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Economics of Energy Crops


Introduction: We believe that research performed in a real world environment has true accountability -- where the value of research is not judged by individuals writing or reviewing reports, but by success or failure within a competitive marketplace.

By working with companies within the energy industry to conduct commercial scale engineering (co-firing) and agriculture (energy crops) research, our efforts are directed to address the primary economic criterion of our Research Partners:

The total cost of growing, harvesting, transporting, and co-firing must be at a cost reflecting a slight premium above the cost of coal.

As a point of reference, the cost of delivered coal (FOB) for electric utilities in Florida, currently ranges in price from $1.50 to $1.75 per MMBTU.

Background: In the opinion of our Research Partners, building a new stand-alone biomass energy power plant just can not currently compete economically with natural gas generation options (e.g., combined cycle). While there are numerous environmental benefits of using energy crops as a fuel source, it is important to understand that our industry Research Partners already comply or over-comply with every environmental law enacted -- and have spent hundreds of millions of dollars in doing so (e.g., installation of scrubbers, low NOx burners, etc.).

While future market conditions (e.g., increased price of fossil fuels) and/or governmental environmental actions (e.g., additional initiatives to reduce SO2 and NOx emissions, regulating CO2 emissions, tax credits, renewable energy portfolio standards, etc.) could very well change marketplace economics -- current economic benefits just do not exist to achieve even greater over-compliance with existing environmental laws.

Given this market reality, our research focus on co-firing energy crop fuel makes a lot of sense -- as much of an existing fossil fuel power plant's infrastructure is utilized (e.g., boilers, turbine/generators, etc.), thus avoiding the high capital cost of building a new stand-alone unit -- capital costs that would have to be recovered in pricing the electricity generated.

Since co-firing biomass simply represents a "fuel switching strategy" to a more environmentally friendly fuel source (where no new generation MW capacity is created) -- we are making an effort to differentiate to electricity consumers the product of electricity. In the automotive industry, companies like Michelin and Volvo have successfully used this type of product differentiation and marketing approach for years -- where a sizable market segment of consumers are willing to pay a premium for safety (above the minimum standards required by government).

Based on marketing research, it is the opinion of our energy industry Partners that a small but significant segment of electricity customers may be willing to pay a small premium (~5% to 10%) for Green Energy.

Cost Estimates: The below table reflects two scenarios of current cost estimates for energy crop fuel (excluding any costs of modifying an existing power plant to co-fire). Both scenarios reflect traditional practices for forestry (i.e., planting ~1,000 trees per acre) and harvesting (i.e., using skidders, feller-bunchers).

Base Case Assumptions:   Crop yields of 32 green tons per acre per year using non-improved tree species. Traditional harvesting costs in Florida of $13.00 per green ton.
Improved Case Assumption:   Crop yields of 55 green tons per acre per year by using improved tree species developed by Shell Energy and the University of Florida. Reducing harvesting costs to $8.00 per green ton, based on efficiency improvements demonstrated by Scott Paper Company in Southern Alabama.

Estimated Cost Per MMBTU For Energy Crops

Cost Component:
Base Case
Improved Case

With our market-driven perspective, several critical research objectives become immediately clear. First, even if improvements in crop yields can be achieved by using improved species of trees -- this alone will not realize the primary economic criterion of our Partners (e.g., costs reflecting a slight premium above coal which currently is $1.50 to $1.75 per MMBTU). Second, even with efficiency improvements in traditional methods, harvesting costs still represent ~65% of total energy crop fuel costs.

Agriculture Research Focus: In order to meet economic objectives, we are modifying traditional practices in foresty and harvesting -- conducting and structuring commercial scale research in the following area:

Increased Crop Yields Per Acre: While continuing research on improved species (e.g., propagation clonal research on eucalyptus, cottonwood, and willow treestock), we are also implementing tree planting density research. This involves planting configurations of up to 3,000 trees per acre (compared to traditional practices of ~1,000 trees per acre). In addition, we are performing weed control research by mulching tree beds -- again using a market based approach, evaluating the additional cost of mulching versus increased crop yields.

Harvesting Research: Recognizing that harvesting costs using traditional methods (even with improved efficiency) may represent 65% or more of total energy crop production costs, we believe that research into this area may provide a key aspect of achieving economic objectives (e.g., lowering the per unit cost per MMBTU of energy crop fuel).

We are directing and structuring research into the use of high efficiency harvesting systems currently used in Europe, such as the Claas Jaguar forage harvester equipped with a willow head. Through literature reviews, discussions with Claas, the Antares Group (the lead consultant for the New York Willow Project), and others, the estimated cost of using a high capacity forage harvester is $.50 to $.65 per MMBTU -- approximately one-third of current harvesting costs using traditional methods.