how to do business with woody biomass - 5eures

FIVE EUROPEAN RENEWABLE ENERGY HEAT PILOTS EXAMPLE OF BIOENERGY BUSINESS PLAN

The sole responsibility for the content of this publication lies with the authors. It does not necessarily reflect the opinion of the European Communities. The European Commission is not responsible for any

use that may be made of the information contained therein.

EURES EURES

www.5eures.eu.com 5EURES WP4

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Business plan examples for SMEs 5EURES - EIE/04/086/S07.38582

Preface This is a final report of Work Package 4 of 5EURES – Five European RES-Heat Pilots – project (EIE/04/086/S07.38582) carried out during 2004 – 2007.

Objective of 5 EURES project was to introduce and foster implementation of best practices in RES-heat markets in five European regions. Co-objective supporting successful implementation of market structures was know-how transfer between the participating regions. The example given by these five RES-heat pilots can be benefited and adapted widely among other European regions.

All documents and associated Excel spreadsheets for calculations are available at the project web site on the Internet www.5eures.eu.com.

Collaborators

Special thanks: To all companies who provided technical material and information to this study.

5EURES was co-financed by the European Commission. The financiers are hereby warmly thanked.

CEBra Centrum für Energie-technologie Brandenburg GmbH Promotion of applied research work in energy resources, energy technology and management.

DMAH - Direcció General de Medi NaturalPlanning and execution of the environmental policy of the Government of Catalonia

FHE - University of Applied Science EberswaldeOne of the main German institutions for teaching applied sciences in Forestry, Landscape Management, Nature Conser-vation, Wood Science and Technology, and Economics.

FINPROFinpro is an expert and service organization with mission to speed up the internationalization of Finnish companies while. minimizing the risks.

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IrRADIARE - Investigação e Desenvolvimento em Engenharia e Ambiente, LdaPrivate company working mainly in energy service and environment protection market with large companies and municipalities in auditing, monitoring and optimisation.

IST - Institut Superior TécnicoThe IST, created in 1911, is the largest and most reputed school of engineering, science and technology in Portugal..

Metla - Finnish Forest Research Institute Finland's central forest research organisationestablished in 1917 and supervised by the Ministry of Agriculture and Forestry.

NCP - North Karelia University of Applied Sciences Higher education institution providing broad-based multidisciplinary education.

VTTVTT is an expert organisation with objective to develop new technologies, create new innovations and value added thus increasing customer's competitiveness.

Forestry Technical Centre of CataloniaAs an associate member, CTFC contributed substantially to business plans. The Forest Technology Centre of Catalonia (CTFC) is an applied research, forestry training and technology transfer centre located in the Catalonia.

Authors Vaatainen, K. Tahvanainen, T. 2007. Ash Recycling for Forest Fertilisation. 5 EURES (EIE/04/086/S07.38582). Business Plan. 8 p. Prinz, R. Poysti, J. 2007. Biomass supplier mixing from various sources. Finland. 5 EURES (EIE/04/086/S07.38582). Business Plan. 9 p. Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico). 2007. Biomass supply chain management. 5 EURES (EIE/04/086/S07.38582). Business Plan. 5 p. Correal, E., Rodriguez, J.. (Forestry Management Service; Directorate – General for the Natural Environment of Department of the Environment and Housing; Government of Catalonia, and Forestry Technological Centre of Catalonia ) 2006. District Heating Plant for Municipality of Lles de Cerdanya. 5 EURES Project Report X/200X, Project EIE-04-086. Catalonia, april 2006, 6 pages. Keywords: Bioenergy, wood fuel, benefit, balance, cost, price, Catalonia. Väätäinen, K., Pöysti, J., Lamminen, S., Laitila, J. 2007. Energy wood harvesting with farm tractor. Finnish Forest Research Institute, Joensuu, Finland. 5 EURES (EIE/04/086/S07.38582). Business Plan. 8 p. Dipl.- Ing. (FH) Gundolf Schneider, UASE. Dipl.- Ing. (FH) Severine Laufer, UASE. 2007. Fire wood supplier for consumer sector (Biomassenhof). University of Applied Science (Fachhochschule Eberswalde). Eberswalde, Germany. 5 EURES (EIE/04/086/S07.38582). Business Plan. 6 p. Vaatainen, K. Karppinen, H. Poysti, J. (Ed) 2007. Forest Residue Information Exchange for Biomass Trading. Joensuu, Finland. 5 EURES (EIE/04/086/S07.38582). Business Plan. 5 p. Tukiainen, S. Raunio, O. Poysti, J. (Ed) 2007. Greenhouse pellet heating & CO2 plant 1 MW. 5 EURES (EIE/04/086/S07.38582). Business Plan. 5 p. Sikanen, L. Poysti, J. (Ed). 2007. Heat entrepreneur operating wood heated spa 1MW. Finnish Forest Research Institute, Joensuu, Finland. 5 EURES (EIE/04/086/S07.38582). Business Plan. 10 p. Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico). 2007. Heating elementary school and kintergarden 300kW. 5 EURES (EIE/04/086/S07.38582). Business Plan. 6 p.

Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico); Poysti, Jyrki (Finpro). 2007. Heating hotel municipal swimming pool 500kW. Portugal. 5 EURES (EIE/04/086/S07.38582). Business Plan. 8 p. Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico); Poysti, Jyrki (Finpro). 2007. Heating hotel with wood pellets 50kW (alternative 1). IrRADIARE, Portugal. 5 EURES (EIE/04/086/S07.38582). Business Plan. 6 p. Correal, E., Rodriguez, J. (Forestry Management Service; Directorate – General for the Natural Environment of Department of the Environment and Housing; Government of Catalonia, and Forestry Technological Centre of Catalonia ) Heating of municipal sports hall. 5 EURES Project Report X/200X, Project EIE-04-086. Catalonia, April 2006, 6 pg. Keywords: wood fuel, balance, benefit, bioenergy, Catalonia. Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico); Poysti, Jyrki (Finpro). 2007. Heating hotel municipal swimming pool 500kW. IrRADIARE, Portugal. 5 EURES (EIE/04/086/S07.38582). Business Plan. 5 p. López, I., Rodriguez, J (Forestry Management Service; Directorate – General for the Natural Environment of Department of the Environment and Housing; Government of Catalonia, and Forestry Technological Centre of Catalonia ), Poysti, J (Finpro).. Heating pre-school and primary education centre – bidder viewpoint, 5 EURES Project Report X/200X, Project EIE-04-086. Catalonia, December 2007, 8 pages López, I., Rodriguez, J (Forestry Management Service; Directorate – General for the Natural Environment of Department of the Environment and Housing; Government of Catalonia, and Forestry Technological Centre of Catalonia ), Poysti, J (Finpro).. Castellfollit del Boix micro-district heating business plan – municipality viewpoint, 5 EURES Project Report X/200X, Project EIE-04-086. Catalonia, December 2007, 6 pages. Keywords: bioenergy, wood fuel, Bages, balance, benefit, Catalonia López, I., Rodriguez, J. (Forestry Management Service; Directorate – General for the Natural Environment of Department of the Environment and Housing; Government of Catalonia, and Forestry Technological Centre of Catalonia ), Poysti, J (Finpro); Industrial user converting to bioenergy, 5 EURES Project Report X/200X, Project EIE-04-086. Catalonia, December 2007, 7 pages. Keywords: bioenergy, wood fuel, feeding system adaptation, balance, benefit, Catalonia. Laufer, S. 2007. PELLET BURNING BIOMASS HEAT SUPPLY STATION 250 kW. FH Eberswalde, Eberswalde, Germany. 5 EURES (EIE/04/086/S07.38582). Business Plan. 10 p.

Laufer, S. 2007. Short rotation coppice for bioenergy. University of Applied Science (Fachhochschule Eberswalde). Eberswalde, Germany. 5 EURES (EIE/04/086/S07.38582). Business Plan. 23 p. Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico); Poysti, Jyrki (Finpro). 2007. Small 3 MWe CHP with Biomass. IrRADIARE, Portugal. 5 EURES (EIE/04/086/S07.38582). Business Plan. 7 p. Pyhalahti, H. Poysti, J. (Ed) 2007. Wood burning biomass heat station 2.5kW. Finpro, Munich, Germany. 5 EURES (EIE/04/086/S07.38582). Business Plan. 10 p. Laufer, S. 2007. Wood Chip Supplier Company. University of Applied Science (Fachhochschule Eberswalde). Eberswalde, Germany. 5 EURES (EIE/04/086/S07.38582). Business Plan. 12 p.

Value chain

Structure of a short business plan In business plan entrepreneur describes intended business to potential investor. It is also recommended that entrepreneurs starting a new business with their own funds also make a proper plan because it is easy to forget some costs and issues without careful consideration and formal process.

Business plans have several sizes but each should explain the business completely. Every entrepreneur should make four descriptions oh their plans of following sizes::

Title (length one row) – This is the title of the business plan and it should be unambiguous. The one row title should explain completely what the business does, for example if the title is used as subject field of email or naming a document.

Short explanation (length 15 seconds when told on telephone) – This is what the entrepreneur tells when telephoning to banks and other relevant entities. People usually listen 15 seconds before they say if they are interested or not interested to hear more. If one can not explain the business idea in 15 seconds, people usually think that it is not clear enough.

Half page summary – Financing bodies are usually very busy and will read only half page before deciding if they want to read the whole document. This applies especially to venture capital funders. The half page explanation can also be used as introduction in email when full plan is attached. Everything about the business must be clearly and effectively explained in this space. Total costs, asked investment, turnover, profit, and payback period should be stated.

5-10 page business plan – Usually enough for smaller investments, except in cases where there are large numbers of details. Profit and loss calculation, investment calculation and possibly cash flow calculation should be included.

Business plans have several different purposes. Most often plan is made for investors or banks. Plan can be made also for internal use in company that intends to start new business operation, or division. Municipalities also can do internal plans to assist their decision making.

Business plan should be as short as possible, but explain everything in sufficient details. Business plan explains everything in two different ways. Everything should be written as text, and then, everything should be put in numbers and calculations. For every part of text, there should be a numerical value, and vice versa.

Investors want to check calculations. Don’t just show the results of calculations, but also how you ended up there. Start the calculations from basic publicly available starting values that can be independently checked, such as €/kWh, €/hour, etc.

Business plan describes future of the business and therefore are not expected to be exactly accurate. Obviously, future prices should always be used in all calculations. Usually one can not estimate starting point numbers, such as fuel prices, more accurately than +/- 15-20%.

Although business plan is not expected to be accurate, entrepreneurs should always confidently write the main part as it would exactly happen like that. Any reservations and deviations and corrective actions should be explained only in the Risk – chapter

which explains all possible eventualities, overestimates, underestimates and how the business can survive them.

Sufficient care should be used to avoid errors cumulating in some calculations. If calculations are made on spreadsheet, as they should, the planner can test how the company’s profit changes when starting values are changed slightly. This is called sensitivity analysis. In some cases company’s profit is very sensitive to small changes in starting values. This is a risk factor.

If business is going to expand significantly, or starting values of prices may change significantly during first years of operation, one should make profit and investment calculations separately for each year.

Cash flow calculation should be made in those cases, and also when there are large seasonal variations. Companies go often bankrupt because there is not enough cash to pay interests, or other costs during slow season, even if the annual average operation is profitable.

Special issues in business planning:

Business plan for entrepreneur’s own use Should be as detailed as business plan for any other purposes, except there is obviously no need to write about own background.

For banks and investors People make business. Explaining own background and expertise is very important. Funding is actually given to a person running the company, not to the faceless company, or product. For commercial lenders, only purpose of business is to make profit. Business plan must show good profit from operations, not only to cover salary and operations, but also cover wear and tear of equipment and loan repayments. Any other benefits for other companies or to the local economy may be explained if funding is applied form non commercial sources such as municipalities or community funds.

Municipalities Operations done by municipalities are not always intended to make profit. Business plan that has been made for municipality’s own internal use, may show no profit, or can even be loss making. Municipalities usually consider benefit to local economy as important aspect of the planned operation.

Biomass as replacement of fossil fuel Normally companies sell products or services and income in the calculations is

the sales income. In cases where business plan is made for an operation replacing fossil fuel with biomass, the income is difference between cost of biomass and cost of fossil fuel used previously, i.e. savings that are achieved by use of biomass. Usually business plan for biomass should show some savings, but in some cases municipalities are happy to show zero savings in order to help biomass suppliers with higher supply prices, or generally to switch into sustainable and environmentally friendly fuel source.

Biomass operation as supplementary work

Sometimes entrepreneurs plan to start new business in order to create some new work for themselves for periods when they don’t have enough work in their main business. Add-on entrepreneurship is treated differently in business plan. Biomass operations that are not profitable and thus not possible as full time occupation, will usually become possible as add-on work. This happens because overhead costs and equipment can be shared between different businesses. Sometimes only the additional cost of operating the second business is used in business plan, not the full cost or shared cost. This is sometimes called as Marginal Cost. Common sense should be used in calculations.

Explanations for Business Plan content

1. Information about the company a) This is a cover page and not used in the examples in this document. Each

company can fill its own information. It should contain name and address details, ownership, managing director(s), profiles of key person(s), and possibly targeted turnover, people to be employed.

b) Background and history of existing company - or for director(s) if new company. Reason why this investment is considered.

2. Business idea

a) Products or services offered. (This could be biomass operation, or boiler operation, etc. Products or services are the one client is paying money. No other activities are explained here.)

b) Targeted customers. (Customers are only those who pay money to the company for products or services. Biomass as replacement of fossil fuel does not have targeted customers. Sometimes customer is clearly defined entity, such as in case boiler ESCO offering heat to a school. If customers are general such as any municipality residents, give convincing explanation that customers will really exist and are ready to pay. )

c) Benefit for the customer. (All benefits, monetary and otherwise why customer would buy product or service. Also, biomass as replacement of fossil fuel in municipality’s or company’s internal use has some specific benefits why it is considered. Explain here to decision makes what they are.)

d) Way to operate. (What the operation is buying and selling, how it is processing the material and what specialist equipment and skills is needed.)

e) Recommended business structure (Incorporated SME company, partnership, association, co-operative, independent contractor full time or part time, division of medium-size company. Taxes may be different.)

f) Required resources

i. Equipment (Details of all necessary equipment.)

ii. Human resources (People and special skills needed.)

g) Earning model (Where exactly the money comes from. What the company is selling, for example, is it selling biomass by weight or by kWh, or heat kWh, at what price, pricing structure, base fees, energy fees, etc.)

h) Seasonal variations affecting operations. (Can the business survive low season.)

i) Integration to other companies in the value chain (Other necessary partners such as chippers, transport operators, maintenance companies, etc. One of the important business operations is information flow up and down the value chain - orders, invoices, stock level, forecasting. Each operator in the value chain must know and be convinced that sufficient amount of biomass will be available in the long term, and that deliveries will happen whenever needed).

3. Market situation a) Market situation and forecast for bioheat. (Explain only those issues that are

important for the operation of the business, for example, to estimate availability of biomass, or heat suppliers.)

b) National / regional policies currently and in long term. (Explain only those issues that are important for the operation of the business, for example, to estimate grants, taxes or other rules and legislation affecting the operation.)

c) Customers. (Customers’ current situation. Total number of customers that can be expected.)

d) Sources of raw material (Especially if company is processing biomass.)

e) Competition. (Any other potential companies offering the same and thus, competing on same customers. Sometimes competition comes from alternative solutions, and not only from companies offering the same products or services.)

4. Financial justifications a) Sales (Monies received or cost savings achieved by using biomass as

replacement of fossil fuel.)

b) Costs (Total money used to purchase biomass, fuel, workers salaries, etc)

c) Operating Profit (Gross profit from operations before loan interests, depreciations, taxes and other such costs.)

d) Depreciations (Treatment of depreciation for tax purposes depends on national legislation. Sometimes depreciation can be deducted from taxable income, sometimes not. Ultimate purpose of depreciation is to allow entrepreneur make financial reservations to buy new equipment when the old one has worn out. Some way of doing this should be included in the business plan.)

e) Financial costs (Interests are normally tax deductible, repayment not.)

f) Taxes

g) Return on investments – ROI, or Return on Capital Employed - ROCE. (This is interest that money invested in the company earns expresses in percentage value. It should ideally be higher than bank account interest. Typical values are from 7-12%. If ROI or ROCE is very high it usually means there is an error in calculation. Very high values are not usually found in companies, and are not sustainable anyhow because competitors soon finds it and pushes prices down. Proper definition for ROI is ‘Profit before interest, tax an dividends, divided by the investment = net assets’. Note that if equipment is bought with loan, there may not be any net assets since the company does not actually own anything.)

5. Investments a) Cost of each investment

b) Payback time for investments (How many months / years it takes to pay back investments, or loans. Common sense should be used when calculating this. Usually this is applied only to entrepreneur’s own investments since bank loan has fixed payback period.)

6. Sources of funds a) Own funds, loans, grants available

7. Entry barrier analysis a) Why other entrepreneurs have already not started this business.

8. Risk analysis Explain here all problems that can come up on next years. Is the profit sensitive to variations in costs, fees, or prices? What can business do to correct problems? Typically business should consider long term, fixed price fuel supply contract with penalties for failure to supply contract quantity/quality but incentives for suppliers for excellent performance, and focus on contracts with fewer/larger supplies, and arrange availability of back-up fuel supply perhaps via spot market.

Fuel Supply Risks 1 that are usually considered in biomass operation:

• Enough biomass available in a viable catchments area?

• Is the crop / forest grown only for fuel or is there alternative competing use for it? Or is biomass just a secondary product from crop / forest. In some countries the typical fuel is forestry felling residue. But felling residue is a side product (waste from another activity) and is not reliably available, except in densely forested areas. It is not purposely produced. There is no reliability in production and delivery to heat plant - other than if there are large numbers of forest plots around the plant, there is statistical likelihood that some felling is happening somewhere in neighborhood at any given time. In less forested areas the risk of not getting fuel becomes too big and plant investment risky.

• Do any external economic factors impact the suppliers’ motivation to plant the crop / harvest the material?

• Market study available?

• Can the biomass be easily sourced and transported to the plant site (road, ships, rail)?

• Are transport costs quantifiable for a long period?

• If “established” fuel source, independent market study is considered obligatory.

• Lenders will have to run sensitivities to check on robustness of project assumptions

• If no established fuel supply chain, case by case assessment

• Are suppliers reliable and sophisticated enough to understand benefits of long term (supply) relationships?

• Are suppliers substantial enough to be worth pursuing for breach of contract?

• Are alternative fuels technically feasible?

• Are alternative fuels readily available in the catchments area?

• Protection from moisture?

• Protection from arson?

• Accessibility of storage sites in adverse weather conditions?

Jyrki Poysti, Finpro, 2008

1 Adapted from: HVB Corporates & Markets; Klaus Frietsch; A presentation for the Biomass Conference at Queen’s College, Cambridge – organised by RPA July 19, 2005

Content

Structure of a short business plan ..........................................................................6 ASH RECYCLING FOR FOREST FERTILISATION ......................................13 BIOMASS SUPPLIER MIXING BIOMASS FROM VARIOUS SOURCES....21 BIOMASS SUPPLY CHAIN MANAGEMENT ................................................29 DISTRICT HEATING NETWORK FOR MUNICIPALITY OF LLES DE CERDANIYA......................................................................................................33 ENERGY WOOD HARVESTING WITH FARM TRACTOR..........................39 FIRE WOOD SUPPLIER FOR CONSUMER SECTOR (BIOMASSENHOF).47 FOREST RESIDUE INFORMATION EXCHANGE FOR BIOMASS TRADING............................................................................................................53 GREENHOUSE PELLET HEATING & CO2 PLANT 1MW............................57 HEAT ENTREPRENEUR OPERATING WOOD HEATED SPA 1MW ..........63 HEATING OF ELEMENTARY SCHOOL AND KINDERGARTEN...............73 HEATING HOTEL WITH WOOD PELLETS 40kW (ALTERNATIVE 2)......79 HEATING HOTEL WITH WOOD PELLETS 50kW (ALTERNATIVE 1)......87 HEATING MUNICIPAL SPORTS HALL .........................................................93 HEATING OF MUNICIPAL SWIMMING POOL 350kW................................99 HEATING PRE-SCHOOL AND PRIMARY EDUCATION CENTRE - BIDDER VIEWPOINT .....................................................................................103 HEATING PRE-SCHOOL AND PRIMARY EDUCATION CENTRE - MUNICIPALITY VIEWPOINT .......................................................................111 INDUSTRIAL USER CONVERTING TO BIOENERGY...............................117 PELLET BURNING BIOMASS HEAT SUPPLY STATION 250 kW............123 SHORT ROTATION COPPICE FOR BIOENERGY.......................................133 SMALL 3 MWe CHP WITH BIOMASS..........................................................155 WOOD BURNING BIOMASS HEAT SUPPLY STATION 2.5MW ..............161 WOOD CHIP SUPPLIER COMPANY.............................................................171




EURES EURES

ASH RECYCLING FOR FOREST FERTILISATION Example business plan for wood ask recycling business in connection with timber forwarding & forest machine contracting. The plan is prepared by Finnish Forest Research Institute (METLA). 1. Business idea

A forest machine contractor will start new business which is spreading ash from bioenergy plant into forests in order to fertilize the forest. Clients are forest owners who want fertilization service. The main business of the contractor is off road transporting of cut round wood from thinning of young and developed stands.

Picture: Wood ash recycling with a disc spreader mounted to forwarder.

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After forwarding the timber at the stand, the contractor fertilizes forest with ash. Ash has good fertilizing properties and forest owner pays for it. Bioenergy plant is happy to get rid of the ash and may pay a small fee. In the future, the contractor may also use granulated residue from municipal waste water treatment plants. Scientific tests for such material are under way.

a) Products or services to offer Forest fertilizing service to forest owners. Forest machine contractor fertilizes forest by spreading ash to the same plot where he does the off road timber transporting. In this way, the contractor gets more income as the contract is bigger since it includes fertilization. Separate fertilizing-only contracts are also possible but cost of operation is lower if fertilizing can be done in connection with timber thinning and transport contract.

b) Targeted customers Forest owners, which have young stands ready for thinning and there is need for forest fertilization in order to improve the forest growth and wood quality. Often forest owners’ association acts on behalf of the owner and the association is the client.

c) Benefit for the customer In the long run, benefits come as better timber selling income when there will be next cuttings at the stands. Ash increases forest growth especially in peat lands from 1 to 4 cubic meters per hectare per year in Finland during next 40 years. This growth increase means 6 – 12 % more yield from the forest which at current timber prices means 510€ - 530€ more income to the forest owner. Ash spreading will cost 170-190 per hectare including spreading work (60-70 euros per hectare) and material costs (granulated ash, transport, management). There are subsidies available which are explained in detail later.

After subsidies and tax incentives, the forest owner pays around €75-80 per hectare and gets 510€ - 530€ more income per hectare due to increased growth. Without subsidies and incentives, the ash spreading fee is in calculated to be 170-190 € per hectare and the spreading is profitable for both contractor and client (forest owner).

d) Way to operate Ash comes from bioenergy boilers to granulating facility where it is granulated. The granulating facility delivers ash to roadside pile by order of forest owner who also contracts the contractor, usually for both thinning, off-road timber transport, and ash spreading.

Contracts for thinning and ash spreading may come either from forest owner or alternatively from forest owners’ association who usually coordinate forest related activities. The target is to have ash spreading contract for the same forest plot as the timber forwarding contract.

It is also possible to cooperate with the ash granulating company who would sell fertilizing services and use contractor to spread the ash. Contractor would get payment from the granulating company.

Operating area for the contractor is about 50 – 100 km radius from the ash granulating company. Transport distance for the granulated ash can be long if

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growth benefit to the forest owner is big, which depends on forest ground type. In this case, contractor can charge larger fee to cover transport costs.

Contractor communicates with telephone and email and receives orders and maps via email.

Forest machine contractor usually does medium scale and large scale contracts. Minimum profitable plot size is 5 hectares.

e) Recommended business structure Contractor can be an independed one or it can be co-operative with the producer of wood ash.


i. Equipment At minimum one forwarder and a changeable spreader or, more forest machines but including at least one forwarder with a changeable spreader to the load space of the forwarder.

The system should have a special grabber for ash (a timber grabber with excavator type scoop for loading ash from roadside pile on forest into spreader.

The ash spreader has capacity for 4-8 tons (metric) of ash, and it will last for 1-2 hectares.

ii. Financials The company has to invest 20.000€ into a disc spreader system for accomplishing the recycling of wood ash, and grabber scoop. Contractor (for whom this business plan has been made) has already a forwarder to install a spreader when needed.

iii. Human resources The profit & loss calculations assume owner / operator entrepreneur and hired help part time of the year.

There is minimum amount of special knowledge required. The contractor needs to have one day training on ash properties and different types of forest grounds. Especially if he is selling the benefits to forest owners. Local forestry centre can give information.

g) Earning model

Wood ash recycling is increasingly interesting, and in the practice, there is need for contractors who would do ash recycling, especially with the cheaper ground-based systems (compare to more expensive aerial spreading). Because the ash is cheap material (can have also a negative price) the product will compete with artificial fertilizers, and especially when ash is recycled to forest peatlands, where the growth increase is expected to be high.

There are three ways to organize this. Contractor may get separate contracting deals with forest owner, or the local forest owners association may coordinate the operation and pay to the contractor, or ash granulating company might sell the services and pay the contractor. The fee for ash spreading is 60€ per hectare.

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h) Seasonal variations affecting operation If ash recycling is done on soft peatlands, the spreading requires a frozen ground in order to hold the tractor. Then the spreading season for example in Finland would be from December to March. If the spreading special ash mixtures is done to mineral soils, there is no limitations on seasons when operating.

i) Integration to other companies in the value chain The value chain is:

Bioenergy boiler => ash granulating company => spreading contractor => client (forest owner or forest owners’ association) It is important to have contacts to companies or forestry organizations for receiving the information of potential customers and the customers, which would accept a semi-full contract including not only the timber forwarding but also forest fertilizing i.e. improving the growth potential of stands.

The local forestry association may take coordinating responsibility on behalf of owners and order ash spreading from the contractor if required beneficial.

Ash must be granulated. The granulating company can work in two ways; it could sell granulated ash to contractor, or sell fertilizing services to forest owner and use contractor whenever needed.

In the future, it might be also possible to use granulated residue from municipal waste water treatment plants which has more nitrogen and has better effect on mineral lands.

2. Market situation

a) Market situation and forecast (regional / national) At present, market situation for ash recycling business is very good in Finland. More and more forest owners are interested in managing their forest to well producing phase with low investment and good internal rate of return. Future for the ash spreader contractors should be good.

Currently, ash is currently used as landfill material. Ash does not have price for that purpose. Most common alternative ‘use’ for ash is just to pile it, or send to landfill site. Thus, it is possible for ash granulating company to get ash at negative price from bioenergy plant.

Ash can be spread in all types of forestry land. In the future, ash spreading may increase because minerals that are lost when most of felling residue and tree stumps are removed for bioenergy use must be replaced. Spreading ash back to forest is convenient way to do this.

b) National / regional policies currently and in long term In Finland, forest owner can get KEMERA grant for forest fertilization if the land suffers for growth deficiencies based on mineral analysis (Moilanen 2005). The grant is 40% of fertilizing costs.

Owner of fertilized forest can get tax deduction in forest sales. The amount is 28% of fertilizing costs. These two grants together make forest fertilization very profitable (IRR 8 – 12%).

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There are directives and regulations for the contents of recycled wood ash, especially with the amounts of heavy metals. At present, wood ash granulator companies takes care of the ash analyses and uses the best quality ash as raw material of refined products. In addition, ash recycling contractor has to know the limits of spreading conditions (also some regulations).

c) Customers Private forest owners, Big forest industry companies (their own forests), State forests.

d) Sources of raw material Raw material comes from bio power plants and pulp mill power stations. Mainly wood ash based ash material has to have right nutrient content and heavy metal content under the max. limit of directives. The ash granulating company should have the ash analyzed in order to be able to suggest right quantities.

Plain wood ash is beneficial only to peatlands. If some additional nitrogen is added to the ash it is beneficial also to mineral lands. Ash from tree bark has most minerals and is best for spreading. Fly ash granulates best.

Ash can be spread to agricultural lands as well, providing the ash analysis gives low levels of trace metals. Wood ash has some heavy metals originating from the original forest residue used at the bioenergy plant.

Ash should be granulated because ungranulated ash is dusty, and thus dirty and possibly health hazard. In addition, granulated ash spreads evenly and the whole logistics costs is much less in recycling system of granulated ash than loose ash.

e) Competition At present in Finland, there are only few contractors operating in ash recycling business.

3. Financial justifications Work time consumption: 750 hours for ash spreading and the rest for other contracting. Two eight hour shifts assumed for part of the year.

INCOME € Annual spreading: 5 000 tons (1250 ha) 2 75,000 COSTS Salary costs 16,000 Variable costs (maintenance, fuel, relocation etc.) 3 16,000 Administration and management costs 2,000 TOTAL 34,000 OPERATING PROFIT / LOSS 41,000

2 Tariff rate: 60 €/ha 3 For machine hours of 750 hours

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Financial costs (repayment of loans), interest 4.5% 2,400 Depreciation 4 9,670 Other 2,425 TOTAL 14,495 PROFIT BEFORE TAX 26,505 Taxes 10,000 NET PROFIT / LOSS / SAVINGS 16,505

INVESTMENT COSTS € Disc spreader and a scoop 20,000Return on Capital Employed 5 205%

SOURCES OF FUNDS €

Bank 15,000Payback time on net investment

4. Sources of funds and financial assumptions

Funding has been calculated on the base of long term loan with 4.5 % interest rate.

Depreciation includes both forwarder and spreader. The latter completely and the forwarder in ‘pro rata’ to working hours.

5000 metric tons for 1250 hectares means in average 63 forest plots of 20 hectares each. Some areas are substantially larger. Metsähallitus (a government owned company that manages government forests) and some companies owning large forest areas typically tender 500 hectares for harvesting.

Salary costs include all work related costs such as spreading, maintenance, transport time, etc. Typical average contractor income is 10.4 € per hour plus overhead, extra for evening work, travel allowance and meal allowance (in total 21.3 € per hour). Transport time, maintenance time, and office time are included in the 750 hours.

Operating hours are 85% of total working hours, transport time 6%, maintenance and administration 9%.

The profit & loss calculations assume owner / operator entrepreneur and hired help part time of the year working annually 2700 operating hours according the E15 working hour standard..

4 5.6 years for forwarder and 12 years for spreader. Treatment of depreciation for tax purposes depends on national legislation. 5 Profit before interest, tax an dividends, divided by the investment

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The assumptions and cost factors for financial calculation is presented in below.

FINANCIAL ASSUMPTIONSForwarder’s annual use 2 700 h (E15) Work time for recycling of wood ash 750 h (E15) Annual costs, total 156 908 € Annual costs, recycling total 48 750 € MU % of the forwarder 86.5 % Life time 5.6 years (15 000 h) Tariff rate for recycling of ash 60 €/ha (15 €/tonne) Disc spreader device and scoop Annual use 750 h (E15) Annual costs 3 700 € Life time 12 years

5. Risk analysis For buying the spreading device and a scoop (additional spreading system), the contractors needs invest only 20 000 euros, which could be paid back in first operating year, if everything goes as planned. Reselling the spreading system would not be a problem. The same systems could be used also in agricultural operations, with minor changes.

….. …..

Vaatainen, K. Tahvanainen, T. 2007. Ash Recycling for Forest Fertilisation. 5 EURES (EIE/04/086/S07.38582). Business Plan. 8 p.

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Log production line in Abrantes, Portugal – Picture Elsa Nunes

Chipper at International Energywood Week, Eberswalde, Germany 23.01.-27.01. – Picture Severine Laufe




EURES EURES

BIOMASS SUPPLIER MIXING BIOMASS FROM VARIOUS SOURCES This is an example business plan for entrepreneur who is intending to start business of sourcing biomass from various sources and missing them into standard qualities and selling to boiler owners. Operation is based on biofuel depot and does not include transport. The plan is prepared by Finnish Forest Research Institute (METLA) and Finpro.

1. Business idea Bioenergy boilers are manufactured to use one specific type of fuel, or at least optimized for one fuel. Unfortunately, unless the fuel comes only from one type of source, the variations cause technical problems in burning and heat production. Biofuel is as variable as life itself.

Picture: Biofuel mixer-crusher-screener attached to wheel loader is the main equipment for biofuel operator. Picture © Allu Finland ltd http://www.allu.net

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Owners of boilers expect that biofuels they receive from trader will work in their boiler faultlessly. If trader receives fuel material from different sources, the material should be mixed in such fractions that the end fuel delivered to customer is within specified limits.

a) Products or services offered Operator buys biofuel material from various sources.

Such material may come as forest chips, forest residue, tree stumps (shredded), tree bark from sawmills, tree surgery residue from park management, short rotation coppice such as miscantus or willow, poplar, black locust, reed canary grass, shredded grass, other woody material such as recycled wood, and other agricultural residues such as straw, olive stone residue, nut shells, poultry litter, etc.

Operator analyses incoming biomaterial in order to define correct mixing quantities.

Operator mixes biomaterials from different sources into more uniform qualities.

Operator stores biofuel in depot and sells to boiler operators.

Operator will most likely to have several different fuel qualities in store for different types of customers (boiler technologies).

Harvesting of materials, transport to mixing operator, and transport to boiler is done by a separate contractor.

b) Targeted customers Customers are medium size and large boiler operators in region. Transport distance should be reasonably short (regional), not national unless there are several depots. The mixed biomaterial is relatively dry because of recycled wood and other dry materials are included in the mix. This allows longer profitable transport distances than with some wet biomaterials.

c) Benefit for the customer

i. Shorter average transport distances Bioboilers operate best with the specific fuel they have been designed. In many cases it would be better to be able to use various fuel sources. If one is able to use many different biomaterials as fuel, then the average transport distances are smaller because it is likely that some biomaterial is locally available. It is more unlikely that one specific type of biofuel is locally available at the same distance.

ii. More uniform fuel quality Some reasons why boiler operator needs uniform fuel quality:

Moisture level: Variations is moisture affect heat and power generation. Sometimes biofuel may be even too dry, as may be case with recycled wood. Materials with low moisture should be mixed with materials having high moisture.

Ash melting temperature: Some biomaterials have low ash melting temperature which causes ash to melt on boiler grate. Boiler may need to be

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stopped and ash tooled off. In order to prevent this, materials with low ash melting temperature should be mixed with materials having high melting temperature.

Particle size of biofuel: Boilers and fuel feeding systems work best with specific particle size. Biomaterials should be screened, crushed or mixed so that specific particle size and variation (such as amount of fines) in maintained.

Wear and tear: Some biomaterials contain high levels of silica and other grinding materials. Such material should be mixed with materials of low content. Experiments showed that in mixtures with peat the share of grass or straw should not be higher than 20 volume percent of the whole mixture to avoid problems (corrosion) in the boiler.

Foreign materials: Some sources of biomaterials contain some foreign objects that may cause problems in boilers or fuel feeding systems. Especially crushed tree stumps contain stones, sand and other soil materials that need to be screened out. Also recycled wood may contain such foreign objects or metal objects.

Alkaline and acidic materials: Some biomaterials contain chemical components that generate acids in boilers (chlorophyll) causing excessive corrosion. Some materials may create too much NOx in certain type of boilers if burned alone.

iii. Helps to create biofuel chain for boiler operator Another benefit for the customer, which is not related to technical operation of boiler but more to business environment, is that existence of biofuel operator removes need for each bioboiler to arrange their fuel supply independently. A central operator, and preferably several, gives guarantee to boiler operator that fuel is available in most circumstances.

iv. Biofuel storage for boiler operator Boiler operator needs to keep only minimum amount of biofuel in own storage because the main amount of biofuel is stored at operator’s facilities, and at operator’s cost, and is shared between local boiler owners. Boiler owner does not need to buy so much biofuel to be kept in storage. Also, the storage silo at boiler sites can be smaller and less expensive.

Recommended business structure

Incorporated company, but can also be single owner-operator.

d) Way to operate The minimum size of operation must employ one owner-operator person and one wheel loader tractor full time.

Biomaterial from various sources is transported to mixing operator’s site and unloaded into pile. Ideally, materials that are to be mixed are unloaded next to each other, or on top if each other. If necessary, wheel loader tractor with bucked is used to move material at site. Various materials to be mixed are into device (Allu Screener Crusher, as described below) which attached on wheel

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loader’s attachment socket. Materials are mixed, crushed and screened, and fall back on the pile.

Moist biomaterials can not be stored more than two weeks because they start to self-compost. Moisture and biological activity increases temperature in the pile’s interior. Water in the hotter interior vaporizes, rises to the surface parts of the pile where temperature is lower causing the steam to condensate back into water.6 7

The inside temperature may rise up to 80C which causes material to rot / self-compost / self-ignite. Mixing moist material with dry material reduces temperature.

Picture: Moisture and temperature of the biofuel storage piles should be monitored constantly. 8

However, purpose of this operation is not to store biofuels. The operation ahs only temporary storage that is processed and transported to boilers. However, piles that are unused for a period of time should be motored.

e) Required resources

6 Haikonen, T. Tutkimus biopolttoaineiden aumakuivauksesta (in Finnish) 2005, Motiva Oy 7 John Garstang (ADAS), Alan Weekes (FRL), Rowena Poulter (FRL), David Bartlett (ADAS). Identification and characterization of factors affecting losses in the large-scale unventilated bulk storage of wood chips and development of best practices. 2002. Department of Trade and Industry, First Renevables ltd. UK. 8 Leena Fagernas. Puupolttoaineiden muutokset ja päästöt kuivauksessa ja varastoinnissa. Presentation at Tekes seminar 17-18.3.2004. VTT Processes.

Moisture distibution of biofuel storage piles after 7 months

Source: VTT Processes

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i. Equipment Wheel loader tractor (14-16 tons) with quick attach bucket.

Allu Screener Crusher SC

Picture: Allu Screener Crusher is attached to wheel loader tractor bucket attachment. Biomaterial is scooped in the bucket, crushed, screened and mixed by horizontally rotating screening and crushing drums at the bottom, and material falls back to pile. Picture © Allu Finland ltd http://www.allu.net

Allu Screener Crusher was selected for the operation because it can perform most of the necessary functions needed in the operation (mixing, screening and crushing) by using one single equipment.

In addition, Allu is accessory, not a separate self contained machine, to wheel loader tractor which is anyway needed in this operation for loading mixed biomaterial for delivery to the boiler installation. This lowers investment costs.

The device is also transportable which allows it to be taken to large boiler sites and do some work as contractor for the fuel owned by the boiler operator.

The unit can process 80-100 m3 per hour.

ii. Human resources One owner-operator in the beginning.

f) Earning model The main earning comes from mixing low priced material into premium fuel. Such low priced material is usually difficult or impossible to burn by itself (the very reason why it is low priced) but can be easily burned when mixed with other fuels. Volume purchase contracts may be secondary source of earnings.

Operator buys material from growers and chippers at lower wholesale price with volume contracts, mixes low priced material into high prices material achieving lower overall fuel cost but maintaining specified quality, and also smoothing quality variations, and sells to boiler owners.

g) Seasonal variations affecting operations Summer time is lower period unless some customers are electric power plants.

h) Integration to other companies in the value chain Transport contractor is necessary. Commercial contacts to biomass suppliers and boiler operators are needed.

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2. Market situation There is not much competition but boiler owners obviously have alternative sources for fuel. Mixing of biofuels for combustion purposes in Finland is currently relatively rare and done very roughly with existing machinery, for example excavators and frontloaders, and usually at boiler sites by the boiler operator. The use of biofuel-mixtures requires a number of appropriate size of heating plants as well as the availability of different fuels in a given radius.

The European Commission is also paying particular attention to the adoption of European standards for solid biomass fuels in order to facilitate trade, develop markets and increase consumer confidence. The European Committee for Standardisation is working to define these standards.

http://www.cen.eu/cenorm/homepage.htm

3. Financial justifications

INCOME €

Biofuel sales, 80000 cubic metres * 15 € per m3 9 1,200,000

TOTAL 1,200,000

COSTS

Biofuel purchase, forest residue chips 22 € / m3 (25%) 440,000

Biofuel purchase, tree surgery chips 15 € / m3 (35%) 420,000

Biofuel purchase, straw/ reed canary grass 6 € / m3 (15%) 72,000

Biofuel purchase, recycled wood 6,8 € / m3 (20%) 136,000

Subtotal (for 80,000 cubic metres) 1,068,000

Wages 12 € per hour, 1600 hours 19,200

Indirect wage cost-25% 4,800

Repair and maintenance cost, 4 €/h-E15 * 1600 hours 6,400

Fuel cost 8.0 litr per hour * 0.55 € per litr * 1600 hours 7,040

Other 2,000

TOTAL 1,107,440

OPERATING INCOME 92,560

Financial costs (repayment of loans) 10 55,678

Depreciation 11

9 Mixing equipment capacity: 80 cubic metres * 5h * 200 days = 80000 cubic metres 10 5 years at 6% 11 Treatment of depreciation for tax purposes depends on national legislation.

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Other n/a

TOTAL 55,678

PROFIT BEFORE TAX 36,882

Taxes 30% 11,065

NET PROFIT / LOSS / SAVINGS 25,817

INVESTMENTS €

Wheel loader, new 150,000

Allu Screener Crusher 30,000

Storage depot land, 5 ha 50,000

Additional costs and land preparation 10,000

TOTAL 240,000

Return on Capital Employed (loan capital only, no net assets) 12

n/a


Bank loan 240,000

Payback time 2.6 yrs

4. Future expansion

Business can be expanded in regional biofuel supply and number of boilers allow. In longer term, the operation can negotiate better long term material purchase agreements.

It may become necessary to employ one or two persons to get the equipment in use for two shifts per day.

If the business expands, it may become necessary to invest into fixed crushers, chippers, conveyors, metal detectors and possibly a mixing silo.

However, having substantial fixed installations is completely different size of business that having a multi purpose wheel loader and only inexpensive attachment device dedicated only for mixing.

12 Profit before interest, tax an dividends, divided by the net assets.

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Picture: Automated mixing silo with gribber. Photo Laka ltd http://www.laka.fi/en/index_en.html Automatic gripper can be programmed to take different quality of fuels from different parts of the storage and mix them to more uniform quality. The system also distributes fuel uniformly throughout the storage. This prevents fuel self heating at unloading points and helps fuel to dry in silo before use. Gripper head has radar for detecting depth of fuel layer at various parts of the silo. Different parts of the silo can be used to store different types of fuels and gripper can be programmed to mix them in suitable proportions. Unloading the silo happens at bottom with walking floor. The silo can have several sections for different qualities separated by a wall.

5. Entry barrier analysis

Major barrier is to make several good agreements with both suppliers and boiler owners. Equipment investments in this owner-operator case low. The operation needs operating capital and cost of it is not included in calculations.

6. Risk analysis Major risk in this small operation is to handle holidays and sick days. Pricing and mixing is very price sensitive and can affect to profit.

….. …..

Prinz, R. Poysti, J. 2007. Biomass supplier mixing from various sources. Finland. 5 EURES (EIE/04/086/S07.38582). Business Plan. 9 p.

- in




EURES EURES

BIOMASS SUPPLY CHAIN MANAGEMENT This is an example business plan for a wood chip supplier company operating in Portugal. This plan has been prepared by IrRADIARE and Instituto Superior Técnico, Portugal.

1. Background Bio-residues are a valuable energy source in regions where small forest areas and agricultural farms coexist dispersed through vast territories. Biomass has a low calorific value and is dispersed. Both factors result in a costly harvesting process over large geographic areas. Complex coordination along the supply chain is required. Internet is necessary as a meeting place for supply and demand.

2. Business idea

a) Service offered The BioChain internet platform is a meeting place for supply and demand in bio energy were local market agents may participate placing their offers and accessing to tenders. BioChain covers both agricultural and forest biomass. The system makes biofuel purchasing tenders available to the local markets operators, who then may place service provision offers. Such offers are geographically and timely referred allowing value chain service providers optimised management of their operating conditions.

The BioChain operates as independent business.

b) Customers Customers are forest and agricultural land owners, forestry and agricultural associations, forest companies, energy producers, heath entrepreneurs, contractors, foresters companies and contractors are targeted customers for the BioChain platform.

c) Benefit for the customer Benefit for biomass service providers is that BioChain helps to optimize management of their operations by helping them to get into contact with other companies in value chain.

Benefit for biomass users is that BioChain helps supply and procurement manager to find suppliers and place orders. The proposed approach is oriented to establish an operational network were local market agents may participate placing their offers and accessing to tenders.

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The tenders available to the local markets agents, that may place service provision offers, are geographically and timely referred allowing value chain service providers optimised management of their operating conditions.

Cost formation models may allow to predict value chain long service costs prediction facilitating the negotiation between service suppliers and the biomass-to-energy procurement manager.

Cost formation models allow optimizing operation along the value chain by supporting the decision of tendering a given service to a specified location and time frame. Among those services harvesting, gathering, chipping, transport, storage and drying are considering. Optimization capabilities allow saving costs potentially reducing the bio-residues cost at biomass-to-energy plant inlet.

The BioChain will offer following benefits:

• BioChain secures the supply of biomass and related services to power plants and in such way it will make bioenergy more viable alternative;

• BioChain offers fair and transparent trade and procurement environment for biomass to all participating actors. This will make local biomass-to-energy markets more sustainable;

• BioChain promotes competition and reduces cost and makes biomass procurement simpler;

• BioChain simplifies the planning of the biomass-to-energy operation providing stable bioresidues and biomass blendings as needed to optimize the biomass-to-energy plant operation.

d) Way to operate The BioChain operator rents web space from internet service provider. Internet application for biomaterial trading will be developed by a specialized team, in IrRADIARE.

The web service will be promoted to forest owners, forestry associations, forest companies, energy producers, heath entrepreneurs, contractors, foresters companies and contractors who will register into the service. A registration fee will be asked from the users of the BioChain platform.

Service providers operating along the supply chain can place their offers and prices and find tenders. Biomass users will place their requirements and cost targets as tenders.

These tenders are available to the local service suppliers who may place provisional offers, and those are geographically and timely referred to each other. The proposed supply management system provides harvesting, gathering, chipping, transport, storage and drying services to the biomass plant procurement manager. Transaction fee will be charged for each deal.

The proposed system will also handle geographic information, terrain, biomass resources availability and costs along the supply chain modelling. Additionally the system combines those models with technological and operational parameters and market dynamic costs.

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A supply cost formation model will be embedded in the system in order to estimate the up-stream biomass cost from harvesting up to the plant feeding and finding balanced price targets for the supply and demand management along the chain. Geography – slops and poor accesses for instance – along economic factors determine cost. The cost formation models will calculated on basis of such factors as terrain shaping, availability of services, capillarity of road network, transport distances, socio-economic context. This cost models facilitate the optimal management of the bio-residues supply chains by supporting decision on where and when harvesting, transporting, storing, chipping and collecting bio-residues. Additionally, the decision on initial – at farm – and final – at CHP – plant under current and predictable market conditions.

Payments can be invoiced or through credit card, only by registered members, and transactions should be made in the system, and authenticated (licensed).

e) Required resources

i. Equipment Laptop; Web Space contract; Office for the web administrator

ii. Human resources Required personnel are web administrator and sales and marketing representative. All other services such as office administration, accounting, invoicing, bookkeeping at outsourcing)

f) Earning model A registration fee will be asked (100 euros) to the users of the BioChain platform. Estimated number of customers in the first year 2500. Also in every transaction a percentage will be charged. The registration fee will be the same to all types of customers the difference will come on the transactions.

g) Seasonal variations As the platform will operate both with forest and agriculture residues no significant seasonal variation is expected.

3. Market situation

a) Market situation Biofuel market is growing in Portugal and with it´s predicable growth in the next years some of the transactions can be expected to occur in web marketplaces.

b) Competition

There aren’t any such platforms covering Portuguese territory.

4. Financial plans

INCOME € Registration 13 250,000 Transaction fees To be decided

13 (2500 users with a 100 euros registration fee)

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TOTAL 250,000 COSTS Office and computer cost 12,000 Accounting & bookkeeping 2,400 Internet service fee 3,000 Marketing 25,000 Personnel costs 44,000 TOTAL 86,400 Operating profit / loss 163,600 Financial costs (repayment of loans) Taxes PROFIT / LOSS

INVESTMENT COSTS € Investments 25,000ROI

SOURCES OF FUNDS € Private capital Payback time on net investment

5. Entry barrier analysis There isn’t a strong tradition of using the internet among typical forest/agricultural land owners. A strong marketing effort must be done to encourage the visit to the platform. It is also very important to clearly state the benefits of using this tool.

6. Risk analysis

The most important risk to be considered is the proliferation of several platforms, identical to the one described. This risk can be mitigated by having the larger possible number of registrations or pre-registrations even before the platform is available on-line.

….. …..

Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico). 2007. Biomass supply chain management. 5 EURES (EIE/04/086/S07.38582). Business Plan. 5 p.




EURES EURES

DISTRICT HEATING NETWORK FOR MUNICIPALITY OF LLES DE CERDANIYA This business plan aims to show how the use of local forest wood chips, from public forests, for heating, is one of the best solutions for small municipalities. The cost of the wood chips is very low due to the short distance and the low price of the wood, coming from pre-commercial thinnings and selection cuttings. The project in this document was aborted in November 2006 due to public refusal. The plan is prepared by Forestry Management Service; Directorate – General for the Natural Environment of Department of the Environment and Housing; Government of Catalonia, and Forestry Technological Centre of Catalonia.

1. Background

Catalonian forests, nowadays are suffering three main problems: forest fires, low wood price and biomass accumulation. This combined with the increasing price of petrol and the need of creating new jobs in rural economies, has increased the interest in biomass, in order to save money, improve forest fire prevention, take profit of local renewable resources and create social benefits

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.

Lles de Cerdanya municipality has a surface of 10,238.8 ha, and nearly the 50% of this area owns to public administrations, distributed as follows:

Public forest name Owner Surface (ha) Muntanya de Lles Lles council 3,264.4 Avellanosa Lles council 350.2 Santa Lucaia Lles council 52.9 Caulas i costa de les gralles Lles council 53

Muntanya d’Aransa Arànser decentralized municipal organization

1,271.1

Claror Generalitat de Catalunya 119.9 Total 5,111.5

2. Business idea

a) General Lles de Cerdanya council aims to create a district heating network to distribute heat for household heating and hot sanitary water. The project is designed to be developed in two stages. .

b) Fuel Boilers are expected to be fed, mainly, with chips obtained from non commercial wood and dead trees of the municipality forests, to improve forest quality and reduce the fire potential.

Biomass type Operations included Cost (€/t) Chipping at roadside landing Harvesting, chipping, transport 67.9

Chipping at power plant Harvesting, haulage, transport, chipping

39.1

c) Customers The plant is developed for heat supply of the local market: public buildings and some private housing. The town of Lles de Cerdanya has only 121 habitants and about fifty housings.

On a first stage public buildings such as the school, the rectory, a hotel, the church and several housings, are the ones that are going to be connected to the district heating. On a second stage, the heating network is going to be spread to every building interested in.

d) Benefit

The expected price for each kWh obtained from biomass is only 0.018 €, instead of 0.046 €/kWh when heating with natural gas, 0.060 €/kWh if using gas-oil or 0.056 €/kWh with propane.

e) Way to operate The owner of the boiler will be the town council and it is going to be the responsible of heat distribution. About biomass supply, there are three possible

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alternatives: creating a municipal brigade obtain the biomass from the loggers and chip it in a timber yard; or hire an enterprise to chip the wood.

f) Required resources Municipal district heating system equipped with two automatic boilers of 150 kW each and 75.6 m3 of chip storage. In the near future it is foreseen to install another furnace of 150 kW it demand rises enough. 125 t is the total amount of forest biomass expected to be consumed in a year. The total length of pipes, including return, installed in the heating network reaches 347.5 m.

g) Earning model As seen above, the final cost of the energy produced by biomass is 0.018 €/kW and from gas-oil 0.060 €/kW. More detailed information can be found on sections 4, 5 and 6.

Hence the economic profits, in Lles de Cerdanya there are other indirect benefits that must be considered: job creation and forest fire prevention.

h) Seasonal variations Heating needs vary according outer temperatures. Taking into consideration that there is a big difference between seasons in la Cerdanya, predicted consumptions for a 150 kW furnace are:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Des

Daily hours (h) 10,00 8,00 5,50 3,00 1,00 0,50 0,50 0,50 1,00 3,00 6,50 10,00 4,13h/day

(average)Monthly average consumption (kWh)

51666,67 37333,33 28416,67 15000,00 5166,67 2500,00 2583,33 2583,33 5000,00 15500,00 32500,00 51666,67 249916,67kWh/year

(total)Monthly average consumption (kg)

12916,67 9333,33 7104,17 3750,00 1291,67 625,00 645,83 645,83 1250,00 3875,00 8125,00 12916,67 62479,17kg/year (total)

Year

Moreover the weather conditions the forest accessibility in many ways:

• Forest fires: On summer, when there is an extreme forest fire risk, forest access can be exceptionally forbidden by decree. Hence, between 15th May and 15th October is forbidden to dump vegetal residuals on the forest and also into a security buffer of 500 m from the border of the wood. Unfortunately this measure includes biomass and harvesting residuals and obliges having a timber yard far from the woods.

• Snow: From mid November to April, snow, combined with the important slopes on forest tracks, blocks the forest paths.

• Mud: On spring and autumn rain can convert in muddy terrain the tracks.

i) Integration to other companies in the value chain It is expected not to imply other enterprises on the district heating if possible. On a first stage, the aim of the project is to guarantee chip supply only to the municipality boilers. So no alternative clients are planned. .

3. Market situation

a) Market situation and forecast for bioheat On medium and long term investments, bioheat seems to be cheaper than fossil fuels. Taking into account predictions of Brent Barrel reaching 100 $ in near future, the payback time of a biomass installation, it’s likely to be strongly reduced compared with a traditional boiler.

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b) Sources of raw materials Own forests, and a near sawmill in Bellver de Cerdanya. The sawmill consumes 37,000 t/year and is 18 km far from Lles de Cerdanya. The annual production of by-products is 35,573 loose cubic meters of chips, 1,200 t of bark and 6,800 loose cubic meters of sawdust.

c) Competition Nowadays no competition in biomass heating exists or is expected to be built. Only traditional firewood obtaining and minor logging are the activities done in the municipality forests.

d) National / regional policies currently and in long term According to the predictions of the “Pla de l’Energia de Catalunya” (Catalonia Energy Plan) this it’s going to be the evolution in biomass consumption:

Forest and agricultural biomass consumption (ktoe/year)

2003 2010 2015

BASE scenario 93.9 127.3 136.6 IER scenario 93.9 161.7 228.6

toe: Tones of oil equivalent BASE scenario: According to the actual economic, energetic and technologic trends IER scenario: Maximum enhancement of renewable energies use, energy saving and energy efficiency

The average price for biomass energy in the UE15 is 72.5 €/MWh. In Spain the price, including he incentives it’s about 61 €/MWh. The Spanish market price was only 32 €/MWh in 2003. (Pla de l’Energia de Catalunya).

4. Financial plans Financial calculation has been done considering theoretical gas-oil consumption because, at least on a first stage, there is no heating sale.

PROFIT AND LOSS Unit Total (€) INCOME Sales: Gas-oil consumption1 0.7 €/l 46,667 COSTS Fuel price (wood) 0.08 €/kg 10,666 Electric energy 60 Maintenance 700 Insurances and others 250 TOTAL 11,676 Operating profit /loss 34,990.9 Financial costs 3.5% 5,150.18 Depreciation 10 years 10,620.33 Taxes 0

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Profit / Loss 19,220.49 1If gas-oil boiler was going to be chosen

5. Investments

INVESTMENT COSTS Total (€) Boiler and fuel feeder 82,864 Boiler accessories 9,610.81 District heating: Pipes and accessories 10,748.19 Transport, installation and works 39,800 Project design and construction supervision 2,860.46 Works1 80,000 TOTAL 106,203.26 ROI 18.1%

1The district heating pipes are going to be installed seizing the opportunity that the town facilities are going to be renewed.

6. Sources of funds

SOURCES OF FUNDS Total (€) Boiler and fuel feeding subsidies 25,699 Works: 80,000 Capital 120,184.46

SOURCES OF FUNDS Total (€) Share capital 37,672.26 Capital loan 42,832 Government grant for boilers 25,699 TOTAL 106,203.26 ROI 18.1%

7. Entry barrier analysis It is supposed that the biomass supply chain of Lles de Cerdanya will be new and different from the one used in. This means many questions and problems to be solved in the first stage of the start-up of the project.

oil price seems to ensure the future profitability of the biomass facility.

8. Risk analysis The lack of experience on supplying biomass and the absence of appropriate machinery is the main hazard for well-operation of the system. However, biomass availability is fully guaranteed due to big amount of biomass available in Lles de Cerdanya forests.

No emergency or low demand gas-oil boilers are foreseen in case biomass boilers break down or low heat demand, for example in summer, occur.

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Heating demand is difficult to predict because the buildings to be heated are used intermittently. Moreover, the small dimension of the district heating can cause important variations of heat demand in a short gap of time.

The boiler installation, the district heating and the main part of the buildings to be heated, are owned by the city council. Hence the delivery and the consumption are guaranteed.

The increasing trend of the oil price seems to ensure the future profitability of the biomass facility.

9. References DTI (Departament de Treball i Indústria). 2006. Pla de l’Energia de Catalunya 2006-2015. Ed. DTI, Generalitat de Catalunya. Barcelona. 460 pp

..... …..

FORESTRY MANAGEMENT SERVICE; DIRECTORATE – GENERAL FOR THE NATURAL ENVIRONMENT OF DEPARTMENT OF THE ENVIRONMENT AND HOUSING; GOVERNMENT OF CATALONIA. FORESTRY TECHNOLOGICAL CENTRE OF CATALONIA Correal, E., Rodriguez, J.. Lles de Cerdanya business plan. 5 EURES Project Report X/200X, Project EIE-04-086. Catalonia, april 2006, 6 pages Keywords Bioenergy, wood fuel, benefit, balance, cost, price, Catalonia




EURES EURES

ENERGY WOOD HARVESTING WITH FARM TRACTOR This is a business plan for a contractor starting to harvest small whole-trees for bioenergy from early thinning sites and over growing trees and bushes from the sides of forest roads and agriculture fields. The contractor invests into a second-hand tractor with installed forestry-use equipments. This plan was prepared by the Finnish Forest Research institute (Metla) and Finpro.

1. Background

Young thinnings are a potential source of biofuel. Currently, the highest unutilized biofuel yields are found in stands, were forest management activities have been neglected. These stands are over-dense, and the trees that have to be removed are too thin or of undesirable tree species for industrial purposes. As such, they are attractive for biofuel harvest (Hakkila 2004). Suggested management guidelines for biofuel production in young forests could include energy wood thinning which is carried out before first commercial thinning. Energy wood harvesting includes only cutting of small whole trees. It can delay the first commercial thinning compared to traditional forest management regime (Hakkila 2004). In pine stands, an extra benefit is better quality of the remaining stems, if young trees are originally growing too dense

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A farm tractor with relatively high productivity and moderate purchase price can be a competitive option in energy wood harvesting from thinnings, if terrain conditions are favourable and the annual operational hours are adequate (Ryynänen et al. 2000).

Use of forestry equipped second-hand farm-tractor in energy wood thinnings, can be economically feasible option for the entrepreneurs and contractors in rural areas, and for those who are entering to bioenergy markets and making their first investments in forest machinery. Financially the situation is challenging because harvesting costs in first commercial and pre-commercial thinnings are much higher than in final fellings or in later thinnings.

Typically, the costs for one MWh of wood chips is about 50% higher if chips are produced from first thinnings compared to wood chips from logging residues from final cuttings.

In Finland, principal mean to compensate the high harvesting costs due to small stem size and low harvesting removal per hectare is to have Government’s (KEMERA) subsidies for full tree harvesting and chipping from young stands.

2. Business idea

a) Targeted customers Contractor offers services to forest owners and co-operates or heating entrepreneurs at the local bio power plant. They are contactor’s commercial contracting partners and paying customers.

b) Products or services offered Contractor does mainly early thinnings of forest stands, but also clearings of over growing trees and bushes from the sides of forest roads and agriculture fields. This is full time occupation.

c) Benefit for the customer Harvesting energy wood helps the stand to achieve the better growing state.

Thinnings of forests, for either production of industrial round wood or energy wood, or both, must be done periodically. Early thinnings are most competitively done by specialist contractors who have special felling heads in tractors suitable for the thinning task, and have special skills to select the stems to be removed.

d) Way to operate

The contractor is typical forest contractor. Several ways of operation are possible. Forest owner may contract energy wood felling, or local bioenergy boiler owner may buy standing energy wood from forest owner and contract energy wood felling.

Contacts may come either from the forest owner or alternatively from forest owners’ association who usually coordinate forest related activities, or from boiler owner. Advertising can be done in local newspapers and web sites.

Operation is fairly local, perhaps within 25 km radius, since otherwise traveling time and cost to work and back for the operator may become too

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Cutting of energy wood

0102030405060708090

100

0 250 500 750 1000 1250 1500 1750

Energy wood harvesting hours

Hou

rly c

ost,

€/h-

E15

Agriculture use of 600 h

Agriculture use of 1000 h

Only energy wood harvesting

high, and acquiring new customers further is more difficult since operation relies typically on local reputation.

Tractor can be driven to new locations in local operation without need to have a separate truck transport.

Farm tractor will be used for cutting operations. Forest owner or heating entrepreneur makes a deal with one local forwarder contractor, which normally forwards the cut energy wood trees from the stand to the roadside. This forwarding is best done by a specialist with appropriate equipment.

Picture: The hourly costs of forestry equipped farm-tractor as a function of energy wood harvesting hour illustrates how costs decrease rapidly until around 250 harvesting hours are achieved.

The business is targeting for around the year operation. Otherwise the cost of operation would be too high according to studies14.

Felled small whole trees are forwarded and transported by other contractors to roadside and terminal storages adjacent to the forest stand or road. Chipping of small round wood is most often done at the road side storage, so the transport of energy wood from road side storage to end use facility is done by chip trucks. Bio power or heating plant company will receive the needed amount of wood chips to produce the heat and distribute it to the buildings at the village.

The boiler owner contracts forwarding of energy wood from forest to roadside storage (where it dries) and recycling ash away. By that way, the operating hours of the forwarder could be raised and, therefore the hourly costs remains at reasonable level and the work load could be spread better thorough the year.

Feasibly operable energy wood stands are: the average stem size being at minimum of 4–5 cm at breast height, dense forest and small amount of driving in the forest. Especially birch stands, where the amount of removable stems is usually high and the resulting tree density remains quite low (easy to drive), are feasible targets. Other potential energy wood harvesting sites for farm tractor based harvesting are the abandoned fields growing energy wood, where all the trees and bushes have to be cut. Additionally, cutting of bushes and

14 Väätäinen, K., Tahvanainen, T., Sirparanta, E. & Lamminen, S. 2007. Energy wood from early thinnings. Joensuu. Finnish Forest Research Institute, 5 EURES (EIE/04/086/S07.38582) Project Report 21. 30 p.

42

small stems right next to the smaller (private and forest) uncared roads are proper working sites, even though the share of these sites’ energy wood removal from total remains quite small.

e) Recommended business structure Alternatives are private entrepreneur or limited company. Private entrepreneurship is selected and recommended mainly because of tax reasons in Finland.

f) Integration to other companies in the value chain Contractor forms part of the business network with local heating power plant, which produces district heat to the village. Heating co-operatives and forest owners’ associations are also important partners in marketing services. Forwarding of energy wood is done by the another contractor.

Thus, the amount of privately operated contractors could be even four at maximum in the supply system of energy wood to local bio power plant – The contractors for cutting, forwarding, chipping and chip transporting. Alternatively, contractors can be merged and then the bio energy co-operative will offer the whole wood energy supply system for producing power and heat to local village.

g) Required resources Farm tractors used for forestry works needs to be equipped for forest work purposes. Tractor manufacturers typically install a special forest cabin, revising techniques (the driving during cutting is done reversed) and cut-resistant tires in farm-tractors intended also for forest use. Shielded underframe and hydraulic pump are also vital to install to the tractor. Depending of the prospective forestry use of the tractor, there are several additional accessories possible to attach to the tractor, such as crane, forestry trailer, accumulating felling head for energy wood, mobile chipper and snow blower.

i. Equipment The equipments used by the company are a farm tractor (Valtra 6400, year model - 1996), a timber crane (Kronos3000), an accumulating felling head (NaarvaGrip1000-23E) and optional timber trailer (Kronos).

The tractor is relatively light and cheap second-hand forestry equipped tractor which purchase price was 28,200 euros (VAT 0%).

Separate tires with rims for agriculture use have to be included into basic investment cost, if the tractor is used for agriculture purposes. In this case those were not taken into account

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Picture. Energy wood harvesting head with accumulating grips

ii. Human resources One owner-operator, one shift, full time occupation.

h) Seasonal variations affecting operations Unfavourable weather conditions may prevent operation on some days. In winter times especially, when the snow depth is high.

3. Market situation Contractor is a local operator and market situation and competition varies accordingly. There should be a local 1-3 MW bioenergy plant that would buy harvested small whole trees, or chips, from the forest owner.

In Finland, repeated thinnings are a standard and essential silvicultural practice for the efficient production of good quality and well priced industrial wood. Nearly all stands are thinned one to three times during a rotation time.

Currently only around 10% of wood material from early thinnigs is collected in Finland. There is a market opportunity for contractors. Energy wood harvesting in young stands can be done with relatively light and cheap machines.


INCOME €

Sales, contracting fee 11,8€ per cubic m (*3 m³/h *1742h) 15

61,668

TOTAL 61,668

COSTS

15 Estimated productivity is 3 cubic metres per hour and the annual operating hours of the tractor is 1742 h

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Wages 11 € per hour, 1936 hours 21,296

Indirect wage cost-25% 5,324

Repair and maintenance cost, 3 €/h-E15 * 1742 hours 5,227

Fuel cost 8.0 litr per hour * 0.55 € per litr * 1742 hours 7,667

Motor oil cost 0.1 litr per hour * 1.7 € per litr * 1742 hours 296

Gear oil cost 0.1 litr per hour * 2.1 € per litr * 1742 hours 366

Hydraulic oil cost 0.25 litr / h * 1.83 € / litr * 1742 hours 806

Insurance 500

Relocation of tractor (1210 km/year, 0,6 €/km) 726

Management, marketing & overheads 1,500

TOTAL 43,708

OPERATING INCOME 17,960

Financial costs (repayment of loans) 16 8,616

Depreciation 17 n/a

Other n/a

TOTAL 8,616

PROFIT BEFORE TAX 9,344

Taxes 30% 2,803

NET PROFIT / LOSS / SAVINGS 18 6,541

INVESTMENTS €

Forestry equipped tractor (Valtra 6400, year model 1996) 19 28,200

Naarva-Grip 1000-23E Wood energy felling head (accumulating felling head)

6,970

Kronos 4000 Crane 9,410

TOTAL 44,580

Return on Capital Employed (if own investment) 20 40%

16 To borrow 44,580€ over a term of 72 months at an interest rate of 5%. 17 Salvage value 25%. Treatment of depreciation for tax purposes depends on national legislation. 18 This is business profit. Salary of the operator is accounted in costs. 19 Total cost of the investment is allocated to forest use although the tractor is also used in agricultural work. 20 Profit before interest, tax an dividends, divided by investments.

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Bank loan 44,580

Payback time 2,5 yrs

5. Risk analysis Conditions on some forest sites are difficult making profitable operation impossible. Average size of the energy wood stem should be big enough (at least 30-40 liters).

If the subsidies received from government will end, energy wood harvesting from young stands (early thinnings) will become unprofitable. Then the operation should be refocused on industrial wood cuttings from final fellings or stand treatments, where bigger stems are cut. The problem would be the suitability of the equipments in processing bigger stems.

A farm-tractor contractor is basically concentrated on cutting of small whole trees for wood energy. In addition to that, and specially in case if level of business activities is low or other supporting contractors are not available locally, the contractor can invest to a mobile chipper powered by the farm-tractor.

Still broadening the services, the contractor can offer the snow ploughing of forest roads at winter times. By that way, operator can increase the utilization of the base machine, especially at winter time; the farm-tractor and, furthermore, contractor can add one contracting phase to the whole wood energy supply system.

Risk of not having enough energy wood sites available at local region does not exist in Finland. Average yield of energy wood from forested areas is about 20-30 m³/km². This means that in 25 km radius, there is at least 35 000-40 000 m³ energy wood available. For example in this business plan case the contractor collects a little bit over 5 000 m³ annually. Particularly, it must be remembered that forestry equipped farm tractor is still not able to go to similar logging environments than conventional harvesters. Some terrains are too demanding to operate at all, or the operation may be unprofitable. Contractor must check the situation before accepting contract. Information exchange with other forestry contractors and harvester operators is needed.

….. …..

Väätäinen, K., Pöysti, J., Lamminen, S., Laitila, J. 2007. Energy wood harvesting with farm tractor. Finnish Forest Research Institute, Joensuu, Finland. 5 EURES (EIE/04/086/S07.38582). Business Plan. 8 p.

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Crushing demonstration in Vilnius, Lithuania 2006 – Picture Markku Paananen

Transport demonstration in Vilnius, Lithuania 2005 – Picture Jelena Aneicik




EURES EURES

FIRE WOOD SUPPLIER FOR CONSUMER SECTOR (BIOMASSENHOF) This is an example business plan for a company processing (manufacturing) and distributing various kinds of firewood, pellets and briquettes mainly for consumer sector. This plan is prepared by University of Applied Science, Eberswalde, Ggermany (Fachhochschule Eberswalde).

Picture: Pinosa "EPC 3300" firewood processor at www.pinosa.net

1. Background There is good opportunity to start this business because Eberswalde area has no large firewood suppliers. The other firewood suppliers are in Berlin area and concentrate offering premium priced firewood for city people. Eberswalde has also large local wood resources which will keep procurement and transport costs reasonable and products of this company will be affordable to local small home owners in Brandenburg

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2. Business idea

a) Products or services offered The „Biomassehof Eberswalde GmbH“ will sell various kinds of firewood, pellets and briquettes. Customers get the opportunity of cash and carry or home delivery. Furthermore DIY-Stores and boiler & chimney suppliers keep the goods for sale.

The products which are standardized to comply with European common standards are as follows:

Dryed and wet chopped wood in batches with: 0,25 m, 0,33 m and 0,50 m length,

Wood chips: humidity under 20 % and a particle size distribution: G 30, G 50, G 65

Wood pellets / Wood briquettes: Industry pellets for large scale plants, high quality pellets for boilers and briquettes mainly for chimneys

b) Targeted customers Home owners, small & medium sized enterprises and combined heat and power plants, supplying municipal or commercial property managements as well as public and social utility. DIY-Stores, and boiler & chimney suppliers will also distribute various kinds of firewood, pellets and briquettes manufactured by the company.

c) Benefit for the customers Consumers get a better survey of the local energy wood market plus expert advice at one central location. They get standardised sales terms and delivery conditions as well as all needed product information, e. g. guaranteed quality and certified standards. This results in a tailored product offer and service for each customer at best prices.

The products are standardized to comply with European common standards.

d) Way to operate Products are either produced in own production lines or bought from local enterprises for reselling.

The wood yard runs an own production line for chopped firewood. The firewood will be dried naturally or in a drying chamber. Wood chips are produced by subcontractors. The drying of wood chips will be done by natural drying or by using industrial waste heat. Furthermore the company will retail wood pellets and wood briquettes. Haulage contractors will supply the products from stock to the consumers.

i. Purchase and reselling of finished products (chips, chopped wood, pellets, briquettes)

ii. Wood chips:

- Chipping by subcontractor, further handling by “Biomassehof Eberswalde GmbH”

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- Drying realised by open air drying under canvas cover and by using industrial waste heat

iii. Chopped firewood:

- Chopping of purchased raw material by employees and an in-house chopping machine

- Drying realised by open air drying in iron-bared boxes and by drying chamber using industrial waste heat

iv. The transportation of raw wood from the forest to the yard and the distribution of finished products will be done by haulage contractors

v. Customer consultation on fireplaces & firewood as a free service

Customers get the opportunity of cash and carry or home delivery. Furthermore DIY-Stores and boiler & chimney suppliers keep the goods for sale.

Long term supply contracts with bulk consumers make quantity discounts possible as well as payment after consumption.

Location of the business will be chosen based on GIS maps with wood potentials, transportation routes and market studies as well as a location benchmarking.

The optimal location could be connected, for instance, to a already existing biogas plant where the mostly unused heat could be utilised for wood drying.

e) Recommended business structure Limited company (GmbH).


i. Equipment a. Chopping machine Pinosa "EPC 3300" (88.000 €, E-Motor, ø 470

mm, max prod. 15 t/h, max splitting power 35 ton, automatic feed for raw wood and chopped wood)

b. Digger with removable clamshell and lift fork for handle the raw wood,

c. Wheel loader for handling wood chips

d. Packing machine for packing the chopped wood

ii. Human resources

Throughout the first year one commercially educated part time working employee is working at the administration department (afterwards 1 and then 1,5). One part time plus one fulltime technical employees (afterwards 2,5 and later 3) are responsible for production, store and sales. These employees have a mechanical apprenticeship in the fields of wood-processing or forestry and have skills in handling agricultural or forestal implements.

Among the management the managing director is concerned with the acquisition of suppliers and key accounts, marketing, purchasing and sales. Necessary skills are a final degree in forestry or agriculture with business

50

orientation. He should be aware of the wood and energy wood market especially in Brandenburg and in Barnim County.

iii. Financial resources required The total investment of the company amounts to 217.660 € for chopping machine (88.000 €), digger (60.000 €), drying chamber (10.000 €), wheel loader (35.000 €) etc.

3. Long term business objective Within two years the company will be well established on the energy wood market and develop a stabile clientele. It will work cost-covering with growing sales. There will be a positive operating income already in the first year.

Until the end of the fifth year the economic utilisation should be reached. There should be a continuous growing in sales volume and goods turnover.

Until the 5th business year there will be a goods turnover in the amount of 12.000 scm (chips and chopped wood) and a volume of sales amounting to 1.664.000 € (chips, chopped wood and pellets). This is based on the regional annual requirements of chopped wood and chips for boilers and plants under 1.000 kW in the region.

4. Market situation

a) Suppliers On the energy wood market there are numerous small, regional chopped wood producers. Larger chip or chopped wood producers and retailers are existing mostly outside the county and don’t have a big influence on the regional market as they are concentrated mostly on the Berlin clientele.

Poor logistic sales and marketing structure are resulting in high prices for chopped firewood from 42 up to 143 €/stacked cu m in DIY stores. Wood chip prices are ranging from 12 to 28 €/cu m. In Brandenburg there are just 5 pellet producers. Here the price ranges from 190 to 220 € / t.

b) Customers in Brandenburg From the comparison of required wood (Industry 5,7 mio solid cu m and heat and power 2 mio solid cu m) and potential supply (currently 5,5 mio solid cu m) follows a deficit of round about 2 mio solid cu m. This supply shortage demands a comprehensive market structuring as well as profitable and rising forestry operations. The Biomassehof Eberswalde GmbH is one actor in the optimisation of the regional value chain for timber and energy wood.

Because of the low capacity utilisation especially of smaller wood-fired boilers with only about 4 – 30 % and due to the fact that the most heat utilities are wood-fired boilers with 15 to 100 kW the current firewood consumption has a big development potential and will rise in the future, especially when conventional fuel and electricity prices continue to grow.

Furthermore an uptrend in reinstallation of small pellet boilers was noticed recently.

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c) Customers in Eberswalde There are only two CHP´s with nominal output exceeding 1 MW namely: HOKAWE - Holzkraftwerk Eberswalde GmbH (raw wood) and BPK Biopower (matured wood).

Regional wood consumption of small scale boilers (under 100kW): Current chopped wood consumption: 25.000 m³(solid)

Chopped wood consumption if boilers used at maximum capacity: 250.000 m³(solid)

Based on the low efficiency as well as the development hinted under point 7 and 8.2.1 within the next 4 years a rise of chopped wood consumption from 25.000 m³(solid) to 50.000 m³(solid) might be expected.

d) Competition In the Berlin area are some firewood suppliers which have tailored their offer to the needs of the Berlin clientele. This means nice and clean firewood which is easy to store and looks good at the fireplace. Therefore the Berlin dealers charge a multiple of the price normal on the countryside. These suppliers are focused on their city clients and don’t target at the small home owner in Brandenburg. Plus longer transport distances cause additional rises in the price of firewood.

In the Eberswalde area there are no large firewood providers, only a few small companies which run the firewood business beside their main work.

5. Financial plans The needed fund for investments and initial purchase and liquidity is 217.660 € financed by 30.000 € shareholder loan and 225.000 € investment loan.

Investment loan has been calculated on a period of 10 years, starting the repayments as from 3rd business year with 5,85% interest rate.

1. year 2. year 3. year € € € Income

Sales 673.800 1.059.400 1.362.900Total 673.800 1.059.400 1.362.900 Costs

raw materials, goods in process and finished goods 158.400 251.800 338.250

transportation costs 202.590 317.820 408.870personnel - wages & indirect costs 141.560 175.560 199.320Maintenance 48.984 48.984 48.984Insurances, legal advice and others 3.684 3.688 3.688

Total 555.218 797.852 999.112 Operating Profit / Loss

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Financial costs 0 0 12.340Depreciation 21 99.953 22.494 22.486

Total 99.953 22.494 34.826 Profit before tax 118.582 261.548 363.788

Taxes Net profit / Loss / Income 118.582 261.548 363.788 Investment costs € € €

chopping machine, digger, wheel loader etc. 217.660 0 0

ROI 3 23 24

Sources of funds €

Privat capital 30.000 Payback time on investment 8 years

6. Risk analysis Close to the Biomassehof Eberswalde there are some small chopped wood producers which partly could be integrated into the actions with positive synergetic effects. Larger competitive enterprises are far enough from our location in the Barnim region. From the energy market development follows the evidence that the market prices conform to the calculated product prices as well as the planned goods turnover.

….. …..

Dipl.- Ing. (FH) Gundolf Schneider, UASE. Dipl.- Ing. (FH) Severine Laufer, UASE. 2007. Fire wood supplier for consumer sector (Biomassenhof). University of Applied Science (Fachhochschule Eberswalde). Eberswalde, Germany. 5 EURES (EIE/04/086/S07.38582). Business Plan. 6 p.

21 Treatment of depreciation for tax purposes depends on national legislation.




EURES EURES

FOREST RESIDUE INFORMATION EXCHANGE FOR BIOMASS TRADING 1. Background

This is an example business plan for a forest residue business that was developed and is operated in Finland by governmental forestry agency Forestry Centre (Metsakeskukset) as self sufficient operation. Budgetary calculations presented here are done assuming that operation is independent commercial business. Calculations do not reflect operational environment at agency Forestry Centre.

2. Business idea

a) Products or services offered Business operates a nation wide internet pages for forest owners and forest operators such as contractors that machinery to harvest or offer similar services to forest owners. Forest owners will list available energy wood plots and contractors can find and offer to harvest them.

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b) Targeted customers Users of the internet platform are forest owners that have young energy forests available and want to sell, or find contractor to harvest them. Other users are companies or contractors who operate in the forest harvesting and collecting energy wood. Forest operators might be forestry associations, forest companies, energy producers, heath entrepreneurs, contractors, foresters, etc.

c) Benefit for the customer The internet platform is meeting place for forest owners to offer energy wood and harvester & users to find suitable forest plot to collect energy wood. This is effective alternative to the old method where supply and demand was matched via network of old acquaintances.

The web page is information exchange. All prices are negotiated individually between forest owner and contractor. The web page will not list prices or act like trading platform because public listing would drive prices up or down.

d) Way to operate Forest owner becomes listed on the web pages by informing the administrator his details and details of the forest plot by email or telephone. Administrator will enter the details into the web database and will send a hard copy to forest owner. Registration is free for forest owners.

Wood energy contractors (forest operators) fill up the registration form available at the web page and pay registration fee. Form is sent to the administrator who will enter details on web database. Administrator will send user ID and password to the registered forest operator.

The web database works in two ways. Forest owners can browse available harvesting services and select suitable company. Forest operators and harvesters can place offers on database and browse forest owner database to look for suitable forest plots.

Forest owners can post details about size of the area offered, volume, wood type and quality, and ground type. Administrator will add maps of the plots. Information is edited and added to web site by site administrator.

Forest operators can add details of their machinery and requirements. Information can be edited by the forest operator themselves.

Forest operators will see forest owner information only on their operating area. Forest owners can not see each others information. Forest operator information is available publicly.

Forest owners and forest operators are each responsible of the information given. We page business does not take liability of posted information.

e) Recommended business structure The business is currently run as (within) an association.

f) Required resources Required services are internet pages and database services ordered from internet company. The business needs one full time operator who will add new

55

forest owner information and sell the service to forest operators. Completing the database will take five man years.

If business in run as part of forest owner’s association or similar, the business may need 14 part time people. One is main administrator at national level who is responsible of the general operation. At regional level there are 13 people who act as regional administrators checking and entering information into the database. No significant financial investments are required.

g) Earning model Operation gets income from registration fees from forest operators. Information on available forest plots for harvesting is limited to subscribers. Browsing of harvesting services is free and can be used by both forest owners and public.

Only forest operators are interested in paying for the service because their need for new contacts is immediate. Forest owners can wait a long time without significant loss of money. Forest operators need constant business otherwise equipment stays unused causing significant loss of money. Thus, the service is more valuable for forest operators, and it is assumed only they are willing to become paying subscribers.

3. Market situation Pages are competing with the old method where supply and demand was matched via ineffective network of old acquaintances.

Other sources where forest owner can find contractors are Yellow Pages and web pages of forestry contractor’s association. Information on those pages is not updated frequently and details about machinery capacity are sparse.

4. Budget

INCOME € Subscription fees, €55 per contractor, 900 users 22 49,500Advertisements 10,000TOTAL 59,500

COSTS

Internet service fee 2,000Admin salary, per year 35,000Fixed costs (computers, office) 2,000Marketing, etc 5,000TOTAL 44,000

OPERATING ICOME 15,500 Financial costs (repayment of loans) 0 Depreciation 23 0 Other 0

22 Subscription fees for similar type of service at www.ihb.de are between 250 – 2500 euros per year. IHB has 10.000 users. 23 Treatment of depreciation for tax purposes depends on national legislation.

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TOTAL 0 PROFIT BEFORE TAX 15,500 Taxes 30% 4,650 NET PROFIT / LOSS / SAVINGS 10,850

INVESTMENTS €

Computers 2,000Office equipment & furniture 1,000

TOTAL 3,000Return on Capital Employed 24 516%

SOURCES OF FUNDS € Own funds 3,000Payback time 4 months


There are no significant barriers to enter internet business. Service contracts and web hosting are readily available from different sources. There is no licensing for the trade and no major competitors doing similar things.

In Finland the agency Metsakeskukset can get forest data from their own database. Commercial operation must get the data from forest owners.

6. Risk analysis It is essential that the web site reaches critical size very soon, otherwise paying subscribers (forest contractors) can not benefit enough and are not interested to pay next years fee. Regional implementation is suggested where concentrated effort is made to get all potential forest owners and forest operators into the database, and then expand to another geographical area.

The full nationwide implementation may take several years and the operation will probably make loss in the first two years. Break even level is around 600-700 paying users at indicated fee level. Increased fees may be got but only if service is exceptionally good.

Information quality on forest plots is critical. Forest operators can get most benefit from the system when they know accurately sizes and types of the plot. This means directly decreasing costs of acquiring new contracts and reduced costs of operation because planning can be done before hand.

….. …..

Vaatainen, K. Karppinen, H. Poysti, J. (Ed) 2007. Forest Residue Information Exchange for Biomass Trading. Joensuu, Finland. 5 EURES (EIE/04/086/S07.38582). Business Plan. 5 p.

24 Profit before interest, tax an dividends, divided by the investment.




EURES EURES

GREENHOUSE PELLET HEATING & CO2 PLANT 1MW This is an example business plan for using wood pellets to heat greenhouse and generate CO2 to fertilise plants by gasifying wood pellets. Prepared by Finpro and Puhdas Energia ltd. 1. Business idea

a) Products or services offered Company supplies heat and carbon dioxide generated from biomass to local large commercial glasshouses in Finland. Company uses wood pellets which are gasified into wood gas and piped into combined condensing heat exchanger & gas cleaner unit that takes heat of from the flue gas and cleans the flue gas to a very high degree. The carbon dioxide must be extremely clean because it is breathed by employees. Heat is used to heat the glasshouses and carbon dioxide is vented into the glasshouses to act as gaseous fertilizer. Previously, the greenhouse grower used to buy carbon dioxide in bottles from industrial gas company.

Picture: Vaanela greenhouses, Finland. The green container in the foreground contains heat and CO2 generator. Wood pellets are stored in silo background.

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The right concentration of carbon dioxide can enrich the growth of plants, boosting production by up tens of per cents.

When compared to the standard bio fuel boiler solution offered by PE, the recovery of carbon dioxide in this system enhances profitability even further and the investment benefits the glasshouse operation both economically and ecologically.

Company will get income from:

• Selling heat 7200 MWh per year

• Selling CO2 production 3.6 million kg per year

• Selling carboneus ash to power plant

Fuel is wood pellets that are bought from commercial providers at 25 €/MWh. Company is considering to shift into less expensive wood chips in the future

b) Targeted customers Customers are two local large glasshouses which use the heat and carbon dioxide. PE has five year agreement for heat and CO2 delivery with the customers

c) Benefit for the customers The glasshouse industry has been hard hit by an unprecedented increase in the price of energy. Heating costs have risen by more than 50 per cent, putting huge pressure on the viability of some growers. The glasshouses were previously heated from local district heating network. Heat from the PE bioenergy is purchased at lower price. The heating system will substitute the use of 300 tons of heavy fuel oil annually, cutting most of the CO2, NOx and SOx emissions of the glasshouse.

In addition to producing clean heating energy, the innovative system also produces 300 tons of beneficial carbon dioxide which significantly accelerates plant growth and increases final yield. The glasshouse used to buy CO2 from industrial gas supplier at €160-170 per ton. The glasshouses can now buy CO2 from bioenergy plant at 50 €/ton.

d) Way to operate The equipment supplier will operate the plant remotely through internet connection. Possible service visits are arranged with local operators.

The plant can operate with full capacity throughout the year because glasshouse needs substantial amount of heat also in the summer for heating irrigation water. Glasshouse needs some heating also in the summer. Capacity of the bioenergy plant is much smaller than what the glasshouses could consume at any time.

e) Required resources A 1 MW wood pellet or wood chip gasifier produces synthetic gas which is combusted in a standard fire tube – smoke tube boiler with a low NOx wood gas burner, specially designed by PE. The boiler flue gas is cleaned from all

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particles in a wet scrubber. The system is built in a standard container. Foundations are simply leveled earth with gravel on top.

The individual components are listed below the following illustrative picture that presents the plant:

• 1 MW wood pellet gasifier, gas cleaner and gas burner.

• Boiler and condensing heat recovery unit

• fuel silo and supply system// outside the picture

250 kg of pellet generates gas for 900 kWh and an additional 500 kg of CO2.

f) Earning model Operation gets income from selling heat 7200 MWh per year, by selling CO2 production 3.6 million kg per year, and by selling carboneus ash to power plant.

Carboneus ash is created when small amount of carbonized wood pellets fall through the system into the ash. The amount of fall through is very small but since ash itself is very condens, the percentage amount of unburned carbon is relatively high. Since this carboneus ash is made from renewable green sources it is very useful and valuable for cofiring purposes in coal power plants.

The plant produces up to 15 kg/hour of char at full operation. The carbon content of the ash is 80% and thus it can be sold to any solid fuel (coal or bio-fuel) power plant for co-firing. The carbon in the ash is activated which is typically used in various filtering purposes. Considerably higher value of ash could be obtained by selling the highly reactive ash to a filter manufacturer.

2. Market situation The company has secure market position since the glasshouses have made five year contract for the heat supply. However, the glasshouses have possibility to use town’s district heating system as alternative.

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3. Budget

INCOME € Sales of heat 25 172,800 Sales of CO2 26 200,000 Sales of carboneus ash 20,000 TOTAL 27 392, 800 COSTS Fuel price (wood pellets) 28 250,000 Maintenance 5,000 Own energy use (electric) 5,000 Administration & operation 3,000 TOTAL 263,000 OPERATING INCOME 129,800 Financial costs (repayment of loans at 6%) 13,164Depreciation 29 Other TOTAL 13,164 PROFIT BEFORE TAX 116,636 Taxes 30% 34,991 NET PROFIT / LOSS / SAVINGS 81,645

INVESTMENTS € System in container 250,000Fuel storage and screws 30,000Installation and commissioning 20,000TOTAL 300,000Return on Capital Employed 30 56%

SOURCES OF FUNDS € Government grant 31 70,000Long term loan 32 130,000

25 7 200 MWh of heat * 24 €/MWh = 172 800 € 26 4 000 000 kg of CO2 * 5 c/kg = 200 000 € 27 The monthly production of the plant is 900 MWh of heat (@24€/MWh) and 250000 kg of CO2 (€0.05 /kg). 28 The fuel consumption is around 8500 MWh, which equals to 2000 tons of wood pellets per year. At the price of 25 €/MWh = 125 EUR/ton the annual fuel cost is 250 000 €. 29 Treatment of depreciation for tax purposes depends on national legislation. 30 Profit before interest, tax an dividends, divided by the investment (net assets). 31 Ministry of Trade and Industry has approved 70000€ grant for the plant. 32 Finnvera has approved long term loan for 130000€ of the costs.

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Equity 100,000 TOTAL 300,000Net investment 230 000Payback time on net investment 14 months

FINANCIAL ASSUMPTIONS Investment 300 000 €Interest rate on long term loan 6%Plant life time, loan pay-back time 15 yrsFuel price 25 €/MWh Operating time 8000 h / aEfficiency, with char coal sales 87%Efficiency, without char coal sales 82%Fuel input 1 100 kW CO2 production 500 kg/hCO2 production 4 000 000 kg/a Heat out put 900 kWHeat production 7 200 MWh/a

4. Risk analysis

Company has only two customers but on the other hand company has five year agreement. System is built in transportable container and can be taken away. The system is in competitive situation with town’s district heating supply. Price of wood pellets may depend on supply and demand in the market and price of alternative source of energy.

….. …..

Tukiainen, S. Raunio, O. Poysti, J. (Ed) 2007. Greenhouse pellet heating & CO2 plant 1 MW. 5 EURES (EIE/04/086/S07.38582). Business Plan. 5 p.

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Thinning in Finland – Picture Antti Ala-Fossi

Workshop Biomass to Energy Local Markets Aveiro, Portugal 2005 – Picture Elsa

Nunes




EURES EURES

HEAT ENTREPRENEUR OPERATING WOOD HEATED SPA 1MW This is an example business plan for heat entrepreneur who is intending to sell heat to a hotel / Spa. This plan form base for the quote from the heat entrepreneur to the hotel. This plan has been prepared by Finnish Forest Research Institute (METLA) and Finpro.

Picture: Laka Y 1 MW boiler selected for this heating plant. Preconditions in the

calculations were that boiler house, fuel storage and pipelines are ready

1. Background Modern tourism aims also to be environmental friendly and sustainable. Spa in Nordic conditions needs remarkable amount of heat energy. Forest fuel heated spa is fascinating idea in Finnish conditions, especially if the planned location is entirely surrounded by forests. Modern spa heated by forest chips is definitely alternative worth of considering. Higher investment costs are paid back relatively soon and positive impact to local forestry and rural business also supports the idea.

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The preliminary plan of Koli spa has been done according to local zoning directives and by benchmarking corresponding spas in Finland.

Details of the premises used in calculation were as follows.

• Building area of spa: 1 000 m2

• Volume of spa pools 660 m3

• Building area of hotel and

• other premises 7 000 m3

Wood chip heating is considered in this case. Lower fuel price with of wood chips and pellets is the key advantage compared to oil heating:

Annual costs by using wood chips are: 13.8 € per MWh * 5751 MWh = 79364€

Annual costs if oil is used would be: 52.56 € per MWh * 5751 MWH = 302273€

Calculated investment costs for wood chip based system for this case are 610 300 €. Oil based system would cost only 230 800 €.

As the investments in wood heating systems are relatively high, the usage profile plays an important role in the cost structure. The heat load of a spa is exceptionally favorable for wood boilers, because the heat load is much more stable and flat than in space and household water heating, or in ordinary hotels on average. The large amount of warm water in the pools gives some more flexibility for dealing with the daily peak heat consumption during warm morning showers.

2. Business idea

a) General Business plan calculation is based on assumption that the hotel / Spa invests into boiler, boiler house, fuel storage and pipelines. A heating company or cooperative, to whom this plan has been made, is running the plant and takes care of the fuel purchases.

Because investment costs are high, it is not feasible to consider situation where heating entrepreneur would invest into the plant itself. In smaller cases it would be an alternative, especially if the heating plant would be installed into transportable container that can be taken away after the contract. The hotel / Spa already has boiler room and fuel storage facilities that should be used in order to reduce investment costs.

b) Customer This business in heat entrepreneur who is selling heat to a hotel & Spa complex.

c) Earning model

The business is a cooperative that sells heat to the hotel & spa complex at price 44 € per MWh. The price is indexed partly to biofuels price index and partly to the oil price index. This gives security for the cooperative that their costs (wood fuel prices) are taken into account and also for the hotel & Spa complex that bioheat prices are competitive compared to other energy prices that closely follow oil prices.

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d) Fuel and seasonal variations The total annual amount of wood chip needed in this plant equals to 7 700 loose-m3 of chips with 40% average moisture content. The peak month, January, would require 1 100 loose-m3 of chips. This means 10-11 full chip trucks. When the size of the plant is about 1 MW, fuel delivery usually happens with smaller trucks or farm tractors with trailer. The net payload in this case is about 35-45 loose-m3 with equals 25-30 deliveries per month during winter. During summer only load per week or less is needed.

Wood chips are delivered to the plant by the cooperative either by tractor trailer or by lorry.

Picture: Fuel chip delivery with typical truck serving small heating plants in Finland.

The heat consumption of Koli spa was calculated according to two reference spas and their exact statistics of heat and energy consumption. In Finnish conditions, spas consume remarkable amount of heating energy during winter season. Especially on the Koli area, winter is high season due to exquisite ski resort located next to the spa.

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The plant will use wood chips. Annual heat demand of the hotel and spa combination is 5 751 MWh. Monthly peak demand is achieved in January and it is 820 MWh. When this monthly consumption is changed to the fuel demand considering also losses in production and in pipelines, the fuel demand is 975 MWh/month.

Correspondingly, minimum demand is in July-August, when monthly fuel amount needed is equivalent to 275 MWh. In order to estimate capacity of heat production, one hour peak value has to be calculated. According to average monthly consumption in January, it would be 1.35 MW. Short term peak value can, of course, be remarkably higher than this.

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e) Benefit for the spa as customer The hotel / Spa will buy heat at competitive price but don’t have to take care of the boiler operation and fuel supply. Second benefit for the hotel is that when the cooperative is in charge of the fuel quality, all interruptions due to stones, frozen fuel, etc will reduce cooperative’s income and gives then incentive to buy only fuels with adequate quality.

f) Way to operate and integration to other companies Harvesting and forwarding of wood fuels for Koli Spa can be done by local farmers and it can be based on farm tractor based harvesters and forwarders.

Picture: Valtra farm tractor with Naarva-Grip 1000-23E energy wood harvester head and Kronos crane.

g) Required resources

i. Equipment Laka Y 1 MW boiler was selected for this application. The boiler is a gasifying boiler that can burn very wet and very poor fuels. It does not need clean, medium dry wood chips. The poor fuel reduces the fuel costs but the investment costs are higher.

The efficiency of chip boiler is on it’s best when running with almost full capacity. The range of efficient use is narrower than with oil boilers. Due to this, Koli Spa is recommended to equip with two boilers. The bigger one would be 1 – 1.3 MW. For peak consumption and back up, oil boiler or pellet boiler is recommended. The size of the boiler could 0.4 – 0.8 MW. The annual heat demand curve is rather constant if compared to, for example, normal

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households or block of flats. If main boiler would be 1.3 MW, the mean consumption even with summer period would be 25% of the capacity. This fits well to the control area of boilers according to most of the boiler manufacturers. This means that even during summer, the main boiler can be successfully used for heating of water and premises.

Finnish heating plant supplier LAKA ltd. calculated preliminary investment costs of heating plants. Preconditions were that boiler house, fuel storage and pipelines are ready. Plant equipment is attached to the pipeline joints already inside the boiler house. According to the calculation, the total cost of 1 MW chip boiler and 1 MW oil boiler as a back up is 610 300 €. The alternative is 1.5 MW oil boiler, which would have 230 800 € total costs. Value added tax is excluded in calculations.

ii. Personnel The heat entrepreneur will take care of the maintenance. Annual service and maintenance costs are about 2% of the investment costs. Daily need of supervision and heating work can be estimated as 2 hours.

3. Market situation The price of the forest chips at the plant can be estimated to be about 13€/MWh without VAT. The corresponding price of heavy heating oil was in March 2006 32.6 €/MWh and light heating oil 52.5 €/MWh (Energy statistics 2006). The price of pellets is 28 €/MWh (Vapo 2006).

4. Financial plans This is financial plan for the cooperative that runs the boiler. Calculations for the total cost including investments that this plans assumes the hotel & Spa will do are included in the two following pages. Detailed Excel sheets are available separately.

INCOME € Sales of heat 33 253 044 TOTAL 253 044 COSTS Wood fuel price (wood chips from local suppliers) 34 78,288 Supplementary light fuel oil price 46,137 Annual service and supervision 35 14,800 Own energy use (electric) 60 €/MWh 5,000 Annual repairs 14,800 Administration & operation overheads 5% 11,298 Bought services 36 6,750 TOTAL 177,073

33 5 751 MWh of heat * 44 €/MWh = 253 044 € 34 The plant uses special boiler that can burn wet and poor fuels. The estimated price of such fuel is 13.8 € per MWh. The total costs of fuel is 5 751 MWh of heat * 13.8 € per MWh (rounded figure) (wood chips) = 78,288 € 35 730 hours, 20 € per hour 36 150 hours, 45 € per hour

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OPERATING INCOME 75,927 Financial costs (repayment of loans) 37 0Depreciation 38 0Other 0TOTAL PROFIT BEFORE TAX Taxes 30% 22,778 NET PROFIT / LOSS / SAVINGS 53,149

INVESTMENTS € 0TOTAL 0ROI

SOURCES OF FUNDS € 0

5. Entry barrier analysis Since this is internal investment for the hotel, there are no entry barriers.

6. Risk analysis When using fuel subcontractors with farm tractor technology, long distance transportation is the weakest link. Low driving speed of farm tractor makes logistics sensitive for distance of delivery. If distance is over 10-15 km, lorries are usually more cost effective vehicles than farm tractors with trailers.

….. …..

Sikanen, L. Poysti, J. (Ed). 2007. Heat entrepreneur operating wood heated spa 1MW. Finnish Forest Research Institute, Joensuu, Finland. 5 EURES (EIE/04/086/S07.38582). Business Plan. 10 p.

37 Hotel & Spa invests, not the cooperative 38 Treatment of depreciation for tax purposes depends on national legislation.

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Appendix FINACIAL ASSUMPTIONS Total annual consumption 3,651 solid-m3 of woodchips 7,607 loose-m3 Prices Chips 13 €/MWh 89,712 € / year Heavy h-oil 32.6 €/MWh 224,970 € / year Light h-oil 52.5 €/MWh 362,299 € / year Difference Hhoil 135,258 € / year Pellets, 4,75 MWh per tonne Lhoil 272,587 € / year Pellets 28 €/MWh 193226 € / year 133

Heat Production Monthly costs, €

used needed Wood chipsHeavy heating

oil Wood pellets Chip&pellets Chip& H-oil Chip& L-oil January 810 972 12,639 31,695 27,222 12,639 12,639 12,639 February 690 828 10,766 26,998 23,188 10,766 10,766 10,766 March 595 714 9,276 23,262 19,979 9,276 9,276 9,276 April 490 588 7,645 19,170 16,465 7,645 7,645 7,645 May 333 400 5,199 13,037 11,197 5,199 5,199 5,199 June 268 321 4,178 10,477 8,998 8,998 10,477 16,872 July 238 286 3,717 9,322 8,007 8,007 9,322 15,013 August 226 271 3,529 8,850 7,601 7,601 8,850 14,253 September 316 379 4,931 12,365 10,620 4,931 4,931 4,931 October 470 564 7,327 18,373 15,781 7,327 7,327 7,327 November 577 693 9,007 22,587 19,400 9,007 9,007 9,007 December 737 884 11,498 28,835 24,766 11,498 11,498 11,498 TOTAL 5,751 6,901 Annual costs 89,712 224,970 193,226 102,894 106,937 124,425 Savings when compared to oil only 135,258 0 31,744 122,076 118,034 100,545

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Appendix FINACIAL ASSUMTIONS

Investment cost (see report) 610,300 € Annual service and supervison 730

hours á 20 14,600 €

Annual repairement 14,600 € Capital costs Interest rate 5 % Reselling value (10%) 61,030 Keeping time 20 years Interest cost 33,567 € Depreciation by straight line 30,515 € Insurances 1,500 € Annual fixed costs 94,782 € Annual fuel costs Woodchips 78,288 124,425 € Light fuel oil 46,137 Risk 5 % 11,298 € Bought services 150 hours á 45 6,750 € Overheads 5 % 11,298 € TOTAL ANNUAL COSTS 248,552 € TOTAL ANNUAL HEAT NEED 5,751 MWh PRICE OF HEAT 44 €/MWh TOTAL ANNUAL SELLINGS 253,034 € EXTRA PROFIT / LOSSES 4,482 €

READ THIS FIRST Business plan calculation based on assumes that heating company/cooperative makes investment to the heating system excluding pipelines. Subsidies for investment are not considered. All prices are tax free

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Forest work on the mountains of Catalonia, Spain – Picture Markus Huhtinen

Chipping in Finland – Picture Erkki Oksane




EURES EURES

HEATING OF ELEMENTARY SCHOOL AND KINDERGARTEN This is an example business plan for a heating plant for Portugal. This plan has been prepared IrRADIARE and Instituto Superior Técnico, Portugal. 1. Background

This business plan is developed for the municipality of Arbantes as one proposal on how heating of elementary school and kindergarten could be arranged. This business plan will be presented at the municipal meeting. The purpose of this business plan is to show municipal decision makers how investment costs and operating costs in this alternative are compared to forecasted savings in heating costs.

2. Business idea

a) General This new company is a municipal participated company. It owns and operates bioenergy boiler next to elementary school and kindergarten in Arbantes, and sells heat to these users. The heating plant is an internal part of municipality’s operation because it is very small operation. However, the operation has separate accounts which enable municipal authorities to follow income and cost.

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The business will measure the heat that is consumed by the school and kindergarten, and invoices them separately. The heating plant is operated by employees of the municipality as part-time work. There is possibility to expand by installing more boilers to other locations, and to offer heat to other municipal heat users and possibly private users that are very close.

b) Fuel Fuel is tree bark, wood shavings and sawdust. The potential of biomass residues in the region of Abrantes is about 88 000 tonnes. There is an excellent opportunity to use cheap materials. The estimated annual need for biomass is 10 tons per year. Municipality will deliver biomass directly to the boiler system’s silo. The municipality has already the necessary equipment and resources to collect, chip and deliver the biomass to the schools. The heat business pays municipality for the delivered biomass according to it’s calorific value.

It is necessary to invoice for the biomass because it is expected that some private users will also join the system and it would not be correct if municipality subsidizes heat by giving free fuel. Also the elementary school and kindergarten are operated by separate budgets, although both are municipal facilities. To enable both of them to follow heating costs separately, it is necessary to invoice both of them with separate invoices. Invoices also encourage facilities to save energy whenever possible.

Third reason for invoicing is that the municipality may consider selling the operation in the future, and thus it must have independent income and accounts.

The person operating the heat plant is responsible of inspecting each fuel delivery has he has rights to refuse it, if it does not meet agreed quality standards, or contain stones, gravel, sand, green material, or long sticks that can block fuel feeding system.

c) Customers

Customers in the first phase are the elementary school and kindergarten. It is expected that the other elementary schools and kindergartens in Abrantes region will follow the model. This heat division is planning to expand by installing new boilers and making new heat delivery contracts with other schools. The other schools are so far away that it is not possible to lay pipes from this plant to them.

d) Benefit for the customer Customers are the elementary school and kindergarten, and ultimately the municipality who finances the operation. They currently use €2814 for heating in both premises together.

The heating cost when heat is bought from this new heating plan is €1500. This new plant saves €2814 - €1500 = €1314 annually. In addition, the important benefit for the elementary school and kindergarten is the hot water and better stability of temperature (which will make the school more comfortable and help pupils to learn better).

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The elementary school uses currently biomass boiler which is fuelled by firewood. This old boiler supplies heat to the classrooms but no hot water. The boiler is fuelled manually by periodically opening the hatch and feeding firewood in. This fuel feeding system is affecting seriously the performance of the boiler, does not keep the temperature stable, and uses firewood that is more expensive that what wood chip would be. The biomass consumption of the school heating system is about 8 ton per year. The boiler operates from October to March. The new boiler will supply both heat and hot water to both elementary school and kindergarten.

The kindergarten has currently 6 Electric Heaters (2ND6803 of 2.4 kW each) and 3 Electric Heaters (2ND6804 of 3.6 kW each), total power 24kW.

CURRENT HEATING COSTS Primary school Kindergarten Monthly

cost (€)Annual cost

(€)Monthly

cost (€) Annual cost

(€)Electricity 63 630 62 620Fuel 86 864 0 0TOTAL 171 1714 90 900

Note that electricity consumption of the kindergarten includes both electricity for heating and electricity for other purposes such as lights, as they are not measured separately.

Assumptions.

• Elementary school – old system: Calorific value of the used firewood is 3 MWh per ton and 8 tons used annually = 24 MWh. Cost of firewood is €71 per MWh.

• Elementary school – new system: Heat is bough at €30 per MWh. Annual consumption is 30 MWh because of hot water. Total costs are €30 / MWh * 30 MWh = €900.

• Kindergarten – old system: 24 kW heaters used 458 hours means 24 kW * 458 = 11 MWh annually. At electricity cost €80 per MWh the total heating costs are €80 / MWh * 11 MWh = 880 .

• Kindergarten – new system: Heat is bough at €30 per MWh. Annual consumption is 20 MWh because of hot water. Total costs are €30 / MWh * 20 MWh = €600.

• The elementary school and kindergarten (i.e. municipality’s educational division) are expected to install central heating radiators at their own cost and do other associated pipework to the wall of the heating plant.

• Heating plant: Delivers annually 50 MWh heat at price €30 per MWh. The income is 50 MWh * €30 / MWh = €1500. The plant buys 16 tons of wood chip at 40% moisture level at price €10 per ton. The purchasing costs are 16 t * €10 / t = €160. The plant makes trading profit of €1500 - €160 = €1340.

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e) Way to operate The heat division operates independently from municipality with own accounts. The municipality’s park and forestry management division delivers wood chip and other biomass to the silo. There is internal accounting price for the biomass.

The heat division invoices clients who in the first phase are the elementary school and kindergarten. The municipality’s heat division is planning to own and operate other bioenergy plants in the future which will deliver heat to other regional schools and public facilities.

Long term plans are to sell this heat division to a local investor who will then independently own and operate plant(s) by selling heat to the users. Alternatively the municipality may choose to contract local company or cooperative to operate the plant while the ownership of the equipment will remain at the municipality but the cooperative or company can keep the profit, i.e. difference between heat sales income and biomass purchase cost, minus operating expenses such as maintenance and work time costs.

f) Required resources i. Container type wood chip boiler, wood chip silo with size of 5 m3,

screw conveyor from chip silo to boiler hopper, heat measuring devices for calculating delivered and consumed heat at customer premises.

ii. Operational and maintenance person who spends annually 30 hours at the plant. Municipality currently employs this person as municipal facility manager.

g) Earning model The plant will be a non-profit municipal company. For accounting purposes, the plant will buy wood chip from municipality and sell heat to municipality at own cost price. In the future, when energy costs increase, municipality may consider rising the energy prices slightly which allows the plant make small profit and makes it interesting investment opportunity for a local small company or cooperative.

Although this is non-profit operation, the budget shows profit from heat sales. This profit is used to pay back the equipment investments.

h) Seasonal variations The schools are open 10 months a year. The heat system should operate the period between October and March.

i) Integration to other companies in the value chain The municipality has already the necessary equipment and resources to collect, chip and deliver the biomass to the schools. No other companies are required by this plant to operate.

3. Market situation

a) Market situation and forecast for bioheat In Abrantes municipality there are no biomass heating plants at the present time. However, due to the high prices of fossil fuels and the increasing

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demand for the usage of renewable energy there is the will to integrate alternative energies systems, namely biomass.

The municipality hopes to make this an example of good implementation of biofuels business. It is expected that other boilers will be installed by other private users based in this example. The municipality would be able to deliver them fuel. This increased biofuels activity would create some work and tax income to the municipality.

b) National / regional policies currently and in long term The Portuguese energy market is based on a large share of imported fossil fuels (oil, coal and natural gas). The inland production is small but mainly from renewable sources. Portugal as strong ambitions and as set important targets in reducing the fossil fuel consumption, and increasing the usage of resources such as biomass.

c) Competition No competition in biomass heating exists. There are no businesses offering to sell heat in Arbantes. The municipality actively encourages commercial activity in biofuels and will, in future consider selling its share on the company to a commercial operator, with or without ownership of equipment. In such circumstances, the municipality will also periodically ask competitive offers for heat for municipality’s own use.

4. Financial plans

INCOME € Sales of heat 39 1,500 COSTS Purchase of fuel 40 160 Operating costs 41 240TOTAL 400 OPERATING PROFIT / LOSS 1,100 Financial costs (repayment of loans) Taxes PROFIT / LOSS

INVESTMENT COSTS € Investments 28.000

39 The plant delivers annually 50 MWh heat at price €30 per MWh. The income is 50 MWh * €30 / MWh = €1500. 40 The plant buys 16 tons of wood chip at 40% moisture level at price €10 per ton. The purchasing costs are 16 t * €10 / t = €160. The plant makes trading profit of €1500 - €160 = €1340. 41 Work, maintenance and spare parts. The plan needs 30 hours annually manual work at price €8 per hour.

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ROI

SOURCES OF FUNDS € Municipality’s own budget 28.000Payback time on net investment 25

The actual payback time is expected to be much shorter than calculated here because energy prices are increasing and this operation can invoice slightly more for the energy. In addition, fuel costs and needed manual labour may decrease slightly if the operation has more boilers.

5. Entry barrier analysis The municipality is willing to change the old boiler and substitute the electric heaters and use biomass. However there are still difficulties to be solved, namely the finding of financing sources. There are also some issues to be solved regarding that teachers are not sufficiently motivated to substitute an equipment that is effectively working (electric heaters) by another that some of them think that is not so effective.

6. Risk analysis The lack of experience in biomass supply chain with subsequent possible problem is the supply is the main risk for well-operating the system. However the small dimension of the unit and the biomass availability in the area can minimize the risk. Also a risk to be considered is the possibility of the prices rising as a large number of biomass heat and power plants are planned to be installed in the next few years, in Portugal.

..... …..

Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico). 2007. Heating elementary school and kintergarden 300kW. 5 EURES (EIE/04/086/S07.38582). Business Plan. 6 p.




EURES EURES

HEATING HOTEL WITH WOOD PELLETS 40kW (ALTERNATIVE 2) This is an example business plan for heating hotel with wood pellet burner & boiler combination in Portugal. This plan has been prepared by IrRADIARE, Instituto Superior Técnico, Portugal, and Finpro. 1. Background

The hotel Albergaria El-Rei Dom Manuel has two old oil boilers. The plan is to replace oil burner in one of the boilers with pellet burner. The purpose of this business plan is to show hotel owner how investment costs and operating costs in this alternative are compared to forecasted savings in heating costs.

2. Business idea

a) General

The hotel is planning to replace oil burner with new pellet burner. The new solution is aimed at supplying to all hot water and heating of the hotel during the winter.

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Bioenergy is expected replace fossil fuel, decrease the dependence on fossil fuel suppliers, decrease slightly costs, and decrease carbon footprint. These benefits may have marketing value by giving hotel residents positive picture about hotel’s environmental awareness.

b) Fuel The proposed system is a pellet burner with power capacity of 40 kW. The pellets are expected to come from newly established pellet mill (with the participation of the hotel´s owner, Mr. Mauel Gaio). This company will sell the pellets to the hotel and others at affordable prices.

Wood pellet can be imported in initial phase of implementation of the project but since there is interest from local private enterprise to invest in pellet production the fuel cost should decrease in the future.

Pellets in this system must be Grade 1 high quality pellets made from virgin wood with no bark or knots.

c) Customers The boilers will supply heat only to hotel. This business plan just helps hotel to evaluate investment feasibility, and enables them to discuss about loans or other funding.

d) Benefit for the hotel The existing Albergaria’s heating system consists of two oil boilers with nominal thermal capacity of 152 kW. They generate 135 MWh annually.

(37 litres per day * 365 days = 13505 litres = 13.5 m3 => 13.5 m3 * 10 MWh / m3 = 135 MWh).

Normally when one of those boilers is in operation the other one is held in reserve as backup system. The average e fuel consumption of the boilers varied from 31 litres per day in 2002 to 37 litres per day in 2005.

The total fuel costs have risen from € 4,647 in 2002 to € 9,106 in 2006. At current prices cost of wood pellets for equivalent heat energy are € 6,600. Pellet boiler would save the hotel € 2,400 annually if no oil is used. However, with pellet burner some oil must be used during peak periods because this pellet burner is slightly smaller than optimum size which is 50 kW.

(Pellet costs: 120 MWh * 5 MWH / ton = 24 ton => 24 ton * €200 / ton = € 4,800)

In addition, the additional benefit is that the hotel can market itself as eco-friendly.

e) Way to operate The boilers would be operated in the same way and personnel as the two existing diesel oil boilers. No special arrangements are necessary. Hotel would buy pellets from wholesaler or from the new local pellet mill once it is established.

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i. Equipment Pellet burner replaces separate oil burner that is attached to the boiler hatch. The old oil burner can be kept in reserve. The second oil boiler stays in original condition for peak time use. Space for pellet silo must be found. Pellet silo for the same capacity is much bigger than oil tank. The hotel has an empty room in the cellar that can be used as pellet storage. Screw feeder moves pellets from the storage to the feed tube at the top of the pellet burner.

Picture: Pellet burner – a separate box attached to the hatch of biomass boiler. Pellets are fed from the top via plastic tube (not shown). The burned is on hinges and can be turned away and/or replaced with oil or bas burner in case of backup is needed. Supplier www.laka.fi

The efficiency of pellet burner to be installed is assumed to be about 80%.

Picture: Typical pellet silo types.

Pellet silo for the same capacity must be two times bigger than oil tank. Calorific value of pellet is 5 MWh per m3, and calorific value of oil is 10 MWh per m3.

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Picture: Pellet silo in a separate garden shed with underground feeding tube (max length 10m).

ii. Personnel Operation is made by the hotel personnel. Maintenance such as ash removal, sooting, annual maintenance and repairs are contracted as needed from local engineering company.

g) Seasonal variations

Picture: Current fuel consumption at case site

Heating needs vary according outer temperatures. Very hot summer days and very cold winter days can be expected. One of the existing oil boilers is to be used as backup system and for peak load. Peak loads happen every morning in hotel and residential applications but the worst case is January-February when the total heat consumption is highest.

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In yearly average, about 55% of the boiler capacity is used for heating and the remaining 45% for hot water production.

Picture: Average, top and peak load considerations.

Second issue that must be considered is what the lowest load is. Many bioenergy boilers stop working at very low loads because the flame just goes off. Some manufacturers have electric ignition system heating pellets or chips but this causes smoke when the fuel is not actually burning in the beginning. In addition, ignition takes 15-20 minutes until the wood fuel burns satisfactorily.

Occasionally occurring low loads can be handled with sufficiently large hot water accumulator tank or by using gas or oil boiler at low months.

However, in this case we selected a pellet burner that has zero low point (Supplier www.laka.fi). The burner keeps very small amount of pellets glowing all the time. When more heat is needed, the burner blows air to the pellets and feeds in more fuel. The response time from idle to full power is less than minute. Hot water tank is not needed and hot water delivery is also guaranteed also during the whole summer period without using gas or oil.

Top load from boiler size calculation

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

kW

7am

kW

Worst case peak load

Conventional wood (chip) boilerreponse

Pellet & gasifier response

Average annual load

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Picture: Cut-off point considerations.

h) Integration to other companies in the value chain New small pellet mill is considered with active participation of the hotel´s owner, Mr. Mauel Gaio. The mill would supply pellets to the hotel.

i) Background information about the hotel The hotel Albergaria El-Rei Dom Manuel is located in Marvão village and provides lodging (breakfast included) and serves meals in the restaurant. The Hotel has 15 bedrooms (220 m2), one restaurant (80 m2), one bar (20 m2) and a common space (30 m2). The hotel total area is 360 m2.

Energy costs in hotel industry are very high: Albergaria El-Rei Dom Manuel has taken several measures to reduce costs and they are willing to start using biomass to substitute some of the fossil fuel based solutions they have been using in the past.

3. Market situation

a) Market situation and forecast for bioheat There are very few other alternatives for the hotel to start using biofuels.

In Marvão municipality there is no biomass heating plant at the present time. However, due to the increasing price of the oil some enterprises plan to convert the existing diesel system to alternative energies system by integrating renewable energy (e.g. biomass system) since it does not increase the operating cost.

b) National / regional policies currently and in long term

The Portuguese energy market is based on a large share of imported fossil fuels (oil, coal and natural gas). The inland production is small but mainly from renewable sources. Portugal as strong ambitions and as set important targets in reducing the fossil fuel consumption, and increasing the usage of resources such as biomass.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

kW

WHAT IS THE LOWEST LOAD?Many bioenergy boilers have cut-off point (the flame just goes off)

Cut-off point

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4. Financial plans These calculations are used by the hotel internally to decide whether investment into pellet system is feasible.

INCOME € Oil consumption in the old system 42 9,106 COSTS Purchase of wood pellets 43 5,800 Supplementary oil use 44 800 Operating costs 45 100TOTAL 6,700 Operating profit / loss - Annual savings from moving into bioenergy

2,406

Financial costs (repayment of loans) PROFIT / LOSS

INVESTMENT COSTS € Pellet burner + screw feeder (€9000) and pellet silo 12,000ROI 20%

SOURCES OF FUNDS € Private capital 12,000Payback time on net investment 5 yrs

The actual payback time is expected to be shorter than calculated here because energy prices are increasing. .

7. Entry barrier analysis The owner of the hotel is willing to change the boiler and use biomass. However there are still difficulties to be solved, where the most important are the supply and storage of the biomass and the reaction of local public opinion to a (still) unknown fuel.

8. Risk analysis The lack of experience in biomass supply chain is a risk to be considered, in this business. Assuming that the installation of the new boiler will take place even before a pellet production unit is installed in the area, the supply is the main risk

42 In average 37 litres per day, € 9,106 in 2006 annually 43 144 MWh annually = 29 tons of pellets at 80% efficiency. Cost of pellets at current market prices €200 per tonne * 29 = €5,800. 44 Additional oil use €800 45 Ash removal, annual sooting.

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for well-operation of the system. However the small dimension of the unit and the biomass availability in the area can will minimize that risk. Also a risk to be considered is the possibility of the prices raising as a large number of biomass heat and power plants are planned to be installed in the next few years, in Portugal.

..... …..

Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico); Poysti, Jyrki (Finpro). 2007. Heating hotel municipal swimming pool 500kW. Portugal. 5 EURES (EIE/04/086/S07.38582). Business Plan. 8 p.

Logging residue haulage in Vilnius, Lithuania 2006 – Picture Markku Paananen




EURES EURES

HEATING HOTEL WITH WOOD PELLETS 50kW (ALTERNATIVE 1) This is an example business plan for heating hotel with wood pellet burner & boiler combination in Portugal. This plan has been prepared by IrRADIARE, Instituto Superior Técnico, Portugal, and Finpro. 1. Background

This planned bioenergy boiler will be owned and operated by the hotel Albergaria El-Rei Dom Manuel who will use it for heating and hot water. The purpose of this business plan is to show hotel owner how investment costs and operating costs in this alternative are compared to forecasted savings in heating costs.

2. Business idea

a) General The hotel is planning to replace two old boilers with new bioenergy boiler. The new solution is aimed at responding to all the hot water and heating needs of the hotel during the winter.

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Bioenergy is expected replace fossil fuel, decrease the dependence on fossil fuel suppliers, decrease slightly costs, and decrease carbon footprint. These benefits may have marketing value by giving hotel residents positive picture about hotel’s environmental awareness.

b) Fuel The proposed system is a pellet boiler with power capacity of 50 kW. The pellets are expected to come from newly established pellet mill (with the participation of the hotel´s owner, Mr. Mauel Gaio). This company will sell the pellets to the hotel and others at affordable prices.

Wood pellet can be imported in initial phase of implementation of the project but since there is interest from local private enterprise to invest in pellet production the fuel cost should decrease in the future.

c) Customers The bioenergy plant will not have outside customers. This business plan just helps hotel to evaluate investment feasibility, and enables them to discuss about loans or other funding.

d) Benefit for the hotel The existing Albergaria’s heating system consists of two oil boilers with nominal thermal capacity of 152 kW. They generate 135 MWh annually.

(37 litres per day * 365 days = 13505 litres = 13.5 m3 => 13.5 m3 * 10 MWh / m3 = 135 MWh).

Normally when one of those boilers is in operation the other one is held in reserve as backup system. The average e fuel consumption of the boilers varied from 31 litres per day in 2002 to 37 litres per day in 2005.

The total fuel costs have risen from € 4,647 in 2002 to € 9,106 in 2006. At current prices cost of wood pellets for equivalent heat energy are € 6,600. Pellet boiler would save the hotel € 2,400 annually.

(Pellet costs: 135 MWh * 5 MWH / ton = 33 ton => 33 ton * €200 / ton = € 6,600)

In addition, the hotel can market itself as eco-friendly.

e) Way to operate The boiler would be operated in the same way and personnel as the two existing diesel oil boilers. No special arrangements are necessary.

Hotel would buy pellets from wholesaler or from the new local pellet mill once it is established.


i. Equipment

Pellet boiler installed into existing boiler house, pellet silo with size of 5 m3, screw conveyor from the silo to boiler hopper.

One of the old oil boilers are removed. The other one remains as backup. Once one of the oil boiler is removed, the pellet system can be installed in the vacated space. Although bioenergy boilers of the same capacity as oil boilers

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are much bigger, the space in the boiler house is large enough because the current oil boiler is 80 kW (and old big model) and the replacement pellet boiler is 50 kW (new efficient small model). Additional space for pellet silo must be found. Pellet silo for the same capacity is much bigger than oil tank. The hotel has an empty room in the cellar that can be used as pellet storage. A screw feeder is moving pellets from the storage to the boiler.

The efficiency of biomass boiler to be installed is assumed to be about 80%.

Pellet silo for the same capacity must be two times bigger than oil tank. Calorific value of pellet is 5 MWh per m3, and calorific value of oil is 10 MWh per m3.

Picture: Typical pellet silo types.

ii. Personnel Operation is made by the hotel personnel. Maintenance such as ash removal, sooting, annual maintenance and repairs are contracted as needed from local engineering company.

g) Seasonal variations Heating needs vary according outer temperatures. Very hot summer days and very cold winter days can be expected. One of the existing oil boilers to be used as backup system and for peak load.

Picture: Fuel consumption at case site

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In yearly average, about 55% of the boiler capacity is used for heating and the remaining 45% for hot water production.

Peak loads in hotel applications can be very substantial because we must assume that all residents go to shower at 7am in the morning. One of the existing oil boilers is to be used as backup system and for peak load and for summer time. Hot water accumulator helps to balance the load. Second issue that must be considered is what the lowest load is. The boiler type considered in this case stops working at very low loads because the flame just goes off and can not be ignited easily and fast.

h) Integration to other companies in the value chain

New small pellet mill is considered with active participation of the hotel´s owner, Mr. Mauel Gaio. The mill would supply pellets to the hotel.

i) Background information about the hotel The hotel Albergaria El-Rei Dom Manuel is located in Marvão village and provides lodging (breakfast included) and serves meals in the restaurant . The Hotel has 15 bedrooms (220 m2), one restaurant (80 m2), one bar (20 m2) and a common space (30 m2). The hotel total area is 360 m2.

Energy costs in hotel industry are very high: Albergaria El-Rei Dom Manuel has taken several measures to reduce costs and they are willing to start using biomass to substitute some of the fossil fuel based solutions they have been using in the past.

3. Market situation

a) Market situation and forecast for bioheat There are very few other alternatives for the hotel to start using biofuels.

In Marvão municipality there is no biomass heating plant at the present time. However, due to the increasing price of the oil some enterprises plan to convert the existing diesel system to alternative energies system by integrating

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renewable energy (e.g. biomass system) since it does not increase the operating cost.


4. Financial plans These calculations are used by the hotel internally to decide whether investment into pellet system is feasible.

INCOME € Cost of oil in the old system 46 9,106 COSTS Purchase of wood pellets 47 5,800 Supplementary oil use 48 800 Operating costs 49 100TOTAL 6,700 Operating profit / loss - Annual savings from moving into bioenergy

2,406

Financial costs (repayment of loans) PROFIT / LOSS

INVESTMENT COSTS

€

Pellet burner + screw feeder (€9000) and pellet silo 28,000ROI 8.5%

SOURCES OF FUNDS € Private capital 28,000Payback time on net investment 12 yrs

The actual payback time is expected to be shorter than calculated here because energy prices are increasing. .

46 In average 37 litres per day, € 9,106 in 2006 annually 47 165 MWh annually = 33 tons of pellets at 80% efficiency. Cost of pellets at current market prices €200 per tonne * 33 = €6,600 48 Additional oil use €800 49 Ash removal, annual sooting.

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5. Entry barrier analysis The owner of the hotel is willing to change the boiler and use biomass. However there are still difficulties to be solved, where the most important are the supply and storage of the biomass and the attitude of local public opinion to (still) unknown fuel.

6. Risk analysis The lack of experience in biomass supply chain is a risk to be considered, in this business. Assuming that the installation of the new boiler will take place even before a pellet production unit is installed in the area, the supply is the main risk for well-operation of the system. However the small dimension of the unit and the biomass availability in the area can will minimize that risk. Also a risk to be considered is the possibility of the prices raising as a large number of biomass heat and power plants are planned to be installed in the next few years, in Portugal.

..... …..

Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico); Poysti, Jyrki (Finpro). 2007. Heating hotel with wood pellets 50kW (alternative 1). IrRADIARE, Portugal. 5 EURES (EIE/04/086/S07.38582). Business Plan. 6 p.

Forestry Owners Association Lithuania at demonstration 2005 – Picture Jelena

Aneicik




EURES EURES

HEATING MUNICIPAL SPORTS HALL This business plan shows calculations made in 2006 for the development of the supply chain and heating installations in Alp. This plan shows better economical balance when using biofuel.

Further studies have been developed in Alp which demonstrated the goodness of the use of this wood fuel, from the economical point of view.

The plan is prepared by Forestry Management Service; Directorate – General for the Natural Environment of Department of the Environment and Housing; Government of Catalonia, and Forestry Technological Centre of Catalonia.

1. Background

Catalonian forests, nowadays are suffering three main problems: forest fires, low wood price and biomass accumulation. This combined with the high cost of petrol and the need of creating new jobs in rural economies, has increased the interest in biomass, in order to save money, improve forest fire prevention, take profit of local renewable resources and create social benefits.

Alp municipality has a surface of 4,405.5 ha, and nearly the 26% of it owns to the town council. The Muntanya d’Alp occupies 1,137.5 ha.

2. Business idea

a) General The town council wants to heat with biomass a municipal sports hall that has been recently built in the place. Although it’s not already definitely in use, the motivation for using alternative energies comes from the high heat demand that the edification, due to its size and its not efficient isolation, has.

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b) Fuel Boilers are expected to be fed, mainly, with chips obtained from non commercial wood and dead trees of the municipality forests, to improve forest quality and reduce the fire potential.

Biomass obtaining type Operations included Cost (€/t) Chipping at roadside landing Harvesting, chipping, transport 67.9

Chipping at power plant Harvesting, haulage, transport, chipping

39.1

c) Customers The municipality sports hall is the only building that is going to be heated at the moment. The volumes of the building are following ones.

Sports hall facilities Volume (m3) Court and stands 15,789 Congress hall 2,550 Seminar room 301 Hall 400 Changing room 2,073 Snack bar 716 Total 19,534

d) Benefit for the municipality Municipality does not get financial benefit from bioheat because biomass it is supposed to replace gas-oil consumption. Due to the sports hall it has not been already on use now, the exact heat demand it is not still known, but despite this fact, it is supposed to reach 200 gas-oil l/day between October and April, both included, if working partially 5 days a week and fully 2.

e) Way to operate Alp’s council has the will to own the whole biomass chain: from the forest to the boiler.

On one hand, nowadays there is a municipal brigade that is in charge of pruning trees meanwhile there is snow on the municipality mounts and to harvest municipality forests from spring to autumn. The brigade is composed by for men, but two of them work in “La Masella” ski resort during the skiing season.

On the other hand it has been just build in Alp a sports hall that has a high heat demand.

The main reasons for choosing biomass to substitute gas-oil are:

• The raise of the gas-oil cost

• Branches and small trees left in the forest cause severe fire risk and it’s forbidden by law

• Bringing biomass to a rubbish dump is very expensive

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• Consolidate and create new brigade jobs.

f) Required resources The chosen equipment is in a container equipped with a boiler that must be, at least, 365 kW. This means that the approximate dimensions of the container are 7,200 mm (with) x 7,200 mm (length) x 4,070 mm (height). Storage capacity is about 30 to 40 m3.

g) Earning model As seen above, the final cost of the energy produced by biomass is 0.018 €/kW and from gas-oil 0.060 €/kW. More detailed information can be found on sections 4, 5 and 6.

Hence the economic profits, in Alp there are other indirect benefits that must be considered: job creation and forest fire prevention

h) Seasonal variations affecting operations Heating needs vary according outer temperatures. Taking into consideration that there is a big difference between seasons in la Cerdanya, monthly fuel consumption is very different from winter to summertime. Unfortunately, the sports hall has not been opened yet and the provided data are theoretical estimates.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Des

Daily hours (h) 10,00 8,00 5,50 3,00 1,00 0,50 0,50 0,50 1,00 3,00 6,50 10,00 4,13h/day

(average)Monthly average consumption (kWh)

86683,12 69346,49 47675,71 26004,94 8668,31 4334,16 4334,16 4334,16 8668,31 26004,94 56344,03 86683,12 429081,43kWh/year

(total)Monthly average consumption (kg)

24059,32 19247,45 13232,63 7217,80 2405,93 1202,97 1202,97 1202,97 2405,93 7217,80 15638,56 24059,32 119093,63kg/year (total)

Year

Moreover the weather conditions the forest accessibility in many ways:

• Forest fires: On summer, when there is an extreme forest fire risk, forest access can be exceptionally forbidden by decree. Hence, between 15th May and 15th October is forbidden to dump vegetal residuals on the forest and also into a security buffer of 500 m from the border of the wood. Unfortunately this measure includes biomass and harvesting residuals and obliges having a timber yard far from the woods.

• Snow: From mid November to April, snow, combined with the important slopes on forest tracks, blocks the forest paths.

• Mud: On spring and autumn rain can convert in muddy terrain the tracks.

i) Integration to other companies in the value chain It is expected not to imply other enterprises on the biomass supply if possible. On a first stage, the aim of the project is to guarantee chip supply only to the sports hall boilers. No alternative clients are planned.

3. Market situation

a) Market situation and forecast for bioheat On medium and long term investments, bioheat seems to be cheaper than fossil fuels. Taking into account predictions of Brent Barrel reaching 100 $ in near future, the payback time of a biomass installation, it’s likely to be strongly reduced compared with a traditional boiler.

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b) National / regional policies currently and in long term According to the predictions of the “Pla de l’Energia de Catalunya” (Catalonia Energy Plan) this it’s going to be the evolution in biomass consumption:

Forest and agricultural biomass consumption (ktoe/year)

2003 2010 2015

BASE scenario 93.9 127.3 136.6 IER scenario 93.9 161.7 228.6

toe: Tones of oil equivalent BASE scenario: According to the actual economic, energetic and technologic tendencies IER scenario: Maximum enhancement of renewable energies use, energy saving and energy efficiency

The average price for biomass energy in the UE15 is 72.5 €/MWh. In Spain the price, including he incentives it’s about 61 €/MWh. The Spanish market price was only 32 €/MWh in 2003.

c) Sources of raw materials Own forests, and a near sawmill in Bellver de Cerdanya. The sawmill consumes 37,000 t/year and is 18 km far from Alp. The industry produces every year, 35,573 loose cubic meters of chips, 1,200 t of bark and 6,800 loose cubic meters of sawdust

d) Competition Nowadays no competition in biomass heating exists or is expected to be built. Only traditional firewood obtaining and minor logging are the activities done in the municipality forests.

4. Financial plans Financial calculation has been done considering theoretical gas-oil consumption because there will be no heating sale.

PROFIT AND LOSS Unit Total (€) INCOME Sales: Gas-oil consumption1 0.7 €/l 46,667 COSTS Fuel price (wood) 0.08 €/kg 10,666 Electric energy 60 Maintenance 700 Insurances and others 250 TOTAL 11,676 Operating profit /loss 34,990.9 Financial costs 3.5% 5,150.18 Depreciation 10 years 10,620.33 Taxes 0

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Profit / Loss 19,220.49 1If gas-oil boiler was going to be chosen

5. Investments

INVESTMENT COSTS Total (€) 150 kW: boiler, fuel feeder and accessories, transport, installation works and design and construction supervision

89,000

TOTAL 89,000 ROI

1May vary when the container model is definitely defined

6. Sources of funds The funds for the sports hall installation come from ICAEN (50%) and from own municipality funds.

7. Entry barrier analysis It is supposed that the biomass supply chain of Alp together with Lles de Cerdanya will be new and different. This means many questions and problems to be solved in the first stage of the start-up of the project.

8. Risk analysis The lack of experience on supplying biomass and the absence of appropriate machinery is the main hazard for well-operation of the system. However, biomass availability is fully guaranteed due to big amount of biomass available in Alp forests.

Sports hall is equipped with conventional gas-oil boilers that can supply heat in case of biomass lack, boiler breakdown or working in low heat demand periods.

The sports hall, the municipal brigade and the forests all are under Alp’s Council command. This fact ensures the availability, delivery and consumption of biomass

The increasing trend of the oil price seems to ensure the future profitability of the biomass facility


..... …..

Forestry Management Service Directorate – General for the Natural Environment of Department of the Environment and Housing, Government of

Catalonia. Forestry Technical Centre of Catalonia.

Correal, E., Rodriguez, J. Heating of municipal sports hall, 5 EURES Project Report X/200X, Project EIE-04-086. Catalonia, April 2006, 6 Keywords wood fuel, balance, benefit, bioenergy, Catalonia

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Biomass CHP Klosterfelde – Picture Severine Laufer

Chipping in Finland – Picture Erkki Oksanen




EURES EURES

HEATING OF MUNICIPAL SWIMMING POOL 350kW This is an example business plan for heating swimming pool with wood pellets. This plan has been prepared by IrRADIARE and Instituto Superior Técnico, Portugal.

1. Background The Municipal swimming pool is located in Sto. António das Areias, in Marvão. This swimming pool is open all year, except in August when it is closed for holiday and maintenance operation. The municipality is intending to create a municipal company to respond to all the heating needs of the municipal

swimming pool. The purpose of this business plan is to show municipality how investment costs and operating costs in this alternative are compared to forecasted savings in heating costs.

2. Business idea

a) General

The planned business is bioenergy heating business that operates bioheat plant which will heat municipality swimming pool. The heating plant will be a separate company directly owned by the municipality. The daily operation of the plan is subcontracted to local entrepreneur who buys pellets, or may even produce them by himself, and sells heat to the municipality

Initially, wood pellets will be imported but since there is interest from local private enterprise to invest in pellet production the fuel cost should decrease in the future.

In the future, pellets are expected to come from newly established local pellet mill. There are two initial locations where this mill can sell pellets. The municipality has already a social company that is creating jobs for unemployed people, for collecting biomass residues.

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The municipality has also bought some harvesting and chipping material so it is expected to have biomass at very low prices within a short period of time.

b) Customers The municipality owns the heating plant. There are no commercial customers.

c) Benefit for the municipality The cost of gas is about € 38351 annually. On the other hand, if wood pellets boiler is used the annual fuel cost will be about € 14185 saving the municipality € 24166. Some of the savings must go to the heat entrepreneur.

The current swimming pool water heating system is a gas boiler with nominal thermal capacity of 327 kW and 92% of efficiency.

The average gas consumption is approximately 1806 cubic meters per month from September to July. That means that the annual gas consumption is about 19865 cubic meters per year, considering that the swimming pool closes in August for holiday and maintenance operation. This quantity is used considering that the boiler works during the whole week. There is a tank for gas storage with storage capacity of 7.48 cubic meters.

The correspondent biomass consumption is estimated based on the average gas consumption and the amount is around 114 ton of pellets per year considering biomass boiler with 80 % efficiency.

d) Way to operate The heating plant operates as a separate company owned by the municipality. The plant will buy pellets initially from commercial supplier and generates hot water and sells heat to municipality who owns the swimming pool.

Picture: Pellet silo.

The daily operation of the plan is subcontracted to local entrepreneur who buys pellets, or produces them by himself, and sells heat to the municipality.

The subcontracted local entrepreneur will have a dedicated operator person whose duties will be to oversee operation, order new pellets as required, remove ash, repair faults, do annual maintenance, and stay on alert on weekends and nights in case of faults. The plant will have kWh meter for

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measuring delivered heat. The entrepreneur uses reading to invoice municipality.

Municipality is responsible of plants own energy use (electricity) and equipment repairs if there is more to do than normal operational maintenance and fault fixing.

The existing boiler which uses propane or natural gas will be backup boiler.

e) Required resources Wood pellet boiler with power capacity of 300 kW and pellet silo of 8-12 m3. In addition, the operation requires a local entrepreneur who is subcontracted to run the operation.

f) Seasonal variations The swimming pool is open all year except in August.

g) Integration to other companies in the value chain The operation requires a local entrepreneur who is subcontracted to run the operation.

In the future, pellets are expected to come from newly established local pellet mill. There are two initial locations where this mill can sell pellets.

The municipality has already a social company that is creating jobs for unemployed people, for collecting biomass residues. The municipality has also bought some harvesting and chipping material so it is expected to have biomass at very low prices within a short period of time.

3. Market situation

a) Market situation and forecast for bioheat In Marvão municipality there is no biomass heating plant at the present time. However, due to the increasing price of the oil some enterprises plan to convert the existing diesel system to alternative energies system by integrating renewable energy (e.g. biomass system) since it does not increase the operating cost.


4. Financial plans

INCOME € Energy consumption in the old oil / gas system 50 38,351 COSTS Purchase of energy from entrepreneur 51 25,000

50 19865 cubic metres of propane annually

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TOTAL 25,000 Operating profit / loss - Annual savings from moving into bioenergy

13,351

Financial costs (repayment of loans) 0Taxes 0 PROFIT / LOSS / SAVINGS 13,351

INVESTMENT COSTS € Pellet burner + screw feeder and pellet silo 105,000ROI


Municipality 105,000Payback time on net investment 8 yrs

The actual payback time is expected to be shorter than calculated here because energy prices are increasing.

5. Entry barrier analysis The municipality is willing to change the boiler and start to use biomass. However there are still difficulties to be solved, namely the finding of financing sources. There are also some issues to be solved regarding the establishing of supply chain and storage of the biomass and the reaction of local public opinion to a (still) unknown fuel.

6. Risk analysis Problems with the operation financing is a very serious risk in this operation. Also, the lack of experience in biomass supply chain is a very important main risk to be considered for well-operation of the system. However the small dimension of the unit and the biomass availability in the area can minimize the risk. Also a risk to be considered is the possibility of the prices rising as a large number of biomass heat and power plants are planned to be installed in the next few years, in Portugal.

..... …..

Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico); Poysti, Jyrki (Finpro). 2007. Heating hotel municipal swimming pool 500kW. IrRADIARE, Portugal. 5 EURES (EIE/04/086/S07.38582). Business Plan. 5 p.

51 The operating entrepreneur will buy 114 tons of pellets annually at € 14,185. This gives him annual income of € 10,815




EURES EURES

HEATING PRE-SCHOOL AND PRIMARY EDUCATION CENTRE - BIDDER VIEWPOINT This document is a business plan designed for a company answering a tender calling. The aim of the tender is to find a company providing the heat services to a public school in Prats de Lluçanès. This company will have a concession period which will be fixed by the municipality depending on economic feasibility. The plan is prepared by Forestry Management Service; Directorate – General for the Natural Environment of Department of the Environment and Housing; Government of Catalonia, and Forestry Technological Centre of Catalonia.

Map 1: Location

1. Background The CEIP Prats de Lluçanès was built in 1975, and in 2001 it was renovated and new education facilities were added. The school uses currently propane gas and electricity for heating. The tank gas needs replacing and the Consorci del Lluçanès decided to ask alternative offers to convert the heating into renewable energy.

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On date May 19th 2007 the municipally published tender calling for offers for the biomass heating system project. The tender was delayed due to political changes in the municipality.

2. Business idea

a) General The school wants to change the heating system and install a biomass one. Part of the investment for the new heating system has to be covered by the successful bidder (from now the company) of a tender. Maintenance, operation and heat supply is sole responsibility of the company. Thus, the company has to cover these expenses. The company receives as payment a concession installment equivalent to the former cost of heating with fossil fuel.

b) Fuel The company will arrange supply of fuel with contracts with local forest owners, chipper owners, and farmers or transport companies. Currently, price of air dried tone of wood chip from forest material is approximately 120 €/t.

c) Customers The customer is the pre-school and primary education center CEIP Prats de Lluçanès with 130 students from 4 to 11 years old, 9 teachers and administrative staff.

d) Benefit for the customer The school will have the same comfort at a price which is more independent on fossil fuel instabilities.

The school’s current heating costs are 28,500 €. The school is expected to pay the same amount annually to the successful bidder, with annual revisions (CPI and propane fuel). No savings from energy costs are expected but there will be other more intangible benefits to the municipality.

It is expected that the school will not notice changes, expect from economics and environmental issues. The heat entrepreneur needs to access credit and subsidies for covering installation costs.

The bioenergy operation will create some jobs and tax income for the municipality. Employees who operate the boiler and arrange the supply chain are important social aspects, taking into account that this area is considered as run-down.

e) Way to operate The company needs to get a credit to cover part of the installation expenses. The municipality will then contract the company to operate and maintain the boiler. The municipality will pay a concession installment equivalent to the former fossil fuel consumption. This amount will be checked annually.

The company will arrange supply of fuel with contracts with local forest owners, chipper owners, and farmers or transport companies. Currently, price of air dried tone of wood chip from forest material is approximately 120 €/t.

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Transport will be made by the wood chip producer. Distance of transport shouldn’t exceed 20 km.


i. Equipment The heating system will be a biomass boiler of 220 kW which will be assisted by the former propane boiler of 300 kW for peak consumption, back-up and breakdowns. Feeding system also needs to be installed.

Isolated pipes will connect boiler room, which is located 50 m away (for spacing reasons), to the school.

Silo is dimensioned to last at least one month in the coldest winter. The currently chosen size is 60 m3.

No radiators are needed; the ones already installed will be used.

Chips will be bought directly to owner, who will transport the chips. No extra equipment is needed.

At a first stage, material for operation and cleaning will be provided by the sub contracted company for operation (heating systems’ installation company providing one worker at part time). Further, material can be purchased.

ii. Human resources Basic operation will be performed by a school worker which will be in constant contact with the company.

The company will need few hours-man per year, since operation is expected to be easy (especially for public entities) added to maintenance. 4 hours per week is considered enough to operate, remove ash, buy fuel and check the system.

Ideally, this person should be part time worker related to plumbing and heating systems installations. As the company gets more businesses, one person for operation several heating systems could form the company’s staff.

g) Earning model The company receives as payment a concession installment equivalent to the former cost of heating with fossil fuel This amount will be checked annually. The income per year is 28,500 €, which will be adjusted every year according to consumption, CPI (consumer price index) and propane price.

Costs of operation and fuel supply need to be lower over the year, added to the financial costs.

h) Seasonal variations The company will receive the concession installment once per year; thus, this income is not affected by seasonal variations.

The personnel hours will be concentrated over the winter months for ash removing, fuel purchasing and supervising. Weekends are free of activities and in summer just minimum requirements are needed.

The yearly consumption is expected as following:

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Consumption (tones of chips at 35% MC wet basis) J F M A M J

21 16.8 11.6 6.3 2.1 1.1 J A S O N D

0.8 0.8 1.6 4.8 10.5 16.1

This distribution is assessed assuming a maximum consumption in winter and 20 times less in each summer month.

This distribution summarizes a total of 104 tones per year, covering the heat demand of approximately 260,000 kWh per year.

Forest material needs to be arranged one year in advance, through pre-contracts and verbal agreements. In this way, raw material is guaranteed over the year long.

i) Integration to other companies in the value chain For operation and maintenance of heating system, a local heating systems installation company will be subcontracted to provide a person to supervise the heating system.

Private forest company or forest owner will be contracted to supply boiler with fuel. The forest owner can create his own company for providing fuel, since he has experience enough. The guarantee of consumption 100 tones per year, added to other projects, will make feasible the purchase of a chipping machine and the performance of forest works. Known prices of forest fuels in the area are 120 €/t air dried. This price may be negotiated.

Transport will be made and negotiated by the wood chip producer..

3. Market situation

a) Market situation and forecast for bioheat Market of biofuel as chips is not yet established. Several initiatives have been producing forest chips and estimating a price to be sold. At the present moment there are few producers of chips for fuel in the whole Catalonia and the customers contact directly to them. The product “wood chip” or “forest chip” is not well known.

Within Lluçanès County there have been initiatives which have produced several tones of forest chips. There is, as well, a grain logistics company which is producing pellet with the sawdust of nearby sawmill companies. This company aims to produce pellet with silviculture forest residues too.

There are two more projects working with wood chips within the county, which means that in the following years there will be a demand of this kind of biofuel. Although the demand of such kind of small boilers will be small regarding the size of the county, it is expected that more boilers will be projected soon. Special subsidies for heating of farms are also expected.

The will of one forest owner in this area to develop his own supply business by means of his own storing places, silviculture, and chip machine purchase, talks about the perspective within the county.

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b) National / regional policies currently and in long term The ICAEN (Catalan Energy Entity), within the frame of the Catalonian Energy Plan, gives yearly, from 2006, subsidies up to 50% of payable budget for biomass installations.

Every two years, the DMAH (Housing and Environment Department of the Government of Catalonia) gives subsidies for Sustainable Forestry. Subsides for forest cleaning and precommercial thinnings exist within this frame.

The recently published national law for electric energy production with renewable sources gives also special tariffs for electricity production with wood coming from silviculture. There are also tariffs for wood from short rotation forestry and wood waste from wood industries.

c) Competition At this first stage of the development of forest material use as energy, competence is not expected. There is one pellet producer with sawmill products and one forest owner aiming to produce by himself forest biofuels.

With respect to the supply chain, transport can be done by many companies and machinery owners; the issue for the wood chip seller is to find the best price. Regarding chipping, the forest owner aims also to purchase a chipping machine. Only another chipping machine, not already bought, at the neighbor county Bages, can compete with machines within Lluçanès.

At bidding level is not yet known the degree of competition, since the due date for bidding has been delayed.

d) Sources of raw material

Map 2. Land use at Lluçanès county

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Lluçanès county’s forests are expected to cover not only the demand of this installation but also others, since forest lands account up to almost 50% of the whole territory.

Land use % surface Area (ha)

Agricultural crops 34.5 12,689.1 Water 0.0 4.8 Forests 47.3 17,421.9 Shrublands 16.9 6,203.5 Improductive 0,4 134.3 Urban, Roads 1.0 352,8 Total 100 36,806.4

Table 1. Land use distribution

4. Financial plans The total needed investment accounting material and installation costs is 136 k€ (see table 3). It is remarkable how in many cases civil engineering accounts an important part of the budget.

Here is shown a bidding length of time of 10 years (and credit length). The economic balance regarding this period, for a EURIBOR value of 4.599 % (31 – October - 07) is shown in table 2. PROFIT AND LOSS Unit Quant Total (€) INCOME Propan consumption Electric energy Maintenance TOTAL 28,500.00 COSTS Biomass consumption 120 €/t35%hbh 104.14 12,496.61 Electric energy 239.59 Operation, maintenance, fuel parchase, etc. 4 h per week 3,200.00 TOTAL 15,936.20

Operating profit /loss 12,563.80

Depreciation 20 years 4,290.11 Financial costs of loan EURIBOR + 1.1% 7,201.99 Taxes 0.00 TOTAL FINANCIAL COSTS 11,492.10 Profit / Loss 1,071.70

However, depreciation and financial costs will be 0 € the 11th year because the machine will be already paid to the bank.

5. Investments

Concept Quantity Civil engineering 43,921.1

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Boiler 220 kWt 60,153.3 Hydraulic installation and canalization 29,481.3 Electric installation 2,350.1

TOTAL 135,905.9 Sales margin 6% 8,154.4 General costs 13% 17,667.8

SUBTOTAL 161,728.0 VAT 16% 25,876.5

TOTAL included VAT 187,604.5

6. Sources of funds Diverse sources of funds have been considered for this project. The subsidy from ICAEN can be up to 50% of the total amount, included taxes, industrial benefit and indirect costs, and excluding the installation of radiators.

Little grants have also been achieved from the Diputación de Barcelona (County Council of Barcelona Province), which have supported the draft of the project and the future installation.

Source Quantity Institut Català de l’Energia (ICAEN) Subsidy 93,802.24 Diputació de Barcelona – Xarxa de Municipis Subsidy 6,000.00 Diputació de Barcelona – Servei de Medi Ambient Project Subsidy 2,000.00 Successful bidder capital loan 85,802.24 TOTAL 187,604.46

7. Entry barrier analysis The lack of knowledge of the supply system arrangement is one of the most important barriers. Although there is a forest owner willing to trade with wood chips, the lack of ongoing projects and installations in the area may lead to mistakes and costs running over in the supply chain. This point need to be especially planned.

Growth of the activity of the company may take place if more heating systems can be managed, but bureaucracy slows project steps. From the idea to the heating system may last 3 or more years.

8. Risk analysis The solid biofuel circuit is not already working. Quality of chips is not guaranteed and therefore the net heating value and reasonable maintenance of the heating system. A well developed supply chain will guarantee supply and its quality, and this is not yet established.

Higher consumption than expected may lead to unbalanced economy. Special control of consumption and energy provided needs to be performed in order to avoid losses.

Forest fires may put in the market a high quantity of material but, in the same way, the following years this offer may disappear. Preventive silviculture is needed in order to provide raw material as well as guarantee sustainability of supply.

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..... …..

Forestry Management Service Directorate – General for the Natural Environment of Department of the Environment and Housing, Government of Catalonia. Forestry Technical Centre of Catalonia.

López, I., Rodriguez, J., Poysti, J. (Finpro). .. Heating pre-school and primary education centre – bidder viewpoint, 5 EURES Project Report X/200X, Project EIE-04-086. Catalonia, december 2007, 8 pages Keywords bioenergy, wood fuel, Bages, balance, benefit, Catalonia

Roll baled residue at power plant in Finland – Picture Benet




EURES EURES

HEATING PRE-SCHOOL AND PRIMARY EDUCATION CENTRE - MUNICIPALITY VIEWPOINT This document has some of the characteristics that a public institution offering a tender calling for heating services, needs to take into account. In this case, the installation to be heated is a public school in Prats de Lluçanès. The municipality needs a company to provide some funds and to operate the heating system. This company will obtain a concession installment. The plan is prepared by Forestry Management Service; Directorate – General for the Natural Environment of Department of the Environment and Housing; Government of Catalonia, and Forestry Technological Centre of Catalonia.

Map 1: Location

1. Background The CEIP Prats de Lluçanès was built in 1975, and in 2001 it was renovated and new education levels were added. The school uses currently propane gas and electricity for heating. The tank gas needs replacing and the Consorci del Lluçanès decided to ask alternative offers to convert the heating into renewable energy.

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On date May 19th 2007 the municipally published tender calling for offers for the biomass heating system project. The tender was delayed due to political changes in the municipality.

2. Business idea

a) General The school would like to find heat entrepreneur to sell heat to the school for heating the classes by using biomass system. The agreement would be for seven years and with partially fixed price. The municipality will own the equipment, which will be paid through the bidder with the concession instalments, and the bidder will get the credit. The school will pay same amount for energy as it currently pays, with annual revision of CPI (consumer price index) and propane gas price variations. The heat entrepreneur can keep the profit if he can deliver heat with lower costs.

b) Fuel The bidder should arrange fuel supply any way that they consider suitable.

c) Savings for the school No savings are expected for the school. The economic situation for the school will be same, but using a nature friendly biofuel.

d) Benefit for the school and municipality The school’s current heating costs are 28,500 €. The school is expected to pay the same amount annually to the successful bidder. No savings from energy costs are expected but there will be other more intangible benefits to the municipality.

It is expected that the school will not notice changes, expect from economics and environmental issues. The heat entrepreneur can expect subsidies for boiler installation and price of solid biofuel (wood chip piles) is expected to be lower than what the school currently pays for energy.

The bioenergy operation will create some jobs and tax income for the municipality. Employees who operate the boiler and arrange the supply chain are important social aspects because this area is considered as run-down.

Furthermore, the use of renewable source for energy has to be considered as social benefit. This boiler modification will actually mean that 20.4 TOE less emission to the atmosphere every year.

e) Way to operate Successful bidder will have a concession, at first for seven years. This bidder will sell heat to the school at a fixed rate of 28,500 €/year(1). The bidder needs to cover its installation expenses (subsidy for installation costs may be available), plus fuel and operation expenses.

f) Recommended business structure for municipality Longer than 7 years concession (8 years would be attractive enough – in this case) period could be more attractive for bidders and municipality, since it guarantees:

i. By one side a longer working period of the boiler

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ii. By other, stability of forest harvesting and payout of machinery investments

g) Required resources The bidder delivers everything. It’s matter of the bidder taking care of system operation. The school must provide or design a place to install the boiler, and to store the chips.

Old heating radiators can be still used, and gas-oil boiler will remain for back-up and possible breakdowns. No extra people need to be contracted by the school in order to supervise boiler’s operation.

h) Seasonal variations These variations will not affect the municipality. Bidder must to take care about seasonal variations, which can be adjusted later when reviewing the concession installment.

3. Feasibility evaluation for bidder operation For a correct operation of the heating system, successful bidder should take into account the following.

a) Market situation Market of biofuel as chips is not yet established. Several initiatives have been producing forest chips and estimating a price to be sold. At the present moment there are few producers of chips for fuel in the whole Catalonia and the customers contact directly to them. The product “wood chip” or “forest chip” is not well known.

As forecasted in the “Pla de l’Energia de Catalunya” (Catalonia’s Energy Plan) this is going to be the evolution in biomass consumption:

Forest and agricultural biomass consumption (ktoe/year) 2003 2010 2015

BASE scenario 93,9 127,3 136,6 IER scenario 93,9 161,7 228,6

toe: Tones of oil equivalent BASE scenario: According to the actual economic, energetic and technologic trends IER scenario: Maximum enhancement of renewable energies use, energy saving and energy efficiency

Within this frame, ICAEN subsidies up to 50% of material and installation costs for renewable energy projects for individual and public entities. This percentage falls to 30% for private companies.

Lluçanès county’s forests are expected to cover not only the demand of this installation but also others, since forest lands account up to almost 50% of the whole territory.

Within Lluçanès County there have been initiatives which have produced several tones of forest chips. There is, as well, a grain logistics company which is producing pellet with sawdust of nearby sawmill companies. This company aims to produce pellet with silviculture forest residues too.

There are two more projects in municipal buildings as well as several private initiatives which will work with wood chips within the county. This means that in the following years there will be a demand of this kind of biofuel.

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Although the demand of such kind of small boilers will be small regarding the size of the county, it is expected that more boilers will be projected soon. Special subsidies for heating of farms are also expected.

Map 2. Land use at Lluçanès county

Land use % surface Area (ha)

Agricultural crops 34.5 12,689,1 Water 0.0 4.8 Forests 47.3 17,421.9 Shrublands 16.9 6,203.5 Improductive 0.4 134.3 Urban, Roads 1.0 352.8 Total 100 36,806.4

Table 2: Land use distribution

One of the divisions of the consortium for the development of the municipalities of the county of Lluçanès, is Environment and Territory. This division supports and promotes initiatives dealing, among others, with the use of local available forest material as energy. The division will help establishing biofuel supply chain.

At this first stage of the development of forest material use as energy, competence is not expected. There is one pellet producer with sawmill products and one forest owner aiming to produce by himself forest biofuels.

Many companies can offer transport services. Local chipper owners in the vicinity may provide chipping. .

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4. Financial plans There are no savings in the energy costs, and the school will not invest anything.

5. Entry barrier analysis One of the barriers that may prevent the municipality to get many good bids is perceived lack of biofuel supply. The difficulties are mostly related to the absence of a forest biomass market, rather than excess of competence.

In fact, the contact person of this initiative remarks the absence of a supply chain of this fuel. It is expected that as initiatives consuming this fuel get more common, more fuel offer will be found. Thus, a private forest owner is planning to produce forest chips for energy for its own use and to commercialize.

Biofuel heating has not developed fast because public entities, due to a lack of running initiatives of RES heating in the surrounding area (and then with similar conditions), do not completely trust on forest biofuels. As good initiatives take place and go ahead on a long-term base, other public entities will be opened to change its heating systems to RES ones.

There is a perception that support from the Spanish and Catalonian public administrations should be higher. Boilers are very expensive and many entities cannot afford or justify this huge expense. It would be better subsidizing in a case-by-case basis, allowing better distribution of subsidies and a study of installation regular or irregular budgets.

Recent experience in Catalonia shows that heating projects will be able to pay a higher price for unit biomass than generation projects. Consequently little heating initiatives, which will take place in rural areas of Catalonia where forest biomass is easily available, are the ones which need support from public administrations.

6. Risk analysis The only risk from school`s and municipality’s point of view is if the accepted bidder later on goes bankrupt or otherwise ceases to trade. This may happen if heat consumption of the school increases, or price of the wood chip increases, and negotiations about heat price with the school will not lead into satisfactory price from the heating system operator’s point of view.


..... …..

Forestry Management Service Directorate – General for the Natural Environment of Department of the

Environment and Housing, Government of Catalonia. Forestry Technical Centre of Catalonia.

López, I., Rodriguez, J., Poysti, J.; Heating pre-school and primary education centre – municipality viewpoint, 5 EURES Project Report X/200X, Project EIE-04-086. Catalonia, December 2007, 5 pages

Keywords bioenergy, wood fuel, Bages, balance, benefit, Catalonia

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Firewood production in Finland – Picture Erkki Oksanen

Chipper in Finland – Picture Jouko Parviainen




EURES EURES

INDUSTRIAL USER CONVERTING TO BIOENERGY This business plan is intended to show company’s directors that use of wood fuels has better advantages than use of hazelnut shells and what savings can be achieved by using a new type of biomass.

The solution proposed consisted at first on an adaptation of the feeding system. The current feeding system works perfectly for hazelnut shells but it has problems with some big and slender wood particles.

Another solution might be a complete adaptation for wood fuels, including the change of the boilers and keeping in mind the possibility of co-generation.

The plan is prepared by Forestry Management Service; Directorate – General for the Natural Environment of Department of the Environment and Housing; Government of Catalonia, and Forestry Technological Centre of Catalonia.

1. Background

Company Joaquim Albertí S.A. produces packed sausages, ham, and other meat products with the brand name “La Selva”. The company has three industrial boilers providing hot water used to cook ham and other cooked pork products. Boilers are currently fed with nut shells (hazelnut and almond). Company’s board of directors is considering using other fuels because uncertainties in availability of nut shells due to variations in climate ad nut production.

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2. Business idea

a) General The company is using mix of particle board chip from the nearby factory and wood chip from forest.

In the current fuel feeding system, unsieved particle board and forest wood chips block the pneumatic feeding system. This is due to unusual big particles present in the chips. Chips can be sieved, but it increases chip price 25%, from 40 € per ton to 50 € per ton. Therefore the management has asked a plan to modify the feeding system and technical details and costs for each are explained below. Another alternative is to change the whole heating system with the implementation of a cogeneration unit.

b) Fuel The total need of heat per year of this company is 11,600 MWh, which are approximately 3,000 tones of biomass (hazelnut shells) per year.

The company is currently using biofuel which is a mixture of particle board chips with forest wood chips. The biofuel is delivered to plant by a small independent and haulage company. The best result for the chipping company is the mixture of particle board and forest wood chips.

c) Benefit for the company New fuel sources will make fuel supply more secure.

Prices of nut shells have been variable. New fuels are expected to make fuel price and supply more stable. New fuels will have lower prices than nut shells. Forest chips from burned, dead and non commercial trees are becoming competitive.

These will help the company to stay competitive by reducing energy costs. A greener image of the company is also an important issue. As a private company, they want to keep productivity at lower cost without sacrificing quality and environmental issues.

Cost of energy for company’s current production with hazelnut shells (10% moisture content) is approximately 0.013 – 0.014 €/kWh. The cost of energy with forest chips would be 0.010 €/kWh at a price of 40 € per ton and 20% of moisture content.

This means that in terms of fuel consumption, the total investment along a year would vary from 165,000 – 180,000 € (consuming hazel nut shells) to 145,000 €, with wood chips. This is a saving of 20,000 – 35,000 € per year.

d) Required modifications Currently, unsieved chips block the pneumatic feeding system because chips contain unusually big particles. This feeding system is similar to those used to store grain in high silos. The feeding system must be modified in order to be able to use lower price biofuels and thus to ensure supply of fuel. Another alternative is to change the whole heating system.

The current feeding system, from the big agrarian silos to the boilers, is pneumatic. The alternatives to this are.

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i. Modification of feeding system Modify track and pipe diameter to the current pneumatic system, in order to adapt it for larger biofuel particles. About 60 m of broader pipes and more powerful turbines is estimated to be necessary. In this case another possibility is to modify the feeding system into a conveyor belt. About 60 m of a conveyor belt plus mid point adaptations are estimated to be necessary.

ii. New boilers and feeding system New efficient boilers only for cooking purposes could also reduce fuel costs.

iii. Cogeneration New efficient boilers could be installed for cooking, heating of the plant and some buildings of the vicinity and electric energy generation. In this case, it would be necessary to have more space for the cogeneration unit and for storage of biomass.

e) Integration to other companies in the value chain Two kinds of entrepreneurs are expected to be within the value chain of forest chips for this study.

• a forest work, haulage and transport to plant company

• a chipping company

There are several forest work companies. La Selva buys chips from the chipping company which selects forestry suppliers and haulage contractors.

Another two companies are expected to compete offering chipping services. At the present moment, just one is providing the chip to this industry, because it is closer (4 km). The other is 22 km away through a narrow road.

f) Seasonal variations Heating needs are constant along the year. Weekends and holidays are the sole periods of time where less work and have less demand of heat is expected. The boiler system is already automatic, so that, the adaptation needed is not affected. There are peaks of consumption every morning and evening, when the company cooks the meat.

3. Market situation

a) Market situation and forecast for bioheat Bioheat seems to be cheaper than fossil fuels on the medium and long term. Taking into account predictions of Brent Barrel reaching 100 $ in the near future, the payback time of a biomass installation, it’s likely to be significantly reduced compared to a traditional boiler.

Regarding hazelnut shell, the rise of prices until 55-60 €/t and the unsecured availability due to weather conditions leads to conclusion that price may increase in the short–middle term. Furthermore, the promotion of bioenergy all around Catalonia will also create more demand of hazelnut shell as a fuel also in its production area. Thus, the more the demand, the higher the price. Within this scenario, forest chips seem to be a more stable and cheaper fuel, in this case.

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Figure 2: Location of the company, wood chip plant and sources of raw material

b) National / regional policies currently and in long term Subsidies for installations are distributed as following:

For municipality’s installations, individuals and non-profit organizations: up to 50% of material and installation costs (except radiators). For companies, this percentage is set up to 30%.

The national energy agency has also agreements in order to give soft credits up to 100% of project expenses (excluding VAT and up to 1.5 M€). Electric energy delivered to the network produced in cogeneration with biomass, has the following regulated tariffs:

Biofuel Power Time Regulated

tariff (c€/kWh)

Reference tariff

(c€/kWh) First 15 years 12.7998 8.4643

≤ 2 MW After year 15th 8.6294 0 First 15 years 10.7540 6.1914

Gardening, pruning, etc

>2 MW After year 15th 8.0660 0 First 15 years 12.7998 8.4643


Silviculture >2 MW

After year 15th 8.0660 0 First 15 years 9.4804 5.1591


Forest industry byproducts

>2 MW After year 15th 7.1347 0

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The company can either sell the energy at a fixed tariff (regulated tariff) or at market price. If the market price is too low, it will added the reference tariff, to keep the final price of energy between a top and bottom price.

4. Sources of biomass There is a large forested area close by, Les Gavarres, where conventional forest works are expected to be able to supply biofuel material. This raw material can be processed by the company which supplies currently the meat industry. Also, there are small forested lands close by, in Empordà and Gironès. Their forest activity can provide with raw material.

5. Competition There are two separate issues when market situation in competition is considered:

• Competition at biomass level: low prices of nut shell can lead to a competition with forest wood chips

• Competition at supplier company level: several companies within the area are expected to be able to perform works at forest site, and two companies (instead of just one) can process the raw material.

6. Financial assessment Financial calculation has been done considering hazelnut shell consumption.

PROFIT AND LOSS Unit Total (€)SALES INCOME Hazelnut shell consumption 55-60 €/t 165,000 – 180,000 COSTS

Fuel price (wood) 40 €/t 145,000TOTAL 145,000

Benefits 20,000 – 35,000

7. Investments At the current moment, the company has a budget for replacing the feeding system of about 300,000 €. The approximate investment for the establishment of a cogeneration unit is, according to estimations of Mr. Asko Puhakka, 850,000 €.

8. Sources of funds

SOURCES OF FUNDS Note Total (€) Institut Català de l’Energia ≤30 % of the investment on works,

installation and material *Capital loan 60 % and rest *Owner capital 10 % and rest *TOTAL ROI

9. Entry barrier analysis The company management board is willing to change the fuel from hazelnut shell to wood chips. Hazelnut shell quality as fuel is higher than wood chips, since it is

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always dryer and it comes from an existing industry. However, that price is rising and supply depends on production and therefore, on weather.

If there is an increment of the demand of hazelnut shell into its production area, the price will increase. This fact can lead to a better competitiveness of wood chips in the study area.

10. Risk analysis An inefficient adaptation of the feeding system could be the sole risk. It would mean that it’d be necessary to continue usind sieved wood chips. These chips are more expensive than unsieved wood chips. The aim of changing the feeding system is to use cheaper biofuel.

This is an industrial and private project which will consume wood chips. Quality regulation and control of forest and wood chips supply will be necessary and is nowadays not guaranteed. Forest works are expensive. In order to keep the price of 40 € per ton, one has to ensure quality and origin of biofuel.

However, increasing price of hazelnut shells and the dependence on weather conditions is a positive factor in the risk analysis because market of forest chips is expected to be more stable. This can be especially true if forest works are planned in the mid-long term and principles of silviculture and sustainability are followed.

Forest fires are common in the Mediterranean area, and therefore in Catalonia. Forest fires can create an over-offer of wood that can be use as biofuel. At the same time, it creates, later on along a short time, a lack of offer. These variations may affect the stability of the offer and prices of the wood fuels.

Gas companies offer cheap and even free gas installation (to private domestic users) once gas pipe reaches potential customers. A gas network in the vicinity could compete seriously with wood chips. Furthermore, a drop of the fossil fuel prices could make competition difficult for wood chips, especially if the situation of the previous paragraph takes place.


..... …..

Forestry Management Service Directorate – General for the Natural Environment of Department of the Environment and Housing, Government of Catalonia. Forestry Technical Centre of Catalonia. López, I., Rodriguez, J., Poysti, J.. Industrial user converting to bioenergy, 5 EURES Project Report X/200X, Project EIE-04-086. Catalonia, December 2007, 7 pages Keywords bioenergy, wood fuel, Bages, balance, benefit, Catalonia




EURES EURES

PELLET BURNING BIOMASS HEAT SUPPLY STATION 250 kW This is an example business plan for a company running initially a 250 kW heating plant for heating a complex of municipal facilities. If the plant works well, the company plans to expand the business and to supply other public and private buildings. This plan is prepared by University of Applied Science, Eberswalde, Germany (Fachhochschule Eberswalde), CEBra GmbH and Finpro Germany.

Picture: 250 kW Pellet boiler. Picture courtesy Mawera.com

1. Background The calculations are based on an example in Eberswalde, where the community has decided to change gas heating to a pellet-burning biomass heating station.

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2. Business idea

a) Products or services offered The company is running and owning a 250 kW pellet heat plant, where the heat is sold to one client (public body). Contracts are made for several years (15 years are planned) with the client. Company will take care of running the plant, and does the maintenance and services.

Services includes: selling heat, running the heat plant, taking care of maintenance and reparations if needed.

It’s also possible to contract the company only for the plant service if the plant belongs to the client.

b) Targeted customers The first customer of the company is an administrative building complex owned by the community. It was decided to change the old gas heating system to a pellet-burning biomass heating station. The complex includes six building which are connected via an existing heating grid. The total surface area of the buildings is 3.879 m2, whereas the total volume amounts to 47.566 m2. Taking into account the required, building specific heat demand shares, the annual heat demand in the comes to 1166 MWh. Where the annual heating period starts on September 1st, and ends Mai 31st.

For covering the base load one 250 kW pellet boiler with 90% efficiency was installed. This size of boiler is ensuring the most possible full use hours of wood boiler work. A sophisticated control system adjusts the work of the wood pellets heating plant automatically in accordance with the heat consumption and starts one of the old existing two 500 kW gas boilers if the basic load is exceeded.

The pellet boiler is producing the annual base load of 90% (1049,4 MWh), whereas the gas boiler is covering 116,6 MWh and emergency cases.

c) Benefit for the customer The main benefit is that the client does not have to invest into a new heating system.

The company takes care of all operations. Customer can buy heat at a better price without any worries about fuel supply, maintenance, or operations.

Advantages of the heat plant services

• Outsourced service: heat production, controlling, maintenance and fuel procurement.

• One partner for all services

• Experienced service provider in this business no trouble or worries for the customer

• The customer does not need to employ or to train special maintenance personnel

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• Best prices for equipment since the company has special contracts with boiler manufacturers

The plant contributes to the BARUM energy initiative of the two counties Barnim and Uckermark. The initiative aims at a sustainable, future oriented production and use of energy in the region. Heating public buildings with wood energy has not only positive effects on the climate and local value chains but can also serve as a role model for other regions.

d) Fuel A fuel mix of industry wood pellets and gas will be used in the heating station. The annual base load of heat is 1166 MWh which is covered by wood fuel and peak loads are covered via gas.

The wood pellets are industry quality pellets with 5 kWh/kg and which are produced at a pellet facility in nearby Schwedt. Average fuel consumption of the plant will amount to approx. 233 tons per year if the plant covers 90% of the total demand. With a plant efficiency of 90% the calculation basis is 1166MWh in order to produce 1049,4 MWh. The pellet price is 150 € with an expected price growth rate of 20% within the next 10 years. Total pellet costs are: 34,950 €.

Additionally used gas will be delivered by the local gas supplier “Stadtwerke” at a price of 50,90 € / MWh plus basic fees. This price is also expected to grow. Experiences from the last ten years show a growth rate in gas prices of about 150%. Annual fuel price for 116,6 MWh gas is expected to be approx. 5935 €.

The operator tries to cover as much as possible with pellets to get a better income.

e) Way to operate The company offers a free calculation of customers heat demand and offers possible wood fuelled heating solutions, where the heating system belongs either to the company or to the client and the company does only service and maintenance work. If the customer agrees to a change of the heating system, the company organizes the whole construction work.

The service company makes heat contracts for several years with the customer. Similar contracts will be made with pellet and boiler suppliers as well as with installation companies, ensuring best possible prices for fuel and equipment

This “worry – free” package is the most convenient way for the customer to change to a climate friendly heating system and to save money in the long run.

f) Recommended business structure Company can be at first a small one man company, which requires only part time activities. If the business grows and several people have to be employed, another business structure might be favorable.

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f) Required resources In this case the heating system will use industry wood pellets. The already existing gas boiler remains in the system. The main reason for this is that pellets are environmentally friendly and inexpensive, so that the biomass boiler will provide an as high as possible share of the base load while the gas fuel boilers will satisfy peak load needs.

An additional task for the gas boiler is to act as back-up and emergency boiler in case pellet boiler does not work. This is important aspect in regions such as in Brandenburg where pipes can freeze if heat is not supplied all the time. Backup boilers using gas can start automatically even during the night.

i. Equipment – wood pellet boiler supplied and owned by the client The chosen equipment is a MAWERA pellet boiler, type FU 220 RIA, with a nominal firing capacity of 250 kW and a boiler efficiency rate of 90%. The firebox is equipped with a double grate, each of them having a separate primary air. The stoker feeds the fully refractory lined combustion chamber from underneath. A hermetically insulated Three-pass flame tube boiler sits on top of the firebox. The boiler is provided with fully-automatic self-cleaning function run on compressed air. Fire tubes are therefore kept free of dust and soot thus increasing boiler efficiency and durability. The conveyor system consists of a sweep-arm discharging the pellets from the bunker and screw conveyors. The storage capacity is 40 cubic metres. The annual fuel consumption is between 220 and 240 tons of pellets. The boiler and pellets are stored in a renovated part of the basement in one of the heated buildings.

Picture: Mawera.com

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ii. Equipment – gas boiler supplied and owned by the client The utilized backup gas boiler is one of two already existing 500 kW gas boilers which were installed in the early 90’s.

iii. Equipment – required to purchase by the company Only basic office and repairing tools are needed for service and maintaining the heat production plant, and to administer the fuel supply. Fuel supply will be completely outsourced to external subcontractors.

iv. Human resources The company will employ one part time person. The person should have some experience in wood fuel markets and service of heating plant. Ideally the employee is a trained plumber.

If the company grows one person could work full time, or another part time worker can be employed to have a change in shifts.

In the beginning the work load is rather small with about 10h per week and plant for maintenance, cleaning etc. Generally the plant is designed to work without supervision, but in the case of an emergency the company gets a message on the mobile phone. The aim of the company is to run several plants in order to have one full time employee.

g) Earning model Company sells heat to the client at around 70 € per MWh (depending on negotiations) which is a common heat price in Germany these days.

The customer is paying monthly for the heat incl. services and maintaining, based on yearly rate and used/produced heat kWh. Yearly rate is agreed according to savings compared to costs of old and new unit and work load. The average price development of fuels is taken in to account in the contract – f.e. with index correction.

Profit comes from savings which are reached with new heat unit compared to old system.

Specialized heat Service Company such as this company is able to negotiate better fuel supply contracts than not specialized company such as the client in this case. Savings might come also from cost effective maintenance.

i) Seasonal variations affecting operations The main work occurs naturally during heating season between September and Mai. In summertime the main work is to look after the gas burner and to make maintenance work like cleaning.

j) Integration to other companies in the value chain Long term contracts with pellet and boiler producers are possible. This will ensure best prices. The pellet producer is taking also care for a continuous supply and the transportation. Also contracts with installation companies for the erection of the whole heating system are recommended.

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3. Market situation

a) Market situation and forecast for bioheat The price for heating with oil or gas has increased constantly over the past years. Therefore the interest in wood fuels has risen significantly. Right now heating with wood is considered to be a real alternative, unlike a few yeas ago. More and more companies and municipalities are changing their oil ands gas heating systems into renewables, because life expectancy of their old systems expires and reasons to change the type of fuel are obvious.

During the last two years a steep rise in the utilization of pellet burning units was recognized in Germany.

b) National / regional policies currently and in long term Currently biomass heat and power systems have a great development potential in Germany, due to the fact that from biomass generated electricity is rewarded with an over 20 years guaranteed feed in tariff. In 2006 the feed in tariff for biomass based electricity was for plants up to 20 MW: 8, 15 ct/kWh and 11, 16 ct/kWh for plants under 150 kW.

Grants for the erection pellet boilers are available for private persons, SME, communes and associations.

The market stimulation programme of the KfW offers for automatically fed facilities between 100 and 1.000 kW a beneficial loan model with a partly debt relief. To get the loan and relief the following parameters have to be met:

• Efficiency rate over 90%

• Automatic ignition

• Heat capacity control

• 250 mg/m3 CO at rated heat load

• 250 mg/m3 CO at partial load

c) Other potential customers Owners and operators of larger heating grids are considered as potential new customers. There are still lots of old gas or oil boilers firing large local heat grids in residential areas throughout Brandenburg.

It might also be considered to sell the maintenance service to already existing bioheat plants. For this purpose the employees are constantly trained on new bioenergy methods, e.g. grain or straw firing.

d) Sources of raw material The company buys the fuel from local pellet producers. In the north Brandenburg area HPS in Schwedt is the closest pellet producer. (www.hps-pellets.de) Another pellet producer is located in Calau, in southern Brandenburg.

Which one will be chosen depends on price and transportation negotiations.

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e) Competition Not too many heat contracting companies are active on the Brandenburg market since heat contracting is not very common yet.

The case company should convince the heat supply plant owners to outsource the service instead of running the plant by them selves. Since this service is quite new in Brandenburg, no real competition exists for this service.


INCOME €/a Sales of heat 52 81,620 TOTAL 81,620 COSTS Wood fuel price (wood pellets from local suppliers) 1 34,950 Supplementary gas price 53 5,935 Annual service and supervision 54 10,000 Own energy use (electric) 55 3,732 Inspection 300 Chimney sweeper 400 Measurement instrumentation 100 Service contract 300 TOTAL 55,717 OPERATING INCOME 25,903 Financial costs (repayment of loans) 7,380Depreciation (might be considered if new plant is planned often 15 years)

2,487

TOTAL 9,867 PROFIT BEFORE TAX 17,840Taxes (30%) 5,352NET PROFIT / LOSS / SAVINGS 12,488

INVESTMENTS € TOTAL 38,800ROI 32 %

52 1166MWh of heat * 70 €/MWh = 81,620 € 1 The estimated price of wood pellets is 150 € per tonne (rounded figure). The total costs of fuel is 34950 €/a. It is expected that the price of pellets rises by 20% over 10years. This is considered in price negotiations. 53 50,90 €/MWh 54 10h/week, part time worker (40,000€ per year as full time, basis for calculation) 55 6,5 kW, 18 ct/kWh

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SOURCES OF FUNDS €KfW Bank loan 44,500

The service company doesn’t have to do special investments beside the plant.

• Basic office investments for communication like telephone and PC.

• Basic tools and equipments to make small service work.

• Car is needed if the person takes care of several heat supply plants. (a car can be leased as well)

FINANCIAL ASSUMPTIONS

INVESTMENTS

Biomass – pellet boiler package

MAWERA FU 220 RIA

37,300 €

Office equipment & basic tools 1,500 €

TOTAL INVESTMENTS 38,800 €

OPERATING COSTS

Annual heat generation 1166 MWh/a

Fuel need / consumption (pellets)

233 t/a

Fuel costs (pellets) 34,950€

Fuel costs (gas) 5,935€

Electricity (6,5 kW, 18ct kWh) 3,732€

TOTAL OPERATING COSTS

44,617€

PLANT OPERATION

Personnel (part time worker) 10h / week 10,0 00€

Inspection 300€

Chimney sweeper 400€

Measurement instrumentation 100€

Service contract 300€

TOTAL OPERATION COSTS

11,100€

CAPITAL COSTS

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Investment costs

38,800€

Financing conditions

loan 44.500€ (96% payed out)

duration 10 years interest rate 5 % interest 2.225 €/a redemption 4.450 €/a reliability expert 44,5 €/a

insurance 660 €/a

TOTAL CAPITAL COSTS 7,380 €/a

DEPRECIATION 15 years 2,487 €/a

OVERALL COSTS

Depreciation 2,487 €/a

Costs of capital 7,380 €/a

Operating costs 44,617 €/a

Plant operation 11,100 €/a

TOTAL COSTS 65,584 €/a

Specific heat costs 250kW, 1166MWh/a

56,25 €/MWh

5. Entry barriers Since this business is quite new in Brandenburg, difficulties might arise in convincing the potential clients to outsource the heat business and not to run the plants themselves.

The current fine dust emission discussion could prevent people from changing to environment friendly wood fuelled heating systems.

6. Risk analysis Risks for the case company are mostly in maintenance and in fuel supply.

Risk in maintenance

• Unexpected technical problems show up before expected and take into consideration while making yearly contracts

• Risks in fuel supply and fuel quality

• Fuel supply is depending on subcontractors

• Supplier don’t keep the schedule

• The fuel prices are getting very high fast, so that the agreed indicator does not help to correct the price of sold heat

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Risks for the break of heat production are minimized with the gas boiler unit, which is a spare unit for emergency and peak time use.

….. …..

Laufer, S. 2007. PELLET BURNING BIOMASS HEAT SUPPLY STATION 250 kW. FH Eberswalde, Eberswalde, Germany. 5 EURES (EIE/04/086/S07.38582). Business Plan. 10 p.

Short rotation coppice in Lithuania – Picture Jelena Aneicik




EURES EURES

SHORT ROTATION COPPICE FOR BIOENERGY This is an example business plan for AgriWood ltd, a privately owned company producing wood chips from short rotation coppice. The company is a division of the AgriProducts ltd. Both companies are owned and managed by one farmer. This plan is prepared by University of Applied Science, Eberswalde, Ggermany (Fachhochschule Eberswalde).

Picture: Planting aggregate “Quickwood” [1]

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1. Business idea

a) Products or services offered The company plants and grows fast growing tree species for the production of wood chips. The wood chips are sold either to a nearby located CHP for heat and energy production or to a biomass trading company.

The types of fuel produced are mainly poplar and black locust wood chips. The farmer grows poplar on the wet parts of the fields, whereas black locust is grown on dry and sandy soils.

Usually the soil conditions in Brandenburg are quite poor and sandy with little precipitation during the year (500 – 700mm / a). Therefore willow planting is not recommended in areas with insufficient water supply

b) Targeted customers The local CHP has given a supply contract for the first two harvests and an option on the following.

Energy wood retailer or planned BtL production facilities could be additional customers if the business proofs to be profitable and expands.

c) Benefit for the customer Since the wood market in Brandenburg faces currently a gap of almost 2mio.m³ wood between the usable annual increment and demand, an additional source for energy wood production is urgently required. Different CHP and other bioenergy production facilities already stated their interest in purchasing wood chips form short rotation coppice fields.

The ongoing competition between the wood industry and the energy industry led also to a high price level for small diameter timber, so that the establishment of such fields would help to stabilize the market price for wood chips as well.

d) Way to operate The farmer rents 40 hectares of arable land for a price of 115,- € per hectare for the establishment of the plantations. 20 ha are planted with poplar; the remaining 20 ha are planted with black locust. The total utilization time of the plantation will be 20 years with harvesting performed every 4th year.

For the success of fast growing tree plantations weed control is an essential factor. Especially the first year decides about success or failure. Therefore the establishment of plantations starts with extensive weed control by applying 70 liters herbicides per hectare. This is followed by ploughing.

Both operations are performed some weeks before plantation establishment. For seedbed preparation just before planting, a disc harrower with seedbed combination is used.

These tasks are carried out with employees of the AgriProducts ltd.

The application of fertilizers is not necessary, as this was former farm land and the nutrient requirement of poplar and black locust are relatively low. It might be recommended to control the nutrient content in the soil between the harvests and to apply a fertilizer if needed.

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The purchase and planting of poplar and black locust shoots will be subcontracted to an external gardening company. The amount of planted shoots is 10.000 plants per hectare at a price of 9 cent per shoot in black locust and 20 cent per poplar shoot.

With regard to the harvesting technology, a two-row planting system should be selected where the distance between rows is 75cm and 175 cm between double-rows. With this system a total plant number of 10.000 plants per hectare are placed.

Right after the planting a fence of 2m height will be built up to protect the young plants form game bite caused by hares and deer.

In the establishment year the upcoming weeds should be removed between the rows mechanically (chopping, mulching). From the second year on the plants grow tall enough to dominate weeds. To maintain a good accessibility of the plantation additional mulching (2 x) is performed.

As the first year is essential for success or failure, the possibility of irrigation should be considered in very dry years.

After 4 years first harvesting can be performed. The most suitable time for this is late autumn or winter, where the work load at the farm is low and the moisture content in the trees is at its minimum.

The most efficient harvesting method for trees of this size is the full mechanized system which cuts, chips and blows out the chips in one work step. A driving by tractor with a container is collecting the chips.

The subcontracted company who carries out the harvesting work uses this full mechanized harvesting system. One additional tractor with a container must be constantly available to replace the one being filled up. The containers are then transported to the nearby CHP plant.

After the maximum utilization time of 20 years the plantation will be recultivated back into farmland. This is required as the soil needs to recover, and to avoid that this area will be turned into forest land by forest law. For recultivation a farm tractor towed milling cutter will be used. This will be repeated twice to eliminate potential shooting from remaining roots.

Other businesses of the same owner and role of the businesses in the company operations are:

• AgriProducts ltd., an agricultural company, farming at owners land. The companies farming equipment and personnel will be used for the establishment and maintenance of the plantation at own costs. Also storing premises are available if needed.

This company supports AgriWoods operations because there are manpower and the required agricultural machines available at minimum costs and this will minimize the need of investments in the first years.

If the business is successful and pays off, an enlargement of the plantation area could be considered and then some specialized machinery could be bought.

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e) Recommended business structure A division of AgriProducts ltd. (AgriWood ltd.)


i. Equipment – wood boiler supplied and owned by the client For Soil preparation a farming tractor is needed. Furthermore the following agricultural equipment should be available: extention nozzle for herbicide application, a plough, a disc harrow with seedbed combination. This equipment with the according manpower will be done by AgriProducts at own costs.

The purchase and planting of the willow and black locust shoots will be completely subcontracted to a gardening company which has experience with short rotation coppices.

For fencing the whole area, a wild game protection fence for forestry will be bought and erected by staff of AgriProducts.

Weed control will be performed by employees of AgriProducts with a small farming tractor and attached chopping and mulching aggregates. Mulching will be performed three times (or more if necessary) during the whole plantation period to prevent extreme weed growth in driving lanes.

The harvesting operation will be subcontracted to a local agricultural service provider who owns a Claas Jaguar forager and a SRC cutting head. The produced wood chips are blown directly into containers which are town by a tractor and then brought to the CHP plant.

After the maximum utilization time of 20 years the plantation will be recultivated by using a farm tractor and milling cutter. The machinery and personnel comes from AgriProducts ltd.

ii. Financials Total investment costs are approx.155, 000 €. The loans are coming from the owner as a shareholder loan of 20,000 € at an interest rate of 5% for the first four years. This loan will be paid back after the first harvest.

The second loan comes from the KfW Förderbank as a 100% loan for investments on renewable energies. The KfW Förderbank supports projects and investments in environmental protection, energy saving and renewable energies with different grants and beneficial loans.

The interest rate for this kind of investment amounts to 6,05%, but lower rates are possible. The payback time for the loan is 8 years (see interest repayment plan). The owner guarantees the loan personally plus the loan is secured to AgriProducts equipment.

iii. Human resources The manager of the AgriProducts ltd. is also responsible for the operations at the plantation. At this stage it’s not recommended to employ somebody solely for the plantation because this is mostly part time work.

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When the plantation grows successfully, it could be considered to establish new fields every year so that there will be a yearly income. Then it’s reasonable to employ somebody for care and maintenance.

The other human resources are mainly subcontracted and coming from the AgriProducts ltd. or from gardening and forestry companies.

g) Earning model The first income from this business is going to be earned not until the first harvesting, which is in the 4th year. This assumes that until the first harvest an investment sum of 123,512 € + 28,253 € for loan interest must be considered before the first income. With the first income this sum is not balanced. So that not until the third harvesting real income will be achieved. (see financial planning!) Meanwhile yearly costs are arising only from overheads and loan interest. Every 4 years the harvesting costs have to be considered as well.

The average income from selling the wood chips to the CHP plant is 71.160 € every 4 years, amounting to 355.800 in total. This is based on a price of 59, 30 € per tone of dry mass and estimating an average yield of 8 dry tons per hectare and year for poplar and 7 dry tons per hectare for black locust. The CHP picks up the fuel right after harvesting without preliminary drying.

Additional income comes from the EU with the direct payment grant for agricultural companies according to their farming land. In Brandenburg this amounts to an annual payments of 273 € per hectare.

Additional income could be obtained trough the energy-plant grant of the EU which amounts to 45 € per hectare on non-fallow land. But due to some uncertainties in paying this grant for SRC now and in the future the business calculation was done without considering this resource.

These operations do not compete with owners other farming operations because there is very little maintenance required after the establishment year. Additionally the most laborious work like planting or harvesting is subcontracted to other companies.

h) Seasonal variations affecting operations

The main workload is during the first year during establishing and maintaining the plantation. After that year there is almost no care needed beside the harvesting operation in winter every 4 years and the recultivation in the last year. The harvesting operation is done while other work on the farm is at the lowest.

In the future it’s possible to establish a new plantation every year, so that up to 4 or 5 plantations are existent in a sort of rotation. Then there would be a steady work load and additional staff could be hired.

i) Integration to other companies in the value chain The SRC operation integrates well into owner’s other agricultural business and optimizes the efficiency of his machinery.

The CHP plant is the key client but there is possibility to get other clients from biomass trading companies or possible BtL plants in the future.

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The SRC specialized gardening company is located in the neighboring county and will be subcontracted if new plantations are planned.

The harvesting will be subcontracted to an agricultural service company who owns the required machinery.

2. Market situation

a) Market situation and forecast for bioheat The price for heating with oil or gas has increased constantly over the past years. Therefore the interest in wood fuels has risen significantly.

In 2006 wood fuel prices started to move upwards in Brandenburg as a result of the rising demand. The price for collecting firewood in state owned forests increased dramatically from 9 € per m³ in summer 2005 to 16-18 € per m³ in summer 2006.

Wood pellets prices exploded in the second half 2007 from 120-130 €/ton up to 158 €/ton ex works. This led to prices of 250-260 €/ton for individual customers. This extreme increase has been forced by booming sales of pellet boilers, scarcity of pellet raw material and an enormous demand of the Italian market. In the light of a 70% rise in prices, a dramatic decline of wood boiler sales was recognized. In October/November 2006 purchase orders for wood boilers and pellets practically broke down.

As a negative result potential customers felt insecure and looked for other alternative energy resources like heat pumps. In spring 2007 wood pellet prices moved back very fast to the level of previous years.

This development of wood fuel prices shows a further increase due to the rising demand. Bulk purchasers of wood biomass will face growing problems to cover the demand from regional resources and for originally calculated prices.

There is a widening gap between the annually usable increment in Brandenburg's forests and the rising timber demand. The current gap between timber yield potential and timber consumption amounted to 1 million m³ in 2006. This gap will grow to 2 million m³ during 2007.

The establishment of fields with fast growing trees could contribute to a more stabilized wood fuel market.


The Brandenburg government has set the target to cover the whole demand of biomass for energetic utilization from forestry and agricultural production within the state. In future investment decisions clear preference will be given to decentral district heating systems and mid-sized CHP plants instead of big biomass power plants.

It is expected that the use of biomass for heating will realize the biggest growth rate of all bioenergy sources until 2010. Wood biomass based energy production will remain a booming branch in Brandenburg.

c) Customers The CHP plant will be the main customer for the first years. If the energy wood production expands over the next years additional contracts with wood

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fuel retailers or BtL production facilities could be considered. If the company should ever face the problem of not having wood chip customers, the particle board and paper industry would purchase the wood as well.

d) Competition There can be some sort of competition seen between the traditional energy wood from the forest and energy wood from fields. But due to the very high demand of woody biomass for bioenergy production and the widening gap of wood supply and demand, it is not expected to be problematic to find a buyer for the produced material at reasonable prices.

The only realistic competition could occur between conventional agriculture and SRC fields about the utilized acreage because agricultural energy crops are currently very much requested and seen as a big opportunity for farmers.

3. Financial justifications a) Detailed financial planning (see annexed financial tables!) [2]

Framework conditions: Acreage: Black locust: 20ha

Poplar: 20 ha

Total utilization time of plantation: 20 years

Harvesting cycle: every 4th year

Staff costs: Average hourly staff costs in agriculture in eastern Germany are 7, - €/h.

Preparatory work: Weed control: 70 liters per hectare at a price of 0, 56 € per liter.

Planting: The purchase and planting of the shoots will be completely subcontracted.

The cost of a single black locust shoot is 0, 09 € and for poplar 0, 20 € with an average amount of 10.000 plants per hectare. If the business expands, self growing of shoots should be considered.

Machine costs: Cost structure for machinery use is obtained from the KTBL handbook “Faustzahlen für die Landwirtschaft” which is the official manual for cost calculation of agricultural operations in Germany (e.g. ploughing, seeding, harvesting etc). These numbers have been proven through practical applications.

The whole cost structure calculation was obtained in strong cooperation with the CEBra GmbH, the Agrartechnik Bornim, BTU and Landschaftspflegeverband Spree – Neiße e.V..

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INCOME € Sales black locust: 2800 dry tons (59,30 € / t DM) 166,040

Sales black locust: 3200 dry tons (59,30 € / t DM) 189,760Area related grants (273,- € / ha / a) 218,400

TOTAL 574,200 COSTS Soil preparation 5,684 Planting 75,876 Maintenance 11,592 Harvesting 14,202 Recultivation 8,742 TOTAL 5,684 Soil preparation 75,876 Planting 11,592 TOTAL 116,096 OPERATING INCOME 458,104 OTHER COSTS

Rentals (115,- € / ha) 92,000Payments / Memberships 18,400Operational management 20,800Financial costs 36,420

TOTAL 167,620 PROFIT BEFORE TAX Taxes 6,400 NET PROFIT / LOSS / SAVINGS 284,084

INVESTMENTS € (see the financial flow below)

SOURCES OF FUNDS € Capital loan from owner 20,000KfW loan 135,000TOTAL 155,000Payback time (see interest and repayment plan) 4 and 8 years

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b) Financial flow:

Fin. flow until the 1. harvest in the 4th year:

Black locust: Poplar: Preparation: 2,842 2,842 Planting 26,938 48,938 Maintanance 5,796 5,796 Harvesting 1,420 (1/5 of 7,101,-) 1,420 (1/5 of 7,101,-) Overheads 13,760 (4/20 of 68,800) 13,760 (4/20 of 68,800) Total costs: 50,756 € 72,756 € -123,512 € Loan interest: - 28,253 € Total income: 114,840 € - 36,925 € Total costs for the first four years are amounting to 123,512 € plus 28,253€ accumulated interest on loans. The total income from the first harvest is 114,840 €, so there is a minus of 36,925 € left after the first harvesting period. Fin. flow until the 2. harvest in the 8th year: Harvesting 1,420 (1/5 of 7,101,-) 1,420 (1/5 of 7,101,-) Overheads 13,760 (4/20 of 68,800) 13,760 (4/20 of 68,800) Total costs: 15,180 € 15,180 € - 30,360 € Loan interest: - 8,167 € Remaining costs: - 36,925 € Total income: 114,840 € 39,388 € Until the next harvesting, costs are amounting to 30,360 € + 8,167 € for interest on loans. With a harvesting income of 114,840 € in year 8, the balance after the second harvesting is positive with: 39,388 €. Fin. flow until the 3. harvest in the 12th year: Harvesting 1,420 (1/5 of 7,101,-) 1,420 (1/5 of 7,101,-) Overheads 13,760 (4/20 of 68,800) 13,760 (4/20 of 68,800) Total costs: 15,180 € 15,180 € - 30,360 € Remaining budget: 39,388 € Total income: 114,840 € 123,868 € Fin. flow until the 4. harvest in the 16th year: Harvesting 1,420 (1/5 of 7,101,-) 1,420 (1/5 of 7,101,-) Overheads 13,760 (4/20 of 68,800) 13,760 (4/20 of 68,800)

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Total costs: 15,180 € 15,180 € - 30,360 € Remaining budget: 123,868 € Total income: 114,840 € 208,348 € Fin. flow until the 5. harvest in the 20th year: Harvesting 1,420 (1/5 of 7,101,-) 1,420 (1/5 of 7,101,-) Recultivation 4,371 4,371 Overheads 13,760 (4/20 of 68,800) 13,760 (4/20 of 68,800) Total costs: 19,551 € 19,551 € - 39,104 € Remaining budget: 208,348 € Total income: 14,840 € Profit: 284,084 € The financial flow indicates that for maintaining liquidity a loan of approx. 155,000 € is required until the second harvest.

4. Investments No big investments in machines are necessary since the machinery from AgriProducts will be used for the upcoming tasks. Additionally it’s not reasonable to buy machinery for occasional work at the plantations; the efficiency would be extreme low. If there is the decision to extend the business it might be recommended to buy a small farming tractor with the needed equipment.

5. Entry barrier analysis The short rotation coppice business is still at the initial stage in Brandenburg and Germany as well. Some practical experience exists from smaller experimental fields. So this could be some kind of pioneer business with an area of 40ha.

The owner knows the SRC topic from extended training provided by regional energy wood working groups.

Additional support comes from the University of Applied Sciences as there is experience from experimental plots with fast growing tree species.

Since the owner runs a farm as his main business, the SRC can be considered as a secondary job. Especially during harvesting in winter time this complements seasonal variations in farming.

Working costs are included in profit and loss calculations, so the business could operate with employed people but due to the minimal maintenance requirements during the growing period it’s not feasible at this stage.

Should the business proof to be profitable and extend so that every year one field could be harvested one or two persons could be employed.

The owner also has some agricultural equipment and facilities that are used for establishment, maintenance and fuel handling. This reduces investment costs.

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6. Risk analysis Wood chip supply to the CHP plant is secured by a contract for the first two harvests and an option on the remaining. The CHP takes the fresh chips and mixes it with dry material for burning. Other options for selling wood chips are local retailers and smaller wood chip users in the region.

The main risk of the operation can be seen in the sensitivity of the plantation in the establishment year. In dry years the plant shoots have to be irrigated until the roots are well developed. Great care must also been taken of weed control during the first year. From the second year on generally very little maintenance is required.

Right now the area related grants of the EU are a big proportion of the total income. The discontinuation of these payments could bare a potential risk. Some states have already established some financial benefits for establishment costs since those are the highest burden of the new business.

7. References [1] Sächsische Landesanstalt für Landwirtschaft, 2004: Anbauempfehlungen für schnellwachsende Baumarten, Leipzig

[2] Autorenkollektiv (ATB, BTU, CEBra, Landschaftspflegeverband Spree – Neiße e.V.) Kostenalkulation für Kurzumtriebsplantagen, 2007 unveröffentlicht

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All tables available in Excel format as separate file.

0 Basic data Species: Black Locust

Acreage 20 ha

Utilisation time of plantation D = 20 a

Harvesting cycle 4 a

All prices are net.

Amount Material Costs Revenue Costs

Position in D Amount Price Salary Time fix variable other

1/ha Unit €/Unit €/h MP h/ha €/ha €/ha €/ha €/t DM € €/ha €/ha a

1 Fertilisation / Soil preparation Sum 2,842 142 7

Weed control 0 0 0.00

Extention nozzle (1000l, 15m) 1 70 l 0.56 7.00 0.12 2.66 2.33 901 45 2.25

Fertilisation (broad fertiliser) 0 0 0.00

Loading 0 0 0.00

Spreading 0 0 0.00

Ploughing 0 0 0.00

Plough 1 7.00 0.93 21.38 31.47 1,187 59 2.97

Disc harrow 0 0 0.00

Harrowing with seed bed comb. 1 7.00 0.38 18.46 16.59 754 38 1.89

2 Planting Sum 26,938 1,347 67

Plants - shoots (incl. VAT) 1 10,000 Pieces 0.09 18,000 900 45.00

Transport of shoots 1 0 0 0.00

Plantation (Personal+Technology as billed) 1 7.00 27.50 254.38 8,938 447 22.34

3 Care / Maintenance Sum 5,796 290 14

Protection from wild game (fencing) 3 7.00 1.00 50.00 3,420 171 8.55

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Weed contol / mechan. 0 0 0.00

Choping 1 7.00 1.13 12.69 412 21 1.03

Mulching 3 7.00 1.10 14.91 10.12 1,964 98 4.91

Milling 0 0 0.00

Weed control / chem. 0 0 0.00


Water 0 0 0.00

4 Harvesting Sum 7,101 355 18

Felling - manually 0 0 0.00

Felling, bundling 0 0 0.00

Felling, chipping 5 7.00 2.31 21.31 3,748 187 9.37

Other 0 0 0.00

Transport 5 7.00 0.24 31.85 3,353 168 8.38

5 Recultivation Sum 4,371 219 11

Milling cutter; 1,5m; 40kW (x 8) 1 7.00 1.60 66.64 140.72 4,371 219 10.93

0 0 0.00

6 Interim storage Sum 0 0 0

into stock 0 0 0.00

from stock 0 0 0.00

Transport 0 0 0.00

7 Expenses Sum 47,048 2,352 118

8 Overheads from agric. Comp. Sum 87,010.0 4,351 218

Rentals 20 115.00 46,000 2,300 115.00

Depreciaion of company equipment 20 0 0 0.00

Payments (Associations etc.) 20 23.00 9,200 460 23.00

Operational management 20 26.00 10,400 520 26.00

other Overheads 20 0 0 0.00

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Insurance (buildings, Equipment) 20 0 0 0.00

Financial costs 18,210 911 45.53

Taxes and payments 20 8.00 3,200 160 8.00

Einnahmen

9 Revenue Sum ###### 13,762 688

Allocation 1 (area related grants) 20 273.00 109,200 5,460 273.00

Allocation 2 (Energycrops grant) 20 0 0 0.00

Revenue from yield (t DM / ha a)

from 20 7.0 t 59.30 166,040 8,302 415.10

Ergebnis

€ €/ha €/ha a

10 Contribution margin I (Revenue minus expenses) 228,193 11,410 570

11 Contribution margin II (Contribution margin I minus overheads) 141,183 7,059 353

12 Cost per unit (without revenue) 47.88 €/t DM Operating result (Contribution margin II minus grant benefits) 80

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0 Basic data Species: Poplar

Acreage 20 ha

Utilisation time of plantation D = 20 a

Harvesting cycle 4 a

All prices are net.

Amount Material Costs Revenue Costs

Position in D Amount Price Salary Time fix variable other

1/ha Unit €/Unit €/h MP h/ha €/ha €/ha €/ha €/t DM € €/ha €/ha a

1 Fertilisation / Soil preparation Sum 2,842 142 7


Extention nozzle (1000l, 15m) 1 70 l 0.56 7.00 0.12 2.66 2.33 901 45 2.25

Fertilisation (broad fertiliser) 0 0 0.00

Loading 0 0 0.00

Spreading 0 0 0.00

Ploughing 0 0 0.00

Plough 1 7.00 0.93 21.38 31.47 1,187 59 2.97

Disc harrow 0 0 0.00

Harrowing with seed bed comb. 1 7.00 0.38 18.46 16.59 754 38 1.89

2 Planting (Subcontracting) Sum 48,938 2,447 122

Plants - shoots (incl. VAT) 1 10,000 Pieces 0.2 40,000 2,000 100.00

Transport of shoots 1 0 0 0.00

Plantation (Personal+Technology as billed) 1 7.00 27.50 254.38 8,938 447 22.34

3 Care / Maintenance Sum 5,796 290 14

Protection from wild game 3 7.00 1.00 50.00 3,420 171 8.55

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Weed contol / mechan. 0 0 0.00

Choping 1 7.00 1.13 12.69 412 21 1.03

Mulching 3 7.00 1.10 14.91 10.12 1,964 98 4.91

Milling 0 0 0.00

Weed control / chem. 0 0 0.00


Water 0 0 0.00

4 Harvesting Sum 7,101 355 18

Felling - manually 0 0 0.00

Felling, bundling 0 0 0.00

Felling, chipping (as billed) 5 7.00 2.31 21.31 3,748 187 9.37

Other 0 0 0.00

Transport 5 7.00 0.24 31.85 3,353 168 8.38

5 Recultivation Sum 4,371 219 11

Milling cutter; 1,5m; 40kW (x 8) 1 7.00 1.60 66.64 140.72 4,371 219 10.93

0 0 0.00

6 Interim storage Sum 0 0 0

into stock 0 0 0.00

from stock 0 0 0.00

Transport 0 0 0.00

7 Expenses Sum 69,048 3,452 173

8 Overheads Sum 87,010 4,351 218

Rentals 20 115.00 46,000 2,300 115.00

Depreciaion of company equipment 20 0 0 0.00

Payments (Associations etc.) 20 23.00 9,200 460 23.00

Operational management 20 26.00 10,400 520 26.00

other Overheads 20 0 0 0.00

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Financial costs 18,210 911 45.53

Taxes and payments 20 8.00 3,200 160 8.00

Einnahmen

9 Revenue Sum 298,960 14,948 747

Allocation 1 (area related grants) 20 273.00 109,200 5,460 273.00

Allocation 2 0 0 0.00

Revenue from yield (t DM / ha a) from 20 8.0 t 59.30 189,760 9,488 474.40

Ergebnis

€ €/ha €/ha a

10 Contribution margin I (Revenue minus expenses) 229,913 11,496 575

11 Contribution margin II (Contribution margin I minus overheads) 142,903 7,145 357

12 Cost per unit (without revenue) 48.77 €/t DM Operating result (Contribution margin II minus grant benefits) 84

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Interest and repayment plan

Plan period 1st

year 1 2 3 4 5 6 7 8 9 10 11 12 1st open credit Opening balance plan period 0 0 0 0 0 0 0 0 0 0 0 Rise Repayment- Closing balance plan period 0 0 0 0 0 0 0 0 0 0 0 0 Average value 0 0 0 0 0 0 0 0 0 0 0 0 Interest rate Interest (per period!) 0 0 0 0 0 0 0 0 0 0 0 0 2nd shareholder loan Opening balance plan period 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Rise Repayment- Closing balance plan period 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Average value 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Interest rate 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Interest (per period!) 83 83 83 83 83 83 83 83 83 83 83 83 3rd still participation Opening balance plan period 0 0 0 0 0 0 0 0 0 0 0 Rise Repayment- Closing balance plan period 0 0 0 0 0 0 0 0 0 0 0 0 Average value 0 0 0 0 0 0 0 0 0 0 0 0 Interest rate Interest (per period!) 0 0 0 0 0 0 0 0 0 0 0 0 4th investment credit Opening balance plan period 135,000 133,594 132,188 130,781 129,375 127,969 126,563 125,156 123,750 122,344 120,938 119,531 Rise Repayment- -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 Closing balance plan period 133,594 132,188 130,781 129,375 127,969 126,563 125,156 123,750 122,344 120,938 119,531 118,125

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Average value 134,297 132,891 131,484 130,078 128,672 127,266 125,859 124,453 123,047 121,641 120,234 118,828 Interest rate 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% Interest (per period!) 677 670 663 656 649 642 635 627 620 613 606 599 Interest altogether 760 753 746 739 732 725 718 711 704 697 690 682 Repayments altogether -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406 -1,406

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Plan period 2nd year

3rd year

4th year

5th year

I II III IV I II III IV I II I II 1st open credit Opening balance plan period 0 0 0 0 0 0 0 0 0 0 0 0 Rise Repayment- Closing balance plan period 0 0 0 0 0 0 0 0 0 0 0 0 Average value 0 0 0 0 0 0 0 0 0 0 0 0 Interest rate Interest (per period!) 0 0 0 0 0 0 0 0 0 0 0 0 2nd shareholder loan Opening balance plan period 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 0 0 Rise Repayment- -20,000 Closing balance plan period 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 0 0 0 Average value 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 10,000 0 0 Interest rate 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Interest (per period!) 250 250 250 250 250 250 250 250 500 250 0 0 3rd still participation Opening balance plan period 0 0 0 0 0 0 0 0 0 0 0 0 Rise Repayment- Closing balance plan period 0 0 0 0 0 0 0 0 0 0 0 0 Average value 0 0 0 0 0 0 0 0 0 0 0 0 Interest rate Interest (per period!) 0 0 0 0 0 0 0 0 0 0 0 0 4th investment credit Opening balance plan period 118,125 113,906 109,688 105,469 101,250 97,031 92,813 88,594 84,375 75,938 67,500 59,063 Rise Repayment- -4,219 -4,219 -4,219 -4,219 -4,219 -4,219 -4,219 -4,219 -8,438 -8,438 -8,438 -8,438 Closing balance plan period 113,906 109,688 105,469 101,250 97,031 92,813 88,594 84,375 75,938 67,500 59,063 50,625

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Average value 116,016 111,797 107,578 103,359 99,141 94,922 90,703 86,484 80,156 71,719 63,281 54,844 Interest rate 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% Interest (per period!) 1,755 1,691 1,627 1,563 1,500 1,436 1,372 1,308 2,425 2,169 1,914 1,659 Interest altogether 2,005 1,941 1,877 1,813 1,750 1,686 1,622 1,558 2,925 2,419 1,914 1,659 Repayments altogether -4,219 -4,219 -4,219 -4,219 -4,219 -4,219 -4,219 -4,219 -8,438 -28,438 -8,438 -8,438 Total Interest 4. year: 28,252.5

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Plan period 6th year 7th year 8th year

I II I II I II 1st open credit Opening balance plan period 0 0 0 0 0 0 Rise Repayment- Closing balance plan period 0 0 0 0 0 0 Average value 0 0 0 0 0 0 Interest rate Interest (per period!) 0 0 0 0 0 0 2nd shareholder loan Opening balance plan period 0 0 0 0 0 0 Rise Repayment- Closing balance plan period 0 0 0 0 0 0 Average value 0 0 0 0 0 0 Interest rate Interest (per period!) 0 0 0 0 0 0 3rd still participation Opening balance plan period 0 0 0 0 0 0 Rise Repayment- Closing balance plan period 0 0 0 0 0 0 Average value 0 0 0 0 0 0 Interest rate Interest (per period!) 0 0 0 0 0 0 4th investment credit Opening balance plan period 50,625 42,188 33,750 25,313 16,875 8,438 Rise Repayment- -8,438 -8,438 -8,438 -8,438 -8,438 -8,438 Closing balance plan period 42,188 33,750 25,313 16,875 8,438 0 Average value 46,406 37,969 29,531 21,094 12,656 4,219 Interest rate 6.05% 6.05% 6.05% 6.05% 6.05% 6.05% Interest (per period!) 1,404 1,149 893 638 383 128 Interest altogether 1,404 1,149 893 638 383 128 Repayments altogether -8,438 -8,438 -8,438 -8,438 -8,438 -8,438 Total Interest 8. year: 8,167.5

….. …..

Laufer, S. 2007. Short rotation coppice for bioenergy. University of Applied Science (Fachhochschule Eberswalde). Eberswalde, Germany. 5 EURES (EIE/04/086/S07.38582). Business Plan. 23 p.




EURES EURES

SMALL 3 MWe CHP WITH BIOMASS This is an example business plan for small scale gasifying heat and power plant (CHP) using wood and agricultural residue as fuel. The plan is prepared by IrRADIARE, Portugal.

1. Background The Marvão heat and power plant concept was first formulated in 2006 as response to a call from the Portuguese General Directorate for Energy to design and construct a Biomass Power Plant running exclusively on Forest Management Wastes and Residues.

The call specified novel and innovative approach. Small scale combined heat and power plant using wood gasification was selected for the proposal because of number of innovative benefits such modular approach offers.

Picture: Design of one 350 kWe module in transport container.

The key specifications of the Portuguese Government requests were:

• Generation of 10MWe to the power distribution grid at 30kV with flexible active/reactive power ratio;

• Firing forest wastes originated by forest management actions;

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• Using only 2-3% of fossil fuels over the total energy input; • Maximizing the plant availability; • Being innovative, in the sense of demonstrating under actual operating

conditions clean and efficient technology able to be spread for other similar cases;

• Delivering as co-generated heat 15% of the total energy input (for district heating, typically);

• Emitting clean flue gases; • Attracting foreign investment under a join-venture approach; • Presenting a clear and effective local proposal for biomass supply

contracts for small and medium companies involved in forest exploitation/management and to their associations, which would cause the power-plant to have a beneficial impact on local employment and economic development;

• Being able to pay biomass at level of around 70% of the log price (currently around 35Euro/ton of forest residue);

• Being operable with reduced personnel, particularly not requiring highly complex training either for maintenance and operational tasks.

Considering those constrains and requests and considering the social-economic context in Marvão it was decided to design a smaller CHP plant (less than half of the required size) using not only biomass but also agriculture residues.

This is summary from the more comprehensive business plan.

2. Business idea

a) General Advanced technology new generation 3 MWe combined heat and power plant using both agriculture and forest residues as fuel and selling both electricity and heat. Advanced features requested at the Government call, and design limitations at the selected site, are described above at Background. The plant design incorporates technological advantages explained in “d. Advanced features of the plant”.

b) Fuel

From medium to low quality forest and agricultural residue dried at plant by using generated heat.

c) Customers Electricity will be bought by EDP. Heat consumers are not yet completely defined yet but an industrial park is planned to be build next to the power plant. The companies in the park would be users of the low calorific value heat from the plant, for example for drying various biomaterials. The plant is expected to have a pellet producer, food industries, and cork industries. Also the local municipal swimming pool, located about 1.5 km, is expected to use the waste heat.

d) Advanced features of the plant The proposed design will have following benefits and features:

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• Power plan modules are made in factory and assembled into transportable 40 foot containers into fully functional units. Required number of containers are then transported to the site close to biofuel source and connected to run parallel to give out desired MW amount of electricity. Conventional power plants must be built on site. It is more economical to build power plant in dedicated factory and transport it to the site than build the plant on site.

• Power plant can extend or contract in size, as required, by adding or removing modules, for example if biofuel supply changes or local requirement for electricity changes.

• The whole power plant can be transported to another site if required. Conventional power plants can only be demolished.

• This modular power plant can operate 100% over the whole life time since one module can be kept in reserve, or under maintenance, while the others produce electricity. Closing the plant for maintenance is not needed.

• Estimated operating efficiency is higher than 30%. Ordinary steam turbine power plants of this size are typically 10-25% efficient. The remaining heat is also used beneficially to dry biofuel. Nothing is wasted.

• Cost per MWe generated is estimated to be similar to ordinary steam turbine power plants.

The plant can be assembled close to biofuel source. This will minimize need to transport biofuel.

e) Benefits for the local economy The main benefits for the local economy will be:

• The possibility to use electricity generated from local renewable sources. • Market for forest residue which is collected from several places including

places under the responsibility of the municipality such as abandoned lands, roads is very important because during summer the risk of forest fires is very high due to the very hot climate.

• Agriculture residues, available in considerable quantities seasonably, are also significant renewable energy source in this particular area where agriculture has still an important role.

• There will be an important opportunity of installing new heat consuming businesses. A new industrial park will be created in the location where the heat and power plant is to be installed. New industries will have attractive conditions and the heat prices will be appealing.

f) Way to operate The power plant operates around the year 8760 hours. One module at any time is expected to be in maintenance and the others are generating electricity and heat. Modular structure of the plant allows modules to be shut down for maintenance without affecting the rest of the plant.

Biomass that will feed the system will be contracted in a pluri-annual basis, with forest and agricultural associations.

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i. Plant design and equipment

Picture: Layout of the heat and power plant. The 350 kWe modules are black rectangles on the upper right part of the plant layout. They are grouped into groups of three – each providing 1MWe.

Internal combustion engines will be fed by wood gas produced by a row of gasifiers. Gasifier and gas cleaning technology from Puhdas Energia oy/ltd is http://www.puhdasenergia.com/ considered because it produces very clean syngas.

A modular approach was followed in order to maximize the plant annual availability average and safety. Modular 1MW gasifiers were selected keeping it within the optimal operation power level for reverse flow gasification. This process is considered to require very few operational personnel.

Preliminary calculations indicated a set of 3 to 4 lean gas engines, delivering around 3 MWe. A steam cycle would be installed to use the engine flue gases heat. A steam turbine would be delivering around 1.7 MWe. A ranking organic cycle is under consideration to reuse downstream heat for an additional 0.4 MWe.

Electrical over capacity is assumed to balance internal consumption and as reserve to achieve quasi-100% availability.

Different maintenance operations are considered to be phased-up in order to reduce the out-of operation times. Maintenance operations on different equipment are considered to be un-phased to exploit the back-up capacities of the modular concept.

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ii. Operating personnel The plant will employ ten people.

h) Seasonal variations Electricity selling won’t have seasonal variation but heat users at the industrial park may have variable heat demands.

i) Integration to other companies in the value chain As biomass market is still growing in Portugal no many supply companies are identified. The creation of small companies, operating in cooperation with forest and agricultural association is expected.

A separate small wood pellet mill is expected to be set up to produce wood pellets from selected biofuel fractions that come to the plant. This company will be using heat from the heat and power plant and will buy residues when they are not being used in the heat and power plant. As the availability of these products will vary seasonally and over-storing is not desirable due to the fire risks, self-combustion, and rotting of the material, the existence of this company will allow buying bigger and cheaper quantities of biomass.

3. Market situation

a) Market situation Portuguese government is having a particular attention to electricity coming from renewable sources. It is expected that within the period 2007/2013 incentives on investment in this area is to be made and that electricity coming from renewable sources will continue to have interesting tariffs.

b) Competition A forest biomass power plant is planned to be constructed in the area. This power plant will use forest biomass, coming exclusively from forest that already have forest management plan. In this region, only a small portion of the forest is under this condition.

4. Financial plans

INCOME € Sales, electricity (abt 100 € per MWh) 56 2,621,811.06 TOTAL 2,621,811.06 COSTS Biomass 57 308,169.69 Personnel - Salaries & indirect costs 280,000.00 Maintenance 312,840.00 Insurances and others 172,629.60 TOTAL 1,073,639.29

56 3 MW * 8760h = 26280 MWh 57 5 MWh / ton – dried with waste heat; annual requirement = (26280 MWh / 35% engine efficiency * 1.2 gasifier efficiency) / 5 MWh per ton = 18021 tons @ €17 per ton

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OPERATING PROFIT / LOSS 1,548,171.77 Financial costs (repayment of loans) to be negotiated Depreciation 58 600,000.00 PROFIT BEFORE TAX 948,171.77 Taxes NET PROFIT / LOSS / INCOME 948,171.77

INVESTMENT COSTS € 21 gasifier islands plus gas engines 59 8,415,000.00ROI 11%

SOURCES OF FUNDS € Private capital 8,415,000.00Payback time on net investment 9 yrs


Municipal authority in Marvão is very interested in this project. However, private investors are hesitating because there isn’t a clear statement from central government about grants and/or special conditions (such as lower taxes), specially considering that this heat and power plant is the first to be installed in Portugal using this technology and fuel sources (both agriculture and forest residues).

6. Risk analysis The fuel supply is the main risk for plant’s operation because there is lack of experience in biomass supply chain. However, the small capacity of the unit and the biomass availability in the area can minimize the risk. Also a risk to be considered is the possibility of the prices rising as a large number of biomass heat and power plants are planned to be installed in the next few years, in Portugal.

….. …..

Nunes, Elsa (IrRADIARE); Nogueira, Marcos (IrRADIARE); Henriques, Rui (IrRADIARE); Costa Mário (Instituto Superior Técnico); Fernandes, Ulisses (Instituto Superior Técnico); Poysti, Jyrki (Finpro). 2007. Small 3 MWe CHP with Biomass. IrRADIARE, Portugal. 5 EURES (EIE/04/086/S07.38582). Business Plan. 7 p.

58 Lifetime of gas engine is 10 years; other plant components 20 years. Treatment of depreciation for tax purposes depends on national legislation. 59 2800€ per kWh electricity generated.




EURES EURES

WOOD BURNING BIOMASS HEAT SUPPLY STATION 2.5MW This is an example business plan for a company running initially a 2.5 MW heating plant and planning to expand to run several such plants. This plan forms base for the company board to decide on what terms to offer services to the community. This plan is prepared by Finpro, and University of Applied Science, Eberswalde, Ggermany (Fachhochschule Eberswalde). 1. Background

The calculations are based on an example in Holzdorf/ Schönewalde in Brandenburg from campus like community has decided to change oil heating to wood-burning biomass heating station. This case company is new, but with experience from biomass heating stations business.

2. Business idea

a) Products or services offered

The idea is that the company is selling energy to the community from one heat plant owned by the client. Contracts are made for several years with the client, who owns the heat supply station. Company will take care of running the plant, and does the maintenance and services on behalf of the owner.

Picture: Typical 2.5MW wood heat plant delivered as factory made container (Photo: Laka Oy ltd)

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Services includes: selling heat, running the heat plant, taking care of maintenance and reparations if needed.

b) Targeted customers The first customer of the company is a campus like community has decided to change oil heating to wood-burning biomass heating station, which situated in Holzdorf/ Schönewalde in Brandenburg. The community has about 1500 persons who live and work in this area. This amount is expected to rise to 2.500 in 2013. Holzdorf is supposed to become the site of a wood-burning biomass power station. It is suggested to be a grate boiler plant. The building area site will be defined later, but the building site conditions are considered typical to the region.

Company has separate plans to expand to run several wood-burning biomass heat supply stations in near by.

Other similar customers like a campus like area can be searched; these could be hotels, compact housing areas. Next customers can be those, who have already a wood-biomass heat plant or the ones who are planning to invest in biomass heat plant.

c) Benefit for the customer The company takes care of all operations. Customer can buy heat at regulated price without any worries about fuel supply, maintenance, or operations.

Advantages of the heat plant services

• Outsourced service: controlling, maintenance and fuel procurement.

• One partner for all services

• Experienced service provider in this business.

• The form of contract can be made flexible to minimizing risk for both sides (follow fuel prices etc.)

The new boiler plant will stand for a modern and innovative way of energy generation with high levels of efficiency and automation. The energy production is based on renewable energies. Depending on its water content 1 ton of wood can replace between 200 and 400 litres of fuel oil.

d) Fuel A fuel mix of wood chips and fuel oil will be used in the power station. Total amount of energy needed is 7740 MWh (7660 MWh bioenergy and 774 MWh oil). Typically this means 9600 loose-m3 of chips with 40% average moisture content. At wood chip price of 15 € per MWh, the annual cost of fuels is 114,900 €. (The amount of wood chips is actually slightly bigger than the 6966 MWh noted on the boiler data table later in the text due to efficiency loss in boiler.) In addition, the plan will use oil at 65 € per MWh, which is annually will cost 50,310 €.

Obviously, the operator of the plan has incentive to produce as much as possible with wood chips because use of oil will reduce his profit.

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e) Way to operate The service company makes contracts for several years with heat supply station owner and/ or the heat users. Similar contracts will be made with wood chip suppliers.

f) Recommended business structure Company can be at first a small one man company, which requires only part time activities.

g) Required resources The required equipment is a matter for the client to invest but since they affect to the operation of the heating unit, the company must agree with the client what equipment will be available.

The plant will use both wood chips and oil. There are three technical reasons to use both fuels.

Environmentally friendly and inexpensive wood chip burning in the biomass boiler will provide an as high as possible share of the base load while the fuel oil boiler will satisfy peak load needs.

Use of some oil is necessary for several reasons and these are mainly caused by peak loads. Heat consumption will change significantly depending on seasons of the year and also time of the day. Relatively small amount of heat is needed during the summer.

Reason one – low load periods: Grate bioenergy boilers have the unfortunate feature of not working on very low loads because the flame just goes off. Estimated heat load during the summer is so low that grate boiler does not work. Thus, use of a separate small oil boiler is necessary.

Reason two – response time to peak loads: Grate boilers also respond very slowly to peak loads. Typical peak load in this residential application happens every morning when everyone goes to the shower. The peak can be almost immediate. Grate boiler can not respond fast enough. In order to get more power from grate boiler, one has to throw more wood in and wait until it burns well. This can take half-an-hour in worst case (depending on manufacturer’s specifications). The answer to the problem is partly to use big hot water accumulator tank, and if the peak is still too big, to start the oil boiler automatically.

Reason three – backup: Additional task for the oil boiler is to act as back-up and emergency boiler in case the biofuel boiler does not work. This is important aspect in regions such as in Brandenburg where pipes can freeze if heat is not supplied all the time. Backup boilers using oil can start automatically even during the night.

Reason four – optimization of investment costs: Biofuel boilers cost typically three times more per kWh than oil boilers. Investment costs are optimized if biofuel boiler is smaller than the total energy consumption, and the rest is generated with oil. In this case 89% of the energy is generated with wood chips. Peak loads happen only 14% of the total working time. In this way, investment costs are much lower but obviously fuels costs are higher because some oil has to be burned.

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SITE DATA

Electric supply capacity 4,300 kW

Peak load service hours (heat): 1,800 h/a

Total annual energy requirement: 7,740 MWh/a

BOILER DATA For base load For peak load

Type of boiler grate boiler Large water boiler

Power: 2.5 MW 2.0 MW

Fuel biomass wood fuel oil

Annual degree of utilization 89 % 90 %

Operating hours 2,787 h/a 387 h/a

Heat supply 6,966 MWh/a 774 MWh/a

i. Equipment – wood boiler supplied and owned by the client Company is suggesting client to use to use a grate boiler plant. The new boiler plant will stand for a modern and innovative way of energy generation with high levels of efficiency and automation and will demonstrate the project's competitive strength. Wood is usually very heterogeneously structured. So, the combustion procedure must take into account differing fuel compositions. Compared to fossil sources of energy (gas, oil, coal) the structure of wood is far more complex. Grate boiler can handle difficult wood fuels very well.

Depending on the respective fuels special attention must be paid to the combustion furnace. This makes necessary a special combustion as well as boiler technology. Variations of the fuel composition must thus be taken into consideration during the combustion process. Therefore, the company suggests using an advancing grate furnace plant.

However important, the advancing grate is only one component of a solid fuel

Of equal importance for an optimal combustion process with relatively long traveling times and low emissions are the design of the combustion chamber and the circulation and temperature of the fuel gases.

The pre-prepared wood is transported from a storage depot or a small shelter to a specially designed conveyor. It takes the wood to a cup located before the grate. If needed, this cup can be blocked with a damper on its entry and exit sides. Wood gets onto the grate via a screw conveyor under the cup.

Compared to other combustion systems the advancing grate has many advantages and presents good procedure for the combustion of broadly diversified and inhomogeneous fuels. The advancing grate is the result of many years of technological research, development and improvement, based on operational experiences with the most different fuels and powers.

Wood is burnt on a sloping grate. Forward and backward movements of individual grate elements make the wood move downward on the sloping

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grate. The grate fulfils various functions. It moves the wood, stirs up the fire and turns over the wood, thus homogenizing the fuel bed and improving the air passage. At the end of the grate there is an automatic ash removal.

Towards the end of the grate there is an approximately 15° bent. This bent angle has proven to establish the most favourable relation between good stirring and safe, controllable fuel transportation. The grate elements are made of fixed as well as mobile parts, which overlap like roof tiles.

Part of the air needed for the combustion is blown as so-called primary air through air supply ducts which are attached to the front part of the grate. This air also cools down the grate. Thus, especially when dealing with risky combustion material, the danger of slag sticking and overheating of the material is reduced.

The so-called secondary air is either blown in from above the grate or before entering the combustion chamber.

On the first segment of the grate, the wood is dried. On the middle segment of the grate, the so-called main burning zone, the pyrolytical decomposition and the degasification procedure take place. They are followed by the burnout on the last grate segment.

Finally, the ashes fall into a collecting device which, for instance, can be a water bath. Subsequently, a chain and/or screw conveyor transports them into a container.

ii. Equipment – oil boiler supplied and owned by the client The oil burner unit uses extremely light fuel oil according to DIN 4755, part 2. The nominal content of the tank storage is 1 x 10 m³. Storage tanks, unloading units for road tankers, the fuel oil pump unit as well as the complete pipe system form part of the fuel supply unit.

The peak load boiler of the examined heating station influences a reliable power supply and its controllability favourably.

The fuel oil boilers have a 2.0 MW power with a flow temperature of 90 - 110 °C.

Using a special furnace guarantees amounts of emissions which lie below approved limits.

The entire boiler plant is designed in such a way that it can be operated without supervision according to TRD 604 (24 hours).

iii. Equipment – required to purchase by the company Only basic office and other equipment are needed for service and maintaining the heat production plant, and to administer the fuel supply. Logistic needed for fuel supply will be owned by subcontracting partners.

iv. Human resources

The company will employ one part time person. The person should have experience in wood fuel markets and service of heating plant. Other part time person is needed to take turns in controlling and maintenance work. Otherwise also free days were difficult to organize.

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Later the company might grow in activities by taking care of more heat plants.

The work load ranges from 2 to 3 hours/day for maintenance and controlling tasks which can be handled by one worker. The entire boiler plant is designed in such a way that it can be operated without supervision according to TRD 604 (24 hours).

h) Earning model Company sells heat to the client at around 75 € per MWh (depending on negotiations).

The customer is paying monthly for services and maintaining based on yearly rate and used/produced heat kWh. Yearly rate is agreed according to savings compared to costs of old and new unit and work load. The average price development of fuels is taken in to account in the contract – f.e. with index correction.

Profit comes from savings which are reached with new heat unit compared to old system.

Specialized heat service company such as this company is able to negotiate better fuel supply contracts (wood and oil) than not specialized company such as the client in this case. Savings might come also from cost effective maintenance.

i) Seasonal variations affecting operations There is more work in winter time because higher heating need for example fuel deliveries more often. In summer, when heating need is low, there is need and possibilities to make maintenance break.

j) Integration to other companies in the value chain Possible longer contracts with wood chip suppliers, who take care of continuous supply and transport of wood chips to the storage of the plant.

3. Market situation

a) Regulations to be met The Federal Emissions Protection Legislation Biomass dictates that the HEL and the boiler plant is to be classified under 'TA-Air'. It defines the following emission limits when using solid and liquid combustibles in new power stations with a thermal capacity of up to 5 MW as follows:

EMISSION LIMITS

Wood HEL Vol. - % O2 11 3

Dust mg/Nm³ 150 80

CO mg/Nm³ 250 170

NOx mg/Nm³ 500 250

Total C mg/Nm³ 50 -

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b) Market situation and forecast for bioheat There are nowadays many bio heat plants in Brandenburg. In last years they have built many new plants, which produce heat and power.

c) Other potential customers In Brandenburg there are several power and heating units, which use biomass like wood chips as fuel. It’s seems to be possible to find new clients, if the case company wants to widen its’ clientele and offer outsourced maintaining and service to other bio heat plants.

d) Sources of raw material The case company buys bio fuels from suppliers. There are several active suppliers within the reasonable distance.

e) Competition The case company should convince the heat supply plant owners to outsource the service instead of running the plant by them selves.


INCOME € Sales of heat 60 580,500 TOTAL 580,500 COSTS Wood fuel cost (wood chips from local suppliers) 61 114,900 Supplementary light fuel oil cost 62 50,310 Annual service and supervision 63 31,000 Own energy use (electric) 64 25,200 Annual repairs 14,000 Ash removal cost 65 3,200 Administration & operation overheads 5% 11,298 Bought services 66 6,750 TOTAL 256,658 OPERATING INCOME 323,842 Financial costs (repayment of loans) 67 257,151Depreciation 68 Other 0

60 7740MWh of heat * 75 €/MWh = 580,500 € 61 The estimated price of wood chip is 15 € per MWh (rounded figure). The total costs of fuel is 7660 MWh of heat * 15 € per MWh (rounded figure) (wood chips) = 114,900 €. Boiler efficiency is 90%. In order to generate 6966 MWh, the company must buy 7660 MWh wood chip. 62 65 €/MWh 63 730 hours, 20 € per hour 64 20 – 30 kW Elt-need in the plant at 7.0 ct/kWh 65 40 €/t 66 150 hours, 45 € per hour 67 15 years at 6.5% 68 Treatment of depreciation for tax purposes depends on national legislation

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TOTAL 257,151 PROFIT BEFORE TAX 66,691Taxes 30% 20,007 NET PROFIT / LOSS / SAVINGS 46,684

INVESTMENTS € TOTAL 2,460,000Return on Capital Employed 69

SOURCES OF FUNDS € Developer’s own funds 2,460,000Payback time 13 yrs

The service company doesn’t have to do special investments.

• Basic office investments for communication like telephone and PC.

• Basic tools and equipments to make small service work.

• Car is needed if the person takes care of several heat supply plants. (a car can be leased as well)

For the case service company a small bank loan is sufficient to start the activities if the worker doesn’t have own capital.

Below are the financial assumptions covering the whole plant:


INVESTMENTS €

Biomass – boiler including supply stock, furnace, boiler (hot water generation), fuel gas filter, container for ashes,

900,000 €

Chimney, height ca. 12 m 40,000 €

Circulation pumps, pipes, district heating grid in the heating plant

700,000 €

HEL – boiler unit with tank unit 120,000 €

Electrical engineering, instrumentation and control, establishing connections to the existing grid

120,000 €

Structural and civil engineering (foundations, boiler building)

500,000 €

69 Profit before interest, tax an dividends, divided by the investment

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Planning costs 200,000 €

TOTAL INVESTMENTS 2,460,000 €

Nominal heat capacity 4,300 kW

Peak load hours 1,800 h/a

Annual heat generation 7,740 MWh/a

Fuel need / consumption (wood) 370 kg/h 1,030 t/a

Investment costs for heat supply station (without district heating grid)

1,760,000 €

District heating grid 700,000 €

Total investment costs 2,460,000 €

Writing-down period 15 a

Interest rate 6.5 %

OVERALL COSTS

Costs of capital 324,000 €

2.0 % IH-costs 49,000 €

0.5 % insurance costs/taxes 12,000 €

Additional material 10,000 €

Labout costs (1 worker) 31,000 €/per person

31,000 €

20 – 30 kW Elt-need in the plant 7.0 ct/kWh 25,200 €

0.03 m³/h water/sewage water 4.0 €/m³ 220 €

Ash removal 40 €/t 3,200 €

Fuel costs (wood) 12 €/m3Schütt 61,800 €

Fuel costs (HEL) 40 €/MWh 30,960 €

TOTAL COSTS 547,380 €

Specific heat costs €/MWh 70.70

5. Entry barriers

The combustion procedure must take into account differing fuel compositions. Compared to fossil sources of energy (gas, oil, coal) the structure of wood is far more complex. Therefore, the spectrum of expected emissions is much wider and the assessment of combustion behaviour including ash-slag-softening can only be determined by applying appropriate expert knowledge.

6. Risk analysis Risks for the case company are mostly in maintenance and in fuel supply.

Risk in maintenance

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• Unexpected technical problems show up before expected and take into consideration while making yearly contracts

• Risks in fuel supply

• Fuel supply is depending on the partners

• Bad quality or changing quality

• Supplier don’t keep the schedule

• The fuel prices are getting very high fast, so that the agreed indicator does not help to correct the price of sold heat

Risks for the break of heat production are minimized with the oil boiler unit, which is a spare unit for emergency and peak time use.

….. …..

Pyhalahti, H. Poysti, J. (Ed) 2007. Wood burning biomass heat station 2.5kW. Finpro, Munich, Germany. 5 EURES (EIE/04/086/S07.38582). Business Plan. 10 p.

Short rotation coppice in Lithuania – Picture Jelena Aneicik




EURES EURES

WOOD CHIP SUPPLIER COMPANY This is an example business plan for a wood chip supplier company. The company used as example is privately owned by one entrepreneur and operated with two additional forest workers. Home base is the region of Eberswalde, Barnim. This plan was prepared by University of Applied Science, Eberswalde, Germany (Fachhochschule Eberswalde).

1. Business idea

a) Products or services offered The company produces wood chips for energy purposes and sells them to various regional customers. Furthermore the company offers a chipping service as an additional source of income. This part of business is considered to become more important during the next years because of the growing interest in short rotation coppice (SRC) on farmland. Most small and medium sized farms won’t buy chipping equipment so that the chipping business most likely will be handed over to other companies.

Additionally a recycling service is offered for waste wood which accumulates during landscape conservation activities, on construction sites or simply from private gardening.

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b) Fuel The fuel procurement is done within a 50km maximum radius around the targeted customers to keep transport costs low. The company will use mainly felling residues and cuttings from private, commune and state owned forests, landscaping industry, private home owners, municipalities (branches from tree cuttings, trees from building sites etc.) and associated forest enterprises. Especially the potential of unused resources in small private forests can be considered as high. To get hands on these resources a strong cooperation with private forest owners is targeted.

The company buys waste wood from the owner for a price of 0,50 € / m³ for fresh cuttings and up to 4,00 € / m³ for higher quality wood. Additionally the company rents a yard with storage capacities where private people, communes and other companies can deliver tree residues for recycling and get paid for them at the same price. This can be an alternative to the trash yard where people have to pay to get rid of the material. On the company yard the residues will be piled, stored and dried for approximately one year. Then the moisture content will drop to an appropriate level which ensures high quality wood chips. The chipping will be done at the company yard with the companies own chipper in times where work load in forests and on the field is low.

Fuel sources and prices:

Fuel type Amount Price Recycled wood (fresh branches, trunks etc. from tree cuttings)

delivered to wood chipping yard

10 % 0,5 €/m³

Higher quality wood (diameter over 4cm) delivered to wood chipping yard

10 % 2 €/m³

Wood from thinnings paid to forest owner

40 % 0,5 €/m³

Residues from final fellings paid to forest owner

20 % 0,5 €/m³

Landscaping wood at constructing site, felling site etc.

20% 0,5 €/m³

TOTAL average 0,8 €/m³

c) Targeted customers Municipalities (schools, official buildings, appartment blocks), public bodies, heat (and power) plants. Long term contracts with the state & private forests for wood supply and big consumers like CHP’s are considered as the most effective way to assure a stabile work flow. A 10 year contract with a local 20MW CHP plant will assure the sale of fresh wood chips. The higher quality chips will be sold to smaller customers.

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d) Benefit for the customer Forest owners get an additional income from fellings and thinnings. Municipalities and private persons can save (and earn) money with the delivery of their woody residues.

Farmers with SRC fields don’t have to purchase equipment which they cannot use effectively. Especially for farmers with small SRC fields it’s more valuable to pay a contractor then to invest high amounts into special equipment.

Municipalities will benefit from local value chains and reduced costs for heating.

e) Way to operate EWS Barnim ltd. owns mobile chipping equipment and operates with 3 people, where the owner is in charge of the company overall management, fuel acquisition and marketing and the others are working in the energy wood procurement.

In the forest the felling residues are arising within the regular final cuttings and thinnings which are performed by other forest service companies. In the case of full mechanised fellings, the felling residues are piled by the harvester on one or both sides of the driving lane. So that the company’s mobile chipper can drive, collect and chip the residues along these lanes in one working step. The chips are blown into the bunker of the chipper.

In the case of thinnings, the small trees and residues will be placed on the lanes (or along the lanes) by the harvester so that the front fed chipper can chip those trees directly by driving on the lanes. If the thinned area is small or unsuitable for full mechanised work, the thinning is done manually with companies own workers.

The chips are emptied from the chipper’s bunker into truck containers along the road side, which are provided by a logistics company. The whole logistical distribution will be contracted to a separate company. In the further company development it is planned to organise the logistics as a part of the company.

On short rotation coppice fields the approximately 4 year old trees will be felled either manually by forest workers or with a subcontracted harvester on bigger fields. If possible the trees will be piled for drying and chipped when moisture content has dropped to ~ 30%. The chipping is performed directly at the stand. Here the company only sells the chipping service to the farmer.

In case of wood removal from construction sites and landscaping, the wood will be delivered to the companies’ wood yard or chipped on site if amounts are bigger. Communes and private persons can deliver their woody material directly to the wood yard. Restrictions are that the material has to be natural and untreated, not too old and therefore decomposed and not contaminated with other materials. The material will be stored and chipped when dry enough.

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f) Recommended business structure Limited company because of:

• Investments in the equipment are fairly high

• Intentions to expand to transportation and perhaps to heat entrepreneurship


i. Equipment The mobile chipper is the highest investment of the company. It was decided to buy a Silvatec 878 CH mobile chipper because driving through forest lanes is mostly required under Brandenburg conditions, assuming that the highest potential in Brandenburg comes from thinnings in scotts pine stands. The chosen mobile chipper has the advantages of a small size, front feeding, adjustable chip sizes and a mounted 16m³ container.

Mobile chipper SILVATEC 878 CH Manufacturer SILVATEC A/S

Fabriksvej 50 DK-9640 Farso Dänemark Tel.: 0045/9863/2411 E-mail: [email protected] Internet: www.silvatec.com

Type of equipment Mobile disc chipper for energy wood chipping

Engine 205 kW Chipping rotor Disc chipper Feeder opening 350 x 350 mm Max. diameter 350 mm Chip lengths 15 - 35 mm Range 6 m Length 9850 mm Width 2170 mm Hight 3000 mm Other tiltable 16 m³ Chip container Weight 19500 kg Price € 470,000

Chainsaws are required for the manual felling of trees. It was decided to buy two STIHL 260 chainsaws as they are suitable for felling as well as for delimbing.

For storage and chipping yard an old, unused agricultural silo facility will be rented. The advantage is that it’s cheap to rent such premises as lots of them are still existing relicts from former agricultural collectives. Other advantages are large storage capacities, concrete floors and the possibility to cover them if required.

The office premises will be rented on or nearby the silo yard. Additional office supply like paper, telephone, internet etc. will be listed and calculated

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as monthly fixed costs. For bookkeeping, overall management and internet connection one Laptop will be bought.

To reach the clients and for general business purposes, the owners own car will be used and booked with 0,30 cent per driven km.

ii. Human resources The company’s owner is responsible for the overall operation of the business. He acquires the contracts, the raw material and is in charge of the sale. One of the two forest workers is operating the mobile chipper. The other one is doing the manual fellings and thinnings. In times of high work load the owner is operating the chipper and both workers are felling.

The wood chipping yard will be open mostly on weekends and in the afternoon. But via telephone flexible opening can be arranged. At these times one person is at the site to receive the wood and residues.

h) Earning model The produced wood chips are sold in the first year at a average price of 15,- € per m³. Per year a rise of the wood chip prise of 0,50 € is included since the wood chip market in Germany is still growing. This results in a rise in annual turnover from 630.000€ in the first year to 714.000€ in the fifth year. The operating result amounts to 132.099€ in the first year and to 396.367€ in the fifth year. The net profit with deductions of loan repayments etc. is in the 1st year: 335.108€ and in the fifth year: 1.856.026€ with no negative liquidity in the whole time period.

Because forecasts in market development are not reliable in long terms, financial calculations are performed only for a period of five years.

The prices for wood fuels in Brandenburg are expert knowledge and market driven. There is no official wood fuel price index existing in Germany. Only for some regions there are evaluations of regional pricing. The difference in wood chip price can be very high between rural areas and big cities or between East and West Germany.

The assumed rise of the price index can be considered as low. In the past three years the price of wood chips has risen about 1,50€ on average per year. This can compensate a possible price increase of the raw material.

If business develops according to the financial forecast, it is planned to invest into a truck and containers to take over the transportation service in the 6th year. But this depends on the business performance in the first years. If the business profit is lower than planned, this investment has to be postponed.

i) Seasonal variations affecting operations

Highest work load for forest operations are autumn and winter time because naturally fellings and thinnings are highest at these times. Plus heat demand is at peak in these times as well, so that the request for wood chips will rise.

Unlike the forest work, landscaping and gardening work are highest in spring, summer and autumn. So that in this time most operations are taking

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place in these fields. It is expected that the wood recycling yard will have the most clients in spring and summer time.

For harvesting short rotation coppice only autumn comes into question. The chipping could be done right away or in the next summer when the wood has reached lower moisture contents.

j) Integration to other companies in the value chain The municipality with its premises and the local CHP are the main clients for selling the produced wood chips. Other clients are private users or small companies heating with wood chips.

Chipping clients are mainly farmers with short rotation coppice on their fields. Here either only the chipping service is sold or the company buys the whole stand and sells the chips itself. The chipping service will also be sold on demand to other customers.

Main partners are local forestry entrepreneurs, landscaping companies, logistic companies, forestry offices, forest and land owners.

2. Market situation

a) Market situation and forecast for bioheat The price for heating with oil or gas has increased constantly over the past years. Therefore the interest in wood fuels has risen significantly. Right now heating with wood is considered to be a real alternative, unlike a few yeas ago. More and more companies and municipalities are changing their oil ands gas heating systems into renewables, because life expectancy of their old systems expires and reasons to change the type of fuel are obvious.

A rise in the demand of chopped firewood in the private sector is also recognised, therefore it is planned to expand the companies work field to the production and sale of chopped firewood. The possibility to work as a heat contractor for municipalities could be considered when some experience in the field of heating systems exists.


Currently combined heat and power systems have a great development potential in Germany, due to the fact that from biomass generated electricity is rewarded with an over 20 years guaranteed feed in tariff. In 2006 the feed in tariff for biomass based electricity was for plants up to 20 MW: 8, 15 ct/kWh and 11, 16 ct/kWh for plants under 150 kW.

Grants for wood chip boilers are available for private persons, SME, communes and associations. Automatically filled wood chip boilers from 8 kW to 100 kW can get 60 € per kW, but at least 1700 € if the boiler efficiency is 90% minimum.

Beneficial loan models for CO2 saving investments are available from the KFW Bank as well.

c) Customers The municipality, the local CHP plant as well as private customers are main wood chip customers. Another possibility would be to sell the wood chips to a trading company, but a direct sale to the customer is preferred.

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Customers for chipping service are farmers, forest- and land owners, communes, landscaping businesses and other private persons.

d) Sources of raw material From state and private owned forests, short rotation fields, municipal waste wood, landscaping, recycled wood etc.

e) Competition There are no direct competitors existing in the Eberswalde region which are offering wood chips or a particular chipping service for energy wood.

The trash yard in Eberswalde receives woody residues and shreds them for composing. People have to pay a fee for that service.

In the wider periphery of Eberswalde are the following companies offering wood chips:

- Energieholz Dr. Falk Brune Birkenallee 3, 16837 Zempow, Tel.: 033923-76911, Fax 76921

- BHB Biomassehof Brandenburg GmbH Gewerbering 9, 14641 Zeestow, Tel.: 033234-89167, Fax 89168

- Fa. Fehring, Herr Busch Tel.: 030 7051000, 0451-393060, Fax 3968220

- Akademie für Abfallwirtschaft Andre-Pican-Straße 3-5, 16515 Oranienburg, Tel.: 03301-535404, Fax 535406

- GEBECON Tessenowstr. 13B, 13437 Berlin, Tel.: 030 81461240, Fax -1461241

- Forstunternehmen Ulf Mösenthin Dorfstraße 6, 16798 Fürstenberg OT Neuthymen, Tel.: 033093 3 20 69, Fax 3 20 69

- biolistic, Frau Jänicke Gutachstraße 21, 13469 Berlin, Tel.: 030 43745288, Fax 43746049

- BIOMASSE, Andreas Anisch Küllstedter Straße 20A, 13055 Berlin, Tel.: 030 322 74 34

3. Financials

a) Summary Total investment costs are 500.000 €. This comes from the KfW Förderbank as a 100% loan for investments on renewable energies. The KfW Förderbankbank supports projects and investments in environmental protection, energy saving and renewable energies with different grants and beneficial loans.

The interest rate for this kind of investment amounts to 6,05%, but lower rates are possible. The payback time for the loan is eight years where the first two years are payback free. After that monthly payback amounts are due. The owner guarantees the loan personally plus the loan is secured to companies’ equipment.

Additionally to the bank loan, the owner gives 15.000 € equity capital to the company. This avoids problems in liquidity in the first months because of time lags in payments. After one year the loan will be paid back in one sum. The interest rate for this loan is 6%.

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b) Equipment


SILVATEC 878 CH chipper Purchase Costs (A) € 470.000Interest rate (p) % 6Life expectancy (n) years 8Machine hours / year h 1.400Insurance € / Year 7.000Repair factor % of depreciation 75Fuel consumption Liter per machine hour 20Fuel price € / liter 1,00Lubricants % of fuel costs 101. Fixed operating costs

Interest A/2*p/100 14.100Insurance € 7.000

2. Depreciation A / n 58.7503. Variable operating costs

Fuel l/Mh*€/l*Mh/a 28.000Lubricants S% * Fuel 2.660Repair R% * depreciation 44.063

TOTAL € / a € / M. hour

154.573110,41


Chainsaw STIHL 260 (2,6kW / 3,5 PS ) Purchase Costs (A) € 629Interest rate (p) % 6Life expectancy (n) years 3Machine hours / year h 900Insurance € / YearRepair factor % of depreciation 75Fuel consumption Liter per machine hour 2Fuel price € / liter 1,30Lubricants % of fuel costs 101. Fixed operating costs

Interest A/2*p/100 18,87Insurance

2. Depreciation A / n 209,673. Variable operating costs

Fuel l/Mh*€/l*Mh/a 2.800Lubricants S% * Fuel 280Repair R% * depreciation 157,25

TOTAL € / a € / Mh

3.465,803,85

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c) Operation

Sale and production of Wood chips: 8h * 30m³ = 240m³ / d 1400 Machine hours * 30m³ = 42000 m³ / a Average price for wood chips at plant: 15 € / m³ (10€ for W 50%; 20€ for W 30%) Price increases: 0,50 € per year on average, although the range of prices in one year can amount up to 10,- €. This development in prices can be considered as stabile due to the increased number of wood fuelled CHP’s in the region and the growing interest in wood fuels in general. 1st year: 42000m³ * 15€ / m³ = 630.000€ income 2nd year: 42000m³* 15, 50€ / m³ = 651.000€ income 3rd year: 42000m³* 16,00€ / m³ = 672.000€ income 4th year: 42000m³* 16,50€ / m³ = 693.000€ income 5th year: 42000m³* 17,00€ / m³ = 714.000€ income

The chipping service should be seen as an extra operation in the first years. Therefore the profit from chipping is not integrated into financial calculations yet. It is expected that this service will extend over the next years. Right now only a few short rotation coppice fields existing in Brandenburg. At the beginning the chipping service will be sold for 5€ per m³. The price may rise according to fuel costs and demand.


Average raw material purchase price 0,8 €/m³Transport costs Logistics company assesses average for transportation

4, 50 € / m³

Staff costs (monthly) Employer’s salary: 3000€Forest worker 1 salary 1600€ + 22% non wage labour

costs (352€)Forest worker 2 salary 1600€ + 22% non wage labour

costs (352€)TOTAL 6904 € per month

Office set up Desk, chairs, table 3000€Laptop 1200€Tel./printer/fax/scanner 500€

Overheads (monthly) Office rent 200 € / monthSilo yard rent 200 € / month

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Office supplies etc 120 € / monthTelephone/Internet 120 € / monthInsurance chipper 7000 € / year 583€ / monthChipper (gas, oil, repair etc.) Chainsaw (2x) Legal advice service 2500€/ a 208,33€ / monthTravel costs 10.000 km * 0,30 €/km =

3000€/a 250€ / month

d) Investment- and depreciation plan

Investment 1: Chipper 470.000€ / 8 years depreciation Depreciation 1: 58750€ / a 4895,83 € / month Investment 2: 2 x chainsaws 1258€ / 3 years depreciation Depreciation 2: 419,33€ / a 34,94€ / month Investment 3: Laptop, Printer, Telephone 1700€ / 3 years depr. Depreciation 3: 566,67€ / a 47,22€ / month Investment 4: Office furniture 3000,- / 13 years depreciation Depreciation 4: 230,77€ / a 19,23€ / month Depreciation times are derived from official AfA – Tables (Derivation tables for investment goods) for forestry and agriculture from the federal ministry of consumerism, nutrition and agriculture.

e) Financing costs

The first two business years are free of repayments for loans. From the third year the loan will be paid off linear every half year. The loan repayment is calculated that the loan is cleared with the end of the depreciation time. From 3rd to 8th business year: 500.000 €/6 years (remained depreciation time) = 83333,33€ 6944,44€ / month. The interest rate for the bank loan amounts to 6,05%.

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f) Profit and loss calculation

1st year 2nd year 3rd year 4th

year 5th

year

Teuro % Teuro % Teuro % Teuro % Teuro %

Turnover 630,000 651,000 672,000 693,000 714,000

inventory changes+/- 0 0 0 0 0

Activated own contribution 0 0 0 0 0 Operating performance 630,000 651,000 672,000 693,000 714,000

Other incomes 0 0 0 0 0

Operating income 630,000 100 651,000 100 672,000 100 693,000 100 714,000 100

- cost of materials -33,600 0.0 -33,600 0.0 -33,600 0.0 -33,600 0.0 -33,600 0.0

- staff effort -82,848 0.0 -82,848 0.0 -82,848 0.0 82,848 0.0 82,848 0.0

- normal deduction -59,967 0.0 -59,967 0.0 -59,967 0.0 -58,865 0.0 -58,865 0.0

- interest effort -31,113 0.0 -30,250 0.0 -27,729 0.0 -22,688 0.0 -17,646 0.0

-- other efforts -290,373 0.0 -290,369 0.0 -290,369 0.0 -

290,370 0.0 -

290,370 0.0

Operating expense -497,901 0.0 -497,034 0.0 -494,513 0.0 -

322,674 0.0 -

317,633 0.0

Operating results 132,099 100.0 153,966 100.0 177,487 100.0 370,326 100.0 396,367 100.0

public subsidies/raises 0 0 0 0 0 Other neutral income 0 0 0 0 0

- neutral charges 0 0 0 0 0

Stated result 132,099 153,966 177,487 370,326 396,367

Employees (average) 3 3 3 3 3

Indicators

Sales earnings/month (teuro) 52,500 54,250 56,000 57,750 59,500 Operating performance/month (teuro) 52,500 54,250 56,000 57,750 59,500

Oper. perf. /Employee (teuro) Betriebsleist . /Besch . (teuro) 217,000 224,000 231,000 238,000 Processing perf. /Employee (teuro) Veredel.leist . /Besch . (teuro) 205,800 212,800 219,800 226,800 Personnel costs /Employee (teuro) Personalaufw . /Besch . (teuro) -27,616 -27,616 27,616 27,616

Operational cash-flow (teuro) 192,066 213,933 237,453 429,191 455,233

Stated cash-flow (teuro) 192,066 213,933 237,453 429,191 455,233

Net profit ratio (%) 21 24 26 53 56

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4. Entry barrier analysis Good knowledge about the regional wood market is required to enter the biofuel business in Brandenburg, since a run on the small diameter assortments has started. The owner comes from the region and has studied forestry in the region. Therefore he knows the market. Good contact to private forest owners association and local forestry helps to get hands on those resources. Private contacts to the municipal administration secure the fuel supply from this side.

Meetings with potential customers where held in advance of the business establishment. That secures the sale of the produced chips. Additional advertisement on bio energy events, in newspapers and in the internet should attract more customers.

Some of the owners farming and forestry equipment can also be used for fuel handling at the wood yard. This reduces investment costs.

5. Risk analysis The fuel availability is considered as the limiting factor. A constant work load of the chipper is crucial for the whole company performance. Therefore great care should be taken when organising the chipping sites and amounts of residues available. In times with no work in the forest or on the field, the chipper will be used to chip the wood accumulated at the wood yard.

The biggest end user is one 20MW CHP in the region. Long term contracts (10 years) secure a stabile sale. Additionally municipalities with small heating facilities and private customers can receive the better quality chips. If the demand is higher then the productivity, one additional employee will be engaged for peak times in autumn and winter.

The increase in fossil fuel prices could cause higher operating expenses. This will be compensated with a fairly low price rise of the sold wood chips contrary to the faster rise of the market prices.

6. Financial details

For financial details see the annexed tables!

….. …..

Laufer, S. 2007. Wood Chip Supplier Company. University of Applied Science (Fachhochschule Eberswalde). Eberswalde, Germany. 5 EURES (EIE/04/086/S07.38582). Business Plan. 12 p.

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Directory 1 MW, boiler, residue 63 1 MW, pellet gasifier 57 150 kW, chips 133 220 kW, residue 106 250 kW, pellet 124 2500 kW heating plant 162 3 MWe CHP with biomass 155 300 kW, pellet 100 350 kWe gasifier 155 365 kW, resiude 96 40 kW, pellet 80 50 kW, pellet 94 abandoned fields growing energy wood 42 accumulator tank 164 advertising 41 alkaline and acidic materials in biofuel 24 Allu Screener Crusher SC 24, 26 analysing incoming biomaterial 23 ash 16 ash from tree bark 18 ash heavy metal content 18 ash material nutrient content 18 ash melting temperature 23 ash recycling 14 ash spreading 15 ash to agricultural lands 18 automated mixing silo with gribber 28 automatic start of boiler 164 average yield of energy wood from forested areas 46 back up,oil boiler 68, 127, 164 base load 125 bioenergy boilers and fuel 22 biofuel mixer-crusher-screener attached to wheel loader 22 biofuels price index 65 biomass accumulation 34 biomass CHP 98 birch stands 42 black locust 133 boiler response to peak load 84 boiler investment costs, optimization of 164 boiler at low loads 84 calorific value of pellet 80 calorific value, biomass 29 campus community 163

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carbon dioxide generated from biomas 57 carboneus ash 58 chipper at work 22, 72 chipping service 172 chipping yard, wood 176 chopped firewood: 50 chopped wood 53 CHP 98, 133, 155, 182 CO2 to fertilise plants by gasifying wood pellets 57 combustion chamber 127 company answering a tender 104 company owned by the municipality. 100 concession period 104 concession 105, 113 condensing heat exchanger & gas cleaner unit 57 consumer biofuels 48 container heating plant 162 contractor 40, 54, 66, 68, 77 converting farm tractor to forest use 43 crushing demonstration 47 degasification procedure 166 depot 23 depreciation for tax purposes 45 directives for the contents of recycled wood ash 18 disc spreader mounted to forwarder 14 distributing firewood, pellets and briquettes 48 district heating network 35 diversified and inhomogeneous fuels 165 DIY-Stores, boiler & chimney suppliers 49 drying chamber 49, 174 electricity production with wood coming from silviculture 108 emissions 166 energy wood harvesting head with accumulating grips 44 energy wood harvesting hours / Hourly cost 42 energy wood thinnings 41 European Committee for Standardisation 27 excavators and frontloaders 27 exit plan., heat division to a local investor 77 farm tractor to forest use, conversion 43 farm tractor 41, 70 farmer 133 fast growing tree species 133 feeding system adaptation 118 fertilizer. 57 fertilizes forest with ash 15 fertilizing contracts 15

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fire prevention. 36 firebox 127 Firewood production in Finland 118 firewood suppliers 48 flue gas 57 fly ash granulates 18 foreign materials in biofuel 24 forest cabin for tractor 43 forest chips 23 forest company 107 forest fertilization 15 forest fires 34, 96, 110 forest machine contractor 14 forest operators 55 forest owner 14, 15, 55 forest owners’ association 15 forest residue 23, 55 forest work on the mountains 72 forwarder and a changeable spreader 16 fuel silo and supply system/ 58 fuel supply 24 gas cleaner unit 57, 159 gasification 155 gasifying boiler 57, 68 glasshouses 57 grain silo 119 granulated residue from municipal waste water plants 15 granulating facility 15 grate boilers 164, 166 guaranteed quality and certified standards 49 harvesting method for SRC trees 133, 177 heat company, 250 kW pellet heat plant 125 heat contracts 126 heat division of municipality 77 heat entrepreneur to sell heat 41, 63, 112, 113 heat exchanger 57 heat load of a spa 65 heat peak demand 67 heat supply company 105, 128 heating silo at unloading points 28 high harvesting costs due to small stem size 41 hot water accumulator tank 164 hotel / Spa 63, 79, 94 hourly costs of forestry equipped farm-tractor 42 improve the forest growth and wood quality 15 industrial cooking. 118

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industrial use of heat 118 information exchange 55 information quality on forest plots 56 internet forest residue business 54 internet pages for forest owners and forest operator 54 KEMERA grant 17, 41 Lles de Cerdanya 35 location of the business 50 log production line in Abrantes 22 logging residue haulage 86 long term supply contracts 50 low emissions 165 low harvesting removal per hectare 41 low loads, boiler 84, 164 low wood price 34 mineral lands 18 mixer-crusher-screener attached to wheel loader 22 mixing biofuel 22 mixing biomaterials into uniform qualities 23 mixing silo 28 modular design of power plant 158 moisture level 23 monthly peak demand 67 Mud 36, 96 municipal brigade obtain the biomass 36 municipal company 99 municipal district heating system 36 municipal facilities 124 municipal sports hall 94 municipal swimming pool 99 municipal waste water treatment plants 15 municipalities 34 municipality client 125 municipality forests 95 municipality heating 74 municipality 112 municipally tendering 105 municipally tendering 113 negative price 17 nitrogen 18 non-profit hat operation 77 NOx 58 nut shells 119 oil price index 65 operational biofuel network 29 optimal location of a business 50

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optimization of boiler investment costs 164 optimize management of their operations 29 organising the chipping sites 182 park and forestry management division 77 particle board chip 119 particle size of biofuel 24 peat lands 15, 67, 84, 164, 166 peatlands 18 pellet burner 40 kW 80 pellet silo types 80, 100 pellets 126 plant, boosting production 58 planting system 133 pneumatic feeding system 119 poor fuels 68 poplar 133 power plant operating hours 158 power plant, modular design 158 price indexes 65 price variations 113 price, heating projects can pay a higher price for biomass 116 profitable transport distances 23 propane to biofuel 105, 112, 113 pruning trees 95 public buildings 35 pulp mill power stations 18 pyrolytical decomposition 166 ranking organic cycle 159 recovery of carbon dioxide 58 recultivation 133 recycling yard, wood 177 registration fees from forest operators 56 removing fuel price instabilities 105 replace oil burner 79 replace propane with biomass 104, 105 response time to peak loads 164 revising techniques for tractor 43 risk of not having enough energy wood sites available 46 rot / selfcompost / self-ignite 25 sawmill 37 school 74, 104, 105, 112 secondary air 166 second-hand farm-tractor 41 selfcleaning function 127 self-compost 25, 63, 74 selling carboneus ash to power plant 58

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selling CO2 production 58 selling energy to the community 58, 162 shielded underframe for tractor 43 short rotation coppice (SRC) on farmland 172 short rotation coppice 133 silo 57 small municipalities 34 Small scale CHP plant using wood gasification 155 Snow 36, 96 social company 100 sourcing biomass 22 Spa 63 sports hall 94 SRC - short rotation coppice 133 standardised sales terms and delivery conditions 49 steam cycle 159 stoker burner 127 subscribers.of web information system. 56 supply chain 29 Sustainable Forestry. Subsides 108 swimming pool 99 tank, hot water 164 thinnings 40 tractor operating, repair and maintenance cost 45 tractor 42 trader of biofuel 23 traditional firewood 37 transport demonstration 47 transport distance 23 traveling time 41 tree bark from sawmills 23 tree stumps 23 tree surgery residue from park management 23 tube boiler 127 unburned carbon 58 variations of the fuel composition 165 various fuel sources 23 waste water treatment plants 15 waste wood 173 wear and tear of boiler 24 web database 55 wet and very poor fuels 68 wheel loader and biofuel mixer-crusher-screener 22, 26 willow planting 133 wood chip heating 65 wood chip supplier company 29, 172

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wood chipping yard 176 wood energy contractors (forest operators) 55 wood gas cleaner unit 57 wood gasification 155 wood pellet burner & boiler 79 wood pellets prices 133 wood pellets to heat greenhouse 57 wood recycling yard 177 wood yard 49 work load of the chipper 182 young thinnings 40

how to do business with woody biomass - 5eures

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