also see Oceania

South Korea generates the majority of its electricity from conventional thermal sources. According to the Korea Energy Economics Institute, in 2008 about 67% of thermal generation was coal‐fired, 29% was natural gas‐fired, and less than 3% was oil‐fired. In 2010 Korea consumed 126 million tonnes of coal, with 98% imported. Korea is the third largest coal importer in the world after Japan and China. Coal consumption had increased by more than one third from 2005‐2010. About half is consumed by the electric power sector, with most of the remainder by the industrial sector. http://www.eia.gov/cabs/South_Korea/Full.html If, say even 10% of coal consumption is substituted by wood pellets by 2022, then a co‐firing strategy might require up to 13‐14 million tpy of pellets.

However, if Korean utilities follow the recent strategic changes which appear to be underway in the UK (for instance RWE at Tilbury and Drax at Selby – see North Europe) and decide to switch to 100% pellet firing as opposed to combined coal/pellet co‐firing; pellet demand could conceivably increase by several factors above this; subject to pricing and future government policies.

The primary use of biomass in meeting this target will be in co‐firing in large coal power plants. All of the companies have announced ambitious targets, and at least three of KEPCO’s five regional generators plan to use wood pellets in co‐firing. The Korean Forest Service estimates that imports of wood pellets will reach 4.0 million tonnes by 2020, Hawkins‐Wright consulting estimates the volume could reach 4.5 million by 2020.

China's 12th Five‐Year Plan (2011‐2015) spells out the country's plans for renewable energy. For biomass power, the target for 2015 has been slightly reduced, from a previous goal of 14.5 GW to 13.0 GW, but this still marks a very big increase from the 5.5 GW installed as of the end of 2010. Of the 13.0 GW of biomass power, 8.0 GW are to come from agro‐forestry residues, 2.0 GW from biogas (methane) and 3.0 GW from municipal waste. The use of pellets (not just from wood, but also from other types of biomass) is targeted to reach 10 million tonnes by 2015, presumably to be used in co‐firing at coal‐fired power plants. The feed‐in tariff for agro‐forestry biomass is to remain at RMB 0.75/kW hour. Finally, during the 12th Five‐Year Plan, the Chinese government is planning on investments of US$14 billion including 200 new agro‐forestry power plants, 83 municipal waste power facilities, and numerous small‐

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scale methane‐based power facilities. It is likely that nearly all of the feedstock will come from agricultural waste and grasses, and only relatively minor increases from forestry residues (which are already highly utilized for production of composite wood panels and local fuel uses). While it is certainly possible that China could seek to import wood pellets to off‐set some of its massive consumption of coal for energy, we know of no firm announced plans to do so, and consider this option unlikely at the current time. However, should China decide to off‐set some of its coal emissions by co‐firing with wood pellets, this demand could be massive.

Even without any import demand for biomass in China, it is clear that demand in Korea and Japan will open up a large new market for biomass suppliers which has not really existed to date. This will help accelerate a re‐alignment of the wood pellet markets, for example, with more producers in British Columbia shipping to Asia instead of Europe, and more European supply being sourced from the east coast of North America. The shipping distance from BC to North Asia is about 8,000km, or roughly half the distance from BC to northern Europe, so it is clear that BC producers would have distinct advantage shipping to Asia.

5. Discussion of supply sources of biomass fiber to 2020

A. Mill residues

By far the best raw material to use for biomass energy are mill residues, because these are a) already at relatively low moisture content b) already collected at one location and c) are a by‐product of forest operations, rather than being a crop specially grown for energy (so are less expensive than dedicated crops). However, there are three basic problems with mill residues. First, in most cases good markets for these residues has already been established. The residues may be already used to generate heat and/or power at the mill itself, for example in drying the lumber or plywood. Alternatively, the residues may be used to produce wood‐based panels such as particleboard or MDF (medium‐density fiberboard), or sold for animal bedding. The second problem is that the rapid expansion in demand for woody biomass is expected to far outstrip the possible supply of mill residues. That is, forecasts of wood products production show a much slower rate of growth than forecasts of demand for biomass.

But for large energy users, there is a third important limitation on the use of mill residues for bioenergy, and that is the fact that the supply of mill residues can vary widely, depending on the markets for lumber and plywood. For example, between the peak year of lumber production in North America (2005) and the low point in 2009, only a 4‐year period, production of lumber in North America plunged by 45%. And, as illustrated in Figure 11, RISI is forecasting that between 2009 and 2015, lumber production in North America will increase by 59%. Since the volume of mill residues produced is directly proportional to the lumber output, this volatility in lumber production demonstrates that the supply of mill residues will also be highly variable. For large power plants in Europe that need to import millions of tonnes of pellets per year, regardless of the strength of the lumber markets in North America, there is obviously a need to find a more reliable source of biomass than mill residues.

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Figure 11

0

20

40

60

80

100

120

Million Cu

bic Meters

North American Lumber Production Forecast

USA

Canada

Source: RISI

B. Logging residues

Logging residues (including tops, branches, broken stems, short chunks, etc. typically left in the woods after timber harvesting) are often seen as a possible source of biomass to supplement mill residues. This can include two basic categories, residues left at roadside or alongside of roads which can be collected with a minimal effort and expense, and residues scattered in a logging unit which must be separately collected at relatively high cost. Residues which are left at or very close to a road can be collected and chipped, and these are already used in many locations. The limiting factor is generally the transport distance to the biomass user. This type of residue can be in relatively large volumes where the logging practice is to yard whole trees to the roadside, where they are delimbed and cut into log segments. In the past, much of this residue might have been piled and burned at the roadside, but increasingly this is being utilized for bioenergy, both because of increased biomass demand and because government restrictions on burning to protect air quality have made that disposal practice mostly obsolete. However, beyond collecting residues already yarded to roadside, this source is generally considered to be too expensive to permit major increases in supply, in most countries.

C. Dedicated woody biomass crops

There are three basic arguments for the use of dedicated woody biomass plantations:

a) Competition from the biomass energy sector, because it is expected to greatly increase global demand for available wood supplies, could damage existing forest industries by driving up the price of raw material. Industry associations in the EU, North America, and other regions have cautioned their governments not to unfairly subsidize the use of wood

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for energy production, at the expense of current wood users, i.e. the forest products industry. The only way to avoid loss of employment while still encouraging development of biomass energy, many argue, is to establish new, dedicated plantations to produce biomass fiber for energy.

b) The primary reason for encouraging development of biomass energy is to reduce emissions of greenhouse gases which exacerbate the problem of global warming. But the transport of biomass fiber also releases greenhouse gases by burning fossil fuels in transport. In the case of bringing wood fiber from across the ocean to meet biomass demand in Europe, most countries are already starting to account for the carbon released in transport. One argument for developing dedicated biomass plantations is that these can be established close to the biomass consumer, and hence reduce both transport costs (economics) and reduce greenhouse gas emissions.

c) Many environmental groups and NGOs are adamantly opposed to biomass energy development, preferring instead that their governments focus efforts on developing alternative renewable sources such as solar and wind. For example, in the UK several reports state that generating power from conifer trees results in 49% more emissions than burning coal.27 The logic behind this opposition is that, assuming a tree is harvested only to produce energy, burning the wood creates new carbon emissions, which are not truly off‐set until that tree has been replanted and grown to maturity, a process which could take many years, depending on the species and country. A key argument for dedicated biomass plantations is that these trees are planted specifically for use as energy, so they have already absorbed 100% of the carbon emitted during burning BEFORE the trees are burned. Thus, there should be no disagreement that this type of biomass is truly sustainable.

27 See, for example, the report, “Dirtier than Coal? Why Government plans to subsidise burning trees are bad news for the planet”, published by RSPB, Friends of the Earth (England, Wales and NI) and Greenpeace, is available from http://www.rspb.org.uk/Images/biomass_report_tcm9‐326672.pdf

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Ⅳ. Details on the Current Role of Dedicated Biomass Plantations

1. Area of dedicated woody biomass plantations

A. By species

ⅰ. Eucalyptus

By far the largest area of forest plantations which have been established specifically to produce wood for energy (dedicated woody biomass plantations) have been planted to eucalyptus. While there are no exact figures on the area of eucalyptus biomass plantations, we know that in Brazil there are more than 1.0 million ha of plantations which are producing eucalyptus wood for charcoal. In addition, a lot of eucalyptus is being grown for production of industrial fuelwood, but in most cases these would not be considered “dedicated” biomass plantations, the purpose of the plantation is likely for charcoal, pulp, poles, etc., and the fuelwood is either produced as a by‐product, or the full harvest winds up going to energy but only because other markets are weak or over‐supplied at time of harvest. We are only aware of perhaps 30‐40,000 ha of eucalyptus plantations which have been established as commercial, dedicated wood energy plantations. The area planted for charcoal or energy wood in other countries is much, much smaller than in Brazil, for example 10‐20,000 ha in Argentina, 10,000 ha in Paraguay, etc. In addition to these plantations aimed at producing industrial fuelwood, there are many, many small woodlots that have been established with eucalyptus in developing countries around the world to grow fuelwood for home consumption.

In Spain, the pulp producer ENCE is also the largest producer of biomass energy and reports that it has 6,500 ha of eucalyptus planted as “energy crops” near its Huelva pulp mill. ENCE manages a total of 83,000 ha of eucalyptus plantations (its own plantations and some owned by third parties), but we understand that only 6,500 ha are considered “dedicated energy crops”. We understand that ENCE has plans expand this to perhaps 20‐24,000 ha of energy crop plantation in the future. (But see later discussion in this report.)

Eucalyptus is widely planted in Africa, Oceania, India, South America, etc. In many areas, eucalyptus is planted in woodlots for local firewood consumption. However, these are typically very small scale and are not commercial enterprises, so we do not consider this type of planting in this report. In the southern USA, eucalyptus has been planted in relatively small test plantings, and one paper company, MeadWestvaco, is establishing commercial pulpwood plantations in East Texas. While there have been several projects looking at the use of eucalyptus for biomass plantations in the South, none have yet been commercially developed. Thus, despite the widespread planting of eucalyptus around the world, other than in Brazil the area of dedicated, industrial scale energy plantations is still very small, probably less than 100,000 ha in total (excluding Brazil).

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ⅱ. Poplar

Poplar is grown in many European countries, often for veneer or sawn timber; but more recently has been established for short rotation woody biomass. In 2011 the European Biomass Association (AEBIOM) estimated that there were around 13,000 ha of short rotation poplar energy crop plantations in Europe. In the next section we provide a table of AEBIOM estimates and discuss poplar plantation development in a number of European countries. We believe that statistics about areas of these energy crops in some countries are problematic. Traditionally most poplar energy crop clones have originated in Italy, but more recently some more “hardy” clones from German stock (with some nursery stock actually produced in Romania) have emerged. We discuss the use of poplar in a number of European countries in more detail later. The largest areas of short rotation woody biomass poplar plantations are being established in Poland (by US fund manager Greenwood Resources) and in Hungary by another US fund manager (Regions Timberland). Both projects plan to establish at least 10,000 ha. Ambitious programmes by electrical utilities RWE and Vattenfall in Germany to establish up to 10,000 ha have stalled, and one has been cancelled in 2012.

In the USA, the only dedicated biomass poplar plantations are those being established by Greenwood Resources as part of the Biomass Crop Assistance Program, or BCAP, a federal government subsidy. This program is funding about 8,000 acres, or 3,225 ha, in the western USA (in Oregon). We note that another company from Europe, Lignovis, is promoting the establishment of dedicated poplar plantations on the East Coast of the USA, to provide biomass fiber for export to Europe, either in pellet or woodchip form. The justification for such a project is that only with dedicated biomass plantations will consumers in Europe be able to guarantee supply from sustainably managed forest, in the longer term and with uniform fiber characteristics. The company Arborgen is also promoting the planting of poplar for biomass on the East Coast, but to date has no commercial projects to report.

In South America, the only poplar being grown in dedicated biomass plantations is being established by Greenwood Resources. The company reports that they established 1,000 ha of energy plantations in Chile in 2012, the start of a program which aims to plant 7,000 ha in total. There are also some poplar plantations in Argentina and Brazil, but these are planted to produce matchsticks, toothpicks, veneer and other products, not for energy production.

ⅲ. Willow

There are 350 species of willow, including 175 species of shrub willow, which is what this type of dedicated biomass planting uses. But only about 20 species account for all of the research trials and operational planting of short rotation coppice (SRC) willow around the world. Dr. Tim Volk, of SUNY, estimates that there are about 1,000 acres (400 ha) of dedicated energy plantations using willow in North America. His project aims to plant another 3,500 acres (1,411 ha) in New York state, with funding from the federal government’s BCAP program.

Willow has been more widely planted in Europe, and AEBIOM report in 2011 that 30,000 – 36,000 ha have been planted. It is by far the largest of any short rotation energy species in Europe. Willow has been mostly planted in Sweden, which was a pioneer from the 1980s in developing short rotation

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energy crops. It reportedly had 11‐16,000 ha of willows planted in 2011. Willows in Europe are used mostly in the northerly colder climates of Sweden, Estonia and Denmark, while a balance of willows and poplar is planted in northeastern Germany.

ⅳ. Robinia

In Hungary, there are perhaps more than 0.4 million ha of plantations of Robinia pseudoacacia, of which two‐thirds were established by coppicing. While perhaps only a relatively small percentage of these plantations are dedicated to producing only biomass fiber, approximately half of the robinia harvest is used as fuelwood. Unlike the industrial fuelwood plantations of eucalyptus in Brazil, much of this robinia may just be used as firewood to heat homes. In Romania an estimated 60% of all plantations are robinia but mostly for solid wood, or just “firewood” as in Hungary. There are small areas of robinia being grown as short rotation energy crops, but the industry is just in the early stages of development. While there are several companies reporting interest in Romania for energy crops, there has not been much action yet. One German source suggested that in Romania, robinia would likely be a better energy crop than poplars (which require a good water table reasonably close to the ground surface). He suggested that in Romania the basic density of poplar might be as low as 250 kg/m3, compared with robinia at 620 kg/m3. In the 1970s, an estimated 1.0 million ha of fuelwood forests were established with robinia in South Korea, under a program funded by the IBRD (International Bank for Reconstruction and Development). However, due to less demand for fuel wood, the robinia plantations in Korea eventually were used mainly in construction timber production and the bee keeping industry.

ⅴ. Other

Leucaena leucocephala, referred to as subabul in India, Ipil‐Ipil in parts of Southeast Asia, and ginnemu in Japan, is a fast‐growing nitrogen fixing tree has often been used for fuelwood in local communities. The leaves provide forage for cattle, and at least some companies in Southeast Asia are looking at this species for plywood production, but we are not aware of any companies proposing its use in large scale industrial biomass plantations.

In Chile, we are aware of at least two groups who are using various species of acacia in trial plantings for biomass. Currently, these trials include A. mearnsii (the same species which is used to produce woodchips for Japan in South Africa and Brazil), A. dealbata and A. melanoxylon. But we know of no industrial scale plantations for biomass using these species.

Some promoters are offering to establish plantations of paulownia for biomass production, and there reportedly 300 ha of such plantations which were established by RWE in Villamartín, close to Cádiz in Spain. Also, the investment firm Grupo Valia has plans to establish 500 ha of paulownia plantations for energy in Spain over the next two years, with intentions to expand to 5,000 ha.

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Sweetgum (Liquidambar styraciflua) could be used for dedicated biomass plantations in the US South, and Arborgen has successfully produced clones which could be planted for this use. However, we know of no commercial scale plantations using sweetgum which have been established to date.

An old species which is increasingly being investigated for uses from biomass through to high value timber and furniture is bamboo. Bamboo is a common term applied to 1,250 species, and its products are in daily use by perhaps 2.5 billion people – so it is not a “new” species group. While a number of promoters have been looking to plant bamboo for various uses, including a US based firm wanting to plant a large area in Mexico to make pellets to ship to the USA, we have not identified any industrial scale plantation development yet targeted as energy crop. However, a London carbon fund has recently announced plans to plant 6,000 ha of bamboo in the DRC in Africa – ostensibly for carbon/biomass.

B. By country

As mentioned previously, Brazil has a larger area of forest plantations dedicated to biomass energy production than the rest of the world combined – estimated to be well over 1.0 million ha. In 2011 AEBIOM estimated that the combined area of dedicated poplar and willow plantations for energy in Europe to be between 44,000 ha and 50,000 ha. In the United States, the total figure of dedicated woody biomass plantations was likely no more than 1,500 ha in 2011, although this figure will increase to close to 10,000 ha in the next several years.

2. Estimated contribution of dedicated woody biomass plantations to global biomass supply

Based on the very small area of woody biomass plantations currently established, there is no question that the total contribution to global biomass supply is well under 1%, and we are certain the total share is less than 0.5%. By far the greatest share of supply of biomass in the world is mill residues, followed by forest or logging residues. (Just some rough calculations can demonstrate this. Total biomass consumption is certainly greater than 200 million BDMT, including all countries, and total dedicated woody biomass planting is probably no more than 50,000 ha (excluding Brazilian planting for charcoal). If average yield were 10 BDMT/ha/yr, which is a generous assumption, this would mean a total supply of about 500,000 BDMT. This would be only about 0.25% of consumption. The point is, the current share of biomass coming from dedicated plantations is very, very small.)

As discussed in the section on biomass demand forecast in Europe, many studies have been done to try to quantify where the biomass fiber will come from to meet projected energy demand levels. Bentsen and Felby28 review many of these studies, and report that the range of estimates for sources of biomass in 2010 and 2030 are as given in Table 5. While their figures on “energy crop” seem significant, we caution that the vast majority of this will be agricultural crops like rapeseed, established in the EU for production of biofuels. The area of dedicated woody biomass plantations is, as we have pointed out, very limited today, with the exception of the Brazilian plantations for charcoal.

28 Niclas Scott Bentsen and Claus Felby, 2012, “Biomass for energy in the European Union – a review of bioenergy resource assessments”, Biotechnology for Biofuels, Open Access, http://www.biotechnologyforbiofuels.com/content/5/1/25.

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Table 5

EJ per year

Source Year Low HighForest Res idues 2010 0.8 6.0

2030 0.8 6.0

Agricultura l Res idues 2010 0.8 3.9

2030 0.8 3.1

Wood Industry Res idues 2010 1.0 no range

2030 1.3 no range

Energy Crops 2010 0.8 2.0

2030 4.3 6.0

Estimates of Biomass Energy Production by Source in the EU in 2010 and 2030

Source: Bentsen and Felby, 2012

3. Considerations for site selection for dedicated woody biomass plantations:

• The key feature of most dedicated woody biomass plantations is that they must be established on relatively flat ground, to be able to utilize mechanized harvesters and ideally also mechanized planting. Flat or only gently rolling land is required as harvest systems need to be fully mechanised due to very small piece size. Often existing, or modified agricultural harvesting machinery is used, with agricultural‐style combined harvesters and transport delivery systems adopted, which means that transport trucks must be able to navigate fields.

• There will also be a minimum scale, or size of the planting block, required to justify moving harvest and planting equipment. While our research has not identified an exact size for this (and likely this will vary depending on species and local prices for biomass), it is likely that a minimum economic individual planting block would be sat 20‐30 ha. A “catch 22” for German woody biomass development has been the high overhead costs with very small plots. It is interesting that the minimum total economic project size for a timberland investment focused project (as opposed to a raw material security project) for the two USA based funds growing crops in Europe is 10,000 ha. This just happens to be the same size that a number of Japanese pulpwood investors in countries like Australia, Chile and Vietnam have chosen as a target minimum size.

• Another important feature for dedicated biomass plantations is availability of water. While some species can survive better in areas with prolonged dry seasons, there is a close correlation between total biomass yield and water availability. Thus, areas which are considered “marginal” for agriculture may also be unsuitable for dedicated biomass plantations, unless government subsidies can off‐set lower growth rates in regions without sufficient water. With very short

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rotations of 3‐4 years, root systems are far less developed than with even 10 year old pulp crops, and certainly compared with 20‐40+ year old sawlog crops, so moisture is very important. For instance probably the best place to grow energy crops in Europe is in the Danube Valley in Hungary. This is because the drainage from several neighboring countries drains into Hungary, and into this valley; and so there is a robust water table only 1.0 ‐1.5 metres below the surface. Even then, unexpected droughts can play havoc with especially first rotation short rotation crops which have not yet developed good root systems. A drought in Hungary in 2012 has resulted in the loss of significant areas of first rotation poplars. Sufficient water is so critical, that some growers are actually irrigating their crops, including Greenwood Resources in Oregon USA, and (partially) ENCE in Spain. Of course this adds considerably to the growing costs.

• Another feature of site selection for dedicated woody biomass crops in Brazil, Europe and North America to date is the need to selection of land of medium to good fertility, and often (especially in Europe and perhaps some other countries) land on which agricultural crops can also be grown. In heavily populated and (mostly) intensively farmed European countries, this fact has limited woody biomass crop expansion as agricultural land competition has made land prices, and/or land lease costs very expensive. For instance even minor changes to soil composition, slope of aspect can mean measurable losses in productivity, as was plain recently in Dennis Neilson’s investigations in Germany. In addition, the conflict between agriculture and biomass energy has been one of the primary objections of those NGOs who have opposed biomass energy development in Europe. In fact, the potential conflicts with land‐use change are a key part of the sustainability requirements for biofuels and now apparently for biomass power in Europe.

• In addition, the most successful plantations are located relatively close to the biomass consumer, whether that consumer is producing energy or is producing pellets which might be transported longer distances to biomass energy producers. Minimizing the transport distance from plantation to initial biomass consumer is important for successful dedicated biomass plantations. In Germany, Hungary and Poland, Denmark, and to a smaller extent in a number of other European countries growers of woody biomass crops are increasingly looking to sell to very close (often small) regional and community combined heat and power plants for heat energy. Biomass woodchip transport distances are commonly only 30‐40 km. To date the majority of intercontinental pellet trade has been made with almost all wood pellet wood raw material being sourced from residue fibre, including huge volumes from beetle killed pines in British Columbia which has been purchased at minimal stumpage (US$ 1.00 ‐ $ 1.50). But even with almost free wood, there are recent reports that 2013 wood pellet prices into Europe from Canada may have to increase to stand higher raw material wood transport costs.

4. Tree species utilized for dedicated woody biomass plantations

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A. Poplar

• Poplar is easy to propagate (stem cuttings root easily)

• Coppices well

• Grows rapidly, with sufficient moisture

• Has been extensively studied in many countries, and a wide range of genetic material is already available. Relatively easy to find clones suited to particular growing conditions.

• Can be susceptible to diseases

• Planting/harvesting typically limited to dormant season

• Does not grow in tropical or semi‐tropical areas, only suited for the temperate zone.

B. Eucalyptus

• Wide range of species and clones available for planting in most tropical and sub‐tropical regions.

• Extensive experience in industrial scale breeding, clonal development and plantation management.

• Relatively high density fiber, typically produces more bone‐dry tonnes of fiber per hectare than most other species.

• Coppicing is variable, depending on species and clone selection.

• Planting can be more expensive for same number of trees per ha as with poplar or willow, due to greater cost in seedling/tree production. However, typical planting with eucalyptus involves fewer stems per ha than with poplar or willow.

C. Willow

• Easy to propagate.

• After coppicing, produces multiple shoots which fits biomass harvesting design.

• Possibly better suited to colder regions than poplar (e.g., planting in New York State and in Sweden).

• Often produces less than poplar on similar sites, and can require more water than poplar.

• Useful species to use on sites with high water table.

• Less breeding work done on willow than on poplar.

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5. Alternatives to woody biomass

Dedicated woody biomass plantations must not only compete with other types of renewable energy like wind and solar, but must also compete with other types of biomass. Earlier in this report, we have discussed competition with other types of biomass residues, such as PKS or EPS. But in addition, dedicated biomass energy plantations can be planted with annual crops such as rapeseed and sunflowers and perennial crops such as miscanthus, switchgrass or Arundo donax. In both the USA and Europe, a far larger area has been planted with these annual biomass energy crops than with trees for energy, and this is also the case in Germany, UK and France. Most forecasts of biomass energy in the USA cite the famous “Billion Ton29 Study” regarding availability of biomass to meet renewable energy (primarily biofuel) targets. Of the supposed one billion tons of biomass “available” in the USA over the next 20 years, some 400 million tons (about 363 million metric tonnes) are expected to come from “energy crops”, with most of that planted to agricultural crops, rather than trees.

A. Miscanthus

Miscanthus x Giganteus (MG) or “Giant Miscanthus, or "Elephant Grass" is the sterile hybrid between M. sinensis and M. sacchariflorus. It is a perennial grass that is native to Japan. Around the 1930s, some MG rhizomes were exported to Europe for trials, but it was not until the 1980s that its potential as an energy crop was recognised. It has been planted in at least 10 European countries, where yields are reportedly in the range of 8‐15 BDMT/ha/yr. Moisture content at harvest is reportedly quite low, only 15‐20%.

Most MG area to date has been planted in the UK, where there may be more than 10,000 ha planted (see later European country area table); and one source suggests far more than this. In 2012 energy pellet supplier Terravesta processed its first MG cane into power‐generating pellets at its plant in Kimbolton, Cambridgeshire in the UK. The company is offering Index‐linked contracts ranging between five and 10 years, backed up by secure end‐user supply contracts. Any growers interested in getting involved must first be accepted on to Natural England’s Energy Crops Scheme, which also offers English growers grant funding for the establishment of short‐rotation crops. The grant funding, which covers up to 50% of all establishment costs up to a capped maximum (approximately £2,600/ha), is available for planting schemes starting in 2013. The company will only accept MG with a maximum of 16% moisture content.

After some years of global research, in 2010 a New Zealand (NZ) Company, Miscanthus New Zealand (MNZ) imported some tissue culture plantlets from the UK, and has since been multiplying up seedlings. Its present resource base is very small – perhaps 50 hectares (mostly in the Central North Island) but it expects that 2013 plantings may be 300 hectares. Planting is at 10,000 stems/ha (1.0 m X 1.0 M). MNZ

29 Note that in USA, “ton” means short ton, or 2,000 pounds. 1.0 short ton = 0.907 metric tonnes. In this report, the word “tonne” always means metric tonne, by definition. The word “ton” always means short ton.

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assumes a 20 BDMT/ha/yr MAI in its modelling, but MNZ reports that measurements on one 2‐ year old trial recorded an MAI of 29.7 BDMT/ha/yr at the end of age two30.

MG has a number of uses; originally as animal feed, and now in NZ as shelter belts (so it can shelter farms/crops in summer and be harvested in winter). One NZ utility is trialling MG as an energy source and reports that if successful it will sign a supply contract for 50,000 tpy. The NZ MG grows 2.0 ‐ 2.5 metres tall at the end of year 2, and 3.5 to 4.0 metres at the end of year 3. The present price (for tiny volumes) is NZ$ 6.50 per gigajoule (around NZ$ 100 per BDT) at an energy plant. MNZ claims an IRR return of 12‐16% is possible. Existing nursery/greenhouse facilities could allow for 1,000 ha per year to be planted, but this could easily be ramped up.

MG is relatively cold tolerant (hence its ability to grow in several Europe countries, in US States such as Illinois, and New Zealand); and is reportedly very disease resistant. However, recently MNZ has planted trials in the tropical Tonga. If it grows well, the Tongan Government plans to plant 300 ha to be used for electrical energy. MNZ is also trialling MG in India (as all climates and all extremes can be found in India), and also in tropical Philippines. The CEO of MNZ has a wide range of technical and commercial contacts around the world.

If existing or new clones can grow well (say 15‐25 BDMT or more in mean annual increment) in tropical climates, and some boiler corrosion issues (see below) can be resolved, perhaps this hybrid or close relatives could become a big biomass supplier in Asia into the future?

MG has a low calorific value in comparison to most fuels, a low ash melting point (approximately 1,220°C compared to wood chip at >1,400°C) and a tendency to cause clinkering in the hearth. The species has relatively high ash content when combusted for energy, and the relatively high chlorine content is also a problem. There are relatively few boilers capable of burning this type of fuel, but some specially designed boilers may be able to use MG efficiently. In many cases, MG has been planted to produce biofuels, not biomass power. This is true of much of the planting in Europe, and all of the MG planting programs being funded by the US Department of Agriculture under their BCAP program. For example, the MG producer that we visited under this project, Jennings Turf Farm in Georgia (doing miscanthus business as “Repreve Renewables”), is producing MG rhizomes for the Chem Tech project in North Carolina. That project will plant 4,000 acres (1,612 ha) of MG to produce cellulosic ethanol. Five of the eleven BCAP projects which were funded in 2012 involve MG.

In another BCAP project for the production of this energy crop, Aloterra Energy LLC was approved by the USDA in 2011 to manage four Miscanthus x Giganteus energy crop projects31. These projects are being operated by Aloterra Energy LLC and MFA Oil Biomass LLC (a partnership between Aloterra Energy LLC and MFA Oil Company). Each BCAP Project Area is projected to establish 50,000 acres (20,160 ha) of

30 Perhaps because of its isolation and climate, NZ can grow some exotic species very successfully. For example, it has plantations of the fastest growing Radiata pine, Douglas fir and Redwoods anywhere (all natives of the USA). Sadly this does not apply to eucalyptus species, probably because it sits immediately to the east of Australia, and catches all fungal diseases and insects that flow over on the prevailing winds from native eucalyptus forests in Australia. 31 /http://www.aloterraenergy.com

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Miscanthus to initially convert into solid fuel pellets. As technologies develop, their miscanthus will be used to create renewable liquid fuels and biobased chemicals and products. As part of the USDA BCAP program, Aloterra Energy and MFA Oil Biomass are working together on an initial planting of approximately 18,000 acres (7,260 ha) of miscanthus in 2012.

B. Switchgrass

Switchgrass is also being grown in the United States for energy, primarily again for biofuels. This is normally done in dedicated energy crops, although Weyerhaeuser is experimenting with growing switchgrass between rows of pine trees in the US South. (For example, the biofuel producer KIOR plans to source its biomass from Weyerhaeuser, using this switchgrass as a raw material.) Switchgrass also seems to be a popular biomass alternative in grassland areas which may not be suitable for tree plantations, and where farmers are more accustomed to planting and harvesting grass.

C. Arundo donax

Also known as Giant Cane or Giant Reed, this perennial cane is native of eastern and southeastern Asia. While some companies have promoted its use for biomass energy, it has not achieved nearly the wide‐spread planting of either miscanthus or switchgrass. It seems to grow well in the US South, but growing conditions in colder climates seem to sharply reduce growth rates.

In November 2012, Secura International Corporation was advertising (via LinkedIn) that it was establishing 200,000 ha of Arundo in the Philippines, and that it would be ready to supply the raw material, and/or perhaps pellets from 2013. Also in late November 2012 Secura was advertising that it could supply torrefied pellets from Philippines32. We have not been able to verify this, but it appears that the same CEO (Danilo Manayaga) has been in charge since at least 2006. Secura was earlier involved with investigation/growing the largely now discredited renewable oil crop Jatropha curcas (claimed for a decade up until a few years ago to be the most important renewable energy crop for many countries).

D. Reed Canary Grass (Phalaris arundinacea)

In 2011 AEBIOM reports an area of 18,700 ha of Reed Canary Grass (a perennial grass) in Finland and 800 ha in Sweden. Intelligence Energy Europe (2011) reports that in northern Europe, this grass can produce more energy at a lower cost than willows.

32 Contact is Danilo P. Manayaga at [email protected], mobile: +639175233175.

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Ⅴ. Cost Structure and Management Systems for Dedicated Woody Biomass Plantations

1. Case studies with detailed cost and profitability analysis

Marc de Wit (2011) has compared the costs of growing dedicated woody energy crops, including poplar in Italy, willow in Sweden, and eucalyptus in Brazil (Table 6). While this is only a limited sample of potential sources, we report it here because it is a good illustration of the relative competitiveness of eucalyptus when grown in a suitable environment. De Wit concludes that in these three cases, the cost of eucalyptus per GJ (giga‐joule) is less than half that of poplar, and is one‐third less than willow. This assumes a normal pulpwood type operation for eucalyptus, and our work in this study indicates that this may be a conservative approach (that is, if seeking to maximize biomass fiber production at minimum cost, the price per GJ could be even less than shown in the table below.

Table 6

Poplar Willow EucalyptusCountry Italy Sweden BrazilTrees/ha 10,000 12,000 1,600Regime 2 5‐yr cycles 7 3‐yr cycles 3 6‐yr cyclesbdt/ha/yr 14 10 18€/GJ 5.5 4.2 2.8Source: Marc de Wit, 2011

Comparison of 2010 Energy Costs for Biomass from Dedicated Plantations

In the following section, we will provide details on management regimes and cost structures for a number of different species used for dedicated woody biomass crop plantations, in Europe, the USA and Brazil.

A. Europe

ⅰ. Introduction

As part of researching data for the 2012 RISI publication Global Tree Fram Economics Review, this report’s co‐author Dennis Neilson visited dedicated tree biomass plantations in Germany, Poland and Hungary; and also consulted colleagues in Spain. During this visit he gathered data on species, growth, management costs, harvest costs and prices to be able to calculate a range of IRR returns which might be achievable. He also returned to Germany in late 2012 to visit more examples of dedicated poplar and willow biomass plantations, and to update some area and financial information.

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We will comment on some European country initiatives in wood biomass plantation development and will provide case studies of costs and returns for some dedicated biomass projects. Before we do, we provide in Table 7 below a recent summary published by the European Biomass Association (AEBIOM) which provides estimates of the areas of two woody species (and “other”), and Miscanthus.

Table 7 Cellulosic Energy Crops in the EU (2011)

Hectares

Country Willow Poplar Miscanthus Other Austria 220‐1,100 880‐1,100 800 Belgium * 30 30 100 Denmark 5,300‐5,500 820 50‐130 Finland 18,700 France * 1,150 1,150 2,000‐3,000 Germany 4,000 5,000 2,000 Hungary Ireland 2,000 Italy 670 5,490 50‐100 Latvia Lithuania 550 Netherlands 90 Poland 5,000‐9,000 300 Portugal Romania Slovak Republic Slovenia Spain Sweden 11,000 550 450 1,170 UK 1,500‐2,300 10,000‐11,000 EU27 29,420‐ 35,300 14,200 ‐ 14,440 17,540 ‐ 19,670 19,870

Source: European Bioenergy Outlook 2012, AEBIOM* Willow and poplar areas split equally from merged data provided AEBIOM report almost 19,000 ha of “cellulosic” energy crops in Finland. While we are aware that Finland is a very large user of woody biomass, most/all is sourced from traditional sawlog crop plantation forests, in the form of thinnings, bundled forest residue or stumps. We are not aware of large scale dedicated woody biomass crops in Finland – and believe this area to be in Reed Canary Grass. We understand that in Finland and in some northern European countries, this perennial grass produces fiber for energy for a lower cost than willows.

The major reason why there are different area balances between poplars and willows are growing conditions affected mainly by temperature. For instance in the colder climates Sweden, Estonia and Denmark, it is really sensible to only grow willows, rather than poplar, on most sites. Growth rates may

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be 6‐8 BDMT/ha/yr. In warmer southern Germany poplar is by far the most commonly planted species for biomass, and in “mid‐range” colder north‐eastern Germany a balance of willow and poplar is grown (with growth being perhaps 8‐12 BDMT/ha/yr). In the warmer Danube Valley of Hungary, poplar growth may reach 15‐22 BDMT /ha/yr.

A feature of area databases in Europe, even provided by a very credible organization such as AEBIOM, is that there is great uncertainty surrounding actual areas. For instance we know poplars were planted in Hungary as early as 2010 (one co‐author visited them in 2011, but there is no record of this area in the table above). We believe there is small area of woody biomass crops in Slovenia (again AEBIOM does not identify any area). The table above suggests that there are 9,000 ha of willows or poplar planted in Germany. However, in late 2012 two of the largest and most experienced managers of woody biomass plantations in Germany (Pein & Pein and Ignovis) estimated the total area of both would be (a maximum of) 4,000 ha and 5,000 ha respectively. We think in 2011, the area of industrial woody biomass plantations in Poland would have been less than 1,000 ha, much less than the (total); and a 2011 publication by Intelligent Energy Europe reports a miscanthus area in Poland of 13,500 ha (while AEBIOM reports none).

By far the largest areas of energy crops in Europe are in annual agricultural crops. Intelligent Energy Europe (2011) reports that in 2008 there were 3.2 million ha of rapeseed, 1.1 million ha of sunflower, 400,000 ha of wheat, 400,000 ha of maize and 200,000 ha of barley – all being grown for bioenergy (transportation biofuels).

Other than in Sweden (which began development with spurt in the in the 1980s, but which subsequently very much faded) European woody biomass plantation development is very recent ‐‐ really only since 2005 or so, and much of the planting has only been in the last 2‐3 three years, with measurable industrial plantation development only in 2011‐2012. Most is still established on extremely small plots (even the industrial plantations are often planted on ‐‐sometimes‐‐ many dozens of tiny plots); and often by small farmers. It is likely that some early material died and was replanted so has been double counted (this has occurred even on an industrial scale plantations in Hungary after the serious drought of 2012), and possibly some plantings failed and were not replanted, or land use has changed after initial harvest but these changes have not been recorded. There are also small but measurable areas of Black Locust (robinia) planted in Romania and Germany, but which are not identified by AEBIOM.

However, even with this caveat, the above table gives a useful guide of the relative sizes of woody biomass plantations in Europe. If we make exceptions of possibly willow in Sweden, and (non woody) miscanthus in the UK; and reduce the claimed areas in Poland, establishment has been very modest indeed. Even so, there has probably been as much or more research and development work occurring in Europe on species and clonal selection, establishment and management practices, and harvesting systems than anywhere else in the world (save possibly in some regions of Brazil).

We have summarized recent information we have collated in a number (but not all) European countries. We have chosen those with either a long history of research and development, and/or those which have

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attracted major company or international institutional financing to grow short rotation woody biomass crops.

ⅱ. Germany – Poplars and Willows

[in much of Germany willows and poplars may be intermixed, even on the same farms]

Germany is probably the “greenest” country of any, and so it is not surprising that it has been a pioneer in the recycling industry, and in a variety of alternative energy sources, including agriculture and woody biomass. Germany is also the home of some of the major European electricity utilities such as RWE and E.ON which have been spending many years on finding renewable energy solutions to at least supplement their mainly coal fired power plants in Germany and elsewhere in Europe. Other utilities such as Sweden’s Vattenfall also have a major presence in Germany. However in 2012, as with USA, we are surprised that in spite of a lot of publicity and claims and hopes, relatively little commercial woody biomass plantations have actually been established.

German farmers have really embraced non‐woody biomass crops, but as yet have not focused on woody biomass crops. One source estimated that there are about 500,000 ha planted in corn for farmer‐based biogas production (there may 500 biogas manufacturing facilities on farms); and more than 2.0 million ha in rapeseed for biodiesel generation, or in grain for ethanol manufacture. This contrasts with only perhaps 4,000 ha of woody biomass plantations.

There are number of reasons for the difficulty in building a strong woody biomass industry including:

1. Extremely expensive land, which in 2011 was estimated at 12,000 ‐ 40,000 Euros per ha in Western Germany and 7,000‐20,000 Euros per ha in eastern Germany; but in late 2012 was estimated at 20,000‐25,000 Euros even in eastern Germany; and only for marginal sandy soils. In Europe (including Germany) and globally, agriculture land prices are increasing as more and more institutions are buying land.

2. A related high cost to lease land. In late 2012 this might be 250 Euro per ha per year for land which can support a woody biomass crop of 8‐9 BDMT/ha/yr MAI; 350 Euro if 11.5 MAI, and 400 Euro if 12 MAI. German utility RWE has reportedly paid 1,000 Euro/ha/yr rental for one area ‐‐ but see later comment about its unsuccessful strategy.

3. German landholder families own land often through the centuries, so there is not the “open market” for land as there is in other countries.

4. A German landowner can attract high rentals for growing annual crops without the worry of what to do with stumps and roots if he wants a change in land use. With short rotation woody crops, it can be expensive to clear stumps and roots if a landowner wants to change to a different crop.

5. The Initial thrust of woody biomass plantings was via the huge German‐European electrical utilities such as RWE and Vattenfall. However, our German sources report that these utilities have become very unpopular with ordinary Germans due to ever increasing electricity price increases, and huge windfall profits being made by utilities selling carbon credits given freely by the Government (taxpayers). This has resulted in resistance to

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farmers leasing land to them for planting. One major woody biomass crop manager (Pein & Pein) suggests that a more successful strategy would be for more modest projects aimed at feeding smaller community‐based heating facilities, and some now exist – e.g. in the village of Eitelborn there is a village‐owned plot of only 20 ha of poplars which feed a small village boiler for heat for the school and Council offices.

As we discussed above, there are several versions of what areas of woody biomass crops exist in Germany. Even the “experts” are unsure, but we think the likely area of poplars may be around 60‐70% of the total area (say 4,000 ha), with willows at 30‐40%. Willows tend to grow more slowly, but do have a higher basic density (around 500 kg/m3) ‐‐ compared with Italian poplar clones in Germany with a basic density of only 370 kg/m3; and German poplar clones of 450 kg/m3.

Woody biomass plantations in southern/western Germany (e.g. in the Frankfurt area) tend to be exclusively hybrid poplar. Plantations in the more northern and eastern parts of Germany, from Leipzig to the Berlin area and north, tend to be a mixture of hybrid poplar and also of willow.

Early establishment was using Italian polar clones, but more recently in some areas the growth and health of these clones has been suspect; and so more recently major German nurseries (the biggest is Pein and Pein at Etielborn near Frankfurt) have been breeding their own German‐based clones.

The following summary of the “major” players in Germany provides a classic case study example of how difficult it has been to establish industrial scale woody biomass plantations in Germany to date:

1. The most ambitious program in Germany was the attempt by the major utility RWE (via its subsidiary RWE Innogy Cogen) to establish 10,000 ha of mostly poplar woody biomass crops. It engaged specialist manager Pein & Pein to identify and lease a total of 10,000 ha, commencing in 2008. However, by mid‐ 2012 it had actually only secured a total of 650 ha. We understand that RWE has abandoned this project, staff involved have been re‐assigned, and its existing assets are on the market.

2. Huge Swedish utility Vattenfall has a development program and was using two managers to secure and manage its crops, although one failed in 2011 (see below). In late 2012 its biomass subsidiary Energy Crops may have had a total of 600 ha under management (including 132 ha planted in 2010, about 140 ha in 2011 and 180 ha in 2012 planted by its major manager Pein & Pein).

3. P&P also manages a small area of 130 ha for Energy Wood Allendorf. 4. Lignovis, established by an executive of Choren in 2011 is managing 100‐120 ha on behalf of

Vattenfall and private clients. 5. An investment firm Agro Energy was raising a 60 million Euro Fund in 2010‐11, but mostly for

agriculture. It had allocated funds to establish only 80 ha of trees in 2011.

[Footnote: Vattenfall also invested heavily in a Liberian rubberwood woodchip exporting company (Swiss/Canadian owned Buchanan Renewables) around 2010, largely to import woodchips into Germany, as part of a green renewable energy initiative in joint venture with the City of Berlin. However, in 2012 it

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announced it was abandoning this venture, and reportedly had written off all of the 120 million Euros it had invested. We also discuss this in the African supply section.]

6. Bioenergy Company Choren was a pioneer in the development of woody biomass crops in Germany, commencing trials in 2005. However, after five year it had only managed to plant 260 ha in northeast Germany (and a small plot in Poland) – some on its own account, and other areas for clients such as Vattenfall above, and German Pellets. This included 60% in poplars with 40 separate clones, and 40% in willows, with 15 separate clones. After an ill‐fated move into construction of a bioenergy complex, it ran out of cash and the company failed in late 2011. We understand that the major shareholder and CEO lost around 80 million Euros, although he reportedly still plans to develop plantations in Malaysia – but for high value crops like rubberwood. All of Choren’s plantations were on land leased from farmers, who inherited the trees at no cost when Choren went bankrupt. At one stage Choren had ambitious plans to establish a series of very large woody biomass plantations in Africa and Asian – each around 100,000 ha, to feed ambitious biofuel manufacturing plants, but that has been abandoned.

The intellectual property gained by Choren has been transferred to Michael Weitz, a pioneering Choren researcher, who has formed his own woody biomass consulting and management firm Lignovis GmbH which is based in Hamburg Germany.

The German woody biomass model seems very much to be based on modifying existing agricultural practice, rather than some (or no) modification of pulpwood crops as has been the case by some big Brazilian companies. Hence the Germans tend to adopt very high levels of stocking. For poplars this is commonly a standard 2.2 m between rows and 45 cm intra rows, which is ~10,000 trees/ha. For willows planting density is commonly 2.2 m between rows and 35 cm intra rows, which is ~13,000 trees/ha. Willow usually develops smaller individual stems and planting material is less expensive, so, in general the German strategy is to plant a higher density of willow on lower productive sites to enable faster full coverage of the tree farm. One consultant suggested that given these differences, the actual costs of growing a crop of willows is similar to growing a crop of poplars.

First rotations for both species can be 3 years or 4 years, with later coppice rotations 3 years, as an established root system will allow faster immediate growth after first harvest.

One nursery Dennis Neilson visited in eastern Germany in late 2012 had poplars and willows both planted at a density of 40,000 trees/ha33. It has German poplar cones Max1, Max 2, Max 3 and Max 4 – all crosses of Populus maximowiczii x P. nigra. Another clone being used was “NE 42” which was P. Max. x P. trichocarpa.

In early 2012 we developed German woody biomass crop economics “case studies”, based on information provided by (then) Choren field managers. These each had different assumptions on the

33 Note: It is common practice for nurseries to plant at these very high densities, as they are just producing cuttings for outplanting. Biomass plantations are not planted at this density, as explained the more common planting would be 10‐13,000 trees/ha.

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levels of subsidies (see later subsidies section) and yields. The results highlighted the very high volatility possible returns when analysing very short rotation woody biomass crops; as returns varies from a low of 5.5% IRR to a high of 18.2% IRR. In practice, we think an IRR of about 8% per year would be all that could be expected. A summary of a range of costs, yields and returns for the “no subsidies” case study is provided in the table below. We discuss subsides in a later section.

Table 8

Eastern Germany SRC Poplar 21 year project No SubsidiesYear Operation Low $/ha Med $/ha High $/ha

0 Site preparation 212 255 2970 Planting 2547 2972 35380 Weed control 283 425 5661 Weed control 71 142 212

3,6,9,12,15,18 Fertilizer 0 71 1423,6,9,12,15,18 Weeding 0 113 212

All Land lease 283 382 566All Administration 70 80 120

Yield 0 Low bdt/ha Med bdt/ha High bdt/ha3,6,9,12,15,18,21 0 25 35 45

Harvest 0 Low $/BDT Med $/BDT High $/BDTLanded Price 113 130 156

3,6,9,12,15,18,21 Harvest 28 35 423,6,9,12,15,18,21 Transport 14 17 21

Stumpage 0 Low $/BDT Med $/BDT High $/BDT3,6,9,12,15,18,21 0 71 78 92

Note that “planting” here includes both cost of trees and the cost of labor to plant.

In late 2012 landed prices at combined heat and power heat plants in eastern Germany for woodchips was around 90‐95 Euro per BDT.

There are small areas of woody biomass crops of Black locust (Robinia) in Germany. We have not been able to source current data for this species.

ⅲ. Sweden - Willows

Sweden was a pioneer of short rotation coppice crops, starting in the late 1980s. The changing nature of tax laws and policies in Sweden may be used to consider important impacts of these on woody biomass development not yet experienced by other countries. Since the 1980s these have included:

• 1970 – present, (rising) energy taxes

• 1991 Carbon Tax & Energy Tax, focus on heat

• 1997 – 2002 Investment subsidies

• 2000 Carbon tax increases

• 2003 Technology‐independent Green Electricity Certificate system introduced

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• 2004 Tax on electricity for Households and Services

• 2004 Reduced Combined Heat and Power Plant Tax

• 2008 EU Commission – Targets for renewable energy to 2020, Sweden should increase from 40% to 49%

• 2009 Swedish Government – raises the target for renewables to 2020 to 50% in total and 10% in the transport sector

Navarro (2011) reported that in the first half of the 1990s, a wave of Salix (willow) planting rolled over Sweden powered by subsidies and positive market prospects. Nearly 1,200 farmers established willow plantations covering 15,000 ha. As well as general subsidies, a separate "set aside" subsidy was paid when income from cereal crops was low. Then, in 1996, as Sweden entered the EU, the set aside subsidy was reduced and the general subsidies were reduced to only a third of what they had been. Subsequently new planting levels plummeted, from around 2,000 ha per year to only 200 ha per year. Later the subsidy was raised again but in 2011 the energy tax was reduced. Planting gained momentum again, but the total area planted remained constant, as new plantings balanced the loss of poorly planted areas established in the 1990s. More recently the price of willow fiber has increased, but some farmers still have a negative view about short rotation coppice crops, and this will take some time to change.

In 2009, the Board of Trade reported that there were 16,000 ha of woody biomass willow crops short rotation coppice crops in Sweden, which are increasing at 500 ha per year, although in 2011 AEBIOM estimated the area of willow in Sweden was 11,000 ha, with only 300 ha of poplars. Whatever the correct data is, it will be the highest area of any dedicated woody biomass species in any European country in 2012. Each year around 2,500 ha is harvested for delivery to 25 heating plants in central and southern Sweden. The life span of a Swedish crop may be 25 years, with 5‐6 coppice rotations. Even having Europe's largest short rotation coppice crop area, this is only 0.5% of all arable land. In 2011, we attempted but were unable to obtain reliable growing cost/IRR data for a Swedish short rotation coppice crop.

A recent FAO publication holds a wealth of material and links and contacts related to woody biomass crops in Sweden:

http://www.fao.org/forestry/download/33511‐011d63e82db7aa9131624022fb9101d14.pdf. This includes a substantive bibliography of literature written about hybrid poplars and willows; and summarises several clones registered in Sweden.

There are currently two Populus cultivars registered at the Swedish Forestry Agency. One consists of 15 clones of hybrid aspen ‐ poplar ‐ (P.tremula x P.tremuloides; KB‐002) which is delivered to practise as a clone mixture. The other cultivar is a mix of 12 poplar clones (KB‐003). This mix of pure species and hybrids consists of species from the section Tacamahara (balsam poplars) of Populus. Both cultivars have been tests by the Forestry Research Institute of Sweden. New tests for improved material, suitable for larger areas of the country, are in progress.

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Breeding of Salix has been done since the 1980s and over twenty varieties have been developed since then. All of them have gained Community Plant Variety Right and hence are protected throughout the European Union. A list of the Swedish varieties is given in Table 9. In a recently published ‘handbook for salixodlare’ the following clones are recommended for areas exposed to frost in the northern part of the country, Gudrun and Klara; for average sites, Tora, Tordis, Inger, Stina, Lisa, Sven, Olof and Torhild; and for dry sites, Inger and Tordis.

Table 9 Salix varieties produced in Sweden with granted PBR (Plant Breeders' Rights) date and expire date Variety Name PBR grant date PBR expire date Ulv 1996 2022 Tora 1996 2026 Rapp 1996 2026 Orm 1996 2022 Jorunn 1996 2026 Jorr 1996 2026 Bjorn 1996 2026 Loden 1997 2027 Helga 1998 2028 Torhild 1999 2029 Sven 1999 2029 Olof 2000 2030 Tordis 2002 2032 Gudrun 2002 2032 SW Inger 2003 2033 Karin 2005 2030 Doris 2005 2030 Klara 2008 2033 Nora 2008 2038 Lisa 2010 2035 Stina 2010 2035 Dimitrios 2010 2035

Swedish company Salix Energie, is reportedly the largest willow contractor in Europe. It was planning to establish 300‐400 ha of willow plantations in 2012; including in Sweden, Germany (where it actually owns a small farm) and France.

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ⅳ. Hungary – Willow and Poplar

AEBIOM reported no woody biomass crops in Hungary in 2011. However, Simon et al (2010) reported 4,600 ha of woody biomass crops and we think in 2012 there could be perhaps 6,000 ‐7,000 ha in total, much in tiny private plots, although there has only been a short history of establishment.

A Hungarian co‐operative Tisza Wood Chops Producers Productive Group Co‐operative (Tisza) was formed in 2007 with 27 public and private shareholders and by 2009 had established short rotation coppice crops in four counties and to feed three Shakily combined heat and power plants in northeast Hungary, near the city of Debrecen (using 150‐180,000 tpy of biomass fuel). It seemed to be favoring willow species and in 2009 was reporting 16‐20 BDMT per ha year for this species, and 13 for poplar and robinia. This is probably because it is targeting land quality which is too low for good poplar growth. At the end of 2009 it had 400 ha established, but was planning to supply three other converted power stations and numerous incinerators, using an additional 1.0 million tpy of biomass. By mid‐2010 it had 50 members. The above authors report that taking the contracted power stations into account, that Tisza will need 20,000 ha of short rotation coppice crops, but had only 1,000 ha.

Estimated Tisza costs of growing willow crops in Hungary in 2009 is shown in the Table below.

Table 10

Production Costs US$/GMT* US$/GJ** Cost of land rent 0.35 0.03 Total establishment costs 4.91 0.44 ∙ Examination of production site 0.30 0.02 ∙ Ploughing 0.75 0.06 ∙ Cost of cuttings 3.19 0.28 ∙ Weed control 0.22 0.02 ∙ Planting 0.45 0.04 Harvesting (with whole rod harvester) 11.96 1.07 Post‐harvesting management 17.79 1.59 Restoring site 1.99 0.18 Operational costs 1.62 0.14 Transport 5.22 0.47 0.00 0.00 TOTAL 43.85 3.92

Source: www.e‐tudomany,hu

*GMT = green metric tonne; ** GJ = gigajoule

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An American TIMO34, Regions Timberland (formerly known as RMK), is establishing a 10,000 ha woody biomass project in three sites in Hungary: near Sumeg in western Poland close to the Austrian border; near Miskolc in northeast Hungary and near Peks in south Hungary. By the end of 2011 it had around 3,000 ha of land and around 2,000 ha established, all in 2010 and 2011; and in late 2012 it reported a total area planted area of 3,050 ha, including 1,200 ha in the West, 1,500 ha in the South and 350 in the East. It favors poplar clones, with nursery plant material actually grown at a site near Arad in Romania. Yields were reported at around 20 BDT/ha/yr. Regions is planning to ramp up annual planting rates to at least 2,000 ha per year.

Regions Timberland’s plant provider and plantation manager is Pein & Pein (P&P), a German‐based 200 year old nursery and management company. P&P’s initial work was using clones of Italian hybrid poplars but it now believes that these are not suitable for colder climates, including that in Hungary. Instead it now uses several clones including Max 1, Max 2, Max 3 and Max 4 which are all crosses of Populus Maximowiczii x Populus Nigra ‐ similar/same as those seen by Dennis Neilson in eastern Germany.

Land ownership in Hungary is very complicated. Foreigners cannot yet purchase land. There are even limits on how much local citizens can purchase, based on land productivity.

Regions Timberland only commenced harvesting in 2012 but it expects average yields of 20 BDMT per ha per year. In 2011 it was planting 20‐30 cm “rods” which it pushes completely into the ground and which it says provides for better weed control and contributes to minimal animal damage.

In 2011 its planting density was 2.0 m x 2.5 m which is 2,000 trees/ha. It ploughs and harrows pre‐planting then plants and undertakes weed control 2 – 3 times per year. It is planning on a 3 year harvest cycle – however, it was also experimenting with a much higher planting density of 3.0 m between rows and 40 cm intra rows which is 8,333 SPH.

The Table below illustrates a range of costs, yields and return in the Regions Timberland’s hybrid poplar project in Western Hungary in 2011. We assessed an IRR for the midpoint data of 12.1% ‐ if all five rotations were followed. We understand that there have been no significant changes to this data as of late 2012.

34 “TIMO” is a Timberland Investment Management Organization, a company which acquires and manages forests and plantations on behalf of institutional clients such as pension funds. Regions has acquired and is managing forests for its clients in the USA, in Brazil, Uruguay and Hungary. Only the plantations in Hungary are for biomass, the other plantations are to produce sawlogs (mostly pine) and pulpwood (mostly eucalyptus).

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Table 11

Hungary SRC Poplar 15 year projectYear Operation Low $/ha Med $/ha High $/ha

0 Site Prep 487 608 7610 & 10 Plants 1415 1769 22110 & 10 Planting 945 1182 1477

0,3,6,9,12,15 Weeding 164 205 2561,4,7,10,13 Weeding 164 205 2562,5,8,11,14 Weeding 108 134 168

All Land lease 226 283 354All Indirect Overheads 70 80 120

Yield 0 Low bdt/ha Med bdt/ha High bdt/ha3,6,9,12,15 0 47 60 79

Harvest 0 Low $/BDT Med $/BDT High $/BDT3,6,9,12,15 Landed price 89 104 119

0 Transport 8 10 120 Harvest 17 21 27

Stumpage 0 Low $/BDT Med $/BDT High $/BDT3,6,9,12,15 0 54 73 85

Note: “Plants” means cost of the trees, “planting” means labor cost of planting

ⅴ. Poland – Willow and Poplar

AEBIOM reports that Poland has somewhere between 5,000 and 9,000 ha of woody biomass plantations in 2011 and only 300 ha were poplar, with most of the rest being willow. In late 2011, the only company establishing industrial scale woody biomass crops, Greenwood Resources (GR ‐ see below) estimated the total area of woody biomass crops in Poland was around 7,000 ha; but almost all of this is in tiny 1 to 2 ha small farmer plots.

In 2010, German bioenergy company Choren (now in receivership) rated Poland as probably the most favorable country of five considered in one review on growing short rotation coppice biomass in Europe, with a positive rating for all six criteria measured: biomass woodchip price, legal conditions, land availability, land price, growing conditions, infrastructure and logistics to end users. In addition, there is little tree based biomass competition, as States are not allowed to use forest residues to fulfil green electricity use quotas.

American timber investment management organization (TIMO), Greenwood Resources (GR), has a 10,000 ha poplar woody biomass project near Kwidzyn in Northern Poland. We understand that this is the only industrial scale project in Poland. The project was initiated by American paper company, International Paper (IP), which has a pulp and paper mill nearby and uses coal in its boilers for energy. IP initiated trials of hybrid poplar using Italian clones in 2007 and then invited Greenwood Resources in to take over its project. First plantings were in 2010 (180 ha), with 306 ha planted in 2011 and 1,250 ha in spring of 2012. Greenwood Resources now reports it has enough institutional funding to establish 2,000

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ha per year from 2012, up to 10,000 ha. Greenwood Resources was recently acquired by the huge US$ 480 billion USA pension fund TIAA CREF, so financing its project is possibly now assured.

Greenwood Resources has formed a strategic alliance with Italian company Alasia which is supplying plant material and is in a joint venture for genetic breeding purposes. In 2010 when its first plantings were made, it was adopting a “standard” pulpwood style crop with a spacing of 3.0 m x 3.0 m (1,111 trees per ha) with three cycles of 5 years; but in 2011 it had come down to a higher stocking, with a spacing of 3.0 m x 2.0 m (1,666 trees/ha), which the company reports is now its preferred stocking. The planting stock is 2 metre long rods which are pushed 70‐80 cm into the ground with about 1.2 metres above ground.

Expected growth rates for the Italian hybrid poplar clones range from 11 BDMT/ha/yr (assuming 55% dry matter) to an average rate of 15 BDMT/ha/yr, and a high of 19 BDMT/ha/yr. Greenwood Resources estimates that if they grew willow in the region, its growth rates may range from 11 BDMT/ha/yr to 14 BDMT/ha/yr with possibly an average growth of only 80% of poplars. Greenwood Resources is planning on a first rotation of 4 year, and then three coppice rotations each of 3 to 4 years after this. In 2011, on about 25% of its land, Greenwood Resources was experimenting with establishing cuttings with a much denser spacing of 3.8 m between rows x 0.45 m intra row (5,850 SPH).

Poland still has restricted overseas land ownership rules and land can only be leased. The base leasing price in 2011 was 260 Euros per ha per year. The actual landowner receives a general agriculture subsidy of 140 Euros per year but in 2011 at least, this subsidy is not passed on to the Lessee. The table below summarises estimated costs, yields and returns in 2011. The midpoint data provided an IRR of 11.7%, provided the full set of rotations is followed.

Table 12 Poland Short Rotation Coppice Poplar biomass 16 years Year Operation Low $/ha Med $/ha High $/ha 0 Site Preparation, Planting Etc 1402 1995 2482 1 Maintenance 93 140 187 2 Maintenance 70 93 117 6 Fertilizing 64 72 79 12 Fertilizing 48 54 62 16 Stumpage Removal 283 311 354 All Land lease 340 354 396 All Administration 70 80 120 Harvest 0 Low $/GMT Med $/GMT High $/GMT 4,8,12,16 Roadside price (chips) 46 51 61 4,8,12,16 Harvest 17 18 21 Yield 0 Low GMT/ha Med GMT/ha High GMT/ha 4,8,12,16 100 120 128 Stumpage 0 Low $/GMT Med $/GMT High $/GMT 4,8,12,16 29 33 40


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ⅵ. Romania – Poplar and Robinia

There have been a number of recent reports about investors wanting to establish woody biomass plantations in Romania. In fact in 2011 a German management company was reportedly planning to sell plants and to manage 3,000 ha of biomass plantations to French and German investors. While it has actually established a nursery in Poland to supply poplar planting rods to its client in Hungary, and perhaps elsewhere, in late 2012 it reported that while there were many “tire kickers” (persons claiming interest but not really serious) claiming they had plans to invest in Romanian woody biomass crops, very little activity had occurred. Pein & Pein said that there were probably less than 100 ha planted of poplar biomass crops, it had identified suitable land totalling around 20,000 ha which might be planted. This includes land near the Danube, but which might also be good for rice growing; and some land near the Black Sea. It says there is a very small area of willows which has been established, but which is in very poor shape.

Luxemburg‐based fund Forest Value Investment Management reported in early 2012 that it has initiated investing in Romania (initially in a sawlog crop) but that it was planning to buy a 5,000 ha farm to plant a woody biomass crop.

Pein & Pein also report that in Romania probably robinia might be the best woody biomass crop (better than poplar), especially using the newly bred “straight growing” clone, which grows 50% faster than existing clones do.

Probably a lack of activity in Romania is as much to do with stifling bureaucracy and problematic land tenure as any other reasons.

ⅶ. Spain - Paulownia and Eucalyptus

There have been a number of attempts to establish short rotation coppice crops in Spain, beginning in the 1980s. Although many factors were shown to be favorable, including growing poplar crops down to as low as 2‐3 years, under Spanish subsidies and circumstances, growing poplar plantations on 12 year rotations for solid wood industrial uses is more profitable than for energy. Hence there is little incentive (at least yet) for farmers to adopt short rotation coppice crops for energy.

Spanish sources indicate that this is because a "catch 22" situation has developed. That is, for many energy companies to make a satisfactory return on investment, they must assume a landed price of woody biomass, which in itself makes it unattractive for investors to grow these crops. The energy companies themselves in the main (but see below), do not want to get involved themselves in growing biomass, and investors have not to date been enthusiastic, so not a lot is happening.

Spain has a large are of eucalyptus spread across the country and grown for pulpwood. In Brazil various eucalyptus species are grown for energy crops, and this is increasing (see Brazil). However, because of

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poor relative returns, companies and farmers growing eucalyptus are also not (yet?) incentivized to diversify end uses into energy.

Probably Spain is rational to date in promoting wind and solar power above woody biomass, given its abundant supplies of both. Wind and solar power absorb two thirds of all Spain's renewable energy subsidies.

The Spanish subsidiary of the German utility RWE (RWE Innogy Iberia) on the Iberian Peninsula was developing a woody biomass plantation project in Villamartín, close to Cádiz in southern Spain. In 2009 it planted 235 ha of fields (at 1,666 trees/ha ‐ which is more like a pulpwood crop) in paulownia. It has installed a drip irrigation system. This crop was planted to secure a part of the feedstock supply for a planned 10 megawatt power plant project in the area of Lebrija, Andalusia. The company expected to achieve an MAI of 33 BDT per ha pa, and to grow seven cycles of three years each.

The company was planning to have a further 800 ha of energy crops established in the south of Spain and in 2011 was looking for landowners who would like to rent their fields on a long term basis. However, we think that more recently RWE is reassessing its European‐ wide short rotation coppice woody biomass crop strategy. We would not be surprised if it backs off its Spanish aspirations, perhaps to concentrate on wind and solar renewable energy initiatives there. It may, instead try to focus its woody biomass plantation strategies on other central‐northern European countries where it can use woody biomass more easily for co‐firing purposes (although it has clearly failed in this endeavor in Germany ‐‐see above).

While RWE may be exiting Spain, another company, Groupo Valia, is promoting what it claims to be now the biggest paulownia biomass project in Spain and is planning to establish around 500 ha in the next two years with a planned total project area of 5,000 ha. The company claims to have more than six years of technical and biological experience.

Acconia Energia has three biomass energy plants and a further five biomass projects in various stages of planning in Spain, but we think to date they are all associated with straw other agricultural crops.

Spanish utility Iberdrola Renovables commenced construction of a forest wood based energy plant in 2010 – but that is in Oregon in the USA.

However, the most successful woody biomass initiative in Spain is being undertaken by pulp and paper company ENCE. The company controls 86,000 ha of what until recently were all eucalyptus pulpwood crops in Spain (60% company owned), and is the largest plantation owner, through its subsidiaries Norfor, Iberflorestal and Silvasur.

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As well as being by far Spain’s largest pulp manufacturer with a total eucalyptus market pulp capacity in three mills of 1.3 million air‐dry metric tonnes per year, it is also Spain’s largest bio‐mass fired power producer. The energy produced by ENCE’s three pulp mills totals 230 MW of which 180 MW use biomass. ENCE has approximately 40% of the quota of renewable biomass energy in Spain. In addition it has recently built or is building two new biomass plants. These include:

Huelva Project: ENCE has a major pulp mill in Huelva in southern Spain and has recently built a 50 MW biomass plant at the site. This will require 346,000 tonnes per year of biomass including 165,000 tonnes per year sourced from dedicated energy crops from ENCE land, 155,000 tonnes per year of outsourced forest residues, and 26,000 tonnes per year of ENCE’s own forest residues.

Merida Project: This smaller 20 MW plant is in mid‐western Spain. The plant will require a total of 150,000 tonnes per year of biomass per year including 105,000 tonnes per year from energy crops (70% of the total raw material requirement) as well as 45,000 tonnes of outsourced forest residues. The commissioning date is scheduled for October 2014.

To provide the dedicated woody biomass raw material, ENCE now has around 17,500 ha of what it calls “dedicated” woody biomass plantations. However, most of these (around 10,000 ‐ 11,000 ha) are actually former pulpwood plantations that have been “redefined” as energy crops (and with their silviculture perhaps being somewhat modified). The balance of around 6,500 ha has been established recently as new plantations at Huelva through land lease contracts. ENCE reports that it has invested 43 million Euros to date on dedicated energy crops. It did have a plan to develop an additional 140 MW of biomass plants including a total investment of 125 million Euros in energy crop, but because of the economic crisis in Spain the Spanish Government has recently cancelled all feed‐in tariffs for new renewable energy projects. We understand that as a result, ENCE may reach its already financially committed target of 24,000 ha of woody biomass plantations, but it may not proceed to expand further unless tariff benefits are re‐installed. Notwithstanding this limitation, in late 2012 ENCE has more dedicated woody biomass plantations than any other company.

In early 2012 we developed two case studies for growing woody biomass in Spain – with and without irrigation. The table below shows data for a non‐irrigated option, and it showed an IRR of 3.5%. An irrigated option fared worse, with a negative IRR of ‐0.8%, due to the high cost of installing irrigation equipment.

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Table 13

Spain SRC Poplar biomass 20 year project-no irrigationYear Operation Low $/ha Med $/ha High $/ha

0 Site Prep 120 120 1200 Plants & Planting 651 651 6510 Weeding 51 51 510 Fertilizing 170 170 170

2,5,8,11,14,17 Fertilizing 64 64 64All Land lease 142 283 708All Administration 70 80 120All Watering 0 0 463

Harvest 0 Low $/BDT Med $/BDT High $/BDT2,5,8,11,14,17,20 Landed Price 45 52 602,5,8,11,14,17,20 Harvest 13 11 112,5,8,11,14,17,20 Transport 4 6 7

Yield Low bdt/ha Med bdt/ha High bdt/ha2 14 18 24

5,8,11,14,17,20 30 45 120Stumpage Low $/BDT Med $/BDT High $/BDT

2 21 28 355,8,11,14,17,20 28 35 42

Note: “Plants” means cost of the trees, “planting” means labor cost of planting

ⅷ. United Kingdom

The UK is currently a center of international woody biomass attention, as a result of:

Electrical utility RWE commencing imports of large volumes of pellets from its own pellet mill in the US South to its 750 MW Tilbury power station.

Electrical utility Drax reportedly confirming that it will convert at least one and perhaps three of its six boilers at its 4,000 MW power station to 100% woody biomass (pellet) use. Each boiler is 666 MW, and each would need about 2.5 million tpy of pellets.

Eggborough Power talking about converting 4 x 500 MW stations nearby Drax from 2014‐2017 from coal to 100% biomass.

IP/Mitsui talking about 2 x 500 MW power stations at Rugeley. E.ON at Ironbridge (temporarily ) converting its Ironbridge plant (until 2015). Curan (RWE) negotiating the purchase and conversion of Rio Tinto’s Alcan plant at Lynemouth in Scotland (420 MW)

Plans for several new green woody biomass energy plants to be established; although most of the major plants announced have since been scrapped, deferred or cancelled. For instance in November 2012 plans for Helius Energy submitting an application to build a 100 ME biomass plant at Southampton have been delayed.

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Initially coal fired power stations were planning to switch to perhaps only 10% woody biomass; but now most/all are looking to almost 100% conversion. This has been driven by the recent ROC allocation announcement and a new “grandfathering” provision, and by economics (see later section of this report on subsidies). UK pulp and biomass consulting firm Hawkins Wright have concluded that (based on the costs for a gas fired power station) the NPV of a coal fired 10‐50% woody biomass co‐fired station would be negative 100‐200 million UKP; compared with an NPV of positive 900 million UKP at 85% woody mass co‐fired and positive 1,300 million UKP for 100% woody mass fired.

However, in spite of this enormous potential demand for wood (and probably in pellet form), the establishment of woody biomass plantations in the UK has been decidedly modest. AEBIOM in 2011 identified a total of only 1,500 ‐ 2,300 ha of willows planted, mostly probably by E.ON in southern Scotland. The authors have seen trials of E. nitens in southern England, which were growing as well or better than the species does in Australia. However, the chances if it surviving huge frosts/snow/ice through to maturity are remote. This situation is not likely to change, especially as rural land prices have increased substantially in recent years. Furthermore, eucalyptus does not qualify as an “energy crop species” under current UK subsidy guidelines. There are also a reported 13,500 ha of miscanthus growing in the UK. The company Drax does have a program to sign up local farmers to grow willow in dedicated plantations. However, because of recent changes in the UK subsidy program, dedicated plantations are less beneficial for coal‐conversion projects like Drax than in the past. Thus, Drax has told us that unless the UK government improves the subsidy, the company will not be pro‐active in encouraging dedicated biomass plantations.

In the meantime there is a scramble for UK utilities (and a number of utilities from other European countries) to source wood pellets from a small number of states in the US South, and some Canadian ports. Hawkins Wright suggests that “wood pellet equivalent” demand in the UK in 2020 could be 53 million tonnes per year. There is unlikely to be enough volume available from North America unless there are major closures in the (highly completive) US South pulp industry.

ⅸ. Ukraine

Ukraine has no history of woody biomass plantations, but one very large farmland owner, Mriya Agro Holding Company, with 300,000 of agricultural land, has asked a major European woody biomass consultant and manager to investigate establishing a large woody biomass plantation estate. This area of Ukraine has very deep (40 – 60 cm) of rich black soils, compared with only 20cm in neighboring countries. However, we think that this project will undoubtedly face challenges that it is converting arable farmland to producing biomass crops for energy, a practice which is highly unlikely to pass EU sustainability criteria.

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B. USA

ⅰ. Hybrid Poplar

In the USA, there has been considerable tree breeding work done with poplar, with most efforts focusing on a hybrid of Populus deltoides from the upper Midwest and southeastern USA with P. tricocarpa, a native of the Oregon/Washington region. (Companies also use a hybrid of P. deltoides and P. nigra. There are well over 100,000 acres (40,000 ha) of poplar plantations in the USA, but to date the only plantations dedicated for energy beyond testing plantings are those established by Greenwood Resources in Oregon. In some respects these plantations do not reflect a “dedicated” plantation, because the “dedicated” biomass plantings are rows of closely spaced poplar planted between rows of poplar for sawlog production. Nevertheless, we described their basic management regime in this section, due to the fact that this project is funded by the national government, under their BCAP program, and hence may be an important trend‐setter for others to follow.

Greenwood Resources has 6,855 ha of irrigated poplar plantations in eastern Oregon. The target crop of these plantations is to grow poplar sawlogs, and the trees are planted in a 10 foot x 20 foot grid (spacing is 3.05m x 6.1m). Planting is done with “poles” that are 4‐6m long, and planted 1.0‐1.2 m deep. The dedicated biomass planting consists of a single row of trees planted between the rows of sawlogs, with the trees about 1.0 m apart within the row. This works out to approximately 2,728 trees per ha, if the hectare were fully planted with poplar. Planting establishment for biomass consists of the following steps:

a) Using mulcher to break up logging debris from harvest of previous stand. b) Ripping a trench for planting to 18 inches (46 cm). c) Use of chemical herbicides wherever needed to ensure no competition from weeds. d) Fertilizer‐‐‐‐ only modest use of fertilizer, as previous testing revealed they were wasting money

on this step. e) Moving the drip irrigation feeder tubes where needed.

Total cost for planting, including plants, site prep, and first year maintenance is approximately US$1,813/acre, or US$4,500/ha. The current plan is to harvest this biomass row at age two, allow the plants to coppice, repeat harvest at age 4 and again at age 6. By that time, Greenwood believes that the sawlog trees will be so tall they will shade out any biomass crop. (Sawlogs are grown on a 12 year regime.) Greenwood believes it can produce 25‐30 BDMT of biomass fiber per ha, on two year cycles. (Note that this is on irrigated ground, yields on non‐irrigated lands will be less.) Harvesting cost is reported to be between US$20‐25/BDMT, which seems high, but Greenwood is still experimenting with different types of harvesters and is still trying to establish the optimum system, so it is quite possible that costs can be reduced. Currently the type of harvesting equipment being favored is produced by a US company, Case New Holland.

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A key point with using poplar as a dedicated biomass species is that harvesting should be done in the winter months, when the trees have lost their leaves, and more of the nutrients “migrate” down to the roots. Harvesting during the winter ensures the best coppicing of the remaining stumps. This winter harvest will require storing the biomass for extended periods‐‐‐‐ the harvest timing is not quite as short as with agricultural crops, but the point is that timing of harvesting is more restrictive than if using species like eucalyptus.

An independent review35 of short rotation coppice yields in the US Pacific Northwest found a range of yields for poplar from a low of 9 BDMT per ha per year to a high of more than 32 BDMT/ha/yr, with one limited study indicating a yield as high as 43 BDMT/ha/yr. In the US Lake States region, yields were somewhat lower, ranging from 5 BDMT/ha/yr to 24 BDMT/ha/yr. They also found that in the northeast USA, yields for willow short rotation coppice ranged from 7 BDMT/ha/yr to 27 BDMT/ha/yr. In the Southeast USA, they reported yields with eucalyptus ranging from 11 BDMT/ha/yr to 28 BDMT/ha/yr. For other hardwoods, such as sweetgum, reported yields ranged from 6 BDMT/ha/yr to 15 BDMT/ha/yr. They also reported some biomass plantations established with pine, with yields ranging from 9 BDMT/ha/yr to 19/BDMT/ha/yr. In summary, they report that average yields for dedicated biomass plantations should exceed 16 BDMT/ha/yr in the US Pacific Northwest and the US Southeast.

ⅱ. Willow

While willow has been commonly planted for dedicated biomass crops in northern Europe since the 1970s, research on short rotation coppice willow began in the USA in the mid‐1980s. The leader in research on short rotation coppice willow for bioenergy is Dr. Tim Volk, at the State University of New York (SUNY) at Syracuse, whom we visited as part of this project. Basically, short rotation coppice willow management entails:

• Field preparation in Fall (September‐November) prior to the planting year. Site preparation includes vegetation removal and plowing, with a cover crop sometimes established to prevent erosion until planting.

• Planting by machine with 20cm dormant cuttings (planting in winter, when the willow is without leaves and dormant), using 14‐15,000 plants per ha.

• Use of a pre‐emergent herbicide and mechanical weed control in the first year, as well as fertilizer where needed.

• Coppicing (cutting off most of the stem) at end of first year’s growth to encourage multiple stems.

• Allowing coppice stems to grow three years (sometimes four years), then harvest every three years. Up to seven 3‐year harvests can occur from a single planting.

Cost details for short rotation coppice willow planting in New York State (a “base case example”) are provided in the following table, again from Dr. Tim Volk. While irrigated willow plantations have generated up to 27 BDMT of biomass fiber per ha per year, SUNY expects an average yield of about 12

35 Lynn Wright, Laurance Eaton, and Bob Perlack, “Published and Reported Woody Crop Biomass Yield Data”, 2010.

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BDMT/ha/yr. If an average price of US$60/BDMT (delivered) can be achieved (a reasonable assumption), SUNY predicts an IRR of about 5.5% with the costs assumed in the table below and with no subsidies, if the plantation is continued through seven rotations (22 years).

Table 14

Costs of SRC Willow Plantation in New York State In US$ per ha

Year Activity Cost/ha0 Site Prep* 3501 Plants (Trees) 1,7161 Planting (Labor) 1681 Weeding** 2151 Cut back stems 502 Weeding 352 Fertilizer 1753 No inputs 04 Fertilizer 1754 Harvest cost 5404 Transport cost 168

All years Land Rental 85All years Administration 12

4,7,10,13,16,19,22 Harvest Revenue 1,987

* Site Prep includes removing existing vegetation, herbicide application, plowing, disking and planting cover crop

** Weeding in Year 1 includes killing the cover crop established in the previous Fall, a pre‐emergent herbicide for planting establishment, and mechanical weeding during year 1.

But the economics of growing willow require a firm commitment to maintaining the plantation through the longer term. For example, if one calculates the expected IRR with the above cost table, but only if the plantation is maintained through the first four harvests (until age 13), then the expected IRR is only 1.5%, far too low to generate any interest from investors. This is because of the relatively high cost of establishment, with the high number of stems (14,300) planted per hectare. The economics of short rotation coppice willow can also be influenced by a number of factors, for example:

• Increasing the yield by 2 BDMT per ha (about 17%), increases the expected yield in this base case example from 5.5% to 8.3%.

• Land rental prices can vary from only $20/ha/yr to as much as $160/ha/yr. With base case yields of 12 BDMT/ha/yr, an IRR of >5% can be achieved with annual land rental costs below $100/ha. But if yields are increased to 16 BDMT/ha/yr, an IRR of 10% could be achieved with land rental costs below $120/ha.

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• The base case assumes a selling price for biomass fiber of $60/ BDMT. But a 50% increase in biomass selling price to $90/BDMT more than doubles the expected 5.5% IRR.

The SUNY Willow Project is part of a project with ReEnergy Holdings, which is being funded by a BCAP grant (federal government subsidy). This BCAP grant is structured to pay 75% of the plantation establishment cost for the 3,500 acre (1,410 ha) project. However, there is a maximum cap of $741/acre, and only 1,200 acres (485 ha) were signed up for the first year of the project, which is to be all planted in 2013 and 2014. Obviously, this subsidy improves the economics of short rotation coppicewillow planting. Dr. Volk estimates that the subsidy increases the IRR of planting willow from 3.3% without subsidy (and assuming a relatively low $27.50/green short ton ($30.33/green metric tonne) selling price, which is the figure used by BCAP in their analysis) to nearly a 32% IRR at the same selling price but with the subsidy, assuming the crop is maintained for seven full 3‐year cycles.

But the fact that, even with this very generous subsidy and a guaranteed market, only 1,200 acres (485 ha) of land has been committed by farmers to the project indicates the problem with this type of dedicated biomass crop. As stated previously, in order to generate a reasonable return on investment, the crop must be maintained for seven full harvest cycles. However, the oldest trials of willow in this type of system in the USA are less than 20 years old, so no one has actually taken these through the full 22 year cycle. In addition, farmers are reluctant to commit their land for so long, especially for an end‐use market that is not yet well‐established. (For example, it’s fine for ReEnergy Holdings to commit to buying willow today, but who knows how long that plant will remain in operation? Without that end user, willow growers would have to ship the biomass to markets farther away, which would certainly decrease their net return.) In addition, farmers are used to growing annual crops, where it is relatively easy to convert to a different crop if markets change. But once coppicing begins with willow, it established a mat of stems and roots which would have to be removed, at the farmers’ cost, if they wished to convert to other products. Thus, despite 25 years of research, this type of dedicated biomass plantation is still very much at the experimental stage in the USA.

ⅲ. Eucalyptus

The company Arborgen has been testing some genetically modified E. urograndis in the southern USA, trees that include genes to be more frost tolerant. However, to date the US government has refused to license these trees for commercial planting, and this seems unlikely to happen under the new Obama administration. Arborgen has also been planting several other frost tolerant eucalyptus species, with the most promising being E. benthamii. To date, most planting has just been test planting, with the exception of commercial plantations established by MeadWestvaco in East Texas. Arborgen has provided estimated cost data for a dedicated plantation to be established in the US South, to produced fiber for biomass markets. At the current low prices for biomass, and assuming the mid‐level costs shown in the following table, this investment would have a negative IRR. Dr. Jeff Wright of Arborgen says that this illustrates the fact that, at least in the US South, planting dedicated biomass plantations with no subsidy, and at current low prices, is not an economic proposition. This means that, for this type of plantation to expand, either government subsidies must be provided (very unlikely in today’s political climate) or the price of biomass needs to increase. It is quite possible that, with demand for biomass for

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export increasing at such a fast rate, that biomass prices may increase, but at today’s selling price and the costs estimated below, we believe this means that eucalyptus biomass plantations are unlikely to become an important factor in the markets over the next 5‐10 years.

Table 15

US Southeast Eucalyptus Pulpwood 1st Rotation + Coppice Year Operation Low US$/ha Med US$/ha High US$/ha

All Land lease 80 160 320

0 Site preparation 100 200 300

0 Planting* 500 600 800

0,7 Weeding 200 250 300

1,8 Weeding 75 100 125

1,3,8,10 Fertilizer 125 150 175

7 Singling coppice 100 125 150

2,9 Weeding 0 75 100

All Administration 50 60 90

Harvesting Low $/BDT Med $/BDT Low $/BDT

7,14 Harvest 24 30 36

7,14 Transport (50 km) 8 12 16

Yield Low BDT/ha Med BDT/ha High BDT/ha

7 Harvest volume 70 98 106

14 Harvest volume 77 112 126

Stumpage Low $/BDT Med $/BDT Low $/BDT

7 Clearfell 20 25 26

14 Clearfell 20 25 26

* Note: "Planting" includes both the cost of the trees and the cost of labor to plant.

C. Brazil

ⅰ. Eucalyptus high-density planting

In a country where such a large volume of wood is consumed for energy, including significant volumes from dedicated biomass plantations, it is surprising that the science of growing trees specifically for biomass is still at such a relatively early stage. By this, we mean that despite years of research, recent measurements of higher density plantings are providing results that are surprising even to the scientists involved in this type of planting, and companies are today re‐thinking their strategy as to which is the best approach to take in growing eucalyptus for biomass. In this section, we discuss the higher density plantings, and in the following section we discuss the “normal” pulpwood rotations for biomass which are most typically used in Brazil.

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Much of the research on dedicated biomass plantations with higher density planting of eucalyptus has been done by Dr. Laercio Couto36. Dr. Couto is a well‐known consultant who was honored by the World Biomass Association in 2010 with their first World Bioenergy Award. For years he has advocated an approach that is essentially the same as that used for poplar in Europe, but on a shorter rotation (either two years or less). Among others, he convinced Suzano to try his approach in their wood pellet project in far northeast Brazil. However, the biggest trial plantation of high density plantings was that done by the Bertin Group in Sao Paulo state, with Dr. Couto’s help. Recently, Duratex (largest producer of particleboard and MDF in Brazil) has done extensive measurements of these plantations, which including planting densities ranging from 6,666 trees/ha up to 14,814 trees/ha. Basically, they have concluded (and Dr. Couto concurs) that biomass yield peaks at much lower planting densities in eucalyptus, due in part to high mortality at higher density plantings.

Table 16 gives some examples (measured at 2.7 years of age) of MAI by planting density for different clones. There are two interesting points in this table: that MAI for all clones peaked at the lower density planting, and that the influence of density on yield is markedly different for the different clones. This underscores the fact that even with extensive research in Brazil, companies are only beginning to identify which clones are best to use for this type of activity.

36 Laércio Couto [[email protected]].

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Table 16

Clone6,666 11,111 14,814

I 144 52 39 37I 224 57 49 35GG 100 60 53 51C 58 39 37 251277 45 34 33VM 01 44 34 34

Planting Density (t/ha)

Brazil Eucalyptus: MAI variation by planting density (m3/ha/yr)

When we visited this test planting in August 2012, both Duratex and Dr. Couto emphasized that even the 3.0m x 0.5m planting (6,666 tree/ha) is likely too high density, due to cost considerations. Currently, they are considering that 3.0m x 1.0m spacing (3,333 trees/ha) may be optimum, with perhaps 4 or 5 year rotations. However, a recent thesis by Erik Junior Paulino, a master’s degree student at the Federal University of Vales do Jequitinhonha e Mucuri, made an in‐depth assessment of the costs of dedicated biomass plantings of eucalyptus in different densities. As shown in Table 17, the only important difference in costs is due to the high cost of planting many trees per hectare, as would be expected. According to Paulino’s analysis, from an economic perspective the greatest net present value was with the 3.0m x 1.5m planting density (2,222 trees per ha), followed closely by 3.0m x 2.0m planting density (1,666 trees per ha).

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Table 17

US$ per hectareYear Activity

3.0x0.5 3.0x1.0 3.0x1.5 3.0x2.0 3.0x3.00 Site Prep 298 298 298 298 298

Planting 1626 895 598 448 295Ant Control 39 39 39 39 39Weed Control 129 129 129 129 129Fertilizer 154 139 136 132 129Other 120 120 120 120 120sub‐total year 0 2,366 1,620 1,320 1,166 1,010

1 Weed Control 63 63 63 63 63Fertilizer 330 330 330 330 330Ant Control 9 9 9 9 9Other 48 48 48 48 48sub‐total year 1 450 450 450 450 450

2 Fertilizer 146 146 146 146 146Ant Control 9 9 9 9 9Other 14 14 14 14 14sub‐total year 2 169 169 169 169 169

3‐7 Ant Control 44 44 44 44 44Other 70 70 70 70 70sub‐total years 3‐7 114 114 114 114 114Total all 3,098 2,353 2,052 1,899 1,742

Plantation Spacing

Comparison of Biomass Plantation Establishment Costs based on Planting Density


Higher density plantings require specialized harvesting equipment that is not readily available in all areas, and in fact equipment companies continue to test and modify equipment trying to improve harvesting efficiencies. On the other hand, harvesting of normal size eucalyptus crops is well established, with many contractors already having equipment that is ideally suited to normal pulpwood crops. In addition, if high density plantings are utilized, then the only crop that is possible is biomass fiber, whereas planting densities like 3.0m x 1.5m or 3.0m x 2.0m can produce trees large enough that they can be utilized for pulp, MDF or charcoal, which gives the forest owner more options. Since at least the initial work done in Brazil examining the economics of planting density seems to favor these lower density (or “normal pulpwood”) plantings anyway, we believe it is prudent for most plantation owners to start with this approach to dedicated biomass plantations. In the next case study, we look at the costs and management techniques for these “normal pulpwood” regimes.

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ⅱ. Eucalyptus pulpwood density planting

The large steel companies in Brazil have an estimated 1.0 million ha of eucalyptus plantations being grown to produce charcoal, and in addition a number of North American TIMOs have also been investing in eucalyptus for charcoal plantations for their pension fund clients. Basically these plantations are managed just like eucalyptus plantations being managed to produce fiber for pulp mills, planting about 1666 trees/ha, managing on 6 or 7 year rotation. We have sourced estimates of the economics of establishing eucalyptus plantations for charcoal in Minas Gerais state in Brazil, using an exchange rate of R$2.0225/US$ (average for October 2012). Given the cost estimates in the following table, an IRR of 16.2% would be expected, but of course this varies depending on the expected selling price for charcoal.

Table 18

Brazil Charcoal, Minas Gerais State

Year Operation Low $/ha Med $/ha High $/ha-1 Land Acquisition 807 1699 2378 0 Site Preparation, Planting, Etc. 680 764 1444 1 Fertilizing, Weeding, Protection 85 161 221

2-6 Protection, Maintenance 51 81 99 All Administration 42 51 76

Yield Low m3/ha Med m3/ha High m3/ha 6 Clearfell 240 270 290

Stumpage Low $/m3 Med $/m3 High $/m3 6 Clearfell 17 25 26


Several companies in Brazil are attempting to partner with major grain producers to install dedicated biomass plantations. The company Energia Florestal appears to be farther along than most, for example with 3,000 ha planted in western Bahia state to provide fuelwood for the soya processing plants of Cargill and Galvani in this area. The company plants 1,111 trees per ha, using normal planting and harvesting equipment. The trees are big enough at harvest that they could be sold as pulpwood, but given the relative distance to different customers, this plantation will produce wood only for biomass energy. Their expected IRR on this project is 14‐15%, growth rates average only 35 m3/ha/yr, lower than in some areas of Brazil due to lower rainfall. The management regime is basically the same as for pulpwood or for eucalyptus for charcoal, with weed control and fertilizer done at planting or within first year, but then just maintenance for the next several years. This company is projecting a 5‐year harvest cycle, but has not actually been through one full cycle, so we consider this slightly shorter rotation to be speculative at this point.

An Israeli biotech company Futuragene has been trialling genetically modified (GM) eucalyptus and poplars in Brazil, Israel and China and reports it is now in the final stages of the regulatory process for commercial planting in Brazil. The process uses a gene from the fast growing Arabidopsis weed to

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stimulate growth. The company reports that it can achieve a growth of five meters per year for eucalyptus in Brazil, and can produce 20‐30% more wood than existing biomass eucalyptus crops. It suggests it can reduce a seven year rotation to 5.5 years with the same volume. It expects to commence commercial plantings in 2015. This company is 100% owned by the Brazilian pulp producer Suzano.

D. Africa

ⅰ. East Africa Eucalyptus

The majority of wood harvested in many African countries, including East Africa, is used as firewood. Most/all of this remains sourced from natural forests and scrubby bushes. We have not yet identified any dedicated woody biomass crops being grown in East Africa (or any other African countries for that matter).

However the company which has planted more plantation areas in Africa (other than in South Africa) than any other, London based Norwegian company Green Resources A/S, was considering growing a woody biomass crop in northern Mozambique for later shipments of woodchips, or pellets to Europe. Green Resources has a major plantation project along the “Nacala” corridor, around 270 kilometres from the northern port of Nacala (one of the best natural harbours on the Eastern coast of Africa). Its subsidiary operating the concession is Lurio Green Resources. In 2011 it had not yet started planting a dedicated biomass crop, but in late 2011 Dennis Neilson discussed a “proforma” tree farm economics case study with Green Resources, and this case study was produced in the 2012 RISI Tree Farm Economics Review, and is reproduced here. It was based on planting and managing a 3 x 5 year E camaldulenis coppice rotation plantation. It suggested a mid‐ range data IRR of 6.7%, although this was based on very much estimated biomass fibre prices, and so is problematic.

Table 19. Mozambique Eucalyptus regime

Year Operation Low $/ha

Med $/ha

High $/ha

0 Site Preparation Planting Etc 898 1056 1214 1 Road ‐ Fire ‐ Map 47 55 63 2 Road ‐ Fire ‐ Map 29 34 39 3 Road ‐ Fire ‐ Map 22 26 30 4 Road ‐ Fire ‐ Map 19 22 25 5, 10 Road ‐ Fire ‐ Map 19 22 25 5 Coppice control 13 15 17 6, 11 Weeding 13 15 17 6, 11 Road ‐ Fire ‐ Map 14 17 20 7, 12 Road ‐ Fire ‐ Map 14 16 18 8, 13 Road ‐ Fire ‐ Map 13 15 17 9, 14 Road ‐ Fire ‐ Map 12 14 16 10 Coppice Control 13 15 17 All Administration 85 100 150 All Land Lease ‐ Community 12 17 22

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Yield Product Low m3/ha

Med m3/ha

High m3/ha

5,10,15 Biomass 110 124 150

Stumpage 0 Low $/m3

Med $/m3

High $/m3

5,10,15 Pulpwood 10 13 20


However, in 2012 Green Resources engaged ex‐ German company Choren woody biomass specialist research Michael Deutmeyer as its Biomass Crop Manager. He has recently made several trips to Green Resources operations in Mozambique and to Tanzania and Uganda; and in late 2012 he reports that he is recommending that Green Resources does not grow dedicated woody biomass crop, nor even a dedicated pulpwood crop, but indeed the highest possible value crop, including sawlogs and poles; and only use the low value resides as pulpwood or as biomass. He reports that Green Resources plans to establish 127,000 ha of plantations in this region, starting in 2012 with 1,500 ha and then to 3,500 ha per year. He predicts pulpwood/biomass residues available from 15,000 green tonnes in 2014; and increasing to 60,000 green tonnes in 2017.

At least three other companies are involved in hardwood plantations and/or its woodchip export/near Mozambique ports, including:

Sojitz with its new woodchip export company at Maputo port South African company Komatiland in Manica province South African company IFM about 170 km from the port of Beira

ⅱ. West Africa - Rubberwood

We have not identified any examples of companies actually growing dedicated woody biomass projects in West Africa. However, over the last 5‐6 years, two companies have established “defacto” dedicated rubberwood biomass woodchip export trade operations. They include:

Buchanan Renewables in Liberia: In 2006 some small entrepreneurial UK‐Canadian traders established an operation to harvest over‐mature rubberwood trees near the town and port of Buchanan in Liberia, to chip the trees and to export the woodchips to a range of possible markets. Much of Liberia is covered with over mature rubber trees, and Buchanan claimed access to 600,000 acres (240,000 ha). In 2007, the majority ownership was bought out by a Swiss based Canadian billionaire who had a passion to help resolve Africa energy shortages, and had a strategy to turn poor African nations like Liberia into self‐sufficient, 100% renewable energy countries by burning biomass. He planned to export chips for some years, then to build a series of biomass power stations in Liberia to replace very expensive diesel generated power. Co‐author Dennis Neilson visited the operations in 2008 and travelled with the CEO looking at several possible markets for rubberwood chips, or lumber in Europe, Turkey and Asia.

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However, in 2010 Swiss based European wide electrical utility Vattenfall and Swedish Government fund Swedfund purchased a major share of Buchanan, and set about paying off debt and establishing a strategy to export several hundred thousand tpy of rubberwood biomass wood chips to selected markets, including to a major project to turn the City of Berlin, Germany mostly renewable energy self‐sufficient. However, after sinking 120 million Euros into the project, Vattenfall finally walked away in 2012, and reportedly lost its 120 million Euro investment. The major reason it gave was German Green resistance to importing these woodchips; and also mentioned quality and high moisture content (it rarely stops raining in Buchanan). German Greens had labelled the project destructive to forests and effectively exporting poor African’s jobs – it appeared that Vattenfall had put Buchanan’s earlier plan for domestic biomass power, and/or Vattenfall had mishandled internal Liberian politics related to construction. However, the real reason for walking away was probably the realisation that at current landed woody biomass prices (and low coal prices) in Germany and Europe, the project could simply not stand the high production and shipping (and then internal transhipping) costs. To stay would have just meant pouring more good money after bad. In late 2012 the major Canadian shareholder had engaged a (Canadian) agent to try to sell the project and the company.

Africa Renewable (AfriRen) in Ghana: In 2010 a UK‐based company was formed to harvest over mature rubberwood trees and chip and export woodchips, initially from Ghana and then from Ivory Coast and possibly later from Nigeria. AfriRen was formed in association with a rubberwood owning company, Ghana Rubber Estates, which has 12,900 ha of rubberwood in Ghana. AfriRen’s Ghanaian subsidiary is Takoradi Renewable Energy (TREL). Its first contract was with the Danish community power company Verdo Energy, which supports a 100 MW combined heat and power plant in the city of Randers. It commenced shipping in 2012 and was hoping to reach 200,000 green tonnes per year in 2‐3 years, and then to expand.

There are recent reports that at least one Ghanaian land concession holder intends to start importing clones of eucalyptus to a “sizable” planting project in Ghana. One company expects to plant more than 5,000 ha per year, and increasing. US TIMO Global Environmental Fund has a very large land concession in Ghana. It is too early to determine what end use these Ghanaian project managers have in mind – whether sold wood, pulpwood, or for domestic or export woody biomass energy use.

E. Other

In Chile, Greenwood Resources has initiated a project to plant 7,000 ha of dedicated poplar plantations. While their test plantings have ranged from planting 3,000 trees/ha to 11,000 trees/ha, with rotations of 2‐5 years, they seem to have settled on two regimes: 5,000 trees/ha with a 2‐year rotation, or 3,300 trees/ha with a 3‐year rotation. Planting is done during the winter months in Chile, primarily July‐September. For 2 year cropping, they plant sticks 25cm long, leaving only an inch or so of wood above the soil. But depending on soil, water conditions, rotation length, etc they plant sticks up to 1.2 m long. After 2 years, the trees should be 10m high. They plan to grow for 5 rotations. Greenwood claim they are currently producing 40‐53 BDMT/ha/yr over a 2‐year cycle, or 20‐26 BDMT/ha/yr. Their “target” is 50 BDMT/ha/yr, which seems VERY ambitious. However, we note that most of their results are from

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“test plantings”, which always have higher yields than operational plantings, which are just now getting started (the company reports planting 1,000 ha in 2012). Since this project is really just getting started at the commercial scale, we do not have any reliable cost figures to report.

2. Subsidies

A. Summary of incentives currently available

ⅰ. Europe:

Subsidies can come in three forms. These include:

• Direct subsidies to land owners or tree growers to cover part of the cost of (generally) the establishment of the first crop. This has occurred for instance in Germany. Also in Europe there is a general farm subsidy which is paid every year to farmers no matter what they grow.

• Feed‐In tariffs (and in the UK, associated but a different form of FIT ‐ called Renewable Obligation Certificates or ROCs). These enable power companies to charge more for renewable power produced. Theoretically, these could enable them to pay more for renewable power raw material such as dedicated woody biomass fibre, but that may not occur (and certainly will not in a completive market).

• Carbon charges. These act as a “negative tariff “and may drive power companies into using more biomass.

Examples of these three include:

Direct Subsidies: A feature of direct subsidies can be their complexity and uncertainty about who can claim and does claim them, whether they will actually be paid, even if they are “on the books” and a Government’s propensity to keep changing them. In Germany in 2011, we were advised that subsidies for growing dedicated biomass trees was then 322 Euros per ha, but this was likely to drop to 200 Euros per ha past 2013. Then in late 2012 we were told by one consultant that establishment subsidies were available in 10 of the 16 Lander (States) in Germany. Specifically these subsidy levels could vary from 30‐45% of establishment costs. These would cover site preparation, initial weed control, plants and planting (which might cost 2,300 ‐ 3,000 Euros per ha in total. In addition there are the “standard” agriculture subsidies which might be 300‐400 Euros/ha/yr. But what this consultant was not so sure about was who actually ended up getting paid the various subsidies (if at all) ‐‐the land owner or the tree owner? Then another experienced consultant and a manger said that he did not know of any Lander which actually paid out subsidies, even if they had them on their books – especially those Lander which were in financial difficulties (this situation also occurred in Argentina – where promised subsidies were either not paid, or only partly paid). This consultant (and we) advise to ignore subsidies when considering the viability of a dedicated woody biomass project.

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Feed‐In Tariffs (FITs): These are also fairly new and keep being changed. A commentary on German FITs recently received from some of our German sources follows:

In Germany, the feed‐in tariff system was first introduced in 2000 and has since then amended in 2004, 2009 and 2012. The latest amendment applies to all power plants which were commissioned after 1st January 2012 [those commissioned before 2012 have been grandfathered – the new FITs are more attractive to short rotation coppice biomass]. The tariff consists of a base fee for biomass usage (this includes also fresh timber as well as shavings, but no recycling wood) and a bonus fee for special biomass assortments (only fresh timber, but no shavings or by‐products of the timber industry).

The fee is dependent on the pro rata power class of the power plant and the appropriate raw material class. The fee is paid proportionate to the ratio of the respective power class of the whole power plant. (e.g. a 400 kWel37 power plant receives the base fee of 14.3 €ct/kWh for the capacity until 150 kW and 12.3 €ct/kWh from the capacity range from 150 to 500 kW) .

Table 20. Germany Feed‐in Tariffs

Power class until 150

150 until 500

500 until 750

750 until 5000

5.000 until 20.000

[kWel]

Base feea: 14,3 12,3 11 11 6 [ct/kWh]

Bonuses: raw material classification Ib + 6 + 6 + 5 + 4 + 0 [ct/kWh]differing for bark & forest residues

+ 2,5 +2,5 [ct/kWh]

raw material classification IIc + 8 + 8 + 8 + 8 + 0 [ct/kWh] Pro rata fee RMC I 20,3 18,3 16,3 15 6 [ct/kWh]for bark & forestry residues 20,3 18,3 13,5 13,5 6 [ct/kWh]

Pro rate fee RMC II 22,3 20,3 19 19 6 [ct/kWh] a... for electricity from biomass (no recycling wood), at least 60% of the power is generated with combined heat and power plants

b... wood from short rotation coppice, energy crops, grass, wheat (whole plant), bark & forestry residues c. wood from short rotation coppice (not cultivated on green fields or conservation areas, cohesive area smaller

than 10 ha), material form landscape management

So, small and medium sized plants are favoured in the new renewable energy law (Erneuerbare Energien Gesetz ‐ EEG), as well energy crops and residues form landscape management. In total more than 1 GWel of EEG power plants using woody biomass are currently operated in Germany. Most of them are decentralised and use combined heat and power plants.

37 kWel refers to kWh of electricity, to distinguish from kWh used to produce heat.

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These really favor small biomass projects, although biomass is treated more favourably than some other renewable source, e.g. ~20 €ct/kWh for dedicated biomass versus 9 €ct/kWh for offshore wind, 18 €ct/kWh for onshore wind and 13‐14 €ct/kWh for sawmill residue. One consultant suggested that these FITs mean that a woody biomass buyer could afford to pay an extra 50 Euros per BDMT for woodchips than the current prices being paid, of 90‐95 Euros per BDMT. However, as long as buyers do not have to, they won’t, but instead will pocket the money themselves.

[Note: German and UK observers have looked at the ”hugely high Japanese FITs”, especially for biomass, and wonder if it will be possible to grow woody biomass in Africa for export to Japan – see table on Japanese Feed‐in Tariffs below.

In 2012 the UK Government has established a set of “subsidy” rates which may provide some stability in the planning process of these and other renewable energy investments. These define various forms of renewable energy and “Renewable Obligation Certificates” (ROCs), which are effectively subsidies to utilities. Deloittes in 2012 valued a 1.0 ROC at 42 UKP/MWh (about US$67/MWh).

Table 21. Proposed ROC allowances from 2013 in the UK include

ROCs per MWh Current Band From April 2013 Co (Firing Standard, <50%) 0.5 0.3 (0.5 from 2013) Co (Firing Mid‐range, 50‐85%) ‐ 0.6 Co (Firing High‐range >85%) ‐ 0.7 (0.9 from 2014) Biomass Conversion ‐ 1 Dedicated Biomass 1.5 1.5 (1.4 from 2016)

Source: HW, UK DECC 2012

While there has been some improvement from most previous ROC allowances, the subsidy is still only a fraction of the planned Japanese FIT rates of >US$300/MWh for biomass use. The very high Japanese FIT for biomass has not escaped the attention of several international observers. Some have even speculated that this level of FIT may have been deliberately established by the Japanese government to send a clear signal to “anti‐ nuclear” power consumers just how high the cost shutting of down so many nuclear plants is to Japan.

These current ROC ranges in the UK really favor the use of dedicated biomass crop. But to be allocated this ROC status, approval must be given by the regulatory agency Ofgem before planting starts. And, importantly no one in the business (consultants or Ministries/agencies) has been able to provide a definitive answer as to whether dedicated biomass plantations grown offshore from the UK will be eligible for UK ROC subsidies. This uncertainty will not help offshore dedicated woody biomass plantation development. In addition, the UK specifically excludes eucalyptus from consideration as an “energy crop”, and we know that other plantation subsidies in Europe (which include Portugal and Spain, with significant eucalyptus resources) also exclude eucalyptus. It is clear that, for political reasons, eucalyptus is seen as problematic when it comes to public funding.

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Carbon Charges: An example is in the UK, where a “Carbon Price Floor” will come into force in 2013. This aims to provide greater certainty to investors in renewable electricity. Generators will pay for the carbon emissions of their fossil fuel feedstock.

• The Carbon Price Floor starts in 2013 at £16/tCO2 and rises to £30/tCO2 in 2020 and potentially to £70/tCO2 in 2030 (all at 2009 prices) • Coal fired generators will pay a levy of ~£12/t of coal in 2013/14, rising to ~£23/t in 2014/15 • One effect will be to make most (all?) coal‐fired electricity generation uneconomic within a

few years unless they install CCS or convert to biomass

ⅱ. USA

At the federal government level, the mandate for blending cellulosic ethanol provides an incentive for the use of “cellulose”, but this does not necessarily mean wood, and there is no requirement for the wood to come from dedicated biomass plantations. Thus, this mandate for biofuels is considered only marginally influential in encouraging new planting. The Biomass Crop Assistance Program, under the US Department of Agriculture, does provide some direct subsidy for establishment of biomass plantations. (BCAP provides an estimated 75% of the establishment cost, see previous discussion in the section on USA case studies, above.) However, through 2012 this BCAP program is only supporting two woody biomass projects, the SUNY Willow project (1,410 ha) and the Greenwood Resources poplar biomass project (3,225 ha). This is such a small area as to be meaningless, at least in the short term. With the current political climate in the USA, it is very unlikely that any significant new subsidies will become available to support dedicated woody biomass planting in the foreseeable future.

ⅲ. Other

CONAF, the Chilean forest service, has a subsidy for establishing dedicated biomass plantations, and the subsidy is 75% of what they consider the average establishment cost of Chilean Pesos800,000/ha (roughly US$1,670/ha at the average exchange rate on Nov. 5, 2012). This assumes 3,300 trees/ha of E. globulus. The subsidy only applies to E. globulus, and only on forestry soils, and only on lands not currently planted to trees. Thus, most industry experts consider that this subsidy is very restrictive and will not be taken up by too many small landowners, and will only be used on marginal lands. But the Chilean Instituto Forestal claims there are 1.0 million ha of lands like this available in Chile.

The new Japanese Feed‐in Tariffs are another example of government subsidies that can support expansion of demand for biomass fiber (Table 22).

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Table 22. Japanese Feed‐in Tariffs from July 1 2012

Renewable Tariffs in Japan

Years JPY/kWh103.374 Euro/kWh

1.299 CAD/kWh

1.315 USD/kWh

Wind 20<20 kW 57.75 0.559 0.725 0.735>20 kW 23.10 0.223 0.290 0.294Geothermal 15<15 MW 42.00 0.406 0.528 0.534>15 MW 27.30 0.264 0.343 0.347Hydro 20<200 kW 35.70 0.345 0.448 0.454>200 kW <1MW 30.45 0.295 0.383 0.387>1MW<30 MW 25.20 0.244 0.317 0.321Photovoltaics<10 kW for surplus generation 10 42.00 0.406 0.528 0.534> 10 kW 20 42.00 0.406 0.528 5.340Biogas from sewage sludge and animals 20 40.95 0.396 0.514 0.521Biomass (solid fuel incineration)Sewage sludge & municipal waste 20 17.85 0.173 0.224 0.227Forest thinnings 20 33.60 0.325 0.422 0.428Whole timber 20 25.20 0.244 0.317 0.321Construction waste 20 13.65 0.132 0.171 0.174Approved 18 June 2012

Effective 1 July 2012

3. Examples of “successful” dedicated woody biomass plantations

A. Which are considered successful?

To date, almost all of the species of dedicated biomass (with a possible exception of Brazil) grown globally are annual and perennial non‐woody species. The area in woody biomass (tree plantations) in the world would be a low single figure percentage (1‐2%), and this is not changing quickly.

Although there has been an increasing amount of publicity and in many cases over‐optimistic claims made about the opportunities to develop industrial scale, profitable woody biomass projects, to date our investigations have probably identified more disappointments and outright failures than “success stories”.

One potentially huge “indirect” woody biomass woodchip export project in Liberia has effectively failed, losing its major shareholder 120 million Euro38.

38 The export of rubberwood chips from Liberia is not really a “dedicated woody biomass plantation” as the trees were not established for that purpose. But we include it here as an example of a biomass supply project that

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A major combined woody biomass plantation and bioenergy project in Germany failed, losing its major shareholder 80 million Euro.

German utility RWE’s multi‐year attempt to build up a large woody biomass plantation resource in Germany has failed.

The optimistic start to a large woody biomass plantation industry in Sweden from the 1980s quickly fizzled out, and the net area has not increased for many years.

Recent optimistic plans for Suzano to plant very large areas of woody biomass plantations in Brazil and to ship huge volumes of wood pellets to Europe has apparently stalled, with some biomass plantations established but no hint of any pellet production facilities.

Plans for large scale woody biomass plantation development in the UK have largely failed.

Expectations that large woody biomass plantations would be established in Africa to feed massive new green woodchip biomass power plants in the UK have not eventuated to date.

The much published and long standing (20 year) US Government attempts to encourage a large woody biomass industry in the USA has effectively failed, with the total area remaining at less than 2,000 ha in 2012, and unlikely to expand to more than 5,000 ha over the next several years.

Despite the lack of “success” to date, it is important to highlight that it is not correct to label all current attempts at dedicated woody biomass plantations as “failures”. As we have pointed out, in Brazil the growing of trees for charcoal or energy wood is well established, using eucalyptus. But in other regions, it is possible that some current efforts will be successful, but it is still “early days”, that is, the projects have not been in place long enough for us to pronounce them as either success or failure. For example, despite the stagnation in Sweden’s dedicated woody biomass programs, and the failures with RWE and others cited above, it is certainly possible that new projects being implemented in Hungary (by Regions Timberlands) or Poland (by Greenwood Resources) will be successful‐‐‐ but at this point, they are really just getting started and it is too soon to know if they will succeed.

Similarly, while short rotation coppice willow plantations have been tested experimentally for 20 years or more in the eastern USA, the new BCAP‐funded project of SUNY and ReEnergy Holdings is the first large‐scale commercial plantation to be established. At present, it seems this project can only succeed because of government subsidies, and in the USA such projects cannot be deemed successful because there is no long‐term commitment to continue such subsidies for new plantations. The same logic applies to the Greenwood Resources poplar plantations in Oregon ‐‐ these may be successful over time, but it will only be because of those one‐time government subsidies.

seemed to be very solid, and a logical source for European power companies. However, this demonstrates the difficulty of producing biomass for overseas customers, even when the wood is basically “free” at the stump.

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Even in Brazil, the dedicated biomass plantations deemed “successful” are almost all being grown as standard pulpwood crops, and the higher density plantings using shorter rotations and specialized harvesting equipment are still really just in the experimental stage.

This lack of success in dedicated biomass plantations, and the fact that most development is still at a stage where it is too early to tell which will succeed, was one of the key findings of this study, and was frankly a surprise to the authors. The bottom line appears to be that, at today’s level of experience with this type of plantation, the most successful operations are those using familiar species, in a standard pulpwood regime, and harvested at pulpwood age with standard logging equipment. If the best market for that wood is for biomass (either for direct burning or to make wood pellets), then these could be considered “dedicated” biomass plantations; but if the best market is pulpwood, for either pulp or wood‐based panels, then they are really just pulpwood plantations. At least in today’s market, the key to “success” is to maintain flexibility in market opportunities, and to avoid making potentially expensive mistakes in radical new planting regimes, or depending on unproven harvesting equipment.

B. Importance of “co-products” for dedicated biomass energy plantations

Part of the future success of dedicated biomass energy plantations may be the ability to accrue economic benefits in addition to the sale of biomass fiber for energy production. These additional economic benefits could include:

Carbon credits – depending on the location, and on existing vegetation prior to establishment of the woody biomass plantations, it may be possible for new biomass plantations to qualify for carbon credits. At the moment, carbon prices are so low that this may seem inconsequential, but prices could move higher in the future. In addition, carbon credits may be of value to some corporations seeking to minimize their carbon footprint.

Oil and other pharmaceutical products can be derived from some species of eucalyptus, and possibly from other species.

Salinity mitigation, e.g. in Australia with plantings of Mallee (Eucalyptus stricta). Improvement of water quality – in some locations this may be a consideration. Both poplar and willow have also been used in waste‐water treatment plantings.

Soil improvement, either by use of nitrogen fixing species, or by recycling of nutrients with leaf production.

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Ⅵ. Outlook for Future Development of Dedicated Woody Biomass Plantations

1. The vast majority of current international trade in biomass fiber for energy production is in

wood pellet form. We conclude that the present cost ‐ price balance for the major wood pellet market in Europe is unsustainable. The “big six” huge European utilities have been very successful in holding landed pellet prices constant for several years while production costs are increasing. However, we believe that they will not be able to defy gravity for much longer. Prices must rise as demand is increasing much faster than the available resource. There are some unofficial indications now that (confidential) contracts are being signed at above “published” prices for 2013. But if biomass energy is to increase as expected globally, then either a much larger portion of the existing timber supply will flow to energy (at the expense of the current forest products industry), or biomass fiber supply will have to be increased through efforts such as dedicated woody biomass plantations.

2. Changes to European government regulations have encouraged/forced major utilities to rethink the decision of using biomass in co‐firing with coal (with a small percentage of biomass) and instead look at a total, 100% conversion to biomass as the only alternative to closing the facility. This on balance should really increase wood pellet demand dramatically; and in 2012 ‐2013 there is an absolute scramble for supplies in a few US South states and Canadian provinces by European utilities. Analysts who have attempted to match burgeoning woody biomass demand for pellets with realistic supply volume forecasts mostly arrive at a “big black supply hole” conclusion. In other words, there does not seem to be enough wood fiber available to meet the potential demand, at least at prices which the market seems willing or able to pay.

3. Until recently, almost all woody raw material to make wood pellets has been sourced from

cheap (or sometimes free) wood residues from processing operations, or from the massive beetle kill in Canada. It is only in the past couple of years that some of the new, very large wood pellet producers in the US South have begun to use pulpwood. As the wood pellet trade to Europe expands, most of the new production capacity will also be based on consumption of pulpwood rather than sawmill residues, which means that competition with pulp mills and OSB plants in the South will begin to push up prices for pulpwood.

4. Most/all woody biomass plantation projects, no matter where they are located, and whatever species are used, will mostly require flat or gently rolling land, with average to good soils, and with access to adequate water supplies. These are exactly the requirements of agricultural, including food oil, crops. Thus woody biomass projects will commonly be in direct competition with alternative land use projects. There may be some promoters who may claim that some woody biomass species can do well on poor soils, and in areas of low

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moisture – claims made by Jatropha promoters 5‐10 years ago, and which have turned out to be false. The reality of growing trees and other biomass crops is that low quality site conditions lead to much lower yields, which adversely impacts the economics of the project.

5. But it is exactly this potential land‐use competition between biomass and agriculture that has led to relatively wide‐spread opposition to biomass energy support in Europe and in parts of the USA.39 There are hundreds of articles and web sites that can be found on the internet with essentially the same theme: increasing biomass energy means taking land out of food production, which means higher food prices globally. Also, the opposition to biomass claims that burning biomass for energy actually increases carbon emissions, by encouraging cutting of existing forests just for energy production, so this makes climate change even worse than, (some claim), using coal. For the purposes of this report, the fact that wide‐spread opposition to biomass energy exists and makes these claims about biomass energy means that

a. There should be a much greater demand in the future for biomass fiber from dedicated energy crops, including woody biomass from tree plantations, because these crops will already have absorbed the carbon from the atmosphere that will be released through burning. That is, there should be no question that in this case the biomass energy will be “carbon neutral.”

b. That great care must be taken in selecting sites, and countries, for developing dedicated woody biomass plantations, to ensure that energy crops do not adversely impact food production to any great extent (see section below), or result in the clearing of native forest, which would tend to increase carbon emissions.

6. The earlier optimism that governments could almost unilaterally impose major cost

increases on power consumers in the name of saving the planet, or encouraging renewable energy worked while Europe and the USA were on an economic roll with cheap credit and rapidly increasing house prices. They mostly thought it was worth the costs to reduce CO2 emissions. However, with major countries/regions now in financial crisis, and likely to be for years, their citizens may no longer be prepared to mildly accept rising power/heat prices, while utilities make billions of dollars in profit by manipulating government carbon rules. As this report is being finalised, the EU is fighting over whether to increase or reduce its budget for renewable energy in the face of country by country austerity measures.

7. Many of the early woody biomass projects (and some current ones) have depended on generous government subsidies for establishment. But these change as any subsidies do – for instance German subsides are either reducing, or may indeed not be being paid in some regions. Given the concerns about financial crisis cited in the above paragraph, the security of subsidies may be of increasing concern.

39 For example, see http://climate‐connections.org/2012/09/21/groups‐denounce‐biomass‐economy‐on‐international‐day‐against‐tree‐plantations/.

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8. Various Governments have been continually tinkering with FIT or ROC allowances – e.g. the German Government four times since 2000; the UK government several times, and even the Japanese government recently changed the basis of its policy. This does not instil confidence into any companies relying on a stable policy environment to invest in long term woody biomass plantations.

9. More recently several governments have been introducing “Feed‐In Tariffs” (FIT) differentials (or equivalent like ROCs in the UK) to try to encourage the expansion of certain renewable energy sources. While FITs may enable utilities to pay more for raw material, they are not compelled to do so (and won’t unless forced to by regulation or by market forces). For example, a particular Feed‐in Tariff might be set at a level where a power producer could be able to pay, say, $250/tonne for wood pellets. But if wood pellets are available in the market at $180/tonne, the power producer will pay only $180. The point is, analysis of the economics of dedicated biomass plantations must be based on the balance between demand and available supply, and reflect expected market prices. The analysis should NOT be based on what the power company could potentially pay under a given Feed‐in Tariff or other subsidy regime.

10. However, in the last decade there has been a large amount of research and development work, including planting and harvesting machinery design and modification being undertaken, especially in Europe, the USA and Brazil.

a. This includes work on species and specific clone selection and breeding for both temperate and some tropical species; and in optimising spacing to maximize fiber production.

b. Recent work in Brazil has been summarised in this report. While some in Europe favor very high stockings (10,000 to 13,000 trees/ha and suited to standard agricultural machinery), others e.g. in Brazil have recently discovered that their plans for very high stockings are better modified to reduce spacing.

c. US‐based investors planting in Europe also seems to favor “pulpwood” type stockings.

d. One very experienced UK based forest management consultant strongly favours modified pulpwood stockings over very high density “biomass only” crops, and is advising his clients accordingly.

11. There apparently has been only minimal work done on tropical woody biomass crops

suitable to the Asian situation. However, this may not prevent some entrepreneurs from trying to develop large scale biomass projects in Asian countries (especially Indonesia), without regard to scientific/technical and commercial/economic disciplines. For example, several Korean companies have signed agreements to develop biomass plantations in Indonesia, although as discussed below these projects are problematic due to the clearing of native forest prior to plantation establishment.

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12. The Korean Government seems to be very serious about a wholesale switch from coal to renewable energy in the next 5‐10 years. Korea is one of the world’s largest coal consumers. To do this it will need huge volumes of wood pellets: from 4 million to more than 12 million tonnes per year depending on assumptions; and a whole lot more if Korean utilities and industries adopt the recent UK “100%” pellet use strategy rather than the old 10% co‐firing strategy. However, we do not believe that the government or industry have not yet properly thought through where these might come from or at what cost. Its first efforts have been to tender for pellets ship by ship. This strategy will fail to encourage any company to invest in woody (or non woody) plantations. It will learn.

13. International (non ‐ Japanese) observers are unsure what direction Japan will take in regards to future woody biomass demand; and how much could be sourced domestically and how much might be imported. With such a massive shock to all components of Japanese society in 2010, it is not surprising that it will likely take several more years to establish a new set of energy rules, which will be sustainable.

14. In 2012 we conclude it is still very speculative for any company to invest in large scale woody biomass crops in Asia, given the uncertainty of species – growth and importantly market volumes and prices in future. However government support, including assurances of long‐term subsidies and willingness to establish long‐term contracts may change that view.

15. Our overall conclusion on dedicated woody biomass plantation development is that very few investors around the world are likely to be willing to invest in new plantations where the only product is biomass fiber. In cases where premium subsidies are available for use of biomass from dedicated energy crops (above the subsidy available for biomass from residues or forest thinning, etc.), and in cases where long‐term, guaranteed take‐or‐pay contracts are available to ensure a market at prices high enough to be profitable, investors may be willing to establish dedicated woody biomass plantations. In a few cases, where governments are willing to pay excessive direct subsidies for dedicated woody biomass crop establishment, investors may also be willing to follow this regime. However, given investors normal aversion to risk, and the great uncertainties that surround the biomass market (both in terms of certainty of long‐term financial support, and certainty as to how to grow dedicated energy crops), we believe that the vast majority of investors will focus on developing pulpwood rotations, where the crop (or the residues) can be used for energy, but will also have other established markets.

1. Which species will be most commonly utilized?

From our research, we conclude that there it is highly unlikely that any “new” species of tree will emerge that will suddenly become a major new force in dedicated biomass plantation establishment. The reality of plantation forestry is that there is a long learning curve for utilizing new species, or even

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proven species in new locations. Developing efficient propagation techniques and large‐scale nurseries takes time and extensive investment. Selection of clones to match sites and growing conditions also takes time. Promises of “super‐trees” that can radically change the economics of wood fiber growing almost always prove to be false. Thus, we conclude that dedicated biomass tree plantations will be based on well‐known and proven species, and will differ by country depending on growing conditions.

For example, poplar and willow have been well‐studied, with many new clones developed, for use in temperate climates like western Europe and the northern parts of the USA. These will continue to be the dominant species used in dedicated biomass plantations in these regions, but of course would not be at all appropriate for tropical or sub‐tropical environments.

Various species of eucalyptus will also be utilized for dedicated biomass crops. In Brazil this will mean various clones of E. urograndis in some regions, but because growers will also seek to utilize harsher sites where possible, this may mean greater utilization of clones based on E. tereticornis or E. camaldulensis, both of which can tolerate prolonged drought periods.

We do not believe that pine will be utilized for biomass‐only plantations, although of course pine plantation management can be modified to include a larger number of stems to generate biomass at first thinning. In general, dedicated biomass plantation development will be based on fast‐growing hardwoods.

In parts of Southeast Asia, various species of acacia may be used, as these are also widely planted already for pulpwood. Some other species like albizzia might also be utilized.

However, the key to species selection will really come down to the level of risk that investors are willing to take on for establishment of biomass‐only plantations (see above discussion). If we are correct that most investors (including Japanese paper companies) will continue to focus on growing standard pulpwood crops (whether the wood eventually is used for pulp or for energy), then it is clear that most “biomass plantations” will continue to use the dominant pulpwood species such as eucalyptus and acacia.

2. Which countries will likely see the most investment in dedicated wood biomass plantations, and why?

A. Brazil

We think clearly that Brazil will by far be the largest investor in woody biomass plantations in future. This is because:

• It has had decades of experience in growing specific high density species with high energy content for the manufacture of charcoal – an essential raw material in its pig iron industry

• Huge expansions in agricultural development in several states means that major new resources will be required for energy to dry some of these crops before shipment, e.g. soy beans. Even

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without this expansion, more woody biomass plantations will be required to substitute for traditional native wood, which will be phased out.

• Brazil has a massive and hugely successful fast‐growing hardwood plantation industry for pulpwood; and by far the leading edge research and development strength in breeding and management. These strengths can easily be adapted to ensure Brazil keeps to the forefront of woody biomass plantation development, and already is.

• Brazil still has large areas of low cost land available in some northern provinces, much of it close to or with rail access soon to deep water ports. Of all counties, it is ideally placed to grow low cost woody biomass for shipment to Europe (as pellets), particularly if pellet prices increase.

B. US South

• The US South has both the land area and a culture of free market regular land use changes (e.g. from forest to tobacco and cotton and back to forest, and now increasingly back to agriculture) to potentially allow very large areas of woody biomass crops to develop. However, they will have to compete with increased agricultural demand. Already some companies are changing land use from trees to agriculture after felling; and one major fund manager is raising part of a $400 million fund to do just that.

• Some European poplar producers are trying to attract investment in dedicated poplar biomass plantations in the US South, as a way to guarantee both regular supply of biomass at expected prices and to guarantee that the fiber is from a known, legal source and thus can be exported to the EU for bioenergy.

• Given the relative proximity of the US South to the key biomass demand market of Europe, and given the long history of industrial tree plantations in the US South, this region seems to offer good opportunities for dedicated woody biomass plantation development.

C. Southeast Asia

• Indonesia might become a major contributor to woody biomass – it still has the land to develop large concessions – but again woody biomass will have to compete with palm oil and other crops. Several Korean companies have targeted Kalimantan and Papua as good regions to invest in dedicated biomass plantations, to produce wood pellets for export back to Korea. However, since these projects have tended to target areas where native forest is to be cleared prior to plantation establishment, it is quite possible that opposition from NGOs could develop in the future, which raises the risk on some of these investments. But, there is enough degraded land available in Indonesia that, if done correctly, large scale dedicated biomass plantations could be established. (However, as stated above, it is much more likely that these plantations will consider a range of products, and not just biomass only, in order to reduce risk and increase profitability.)

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• Other countries in Southeast Asia have attracted considerable investment in fast‐growing hardwood plantations, primarily for pulpwood production. But unless either Korean or Japanese government subsidies provide a premium for the use of biomass fiber from “dedicated” plantations, we see no reason why new plantation development will not continue to target pulpwood, or “mixed” (pulpwood for the base of the tree, biomass fiber for tops and branches) plantations, rather than any type of dedicated biomass plantation.

D. Africa

• The East coast of Africa ‐ particularly Mozambique‐‐ could potentially allow large areas of woody biomass to develop, but if for exporting the plantation resources will need to be close to the ports. There are several pulpwood growing companies with experience already there, and extensive land areas have already been leased at very low prices. The key reason why this region may be targeted for biomass plantations is the very low price of land, which is unique in the world today.

• Some “frontier” West Central African countries might have some promise, including Ghana and Democratic Republic of Congo (one UK investor claims to have some rights over 1.0 million ha of contiguous land in DRC and was wanting to develop a joint forestry – agriculture project). However, given the instability in some of these countries, and lack of experience to date in development of fast‐growing hardwood species, we believe this part of Africa may be less attractive to investors than East Africa.

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Appendix

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Wood Pellet Producers in the United States, 2012

Company Location State StatusCapacity (000 tons)

Ace Pellet Reagan TN operational 4Alexander Energy Kane PA operational 8Allegheny Pellet Corporation Youngsville PA operational 70American Pellet Corunna MI operational 12American Wood Fibers Circleville OH operational 40American Wood Fibers Marion VA operational 40American Wood Fibers Schofield WI operational 25Anderson Wood Products Louisville KY operational 25Appalachian Wood Pellets Kingwood WV operational 50Arbor Pellet Salt Lake City UT operational 20Associated Harvest La Fargeville NY operational 8B D Schutte Farms Au Gres MI operational 1Barefoot Pellet Troy PA operational 45Bear Mountain Forest Products Brownsville OR operational 100Bear Mountain Forest Products Cascade Locks OR operational 30Bearlodge Forest Products Hulett WY operational 5Biomass Energy Bumpass VA operational 100Biomaxx Arcade NY operational 100Biomaxx Nazareth PA operational 50Biomaxx Ulysses PA operational 50Blue Mountain Lumber Products Pendleton OR operational 20Confluence Energy Kremmling CO operational 125Corinth Wood Pellets West Corinth ME operational 75Curran Renewable Energy Massena NY operational 70Deadwood Biofuels Rapid City SD operational 71Easy Heat South Charlest OH operational 20Enbiro Energy Unadilla NY operational 2Energex Mifflintown PA operational 60Enviva Amory MS operational 100Enviva Wiggins MS operational 150Enviva Ahoskie NC operational 402Equustock Wood Fibers Jasper AL operational 36Equustock Wood Fibers Clare MI operational 36Equustock Wood Fibers Raton NM operational 5Equustock Wood Fibers Nacogdoches TX operational 50Equustock Wood Fibers Chester VA operational 80Equustock Wood Fibers Troy VA operational 40Essex Pallet & Pellet Keeseville NY operational 4Eureka Pellet Mills Eureka Airport MT operational 40Eureka Pellet Mills Superior MT operational 40

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Fiber By‐Products White Pigeon MI operational 60Fiber Energy Products Mountain View AR operational 11Fiber Recovery Ringle WI operational 12Fiber Resources Inc. Pine Bluff AR operational 10Forest Energy Corporation Show Low AZ operational 60Fram Renewable Fuels Baxley GA operational 145Fram Renewable Fuels Lumber City GA operational 138Frank Pellets Lyons OR operational 11Fulghum Fibers Augusta GA construction 200Geneva Wood Fuels New Vineyard ME operational 90Georgia Biomass Waycross GA operational 825Great American Pellets Palmerton PA operational 35Great Lakes Renewable Energy Hayward WI operational 82Green Circle Bioenergy Cottondale FL operational 560Green Friendly Pellets Balsam Lake WI operational 17Greene Team Pellet Fuel Garards Fort PA operational 50Greenwood Fuels Green Bay WI operational 140Hamer Pellet Fuel Elkins WV operational 50Hassel & Hughes Lumber Collinwood TN operational 25Hearthside wood Pellets Stamford NY operational 1Heartland Pellet Spearfish SD operational 45Henry County Hardwoods Paris Station TN operational 40Horizon Biofuels Fremont NE operational 12Indeck Energy Services Ladysmith WI operational 90Inferno Wood Pellet Rumford RI operational 30Instantheat Wood Pellets Addison NY operational 50Jensen Lumber Ovid ID operational 15Kirtland Products Boyne City MI operational 55Koetter & Smith Borden IN operational 10Lee Energy Solutions Crossville AL operational 75Lignetics Kootenai ID operational 80Lignetics Kenbridge VA operational 75Lignetics Linn WV operational 120Log Hard Premium Pellets Spartansburg PA operational 25LowCountry Biomass Ridgeland SC operational 100Maine woods Pellet Great Moose La ME operational 100Mallard Creek Rocklin CA operational 60Manke Lumber Tacoma WA operational 38Marth Peshtigo Pellet Peshtigo WI operational 60Marth Peshtigo Pellet Town of Marat WI operational 60Michigan Timber Flint MI operational 18Michigan Wood Fuels Holland MI operational 48

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Mt. Taylor Machine Milan NM operational 7Natures Earth Pellet Energy Reform AL operational 75Natures Earth Pellet Energy Laurinburg NC operational 100Nature's Pellets Prineville OR operational 15New England Wood Pellet Jaffrey NH operational 84New England Wood Pellet Deposit NY operational 84New England Wood Pellet Watkins Glen NY operational 84North Idaho Energy Logs Moyie Springs ID operational 60Northeast Pellets Presque Isle ME operational 40Ochoco Lumber John Day OR operational 18Olympus Pellets Shelton WA operational 40O'Malley Wood Pellets Tappahannock VA operational 35Ozark Hardwood Products Seymour MO operational 70Pacific Pellet Redmond OR operational 40Patterson Wood Products Nacogdoches TX operational 40Pellet America Corp Appleton WI operational 50Pellheat Glen Hope PA operational 6Penn Wood Products East Berlin PA operational 5Pennington Seed Inc. Greenfield MO operational 30Potomac Supply Kinsale VA construction 60QB Corp Salmon ID operational 4RenewaFUEL, LLC Battle Creek MI operational 60Rocky Canyon Pellet Grangeville ID operational 10Rocky Mountain Pellet Walden CO operational 65Roseburg Forest Products Roseburg OR operational 40Sauder Mouldings Ferndale WA operational 8Somerset Pellet Fuel Somerset KY operational 52South & Jones Timber Evanston WY operational 7Southern Indiana Hardwoods Huntingburg IN operational 10Southern Kentucky Pellet Mill Gamaliel KY operational 12Superior Pellet Fuels Fairbanks AK operational 12Tri state Biofuels Lemont Furnac PA operational 50Turman Hardwood Pellets Galax VA operational 25Varn Wood Products Hoboken GA construction 80Vermont Wood Pellet North Clarendo VT operational 14Vulcan Wood Products Vulcan MI operational 8West Oregon Wood Products Banks OR operational 30West Oregon Wood Products Columbia City OR operational 50Westervelt Renewable Energy Aliceville AL construction 309White Flame Lindon UT operational 36Wood Pellet Coop Pierz MN operational 20Wood Pellets C & C Smith Lumber Summerhill PA operational 30Woodgrain Millwork Prineville OR operational 6Zilkha Biomass Crockett TX operational 44Total Capacity 7,862

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Wood Pellet Producers in Canada, 2012

Company Location Province StatusCapacity (000 tons)

Boreal Pellet Amos QC operational 50Canadian Biofuel Springford ON operational 30Cottles Island Lumber Co. Ltd. Summerford NL operational 12Crabbe Lumber Carleton NB operational 40Direct Pellet Industries Haliburton ON operational 7Energex Lac‐Megantic QC operational 120Exploits Pelletizing Bishop's Falls NL operational 2Finewood Flooring Cape Breton Is NS operational 10Foothills Forest Products Grande Cache AB operational 25Gildale Farms St. Marys ON operational 4Granulco Sacre‐Coeur QC operational 20Granules de la Mauricie Shawinigan QC operational 22Granules LG Saint‐Felicien QC operational 85Groupe Savoie Saint‐Quentin NB operational 55Holson Forest Products Roddickton NL operational 55Houston Pellet Houston BC operational 150La Crete Sawmills La Crete AB operational 35LacWood Industries Hearst ON operational 7Lauzon Recycled Wood Energy Papineauville QC operational 30Lauzon Recycled Wood Energy Saint‐Paulin QC operational 40Marwood Ltd. Tracyville NB operational 10Northwest Wood Preservers Vanderhoof BC operational 30Pacific Bio‐energy Prince George BC operational 360Pinnacle Pellet Williams Lake BC operational 150Pinnacle Pellet Armstrong BC operational 50Pinnacle Pellet Burns Lake BC operational 400Pinnacle Pellet Strathnaver BC operational 200Pinnacle Pellet Quesnel BC operational 90Premium Pellet Vanderhoof BC operational 190Shaw Resources Bathurst NB operational 75Shaw Resources Shubenacadie NS operational 50Tahsta Pellets Burns Lake BC operational 50TP Downey Hillsborough NB operational 40Trebio Portage‐du‐Fo QC operational 130Vanderwell Contractors Slave Lake AB operational 60Viridis Energy West Kelowna BC operational 50Viridis Energy Middle Musqu NS operational 110

Total capacity 2,844

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Announced New Wood Pellet Plants In North AmericaCanada 000 tonsMiramichi Premium Pellet Miramichi NB Eastern Canada 220

Atikokan Renewable Fuels Atikokan ON Eastern Canada 154

Whitesand First Nations Armstrong ON Eastern Canada 100

Granules LG International Mashteuiatsh QC Eastern Canada 88

KD Quality Pellets Harley ON Eastern Canada 83

Woodville Pellet Kirkfield ON Eastern Canada 60

Wagner Ontario Forest Management Ignace ON Eastern Canada 75

Pelltiq't Energy Group Kamloops BC Western Canada 193

Sundance/Dansons Edson AB Western Canada 110

Woodville Pellet Merritt BC Western Canada 60

Lhtako Energy Quesnel BC Western Canada 50

Total New Canada Pellet Capacity 1,193

United States

Cate Street Capital Millinocket ME Northeast 110

F.E. Wood & Sons Baldwin ME Northeast 300

GreenWood Development Laurinburg NC Northeast 120

Beaver Wood Energy Fair Haven VT Northeast 100

Woodstone Pellets (Greenova) Berlin NH Northeast 100

Woodstone Pellets Moreau NY Northeast 100

American Refining McKean Co. PA Northeast 90

Vermont Pellet Works Lyndonville VT Northeast 75

Tri State BiofuelsLemont Furnace PA Northeast 55

Enligna West SacramentoCA Pacific Northwest / 220

Oregon Western Lumber Reedsport OR Pacific Northwest / 100

Environmental Energy Partners Breckenridge CO Pacific Northwest / 44

LowCountry BioMass Ridgeland SC South Atlantic 200

General Biofuels Sandersville GA South Atlantic 440

First Georgia Bioenergy (Enova) Waynesville GA South Atlantic 363

Enova Undetermined GA South Atlantic 495

Enova Undetermined GA South Atlantic 495

Enova Trenton SC South Atlantic 495

Franklin Pellets Franklin VA South Atlantic 500

Enviva Northampton Co. NC South Atlantic 550

Sega Biofuels Nahunta GA South Atlantic 215

Biomass Energy Bumpass VA South Atlantic 285

Eden Pellets Chesapeake VA South Atlantic 60

Fram Renewable Fuels Hazlehurst GA South Atlantic 550

Nash Timber Gladys VA South Atlantic 150

Point Bio Energy Baton Rouge LA South Central 495

Zilkha Biomass Fuels Selma AL South Central 300

Green Circle Bio Energy Undetermined GA or MS South Central 560

Indeck Energy Magnolia MS South Central 90

Total New US Pellet Capacity 7,657

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Announced Canadian Biomass Power ProjectsCompany City/Town State Region Wood consumption Projected

(000 green tons/yr) Start‐upAV Terrace Bay Terrace Bay ON Eastern Canada 300 4Q/08

Resolute Forest Products Fort Frances ON Eastern Canada 800 1Q/09

Red Rock Mill Red Rock ON Eastern Canada 440 1Q/10

J.D. Irving St. George NB Eastern Canada 300 4Q/11

Tembec Bearn QC Eastern Canada 70 2Q/12

Fibrek Saint-Felicien QC Eastern Canada 100 4Q/12

Norampac Trenton ON Eastern Canada 220 2Q/12

Nova Scotia Power Point Tupper NS Eastern Canada 650 2Q/13

Resolute Forest Products Thunder Bay ON Eastern Canada 400 1Q/13

Fortress Paper Thurso QC Eastern Canada 250 1Q/13

Ontario Power Generation Atikokan ON Eastern Canada 180 1Q/14

Liberty Energy Hamilton ON Eastern Canada 132 2Q/13 & 2Q/15

Innovente Trois-Rivieres QC Eastern Canada 90 2Q/15

Whitesand First Nations Armstrong ON Eastern Canada 30 1Q/13

Domtar Pulp & Paper Kamloops BC Western Canada 800 1Q/09

Canfor Ft. St. John BC Western Canada 92 1Q/10

Mercer International Castlegar BC Western Canada 500 4Q/10

Kruger New Westminster BC Western Canada 66 1Q/11

PG Interior Waste to Energy Prince George BC Western Canada 500 2011

Canfor Radium Hot Springs BC Western Canada 20 4Q/12

Canfor Prince George BC Western Canada 600 Unspecified

Conifex Mackenzie BC Western Canada 396 3Q/13

Mustus Energy La Crete AB Western Canada 400 2Q/14

Merritt Green Energy Merritt BC Western Canada 400 2Q/14

Fort St. James Green Energy Fort St. James BC Western Canada 400 2Q/14

Meadow Lake Bioenergy Center Meadow Lake SK Western Canada 360 2Q/14

Nanaimo Forest Products Nanaimo BC Western Canada 250 3Q/13

FireBox Energy Systems Glenevis AB Western Canada 196 1Q/13

Chetwynd Forest Ind. Biomass Chetwynd BC Western Canada 130 2Q/14

Fraser Lake Sawmill Biomass Fraser Lake BC Western Canada 120 4Q/16

Nations Energy Dallas BC Western Canada 50 Unspecified

Total Canada Existing and Planned Biomass Power Projects 9,242

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Announced USA Biomass Power ProjectsCompany City/Town State Region Wood consumption Projected

(000 green tons/yr) Start-up

Koda Energy Shakopee MN Lake States 67 1Q/09

DTE Energy Cassville WI Lake States 400 4Q/10

Verso Quinnesec MI Lake States 240 4Q/11

We Energies/Domtar Rothschild WI Lake States 500 4Q/13

VC Energy Midland MI Lake States 450 Unspecified

Minnesota Power Hoyt Lakes MN Lake States 250 Delayed

Minnesota Power Duluth MN Lake States 200 Unspecified

Escanaba Green Energy Escanaba MI Lake States 200 4Q/13

Northern Michigan University Marquette MI Lake States 180 Unspecified

POET Energy Chancellor SD Midwest 146 Q4/08

SMART Papers Hamilton OH Midwest 220 Begin 2Q/09

Eastern Illinois University Charleston IL Midwest 27 4Q/11

University of Missouri-Columbia Columbia MO Midwest 110 4Q/12

BioEnergy Development Brazil IN Midwest 300 3Q/12

Perry Renewable Energy Cente Perryville MO Midwest 375 3Q/12

Indeck Energy Alexandria NH Northeast 225 4Q/08

Lockheed Martin Owego NY Northeast 30 4Q/08

Evergreen Community Power Reading PA Northeast 300 1Q/09

U.S. Salt Watkins Glen NY Northeast 167 1Q/10

The Jackson Laboratory Bar Harbor ME Northeast 30 4Q/11

NRG Energy Dunkirk NY Northeast 100 4Q/11

Catalyst Renewables Geddes NY Northeast 540 1Q/11

Colby College Waterville ME Northeast 22 1Q/12

Verso Bucksport ME Northeast 250 4Q/12

Burgess BioPower Berlin NH Northeast 750 4Q/13

Pioneer Renewable Energy Greenfield MA Northeast 500 2Q/14

Palmer Renewable Energy Springfield MA Northeast 432 n/a

ReEnergy Holdings Watertown NY Northeast 400 3Q/13

Plainfield Renewable (Enova) Plainfield CT Northeast 400 1Q/14

NRG Energy Uncasville CT Northeast 400 Unspecified

Clean Power Development Berlin NH Northeast 340 Unspecified

Winstanley/Weston North Springfield VT Northeast 300 2Q/14

Berkshire Renewable Power Pittsfield MA Northeast 292 2Q/15

Beaver Wood Energy Fair Haven VT Northeast 290 Unspecified

Concord Steam Concord NH Northeast 250 2Q/13

Eagle Creek Renewable Energy Ogdensburg NY Northeast 250 n/a

Clean Power Development Winchester NH Northeast 200 Unspecified

94


95

Company City/Town State Region Wood consumption Projected (000 green tons/yr) Start-up

IntelliWatt Renewable Energy Coal Township PA Northeast 130 Unspecified

Newton Falls Fine Paper Newton Falls NY Northeast 100 Unspecified

Griffiss Utility Services Rome NY Northeast 100 4Q/13

Freres Lumber (Evergreen) Lyons OR Pacific Northwest 100 1Q/08

Laidlaw Susanville CA Pacific Northwest 130 4Q/08

Najafi (was Renegy) Snowflake AZ Pacific Northwest 290 2Q/08

Simpson Investments Tacoma WA Pacific Northwest 200 3Q/09

Roseburg Forest Products Weed CA Pacific Northwest 150 3Q/11

Seneca Sawmill Eugene OR Pacific Northwest 190 1Q/11

Kiara Solar Anderson CA Pacific Northwest 60 Unspecified

Buena Vista Biomass Power Ione CA Pacific Northwest 220 3Q/12

Mt. Poso Cogeneration Bakersfield CA Pacific Northwest 400 2Q/12

Longview Fiber Longview WA Pacific Northwest 550 1Q/15

DTE Energy Stockton CA Pacific Northwest 450 2Q/13

Iberdrola Renewables Klamath Falls OR Pacific Northwest 400 Unspecified

Northwest Energy Systems Klamath Falls OR Pacific Northwest 337 4Q/13

Northwest Energy Systems Warm Springs OR Pacific Northwest 400 4Q/13

Klamath Falls Bioenegy Klamath Falls OR Pacific Northwest 350 4Q/14

Rio Bravo Jasmin Bakersfield CA Pacific Northwest 330 Unspecified

Rio Bravo Poso Bakersfield CA Pacific Northwest 330 Unspecified

Iberdrola Renewables Lakeview OR Pacific Northwest 320 Unspecified

Biogreen Sustainable Energy La Pine OR Pacific Northwest 328 3Q/13

Sierra Pacific Anderson CA Pacific Northwest 260 Unspecified

Hu Honua Pepeekeo HI Pacific Northwest 255 Unspecified

Chelatchie Green Energy Amboy WA Pacific Northwest 360 Unspecified

Port Townsend Paper Port Townsend WA Pacific Northwest 240 2Q/13

Simkwii Energy White Swan WA Pacific Northwest 200 4Q/13

Nippon Paper Industries Port Angeles WA Pacific Northwest 200 2Q/13

GreenHunter Energy El Centro CA Pacific Northwest 200 Unspecified

Bull Moose Energy Otay Mesa CA Pacific Northwest 250 4Q/13

Warm Springs Biomass Warm Springs OR Pacific Northwest 140 Unspecified

Eagle Valley Clean Energy Gypsum CO Pacific Northwest 140 4Q/13

The Klamath Tribes Chiloquin OR Pacific Northwest 80 Unspecified

Green Energy Team Koloa HI Pacific Northwest 70 2Q/14

F.H. Stoltze Land & Lumber Columbia Falls MT Pacific Northwest 52 4Q/13

SI Group Monticello FL South Atlantic 130 1Q/07

Coastal Carolina Clean Power Kenansville NC South Atlantic 320 3Q/08

95


96

Company City/Town State Region Wood consumption Projected (000 green tons/yr) Start-up

Mutitrade Rabun Gap Rabun Gap GA South Atlantic 190 2Q/10

Domtar Bennettsville SC South Atlantic 300 1Q/11

Oak Ridge National Laboratory Oak Ridge TN South Atlantic 70 2Q/12Southeast Renewable Energy Kershaw Co. SC South Atlantic 150 4Q/12

Ameresco Aiken SC South Atlantic 325 1Q/12

Piedmont Green Power (Rollcast) Barnesville GA South Atlantic 500 4Q/12

Dominion Virginia Power St. Paul VA South Atlantic 537 3Q/12Florida Biomass Energy Port Manatee FL South Atlantic 600 2Q/12

Green Power Solutions Dublin GA South Atlantic 1200 4Q/12

American Renewables Gainesville FL South Atlantic 1000 4Q/13

American Renewables Hamilton Co. FL South Atlantic 1000 2Q/14

Biomass Gas & Electric FL FL South Atlantic 1000 UnspecifiedMeadWestvaco Covington VA South Atlantic 750 4Q/13

CEMEX Brooksville FL South Atlantic 700 Unspecified

South Boston Energy South Boston VA South Atlantic 640 2Q/13

U.S. EcoGen Fort Meade, FL FL South Atlantic 600 1Q/14ecoPower Generation Perry Co. KY South Atlantic 500 4Q/13

Loblolly Green Power (Rollcast) Newberry SC South Atlantic 500 4Q/13

Greenway Renewable (Rollcast) LaGrange GA South Atlantic 500 4Q/15

Graphic Packaging International Macon GA South Atlantic 400 2Q/13Dominion Virginia Power Franklin VA South Atlantic 370 4Q/13

Dominion Virginia Power Hopewell VA South Atlantic 370 4Q/13

Dominion Virginia Power Altavista VA South Atlantic 370 4Q/13

Orangeburg County Biomass Orangeburg Co. SC South Atlantic 350 Unspecified

First Georgia Bioenergy Waynesville GA South Atlantic 300 UnspecifiedALP Generation Spring Hope NC South Atlantic 200 n/a

EnXco Harleyville SC South Atlantic 180 4Q/13

EnXco Allendale Co. SC South Atlantic 150 4Q/13

Lancaster Energy Partners Thomaston GA South Atlantic 150 UnspecifiedSonoco Hartsville SC South Atlantic 160 4Q/13

North Star Renewable Power Wadley GA South Atlantic 134 3Q/13

Green Energy Partners Lithonia GA South Atlantic 80 Unspecified

Westervelt/Alabama Power Moundville AL South Central 70 4Q/11Aspen Power Lufkin TX South Central 550 3Q/11

Southern Power (Nacogdoches) Sacul TX South Central 1100 3Q/12

Greenville Energy Greenville TX South Central 650 Unspecified

East Texas Electric Cooperative Woodville TX South Central 500 4Q/14Southeast Renewable Energy Lockhart AL South Central 150 Unspecified

Total Existing and Planned USA Biomass Power Projects 36,191

96


97

Wood Pellet Producers in the United States, 2012


Superior Pellet Fuels Fairbanks AK operational 12Equustock Wood Fibers Jasper AL operational 36Lee Energy Solutions Crossville AL operational 75Natures Earth Pellet Energy Reform AL operational 75Westervelt Renewable Energy Aliceville AL construction 309Zilkha Biomass Selma AL proposed 250Fiber Energy Products Mountain View AR operational 11Fiber Resources Inc. Pine Bluff AR operational 10Nex Gen Biomass El Dorado AR proposed 496Forest Energy Corporation Show Low AZ operational 60Mallard Creek Rocklin CA operational 60Confluence Energy Kremmling CO operational 125Rocky Mountain Pellet Walden CO operational 65Environmental Energy Partners Breckenridge CO proposed 44Green Circle Bioenergy Cottondale FL operational 560Fram Renewable Fuels Baxley GA operational 145Fram Renewable Fuels Lumber City GA operational 138Georgia Biomass Waycross GA operational 825Fulghum Fibers Augusta GA construction 200Varn Wood Products Hoboken GA construction 80First Georgia BioEnergy Waynesville GA proposed 375Jensen Lumber Ovid ID operational 15Lignetics Kootenai ID operational 80North Idaho Energy Logs Moyie Springs ID operational 60QB Corp Salmon ID operational 4Rocky Canyon Pellet Grangeville ID operational 10Koetter & Smith Borden IN operational 10Southern Indiana Hardwoods Huntingburg IN operational 10Anderson Wood Products Louisville KY operational 25Somerset Pellet Fuel Somerset KY operational 52Southern Kentucky Pellet Mill Gamaliel KY operational 12Highland Biofuels Lexington KY proposed 100Corinth Wood Pellets West Corinth ME operational 75Geneva Wood Fuels New Vineyard ME operational 90Maine woods Pellet Great Moose La ME operational 100Northeast Pellets Presque Isle ME operational 40Cate Street Capital Millinocket ME proposed 200F E Wood and Sons West Baldwin ME proposed 300American Pellet Corunna MI operational 12B D Schutte Farms Au Gres MI operational 1Equustock Wood Fibers Clare MI operational 36Fiber By‐Products White Pigeon MI operational 60Kirtland Products Boyne City MI operational 55Michigan Timber Flint MI operational 18Michigan Wood Fuels Holland MI operational 48RenewaFUEL, LLC Battle Creek MI operational 60Vulcan Wood Products Vulcan MI operational 8Wood Pellet Coop Pierz MN operational 20Ozark Hardwood Products Seymour MO operational 70Pennington Seed Inc. Greenfield MO operational 30Enviva Amory MS operational 100Enviva Wiggins MS operational 150Eureka Pellet Mills Eureka Airport MT operational 40Eureka Pellet Mills Superior MT operational 40Enviva Ahoskie NC operational 402Natures Earth Pellet Energy Laurinburg NC operational 100Enviva Northampton C NC proposed 551Riverside Pellets Franklin NC proposed 50Horizon Biofuels Fremont NE operational 12New England Wood Pellet Jaffrey NH operational 84Equustock Wood Fibers Raton NM operational 5Mt. Taylor Machine Milan NM operational 7Premier Pellets Tularosa NM proposed 35Associated Harvest La Fargeville NY operational 8Biomaxx Arcade NY operational 100Curran Renewable Energy Massena NY operational 70Enbiro Energy Unadilla NY operational 2Essex Pallet & Pellet Keeseville NY operational 4Hearthside wood Pellets Stamford NY operational 1Instantheat Wood Pellets Addison NY operational 50New England Wood Pellet Deposit NY operational 84New England Wood Pellet Watkins Glen NY operational 84

97


98


American Wood Fibers Circleville OH operational 40Easy Heat South Charlest OH operational 20Bear Mountain Forest Products Brownsville OR operational 100Bear Mountain Forest Products Cascade Locks OR operational 30Blue Mountain Lumber Products Pendleton OR operational 20Frank Pellets Lyons OR operational 11Nature's Pellets Prineville OR operational 15Ochoco Lumber John Day OR operational 18Pacific Pellet Redmond OR operational 40Roseburg Forest Products Roseburg OR operational 40West Oregon Wood Products Banks OR operational 30West Oregon Wood Products Columbia City OR operational 50Woodgrain Millwork Prineville OR operational 6Oregon Western Lumber Reedsport OR proposed 100Alexander Energy Kane PA operational 8Allegheny Pellet Corporation Youngsville PA operational 70Barefoot Pellet Troy PA operational 45Biomaxx Nazareth PA operational 50Biomaxx Ulysses PA operational 50Energex Mifflintown PA operational 60Great American Pellets Palmerton PA operational 35Greene Team Pellet Fuel Garards Fort PA operational 50Log Hard Premium Pellets Spartansburg PA operational 25Pellheat Glen Hope PA operational 6Penn Wood Products East Berlin PA operational 5Tri state Biofuels Lemont Furnac PA operational 50Wood Pellets C & C Smith Lumber Summerhill PA operational 30Inferno Wood Pellet Rumford RI operational 30LowCountry Biomass Ridgeland SC operational 100Deadwood Biofuels Rapid City SD operational 71Heartland Pellet Spearfish SD operational 45Ace Pellet Reagan TN operational 4Hassel & Hughes Lumber Collinwood TN operational 25Henry County Hardwoods Paris Station TN operational 40Equustock Wood Fibers Nacogdoches TX operational 50Patterson Wood Products Nacogdoches TX operational 40Zilkha Biomass Crockett TX operational 44German Pellets Woodville TX proposed 550Arbor Pellet Salt Lake City UT operational 20White Flame Lindon UT operational 36American Wood Fibers Marion VA operational 40Biomass Energy Bumpass VA operational 100Equustock Wood Fibers Chester VA operational 80Equustock Wood Fibers Troy VA operational 40Lignetics Kenbridge VA operational 75O'Malley Wood Pellets Tappahannock VA operational 35Turman Hardwood Pellets Galax VA operational 25Potomac Supply Kinsale VA construction 60Enviva Courtland VA proposed 500Franklin Pellets Franklin VA proposed 500Nash Timber Gladys VA proposed 150Wood Fuel Developers Greensville Co VA proposed 100Wood Fuel Developers Waverly VA proposed 125Vermont Wood Pellet North Clarendo VT operational 14Beaver Wood Energy Fair Haven VT proposed 100Manke Lumber Tacoma WA operational 38Olympus Pellets Shelton WA operational 40Sauder Mouldings Ferndale WA operational 8American Wood Fibers Schofield WI operational 25Fiber Recovery Ringle WI operational 12Great Lakes Renewable Energy Hayward WI operational 82Green Friendly Pellets Balsam Lake WI operational 17Greenwood Fuels Green Bay WI operational 140Indeck Energy Services Ladysmith WI operational 90Marth Peshtigo Pellet Peshtigo WI operational 60Marth Peshtigo Pellet Town of Marat WI operational 60Pellet America Corp Appleton WI operational 50Appalachian Wood Pellets Kingwood WV operational 50Hamer Pellet Fuel Elkins WV operational 50Lignetics Linn WV operational 120Bearlodge Forest Products Hulett WY operational 5South & Jones Timber Evanston WY operational 7

Total USA Capacity: 12,388 tons

2012 Operational Capacity: 7,213 tons

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99

Wood Pellet Producers in Canada, 2012

Company Location Province StatusCapacity (000 tons)

Foothills Forest Products Grande Cache AB operational 25La Crete Sawmills La Crete AB operational 35Vanderwell Contractors Slave Lake AB operational 60Dansons Edson AB proposed 28Houston Pellet Houston BC operational 150Northwest Wood Preservers Vanderhoof BC operational 30Pacific Bio‐energy Prince George BC operational 360Pinnacle Pellet Williams Lake BC operational 150Pinnacle Pellet Armstrong BC operational 50Pinnacle Pellet Burns Lake BC operational 400Pinnacle Pellet Strathnaver BC operational 200Pinnacle Pellet Quesnel BC operational 90Premium Pellet Vanderhoof BC operational 190Tahsta Pellets Burns Lake BC operational 50Viridis Energy West Kelowna BC operational 50Princeton Co‐Generation Princeton BC proposed 90Nation's Energy Quesnel BC proposed 120Viridis Energy Monte Lake BC proposed 120Crabbe Lumber Carleton NB operational 40Groupe Savoie Saint‐Quentin NB operational 55Marwood Ltd. Tracyville NB operational 10Shaw Resources Bathurst NB operational 75TP Downey Hillsborough NB operational 40Miramichi Premium Pellet Miramichi NB proposed 220Cottles Island Lumber Co. Ltd. Summerford NL operational 12Exploits Pelletizing Bishop's Falls NL operational 2Holson Forest Products Roddickton NL operational 55Finewood Flooring Cape Breton Is NS operational 10Shaw Resources Shubenacadie NS operational 50Viridis Energy Middle Musqu NS operational 110Canadian Biofuel Springford ON operational 30Direct Pellet Industries Haliburton ON operational 7Gildale Farms St. Marys ON operational 4LacWood Industries Hearst ON operational 7Atikokan Renwable Fuels Atikokan ON construction 120KD Quality Pellets New Liskeard ON construction 75Whitesand First Nation Armstrong ON proposed 80Boreal Pellet Amos QC operational 50Energex Lac‐Megantic QC operational 120Granulco Sacre‐Coeur QC operational 20Granules de la Mauricie Shawinigan QC operational 22Granules LG Saint‐Felicien QC operational 85Lauzon Recycled Wood Energy Papineauville QC operational 30Lauzon Recycled Wood Energy Saint‐Paulin QC operational 40Trebio Portage‐du‐Fo QC operational 130Atlantic Fiber Resources Chandler QC proposed 260Granules LG Mashteuiatsh QC proposed 85Total capacity 4,0422012 Operational capacity 2,844

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100

Database of EU Biomass Power Projects, 2007 - 2016 and beyond

Company Site CountryProduction

capacity StartupAnnual wood

consumption (1,000 GMT)A&S Energie Oostrozebeke Belgium 24.6 MW 2Q/10 2304HamCogen Ham Belgium 22.5 MW 4Q/11 200GDF Suez subsidiary Electrabel and Ackermans & vGhent Belgium 180 MW 2011 1600Intrinergy VARE Holdings Thimister-Clermon Belgium 17 MW n/a 155Mape Development (MAPA SGPS Group) Six locations Bulgaria 30 MW 2012 (all) 270Kelag Wärme Five locations Croatia n/a n/a n/aDong Energy Copenhagen Denmark 790 MW 2014 667Dong Energy Aarhus Denmark 760 MW 2015 667Dong Energy Kolding Denmark 418 MW n/a 667Wilton 10 Power Station Teesside England 40 MW 4Q/07 270Heineken (CLOSED) Manchester England 10.5 MW 4Q/09 (shut 2/2010 ) 70Heineken (CLOSED) Tadcaster England 10.5 MW 4Q/09 (shut 2/2010 ) 70Evonik Southampton England 20 MW n/a 135RWE npower Lincolnshire England 73 MW 2011 590RWE npower Tilbury England 750 MW 4Q/11 4000Future Energy Yorkshire (FEY) Yorkshire England 5 MW 2011 45Tilbury Green Power (Express Energy Holdings) Tilbury England 60 MW 2012 360Gaia Power Billingham, Teesside England 50 MW 2012 450E.ON North Somerset England 150 MW 2013 1400Iggesund Paperboard Cumbria England 50 MW 1Q/13 450E.ON (Blackburn Meadows Biomass Power Station)Sheffield England 30 MW 2014 270MGT Power (Tees Renewable Energy Plant) Teesport England 295 MW 2014 2400MGT Power (Tyne Renewable Energy Plant) Tyneside England 295 MW 2014 2400Real Ventures Isle of Wight England 49.5 MW 2Q/14 500Peel Energy Manchester England 20 MW 2014 200Scottish and Southern Energy Yorkshire England 95 MW 2014 200Peel Energy Chester England 20 MW 2014 175Drax (CANCELLED-Ouse Renewable Energy Plant) North Yorkshire England 290 MW 2013 2700Drax (CANCELLED) Site to be determined England 290 MW 2014 (est.) 2700Drax (CANCELLED -- Heron Renewable Energy Pla Immingham England 290 MW 2014 (est.) 2700Drax (Drax Power Station) Selby England 1500 MW phased 2013-17 13500Real Ventures (Reality Energy Center) Immingham England 49.5 MW 1Q/15 500Helius Energy Port of Southampton England 100 MW 2015 800Renewable Energy Systems (RES) Blyth England 100 MW 4Q/15 900Centrica (CANCELLED) Barrow England 80 MW 3Q/16 720Centrica (CANCELLED) Brigg England 137 MW n/a 1300Snetterton Biomass Plant (Iceni Energy) Snetterton England 40 MW n/a 53Dalkia Bio Energy Pollington England 53 MW n/a 360Future Energy Yorkshire (FEY) Stallingborough England 65 MW n/a 635Peterborough Renewable Energy Ltd. (PREL) Peterborough England 80 MW n/a 460Renewable Energy Systems (RES) Liverpool England 100-150 MW n/a 900Helius Energy Avonmouth (Port of BristoEngland 100 MW n/a 935Kedco Enfield England 12 MW n/a 120Double H Nurseries New Milton England n/a n/a 20Evonik New Energies UK/Biomass Fuels Ltd (JV) Sittingbourne England 35 MW n/a 270Biomass Power Plant Ridham (JV of Evonik EnergieRidham England 25 MW n/a 160Estover Energy Cramlington England 25 MW n/a 225Peel Energy Ince England n/a n/a 193Bronzeoak Thermal Castle Cary England 12.7 MW n/a 136Sunrise Renewables Hull England 9 MW n/a 72Genencor International & Fortum Corp. Hanko Finland 18 MW 2009 165Vattenfall (Vanaja plant) Tavastehus Finland 60 MW 2010 165Keuruun Lämpövoima Oy Keuruu Finland 20 MW 4Q/10 180Kuopion Energia Oy Kuopio Finland 149 MW 4Q/11 1400Fortum Jarvenpaa Finland 47 MW 2Q/13 425Cascades S.A., Division La Rochette La Rochette France 40 MW 2010 360Dalkia Biganos France 69 MW 4Q/12 500Tembec Tartas France 18 MW 2Q/12 165E.ON Meyreuil France 150 MW 4Q/15 885Dalkia Tavaux France 30 MW n/a 200Dalkia Champagne-Ardennes France 22 MW n/a 150NovusEnergy Brunsbüttel Germany 7.5 MW 4Q/08 73RWE Siegen Wittgenstein Germany 30 MW 2009 270Prolignis Bad Arolsen Germany 15 MW 4Q/09 135Evonik Warndt Germany 6 MW 4Q/09 40RWE Goch Germany 37 MW 2010 335Prolignis Rieste Germany 15 MW 2010 135Prolignis Langelsheim Germany 15 MW 1Q/10 135Prolignis Steinau an der Strabe Germany 15 MW 4Q/10 135Prolignis Niesky Germany 15 MW 4Q/10 135TBM (Tech. Bioenergie und Methan) Geislingen-Türkheim Germany 10 MW 1Q/11 90Heizkraftwek Zwickau Zwickau Germany 15 MW 4Q/12 150

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101

Company Site CountryProduction

capacity StartupAnnual wood

consumption (1,000 GMT)DBM Szakoly Hungary 19.8 MW 3Q/09 165Hoeromu Zrt Szerencs Hungary 49.9 MW 4Q/09Kalocsa Hoeromu Kalocsa Hungary 49.9 MW 4Q/09ELMIB Kaposvar Hungary 35 MW 2012 315ELMIB Salgotarjan Hungary 12.5 MW 4Q/12 120Mayo Power County Mayo Ireland 100 MW 4Q/11 455Advanced Renewable Energy 25 locations Italy 225 MW 1Q/10 2000Fusine Energia Merone Italy 6 MW 4Q/10 55Alerion Anagni Italy 10.5 MW 4Q/10 90Maire Tecnimont Spa Pavia Italy 18 MW 1Q/11 165SPER Enna Italy 18.7 MW 2012 170RWE Innogy/Fri-El Green Power JV Sicily Italy 18.7 MW 4Q/12 170Powercorp Russi Italy 31 MW n/a 280PAER Torri de Mezzano Italy 28 MW n/a 250Powercorp Avezzano Italy 30 MW n/a 270Gavazzi Green Power Acinello di Stigliano Italy 35 MW n/a 310Enel Laura Borgo Italy 35 MW n/a 315Santa Maura Santa Maura Srl Italy 23 MW n/a 210Clean Energy Tricarico Italy 14 MW n/a 125Green Globe Magliano Dei Marsi Italy 11.5 MW n/a 110Italiana Pellets Spa Pavia Italy 9 MW n/a 80Fortum Jelgava Latvia 39 MW 2Q/13 350Siauliu Energija Siauliai Lithuania 35 MW 2012 (est.) 320Electrabel Gelderland Netherlands 136 MW 2010 1000Nuon Magnum IGCC Eemshaven Netherlands 1200 MW 2011 2700RWE Eemshaven Netherlands 160 MW 2011-12 1450E.ON Rotterdam Netherlands 1100 MW 2012 n/aEneco Delfzijl Netherlands 49.9 MW 3Q/13 600Hafslund Fjernvarme Oslo Norway 56 MW 4Q/12 81Fortum Czestochowa Poland 64 MW 3Q/10 60Stora Enso Ostroleka Poland n/a 3Q/10Dalkia Lodz Poland 34 MW 4Q/11 350Dalkia Poznan Poland 34 MW 4Q/11 350ZEDO (Zespol Elektrowni Dolna Odra) Szczecin Poland 183 MW 4Q/11 1600ZEPAK (Zespol Elektrowni Patnow-Adamow-Konin) Central region Poland 55 MW 1Q/12 500GDF Suez Polaniec Poland 190 MW 4Q/12 890Rafako Raciborz Poland 20 MW n/a 180Portucel Setúbal Portugal 50 MW 4Q/09 450Portucel Cacia Portugal 50 MW 4Q/09 450Romita Energie Verde Rascruci Romania 10 MW 1Q/14 110Warmebetriebe/Electrica Several locations Romania 200 MW 2014 1800E.ON - Steven's Croft Biomass Power Station Lockerbie Scotland 44 MW 2007 480UPM Irvine Scotland 25 MW 2Q/09 32Invicta Capital Nine locations Scotland 90 MW 2012 550RWE npower Markinch, Fife Scotland 50 MW 4Q/12 400Forth Energy (CANCELLED) Leith Scotland 100 MW CANCELLED 2/2012 910Helius Energy Morayshire Scotland 7.2 MW 2Q/13 65Forth Energy Dundee Scotland 100 MW n/a 910Forth Energy Rosyth Scotland 100 MW n/a 910Forth Energy Grangemouth Scotland 100 MW n/a 910Balcas Invergordon Scotland 100 MW n/a 200Integrated Energy Systems International Inverurie Scotland 17 MW n/a 250Estover Energy Bucksburn Scotland 25 MW n/a 225Estover Energy Craigellachie Scotland 15 MW n/a 135Ayrshire Power (Peel Energy and DONG Energy) Hunterston Scotland 240 MW n/a 2200Balcas Invergordon Scotland 40 MW n/a 360ENCE Navia Spain 37 MW 2Q/09 335Smurfit Kappa Nervión Lurreta Spain 21.4 MW 2Q/12 200ENCE Huelva Spain 50 MW 4Q/12 450ENCE Merida Spain 20 MW 3Q/14 200ENCE Several locations Spain 140 MW total 4Q/14 1260Dalkia Cieza Spain 16 MW n/a 145Affarsverken i Karlskrona Karlskrona Sweden 49 MW 1Q/12 450Jönköping Energi's Torsvik Sweden 100 MW 4Q/14 550Western Bio Energy Port Talbot Wales 10 MW 3Q/09 160Eco2 (Western Wood Energy) Margam Wales 14 MW 3Q/09 160Nevis Power Newport Wales 49.9 MW 2012 380Prenergy Port Talbot Wales 350 MW 1Q/13 2700Ecopellets Llangefni Wales 30 MW 4Q/13 270Kronospan Chirk Wales 32 MW 2014 288Anglesey Aluminum Metals Ltd Holyhead Wales 299 MW 2014 2000BioE Coedbach Wales 50 MW n/a 500BioE Swansea Wales 50 MW n/a 510

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global review woody biomass situation and …1. demand (biomass chips and wood pellets) it is...

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