3 Ethanol Production: Corn and Sorghum RecoveryPretreatmentFermentationCorn/Sorghum:StarchesSugarsGlucoseEthanolAmylaseYeast
4 Products of Ethanol Production from Corn or Sorghum Ethanol Gallons/bushel depending on efficiency; 100 mgpy plant uses ~36 million bushelsDDGS Distillers Grains Solubles (“mash”) usually dried (DDGS) for transport to feed mills, but can be pumped wet to adjacent feeding operations.CO2 usually captured and marketed directly by carbon dioxide marketers.
5 Products from ethanol plant Source: Kansas Geological Survey
7 Corn gluten feed (also used as animal feed) Corn germ meal Corn oil Wet mill processWet mill processing plants produce more valuable by-products than the dry mill process. In addition to the ethanol, wet mill plants produce:Corn gluten meal (which can be used as a natural herbicide or as a high protein supplement in animal feeds)Corn gluten feed (also used as animal feed)Corn germ mealCorn oilCarbon dioxide (CO2 for soft drinks or dried ice) andHigh fructose corn syrups.Wet mill plants also cost substantially more to build and have higher operating costs than dry mill processing plants, and hence are usually much bigger than dry mill plants in order to achieve economies of scale.
8 Largely Abandoned Dry Fractionation/Biomass Ethanol Process Feedstock Process ProductsDDGEthanolGrain Dry FractionationWhole Corn, Sorghum, BarleyDDG*Ethanol PlantHi-Pro DDGSThermalBiogasElectrical“Green” EnergyGermGermBiomass Energy ConversionBranAlternate Feedstocks(Wood Waste)* Degermed, Debranned Grain
9 Dried DGS (DDGS) is usually preferred for ease of transportation. Wet DGS and DDGSEthanol plants produce one key product other than ethanol: an ingredient for animal feed known as distillers grains solubles (“mash” or DGS). Cargill in Memphis, Tyson in Pine Bluff, and other poultry, catfish, dairy, and other feed plants prefer DGS to whole grains.Dried DGS (DDGS) is usually preferred for ease of transportation.
11 Energy use in ethanol production Two major costs in ethanol production: natural gas and feedstock (usually corn).Ethanol production requires energy to heat fermentation process.Drying DGS requires most heatDry DGS are in high demand for export.Wet DGS hard to transport, need feedlot next door
12 Energy sources for ethanol plants Natural gasCheaper to installVolatile pricesCoalAdds ~$35 M to cost of plantGives cogeneration capacityWood waste and other cellulose sourcesCan use fluid bed processReadily available and inexpensive at some sites (e.g. Pine Bluff).
13 Local and State Revenue University of Texas, Mississippi State, and University of Missouri studies of ethanol plants of mgpy capacityDirectly create jobs paying more than $37,000 per year (total payroll >$2 million)Additional 120 jobs throughout the regional economy.Impact on regional household income would be at least $79 million during construction and $41 million annually from operations.Contribution to local and state tax revenues will be about $2.4 million during construction and $1.3 million annually.
14 Missouri 2003-2004 campaign resulted in: State income tax credit $200,000 grant for seed moneyProducer credit up to $3.125 M/year for 5 years2005 Missouri legislative session:By January 1, 2008, all gasoline sold in Missouri must contain at least 10% agriculturally derived ethanol.RESULT: These incentives have resulted in $1.5 billion in investment in proposed ethanol developments, four plants are up and running.
15 State consumption and incentives -Tax exemptions- Producer paymentsStates with incentivesbut little productionNo current state incentives but large mandated oxy-fuel and RFG markets encourage ethanol productionStates with significantethanol production butno major state incentivesSource: U.S. Department of Transportation, Federal Highway Administration
16 Federal Regulations and Ethanol Ethanol first started being used as a fuel additive in the late 1970s when EPA began phasing out lead in gasoline. Removing lead from gasoline lowered the octane level of gasoline. Because of its high octane content, ethanol soon established a role as an octane enhancer.The Clean Air Act Amendments of 1990 established the Oxygenated Fuels Program and the Reformulated Gasoline (RFG) to control carbon monoxide and ground-level ozone problems. Both programs require that certain urban areas in “non-attainment” add oxygen to their gasoline: 2.7 percent by weight for oxygenated fuel and 2.0 percent by weight for RFG. Blending ethanol with gasoline is one way to meet the oxygenation requirements. Methyl tertiary butyl ether (MTBE) was also used to meet the requirements but is now being discontinued.
17 Largely due to Government policies, ethanol production grew from about 62 million gallons in 1976 to over 2 billion gallons in 2002Surface TransportationAssistance Act of 1983increased ethanol taxexemption to $0.50/gal and the blender’s income tax credit to $0.50/galEnergy Tax Actof 1978 gaveethanol a $0.40/galcredit on the Federalmotor fuels taxMTBE discovered inCalifornia drinking waterin 1998Regulations under theClean Air ActAmendments of 1990started in 1992RFG beginsin 1995Blender’sIncome taxcredit of$0.40/galIn 1999 CaliforniaGovernor banned MTBEby 12/03Tax Reform Act of 1984increased ethanol taxexemption to $0.60/gal and the blender’s income tax credit to $0.60/galEnergy policyAct of 1992applied ethanoltax credits tolower blendsSource: U.S. Energy Information Administration and USDA, ERS
18 Federal Tax Credit 52 cents/gallon Blenders creditE X 10% = 5.2 cents/gallon E10E X 85% = 44.2 cents/gallon E85Ethanol plants obtain blenders license readilyMalta Bend, Missouri, plantUse of blenders license depends on marketMFA objected to Malta Bend use of blenders creditArkansas plants exporting to Texas would not conflict with local distributors’ blending credit.
19 Energy Policy Act of 2005 Has Major Effect on Bioenergy Development Renewable fuel standard – renewable fuel blended with motor fuel must increase from <4 billion gallons in 2005 to 7.5 billion gallons in 2012Federal fleets required to increase their use of alternative fuelsMTBE banned in the United States within 4 years and immunity to liability disallowed
20 Estimated Effect of the renewable fuels standard (RFS) on future ethanol production USDA baselineHistorical estimates
21 At least 2 billion gallons more are needed to replace MTBE Effect of MTBE banCalifornia alone is expected to consume 1 billion gallons of ethanol by 2010 to replace MTBE.Texas (easily accessible by an Arkansas plant) is expected to require the second highest amount of ethanol to replace MTBE.At least 2 billion gallons more are needed to replace MTBEWall Street Journal, 5/5/2006
22 Both Supply and Demand Policies Increase Ethanol Production Supply Side IncentivesCCC Bioenergy ProgramEnergy Tax Incentives Act of 2003Energy Policy Act of 2005Demand Side IncentiveRenewable Fuels StandardState Mandates
35 GM, Ford and Chrysler will produce 900,000 flex-fuel cars in 2007 Future of ethanol use75% of all new Brazilian cars are flex-fuel cars which can run on E85 (85% ethanol)GM, Ford and Chrysler will produce 900,000 flex-fuel cars in 2007Toyota plans to sell E85 cars in U.S. in 2008Ethanol is still less than 3% of 140 billion gallons of gasoline sold in the U.S. every year.Source: Financial Times, 4/19/06
36 Increase Production of American-made Biofuels ENERGIZING AMERICA: Farmers Fueling Our Energy Independence May 11, 2006 New House BillIncrease Production of American-made BiofuelsDoubles the percentage of renewable fuels sold in America in six years.Extends tax credit for ethanol and biodiesel through 2015 and increases tax benefits to small biofuel producers.Expand the Market for and Distribution of BiofuelsIncreases the percentage of “flex-fuel” vehicles that run on ethanol, or gasoline.In seven years, 75 percent of all cars made in America would be flex-fuel cars.Increases the number of gas stations offering ethanol (E-85) and biodiesel through new incentives and requirements.Encourage Local Domestic OwnershipProvides federal incentives to smaller ethanol and biofuel plants, so that independent, locally-owned facilities that produce biofuels can grow and thrive, improving our rural communities.
38 Feedstock is drawback in Delta Ethanol production in Arkansas faces a current lack of feedstock (corn or sorghum), higher price of grain, and aflatoxin fears.A feasibility analysis by BBI ( shows 36 million bushels of corn can be obtained locally and by rail at Stuttgart for $2.61 per bushel and locally, by rail and barge at Helena for $2.60/bushel.To maximize benefits to Arkansas, feedstock availability must increase.
39 Corn is excellent rotation crop for cotton Corn in the DeltaCorn is excellent rotation crop for cottonIf the 250,000 acres decrease in rice acres projected early this year in Arkansas had all gone into corn production, the 36 million bushels needed for a 100 mgpy plant could be achieved.Besides price increase, what will help farmers decide to grow corn? Ownership.
40 Farmers pledge delivery of corn bushels to gain equity in plant. BenefitsPlant has more secure and local supply.Arkansas’ economic benefits increase.Farmers gain ownership in plant.Local commitment to plant increases.DrawbacksExpected yields may not materialize and thus farmers may not deliver as promised.
41 Historic Return on Investment Even small (20 mgpy) plants and a replay of the lowest historical prices of ethanol, DDGS, and CO2 would result in at least a 12% return on investment 83.3% of the time.A study of five ethanol facilities in Iowa found an average return on investment of 35% for the period
42 Bootheel Agri-Energy LLC SIKESTON, MO, April 5, 2006 (AP) - An ethanol plant that's planned for southeast Missouri will provide up to 65 jobs. Construction of the $205 million plant in Sikeston is expected to start in November.Bootheel Agri-Energy says it will buy 160 acres in an industrial park for a plant that will produce 100 million gallons a year. Once completed, it will be the largest ethanol plant in the state and one of the largest in the country.The plant will use about 35 million bushels of corn a year. Company officials announced the plant in November officials when they had narrowed the list to three sites in Sikeston and Scott City.
43 Return on investment today Bootheel Agri-Energy LLC in Sikeston, Missouri expects 100% return on investment at current prices.Not on river, will bring in corn by rail & truckCoal-fired, not natural gasAt $1.46/gal, 30-40% ROI is projected depending on plant size and fuel source.
44 100 mgpy plant has gross margin of $107,000,000. Gross marginsAt $1.86/gallon value of ethanol and 24 cents/gallon for DDGS, value of ethanol is $2.10.Subtracting corn at 70 cents/gallon and natural gas at 33 cents record gross margin of $1.07.100 mgpy plant has gross margin of $107,000,000.Source: FAPRI, University of Missouri
45 Ethanol sold on spot market has reached above $3/gallon. Current pricesMost ethanol is sold on flat price 6 month contracts which are currently over $2.50 per gallon.Ethanol sold on spot market has reached above $3/gallon.
46 State Average Fuel Ethanol Rack Prices provided by Axxis Petroleum, www.axxispetro.com Date: Thursday, May 11, Iowa: Illinois: Kansas: Michigan: Minnesota: Missouri: North Dakota: Nebraska: South Dakota: Wisconsin:
47 U.S. currently uses approximately 138 billion gallons of gas ENERGY OVERVIEWU.S. currently uses approximately138 billion gallons of gas35 billion gallons of diesel8 billion gallons of ethanol will be needed just to replace MTBE.
48 Sikeston plant raised $70 million in 5 months. Investing in EthanolShare prices of ethanol producing companies are rapidly increasing. The largest U.S. ethanol producer ADM has seen its share price climb 85% so far this year.May 10, 2006, ADM announced plans to increase annual production 50% in next 2 years to billion gallons.Pacific Ethanol, plant under construction, Bill Gates invested $85 million for next 4 plants.Sikeston plant raised $70 million in 5 months.
49 Most ethanol plants privately held by farmers. Ethanol IPOsMost ethanol plants privately held by farmers.2nd largest ethanol producer, Verasun, raised $419.8m in an IPO. Shares closed >30% above the offer price. Financial Times, 6/15/06.Hawkeye Holdings and US Bioenergy will have IPOs this week and in October (respectively).Private placement is quicker due to less SEC regulation, but must limit number of investors.
50 Arkansas has advantages over Midwest Whether return on investment will be higher or lower at a Delta plant than at plants in the Upper Midwest will be influenced by demand from Texas for ethanol to replace MTBE. Some analysts contend Texas will require the second highest amount of ethanol to replace MTBE of any state. Demand for co-products of ethanol production (DDGS) by feedmills in Memphis (Cargill), Mississippi (poultry and catfish feed plants), and Arkansas (poultry and catfish) could also make return on investment higher from a Delta plant than from Midwestern plants.
51 Feasibility analysis on best sites for ethanol in Arkansas. Available following receipt of signed non-disclosure/confidentiality agreementFeasibility analysis on best sites for ethanol in Arkansas.All financials for business plan5 year pro forma income statementsExpected return on investmentEstimated equity neededPlant employment structure
52 $51,000 grant awarded by USDA/VAPG will: Next steps$51,000 grant awarded by USDA/VAPG will:Establish foundation for equity driveFinalize ownership teamIncorporate business structureLLC or hybrid New Generation Cooperative/LLCGrant must be matched by local contributions before funds will be released by USDA.
53 Ownership group will be established this fall Two phase equity driveAccredited investors only, private placementRecruit ~100 investors at $30,000 each$3 millionPurchase discounted shares at 50 cents on dollarPerform engineering studies, construction plans, hire management, develop final prospectus2nd phase: two classes of stockraise at least $60-70 millioncommitted delivery of 15 million bushels
56 Results of Sikeston Equity Drive We plan to pattern our efforts on the recent equity drive for an ethanol plant in Sikeston, Missouri. Raised more than $70 million in less than 6 months. The Sikeston group chose a private placement over a public offering to save legal costs and time (to take advantage of high investor interest and increasing ethanol prices).
57 Is the future even brighter for ethanol? 1908 original Model T Ford ran solely on ethanolEthanol is still less than 3 percent of the nation's 140 billion-gallon annual demand for gasoline.
58 Commodity Credit Corporation Section 9010: Continuation of the Bioenergy ProgramLead Agency: Farm Service AgencyKey Staff Contact: Jim Goff,Established by USDA in FY 2001 to encourage ethanol and biodiesel production. Cash payments available from the CCC to bioenergy producers compensating them for a portion of their increased commodity purchases:Under 65 million gallons, payment on 1 bushel for every 2.5 bushels of corn or soybeans used for production65 million gallons or more, payment will be 1 bushel for every 3.5 bushels of corn or soybeans used for production