The University of Georgia
Center for Agribusiness and Economic Development
College of Agricultural and Environmental Sciences
FEASIBILITY OF A FIVE MILLION GALLON
PER YEAR BIODIESEL PLANT
Prepared by: George A. Shumaker, Audrey Luke-Morgan
and John C. McKissick
December, 2006
Feasibility Report: FR-06-05
Introduction
Mr. Mark Mauss and Dr. Travis Danner co-owners of SunsOil, LLC of Athens,
TN contacted the Center for Agribusiness and Economic Development (CAED) at the
University of Georgia requesting a feasibility study on plans for producing biodiesel in
Georgia. They wanted an opinion as to the feasibility of acquiring an idle former
chemical plant and converting it to biodiesel production. The business plan is to acquire
by-product fats from the poultry slaughter industry to use as a primary feedstock, produce
biodiesel at a projected nominal rate of 5 million gallons per year and market it to fuel
wholesalers. Soybean oil may also be used as a feedstock. Future markets include fleet
operators and other large scale fuels users.
The contents of this report rely heavily upon information provided by SunsOil,
LLC and thus the validity of the results reported are dependent upon the accuracy of that
information. CAED provided analysis and some basic information concerning some of
the production process, potential sources for feedstock and other related background
materials.
The Company and Management Team
SunsOil, LLC is a new venture with the singular goal of producing and marketing
biodiesel fuel. SunsOil, LLC was founded in late 2005 by Mr. Mark Mauss and Dr.
Travis Danner. Their offices are in Athens, Tennessee. Mr. Mauss, President, has
marketed and managed multi-million dollar fuel processing projects for Shell Oil and
United Technologies. Those projects extended through the U.S. Europe and Asia. He
earned Master’s Degrees in Business Administration and Systems Engineering from the
University of Virginia. Dr. Travis Danner, Vice President of Engineering and
Operations, has worked with Computational Systems, Inc. developing process
maintenance reduction systems and with NASA leading clean energy projects. He earned
his PhD in Aerospace Engineering from Georgia Institute of Technology where he
specialized in energy conversion systems. He grew up on a working farm in East
Tennessee.
The Concept
SunsOil, LLC proposes to secure a suitable site in the North Georgia, North
Alabama or Eastern Tennessee area. The ideal site would contain an existing
manufacturing plant with equipment that can be adapted for use in biodiesel production.
The ideal site would also have rail and truck access and storage suitable for feedstock,
process chemicals, finished product and co-products. They intend to develop the site by
augmenting it with all needed materials handling equipment, biodiesel processing and
storage equipment and load out capabilities. The plan is to commence operations with a
ramp up to full operations within 24 months from the date of securing title to the site.
Ultimate capacity would be at about 5 million gallons of biodiesel per year at full
operation.
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Initial feedstock for the process will be soybean oil which can be purchased from
processors within a 150 miles radius of the site. Ideally, the soybean oil can be purchased
in rail car quantities and delivered to the plant. After an initial production period for
facility shake down, the plan is to switch feedstocks from soybean oil to poultry fat
products. SunsOil, LLC believes that sufficient amount of the poultry fat is available
and that it can be purchased at a lower price than soybean oil.
SunsOil, LLC intends to market the biodiesel close to the manufacturing plant by
selling to wholesalers and/or large fleet operators.
Potential Feedstock Supplies
SunsOil, LLC proposes to begin production by using soybean oil as the primary
feedstock. After proving their ability to satisfactorily and profitably produce biodiesel
from soybean oil to switch to less costly feedstocks such as fat by-products from the
poultry slaughter industry.
There are two large soybean processors operating in North Alabama and one in
North Georgia. The estimated soybean oil capacity of these three firms is about 152
million gallons annually. These firms would have a more than adequate supply of refined
soybean oil to meet the needs of SunsOil, LLC. There are several poultry slaughter and
processing facilities in North Georgia and North Alabama. In 2005, Georgia had a
poultry slaughter of 1.26 billion young chickens and Alabama a 1.09 billion young
chicken slaughter. If each bird provides .5 pounds of fat, then total poultry fat produced
in Georgia and Alabama would be 630.4 million pounds (84.1 million gallons) and 542.5
million pounds (72.3 million gallons) respectively. Approximately 75 percent of
Georgia’s and Alabama’s broiler production occurs in the Northern half of each state. So
the total broiler fat produced in and around the proposed plant is estimated to be 879.7
million pounds (117.3 million gallons).
Each of these sources is currently finding markets for the fats and oils they
produce as Georgia does not have excess supplies of unused products. New users, such
as biodiesel producers will need to bid those supplies away from the current use. This
will surely place some upward pressure on available feedstock prices. SunsOil, LLC
could compete for that by product with current users such as poultry feed manufacturers
and other biodiesel producers that use that product.
Feedstock Costs and Issues
The following charts illustrate the price relationships between various potential
primary feedstocks sources and some potential future secondary sources.
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Primary Production Feedstocks
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60.0000
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35.0000
30.0000
25.0000
20.0000
15.0000
10.0000
5.0000
0.0000
CD Soy Oil
Poultry Fat
Yellow Grease
RBD Soy Oil
Canola Oil
Notes: CD Soy oil = Crude soybean oil; RBD Soy oil = Refined, bleached deodorized
soybean oil. Source: The JACOBSEN Publishing Company
The following chart lists the approximate current FOB prices for various
feedstocks that may be used to produce biodiesel in Georgia.
Relative Prices for Various Feedstocks
October 18, 2006
Feedstock
FOB Price
Per pound
Per Gallon
Yellow Grease
$0.1525
$1.12
Poultry Fat
$0.1325
$0.97
Crude Soybean Oil
$0.2594
$1.91
Cottonseed Oil
$0.2869
$2.11
Refined Soybean Oil
$0.2994
$2.20
Canola Oil
$0.3794
$2.79
Source: The JACOBSEN Publishing Company
The cost of the feedstock typically comprises 60 to 90 percent of the cost of
production depending on the size of the plant, the value of the feedstock and the amount
of pre-processing the feedstock needs prior to conversion. Generally, the feedstock
percent of total cost will increase with higher priced feedstocks and as the capacity of the
plant increases. Under current market conditions, feedstock costs would be higher for a
plant using refined soybean oil than a similar plant using less expensive rendered yellow
grease. However, often the lower priced feedstock requires extensive pre-processing that
-3-
may off set the lower purchase price. Additionally, lower valued feedstocks may have
lower biodiesel yields if they contain higher free fatty acid content and/or other
impurities. There are technologies that can convert the free fatty acids into biodiesel but
they have somewhat higher capital costs.
Another concern when selecting feedstock is the quality of the biodiesel
subsequently produced. Some of the lower valued feedstocks tend to produce a biodiesel
product with a higher “pour point”. A layman’s definition of pour point would be the
temperature at which the biodiesel will not flow. The lower the pour point the better the
fuel will flow in cold weather. The implication is that during colder temperatures the
biodiesel will not flow and will create problems for users. Minnesota had some problems
with the fuel gelling during cold weather in 2005. The marketability of the product is
thus jeopardized during the colder months. Neither pre-processing nor the biodiesel
production process can change the pour point characteristic of the feedstock.
There are some issues concerning the future price of yellow grease and poultry
fat. Given the current low price of these two products relative to other feedstocks and the
rapid growth in biodiesel production, it is expected that their prices will rise relative to
other feedstocks as demand strengthens. A second issue revolves around future potential
prohibitions on the use of animal fats as feed ingredients. If there is a ban on their use,
then demand may weaken and prices could indeed fall. A third issue involves the entire
price level for energy in general and natural gas in particular. If energy (natural gas)
prices return to the peaks seen during early 2006 or even go higher, then there may be a
move to burn the fats and spent oils for fuel as a substitute. This would be an increase in
demand and would likely pressure prices higher. These issues highlight the importance
of the selection of feedstocks and the resulting decision consequences for plant design
and construction.
Feedstock Price Risk Management
As discussed above, feedstock costs are a major part of the cost of producing
biodiesel. Managing the risk of price change will be a priority for the long term success
of the business. The major vegetable oils such as soybean oil and canola oil are traded on
the major futures market and thus provide the biodiesel producer the opportunity to
directly hedge future price risks. The remaining feedstocks currently do not have futures
contracts and thus the risk management tools are limited. There may be some ability to
cross hedge some of the feedstocks with either soybean oil or canola oil since many of
the oil markets seem to move in the same general direction. Further research on this
issue is warranted, especially in the case of poultry fats.
The general rule for determining whether or not it is possible to cross hedge one
commodity with another commodity is that the variance in the basis must be less than the
variance in the price of the commodity to be hedged. The basis is defined as the
difference in the prices of the two commodities. A smaller variance in the basis than the
commodity means that there is a good direct relationship between the prices of the two
commodities and less total price risk from a hedge position than in an un-hedged
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position. The following chart illustrates the price relationship between soybean oil and
poultry fat over calendar 2006 to date. Given this weekly price data and the brief period,
it appears poultry fat can be hedged successfully by using soybean oil. In fact the
variance of the basis ($0.0006) is slightly less than the variance in poultry fat ($0.0008).
This relationship should be further studied over time.
Price Relationship - Soybean Oil & Poultry Fat
SoyOilFutures
Poultry Fat
Soy-PFBasis
$0.35
Cents per Pound
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
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1 / 06
18
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11 /06
/2
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1 2 06
/6
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6
$-
Another viable price risk management tool would be to secure long term contracts
for feedstock with the price tied to one of the major oil futures contracts. That would be
a type of cross hedging although forward contacting is not widespread at this time.
Innovative thinking is needed to discover ways to manage the risk of changing feedstock
prices. The possibility of joint ownership or a joint venture of some form with a
feedstock provider would provide assurance of supply and open avenues for price
management as well.
The Product
Biodiesel is a fuel product produced from various vegetable oils and animal fats
by the trans-esterification and/or esterification processes. It is commonly blended with
petroleum diesel and used in all forms of diesel engines. Biodiesel has many advantages
as a fuel supplement including increased lubricity especially with low sulfur diesel fuels,
is a clean burning fuel that is also non-toxic and biodegradable and its use improves air
quality.
-5-
Exhaust emission of many of the most harmful materials are reduced by the use of
biodiesel. A 2002 Test Report from the EPA illustrates the reduction in the following
chart. The highest reductions in harmful emission occurred at the highest rates of
biodiesel in the fuel blend. However, in common practice, biodiesel is typically blended
at the lower end of the scale with good benefits obtained at even a 2 percent blend. Most
new model diesel engines and many late model engines can run on biodiesel blends with
no modification needed. Some older model engines may suffer from seal and other
rubber part deterioration.
Biodiesel manufactured for sale must meet ASTM 6751 standards (American
Society for Testing and Materials). It is easily and readily blended with petro-diesel at
any step along the marketing channel for fuel.
EMISSIONS BENEFITS OF BIODIESEL
20
0
Nitrus Oxide
Particulate Matter
Hydrocarbons
Carbon Monoxide
Volatile Organic Compounds
Sulphur Oxide
Percent Change
-20
-40
-60
-80
-100
-120
0%
20%
100%
Percent Biodiesel
Source: EPA, 2002 Biodiesel Emissions Test Report
The Market and Competition
According to the Department of Energy, the combined use of fuel oil for
transportation purposes in the states of Georgia, Alabama and Tennessee for 2004 totaled
about 3.79 billion gallons with 1.578, 1.001 and 1.212 billion gallons for each of the
states, respectively. There is an estimated additional non-highway use of about 2.26
billion gallons for a total market of just over 6 billion gallons. Biodiesel can be said to be
a direct competitor to diesel in the market place and thus the potential market could be
that same amount. In more practical terms however, biodiesel is most likely to be a
complementary product to diesel fuel and thus its potential market is some percentage of
that total market. A practical estimate of the market might be when biodiesel is used at a
-6-
2 percent blend or B2. Using B2 as the use level, then the total estimated market for the
states of Georgia, Alabama and Tennessee would be about 120 million gallons. The
proposed plant of SunsOil, LLC would produce about 4 percent of the total available
market for the three state area.
The market for biodiesel is open and rapidly finding acceptance by consumers.
Current concerns over high fuel prices and both Federal and State efforts to improve air
quality by reducing exhaust pipe emissions have created a market for the product.
Concerns of international fuel supplies have also encourage buyers to seek out
domestically produced fuels and the “renewability” factor of biodiesel is also a plus for
marketing efforts.
The biodiesel production industry is in the early stages of development here in the
U.S. although biodiesel is widely used in Europe. The National Biodiesel Board
estimates that production and sales of biodiesel are growing very rapidly as illustrated in
the chart below. The above concerns on the part of consumers along with subsidies from
the Federal and in some cases the States fuel the growth in biodiesel production. Under
current Federal legislation, blenders of biodiesel into the fuel supply receive a tax credit
of $1.00 per gallon of neat (pure) biodiesel made from virgin oils and a 50 cent per gallon
credit on neat biodiesel made from reused oils such as yellow grease. This subsidy is
passed along back to the producer through the pricing process.
The Renewable Fuels Standards require the use of biofuels in increasing
percentages in certain areas of the country, especially those with air pollution problems.
This provision creates a market for biodiesel by Federal mandate.
800
600
400
200
10
20
09
20
08
20
07
06
20
20
05
20
04
20
03
02
20
01
20
20
20
19
00
0
99
Million Gallons
Estimated & Projected US Biodiesel Sales
Source: Frazier Barnes and Associates
Competing Biodiesel Production
According to the National Biodiesel Board there are two producers of biodiesel in
Rome, Georgia; Peach State Labs and U.S. Biofuels, Inc with an estimated capacity of
about 14 million gallons per year. The NBB also indicates there is a producer located in
-7-
Moundsville, AL but does not estimate their production level and list two producers in
Tennessee, Agri-Energy, Inc in Louisburg and NuOil in Counce with a combined
capacity of 6.5 million gallons per year. The author also located a small producer in the
Atlanta area named VegEnergy Biofuels with an estimated annual production of less than
100,000 gallons. The current total estimated production capacity of the competition in
the three state area is about 16.5 million gallons, but that could more than double in one
year’s time. Their combined current production would satisfy about 14 percent of the
potential market demand using the B2 standard discussed above.
The Southeast Farm Press reported that a group plans to construct a 60 million
gallon per year plant near Columbus, GA with a scheduled ground breaking in late 2006.
A cotton seed crusher in the Tifton area is exploring construction of a biodiesel
production facility, presumably to use cotton seed oil as the feedstock. The capacity of
this proposed plant in unknown. Another proposed operation named BullDog BioDiesel
in Ellenwood, GA, near the Atlanta metro area, plans to use yellow grease and other oils
for feedstock. Its proposed capacity is 15 million gallons per year. If these plants were
to come on line within the next year, the combined supply to the B2 market would be
about 90 percent filled, but that does not imply there would not be a viable market for
additional biodiesel. It does imply that there could be some price pressure from the
increased production capacity.
Governmental Support for Biodiesel Production
The 2005 Energy Act provides a significant incentive to produce and distribute
biodiesel in the United States. The biodiesel tax credit provides diesel fuel distributors 1
cent for each percent of biodiesel blended with petroleum diesel fuel up to $1.00 per
gallon for biodiesel produced from virgin feedstocks such as vegetable oil and animal fat.
The incentive for non-virgin based biodiesel is 50% of the virgin rate. Non-virgin
feedstock would include yellow grease or “recycled” vegetable oil from restaurants. A
major portion of this incentive is typically reimbursed to the biodiesel producer from the
blender in the form of higher payments for the biodiesel (effectively paying market
prices). This study assumes that 95 percent of the incentive is returned to the producer
and is in tune with current industry practices and is included in the “B100 Sales Price”
line item in the biodiesel pro formas below.
In Georgia, state agencies and departments are required to prioritize the
procurement of high fuel efficiency and flexible fuel vehicles when such technologies are
commercially available and economically practical. Additionally, all state-owned
refueling facilities are required to maximize the purchase of gasoline blended with
ethanol and diesel fuel blended with biodiesel for use in state vehicles, when available
and economically practical. Furthermore, the Georgia Environmental Facilities Authority,
Division of Energy Resources is required to lead a statewide stakeholder process to
develop a Comprehensive State Energy Strategy to be completed by December 15, 2006.
(Reference Executive Order 02.28.06.02, 2006)
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Marketing Strategy
The proposed marketing strategy is to market the neat biodiesel of B100 through
regional petroleum fuel distributors. SunsOil, LLC will also seek out large fleet
operators and attempt to market direct to them. Any biodiesel produced in excess of what
can be sold through the above outlets will be sold through fuel brokers.
Pricing Strategies
SunsOil, LLC recognizes that biodiesel is a commodity product that will compete
for market access with biodiesel produced by regional competitors and with petroleum
diesel fuel. Biodiesel produced by SunsOil, LLC is not a product that can be effectively
differentiated from that produced by competitors and thus provided no pricing leverage
unique to SunsOil, LLC.
Price levels are determined by supply and demand for diesel fuel in general as
well and supply and demand for biodiesel in particular. Prices can also be impacted by
Government policy at both the state and federal levels and these policies are considered
to be beyond influence by SunsOil, LLC. International events can and will also impact
prices.
For all practical purposes, SunsOil, LLC is considered a price taker of a
commodity product. Price levels within the industry are typically based upon prices
collected and reported by both public and private industry analysts. Sales prices are
typically based upon these reported price levels.
Market Channels for Biodiesel
The market for biodiesel can be broken down into segments such as wholesale,
retail and the government/public sectors. Producers can sell to each or all of these
segments but should strive to maximize the retail and government sectors due to higher
margins and the potential for long term commitments.
Wholesale Marketers: The wholesale market is dominated by a few large firms,
for example World Energy and West central. There may be smaller wholesale outlets
available with small market potentials. World Energy specializes in biodiesel marketing
and distribution. The advantages of wholesale sales include wider market penetration
potential and a reduced need for a sales staff. The primary disadvantage to wholesale
selling is that per unit margins will be less than other alternatives.
Retail Distributors: Rather than retailing the biodiesel direct to the fuel tank,
retail sales concentrates on selling direct to business that put the fuel into the consumer’s
tanks. Examples would be fueling stations, oil companies, independent gas station
owners, marinas and fleet operators. The producer will need a sales staff to develop and
service the market and this requires extensive effort and experienced personnel. Retail
sales may offer a higher per unit margin but sales costs will be higher as well.
-9-
Government/Public Sector: Local, state and national governments all use plenty
of fuel. Many military and other federal agencies are directed to purchase renewable
fuels when available at competitive prices. Local school districts are large diesel users.
The advantages of selling to these outlets are the possibility of long term contracts and
retail-like margins. Quality of the product and assurance of supply are integral to repeat
sales.
Biodiesel produced in Georgia can reach a wide and diverse market. A firm that
has the ability to supply the market via both truck and rail will be positioned to take
advantage of all the potential market outlets. Any plant should have rail access to be
competitive over the long term.
Export Potential
There is a potential for biodiesel export sales from Georgia. Georgia’s east coast
position with major port facilities in both Savannah and Brunswick create an opportunity
to sell biodiesel abroad. The European Union is projected to use about 1.8 billion gallons
of biodiesel during 2006 and expectations that consumption will increase in the future.
Further research on export market access is warranted. There is an unknown quantity of
Georgia produced biodiesel that has been (and is being) sold into the European market
but the details of the transactions are closely held by the producer.
Biodiesel Prices
The following chart illustrates the FOB producer price of biodiesel quoted for the
Southeast U.S. for calendar year 2006 to date. As can be seen, FOB producer biodiesel
prices have risen over that period from about $2.50 per gallon to around $3.00 per gallon.
There also appears to be a strong direct relationship between biodiesel prices in the
Southeast and crude oil prices. During the period shown on the chart crude oil prices
were at about $48 per barrel in February 2005 and rose to a peak of about $74 in July
2006. Biodiesel prices tracked that rise although not in the same percentage terms.
Crude oil rose about 54 percent while biodiesel rose only about 20 percent. This
relationship may provide insight into the general direction of biodiesel prices as crude oil
prices change. Biodiesel would seem to rise in price with crude oil but will likely decline
as well if crude oil prices fall.
Some market observers have indicated that biodiesel price risk could be managed
by hedging against crude oil futures. The basis is plotted on the following chart
indicating a good relationship between the two markets. The variance in the basis
($0.0129) is less than the variance for SE biodiesel prices ($0.0162) indicating that at
least over this time period, hedging would not reduced total price risk.
- 10 -
Price Relationship - Biodiesel vs Light Crude Oil
Biodiesel
Light Crude Oil
Basis
$3.500
$3.000
$ per Gallon
$2.500
$2.000
$1.500
$1.000
$0.500
12/6/06
11/8/06
11/22/06
10/25/06
10/11/06
9/27/06
9/13/06
8/30/06
8/2/06
8/16/06
7/19/06
7/5/06
6/21/06
6/7/06
5/24/06
5/10/06
4/26/06
4/12/06
3/29/06
3/15/06
3/1/06
2/1/06
2/15/06
1/18/06
1/4/06
$-
It has been reported by The Jacobson Company that some Midwestern biodiesel
producers have negotiated basis contacts with buyers using the heating oil futures
contract on the NYMEX with a basis of $1.00 per gallon. The following chart
demonstrates that price relationship over calendar year 2006 to date. The relationship
appears to be a good fit over this time period the variance of the basis ($0.0123) was less
than the variation in SE biodiesel prices ($0.0162) meaning that price risk could be
reduced for SE biodiesel producers.
- 11 -
Price Relationship - SE Biodiesel vs Heating Oil
SEB100
NYMEXHeatingOil
Basis
$3.500
$3.000
$ per Gallon
$2.500
$2.000
$1.500
$1.000
$0.500
1/
4/
1 / 06
18
/0
2/ 6
1/
2 / 06
15
/0
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1/
3 / 06
15
/
3 / 06
29
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1 0 / 06
/1
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10 /06
/2
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1 1 06
/8
1 1 / 06
/2
2/
1 2 06
/6
/0
6
$-
FOB producer prices for biodiesel in the Southeast are not greatly different from
other parts of the country according to the following chart and they track the trends seen
in other parts of the U.S. The case of the FOB price decline for the upper Midwest
during the late fall of 2005 and into early 2006 was the result of the gelling problem
observed. Prices sagged as demand dried up until the problem was addressed and solved.
- 12 -
Dollars Per Gallon
Historical B100 Producer FOB Prices By Region
3.4
3.3
3.2
3.1
3
2.9
2.8
2.7
2.6
2.5
2.4
6
v-0
No -06
t
Oc 06
pSe -06
g
Au
-06
Jul 06
Jun -0 6
y
Ma 6
r-0
Ap -06
r
Ma 6
b-0
Fe 06
Jan -05
c
De -05
v
No -05
t
Oc -05
p
Se -05
g
Au
-05
Jul 05
Jun -0 5
y
Ma 05
rAp 05
rMa -05
b
Fe
Northeast
Southeast
Upper Midwest
Lower Midwest
West Coast
Source: The JACOBSEN Publishing Company
Currently biodiesel prices can be found both above and below petro-diesel prices
as the market looks for a firm price relationship. As production and thus supply of
biodiesel increases and its notion as a ‘boutique” fuel declines, it is likely there will be
some price pressure. Industry observers feel that biodiesel must ultimately be priced
competitively with petro-diesel in order to assimilated large volumes of biodiesel into the
on-road market.
Biodiesel price risk cannot be hedged directly at present as there is no futures
market contract for biodiesel. There is the possibility of cross hedging using the heating
fuel futures contract to manage price risk. Another alternative is to secure long term
contracts although there is little evidence this method is widely used in the industry.
Prices and Markets for the Co-Product Glycerin
The primary co-product from biodiesel production is glycerin. The amount
produced will be about 10 percent of the volume of biodiesel produced. The crude
glycerin produced must be cleaned and concentrated in order to command good market
prices. Glycerin is a very versatile product that has many uses as an ingredient in many
products including cosmetics, toiletries, drugs and food products. It has many valuable
properties including being a good moisturizer, plasticizer, emollient, thickener, solvent,
dispersing medium, lubricant, sweetener and an anti-freeze agent. It has over 1,500
known uses.
The glycerin suitable for the above uses must be stringent requirements of the
U.S. Pharmacopeia (USP) and the Food Chemicals Codex (FCC). There is also a market
for lower grade glycerin but at a substantially discounted price. A good working number
- 13 -
for the value of USP & FCC grade glycerin is around $0.20 per pound. Crude, nonrefined glycerin has a working price of around 2 to 3 cents per pound. At these price
levels, the refining of glycerin is not economically feasible for plants less the 20 million
gallons of biodiesel production.
Financial Analysis
The pro forma financial statements were prepared based upon the following
assumptions:
1. The majority of the information for the analysis was provided by SunsOil, LLC
and thus the accuracy of the analysis is predicted upon the accuracy of the
information provided.
2. The base model assumes the plant operates at stated capacity of 5 million gallons
of production for one year. The entire production is of market quality and can be
sold at the assumed market price.
3. Prices for biodiesel, feedstocks and other inputs are assumed to be at or very near
the levels readily attainable.
4. Capital cost expenditures are an estimated total value and are not based on a firm
commitment for any given biodiesel equipment supplier.
5. Depreciation is based on 15 year, straight line basis of the estimated capital cost.
Capital Expenditures
SunsOil, LLC estimates that a total of $5.2 million will be expended to purchase
land, buildings, storage tanks, process equipment and start-up capital for their biodiesel
facility. It should be noted that this is just a preliminary estimate subject to change
depending upon the actual site selected. The authors believe this estimate is on the low
side based on what has been shown as the average estimated capital costs in many recent
feasibility studies. An average multiple of 1.35 times the projected capacity was
observed from thirteen studies. That multiple would imply a total capital requirement of
about $6.75 million for the proposed 5 million gallon per year plant. It is possible to
construct an efficient plant lower than the estimates cited above given an ideal site with
considerable second hand equipment in good working condition. Many of the facilities in
the studies used were “turn key” facilities from biodiesel facility supply firms, some of
which contain capacity and quality guarantees. It is possible to construct a very
satisfactory and successful operation using second hand and refitted equipment. SunsOil,
LLC may well possess the ability to accomplish that.
Economic Feasibility
The first test of a proposed venture is whether or not it can return a fair market
value return to the resources used to create a product. The resources used are essentially
land, labor, capital and management. Each of these resources should be paid a fair
market value. Land is included in the capital resource and is paid a 7 percent return.
- 14 -
Labor is included in the production cost at the assumed wage rate and management
receives a return equal to 5 percent of the total capital expenditure. The remaining
returns, if positive indicate that the venture has a true economic feasibility of success.
The following tables illustrate the Economic Feasibility of the proposed SunsOil, LLC
venture when using Soybean Oil and Stabilized Poultry Fat as feedstocks.
FEASIBILITY OF A 5 mmGAL PER YEAR BIODIESEL PLANT
ECONOMIC COSTS AND RETURNS
SunsOil, LLC
Soybean Oil
Revenue
Biodiesel @ $2.75 per gallon
Glycerin @ $0.02 per pound
Total
Year 1
$2,508,000
$18,392
$2,526,392
Year 2
Year 3
$10,341,225 $15,809,805
$75,836
$115,939
$10,417,061 $15,925,744
Production Costs
Feedstock Costs
Processing Costs
Labor
Repairs and Maintenance
Insurance
Marketing and Freight
Other, G&A
Total Production Cost
$1,716,000
$303,996
$618,000
$37,347
$13,200
$26,400
$28,160
$2,743,103
$7,075,575
$1,253,465
$781,614
$153,992
$54,428
$108,855
$108,877
$9,536,806
$10,810,800
$1,915,175
$820,695
$235,285
$83,160
$166,320
$163,368
$14,194,803
Fixed Costs
Depreciation
Return to all Capital @ 7%
Return to Management @ 5%
Total Fixed Costs
214,264
$148,539
$212,198
$575,001
$279,431
$182,751
261,073
$723,255
$279,431
$182,751
$261,073
$723,255
Total Economic Cost of Operation
$3,318,104
$10,260,062
$14,918,058
-$791,712
$156,999
$1,007,685
Economic Return Before Income Taxes
Return on Investment Before Income Taxes
- 15 -
-18.2%
2.9%
18.8%
FEASIBILITY OF A 5 mmGAL PER YEAR BIODIESEL PLANT
ECONOMIC COSTS AND RETURNS
SunsOil, LLC
Stabilized Poultry Fat
Revenue
Biodiesel @$2.75 per gallon
Glycerin @$0.02 per pound
Total
Year 1
$2,508,000
$18,392
$2,526,392
Year 2
Year 3
$10,341,225 $15,809,805
$75,836
$115,939
$10,417,061 $15,925,744
Production Costs
Feedstock Costs
Processing Costs
Labor
Repairs and Maintenance
Insurance
Marketing and Freight
Other, G&A
Total Production Cost
$1,223,200
$303,996
$618,000
$37,347
$13,200
$26,400
$28,160
$2,250,303
$5,043,615
$1,253,465
$781,614
$153,992
$54,428
$108,855
$108,877
$7,504,846
$7,706,160
$1,915,175
$820,695
$235,285
$83,160
$166,320
$163,368
$11,090,163
Fixed Costs
Depreciation
Return to all Capital @ 7%
Return to Management @ 5%
Total Fixed Costs
$214,264
$148,539
$212,198
$575,001
$279,431
$182,751
$261,073
$723,255
$279,431
$182,751
$261,073
$723,255
Total Economic Cost of Operation
$2,825,304
$8,228,102
$11,813,418
-$298,912
$2,188,959
$4,112,325
Economic Return Before Income Taxes
Return on Investment Before Income Taxes
-6.9%
40.9%
76.8%
The venture appears to be economically feasible after the first year of operation
when production ramps up to about 3.5 million gallons per year when using soybean oil
and poultry fat as feedstocks. The operation covers all economic costs of operation and
generates a positive return.
Pro Forma Income Statements
A pro forma income statement shows the financial feasibility of a venture by
estimating the actual costs of production and revenue flows. The following pro forma is
based on the first three years of operation at capacities and assumes all production is
acceptable and sold into the market.
- 16 -
PRO FORMA INCOME STATEMENT
SunsOil, LLC
Soybean Oil
Revenue
Biodiesel @ $2.75
Glycerin @ $0.02
Total
Year 1
Year 2
Year 3
$2,508,000
$10,341,225 $15,809,805
$18,392
$75,836
$115,939
$2,526,392 $10,417,061 $15,925,744
Production Costs
Feedstock Costs
$1,716,000
Process Costs
Methanol
$198,000
Catalyst
$54,120
Natural Gas
$20,196
Electricity
$3,630
Water/Sewer
$1,650
Labor
$618,000
Repairs and Maintenance
$37,347
Insurance
$13,200
Marketing and Freight
$26,400
Other, G&A
$28,160
Total Production Cost $2,716,703
$7,075,575
$10,810,800
$816,413
$223,153
$83,274
$14,968
$6,803
$781,614
$153,992
$54,428
$108,855
$108,877
$9,427,951
$1,247,400
$340,956
$127,235
$22,869
$10,395
$820,695
$235,285
$83,160
$166,320
$163,368
$14,028,483
$214,264
$282,931
$497,195
$279,431
$348,098
$627,528
$279,431
$348,098
$627,528
Total Cost of Operation
$3,213,898
$10,055,480
$14,656,012
Return Before Income Taxes
-$687,506
$361,581
$1,269,732
Fixed Costs
Depreciation
Interest on Long Term Debt
Total Fixed Costs
Return on Equity Before Income Taxes
-48.6%
- 17 -
20.8%
73.0%
PRO FORMA INCOME STATEMENT
SunsOil, LLC
Stabilized Poultry Fat
Revenue
Biodiesel @ $2.75 per gallon
Glycerin @ $0.02 per pound
Total
Year 1
$2,508,000
$18,392
$2,526,392
Production Costs
Feedstock Costs
Process Costs
Methanol
Catalyst
Natural Gas
Electricity
Water/Sewer
Labor
Repairs and Maintenance
Insurance
Marketing and Freight
Other, G&A
Total Production Cost
Fixed Costs
Depreciation
Interest on Long Term Debt @ 10%
Total Fixed Costs
Total Cost of Operation
Return Before Income Taxes
Year 2
Year 3
$10,341,225 $15,809,805
$75,836
$115,939
$10,417,061 $15,925,744
$1,223,200
$5,043,615
$7,706,160
$198,000
$54,120
$20,196
$3,630
$1,650
$618,000
$37,347
$13,200
$26,400
$28,160
$2,223,903
$816,413 $1,247,400
$223,153
$340,956
$83,274
$127,235
$14,968
$22,869
$6,803
$10,395
$781,614
$820,695
$153,992
$235,285
$54,428
$83,160
$108,855
$166,320
$108,877
$163,368
$7,395,991 $10,923,843
$214,264
$282,931
$497,195
$279,431
$348,098
$627,528
$279,431
$348,098
$627,528
$2,721,098
$8,023,520
$11,551,372
- $194,706
$2,393,541
$4,374,372
-13.8%
137.5%
251.3%
Return on Equity Before Income Taxes
Note: Interest is based on the amortization of two-third of the estimated capital cost at 10
percent interest for 5 years.
Based on the data provided along with some minor supplementary additions and
adjustments by the authors, it appears that the venture is financially feasible when
production ramps up to about 3.5 million gallons per year. The first year for the venture
is not financially feasible due to the low production level.
- 18 -
Cash Flows Requirements
When poultry fat is used as the feedstock, the venture will not have any problems
cash flowing. However, when high priced soybean oil is used as the feedstock the
business will not cash flow given the negative financial returns. Added capital or further
borrowing will be required to cover cash flows until production ramps up in the third year
of operation to profitable levels. See the following five year annual cash flow summaries.
- 19 -
Pro Forma Statement of Cash Flows for 5 MMGPY using Soybean Oil
Operations:
Net Income
Depreciation
(Increase) Decrease in Accounts Receivable
(Increase) Decrease in Inventories
(Increase) Decrease in Other Current Assets
Increase (Decrease) in Accounts Payable
Increase (Decrease) in Other Current Liabilities
Increase (Decrease) in Other Non Current Liabilities
Cash Flow from Operations
Investing:
(Acquisition) of Property, Plant & Equipment
Other Assets
Cash Flow from Investing
Financing:
Increase (Decrease) in Short-term Borrowing
Increase (Decrease) in Long-term Debt
Increase (Decrease) in Contributed Capital
Dividends
Cash Flow from Financing
Net Change in Cash
Cash--Beginning of Year
Cash--End of Year
Begin Year 1
$
$
Year End 1
$
(702,042) $
$
214,264 $
- $
(487,778) $
Year 2
241,864 $
279,431 $
Year 3
1,197,884 $
279,431 $
Year 4
1,360,221 $
279,431 $
Year 5
1,258,899
279,431
521,295 $
1,477,315 $
1,639,652 $
1,538,330
$ (3,343,963) $
(977,500)
- $ (3,343,963) $
(977,500)
$
-
$
-
$
-
$
$
2,829,308 $
1,414,654
(459,107) $
$
(507,181) $
325,833
(560,289) $
(618,959) $
(683,772)
$
4,243,963 $
(459,107) $
(181,348) $
(560,289) $
(618,959) $
(683,772)
$ (4,290,847) $
$ 4,243,963 $
$
(46,884) $
(637,552) $
(46,884) $
(684,437) $
917,025 $
(684,437) $
232,589 $
1,020,693 $
232,589 $
1,253,282 $
854,557
1,253,282
2,107,839
Pro Forma Statement of Cash Flows for 5 MMGPY using Stabilized Poultry Fat
Operations:
Begin Year 1
Net Income
Depreciation
(Increase) Decrease in Accounts Receivable
(Increase) Decrease in Inventories
(Increase) Decrease in Other Current Assets
Increase (Decrease) in Accounts Payable
Increase (Decrease) in Other Current Liabilities
Increase (Decrease) in Other Non Current Liabilities
$
Cash Flow from Operations
Investing:
(Acquisition) of Property, Plant & Equipment
Other Assets
Cash Flow from Investing
Financing:
Increase (Decrease) in Short-term Borrowing
Increase (Decrease) in Long-term Debt
Increase (Decrease) in Contributed Capital
Dividends
Cash Flow from Financing
Net Change in Cash
Cash--Beginning of Year
Cash--End of Year
$
-
Year End 1
Year 2
Year 3
Year 4
Year 5
$ (209,242) $ 2,273,824 $ 4,302,524 $ 4,602,353 $ 4,642,779
$ 214,264 $ 279,431 $ 279,431 $ 279,431 $ 279,431
$
5,022 $ 2,553,255 $ 4,581,955 $ 4,881,783 $ 4,922,210
$(3,343,963) $
(977,500)
$(3,343,963) $
(977,500)
$
-
$
-
$
-
$ 2,829,308 $ (459,107) $ (507,181) $ (560,289) $ (618,959) $
$ 1,414,654
$ 325,833
(683,772)
$ 4,243,963 $ (459,107) $
(683,772)
(181,348) $ (560,289) $ (618,959) $
$(3,798,047) $ 1,394,408 $ 4,021,665 $ 4,262,824 $ 4,238,438
$ 4,243,963 $ 445,916 $ 1,840,323 $ 5,861,989 $10,124,813
$ 445,916 $ 1,840,323 $ 5,861,989 $10,124,813 $14,363,250
Sensitivity Analysis
The previous sections provided an analysis of the proposed venture in static form
and with strict assumptions of unchanged parameters. This section explores the impact
upon net income when a single parameter is allowed to vary while all others are held
constant. Plant production is assumed to be at 5 million gallons per year.
One of the most significant factors impacting net income is the price paid for the
feedstock used to produce biodiesel. When soybean oil is used as the feedstock, it
represents nearly 69 percent of total production costs. So, even small changes in
feedstock costs can have a large impact upon profitability. The following two figures,
one for soybean oil and one for poultry fat feedstock prices demonstrate how changes in
price change projected net income.
Net Income vs Feedstock Price
Soybean Oil
$2,000,000
4
.4
$2
$2
.3
4
5
.1
$2
$2
.9
.0
5
5
5
$1
.8
$1
.7
$1
.5
$1
.4
$1
$(2,000,000)
6
6
$6
Net Income
$4,000,000
Feedstock Price
One can see that if soybean oil could be secured at a price below $2.15 per gallon
(about 29 cents per pound), all else held constant, then the venture would generate a
positive net income. At soybean oil prices above $2.15 per gallon, the venture is not
likely to be profitable as envisioned.
The case where poultry fat is used as the feedstock is quite different. Positive net
incomes are likely to be generated over a wide range of prices. The following chart
illustrates net income with both a 25 percent increase and decrease in price from the
assumed $1.15 per gallon cost.
- 22 -
4
.7
7
$1
.6
3
$1
.5
6
$1
$1
.4
.3
9
2
$1
.3
$1
$1
$1
.2
.1
.0
$1
5
1
$6,000,000
$4,000,000
$2,000,000
$4
Net Income
Net Income vs Feedstock Price
Poultry Fat
Feedstock Price
The second major variable impacting biodiesel profitability is the sales price
received. The two following charts illustrate the impact on net incomes of changes in the
sales price, one each for soybean oil and one for poultry fat feedstocks.
Net Income vs
Biodiesel Price - Soybean Oil
$5,000,000
$3,000,000
$2,000,000
$1,000,000
6
$3
.5
2
.4
$3
$3
.1
4
9
.9
.8
5
$2
$2
$2
.7
7
$2
.5
8
$2
$(2,000,000)
.2
4
.1
$(1,000,000)
1
$-
$2
Net Income
$4,000,000
$(3,000,000)
Biodiesel Price
If the venture could secure a selling price of $2.66 per gallon or better when using
soybean oil as a feedstock, it could generate positive net income. Negative net income
would result for a sales price lower than $2.66 per gallon.
- 23 -
.5
6
2
$3
.4
4
$3
$3
.9
$2
.1
9
5
.8
$2
.7
7
$2
.5
8
$2
.2
$2
.1
$2
1
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$-
4
Net Income
Net Income vs Biodiesel Price
Poultry Fat
Biodiesel Price
The breakeven sales price of biodiesel when produced from poultry fat would be
about $2.10 per gallon. Any price above $2.10 would result in positive net incomes.
Summary and Conclusions
SunsOil, LLC seeks to enter into the biodiesel production business with a small
scale, primarily self built 5 million gallon per year plant. There is a good market
potential in the three state areas of Eastern Tennessee, North Georgia and Northern
Alabama. Currently there are strong biodiesel prices buoyed by the over all strong prices
for petroleum fuel products. It appears there will be some major larger scale competitors
entering the market in the near future. These new entrants with large scale plants may
well have a competitive advantage of the SunsOil, LLC proposal.
The business plan appears solid when poultry fat is used as the feedstock for the
plant. Feedstock cost would represent only about 67 percent of total production costs
which is near the industry average for all feedstocks. Processing costs of about $0.70 per
gallon are well below what might be expected of similar sized operations ($1.02 per
gallon). The venture as presented is both economically and financially feasible when
poultry fat or soybean oil are used as a feedstock when production is above 3.5 million
gallons per year.
If SunsOil, LLC decides to pursue this or a similar venture it should strive to
secure a confirmed source of feedstock. As the industry matures, many of the newer
entrants will be of much larger size and will have a purchasing advantage over smaller
operations such as the SunsOil, LLC proposal. Securing a source of feedstock will be
critical.
SunsOil, LLC should also consider the size of the operation. Industry analysts
have indicated the size of proposed entrants has increased rapidly over the last two years.
- 24 -
According to the National Biodiesel Board, the industry trade association, the average
proposed plant size has increased from about 14 million gallons capacity in 2005 to about
22 million gallons in the fall of 2006. Clearly the trend is to bigger plants.
SunsOil, LLC should carefully weight the advantages and disadvantages of
“building their own” plant versus purchased turn key modular “ready to run” plants. The
former model may be constructed with lower capital costs but will take longer to get on
line and may have a considerable debugging period. The latter model may cost a little
more but can be brought on line quickly with a guaranteed process and quality product
ability. Once the plant is operating, the capital cost service is a relatively small portion of
total production costs. Any anticipated savings on capital outlays can be quickly lost due
to production lags or if the quality of product suffers from design flaws.
- 25 -
Keys to Success
The keys to success in the biodiesel business are:
1. Securing an assured source of feedstock at competitive prices.
2. Using good price risk management tools to reduce price risk exposure on both the
buying and selling side.
3. Producing a quality product that meets ASTM standards all the time.
4. Hiring and retaining a quality labor force dedicated to producing and selling a
quality product at minimum cost.
5. Operating the plant at near maximum safe operating capacity.
6. Maintaining good business relationships with all suppliers and associated
businesses as well as all purchasers of the product.
7. Continuation of the Federal $1.00 per gallon subsidy on biodiesel production.
8. Getting up and running in as short of a time frame as possible.
- 26 -
Economic Impact of Biodiesel Production in Gwinnett County
A proposed plant for biodiesel production in Gwinnett County would lead to economic
activity throughout Georgia. Construction activity leads to one-time impacts during the
period of building the plant. Production generates annual impacts due to purchasing of
inputs for manufacturing biodiesel. Construction costs for the plant total $2.795 million
dollars, not including land and other capital contingency funds. Plant officials expect
revenues of $14.25 million from 5 million gallons of biodiesel and $104,500 in sales of
crude glycerin as a by-product for total annual revenues of $14.355 million. Officials of
the proposed plant state that feedstock will be poultry fat from Georgia and Alabama.
Principles of Economic Impact Analysis
Economic impacts can be estimated with input-output models (IMPLAN) that separate
the economy into various industrial sectors such as agriculture, construction,
manufacturing, trade, and services. The input-output model then calculates how a change
in one industry changes output, income, and employment in other industries. These
changes, or impacts, are expressed in terms of direct and indirect effects. Impacts are
interpreted as the contribution of the enterprise to the total economy. Direct effects
represent the initial impact on the economy of either construction or operations of an
enterprise. Indirect effects are changes in other industries caused by direct effects of an
enterprise and include changes in household spending due to changes in economic
activity generated by direct effects. Thus, the total economic impact is the sum of direct
and indirect effects. Input-output analysis can interpret the effects of an enterprise in a
number of ways including output (sales), labor income (employee compensation and
proprietary income), employment (jobs), and tax revenue.
Economic impacts result from a multiplier effect that begins with expenditures of an
enterprise stimulating business to business spending, personal income, employment, and
tax revenue. IMPLAN models include a regional purchase coefficient (RPC) for each
impact variable that represents percentage of demand that is satisfied by production
within an impact area. Enterprises vary in their multiplier effects due to differing
expenditure levels, RPC’s, and sectors in which their expenditures are directed. Impact
analysis involves quantification of spending levels and proper allocation to impacted
sectors.
Output impacts are a measure of economic activity that results from enterprise
expenditures in a specific industrial sector. Output is equivalent to sales, and this
multiplier offers insights into how initial economic activity in one sector leads to sales in
other sectors. Personal income impacts measure purchasing power that is created due to
the output impacts. This impact provides the best measure of how standards of living are
affected for residents in the impact area.
An enterprise involves a specified number of employees that is determined by the
technology of the enterprise. Employment multipliers indicate the effect on employment
resulting from the enterprise initiating economic activity. IMPLAN indirect employment
- 27 -
includes both full-time and part-time jobs without any distinction. Jobs calculated within
an IMPLAN industrial sector are not limited to whole numbers and fractional amounts
represent additional hours worked without an additional employee. With no measure of
hours involved in employment impacts, IMPLAN summations for industrial sectors
which include fractional employment represent both jobs and job equivalents. Since
employment may result from some employees working additional hours in existing jobs,
instead of terming indirect employment impacts as “creating” jobs, a more accurate term
is “involving” jobs or job equivalents.
Economic Impacts of Biodiesel Plant Construction
One-time economic impacts of plant construction are presented in Table 1. Direct impact
of $1.629 million is less than construction costs of $2.795 million due to leakages outside
of the Georgia economy caused by purchases of some construction items in other states.
Construction of the plant involves 13 jobs with wages and benefits of $616,386. Direct
jobs are equivalents based on the structure of the Georgia economy, and the actual
number of individuals involved in construction may be greater than the 13 indicated by
the direct employment impact. Indirect output is $1.284 million for a total output impact
of $2.913 million. Indirect employment and labor income impacts lead to total labor
income of $1.038 million for 24 jobs, or $43,230 per job in wages and benefits. Taxes
generated total $110,319 of which $68,080 goes to the state government, and $42,238
goes to local governments throughout Georgia. Appendix 1 shows the allocation of
economic impacts among major industrial sectors of the Georgia economy.
Table 1. Plant Construction: One-Time Economic Impacts to Georgia
Direct
Indirect
Total
Impact
Impact
Impact
Output ($)
1,628,591
1,284,227
2,912,818
Labor Income ($)
610,386
427,137
1,037,522
Employment
13
11
24
State Taxes ($)
68,080
Local Taxes ($)
42,238
110,319
Sum of Taxes ($)
Economic Impacts of Biodiesel Production
Operation of a biodiesel plant in Gwinnett County creates annual economic impacts
within the local economy. Direct output impact of $14.355 million in Table 2 is equal to
the value of annual revenues. Direct labor income of $618,000 for 14 employees is plant
expense for wages and benefits. Indirect economic activity in Gwinnett County of $1.590
million leads to a total output impact of $15.944 million. Indirect output leads to indirect
labor income of 506,515 for 13 jobs. Total labor income in Gwinnett County is $1.125
million for 27 jobs which averages $41,649 per job. State taxes of $49,168 in Table 2 are
- 28 -
for economic activity occurring in Gwinnett County. Local taxes of $36,678 in the county
result in total tax revenue of $85,846. Appendix 2 shows economic impacts among major
industrial sectors of the Gwinnett County economy.
Table 2. Biodiesel Production Impacts to Gwinnett County
Direct
Indirect
Total
Impact
Impact
Impact
Output ($)
14,354,500 1,589,697 15,944,197
Labor Income ($)
618,000
506,515
1,124,515
Employment
14
13
27
State Taxes ($)
49,168
Local Taxes ($)
36,678
Sum of Taxes ($)
85,846
Production in Gwinnett County creates economic impacts in surrounding counties. One
county has limited capacity to provide inputs for an enterprise, and this leads to indirect
impacts in other local economies as inputs are purchased in other counties. The state of
Georgia has designated 12 state service delivery regions (SDR) in order to foster regional
collaboration in economic development. Gwinnett County is in SDR 3 which also
includes the counties: Cherokee, Clayton, Cobb, Dekalb, Douglas, Fayette, Fulton,
Henry, and Rockdale. Table 3 shows the regional economic impact for SDR 3. Direct
impacts are identical to Table 2. Indirect impacts increase as the larger regional economy
has greater supporting capacity for production inputs than a single county. The total
output impact to the region is $17.030 million. Total labor income of $1.442 million is
created for 30 jobs which is a $48,081 average in wages and benefits. State and local
taxes generated due to impacts in the region are $124,577. Appendix 3 shows economic
impacts among major industrial sectors in SDR 3.
Table 3. Biodiesel Production Impacts to Region
Direct
Indirect
Impact
Impact
Output ($)
14,354,500 2,675,490
Labor Income ($)
618,000
824,415
Employment
14
16
State Taxes ($)
Local Taxes ($)
Sum of Taxes ($)
- 29 -
Total
Impact
17,029,990
1,442,415
30
71,476
53,101
124,577
Expanding the local impact area to Georgia indicates the economic impacts from
biodiesel production to the state economy. Indirect impacts are greater in Table 4 than
impacts for county and regional economies. Total output is $17.475 million for the state
economy. A total of $1.541 million in labor income is created for 34 jobs. Indirect wages
and benefits average $46,145 per job, and the average for all jobs is $45,320. The state
treasury realizes a total of $85,987 from biodiesel production, while local governments
receive $64,003. Appendix 4 shows economic impacts among major industrial sectors in
the Georgia economy.
Table 4. Biodiesel Production Impacts to Georgia
Direct
Indirect
Impact
Impact
Output ($)
14,354,500
3,120,943
Labor Income ($)
618,000
922,896
Employment
14
20
State Taxes ($)
Local Taxes ($)
Sum of Taxes ($)
Total
Impact
17,475,443
1,540,896
34
85,987
64,003
149,990
Summary
Construction of a 5 million gallon biodiesel plant in Gwinnett County would create a onetime economic impact leading to $1.038 million in labor income for Georgia workers.
Operation of the plant would create an annual $15.944 million output impact in Gwinnett
County. Total labor income of $1.125 million would be created annually for 27 jobs in
the county. Local governments in the county would receive $36,678 annually in tax
revenues. Regional impacts for an area of 10 counties including Gwinnett County lead to
a labor income impact of $1.442 million for 30 jobs in the region. Biodiesel production
would generate a total output impact of $17.475 million for the state economy.
Employees in Georgia would earn $1.541 million in wages and benefits for 34 jobs. The
state treasury would receive $85,987 annually, and local treasuries throughout the state
would receive $64,003.
- 30 -
Appendix 1. Plant Construction: One-Time Economic Impacts to Major Sectors,
Georgia
Labor
Sector
Output ($) Income ($) Employment
Agriculture
9,442
2,702
0
Construction & Mining
825,618
392,716
10
Utilities
30,875
6,226
0
Manufacturing
927,483
218,740
4
Transportation, Warehousing
54,625
23,448
1
Trade
255,820
98,056
3
Finance, Insurance, & Real Estate
177,203
46,131
1
Services
532,101
245,042
6
Government & Non NAIC's
99,650
4,461
0
Total
2,912,818 1,037,522
24
Appendix 2. Biodiesel Production Impacts to Major Sectors, Gwinnett County
Labor
Sector
Output ($) Income ($) Employment
Agriculture
30,685
13,064
1
Construction & Mining
7,175
3,175
0
Utilities
47,008
7,176
0
Manufacturing
14,575,423
654,917
15
Transportation, Warehousing
201,911
77,287
2
Trade
176,361
68,934
2
Finance, Insurance, & Real Estate
214,860
59,897
1
Services
568,270
237,191
6
Government and non-NAICS
122,505
2,874
0
Total
15,944,197 1,124,515
27
- 31 -
Appendix 3. Biodiesel Production Impacts to Major Sectors, Region
Labor
Sector
Output ($) Income ($) Employment
Agriculture
931
308
0
Construction & Mining
12,548
5,451
0
Utilities
205,508
40,827
0
Manufacturing
15,211,298
817,384
16
Transportation, Warehousing
242,175
92,811
2
Trade
226,719
88,347
2
Finance, Insurance, & Real Estate
268,673
76,499
1
Services
724,408
315,836
8
Government and non-NAICS
137,731
4,954
0
Total
17,029,990 1,442,415
30
Appendix 4. Biodiesel Production Impacts to Major Sectors, Georgia
Labor
Sector
Output ($) Income ($) Employment
Agriculture
12,331
3,710
0
Construction & Mining
16,817
6,646
0
Utilities
207,637
40,696
0
Manufacturing
15,383,881
837,560
16
Transportation, Warehousing
257,710
96,810
2
Trade
280,467
108,644
3
Finance, Insurance, & Real Estate
310,460
85,028
2
Services
834,779
354,715
10
Government and non-NAICS
171,362
7,086
0
Total
17,475,443 1,540,896
34
- 32 -
ATTACHMENTS
1. ASTM standards for biodiesel
- 33 -
Austria
Czech
Republic
France
Germany
Italy
Sweden
Standard/
Journal
DIN E
Specification
51606 UNI 10635 SS 155436
ON C1191 CSN 6 6507 Officiel
Date
7/1/1997 9/1/1998 9/14/1997 9/1/1997 4/21/1997 11/27/1996
Application
Units
FAME*
RME*
VOME* FAME*
VOME*
VOME*
Density 15°C
g/cm3
0.85-0.89 0.87-0.89 0.87-0.90 0.875-0.90 0.86-0.90 0.87-0.90
Viscosity 40°C
mm2/s
3.5-5.0
3.5-5.0
3.5-5.0
3.5-5.0
3.5-5.0
3.5-5.0
Distillation 95%
°C
<360
<360
Flashpoint
°C
>100
>110
>100
>110
>100
>100
CFPP
°C
0/-15
-5
0/-10/-20
-5
Pourpoint
°C
<-10
<0/<-15
Sulfur
%Mass
<0.02
<0.02
<0.01
<0.01
<0.001
CCR 100%
%Mass
<0.05
<0.05
<0.05
10% Dist. Resid. %Mass
<0.3
<0.5
Sulfated Ash
%Mass
<0.02
<0.02
<0.03
(Oxid) Ash
%Mass
<0.01
<0.01
Water
mg/kg
<500
<200
<300
<700
<300
Total Contam.
mg/kg
<24
<20
<20
Copper Corrosion
3h/50°C
1
1
Cetane No.
>49
>48
>49
>49
>48
Neutral No.
mgKOH/g
<0.8
<0.5
<0.5
<0.5
<0.5
<0.6
Methanol
%Mass
<0.20
<0.1
<0.3
<0.2
<0.2
Ester Content
%Mass
>96.5
>98
>98
Monoglycerides
%Mass
<0.8
<0.8
<0.8
<0.8
Diglyceride
%Mass
<0.2
<0.4
<0.2
<0.1
Triglyceride
%Mass
<0.2
<0.4
<0.1
<0.1
Free Glycerol
%Mass
<0.02
<0.02
<0.02
<0.02
<0.05
<0.02
Total Glycerol
%Mass
<0.24
<0.24
<0.25
<0.25
Iodine No.
<120
<115
<115
<125
C18:3 and High.
Unsat. Acids
%Mass
<15
Phosphorus
mg/kg
<20
<20
<10
<10
<10
0.001**
Alkaline Metals
(Na,K)
mg/kg
<10
<5
<5
<10
Cloud Point
°C
<10
<5
<5
<10
*FAME - Fatty Acid Methyl Esters; RME - Rapeseed Methyl Esters; VOME - Vegetable Oil Methyl Esters
**% Mass
United
States
United
States
ASTM D6751-03 S15 ASTM D-975
5/10/2002
FAME*
1.9-6.0
360max
130
0.015 max
0.05 max
0.02 max
.05 % max
-
Diesel
Fuel
1.9-4.1
282-338
52 min
0.50 max
0.35
0.01 max
.05 % max
No. 3 max No. 3 max
47 min
40 min
0.80 max
0.02 max
0.24 max
<10
-
***Note that detailed ASTM Specification requirements must be obtained directly from ASTM. The
ASTM Specification is expected to become more stringent and more competitive with European specifications.
34
The Center for Agribusiness
& Economic Development
The Center for Agribusiness and Economic Development is a unit of the College of
Agricultural and Environmental Sciences of the University of Georgia, combining the
missions of research and extension. The Center has among its objectives:
To provide feasibility and other short term studies for current or potential Georgia
agribusiness firms and/or emerging food and fiber industries.
To provide agricultural, natural resource, and demographic data for private and public
decision makers.
To find out more, visit our Web site at: http://www.caed.uga.edu
Or contact:
John McKissick, Director
Center for Agribusiness and Economic Development
Lumpkin House
The University of Georgia
Athens, Georgia 30602-7509
Phone (706)542-0760
caed@agecon.uga.edu
The University of Georgia and Fort Valley State University, and the U.S. Department of
Agriculture and counties of the state cooperating. The Cooperative Extension Service
offers educational programs, assistance and materials to all people without regard to race,
color, national origin, age, sex or disability.
An equal opportunity/affirmative action organization committed to a diverse work force.
Report Number
FR06-5
Date/Year December, 2006
Issued in furtherance of Cooperation Extension Acts of May 8 and June 30, 1914, the
University of Georgia College of Agricultural and Environmental Sciences, and the U.S.
Department of Agriculture cooperating.
J. Scott Angle, Dean and Director
35