Innovative Natural Resource Solutions, LLC Newsletter,
May, 2016
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Times Are a Changin'

Wouldn’t it be nice if you got into a good place with your life and then things didn’t change? It would be especially nice in the business world if that occurred.  But we all know that we are lucky to see a few months running where things remain roughly the same.  We certainly have felt the full swing of change in the forest products and biomass energy arenas in recent months.

The huge drop in fossil fuel prices since 2014 has provided both opportunities and huge challenges for forest industry and biomass energy.  The plus is that diesel prices have been at their lowest in many years and for an industry that runs on diesel, that’s great news. 

But this drop in fossil fuel prices has also reduced interest in facility and home owners to switch from fossil fuel heating to use of wood in modern wood heating appliances.  Despite this, we still have over 500 commercial/institutional buildings and thousands of residences in New England/New York that have made the switch to woody biomass fueled heating.  So we are hopefully in a good position to make good ground in woody biomass heated facility conversions when fossil fuel prices rebound. And a number of wood supply projects in the northeast in the last year have us bullish on the availability and sustainability of low grade wood for fuel for any new projects that may arise.

More changes are found in low-grade markets for timber in the northeast.  Over 4 million tons of the market for low-grade timber have been lost in the last two and a half years in the region.  This is significant.  Please read about Eric Kingsley’s work on this issue below.

Please read on for more signs of change.  And thank you for your interest in what gets us excited at INRS!


The INRS team:

Eric Kingsley
Charles Levesque
Charles Niebling

In This Issue:

1. Levesque Meets with European Leaders on Biomass
2. Adirondack North Country Association Hires INRS to Look at Forest Industry
3. INRS Findings for Massachusetts Dept. of Energy Resources Biomass Energy Study 
4.About My Woods to Expand its Reach
5. New England Losing Markets for Low-Grade Wood
6. Benchmarking Maine's Forest Industry
7. Wood Costs and Maine's Pulp & Paper Industry
8. Maine's Forest Industry
9. INRS Makes Presentations at Recent Conferences
10. Niebling Partners with BERC, BTEC and ASABE to Advance National Wood Chip Heating Fuel Quality Standard
11. Energy Markets

Levesque Meets with European Leaders on Biomass

In April, Charles Levesque of INRS was invited as a national expert to participate in a Bioenergy Study Tour of 4 southeast U.S. states organized by Oak Ridge National Laboratory of the US Dept. of Energy.  The tour focused on use of wood for energy in the U.S. and the export of wood fuel, primarily wood pellets, to European Union countries interested in reducing their carbon emissions at coal-fired power plants.  The European leaders were most interested in how U.S. systems assure the long-term sustainability of its harvests – especially as it relates to wood pellet exports and the induced new harvesting that has occurred in recent years as the export markets have grown.
“By the closing discussions from the foreign guests at the end of nearly a week of touring, I think that they are reasonably confident that forests are growing more than they are losing through mortality and harvesting and that environmental effects of timber harvesting are largely mitigated by the state and national laws and regulations, forest certification standards and cultural norms in the industry”, concluded Levesque.

For more information about the event, go here 

For a list of workshops, go here 

 
Bioenergy Study Tour Group

Adirondack North Country Association Hires INRS to Look at Forest Industry
 

INRS is pleased to be starting work for the Adirondack North Country Association (ANCA) designed to better understand the forest products industry infrastructure in the following north country counties: Clinton, Essex, Franklin, Fulton, Hamilton, Herkimer, Jefferson, Lewis, Oneida, Oswego, St. Lawrence, Saratoga, Warren, and Washington County. ANCA is interested in the challenges and opportunities that may exist in this region and how forestry can be a stronger part of the economy in the future.  INRS expects to be reporting findings to ANCA later in the year.

INRS Releases Preliminary Findings for the Northwestern MA Region

INRS has been working for the Massachusetts Dept. of Energy Resources (MA DOER) since 2015 on the Mohawk Trail Renewable Heating Initiative - Forest Resource Assessment.  In the study, INRS looks at the available low-grade wood resources from the forests of the 21-town northwestern Massachusetts towns and immediate surrounding towns.  Findings show that there is between 193,000 and 429,000 tons of low-grade wood available per year in the region should there be an increase in use of this wood for biomass heating or other new markets for low-grade wood. 
While the report has not been released by MA DOER as of the date of this writing, you can get a sense of the findings through a PowerPoint presentation INRS has given on the subject here  
 

About My Woods to Expand its Reach

About My Woods the iPhone and Android app that INRS created for the North East State Foresters Association that helps family forest owners learn about their woods and encourages them to manage their piece of the forest, is going to expand to southern New England with the help of a recent grant announced for NEFA from the USDA Forest Service.  In addition to those states, INRS has been in discussions with representatives from Ohio, Kansas and Colorado who are also interested in bringing the app to their states.  INRS hopes to expand the app to the whole country.
To get the app, just go to the App store for iPhones or Play Store for Android and search for About My Woods or AboutMyWoods.  You can also go to the app website at aboutmywoods.org.

New England Losing Markets for Low-grade Wood

In the last 30 months, INRS estimates that Maine has lost roughly 4 million tons of markets for low-grade wood (this includes the pending closure of Madison Paper, with a shut-down announced for May).  This is the equivalent of 365 truckloads of wood every day, 365 days per year. 
While the bulk of this has been pulpwood, biomass markets have declined as well – both at stand-alone biomass plants (Covanta has closed plants in West Enfield and Jonesboro) and biomass use when associated pulp mills have closed.
Softwood pulpwood has seen the greatest loss, with over 2.5 million tons of softwood market decline.  In some areas, there simply isn’t an economically viable market for some softwood species.  Hardwoods, on the other hand, continue to have strong demand, with most mills holding steady – or even increasing – hardwood use.
The market losses may not be over.  While it appears that the region’s remaining pulp mills are stable (at least for the next few years), biomass power plants face challenges.  Relatively low wholesale electricity pricing as a result of the warm winter, coupled with expected changes in markets for Renewable Energy Certificates, have caused questions to be raised about the economic viability of some of the region’s stand-alone biomass plants.  Maine recently passed legislation aimed at supporting up to 80 MW of biomass electricity for up to 2 years; this should help support at least 2 of the state’s 6 stand-alone facilities.
INRS’ Eric Kingsley has written and presented about these issues, including:
  • An article in the January edition of The Northern Logger and Timber Processor,          Click Here 
  • Presentations at the Mud Season Breakfast and Black Fly Breakfast in New Hampshire, Click Here 
     
  • Top of Page
Left: This white pine top wood has no market since Covanta biomass plants shut down in Maine.
Right: Despite low-grade wood markets downturn, some users of wood for heat are still moving ahead switching from fossil fuels to wood like this brand new heating plant for the Hazen Drive state building complex in Concord, NH that just started up in April.

Benchmarking Maine's Forest Industry 

 

In late 2015, INRS benchmarked Maine against a number of other paper-making states for the Maine Department of Agriculture, Conservation and Forestry.  Adding data to a report completed for Minnesota, this report looked at energy costs, forest certification, workforce development and taxation for Maine and eight other states.  The summary of this effort can be viewed here 

Wood Costs and Maine's Pulp & Paper Industry

In November 2017, INRS’ Eric Kingsley presented to 250 industry professionals, legislators and other stakeholders on factors influencing the costs of wood for Maine paper mills.  Maine mills have often expressed concern that their wood costs are among the highest in the nation.  While the loss of markets has certainly made some impact on wood costs, it is true that wood costs for Maine mills are often higher than in other regions of the country. 
Kingsley broke down the costs associated with growing, harvesting and transporting wood, and explained the higher cost structure in Maine compared to other areas of the country.  The entire presentation can be viewed here 
 

Maine's Forest Industry

In December, INRS’s Eric Kingsley presented to the Forest Society of Maine’s Annual Meeting on The Future of Forests and Forestry in Maine.  This presentation addressed all sectors of the forest industry, and addressed both opportunities and challenges.  The presentation can be viewed here

INRS Makes Presentations at Recent Conferences


INRS partner Charlie Niebling recently delivered a keynote address to nearly 200 hardwood lumber industry executives at the annual meeting of the Hardwood Manufacturers Association in Fort Worth TX.  Niebling provided an overview of the pellet and biomass heating industry and its critical dependence on hardwood lumber manufacturing residues as a carbon beneficial feedstock.
 
Niebling delivered a plenary address at the 8th Northeast Biomass Heating Expo and Trade Show in Burlington VT.  He offered a retrospective on the tremendous progress made by the modern wood heating industry and partners since publication of the vision statement "Heating the Northeast with Renewable Biomass: A Bold Vision for 2025" in 2010.
 
Niebling also made two presentations at the International Biomass Conference and Expo in Charlotte, NC.  The first was as a panelist at the Global Pellet Outlook held on April 10, 2016 and organized by BBI International.  Niebling was asked to deliver remarks on future growth projections for the domestic U.S. heating pellet industry.  Niebling also delivered a presentation on development of a National Wood Chip Heating Fuel Quality Standard, a two year project funded by USDA in which INRS is one of the lead partners, described in more detail below.

Niebling Partners with BERC, BTEC and ASABE to Advance National Wood Chip Heating Fuel Quality Standard

INRS is a partner with several leading organizations to develop a National Wood Chip Heating Fuel Quality Standard.   USDA recently announced $138,000 in funding from its Wood Innovation Grants program to support the project.  Project partners include the Biomass Energy Resource Center (a program of the Vermont Energy Investment Corporation), the Biomass Thermal Energy Council, and the American Society of Agricultural and Biological Engineers.
 
The two-year project seeks to develop a consensus national quality standard for wood chips used in heating applications.  All major heating fuels (oil, gas, propane, wood pellets) except wood chips are governed by quality standards that ensure that fuels meet clearly understood and verifiable standards.  Tight boiler engineering, combined with fuel that meets a consistent standard, ensure good boiler performance.  This in turn will lead to wider acceptance of modern wood heating as a mainstream consumer choice.
 
INRS will lead outreach efforts to ensure that all stakeholders have ample input into the project: equipment manufacturers, fuel producers, boiler manufacturers, and others in the wood chip supply chain, including consumers and regulators.
 
Are you a stakeholder?  To learn more, contact Charlie Niebling at 603-965-5434 or niebling@inrsllc.com.  Stay tuned for additional information as the project gets under way.
 

Energy Markets

Prices for energy – particularly diesel and electricity – influence the viability and profitability of biomass energy products. These commodities are used as an input cost or an income stream for many forest products industries. These commodities are tracked in open and transparent markets, and futures markets exist that allow a market-based price outlook and an opportunity to manage price risk.

Electricity
After three years of winter peaks for electricity, this year’s “winter that wasn’t” brought low electricity prices.  For biomass electricity plants operating in the spot market, used to a few months of strong profits, the lack of high electricity prices is a strong hit to their financials, and presents very real challenges for operating profitably.  Of course, for industries purchasing large amounts of electricity (sawmills, paper mills, etc.), lower electricity prices were a welcome relief.
The lack of a winter spike was because we never got cold enough to trigger the region’s well known constraints on natural gas – where power plants can’t get enough natural gas because so much is being utilized for heating.  The futures market for electricity suggests that while winter continues to be associated with a spike in electricity pricing, that spike is shrinking.  Power plant operators in the region have been encouraged to take steps to assure availability and reliability, and conservation and efficiency programs are making a very real dent in peak demand. 




So what does this mean for biomass?  For facilities without a power purchase agreement (which describes most facilities in the region), the economics of running a facility require both a strong wholesale electricity market and revenue from Renewable Energy Certificates (RECs).  Under these market conditions, we may see some biomass plants operating at full capacity during the stronger electricity markets of winter and summer, and taking longer downtime during the spring and fall (in fact, we are seeing the initial signs of this today).  Obviously, for suppliers this can create huge challenges, particularly if wood buying stops as well. 
Importantly, the rules for qualifying biomass-generated RECs in Massachusetts changed this January, requiring a level of efficiency that current biomass plants can’t meet (and appear to only allow for combined heat and power generation).  As we predicted a year ago, the stand-alone biomass plants that rely upon Massachusetts for REC sales – Covanta plants in West Enfield and Jonesboro, Maine – closed in March. 


Diesel
The past two years have seen a dramatic decline in the price of oil, and diesel has fallen right along with it.  From an average price of $4.01 per gallon in 2014, the current and futures market* suggest an average price of under $2.39 per gallon for 2016.  This should help stabilize trucking costs for forest products industries, and many wood buyers, loggers and truckers may want to explore opportunities to use the futures market to “lock in” current pricing. 




While the drop in diesel is good news for truckers and those that buy wood, it also means a drop in the cost of heating oil.  While nice for consumers, this makes it harder for biomass heating to gain traction.  A good resource on the cost per MMBTU of a range of fuels – including wood pellets and cordwood – is available from the NH Office of Energy and Planning.
 
 * Note: The future energy prices are based upon existing futures markets and reflect market sentiment, this is not an INRS prediction or a guarantee of future prices (though futures can be used to help a facility manage price risk). All futures prices listed are from April 25 -28, 2016 and may have changed since that reporting.
Thanks to Hannah Ellingwood of our staff for putting this newsletter together.
Copyright © 2016 Innovative Natural Resource Solutions, LLC, All rights reserved.


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