Financial viability of standalone wood pellet production using pine beetle fibre

Northern British Columbia is experiencing an infestation of epidemic proportions from the mountain pine beetle. The British Columbia provincial and Canada federal governments have proposed that uses other than dimensional lumber should be encouraged to maximize the economic value of the dying and dead lodgepole pine. Future wood pellet production facilities would need to become standalone and utilise whole trees as a source of wood fibre inputs. The primary objective of this study was to examine the financial viability of a Northern British Columbia standalone wood pellet production facility located in Prince George when fibre input comes from primary harvesting using a whole mountain pine beetle-killed lodgepole pine tree. The secondary objective was to understand whether incentives by way of stumpage relief provided by the government of British Columbia would provide financial viability of a standalone wood pellet production facility. Data obtained from the British Columbia Ministry of Forests and Range, Wood Pellets Association of Canada, and European Pellet Centre was used to project cash flow for five, seven, and ten-year baseline, realistic, pessimistic, and optimistic scenarios. Analysis was done using net present value of cash flows with an annual 8.9% return requirement. In all but the optimistic scenario it was proven that a standalone wood pellet production facility was not financially viable. It was further determined that mountain pine beetle-killed lodgepole pine was already assessed the lowest stumpage rate and further relief would have no bearing on the financial viability of a standalone wood pellet production facility. Government encouragement of additional wood pellet production facilities would require direct or indirect subsidies aimed at capital costs and taxation relief.