By Marcin Lewandowski, Director of Analytics and Risk at Ecostrat Inc.
For some years now there has been much excitement around new developments in bio-energy sectors. Whether pellet or biomass power, bioenergy remains a hope of the forestry industry, where dwindling demand for newsprint and graphic paper causes issues to the traditional consumer of low-value fibre.
This optimism is further exacerbated by industry headlines: large developments consuming over one million tons of fibre annually are being constructed; black pellet technology, which allows for utilization of pellets by coal plants, has been commercialized.
Yet all those optimistic news come to us from the south. Meanwhile, in Canada, and especially Ontario, development is very slow. Knowing that interest among developers is there, how come only a few projects get financed in Canada?
Having experience with successful large projects in the US and some of unsuccessful attempts here, I could confidently distill the answer to this: understanding feedstock supply risk.
Feedstock availability and cost are the two most critical components for a bioenergy project. Feedstock situation either makes or breaks a project. Therefore, understanding long-term behaviour of feedstock production, consumption and cost is essential for investor confidence.
This is well understood in US Southeast, where pulpwood, chip and sawmill residue prices are systematically tracked. Where pulpwood growth data are easily accessible, and sawmill production levels regularly published. Where most loggers and sawmill owners are happy to converse and share information with developers of potential projects, knowing that the more interest in the sector, the more secure their businesses are.
None of the above occurs in Ontario. It is impossible for a new player to understand historical pricing trends, as these data are kept closely guarded by a few large companies, which understandably want to protect trade secrets. With an exception of some determined establishments, seems as sawmill residual producers have lost hope in new developers as conversations tend to be short and result in little information gathered.
An average fibre supply assessment takes five weeks to conduct. If the results are not convincing, investors look elsewhere. Thus, easily accessible availability and pricing information is critical in driving bio-energy development in Ontario. Doug Ford’s new provincial government wants to make the province “open for business.” The best thing it can do to support the development of new bio-projects is support biomass pricing data collection through its Ministry of Natural Resources and Forestry (or another institution, such as a university). Without historical pricing data investors and lenders cannot easily quantify feedstock supply risk, and are much more likely to invest in more transparent regions.