RESEARCH FOR

Kristaps Makovskis, Dagnija Lazdiņa, Ligita Bite
ReseaRch foR RuRal Development 2012
ECONOMIC CALCULATION OF SHORT
ROTATION WILLOW PLANTATIONS IN LATVIA
Figure 2. Accumulated cash flow for the project lifetime of 22 years, the payback in standard scenario and
pessimistic scenario is in the 9 th year after the second harvest, in optimistic scenario the payback is after the
first harvest in the 5 th year.
Source: author’s calculation based on EcoWillow model.
Figure 3. Total production costs of first plantation
lifespan.
Source: the author’s calculation based on EcoWillow
model.
Land rent cost is adapted according to an average
of the values for the first two agricultural land base
quality classes in the countryside. The average tax
rate, using agricultural land from first two quality
classes, which is most suitable for willow plantations,
is 6 LVL ha -1 . If the land costs rise by 50%, that is, up
to 12 LVL ha -1 , the land cost and taxes will increase
to 9% of the total production cost instead of 5 %. In
this scenario, the IRR will drop by 11% (from 17.1%
to 15.2%), NPV will drop by 8.4% (from 1,099 LVL
to 1,006 LVL) and accumulated cash flow will drop
by 6.4%. The land tax did not play significant role in
economic calculations; even if the tax rises for 50%,
it will not significantly affect the total payback time.
To compensate an increase in the land cost tax for
6 LVL ha -1 (or 50%, according to the standard
scenario), the average biomass increment in a year
should rise for 1 ODT ha -1 year -1 (increase by 12.5%)
and achieve 9 ODT ha -1 year -1 , which is average
increment of biomass in Southern part of Europe
(Ericsson et al., 2009). In the standard scenario
the yield (annual increment) is 8 ODT ha -1 year -1 .
Increase of the yield by 3 ODT ha -1 year -1 or 37.5% (to
11 ODT ha -1 year -1 ) would increase the IRR by 28.1%
(from 17.1% to 21.9%). The harvest costs would
increase by 16.4% (from 152 LVL ha -1 to 177 LVL ha -1 )
and transport costs – by 37.8% (from 164 LVL ha -1
to 226 LVL ha -1 ). The total accumulated cash flow
would increase by 65.9%. The IRR, harvest and
transport cost and accumulated changes of the cash
flow compared to the standard scenario are shown in
Table 2. To achieve higher yields, it is important to
improve breeding, management and technologies in
plantation planting and harvesting, (Mola-Yudego,
2011). The lifespan of the plantations in future would
be shorter because of the improvement in breeding and
technologies. New willow clones are more productive
than the older ones and recultivation of old plantations
to establish new ones with the new clones would be
more profitable than keeping previous plantations for
22 years.
Price of biomass has a great impact on the project
payback time. If the price is 13 LVL ODT -1 the
payback will be reached only after the fourth harvest,
at the plantation age of 17 years. The price of biomass
did not affect first 4 years of plantation life (see fig. 4),
so the assumption of good wood chips price in future
could be a reason to establish plantations.
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