Economies of Scale in Forest-Based Biomass Supply Chains from
Early Thinnings in Finland
Asko Siintola
11.3.2013
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1
Contents
•
Introduction
•
Purpose of the study
•
Methods and materials
•
Results
•
Conclusions
•
References
Figure 1. Wood chips in Solsona, Spain. Photography: Michel Noussan
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Introduction I
•
International renewable energy targets oblige Finland to increase its share of renewable energy
to 38% of total energy consumption in 2020 (1,2)
•
Of the total renewable energy consumed in 2020 as much as 70% is proposed of being woodbased (3)
•
Currently wood-based energy is heavily dependent on industrial use of roundwood (4)
‒
Black liquor from pulp mills
‒
Solid wood by-products
‒
Harvesting residues and stumps from final fellings
•
Use of industrial roundwood has been predicted to decrease in the future (5)
•
Sources of energy wood not directly linked to the use of industrial roundwood are needed (6)
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Introduction II
•
•
Energy wood (excl. industrial by-products)
generally consist of three biomass
fractions (7)
‒
Harvesting residues
‒
Stumps
‒
Energy wood from early thinnings
Energy wood from early thinnings has
been suggested of being a solution for the
increasing energy wood demand not
directly linked to the forest industry (6, 8)
‒
Energy wood from early thinnings is
most expensive forest-based biomass
fraction (10)
‒
It has been extensively used due to
remarkable subsidies paid to the supply
chain actors (11)
Figure 2. Supply chains of whole tree
wood chips from early thinnings (7,9)
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Introduction III
•
Supply chains of energy wood from early thinnings are defined according to their chipping
phases (12)
‒
Chipping at the roadside storage
‒
Chipping at the end-use facility
‒
Chipping at the terminal
•
The chipping phase affects the transportation load sizes as well as the cost of chipping
•
According to previous studies chipping at the roadside results in the most cost efficient supply
of wood chips from early thinnings to the end-user (10)
‒
•
Supply chain with chipping at the end-use facility is the second in cost efficiency (10)
‒
•
Mainly due to high bulk density of transportation load sizes and low fixed costs of chipping
Low bulk density of transportation loads and high fixed chipping costs
Chipping at the terminal is considered as the most expensive supply chain for energy wood
from early thinnings (10)
‒
Additional transportation and handling of biomass
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Purpose of the study
•
Investigate the costs of energy wood from early thinnings between the roadside storage and the
end-use facility
‒
Supply chains with chipping at the roadside, at the end-use facility and at the terminal are
included
•
Study the effects of economies of scale on the cost efficiency of the above mentioned supply
chains using a transportation distance dependent cost calculation model
•
Determine the minimum unit costs of the supply chains and the respective scales of operation
•
Determine the profitability of the supply functions by comparing the costs of the chips supplied
to the end-use facility with the market price paid of wood chips
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Methods and materials I
•
The costs of the supply chains are
determined using a cost calculation
model proposed in the present study
•
The model assumes a circle-shaped
procurement area which is expanded
as the scale of operation increases
‒
The expansions are done in 10 km
intervals and the maximum
procurement area is restricted to
130 km
‒
Each of the procurement discs
around the end-use facility can be
given unique land characteristics
which restrict the availability of
suitable biomass
Figure 3. The basic concept of the round
procurement area cost calculations with 10
kilometre intervals
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Methods and materials II
𝑐𝑒𝑖𝑙
+ 𝑐𝑒𝑖𝑙
•
13
𝑖=1
2 ∗ 𝑡𝑑𝑟𝑖𝑣𝑒
𝑖
+ 𝑡𝑙𝑜𝑎𝑑 + 𝑡𝑢𝑛𝑙𝑜𝑎𝑑 ∗ 𝑐𝑒𝑖𝑙
𝑦𝑖
𝑠𝑡𝑟𝑢𝑐𝑘
𝑤𝑡𝑟𝑢𝑐𝑘
13
𝑖=1
2 ∗ 𝑡𝑑𝑟𝑖𝑣𝑒
𝑖
+ 𝑡𝑙𝑜𝑎𝑑 + 𝑡𝑢𝑛𝑙𝑜𝑎𝑑 ∗ 𝑐𝑒𝑖𝑙
13
∗ 𝑐𝑡𝑜𝑡𝑎𝑙 +
𝑦𝑖
𝑠𝑡𝑟𝑢𝑐𝑘
𝑤𝑑𝑟𝑖𝑣𝑒𝑟
(2 ∗ 𝑡𝑑𝑟𝑖𝑣𝑒
𝑖=1
𝑖
∗ 𝑐𝑒𝑖𝑙(
𝑦𝑖
) ∗ 𝑐𝑓𝑢𝑒𝑙
𝑠𝑡𝑟𝑢𝑐𝑘
∗ 𝑐𝑑𝑟𝑖𝑣𝑒𝑟 ∗ 𝑤𝑑𝑟𝑖𝑣𝑒𝑟
The costs for transportation of supply chains using chipping at the roadside and at the
end-user are calculated according to the equation above
‒
𝑦𝑖 represents the amount of biomass harvested from each of the procurement areas
‒
𝑡 –values are times used for different operations
‒
𝑤 –values are annual effective working hours
‒
𝑠 –values are machine capacities
‒
𝑐 –values are respective costs
‒
𝑐𝑒𝑖𝑙 refers to the ceiling function which rounds a given value to the next upper integer
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Methods and materials III
•
The costs for transportation of supply chain using chipping at the terminal are calculated as
below
‒
The difference from the previous is that there are two phases of transportation as well as
double loading and unloading times
13
𝑖=1
𝑐𝑒𝑖𝑙
𝑐𝑒𝑖𝑙
13
𝑖=1
13
𝑖=1
𝑐𝑒𝑖𝑙
𝑖 𝑡𝑒𝑟
+ 𝑡𝑙𝑜𝑎𝑑 + 𝑡𝑢𝑛𝑙𝑜𝑎𝑑 ∗ 𝑐𝑒𝑖𝑙
𝑦𝑖
𝑠𝑡𝑟𝑢𝑐𝑘
𝑤𝑡𝑟𝑢𝑐𝑘
∗ 𝑐𝑡𝑜𝑡𝑎𝑙 +
𝑦
𝑖
2∗𝑡𝑑𝑟𝑖𝑣𝑒 𝑖 𝑟𝑜𝑎𝑑 +𝑡𝑙𝑜𝑎𝑑 𝑤𝑡 +𝑡𝑢𝑛𝑙𝑜𝑎𝑑(𝑤𝑡 ) ∗𝑐𝑒𝑖𝑙(𝑠
)
𝑡𝑟𝑢𝑐𝑘(𝑤𝑡)
𝑤𝑡𝑟𝑢𝑐𝑘
2 ∗ 𝑡𝑑𝑟𝑖𝑣𝑒
13
𝑖=1
13
𝑖=1
2 ∗ 𝑡𝑑𝑟𝑖𝑣𝑒
𝑖 𝑡𝑒𝑟
∗ 𝑐𝑒𝑖𝑙
𝑦𝑖
𝑠𝑡𝑟𝑢𝑐𝑘
+
13
𝑖=1
∗ 𝑐𝑡𝑜𝑡𝑎𝑙(𝑤𝑡) +
2 ∗ 𝑡𝑑𝑟𝑖𝑣𝑒
𝑖 𝑟𝑜𝑎𝑑
∗ 𝑐𝑒𝑖𝑙
𝑦𝑖
𝑠𝑡𝑟𝑢𝑐𝑘 𝑤𝑡
∗ 𝑐𝑓𝑢𝑒𝑙 +
𝑦
𝑖
𝑡𝑑𝑟𝑖𝑣𝑒 𝑖 𝑡𝑒𝑟 +𝑡𝑙𝑜𝑎𝑑 +𝑡𝑢𝑛𝑙𝑜𝑎𝑑 ∗𝑐𝑒𝑖𝑙
+
𝑠𝑡𝑟𝑢𝑐𝑘
𝑦
𝑖
2∗𝑡𝑑𝑟𝑖𝑣𝑒 𝑖 𝑟𝑜𝑎𝑑 +𝑡𝑙𝑜𝑎𝑑(𝑤𝑡) +𝑡𝑢𝑛𝑙𝑜𝑎𝑑(𝑤𝑡) ∗𝑐𝑒𝑖𝑙(
)
𝑠𝑡𝑟𝑢𝑐𝑘(𝑤𝑡)
𝑤𝑑𝑟𝑖𝑣𝑒𝑟
∗ (𝑐𝑙𝑎𝑏𝑜𝑟 ∗ 𝑤𝑑𝑟𝑖𝑣𝑒𝑟 )
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Methods and materials IV
•
The chipping costs are calculated for all of the supply chain according to the following
equation
‒
The differences between the supply chains come from varying data used for capacities,
transportation load sizes as well as loading and unloading times
‒
Chipping at the roadside includes costs of chipper relocation and chipping at the terminal
includes annual land rent for the terminal
𝑥
𝑠𝑐ℎ𝑖𝑝𝑝𝑒𝑟
𝑐𝑒𝑖𝑙
𝑤𝑐ℎ𝑖𝑝𝑝𝑒𝑟
𝑐𝑒𝑖𝑙
𝑥
𝑠𝑐ℎ𝑖𝑝𝑝𝑒𝑟
𝑤𝑐ℎ𝑖𝑝𝑙𝑎𝑏𝑜𝑟
∗ 𝑐𝑐ℎ𝑖𝑝𝑝𝑒𝑟 +
𝑥
∗ 𝑐𝑐ℎ𝑖𝑝𝑝𝑒𝑟𝑓𝑢𝑒𝑙 +
𝑠𝑐ℎ𝑖𝑝𝑝𝑒𝑟
∗ 𝑐𝑐ℎ𝑖𝑝𝑙𝑎𝑏𝑜𝑟 ∗ 𝑤𝑐ℎ𝑖𝑝𝑙𝑎𝑏𝑜𝑟 + 𝑐𝑒𝑖𝑙
𝑐𝑒𝑖𝑙
𝑥
𝑠𝑐ℎ𝑖𝑝𝑝𝑒𝑟
𝑤𝑐ℎ𝑖𝑝𝑝𝑒𝑟
∗ 𝑐𝑡𝑒𝑟𝑚𝑖𝑛𝑎𝑙𝑟𝑒𝑛𝑡 +
𝑥
∗ 𝑐𝑟𝑜𝑎𝑑𝑠𝑖𝑑𝑒𝑚𝑜𝑣𝑒
𝐴𝑠𝑖𝑡𝑒 ∗ 𝑤𝑜𝑜𝑑𝑎𝑐𝑐𝑢
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Results I
•
•
According to the results it becomes clear that
there are effects of economies of scale in the
supply chains included in the study
‒
The unit costs decrease rapidly as the
scale is increase with low operation scales
‒
The unit costs, however, begin to increase
as the operation scale is further increased
The cost minimizing operation scales are
achieved with operation scales below 200
000 m3 per year
Figure 3. Energy wood unit costs from roadside to the end-user
as a function of energy wood demand with roadside, terminal and
end-user chipping supply chains
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Results II
•
Based on the calculations also the minimum unit costs and the cost minimizing operation scales are
determined
•
By adding the costs of forest operations and stumpage price from previous studies (10, 14), a total cost of
wood chips delivered to the end-user can be calculated
‒
These added costs are 13.50 EUR/m3 for harvesting, 6.10 EUR/m3 for forwarding, 3.51 EUR/m3 for
overhead costs and 5 EUR/m3 for stumpage price
Table 1. Unit costs and cost minimizing operation scales in the default case with the supply chains included in the study
Roadside
End-user
Terminal
Minimum unit costs, EUR/m3
9.74
11.36
14.07
Minimum unit costs (total), EUR/m 3
37.85
39.47
42.18
99
181
77
Cost minimizing operation scale, 1000 m 3
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Results III
•
Comparing unit costs of wood chips with the
market price paid by the end-user(13) it can be
stated that without subsidies only chipping at
the roadside can become profitable
•
According to the current subsidy system in
place in Finland a total of 7 EUR/m3 (excluding
taxes) is paid to the forest owner (15)
•
The subsidies, although remarkably lower than
the previous system (16), enable all of the
supply chains to become profitable with their
cost minimizing operation scales
Figure 4. Wood chip unit costs at the end-use facility compared
with the market price of wood chips paid by the end-user
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Conclusions I
•
The unit costs of wood chips from early thinnings
decrease rapidly with low operation scales and
have an increasing trend with higher operation
scales. Due to the increasing trend, the supply
chains have local cost minimizing operation
scales i.e. increasing the operation scale infinitely
does not result in cost efficiency improvements
•
With extremely thin profit margins even with the
least expensive supply chain the subsidies paid
to the supply chain actors are vital if energy wood
from early thinnings are desired
Figure 5. Wood chip grading in Solsona, Spain.
Photography: Michel Noussan
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Conclusions II
•
Based on the minimum unit costs and the optimal
operation scales it can be stated that:
‒
Supply chain with chipping at the roadside is
always the least expensive supply chain. Its costs
are minimized with medium operation scale and
the costs are least affected by the increasing
operation scale.
‒
Due to expensive chipping equipment, the supply
chain with chipping at the end-use facility needs
the largest operation scale for optimal cost
efficiency.
‒
Terminal chipping is the most expensive supply
chain used for early thinning energy wood supply.
It reaches its minimum unit costs with the lowest
operation scale. Terminal chipping can be justified
if the value of improved security of supply is larger
than the difference in the energy wood prices.
Figure 6. Roundwood loading operations in Solsona, Spain.
Photography: Michel Noussan
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References I
1)
UNFCCC. 1998. Kyoto Protocol to the United Nations Framework Convention on Climate Change. Available at:
http://unfccc.int/resource/docs/convkp/kpeng.pdf
2)
European Union. 2009. DIRECTIVE 2009/28/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 23 April 2009
on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives
2001/77/EC and 2003/30/EC. Official Journal of the European Union.
3)
The Ministry of Employment and the Economy. 2013. Kansallinen energia- ja ilmastostrategia: Strateginen päivitys 2013.
Taustaraportti. [National energy and climate strategy: A strategic update 2013]. Available at:
http://www.tem.fi/files/35609/Energia-_ja_ilmastostrategian_taustaraportti_LUONNOS.pdf (In Finnish).
4)
Ylitalo, E. 2012. Puun energiakäyttö 2011. [Wood energy use in 2011] Metsätilastotiedote. Metsäntutkimuslaitos.
Metsätilastollinen tietopalvelu. 16. (In Finnish).
5)
Hetemäki, L. and Hänninen, R. 2009. Arvio Suomen puunjalostuksen tuotannosta ja puunkäytöstä vuosina 2015 ja 2020.
[Assessment of the Finnish wood processing industry and use of wood in 2015 and 2020]. Working Papers of the Finnish Forest
Research Institute 122. Available at: http://www.metla.fi/julkaisut/workingpapers/2009/mwp122.pdf (In Finnish).
6)
Kallio, A. M. I., Anttila, P., McCormick, M. & Asikainen, A. 2011. Are the Finnish targets for the energy use of forest chips
realistic—Assessment with a spatial market model. Journal of Forest Economics 17(2): 110-126.
7)
Laitila, J. 2006. Cost and sensitive analysis tools for forest energy procurement chains. Forestry Studies 455-10.
8)
Oesch, P. 2012. Uusiutuvat energianlähteet, edistyminen vs. tavoitteet vuoteen 2020 - Energiateollisuuden näkökulma.
[Renewable Energy Sources, Progress vs. Targets to year 2020 - The Perspective of the Energy Industry]. Energiateollisuus ry.
(In Finnish).
9)
Laitila, J. 2008. Harvesting technology and the cost of fuel chips from early thinnings. Silva Fennica 42(2): 267-283.
10)
Laitila, J., Leinonen, A., Flyktman, M., Virkkunen, M. & Asikainen, A. 2010. Metsähakkeen hankinta- ja toimituslogistiikan
haasteet ja kehittämistarpeet. [The challenges and development needs of forest chip procurement and logistics]. VTT. Research
Notes 2564. (In Finnish).
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References II
11)
Anonymous. 2009. Kemera-opas. [Kemera Support Guide]. Metsätalouden kehittämiskeskus Tapio ja metsäkeskus Pirkanmaa.
Available at: http://www.metsavastaa.net/files/metsavastaa/pdf/amm_kemeraj.pdf (In Finnish).
12)
Kärhä, K. 2011. Industrial supply chains and production machinery of forest chips in Finland. Biomass and Bioenergy 35(8):
3404-3413.
13)
Statistics Finland. 2012. Energian hinnat. [Energy prices] http://tilastokeskus.fi/til/ehi/2012/03/ehi_2012_03_2012-12-18_fi.pdf (In
Finnish).
14)
Ihalainen, T. and Niskanen, A. 2010. Kustannustekijöiden vaikutukset bioenergian tuotannon arvoketjuissa. [The effects of cost
factors in the value chains of bioenergy production]. Working Papers of the Finnish Forest Research Institute 166. Available at:
http://www.metla.fi/julkaisut/workingpapers/2010/mwp166.pdf (In Finnish)
15)
Finnish Energy Industries. 2012. PETU – Pienpuun energiatukijärjestelmä. [PETU – small-sized wood energy subsidy].
Avalailable at: http://energia.fi/petu-pienpuun-energiatukijarjestelma (In Finnish).
16)
Petty, A. and Kärhä, K. 2011. Effects of subsidies on the profitability of energy wood production of wood chips from early
thinnings in Finland. Forest Policy and Economics 13(7): 575-581.
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