Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Development of a Sustainable Bioenergy Market in (DKTI)

WOODY BIOMASS POTENTIAL AND LOGISTICS STUDY FOR THE CITY OF

PREPARED BY:

Milan Malidţan, B.Sc. Economics

Slaviša Vitorović, B.Sc. Mechanical Engineering

July 2017 GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Contents

1. Definition of Tasks ...... 6 2. Methodology applied ...... 7 3. Executive Summary ...... 8 4. district ...... 11 5. Public Company „Grejanje‟, Smederevo ...... 13 6. Biomass potentials and realistic biomass supply ...... 17 6.1 Specification of available woody biomass potential from Srbijašume and private forests in Podunavlje District and adjacent municipalities of Grocka and Kovin ...... 17 6.2 Estimation of roadside, riverbed and park biomass ...... 20 7. Biomass market situation in the Podunavlje district ...... 21 7.1 Identification of potential biomass suppliers...... 23 8. Biomass supply and logistics ...... 27 8.1 Technical requirements and machinery in use ...... 27 8.2 Supply chain management ...... 31 8.3 Biomass storage ...... 33 9. Legal aspects related to biomass utilization ...... 36 10. Financial analysis and economic indicators of biomass supply organization and financing options ...... 38 10.1 Investments in hardware and operational costs ...... 38 10.2 Economic indicators ...... 39 11. Conclusion and recommendations ...... 40 12. Literature ...... 41

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

List of Tables

Table 1: Road distance (km) of Smederevo to neighbouring cities ...... 12 Table 2: PC „Grejanje‟, Smederevo, installed capacities ...... 13 Table 3: Forest area distribution by regions, municipalities and ownerships ...... 19 Table 4: Road structure in the City of Smederevo ...... 20 Table 5: Forests managed by Forest Enterprise „Severni Kučaj‟...... 21 Table 6: FE „Severni Kucaj‟, Kučevo: Wood sale in 2016 ...... 21 Table 7: Data on forests managed by FE „‟ ...... 22 Table 8: Types of wood chippers ...... 29 Table 9: Machinery necessary for biomass mobilization ...... 30 Table 10: Machinery necessary for manipulation with wood chips at boiler room „Sportski centar‟ ...... 38 Table 11: Annual operational costs related to manipulation with wood chips ...... 38 Table 12: Analysis of sensitivity of fuel savings on fuels prices fluctuation ...... 39

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

List of Figures

Figure 1: Administrative regions of the Republic of Serbia ...... 11 Figure 2: City of Smederevo ...... 12 Figure 3: Traffic connections of the Smederevo area ...... 12 Figure 4, Figure 5: Boiler room „Sportski centar‟...... 14 Figure 6: Disposition of a new boiler room with equipment delivered by Biro Kremzer...... 15 Figure 7: Position of future boiler room (in red) across the existing boiler room (white roof), ...... 16 Figure 8: Forested area ...... 17 Figure 9: Distribution of wood plantations in Serbia ...... 18 Figures 10, 11, 12; 13: Photos of the site of „Nova Sumadija‟ with stored wood residuals and wood chipper ...... 23 Figures 14 and 15: Facility of wood chips mill at „Eko Furnir‟ Ltd...... 24 Figure 16: part of the fleet owned by „Eko furnir‟ Ltd. for processing logs and wood chips ...... 25 Figure 17: Forwarders at „Ambalaţerka‟ Ltd ...... 26 Figure 18: Storing chips at open space at „Ambalaţerka‟ Ltd. in Begaljica...... 26

Figures 19 and 20: Wood chips telescopic loader tractor and tractor with telescopic handler with fork lifter ...... 30 Figure 21: Supplying wood directly from forest, option I ...... 31 Figure 22: Supplying wood from forest to the storage or logistic centre option II ...... 31 Figure 23: Logistics and supply chain options for supply of wood chips ...... 32 Figures 24 and 25: Material for producing wood chips ...... 34 Figure 26: Position of a new boiler room ...... 34 Figure 27: Covered wood chips storage Figure 28: Storage of „Eko Furnir‟, Kovin ...... 35 Figure 29: Tractor with telescopic handler with fork lifter ...... 35

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

List of Abbreviations

A Annum BMZ German Federal Ministry for Economic Cooperation and Development CB Cost Benefit CC Constitutional Court DHC District Heating Company DKTI German Climate Technology Initiative € EUR EU European Union FE Forest Estate FAU Forest Administration Unit GHG Green House Gasses GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit h Hour ha Hectare HoB Heat Only Boiler Km Kilometre Kg Kilogram m³ cubic meter MW Megawatt No Number PC Public Company PUC Public Utility Company PPP Public- Private Partnership RS Republic of Serbia SE State Enterprise t Ton

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

1. Definition of Tasks Development of Woody biomass potential and logistics study for City of Smederevo is supported by the Programme „Development of a Sustainable Bioenergy Market in Serbia‟, funded by the German Federal Ministry for Economic Cooperation and Development (BMZ) under the German Climate Technology Initiative (DKTI), and implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. The goal of the Study is determination of realistic woody biomass potential in the region of the City of Smederevo including entire Podunavlje District, and provision of essential information and data for decision makers in terms of implementation of a fuel switch project- from heavy oil (mazut) to wood chips, by construction of a new boiler room and installation of 3 x 1MW boilers to cover a base load consumption, with 3,000t/a of wood chips necessary next to the existing boiler room „Sportski centar‟ in Smederevo. . Tasks and activities

1. Biomass potentials and realistic biomass supply

 Specification of available woody biomass potential from Srbijašume and private forests in Podunavlje district  Available woody biomass (wood processing residues by type and quantity)  Estimation of roadside, riverbed and park biomass  Determination of technical potentials and realistic biomass supply

2. Biomass supply and logistics  Biomass market situation in Podunavlje district  Identification of potential suppliers (specialized woody biomass mobilization companies, major wood processing companies, and producers of wood chips and wood pellets, etc..) and their potentials and propensity for supply in terms of quantity, quality and other properties  Technical requirements and machinery in use respectively necessary for sustainable biomass supply  Supply chain management – recommended management procedures  Biomass storage and overview on technology and machinery used in biomass harvest and logistic chains

3. Legal aspects related to biomass utilization

4. Financial analysis and economic indicators of biomass supply organization and financing options  Investments in machinery, equipment, storage, quality control  Operational costs  Economic indicators based on the recommended solution, including sensitivity of savings on the fuel prices calculation  Costs for fossil fuels at the moment and costs that Smederevo will have with wood chips boilers.

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

2. Methodology applied Woody biomass potential and logistics study for Smederevo should serve as a basis for installation of three wood chips boilers each 1 MW (3x1MW) to cover a base load consumption, with 3,000t/a of wood chips necessary. The Study is based on both desk research and field investigation. Methodology applied in order to meet the goal of the Study encompasses following activities: 1) Desk research of relevant data regarding: situation in the designated area regarding forestry, biomass market, wood processing, roadside biomass, infrastructure related to the installation of a new boilers, biomass storage and recommended options for organizing the supply chain, stakeholders in the potential project at the supply side, and market research.

2) Review of selected literature on the topics of biomass fuels, referent legal framework, and of available good/ bad practice examples.

3) Interviews with selected stakeholders representing local administration, relevant local and national public companies, wood processors and entrepreneurs. Structure of the interviews was following: a) standard questions on biomass production and the sectors of forestry and wood processing industry b) data on specific operations of a particular stakeholder c) professional and personal experience and attitude towards the fuel switch project and potential involvement. Interviews were conducted as a phone interviews and face to face interviews during the field visits.

4) Field visits were conducted to specific stakeholders selected by the authors as well as suggested by relevant local representatives.

5) Comparison and analysis of data gathered from different sources related to respective sectors, calculation and estimation, followed by consultations with experts in the fields of forestry, thermal and mechanical engineering.

6) Evaluation of the results of analysis according to development of different scenarios of the project‟s implementation.

7) Financial analysis

8) Conclusions and recommendations

9) Reporting to GIZ

Time frame of conducted assessment: July 2017.

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

3. Executive Summary Smederevo is the centre of heavy industry and manufacturing, with the only operating steel mill in Serbia- Ţelezara Smederevo. There are also 13 boiler rooms using heavy oil (mazut) as fuel in the operating system of the heating company PC 'Grejanje' in Smederevo. High carbon emissions and air pollution seriously damage environment and human health. One of priorities of local development of the City of Smederevo is lowering green-house gasses emissions and improving the quality of air. This can be achieved through utilization of biomass energy sources in district heating. The first step in this strategic task would be achieved through a fuel switch project, by construction of a new boiler room at the location of Sports Centre in Smederevo, and installation of 3 x 1 MW boilers heated by 3,000t of wood chips per year. PC „Grejanje‟, Smederevo is a district heating company in charge of production and distribution of the heating energy to 220,000m² of residential space, and 69,000m² of business space in Smederevo. There are 13 boiler rooms with average annual consumption of mazut is 4,000t. Woody biomass potential data of National Forest Inventory, SE „Srbijašume‟, and „Vojvodinašume‟ show that at road distance smaller than 30km from Smederevo there is more than enough wood available for the needs of Smederevo fuel switch project (for 3000t/a of wood chips which will substitute over 900t/a of mazut). Moreover, collected data represent solid basis for further consideration of potential replication of a fuel switch project in Smederevo.

According to technical solution developed by „Biro Kremzer‟ on the request of PC „Grejanje‟, the boiler room „Parnjaca‟ which is near the boiler room „Sportski centar‟, will be closed, and 3 boilers of 1MW each, using wood chips as a fuel, will be installed in a new boiler room at the surface of 432m² which will be constructed on the land parcel across the existing boiler room „Sportski centar‟, aside the parking lot. This will provide app. 90% of annual heat requirements of boiler rooms „Parnjaca‟ and „Sportski centar‟. The rest of annual heat requirements could be provided by newly installed gas boiler. In cases of emergencies (e.g. unexpected shortage of wood chips), there would still be available heavy oil boilers in the boiler room „Sportski centar‟.

In the vicinity of „Sportski centar‟, there is no space available for storing large quantity of wood chips. Aforementioned parking lot is a public property with total area of 2,100m², which is enough space for construction of wood chips storage sufficient for 2-3 weeks (or monthly) consumption, depending on legal requirements and construction permit. Covered storage would be located next to a new boiler room. Costs of construction of canopy are up to 250 €/1m², which refers that construction of higher storage is cheaper (e.g. price of 20 x 10 x 5m storage canopy is 13,000 € cheaper than a canopy of 21 x 12 x 4m). Average monthly consumption of wood chips is 500t. Capacity of covered storage with 2-3 weeks supply would be 250t, i.e.1,000m³ of wood chips which would be manipulated by one tractor operated by re-assigned workers from closed boiler room „Parnjaca‟.

It is recommended to the decision makers in Smederevo to outsource supplying of wood chips and conclude a purchase contract of wood chips with best bidder (s). Being a public company, „Grejanje‟, Smederevo is liable to conduct public procurement procedure stipulated by law. Risk management refers to several suppliers; in that way risk of potential 8

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

shortage of wood chips at one supplier (or inadequate quality, e.g. moisture content) can be compensated by more orders from another supplier. One of critical requirements in tender documentation should be for the supplier(s) to own/lease adequate storage of wood chips.

It is not financially justified for PC „Grejanje‟, Smederevo to start own production of wood chips for this project type (3,000 t/a of wood chips) due to huge potential investment (machinery, storage) and small quantities needed for 3 x 1MW boilers. Investment in necessary machinery would be 315,000 €. However, with respect to: number of boiler rooms in Smederevo (13 boiler rooms with mazut heated boilers); 4,000t of mazut purchased annually for heating; high values of air pollution; operational costs (maintenance, transport, etc.), there should be considered development of long term strategic plan for a fuel switch of the district heating in Smederevo with emphasis on local priorities, rationalization of district heating system, and better utilization of public resources.

Public procurement contracts on goods and/or services are stipulated by the Law on Public Procurement as well as by the Law on Obligations, which stipulates usual provisions on such contracts (the subject of the contract; price and terms of payment; terms of delivery; quality requirements, quantity and quality control and consequences of failing to perform; risk of loss; amendments; cancellation). However, wood chips quality control measures and consequences of failures in meeting required quality – e.g. required moisture content in case of contracting wood chips are among essential provisions of the future contract.

Investment costs of PC „Grejanje‟ in storage and equipment are estimated at 80,000 €, while annual operational costs for the first years of operation are estimated at 129,150 €/a – see Tables 10 and 11.

This project will be financed from City of Smederevo through bank loan. New boiler room, as a part of PC „Grejanje‟, Smederevo is analysed as point of cost, and not as a point of profit. Consequently, savings are in the centre of financial analysis instead of profit. Complete profit analysis should be done for the company as a whole, based on the data for revenues – heat selling prices and income, costs of a new boiler room, and costs of financing.

Average price of mazut in 2016 was 380 €/t, and the price of wood chips varies from 35 €/t to 40 €/t. In the first year of the project‟s implementation, price sensitivity analysis show savings of 225,420 €/a. Price sensitivity analysis also shows price variation of +/- 30%. At the worst assumed scenario, where at the same time price of wood chips rises by 20% and price of mazut drops by 30% the savings are 97,794 €/t. In the opposite case, if price of mazut rises 30% and price of wood chips conservatively estimated drops by 20%, the savings are 353.046 €/t. Therefore, it is safe to assume that the investment in wood chips supply, which is at focus of this study would be repaid in less than one year from the fuel switch savings.

As future user of renewable energy fuel, Toplana Smederevo will be eligible to apply for GHG emission reduction, government subsidies for using renewable energy, international financial institutions and local commercial banks special and favourable credit lines for renewable energy and energy efficiency. Development of long term strategic plan for

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

utilisation of renewable energy in the Smederevo heating system should also consider public-private partnership as a business model appropriate to facilitating implementation of large infrastructural projects.

There are several potential suppliers of wood chips at a distance of 10- 20km from Smederevo. Companies „Eko Furnir‟, Kovin and „Ambalaţerka‟, Grocka produce in total 12,000t - 15,000t of wood chips annually. There is great interest in long term cooperation with PC „Grejanje‟ expressed by managers of both companies. Machinery fleet, storage space, and other preconditions for such cooperation at a side of these companies are fully met in terms of supply and transport of sufficient quantities of wood chips to boiler room „Sportski centar‟ on a regular basis.

In general, our findings are that: 1) There is enough biomass available to meet requirements of a fuel switch project in the area of 30 km distance from Smederevo.

2) There should be constructed covered storage with capacity of 250t of wood chips beside a new boiler room.

3) Investment in supply chain and logistics can be paid from fuel switch savings in less than 1 year

4) We recommend purchase of wood chips by PC „Grejanje‟ from more than one supplier. Purchase conditions should include transport of wood chips to the site of a new boiler room; and owing/ leasing storage of wood chips by the suppliers.

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

4. Podunavlje district

The Podunavlje district expands from the City of towards East Serbia and Branicevo district. According to the 2011 census results1, it a population of 199,395 inhabitants, at total area of 1,248 km2. It consists of the City of Smederevo, and Municipalities of , and .

Figure 1: Administrative regions of the Republic of Serbia2

City of Smederevo is the administrative and economic centre of the Podunavlje District. According to the 2011 Census City of Smederevo has a population of 64,105, and 108,209 people live in its administrative area.

1 2011 Census of Population, Households and Dwellings in the Republic of Serbia 2 https://commons.wikimedia.org/wiki/File:Serbia,_administrative_divisions_(provinces%2Bdistricts)_-_de_- _colored.svg

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Figure 2: City of Smederevo3

The City of Smederevo is situated on the right bank of the River Danube, about 45 kilometers downstream of Belgrade. One of great potentials of this City is its favourable geographic position between two European corridors: pan-European Corridor X, and Corridor VII- Danube River. Smederevo has significant development options in the area of river traffic; and freight and passenger traffic as well.

From the middle of 20th century, Smederevo became the centre of heavy industry and manufacturing. The city is home to the only operating steel mill in Serbia- Ţelezara Smederevo. High carbon emissions and air pollution seriously damage environment and human health. Moreover, there are 13 boiler rooms using heavy oil (mazut) as fuel in the operating system of the heating company PC 'Grejanje'.

One of priorities of local development of the City of Smederevo is lowering green-house gasses emissions and improving the quality of air. The important step towards this goal would be achieved through utilization of biomass energy sources in district heating.

From To Km Smederevo Belgrade 45 Smederevo Grocka 20 Smederevo Kovin 12 Smederevo Požarevac 29 Smederevo Pančevo 43 Smederevo Kučevo 83 Smederevo Lapovo 63

Figure 3: Traffic connections of the Smederevo area4 Table 1: Road distance (km) of Smederevo to neighbouring cities

3https://en.wikipedia.org/wiki/Smederevo 4http://www.kartesrbije.com 12

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

5. Public Company ‘Grejanje’, Smederevo

PC „Grejanje‟ is in charge of production and distribution of heating energy to 220,000m² of residential space, and 69,000m² of business space in Smederevo. Annual consumption of mazut is 4,000t.

Table 2 below shows installed capacities operated by PC „Grejanje‟:

boiler nominal capacity heating tank (m³); boiler No Boiler room Address (MW) boiler type volume fuel capacity with 85% (m³) (MW) efficiency KaraĎorĎeva 2 x 60 1. SV 1,600 1 SOLIDARNOST 58 mazut 3.72 3.162 2. SV 1,600 38,200 KaraĎorĎeva 2 x 30 1. SV 2,000 2 SAMAČKA 43 mazut 4.65 3.95 2. SV 2,000 60,800 KaraĎorĎeva 1 x 100 1. SV 1,100 3 JNA 9 mazut 2.79 2.37 2. SV 1,300 35,100 Trg 1. SV 3,000 BEOGRADSKA Republike 2 x 60 2. SV 4,000 4 BANKA 12 mazut 11.02 9.4 3. SV 2,500 158,600 R. Mirkovića 2 x 40 1. SV 2,000 5 DUD 1 mazut 4.65 3.95 2. SV 2,000 60,850 2 x 40 1. SV 1,100 6 MLIN Cvijićeva 1 mazut 2.56 2.18 2. SV 1,100 40,600 1. SV 1,600 B. 2 x 40 2. SV 1,600 7 CENTROPROM Radičevića 3 mazut 5.58 4.743 3. SV 1,600 56,000 1 x 80 1. SV 2,000 17. oktobar 1 x 40 2. SV 2,000 8 PARNJAČA 12-14 mazut 6.98 5.933 3. SV 2,000 74,600 1. SV 2,500 SPORTSKI Đure 1 x 100 2. SV 2,500 9 CENTAR Daničića bb mazut 6.86 5.831 3. SV 1,600 76,600 1 x 50 10 SENJAK Jadranska 3 mazut 2 1.785 1. TAM 2,000 30,300 1. SV 3,000 Dragoljuba 1 x 60 2. TAM 1,600 11 PAPAZOVAC Pajića mazut, gas 6.95 5.91 3. SV 1,600 87,200 1 x 100 1. MIP 4,000 12 MILOJE ĐAK mazut 4 + 4 7.2 2. MIP 4,000 62,000 1 x 20 13 MAJDAN mazut, gas 2 + 1 1.7 3 X 1,000 31,130 GASNA 14 KOTLARNICA gas 0.5 0.425 1 X 0.5 6,650 TOTAL: 1,100m³ 68.26MW 57.14MW 818,630m³ Table 2: PC „Grejanje‟, Smederevo, installed capacities

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

In November 2016, the analysis of fuel switch from heavy fuel oil to biomass in boiler rooms „Parnjača‟ and „Sportski centar‟ (No 8 and No 9 shown in the Table 2 above) in Smederevo was conducted by „Biro Kremzer‟ on the request of PC „Grejanje‟, Smederevo.

Recommendation of this analysis is closure of the boiler room „Parnjaca‟ which is near the boiler room „Sportski centar‟, and installation of 3 boilers of 1MW each, using wood chips as a fuel, which would provide ~90% of annual heat requirements. The rest of annual heat requirements could be provided by newly installed gas boiler. In cases of emergencies (e.g. unexpected shortage of wood chips), there would still be available heavy oil boilers in the boiler room „Sportski centar‟5.

Figure 4, Figure 5: Boiler room „Sportski centar‟

5 Analysis of fuel switch from heavy fuel oil to biomass in boiler houses ‘Parnjača’ and ‘Sportski centar’; Biro Kremzer; October- November 2016 14

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Figure 6: Disposition of a new boiler room with equipment delivered by Biro Kremzer6

6 Analysis of fuel switch from heavy fuel oil to biomass in boiler houses ‘Parnjača’ and ‘Sportski centar’; Biro Kremzer; October- November 2016

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Figure 7: Position of future boiler room (in red) across the existing boiler room (white roof), aside the parking lot7

There is not enough space for installation of biomass heated boilers in the existing boiler room „Sportski centar‟, neither there is space for wood chips and manipulation.

According to recommended solution, new boiler room with the surface of 432m² would be constructed on the land parcel across the existing boiler room „Sportski centar‟, aside the parking lot. Total area of parking lot is 2,100m², which is sufficient space for construction of wood chips storage enabling storing quantities sufficient for 2-3 weeks (or monthly) consumption, depending on legal requirements and construction permit.

7 https://www.google.com/maps 16

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

6. Biomass potentials and realistic biomass supply

6.1 Specification of available woody biomass potential from Srbijašume and private forests in Podunavlje District and adjacent municipalities of Grocka and Kovin

National forest inventory from 2008 finally defined basic data on forest resources in Serbia at the level of 29.1%, with very unfavourable state of afforested area in region of 7.1%. Total area of forests is 2,252,400 ha, with high nature forests on the area of 621,000 ha (27.6%), coppice nature forests on 1,465,400 ha (64.6%), 174,800 ha (7.8%) of forest plantations and other forest land on 382,400 ha. Total area of forests and other forest land is 2,634,800 ha.

Forest area: 2,252,400 ha

Wood volume: 362.5 million m3

Annual increment: 9,079 million m³

Figure 8: Forested area8

Total (standing) volume is 362,487,418 m3 and annual volume increment of 9,079,773 m3. Average value of wood volume is modest 160,9m3/ha and volume increment is 4.0 m3/ha. Concerning the ownership structure, state forests represent 53.0% (1,194,000ha) and private forests 47.0% (1,058,400ha).

Podunavlje District and surrounding area are not rich in forests. Share of forest area in total area of the Podunavlje District is 15%, which is far below Serbia average. Forest area in the City of Smederevo covers only 1,552ha, i.e. 3% of total area.

8 National Forest Inventory (2008) 17

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Due to the results of field research conducted, we find necessary taking into consideration following municipalities adjacent to Smederevo: Municipality of Grocka, which is one of 17 city municipalities of Belgrade; and Municipality of Kovin, administratively the part of of the Autonomous Province of Vojvodina. Further elaboration will show relevance of these municipalities in terms of biomass supply options.

Majority of forests in the area of the Podunavlje District (together with adjacent municipalities Grocka and Kovin) are privately owned (66%). Management of forests is responsibility of State Enterprise „Srbijašume‟ and municipality of Kovin is covered by SE „Vojvodinašume‟. Additionally, these public companies have responsibilities for private forests to ensure kind of extension services for expert and technical support to the private forest owners.

According to most recent data provided by the Departments for planning of forest utilization of SE „Srbijašume‟, Belgrade; and SE „Vojvodinašume‟, overall forest area in the Podunavlje District and adjacent municipalities has 28,810 ha, out of which state owned area has 10,800 ha (35%), and privately owned area has 18,880 ha (65%). In total, share of forest area in this region is around 10%. Table 3 shows distribution of forests in regional municipalities by areas, wood volume, increment and ownership.

National Forest Inventory from 2008 is the most comprehensive data source. However, Srbijašume and Vojvodinašume up-to-date sources have more precise data especially for the territory that they manage. Still, how much wood exists on territory of Serbia can be currently only roughly estimated. Important is that data show that there is more than enough wood available for current needs of Smederevo fuel switch project.

Owing to the great production potential of hybrid poplars and their easy vegetative and generative reproduction, banks of rivers (Danube, Sava, Tisa) have been used for the establishment of plantations of many different poplar clones, on some of the best sites for poplar establishment in Europe.

The total area of these poplar plantations is about 48,000ha, which is about 2.1% of the forest areas in Serbia.

FIGURE 9:

Distribution of wood plantations in Serbia; source: National Forest Inventory (2008)

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Poplar forests are also a significant element of riparian stability, particularly of major rivers. They are composed of species that tolerate extreme and frequent flooding. About 36,000ha of poplar plantations are situated in Vojvodina9. The largest poplar plantation areas are intended for the production of veneer, peeling and cutting logs, all of which, about 350,000 m³ round wood per year, is processed in Serbia. They are used in the production of: packaging, veneer, pallets, various types of boards, and other articles.

Wood Volume Increment Total Forest Area per District Municipality Area Ownership TOTAL TOTAL ha ha ha % m3 m3 m3

STATE 150 0.3 31,995 213 1,470

Smederevo PRIVATE 1,402 3 169,332 121 2,741

48,400 TOTAL 1,552 3 201,327 130 4,211 STATE 0 0 0 0 0 Smederevska Palanka PRIVATE 3,625 9 448,856 124 15,761 42,200 TOTAL 3,625 9 448,856 124 15,761 Podunavlje STATE 0 0 0 0 0

Velika Plana PRIVATE 5,100 15 422,452 83 15,086

34,500 TOTAL 5,100 15 422,452 83 15,086

STATE 150 0.1 31,995 213 1,470

PRIVATE 10,127 8 1,040,640 103 33,588

TOTAL 125,100 TOTAL 10,277 8 1,072,635 104 35,058

STATE 82 0.3 12,871 157 491 City of Grocka Belgrade PRIVATE 3,694 13 312,182 85 11,716 28,900 TOTAL 3,776 13 325,053 86 12,207 STATE 1,683 3 359,003 213 14,950 Braničevo Poţarevac PRIVATE 1,665 3 137,633 83 3,313 48,200 TOTAL 3,348 7 496,636 148 18,263

STATE 8,015 9 507,755 63 25,098

South Banat Kovin PRIVATE 3,394 4 367,684 108 12,769

84,900 TOTAL 11,409 13 875,439 77 37,867

STATE 10,080 4 911,624 90 42,009

OVERALL PRIVATE 18,880 7 1,858,139 98 61,386

287,100 TOTAL 28,810 10 2,769,763 96 103,395 Table 3: Forest area distribution by regions, municipalities and ownership10

9 Investment Appraisal of Poplar Plantations in Serbia, L. Keča et al. Baltic Forestry 17(2): 268–279 10 Sources: Departments for planning of forest management of ‘Srbijašume’ and ‘Vojvodinašume’: July 2017 19

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

6.2 Estimation of roadside, riverbed and park biomass

Total length of roads in the Podunavlje District is 966 km, out of which there are 516 km of roads in Velika Plana; 218 km in Smederevska Palanka; and 232 km in Smederevo. According to Mr. Bratislav Kisin at the Department for planning of forest management of „Srbijašume‟, there are no forest roads as such in the Podunavlje District, but local roads are used for purpose of transportation of wood.

Area Podunavlje Smederevo (km) District (km)

TOTAL length of roads 232 966

Modern roadway 230 663

TOTAL 49 59

Magistral modern roadway 47 57

TOTAL 106 239

Regional modern roadway 106 239

TOTAL 77 673

Local modern roadway 77 367 Table 4: Road structure in the City of Smederevo

Length of all categories of roads with modern pavement in the Podunavlje District is 663 km or 70%. Roadsides are calculated 3 m on each side of the road, and estimations are that on 1 km of roadside maintenance can be collected 3- 5 m³ of wood material of very low quality, often not even for burning. However, there are negligible amounts of wood material aside roads in Smederevo region. Moreover, any collection of this material would be cost ineffective.

Some wood material is potentially available at confluence of River Velika Morava with Danube River, but again, there is a problem of cost ineffectiveness in case of collecting roughly estimated 15m³/ha of low quality wood residuals.

PUC „Greenery and Cemeteries‟ in Smederevo through its Department for the city greenery maintains parks and streets greenery (regular inspection, planting, pruning, and cutting). Around 30m³ of woody biomass that is collected annually consists of tree benches, tree trunks, and stumps. Half of collected biomass is distributed to the citizens, and another half is further used by the „Greenery‟11.

11 PUC ‘Greenery and Cemeteries’, Smederevo 20

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

7. Biomass market situation in the Podunavlje district

Forest Enterprise „Severni Kučaj‟, Kučevo is in charge of forest management in the Braničevo District, as well as at territory of the Municipality of Majdanpek in the District of Bor, through its Administration Units in Kučevo, Majdanpek, Ţagubica, and Poţarevac.

Total forest area managed by these forest units is 54,151ha; total wood volume is 13,077,594m³ (861m³/ha), with increment of 304,955m³.

In a year of 2016, FE „Severni Kučaj‟ achieved the highest profit in whole system of SE „Srbijašume‟ by producing and delivering over 100,000m³ of wood, out of which FAU Pozarevac at 29km road distance from Smederevo produced 22,230m³ (over 17,000t) of technical wood, fuel wood, and wood residuals (Table 6).

Volume

FAU Forest Area TOTAL per ha Increment

ha m³ m³ m³

Kučevo 18,994 5,222,805 275 123,243

Majdanpek 16,224 4,776,422 294 102,039

Ţagubica 13,663 2,509,660 184 57,742

Poţarevac 5,27 568,707 108 21,931

TOTAL 48,881 13,077,594 861 304,955 Table 5: Forests managed by Forest Enterprise „Severni Kučaj‟12

Technical Wood Fuel Wood Wood Residues TOTAL FAU (m³) (m³) (m³) (m³)

Kučevo 6,772 18,600 205 25,577

Majdanpek 11,965 23,479 396 35,840

Ţagubica 6,444 10,949 85 17,478

Poţarevac 13,597 7,744 889 22,230

TOTAL (m³) 38,778 60,772 1,575 101,125 Table 6: FE „Severni Kucaj‟, Kučevo: Wood sale in 201613

Forest Enterprise „Banat‟, Pančevo, manages state forests in total land area of 49 ha, and provides extension services at 1,961 ha of private forests at geographic territory of Banat in Vojvodina, at administrative territory of 14 municipalities. Total forest area is 31,200 ha with

12 FE ‘Srbijasume’ 13 FAU Požarevac 21

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

volume of 3,500,000m³, and increment of 173,000m³. State forests are managed by FA Units in , Vršac, Opovo, Pančevo, and Kovin, which operates through 12 smaller units at territory of Gornje Potisje, Donje Potisje, Muţljanski rit, Gornje Potamišje, Donje Potamišje, Donje Podunavlje, SPR Deliblatski pesak, Vršački breg, Karlovačke šume, Majur, Dumača, and Mali rit. Private forests are spreading in the territory of following municipalities: Novi Kneţevac, Čoka, , Novi Bečej, Nova Crnja, Ţitište, Zrenjanin, Sečanj, Plandište, Alibunar, Kovačica, Opovo, Pančevo, Kovin, Bela Crkva, and Vršac.

Forest FE Area Area Volume Increment 'Banat' ha ha m³ m³ 49,495 44,317 3,535,514 173,193

Table 7: Data on forests managed by FE „Banat‟14

Forests at territory of the Municipality of Kovin are managed by FA Kovin with forest units of Deliblatski pesak and Donje Podunavlje. Total quantity of wood assortment, including wood residuals sold in 2016 by FA Kovin is 39,555m³ (in Deliblatski Pesak 28,228m³, and in Donje Podunavlje 11,327m³)15, which is in total over 31,000t.

There is no accurate General Forest Management Plan (Forest Area Development Plan) and new inventory data of forests per ownership are still missing. In accordance with the Serbian Law on Property Restitution and Compensation (Official Gazette of the RS No 72/2011, 108/2013, 142/2014 and 88/2015 –Decision of the CC), there are changes in the ownership structure of particular forest areas, and similar changes are yet to come. In addition, recent trend of investing in plantations of fast growing trees partially influence inconsistency in available data.

Except for several workshops, wood processing is not represented in the Podunavlje District. In the City of Smederevo, there is recorded only one person as employed in forestry16. Several mayor wood processors purchase wood at adjoining Braničevo and South Banat Districts, or at other parts of Serbia; moreover, wood is imported from neighbouring countries such as Croatia and Hungary17.

With respect to aforementioned, 6% of total sale of wood residuals from state forests only at road distance smaller than 30km (Kovina and Poţarevac) is sufficient for the supply of boiler room „Sportski centar‟, Smederevo. Moreover, collected data represent solid basis for further consideration of potential replication of a fuel switch project in Smederevo. The published price list of „Srbijašume‟ is ~30 €/m³ for hardwood and ~20 €/m³ for softwood on a truck roadside. To this price of raw material, cost of transport needs to be added, which is about 10 €/m³ for transport distance of up to 50 km. Based on the field inquiry, prices of

14 Department for forest management and utilization, SE ‘Vojvodinašume’ 15 Ibid 16 Strategic plan of local Economic Development of Smederevo 2009-2014, http://www.smederevo.org.rs 17 Data gathered on the field; see following Chapter 22

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

wood residuals are as follows: for sawdust app. 2- 3 €/m³, price for slabs of approximately 10 €/m³, solid dry waste 5-10 €/m³.

Prices of wood chips shown in tons, are following:

‒ price of wood chips at the site of supplier (EXW) is 32- 35 €/t ‒ price of wood chips delivered to the final consumer (DAP) is 35- 40 €/t, chipping services is from 6-10 €/t (depending of types of wood, field conditions, etc.) ‒ transport costs up to 150 km is around 5-10 €/t.

7.1 Identification of potential biomass suppliers

‘Nova Šumadija’ Ltd.

„Nova Šumadija‟ Ltd. is located in the Grocka Municipality, 18 km from Smederevo. The Company is running three types of operations: production of fruit crates and wood packaging; sales of construction materials; and renting construction machinery and services. All information regarding business operations are considered confidential. According to information gathered on the site of „Nova Šumadija‟, their business policy is to make deals in December every year for the upcoming business year. Nevertheless, photos below prove that „Nova Šumadija‟ shows certain capacity of potential wood chips supplier.

Figures 10 - 11: Photos of the site of ‘Nova Sumadija’ with stored wood residuals and wood chipper

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

‘Eko Furnir’ Ltd.

The Company „Eko Furnir‟ Ltd. operates in the municipality of Kovin (Vojvodina), 12 km to the north from Smederevo, across the bridge over the Danube River. It is a part of the Welde Group, Austria, founded by Lessoplast Plc, Troyan, Bulgaria and Welde GmbH, Vienna Austria.

„Eko Furnir‟ is among the leading producers of rotary peeled poplar veneer in Serbia with its annual production of 20,000m³. Raw material for this production is poplar logs purchased from „Vojvodinašume‟ FE Banat, and „Srbijašume'- FE Poţarevac. The Company purchase 30,000m³ of wood; mainly poplar, and smaller quantities of linden.

According to Mr. Milorad Babić, manager of „Eko Furnir‟, this Company produces 2,650m³ of wood chips annually (app. 5,412t), with moisture content of 40%. Whole amount of wood chips is sold to „Kronospan‟, wood-based panel manufacturer operating in Serbia since 2009.

Figures 12 and 13: Facility of wood chips mill at „Eko Furnir‟ Ltd.

Machinery fleet of „Eko Furnir‟ consists of self loading trucks, forwarder, loaders, tractors, conveyors, trailers (capacity: 45m³ and 85m³). According to Mr. Babić, there are sufficient equipment and vehicles to potentially provide required quantity of wood chips to PC „Grejanje‟. There is also an open space storage of wood chips.

There is an interest at „Eko Furnir‟ in supplying PC „Grejanje‟ with wood chips on long term basis. Current price of wood chips per ton is € 32-35, EXW Kovin; and 40 €/t delivered in Smederevo.

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Figure 14: part of the fleet owned by „Eko furnir‟ Ltd. for processing logs and wood chips

‘Ambalaţerka' Ltd.

Since a year of 1996, when the Company „Ambalaţerka' Ltd., Begaljica was founded at territory of the Grocka Municipality, it expanded the production of a family workshop not only to producing fruit crates, but wood pallets, as well as wood elements for various types of packaging; nowadays employing a few dozen workers in later established plants in Srpski Miletić, a village in West Bačka District of Vojvodina, and in a village of Osanica, in Braničevski District in East Serbia. „Ambalazerka‟ Ltd. exports over 70% of its products to the buyers from the EU countries.

Among the employees, „Ambalaţerka” Ltd. engages 6 certified chainsaw operators. It provides services of forwarders to the owners of private forests, also to public enterprises lacking proper machinery in state owned forests.

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Figure 15: Forwarders at „Ambalaţerka‟ Ltd

Annual raw material requirements of „Ambalaţerka‟ are 30,000m³ of poplar, beech, and alder; which are partly purchased at Serbia and Vojvodina, and partly imported from Croatia and . The Company owners recently started to plant poplar at 15-20ha of land. They acquire 5ha of land every year in order to grow poplar plantations.

Annual production of wood chips in this Company is from 7,000t – 10,000t. Moisture content in wood chips is 40% - 50%.

Figure 16: Storing chips at open space at „Ambalaţerka‟ Ltd. in Begaljica

According to Mr. Goran Nikolić, owner and manager of this Company, there is great interest in potential supply of PC „Grejanje‟, Smederevo with wood chips. The Company management is ready to invest in construction of large covered storage necessary for storing larger amount of wood chips in case of contracting long term supply. Current price of wood chips delivered to Smederevo would be app. 35 €/t.

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

8. Biomass supply and logistics

8.1 Technical requirements and machinery in use

With reference to forest harvesting operations, it is possible to differentiate between the following working phases:

 felling: cutting a tree from its stump so that the tree falls to the ground;  processing: limbing (removing branches from the trunk and topping it) and cross- cutting (cutting the trunk to predetermined lengths);  skidding: transporting wood from felling site to extraction routes and transporting wood along extraction routes to the landing site;  debarking: partially or completely removing the bark from a log  transporting: moving wood using forest roads and public roads;  transforming: reducing wood for fuel destination (cutting, splitting, chipping).

The importance of chipping operation has been growing in the last few years, due to the fact that chipping enables maximum exploitation of woody biomass otherwise unused.

There are two main working systems in forest harvesting operations:

 Short Wood System - SWS: processing is completed on the falling site in the forest, commercial logs are transported;  Tree System - FTS: after felling the whole tree is hauled and processing is performed either on the forest road or on the landing site.

Although in South-eastern Europe SWS is the most predominantly used system, the FTS system is becoming more and more common, especially when cable cranes are used: with this method, forest residues (branches and tops) are collected either at the roadside or at the landing site, ready to be chipped.

A review of the most important machines and equipment involved in chipping operations, with reference to the Slovenian and Italian market, is presented in next table. The range of the most frequent values is indicated for each machine. Hourly cost, when specified, includes the staff costs. All prices are in € and exclusive of VAT.

Chainsaw Purchase cost: 500–1.000 € Productivity in high forests: 0,8–1,2 m3/h (thinning operations) 2–2,5 m3/h (final cutting) Productivity in coppice forests: 0,4–0,7 stacked m3/h (average conditions) 0,8–1,8 stacked m3/h (good conditions) Fuel consumption per hour: 0,6–1 l/h (petrol and oil mixture) Hourly cost15–18 €

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Tractor (farm tractor adopted for forest operations) and winch Purchase cost: tractor 45.000–80.000 € Purchase cost: winch 3.000–8.000 € Productivity in high forest: 3–8 m3/h Productivity in coppice: 3–7 stacked m3/h Fuel consumption per hour: 4–8 l/h Hourly cost  35–45 € (2 del.) Tractor (farm tractor adopted for forest operations) and trailer Purchase cost: tractor 45.000–80.000 € Purchase cost: trailer 8.000 – 25.000 € Loading capacity: 5 – 15 t Productivity: 5–12 m3/h (depending on skidding distance) Fuel consumption per hour: 5–10 l/h

Hourly cost  40–50 € Skidder Purchase cost: 120.000–150.000 € Skidding capacity: up to 3 t Max negotiable slope: 20% Productivity: 8 - 12 solid m3/h (depending on hauling distance) Fuel consumption per hour: 6–10 l/h Hourly cost  45–55 € Harvester Purchase cost (with processor head): 300.000–370.000 € Max cutting diameter: 65–70 cm Max delimb diameter: 45–60 cm Max negotiable slope: 35% (wheels) and 60% (tracks) (with optimal soil bearing capacity) 3 Productivity in high forest:: 8–20 m /h Fuel consumption per hour: 11–16 l/h Hourly cost  70–90 € Hybrid harvester Purchase cost: harvester with processor: 240.000 € Max cutting diameter: 55 cm Max delimb diameter: 50 cm Max negotiable slope: 45–60 % Productivity: 10–15 m3/h Fuel consumption per hour: 10–12 l/h

Hourly cost  70-80 € Excavator-based processor Excavator purchase cost: 170,000 € Processor purchase cost: 60,000 € Max cutting diameter: 65 cm Max delimb diameter: 60 cm Productivity: 15-40 solid m3/h Fuel consumption per hour: 15 - 17 l

Hourly cost  85 €

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Truck and trailer (wood chips transport) Truck purchase cost: 100,000-115,000 € Trailer purchase cost: 45,000 € Loading capacity: 20-22 t (85-90 bulk m³) Fuel consumption: 2.5-3.5 km/l Hourly cost: ≈ 65-70 € with clamshell bucket loader purchase cost: 205,000 € loading capacity: 81 bulk m³ hourly cost: ≈ 70-75 € Forwarder Purchase cost: 180.000 – 270.000 € Loading capacity: 10 - 14 t Max negotiable slope: 30 - 35% Logs length: up to 6 m Productivity: 12-20 solid m3/h (depending on hauling distance) Fuel consumption per hour: 7 - 11 l Hourly cost  65 - 80 € Source: Wood Fuels Handbook (production, quality requirements, trading), AEBIOM (2008)

Chippers Small (driven by tractor) Medium (driven by tractor) Large Purchase cost:: 4.500–35.000 € Purchase cost: 20.000–85.000 € Purchase cost: 85.000–400.000 € Working diameter. 20 cm Working diameter: max 30 cm Working diameter: > 30 cm Productivity: 2–3 t/h Productivity: 7–15 t/h Productivity: 20–35 t/h Fuel consumption per hour: 5– 8 l/h Fuel consumption/ hour: 10-14 l/h Hourly cost  120 - 170 € Hourly cost  15 – 22 € Hourly cost  22 - 30 €

Table 8: Types of wood chippers18

Among all costs categories for middle size wood chipper (shown at the picture) fuel represents nearly 30%, followed by depreciations and maintenance costs. Labour and biomass costs are not taken in to consideration in this calculation costs.

18Source: Wood Fuels Handbook (production, quality requirements, trading), AEBIOM (2008)

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Figures 17 and 18: Wood chips telescopic loader tractor and tractor with telescopic handler with fork lifter19

With regard to machinery needed for supply of 3,000t/a of wood chips for future boiler room in Smederevo, there is the fact that machinery listed below could provide much more quantities of wood chips. Regardless to that fact, these machines are necessary in order to provide even smaller quantities, as in this case of PC „Grejanje‟. Data shown in Table 8 prove that investment in necessary machinery would be 315,000 €.

Machinery and equipment necessary for biomass mobilization Pc. Unit Price (€) Total

2 25,000 50,000 Tractor (80kW) 1 5,000 5,000 Winch 1 5,000 5,000 Telescopic front loader 2 100,000 200,000 Truck 1 10,000 10,000 Tractor trailer 2 15,000 30,000 Truck trailer (capacity 85m³ of wood chips) 1 15,000 15,000 Small chipper TOTAL 315,000

Table 9: Machinery necessary for biomass mobilization20

In respect to the described above, the best solution for PC „Smederevo‟ is to purchase wood chips from one or more suppliers which meet quantity, quality, and other requirements regarding wood chips supply, and are selected through the public procurement procedure.

19Source: Internet (https://www.youtube.com/watch?v=qA2B9_2hOBg) 20 Data gathered by on-line and phone inquiry 30

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

8.2 Supply chain management

The situation on the field described in previous chapters refers to the solution of one or several suppliers as the most apparent solution for supplying the future boiler room. There are two basic options that can be considered regarding supply chain management.

Figure 19: Supplying wood directly from forest, option I21

Figure 20: Supplying wood from forest to the storage or logistic centre and continuing flow from there to end user, option II22

The first option is to store raw wood material at the truck road, to chip it there and to bring wood chips as a final product to the heating plant. The second option is to bring raw wood material to central storage, to store it there, chip it there when it is dried and then to store wood chips also for further drying.

21Source: Wood Fuels Handbook (production, quality requirements, trading), AEBIOM (2008) 22Ibid 31

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

Area of the land parcel on which the boiler room „Sportski centar‟ is located is insufficient for storing more than two-week supply of wood chips. Therefore it is necessary for the supplier to have an open storage for wood chips with at least 2,000m³ of volume covered storage in order to store sufficient quantity of wood chips and to enable drying.

Figure 21: Logistics and supply chain options for supply of wood chips23

In the majority of cases, entrepreneurs make business arrangements to deliver wood chips directly to storages/ end users. Wood chips have the highest price in such arrangements (VAT included). Regardless that fact, it is recommended to the decision makers in Smederevo to outsource supplying of wood chips and conclude a purchase contract of wood chips with best bidder (s). Being a public company, „Grejanje‟, Smederevo is liable to conduct public procurement procedure stipulated by law24. Risk management refers to several suppliers; in that way risk of potential shortage of wood chips at one supplier (or inadequate quality, e.g. moisture content) can be compensated by more orders from another supplier. Law on Public Procurement stipulates special forms of public procurement procedure such as Framework Agreement25, which allows concluding contracts with more than one bidder, and could be applied in a case of PC „Smederevo‟.

23Source: Wood Fuels Handbook (production, quality requirements, trading), AEBIOM (2008) 24 Law on Public Procurement, Official Gazette of the RS No 124/2012, 14/2015, 68/2015 25 Article 40 of the Law on Public Procurement 32

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

It is not financially justified for PC „Grejanje‟, Smederevo to start own production of wood chips due to huge potential investment (machinery, storage) and small quantities needed for 3 x 1MW boilers. However, with respect to: number of boiler rooms in Smederevo (13 boiler rooms with mazut heated boilers); 4,000t of mazut purchased annually for heating; high values of air pollution; operational costs (maintenance, transport, etc.), there should be considered development of long term strategic plan for a fuel switch of the district heating in Smederevo with emphasis on local priorities, rationalization of district heating system, and better utilization of public resources. Public procurement contracts on goods and/or services are stipulated by the Law on Public Procurement as well as by the Law on Obligations26, which stipulates usual provisions on such contracts (the subject of the contract; price and terms of payment; terms of delivery; quality requirements, quantity and quality control and consequences of failing to perform; risk of loss; amendments; cancellation). However, wood chips quality control measures and consequences of failures in meeting required quality – e.g. required moisture content in case of contracting wood chips are among essential provisions of the future contract.

8.3 Biomass storage

The main recommendations for producing and storing wood chips are: - Wood should be stored for at least three months (during summer) in a dry, windy and sunny position (natural drying). - Wood that is properly stored during summer should have water content of less than 30 %. - After the dry season (at the beginning of autumn) wood piles should be covered. - Only dry wood chips (water content below 30 percent) can be stored in closed storage. - Wood chips should be removed from storage following the simple FIFO “first in – first out” rule. - Safety measures at work should be applied for protection of human health (wearing masks to protect from fine dust particles and various microorganisms when handling wood chips in closed storage houses). - Avoid storing wet wood chips with many needles and leaves. The temperature in the pile of this kind of wood chips (green wood chips) will increase (activity of microorganisms). - Wood chips should be stored in piles with a maximum height of 7m and for only 2-3 weeks.

Round wood which will be used for producing wood chips can be stored at forest road sides but this should be in a sunny position and it should be considered temporary storage. It is recommended to produce wood chips from dry wood material.

26 Law n Obligations, Official Gazette of SFRY No 29/78, 39/85, 45/89, 57/89; Official Gazette of SRY, No 31/93

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

The most recommended material for producing wood chips is wood residues (residues from wood processing industry). This material should be stored in a dry position and should be chipped when it is dry.

Figures 22 and 23: Material for producing wood chips27

In case of PC „Grejanje‟, Smederevo, it is not possible to place main wood chips storage in the vicinity of the boiler room. The boiler room „Sportski centar‟ is located at residential area, surrounded by facilities of the sports centre with swimming pool, and by residential buildings. There is a parking lot of 2,100m² in front of the boiler room, which is public property and the only place where two-week supply covered storage can be constructed. According to Mr. Vladimir Kulagić, director of PC „Grejanje‟, in the vicinity of „Sportski centar‟, there is no space available for storing large quantity of wood chips.

Figure 24:

Red circle- position of a new boiler room across the existing one

Green circle: position of two-week storage of wood chips

Red arrows: transportation path for trucks with trailers

Anticipated quantity of biomass necessary for one year consumption is 3,000t. Heating season lasts from half of October until half of April. Average monthly consumption is 500t. With the fact that bulk density of wood chips is 250kg/m³, there would be necessary to provide storage of 2,000m³ to store 500t of wood chips.

Apparently, this is not possible at the existing location; therefore, storing two-week supply is imposed as a solution. Covered storage would be located next to a new boiler room. According to the field inquiry, costs of construction of canopy are up to 250 €/1m², which

27 Wood Fuels Handbook (production, quality requirements, trading), AEBIOM (2008)

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

refers that construction of higher storage is cheaper (e.g. price of 20 x 10 x 5m storage canopy is 13,000 € cheaper than a canopy of 21 x 12 x 4m).

Potential storage could be constructed at surface of 20 x 10 x 5m, with volume of 1,000m³.

250,000kg : 250kg/m³ = 1,000m³

V= 20m x 10m x 5m = 1,000m³

Two-week wood chips covered storage (Figure 26, green circle) beside a new boiler room would cover 200m² of the existing parking lot and leave sufficient space for manipulation of vehicles and machines.

With respect to our recommendation considering purchasing wood chips instead of producing it, additional recommendation follows: since PC „Grejanje‟ is required by law to conduct public procurement procedure for purchase of wood chips, one of requirements in tender documentation should be for the supplier(s) to own/lease adequate storage of wood chips.

Figure 25: Covered wood chips storage28 Figure 26: Storage of „Eko Furnir‟, Kovin

Manipulation with wood chips should be operated with telescopic handler. Telescopic handler should be equipped with fork lifter and loading bucket. Telescopic handler should have elevation possibility for loading or stacking of 4 - 5 meters. Figure 27: Tractor with telescopic handler with fork lifter29

28 Storing of energy wood and wood fuel quality management; Timo Tahvanainen & Antti Asikainen, Finnish Forest Research Institute, 2006 www.karelia.fi/bioenergia/5eures/biomass.../wood_fuel.../Storage_planning_timo.pdf 29 Source: http://www.ryetec.net/product.php?id_product=77

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

9. Legal aspects related to biomass utilization Legal framework in Serbia related to biomass utilization consists of laws, by-laws, and rule books, which stipulate referent sectors.

‒ Law on Energy (Official Gazette of the Republic of Serbia No 145/20014) regulates the production and distribution of energy. ‒ Law on Efficient Use of Energy (Official Gazette of the Republic of Serbia No 25/2013) among other stipulates metering and billing based on the consumption; introduces ESCO, and defines energy service.

‒ Law on Public Procurement (Official Gazette of the Republic of Serbia No 124/2012, 14/2015 and 68/2015) prescribes detailed procedures for procurement of goods, procurement of works, and procurement of services for public companies, institutions, and organizations financed by public budget funds.

‒ Law on Business Companies (Official Gazette of the Republic of Serbia No 36/2011, 99/2011, 83/2014, and 5/2015) defines types of business companies, legal procedures for their establishment and operations.

‒ Law on Public Companies (Official Gazette of the Republic of Serbia No 15/2016) regulates establishment and functioning of companies founded by state and local governments in order to performing operations of public interest.

‒ Law on Obligations (Official Gazette of the Republic of Serbia No 29/78, 39/85, 45/89, 57/89, Official Gazette of SUSM No 31/93, and Official Gazette of State Union of Serbia and Montenegro No 1/2003) regulates contracts and torts.

‒ Law on Public-Private Partnerships and Concessions (Official Gazette of the Republic of Serbia No 88/2011 and 15/2016) regulates institutional and contractual PPP, and concessions between public bodies and private partners.

‒ Law on Environmental Protection (Official Gazette of the Republic of Serbia No 135/2004, 36/2009, 36/2009; 72/2009; 43/2011 – Decision of CC, and 14/2016) regulates sustainable management of integral system of natural values and environmental protection.

‒ Law on Environmental Impact Assessment (Official Gazette of the Republic of Serbia No 135/2004 and 36/2009) regulates the impact assessment procedure for projects that may have significant effects on the environment.

‒ Law on Strategic Assessment of Environmental Impact (Official Gazette of the Republic of Serbia No 135/2004 and 88/2010) stipulates requirements and procedures for impact assessment of specific plans and programmes on the environment.

‒ Law on Integrated Prevention and Control of Environmental Pollution (Official Gazette of the Republic of Serbia No 135/2004 and 25/2015)

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

‒ Waste Management Law (Official Gazette of the Republic of Serbia No 36/2009, 88/2010 and 14/2016)

‒ Law on Forests (Official Gazette of the Republic of Serbia No 30/2010, 93/2012 and 89/2015) regulates the conservation, protection, planning, cultivation, use and management of forests and forest land on the territory of the Republic of Serbia, including all necessary rules and requirements defining the control over the implementation of provided rules, monitoring, inspection, as well as other issues relevant to forests and forest land and areas. The provisions of this Law are related to forests and forest land in all forms of property.

‒ Law on Forest Reproductive Material (Official Gazette of the Republic of Serbia No 35/2004, 8/2005 – amendment, and 41/2009)

‒ Law on Planning and Construction (Official Gazette of the Republic of Serbia No 72/2009, 81/2009 - correction, 64/2010 – Decision of Constitutional Court, 24/2011, 121/2012, 42/2013 – Decision of CC, 50/2013 - Decision of CC, 98/2013 - Decision of CC, 132/2014 and 145/2014). This Law regulates: the conditions and modalities of spatial planning and development, the maintenance and use of building land and the construction of facilities; carrying out supervision over the application of this Law and supervisory inspections; other issues of significance in the development of space, landscaping and use of building land, and the construction of facilities.

‒ Law on Fire Protection (Official Gazette of the Republic of Serbia No 111/2009 and 20/2015)

‒ Law on Safety and Health on Work (Official Gazette of the Republic of Serbia No 101/2005 and 91/2015)

‒ Law on Local Self-Government (Official Gazette of the Republic of Serbia No 129/2007 and 83/2014)

Other important regulations and rule books are:

‒ Regulation on methodology of determining the price of thermal energy for final users (Official Gazette of the RS No 63/2015)

‒ Regulation on activities which affect environment (Official Gazette of the RS No 109/2009 and 8/2010)

‒ Regulation on the types of projects for which environmental impact assessment is obligatory or can be required (Official Gazette of the RS No 114/2008)

‒ Regulation on requirements for the location (Official Gazette of the RS No 114/2008)

‒ Rule Book on technical requirements for designing, construction, and control of equipment under pressure (Official Gazette of the RS No 87/2011)

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

10. Financial analysis and economic indicators of biomass supply organization and financing options

10.1 Investments in hardware and operational costs

The results of research show that there is enough wood chips available at the market to meet requirements of PC „Smederevo‟. Investment costs in storage and machinery are estimated at 80,000 €, while annual operation costs for the first years of operation are estimated at 129,150 €/a – see Tables 10 and 11. For the reason of cost effectiveness, it is recommended to engage one tractor with telescopic front loader which in cases of malfunctioning can be temporarily replaced by another vehicle owned by local public companies.

Machinery and equipment

Unit Price (€) No of Units Total Cost (€)

Tractor of 80 kW 25,000 1 25,000

Telescopic front loader 5,000 1 5,000

Storage canopy 250/m² 200m² 50,000

Total: 80,000

Table 10: Machinery necessary for manipulation with wood chips at boiler room „Sportski centar‟30

Operational costs include expenses for wood chips, manipulation, maintenance, and indirect costs. Price of wood chips is conservatively calculated at 40 €/t delivered at the „Sportski centar‟, even though we believe on a basis of field research and the interviews that the price could be 5% lower (38 €/t). New employment is not necessary, due to the fact that boiler room „Parnjača‟ will be closed for operations, so employees from „Parnjaca‟ can be relocated to a new boiler room. They should be trained to perform quality control of wood chips.

Annual operational costs

Wood chips 3,000 40 120,000

Manipulation, loading, unloading 3,000t 1 3,000

Maintenance and indirect costs 5% 6,150

Total: 129,150 Table 11: Annual operational costs related to manipulation with wood chips

30 Data gathered by on-line and phone inquiry 38

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

10.2 Economic indicators This project will be financed by the City of Smederevo through a bank loan. New boiler room, as a part of PC „Grejanje‟, Smederevo is analysed as point of cost, and not as a point of profit. Consequently, savings are in the centre of financial analysis instead of profit. Complete profit analysis should be done for the company as a whole, based on the data for revenues – heat selling prices and income, costs of a new boiler room, and costs of financing. Price of mazut varies; average price of mazut for PC „Grejanje‟ in 2016 was 38,000 RSD/t, i.e. 45,600 RSD included VAT, which is 380 €/t31. According to information acquired at potential suppliers on the price of wood chips, the price varies from 35 €/t to 40 €/t, which is calculated in following analysis.

Heavy fuel oil – mazut: Price in €

-30% -20% -10% 0% 10% 20% 30%

Price 266 304 342 380 418 456 494

20% 48 97,794 132,336 166,878 201,420 235,962 270,504 305,046

10% 44 109,794 144,336 178,878 213,420 247,962 282,504 317,046

5% 42 115,794 150,336 184,878 219,420 253,962 288,504 323,046

0 40 121,794 156,336 190,878 225,420 259,962 294,504 329,046

Wood chips: Price in € in chips: Price Wood

-5% 38 127,794 162,336 196,878 231,420 265,962 300,504 335,046

-10% 36 133,794 168,336 202,878 237,420 271,962 306,504 341,046

-20% 32 145,794 180,336 214,878 249,420 283,962 318,504 353,046

Table 12: Analysis of sensitivity of fuel savings on fuels prices fluctuation

In the first year of the project‟s implementation, price sensitivity analysis show savings of 225,420 €/a. Price sensitivity analysis also shows price variation of +/- 30%. At the worst assumed scenario, where at the same time price of wood chips rises by 20% and price of mazut drops by 30% the savings are 97,794 €/t. In the opposite case, if price of mazut rises 30% and price of wood chips conservatively estimated drops by 20%, the savings are 353.046 €/t. Therefore, it is safe to assume that the investment in wood chips supply, which is at focus of this study would be repaid in less than one year from the fuel switch savings. As future user of renewable energy fuel, Toplana Smederevo will be eligible to apply for GHG emission reduction, government subsidies for using renewable energy, international financial institutions and local commercial banks special and favourable credit lines for

31 Source: PC ‘Grejanje’, Smederevo. Exchange rate in calculation: 1 € = 120 RSD 39

GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

renewable energy and energy efficiency. With respect to aforementioned recommendation in terms of developing long term strategic plan to utilization of renewable energy in the Smederevo heating system, there should also be considered public-private partnership as a business model appropriate to facilitating implementation of large infrastructural projects.

11. Conclusion and recommendations

• The Smederevo authorities are determined to implementing a fuel switch project to the benefit of the citizens. The project is in accordance with National Renewable Energy Action Plan of the Republic of Serbia.

• There is more than sufficient quantity of woody biomass in the area of the City of Smederevo to supply the needed 3.000 t of wood chips for installation of 3 x 1MW boilers.

• There are potential fuel suppliers at local market interested in a long term business agreements.

• Investment in supply chain and logistics can be paid from fuel switch savings in less than 1 year

• With respect to the listed above, as well as to the subject of this Study, we can conclude that the project of establishment of a new boiler room in the City of Smederevo is feasible.

• Introducing wood chips as a fuel in district heating will indisputably enhance the wood chips market development in the area of Smederevo.

Recommendations:

• It is recommended to the decision makers in Smederevo to outsource supplying of wood chips for this project type (3 x 1MW boilers) instead of producing it, due to huge potential investment (machinery, storage) and small quantities needed (3,000 t/a of wood chips).

• The best option for PC „Grejanje‟, Smederevo, is to conclude a Framework Agreement for purchase of wood chips with more than one supplier. The suppliers should own/lease adequate storage of wood chips. Term of delivery should include transport of wood chips to the storage at the site of a new boiler room.

• It is recommended further consideration of potential replication of a fuel switch project in Smederevo. Furthermore, there should be considered development of long term strategic plan for a fuel switch of the district heating in Smederevo with emphasis on local priorities, rationalization of district heating system, and better utilization of public resources.

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GIZ DKTI Programme ‘Development of sustainable bioenergy market in Serbia’: Woody biomass potential and logistics study for the City of Smederevo

12. Literature

 Biro Kremzer (2016): The Analysis of Fuel Switch from Heavy Fuel Oil to Biomass in Boiler Houses „Parnjača‟ and „Sportski centar‟ in Smederevo

 L. Keča et al.: Investment Appraisal of Poplar Plantations in Serbia, Baltic Forestry 17(2): 268–279  Glavonjic B. at all, (2011): The market opportunities for wood fuels using in Serbia, TCP/FAO, Rome  Bankovic S. at all, (2008): National Forest Inventory of the Republic of Serbia, Faculty of Forestry, Belgrade

 Statistical Yearbook of Serbia, 2010-2016

 Study „Potentials and possibilities of commercial use of wood biomass for the production of energy and economic development of municipalities Nova Varoš, Priboj and Prijepolje‟, Faculty of Forestry, 2009

 “Feasibility Study On Waste Wood Utilisation In Serbia”, Energy Saving Group (Serbia), funded by USAID, 2007

 Renewables and wastes in Serbia, http://www.iea.org/stats/renewdata.asp?COUNTRY_CODE=RS

 Stampfer K., Kanzian C., (2006): Current state and development possibilities of wood chip supply chains in Austria. Croatian Journal of Forest Engineering 27 (2): pp 135 – 144.

 Krajnc, Nike, Piškur, Mitja. (2009): Proizvodnja in raba lesnebiomase v Sloveniji = Biomass production and use in Slovenia. Gozd. vestn., 2009, letn. 67, št. 9, str. 399- 403, iustr.

 Vasiljevic, A. (2015): Wood Market Impact on Socio-economic Components of Sustainable Development of Wood Sector in Serbia, Doctoral Dissertation, Faculty of Forestry, Belgrade

 Statistical Office of the Republic of Serbia: Municipalities and Regions of the Republic of Serbia, 2014, 2015, and 2016; http://webrzs.stat.gov.rs/

 FAO/TCP/YUG/3201 - “Wood Energy For Sustainable Rural Development”, 2011

 Francescato, V., at all, (2008): Wood Fuels Handbook (production, quality requirements, trading), AEBIOM (http://www.biomasstradecentreii.eu/available- literature )

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