THE STANDARDS FOR BIOMASS SUPPLY CHAIN RISK

6.1.1 RED-LINE FEEDSTOCK COST

Rationale

The feedstock procurement “red-line” cost is the feedstock cost, above which Proponent is no longer able to maintain operations, or which will cause it to breach a financial covenant or warranty. In general, the greater the difference between the red-line feedstock cost and the maximum expected cost of feedstock over time (the “Feedstock Cost Margin”), the greater the Proponent’s ability to mitigate feedstock risk, and the lower the supply chain risk.

Reporting

Reporting Requirements

  1. Proponent shall report red-line feedstock cost.
  2. Proponent shall show a validated, statistically relevant analysis which represents the expected bounds of feedstock cost over time.
  3. The difference between the red-line cost and 10% probability upper bound shall be determined.
  4. The difference between the current market price for feedstock and the maximum price payable by the Proponent shall be determined.

 Reporting Recommendations

  1. Proponent’s feedstock cost margin versus that of major competitors should be estimated.
Guidance

Guidance for Reporting Requirement 2

Monte Carlo analysis is preferred.

Guidance for Reporting Recommendation 1

The benefits of a high red-line differential are reduced if similar differentials are enjoyed by competitors. For example, pulp and paper plant operations have been known to be able to dramatically increase prices paid for feedstock in times of shortages to mitigate supply chain disruptions. If both Proponent and competitors have a high red-line differential then a price war can result in times of shortage.

Guidance Source

Roberts (2018, interview); Smith et al. (2016); Volpe (2018b)

6.2.1 FEEDSTOCK INVENTORY DAYS

Rationale

Feedstock inventory can be an effective mitigant of supply shortfall risk and temporary spot market price spikes for feedstock. In general, the quantity of on-site inventory maintained by the Proponent should be sufficient to act as a buffer against seasonal shortfalls and temporary supply disruptions. There is no standard or best-practice number of inventory days.

Reporting

Reporting Requirements

  1. Proponent shall produce a schedule showing monthly feedstock inventory quantities maintained.
  2. Inventory schedule shall be supported by an analysis detailing historical availability and price of feedstock in the case of existing supply chains.
  3. Inventory schedule shall be supported by sensitivity modelling to anticipated disruption events affecting availability and price of feedstock in the case of greenfield supply chains.

Reporting Recommendations

  1. Inventory capacity of major competitors should be known and compared to Proponent inventory capacity.
Guidance

Guidance for Reporting Requirement 1

Satellite storage yards shall count as on-site inventory if such yards are controlled by Proponent.

There is no standard or best-practice number of inventory days. The optimal number of feedstock inventory days differs by region and feedstock type, and depends on the influence of many factors impacting feedstock availability and price. These include: regional climate, regular seasonal impacts (e.g., seasonal road weight restrictions), irregular weather impacts (e.g., excessive rain or cold), supplier reliability, supply redundancy and local competition, among others.

Woody Biomass. Expert opinion on ideal inventory capacity days differs: Baylies (2017) suggests that the minimum number of days of inventory capacity should be 14 in high-availability seasons, and preferably at least 30 days in regular-availability seasons. O’Leary (2017) suggests maintaining inventory above 7 days in good seasons, and at least 30 days in wet seasons. On the other hand, Jenkins (2017) argues that the minimum inventory level should be 60 days in high- availability seasons, and six months in low-availability seasons. Rainey (2017) says that 45-60-day inventory is typically what is necessary to run a plant smoothly.

Agricultural Residues. It has been recommended that inventory management plans strive to maintain an inventory of 180 days, with an expectation that 90% of this would be viable as feedstock (Mills 2017).

Genera Energy’s biomass inventory management fundamentals are cited as an example of best- of-kind inventory management practices (Genera 2017).

Guidance for Reporting Requirement 2

At least 5 years of historical data is recommended.

Guidance for Reporting Requirement 3

Anticipated temporary disruption events that must be modeled are: regional climate, regular seasonal impacts (e.g., seasonal road weight restrictions), irregular weather impacts (e.g., excessive rain, cold or fire), expected supplier breakdowns, and pressure by existing competition. A reasonable factor for expected supplier breach of feedstock quantity commitments should be incorporated.

Guidance for Reporting Recommendation 1

The ability to maintain inventory capacity greater than that required for plant operations can represent a competitive advantage; the ability to store greater amounts of inventory than the competition can enable the Proponent to continue to receive material in time of excess capacities when spot prices are low. Supplier relations are greatly enhanced by Proponents that continue to intake feedstock in times of excess capacity when competitors issue supply quotas.

Guidance Source

Baylies (2017, interview); Friesen & Volpé (2012); Genera Energy (2017); Huhnke (2017, interview); Jenkins (2017, interview); Mills (2017, interview); Nguyen (2018, comment); O’Leary (2017, interview); Parrish (2018, interview); Rainey (2017, interview); Ralevic et al. (2010); Volpé (2016b)

6.2.2 INVENTORY DEGRADATION AND CONTAMINATION

Rationale

Feedstock degradation of on-site inventory can be a major source of supply chain risk; dry matter loss, decomposition, moisture gain, and changes to chemical composition can drive Proponent cost and render feedstock unsuitable for further processing.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. Expected feedstock changes and/or degradation during inventory including at least:
    • Moisture
    • Decomposition
    • Chemical composition
    • Temperature (in relation to ignition temperature points)
    • Dirt and other contamination from ancillary sources (e.g., blowing plastics) or the ground (Tudman & Hvisdas 2018).
  2. Optimal/maximum feedstock inventory storage time.
  3. In cases where degradation is unavoidable, the bounds shall be mapped and potential impacts modelled, addressed and limited.

 Reporting Recommendations

  1. Proponent should demonstrate understanding of industry best practices for minimizing feedstock degradation (e.g., first-in/first-out principles).
Guidance

Guidance for Reporting Requirement 1

Woody Biomass. See Volpé (2016b) for information on drying rates of different wood species under various conditions.

Guidance for Reporting Recommendation 1

To mitigate the risk of feedstock degradation, internal storage is preferred. Agricultural feedstock may be stored in covered conditions such as warehouses or plastic tube silos.

Woody Biomass. Publications that outline best practices for feedstock inventory management include Friesen & Volpé (2012) and Volpé (2016b). Where climate contains significant humidity, optimal feedstock pile management systems would not have piles stored for greater than one month. Beyond this time period, feedstock degradation begins to become salient (Friesen & Volpé 2012).

Agricultural Residue. Feedstock should not be stored for more than one year; over time Agricultural Residues become more brittle which could lead to processing issues.

Guidance Source

An et al. (2011); Blunk et al. (2003); Cook (2018, interview); Dunnett et al. (2007); Ebadian et al. (2011); Friesen & Volpé (2012); Hamelinck et al. (2005); Howes (2018, interview); Huhnke (2018, interview); Jenkins (2017, interview); Kaffka (2018, interview); Marsollek (2018, interview); Nguyen (2017, interview); O’Leary (2017, interview); Mitchell (2017, interview); Rentizelas et al. (2009a, b); Searcy (2018, interview); Sims & Venturi (2004); Spikes (2017, interview); Tudman & Hvisdas (2018, interview); Uslu et al. (2008); Volpé (2016b)

6.2.3 INVENTORY FIRE

Rationale

Inventory fire due to spontaneous combustion or arson can result in significant feedstock loss, facility shut-down and financial impact.

Reporting

Reporting Requirements

Proponent shall:

  1. Monitor internal temperature of inventory piles to ensure consistent temperatures below self- ignition levels.
  2. Not mix non-homogenous feedstocks within the same piles if risk of spontaneous ignition is determined to exist. If non-homogenous feedstocks are utilized, blending should take place before utilization.
  3. Demonstrate internal policy governing how inventory piles are made (use of stackers, dozers or loaders), size limits of piles (length, width, height) and distance around/between piles and ensure that such methods limit impact of an ignition event.
  4. Develop a fire response plan that outlines the likelihood and impact of ignition events, mitigation initiatives for such events (i.e., access to water, pile size, shape and spacing, fencing or security around piles, lightning rods) and describes the course of action in case of a combustion event.
Guidance

Guidance for Reporting Requirement 2

Spontaneous combustion risk increases in large feedstock piles containing non-homogenous material in terms of moisture content and particle size and with high pile densities (due to stacking with a dozer or loader as opposed to a stacker). Risk of spontaneous ignition differs across biomass feedstock type; for example, the risk of fire in switchgrass is higher than in corn stover (Webb 2016).

The shape of bales has an impact on the risk of fire. For example, lower density of round bales, as opposed to rectangular bales, permit more oxygen to be available to fire and after the wrap around a bale is burnt away, outer layers of round bales fell away exposing fresh material to the fire (Webb 2016). 

Reference data on the drying rates of different wood species under various conditions is available from FPInnovations (Volpé 2016b).

Guidance for Reporting Requirement 3

Feedstock inventory should be stored in smaller piles/stacks or in windrow type piles so that in case of fire, combusting elements are easily separable. This should be the case especially during the first two weeks of pile/bale storage when moisture content differences are most pronounced.

FPInnovations has developed a best-practices system for woody biomass pile management that can be used by projects to mitigate pile related risks. This system recommends that piles be stored for <1 month and when located outdoors, that they be situated parallel to prevailing wind direction.

Guidance for Reporting Requirement 4

Friesen & Volpé (2012) demonstrate that piles with a moisture content between 20-50% are at risk of combustion, with the greatest risk being presented when moisture content is between 35- 40%.

Best practices for reducing the risk of feedstock pile fires can be found in Friesen & Volpe (2012), McGill & Darr (2014) and Bessa & Block (2017).

In cases where there is a high risk of arson or vandalism or where the impact of such events is high, it is recommended that feedstock be secured. Fencing may not be sufficient to prevent arson or vandalism.

Risk of fire due to lightning can be mitigated by attracting lightning to a controlled point/lightning rod.

Woody Biomass. Risk of spontaneous combustion is mitigated when feedstock has lower moisture content. For example, dry feedstock with moisture content of 15% or lower has negligible risk of spontaneous combustion.

Guidance Source

Bessa & Block (2017); Cook (2018, interview); Friesen & Volpé (2012); Howes (2018, interview); Huhnke (2018, interview); Marsollek (2018, interview); McGill & Darr (2014); Rainey (2017, Interview); Searcy (2018, interview); Tudman & Hvisdas (2018, interview); Webb (2016); Webster (2017, interview)

6.2.4 INTAKE CONSISTENCY AND RELIABILITY OF PROPONENT

Rationale

Consistency of feedstock intake is valued by suppliers and contributes to supply chain strength. Consistency of Proponent intake should be equal to, or better than, that of competing markets for feedstock supply of equivalent quality.

Reporting

Reporting Requirements

Proponent shall demonstrate understanding of:

  1. Number of expected intake days, as well as number and duration of expected shutdowns.
  2. Ability to continue to intake feedstock during unplanned outages or breakdown.
  3. Consistency and reliability of intake versus local competitors.
Guidance

Guidance for Reporting Requirement 1

Proponent should provide advance notification to suppliers of planned outages or shutdowns. In the case of unplanned shutdown, minimum advance notification should be given to all suppliers and specified in supplier Agreements. In case of unplanned outages, monthly quantities should be prorated accordingly.

Guidance for Reporting Requirement 2

If Proponent’s ability to intake feedstock during unexpected outages is limited, outside storage or alternative markets can support supply chain consistency. Availability of “overflow” markets can limit the impact of unexpected outages on suppliers.

Guidance for Reporting Requirement 3

If the large inventory capacities of competitors enable them to be more consistent and reliable consumers of feedstock, then the Proponent is at a competitive disadvantage. If intake consistency/reliability is less than local competitors, then risk of supplier breach increases and inventory capacity should be increased.

Guidance Source

Carollo (2017, interview); De Meyer et al. (2014)

6.3.1 RECEIVING YARD EFFICIENCY

Rationale

Efficiency of receiving yard operations directly impacts supply chain strength; yard efficiency is a function of unloading wait times, hours of operation and required transport/unloading equipment. If receiving hours are atypical or inconvenient, or if unloading wait times are long due to congestion in the yard, then suppliers are more likely to breach and supply chain integrity can be compromised.

Reporting

Reporting Requirements

  1. Proponent yard operations shall be structured in a manner that minimizes yard congestion, and supplier discharge time and cost.
  2. Proponent sampling and testing methods shall be consistently applied and based on industry standards, best practices, or be at least consistent with status quo for the region.
  3. Discharge of feedstock shall not require specialized equipment by suppliers.

Reporting Recommendations

  1. Proponent should demonstrate that the following elements of yard operations are equal to, or better than, that of major competitors for feedstock:
    • Receiving hours
    • Wait times (arrival-discharge-exit)
    • Sampling and testing
    • Yard equipment
    • Protocols for dealing with rejected loads
Guidance

Guidance for Reporting Requirement 1

Discharge time for suppliers should be less than 1 hour on average. Shorter times are preferable and 20 minutes is ideal (Rob 2017). If wait times are excessive, Proponent-Supplier agreements should compensate supplier for additional wait time.

If the facility is not yet built, a computer simulation should be carried out to determine the number of trucks that can be accommodated over a given time period, expected wait times and potential congestion. The IBSAL-MC model can help address receiving yard inefficiencies. This model encapsulates all logistical costs of operations and helps reduce inefficiencies within operations, such as unloading times and costs (Ebadian et al. 2011).

Guidance for Reporting Requirement 2

See 1.2.6 for sample testing methods

 Guidance for Reporting Requirement 3

Yard should enable discharge of most common equipment used for transport. For example, if suppliers traditionally deliver feedstock in open top dry van trailers, then Proponent should not require walking floor trailers. Requiring more expensive transport or unloading equipment can increase delivery costs and decrease supply chain resilience by excluding a portion of potential suppliers.

Guidance for Reporting Recommendation 1

Proponent should provide hours of operation that are coinciding with, or more flexible than, those of competitors. Flexibility of feedstock yard receiving hours can influence the attractiveness of the Proponent to suppliers and strengthen supply chains; this is especially the case in urban areas where traffic can create problems for suppliers.

Guidance Source

De Meyer et al. (2014); Ebadian et al. (2011); Rob (2017, interview)

6.3.2 SAMPLING AND TESTING METHODS IN YARD

Rationale

It is important that sampling and testing methods accurately represent the quality of feedstock delivered by suppliers. Communication of sampling and testing procedures is necessary to ensure that suppliers understand expectations regarding feedstock quality.

Suppliers should have a direct line-of-sight between loads delivered and feedback on quality of material. Deliveries of out-of-specification material and deductions for such, if any, should be communicated promptly, and in a manner that enables suppliers to remedy issues.

Reporting

Reporting Requirements

Sampling and testing methods shall:

  1. Be the responsibility of, and be carried out by, the Proponent, not the supplier
  2. Be consistently and promptly applied
  3. Not unduly impact wait times
  4. Be communicated to suppliers
  5. Be based on industry standard practices, or be at least consistent with status quo for the region.

Reporting Recommendations

  1. Deductions for out-of-specification material should be consistent with those for alternative markets.
Guidance

Guidance for Reporting Requirement 1

See Section 1.2.6 for sample testing methods

Guidance for Reporting Requirement 2

Samples should be tested immediately after receipt. Out-of-specification feedstock should be flagged, and issues communicated promptly to suppliers. Undue delay in sample testing may result in incorrect results and controversy with suppliers.

Guidance for Reporting Requirement 4

A robust guideline that includes testing method, testing frequency and data management should be specified in internal feedstock procurement protocols and communicated with suppliers.

Guidance for Reporting Requirement 5

The feedstock quality testing procedures should follow established local practices that are accepted by suppliers.

Woody Biomass. Resources are available from FPInnovations that outline the established best practices and standards currently in operation across the industry. Quality measurement tools and optimal feedstock specifications are presented by Volpé (2014, 2013c).

Agricultural Residues. A recommended practice is to sample around 20% of bales on each load, and sample each bale multiple times (Jackson 2017).

Guidance Source

Crummett (2017, interview); Jackson (2017, interview); Rainey (2017, interview); Solomon (2019, interview); Steiner et al. (2012); Webster (2017, interview)

6.3.3 YARD AND EQUIPMENT REDUNDANCY

Rationale

A lack of redundant equipment and infrastructure in the yard increases the impact of equipment breakdown. Major replacement parts should be available on-site to minimize impact.

Reporting

Reporting Requirements

  1. Redundancy shall be built into yard equipment infrastructure to minimize disruptions from equipment breakdowns.

Reporting Recommendations

  1. The importance of each piece of yard equipment to the flow of feedstock shall be qualified and contingency plans in the event of breakdown should be specified.
Guidance

Guidance for Reporting Requirement 1

Essential equipment, such as scales and truck tippers, should be given particular focus.

Guidance for Reporting Recommendation 1

Contingency plans should include lists of equipment and spare parts to be held in inventory; lists of nearest suppliers of essential equipment and spare parts that are not held in inventory; pre- arrangements with contractors for repairs and expected timeframes for key repairs to take place.

Guidance Source

Cook (2018, interview); Marsollek (2018, interview)

6.3.4 DIRECT FEED VERSUS INDIRECT FEED

Rationale

If feedstock is unloaded directly into reactor throat (or reclaimers) then control over quality is diminished and risk of quality issues increases. Discharge of feedstock on ground and subsequent loading into reactor feed system enables visual inspections, quality testing and, if necessary, rejection of substandard feedstock.

Reporting

Reporting Requirements

  1. Feedstock shall be unloaded in designated area to allow for inspection and rejection before being utilized.

Reporting Recommendations

  1. Feedstock of different qualities should be stored in separate designated area and subsequently blended to achieve a more homogenous feed (O’Leary 2017).
  2. Hard surface yard pads such as asphalt should be used to avoid contamination of dirt, gravel, clay, or sand with feedstock.
Guidance

Guidance for Reporting Recommendation 2

Goldstein (1996) presents arguments in favour of composting operations investing in hard surface yard pads. This reasoning is applicable to all biomass pile management.

Guidance Source

Goldstein (1996); O’Leary (2017, interview)

6.3.5 SMART DEVICES IN INVENTORY MANAGEMENT

Rationale

The use of advanced technologies in feedstock yards can lower the risk of quality variances and fire.

Reporting

Reporting Recommendations

  1. Proponent’s inventory yard should incorporate smart devices that reduce risk of quality variances and fire.
Guidance

Guidance for Reporting Requirement 1

Conveyor belt sensors can identify feedstock of low quality and reject it before it enters facility; dust sensors can prevent explosions; temperature sensors can prevent spontaneous ignition in piles.

Guidance Source

Ebadian (2018, interview); Pecanins (n.d.)

6.4.1 PERSONNEL EXPERIENCE IN FEEDSTOCK PROCUREMENT AND YARD OPERATIONS

Rationale

Effective management of feedstock supply chains requires experienced professionals. At the present time, there is no accredited program for skills development or certification for biomass feedstock management or procurement. As a result, bio-economy projects may lack access to experienced personnel.

Hiring individuals with related but not directly relevant experience is a common risk factor for bio- projects. For example, a Proponent processing agricultural residue into biofuels may hire a corn ethanol procurement expert, despite the fact that issues around corn procurement are substantially different than those around agricultural residue procurement (e.g., harvest practices of suppliers and variance in feedstock quality is of lesser concern for corn). Such discrepancies in knowledge and experience can increase supply chain risk.

Reporting

Reporting Requirements

  1. Feedstock yard manager shall have relevant yard management experience with feedstock types.
  2. Feedstock procurement manager shall have relevant experience with feedstock types.
Guidance

Guidance for Reporting Requirements 1-2

Local experience is preferred.

Guidance Source

Crummett (2017, interview); Ebadian (2018, interview); Nguyen (2017, interview); Spikes (2017, interview)

6.4.2 DATA MANAGEMENT SYSTEMS AND PROCESSES

Rationale

Data management systems and processes are critical to effectively managing and optimizing biomass operations, and function to mitigate supply chain risk. A robust, centralized feedstock procurement data management system allows for control over feedstock supply at both the plant and corporate levels, and enables the development of strategies and tactics to minimize risks related to feedstock supply.

Reporting

Reporting Requirements

  1. The use of feedstock procurement software shall be incorporated into the procurement plan. Software shall allow for control over feedstock supply as well as for comprehensive data analysis.
  2. Procurement plans shall demonstrate a process by which the feedstock information flows regularly to upper management, preferably through a corporate level feedstock manager.
Guidance

Guidance for Reporting Requirement 1

Instant access to locations of feedstock, type and date of harvesting, is important to lowering feedstock supply risks. Genera’s Supply ASSURE software oversees and coordinates harvesting, aggregation, storage and transportation. A critical part of the Supply ASSURE system is industrial inventory management and control through a sophisticated data collection, monitoring and integrated software system that offers traceability of product.

Weather can have significant impacts on the quality and delivery of feedstock that is grown or stored outdoors. Understanding short and long-term weather forecasts enables better management of feedstock suppliers and quality. For example, management can communicate with suppliers to schedule grinding operations during dry days versus rainy.

Guidance for Reporting Requirement 2

Supply risk is minimized when feedstock management forecasts and Key Performance Indicators (KPIs) are set at the corporate level, and are consistently communicated to the plant. Plant level procurement and yard management should communicate feedstock-related risks directly to upper management, and be in a position to acquire necessary resources for adequate feedstock risk management.

Guidance Source

Crummett (2017, interview); O’Leary (2017, interview); Rob (2017, interview); Spikes (2017, interview); Webster (2017, interview)

6.4.3 PERSONNEL SAFETY TRAINING PROTOCOLS

Rationale

Continuous personnel training is necessary to ensure safe and efficient yard operations, and prevent supply disruptions.

Reporting

Reporting Requirements

  1. Personnel safety training protocols shall be included in the project management plan and should comply with all relevant safety standards and regulations.
Guidance

Guidance for Reporting Requirement 1

Information on personnel safety protocols can be found at the Canadian Centre for Occupational Health and Safety (CCOHS 2019).

Equipment manufacturers typically provide detailed guidance on safe operations of equipment. Many states also have safety standards in place for farm workers. For example, California’s Occupational Safety and Health Administration (OSHA) program provides resources and guidance to protect agricultural workers against heat, injury and illnesses from multiple hazards.

Recent trends in woody biomass facility accidents are described by Krigstin et al. (2018). The paper provides recommendations for inventory monitoring technology usage to address the incidents of worker safety hazards.

Guidance Source

CCOHS (2019); Krigstin et al. (2018); Rainey (2017, interview)

6.4.4 RELATIONSHIPS WITH SUPPLIERS

Rationale

Poor relationships with even a small number of suppliers can turn into a broader reputational problem, making it more difficult to procure feedstock. Such situations increase the risk of lower feedstock quality, decreased availability and inflated prices. Frequent site visits and open lines of communication with suppliers support a robust and resilient supply chain.

Suppliers are an important source of feedstock market knowledge. Suppliers can share important information about expected price changes, new market entrants and competitor behaviours. Such information can be crucial in procurement planning. Having a supplier base which regularly shares information with the feedstock procurement team can lower supply chain risk significantly.

Reporting

Reporting Requirements

  1. Proponent shall demonstrate a plan for fostering positive supplier relationships that includes at minimum:
    • Frequency of on-site visits
    • Actions in case of contract breach, out-of-specification feedstock or delivery issues.

Reporting Recommendations

  1. A procurement professional experienced in the local feedstock supply basin with developed relationships with local suppliers is an asset.
Guidance
Guidance Source

Baylies (2017, interview); Cook (2018, interview); Crummett (2017, interview); Curran (2017, interview); Hladik (2017, interview); Marsollek (2018, interview); Rainey (2017, interview); Rob (2017, interview); Webster (2017, interview)