INRS summer 2017 low grade markets
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Background slides on historic, current and prospective markets for low-grade wood in New England and the Northeast
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INRS summer 2017 low grade markets
- 2. Innovative Natural Resource Solutions LLC • Founded in 1994 • Offices in New Hampshire and Maine • Focus at the intersection of forest industry, energy and economic development • Services include: ‐ consulting in renewable energy ‐ advocacy ‐ forest management and protection ‐ forest certification and sustainability • Clients from the private, non‐profit and government sectors • Conducted work in all regions of North America • www.inrsllc.com
- 3. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sawlogs Pulpwood Biomass Volume (Tons) Value ($) Volume and Value to Landowner of Products from a Timber Harvest North East State Foresters 2013 All NH, 2010
- 5. Since 1999, the Northern Forest region has lost 11 pulp mills New York ‐ Deferiet ‐ Lyons Falls New Hampshire ‐ Groveton ‐ Berlin Maine ‐ Westbrook ‐ Bucksport ‐ Old Town ‐ Lincoln ‐ Millinocket ‐ East Millinocket ‐ Madison (May 2016)
- 6. ‐ 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016e Estimated Pulpwood Consumption by Maine Pulp Mills Estimates Based Upon INRS Data
- 7. ‐ 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 2014 2016 Maine Pulpmill Wood Use (tons) Hardwood Spruce ‐ Fir Hemlock ‐ Pine
- 12. Pulp and Paper • Pulp and paper mills remain region’s largest consumer of wood products, and represent significant fixed infrastructure. • Mills produce a variety of products, including market pulp, communication papers (coated and uncoated), and tissue. Each of these markets is unique. • The Northern American paper industry has been shrinking, both in output and capacity. Individual mills often do well, but new investment in production is extremely limited in the U.S. • Maine will remain a paper producing state for well into the future • I expect reduced pulpwood consumption, and reduced prices for pulpwood (a bunch of factors in this one, not just demand). • The closures are NOT cyclical
- 13. Challenges to the Pulp & Paper Industry • You will hear • High taxes • High energy costs • High wood costs • And so on • There are all very real, and present real challenges to the industry • Mills and regions now fighting over a shrinking pie • They aren’t the fundamental issue, which is change in the marketplace, and a capital intensive industry that is hard to change with any reasonable speed
- 14. New Investment at Woodland Pulp 14 FIRST SALEABLE JUMBO ROLL MARCH 16 • 2 new tissue machines • ~$150 million in new investment • Used New Markets Tax Credits • 70 new employees
- 15. SAPPI Announced Investment • $165 million rebuild of PM1 at Somerset Mill • $25 million in new wood yard (October 2016 completion) • Clearly investing in the future of the mill, New England’s largest market for low‐grade wood
- 16. Catalyst Paper Seeking Investment • Catalyst Paper (Rumford, Maine) currently seeking funding support for a new tissue machine • Would diversify mill production –currently coated paper grade as primary product • $56 million investment • 62 new jobs
- 17. Biomass
- 23. $‐ $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 $50.00 2015 2016 2017 CT Class 1 RECs (estimated) Source: Testimony (and verification through order) in DE 16‐850 ‐ELECTRIC RENEWABLE PORTFOLIO STANDARDS Adjustment to Renewable Class Requirements Order Maintaining Class III RPS Requirements for 2017 and Modifying Class I Useful Thermal RPS Requirements for 2016 Order Number 25,978 17‐Jan‐17 Offered $17 In March 2017
- 24. What does it take to operate biomass in 2017? $0 $10 $20 $30 $40 $50 $60 $70 $80 Revenue Expenses Electricty RECs (CT) Fuel O&M • Assumes: • Electricity at average price for the past year ($31) • RECs at recent broker quote ($24, which may be higher than current market) • Biomass fuel at $25, 1.7 green tons per MWH • O&M at $30 per MWh • With these assumptions, this is not an attractive business
- 25. Do Higher REC Prices Make A Difference? $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 Revenue Expenses Electricty RECs (CT) Fuel O&M • Assumes: • Electricity at average price for the past year ($31) • RECs at 90% of ACP cap ($55 x 90% = $49.50) • Biomass fuel at $25, 1.7 green tons per MWH • O&M at $30 per MWh • With these assumptions, this is a borderline business, but making some money
- 26. Status of Biomass Plants • In New Hampshire, SB 129 just passed, improving economics of 6 legacy biomass plants • Berlin BioPower (NH) has a PPA for up to 20 years (which would be ~2033) • There is an above‐market upset trigger, which may be reached as early as 2019 • Would make operations of the facility much more exposed to the market • Schiller Station (NH) part of Eversource divestiture of generation assets • Sale terms call for continued operation of facility for continued operations of at least 18 months • In Maine, state has a 2‐year, $13.6 million effort to support 4 biomass plants • Pinetree‐Ryegate (VT) has a PPA for ~5 years • Plainfield Renewable Energy (CT) sells most of its power under a PPA that runs through ~2028
- 27. Biomass Thermal
- 28. 28
- 30. 10 Years Lookback in the Domestic U.S. Heating Pellet Industry •Up Years 2005‐2006 – Hurricanes Katrina and Rita 2007‐2008 – Dramatic spike in oil/natural gas prices 2012‐2015 – Cold winters and steady increase in heating oil and propane
- 31. 10 Years Lookback in the Domestic U.S. Heating Pellet Industry •Down Years 2006‐2007 – Warm winter 2009‐2010 – Recession, rapid drop in fossil heating fuel prices 2015‐2016 – Record warm winter, sustained dramatic drop in fossil heating fuel prices 2016‐2017 – More of the same
- 32. Biomass Heating in New Hampshire • Wood pellet and wood chip thermal systems • NH Wood Energy Council has interactive map • Schools • Hospitals • Business • Non‐profits • Government • https://www.nhwoodenergycouncil.org/
- 33. What is Next?
- 34. Projects in Development (which may or may not happen) • Export of chips • Eastport, Maine • Searsport, Maine • New pellet mills • Export and domestic • Biofuels • Efforts at stand‐alone, co‐location with forest industries • Biomass thermal • District (campus) heating? • Biomass CHP • Co‐location with existing biomass plants • Announcement of a pepper greenhouse in Jonesboro, Maine • A number of sawmill / sawlog projects • A stud mill • Increased capacity at some sawmills • CLT manufacturing
- 35. The Wood
- 36. The Markets
- 37. The glass is half full… • We have markets, and are incredibly well positioned compared to other parts of the country • We have the forest resource and supply infrastructure (landowners, loggers, entire forest industry ecosystem) that would make other regions jealous • We live in close proximity to (and are part of) the greatest collection of consumers in the history of the world • It is cold in New England, we heat buildings, we need process heat • There may never be a better time to be develop a project or technology that uses low‐grade, particularly softwood
- 38. I would like to add you to my email lists Send an email to kingsley@inrsllc.com to be placed on our monthly email list, which provides information on markets and developments of interest to the region’s forestry community. I will also add you to my FRA email list, and you will receive invitations to monthly dinner forums and other regional information.