Agriculture as a Producer
of Energy
Vernon R. Eidman
Department of Applied Economics
University of Minnesota
1
Purpose of Paper
• Document the amount of energy used
by the U.S. economy and agriculture’s
role in supplying it.
• Review current state of technology in
energy production from agricultural
biomass.
• Summarize recent literature on
agriculture’s potential to supply energy.
2
U.S. economy consumed 97.1
quadrillion Btu of energy in 2001.
Petroleum and Petroleum Products
39%
Natural Gas
24%
Coal
23%
Nuclear
8.2%
Renewables
5.8%
Net imports make up 27% of total energy
consumed, 60% of petroleum and 18% of
natural gas.
3
U.S. Renewable Energy Flows as
a Percentage of Total, 2001
Hydroelectric
Geothermal
Solar
Wood
Waste
Ethanol and Biodiesel
Wind
Total Renewables
2.36
0.32
0.06
2.24
0.57
0.15
0.06
5.76
4
Production of ethanol, biodiesel, and
electricity generated from wind turbines
has been increasing rapidly.
• 2003 ethanol production, 2,810 million gallons, was
up 32% from 2002, and represented 2.1% of U.S.
gasoline supply.
• 2003 biodiesel production, 20 million gallons, was up
33% from 2002 and represented 0.05% of U.S.
diesel consumption in 2003.
• Electricity generated from wind in 2002 was 10.5
million megawatts, up 56% over 2001, and
represented 0.3% of U.S. electricity consumption.
5
Real prices of gasoline, diesel and natural gas
have been higher during the 2000-2003 period
than for 1994-1999
• Average gasoline and diesel prices have been
35% higher.
• Natural gas prices have been 26% higher.
• Real electricity prices have been relatively
constant over the past 8 years.
6
Energy Production from
Agricultural Biomass:
Technology and Costs
7
Ethanol
8
Ethanol from Starch
• Shapouri, et.al. USDA’s 1998 Ethanol Cost of
Production Survey
– Wet-mill processing grain
– Dry-mill processing grain
– Dry-mill processing waste starch and sugar
• Upper Midwest study conducted in 2003
reflects state of the art for dry-mill operations
processing grain
9
Table 7:
Ethanol from Starch and Sugar
Feedstock
1998 USDA Survey
Grain
Grain
Non-grain
Tiffany &
Eidman
Corn
Wet-mill
Dry-mill
Dry-mill
Dry-mill
Yield (Gallons / Bushel)
2.6800
2.6400
N/A
2.8900
Feedstock Cost ($ / Gallon)
0.9065
0.8151
0.2000
0.7600
By-product Credits ($ / Gallon)
0.4270
0.2806
0.0009
0.2674
Net Feedstock Cost ($ / Gallon)
0.4795
0.5345
0.1910
0.4926
Operating Cost ($ / Gallon)
0.4597
0.4171
0.4264
0.4408
Net Feedstock and Operating Cost
($ / Gallon)
0.9392
0.9516
0.6174
0.9334
a
a
a
0.1958b
Process
Capital Cost ($ / Gallon)
N/A
N/A
N/A
1.1292
Breakeven Cost ($ / Gallon)
a
Reported levels of investment per gallon of annual capacity ranged from $1.07 to $2.39. No
capital costs per gallon were reported.
b
The investment cost was $1.25 per gallon. Annual depreciation of $0.0833 per gallon plus
interest on debt and return to equity capital of $0.1125 per gallon.
Rack Ethanol Prices are highly dependent
on the wholesale gasoline price.
• The demand for ethanol as an
oxygenate can be expected to
command a premium price when
ethanol supplies are short.
• Ethanol’s demand as a fuel extender is
driven largely by the wholesale price of
gasoline.
11
Ethanol from Lignocellulosic
Biomass
• Lignocellulosic biomass is the leafy or
woody part of plants. Sources for
ethanol production include: wood, wood
waste, paper, corn stover, sugar cane
bagasse, rice and wheat straw,
switchgrass, etc.
• Primary components are cellulose,
hemicellulose, and lignin.
12
National Renewable Energy Laboratory is developing a
conversion process called “co-current dilute acid
prehydrolysis and enzymatic hydrolysis. ”
• Pretreat biomass with dilute sulfuric acid to convert
hemicellulose to sugar and other compounds.
• Remove acid and compounds that would be toxic to
fermenting organisms.
• Add cellulase enzyme and maintain temperature to
promote conversion of cellulose to glucose and ferment
sugars to ethanol.
• Separate ethanol from water and solids.
• Burn waste products in a fluidized bed combustor to
produce high pressure steam for electricity and process
heat.
13
There are many uncertainties in the
technology and cost of inputs.
• Three of the most important are:
– The conversion rate
– The cost of the feedstock
– The cost of the cellulase enzyme
14
The estimated cost per gallon
follows Aden et al.(2002)
• The investment and operating costs are
for the nth plant.
• Plant processes 2205 tons per day.
• Plant operates 350 days per year, using
771,750 dry tons of lignocellulosic
biomass.
• Estimated investment cost is $197.4
million.
15
Table 8: Estimated Production Cost per Gallon of Denatured Ethanol Produced from
Lignocellulosic Biomass Based on Aden, et al., Appendix D
Conversion
Rate
Gallons /
Ton
Base Case
67.8
Cost of
Feedstock
$ / Ton
30
50
Future
Case 89.7
30
50
Enzyme
Cost
Per Gal
0.10
Plant Output,
Million Gallons Per Year
Anhydrous
Denatured
Cost / Gal.
Denatured
52.3
55.1
1.34
0.40
1.62
0.10
1.65
0.40
1.93
0.10
69.3
72.9
1.04
0.40
1.32
0.10
1.25
0.40
1.54
Investment
Cost / Gal.
Denatured
3.58
2.71
Speculation on When Commercial Plants May Be Built
to Produce Ethanol from Lignocellulosic Biomass
• There is currently 1 pilot plant in operation.
• Construction on pilot plants may begin over next few
years.
– May have access to niche sources of biomass at favorable
costs.
– May have several small plants in operation by 2010.
• Expected construction time is 2.5 years, suggesting it
is unlikely large-scale plants using the new
technology will be in production in less than 10 years.
17
New Technology in Lignocellulosic
Biomass Processing
• Emphasis on developing cellulase
enzyme that provides higher and more
rapid conversion.
• Development of a biorefinery capable of
producing a range of products – liquid
fuels, power, chemicals.
18
Biodiesel
• Feedstock used
depends on available
supply, quality of
feedstock and price.
• Potential diesel
feedstocks produced in
the United States, 3
year average (1993-95).
Duffield, et.al. U.S.
Biodiesel Development
1998
Soybean oil
51.9
Corn oil
7.2
Cottonseed oil
4.2
Sunflower oil
3.0
Other vegetable oils
3.2
Yellow grease
9.1
Inedible tallow
12.6
Edible tallow
5.2
Lard
3.6
Total
100
19
Feasibility of biodiesel production
facility – Haas et al. 2004
• Continuous-process vegetable oil
transesterification, and ester and glycerol
recovery.
• Assumes partial purification of glycerol and
selling 80% glycerol to industrial glycerol
refiners.
• 10 million gallon per year plant
• Feedstock is crude degummed soybean oil
20
Feasibility of biodiesel production
facility – Haas et al. 2004
• Total investment is $11. 5 million or $1.15 / gallon of
annual capacity.
• 7.4 pounds of soy oil per gallon of biodiesel.
• Operating costs are $0.2550.
• Capital costs are $0.2292 per gallon.
• Sale of co-product 0.128 per gallon.
• Cost per gallon of biodiesel
– $1.83 per gallon with degummed soybean oil costing $0.20 /
pound.
– $2.58 per gallon with degummed soybean oil costing $0.30 /
pound.
21
Electricity from Wind Power
22
EIA estimates generating electricity using wind turbines is
competitive with other sources of energy.a
• New generating capacity for 2010
– Gas is lowest cost, 49.66 mills/Kwh
– Wind is a close second, 50.54 mills/Kwh
• New generating capacity for 2025
– Coal is lowest cost, 53.20 mills/Kwh
– Gas is second, 54.38 mills/Kwh
– Wind is third, 58.33 mills/Kwh
aSource:
EIA, Annual Energy Outlook, 2004.
23
COSTS OF GENERATING ELECTRICITY FROM VARIOUS SOURCES
IN 2010
70
Transmission
MILLS PER KILOWATTHOUR
Fuel
60
O&M
Capital
50
40
30
20
10
0
Coal
Gas combined
Wind
Nuclear
cycle
Source: E.I.A., Annual Energy Outlook2004 w ith Projectsions to 2025
24
Table 12. Electricity Generated by Wind
by State, Millions of Megawatt Hoursa
2001
3.500
California
0.488
Iowa
0.897
Minnesota
0.089
Oregon
1.188
Texas
0.072
Wisconsin
0.365
Wyoming
0.139
All Other States
6.737
U.S. Total
a
Source: Energy Information Administration.
“Total Renewable Net Generation by State,
2001,” Table C6.
The rate of development of generating
capacity from wind has been highly
dependent on the availability of the
Federal Production Tax Credit, which
expired December 31, 2003.
26
Anaerobic Digesters
• Enable large livestock operations and
food processors to deal with a social
problem
• Are management intensive
• Economic feasibility usually rests on
reducing an expense (for disposal of
waste, etc.), and substitution of the gas
produced for purchased fuel and/or use
of the gas to generate electricity
27
Resource Base and Potential
Growth of Bioenergy
• U.S.D.A. Effects on the Farm Economy of a Renewable Fuels
Standard for Motor Vehicle Fuel. Washington, DC: Office of
Energy Policy and New Uses, USDA, 2002.
• De La Torre Ugarte, et.al. The Economic Impacts of Bioenergy
Crop Production on U.S. Agriculture. Agricultural Economics
Report 816. Washington, DC: USDA, Office of Energy Policy and
New Uses, 2003.
• Gallagher, et. al. Biomass From Crop Residues: Costs and Supply
Estimates. Agricultural Economics Report 819. Washington,
DC:USDA, Office of Energy Policy and New Uses, 2003.
28
Summary comments on Projected
Growth in Ethanol and Biodiesel
• Model suggests U.S. can produce 4.4 billion
gallons of ethanol from grain.
• Producing as much as 124 million gallons of
biodiesel from soybean oil causes major
adjustments in other domestic uses and
exports of soybean oil.
• The model results would be somewhat
different starting from current stocks and
prices, but probably not too different.
29
Meeting Clean Air Mandates
without MTBE
• U.S. used 2.4 billion gallons of methyl tertiary
butyl ether (MTBE) during 2002.
• Ethanol has a higher percentage of oxygen
than MTBE and only about 1.2 billion gallons
is needed.
• Ethanol production in 2002 was 2.1 billion
gallons, suggesting ethanol can supply the
demand for oxygenate for gasoline.
30
Blending Biodiesel and
Diesel Fuel
• Blending even small percentages of
biodiesel with petroleum diesel improves
lubricity and reduces emissions.
• U.S. consumed 39,930 million gallons of
diesel fuel.
– 2% blend
gallons of
– 5% blend
gallons of
would require 798.6 million
biodiesel
would require 1,996.5 million
biodiesel
31
Bioenergy Crop production
Wildlife
Management
Scenario
Production
Management
Scenario
Million Acres
19.40
41.90
Million Dry Tons
96.00
188.10
1.54
2.92
Quads
a
Source: De la Torre Ugarte, et. al., Table 15.
32
Biomass from Crop Residue
• Estimated supply functions for crop
residue by region.
• Excluded residue needed for
conservation and erosion control.
• Assumed residue is available at its
opportunity cost
Source: Gallagher, et al.
33
Results on Crop Residue Indicate:
• 2/3 of total industry supply in U.S.
would be available in Corn Belt and ¼
would be available in Great Plains.
• Industry supply is 145 million tons
• 90% of industry supply, 130.5 million
tons, would be available for $35 per ton
34
Summary of Bioenergy Supplies
from Agriculture
• With stronger world petroleum demand,
the demand for ethanol and biodiesel is
expected to remain strong.
– 4.4 billion gallons of ethanol from grain
– 0.1 to 0.2 billion gallons of biodiesel,
although not all from soybean oil
35
Summary of Bioenergy Supplies
from Agriculture
• Producing above levels of ethanol and biodiesel will result in
fewer acres shifting from major crops to switchgrass.
Wildlife
Scenario
Bioenergy Crop Production
Adjustment for Corn, S.B.
Acerage
Crop Residue: 90% of Ind.
Supply
Total Lignocellulosic Biomass
Production
Scenario
Million Dry Tons
96.0
188.10
-35.4
-57.4
130.5
130.5
191.1
261.2
36
World Ethanol Production for
All Uses, 2001a
Million Gallons
Percent of World
Americas
5,441.0
61.3
Europe
1,670.7
18.8
Asia
1,576.6
17.8
47.4
0.5
140.8
1.6
8,876.6
100.0
Oceania
Africa
Total
Source: Berg, Christoph. World Ethanol Production 2001. The
Distilling and Ethanol Network. Available at
http://www.distill.com/world_ethanol_production.htm
a
37
EU Biodiesel Industry:
Estimated Production, 2002
Country
Million Gallons
Germany
135.2
France
110.0
Italy
63.1
Austria
7.5
Denmark
3.0
U.K.
0.9
Sweden
0.3
Total
320.0
Source: Foreign Agricultural Service, USDA. EU Biodiesel Industry
Expanding Use of Oilseeds. September 20, 2003. Available at
http://fas.usda.gov.
Conversion from metric tons to gallons based on 7.337 pounds per gallon.
Source is Chevron Products Company. Diesel Fuels Technical Review,
Chevron, USA, 1998, p. 28 & 31.
38
Some Areas for Further Research
• Analyze the role of other crops and imports of
vegetable oils as feedstock for biodiesel.
• Analyze the role of imports and exports in the
development of the biofuels industry.
• Complete a more integrated analysis of the
amount of ethanol from grain, biodiesel and
lignocellulosic biomass that would be supplied
at various price levels, and update this
periodically.
• Study the economic feasibility of biorefining.
39