FutureEnergy: The Economics and Risk of Wood Pellet Production for Heating

When you think of heating sources, what comes to mind? For most Americans, oil, electricity and gas are the obvious choices. What about wood pellets? Wood-burning heat sources often conjure up images seen on “Little House on the Prairie”. However, in Europe wood  pellets are in high demand as a home-heating option. Besides being more efficient and less taxing on the environment, European regulations encourage the use of carbon-neutral sources. This is great news for U.S. wood-pellet producers, who expect to see a sharp demand for their product over the next decade.

FutureMetrics is one of the leading domestic experts in the economics of the production and use of renewable bioenergy. They, along with their partner Innovative Natural Resource Solutions, formed a new company, FutureEnergy Partners, to focus on the economics and risk of wood pellet production. Using @RISK, they performed risk analysis simulations to address some very critical concerns regarding the bright future of wood-pellet production:

  • How much wood is required to operate a wood-powered plant and produce the appropriate amount of wood pellets to keep up with demand?
  • How do they hedge their prices against global wood prices in a fashion that will allow them to turn a profit?

In a very informative case study, FutureMetrics shared its use of Monte Carlo simulation to answer both of those questions and secure a bright (and warm) future for U.S. wood pellet producers. It will be interesting to see if the U.S. moves towards alternate heating sources, such as wood pellets. If so, we’re sure @RISK can offer the kind of clear risk analysis necessary to make it both possible and profitable.
 

» Case Study: Futuremetrics Uses @RISK to Hedge Wood Prices in Production of Burning Wood Pellets

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