In an effort to support the long-term health of both traditional forest products industries and the emerging wood bioenergy industry, Forest2Market has developed a new tool called tipping point analysis. This tool allows Forest2Market to determine how much additional wood fiber will be available for new facilities before the supply shed reaches a tipping point.
“The tipping point is the point at which too much competition for wood fuel causes prices to eclipse sustainable levels and where harvest levels exceed forest growth. Knowing this point is a key piece of data for our resource study and wood fuel assessment customers,” said Pete Stewart, President and CEO of Forest2Market.
Tipping point analysis is particularly important for utility companies. In an effort to meet renewable electricity standards or goals, they are looking at co-firing wood with coal or developing their own wood-powered facilities. Risks associated with these conversions include uncertainty over electricity prices and the long-term availability of the wood fiber supply. Tipping point analysis allows utilities to plan both the site and the size of proposed facilities to avoid unsustainably high electricity prices and the depletion of forests.
Utilities are also sensitive to the fact that switching from fossil fuels to wood means that they will sometimes be competing directly with their customers. In addition to producing some of their own electricity, for instance, wood-consuming pulp and paper mills are also utility customers. In order to avoid adversely affect these and other wood-consuming customers, utilities use Forest2Market’s tipping point analysis. The insight they gain allows them to adjust their plans and ensure the long-term sustainability of the wood basin for all market participants.
“It’s well documented that pulp and paper facilities employ more workers than bioenergy plants,” said Stewart. “Our goal in developing and perfecting this tipping point tool has been to ensure the long-term viability of both the traditional and the emerging industries. At Forest2Market, we believe that additional markets are good for the long-term health of all wood-consuming industries. As a neutral third-party, one that doesn’t buy or sell wood fiber, our focus is on providing market price data and supply chain analysis to our customers. Our sole mission is to help those in the industry be more competitive by increasing their understanding of the market.”
Tipping point analysis is also an ideal tool for regional, state and local economic development commissions, who must make certain they support projects that lead to additional jobs without endangering jobs in existing industries.
“A traditional resource study looks at one or more fiber consumption scenarios and determines which scenarios are feasible from a price and forest health perspective,” said Stewart. “ Tipping point analysis goes one step further.”
“First, we develop a market price threshold—either the maximum weighted per ton average price that the company will pay or a proxy for a price that won’t put other facilities out of business. Then, using a marginal cost curve based on the load-by-load data available in our delivered price database, we can determine the maximum number of tons of wood fiber demand a wood basin can absorb without negative ramifications. This represents the tipping point, not just for price, but for the health of the forest and the economic health of local communities as well.”
To complete wood fuel assessments and tipping point analyses, Forest2Market uses its proprietary delivered price database, which collects volume and pricing data from more than 80 percent of all transactions in the US South and is also solidly established in the Pacific Northwest, and well-tested proprietary econometric models and cost curve projections.
Suz-Anne Kinney: +1 980 233 4021 or suz-anne.kinney@forest2market.com
