Right Place, Right Size: Finding a Wood Basin’s Tipping Point

The long-term availability of wood raw material and biomass is a substantial risk wood pellet project developers must address with debt and equity partners. Increased pellet demand and cutting-edge technology mean little in the absence of an adequate, affordable and sustainable supply wood fiber supply. Hence, the need to answer questions such as:

• Where should a wood pellet plant be located to ensure a reasonable supply?
• How much feedstock can a wood pellet plant consume before it exceeds a cost cap?
• At what capacity will a wood pellet plant contribute to a negative growth-to-removal ratio for the forest?

Tipping point analysis answers these questions by taking an in-depth look at complex wood supply chain dynamics and the competitive nature of forest products markets.

The Tipping Point: What Is It?  

The point at which competition for wood either causes prices to eclipse sustainable levels or harvest removals to exceed forest growth is a tipping point. Tipping point analysis goes a step beyond traditional demand scenarios to determine which of those scenarios are feasible from both a price and forest health perspective.

The Tipping Point: How to Find It?

A number of steps go into finding the tipping point:

1. Determine and analyze current forest inventory.
2. Project future forest inventory.
3. Develop a market price threshold — typically, the maximum weighted per ton average a company will pay.
4. Develop marginal cost curves based on the transactional data available in Forest2Market’s delivered price database.

A final analysis of these factors provides the maximum number of tons of demand a wood basin can absorb without negative ramifications. This represents the tipping point for facility-specific factors such as maximum feedstock costs as well as larger variables like the overall sustainability of the wood basin.

The Tipping Point: Benefits to Project Developers

Tipping point analysis gives wood pellet project developers the data they need to both site and size a wood pellet facility to avoid unsustainably high feedstock prices. It also identifies the point at which the depletion of forests would become a reality and other wood-consuming customers would be adversely affected. In the long run, additional forest-products markets like those opened by bioenergy are good for the health of all wood-consuming industries and the local communities that depend on them.

This blog post was updated from a previous version posted in March 2012 Tipping Point Analysis Provides Insight into Competitive Wood Fiber Markets.

http://blog.forest2market.com/10-predictions-for-wood-consuming-industries-in-2015