A sensitivity analysis conducted as part of the financial evaluation of project economics will help determine economic viability of the proposed plant. This process will also help identify variable costs that will have the most profound impact on project economics. The economic analysis should incorporate a variety of factors. These include:
- Feedstock costs. The source of raw materials including feedstock and other inputs like enzymes should be considered. Sources of the feedstock, price history, supply and access on a year around basis should be evaluated.
- Energy costs. Energy costs are a major economic factor in ethanol plant economics. Pricing history and supply options should be considered. While risk management should extend to many areas of plant operations, energy and feedstock costs are key input factors where risk mitigation strategies should be developed and considered during the economic evaluation.
- Markets. A range of projected values for the primary and secondary products produced at the plant should be developed. These values should be projected for target markets most advantageous to the plant. Elasticity of the products and the markets should be considered, as well as an analysis of competing producers.
- Technology. A variety of process technologies are available for ethanol production. Appropriate technologies should be evaluated. Commercial applications of the technology should be confirmed and process guarantees should be considered.
- Construction. Qualifications, experience and responsibilities of the design and build firm(s) should be thoroughly evaluated. Construction cost(s) and tasks should be fully identified and the total project cost should be clearly understood. Project time lines should be established and the cost of potential design, materials or construction changes should be identified.
- Site and infrastructure. The rationale for selecting a specific site should be understood and advantages relative to competing sites should be calculated. Costs for utilities Energy, process and sanitary water, waste treatment and permits should be confirmed. Detailed planning and diligent supply negotiations can help control capital costs and operating expenses.
- Transportation and storage. Ethanol production requires transportation and storage of products into the plant (feedstock and other inputs) and out of the plant (finished and intermediate products). Cost competitive transportation modes should be evaluated and storage requirements should be calculated to determine the impact on capital and operating costs.
- Management and organization. The cost of recruiting and training the management team should be assessed. The impact of personnel costs should be calculated by operating and management team positions and the projected number of employees required by the plant should be established.
- Organizational models should be coordinated with design of the management team. Capital costs and debt financing. A range of projected costs should be considered during the economic assessment. The business model and impact of various tax laws and incentives should be estimated in the financial pro forma.