Project to Commercialize Agricultural Biomass for Combustion Energy Status Report - April 2012

This Status Report documents Working Group progress in assessing the feasibility of commercializing agricultural biomass for combustion energy, for the consideration of the Steering Committee. It identifies the activities undertaken by the Working Group and learnings from these activities i.e. what is known and still needs to be known on priority areas of focus. It also identifies outstanding priorities and how they will be addressed to allow for project planning.


Working Group: Business Case Working Group

Chair: Dr. John Kelly

Assessment of Business Case completed by: Aung Oo, The Western University Research Park, Sarnia-Lambton Campus, for the Ontario Federation of Agriculture and Erie Innovation and Commercialization, under the direction of John Kelly and Charles Lalonde

Others Consulted: Scott Abercrombie, Lovleen Bassan, John Clement, John Creighton, Stephen Duff, Servanne Fowlds, Helma Geerts, Barry Hill, Alan Ker, Aung Oo, Saif Sumbal, Gord Surgeoner, Dean Tiessen, Kurt Vanclief

Reporting Period: 2010/01 to 2012/04


Working Group Purpose

(Copy from Terms of Reference)

The purpose of the Business Case Working Group is to analyze whether there is a business case for agricultural biomass for combustion to justify commercialization in Ontario. Business considerations will be central to the Steering Committee's overall assessment of whether commercialization of agricultural biomass should be pursued.


Activities Undertaken or Planned by the Working Group

Activities Undertaken or Planned

Completion Date of Activities Undertaken

Deliverables

Comments/Highlights

Identify and describe individual activities e.g. forums, consultation with experts, review of research, development of fuel spec or model

yyyy/mm

Study, data, report, presentation, memo etc.

 

  • Steering Committee Meeting

2010/06

Formation of the Business Case Working Group, identification of chair and members

Agreement working group membership will be flexible based on expertise required

  • Inaugural meeting of the working group – Guelph

2010/10

Terms of Reference, discussion of approach to analyzing the business case; project timeline

 

  • Meeting at Ontario Fruit and Vegetable Growers Association's office (Kaji Kado, Mike Bouk, Gord Surgeoner, Dave Armitage, Charles Lalonde, John Kelly)

2010/12

Exploration of approach to analyzing the business case

Update on Kaji Kado's work and how it will impact the biomass working group. Focused efforts on biogas from fermentation

  • Meeting with Agricorp (Alan Ker and John Kelly)

2011

Discussion on the development of insurance programs for dedicated energy crops. Agreement that this will be a priority

Good production records are needed to put a process in place for crop insurance

  • Meeting with OMAFRA (Alan Ker and John Kelly)

 

Discussion on risk management programs

Information provided on direction to take with ACC Financial

  • Meeting with ACC Farmers Financial (John Kelly, Gord Surgeoner)

2012/01

2012/03

Meeting(s) to look at the development of an advanced payment scheme for growers to establish dedicated energy crops

(Note: Steering Committee met with AAFC twice in 2011 to discuss)

Inclusion of biomass in the Advanced Payment Program appears to be on the horizon. ACC Financial is discussing with AAFC

  • Working group meeting - Guelph

2011/01

"Business Advantages – Electricity Generation" (John Kelly)

Efforts made to ensure OFA's and working group's analyses are complementary i.e. each fills in knowledge gaps while avoiding duplication

OPA has issued an RFP for a study on biomass for distributed generation. If energy markets move towards distributed energy, this would be a plus for ag biomass since haul range is a key economic challenge

  • Attendance at Southwest Ag Conference (Ridgetown)

2011/01

Presentation by Paul Carver: "Biomass Market Opportunities" on UK opportunities, policy, net margins of Miscanthus

Paul Carver estimates net margins of Miscanthus as higher than cash crops

  • Agricultural Biomass Technology Forum - Guelph

2011/04

Presentation by John Kelly to confirm the economic factors to be considered in the model, value chain analysis, competitive pressures (sources of biomass feedstock, end uses and infrastructure requirements), cost of production, aggregation, and end market analysis

Confirmation of approach to analyzing whether there is a business case for ag biomass

  • Working group meeting - Ridgetown

2011/06

Exchange of economic / business case models e.g. Aung Oo ( Sarnia-Lambton Research Park), Paul Carver (New Energy Farms), agreement on approach; identification of assumptions / values to be used as inputs into the model; draft outline of "The Business Case for Biomass Use for Combined Heat and Power in Ontario" (John Kelly)

Price point for biomass appears to be competitive to wind, solar, CHP, mushroom mulch, heat where natural gas is not available; economics of biomass for bioproducts is also favorable

Greenhouse industry would need a financial incentive to convert to biomass

May need a slight increase to FIT price to make it economic for ag biomass e.g. $0.15 for electricity, $0.14 for CHP

Agreement that working group needs to explore funding options to support further development of the economic model

  • Development of economic model (Aung Oo)

2012/01

 

Draft "Analysis of Business Case for Agricultural Biomass Use for Heat and Power"

OFA funded model development as part of its "Transformative Project to Generate Energy for Ontario by Developing an Innovative Agricultural Biomass Value Chain Sector"

2012/03 Final report and model Model was designed to be flexible to individual farmer/business owner inputs to provide customized estimates of returns
  • Presentations on model development and findings (Aung Oo and John Kelly)

2011/10

Conf Call

Refined assumptions / inputs used in economic model

Communicated key findings on business opportunities

2011/11

Meeting AAFC London

Refined assumptions / inputs used in economic model

Communicated key findings on business opportunities

2011/12

Meeting Ivey School, London

Refined assumptions / inputs used in economic model

Communicated key findings on business opportunities

2012/01

Steering Committee co-chairs

Refined assumptions / inputs used in economic model

Communicated key findings on business opportunities

2012/02

Business Case Working Group

Refined assumptions / inputs used in economic model

Communicated key findings on business opportunities

2012/03

Growing the Margins (London)

Refined assumptions / inputs used in economic model

Communicated key findings on business opportunities

2012/04

BioProducts Innovation Conference Sarnia

Refined assumptions / inputs used in economic model

Communicated key findings on business opportunities

2012/04

OMAFRA Conference, Sarnia

Refined assumptions / inputs used in economic model

Communicated key findings on business opportunities


Significant Findings on Each Working Group Area of Focus

Focus Area

What is Known

What Still Needs to be Known

Based on key Working Group tasks and deliverables as per the Terms of Reference

e.g. significant opportunities, challenges and barriers

i.e. critical information gaps

  • Economics at each stage of the value chain

From Assessment of Business Case:

  • Financial modeling of each stage in the value chain is available and can be refined over time as experience and markets grow
  • All indications are that demand for ag biomass will escalate
  • Some of the key opportunities include heat, electricity, CHP and distributed generation
  • At current yields, the acceptable price of purpose-grown biomass ranges from $104 – 149/tonne at farm gate
  • Miscanthus is the lowest cost biomass due to its high yield
  • Average transportation cost of ag biomass in Ont. is ~$30/tonne
  • Cost of biomass processing (i.e. pelletizing) is ~$40/tonne
  • Average total cost of Miscanthus and switchgrass pellets at consumers' gate are $173/tonne ($9.32/GJ) and $204/tonne ($11/GJ) respectively
  • Confirmation of OPG's and others' needs
  • Approaches to reducing establishment costs
  • Changing cost of production as yields/volumes increase
  • Cost effective processing alternatives
  • Risk management
  • Inclusion of ag biomass in the Advanced Payments Program is progressing (currently 18 month loan period)
  • Can the 18 month loan period in the Advanced Payment Program be extended for perennial crops?
  • Availability of crop insurance for ag biomass
  • Liability associated with the risk of fires when dry biomass is in the field and other stages in the value chain; this may be a property insurance rather than crop insurance issue
  • Impact on competing uses for agricultural biomass
  • Price paid for ag biomass tends to be higher for bioproducts than for energy; while demand is currently low, it is expected to increase significantly
  • There appears to be a surplus of ag residue available to meet current livestock bedding, mulch, and bio-composite demands
  • To what degree will ag biomass crops replace ag residues for traditional uses (e.g. bedding, mulch, feed filler) and what will the impact be?
  • Competitiveness with forestry biomass, US sourced biomass and other sources of energy
  • Ag biomass may be competitive with forestry biomass depending on proximity to market and moisture level requirements (ag biomass dries in the field)
  • While forestry biomass is favored due to its uniformity and lower ash and chlorine content, a process has been developed to remove from ag biomass, nutrients and other elements undesirable for combustion
  • Forestry biomass is preferred by existing large energy producers; fuel quality could be a major hurdle for ag biomass for large-scale electricity generation
  • Both switchgrass and Miscanthus are cost competitive with electricity, heating oil and propane in terms of energy cost per Gj
  • European biomass pellets demand could significantly increase in the next 5-10 years; however, it may be difficult for Ontario biomass to compete against subsidized US biomass
  • Cost effective methods to improve fuel quality for combustion
  • Assessment of EU biomass markets
  • Risk of proceeding/not proceeding
  • Development of the bio-economy is dependent on the availability of biomass
  • While market development is promising, it is possible that producers will not be able to secure markets over the short term. Given high establishment costs for ag biomass, this is a significant risk
  • Investing in processing infrastructure is also risky without established markets
  • Cost of production of ag biomass will come down as establishment costs becomes more affordable and varieties suited to Ontario conditions are developed
  • Crops planted now could tie up the land for 10-20 years
  • Market development remains the greatest need
  • Deliverable schedule for biomass
  • At present, ~2,500 acres of purpose-grown biomass in Ont.
  • Market needs for combustion and other purposes (bedding, mulch, bioproducts) are increasing but producers are still challenged to line up markets
  • With a 2-3 year lag time prior to harvest of perennial biomass crops, ramping up production will not be immediate. Short-term supply gaps could be met with ag residues and annual crops
  • Will the markets be there when the biomass becomes available?
  • Environmental and social considerations
  • Environmental Sustainability Working Group, OSCIA and OFA are also addressing
  • Indications are that environmental sustainability is achievable
  • Ag biomass can help to achieve environmental benefits such as erosion control and increased habitat and biodiversity
  • From a social perspective, ag biomass offers a unique opportunity for low maintenance agriculture for part-time farmers and rural residents, and full time farmers who want to diversify their cropping systems
 

Overall Assessment

(Provide an assessment (or preliminary assessment if more needs to be known) of the (technical, economic or environmental) feasibility of agricultural biomass for combustion energy. To do this, synthesize the information above on What is Known and What Still Needs to be Known and summarize the observations of the Working Group on biomass feasibility)

The potential exists for agricultural biomass to commercialize for combustion energy in Ontario. However, technical challenges need to be addressed.

If combustion technologies become available for agricultural biomass and fuel quality and emission standards can be met, some of the most promising opportunities appear to be biomass for heat especially in areas without access to natural gas and combined heat and power including distributed generation. Multiple markets for bio-products would reduce risk and potentially improve returns.

At this point, the business case analysis suggests that agricultural biomass is most applicable to local markets that do not require advanced processing or long distance transportation. The business case is expected to strengthen as biomass establishment costs are reduced and yields increase as new varieties are developed.

While advanced payments and crop insurance may become available for agricultural biomass, there is still considerable risk associated with the lack of markets at this time. This creates a chicken and egg situation leaving biomass markets constrained by the lack of supply and supply being constrained due to the lack of markets.


Outstanding Priorities

Outstanding Priorities

How and When Priorities Will be Addressed

Consequences if Priorities are not Addressed

Identify priorities that still need to be addressed to complete or validate the Working Group's assessment of feasibility (one row per priority)

Identify the activities required to address the outstanding priorities and provide the target completion date for each activity (yyyy/mm)

List the impacts of not responding to the outstanding priority

  • Exploration of the end use market based upon heat energy
  • Identification of potential markets where natural gas is not available (oil & propane users)
  • Provide info on available combustion technologies for ag biomass heat; tap into experience of J. Malecki, F. Preto, A. Dhutta, etc.
  • Work with the Technical Working Group to ensure air quality standards can be met; consult with Bill Van Heyst and others
  • Share info with EDOs on biomass opportunities
  • Explore at ag biomass economic forum in 2012/11
  • Producers may be unable to sell their biomass
  • Producers will be dissuaded from establishing biomass crops and the business case for processors will be lacking
  • Potential delayed or lost opportunity to develop the bio-economy
  • Exploration of the end use market based on CHP including distributed generation
  • OFA study on transformative technologies will explore; completion by 2013/03
  • Explore at ag biomass economic forum in 2012/11
  • Potential delayed or lost economic opportunity
  • Understanding of the realistic opportunity for electricity generation
  • Government decision on the role of agricultural biomass at Nanticoke and Lambton generating stations expected by end of 2012
  • Inability to set realistic expectations on the demand for ag biomass
  • Confirmation of Advanced Payment Program inclusion of ag biomass
  • Development of crop insurance programs
  • On-going discussions with AAFC and ACC Farmers Financial
  • Provide input on crop loss from key growers for consideration by Agricorp – 2012/04-05
  • Establishment of biomass crops will be reduced
  • Consideration of different business models (e.g. co-ops, partnerships, sole proprietorships)
  • Explore at ag biomass economic forum in 2012/11
  • Potential delayed or lost economic opportunity
  • Understanding of the impact on competing uses e.g. livestock bedding, mushroom mulch, pasturelands converted to biomass crops
  • Explore at ag biomass economic forum in 2012/11
  • Inability to plan to mitigate impacts if necessary
  • Investigate the development of a business case self-assessment tool for producers and aggregators
  • Adapt spreadsheet from "Assessment of Business Case for Purpose-Grown Biomass in Ontario" by fall 2012
  • Lack of capacity to plan; reduced uptake
  • Investigate the potential for a pilot program to convert propane or oil grain dryer and/or furnace/boiler to ag biomass
  • Investigation of the opportunity in spring/summer 2012
  • Consider bringing in technology mentor in from Denmark under the Rapid Response Program/Ambassador Program
  • Potential missed opportunity

Additional Notes/Comments

(Enter additional comments, not summarized in other areas of this report, but critical to understanding the status of the project in terms of its timelines, resources and deliverables)


References

(Identify the resources used by the Working Group to arrive at their assessment (e.g. reports, websites, key experts consulted) )

  • Carver, Paul. 2011. Biomass Market Opportunities presented at Southwest Ag Conference. Ridgetown, ON.
  • Gallant, P. and Fox G. Omitted Costs, Inflated Benefits: Renewable Energy Policy in Ontario. Bulletin of Science, Technology & Society XX(X) 1–8
  • Ginther, M. S. 2011. Industrial Wood Pellets – The European Market Opportunity. International Biomass Conference and Expo. St. Louis Mo.
  • Kado, Kaji. 2011. Literature Review and Study: Energy Market Alternatives for Commercially Grown Biomass in Ontario. PPD inc. for Ontario Federation of Agriculture. Toronto, ON.
  • Kelly, J. M., Oo, A, Lalonde, C, Prendiville, M. and Hewson, D. Production Economics Comparison of Purpose-Grown Biomass and Ontario Major Crops. Growing The Margins. March 2012. Aung Oo, Charles Lalonde, John Kelly, Mary Prendiville, Don Hewson
  • Kumar, A. and Sultana, A. 2010. BioHeat in Alberta: Techno-economic Assessment. Final Report Submitted to: Agriculture and Food Council of Alberta And Alberta Innovates – Technology Futures (Vegreville). University of Alberta, Edmonton, Alberta
  • Kludze et. al. 2010. Assessment of the Availability of Agricultural Biomass for Heat and Energy Production in Ontario. University of Guelph for Ontario Ministry of Agriculture, Food and Rural Affairs. Guelph, ON.
  • Carver, Paul. 2011. Biomass Market Opportunities presented at Southwest Ag Conference. Ridgetown, ON.
  • Duffy, M.D. and Nanhou, V.Y. 2002. Cost of Producing Switchgrass for Biomass in Southern Iowa. Trends in New Crops and New Uses. Janick, J. and Whipkey, A. (eds.). ASHS Press, Alexandria, VA.
  • Flynn, P. 2007. Biomass energy: cost and scale issues. Department of Mechanical Engineering, University of Alberta.
  • Kado, Kaji. 2011. Literature Review and Study: Energy Market Alternatives for Commercially Grown Biomass in Ontario. PPD inc. for Ontario Federation of Agriculture. Toronto, ON.
  • Karwandy, J. 2007. Pellet Production From Sawmill Residue: A Saskatchewan Perspective. Report for the Saskatchewan Forest Centre.
  • Kent Group
  • Kiel, J. Torrefaction for Biomass Upgrading into Commodity Fuels. IEA Bioenergy Task 32 Workshop on Fuel Storage, Handling and Preparation and System Analysis for Biomass Combustion Technologies, Berlin, May 7, 2007.
  • Kludze et. al. 2010. Assessment of the Availability of Agricultural Biomass for Heat and Energy Production in Ontario. University of Guelph for Ontario Ministry of Agriculture, Food and Rural Affairs. Guelph, ON.
  • Mani, S., Sokhansanj, S., Bi, X. and Turhollow, A. 2006. Economics of Producing Fuel Pellets from Biomass. Applied Engineering in Agriculture, 22(3), 421-426.
  • Murray, G., 2010a. Lillooet Biomass Energy Corporation Business Plan for a Wood Pellet Plant.
  • Murray, G., 2010b. Canadian Wood Pellet Industry Overview. Wood Pellet Association of Canada.
  • National Energy Board
  • OMAFRA, April 2011, Agricultural Biomass Technology Forum: Summary Report and Presentations
  • OMAFRA, December 2011, Inventory of Biomass Research Projects
  • Ontario Power Authority, 2011, Integrated Power System Plan, Toronto, ON
  • Ontario Power Generation, 2011, OPG Thermal Repowering Program
  • Oo, A., Lalonde, C., Kelly, J. M., Prendiville, M. and Hewson. D. 2012. Agricultural Biomass for Heat and Power – Ontario Case. Growing the Margins. London, Ontario.
  • Samson, R. 2008. Optimization of Switchgrass Management for Commercial Fuel Pellet Production. Final report (draft copy), REAP-Canada.
  • Sokhansanj, S. and Fenton, J. 2006. Cost Benefit of Biomass Supply and Preprocessing. BIOCAP Research Integration Program, Synthesis paper, BIOCAP Canada.
  • Sorensen, A. L., 2005. Economies of scale in biomass gasification system, Interim report IR-05-030, International Institute for Applied Systems Analysis, Austria.
  • Sultana, A, Kumar, A, and Harfield, D. Development of agri-pellet production cost and optimum size. Bioresource Technology. 2010 Jul;101(14):5609-21. Epub 2010 Mar 1. University of Alberta.
  • Uasuf, A. and Becker, G. 2011. Wood Pellets Production Costs and Energy Consumption Under Different Framework Conditions in Northeast Argentina. Biomass and Bioenergy, 35, 1357-1366.
  • Experts consulted: Nick Betts, Ontario Soil and Crop Improvement Association; Stephen Duff and John Molenhuis, OMAFRA; Peter Sykanda, OFA; Don Nott, Nott Farms; Scott Abercrombie, Gildale Farms; Jake Lozon, Rural Lambton Stewardship Network; Om Dangi, Agriculture Environmental Renewal Canada; Dean Tiessen, New Energy Farms; Ian Moncrieff, Canadian Biofuel Inc.; Ralph Spaans, Ontario Ministry of Natural Resources; Gord Surgeoner, Ontario Agri-Food Technologies; Lovleen Bassan, Ontario Power Generation; Khurshid Saharan and Ted Pidgeon, Agriculture and Agri-Food Canada; Members of the Business Case Working Group; Members of Steering Committee for Agricultural Biomass for Combustion Energy; AGRIS Co-operative Ltd.

For more information:
Toll Free: 1-877-424-1300
E-mail: ag.info.omafra@ontario.ca
Author: OMAFRA Staff
Creation Date: 23 August 2012
Last Reviewed: 22 January 2014