Tag: forestry and forest management and arboriculture

Supporting a circular economy in the forests

16 June 2022

Opinion

Every year in British Columbia, millions of tonnes of waste wood – known in the industry as slash – is burned by the side of the road.

Land managers are required by law to dispose of this waste wood – that includes leftover tree limbs and tops, and wood that is rotten, diseased and already fire damaged – to reduce the risks of wildfires and the spread of disease and pests.

The smoke from these fires is choking surrounding communities – sometimes “smoking out entire valleys,” air quality meteorologist from BC’s Environment Ministry Trina Orchard recently told iNFOnews.ca.

It also impacts the broader environment, releasing some 3 million tonnes of CO₂ a year into the atmosphere, according to some early estimates.

Slash pile in British Columbia

Landfilling this waste material from logging operations isn’t an option as it would emit methane – a greenhouse gas that is about 25 times more potent than CO₂. So you can see why it ends up being burned.

In its Modernizing Forest Policy in BC, the government has already identified its intention to phase out the burning of this waste wood left over after harvesting operations and is working with suppliers and other companies to encourage the use of this fibre.

This is a very positive move as this material must come out of the forests to reduce the fuel load that can help wildfires grow and spread to the point where they can’t be controlled, let alone be extinguished.

The wildfire risk is real and growing. Each year more forests and land are destroyed by wildfire, impacting communities, nature, wildlife and the environment.

In the past two decades, wildfires burned two and a half times more land in BC than in the previous 50-year period. According to very early estimates, emissions from last year’s wildfires in the province released around 150 million tonnes of CO₂ – equivalent to around 30 million cars on the road for a year.

Alan Knight at the log yard for Lavington Pellet Mill in British Columbia

During my recent trip to British Columbia in Canada, First Nations, foresters, academics, scientists and government officials all talked about the burning piles of waste wood left over after logging operations.

Rather than burning it, it would be far better, they say, to use more of this potential resource as a feedstock for pellets that can be used to generate renewable energy, while supporting local jobs across the forestry sector and helping bolster the resilience of Canada’s forests against wildfire.

I like this approach because it brings pragmatism and common sense to the debate over Canada’s forests from the very people who know the most about the landscape around them.

Burning it at the roadside is a waste of a resource that could be put to much better use in generating renewable electricity, displacing fossil fuels, and it highlights the positive role the bioenergy industry can play in enhancing the forests and supporting communities.

Drax is already using some of this waste wood – which I saw in the log yard for our Lavington Pellet mill in British Columbia. This waste wood comprises around 20% of our feedstock. The remaining 80% comes from sawmill residues like sawdust, chips and shavings.

Waste wood for pellets at Lavington Pellet Mill log yard

It’s clear to me that using this waste material that has little other use or market value to make our pellets is an invaluable opportunity to deliver real benefits for communities, jobs and the environment while supporting a sustainable circular economy in the forestry sector.

Enviva Cottondale pellet plant catchment area analysis

18 August 2021

Sustainable bioenergy

The Enviva Cottondale pellet mill has a production capacity of 760,000 metric tonnes of wood pellets annually. Raw material used by the mill includes a combination of roundwood, chips, and secondary residuals (i.e., sawdust and shavings), with pine accounting for 80‐90% of total feedstock. In October 2018, Hurricane Michael passed through the centre of the Cottondale catchment area, causing significant damage to the forest resource with more than 500,000 hectares (ha) of forestland destroyed and an estimated loss of 42 million m³of timber (equivalent to around 4 times the UK annual production of roundwood).

This event has had an impact on the data trends for forest inventory, growth and harvesting removals – as harvesting levels were increased to salvage as much timber as possible before it became unusable due to decay. This can be clearly seen in many of the charts below. However, these forest areas have been restored and now continue to grow, allowing the catchment area to return to its pre-hurricane trends in the medium term.

Forest Area

The catchment area around Enviva’s Cottondale pellet mill includes 4.3 million ha of land, based on the historical feedstock sourcing patterns of the mill. Timberland represents 68.7% (2.95 million ha) of the total land area in the Cottondale catchment area, this has increased slightly since 2000 from 67.8% and can be considered to have remained stable over this time period. There are also around 300,000 ha of woodland (associated with agricultural land) and around 800,000 ha of cropland and pastureland. Forestry is the dominant land use in this catchment area (Figure 1).

Figure 1: Land area by usage

Planted pine represents 33% of the timberland area, natural pine 20%, with 10% mixed stands and the remainder being hardwood forest of which 94% is naturally regenerated (Figure 2). The breakdown of forest type and species composition has remained relatively stable and largely unchanged over the last 20 years, in contrast to other parts of the US South where some natural pine stands have been converted to planted pine. The pine and mixed forest areas are actively managed and produce the majority of the timber harvest in the catchment area. Despite the large area of hardwood forest, management and timber production is limited. Much of this area is classified as bottomland hardwood located alongside rivers, streams, and creeks and in streamside management zones (SMZs), which restricts active management. In addition, the proportion of this catchment area located in Florida contains a large area of swampland, which is largely composed of hardwoods and cannot be actively managed for timber production and is recognised as having important ecological value.

Figure 2: Breakdown of forest type

Volume and Growth

The overall trend of volume and growth in the Cottondale catchment area is of a maturing forest resource and an increasing accumulation of standing volume, particularly in the larger forest product classes (saw-timber and chip-n-saw). Figure 3 shows that total standing volume increased by 64 million m³ from 2000 to 2018, with the largest increases in the pine saw-timber and chip-n-saw categories. In 2018, the devastating impact of Hurricane Michael caused a substantial reduction in the standing volume across every product category with the total standing volume being reduced by 42 million m³. This event has had a significant impact on the forest resource and is a primary cause of recent data trends.

However, the overall long-term trend in the catchment area is of maturing forest and increasing inventory. This should continue in the long-term once the impact of the hurricane damage has been managed and replacement forest areas begin to mature.

Figure 3: Standing volume by product category

Pine pulpwood inventory increased steadily by around 8 million m³ from 2000 to 2013, reaching a peak of 49 million m³. This then declined slightly to 46 million m³ in 2018 due to the maturing age class of the forest and pulpwood forest growing into the larger size class of chip-n-saw and saw-timber forest (Figure 4), in addition to an increase in pulpwood demand as biomass markets became operational and ramped up production. Following the hurricane in 2018, the pine pulpwood inventory dropped by more than 10 million m³.

Replanting and reforestation of damaged areas will ensure that future pine pulpwood production will increase again once these forests start to mature.

In the period from 2000 to 2018 pine sawtimber standing volume increased by 41.5 million m³ (78%) and chip-n-saw by 19.6 million m³ (73%), indicating a maturing age class and a growing forest resource. The 2018 hurricane caused a reduction in standing volume in both of these product categories of 11.6 and 8 million m³respectively (12% and 17% of the 2018 volume). However, the increasing trend is likely to continue once the forest area recovers.

Figure 4: Standing volume by product category

The growth drain ratio (GDR) is the comparison of average annual growth to removals (typically harvesting), where the growth exceeds removals the GDR will be in excess of 1 and this is considered sustainable, where removals exceed growth then the GDR will be less than 1 and this is not sustainable if maintained in the long-term – although in the short-term this can be a factor of large areas of mature forest with low growth rates and high rates of harvesting, short periods of high demand for a particular product or salvage harvesting after a natural disturbance. The GDR should be considered over a longer time period to ensure it reflects the long-term trend. In the period from 2003 to 2020 the combined GDR for pine products averaged 1.52 with a high of 1.84 and a low of 1.08 (Figure 5).

Figure 5: Growth to drain ratio by product category

The maturing forest resources can be clearly seen from the growth to removals data for each product category. Average tree sizes getting larger and more pulpwood class stands moving into the larger saw-timber and chip-n-saw categories. This trend can be seen by comparing the data values from 2003 and 2018 where saw-timber average annual growth increased by 90% (1.6 million m³), and removals by 41% (0.98 million m³). Chip-n-saw growth increased by 73% (1.3 million m³) whilst removals increased by 160% (1.9 million m³). Pulpwood growth decreased by 7.5% (0.4 million m³) whilst removals increased by 63% (1.6 million m³). Over this time period the total annual surplus of pine growth compared to removals averaged 3.7 million m³ per year (Figure 6).

Figure 6: Pine growth and removals by product category and year

Hardwood saw-timber and pulpwood removals declined by 20% and 40% respectively between 2000 and 2018, whilst growth increased by 23% for hardwood saw-timber and declined by 16% for hardwood pulpwood. The average annual hardwood surplus over this time period was 1.5 million m³ per year (Figure 7).

Figure 7: Hardwood growth and removals by product category and year

Despite a short-term imbalance in some product categories, the overall surplus of pine growth compared to removals has remained strong, with an average of 3.3 million m³ between 2000 and 2020, which includes the increased salvage harvesting in 2018 (Figure 8).

Figure 8: Cumulative annual surplus of growth compared to removals

Wood Prices

Stumpage price is the value paid to the forest owner for each category of product at the time of harvesting. The variation in prices in the Cottondale catchment area has been significant and shows some interesting trends. The higher value pine products (saw-timber and chip-n-saw) began with high stumpage values in 2000, as markets were strong for construction and furniture grade timber and supply limited at that stage due to the young age class and predominance of pulpwood stands at that time. In 2008, following the global economic crisis and the crash in housing and construction markets, saw-timber prices declined substantially reaching a low of $23 per ton, a 47% decline from the 2000 price. This stumpage price has never recovered, despite an improvement in the economy and an increase in housing starts and demand for structural timber. The reason for the continued deflated saw-timber stumpage price is a substantial surplus of supply in this catchment area. As the forest area has matured and more saw-timber grade stands are available, markets have been able to satisfy demand without an increase in price.

Pine pulpwood prices at Cottondale were lower than the US South-wide average in 2000 and remained relatively low until around 2013. A reduction in saw-timber production, and consequent reduction in mill residuals, due to the recession of 2008, led to a shortage of pulp mill feedstock and increased harvesting of pulpwood stands. This caused an increase in pine pulpwood stumpage values alongside an overall increase in demand as biomass and pellet markets began production around this time. The data shows a short-term spike in pine pulpwood stumpage prices in 2013-14, but this returned to a more normal trend as more saw-timber residues became available and pulpwood stumpage values have been around $10-11 per ton since 2015 (Figure 9).

Figure 9: Variation in stumpage value over time

Biomass demand

Biomass demand in the Cottondale catchment area began in 2008 and has averaged around 800 thousand m³per year since that time with a high of just over 1 million m³ in 2013 to 2015 and a low of 200 thousand m³ in 2008. Other pulpwood markets have had an average annual demand of 3.97 million m³between 2000 and 2020 with a high of 4.76 million m³ in 2018 and a low of 3.2 million m³ in 2009. In 2020 the biomass market represented 16% of the total pulpwood demand in the Cottondale catchment area (Figure 10).

Figure 10: Total pulpwood demand

Forest Management

The average size of clear-cut harvesting sites from 2000 to 2020 has been 47 ha, ranging from 38 ha up to 56 ha. The average size of thinning sites has been 65 ha, ranging from 55 ha up to 76 ha. When isolating the period from 2000 to 2010 and 2011 to 2020, the averages and range remain very similar, suggesting that there has been no significant change in harvesting coupe size over this period.

Figure 11: Average size of harvesting sites

The impact of biomass and wood pellet demand on the key metrics in this catchment area are considered below. This is a summary of Hood Consulting’s view on the trends and impacts in the Cottondale catchment area.

Is there any evidence that bioenergy demand has caused the following:

Deforestation?

No. US Forest Service (USFS) data shows a 55,166-hectare (+1.9%) increase in the total area of timberland in the Enviva Cottondale catchment area since the Enviva Cottondale pellet mill commenced production in 2008. Furthermore, a strong positive relationship was identified between biomass demand and timberland area, suggesting that the increase in timberland area since 2008 can be linked, to a degree, to increased demand attributed to bioenergy.

A change in management practices (rotation lengths, thinnings, conversion from hardwood to pine)?

Inconclusive. Changes in management practices have occurred in the catchment area over the last two decades. However, the evidence is inconclusive as to whether increased demand attributed to bioenergy has caused or is responsible for these changes.

Prior to the bursting of the US housing bubble in 2006, timber management in this market had been driven to a large degree by pine sawtimber production. However, challenging market conditions saw pine sawtimber stumpages prices decline more than 40% from 2006-2011. At the same time, pine pulpwood markets started to strengthen, with pine pulpwood stumpage prices increasing more than 50% from 2006-2010. So, with sawtimber markets weakening and pulpwood markets strengthening, the data suggests that many landowners decided to alter their management approach (i.e. to take advantage of strong pulpwood markets) and focus on short pulpwood rotations that typically do not utilize thinnings.

Bioenergy has had an impact on this market by adding an average of roughly 680,000 metric tons of additional pine pulpwood demand to this catchment area annually since 2008. However, bioenergy has accounted for only 17% of total softwood pulpwood demand in this market since Enviva Cottondale’s startup. Ultimately, the shift in management approach that occurred in this market can be more closely linked to other factors, such as increased softwood pulpwood demand from non-bioenergy sources (i.e. pulp/paper) as well as the weakening of pine sawtimber markets.

Diversion from other markets?

No. Demand for softwood (pine) sawlogs increased an estimated 23% in the Cottondale catchment area from 2008-2020. Also, there is no evidence that increased demand from bioenergy has caused a diversion from other softwood pulpwood markets (i.e. pulp/paper), as softwood pulpwood demand not attributed to bioenergy has increased 25% since the Cottondale mill’s startup in 2008.

An unexpected or abnormal increase in wood prices?

Inconclusive. The startup of Enviva Cottondale added more than 900,000 metric tons of softwood pulpwood demand to the catchment area from 2008-2013, and this increase in demand coincided with a 28% increase in the delivered price of pine pulpwood (PPW) – the primary roundwood product consumed by the Enviva Cottondale mill. However, since 2013, delivered PPW prices have held flat, despite biomass-related softwood pulpwood demand falling to an average of roughly 635,000 tons per year since 2016, down more than 40% compared to 2013 peak levels. (Note the decrease in roundwood consumption was due to a higher utilization of secondary residuals). It’s also important to point out that the roughly 410,000-metric ton decrease in softwood biomass demand from 2013 to 2020 was offset by a roughly 455,000-metric ton increase in softwood pulpwood demand from other sources.

Statistical analysis did identify a positive relationship between softwood biomass demand and delivered PPW price. However, that relationship was found to be relatively weak. The relationship between delivered PPW price and softwood pulpwood demand from other sources was found to be much stronger, which was not unexpected to find given that softwood pulpwood demand not attributed to bioenergy has accounted for 83% of total softwood pulpwood demand in the catchment area since 2008.

Furthermore, there is some evidence linking the increase in pine sawmill chip prices to increased consumption of secondary pine residuals by Enviva Cottondale. Specifically, consumption of secondary pine residuals by Enviva Cottondale more than doubled from roughly 213,000 metric tons in 2012 to nearly 490,000 metric tons in 2016, and this increased consumption of pine residuals coincided with a nearly 20% increase in the price of pine sawmill chips. However, increased consumption of residuals by the bioenergy sector was only one of several contributing factors that can be linked to the increase in pine sawmill chip prices. Increased consumption of pine residuals by the pulp/paper industry also contributed to higher pine sawmill chip prices. In addition, there is a strong linkage between pine sawmill chip prices and softwood lumber production. Specifically, the increase in softwood lumber production that begun in the early-to-mid-2010s consequently resulted in the increased production of secondary residuals, and the increased availability of this lower-cost material led to greater competition and ultimately higher pine residual prices.

A reduction in growing stock timber?

No. From 2008 (the year Enviva Cottondale commenced production) up until Hurricane Michael struck in late-2018, total growing stock inventory increased an average of 1.8% per year (+19% total) in the Cottondale catchment area. Specifically, inventories of pine sawtimber and pine chip-n-saw increased 58% and 28%, respectively, while pine pulpwood (PPW) inventory decreased 4% over this same period.

However, note that the decrease in pine pulpwood inventory from 2008-2018 was not due to increased demand from bioenergy or increased harvesting above the sustainable yield capacity of the forest area, as annual growth of pine pulpwood exceeded annual removals every year throughout this period. Rather, this slight decrease in PPW inventory levels is more a reflection of the aging of the catchment area forest and the movement of stands classified as pulpwood to stands classified as chip-n-saw.

A reduction in the sequestration rate of carbon?

No. US Forest Service (USFS) data shows the average annual growth rate of total growing stock timber in the Cottondale catchment area decreased from 5.9% in 2008 to 5.2% in 2020, suggesting that the sequestration rate of carbon also declined slightly over this period. However, there is little evidence to suggest that increased demand attributed to bioenergy is responsible for this change.

The reduction in overall growth rate (and therefore reduction in the sequestration rate of carbon) is more a reflection of the aging of the catchment area forest. Specifically, growth rates decline as timber ages, and this is exactly what USFS data shows in the Cottondale catchment area, with the average age of growing stock timber increasing from less than 44 years of age in 2008 to nearly 46 years of age in 2020.

An increase in harvesting above the sustainable yield capacity of the forest area?

No. Growth-to-removals (G:R) ratios, which compare annual timber growth to annual timber removals, provides a measure of market demand relative to supply as well as a gauge of market sustainability. In 2020, the latest available, the G:R ratio for pine pulpwood (PPW), the predominant timber product utilized by the bioenergy sector, equaled 1.26 (recall that a value greater than 1.0 indicates sustainable harvest levels).

Note, however, that the PPW G:R ratio averaged 1.57 in the catchment area from 2013-2017 before falling to 1.20 in 2018 and averaging 1.27 since. This notable drop in 2018 was due to a nearly 35% increase in PPW removals (due to Hurricane Michael). It’s also important to note that while annual removals have moved back in line with pre-Michael levels since 2019, this lower PPW G:R ratio is likely reflective of the new norm (at least over the midterm). Hurricane Michael destroyed an estimated 22% of total pine pulpwood inventory in the Cottondale catchment area, and this loss in inventory will be reflected in reduced growth until the destroyed forests regenerate. However, in spite of this loss, adequate PPW inventory levels still remain and sustainable market conditions are expected to persist moving forward.

Timber growing stock inventory

Neutral. According to USFS data, inventories of pine pulpwood (PPW) decreased 25% in the catchment area from 2008-2020. However, this substantial decrease was due to Hurricane Michael, which destroyed nearly 520,000 hectares of catchment area timberland when it hit the Florida panhandle in late-2018. Prior to this event occurring, PPW inventory levels had held relatively steady, decreasing slightly but averaging 47.2 million m3 in the catchment area from 2008-2018. However, the destruction caused by Hurricane Michael resulted in the immediate loss of more than 10.3 million m3 of PPW inventory, or a 22% decrease compared to pre-hurricane levels.

Moreover, the slight decrease in PPW inventory levels that did occur from 2008-2018 was not due to increased demand from bioenergy. Typically, a reduction in inventory is linked to harvest levels above the sustainable yield capacity of the forest area, but in the Cottondale catchment area, annual growth of PPW exceeded annual removals every year throughout this period. Ultimately, the decrease in PPW inventory from 2008-2018 can be more closely linked to decreased pine sawtimber production beginning in the early to mid-2000s. Specifically, annual removals of pine sawtimber decreased 28% from 2003-2014, and the reduction in harvest levels over this period translated to a reduction in newly-re-established pine stands and ultimately the slight reduction in PPW inventory levels that occurred in the mid-to-late 2010s.

Timber growth rates

Neutral. Overall, timber growth rates declined slightly in the catchment area from 2008 (the year Enviva Cottondale commenced operations) through 2020. However, this decrease in timber growth rates was not due to increased demand attributed to bioenergy but rather to the aging of the catchment area forest. Specifically, USFS data shows the average age timber inventory in the Cottondale catchment area increased from an estimated 43.6 years of age in 2008 to 45.7 years of age in 2020.

Forest area

Positive. In the Enviva Cottondale catchment area, total forest area (i.e. timberland) increased more than 55,100 hectares (+1.9%) from 2008 through 2020, and this increase can be linked to several factors, including increases in softwood pulpwood demand (from both bioenergy and other sources) as well as conversion from farmland.

Specifically, the more than 55,100-hectare increase in catchment area timberland from 2008-2020 coincided with a 1.1-million metric ton increase in annual softwood pulpwood demand (roughly half of which was attributed to bioenergy). While statistical analysis identified moderately strong positive relationships between timberland area and both softwood biomass demand and non-bioenergy-related softwood pulpwood demand, a strong positive correlation was found between timberland and total softwood pulpwood demand – suggesting that the increases in timberland since 2008 can be attributed, in part, to the increase in total softwood pulpwood demand (from both bioenergy and other sources).

The more than 55,100-hectare increase timberland from 2008-2020 also coincided with a roughly 75,000-hectare decrease in farmland (i.e. cropland, woodland, and pastureland) over this period. Specifically, the catchment area experienced a roughly 31,800-hectare loss in cropland, 8,900-hectare loss in pastureland, and 34,300-hectare loss in woodland from 2008-2020. Furthermore, statistical analysis confirmed this inverse relationship, identifying a strong negative correlation between timberland and farmland in the Cottondale catchment area.

Wood prices

Negative / Positive. Total softwood pulpwood demand attributed to bioenergy in the Cottondale catchment area increased from zero tons in 2007 (the year prior to Enviva Cottondale’s startup) to over 1.0 million metric tons in 2013. Over this same period, the price of delivered pine pulpwood (PPW) – the predominant roundwood product utilized by Enviva Cottondale for wood pellet production – increased 42% (from $21.06 per ton in 2007 to $29.82 per ton in 2013).

However, the apparent link between increased softwood biomass demand and increased delivered PPW price is only loosely supported by statistical analysis, which identified a relatively weak positive relationship between these two variables. Furthermore, delivered PPW price has remained nearly unchanged in the catchment area since 2013, despite softwood biomass demand declining and averaging roughly 577,000 metric tons per year since 2016. (Note that the roughly 410,000-metric ton decrease in softwood biomass demand from 2013-2020 was offset by a roughly 455,000-metric ton increase in softwood pulpwood demand from other sources). Ultimately, the increase in delivered PPW prices in the catchment area can be linked to increased demand for softwood pulpwood from all sources, and roughly half of the 1.2-million metric ton increase in softwood pulpwood demand since 2007 can be attributed to bioenergy.

However, it’s also important to note that the increase in bioenergy-related wood demand has been a positive for forest landowners in the Enviva Cottondale catchment area. Not only has bioenergy provided an additional outlet for pulpwood in this market, but the increase in delivered PPW price resulting from increased softwood pulpwood demand from bioenergy has transferred through to landowners in the form of higher PPW stumpage prices. Specifically, over the six years prior to Enviva Cottondale’s startup, PPW stumpage price – the price paid to landowners – averaged roughly $7.40 per ton in the Cottondale catchment area. However, since 2010, PPW stumpage prices have averaged more than $11.15 per ton, representing a more than 50% increase compared to pre-mill startup levels.

Markets for solid wood products

Positive. In the Enviva Cottondale catchment area, demand for softwood sawlogs used to produce lumber and other solid wood products increased an estimated 23% from 2008-2020. This increase in softwood lumber production has consequentially resulted in an increase in sawmill residuals (i.e. chips, sawdust, and shavings) – by-products of the sawmilling process and materials utilized by Enviva Cottondale to produce wood pellets.

Specifically, softwood sawlog demand has increased more than 16% in the catchment area since 2014, and this increase in demand has coincided with a nearly 60% increase in pine residual purchases by Enviva Cottondale. (Note that pine residuals constituted 25% of total raw material purchases by Enviva Cottondale in 2014 but 41% of total raw material purchases in 2020). So, not only has Enviva Cottondale benefited from the greater availability of this sawmill by-product, but lumber producers have also benefited, as Enviva Cottondale has provided an additional outlet for these producers and their by-products.

Read the full report: Enviva Cottondale pellet plant catchment area analysis.

This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. Others in the series can be found here.

Proposed Acquisition of Pinnacle Renewable Energy Inc. – a major international supplier of sustainable biomass

8 February 2021

Investors

This announcement contains inside information

^{RNS Number: 2805O}

^{Drax Group PLC

(“Drax”, “the Group”, “Drax Group”, “the Company”; Symbol: DRX)}

Drax is pleased to announce that it has signed an agreement (the “Acquisition Agreement”) with Pinnacle Renewable Energy Inc. (PL.TO) (“Pinnacle”), providing for the acquisition by Drax Canadian Holdings Inc., an indirect, wholly-owned subsidiary of Drax, of the entire issued share capital of Pinnacle (the “Acquisition”). The Acquisition will be implemented by way of a statutory plan of arrangement in accordance with the laws of the Province of British Columbia, Canada, at a price of C$11.30 per share (representing a premium of 13% based on the closing market price as at 5 February of C$10.04 per share and valuing the fully diluted equity of Pinnacle at C$385 million (£226 million⁽¹⁾), with an implied enterprise value of C$741 million, including C$356 million of net debt⁽²⁾). The Acquisition, which remains subject to Drax and Pinnacle shareholder approval, court approval, regulatory approvals and the satisfaction of certain other customary conditions, has been unanimously recommended by the board of Pinnacle and has the full support of Pinnacle’s major shareholder, affiliates of ONCAP (which, together hold shares representing approximately 31% of Pinnacle’s shares as at 5 February 2021). Completion is expected to occur in the second or third quarter of 2021.

The Board believes that the Acquisition advances Drax’s biomass strategy by more than doubling its biomass production capacity, significantly reducing its cost of biomass production and adding a major biomass supply business underpinned by long-term contracts with high-quality Asian and European counterparties. The Acquisition positions Drax as the world’s leading sustainable biomass generation and supply business alongside the continued development of Drax’s ambition to be a carbon negative company by 2030, using Bioenergy Carbon Capture and Storage (BECCS).

Highlights

Compelling opportunity to advance Drax biomass strategy
- Adds 2.9 million tonnes of biomass production capacity
- Significantly reduces Drax average cost of production⁽³⁾
Increased global reach and presence in third-party markets
- C$6.7 billion of contracted sales to counterparties in Asia and Europe
- 99% of capacity contracted through to 2026, significant volumes contracted post 2027
Strong return on investment
- Cash generative with 2022 EBITDA consensus of C$99 million
- Expected returns significantly ahead of Drax’s WACC
- Funded from cash and existing agreements
Reinforces sustainable and growing dividend

The world’s leading sustainable biomass generation and supply business

Drax and Pinnacle combined
- 17 pellets plants, three major fibre baskets, four deep water ports
- 4.9Mt capacity from 2022 – 2.9Mt available for self-supply
- 2.6GW of renewable biomass generation, with potential for BECCS
Global growth opportunities for sustainable biomass

Commenting on today’s announcement Will Gardiner, Chief Executive Officer of Drax, said:

“I am excited about this deal which positions Drax as the world’s leading sustainable biomass generation and supply business, progressing our strategy to increase our self-supply, reduce our biomass production cost and create a long-term future for sustainable biomass.

Drax Group CEO Will Gardiner in the control room at Drax Power Station [Click to view/download]

“We expect to benefit greatly from Pinnacle’s operational and commercial expertise, and I am looking forward to what we can achieve together.

“It will pave the way for our plans to use Bioenergy with Carbon Capture and Storage (BECCS), and become a carbon negative company by 2030 – permanently removing millions of tonnes of carbon dioxide from the atmosphere each year. Negative emissions from BECCS are vital if we are to address the global climate emergency whilst also providing renewable electricity needed in a net zero economy, supporting jobs and clean growth in a post-COVID recovery.”

Duncan Davies, Chief Executive Officer of Pinnacle, said:

“Pinnacle’s Board of Directors has unanimously determined that the transaction represents the best course of action for the company and its shareholders. On closing, the transaction will deliver immediate, significant and certain cash value to our shareholders. At the same time, the combination of Pinnacle and Drax will create a global leader in sustainable biomass with the vision, technical expertise and financial strength to help meet the growing demand for renewable energy products, which is exciting for our employees, customers and others around the world.”

Drax’s sustainable biomass strategy

Sustainable biomass has an important role to play in global energy markets as a flexible and sustainable source of renewable energy, as well as having the potential to deliver negative emissions. Drax believes that the Acquisition accelerates the Group’s strategic objectives to increase its available self-supply of sustainable biomass to five million tonnes per annum (Drax currently operates 1.6 million tonnes of capacity with 0.4 million tonnes in development) and reduce the cost of biomass to £50/MWh⁽⁴⁾ by 2027. Through the delivery of these strategic objectives Drax aims to create a long-term future for sustainable biomass, including third-party supply, BECCS and merchant biomass generation.

Employee at Morehouse BioEnergy in Louisiana

The Group’s enlarged supply chain will have access to 4.9 million tonnes of operational capacity from 2022. Of this total, 2.9 million tonnes are available for Drax’s self-supply requirements in 2022 (increasing to 3.4 million tonnes in 2027). Drax aims to increase the level of third-party sales and further expand its capacity to meet its target of five million tonnes of self-supply by 2027.

Drax believes that the Acquisition is highly complementary to the Group’s other long-term strategic options for biomass. Once optimised, the enlarged group’s biomass supply chain will support Drax’s own generation requirements, including the potential development of BECCS, whilst also serving the growing biomass markets in Europe and Asia via long-term off-take agreements.

A major producer and supplier of good-quality, low-cost sustainable biomass

Pinnacle, which is listed on the Toronto Stock Exchange, operates 2.5 million tonnes of biomass capacity at sites in Western Canada and the Southeastern US, with a further 0.4 million tonnes of capacity in development (commissioning in 2021). Investment in this new capacity is expected to be substantially complete in the first half of 2021. Once the new capacity is commissioned, Pinnacle’s nameplate production capacity is expected to increase to 2.9 million tonnes per annum.

Pinnacle has ownership of c.80% of this nameplate capacity, with the remaining c.20% co-owned with its forestry industry joint venture partners, ensuring strong commercial relationships and shared interests in security of supply. Pinnacle has sales and marketing rights to 100% of the output from all sites.

Pinnacle is a key supplier of wood pellets for Drax and other third parties in Asia and Europe, with C$6.7 billion of contracted third-party sales (including sales to Drax).

Wood pellets loaded onto vessel at Westview Terminal, British Columbia

Through scale, operational efficiency and low-cost fibre sourcing, Pinnacle is currently produces biomass at a lower cost than Drax, with a like-for-like 2019 production cost of US$124/tonne⁽³⁾, compared to Drax’s 2019 production cost of US$161/tonne⁽³⁾. The pro forma 2019 production cost for the combined business is US$141/tonne.

Pinnacle’s lower cost partially reflects the use of high levels of low-cost sawmill residues. British Columbia has a large and well-established commercial forestry industry, which has in recent years seen increased harvest levels, in part associated with management of a pine beetle infestation, producing good levels of residue material availability for the production of biomass. This infestation has now run its course and alongside other influences on the forest landscape, including wild-fire, is resulting in a reduction in the annual harvest and sawmill closures. The industry is adjusting to this with some production curtailment as well as developing approaches to fibre recovery and use which is expected to result in some increase in fibre costs.

Since 2017, the Sustainable Biomass Program has conducted annual audits of each of Pinnacle’s operational sites, allowing Drax to ensure, through its diligence, that the material that it purchases from Pinnacle is in line with its sustainability standards.

Drax is committed to ensuring best practice in health and safety, operational efficiency and sustainability across the enlarged group and intends to invest accordingly to deliver this outcome.

Drax is committed to ensuring that its biomass sources are compliant with Drax’s well-established responsible sourcing policy and Drax expects to invest in, adapt and develop sourcing practices to ensure compliance with Drax’s policies to deliver both Drax’s biomass strategy and positive forest outcomes.

A large and geographically diversified asset base

Pinnacle has ownership interests in ten operational plants and one in development (commissioning 2021), six of which are operated through joint venture arrangements, providing access to nameplate production capacity of 2.9 million tonnes per annum.

Seven of Pinnacle’s sites are in British Columbia (1.6 million tonne nameplate capacity) and two are in Alberta (0.6 million tonne nameplate capacity). All of these sites have rail lines to ports at either Prince Rupert or Vancouver, both accessing the Pacific Ocean, providing routes to Asian and European markets.

Pinnacle also operates a US hub at Aliceville, Alabama (0.3 million tonne nameplate capacity) and is developing a second site in Demopolis, Alabama (0.4 million tonne nameplate capacity), which Pinnacle expects to commission in 2021. Pinnacle’s total operational and development nameplate capacity in the US is 0.7 million tonnes.

Pinnacle’s US sites are close to Drax’s existing operations in the Southeastern US and will utilise river barges to access the Port of Mobile and barge-to-ship loading, reducing fixed port storage costs.

Working forest in LaSalle BioEnergy catchment area, Louisiana

All production sites are located in areas with access to fibre and are able to operate with a range of biomass material from existing commercial forestry activities, including sawmill residues, pre-commercial thinnings and low-grade wood. Combined with a geographic spread of production capacity and access to three separate export facilities, Pinnacle benefits from operational and sourcing flexibility, further enhancing Drax’s security of supply.

Further information is set out in Appendix 1 to this announcement.

Long-term biomass revenues with access to Asian and European markets

Pinnacle has contracted sales of C$6.7 billion, with high-quality Asian and European counterparties (including Drax). This equates to 99% of its current production capacity contracted to third parties through 2026 and a significant volume contracted in 2027 and beyond, providing long-term high-quality revenues.

Vessel carrying biomass pellets at Westview Terminal, British Columbia

Pinnacle has been supplying biomass to Europe since 2004. The location of the majority of Pinnacle’s production capacity in Western Canada, with access to the Pacific Ocean, provides a strong position from which to serve the growing demand for biomass in Asian markets. In 2018 and 2019, Pinnacle entered into 12 new long-term contracts in Japan and South Korea, totalling over 1.3 million tonnes per annum, valued at C$4.6 billion, with most contracts commencing between 2021 and 2023. The average contract duration is nine years, with certain contracts extending significantly beyond this point. Contracts typically operate on a take-or-pay basis.

Global growth opportunities for sustainable biomass

The global biomass wood pellet market has a broad range of providers that are expected to expand their production capacity, including operators such as Enviva, Graanul Invest, Pinnacle, An Viet Phat, Fram and SY Energy.

The market for biomass wood pellets for renewable generation in Europe and Asia is expected to grow in the current decade, principally driven by Asian demand⁽⁵⁾. Drax believes that increasingly ambitious global decarbonisation targets, the need for negative emissions and an improved understanding of the role that sustainably sourced biomass can play will result in continued robust demand.

Aerial photo of biomass storage domes, Drax Power Station

Train pulling biomass wagons, storage domes and wood pellet conveyor system Drax Power Station, North Yorkshire

As a vertically integrated producer and consumer of sustainable biomass Drax is differentiated from its peers and well positioned to deliver supply chain efficiencies and an expanded range of sustainable biomass materials for own-use and third-party sales.

Through its expanding lower cost supply chain, expertise in biomass generation and enhanced global footprint, Drax believes that there will be opportunities to work with other companies and countries in developing their own biomass-enabled decarbonisation strategies.

Strong return on investment

The Acquisition is expected to be cash generative and represent an attractive opportunity to create significant value for shareholders, with expected returns significantly in excess of the Group’s weighted average cost of capital.

The addition of long-term contracts with high-quality counterparties in growing international biomass markets will reduce the Group’s relative exposure to commodity prices, in line with the Group’s objective to improve earnings quality and visibility.

In total, the Acquisition increases access to lower cost biomass by a further 2.9 million tonnes after the commissioning of the Demopolis plant in 2021. The price paid for this capacity is consistent with the previously outlined strategy to invest in the region of c.£600 million to deliver Drax’s plans for five million tonnes of self-supply capacity and a biomass cost of £50/MWh by 2027.

For the year ended 27 December 2019, Pinnacle generated Adjusted EBITDA⁽⁶⁾ of C$47 million from pellet sales of 1.7 million tonnes.

Pinnacle’s 2019 performance was impacted by fire at its Entwistle plant, reduced rail access due to rail industrial action and weather disrupted forestry activity. At the same time Pinnacle experienced regional Canadian sawmill closures, resulting in some reduction in sawmill residues and an increase in provincial fibre prices.

Fibre diversification and the development of a second hub in the Southeastern US is expected to partially mitigate the risk of fibre price rises.

Taking these factors into account, alongside the commissioning of new capacity and the commencement of Asian supply contracts, Pinnacle’s 2022 consensus EBITDA is C$99 million, increasing to C$126 million in 2023 (Bloomberg).

The Acquisition strengthens the Group’s ability to pay a sustainable and growing dividend. Drax does not expect the Acquisition to have any impact on its expectations for the final dividend payment for 2020.

Financing the Acquisition

The Acquisition is expected to be funded from cash and existing agreements. On 15 December 2020 the Group issued a trading update which noted cash and total committed liquidity of £643 million at 30 November 2020. Following the completion, on 31 January 2021, of the sale of four gas power stations, previously announced on 15 December 2020, the Group received cash of £188 million, being the agreed purchase price consideration of £164 million and £24 million of customary working capital adjustments.

Net debt to Adjusted EBITDA⁽⁷⁾ in 2021 is expected to be above Drax’s long-term target of around 2 times immediately after completion of the Acquisition but is expected to return to around this level by the end of 2022.

Management of foreign exchange exposure

The Acquisition price will be paid in Canadian dollars. Pinnacle’s existing contracts with Drax and third parties are denominated in Canadian and US dollars and Drax expects to manage any exposure within its foreign exchange processes.

Drax’s policy is to hedge its foreign currency exposure on contracted biomass volumes over a rolling five-year period. This has given rise to an average foreign exchange rate hedge around 1.40 (US$/GBP£).

Sustainable sourcing

Sustainably sourced biomass is an important part of UK and European renewable energy policy. The renewable status of sustainably sourced biomass is based on well-established scientific principles set out by the Intergovernmental Panel on Climate Change and reflected in the European Union’s (EU) second Renewable Energy Directive and the UK Renewables Obligation.

Drax maintains a rigorous approach to biomass sustainability, ensuring the wood fibre it uses is fully compliant with the UK’s mandatory standards as well as those of the EU.

British Columbia, near Barriere, North Thompson River, aspen trees, dead pine trees behind infected with pine bark beetle (aka mountain pine beetle)

Dead pine trees in background, infected with mountain pine beetle, British Columbia

Drax recognises that the forest landscape in British Columbia and Alberta is different to commercially managed forests in the Southeastern US. Working in partnership with eNGO Earthworm, Drax has a good understanding of the considerations associated with sourcing residues from harvesting of primary forest and the particular characteristics of the forests in British Columbia and Alberta. In line with its responsible sourcing policy, Drax will work closely with eNGO partners, Indigenous First Nation communities and other stakeholders, and invest to deliver good environmental, social and climate outcomes in Pinnacle’s sourcing areas.

Operational efficiencies, improvements and savings

The strong financial returns associated with the Acquisition are not dependent on synergy benefits, but the Group has identified areas for potential operational improvements and efficiencies, and opportunities to invest across the supply chain to achieve consistent standards and improve outputs across the enlarged group.

Portfolio optimisation

Drax aims to leverage Pinnacle’s trading capability across its expanded portfolio. Drax believes that the enlarged supply chain will provide greater opportunities to optimise the supply of biomass from its own assets and third-party suppliers.

With existing plans to widen of the Group’s sustainable biomass fuel mix to include a wider range of lower cost sustainable biomass materials, Drax expects to create further opportunities to optimise fuel cargos for own use and third-party supply.

Logistics optimisation

Drax believes that the transport and shipping requirements of the enlarged group will provide greater opportunities to optimise logistics, with delivery of cargos to a counterparty’s closest port, reducing distance, time, carbon footprint and cost.

Enhanced security of supply

Control of Drax’s biomass supply chain, with geographically diverse production and export facilities, is expected to enhance security of supply, further mitigating the risk of supply interruptions thereby resulting in improved reliability and a reduced risk of supply interruption.

Combined expertise

Drax believes that there will be opportunities to share best practice and drive improved production performance across the enlarged group by leveraging combined expertise in the production of good-quality, low-cost pellets across the enlarged supply chain.

Drax also expects to leverage Pinnacle’s experience in developing and managing third-party off-take agreements alongside its existing commercial and trading capabilities to develop new agreements for supply to third-parties.

Stronger counterparty credit

Drax has a stronger credit rating, which could enable Pinnacle to develop its supply capability and contracts in Asian and European markets beyond its current position.

Reduced cost of debt

Drax’s average cost of debt is lower than Pinnacle’s giving rise to potential future savings.

Corporate cost savings

Drax expects to derive typical corporate cost savings associated with the Acquisition and delisting from the Toronto Stock Exchange.

Shareholder approvals

The Acquisition constitutes a Class 1 transaction under the Listing Rules. As a consequence, completion of the Acquisition is conditional on the Acquisition receiving the approval of Drax shareholders. A combined shareholder circular and notice of general meeting will be posted to shareholders as soon as practicable.

Among other things, the Acquisition is also conditional upon the approval of the Acquisition by Pinnacle’s shareholders, the approval of the Supreme Court of British Columbia, certain antitrust and other regulatory approvals other customary conditions.

A summary of the terms of the Acquisition Agreement is set out in Appendix 2 to this announcement.

Drax’s board has unanimously recommended that Drax’s shareholders vote in favour of the Acquisition, as each of the Drax directors that hold shares in Drax shall do in respect of their own beneficial holdings of Drax’s shares, representing approximately 0.17 per cent. of the existing share capital of Drax as at 5 February 2021, being the last business day prior to the date of this announcement.

Pinnacle’s board has unanimously recommended that Pinnacle’s shareholders vote in favour of the Acquisition at the Pinnacle General Meeting, as the Pinnacle directors (and certain current and former members of Pinnacle management that hold shares in Pinnacle) shall do in respect of their own beneficial holdings of Pinnacle’s shares, representing approximately 4.75 per cent. of the existing share capital of Pinnacle as at 5 February 2021, being the last business day prior to the date of this announcement.

In addition to the irrevocable undertakings from Pinnacle directors described above, Drax has also received an irrevocable undertaking from affiliates of ONCAP (which, together, hold shares representing approximately 31% of Pinnacle’s shares as at 5 February 2021 (being the last business day prior to the date of this announcement)) to vote in favour of the Acquisition at Pinnacle’s General Meeting.

Other

Drax issued a trading update on 15 December 2020 outlining its expectations for 2020 and expects to announce its full year results for the year ended 31 December 2020 on 25 February 2021.

Enquiries:

Drax Investor Relations: Mark Strafford
+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis
+44 (0) 7712 670 888

Royal Bank of Canada (Financial Adviser and Joint Corporate Broker):

+44 (0) 20 7653 4000
Peter Buzzi
Mark Rushton
Evgeni Jordanov
Jonathan Hardy
Jack Wood

Acquisition presentation meeting and webcast arrangements

Management will host a webcast for analysts and investors at 9:30am (UK Time), Monday 8 February 2021.

The webcast can be accessed remotely via a live webcast link, as detailed below. After the meeting, the webcast recording will be made available and access details of this recording are also set out below.

A copy of the presentation will be made available from 7am (UK time) on 8 February 2021 for download at: https://www.drax.com/investors/results-reports-agm/#investor-relations-presentations

Event Title:
Drax Group plc: Proposed Acquisition of Pinnacle Renewable Energy Inc

Event Date:
9:30am (UK time), Monday 08 February 2021

Webcast Live Event Link:
https://secure.emincote.com/client/drax/drax010

Start Date:
9:30am (UK time), Monday 08 February 2021

Delete Date:
Monday 27 December 2021

Archive Link:
https://secure.emincote.com/client/drax/drax010

Important notice

The contents of this announcement have been prepared by and are the sole responsibility of Drax Group plc (the “Company”).

RBC Europe Limited (“RBC”), which is authorised by the Prudential Regulation Authority (the “PRA”) and regulated in the United Kingdom by the Financial Conduct Authority (“FCA”) and the PRA, is acting exclusively for the Company and for no one else in connection with the Acquisition, the content of this announcement and other matters described in this announcement and will not regard any other person as its clients in relation to the Acquisition, the content of this announcement and other matters described in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to its clients nor for providing advice to any other person in relation to the Acquisition, the content of this announcement or any other matters referred to in this announcement.

This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in the Company or in any entity discussed herein, in any jurisdiction nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract commitment or investment decision in relation thereto nor does it constitute a recommendation regarding the securities of the Company or of any entity discussed herein.

RBC and its affiliates do not accept any responsibility or liability whatsoever and make no representations or warranties, express or implied, in relation to the contents of this announcement, including its accuracy, fairness, sufficient, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Acquisition and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. RBC and its respective affiliates accordingly disclaim to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this announcement or any such statement.

Certain statements in this announcement may be forward-looking. Any forward-looking statements reflect the Company’s current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company and its group’s and/or, following completion, the enlarged group’s business, results of operations, financial position, liquidity, prospects, growth, strategies, integration of the business organisations and achievement of anticipated combination benefits in a timely manner. Forward-looking statements speak only as of the date they are made. Although the Company believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance or guarantee that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements.

Each of the Company, RBC and their respective affiliates expressly disclaim any obligation or undertaking to supplement, amend, update, review or revise any of the forward looking statements made herein, except as required by law.

You are advised to read this announcement and any circular (if and when published) in their entirety for a further discussion of the factors that could affect the Company and its group and/or, following completion, the enlarged group’s future performance. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this announcement may not occur.

Neither the content of the Company’s website (or any other website) nor any website accessible by hyperlinks on the Company’s website (or any other website) is incorporated in, or forms part of, this announcement.

Appendix 1

Pinnacle Production Capacity

Plant	Location	Status	Commissioning	Nameplate Capacity (Mt)	Pinnacle Ownership (%)
Williams Lake	BC, Canada	Operational	2004	0.2	100%
Houston	BC, Canada	Operational	2006	0.2	30%
Armstrong	BC, Canada	Operational	2007	0.1	100%
Meadowbank	BC, Canada	Operational	2008	0.2	100%
Burns Lake	BC, Canada	Operational	2011	0.4	100%
Lavington	BC, Canada	Operational	2015	0.3	75%
Smithers	BC, Canada	Operational	2018	0.1	70%
Entwistle	Alberta, Canada	Operational	2018	0.4	100%
Aliceville	Alabama, USA	Operational	2018	0.3	70%
High Level	Alberta, Canada	Operational	2020	0.2	50%
Demopolis	Alabama, USA	Development	Est. 2021	0.4	70%
Total				2.9	80%

Capacity by fibre basket in 2021

Location	Nameplate Capacity (Mt)	Pinnacle Ownership (%)
BC, Canada	1.6	84%
Alberta, Canada	0.6	83%
Alabama, USA	0.3	70%
Total	2.5	82%

Capacity by fibre basket in 2022

Location	Nameplate Capacity (Mt)	Pinnacle Ownership (%)
BC, Canada	1.6	84%
Alberta, Canada	0.6	83%
Alabama, USA	0.7	63%
Total	2.9	81%

Across its business Pinnacle employs 485 employees, principally in the operation of its assets.

Appendix 2

Principal terms of the Acquisition Agreement

The following is a summary of the principal terms of the Acquisition Agreement.

Parties and consideration

The Acquisition Agreement was entered into on 7 February 2021 between Drax, Drax Canadian Holdings Inc., (an indirect wholly-owned subsidiary of Drax) (“Bidco”) and Pinnacle. Pursuant to the Acquisition Agreement, Bidco has agreed to acquire all of the issued and outstanding shares in Pinnacle and, immediately following completion, Pinnacle will be an indirect wholly-owned subsidiary of Drax. The Acquisition will be implemented by way of a statutory plan of arrangement in accordance with the laws of the Province of British Columbia, Canada.

Conditions

Completion under the Acquisition Agreement is subject to, and can only occur upon satisfaction or waiver of, a number of conditions, including:

(a) the approval of the Acquisition by Drax shareholders who together represent a simple majority of votes cast at a meeting of Drax shareholders;

(b) the approval of the Acquisition by Pinnacle shareholders who together represent not less than two-thirds of votes cast at a meeting of Pinnacle shareholders;

(c) an interim order providing for, among other things, the calling and holding of a meeting of Pinnacle shareholders and a final order to approve the Arrangement, each having been granted by the Supreme Court of British Columbia;

(d) no material adverse effect having occurred in respect of Pinnacle;

(e) in the event that the Competition and Markets Authority (the “CMA”) has requested submission of a merger notice or opened a merger investigation, the CMA having issued a decision that the Acquisition will not be subject to a Phase 2 reference or the period for the CMA considering a merger notice has expired without a Phase 2 reference having been made;

(f) either the receipt of an advance ruling certificate or both the expiry, termination or waiver of the applicable waiting period under the Competition Act (Canada) and, unless waived by Drax, receipt of a no-action letter in respect of the Acquisition from the Commissioner of Competition;

(g) the expiry or early termination of any applicable waiting period (and any extension of such period) applicable to the Acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (US); and

(h) the receipt a third party consent

In addition, Drax has the unilateral right not to complete the Acquisition where registered Pinnacle shareholders representing more than five per cent. of the outstanding share capital of Pinnacle duly exercise their dissent rights.

If any of the conditions are not satisfied (or waived) by 7 September 2021, either party can terminate the Acquisition Agreement.

Non-solicitation

Prior to obtaining approval from their respective shareholders in relation to the Acquisition, each of Drax and Pinnacle are prohibited from soliciting from any third party any acquisition proposal (relating to 20 per cent. or more of their shares or their group’s assets). However, if prior to obtaining Drax shareholder approval, Drax receives an unsolicited bona fide proposal in respect of 50 per cent. or more of its shares or all or substantially all of the assets of the Drax group and which the Drax board considers would result in a transaction that is more favourable to Drax shareholders from a financial perspective than the Acquisition (a “Drax Superior Proposal”), it may engage in discussions in relation to such Drax Superior Proposal in accordance with the terms of the Acquisition Agreement. Similarly, if prior to obtaining Pinnacle shareholder approval, Pinnacle receives an unsolicited bona fide proposal in respect of 100 per cent. of its shares or all or substantially all of the assets of the Pinnacle group and which the Pinnacle board considers would result in a transaction that is more favourable to Pinnacle shareholders from a financial perspective than the Acquisition (a “Pinnacle Superior Proposal”), it may engage in discussions in relation to such proposal in accordance with the terms of the Acquisition Agreement.

Termination fees payable to Pinnacle

Drax has agreed to pay a break fee of C$25 million to Pinnacle if the Acquisition Agreement is terminated as a result of:

(a) the Drax board withholding, withdrawing or adversely modifying its recommendation that Drax shareholders approve the Acquisition;

(b) the Drax board authorising Drax to enter into any definitive agreement (other than a confidentiality agreement) in respect of a Drax Superior Proposal;

(c) the Drax board terminating the Acquisition Agreement in response to any intervening event that was not known to the Drax board as of the date of the Acquisition Agreement;

(d) Drax breaching its non-solicitation obligations set out in the Acquisition Agreement; or

(e) completion not occurring by 7 September 2021 or a failure to obtain Drax shareholder approval and, in each case, an acquisition of 50 per cent. of Drax’s shares or assets (subject to certain exceptions) is is made or announced prior to the Drax shareholder approval having been obtained and any such acquisition is consummated (or a definitive agreement is entered into in respect of the same) within 12 months of termination.

In addition, Drax has agreed to pay Pinnacle an expense fee of C$5 million in the event that the Acquisition Agreement is terminated as a result of a failure to obtain Drax shareholder approval. The expense fee shall not be payable in the event that the break fee is also payable.

Termination fees payable to Drax

Pinnacle has agreed to pay a break fee of C$12.5 million to Drax if the Acquisition Agreement is terminated as a result of:

(a) the Pinnacle board withholding, withdrawing or adversely modifying its recommendation that Drax shareholders approve the Acquisition;

(b) the Pinnacle board authorising Pinnacle to enter into any definitive agreement (other than a confidentiality agreement) in respect of a Pinnacle Superior Proposal;

(c) the Pinnacle board terminating the Acquisition Agreement in response to any intervening event that was not known to the Pinnacle board as of the date of the Acquisition Agreement;

(d) Pinnacle breaching its non-solicitation obligations set out in the Acquisition Agreement; or

(e) completion not occurring by 7 September 2021 or a failure to obtain Pinnacle shareholder approval and, in each case, an acquisition of 50 per cent. of Pinnacle’s shares or assets (subject to certain exceptions) is made or announced prior to the Drax shareholder approval having been obtained and any such acquisition is consummated (or a definitive agreement is entered into in respect of the same) within 12 months of termination.

Proposed acquisition of Pinnacle Renewable Energy Inc. by Drax

Investors

https://www.drax.com/investors/disclaimer-proposed-acquisition-of-pinnacle-renewable-energy-inc-by-drax/

Burns Lake and Houston pellet plant catchment area analysis

25 November 2020

Sustainable bioenergy

The eigth report in a series of catchment area analyses for Drax looks at the fibre sourcing area surrounding two compressed wood pellet plants operated by Pinnacle.

This part of interior British Columbia (BC) is unique in the Drax supply chain. Forest type, character, history, utilisation, natural challenges, logistics, forest management and planning are all very different to the other regions from which Drax sources biomass. Recently devasted by insect pest and fire damage, Arborvitae Environmental Services has produced a fascinating overview of the key issues and challenges that are being experienced in this region.

Figure 1: Catchment area map of the region [Click to view/download]

A positive response to natural disasters

Like the entire BC Interior, the area has suffered a devastating attack of Mountain Pine Beetle (MPB) damage over the last 20 years which has completely dominated every forest management decision and action. Within the catchment area, the MPB killed an estimated 157 million cubic metres (m³) between 1999 and 2014, representing 42% of the estimated 377 million m³ of total standing timber in the catchment area in 1999. In addition, severe wildfires in 2018 burned an estimated 7.1 million m³.

These natural events have had a devastating impact on the forest resource. Harvesting increased significantly to utilise the dead and dying timber as lumber in sawmills whilst it was still viable.

Net carbon emissions in Canada’s managed forest: All areas, 1990–2017; illustrates that the impact of fires and insect damage have been far more significant, by hectares affected, than forestry activity; Chart via Natural Government of Canada

The Pinnacle pellet mills at Burns Lake and Houston were established alongside the sawmills to utilise the sawmill residues as there were no other viable markets for this material. These sawmills draw fibre from a large distance, up to 300 miles away. Therefore, the size of the catchment area in this piece of analysis is determined by the sourcing practices of the sawmills rather than the economic viability of low grade roundwood transport to the pellet mill (see Figure 1).

Damage to pine trees by Mountain Pine Beetle (MPB)

Utilising forest residues

The two mills producing high-density biomass pellets have provided an essential outlet for residue material that would otherwise have no other market and until very recently were supplied almost entirely by mill residuals. As the quantity of dead and dying timber has reduced and sawmill production has declined, the pellet mills are beginning to utilise more low-grade roundwood and forest residues (that are otherwise heaped and burned at roadside following harvest) to supplement the sawmill co-products.

Primarily State owned managed forests

The total land area in the catchment for Burns Lake and Houston is 4.47 million hectares (ha) of which 3.75 million ha is classed as forest land, 94% of the catchment area is public land under provincial jurisdiction. The provincial forest service is responsible for all decisions on land use and forest management on public land, in consultation with communities and indigenous groups, determining which areas are suitable for timber production and which areas require protection. Approximately 34% of the catchment area is not available for commercial timber harvesting because it is either non-forested or it has low productivity, and other operational challenges, or it is protected for ecological and wildlife reasons.

The Chief Forester for the province sets the Annual Allowable Cut (AAC) which determines the quantity of timber that can be harvested each year. Ordinarily this will be based on the sustainable yield capacity of the working forest area, but in recent years the MPB damage has necessitated a significant increase in AAC to facilitate the salvage of areas that have been attacked and damaged (see Figure 2).

Figure 2: Changes in Annual Allowable Cut 1980 to 2018 (Source: Nadina District FLNRORD) [Click to view/download]

The catchment area is in the Montane Cordillera ecozone and the Canadian Forest Service reports that between 1980 and 2017, the area of forest in the ecozone declined from 31,181,000 ha to 31,094,000 ha, a decline of 87,000 ha or 0.28 % of the forest area. Deforestation in the catchment area was estimated at 300 ha per year. Most deforestation in the ecozone occurred because of conversion to agriculture, as well as other contributing factors, such as mining, urban expansion and road construction (including forest roads).

The forest area is dominated by coniferous species (see Figure 3) predominantly lodgepole pine, spruce and fir (90% of the total area), with hardwood species (primarily aspen) making up just 8% of the total area.

Figure 3: Species composition of forest land in the catchment area.

Managing beetle damaged areas

The annual harvest volume was at a peak in the early part of the last decade at over 12 million m³ in 2011. This has now declined by around 4.5 million m³in 2019 (see Figure 4) as the beetle damaged areas are cleared and replanted. The AAC and harvesting levels are expected to be reduced in the future to allow the forest to regrow and recover.

Figure 4: Annual change in harvest volume of major species

Future increases in forest growth rates

Historically, the forest area has naturally regenerated with self-seeded stands reaching a climax of mature pine, spruce, and Abies fir mixtures. As the forest matured, it would often be subject to natural fires or other disturbance which would cause the cycle to begin again. Following the increase in harvesting of beetle damaged areas, many forests are now replanted with mixtures of spruce and pine rather than naturally regenerated. This is likely to lead to an increase in forest growth rates in the future and a higher volume of timber availability once the areas reach maturity (see Figure 5).

Figure 5: Forecast of future volume production

Timber markets in the catchment area are limited in comparison to other regions like the US South. The scale of the landscape and the inaccessible nature of many of the forest areas limit the viability of access to multiple markets. Sawmills produce the highest value end-product and these markets have driven the harvesting of forest tracts for many years. Concessions to harvest timber are licensed either by volume or for a specific area from the provincial forest service. This comes with a requirement to ensure that the forest regrows and is appropriately managed after harvesting.

There are no pulp mills within the catchment area and limited alternative markets for the lowest grades of roundwood or sawmill residuals other than the pellet mills; consequently, the pellet mills have a close relationship with the sawmills.

Wood price trends

Prices for standing timber on public land are determined by the provincial government using results from public timber sales and set according to the species and quality of timber produced (from the highest-grade logs through to forest residuals). The lack of market diversity and challenging logistics mean that there is little competition for mill residuals and low-grade fibre. The price differential in end-product value between sawtimber and wood pellets ensures that fibre suitable for sawmill utilisation does not get processed by the pellet mill. A very small volume of larger dimension material can end up in a low value market when there are quality issues that limit the value for sawtimber (e.g. rotten core, structural defects) but this represents a very small proportion of the supply volume. There is no evidence that pellet mills have displaced other markets within this catchment area.

Read the full report: Catchment Area Analysis: Pinnacle Renewable Energy’s Burns Lake & Houston Mills.

This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. Others in the series can be found here.

Georgia Mill Cluster catchment area analysis

13 October 2020

Sustainable bioenergy

The seventh report in a series of catchment area analyses for Drax looks at the fibre sourcing area surrounding a number of compressed wood pellet plants operated by Georgia Biomass (now owned by Enviva) and Fram Renewable Fuels.

The evidence found in the report by Hood Consulting shows a substantial increase in forest inventory (stored carbon) and a relatively stable forest area. However, with continued pressure from urban development, future losses of timberland area are possible. Despite this, increasing growth rates can maintain and improve wood supply and carbon stock for the foreseeable future.

Increasing forest growing stock and carbon sequestration

The overall inventory of growing stock in the catchment area has increased by 63 million cubic metres (m³) between 2000 and 2018, a growth of 19.3%. All of this increase has been in the pine area, which increased by nearly 68 million m³, whereas the hardwood species decreased in volume by 4.5 million m³. Overall, the inventory volume split by species in 2018 was 72% to 28% softwood to hardwood. The breakdown by product category is shown in Figure 3 below.

Figure 1: Change in growing stock by major product category and species (USFS)

The pine saw-timber and chip-n-saw product categories, larger dimension and higher value material, showed the largest increase in inventory, whereas pine pulpwood decreased in total volume. The most substantial change occurred from 2010 to 2018, where pulpwood went from an increasing trend to a decreasing trend and saw-timber increased in volume much more rapidly – this is shown in Table 1 and Figure 2 below.

Change (cubic metres (m3))	Pine Sawtimber	Pine Chip-n-saw	Pine Pulpwood	Hardwood Sawtimber	Hardwood Pulpwood	Total
2000-2018	51,301,628	22,277,139	-5,835,230	1,211,110	-5,657,114	63,297,533
2000-2010	14,722,995	12,707,674	5,262,192	-3,740,507	-5,769899	23,182,455
2010-2018	36,578,632	9,569,465	-11,097,422	4,951,618	112,784	40,115078

Table 1: Change in growing stock volume by major product category (USFS)

These changes are likely to reflect an increasing age class in the catchment area, with younger stands of pine (previously classed as pulpwood), growing into a larger size class and being reclassified as saw-timber. This means that the volume of saw-timber availability in future will be significantly higher, but pulpwood availability will be diminished. For pellet mill markets any loss in pulpwood availability can be compensated by an increase in sawmill residue production if market demand is maintained or increased.

Figure 2: Change in growing stock by major product category and species (USFS)

Growth rates for both softwood and hardwood species have been increasing since 2000 as shown in Figure 3 below. Softwood growth has increased by 18.5% since 2000 and hardwood by 1.4%. The improved softwood growth rate probably resulted from increased investment in the management of pine forests, the superior quality of seedlings and better management practice (ground preparation, weed control, fertilisation etc.). This is a very positive trend for the sequestration rate of carbon and also for providing landowners with the potential to increase revenue per hectare and encourage the retention and improved management of forests, rather than converting to other land uses. The Georgia catchment area is likely split between passive owners that do not actively manage, where growth rates are slower or decline and the incentive to convert land is greater, and owners that actively manage to improve growth and quality, increasing revenue and maintaining productive forest. There is likely to be a much greater differential in growth rate between these two management approaches than reflected by the trend in Figure 3, highlighting the importance of active management for carbon abatement.

Figure 3: Average annual growth rate per hectare (USFS)

Stable forest area

At a macro scale, the distribution of land use categories has remained relatively stable since 2000, with no apparent major shifts in land use. The timberland area around the seven mills has decreased by around 135 thousand hectares (ha) between 2000 and 2018 (2.3% of the total land area), whilst the area of arable and urban land increased by 98 thousand (1.7% of total area) and 158 thousand (2.7% of total area) ha respectively. In 2018, timberland represented 67% of total land area and all forest and woodland 80% of total area, down from 69% and 82% respectively in 2000 (Figure 1).

Figure 4: Change in land use category (USDA)

Looking at this change in land use more closely, the timberland area shows the most pronounced decline between 2010 and 2018, a drop of 117 thousand ha. The largest change in other land use categories over this period was an increase of 97 thousand ha in urban and other land, suggesting that a large proportion of the timberland area has been converted to urban areas.

The most significant change in agricultural land occurred prior to 2010, when the timberland area remained relatively stable, this change appears to have involved the transition of pastureland to arable crops. There may also have been some reclassification of forest and woodland types, with a decrease in the area of woodland and an increase in forestland during the period between 2000 and 2010 (Table 2).

Change (hectares (ha))	Timberland	Other Forestland	Arable Cropland	Woodland	Pastureland	Urban & Other Land
2000-2018	-135,195	70,073	98,436	-77,904	-113,725	178,315
2000-2010	-18,539	53,150	73,243	-73,077	-95,630	60,852
2010-2018	-116,656	16,922	25,193	-4,827	-18,096	97,463

Table 2: Timing of land use change in Georgia catchment area (USDA)

These trends are also clear and apparent in Figure 3 below which shows the sharp decline in timberland area, albeit small in absolute area relative to the total catchment area size, and the steady increase in urban land. Georgia ranks 8^th in the list of US States and territories by total population with 10.6 million and 17^th by population density at 184 per square mile (mi²) compared to just 63 per mi²in Mississippi where Drax’s Amite Bioenergy (ABE) pellet plant is located and 108 per mi² in Louisiana where the Morehouse Bioenergy (MBE) and LaSalle Bioenergy (LBE) mills are located (US Census Bureau). This population pressure and increased development can lead to more forest loss and land use change.

Figure 5: Trends in major land use categories (USDA)

Drax’s suppliers in the Georgia catchment area have made a commitment not to source wood from areas where land use change is taking place. This commitment is monitored and verified through the Sustainable Biomass Program (SBP) certification process that is maintained by each mill. Any land use change in the catchment area is likely to be a result of prevailing economic drivers in the region rather than due to actions being taken by the pellet producers.

Increasing demand and surplus forest growth

Strong markets are essential for ensuring that forests are managed and restocked to optimum benefit, sawlog markets are particularly important as this is highest revenue stream for forest owners. Figure 6 shows the trend in market demand for each major product category since 2000 and demonstrates the recent increase in softwood sawlog demand as the US economy (particularly housing starts) recovered from the global recession at the end of the last decade. Softwood pulpwood demand increased through the 2000s but has remained relatively stable since 2011, with the exception of a peak during 2018 which resulted from an increase in volume generated by salvage operations after hurricane Michael.

Figure 6: Demand for wood products (USFS, TMS)

The comparison of average annual growth and removals in the Georgia catchment area is much more tightly balance than in Drax’s other supply regions, as shown in Figure 7. Since 2000 the average annual surplus of growth has been around 3.6 million m³ with both demand and growth increasing in recent years.

Figure 7: Average annual growth, removals and surplus (USFS)

As shown in Figures 2 & 3, growth rates are strong and inventory is increasing, this is not a problem in the Georgia area. The relatively small surplus, as compared to other catchment areas in the US South, is due to the higher concentration of wood fibre markets and the more intense forest industry activity in this region. As of July 2020, there were over 50 major wood-consuming mills operating within the Georgia catchment area and an additional 80+ mills operating within close proximity, overlapping the catchment area. Total pulpwood demand in 2019 was 12.9 million tons, of which approximately 87% was attributed to non‐bioenergy‐related sources (predominantly pulp/paper) and 13% was attributed to the bioenergy sector. Given the bio-energy sector’s low ranking position in the market (with the lowest ability to pay for fibre), combined with the relatively small scale in demand compared to the pulp and paper industry, the influence of biomass markets can be considered to be minimal in this region, particular when it comes to impacts on wood prices and forest management practice.

Wood price trends

Pine sawtimber prices suffered a significant decline between 2000 and 2010, dropping almost $21 per ton as a result of the global financial crisis and the decline in demand due to the collapse in housing markets and construction (Table 3). Since 2010 pine sawtimber has remained relatively stable, with some minor fluctuations shown in Figure 8 below.

Change ($/ton)	Pine Sawtimber	Pine Chip-n-saw	Pine Pulpwood	Hardwood Sawtimber	Hardwood Pulpwood
2000-2019	-$20.92	$15.14	$5.95	$12.55	$4.70
2000-2010	-$20.92	-$21.41	$2.11	$11.25	$5.67
2010-2019	$0.00	$6.27	$3.84	$1.30	-$0.97

Table 3: Stumpage price trends (TMS)

Pine pulpwood prices have been on a generally increasing trend since 2000, with a more significant increase since 2011. This increase does not reflect an increase in demand or total volume, which has remained relatively stable over this period, but a shifting of the geographic distribution of the market with some new mills opening and old mills closing, resulting in increased competition in some localised fibre baskets and leading to an overall increase in stumpage price.

Figure 8: Stumpage price trends (TMS)

Figure 9 below shows that, with the exception of the hurricane salvage volume in 2018, pulpwood removals have declined or remained relatively stable since 2010, whereas pulpwood stumpage prices increased by 41% from 2010 to 2018.

Figure 9: Pulpwood demand and stumpage price (USFS, TMS)

Comparing this stumpage price trend with other catchment areas of the US South (Figure 10), where Drax sources wood pellets, the Georgia area is on average 35% higher than the next highest area (Chesapeake) and 87% higher than the lowest cost area (Amite Bioenergy in Mississippi). This price differential is predominantly due to the scale of demand and availability of surplus low-grade fibre.

Figure 10: Comparison of pine pulpwood stumpage prices in Drax supply areas US South (TMS)

Hood Consulting summary of the impact of the seven pellet plants on key trends and metrics in this catchment area.

Is there any evidence that bioenergy demand has caused the following…

Deforestation?

No. US Forest Service (USFS) data shows a 108,130-hectare (-2.6%) decrease in total timberland in the Georgia catchment area since Georgia Biomass’ first full year of production in 2012. Specifically, this loss in total area of timberland coincided with a more than 21,000-hectare increase in cropland/pastureland and a more than 73,000-hectare increase in urban land and land classified as having other uses.

However, there is little evidence to suggest that increased wood demand from the bioenergy sector has caused this decrease in total timberland. Furthermore, pine timberland – the primary source of roundwood utilized by the bioenergy industry – has increased more than 17,000 hectares in the catchment area since 2016.

A change in management practices (rotation lengths, thinnings, conversion from hardwood to pine)?

No. Changes in management practices have occurred in the catchment area over the last two decades. However, there is little evidence to suggest that bioenergy demand, which accounts for roughly 10-14% of total pulpwood demand (and only 5-7% of total wood demand in the catchment area), has caused or is responsible for these changes.

Clearcuts and thinnings are the two major types of harvests that occur in this region, both of which are long-standing, widely used methods of harvesting timber. TimberMart-South (TMS) data shows that thinnings accounted for 67% of total reported harvest area in the southeast Georgia market from 2000-2010, but only 43% of total harvest area reported from 2012-2019. Specifically, this downward shift was initiated by the bursting of the US housing bubble in the mid-2000s and had been completed by the early 2010s. We’d like to note that this shift coincided with a nearly 50% decrease in pine sawtimber stumpage price from 2006-2012. This is important because the strength of pine sawtimber markets had been a driving force behind timber management decisions in this region in the early and mid-2000s.

Also, contributing to the decreased prevalence of thinnings was the strengthening of pine pulpwood markets in the mid-2000s, as pine pulpwood stumpage prices increased more than 40% in the Georgia catchment area from 2003-2008. So, with sawtimber markets continuing to weaken and pulpwood markets doing just the opposite, the data suggests that many landowners decided to alter their management approach (to take advantage of strong pulpwood markets) and focus on short pulpwood rotations that typically do not utilize thinnings.

Ultimately, the shift in management approach that occurred in this market can be linked to the weakening of one type of timber market and the strengthening of another. In the early and mid-2000s, timber management was focused on sawtimber production – a type of management that utilizes thinnings. However, for more than a decade now, this market has been driven to a large degree by the pulp/paper industry, with a significant portion of the timber management in this area focused on short pulpwood rotations.

Diversion from other markets?

No. Demand for softwood (pine) sawlogs increased an estimated 39% in the Georgia catchment area from 2011-2019. Also, increased bioenergy demand has caused no diversion from other pulpwood markets (i.e. pulp/paper), as pulpwood demand not attributed to bioenergy held steady and remained nearly unchanged from 2012-2017 before increasing in 2018 and 2019 due to the influx of salvage wood brought about by Hurricane Michael.

We’d like to make special note that increased demand for softwood sawlogs since 2011 has not resulted in a full pine sawtimber (PST) stumpage price recovery in this market. Reduced demand for softwood sawlogs in the late 2000s and early 2010s resulted in oversupply, and this oversupply has remained, despite increased demand the last 6-8 years. As a result, PST stumpage prices have held steady and averaged roughly $30 per ton in the catchment area since 2013 – down approximately 35% from the 2000-2006 average of more than $46 per ton, but up roughly 15% from the 2011-2012 average of approximately $26 per ton.

An unexpected or abnormal increase in wood prices?

No / Inconclusive. The delivered price of pine pulpwood (PPW) – the primary roundwood product consumed by both Georgia Biomass and Fram – increased 26% in the Georgia catchment area over the six years directly following the startup of Georgia Biomass, increasing from $29.16 per ton in 2011 to $36.63 per ton in 2017. And while this 26% increase in delivered PPW price coincided with a roughly 1.1 million metric ton increase in annual pine pulpwood demand from Georgia Biomass and Fram, total demand for pine pulpwood (from both bioenergy and other sources) actually decreased 7% over this period. Moreover, evidence suggest that this increase in PPW price is more closely linked to changes in wood supply, specifically, the 9% decrease in PPW inventory from 2011-2017.

However, there is evidence that links increased demand from the bioenergy sector to an increase in secondary residual (i.e. sawmill chips, sawdust, and shavings) prices. Specifically, the price of pine sawmill chips – a residual feedstock utilized by the bioenergy industry for wood pellet production – held steady and averaged approximately $26 per ton in the Georgia catchment area from 2008-2012. However, from 2012-2016, pine sawmill chip prices increased more than 15% (to $29.55 per ton in 2016). This increase in price coincided with annual pine residual feedstock purchases by Georgia Biomass and Fram increasing from roughly 325,000 metric tons to nearly 1.0 million metric tons over this period. However, note that pine sawmill chip prices have held steady and averaged roughly $29.50 per ton in the catchment area since 2016, despite further increases in pine secondary residual purchases by Georgia Biomass and Fram (to more than 1.2 million metric tons in 2019).

Ultimately, the data suggests that any excess supply of pine secondary residuals in the catchment area was absorbed by the bioenergy sector in the early and mid-2010s, and the additional demand/competition placed on this market led to increased residual prices. However, the plateauing of residual prices since 2015 along with the continued increase in secondary residual purchases by Georgia Biomass and Fram further suggest that an increasing percentage of secondary residual purchases by the bioenergy sector is sourced from outside the catchment area. Specifically, Fram confirmed this notion, noting that 35-40% of its secondary residual purchases come from outside the Georgia catchment area (from six different states in the US South).

A reduction in growing stock timber?

No. Total growing stock inventory in the catchment area increased 11% from 2011 through 2018, the latest available. Specifically, over this period, inventories of pine sawtimber and chip-n-saw increased 35% and 13%, respectively. However, pine pulpwood inventory decreased 11% from 2011-2018.

Note that the decrease in pine pulpwood inventory was not due to increased demand from bioenergy (or other sources) or increased harvesting above the sustainable yield capacity of the forest area – as annual growth of pine pulpwood has exceeded annual removals every year since 2011. Rather, this decrease can be linked to the 24% decline in pine sawtimber removals that occurred from 2005-2014 (due to the bursting of the US housing bubble and Great Recession that followed). In this region, timber is typically harvested via clearcut once it reaches maturity (i.e. sawtimber grade), after which the stand is reestablished, and the cycle repeated. However, with the reduced harvest levels during this period also came a reduction in newly reestablished timber stands – the source of pine pulpwood. So, with less replantings occurring during this period, inventories of pine pulpwood were not replenished to the same degree they had been previously, and therefore this catchment area saw a reduction in pine pulpwood inventory levels.

However, according to the US Forest Service, annual removals of pine sawtimber have increased 50% in the Georgia catchment area since 2014, which would suggest higher clearcut levels and increased stand reestablishment. TimberMart-South data also supports this assertion, as clearcut harvests have constituted approximately 60% of the total harvest area reported to TimberMart-South in this region since 2014, compared to 40% from 2005-2014. Ultimately, these increases in clearcut (and stand reestablishment) levels may not be reflected in increased pine pulpwood inventory levels in the short term – as it can take more than 10 years for a pine seedling to become merchantable and reach the minimum diameter requirements to be classified as pulpwood. However, adequate supply levels are expected to remain in the meantime. Furthermore, pine pulpwood inventory levels are expected to increase in the mid-to-long terms as a result of the increased harvest levels and stand reestablishment levels that have occurred in the catchment area since 2014.

A reduction in the sequestration rate of carbon?

No / Inconclusive. US Forest Service data shows the average annual growth rate of total growing stock timber has remained nearly unchanged (holding between 6.0% and 6.1%) in the catchment area since 2011, which would suggest that the sequestration rate of carbon has also changed very little in the catchment area the last 8-10 years. However, the 11% increase in total growing stock inventory since 2011 does indicate that total carbon storage levels have increased in the Georgia catchment area since Georgia Biomass commenced operations in this market.

An increase in harvesting above the sustainable yield capacity of the forest area?

No. Growth-to-removals (G:R) ratios, which compare annual timber growth to annual harvests, provides a measure of market demand relative to supply as well as a gauge of market sustainability. In 2018, the latest available, the G:R ratio for pine pulpwood, the predominant timber product utilized by the bioenergy sector, equaled 1.06 (a value greater than 1.0 indicates sustainable harvest levels). Note, however, that the pine pulpwood G:R ratio averaged 1.44 from 2012-2017. The significant drop in 2018 was due to a 31% increase in removals (due to Hurricane Michael) and is not reflective of the new norm. Specifically, pine pulpwood removals are projected to be more in line with pre-2018 levels in 2019 and 2020, and so too is the pine pulpwood G:R ratio.

Timber growing stock inventory

Neutral. According to USFS data, inventories of pine pulpwood decreased 11% in the catchment area from 2011-2018. However, that decrease was not due to increased demand from bioenergy. Typically, a reduction in inventory is linked to harvest levels above the sustainable yield capacity of the forest area, but in this case, annual growth of pine pulpwood exceeded annual removals every year during this period.

Ultimately, the decrease in pine pulpwood inventory from 2011-2018 can be linked to decreased pine sawtimber production beginning in the mid-2000s. Specifically, annual removals of pine sawtimber decreased 24% from 2005-2014, and the reduction in harvest levels during this period meant fewer new pine stands were reestablished, and that has led to the current reduction in pine pulpwood inventory. (Note that the decrease in pine sawtimber removals from 2005-2014 was mirrored by a 27% increase in pine sawtimber inventory over this same period). However, USFS data shows that annual removals of pine sawtimber have increased 50% in the Georgia catchment area since 2014, which suggests that pine pulpwood inventory levels will start to increase in the catchment area due to increased harvest levels and the subsequent increase in stand reestablishment levels.

Timber growth rates

Neutral. Timber growth rates have increased for both pine sawtimber and pine chip-n-saw but decreased slightly for pine pulpwood in the catchment area since 2011. Evidence suggests that this decrease in pine pulpwood growth rate is not due to increases in bioenergy demand, but rather linked to changes in diameter class distribution and indicative of a forest in a state of transition, where timber is moving up in product class (i.e. pine pulpwood is moving up in classification to pine chip-n-saw).

Forest area

Neutral. In the Georgia catchment area, total forest area (timberland) decreased more than 115,000 hectares (-2.8%) from 2011 through 2018. Note that this decrease coincided with a roughly 19,000-hectare increase in cropland and 93,000-hectare increase in urban land and land classified as having other uses.

Specifically, pine timberland, the primary source of roundwood utilized by the bioenergy industry, decreased over 34,000 hectares from 2011-2016. However, from 2016-2018, pine timberland stabilized and rather increased more than 17,000 hectares in the catchment area (or a net decrease of roughly 17,000 hectares from 2011-2018). Ultimately, there is little evidence that the decrease in pine timberland from 2011-2016 or increase since 2016 is linked to increased bioenergy demand. Rather, the overall decrease in pine timberland since 2011 appears to be more closely linked to the relative weakness of pine sawtimber markets in the Georgia catchment area and the lack of return from sawtimber.

Wood prices

Positive / Negative. Intuitively, an increase in demand should result in an increase in price, and this is what the data shows in the Georgia catchment area as it relates to increased biomass demand from Georgia Biomass and Fram and the prices of the various raw materials consumed by these mills. Specifically, the 1.4-million metric ton increase in softwood pulpwood demand attributed to Georgia Biomass and Fram coincided with a 20% increase in delivered pine pulpwood price and a 10-15% increase in pine chip prices from 2011-2015. Since 2015, biomass demand has held relatively steady, and, overall, so too have delivered pine pulpwood and pine chip prices. The apparent link between increased bioenergy demand and increased pine raw material prices is supported further by statistical analysis, as strong positive correlations were found between softwood biomass demand and both delivered pine pulpwood and pine chip prices. However, note that biomass demand alone is not responsible for these changes in prices, as softwood biomass demand accounts for only 10-15% of total softwood pulpwood demand in the catchment area. Rather, the prices of these raw materials are impacted to a larger degree by demand from other sources (i.e. pulp/paper), which accounts for 85-90% of total softwood pulpwood demand in the Georgia catchment area.

On the other hand, it’s also important to note that the increase in bioenergy-related wood demand has been a positive for forest landowners in the Georgia catchment area. Not only has bioenergy provided an additional outlet for pulpwood in this market, but the increase in pulpwood prices as a result of increased pulpwood demand has transferred through to landowners (improved compensation). Specifically, since 2015, pine pulpwood (PPW) stumpage price – the price paid to landowners – has averaged more than $17 per ton in the Georgia catchment area. This represents a 70% increase over the approximately $10 per ton averaged by PPW stumpage in the catchment area over the last five years prior to Georgia Biomass’ startup in 2Q 2011.

(Note: Pine pulpwood stumpage prices are notably higher in the Georgia catchment area due to a much tighter balance in supply and demand (in comparison to most other markets across the US South). For instance, in all other areas across the US South2, PPW stumpage prices have averaged less than $9 per ton since 2015, or roughly half that of prices in the Georgia catchment area).

Markets for solid wood products

Positive. In the Georgia catchment area, demand for softwood sawlogs used to produce lumber and other solid wood products increased an estimated 39% from 2011-2019, and by-products of the sawmilling process are sawmill residuals – materials utilized by Georgia Biomass and the Fram mills to produce wood pellets. With the increased production of softwood lumber, so too has come an increase in sawmill residuals, some of which have been purchased/consumed by Georgia Biomass and Fram. Not only have these pellet producers benefited from the greater availability of this by-product, but lumber producers have also benefited, as the Georgia Biomass and Fram mills have provided an additional outlet for these producers and their by-products.

Read the full report: Georgia Biomass Catchment Area Analysis.

This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. Others in the series include: Chesapeake, Estonia, Latvia and Drax’s own, other three mills LaSalle Bionergy, Morehouse Bioenergy and Amite Bioenergy.

LaSalle catchment area analysis

16 July 2020

Sustainable bioenergy

The wood supply catchment area for Drax’s LaSalle BioEnergy biomass pellet plant in mid-Louisiana is dominated by larger scale private forest owners that actively manage and invest in their forest for saw-timber production. Eighty-three per cent (83%) of the forest is in private ownership and 60% of this area is in corporate ownership.

The Drax Biomass pellet mill uses just 3.2% of the roundwood in the market and therefore has limited impact or influence on the overall trends. By contrast, the pulp and paper industry consumes 74% of the total pulpwood demand as the most dominant market for low grade fibre.

Forest in LaSalle catchment area

The catchment area has seen an increase in total timberland area of 71 thousand hectares (ha) since 2008, this is primarily due to planting of previously non-stocked land. Hardwood areas have remained stable but planted pine has increased, replacing some of the naturally regenerated mixed species areas. The data below shows that deforestation or conversion from pure hardwood to pine is not occurring.

Timberland area by management type

The overall quantity of stored carbon, or the inventory of the standing wood in the forest, has increased by 7% or 32.6 million metric tonnes since 2008. This total is made up of a 49 million tonne increase in the quantity of pine and a 16 million tonne decline in the quantity of hardwood. Since the area of pure hardwood forest has remained stable, this decline is likely to be due to the conversion of mixed stands to pure pine in order to increase saw-timber production and to provide a better return on investment for corporate owners.

Historic area and timberland inventory

Forest in LaSalle catchment area

The growth-to-drain ratio and the surplus of unharvested pine growth has been increasing year-on-year from two million tonnes in 2008 to over five million tonnes in 2016.

This suggests that the LaSalle BioEnergy plant (which almost exclusively utilises pine feedstocks) has not had a negative impact on the growth-to-drain ratio and the surplus of available biomass.

The latest data (2016) indicates that the ratio for pine pulpwood is 1.54 and for pine saw-timber 1.24 and that this has been increasing each year for both categories.

Historic growth and removals by species

Stumpage prices for all product categories declined between 2010 and 2011. This was followed by a peak around 2015-16 with the recovery in demand post-recession and prices then stabilised from 2016 to 2019. The data indicates that there has been no adverse impact to pine pulpwood prices as a result of biomass demand. In fact, pine pulpwood prices are now nearly 20% lower than in 2014 as shown on the chart below.

LaSalle BioEnergy market historic stumpage prices, USD$:tonne

The character of the pine timberland is one of a maturing resource, increasing in the average size of each tree. The chart below chart shows a significant increase in the quantity of timber in the mid-range size classes, indicating a build-up of future resources for harvesting for both thinning and final felling for sawtimber production.

With balanced market demand, the supply of fibre in this catchment area should remain plentiful and sustainable in the medium term.

Historic pine inventory by DBH (diameter at breast height) class

Forisk summary of the impact of LaSalle BioEnergy on key trends and metrics in this catchment area

Is there any evidence that bioenergy demand has caused …

Deforestation

Change in forest management practices

Diversion from other markets

Possibly. Bioenergy plants compete with pulp/paper and oriented strand board (OSB) mills for pulpwood and residual feedstocks. There is no evidence that these facilities reduced production as a result of bioenergy markets, however.

Increase in wood prices

No. There is no evidence that bioenergy demand increased stumpage prices in the market.

Reduction in growing stock of timber

Reduction in sequestration of carbon / growth rate

Increase in harvesting above the sustainable yield

The impact of bioenergy on forest markets in the LaSalle catchment is …

Growing stock

Neutral

Growth rates

Neutral

Forest area

Neutral

Wood prices

Neutral

Markets for solid wood

Neutral to Positive. Access to viable residual markets benefits users of solid wood (i.e. lumber producers).

Forest in LaSalle catchment area

Read the full report: LaSalle, Louisiana Catchment Area Analysis. Read how a $15m rail link from LaSalle BioEnergy to the Port of Greater Baton Rouge helps Drax reduce supply chain emissions and biomass costs here. Take a 360 immersive experience and video tour of LaSalle BioEnergy.

This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. Others in the series include: Georgia Mill, Chesapeake, Estonia, Latvia and Drax’s own, other two mills Morehouse Bioenergy and Amite Bioenergy.

Latvia catchment area analysis

19 June 2020

Sustainable bioenergy

Panorama view of Latvian forest and road from above

Latvia is a heavily forested small country (about half the size of England), with 52% forest cover totalling 3.54 million ha (2.7 times bigger than the forest area in England and 11% bigger than the entire UK).

In its catchment area analysis report of the Baltic country, consultancy Indufor found:

Best management practice is driven by the State-owned sector with an increasing proportion of corporate owners improving management standards in the private sector
Markets are dominated by domestic saw-timber demand and pulpwood exports to neighbouring Scandinavia
Fuelwood, pellets and biomass are substantial and critical markets for low-grade fibre

Increasing forest area, carbon stored and no deforestation

There has been an increase of around 400,000 hectares (ha) of forest in Latvia since 2000. This is due to natural afforestation of abandoned agricultural lands and also to an improvement in forest inventory analysis in 2009 which provided a more accurate assessment of land use and forestry data. Since 2010, the forest area has increased by 55,000 ha. There is no evidence of deforestation.

Primary land use Latvia

There has also been a substantial increase in forest carbon or growing stock. This increased by 106 million cubic metres (m³) since 2000 (75% hardwood) and by 33 million m³ since 2010 (57% hardwood).

Increase in forest carbon

Limited hardwood markets

A proportion of the increase in hardwood volume in 2009 was due to the improvement of forest inventory calculations but also due to increased natural regeneration on unutilised land. The hardwood forest in Latvia and the Baltic region is quite different to that of the US South. In the Baltics there is prolific hardwood regeneration (birch, alder and aspen) which grows quite rapidly.

There are limited markets for structural timber, therefore hardwoods produce a lot of low-grade wood fibre. There are no domestic pulp markets in Latvia and only limited markets for panel board. Therefore, much of the low-grade wood fibre can only be used for firewood and biomass. The chart below shows a minor change in species composition from planted pine to naturally regenerated spruce and aspen – the most prolific regenerators in this region.

Varied species mix

Planting and regeneration

State owned forests have a higher proportion of planted forest areas compared to the private sector where natural regeneration is preferred due to lower costs. Planting allows the owner to control the species mix, quality and growth. Whereas regeneration can be more of a lottery for both quality and species mix. As more corporate owners emerge, planting with improved stock may increase.

Restocking practice by ownership category

How the financial crisis impacted Latvian forests

Harvesting levels have been consistently below net annual increment since 2000. There have been some fluctuations in the annual allowable cut in State forests, particularly following the global financial crisis in 2008.

Harvesting in the private sector declined due to falling prices and sawnwood production dropped by 42% in 2009 compared to 2006. During that period, State-owned forest increased harvesting in order to support the industry in the absence of strong markets and private sector supply.

Post-recession, the harvesting balance returned and demand for wood products increased. The current surplus of growth compared to removals is around 5.5 million m³ p.a. or a growth drain ratio of 1.6.

Surplus of growth compared to removals

Biomass and pulp prices

Increasing wood pellet exports have had limited impact on wood prices. The feedstock for this market (fuelwood & forest chip) has limited competition and therefore remains fairly stable.

Pulpwood markets are driven by export demand to Scandinavia and can be volatile as this market fluctuates. 2018 saw a substantial spike in pulpwood prices due to increased export demand as a response to a global increase in pulp and paper prices boosting Scandinavian production. This had a minor knock on effect on the domestic fuelwood markets.

Variation of low-grade wood prices with changing demand

An important part of this analysis is to look for evidence to evaluate Drax’s performance against its new forest commitments, some of which relate directly to these trends and data sets.

Pine forest in Latvia

Below, the consultant summarises the evidence of biomass impacts against key metrics in the forest industry of Latvia.

Is there any evidence that wood-based bioenergy demand has caused changes in …

Forest area / forest cover

No impact. Both forest area and forest cover have increased during the last two decades. The main driver of the growing forest area has been the natural regeneration of agricultural lands that were left uncultivated during the Soviet regime.

Forest growing stock

No impact. Forest growing stock has steadily increased throughout the observation period.

The main driver for harvesting level is the roundwood demand from sawmills, panel mills and export. Wood-based bioenergy demand may increase thinnings and residue collection, but it is not as significant a driver for total harvests as the aforementioned. Exported pellets have accounted for approximately 10-14% of the total volume of annual harvests in recent years, depending on the assumed average dry densities of the harvested wood and pellets.

Harvesting levels

No impact / slight increasing impact. The national felling volume is only about 65% of the national forest increment. The total harvesting area has been declining, while the total harvested volume has increased in the past 20 years. This can be explained by the diminished share of thinnings and increased share of clear-cuts. A decline in both area and volume of fellings can be seen between 2002–2008 and 2010–2016.

The main drivers of harvesting levels are sawmill industry, panel industry and export demand. However, wood demand for energy purposes can still improve the overall income for the forest owner and therefore increase the total harvesting levels in private forests

Harvesting residue collection

Increasing impact. Most of the collected residues originate from clear-cuts in state forests. Most produced harvesting residues are left in situ, and they are not over-exploited.

Collection of wood residues from harvesting operations has been increasing for the last 15 years as a result of increased capacities and demand from heat and CHP plants. Latvia is increasingly relying on woody biomass for energy generation.

Forest growth / carbon sequestration potential

No apparent impact. The total forest area and growing stock have grown in the last decade.

According to Latvia’s National Forestry Accounting Plan 2021–2025, the forests are decreasing their GHG sequestration capacity. Even a low sequestration rate increases carbon storage, which explains the increases in forest growing stock and area. The decrease in GHG sequestration capacity is due to forest ageing, emissions from soils and the increased share of broadleaved forests, which have lower carbon accumulation capacity than conifers.

Removal of harvesting residues decreases carbon sequestration since the residues are an input to the soil carbon pool. However, the majority of the harvesting residues’ carbon is released to the atmosphere when the biomass decays, so the ultimate impact of harvesting residue collection is minimal if the collection is done on a sustainable level. The sustainability of the collection is determined by how the soil nutrient balance is impacted by collection. This is not accounting for the substitution effect that the harvesting residues may have, by, e.g. reducing the need to burn fossil fuels.

Is there any evidence that wood-based bioenergy demand has caused changes to forest management practices …

Rotation lengths

No impact. The Law on Forests regulates minimum forest age and diameter for clear-cuts. The LVM and large-scale forest owners often conduct clear-cuts at minimum diameter, whereas smallholders tend to wait until roundwood prices are high. Due to the regulation, an increase of wood-based bioenergy demand has not shortened rotations.

Thinnings

Increasing impact in naturally afforested former agricultural lands. No impacts on thinnings overall. The total harvested area has been declining, while the total harvested volume has increased in the past 20 years. This can be explained by the diminished share of thinnings, due to existing forest age structure, and increased share of clear-cuts. Most of the harvesting residues are collected from clear-cuts.

There is an increased demand for small diameter wood and harvesting/processing residues overall.

The increased demand for small-diameter hardwood has increased harvesting in previously unmanaged afforested agricultural lands, which usually overgrow with broadleaved trees. These kinds of lands are usually otherwise not significant for forest management.

Conversion from hardwood to softwood

No impact. No indication of hardwood conversion to softwood was found. Instead, pine forests are decreasing due to the favouring of natural regeneration, which usually results in spruce or broadleaved forests in nutrient-rich and/or wet soils.

Is there any evidence that wood-based bioenergy demand has impacted solid wood products markets …

Diversion from other wood product markets

No apparent impact. Production of sawnwood and wood-based panels have increased or remained steady, i.e. no evidence of diversion.

Several interviews confirmed that sawlogs are not processed for other products besides sawnwood and wood-based panels.

Wood prices

No apparent impact. Prices of all wood assortments increased in 2017–2018, most notably the prices of pulpwood. This was due to difficult harvesting conditions and increased demand for pulpwood in Finland and Sweden, because of high market pulp prices. Pulpwood prices returned to pre-surge levels in 2019. Fuelwood prices also increased temporarily, but at a much more moderate rate. The main driver for fuelwood price increases was the surge of pulpwood prices.

Read the full report Catchment Area Analysis in Latvia. A 2017 interview with Raul Kirjanen, CEO of Graanul Invest, a wood pellet supplier of Drax operating in Latvia, can be read here. Read how Drax and Graanul work with NGOs when concerns are raised within our supply chain here.

This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. Others in the series include: Georgia Mill, Chesapeake, Estonia, Morehouse Bioenergy and Amite Bioenergy.

Changing forest structure in Virginia and North Carolina

21 May 2020

Sustainable bioenergy

Photos: Roanoke Rapids area near the North Carolina, Virginia border, courtesy of Enviva.

Forest owners have responded to the recovery in pine saw-timber markets, since the global financial crisis of 2008, by planting more forest and investing more in the management of their land. The same period has witnessed increased demand from the biomass sector which has replaced declining need for wood from pulp and paper markets.

The area of timberland (actively managed productive forest) has increase by around 89,000 hectares (ha) since 2010. This change is due to three important factors: new planting on agricultural land; the planting of low-grade self-seeded areas with more productive improved pine; and the re-classification by the US Forest Service (USFS) of some areas of naturally regenerated pine from woodland to timberland.

The 2018 data shows that pine forest makes up 46% of the timberland area, of which 61% is planted and the remainder naturally regenerated. Hardwoods cover 43% of the timberland area, with 93% of this naturally regenerated. The remaining area is mixed stands.

Composition of timberland area

Since 2000 there have been some significant changes in the composition of the timberland area with a transition from hardwood to softwood. Pine has increased from 39% of the total area in 2000 to 46% in 2018 and hardwood has decreased from 50% to 43% over the same period.

All pine areas have increased since 2000 with naturally regenerated pine increasing by 13,000 ha and planted pine by 340,000 ha since 2000. Mixed stands have declined by 6,500 ha as some of these sites have been replanted with improved pine to increase growth and saw-timber production.

The biggest change has been in the hardwood areas where there has been a decline of around 314,000 ha, despite the total area of timberland increasing by 31,000 ha.

Change in forest type

This change has been driven by private forest owners (representing 91% of the total timberland area), seeking to gain a better return on investment from their forest land.

Hardwood markets have declined since the 2008 recession and demand for hardwood saw-timber has not recovered. Demand for pine saw-timber has rebounded and is now as strong as pre-crisis.

Pine also offers much faster growth rates and higher total volumes in a much shorter time frame (typically 25-35 years compared to 75-80 years for hardwoods).

The decision to change species is similar to a farmer changing their agricultural crops based on market demand and prices for each product. Where forests are managed for revenue generation then it is reasonable to optimise the land and crop for this objective. This can be a significant positive, from a carbon perspective more carbon is sequestered in a shorter time frame and more carbon is stored in long term wood products, if the quantity if saw-timber is increased.

Increased revenue generation also helps to maintain the forest area (rather than conversion to urban development, agriculture or other uses).

A potential negative is the change in habitat from a pure hardwood stand to a pure pine stand, each providing a different ecosystem and supporting a different range of flora and fauna. There is no conclusive evidence that one forest type is better or worse than the other; there is a great deal of variety of each type.

Some hardwood forests are rich in species and biodiversity, others can be unremarkable. The key is not to endanger or risk losing any species or sensitive habitat and to ensure that any conversion only occurs where there is no loss of biodiversity and no negative impact to the ecosystem.

It is not clear whether all of the lost hardwood stands have been directly converted to pine forests, some hardwood stands may have been lost to other land uses (urban and other land has increased by 400,000 ha). Some may have been directly converted to pine by forest owners encouraged by the increase in pine saw-timber demand and prices.

Whatever the primary driver of this change it is clearly not being driven by the biomass sector.

Change in forest type – timing

The chart above demonstrates that the biggest change, loss of hardwood and increase in planted pine, occurred between 2000 and 2012, prior to the operation of the pellet mills. Since 2012, there has been no significant loss of natural hardwood and only a small decline in planted hardwood.

Read the full report: Catchment Area Analysis of Forest Management and Market Trends: Enviva Pellets Ahoskie, Enviva Pellets Northampton, Enviva Pellets Southampton (UK metric version). Explore Enviva’s supply chain via Track & Trace. This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. The series includes: Estonia, Morehouse Bioenergy, Amite Bioenergy, and the Drax forestry team’s review of the Chesapeake report on Enviva’s area of operations.

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Forest Area

Volume and Growth

Wood Prices

Biomass demand

Forest Management

The impact of biomass and wood pellet demand on the key metrics in this catchment area are considered below. This is a summary of Hood Consulting’s view on the trends and impacts in the Cottondale catchment area.

Is there any evidence that bioenergy demand has caused the following:

Read the full report: Enviva Cottondale pellet plant catchment area analysis.

This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. Others in the series can be found here.

This announcement contains inside information

Highlights

The world’s leading sustainable biomass generation and supply business

Commenting on today’s announcement Will Gardiner, Chief Executive Officer of Drax, said:

Duncan Davies, Chief Executive Officer of Pinnacle, said:

Drax’s sustainable biomass strategy

A major producer and supplier of good-quality, low-cost sustainable biomass

A large and geographically diversified asset base

Long-term biomass revenues with access to Asian and European markets

Global growth opportunities for sustainable biomass

Strong return on investment

Financing the Acquisition

Management of foreign exchange exposure

Sustainable sourcing

Operational efficiencies, improvements and savings

Portfolio optimisation

Logistics optimisation

Enhanced security of supply

Combined expertise

Stronger counterparty credit

Reduced cost of debt

Corporate cost savings

Shareholder approvals

Other

Enquiries:

Media:

Royal Bank of Canada (Financial Adviser and Joint Corporate Broker):

Acquisition presentation meeting and webcast arrangements

Important notice

Appendix 1

Pinnacle Production Capacity

Capacity by fibre basket in 2021

Capacity by fibre basket in 2022

Appendix 2

Principal terms of the Acquisition Agreement

Parties and consideration

Conditions

Non-solicitation

Termination fees payable to Pinnacle

Termination fees payable to Drax

A positive response to natural disasters

Utilising forest residues

Primarily State owned managed forests

Managing beetle damaged areas

Future increases in forest growth rates

Wood price trends

Read the full report: Catchment Area Analysis: Pinnacle Renewable Energy’s Burns Lake & Houston Mills.

This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. Others in the series can be found here.

Increasing forest growing stock and carbon sequestration

Stable forest area

Increasing demand and surplus forest growth

Wood price trends

Hood Consulting summary of the impact of the seven pellet plants on key trends and metrics in this catchment area.

Is there any evidence that bioenergy demand has caused the following…

Read the full report: Georgia Biomass Catchment Area Analysis.

This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. Others in the series include: Chesapeake, Estonia, Latvia and Drax’s own, other three mills LaSalle Bionergy, Morehouse Bioenergy and Amite Bioenergy.

Forisk summary of the impact of LaSalle BioEnergy on key trends and metrics in this catchment area

Is there any evidence that bioenergy demand has caused …

The impact of bioenergy on forest markets in the LaSalle catchment is …

Read the full report: LaSalle, Louisiana Catchment Area Analysis. Read how a $15m rail link from LaSalle BioEnergy to the Port of Greater Baton Rouge helps Drax reduce supply chain emissions and biomass costs here. Take a 360 immersive experience and video tour of LaSalle BioEnergy.

This is part of a series of catchment area analyses around the forest biomass pellet plants supplying Drax Power Station with renewable fuel. Others in the series include: Georgia Mill, Chesapeake, Estonia, Latvia and Drax’s own, other two mills Morehouse Bioenergy and Amite Bioenergy.

In its catchment area analysis report of the Baltic country, consultancy Indufor found:

Increasing forest area, carbon stored and no deforestation

Limited hardwood markets

Planting and regeneration

How the financial crisis impacted Latvian forests

Biomass and pulp prices

Is there any evidence that wood-based bioenergy demand has caused changes in …