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Bioenergy - Mississippi Biomass and Renewable Energy Council

The Future Role of Wood for

Energy – Traditional Wood

Industry Perspective

Montgomery C. Simpson

Weyerhaeuser Company


WEYERHAEUSER COMPANY

1


The Future Role of Wood for Energy

Current Forest Products Industry use of

Biomass

Policies to Retain Current Use and Expand It

Fiber Supply Issues

Opportunities for Plentiful Biomass

2


Current Forest Products Industry Energy

Generation

Leading producer of carbon-neutral, renewable

biomass energy

In 2005

• 98% of pulp mill electricity was co-generated.

• 96% for wood products

• 66% of cogenerated electricity is from biomass.

28.5 million megawatts annually – enough to

power 2.7 million homes

3


Policy Priorities

Equal treatment – New and Existing

• Make renewable biomass energy generated and used onsite

eligible for Section 45 production tax credit.

• Full RES credits for the renewable power we generate whether

used onsite or sold to the grid

Most state RESs do this.

Broad renewable biomass definition in the RES.

• And revision of the narrow definition in the RFS.

Grid access and competitive tariffs

Incentives to increase biomass supply.

4


Fiber Supply Issues

5


Generating Plentiful Biomass

A greater supply of biomass will lessen the

impact of biomass energy on traditional forest

products companies. How to get there

• New crops.

• Government policy.

• Improvements in biomass harvesting technology.

• Improvements in silviculture.

• Innovative ways to integrate biomass cultivation with

forest management.

6


Intercropping of Dedicated Energy Crops

How might this work

• Grow strips of pine trees and

an energy crop

• Perennial energy crop

harvested annually for a

number of years

• Trees managed for wood

products and fiber.

Trees

Energy Crop

Energy Crop

7


Government Policies and Biomass Supply

The south is limited on some renewable resource.

Government policy can impact biomass supply.

• Letting markets operate leads to efficient outcomes.

• Cost share programs, education and and favorable tax policy

can result in greater investment in silviculture and ultimately,

more biomass.

A broad definition of renewable biomass will increase the

supply, reducing supply impacts on existing fiber users.

8


Biomass Harvesting Improvements

As technology improves and costs decline,

more biomass becomes available.

9


US South: Historical Supply/Demand

Perspective

140,000

US South Pulp Output Processing Capacity

The US South has

seen a substantial

increase in

production of wood

products over the

last 50 years.

Capacity (short tons per day)

120,000

100,000

80,000

60,000

40,000

20,000

0

25

Billion Board Feet (lumber tally)

20

15

10

5

1961 1965 1970 1974 1983 2000 2005

(est.)

source: USDA USFS, RISI

US South Softwood Lumber Production

0

1962 1970 1976 1986 1996 2002 2005

source: USDA USFS, RISI

10


US South: Historical Supply/Demand

US South Timberland Area

Perspective

250

Timber land base has

been stable.

Million Acres

200

150

100

50

Investments in forest

management have

resulted in a significant

increase in volume growth

over the same time period

Billion Cubic Feet

0

14

12

10

8

6

4

2

1953 1963 1977 1987 1997 2002 2007 (est.)

source: USDA USFS

US South Growth versus Removals

Growth

Removals

0

1952 1962 1976 1986 1996 2001

source: USDA USFS

11


Historical Supply/Demand Perspective

US South Timber Inventory Volume

Forest

management in

the south is a

success story:

• Stable land base

• More harvest

volume

• More inventory

volume

Billion Cubic Feet

300

250

200

150

100

50

0

1953 1963 1977 1987 1997 2002 2007 (est.)

source: USDA USFS

12


Historical Supply/Demand Perspective

US South Timberlands by Owner Type (2002)

Most southern

forests are

privately owned

5%

5%

18%

Nat'l Forest

Other Public

Forest Industry

Other Private

72%

US South Harvest by Owner Type (2002)

1%

3%

source: USDA USFS

Almost all of the

harvest comes

from private lands

64%

32%

Nat'l Forest

Other Public

Forest Industry

NIPF

source: USDA USFS

13


Timber Price Behavior

Private owners

respond to financial

incentives

Sawlog prices are

much higher than

pulpwood prices

Thus, sawlog

values are the

primary driver for

more intensive

forest management

Southern Log Values

$/MBF

450

400

Sawlog

350

300

250

200

Pulpwood

150

100

50

0

1980 1984 1988 1992 1996 2000 2004 2008

Annual

ATLP30A

Source: Timber Mart-South

14


Single Acre Economics – US South

Intensive

management

produces:

• Better financial returns

• More sawtimber

And fiber residuals

6% Pretax NPV

140

120

100

80

60

40

20

0

Financial Effect of Intensification

NIPF Base Intensive

source: Weyerhaeuser

• Forest management

certification and best

management practices

promote production

from sustainably

managed forests

Green tons/acre

200

180

160

140

120

100

80

60

40

20

Volume Production Effect of Intensification

Sawtimber

CNS

Pulpwood

0

NIPF Base Intensive

source: Weyerhaeuser

15


Effects of Incremental Biomass Demand

What about wood for energy use

• High amount of uncertainty about potential quantities and timing

• Several studies have been published recently, e.g.,

US DOE “Billion Ton Study”

Hawkins Wright

Forest2Market

Galik, Abt and Wu (Journal of Forestry)

• Underlying assumptions can drive out widely different estimates

16


Effects of Incremental Biomass Demand

US South

Assuming a high feedstock demand future for

the South…

• 15% of electricity

production sourced

from biomass

• 9.6 billion gallons of

cellulosic ethanol

Biomass supplies

from forest and nonforest

sources could

meet feedstock

demands

17


Effects of Incremental Biomass Demand

US South

18


Costs of Alternatives

• Other technologies become competitive if biomass costs start rising

significantly from today’s levels

• Other technologies thus can limit how high biomass prices would rise

Biomass for energy will develop over a number of years with ample

opportunity to adjust course as needed.

Costs for Electrical Power Generation

solar

wind

biomass combustion

Increasing feedstock cost from $35/dry ton to

$60/dry ton could add 4-5 cents per kWH

0 5 10 15 20 25 30 35 40

Sources: NREL, AWEA, EIA, Weyerhaeuser

cents per kilowatt hour

19


Conclusions

Let the market work

Biomass feedstocks deserves equal treatment

Sawlog values drives forestry

New biomass markets will keep forest in forest

Supplies can plausibly meet potential demand

Promote production from sustainably managed

forests

20

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