A Crash Course Supply-Shed Economics

Do you know your supply shed?


Opportunities for those entering the wood bioenergy industry abound. With a seemingly ample supply of feedstock and a policy environment that encourages construction of renewable energy plants as well as the production of renewable energy, the risk associated with entering this space has decreased considerably over the past several months. Still, many risks accompany embarking on this endeavor. The largest risks at earlier stages of development include the ability to raise the necessary capital and to demonstrate profitability over the long-term. Reducing the risks associated with feedstock procurement can help wood bioenergy companies meet both of these challenges.

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From a purely existential perspective, forest resources are abundant. “The Billion-Ton Study,” for instance, suggests that 368 million dry tons of forest resources are available for bioenergy production in the contiguous United States annually: “52 million dry tons of fuelwood harvested from forests, 145 million dry tons of residues from wood processing mills and pulp and paper mills, 47 million dry tons of urban wood residues including construction and demolition debris, 64 million dry tons of residues from logging and site clearing operations, and 60 million dry tons of biomass from fuel treatment operations to reduce fire hazards.”

Just because the supply is abundant does not necessarily mean it can be delivered to a bioenergy plant on a regular and consistent basis or according to a strict schedule, however. In other words, there is a gap between forest inventory numbers and actual availability, or the amount that can reasonably be removed from the forest. In fact, feedstock availability depends on multiple factors that cannot easily be managed with supply agreements. These factors include the fluctuating economic cycles of the forest and wood products industries, seasonality, weather patterns and events, and the availability of timber for harvesting in a given supply shed at a given time.

Because of the complexity of these dynamics, determining a successful procurement strategy requires both knowledge of the economic factors in the specific supply shed in which a plant is operating and a strategic plan that accommodates these realities. (more...)