| Boiling Point No. 01 - Special Edition 1989 |
by Ian McChesney
A dangerous assumption is made in many energy projects: "the assumption that the 'energy crisis' creates unlimited opportunities for energy manufacture". The error starts from an examination of national supply and demand statistics, proceeds with the identification of a dangerous gap between the two and concludes with recommendations for a range of new energy products - briquetting among them. An assumption is born.
The assumption is misleading. The energy markets do not work like this. Creating a market for a new energy source means competing with existing fuels. Although a new supply opportunity may exist, it is still governed by the relative cost and performance of the new fuel.
Prices for the fuel sellers are depicted differently by the optimists and the pessimists:
The optimists see prices responding steadily to resource constraints and increasing demand. The future point at which new fuels, such as briquettes at a targeted price of $5()/ton for instance, become competitive can be safely predicted.
True optimists then see new energy sources constraining the rate of price increases - line A whereas line B may actually be more representative.
Pessimists have a different view. Their prices do not respond strongly to conventional supply/demand constraints until crisis is reached. The crisis lies an unpredictable way ahead and beyond it prices are established at an altogether higher (or lower) level. Line C could lie almost anywhere.
Energy planners in the 70's were optimists. The lessons of oil prices and wood prices, in the early 80's, have tended to make them pessimists. You can take your choice of assumptions, of course, but businesses planning to make and sell briquettes face a hard task in deciding when to invest and an impossible task in predicting how profitable the investment is likely to be. The markets may not obey your assumptions.
This is even before the choices of market sector, operating scale, technology, raw material etc are introduced. Market sector in particular presents a problem. Industrial markets offer high volumes at low prices, domestic markets high prices at unknown volumes.
Competing for Demand
Briquette makers have a choice. Spread the product around thinly and hope that it will pick up novelty/specialised sales, or concentrate on a particular area and focus on achieving market share. Both strategies entail risk. A hypothetical model of the urban fuel market may help to define the relative risks:
In the central areas (and richer suburbs) energy use is confined to gas, electricity and kerosene. Wood energy, if used, will meet low value heating needs not cooking duties.
Surrounding this central area may be two bands of wood fuel users. The inner band where charcoal predominates (unless kerosene is cheaply available) and the outer band where wood and wastes form the main fuel source. With customers generally intent on progressing towards better and cheaper cooking, the domestic market for briquettes lies in two areas:
- Charcoal consumers who find increasing prices a problem and cannot upgrade to kerosene.
- Wood consumers looking to upgrade, but prepared to try an alternative to charcoal.
In both cases the market will be price sensitive and customers will be looking for steady, reliable supplies A targeted marketing strategy is likely to meet these requirements with less risk than a scattered approach. The question of how this targeting is achieved is a new area, faced not just by briquettes, but by solar, wind, hydropower etc.
The analysis assumption that energy needs and energy wants are necessarily the same thing is fatally flawed. A nation may need more fuel, but may not want to buy briquettes. A successful challenge to this situation requires a better understanding of how the fuel markets work and a clearer view on how to target an effective demand for briquettes.