Comparative econonmics of first and second generation biofuels

A study in the comparative economics of first and second generation biofuels has been published in Biofuels Bioproducts and Biorefining, a Society of Chemical Industry journal.
The key finding in the paper from Mark Wright and Robert Brown, of the Center for Sustainable Environmental Technologies at Iowa State University. Is that:

The cost of advanced biofuels, however, will be similar to that of grain ethanol as corn prices exceed $3/bushel

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At the time of writing, the price of corn in Chicago, forward to the end of the year is above $3/bushel.

There’s plenty of scope to discuss the models which have been used in this report. For example, the basis of financing. The authors are assuming an interest rate of 8%/year for 20 years, an interest rate that the Fed has not charged other banks since July 13 1989. Rates have gone up 3.75% since 10 August 2004, but you’d have to be a pretty small fish to pay 8% with the current Fed rate at 5.25%.

Aside from my bleating

The price of dry distillers’ grains holds the key to economic corn ethanol production

Grain ethanol has a the highest biomass costs amongst the five technologies evaluated. This reflects a combination of relatively low fuel efficiency (about one third of the corn grain ends up as the by product distiller’s dried grains) and high fuel cost (corn grain at $2.12/bushel is almost 75% more than lignocellulose on a dry weight basis). However… dried distillers’ grains yield a production credit almost three times greater than that achieved by any of the other processes. if the the expanding grain ethanol industry produces an over supply of distillers grains (assumed to be $99/tonne in the present study) the attractive production cost of ethanol could evaporate.

So, corn is more expensive to buy, and if the price of dried distillers grains drops significantly, then ethanol’s advantage would evaporate. In plants producing 150million gallons gasoline/year the dried distillers grains account for a 50cent/gal credit. It will be interesting to see where the equilibrium price of distillers grains settles when we have a combination of grain and cellulosic ethanol plants.

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