In Nicaragua, two sugar mills are going to generate electricity from eucalyptus outside the sugarcane season. The eucalyptus comes from the sugar mills' already existing industrial energy plantations. In this study, we look at the possibility of an alternative wood supply from small scale farm-based plantations to one of these sugar mills. With farm-based plantations 77% of the value added which is generated eventually benefits low income groups, while with the industrial plantations this is between 17 and 47%. Employment creation doubles when the wood is produced by farmers instead of the sugar mill. If the wood is sold as standing stock, the farmers would need at least a price of 6.7 $/m(3) in order to obtain the minimum wage of 2.2$/day invested in the plantation. The avoided costs for the sugar mill are almost 11$/m(3). With the already existing sale of wood to the urban market, the farmers can obtain a net income of 4.9 $/day. If they would sell their wood to the sugar mill and if the sugar mill is willing to pay the avoided costs, this will become 5.5 $/day. Overall, from a financial point of view, there seems to be a good opportunity for Nicaraguan farmers to produce wood for electricity generation in sugar mills.