1. Dry-Grind Ethanol Production: Economic Sensitivity Douglas G. Tiffany Douglas G. Tiffany Research Fellow University of Minnesota

2. Today’s Discussion Today’s Discussion Work arose from “Factors Associated with Success of Fuel Ethanol Producers” written w/ Vernon Eidman Work arose from “Factors Associated with Success of Fuel Ethanol Producers” written w/ Vernon Eidman Funding: USDA Rural Development MN Ag. Experiment Station MN Ag. Experiment Station 1) Briefly establish key factors in dry- grind ethanol production 1) Briefly establish key factors in dry- grind ethanol production 2) Demonstrate economic sensitivity of this technology in this market 2) Demonstrate economic sensitivity of this technology in this market

3. Dry-Grind Technology Dry-Grind Technology Dry-Grind Plants-- now 67% of U.S. production--simpler process, lower capital costs, but refinements are occurring. Dry-Grind Plants-- now 67% of U.S. production--simpler process, lower capital costs, but refinements are occurring. Ethanol from corn has a positive energy balance. (1.34 – 1.51) Ethanol from corn has a positive energy balance. (1.34 – 1.51) –USDA, Argonne Lab, – Michigan State University, Ag. Canada

7. Ethanol Dry-Grind Grind bushel of corn (56 lb.), add water, make mash, cook to kill bacteria, expose starch Grind bushel of corn (56 lb.), add water, make mash, cook to kill bacteria, expose starch Add enzymes for flow & to convert starch to sugar Add enzymes for flow & to convert starch to sugar Introduce Yeasts in Batch Fermenters---- produce beer---- distill the ethanol Introduce Yeasts in Batch Fermenters---- produce beer---- distill the ethanol Products: Products: – ethanol– (2.75 gal.) requires heat to distill – DDGS- (18 lbs.) generally requires drying – CO2-- ( 18 lbs. ) food grade 150 bushel corn yields 413 gallons of ethanol per acre, 2700 pounds of DDGS 150 bushel corn yields 413 gallons of ethanol per acre, 2700 pounds of DDGS

9. Project Goals & Methods Goal: Describe and Quantify Factors of Success in Dry-Grind Ethanol Production Goal: Describe and Quantify Factors of Success in Dry-Grind Ethanol Production Steps in Research Steps in Research –Conduct Interviews of Plant Personnel & Bankers—to Learn Factor Inputs, etc. –Develop Spreadsheets to Measure Plant Profits –Interpret Results – Advise Farmers/Investors, Bankers Policymakers

12. Dry Grind Revenue Categories (5 yr.)* Ethanol Sales 80% Ethanol Sales 80% DDGS Sales 19% DDGS Sales 19% CO2 1% CO2 1% MN Subsidy -0- MN Subsidy -0- Total 100% Total 100%

14. Five Key Factors & Baseline Levels Corn Price---- $2.20 per bushel Corn Price---- $2.20 per bushel Ethanol Price---- $1.15 per gallon Ethanol Price---- $1.15 per gallon Nat. Gas Price----$4.50 per dekatherm Nat. Gas Price----$4.50 per dekatherm Ethanol Yield---- 2.75 gal.(anhyd)/bushel Ethanol Yield---- 2.75 gal.(anhyd)/bushel Capacity Factor of Nameplate----1.20 Capacity Factor of Nameplate----1.20

22. Model Predicts Addl. Value of Higher Total Fermentables in Corn Increase Total Fermentables by 4% Increase Total Fermentables by 4% –Equals $909,450 for typical dry-grind plant; or $.067 per bushel ground. or $.067 per bushel ground. Increase Total Fermentables by 6% Increase Total Fermentables by 6% –Equals $1,338,436 for typical dry-grind plant; or $.086 per bushel ground.

24. Factors of Lesser Importance & Their Baseline Conditions Capital Costs ----------$1.50/gallon denatured Capital Costs ----------$1.50/gallon denatured Percentage of Debt----60% of Cap. Cost Percentage of Debt----60% of Cap. Cost Interest Rate------------7.0% Interest Rate------------7.0% DDGS Price------------$80.00 per Ton DDGS Price------------$80.00 per Ton Electrical Price---------$.06 per kWh Electrical Price---------$.06 per kWh Fed., State, or Local Subs/Incent.----0- Fed., State, or Local Subs/Incent.----0-

30. Conclusions: Sensitivities Favorable economics with low corn prices, high gasoline prices, low natural gas prices, low interest rates. Favorable economics with low corn prices, high gasoline prices, low natural gas prices, low interest rates. Corn Price--- Zero profits above $2.43 per bu. Corn Price--- Zero profits above $2.43 per bu. Ethanol Price--- @$1.15--- profits of $.15/ bu., Ethanol Price--- @$1.15--- profits of $.15/ bu., @$1.35--- profits of $.56/ bu. @$1.35--- profits of $.56/ bu. Natural Gas Price rise to ($6.85) from baseline levels of $4.50/ dekatherm wipes-out profits. Natural Gas Price rise to ($6.85) from baseline levels of $4.50/ dekatherm wipes-out profits. Ethanol Yield per Bushel —very important Ethanol Yield per Bushel —very important 2.75 gal./bu (typical today) 2.75 gal./bu (typical today) 2.36 gal./bu--- wipes out profits 2.36 gal./bu--- wipes out profits

32. Plant Manager Observations--Technical Improved Enzymes and Yeast in last two years Improved Enzymes and Yeast in last two years –Tolerance to Alcohol % (13.5%-now 19.7%), –Tolerance to Higher Temps (can tolerate 100 degrees F. for 2-3 hours and still recover) Faster fermentation times - 45-50 hours possible Faster fermentation times - 45-50 hours possible 60%-40% split in Yeast Propagation Strategies 60%-40% split in Yeast Propagation Strategies - 60% “continuous yeast propagators” - many batches in same tank; antibiotics used - many batches in same tank; antibiotics used - 40% batch yeast, make fresh batches from purchased yeast - 40% batch yeast, make fresh batches from purchased yeast Expect to process most of fiber in corn kernel with improved cellulases in the future Expect to process most of fiber in corn kernel with improved cellulases in the future

33. Research Topics: Derive More Revenue or Cut Costs of Stillage DDGS DDGS –Improvement in DDGS Attributes –Efforts to “Brand” and Standardize DDGS –Educate Users, Develop Markets –Development of Yeast Extract Products to Reduce Antibiotic Use in Livestock Utilization of Liquid Stillage or Syrup Utilization of Liquid Stillage or Syrup Utilization of DDGS as Biomass Fuel Utilization of DDGS as Biomass Fuel Better Storage, Utilization of Wet DDGS Better Storage, Utilization of Wet DDGS

34. Technology Changes Pending Quick-Germ Technology– uses more enzymes, depends on favorable sale of corn oil (Univ. of Illinois) Quick-Germ Technology– uses more enzymes, depends on favorable sale of corn oil (Univ. of Illinois) Quick-Fiber Technology—offers opportunity for greater through-put, but altered DDGS product characteristics ( Univ. of Illinois) Quick-Fiber Technology—offers opportunity for greater through-put, but altered DDGS product characteristics ( Univ. of Illinois) Continuous vs. Batch Fermentation with stripping of ethanol--- USDA, ARS Continuous vs. Batch Fermentation with stripping of ethanol--- USDA, ARS Pervaporation—use of membranes to filter ethanol from broth (USDA, ARS) Pervaporation—use of membranes to filter ethanol from broth (USDA, ARS)

35. Conclusions: Dry-Mill Production Found Sensitivity of Dry Mill Ethanol Production to Various Factors; Historical Volatility of Returns Found Sensitivity of Dry Mill Ethanol Production to Various Factors; Historical Volatility of Returns High Volume, often low margin business; however, some times of excellent returns have been modeled and also reported High Volume, often low margin business; however, some times of excellent returns have been modeled and also reported Processing business demanding superior management of sensitive microbes, quality control Processing business demanding superior management of sensitive microbes, quality control Major efforts to conserve energy in operations Major efforts to conserve energy in operations Expect this technology to evolve and improve further until major improvements in ligno-cellulosic processes are able to make that technology more competitive. Expect this technology to evolve and improve further until major improvements in ligno-cellulosic processes are able to make that technology more competitive.

36. Contact Information dtiffany@dept.agecon.umn.edu dtiffany@dept.agecon.umn.edu dtiffany@dept.agecon.umn.edu (612) 625-6715 (612) 625-6715 Spreadsheet: http://www.agmrc.org/energy/info/ Spreadsheet: http://www.agmrc.org/energy/info/ http://www.agmrc.org/energy/info/ ethanolsuccess.xls ethanolsuccess.xls Original paper: Original paper: www.apec.umn.edu/staff/dtiffany/ www.apec.umn.edu/staff/dtiffany/www.apec.umn.edu/staff/dtiffany/ staffpaperp03-7.pdf staffpaperp03-7.pdf