Plant trees and reap rewards
Europe produces over 500 million cubic meters of lumber every year and will probably need double that in 2020 to meet the targets for renewable energies. “This is a good reason to invest in real assets that are managed sustainably, like forests and agricultural land,” says Richard Boomer, managing partner of the Luxembourg domiciled fund “Forest and Biomass”. According to Boomer, there are more trees in the forests than people think.
Forests have been neglected for the last 200 years because mankind mainly used coal and oil as sources of energy. Nevertheless, times are changing and consumption habits need to change as well. “The production of oil for instance is dropping and by 2020 we will have to replace something like 30 million barrels a day and by 2030 it will be 70 million”, says Richard Boomer.
He is convinced that forests will celebrate their comeback, and cites climate change as an important contributing factor. Boomer continues, “2/3 of renewable energy today is biomass and tomorrow it will be even more, because wind and solar energy is not a large scale solution, especially after 2020.”
The good news is that there is plenty of available land. But it is now time to invest in productive land. That is why Richard Boomer decided to go forward and create Forest and Biomass, a fund that invests in sustainable forestry and agriculture. His idea doesn’t sound very complicated.
“Our idea is to acquire land and forest in Europe to produce biomass. At the same time, we are not going to turn noble trees into biomass. What is interesting is that we are going to sign long term contracts with energy users. They can include companies in many industries, such as cement, steel, electric utilities, or heating systems.”
A good Scandinavian model
Richard Boomer admits that it is easier to sign contracts with customers now than a couple of years ago. “Funny enough, when we talked about sustainability a few years ago and conceived this project, nobody seemed to react. Today, utilities say if you’re not sustainable, we won’t do business with you.”
There are huge opportunities for funds that invest in land, produce the biomass and sign long term contracts. Another added value is the fact that there are major inefficiencies in Europe. Except for Scandinavia, most of the forests and land are badly managed.
There are large opportunities on the one hand, but we shouldn’t forget about the risks. Boomer says, “There is the risk of fire and sickness and there is an urgency to detect them straight away. Furthermore, you have to make sure that you have several forests and not just one, in case there is a fire for instance.”
The expert and its model
In order to manage the forests properly and detect the subsequent risks, the management company of the investment fund Forest and Biomass has set up a special surveillance team. The experts randomly go in and check different areas of the forest. They cannot do their job without a model for every type of tree. They need models to know how the tree will grow over time.
The message of Richard Boomer is clear: there is enough land to plant trees and forest biomass will become a more important energy source as other sources are less and less available. But, massive investments are needed. Investors are certainly all ears to another of Boomer’s messages: he expects a target return of 12%. CW