Implementation of machinery and transport to alternative energies in the chain of forestry suppliers
Implementation of machinery and transport to alternative energies in the chain of forestry suppliers
Business Model Description
The destination of the investment would be the renovation of machines and transport to electric power or another non-CO2 emitting energy vector that is articulated in the general sustainability goals of the chain and in the country's decarbonization effort. The financing is based on long-term contracts of the multinational industry with local suppliers.
Expected Impact
Substitution of fossil energy sources in the companies supplying the forestry chain improves efficiency while minimizing the environmental impact.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Uruguay: Countrywide
Sector Classification
Renewable Resources and Alternative Energy
Uruguay is currently one of the few countries with a surplus of renewable energy. It has 98% of its electrical matrix from renewable sources. This implies a challenge in terms of the transition in the use of these sources by the sectors of activity, transportation and domestic consumption. In turn, Uruguay competes in the world market for the generation of new green energy alternatives.
Forestry and Paper
The forestry sector had a significant development in recent decades in our country. The forested area rose from about 200,000 hectares in the early 1990s to just over 1 million hectares today and wood extraction has multiplied by five in the last 20 years, reaching 17 million m3 in 2019.
Forestry Management
Pipeline Opportunity
Implementation of machinery and transport to alternative energies in the chain of forestry suppliers
The destination of the investment would be the renovation of machines and transport to electric power or another non-CO2 emitting energy vector that is articulated in the general sustainability goals of the chain and in the country's decarbonization effort. The financing is based on long-term contracts of the multinational industry with local suppliers.
Business Case
Market Size and Environment
< USD 50 million
10% - 15%
The forestry sector contributes 3.8% of GDP, 2,100 million dollars in 2019 and directly generates 18,000 jobs. These chains were articulated on the basis of a forest production developed with state incentives and foreign direct investment in 3 state-of-the-art pulp production plants combined with sawmills and manufacture of wood for construction for export.
Indicative Return
10% - 15%
Estimated based on interviews with companies providing forest services and personnel linked to the pulp industry. Average returns of a sector that presents different sizes of players throughout the chain.
Investment Timeframe
Medium Term (5–10 years)
Forestry companies have contracts with their suppliers for at least 5 years. This allows this time to be projected as a minimum for the time frame. In the case of forest financing, terms of 12 years are handled with a 10-year grace period in commercial banks.
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Impact Case
Sustainable Development Need
The rural environment show little dynamics and capacity to generate sources of work, apart from livestock activities that use very little labor. The forestry sector in the north of the territory has made an important contribution to the formalization of rural work, promoting quality and safety practices and standards throughout the entire value chain.
Despite the fact that Uruguay is one of the few countries with the capacity to export renewable energies. The energy consumption matrix shows more than 1/3 fossil fuel consumption. The decarbonization of the consumption matrix is strongly linked to transport and especially freight vehicles. Currently, progress is being made in green H2, a cost-effective decarbonization vector.
As in the entire industry, it is necessary to improve the profitability and sustainability of SMEs in the forestry chain by incorporating state-of-the-art technology and machinery that in turn incorporate new types of fuels (H2 or electric).
Gender & Marginalisation
The problem of job creation in the rural areas of the north of the country has a greater effect on women and those of afro or indigenous origin. Forestry chains offer employment in rural localities, both skilled and low-skilled. They also incorporate female employment in supply activities. Finally, working conditions in the sector provide high standards and audited by international consultants.
The forestry chain presents an important challenge in managing the biomass residues that are generated (sawdust and wood and forest residues). The pulp industry is an important producer of renewable energy through the use of forest residues. This energy can be used to power supplier machinery and transport, thus reducing the CO2 footprint of the activity as a whole.
The low qualification of the workforce in the rural areas of the north of the country presents an obstacle for the incorporation of employment. The end of the chain is led by multinational companies that offer long-term service contracts and stable conditions. This allows the investment financing of the supplier SMEs, improving their efficiency, profitability and long-term sustainability.
Expected Development Outcome
Increase in the level of activity and employment in rural regions. Increase in female employment. Improvement in labor formality and reduction of risks of accidents and working conditions.
Reduction of CO2 generation and material footprint per unit produced.
Improvement in the profitability of companies, increase in number.
Gender & Marginalisation
In 2012, women represented 16.7% of all workers in the forestry and wood extraction sector, while in 2016 they represented 17.5%. On the other hand, 54% of the nursery workforce are women. It is possible to hope that an impact will be achieved so that the numbers of the nurseries are those of the total industry.
Primary SDGs addressed
8.5.2 Unemployment rate, by sex, age and persons with disabilities
Currently, it is estimated that 25,248 jobs have been created directly and indirectly.
It is expected to increase at least 10% employed in the sector.
7.2.1 Renewable energy share in the total final energy consumption
Currently the forestry sector supplies 762,351 mwh to the grid. There are no data on the consumption of renewable energy by suppliers, this is a data that will begin to be calculated as the consumption matrix begins to transform.
Biomass Energy Consumption in the Wood and Paper subsector. It is currently 65% .
9.3.1 Proportion of small-scale industries in total industry value added
Data not known. The number of SMEs should be clearly surveyed by zones and localities. It is possible that these data can be built from Asecfur.
Number of supply chain companies.
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
There is a risk linked to the failure of some of the innovations in alternative energies such as H2 and its application to freight transport. It is necessary to define an industrial and energy policy that subsidizes early stages in the development of the Green H2 production sector and its possible derivatives. Being innovations at a general level of the sector in the world.
It is necessary to define an industrial and energy policy that subsidizes early stages in the development of the Green H2 production sector and its possible derivatives.
Impact Risks
Possibility that the new jobs will not be absorbed by inhabitants of the affected localities and sub-territories.
Difficulty in incorporating new technologies due to associated technical ignorance.
Impact Classification
What
Decarbonize the energy matrix in forest providers
Risk
The substitution of fossil sources is in the process of maturing, although with important validations at the international level (H2 green)
Impact Thesis
Substitution of fossil energy sources in the companies supplying the forestry chain improves efficiency while minimizing the environmental impact.
Enabling Environment
Policy Environment
The activity of the forestry sector was regulated in our country through Law 13,723 of 12/16/968; and the second stage with the enactment of Law 15,939, of 02/09/988, called "Forest Development Law", regulated by Decree 452/988 of 07/06/988. This regulation had in its genesis, as a central objective, to achieve sustainable forest management, granting a relevant regulatory framework for the sector.
Financial Environment
Financial incentives: Forest plantations are financed by various investment funds and financial trusts. Its structures are mature and in constant evolution.
Fiscal incentives: Forestry investments have a set of fiscal exemptions, enshrined in the Laws already described.
Other incentives: The pulp industry operates under the Free Zone regime, which gives it significant incentives. In addition, the railway line is currently being renovated, which will reduce transportation costs.
Regulatory Environment
Law 15,939. This rule exempts from all national taxes the possession of the rural property, the real estate contribution that would be paid for it, and the income derived from the exploitation, for the purposes of any tax levied.
Marketplace Participants
Private Sector
Forestry companies; companies in the forestry industry of cellulose and sawn wood and panels and chips; suppliers of forestry companies (planting, maintenance, harvesting, transport and storage of wood).
Government
MGAP, MA, Municipalities, Mayors and local governments
Multilaterals
IDB, CAF
Target Locations
Uruguay: Countrywide
References
- (1) https://www.spf.com.uy/2020/12/15/la-contribucion-del-complejo-forestal-a-la-economia-uruguaya/
- (2) https://www.spf.com.uy/wp-content/uploads/2020/12/SPF-Impacto-Forestaci%C3%B3n_Diciembre2020.pdf
- (3) https://asecfur.com.uy/analisis-foda/
- (4) http://revistaderecho.um.edu.uy/wp-content/uploads/2012/12/Ferrer-y-Lirola-La-activity-forestal-en-uruguay-Beneficios-fiscales-y-su-control. pdf
- (5)Opportunities for the Future of the Forestry Bioeconomy in Uruguay; OPP, 2019: https://www.opp.gub.uy/sites/default/files/inline-files/Oportunidades%20para%20el%20futuro%20de%20la%20bioeconomi%CC%81a%20forestal%20en%20Uruguay.pdf
- (6) https://www.brou.com.uy/clientes-empresa/agro/credito/projects-forestales-bosques-de-rendimiento-y-protectores
- (7) National Energy Balance 2020: https://ben.miem.gub.uy/descargas/1balance/1-1-Book-BEN2020.pdf