Profitability of Willow Biomass Crops Affected by Incentive Programs

Abstract

The economics of willow biomass crops are strongly influenced by yield, production, and harvesting costs and the delivered price for biomass. Under current management practices, willow biomass crops with yields of 12 oven-dried metric tons (odt) ha−1 year−1 and a delivered price of $60 odt−1 have an internal rate of return (IRR) of about 5.5 %. Yields below 9 odt ha−1 year−1 have an IRR <0 %. We examined the impact of different incentive programs on the returns from willow biomass crops and the hectares or tons of willow biomass supported across a range of yields. Incentive programs examined included establishment grants (EG), annual payments (AIP), low cost startup loans, and matching payments offered by two existing programs, the Conservation Resource Program (CRP) and more recently the Biomass Crop Assistance Program (BCAP). EGs covering 75 % of the establishment costs provide high returns for growers on medium to high-productivity sites. Stand-alone AIPs with payments of $124 ha−1 year−1 paid over 5–15 years had little impact on profitability for growers but were costly for a funding agency. Low-cost loans with an interest rate of 2–4 % are one of the least expensive approaches ($1.3–6.6 odt−1) and improve profitability for medium- and high-yielding (8–16 odt ha−1 year−1) sites. A matching payment incentive providing $50 per odt delivered was the only individual incentive approach that made low-yielding sites (6 odt ha−1 year−1) profitable but was costly per odt compared to other incentives. Current CRP incentives made willow profitable across all productivity scenarios. The BCAP program generates higher profits for all productivity scenarios but comes at a higher cost. Effective financial incentives need to be well designed and monitored so that the target audience is reached and the intended policy goals are attained.