Pellet fuel manufacturers should secure their supply of feedstock years in advance to avoid price fluctuations due to dips in feedstock availability and increases in use, such as during a cold snap. This will also enable pellet mills to stabilize their product supplies so consumers feel confident relying on this fuel source as a viable alternative to electricity, propane or fuel oil.
Enhanced Energy Efficiency
By reducing the need for energy, technologies such as variable refrigerant flow (VRF) heat pumps become an alternative fuel source – and a significant
competitive risk for the wood pellet market. Energy efficiency is always viewed as a companion to fuel source shifting to reduce end-user costs.
On a cost per MMBTU basis, wood pellets compete extremely well against a wide range of options, with the key exception being heat pumps. VRF heat pumps have come to commercial maturity in the marketplace. One caution for heat pumps is that below 0°F, VRF heat pumps have reduced ability to keep a building warm. Harsher winter climates, such as northeastern Washington, would need backup heating or very high levels of insulation.
VRF heat pumps draw energy from the outside air, water or the ground, and are very energy efficient. These systems can range from 150 to 400 percent efficiency, with a typical efficiency of 250 percent. This efficiency reflects the federal minimum efficiency for air source heat pumps (7.7 heating seasonal performance factor). More details about VRF heat pumps are provided in the factsheet provided in Appendix C.
The table below compares the cost to produce a specific amount of heat using various fuels.9 At $18.94 per unit of heat delivered, The heat produced from wood pellets is significantly less expensive than heat produced by electric baseboard heaters, fuel oil and propane, and more expensive than heat produced using heat pumps and firewood.
Competition for Feedstock
Competition for feedstock is shifting, as are prices. Pellet mills need a cheap and reliable source of wood waste materials. During 2012, the Puget Sound biomass market was affected by the closure of the Kimberly-Clark paper mill, which had a 52 MW biomass combined heat and power (CHP) system and used 400,000 tons of woody biomass per year. This closure triggered a glut of wood waste in the Puget Sound region, and prices fell considerably (40 percent or more). In contrast, in areas of the state beyond the Puget Sound, where pulp mills are actively buying, feedstock costs are significantly more.
The cheaper prices in the Puget Sound area are not expected to hold. The Cosmo Specialty Fibers pulp mill is back on-line in the Grays Harbor area. In addition, wood chips are shipped around Puget Sound, which expands the Puget Sound woodshed to include Port Townsend Paper (permitted for a 25 MW biomass CHP system) and Nippon Paper (a 20 MW biomass CHP system).
Alternative woody biomass uses are emerging that will increase competition – and prices – for wood waste/wood chips:
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Alternative wood products – Recycle One of Tacoma is producing a composite wood fiber/plastic board for construction uses. Other facilities that use this resource may open soon.
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Aviation biofuel – The market demand for aviation biofuel and other advanced biofuel alternatives has triggered a race to complete research and develop these biofuels from woody biomass. In our state, WSU leads a five-year, $40 million research and development effort called the Northwest Advanced Renewables Alliance.This effort focuses on a broad range of wood biomass feedstocks. As such, when this technology emerges, it will provide an alternative pathway for using woody biomass. A parallel study called Advanced Hardwood Biofuels Northwest led by the University of Washington is focusing on plantation-grown hybrid poplar. It, too, is a five-year, $40 million research and development effort. Due to its plantation-grown feedstock, it should have less impact on the pellet mill industry.
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Biochar – Biochar is another emerging use for woody biomass. Market uses include soil toxics and stormwater remediation, an alternative to activated carbon from petroleum coke, agriculture and restoration of disturbed soils. The Washington State Department of Ecology is supporting research at WSU to develop engineered biochars.
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Bioproducts and nutraceuticals – An additional emerging market for biomass is offsetting petrochemicals and producing fragrances and nutraceuticals. This set of markets has the highest prices/best economics in terms of market competition.
Biomass is an active market; despite the cautions cited here, there are marketing opportunities that investors in our state are advised to investigate.
