Types of Buyer
What is the Buyer's Business Case
This is the case required by the buyer of an Ecosystem Service, unit or credit; in order to move forward with the purchase. A business case to support the purchase of, or investment in, units/projects, should pay close attention to the overall quality of any proposition. This can be assessed through due diligence, where a greater or lesser number of points may be considered to differing degrees. The thoroughness of any due diligence will be decided upon by the party undertaking or commissioning it and will depend on the amount of engagement secured from the project/seller.
Considerations to include in a good business case are shown in the image below...
Supply & Demand
Prices can and should change in response to market conditions, conditions change frequently in new markets, for example increased demand due to sector growth, or increased demand for the asset within the secondary market (to prepare for potential future price rises), rumours of policy change, etc. Prices should generally rise due to a lack of supply (i.e. very few habitat bank); however price rises due to increased demand can risk a speculative bubble in some cases.
Currently in the new BNG market, there is a relatively low supply of offsite units, especially at a local. level. The demand is likely to increase quite quickly as applications come through. This may result in risk of losing investment in biodiversity from the LCR as developer's will be forced to purchase units from elsewhere or resort to the national credit scheme. It is important to get the local market up and running with a good supply of offsite units, in order to capitalise on the high buyer demand, and ensure there is minimal loss of funds and biodiversity from the region.
Primary & Secondary Markets
Primary market; when assets are sold for the very first time. For example, a nature-based project selling Biodiversity Units it has generated, for the very first time. In the primary market, an asset can only be traded once. After the initial trade, further changing of hand is by definition in the Secondary Market.
Secondary market; trade of assets only after they've been brought to the market in the first instance (i.e. sold after the initial sale in the primary market).
The BNG market as it stands currently, will allow a secondary market to develop, however this may be prevented via design, regulation, or legislation. The secondary market may take the form of brokers buying up Units under a purchase agreement allowing resale, the re-selling them on to developers at a premium. This may bring one benefit in the form of a source of priming funds to a project, however it is unclear how this would fit in the BNG legislative process, and it is strongly recommended that projects do not sell units to actors who may try to make a profit from them on the secondary market.