Feasibility Study

Wood Pellets
IE 496 Industrial Engineering Project I
by
Mr. Kitsada Tansakul
Mr. Suwit Kijkrittaya

5410750482
5410750458

Introduction
Due to Nowadays we are facing the problems of limited
natural energy and environment.
In addition, the price of natural energy in the market keep
increasing.
To solve these problems, wood pellets is also one of the
solution because wood pellets is renewable energy, friendly
to environment and has high growth rate.

Problem significance
Price of natural energy keep increasing.
Greenhouse Effect & Air pollution.
Challenge and risk in the business.

Problem Objective
To do feasibility studies of wood pellets in terms of marketing,
technical, operations and financial analysis

Problem Scope
Study in detail wood pellets and its production process..
Study price-determining marketing system to come out with
reasonable and profitable price.
Study thoroughly the targeted customer, policy and business
strategy.

Expected Outcome
The analysis will show the possibility of establishing the wood
pellets industry
The analysis can be extended to a business plan

GANTT Chart

Wood pellets

Wood pellet biomass fuel, is a fuel product compressed from milled

wood.
The raw material is mostly dry sawdust, grinding dust, and cutting
shavings or other by-products of mechanical wood processing
industry. The pellet can also be made from fresh biomass, bark, and
forest chips as well but the raw material must be milled and dried
before pelletizing. The wood pellets must not contact directly with
water or moisture because it will get damp, expand, and disintegrate.

Wood pellets specification

Raw Material

Production process

Figure: Wood pellet production process diagrams

Packaging
Small Size (15-25 kg)

Jumbo Size (500-1000kg)

The wood pellet industry

Wood pellets are densified biomass fuel typically made from

material rejected by wood product manufacturers. By pelletizing
residual forest waste, sawdust, planer shavings, and beetle-killed
timber, millions of tons of waste can be put to work for the
bioenergy economy while enhancing the environment by reducing
greenhouse gas emissions. Wood Pellets can be burned in
residential stoves or can be co-fired in industrial, institutional or
electric generation boilers that currently burn coal. Wood pellets are
readily transportable from forested areas to anywhere in the world

The wood pellet industry

Global coal consumption is about 6 billion tons per year and is
expected to increase to 9 billion tons by 2030. Coal-fired power
plants provide 41% of global electricity. Globally, burning coal causes
the release of carbon dioxide and methane, both of which are
greenhouse gases, causing climate change and global warming
according to the Intergovernmental Panel on Climate Change. Coal is
the largest contributor to the human-made increase of CO2 in the
atmosphere. Completely replacing coal with wood pellets has the
potential to reduce greenhouse gas emissions by 91 per cent,
emissions of nitrous oxides by 40 to 47 per cent, and sulphur oxides
by 76 to 81 per cent. Even burning a mix of 10 or 20 per cent wood
pellets with coal known as co-firing carries significant benefits.

The wood pellet industry

Depending upon the type of coal boiler, wood pellets can be fed in a
couple of ways. In a fluidized bed boiler, the wood pellets can be fed
with coal through the same feeder system. For stoker coal boilers, a
separate storage and injection system is required. Today, wood
pellets are the largest traded solid biomass commodity used
specifically for energy purposes. Wood pellets have favorable
properties for transportation: low moisture content and high energy
density (about 19 GJ/tons). While handling of wood pellets requires
care (including dry storage), the advantages over other solid biomass
types such as wood chips or agricultural residues are storability, easy
handling, and typically lower transport costs for distances longer
than 50 to 100 km.

The wood pellet industry

The first long-distance transport of wood pellets was in 1998 from
Canada to Sweden. Since then, the international trade in wood
pellets by truck, train, and ship has grown exponentially. The main
rationale behind long-distance trade is abundant availability of
cheap feedstock in some world regions, high demand in other
(resource-scarce) regions and the presence of cost- and energyefficient logistics

Global Production

Figure: Wood pellets global production

Economic Factors
The main reason that why wood pellet has been developed sharply
in the past few years is because of increased and fluctuating of fuel
price. Because of limited resources, fossil energy prices fluctuated
widely and increased rapidly.

ENVIRONMENTAL ADVANTAGES
A particular advantage of pellet use is the low environmental
impact during the production process, during transport (zero
environmental damage in case of spillage) and in use. Modern pellet
combustion equipment produces extremely low air pollution. Pellets
contain much lower amounts of sulphur than fossil fuels. While pellets
do contain nitrogen which leads to slightly higher NOX emissions, it
must be kept in mind, that NOX is recycled in the same way as carbon:
plants take up nitrogen from the soil as a nutrient; it is stored in the
biomass and released during combustion to be returned to the soil by
rain again.

Environmental and Government policy

The environment around the world has been dreadful in the

past decade from human being destruction especially the
atmosphere by combustion processes. The combustion of energy
from various methods such as in the automotive engine and burning
in stoves in winter time in households will emit pollution and also
CO2 into the air depending on fuel type and the efficiency of the
machine or stove. The hazard from emission of CO2 in the air will
cause the Green House Effect which will allow the Ultra Violet light
(UV lights) from the sunshine to come in but not go out because of
CO2 that has blanketed atmospheres resulting in higher
temperature for the whole world. The consequence of increasing
world temperature makes the world face lots of disasters such as
hurricane, flooding, Tsunami, drought and forest fire for which the
cast of environment damage cannot be estimated. This is the reason
for many policies and agreements among developed countries in
order to stop this hazardous situation.

Relative Emissions of Fine Particles

Source: U.S. Environmental Protection Agency [EPA]

SWOT Analysis

Competitive analysis
1. Intensity of rivalry among established firms
Even though an existing competition in the wood pellet market
has loads of players from all around and every part of the world from
since Asia to Europe and USA and the competitors in the market are
sized from small to the gigantic firms, the competition is not too strong
because the market is still in very high growth rate and the demand is
still more than supply.

2. Threat of new entry by potential competitors

The risk of new entry in the industry is high because of little
effort to start the business or in other words these are low barriers for
entering the market.

Competitive analysis
3. Threat of substitute
Many substitutes of biomass are now being researched and
developed especially the pellet from agricultural residual which is
cheaper but ,at the moment, the quality of pellet from agricultural
residual is very low when compared with wood pellet. Thus the
substitute product is still low because this product is now the best in
quality and there is no other potential biomass fuel at the moment.
4 Bargaining power of supplier
The bargaining powers from the supplier seem to be low
because of the number of suppliers in the market is more than
sufficient and the price of raw material in domestic market is quite
cheap. The reason for cheap raw material is because the residual wood
or wood scrap is now mostly burnt directly in the industry.

BCG Matrix
For wood pellets, the characteristic of the business is very high
growth rate the same as other renewable energy, but at the
moment the market share of wood pellet business is quite small
when compared with other fossil energy. Thus the status of the
wood pellet business is in the question portfolio of BCG Matrix

4Ps
1. Product
The product in this study will be introduced in the form of high
quality wood pellet with low ash content during combustion. For the
Domestic fires, the wood pellet will be targeting the end user of this
group by using small bags for the package while the importers will
use large bags as the packaging which the wholesaler may repack
and sell to another group of customers. The wood pellet product will
be in two sizes as follows:
Large Bags (500 kg)
Small Bags (20 kg)

4Ps
2. Price
The price of wood pellet in the market is different in each country
depending on many factors in which the smaller bags are very different for
each country.

Table: Product price

4Ps
3. Place
The distribution channels of our product will be divided into the
wholesalers, joint venture, and exclusive distributor in each target
market. At the starting phase, wholesalers are the main distribution
channel because of the lower cost in marketing and logistic. The
later phase in distribution channels is exclusive distributor in the
target market.
4. Promotion
Because distribution channel of our product is divided into three
channels, each channel is going to use different promotion and
marketing in the market and also the responsibility to conduct and
run marketing promotion will be different on each channel.

Marketing cost
Sales Promotion
- Extra Quantity
- Free trial with new pellet stove
- Special price on wood stove exhibition
Print Advertising
- Decoration Magazine
- Home Magazine
Poster Ads (Indoor and Outdoor)
- Pellet Stove Stores
- Hyper Mart

Targeting
Since the product is premium quality wood pellet, the target
customer will be the domestic fires or stove in the household
because our product will provide the very low ash residue from
combustion which is suitable with the automatic feeding system in
households. The low ash residue means lower maintenance to
remove the ash from the stove which is more convenient for the
users. The households using wood pellet stoves are increasing
sharply because of lower operating cost and more convenience
when compared with other fuel forms. In the developed countries,
the policy, regulations and product standard are different thus the
target customer can be divided as follows:
-Nordic Countries
-Central European Countries
-Japan, South Korea
-North America

Targeting

1. Domestic fires (stoves)

2. Central heating boilers (15-40 kW)
3. Medium sized commercial combustion units (50-300kW)
4. Small industrial combustion units (1-6 MW)
5. Large scale combustion units (up to 100 MW)

Figure: Targeting of Wood Pellet Market

Positioning
The main consideration of our wood pellets product is the
quality of product with nearly the same price which means
our product will provide more value to the customer.

Figure : Positioning Map of Wood Pellet

Reference
Jack Huang (2015), Wood Pellet Global Market Report 2014.
Retrieved Jan 19 , 2015, from http://www.biofuelmachines.com
/wood-pellet-global-market-report-2014.html
Pieter D Kofman, The production of wood pellet , from
http://www.woodenergy.ie
Alakangas (2010), E. New European Pellets Standards. Retrieved
Match 10 , 2010
Dipl.- Wirtschaftsing. Olaf Naehrig Flat Die Pelleting Press, from
www.akahl.de