Locational Determinants for Wood Pellet Plants: A Review and Case Study of North and South America

Abstract

The European Union’s Renewable Energy Directive has led many electricity producers in Europe to use wood pellets in place of fossil fuels. North America has become one of the primary suppliers of wood pellets to Europe. This paper critically examines literature, economic models and data, as well as the supply chain and country risk factors, related to wood pellet production to anticipate where North and South American pellet mills should be built to meet Europe’s demand. Canada, the United States, and Brazil maintain the largest natural forest area, planted forest area, and industrial roundwood production; however, South American countries achieve faster plantation growth rates. The World Bank’s Logistic Procurement Index and IHS's Country Risk Index were used to score and rank countries’ investment climates, based on their supply chain and risk factors. In this regard, the United States, Canada, and Chile performed best, in contrast to Venezuela, Bolivia, and Ecuador. When considering both wood supply and investment climates, the United States, Canada, and Chile were the most attractive countries to build a pellet mill, while countries, such as Argentina, Brazil, Colombia, Paraguay, and Peru present significant trade-offs between having significant wood resources and riskier investment climates.

Keywords

• Wood pellet mill
• North america
• South america
• Wood supply
• Supply chain
• Country risk
• Investment climate