RISKIDENTIFICATIONINTHEWOODPELLETSUPPLYCHAINScottBax,SeniorVPOperations, PinnacleRenewableEnergy Inc.8th BiomassPelletsTrade&PowerConference

WhyCanadaisaGreatSourcing OptionforWoodPellets

WHATISCANADIANSUPPLYCHAIN RISK?

2

FIBRE

MANUFACTURING

QUALITYLOGISTICS

WHYBUYINGFROMCANADAMAKESGOODSENSE

Youneedasupplyofwoodpellets,whatshouldyouconsider?

• Proximity &Logistics– distancetoJapan,portinfrastructure

• Fibrefeedstock– Availability,consistency;security,sustainability,quality

• TransportInfrastructure– reliable,safe

• Manufacturingexperienceandtechnology– safety,quality,bestavailabletechnologies

• Financialmuscle– wellfunded owners /producers;stablefibresuppliers

• Economic&PoliticalStability– wellmanaged,politicallystable& AAA rated

LOWRISKSUPPLIABILITY

2

WHATISCANADIANSUPPLYCHAIN RISK?

Internal: Controllable

External: Uncontrollable

4

GEOGRAPHICRISK– ECONOMICANDPOLITICAL STABILITY

Source:CofaceWebsite 5

GEOGRAPHICRISK– PROXIMITYAND ACCESS

Soma,Japan to: Sailing Time

PrinceRupert, BC 11.5 daysLongBeach, CA 15.0 days

Chesapeake,VA 30.0days

Perth, Australia 15.0 days

Jakarta, Indonesia 11.0 days

Saigon, Vietnam 8.0 days

Shanghai, China 4.0 days

6

GlobalLeaders;Long TermContractable

FibreSupplier Reliability

FEEDSTOCKRISK– LONGTERMFIBRE SECURITY

7

Quantity&Abundanceof Fibre

• Sourceofraw material?• Meetsalllocalandnational

legislation?Ø Forestry&EnvironmentallawsØ Conservationandhabitat lawsØ Labour LawsØ Welfare,Health&Safety laws

• ForestManagement Certification• ChainofCustody Certification• GreenhouseGas Certification• Paidupstumpage,taxesand duties• Landusechange• Deforestation• Contamination

FEEDSTOCKRISK– SUSTAINABILITY&FOREST MANAGEMENT

8

• Substitution Risks:Ø Tropical HardwoodØ Agriculturalresidue(husks)Ø MSW,RDF,SRF etc

• Mixing Risks:Ø Differenttypesof FuelsØ Certifiedwithnon-certified pelletsØ LegalwithillegalrawmaterialØ Legalwithillegal pellets

• Alternativeuse Risks:Ø Demand&Supplyof pellets

§ Animal comfort§ Sorbent§ Domestic markets

Ø Demand&Supplyofwood fibre§ Lumber§ Chipsfor fuel orpulp§ MDF, OSB,

FEEDSTOCKRISK– SUBSTITUTION,MIXINGANDALTERNATIVE USE

9

• Manufacturing experience?Ø Howlonginthe businessØ Safety recordØ Manufacturing recordØ Maintenance record

• BestAvailableManufacturingTechnology?

• RegularCapital Expenditure?Ø Updated&upgradedequipment

• Quality?Ø HandleabilityØ NCV/ heatØ Chemistry;TraceelementsØ Ashcontent&melting behaviorØ Consistency

MANUFACTURING RISKS

10

INFRASTRUCTURE RISKS

• Inland Transportation:Ø RoadsØ RailØ Intermodal pointsØ Critical points

• Ports:Ø SafetyØ LaborØ Draft(airandwater)Ø Services

• Export Terminals:Ø StorageØ SurveysØ SamplingØ Loading

11

SERVICES RISKS

• LoadPort ServicesØ SupervisionØ SurveysØ Samplingand Testing

• Biomass ServicesØ SustainabilityandGHGauditsØ Wood traceabilityØ Stumpage/Taxpayment

verification

• General ServicesØ Export administrationØ FuelandPowerØ Telecommunications

12

COUNTERPARTY RISK

• Financial capacity

• Creditwrap availability

• Customerdefault risk• Longtermcontract competency

• Business risks

Ø Key personnelØ Business processesØ Planningand controlØ Cultural riskØ Mitigationand contingency

• Provensupplycapabilityto Japan

13

FINANCIAL RISK

• Basic Risk• Capital Risk• Country Risk• Default Risk• Economic Risk• ExchangeRate Risk• InterestRate Risk• Liquidity Risk• Operations Risk• PaymentSystemRisk• Political Risk• Refinancing Risk• Reinvestment Risk• Settlement Risk• Sovereign Risk• Underwriting Risk

14

CANADIANWOODPELLET CAPACITY

TotalCanadianCapacityAbout4million Tonnes

Pinnacle Pacific Bioenergy Other BC Central Canada Eastern Canada

BChas58%ofCanadianWoodPellet Capacity

42%of CanadiancapacitywouldlogisticallyflowthroughtheEastcoast.

15

WHYBUYINGFROMCANADAMAKESGOOD SENSE

• Geography– 1.5weekssailingto Japan

• Availablefeedstock– 55millionhectaresofforestlands,1.5timesareaof Japan.

• Fibresecurity– longtermcontractswithestablishedCanadian sawmillers

• Sustainability– 95%forestsarecertifiedtointernational standards

• Quality–madeprimarilyfromcleansawmillingresiduals,consistenthighheatI2 standard.

• PortInfrastructure– 2deepwatermodern ports,westcoast

• TerminalInfrastructure–mostmodernpelletterminalintheworld,panamax capable

• TransportInfrastructure– dependablerailandroadnetworkwithworldclass operators

• Manufacturingexperience&technology– 25yrs ofexperience&manysitesutilizeBAT

• Financialmuscle– wellfundedowners;stablefibresuppliers

• EconomicandPoliticalStability– wellmanaged,politicallystableandAAA rated

LOWRISKSUPPLIABILITY

16

CanadianWoodPellets– LeadingtheWorld

ScottBax,SeniorVicePresident,OperationsPinnacleRenewableEnergyInc..

Scott.bax@pinnaclepellet.com +1.604.787.3176

17