NCSPA Feasibility Study. September 28, 2012

Transcription

1 NCSPA Feasibility Study September 28,

2 Contents Wood Pellet Feasibility Executive Summary Overview Demand Supply Investment Evaluation System Volumes Review of Financial Forecast Review and Conclusion 2

3 Executive summary Wood Pellets provide a viable business opportunity to NCSPA if risks are managed properly The Global Market The EU represents 75% of world imports with North America supplying 16% of world exports (Canada 12%, US 4%), 81% of which are destined for the EU. Policy driven growth (GHG, energy security) is expected to result in 6% annual growth in EU renewable energy consumption through 2020, with substantial wood pellet growth in the UK Through 2020 EU consumption is projected to exceed its production of pellets. US production is expected to exceed US consumption through NCSPA s Market The US East Coast is geographically and resource-wise well positioned to supply EU/UK. Port choice is strongly dependent on production location and economical transportation resources. There are sufficient and appropriate forest resources in NCSPA s catchment area NCSPA Business Model A preliminary cash flow analysis for the MHC project indicates that the estimated required investment can be recovered in approximately 11.2 years, based on proposed terms for three customers at MAG volume levels at each terminal. Risks The success of producers is influenced by the security of their contracts with their customers and their ability to produce and deliver at contract rates and within stated criteria (i.e. carbon foot print) MAG for the proposed facility is a notable portion of South East US current production capacity. This is a relatively new market and is subject to technological and regulatory change. 3

4 Contents Wood Pellet Feasibility Executive Summary Overview Demand Supply Investment Evaluation System Volumes Review of Financial Forecast Review and Conclusion 4

5 Global flows of renewable energy Europe is the primary destination for global flow of renewable energy Importers EU is the top importer of wood pellets (75% of total import); Exporters 16% of world exports originate in North America Canada is the biggest exporter of wood pellets with market share of 12% United States accounts for 4% of the market EU accounts for 81% the export which is mainly delivered to EU 26% 4% 5% 9% Source: UN Comtrade 42% Source: UN Comtrade 2010 Top Importers 9% 15% 10% 11% 11% 2010 Top Exporters 12% 10% 6% 6% 6% 4% 5% 5% 4% Belgium Denmark Germany Italy Sweden Netherlands Austria United Kingdom Other Canada Germany Latvia Russian Federation Austria Portugal France Switzerland USA Other Source: Sustainable international bioenergy trade: securing an international supply and demand 5

6 Growth Share $/MMbtu Biomass Market Drivers Growth in biomass usage in Europe is primarily policy driven Policy Drivers EU , by 2020: 20% reduction in GHGs compared to % of EU consumption must come from renewables UK s Renewable Obligation requires 15% renewable energy contribution in electricity production by 2015; Policy Objectives Contribution to global energy demand Reduction in green house gases Energy security Market Drivers Low natural gas prices have negative impact on growth of biomass as an energy source. US$4/GJ 1 (4.22 $/MMbtu) is often regarded as an upper limit if bioenergy is to be widely deployed today in all sectors. Higher natural gas prices along with potential in supply disruption have made biomass a viable source of energy in Europe; Europe is fast growing biomass users; 0 Close to 50% of the world biomass electricity is generated in Europe % Aug Dec-08 2-May Sep Biomass and Waste Electricity Net Generation Growth: North America Growth: World Share: Europe from Total Natural Gas Price Henry Hub Sport Price Europe Import Price Upper Limit Source: % 40% 30% 20% 10% Growth: Europe Share: North America from Total 1 Bioenergy a Sustainable and Reliable Energy Source Main Report Source: EIA 6

7 Business Model Field Planting and Management Harvest and Transport Processing Transport Ports storage and handling Ocean freight Ports storage and handling Transport/ Processing Furnace Suppliers Logistics End Users Production Cost Availability of sustainable resource Transportation Cost Pipeline reliability Alternative gateways Policies Drivers Segments Electricity; CHP/HP Industry Households 7

8 Contents Wood Pellet Feasibility Executive Summary Overview Demand Supply Investment Evaluation System Volumes Review of Financial Forecast Review and Conclusion 8

9 CAGR Growth Share Market Review European demand Demand for renewable energies is growing EU is projected to have a average annual growth of 0.6% for total energy consumption; 0.08 Overall Growth in EU27 Market 25% The average annual growth of renewable energies is projected to be 6.0% Share of renewable energies is projected to grow from 12% in 2010 to 20% in % 15% 10% 5% 0% Grwoth: Total Energy Consumptionin EU 27 Growth: Renewable Consumption in EU27 Share: Renewables from Total Source: National Renewable Energy Action Plans of the European Member States High-growth high-demand countries are more desirable as a target market; Germany is a large market with low growth; UK is relatively small compared to Germany however with a high growth Denmark and Belgium don t fall into the highly desirable markets; 30.0% 20.0% 10.0% 0.0% Size and Growth of Selected Markets ktoe Electricity Heating and Cooling Transportation Source: National Renewable Energy Action Plans of the European Member States 9

10 Key Markets Summary Country 2010 share of total global imports of pellets Current share of energy production by renewables Target share of energy production by renewables (2020) 2010 pellet imports (Million MTs) 2020 Expected pellet imports (Million MTs) Belgium 15% 3.2% 13% Denmark 11% 20.2% 28% Germany 11% 12.2% 20% UK 4% 3.7% 15% Source: Multiple Sources, see future slides Diversity and stability of supply sources is key driver of EU market 10

11 MTs Growth Share Belgium Wood pellets will remain a fast growth sector in Belgium Average 5 years growth in total energy consumption: -1.6% Average 5 years growth in renewable energy consumption: 14.5% 2009 share of renewables of total consumption: 3.2% Historical driver: Kyoto; Reduce the GHG by 7.5% in from the base year of 1990 Historical Energy Consumption (Belgium) 30% 20% 10% 0% % Growth: Total Energy Consumtion Growth: Renewables Share: Renewables from Final Source: IEA BIOENERGY TASK40, Country Report for Belgium 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% If there is no major change in domestic production, Belgium's wood pellet import will be more than 5 million MTs by 2020; Top suppliers for Belgium are: Netherland Germany France USA 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Expected Wood Pellet Import to Belgium Netherlands Germany France USA United Kingdom Canada Luxembourg Spain Other Total Source: Comtrade Moffatt & Nichol 11

12 MTs Growth Share Denmark Denmark is a slow growth market and might lose it s position as a dominant importer Average 5 years growth in total energy consumption: -1.5% Average 5 years growth in renewable energy consumption: 3.1% 2011 share of renewables of total consumption: 20.2% Historical driver: Kyoto, Reduce the GHG by 21% in from the base year of 1990 Historical Energy Consumption (Denmark) 15% 10% 5% 0% % -10% Growth: Total Energy Consumtion Growth: Renewables Share: Renewables from Total Source: Danish Energy Agency statistics 25% 20% 15% 10% 5% 0% Solid biomass has maintained a 33% share of total renewables over past 5 years; Denmark is projected to have an slow growth and it s total import is expected to reach 2.2 million MTs by 2020; Top suppliers for Denmark are: Estonia Latvia Russian Federation Portugal 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Expected Wood Pellet Import to Denmark Estonia Latvia Russian Federation Portugal Lithuania Poland Germany Finland USA Sweden Other Total Source: Comtrade Moffatt & Nichol 12

13 MTs Growth Share Germany Germany will remain a moderate growth country Average 5 years growth in total energy consumption: -0.5% Average 5 years growth in renewable energy consumption: 7.6% 2011 share of renewables of total consumption: 12.2% Historical driver: Kyoto; Reduce the GHG by 21% in from the base year of 1990 Historical Energy Consumption (Germany) 20% 15% 10% 5% 0% % -10% Growth: Total Energy Consumtion Growth: Renewables Share: Renewables from Total Source: Zeitreihen zur Entwicklung der erneuerbaren Energien in Deutschland 14% 12% 10% 8% 6% 4% 2% 0% Solid biomass had average share of 33% of total renewables over past 5 years; Germany is projected to have moderate growth and it s total import is expected to reach 2.9 million MTs by 2020; Top suppliers for Germany are: Netherlands Poland Czech Republic Denmark Expected Wood Pellet Import to Germany 4,000,000 3,000,000 2,000,000 1,000,000 0 Netherlands Poland Czech Rep. Denmark France Switzerland Austria Belgium Belarus Ukraine Russian Federation Other Total Source: Comtrade Moffatt & Nichol 13

14 MTs Growth Share United Kingdom UK is expected to be fast growing country Average 5 years growth in total energy consumption: -2.7% Average 5 years growth in renewable energy consumption: 11.1% 2011 share of renewables of total consumption: 3.7% Historical driver: Kyoto; Reduce the GHG by -5% 12.5% in from the base year of % 0% 25% 20% 15% 10% 5% 0% Historical Energy Consumption (UK) Growth: Total Consumption Share: BioEnergy from Total Source: UK s Department of Energy and Climate Change Growth: BioEnergy 4% 3% 2% 1% Woody biomass has maintained a constant share of above 40% in proportion to total biomass in heat and energy productions; UK is projected to have a high growth and it s total import is likely to reach 3.2 million MTs by 2020; Top suppliers for UK are: Canada USA Portugal South Africa Expected Wood Pellet Import to UK 4,000,000 3,000,000 2,000,000 1,000,000 0 Canada USA Portugal South Africa New Zealand Russian Federation Netherlands Latvia Finland Sweden Other Total Source: Comtrade Moffatt & Nichol 14

15 United Kingdom - Future of Biomass and Trade UK will be highly dependent on the import of biomass UK will remain an import oriented market; Most of the planned biomass electricity generation capacity is located close to ports; The planned capacity for biomass power plants is currently close to 4.2 GW Planning and Development (mid/large size) Operational Source: IEA BIOENERGY TASK40, Country Report for UK Biomass Capacity in Planning Pipeline Deployment potential to 2020 for biomass electricity Source: UK Renewable Energy Roadmap Source: UK Renewable Energy Roadmap 15

16 Contents Wood Pellet Feasibility Executive Summary Overview Demand Supply Investment Evaluation System Volumes Review of Financial Forecast Review and Conclusion 16

17 Biomass Supply United States is projected to be one of major biomass suppliers EU s pellet consumption is expected to be higher than its production capacity; China is expected to be a self sufficient market; The wood pellet consumption is expected to exceed its production capacity in Japan and South Korea North America s production capacity is expected to be higher than its consumption; US east coast is advantaged over Brazil and West Coast Canada from the ocean transportation cost perspective for exporting to Europe; West Coast Canada is advantaged over Brazil and East Coast US from the ocean transportation cost perspective for exporting to Japan and South Korea; 22% of 2010 consumption Source: Pellets Becoming a Global Commodity: Global market, players and trade to 2020 (Pöyry 2011) 30% of 2010 production Source: Pellets Becoming a Global Commodity: Global market, players and trade to 2020 (Pöyry 2011) 17

18 United States Supply and Demand Domestic consumption of biomass is less than its production capacity Biomass is becoming the dominant produced source of renewable energy; US biomass sector has a production surplus capacity which can be used for the export; Biomass production will maintain an average 30% surplus over consumption through 2020 (export oriented) Biomass Supply % 40% 20% Growth: Total Energy Consumption Share: Biomass from Renewable 0% Growth: Biomass Share: Biomass Suplus from Total Production Source: Electric Power Monthly, EIA 18

19 North Carolina Resource Availability North Carolina has enough resources for 2.1 million tons of logging residues, 1.2 million tons of forest thinnings and 12 million green tons At 2.1 million dry tons, North Carolina has 10 th highest availability of logging residues ($80/dry ton road side); Source: billion tons update At 1.2 million metric tons North Carolina has the second highest availability of forest thinings ($40/dry ton road side) Using current forest growth and removal rates it is estimated that another 12 million green tons can be removed from NC (source: FIA, Moffatt & Nichol) Source: billion tons update 19

20 MMTs 1,000 MTs Southern Production Facilities Minimum Annual Guarantee for proposed facility is a notable portion of current production capacity Southern US production capacity in 2012 is about 7.2 times its 2007 level; Currently there is about 3.5 Million MTs of wood pellet production in proposal and planning phase; 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Southern US Pellet Mills Capacity (Estimates) Source: USDA, North America s Wood Pellet Sector, Biomass Magazine, Southern Environmental Law Center, NCSPA, Moffatt & Nichol MHC MAG is approximately 30% of current and 15% of future southern production capacity Current & Future Southern Production Capacity vs. Proposed MAGs (Estimates) Current & Proposed Produciton Capacity Current Produciton Capacity Morehead City MAG Source: USDA, North America s Wood Pellet Sector, Biomass Magazine, Southern Environmental Law Center, NCSPA, Moffatt & Nichol 20

21 FAS Price (USD) Non-container Weight (MTs) MTs United States - Historical Export and Major Partners Wood pellet export is a new market Panama City is the largest exporting port; Export volumes have not stabilized Export volumes have strong dependency to production locations 600, , , , , ,000 0 Historical Volumes Panama City, FL (Port) Gramercy, LA (Port) Norfolk, VA (Port) Beaumont, TX (Port) Mobile, AL (Port) Seattle, WA (Port) Savannah, GA (Port) Other Source: USATradeOnline According to census the average FAS (Free Alongside Ship) price for a metric ton of wood pellets and wood chips has risen 15% a year between 2008 and 2011; Among top exporters Beaumont, TX has the highest price ($236/MT) followed by Panama city ($233.42/MT) and Gramercy, LA ($151.77/MT) Almost all of the export through Norfolk is containerized as $172.71/MT Non-Containerized US Export Volumes Non-Container Weight Price per MT Source: USATradeOnline 600, , , , , ,

22 Price/MT Volume MT Price/MT Volume (MT) United States International Price Competitiveness US export prices were higher than most EU countries in 2010 but expected to be more competitive as demand increases US has relatively high export prices; According to Comtrade average FOB price per ton export from US was $219/MT followed by Austria ($205/MT) and Canada ($197/MT) Low price exporters are Switzerland ($46/MT), France ($92/MT) and Russian Federation ($96/MT) Top Exporters 2,000,000 1,500,000 1,000, ,000 0 Source: Comtrade, USATradeOnline Netweight (MT) FOB Price US FOB US has relatively high export prices; In 2010 US FOB price was higher than CIF price of all top importers; UK s average import price is close to $200/MT for its high dependency on US and Canadian wood pellets UK is paying higher price for wood pellets due to its dependency to US and Canadian markets Top Importers 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Weight MTs CIF price per MT US FOB Source: Comtrade, USATradeOnline 22

23 Contents Wood Pellet Feasibility Executive Summary Overview Demand Supply Investment Evaluation System Volumes Review of Financial Forecast Review and Conclusion 23

24 Cash Flow Projection MHC (Base Case) Based on proposed terms for three customers and volume at MAG levels of 1.1 Million Metric Tons; Project life: 31 years, 21 years plus two 5 year extensions; MAG- Weighted handling charges: $6.75/MT escalated at 3.4% annually MAG-Weighted capital recovery charge: $4.5 Dockage revenue: $11.20 per foot per 24 hours, average vessel size 715 LOA; Operating expenses: $2.25/MT for direct expenses and $1.25 for indirect expense; 6.75% discount rate; Borrowing rate: 5% Debt service coverage : 1.35 Present value of cash flow available for investment is approximately $108 M over full term and extensions; Estimated required investment recovered in about 11.2 years; 24

25 Operating Margin Millions Millions Cash Flow Projection - MHC $140 Scenario analysis was performed for different rates of borrowing, opex and growth $120 $100 $80 $ % discount rate 8.1% discount rate MAG 2% growth MAG 2% growth opex base $ 108 $ 124 $ 93 $ 106 opex plus 25% $ 93 $ 105 $ 80 $ 90 opex plus 50% $ 77 $ 86 $ 67 $ 75 opex less 10% $ 114 $ 131 $ 98 $ 112 $40 $20 $- Investment Estimate Base Case Growth 2%, Opex less 10% MAG, Opex plus 20% Growth MAG, 2%, Base OpEx OpEx Case plus less 20% 10% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% $16 $14 $12 $10 $8 $6 $4 $2 $- Operation Margin Net Cash ex Capex 25

26 Contents Wood Pellet Feasibility Executive Summary Overview Demand Supply Investment Evaluation System Volumes Review of Financial Forecast Review and Conclusion 26

27 North Carolina Ports Regional Markets & Commodities The majority of trade volume through the Ports either originates from or is destined to locations within North Carolina Kiln Dried Lumber Misc. Containers Misc. Containers Furniture Lumber Tools Machinery Woodchips Wood pulp Phosphates Meats Feed grains Fertilizer/Chemical Misc. Containers Source: Moffatt & Nichol General cargo shipments of woodchips/wood pulp, phosphates, feeds and fertilizers, which account for some of the largest tonnages handled at the ports are associated with demand in the eastern counties (east of I-95) The central and western counties are large sources of demand for containerized commodities these regions are highly contested by neighboring-state ports 27

28 North Carolina Trade Demand Sources There are four broad economic sectors which drive trade through the Ports: Sector Commodities Sector Outlook Trade Outlook Overall Agriculture (Including Forest Products) Manufacturing Woodchips & pulp; feed; meats; fertilizers; kiln dried lumber Chemicals; rubber; machinery; steel; DRI; paper Construction Lumber; cement; steel products Consumer Containers Source: Moffatt & Nichol The agriculture sector has the most favorable profile for increasing trade demand through the ports. This includes shipments of fertilizer and feed; as well as forest products including woodchips and wood pulp. A rebound in regional construction activity is also estimated to support trade volumes. The manufacturing and consumer sectors are estimated to remain under pressure in the near-term. 28

29 Tons TEU Trade Volumes Have Grown as a Result of Investment Capital Improvement Projects (CIP) have led to incremental increases in trade volumes at the Ports; particularly with containers - Trade grows with the right infrastructure in place Woodchip Exports at Morehead City Containers at Wilmington 250, , ,000 Woodchip facility refurbishment 300, ,000 #2 150, , , ,000 #1 100,000 50,000 50, Source: NCSPA The outlook from the non-containerized sectors (Agriculture & Forest Products) is the strongest, and therefore investment targeted at accessing these sectors is likely to be the most effective at adding incremental volumes through the ports #1 Channel deepening & new postpanamax cranes lead to CKYH bringing larger vessels and adding a 2 nd service. #2 ICL and Maersk add services to Wilmington 29

30 E 2015E 2017E 2019E 2021E Tons (Million) General Cargo Forecasts The outlook for general cargo (bulk, break bulk and RoRo) indicates long-term stability, as growth for some of the largest commodities, including phosphates and chemicals, is estimated to continue to be less volatile. Minimum annual guarantee contracts (MAGs) are in place for some of the newer commodities being handled, including woodchips. 6.0 General Cargo Tonnage at Morehead City & Wilmington Breakbulk volumes of lumber and wood pulp declined dramatically in the last half of the decade MHC Break Bulk POW Break Bulk MHC Bulk POW Bulk These volumes have stabilized and are assumed to rebound, as higher construction activity drives demand for lumber, and break bulk shipments of wood pulp increase Additionally, near-term strength is likely to come from: o Grain Imports o Chemical Imports o Fertilizer Imports o Woodchips Exports Source: Moffatt & Nichol 30

31 E 2015E 2017E 2019E 2021E TEU Container Forecasts The outlook for container volumes through the Port of Wilmington will be determined by the Port s ability to retain existing, and attract new services, as opposed to underlying demand growth. The same determining factor experienced over much of the past decade. High: Market share rises to 29%of North Carolina s total The Port attracts four additional services adding incremental volumes of 25,000 TEU each by 2022 Base: Market share is maintained (25% of North Carolina s total demand) The Port attracts two additional services which can add incremental volumes of 25,000 TEU each by Port volume increases to approximately 420,000 TEU. 500, , , ,000 Container Volume Estimates at Wilmington High Base Low Low: The Port loses 10% off the base estimate through 2015 (does not get back to 2011 volumes), at which point CKYH pulls one of its services resulting in a loss of 35% of total throughput. 100,000 0 Source: Moffatt & Nichol 31

32 Container Forecast Conditions Investment in infrastructure which improves the efficiency of the logistics system has a proven track record of increasing container volumes at the Port of Wilmington No single investment can guarantee that incremental container volumes will come The likelihood of new liner-services being added increases if Wilmington continues to improve its ability to serve North Carolina s container demand Without improved connectivity to regional markets (either via rail, road, port improvements, or combination of) the likelihood incremental volumes being added decreases, and the loss of an existing service increases Scenario Infrastructure Volume High Base Low Source: Moffatt & Nichol Moffatt & Nichol did not set explicit conditions on specific pieces of infrastructure to develop the container forecasts 32

33 Contents Wood Pellet Feasibility Executive Summary Overview Demand Supply Investment Evaluation System Volumes Review of Financial Forecast Review and Conclusion 33

34 Millions Operating Revenue and Expenses without wood pellet Operating revenues: CAGR = 6.3%; from $45 million to $77 million in 2022; Container terminal revenues CAGR = 9.1%; from $14 million (31% of total) to $31 million (40% of total) General terminal revenues CAGR = 5.8% from $19 million(43%) to $32 million (31%) 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 - North Carolina State Ports Authority Most Likely Case Operating Revenues Container Terminal General Terminals Lease and Other Operations Operating and maintenance expenses (not including depreciation) CAGR = 3.9% from $31 million to $44 million container terminal expenses CAGR = 3.9% from about $8 million to $13 million general terminal expenses CAGR = 6.1% from $11 million to $15 million North Carolina State Ports Authority Most Likely Case Operating Expenses Container Terminal General Terminals Private Terminals General Admin 34

35 Millions Millions Wood Pellet Impact on Operating Revenue and Expenses Wood Pellet will increase the CAGR of the operating revenue to 8.2% (compared to original 6.3%); Wood Pellet will increase the operating revenue in 2022 to $91 million (compared to original $77 million) Most likely Case Operating Revenues with Wood Pellet at MAG $100 $80 $60 $40 $20 $ System Revenues Wood Pellet Revenues Wood Pellet will increase the CAGR of the operating expenses to 5.2% (compared to original 3.8%); Wood Pellet will increase the operating revenue in 2022 to $61 million (compared to original $54 million) Wood pellet will increase the margin between operational and revenue CAGRs by %0.11 Most likely Case Operating Expenses with Wood Pellet at MAG $100 $80 $60 $40 $20 $ System Expense Wood Pellet Expense

36 Millions Wood Pellet impact on Net Revues Available for Debt Services No-wood pellet option - Net revenue will increase at CAGR of 10.8% from $13.6 million in 2013 to $34.1 million in 2022; No-wood pellet option - The CAGR will increase to 13.7% and the 2022 net revenue will increase to $43 million $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $- Most likely Case Net Revenues available for debt services with Wood Pellet at MAG Net Revenues Available For Debt Service Before Wood Pellet Wood Pellet Net Revenue 36

37 Contents Wood Pellet Feasibility Executive Summary Overview Demand Supply Investment Evaluation System Volumes Review of Financial Forecast Review and Conclusion 37

38 System Volumes Review Bulk, Break Bulk and RoRo Stable outlook; Largest commodities, including phosphates and chemicals; are going to continue a less volatile growth Newer commodities, including woodchips, have contracts with MAGs in place; Container Volumes The outlook depends on ports ability to retain existing, and attract new services, as opposed to underlying demand growth. 38

39 Wood Pellet Review The Global Market The EU represents 75% of world imports with North America supplying 16% of world exports (Canada 12%, US 4%), 81% of which are destined for the EU. Policy driven growth (GHG, energy security) is expected to result in 6% annual growth in EU renewable energy consumption through 2020, with substantial wood pellet growth in the UK Through 2020 EU consumption is projected to exceed its production of pellets. US production is expected to exceed US consumption through NCSPA s Market The US East Coast is geographically and resource-wise well positioned to supply EU/UK. Port choice is strongly dependent on production location and economical transportation resources. There are sufficient and appropriate forest resources in NCSPA s catchment area NCSPA Business Model A preliminary cash flow analysis for the MHC project indicates that the estimated required investment can be recovered in approximately 11.2 years, based on proposed terms for three customers at MAG volume levels at each terminal. Risks The success of producers is influenced by the security of their contracts with their customers and their ability to produce and deliver at contract rates. MAG for the proposed facility is a notable portion of South East US current production capacity. This is a relatively new market that and is subject to technological and regulatory change. 39