Joachim ForumSUNY-ESF

Syracuse, NY

October 25, 2006

Technology for Fun vs.

Technology for Profit

Technology for Fun vs.

Technology for Profit

10 Years ago…

• Commercial biomass gasifier/gas turbine systems might be commercially available as soon as the end of the decade. Commercialization of gas turbine systems using black liquor gasification will probably take longer.

• The relatively low fuel and electricity prices prevailing since the mid-1980s have reduced the profitability of investments in energy efficiency improvements.

Energy Efficiency and the Pulp and Paper Industry AUTHORS: Lars J. Nilsson, Eric D. Larson, Kenneth Gilbreath, and Ashok Gupta ACEEE Summer Study on Energy Efficiency in Industry: "Partnership, Productivity, and Environment,“ August 1995.

Last few years…

Market conditions make it hard to attract capital

Market conditions make it hard to attract capital

US Paper Mill Statistics

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2000 2001 2002 2003 2004

Employment

Revenue

US Paper Mill Statistics

-12

-10

-8

-6

-4

-2

0

2

4

6

2000 2001 2002 2003 2004Real Growth

Market Perspective

• Technology is always being worked on by the industry, especially to reduce marginal costs and effluent levels. However, true advancements are yet to be realized on an industry-wide scale.

... INDUSTRY CONDITIONS Paper Mills in the US17 November 2005

Copyright © 2006, IBISWorld Inc.

• The ‘Katrina’ effect– reducing dependence on natural gas is one of the key objective for

all manufacturing segments. Paper mills that are dependent on natural gas and fuel oil are at greater risk for margin erosion associated with energy market volatility. US Natural Gas Wellhead Price

($/mcf)

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

Jan-

83

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Jan-

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Jan-

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A Real Case Study…

Northern US integrated mill

Competitive

Energy Baseline

Competitive

Energy Baseline

$45-50MM

$19.5MM

$10.5MM

$25.5MM

$22.5MM

LEGEND

Electric expense

Steam expense

Power Sales Credit

$11.5MM

$66MM

NET Utility Expense

Baseline

$19.5MM

$10.5MM

$25.5MM

$22.5MM

PLANT W

PLANT E

LEGEND

Electric expense

Steam expense

Power Sales Credit

$11.5MM

$66MM

NET

Utility

Expense

CompetitiveEnergy Gap

electric power sales

Competitive

Energy Baseline

Competitive

Energy Baseline

$45-50MM

$19.5MM

$10.5MM

$25.5MM

$22.5MM

LEGEND

Electric expense

Steam expense

Power Sales Credit

$11.5MM

$66MM

NET Utility Expense

Baseline

$19.5MM

$10.5MM

$25.5MM

$22.5MM

PLANT W

PLANT E

LEGEND

Electric expense

Steam expense

Power Sales Credit

$11.5MM

$66MM

NET

Utility

Expense

CompetitiveEnergy Gap

electric power sales

Primary disadvantage is due to fossil fuel dependence for over 50% of total energy requirements

Primary disadvantage is due to fossil fuel dependence for over 50% of total energy requirements

No Shortage of Project Options

Grinding Room Electric Conversion

Bark & Sludge Material Handling & Drying – “Zero Sludge to Landfill”

New Biomass Boiler

Compressed Air

#4 Steam Turbine Retrofit

Existing Biomass Boiler - Automation Upgrade - Boiler Bottom Mod

Equipment CapacityEvaluation & Modification

#5 PM Steam TurbineDrive - electric

PM 11 Freeness Control

Lighting TechnologyChange

Heat Recovery #11 Paper machine

Heat Recovery #6 Paper machine& Static Siphon System

Heat Recovery #5 Paper machine & Dryer Drainage & Static Siphon System

Steam TrappingCondensate Recovery

Dew Point Driven Dryer Air Volumetric Control

Economically Attractive ‘short-list’

Grinding Room Electric Conversion

Bark & Sludge Material Handling & Drying – “Zero Sludge to Landfill”

New Biomass Boiler

Compressed Air

#4 Steam Turbine Retrofit

Existing Biomass Boiler - Automation Upgrade - Boiler Bottom Mod

Equipment CapacityEvaluation & Modification

#5 PM Steam TurbineDrive - electric

PM 11 Freeness Control

Lighting TechnologyChange

Heat Recovery #11 Paper machine

Heat Recovery #6 Paper machine& Static Siphon System

Heat Recovery #5 Paper machine & Dryer Drainage & Static Siphon System

Steam TrappingCondensate Recovery

Dew Point Driven Dryer Air Volumetric Control

Net Economic Impact

• The economically attractive projects make a modest impact on closing the gap.

CompetitiveEnergy Baseline

CompetitiveEnergy Baseline

$45-50MM

Competitive Energy Gap

$5.9MM Net Energy

Savings

Condensate Recovery System

Plant Lighting Systems Upgrade

PM5 & 11 Dryer Energy Management & Heat Recovery

Additional $1,345K of net operating benefit

Projects contribute to reducing the

energy gapby 30 - 40%

Gap Closing Investments

CompetitiveEnergy Baseline

CompetitiveEnergy Baseline

$45-50MM

Competitive Energy Gap

$5.9MM Net Energy

Savings

Condensate Recovery System

Plant Lighting Systems Upgrade

PM5 & 11 Dryer Energy Management & Heat Recovery

Additional $1,345K of net operating benefit

Projects contribute to reducing the

energy gapby 20-25 %

Gap Closing Investments

Paper Industry: Technology and Systems

The rate of technology change in technology systems is high.

• The major technological developments have been in the areas of:– Computer aided manufacturing.– Faster machines brought about by the purchase of new technology with increasing

capital investment, which have increased output productivity.

• Reduction in effluent from mills who make their paper from woodpulp.

• Alternative pulp-making technologies, with different implications for resource use, product viability and effluent discharge.

• Improvements in de-inking of recycled newsprint.

• Supply chain management and e-commerce, aimed at reducing delivery times and reducing transport and storage costs. PaperlinX believes that its e-commerce strategies will provide it with significant marketing advantage in the future.

• Plant power generation through utilization of on-site energy using biomass fuel.

Source: INDUSTRY CONDITIONS Paper Mills in the USNovember 2005Copyright © 2006, IBISWorld Inc.

On the Horizon…

• Elemental chlorine-free bleaching: Production of ECF-bleached pulp in the United States has increased by nearly 2000% since 1990, and is expected to increase.

• Total chlorine-free bleaching: The US industry is leaning toward widespread adoption of ECF bleaching over TCF.

• Extended delignification: Many US mills are awaiting the promulgation of the Cluster Rule to determine whether implementation of extended delignification will be necessary to comply with proposed statutory limits on bleach plant effluent. (regulatory compliance)

• Oxygen delignification appears to be favored over ozone delignification due to its lower operating costs. Chemical catalysts to aid delignification are used by only a small number of mills; use may increase as research to optimize the process.

• Alternative pulping technologies: Several chemical pulping methods that do not use conventional cooking chemicals have been developed by industry and research institutions, including acetic acid-based pulping, organosolv pulping and biopulping. Most of these techniques are still being researched and are not yet economically feasible or technologically ready for full-scale implementation. As research continues, these methods may become more favorable for implementation.

Source: INDUSTRY CONDITIONS Paper Mills in the USNovember 2005Copyright © 2006, IBISWorld Inc.

• Black liquor gasification: – Black liquor gasification is being researched as an alternative technology to

a conventional kraft recovery furnace. It is not yet cost-effective for US mills to implement full-scale black liquor gasification systems to recover kraft process chemicals. Research on this technology is ongoing in both the United States and in Europe, particularly Sweden.

• Sensors and process control: – Employing "fuzzy logic" is still in development for both ECF bleach plants

and other industry operations and there are few large-scale commercial installations at existing mills.

• Water use reduction and closed bleach/effluent systems: – There are no known totally closed effluent plants operating in the United

States, although a handful are reportedly operating in Canada and Scandinavia. Research efforts in this area are expected to be intensive in the next several years.

– A closed effluent plant is technologically easier to achieve and more economically feasible for mills that use mechanical or semi-chemical pulping methods rather than chemical pulping.

Source: INDUSTRY CONDITIONS Paper Mills in the USNovember 2005Copyright © 2006, IBISWorld Inc.

On the Horizon…

Dimensions of ‘fun’ & ‘profit’

Fun & profit are not mutually exclusive…

Research expenses for some, represent revenues & profit to others….

2010 2020 2030

Paper Mill CapEx creates Earnings now +

sustainable benefits

R&D investments have risk elements that dilutes

short term returns, but with potential dividends

Research can often create secondary benefits that may go to market more quickly than the primary technology.

About Johnson Controls

Johnson Controls$33B

Automotive$22B

Building Efficiency$11B

Interiors$19B

Battery$3B

Systems$4.5B

Infrastructure Services

$3B

Real Estate & Facility

Management$2.5B

Refrigeration$1B

Broad base of expertise supporting a global customer footprintBroad base of expertise supporting a global customer footprint

Infrastructure Solutions

Utility Systems• Process Cooling• Steam/Co-Generation• Compressed Air• Wastewater• Process Water• Heat Rejection• Heat Recovery• Power Distribution

Facility Services• Maintenance• Capital Projects• MRO• Non-Core Operations• Telecoms/Security

Johnson Energy Solutions

• The Market Presents– Continued Escalation – Continued Volatility

• JCI Solutions for;– Supply Side

• Sourcing lowest unit cost

– Demand Side• Increase asset efficiency

and availability

– Risk Management• Physical and financial

US Natural Gas Wellhead Price($/mcf)

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

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83

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Jan-

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Jan-

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Jan-

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Here & Now… Biomass Gasification• Expanding customer steam demand , retirement of

aging assets and volatile natural gas markets creating attractive business case for biomass.

Gasifier

Oxidizer

Gasification Solution – Meets stringent emissions

requirements met without excessive capital cost

– Local fuel sourcing yields $7/MMBtu spread over conventional fuels

– Promotes use of renewable resource

– When combined with Co-generation satisfies ’05 EPAct tax incentives

. . . Thank you

Where are you going to play ?