Techno-Economic Modeling of Biomass Pellet Routes: Feasibility in Italy

: Wood and agricultural biomass pellets boost the potential as bio-fuels toward power production in tertiary and residential sectors. The production of pellets, however, is a multi-stage process where the supply-processing phases and the overall energy input strongly depend on the characteristics of the input biomass. In this paper, we describe the key features of the market for pellets in Italy, including national production and consumption data, production costs and prices, the available energy conversion systems, and the current regulatory issues. Moreover, we outline the main technical, economic, and end-user barriers that should be addressed in order to foster the growth of Italian pellet production. Additionally, we propose a methodology to evaluate the proﬁtability of the pellet production chain, by assessing the investment and operation costs as a function of the quality of the raw biomass. The approach is applied to a real case study of a small ﬁrm producing wooden frames along with dry wood chips as the main by-product, which can be utilized subsequently for pellet production. Moreover, in order to optimize the size of the pellet production plant, further biomass was purchased from the market, including wood pruning and agricultural residues, wood chips from forestry, and uncontaminated residues of wood processing ﬁrms. A sensitivity analysis of the main technical and economic parameters (including the cost and quality of raw material, pellet market value, investment and operational costs, and plant lifetime) indicated that the biomass market price considerably a ﬀ ects the proﬁtability of pellet production plants, particularly where the biomass has a high moisture content. Therefore, a 20% increase in the price of biomass with a high moisture content leads to a 60% fall in proﬁtability index, turning it into negative one. This is due in particular to the costs of pre-treatment and drying of biomass, as well as to the lower energy content of wet biomass. As a result, the use of forestry residues with high moisture and high ash content, high costs of collection / transport, and high costs of pre-treatment and drying is not ﬁnancially competitive.


Introduction
The global warming impact, the increasing prices of fossil fuel, and the need to produce thermal and electrical energy stimulated the creation of an industry leaning toward energy production by renewable sources. Biomass is a widespread renewable source to provide energy demand in terms of electricity and heat [1][2][3][4]. The Renewable Energy Directive 2018/2001/EU (RED II) obligates the factors in decision-making regarding five pellets, each produced from a different sustainable biomass feedstock, i.e., wood, straw, switchgrass, alfalfa, and poultry litter [29]. In other research [30], Sultana et al. investigated minimum production cost and optimum plant size for pellet plants fed by agricultural biomass residue from wheat, barley, and oats. Three scenarios involving minimum, average, and maximum yields of straw were considered for developing a techno-economic model. Results showed that the total cost of pellet production is highly affected by field cost and transportation cost. To the best of our knowledge, there is a lack of studies on the effects of raw material characteristics on the investment costs of pellet production. Therefore, this research focuses on the assessment of the influence on pellet production plants in terms of the investment and operational costs of different biomass typologies and supply chains. To this end, operational indices, net present value (NPV), payback time (PBT), and profitability index (PI) are applied. In addition, the uncertainty impact of the key physical, chemical, and economic characteristics of the raw biomass on each indicator is quantified by sensitivity analysis. The target audiences of this study are potential investors interested in the pellet production sector, as well as policymakers evaluating the optimal scale of pellet plants to foster growth of the pellet production sector and biomass supply companies investigating the relationship between the quality and price of the biomass.

Legislative Framework for Biomass Pellets
Pellets are classified according to their physical and chemical properties. These properties affect the possibilities of pellet use in energy conversion technologies. For instance, a comparatively low amount of dust and ash in the pellet is an important factor for small heating systems, while larger power systems can cope with higher amounts of dust and ash. Other important parameters include durability, surface smoothness, and resistance to swelling. In Table 1, the main physical-chemical characteristics of pellets are shown, according to European Committee for Standardization (CEN) standards. In order to foster the development of the pellet market, the European Committee for Standardization (CEN) issued a set of procedures for the characterization of solid bio-fuels (EN 14961, TC335, EN 17225) and for the quality certification of the bio-fuels (EN 15234), including pellets. Table 2 outlines the regulatory quality standards set within different nations.  (2) SS 187120 [33], three groups, having L = 4D, L = 5D, and L = 6D. (3) DIN 51731 [34], five categories having L between 5 and 30 cm. (4) Pellet Fuel Institute [35], two categories (standard and premium), having ash content between 1% and 3%.
In Italy, in accordance with legislative decree 152/2006, the only kind of raw material allowed toward the production of pellets is biomass derived from mechanical processes applied within agriculture and forestry production, pruning residues, and lumber-mill by-products from raw wood.
Following requirements for the development of a voluntarily certified pellet quality certification in Italy, the Pellet Gold system, including a brand statement and quality assurance, was recently developed by AIEL (Associazione Italiana Energia dal Legno) [36]. The procedure Pellet Gold involves a series of tests, performed according to stringent quality parameters. The process to obtain and maintain a certificate of quality involves audits in companies, with sampling, testing, and process control. The fundamental assumption is that the pellet product is composed of virgin wood not contaminated with paints, additives, or other chemical adhesives. The requirements to Pellet Gold are similar to those indicated by the more stringent regulations CEN/TS 14961 [37], DIN plus, and ONORM M 7135, and they are aligned to the limits set by the Pellet Fuel Institute (PFI) [35].
On 21 July 2011, Italy adopted the European standard (EN 14961-2) to define the quality characteristics of pellets for non-industrial use. This standard was updated in 2014 (UNI EN ISO 17225:2014), which includes a series for pellets from woody biomass and another one for pellets from non-woody biomass. The standard introduces three quality classes: • Class A1, which corresponds to a higher quality, and maximum ash content of 0.7%; • Class A2, characterized by an ash content of 1.5%; • Class B, characterized by a maximum ash content of 3.5%, which can be produced either from sawdust by the cortex, destined to centralized plants of greater dimensions, for commercial or pseudo-industrial application.
Since March 2012, the certificate Pellet Gold ensures compliance with UNI EN 17225-2. Therefore, companies certified must deal with the ash content of the pellets from their product. In addition to conforming to the European Pellet Gold certification, the determination of formaldehyde content and radioactivity was supplemented as criteria for the manufacturer. Technical specifications and the classification of wood-based pellets from woody biomass, as well as those for non-industrial applications, are indicated in Table 3.  Figure 1 outlines the phases of the pellet production process. In this section, these phases are shortly discussed, in order to highlight the main technical barriers of the pellet chain and to define the costs assumed in the successive economic assessment. This phase involves the physical production of the pellet by applying mechanical pressure on the biomass through a suitable holed plate, to obtain pellets with diameters in the 2-12 mm range and heights in the 12-18 mm range. The main technical parameters of the pelletizer are as follows: canal geometry, number and speed of pressurizing drums, ratio between diameter and length of canals, and distance between drum and holed plate. The devices may use a vertical cylindrical holed drum or a plane plate.

Post-Treatments
These phases include cooling, selection of pellet size, collection, and storage in silos or sacks for subsequent sale. The cooling phase is critical for the stabilization of the product, since, during the extrusion, the pellets reach comparatively high temperatures (90-95 °C) and are typically obtained via forced exposure to air at room temperature. Pellets with a non-standard size are mechanically removed to minimize development of dust in the storage areas.

Biomass Supply
This phase includes the collection, transport, and storage of biomass to the collection point; green wood is mechanically removed, and pruning residues are air-dried.

Biomass Pre-Treatments
This phase includes the mechanical processes such as converting wood into wood chips (except when starting from sawdust), the removal of ferrous material, drying, milling, and conditioning. The wood chips are typically dried in heaters fed with conventional fuel, although sometimes the heaters use wood chips as fuel. The most common driers use rotating drums with flow of air, in which the wet biomass does not stick to the drum surfaces and over-heating is minimized. If the biomass can withstand contact with the combustion products, the simplest and cheapest system is a direct-heating drier, in which the wet biomass is in contact with hot combustion gases. Alternatively, the wet biomass can be dried using hot air. The dried biomass is further milled to obtain wood chips with average length of 3 mm and to homogenize the end product. The most common mills use rotating hammers, and the material is shifted through the machine using compressed air. Sometimes, the secondary milling is bypassed by a simple tilted-plane mechanical size selector. The pre-conditioning involves exposure of the biomass to an appropriate mix of environmental conditions (temperature, moisture, length of exposure time) to optimize its behavior in the subsequent extrusion. A common pre-conditioning process exposes the biomass to rapid heating using hot water vapor, with the effect of softening the wood chips and obtaining a partial decomposition of starch and cellulose in simpler sugars, which allow easier compacting. The short time of exposure to hot vapor minimizes significant increases in the moisture content of the biomass. Additives (such as molasses, starch, fats, oils, glues, etc.) aimed at improving biomass quality and extrusion behavior can be added to the raw feed during this phase [38,39].

Extrusion
This phase involves the physical production of the pellet by applying mechanical pressure on the biomass through a suitable holed plate, to obtain pellets with diameters in the 2-12 mm range and heights in the 12-18 mm range. The main technical parameters of the pelletizer are as follows: canal geometry, number and speed of pressurizing drums, ratio between diameter and length of canals, and distance between drum and holed plate. The devices may use a vertical cylindrical holed drum or a plane plate.

Post-Treatments
These phases include cooling, selection of pellet size, collection, and storage in silos or sacks for subsequent sale. The cooling phase is critical for the stabilization of the product, since, during the extrusion, the pellets reach comparatively high temperatures (90-95 • C) and are typically obtained via forced exposure to air at room temperature. Pellets with a non-standard size are mechanically removed to minimize development of dust in the storage areas.

Methodology for the Economic Evaluation
The economic evaluation is carried out by calculating the net present value (NPV) and profitability index (PI) of the investment. Subsequently, a sensitivity analysis is performed considering following parameters: biomass moisture content, pellet market value, cost of raw biomass, and average biomass transport distance.
The cost of investment (C Investment ) is calculated as follows: where C pell is the cost of pelletizing the plant, C dry is the cost of drying the plant, C chip is the cost of pre-treatment processes, C store is the cost of storage, C inst is the cost of plant installation, and C eng is the plant engineering cost.
The annual operation and maintenance costs (C Operation ) are calculated as follows: where C biomass is the cost of raw biomass, C transport is the cost of transport, C drying is the biomass drying cost, C electricity is the cost of electricity, C personnel is the personnel cost, and C maintenance is the maintenance cost. Details on each parameter are outlined below.
where m is the number of times of biomass feeding in the plant, P A,j is the purchase price of the j-th biomass feed (€/t), and Q B,j is the amount of the j-th biomass feed (t/year). The pellet production (Q Pellets ) is equal to where Q max is the maximum production capacity of the plant (t/hour), i U is the production load factor, H is the annual production time (hours/year). The number of production hours per year is calculated by where n shifts is the number of daily shifts (each lasting 8 h), and d working is the number of working days per month. The amount of biomass requisite to produce Q Pellets also depends on the moisture content of both the raw biomass and the final pellet, according to where m pellet is the pellet moisture content, and m j-biomass is the j-th biomass moisture content. If a portion of raw biomass is utilized to dry the remaining biomass, the biomass drying cost (C drying ) is equal to where k drying represents a dimensionless coefficient, equivalent to the additional mass of raw biomass (kg) needed to decrease the moisture content of 1 kg of biomass by one percentage point. The value of the coefficient also depends on the efficiency of the drying plant. The cost of electricity is equal to where: P electricity is the price of electricity (€/MWh), E pellet is the electricity needed during the pre-loading, conditioning, extrusion, cooling, and size selection phases of the pellet production chain (MWh/t), E chip,j is the electricity needed during the mechanical pre-treatment of the j-th raw biomass feed, and Q B,j is the mass amount of j-th raw biomass feed undergoing mechanical treatments, with the net of biomass amounts used for drying purposes.
The cost of transport is equal to where c transport is the cost of transport (€/t·km), and d j is the average transport distance of j-th raw biomass feed (km). The personnel cost is equal to where n unit/shift is the number of personns employed for each shift, n shifts is the number of daily shifts (each lasting 8 h), and c unit is the annual per-unit cost of personnel. The maintenance costs are equal to where k M is a coefficient reflecting the ordinary and extraordinary maintenance costs for plants and machinery.
The total revenues are equal to where P pellet (€/t) is the market value of pellets. The total costs (costs of goods sold + overheads and interests) are equal to Costs total = C I−year + C Operation Q pellets (€/t·year), where C I-year is the annual financial charge, equal to where r is the annual real discount rate, and n is the lifetime of the plant (year). The NPV (net present value) of the investment is where CF i is the cash flow generated at the i-th year, and it is equal to The profitability index (PI) is calculated according to

Application to the Case Study
The economic evaluation was carried out for a firm producing door and window frames in laminated wood. This firm generates 3000 t/year of waste virgin wood residues, characterized by a small size and 13-15% moisture content. A small portion of this biomass (500 t/year) is currently used as bio-fuel to meet heat demand within the production site, while the remaining portion is considered as waste and disposed. The evaluation was aimed at assessing the economic viability of employing the waste biomass for pellets production. The analysis was carried out within four scenarios:

•
In the base case, pellets are produced using by-products of the wood industry, similar to those available in-house by the firm under exam; however, in this scenario, they are purchased externally.

•
In this scenario, all the waste virgin wood residues available in-house by the firm (and conveniently mixed with other similar biomass sourced locally, where appropriate) are used for the production of pellets.

•
In this scenario, the waste virgin wood residues available in-house by the firm are mixed with other wood residues having a higher moisture content.

•
In this scenario, the waste virgin wood residues available in-house by the firm are mixed with lumber mill residues and pruning residues, which all require suitable mechanical pre-treatments, before the drying and extrusion phases.
Tables 4 and 5 outline the technical and economic input parameters, as well as investment and operating costs considered within the four scenarios. In particular, Table 4 reports the technical and economical parameters which are constant within the four scenarios, while Table 5 reports the parameters varying across the different case studies. The pellet market value is intended as the pellet selling price to the retailer, excluding transport costs, assuming a final selling price for the end user of 220 €/t and considering the income for the distributor of the pellet.  (1) Biomass feed available in-house by the firm; (2) Biomass feed sourced/purchased externally by the firm; (*) Authors' elaboration, based on average values of energy required for chipping and in relation to the quality of raw biomass, size of chipping machinery, and quality of the extruded material [42].
In Tables 6 and 7, the investment and operational costs for each scenario are reported. As seen, operation and maintenance (O&M) costs in case A are high because of the cost of biomass, while, in cases C and D, they are higher than in case B, due to the need to reduce the initial moisture content of the raw biomass from 50% to 12%. Furthermore, in case D, the raw biomass needs to undergo a pre-chipping phase, prior to being dried, which leads to an increase in investment costs and requirement for one additional personnel unit.

Results
The key results are shown in Table 8. The most convenient situation is indeed that outlined in scenario B, where the availability of abundant and good-quality biomass at zero cost results in a pellet production cost of 94 €/t, a PI of 1.53, and a PBT (payback time) lower than three years. According to scenario A, all raw biomass (having the same characteristics of the by-product available as firm by-product of the normal production cycle) is sourced externally at a cost of 35 €/t (excluding transport costs). Consequently, the cost of production rises to 120 €/t, while the PI drops to 0.67, and the PBT is higher than four years.
In case C, where externally sourced wet biomass is used as integrating feed for the biomass internally available, the economic values are worse than those of case B, because of the need to dry the wet biomass.
Scenario D is the least convenient of all, with a cost of production of 132 €/t, PI of 0.2, and PBT of six years; this is due to the extra costs related to the pre-treatments required for the raw biomass. Figures 2-5 outline the results of the sensitivity analysis associated with moisture content, average transport distance of raw biomass, pellet market value, and annual maintenance coefficient.

Conclusions
This paper describes the state of the art and the Italian regulation related to the Italian market for wood pellets. The phases of the pellet production chain are outlined, and a detailed financial appraisal model is put forward with the aim of assessing the financial viability of undertaking the

Conclusions
This paper describes the state of the art and the Italian regulation related to the Italian market for wood pellets. The phases of the pellet production chain are outlined, and a detailed financial appraisal model is put forward with the aim of assessing the financial viability of undertaking the   The sensitivity analysis allows drawing the following considerations: • The market value of pellets is the parameter with the highest impact on the PI. The PI becomes negative for pellet prices of 115, 90, 108 and 127 €/t within scenarios A, B, C, and D, respectively.

•
The biomass market price significantly affects the PI, particularly in cases A (where all biomass is sourced externally) and D (where the biomass has a high moisture content). Variations of ±20% in the price of biomass result in variations of the PI of ±36%, ±7%, ±20%, and ±60% within scenarios A, B, C, and D, respectively. In scenario A, the PI becomes negative if the price of biomass is higher than 54 €/t.

•
An increase in the moisture content of the raw biomass results in a decrease of the PI, since more biomass is needed, and the costs of drying and transport all correspondingly increase. A variation of ±20% in the moisture content results in variations of the PI of ±10%, ±2%, ±12%, and ±50% within scenarios A, B, C, and D, respectively. • A variation of ±20% in the average transport distance of the raw biomass results in variations of the PI of ±18%, ±4%, ±10%, and ±45% within scenarios A, B, C, and D, respectively. Notably, a reduction of the transport costs by zero results in an increase in PI by about 46%.

Conclusions
This paper describes the state of the art and the Italian regulation related to the Italian market for wood pellets. The phases of the pellet production chain are outlined, and a detailed financial appraisal model is put forward with the aim of assessing the financial viability of undertaking the production of pellets. The financial model is applied to an existing firm whose main products are wood door and window frames, which has a sizeable by-product of good-quality biomass (small wood residues) that could be used to manufacture wood pellets. The analysis is carried out within four scenarios, which reflect the main biomass supply options currently available to the firm managers; for each scenario, the NPV, PI, and PBT indices are calculated, and then a sensitivity analysis is carried out, assessing the impact of variations in the main parameters over the PI of the investment.
Based on the hypotheses of this study, it appears that the use of logging residues and bark is not financially competitive, due to the comparatively high costs of pre-treatment and drying. The most promising business opportunities for pellet production lie where an existing high-quality biomass by-product is added to a limited amount of low-moisture and low-cost biomass. It should be noted that, to the author's knowledge, this is one of the first researches comparing the pellet production costs with different biomass supply chains; thus, it is difficult to compare economic profitability and cost figures with previous studies. Moreover, further analyses should be carried out to optimize in an integrated manner the biomass collection area, the biomass processing/pelletization location and sizing, and the technologies for the final energy conversion to match the end users' demand, as already proposed in previous researches focused on sustainable energy systems in urban and peri-urban areas [43,44]. Such approaches could also be linked to the assessment of biomass energy potentials, in order to explore how to best use the resources of the territory in distributed vs. centralized processing and conversion plants, using intermediate bio-fuels (such as pellet) to improve the energy balances, the conversion efficiency, and the logistics of the routes; an example of this approach was proposed in Reference [45], for a case study of the Puglia region.
Finally, further researches should be devoted to the assessment of the potential market segments in the industrial, residential, commercial, and rural sectors, where different typologies of pellet could be used, considering the trade-offs between high-quality/high-cost pellet (from selected woody biomass) and low-quality/low-cost biomass (from agricultural or forestry residues), which could be better used in industrial applications and large-scale combustion/gasification plants able to manage the lower quality of the biofuel, in comparison to domestic stoves or heating plants for the commercial sector.