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Rural Industries Research & Development Corporation
Integrated Tree Processing of Mallee Eucalypts A report for the RIRDC/Land & Water Australia/FWPRDC Joint Venture Agroforestry Program
by Enecon Pty Ltd
November 2001
RIRDC Publication No 01/160 RIRDC Project No OIL-3A
This study has analysed the economic potential for an integrated tree processing plant in Western Australia, taking coppiced, chipped mallee biomass as feed and producing activated carbon, renewable energy and eucalyptus oil as products. Work has been undertaken by a study team comprising personnel from Department of Conservation & Land Management; Oil Mallee Company; Enecon Pty Ltd; CSIRO Forestry & Forest Products; and Western Power Corporation.
The overall finding of the team is that the proposed ITP plant is financially viable, offering commercial returns to plant investors while based on adequate prices to justify planting, harvesting and transporting mallee trees. The work of each group may be summarised as follows: Work by CALM has focused on quantifying costs and yields for mallees planted to support a full-scale ITP plant. Chipped mallee biomass can be delivered to the factory gate for $28 - $40 per green tonne1.
This cost includes an opportunity cost to the farmers for the land planted to mallees and also harvest and transport costs. It thus reflects what is considered to be a sufficient commercial incentive to the farmers to stimulate large scale planting needed to support Integrated Tree Processing (ITP) plants.
Pricing does not include revenue from land care benefits or from carbon sequestration.
CSIRO has made granular and pelletised activated carbon from mallee wood. Results from testing by CSIRO, other laboratories, and major international dealers/buyers are very positive for use of these activated carbons in water treatment and gold recovery. Granular and pelletised carbons made from mallee have been found to perform as well as or better than high-quality commercial carbons. The results indicate that mallee carbons could be sold for $3000/tonne or more at the factory gate.
The yield of activated carbon per tonne of mallee tree varies according to the carbon products made (granules or pellets). For the mix of products investigated in this study a yield of one tonne of activated carbon per 24 tonnes of fresh mallee tree was assumed, based on CSIRO test work and leaf, twig wood fractions identified by CALM. Given that the carbon is made only from the wood fraction, the yield may also be stated as one tonne of carbon products per 10 tonnes of wood.
Work by Enecon has focused on developing the plant design in sufficient detail for capital and operating cost estimates to be completed.
For the purpose of the study a full-scale plant has been sized at 100,000 tonne per year of chipped mallee biomass. The capital cost for this plant has been estimated at A$28.4 million, based on several assumptions on mix of carbon products, site and civil costs and feed storage.
Financial analysis has been carried out based on the above capital cost and carbon selling prices. The calculated internal rate of return (IRR) is 18.8% after tax. Sensitivities to changes in a range of variables have been calculated (typically +/- 10 to 20%) and IRR varies between 8.2 and 25.7%.
However, much greater IRRs can be obtained
if the project is not 100% equity financed. The table below summarises
the financial analyses undertaken.
| Key plant parameters | |
| Feed consumed | 100,000 t/y |
| Feed composition | 40% wood, 25% bark and twig, 35% leaf, with 50% (including all the wood) going to the activated carbon plant, 50% to the oil extraction plant (including all the leaf). |
| Capital cost ±15% | $28.4 million for a plant based on a steam turbine with an air-cooled condenser |
| Annual
opex (includes feed purchase and interest
payments) |
$7.9 million |
| Annual revenues | $17.3 million |
| Feed cost, delivered to factory gate | $30/t |
| Activated carbon products | GAC
2,720 t/y @ $3000/t ex works
CAWP 1,090 t/y @ $3000/t ex works PAC 294 t/y @ $1000/t ex works |
| Eucalyptus oil produced | 1,050 t/y @ $3000/t ex works |
| Electricity produced for export | 5 MWe "green" electricity at $60/MWh, 8000 h/y |
| IRR (15 years) | 18.8% |
| NPV (12.5% discount rate for 15 years) | $7.8 million |
| Debt to equity ratio | 0 / 100% |
| Key sensitivities | |
| IRR is very sensitive to: | Debt
to equity ratio
Exchange rate Plant availability Granular activated carbon price Proportion of wood in feed Capex Opex Assumed escalation scenarios for costs and revenues |
| IRR is moderately sensitive to: | CAWP
price
Feed cost Eucalyptus oil price Electricity price |
| IRR is not very sensitive to: | Depreciation
rate
Company tax rate "Ralph report" recommendations PAC price Interest rate on borrowings |
There are several areas of the study still under discussion. They include: a) Seasonal availability of mallee feed. Long term storage of wood carries considerable capital and operating costs. Long term storage of leaves is not considered feasible This has cost implications if the leaf processing plant is to be oversized to effectively process 12 months supply of leaves in 9 months or less and would probably reduce return on investment for the oil section of the plant. OMC is investigating options to achieve all weather access for harvest and transport. b) The cost of the site could have a major impact on capital cost, depending on whether a rural site may be rezoned or an industrial site must be purchased. Civil works for water, sewerage and drainage management on the site can also potentially cost more than $1 million.
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