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Analyze your pellet project risk

By Anna Simet | August 24, 2012

With every new project or endeavor in the world of renewable energy comes a certain degree of risk, some greater than others, and in order to achieve success one must prepare themselves for potential pitfalls.

That goes for manufacturing wood pellets or black pellets, and/or exporting pellets. In order to assist those in the industry—or thinking about joining—FutureMetrics Inc. has just released a free analysis for identifying and quantifying risks associated with wood pellet manufacturing projects.

Authored by FutureMetrics President William Strauss (winner of Biomass Magazine’s first annual Excellence in Bioenergy Award) the analysis illustrates the use of Monte Carlo simulation, a computerized mathematical technique that allows people to account for risk in quantitative analysis and decision making, to quantify key decision metrics for the development of a wood pellet plant. The modeling incorporates the uncertainty of some of the key inputs to both the capital cost and the operating cost models, and its simulations reveal the expected distributions of key cash flow metrics their sensitivity to changes in inputs.

The analysis is packed full of useful charts and data, and it’s easy to read. At the end (spoiler alert?!), you’ll find it has identified four key risk factors for a project—based on a 50,000-ton-per-year pellet manufacturing facility collocated with a combined-heat-and-power plant supplying hot water for belt drying and power—as being:

• wood cost,

• the ability for pellet prices to rise over time

• the initial price of pellets sold from the mill

• the ability of the facility to run in the upper end of its name plate capacity

 As the analysis points out, with some attention, some of those risks can be mitigated and/or better defined, and focused attention to those key areas can then provide revised inputs. “The decision to go or no-go with the project should follow a careful review of a revised simulation based on the outcomes of the focused analysis of the markets and the key input metrics,” it concludes.”

 Check it out for yourself here.