(285a) Estimation of the Cost Impacts of Retrofit Biorefinery Implementation Using Operations Driven Costing

Increased competition from low cost pulp and paper producer nations and decreased market demand of pulp and paper products have made it imperative for North American forestry companies to enhance the cost competitiveness of their production facilities. An effort has been made to achieve this, for example by stream-lining activities through mergers and acquisitions, and more recently, by planning to change and diversify the product portfolio with biorefinery products such as biofuels and biochemicals either through mill retrofit or repurposing. Justification of many of these high capital cost strategies is challenging. This is partly also due to uncertainties in the market place for both existing and new products, raw materials in the longer term, and technological viability of potential new biorefining processes in the short term.

This paper introduces a novel early-stage process design method targeted at estimating the changes in cost-efficiency of existing processes in different retrofit biorefinery implementation scenarios, for screening out non-promising alternatives. The method uses process-based data, process simulation and cost estimation based on the principles of activity-based costing to derive transparent and understandable direct and indirect cost information of an integrated system of continuous processes, e.g. an integrated forest biorefinery producing pulp and biofuels. Stochastic risk analysis (Monte Carlo analysis) is integrated into the cost modelling framework to be able to analyse the effect of price and performance uncertainties on the cost-efficiency.

Several kraft pulp mill retrofit strategies, including mill modernization and biorefinery implementation projects with different production capacities are evaluated using the proposed method, and the results are presented. Because the method first allocates the costs to activities based on resource consumption and then to end products, the true costs of production can be better estimated. This leads to a better understanding of the impacts of process integration on the individual product production costs in the integrated system. Differences ? and the reasons for these differences ? in cost-reduction potential and overall margin improvement, and therefore also in project profitability and mill's economic performance can be seen and analysed between retrofit strategies. The difference in the level of uncertainty, analysed in a systematic manner, shows that screening out retrofit strategies requires the use of multiple decision making criteria.