Ning Lu

Date of Award

12-2012

Level of Access Assigned by Author

Campus-Only Thesis

Degree Name

Master of Science (MS)

Department

Forest Resources

Advisor

Robert Rice

Second Committee Member

Robert Lilieholm

Third Committee Member

Alan White

Abstract

The wood fuel pellet industry has been growing rapidly in recent years. The conversion of a significant proportion of central home heating systems in the New England area from oil to wood pellet fuel is a way of improving local energy production and usage. The production of pellet fuel from New England forests is also seen as a way to utilize local workers and woods residues. The purpose of this research was to produce a pellet cost model that will help future investors evaluate wood pellet production costs, including raw material and financial recovery costs. This cost model will be helpful to the pellet industry in New England by allowing prospective investors the ability to assess the feasibility of building a wood pellet plant based on local conditions in order to avoid poor decisions. Preliminary to developing a model for costs, a nationwide production survey was conducted to assess the entire wood pellet industry. The survey results reported here focused on collecting information about annual production, raw materials, production cost rankings, market radius, barriers to market expansion and other data that gave an overview of the industry during a very difficult economic period. The average volume of production was over 59,000 tons per year. Labor and raw materials for pelletizing were the principal costs of production according to respondents. Market demand and capital costs were cited as the chief barriers to expansion. A second survey, limited to New England pellet mills, was developed to determine major pellet production costs. During the second survey, visits were made to all major wood pellet manufacturers in the New England to collect additional information through interviews. According to the model, the production cost, including the financial recovery cost, is approximately $149 for one ton of wood pellets produced by a 100,000 ton per year plant. At current retail price levels (i.e., $170-$200 per ton), New England pellet manufacturers have room for a limited profit margin. Raw material costs account for about half of all production costs. According to our sensitivity analysis, reducing raw material costs will affect costs more than any other input variables.

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