Title IX of the Food, Conservation and Energy Act of 2008 authorized funds to expand the production of LCB as biofuels feedstock, support biofuel plants, and enhance energy self- sufficiency in Rural America (U.S Congress 2008). The BCAP provision in the Act authorized assistance with the collection, harvest, storage, and transportation costs of eligible LCB materials for use in biomass conversion facilities. Farmers in a BCAP project area are eligible to receive annual incentive payments for producing “renewable biomass” and cost share payments for crop establishment (up to 75 percent of costs). Under BCAP, a matching payment program for the cost of collection, harvest, storage and transport of biomass to conversion facilities is available to eligible feedstock owners at the rate of $1 for each $1 per dry ton up to $45 per ton during the first two years of the operation (USDA/FAS 2009).
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Figure 13 presents the net present value of the savings for establishment and logistic costs from BCAP provisions using a discount rate of 10%. For a 10-year horizon (the general life-span of switchgrass), BCAP is projected to save about $7 million in establishment costs ($318 per acre without the BCAP) for 29,500 acres of switchgrass and more than $5 million to offset collection, harvest, storage, and transportation costs in the optimal mixed-bale case in the baseline system (Case B3) for a 15-mgy biorefinery. Total payments increase with the size of biorefinery because of the larger feedstock draw area and because of increased logistics costs of moving more feedstock over longer distances. The estimated payments for establishment and logistics cost of feedstock for a 50-mgy biorefinery is nearly $47 million for the optimal mixed- bale case in the baseline system. The payments (or cost savings) account for about 13% of total delivered cost over the 10-year horizon.
BCAP payments are also projected to reduce the total delivered cost of switchgrass feedstock in the preprocessing system. Given that collection, harvest, storage and transport payments are made to farmers for delivering feedstock to vendors, only the logistic costs between the field and the preprocessing facilities are assumed eligible for the payments in this analysis. Thus, the transportation costs of densified switchgrass between preprocessing facilities and biorefinery is not considered in the BCAP payment calculation for the preprocessing system. For a 15-mgy biorefinery, BCAP payments are projected to reduce total feedstock acquisition costs by $11 million over the 10-year horizon for the optimal preprocessing logistics system (Case P2). BCAP payments for a 25-mgy biorefinery in the optimal case are projected to be about $18 million. By comparison, projected BCAP payments increased to more than $20 million if all switchgrass feedstocks are preprocessed before delivery (Case P2A). Farmers providing switchgrass to a 50-mgy biorefinery are projected to receive as much as $38 million
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over 10 years. BCAP payments are projected to reduce feedstock costs by about 13% over the 10-year horizon among those cases.
Figure 13 BCAP program’s contribution to feedstock establishment and logistics costs
CONCLUSIONS
This study used a high-resolution geo-spatial model to analyze the economic value of two alternative preprocessing methods to densify feedstock and minimize storage losses in a switchgrass feedstock supply chain. The model was used to site a potential commercial-scale biorefinery in East Tennessee and evaluate the potential value of preprocessing for biorefineries with annual ethanol production capacities of 15-, 25-, and 50-million gallons. Our findings indicate that not all technologies for densification and packaging of feedstock for storage and transportation are economically feasible. The preprocessing system employing a stretch-wrap baling technology was projected to reduce the delivered feedstock cost to a biorefinery by 22%
- 10.0 20.0 30.0 40.0 50.0 15-mgy (B3) 25-mgy (B3) 50-mgy (B3) 15-mgy (P2) 25-mgy (P2) 25-mgy (P2A) 50-mgy (P2) Baseline Preprocessing
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to 26% when compared to conventional hay systems, which could result in a reduction in ethanol production cost by $0.16/gallon to $0.19/gallon.
By comparison, using a feedstock logistics system that preprocessed switchgrass through a pellet mill was considerably more expensive than conventional hay logistics systems. The substantial capital costs with the pellet mill system dominate the potential savings in storage and transportation. Thus, the potential for pellet mills to densify and prepare feedstocks for storage and transportation in a feedstock supply chain to provided switchgrass for ethanol production appears to be limited unless the pellet mill preprocessing system is used to process multiple feedstocks or serve multiple markets. This can spread fixed costs over more feedstock volume than assumed in this analysis. The cost comparison in this analysis; however, did not explicitly consider potential differences among management structures and the associated costs and risks for those systems.
The positive economic value of using the stretch-wrap baling technology in the
switchgrass feedstock supply system is robust under different scenarios, but the magnitude of the cost savings varies with the configurations of the competing conventional hay systems. In
addition, the total feedstock cost savings rise with the annual production capacity of the
biorefinery due to the larger volume of feedstock handled within the logistics system. However, the percentage gain using the stretch-wrap baling system over the baseline system is relatively constant with increasing annual ethanol production capacity of the biorefinery. In this study, the location of the biorefinery in the preprocessing system was determined based on the optimal location of the baseline conventional hay system to evaluate the impacts on feedstock acquisition costs from introducing preprocessing facilities in the feedstock supply chain for an existing biorefinery. Total annual feedstock costs may be reduced further in this preprocessing system if
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the location of the biorefinery and the preprocessing facilities are jointly determined using cost minimization.
The BCAP provision in the Food, Conservation and Energy Act of 2008 is designed to prompt the development of the commercial-scale lignocellulosic biofuels industry. By applying the BCAP provisions to biorefineries with different annual ethanol production capacities, this study shows that payments for switchgrass establishment and logistic costs of feedstock can reduce the net present value of total feedstock costs over a 10-year planning horizon by 13%. Thus, BCAP payments may facilitate the emerging lignocellulosic biofuels industry by reducing costs of developing the feedstock supply chain for a biorefinery.
A key assumption of this analysis is the negligible storage losses with the stretch-wrap baler technology. Future research should evaluate dry matter losses during storage for
switchgrass processed using the stretch-wrap baler and its subsequent impacts on feedstock cost. Also, continued exploration of other options to harvest, store, preprocess, and transport
lignocellulosic feedstocks is needed to identify feedstock logistics systems that further reduce costs from the systems evaluated in this analysis. For example, research exploring the economic value of combining alternative pretreatment and preprocessing technologies to generate a
densified feedstock with consistent quality will provide useful information to the stakeholders of the emerging biofuels industry.
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