Economics of Expanding Biofuel Production in the Upper Midwest · 2014-08-13 · Economics of...

D.G. Tiffany June 23, 2009 1

Economics of Expanding Biofuel Production in the Upper Midwest

Douglas G. TiffanyExtension EducatorUniversity of Minnesota

National Academies Madison, WisconsinJune 23, 2009


Today’s Topics

• Review history of firm failures• Consider Challenges of Advanced Biofuels• Current densification & logistics of Stover• On-going research using IGCC to produce

even more electricity for sale to grid

Historical Data (Hettinga, 2007)

1980 1985 1990 1995 2000 2005 2010

Cap

acity

[10

9 gal

/yr]

0

2

4

6

8

10

Num

ber

of p

lant

s

0

20

40

60

80

100

120

140

160

180

Dry grind capacity (right)Wet milling capacity (right)Number of wet milling plants (left)Number of dry grind plants (left)Average dry grind size [million gal/yr] (left)

In Remembrance of Numerous Small Dry-Grind Ethanol Plants in the mid 1980’s

3D.G. Tiffany June 23, 2009


Historical View: Crude Oil Prices and Use

U.S. Crude Oil Consumption and Refiners Acquisition Price Levels

($2005) Source: Energy Information Agency

5 ,000, 000

5 ,500, 000

6 ,000, 000

6 ,500, 000

7 ,000, 000

7 ,500, 000

8 ,000, 000

1 970 197 5 198 0 1 985 19 90 1995 20 00 20 05 201 0

Th

ou

sa

nd

s o

f B

arr

els

An

nu

all

y C

on

sum

ed

$0

$20

$40

$60

$80

$10 0

$12 0

Pri

ce p

er

Ba

rre

l ($

20

05

)

ConsumptionPrice

Other Troubling Attributes• Too small for acceptable process controls• Poor operator safely• Poor utilization of by-products• Insufficient capital to improve and control

process• Bankers were uninterested in financing

“stills on the hills.”


U.S. Ethanol Production by Year (Source: Renewable Fuels Association)

9048

-1,000

1,000

3,000

5,000

7,000

9,000

11,000

13,000

15,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Mill

ions

of G

allo

ns


In the 1990’s• More favorable economies of scale were

realized.• Mandated markets- 1990 Clean Air Act

and state measures established a base.• Better business models emerged (LLCs)• Farmers were highly motivated to invest in

value-added enterprises.• State incentives put bankers at ease.• Rising crude oil prices helped industry

from 1993 on.D.G. Tiffany June 23, 2009 7


Historical View: Crude Oil Prices and Use

U.S. Crude Oil Consumption and Refiners Acquisition Price Levels

($2005) Source: Energy Information Agency

5 ,000, 000

5 ,500, 000

6 ,000, 000

6 ,500, 000

7 ,000, 000

7 ,500, 000

8 ,000, 000

1 970 197 5 198 0 1 985 19 90 1995 20 00 20 05 201 0

Th

ou

sa

nd

s o

f B

arr

els

An

nu

all

y C

on

sum

ed

$0

$20

$40

$60

$80

$10 0

$12 0

Pri

ce p

er

Ba

rre

l ($

20

05

)

ConsumptionPrice

Since 2000• Crude Oil price increases continue

• VEETC and tariff on imports protect domestic producers.

• MTBE is banned by many states and loses liability protection as an oxygenate.

• Hurricane Katrina contributed to cheap corn, higher energy prices for late 2005-2006.

• Publicity battles for industry– Blamed for Food Costs Rises– Indirect Land Use Change– Unrecognized Value in Reducing Price of Gasoline



U.S. Ethanol Capacity: in Use, under Construction a nd Idle on January 1 (Source: Renewable Fuels Association)

10,569

2,066

1,906

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Mill

ions

of G

allo

ns

Idle Capacity

Under Construction

Capacity in Use Production of 9,048

Production of 6,500

Considering Advanced Biofuels• Avoid “blend wall” by drop-in fuels

– Dimethyl ether

– Biobutanol(Avoid issues with Reid Vapor Point)

• At this time there are tougher technical issues with biochemical and thermochemical ethanol production.– R & D situations are not as well-suited to

farmer-investors as established processes.


Technical and Economic Issues• Pretreatments and organisms are often

incompatible• State of Technology estimates represent

“dream team” yields.• Over-optimism for “cheap feedstocks.”• Biomass feedstocks lack

– Market grades

– Opportunities to hedge– Market middlemen for procurement


D.G. Tiffany U of Minnesota 6/01/2009

13

Subsidies and Incentives Received for Producing Eth anol Using Various Technologies

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

Corn-NG &Electricity

Corn-Coal:Proc. Heat

Corn-Stover:Proc. Heat

Corn-Stover: CHP +Grid

Biochem-Stover:CHP +

Grid

Biochem-Switchgr: CHP

+ Grid

Dol

lars

per

De

natu

red

Ga

llon

Biomass Crop Assistance Program

Cellulosic Ethanol Credit

Volumetric Ethanol Excise Tax Credit

Renewable Electricity Credit

Small Producer Payment

Advanced Biofuels Face Competition from Corn

Corn dry-grind plants can be vastly improved w/ less tech. & operational risk.


Corn Crop Yield Learning Curve

Cumulative corn production [109 T]

2.5 5 10 15

Cor

n cr

op y

ield

[T/h

a]

4

6

8

10

Cumulative corn production [109 Bu]

100 200 400 500

Cor

n cr

op y

ield

[Bu/

Acr

e]

75

100

125

150

175

Extrapolated corn crop yield to 2020

1975

2008

2020

www.biomassCHPethanol.umn.edu

D.G. Tiffany June 23, 2009 15D. G. Tiffany, June 11, 2009 15

Project ObjectivesDetermine Technical Feasibility of Using Biomass to Provide

Process Heat and Electricity at Ethanol Plants

Determine Economic Sensitivity of Using Biomass with Appropriate Technologies under Various Economic Conditions




Biomass Fuel for Dry-Grind Plants

• Reduce energy costs, Improve ROI--$$$• Generate reliable power for the grid• Improve Renewable Energy Ratio

– Defined as: Energy Out / Fossil Energy In

• Lower the overall greenhouse gas emissions from ethanol production



3 Biomass Fuels and 3 Levels of Intensity of Use

• Corn Stover Combusted in Fluidized Bed• DDGS Gasified in Fluidized Bed• Syrup + Stover Combusted in Fluidized Bed

• Process Heat• Combined Heat and Power (CHP)• CHP + Sales of Power to the Grid


Corn Stover Combustion, Level 2: CHP


Corn Stover Combustion, Level 3: CHP + Grid


Integrated Gasification Combined Cycle(FERCO SilvaGasTM Process)


190 million liter (50 MMgal) per year ethanol facility



Fuel Energy Input Rate

0

20

40

60

80

100

120

ProcessHeat

CHP CHP + Grid IGCC

MW th

Syrup & Cobs IGCC

Corn StoverCombustion

Syrup & Corn StoverCombustion

DDGS Gasification

Syrup & CobsCombustion

Syrup & Nat GasCombustion

190 ML/yr ethanol facility



Gross Electricity Generation (and Use)

-10

-5

0

5

10

15

20

25

30

35

ProcessHeat

CHP CHP + Grid IGCC

MW

e

Syrup & Cobs IGCC

Corn StoverCombustion

Syrup & Corn StoverCombustion

DDGS Gasification

Syrup & CobsCombustion

Syrup & Nat. GasCombustion


Renewable Energy Ratio (LHV)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Conven

tiona

lPro

cess

Hea

t

CHPCHP +

Grid

IGCC

Rat

ioSyrup & Cobs IGCC

Corn StoverCombustion Syrup & Corn StoverCombustion DDGS Gasification

Syrup & CobsCombustionSyrup & Nat. GasCombustionConventional



Baseline ROR’s for 50 MM Gallon PlantCo nventional Plan t #1 Proc. Heat #2 CHP #3 CHP + Grid 50M M G al

Stover 3.66% 5.40% 5.97% 4.21% S tover

Syrup + Sto ver 8.04% 7.80% 6.05% S yrup + S tover

DDGS 6.25% 7.28% 5.79% DD GSSyrup + N at. Gas 4.76% 3.64% S yrup + Na t. G as

Rates of Return on Investment for 50 MM Gal. Dry- Grind Plants: Conventional Plants versus those Using Stover o r Sy rup + S tover or

DDGS at Various Intensities

0.00%

5.00%

10.00%

15.00%

C onventiona lPlant

#1 Proc. H eat #2 C HP #3 CH P + Grid

Per

cen

t Rat

e of

Ret

urn

Stover Syrup + Sto ver DD GS



Use of Biomass at Ethanol Plants• Technically feasible and fiscally prudent ,

especially when policies favoring low carbon fuel standards are adopted.

• Improves energy balance and drastically reduces the carbon footprint of ethanol produced from corn.

• Each 1 Billion gallons of ethanol capacity can produce 300 MWe for the grid, probably 450 MWe for IGCC.

• Use of biomass as a fuel at ethanol plants can be a bridge technology to other technologies for biofuels production.



Stover Harvest, Densification &Transport to Plant

Agricultural –One harvest per year

Industrial –Requires supply throughout the year



Harvesting/Local Storage

• Major participation from Nalladurai Kaliyan and David Schmidt occurred on the densification and logistics aspects of this research.

29



Tub-Grinding/Roll-Press CompactionFeed

Roll Roll

Compact

30


Total Cost

$77/ton of corn stover delivered (MC = 15% w.b.)

Payment to Farmer

Truck Transportation of Compacted Corn

Stover

Tub Grinding/Roll Press

Compaction

Local Storage Cost/

Local Storage Loss

Collection/Transport to Local

Storage

Nutrient Replacement

(N-P-K)27%

36%

4%

16%

8% 9%


History of Fertilizer Prices


Fertilizer Prices (Source: Meadowlands Cooperative June 10, 2009)

Analysis Jun-08 Jun-09 Fall App. 2009

Anhydrous Ammonia 82-0-0 870.00$ 691.98$ 435.00$

Urea 46-0-0 460.00$ 480.00$ 305.00$

Potash (K2O) 0-0-60 670.00$ 649.97$ 683.00$

Diammonium Phosphate 18-46-0 865.00$ 629.85$ 351.00$

Price per lb. of Nitrogen

Anhydrous

Ammonia 0.5305$ 0.4219$ 0.2652$

Price per lb. of Nitrogen Urea 0.5000$ 0.5217$ 0.3315$

Price per lb. of K Potash (K2O) 0.5583$ 0.5416$ 0.5692$

Price per lb. of P2O5

Diammonium

Phosphate 0.9207$ 0.6642$ 0.3685$

Prices per Ton of Product

Prices per Ton of Major Nutrient


Life-Cycle Fossil Energy Consumption

1017 MJ/dry tonne (i.e., 7% of dry corn stover energy)


Compaction

Local Storage Loss


Storage


(N-P-K)


Stover

6%

49%

19%

3%

23%



Life-Cycle GHG Emissions

102 kg of CO2e/dry tonne of corn stover(includes combustion emission, but not SOC)


Stover


Compaction

Local Storage Loss


Storage


(N-P-K)

Corn Stover Combustion(CH4, N2O) 32% 29%

13%

2%19%

5%



Life-Cycle GHG Emissions

7 g of CO2e/MJ of dry corn stover(includes combustion emission, but not SOC)

7

60

99

0

20

40

60

80

100

Corn Stover Natural Gas Coal

Gra

m o

f CO

2e/M

J of

fuel

ene

rgy




GHG Emissions of Ethanol using

Corn Stover as a Fuel using BESS*

Convent.

Corn

Ethanol

CHPCHP +

GridBIGCC

GHG

Reduction52% 82% 92% 115%

GHG

Reduction

with CO2

Sequst.

85% 116% 126% 149%

36



Amount of Biomass Required, %

DDGS

Corn stover Syrup + stover

Ethanol corn acres

All corn acres*

Ethanol corn acres

All corn acres*

Process heat 70% 27% 9% 9% 3%

CHP 80% 30% 10% 12% 4%

CHP + grid 100% 40% 13% 27% 9%

*Assumes 1/3 of corn acres go for ethanol 37


Will Logistical Requirements be too difficult? No!!!

• Heat and Power using Stover for 50 million gallons ethanol per year

• 400 to 500 tons per day of stover– 16 to 20 truckloads (25 tons each) of

briquettes or pellets per day or– 640 to 800 bales (1250 lbs each) per day

• 60 truckloads of corn per day• 20 truckloads of DDGS per day

D.G. Tiffany U of Minnesota 6/01/2009

Changes on the Land and in the Soil

39

Doug Tiffany April 24, 2009 40

Biomass Harvest Rates Must Consider Maintenance of Relic Soil

Organic Carbon• Preservation of relic

soil organic carbon is key issue associated with biomass harvest



U.S. Dept. of Energy Encourages CHP

• Utilize Process Heat before or after using to generate electricity-cuts GHG by 53%.

• Requires greater investment, coordination with power utilities.

• Source: Combine Heat and Power: Effective Energy Solutions for a Sustainable Future, ORNL. http://www.osti.gov/bridge

D. G. Tiffany, June 11, 2009 41

Doug Tiffany April 24, 2009 42

Growing Demand and Retirements

0

200

400

600

800

1000

2005 2015 2025 2035 2045 2055

TW

h pe

r yea

r

projected demand

Source: Jones et al., 2006


DOE Goal: CHP Expansion from 9% to 20% of U.S. Capacity by 2030

Source: Combine Heat and Power: Effective Energy Solutions for a Sustainable Future, ORNL. http://www.osti.gov/bridge

U.S. CO2 Emissions 2006-2030 and Effect of 20% CHP

Source: Combine Heat and Power: Effective Energy Solutions for a Sustainable Future, ORNL. http://www.osti.gov/bridge



Summary• 2nd Generation biofuels may suffer stigma as

poor investment from adverse publicity directed toward corn dry-grind facilities.

• Using biomass as a fuel producing CHP requires implementation of known technologies.

• Plentiful amounts of biomass are at the plants or nearby.

• Logistics are not a deal-breaker, but expect stover to cost about $80 per ton as a densified product at the plant.

• GHG emissions of the ethanol produced can be vastly improved when CHP is implemented at dry-grind plants.

D.G. Tiffany June 23, 2009 46D. G. Tiffany, June 11, 2009 46D. G. Tiffany U of Minnesota 46

Thank you!• [email protected]

(612) 625-6715


Economics of Expanding Biofuel Production in the Upper Midwest · 2014-08-13 · Economics of...

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