POLAND: US investors to develop Europe's largest biomass plantation23.04.2012, 17:56
US companies International Paper (IP) and GreenWood Resources (GWR) have inked an agreement to develop a biomass plantation in northern Poland which will be the largest of its kind in Europe. Planting is to commence shortly and first harvests are expected in four years' time.
The announcement follows a successful pilot project that was managed for IP by GWR Poland using fast growing, short rotation hybrid poplar as the biomass crop. GWR Poland will manage the project in cooperation with local landowners and farmers, leasing lands from them for the energy tree farm. The GWR-IP agreement is for 12 years and then renewable for an additional 12 years.
According to Jake Eaton, Managing Director, GreenWood Resources Europe, hybrid poplar is the ideal feedstock to provide fuel for combined heat and power stations as it is sustainable and provides a realistic economic fuel to meet Poland's renewable energy targets. Current supplies of biomass in Poland are not sufficient to support the increasing demand from industry due to EU energy policy targets while existing Polish state policy limits the amount of forest fiber than can be used for biomass.
IP's Polish operations include a paper mill in Kwidzyn (IP-K), which the company acquired from the Polish state back in 1992, shared services center in Krakow and sales and marketing unit in Warsaw. Following a large-scale modernization and expansion program, the Kwidzyn mill produces office and offset papers, coated board as well as newsprint and hardwood and softwood pulp. In 2010 IP-K's sales revenues remained at the prior year's level of PLN 2.18bn and its net earnings topped PLN 432m (vs. 448m in 2009). With approximately 1,320 employees the company invested PLN 120m over the 2009-2010 period, mainly into environmental improvements.
Under IP's ownership the Kwidzyn mill doubled its
output volume. Image: International Paper
The NYSE-listed International Paper is a global paper and packaging company with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include uncoated papers and industrial and consumer packaging, complemented by an extensive distribution system in the US. Besides a global network of pulp, paper, & packaging mills, converting and packaging plants, as well as recycling facilities, IP owns or manages approximately 325,000 acres of forestland in Brazil and has, through licenses and forest management agreements, harvesting rights on government-owned forestlands in Russia. In 2011 IP turned over USD 26bn and its net earnings topped USD 1.3bn.
GreenWood Resources Inc. is a global company with its headquarters in Portland, Oregon USA and operations in North America, South America, Europe and China. GWR is a specialized timber investment management organization that organizes investment capital from large institutional investors, oversees all aspects of the plantation from land acquisition to harvest and delivery, and manages the financial aspects of the business. GWR has close to 100 global employees and currently manages USD 340m in assets and investor commitments.
- n2b: What can you tell us about the size of the project?
Jake Eaton: The target size of the development is 10,000 ha, which is estimated to produce the 300,000 green tons of biomass per year that IP needs to replace some of their coal capacity. The project will take three-four years to fully develop, but upon completion it will be the largest dedicated biomass tree farm in Europe. Approximately 2,500 ha of four year-old trees would be harvested each year on a four-year coppice rotation [4 x 2500 = 10,000 ha; ed.].
- n2b: Do I understand correctly that IP will use the biomass to generate energy not as a raw material in pulp/paper production?
JE: The project, as defined in our long term supply agreement, will provide poplar biomass to IP-K that will be used to replace coal in existing power and steam boilers. Our agreement is for 10,000 ha of development. Expanding to produce additional biomass or pulp wood is a possibility. GWR has used this type of wood fiber for producing paper in the US and it has worked very well. One farm we have in the US produces over 100,000 dry tons of fiber annually for the pulp and paper industry.
- n2b: Has GWR set up a local unit in Poland? Some sources said hundreds of new jobs may be created…
JE: We set up GreenWood Resources Poland Sp. z o.o. last fall with an office in Kwidzyn and so far we have six employees with plans to hire four more this year. Our staffing plans call for hiring 20-25 people total over the next four years. Our preference is to hire Polish people with good English skills. The GWR Poland staff will manage the accounting and reporting for the business and oversee contracts for operations that will be done in the plantations, where local and regional workers will be hired for these contract services. I would estimate an additional 40 more for outside contract services to do planting, crop care and harvesting. This is for our activities.
- n2b: What does establishing this type of business entail? What were the key problems and challenges?
JE: The Poland opportunity actually came to us through a long relationship we have had with IP in the US. GWR was fortunate to establish the relationship with IP-K more than two years ago when we were hired to manage the IP pilot project. This helped us get our feet on the ground, learn the geography, make key contacts, and pave the way for a successful transition to the larger project. IP-K was crucial to our efforts because they provided the name recognition and assured our credibility in the local and regional community.
While GWR has a lot of experience establishing operations in foreign countries, no two countries are alike. We are always aware that blending local culture with western business practices will be the top challenge, but this awareness doesn't always translate to a smoother set up. The challenges run from the basic issues like communication and time zone differences between Poland and the US to the more complex ones like understanding the Polish tax and legal system. We have been very impressed with the quality of the work force in Poland and the excellent employees we have hired. They are highly motivated and make the operation run. We have also found terrific legal counsel in Warsaw that has helped us navigate the complex legal and taxation structures in Poland.
- n2b: Have you signed agreements with the prospective contractors?
JE: Yes we have signed agreements to lease land in Pomerania. In this case, the landowner rents us the land and GWR develops and grows the biomass. As we develop the project over the next four years, we will have many agreements with landowners in the region and the total number will depend on parcel size. Our priority is to acquire larger parcels that are greater than 20ha and that are close to other properties we are managing.
In our business model, GWR has an agreement with our capital partner to manage all aspects of producing the biomass crop including: land acquisition, plant material supply, planting, crop care, harvesting and processing the biomass and organizing its sale to the customer. We seek to contract with local farmers to provide crop care services like planting, cultivation, and harvesting. All contractor activities are administered by GWR Poland.
- n2b: Are the locals interested?
JE: The locals are interested. The biggest challenge we have had during this initial start up phase is name recognition. We are new to the area and rightly so the landowner needs to know that our investor will pay the rent and that GWR Poland will manage the land properly. Negotiations have been lengthy at times, but we are always trying to find a solution that works for both parties.
- n2b: How much land have you secured so far?
JE: We have targeted to plant 2,000 ha this spring and are on track to have the land leased. We will plant between April 15th and June 15th. We would hope to have an additional 2,000 ha leased by the end of 2012 for 2013 planting. Our target for 2013 is for 2,500 to 3,000 ha to plant.
- n2b: Isn't using so much land for energy crops a bit problematic?
JE: We have actually seen several benefits to the land from growing poplar trees when we compare this to the types of land we select for growing poplar. First of all we do not want to compete for quality agricultural land where food crops are grown. This is why we target marginal land such as pasture, and the lower quality class 5 and 6 lands. In Poland it's estimated that there is more than 2m ha of this type of land where profitable agricultural crops can't be grown, but the land is perfectly fine for growing poplar. Among the benefits we have documented is greater biological diversity by the trees creating a vertical habitat for mammals and birds, less soil erosion because we are not cultivating 100% of the surface every year and the trees block wind erosion, and improved soil fertility because we are adding organic matter to the site through annual leaf fall and root decomposition.
- n2b: Can you comment on other environmental concerns expressed by some local media?
JE: Many of these concerns are addressed in the process that we go through to obtain certification of our tree growing activities through the Forest Stewardship Council (FSC). We will follow this or an equivalent third party certification program for biomass in Poland to insure that we are producing and delivering sustainable biomass. We will not use genetically modified plant material - GMO's. The planting stock we will use was created through traditional breeding of poplar parents. We would not be able to attain certification if GMO plant material was used.
We don't irrigate the trees and the water use is similar to annual crops. We've never experienced a case where poplar used all the ground water in a location and the site was left in lower quality. We have found that poplar improves the soil quality of what were previously marginal agricultural land. Our management practices minimize chemical use. We only use mild herbicides that are approved by the certification program and rarely apply fertilizer. The biomass stores CO2 as it grows and then this CO2 is released when it is used as fuel. The net carbon balance is monitored and used in determining whether the system can be certified as sustainable from a CO2 emissions point of view.
- n2b: Many consider poplar trees to be allergenic...
JE: Regarding the allergenic qualities, we will plant poplar varieties that are both male and female. When the trees are mature the males produce pollen that can be allergenic like other plant pollens and the females produce cotton which is not allergenic, but can be bothersome. Our trees will be harvested every 3-5 years, before they reach the age where pollen and cotton are produced and therefore there should not be a concern about allergenic effects. In fact, we have never had a complaint on this issue in any of our other global operations.
- n2b: Considering Poland's ample reserves of land and workforce, several major co-fired power stations under construction, and strict forest preservation policies, do you think there is room for more biomass plantations in the country? Is GWR actively seeking further opportunities in Poland?
JE: We are very optimistic that additional dedicated biomass development will occur in Poland for all the reasons you mentioned and we'd like nothing more than to expand our operations in Poland. GWR has a good story to tell. We have done this at scale with a tree farm in North America totaling over 10,000ha and we are building a similar sized biomass tree farm in Chile. We have a strong sustainability culture in our company and will seek third party auditing of our tree farm operations, and we have unequaled expertise in our company to manage all aspects of these types of plantations.
- n2b: Since Poland is GWR's first European project, does it mean you have plans to enter other markets?
JE: Yes. GWR Europe, a subsidiary of the parent company, is actively evaluating several fast growing plantation projects across Europe. These have a multiple market strategy where some will be for dedicated biomass and others for more traditional uses of poplar like paper and solid wood products like veneer and lumber.