Background slides on historic, current and prospective markets for low-grade wood in New England and the Northeast

1. Low‐Grade Wood Markets:
Status in the Northeast
Summer 2017
Eric Kingsley
Innovative Natural Resource Solutions LLC
kingsley@inrsllc.com
Phone 207‐233‐9910

2. Innovative Natural Resource Solutions LLC
• Founded in 1994
• Offices in New Hampshire and Maine
• Focus at the intersection of forest industry, energy and
economic development
• Services include:
‐ consulting in renewable energy
‐ advocacy
‐ forest management and protection
‐ forest certification and sustainability
• Clients from the private, non‐profit and government sectors
• Conducted work in all regions of North America
• www.inrsllc.com

3. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sawlogs Pulpwood Biomass
Volume (Tons)
Value ($)
Volume and Value to Landowner of Products from a Timber Harvest
North East State Foresters 2013
All NH, 2010

4. Pulp and Paper

5. Since 1999, the Northern Forest
region has lost 11 pulp mills
New York
‐ Deferiet
‐ Lyons Falls
New Hampshire
‐ Groveton
‐ Berlin
Maine
‐ Westbrook
‐ Bucksport
‐ Old Town
‐ Lincoln
‐ Millinocket
‐ East Millinocket
‐ Madison (May 2016)

6. ‐
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
2008 2009 2010 2011 2012 2013 2014 2015 2016e
Estimated Pulpwood Consumption by Maine Pulp Mills
Estimates Based Upon INRS Data

7. ‐
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
2014 2016
Maine Pulpmill Wood Use
(tons)
Hardwood Spruce ‐ Fir Hemlock ‐ Pine

8. 0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Madison
East Millinocket
Lincoln
Bucksport
Millinocket
Old Town
Jay
Woodland
Rumford
Somerset
Maine Pulpwood Consumption by Mill
Green Tons

9. Coated Paper Market
Key Items from Verso bankruptcy filing – Verso emerged from bankruptcy July 2016
•Traditional markets face decline
•“The coated paper industry faces long‐term,
structural decline”
•Driven by a move to digital in key markets
(magazines, catalogues)
•A strong dollar has increased imports

10. Emails you never expected…

12. Pulp and Paper
• Pulp and paper mills remain region’s largest consumer of wood
products, and represent significant fixed infrastructure.
• Mills produce a variety of products, including market pulp,
communication papers (coated and uncoated), and tissue. Each of
these markets is unique.
• The Northern American paper industry has been shrinking, both in
output and capacity. Individual mills often do well, but new
investment in production is extremely limited in the U.S.
• Maine will remain a paper producing state for well into the future
• I expect reduced pulpwood consumption, and reduced prices for
pulpwood (a bunch of factors in this one, not just demand).
• The closures are NOT cyclical

13. Challenges to the Pulp & Paper Industry
• You will hear
• High taxes
• High energy costs
• High wood costs
• And so on
• There are all very real, and present real challenges to the
industry
• Mills and regions now fighting over a shrinking pie
• They aren’t the fundamental issue, which is change in the
marketplace, and a capital intensive industry that is hard to
change with any reasonable speed

14. New Investment at Woodland Pulp
14
FIRST SALEABLE JUMBO ROLL
MARCH 16
• 2 new tissue machines
• ~$150 million in new
investment
• Used New Markets Tax
Credits
• 70 new employees

15. SAPPI Announced Investment
• $165 million rebuild of PM1 at
Somerset Mill
• $25 million in new wood yard
(October 2016 completion)
• Clearly investing in the future
of the mill, New England’s
largest market for low‐grade
wood

16. Catalyst Paper Seeking Investment
• Catalyst Paper (Rumford, Maine)
currently seeking funding
support for a new tissue
machine
• Would diversify mill production
–currently coated paper grade as
primary product
• $56 million investment
• 62 new jobs

17. Biomass

20. Biomass
Electricity
(MWh)
“Green” Attributes
(Renewable Energy Certificate)
Electricity (MWh)
(Wholesale)

21. $‐
$20
$40
$60
$80
$100
$120
$140
$160
$180
Average Monthly Wholesale Electricity Price
ISO New England

22. Average Monthly Wholesale Electricity Price
Trailing 12 Month Average
$‐
$20
$40
$60
$80
$100
$120
$140
$160
$180

23. $‐
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
$50.00
2015 2016 2017
CT Class 1 RECs (estimated)
Source: Testimony (and verification through order) in
DE 16‐850 ‐ELECTRIC RENEWABLE PORTFOLIO STANDARDS
Adjustment to Renewable Class Requirements
Order Maintaining Class III RPS Requirements for 2017 and Modifying Class I Useful
Thermal RPS Requirements for 2016
Order Number 25,978
17‐Jan‐17
Offered $17
In March 2017

24. What does it take to operate biomass in 2017?
$0
$10
$20
$30
$40
$50
$60
$70
$80
Revenue Expenses
Electricty RECs (CT) Fuel O&M
• Assumes:
• Electricity at average price for the
past year ($31)
• RECs at recent broker quote ($24,
which may be higher than current
market)
• Biomass fuel at $25, 1.7 green tons
per MWH
• O&M at $30 per MWh
• With these assumptions, this is not
an attractive business

25. Do Higher REC Prices Make A Difference?
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
Revenue Expenses
Electricty RECs (CT) Fuel O&M
• Assumes:
• Electricity at average price for the past
year ($31)
• RECs at 90% of ACP cap ($55 x 90% = $49.50)
• Biomass fuel at $25, 1.7 green tons per
MWH
• O&M at $30 per MWh
• With these assumptions, this is a
borderline business, but making some
money

26. Status of Biomass Plants
• In New Hampshire, SB 129 just
passed, improving economics of
6 legacy biomass plants
• Berlin BioPower (NH) has a PPA
for up to 20 years (which would
be ~2033)
• There is an above‐market upset
trigger, which may be reached as
early as 2019
• Would make operations of the
facility much more exposed to the
market
• Schiller Station (NH) part of
Eversource divestiture of
generation assets
• Sale terms call for continued
operation of facility for continued
operations of at least 18 months
• In Maine, state has a 2‐year, $13.6
million effort to support 4 biomass
plants
• Pinetree‐Ryegate (VT) has a PPA for
~5 years
• Plainfield Renewable Energy (CT)
sells most of its power under a PPA
that runs through ~2028

27. Biomass Thermal

28. 28

29. Northeast U.S. Pellet Manufacturers
Pellet Fuel Manufacturers in
Northeast US
Operational as of June 2017
(>15,000 TPY Capacity)

30. 10 Years Lookback in the Domestic U.S.
Heating Pellet Industry
•Up Years
 2005‐2006 – Hurricanes Katrina and Rita
 2007‐2008 – Dramatic spike in oil/natural gas
prices
 2012‐2015 – Cold winters and steady increase in
heating oil and propane

31. 10 Years Lookback in the Domestic U.S.
Heating Pellet Industry
•Down Years
 2006‐2007 – Warm winter
 2009‐2010 – Recession, rapid drop in fossil heating
fuel prices
 2015‐2016 – Record warm winter, sustained
dramatic drop in fossil heating fuel prices
 2016‐2017 – More of the same

32. Biomass Heating in
New Hampshire
• Wood pellet and wood chip thermal systems
• NH Wood Energy Council has interactive
map
• Schools
• Hospitals
• Business
• Non‐profits
• Government
• https://www.nhwoodenergycouncil.org/

33. What is Next?

34. Projects in Development (which may or may not happen)
• Export of chips
• Eastport, Maine
• Searsport, Maine
• New pellet mills
• Export and domestic
• Biofuels
• Efforts at stand‐alone, co‐location
with forest industries
• Biomass thermal
• District (campus) heating?
• Biomass CHP
• Co‐location with existing biomass
plants
• Announcement of a pepper
greenhouse in Jonesboro, Maine
• A number of sawmill / sawlog
projects
• A stud mill
• Increased capacity at some
sawmills
• CLT manufacturing

35. The Wood

36. The Markets

37. The glass is half full…
• We have markets, and are incredibly well positioned compared to
other parts of the country
• We have the forest resource and supply infrastructure (landowners,
loggers, entire forest industry ecosystem) that would make other
regions jealous
• We live in close proximity to (and are part of) the greatest collection
of consumers in the history of the world
• It is cold in New England, we heat buildings, we need process heat
• There may never be a better time to be develop a project or
technology that uses low‐grade, particularly softwood

38. I would like to add you to my email lists
Send an email to kingsley@inrsllc.com to be placed on our monthly email list, which provides information
on markets and developments of interest to the region’s forestry community. I will also add you to my FRA
email list, and you will receive invitations to monthly dinner forums and other regional information.

39. Eric Kingsley
Innovative Natural Resource Solutions LLC
Phone 207‐233‐9910
Email kingsley@inrsllc.com