Invest in Canada - BIOMASS COGENERATION
CANADIAN PAPER PRODUCTS SECTOR
RECENT INVESTMENTS IN CANADA
- GENCO Distribution System from Pennsylvania announced a greenfield establishment in Ontario in 2008, which will create 100 jobs.
- In 2008, Chinese company Wuhan Liren and DaoPower Canada (formerly Canadian Windfields Solar and Renewable Energy Corporation) announced a partnership to build and operate a demonstration plant that will use biomass power-generation systems.
MAJOR GLOBAL INVESTORS IN CANADA
- Mercer International
- Stora Enso
- Weyerhaeuser
LEADING CANADIAN COMPANIES
- AbitibiBowater
- Canfor
- Cascades
- Catalyst
- Domtar
- Fraser Papers
- JD Irving
- Kruger
- Tembec
Biomass Cogeneration
Canada has a large, well-developed forest sector and is one of the world’s largest exporters. The forest industry exported $41.9 billion* in paper, pulp, lumber, board and other forest products in 2005, 80 percent to the United States. The production of woody biomass is commensurate with production of forest goods.
Canada has the world’s third-largest forest areas; some 44 percent of the land area is forested and 92 percent of Canadian fibre (trees) is publicly owned.
In the wood and paper products sector, Canada recently ranked as one of the top five global locations in attracting foreign investment projects. The sources of these new investment projects include countries such as Finland, Germany, Sweden, China, the United States and Hong Kong.
The pulp and paper sector is the largest industrial source of biomass cogeneration, accounting for 88 percent. This sector is able to meet 60 percent of its own energy demands through biomass cogeneration.
Key Capabilities
Investing in renewable energy: In 2007, the Government of Canada unveiled the ecoEnergy Renewable Initiative, paying one cent per kilowatt-hour for up to 10 years to eligible low-impact, renewable electricity projects constructed before March 31, 2011. Twelve biomass cogeneration projects are currently under way across six provinces.
Leadership in sustainable forest management and renewable energy: Members of the Forest Products Association of Canada (FPAC) are committed to becoming carbon-neutral along the supply chain by 2015, without the purchase of carbon offset credits. FPAC also aims to be entirely energy self-sufficient and even a net exporter of energy during the same period. Increased adoption of biomass use and development of new technologies are part of the strategy to achieve these goals.
Leveraging biomass resources: With 417 million hectares of forestland in Canada, there is a large amount of biomass resources on hand. Potential sources of forest biomass include residues from harvest, silviculture activity, natural disturbances, non-merchantable wood and unmarketable pulp chips.
Joint ventures with pulp and paper mills present excellent opportunities for partners, as the steam can be used in the manufacturing processes. In addition, pulp and paper mills have the existing infrastructure that can be leveraged profitably.
In the wood and paper products sector, Canada recently ranked as one of the top five global locations in attracting foreign investment projects.
Unless otherwise noted all values are in Canadian dollars.
KEY CANADIAN CLUSTERS
British Columbia
British Columbia is the largest bioenergy-producing region in North America, with capacity of 4,300 GWh/yr, and last year became the first province in Canada to announce a bioenergy strategy. The province’s pulp and paper sector is composed of 20 mills and currently employs 15,200 people in pulp and paper manufacturing. British Columbia aims to reduce its electricity impact by setting a goal to become energy self-sufficient, with 90 percent of its power to come from clean sources. Prince George recently experienced significant growth thanks to the Canadian Forest Products Limited (Canfor) development, which saw the installation of a 50 MW turbine in 2005. Kamloops also experienced a similar benefit when Domtar installed a 32 MW turbine in 2004. Primary research for the sector is mainly conducted by FPInnovations.
Alberta
The forestry industry in Alberta contributes significantly to the economy as an employer and purchaser. The industry exported more than $2.2 billion in products in 2008 and employed some 4,100 people in pulp and paper manufacturing.
The forestry industry in Northwestern Grande Prairie-Grande Cache area employs 5,100 people and contributed $400 million to the local economy in 2007. The region accounts for 40 percent of the total pulp produced in Alberta, 64 percent of the panel board and half of the lumber. The Grande Prairie region also has some of the most competitive mills in the country, paired with an innovative culture that strives to be low cost, environmentally conscious and efficient. Complementing the forest product producers is Canfor which, in partnership with Canadian Hydro Power Developers, is supplying products like bark to use in the generation of power in a 25 MW plant on Canfor’s property called the Grande Prairie Eco-Power Centre. This is an investment in green power and better air quality.
Saskatchewan
More than 50 percent of the province of Saskatchewan is forested. In 2007, real GDP in the forestry sector totalled $313.9 million: $71.7 million from the primary sector and $242.2 million from secondary activities. Direct employment in the forestry sector totalled 2,400 in 2007. Within Saskatchewan, Meadow Lake Mechanical Pulp operates a state-of-the-art BCTMP (bleached-chemi-thermal-mechanical pulp) mill as the world’s first successful zero-liquid effluent market pulp mill.
Saskatchewan is home to a number of research companies that meet the needs of the wood and paper products industry. The Saskatchewan Research Council has state-of-the-art facilities in its Biofuels Test Centre, which offers a full suite of tests for ethanol and biodiesel producers throughout North America, and offers many related capabilities and services.
Ontario
With over 68 million acres of forested land and a long-established forestry industry, Ontario offers great opportunities for biomass cogeneration. Allowing for volumes now committed to the forestry industry, forest biomass has the potential to supply about seven percent of the province’s electrical energy. Ontario’s Ministry of Natural Resources is exploring the potential for electricity generation from forest biomass, promoting innovative technologies and developing a policy framework that encourages companies and communities to engage in business ventures. The Standard Offer Program currently pays 11.08 cents/kWh for biomass energy projects. Three projects with a combined capacity of 48 MW are currently registered in the province under the ecoENERGY program.
Thunder Bay has encouraged some of the most prominent biomass cogeneration projects because of the natural cluster of pulp and paper mills in the region. Delta Energy Co. Ltd. will complete its biomass cogeneration project in order to supply 10 MW in Atikokan. Newsprint giant AbitibiBowater also owns part of a soon-to-be- completed project in Fort Frances, which is expected to generate 33.7 MW.
Lakehead University, the Centre for Northern Forest Ecosystem Research (CNFER), the Molecular Medicine Research Centre, and Confederation College are researching biomass combustion trials. Sault Ste. Marie is another hub for R&D, concentrating on biomass energy crop test plantations.
Quebec
A variety of industries related to wood are found in Quebec, such as pulp and paper, printing and publishing, furniture and construction lumber industries. In total, Quebec accounts for 27 percent of direct Canadian forest industry jobs. Quebec is home to many major players in the pulp and paper industry, such as AbitibiBowater, Domtar, Kruger and Norampac. Thanks to FPInnovations and the provincial program to allocate biomass for fossil fuel replacement, Quebec boasts research infrastructures that are the envy of many leading paper producers.
AbitibiBowater recently engaged in a 24 MW biomass cogeneration project in Gatineau, to feed the paper-making process at the company’s paper mill. It has been in commercial operation since April 2006.
New Brunswick
Leading edge, value-added use of New Brunswick’s extensive forest biomass is standard procedure for the province’s innovative forestry sector. In addition to traditional wood and paper products, the sector uses this major resource in cogeneration applications, along with an increasing focus on emerging biorefinery opportunities.
INVESTMENT LOCATION BENCHMARKING
METHODOLOGY
This benchmarking study assesses the competitiveness of a number of Canadian clusters against competing international business locations. Based on an investor’s perspective, the research and analysis uses a representative investment project prototype (a biomass cogenerating facility that uses primarily bark, wood chips, wood pellets and sludge as inputs to generate heat and electricity—see profile on page 5) to assess criteria that corporate decision makers typically examine when evaluating location alternatives for foreign investment.
This international location benchmarking exercise was conducted by IBM-Plant Location International (IBM-PLI), a renowned global location consultancy. IBM-PLI performed objective research to assess the comparative cost and quality of doing business in various locations, simulating the approach used by investors when screening candidates for corporate investment projects. The benchmarking study examined 250 to 300 financial and qualitative location indicators in the assessment of each industry subsector.
To assess the quality of a location’s operating business environment, data were collected from a variety of sources for the different subfactors in each of the categories featured in the operating environment table (page 5). Data for the qualitative assessment were translated into comparable scorings (zero to 10) for each category and subfactor using a weighted scoreboard approach. Weights were assigned to each location category and subfactor to demonstrate their relative importance in the location selection process. These weights are specific to each industry subsector and are based on IBM-PLI’s experience in helping investors make strategic decisions when choosing locations.
A high-level financial analysis was also conducted to take into account major location- sensitive investment and operating costs and revenues for each representative project profile. Cash flow projections have been calculated and discounted over a 10-year period, incorporating anticipated inflation rates, to determine their net present value, and to assess the profitability of the project in each of the benchmarked locations.
benchmarking the comparative cost and quality of doing business in global locations
REPRESENTATIVE PROJECT PROFILE
GENERAL DESCRIPTION OF OPERATIONS
Biomass cogenerating facility that uses bark, wood chips, wood pellets and sludge (50 MW electricity capacity).
KEY PROJECT DRIVERS
- Proximity to fuel supply by-products and surplus materials from the forestry and paper sector
- Availabilty of, and proximity to, transmission and distribution systems
- Governmental policies towards green technologies
- Existing and future land uses and zoning issues
- Cost of energy
OPERATING COST ANALYSIS PROJECT REQUIREMENTS FOR FINANCIAL MODELLING
LABOUR
(HEADCOUNT = 63)
Production Operatives: 40
Supervisor/Engineers: 10
Maintenance and Technicians: 10
Management and Administration: 3
SALES
C$ 25,000,000
MACHINERY AND EQUIPMENT
C$ 65,000,000
PROPERTY
Land: 4 acres
Building: 49,000 sq. ft.
UTILITIES
Power: (Monthly Consumption) 500,000 kWh
OPERATING ENVIRONMENT
| GENERAL BUSINESS ENVIRONMENT » 5%* |
|
|---|---|
| LOCAL POTENTIAL TO RECRUIT SKILLED STAFF » 20%* |
|
| PRESENCE OF INDUSTRY/CLUSTER » 25%* |
|
| FLEXIBILITY OF LABOUR & REGULATIONS » 10%* |
|
| INFRASTRUCTURE & COMMUNICATIONS » 25%* |
|
| REAL ESTATE » 10%* |
|
| LIVING ENVIRONMENT » 5%* |
|
*Factor category weight; corresponding location factors are ranked in order of importance.
CANADA’S VALUE PROPOSITION
Canada offers tremendous opportunities for investors in the biomass sector. Canadian locations combine a solid operating environment that provides easy access to raw materials with profitability levels that are higher than any other international location evaluated.
A better return on your investment
All Canadian cities assessed in this benchmarking study provide financially attractive alternatives with higher profitability based on a cash flow analysis. The corporate income tax rate is just one advantage for Canadian locations in comparison to other international cities. Another contributing factor is that Canadian cities offer lower labour costs than most other locations.
*Unless otherwise noted, graphs represent IBM-PLI assessment scores.
A wealth of options to choose from
From a qualitative perspective, Canadian cities provide a variety of attractive options. Prince George compares well to Helsinki, Finland, a region with an established biomass sector. The Gatineau Region, Thunder Bay, Kamloops and Saint John are also strong contenders, ranking among the top 10 international cities. High accessibility to raw materials contributes to the favourable rankings of the Canadian locations.
*Unless otherwise noted, graphs represent IBM-PLI assessment scores.
Abundant access to biomass
Forestry, logging, wood, pulp and paper product manufacturers are potential sources of the raw materials needed for biomass cogeneration facilities. The number of companies classified in these categories is used as a proxy to measure the accessibility of raw materials in the region.
Benchmarked Canadian cities lie close to forested regions and offer a strong base of companies that are active in these areas. Prince George and Thunder Bay are each home to well over 200 firms related to forestry and logging. Kamloops and the Gatineau Region boast 90 or more forestry and logging companies, while Grande Prairie and Sault Ste. Marie feature 50 or more such operations.
*Unless otherwise noted, graphs represent IBM-PLI assessment scores.
A deep talent pool
The overall size of both the labour and general manufacturing worker pools, as well as the number of forestry and logging employees, paper manufacturing workers, and experienced electric power and transmission employees, are all important considerations in identifying sources of suitable employees for a biomass cogeneration operation.
Ranked first in the world for higher education, [Note 1] Canada has a record of investing in its people and welcoming international talent. As a result, Canadian locations offer a productive, motivated and proficient talent pool.
Benchmarked Canadian cities also boast an experienced workforce in forestry-related operations that can provide potential investors with the relevant skills required. Canadian regions such as Prince George and Thunder Bay can access a supply of qualified manufacturing employees, and also have a strong presence of forestry, logging and paper supply companies in the areas.
*Unless otherwise noted, graphs represent IBM-PLI assessment scores.
Markets of opportunity
According to the Forest Products Association of Canada (FPAC), the Canadian forest industry currently has over 1,700 MW of electricity-generation capacity. Canadian locations fare well in the assessment of market proximity, with many ranking in the top 10, since many have generation facilities close to potential markets for selling electricity.
*Unless otherwise noted, graphs represent IBM-PLI assessment scores. 1 IMD World Competitiveness Yearbook 2007.
Advantageous labour costs
Cost of labour is an important consideration for a biomass cogeneration facility that requires employees such as supervisors, production operatives and technicians. All Canadian locations evaluated offer competitive annual labour costs, when compared with top U.S. and European locations.
An important component of Canada’s labour cost advantage relative to countries such as the United States stems from its lower costs of providing employee benefits. Canada’s national healthcare system implies that many medical insurance costs are publicly funded rather than paid by the employer, resulting in significant savings.
** IBM-PLI calculations based on Watson Wyatt 2007/2008 & Economic Research Institute (ERI) 2008.
A conducive business environment
Thanks to its solid and dynamic economy, low corporate tax rates, generous R&D incentives, quality support from local governments and development agencies, business permitting procedures and protection of intellectual property rights Canada has fostered a business environment that allows cogeneration companies to invest and grow.
As the leader in GDP growth among G7 countries over the last decade, and with the world’s soundest banking system, [Note 2] Canada provides a stable and strong business environment that offers peace of mind for business investment. Ontario locations rank particularly well because of the province’s guaranteed feed and tariffs program for electricity produced from renewable sources. Cities such as Thunder Bay and Sault Ste. Marie benefit from this program, which is an important incentive to new cogeneration facilities.
** IBM-PLI calculations based on Watson Wyatt 2007/2008 & Economic Research Institute (ERI) 2008.
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Catalogue Number FR5-38/3-2009E-PDF
ISBN Number 978-1-100-12045-4
This publication was prepared by Invest In Canada in cooperation with IBN-PLI. The document covers a wide range of issues and is not intended to be a detailed nor an exhaustive reference. Accordingly, before relying on the material herein, readers should independently verify its accuracy, currency and relevance for their purposes and should seek appropriate professional advice. Any reference to companies or investments is for illustrative purposes only and does not constitute an endorsement of those companies or investments. Details of sources for all quoted facts and figures are available upon request. The Government of Canada does not accept any liability in relation to the contents of this work. This publication is printed on recycled paper and is available in multiple languages including French. © Her Majesty the Queen in Right of Canada, as represented by the Minister of International Trade, 2009.
Footnotes
- IMD, World Competitiveness Yearbook, 2007. (return to source paragraph)
- World Economic Forum Global Competitiveness Report 2008-2009, Octobre 2008. (return to source paragraph)
