Economic analysis of short rotation coppice investment: Croatian case study

Following the Croatian fully fledged membership in the European Union in 2013 and pursuant to the Directive 2009/28/EC on the promotion and use of energy from renewable sources, Croatia, as well as other member states had done previously, committed to increasing their use of energy from renewable sources. Consequently, by 2020 the share of energy from renewable sources in final gross energy consumption is expected to reach at least 20% at EU level. According to the Energy Strategy (2009), Croatia had set a goal for 2010 to use about 15 PJ (peta joules) biomass energy, and for 2020, around 26 PJ. This energy will be generated in numerous biomass power plants with a total output of about 85 MW. In the last few years, investments in short rotation crops in Croatia have increased substantially due to the rising need for biomass. This case study evaluates investments in short rotation coppice (SRC) on the territory of the Republic of Croatia. SRC are mostly planned and established on land in rural areas which is not used for agricultural or forestry purposes due to its low site quality. The sample of plantations of willow clones (Salix sp.) studied covers an area of 3,000 ha. The time frame of the project is 15 years and the predicted annual willow yield amounts to 21 t DM ha-1 a-1 (dry mass per hectare per year). The research results presented refer to the investment launched in Valpovo Forest Range Office located in the eastern part of the Republic of Croatia. Methods of capital budgeting were used in the economic analysis (NPV-Net Present Value, IRR-Internal Rate of Return). The discount rate that was taken as a reference stood at 7 %, yet rates ranging between 5 % and 10 % were used in terms of sensitivity analysis. All the calculated indicators showed the cost-effectiveness of the project: dynamic payback period: 10.83 years, net present value: 1,789,133 (sic) and internal rate of return 10.36 %.