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Feasibility Assessment For High Efficiency, Low
Emission Wood Heating In Tok, Dot Lake,
Tanacross, Mentasta Lake, Tetlin and Northway
Draft Interim Report #2a
February 27, 2007
Prepared for:
Alaska Wood Energy Development Task Group
Prepared by:
Daniel Parrent,
Wood Utilization Specialist
Wood Products Development Service
Juneau Economic Development Council
Legal Notice
This Feasibility Assessment for High Efficiency, Low Emission Wood Heating was prepared by Daniel Parrent,
Wood Utilization Specialist, Juneau Economic Development Council for the Alaska Wood Energy
Development Task Group. Funding for this report was provided by the Alaska Energy Authority and USDA
Forest Service Office of State and Private Forestry. It does not necessarily represent the views of JEDC, the
State of Alaska, or the US Department of Agriculture. JEDC and the Alaska Wood Energy Development Task
Group member agencies, their employees, contractors, and subcontractors make no warranty, express or
implied, and assume no legal liability for the information in this report; nor does any party represent that the
use of this information will not infringe upon privately owned rights. This report has not been approved or
disapproved by JEDC nor has JEDC passed upon the accuracy or adequacy of the information in this report.
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Table of Contents
Executive Summary 4
Section 1. Overview 4
1.1 Goals and Objectives
1.2 Evaluation Criteria, Project Scale, Operating Standards
1.3 Recommended Actions
1.3.1 AGSD Offices
1.3.2 Dot Lake School
1.3.3 Tanacross School
1.3.4 Mentasta Lake School
1.3.5 Tetlin School
1.3.6 Northway School
1.3.7 Tok School and Multi-Purpose Facility
Section 2. Evaluation Criteria, Implementation, Wood Heating Systems 7
2.1 Evaluation Criteria
2.2 Successful Implementation
2.3 Classes of Wood Heating Systems
Section 3. The Nature of Wood Fuels 8
3.1 Wood Fuel Forms and Current Utilization
3.2 Wood Fuel Properties
3.3 Fuel Quality
3.4 Recoverable Heat and Fuel Oil Equivalence/Displacement
Section 4. Wood Fueled Heating Systems 11
4.1 Cordwood Boiler Systems
4.1.1 Low Efficiency High Emission Cordwood Boilers
4.1.2 High Efficiency Low Emission Cordwood Boilers
4.2 Bulk Fuel Boiler Systems
Section 5. Selecting the Appropriate System 16
5.1 Comparative Cost of Fuels
5.1.1 Cost per MMBtu Sensitivity – Bulk Fuel
5.1.2 Cost per MMBtu Sensitivity – Cordwood
5.2 Determining Demand
5.3 Summary of Field Findings
Section 6. Financial Metrics 23
6.1 Simple Payback Period
6.2 Present Value
6.3 Net Present Value
6.4 Internal Rate of Return
Section 7. Economic Feasibility of Cordwood Systems 27
7.1 Initial Investment Cost Estimates
7.2 Generic OM&R Cost Estimates
7.3 Calculation of Financial Metrics
7.3.1 Simple Payback Period for Small, Medium and Large Cordwood Boilers
7.3.2 PV, NPV and IRR Estimates for a Small Generic Cordwood Boiler
7.3.3 PV, NPV and IRR Estimates for a Medium Generic Cordwood Boiler
7.3.4 PV, NPV and IRR Estimates for a Large Generic Cordwood Boiler
7.4 The Effect of Discount Rate on Financial Metrics of Cordwood Boilers
Section 8. Economic Feasibility of Bulk Fuel Systems 36
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8.1 Capital Cost Components
8.2 Generic OM&R Cost Allowances
8.3 Calculation of Financial Metrics
8.3.1 Simple Payback Period for Small and Medium Bulk Fuel Boilers
8.3.2 PV, NPV and IRR Estimates for a Small Generic Bulk Fuel Boiler
8.3.3 PV, NPV and IRR Estimates for a Medium Generic Bulk Fuel Boiler
8.4 The Effect of Discount Rate on Financial Metrics of Bulk Fuel Boilers
Section 9. Conclusions 45
9.1 Small Applications
9.2 Medium Applications
9.3 Large Applications
9.3.1 Northway School
9.3.2 Tok School and Multi-Purpose Facility
Appendix A 48
Appendix B 49
Appendix C 50
List of Tables and Figures
Table 3-1. Heating Values of Selected Alaska Species
Table 3-2. Effect of Moisture Content on Gross Heating Value of White Spruce
Table 3-2. Deliverable Heating Values and Fuel Oil Equivalence
Table 4-2. HELE Cordwood Boiler Suppliers
Table 4-3. Emissions from Wood Heating Appliances
Table 4-4. Bulk Fuel Boiler System Vendors
Table 4-5. Bulk Fuel Boilers in Alaska
Table 4-6. Bulk Fuel Boilers in Montana Schools
Table 4-7. Darby Public School Wood Chip Boiler Costs
Table 5-1. Comparative Cost of Fuel Oil vs. Cordwood and Bulk Fuel
Figure 5-1. Effect of White Spruce Bulk Fuel (MC40) Costs on Cost of Delivered Heat
Figure 5-2. Effect of White Spruce Cordwood (MC20) Cost on Cost of Delivered Heat
Table 5-2. Estimated Annual Fuel Oil Consumption, AGSD Facilities
Table 5-3. Estimate of Heat Required in Coldest 24 Hr Period
Table 5-4. Estimate of Total Wood Consumption, Comparative Costs and Potential Savings
Table 7-1. Initial Investment Cost Scenarios for Generic Cordwood Systems
Table 7-2. Labor/Cost Estimates for Generic Cordwood Systems
Table 7-3. Summary of Total Annual OM&R Cost Estimates
Table 7-4. Simple Payback Period Analysis
Table 7-5. PV, NPV and IRR Estimates For a Small Generic Cordwood Boiler Installation
Table 7-6. PV, NPV and IRR Estimates For a Medium Generic Cordwood Boiler Installation
Table 7-7. PV, NPV and IRR Estimates For a Large Generic Cordwood Boiler Installation
Table 7-8. PV, NPV and IRR as a Function of Discount Rate
Table 8-1. Initial Investment Costs for Generic Bulk Fuel Systems
Table 8-2. Total OM&R Cost Allowances for Bulk Fuel Systems
Table 8-3. Simple Payback Period Analysis
Table 8-4. PV, NPV and IRR Estimates For a Small Generic Bulk Fuel Boiler Installation
Table 8-5. PV, NPV and IRR Estimates For a Medium Generic Bulk Fuel Boiler Installation
Table 8-6. PV, NPV and IRR as a Function of Discount Rate for a Range of Small Bulk Fuel System
Investment Costs
Table 8-7. PV, NPV and IRR as a Function of Discount Rate for a Range of Medium Bulk Fuel System
Investment Costs
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EXECUTIVE SUMMARY
The potential for heating Alaska Gateway School District (AGSD) facilities with high efficiency,
low emission (HELE) wood-fired boilers in several communities is evaluated for the Alaska Wood
Energy Development Task Group (AWEDTG).
Early in 2006, organizations submitted a Statement of Interest (SOI) to the Alaska Wood Energy
Development Task Group (AWEDTG). Task Group members reviewed all the SOIs and selected
projects for further review based on the selection criteria presented in Appendix A. Each AGSD
facility was visited by AWEDTG representative(s) during the summer of 2006 and information was
obtained for each facility. Preliminary assessments were made and challenges were identified.
Potential wood energy systems were considered for each project using AWEDTG, USDA and
AEA objectives for energy efficiency and emissions. Recommendations are made for each site.
SECTION 1. OVERVIEW
1.1 Goals and Objectives
• Visit AGSD facilities in Tok, Dot Lake, Tanacross, Mentasta Lake, Northway and Tetlin
• Assess the suitability of the facilities for siting a HELE wood-fired boiler
• Assess the type(s) and availability of wood fuels
• Size and estimate the capital costs of suitable HELE system
• Estimate the annual operation and maintenance costs of a HELE system
• Estimate the potential economic benefits from installing a HELE wood heating system
1.2 Evaluation Criteria, Project Scale and Operating Standards
• All projects meet the AWEDTG objectives for petroleum fuel displacement, use of
hazardous forest fuels or forest treatment residues, use of local wood processing residues,
sustainability of the wood supply, project implementation, operation and maintenance and
community support
• The large energy consumers have the best potential for feasibly implementing a wood
energy system and deserve detailed engineering analysis
• HELE wood systems are not feasible for very small (<500 gpy) applications. These may
be satisfied with domestic wood appliances, such as wood stoves or pellet stoves/furnaces
• Systems consuming less than 2,000 gallons per year represent little or small savings with
HELE wood systems unless they can be enclosed in an existing structure, wood is low cost,
and labor is free
• Economic benefits may depend on low cost buildings and piping systems
• Efficiency and emissions standards for Outdoor Wood Boilers (OWB) will change
beginning in October 2006 which will increase costs for small systems
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1.3 Recommended Actions
1.3.1 Recommended Actions for the AGSD Offices in Tok
• The AGSD Office complex in Tok is the smallest of the AGSD facilities. The annual
fuel consumption estimate is 4,000 gallons.
• The estimated required boiler capacity (RBC) to heat the AGSD Office complex is
174,000 Btu/hr during the coldest 24-hour period.
• At $3.00 per gallon and 4,000 gallons of fuel oil per year, the school district pays $12,000
per year for fuel oil. The HELE wood fuel equivalent of 4,000 gallons of fuel oil is 36
cords, and at $125/cord represents a gross annual savings of $7,500.
• A bulk fuel system is not feasible for the AGSD Offices but this facility could benefit
from a small HELE cordwood system.
• Although the return/payback on small systems is marginal, further design and engineering
for a small HELE cordwood system for the AGSD Offices is warranted.
1.3.2 Recommended Actions for the Dot Lake school
• The Dot Lake School is a “small” facility relative to the rest of the AGSD facilities. The
annual fuel consumption estimate is 4,000 to 5,000 gallons.
• The estimated required boiler capacity (RBC) to heat the Dot Lake School is 198,000
Btu/hr during the coldest 24-hour period.
• At $3.00 per gallon and 4,500 gallons of fuel oil per year, the school district pays $13,500
per year for fuel oil. The HELE wood fuel equivalent of 4,500 gallons of fuel oil is 42
cords, and at $125/cord represents a gross annual savings of $8,250.
• A bulk fuel system is not feasible for the Dot Lake School but this facility could benefit
from a small HELE cordwood system
• Although the return/payback on small systems is marginal, further design and engineering
for a small HELE cordwood system for the Dot Lake School is warranted.
1.3.3 Recommended Actions for the Tanacross School
• The Tanacross School is a “small” facility relative to the rest of the AGSD facilities. The
annual fuel consumption estimate is 5,000 to 6,000 gallons.
• The estimated required boiler capacity (RBC) to heat the Tanacross School is 250,000
Btu/hr during the coldest 24-hour period.
• At $3.00 per gallon and 5,500 gallons of fuel oil per year, the school district pays $16,500
per year for fuel oil. The HELE wood fuel equivalent of 5,500 gallons of fuel oil is 52
cords, and at $125/cord represents a gross annual savings of $10,000.
• A bulk fuel system is not feasible for the Tanacross School but this facility could benefit
from a small HELE cordwood system
• Although the return/payback on small systems is marginal, further design and engineering
for a small HELE cordwood system for the Tanacross School is warranted.
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1.3.4 Recommended Actions for the Mentasta Lake School
• The Mentasta Lake School is a “medium-size” facility relative to the rest of the AGSD
facilities. The annual fuel consumption estimate is 12,000 to 15,000 gallons.
• The estimated required boiler capacity (RBC) to heat the Mentasta Lake School is
650,000 Btu/hr during the coldest 24-hour period.
• At $3.00 per gallon and 13,500 gallons of fuel oil per year, the school district pays
$40,500 per year for fuel oil. The HELE wood fuel equivalent of 13,500 gallons of fuel oil
is 127 cords, and at $125/cord represents a gross annual savings of $24,625.
• A bulk fuel system is not feasible for the Mentasta Lake School but this facility could
benefit from a small HELE cordwood system
• The return/payback on medium-size HELE wood systems is good. Further design and
engineering for a medium-size HELE cordwood system for the Mentasta Lake School is
warranted.
1.3.5 Recommended Actions for the Tetlin School
• The Tetlin School is a “medium-size” facility relative to the rest of the AGSD facilities.
The annual fuel consumption estimate is 12,000 to 15,000 gallons.
• The estimated required boiler capacity (RBC) to heat the Tetlin School is 650,000 Btu/hr
during the coldest 24-hour period.
• At $3.00 per gallon and 13,500 gallons of fuel oil per year, the school district pays
$40,500 per year for fuel oil. The HELE wood fuel equivalent of 13,500 gallons of fuel oil
is 127 cords, and at $125/cord represents a gross annual savings of $24,625.
• A bulk fuel system is not feasible for the Tetlin School but this facility could benefit from
a small HELE cordwood system
• The return/payback on medium-size HELE wood systems is good. Further design and
engineering for a medium-size HELE cordwood system for the Tetlin School is warranted.
1.3.6 Recommended Actions for the Northway School
• The Northway School is a “large” facility relative to the rest of the AGSD facilities. The
annual fuel consumption estimate is 25,000 gallons.
• The estimated required boiler capacity (RBC) to heat the Northway School is 1,031,000
Btu/hr during the coldest 24-hour period. To achieve the capability to meet that demand
would require the installation of two HELE cordwood boilers. However, the installation of
a single 950,000 Btu/hr cordwood boiler could supply up to 92% of the RBC during the
coldest 24 hour period and still realize a significant annual economic benefit. A bulk fuel
system sized to 1.5 million Btu/hr (to meet 100% of the demand) is another option,
although the capital costs associated with such a system is an “order of magnitude” higher
than a cordwood system, and the fuel supply is not established.
• At $3.00 per gallon and 25,000 gallons of fuel oil per year, the school district pays
$75,000 per year for fuel oil.
• The HELE cordwood fuel equivalent of 25,000 gallons of fuel oil is 235 cords, and at
$125/cord represents a gross annual savings of $45,625.
• The bulk fuel equivalent of 25,000 gallons of fuel oil is 535 tons, and at $40 per ton
represents a gross annual savings of $53,600
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• A bulk fuel system may be marginally feasible for the Northway School; key financial
metrics become positive after 20 years given certain assumptions, however . . .
• The return/payback on large HELE cordwood systems is very good. Further design and
engineering for a medium-size HELE cordwood system for the Northway School is
warranted.
1.3.7 Recommended Actions for the Tok School and Multi-Purpose Facility
• The Tok School and Multi-Purpose Facility (MPF) is the largest facility in the AGSD
system. The annual fuel consumption estimate is 45,000 to 50,000 gallons.
• The estimated required boiler capacity (RBC) to heat the Tok School and MPF is
2,078,000 Btu/hr during the coldest 24-hour period. Although it may be technically
possible to meet that demand by installing three large (950,000 Btu/hr) HELE cordwood
boilers, it is unlikely to be practical. A bulk fuel system sized to 2.5 to 3 million Btu/hr is
likely to be the better option, although the capital costs associated with such a system are
high and the fuel supply is not established.
• At $3.00 per gallon and 48,000 gallons of fuel oil per year, the school district pays
$144,000 per year for fuel oil. The bulk fuel equivalent of 48,000 gallons of fuel oil is
1,028 tons, and at $40 per ton represents a gross annual savings of $102,880
• Given certain assumptions, a bulk fuel system appears feasible for the Tok School/MPF
School and further investment in design and engineering is warranted.
SECTION 2. EVALUATION CRITERIA, IMPLEMENTATION, WOOD HEATING SYSTEMS
2.1 Evaluation Criteria
The AWEDTG selected projects for evaluation based on the criteria listed in Appendix A. All
AGSD projects meet the AWEDTG criteria for fuel displacement, use of forest residues for public
benefit, use of local residues, sustainability of the wood supply, project implementation, and
operation and maintenance. In the case of cordwood boiler applications, the wood supply from
forest fuels or local processing residues is adequate and matches the applications. In the case of
bulk fuel boiler applications, the fuel supply is not well identified, although it is reasonably
expected that the supply would develop commensurate with the demand.
2.2 Successful Implementation
In general, two aspects of project implementation have been important to wood energy projects in
the past: clear identification of a sponsoring agency and dedication of personnel. In situations
where several organizations are responsible for different community services, it must be clear
which organization would sponsor or implement a wood-burning project. (NOTE: This is not
necessarily the case with AGSD) Boiler stoking and/or maintenance is required for approximately
12-15 minutes several times a day (depending on the heating demand) for most manual systems,
and dedicating personnel for the operation is critical to realizing savings from wood fuel use. And
the cost of that labor cannot be overlooked. In Dot Lake, for example, the wood system was idle
for a more than a year when an employee could not be found to stoke and maintain the boiler. For
each project, it is assumed that personnel would be assigned as necessary and that “boiler duties”
would fit into the responsibilities and/or job description of existing facilities personnel.
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2.3 Classes of Wood Energy Systems
One of the objectives of the AWEDTG is to support projects that would use energy-efficient and
clean burning wood heating systems, i.e., high efficiency, low emission (HELE) systems.
There are, basically, two classes of wood energy systems: manual cordwood systems and
automated bulk fuel systems. Cordwood systems are generally appropriate for applications where
the maximum heating demand ranges from 100,000 to 1,000,000 Btu per hour, although smaller
and larger applications are possible. Bulk fuel systems that burn chips, sawdust, bark/hog fuel,
shavings, etc., are generally applicable for applications where the maximum heating demand
exceeds 1 million Btu per hour, although local conditions, especially fuel availability, can exert
strong influences on the feasibility of a bulk fuel system.
Usually, an automated bulk fuel boiler is tied in directly with the existing oil-fired system. With a
cordwood system, glycol from the existing oil-fired boiler system would be circulated through a
heat exchanger at the wood boiler ahead of the existing oil boiler. A bulk fuel system is usually
designed to replace 100% of the fuel oil used in the oil-fired boiler. Though it is possible for a
cordwood system to be similarly designed, they are usually intended as a supplement, albeit a large
supplement, to an oil-fired system.
In either case, the existing oil-fired system would remain in place and be available for peak demand
or backup in the event of a failure or downtime in the wood system.
SECTION 3. THE NATURE OF WOOD FUELS
3.1 Wood Fuel Forms and Current Utilization
Wood fuels in the Tanana Valley are most likely to be in the form of cordwood and/or large,
unprocessed sawmill residues, primarily slabwood.
Sawdust and planer shavings currently supply the limited demand for bulk fuel in the Tanana
Valley. Other than sawdust and shavings, there is relatively little bulk fuel available, but this could
change if the demand develops. There are several idle chippers located in the general area.
3.2 Wood Fuel Properties
Heating values for Alaska species are presented in Table 3-1. High Heating Values (HHV), which
are calculated on an oven-dry (OD) basis, are similar for most species on a weight basis. Resinous
species typically have higher HHV1. The recoverable heating value (RHV), which takes into
account moisture content and other energy losses2, ranges from 4,898 to 5,325 Btu/lb at 20 percent
moisture content (MC20) and 3,358 to 3,678 Btu/lb at 40 percent moisture content (MC40), for
species commonly found in the Tanana Valley (need data for aspen and black spruce).
Ideally, cordwood should be air dried to 20% moisture content (MC20), and one of the benefits of
using cordwood is that the user may, with good planning, have the opportunity to realize a
substantial economic benefit by buying it green and allowing it to dry. The RHV of white spruce
(the most common species in the Tanana Valley) at MC20 is about 15.66 million Btu (MMBtu) per
cord (assumed to contain 100 cubic of “fuel”).
Bulk fuels (wood chips, sawdust, etc.) are generally used ‘as delivered’ from the producer with
little opportunity for additional drying. Ideally, bulk fuels should contain 40% water (MC40) or
9
less, on a wet weight basis (approximately 67% on a dry weight basis). Bulk fuels are usually
traded on a weight (ton) basis and the price may be adjusted up or down to reflect the moisture
content of the fuel. White spruce has a RHV of 7.36 million (MM) Btu per ton at MC40.
Table 3-1. Heating Values of Selected Alaska Species
Cordwood Bulk Fuel (chips, sawdust, etc.)
RHV2 RHV2
SPECIES
HHV1
Btu/lb
(MC0)
GHV2
Btu/lb
(MC20)
BTU/lb
(MC20)
MMBtu
per cordb
GHV2
Btu/lb
(MC40)
Btu/lb
(MC40)
MMBtu
per ton
Alaska yellow-cedar 9,900 7,920 6,101 20.30 5,940 4,260 8.52
Western redcedar 9,144a 7,315 5,520 13.51 5,486 3,824 7.65
Western hemlock 8,515a 6,812 5,037 16.86 5,109 3,462 6.92
Sitka Spruce 8,100 6,480 4,718 13.88 4,860 3,223 6.45
White Spruce 8,890 7,112 5,325 15.66 5,334 3,678 7.36
Red Alder 7,995a 6,396 4,638 13.67 4,797 3,163 6.33
Paper (white) birch 8,334 6,667 4,898 18.90 5,000 3,358 6.72
Quaking aspen
Black cottonwood 8,800 7,040 5,256 12.99 5,280 3,626 7.25
Black Spruce
Notes:
HHV= Higher Heating Value, from Fuelwood Characteristics of Northwestern Conifers and Hardwoods
GHV = Gross Heating Value = HHV x (1-MCwb/100) MCwb = percent moisture content calculated on a wet basis
RHV = Recoverable Heat Value = GHV – Energy Losses (see Appendix B)
a average of published range of values1
b a cord is assumed to contain 100 cubic feet of “fuel” (wood plus bark)
Most bulk fuel boilers operate well when fuel(s) contain less than 40% water (MC40) and poorly or
very poorly if the moisture content is above 50%. In some areas, bulk fuels that are stored
unprotected outdoors can absorb rainwater and reach moisture contents as high as 65%3, so some
consideration for dry storage may be appropriate. Schools in the northeast USA using wood chips
select suppliers carefully and often pay a premium for chips below 40% MC4.
3.3 Fuel Quality
Fuel quality, especially moisture content, has a large impact on the performance of wood-fueled
boilers. For these assessments, it is assumed that cordwood has been seasoned and dried to 20%
MC and bulk fuels average 40% water. Wetter fuel has lower heating values as shown in Table 3-2.
Table 3-2. Effect of Moisture Content on Gross Heating Value of White Spruce
SPECIES
HHV
Btu/lb
Oven-dry (OD)
GHV
Btu/lb
(MC20)
GHV
Btu/lb
(MC30)
GHV
Btu/lb
(MC40)
GHV
Btu/lb
(MC50)
White spruce 8,890 7,112 6,223 5,334 4,445
Notes:
HHV= Higher Heating Value, from Fuelwood Characteristics of Northwestern Conifers and Hardwoods 1
GHV = Gross Heating Value = HHVx (1-MCwb/100); MCwb is moisture content (wet basis) 2
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3.4 Recoverable Heat and Fuel Oil Equivalence/Displacement
Wood boilers are more expensive to install, own and operate than fuel oil boilers. Fuel cost
savings (the difference between the cost of wood fuel and the cost of fuel oil) must pay for these
higher investment and operating costs. The potential fuel oil displacement depends on the
recoverable heating value (RHV) of the wood and the efficiency with which the boiler converts
wood to energy (CE). Table 3-2 shows the potential amount of fuel oil displaced by wood at
typical efficiencies with the heating values from Table 3-1. Wood system boiler conversion
efficiency (CE) can be expected to vary from 35% for LEHE systems to 75% for HELE systems.
Deliverable heating value (DHV) is calculated using the equation:
DHV= RHV X CE 2
Where DHV = Deliverable Heating Value
RHV = Recoverable Heating Value
CE = Conversion Efficiency
The fuel oil equivalence for white spruce bulk fuel (chips, sawdust) at MC40 is calculated at 46.7
gallons per ton at 70% conversion efficiency. The fuel oil equivalence for white spruce cordwood
at MC20 in a HELE cordwood boiler is calculated at 106.4 gallons of fuel oil; more than twice as
much as an LEHE boiler at 49.6 gallons per cord.
Table 3-2. Deliverable Heating Values and Fuel Oil Equivalence
Boiler and Fuel RHV CE DHV2 Fuel Oil Equivalent
(1 unit = X gallons)
Oil boiler, #2 Fuel Oil 138,000
Btu/gallon 80% 110,400
Btu/gallon 1gallon = 1 gallon
Wood chip boiler,
white spruce, bulk
wood fuel @ 40% MC
7.36
MMBtu/ton 70% 5.15
MMBtu/ton 1 ton = 46.7 gallons
HELE boiler, white
spruce cordwood @
20% MC
15.66
MMBtu/cord 75% 11.75
MMBtu/cord 1 cord = 106.4 gallons
LEHE boiler, white
spruce cordwood @
20% MC
15.66
MMBtu/cord 35% 5.48
MMBtu/cord 1 cord = 49.6 gallons
Notes:
RHV = Recoverable Heating Value
DHV = Deliverable Heating Value
HELE = High efficiency. low emission
LEHE = Low efficiency, high emission
MMBtu = million British thermal units
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SECTION 4. WOOD-FUELED HEATING SYSTEMS
4.1 Cordwood Boiler Systems
4.1.1 Low Efficiency High Emission Wood Boilers
Most manual outdoor wood boilers (OWBs) that burn cordwood are relatively low-cost and save
fuel oil but have been criticized for low efficiency and smoky operation. These could be called low
efficiency, high emission (LEHE) systems and there are dozens of manufacturers. The State of
New York recently instituted a moratorium on new LEHE OWB installations due to concerns over
emissions and air quality5. Other states are also considering regulations6,7,8,9. Since there are no
standards for OWBs (“boilers” and “furnaces” were exempted from the 1988 EPA regulations10)
OWB ratings are inconsistent and can be misleading. Standard procedures for evaluating wood
boilers do not exist, but test data from New York, Michigan and elsewhere showed a wide range of
apparent efficiencies and emissions among OWBs.
In 2006, a committee was formed under the American Society for Testing and Materials (ASTM)
to develop a standard test protocol for OWBs11. The standards included uniform procedures for
determining performance and emissions. Subsequently, the ASTM committee sponsored tests of
three common outdoor wood boilers using the new procedures. The results showed efficiencies of
35% to 40% and emissions more than nine times the standard for industrial boilers. Obviously,
these results were deemed unsatisfactory and new standards began to be developed.
In a news release dated January 29, 200712, the U.S. Environmental Protection Agency announced
a new voluntary partnership agreement with 10 major manufacturers to make cleaner-burning
OWBs. The new standard calls for emissions not to exceed 0.6 pounds (272.16 grams) of
particulate emissions per million Btu of heat input. Compared to EPA’s 1988 emission standards
for non-catalytic woodstoves of 7.5 grams (0.0165 lbs) of smoke per hour, and 4.1 g/h (0.009 lb/hr)
for catalytic stoves (http://www.epa.gov/woodstoves/technical.html), this still seems quite liberal,
but it’s a step in the right direction.
To address local and state concerns over regulating OWB installations, the Northeast States for
Coordinated Air Use Management (NESCAUM), and EPA have developed model regulations that
suggest OWB installation specifications, clean fuel standards and owner/operator training.
(http://www.epa.gov/woodheaters/ and http://www.nescaum.org/topics/outdoor-hydronic-heaters)
Implementation of the new standard will improve air quality and boiler efficiency but will also
increase costs as manufacturers modify their designs, fabrication and marketing to adjust to the
new standards. Some low-end models will no longer be available.
4.1.2 High Efficiency Low Emission Cordwood Boilers
In contrast to low efficiency, high emission (LEHE) outdoor wood boilers there are a few units that
can rightly be considered high efficiency, low emission (HELE). These systems are designed to
burn cordwood fuel cleanly and efficiently.
Table 4-2 lists three HELE boiler suppliers, two of which have units operating in Alaska. A Tarm
gasification boiler is being used to heat a 5,000 square foot house in Palmer, AK.13 Tarm USA
supplies boilers from 100,000 Btu/hr to 198,000 Btu/hr maximum heat output and claims fuel to
12
hot water efficiencies of 80%. A Garn boiler by Dectra Corporation is used in Dot Lake, AK to
heat several homes and the washeteria, replacing 7,000 gallons per year (gpy) of #2 fuel oil.14
Table 4-2. HELE Cordwood Boiler Suppliers
Btu/hr ratings Supplier
EKO-Line 85,000 to 275,000 New Horizon Corp
www.newhorizoncorp.com
Tarm 100,000 to 198,000 Tarm USA
www.tarmusa.com/wood-gasification.asp
Garn 350,000 to 950,000 Dectra Corp.
www.dectra.net/garn
Note: Listing of any manufacturer, distributor or service provider does not constitute an endorsement.
Table 4-3 shows the results for a Garn WHS 1350 boiler that was tested at 157,000 to 173,000
Btu/hr by the State of Michigan using the new ASTM testing procedures, compared with EPA
standards for wood stoves and boilers. It is important to remember that wood fired boilers are not
entirely smokeless; even efficient boilers smoke for a few minutes on startup.4,15
Table 4-3. Emissions from Wood Heating Appliances
Appliance Emissions (grams/1,000 Btu delivered)
EPA Certified Non Catalytic Stove 0.500
EPA Certified Catalytic Stove 0.250
EPA Industrial Boiler (many states) 0.225
GARN WHS 1350 Boiler* 0.179
Source: Intertek Testing Services, Michigan, March 2006.
Note: *Average efficiency of 75.4% based upon the higher heating value (HHV) of wood.
Garn advertises efficiencies of 70+% for their WHS series from 350,000 to 950,000 Btu/hr heat
output with heat storage capacities of 920,000 Btu to 2,064,000 Btu (120°F - 200°F). While other
suppliers may develop models with similar performance, Tarm and Dectra/Garn units were used as
the basis for this feasibility assessment16.
Cordwood boilers are ideal for applications from 100,000 Btu/hr to 1,000,000 Btu/hr, although
both larger and smaller applications are possible.
4.2 Bulk Fuel Boiler Systems
Commercial bulk fuel systems are generally efficient and meet typical federal (EPA) and state air
quality standards. They have been around for a long time, and there is little new technological
ground to break installing one. Efficient bulk fuel boilers typically convert 70% of the energy in
the wood fuel to hot water or low pressure steam when the fuel moisture is less than 45% moisture
content (MC), (calculated on a wet basis).
13
Most vendors provide systems that can burn various bulk fuels (wood chips, sawdust, wood pellets
and hog fuel), but each system, generally, has to be designed around the predominant fuel form. A
system designed to burn clean chips will not necessarily operate well on a diet of hog fuel, for
example. And most vendors will emphasize the need for good quality wood fuel and a consistent
source of wood fuel, i.e., fuel with consistent size and moisture content, from a common source is
more desirable than variations in chip size or moisture content. Table 4-4 presents a partial list of
bulk fuel boiler system vendors.
Table 4-4. Bulk Fuel Boiler System Vendors
Decton Iron Works, Inc
Butler, WI
(800) 246-1478
www.decton.com
Messersmith Manufacturing, Inc.
Bark River, MI
(906) 466-9010
www.burnchips.com
Chiptec Wood Energy Systems
South Burlington, VT
(800) 244-4146
www.chiptec.com
New Horizon Corp.
Sutton, WV
(877) 202-5070
www.newhorizoncorp.com
JMR Industrial Contractors
Columbus, MS
(662) 240-1247
www.jmric.com
Note: Listing of any manufacturer, distributor or service provider does not constitute an endorsement.
Bulk fuel systems are available in a range of sizes between 300,000 and 60,000,000 BTU/hr.
However, the majority of the installations range from 1 MMBtu/hr to 20 MMBtu/hr. Large
(relatively) energy consumers, like the Tok School/Multi-Purpose Facility (consuming 45,000 to
50,000 gallons of fuel oil per year) have the best potential for installing bulk fuel boilers and
warrant detailed engineering analysis. Bulk fuel systems with their storage and automated fuel
handling conveyances are generally not cost-effective for smaller applications.
Although there are several options, bulk fuel (chips, sawdust, bark, shavings, etc.) is best delivered
in self-unloading tractor-trailer vans that hold about 22 to 24 tons of material. A facility such as
the Tok School, replacing 48,000 gallons of #2 fuel oil with white spruce bulk fuel (MC40) would
use an estimated 1,028 tons per year, or about 43 to 47 tractor-trailer loads spread out over the
school year.
There are at least three bulk fuel boilers in Alaska (Table 4-5). The most recent was installed in
Hoonah in 2006. A 4 MMBtu/hr chip boiler is under consideration for installation at the Craig
Aquatic Center to replace 36,000 gallons of fuel oil per year. It is similar in size to boilers recently
installed in Montana schools as shown in Table 4-6.
14
Table 4-5. Bulk Fuel Boilers in Alaska
Installation Boiler
Horsepower* MMBtu/hr Heating
Degree Days** Supplier
Craig Aquatic Center
Craig, AK 120 4 7,209a Chiptek
Icy Straits Lumber & Milling
Hoonah, AK 72 2.4 8,496b Decton
Regal Enterprises
Copper Center, AK N/A N/A 13,486c Messersmith
Logging & Milling Associates
Delta Junction, AK N/A 2 12,897d Decton
Notes:
* Heat delivered as hot water or steam. 1 Boiler Horsepower = 33,475 Btu/hr or 34.5 pounds of water at a temperature of
100°C (212°F) into steam at 212°F
** assumes base = 65o F
a NOAA, July 1, 2005 through June 30, 2006, Ketchikan data
b NOAA, July 1, 2005 through June 30, 2006, Average of Juneau and Yakutat data
c NOAA, July 1, 2005 through June 30, 2006, Gulkana data
d NOAA, July 1, 2005 through June 30, 2006, Big Delta data
ftp://ftp.cpc.ncep.noaa.gov/htdocs/products/analysis_monitoring/cdus/degree_days/archives/Heating%20degree%20Days/Monthly%20City/2006/jun%202006.txt
The investment cost of bulk fuel systems ranges from $500,000 to $2 million, with about $350,000
to $900,000 in equipment costs. Fuel handling and boiler equipment for an 8 MMBtu/hr (300
BHP) system was recently quoted to a school in the northeast USA for $900,000. A boiler and fuel
handling equipment for a 3 to 4 MMBtu/hr systems is about $350,000 to $500,000. The 2.4
MMBtu/hr system in Hoonah was installed at a sawmill for $250,000, but an existing building was
used and there were significant economies in fuel preparation and handling that would be
unacceptable outside an industrial setting. Fuel and boiler equipment for a 1 MMBtu per hour
system is estimated at $250,000 to $280,000 (buildings are extra). Several schools in New England
have been able to use existing buildings or boiler rooms to house new equipment and realize
substantial savings. The Montana projects are all in new buildings. Schools in Montana and New
England that have installed bulk fuel systems save about half the total cost of fuel oil consumed per
year.4
15
Table 4-6. Bulk Fuel Boilers in Montana Schools 4
Facility Phillipsburg
Public Schools
Darby Public
Schools
Thompson Falls
Public Schools
Victor Public
Schools
Location Phillipsburg, MT Darby, MT Thompson Falls, MT Victor, MT
Heating Degree
Days*** 8,734 7,041 6,496 7,494
Project Cost * $650,000 $650,000 $455,000 $628,991
Square Footage ** 99,000 82,000 60,474 47,000
Peak Output (Btu/hr) 3,870,000 3,000,000 1,600,000 4,900,000
Annual wood fuel
use (tons) 400 750 400 500
Fuel Replaced Natural Gas Fuel Oil Fuel Oil Natural Gas
Estimated Fuel Oil
Use NA 50,000 gal 24,000 gal NA
Estimated annual
fuel savings
$67,558
($11 dkt)
$100,000
($2.50/gal)
$60,000
($2.50/gal)
$31,898
($13.82/MMBtu)
Boiler Supplier*** N/A Messersmith Chiptek Messersmith
Date Operational 01/05 11/03 10/05 09/04
Source: Montana Department of Natural Resource Conservation, http://dnrc.mt.gov
Notes:
* Darby cost excludes $268,000 in repairs to existing heat distribution system.
** Victor boiler sized to heat an additional 16,000 sq. ft. in future.
*** Additional data not supplied by Montana DNRC
Table 4-7 shows the total costs for the Darby School project at $1,001,000 including $268,000 for
repairs and upgrades to the pre-existing system. Integration with any pre-existing system will
require repairs and rework that must be included in the wood system cost. Adding the indirect
costs of engineering, permits, etc. to the equipment cost puts the total cost at Darby between
$716,000 and $766,000 for the 3 million Btu/hr system to replace 47,000 gallons of fuel oil per
year. (NOTE: the Darby School is similar in fuel oil usage to the Tok School/MPF facility,
although the heating degree days are quite different, which could impact boiler sizing.) Since the
boiler was installed at Darby, building and equipment costs have increased from 10% to 25%. A
new budget price for the Darby system might be closer to $800,000 excluding the cost of repairs to
the existing system.4
The Craig Aquatic Center project was originally estimated at less than $1 million to replace
propane and fuel oil equivalent to 36,000 gallons of fuel oil, but the results of a recent (January
2007) bid opening brought the cost estimate to $1.8 million. Building and system integration costs
for the pool and two schools increased the project costs.
16
Table 4-7. Darby Public School Wood Chip Boiler Costs 4
Boiler Capacity 3 MMBtu/hr
Fuel Oil Displaced 47,000 gallons
Heating Degree Days 7,186
System Costs:
Building, Fuel Handling $ 230,500
Boiler and Stack $ 285,500
Boiler system subtotal $ 516,000
Piping, integration $ 95,000
Other repairs, improvements $ 268,000
Total, Direct Costs $ 879,000
Engineering, permits, indirect $ 122,000
Total Cost $1,001,000
Source: Biomass Energy Resource Center, 2005 4
SECTION 5. SELECTING THE APPROPRIATE SYSTEM
Selecting the appropriate heating system is, primarily, a function of heating demand. It is generally
not feasible to install automated bulk fuel systems in/at small facilities, and it is likely to be
impractical to install cordwood boilers at very large facilities. Other than demand, system choice
can be limited by fuel (form) availability, labor, money, and limitations of the site.
The selection of a wood-fueled heating system has an impact on fuel economy. Potential savings
in fuel costs must be weighed against initial investment costs and ongoing operating, maintenance
and repair (OM&R) costs. Wood system costs include the initial capital costs of purchasing and
installing the equipment, non-capital costs (engineering, permitting, etc.), the cost of the fuel
storage building and boiler building (if required), the financial burden associated with loan interest,
the fuel cost, and the other costs associated with operating and maintaining the heating system,
especially labor.
5.1 Comparative Costs of Fuels
The major advantage of wood fuel compared to fuel oil is the cost of the fuel. Wood-fueled boilers
are usually first installed where fuel is free or very low-cost. Typically, this means installations at
sawmills and/or other wood processing facilities. On Prince of Wales Island in southeast Alaska,
there are three low efficiency outdoor wood boilers that burn large mill residues (slabs, edgings,
butt cuts and buck-outs) to heat buildings and dry kilns. In Hoonah, Dry Creek, and Kenny Lake
bulk fuels (planer shavings, chips and sawdust) are burned in automated systems, again, to heat
buildings and dry kilns.
Following installations at sawmills and woodworking plants, wood-fueled boiler installations are
often feasible when installed in close proximity to free or low-cost fuel. Excess processing residues
are often available at minimal cost at the mill/plant site. However, there is usually a cost associated
17
with loading and transporting the fuel to the boiler installation. There are numerous such (OWB)
installations in the Tanana valley and around the state.
Table 5-1 compares the cost of #2 fuel oil to white spruce bulk fuel (MC40) and white spruce
cordwood (MC20). In order to make reasonable comparisons, all the variables must be taken into
account, and costs must be reduced to cost per million Btu (MMBtu).
Table 5-1. Comparative Cost of Fuel Oil vs. Cordwood and Bulk Fuel
FUEL RHVa (Btu) Conversion
Efficiencya DHVa (Btu) Price per unit
($)
Cost per MMBtu
($)
2.50/gal 22.65
3.00 27.17 Fuel oil, #2,
1 gallon 138,000 80% 110,400
3.50 31.70
30/ton 5.82
40 7.76 White spruce,
1 ton, MC40 7,360,000 70% 5,152,000
50 9.70
100/cord 8.51
125 10.64 White spruce,
1 cord, MC20 15,660,000 75% 11,745,000
150 12.77
Notes:
a from Table 3-2
5.1.1 Cost per MMBtu Sensitivity – Bulk Fuel
Figure 5-1 illustrates the relationship between the price of white spruce bulk fuel (MC40) and the
cost of delivered heat, (the slanted line). For each $10 per ton increase in the price of bulk fuel, the
cost per million Btu increases by about $1.94. The chart assumes that the bulk fuel boiler converts
70% of the RHV energy in the wood to useful heat and that fuel oil is converted to heat at 80%
efficiency. The dashed lines represent fuel oil at $2.50, $3.00 and $3.50 per gallon ($22.65, $27.17
and $31.70 per million Btu respectively).
At high efficiency, heat from white spruce bulk fuel (MC40) at $116.70 per ton is equal to the cost
of oil at $2.50 per gallon, before considering the investment and OM&R costs. At 70% efficiency
and $40/ton, an efficient bulk fuel boiler will deliver heat at about 34% ($7.76 per MMBtu) of the
cost of fuel oil at $2.50 per gallon, before considering the cost of the equipment and OM&R.
Figure 5-1 shows that at a given efficiency, savings increase significantly with decreases in the
delivered price of bulk fuel and/or with increases in the price of fuel oil.
18
Cost ($) per MMBtu as a Function of
Bulk Fuel Cost
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
25 40 55 70 85 100 115 130 145 160
Bulk fuel cost, $ per tonCost ($) per MMBtu
Fuel Oil at $3.50 per gallon
Fuel Oil at $3.00 per gallon
Fuel Oil at $2.50 per gallon
Figure 5-1. Effect of White Spruce Bulk Fuel (MC40) Costs on Cost of Delivered Heat
5.1.2 Cost per MMBtu Sensitivity -- Cordwood
Figure 5-2 illustrates the relationship between the price of white spruce cordwood (MC20) and the
cost of delivered heat, (the slanted line). For each $10 per cord increase in the price of cordwood,
the cost per million Btu increases by about $0.85. The chart assumes that the cordwood boiler
converts 75% of the RHV energy in the cordwood to useful heat and that oil is converted to heat at
80% efficiency. The dashed lines represent fuel oil at $2.50, $3.00 and $3.50 per gallon ($22.65,
$27.17 and $31.70 per million Btu respectively).
At high efficiency, heat from white spruce cordwood (MC20) at $266 per cord is equal to the cost
of oil at $2.50 per gallon, before considering the cost of the equipment and OM&R costs. At 75%
efficiency and $100/cord, a high-efficiency cordwood boiler will deliver heat at about 37.6%
($8.51 per MMBtu) of the cost of fuel oil at $2.50 per gallon. Figure 5-2 shows that at a given
efficiency, savings increase significantly with decreases in the delivered price of cordwood and/or
with increases in the price of fuel oil.
19
Cost ($) per MMBtu as a Function of
Cordwood Cost
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
75 100 125 150 175 200 225 250 275 300 325 350 375
Cordwood cost, $ per cordCost ($) per MMBtu
Fuel Oil at $3.50 per gallon
Fuel Oil at $3.00 per gallon
Fuel Oil at $2.50 per gallon
Figure 5-2. Effect of White Spruce Cordwood (MC20) Cost on Cost of Delivered Heat
5.2 Determining Demand
Table 5-2 shows the approximate amount of fuel oil used by each of the AGSD facilities annually.
The smallest facility is the AGSD Offices, which consumes an estimated 4,000 gallons per year.
This and the other AGSD facilities using 15,000 gallons per year (gpy) or less are best suited to
cordwood boilers. The Northway School, at an estimated 25,000 gpy, could be served, technically,
by either a large (or multiple) HELE cordwood boilers or a small bulk fuel boiler, depending on
site-specific variables and financial considerations.
The largest facility is the Tok School and Multi-Purpose Facility (combined), consuming 45,000 to
50,000 gallons of fuel oil per year. Although it would not be out of the question to consider
multiple large HELE cordwood boilers, this facility is probably best suited to a bulk fuel wood
boiler.
20
Table 5-2. Estimated Annual Fuel Oil Consumption, AGSD Facilities
Estimated Annual Fuel Consumption AGSD Facility Gallons Cost ($) @ $3.00/gallon
AGSD Offices 4,000 12,000
Dot Lake School 4-5,000 12-15,000
Tanacross School 5-6,000 15-18,000
Mentasta Lake School 12-15,000 36-45,000
Tetlin School 12-15,000 36-45,000
Northway School 25,000 75,000
Tok School & MPF 45-50,000 135-150,000
TOTAL 107-120,000 321-360,000
Wood boilers, especially cordwood boilers, are often sized to displace only a portion of the heating
load since the oil system will remain in place, in standby mode, for “shoulder seasons” and peak
demand. Fuel oil consumption for each AGSD facility was compared with heating demand based
on heating degree days (HDD) to determine the required boiler capacity (RBC) for heating only on
the coldest 24 hour day (Table 5-3). This method matches well with bulk fuel boilers installed in
schools across the country. While there are many factors to consider when sizing heating systems
it is clear that, in all cases in this study, a wood system of less-than-maximum size could still
replace a substantial quantity of fuel oil.
The calculations show that installed oil-fired heating capacity at most sites is 1½ to four times the
demand for the coldest day. Manual HELE cordwood boilers, equipped with special tanks for
thermal storage, can also supply heat at higher than their rated capacity for short periods. The
4,400 gallon storage tank at Dot Lake, for example, can store more than two million Btu which
would be enough to heat the AGSD Offices on the coldest day for about 11½ hours (2,000,000 ÷
174,000) [although you would probably not install such a large boiler for this facility], or the
Northway School on the coldest day for nearly 2 hours (2,000,000 ÷ 1,031,000).
According to these calculations (Table 5-3) the AGSD Offices, Dot Lake School and Tanacross
School could supply 100% of their heating needs of 174,000 to 250,000 Btu/hr with a Garn model
WHS 1500 boiler rated at 350,000 Btu/hr. The Tetlin School and Mentasta Lake School (RBC =
650,000 Btu) could install a pair of Garn WHS 1500s or WHS 2000s (for a total of 700,000 or
850,000 Btu/hr), or a single Garn model WHS 3200 rated at 950,000 Btu/hr to meet their peak
demands of 650,000 Btu/hr. The Northway School could come close (92%) to meeting its RBC
(1,031,000 Btu/hr) with the installation of a single Garn model WHS 3200, or installing a pair of
Garn model WHS 3200s rated at 950,000 Btu each to fully meet the peak heating needs.
The buildings at the Tok School and Multi-Purpose Facility have a total installed capacity of more
than 8 times the estimated demand of 2.078 MMBtu/hr (due to multiple individual boiler
installations, each of which is oversized). This suggests that a 2.5 to 3 MMBtu/hr boiler could
replace all the oil used at this facility. The buildings are somewhat separated from one another,
which increases piping costs and heating losses, but since the buildings are at the same elevation it
is feasible to distribute heat to them from a single boiler. It may be technically possible to provide
21
this much heat with a large, manual, HELE system (using multiple boilers), but due to the labor
requirements to stoke the boilers, such an arrangement may not be practical. It is more likely that a
bulk fuel system would be required.
Table 5-3. Estimate of Heat Required in Coldest 24 Hr Period
Facility Fuel Oil Used
gal/yeara
Heating
Degree Daysb Btu/DDc Design
Tempd F
RBCe
Btu/hr
Installed
Btu/hra
AGSD
Offices 4,000 13,486 34,918 -54 174,000 300,000
Dot Lake
School 4-5,000 14,044 41,913 -48 198,000 354,000
Tanacross
School 5-6,000 14,044 50,295 -54 250,000 600,000
Mentasta
Lake School 12-15,000 13,486 130,941 -54 650,000 744,000
Tetlin
School 12-15,000 13,486 130,941 -54 650,000 1,030,000
Northway
School 25,000 14,044 209,565 -53 1,031,000 3,034,000
Tok School &
MPF 48,000 13,486 419,012 -54 2,078,000 6,000,000 +
2,243,000
Table 3-7 Notes:
a From SOI and site visits
b NOAA, July 1, 2005 through June 30, 2006:
ftp://ftp.cpc.ncep.noaa.gov/htdocs/products/analysis_monitoring/cdus/degree_days/archives/Heating%20degree%20Days/Monthly%20City/2006/jun%202006.txt
c Btu/DD= Btu/year x oil furnace conversion efficiency (0.85) /Degree Days
d Alaska Housing Manual, 4th Edition Appendix D: Climate Data for Alaska Cities, Research and Rural Development
Division, Alaska Housing Finance Corporation, 4300 Boniface Parkway, Anchorage, AK 99504, January 2000.
e RBC = Required Boiler Capacity for the coldest Day, Btu/hr= [Btu/DD x (65 F-Design Temp)+DD]/24 hrs.
5.3 Summary of Findings Table 5-4 summarizes the findings so far: annual fuel oil usage, range of annual fuel oil costs, estimated annual wood fuel requirement, range of estimated annual wood fuel costs, and potential gross annual savings for each of the various facilities within the Alaska Gateway School District. [Note: potential gross annual savings do not consider non-fuel OM&R (operation, maintenance and repair) costs.] Table 5-4. Estimate of Total Wood Consumption, Comparative Costs and Potential Savings Facility Fuel Oil Used gal/yeara Annual Fuel Oil Cost (@ ___ $/gal) Wood Requirementb Annual Wood Cost (@ ___ $/cord) Potential Gross Annual Savings ($) POTENTIAL CORDWOOD SYSTEMS 2.50 3.00 3.50 White spruce, MC20, CE 75% 100 125 150 Low Medium High AGSD Offices 4,000 10,000 12,000 14,000 36 cords 3,600 4,500 5,400 4,600 7,500 9,400 Dot Lake School 4,500 11,250 13,500 15,750 42 cords 4,200 5,250 6,300 4,950 8,250 11,550 Tanacross School 5,500 13,750 16,500 19,250 52 cords 5,200 6,500 7,800 5,950 10,000 14,050 Mentasta Lake School 13,500 33,750 40,500 47,250 127 cords 12,700 15,875 19,050 14,700 24,625 34,550 Tetlin School 13,500 33,750 40,500 47,250 127 cords 12,700 15,875 19,050 14,700 24,625 34,550 Northway School 25,000 62,500 75,000 87,500 235 cords 23,500 29,375 35,250 27,250 45,625 64,000 POTENTIAL BULK FUEL SYSTEMS White spruce, MC40, CE 70% @$30/ton @$40/ton @$50/ton Northway School 25,000 62,500 75,000 87,500 535 tons 16,050 21,400 26,750 35,750 53,600 71,450 Tok School & MPF 48,000 120,000 144,000 168,000 1,028 tons 30,840 41,120 51,400 68,600 102,880 137,160 92,740 118,495 144,250 140,750 223,505 306,260 Grand Total 114,000 285,000 342,000 399,000 619cds+1028tons Or 384cds +1563tons 85,290 110,520 135,750 149,250 231,480 313,710 NOTES: a From Table 5-3; used the numerical average where a range was indicated b From Table 3-2, Fuel Oil Equivalents
SECTION 6. FINANCIAL METRICS
Biomass heating projects are viable when, over the long run, the annual fuel cost savings generated
by converting to biomass are greater than the cost of the new biomass boiler system plus the
additional operation, maintenance and repair (OM&R) costs associated with a biomass boiler
(compared to those of a fossil fuel boiler)
Converting from an existing boiler to a wood biomass boiler (or retrofitting/integrating a biomass
boiler with an existing boiler system) requires a greater initial investment and higher annual
OM&R costs than for an equivalent fossil fuel system alone. However, in a viable project, the
saving in fuel costs (wood vs. fossil fuel) will pay for the initial investment and cover the
additional OM&R costs in a number of years. After the initial investment is paid off, the project
continues to save money (avoided fuel cost) for the life of the boiler. Since inflation rates for fossil
fuels are typically higher than inflation rates for wood fuel, increasing inflation rates result in
greater fuel savings and thus greater project viability.17
The potential financial viability of a given project depends not only on the relative costs and cost
savings, but also on the financial objectives and expectations of the facility owner. For this reason,
the impact of selected factors on potential project viability is presented using the following metrics:
Simple Payback Period
Present Value (PV)
Net Present Value (NPV)
Internal Rate of Return (IRR)
Total initial investment costs include all of the capital and non-capital costs required to design,
purchase, construct and install a biomass boiler system in an existing facility with an existing boiler
and steam or hot water distribution system.
6.1 Simple Payback Period
From: www.odellion.com:
The [Simple] Payback Period is defined as the length of time required to recover an initial
investment through cash flows generated by the investment. The Payback Period lets you see
the level of profitability of an investment in relation to time. The shorter the time period the
better the investment opportunity:
As an example, consider the implementation of a Human Resources (HR) software application
that costs $150 thousand and will generate $50 thousand in annual savings in four years (the
project duration):
HR Application Example
Initial Year 1 Year 2 Year 3 Year 4
cost: $150K benefit: $50K benefit: $50K benefit: $50K benefit: $50K
24
Using the formula above, the Payback Period is calculated to be three years by dividing the
initial investment of $150 thousand over the annual cash flows of $50 thousand. This equation
is only applicable when the investment produces equal cash flows each year. Now consider the
software implementation with the same initial cost but with variable annual cash flows:
HR Application Example
Initial Year 1 Year 2 Year 3 Year 4
cost: $150K benefit: $60K benefit: $60K benefit: $40K benefit: $20K
Given the variable cash flows, the payback is calculated by looking at the cash flows and
establishing the year the investment is paid off. At the beginning of Year 2, the company has
recovered $120 thousand of the original $150 thousand. At the end of Year 2, the remaining
$30 thousand is recovered with the cash flow of $40 thousand earned during this period. The
payback period is then 2 + ($30 thousand/$40 thousand) or 2.8 years.
The Payback Period is a tool that is easy to use and understand, but it does have its limitations.
Payback period analysis does not address the time value of money, nor does it go beyond the
recovery of the initial investment.
6.2 Present Value
From: www.en.wikipedia.org:
The present value of a single or multiple future payments (known as cash flow(s)) is the
nominal amounts of money to change hands at some future date, discounted to account for the
time value of money, and other factors such as investment risk. A given amount of money is
always more valuable sooner than later since this enables one to take advantage of investment
opportunities. Present values are therefore smaller than corresponding future values. Present
value calculations are widely used in business and economics to provide a means to compare
cash flows at different times on a meaningful "like to like" basis.
One hundred dollars 1 year from now at 5% interest rate is today worth:
6.3 Net Present Value
From: http://www.odellion.com:
The Net Present Value (NPV) of a project or investment is defined as the sum of the present
values of the annual cash flows minus the initial investment. The annual cash flows are the Net
Benefits (revenues minus costs) generated from the investment during its lifetime. These cash
flows are discounted or adjusted by incorporating the uncertainty and time value of money. NPV
is one of the most robust financial evaluation tools to estimate the value of an investment.
The calculation of NPV involves three simple yet nontrivial steps. The first step is to identify the
size and timing of the expected future cash flows generated by the project or investment. The
second step is to determine the discount rate or the estimated rate of return for the project.
The third step is to calculate the NPV using the equations shown below:
25
Or,
Definition of Terms
Initial Investment: This is the investment made at the beginning of the project. The value is
usually negative, since most projects involve an initial cash outflow. The initial investment can
include hardware, software licensing fees, and startup costs.
Cash Flow: The net cash flow for each year of the project: Benefits minus Costs.
Rate of Return: The rate of return is calculated by looking at comparable investment
alternatives having similar risks. The rate of return is often referred to as the discount rate ,
interest rate, or hurdle rate, or company cost of capital. Companies frequently use a standard
rate for the project, as they approximate the risk of the project to be on average the risk of the
company as a whole.
Time (t): This is the number of years representing the lifetime of the project.
A company should invest in a project only if the NPV is greater than or equal to zero. If the NPV
is less than zero, the project will not provide enough financial benefits to justify the investment,
since there are alternative investments that will earn at least the rate of return of the
investment.
In theory, a company will select all the projects with a positive NPV. However, because of
capital or budget constraints, companies usually employ a concept called NPV Indexes to
prioritize projects having the highest value. The NPV Indexes are calculated by dividing each
project’s NPV by its initial cash outlay. The higher the NPV Index, the greater the investment
opportunity.
The NPV analysis is highly flexible and can be combined with other financial evaluation tools
such as Decision Tree models, and Scenario and Monte Carlo analyses. Decision Trees are used
to establish the expected cash flows of multiple cash flows each one having a distinct probability
of occurring.
The expected cash flows are then calculated from all the possible cash flows and their
associated probabilities. NPV and Scenario Analysis are combined by varying a predetermined
set of assumptions to determine the overall impact on the NPV value of the project. Finally,
Monte Carlo analysis provides a deeper understanding of the relationship between the
assumptions and the final NPV value. The Monte Carlo analysis calculates the standard deviation
or ultimate change of NPV by using a set of different assumptions that dominate the end result.”
26
6.4 Internal Rate of Return (IRR))
From: http://en.wikipedia.org/wiki/Internal_rate_of_return:
.
The internal rate of return (IRR) is a capital budgeting method used by firms to decide whether
they should make long-term investments. The IRR is the return rate which can be earned on
the invested capital, i.e. the yield on the investment.
A project is a good investment proposition if its IRR is greater than the rate of interest that
could be earned by alternative investments (investing in other projects, buying bonds, even
putting the money in a bank account). The IRR should include an appropriate risk premium.
Mathematically the IRR is defined as any discount rate that results in a net present value of zero
of a series of cash flows.
In general, if the IRR is greater than the project's cost of capital, or hurdle (i.e., discount) rate,
the project will add value for the company.
From http://www.odellion.com:
The Internal Rate of Return (IRR) is defined as the discount rate that makes the project have a
zero Net Present Value (NPV). IRR is an alternative method of evaluating investments without
estimating the discount rate. IRR takes into account the time value of money by considering the
cash flows over the lifetime of a project. The IRR and NPV concepts are related but they are not
equivalent.
The IRR uses the NPV equation as its starting point:
Definition of Terms
Initial investment: The investment at the beginning of the project.
Cash Flow: Measure of the actual cash generated by a company or the amount of cash earned
after paying all expenses and taxes.
IRR: Internal Rate of Return.
n: Last year of the lifetime of the project.
Calculating the IRR is done through a trial-and-error process that looks for the Discount Rate
that yields an NPV equal to zero. The trial-and-error calculation can by accomplished by using
the IRR function in a spreadsheet program or with a programmable calculator. The graph below
was plotted for a wide range of rates until the IRR was found that yields an NPV equal to zero
(at the intercept with the x-axis).
27
As in the example above, a project that has a discount rate less than the IRR will yield a
positive NPV. The higher the discount rate the more the cash flows will be reduced, resulting in
a lower NPV of the project. The company will approve any project or investment where the IRR
is higher than the cost of capital as the NPV will be greater than zero.
For example, the IRR for a particular project is 20%, and the cost of capital to the company is
only 12%. The company can approve the project because the maximum value for the company
to make money would be 8% more than the cost of capital. If the company had a cost of capital
for this particular project of 21%, then there would be a negative NPV and the project would not
be considered a profitable one.
The IRR is therefore the maximum allowable discount rate that would yield value considering
the cost of capital and risk of the project. For this reason, the IRR is sometimes referred to as a
break-even rate of return. It is the rate at which the value of cash outflow equals the value of
cash inflow.
There are some special situations where the IRR concept can be misinterpreted. This is usually
the case when periods of negative cash flow affect the value of IRR without accurately reflecting
the underlying performance of the investment. Managers may misinterpret the IRR as the
annual equivalent return on a given investment. This is not the case, as the IRR is the
breakeven rate and does not provide an absolute view on the project return.
SECTION 7. ECONOMIC FEASIBILITY OF CORDWOOD SYSTEMS
7.1 Initial Investment Cost Estimates
Short of having an actual Design & Engineering Report or a Concept Design Report prepared by a
licensed professional engineer, there is no way to determine actual costs for any particular system
at any particular site. Such a report is beyond the scope of this assessment. However, three generic
system scenarios are offered as a means of comparison. Actual costs, assumptions and “guess-
timates” are identified as such, where appropriate.
28
Wood heating systems include the cost of the fuel delivery and storage facilities, boiler equipment,
boiler building (if necessary), plumbing and connections, heat exchangers, electrical service to
integrate with existing distribution systems, installation and, for larger and institutional projects, an
allowance for engineering and contingency.
Before a true economic analysis can be performed, all of the costs (investment and O&M) must be
identified, and this is where the services of a mechanical and, perhaps, a civil engineer are
necessary.
Table 7-1 presents generic scenarios of initial investment costs for three cordwood systems (small,
medium and large). The total system cost is often two to three times the cost of the boiler itself;
more if buildings must be constructed.
Table 7-1. Initial Investment Cost Scenarios for Generic Cordwood Systems
Facility Small Medium Large
Fuel oil consumption,
gallons per year 5,000 15,000 25,000
Calculated required boiler
capacity (RBC) 200,000 650,000 1,000,000
Cordwood boiler
Btu/hr
Garn WHS 1500
350,000
Garn WHS 3200
950,000
Garn WHS 3200
950,000
Building and Equipment (B&E) Costs
Fuel storage pole barna
$15 per sf
$14,100
(47 cords; 940 sf)
$42,000
(140 cords; 2,800 sf)
$70,500
(235 cords; 4,700 sf)
Boiler Building
$35 per sf
$8,960
(16 x 16)
$14,000
(20 x 20)
$14,000
(20 x 20)
Boilers
Base pricec
Shippingb
$11,540
$1,500
$27,700
$2,500
$27,700
$2,500
Plumbing/connectionsb $2,500 $4,000 $5,000
Installationb $2,000 $3,000 $3,000
Total Direct (B&E) Costs $40,600 $93,200 $122,700
Engineering + Contingency
(10%)b $4,060 $9,320 $12,270
Grand Total $44,660 $102,520 $134,970
Notes:
a A cord occupies 128 cubic feet. If the wood is stacked 6½ feet high, the area required to store the wood is 21 square feet per cord.
b unsubstantiated “guess-timate”
c List price, Dectra Corp, May 2006
Building(s) and plumbing/connections are the most significant costs besides the boiler. Building
costs deserve more site-specific investigation, and often need to be minimized to the extent
possible. Piping from the wood-fired boiler is another area of potential cost saving. Long piping
runs and additional heat exchangers substantially increase project costs. The hard copper pipe
29
normally used in Alaska costs $70 to 100/foot, installed. If plastic or PEX piping is used the cost
can be reduced to about $40/foot.
Allowance for indirect non-capital costs such as engineering and contingency are most important
for large systems that involve extensive permitting and budget approval by public agencies. This
can increase the cost of a project by 25% to 50%.
7.2 Generic OM&R Cost Estimates
The primary operating cost, other than the cost of fuel, is labor. Labor is required to move fuel
from the storage area to the boiler building, stoke the boiler, clean the boiler and dispose of ash.
For purposes of this analysis, it is assumed that the boiler will operate every day for 210 days (30
weeks) per year between mid-September and mid-April.
For this assessment, it is assumed that the average daily labor requirement is ¾ hour for a small
boiler application, 1.15 hours for a medium size installation, and 1.5 hours for a large installation.
An additional ¾, 1.15 and 1.5 hours per week (for small, medium and large installations
respectively) are allocated to move fuel and perform routine maintenance tasks.
NOTE: The actual daily labor requirement is a function of the number of times the boiler
requires stoking to meet the heating demand. This should be able to be calculated to some
degree of certainty based on average daily energy demand and the amount of energy that
can be derived per stoking. Assuming it takes 12 to 15 minutes to stoke the boiler, then 1
hour per day would allow for 4 to5 stokings per day, which is assumed to be sufficient for
this exercise.
Given the foregoing assumptions, the total annual labor requirements are presented in Table 7-2.
Table 7-2. Labor/Cost Estimates for Generic Cordwood Systems
Facility Small Medium Large
Daily (hrs)
(210 da/yr x X hr/da) 210 x .75 = 157.5 210 x 1.15 = 241.5 210 x 1.5 = 315
Weekly (hrs)
(30 wk/yr x X hr/wk) 30 x .75 = 22.5 30 x 1.15 = 34.5 30 x 1.5 = 45
Total (hrs)
(Daily + weekly) 180 276 360
Total annual cost ($)
(Hrs x $20/hr) 3,600 5,520 7,200
There is also an electrical cost component to the boiler operation. An electric fan creates the
induced draft that contributes to boiler efficiency. One estimate predicted that, at $0.30 per kWh,
the cost of operating the fan would be approximately $100 - $200 per year. The cost of operating
circulation pumps would be the same as it would be with the oil-fired boiler.
Lastly there is the cost of firebrick replacement. This has been suggested at $300 - $500 per year.
Partially offsetting the OM&R costs for the wood-fueled system are the OM&R costs of the oil-
fired system. While oil-fired systems require little in the way of labor, they do generally require
annual some annual maintenance. A savings of $500 - $700 per year is being allowed for this item.
30
Table 7-3. Summary of Total Annual OM&R Cost Estimates
Cost/Allowance Item Small Medium Large
Labor 3,600 5,520 7,200
Electricity 100 150 200
Maintenance 300 400 500
Oil boiler maintenance offset -500 -600 -700
Total, net non-fuel O&M 3,500 5,470 7,200
7.3 Calculation of Financial Metrics
A discussion of Simple Payback Period can be found in Section 6.1.
A discussion of Present Value can be found in Section 6.2.
A discussion of Net Present Value can be found in section 6.3.
A discussion of Internal Rate of Return can be found in section 6.4.
7.3.1 Simple Payback Period for Small, Medium and Large Cordwood Boilers
Table 7-4 presents a Simple Payback Period analysis for a generic small, medium and large HELE
cordwood boiler.
Table 7-4. Simple Payback Period Analysis
Facility Small
(5,000 gpy; 47 cds/yr)
Medium
(15,000 gpy; 140 cds/yr)
Large
(25,000 gpy; 235 cds/yr)
Fuel oil, $ per year @
$3.00 per gallon 15,000 45,000 75,000
Cordwood, $ per year @
$125 per cord 5,875 17,500 29,375
Gross annual savings ($) 9,125 27,500 45,625
Total Investment Costs ($) 44,660 102,520 134,970
Simple Payback (years) 4.89 3.73 2.96
7.3.2 PV, NPV and IRR Estimates for a Small Generic Cordwood Boiler
Table 7-5 calculates Present Value (PV), Net Present Values (NPV) and Internal Rate of Return
(IRR) using a Discount Rate of 5%. Costs and operating expenses for a small HELE cordwood
boiler were generated earlier in this report.
31
Table 7-5. PV, NPV and IRR Estimates For a Small Generic Cordwood Boiler Installation
Years
(T)
($) Initial
Investment
Non-fuel +
OM&R ($)
Fuel Oil
($)
Wood
Fuel ($)
Savings
($)
Discount
Rate (%)
PV
($)
NPV
($)
IRR
(%)
0 -44,660 0 0 0 0 5 0 -44,660
1 3,500 15,000 5,875 5,625 5 5,357 -39,303 -88.01
2 3,500 15,000 5,875 5,625 5 5,102 -34,201 -59.68
3 3,500 15,000 5,875 5,625 5 4,859 -29,342 -39.46
4 3,500 15,000 5,875 5,625 5 4,628 -24,714 -26.40
5 3,500 15,000 5,875 5,625 5 4,407 -20,307 -17.78
6 3,500 15,000 5,875 5,625 5 4,197 -16,109 -11.87
7 3,500 15,000 5,875 5,625 5 3,998 -12,112 -7.67
8 3,500 15,000 5,875 5,625 5 3,807 -8,304 -4.60
9 3,500 15,000 5,875 5,625 5 3,626 -4,679 -2.30
10 3,500 15,000 5,875 5,625 5 3,453 -1,225 -0.54
10 year PV = 43,435
11 3,500 15,000 5,875 5,625 5 3,289 2,064 0.83
12 3,500 15,000 5,875 5,625 5 3,132 5,196 1.91
13 3,500 15,000 5,875 5,625 5 2,983 8,179 2.78
14 3,500 15,000 5,875 5,625 5 2,841 11,020 3.48
15 3,500 15,000 5,875 5,625 5 2,706 13,726 4.06
16 3,500 15,000 5,875 5,625 5 2,577 16,302 4.53
17 3,500 15,000 5,875 5,625 5 2,454 18,757 4.92
18 3,500 15,000 5,875 5,625 5 2,337 21,094 5.25
19 3,500 15,000 5,875 5,625 5 2,226 23,320 5.53
20 3,500 15,000 5,875 5,625 5 2,120 25,440 5.76
20 year PV = 70,100
Using the online NPV calculator found at: http://www.investopedia.com/calculator/NetPresentValue.aspx
and given the following inputs (from Table 7-5):
Discount Rate: 5%
Life of Project: 10 years
Initial Cost: $44,660 (expressed as a negative value)
Annual cash flow (“savings” each year for 10 years): $5,625
The results were:
Net Present Value (at 10 years): -$ 1,225.24
Present Value of Expected Cash Flows: $43,434.76
With a discount rate of 5.00% and a span of 10 years, the projected cash flows are
worth $43,434.76 today (PV), which is less than the initial investment of $44,660.00.
The resulting NPV of the project is -$1,225.24, which means that the project sponsor
will not receive the required return [i.e., 5%] at the end of 10 years. Pursuing the
project may not be an optimal decision.
However, even though the proposed project returned a negative NPV, it may still be
worth pursuing. The value of real options* in a capital budgeting decision could
increase the NPV of a project. For example, research and development projects are
risky because the product created is not guaranteed to be successful. However, if it is
successful, the potential payoff could be substantial. Alternately, NPV could be negative
32
also because the required rate of return is unrealistically high or the cash flows
projected may be too conservative.
* Note that this kind of option is not a derivative instrument, but an actual option (in the
sense of "choice") that a business may gain by undertaking certain endeavors. For example,
by investing in a particular project, a company may have the real option of expanding,
downsizing, or abandoning other projects in the future. Other examples of real options may
be opportunities for R&D, M&A, and licensing.
They are referred to as "real" because they usually pertain to tangible assets, such as capital
equipment, rather than financial instruments. Taking into account real options can greatly
effect the valuation of potential investments. Oftentimes, however, valuation methods, such
as NPV, do not include the benefits that real options provide.
Source: http://www.investopedia.com/terms/r/realoption.asp
NOTE: With the discount rate at 4.43%, NPV is positive in 10 years, and at 5.00%, NPV becomes
positive in year 11.
7.3.3 PV, NPV and IRR Estimates for a Medium Generic Cordwood Boiler
Table 7-6 calculates Present Value (PV), Net Present Values (NPV) and Internal Rate of Return
(IRR) using a Discount Rate of 5%. Costs and operating expenses for a medium HELE cordwood
boiler were generated earlier in this report.
Table 7-6. PV, NPV and IRR Estimates For a Medium Generic Cordwood Boiler Installation
Years
(T)
($) Initial
Investment
Non-fuel +
OM&R ($)
Fuel Oil
($)
Wood
Fuel ($)
Savings
($)
Discount
Rate (%)
PV
($)
NPV
($)
IRR
(%)
0 -102,520 0 0 0 0 5 -102,520
1 5,470 45,000 17,500 22,030 5 20,981 -81,539 -79.53
2 5,470 45,000 17,500 22,030 5 19,982 -61,557 -44.45
3 5,470 45,000 17,500 22,030 5 19,030 -42,527 -22.96
4 5,470 45,000 17,500 22,030 5 18,124 -24,403 -10.28
5 5,470 45,000 17,500 22,030 5 17,261 -7,142 -2.44
6 5,470 45,000 17,500 22,030 5 16,439 9,297 2.65
7 5,470 45,000 17,500 22,030 5 15,656 24,954 6.08
8 5,470 45,000 17,500 22,030 5 14,911 39,865 8.48
9 5,470 45,000 17,500 22,030 5 14,201 54,065 10.20
10 5,470 45,000 17,500 22,030 5 13,525 67,590 11.46
10 year PV = 170,110
11 5,470 45,000 17,500 22,030 5 12,880 80,470 12.39
12 5,470 45,000 17,500 22,030 5 12,267 92,737 13.10
13 5,470 45,000 17,500 22,030 5 11,683 104,420 13.65
14 5,470 45,000 17,500 22,030 5 11,127 115,547 14.07
15 5,470 45,000 17,500 22,030 5 10,597 126,144 14.39
16 5,470 45,000 17,500 22,030 5 10,092 136,236 14.65
17 5,470 45,000 17,500 22,030 5 9,612 145,848 14.86
18 5,470 45,000 17,500 22,030 5 9,154 155,002 15.02
19 5,470 45,000 17,500 22,030 5 8,718 163,720 15.15
20 5,470 45,000 17,500 22,030 5 8,303 172,022 15.25
20 year PV = 274,542
33
Using the online NPV calculator found at: http://www.investopedia.com/calculator/NetPresentValue.aspx
and given the following inputs:
Discount Rate: 5%
Life of Project: 10 years
Initial Cost: $102,520
Annual cash flow for 10 years: $22,030
The results were:
Net Present Value (at 10 years): $ 67,589.82
Present Value of Expected Cash Flows: $170,109.82
With a discount rate of 5.00% and a span of 10 years, the projected cash flows are worth
$170,109.82 today, which is greater than the initial investment of $102,520.00. The resulting positive
NPV of the project is $67,589.82, which indicates that pursuing the project may be optimal.
Remember that even though a project offers a positive NPV, the projected cash flows are still
estimates. The accuracy of these projected figures depends on the skill and experience of the
analyst, and likelihood of these cash flows materializing depends on the financial risk associated with
the type of project being pursued.
7.3.4 PV, NPV and IRR Estimates for a Large Generic Cordwood Boiler Installation
Table 7-7 calculates Present Value (PV), Net Present Values (NPV) and Internal Rate of Return
(IRR) using a Discount Rate of 5%. Costs and operating expenses for a large HELE cordwood
boiler were generated earlier in this report.
34
Table 7-7. PV, NPV and IRR Estimates For a Large Generic Cordwood Boiler Installation
Years
(T)
($) Initial
Investment
Non-fuel +
OM&R ($)
Fuel Oil
($)
Wood
Fuel ($)
Savings
($)
Discount
Rate (%)
PV
($)
NPV
($)
IRR
(%)
0 -134,970 0 0 0 0 5 -134,970
1 7,200 75,000 29,375 38,425 5 36,595 -98,375 -72.89
2 7,200 75,000 29,375 38,425 5 34,853 -63,522 -33.85
3 7,200 75,000 29,375 38,425 5 33,193 -30,329 -11.90
4 7,200 75,000 29,375 38,425 5 31,612 1,283 0.39
5 7,200 75,000 29,375 38,425 5 30,107 31,390 7.67
6 7,200 75,000 29,375 38,425 5 28,673 60,063 12.22
7 7,200 75,000 29,375 38,425 5 27,308 87,371 15.19
8 7,200 75,000 29,375 38,425 5 26,008 113,379 17.19
9 7,200 75,000 29,375 38,425 5 24,769 138,148 18.58
10 7,200 75,000 29,375 38,425 5 23,590 161,738 19.56
10 year PV = 296,708
11 7,200 75,000 29,375 38,425 5 22,466 184,204 20.27
12 7,200 75,000 29,375 38,425 5 21,396 205,600 20.79
13 7,200 75,000 29,375 38,425 5 20,378 225,978 21.17
14 7,200 75,000 29,375 38,425 5 19,407 245,385 21.45
15 7,200 75,000 29,375 38,425 5 18,483 263,868 21.66
16 7,200 75,000 29,375 38,425 5 17,603 281,471 21.82
17 7,200 75,000 29,375 38,425 5 16,765 298,236 21.95
18 7,200 75,000 29,375 38,425 5 15,966 314,202 22.04
19 7,200 75,000 29,375 38,425 5 15,206 329,408 22.11
20 7,200 75,000 29,375 38,425 5 14,482 343,890 22.17
20 year PV = 478,860
Using the online NPV calculator found at: http://www.investopedia.com/calculator/NetPresentValue.aspx
and given the following inputs:
Discount Rate: 5%
Life of Project: 10 years
Initial Cost: $134,970
Annual cash flow for 10 years: $38,425
The results were:
Net Present Value (at 10 years): $161,737.66
Present Value of Expected Cash Flows: $296,707.66
With a discount rate of 5.00% and a span of 10 years, the projected cash flows are worth
$296,707.66 today, which is greater than the initial investment of $134,970.00. The resulting positive
NPV of the above project is $161,737.66, which indicates that pursuing the project may be optimal
Remember that even though a project offers a positive NPV, the projected cash flows are still
estimations. The accuracy of these projected figures depends on the skill and experience of the
analyst, and likelihood of these cash flows materializing depends on the financial risk associated with
the type of project being pursued.
35
7.4 The Effect of Discount Rate on Financial Metrics of Cordwood Boilers
Table 7-8 looks at present value (PV), net present value (NPV) and internal rate of return (IRR) of
generic small, medium and large cordwood boiler systems as a function of the discount rate, from
1% to 10%, given a project life span of 10 years.
Table 7-8. PV, NPV and IRR as a Function of Discount Rate
Facility: Small
(5,000 gpy; 47 cds/yr)
Medium
(15,000 gpy; 140 cds/yr)
Large
(25,000 gpy; 235 cds/yr)
Initial
Investment 44,660 102,520 134,970
Annual Savings 5,625 22,030 38,425
Life Span 10 10 10
Discount Rate: PV
($)
NPV
($)
IRR
(%)
PV
($)
NPV
($)
IRR
(%)
PV
($)
NPV
($)
IRR
(%)
1 % 53,276 8,616 3.40 208,653 106,133 15.87 363,935 228,965 24.30
2 % 50,527 5,867 2.38 197,886 95,366 14.73 345,156 210,186 23.08
3 % 47,982 3,322 1.39 187,920 85,400 13.62 327,773 192,803 21.89
4 % 45,624 964 0.41 178,683 76,163 12.53 311,661 176,691 20.71
5 % 43,435 -1,225 -0.54 170,110 67,590 11.46 296,708 161,738 19.56
6 % 41,400 -3,260 -1.48 162,143 59,623 10.40 282,811 147,841 18.44
7 % 39,508 -5,152 -2.40 154,730 52,210 9.37 269,881 134,911 17.33
8 % 37,774 -6,916 -3.30 147,823 45,303 8.36 257,835 122,865 16.24
9 % 36,099 -8,561 -4.19 141,381 38,861 7.37 246,598 111,628 15.18
10 % 34,563 -10,097 -5.06 135,365 32,845 3.39 236,105 101,135 14.13
As this and other tables indicate, there is a strong relationship between project feasibility and size
of the project (related to net annual savings). Feasibility improves as system size and savings
increase.
36
SECTION 8. ECONOMIC FEASIBILITY OF BULK FUEL SYSTEMS
A typical bulk fuel boiler system includes wood fuel storage, a boiler building, wood fuel handling
systems, combustion chamber, boiler, ash removal, cyclone, stack and electronic controls. The
variables in this list of system components include the use of silos of various sizes for wood fuel
storage, chip storage areas of various sizes, boiler buildings of various sizes, automated versus
manual ash removal and cyclones for particulate removal.17
As shown in Table 5-4, the Northway School consumes an estimated 25,000 gpy of fuel oil and is
estimated to use 535 tons of bulk fuel. At this level of consumption, this facility is probably
“borderline” in terms of economic feasibility regarding a bulk fuel system. On the other hand, the
Tok School and Multi-Purpose Facility at 45,000 to 50,000 gpy (bulk fuel estimate = 1,028 tons) is
a likely candidate for a bulk fuel system.
8.1 Capital Cost Components
As indicated, bulk fuel systems are larger, more complex and more costly to install and integrate
with existing boiler and distribution systems. Before a true economic analysis can be performed,
all of the costs (capital, non-capital and OM&R) must be identified, and this is where the services
of civil and mechanical engineers are necessary.
Table 8-1 outlines the various general components for two generic bulk fuel systems (small and
medium), however it is beyond the scope of this report to offer estimates of costs for those
components. As an alternative, two generic sizes, small and medium, are presented for comparison
purposes.
Table 8-1. Initial Investment Costs for Generic Bulk Fuel Systems
Facility Small
(25,000 gpy)
Medium
(50,000 gpy)
Capital Costs: Building and Equipment (B&E)
Fuel storage building
Material handling system
Boiler building
Boiler: base price
shipping
Plumbing/connections
Electrical systems
Installation
Total Capital (B&E) Costsa
Non-capital Costs
Engineering , Contingency,
Permitting, etc.
Initial Investment Total ($) 400,000 to 650,000 750,000 to 1,250,000
37
Building(s) and plumbing/connections are the most significant costs besides the boiler. Building
costs deserve more site-specific investigation. Piping from the wood-fired boiler is another area of
potential cost saving. Long piping runs and additional heat exchangers substantially increase
project costs.
Allowance for indirect costs such as engineering and contingency are most important for larger
systems that involve extensive permitting and budget approval by public agencies. This can
increase the cost of a project by 25% to 50%.
8.2 Generic OM&R Cost Allowances
The primary operating cost is fuel. The estimated bulk fuel cost for the Northway School is
$21,400 (535 tons @ $40/ton). The estimated bulk fuel cost for Tok School/MPF is $41,120 (1,028
tons @ $40/ton).
Other O&M costs would include labor, electricity and maintenance/repairs. For purposes of this
analysis, it is assumed that the boiler will operate every day for 210 days (30 weeks) per year
between mid-September and mid-April.
Daily labor would consist of monitoring the system and performing daily inspections as prescribed
by the system manufacturer. It is assumed that the average daily labor requirement is ½ hour. An
additional 1 hour per week is allocated to perform routine maintenance tasks. Therefore, the total
annual labor requirement is (210 x 0.5) + 30 = 135 hours per year. At $20 per hour (loaded), the
annual labor cost would be $2,700.
There is also an electrical cost component to the boiler operation. Typically, electrically-powered
conveyors of various sorts are used to move fuel from its place of storage to a metering bin and into
the boiler. There are also numerous other electrical systems that operate various pumps, fans, etc.
The Darby High School system, which burned 755 tons of bulk fuel in 2005, used electricity in the
amount of $2,035,18 however the actual kWh or cost per kWh were not reported. Another report17
proffered an average electricity cost for Montana of $0.086 per kWh. If that rate is true for Darby,
then the electrical consumption would have been about 23,663 kWh.
The Northway School is projected to use 535 tons of bulk fuel (71% of the amount used at Darby).
If it is valid to apportion the electrical usage based on bulk fuel consumption, then Northway would
use about 16,800 kWh per year. At $0.30 per kWh, the annual electrical consumption would be
$5,040. Using the same logic, the Tok School/MPF (136% of the amount used at Darby) would
use $9,665 worth of electricity to operate the system.
Lastly, there is the cost of maintenance and repair. Bulk fuel systems with their conveyors, fans,
bearings, motors, etc. have more wear parts. An arbitrary allowance of $2,000 is made to cover
these costs.
Total annual operating, maintenance and repair cost estimates are summarized in Table 8-2
38
Table 8-2. Total OM&R Cost Allowances for Bulk Fuel Systems
Cost/Allowance Item Small Medium
Non-Fuel OM&R
Labor ($) 2,700 2,700
Electricity ($) 5,040 9,665
Maintenance ($) 2,000 2,000
Total, non-fuel OM&R $ 9,740 $ 14,365
Wood fuel ($) 21,400 41,120
Total OM&R ($) $ 31,140 $ 55,485
8.3 Calculation of Financial Metrics
A discussion of Simple Payback Period can be found in Section 6.1.
A discussion of Present Value can be found in Section 6.2.
A discussion of Net Present Value can be found in section 6.3.
A discussion of Internal Rate of Return can be found in section 6.4.
8.3.1 Simple Payback Period for Small and Medium Bulk Fuel Boilers
Table 8.3 presents a Simple Payback Period analysis for a range of initial investment cost estimates
for generic small and medium bulk fuel boiler systems.
Table 8-3. Simple Payback Period Analysis
Facility Small
(25,000 gpy; 535 tons/yr)
Medium
(50,000 gpy; 1,028 tons/yr)
Fuel oil, $ per year @ $3.00 per
gallon 75,000 150,000
Bulk Fuel, $ per year @ $40 per
ton 21,400 41,120
Fuel cost savings ($) 53,600 108,880
Total Investment Costs ($) 400,000 525,000 650,000 750,000 1,000,000 1,250,000
Simple Payback (years) 7.46 9.79 11.19 6.89 9.18 11.48
39
8.3.2 PV, NPV and IRR Estimates for a Small Generic Bulk Fuel Boiler
Table 8-4 calculates Present Value (PV), Net Present Values (NPV) and Internal Rate of Return
(IRR) using a Discount Rate of 5%. The medium initial investment cost from Table 8-3 and
operating expenses from Table 8-2 were applied in Table 8-4.
Table 8-4. PV, NPV and IRR Estimates For a Small Generic Bulk Fuel Boiler Installation
Years
(T)
($) Initial
Investment
Non-fuel +
OM&R ($)
Fuel Oil
($)
Wood
Fuel ($)
Savings
($)
Discount
Rate (%)
PV
($)
NPV
($)
IRR
(%)
0 -525,000
1 9,740 75,000 21,400 43,860 5 41,771 -483,229 -92.04%
2 9,740 75,000 21,400 43,860 5 39,782 -443,446 -68.21%
3 9,740 75,000 21,400 43,860 5 37,888 -405,558 -49.18%
4 9,740 75,000 21,400 43,860 5 36,084 -369,475 -36.12%
5 9,740 75,000 21,400 43,860 5 34,365 -335,109 -27.11%
6 9,740 75,000 21,400 43,860 5 32,729 -302,380 -20.72%
7 9,740 75,000 21,400 43,860 5 31,170 -271,210 -16.05%
8 9,740 75,000 21,400 43,860 5 29,686 -241,523 -12.55%
9 9,740 75,000 21,400 43,860 5 28,273 -213,251 -9.86%
10 9,740 75,000 21,400 43,860 5 26,926 -186,325 -7.75%
10 year PV = 338,675
11 9,740 75,000 21,400 43,860 5 25,644 -160,681 -6.08%
12 9,740 75,000 21,400 43,860 5 24,423 -136,258 -4.73%
13 9,740 75,000 21,400 43,860 5 23,260 -112,998 -3.62%
14 9,740 75,000 21,400 43,860 5 22,152 -90,846 -2.70%
15 9,740 75,000 21,400 43,860 5 21,097 -69,748 -1.94%
16 9,740 75,000 21,400 43,860 5 20,093 -49,655 -1.30%
17 9,740 75,000 21,400 43,860 5 19,136 -30,519 -0.75%
18 9,740 75,000 21,400 43,860 5 18,225 -12,295 -0.29%
19 9,740 75,000 21,400 43,860 5 17,357 5,062 0.11%
20 9,740 75,000 21,400 43,860 5 16,530 21,593 0.46%
20 year PV = 546,593
21 9,740 75,000 21,400 43,860 5 15,743 37,336 0.76%
22 9,740 75,000 21,400 43,860 5 14,994 52,329 1.02%
23 9,740 75,000 21,400 43,860 5 14,280 66,609 1.25%
24 9,740 75,000 21,400 43,860 5 13,600 80,208 1.45%
25 9,740 75,000 21,400 43,860 5 12,952 93,160 1.62%
26 9,740 75,000 21,400 43,860 5 12,335 105,496 1.78%
27 9,740 75,000 21,400 43,860 5 11,748 117,243 1.92%
28 9,740 75,000 21,400 43,860 5 11,188 128,432 1.92%
29 9,740 75,000 21,400 43,860 5 10,656 139,087 2.15%
30 9,740 75,000 21,400 43,860 5 10,148 149,236 2.25%
30 year PV = 674,236
40
Using the online NPV calculator found at: http://www.investopedia.com/calculator/NetPresentValue.aspx
and given the following inputs:
Discount Rate: 5%
Life of Project: 10 years
Initial Cost: $525,000 (expressed as a negative value)
Annual cash flow (“savings” each year for 10 years): $43,860
The results were:
Net Present Value: -$186,324.71
PV of Expected Cash flows: $338,675.29
With a discount rate of 5.00% and a span of 10 years, the projected cash flows are worth
$338,675.29 today (PV), which is less than the initial investment of $525,000.00. The resulting NPV
of the project is -$186,324.71, which means that the project sponsor will not receive the required
return [i.e., 5%] at the end of 10 years. Pursuing the above project may not be an optimal decision.
However, even though the projected capital project returned a negative NPV, it may still be worth
pursuing. The valuation of real options* in a capital budgeting decision could increase the NPV of a
project. For example, research and development projects are risky because the product created is
not guaranteed to be successful; however, if it is successful, the potential payoff could be substantial.
Alternately, NPV could be negative also because the required rate of return may be unrealistically
high, or the cash flows projected may be too conservative.
* Note that this kind of option is not a derivative instrument, but an actual option (in the
sense of "choice") that a business may gain by undertaking certain endeavors. For example,
by investing in a particular project, a company may have the real option of expanding,
downsizing, or abandoning other projects in the future. Other examples of real options may
be opportunities for R&D, M&A, and licensing.
They are referred to as "real" because they usually pertain to tangible assets, such as capital
equipment, rather than financial instruments. Taking into account real options can greatly
effect the valuation of potential investments. Oftentimes, however, valuation methods, such
as NPV, do not include the benefits that real options provide.
Source: http://www.investopedia.com/terms/r/realoption.asp
8.3.3 PV, NPV and IRR Estimates for a Medium Generic Bulk Fuel Boiler
Table 8-4 calculates Present Value (PV), Net Present Values (NPV) and Internal Rate of Return
(IRR) using a Discount Rate of 5%. The medium initial investment cost from Table 8-3 and
operating expenses from Table 8-2 were applied in Table 8-4.
41
Table 8-5. PV, NPV and IRR Estimates For a Medium Generic Bulk Fuel Boiler Installation
Years
(T)
($) Initial
Investment
Non-fuel +
OM&R ($)
Fuel Oil
($)
Wood
Fuel ($)
Savings
($)
Discount
Rate (%)
PV
($)
NPV
($)
IRR
(%)
0 -1,000,000 5
1 14,365 150,000 41,120 94,515 5 90,014 -909,986 -91.00%
2 14,365 150,000 41,120 94,515 5 85,728 -824,258 -65.88%
3 14,365 150,000 41,120 94,515 5 81,646 -742,612 -46.48%
4 14,365 150,000 41,120 94,515 5 77,758 -664,854 -33.40%
5 14,365 150,000 41,120 94,515 5 74,055 -590,800 -24.49%
6 14,365 150,000 41,120 94,515 5 70,529 -520,271 -18.23%
7 14,365 150,000 41,120 94,515 5 67,170 -453,101 -13.69%
8 14,365 150,000 41,120 94,515 5 63,971 -389,129 -10.31%
9 14,365 150,000 41,120 94,515 5 60,925 -328,204 -7.73%
10 14,365 150,000 41,120 94,515 5 58,024 -270,180 -5.73%
10 year PV = 729,820
11 14,365 150,000 41,120 94,515 5 55,261 -214,919 -4.14%
12 14,365 150,000 41,120 94,515 5 52,629 -162,290 -2.86%
13 14,365 150,000 41,120 94,515 5 50,123 -112,166 -1.83%
14 14,365 150,000 41,120 94,515 5 47,736 -64,430 -0.98%
15 14,365 150,000 41,120 94,515 5 45,463 -18,967 -0.27%
16 14,365 150,000 41,120 94,515 5 43,298 24,332 0.32%
17 14,365 150,000 41,120 94,515 5 41,237 65,568 0.82%
18 14,365 150,000 41,120 94,515 5 39,273 104,841 1.25%
19 14,365 150,000 41,120 94,515 5 37,403 142,244 1.61%
20 14,365 150,000 41,120 94,515 5 35,622 177,866 1.92%
20 year PV = 1,177,866
21 14,365 150,000 41,120 94,515 5 33,925 211,791 2.19%
22 14,365 150,000 41,120 94,515 5 32,310 244,101 2.42%
23 14,365 150,000 41,120 94,515 5 30,771 274,873 2.62%
24 14,365 150,000 41,120 94,515 5 29,306 304,179 2.80%
25 14,365 150,000 41,120 94,515 5 27,911 332,089 2.96%
26 14,365 150,000 41,120 94,515 5 26,581 358,671 3.09%
27 14,365 150,000 41,120 94,515 5 25,316 383,986 3.21%
28 14,365 150,000 41,120 94,515 5 24,110 408,096 3.21%
29 14,365 150,000 41,120 94,515 5 22,962 431,059 3.41%
30 14,365 150,000 41,120 94,515 5 21,869 452,927 3.50%
30 year PV = 1,452,927
Using the online NPV calculator found at: http://www.investopedia.com/calculator/NetPresentValue.aspx
and given the following inputs (from Table 7-5):
Discount Rate: 5%
Life of Project: 10 years
Initial Cost: $1,000,000 (expressed as a negative value)
Annual cash flow (“savings” each year for 10 years): $94,515
42
The results were:
Net Present Value: -$270,180.22
PV of Expected Cash flows: $729,819.78
With a discount rate of 5.00% and a span of 10 years, the projected cash flows are worth
$729,819.78 today (PV), which is less than the initial investment of $1,000,000.00. The resulting NPV
of the project is -$270,180.22, which means the project sponsor will not receive the required return
[i.e., 5%] at the end of 10 years. Pursuing the above project may not be an optimal decision.
However, even though the projected capital project returned a negative NPV, it may still be worth
pursuing. The valuation of real options* in a capital budgeting decision could increase the NPV of a
project. For example, research and development projects are risky because the product created is
not guaranteed to be successful; however, if it is successful, the potential payoff could be substantial.
Alternately, NPV could be negative also because the required rate of return may be unrealistically
high, or the cash flows projected may be too conservative.
* Note that this kind of option is not a derivative instrument, but an actual option (in the
sense of "choice") that a business may gain by undertaking certain endeavors. For example,
by investing in a particular project, a company may have the real option of expanding,
downsizing, or abandoning other projects in the future. Other examples of real options may
be opportunities for R&D, M&A, and licensing.
They are referred to as "real" because they usually pertain to tangible assets, such as capital
equipment, rather than financial instruments. Taking into account real options can greatly
effect the valuation of potential investments. Oftentimes, however, valuation methods, such
as NPV, do not include the benefits that real options provide.
Source: http://www.investopedia.com/terms/r/realoption.asp
43
8.4 The Effect of Discount Rate on Financial Metrics of Bulk Fuel Boilers
Table 8-6 looks at present value (PV), net present value (NPV) and internal rate of return (IRR) as
a function of discount rate (from 1% to 10%) at 20 years for a range of small bulk fuel boiler
system investment costs.
Table 8-6. PV, NPV and IRR as a Function of Discount Rate for a Range of
Small Bulk Fuel System Investment Costs
Initial
Investment 400,000 525,000 650,000
Annual Savings 43,860 43,860 43,860
Life Span 20 20 20
Discount Rate: PV NPV IRR PV NPV IRR PV NPV IRR
1 % 35,945 397,478 7.93 35,945 266,478 4.44 35,945 141,478 2.02
2 % 29,517 317,174 6.88 29,517 192,174 3.41 29,517 67,174 1.02
3 % 24,284 252,526 5.84 24,284 127,526 2.41 24,284 2,526 0.04
4 % 20,017 196,072 4.82 20,017 71,072 1.42 20,017 -53,928 -0.92
5 % 16,530 146,593 3.82 16,530 21,593 0.46 16,530 -103,407 -1.86
6 % 13,676 103,071 2.84 13,676 -21,929 -0.49 13,676 -146,929 -2.79
7 % 11,334 64,653 1.88 11,334 -60,347 -1.42 11,334 -185,347 -3.70
8 % 9,410 30,624 0.94 9,410 -94,376 -2.33 9,410 -219,376 -4.59
9 % 7,826 378 0.01 7,826 -124,622 -3.23 7,826 -249,622 -5.47
10 % 6,520 -26,595 -0.90 6,520 -151,595 -4.11 6,520 -276,595 --6.33
44
Table 8-7 looks at present value (PV), net present value (NPV) and internal rate of return (IRR) as
a function of discount rate (from 1% to 10%) at 20 years for a range of medium bulk fuel boiler
system investment costs.
Table 8-7. PV, NPV and IRR as a Function of Discount Rate for a Range of
Medium Bulk Fuel System Investment Costs
Initial
Investment 750,000 1,000,000 1,250,000
Annual Savings 94,515 94,515 94,515
Life Span 20 20 20
Discount Rate: PV NPV IRR PV NPV IRR PV NPV IRR
1 % 77,459 955,575 9.95 77,459 705,575 5.96 77,459 455,575 3.28
2 % 63,606 795,456 8.88 63,606 545,456 4.92 63,606 295,456 2.26
3 % 52,331 656,145 7.82 52,331 406,145 3.90 52,331 156,145 1.27
4 % 43,135 534,490 6.78 43,135 284,490 2.90 43,135 34,490 0.30
5 % 35,622 427,866 5.77 35,622 177,866 1.92 35,622 -72,134 -0.66
6 % 49,470 334,080 4.77 49,470 84,080 0.96 49,470 -165,920 -1.59
7 % 24,424 251,293 3.79 24,424 1,293 0.02 24,424 -248,707 -2.51
8 % 20,278 177,962 2.83 20,278 -72,038 -0.91 20,278 -322,038 -3.42
9 % 16,864 112,784 1.88 16,864 -137,216 -1.82 16,864 -387,216 -4.30
10 % 14,049 54,659 0.96 14,049 -195,341 -2.71 14,049 -445,341 -5.17
As this and other tables indicate, there is a strong relationship between project feasibility and size
of the project (related to net annual savings). Feasibility improves as system size and savings
increase.
45
SECTION 9. CONCLUSIONS
This report discusses conditions found “on the ground” at a number of Alaska Gateway School
District facilities in the Tanana / Upper Copper Valleys in Interior Alaska, and attempts to
demonstrate, by use of generic examples, the feasibility of installing high efficiency low emission
wood-burning boilers for heating these AGSD facilities.
Wood is a viable heating fuel in a wide range of institutional applications, however, below a certain
minimum and above a certain maximum, it may be impractical to heat with wood, or it may require
a different form of wood fuel and heating system. The cost of heat ($ per MMBtu) derived from
wood versus the cost of heat ($ per MMBtu) derived fuel oil is significant, as illustrated in Table
5-1. It is this difference in the cost of heat, resulting in monetary savings, that must “pay” for the
substantially higher investment and OM&R costs associated with wood-fuel systems.
9.1 “Small” Applications
Three of the AGSD facilities could be considered “small” in terms of their use of fuel oil, namely
the AGSD Administrative Offices, the Dot Lake School and the Tanacross School. The fuel oil
consumption estimates for these facilities ranges from 4,000 to 5,500 gallons per year and,
depending on which set of financial projections one chooses to apply (Table 5-3), potential gross
annual savings ranges from $4,600 to $14,050 per year per facility.
In the hypothetical example presented in Section 7 for a “small” facility, the gross annual savings
would amount to $9,125, and yield a simple payback of 4.89 years (given a cordwood boiler
installation costing $44,600). However, when annual OM&R costs are considered, the net present
value and internal rate of return after 10 years, assuming a discount rate of 5%, are -$1,225 and
-0.54% respectively. While these results do not necessarily make the project unfeasible, they do
indicate the economy of scale may be marginal at the assumed discount rate and time period.
However, at a lower discount rate or longer time period both NPV and IRR are positive at or just
beyond the 10-year mark.
9.2 “Medium” Applications
Two of the AGSD facilities could be considered “medium” in terms of their fuel oil consumption,
namely the Mentasta Lake School and the Tetlin School. Fuel oil usage at these facilities was
estimated at 12,000 to 15,000 gallons per year (the average figure of 13,500 gpy was used in some
calculations). Referring again to Table 5-4, the potential gross annual savings ranges from $14,700
to $34,550 per year.
In the hypothetical example presented in Section 7 for a “medium” facility, which is assumed to
consume 15,000 gpy, the gross annual savings would amount to $27,500, and yield a simple
payback of 3.73 years (given a cordwood boiler installation costing $102,520). When annual
OM&R costs are considered, the net present value and internal rate of return after 10 years,
assuming a discount rate of 5%, are $67,590 and 11.46% respectively. These results indicate that,
under the assumed conditions, the project is economically viable.
46
9.3 “Large” Applications
The Northway School and the Tok School (combined with the Multi-Purpose Facility) could be
considered “large” in terms of their fuel oil consumption. The Northway School is estimated to use
25,000 gpy, and the Tok School/MPF is estimated to use 45,000 to 50,000 gallons per year.
9.3.1 Northway School
At 25,000 gpy, the Northway School is be a potential candidate for either a cordwood or bulk fuel
system. Both options were considered in this report.
Referring again to Table 5-4, the potential gross annual savings ranges from $27,250 to $64,000 for
a cordwood system, and $35,750 to $71,450 for a bulk fuel system.
In the hypothetical example presented in Section 7 for a “large” cordwood facility, which is
assumed to consume 25,000 gpy, the gross annual savings would amount to $45,625, and yield a
simple payback of 2.96 years (given a cordwood boiler installation costing $134,970). When
annual OM&R costs are considered, the net present value and internal rate of return after 10 years,
assuming a discount rate of 5%, are $161,738 and 19.56% respectively. These results indicate that,
under the assumed conditions, the project is economically viable.
In the hypothetical example presented in Section 8 for a “small” bulk fuel facility, which is
assumed to consume 25,000 gpy, the gross annual savings would amount to $53,600 and yield a
simple payback of 7.46, 9.79 and 11.19 years given initial investment costs of $400,000, $525,000
and $650,000, respectively. Using the middle value ($525,000) and a discount rate of 5%, at 10
years the NPV would equal -$186,325 and the IRR would equal -7.75%. The picture improves
after 20 years, with the NPV equal to $21,593 and the IRR = 0.46%. While these results do not
necessarily make the project unfeasible, they do indicate the economy of scale may be marginal at
the assumed discount rate and time period.
9.3.2 Tok School and Multi-Purpose Facility
A facility using 50,000 gpy is beyond the upper limit of what is physically practical, in terms of
heating with cordwood. At an estimated consumption twice that of the Northway School, the
operator would have to load, and the system would have to consume, nearly 2¼ cords of wood per
day. For this reason, the Tok School and MPF, as one facility, is considered a candidate for a bulk
fuel system.
In the hypothetical example presented in Section 8 for a “medium” bulk fuel facility, which is
assumed to consume 50,000 gpy, the gross annual savings would amount to $108,880 and yield a
simple payback of 6.89, 9.18 and 11.48 years given initial investment costs of $750,000,
$1,000,000 and $1,250,000, respectively. Using the middle value ($1,000,000) and a discount rate
of 5%, at 10 years the NPV would equal -$270,180 and the IRR would equal -5.73%. The picture
improves after 20 years, with the NPV equal to $177,866 and the IRR = 1.92% (both NPV and IRR
become positive in year 16). These results indicate that, under the assumed conditions, the project
is economically viable and worthy of further consideration.
47
FOOTNOTES:
1 Wilson, P.L., Funck, J.W., Avery, R.B., Fuelwood Characteristics of Northwestern Conifers and Hardwoods, Research
Bulletin 60, Oregon State University, College of Forestry, 1987.
2 Briggs, David, 1994. Forest Products Measurements and Conversion Factors, University of Washington Institute of
Forest Resources, AR-10, Seattle, Washington 98195.
3 Wood with moisture greater than about 67% MC will not support combustion. Wood-Fired Boiler Systems For Space
Heating, USDA Forest Service, EM 7180-2, 1982.
4 Feasibility Assessment for Wood Heating, T.R. Miles Technical Consultants, Inc., Portland, OR, 2006.
http://www.jedc.org/forms/AWEDTG_WoodEnergyFeasibility.pdf
5 Smoke Gets in Your Lungs: Outdoor Wood Boilers in New York State, October 2005, New York State Attorney
General http://www.oag.state.ny.us/press/2005/aug/August%202005.pdf
6 Proposal For A Particulate Matter Emissions Standard And Related Provisions For New Outdoor Wood-fired Boilers,
Vermont Agency of Natural Resources Department of Environmental Conservation Air Pollution Control Division
January 20, 2005 (revised July 6, 2005) http://www.vtwoodsmoke.org/pdf/TechSupp.pdf
7 http://www.nescaum.org/topics/outdoor-hydronic-heaters/other-model-regulations
8 http://www.nescaum.org/topics/outdoor-hydronic-heaters/state-and-federal-information
9 Assessment of Outdoor Wood-Fired Boilers, Revised May 2006, NESCAUM, the Clean Air Association of the
Northeast States http://www.nescaum.org/documents/assessment-of-outdoor-wood-fired-boilers
10 Electronic Code of Federal Regulations, Title 40, Protection of Environment, Part 60, Standards of Performance for
New Stationary Sources. http://ecfr.gpoaccess.gov/cgi/t/text/text-
idx?c=ecfr&sid=f0d500634add4f17c656e9d55ce0d0cf&rgn=div6&view=text&node=40:6.0.1.1.1.63&idno=40
11 WK5982 Standard Test Method for Measurement of Particulate Emissions and Heating Efficiency of Outdoor Wood-
Fired Hydronic Heating Units, Committee E06.54 on Solid Fuel Burning Appliances American Society of Testing and
Materials. www.astm.org
12 U.S. Environmental Protection Agency news release,
http://yosemite.epa.gov/opa/admpress.nsf/4b729a23b12fa90c8525701c005e6d70/007f277470e64745852572720057353c!
OpenDocument
13 http://www.tarmusa.com, Tarm USA Inc. P.O. Box 285 Lyme, NH 03768
14 http://www.dectra.net/garn, Dectra Corporation, 3425 33rd Ave. NE, St. Anthony, MN 55418
15 Test of a Solid fuel Boiler for Emissions and Efficiency per Intertek’s Proposed Protocol for Outdoor Boiler Efficiency
and Emissions Testing. Intertek report No. 3087471 for State of Michigan, Air Quality Department. Intertek Testing
Services NA Inc. 8431 Murphy Drive, Wisconsin 53562. March 2006.
16 Keunzel, New Horizon and Alternate Heating Systems are sometimes recommended for high efficiency boilers,
however none are installed in Alaska and no efficiency or emissions data was available for this report.
www.newhorizoncorp.com, www.kuenzel.de/English/indexE.htm, www.alternateheatingsystems.com/Multi-
Fuel_boilers.htm
17 Biomass Boiler Market Assessment, CTA Architects and Engineers, Christopher Allen & Associates, Montana
Community Development Corp., and Geodata Services, Inc. 2006.
http://www.fuelsforschools.org/pdf/Final_Report_Biomass_Boiler_Market_Assessment.pdf
18 Darby Fuels For Schools Second Season Monitoring Report, 2004-2005.
http://www.fuelsforschools.org/pdf/Darby_FFS_Monitoring_Rpt_2004-2005.pdf
48
Appendix A. AWEDTG Evaluation Criteria
The following criteria were used to evaluate and recommend projects for feasibility assessments:
1. The opportunity for displacing fuel oil, natural gas, propane or diesel-generated
electricity used by targeted facilities for heating needs (i.e., current fuel type, gallons of
fuel per year, annual cost per year);
2. Local presence of high-hazard forest fuels and potential for utilizing these fuels for
heating schools, other public facilities, and buildings owned and operated by not-for-profit
organizations;
3. Availability of local wood processing residues (e.g., sawdust, planer shavings, and
sawmill residues);
4. Project cost versus yearly savings (cost-effectiveness);
5. Sustainability of the wood fuel supply;
6. Community support and project advocacy;
7. Ability to implement the project;
8. Ability to operate and maintain the project.
49
Appendix B. Recoverable Heating Value Determination
The Recoverable Heating Value (RGV) of wood is equal to the Gross Heating Value minus various energy
losses (H1 through H8). Those losses are described as:
H1: Heat used to raise the temperature of water in the wood to the boiling point
H2: Heat required to vaporize the water in the wood
H3: Heat require to separate the bound water (water below fiber saturation point) from the cell walls
H4: Heat required to raise the temperature of the vaporized water to the temperature of the exhaust gases
H5: Heat required to evaporate water that forms when the hydrogen component of wood is combusted
H6: Heat from combustion other than water vapor (dry gases)
H7: Heat required to raise the temperature of wood to the combustion temperature
H8: Other heat losses (radiation, conduction, convection, incomplete combustion, etc.)
Each of these energy loss factors is a calculated value based on published formulae. For more information,
please refer to: Briggs, D.G., Forest Products Measurements and Conversion Factors (Chapter 9), College of
Forest Resources, University of Washington, 1994
In order to calculate RHV, certain factors must be known or assumed. In calculating RHV for this paper, the
following assumptions were made (as per Example 1 in Briggs’ publication):
• Higher Heating Values (HHV): as presented in Table 1
• Moisture Content (MC): water content (calculated on wet basis). For calculations involving
cordwood, moisture (water) content was assumed to be 20 percent on a wet basis. For calculations
involving bulk fuel, moisture (water) content was assumed to be 40 percent on a wet basis.
• Wood Content: 100 minus moisture content percent (calculated on wet basis). For calculations
involving cordwood, wood content was assumed to be equal to 80 percent. For calculations
involving bulk fuel, wood content was assumed to be equal to 60 percent.
• Ambient Temperature (T1): assumed to be 70 degrees F
• Exhaust Temperature (T2): assumed to be 470 degrees
• Combustion Temperature (T3): assumed to be 450 degrees F
• Fiber Saturation Point (FSP): assumed to be 23 percent (calculated on a wet basis), which is equal to
30% calculated on a dry weight basis
• Excess Air (EA): assumed to be 20 percent
• Other Losses (OL): assumed to be 4 percent
50
Appendix C. List of Abbreviations and Acronyms
AEA Alaska Energy Authority
AWEDTG Alaska Wood Energy Development Task Group
BDT Bone Dry Ton
BTU British Thermal Unit (MBtu, thousand Btu ; MMBtu, million Btu)
CE Conversion Efficiency (fuel to heat)
CHP Combined Heat and Power
CO Carbon Monoxide
Cord 80 ft3 of solid wood; 100 cubic feet of “fuel” (wood + bark)
CR Cost Recovery; years to recover investment at indicated interest rate
DB Dry Basis (wet weight –dry weight/dry weight * 100)
DD Degree Days (Heating Degree Days)
EPA U.S. Environmental Protection Agency, U.S.
GHV Gross Heating Value
Gm Gram
Gpy Gallons per year
HHV Higher Heating Value
JEDC Juneau Economic Development Council
KBtu Thousand Btu
KWe Kilowatts, electric
KWt Kilowatts, thermal
MC Moisture Content (e.g. MC20 20 % moisture)
MBtu Thousand Btu (also kBtu)
MMBtu Million Btu
NHV Net Heating Value
NPV Net Present Value
OD Oven Dry
ODT Oven Dry Ton
O&M Operating and Maintenance
OM&R Operation, Maintenance and Repair
OWB Outdoor Wood Boiler
POW Prince of Wales [Island], Alaska
PV Present Value
RHV Recoverable Heating Value
Unit A shipping volume of 200 ft3
WB Wet basis (wet weight-dry weight/wet weight * 100)
1 grams = 0.00220462262 pounds
1 pounds = 453.59237 grams