1 | P a g e
BIOMASS FOR RURAL DEVELOPMENT PROJECT
BUSINESS PLAN FOR AN
PLANT FOR LENNOX AND
Prepared for ELORIN, 945 Princess Street,
World Bio Fibre Technology Inc.
2 | P a g e
Agricultural Pellet Plant
Lennox and Addington County
The Eastern Lake Ontario Regional Innovation Network
945 Princess Street
World Bio Fibre Technology
1 Stafford Road East, Suite 418
3 | P a g e
Table of Contents
1.0 EXECUTIVE SUMMARY ...................................................................................................................... 5
1.1 Purpose of the Plan ....................................................................................................................... 5
1.2 Operator ........................................................................................................................................ 5
1.3 Feedstock ...................................................................................................................................... 6
1.4 Markets ......................................................................................................................................... 6
1.5 Financial ........................................................................................................................................ 7
2.0 INTRODUCTION ................................................................................................................................. 8
3.0 THE INDUSTRY ................................................................................................................................. 11
3.1 Background ................................................................................................................................. 11
3.2 Competition ................................................................................................................................ 12
4.0 RAW MATERIAL SUPPLIES ............................................................................................................... 16
4.1 Fibre Availability .......................................................................................................................... 16
4.2 Fibre Costs ................................................................................................................................... 18
5.0 MARKETS AND MARKETING ............................................................................................................ 20
5.1 The Retail Sector ......................................................................................................................... 20
5.2 Institutions .................................................................................................................................. 21
5.3 Large Industrial Users.................................................................................................................. 21
5.4 Carbon Footprint ......................................................................................................................... 22
6.0 PROCESSING .................................................................................................................................... 25
6.1 Introduction ................................................................................................................................ 25
6.2 Process Overview ........................................................................................................................ 26
6.3 Process Discussion ...................................................................................................................... 26
7.0 FINANCIAL ....................................................................................................................................... 31
7.1 Introduction ................................................................................................................................ 31
7.2 Financing Structure ..................................................................................................................... 32
7.3 Conceptual Schedule................................................................................................................... 33
7.4 NewCo Budget ............................................................................................................................ 35
7.5 Estimated Capital Budget ............................................................................................................ 36
7.6 Start‐Up Losses ........................................................................................................................... 41
7.7 Earnings – Before Interest, Debt Service and Taxes ................................................................... 44
4 | P a g e
APPENDIX 1 – Biology professor, student turn reed canary grass into fuel ............................................... 50
APPENDIX 2 – PFI Standard Specification for Residential / Commercial Densified Fuel ............................ 53
APPENDIX 3 – Ontario Power Generation Fuel Pellet Specification, Rev A. September 21, 2009 ............. 55
APPENDIX 4 – Typical Straw Supply Contract ............................................................................................. 56
Table 7.1 – Project Cash Flow and Cumulative Requirements...................................................... 32
Table 7.2 – Conceptual Schedule .................................................................................................. 34
Table 7.3 – Estimated Capital Budget........................................................................................... 36
Table 7.4 – Start‐up Losses ........................................................................................................... 42
Table 7.5 – Operating Parameters, Costs, Revenue and Earnings Before Interest,
Debt Service and Taxes .............................................................................................. 45
5 | P a g e
1.0 EXECUTIVE SUMMARY
1.1 Purpose of the Plan
This business plan has been prepared in response both to a perceived need and a
perceived opportunity, each present in the Eastern Lake Ontario Region. The need is for
secure supplies of fuel pellets for a number of markets, especially domestic heating
stoves, institutional pellet heaters and industrial scale heating furnaces. The opportunity
is to bring into the pellet production stream unused agricultural biomass and biomass
grown on unused marginal land.
In the current wave of concern about climate change, considerable effort is being put into
sources of “green” power, which for present purposes is taken to include heat. Biomass
qualifies as a green energy source on the grounds that the carbon dioxide emitted from
burning such material is absorbed by the crops planted in the next growing season. Thus
there is no net increase in atmospheric carbon dioxide from combustion of biomass.
Under the mandate given for this business plan, the pellet plant for which the plan is
designed is to be a pilot plant. The plant is designed around a pellet mill which is rated at
2 tonnes per hour (tph) of finished fuel pellets when processing wood fibre. This is the
smallest size machine identified which can be expected to give reliable service and
consistent quality product. Wood is the hardest fibre to pelletize and testing has
confirmed a pellet mill output increase of up to 100% with some agricultural fibres. This
necessitated that all the processing equipment before and after the mill be sized to
accommodate flow rates appropriate for 4 tph.
Using biomass, the production line is intended, in pilot plant mode, to produce 3tph of
agricultural fibre pellets, on the basis of 8 hour operating days and 5 day working weeks.
To test out scalability to higher production levels, which is necessary to identify a range of
operating baselines with particular raw materials, the plant can be run up to higher
production levels than 3 tph with a range of agricultural fibres.
As required by the client, World Bio Fibre Technology Inc. has identified an operator in
Lennox & Addington County, and has structured this business plan around that operator,
although it can be adapted easily to other operators and locations. The selected operator
is a successful farmer, who demonstrates an unusual ability to expand beyond his existing
farming operations, and who has independently completed a great deal of analysis into
6 | P a g e
the business of making pellets. The operator intends to form a new company within
which to operate the pellet plant.
The pellet plant will be installed on a highly suitable piece of land, utilising existing
facilities such as the grain drying and storage system. The site has a natural gas pipeline
running across one side of it; good electrical power supply; a good road providing access
to main roads for material delivery and product dispersal; good water supplies for process
use and for fire protection; a weigh scale to quantify material deliveries and adequate
space for truck turning and parking.
The operator had already identified a number of local farmers who can supply a range of
raw materials, and expects to bring them into the project under suitable contracts as soon
as it is clear that the project is funded and can go ahead.
WBFT paid careful attention to the report issued by ELORIN on March 31st, 2009, Biomass
for Rural Vitality Report. All of the fibres identified in that report are available to the
operator, but it is recommended that three are excluded, namely hybrid poplar, short
rotation crop willow and miscanthus. The woody species are excluded because of the
difficulties of removing the bark, which is not accepted under the wood pellet
specifications, while the miscanthus is not a common crop and may be difficult to grow
adequately in cold regions like Eastern Ontario.
The markets for fuel pellets must be considered as volatile at this time, primarily because
of the rapidly changing balance of supply and demand. The size of this pellet plant
necessarily restricts the market, and the initial position has been taken that the object
should be to supply local customers with reliable supplies. It is essential to strive for
reliability because the pellets will be agricultural fibres and not all stoves can burn such
material. Customers committed to such stoves need to know that they will not be left
without fuel. The same argument applies to some of the larger customers who have
expressed interest in testing the pellets when they are available.
One of the objectives in a pilot plant is to develop markets once particular types of
product are available. The plan has been restricted to identifying three market categories
within which customers have been identified for product testing once the operator is
satisfied that quality levels are both adequate and consistent. These are i) retail outlets
7 | P a g e
supplying home owners of pellet stoves; ii) institutions such as schools and hospitals; iii)
large industrial plants, including cement plants and Ontario Power Generation coal fired
Also identified are two sales agents with access to the larger retail chains such as
Canadian Tire, TSC and Home Hardware. A smaller retail store, Renewable Energy of
Plum Hollow, in Kingston, will test pellets themselves and if satisfied will then carry them
The calculated capital requirement for the pilot plant is $3,162,916.
The proposed financing structure is as follows:
AgriProcessing Initiative, at 50% of Total $1,581,458
Farm Credit Corporation, at 25% of Total $790,729
Bank Financing $165,729
The financing applications cannot be made until the new company which will operate the
plant is formally incorporated. At that point, with equity available, although it is not all in
cash, and given that the operator has a good balance sheet, Farm Credit Corporation will
be the first financing partner to be approached formally. It is suggested that a
simultaneous application be made to the AgriProcessing Initiative, but this should be
discussed with their officials, as it may be advisable to wait until Farm Credit Corporation
has agreed to participate.
8 | P a g e
This business plan has been prepared in response to a request for proposals issued by ELORIN
on 10 December 2009, RFP No.002 and the subsequent contract issued to World Bio Fibre
Technology Inc. (WBFT) on 18 January, 2010. The RFP and discussions with ELORIN stressed
that the object is to establish a pilot plant facility utilizing biomass, the use of which is discussed
at length in the Biomass for Rural Vitality Report, prepared by ELORIN and issued on 31st
March, 2009. That report was a comprehensive look at the potential for a range of biomass
fibre to be used in a fuel pellet industry to be based in Prince Edward / Lennox & Addington
Counties, and where appropriate this business plan draws on the report. Apart from hybrid
poplar and fast grown, or short rotation crop (SRC) willow, the report deals with agricultural
crops as the source of raw material. Use of such fibres offers great potential for a new rural
based industry, especially when the issues facing the wood pellet industry are factored in
The WBFT team chose early on to leave out the woody materials (hybrid poplar and SRC willow)
because wood pellet standards currently require minimum bark content and there are
difficulties in complete bark removal and separation from narrow stems. It should be noted,
however, that a number of the potential customers contacted during this work are considering
taking in biomass in bales or some other bulk form. For such customers the expense and
energy inputs of pelletizing are not needed and poplar and willow are worth consideration from
some farmers for supply to those customers.
As stated, the project described in this business plan is specified as a pilot plant. Pilot plants are
not normally expected to be commercially viable operations, but are set up to test out certain
concepts, the most basic object being to establish a model on which a viable rural industry can
be based, utilizing locally obtained raw materials and serving customers in the same local area.
For present purposes, “local” is taken to mean within a 100 km radius of the plant location.
The first challenge, then, is to determine exactly what is to be tested, which can range from raw
material selection, through technology employed, to customer acceptance. The pilot plant
approach also has a major impact on the selection of an operator and, most importantly, on the
financing of the project.
WBFT has identified an operator who understands the pilot plant concept and who, based on a
series of interviews and meetings, clearly possesses the necessary skills, determination and
means to operate the pilot plant and to turn it into a commercially viable operation at some
9 | P a g e
point in the future. Several parties were considered as potential operators for the pilot plant.
The candidate was selected based on:
Has a group of committed farmers (not verified by WBFT) with adequate amounts of
crop residues or plots of available marginal land to plant energy crops
Has completed a great deal of research into various forms of technology, markets, and
the commercial potential of this type of operation
Has a proven track record of success and ability to operate and innovate in the region
Has a successful farming operation and is strategically located within the geographic
area of interest
It is anticipated that this pilot plant will spur additional similar operations and the other
operations will benefit from the best practices learned from the pilot plant.
The pilot plant will likely be located beside existing grain storage and drying facilities.
The site is ideal for the type of building needed to house the new equipment, especially
because the ground is solid rock which shows through in several places. The site is also well
served with electricity and a natural gas pipeline runs along the road in the foreground of the
picture. Behind the building is a weigh scale capable of handling the largest transports.
The pilot plant is designed to suit the capacity of a 200 hp pellet mill. As discussed in Section
6.0 – PROCESSING, the finished pellet output is a function of the fibre processed. The low‐end
is wood, which typically runs at 2 tonnes per hour (tph) while some agricultural fibres have
tested at up to 4 tph. The plant is designed to accommodate flow rates adequate to
manufacture up to 4 tph of pellets. The financial analysis in Section 7.0 – FINANCIAL, examines
scenarios with 2 tph, 3 tph and 4 tph, with 3 tph considered a typical base case.
Wood is not the focus of this business plan, but there may be a need to produce wood pellets
to satisfy certain customers. Wood may be used in combination with agricultural fibre to
increase the thermal value of the pellets and to provide lignin as a binding agent. Different
fibres give very different performance through the same equipment, requiring changes in dies
and other processing parameters. It should also be noted that biological materials have
different characteristics resulting from such factors as original seed variety, the soil types on
which they are grown, moisture availability and micro‐climate influence. The operator has
stated his wish to establish seed plots in which crops from various seed varieties can be grown
and the crops tested through the pelletizing system. This will yield information on which seeds
to plant in which soils from a pellet production perspective.
10 | P a g e
Following extensive discussions and input from the operator it is agreed that the project will set
out to establish the potential for an agricultural fibre industry in rural Ontario. To accomplish
this, plant operations will focus on investigating the following primary list of items:
1. Processing rates and quality results for the fibre types mentioned in this plan. The
operator will also test other materials as they are identified and become available.
2. Processing results and fuel values of different fibre combinations.
3. Carbon footprints of pellets from different crops.
4. Burning characteristics of pellets produced.
5. Customer acceptability of different pellets.
6. Definition of all parameters for the development of a commercially viable industrial
The carbon footprint question is considered so important, in addition to inclusion in the list
above, that Section 5.4 – Carbon Footprint has been added to the plan.
It will be of great importance to this project that the operator can calculate and monitor the
carbon footprint of the products. Financing sources are going to require this, as are customers.
One high profile example is Walmart, which is already demanding that suppliers provide data
on the carbon footprint of their products. In the case of the pellets, carbon footprinting will
likely include agricultural inputs (tractor use, fertilizer applications, harvesting systems);
transportation of raw material to the plant; of material movements within the facility; and of
product to the customers; carbon consequences of electrical power and other inputs.
11 | P a g e
3.0 THE INDUSTRY
The production of fuel pellets in Ontario began in the early 1970’s when Shell Oil built a
wood pelletizing plant in Northern Ontario as part of a diversification program. The
apparent target market was pellet fuel stoves in rural homes. However, this facility only
operated for a short time, becoming a casualty of changing corporate plans within the oil
In recent years, as a result of climate change concerns, more pellet plants have been built,
most of them using wood as the raw material. The primary target market for this
production is the power generation industry in Europe, as a result of which most of the
new plants are very large. The wood pellets are used to co‐fire coal‐fired power plants,
thereby reducing greenhouse gas emissions (GHG). Such markets are outside the scope
of this pilot plant. However, the industry is clearly in a growth phase and it is of great
importance that the plant operator keeps fully informed about all developments in
relation to potential impacts upon the proposed operation in Lennox & Addington.
What is of immediate importance to the current project is the Ontario Power Generation
(OPG) proposal to convert large amounts of coal fired electricity generation to biomass
fuels. OPG plans to convert 4 coal burning plants to allow the utilization of fuel pellets
and natural gas. The major conversion is to gas with the fuel pellets added to further
reduce emissions. These plants are:
Location Size Year
Atikokan 200 mw By 2012
Thunder Bay 220 mw By 2013
Nanticoke 900 mw By 2014
Lambton 900 mw By 2015
Lambton maybe shut down for 2 years for the conversion to take place and to meet the
Premier’s promise to stop coal burning by 2014. The total fuel pellet requirement will be
up to the 2.5 million tonnes.
Contacts involved in these plans have informed WBFT that the problem facing OPG is the
availability of a pellet fuel supply. This issue is addressed further in Section 5.0 –
12 | P a g e
MARKETS AND MARKETING. The requirement at Nanticoke will be 2.5 million tonnes a
year, which is far beyond current production in Ontario. OPG has been forced to go
further afield to try and contract a pellet supply. A buying team went to British Columbia
in December 2009 and returned without purchase orders in place because the high
transportation costs put the price out of their range. Pellets are a high‐weight, low‐value
product and transportation costs are a key factor for any user.
It is apparent from a new report issued by the International Wood Markets Group,
that the wood pellet industry in British Columbia is already heading towards a crisis. The
report states that sawmills in the interior of the province will start running out of good
timber within three to five years. Sixteen large sawmills are expected to close, with “a
continent wide economic impact”. This has significant implications for Ontario and for
this project. Those implications are implicit in the statement that there will be “a
significant reduction in the availability of residual wood fibre, chips, sawdust, shavings
and hog fuel, that is currently used to produce pulp, paper, pellets, panel boards and
electrical energy throughout the B.C. interior”.
There are numerous reports of new pelletizing plants being considered in Ontario, most
of them being large scale operations such as the one being promoted for Canadian Bio
Pellet located in Ingleside http://www.standard‐
freeholder.com/ArticleDisplay.aspx?e=2268372. This part of the industry will undoubtedly
target the large end users. It is important to retain a focus on the impact of the proposed
facility on local customers, who will have trouble obtaining supplies of fuel pellets when
the large industrial consumers are fully operational. Supply shortages of fuel pellets have
already emerged, and one vendor of pellet stoves told WBFT staff that he had not sold a
single stove in the winter of 2008‐2009 because customers were aware that they would
have difficulty obtaining fuel pellets. It was also noted that stores such as Canadian Tire,
in more rural communities such as Smith Falls, often carry signs proclaiming that they
have pellets back in stock. The origin of wood pellets sold in Ontario stores is not, in
many cases, Ontario. A new shipment arriving in the Arnprior TSC store in early March,
for example, came from British Columbia.
The major competition for agriculture based fuel pellets will be wood pellets. These are
an accepted product and have seen commercial success for several decades. Associations
have been established to represent the interests of the fuel pellet stakeholders. A leader
is the Pellet Fuel Institute (PFI), which has created a standard (see Appendix 2) for a wood
13 | P a g e
based fuel pellet. Ontario Power Authority has also developed their own set of standards
(see Appendix 3) that are appropriate for wood based fuel pellets.
The agricultural fuel pellet industry is in need of its own standard. In some cases the
agricultural fuel pellet has higher ash content, lower heating value and higher chlorides
than competing wood pellets. The attributes can be non‐compliant with a wood fuel
pellet standard yet the agricultural fuel pellet is an acceptable energy source. Ontario
Power Authority is in the process of developing a standard for agricultural fuel pellets.
This is a start but the industry needs an association similar to the PFI with a focus on the
needs of the agricultural fuel pellet producers and users.
The cost of the wood fibre used in manufacturing fuel pellets is the predominant variable
which will impact wood fuel pellet manufacturing cost. Traditionally the wood fuel pellet
industry utilized waste fibre generated by the wood industry. The severe economic crisis
experienced world‐wide has created a housing downturn which in turn has created major
curtailments and shutdowns in the wood products industry. Before the crisis with the
industry at its peak waste wood fibre was abundant, now it is the opposite.
The immediate impact of the shortage of wood fibre is the closure of a number of
businesses that consume wood fibre. For example, consider the following Eastern
Ontario plants that closed due to wood fibre availability or cost.
Portage Du Fort (on Quebec
side of the Ottawa River)
With Ontario Power Generation (OPG) promoting the development of the pellet fuel
industry in Ontario, there is great interest in developing new fuel pellet plants. OPG will
require up to 2.5 million tonnes annually in the next 5 years. The pellet plants
constructed to meet this need are expected to produce 250,000 tonnes to 400,000
tonnes each. This compares to recent US plants that have been built at 400,000, 500,000
and 600,000 tons. The US plants target the European market but there will be some of
this production sold into the US and Canadian markets.
14 | P a g e
One study, “Opportunities for Converting Biomass Energy”
done for the Eastern Ontario Development Program and Fed Nor puts wood fibre
availability at 5 million tons. The current prices of wood residue and round wood, Free on
Board (FOB), are:
Per tonne, FOB mill
The pellet plant purchases fibre on a dry basis so wood with an FOB cost of $30.00 per
tonne at a typical moisture content of 50% will cost $60.00 per dry tonne. If a new pellet
plant is not co‐located with a sawmill, delivery costs in the $10.00 ‐ $14.00 a tonne range
The other major source of fibre for energy pellets is the B.C. interior where a huge volume
of Mountain Pine Beetle killed wood is, for now, on the market. Wood costs are forecast
at $25.00 a tonne with a moisture content in the 20% range. However, as discussed in
Section 3.1 – Background, the report by International Wood Markets Group warns that
this supply is short lived. The wood costs for the southern US plants have been estimated
at US $25.00 a ton, oven dry (OD) basis.
It is not likely that low wood costs will last and the market is now probably at or close to
the bottom. Higher levels of new home construction will return at which time all wood
costs, including residue will rise. Higher prices for wood based products, including pellets
will, of course, benefit this project.
It is not difficult to see that as soon as five years from now only large industrial consumers
of wood pellets will be supplied and owners of domestic stoves will struggle to find
supplies at any price. Consequently, the timing of agricultural fibre based pellet
production seems to be exceptionally good, especially if the production is targeted at
local markets. Competitive product pricing during the start up, commissioning and ramp
up of the plant will be essential, but it is highly likely that good markets and expansion
15 | P a g e
possibilities can be developed from some point during the second year, allowing the plant
to demonstrate commercial success.
The business plan focus is on currently available agricultural residues. Over time energy
crops can be grown and tested in the pilot plant. This will establish the economic viability
of these crops as pellet fibre.
In the case of agricultural fibre in Lennox & Addington County, there are adequate
residues annually available. Hay for which there is a limited, or no market, and which is
left in the field is known as “cull hay”. The major market for hay has been the cattle
industry in the area, but farmers report to the WBFT team that they see a declining future
for this industry in their region. Feed for horses used to consume quantities of cull hay
but the economic downturn has hit that market as well.
The regular grain crop residue, straw, goes to dairy cattle farmers, so that product will
generally be priced too high for the pellet plant. However, there are quantities of corn
stover, corn cobs, and soybean fibre that could be acquired at a competitive price (see
ELORIN Report, Biomass for Rural Vitality, Ch.2).
For the initial production from the plant, the following fibres have been identified:
Type Percentage Price
Cull Hay 25% $25.00 tonne delivered
Corn Cobs 25% $25.00 tonne delivered
Soybean Fibre 25% $50.00 tonne delivered
Switch Grass & Other Grasses 25% $65.00 tonne delivered
Where fuel pellets will have a definite energy cost advantage is locations that are off the
natural gas pipeline network. Facilities such as schools, hospitals, municipal facilities that
are either on a fuel oil service or worse utilize propane a switch to fuel pellets will
generate significant cost savings.
16 | P a g e
4.0 RAW MATERIAL SUPPLIES
The location of the proposed facility offers a good range and quantity of agricultural fibres
within economic haul distances. The area also offers considerable acreages of sub‐prime land
which can be used for growing crops such as reed canary grass specifically for conversion into
4.1 Fibre Availability
While the long range strategy is to develop energy crops the business plan concentrates
on obtaining adequate quantities of suitable existing fibres at the best possible price. The
object is to demonstrate the requirements for commercial success in order to prove long
term benefits to the farmers, pellet producers and customers. The expectation is that the
operator will work with the farmers to establish suitable alternate energy crops on
marginal land. These energy crops require an investment of farmers’ time, money and in
the case of some crops, Switch Grass for example, require up to 3 years to become
Readily available fibre in the Lennox and Addington County has been identified as follows:
Approximately 24,000 hectares at yields of 4 tonnes / hectare for a total of 96,000
tonnes. A conservative estimate is that 5% or 4,800 tonnes of the total is not sold or
used. A delivered price of $25.00/tonne is assumed.
Approximately 2,000 hectares, yielding 4 tonnes / hectare for a total of 8,000 tonnes,
Cobs 10% or 800 tonnes delivered at $50.00/tonne
Stover 50% or 4,000 tonnes delivered at $50.00/tonne
4,000 hectares at 2 tonnes/ha, total 8,000 tonnes. It is estimated that 75% is available,
or 6,000 tonnes, at a delivered price of $50.00/tonne.
It is estimated that 2,500 hectares of grasses are available at 4 tonnes / hectare,
producing 10,000 tonnes at a delivered price of $65.00/tonne. The grasses include
Switchgrass and Reed Canary Grass.
17 | P a g e
These crop residues amount to an immediate supply of:
Cull Hay 4,800
Corn Cobs 800
Corn Stover 4,000
Soybean Fibre 6,000
This amount, in just the County of Lennox & Addington, is more than the amount required
initially by the plant. Should there be a problem with supplies in any particular year there
appears to be no restriction, political or economic, on buying outside the County. The
haul can probably go out as far as 100 kilometres without the cost being prohibitive.
Local farmers in the Lennox & Addington area have confirmed their intent to supply the
quantities of fibre needed and the proposal is to form a co‐operative. As the plant is
expanded more farmers will be invited into the co‐op. Given the time needed to obtain,
install and commission the pelletizing equipment it is premature to ask the farmers to
sign contracts, however a proposed draft of such a contract is attached as Appendix 4.
In addition to the crops mentioned, WBFT made a brief survey of residues from food
processing plants that may be available at good prices. Pilot plant testing of these
additive materials will determine which contribute to pellet production and performance.
Using crop residues is one way of keeping the front end costs down, and these raw
materials may be the longer term choice. However, the intention is to develop an energy
crop especially suited to the Lennox & Addington area, beginning with the seed trials
mentioned earlier. A body of knowledge has been developed already, but there seems to
be no consensus about a particular crop. Going beyond the growing characteristics, the
processing characteristics must be considered in the selection of specie. The cost of
manufacturing is sensitive to production volume and pelleting energy requirements.
Higher pellet mill throughput lowers manufacturing cost and lower energy consumption
has the duel advantage of lower cost and a smaller carbon footprint.
18 | P a g e
4.2 Fibre Costs
The cost of delivered fibre includes harvesting, bailing, transport and farmer
remuneration. The operator and 23 area farmers intend to be involved in this project and
are expect to be paid fairly in excess of their direct costs. Bailing can either be by the
farmer or contract bailed by others. Particularly for the smaller farmers, contract bailing
is currently the preferred option since it requires no additional capital.
The preference then will be for the farmers to store the bales and deliver them as
required, in other words, a just‐in‐time system. However, proper storage conditions will
be important because the moisture content must meet acceptable standards. All farm
site storage systems will have to be checked for such factors as solid base, good drainage,
good access in winter and spring, plastic covers on the bales or possibly inside storage.
Dispersed storage of the material offers protection against fire, insect and bacterial
attacks, which can lead to serious fibre degradation. Dispersed storage also helps to
prevent the growth of populations of “vermin”, such as rats.
Fibre procurement standards and procedures will be developed and enforced by the
operator. For example, WBFT’s research indicates that there is a variety of balers in the
area producing a range of bales from 4’ – 400 lb bales to 6’ – 800 lb bales, some square
and some round. Overtime the intention will be primarily on large square bales.
However, if part of the supply is cull hay the plant will accept it as is if the cost is
advantageous. Eventually, as the supply chain becomes more developed, the bales will
be standardized to large square (4’ x 4’ x 8’) bales, compacted up to 1,500 lbs. At 1,500
lbs a bale the delivery trucks can be loaded to the permitted axle weight limits, reducing
the freight costs.
A recent development with the Krone baler is a cutter bar that chops up the swaths to 20
mm (1” lengths) and compacts tightly into a very compressed bale which is better able to
shed water. A big advantage to having the fibre chopped in the field is the fibre will be
cleaner with most of the foreign objects (stones, sticks) removed in the field.
Another harvesting improvement that could be beneficial is the CLAAS Combine with a
built in baler system. It will bale at the same time as it combines which could be
particularly beneficial for late season crops. Soybean crops typically harvested in October
and corn harvested in November are a concern due to wet weather. A single pass would
minimize impact on the farmers’ fields.
It should be noted that baling the fibre from these crop residues is not very common and
it will constitute an ongoing area of development. It is the advent of using agricultural
fibre for energy that is giving rise to the need for specialized equipment. A survey by
19 | P a g e
WBFT of the most recent farm equipment advances, particularly baling, would indicate
that the equipment manufacturers are keeping an eye on this new industry.
In particular, New Holland, which got its start in the forage harvest business, is well aware
of the need for specialized baling systems. They have put a slicing system in their balers
with capability of reducing the fibre to 25 mm or 1”. This allows a denser bale depending
on the fibre of anywhere from 15% to 40% heavier. New Holland supplies this baler to
Case I.H. (International Harvester), under Case’s colors, which is readily available through
this major equipment company. During the survey made for this plan, an owner of one of
these units used for custom baling spoke of it highly.
The largest of the farm equipment companies, John Deere, has dropped its big square
baler. A number of John Deere dealers, including some in the local area, where the
forage industry is important have moved quickly to replace it and are signing on as Krone
dealers. This will be advantageous to this project, having a Krone dealer in the general
Price of equipment is always a concern but if there are custom balers around it may prove
advantageous to group the smaller farmers together to get their crops harvested. One
custom baler with a big square baler can harvest anywhere between 6,000 to 10,000
acres a season.
A new large baler will cost approximately $125,000, while a good used one can be
acquired for $60,000 to $75,000. Harvesting and bailing equipment have not been costed
into the financial section of this plan, but at some point they will become an important
topic for discussion among the farmers supplying the raw material.
The heart of this business is getting the agricultural fibre to the production facility on time
and on budget. It is recommended that a three month supply be kept at the plant
location. The operator has existing buildings which can accommodate this quantity.
20 | P a g e
5.0 MARKETS AND MARKETING
At this stage in the development of the pellet industry, the market can be divided into three
1. Domestic operators of pellet stoves and the retailers which supply them
2. Large industrial users (OPG, Cement plants, large factories)
3. Institutions, including schools, hospitals, and prisons
Within a 100 km radius of the site selected there are more than enough customers in each of
the above classes to consume all the production from the plant, even at enhanced production
levels. In talking to customers WBFT confirmed that no customer is going to make a
commitment without first testing the material as produced by the proposed plant. However, it
is also apparent that many of these customers will struggle to find adequate supplies in the
open market in the face of the competition from big industrial users.
5.1 The Retail Sector
The retail sector presents a particular challenge. It was discovered in personal visits to
various stores, such as TSC Stores in Smith Falls, Arnprior, and Peterborough, that there
has been a serious shortage of fuel pellets for several years now. Similar reports were
received at Home Hardware, Canadian Tire and Rona stores. Most of the available pellets
originated in British Columbia, a 4,000 kilometer haul. It is expected that freight will
represent 20 – 25% of the retail price, currently $6.99/40lb bag, a freight burden in the
WBFT visited a number of retail stores in the region. All are part of major chains and they
confirm buying is centered in their head offices. Access to head office purchasing
requires product samples, packaging and detailed product descriptions based on testing.
Head offices are also best approached through agents with relationships with the key
buyers. These agents usually operate on a commission basis, charging fees of 5%, which
may be reduced by volume sales. Two agents who can provide the needed access are:
Jim Gibson, Gibco Services Inc, in Detroit, can take us into Home Hardware in Kitchener
and TSC in London. He is discussing the potential with his representative in Toronto and
will be ready to talk to the operator at the appropriate time.
21 | P a g e
Jean Guy Mercure of Montreal has a long term relationship with key buyers in Rona’s
head office in Montreal and BMR, Builder’s Warehouse with 125 stores through Eastern
Ontario, Quebec and the Maritimes.
With the limited production capacity of the pilot plant, care must be taken not to oversell
and then not be able to deliver. The plan is to focus on customers in the immediate area
but also to seed the wider market in anticipation of having greater quantities to sell as the
additional production becomes available. The market interest is surprising, as Terri
Romano at the Ontario Economic Development offices in Munich, Germany has
requested to be kept informed about this plant. The retail market is expected to be
complimented by distributors who purchase bulk pellets at the plant for delivery to
There is a movement among certain types of institutions to consider converting to
greener renewable forms of energy. In tight markets these institutions will not have the
buying power to compete with large industrial users for supplies. Most institutions
understand this and could be candidates for long‐term supply contracts
Two schools were brought to the attention of WBFT during the preparation of the plan:
Separate school in Bancroft
Sydenham High School
Both schools are typical candidates for long‐term supply contracts.
5.3 Large Industrial Users
Large industrial users are outside the scope of the pilot plant, their demand being much
too high. However, the following users have requested product to test and they are
important for incorporation into future expansion plans. Each of these customers could
take more than 100,000 tons, which is outside the present scope. However, these
customers could take large quantities for testing purposes, which is important for cash
flow generation. The main concern for these customers will be the chemical residues,
particularly chlorides, in their burning chambers. Extensive lab testing of all agricultural
fuel pellet characteristics will be ongoing by the pellet plant for various fibre types
22 | P a g e
St. Mary’s Cement
These companies could become important customers for a larger commercial plant.
5.4 Carbon Footprint
The carbon footprint of a product is becoming increasingly important to its success in the
market. As mentioned in the introduction, retailers such as Walmart now require
suppliers to reveal the carbon footprint of their products. According to speakers at the
Carbon Footprint Symposium in Saskatoon on March 2, 2010, banks will soon require this
information before agreeing to provide loans. The carbon footprint is simply a measure
of the greenhouse gases produced in making the product.
In the case of the pellets, carbon footprinting will likely include agricultural inputs (tractor
use, fertilizer applications, harvesting systems); transportation of raw material to the
plant; of material movements within the facility; and of product to the customers; carbon
consequences of electrical power and other inputs.
It should be stressed that carbon footprinting is a positive thing, leading to improved
efficiency in several aspects of any operation which undertakes the exercise. Graham
Campbell, Associate Director, Energy, Environment and Technology at the Conference
Board of Canada sees it as generating opportunities, including:
Better bottom line due to energy efficiency improvements, conservation
Technological innovation – can decrease costs
New product lines
New types of markets – emission trading
With respect to the latter point, emission trading, it is apparent that the present project
can generate carbon credits, which can then be traded to bring in additional revenue to
the operator. This adds a new and attractive potential revenue stream for the farmers,
although it does require special knowledge and care. A reputable company, experienced
in aggregating farmers’ carbon credits for sale to large emitters, can be brought into the
picture if required.
23 | P a g e
Another presentation at the Symposium stressed the following points for an organization
beginning to measure its carbon footprint:
Attracts & retains the best employees
Attracts & retains customers
Reduces operating costs
Improves image and social standing
Becoming a condition of doing business
The methodology for carbon footprinting is simple in outline, but not necessarily so in the
details. There are two so‐called Scopes within which emissions must be calculated:
Scope 1 – Direct emissions, which include any energy use by the plant, taking
into account the nature and source of the energy.
Scope 2 – Indirect energy emissions, which might include the use of power
generated by others.
A third Scope is voluntary, Other Indirect Emissions, which might include company travel
by road, rail or air; waste generation and disposal; use of paper in producing
Below is a diagrammatic example of an agricultural carbon footprint picture with
associated goals for carbon emission reduction in each stage of the process. It was
introduced in the Symposium as the “Grass to Glass” model. Two speakers referred to it,
which helped to highlight the fact that carbon emission reductions in the agricultural
sector are gaining importance.
24 | P a g e
25 | P a g e
The need for commercially viable forms of renewable energy has driven the explosive
worldwide growth of the fuel pellet industry. The technology and economics of
producing fuel pellets from wood biomass are well established. Their business model is
based on an abundant supply of low cost woody biomass waste. The forest industry is
evolving and the cost and availability of the traditional cheap fuel pellet fibre is in
question. The challenges of the forest industry combined with the growing renewable
energy market create an opportunity for agricultural fuel pellets.
The commercial success of this new industry will be aided with the knowledge and
technology developed through operating the proposed pilot plant. Fuel pellets from
agricultural biomass have seen significant laboratory research and are experiencing some
commercial success to date, but there is limited production data available. The pilot plant
will provide the opportunity to experiment with fibre preparation, fibre conditioning,
pellet mill variables, cooling and screening, using a variety of fibres and fibre blends. The
plant and process is designed to process a wide variety of round and square bales of
The heart of the operation is the roll and die pellet mill which is a well proven and
relatively simple machine. Prepared fibre is conveyed into the interior of the rotating
cylindrical die and is densified as it is extruded through the die with pressure from the
rollers. Other fuel pellet densification technologies are available but none have the
production track record and body of operating knowledge that has evolved with roll and
die machines over 20 years of successful commercial operation.
The pellet mill demands a supply of conditioned fibre consistently prepared to an exacting
specification. Commercial operators typically report a 12 to 18 month start‐up to
optimize operations. The design of the pilot plant process includes the capability to
quickly develop a knowledge base that expedites the learning curve. Even with this
capability die mechanical configuration (diameter and taper) likely needs to be
customized for each fibre type and the operating parameters (rotational die speed and
thickness of the material mat to rollers) also need to be uniquely developed. The good
news is that equipment suppliers and test labs are continuing to develop a knowledge
base regarding pelleting agricultural fibre, but it would be unwise to underestimate the
time and effort that will be required to optimize operation of this pilot plant.
26 | P a g e
6.2 Process Overview
The flow sheet ‐ Pilot Plant Flow Diagram on page 28 shows a block diagram of the
process steps. Baled straw is received, broken, mixed with regards to specie and moisture
content, refined, screened, conditioned, densified into fuel pellets in the pellet mill,
cooled, and screened. The process is similar to a wood fuel pellet system with some key
Most agricultural fibre is received at the plant within a moisture content range that is
suitable for pelleting. The moisture content of incoming fibre is tested. Blending wet and
dry agricultural fibre together creates a reasonably dry fibre. The mixing of wet and dry
fibre from the same or different species is possible. Wood fibre requires drying, which
adds cost and process complexity, agricultural fibre can be used as received.
Mixing species after bale breaking and before refining will also help achieve consistent
ash and chloride content to meet quality control specifications. The mixing occurs in the
yard with the help of the front end loader and also in the refiner surge and metering bin.
One key variable which impacts the performance of the pellet mill is fibre sizing in the
refining area. A refiner (sophisticated hammermill) with easily changeable screens will
allow tailoring of fibre size. The goal is to minimize the energy used to refine fibre. A
classifying screen is available after refining. With minimum refining, oversize fractions
can occur and the screen will isolate these and return them for a second refining pass.
The screen will reduce refining cost and improve refined fibre size consistency.
The importance of fibre conditioning is under rated in the typical wood pellet system and
will be fully developed as an agricultural fibre advantage. Conditioning will be with steam
to soften the lignin which helps both pellet mill throughput flow and pellet binding. The
moisture from the steam also helps lubricate the pellet mill extrusion process. The
conditioning system will be larger than a typical wood system to give more retention and
to allow blending of additives. The additives could include chemical treatment to reduce
the chlorides in the finished pellet, additional binder to compensate for low lignin fibre
and a wide variety of other components that will be tested and proven in the pilot plant.
6.3 Process Discussion
Haul trucks will deliver to the plant both round and baled fibre on flatbed trucks or
trailers. Each truck is weighed in and out to determine net weight. Moisture content is
determined on all incoming feedstock, both to adjust weight to dry basis (for payment)
27 | P a g e
and for process decisions. The yard loader will unload the bales and feed them directly to
process or to storage.
Covered storage may be desirable and in some cases necessary. The determination of the
size and design of site storage is important and will occur after details of the delivery
schedule are defined.
The bale breaking process mechanically converts baled feedstock into broke straw with
an approximate length of 1” or less. Round bales are expected to be processed in a
conventional round bale grinder. Square bales, with their higher density and lower
handling and transportation costs, will become the standard baled fibre supply over time.
The square bale breaker includes an infeed conveyor, twine removal system, a bale
breaker and an incline conveyor.
The agricultural fibre supply for the process will include a variety of species with different
moisture contents. This will require batching different materials to segregate both
moisture and specie. Broke fibre will be stored under cover in existing buildings, in silos
with modified unloading systems or under temporary tarps.
The pelletizing operation requires a controlled fibre moisture content. For wood this is
normally achieved during the drying process. Drying is expensive both in terms of capital
cost and operating cost. With agricultural fibre acceptable results can be achieved with
“as received” moisture content. If this is not adequate some fibre will be custom dried in
existing grain dryers or alfalfa dryers to determine acceptable operating parameters.
Some drying capacity may have to be added at a later date but this is unlikely. There is no
drying capacity included in the current process or budget.
A large surge / metering / mixing bin feeds the refining system. This bin is fed a mixture
of species and moisture content as defined by the appropriate production recipe. Broke
straw from the storage building, the tarped interim storage or from the bale breakers is
mixed before and in the bin. This mix is then metered into the refining system.
A sophisticated hammermill will refine the fibre to a size suitable for the pelletizer. Wood
is usually sized to 1/16” less than the extruded pellet diameter. With agricultural fibre
experimentation will be required to determine the best sizing for quality and quantity
production. Refined fibre can flow directly to conditioning or can flow through a
classifying screen. Three screen fractions are available from the screen, overs, accepts
and unders. Screens are interchangeable to adjust the fibre size of the fractions. The
overs can be returned to the refiner for a second pass. Each of the fractions can be fed to
conditioning to analyze fibre size impact on the operation of the pelletizer and the quality
of the pellets.
28 | P a g e
Incoming Site Storage
Scales Square Bale “A” Broke
“B” Bales “B” Broke
Round Bale Screen
“C” Bales Classification Screen Refining
Screen Magnet &
Storage Storage Pellet Conditioning Refiner
Cooling Metering Bin
Bin #1 Bin #2
Pellet Mill Pilot Plant Flow Diagram
Agents Date: March 29, 2010 Drawn: YC
29 | P a g e
Biomass densification in a pellet mill requires fibre conditioning to optimize pellet
production and pellet quality. Conditioning can range from as little as hot water, to
steam injection or the metered addition of agents that improve pellet quality or pellet
mill operation. The primary binder that holds the finished pellets together is the naturally
occurring lignin in the fibre. The lignin is softened and freed in the conditioning system
and by the heat generated during pellet extrusion in the pellet mill. In some cases the
natural lignin in agricultural feedstock is inadequate to give the necessary pellet durability
and additional binder is added during conditioning. The system allows controlled addition
of additives both for experimental purposes as well as for product optimization.
The conditioning system is similar, both in geometry and function, to a conventional
particleboard blender. Steam and additives can be introduced through pressurized spray
systems and are blended into a homogeneous output. A boiler system, additive mixing
tanks and metering systems accurately control addition rates.
The pellet mill is supplied as a unit and is available from various suppliers. The mill
includes an infeed chute, fixed internal rollers, a rotating exterior cylindrical die, shear
knifes to cut pellet extrusions to length, an outer machine casing and a control system.
The control system is set up to operate the mill on the basis of motor load to ensure
maximum production and avoid overload situations.
Following densification and prior to load‐out, pellets are cooled and screened. Hot pellets
leaving the pelleting press are soft, fragile, and subject to breakage. The cooling process
hardens the pellets for improved handling durability. The pellet cooler would be a
counter‐flow type available from a number of manufacturers. Pellets enter the cooler
through an airlock system which includes adjustable air flow ducting and distributed
evenly across the cooling bed. Air is circulated across the pellet bed to promote cooling.
Pellets are discharged from the cooler through a rotary air lock and directed to a shaker
screener where fine particles and dust are separated from the pellets. Fine particles are
recycled back to the conditioning system infeed. The pellets are discharged from the
screen and are transported to one of the two pellet storage silos.
Pellets are fed from the storage silos either to bulk loading or to an onsite bagging
system. Numerous bagging systems are available, likely a used system or a simple manual
system would be adequate for the volumes expected in the pilot plant. Pellets are
bagged in standard 40 lb bags. Shipping pallets are loaded with 50 bags and are stabilized
for shipment with shrink wrap. Custom bagging by others is also an option.
The design of the systems, from the yard to conditioning, has one goal. It is to
economically deliver the range and consistency of fibre size, blend, conditioning
30 | P a g e
parameters and moisture content that will successfully extrude the quality and quantity
needed from the pellet mill. Detailed discussions of the science and art of operating a
pellet mill are well documented elsewhere. The focus of this plan is the presentation of a
system that will prepare fibre, condition it and deliver it ready for optimized pellet
31 | P a g e
The operator brings substantial equity to the project around which an attractive financing
package can be structured. The proposed structure is laid out in section 7.2, with some
comments on the nature of each component. It should be noted that, the plant has been
designed with the capability of expansion into a viable commercial operation, opening up
the way for further equity contributions. Such a source might be one of the local hydro
utility companies. Halton Hills Hydro, for example, has put together a group of investors
to invest in energy projects, which may be outside their own area. The pressure to do this
seems to be coming from Ontario Power Authority and it has resulted in the
Peterborough Utility completing a 2MW landfill gas project; an 8MW hydro project with
Trent University and a 10MW solar project with another group.
Total financing required is $3,162,916. The break‐down is shown on Table 7.1 – Project
Cash Flow and Cumulative Requirements. The financial structure includes operator
equity of $625,000, an AgriProcessing initiative funding of $1,581,458, a Farm Credit loan
of $790,729 and bank financing of $165,729.
The project conceptual schedule (see Section 7.3 – Conceptual Schedule) identifies the
activities of the first 12 months of the project. This takes the project through a 3 month
shovel ready development and the 9 months required to build and commission the pilot
The details of the cash required for the project are discussed in Section 7.4 – NewCo
Budget, Section 7.5 – Estimated Capital Budget, and 7.6 – Start‐up Losses.
The business plan concludes with Section 7.7 – Earnings – Before Interest, Debt Service
and Taxes, which explores estimated earnings for three different operating scenarios, 2
tph, 3 tph and 4 tph. Table 7.5 – Operating Parameters, Costs, Revenue and Earnings
Before Interest, Debt Service and Taxes assumes a typical 5 day per week operating
scenario with losses of $226,614 per year at 2 tph and $31,008 per year at 3 tph. If the
plant can average 4 tph annual earnings of $164,599 are forecast.
The pilot plant is designed to operate on a 24 hour, 365 day schedule. The 3 tph scenario
forecasts earnings in excess of one million dollars per year.
32 | P a g e
Table 7.1 – Project Cash Flow and Cumulative Requirements
NewCo Budget Total Cumulative Total
With Without With Without
Shovel Construction Start‐up
Month Shovel Shovel Shovel Shovel
Ready Period Year
Ready Ready Ready Ready
1 40,025 40,025 ‐ 40,025 ‐
2 49,275 49,275 ‐ 89,300 ‐
3 82,275 82,275 ‐ 171,575 ‐
4 35,575 152,790 188,365 188,365 359,940 188,365
5 44,942 242,810 287,752 287,752 647,692 476,117
6 44,492 129,855 174,347 174,347 822,039 650,464
7 31,775 202,700 234,475 234,475 1,056,514 884,939
8 32,875 280,830 313,705 313,705 1,370,219 1,198,644
9 27,925 250,555 278,480 278,480 1,648,699 1,477,124
10 34,715 295,530 330,245 330,245 1,978,944 1,807,369
11 58,562 228,500 287,062 287,062 2,266,006 2,094,431
12 49,937 220,505 270,442 270,442 2,536,448 2,364,873
13 17,825 94,350 38,285 150,460 150,460 2,686,908 2,515,333
14 17,000 92,625 34,172 143,797 143,797 2,830,705 2,659,130
15 14,240 21,000 30,234 65,474 65,474 2,896,179 2,724,604
16 14,240 26,968 41,208 41,208 2,937,387 2,765,812
17 14,240 23,455 37,695 37,695 2,975,082 2,803,507
18 14,240 20,565 34,805 34,805 3,009,887 2,838,312
19 14,240 17,549 31,789 31,789 3,041,676 2,870,101
20 14,240 14,406 28,646 28,646 3,070,322 2,898,747
21 14,240 11,843 26,083 26,083 3,096,405 2,924,830
22 14,240 9,533 23,773 23,773 3,120,178 2,948,603
23 14,240 8,163 22,403 22,403 3,142,581 2,971,006
24 14,240 6,095 20,335 20,335 3,162,916 2,991,341
Total 171,575 360,798 177,225 2,212,050 241,268 3,162,916 2,991,341
7.2 Financing Structure
A pilot plant requires a special approach to financing, and that sources of financing are
available to such a plant which would not be available to commercial operations. These
include Federal and Provincial Government grants or soft loans, and funds from
33 | P a g e
The total cost of the project has been calculated to be $3,162,916 and the proposed
financing structure is as follows:
AgriProcessing Initiative, at 50% of Total $1,581,458
Farm Credit Corporation, at 25% of Total $790,729
Bank Financing $165,729
1. The equity provided is in the form of land, grain drying and storage facilities and cash; any “in‐
kind” equity will require the equivalent amount of cash to be raised. Before completing the
financing the operator will provide up to date, documented valuations of the proposed in‐kind
2. AgriProcessing Initiative funding is a component of the Federal Agricultural Flexibility Fund,
through which eligible projects, such as this one, can be provided with repayable contributions
amounting to 50% of eligible project costs to a maximum of $2 million. Contributions are non‐
interest bearing and unsecured.
3. Farm Credit Corporation will advance up to 25% of the total project cost under the Special Energy
Loan program. No repayments are required in the first year and the sum lent attracts reduced
interest during an 8 year term.
WBFT has prepared applications to the AgriProcessing Initiative and to Farm Credit
Corporation, but these must be signed by the operator, who must also provide additional
information. Farm Credit Corporation, for example, will require a balance sheet with the
7.3 Conceptual Schedule
The conceptual schedule allows 3 months to finalize the project during the shovel‐ready
phase and the 9 months to construct and commission. The scope of shovel‐ready is
discussed in the Section 7.4 ‐ NewCo Budget. At the start of month 4 all major equipment
purchase orders will be placed and the final sourcing of used equipment will be initiated.
Construction will be completed during month 11 and equipment trials and commissioning
is expected during month 12.
34 | P a g e
Table 7.2 – Conceptual Schedule
Week # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52
Month # 1 Month # 2 Month # 3 Month # 4 Month # 5 Month # 6 Month # 7 Month # 8 Month # 9 Month # 10 Month # 11. Month # 12
May June July August September October November December January February March April May
Week Starting 10 17 24 31 7 14 21 28 5 12 19 26 2 9 16 23 30 6 13 20 27 4 11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 31 7 14 21 28 7 14 21 28 4 11 18 25 2 9 16 23 30
Pre‐Project Shovel Ready Plant Construction and Commissioning
2.) Business Plan
3.) Ag Fibre Supply
Review Potential Fibre Supplies
LOI ‐ Straw Supply
4.) Sales and Marketing
Negotiation of Role
Negotiation of Role
5.) Finalize Design & Engineering
Finalize Plant Specifications
Major Equipment Vendors (MEV)
MEV Meeting # 1
Review MEV Proposals
MEV Meeting # 2
Finalize MEV Team
MEV Contracts Subject‐to
Place Purchase Orders
Conceptual Plant Layout
Preliminary Plant Layout
Finalize Plant Layout
Preliminary Site Layouts
Finalize Site Layout
Short List Contractors
Preliminary Budget Review
Finalize Capital Budget
6.) Plant Construction
Major Equipment Vendors (MEV)
Local Supply (Includes Building)
35 | P a g e
7.4 NewCo Budget
The NewCo operating budget covers expenses for the first 24 months. There are 3
distinct periods, Shovel Ready, Construction and Year 2 (Start‐up). Shovel Ready is the
expected 3 month period it will take to finalize financing for the project. Months 4 to 12
are the Construction period and months 13 to 24 are the Start‐up period.
The Shovel Ready budget is required to complete financing for the project. The Capital
budget will be finalized, all site specific details will be resolved, all major equipment
vendors and contractors will be chosen and purchase orders subject to funding will be
negotiated and placed. The fibre supply agreements and marketing commitments will be
firmed up to satisfy funding requirements. The project will be set to launch as soon as the
financing funds are in place.
All project management and engineering costs are included in this budget. The operator
is expected to take a strong lead in overall management of the project. He will have a
General Manager on site and will have WBFT assistance available as required. All NewCo
expenses during the start‐up year (months 13 to 24) are in the Start‐up budget. All
NewCo expenses during the Construction period are covered in this budget.
The continued involvement of WBFT has been requested by the operator and is in this
budget. The NewCo budget has a WBFT allowance through to month 24.
Construction Start‐up Total
Months 1 to 3 Months 4 to 12 Months 13 to 24
NewCo Salaries ‐ 115,198 ‐ 115,198
WBFT Fees 97,050 129,000 153,300 379,350
Travel 10,725 14,300 23,925 48,950
Professional / Consulting
60,500 57,200 ‐ 117,700
Plant Training ‐ 18,700 ‐ 18,700
NewCo Expenses 3,300 26,400 ‐ 29,700
Total $171,575 360,798 177,225 709,598
36 | P a g e
7.5 Estimated Capital Budget
The capital budget is presented in Table 7.3 – Estimated Capital Budget. The budget is
divided into 17 Areas for analysis. Comments on each of the Areas follow the table:
Table 7.3 – Estimated Capital Budget
AREA INSTALLED COST
01 – Site and Services 45,100
02 – Bale Handling and Breaking 180,600
03 – Feedstock Processing 68,200
04 – Drying ‐
05 – Refining 303,600
06 – Conditioning / Pelletizing 437,800
07 – Cooling and Screening 247,500
08 – Pellet Storage 35,200
09 – Pellet Packaging 48,400
10 – Electrical 104,500
11 – Quality Control 34,650
12 – Fire Protection 55,000
13 – Environmental 57,750
14 – Buildings and Concrete 404,250
15 – Mobile Equipment 16,500
16 – Spare Parts and Stores 140,000
17 – Other 33,000
AREA 01 – SITE AND SERVICES
The proposed location is a developed site which avoids the typical costs of land purchase,
site preparation, straw yard, road access, rail access, mechanical site services, fire
protection infrastructure and weigh scales.
Two allowances have been made in this budget category. The first is for additional
transformer capacity, if needed, and the second is for fire protection upgrades likely
37 | P a g e
needed to satisfy insurance and operational needs. This budget area assumes fire
protection in the form of hose stations and manual deluge systems.
AREA 02 – BALE HANDLING AND BREAKING
This budget category assumes unloading and bale handling will be facilitated with the
existing yard loader using interchangeable attachments. The cost of loader attachments
are covered in Area 15 – Mobile Equipment.
Initially round bale processing will be required and will be handled with a hay buster or
equivalent. The budget allows for a reconditioned round bale system.
Over time harvesting and material handling considerations will result in most fibre supply
in high density bales. A new Warren & Baerg series VRC Grinder is budgeted.
AREA 03 – FEEDSTOCK PROCESSING
The feedstock processing section collects broke straw from the round and square bale
processing systems and, depending on operations needs:
feeds it directly into the refining surge and metering bin
feeds it to a bucket elevator which inputs to an existing silo or silos
piles it on hard surface for later recovery
stores it in existing “barns” for storage and later recovery
Depending on the production recipe various feedstock moistures and species are
recovered and fed into the refining surge and metering bin.
Area 03 is well suited to opportunistic purchasing and refurbishing of used material
handling equipment to satisfy the process operational needs of the plant. The budget
includes an allowance for:
bucket elevator with simple feed and take away system
modified unloading and metering system for existing silos
The operational philosophy of this section will rely heavily on the yard loader, its large
bucket and operator’s discretion. Over time, once the materials handling needs are
better defined with operating experience more capital spent on automated storage,
retrieval and mixing may show a good return.
38 | P a g e
AREA 04 – DRYING
The budget does not include capital for a drying system. If future fibre opportunities
require a drying system there are numerous used single or triple pass dehydration
AREA 05 – REFINING
The budget for sections of 05 – Refining, 06 – Conditioning / Pelletizing and 07 – Cooling
and Screening assumes new equipment from a mainstream experienced supplier
(typically Andritz or California Pellet Mills). The need for a dependable source of technical
advice, spare parts and wear parts is best served by a vendor with experience, stability
and a desire to protect and grow their reputation and market share. Used equipment is
frequently available but the capital cost advantage is usually false economy and is short
lived. The start‐up success of the plant requires the technical support and involvement of
The pilot plant layout will allow for future addition of other pellet mill technologies. The
same fibre preparation and conditioning systems, as well as, pellet cooling and screening
systems will be used. With a base case roll and die performance standard identified other
pelleting technologies can then be operated and studied for comparison.
The exception to the new equipment recommendation would be the addition of a
classification screen on the output of the refiner hammermill. A by‐pass would allow the
screen to be in or out of the material flow.
The refining budget allows for a new large volume metering and storage bin, transfer
conveyor, trash removal, refiner / hammermill, pneumatic system and transfer conveyor
to conditioning bin. The by‐pass to the screen system, the screen itself and the return
system to the transfer conveyor will likely be used / reconditioned. Production is possible
with the screen bypassed but the screen is required to optimize refining and experiment
with different fibre.
AREA 06 – CONDITIONING / PELLETIZING
This section includes a conditioning surge and metering bin, the conditioner, the pellet
mill and the standard in and out systems. This is a standard wood fuel pellet package
with the following exceptions:
modified metering bin to allow front end loader access
materials handling at twice wood flow
increased conditioner capacity – larger than a normal wood system at 4
39 | P a g e
Wood fuel pellet operators seems to understate the importance of conditioning. The
additional retention time and mixing in the pilot plant’s conditioning system will be
required to optimize and develop agricultural fuel pellets.
The boiler, additive system and the control system for both is not in the scope of the
pellet mill supplier but is in the budget and will be supplied by others.
Normally, in a wood system, the hammermill and conditioner are connected with a simple
metering bin to compensate for flow variations. The pilot plant needs a larger surge bin
with the flexibility to also feed the front end loader bucket. The plant can then:
feed screen fractions independently
add experimental non‐refined additives
test material refined offline
AREA 07 – COOLING AND SCREENING
The cooling and screening system is a standard wood system sized for a 4 tonnes per hour
of finished product. This is twice what would be expected from a 200 hp machine on
wood. The scope includes the pellet cooler, pellet screening, cooling pneumatic system
and take‐away conveyors. The one addition to a standard wood system is a simple
fraction weigh‐system which will determine the amount of fines recycled in the pellet mill
output. This is valuable input data when evaluating various pelleting recipes.
AREA 08 – PELLET STORAGE
The budget item assumes existing silos will be used to store finished product. Two silos
will be fitted with infeed conveyors and unloader / outfeed conveyors for bulk feed for
feed to pellet packaging.
AREA 09 – PELLET PACKAGING
The budget includes a feed conveyor and a simple bagging system.
AREA 10 – ELECTRICAL
The electrical system allowance assumes 800 installed horsepower and allows for a
simple PDC (Power Distribution Centre), MCC (Motor Control System) and some PLC
(Programmable Logic Control) system capability. Some equipment is supplied with
starters and controls and these costs are part of equipment supply.
AREA 11 – QUALITY CONTROL
Quality control and process monitoring are required. The budget has included moisture
testing equipment, basic pellet testing equipment and a miscellaneous category. As the
project is detailed these budget numbers will need to be refined. Significant additional
40 | P a g e
offsite testing by a certified lab will be necessary for at least; ash, chlorides and caloric
value of finished pellets.
AREA 12 – FIRE PROTECTION
This budget item includes a basic GreCon fire detection and suppression system for the
plant pneumatic systems. Detailed engineering and insurance needs will better define
the system needs.
AREA 13 – ENVIRONMENTAL
The environmental concerns of the pelletizing process are minor. There will be two
pneumatic systems with the potential for particulate emission. The detailed engineering
during the shovel‐ready phase will determine how best to achieve compliance. This will
likely be a reconditioned bag house.
AREA 14 – BUILDINGS AND CONCRETE
The budget assumes a need for 8,000 square feet of new building. An allowance is made
to partition off a plant office, a lab area, a control room and an electrical room.
A significant volume of air is removed from the production areas by the various
pneumatics systems required by the process. Air make‐up will be required to replace this
volume. One unit is budgeted for, additional may be required.
AREA 15 – MOBILE EQUIPMENT
The yard tractor is assumed available on site. Operating and maintenance are covered in
the operating budget. The capital budget allows for custom attachments which may have
to be purchased.
AREA 16 – SPARE PARTS AND STORES
This budget area has a general category to cover key spare parts, as well as mechanical,
electrical, mobile and shop consumables. The experimental spares allow for purchase of
a variety of rolls and dies, refiner screens and fibre screens needed to study and optimize
fibre preparation and pelleting.
AREA 17 ‐ OTHER
This Area includes:
shop equipment – general and special equipment to repair and service the plant
and mobile equipment
41 | P a g e
7.6 StartUp Losses
The base case for the second year of operations (this starts on month 25) is assumed to
be the midpoint, 3 tonnes/hour, as shown on Table 7.5 – Operating Parameters, Costs,
Revenue and Earnings Before Interest, Debt Service and Taxes. The start‐up losses occur
during month 13 to 24 as equipment is commissioned, the process is developed, the
operating crew gains experience and market acceptance grows. The losses are detailed in
the tables on pages 42 and 43.
The two main factors that define the start‐up are low operating efficiency and high
material losses. Month 13 begins with forecast of 30% efficiency which increased to 98%
by month 24. The estimated material losses start at 40% in month 13 and decrease to 0%
by month 24. These losses include low grade pellets and fibre which is processed and
either does not make it through the process or does not make a marketable product.
The cost of sales (direct) with the exception of packaging cost assumes the “Material
Losses” fibre is purchased and processed by the plant but is not available to generate
revenue. The packaging costs are budgeted for 50% of the on‐grade pellet production.
Plant labour costs, as well as all GS&A expenses, are accrued irrespective of operating
efficiency. Revenues are generated from the assumed mix of 50% bulk and 50% bagged
at $180.00/tonne and $225/tonne respectively.
42 | P a g e
Table 7.4 – Start‐up Losses
START‐UP LOSSES ‐ YEAR ONE BASE CASE @ 3 tonnes/hr Month # 13 14 15 16 17 18
Parameters Units Units
Pellet Production tonnes/year 4,704.0 tonnes/month 117.6 157 196 223 251 274
Sales Price ‐ Bulk $ Cdn/tonne 180.00
Sales Price ‐ Bagged $ Cdn/tonne 225.00
Sold as Bagged % 50.0
Start‐up Operating Efficiency % 30.0
Start‐up Material Losses % 40 30 25 20 15 12
Cost of Sales (Direct) per t Annual Monthly
Feedstock 63.64 299,384
10,478 12,973 15,593 17,065 18,362 19,560
Plant Labour 37.47 176,250
14,688 14,688 14,688 14,688 14,688 14,688
Electrical Energy Comminution 12.53 58,931
2,063 2,554 3,069 3,359 3,614 3,850
Electrical Energy w/o Comminution 3.39 15,923
1,327 1,327 1,327 1,327 1,327 1,327
Electrical Energy ‐ Total 15.91 74,854
3,390 3,881 4,396 4,686 4,941 5,177
Binder, Conditioning & Additives 0.72 3,364
118 146 175 192 206 220
Dies, Rollers & Wear Parts 5.00 23,520
823 1,019 1,225 1,341 1,443 1,537
Mobile Equipment 3.37 15,843
1,320 1,320 1,320 1,320 1,320 1,320
Packaging Costs 7.52 35,389
885 1,180 1,475 1,681 1,887 2,064
Supplies and O&M 3.50 16,464
576 713 858 938 1,010 1,076
SubTotal 137.13 645,068
32,278 35,920 39,729 41,910 43,857 45,641
Start‐up Contingency % 5.00
1,614 1,796 1,986 2,096 2,193 2,282
Cost of Sales ‐ With Start‐up Contingency 33,891 37,716 41,716 44,006 46,050 47,923
15,000 1,250 1,250 1,250 1,250 1,250 1,250
Salaries & Benefits 29.02
136,500 11,375 11,375 11,375 11,375 11,375 11,375
Office Supplies & Expenses 2.55
12,000 1,000 1,000 1,000 1,000 1,000 1,000
Lab Testing 1.06
5,000 417 417 417 417 417 417
Travel & Training 4.25
20,000 1,667 1,667 1,667 1,667 1,667 1,667
Legal Accounting & Consulting 6.38
30,000 2,500 2,500 2,500 2,500 2,500 2,500
Property Taxes 5.31
25,000 2,083 2,083 2,083 2,083 2,083 2,083
80,000 6,667 6,667 6,667 6,667 6,667 6,667
15,000 1,250 1,250 1,250 1,250 1,250 1,250
338,500 28,208 28,208 28,208 28,208 28,208 28,208
Total Cost of Sales + GS&A 209.09
983,568 62,100 65,924 69,924 72,214 74,259 76,131
952,560 23,814 31,752 39,690 45,247 50,803 55,566
Earnings Before Interest, Depreciation &
43 | P a g e
START‐UP LOSSES ‐ YEAR ONE BASE CASE @ 3 tonnes/hr 19 20 21 22 23 24 Annual Total
Pellet Production tonnes/year 4,704.0 298 321 341 361 372 384 3,296.7
Sales Price ‐ Bulk $ Cdn/tonne 180.00
Sales Price ‐ Bagged $ Cdn/tonne 225.00
Sold as Bagged % 50.0
Start‐up Operating Efficiency 76.0
Start‐up Material Losses 9 6 4 3 3 ‐
Cost of Sales (Direct) per t Annual
Feedstock 63.64 299,384
20,667 21,685 22,574 23,641 24,294 24,450 231,343
Plant Labour 37.47 176,250
14,688 14,688 14,688 14,688 14,688 14,688 176,250
Electrical Energy Comminution 12.53 58,931
4,068 4,269 4,443 4,654 4,782 4,813 45,537
Electrical Energy w/o Comminution 3.39 15,923
1,327 1,327 1,327 1,327 1,327 1,327 15,923
Electrical Energy ‐ Total 15.91 74,854
5,395 5,595 5,770 5,980 6,109 6,140 61,461
Binder, Conditioning & Additives 0.72 3,364
232 244 254 266 273 275 2,599
Dies, Rollers & Wear Parts 5.00 23,520
1,624 1,704 1,773 1,857 1,909 1,921 18,175
Mobile Equipment 3.37 15,843
1,320 1,320 1,320 1,320 1,320 1,320 15,843
Packaging Costs 7.52 35,389
2,241 2,418 2,566 2,713 2,802 2,890 24,802
Supplies and O&M 3.50 16,464
1,137 1,193 1,241 1,300 1,336 1,345 12,722
SubTotal 137.13 645,068
47,304 48,847 50,186 51,766 52,730 53,027 543,194
Start‐up Contingency % 5.00
2,365 2,442 2,509 2,588 2,636 2,651 27,160
Cost of Sales ‐ With Start‐up Contingency 49,669 51,289 52,695 54,354 55,366 55,679 570,354
15,000 1,250 1,250 1,250 1,250 1,250 1,250 15,000
Salaries & Benefits 29.02
136,500 11,375 11,375 11,375 11,375 11,375 11,375 136,500
Office Supplies & Expenses 2.55
12,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000
Lab Testing 1.06
5,000 417 417 417 417 417 417 5,000
Travel & Training 4.25
20,000 1,667 1,667 1,667 1,667 1,667 1,667 20,000
Legal Accounting & Consulting 6.38
30,000 2,500 2,500 2,500 2,500 2,500 2,500 30,000
Property Taxes 5.31
25,000 2,083 2,083 2,083 2,083 2,083 2,083 25,000
80,000 6,667 6,667 6,667 6,667 6,667 6,667 80,000
15,000 1,250 1,250 1,250 1,250 1,250 1,250 15,000
338,500 28,208 28,208 28,208 28,208 28,208 28,208 338,500
Total Cost of Sales + GS&A 209.09
983,568 77,878 79,497 80,903 82,562 83,574 83,887 908,854
952,560 60,329 65,092 69,061 73,030 75,411 77,792 667,586
Earnings Before Interest, Depreciation &
7.7 Earnings – Before Interest, Debt Service and Taxes
The production capacity of a fuel pellet plant is normally determined by installed pellet
mill horsepower. The rule of thumb for wood mills is that each tonne/hour of finished
pellet capacity requires 100 hp. Pellet mill test runs using agricultural biomass have
concluded that some species run at rates equivalent to wood while others have twice or
more throughput. The business plan proposes 200 installed hp and a plant and process
design that suits system material flow adequate to produce up to 4 tonnes per hour of
The earnings potential of the pellet pilot plant is very sensitive to production volume.
Scenarios are developed for 2, 3 and 4 tonnes per hour. Table 7.5 – Operating
Parameters, Costs, Revenue and Earnings Before Interest, Debt Service and Taxes
summarizes the results of the business plan research.
45 | P a g e
Table 7.5 – Operating Parameters, Costs, Revenue and Earnings Before Interest, Debt
Service and Taxes
Parameters Units @ 2 tonnes/hr @ 3 tonnes/hr @ 4 tonnes/hr
Hourly Production @ 200 hp tonnes/hr 2.0 3.0 4.0
Annual Adjusted Hours hr 1,568 1,568 1,568
Annual Pellet Production tonnes/year 3,136 4,704 6,272
Pellet Moisture Content % 5 5 5
Annual Pellet Production BDt/year 2,979 4,469 5,958
Delivered Feedstock Cost $'s /tonne 50.00 50.00 50.00
Feedstock Moisture Content % 14.0 14.0 14.0
Feedstock Cost $'s / BDt 58.14 58.14 58.14
Yield note # 1 1.15 1.15 1.15
Annual Feedstock Cost $'s/y 199,589 299,384 399,179
Annual Feedstock Use tonnes/y 3,992 5,988 7,984
Sales Price ‐ Bulk $ Cdn/tonne 180.00 180.00 180.00
Sales Price ‐ Bagged $ Cdn/tonne 225.00 225.00 225.00
Sold as Bagged % 50.0 50.0 50.0
Manufacturing Costs @ 2 tonnes/hr @ 3 tonnes/hr @ 4 tonnes/hr
Cost of Sales (Direct) per t Annual per t Annual per t Annual
Feedstock 63.64 199,589 63.64 299,384 63.64 399,179
Plant Labour 56.20 176,250 37.47 176,250 28.10 176,250
Electrical Energy Comminution 18.79 58,931 12.53 58,931 9.40 58,931
Electrical Energy w/o Comminution 5.08 15,923 3.39 15,923 2.54 15,923
Electrical Energy ‐ Total 23.87 74,854 15.91 74,854 11.93 74,854
Binder, Conditioning & Additives 0.72 2,242 0.72 3,364 0.72 4,485
Dies, Rollers & Wear Parts 7.50 23,520 5.00 23,520 3.75 23,520
Mobile Equipment 3.37 10,562 3.37 15,843 3.37 21,124
Packaging Costs (see note 2) 7.52 23,593 7.52 35,389 7.52 47,185
Supplies and O&M 4.00 12,544 3.50 16,464 3.25 20,384
SubTotal 166.82 523,154.38 137.13 645,067.70 122.29 766,981.02
Marketing 4.78 15,000 3.19 15,000 2.39 15,000
Salaries & Benefits 43.53 136,500 29.02 136,500 21.76 136,500
Office Supplies & Expenses 3.83 12,000 2.55 12,000 1.91 12,000
Lab Testing 1.59 5,000 1.06 5,000 0.80 5,000
Travel & Training 6.38 20,000 4.25 20,000 3.19 20,000
Legal Accounting & Consulting 9.57 30,000 6.38 30,000 4.78 30,000
Property Taxes 7.97 25,000 5.31 25,000 3.99 25,000
Insurance 25.51 80,000 17.01 80,000 12.76 80,000
Other 4.78 15,000 3.19 15,000 2.39 15,000
SubTotal 107.94 338,500 71.96 338,500 53.97 338,500
Total Cost of Sales + GS&A 274.76 861,654 209.09 983,568 176.26 1,105,481
Revenues 202.50 635,040 202.50 952,560 202.50 1,270,080
Earnings Before Interest, Depreciation and
(226,614) (6.59) (31,008) 26.24 164,599
#1 ‐ Yield is BD tonnes of furnish per BD tonne of finished pellet
#2 ‐ Packaging costs per tonne $ 15.05 packaging costs shown in Cost of Sales is an average, calculated
using % of bagged/bulk.
46 | P a g e
The first section of Table 7.5 – Operating Parameters, Costs, Revenue and Earnings
Before Interest, Debt Service and Taxes, the Operating Parameters utilizes inputs from
earlier in the business plan as well as the following:
Pellet mill capacity on agricultural fibre can be higher than the same mill processing
wood. To establish the earnings model production levels (finished pellet) of 2, 3 and 4
tonnes/hour were assumed.
Annual Adjusted Hours
Assuming a 5 day week, 52 weeks per year, 8 hours per day, 10 statutory holidays, a 5 day
annual shut‐down and 80% operating efficiency; 1568 hours are available annually.
Pellet Moisture Content
Fuel pellet moisture content will vary and other than freight cost has little impact on
earnings. A mid range of 5% is modeled.
Delivered Moisture Content
The assumptions of delivered feedstock cost and feedstock moisture content combine to
calculate delivered dry cost of fibre. In this business plan “BD” or “OD” signifies fibre with
0% moisture. This is not practically achievable but is used as a guide for material flow
design and earnings calculations.
Delivered Feedstock Cost
Delivered feedstock is assumed at $50.00 per tonne delivered, with a moisture content of
A material balance calculation identifies all process and yard losses to calculate the
number of BD tonnes of fibre needed for each tonne of finished product.
Sales Price Bulk / Sales Price Bagged
Sales price is modeled at $180.00 per tonne for bulk and $225.00 per tonne for bagged.
Sold as Bagged
The sold as bagged % allows calculation of the average packaging costs per tonne and
revenue per tonne.
47 | P a g e
The second section of Table 7.5 – Operating Parameters, Costs, Revenue and Earnings
Before Interest, Debt Service and Taxes, Cost of Sales (Direct) uses either a calculated
cost per tonne or a calculated annual cost. For example, feedstock and plant labour are
annual costs (divided by annual production to achieve cost per tonne), while binder,
conditioning and additives is a cost per tonne (annual cost calculated by multiplying per
tonne x annual production). The key inputs for cost of sales are:
Hourly Annual Base Annual Loaded
Clean‐up, Relief, Bagging $15.00 $31,500 $39,375
Yard Operator $16.00 $33,500 $41,875
Feedstock Processing $18.00 $38,000 $47,500
Conditioning / Pelleting $18.00 $38,000 $47,500
Electrical Energy – Comminution
Comminution is “pulverizing” and in the context of this analysis describes the energy used
to process agricultural fibre in preparation for pelletizing.
Model assumes 700 installed hp at 80% loading and $0.09/kWhr for 2.0 tonnes/hours. A
cost of $18.70/tonnes is calculated. This drops to $12.53 for 3 tonnes/hour and $9.40 for
Electrical Energy – Without Comminution
Comminution load is assumed 20% of installed load for all non‐operating hours.
Binder, Conditioning and Additives
The model calculates the cost of conditioning fibre, a 4% steam addition is budgeted at
$0.72/tonne. The current model is designed to quantify the cost/tonne of binders and
additives once they are identified. There are no costs for binder or additives in this
analysis. It is assumed they would be at least revenue neutral if used.
Dies, Rollers and Wear Parts
A base case of $6.00/tonne of finished pellet is assumed at a production rate of 2
tonnes/hour. A 20% add on for other wear parts in bale breaking and refining is assumed.
This is prorated as a function of throughput for the 3 and 4 tonnes/hour scenarios.
48 | P a g e
Operating costs of $4.00/hour for maintenance and $17.05 ($15.50 litre/hr x $1.10/litre)
for fuel is assumed. At 2.0 tonnes/hour 32% loader availability is required. This calculates
to a mobile equipment cost of $3.37/tonne.
Packaging costs are calculated at $15.05/tonne. The costs per pallet are:
Bags – 50 bags @$0.15/bag $7.50
Pallet (estimate) $4.00
Shrink wrap / slip sheets (estimate) $1.50
Losses (typical at 5%) $0.65
Total $13.65 per pallet
Or $15.05 per tonne
For cost of sales the % bagged input under parameters is used to determine average
Supplies and O & M
From operating experience an estimate of typical supplies and O & M was developed as
Production Rate Supplies and O & M
The third section of the Table 7.5 – Operating Parameters, Costs, Revenue and Earnings
Before Interest, Debt Service and Taxes, summarizes General, Sales and Administrative
Costs (GS&A). These costs are very site specific and better understanding of the business
structure, management philosophy and local situation are needed to finalize the costs.
The assumptions in the model are as follows:
Salaries and Benefits
The largest GS&A item is the employee cost. The model assumes a General Manager at
$65,000/year and an Administrative / Sales / Shipping Manager at $40,000/year. Both are
loaded at 30% for total of $136,500.
49 | P a g e
The assumed $65,000/year for the General Manager is low by industry standards. This
position, because of the nature of a pilot plant, is essentially a qualified technician. It is
assumed that the management strength will be from the operator.
The model has the following GS&A assumptions included in the earnings model.
Office Supplies & Expenses $12,000
Lab Testing $5,000
Travel and Training $20,000
Legal, Accounting & Consulting $30,000
Property Taxes $25,000
50 | P a g e
APPENDIX 1 – Biology professor, student turn reed canary grass into fuel
Biology professor, student turn reed canary grass into fuel
Posted: August 12th, 2009
CONTACTS: John Shibley, e-mail, 906-635-2314; Tom Pink, e-mail, 635-2314; Dr. Greg
Zimmerman Ph.D, e-mail, 635-2470.
REED FUEL READY – Lake Superior State University student Justin Wilson holds a handful
of pelletized reed canary grass that is ready to burn in the stove shown in the background.
Wilson, a major in environmental sciences from Sault Ste. Marie, Mich., with dual minors in
biology and art, is working with LSSU Biology Professor Greg Zimmerman on a process that
turns a scrub grass found throughout North America into a potent, low-residue fuel ideal for
51 | P a g e
home heating. (LSSU/John Shibley)
A print-resolution photo that runs with the caption above can be found by clicking here.
By Toni Boger
LSSU PR Intern
SAULT STE. MARIE, Mich. – Lake Superior State University, a place already known for
research in various fields of study, is the site of a new research project for alternative fuel
The multi-phase project, led by LSSU biology department head Gregory Zimmerman Ph.D. with
help from Justin Wilson, the project's student volunteer, is studying the potential of reed canary
grass pellets as an environmentally friendly and economical heating fuel, as well as a possible
economic stimulant for the Eastern Upper Peninsula.
The grass being used in the study is known as reed canary grass, an abundant but weedy species
in the EUP considered by many to be a problem due to its aggressive growth. The first phase of
the study wanted to prove the grass's practicality as a pellet fuel. The recently completed second
phase demonstrated how the grass could be made into small pellets as fuel for heating spaces
such as a house. Both phases have shown the grass pellets to have several potential benefits.
"Reed canary grass is a sustainable source of heating fuel, does not compete with food
production and, compared to the use of fossil fuels, reduces the release of greenhouse gases,"
said Zimmerman, who added that he hopes the rest of the study will confirm the grass pellets'
numerous advantages over current fuels such as propane.
To make the grass into pellets, Zimmerman harvested reed canary grass from a local field last
November. He chose this time period so that the grass was dead, allowing nutrients to move back
to the soil and requiring no further energy for drying. The collected grass was then ground into ¼
inch particles in a hammer mill.
The grass, along with various additives, was then sent through a small pellet mill driven by the
PTO of a tractor. After the grass was turned into pellets, the pellets were used in a multi-fuel
stove. The result of these grass pellets appears to be an effective and environmentally friendly
source of heat.
Zimmerman and Wilson tried a variety of recipes to discover which additives would give reed
canary grass pellets characteristics similar to those of wood pellets. After multiple trials, the two
recipes that produced the best results were not what one might expect. One recipe mixed reed
canary grass with spent brewer's grain, which was grain used during the beer-making process at
Tahquamenon Brewery. Another recipe called for the grass to be mixed with a small amount of
fryer grease from LSSU's Quarterdeck cafeteria and corrugated cardboard. Although time-
consuming and difficult at points, Zimmerman said the recipe experimentation was essential to
the success of making these pellets.
52 | P a g e
Zimmerman also acknowledges the generosity of the staff at LSSU's physical plant as a reason
for the study's accomplishments. The current location of the project and where the process of
making pellets occurs is the garage behind the university's physical plant. The staff of the plant
has allowed Zimmerman and Wilson access to the garage during the course of the project in
addition to other logistical help. Zimmerman has been grateful for the staff's help through all
phases of the study and says that they deserve a "big thanks."
The Biomass Energy Program of the Michigan Department of Energy, Labor, and Economic
Growth funded the first two phases of the study. Although he is preparing for the third phase,
Zimmerman has already found one major economic advantage based on results from the first two
"Based on an average of six fields in the EUP, three acres of reed canary grass would make
enough pellets to replace 800 gallons of propane."
He said that he hopes the next phase, which could also be funded by a grant, will show that grass
pellets are competitive with wood pellets while confirming the cost of making and using the
pellets to be much less expensive than propane.
The ideal situation of study for this phase would involve a co-op of area farmers sharing the cost
of a "pelletizer" and the effort taken to market the reed canary grass pellets to area residents and
businesses. He believes that keeping the co-op local could reduce transportation costs to ship the
pellets and could also reduce the cost of heating for farmers, businesses, and residents.
In addition to planning the next phase of the study, Zimmerman and Wilson have been busy
demonstrating how well reed canary grass pellets work to various community organizations.
LSSU's Board of Trustees, local conservation groups, and visitors to the Sault Ste. Marie
Farmers' Market are just some of the area residents who have seen how these pellets work in a
Future plans for Zimmerman and Wilson include continuing their demonstrations to residents
throughout the area. They will also repeat the pellet-making process in the fall.
For more information on upcoming demonstrations by Zimmerman and Wilson, or for
information on how the project is moving along, keep checking LSSU's website for updates at
53 | P a g e
APPENDIX 2 – PFI Standard Specification for Residential / Commercial
PFI Fuel Grade Requirements
Residential / Commercial Densified Fuel Standards – See Notes 1 ‐ 9
Fuel Property PFI Premium PFI Standard PFI Utility
Bulk Density, lb/cubic foot 40.0 – 46.0 40.0 – 46.0 38.0 – 46.0 38.0 – 46.0
Diameter, inches 0.250 – 0.285 0.250 – 0.285 0.250 – 0.285 0.250 – 0.285
Diameter, mm 6.35 – 7.25 6.35 – 7.25 6.35 – 7.25 6.35 – 7.25
Pellet Durability Index > 97.5 > 97.5 > 95.0 > 95.0
Fines, % (at mill gate) < 0.50 < 0.50 < 0.50 < 0.50
Inorganic Ash, %
< 0.50 < 1.0 < 2.0 < 6.0
See Note 1
Length % greater than 1.50
< 1.0 < 1.0 < 1.0 < 1.0
Moisture, % < 6.0 < 8.0 < 8.0 < 10.0
Chloride, ppm < 300 < 300 < 300 < 300
NA NA NA NA
See Note 8
As‐Rec. + 2SD As‐Rec. + 2SD As‐Rec. + 2SD As‐Rec. + 2SD
See Note 1
1. There is no required value or range for Heating Value. It is required to print the mean higher heating value in
BTU per pound as well as the ash content on the fuel bag label using a bar scale to represent the mean value ±
2 Std. Dev. See note 9.
2. The bag must be labeled indicating which PFI grade of material is in the bag. See note 9.
54 | P a g e
3. The bag label must also disclose the type of materials as well as all additives used. For purposes of this
standard specification, additives are defined in 3.1.10. See note 9.
4. It is required that manufacturers include on their bags the PFI logo and in a printed block the guaranteed
analysis of the fuel. See note 9.
5. PFI prohibits the use of any chemically treated materials. For purposes of this standard specification,
chemically treated materials are defined in 3.1.11.
6. The following applies to all limits in this table: For purposes of determining the fuel grade, all properties must
fall at or within the specified limits listed for a particular grade. Observed or calculated values obtained from
analysis shall be rounded to the nearest unit in the last right‐hand place of the figures used in expressing the
limit in accordance with ASTM E 29‐06b Standard Practice for Using Significant Digits in Test Data to
Determine Conformance with Specifications.
7. It is the intent of these fuel grade requirements that failure to meet any fuel property requirement of a given
grade does not automatically place a fuel in the next lower grade unless it meets all requirements of the lower
8. It is required to report ash fusion properties at a frequency as specified in the PFI Quality Assurance/Quality
Control (QA/QC) Program for Residential/Commercial Densified Fuels.
9. Refer to PFI Quality Assurance/Quality Control (QA/QC) Program for Residential/Commercial Densified Fuels
for specific labeling requirements for fuel properties and other information.
55 | P a g e
APPENDIX 3 – Ontario Power Generation Fuel Pellet Specification, Rev A.
September 21, 2009
To view this document please follow this link:
56 | P a g e
APPENDIX 4 – Typical Straw Supply Contract
The Agricultural Fibre Producers Co‐op of _________________
Straw Supply Contract
This contract made this _______ day of _____________, 20___.
Between The Agricultural Fibre Co‐op of _________________ (“the Co‐op)
‐ And ‐
THEREAS the Co‐op has entered into a Agricultural Fibre Supply Contract dated
______________ which agreement may be amended from time to time (hereinafter referred to
as the “Agricultural Fibre Contract” with _________________________________ for the supply
and sale of Agricultural fibre (for an initial seven year term, subject to an eight year renewal
period) to be used in the manufacture of pellet fuel at ______________________________.
1. The Producer hereby commits to the Co‐op to annually make available to the Co‐op over
the duration of the Agricultural fibre Contract commencing with the 20____ crop.
A) ________________ metric tonnes of Agricultural fibre (minimum requirement: 100 tonnes)
B) ________________ metric tonnes of __________*
* While the Co‐op will keep records of the amount of __________ available for future use, will
not be baled initially. Further research is being done to confirm the suitability of ____________
for pellet fuel production.
The purchase price for the straw over the initial term of the Agricultural Fibre Supply
3. Payment to the Producer will be as follows:
57 | P a g e
i) Fifty (50%) percent of the total payment not later than March 31st of the year in which
the straw is baled. The payment will be based on the number of bales and average weight
determined at the time of baling.
ii) Fifty (50%) percent of the total payment not later than December 31st of the same
year in which the fibre is baled and stored.
4. The Agricultural fibre to be supplied to ___________ by the Producer must be sixteen
(16%) percent moisture or less with a maximum of 2 (2%) percent by weight of weeds, rot,
mould, or other foreign matter, as determined at the time of baling. The Producer is not
responsible for any deterioration in quality if the deterioration occurs after baling.
5. Notwithstanding any other terms of this contract, the Co‐op shall only be obliged to pay
for such fibre as is baled by supplier or its authorized agents. The Ownership, title and risk of
loss to the fibre made available to ____________________ pursuant to the Agricultural Fibre
Contract will be transferred to _________ at the time that ________________, or its
______________ and/or representatives, have baled the fibre.
6. Baling and stacking will take place as soon as possible after threshing. Bales shall be
removed from the field by March 1st of the following year. Unless an extension has been
solicited and obtained for removal of bales after that date, the bales will become the property
of the Producer.
7. For each year of the contract, the Producer shall submit to the Co‐op by June 15th a
Seeded Acreage Report of fields that may be available for baling that year. The Producer will
have the final decision as to which of the available fields will be baled to fulfil the fibre supply
8. The Producer hereby grants permission to the Co‐op ________________ or their
authorized agents and/or representative to inspect the Producer’s fields for growing conditions,
and permits the same to enter the field with workmen, tractors, machinery, or other
agricultural equipment exclusively for the purpose of baling and hauling the Agricultural fibre at
the sole discretion of the Co‐op and ______________.
9. Any delay or failure of either party to perform its obligations under this agreement will
be excused if the delay or failure is caused by an event or occurrence beyond the reasonable
control of the party without it fault or negligence; such as an Act of God, fires, floods, wind
storms, explosions, other natural disasters. In this case, the Producer shall be released from
the commitment for that year to the extent necessary having regard to the effect of the
relevant event or occurrence.
10. Every effort will be made to fulfil the contracts as equitably as possible.
58 | P a g e
11. The Producer is a member of the Co‐op and as such expects to derive some benefits
from the Agricultural Fibre Contract.
12. The Producer hereby authorizes the Co‐op to act on his behalf in entering into the
Agricultural Fibre Contract with ____________________.
13. The Producer acknowledges and understands that _______________ has assigned its
rights under the Agricultural Fibre Contract to its lenders as security for repayment of the
project financing that ______________ has secured to finance the construction and operation
of the fuel pellet plant.
14. In the event of a default by the Co‐op under the Agricultural Fibre Contract with
________ and upon notification of that default by __________‐‐ in writing addressed to the
Producer at the address set out in this agreement, the Producer agrees to deal directly with
_____________ and will allow ____________ to deal directly with the Producer, in connection
with all matters under this agreement all as if _______________ is an original party to this
agreement and bound by the terms hereof, and under the Agricultural Fibre Contract, all as if
the Producer is an original party to the Agricultural Fibre Contract and bound by the terms
thereof, and the Producer will not have any rights to terminate his obligation under this
contract as result of such default.
15. In the event of default by _____________ in its financing arrangements with any of its
lenders, so long as the Co‐op continues to fulfil is obligations under both the Agricultural Fibre
Contract and this agreement the Producer will continue to deal with the Co‐op in connection
with the matters under the Agricultural Fibre Contract, all as if the Producer is an original
terminate his obligations under this contract as a result of such default.
16. In the event of (i) default by ___________ in its financing arrangements with any of its
lenders (ii) notification of the default in writing addressed to the Producer at the address set
out in the Agreement, and (iii) default by the Co‐op under the Agricultural Fibre Contract of this
Agreement, the Producer will deal directly with the Producer in connection with the matters
under the agreement, all as if ___________________ is an original party to this agreement and
bound by the terms hereof, and under the Agricultural Fibre Contract, all as if the Producer is
an original party to the Agricultural Fibre Contract and bound by the terms of thereof, and the
17. This agreement may be renewed on the same terms as herein provided for a further
term of eight (8) years by either party giving notice in writing to the other party not less than
two (2) years prior to the expiration of this agreement. In the event of renewal by either party,
the following terms shall apply:
59 | P a g e
A) There will be no further right of renewal and;
B) The quantity of Agricultural Fibre to be provided and the purchase price to be
paid during the renewal term shall be negotiated by the parties in good faith taking into
account inflation, the profitability of ____________ and the support by the Co‐op of and
for ___________, however the total purchase price for the shall not be less than
$_________ per metric tonne of fibre baled pursuant to this contract in any year of the
18. Failure by the Producer to fulfil any term of this contract or any breach by the Producer
of any term herein may result at the sole option of the Co‐op, in the termination of this
The parties agree to the terms contained above.
Approved by the Board of Directors:
The Agricultural Fibre Producers Co‐op of _______________________