Combined Heat and Power Opportunities in the Dry Mill Ethanol Industry*

Combined Heat and Power Opportunities in the Dry Mill Ethanol Industry* Bruce Hedman Energy and Environmental Analysis, Inc March 18, 2008 *Based on work supported by the EPA CHP Partnership

Drivers for Ethanol Demand Originally promoted in early 1980s as an octane enhancer and alternative to imported oil Resulted in a many very small, very inefficient ethanol producers most shut down Then used as an oxygenate for compliance with federally mandated programs Replacement for MTBE (22 states had banned MTBE as of 2006) Increased value perceived as gasoline prices climb Demand is poised to increase dramatically as a result of the Renewable Fuels Standard 2

Historic U.S. Ethanol Production 7 6 5 4 3 2 Billions of Gallons 1 0 1980 1982 1984 1986 1988 1990 1992 1994 1006 1998 2000 2002 2004 2006 3 Source: Renewable Fuels Association

The 2007 Renewable Fuels Standard Requires 36 Billions Gallons of Biofuels Capacity by 2022 40 Billions of Gallons 35 30 25 20 15 10 5 0 2006 2007 2008 2010 2015 2022 4

How Is Ethanol Produced? Wet Corn Milling (18% in 2006) Large chemical plant Ethanol is one byproduct Dry Corn Milling (82% in 2006) Dedicated ethanol production Small to medium size range Fastest growing market segment Cellulosic Ethanol Emerging process Enables wide range of feedstocks 5

Corn Ethanol Capacity Will More than Double by 2015 40 35 Billion Gallons 30 25 20 15 10 5 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Corn-based Ethanol Biodiesel Cellulosic Biofuels Additional Advanced Biofuels 6 Source: Center for Agricultural and Rural Development, University of Iowa

Dry Corn Mill Process 7 Source: Renewables Fuel Association

Ethanol Plants in North America 8 Source: Center for Agricultural and Rural Development, University of Iowa

The Dry Mill Ethanol Industry Today Over capacity in producing regions Distribution capacity lags production Ethanol prices have fallen Corn prices remain high Energy prices rising Some plant closings Questions about energy efficiency and carbon benefits of fuel ethanol 9

Dry Mill Ethanol Production Costs Labor 5-6% Admin 3-4% Other 1% Materials 8-10% Energy 15-20% Corn 60-70% 10 Source: USDA s 2002 Cost of Ethanol Production Survey

CHP (Cogeneration) Is an Excellent Fit for the Ethanol Industry Energy is the second largest cost of production for dry mill ethanol plants Electric and steam demands are large and coincident Typical power demand is 2 to 10 MW Typical steam use is 40,000 to 250,000 lb/hr Electric and steam profiles are relatively flat Operating hours are continuous Energy costs are rising 11

What Can CHP Offer the Ethanol Plant? Increased energy efficiency of ethanol production Energy cost savings from 10 to 25 percent Reliable electricity and steam generated on site Hedge against unstable energy costs Improved competitiveness Reduced carbon footprint 12

CHP Recaptures Much of that Heat, Increasing Overall Efficiency of Energy Services Source: EEA 13

Increased Efficiency Results in Reduced Carbon Emissions Source: EEA 14

CHP Options for Ethanol Plants Gas Turbine CHP If sized to electricity load, additional steam needed Gas Turbine/Supplemental Fired CHP Can be sized to meet both steam and electric loads Boiler/Steam Turbine CHP Short payback, limited electric capacity Biomass Fueled Least-cost fuel but capital intensive; Tax credit for biomass electricity; Green electricity if sold Integrated VOC destruction Produce power with steam from thermal oxidizer, incorporate VOC destruction in turbine or boiler systems 15

There Are 12 Ethanol Plants Using CHP Blue Flint Ethanol* Underwood, ND 50 MMGal/y Coal Creek Power Plant Golden Cheese Company of California* Corona, CA 5 MMGal/yr 47 MW Gas Turbine Northeast Missouri Grain LLC* (POET) Macon, MO 45 MMGal/yr 10 MW Gas Turbine U.S. Energy Partners LLC* (White E) Russell, KS 48 MMGal/yr 7.5 MW Gas Turbine Adkins Energy LLC Lena, IL 40 MMGal/yr 5 MW Gas Turbine The Andersons Albion Ethanol LLC Albion, MI 55 MMGal/yr 2 MW TO/Steam Turbine Archer Daniels Midland Peoria, IL 200 MMGal/yr 64 MW Boiler/ST - Gas Turbine Archer Daniels Midland Wallhalla, ND 40 MMGal/yr 2 MW Boiler/Steam Turbine East Kansas Agri-Energy LLC Garnett, KS 35 MMGal/yr 1 MW TO/Steam Turbine Front Range Energy LLC Windsor, CO 40 MMGal/yr 2 MW TO/Steam Turbine Otter Creek Ethanol LLC (POET) Ashton, IA 55 MMGal/yr 7 MW Gas Turbine Prairie Horizon Agri-Energy LLC Phillipsburg, KS 40 MMGal/yr 4 MW TO/Steam Turbine Sterling Ethanol LLC Sterling, CO 42 MMGal/yr 1 MW Boiler/Steam Turbine Subtotal - Partnerships 148 MMGal/yr 64.5 MW Total 695 MMGal/yr 152.5 MW 16

There Are at least 11 CHP Systems Under Construction E Caruso* (Goodland Energy Center) Goodland, KS 20 MMGal/yr Steam from coal power plant Missouri Ethanol* (POET) Laddonia, MO 45 MMGal/yr Gas Turbine Spiritwood Ethanol* Jamestown, ND 100 MMGal/yr Co-located with 50 MW coal power plant Southwest Iowa Renewable Energy LLC* Council Bluffs, IA 110 MMGal/yr Steam from MidAmerica Power Plant Archer Daniels Midland Columbus, NE 275 MMGal/yr Boiler/Steam Turbine Bonanza Energy LLC/Conestoga Garden City, KS 55 MMGal/yr TO/Steam Turbine Central Illinois Energy LLC Canton, IL 37 MMGal/yr Boiler/Steam Turbine Central MN Ethanol Coop Little Falls, MN 21.5 MMGal/yr Gasifier/Steam Turbine Renova Energy Heyburn, ID 15 MMGal/yr Digester/Boiler/Engines Yuma Ethanol Yuma, CO 40 MMGal/yr TO/Steam Turbine Subtotal - Partnerships 275 MMGal/yr Total 718.5 MMGal/yr ~45 MW CHP 17

What is CHP s Role in Reducing Overall Energy Use and Lowering the Carbon Footprint of the Dry Mill Ethanol Process? 18

Dry Mill Baseline Assumptions State of the Art Operating Assumptions for Dry Mill Ethanol Operating Assumptions Natural Gas Coal/Biomass Plant Capacity, MMgal/yr 50 50 Operating Hours 8600 8600 Boiler Type Packaged Fluidized Bed DDGS 100% 100% Dryer Type Direct Fired Steam VOC Destruction RTO Boiler Electricity Use, kwh/gal 0.75 0.90 Steam Use, lb/gal 17.1 31.4 Dryer Fuel, MMBtu/gal 10,500 NA RTO Fuel, MMBtu/gal 330 NA 19

Dry Mill Energy Consumption Baseline State of the Art Energy Consumption for Dry Mill Ethanol Energy Consumption Natural Gas Coal/Biomass Plant Capacity, MMgal/yr 50 50 Operating Hours 8600 8600 Annual Electric Use, MWh 37,500 45,000 Average Electric Demand, MW 4.4 5.2 Total Plant Fuel Use, Btu/gal 32,300 40,300 Boiler Fuel Use, Btu/gal 21,500 40,300 Steam Use, lbs/hr 100,000 182,000 Annual Steam Use, MMlbs 860 1,570 Annual Boiler Fuel Use, MMBtu 1,075,000 2,015,000 Annual Drier Fuel Use, MMBtu 525,000 0 20

CHP Options Evaluated Case 1: Natural Gas - Gas Turbine/Supplemental Fired Electric output sized to plant demand Case 2: Natural Gas Gas Turbine with Power Export. Thermal output sized to plant demand Case 3: Natural Gas Gas Turbine/Steam Turbine with Power Export. Thermal output sized to plant demand, maximum power generation Case 4/5: Coal/Biomass High pressure boiler/steam turbine Power output matched to plant demand 21

CHP Case Description CHP System CHP Case 1 Gas Turbine/ Fired- HRSG CHP Case 2 Gas Turbine/ HRSG CHP Case 3 Gas Combined Cycle CHP Case 4 Coal Boiler/ Steam Turbine CHP Case 5 Biomass Boiler/ Steam Turbine Net Electric Capacity, MW 4.0 22.1 30.0 5.0 5.0 System Availability, percent 97% 97% 97% 95% 95% Annual Operating Hours 8,334 8,334 8,334 8,334 8,334 Annual Electric Generation, MWh CHP Steam Generation, MMBtu/hr Supplemental Firing Steam, MMBtu/hr Process Steam Generation, MMBtu/hr Annual Process Steam Generation, MMBtu 33,337 184,187 250,027 40,812 40,812 22.5 100.1 100.1 204.3 204.3 77.6 NA NA NA NA 100.1 100.1 100.1 182.6 182.6 834,200 834,200 834,200 1,521,800 1,521,800 25

Biomass - CHP Total Net Energy Consumption, Btu/Gal Ethanol 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Nat Gas - Base Nat Gas - CHP/No Export Nat Gas - CHP/Export Nat Gas CC CHP/Export Coal - Base Coal - CHP Biomass - Base Plant Energy Central Station Energy 26

Total Net Energy Consumption, Btu/Gal Ethanol 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Nat Gas - Base Nat Gas - CHP/No Export Nat Gas - CHP/Export Nat Gas CC CHP/Export Coal - Base Coal - CHP Biomass - Base Biomass - CHP Plant Energy Central Station Energy Displaced Central Station Energy 32

Biomass - CHP Total Net CO 2 Emissions, lb/gal Ethanol 11 10 9 8 7 6 5 4 3 2 1 0-1 Nat Gas - Base Nat Gas - CHP/No Export Nat Gas - CHP/Export Nat Gas - CC CHP/Export Coal - Base Coal - CHP Biomass - Base Plant CO2 Central Station CO2 33

CHP in Ethanol - Bottom Line Energy use and carbon footprint primarily driven by fuel choice and process configurations Once fuel is selected, CHP can reduce net energy use, reduce carbon footprint, and enhance competitive position Increased thermal utilization improves energy efficiency and reduces net carbon emissions 36

Questions? Bruce Hedman Energy and Environmental Analysis, Inc 1655 North Fort Myer Drive Arlington, VA 22209 703-373-6632 bhedman@icfi.com 37