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MARKET WATCH

The Importance of Wood Fuel in Addition to Feedstock

Posted by LeAndra Spicer on January 14, 2014
Feedstock requires a lot of attention at the start of a project, and rightfully so, considering feedstock costs are the largest variable costs across the life of a project. In addition to feedstock cost and supply, a project positioned for success will have paid the same consideration to wood fuel.

Pellet facilities must dry woodchips before they can be manufactured into wood pellets, hence there is a need for wood fuel to provide the energy for drying. Wood fuel is sourced from either sawmill residues or in-woods materials. Sawmill residues are a by-product of the lumber manufacturing process and include bark, sawdust, and shavings. In-woods wood fuel consists of the tree limbs, tree tops and other non-merchantable woody material collected during or immediately after thinning or harvest.

These materials contain a significant amount of contaminants such as sand and mud, and the moisture content is also variable. As such, this material is typically available at a fairly low-cost. Using as much residual wood material as possible to dry wood chips before they are manufactured into wood pellets enables pellet facilities to keep costs down. However, wood fuel is not always readily available.

Accelerating Logger Adoption

Wood fuel is expensive for loggers to recover, and there is no reason for them to do so in the absence of a viable market. Added demand for wood fuel in the form of a new pellet facility is an incentive for more loggers to invest in the equipment and employees needed to bring a larger volume of this material to the marketplace.

To encourage a higher adoption rate, pellet manufacturers can engage in a number of strategies to incentivize more loggers to invest in wood fuel recovery.  Tactics include preferred supplier status, delivery zone allowances, equipment leasing, extended receiving hours, and quick turnaround time for inbound trucks.

Supply agreements are particularly effective. These agreements establish a guaranteed off-take to the market that a facility will purchase a sufficient volume at a fair market price, thereby reducing loggers’ perceived risk and aiding in the acceleration of adoption. A long-term supply agreement appropriately spreads price risk for both the buyer and the supplier and would also satisfy lenders.

A lack of available wood fuel in any one region is typically a short-term (1-2 year) risk at startup. To address wood fuel supply, pellet facilities can modify market behavior through incentives or budget for the increased transportation fuel costs needed to travel further from the feedstock procurement zone to secure wood fuel.

Topics: wood fuel availablity, how to accelerate logger adoption, wood biomass supply agreements

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