slide © 2014, forest2market, inc. sustainable, affordable, reliable, available the feedstock...
TRANSCRIPT
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© 2014, Forest2Market, Inc.
Sustainable, Affordable, Reliable, Available
The Feedstock Challenge
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© 2014, Forest2Market, Inc.
Sustainable, Affordable, Reliable, Available
Woody Biomass is all of these – nowand it can cost ½ of ag biomass
Unique Considerations in the Evaluation of Forest-Originated RFS2 Feedstock
Stan Parton
Manager – Bioenergy/Biochemicals Practice
Forest2Market
June 10, 2015
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© 2014, Forest2Market, Inc.
EPA Rules for RFS2 Qualified Materials
• Apparent intent to prevent unintended consequences. Prohibits: – Harvest from federal lands– Tree harvest of natural stands– Harvest in ecologically sensitive areas– Conversion of land (natural forest or agricultural) to
plantations
• Allows feedstock from:– Natural Stands – slash and pre-commercial thinnings only– Plantation Stands – slash and thinnings
• Plantation must have been established by 12/19/2007 and actively managed since that time
• Establishment and management must be documented
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© 2014, Forest2Market, Inc.
Forest Sourced RFS2 Qualified Feedstock
Forest Biomass
Non-Federal
Plantation
Established prior to
12/19/2007
First Thinnings
Tree Residue
Slash
Woody Mill Residue
Biogenic Material
Non-Biogenic Material
Established after
12/19/2007
Natural
Not ecologically sensitive or old-growth
Pre-Commercial Thinnings
Tree Residue Slash
Ecologically sensitive or old growth
Federal
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© 2014, Forest2Market, Inc.
Two ‘Practical’ Feedstock Types
Pulpwood - First commercial thinnings from plantations
Residue - Slash from natural or plantation stands
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© 2014, Forest2Market, Inc.
Forest RFS2 Feedstock Market Realities
• RFS2 qualified material is currently available and moving in the existing wood supply chain.
• Existing users of this material are indifferent about using RFS2 versus non-RFS2 materials.
• Users are not paying a premium for RFS2 material.• RFS2 material is not currently distinguished in the
supply chain from non-RFS2 material.• Acquiring RFS2 certified material will likely require an
economic incentive above the current market price.– To cause existing users to vacate their demand– To provide certification required to secure RINs
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© 2014, Forest2Market, Inc.
Critical RFS2 Supply Chain Questions
1• What will happen to the distribution of raw material feedstocks when new
RFS2 feedstock demand enters the market?
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• As the existing users are indifferent about feedstock types, are there sufficient quantities of non-RFS2 material available to allow them to vacate their demand for RFS2-qualified material?
3• What is the capacity-to-pay for various competitors in the market including
the new RFS2 user?
4• What price premium is necessary to prompt existing users to vacate their
demand for RFS2 material?
5• What additional price premium will be required for the supply chain to
distinguish, separate and certify RFS2 qualified material?
As woody biomass exists in the forest products supply chain -
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© 2014, Forest2Market, Inc.
Analytical Requirements to Answer the Questions
• Determine current proportion of RFS2-qualified material in the market distinguished from non-RFS2
• Assess likelihood that existing market participants’ demand for RFS2 material may be modified in response to demand for RFS2 material from the biofuels producer
• Estimate the resulting cost of RFS2 materials necessary to motivate traditional users to vacate their demand
• Analyze the future availability of RFS2 and non-RFS2 feedstock materials based on demand from all users
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© 2014, Forest2Market, Inc.
Theoretical Supply Basin Analysis – How will supply redistribute?
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© 2014, Forest2Market, Inc.
Reallocation of Forest Materials – Elements of Analysis
Calculate the split of existing flow of materials in the market into RFS2 qualified and non-qualified materials
• Analyze the historic and current roundwood supply and demand for feedstock in the proposed project’s supply basin
• Determine the amount of current supply that would be RFS2 eligible and how much is currently being used by competitors
Calculate the split of existing and future inventory into RFS2 qualified and non-qualified materials
• Forecast feedstock supply and demand of RFS2 and non-RFS2 material utilizing econometric models of demand, forest growth and yield
Determine if sufficient non-qualified feedstock exists to meet the demand of traditional users either within or outside the project supply basin
• Compare forecasted demand of users who do not require RFS2 material to the available non-RFS2 material within the project supply basin
• If necessary, compare the demand of users who do not require RFS2 material to additional available feedstock (RFS2 and non-RFS2) outside of the basin
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© 2014, Forest2Market, Inc.
Reallocation of Forest Materials – Elements of Analysis
Calculate the cost to existing users to vacate their demand of RFS2 qualified feedstock• Calculate the cost necessary to prompt traditional users to vacate RFS2 demand in favor
of non-RFS2 material in the basin or for any material outside of the project supply basin
Determine competitors’ “capacity-to-pay” and therefore ability to vacate RFS2 demand
Compare competitors’ “capacity-to-pay” to that of the energy project’s
Calculate the cost of RFS2 material to the energy project, including:
• Cost of existing users to secure non-RFS2 feedstock materials plus• A premium to motivate the existing users to vacate their demand for RFS2 materials
plus• A premium for supply certification to secure RINs
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© 2014, Forest2Market, Inc.
Conclusions-Forest Originated Feedstocks
• Great financial motives exist for using forest originated feedstock.
• However, in order to determine their availability, sustainability of supply and cost, analysis of the supply basin, existing users and market behavior must be employed.
• The diligence analysis is complex and relies on– detailed knowledge and date of the forest and forest
products sector, its current and future demand– Utilizing advanced forest growth and yield models – Industry economic models
Forest2Market, Inc.15720 Brixham Hill Ave, Suite 550Charlotte, NC 28277
Stan Parton +1 770 925 [email protected]