Feedstock Supply Insurance: Unlocking the Global Bioeconomy

By Jordan Solomon, President & CEO of Ecostrat and Tom Dickson, CEO of New Energy Risk
Special to The Digest

The global bioeconomy is poised for exponential growth, but a key bottleneck remains: the inherent risks in biomass supply chains. These risks are a major obstacle to financing new biofuel, renewable energy, biogas, and biomaterial projects. The need for innovative tools to address these risks has never been more urgent, and overcoming them could be the key to unlocking the full potential of the global bioeconomy.

Biomass supply chains are complex, consisting largely of small and medium-sized suppliers such as sawmills, forestry companies, farmers, and truckers. These suppliers are rarely investment-grade and often unable to provide the long-term, bankable supply contracts necessary for project financing. Without recourse to an investment-grade counterparty in the event of supply chain failure, traditional project financing becomes nearly impossible. This shifts the risk onto parties ill-equipped to handle it, including suppliers, financial partners, governments, and the projects themselves.

The consequences are severe. Projects face longer timelines to secure capital, higher debt costs, and misaligned capital structures that fail to match project risks. Compounding these challenges is the scarcity of long-term supply contracts. Contracts that match the duration of project debt are extremely rare, and even when they exist, the non-investment-grade nature of most suppliers renders these contracts ineffective for financing.

What is needed is a fiscal instrument that functions to synthetically create investment grade supply chain out of non investment grade components. While this may seem like magic, in fact insurance has been performing this function effectively in other sectors for years. The key is being able to assess actuarially the risk of long-term failure of biomass supply chains and probability of contingency supply. Once the probability of that risk is defined, the impact on a bio-project’s proforma can be calculated, the cost of insurance can be properly priced and effective policies can be deployed.

Enter Ecostrat and New Energy Risk (NER), who have recently announced an agreement to tackle this critical challenge by developing Feedstock Supply Insurance (FSI). NER, a leader in insurance for energy transition innovations, brings expertise in securing insurance capacity for FSI through advanced risk-pricing models, policy development, key partnerships in the insurance and reinsurance markets and necessary licensing. Ecostrat, a market leader in biomass feedstock supply analytics, provides deep market insights, including forecasting models, scoring, and risk quantification tools for feedstock supply chains.

Together, they are creating a groundbreaking insurance solution that aims to stabilize and de-risk biomass supply chains. This innovative product has the potential to catalyze the development of transportation biofuels in North America and beyond, by providing the financial security needed to accelerate investment in the bioeconomy.

With Feedstock Supply Insurance, the industry will finally be able to overcome one of its biggest hurdles, paving the way for a more sustainable and prosperous future.

For more information visit https://ecostrat.com/feedstock-supply-insurance/.