Special Series: Money Matters #5
By Reg Renner
By Reg Renner
Once you know production expenses, volumes and transportation costs, then you can focus on the mark
|Teamwork is important with biomass projects.
As we work together to finance your bioenergy project, we will discover that marketing your finished product is an extremely critical hurdle that needs to be cleared for your project to be successful. Doing a 20-page marketing study or speaking in generalities about the potential to sell biomass fuels to local greenhouses is not enough. You need to be able to show your investors and supporters that you have done your research and that you have tangible, written contracts with fixed prices, quantities and cash flow projections.
To start with, you must understand that the marketing process will continue throughout the life cycle of your bioenergy project.
Marketing is not a 100-yard dash with the first signed contract the ultimate goal. Marketing is more like the famous Tour de France bicycle race – riding 3,430.5 kilometres in 21 stages over 23 days with hundreds of professional riders and support staff! Each day is a new challenge, with hill climbs, individual time trials and team strategies, all geared towards an exhausted entry through the Arc de Triomphe.
Remember, you do not need to win the yellow jersey to be considered a winner; you just need to finish the race.
As you start to explore the market opportunities for your product, it is good to acknowledge that you too will need a realistic long-term strategy that plays to your company’s strengths.
WHAT IS BEING PRODUCED AND HOW MUCH?
To begin with, you need to define the volume of your finished product. Are you planning on producing 5,000 tonnes of briquettes, 20,000 tonnes of wet chips, or 60,000 tonnes of whitewood pellets? Once you have volume and feedstock quality defined, then you can start to focus on your particular market.
A potential client once called me and said he was going to create 5,000 tonnes of wood pellets and then ship them to Europe. This project was doomed from the start, mainly because 5,000 tonnes was too small a load to fill a European ship and he was located on an island without a deep-sea port. Therefore,
deciding the size or volume of finished product is a critical first step.
Once the volume/tonnage is defined, there is a tendency to rush out and look for a market. Avoid this trap and do your research first. Are you going to sell locally, as a residential, bagged product, or are you exporting a bulk, industrial grade product to Europe, the Far East, or to the U.S.? All these
locations and product possibilities can be confusing and often take you off course.
|Fuel selection is a key part of the early planning process.
WHICH PRODUCT OPTION HAS THE HIGHEST MARGINS?
So, before you get on your bicycle, make sure you know your price points and production costs at your factory gate, prior to transport. You might find out there is more profit in shipping loose, wet chips to a local greenhouse than shipping high-cost, bagged pellets to the eastern U.S. Once you know your production costs, volumes and transportation costs, then you can start to focus on the correct market with the correct sales price.
Take, as an example, the client who wanted to ship his 5,000 tonnes of wood pellets to Europe; it turns out his whole island is heated with barged-in propane and diesel generated electricity. His market is right in his backyard, but he will have to work hard to convince his neighbours that home-grown, sustainable fuels make economic sense. Even in this isolated situation, you can see that marketing is a daily and ongoing challenge that requires long-term strategy and professional support.
Let me share some of my experience and insight as a former greenhouse manager. If you are attempting to find a local market, you need to understand your local fossil fuel costs. Do not lump all greenhouses into one category, as you will discover that a small greenhouse grower using propane or heating oil may be very interested in wood pellets. At the same time, a large greenhouse grower on natural gas may only be interested in dry or wet chips depending on the cost delivered.
THE IMPORTANCE OF BEING COMPETITIVE ON PRICE
Just because one greenhouse grower says wood pellets are too expensive does not mean the whole industry shares his opinion. Do not be afraid to ask your prospective client what his current heating bill looks like “per gigajoule/delivered at the burner tip.” Remember, you must be price competitive and you will need a fair price for both parties, so be prepared for some lengthy negotiations.
As you prepare for the Tour de France of marketing, map out your volumes, production costs and designated focus. Also allow for creative thinking, as you may discover that your product will fit into a niche market that you never contemplated, such as wood pellets for kitty litter, horse bedding, or a waste water absorbent product. It is also extremely important that you review local fuel quality standards and acknowledge that your product may be suitable for industrial applications only, but not suitable for residential fuels. As an example, the greenhouse industry in Ontario can use recycled wood for heating, but British Columbia cannot. Local rules, regulations and quality standards must be factored into your marketing strategy.
In the Tour de France, the individual riders work together as teams and the pack often travels tightly together for one another’s benefit. Therefore, I encourage you to join bioenergy associations, attend conferences and network with suppliers and even competitors. After all, the goal of crossing the finish line is well worth the effort and will require the support of a professional, like-minded team.
In closing, do not get discouraged, but keep on exploring your marketing options. You will need multiple buyers for your product if you are going to find someone to finance your bioenergy project. Nothing spells security and risk mitigation like a signed, five-year purchase agreement with a reputable client. Obviously, this is an attainable goal, but only with a lot of market research, determination and a professional sales approach.
Good luck and keep on pedalling.