“ELEMENTS” – Biomass Verwertung I: Searching for Economic Reality –
Verwertung is an economic concept developed in Germany in the mid-19th century to create value from something that presently has low value, such as biomass. According to the theory, verwertung is only achieved when the surplus value created by a process, i.e., gross profit, justifies the capital invested to create it. Applying verwertung to biomass is an interesting challenge.
The horde of developers arriving at the door of biomass holders suggests a high value for biomass. They are looking for exclusive agreements for the biomass so that they can get financing for their projects. Such requests are valid, but many of these projects never see the light of day.
Technologies abound on how to develop bioenergy projects from biomass. In North America, most are not directly economic. The problem lies with our low energy costs, especially those associated with coal. In many parts of North America delivered coal costs are in the range of $1 to $2 per GJ, and at the higher end a few may pay $3 per GJ. Some coal-fired power facilities are literally built on top of coal fields. No manufactured product can compete.
The cost of processing biomass in the field (e.g., forest debris converted into chips or hog fuel), under the best of conditions, will be between $2 and $3 per GJ. Transportation costs will add another $2 to $3 per GJ. Various densification processes can improve the handling, transportation and utility of the product, but this will add $3 to $6 per GJ (such options are discussed in future issues of Elements). So, in most cases, developers will have a product that costs $7 to $12 per GJ. Oh, we forgot to mention one thing; we have not paid for the biomass yet!
Sixth Element Sustainable Management can identify and establish action plans to find biomass for project developers. An examination of end-markets also provides a reality check on the viability of the project and the steps necessary before the project can become commercially viable. For the biomass holder, what are the real options out there that can maximize the value of their biomass? We can also act as a facilitator in bringing together biomass and bioenergy developers. Creative pricing formulae and structure that benefit the supplier and consumer of biomass can be developed. Contact us to help you bring value to your biomass and bring your projects to commercial development. For investors and lenders in such projects, Sixth Element Sustainable Management provides a pre-investment analysis and a reality-check on the commercial feasibility.