Stover for Power—Not Just Biofuels
In mid-July, right around the time the area’s corn crop was beginning to mature and farmers could start looking ahead to the season’s harvest, a number of ethanol producers, farmers and researchers gathered for a daylong meeting at the University of Minnesota to discuss ways to best use the aftermath of the harvest. Corn stover has long been pegged as a potential feedstock for cellulosic ethanol, but this group focused instead on a more immediate application—energy generation. An increasing number of studies are showing that in order for farmers to maintain high corn yields, some of the stover will need to be removed from the fields. For corn-based ethanol plants, this represents an opportunity to displace at least some of their fossil fuel consumption with a renewable resource readily available from their existing corn suppliers. Researchers also believe that it represents an opportunity for new partnerships in the power generation sector.
Biomass gasification technology is not new and is relatively easy to install. It has been used effectively to produce heat and power for varying-size facilities for generations. While it’s not as widely deployed in the U.S., facilities in Europe and Japan often install combined heat-and-power (CHP) systems. The reason for this, of course, is that those countries do not possess the same abundant supplies of cheap fossil fuels as can be found in the U.S. When every strategic move can be boiled down to dollars and cents, it just makes economic sense for U.S. facilities, including ethanol plants, to use the cheapest fuel available to them. In 2008, when natural gas prices soared to painful levels, gasification of biomass was an attractive option for ethanol producers seeking to reduce the cost of their highest input after corn. But in the past couple years, natural gas has regained the lead as the most affordable, widely available fuel for U.S. ethanol producers. As a result, the few producers who had installed biomass gasification systems in 2008-’09 idled their equipment and switched back to the cheaper option. During the conference at the University of Minnesota, researchers proposed a new strategy for ethanol producers to use renewable resources such as corn stover to power their facilities and still profit. They believe that by partnering with entities that have an appetite for short-term losses, ethanol producers can afford to gasify enough corn stover to power their plants and be electricity producers as well.
Wind as an Example
University of Minnesota extension production economist Doug Tiffany is part of a group of renewable energy researchers who analyzed technologies to gasify biomass for steam and electricity generation at ethanol plants. They identified technologies and possible feedstock options fairly quickly, including corn stover, syrup and distillers grains. Many ethanol plants already have power islands that house the power generation units for the facility that could be updated to also produce electricity for sale back to the grid. But the researchers soon found the difficult part of this concept would be to make the improved power island an economic benefit for the ethanol plant. They also needed to find a way to finance the construction of these new islands. They found their inspiration in the wind.
Wind power projects are notoriously expensive to construct and require years of operation to repay the investment. Therefore, those projects require hefty investments up front from parties who have an appetite for tax losses. Power island projects using stover at ethanol plants are expected to experience similar situations regarding up-front capital and sustained losses. Because ethanol plants generally are smaller companies with a group of owners who cannot utilize long-term paper losses, Tiffany suggests modeling corn stover power islands after wind projects by bringing in partners who take on the losses and also have the experience and capability to handle the day-to-day business of power supply contracts. The power island can be siphoned off from the ethanol plant and function as its own entity, allowing the plant to use waste heat produced from the gasification of biomass to power its operations, but protecting its owners from the inherent first few years of loss. “Here’s a distinct business and it would have some opportunities for depreciation and use of provisions in the tax code and might be in a better position to negotiate with power companies than an ethanol plant itself,” Tiffany explains. “It may be attractive to investors and it may be more attractive to bankers if they’re dealing with investors who own the power island. And it may be a very good deal for the ethanol plants themselves, especially if they’re rewarded for ethanol that uses steam that came from biomass or electricity that came from biomass.”
Major electric companies are an obvious choice to partner with for such a project. Companies such as Florida Power & Light Co. and Xcel Energy Inc. have invested in wind projects and have enough passive income from other operations that can be shielded from taxes by showing losses on renewable energy projects, such as wind. Oftentimes, these companies participate in wind projects by taking a 99 percent share of the valuation of equipment and earnings for the first 10 years, which are the years of largest losses, according to Tiffany. After the first decade, majority ownership flips back to the landowners.
Aside from the tax benefits, power companies may be interested in partnering to produce this form of renewable energy as a way to meet environmental standards. Energy policy in the U.S. is currently fragmented. Some states have initiated renewable energy standards and many expect that a future nationwide energy standard will include requirements for renewable energy generation. Also, companies currently investing in renewable energy stand to benefit from the positive publicity of being an early adopter of this technology. Additionally, ethanol plant power islands serve as a more reliable source of electricity than wind projects, which often produce power only about 35 percent of the time, Tiffany says. “This could run 95 percent of the time. We’d only be stopping the generation of power for repairs and times of the year when there isn’t quite as much demand,” he says. “In that way, this would be power that would be more attractive for power companies to manage. That’s why we were attracted to this whole concept. These ethanol plants are running basically year-round. They have a constant demand for steam or thermal energy and they could be using biomass and be a reliable source of renewable energy. This is a perfect marriage. The ethanol plant and the power island essentially need each other. The power island needs to have a place to discharge the heat, and drying the distillers grains or doing some cooking at the ethanol plant is a way to use that heat. The corn stover is out there. We need to see some businesses get organized, the farmers themselves, and say they can be contracted to bring in this biomass. That still has to happen, but what we’re trying to do is to jump ahead a little bit and determine how some of these things might come together.”
Tiffany says that while power companies are certainly prime partner targets for ethanol plant power generation projects, he’s also seeing increased interest from municipalities in smaller communities that might be willing to take some losses in order to become part owners of their own reliable power supply. A power island at a 50-million-gallon-per-year (MMgy) ethanol plant could produce up to 25 megawatts of electricity, enough to service up to 25,000 people, he says. And with ethanol plants already located in rural areas, partnering with those smaller municipalities is an option that makes good sense. A handful of ethanol plants have done this already, but are using natural gas to power the generators and capturing waste heat for process heat.
Vance Morey, professor of bioproducts and biosystems at the University of Minnesota, admits that ethanol producers are not likely to switch from natural gas to biomass as long as natural gas prices stay low. Not unless they entertain the option of becoming electricity producers as well as users. “The key is the ability to generate electricity and get more efficiency out of the process,” he says. “There are two things that I think will make that happen: if the price of natural gas goes up biomass starts to get more attractive, and if we eventually go to some type of carbon credits and low-carbon electricity.”
Chippewa Valley Ethanol Co. LLLP in Benson, Minn., was one of the first ethanol plants to adopt biomass gasification when it installed a gasifier at its 48-MMgy plant in 2008. But plant engineer Andy Zurn says the monetization of carbon played a secondary role in the plant’s decision to utilize area biomass. “Value for low-carbon ethanol is icing on the cake,” he says. “Our primary focus is hedging against the cost of natural gas. If the economics relative to natural gas make sense, we’ll run the gasifier and spend those energy dollars in our local community. The carbon markets, if they come along, that’s gravy.”
CVEC installed a Frontline Bioenergy gasifier in 2008 and used it to fire corncobs for cogeneration in 2008 and 2009. The first year’s harvest was a small, grassroots production, Zurn says, but in 2009, the operation was expanded to include more farmers and more acres. With the help of a 50-50 funding promise from the USDA’s Biomass Crop Assistance Program, CVEC agreed to pay farmers $80 per ton for their cobs, a generous offering in order to convince first-time cob harvesters that participation would be worth their effort. Area farmers signed up and made good on their end of the bargain, but when it came time to pay, BCAP’s funding was cut and it backed out of the project. “We went to get our money from BCAP and they said they weren’t funding it,” Zurn says. “CVEC already had an agreement with these farmers. We already had the corncobs.” CVEC settled on paying farmers $60 per ton for the cobs—$20 less than the farmers expected, but $20 more per ton than CVEC had originally planned on contributing—in order to make up at least somewhat for the federal government’s failure. Rightly, CVEC is leery of participating in any future BCAP projects and would likely pay farmers outright for their cobs in future harvests. “If you don’t trust that it’s going to be there for you, why are you going to do all the work to set up and get the whole logistics supply chain arranged?” Zurn says. “It fooled us once in 2009. We’re not going to play that game again.”
Despite the less-than-expected pay-out, Zurn says Minnesota farmers would likely participate in cob harvests again. “These farmers are businessmen,” he says. If there’s additional money to create a new supply stream, which is corncobs in our world, and it doesn’t hurt their business, it just makes good business sense.” But CVEC doesn’t plan on asking for cobs again until the economics of fuel sources demands it. The plant is set up to switch between biomass and natural gas pretty simply and the biomass gasifier has been shut off since gas prices took a nose dive two years ago. CVEC doesn’t currently possess the capability to produce additional electricity for a power partner and the low cost of natural gas doesn’t justify the use of cobs to displace fossil fuel right now, Zurn says. In the future, if the plant expands its gasification abilities and entertains the option of becoming a renewable energy generator, switching fuel sources to respond to the lowest cost would be less of an option. Power purchase agreements may require a specific feedstock to be used and deviating from that protocol could void the contract. CVEC may be interested in producing excess power in the future, Zurn says, but that would likely happen only after the plant has met its own power needs for a couple of years and ensured that its system is up to par.
University of Minnesota researchers believe that of the three gasification options most readily available at ethanol plants—distillers grains, syrup and corn stover—stover is hands down the best candidate for energy production. But is that still the case when considering stover as a feedstock source for cellulosic ethanol production? How do the two compare?
Morey and Tiffany say that using corn stover as an energy source could provide ethanol producers with some needed experience in handling the biomass. “We wouldn’t use nearly as much of it as would be needed for cellulosic ethanol, but this would be the time for us to learn the lessons on how to put together businesses and maybe removal rates and enforce all these things,” Tiffany says.
“Some people have some experience collecting stover for feed or livestock bedding, but not large amounts,” Morey adds. “I think developing this is a way of getting more people producing stover and starting to develop the technologies and markets for that. It’s an interim step.” Producers seem to agree with this approach as well. Poet LLC used some of the stover it collected in Iowa last year to feed the gasifier at its 100-MMgy plant in Chancellor, S.D. In August, Poet entered into a project focused on establishing energy grass sources near the Chancellor plant and said it plans to gasify the grasses while scientists perfect the complicated task of producing cellulosic ethanol from them.
Zurn says CVEC isn’t really worried about potential feedstock competition from cellulosic producers. “Cellulosic ethanol is coming along so slow and there’s a variety of different uphill battles for the cellulosic folks,” he says. “We recognize there will be more demand for biomass, but will it be five years from now? Ten years from now? We think that if we can get the local biomass supply system set up, there’s probably going to be room for all of us. The whole ethanol world is stacked up against the fossil fuel world. If fossil fuels are dirt cheap, renewable energy is going to be pretty hard pressed without any incentives.”
Author: Kris Bevill
Associate Editor, Ethanol Producer Magazine