Controlling the Variables

Don’t get me wrong – I love forest biomass. It’s a great Canadian asset that is currently underutilized. It’s a renewable energy option in a country that will soon need all available options. It’s home grown, building our communities and filling our wallets. For the right entrepreneur with the right idea, opportunities abound. Still, from time to time a dose of reality helps keep us humble, forces us to do our homework, and helps separate bad ideas from golden opportunities.

Just such a dose was applied to delegates at the Canadian Renewable Fuels Association’s Growing Beyond Oil Summit held in Vancouver last December. Don Roberts of CIBC World Markets addressed bioenergy from an investor’s perspective, and the view was enlightening. Don’s basic message was simple – people are reluctant to invest in something with a lot of unknowns. While biomass has a lot of positives right now, certainty isn’t among them. Key variables include the price of fossil fuels, the price of carbon, the cost of feedstock, public policy, and conversion technologies. “At present, all five of these variables are in a state of flux, and investors hate uncertainty,” is how Don summed it up for a suddenly quiet audience.

Existing and proposed forestry biomass projects have no control over the price of fossil fuels or the value put on carbon, but they can certainly consider the other three when crafting their business models to be as attractive as possible to investors, partners, or possible employees. For instance, most forest biomass businesses currently rely on solid biomass conversion technologies – either wood pellets or direct-fired biomass combustion. Both routes use proven, relatively simple technology. There will be movement on the biofuel and biorefinery front, especially among pulp and paper players, but that approach is best left to those with deeper pockets, larger asset ledgers, or subsidies.

Feedstock cost and availability is also something that those in forest biomass have a better handle on than others looking at the sector. We have the skills, the relationships, and the complementary businesses to help get biomass where it needs to be at reasonable costs. The key is to make the right products from the right fibre in the right place.

Even public policy is in our hands to the extent we wish it to be. Maintain sustainable operations and prove it, develop professional public communications efforts, and do a little skilled lobbying work, and public policy will go your way more often than not. As a bonus, we bypass both the food vs. fuel and indirect land-use change issues plaguing agricultural biomass. Similarly, create viable domestic markets to help diversify the revenue stream from your pellets, and investors will breathe easier.

So before you visit your banker with the next best biomass project, carefully consider Don’s five variables and do your best to minimize the uncertainty surrounding each. In the meantime, read our new column on project funding on page 13.