Whether planning the location or capacity of a new plant, or supplying an existing plant, the procurement manager needs to have a good idea of the cost profile for feedstock supply. The location of the resource in relation to the conversion plant is more or less fixed, with annual supply deviations depending on the harvesting or thinning plans. A relatively simple and visually cognitive way of representing the economic availability of the resource is to develop a marginal supply cost curve. This implies deriving and plotting the cost of the last most expensive resource against the cumulative volume acquired up until that point. The cost is a composite figure, which includes harvesting, storage, handling and transport of each biomass type, and from each geographic source point, to a given destination, commonly the plant gate. This means that each resource point (stand) is handled individually in terms of harvesting method, yields, sequencing etc. Such an overview can easily

be constructed and maintained in a spreadsheet, although the accuracy is fully dependent on the cost estimations made underway. These can be based on rough estimates e. g., Fig. 6.12 (where each circle represents the volume available in a 1 km2 grid cell and the lines represent distance to the plant) or modelled in detail in GIS (Moller and Nielsen 2007). The following section provides a step by step guide on how to develop such a curve.

Developing a supply cost curve for managing biomass feedstock

• Step 1. Using a spreadsheet, list all the sources, including either the net energy content or the tonnes of dry matter available as the primary unit.

• Step 2. Estimate a harvesting and transport cost for each source. This can vary considerably depending on the kind of operation (early thinning vs. clearfelling), the terrain, the anticipated transport method and distance.

• Step 3. Sum these costs in a new column and rank the spreadsheet according to increasing delivered cost.

• Step 4. Generate a new column showing the cumulative quantity of energy (sum of all preceding energy quantities). You now have the necessary data for plotting the marginal supply cost curve. However, it is important to know the mean cost as well as the marginal cost.

• Step 5. The mean cost is more complex to calculate as it requires the sum-product of all preceding energy quantities and their respective prices to be divided by the cumulative volume. We use a simpler method to get there: calculate a total cost column (GJ * unit cost) and then sum this up in a cumulative cost column. The mean cost is then the cumulative cost divided by the cumulative volume. Now the supply cost curve can be plotted as in Fig. 6.13).

Fig. 6.13 An example of marginal and average value supply cost curves

—0— Marginal

■Mean

The resulting plot from step 4 provides a marginal cost of supply curve. The pro­curement manager can read what volume is available at what price directly from the curve. However, what is more interesting for procurement management is the mean cost of supply, as managers will normally be working from an operational budget. The manager might have settled on a maximum marginal cost that he/she is willing to pay a supplier, but this might not be the best course of action as is explained below.

The shape of the cost curve function (whether convex or concave) in arriving at the same marginal cost for the same quantity of energy, could imply two vastly different mean costs (Fig. 6.14). The shaded area represents the total cost of supply,

i. e. incremental cost multiplied with the incremental quantity. In this example it is easy to see that two very different mean costs are arrived at when the total cost is divided by the total volume. Even if the marginal cost is the same, the mean cost can
be quite different as the shapes of these two cost curves illustrate. The mean cost is represented by the shaded area (Fig. 6.14).

There are a number of ways of extending the utility of these curves. Including a code for the present state of the biomass (e. g., loose residues, bundled residues, chipped residues) and/or the stage of where the biomass is in the supply chain (planned harvest, harvested, at landing, at terminal) gives the procurement manager insight into the dynamics of the supply pipeline within a given time horizon, whether it be a week or a year. This means that the manager is able to negotiate prices, or incur heavy costs, in procuring biomass from specific suppliers or sources without compromising the budget.

6.7 Conclusion

This chapter described the possible sources of bioenergy from forests, early thinning, harvesting residues, salvage operations and stumps. Furthermore, the options of collection, extraction, haulage and comminution have been discussed. It has been shown that the place of comminution within the supply chain is decisive for the design and cost-efficiency of this bulky, low value commodity with limited potential for transport efficiency gains. One rule of thumb is that the shorter the transport distance, the later comminution should be performed in the supply chain. On the other hand, for long transport distances and a bulky assortment, comminution could be carried out in an earlier stage of the supply chain in order to decrease transport costs. In most cases the supply is not made up of one chain, but consists of a network of supply chains, where the challenge is to utilize machinery where it is best suited and to minimize costs. Utilising supply cost curves can provide insight into the most suitable supply chain for a particular situation.