February 2008
By Jonathan Roberts
The recovery boiler flue has always dominated the skyline in the classic pulp mill picture. But at Södra, another majestic feature is competing for attention within the pulp mill's landscape - the wind turbine.
Energy has always been an issue for the pulp and paper industry, but uncertainty about energy supply and cost has deepened, and environmental concerns have intensified to the point where energy has become the issue.
Södra has arguably taken rather more drastic action than its peers in tackling the energy problem by transforming itself from an energy consumer to an important energy producer. In a manner that would earn approving nods from management consultants, Södra has turned a challenge into an opportunity.
2008 will be the first year in which Södra Cell's combined pulp operations produce more electricity than they consume, with sales back to the grid of 100 GWh. This includes Folla mill in Norway, which is a net consumer of energy; the surplus from the Swedish mills is expected to be an impressive 275 GWh. The dramatic turnaround from a net purchaser to a producer of electricity is largely thanks to a significant investment in new electricity turbines with a capacity of 400 GWh/yr at Södra's Swedish mills.
Through a combination of investments and savings as well as research into groundbreaking projects for new applications, Södra's generating capacity is expected to produce an annual energy surplus of 200 GWh within a few years.
"Selling energy has become an increasingly important source of income for us and in view of climate change, it also feels meaningful to be able to contribute by supplying energy from renewable resources," says Södra Cell's president Sten Holmberg.
Wind power
An important development in Södra's energy generation strategy is the harnessing of wind power: "Investing in wind power at our mills, where we have both a distribution network and expertise, is the next natural step," says Holmberg.
Södra is in the process of erecting 12 wind turbines, each having a generating capacity of 2 MW, at its Swedish mills, resulting in a total generating capacity of 60-70 GWh/yr. Beyond this, Södra is planning a significant number of wind turbines sited at mills and on forestry land owned by Södra's members. Södra Vindkraft AB, a new company set up by Södra to handle its expanding energy operations, will act as a hub for wind power investments on forest lands owned by Södra's 50,000 members, which total 2.2 million ha in southern Sweden. It conjures up an attractive image: Södra is not just planting trees – now it plants wind turbines, too.
Bioenergy
Harnessing the power of wind is a very good solution from a carbon dioxide (CO2) perspective, but wind power cannot solve the industry's energy problems alone.
Bioenergy is of course a threat to pulp producers since demand for biomass as an energy form competes directly with demand for it as a raw material for paper production. Yet to pulp mills, the vast majority of which produce energy from biomass, it is also an opportunity.
Like most pulp producers, Södra Cell is well practiced in the art of extracting heat and power from biomass – more than 99% of the electricity produced at four of Södra Cell's mills is derived from biofuel, and fuel oil consumption at the company's five pulp mills has fallen by 35% since 2002. But Södra is also looking at less familiar ways to use biomass. For example, it is working to improve the energy efficiency of the black liquor evaporation plant at Värö, Sweden, in order to generate a surplus of bark, which could then be sold to third parties.
In another project in Sweden, this time at Mörrum, the company is looking at lignin extraction, which involves refining lignin into a source of bioenergy. The resulting powder can even be mixed with fuel oil and used as a replacement in the limekiln. The recovery boiler's capacity could be improved by up to 20% in this way, producing 70,000 tonnes/yr of lignin powder, which would equate to 350 GWh. Södra is working towards its first installation of a lignin extraction plant in the near future.
Another alternative is to gasify biofuels into carbon monoxide. This gas is known as Synthesis Gas and can be converted to biofuels such as methanol.
At Södra Cell Mönsterås, another innovative energy-related project is to increase the use of powdered bark in the lime-sludge reburning kiln, thanks to a SEK 20 million ($3.1 million) investment that will enable the mill to increase its use of biofuel and so reduce its oil consumption.
Original thinking
Södra has tried not to restrict itself to wind and biofuels in its quest to find green sources of energy that are compatible with its operation, and more effective ways of using its energy production capacity.
One idea very much at the concept stage is pre-refined pulp. Södra produces surplus energy that is not subject to the roller coaster effect of international energy prices. It could therefore offer its customers pulp that has already been refined, effectively allowing customers to switch to Södra's reliable "green" energy from an external, probably price-volatile and fossil fuel-based energy source, at least for the pulp refining stage of their process.
Södra has also attracted outside entrepreneurs to use its facilities to create innovative power generation techniques. For example, after 10 years of research and development, Norwegian Statkraft is now building the first prototype of a salt power plant in Södra Cell Tofte's mill area.
Salt power is a pure energy form. The principle behind salt power is the natural process of osmosis. In an osmotic power plant, seawater and fresh water are separated by a membrane. The fresh water draws the seawater through the membrane, thereby increasing the pressure on the freshwater side. The increased pressure is used to produce electricity.
Distributing the excess energy
There are three potential revenue sources from Södra Cell's energy generation strategy: generating surplus electricity for sale to the national grid; refining renewable energy forms such as lignin; and selling process heat for local heating systems.
Södra Cell channeled 300 GWh from its three Swedish pulp mills to the national grid, and it aims to increase this to 400 GWh over the next few years. But with up to 20% of a mill's energy ending up in wastewater as low-value energy, Södra began heating the town of Mörrum, next to one of its Swedish mills, 20 years ago, and now has such systems in place at all three Swedish mills. In Sweden, district heating is increasingly common with more than 50 TWh of energy used for this purpose in the country in 2007.
The economics of green energy
On the face of it, Södra's energy costs at 4% of production costs may seem insignificant compared with wood at 59% or even chemicals at 11%. However, Södra Cell's energy strategists have had the additional motivation of Sweden's Green Certificate legislation. The Green Certificate is unique to Sweden, and its aim is to boost the production of electrical energy from renewable resources within Sweden by 17 TWh by 2016 compared with 2002 and to force electricity suppliers to use a certain quota of so-called 'green electricity'.
As with the European Union's Emissions Trading Scheme (ETS), producers who have a surplus of energy from a renewable resource may sell it on in the form of a green certificate. "There's a well-established market for the certificates already and we believe there will be a deficit of certificates in the future," says Holmberg. "Together with the knowledge that we're looking at an upward trend for electricity prices from non-renewable sources, this certificate scheme was also the trigger for us to invest further in wind power."
The general assumptions behind Södra's energy calculations, says Holmberg, were fairly conservative, but still project an internal rate of return of 12-13% for the wind turbines and more than 20% for the new electricity turbines. Södra Cell's internal rate of return (IRR) target is at least 12% for any new investment. The economic lifetime of the investments is valued at 15-20 years. "Wind power will not be as profitable as the standard turbines but it is still profitable enough to be interesting," says Holmberg, "and of course this is green, renewable energy which is good for the environment."
In all, revenues from the energy business corresponded to 18% of Södra Cell´s EBIT in 2006, or SEK 239 million, two-thirds of which was in the form of electricity sold to the grid and Green Certificates. Around 13% went to district heating schemes, with the remainder split between bark pellets and tall oil. "Energy is becoming an increasingly significant contributor to our financial results," Holmberg says. "It's hard to predict what EBIT will be in the future, but it's clear that energy will represent a bigger and bigger share of our income, there's no doubt about that."
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