As a subset of the forest products industry, the meteoric growth of the industrial thermal wood pellet market-a market that was virtually unheard of just a few years ago-illustrates the need for continued natural resource development in the global economy of the 21st century. As we have learned from our reliance on crude oil over the last 100 years, global demand oftentimes requires intricate, global supply solutions. Ships crisscrossing the oceans, pipelines, fuel "farms" and tanker trucks are all part of the larger delivery model that has made gasoline such a prevalent source of fuel. And it's a model that has (for the most part) worked. As alternative energy solutions continue to gain ground worldwide, why not apply the same model and methodology to renewable energy raw materials?
As consumers continue to become more aware of the need for diversified renewable energy resources, global opportunities abound. On a legislative level, the European Union (EU) remains at work towards the goal of fulfilling 20% of its total energy needs with renewable resources by 2020, a task made easier by incentivizing companies engaged in renewable energy production. But the groundswell of support on a consumer basis is perhaps best illustrated in recent data out of the UK, where 78% of the populace supports the use of renewable energy and, more specifically, 63% favor biomass technology. For St1 Biofuels Oy, a pioneering Finnish bioethanol producer, these statistics are encouraging.
Since peaking in the 2nd Quarter of 2014, US South delivered prices for wood fuel have experienced a slight decline, though they are still holding at a nominal price level above prices observed during 2006-2013 (Figure 1). Over the duration of this time period, three interesting trends have occurred.
30-by-30. It's a lofty goal, but as most good intentions go-especially in matters of legislation conceived nearly two decades before a target maturity date-lofty tends to be the norm. And when it comes to subjects as unpredictable as renewable energy lawmaking, well, the sky is the limit. With recent news about revived Senate interest in establishing a national Renewable Electricity Standard (RES), the two Democrat Senators from New Mexico, Tom Udall and Martin Heinrich, are taking center stage by introducing a bill (S. 1264) that would require major utilities to generate 30 percent of their electricity from renewable energy sources by 2030 (hence the catchy nickname, 30-by-30).
Timber price volatility is perhaps the single biggest enemy of successful budgeting. Escalating prices, even if they are temporary, can undermine budgets and erode margins. An increasing number of facilities are operating in an environment where price volatility (the result of panic buying when wood yard inventories are low) has been high and the cost of capital (and therefore the cost of holding inventory) is low. The conventional wisdom to reduce holding costs by carrying less inventory may no longer apply. Holding an extra day's inventory could turn out to be far less expensive than the spot purchases required to reinforce the wood yard when supply gets too low. For this reason, budgeting raw material costs may be more directly tied to inventory management than ever before.
According to a recently published report from Eurostat, three European Union member countries have already exceeded their individual 2020 renewable energy goals. Sweden, Bulgaria and Estonia have not only won the race to the 2020 finish line seven years ahead of schedule, but they have surpassed their individual country objectives. The broad basis of the goals is to reduce EU greenhouse gas emissions by 20% (compared to 1990 levels) and increase renewable energy production by 20%. While economic, geographic and political disparities (as well as a number of other intricate differences) exist between member countries, the EU as a whole has made substantial progress integrating renewable resources into its energy portfolio, and is on target to meet the goals it has established for itself by 2020.
While we have reported on recent developments and non-developments alike regarding the Renewable Fuel Standard (RFS), it appears that Environmental Protection Agency (EPA) has finally made good on its promise to publish proposed renewable fuels volumes for 2014 - 2016. The Agency released the data on May 29-just a few days ahead of its June 1 deadline-and while the volume requirements of all affected fuels do increase in the near term, those volumes fall short of the legislated volumes by significant margins. EPA has clarified that, once the proposal is published in the Federal Register, it will be open for public comment through July 27.
