Feasibility Study Wood Pellets IE 496 Industrial Engineering Project I

by Mr. Kitsada Tansakul 5410750482

Mr. Suwit Kijkrittaya 5410750458

Introduction

Due to Nowadays we are facing the problems of limited natural energy and environment.

In addition, the price of natural energy in the market keep increasing.

To solve these problems, wood pellets is also one of the solution because wood pellets is renewable energy, friendly to environment and has high growth rate.

Problem significance

Price of natural energy keep increasing.

Greenhouse Effect & Air pollution.

Challenge and risk in the business.

Problem Objective

To do feasibility studies of wood pellets in terms of marketing, technical, operations and financial analysis

Problem Scope

Study in detail wood pellets and its production process..

Study price-determining marketing system to come out with reasonable and profitable price.

Study thoroughly the targeted customer, policy and business strategy.

Expected Outcome

The analysis will show the possibility of establishing the wood pellets industry

The analysis can be extended to a business plan

GANTT Chart

Wood pellets

Wood pellet biomass fuel, is a fuel product compressed from milled wood.

The raw material is mostly dry sawdust, grinding dust, and cutting shavings or other by-products of mechanical wood processing industry. The pellet can also be made from fresh biomass, bark, and forest chips as well but the raw material must be milled and dried before pelletizing. The wood pellets must not contact directly with water or moisture because it will get damp, expand, and disintegrate.

Wood pellets specification

Raw Material

Production process

Figure: Wood pellet production process diagrams

Packaging

Small Size (15-25 kg) Jumbo Size (500-1000kg)

The wood pellet industry

Wood pellets are densified biomass fuel typically made from material rejected by wood product manufacturers. By pelletizing residual forest waste, sawdust, planer shavings, and beetle-killed timber, millions of tons of waste can be put to work for the bioenergy economy while enhancing the environment by reducing greenhouse gas emissions. Wood Pellets can be burned in residential stoves or can be co-fired in industrial, institutional or electric generation boilers that currently burn coal. Wood pellets are readily transportable from forested areas to anywhere in the world

The wood pellet industry

Global coal consumption is about 6 billion tons per year and is expected to increase to 9 billion tons by 2030. Coal-fired power plants provide 41% of global electricity. Globally, burning coal causes the release of carbon dioxide and methane, both of which are greenhouse gases, causing climate change and global warming according to the Intergovernmental Panel on Climate Change. Coal is the largest contributor to the human-made increase of CO2 in the atmosphere. Completely replacing coal with wood pellets has the potential to reduce greenhouse gas emissions by 91 per cent, emissions of nitrous oxides by 40 to 47 per cent, and sulphur oxides by 76 to 81 per cent. Even burning a mix of 10 or 20 per cent wood pellets with coal known as co-firing carries significant benefits.

The wood pellet industry

Depending upon the type of coal boiler, wood pellets can be fed in a couple of ways. In a fluidized bed boiler, the wood pellets can be fed with coal through the same feeder system. For stoker coal boilers, a separate storage and injection system is required. Today, wood pellets are the largest traded solid biomass commodity used specifically for energy purposes. Wood pellets have favorable properties for transportation: low moisture content and high energy density (about 19 GJ/tons). While handling of wood pellets requires care (including dry storage), the advantages over other solid biomass types such as wood chips or agricultural residues are storability, easy handling, and typically lower transport costs for distances longer than 50 to 100 km.

The wood pellet industry

The first long-distance transport of wood pellets was in 1998 from Canada to Sweden. Since then, the international trade in wood pellets by truck, train, and ship has grown exponentially. The main rationale behind long-distance trade is abundant availability of cheap feedstock in some world regions, high demand in other (resource-scarce) regions and the presence of cost- and energy-efficient logistics

Global Production

Figure: Wood pellets global production

Economic Factors

The main reason that why wood pellet has been developed sharply in the past few years is because of increased and fluctuating of fuel price. Because of limited resources, fossil energy prices fluctuated widely and increased rapidly.

ENVIRONMENTAL ADVANTAGES

A particular advantage of pellet use is the low environmental impact during the production process, during transport (zero environmental damage in case of spillage) and in use. Modern pellet combustion equipment produces extremely low air pollution. Pellets contain much lower amounts of sulphur than fossil fuels. While pellets do contain nitrogen which leads to slightly higher NOX emissions, it must be kept in mind, that NOX is recycled in the same way as carbon: plants take up nitrogen from the soil as a nutrient; it is stored in the biomass and released during combustion to be returned to the soil by rain again.

Environmental and Government policy

The environment around the world has been dreadful in the

past decade from human being destruction especially the atmosphere by combustion processes. The combustion of energy from various methods such as in the automotive engine and burning in stoves in winter time in households will emit pollution and also CO2 into the air depending on fuel type and the efficiency of the machine or stove. The hazard from emission of CO2 in the air will cause the Green House Effect which will allow the Ultra Violet light (UV lights) from the sunshine to come in but not go out because of CO2 that has blanketed atmospheres resulting in higher temperature for the whole world. The consequence of increasing world temperature makes the world face lots of disasters such as hurricane, flooding, Tsunami, drought and forest fire for which the cast of environment damage cannot be estimated. This is the reason for many policies and agreements among developed countries in order to stop this hazardous situation.

Relative Emissions of Fine Particles

Source: U.S. Environmental Protection Agency [EPA]

SWOT Analysis

Competitive analysis

1. Intensity of rivalry among established firms

Even though an existing competition in the wood pellet market has loads of players from all around and every part of the world from since Asia to Europe and USA and the competitors in the market are sized from small to the gigantic firms, the competition is not too strong because the market is still in very high growth rate and the demand is still more than supply.

2. Threat of new entry by potential competitors

The risk of new entry in the industry is high because of little effort to start the business or in other words these are low barriers for entering the market.

Competitive analysis

3. Threat of substitute

Many substitutes of biomass are now being researched and developed especially the pellet from agricultural residual which is cheaper but ,at the moment, the quality of pellet from agricultural residual is very low when compared with wood pellet. Thus the substitute product is still low because this product is now the best in quality and there is no other potential biomass fuel at the moment.

4 Bargaining power of supplier

The bargaining powers from the supplier seem to be low because of the number of suppliers in the market is more than sufficient and the price of raw material in domestic market is quite cheap. The reason for cheap raw material is because the residual wood or wood scrap is now mostly burnt directly in the industry.

BCG Matrix

For wood pellets, the characteristic of the business is very high growth rate the same as other renewable energy, but at the moment the market share of wood pellet business is quite small when compared with other fossil energy. Thus the status of the wood pellet business is in the question portfolio of BCG Matrix

4Ps

1. Product

The product in this study will be introduced in the form of high quality wood pellet with low ash content during combustion. For the Domestic fires, the wood pellet will be targeting the end user of this group by using small bags for the package while the importers will use large bags as the packaging which the wholesaler may repack and sell to another group of customers. The wood pellet product will be in two sizes as follows:

Large Bags (500 kg)

Small Bags (20 kg)

4Ps

2. Price The price of wood pellet in the market is different in each country

depending on many factors in which the smaller bags are very different for each country.

Table: Product price

4Ps

3. Place

The distribution channels of our product will be divided into the wholesalers, joint venture, and exclusive distributor in each target market. At the starting phase, wholesalers are the main distribution channel because of the lower cost in marketing and logistic. The later phase in distribution channels is exclusive distributor in the target market.

4. Promotion

Because distribution channel of our product is divided into three channels, each channel is going to use different promotion and marketing in the market and also the responsibility to conduct and run marketing promotion will be different on each channel.

Marketing cost

Sales Promotion

- Extra Quantity

- Free trial with new pellet stove

- Special price on wood stove exhibition

Print Advertising

- Decoration Magazine

- Home Magazine

Poster Ads (Indoor and Outdoor)

- Pellet Stove Stores

- Hyper Mart

Targeting

Since the product is premium quality wood pellet, the target customer will be the domestic fires or stove in the household because our product will provide the very low ash residue from combustion which is suitable with the automatic feeding system in households. The low ash residue means lower maintenance to remove the ash from the stove which is more convenient for the users. The households using wood pellet stoves are increasing sharply because of lower operating cost and more convenience when compared with other fuel forms. In the developed countries, the policy, regulations and product standard are different thus the target customer can be divided as follows:

-Nordic Countries

-Central European Countries

-Japan, South Korea

-North America

Targeting

1. Domestic fires (stoves)

2. Central heating boilers (15-40 kW)

3. Medium sized commercial combustion units (50-300kW)

4. Small industrial combustion units (1-6 MW)

5. Large scale combustion units (up to 100 MW)

Figure: Targeting of Wood Pellet Market

Positioning

The main consideration of our wood pellets product is the quality of product with nearly the same price which means our product will provide more value to the customer.

Figure : Positioning Map of Wood Pellet

Reference

Jack Huang (2015), Wood Pellet Global Market Report 2014. Retrieved Jan 19 , 2015, from http://www.biofuelmachines.com

/wood-pellet-global-market-report-2014.html

Pieter D Kofman, The production of wood pellet , from http://www.woodenergy.ie

Alakangas (2010), E. New European Pellets Standards. Retrieved Match 10 , 2010

Dipl.- Wirtschaftsing. Olaf Naehrig Flat Die Pelleting Press, from www.akahl.de