Breaking Ground: Site Selection and Project Bankability

From the February 2010 Forest2Fuel newsletter.

With the Biofuels Policy announcements made in early February, the U.S. governement has demonstrated it is serious about replacing oil with domestic and renewable sources of transportation fuel. This policy as well as others already underway will undoubtedly provide the focus and investments needed to increase the number of proven technologies for turning wood into energy. More industries, schools and government buildings will generate their own power, more utility companies and independent producers will generate electricity for the grid, more wood pellet manufacturers will serve domestic residential and industrial markets and international markets, and more biodiesel, cellulosic ethanol and other bioproducts producers will arrive on the scene.

We will continue to see a significant increase in the number of operational wood bioenergy facilities over the next five years.  Just one example is the number of new announcements about planned wood pellet facilities currently on my desk—sixteen. As this growth occurs, it is almost certain that competition for wood fiber will intensify in local supply sheds. 

In this expansive environment, wood bioenergy companies need to be absolutely certain they are choosing the right supply shed for their facilities. In order to ensure bankability and long-term success, a new wood bioenergy facility must be able to reassure its investors that an ample supply of affordable feedstock is available and sustainable throughout the life of a loan. They must also make sure the logistics for delivery of feedstock to the facility and of finished product to purchasers are available and affordable.

How do project developers achieve a comprehensive knowledge of supply chain and other operational issues that can affect bankability? The process of determining whether affordable feedstock can be procured over the life of a project can be complicated. It involves knowing:

  • Current forest inventory in the supply shed
  • How to grow the forest forward so that a forecast can be produced
  • Current consumption within the supply shed
  • How to forecast consumption and harvest volumes forward, while keeping in mind that a positive growth/drain ratio must be achieved in order to ensure sustainability
  • Biomass availability based on harvest levels and adoption of removal technologies by loggers
  • Current timber product prices in the supply shed
  • The interactions between timber products as substitutions are made due to price movements

Equally important as determining the availability of affordable, long-term feedstock supply are the logistics. Can the number of truckloads of feedstock required to produce the desired output reasonably be received by the facility's woodyard every day? Have loggers in the area adopted the technology needed to harvest and deliver biomass? Will the transport or transmission costs of moving finished product to its final destination be reasonable enough to guarantee a profit?

Keeping all of these factors in mind requires a deep understanding of the wood fiber supply chain, the most accurate information available on harvest and consumption volumes and timber prices, and proven econometric models to produce a forecast. It also requires an understanding of the most efficient methods for moving wood raw materials and wood products.

For more information on what you need to know to site a wood bioenergy facility and other factors you should consider, call Suzanne Hearn at 704.450-1440. Read about Forest2Market’s Resource Studies.

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