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Feasibility Analysis of Investing in Wood Pellet Production Project in Thailand

Date: 11/26/2020 08:39:42 From: Clicks:

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The use of biomass as renewable energy is broadly accepted for substituting fossil fuels. Wood pellets are solid fuels made from biomass, especially waste wood. The wood pellets are bio-based products utilized for heat and electricity production in several countries. Future forecast of global wood pellet demand predicts a significant increase up to 54 million tonnes in 2024 (40% demand for the heating pellet market and 60% demand for the industrial pellet market). The wood pellet demand depends on policies, weather and the price of fossil fuels. In 2018, about 52.7 million tonnes of the wood pellets were produced, including 17.7 million tonnes from China. The growth rate average of the global wood pellet market is 11.6% annually (in 2012–2018). In Asia, South Korea and Japan have a huge potential demand for the wood pellet industry. South Korea presented a wood pellet demand of around 2.88 million tonnes for electricity production in 2020 . The wood pellet demand in Japan will increase to 5.8 million tonnes in 2030 because the Japanese government plans to partially substitute coal with industrial wood pellets. The main supplier of Japan was Vietnam in 2019 (Canada in 2018).

wood pellet
wood pellet

Thailand exported 172,441 tonnes of wood pellets in 2019. The major importers of wood pellets from Thailand are South Korea and Japan. The wood pellet production of Thailand is expected to rise because of increasing import from Japan. The trend of domestic use in Thailand became enhanced with encouragement from the Thai government, with policies such as supporting 30% to 50% of the cost of modifying existing factory boilers to be able to utilize wood pellets. The Thai government presented the goal of biomass use in the Alternative Energy Development Plan (AEDP2015) of Thailand to produce 5570 MW of renewable energy. However, the Thai government does not support using wood pellets for electricity production because biomass power plants in Thailand use wood chips or other biomass substitutes. Wood chips are cheaper than wood pellets in Thailand; however, there is often a shortage of wood chips in the rainy season.

The raw material for wood pellet production of Thailand is waste wood from para-rubber and economic wood (EW), including fast-growing trees (FGTs). Most of the raw material is para-rubber wood, which is abundant in the south of Thailand. Rubber trees are cut at the age of 25 years because the yield of latex is reduced. About 8 million tonnes (dry weight) of para-rubber waste wood is collected from cultivation and the furniture industry every year. Previously, the FGTs were grown in Thailand largely for the paper industry and pillar wood for buildings. At present, they are used for renewable energy by the Forest Industry Organization (which supports 3500 THB (based on the exchange rate 31.1 THB per USD) per 0.16 ha per 3 years for plantation), and Thai entrepreneurs persuade farmers to grow them in contract farming.

The aim of this work is to study the economic feasibility of the source of heat for an industrial boiler, using wood pellets. The economic analysis helps in the criteria determining, subsidy or incentive required. The economic criteria of Net Present Value (NPV), Internal Rate of Return (IRR) and Pay Back (PB) periods are employed to analyze the economic performance of different scenariosand thereby determine the use of local fuel derived frombiomass would lessen the country’s reliance on fuel imports, the price of which can be volatile.

Wood Pellet Production Project
Wood Pellet Production Project


A. Project Costs Analysis

The economic parameters, i.e., NPV, IRR and PB periods, were analyzed with the assumption that the steam boiler capacity of 3 tons per hour was operated. Its overall boiler efficiency and the project life-time were around 81.6% and 15 years, respectively. The cost data for boiler capacity of 3 tons per hour is also referred to the situation in February 2016 (1 USD = 35.84 THB).

The economic evaluation of the industrial project was assessed based on the investment cost; the operating cost and the benefit. The project feasibility was assessed based on localized conditions in the regions studied as well.

(1) Investment Cost

The method was explained in. Briefly, the schematic diagram ofsteam boiler with units using wood pelletsis shown in Fig. 2, the existing of oil burner was replaced by wood pellet burner.The furnaces(boiler) system was consist of pellet burner set, wood pellet burner and dust collector set. Wood pellets are transported from the storage to the fuel hopper, whichis conveyedby screw conveyorsinto the combustion chamberof the boiler. The firing of the pellets was then occurred through a stoker or wood pellet burner; and dust collector, which is consist of multicyclone, fluegasfanand chimney.Multiple cyclone dust collectorsare composed of a number of small diameter cyclones, which arrange in parallel to the one another cyclone.The multi cycloneseparators use forremovingthe dust, the ash particles (fly ash) in boiler; flue gas fan, which blow the flue gas out via the chimney.

The costsinclude the investment cost for wood pellet furnace, multi cyclone dust collector and screw feeder system are amount 228,794 USD.

 The replacement existing furnaces with units using wood pellets
 The replacement existing furnaces with units using wood pellets

(2) Operating Cost

The operating cost is assessed for evaluating the economic feasibility of project. The operating costs system was determined by the pollution control with multi-cyclone, screw feeder machine and others, were approximately 62,118Baht per year (1,733 USD per year), electricity price rises by around 1.89% per yearfor PDP 2015 and the extra employees are not required.

(3) Benefit

The fuel oil in industrial furnace with 174,088liters per year is amount of 4,322,597 Baht per year (120,608 USD per year). However, the replacement of existing fuel oil furnaces system by sawdust pellet fuel, which consumesthe amount of 492,826tons per year (1,724,892 Baht per year or 48,128 USD). The annual savings of energy cost can be up to 60% with the amount of 72,480 USD.

(4) Economic Evaluation of the Project

The economic profitability of the replacement of existing fuel oil furnaces with units using wooden pellets project was evaluated in terms of NPV over the project lifetime of 15 years. NPV is the sum of the total capital cost and the present value of all future cash flows at a specific discount rate of 7.01% for Thailand. The acceptance criteria for NPVas shown by (1), when the NPV is greater than zero, the project will be accepted.The greater the NPV of a project is the project had the more profitable.

IRR of the project is a specific discount rate, which is made to the total NPV of the project equal to zero. It is calculated according to (2).

A minimum required rate of return of 7.01% for private investors is not less than the Minimum Loan Economic Feasibility Analysis of Wood Pellet Boiler in Thailand Industry Proceedings of Researchfora 15 th International Conference, Hamburg, Germany, 22nd -23rd February 2018 126 Rate (MLR). Finally, SPP is defined as the period of time required to recover the cost of an investment. The secondary evaluation measure is used to appraisal SPP of an attractiveness of investment cost. In Thailand,implementing energy conservation measure shall have simple paybackperiod less than 7 years.

The acceptance criteria for NPVas

whereNPV is the net present value, B is the benefit, C is the cost, t is the period and r is the discount rate. The IRR is the value of the discount rate for the value of NPV becomes equal to zero. IRR is given as follow:

PB period is defined as the length of time require to recover the cost of the investment by profit gaining.PB period is calculated through following equation:


A. Project Costs Analysis Results

The financial evaluation of the project is represented in terms of NPV, IRR and PB periods, as shown in Table I.

In the baseline scenario,the annually net profit and economic indicators, i.e., NPV, IRR and PBP, are thereby calculated. Asdemonstrated in Table 1, the NPV of this scenario is 0.41 million USD(NPV > 0), IRR is 30.29% (IRR>MLR) and payback periodis 3.23 year. These results reinforce the belief that the replacement of existing fuel oil furnaces with units using wooden pellets is economically attractive, as shown in Fig. 3.

In subsiding scenario, the government subsidy either 30% of the purchase of suitable furnaces (55,804USD) while the remaining percentage (172,991 USD) would be the responsibility of the private sector.Results show a significant promotion in NPV and IRR. The simple payback period is shortened to 2.45 years as well. The results indicated that government subsidy to promote use of pellets in the country may generate great incentive for investors to replace existing factory furnaces with units by wooden pellets.


The economic feasibility of project was also investigated. The financial feasibility is also evaluated based on three important factors in the project, i.e., NPV 0, IRR 7.01 % and simple PB periods≤ 7 years. It was found that the replacement of existing fuel oil furnaces with units using wooden pellets project by industrial enterprises is a worthwhile investmen.

wood pellet
wood pellet

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