Biomass Scenario Model

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Hugh Watson
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1 Biomass Scenario Model Amy Miranda Platform Technology Manager Appalachian Woody Biomass to Ethanol Conference September 6, 2007

2 Description Simplified Schematic Goals Modular Framework Logic Inputs Key to Increasing 2017 Impact What s Possible? Two Plausible Scenarios Maximizing Federal Government Impact Next Steps Biomass Scenario Model Outline

3 Biomass Scenario Model (BSM) Description Dynamic system model, in STELLA software Analyzes the behavior of complex feedback systems over time Models the dynamic interactions and influences within the elements of the evolving biomass-to-biofuels supply chain. Designed to track: Deployment of ethanol given development of new technologies Reaction of the investment community to those technologies in light of the competing oil market, vehicle demand for biofuels and various government policies over time

4 BSM Simplified Schematic with Cockpit Levers Biomass to Biofuels Supply Chain Biomass Benefits to Nation Farmer and Consumer Choices R,D&D Strategies Investment Choices Policy Options Market Competition

5 Biomass Scenario Model Goals Investigate potential market penetration scenarios for cellulosic ethanol Identify high-impact levers as well as bottlenecks to system evolution Strategically assess OBP s R&D and deployment strategies Enable and facilitate focused discussion among policy makers, analysts and stakeholders

6 Biomass Scenario Model Framework: Aligns with Biomass-to-Biofuels Supply Chain

7 BSM Logic: How the Investment Decision Goes... The Conversion Plant Investor Looks at the Current Conditions for: Vehicle Fleet Capacity for Ethanol FF Vehicles in the Market Current Ethanol Production Feedstock Price and Availability Cost of Conversion Technology Extent of R&D Level of Maturity Demo Plants, Number of other Facilities Government Policies in place e.g., production or capital subsidies Maximum selling price based on competing Oil Prices Calculate the Expected ROI Build a new facility if? ROI Greater than Minimum Required by Investor Vehicle Capacity for Ethanol greater than supply

Inputs Feedstock availability and cost Conversion technology cost Availability of vehicles to use the fuel (demand) Cost of the competition (oil) Willingness of investors to supply funding

8 Inputs Feedstock availability and cost Conversion technology cost Availability of vehicles to use the fuel (demand) Cost of the competition (oil) Willingness of investors to supply funding Government policies of various types Sources of Information Stakeholders (via workshops and colloquies) Process and Economic Models Energy Information Administration (EIA) reports Biomass Scenario Model Inputs

9 Results to Date: Key to Increasing 2017 Impact Full Scale Plant Operations are Required Feedstock & Vehicles should not be limiting for 2017 Full Scale Plants are held back by: First of a kind uncertainties Expected Margins not high enough to Overcome Return on Investment required for untried technology Normal Progression Develop Technology in Laboratory Logical Scale-up Pilot, Demonstration, Pioneer, Full Scale Each step takes time Learning Curve Improvements in Pioneer & Full Scale Rapid Expansion of the Industry

10 What s Possible Reducing Operating Costs Significant subsidy, $2/gal, on first 500 MM gallons of Cellulosic Ethanol Cellulosic Billion gal/yr Number of Plants AEO High Oil Base EtOH Production Base Num of Plants $2 for 500MM gal EtOH Incentive Num Plants

11 What s Possible Lowering the Capital Cost Govt Subsidies can be used to lower the Capital Cost 3 15 Cellulosic Billion gal/yr Number of Plants AEO High Oil Base EtOH Production Base Num of Plants $1.5B Cap Subsidy-gal EtOH Incentive Num Plants

12 What s Possible?: Two Incentives are Synergistic Total Cost to Government $2.5 Billion 6 30 Cellulosic Billion gal/yr Number of Plants AEO High Oil Base EtOH Production Base Num of Plants Combined Incentive-gal EtOH Incentive Num Plants

13 Maximizing Federal Government Impact Key is for Government Involvement To close the gap between Investor Required ROI and expected ROI until industrial experience catches up Leverage Points Lower the cost of production Feedstock Incentives grower payments Ethanol fuel subsidies Raise the cost of the competition (gasoline) CO 2 credits Lower the capital investment Capital subsidies What has little impact on cellulosic ethanol RFS with price limitations Accelerating core research even more Early efforts are risky must gain enough experience to improve technology sufficiently to reduce risk & improve ROI

14 Next Steps: Structural Changes/Enhancements Feedstock Production and Logistics Multiple Feedstocks Multiple ag land uses Richer representation of logistics economics (harvest, storage, transport) Conversion 6 Potential Technologies Feedstock/ conversion relationships Multiple Products Richer representation of investor behavior Learning curve Fuel Distribution and End Use 4 Distribution Modes Greenfield vs retrofit of pipelines Regional depot/storage Dispensing Stations Structure captures evolution of system to connect ethanol production to fuel end use Petroleum Industry Simple global petroleum supply/demand dynamics BSM Workshop 10/06: Related Activities: BSM Investor Colloquies: Fall 2007 Path To Commercialization Risk Assessment (IPA): Spring 2008 Supply Chain Infrastructure Analysis (BAH): Fall 2007

15 Questions?

Preliminary draft; not for quotation or circulation.

Preliminary draft; not for quotation or circulation. Potential Expenditure Impacts of Significant Renewables Requirements in 2025: A Preliminary Analysis Jay Griffin and Mike Toman * RAND Corporation April 25, 2007 INTRODUCTION RAND currently is assessing