I welcome Mr. Ciaran Black, enterprise development director of Coillte Enterprise, Mr. Tom Byrne, head of corporate communications, and Mr. Mark Foley, managing director. I draw attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. I invite Mr. Foley to make his presentation.
Renewable Energy Source: Discussion with Coillte.
Mr. Mark Foley
I thank the Chairman and members of the sub-committee for giving Coillte the opportunity to speak to them on biomass and energy generation using renewable fuels. The presentation will be in two parts. I will give a brief introduction to acquaint the sub-committee with some of the issues in regard to Coillte and a brief explanation of where the renewable energy opportunity sits within the Coillte organisation. My colleague, Mr. Ciaran Black, will go into greater detail on the biomass opportunity, in particular.
I am the managing director of the enterprise division of Coillte, one of the three operating divisions. As I go through my presentation, the sub-committee will see where enterprise fits in in the group structure. Slide No. 2, for example, gives a brief overview of Coillte which is 20 years old this year. It describes the group structure, what its strategy is to 2012 and what is happening in regard to renewable energy, in particular. I will then hand over to Mr. Black who will talk about biomass.
Slide No. 3 outlines that Coillte was established in 1989 to manage the State forests on a commercial basis. The key theme of our presentation is the commerciality of the company. It operates exclusively on a commercial basis. It is not in receipt of State funding. All of its business ventures are obliged under legislation to be self-funding.
In the 20 year period since Coillte was founded it has increased the forest estate by approximately 37,000 hectares. It has approximately 450,000 hectares today. It has earned profits of approximately €292 million and increased group assets by 93% to €1.4 billion. Critically, as part of our commercial mandate and obligations, we have broadened the business from the core forestry segment in the past 20 years to include land management based on certain construction products and, recently, renewable energy. It is part of Coillte's ambition to be sustainable as a commercial entity and not exclusively reliant on forests. It has evolved into an international business with 54% of sales in 2007 accounted for by exports.
The forestry sector is the core business. Coillte is the anchor tenant of what we consider to be a very dynamic forestry and forest product sector. Forestry accounts for approximately 10% of the total land area which is significantly below the EU average of 44%. The sector has an estimated annual economic value of approximately €1.65 billion and employs about 16,000 people. Therefore, it is a crucial employer on a national basis. Coillte has a mixture of indigenous businesses such as family owned sawmills, as well as multinational companies such as Masonite. We estimate that there are approximately 12,000 private forest owners. One of the themes in our presentation in talking about renewable energy is the challenge faced by all of us collectively in getting some of the private forest product into the marketplace in the next few years to support the renewable energy opportunity. The forests deliver major economic benefits, not just in the sale of timber which is used in a very productive sense in construction but also from an environmental perspective in relation to sequestration of carbon and the social benefit that upwards of 20 million people enjoy on an annual basis in the use of the forests through our open door policy.
Slide No. 5 describes the three operating divisions in Coillte. Coillte Forest manages the forestry business. Coillte Enterprise which we are representing and which we call the venturing arm is essentially in the business of deploying the land asset, where it is not suitable or viable for forestry, for other commercial uses that allow us to turn profit. These two critical areas are land and renewable energy. We also have a third division, Coillte Panel Products, which takes some of the product from the forestry and manufactures oriented strand board, OSB, and MDF for the construction industry. Ours is a truly integrated business, from the growth of the forest timber, through construction and into the market in the United Kingdom and Ireland.
We had a very good year in 2007 with a profit of €40 million on a turnover of €318 million. Our results for 2008, on which I am not in a position to comment, will be known within the next two months. We have 1,200 staff in Ireland, the United Kingdom and the Netherlands and we believe we are placed for growth. This slide has two messages. First, Coillte is a commercial entity and must survive in the commercial world by selling our products and second, we have a good track record of strong profit delivery in recent years.
We manage approximately 445,000 hectares, or 1 million acres, which is about 7% of the land area of Ireland. The forest estate expanded rapidly in the 1990s and Coillte was reasonably acquisitive of land at that time. In the last decade, the prohibitive price of land and Government incentives to third parties, such as farmers, to engage in forestry have put Coillte at a disadvantage. We have been unable significantly to expand the estate in the past eight years.
Our principal business is supplying logs to the processing industry. We supply sawmills, which tend to be third parties, our own panel board mills and emerging energy supply businesses. Approximately 2.6 million tonnes of timber is harvested annually. Coillte employs approximately 700 staff as well as 75 in harvesting. If one adds haulage contractors and everyone involved in the supply chain one has a broad employment base of approximately 1,500.
We also have a crucially important emerging business. Coillte's deep knowledge of the forest and harvesting and our ability to manage supply chains will be important in the longer term in assisting private forest managers in getting their product out of the forest and to market. We can play a significant role in that.
Coillte Enterprise, typically, sells between 300 and 600 hectares per year, a modest amount of land of which more than 60% typically goes for public benefit or community projects. We are in the market selling non-strategic land to assist the commercial operation of the company. We also have a significant communications business. We have strategic sites with very good capabilities for mobile phone and broadband operators. We lease sites and we recently became involved in the construction of masts, which allows us to provide a service in this area. On our land, we also have sandstone and gravel deposits which we commercialise. During the construction boom we commercialised a significant number of those by selling them to third parties at a good commercial rate.
We have turned a major corner in the past three months. Following the Commission for Electricity Regulation's Gate 3 determination, we will have the opportunity to be a significant player in renewable energy with a portfolio of approximately 400 MW. We will talk in detail about biomass.
Our Coillte Panel Products business sells approximately 700,000 cu. m. of finished panels. Pulp wood sourced from our forests is converted into oriented strand board, OSB, and MDF. Coillte Panel Products is hugely export oriented, particularly into the United Kingdom. Its products are certified by the Forest Stewardship Council, FSC, as coming from sustainable forests. Two very strong brands, Medite and SmartPly, are significant employers in Clonmel and Waterford and have significant capital intensive businesses which have been supplying to the construction industry for the past decade. Both plants are significant users of biomass in the generation of process heat.
The group strategy developed in 2007 looks to 2012 as a reasonable compromise between short term and long term. We have set strong and key targets in that area. One is to expand the forestry business, another is to continue to develop our land management portfolio, looking at strategic approaches to sustainable development and only engaging in development opportunities which are sustainable. As of December 2008, we have a renewable energy portfolio of approximately 400 MW. We will talk about our biomass opportunities. On the panel products front, our objectives are to continue to develop quality products, innovative new products and expand our business. The final slide tells us where we are with regard to renewable energy, which is a core part of Coillte's future in terms of having a balanced portfolio of businesses. We own, as I said, 7% of the land mass, but a crucial statistic that is not well known is that 20% of installed current wind farm capacity — about 1,000 MW as of 31 December last year — originates on Coillte land. Thus, we have some of the finest sites in Ireland in terms of renewable energy from wind.
In the October budget the Government set a target of 40% of national electricity requirements to come from renewables by 2020. We believe Coillte, in terms of both our wind energy and biomass strategies, has a significant role to play in achieving those targets. I mentioned our 410 MW portfolio. It is likely in the next two to three years the commission will have a further round of renewable energy grid connection offers, and we believe Coillte could have upwards of another 500 MW of projects in this regard. In addition, as I have mentioned, we are a key provider of strategic land for other developers of renewable energy projects.
The aim of this presentation was to set out Coillte's position. We are a commercial entity with forestry and construction products, and we also have an enterprise division which is at the cutting edge in terms renewable energy, in which Coillte is a significant player. I will now hand over to my colleague, Mr. Ciaran Black, who will talk specifically about biomass.
Mr. Ciaran Black
This half of the presentation will focus on biomass. I will give an overview of the market and the future structure of Irish forestry, discuss the issue of economics and pricing, and mention wood chip logistics — how we get the product to market. I will also mention our activities and approach to the market.
The structure of Irish forestry will change radically over the next number of years. As can be seen in the graph, Coillte's production output is flat for the period between now and 2015, and the estimated supply coming from the private sector is growing substantially. From less than 5% today, it will grow to between 30% and 40%. The type of supply we are talking about is pulp wood material from smaller diameter trees — either first thinnings or the top part of the tree in a mature crop. The traditional demand comes from the processing sector, primarily the panel board sector. Again, that is relatively flat. Either there will be a step change in the processing capability of that sector, or a new application will emerge to absorb the surplus. The energy sector is the key sector for absorbing that surplus. We are looking at between 300,000 and 400,000 cu. m. by 2015 or so.
I will now consider the market overview. There are three main sectors: domestic, which is currently served by the pellet market; commercial, represented by hotels, schools, public buildings and so on, which uses a combination of smaller scale pellet boilers and also wood chip boilers, again on a small scale; and industrial, which uses boilers primarily for process heat on a medium to large scale. The indicative prices per tonne in the market are shown together with the moisture content of the wood chips supplied. The price range is €100 — €120 in the smaller scale commercial market down to €65 — €75 in the large-scale industrial facilities. Members will note that different boilers cope differently with particular moisture contents. Thus, on the smaller scale, a drier chip is required — about 30% moisture content — while the larger facilities can take rougher and more moist chips, up to 55% moisture content.
The power generation sector is not mentioned on this chart and the price point in that regard is currently lower than that for the heat sector. The use of renewable material in the heat sector is dominated by biomass, particularly wood biomass. Between 50% and 60% of all heat from renewable energy currently comes from wood biomass used in the wood processing sector. As Mr. Foley mentioned, our SmartPly and Medite mills form a substantial part of the overall use. The biggest users of heat from renewable sources of energy are already in the wood industry.
The next slide relates to our efforts to understand customers' needs. We met more than 75 customers across all market sectors and made presentations to more than 30 senior managers in the area. The purpose of this was to evaluate potential business in the sector and explain Coillte's role in those markets. On the commercial side, which covers smaller customers such as hotels, schools, public buildings and so on, the three main considerations are price, quality of chip and, to a lesser extent, supply. Typically these customers would take in up to 400 tonnes per year; a relatively small amount in terms of usage.
The next slide covers the concerns of large industrial customers and the key is funding from a capital investment point of view. Biomass boilers are more expensive than oil-based and gas-based boilers so a capital hurdle must be overcome. Security of supply is also a major consideration and typically these customers must include this as part of the overall process; it is critical to their emissions. They want a reliable local supply that will be introduced over 15 years and are anxious to tie down contracts for three to five years.
In terms of technology, across Europe biomass boilers and CHP facilities are well proven but they are not widely used in Ireland. There are concerns in this area and we need to get local reference projects up and running so we can demonstrate this will work in Ireland.
Key considerations in this market sector are EPA pressure and the potential for a carbon tax or levy. The true cost, particularly in the traded sector, includes the cost of fuel, typically heavy fuel oil, and the carbon cost. In terms of delivering wood chip, we need to come in at that price point.
Another key consideration that should not be forgotten is the scale of chip storage required in facilities. If they take a large volume there must be enough space to take shipments every week and this is a significant undertaking. If there is too much wood chip stock on site with a certain moisture content there is a risk of fire and this must be carefully managed.
There is a requirement for more than a basic supply contract; turnkey solutions, energy service company, ESCO, models and outsourcing should be examined. Effectively, these companies want to rely on the heat component, perhaps on a kilowatt hour basis. They would rather leave chip storage, boiler maintenance and so on to others so they can concentrate on core business.
There is a concern relating to the lack of existing depot infrastructure and we believe Coillte can play a key role as a catalyst in getting a supply chain running. Another key factor is the long lead time required for feasibility studies for the commission of new boilers. This process can take from 18 to 24 months so the turnaround is not quick. Very often those behind facilities have a keen interest in moving to biomass but have oil-based or gas-based boiler equipment that has not yet run its course. While the interest is there, it may be some time before they can switch to biomass.
The table highlighting pricing is taken from Sustainable Energy Ireland's fuel cost comparison published in January. Wood is still competitive as a fuel source, despite the recent reduction in oil prices. Another factor that must be considered in the analysis is the higher capital and operating costs from biomass boilers. A key consideration is the suitability of the heat profile on the site. Biomass is typically well-suited to boilers that are always on; they do not ramp up or ramp down. A certain demand, therefore, is needed for biomass boilers. When analysing the payback and the suitability of biomass use at a facility, not just prices but also the capital, operational and demand profiles must be taken into account.
Overall, the key drivers of climate change, peak oil and Ireland's heavy dependence on fuel oil are working to maintain upward pressure on these prices. It allows wood biomass to get into that market and be competitive against fossil fuel sources.
The biomass action plan, published in March 2007, identified a key factor in inhibiting the development of the wood energy sector as the slow pace of putting in place the supply chain from the private sector. This factor still remains. There is uncertainty about the exact volume of material that can come from private supplies. There is a real need to have access to inventories about private supplies to plan future supply chains.
The largest costs in the supply chain are wood cost and haulage. The key element within the wood cost is the harvesting and extraction of the materials, which must be done efficiently. Scale is also important in this. Often, material is light and difficult to extract. It is the lowest value material but has the highest cost to extract. Efficiencies in harvesting and extraction are important in this sector.
Transport is also an issue. Typically, Coillte looks to have target customers in the catchment area of a depot at a distance that is not greater than 80 km. Transport costs both into and out of the depot must also be minimised. The introduction of some form of a carbon tax or levy in the non-traded sector would have a significant impact in driving the economics of the biomass sector.
Slide 21 of the presentation is a graphic representation of what is involved in wood chip logistics. Much planning and logistics need to be carried out before harvesting and getting the material to the market. One year in advance, the location of the supply forests, both privately and Coillte owned, and the depots would be established. This needs to be planned far in advance to ensure a period to allow the material to dry out enough for the end customer.
Distances from the forest to the depot are also a key factor. Different types of equipment are needed to remove this material from the forests. Weighbridges, on-site security, and so on are required to ensure it is run efficiently and securely. Typically, Coillte would stack and dry material for one year to get moisture content down to 30%. The average moisture content of material straight from the forest is between 55% and 60%. Larger installations could have a longer drying time if they require less moisture content. In terms of chip grade and quality, which relates to moisture content, particle size and other agreed standards, it is important that quality is consistent. Typically, each boiler will have its own specifications as to the type of material it requires. Coillte must ensure it is able to deliver to these specifications on a consistent basis to ensure a reliable supply chain is available to customers.
Various transport mechanisms are available to secure access to sites and much depends on the scale of the installation. In the case of a small-scale boiler it can be tricky to bring material into and out of such facilities as they may not have much storage space. Dedicated, large-scale mechanisms are in place for large-scale facilities. On the client side, efficient site storage and handling are very important. Customers frequently seek solutions which are not paid on a per tonne basis but on the basis of kilowatt hours of heat. This is metered. These are the key elements of the logistics involved.
The next slide addresses our activities to date. As I indicated, Coillte is conducting in-depth market research and holding a large number of customer meetings. We also work with the key stakeholders in the market, in particular, the bio-energy working group which sits under the renewable energy development group. The latter is hosted by the Department of Communications, Energy and Natural Resources as part of its focus on the overall renewable energy sector.
Coillte has also established a small-scale pilot depot in County Mayo and has signed up its first customer in the north west. We are refining our business model and strategy for approaching the market. Key considerations in the business model include typical conversion rates as one moves from tonnes into chips and typical ratios for the rate of drying. We need to acquire key information from hard-edged experience of engaging in this activity. Our plan is to finalise the strategy and submit it for board approval.
As Mr. Foley indicated and we demonstrated in the graphs, the role of private forestry is key to the development of the Irish energy sector. While the private sector is providing new growth in supply, we face challenges in getting this material to market. Private forests are typically small in scale and do not easily allow economies of scale in harvesting, extraction and transport. Frequently, the operators of private sector forestry have a background in agriculture and farming and lack knowledge and experience of forestry. They may not, therefore, have forestry management plans for thinnings and so forth. Estimates of the level of forest management plans in the private sector range from 20% to 40%.
As a result of the geographically sporadic output and intermittent nature of private forests, it is difficult to establish a smooth supply chain in this sector. Coillte has a pivotal role in working with the private sector to establish a robust supply chain. We can leverage our access to markets through our credibility with the customer base and long history in forestry and use the combination of our forest resource, which is spread throughout the State, and private forest, as it comes to market, to provide a reliable and consistent supply chain and thus create a smoother supply curve. Customers will see from this that they have access to a long-term supply which is backed by Coillte forestry and new material in private forestry.
We have covered our view of the market and approach to stakeholders, as well as the needs of potential customers and the necessity to understand the dynamic in pricing. It is essential that we start to gain hard-edged experience in establishing supply chains. Coillte operates depots and plans to establish further depots. We are also examining logistics and on-the-ground supply to customers. Furthermore, we wish to consider the role of technology. We want to be at the leading edge in the context of using the best technologies available and learning from supply chains that are in place in other countries throughout Europe.
Another key factor is the location of depots. There is a balance to be struck between the source of the supply and the location of customers. Ideally, one wants one's large-scale, anchor customer to be located as close as possible to a depot. One then needs a model which allows one to service the smaller scale installations in the optimum way. We are developing an outline business plan to address these issues.
Our business plan covers a five-year timeframe. It relates to the following: who are our target customers; the level of sales we would expect; where depots will be located; the capital investment that will be required over the lifetime of the plan; the operational costs involved — which must be based on reality; ensuring proper quality assurance to satisfy customer needs; and managing the entire supply chain. The latter is extremely important and we are considering various models in the context of whether we should supply some customers in-house or whether we should operate in conjunction with outside contractors or joint venture partners. We are open to doing this and to leveraging the entrepreneurs operating in the area who are already examining these matters. We have several contacts with a number of these players. We are also developing an implementation plan that will assist us in putting this strategy in place.
I have supplied members with a map of the country which provides an overview of our approach. The green circles relate to the indicative depot locations at which we perceive the resource and our customers to be based. The north west, the west and the south west are the general areas under consideration in this regard. We have earmarked a range of locations and we are carrying out due diligence in the context of pinning down the supply side — from both Coillte and from private suppliers. A key factor in this regard is examining the position vis-à-vis our customers and ensuring that we can locate our operations at places that are closest to them. There is an option to put in place further depots, one of which would be located in the north east.
The red circles on the map relate to where the panel board mills are located, which are the other major traditional users of pulp wood material. Our primary aim is to try to use the resource in the most efficient way by not transporting long distances and by trying to retain it in the local market and use this as the most efficient basis.
In the context of risks, we are seeking to push forward with our depots. The risk would be that we might build depots where customers may not materialise. However, we are seeking to minimise this risk to the greatest degree possible. We are also seeking to establish a depot infrastructure that will convince customers as to the nature of our supply. Such an infrastructure will give them a strong degree of confidence that there will be a supply chain in place. There is obviously a risk that we will be obliged to place investment in this regard up-front. However, this is a crucial part of the overall process of establishing a robust supply chain.
With regard to the rewards that will accrue, we will have material that will be dry and ready for customers at the depots to which I refer. In addition, we will also have a depot infrastructure that will increase customer confidence.
That is our overall approach in respect of getting supply chains and the entire energy sector in place. At present, the position with regard to supply and demand is in equilibrium. The traditional demand from the panel and processing sectors is just about matching the supply. However, in the next number of years the opportunity in the energy sector will begin to grow. We are at the very start in the context of getting the sector up and running. We are of the view that we have a crucial role to play with regard to putting in place proper systems that will allow Coillte and private suppliers to make the most of the opportunities that will arise in this sector. The sector will be significant for Coillte and private suppliers going forward.
Mr. Mark Foley
Coillte has been very focused commercially in the last 20 years and managed to work successfully. One can see the analysis and work that has gone into trying to understand the next opportunity which is based on a detailed due diligence process of how we can manage supply chains with a view to entering the market with a commercial mindset. The role of the private forest operator will be crucial in the coming years, as we seek to deploy suppliers working in harmony to exploit the geographical advantage. This is about geography, transportation and having an economic cost model. We believe we are set for the next phase of expansion based on the work we have done, including robust due diligence.
We believe we will make a major contribution to renewable energy projects, both on the wind energy side of the business, through the use of our 400 MW, and on the biomass side with a commercial edge. Wood biomass has the potential to displace imported fossil fuels, but we need to go about it in the right way. We need to get it right from the beginning and ensure we have the right cost structure and supply chain management, as well as serving our customers properly. The sub-committee saw the complexities in the supply chain from harvesting to the production of a dry, quality assured product which can take the best part of 12 months to complete. The strategy of serving these markets can lead to job creation in rural areas once supply chain and economic issues are addressed. Given our 20 years' experience in the forestry sector and knowledge of the supply chain, Coillte can and is prepared to play a leadership role in stimulating the sector.
I thank the Chairman and other members for giving us this opportunity to address the sub-committee.
On behalf of the sub-committee, I thank Mr. Foley sincerely for his detailed and instructive presentation which has been very helpful and enlightening. We want to have some interaction between the delegates and members of the sub-committee. I have three bullet points on the agenda for the meeting: how to access sufficient quantities of wood; how wood can best be delivered and the distance and costs involved; and how best to extract energy from wood by incineration or other methods.
I welcome the delegates from Coillte. I have been a member of its social and environmental panel in the south east for many years. I live next to one of its forests in the Blackstairs Mountains.
I wish to raise a number of matters. First, Mr. Foley keeps reiterating the point about the need to involve the private sector, but has he determined how many forests there are and their age? I know that some entrepreneurs are having great difficulty in managing these forests, particularly at thinning stage when it is difficult to obtain grants to construct roads into them to allow trucks get the product out.
Second, moisture content is key to the biomass sector. Some are up and running with pellet plants, but moisture content drives their customers mad if it is not right, as well as continuity of supply. I would like Mr. Foley to comment on this aspect.
Third, Mr. Foley spoke about the carbon tax and I agree with him. Obviously, if there was such a tax on fossil fuels, it would stimulate an increase in biomass products, particularly in the forestry sector.
Fourth, Joe Public is keen to buy into the renewable energy sector, particularly when one looks at current fuel bills. However, members of the public are worried about the product, about how effective it will be and whether it will provide sufficient heat. A number of other products are coming onto the market, including miscanthus logs and other products from abroad. The labelling of these products is important to the consumer.
The mandate of the sub-committee is to create jobs through the renewable energy sector. Mr. Foley has said Coillte's strategy can lead to job creation in rural areas, a key factor. If we can get depots and pellet plants up and running, we can give hope in a time of severe recession and unemployment. If we can stand over a top quality native product which consumers will be able to buy at an effective price, the sky is the limit. They will buy into the idea of home produced fuel products which give out good heat and, most importantly, ensure security of supply.
I thank the delegates for appearing before the sub-committee and apologise for having to leave the meeting briefly. The delegates said there had been difficulties in attracting private investment into the sector. It may not be in Coillte Enterprise's remit but does it believe incentives need to be offered to attract private investment? A short-term tax exemption, of perhaps 100% in year one, 50% in year two and reducing over three to five years, might encourage private investment. If Coillte does not increase private investment, are its economies of scale and price stability at risk?
Mr. Mark Foley
I will deal with some of the points made by Deputy White. While we have some information on private forestries, we do not have enough. One of the big challenges in the near term is to compile in-depth data on private forests, relating to age profile and access issues. We have forensically mapped our own forests in the past 20 years and can determine the age, crop and yield type of any forest. We need high quality data on private forests and work with the Department's forest service to that end. It is vital to have the right information to build a satisfactory business model in order that investments will ultimately yield a return. There is no doubting the volumes in private sector forests but their characteristics and economic viability are less clear.
The Deputy also asked about moisture content. Once a commitment is made to set up depots in the appropriate regions and once a quality management system is in place, the moisture content issue will be addressed. It is a matter of science and very predictable. We know how long it takes to naturally dry wood with a given moisture content but the key is to have a home for it. It must be properly segregated. Wood with 55% moisture content must be kept separate from wood with 45% moisture content in order that the requirements of various customers are met. That will be eminently achievable once depots and a quality management system are in place.
The Deputy also raised a point about a carbon tax. Members saw the data we provided on pricing. If a carbon tax comes into the equation, fuels such as wood which are carbon neutral will be favoured. It will act as a natural incentive in the process.
The Deputy also asked about Joe Public and products from abroad. This is more evidence of the need for a quality assured product. We have gone to significant lengths to talk about the supply chain because, in making an investment in this area, the 12 months it takes to complete the product, quality assurance, the guarantee of 45% moisture content of wood and so on are absolutely crucial for the end customer to be prepared to put money on the table and be satisfied that the investment, whether it is for a domestic boiler or for an industrial boiler, will be realised through quality raw material.
Deputy Morgan asked about private incentives. When the analysis of the private sector offering is better understood, the what, the where, the how in terms of getting product out of the forest, when one has the data and understands the difficulties, the economic disadvantages and advantages associated with that, one will be better positioned to answer the question as to whether an incentive will be necessary to encourage extraction of material. Certainly CO2 tax is an incentive but it is a disincentive in some respects. Perhaps Mr. Black would comment on that.
Mr. Ciaran Black
In regard to incentives, we need to ensure the wood starts to come from the forests to the energy market or other markets. We have seen that in other countries there are some incentives and supports to make sure that supply chain gets going.
Forestry is an interesting business in the sense that when a tree is felled there are various end users of it. If all the focus were on a particular end use there might be some distortion of the market. The key thing is to make sure that forestry as a sector is beginning to function. An output of that would be that it starts to supply material into the energy sector as well as other sectors. One of the key things that would be of major benefit in establishing proper supply chains is to have in place mechanisms that allow the efficient processing and extraction of material so that it can come into markets.
Mr. Black mentioned the indicative depot locations. Can he tell us a little more about that? Has Coillte any particular towns, villages or forests in mind?
Mr. Ciaran Black
At present we are analysing the location of key customers, the supply primarily from our forests, and we are also trying to get as much information as possible about the private forestry. We have short-listed various locations. There is a fairly long list in terms of those and we are trying to identify the most suitable sites from within that list. When we get closer into the detail of the stage at which those prospective customers are, we can start to be more specific in terms of the locations. We are trying to get to a situation where we have identified the type of location we need and the infrastructure that needs to be in place for it. When we are closer in terms of the customer being ready to go, we will be in there.
Can I take it that Coillte is working with customers to try to firm up on them?
Mr. Ciaran Black
Very much so. The lead times involved, especially in some of the larger installations, could be anything between 18 and 24 months. For those customers to be satisfied that there will be a supply chain in place we must work very closely with them and be able to say that for them to make that leap, the move towards a biomass solution, we are putting a depot in place.
My first question is slightly parochial. I am aware there is only an indicative depot in Mayo. Why is that the case, given the level of forestry in the county? Deputy White touched on the point that people who bought biomass boilers in recent years, particularly for domestic use, have expressed frustration about the amount of heat they get out of them and their quality. There is much work to be done, not just on a commercial level but also at the domestic level where there could be a large market, on educating people on the use of biomass boilers and their benefits. Are there any plans to do that or to work with other providers to get out a common message that people might understand?
Is the domestic market a guaranteed or realistic one? I accept that the representatives of Coillte are better placed than members to answer this question but we have received negative as well as positive feedback. I believe in the commercial potential of Coillte and I support its pursuit of large industrial buyers. However, I question the viability of the domestic market. The committee and I remain to be convinced on this point. This development will involve a considerable financial outlay and we must be sure we are targeting the correct market. The product is useful but we must decide where it should be targeted.
Coillte's purpose is to manage State forests on a commercial basis. It is doing that job excellently, as its results and profits show. Who is responsible for protecting forests? Is there a conflict of interest? It is often said that a Coillte development can destroy a forest. I presume protection of forests is part of Coillte's brief but I would like some clarification on that. This question is frequently raised with public representatives.
When Mr. Black speaks about encouraging private forest owners, I presume he refers to mature forests. Who encourages the planting of forests? Is it the responsibility of Coillte or Teagasc? It is important to make this clear because there is need for planning in this area. What encouragement is given to landowners to plant forests? Is finance made available to them and are banks willing to back them? Mr. Black seemed to concentrate on mature forests but I would like to hear about financial incentives for planting.
Mr. Black spoke about economies of scale and said a minimum amount of land is required to make forestry viable. What is the ideal land size for a profitable forest? What profit margins does Coillte predict for forestry plantations? Is forestry a good use of land or will it require continued grant aid? Approximately 10% of Irish land is under trees while the EU average is 44%. Does that place Ireland in a negative position with regard to economies of scale? Do we plan to increase our 10% to 20% or 30%? Mr. Black had some purpose in quoting these figures. Could be address my question?
Coillte will engage with landowners in drawing up forestry management plans. Does Coillte charge for this service and, if not, who pays for these plans?
Mr. Ciaran Black
Deputy Calleary referred to the map of Mayo. Decisions will not relate to the dots on the map. We are talking about regions. Decisions will be driven by the market and the state of the customers there. We may place more than one depot within a particular region, depending on the state of play with customers. Our current pilot depot could also be enlarged. No decision has been made as to whether the depot will be in County Mayo. I would not draw any conclusions from the map. It is intended to show broadly the locations where the resource is, especially in relation to current traditional use.
Deputy English asked about the viability of the domestic market. There are two distinct markets. A domestic market is serviced by the pellet industry. What we are typically producing is these wood chips, which are really only suitable for smaller to larger scale industrial use. Much of it is down to logistics. In an urban setting it is difficult to sort out the transport logistics. There is a role in the domestic market. There has been a lack of understanding of the grading system in the pellet market. It is not just a case of one size fits all. The rule of thumb is the smaller the boiler the more sensitive it is to any changes in quality. What we are looking at is the type of resource we have coming from our forests, which is typically geared towards the larger installations. We see that as being a key area.
Is the domestic sector a market worth chasing and trying to develop, or will it be short-lived? We have encouraged landowners in the past to go into all sorts of activities that had very short lives, and they ended up with a great deal of debt. With regard to the pellet market, I accept the point that it is not generally to do with Coillte, but we will take advice from such organisations. I question whether it will be profitable in the future.
Mr. Ciaran Black
If we consider the availability of resources and the location of the pellet plants, we must be aware of the further processing involved in that market and the scale of it. Imports are playing a big role in satisfying the demand. It is a question of where the best use of the raw material is. The domestic sector still has good prospects and potential. Our focus is on the type of material we have, and we are confident that the commercial side is there.
The Deputy also asked whether we were only interested in mature forests. We are not. The type of material coming from first thinnings from forests that are perhaps five to seven years old is ideal for the energy sector. In the mature forests, the tops of the trees are available for pulp wood for the heat sector. That is crucial to us. One interesting aspect to this is that forest management plans lay down the question of when forests should be thinned. There is a window of opportunity in terms of taking that material out. If one leaves it too long one cannot go in and thin later on. There is a limited amount of time in which one can actually access the material for energy use. Thus, it is important that forest management plans are put in place. We have, through forest partnership programmes, services that supply forest management plans to private growers.
Is that at a cost?
Mr. Ciaran Black
It is at a cost as it is a service we provide, but it would be in partnership with the——
The impression given was that everything was provided, but it is not — it is at a cost.
Mr. Ciaran Black
Yes. It is a service that is provided.
Before I allow Deputy White to ask a supplementary question, I would like to point out that it was she who was responsible for the committee's going to Güssing some time ago. We had a good experience there. It was on this basis that the committee decided to recommend three different locations, using Güssing as a template, for development. How could Coillte work with the committee in this regard? If we could get the three locations in the south — in Munster — how would we work together? I am conscious that today we are focusing on the job creation aspect.
I have stuck a big green dot on Carlow. We should look at a location here. Carlow has had the aspiration, for the past couple of years, of becoming the first green energy town in Ireland, despite the advances of Dundalk 2020. We have a national centre for bioenergy in Teagasc, whose headquarters are in Carlow. We have many good sites, particularly the site of the old sugar factory, which could become a major biomass energy producer, with district heating and so on. I am glad the witnesses said these dots are not fixed.
Coillte's focus is on Sitka spruce, larch and Scots pine. Is that correct?
Mr. Ciaran Black
On current planting, yes.
Has any work on short rotation coppicing with willow been done? It is extremely fast growing; one can grow it successfully and crop it and it will come up again. This is an alternative to the clear felling that takes place in most forests, including private forests and those run by Coillte. I would like to think these dots are moveable, particularly in the south east which has suffered massive unemployment. The Blackstairs range divides Wexford and Carlow and the south east would be a prime location to develop a depot. Coillte has mapped forests in the region for many years and there are direct routes from Mount Leinster to Borris, into Carlow and Wexford on the other side. Those of us who have been to Güssing have seen what a green energy town can do to combat unemployment, which is very high in Austria. We want to replicate what has been done there to create jobs. Over 50 top class companies were attracted to Güssing and anyone who has not been there should visit to see the revolutionary way jobs have been created in the wood product and biomass sector. The sub-committee should give hope to rural, isolated communities that jobs can be created using products we can grow well, wind energy, biomass and bio-gas.
I apologise for my late arrival; I was unlucky to drive onto O'Connell Street as the protesting taxi drivers made their way to the Houses of the Oireachtas.
On Coillte's next steps and how the body has developed since its formation in 1989, it seems late in the day to be developing something as basic as a quality assurance system. I do not understand the reason for the delay and ask the delegates to expand on the elements of the quality assurance system, the key variables, the difficulties involved in controlling these variables and the exposure to variations.
Mr. Ciaran Black
Regarding willow plantations, the suitability of the land available is a key factor. The land available is not well suited because it is too high and the nutrients required are not available. We are seeking suitable places but find it is difficult to have short rotation crops on the type of land available. Regarding the establishment of depots, a feedstock like willow would come in as part of a blend of the overall material available. In this respect there could be a role for willow in the market.
The quality assurance system focuses on wood chip quality for customers; we are not talking about the quality of wood from forests which we have examined for many years, as the Deputy correctly said. This is a new product in Ireland and we want to ensure the right quality of material reaches customers.
Regarding harvesting and the delivery of products to the market, Irish conditions are different from those in Austria. We have a moist, temperate climate; there may be a lot of moisture taken in after harvesting, as well as storage difficulties. Given such considerations, we want to ensure we do not merely replicate other assurance systems in Europe; they must work in Ireland. In terms of variables, when we take in materials at a depot, we need to know the moisture content, how to dry the materials and how long this will take. When we chip the materials, we need to know how much moisture is lost during the process. When we transport and deliver materials, we need to know about related issues. We must understand all the steps in the chain in order that we know there is a quality system in place from the time materials enter the depot to the time they enter the boiler. This will allow us to identify areas in need of improvement.
Is this still in experimental mode?
Mr. Ciaran Black
Much in this field is driven by boiler specifications. There might be boilers in the market that may be more suited to Austrian biomass products with lower moisture contents and would not be adapted to local climatic conditions. We tell prospective customers when ordering a boiler to specify one which will take local biomass material. They should not set high standards in getting a boiler which will have problems struggling with local material. There will be downtimes and, as seen in other sectors of the market, a lack of credibility in the quality of material. It is about ensuring horses for courses and the delivery of the right type of material to the right type of installations to maintain viability.
Mr. Mark Foley
If one is asking customers to make a significant capital investment in wood-burning equipment, then they need to be certain they have a perfect fuel. Customers who make that decision will put us through all the processes, and rightly so.
Deputy English raised the point about the possible conflict between commercial and protected forests. It is important to emphasise that Coillte is certified through the Forestry Stewardship Council, the highest bar for sustainable forest management. It is an onerous requirement in forest management. It is there to ensure the environmental protection and sustainability mandate is not jeopardised by the commercial operation of a forest.
How active are the audits carried out by the council?
Mr. Mark Foley
We are subject to an in-depth audit every year by several auditors. They will randomly visit forest sites and harvesting operations to go through the paperwork. They will put us through the most rigorous of assessments. One does not get the Forestry Stewardship Council brand lightly. Coillte takes it seriously. It is mission critical to its business. The panel product business, a third of Coillte's overall business, is contingent on being able to tell the market that it is responsible as a sustaining forest manager.
On that issue, Coillte has some work to do with local communities who never hear this. The impression in many communities is of Coillte arriving for harvesting operations and a forest disappearing. Coillte could do more in public relations in this area.
The Deputy's point is understood.
I believe Coillte has cleaned up its act since I have been on its social and environmental panel. As someone who walks in its forests whenever I have a spare moment, I have noticed a large difference in its felling methods and post-felling clean-up. No longer does one see the plastic bags, oil cans and other litter that goes with tree felling. I was critical in the past of this and the use of insecticides.
Near where I live, a beautiful part of a forest in a Coillte amenity area was to be felled. With close consultation with the foresters, Coillte only agreed to part-fell some of it so that it would not look like a gaping sore on the horizon. These days when I look out my windows, I see better felling methods and honest stewardship of the forests.
Those of us who have no monetary interest in a forest but live near one and are affected by the visual aspects of clear-felling want to see the landscape protected. We know that when a tree comes to a certain age it will be felled. It is the method of felling and the clean-up afterwards that is the issue. However, I have noticed an improvement in this.
Mr. Tom Byrne
I take note of the Deputy's comments. We appreciate that people are taking notice of improvements. Coillte is in a phase of forest management planning in which we actively encourage people to propose ideas to us in order that we can factor them in, as Deputy White describes, in local areas. This is the approach we try to take.
Coillte tries constantly to balance commercial, social and environmental factors, the three areas we are charged with balancing under sustainable forest management. The organisation has made significant strides in recent years on the recreation side by developing facilities that people want and need, for example, mountain bike trails, improved signage and multi-access trails. We have also made major strides on the environmental side. We have a number of projects funded under the European Union LIFE programme which involve the restoration of habitats. Approximately 15% of the estate is managed for biodiversity, making it the single largest biodiversity project in Ireland.
One of the messages we will take from this meeting is that we must do a better job in communicating these facts. Coillte is conscious at local level that it operates in an environment in which people live and of the need to balance this with the commercial aspects of its activity.
While I do not wish to detain our guests, I will add the rider that Coillte must continue to plant broadleaf trees at the edge of forests. Sometimes this practice is not used. Broadleaf trees soften the landscape, for example, birch trees are lovely in spring, as is a mixture of deciduous and broadleaf trees at the edge of forests. When one visits these forests, broadleaf trees provide a little light among the darker coniferous trees. This is important, particularly where new forests are planted near housing. It gets people's backs up when this practice is not used because they want sunlight and fear they will not have much light when the new forests grow. Good community relations are very important when forests are being expanded, felled or replanted.
Mr. Tom Byrne
To finish the point, members may have noticed that Coillte has made considerable efforts in the areas of landscape management and planning in recent years. We have a commercial requirement to harvest and replant and have made a major effort to plant native species and manage the landscape. We are doing this in a progressive manner to ensure forestry sits better with the landscape. We are also conscious of the amenity value people place on forests.
Deputy White stated she would like renewable energy technologies to be developed in Carlow. As the documents we provided show, the sub-committee hopes to identify three locations for the development of such technology. What are Coillte's views on the sub-committee making recommendations on locations, whether Carlow, Cavan-Monaghan or elsewhere, which would be centres for renewable energy development? What assistance, co-operation and advice could it provide in this regard?
Mr. Mark Foley
We will have an exhaustive due diligence in our final selection of appropriate locations for depots. We have all the information we need on our own forest sites but require further information on private forests. When we have this information, we will map it against the potential customer base. Coillte will be pleased to share this information with the sub-committee once the next hurdle of due diligence has been jumped. We have the best available information on our own forests and are actively seeking information on private forests. Once this has been compiled, we will compare it with information on our customers. At that point it will be a mathematical question of how one minimises the wasteful component of transportation. The answer to this question will provide the optimum positioning of depots. We will be pleased to share this information with the sub-committee.
When will Coillte be in a position to do so?
Mr. Ciaran Black
We must submit our overall plan to the board. A timeframe of approximately six months seems reasonable.
On the question of whether Ireland will be able to be a competitive player in the marketplace, the proportion of forestry here is well below the European Union average. Is this an issue? According to Coillte, forestry accounts for 10% of land area here, as compared to up to 40% in other European states. Is this a disadvantage in terms of economies of scale?
Mr. Mark Foley
Our analysis to date suggests we can compete. We can produce at the right price. With the right depot management structure, we can deliver the correct quality and we can compete. It is clear that some areas will be geographically disadvantaged. However, based on our work to date and the preliminary outline of possible locations, we can compete.
Is the aim to grow the local market or is it important to continue to develop the export market? What will be the main target area?
Mr. Ciaran Black
As Mr. Foley stated, it is crucial that it will be a local market. Transport is a key issue. One does not want to spend money transporting material of this nature over long distances. A balance of scale must be struck in the context of keeping it local and ensuring that it is not too small.
The committee's aim is to ensure the development of self-sustaining areas. In other words, trees will be grown and used in the same areas. We are all of the same opinion in that regard.
Mr. Ciaran Black
With regard to the level of forestry in Ireland, this represents an opportunity. We have a low level of afforestation. If we plant more trees, this will have a significant impact in the context of meeting carbon targets. There is a need to put in place afforestation programmes which will achieve this. However, the supply chain issues must also be borne in mind. These programmes will have to operate in the most efficient way so that we will be able to put supply chains in place.
When the new system is in operation and timber is being transported to the plant, will it be possible to recycle the waste that will be produced back to the forests or on to farmland? Coillte and Bord na Móna are two of the biggest landowners in the country. Are the two working together in respect of this project or is Bord na Móna one of the private suppliers to which our guests referred?
Mr. Ciaran Black
There is already a good example of using up all the material produced at the plant in the context of our panel board mills. Any material which does not end up in a panel board is used as a fuel source on site. The heat process is, therefore, extremely efficient. With regard to the biomass depots, we will try to use all available material. We will try, therefore, to ensure that as little as possible of this material is not used as an energy source. We are confident that a small amount of material will not end up being used.
When members visited a plant in Güssing, the ash was converted into pellets and redistributed.
Mr. Ciaran Black
That would be at the customer end. We would certain consider that as part of the overall solution for a user.
Mr. Mark Foley
We are involved in discussions with Bord na Móna with regard to areas of common interest, how we might align our activities and how we might do business that is mutually beneficial. I cannot say anything specific in that regard. Bord na Móna operates in a slightly different space than Coillte. However, there is no conflict or competition, per se, between us. We are continually involved in discussions with Bord na Móna regarding areas in which there might be opportunities.
I thank Mr. Black, Mr. Byrne and Mr. Foley for their presentation. Perhaps they might come before us again to discuss matters further. Members will have found this meeting extremely useful.
There is no doubt that Coillte has played a major role in the development of products from manure to home-grown resources. It is already a major employer in rural areas and I hope it can contribute further to the creation of jobs, both directly and indirectly. If pockets of local renewable energy production can be created throughout the country and used to facilitate small, local enterprises, this would allow people to avail of easy access to cheap energy in the future.
The sub-committee adjourned at 1.35 p.m.