The economic efficiency of forest energy wood chip production in regional use - A case study

Abstract

This regional project case study deals with the limiting factors of economic efficiency in the production of forest energy wood chips. The evaluation of production efficiency made use of data obtained from the Lesy města Brna, a.s. (Forest of the City of Brno, Corp.), which were subjected to two static methods of investment evaluation: an analysis of the tipping point and determination of the limit of variable costs and a dynamic modified tipping point analysis using cash flow (i.e. cash break even analysis). The results have confirmed an established hypothesis, namely that the decisive factor in the profitability of the production of forest energy wood chips hinges on the costs incurred in the gathering of raw material and the distribution of the produced chips. The results include a further limiting factor: transportation costs to the final consumption location. The output of the study is a recommendation that the concentration of residual forest materials not exceed a distance of 250 m from the place of production to the point of disintegration and that the transport distance of energy chips not exceed 50 km from the place of disintegration to the final consumption point. These limiting values help quantify the full internal costs per cost unit, full internal cost profitability, total revenue profitability and annual profitability expressed in terms of fixed assets depreciation without factoring in financial aid.