Tennessee’s Bioenergy Future: Opportunities and Challenges Burley Stabilization Corporation Board Meeting January 15, 2007 Kelly Tiller Agricultural Policy Analysis Center The University of Tennessee

U.S. Corn Ethanol Production 2012 RFS: 7.5 B gallons Total Capacity (as of 11/27/06) = existing + under construction + under expansion Could potentially double corn-ethanol capacity Tennessee crop farmers benefit from corn-ethanol, wherever plants are located There’s a limit to the amount of corn-based ethanol we can sustainably produce without disrupting the ag sector Source: Renewable Fuels Association

U.S. Energy Consumption Biomass Consumption Million dry tons/year Forest products industry Wood residues Pulping liquors Urban wood & food & other process residues Fuelwood (residential/commercial & electric utilities Biofuels Bioproducts TOTAL 44 52 35 18 6 190 Source: Energy Information Administration (EIA), 2006

Transportation Fuel Focus Today, 97% of our transportation fuel comes from petroleum sources

Energy In vs. Energy Out * The road to petroleum displacement is paved with cellulosic biomass * Some newer estimates of cellulosic FER >10 Source: J. Sheehan & M. Wang (2003)

Cellulosic Ethanol: Good to Go We can make lignocellulosic ethanol today Proven at a laboratory scale For $3.00/gallon or more (> double corn-to-ethanol cost) There are no commercial facilities operating in the U.S. today Abengoa facility near completion in Spain, expected to produce 54 MGY from wheat straw Iogen test plant running on wheat straw in Canada, commercial facility planned in Idaho Broin corn stover & grain facility near groundbreaking (Iowa) Several planned or under consideration e.g., DuPont, Mascoma, Potlatch, Xethanol Making cellulosic ethanol economically feasible is a major part of the President’s Biofuels Initiative DOE projects cellulosic ethanol at $1.07/gallon by 2012

Our Comparative Advantage Switchgrass (2014, at $50/dt) Logging & Residues Perlack, R.D., et al. 2005. Biomass as Feedstock for a Bioenergy and Bioproducts Industry: Technical Feasibility of a Billion-Ton Annual Supply. Ugarte, et al. 2006 (forthcoming). Economic Implications to the Agricultural Sector of Increasing the Production of Biomass Feedstocks to Meet Biopower, Biofuels and Bioproduct Demands.

TN Bioeconomy Vision Produce & consume at least 1 billion gallons of cellulosic ethanol, at $1.20 per gallon wholesale 10+ new biorefineries operating in Tennessee, employing 4,000 and supporting 12,000 rural jobs At least 4 of the biorefineries owned and operated by local farmer cooperatives, retaining an additional $40 million in local communities Satellite co-product plants creating an additional 3,000 jobs and $2 billion in revenue More than 20 thousand farmers growing dedicated energy crops, adding $100 million in new farm revenue In many ways, this trend can be characterized as a move away from looking at renewable resources only as food and fiber, rather they define a chemical resource with diverse and valuable applications. As such, the foundation for a new sector in Tennessee’s diverse economy is at hand. Our vision of this new industry is captured in the bullet statements. Managed appropriately, a tightly integrated industry can emerge that relies on Tennessee raw materials to produce valuable new products (primarily fuel). Importantly, this comes at a time when the forest sector is facing serious global competition and farm prices are depressed.

Corn-Ethanol Biorefinery Locations (October 2006) Believable 10 Years Ago? Corn-Ethanol Biorefinery Locations (October 2006) Source: Renewable Fuels Association

The Issue At Hand Simultaneous Development Sufficient, economical, sustainable supply of cellulosic raw material (biomass) Efficient, profitable, low-risk fuel production capacity Sufficient, stable, local demand for alternative liquid fuels Simultaneous Development So, why the delay in utilizing the southern resource? To be sure, there are unanswered questions on how to economically convert the complex and diverse feedstock offered by the South. Research and development efforts at UT, ORNL, and many private entities are rapidly breaking down those technical barriers. The greatest remaining challenge is largely one of logistics… the age old chicken or egg question. Farmers need evidence of a market before committing to a new bioenergy crop (I.e., switchgrass); and, ethanol producers need a guaranteed supply of a high-quality cellulosic feedstock before investing in a new plant. Also, distribution networks and consumer demand for the fuel products are necessary for this new economy to take root. In effect, the emergence of these individual pieces needs to occur simultaneously. This will require leadership, and The University of Tennessee is ready to accept that role. Research, development, and demonstration of the cellulosic ethanol process with Tennessee’s raw materials is the critical first-step in collapsing this house of cards.

The Tennessee Biofuels Initiative Construct a demonstration-scale cellulosic ethanol facility in Tennessee Utilize 170 tons per day of locally produced switchgrass and wood Work with partner industries to generate 5 million gallons of ethanol annually for local distribution Refine the process for local resources to reduce costs, improve process, scale up to commercial Deploy the model throughout the state To achieve the vision of a new bioeconomic sector for Tennessee, we will work with government and industry partners to build a 5 million gallon/year ethanol plant. This will allow the nuances of processing specific to our state to be resolved, and the refined model deployed throughout the state.

Facility Siting Proximity to researchers (UT and ORNL) Availability of feedstock Transportation infrastructure Proximity to distributors Local cooperation & incentives

The Cellulosic Ethanol Process 2. Pretreatment: A solvent fractionation process is used to separate the chemical components of the biomass (this step is specific to lignocellulosics). 1. Preprocessing: Wood chips and switchgrass are delivered for storage, grinding, drying, and classification. 3. Hydrolysis: Enzymes are used to break down the carbohydrates to their fermentable sugars (5C & 6C) The process used for Grassoline production involves: Preprocessing of the feedstock is required to produce particles of uniform dimensions and constant moisture content. Chemical composition of the incoming biomass will also be continuously monitored to better engineer the process. Pretreatment is a distinct pulping process intended to separate the cellulose and hemicellulose (a chemical relative) from the lignin (an aromatic compound routinely described as the glue in trees). This step is unique to lignocellulosic biomass and accounts for much of the additional plant cost. Hydrolysis now relies primarily on cellulase enzymes to break the carbohydrates into sugar molecules (I.e., glucose comes from cellulose). The residue is also collected and used for process heat and energy. It will potentially be used for co-products with further R&D. Yeast converts the sugar to ethanol in a fermentation step that is identical to any ethanol production facility. It may be possible to combine steps 3 and 4 as a simultaneous saccharification/fermentation step with lower cost and greater efficiency. Standard distillation columns are used to remove water and concentrate the fuel. While ethanol is the primary product, the Grassoline plant will be versatile enough to consider options like butanol. 4. Fermentation & Distillation: Yeast converts the sugars to ethanol (or related alcohols), and water is removed to further concentrate the product.

Coproduct utilization Lignin and solid residue will initially provide heat and energy for the process Product diversification is considered important to economic viability of the biorefinery Research will address development of chemical building blocks and novel, value-added products

Grassoline™ Feedstock Needs Requires 62,000 tons of biomass annually Feed plant 170 tons per day Could be supplied with 8,000 acres of switchgrass Grown by about 200-400 farmers within a 50 mile radius of plant Easily supplied by a few surrounding counties From land currently idle or in hay or pasture Without reducing other crop or livestock production Forest biomass (up to 100 M tons) readily available within transport range, important for smoothing seasonality of feedstock With a production capacity of 5 mgy, the Grassoline facility will consume approximately 62,000 tons of biomass each year. This volume can be supplied by converting about 8,000 acres of land to switchgrass production. In the proposed area, there is more than sufficient idle land to accommodate this supply level. Within the 50 mile radius for biomass that is being considered, just under 100 million tons of forest biomass is present with a large portion in Cherokee National Forest. This presents the opportunity to develop a stewardship contract with the Forest Service to acquire biomass generated by forest management operations. The availability of this source is important to ensure a steady supply throughout the year.

Switchgrass Suitability Well suited to the Southeast Currently, ~6 tons/acre in TN Potential for 12+ tons/acre Warm season, native, perennial grass Highly resistant to many pests and plant diseases Low use of chemicals or fertilizers Tolerates poor soils, flooding, drought 1-2 year establishment, replant year 11 Production/harvest practices similar to hay Working toward multiple harvests per year UT has long history of switchgrass production and market research

TN Switchgrass Potential Tennessee could produce enough switchgrass by 2025 to produce more than a billion gallons of ethanol annually by 2012 by 2025 Dry tons of switchgrass Assuming $40 dt at the farm gate Assuming yields around 6 dt/acre Without disrupting sector balance Our focus on switchgrass comes largely from the potential it offers for farmers across the state and its direct impact on the rural economy. Recent modeling work shows very high production volumes across the state by 2025 without significantly impacting other crops. Additionally, switchgrass offers the following benefits: It is a native perennial with very high biomass yields. It utilizes existing equipment technology for production and harvesting Considerable opportunity to enhance properties is available through traditional genetic selection methods Supplying a consistent and high-quality biomass crop simplifies the conversion process and improves efficiency

A Profitable Alternative Returns above variable costs, Tennessee, 2006 Source: UT Extension Crop Budgets, 2006 (1): 6 dt/ac, $40/dt (2): 6 dt/ac, $55/dt (3): 10 dt/ac, $40/dt From UT Extension Annual Crop Production Budgets, 2006 To emphasize the benefits of this new bioenergy crop to Tennessee’s farmers, a look at production returns is shown. Under today’s yield assumptions, switchgrass is already competitive with the most common row crops, and is much more attractive than hay. With the conservative adjustment for biomass yield in outyears, this crop shows tremendous performance potential. There is little reason to believe that farmers would not be willing to produce switchgrass… the business decision is a simple one. Crop Avg Yield Avg Mkt Price Net Returns above Variable Expenses Corn 150 bu/ac $2.15/bu $96.52 Cotton 725 lbs/ac $0.55/lb $80.79 Soybeans 40 bu/ac $5.25/bu $94.49 Wheat 55 bu/ac $3.25/bu $25.09 Swithgrass 6 tons/ac $55/ton $192.97 Switchgrass 6 tons/ac $40/ton $102.97 Switchgrass 10 tons/ac $40/ton $262.97 Burley 2,100 lbs/ac $1.55/lb $1,086.70 At current yields (6 tons/ac) and $40/ton, competes with corn, cotton, soybeans for acreage Significantly higher returns than hay, on similar acreage With yield improvements, returns potentially more than double traditional row crops Specialty crops can return $1,000+/acre, with significantly higher risk, limited opportunities

Economic Benefits For a billion gallons of ethanol production, TN gets: 10,000 to 20,000 new jobs $400 million dollars in new state & local taxes Cellulosic bioeconomy is an opportunity to: Create rural jobs, development, and wealth Keep money in the state that is spent today but currently flows out-of-state Each commercial facility: Directly employs 200 Supports 1,400 jobs indirectly Increases Gross State Product by $223 million Generates $40 million in new tax revenue Ownership of a facility by a local cooperative retains an additional $10 million per year in the local economy The successful deployment of this new industry sector across the state has benefits beyond the farmer and rural economic development. The project numbers here are derived from a recent report by the Renewable Fuels Association, and are based on impacts of the corn to ethanol industry that has emerged in the midwest. Obviously, the exact numbers hinge on tax and other differences between the states. Still the impact is impressive. These numbers drive home the point that this is a NEW manufacturing sector that produces value-added fuel and chemicals from our renewable resources. In Tennessee, this industry will utilize Tennessee raw materials to produce ethanol and other chemicals that are needed by Tennessee consumers.

A Synergistic Fit Builds on the UT/ORNL partnership Unparalleled capacity for discovery and implementation through science, engineering, and outreach Improves competitiveness of GTL Bioenergy Center Proposal Southeastern Sun Grant Center is hub for regional biofuels/bioproducts research Significant UTIA internal redirecting and expansion in this arena Significant/driving issue in several policy arenas 2007 Farm Bill, EPAct, states We believe that Project Grassoline is the logical next step for bringing this new industry to Tennessee. It builds on the strengths that we have in place already, and takes advantage of partnerships and programs targeting the bio-based economy. We would argue that the unique scientific capacity of ORNL and the engineering and outreach capability of UT make this the only possible place for the leadership needed to move this project forward. Most importantly, Project Grassoline will demonstrate the viability of cellulosic ethanol production in the South, demonstrating the innovative and aggressive development environment that is Tennessee.

The opportunity is today! Cellulosic ethanol represents the foundation for a new industry sector with value-added processing of Tennessee raw materials The pilot-scale facility will: Address the nuances of the feedstock and optimize the process Enable research to expand the biorefinery products and markets Resolve regulatory and logistical concerns Streamline the processing system Lead the commercial deployment of Tennessee’s bio-based economy It’s not everyday that we have the opportunity to create a totally new manufacturing sector for our economy. One that will be built on renewable raw materials that are available locally… and, one that will generate a product with virtually unlimited market demand. Demand that comes from our own citizens, our neighboring states, and our nation. To be sure, there are hurdles to be overcome. But, they will only be overcome through leadership and commitment. And, the opportunity to lead will not be with us long! Thank you…