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Dry-Grind Ethanol Production: Economic Sensitivity

Dry-Grind Ethanol Production: Economic Sensitivity. Douglas G. Tiffany Research Fellow University of Minnesota. Today’s Discussion. Work arose from “Factors Associated with Success of Fuel Ethanol Producers” written w/ Vernon Eidman Funding: USDA Rural Development

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Dry-Grind Ethanol Production: Economic Sensitivity

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  1. Dry-Grind Ethanol Production: Economic Sensitivity Douglas G. Tiffany Research Fellow University of Minnesota

  2. Today’s Discussion • Work arose from “Factors Associated with Success of Fuel Ethanol Producers” written w/ Vernon Eidman Funding: USDA Rural Development MN Ag. Experiment Station • 1) Briefly establish key factors in dry-grind ethanol production • 2) Demonstrate economic sensitivity of this technology in this market

  3. Dry-Grind Technology • Dry-Grind Plants-- now 67% of U.S. production--simpler process, lower capital costs, but refinements are occurring. • Ethanol from corn has a positive energy balance. (1.34 – 1.51) • USDA, Argonne Lab, • Michigan State University, Ag. Canada

  4. Ethanol Dry-Grind • Grind bushel of corn (56 lb.), add water, make mash, cook to kill bacteria, expose starch • Add enzymes for flow & to convert starch to sugar • Introduce Yeasts in Batch Fermenters---- produce beer---- distill the ethanol • Products: • ethanol– (2.75 gal.) requires heat to distill • DDGS- (18 lbs.) generally requires drying • CO2-- ( 18 lbs. ) food grade • 150 bushel corn yields 413 gallons of ethanol per acre, 2700 pounds of DDGS

  5. Project Goals & Methods • Goal: Describe and Quantify Factors of Success in Dry-Grind Ethanol Production • Steps in Research • Conduct Interviews of Plant Personnel & Bankers—to Learn Factor Inputs, etc. • Develop Spreadsheets to Measure Plant Profits • Interpret Results • Advise Farmers/Investors, Bankers Policymakers

  6. Dry Grind Revenue Categories (5 yr.)* • Ethanol Sales 80% • DDGS Sales 19% • CO2 1% • MN Subsidy -0- • Total 100%

  7. Five Key Factors & Baseline Levels • Corn Price---- $2.20 per bushel • Ethanol Price---- $1.15 per gallon • Nat. Gas Price----$4.50 per dekatherm • Ethanol Yield---- 2.75 gal.(anhyd)/bushel • Capacity Factor of Nameplate----1.20

  8. Model Predicts Addl. Value of Higher Total Fermentables in Corn • Increase Total Fermentables by 4% • Equals $909,450 for typical dry-grind plant; or $.067 per bushel ground. • Increase Total Fermentables by 6% • Equals $1,338,436 for typical dry-grind plant; or $.086 per bushel ground.

  9. Factors of Lesser Importance & Their Baseline Conditions • Capital Costs ----------$1.50/gallon denatured • Percentage of Debt----60% of Cap. Cost • Interest Rate------------7.0% • DDGS Price------------$80.00 per Ton • Electrical Price---------$.06 per kWh • Fed., State, or Local Subs/Incent.----0-

  10. Conclusions: Sensitivities • Favorable economics with low corn prices, high gasoline prices, low natural gas prices, low interest rates. • Corn Price--- Zero profits above $2.43 per bu. • Ethanol Price--- @$1.15--- profits of $.15/ bu., @$1.35--- profits of $.56/ bu. • Natural Gas Price rise to ($6.85) from baseline levels of $4.50/ dekatherm wipes-out profits. • Ethanol Yield per Bushel —very important • 2.75 gal./bu (typical today) • 2.36 gal./bu--- wipes out profits

  11. Plant Manager Observations--Technical • Improved Enzymes and Yeast in last two years • Tolerance to Alcohol % (13.5%-now 19.7%), • Tolerance to Higher Temps (can tolerate 100 degrees F. for 2-3 hours and still recover) • Faster fermentation times - 45-50 hours possible • 60%-40% split in Yeast Propagation Strategies - 60% “continuous yeast propagators” - many batches in same tank; antibiotics used - 40% batch yeast, make fresh batches from purchased yeast • Expect to process most of fiber in corn kernel with improved cellulases in the future

  12. Research Topics: Derive More Revenue or Cut Costs of Stillage • DDGS • Improvement in DDGS Attributes • Efforts to “Brand” and Standardize DDGS • Educate Users, Develop Markets • Development of Yeast Extract Products to Reduce Antibiotic Use in Livestock • Utilization of Liquid Stillage or Syrup • Utilization of DDGS as Biomass Fuel • Better Storage, Utilization of Wet DDGS

  13. Technology Changes Pending • Quick-Germ Technology– uses more enzymes, depends on favorable sale of corn oil (Univ. of Illinois) • Quick-Fiber Technology—offers opportunity for greater through-put, but altered DDGS product characteristics ( Univ. of Illinois) • Continuous vs. Batch Fermentation with stripping of ethanol--- USDA, ARS • Pervaporation—use of membranes to filter ethanol from broth (USDA, ARS)

  14. Conclusions: Dry-Mill Production • Found Sensitivity of Dry Mill Ethanol Production to Various Factors; Historical Volatility of Returns • High Volume, often low margin business; however, some times of excellent returns have been modeled and also reported • Processing business demanding superior management of sensitive microbes, quality control • Major efforts to conserve energy in operations • Expect this technology to evolve and improve further until major improvements in ligno-cellulosic processes are able to make that technology more competitive.

  15. Contact Information • dtiffany@dept.agecon.umn.edu (612) 625-6715 • Spreadsheet:http://www.agmrc.org/energy/info/ ethanolsuccess.xls • Original paper: www.apec.umn.edu/staff/dtiffany/ staffpaperp03-7.pdf

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