Design of a Small Scale Biodiesel Production Systemcatsr.ite.gmu.edu/SYST490/495_2013_BioDiesel/Biodiesel_FinalReport... · such as vegetable oils, animal fats, or algae. ... •There

Design of a Small Scale

Biodiesel Production System

Jeffrey Anderson

Jessica Caceres

Ali Khazaei

Jedidiah Shirey

Sponsor: Dr. Terry Thompson of North Point Farm

• Context Analysis

• Stakeholder Analysis

• Problem and Need Statements

• Design Alternatives

• Design Methodology

• Simulation and Results

• Recommendations

• Project Management

2

Agenda

Figure 1: Corn field in Northern VA (photo credit: activerain.com)

• Spotsylvania and Stafford Counties in Virginia (“Fredericksburg, VA area”)

• Farm data for these two counties from the 2007 U.S. Department of Agriculture Agricultural Census:

72,000 acres of farmland

592 farms ranging from 1 to 2000+ acres

Average cropland on farm: 75 acres

3

Area of Interest

Figure 2: Map of the Fredericksburg, VA Area. Source:

Google maps

• The average net income of the farms is negative.

• Nearly 58% deficit increase between 2002 and 2007.

• 1997 was the last year farmers, on average, saw a positive net income.

*Note: Net income = total sales, government payments, and other farm-related income less total farm expenses.

*Inflation Adjusted to 2007 dollars

4

Decreasing Net Income

Figure 3: Net Cash Farm Income of Operations Average per Farm

GAP

5

Farm Production Expenses

Gap (230%

Increase)

Source: United States Energy Information Administration

1997-Last year farmers made a profit

in Fredericksburg

Figure 4: Diesel Prices Central Atlantic Region (Inflation Adjusted)

• 164% increase: $23,990 to $63,500 per farm between 1997 and 2007

• Oil Price dependent categories account for 21% of total production expense:

▫ “fertilizers, lime, and soil conditioners”

122% increase

▫ “gasoline, fuels, and oils”

137% increase

*Note: All dollars are inflation adjusted to 2007 dollars.

6

Biodiesel

• A biofuel made from living or recently living organisms such as vegetable oils, animal fats, or algae.

• Benefits:

• Can be used in existing diesel engines.

• More environmentally friendly – life-cycle reduction in carbon emissions.• Studies have shown a 41% (Univ. of Minnesota) - 78% (US Dept. of Energy) life-cycle

reduction in carbon emissions compared to petro-diesel.

• Net Energy Ratio (NER) = Units of energy OUT/Units of energy IN• USDA sponsored studies have shown a 3.2 – 5.54 Net Energy Ratio for soybean based

biodiesel production.

• U.S. production of oil and gas: NER of ~15; 3 – 5 times that of biodiesel.

• U.S. Biodiesel Production• In 2012, 969 million gallons were produced according to the U.S. Energy

Information Agency (EIA) – 7200% increase since 2002.

• In 2011, U.S. demand for diesel fuel rose to approximately 62 billion gallons; 62 times that of biodiesel production.

Figure 5: Lifecycle Biodiesel Production Process Flow Chart

Start

Extract Oil from Crop

Harvest Crop

Maintain Crop

Plant Crop

Prepare Land

Select Crop

Crop Alternative

Oil Press Functionality

Biodiesel Processor

Functionality

Potential Income

Clean the Oil

Titrate Oil Methoxide

Blend Oil and Methoxide

(Transesterification)

Wash the Biodiesel

Drain Glycerin

Verify Standard D6751 is met

Sell Glycerin

Sell Meal

Sell Biodiesel

Use Biodiesel

Lifecycle Biodiesel Production Process

Legend

Catalyst (KOH)Methanol

Storage

7

Select Biodiesel Acreage

Agenda







• Recommendations


8

9

Primary Stakeholder Main Objectives

Farmer Make money by selling new product

Secondary Stakeholders

Main Objectives Tensions

NeighboringFarmers

•Invest their money in their community by purchasing their fuel from a local biodiesel producer.

•Minimizing risks and hazardous spills increases biodiesel production expenses.

Farm Workers•Earn a salary by helping with the production process of biodiesel

•Providing training and safety gearincreases production cost.•Workers handling products incorrectly can cause injury, loss of life, property damage, or environmental contamination.

Food Consumers•Purchase crops for their consumption at a stable price

•Reducing the amount of crops produced could cause in increase in crop price

Government•Promote alternative fuels •Achieve energy independence•Reduce carbon emissions •Regulate biodiesel production

•Creating a safe environment according to regulations increases production cost.•Following ASTM standard D6751 increases production cost

Agenda







• Recommendations


10

Problem Statement

• A lack of net profit and increasing fuel prices threaten the long term sustainability of farms located in Fredericksburg, VA.

• Farmers rely heavily on petrochemical diesel, which has increased in price by nearly 230% since 1997, the last year that farmers in the Fredericksburg area of Virginia had a net profit.

11

Need Statement• There is a need for a small-scale biodiesel production system

for farms located near Fredericksburg, VA.

• The design of our biodiesel generation system will take into account the whole life-cycle process of biodiesel production, from crop planting to the final biodiesel yield.

• Win-win for stakeholders:

▫ Farmers: Create a new product to sell and/or save money on fuel costs

▫ Workers: Work in safe environment and earn a paycheck

▫ Neighboring Farmers: Potential access to locally produced biodiesel – an investment in their community

▫ Food consumers: Loss of food supplies minimized

▫ Government: Further goal of energy independence

12

13

Scope• System Components:

▫ Crop Alternative

▫ Vegetable Oil Press

▫ Biodiesel Processor

• Research indicates that vegetable oil press and biodiesel press were comparable to each other and interchangeable

• Focus on crop type used for vegetable oil source

▫ Enables optimization of crop acreage and biodiesel output

14

System Component Selection• Oil Press

▫ Manufacturer: Cropland Biodiesel™

▫ Cost: $3925 + Freight Shipping

▫ Capacity: ~200 lbs/hour

• Biodiesel Processor▫ Manufacturer: All American

BioDiesel

▫ Cost: $2650 + Freight Shipping

▫ Capacity: 80 gallons/day

• These capacities were chosen because of their ability to complete the crop to biodiesel process in 6 days or less per acre devoted to biodiesel production (assuming 8 hours of run time per day).

Figure 7: 80 gallon Biodiesel Processor

Figure 6: 3 ton Oil Press

1. The system shall be able to produce biodiesel that has a Net Energy Ratio greater than 1.

2. The system shall be able to produce biodiesel that conforms to ASTM Standard D6751.

15

System Requirements

Agenda







• Recommendations


16

17

Design Alternatives• Investigated approximately two dozen crop options

• Five crop alternatives selected based on regional availability, cost, and productivity:

▫ Canola

▫ Corn

▫ Peanut

▫ Soybean

▫ Sunflower• Best crop alternative will be determined through

Monte Carlo simulation

Agenda







• Recommendations


18

19

Simulation Objective• The objective of our simulation is to determine:

▫ 1) Biodiesel yield and NER of each crop alternative

▫ 2) The Net Present Value (NPV) of each crop alternative at the end of the system lifespan

• This will allow us to plot the utility versus the NPV of each alternative and enable us to recommend the best crop alternative.

• Two part simulation: Biodiesel Production Simulation and Business Simulation

20

Primary Simulation Assumptions

• Lifespan of the machinery is 15 years

• Farmers have the proper equipment to plant, harvest, and prepare crops

• Unlimited demand for biodiesel, glycerin, and meal exists

• Farmers have the land capacity and knowledge to perform crop rotations as appropriate

• No machinery recycling profit

Monte Carlo Simulation Design

Biodiesel

Production

Simulation

Business

Simulation

Biodiesel Yield

Net Present ValueCrop Alternative

Vegetable Oil YieldCrop Yield

Glycerin Yield

Biodiesel Acreage

Meal Yield

Net Energy Ratio

Random Variable

KEY

Output

10 Acres

15 Acres

20 Acres

21

Biodiesel Production Design of

Experiment

22

23

Biodiesel Production Simulation

Random Variables

Canola Corn Peanut Soybean Sunflower

Crop Yield Beta(1740, 2233) [1] Beta(2538, 7148) [2]TRIA(1350, 3070,

3800) [3]Beta(1412, 2646) [3] UNIF(967, 1510) [3]

Vegetable Oil

Percentage

Normal(.42, .0001) [4]

Normal(.04, .0001) [4]

Normal(.42, .0001) [4]Normal(.16, .0001)

[4]Normal(.43, .0001) [4]

OilPress

Efficiency

Lognormal(0.9, 0.92, 0.02) [4]

All distributions were fitted using the Kolmogorov-Smirnov (KS) test

1 - D. Starner, A. Hamama, H. Bhardwaj, “Prospects of canola as an alternative winter crop in Virginia”, 2002

2 - USDA Census of Agriculture, 2007 Census, Volume 1, Chapter 2: County Level Data

3 - USDA, National Agriculture Statistics Service, Crop Production

4 – Multiple sources

Net Energy Ratio Equation

24

Contributing source: Hoover, Scott; Energy Balance of a Grassroots Biodiesel Production Facility, 2005

•Variables with largest impact: Biodiesel yield per acre and diesel

usage per acre

Product Yield Equations

25

Contributing source: Seth R. Fore, William Lazarus, Paul Porter, Nicholas Jordan, Economics of small-scale on-farm use of canola and

soybean for biodiesel and straight vegetable oil biofuels, Biomass and Bioenergy, Volume 35, Issue 1, January 2011, Pages 193-202

•Variables with largest impact: Crop yield per acre and oil content

Business Simulation Design of

Experiment

26

27

Business Simulation Random

VariablesCanola Corn Peanut Soybean Sunflower

Crop Price

Gamma(1.7, .5, 6.3) [3]Weibull(2.1, 1.6, 1.5)

[1]Norm(.25, .0016) [2]

MinExtreme(9.7,1.8) [1]

Weibull(2.1, 1.6, 1.5) [1]

MealPrice

Lognormal(203, 345, 130) [4]

Norm(255, 653) [9] Norm(200, 400) [4]Gamma(128, 39,2)

[4]

Lognormal(33, 106, 39) [4]

Planting Costs

205Triangular(204, 207,

438) [5]Logistic(602, 48) [6]

Triangular(83, 147, 246) [7]

191

Diesel Price

Triangular(3.73,4.28,4.29) [8]

All distributions were fitted using the Kolmogorov-Smirnov (KS) test

1 - farmdoc, University of Illinois, “US Price History”

2 - USDA, National Agriculture Statistics Service, Crop Production

3 - USDA, Economic Research Service, Wheat Tables: Acreage Production

4 – USDA, Agricultural Marketing Service, National Monthly Feedstuff Prices

5 – USDA, Economic Research Service, Historical Costs and Returns: Corn

6 – USDA, Economic Research Service, Historical Costs and Returns: Peanut

7 – USDA, Economic Research Service, Historical Costs and Returns: Soybean

8 – U.S. Energy Information Administration, Central Atlantic No 2 Diesel Retail Prices

9 – “By-Product Feed Pricing List”, University of Missouri Extension

28

Business Simulation Equations• Net Present Value Equation

▫ I0 is the initial machinery costs, n is the length in years, t is the year, k is the discount factor, p is inflation rate, and Ft is the balance of revenues and expenses.

• Net cash flow

Derived from: “Economic simulation of biodiesel production: SIMB-E tool”; Lopes, Neto, and Martins

Chemical expenses, dollars per acre

Crop costs, dollars per acre

Lost revenue cost, dollars per acre

Glycerin revenue, dollars per acre

Meal revenue, dollars per acre

State biodiesel incentives, dollars per acre

Biodiesel acreage on farm, acres

Biodiesel sales, dollars

Yearly maintenance costs, dollars

Agenda







• Recommendations


29

Simulation Implementation

• For the simulation, we used Oracle Crystal Ball, an Excel add-in

• Why Crystal Ball?• During research we found deterministic Excel

spreadsheets

• Crystal Ball allows us to create similar models but with stochastic processes

• 50,000 iterations were run for each simulation• Farm Size: 75 acres

30

Results: Biodiesel Yield (Gallons/Acre)

Crop Type Peanut Canola Sunflower Soybean Corn

Mean 136.5 102.5 62.5 35.5 19.4

Standard Deviation 26.1 8.7 8.2 7.7 6.3

Distribution Beta Beta Beta Beta Lognormal

31

32

Mean Peanut Canola Sunflower Soybean Corn

Average NER 4.1 3.4 3.1 1.8 0.8P(NER>1.0) 1.0 1.0 1.0 1.0 0.2Requirement

Met Yes Yes Yes Yes No

Results: NER and Cost per Gallon

Mean Corn Canola Sunflower Soybean Peanut

Cost per Gallon -$14.65 $0.69 $2.60 $3.26 $4.14

33

Data Analysis

Mean Peanut Canola Sunflower Soybean Corn

AcresNeeded (out of 75 acres)

6 8 12 22 43

• Fuel savings for biodiesel production acreage are accounted for

in the cost of production.

• Biodiesel yield from devoted acreage must exceed farm

requirements before biodiesel sales can begin.

• Inflow comes from meal, glycerin, and biodiesel sales.

34

Results: Net Present Value

35

Biodiesel Acres

Corn Canola Sunflower Peanut Soybean

10 of 75 0.80 0.14 0.0 0.0 0.0

Results: Probability of NPV being > $0.00

Biodiesel Acres

Canola Corn Sunflower Peanut Soybean

15 of 75 0.90 0.86 0.0 0.0 0.0

Biodiesel Acres

Canola Corn Sunflower Peanut Soybean

20 of 75 <1.0 0.89 0.10 0.0 0.0

Net Present Value – 10 Acres

-$50,000.00

-$40,000.00

-$30,000.00

-$20,000.00

-$10,000.00

$0.00

$10,000.00

$20,000.00

Year

NPVs at 10/75 Biodiesel Acres

npv canola (10,2%)

npv corn (10,2%)

npv peanut (10,2%)

npv soybean (10,2%)

npv sunflower (10,2%)

Corn: Positive NPV by 2017 (within 5 years) with a 2% discount factor.• Due to:

• High corn meal yield drives down the cost/acre (mean meal revenue = $505/acre).

• Negative lost profit budget line due to the savings from not selling corn at a loss.

Soybean: Positive slope; would need 40 years without addition capitol costs to yield a positive NPV.

36


-$50,000.00

-$40,000.00

-$30,000.00

-$20,000.00

-$10,000.00

$0.00

$10,000.00

$20,000.00

$30,000.00

$40,000.00

Year


npv canola (15,2%)

npv corn (15,2%)

npv peanut (15,2%)

npv soybean (15,2%)


Corn: Positive NPV by 2015 (within 3 years) with a 2% discount factor.

Canola: Positive NPV by 2017 (within 5 years) with a 2% discount factor.

37


-$60,000.00

-$50,000.00

-$40,000.00

-$30,000.00

-$20,000.00

-$10,000.00

$0.00

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

Year


npv canola (20,2%)

npv corn (20,2%)

npv peanut (20,2%)

npv soybean (20,2%)


• Canola: Positive NPV mid 2014 (within 2 years) with a 2%

discount factor.

• Corn: Positive NPV by early 2014 (within 2 years) with a 2%

discount factor.

38

Sensitivity

39

• Peanut:

• If the selling price of biodiesel per gallon is raised to:

$13.00, at 10 biodiesel acres



• Then peanut could achieve an average positive NPV in 15

years.

• Sunflower could attain an average positive NPV by increasing

biodiesel acres to approximately 45 of the 75 acres.

• Soybean could reach an average positive NPV in 15 years if the

farm size was raised to 125 acres, and all acreage was utilized for

biodiesel production.

Agenda







• Recommendations


40

Value Hierarchy

41

Choose Best Crop Alternative

Biodiesel Yield

(gal/acre)

0.5

Planting Season Length (days)

0.3

Production Hazards

0.2

42

Utility Analysis

• Utility for 20 acres, 2% discount factor

0.00

0.20

0.40

0.60

0.80

1.00

1.20

-100000 -50000 0 50000 100000 150000

Uti

lity

Net Present Value (dollars)

Utility vs NPV: 10%, Mean, 90%

Canola

Corn

Peanut

Soybean

Sunflower

Best Quadrant

43

Recommendation• We recommend Canola as the optimal crop alternative

▫ Same hazard level as other alternatives▫ High biodiesel yield minimizes food supply impact▫ High NPV provides profit for farmer▫ When 20 of 75 acres are committed to biodiesel

production, Canola has a nearly 100% chance of being profitable.

Agenda







• Recommendations


44

Work Breakdown Structure

45

Figure 15: Work Breakdown Structure

Project Risk

Risk Mitigation

Poster printing problem Multiple poster revisions submitted for review

Absent presenter at conference All group member will become well-versed in all aspects of the project

46

Project Schedule

47

Project Schedule

48

Project Budget

• Hourly rate for each team member: $40

• Rate comparable with junior engineer rate

• Estimated number of hours to complete project: ~ 3000 hours

• Overhead rate: 2.1 times base rate: $84 per hour

• Total project cost: 3000 hours x 84 dollars/hour

• Total Project Cost ~ $250,000

49

Earned Value

50

Figure 7: Earned Value

0.00

50000.00

100000.00

150000.00

200000.00

250000.00

300000.00

Am

ou

nt

Sp

en

t (d

oll

ar

s)

Earned Value

Planned Value (PV)

Actual Cost (AC)

Earned Value (EV)

CPI and SPI

51

Figure 8:CPI and SPI

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

September October November December January February March April

Ra

tio

CPI and SPI

CPI

SPI

Design of a Small Scale

Biodiesel Production System

Jeffrey Anderson

Jessica Caceres

Ali Khazaei

Jedidiah Shirey

Sponsor: Dr. Terry Thompson of North Point Farm

Documents

Design of a Small Scale Biodiesel Production Systemcatsr.ite.gmu.edu/SYST490/495_2013_BioDiesel/Biodiesel_FinalReport... · such as vegetable oils, animal fats, or algae. ... •There