Close.... But we need $ 500K per ton hour of Capacity

The drop in the price of coal has gotten the attention of everyone following Torrefaction .

From an investment viewpoint, part of  the challenge with Torrefaction is the sheer number of variables involved; price of feedstock, price-to-compare for delivered coal, impact of Carbon Credits, and what the cost of processing equipment will be.

When you stack probabilities on top of probabilities, the percentages are not your friend.  

When coal prices were above $ 120 a short ton, Torrefacton made economic sense without Carbon Credits with plenty of headroom for increases in feedstock prices, and a wide range of prices for equipment and operating costs.

Now that coal is way down we've rerun a lot of numbers (I'll share you the geeky probability trees) but the result is pretty clear.  

We Need the Price of Torrefaction Equipment to be $ 500,000 per ton hour of capacity for Torrefactoin to develop pre Carbon Credits. This is the price at which an investor can reasonably take the gamble on the ups and downs of coal prices and the other variables.

Unfortunately, this is about twice the low end of the range of prices we're getting.  When we have greater clarity on Carbon Credits, the industry may be able to afford higher equipment prices. Carbon Credit clarity is the case in Europe right now and Torrefaction makes great economic sense for biomass serving that market. So maybe Torrefaction will develop for the export market first (just as Green Circle is exporting the pelletized woody biomass from Florida.

However reaching the magic number of $ 500K per ton hour of capacity is quite achievable and a much closer putt than .50 cents (installed) per watt of solar energy, or $ 500 per kw (installed) for Wind.  Not that these are bad technologies -- they're not and we support all renewables in a multi-technology strategy to get us to 20% renewable;  but here's the point:

Biomass, and Torrefaction in particular are a shorter putt.  Reaching $ 500 per Ton Hour of Capacity is just not that far off, and the industry develops at that price because that price can support all the variabilities in other inputs.

Lets go sink that putt.  

Georgia Power's Intelligent Carbon Strategy

Georgia Power (part of Southern Company) announced that the PUC has approved the conversion of the Mitchell Plant to a 100MW biomass plant.

That's not surprising.  What is surprising is that through the analysis, no one has seriously questioned the size of the plant!  100 MW is just too large for a cost effective biomass plant without torrefaction -- and Southern Company has no known plans for torrefaction.

According to one estimate, the plant will require 160 Chip Trucks a day.  Given an economic distance of 25 miles, consuming 3,520 tons of chips a day will create a regional biomass black hole pretty quickly.

Now lets look at the other side:  Three things are true.

A)  The amount of woody biomass available is generally underestimated and Georgia is rich in aging woody biomass due to the downturn in paper and housing

B)  Depending on how Cap-&-Trade comes down, the value of biomass could make bringing chips in by rail from further distances economic.

C)  Georgia does not need to run the plant at capacity nor do they really have to commission it

What you say?  Since they are retrofitting an existing mothballable plant, they can move the process forward and see how Cap-&-Trade comes down.  If biomass gets calculated right (carbon neutral) and it looks like the price of credits are going to soar, they can press forward quickly and get this plant into production quickly.  If they create a black hole for local biomass, at least they have bought time and avoided buying into a short term carbon credit bubble.

Hmmm... Some smart thinking going on at Southern Company.....

Of course the "Right" answer long term is:

1)  Build plants in the 30MW to 40MW -- this is the optimal size for green chips

2) Invest in Torrefaction!  Stretch the economic range of delivery to 100 miles by rail or more! 

We'll continue to work on #2.

Its Time for a Conversation about BioChar -

BioChar is basically taking torrefied wood and tilling it into farmland. Why would you do that?

1) Because it would sequester the carbon -- it doesn't break down quickly
2) It is reported to be quite helpful to the soil (and this is where the debate seems to be)

But here's the important thing.  If BioChar gets legislated as an acceptable form of carbon sequestration.......... Watch out!

 Torrefaction will soar. The existing nasiant industry will explode and existing players will either take off or get blown away by savvy investors that bet big bucks on a 'better machine'.

A lot of smart, knowledgable people point to science that says it really helps soil quality. I recently learned that a Duke Professor has a trial patch in NC (the southeast has a lot of marginal farmland). I'll track that particular experiment.

Althought the science seems compelling, the press and industry are not all over it.  I'm not sure why. If short rotation crops were turned into biochar and tilled under the soil of nearby food production acreage we might get a win win. Cornell and Duke are deep into the subject.

If you want to do your own reading click on any of the following:

Cornell work on biochar

Biochar.org - 

terrapretasoils.blogspot.com (a really thoughtful blog)

Terra Preta

WikiPediaPublish Post

Peak Energy

If you know why biochar is not getting more attention in the discussions on carbon sequestration please update our growing audiance by commenting below.

New BioCoal Plant Construction Starts

Energy Invest, the Belgian renewable energy company focused on valorising biomass into energy, announced today the start of a construction of the biomass torrefaction unit that will produce torrefied wood pellets (biocoal) for co-firing with pulverised coal in electricity generation facilities and charcoal for barbecue purposes.

 

The biomass torrefaction unit will be built in collaboration with Stramproy Green Technology, the Dutch-based engineering contractor and technology owner.

 

The total investment program launched by 4Energy Invest for the biomass torrefaction unit and a biomass storage platform results in capital expenditures of about 13 Million Euro. 9.3 Million Euro will be provided by the banks and the difference will be funded out of the proceeds that 4Energy Invest raised through its IPO in June 2008. 12 additional direct full time jobs will also be created.

Laying another cobblestone on the path to Torrefaction

Pennsylvania recently came up with a $1 Million Dollar grant for American Refining and Biochemical, Inc.

The race for which region will control the torrefaction development within the US is heating up.

From Integro Fuels, to Agri-Tech, to American Refining, to Topell, to NewEarth... it seems that a number of companies and states are seeing the potential of Torrefaction.

You know what's wrong with Torrefaction?  Its not the science.  Its not the economics.  Its the NAME.  Seriously, how do you sit around a holliday party and say "I'm into Torrefaction!".

As a community, we need to think about coming up with a better name for this process (bio-coal is the best alternative out there right now).

While we work on that, its good to see investment by PA, SC, and NC as well as the growing ranks of entrepreneurs focusing on the very pragmatic potential of bio-coal or torrefaction or what ever we can come up with to call it!

The long and Winding Road

Well, my journey to figure out the economics of biomass and torrefied biomass continues with twists and turns.

Seems to me it should be a simple task.  But it turns out that the answer is a big "Depends".  

That indicates to me that there is at least an 'expertise barrier' to success which might be a good thing.

Here is a summary of the data I have:

1)  Torrefaction at the point of harvest could yield a cost of $ 80 to $ 85 per ton.  However it has not been proven that the model scales, and the field deployable units are not coming to market quickly.

2) Regional Units (or mini-mills as I refer to them) can produce biocoal at $ 110 to $ 130 depending on who you talk to and the underlying price of the feedstock. Obviously folks can play with the depreciation schedule to make the number better or worse. The technology for mini-mills is either A) expensive and proven or B) not quite to the point of mass commercialization. 

3) Green Chips (which is what I understand the recently announced biomass power plants are based on) are economical when the feedstock can be harvested within about 25 miles of the plant. Green Chip prices range from $ 20 to $ 40 depending on the location.  A high percentage of the cost is transportation. My guess is that the utilities are trying to lock up local supply before they start building the plants. From what I understand from a forestry expert, forestry land is starting to rise but I haven't seen it yet in stump prices.

4) Pelletization (without torrefaction) only makes sense because torrefaction has not yet developed.  It has a relatively high capital cost and uses a lot of energy to deliver its densification benefits.  Also, depending on the climate, you have to worry about pellets absorbing moisture during transport. But it is the best the industry has today and it is currently a thriving business based on high prices.

Can't we solve the technical problems and deliver a torrefaction unit that is reasonably low cost and reliable?  From my current vantage point that seems to be the barrier to development of the industry.  The thing that is so frustrating is that if one posits a viable biomass industry worldwide the benefits are so huge -- greater energy independence, jobs, the environment, a path to help developing countries,etc.

BioMass Business Model Update

So we now have a reasonably good idea on when torrefied wood is economically viable:  When it can replace coal priced above $ 80 per short ton.

Now we have to compare the cost of torrefied wood against the cost of wood pellets, because a power plant could always just decide to buy pellets or wood chips.

From prior research, we know that biomass from wood chips is "transportation sensitive" -- the economics start degrading pretty quickly after about 25 Miles of transportation because you're moving a lot of water in those chips. And the higher the price of oil, the worse the economics become. (we want the inverse)

But wood pellets get rid of between 85 to 93% of the moisture and are more compact thus driving up the all important energy density and BTU/mile of transportation metrics.

We're going to run models on where pellets make sense, and where torrefaction makes sense.

But also of keen interest to us is blended pellets.  Torrefied wood is hydrophobic which means it repels moisture.  Moisture is the enemy of wood pellets.  Perhaps a hybrid pellet (50% wood, 20% torrefied wood, 30% switchgrass) or something like that will optimize the enconomics of long haul biomass.

Busienss Model Update: Clearing the first hurdle

Clearing  hurdle #1.

We have struggled to find the hard data necessary to determine the equivalent price of coal at which torrefied wood is economic, without subsidies or a premium for the derived carbon benefits.

We now have a model, and our first answer to the question.

$ 80 dollars

(Actually a range of $ 70 to $90 depending on certain conditions).

This is a key advancement.  It helps explain why torrefaction has not taken off previously (Coal has historically been below this level) and provides a benchmark for assumption refinement.

Would you build a business and an industry off an assumption that Coal will stay above $ 80?  In fact many coal companies are making just that bet in their capital ex investments.  In fact, with the current price of coal, one could invest in biomass torrefaction (or torrefication depending on your preference) coupled with hedges against a precipitous decline in coal and still make money.

It’s getting interesting folks…..

It all comes down to this......

At what equivalent price of coal will biocoal make sense?

I'm really trying to get my hands around this rather simple question. Question Simple. Answer, not so simple.

So in an attempt to see through the noise, I developed a simple 'inverse calculation' to figure this out. View, and comment if you want, on my spreadsheet.

It appears to come down to three variables:
1) The long term underlying price of Coal
2) The fully amortized cost of converting biomass (woodchips) to Bio Coal through the nitrification process
3) The premium you think utilities or other buyers would pay for "green" fuel (which in a pure sense would be approximated by the value of any carbon credits, assuming the Bio Coal would qualify

The result yields a "cost per ton of biomass" that you would be willing to pay.

My numbers say that that the value is somewhere around $ 10 per ton on biomass.

Now I'll go on and see if biomass can be harvested for this amount.

Stay tuned. The puzzle is getting interesting...

New research - Still no conclusive answers: BioTorrefication, reality or blue sky

New study from England focuses on bio-torrefication of crops specifically grown for BTU content.

This study reports a 20% reduction in mass, which is less than the 40% figure that has been thrown out. What this industry really needs is a set of verifiable data from a large scale pilot project!

The report also points to a benefit of bio-torrefication that is under appreciated --

"Most interestingly, torrefaction also makes biomass more friable, making it far easier to grind. This opens the prospects of using existing coal pulverizers and of considerably lowering costs of co-firing biomass to generate electricity"

I'm tracking two things to help address the fundamental question: At what price does BioCoal become broadly economic:

1. The underlying business model (I'm circulating a draft to people in the inudstry). Let me know if you want a copy
   
2. What is the potential for co-firing milled tottefied biomass in an existing coal fired power plant.
   

IF ..... you can co-fire the stuff in a power plant then the price of torrefied wood or other biomass competes with the peak price of coal not the average price of coal and utilities can use it as an easy way to promote their environmental agendas without having to make large capital investments.

http://bioenergy.checkbiotech.org/news/2008-07-25/Torrefaction_gives_biomass_a_20_energy_boost,_makes_logistics_far_more_efficient/