The Economics of Feedstocks - Calculating Your Cost of Producing Energy Crops and Crop Residues

Madhu Khanna and Nick Paulson

University of Illinois, Urbana-Champaign

Corn Stover

Switchgrass

300 Acre Energy Farm at University of Illinois

Miscanthus

Many Feedstock Choices for Next Generation Biofuels

MiscanthusAgave

Energy Crop Yield Based on Experimental Research on Miscanthus and Switchgrass

Over 10 years of experimental research at the 300 acre Energy Farm at the University of Illinois and several other locations

Calibration and validation of a DayCent Model, allows

Extrapolation of crop yield simulation to entire rainfed US

A decision tool to enable a profitable choice of feedstock Choice among three sources of biomass

Miscanthus, switchgrass and corn stover

Useful for landowners deciding whether and which crop to produce for biomass at a given price and location

Processors and aggregators of biomass seeking to contract for biomass or lease land for vertically integrated production of an energy

crop

Accounting for support from the Biomass Crop Assistance Program (BCAP)

Key Components of Cost of Biomass

Yield per acre

Cost/Type of land for energy crops

Establishment cost and length of

establishment period

Input and equipment costs

Harvesting, storage, transportation

Discount rate: time value of money

Functionality of the Feedstock Cost and Profitability Calculator County specific default values for crop yields and costs

Users can input own/site-specific values discount rate, establishment/input/equipment costs, harvest and storage losses,

lifespan

Calculate the cost of converting land from corn/soy to energy crop

For corn stover: choose the rotation and tillage methods, nutrient application rates

Calculate value of BCAP subsidies

Outputs: Total Expenses, Revenues and Returns per Acre

Available as an Excel File that can be downloaded and operated on your computer from http://farmdoc.illinois.edu/fasttools/index.asp

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<25

25-30

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>50

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1.955886 - 4.000000

4.000001 - 4.500000

4.500001 - 5.000000

5.000001 - 5.500000

5.500001 - 6.000000

6.000001 - 6.500000

6.500001 - 6.927491

Low Quality Land

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80-100

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Yields vary across locations and with land quality

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2.507102 - 7.000000

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12.000001 - 14.707239

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Miscanthus

Switchgrass

Corn

Soybean

High Quality land

Cost of energy crops lower on low quality land

Miscanthus and switchgrass yields are 5-10% lower on low quality land compared to high quality land

But lower cost of low quality land more than offsets this

Land quality affects the opportunity cost of converting land for energy crops

Highest foregone returns that could be earned with an alternative use of the land

Fixed cost: results in high per ton cost of feedstock with low yields

On high quality land: profits from row crops: corn/soybean for cropland

On low quality land : Conservation Reserve Program rental payment

Breakeven Price Calculation Price needed each year of the life of the energy crop for the

present value of revenues = present value of costs of production. It will decrease

If the lifespan of the crop is longer Yield is higher Establishment cost is lower Opportunity cost of land is lower Discount rate is lower

For corn stover: Price needed to cover the incremental costs of collecting, harvesting, storing and adding replacement fertilizer. It decreases With yield With collection rates: higher with no-till practice

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2.670931 - 20.000000

20.000001 - 40.000000

40.000001 - 60.000000

60.000001 - 80.000000

80.000001 - 100.000000

100.000001 - 120.000000

120.000001 - 140.000000

140.000001 - 160.000000

160.000001 - 180.000000

180.000001 - 255.850042

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25.758073 - 20.000000

20.000001 - 40.000000

40.000001 - 60.000000

60.000001 - 80.000000

80.000001 - 100.000000

100.000001 - 120.000000

120.000001 - 140.000000

140.000001 - 160.000000

160.000001 - 180.000000

180.000001 - 100.975333

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20 - 40

40 - 60

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> 180

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-39.462847 - 20.000000

20.000001 - 40.000000

40.000001 - 60.000000

60.000001 - 80.000000

80.000001 - 100.000000

100.000001 - 120.000000

120.000001 - 140.000000

140.000001 - 160.000000

160.000001 - 180.000000

180.000001 - 242.166488

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Breakeven Prices of Miscanthus and Switchgrass $ per ton

Marginal LandSwitchgrass

Cropland

Miscanthus

Cost of Corn Stover Least Cost Feedstock by County

Competitiveness of Feedstocks Differs Across Locations

Biomass Crop Assistance Program: Lowers the break-even price of biomass

Features of BCAP built into the calculator

Matching payments: $20 per ton for up to 2 years

Establishment cost share: 50% with a cap of $500 per acre

Annual payments for up to 5 years

Based on CRP rental rates for cropland

Based on pastureland rental rates for cropland-pasture

Reduced once harvesting starts depending on the type of facility the biomass is being sold to

$0.00

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Miscanthus Switchgrass Stover

Bre

ak-e

ven

Bio

mas

s P

rice

($/

ton

)Break-even Biomass Price by Type

Marion County, IL

w/o BCAP w BCAP

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Miscanthus Switchgrass Stover

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s P

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)

Break-even Biomass Price by Type Talladega County, AL

w/o BCAP w BCAP

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-81.241677 - -30.000000

-29.999999 - -20.000000

-19.999999 - -10.000000

-9.999999 - 0.000000

0.000001 - 10.000000

10.000001 - 20.000000

20.000001 - 30.000000

30.000001 - 140.484825

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< -30

-30 - -20

-20 - -10

-10 - 0

0 - 10

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>30

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Risk Premium $ per ton

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(0, 0.55]

(0.55, 0.7]

(0.7, 0.85]

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> 2.5

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0.037131 - 0.550000

0.550001 - 0.700000

0.700001 - 0.850000

0.850001 - 1.000000

1.000001 - 1.500000

1.500001 - 2.000000

2.000001 - 2.500000

2.500001 - 5.585796

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(0, 0.55]

(0.55, 0.7]

(0.7, 0.85]

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> 2.5

Yield Riskiness Relative to Corn

Miscanthus

Switchgrass

Planned additions

Extending the Feedstock Cost Calculator

To poplar and energy cane

Life cycle greenhouse gas emissions intensity per ton of biomass

Riskiness of yield and income with biomass production

Feedstock Cost Calculator available at: http://farmdoc.illinois.edu/fasttools/index.asp

Send feedback and comments to: khanna1@Illinois.edu

Publications Dwivedi, P., W. Wang, T. Hudiburg, D. Jaiswal, W. Parton, S. Long, E.

DeLucia, and M. Khanna, “Cost of Abating Greenhouse Gas Emissions with Cellulosic Ethanol. Environmental Science and Technology,” 49(4): 2512-2522, 2015

Song, Y., A. K. Jain, W. Landuyt, H.S. Kheshgi, and M. Khanna “ Estimates of Biomass Yield for Perennial Bioenergy Grasses in the United States,” Bioenergy Research doi 10.1007/s12155-014-9546-1, 2014

Miao, R. and M. Khanna, “Are Bioenergy Crops Riskier than Corn? Implications for Biomass Price,” Choices, 29(1), 6 pages, 2014

Jain, A., M. Khanna, M. Erickson and H. Huang, “An Integrated Biogeochemical and Economic Analysis of Bioenergy Crops in the Midwestern United States,” Global Change Biology Bioenergy, 2: 217–234, 2010

Khanna, M., B. Dhungana and J. Clifton-Brown, “Costs of Producing Miscanthus and Switchgrass for Bioenergy in Illinois,” Biomass and Bioenergy, 32: 482 – 493, 2008.

Khanna, M., “Cellulosic Biofuels: Are They Economically Viable and Environmentally Sustainable?” Choices, 3rd Quarter 23(3): 16-21, 2008