session 14 ic2011 wan
TRANSCRIPT
Opportunities and Challenges in Emerging Bioenergy Business: Case of the Finnish Sawmilling Industry
Minli Wan1, Katja Lähtinen2 & Anne Toppinen1
1 Department of Forest Sciences, University of Helsinki, Helsinki, Finland
2 Finnish Environmental Institute (SYKE), Joensuu, Finland
FPS 65th International Convention Portland, Oregon, USA / June 19-21, 2011
Introduction
Theoretical Background
Data and Methods
Preliminary Results of the 1st-stage Interviews
Preliminary Conclusions of the 1st-stage Interviews
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Outline
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Changes in the business environment challenge the sustainable
competitiveness in the traditional sawmilling industry.
Growing demand for energy and the limitations in using fossil fuels
=> bioenergy is a sustainable energy alternative.
Sawnwood production generates by-products that can be used to
produce bioenergy to generate firm-level value added.
Previous studies:Pätäri et al. (2008), Pätäri (2009);
Lähtinen & Toppinen (2008), Lähtinen et al. (2009).
Purpose of the study: To evaluate the sources of sustainable
competitive advantage, the value-creation opportunities, and the
consequent managerial challenges between the Finnish sawmilling
and energy industries.
Introduction
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Theoretical Background
Dynamic capability theory (DCT):An extension of the RBV (Barney 1991) that emphasizes firms’ ability to integrate, build and reconfigure internal and external competences in response to rapidly changing environment (Teece et al. 1997).
Natural resource-based view (NRBV):An extension of the RBV to include the opportunities and constraints provided by the natural environment (Hart 1995);
Environmentally oriented resources and capabilities can yield sources of sustainable competitive advantage;
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Figure 1. Theoretical Framework
Business Processes
BUSINESS
ENVIRONMENT
NATURAL
ENVIRONMENT
Sawmill
Bioenergy
Firm
Selection of strategic (VRIN) resources:- Timber manufacturing;- Primary by-product Processing
Selection of strategic (VRIN) resources:- Secondary by-product processing
Tangible and intangible resources
Tangible and intangible resources
Interface between firm
and business environm
ent
Receiving andanalyzing
information
Conceptionof business
environment
By-productFlow
Business Processes
(Modified from Lähtinen 2007)
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Data and Methods
Data gathering focused on the Finnish non-integrated medium-sized
sawmills.
Two-stage qualitative interview method:
1st-stage data gathering – based on semi-structured interviews made for 18
sawmills’ managers in autumn 2010, focusing on exploring the opportunities and
challenges for developing the bioenergy production at sawmills;
2nd-stage data gathering – based on in-depth interviews in late 2011, focusing
on investigating bioenergy applications in sawmill operations and factors
affecting the sawnwood and energy production in the sawmilling industry.
The bioenergy share?
Preliminary Results of the 1st-Stage Interviews
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Sample size was 29, but only 18 sawmills participated in the interviews
=> Response rate: 62%.
Over 18 sawmills, 11 sawmills were involved in selling bioenergy products
(heat, CHP and briquettes) other than internal use.
Turnover: The share of bioenergy ranged from 0 to 10%.
Main production factors: raw material, personnel know-how, technological
know-how, collaboration with local energy firms, knowledge of sawmilling
end-customers.
The First Small-Scale CHP Plant at a Sawmill in Finland: Lieksa CHP Plant
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District heat: 14 MWProcess heat: 8 MW Fuels: sawdust, bark, peatElectricity: 8 MW
(Source: VAPO 2008)
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The Latest Small-Scale CHP Plants at the Finnish Sawmills
Heat: 13.5 MWth + 9.0 MWth Electricity: 2.9 MWe Fuels: bark, sawdust, wood chips
Heat: 8.0 MWthElectricity: 1.3 MWe Fuels: bark, sawdust, wood chips
Renko SawmillVilppula Sawmill
(Source: MW Power 2011) (Source: Kuitunen 2003)
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Figure 2. Value Chain of Bioenergy
(Adapted from Porter 1985)
BIOENERGY
PRODUCTION
- Knowledge of raw material;- Experience in buying raw material from the roundwood markets; - Information on the roundwood suppliers.
MA
RG
IN
MA
RG
IN
Inbound Logistics
Outbound Logistics
Bioenergy Production
Marketing and Sales
End-user Services
- Experience and expertise in managing raw material logistics from forests to sawmills.
- Technological know-how in the use of primary by-products (bark, chips and sawdust) in bioenergy production.
- Technological know-how in the use of secondary by-products (wood pellets and wood briquettes) in bioenergy production.
- Experience in warehousing and distributing bioenergy products to bioenergy customers.
- Thorough knowledge of customers;- Experience and marketing skills in adver-tising and promoting bioenergy products to bioenergy customers.
Raw Material
Bioenergy
Firm
Sawmill
Relationships with Suppliers Relationships with Buyers - Experience in on-time delivery of after-sales service.
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Opportunities and Challenges for DevelopingBioenergy Business at the Finnish Sawmills
Opportunities Challenges
Market demand
Environmental concerns, increasing demand for energy and rising price of fossil fuels => Boom in renewable energy demand.
The sawmilling industry is highly cyclical and strongly affected by economic slowdown.
Policy
1) Renewable energy policy and RES Directive for Finland (38% by 2020);2) Government policy support for bioenergy on taxes, investment support and subsidies; 3) A new feed-in tariff scheme introduced in Finland supports wood-based power generation.
1) In Finland, no environmental taxes in electricity; 2) Finland’s political decision like ‘Renewable energy package' supports the use of energy wood in biogas production; 3) Volatile bioenergy policy changes.
Availability of raw material
1) Sawmills have an internal supply of wood fuels and they are able to collect wood fuels at a competitive price; 2) The structural change of forest industry reduces the demand for sawmill by-products in traditional applications but promotes its use in bioenergy.
1) Uncertainty in the sawnwood markets has increased because of Russia’s limited roundwood exports; 2) Uncertainty of pellet prices prevents expansion of traditional sawmilling industry into the Finnish pellet markets.
Technological know-how
Finland is one of the world leaders in using wood-based fuels in energy production, its technology know-how is globally well-known.
The same solution might be replicated by competitors outside Finland.
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Opportunities and Challenges for Developing Bioenergy Business at the Finnish Sawmills (Cont’d)
Opportunities Challenges
Collabora-tion forms
Partnership with district heating plants of the local community as a strategic resource to create competitive advantage for sawmills’bioenergy business.
Similar collaboration forms might be replicated by competitors outside Finland.
Impacts on profits
Although the share of bienergy in Finnish sawmills’ value creation was small, it affected the financial performance of sawmills.
Small share of bioenergy might make some sawmills lose their interest in bioenergy business.
Investment
1) Finnish forest industry has invested heavily in bioenergy, and the share of bioenergy is projected to increase; 2) Finnish municipalities have a long tradition in investing in wood fuel plants and biomass heating system; 3) Finnish sawmills, especially the ones with the biggest share of bioenery, are interested in investing in new bioenergy branches and enlarging bioenergy business by using by-products to increase efficiency and profitability.
1) Investment in bioenergy is risky and capital intensive; 2) Relatively high investment costs are typically an obstacle for small-scale CHP and pellet production.
Preliminary Conclusions of the 1st-Stage Interviews
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Producing bioenergy has been emphasized as a new business option
for sawmills, but it is not a new issue for the Finnish sawmills.
The sawmilling industry can increase value added and improve
profitability by efficiently utilizing by-products in bioenergy applications.
However, increasing the bioenergy production and managing the
internal resources and external investment risks also brings sawmills
new management challenges.
