Cellulosic Ethanol Feasibility Template

AgMRC Renewable Energy Newsletter
October 2008

Rodney Holcomb and Phil Kenkel
Oklahoma State University

 A new addition to the growing biofuels resources list at AgMRC is a cellulosic ethanol feasibility template developed by agricultural economists at Oklahoma State University (OSU).  The purpose of the spreadsheet-based template is to give users the opportunity to assess the economics of a commercial-scale plant using enzymatic hydrolysis methods to process cellulosic materials into ethanol.  The OSU Cellulosic Ethanol Feasibility Template can be downloaded and modified by the user to mimic the basic operating parameters of a proposed ethanol plant under a variety of production conditions.

The Push for Plants

Cellulosic materials have been touted as the feedstock for the “second generation” of biofuel production and the best alternative for replacing food and feed grains in ethanol production.  Proponents of cellulosic ethanol point out that its production generates a higher net energy gain and a lower level ofgreen house gas emissions relative to grain-based ethanol, due in part to the fact that a higher portion of the feedstock material is converted to fuel.  As a result, the past decade has seen a tremendous increase in research related to ethanol production from feedstocks such as corn stover, switchgrass, rice hulls,wheat straw, urban waste, wood processing waste, and sugarcane bagasse. Proposed cellulosic ethanol plants from Massachusetts to Hawaii have been announced, each one is expected to use one or more of these and other feedstocks.

The US Department of Energy (DOE) committed more than $1 billion toward cellulosic ethanol projects in 2007, with a goal of making the fuel cost competitive at $1.33 per gallon by 2012.  Projects supported by the 2007 DOE commitment range from annual capacities of 11 million gallons of ethanol(Kansas) to 125 million gallons (Iowa).  The technologies utilized by these proposed plants also vary, as do their feedstocks.  Feedstocks expected to be used by some of these proposed ventures include corn stover and cobs, rice and wheat straw, milo stubble, switchgrass, yard waste, wood and wood processing residues, “green” wastes and other wastes recovered from landfills.  Some of the technologies to be utilized also generate co-products such as electricity,hydrogen, ammonia, and methanol.

Although these high-profile bio refineries have received significant federal support, the costs of building and operating a commercial-scale facility are not publicly known, and the companies developing and utilizing the processing technologies are not inclined to reveal their projections.  Unlike grain-based ethanol, where processing technologies have become relatively standardized andfeedstock procurement is as simple as participating in the grain marketing system, cellulosic ethanol projects may have a wide range of technical efficiencies, conversion rates, and feedstock logistics.  Decision-makers,including agricultural producers, potential investors, and rural community leaders, are interested in determining whether cellulosic ethanol production could be feasible in their area.

The most readily available and detailed costs estimates for a commercial-scale facility have been provided by the National Renewable Energy Laboratory out of Colorado in a series of publicly-accessible reports. Additional construction and operating cost projections, although typically more general than detailed, have been published or presented by university researchers working with some of the technology companies to devise new or improved production systems.  Some of these estimates have been incorporated into the Cellulosic Ethanol Feasibility Template.

Using the Template

Users of the OSU Cellulosic Ethanol Feasibility Template are directed to input information on building and equipment costs, personnel, and the feedstocks(up to four) in the green-shaded cells at various places in the template. Feedstock costs can be segmented into the market value, shipping/transportation costs, and storage/handling costs per ton.  The user also inputs information on available state and federal tax credits for ethanol production and expected inflation rates for input costs, output prices, and even personnel salaries. The template then uses this information to generate such necessary items as depreciation schedules for the plant and equipment, loan amortization schedules,profit/loss statements, and estimates of annualized cash flow. 

The template also lets the user define the type of pre treatment to be used for maximizing conversion efficiency for a given feedstock.  A number of different pre-treatment options exist for cellulosic ethanol, including but not limited to dilute acid, ammonia fiber explosion, and alkali treatment. Conversion efficiency is also impacted by the types and quantities of enzymesused in the conversion process, i.e. enzyme “loading.”  Pre-treatment options and enzyme loading have benefits and costs that vary with the type of feedstock to be used.  The economic principle of diminishing marginal returns becomes relevant in the consideration of pre-treatment and enzyme options, as there comes a point where the addition of more chemicals and enzymes increase costs but not conversion.  The template includes a “How To Use” document that provides a sample list of research publications related to different pre-treatment methods and costs.

Sensitivity analysis is an important component of any feasibility assessment,and the OSU Cellulosic Ethanol Feasibility Template includes both an example ofand directions for performing a sensitivity analysis.  Users of the template can quickly and easily develop tables showing the changes in key return figures associated with changes in feedstock market values, feedstock  shipping distance, feedstock conversion rates, ethanol price, and total project costs. These tables can then be incorporated in a report prepared for producers,community leaders, and/or government agency representatives.

The Value of Information

With the increased push for cellulosic ethanol production, the public in general and agricultural producers in particular are demanding more information on the technologies and economics associated with these bio-refineries.  Facility requirements, processing efficiencies, feedstock procurement, and job creation associated with proposed plants are important to agricultural and rural community stakeholders who are intrigued by the possibilities associated with the second-generation biofuel industry.  These decision makers now have a tool that allows them the flexibility to examine different production technologies,feedstock procurement strategies, plant capacities, and the economic potential for a community or a region.

The OSU Cellulosic Ethanol Feasibility Template gives interested parties the ability to perform rough feasibility estimates of proposed cellulosic ethanol ventures given basic assumptions for facilities, feedstocks, and operating parameters.  While the template does not substitute for a detailed feasibility study and business plan, it does serve as a general “what if” instrument for an area of agribusiness where “what if” questions abound.

For more information on the OSU Cellulosic Ethanol Feasibility Template and its uses, contact Rodney Holcomb and Phil Kenkel, Professors of Agricultural Economics at Oklahoma State University, at rodney.holcomb@okstate.edu and kenkel@okstate.edu, respectively.