June 7, 2009

Duke University Grad Students Complete Torrefaction Business Plan

I recently mentored a Duke Graduate Engineering group in an Entrepreneurship Studies Class.  The topic was Torrefaction (this surprises you!). 

These students developed a full blown business plan for a torrefaction mini-mill (regional plant) in North Carolina.

When the cost of the plant was $ 600/Ton hour of production, and there was a mix between initial equity and convertible debt ($ 3 Million), and $4 Million downstream debt their business plan calls for a 25 Million dollar revenue company generating 31% EBITDA by year 5 .  I actually think that they grow the business too fast in the early years. It may be more capital efficient to take on less capital up front, grow a little more slowly until the intial units are generating cash, then use debt if you can get it, or higher priced equity later to ramp up the buisness quickly.

They assumed Green Credits starting at zero in year one, and ramping to $20 per ton over time, which is anyone's guess.  They also did not do a sensitivity analysis to the carbon spread (the difference between the price of raw biomass and the displaced coal on a BTU basis), which is key to the analysis which I held out as an 'advanced assignment' if they had time.   I will either do this analysis or have it commissioned and will post next on this issue).

But overall, it provided two really valuable things:

1)  Another set of eyes and spreadsheets working independently on the analysis of the underlying business model.

2)  Another business plan which independently tries to concisely communicate the value proposition, market and risks associated with torrefaction.  (I ghost wrote a plan for another company to try and help them move forward -- so now that's two plans from which to draw from the future).

Torrefaction plants are one block in the value chain and a necessary part of the development of the industry. 

The recent downdraft in coal prices in the US, coupled with a lack of green credits right now, has hampered the development of the industry in the US.  Yet these business plans show that there is promise in the US, and explain why this industry is developing more quickly in Europe.

Next, I'm going to apply option pricing models (talk about geeky!) to determine the volatility weighted coal price at which torrefaction makes sense.  The model is still most sensitive to carbon spreads.  The notion would be that if an investor wanted to, they could build a plant and hedge against downdrafts in coal prices.  Then the question is would it make economic sense when you put the cost of the hedge on top?  Stay Tuned.




12 comments:

Anonymous said...

Torrefied pellets(TP) are not just only there to replace coal in E-production. There are many systems that produce heat from heating oil or gas in Europe and than you need to compare the costs per GJ of TP to gas/heating oil. Furthermore Fischer Tropsch or BTL are very much dependent on torrefaction pretreatment due to scaling of FT plants.

Basically TP should be produced at direct+indirect cost below $140/mt to meet LT coal+CO2 in a co-firing scenerio without any subsidies.

The Better BTU said...

I agree that TP should also be compared to Fuel oil and Nat Gas. In fact we are proposing biomass boilers to a number of our customers for just that purpose.

But I'm very intrigued about the use of TP as an advanced feedstock for Fischer Tropsch or BTL processes. Please repost if you can point me to some of the best work on this subject.

I'm familiar with Dynamotive's work and a few others but have not seen an evaluation of the benefits of using TP instead of raw biomass.

There are great US Gov Grants available now for folks who can move forward quickly on if we have the right partner and conclusive data that says the economics of TP are there as a biomass to liquids feedstock (over raw biomass). I am aware of the transportation cost benefits -- are there other benefits?

Anonymous said...

Look at ECN. They have some papers on the efficiency improvements on entrained flow annd fluidised bed gasifciation systems using TFW feedstocks for both synthetic natural gas and BTL systems

Anonymous said...

TP do have a number of property improvemnts compared to untreated biomass(UB) for gasification applications:

1. The reactivity of the TP powder is far higher than any UB. So lower residense times and thus smaller, more compact and simpler reactors.
2. For low temperature gasification(850 C) the tar content in the syngas will be (almost) solved with TP.
Syngas stability improves
3. The gasifiers get a homogeneous feedstock(TP) instead of a homogeneous one.
4. Simpler feeding systems

But far most important is the fact that(large scale) FT requires 3 million green tons+ per site and on a per GJ basis TP are the cheapest option(not to mention storage!!)

The Better BTU said...

Anonymous, can you elaborate on point #2?

I'm asking about tar impacts of TP vs Gasification. You seem to imply that you would use TP as a feedstock for gasification --however that implies 2X the capital cost.

Why not just co-fire TP in a coal boiler?

ARTURO said...

I am very interested in getting more info on the biz plans.

I am developing a project to produce biocoal from agave biomass. Agave produces up to 500 annual tonnes of biomass per hectare, equivalent to 50 tonnes of dry-bone biomass with 75% cellulose content.

Agave thrives in marginal land -even salty soils and steep hills- in semiarid (170mm rain) and temperate climates, requires no watering nor agrochemicals, is very easy to cultivate and has a very low cost of production. Agave plantations can be established in 2/3 of the Earth's habitable land.

I want to learn more on TP. I'd love to sell agave-biomass derived biocoal at US$50 per tonne, to make it attractive for industries -especially electricity generating facilities- to switch from coal, and contribute to mitigate climate change.
Great site!
Arturo
agaveproject2@gmail.com

US MicroGrid said...

To All:

ECN is one of, if not the, most advanced research areas for torrefaction. http://www.ecn.nl/en/

It should be on your reading list.

Arturo: I'll reach out by email to you. The best way to get started is to run a 'course grain cut' analysis which we can do for you (no fee!). We'll need the BTU content of agave (I don't think we have it), the target location where you want to sell electricity (or the price you expect to sell it at) and a few other variables. We run this through a simplified business model we call the 'biomass evaluator' and it produces some outputs that may be quite useful. In addition to a quick calculation on likely economic return, we'll help you see how your project stacks up to other projects we have evaluated. http://intelligentcarbon.blogspot.com/2009/03/us-microgrid-announces-biomass.html

mike said...

Thanks for the informative blog.

I am conducting research on the viability of certain biomasses for co-generation and or ethanol.

I am interested in learning more about the Duke Use Case and model. Is it possible to contact them directly or review your business plan?

Best,

Mike

Gerald Comeau said...

I agree with US MicroGrid on ECN as the best source of scientifc studies on torrefation. The ECN reseaarch points towards entranined flow gasification of biomass and that opens up the potential for IGCC.

I live in Nova Scotia Canada. We have low value wood species like white birch and soft maple that are potential biomass feedstocks. Nova Scotia Power generates 60% of the power with coal. I'd like to introduce a concept for a 15 to 25 megawatt IGCC powerplant to NS Power. You have to be armed to the teeth to get those guys to the table. I am starting at zero. The Duke feasibility analysis looks like a start in the right direction with numbers. I'd welcome any suggestions. The kind of IGCC facility I envisage could be replicated many times once proven successful.

Regards to all,

Gerald

The Better BTU said...

The best way to get a utility to the table is to study their regulatory requirements. Utilities really only have one customer -- that's the group that regulates them (in the US that's the PUC or PSC).

If the regulatory group wants biomass -- it will happen. If the regulatory group is not pushing it -- it will be an uphill battle.

Feel free to contact me through linkedin or twitter (I don't leave an email address here because spammers can electronically 'harvest' posted email addresses. -- or if you are not on either of them, leave your email address with some ## inserted (which throws off the spammers) and I'll contact you.

Some of the provinces in Canada have a very favorable regulatory environment and I'd be happy to help you evaluate your local regulatory landscape and propose a way to get things going.

Anonymous said...

The correct link to ECN is http://www.ecn.nl/home/
Also, torrefaction is just a logistics issue, as there is hardly any energy gain in the process. It's much easier to just use chopped raw biomass and an electric scrubber like a GlidArc to take care of the tars, soot and VOCs. Then you cool the gas and feed the genset - laugh all the way to the bank.
I hope not to catch any of you actually BURNING or COFIRING any biomass, as you will be severely punished by the marketplace.
Martin Mizera, Bioleux Polska/ECP

VcB said...

About this matter I would like know more about tars and amoniacal waters of the this process.

I refer to a comment appeared in European Energy Review 2010-07-01.

---------------- Quote ----------


It is amazing how nice words can change the perception of folks. For me torrefaction was a process to allow us to enjoy a nice cup of espresso. Now it is a green word to replace the old black word: pyrolysis!
Unfortunately, painting a word into green is not sufficient to overcome the difficulties of pyrolysis. This process has been abandoned in the 50's to come back in the 80's (I made my PhD thesis on this topic) and then abandoned again for a number of reasons that have not and will not disappears. But thanks to subsidies and a change of vocabulary is now back… One question: why there is not one single word about tars and amoniacal waters? Answering this will give you a path to understand why pyrolysis has been abandoned. It is also funny to call that second generation biofuels…
Sam Furfari
------------- Unquote -----------

Regards to all,

V. Barroso