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Mitigating fuel cost risk for biomass plants

By Lisa Gibson | March 09, 2011

Fuel cost is a very real component of any biomass project and with ever-changing prices, developers and investors are confronted with the task of managing cost risk to keep projects afloat, or even obtain enough funding to get them off the ground.

Particularly with large-scale woody biomass facilities, feedstock pricing fluctuates because of a number of variables, making it difficult for developers to maintain a reliable and consistent fuel cost. But, according to Eric Kingsley, vice president of Innovative Natural Resource Solutions LLC, three mitigation factors can substantially limit that fuel cost risk: diversity of supply, surge capacity with existing suppliers, and large-scale storage. “These are all ways the woody biomass industry has been addressing fuel availability for years,” he said.

While maintaining diversity of suppliers can be a juggling act, there is safety in numbers, Kingsley said. Similarly, surge capacity can alleviate troubles that come into play when a facility’s suppliers are all providing 100 percent of their supplies. That puts the facility in a tenuous position, he explained, because if one supplier has issues causing it to temporarily halt or reduce harvests, the biomass facility is left scrambling for a replacement supply and most likely will end up paying more and sourcing material from farther away. “A few suppliers giving you everything they have is a recipe for disaster,” he said.

In addition, a large-scale facility should keep at least a 30-day supply on hand. “What we’ve seen time and again is facilities with small fuel yards,” Kingsley said. When wet weather and other factors diminish that supply, it must be replaced but that requires spending even more money.

Kingsley will discuss these fuel cost risk mitigation efforts during the panel Capital and Project Development Strategies for Bioenergy Facilities at the International Biomass Conference & Expo May 2-5 in St. Louis. In his presentation titled Managing Fuel Cost Risk for Large Woody Biomass Facilities, he will also discuss a number of factors that drive fuel cost including health of other forest industries, weather and diesel costs. “These variables account for 80 percent of volatility in biomass costs,” he said. Developers can also manage the fuel cost risks by hedging these factors and Kingsley will present a calculator that determines the amount of diesel fuel a supplier is using per green ton of wood. Developers are often under the impression that they don’t pay for their suppliers’ diesel, but might not realize the price is figured into their feedstock costs, Kingsley explained.

“You can’t control or fix price, but you can really restrain the vast majority of risk in biomass fuel costs,” he said.

For more information or to register for the International Biomass Conference & Expo, visit www.biomassconference.com.   

 

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