Should You Build a Pellet Mill?

Pellet Mills and Stainless Steel Pellet Conveyors

Making pellets from wood waste is an increasingly popular option for monetizing waste biomass. But is it the right option for your mill? This article will discuss circumstances that could thwart your mill from manufacturing pellets, the economic argument for making pellets, the costs of pellet production, and differences between industrial and grill pellets.

Getting to “No”

Before discussing the benefits of manufacturing pellets, we should qualify the discussion. Pellet production isn’t suitable for every mill. There are circumstances and preferences which could lead to you deciding not to pursue such an endeavor, and there’s no need to waste your time if it doesn’t make sense for your situation. Consider:

  1. What’s your tolerance for risk? While making pellets isn’t a high-risk endeavor in terms of demand, there are less risky options for your waste than building and operating a pellet plant. An offtake agreement, such as with an MDF manufacturer, biomass power plant, or local pellet manufacturer, is a stable and profitable way to rid yourself of waste.
  2. Do you really want to take on the additional responsibilities? Making pellets requires a significant investment in machinery, personnel, and operations. If this is not something you want to tackle, an offtake agreement is easier to manage.
  3. Do you have the capital for this type of investment? A small pellet plant with a nameplate capacity of only a few tons per hour will require millions of dollars to build. If this is beyond your abilities to finance, you need to consider other options.
  4. Is there another option that can prove more profitable? If you’re driven by profits and are not risk-averse, biochar currently sells for a higher price per ton than pellets. You can also refine and sell the gasses that biochar production creates. Alternatively, you can burn the gasses to produce electricity. However, the equipment used to make biochar is expensive—more so than pellet mills, and the biochar market is less mature than that of pellets.
  5. Do you have an adequate fiber source? If not from your own operation, can you get the material you need from nearby mills? Pellet plants require roughly twice as much green input as they produce in dry pellets. So, 74,000 green tons of material will make about 37,000 tons of pellets. Finding biomass fiber usually isn’t an issue if there are other sawmills in your region, as they face the same problems with waste. You can process whole pulpwood logs, too, to secure fiber. Obviously, if you cannot produce or procure enough fiber, building a pellet plant does not make sense. And even if you have sources for fiber outside your mill, you must consider whether competition exists for it. If there is a particleboard plant, pulp mill, or pellet plant nearby, the demand will increase the price of fiber in your area and make it more challenging to procure.
  6. Is your mill so remote that logistics will hinder the economic feasibility of pellets? If your mill is not near a rail line or port, the cost of transport may erode your profit margins. You should only build a pellet mill if the cost to transport your product makes economic sense.
  7. Are you in or near an urban area? A well-tuned pellet mill should not be unreasonably loud. But not all pellet mills are well-tuned or well built—we’ve encountered plenty of mills that make a terrible racket. A well-tuned mill is certainly not quiet, however. Neither is the other machinery at the plant. If you attempt to build near an urban population, you can expect opposition from residents due to the noise and concerns (real or not) about air pollution, ecological impacts, and social impacts.

Global and Regional Pellet Markets

Now that we’ve discussed reasons you may not want to build a pellet mill, let’s discuss why you may want to build one. There are many benefits to producing pellets, the first of which is that they provide a stable source of income. The market for pellets in Europe is stable and promises to remain so for years, as the European Union has consistently listed biomass as a renewable energy source and part of its strategy to combat climate change. In East Asia, the market for pellets is poised to grow significantly. South Korea and Japan have invested heavily in biomass energy, and more projects are on the horizon.

Ironically, there hasn’t been much of an appetite for large scale pellet-based power in the United States, which produces most of the world’s biomass pellets, because the price for natural gas is low, and the country has incentivized renewable energy sources like wind and solar energy. Biomass power facilities also tend to meet strong opposition among the public, which delays and sometimes upends their construction. Also, where they are built, they usually rely on local biomass sources for fuel; they do not consume pellets. A few coal plants have begun co-firing black pellets, but this market has an uncertain future.

The market for residential heat pellets has likewise witnessed lackluster growth in the US, even despite a federal tax incentive for pellet-fueled stoves. The reasons why few have opted for biomass heat are similar to why utilities haven’t adopted biomass power. Added to these reasons are that natural gas and electric heat are more convenient than pellets. Both are virtually maintenance-free once the connection has been set up.

In contrast, wood pellet consumption in Canada has grown an average of 10 percent per year over the past five years. In 2020, Canadians consumed 430,000 metric tons of pellets for industrial power generation. In 2012, the volume was 180,000 metric tons.[1] Most of this use has been in industrial applications, not among utilities or residential markets.

Beyond heat and energy, the wood pellet market is growing rampantly among grill enthusiasts. Far from being the niche fuel source they once were, grill pellets can now be found in mainstream stores across the US. Growth in the market sped up during the COVID-19 pandemic because more families stayed home and cooked outdoors, but the market’s growth has been years long in the making and hasn’t yet slowed. When and at what level it will peak is unknown.

The stability of the pellet market stands opposed to the pulp and paper industry, a traditional consumer of low-grade and waste biomass. Despite some recent reinvestment in pulp and paper, the industry continues to experience mill closures regularly. Many mills in this industry are decades old and have not received adequate capital investment, and the only new virgin pulp mill to be announced in North America in years will use wheat chaff, not woody biomass (Red Leap Pulp in Saskatchewan).

Production Costs and Profitability

Beyond the market demand, another reason to consider making pellets is that it is feasible to profit from them from a production standpoint, even with a relatively small mill. One does not need to make 45 tons of pellets an hour to turn a profit. A 5 tph mill is sufficient. Considering that utility and heating pellets for domestic use sell at roughly $180.00 per ton, an industrial pellet manufacturer could theoretically gross as much as $7,732,800.00 per year from such a mill (with one week of downtime). The revenue per ton from grill pellets can be significantly higher. Example costs would include $30.00 per ton for roundwood or pulpwood, $35.50 for green sawmill residuals, and $38.24 for wood-product manufacturing residuals (dry residuals).[2]

Crucial to running a profitable pellet mill of any size is to invest in a well-designed mill with quality equipment. It will be detrimental to your business if you invest in material-handling machinery and pellet mills that are not robust enough for the task. Quality equipment doesn’t come cheap, but it’s better than out-of-control maintenance costs and hours of unscheduled downtime.

Of course, you must also control construction costs. Yet while controlling up-front costs may seem contradictory to outfitting a mill with top-tier equipment, it doesn’t have to be. Change orders and engineering fees can drastically increase the cost of a pellet mill, as do things like the plant’s location and legal fees—none of which has anything to do with equipment or the long-term performance of the mill. Saving money on construction is possible, but it must be done by spending money well, not by opting for cheap machinery.

For this reason, we are not proponents of having a typical EPC firm build your pellet mill. We say this because large-scale pellet production is still relatively new, and there is much to be improved upon mill designs EPCs have employed thus far. You’re unlikely to see improvement quickly from EPC firms, however. Such changes occur slowly at large companies. We also advise against working with typical EPCs because too many of their pellet plants have struggled with poorly selected material handling equipment, particularly conveyors. EPCs generally do not prioritize conveyors and therefore choose these machines last after they’ve spent most of their budget. It’s no surprise these systems often do not perform well—EPCs end up buying the cheapest conveyors they can find. In some extreme cases, the conveyors they’ve chosen have performed so poorly their clients failed at startup.

Another reason to opt for quality equipment is that low-end machinery can cost more than premium equipment does to install. Many conveyors require an extensive support structure. It’s not uncommon to find conveyors with horizontal supports the length of the conveyor and support towers every twenty feet. All that steel and the work that goes into welding it can cost more than the conveyor itself. This design stands in stark contrast to SMART Conveyors™, BE&E’s premium drag-chain conveyors. SMART Conveyors™ require only one vertical support every 40 feet, which is less than half the support other conveyors need.

The cost of a pellet plant is also determined by its broader design. A mill may opt for semi-automated infeed, for example, by using a wheel loader to feed a moving floor system. Such a setup will cost less than a wholly automated receiving and infeed system. Still less costly is a fully manual infeed, which will feed a metering bin directly with a wheel loader. The tradeoff using less automation is that operational costs will rise. Other systems such as log debarking, chipping, and drying will add costs, as well. Considering material handling during the design phase of a pellet mill can save money, as well, as it can help avoid awkward configurations and tight spaces that can add costs to the conveyors, both upfront and ongoing.

Heating, Industrial, or Grill Pellets

Choosing to produce domestic heating pellets, industrial utility pellets, and grill pellets will depend on the available material and the level of operational resources you want to commit. Utility pellets and domestic heating pellets are commonly made with a blend of hardwood and softwood fibers, and they have a lower quality threshold than grill pellets, with utility pellets having the least stringent requirements. They also have an advantage over grill pellets in that the market for them is more stable. Consider that utilities and industrial customers that invest in biomass systems need pellets for years. Grill enthusiasts merely want pellets now.

The advantage of grill pellets is their potential. You can demand a higher price for grill pellets, and their popularity is rising. But they come with some caveats. The first is that you must pay closer attention to what goes into the pellets. Grill pellets are made with hardwood fiber only and sometimes include an all-natural binder. Some manufacturers add flavorings, as well. Softwood fiber does not work for grill pellets, as it negatively affects flavor and performance at the grill. It’s also worth noting that these pellets are used to prepare food for human consumption and should not contain chemicals hazardous to human health.

Another advantage of grill pellets is that there is less competition. Few pellet manufacturers make grill pellets, and almost all that do produce low volumes. The market is, of course, smaller than for industrial pellets, and there are not many large companies with which you may contract. That being the case, some grill pellet producers brand and market their own products. Whether a manufacturer makes pellets on a contractual basis or not, it will need to invest in bagging operations, batch processing, and inventory management.

There is one additional risk to making grill pellets: excitement. Grill pellets are a burgeoning sector, and the thrill of jumping into something new can warp your perspective. Simply put, you should not get caught up in building a pellet plant—for grill pellets or otherwise. You must look at pellets as a whole business. Is there a market? Can you access the resources necessary to make the product? Do the logistics work out? Others have gotten caught up in the excitement of building a pellet plant only to be blindsided by challenges they should have considered earlier in the project. You must first do your homework. Many mills in lumber-rich[3] regions will find that pellets are a product they can viably produce. In this case, the question turns to who can you trust to design and build your pellet plant? That one we can answer for you: Biomass Engineering & Equipment. Contact us today!

 

[1] Watters, Alexandrea. “Wood Pellets for Heat and Power.” United States Department of Agriculture Foreign Agricultural Service. https://apps.fas.usda.gov. July 8, 2021. Page 2.

[2] https://www.eia.gov/biofuels/biomass

[3] Wood fiber is only one material from which pellets for industrial and residential heat can be made. Many cellulosic materials can be pelletized. Examples include stover, peanut shells, bamboo, and olive pomace.

 

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