Session 14 ic2011 wan


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Session 14 ic2011 wan

  1. 1. 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, FinlandFPS 65th International ConventionPortland, Oregon, USA / June 19-21, 2011
  2. 2. OutlineIntroductionTheoretical BackgroundData and MethodsPreliminary Results of the 1st-stage InterviewsPreliminary Conclusions of the 1st-stage Interviews 2011-7-14 2
  3. 3. IntroductionChanges in the business environment challenge the sustainablecompetitiveness 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 toproduce 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 sustainablecompetitive advantage, the value-creation opportunities, and theconsequent managerial challenges between the Finnish sawmillingand energy industries. 2011-7-14 3
  4. 4. Theoretical BackgroundDynamic 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; 2011-7-14 4
  5. 5. Figure 1. Theoretical Framework N A B U TS Receiving a nd a na lyzing S Uaw Selection of strategic informa tion I R Tangible and (VRIN) resources:m - Timber manufacturing; Business N A intangible resources Processesi - Primary by-product El Processing Ll S S E Interface between firm and businessB By-product environmentio Flow E Ne N Vn Ve I Ir Selection of strategicg Tangible and (VRIN) resources: Business R Ry intangible resources - Secondary by-product processing Processes O OF Ni Conception of business Nr environment M Mm E N E T N T (Modified from Lähtinen 2007) 2011-7-14 5
  6. 6. Data and MethodsData gathering focused on the Finnish non-integrated medium-sizedsawmills.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? 2011-7-14 6
  7. 7. Preliminary Results of the 1st-Stage InterviewsSample 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, technologicalknow-how, collaboration with local energy firms, knowledge of sawmillingend-customers. 2011-7-14 7
  8. 8. The First Small-Scale CHP Plant at a Sawmill in Finland: Lieksa CHP Plant District heat: 14 MW Process heat: 8 MW Fuels: sawdust, bark, peat Electricity: 8 MW (Source: VAPO 2008) 2011-7-14 8
  9. 9. The Latest Small-Scale CHP Plants at the Finnish Sawmills Vilppula Sawmill Renko SawmillHeat: 13.5 MWth + 9.0 MWth Heat: 8.0 MWthElectricity: 2.9 MWe Electricity: 1.3 MWeFuels: bark, sawdust, wood chips Fuels: bark, sawdust, wood chips (Source: MW Power 2011) (Source: Kuitunen 2003) 2011-7-14 9
  10. 10. Figure 2. Value Chain of Bioenergy Raw Inbound Bioenergy Outbound Marketing End-user Material Logistics Production Logistics and Sales ServicesB - Knowledge of - Experience - Technological raw material; and expertise know-how in theI S M - Experience in in managing use of primary aO w buying raw raw material by-products (bark, AE m material from logistics from chips and R i the roundwood forests to sawdust) in GN markets; sawmills. bioenergy I lE l - Information on production. N the roundwoodR suppliers.GY Relationships with Suppliers Relationships with Buyers BP i - Technological - Experience in - Thorough - Experience in on-timeR o know-how in the warehousing knowledge of delivery of after-sales service. MO e use of secondary and distributing customers; n by-products bioenergy - Experience AD e (wood pellets and products to and marketing RU r wood briquettes) bioenergy skills in adver- GC g in bioenergy customers. tising and I y production. promoting NT bioenergyI F products to i bioenergyO r customers.N m (Adapted from Porter 1985) 2011-7-14 10
  11. 11. Opportunities and Challenges for Developing Bioenergy Business at the Finnish Sawmills Opportunities Challenges Environmental concerns, increasing demand The sawmilling industry is highlyMarket for energy and rising price of fossil fuels => cyclical and strongly affected bydemand Boom in renewable energy demand. economic slowdown. 1) Renewable energy policy and RES 1) In Finland, no environmental Directive for Finland (38% by 2020); taxes in electricity; 2) Government policy support for bioenergy 2) Finland’s political decision likePolicy on taxes, investment support and subsidies; ‘Renewable energy package 3) A new feed-in tariff scheme introduced in supports the use of energy wood in Finland supports wood-based power biogas production; generation. 3) Volatile bioenergy policy changes. 1) Sawmills have an internal supply of wood 1) Uncertainty in the sawnwood fuels and they are able to collect wood fuels markets has increased because ofAvailability of at a competitive price; Russia’s limited roundwood exports;raw material 2) The structural change of forest industry 2) Uncertainty of pellet prices reduces the demand for sawmill by-products prevents expansion of traditional in traditional applications but promotes its sawmilling industry into the Finnish use in bioenergy. pellet markets.Technological Finland is one of the world leaders in using The same solution might beknow-how wood-based fuels in energy production, its replicated by competitors outside technology know-how is globally well-known. Finland. 2011-7-14 11
  12. 12. Opportunities and Challenges for Developing Bioenergy Business at the Finnish Sawmills (Cont’d) Opportunities Challenges Partnership with district heating plants of the Similar collaboration formsCollabora- local community as a strategic resource to might be replicated bytion forms create competitive advantage for sawmills’ competitors outside Finland. bioenergy business.Impacts on Although the share of bienergy in Finnish Small share of bioenergy mightprofits sawmills’ value creation was small, it affected make some sawmills lose their the financial performance of sawmills. interest in bioenergy business. 1) Finnish forest industry has invested heavily in 1) Investment in bioenergy is bioenergy, and the share of bioenergy is risky and capital intensive; projected to increase; 2) Relatively high investment 2) Finnish municipalities have a long tradition in costs are typically an obstacleInvestment investing in wood fuel plants and biomass for small-scale CHP and pellet heating system; production. 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. 2011-7-14 12
  13. 13. Preliminary Conclusions of the 1st-Stage InterviewsProducing bioenergy has been emphasized as a new business optionfor sawmills, but it is not a new issue for the Finnish sawmills.The sawmilling industry can increase value added and improveprofitability by efficiently utilizing by-products in bioenergy applications.However, increasing the bioenergy production and managing theinternal resources and external investment risks also brings sawmillsnew management challenges. 2011-7-14 13
  14. 14. Thank You! 2011-7-14 14