Biomass Working Group Needs - Ontario Federation of Agriculture

Linking the Technologies to The Markets
John Kelly
Chair, Biomass Business Case
Working Group
Ag Biomass Business Case Working Group Where
we fit in.

Why are we here?
The key objective of this session is to get input
from participants on the key questions the
Business Case WG needs to answer in order
toobjectively assessthe business case
Terms of Engagement
• A Business Case Working Group was formed
to objectively coordinate the economic
feasibility analysis.
• The working group is to draft the business
case with timelines over the summer, and
report back to the Steering Committee at the
next meeting (targeting late Sept.).

Development of a Business Case
• Economics
– Financial analysis at each step in the agricultural
biomass value chain
– Business risk management
– Impact on competing uses for agricultural biomass
– Competitiveness with forestry biomass, USsourced
biomass and other sources of energy
– Investment required by farmers, consolidators
other core participants throughout the supply
chain
From the Draft Terms of Reference: Business Case Working Group
Development of a Business Case
• Risks of proceeding/not proceeding
• Deliverable schedule
• Environmental and societal considerations
• Technology related considerations
• Other items identified in the Steering
Committee’s Draft Work Plan (June 14, 2010)
From the Draft Terms of Reference: Business Case Working Group

The Situation When We First Met
• Biomass was the preferred position for OPG as a
replacement for coal (as per gov’t mandate)
• Biomass pellets were to be the fuel of choice
– The recipe for the pellets was unknown
– Handling / storage were identified as issues
– Silicates and boiler life were a consideration
• Life cycle analysis of carbon and other elements were to
be integral to adoption
• Aggregation
• Biomass choices were based mostly upon perennial grass
crops or crop residues
• OPG and farmers were not on the same page
Developing a new product
Simple Value Chain
Technology
Provider
Grower
Aggregator
End User
Consumer

Erie Innovation and Commercialization
Development of a Business Case
• Value Chain analysis
• Competitive pressures
– Source of biomass
• Forestry, perennial and annual agricultural crops
– End use of biomass
• Cellulosic ethanol, fibre, bedding, international markets
etc
– Cost of Production
– End Market Analysis
– Opportunity cost of other crop selection

Benefits of Perennial Crops – Agronomic/Environmental
All perennial crops result in:
• Soil improvement
• Reduced soil erosion
• Greater carbon
sequestration
• Less chemical applications
• Productive for 15-20 years
once established
Source AungOo, 2010
Tall Grass Prairie

Miscanthus giganteus
Miscanthus trial on an INRA test field. Credit:INRA/S.Cadoux
Switchgrass

Development of a Business Case
• Value Chain Analysis ‐ Returns
– Technical providers
– Growers
– Aggregators
– End users (GHVG, Lafarge, OPG, Residential,
Institutional, others?)
– Consumer analysis and costing
Development of a Business Case
• Competitive Pressures: Source of Biomass
– Ontario based versus international sources
– Forestry versus agricultural sources
• Miscanthus, switch grass, big blue, sorghum, crop
residues
– Unforeseen impacts (environmental, soil, Carbon
balance etc)
– Do we consider the food
versus fuel debate?

Development of a Business Case
• Competitive Pressures: End Use of Biomass
– Large institutional electricity generators (OPG),
small generators
– Competitive uses of biomass
• Polycomposites
• Industrial (insulation, bedding, others)
• Cellulosic ethanol
– Carbon credits and value
– International Markets
Endex Wood Pellet Futures Markets
ENDEX Wood
Pellets Bid /T Ask /T Sett /T
11-Apr € 125.75 € 135.07 € 130.41
11-May € 124.75 € 133.83 € 129.29
11-Jun € 125.17 € 133.55 € 129.36
Q2-11 € 124.58 € 133.94 € 129.26
Q3-11 € 124.50 € 134.77 € 129.64
Q4-11 € 127.50 € 136.45 € 131.98
Cal-12 € 127.71 € 137.09 € 132.40
Cal-13 € 130.14 € 140.20 € 135.17
Cal-14 € 133.17 € 143.56 € 138.36

Development of a Business Case
• Cost of Production
– Seed / plug inputs
– Agronomic inputs (fertilizer, pest control products,
land preparation, etc)
– Fuel
– Labour
– Harvest
– Storage
– Capital costs
– Cost of money invested
– Risk management
• Fibre collection – this is switch grass

Biomass conversion is the Key to the Vision
Needed: non‐food parts of food crops (wheat straw, wood chips, recycled paper, corn stalks,
etc.) and dedicated energy crops requiring low in‐puts (switch grass, miscanthus, others)
Major issue will be feedstock accumulation, storage, and handling
Development of a Business Case
• Aggregation
– Fuel
– Labour
– Storage
– Capital costs
• Equipment and equipment durability
• Facility and capacity
• Location
– Cost of money invested
– Risk management
– What about Torrefaction?

Straw Processing Line
Development of a Business Case
• End Market Analysis
– Who are the end users – really?
• What is the real opportunity? Not just OPG….
• What do they want (for example – pellets vstorrefied
product)?
– Who are the price setters and what is the impact
of policy
– What are the impacts of competitive fuel sources
(ie Natural Gas)
– What are the impacts of other green energy
sources (wind, solar, geothermal etc)?

Erie Innovation and Commercialization
Erie Innovation and Commercialization

Erie Innovation and Commercialization
Erie Innovation and Commercialization

Erie Innovation and Commercialization
Erie Innovation and Commercialization

Erie Innovation and Commercialization
Erie Innovation and Commercialization

Erie Innovation and Commercialization
Erie Innovation and Commercialization

Erie Innovation and Commercialization
Erie Innovation and Commercialization

What Drives Us? Biomass Value.
Scientist
Entrepreneur
Finance
Engineer
Government
Distributor
Grower Aggregator End User Consumer
Farmers
NGO
GROWER ECONOMY
RURAL ECONOMY
URBAN ECONOMY
GOVERNMENT ECONOMY
TAX PAYER TAX PAYER GENERATOR TAX PAYER
CARBON ECONOMY
SEQUESTERER RELEASER RELEASER
RELEASER
The Elephant in the Room for the Biomass
Business Case is the Price of Natural Gas
Image from http://spongeist.files.wordpress.com

Global Shale Gas Deposits
June 2010
North America
3840 Tcf
South America
2116 Tcf
W. Europe
509 Tcf
Central and
E. Europe
39 Tcf
Middle East &
North Africa
2547 Tcf
Sub‐Saharan Africa
274 Tcf
Former Soviet Union
627 Tcf
Central Planned Asia
And China
3526 Tcf
Asia / Pacific
2625 Tcf
http://247wallst.com/2010/06/25/foreign‐investors‐buy‐into‐shale‐gas‐play/
Questions for the Biomass Business
Case Working Group
• Can syn gas generated from biomass get the same
incentives (PPA) as energy from AD systems.
• Feed in tariff for heat like similar to what is materializing in
the UK
• Who is going to financially back any opportunity on the
growing side.
• One of our main difficulties in getting growers to move in this
direction is ensuring the price for the biomass is bankable and
guaranteed.
• Agricorp Crop Insurance
• Much work needs to be done on this.
• If policies are created will there be greater incentives for ag
produced biomass?? Domestic supplies???

Questions for the Biomass Business
Case Working Group
• Is there a business case if ag biomass pellets from
Ontario are paid $ 175/tonne delivered at Rotterdam,
Netherlands?
• Supply/demand and price projections of corn, soybeans
and wheat for next 10 years; which can be used for
estimating risks and opportunity cost of growing non‐food
biomass
• Hay and other feed demand from the growing beef
industry in developing countries (US is currently exporting
DDG from corn ethanol plants to China for feed; current
price of DDG is ~ $ 200/tonne)
Questions for the Biomass Business
Case Working Group
• Feasibility of a distributed biomass power generation
plant (~ 100 MW) and process integration opportunities
(such as combined heat and power, integrating with grain milling and
vegetable greenhouse, etc.).
• Job creation and macro‐economic benefits and price impact
from creating the distributed biomass power generation
capacity (let's say 5,000 MW) in Ontario
• Integrating with overall waste management strategy;
– i.e AD plant for municipal green waste combined with manure AD
and agricultural residuals power generation
• Integrating with bio‐fibre and bio‐composite plants

Will the environment and political will have
more weight than the economic position?
Economics
Environment
Political Will
Ontario
Generated
Power
Biomass Advantages….
• Cost vs other “green” technologies.
– Using wind as an example (17.4 c/Kwh)
– Coal price at 4.5 c/Kwh ($65 per Tonne)
– Torrefied equivalent at 17.4 c/Kwh = 17.4/4.5 x 65 = $251 /T
Coal equivalent
• Torrefied product is 99% equivalent to coal.
• Money stays within Ontario
– Investments in infrastructure have direct impact on Ontario
Economy
– Investment dollars circulate back to Ontario and does not
leave the province through FDI
– Revenue stream for farmers
– Creation of new industries and value chain

Biomass Advantages….
• Only Carbon sequestration technology
– Solar, wind do not have C sequestration and positive
impact on GHG
– For every tonne of product taken off the field, one tonne is
below the ground
• Only On Demand green technology
– Solar, wind depend upon sun and wind movement
respectively and cannot be turned on at a moments notice
• No Negative Cash Flow issues
– If electricity is not needed, it is not generated.
– Pay only for electricity that is generated, and not forced to
sell electricity at a loss
Biomass Advantages….
• No write off of a $7B asset for the Province of
Ontario
• Ontario Jobs
• No negative environmental impact
– Natural gas spills
– Solar panels on agricultural land
– Wind mills on agricultural land
– Keeps land in agriculture

Comparison of Biomass to Natural Gas
Advantages/Disadvantages
Biomass Natural Gas
Canadian Reputation +ve -ve
Investment +ve Neutral
Environmental Impact +ve -ve (spills)
Carbon Credits +ve -ve
Money remains in Ontario +ve -ve
Farmer Employment +ve -ve
On Demand +ve +ve
Cost versus other green
+ve
+ve
technology
$7B asset +ve +ve
Political +ve -ve
New Jobs +ve -ve
Cost -ve +ve
Further Questions
• Are there questions that we have missed as a
Working Group?
• Focus must be on the end market –Do we
know enough about all of the end uses?
• There must be benefit along the entire value
chain for this to be successful. Are we
capturing all of the right elements?

There is still lots to do, but we have
a great start.
Thank you
johnkelly@ofvga.org
Chair, Business Case Working Group