ECONOMICS OF PRODUCING FUEL PELLETS FROM BIOMASS

ECONOMICS OF PRODUCING FUEL PELLETS FROM BIOMASS S. Mani, S. Sokhansanj, X. Bi, A. Turhollow ABSTRACT. An engineering economic analysis of a biomass pelleting process was performed for conditions in North America. The pelletization of biomass consists of a series of unit operations: drying, size reduction, densifying, cooling, screening, and warehousing. Capital and operating cost of the pelleting plant was estimated at several plant capacities. Pellet production cost for a base case plant capacity of 6 t/h was about $51/t of pellets. Raw material cost was the largest cost element of the total pellet production cost followed by personnel cost, drying cost, and pelleting mill cost. An increase in raw material cost substantially increased the pellet production cost. Pellet plants with a capacity of more than 10 t/h decreased the costs to roughly $40/t of pellets. Five different burner fuels wet sawdust, dry sawdust, biomass pellets, natural gas, and coal were tested for their effect on the cost of pellet production. Wet sawdust and coal, the cheapest burner fuels, produced the lowest pellet production cost. The environmental impacts due to the potential emissions of these fuels during the combustion process require further investigation. Keywords. Pelletization costs, analysis, Wood pellets, Solid fuels. Lignocellulosic biomass (biomass from plants), in its original form usually have a low bulk density of 30 kg/m 3 and a moisture content ranging from 10% to 70% (wb). Pelleting increases the specific density (gravity) of biomass to more than 1000 kg/m 3 (Lehtikangas, 2001; Mani et al., 2004). Pelleted biomass is low and uniform in moisture content. It can be handled and stored cheaply and safely using well developed handling systems for grains (Fasina and Sokhansanj, 1996). Forest and sawmill residues, agricultural crop residues, and energy crops can be densified into pellets. Pellets are cylindrical, 6 to 8 mm in diameter and 10 to 12 mm long. Melin (2005) reports that in North America, more than 1.2 million t (In this article, t indicates tonne in SI Units) of fuel pellets are produced annually. Most of the U.S. pellets are bagged and marketed for domestic pellet stoves. In Canada, pellets produced from sawdust and wood shavings are exported to European countries Sweden and Denmark. The recent increases in oil and gas prices and climate change have boosted the demand for biomass. In spite of their many desirable attributes, biomass pellets cannot compete with fossil fuel sources because it is still expensive to densify biomass. Samson et al. (2000) reported that depending upon the raw material cost, switchgrass pellets range from $72 to $102/t. Drying costs are not included in this price. Thek and Submitted for review in September 2005 as manuscript number FPE 6086; approved for publication by the Food & Process Engineering Institute Division of ASABE in March 2006. The authors are Sudhagar Mani, ASABE Student Member, Graduate Student, Xiaotao Bi, Associate Professor, Department of Chemical and Biological Engineering, University of British Columbia, Vancouver, BC Canada; Shahab Sokhansanj, ASABE Member Engineer, Distinguished Research Scientist, and Anthony Turhollow, ASABE Member Engineer, Research Scientist, Oak Ridge National Laboratory, Environmental Sciences Division, Oak Ridge, Tennessee. Corresponding author: Sudhagar Mani, Dept. of Chemical and Biological Engineering, University of British Columbia, 2360 East Mall, Vancouver, BC Canada V6T 1Z3; phone: 604-827-3413; fax: 604-822-6003; e-mail: msudhagar@chml.ubc.ca. Obernberger (2004) reported the pellet production cost in Sweden and Austria between $78 and $113/t. The main cost difference was due to the larger plant capacity and the lower electricity price in Sweden. Raw material is a major contributor to the cost of pellets produced (Mani, 2005). To produce biomass pellets economically, a detailed economic analysis for the North American condition is required taking into consideration plant capacity, feedstock cost, drying cost, and plant utilization time. The objectives of this work were to develop the cost of producing biomass pellets and to investigate the effect of feedstock cost, plant capacity, and dryer fuel options on pellet production cost. DESCRIPTION OF A TYPICAL BIOMASS PELLETING OPERATION Apart from animal feed, alfalfa and sawmill residues are the other two biomass that are pelletized extensively in Canada. Figure 1 shows the unit operations and the flow of biomass in a typical biomass pelleting operation that consists of three major unit operations, drying, size reduction (grinding), and densification (pelleting). The biomass is dried to about 10% (wb) in the rotary drum dryer. Superheated steam dryers, flash dryers, spouted bed dryers, and belt dryers are also common in European countries (Stahl et al., 2004; Thek and Obernberger, 2004) but they are not used in North America (to the knowledge of the authors). The drying medium is the flue gas from the direct combustion of natural gas. Solid fuels, especially biomass fuels, are gradually replacing natural gas because of recent price increases in fossil fuels. After drying, a hammer mill equipped with a screen size of 3.2 to 6.4 mm reduces the dried biomass to a particle size suitable for pelleting. The ground biomass is compacted in the press mill to form pellets. The individual pellet density ranges from 1000 to 1200 kg/m 3. The bulk density of pellets ranges from 550 to 700 kg/m 3 depending on size of pellets. Pellet density and durability are influenced by physical and chemical properties of the feedstock, temperature and Applied Engineering in Agriculture Vol. 22(3): 421-426 2006 American Society of Agricultural and Biological Engineers ISSN 0883 8542 421

Biomass storage Truck transport Dilution Air Raw material Cyclone Feed in Fan Air Fuel Solid fuel burner Ash Rotary dryer (single/triple) Motor Conveyor Hammer mill Cool air Pellet mill Cooler Screening Fuel tank Pellet storage Packing Pellet bags Figure 1. Schematic layout of a typical biomass pelleting plant. applied pressure during the pelleting process (Mani et al., 2003). In some operations, the ground material is treated with super-heated steam at temperatures above 100 C before compaction. The superheated steam increases moisture and temperature of the mash causing the release and activation of the natural binders present in the biomass. Moisture also acts as a binder and lubricator (Robinson, 1984). In some operations, binders or stabilizing agents are used to reduce the pellet springiness and to increase the pellet density and durability. Most widely used binders for pelleting of animal feeds are calcium lignosulfonate, colloids, bentonite, starches, proteins and calcium hydroxide (Pfost, 1964; Tabil and Sokhansanj, 1996). Pfost and Young (1974) reported that there was a significant increase in pellet durability when using colloids and calcium lingo-sulphonate as additives in the range of 2.6% by weight. Biomass from woody plants contains higher percentages of resins and lignin compared to agricultural crop residues (straw and stover). When lignin-rich biomass is compacted under high pressure and temperature, lignin becomes soft exhibiting thermosetting properties (van Dam et al., 2004). The softened lignin acts as glue. The temperature of pellets coming out of the pellet mill ranges from 70 C to 90 C. The elevated temperature is due to the frictional heat generated during extrusion and material pre-heating. Pellets are cooled to within 5 C of the ambient temperature in a cooler. The hardened cooled pellets are conveyed from the cooler to storage areas using mechanical or pneumatic conveying systems. Pellets may be passed over a screen to have fines removed and were weighed before being stored in enclosed storage areas. PELLET PRODUCTION COSTS The cost of pelleting includes fixed (capital) and operating costs. The purchase cost of different equipment was collected from the manufacturers and published literature sources. All capital cost components follow the economy of scale, i.e. expansion of the unit size with respect to its characteristics dimensions will reduce the capital cost, non-proportional to the actual size of expansion (Krokida et al., 2002). For notations used in this article, see the List of Nomenclatures at the end of the text. The total capital cost, C c ($/y) was calculated by: C c = ec eq (1) where e is the capital recovery factor and C eq is the cost of the equipment ($). The capital recovery factor was calculated using equation 2: N i( 1+ i) N ( 1+ i) 1 e = (2) where i is the interest rate (decimal) and N is the lifetime of the equipment (years). The equipment cost, C eq, was found from the general relationship. n C eq eq = αeqp (3) where eq is the unit cost of the equipment ($), n eq is the scaling factor of the equipment, and P is the characteristic parameter of the equipment. 422 APPLIED ENGINEERING IN AGRICULTURE

The following cost versus capacity relationship was used (Ulrich, 1984) wherever the specific equipment cost for a particular capacity was not available, g C Ceq Ceq C = 1 (4) 1 2 2 C 1 and C 2 are the capacity of equipment 1 and 2; g is the exponent. The exponent value for process equipment ranges from 0.4 to 0.8. We used the exponent value of 0.6 in this study. The total cost, C T, was calculated by: C T = Cc + Cop (5) where C op is the operating cost ($/y). The production cost, C P ($/kg), for any product was estimated from equation 6: CT C p = (6) topgp where t op is the total operating hours of the plant per year (h/y) and G p is the production rate (kg/h). Equipment price relationships quoted in different years are adjusted to 2004 U.S. dollar values by taking into account for inflation factors (Consumer Price Index) published by National Aeronautics and Space Administration (NASA) cost estimating web site (NASA, 2004). Installation cost of the equipment was in the range of 40% to 75% of the purchase cost. The purchase and installation cost of various equipment were taken from Perry and Green (1999) and Walas (1990). The capital cost of hammer and pellet mills were received from equipment manufacturers. The capital cost includes the land cost, purchase, installation and maintenance, office building construction cost, and costs of dump trucks, forklifts and front-end loaders. analysis of dump trucks, front-end loaders, and forklifts was based on the ASAE standard EP496.2 (ASAE Standards, 2003). We assumed a 6% interest rate. The maintenance of equipment and building was assumed to be 2% of the capital cost except for the pellet and hammer mills. Pellet and hammer mills have high repair and maintenance cost (10% of the purchase cost) due to the wear and tear of the equipment. The operating cost includes the cost of the raw material, heat energy cost for drying, electricity cost, and personnel costs. The heat energy cost for the dryer depends on the type of fuel used and the fuel cost. s for five different dryer fuels (wet biomass, dry biomass, fuel pellets, natural gas, and coal) were calculated. Personnel costs were included in pellet production, marketing, and administration. In order to produce wood pellets, no steam conditioning or external binders were used. Because lignin in the sawdust acts as a natural binder during pelletization, the cost of steam or binders was not included in the cost analysis. The pellet production cost was calculated for the base case scenario of 6 t/h wood pellet plant. The base case pellet cost estimation was used to investigate the effect of plant capacity, raw material cost, and dryer fuel options on the pellet production cost. RESULTS AND DISCUSSIONS The base case pellet plant has a production capacity of 6 t of pellets/h with the annual production of 45,000 t. The plant operates 24 h for 310 days annually (annual utilization period 85%). Table 1 lists the cost of the equipment purchase, installation, annualized cost, and the cost in $/t of pellets produced for each equipment. In this analysis, the transportation cost of raw material to the pellet operation facility was included. We also assumed that the plant was located within 5 to 10 km of the biomass source. The costs of the dryer and the pellet mill were the largest among the annual capital costs. The capital cost of the pellet production plant was about $6/t of pellet production. The capital cost may be further reduced if the plant capacity is increased from the current production rate (45,000 t/y). Table 2 shows the cost of pellet production including variable costs. The transportation of raw material to the pellet plant was included in the cost estimation. For the base case, Table 1. Summary of initial capital cost of the equipment for the pellet production plant (base case 6 t/h production rate). Equipment Purchase (1000 $) Installation (1000 $) Expected Life (y) Capital Recovery Factor Annual Capital (1000 $) Specific Capital Solid fuel burner 143 71 10 0.1359 29 0.65 Rotary drum dryer 350 210 15 0.1030 58 1.28 Hammer mill 60 24 10 0.1359 11 0.25 Pellet mill 315 160 10 0.1359 64 1.43 Pellet cooler 32 24 15 0.1030 6 0.13 Screen shaker 24 14 10 0.1359 5 0.11 Packaging unit 80 15 10 0.1359 13 0.29 Storage bin 24 14 20 0.0872 3 0.07 Miscellaneous equipment 168 68 10 0.1359 31 0.68 Front end loader 100 10 0.1359 14 0.30 Fork lifter 82 10 0.1359 11 0.25 Dump truck 100 15 0.1030 15 0.34 Office building 72 20 0.0872 6 0.14 Land use 40 25 0.0782 3 0.07 Total 1590 600 269 6.00 Vol. 22(3): 421-426 423

Table 2. of biomass pellet production for the base case (2004 US $). Pellet Process Operations Capital Operating Total Percent Distribution Raw material [a] 0.34 19.39 19.73 39.02 Drying operation 2.46 7.84 10.30 20.37 Hammer mill 0.25 0.70 0.95 1.88 Pellet mill 1.43 1.88 3.31 6.55 Pellet cooler 0.13 0.21 0.34 0.67 Screening 0.11 0.05 0.16 0.32 Packing 0.56 1.37 1.93 3.82 Pellet Storage 0.07 0.01 0.08 0.16 Miscellaneous equipment 0.42 0.33 0.76 1.50 Personnel cost 0.00 12.74 12.74 25.19 Land use and building 0.21 0.05 0.26 0.51 Total cost 5.99 44.58 50.57 100 [a] Raw material cost includes both the biomass and transportation cost. wood shavings at 10% (wb) moisture content was considered as a burner fuel with a fuel cost of $40/t of fuel delivered. of wood shavings is considerably higher due to the high demand for animal bedding materials and as a fuel for the pulp mills. The capital and operating cost of producing biomass pellets are $6 and $45 per t of pellet production, respectively. The cost of producing pellets ($51/t) may be further reduced if the plant capacity is increased. Pellets produced in North America are cheaper compared to that produced in European countries. In Austria and Sweden, the cost of production of fuel pellets was $113 and $78/t of pellets, respectively. The difference in pellet cost from the two countries was mainly due to the larger plant capacity and the lower price for electricity in Sweden (Thek and Obernberger, 2004). Figure 2 shows the effect of pellet production rate on the total cost of pellet production. We assumed that the plant operates 7500 h annually, which is about 85% of the year. If the plant operates 6000 h annually then the pellet cost increased by $4.50/t. An increase in pellet production rate (plant capacity) substantially decreased the pellet production cost mainly due to the economics of scale for larger pellet plants. For example, the personnel cost for the pellet plant with 10 t/h production rate is about $4/t compared to $16/t for the pellet plant with 2 t/h production rate. For a production rate of 10 t/h, the cost of pellet produced decreased to about $41/t with the annual production rate of 75,000 t/y. At $41/t with the annual production rate of 75,000 t/y. At higher plant capacity, the capital cost of the plant did not increase substantially due to the plant scaling factor of 0.6. The operating cost decreased considerably more than the capital cost of the plant due to the increase in annual pellet production rate. Table 2 shows the distribution of pellet production cost with various process operations and cost components. of raw material has the highest contribution to pellet production cost, with a share of about 40%. The raw material considered in this study was wet sawdust with 40% (wb) moisture content. The cost of raw material at the sawmill plant was about $10/t. If the transportation cost of the raw material was included, the cost of raw material at the pellet plant site was increased to about $19.73/t for an average transportation distance of 7.5 km. The cost of raw material increases to more than $32/t (Sokhansanj and Turhollow, 2004) when the raw material requires collection, baling, transportation and storage. Figure 3 shows that an increase in raw material cost substantially increased the pellet production cost. If the raw material cost is about $50/t, this would increase the pellet production cost to about $110/t. If profit margin is assumed to be 20% of production cost, the sale price of pellets would increase to about $132/t ($8/GJ), which is almost equal to the current natural gas price. Therefore, the raw material cost plays a major role in the cost of pellet production. Other major cost components are personnel and drying costs with shares of 25% and 20%, respectively. Personnel cost includes costs for personnel in the production, marketing, and administration. In the production, two people are required for the entire production plant. The process requires additional three people for the shift for bagging pellets into 18-kg (40-lb) bags.. We assumed that one third of the pellets produced in the plants are packed. Personnel cost may be considerably reduced when the packaging of pellets is eliminated in the production operation. Personnel cost again depends on the pellet production and administration strategies set by the pellet plant operators. of operating a dryer in the pelleting plant is also a major cost component compared to pellet and hammer mills. To investigate the effect of burner fuel options on the pellet production cost, five different fuel sources- wet sawdust, dry sawdust, fuel pellets, natural gas, and coal were considered. It was assumed that one solid fuel burner would handle all the Pellet production cost 120 100 80 60 40 20 Total cost Capital cost Operating cost 0 0 2 4 6 8 10 12 14 16 Pellet production rate (t/h) Figure 2. Pellet production cost vs. production rate. Pellet production cost (US$/t ) 160 140 120 100 80 60 40 20 0 0 10 20 30 40 50 60 70 80 Raw material cost (US$) Figure 3. Effect of raw material cost on pellet production cost. 424 APPLIED ENGINEERING IN AGRICULTURE

Table 3. Effect of various burner fuel options on the cost of pellet production. Burner Fuel Options Fuel Pellet Wet biomass 10 48.53 Dry biomass 32 50.57 Fuel pellets 52 52.31 Natural gas 10/GJ 64.48 Coal 40 49.75 fuel options except natural gas. Table 3 shows the types of burner fuel options used in the pellet production. The pellet cost was based on a pellet production rate of 6 t/h (base case). Wet sawdust produced the lowest pellet production cost of $48.50/t followed by coal with a pellet production cost of $50/t. Although wet sawdust and coal promise the lowest pellet production cost, potential emissions during the combustion of these fuels require further investigation. Mani et al. (2005) explain the environmental impacts of using these fuels for the production of pellets. Use of emission control devices for various fuels may further increase pellet production cost. As expected, the pellet production cost increased to $64/t when natural gas was the burner fuel. Environment impact of using natural gas is considerably less compared to other fuel options (Mani et al., 2005). Thek and Obernberger (2004) reported that a superheated steam dryer may significantly reduce drying cost. The main advantage of a superheated steam dryer is the high potential of heat recovery from the exhaust steam, which increases the dryer efficiency to about 90%. The capital cost of superheated steam dryers is relatively high compared to rotary drum dryers. Raw materials such as wood shavings and other low moisture biomass sources may not require further drying in the pellet plant. If the drying is eliminated from the plant, the cost of pellet production would drop down to about $39 from $51/t of pellets. The pelletization operation is also one of the main cost factors in the pellet production cost followed by hammer milling. In this study, no additional binders are used for producing pellets. If the raw material does not contain natural binders (lignin), additional binders or stabilizing agents may be required. This would further increase the pellet production cost. Pellet and hammer mills have high repair and maintenance costs (10% of the purchase cost) due to the wear and tear of the equipment and also consume large amounts of electricity in the whole pellet production process. Power consumption of the pelleting process may be reduced, if the current ring die pellet mills are replaced with a new mill design. Additional information on energy consumption of biomass pelleting process and production of binderless pellets can be obtained from Mani et al. (2006) and Sokhansanj et al. (2005). CONCLUSIONS Biomass pellets can be economically produced with a production cost of $51/t, assuming a raw materials cost of $10/t and drying biomass from 40% to 10% moisture using dry shavings as fuel. Raw material and personnel costs are the major cost factors on the pellet production cost followed by dryer and pellet mill costs. An increase in raw material cost substantially increases the pellet production cost. Scale of the plant, burner fuel options, and the fuel cost had a significant influence on the pellet production cost. Small-scale pellet plants are more expensive to operate, which eventually increases the pellet production cost. A larger scale pellet plant with a production capacity (>10 t/h) would produce less expensive pellets. Among the five burner fuel options tested, coal or wet biomass may considerably reduce the pellet production cost. However, environmental impacts due to the combustion of these fuels require further investigation to control potential emissions. 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Sokhansanj, S., S. Mani, and P. Zaini. 2005. Binderless pelletization of biomass. ASAE Paper No. 056061. St. Joseph., Mich.: ASAE. Sokhansanj, S., and A. F. Turhollow. 2004. Biomass densification cubing operations and costs for corn stover. Applied Engineering in Agriculture 20(4): 495-499. Samson, P., P. Duxbury, M. Drisdelle, C. Lapointe. 2000. Assessment of pelletized biofuels. Available at http://www.reap-canada.com/online_library/reports%20and%2 0Newsletters/Bioenergy/ 15%20Assessment%20of. Accessed on 2 January 2006. Stahl, M., K. Granstrom, J. Berghel, and R. Renstrom. 2004. Industrial processes for biomass drying and their effects on the quality properties of wood pellets. Biomass and Bioenergy 27(6): 621-628. Tabil, L., and S. Sokhansanj. 1996. Process conditions affecting the physical quality of alfalfa pellets. Applied Engineering in Agriculture 12(3): 345-350. Thek, G., and I. Obernberger. 2004. Wood pellet production costs under Austrian and in comparison to Swedish framework conditions. Biomass and Bioenergy 27(6): 671-693. Ulrich, G. D. 1984. A Guide to Chemical Engineering Process Design and Economics. New York: John Wiley & Sons. van Dam, J. E. G., M. J. A. van den Oever, W. Teunissen, E. R. P. Keijsers, and A. G. Peralta. 2004. Process for production of high density/high performance binderless boards from whole coconut husk - Part 1: Lignin as intrinsic thermosetting binder resin. Industrial Crops and Products 19(3): 207-216. Walas, S. M. 1990. Chemical Process Equipment Selection and Design. New York: Elsevier. NOMENCLATURE C c = total capital cost ($/y) C E = cost of electricity ($/kwh) C eq = equipment cost ($) C P = production cost ($/kg) C op = operating cost ($/y) C T = total annual cost ($/y) e = capital recovery factor g = exponent for the capacity of equipment G P = production rate of the product (kg/h) i = annual interest rate (%) N = life time of the equipment (y) n eq = scaling factors for equipment P = characteristic parameter for any equipment (eg. heat transfer area, length, flow rate etc.) t op = operation hours per year (h/y) eq = unit cost of equipment ($) C eq1 = equipment cost ($) for the capacity, C 1 C eq2 = equipment cost ($) for the capacity, C 2 426 APPLIED ENGINEERING IN AGRICULTURE