Potential Bio-fuel Supply at Taupo

1. Potential Bio-fuel Supply at Taupo A case study for EECA, and for input into an investigation of the potential for co-generation on the Tenon sawmill and Fletcher Wood Panels site at Taupo John Scott Consulting February 2004

2. Potential Bio-fuel Supply at Taupo 27th February 2004 A case study for EECA, and for input into an investigation of the potential for co-generation on the Fletcher Wood Panels and Tenon sawmill site at Taupo Page 1 Cover 2 Contents 3 Executive Summary 4 Taupo Site Overview 5 FWP Fibre Flow 6 Tenon Fibre Flow 7 Supply of Residuals from Wood Processing Operations 8 Demand for Biomass 9 Biomass Dumped at Taupo 10 Burning Biomass Currently Dumped 11 Effect of Moisture Content on Net Heat from Biomass 12 Potential Diversion from Dumping to Burning 13 Forestry Biomass Utilisation Chart 14 Potential Forestry Biomass Picture 15 Forestry Biomass Summary Table 16 Cost of Recovering More Forestry Biomass 17 Conclusions

3. Executive Summary • The Taupo site is a major processor of wood and wood processing residuals: • FWP produces about 195,000 m3 per annum of panel products • Tenon produces about 205,000 m3 per annum of lumber products • both operations are in very competitive markets and need to mitigate rising energy prices to remain internationally competitive • FWP utilises relatively low cost sawdust and shavings from up to 100 km away as a feedstock for production of MDF and particle board • Tenon is a typical sawmill, generating about 87,000 tonnes per annum of sawmill chips and 66,000 tonnes par annum of bark, sawdust and shavings • The supply of traditional residuals from wood processing operations in the CNI is expected to remain about the same - output will vary with market conditions using existing capacity levels • The demand for forestry residuals has been steadily increasing, with no sign of abatement. • Up to 33,000 tonnes per annum of (bark equivalent) biomass could potentially be recovered instead of being dumped at the Bleakley landfill in Taupo, but the cost is unknown. • Biomass from CNI wood processing activities is already well utilised, but there is potential to recover more material from harvesting and log-making operations. • the estimated cost of at least $20 per tonne for recovering, processing and transporting this material has been prohibitive to date. • It may be worth undertaking some research to better estimate the recovery costs and potential volumes of biomass from harvesting and log-making activities. 3

4. The Taupo site produces about 400,000 m3 per annum of wood products and needs to minimise energy costs • The Fletcher Wood Panel (FWP) operation produces 195,000 m3 per annum of panel products from two manufacturing lines: • 150,000 m3 per annum of Lakepine medium density fibreboard (MDF) • 45,000 m3 per annum of Superfine particle board (PB). • The Tenon (previously FCF) Taupo sawmill operation produces about 205,000 m3 per annum of sawn timber. • Both operations require electricity to run the plants: • FWP use averages 9 MW (about $6 million per annum) • Tenon sawmill use averages 2.6 MW (about $2 million per annum) • Both operations require heat energy to dry and/or cure their products: • FWP use averages about 1,300 GJ/day of natural gas (about $2.7 million per annum) plus 900 GJ/day from sander dust and bark/hog • Tenon sawmill uses about 1,700 GJ/day of natural gas (about $3.5 million per annum) • Increasing energy prices have driven both FWP and Tenon to minimise their energy costs: • one option is to burn more bio-fuel to produce more steam and possibly generate electricity 4

5. Fletcher Wood Panel’s Taupo operation uses forestry/sawmill residuals mainly as production feedstock 5

6. Tenon Taupo is a typical sawmill, with about 50% of the input logs ending up as bark, chips, sawdust, shavings and other residuals 6

7. The supply of residuals from wood processing in the CNI is expected to remain about the same • The volume of harvesting in the Central North Island is not expected to increase: • harvest levels have been relatively high over recent years: • FCF total sales volumes for all estates is projected to reduce from 4.5 million m3 in 2003 to 3.9 million m3 in 2004 (ref. Grant Samuel report to shareholders) • there is now pressure to harvest closer to 30 years rather than 25 years of age in order to improve the strength/yield of structural grade/value from the logs • the “wall of wood” is mainly coming from other regions such as the East Coast and Northland • Additional investment in wood processing capacity in the CNI is uncertain: • Tenon projects manufactured sales volume to increase by 7,000 m3 in 2004 and another 97,000 m3 (14%, mainly in lumber/roundwood) in 2005, (ref. FCF Prospective Financial Information document): • the location of this increase was not stated, and • the same document indicated capital spending in 2004 and 2005 only to maintain existing capacity • it is not clear why significant processing expansion would be located at or near Taupo • sawmills are likely to follow their established pattern of altering production to match market conditions by increasing or decreasing the number of shifts, using their existing capacity. • Many wood processors have historically varied their output, for example by increasing or decreasing the number of shifts, in response to market conditions. • The trend for delivered logs to have less bark will continue: • mechanised harvesting and de-limbing has resulted in more bark being removed from the trees during harvesting and left in the forest. • cost and safety factors will drive further increases in mechanical harvesting and de-limbing 7

8. The demand for forestry residuals has been steadily increasing • New boilers installed in recent years are increasing demand for biomass: • the operation of the CHH Kinleith biomass boiler is improving with annual demand of up to 200,000 tonnes, well in excess of secured supplies, driving the recovery of more higher cost biomass from logging operations • a new biomass boiler at Pan Pac’s mill near Napier means that biomass flows to Taupo will cease or reverse • all chip and bark from the Pederson Taupo sawmill adjacent to FWP Taupo is now going to Pan Pac • the co-generation plant at the Waipa sawmill has been importing biomass from other sawmills and running much harder in response to the higher electricity prices • A number of sawmill that have been “giving away” biomass are installing or considering installing or upgrading their own biomass boilers to provide heat for timber drying kilns. • Alternative uses are evolving for forestry biomass: • bark is increasingly sought after for garden mulch and potting mix • farmers are finding new uses for shavings and sawdust • Long time “importers” of biomass, such as the Kawerau mill, have indicated that it is becoming increasing difficult (and costly) to maintain adequate biomass supplies right through the year: • it is possible that the Kawerau mill may reduce its biomass imports, but CHH Kinleith would absorb it. • Sawmills are now hoping to get paid for sawdust and other residuals that a few years ago incurred a disposal charge: • should this occur, there is a risk that operations such as FWP and biomass fired co-gen plants could become uneconomic • existing biomass users are therefore strongly motivated to prevent the increasing demand from pushing up the price of biomass supplies 8

9. A variety of biomass material is dumped at the Bleakley landfill near the FWP/Tenon site at Taupo Bark Offcuts Sander Dust Dockings MDF Fibre General Rubbish 9

10. Most of the biomass that is currently dumped at Taupo could potentially be burnt • Consistency of particle size is important for efficient boiler operation • some material must be broken up or hogged before it can be burnt • if a mixture of materials is to be burnt then separation, storage and then blending may be required to achieve satisfactory efficiency and control of emissions • Contamination with dirt, pumice and/or rocks will accelerate boiler erosion • much of the potential material would need to be separated from the contaminants, preferably before collection • Some of the material is not available on a continuous basis: • bark supply changes markedly with the seasons - it tends to fall off the logs during harvesting at spring time • some material only arises from irregular production upsets • In theory, some of the material already dumped at Taupo could be “mined”, but the cost of recovering, separating and processing this material would be high - probably at least $25 per tonne (based on experience at Kawerau). • A key factor is the moisture content - wetter material has lower net heat available • refer to next page for details 10

11. The net heat available from biomass is very dependent on its moisture content • Moisture content has a double negative effect: • more moisture per tonne means less dry material per tonne • for example sawdust typically at 40% Oven Dry (OD) content has 60% water by weight • some energy from the dry material is used up just to heat and evaporate the water content • so the more water, the less gross energy and then even less net energy after evaporating the water 11

12. About 33,000 tonnes per annum of biomass (bark equivalent) could potentially be burnt instead of being dumped at Taupo • The following estimate is based on various sources including: • KJ Bleakley records of m3 (cubic metres) dumped • sampling of Tenon weigh dockets to establish typical tonnes per m3 • FWP records of tonnes dumped • Oven Dry % estimates based on measurements of similar material at Kawerau 12

13. CNI forestry biomass is generally well utilised 13

14. More biomass could be recovered during harvesting and log-making 14

15. More biomass could be recovered during harvesting and log-making 15

16. Recovery of more biomass from harvesting and log-making operations has been too costly • About 40% of CNI harvest is transported as whole trunks for log-making in central processing yards: • it has been economic to recover some bark and most small log ends for “fibre recovery” operations and sale as bark, whole log chips, tub chips and hog fuel • some bark from the “yard sweepings” is deemed to be too contaminated to be utilised: • either the yards need to be sealed to prevent contamination, or the material needs to be de-contaminated prior to being fed into a boiler • In general it has been uneconomic to recover more biomass from the harvesting operations and from log-making that is is carried out in the forests • the material, including branches, bark that has fallen off, and small log ends, is widely dispersed • the cost of collecting, transporting and processing this material to be suitable for burning has been estimated to be at least $20 per tonne • the delivered costs will vary depending on the type (eg branches or small logs), degree of dispersion, degree of contamination, and the location. • CHH has started to recover some material from harvesting/logmaking operations to supplement the supply for their Kinleith co-generation plant: • CHH is facing a shortfall - their boiler can use about 200,000 tonnes of biomass per annum • it is likely that CHH will be developing innovative methods to minimise the costs of this operation, but no details have been available 16

17. Conclusions • All existing biomass supplies from wood processors are “spoken for”: • the viability of the FWP operation depends on utilisation of relatively low cost sawdust and shavings as a feedstock for production of MDF and particle board • the supply from conventional sources remains static: • a number of biomass users and potential users are looking for additional supplies, if possible without driving up the price of existing supplies: • It may be possible to redirect up to 33,000 tonnes per annum of biomass currently dumped at the Bleakley landfill at Taupo: • the costs of getting this material into a form suitable for burning are not known, but will vary considerably with the type and source of material. • There is additional biomass potentially recoverable from harvesting and log-making operations: • the costs for getting this material into a form suitable for burning are not known, but will vary considerably. • previous estimates have been in the order of $20 per tonne minimum, which is has been uneconomic for new biomass co-generation projects. • the potential volume could be very large, but with the costs increasing with dispersion and distance • It may be worth undertaking some research to better estimate the recovery costs and potential volumes of biomass from harvesting and log-making activities. 17