Cooperation concepts for dedicated biomass production via Short Rotation Plantations

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1 Cooperation concepts for dedicated biomass production via Short Rotation Plantations - Opportunities for decentralised biomass heat and power in Europe - Michael Weitz 22 nd European Biomass Conference and Exhibition Hamburg, 2014

2 Content Short Rotation Plantations (SRP) production chain Market framework in the EU SRP facts & advantages Cooperation concepts between farmers and biomass users Successful SRP project examples 2

3 Short Rotation Plantations (SRP) MAI: 7 18 bdt / normally 5,000 10,000 cuttings/ha 1 High density planting of vegetative material (cuttings) 2 Intensive weed control in the 1st year 3 First harvest after 3-4 years 4 Regrowth from stumps (5 harvests in years) 3

4 Short rotation plantations Facts & Status quo Short rotation plantations account for < 0.1% of EU crop land only First commercial plantation projects are developing Mainly strategically orientated stake-holder are involved Sustainable land use (low input agriculture & benefits for biodiversity) 3-times higher CO 2 reduction potential vs. 1 st generation energy crops is not sufficiently appreciated in current bioenergy support schemes Often highly subsidized 1 st generation energy crop value chains based on grain, rape-seed, corn-silage are more profitable for farmers 4

5 Explanation SRC plantations triple CO 2 reduction benefits vs. 1st generation bioenergy value chains GHG reduction: efficiency of different bioenergy value chains /a CO 2 reduction benefits Bioethanol wheat Biodiesel canola Biogas fed to gas-grid Biogas heat & power CO 2 reduction costs SRC wood heat SRC wood heat & power Source: Scientific Advisory Board on Agricultural Policy at the German ministry of agriculture (BMELV), Use of biomass for energy generation - Recommendations to policy makers, Lignovis illustration SRC wood Co-firing to coal power plant

6 Million bdt (bone dry tons) per year Wood covers lion s share to fulfill the EU s 2020 renewables targets EU s 2020 targets 20% renewable energy & 20% greenhouse gas reduction (2012 renewable energy consumption in the EU-27 = 14,4%) 49% wood share in EU-27 gross inland consumption of renewable energy (2010) Source: Eurostat, Production and consumption of wood in the EU27, Nov 2012, Wood demand in the EU (EUwood, Mantau et al.) Mtoe final energy Renewable 232 energies Mtoe final in energy 2020 (EU-27) Solar Thermal 1% Geothermal 2% Energy use Wind Material 11% use Hydro 23% PV 1% others 0% Bioenergy 62% Solar Thermal 3% Geothermal 3% Wind 18% Hydro 14% PV 3% others 1% Bioenergy 58% Based on: European Renewable Energy Council (2011), 45% by 2030 Short rotation plantations are Europe s only domestic wood source with substantial growth potential

7 50-70,000 ha short rotation plantations in the EU Estimation of SRC area in European countries (2012) Sweden: Italy: Denmark: Poland: Germany: Hungary: Ireland: France: UK: Austria: 12,000 ha (willow) 6,500 ha (~ 80% poplar) 6,000 ha (85% willow, 15% poplar 6,000 ha (willow, poplar) 5,000 ha (~70% poplar, ~30% willow) 4,000 ha (mainly poplar) 3,000 ha (willow) 2,500 ha (~80% poplar, ~20% willow) 2,500 ha (mainly willow) 1,000 (mainly poplar, some willow) Sources: AEBIOM, Perennial energy crops within the reform of the Common Agriculture Policy, Dec IEA Bioenergy, Quantifying environmental effects of Short Rotation Coppice (SRC), 2011 Expert opinions, 2013

8 Biomass users are the driving force in developing short rotation plantations in Europe Advantages of SRP: Security of supply Long term contracted price development possible Local biomass production Key sustainability criteria are met (high CO2-reduction, sustainable land use, local production) Defined wood quality without contamination Challenges: Long term strategy necessary Own expert team or cooperation with specialized company required Scale down of production costs still lies ahead Farmers are mostly reluctant to engage in planting trees Solution: Long term cooperation between biomass user and farmer (land owner) with fair risk and profit sharing agreements 8

9 Short rotation plantations - sourcing concepts Long term off-take agreement Close cooperation with farmers Mögliche Kooperationsmodelle für langfristige Biomasseversorgung Low organisational requirements Acceptance among farmers Low initial costs Security of supply Contract only Farmers individually set up and operate plantations Risks and profit sharing Biomass user and farmers jointly operate plantations Fully integrated SRP project Industry on its own Biomass user buys/ leases agricultural lands and builds up own operation Mitigation of price & quality risks Practical examples: - CHOREN / Lignovis - OPTFUEL Project (230 ha) Vattenfall (1,600 ha) Viessmann (180 ha) RWE (cancelled) Klasmann-Deilmann (~1,000 ha in Lithuania) All concepts require involvement of specialized SRP companies or set up of expert team 9

10 Risk & profit sharing: Key to encourage farmers Involvement of biomass user or specialized subcontractor to provide initial effort of a plantation project is a crucial success factor Initial effort & investment Biomass user: Up to 100% Farmer:?% Accumulated returns Biomass user Profit share to cover initial investment Farmer / land owner Profit share for land provision and work Biomass user*: Concept & coordination Financing of plantation establishment Organization of harvesting, storage & logistics Farmer: Provision of crop land Soil preparation & plantation management * or subcontractor 10

11 Key parameters of risk & profit sharing cooperation concept General parameters: Contract duration years Plantation establishment coordinated by biomass user Farmer remains owner / leaseholder of crop land and is responsible for soil preparation and certain plantation management activities Harvesting and logistics are coordinated by biomass user Financial parameters: Biomass user bears establishment cost in exchange for exclusive harvesting rights Farmers are paid per harvested ton of biomass Annual pre-payments to farmer depending on expected growth rates (soil quality) Pre-payments are cleared with every harvest event

12 Cooperation concept developed and executed within OPTFUEL EU-Project OPTFUEL Project (CHOREN/Lignovis), Germany Purpose of project: Cooperation concept: Initial investment: Planed total size: Planted 2009 to 2011: Rotation period: Planting lay-out: Expected MAI: Concept to supply industrial BTL biofuel plant with local biomass Risk & profit sharing with farmers Paid by biomass user 200 ha (concept development phase) 230 ha 3 4 years 2.2m x 0.45m = ~10,000 cuttings/ha 10 bdt*/ha/a Tree species, clones: Poplar 70%, willow 30% Execution: Own expert team The research leading to these results has received funding from the European Union Seventh Framework Programme (FP7/ ) under grant agreement n Situation: Region with tight crop land availabilty (Western Europe) Energy Crops GmbH Industry player with no local background

13 Selected EU energy plantations projects Vattenfall (Energy Crops GmbH) Germany Purpose of project: Cooperation concept: Initial investment: Planed total size: Contracted area: Rotation period: Planting lay-out: Expected MAI: Tree species, clones: Subcontractors : Biomass supply for 5 MW el / 10 MW th CHP plant in Berlin Risk & profit sharing with farmers Paid by biomass user min. 3,000 ha ~ 1,600 ha 3 4 years 2.4m x 0.4m = ~10,000 cuttings/ha 10 bdt*/ha/a Poplar (mainly Max clones) * bone dry tons Situation: Region with tight crop land availabilty (Western Europe) Energy Crops GmbH Industry player with no local background

14 Selected EU energy plantations projects Klasmann Deilmann GmbH, SalixEnergi Lithuania Purpose of project: Cooperation concept: Planed total size: Planted until 2014: Rotation period: Planting lay-out: Planting density: Expected MAI: Tree species, clones: Subcontractors: Biomass production for energy use Direct land lease / land investment 2,500 ha ~ 1,000 ha 3 years double row (1,8 x 0.75 x 0.6m) 13,500 cuttings/ha 8 bdt*/ha/a Willow (Tordis, Tora, Inger) Poplar tests (Max, Matrix) Lignovis & other * bone dry tons Situation: Region with good crop land availabilty (Eastern Europe) Industry player with strong local background

15 Short rotation plantations (SRP) Sourcing Scenario for mid-scale biomass users Case study: Strategic objective: 5 Mw el / 10 MW th heat & power plant app. 30,000 bdt wood chips p.a. sourcing 50% of total demand from SRP Risk & Profit sharing: app. 900 ha with initial investment of 2 Mio (~ 10% of 20 Mio plant invest) Off-take agreement: app. 400 ha SRP cluster has been established equals 1/2 of total demand equals 1/3 of total demand

16 Key conditions for successful plantation projects Strategic perspective on short rotation plantations as relevant feedstock source Budget for initial investment in short rotation plantations (SRP) to develop relevant plantation cluster (> 100 ha) Partnership with experienced SRP know-how and service provider Awareness of cultural differences between agriculture and energy sector Willingness of local farmers to evaluate cooperation

17 Specialized in short rotation coppice/forestry Lignovis - Profile Pioneer in commercial short rotation plantations for biomass Consultancy and service provider with focus on large scale SRC plantation rollout Global network to relevant SRC stake-holders Breeding, technology, research, NGO s, experts Full understanding of EU sustainability standards Experienced in commercial scale implementation of integrated biomass sourcing strategies Lignovis SRC track record > 10 million trees planted until 2014 (5 countries) Own certified hybrid-poplar nursery Specialized machinery for planting and plantation management EU funded SRC specific R&D project accomplished ( ) Continuous cooperation with universities and specialized companies Commercial projects executed for clients such as: Vattenfall Dalkia AgroEnergy AG Klasmann- Deilmann GmbH 17

18 Michael Weitz Co-author: Tobias Peschel - tobias.peschel@lignovis.com

19 Disclaimer The document is incomplete without reference to, and should be viewed solely in conjunction with the oral briefing provided by Lignovis. Certain statements that are included in this presentation are forward-looking in nature. There are associated risks and uncertainties inherent in such statements and actual results may differ materially from those expressed or implied by the forward-looking statements. Lignovis doesn t assume any liability for those statements. There is no requirement or obligation for Lignovis to update these forward looking statements. 19