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Dry-Grind Ethanol Dry-Grind Ethanol Production: Economic Production: Economic SensitivitySensitivity
Douglas G. TiffanyDouglas G. TiffanyResearch Fellow Research Fellow
University of MinnesotaUniversity of Minnesota
Today’s DiscussionToday’s Discussion Work arose from “Factors Associated Work arose from “Factors Associated
with Success of Fuel Ethanol with Success of Fuel Ethanol Producers” written w/ Vernon EidmanProducers” written w/ Vernon EidmanFunding: USDA Rural DevelopmentFunding: USDA Rural Development
MN Ag. Experiment StationMN Ag. Experiment Station
1) Briefly establish key factors in 1) Briefly establish key factors in dry-grind ethanol production dry-grind ethanol production
2) Demonstrate economic sensitivity 2) Demonstrate economic sensitivity of this technology in this marketof this technology in this market
Dry-Grind TechnologyDry-Grind Technology Dry-Grind Plants-- now 67% of U.S. Dry-Grind Plants-- now 67% of U.S.
production--simpler process, lower production--simpler process, lower capital costs, but refinements are capital costs, but refinements are occurring.occurring.
Ethanol from corn has a positive Ethanol from corn has a positive energy balance. (1.34 – 1.51)energy balance. (1.34 – 1.51)– USDA, Argonne Lab,USDA, Argonne Lab,– Michigan State University, Ag. Michigan State University, Ag.
CanadaCanada
U.S. Annual Fuel Ethanol Production Source: U.S. E.I.A. and Renewable Fuels Association
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Ethanol Dry-GrindEthanol Dry-Grind Grind bushel of corn (56 lb.), add water, make Grind bushel of corn (56 lb.), add water, make
mash, cook to kill bacteria, expose starch mash, cook to kill bacteria, expose starch Add enzymes for flow & to convert starch to Add enzymes for flow & to convert starch to
sugarsugar Introduce Yeasts in Batch Fermenters---- Introduce Yeasts in Batch Fermenters----
produce beer---- distill the ethanolproduce beer---- distill the ethanol Products:Products:
– ethanol– (2.75 gal.) requires heat to distillethanol– (2.75 gal.) requires heat to distill– DDGS- (18 lbs.) generally requires drying DDGS- (18 lbs.) generally requires drying – CO2-- ( 18 lbs. ) food gradeCO2-- ( 18 lbs. ) food grade
150 bushel corn yields 413 gallons of ethanol 150 bushel corn yields 413 gallons of ethanol per acre, 2700 pounds of DDGSper acre, 2700 pounds of DDGS
Corn
Corn Dry-Milling Process Overview
Alpha-amylase enzyme
CO2
Yeast and Gluco-amylase enzyme
Whole Stillage
Thin Stillage
Coarse Solids
Feed Industry Co-products
(Source: Kelly Davis, Chippewa Valley Ethanol Company)
Corn Cleaning
Hammermill Mix Slurry Liquefaction
Cooker
Centrifuge Evaporator
Fermentation
Dist illat ion
Ethyl Alcohol
Conditioned DistillersSolubles
Distillers Dried Grains with Solubles
Distillers Wet Grains
Rotary Dryer
Project Goals & Project Goals & MethodsMethods Goal: Describe and Quantify Factors of Goal: Describe and Quantify Factors of
Success in Dry-Grind Ethanol ProductionSuccess in Dry-Grind Ethanol Production Steps in ResearchSteps in Research
– Conduct Interviews of Plant Personnel Conduct Interviews of Plant Personnel & Bankers—to Learn Factor Inputs, etc.& Bankers—to Learn Factor Inputs, etc.
– Develop Spreadsheets to Measure Develop Spreadsheets to Measure Plant ProfitsPlant Profits
– Interpret ResultsInterpret Results– Advise Farmers/Investors, Bankers Advise Farmers/Investors, Bankers
PolicymakersPolicymakers
2 Ethanol Dry Mill Spreadsheet by Douglas G. Tiffany, University of Minnesota
3 7/23/03 20:30Cost/Denat. Gal. Ethanol
Ranges for Column C Plant Totals
4 Nameplate Ethanol Prod. (Denat. Gal.) 40,000,0005 Investment per Nameplate Gallon $1.5000 $1.00- $2.00 Plant Cost 60,000,000$ 6 Factor of Nameplate Capacity 1.2000 (80%- 150%)7 Debt-Equity Assumptions8 Factor of Equity 0.409 Factor of Debt 0.60 Initial Debt 36,000,000$
10 Interest Rate Charged on Debt 0.0711 Rate of Return Reqd. by Investors on Equity 0.121213 Conversion Efficiency Assumptions Annual Production14 Anhydrous Ethanol Extracted (Gal. per Bu.) 2.750 2.5-2.85 gal/bu Bushels Ground Denat. Gallons15 DDGS per Bushel (lb. per Bu.) 18 15-22 lb./bu 16,581,843 48,000,00016 CO2 extracted per Bushel (lb. per Bu.) 18 15-22 lb./bu17
18 Establishment of Gross MarginPrice per
UnitRevenue/Bu.
GroundRevenue/Gal.
Denatured Sold Plant Totals19 Ethanol Price (denatured price) $/gal. $1.15 $.80 to $1.60 $3.3289 1.1500 55,200,000$ 20 DDGS Price $/T $80.00 $60-$120 $0.7200 0.2487 11,938,927$ 21 CO2 Price ($ per Ton liq. CO2) $6.00 $2- $12 / liq.Ton $0.0540 0.0187 895,420$ 22 MN Prod. Subsidy/gal.Denat. Ethanol $0.00 $0.0000 0.0000 -$ 23 Federal Small Producer Subsidy -$ 24 CCC Bioenergy Credit -$ 25 Revenue per Unit $4.1029 $1.4174 68,034,347$ 26 Corn Price Paid by Processor ($ per bu.) $2.20 $1.70---$3.25 $2.2000 $0.7600 36,480,055$ 27 Gross Margin $1.9029 $0.6574 31,554,292$ 28
29 Operating Expenses Per BushelPrice per
UnitCost /Bushel
GroundCost /Gal.
Denatured Sold Plant Totals30 Natural Gas Price ($ 1,000,000 Btu) $4.50 ($1.50-$9.00/Dtherm)31 LP (Propane) Price ($ per gallon) $0.70 $.55-$.72 / gal.32 Factor of Time Operating on Propane 0.02 0-.1233 BTU's of Heat fr Fuel Req./ Denat. Gal. 35,000 28,500-55,00034 Combined Heating Cost $0.4623 $0.1597 7,665,569$ 35 Electricity Price ($ per kWh) $0.05 $.025-$.090/kwh36 Kilowatt Hours Required per Denat.Gal. 1.090 (.85-1.2 kWh/denat. gal.)37 Electrical Cost $0.1578 $0.0545 2,616,000$ 38 Total BTU's of Fuel and Electricity 45,90039 Total Energy Cost $0.6200 $0.2142 10,281,569$
40Cost/Denat. Gal. Ethanol
41 Enzymes $0.0480 $0.1389 $0.0480 2,304,000$ 42 Yeasts $0.0220 $0.0637 $0.0220 1,056,000$ 43 Other Proc.Chemicals & Antibiotics $0.0200 $0.0579 $0.0200 960,000$ 44 Boiler & Cooling Tower Chemicals $0.0050 $0.0145 $0.0050 240,000$ 45 Water $0.0060 $.005-.010 $0.0174 $0.0060 288,000$ 46 Denaturant Price per Gal. $0.7000 $0.1013 $0.0350 1,679,952$ 47 Total Chemical Cost $0.3937 $0.1360 6,527,952$ 4849 Depreciation based on C49 asset life 15 Years $0.2412 $0.0833 4,000,000$ 50 Maintenance & Repairs $0.0125 $0.0362 $0.0125 600,000$ 51 Interest Expense $0.1520 $0.0525 2,520,000$ 52 Labor $0.0450 $.04--$.06 $0.1303 $0.0450 2,160,000$ 53 Management & Quality Control $0.0136 $.010-$.022 $0.0394 $0.0136 652,800$ 54 Real Estate Taxes $0.0020 $0.0058 $0.0020 96,000$ 55 Licenses, Fees& Insurance $0.0040 .0030-.0050 $0.0116 $0.0040 192,000$ 56 Miscellaneous Expenses $0.0135 $.01-$.03 $0.0391 $0.0135 648,000$ 57 Total of Other Processing Costs $0.6555 $0.2264 10,868,800$ 58 Total Processing Costs $1.6692 $0.5766 27,678,321$ 59 Net Margin Achieved Per Unit $0.2337 $0.0807 3,875,971$ 60 Farmer-Investor Reqd. Return on Equity 12.00% $0.1737 $0.0600 2,880,000$ 61 Increment of Success/Failure to Meet Required Return $0.0601 $0.0207 995,971$ 6263 Ethanol Plant Profits for Shareholders and Principal Reduction $3,875,971 $3,875,971 3,875,971$
Dry Grind Revenue Categories Dry Grind Revenue Categories (5 yr.)*(5 yr.)*
Ethanol Sales 80%Ethanol Sales 80% DDGS Sales 19%DDGS Sales 19% CO2CO2 1% 1% MN SubsidyMN Subsidy -0--0- TotalTotal 100% 100%
Revenues and Expenses for 40MM Dry Mill Plant at Baseline Conditions
0 10 20 30 40 50 60 70 80
Revenue Total
Ethanol Sales
DDGS Sales
CO2 Sales
Expense Total
Cost of Corn
Natural Gas & Propane
Electricity
Enzymes
Yeasts
Other Chem. & Antibiotics
Water
Denaturant
Depreciation
Maint. & Repair
Interest
Labor
Management & Q.A.
Taxes, Lic. Fees & Insur.
Miscellaneous
Millions of Dollars per Year
Five Key Factors & Baseline Five Key Factors & Baseline LevelsLevels
Corn Price---- $2.20 Corn Price---- $2.20 per bushelper bushel
Ethanol Price---- $1.15 Ethanol Price---- $1.15 per gallonper gallon
Nat. Gas Price----$4.50 Nat. Gas Price----$4.50 per dekathermper dekatherm
Ethanol Yield---- 2.75 Ethanol Yield---- 2.75 gal.(anhyd)/bushelgal.(anhyd)/bushel
Capacity Factor of Capacity Factor of Nameplate----1.20Nameplate----1.20
Corn Prices: Minnesota Farm-Level (1993-2002)
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40 MM Gal. Dry-Grind Profits Sensitivity to Corn Price
($15,000,000)
($10,000,000)
($5,000,000)
$0
$5,000,000
$10,000,000
$15,000,000
$1.50 $1.70 $1.90 $2.10 $2.30 $2.50 $2.70 $2.90 $3.10
Corn Price (Dollars per Bushel)
Pla
nt
Pro
fits
Price Trend of Fuel Ethanol in Minnesota (1987-2002) 1987-2002 Average = $1.27
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
$/Ga.
Persian Gulf War$5.00-bushel
corn
High gas price of 2000/01
40 MM Gal. Dry-Grind Profits Sensitivity to Ethanol Price
-$15,000,000
-$10,000,000
-$5,000,000
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$0.80 $0.90 $1.00 $1.10 $1.20 $1.30 $1.40
Ethanol Price per Gallon
Pla
nt
Pro
fits
Natural Gas Prices for Industrial Users in Minnesota 1993-2002
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2.00
4.00
6.00
8.00
10.00
12.00
14.00
Dolla
rs p
er D
ekaT
herm
40MM Gal. Dry-Grind Profits Sensitivity to Natural Gas Prices
($6,000,000)
($4,000,000)
($2,000,000)
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00
Natural Gas Price per DekaTherm
Pla
nt
Pro
fits
40MM Dry-Grind Plant Profits Sensitivity to Ethanol Yield Per Bushel
-3,000,000
-2,000,000
-1,000,000
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2.20 2.30 2.40 2.50 2.60 2.70 2.80 2.90 3.00
Gallons of Ethanol per Bushel
Plan
t Pro
fits
Model Predicts Addl. Value of Model Predicts Addl. Value of Higher Total Fermentables in Higher Total Fermentables in CornCorn
Increase Total Fermentables by 4%Increase Total Fermentables by 4%– Equals $909,450 for typical dry-grind Equals $909,450 for typical dry-grind
plant;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 Equals $1,338,436 for typical dry-grind
plant; or $.086 per bushel ground.plant; or $.086 per bushel ground.
40MM Gal. Dry-Grind Profits Sensitivity to Capacity Factor of Nameplate
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 1.50
Capacity Factor of Nameplate
Plan
t Pro
fits
Factors of Lesser Factors of Lesser Importance & Their Baseline Importance & Their Baseline ConditionsConditions Capital Costs ----------$1.50/gallon Capital Costs ----------$1.50/gallon
denatureddenatured Percentage of Debt----60% of Cap. Percentage of Debt----60% of Cap.
CostCost Interest Rate------------7.0%Interest Rate------------7.0% DDGS Price------------$80.00 per TonDDGS Price------------$80.00 per Ton Electrical Price---------$.06 per kWhElectrical Price---------$.06 per kWh Fed., State, or Local Subs/Incent.----Fed., State, or Local Subs/Incent.----
0-0-
Net Margins of 40 MM Gal./Yr. Dry-Grind Plant for Corn Price-Ethanol Price Combinations
$(20,000,000)
$(15,000,000)
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$1.35 $1.55 $1.75 $1.95 $2.15 $2.35 $2.55 $2.75 $2.95 $3.15
Corn Price (Dollars per Bushel)
Pla
nt
Pro
fits
Net Margins of 40 MM Gal./Yr. Dry-Grind Plant for Corn Price-Ethanol Price Combinations
$(20,000,000)
$(15,000,000)
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$1.35 $1.55 $1.75 $1.95 $2.15 $2.35 $2.55 $2.75 $2.95 $3.15
Corn Price (Dollars per Bushel)
Pla
nt
Pro
fits
Net Margins of 40 MM Gal./Yr. Dry-Grind Plant for Corn Price-Ethanol Price Combinations
$(20,000,000)
$(15,000,000)
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$1.35 $1.55 $1.75 $1.95 $2.15 $2.35 $2.55 $2.75 $2.95 $3.15
Corn Price (Dollars per Bushel)
Pla
nt
Pro
fits
Dry-Grind Net Margins for Various Corn Prices Shift as Natural Gas Rises to $5.50 , $6.50 from $4.50 per Dekatherm; Ethanol @ $1.15/Gal.
($15,000,000)
($10,000,000)
($5,000,000)
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$1.40 $1.65 $1.90 $2.15 $2.40 $2.65 $2.90 $3.15
Corn Price (Dollars per Bushel)
Pla
nt
Pro
fits
NG Shift to $6.50
NG Shift to $5.50
ETOH at $1.15, NG at $4.50
Schedule Shift to Higher NG Prices
Effect of Interest Rates on 40MM Gal./Yr. Dry Mill Profits for Plants of Various Debt Percentages under Baseline Conditons
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
5% 6% 7% 8% 9% 10% 11% 12% 13% 14%
Interest Rate
Pla
nt
Pro
fits
0% Debt
20% Debt
40% Debt
60% Debt
Conclusions: SensitivitiesConclusions: Sensitivities Favorable economics with low corn prices, Favorable economics with low corn prices,
high gasoline prices, low natural gas prices, high gasoline prices, low natural gas prices, low interest rates.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 Natural Gas Price rise to ($6.85) from
baseline levels of $4.50/ dekatherm wipes-baseline levels of $4.50/ dekatherm wipes-out profits.out profits.
Ethanol Yield per Bushel —very importantEthanol Yield per Bushel —very important 2.75 gal./bu (typical today)2.75 gal./bu (typical today) 2.36 gal./bu--- wipes out profits2.36 gal./bu--- wipes out profits
Retrospective Ethanol Gross Margins, Operating Expenses, and 12% ROE of 40MM Dry-Grind Plant from 1/93-12/02
$-
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50Ja
n-93
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Jan-
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Dol
lars
Per
Bus
hel P
roce
ssed
Dry Mill Gross Margin
Dry Mill Total Exp.
Dry Mill Total Exp.+ 12%ROE
Plant Manager Observations--Plant Manager Observations--
TechnicalTechnical Improved Enzymes and Yeast in last two yearsImproved Enzymes and Yeast in last two years
– Tolerance to Alcohol % (13.5%-now 19.7%),Tolerance to Alcohol % (13.5%-now 19.7%),– Tolerance to Higher Temps (can tolerate 100 Tolerance to Higher Temps (can tolerate 100
degrees F. for 2-3 hours and still recover)degrees F. for 2-3 hours and still recover) Faster fermentation times - 45-50 hours Faster fermentation times - 45-50 hours
possiblepossible 60%-40% split in Yeast Propagation Strategies60%-40% split in Yeast Propagation Strategies
- 60% “continuous yeast propagators”- 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 - 40% batch yeast, make fresh batches from
purchased yeastpurchased yeast Expect to process most of fiber in corn kernel Expect to process most of fiber in corn kernel
with improved cellulases in the futurewith improved cellulases in the future
Research Topics: Derive More Research Topics: Derive More Revenue or Cut Costs of Revenue or Cut Costs of StillageStillage
DDGSDDGS– Improvement in DDGS AttributesImprovement in DDGS Attributes– Efforts to “Brand” and Standardize DDGSEfforts to “Brand” and Standardize DDGS– Educate Users, Develop MarketsEducate Users, Develop Markets – Development of Yeast Extract Products to Reduce Development of Yeast Extract Products to Reduce
Antibiotic Use in LivestockAntibiotic Use in Livestock Utilization of Liquid Stillage or SyrupUtilization of Liquid Stillage or Syrup Utilization of DDGS as Biomass FuelUtilization of DDGS as Biomass Fuel Better Storage, Utilization of Wet DDGSBetter Storage, Utilization of Wet DDGS
Technology Changes PendingTechnology Changes Pending
Quick-Germ Technology– uses more Quick-Germ Technology– uses more enzymes, depends on favorable sale of enzymes, depends on favorable sale of corn oil (Univ. of Illinois)corn oil (Univ. of Illinois)
Quick-Fiber Technology—offers Quick-Fiber Technology—offers opportunity for greater through-put, but opportunity for greater through-put, but altered DDGS product characteristics altered DDGS product characteristics ( Univ. of Illinois)( Univ. of Illinois)
Continuous vs. Batch Fermentation with Continuous vs. Batch Fermentation with stripping of ethanol--- USDA, ARSstripping of ethanol--- USDA, ARS
Pervaporation—use of membranes to Pervaporation—use of membranes to filter ethanol from broth (USDA, ARS)filter ethanol from broth (USDA, ARS)
Conclusions: Dry-Mill Conclusions: Dry-Mill ProductionProduction
Found Sensitivity of Dry Mill Ethanol Production Found Sensitivity of Dry Mill Ethanol Production to Various Factors; Historical Volatility of to Various Factors; Historical Volatility of ReturnsReturns
High Volume, often low margin business; High Volume, often low margin business; however, some times of excellent returns have however, some times of excellent returns have been modeled and also reportedbeen modeled and also reported
Processing business demanding superior Processing business demanding superior management of sensitive microbes, quality management of sensitive microbes, quality control control
Major efforts to conserve energy in operationsMajor efforts to conserve energy in operations Expect this technology to evolve and improve Expect this technology to evolve and improve
further until major improvements in ligno-further until major improvements in ligno-cellulosic processes are able to make that cellulosic processes are able to make that technology more competitive.technology more competitive.
Contact InformationContact Information
[email protected]@dept.agecon.umn.edu
(612) 625-6715(612) 625-6715
Spreadsheet:Spreadsheet: http://http://www.agmrc.orgwww.agmrc.org/energy/info//energy/info/
ethanolsuccess.xlsethanolsuccess.xls
Original paper:Original paper:
www.apec.umn.edu/staff/dtiffawww.apec.umn.edu/staff/dtiffanyny//
staffpaperp03-7.pdfstaffpaperp03-7.pdf
