HomeMy WebLinkAboutChilkoot Indian Assoc - Wood Pellet Mill Feasibility Study - Mar 2012 - REF Grant 2195373
3/30/2012
Wood Pellet Mill Feasibility
Study
As Commissioned by the Chilkoot Indian Association; Prepared by
Pellergy LLC with support from Vermont Wood Pellet Company LLC
By: Andrew Boutin, Pellergy LLC
With support from Chris Brooks,
Vermont Wood Pellet Company LLC
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
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Wood Pellet Mill Feasibility Study
Executive Summary
Pellergy LLC, together with the Vermont Wood Pellet Company, is pleased to present the Chilkoot Indian
Association (CIA) with the following feasibility study for a wood pellet production facility in SE Alaska.
Pellergy LLC (Pellergy) is a technology-based company specializing in wood pellet systems including
stand-alone wood pellet burner systems, dedicated wood pellet boilers, and bulk pellet storage, handling
and delivery solutions. The Vermont Wood Pellet Company is the State of Vermont’s only wood pellet
manufacturer; with operations in Clarendon, Vermont. Together, Pellergy and The Vermont Wood Pellet
Company present this feasibility analysis based upon industry experience as well as a site visit to Haines,
AK and with feeder data provided by the CIA.
This study is intended to give a partial analysis of the overall feasibility. Specifically, this report addresses
the following:
Wood Pellet Mill Establishment
o Mill Characteristics
o Output per year
o Operational Cost Assessment
o Equipment Analysis including Life Cycle Cost Estimate
Site Requirements Documents
o Size of facility
o Size of lot required
o Special considerations (transportation, access, zoning,
power, ordinances, etc.)
Pellergy’s analysis has been based on actual startup and operational costs from the Vermont Wood Pellet
Company combined with updated cost information on capital costs of equipment and local rates
determined as a result of the site visit and the data presented herein. Pellergy has relied upon data
supplied by the CIA as a result of their own (separately contracted) wood supply analysis to complete this
analysis. Pellergy has also relied upon the CIA to provide a list of local assumptions as to labor rates,
power rates, local permitting fees, etc.
It is the conclusion of this report that the CIA has the potential to operate a micro -scale wood pellet
operation within Haines, AK capable of producing up to 2500 tons per year. This operation would be
unique in its size, from a pellet manufacturing facility standpoint; however, the technologies and
techniques utilized are proven.
This analysis provides the CIA with a financial breakdown of capital expenses to establish the
recommended mill, operational cost projections based upon equipment cost quotes obtained by the VT
Wood Pellet company and their operational experience in a smaller scale mill.
A risk assessment is included, identifying potential risk, consequence and mitigation factors.
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
1
Approach
Pellergy has combined their experience in the end-use market for wood pellets with the established
experience of the Vermont Wood Pellet Company to provide the Chilkoot Indian Association with a
robust, accurate assessment of the financial requirements to manufacture and operate a wood pellet mill
of appropriate size for the existing and potential market for wood pellets.
Pellergy has relied upon the Chilkoot Indian Association to provide feeder data to complete this study.
The feeder data has identified the local wood fuel supply availability, pricing and limiting factors. This
report, entitled “Wood Fuel Supply Opportunities Haines, Alaska” dated July 11, 2010 and performed by
Innovative Natural Resource Solutions LLC (INRLS) has been used by Pellergy for data input into the
financial analysis of this report.
Overall, the wood supply assessment performed by INRLS for the CIA determined an adequate feedstock
supply to support a wood pellet mill capable of up to 20,000 tons of wood pellets per year. There were
identified limiting factors; however, for the purpose of this report, we have assumed an adequate supply
of woody biomass feedstock.
Method
The initial goal was to determine an appropriate size for a pellet mill operation given the current and
potential market demand for wood pellets in the local market. In evaluating the potential market the
total number of homes currently heating with oil and wood are examined. Assumptions are made as to
the potential for fuel switching based upon a variety of factors and an estimated local demand profile was
determined.
Transportation limitations were investigated in determining reasonable market expectations for more far -
reaching markets. Overall, Haines has a very good transportation infrastructure; however, shipping costs
are comparatively high for the shipment of lower cost bulk commodities such as woody biomass as
feedstock and finished wood pellets.
The investigation looked at the potential for low cost competition to move in and capture market share
once a local wood pellet demand is established.
As of the date of this report, a pellet mill in Fairbanks, AK has come on line and is producing wood pellets.
Representatives from Pellergy visited this mill and spoke with its operators in April of 2011. Additionally,
Pellergy has a trial system installed in the Fairbanks area and keeps regular contact with the home heating
company who installed the system and is watching the market grow with in the area.
Pellergy also looked at additional potential uses for a small scaled pellet mill. Since there is currently very
little wood pellet usage in the Haines area, and immediate demand for the product will be low, additional
uses for the equipment may offset the capital investment.
By: Andrew Boutin, Pellergy LLC
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Due to the small size of the mill recommended by this study, and relatively low discharge of waste heat
from the operation, co-generation of electricity was not investigated in detail and is not recommended
without further investigation and/or a change to the system layout. The capital equipment costs of co-
generation equipment, given the existing technologies, will surpass that of the mill setup given the size
and capacity of the pellet mill described herein. Additional investigations are recommended as result of
these preliminary investigations and should be undertaken in conjunction with the initial purchase of
equipment. It is recommended that these investigations include sizing a biomass burner for higher
capacity than required for the pelletizing operation and using waste heat from power generation to dry the
feedstock material for the pellet mill.
Additionally, in preliminary investigations of available technologies it was determined that the
operational cost of the equipment would equate to an equivalent power generation cost of $0.21 – 0.$23
per kilowatt hour. At current non-diesel generation rates, these costs present a competitive price for
electricity; however, from an equipment capital cost perspective become costly.
Waste heat power generation technologies are rapidly becoming more efficient, affordable and available
to smaller scale operations. For example, there have just recently been reports of an off the shelf Organic
Rankine Cycle (ORC) system that can provide 35-50 KW of power generation for as little as $0.07 – $0.09
per kilowatt hour of generation. At the time of this report, this technology is emerging and worth
studying in greater detail. It is recommended that the following course of action be taken:
Analysis
Pellergy LLC has experience in the wood pellet demand side of the wood pellet market. Our business is
centered on the production of wood pellet burner systems, wood pellet boilers and bulk wood pellet
storage and conveyance solutions. Our staff has toured many wood pellet mill operations and has
discussed the details of wood pellet manufacturing with many mill operators. Pellergy has teamed with
the Vermont Wood Pellet Company LLC in Clarendon, Vermont to provide their insight and know-how
regarding the setup and operation of a small-scale wood pellet mill. The Vermont Wood Pellet Company
is just about to enter their third year of operations. They have entered a market full of known product and
have, in a relatively short period of time, made a name for themselves as a company that provides the top
quality wood pellet fuel from 100% softwood feed stock. In fact, Pellergy LLC was drawn to the Vermont
Wood Pellet Company originally due to Pellergy’s very successful testing of the wood pellets produced in
their facility. The Vermont Wood Pellet Company is unique for many reasons: Their size, know-how and
ability to produce a consistently outstanding wood pellet fuel.
Market Demand
Together, Pellergy and the Vermont Wood Pellet Company have assessed the potential market for a wood
pellet manufacturing facility, identified an appropriate size for facility given potential market and
identified risks and challenges in setting up such a facility. The findings are presented herein:
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
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Heating oil (#2 Fuel Oil, Kerosene) comprise the majority of home heating fuel consumed within Haines
with approximately 83% of housing units utilizing it for primary heating and wood consisting of
approximately 10% of home heating (city-data.com, 2010).
Haines, AK Most Commonly Used Heating Fuels
Repeated calls to Delta Western, Inc., Haines’ heating oil dealer have gone unanswered. It is not common
for heating oil delivery companies to release this data to private entities. Pellergy has documented and
used the analysis below to estimate the total potential market for pellet usage.
For the purpose of this analysis, heating oil will be used as the primary potential market segment available
for conversion, add-on and supplemental displacement by wood pellets. Each of these is described below :
Replacement: Involves the removal of existing central heating equipment and the installation of new. The
new wood pellet heating system supplies 100% of the home heat. Replacement systems are typically the
highest cost installations for two primary factors: Cost of the new equipment and combined labor in the
removal of the old system and adaptation of the existing distribution (Hot Air or Hot Water) to the new
equipment.
Add-On: Involves the addition of a wood pellet central heating system that will operate in conjunction
with the existing and remaining oil fired system. The new wood pellet system can reasonably be expected
to provide for 80% or more of the total home heating in an add -on scenario with the existing system only
used in the coldest of heating days and if the wood pellet system is out of service. Add-on systems tend to
be slightly less expensive than Replacement systems due to the saved labor associated with the removal of
existing equipment and relative ease of tying into an existing system. Add-on systems can also be sized
slightly smaller than Replacement systems due to the fact that the existing system remains and can
provide for “surge” heating on the coldest of days, allowing the add-on system to carry a majority of the
heating needs.
Fuel Oil / Kerosene
Wood
Propane/LP
Electricity
Other
By: Andrew Boutin, Pellergy LLC
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Supplemental: Involves the installation of a point of source pellet heater rather than a central heating
system. These pellet stoves are used to provide heat to one or more rooms to supplement home heating
needs, but not replace a central heating system . Supplemental heaters are the most commonly installed
wood pellet fueled unit. In certain homes they can replace up to 75% of the heating, and in rare cases an
entire small home can be heated with just one or two pellet stoves. Supplemental pellet stov e installations
are the most cost effective installation; however, they do require daily attention in most cases. These can
be thermostatically controlled and automated for operation without constant user intervention.
For the purpose of analysis, the total number of houses, combined with apartment units was used to
analyze the potential market. Data from 2009 indicates there existed 991 total housing units in both
Haines and surrounding rural areas (city-data.com, 2010), 691 houses and condos and 300 apartments.
Additionally, the Borough of Haines has seen permit applications averaging 11 per year for the
construction and addition of housing units.
Since some numbers of the 300 apartments are presumed to be combined within the same structure,
thereby sharing a heating system, we will assume an average multi-unit size of 2.5 units per building. This
results in an estimated 120 structures requiring heat.
For the total current number of dwelling structures requiring heating the number of houses and condos
(691) was combined with the estimated number of apartment buildings (120) and an average of 11
dwellings per year added for 2010 and 2011. The total number used for this analysis is 833. While this
does not represent an exact number, it gives a relatively accurate number for analyzing the total market
potential.
Based on the size, age and quality of the dwellings; environmental factors; and total number of heat days
within Haines and the immediate surrounding areas, an average oil usage of 850 gallons per year was
used in this analysis. From the total number of housing units and average usage, the total oil consumed in
the residential market is estimated at 708,050 gallons.
The average cost of heating oil in Haines was $3.18 per gallon in 2010 (Alaska.gov – Laborstats, April
2011), and the current delivered price of heating fuel as of December 2010 was $3.85, a one-year, 21%
increase in costs. Overall, there is an approximate $2.25M spent in ho me heating oil alone in 2010.
At current fuel oil delivered costs of $4.72 per gallon (Delta Western, FEB 2012)
Percentage of Total Units 100%2%5%10%15%25%30%40%50%
Number of Dwelling Units 833 17 42 83 125 208 250 333 417
Average Total Oil Usage (gal)708050 14161 35403 70805 106208 177013 212415 283220 354025
Equiv Wood Pellets (tons)5900 118 295 590 885 1475 1770 2360 2950
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
5
Overall Pellet Supply
At the time of the initial investigation, no wood pellet mill operations were in existence within the State of
Alaska and the use of wood pellets was very minimal at an estimated 3,500 tons of pellets for the entire
state (N. Soboleff, 2010). Since the initial investigation; however, there have been some advancements in
both wood pellet production and usage in Alaska:
Superior Wood Pellet Company of Fairbanks, AK has constructed and brought online a mill that
can operate at up to 6 Tons Per Hour capacity. This mill has brought an increased awareness of
wood pellets to the more northern region of Alaska; however, it is not feasible to transport these
pellets to Southeast Alaska due to transportation costs.
SeaAlaska Corporation has installed a 750MBTU system in their Juneau, AK offices. This system
heats their office complex and creates a demand for pellets on the order of 300 tons per year. As
a result of this installation more individual homes and businesses are looking at converting to
wood pellets in Juneau. Given ferry routes in SE Alaska, it is feasible to ship pellets from a
manufacturing facility in Haines to consumers in Juneau.
More installations of pellet fired central heating systems have been installed and proven in
central heating applications. These systems are beginning to produce a track record of cost
savings and are providing a base demand increase for wood pellet fuel.
Recently, there have been solicitations for up to 400 tons of pellets to be supplied to a bulk user
in Ketchikan, AK. That user has recently been identified as a local federal building.
And, the United States Coast Guard is looking at ways to reduce their overall heating oil usage on
bases throughout Southeast Alaska.
The market for wood pellets in Alaska is growing as is the awareness that pellets can provide a heating
alternative that can save home and business owners 50% or more on their heating costs.
That said, the market in and around Haines remains small at under 100 tons per year. As illustrated
above, it is the opinion of the Authors that an eventual market of nearly 2,500 tons per year can and wil l
exist within Haines and in the immediate surrounding areas within the next 5-10 years. This will be
driven by the conversion of between 40-50% of existing homes to wood pellet heating.
Barriers to Market Growth
Transportation
The single greatest limiting factor in expansion of the pellet sales market for a mill located in Haines, AK
is the cost of transportation. Overland transportation costs for trucking pellets into markets accessible by
road can add significant cost to a ton of pellets. Figure 1.1 below illustrates the additional trucking costs of
pellets given fuel prices ranging from $4.25 to $6.65 per gallon of diesel. Miles shown are an estimated
one-way mileage; the dollar value shown is the estimated additional cost per ton of pellets delivered to the
indicated location.
By: Andrew Boutin, Pellergy LLC
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Figure 1.1 illustrating an estimated additional cost per ton of pellets delivered outside Haines, AK
Based on the chart above, it is reasonable to assume that the local market for pellets, including delivery
out to and just beyond Mosquito Lake are the farthest reaching markets where the economics of delivery
continue to translate in to cost savings for the consumer.
Transport using the Alaska Marine Highway Ferry system is also available; however, the cost impacts for
shipment of pellets in this manner to farther reaching destinations are still great. Figure 1.2 below
illustrates the estimated costs associated with the transport of pellets via truck using the ferry system.
Figure 1.2 illustrating an estimated additional cost per ton of pellets delivered outside Haines, AK
From the figures above, it is reasonable to assume that both Skagway and Juneau are viable markets for a
pellet production facility located in Haines.
In both cases, there are local cargo transport companies that can compete with the estimated prices.
Cargo transport companies may be able to move full 30-ton containers of bulk or bagged pellets for less;
however, these prices fluctuate with both the season and the cargo account booking the shipment. It is
reasonable to assume that, from time to time, shipments may be made using local cargo transport
companies to fulfill pellet orders outside the areas identified above; however, these cases will likely be the
exception rather than normal operations.
Affordability
An additional barrier to market growth will be the required capital cost for the consumer to convert to
pellets. The cost to convert a central heating system to wood pellets in the lower 48 states ranges from
$7,500 to over $25,000 depending on the size of system, cost to install, and level of automation the
system provides. Consumers in the Northeast region of the lower 48 have many choices in both heating
products and contractors to install the equipment. States such as New Hampshire and Vermont offer
incentives in the form of rebates for consumers to convert to pellet central heating.
In order to positively impact the increase in homeowners and business conversion to wood pellet heating,
the CIA could look into partnerships with financial inst itutions for the financing of systems, to equipment
manufacturers for training of local heating contractors in the installation of their equipment and the
Miles
Delivery Location 4.25 4.45 4.65 4.85 5.05 5.25 5.45 5.65 5.85 6.05 6.25 6.45 6.65
Local 12 $11.75 $11.77 $11.79 $11.80 $11.82 $11.84 $11.85 $11.87 $11.89 $11.90 $11.92 $11.94 $11.95
Mosquito Lake 35 $34.28 $34.33 $34.38 $34.43 $34.48 $34.53 $34.57 $34.62 $34.67 $34.72 $34.77 $34.82 $34.87
Haines Junction, YT 150 $146.93 $147.14 $147.34 $147.55 $147.76 $147.97 $148.18 $148.39 $148.59 $148.80 $149.01 $149.22 $149.43
Whitehorse, YT 250 $244.88 $245.23 $245.57 $245.92 $246.27 $246.61 $246.96 $247.31 $247.66 $248.00 $248.35 $248.70 $249.05
Price Per Gallon (Diesel)
Est Cost Per Ton
Skagway $17.67
Juneau $28.77
Ketchikan $121.66
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
7
potential for bulk buying discounts; and to the State of Alaska for incentivizing fuel switching thro ugh
incentives.
This methodology can apply to wood pellet stove users as well. Pellet stoves can have a very positive
impact on cost savings for the consumer and can translate into pellet sales for the producer. Pellet stoves
can not generate the type of large scale pellet demand that central heating systems can.
Quality Assurance
A poor quality pellet will not sell. It should be the focus of the CIA to produce the highest quality pellet
available on the market. There are many examples of pellet consumers purchasing wood pellets from a far
reaching pellet mill and at a higher cost than one located closer to them, if not right in their hometown,
over pellet quality issues. Pellet consumers demand a high quality pellet and are willing to pay a premium
to get it.
Focusing on the purchase and setup of equipment that is specifically designed for the type of feedstock
available is a necessity. The equipment should include features that will allow for adjustments using
control features of the system rather than a rebuild or redesign of equipment. Mill operators should be
not only familiar with the equipment and its operation, but also with the impacts of improper operation
on pellet quality.
The Vermont Wood Pellet Company can assist the CIA in the specifying, initial setup and operational
personnel training of a wood pellet mill facility. Company owners have many contacts throughout the
industry, including some in British Columbia, Canada who are familiar with the setup of equipment
specifically designed and tuned to the species of feed stock woods available in SE Alaska.
Identifying Feed Stock Source
The CIA provided a document entitled “Wood Fuel Supply Opportunities Haines, Alaska” as data to use in
determining the feasibility of operating a wood pellet mill in the area. The report’s summary states that
there are ample supplies of both local and somewhat distant market feed stocks to support a pellet
production facility with an annual output of nearly 25,000 tons of pellets per year. The report identifies
three major, potentially viable sources of biomass to support the operation:
1. Local logging of primarily Sitka Spruce;
2. The utilization of beetle killed White Spruce and sawmill residue from the Yukon; and
3. Sawmill residue from operations in Hoonah.
Each of these has been documented in the report as capable suppliers of biomass feedstock. During an
independent visit to the area by Pellergy and the Vermont Wood Pellet Company, visits were made to
logging sites in the Haines area as well as to Dimok Lumber Company in the Yukon. The purpose of the
visit was to inspect typically harvested logs in these areas to evaluate the quality for pelletizing. The
Hoonah mill was not visited due to time limitations as well as reports that the operation uses and can
produce residues from species very similar to that in the Haines area.
By: Andrew Boutin, Pellergy LLC
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During these visits, some interesting observations were made. Both the Haines managed forests and the
beetle killed cuts in the Yukon are providing logs that are extremely well suited to the production of a high
quality wood pellet; however two important distinctions exist:
Locally sourced Spruce logs have a moisture content of between 36% and 60% (INRLC Report,
June 2010)
White Spruce logs at Dimok lumber were witnessed as having moisture content of below 15% and
mill residue on site was even lower.
Furthermore, the bulk density of the white spruce was witnessed to be much greater than that of the
locally available species. The dry climate of the Yukon has provided a very slow growth environment for
the white spruce. The result are trees with very tight growth rings and density approaching that of much
harder wood species. While it was not possible to take actual bulk density tests, discussions with the
sawmill, local loggers and consumers of firewood in the local area all agree that the beetle killed white
spruce is a much more dense log.
The pelletizing process is one of densification. In the manufacturing wood pellets, feed stock is reduced to
sawdust sized particles and fed into the pelletizer where the material is forced through a die under heat
and pressure. In typical softwood pelletizing processes the ratio of green feedstock to finished product is
between 2.1 and 2.5 to one, meaning that for every ton of pellets produced, 2.1 to 2.5 tons of feedstock is
required. In pellet mill operations where predominately hardwood feedstock is used, this ratio is much
less due to the fact that the wood used starts out at a higher bulk density. Ratios of 1.2 to 1.6 to one are
commonly observed in these operations.
Ideal moisture levels of feedstock entering the pelletizer are between 9% and 14% moisture. In typical
pellet mill operations a dryer is used to bring feedstock moisture levels down to this level. Dryers in pellet
mill operations manufacture dryer fuel as a part of their operations, taking some of the feedstock,
chipping and drying it and reducing it to sawdust to burn in the dryer burner. This operation can cost a
pellet mill operation between $12 and $15 per ton of finished product.
In looking at the options for feedstock, Pellergy and the Vermont Wood Pellet Company evaluated the
higher acquisition cost of the beetle killed white spruc e from the Yukon versus the lower local cost of the
more locally sourced Spruce and Hemlock.
Pellet Mill Financial Analysis
Using experiential data from the Vermont Wood Pellet Company and feeder data from both the CIA and
local sources in and around Haines, AK, the following financial analysis of mill operations was performed.
The basis for mill size selection was a combination of the market analysis presented above indicating that
within 5 years there could exist a market for as much as 2,500 tons per year.
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
9
Operational Costs
An operational schedule of 6-months per year was used to evaluate production output and finances. This
decision was based on two primary factors:
The existing logging and log hauling infrastructure has been identified in the CIA report as
outdated and somewhat lacking. Additionally, hauling logs extended distance over the highway
system in winter can be met with unexpected delay and can result in a lack of feedstock at the
mill.
Currently, logging operations are limited to a few months of the year due to weather conditions
and access on logging roads.
Additionally, only one production shift is loaded into the financial model on startup of the mill. This will
allow for work shifts during normal business hours to reduce the overall management burden on the
operations. Alternatively, if deals can be made with the local power company to operate the mill in off -
peak hours, the model allows for the one shift to be in production at any time of day.
Figure 1.3 below shows the projected first year production capability given the 24 weeks of shutdown (6-
months) and operations for of five shifts per week (one shift per day during the weekdays). The
production of 1,680 tons is what is used in the financial model for the first full production year. A total of
500 tons of production is loaded into the model for the startup year of opera tion. As indicated below, the
“Full Capacity” of the mill operation, running three full shifts and only 6-weeks of shut down for
maintenance activity is just over 11,500 tons per year. It is this production number that is typically stated
as a mill’s operational capacity.
Figure 1.3 indicating actual production capacity and full production capacity
From an operational perspective, assumptions were loaded into the financial model based upon
experience in smaller mill operations and as a result of the equipment selected (and presented in later
sections of this report. As indicated in Figure 1.4 below, the overall mill capacity is 1.5 tons per hour. This
is a relatively small pelletizing operation; however, appropriately sized for the capacity target identified
above and of lower cost for startup.
There are four additional work weeks loaded into the model above and beyond the 24 production w eeks
listed in Figure 1.3 above. These weeks will account for startup and shutdown during the season as well as
lost production to maintenance tasks.
The raw to finished ratio of 1.4 indicated below is indicative of using the beetle killed white spruce fr om
the Yukon. An analysis using locally sourced wood is also presented and evaluated later in this section.
Production
Startup
Actual Full Capacity
Shut down weeks 24 6
Operating Hours 1,120 7,728
Production 1,680 11,592
By: Andrew Boutin, Pellergy LLC
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The kilowatt draw for the mill operations is a result of the estimated system total draw of all electrical
loads in the mill operations. A complete listing of the equipment is presented later with a breakdown of
the estimated electrical draw for each component of the mill operations.
Figure 1.4 showing operational assumptions for mill operations
Direct Costs
Direct operational cost assumptions a re documented in Figure 1.5 below. This list of assumptions is
based upon raw material costs as identified in the CIA provided wood availability study for raw materials
coming from the Yukon. The $70 per ton figure for raw materials landed in Haines is on the high side of
what can be expected. This figure comes as a result of the current pricing for a load of firewood brought
into Haines from the Yukon. These purchases are very low in volume as compared to what would be
required for even the startup year for the mill (approximately 700 tons of logs). It is reasonable to assume
this cost will be 10-15% lower for contracted, large quantity deliveries; however, the higher number is
maintained as a conservative estimate.
The debarking and chipping costs of $15.00 per ton are based on actual costs realized by the Vermont
Wood Pellet company plus an additional adder for fuel expenses. Chipping and debarking can be
accomplished either on site of by the supplier of the feed stock. For the purpose of this analy sis, both
chipping and debarking is performed outside the mill operations as a cost to the operation. It is
reasonable to assume that either the feedstock supplier or an independent operation will show interest in
chipping and debarking.
Acquiring the feedstock material with chipping and debarking represent 50% of the operational costs of
the pellet mill.
Bagging and wrapping charges per ton of $25 are again based on actual costs, plus an adder for the
increased shipping charges to acquire the required materials. This cost includes the cost of the actual
40LBS pellet bags, shrink wrap to cover the stacked bags and a wood pallet on which the bags are stacked.
Bags can be stacked in one to one and a half ton (50 or 75 bags per pallet) pallets for ease of
ASSUMPTIONS
Operations
Mill size 1.5 tons/hour
Shifts per week 5
Weeks/Year 28
Workers/shift 4
Raw/Finished Ratio 1.4
KW 183.15
KWh 206,000
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
11
transportation and logistics. Wrapping the pallets in shrink wrap will allow for limited outdoor storage
and transportation of the pellets without damaging exposure from the elements.
Electricity at $0.18 per kilowatt hour is based upon Alaska Power and telephone published rates for
Category A3 Bulk Power as of February 10, 2012. The published rate is $0.1706; however other usage and
monthly fees apply and have been amortized into the per kilowatt hour rate indicated. Electrical power
represents 12% of the operational costs of the pellet mill.
The financial model entries for Supplies & Misc.; Repairs, Building & Engineering; Equipment
Maintenance and Fuel are all based on actual operational experience with adders as appropriate for the
increased cost associated
Figure 1.5 indicating direct cost assumptions
Other Costs
Additional operational expenses have been considered and documented in the financial analysis. Figure
1.6 below documents the assumptions loaded into the model.
Figure 1.6 indicating other cost assumptions
Direct Costs $unit
Raw Materials 70.00 purchased ton
De-Barking & Chipping 15.00 purchased ton
Dryer Fuel - finished ton
Bagging & Wrapping 25.00 finished ton
Electricity 0.180 kWh
Supplies & Misc 1.50 finished ton
Repairs,Building & Engineering 6.00 finished ton
Equipment Maintenance 5.00 finished ton
Fuel 5.00 finished ton
Hourly Wage 13.50 hour
Benefit Rate 30%of payroll
Other Costs Monthly Annual
Management 3,300 19,800
Rent 358 4,300
Real estate taxes - -
Insurance 1,200 14,400
Marketing Costs 500 6,000
Professional Fees 750 9,000
Office and Admin 1,200 14,400
Testing & Certification 125 1,500
By: Andrew Boutin, Pellergy LLC
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Of note in these assumptions is the fact that managerial salary is only loaded in for the six months of
operation. The monthly salary for management as well as rent have been supplied by the CIA, all other
entries are based upon operational experience. The Testing and Certification entry is intended to cover
third party testing of the end product to verify quality control and for labeling of the product under the
Pellet Fuels Institute guidelines (see www.pelletheat.org for more information).
Financing
Although it is unclear as to the exact financing vehicles available to the CIA, assumptions have been made
and documented as a result of this financial analysis. As indicated in Figure 1.7 below, a mix of lower
interest loans at 4.25% interest, equity financing and grant awards have been used in this analysis. The
Total estimated total project cost of $475,300 has been allocated between these three potent ial funding
opportunities as indicated below.
Figure 1.7 indicating financing assumptions
Capital Requirements
Capital cost requirements are documented in Figure 1.8 below. Of note is the fact that there is no
investment listed for drying equipment. This is a direct result of being able to source feedstock material
that is ready to process into pellets directly (9-14% moisture upon arrival).
The equipment costs shown are for the installation of a 1.5 Ton per Hour system with the major
components sourced from China. There are additional expenses included for freight, setup and
engineering costs that will be required.
The Electrical Control System identified primarily consists of dedicated Variable Frequency Drives and
PLC controls to enable system automation, monitoring and control.
In addition to the capital costs in equipment, engineering, installation labor, freight and setup costs; we
have also included a line item for $100,000 for initial working capital to support operations. The costs
listed in Figure 1.8 below are a result of direct quotes, operational experience and escalation factors and
adders for SE Alaska. They represent, in some cases, a best estimate based upon experience; however, a
Financing
Loan Rate 4.25%
Loan term 15
Loan Amount 118,825 118,825$
Loan Payment 10,000$
Equity Financing 25%118,825
Grant Financing (Elig Costs)50%237,650
Discount Rate 8%
Infaltion Rate 2%
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
13
full Request for Proposal and quoting process should be performed to verify.
By: Andrew Boutin, Pellergy LLC
14
Equipment
Power
KW Price New/Used/
Refabricated
Infeed System Hopper 1,200 New
Screw Conveyer 1.5 1,970 New
Hammermill 45 5,300 New
Hopper 450 New
Cyclone 1,500 New
Fan 4 1,500 New
Airlock 3 1,800 New
Drying System
Rotory Feeder - New
Drum Dryer - New
Collector/Airlock - New
Ducting - New
Biomass Burner - New
Burner Control System - New
Pellet System
Tube Magnet 1,360 New
Surge Hopper 600 New
Screw Feeder 0.75 2,650 New
Conditioner 7.5 7,500 New
Ring Die Pellet Mill 110 45,000 New
Pellet Mill Control System 12,890 New
Cooling System
Conveyor 2.2 6,000 New
Counterflow Cooler 1.5 10,770 New
Cyclone 1,000 New
Cooling Fan 3 530 New
Airlock 1.1 600 New
Rotory Shaker 0.75 4,600 New
Bucket Elevator 1.5 3,600 New
Bagging Sysytem
Bins, Gate, Level Indicators 1,720 New
Hopper 270 New
Semi-Automated Bagging Machine 1.35 8,240 New
Electrical Control Sysytem
Some Parts Optional 69,250 New
Misc. parts 5,000
Sub-Total Power/Equipment 183.15 195,300
Welding 5,000
Freight 120,000
Electrical/Installation 20,000
Plumbing/Duct Installation 20,000
Engineering and Consulting 10,000
Additional Installation Labor 5,000
Sub-Total Freight & Installation 175,000
Market develoment 5,000
Feasibility -
Tech Review -
Office set-up -
Sub-Total Admin & Development costs 5,000
PROJECT COSTS 375,300
-
Working Capital 100,000$
Total Capital Costs 475,300
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
15
Figure 1.8 indicating equipment purchase costs and operational kw draw for each piece.
Profit and Loss Projections
Figure 1.9 below illustrates an example Profit and Loss projection for a wood pellet mill operation using
the following assumptions in addition to the previously documented assumptions above :
Production will start limited and grow in time to reach an operational output of 4,200
tons per year;
The Sale price of wood pellets from the mill is $285/ton and subject to the inflation rate
indicated;
All sales are FOB Haines, AK with no transportation costs of finished product included in
operational expenses.
Electrical Control Sysytem
Some Parts Optional 69,250 New
Misc. parts 5,000
Sub-Total Power/Equipment 241.45 195,300
Welding 5,000
Freight 120,000
Electrical/Installation 20,000
Plumbing/Duct Installation 20,000
Engineering and Consulting 10,000
Additional Installation Labor 5,000
Sub-Total Freight & Installation 175,000
Market develoment 5,000
Feasibility -
Tech Review -
Office set-up -
Sub-Total Admin & Development costs 5,000
PROJECT COSTS 375,300
-
Working Capital 100,000$
Total Capital Costs 475,300
By: Andrew Boutin, Pellergy LLC
16
The projection indicates the potential to turn profitable within a very short period of time as the local
pellet market grows.
Figure 1.9 indicating an estimated 20-Year Profit and Loss potential for a pellet mill operation in Haines, AK
PROFIT & LOSS start-up 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Growth 5%5%5%5%5%5%5%5%5%5%5%5%5%5%5%5%5%5%5%
Inflation Factor 1 102%104%106%108%110%113%115%117%120%122%124%127%129%132%135%137%140%143%146%
Production (tons)500 1,680 1,764 1,852 1,945 2,042 2,144 2,251 2,364 2,482 2,606 2,737 2,873 3,017 3,168 3,326 3,493 3,667 3,851 4,043 4,245
Sales 142,500 478,800 512,795 549,203 588,197 629,959 674,686 722,588 773,892 828,838 887,686 950,712 1,018,212 1,090,505 1,167,931 1,250,854 1,339,665 1,434,781 1,536,651 1,645,753 1,762,601
Cost of Goods Sold
Raw Materials 49,000 164,640 176,329 188,849 202,257 216,617 231,997 248,469 266,110 285,004 305,239 326,911 350,122 374,981 401,604 430,118 460,657 493,363 528,392 565,908 606,087
De-Barking & Chipping 10,500 35,280 37,785 40,468 43,341 46,418 49,714 53,243 57,024 61,072 65,408 70,052 75,026 80,353 86,058 92,168 98,712 105,721 113,227 121,266 129,876
Dryer Fuel - - - - - - - - - - - - - - - - - - - - -
Bagging & Wrapping 12,500 42,000 44,982 48,176 51,596 55,260 59,183 63,385 67,885 72,705 77,867 83,396 89,317 95,658 102,450 109,724 117,514 125,858 134,794 144,364 154,614
Electricity 11,036 37,080 39,713 42,532 45,552 48,786 52,250 55,960 59,933 64,188 68,746 73,627 78,854 84,453 90,449 96,871 103,748 111,115 119,004 127,453 136,502
Supplies & Misc 750 2,520 2,699 2,891 3,096 3,316 3,551 3,803 4,073 4,362 4,672 5,004 5,359 5,740 6,147 6,583 7,051 7,551 8,088 8,662 9,277
Repairs,Building & Engineering 3,000 10,080 10,796 11,562 12,383 13,262 14,204 15,212 16,292 17,449 18,688 20,015 21,436 22,958 24,588 26,334 28,203 30,206 32,351 34,647 37,107
Equipment Maintenance 2,500 8,400 8,996 9,635 10,319 11,052 11,837 12,677 13,577 14,541 15,573 16,679 17,863 19,132 20,490 21,945 23,503 25,172 26,959 28,873 30,923
Fuel 2,500 8,400 8,996 9,635 10,319 11,052 11,837 12,677 13,577 14,541 15,573 16,679 17,863 19,132 20,490 21,945 23,503 25,172 26,959 28,873 30,923
Salaries 18,000 60,480 64,774 69,373 74,299 79,574 85,223 91,274 97,755 104,695 112,129 120,090 128,616 137,748 147,528 158,003 169,221 181,236 194,103 207,885 222,644
Benefits 5,400 18,144 19,432 20,812 22,290 23,872 25,567 27,382 29,326 31,409 33,639 36,027 38,585 41,324 44,258 47,401 50,766 54,371 58,231 62,365 66,793
Sub-total Cost of Goods Sold 115,186$ 387,024$ 414,503$ 443,932$ 475,452$ 509,209$ 545,362$ 584,083$ 625,553$ 669,967$ 717,535$ 768,480$ 823,042$ 881,478$ 944,063$ 1,011,092$ 1,082,879$ 1,159,763$ 1,242,107$ 1,330,296$ 1,424,747$
COGS/Sales 81%81%81%81%81%81%81%81%81%81%81%81%81%81%81%81%81%81%81%81%81%
Gross Profit 27,314$ 91,776$ 98,292$ 105,271$ 112,745$ 120,750$ 129,323$ 138,505$ 148,339$ 158,871$ 170,151$ 182,232$ 195,170$ 209,027$ 223,868$ 239,763$ 256,786$ 275,018$ 294,544$ 315,457$ 337,854$
Management 7,661 25,740 26,255 26,780 27,315 27,862 28,419 28,987 29,567 30,159 30,762 31,377 32,004 32,645 33,297 33,963 34,643 35,336 36,042 36,763 37,498
Rent 4,300 4,300 4,386 4,474 4,563 4,654 4,748 4,842 4,939 5,038 5,139 5,242 5,347 5,453 5,563 5,674 5,787 5,903 6,021 6,141 6,264
Real estate taxes - - - - - - - - - - - - - - - - - - - - -
Insurance 14,400 14,400 14,688 14,982 15,281 15,587 15,899 16,217 16,541 16,872 17,209 17,554 17,905 18,263 18,628 19,000 19,381 19,768 20,163 20,567 20,978
Marketing Costs 1,786 6,000 6,120 6,242 6,367 6,495 6,624 6,757 6,892 7,030 7,171 7,314 7,460 7,609 7,762 7,917 8,075 8,237 8,401 8,569 8,741
Professional Fees 9,000 9,000 9,180 9,364 9,551 9,742 9,937 10,135 10,338 10,545 10,756 10,971 11,190 11,414 11,642 11,875 12,113 12,355 12,602 12,854 13,111
Office and Admin 4,286 14,400 14,688 14,982 15,281 15,587 15,899 16,217 16,541 16,872 17,209 17,554 17,905 18,263 18,628 19,000 19,381 19,768 20,163 20,567 20,978
Testing & Certification 1,500 1,500 1,530 1,561 1,592 1,624 1,656 1,689 1,723 1,757 1,793 1,828 1,865 1,902 1,940 1,979 2,019 2,059 2,100 2,142 2,185
Sub-total 42,932$ 75,340$ 76,847$ 78,384$ 79,951$ 81,550$ 83,181$ 84,845$ 86,542$ 88,273$ 90,038$ 91,839$ 93,676$ 95,549$ 97,460$ 99,410$ 101,398$ 103,426$ 105,494$ 107,604$ 109,756$
EBIDTA (15,618)$ 16,436$ 21,445$ 26,887$ 32,794$ 39,200$ 46,142$ 53,660$ 61,797$ 70,598$ 80,113$ 90,393$ 101,494$ 113,478$ 126,408$ 140,353$ 155,388$ 171,592$ 189,050$ 207,853$ 228,098$
Interest 2,525$ 4,945$ 4,730$ 4,506$ 4,273$ 4,029$ 3,775$ 3,511$ 3,235$ 2,948$ 2,648$ 2,335$ 2,010$ 1,670$ 1,741$ 1,815$ 1,892$ 1,973$ 2,056$ 2,144$ 2,235$
Depreciation -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$
Taxes -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$
Net Income (18,143)$ 11,491$ 16,715$ 22,381$ 28,521$ 35,170$ 42,366$ 50,149$ 58,562$ 67,651$ 77,465$ 88,057$ 99,485$ 111,808$ 124,667$ 138,538$ 153,496$ 169,620$ 186,993$ 205,709$ 225,863$
Starting Cash (118,825) (139,443)$ (133,007)$ (121,562)$ (104,674)$ (81,881)$ (52,681)$ (16,540)$ 27,121$ 78,918$ 139,516$ 209,629$ 290,021$ 381,515$ 494,993$ 621,401$ 761,754$ 917,143$ 1,088,735$ 1,277,784$ 1,485,637$
(118,825)$ (20,618)$ 6,436$ 11,445$ 16,887$ 22,794$ 29,200$ 36,142$ 43,660$ 51,797$ 60,598$ 70,113$ 80,393$ 91,494$ 113,478$ 126,408$ 140,353$ 155,388$ 171,592$ 189,050$ 207,853$ 228,098$
Ending Cash (139,443)$ (133,007)$ (121,562)$ (104,674)$ (81,881)$ (52,681)$ (16,540)$ 27,121$ 78,918$ 139,516$ 209,629$ 290,021$ 381,515$ 494,993$ 621,401$ 761,754$ 917,143$ 1,088,735$ 1,277,784$ 1,485,637$ 1,713,735$
Loan Payment 5,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 - - - - - - - -
Interest 2,525$ 4,945$ 4,730$ 4,506$ 4,273$ 4,029$ 3,775$ 3,511$ 3,235$ 2,948$ 2,648$ 2,335$ 2,010$ 1,670$ 1,741$ 1,815$ 1,892$ 1,973$ 2,056$ 2,144$ 2,235$
Principal 2,475$ 5,055$ 5,270$ 5,494$ 5,727$ 5,971$ 6,225$ 6,489$ 6,765$ 7,052$ 7,352$ 7,665$ 7,990$ (1,670)$ (1,741)$ (1,815)$ (1,892)$ (1,973)$ (2,056)$ (2,144)$ (2,235)$
End of Year Balance 116,350$ 111,295$ 106,025$ 100,531$ 94,804$ 88,833$ 82,608$ 76,119$ 69,354$ 62,302$ 54,949$ 47,285$ 39,294$ 40,964$ 42,705$ 44,520$ 46,412$ 48,385$ 50,441$ 52,585$ 54,820$
IRR 22%
NPV 615,634
Pellet Mill Recommendations
Based upon the information presented in the analyses above, the following is the recommendation of the
Pellergy / Vermont Wood Pellet team:
The Construction of a 1.5 Ton Per Hour pellet mill operation. This operation will need to be an
engineered solution; however, the technology is proven as is the supply base.
o If accepting logs, the suggested lot size for the facility is 6 acres, if accepting chips, the
suggested size is 3 acres.
o A 6,000 square foot building would provide ample room for the pelletizing operation as
well as required indoor, covered space for the storage of pellets.
Source initial material from the Yukon. The beetle killed white spruce bulk density and moisture
content far outweigh the added cost of material in operational expenses. Once the operation is
ready to expand, the addition of an on-site dryer will allow the operation to accept and utilize
locally harvested spruce and hemlock at 40-60% moisture.
Plan for 480V, 3-phase power. Site the mill operations in an area serviced with this industrial
power supply.
Invest in marketing, sales and distribution agreements in Juneau. This market has the greatest
potential for immediate sales to the SeaAlaska Corporation and immediate growth potential due
to the years of promotion the corporation has accomplished to date.
Risk Assessment
Overall risk assessment including potential mitigation efforts are detailed below:
Investing in too small an operation
Risk: If the CIA were to build a pellet mill in SE Alaska with limited production capability, then demand
for the pellets produced will outpace production capability.
Probability: Moderate. While some potential exists, it is not likely that demand can spike in a very short
period of time. There are currently a limited number of equipment vendors and installers of pellet
burning equipment in the area, and very low demand for wood pellets. Even a 3-400% increase within a
few months is manageable.
Consequence: Low. Even if this becomes an issue, the impact is the mill sells out of product.
Mitigation: When planning and siting the facility, plan for expansion. Wood pellet mill operations on the
smaller scale (such as the scale recommended) are very capable of expansion and duplication given the
real estate to do so. Also be cautious about entering into long term supply contracts with remote
customers. If local demand increases dramatically, the mill operations should loo k to sell as much
product into the immediate local market as possible without added transportation costs.
Transportation Price Escalation
By: Andrew Boutin, Pellergy LLC
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1
Risk: If transportation prices rise dramatically, then the cost of raw materials and final product will
impact the financial model.
Probability: High. Given the volatility of oil prices, there is a fairly high potential for this risk to become
an operational issue.
Consequence: Moderate. As oil prices rise, so does the demand for wood pellets; however, price
expectations for pellets may cause even local customers to look at purchasing their pellets from other
sources.
Mitigation: Develop the local market as much as possible. This approach involves as little transportation
as possible in the finished product. Additionally, plan for the addition of the dryer unit up front in the
design process. This will give the operation to ability to add the unit quickly in the event the economics of
local timber become more attractive than transporting timber in from the Yukon .
Falling Oil Prices
Risk: If oil prices fall dramatically, then the market for wood pellets will not develop as required (i.e.
customers will not convert from oil to wood pellets).
Probability: Low. Historical numbers show an increase in oil prices as do all predictions on futures.
Consequence: High. If oil prices were to fall to below $3.00 per gallon for heating oil it becomes harder
for individuals to make the investment in converting to wood pellets. There are still savings; however,
they are reduced to the point where the investment may not be justified. This will have a major impact on
the pellet mill’s ability to sell wood pellets at a competitive price as over 65% of the operational costs will
not respond proportionally to lower oil prices.
Mitigation: Develop the local market as much as possible. This approach involves as little transportation
as possible in the finished product. Additionally, plan for the addition of the dryer unit up front in the
design process. This will give the operation to ability to add the unit quickly in the event the economics of
local timber become more attractive than transporting timber in from the Yukon.
Adders in Financial Analysis
Risk: If the adders in the financial analysis above fall short of realistic num bers, then the capital and
operational costs may be higher.
Probability: Moderate. There are many opportunities to underestimate how much more items of
importance cost in SE Alaska than in the lower 48. The financial analysis includes adders; however, t he
reality is that there are no manufacturing operations to be able to pull more realistic numbers from. The
numbers are based on the experience of an operational small-scale wood pellet mill in Vermont.
Consequence: Moderate. There are other drivers in the analysis that tend to be more conservative and
may outweigh small differences; however the impact of this risk becoming an issue can mean the
difference between a profitable venture and one with losses.
By: Andrew Boutin, Pellergy LLC
2
Mitigation: Perform an in depth analysis using the financial prediction tools provided and actual quotes
from established vendors and transportation companies. Also, have the engineering plans produced such
that actual estimates can be solicited.
Pellet Quality, Feedstock to Finished Ratio and Moisture Content
Risk: If pellets cannot be produced as predicted in the analysis, then greater operational costs may be an
issue.
Probability: Low. Based upon the combined findings of both reports and investigations done by the CIA
indicate the availably of feed stocks of the quality and quantity described herein. Furthermore, the USDA
has undertaken and produced a study testing the quality of local wood supplies for the production of wood
pellets with good results (Brackley, Allen M.; Parrent, Daniel J. 2011. Production of wood pellets from
Alaska-grown white spruce and hemlock).
Consequence: Moderate. Having to source feed stocks from multiple suppliers or from all local sources
initially will mandate the use of a dryer system and higher operational and up-front costs. Furthermore, if
the beetle killed white spruce does not produce pellets as predicted; these measures may have to be
incorporated as a result.
Mitigation: Perform an initial pellet production test using the beetle killed feed stocks from the Yuko n.
This pilot project would include procuring some of the typical logs and transporting them to a facility to
be processed. Measurements should be taken at harvest and at every step of the process to verify
performance as predicted.
Conclusion
It is the opinion of Pellergy LLC and the Vermont Wood Pellet Company that a viable wood pellet
operation can exist in Haines, AK. The scale of this mill, as described in this document is not typical of
wood pellet mill operations throughout North America; however , the technology and equipment exist.
Furthermore, because the Vermont Wood Pellet Company has set up a smaller scale wood pellet mill
within the last five years and has run and operated this mill to provide the region with a very high quality
pellet, there are some lessons learned and resources that can be accessed to assist in setting up such an
operation.
Chris Brooks of the Vermont Wood Pellet Company is the point of contact for future inquiries regarding
the path forward in system specification, design and implementation. Chris has a network of equipment
vendors, engineers, pellet mill operators and contractors that are well suited to assisting in the setup of a
small scale mill operation in Haines. Contact information for the Vermont Wood Pellet Company is as
follows:
Vermont Wood Pellet Company
Chris Brooks, President
1105 Route 7B Central North Clarendon, VT 05759
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
3
chris@vermontwoodpellet.com
Phone: (802) 747-1093
Author Contact Information
All correspondence regarding this report should be forwarded to:
Andrew Boutin
General Manager
Pellergy LLC
16 Railroad Street
Barre, Vermont 06541
andy.boutin@pellergy.com
Phone: +802.659.4866
By: Andrew Boutin, Pellergy LLC
4
Appendix A: Local Sitka Spruce Evaluation
Using data from the CIA Supplied study and the values for locally sourced Spruce and Hemlock, an
alternative analysis was run and presented below.
Operational Costs
The same operational schedule of 6-months per year was used to evaluate production output and finances
for the local wood supply scenario. Therefore, schedules and production capability remain unchanged.
Figure A.1 below shows the projected first year production capability given the use of locally sourced
feedstock.
Figure A.1 indicating actual production capacity and full production capacity
Using locally sourced feed stock has two impacts on the operational assumptions detailed in Figure A.2
below: The Raw/Finished ratio and the total operational KW (and therefore the KWh requirement of the
facilty).
The raw to finished ratio of 2.4 indicated below is indicative of using the locally sourced wood supply of
primarily Sitka Spruce with some Hemlock. This is higher than the analysis above due to the increased
bulk density of the Yukon sourced White Spruce over that of the local wood species.
The kilowatt draw for the mill operations is a result of the estimated system total draw of all electrical
loads in the mill operations. A complete listing of the equipment is presented later with a breakdown of
the estimated electrical draw for each component of the mill operations. The main addition to the
electrical load is the drum dryer operation. This is necessitated due to the higher moisture content of the
local wood supply.
Production
Startup
Actual Full Capacity
Shut down weeks 24 6
Operating Hours 1,120 7,728
Production 1,680 11,592
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
5
Figure A.2 showing operational assumptions for mill operations
Direct Costs
Direct operational cost assumptions as documented in Figure A.3 below are updated for locally sourced
wood feedstock. This list of assumptions is based upon raw material costs as identified in the CIA
provided wood availability study for raw materials coming from local suppliers at $43 per green ton. The
$43 per ton figure for raw materials landed in Haines is on the low side of what can be expected, per this
study.
All other direct costs remain as detailed in the report above.
Figure A.3 showing direct costs for mill operations
Other Costs
ASSUMPTIONS
Operations
Mill size 1.5 tons/hour
Shifts per week 5
Weeks/Year 28
Workers/shift 4
Raw/Finished Ratio 2.4
KW 241.45
KWh 271,000
Direct Costs $unit
Raw Materials 43.00 purchased ton
De-Barking & Chipping 15.00 purchased ton
Dryer Fuel 12.00 finished ton
Bagging & Wrapping 25.00 finished ton
Electricity 0.220 kWh
Supplies & Misc 1.50 finished ton
Repairs,Building & Engineering 6.00 finished ton
Equipment Maintenance 5.00 finished ton
Fuel 5.00 finished ton
Hourly Wage 13.50 hour
Benefit Rate 30%of payroll
By: Andrew Boutin, Pellergy LLC
6
No Additional operational expenses above and beyond what was analyzed for the Yukon sourced wood
were added to the analysis.
Financing
The addition of the drum dryer and required burner/components for drying locally sourced wood
feedstocks adds just over $67,000 to the total capital requirements of the project. For the purpose of this
analysis these costs are not added into the financing model and are therefore a part of the required initial
capital investment. An overview of the equipment required along with the KW draw of each component is
listed in Figure A.4 below under the “Drying System” heading.
Capital Requirements
Total Capital cost requirements are documented in Figure A.4 below. All other costs remain the same
with the addition of the drying system to handle the locally sourced wood.
Equipment
Power
KW Price
New/Used/
Refabricate
d
Infeed System Hopper 1,200 New
Screw Conveyer 1.5 1,970 New
Hammermill 45 5,300 New
Hopper 450 New
Cyclone 1,500 New
Fan 4 1,500 New
Airlock 3 1,800 New
Drying System
Power
KW Price
Rotory Feeder 1.1 2,065 New
Drum Dryer 29.4 35,400 New
Collector/Airlock 20.7 4,000 New
Ducting 2,400 New
Biomass Burner 7.1 20,650 New
Burner Control System 2,700 New
By: Andrew Boutin, Pellergy LLC
This proposal contains COMPETITION SENSITIVE material intended for the exclusive use by the Chilkoot Indian Association (CIA).
7
Pellet System
Tube Magnet 1,360 New
Surge Hopper 600 New
Screw Feeder 0.75 2,650 New
Conditioner 7.5 7,500 New
Ring Die Pellet Mill 110 45,000 New
Pellet Mill Control System 12,890 New
Cooling System
Conveyor 2.2 6,000 New
Counterflow Cooler 1.5 10,770 New
Cyclone 1,000 New
Cooling Fan 3 530 New
Airlock 1.1 600 New
Rotory Shaker 0.75 4,600 New
Bucket Elevator 1.5 3,600 New
Bagging Sysytem
Bins, Gate, Level Indicators 1,720 New
Hopper 270 New
Semi-Automated Bagging Machine 1.35 8,240 New
Electrical Control Sysytem
Some Parts Optional 69,250 New
Misc. parts 5,000
Sub-Total Equipment 241.45 262,515
By: Andrew Boutin, Pellergy LLC
8
Figure A.4 showing total equipment costs and operational power requirement for mill operations using
locally sourced wood
Profit and Loss Projections
Figure A.5 below illustrates an example Profit and Loss projection for a wood pellet mill operation using
the following assumptions in addition to the previously documented assumptions above:
Production will start limited and grow in time to reach an operational out put of 4,200
tons per year;
The Sale price of wood pellets from the mill is $285/ton and subject to the inflation rate
indicated;
All sales are FOB Haines, AK with no transportation costs of finished product included in
operational expenses.
The projection indicates the potential to turn profitable within a very short period of time as the local
pellet market grows.
Welding 5,000
Freight 120,000
Electrical/Installation 20,000
Plumbing/Duct Installation 20,000
Engineering and Consulting 10,000
Additional Installation Labor 5,000
Sub-Total Freight & Installation 175,000
Market develoment 5,000
Feasibility -
Tech Review -
Office set-up -
Sub-Total Admin & Development costs 5,000
PROJECT COSTS 442,515
Investment -
start-up, Equipment, Raw Materials, Test Mill, and R & D
Working Capital 100,000$
Total Capital Costs 542,515
Figure A.5 indicating an estimated 20-Year Profit and Loss potential for a pellet mill operation in Haines, AK
PROFIT & LOSS start-up 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Growth 5%5%5%5%5%5%5%5%5%5%5%5%5%5%5%5%5%5%5%
Inflation Factor 1 102%104%106%108%110%113%115%117%120%122%124%127%129%132%135%137%140%143%146%
Production (tons)500 1,680 1,764 1,852 1,945 2,042 2,144 2,251 2,364 2,482 2,606 2,737 2,873 3,017 3,168 3,326 3,493 3,667 3,851 4,043 4,245
Sales 142,500 478,800 512,795 549,203 588,197 629,959 674,686 722,588 773,892 828,838 887,686 950,712 1,018,212 1,090,505 1,167,931 1,250,854 1,339,665 1,434,781 1,536,651 1,645,753 1,762,601
Cost of Goods Sold
Raw Materials 51,600 173,376 185,686 198,869 212,989 228,111 244,307 261,653 280,230 300,127 321,436 344,258 368,700 394,878 422,914 452,941 485,100 519,542 556,429 595,936 638,247
De-Barking & Chipping 18,000 60,480 64,774 69,373 74,299 79,574 85,223 91,274 97,755 104,695 112,129 120,090 128,616 137,748 147,528 158,003 169,221 181,236 194,103 207,885 222,644
Dryer Fuel 6,000 20,160 21,591 23,124 24,766 26,525 28,408 30,425 32,585 34,898 37,376 40,030 42,872 45,916 49,176 52,668 56,407 60,412 64,701 69,295 74,215
Bagging & Wrapping 12,500 42,000 44,982 48,176 51,596 55,260 59,183 63,385 67,885 72,705 77,867 83,396 89,317 95,658 102,450 109,724 117,514 125,858 134,794 144,364 154,614
Electricity 17,744 59,620 63,853 68,387 73,242 78,442 84,012 89,976 96,365 103,207 110,534 118,382 126,787 135,789 145,430 155,756 166,815 178,658 191,343 204,929 219,478
Supplies & Misc 750 2,520 2,699 2,891 3,096 3,316 3,551 3,803 4,073 4,362 4,672 5,004 5,359 5,740 6,147 6,583 7,051 7,551 8,088 8,662 9,277
Repairs,Building & Engineering 3,000 10,080 10,796 11,562 12,383 13,262 14,204 15,212 16,292 17,449 18,688 20,015 21,436 22,958 24,588 26,334 28,203 30,206 32,351 34,647 37,107
Equipment Maintenance 2,500 8,400 8,996 9,635 10,319 11,052 11,837 12,677 13,577 14,541 15,573 16,679 17,863 19,132 20,490 21,945 23,503 25,172 26,959 28,873 30,923
Fuel 2,500 8,400 8,996 9,635 10,319 11,052 11,837 12,677 13,577 14,541 15,573 16,679 17,863 19,132 20,490 21,945 23,503 25,172 26,959 28,873 30,923
Salaries 18,000 60,480 64,774 69,373 74,299 79,574 85,223 91,274 97,755 104,695 112,129 120,090 128,616 137,748 147,528 158,003 169,221 181,236 194,103 207,885 222,644
Benefits 5,400 18,144 19,432 20,812 22,290 23,872 25,567 27,382 29,326 31,409 33,639 36,027 38,585 41,324 44,258 47,401 50,766 54,371 58,231 62,365 66,793
Sub-total Cost of Goods Sold 137,994$ 463,660$ 496,580$ 531,837$ 569,597$ 610,039$ 653,352$ 699,740$ 749,421$ 802,630$ 859,617$ 920,650$ 986,016$ 1,056,023$ 1,131,000$ 1,211,301$ 1,297,304$ 1,389,412$ 1,488,061$ 1,593,713$ 1,706,867$
COGS/Sales 97%97%97%97%97%97%97%97%97%97%97%97%97%97%97%97%97%97%97%97%97%
Gross Profit 4,506$ 15,140$ 16,215$ 17,366$ 18,599$ 19,920$ 21,334$ 22,849$ 24,471$ 26,208$ 28,069$ 30,062$ 32,197$ 34,483$ 36,931$ 39,553$ 42,361$ 45,369$ 48,590$ 52,040$ 55,735$
Management 7,661 25,740 26,255 26,780 27,315 27,862 28,419 28,987 29,567 30,159 30,762 31,377 32,004 32,645 33,297 33,963 34,643 35,336 36,042 36,763 37,498
Rent 4,300 4,300 4,386 4,474 4,563 4,654 4,748 4,842 4,939 5,038 5,139 5,242 5,347 5,453 5,563 5,674 5,787 5,903 6,021 6,141 6,264
Real estate taxes - - - - - - - - - - - - - - - - - - - - -
Insurance 14,400 14,400 14,688 14,982 15,281 15,587 15,899 16,217 16,541 16,872 17,209 17,554 17,905 18,263 18,628 19,000 19,381 19,768 20,163 20,567 20,978
Marketing Costs 1,786 6,000 6,120 6,242 6,367 6,495 6,624 6,757 6,892 7,030 7,171 7,314 7,460 7,609 7,762 7,917 8,075 8,237 8,401 8,569 8,741
Professional Fees 9,000 9,000 9,180 9,364 9,551 9,742 9,937 10,135 10,338 10,545 10,756 10,971 11,190 11,414 11,642 11,875 12,113 12,355 12,602 12,854 13,111
Office and Admin 4,286 14,400 14,688 14,982 15,281 15,587 15,899 16,217 16,541 16,872 17,209 17,554 17,905 18,263 18,628 19,000 19,381 19,768 20,163 20,567 20,978
Testing & Certification 1,500 1,500 1,530 1,561 1,592 1,624 1,656 1,689 1,723 1,757 1,793 1,828 1,865 1,902 1,940 1,979 2,019 2,059 2,100 2,142 2,185
Sub-total 42,932$ 75,340$ 76,847$ 78,384$ 79,951$ 81,550$ 83,181$ 84,845$ 86,542$ 88,273$ 90,038$ 91,839$ 93,676$ 95,549$ 97,460$ 99,410$ 101,398$ 103,426$ 105,494$ 107,604$ 109,756$
EBIDTA (38,426)$ (60,200)$ (60,632)$ (61,018)$ (61,352)$ (61,631)$ (61,847)$ (61,996)$ (62,071)$ (62,064)$ (61,969)$ (61,777)$ (61,479)$ (61,067)$ (60,529)$ (59,857)$ (59,037)$ (58,057)$ (56,904)$ (55,564)$ (54,021)$
Interest 5,313$ 10,638$ 10,665$ 10,694$ 10,723$ 10,754$ 10,786$ 10,819$ 10,854$ 10,890$ 10,928$ 10,968$ 11,434$ 11,920$ 12,426$ 12,955$ 13,505$ 14,079$ 14,677$ 15,301$ 15,952$
Depreciation -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$
Taxes -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$
Net Income (43,739)$ (70,838)$ (71,297)$ (71,711)$ (72,075)$ (72,385)$ (72,633)$ (72,816)$ (72,925)$ (72,955)$ (72,897)$ (72,745)$ (72,913)$ (72,987)$ (72,956)$ (72,811)$ (72,542)$ (72,136)$ (71,582)$ (70,865)$ (69,973)$
Starting Cash - (43,426)$ (113,626)$ (184,258)$ (255,276)$ (326,628)$ (398,258)$ (470,106)$ (542,102)$ (614,173)$ (686,238)$ (758,207)$ (819,983)$ (881,463)$ (942,529)$ (1,003,059)$ (1,062,915)$ (1,121,952)$ (1,180,009)$ (1,236,913)$ (1,292,477)$
-$ (43,426)$ (70,200)$ (70,632)$ (71,018)$ (71,352)$ (71,631)$ (71,847)$ (71,996)$ (72,071)$ (72,064)$ (71,969)$ (61,777)$ (61,479)$ (61,067)$ (60,529)$ (59,857)$ (59,037)$ (58,057)$ (56,904)$ (55,564)$ (54,021)$
Ending Cash (43,426)$ (113,626)$ (184,258)$ (255,276)$ (326,628)$ (398,258)$ (470,106)$ (542,102)$ (614,173)$ (686,238)$ (758,207)$ (819,983)$ (881,463)$ (942,529)$ (1,003,059)$ (1,062,915)$ (1,121,952)$ (1,180,009)$ (1,236,913)$ (1,292,477)$ (1,346,499)$
Loan Payment 5,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 - - - - - - - - - -
Interest 5,313$ 10,638$ 10,665$ 10,694$ 10,723$ 10,754$ 10,786$ 10,819$ 10,854$ 10,890$ 10,928$ 10,968$ 11,434$ 11,920$ 12,426$ 12,955$ 13,505$ 14,079$ 14,677$ 15,301$ 15,952$
Principal (313)$ (638)$ (665)$ (694)$ (723)$ (754)$ (786)$ (819)$ (854)$ (890)$ (928)$ (10,968)$ (11,434)$ (11,920)$ (12,426)$ (12,955)$ (13,505)$ (14,079)$ (14,677)$ (15,301)$ (15,952)$
End of Year Balance 250,313$ 250,951$ 251,616$ 252,310$ 253,033$ 253,787$ 254,573$ 255,392$ 256,246$ 257,137$ 258,065$ 269,033$ 280,467$ 292,387$ 304,813$ 317,768$ 331,273$ 345,352$ 360,029$ 375,331$ 391,282$
IRR n/a
NPV (696,613)
Appendix A Conclusion
Based upon the information presented in the analyses above, the financial predictions show the higher
operational costs associated with the locally sourced wood and an operational loss for the operation. T he
primary drivers in the analysis are:
1. The lower bulk density;
2. This higher moisture content;
3. And, relatively high cost of the locally sourced wood.
Appendix A is provided to give insight into the recommendation of the main feasibility analysis and to
identify these drivers.