The Business of Growing Eucalyptus for Biomass
Supplying biomass is a growing business, and rapid-growth eucalyptus in the Southern U.S. could be a source of low-cost delivered biomass.
Growing biomass and producing energy from it is a business. There are several well-known advantages in using locally produced bioenergy in terms of the environment, local economic growth and reduced dependence from less than reliable foreign oil suppliers. However, bioenergy from biomass will speed up only when the business becomes more profitable.
Table 1 shows key variables considered as important financial and cost drivers in the production and conversion of cellulosic biomass into ethanol in a dilute acid process. For the economics of a fermentable process-as dilute acid pretreatment followed by enzymatic hydrolysis, fermentation [yeast] and distillation-the most important features of cellulosic biomass are the cost per bone dry short ton ($/BDT) and $/BDT of fermentable carbohydrates. The delivered cost, $/BDT, is the cost of plantation/crop establishment and maintenance plus harvesting, freight, storage and profit. The $/BDT of carbohydrate is the ratio of the biomass delivered cost and the carbohydrate content. Thus if the delivered cost is $65/BDT and the fermentable carbohydrate content is 60 percent, the $/BDT of carbohydrate is about $108.3.
The main objective is to lower the $/BDT of biomass delivered and the $/BDT of carbohydrate (Table 1). Lowering the $/BDT of fermentable carbohydrate is possible either by increasing the amount of carbohydrate content in the biomass (using genotypes with desired component properties) or by reducing the delivered cost of biomass.
The $/BDT of delivered biomass is highly affected by biomass productivity (BDT/acre/year), rotation length and plantation/crop establishment and maintenance. Highly productive species (more BDT per unit of area) will decrease the amount of acres required to supply a specific volume demand, reducing the investment in land. Shorter rotation lengths in combination with high productivity will also result in reducing the production area. Short rotation lengths are a desired feature in biomass and hence the importance of fast-growing species. Plantation/crop establishment and maintenance costs will directly impact the cost per BDT. An increment in investment in land for production would increase the minimum selling prices of biomass to achieve targeted financial returns.
A longer annual harvesting season would provide more flexibility in the harvesting activity, as well as labor and machine inputs, reducing costs. Harvesting costs of well-known species are an advantage with respect to bioenergy crops that are not well understood. Experienced contractors and supply chain stakeholders exist for well-understood species. Materials such as wood that are denser than grass contain more mass of cellulose and carbohydrates per unit of volume and would thus cost less in freight.
Storage is an area in which more research is required. The current simulated storage costs of biomass for bioenergy ranges from $6 to $12 per BDT (for a 12 percent internal rate of return (IRR) in storage as a separate business unit). This is mainly true for agricultural biomass where harvesting windows are only two to three months per year. Thus, large volumes are required to be stored to ensure year-round supply. For instance, a facility processing 500,000 BDT per year, if fully supplied from, for example, switchgrass, requires more than 400,000 BDT of biomass to be stored. Besides the risk of fire, insurance and handling costs will increase the facilitiy's working capital. Open field or enclosed storage, which provides less degradation of biomass carbohydrates at a higher capital expenditure (CAPEX), are storage alternatives. The trade off between storage CAPEX and biomass degradation must be measured. In contrast, forest biomass from forest plantations can supply the required biomass year-round without major problems with well-known logistics and experienced supply chain players.
Eucalyptus is a forest genus that meets most of the desired features for low-cost delivered biomass. Eucalyptus is indigenous to Australia, Indonesia and Papua New Guinea and it is the most frequently planted fast-growing hardwood in the world. In addition, it is the main hardwood raw material supplied to the successful pulp and paper industry in Brazil, Portugal, South Africa, Uruguay and other countries. Eucalyptus was introduced in the U.S. in the 1870s. Recentlty, genetic improvement has led to cold-tolerant, higher carbohydrate content and fast-growing genotypes (Figure 1). Cold-tolerant Eucalyptus is currently growing in pilot scale trials in South Carolina, Florida, Alabama, Georgia and Texas.
To better understand the business of growing eucalyptus for biomass, researchers have developed a simulation model consisting of a forestry division supplying a conversion facility. The main financial indicators presented are IRR, net present value (NPV), $/BDT of biomass delivered. The cash flow of the project was based on establishment and maintenance costs obtained from forest managers currently in business. Harvesting costs and freight were obtained from harvesting contractors and freight/shipping companies. In the scenario presented, the biomass division supply chain (BDSC) land investment is not considered in the cash flow of the project. This article presents a summary of financial and technical analysis in biomass supply.
Delivered costs of eucalyptus biomass ($/BDT) within 30 miles of the facility was back calculated for three biomass productivity rates per acre at 6 percent IRR. Figure 2 shows the delivered cost of eucalyptus biomass and component costs (within 30 miles) for three biomass productivity rates of 7.5 BDT/acre/year, 10 BDT/acre/year and 12.5 BDT/acre/year at 6 percent IRR in the BDSC scenario. Higher biomass productivity lowers the depletion cost. Harvesting is simulated to be constant.
The delivered cost of eucalyptus biomass at three different productivity rates of 7.5, 10 and 12.5 BDT/acre/year for three different internal rates of return (6 percent, 8 percent and 10 percent) are given in Figure 3. The lowest delivered cost resulted in the least costly option at 12.5 BDT/acre/year and 6 percent IRR at $50.3/BDT, while the highest cost is for 7.5 BDT/acre/year at 10 percent IRR at $63.3/BDT.
An important consideration is the effect of biomass productivity per acre (BDT/acre/year) on the total amount of acres required to supply a specific amount of biomass. Figure 4 shows the amount of plantable (net) acres required to supply 500,000 BDT/year. At 7.5 BDT/acre/year, the area required to supply that quantity is about 13,400 acres/year for a total of about 67,000 acres given the five-year rotation. The investment in land for production may be as high as $67 million (at 7.5 BDT/acre/year, assuming land value of $1,000/acre), while for higher productivities, an area of 8,040 acres to harvest each year for a total area of 40,200 acres decreases the land investment to $40.2 million. This difference in land investment impacts the delivered cost to achieve a specific rate of return, as the values used to calculate IRR and NPV are based on the free cash flow.
Another important variable affecting delivery cost is the amount of acres growing the biomass/raw material around the facility. The percent of covered area is determined based on the actual percentage of acres of that specific biomass with supply agreements between the biorefinery and the forestland owner(s) or biomass division(s). Figure 5 shows the effect of percent of cover area around the biomass facility on freight ($/BDT) and delivery cost ($/BDT delivered), assuming a productivity of 10 BDT/acre/year and annual supply of 500,000 BDT/year. As presented in Figure 5, when the forest cover area increases from 5 percent to 25 percent, there is a dramatic drop in freight cost, ranging from $10 to $4/BDT. A direct consequence is observed in delivered price per BDT, ranging from $63.4 to $57.3/BDT in the investment supply chain scenario (where land investment is considered in the cash flow analyses), and from $54 to $48/BDT in the BDSC scenario (where land investment is not included).
Eucalyptus biomass can be produced and delivered in Southern U.S. at a competitive cost when compared with current biomass delivered costs of grasses and other hardwoods. Simulated delivered cost of eucalyptus biomass may range from $50 to $60 per delivered BDT (within 30 miles) depending on site productivity (without considering land investment) at 6 percent IRR. When land investment was included in the analysis, delivered biomass costs increase to a range from $59 to $72 per delivered BDT depending on site productivity.
Site productivity greatly affects delivered cost, which is why a highly productive crop/plantation will reduce delivered costs with fewer acres to plant/harvest. Delivered cost of eucalyptus biomass growing at 7.5 BDT/acre/year (freight distance of 30 miles and 6 percent IRR, BSC scenario) is around $59.4/BDT while for a site growing at 10 BDT/acre/year with the same IRR and without considering investment in land, the biomass delivered cost is decreased to $53.4/BDT.
There are opportunities to reduce the delivered cost of eucalyptus biomass while achieving adequate IRR. Shorter rotation lengths, development of more freeze-tolerant seedlings, higher stand tree density together with other silviculture practices are being developed to improve plantation productivity. These outcomes indicate that eucalyptus is a promising biomass for bioenergy production in the Southern U.S.
Ronalds Gonzalez is a doctoral candidate working on cellulosic ethanol from various feedstocks at North Carolina State University in Raleigh. Dr. Jeff Wright is an adjunct professor at NCSU and Dr. Daniel Saloni is an assistant professor at NCSU working on supply chain and life-cycle analysis of woody biomass and biofuels. Reach them at firstname.lastname@example.org, email@example.com and firstname.lastname@example.org.