A key consideration in ethanol plant feasibility is the size and cost of the plant. Current capital cost per annual gallon of installed capacity for an ethanol plant ranges from $1.25 to $2.00. For example, a 40 million gallon per year plant may cost nearly $80 million. Capital cost per annual gallon tends to decrease with plant size. A 100 million gallon per year ethanol plant may have a capital cost of approximately $125 million. Operating capital increases the financial requirements of the project.
Organization and Coordination
It is important to focus on the organizational structure of the entity that will take an active role in this evaluation process. The process requires a commitment of time and resources. After selecting the development consultant, one experienced, as our company, a point of contact should be established. One word of caution: several states have strict banking and securities laws that regulate the raising of money. Even passing the hat to collect start-up funding may be legally interpreted as a violation of securities laws. An initial step in this process of forming an evaluation committee should be to check with state banking and securities officials to determine the laws that govern the process.
Once a steering committee of interested parties has been organized, the group may want to take steps to create public awareness of the proposed project. This step can be accomplished through a variety of means.
Media announcements of public information meetings, newsletters, newspaper articles and their low-cost or no-cost announcements can be utilized.
The response to this informational solicitation can help gauge interest in the project, thereby expanding the pool of people who may be able to assist the effort.
A public information meeting can often be enhanced by presentations about ethanol plant development opportunities. This information can be general in nature and can come entirely from an overview generated by the steering committee. The meeting can also be expanded to include a presentation by someone affiliated with ethanol production or parties experienced in this process. The steering committee will be well served to be certain of the applied experience and credentials of parties represented as having experience with ethanol project development.
After a public meeting or a determination of interest in the process of evaluating ethanol production opportunities, the steering committee may wish to consider a variety of factors. Following are factors that represent many of the basic considerations during the initial assessment of ethanol plant viability.
Assessment Factors
An initial assessment of ethanol production economics and project viability in a specific area should be based on several factors. The assessment is not intended to be a feasibility study but rather an initial indicator of whether the proposed project is practical from an economic perspective. The project team should ask the question: Can a well designed, well built and well run ethanol plant located in this area make money and provide a competitive return to owners and operators? This question forces project developers to evaluate objectives and analyze available resources. This process also provides an opportunity to evaluate alternatives.
Undertaking this initial assessment will help provide justification to proceed with a more detailed and costly technical and engineering analysis, if warranted. The later analysis will also help determine optimum sites and other factors that refine the economic outlook should the project proceed.
Initial Considerations
The initial pre-feasibility evaluation should include but is not necessarily limited to:
Project Coordination Options
In this stage the financial resources that can be spent for the study should be determined. However, direct participation in this process by steering committee members and others is helpful if the project advances beyond the initial stages. Local ownership of this process and the resulting work product, i.e., the pre-feasibility conclusion, tends to serve as motivation for the feasibility study process if initial results support a more detailed evaluation of the proposed project.
Pre-Feasibility Conclusions
Following completion of the pre-feasibility study, a conclusion must be reached regarding the practicality of ethanol production under the circumstances considered. The steering committee may conclude that the project is simply not feasible at that time in that area. This may be an accurate conclusion and the steering committee should be prepared to accept this result.
Project Variables
During the assessment, those who are working on the study may wish to identify specific factors that can change the conclusion. For example, if targeted ethanol production incentives become available, what impact will these and other incentives have on the proposed project? If infrastructure exists in a specific location, thereby substantially reducing the capital cost of the proposed project, will this factor substantially change the conclusion of the study? If feedstock materials have little or no cost of acquisition, will this materially affect the conclusion? What is the impact of combining the proposed project with an existing asset like low-cost waste generation steam? These and other factors should be considered. An awareness of these potential resource assets will also be valuable during the next step if a feasibility study is conducted. Such a study should begin to focus on optimum sites and factors noted above that may play an important role in the economics of ethanol production in some situations.
Evaluating Options
If the pre-feasibility study conclusion supports a more detailed economic and site assessment, the steering committee may wish to work with state or local economic development organizations. Such organizations often have a data base of sites that meet specific infrastructure requirements. Utility companies often have business development divisions that can provide similar assistance. In addition, there are consulting groups that have experience in leading the feasibility study process while working closely with the project organizers. While there are a variety of approaches that can be employed during the feasibility study, the steering committee should clearly understand that this next step requires a commitment of time and money.
Resources are available to support the project sponsors during this process. However, the experiences of the past decade clearly point to the higher success rate of projects in which the steering committee is active and able to attract financial support and expertise during the feasibility study phase.
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