Growing emphasis towards energy security and reduction in greenhouse gas emissions has driven increasing emphasis towards biofuels. More than 30 billion gallons of biofuel was produced globally in 2014, of which around 50 percent was corn ethanol produced in the U.S., and 30 percent was sugarcane ethanol produced in Brazil. Corn and sugarcane based ethanol is referred as first-gen biofuel, and involves a conversion of sugar to ethanol. Greater emphasis is now placed on cellulosic biofuel that is produced from cellulosic biomass, such as agriculture and forestry residues, or from energy crops, such as Switchgrass and Miscanthus. Cellulosic biofuel involves a more complex conversion of biomass (cellulosic and lingo-cellulosic material) into ethanol. The U.S. Environmental Protection Agency target is to produce 20 billion gallons of cellulosic biofuel per year by 2022. That target will require close to 200 million tonnes (on dry basis) of biomass.
While the conversion cost of cellulosic biomass into cellulosic biofuel has rapidly come down over the last decade from close to $10 per gallon to less than $1 per gallon of ethanol, the biomass cost itself has not changed significantly. Unlike corn grain that is stored and transported over long distances, long-distance transportation of cellulosic biomass is not economically feasible yet, coupled with challenges with biomass storage over an extended period of time. As a result, collection, transport and storage of biomass materials, now form 40 percent to 70 percent of cellulosic biofuel production cost.
Winning Approach to Reducing Biomass Cost: Holistic Biomass Strategy
To bring step reductions in biomass cost, a strategic biomass supply approach is required based on a holistic evaluation of the intricate relationship between biomass transport cost, biomass supply variability risks, biomass supply market structure, alternative feedstock availability, and incentives offered to farmers. Incentives offered to farmers for supply of the cellulosic biomass is an important component of this overall biomass strategy. Farmers expect incentives that allow them to generate returns on their investment for collection and transport of biomass. As a result, a strong relationship exists between farmer participation and farmer incentives, as higher incentives enable more farmers to overcome the barriers to market entry and participate. As farmer participation increases, biomass transport cost reduces, due to increased availability of biomass and the corresponding reduction in supply radius required. In a study, we found that managers, who only focus on minimizing biomass transport costs, or managers who only focus on minimizing incentives, without considering the intricate relationship between biomass transport cost and incentives offered, will end up paying 15 percent to 20 percent higher overall biomass cost.
While developing long-term supply contracts between biorefinery and farmers, managers should consider variation in stover supply, and alternative feedstock availability. Studies have found that cellulosic biomass, such as corn stover, has 20 percent to 30 percent supply variations, compared to 12 percent to 15 percent variations for corn grain itself. In addition to exposure to higher supply variations, cellulosic biorefineries will be required to source the biomass locally due to limitations with long-distance transport.
In the absence of an optimal contracting strategy for biomass supply, these regional imbalances in cellulosic biomass supply and demand will be converted to significantly higher biomass cost, as biorefineries will be required to maintain a 20 percent to 30 percent buffer in their biomass supply system to ensure sufficient supply year to year. Studies have found that an effective strategy to mitigate the impact of biomass supply variations is to use a portfolio approach, and use diversified feedstocks such as switchgrass, corn stover, energy cane, wheat straw, and sugarcane bagasse. In a study, we found that a cellulosic biofuel business can develop a portfolio using corn stover, wheat straw and switchgrass that will have 70 percent less exposure to supply variations than individual biomass sources, while increasing the overall biomass cost only marginally.
Biomass supply strategy should be an integral part of a cellulosic biofuel company’s fundamental business strategy. The optimal strategy will vary by company, and will depend on the level of risk the company is willing to take and their long-term vision.