Hannah: From Argus Media, this is the "Biomass Beat" podcast, focusing on all the developments shaping the global biomass industry. I'm your host, Hannah Adler, senior reporter on the Biomass desk for Argus Media. And today, I'm joined by Michael Wild, president of the International Biomass Torrefaction and Carbonisation Council or IBTC. And we'll be taking a developer-focused look at the evolution of torrefied pellets, what's working, what isn't, and how projects realities on the ground are beginning to shape the industry. And today, we're going to be more focusing in on the lessons from the early pellet market, and also, how these challenges are facing some of the first movers today, and why factors such as feedstock security are often more critical at the moment than the technology itself, which has already kind of proven itself. So, thank you, Michael, for coming on today.
Michael: Thank you for inviting me. And for me, that's also a very positive sign because I'm, for so long, in this torrefaction sector. And now really, we are talking about implemented industrial projects. Though we are talking also about difficulties and problems, we are finally talking about the implemented projects. And this is what we were long waiting for.
Hannah: I agree. So, if we start there, if we go back in time, we've got many early pellet projects, which also face technical setbacks before succeeding. So, are we seeing a sort of similar cycle in torrefaction projects? And if so, how similar is the current learning curve, would you say, to what the pellet industry experienced back in the early 2000s when it all began?
Michael: I brought up the similarities, but it's not a particular similarity between torrefaction projects and pellet projects. That's always first of its kind industrial projects. I think it's almost independent of the sector, though I have no experience in other sectors. But I remember in the '90s and early 2000s, we had so many ambitious white wood pellet projects and not all of them survived. It was a minority really that survived. And a little bit, I see similarities where we're standing in torrefaction at the moment.
When we look back in time, the early 2000s, this was where we had the technological development in torrefaction. Then we had our first demonstration plan. So, we went from prototype into demonstration plan. That was about 2012, 2013. But then almost it seemed like a plaque was torn, because in Europe, the consumer group number one, the thermal power plants had all settled for white wood pellet and there were policy changes. So, then we had now no development and we were always in this chicken and egg problem. Is there a large plant? Then we can rely, yes, we will sign. So, it's always an issue with financing. And this vicious circle literally was only broken up shortly before the COVID years.
During COVID years, we saw first industrial projects in torrefaction and carbonization. Some of them are now in operation for two years already. Some are in operation for three years. But also, we see some of them have failed. Here, I see very often similarities between what I experienced 30 years ago in the white wood pellet industry. First of all, a mixture of very ambitious people who eventually lack a bit industrial realm. So, they are not really putting together the right stock of plant engineers or whatever you need.
What I also see very often and sometimes happening, a focus on the core technology, forgetting that you're setting up a chain where each of the elements has to work properly. So, also, all the auxiliary equipment, be it the log yard, be it the way bridge, be it the jib or whatsoever, all of these has to work, the conveying system. This is very often underestimated by newcomers to sectors. Here is where I see the similarities between what we experienced in white wood pellet and what we sometimes see in torrefaction projects at the moment. I want to highlight, it's not automatically that now every new torrefaction project will fail. We see that some of the torrefaction projects repeat what was seen as mistakes in the white wood pellet industry. I hope for a much shorter and steeper learning curve.
Hannah: If we zoom in, let's say, on the recent insolvency filing of Joensuu Biocoal. There was a statement that you published on your website where you mentioned that the challenges these torrefied plants face, they're not technological because we know the technology has been demonstrated. So, where do these projects, would you say, actually go wrong during the development?
Michael: There are literally hundreds of issues that can go wrong. The key issue in Finland, was that for external effects, so for the reason of geopolitical changes, their supply of relatively cheap, sustainable feedstock dried out, that they have to switch to more expensive feedstock. Obviously, this is almost like a death penalty for many projects. Though the Taaleri people really have taken this challenge and have really worked against it and tried to make this happen. But I have seen them doing "mistakes", and this I have to put into brackets, mistakes that we have seen with many other project developers in the early days also. They try to overestimate their, or they overestimate their own abilities, trying to become project integrators because they see opportunities to save capex.
And by these, they are very often then causing issues for the continuous availability of the complete plant. This is what, according to my information, did happen in this project, where simply the availability and the total capacity of the torrefaction unit could not be guaranteed because of the pre-processing units that did not come up to the capacity that was requested. This is something which I would also always generally recommend project developers, not to take on too many risks from their shoulders, not to be responsible for the interfaces if they are not really experienced in this field. And new projects very often attract very ambitious people, but I have seen them very often overestimating their abilities, to be honest.
Hannah: Fine, it's getting the correct team.
Michael: It's getting the correct team, and it is getting trusting your suppliers, that they are not only wanting to make money on you, they have often very good reasons why they would put in a larger and more expensive dryer system or maybe a more sophisticated conveying system or dust absorption system. There is reason behind. If it's a first-of-its-kind project for you in your setup, trust your suppliers, let the responsibility rest with them, and ask them also for guarantees on this. That will first of all give you much more nights of good sleep, and most likely, this will also bring the performance of your project and your installation into the sound levels.
Hannah: You mentioned earlier feedstock security. How important would you say that is compared to the other factors in developing a plant, a torrefaction plant?
Michael: Feedstock security is the foundation of everything. No feedstock, the best plant will not perform. I mean, but that is not rocket science to understand this. Feedstock security needs to be understood as security of sustainable feedstock being available at certain costs that would fulfill the requirements of your business plan. This is a must for each of the projects, and that is actually, at the very end, the crux for every project. Because with the feedstock, you are actually always accepting a lot of external risks.
You have two kinds of feedstock supply ways. One would be you're processing byproducts of any agricultural or other production scheme, sawdust, by gas, and whatsoever. Your feedstock security is simply a result of the performance of the main producer. So, you know quite well, you take the risk of the business, also of the main producer, the sugar mill, or the salt mill. This is something you can factor in, and you can either look out then for backup feedstock or not.
If you're going into raw biomass from plantations or forestry, you have the big advantage that a plantation is really a recharging battery or they're never drying out mine. But on the other hand, you have always to come to see what can happen from a logistics point of view. How can you guarantee that your labor costs and whatsoever will stay relatively constant? And as we have discussed before, if you would like to cross a border and you have typically different political regimes and legislations, that is also a kind of a risk that you have to mitigate somehow.
So, basically, if you're a greenfield project, my recommendation usually is policy mix. Try to have two, three, four different sources, probably one that is a battery, that is recharging continuously, so a forest or a plantation. And you only grab these when other supply schemes or other supply chains are drying out a little bit.
Hannah: Yeah, I know there's been nothing actual on this, and this is just whispers that I've heard from a few people, which is, you know, what if the sanctions are one day taken off Russian feedstock? Is this sort of speculation harmful to developers if they sort of count on this potential influx of feedstock, which isn't there already?
Michael: As a project developer, you're always taking bets, even if you bet on a business-as-usual scenario, you're taking bets because you don't know what happens.
Hannah: True.
Michael: This is simply up to you what kind of a risk you want to take. You're a short seller, okay, you take this risk. And it can go positive or negative. I personally would say, at the moment, there is enough feedstock available in probably more secure and safe places from terms of political and feedstock security than Russia. And I would not automatically go to build my plans based on Russian resources. However, that may change as quick as it changed the other way around. So, there is nothing. We want to build an industry that supplies commodities. So, basically, we would try to reduce speculation to the largest extent possible, because only that would then create the stability that we need to really achieve commodity status with our biocarbons.
Hannah: So, when investment funds are approached for these sorts of projects or if they're assessing them, do they have any sort of requirements about feedstock security, or is that something that they also have to bet on?
Michael: They have all their individual assessments and their tick box list. And sometimes, miraculous what they're doing it's understandable. But for all of them, it's for sure, it's clear. Feedstock security, security of supply, this is the basis, and if these boxes aren't ticked all satisfactorily, they would not move on any further. So, it's always the feedstock that is questioned first and jeopardized what the schemes are. Very often then, there is also a very clear look into logistics. Biomass is always a logistics game. So, basically, they look not only on the security of availability of biomass, but also, how is it transported? How is it collected? What can go wrong on these supply chains to the processing plant from the processing plant to customers?
Hannah: In terms of supply of feedstock, I guess if from the first quarter of next year, we're seeing industrial demand in Europe contracting, or we can assume it's going to contract quite a lot with the subsidies changing for various pellet plants, do you think this will leave more feedstock for torrefied pellets and maybe boost feedstock security? Or do you think we'll even start seeing some of the existing plants in the U.S., for instance, or anywhere else retrofitting for torrefaction? I know we've already seen some discussions from some technological companies are working with pellet mills at the moment in the U.S. So, do you think we might see an influx from that area?
Michael: I'm 100% sure. This so-called cliff in demand, industrial demand in Europe, this is known for years, no surprise. And people were starting to prepare for this. We see on the other side also, a lot of new markets developing, markets like SIF or so, which need preprocessed biomass to do their gasification properly. So, I think the established pellet producers who have made everything right to have an industrial plant operative, they manage the supply, the logistic uncertainties, and so on, they're well advised in looking into torrefaction or carbonization.
One has to say, there is not a big difference between a pellet plant and a torrefaction plant. There's just one extra unit, the super heater, super dryer, or torrefaction reactor, literally, they are the same, all the rest is almost the same. So, for them, it is also not a very big change in their operational structure. And, I can't quote anything now, but I know that there is many people looking at these opportunities and creating new and alternative businesses.
Hannah: So, looking to the future then, if we've seen technology for torrefaction exists and it's there, what else still needs to be done to make these projects more investable or bankable over the next few years?
Michael: First and the utmost importance is policy. That was always the case and that is the case. So, political security is needed for the consuming parties. Only on this basis, they can sign long-term, off-take contracts. Only with these off-take contracts, financing can be established. We are not yet the commodity, so our developers cannot simply go to the bank and say, "Okay, I produce a commodity with a market of billions of tons, just finance me." There's always an off-take agreement, the starting point for project finance, and by this, project development. So, this security for consumers on their political basis, this I think is key.
And secondly, then we see also, especially if you go into higher carbonized materials, that there is a little bit of uncertainty on site of the consumers which qualities they really would like to receive. And if there is simply one quality that fits all, or if there is individual qualities that need then, like in the cocaine industry, for instance, be cooked in the second process step to the need of the individual customer. So, I think here, we need summarized policy, certainty about the policy, and more clear signals on what the real demand is from the consumer groups that we already know at the moment.
What is always needed is track records, more plans that are implemented that will be operative, that will have a positive track record, be it in torrefaction, be it in carbonization. So, that is definitely needed. And I'm sure that we are currently in a very good path of creating the basis for all of this, also with the activities of creating ISO standards for the products, organizing IMSPC codes for the shipping. So, this is a very vibrant industry at the moment. It's good to be in this industry, because now, we're really seeing that it is taking off and there is so much mushrooming literally of projects and ideas and implementation ways. I'm really happy to be here.
Hannah: Yeah, it's exciting. It's definitely an exciting time for the industry. Thank you so much for coming on and talking. It was such a great discussion.
Michael: Yes, thank you as well very much. I'll be very happy to keep you updated about new developments in the next month.
Hannah: Yeah, for sure. We can do another podcast as well at the end of the year with any new updates. Stay tuned for the next edition of the Argus Biomass podcast. In the meantime, if you want to learn more about this topic and other factors driving the biomass industry, follow all our coverage in Argus Biomass Markets report, and visit us at argusmedia.com.
