Building a pellet

Building a pellet plant

In principle two approaches can be taken. One is by signing an EPC contract, a contract that includes engineering, procurement of components and construction of the plant. Such a contract minimizes risk on the side of the investor. The contractor takes all risks but naturally he will charge for this service. Thus, building with an EPC contractor will be 20-30% higher than the costs of a project that the investor manages himself with the help on an engineering consultant.

The second approach is to hire an engineering consultant who plans the pellet factory based on the raw material and the expected site. He will collect quotes for all parts of the investment and end up with a detailed estimation of costs. He may also deal with permits, the purchasing of equipment and the construction of the plant subsequently. The engineering consultant should be paid fully and fair by the investor and should never take commissions from suppliers of equipment. Cheap consultants could instead of recommending the best equipment for the purpose suggest the supplier paying the highest commission. The advantage of an engineering consultant is that total costs should be less compared with an EPC contractor. The disadvantage is, that engineering consultant are difficult to claim if the project does not perform not as promised. Thus, full risk stays with the investor.

For a very rough estimation planning for industrial plants usually costs around 5-10% of the total investment costs. The pre-feasibility will be around 1%, the feasibility another 1-2% of the total costs. Thus, before being able to go to banks for loans, up to 3 % of the total investment should be available. Further planning costs arise during project development and are partly charged by the suppliers of equipment for detailed engineering etc.

The complexity of building a pellet plant is very often underestimated. It is strongly recommended to employ professional consultants with proven experience of building pellet plants. Planning mistakes can lead to very large additional costs or even the failure of the entire project. Taking a planner without a proven record of well-functioning pellet plants and satisfied customers or not taking a planner at all will lead to a very high risk of failure. Saving on planning costs is usually the most expensive mistake an investor can make.


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