Biofuels Project Development: Biodiesel Feasibility Studies

1. Biofuels Project Development:Biodiesel Feasibility Studies Virginia Biodiesel Conference James Madison University November 16, 2004 Brian Duff BBI International Golden, Colorado bduff@bbibiofuels.com (303) 526-5655

2. Presentation Overview • Introduction to BBI International • Project Development Path • The Feasibility Study • Lessons Learned

3. BBI International • BBI International founded in 1995 by Mike and Kathy Bryan • 27 full-time employees • Three Divisions: • Consulting Services • Conferences and Workshops • Publications and Recruiting

4. BBI Consulting Division • Leading biofuels consulting company in the US: >85 feasibility studies and business plans in the last five years • Primary expertise is in ethanol production from grain (corn, milo, barley, wheat) and sugar crops (potatoes, sugar beets, sugarcane) • Additional expertise in biotechnology and renewable energy technologies: biodiesel, anaerobic digestion, chemicals from biomass, cogeneration • An independent source of information and data for owners, lenders and policy makers

5. BBI Conferences Division • Produce and Sponsor Conferences and Workshops, including: • 20th Annual International Fuel Ethanol Workshop & Trade Show • 9th Annual National Ethanol Conference: Policy and Marketing • National Biofuels Symposium for Lenders • World Summit on Ethanol for Transportation Fuels

6. BBI Publishing Division BBI produces a variety of industry-related publications, including: • Ethanol Producer Magazine • Biodiesel Magazine • Ethanol Plant Development Handbook • Ethanol Industry Directory www.bbibiofuels.com www.ethanolproducer.com www.biodieselmagazine.com

7. Project Development Path • Organize Board and Business • Secure Seed Money • Feasibility Study • Secure Project Development Funds • Business Plan • Prospectus • Raise Equity • Secure Debt Financing • Construction and Startup

8. Oilseed Processing Capacity (bu/year) 1,170,000 2,000,000 4,000,000 $/Year $/bu $/Year $/bu $/Year $/bu Net Revenue Degummed Oil $6,173,319 $5.276 $10,413,831 $5.207 $20,827,662 $5.207 Oilseed Meal $3,162,159 $2.703 $5,405,400 $2.703 $10,810,800 $2.703 Oilseed Hulls $0 $0.000 $0 $0.000 $0 $0.000 Total Revenue $9,335,478 $7.979 $15,819,231 $7.910 $31,638,462 $7.910 Production & Operating Expenses Oilseed Feedstock $7,113,951 $6.080 $12,160,600 $6.080 $24,321,200 $6.080 Pre-Tax ROI = 25.2% Chemicals & Consumables $29,543 $0.025 $50,500 $0.025 $101,000 $0.025 Natural Gas $109,793 $0.094 $187,680 $0.094 $375,360 $0.094 Electricity $174,535 $0.149 $298,350 $0.149 $596,700 $0.149 Makeup Water $975 $0.001 $1,667 $0.001 $3,333 $0.001 Effluent Treatment & Disposal $2,685 $0.002 $4,589 $0.002 $9,179 $0.002 Direct Labor & Benefits $273,675 $0.234 $341,325 $0.171 $564,263 $0.141 Total Production Costs $7,705,156 $6.586 $13,044,711 $6.522 $25,971,034 $6.493 Gross Profit $1,630,322 $1.393 $2,774,520 $1.387 $5,667,427 $1.417 Administrative & Operating Expenses Maintenance Materials & Services $130,159 $0.111 $178,772 $0.089 $284,479 $0.071 Repairs & Maintenance, Wages & Benefits $56,888 $0.049 $133,763 $0.067 $133,763 $0.033 Property Taxes & Insurance $142,332 $0.122 $195,037 $0.098 $305,889 $0.076 Admin. Salaries, Wages & Benefits $115,313 $0.099 $152,213 $0.076 $336,713 $0.084 Office/Lab Supplies & Miscellaneous $114,189 $0.098 $126,429 $0.063 $150,909 $0.038 Total Administrative & Operating Expenses $558,880 $0.478 $786,213 $0.393 $1,211,752 $0.303 EBITDA $1,071,442 $0.916 $1,988,307 $0.994 $1.114 $4,455,675 The Feasibility Study

9. Why should you conduct a Feasibility Study? • The study should clearly demonstrate the viability of your biodiesel project (or not!) • Determines suitability of sites • Documents historical feedstock supply and pricing, determines markets for products and co-products, estimates the biodiesel capital and production costs • Stronger investor and lender package • Required by USDA loan programs • Invest 0.1% to evaluate & reduce risk

10. Questions that should be answered by the Feasibility Study • Are suitable sites available? • What is the availability and likely costs for feedstocks? • How will feedstocks be shipped? • Are adequate utilities and labor available and affordable? • How much will it cost to make your products? • Who will buy the products and for how much? • Will your proposed plant be competitive and profitable?

11. Photo Courtesy of Envirologix Key Elements of a Biodiesel Feasibility Study • Site selection • Feedstock analysis • Market analysis • Biodiesel • Oilseed Meal • Glycerol/Glycerin • Financial analysis • Construction costs • Owner’s costs • Operating costs • Projected profitability and sensitivity studies

12. Site Selection Courtesy of Todd & Sargent/West Central Soy

13. Site Selection • Typically 10 to 20 acres in a rural or light industrial area with: • Access to low cost feedstock • Good rail access • Good road access • Adequate utilities at reasonable cost • Close proximity to co-product markets • Access to biodiesel markets • Access to labor

14. Site Selection • A 10 MMGPY plant could average ~15 trucks per day • Access to rail will provide a plant more options for marketing products to more distant markets • A plant site on a main line rail line is generally better than short line rail • Access to two rail lines is another plus • An existing rail siding will reduce construction costs

15. Site Selection • Utilities required include electricity, steam, water, cooling water, and wastewater disposal • Steam Consumption: ~7500 BTU/gal biodiesel • Electricity: ~0.07 to 0.1 kWh/gal biodiesel • Make-up Water: ~0.15 to 0.2 gal/gal biodiesel • Cooling Water Capacity: ~75 gal/gal biodiesel or ~5800 BTU/gal • Wastewater: can vary considerably with plant design, but can be as low as ~0.02 gal/gal

16. Site Selection Federal Permit Requirements • Clean Air Act of 1990 • Prevention of Significant Deterioration (PSD) & Construction Permits • Federal New Source Performance Standards (NSPS) • National Emission Standards for Hazardous Air Pollutants (NESHAPS) • Title V Operating Permit of the Clean Air Act Amendments • Risk Management Plan • Clean Water Act • National Pollutant Discharge Elimination System (NPDES) • Oil Pollution Prevention and Spill Control Countermeasures • Comprehensive Environmental Response Compensation and Liability Act & Community Right to Know Act (CERCLA/EPCRA) • Tier II Forms – listing of potentially hazardous chemicals stored on-site • EPCRA Section 313 and 304 and CERCLA Section 103: use and release of regulated substances above threshold and/or designated quantities annually.

17. Site Selection State Permit Requirements • Air Quality Permits • Storage Tank Permits • Water Quality Permits • State Department of Motor Fuels • State Department of Transportation o Highway Access Permit o Possible Easement rights • State Department of Health • State Department of Public Service o Boiler License • State Department of Natural Resources o Water appropriation permits o Other waters and wetland considerations

18. Feedstock Analysis

19. Feedstock Analysis • Local or imported feedstock? • Availability and price (10-yr history) • Biodiesel production potential • Co-product yield • Competition for feedstock

20. Feedstock Analysis Define the feedstock supply area: ~50 mi

21. Feedstock Analysis Document the historical feedstock production

22. Feedstock Analysis Document historical feedstock pricing

23. Feedstock Analysis Document historical feedstock pricing

24. Feedstock Analysis Document historical feedstock pricing

25. Feedstock Analysis Document historical feedstock basis 4-Year Avg. Basis Difference = (-$0.40/bu)

26. Feedstock Analysis Evaluate the biodiesel production requirements

27. Feedstock Analysis Evaluate the biodiesel production potential

28. Results of Feedstock Analysis • Quantifies feedstock availability and identifies potential limitations • Documents the historical local average price • Evaluates whether the local basis (oilseed price relative to CBOT) is likely to go up a lot or a little based on increased demand • Quantifies biodiesel production potential from regional feedstocks

29. Biodiesel Market Analysis

30. Biodiesel Market Analysis • Defines local, regional and national markets for the project’s biodiesel • Documents historical diesel use and price in the markets • Estimates market potential and sets product selling price for financial analysis

31. Define Markets PADD's were delineated during World War II to facilitate oil allocation

32. Define Markets Regions as defined by the US DOE Energy Information Administration

33. Document Historical Use

34. Document Historical Use: National

35. Document Historical Use: Regional

36. Document Historical Prices

37. Document Historical Prices

38. Document Market Statistics: Current and Projected Use Today: • Production capacity ~60 million gal/yr (dedicated) • Most sales to fleet and niche markets • Biodiesel sales (2002): 18 million gal/yr • Biodiesel sales (2003): ~20 million gal/yr • Need legislative incentives to compete with petro-diesel The Future • The potential to capture some percentage of the 60+ billion gallon US diesel market: • 1% of highway uses: 416 million gallons • 5% of highway uses: 2+ billion gallons

39. Project Biodiesel Market Growth Anticipated growth of the biofuels market under the proposed “RFS”is driving project development

40. Market Projections: US on-highway market to double by 2025

41. Market Projections: US markets to be dominated by on-highway sector through 2025

42. Market Projections:Regional on-highway sector to increase 60% by 2025

43. Estimate Local Market Potential from Available Feedstock

44. 2003 European Union (EU) Biodiesel Production Statistics: • European Union: • 2,124,000 tonnes of capacity • 624 million gal/yr • 315 million gal/yr sales • US • 200,000 tonnes of capacity • ~60 million gal/yr - <20 million gal/yr sales • EU capacity ~10x > US capacity • EU sales ~15x > US • Source: Situation and Development Potential for the Production of Biodiesel , an International Study by Dieter Bockey, Werner Körbitz

45. Biodiesel Sales Trends: Germany550,000 t /yr = 161 million U.S. gal/yr

46. Co-Product Market Analysis

47. Co-Product Markets • Identify co-products based on process and feedstock • Are there nearby markets for the co-products? • Oilseed Meal • Glycerol • Soapstock Courtesy of biodiesel.org

48. Oilseed Meals • Up to 80% of bushel of soy (48/60 lbs) • Up to 67% of bushel of Brassica oilseeds (40/60 lbs) • Mechanical extraction yields higher oil content in meal: 7 to 13% • Solvent extraction yields lower oil content in meal: <1.5% (boosts protein concentration) • Typically sold dry or pelletized as livestock feed • Priced based on protein content against soy meal as standard • High fat meals sold at a premium • Other meal uses: organic biocontrol agent, fertilizer, edible food grade

49. Glycerol /Glycerin • ~10% of material balance • Several grades of Glycerol possible: 80% (crude, bulk), 99.5% (USP), 99.8 (Kosher) • Glycerol refining optional; additional cost • Primary market is USP grade for pharmaceutical uses: >$1200/ton • Market subject to downward pressure from oversupply: EU problems

50. Soapstock • By-product of crude vegetable oil refining: washing, degumming, neutralization • Up to ~17% of incoming crude oil • High fatty acid content • Can also be converted into biodiesel • Cheaper than oilseed feedstock • Used as a surfactant and emulsifier • Can be sold as animal feed • Other applications: dust suppressant, fatty acid production • $0.15 - 0.20/lb ($300-400/ton) • Cannot ignore value as co-product