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Eastern NC On-Base Biofuels Refinery - Outline

Mark Gabriel LittleSteve Appold

Ilim CagiranChristine PrimmerMustafa Gltekin

Summer, 2013

North Carolinas Role in theGlobal Biomass Energy Market

June, 2013

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North Carolinas Role in the Global Biomass Energy Market

This report was written under a grant to the Frank Hawkins Kenan Institute of Private Enterprise

by the Biofuels Center of North Carolina.

The Biofuels Center of North Carolina has the long-term task of developing a large-scale

biofuels industry sector to reduce the state's dependence on imported petroleum. North

Carolinas Strategic Plan for Biofuels Leadership sets the goal of replacing 10 percent of the

petroleum imported into North Carolina with biofuels locally grown and produced. The Biofuels

Center was created in 2007 and is permanently funded by the North Carolina General Assembly

to implement the strategic plan so the state's farmers, biofuels manufacturers, biofuels

workers, and consumers benefit from this emerging multimillion-dollar, locally grown industry.

The Frank Hawkins Kenan Institute of Private Enterprise is a research and consulting

organization based at the University of North Carolina at Chapel Hill's Kenan-Flagler Business

School. We conduct sponsored research and analysis on issues, trends and processes that

impact company and community competitiveness. Our work helps clients gather and make

sense of the information they need to plan and make good decisions and develop tools to

implement them. Our consulting services include: renewable energy development; economic

and community development; entrepreneurship support; research commercialization; and

logistics and supply chain management.

Acknowledgements: the authors would like to thank Brad Ives (NC Department of Natural

Resources), Richard Sikkema (Control union Certification), Roberto Canales (NC Department of

Transportation), and Daniel Davidson (Drax Power Limited).

North Carolinas Role in the Global Biomass Energy Market

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Contents List of Figures ................................................................................................................................................ 4

List of Tables ................................................................................................................................................. 5

Executive Summary & Conclusions ............................................................................................................... 6

1. Introduction .............................................................................................................................................. 8

1.1 Wood Pellet Manufacturing Process .................................................................................................. 9

1.2 North Carolina Wood Pellet Production ........................................................................................... 12

2. Public Policy Drives Demand ................................................................................................................... 14

2.1 European Public Policy Drivers and Demand .................................................................................... 14

2.1.1 United Kingdom Policy and Demand ...................................................................................... 21

2.1.2 The Netherlands Policy and Demand ...................................................................................... 24

2.1.3 Belgium Policy and Demand ................................................................................................... 26

2.1.4 Denmark Policy and Demand .................................................................................................. 27

2.1.5 Italian Demand ........................................................................................................................... 28

2.1.6 Swedish Demand ........................................................................................................................ 29

3. Future Biomass Demand ......................................................................................................................... 30

3.1 Future Global Energy Demand .......................................................................................................... 30

3.2 Biomass Pellet Market Projections ................................................................................................... 31

3.2.1 European Market Projections .................................................................................................... 31

3.2.2 Chinese Market Projections ....................................................................................................... 33

3.2.3 Japanese Market Projections ..................................................................................................... 33

3.2.4 South Korean Market Projections .............................................................................................. 34

3.2.5 US Market Projections ............................................................................................................... 35

4. Wood Pellet Price .................................................................................................................................... 36

4.1 Wood Pellet Price Drivers ................................................................................................................. 36

4.1.1 Transportation Cost ................................................................................................................... 37

4.1.2 Feedstock Cost ........................................................................................................................... 38

4.1.3 Energy Cost ................................................................................................................................ 40

4.1.4 Currency Exchange Effect Cost .................................................................................................. 40

4.2 Wood Pellet Price Forecast ............................................................................................................... 41

5. North Carolinas Market Share ............................................................................................................... 43

5.1 Pellet Demand on NC Wood Resources ............................................................................................ 43

5.2 NC Transportation Infrastructure ..................................................................................................... 46

5.3 Biomass Pellets or Biofuels Feedstock? ............................................................................................ 48

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6. Concerns for long-term NC wood pellet market ..................................................................................... 51

6.1 Regulatory Risks of the Production of Wood Pellets for Export ....................................................... 51

6.2 Competing Uses ................................................................................................................................ 53

6.3 Pellet Plant Capacity & Utilization .................................................................................................... 54

7. Appendices .............................................................................................................................................. 56

7.1 Appendix 1 - Over Land Transportation Costs of NC Forests ............................................................ 56

7.2 Appendix 2 - Estimated Forest Biomass Production at Selected 2020 Prices................................... 61

7.3 Appendix 3 - Wood Pellet Companies .............................................................................................. 62

7.4 Appendix 4 - EU Market Data.(digital)

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List of Figures

Figure 1 - Using North American Wood to Generate European Electricity .................................. 10 Figure 2 - Pellet Manufacturing Process; Pellet Mills; Pellet Dryer .............................................. 12 Figure 3 - Wood Pellet Exports to EU ............................................................................................ 18 Figure 4 - Wood Pellet Production and Consumption by Country in 2010 ................................. 19 Figure 5 - Shares of Residential, Commercial and Industrial in 2010 ........................................... 20 Figure 6 - 2011 US Wood Pellet Exports to Europe (tonnes) ........................................................ 21 Figure 7 - UK pellet Production, Drax Consumption, US Imports, and Price (2003-2011) ........... 23 Figure 8 - Netherlands Pellet Production, Consumption, and Trade (2003-2011) ...................... 25 Figure 9 - Belgium pellet production, consumption, US imports, and price (2009-2011) .......... 26 Figure 10 - Denmark Production and Imports (1990-2010) ......................................................... 27 Figure 11 - Italian Pellet Production and Imports (2003-2011) ................................................... 28 Figure 12 - Swedish Pellet Production, Consumption, and Trade (1997-2011) .........