Pre-feasibility
study

A prefeasibility study describes and evaluates why the main frame conditions for developing a pellet production project. The most important and critical issue in this context is, to clarify the availability, the quality and the cost of raw material for pellet production. It defines the main processes, plant size and this determines all further steps in the process.

The pre-feasibility study should determine if the project is economically feasible. It is the base for taking the investment decision.

The most important topics the pre-feasibility study must address are raw materials, plant dimensioning and investiment cost, energy supply and target markets.

Raw material

Questions that need to be answered in the pre feasibility study are:

  • What type of raw material is available – is it woody or agricultural biomass?
  • Is the raw material dry or wet?
  • How much raw material is available per year and are there seasonal changes in raw material availability?
  • For how many years is the raw material safely available?
  • What is the average transport distance of the raw material to the pellet plant. Is there sufficient and safe transport infrastructure?
  • Price of raw material, including costs for transport, storage costs especially in case of seasonal availability, loss or degradation of material during storage. It is important that all prices are based and calculated on dry ton.

It should never be assumed that the costs of raw material can be considered as zero. There is not pellet plant in the world where this assumption holds as any owner of raw material will charge a price as soon as there is a need for it.

Dimensioning of the plant and investment costs

The capacity of the plant will depend on two main factors – the availability of raw material and the availability of capital for investment. Obviously, it is pointless to build a pellet plant with a capacity that is larger than the available raw material.

In terms of matching plant size with available capital it is important to note, that:

  • the costs of a pellet factory are usually much higher than the cost of some of the key components like raw material feeding, the pelletizing machine (press) and the cooler. These costs depend very much on what type of raw material is available. If the raw material is wet it needs to be dried – a process that is energy consuming and includes expensive additional equipment like a dryer and a source of heat – a furnace or boiler.
  • The raw material may need additional debarking (for round wood), chipping and grinding before pelletization – again a process requiring additional investment.
  • What type of packaging will be required? Packaging machines can further add to costs but also facilitate sales and distribution.
  • Costs will arise for the factory building and storage areas for raw material (which should be paved ground) and pellets which must be protected against rain.
  • Infrastructure especially power connection (transformer), access road, water and sewer will add to costs
  • Pellet production is a hazardous activity as wood dust may cause fires and is highly explosive. A large number of pellet plants have been going up in flames because insufficient safety measures were in place. Dust from organic materials can also be a health hazard and employees should be protected from dust by removing dust with induced air flow from the critical areas such as hammer mills, pellet mills and coolers. Removal of dust and safety equipment such as spark detectors and automatic flame extinguishers reduce fire hazard considerably.
  • A pellet plant needs significant working capital for raw material purchase, spare parts and other operational costs and also to cover the costs of the product not sold immediately

The prefeasibility should provide a rough estimate of all components necessary to build a pellet plant and hence of the total investment costs.

Energy supply

As pellet plants require considerable electric power to run the machines a reliable and strong electric supply is one of the critical frame conditions. If raw material needs to be dried the amount of energy required for this process can be up to 10 times greater than for the pelleting process itself. Usually pellet plants use raw material of low quality for the supply of heat. Very large pellet producers also run their own power plant fired with residues such as bark to produce both, electricity and heat for drying the raw material. This will increase the investment costs as well as the complexity of the plant substantially, but it also often improves the economy of the project.

Target markets

Within the prefeasibility study an investigation of target markets needs to be conducted. In principle 3 possible target markets exist: international markets for industrial pellets, international markets for pellets  that are used for domestic heating and local markets.

  • Industrial pellets are usually produced from wood and are used in large power plants. Delivering to industrial customers can be challenging as these usually ship pellets in large vessels holding 30.000t or more. If filling such a vessel requires the entire annual production cash flow issues will be a problem. Also, in some occasions power plants cannot receive pellets suddenly, e.g. due to technical issues. Finally, industrial pellet users require a sustainability certification  that will include extensive documentation of the origin of the raw material and all energy flows needed for transport and production of pellets.
  • International markets for pellets dedicated to household use as heating fuel exist only for wood pellets. Pellets for such markets must comply with very strict quality requirements that need to be proven by an ENplus certification .
  • Local markets for pellets have many advantages compared to international markets – transport costs are much lower, quality requirements will be less stringent and risk created by the dependence on few very large customers is reduced. Also, pellets from agricultural residues can be used in local markets for cookstoves while they can hardly be exported. In order to create a local market before investing in a pellet plant it is recommendable to start market development with imported pellets.
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