4.2 Conventional bioethanol production costs

Bioethanol production costs are determined by installed capital costs, feedstock costs (which are a function of farming costs, productivity and market supply/ demand), operation and maintenance costs and effi-ciency. However, total production costs for conventional bioethanol products are dominated by feedstock costs. Given that the conversion efficiency of conventional biofuels is approaching its limits, cost reduction opportunities for conventional biofuels are limited.

Total installed costs for bioethanol plants

The cost of a corn ethanol plant in the United States per annual unit of production capacity is around USD 0.7 to USD 0.75 litre/year (Iowa State University, 2013 and APEC, 2010). This is similar to other grain-based plants. Around three-quarters of the total installed costs for a dry mill corn ethanol plant in the United States derives from the EPC contract for the plant's main processes and installations (Figure 4.4). The largest remaining significant investment is for working capital.

Figure 4.4: Total installed capital cost breakdown for a typical dry mill corn ethanol plant in the United States

Sources: Iowa State University, 2013 and Kwiatkowski et al., 2006.

The engineering, procurement and construction component of an ethanol plant will include the following major components (APEC, 2010):

  • Milling/crushing components (sugarcane);
  • Cooking tanks (grain ethanol);
  • Fermentation tanks;
  • Distillation and evaporation columns and piping;
  • Dehydration (molecular sieve technology);
  • Centrifuges;
  • Drying systems (for the distiller grains);
  • Boilers;
  • Thermal oxidizers;
  • Ethanol storage and loadout of the ethanol for delivery;
  • Cooling towers;
  • Wastewater treatment/digesters;
  • Makeup water treatment and storage;
  • Electrical/instrumentation/distributed control system;
  • Plant air; and
  • Miscellaneous plant systems and equipment.

The largest equipment costs are for co-product processing and handling, which account for 38% of the total equipment costs and 28% of the total costs and the fermentation system (23% of equipment costs and 16% of total costs). The ethanol processing requirements of the system account for 17% of total equipment costs and 12% of total costs.

The capital costs of ethanol plants that use sugar cane as the feedstock are typically higher, on a like-for-like basis, than for those that use grains. This is because the feedstock handling equipment tends to be more expensive. However, the impact of local costs on the total installed cost can be significant and an analysis of the capital costs of a United States corn ethanol plant and a Brazilian sugar cane plant suggest that for a large plant (110-135 Ml/year) the capital costs per litre of annual capacity may be similar, given the lower local cost component in Brazil (APEC, 2010).

Feedstock costs of ethanol plants

Total operating costs for ethanol plants include the cost of feedstock, chemicals and yeasts, transport of feedstock to the site, energy costs, labour, maintenance, insurance and other operating costs. However, by far the largest component of operating costs for conventional ethanol plants, whether they are based on sugar or starch crops, is the cost of feedstock. This makes the economics of production heavily dependent on movements in the local and global markets for the feedstock used.

In the United States in 2012, feedstock accounted for around 80% of total production costs, given corn prices ranged from around USD 6 to USD 7.9/bushel (Figure 4.5). This may fall to 75% in 2013 (USDA, 2013 and IRENA analysis) in line with lower corn prices. In Brazil, sugar cane represents a lower proportion of total costs due to low production costs for sugar cane. In 2011, sugar cane costs represented around 60-70% of the total revenue received for the ethanol produced depending on whether the product produced is hydrous or anhydrous ethanol (Figure 4.6).

Figure 4.5: Estimated production costs for corn ethanol in the United States at market prices for corn, 2005 to 2013

Source: Iowa State University, 2013

Figure 4.6: Sugar cane ethanol producer prices and feedstock costs in Brazil, 2002 to 2012

Sources: CEPEA, 2012 and 2013 and UNICA, 2013.

Since feedstock prices are such a major part of total ethanol production costs, movements in world, regional and local prices of these inputs have a large impact on the cost of production. Global food prices have been trending higher over the last 12 years, in part due to higher input costs (Figure 4.7). This is especially true of liquid fossil fuel energy inputs and inputs like fertiliser, whose prices are heavily influenced by energy costs. Sustained economic growth over this period has also pushed up the demand for food. Meanwhile, the growing demand for biofuels has also contributed to some extent, although analysis of this area has yet to reach agreement on the relative weight of different factors.

Although prices are an important consideration, the overall feedstock costs are also determined by the yield of ethanol from each feedstock. Table 4.1 presents typical yields for different feedstocks. The yields per tonne of input from conventional biofuels, controlling for variations in starch or sugar content from year to year, have generally approached their economic limits. However, incremental improvements in process design, as well as better breeding or engineering of feedstock species to result in more efficient ethanol conversion should provide small incremental improvements in yield in the future. It may also reduce conversion process costs.

Figure 4.7: Global prices for food-based biofuel feedstocks and crude oil, 2000 to 2012

Source: World Bank, 2013.

Table 4.1: Conventional bioethanol feedstock properties and yields

Note: This assumes 56 pounds/bushel for shelled corn and 60 pounds/bushel for wheat. Corn prices are for the State of Iowa, while global corn prices were in the range USD 267-333/t (World Bank, 2013).

Sources: Based on Figure 4.7 and AGMRC, 2013; APEC, 2010; CEPEA, 2012; Clarke, 2008; Drapcho, 2008; Perrin, 2009; and Shapouri, 2006.

The total cost of feedstock for ethanol production from conventional processes is presented in Table 4.1. The ranges presented take into account the different ranges for ethanol yield per tonne of feedstock as well as high and low feedstock prices in 2012. Biofuel yields per tonne of feedstock in the short term for conventional biofuels have evolved modestly. This is due to the generally well optimised production process. This means that feedstock costs will closely follow the commodity prices for the food-based inputs.

Other operating costs of ethanol plants

The other main operating costs of ethanol plants are electricity, process heat (i.e. from gas), enzymes, yeasts, chemicals, denaturant, labour, maintenance and repairs, insurance, water and other miscellaneous expenses. For corn and other grain ethanol plants, the largest expense is typically for the natural gas providing process heat.

This can represent 35-45% of the non-feedstock other operating costs in the United States depending on natural gas prices (Figure 4.8).20

Other operating costs for sugar cane ethanol in Brazil are lower than for corn-based ethanol in the United States. This is because heat for process needs and all the electricity needs of the plant are provided by combusting the bagasse produced in combined heat and power (CHP) plants. This does however, require higher initial investment. The amount of bagasse available from etha-nol production is much larger than the process heat and electricity needs. Significant electricity can be exported to the grid, which can significantly improve the economics of production.

The value of co-products arising from ethanol production

The production of ethanol from sugar cane or grain creates significant quantities of co-products from the feedstock. In the case of grain, dried (or wet) distiller grain (DDGS) can be produced after milling and fermentation and then sold as feed.21 In the case of sugar cane etha-nol, bagasse can be combusted to provide process heat and electricity for the plant's process needs, with sig-nificant electricity available over and above these needs for export. The sale of these co-products improves the economics of ethanol production.

Figure 4.8: Other operating costs for ethanol production from corn in the United States and sugar cane in Brazil

Sources: APEC, 2010 and Iowa State University, 2013.

Corn and DDGS prices closely follow each other, given that DDGS are a co-product of ethanol production from corn (Figure 4.9). Around 30% of DDGS by weight can be produced per kilogramme of corn used in ethanol plants. Unlike modified wet distiller grain (MWDGS), the additional revenue from DDGS needs to be offset against the additional natural gas required to reduce the moisture content. This is around 4.2 GJ/tonne of DDGS and represents an incremental cost for DDGS of around USD 20 to USD 22/tonne. This assumes industrial gas prices of around USD 5.2/GJ in the fourth quarter of 2012 (Iowa State University, 2013 and Perrin, 2009). These incremental costs are typically more than offset by the additional value of DDGS over MWDGS of around USD 140 to USD 155/tonne at the beginning of 2013 in the mid-western United States markets (USDA, 2013).

The production of ethanol from sugar cane creates large quantities of bagasse that can be burned to provide process heat and electricity, as well as electricity for export.22 For a stand-alone ethanol plant, the use of high efficiency boilers to produce steam to drive turbines and create electricity would increase capital costs by around USD 40 to USD 60 million (28% to 42%). This is for a plant producing 1 000 m3/day of anhydrous ethanol, but it would yield electricity for sale to the grid of 68 and 155 kWh/tonne of sugar cane (Dias, 2010).23 The larger incremental investment is required where, in addition to burning bagasse, around half the harvested sugar cane leaves and tops are not burned in the field, but at the ethanol plant. This more than doubles the amount of electricity available for export to 155 kWh/ tonne of sugar cane. In Brazil, the value of the electricity exported by burning bagasse reduces the cost of etha-nol produced by around 8-10% on average. However, burning the sugar cane leaves and tops as well in larger boilers and steam turbines can reduce the cost of etha-nol production as much as 15% compared to case where all electricity is purchased from the grid.

Figure 4.9: Weekly Iowa corn and dried distillers grain prices, October 2006 to February 2013

Source: Iowa State University, 2013.

Total ethanol production costs

Figure 4.10 presents historical producer prices for etha-nol in the United States and Brazil, as well as estimated production cost ranges in 2012. Feedstock costs dominate conventional ethanol costs. It is estimated that they accounted for around 80% of production costs in 2012 for corn ethanol in the United States. Figure 4.10 also highlights the major impact of the sale of co-products has on estimated production costs. In 2012, corn ethanol production costs in the United States would have been USD 0.26 to USD 0.36/lge higher than presented if the sales of DDGS were excluded.

Total production costs for Brazilian sugar cane ethanol in 2012 are estimated to have been between USD 0.69 to USD 1.03/lge, compared to average producer prices of around USD 0.95/lge in 2012. The increases in Brazilian prices and costs between 2009 and 2011 were driven by a combination of rising sugar cane prices and a strengthening of the Brazilian Real against the United States dollar. Sugar cane prices for 2012 appear to have declined slightly from their highs in 2011, while the Brazilian Real also weakened against the United States dollar.

Corn ethanol production costs have risen steadily in the United States since 2010 as corn prices rose. Corn prices appear to have stabilised, but at elevated levels compared to prices prior to 2010.

With the increase in corn prices, ethanol production from wheat in 2012 would have been, theoretically, more profitable than corn ethanol production in the United States in some cases. However, the additional investment required to switch over mills to be able to handle and process wheat means it is unlikely that many plants in the United States will risk this investment being stranded by a return of more normal price premiums for wheat over corn in the future.

Figure 4.10: Average producer prices for 2002 to 2012 and estimated production cost ranges for conventional bioethanol feedstocks in 2012

Sources: Based on Table 4.1, Figure 4.8, APEC, 2010; Dias, 2010; and Iowa State University, 2013.

20 Natural gas prices in the United States increased in the second half of 2012, as the market corrected from very low price levels that were the result of weak economic activity and the shale gas boom. Further price rises may occur in the short-term if economic growth accelerates.

21 DDGS is something of a misnomer, as it still contains around 10% moisture. This is significantly lower than MWDGS, which contains about 50-55% moisture, while wet distiller grain typically contain around 65-70% moisture.

22 Advanced ethanol plants will also be able to convert this and other cuttings from the cane fields into lignocellulosic ethanol.

23 This compares with the ethanol plant's own demand of 12 kWh/ tonne of sugar cane where sugar cane preparation and pressing is mechanical, and 30 kWh/tonne where it is driven by electric motors.