Martin Ascacíbar is creating vibrant, profitable new businesses in rural Spain by restructuring value chains and processes related to biomass. These structures engage local small producers and businesses who then reap significant economic benefits that previously only went to larger non-resident investors and industries. The new vertically linked enterprises are accelerating rural development, providing livelihoods for dwindling rural populations, and helping steward and preserve Spain’s remaining forest lands.
The New Idea
Martin is developing a new biomass model that is socially empowering, economically feasible, and environmentally sustainable. Through a vertically integrated business model based on cross capital participation (i.e. with each element of the value chain holding an interest, either through individually held or corporately held equity, in other segments of the value chain), Martin is demonstrating how a new type of enterprise, which incorporates an integrated value chain that includes small local producers as well as larger players, can succeed in biomass production where others have failed. The capital structure that Martin has pioneered allows full and transparent access to financial information, benefit sharing and most decision-making. In the process, it offers key incentives to all participants, from producers to consumers, to maximize the benefits of the whole system, and to ensure sustainable local development.
Starting at the local level, Martin establishes a biomass production plant. The forest owners—both public and private entities—that provide material for the plant (forest waste and other types of wood)—have a dual relationship with this plant as both owners and suppliers of raw materials. Producers hold capital shares of the plant and also commercial agreements that guarantee fair prices for their material. This structure allows for the growth and profits of the plant to translate into double benefits for the producer: As a shareholder, and through higher raw material prices. Martin’s different plants are geographically distributed and share a central body, Enerpellet, which is in charge of logistics and distribution as well as marketing and commercialization of every plant’s production. To round up the capital structure of the model, Enerpellet participates in all the producing plants with shares and vice-versa.
This model allows the biomass industry to act as an engine of local economic development and environmental preservation. Martin’s model distributes returns of capitals and passes them down to the primary producers, addressing the inefficiency of existing business structures markets where the producers of primary (commodities) rarely reap the full benefit from the profits generated in their channels. Thus, he is promoting local development, ensuring sustainability, and responding efficiently to future energy needs of the population.
Spain’s recent long period of vigorous growth before recession did not sufficiently reach rural areas, as evidenced by the resulting pattern of population concentration in larger cities and the backwardness of rural areas with regards to many economic and social indicators. However, there is movement to try to shift these trends in Spain. For example, the new Law on Sustainable Development of Rural Areas includes employment and economic development as a main priority, along with addressing environmental concerns promoting sustainable development for rural areas. In fact, in today’s crisis, rural areas are starting to be regarded as a new source of employment and wealth creation, while contributing solutions to environmental challenges. There are no virgin forests in Spain, and survival of existing forests depends on resource intensive management. Forests require constant stewardship and frequent thinning and clearing of underbrush to avoid natural fires and other threats. Traditionally, forests were naturally maintained, thanks to the economic value of its resources (dry wood and resin); however, as rural life is increasingly independent from its closest natural resources, maintaining forests is not only unprofitable, but a costly activity for municipalities. Additionally, today the producers in the primary sector, especially in forestry, very seldom benefit from the returns generated by their own resources. As small producers at the earliest stages of the biomass production chain, with multiple competitors, rural producers have little pricing power and are often pressured to sell below production costs.
During his years as Director of Innovation for the Basque Government, Martin worked with many primary sector producers and small companies. He understood the barriers they encounter when attempting to compete efficiently with larger businesses, especially when there is no cooperation among the smaller businesses. In traditional value chains each independent player, from producer to consumer, is only interested in maximizing his own individual profits; there are no incentives to cooperate and the chains generally create negative effects for other participants. On the other hand, Martin found that existing models such as cooperatives were bound to fail due to the lack of incentives of workers to maximize future returns. Traditional cooperatives distribute the benefits in the hands of all owners, who usually have an employee mentality rather than that of a shareholder motivated to invest in long-term growth. On top of that, traditional cooperatives have proven inefficient to integrate multiple players of different sizes and sectors, or to build a sustainable model of relationship between cooperatives vertically integrated.
Martin saw an opportunity for changing this pattern in the biomass sector, where traditional production was being handled at a very large-scale, with very high environmental impact from heavy and intensive transportation and few, if any, economic returns to the primary producers or the regions in which the primary commodities were grown. If no alternative solutions are successfully implemented, there is a risk of forests being degraded for poorly and costly management. Also, if larger energy companies step in with the establishment of large capacity biomass plants, producers will not hold a strong enough position to protect environment values and will remain part of a disintegrated value chain, unable to fully enjoy generated returns.
Martin’s model is based on maximizing profits (or sharing loses) for all participants in the biomass production value chain. He does this by locating production facilities close to the raw material source and by aggregating production from small production facilities to create a national, reliable brand of cost efficient energy suitable for home and select business uses. The glue that holds the diverse stakeholders together in this value chain is the unique capital structure of Enerpellet, with segments of the value chain holding equity in other segments of the chain, ensuring that forest owners, biomass producers, and commercializing bodies’ interests are all balanced.
Unlike other top-down larger infrastructure solutions driven by corporate business principles, Martin works bottom-up to gain the trust and buy-in from municipalities and other forest owners in order to build a new biomass production plant. These partners benefit from the economies of scale emerging from having a centralized body, Enerpellet, which will assume the marketing and distribution function. All plants will benefit from a well-known brand, name, and ensured quality. This positions them at the same level of quality and service of other fossil fuel providers.
In keeping with its sustainability objectives, the business model requires locally-based plants adapted to, but not exceeding, the local forest production capacity, which in turn ensures the geographical distribution of benefits and economic regeneration in Spain’s rural areas, minimizing long-distance environment impact related and costs. The value to rural communities is further enhanced by the creation of undervalued jobs, which contributes to rural development and keeping populations in rural areas.
Given the challenge of growing the biomass market, which can entail significant conversion costs for energy users, Martin has also included other strategic partners in the Enerpellet structure, such as larger companies involved in the sector, leveraging the added value they bring from their specific expertise (e.g. boiler companies, gas companies, and financing firms) These firms help to build a strong competitive brand to position Enerpellet as a true competitor to other providers.
A significant component of the growth strategy is working with communities to develop “local communities of energy management.” Martin and Enerpellet work with the municipalities that build the plants to buy the pellets from Enerpellet. This offers steady pricing due to negotiations between Enerpellet and the production plants which link price adjustments to inflation and helps to avoid wide swings in the speculative energy markets.
The Enerpellet network is structured so that 80 percent of benefits delivered by the marketing/distribution activities are returned to the biomass production plants. Because Enerpellet holds equity in the plants, it is in its best interest to perform well commercially. As the benefits cascade down to the plants, the producers (shareholders of the plants) will benefit from them, and will have all the information needed to renegotiate prices. The 20 percent of benefits that remain in Enerpellet will help to replicate the model in other regions in Spain and elsewhere. Today there are three plants in Spain, one in negotiation to join Enerpellet, and Martin plans expansion into France, Italy, and Chile. Municipalities, as well as individual neighbors, are becoming the lead investors in the construction of a new plant. Given the importance of scale and attracting expertise to the success of the venture, the model is also including other strategic partners, including a large industrial firm. Martin is building a solid company with the expertise of many players, giving Enerpellet a strong competitive advantage.
With this model Martin is redefining the way all members of a value chain collaborate and maximize benefits for all, meeting rural, environmental, and local development criteria.
Martin is an entrepreneur moved by his obsession to find solutions to primary producers’ problems, and a deep conviction that he can drive important changes. Strongly involved with his local community since childhood, Martin has led different initiatives to mobilize youth in driving change. For example, when he was a teenager he organized summer camps with other children to visit elders in a community residency.
Martin is a systems thinker with extensive entrepreneurial experience. As Director of Innovation within the Basque Government, he piloted initiatives with fishermen cooperatives and agriculture e-commerce to remove intermediaries from the markets and translate more benefits down the value chain.
During a period in his life when he was the director of a dairy group, he worked to change an obsolete model and had to face strong opposition from the union of transporters and internally. Martin’s aim was to transform the traditional culture of the company, to instill more participation and trust while creating short distribution channels to surrounding neighborhoods and villages to employ local people at-risk of exclusion. To prove this was possible, he set up a small business with the at-risk youth in the area. This initiative began a deep transformation in these young people, as they learned new skills that moved them out of marginalization.
Based on all his previous learnings, in 2006 he established Enerpellet, where he acts as CEO (holding no equity). Although he is convinced this model applies for all primary sectors, he is focused on strengthening and positioning Enerpellet, before expanding to other sectors.