4 Economic Hurdles To Cellulosic-Based Biofuels
Apart from the basic problem of market size potential, there is a more fundamental problem in the development of cellulosic-based biofuels. It is simple economics.
In the November CropLife issue, Sano Shimoda, founder and president of BioScience Securities, discussed the four economic ag-related hurdles to the development of a sustainable/commercially viable cellulosics biofuel industry. They are:
• Feedstock Costs. Despite the large quantity of ag residues, feedstock prices will be high. Ag residue has significant economic value to the grower: soil fertility, reduced erosion, maintaining fertility and structure, and retaining moisture. In addition, the amount of ag residue that can be safely removed, without impairing the above factors, could vary quite dramatically from field to field. Early commercial development will require sizable subsidy payments to growers, beyond a typical $20 to $30 per ton price for baled ag residue. It is quite possible that ag residue such as corn stover might be priced at costs greater than $50 to $75 per ton.
In addition, market competition from the recognition that ag residue is to be valued as a co-product could result in much higher prices. Value could also be influenced by competition from new developing uses such as BioPower (biomass-fired power plants).
• Harvesting, Transportation, Supply Logistics. It has long been recognized that the harvesting and supply logistics of dealing with high volume and bulky ag residues will be costly, whether the biorefinery system is centralized or not. While many companies are working on prototypes, new harvesting equipment has to be commercialized and new transportation/supply/storage logistics/facilities will have to be built. It is clear that growers will look at incremental net revenues (less any costs incurred) derived from the sale of ag residues. However, given the weather dependent uncertainty over the fall harvest window, growers will not want to slow down for ag residue removal. Also, ag residue removal could increase soil compaction — a negative for crop growth and yields in the following growing season.
• Supply Risks. Some biomass sources such as municipal solid waste negate the need for large volume storage facilities. On the other hand, ag residues are produced once a year (energy crops, which are perennials, have the advantage of potential multiple harvests during the years). In contrast to corn, there is need to develop a massive broad area storage infrastructure for ag residues, whose storage conditions have to be controlled to minimize deterioration in quality. What is underestimated is the need for additional emergency supply reserves to ensure availability should adverse weather conditions reduce local supply availability.
• New Business Models. Unlike major row crops, there is the question as to whether futures markets for major ag residues can be developed to reduce financial risks. Otherwise, new business models, possibly multi-year contracts, will have to be developed to provide revenue/profit visibility for the grower and cellulosic biofuels producer, as well as security of supply for commercial operations.