Brian Duff

1
Biofuels Project DevelopmentBiodiesel
Feasibility Studies
Virginia Biodiesel Conference James Madison
University November 16, 2004

• Brian Duff
• BBI International
• Golden, Colorado
• bduff_at_bbibiofuels.com
• [phone]

2
Presentation Overview

• Introduction to BBI International
• Project Development Path
• The Feasibility Study
• Lessons Learned

3
BBI International

• BBI International founded in 1995 by Mike and
  Kathy Bryan
• 27 full-time employees
• Three Divisions
• Consulting Services
• Conferences and Workshops
• Publications and Recruiting

4
BBI Consulting Division

• Leading biofuels consulting company in the US
  gt85 feasibility studies and business plans in the
  last five years
• Primary expertise is in ethanol production from
  grain (corn, milo, barley, wheat) and sugar crops
  (potatoes, sugar beets, sugarcane)
• Additional expertise in biotechnology and
  renewable energy technologies biodiesel,
  anaerobic digestion, chemicals from biomass,
  cogeneration
• An independent source of information and data for
  owners, lenders and policy makers

5
BBI Conferences Division

• Produce and Sponsor Conferences and Workshops,
  including
• 20th Annual International Fuel Ethanol Workshop
  Trade Show
• 9th Annual National Ethanol Conference Policy
  and Marketing
• National Biofuels Symposium for Lenders
• World Summit on Ethanol for Transportation Fuels

6
BBI Publishing Division

• BBI produces a variety of industry-related
  publications, including
• Ethanol Producer Magazine
• Biodiesel Magazine
• Ethanol Plant Development Handbook
• Ethanol Industry Directory
• www.bbibiofuels.com
• www.ethanolproducer.com
• www.biodieselmagazine.com

7
Project Development Path

• Organize Board and Business
• Secure Seed Money
• Feasibility Study
• Secure Project Development Funds
• Business Plan
• Prospectus
• Raise Equity
• Secure Debt Financing
• Construction and Startup

8
The Feasibility Study
9
Why should you conduct a Feasibility Study?

• The study should clearly demonstrate the
  viability of your biodiesel project (or not!)
• Determines suitability of sites
• Documents historical feedstock supply and
  pricing, determines markets for products and
  co-products, estimates the biodiesel capital and
  production costs
• Stronger investor and lender package
• Required by USDA loan programs
• Invest 0.1 to evaluate reduce risk

10
Questions that should be answered by the
Feasibility Study

• Are suitable sites available?
• What is the availability and likely costs for
  feedstocks?
• How will feedstocks be shipped?
• Are adequate utilities and labor available and
  affordable?
• How much will it cost to make your products?
• Who will buy the products and for how much?
• Will your proposed plant be competitive and
  profitable?

11
Key Elements of a Biodiesel Feasibility Study

• Site selection
• Feedstock analysis
• Market analysis
• Biodiesel
• Oilseed Meal
• Glycerol/Glycerin
• Financial analysis
• Construction costs
• Owners costs
• Operating costs
• Projected profitability and sensitivity studies

12
Site Selection
Courtesy of Todd Sargent/West Central Soy
13
Site Selection

• Typically 10 to 20 acres in a rural or light
  industrial area with
• Access to low cost feedstock
• Good rail access
• Good road access
• Adequate utilities at reasonable cost
• Close proximity to co-product markets
• Access to biodiesel markets
• Access to labor

14
Site Selection

• A 10 MMGPY plant could average 15 trucks per day
  
• Access to rail will provide a plant more options
  for marketing products to more distant markets
• A plant site on a main line rail line is
  generally better than short line rail
• Access to two rail lines is another plus
• An existing rail siding will reduce construction
  costs

15
Site Selection

• Utilities required include electricity, steam,
  water, cooling water, and wastewater disposal
• Steam Consumption 7500 BTU/gal biodiesel
• Electricity 0.07 to 0.1 kWh/gal biodiesel
• Make-up Water 0.15 to 0.2 gal/gal biodiesel
• Cooling Water Capacity 75 gal/gal biodiesel or
  5800 BTU/gal
• Wastewater can vary considerably with plant
  design, but can be as low as 0.02 gal/gal

16
Site Selection
Federal Permit Requirements

• Clean Air Act of 1990
• Prevention of Significant Deterioration (PSD)
  Construction Permits
• Federal New Source Performance Standards (NSPS)
• National Emission Standards for Hazardous Air
  Pollutants (NESHAPS)
• Title V Operating Permit of the Clean Air Act
  Amendments
• Risk Management Plan
• Clean Water Act
• National Pollutant Discharge Elimination System
  (NPDES)
• Oil Pollution Prevention and Spill Control
  Countermeasures
• Comprehensive Environmental Response Compensation
  and Liability Act Community Right to Know Act
  (CERCLA/EPCRA)
• Tier II Forms listing of potentially
  hazardous chemicals stored on-site
• EPCRA Section 313 and 304 and CERCLA Section
  103 use and release of regulated substances
  above threshold and/or designated quantities
  annually.

17
Site Selection
State Permit Requirements

• Air Quality Permits
• Storage Tank Permits
• Water Quality Permits
• State Department of Motor Fuels
• State Department of Transportation
• o Highway Access Permit
• o Possible Easement rights
• State Department of Health
• State Department of Public Service
• o Boiler License
• State Department of Natural Resources
• o Water appropriation permits
• o Other waters and wetland considerations

18
Feedstock Analysis
19
Feedstock Analysis

• Local or imported feedstock?
• Availability and price (10-yr history)
• Biodiesel production potential
• Co-product yield
• Competition for
• feedstock

20
Feedstock Analysis
Define the feedstock supply area 50 mi
21
Feedstock Analysis
Document the historical feedstock production
22
Feedstock Analysis
Document historical feedstock pricing
23
Feedstock Analysis
Document historical feedstock pricing
24
Feedstock Analysis
Document historical feedstock pricing
25
Feedstock Analysis
Document historical feedstock basis
4-Year Avg. Basis Difference (-0.40/bu)
26
Feedstock Analysis
Evaluate the biodiesel production requirements
27
Feedstock Analysis
Evaluate the biodiesel production potential
28
Results of Feedstock Analysis

• Quantifies feedstock availability and identifies
  potential limitations
• Documents the historical local average price
• Evaluates whether the local basis (oilseed price
  relative to CBOT) is likely to go up a lot or a
  little based on increased demand
• Quantifies biodiesel production potential from
  regional feedstocks

29
Biodiesel Market Analysis
30
Biodiesel Market Analysis

• Defines local, regional and national markets for
  the projects biodiesel
• Documents historical diesel use and price in the
  markets
• Estimates market potential and sets product
  selling price for financial analysis

31
Define Markets
PADD's were delineated during World War II to
facilitate oil allocation
32
Define Markets
Regions as defined by the US DOE Energy
Information Administration
33
Document Historical Use
34
Document Historical Use National
35
Document Historical Use Regional
36
Document Historical Prices
37
Document Historical Prices
38
Document Market Statistics Current and
Projected Use

• Today
• Production capacity 60 million gal/yr
  (dedicated)
• Most sales to fleet and niche markets
• Biodiesel sales (2002) 18 million gal/yr
• Biodiesel sales (2003) 20 million gal/yr
• Need legislative incentives to compete with
  petro-diesel
• The Future
• The potential to capture some percentage of the
  60 billion gallon US diesel market
• 1 of highway uses 416 million gallons
• 5 of highway uses 2 billion gallons

39
Project Biodiesel Market Growth
Anticipated growth of the biofuels market under
the proposed RFSis driving project development
40
Market Projections US on-highway market to
double by 2025
41
Market Projections US markets to be dominated
by on-highway sector through 2025
42
Market ProjectionsRegional on-highway sector to
increase 60 by 2025
43
Estimate Local Market Potential from Available
Feedstock
44
2003 European Union (EU) Biodiesel Production
Statistics

• European Union
• 2,124,000 tonnes of capacity
• 624 million gal/yr
• 315 million gal/yr sales
• US
• 200,000 tonnes of capacity
• 60 million gal/yr
• - lt20 million gal/yr sales
• EU capacity 10x gt US capacity
• EU sales 15x gt US

Source Situation and Development Potential for
the Production of Biodiesel , an International
Study by Dieter Bockey, Werner Körbitz
45
Biodiesel Sales Trends Germany 550,000 t /yr
161 million U.S. gal/yr
46
Co-Product
Market Analysis
47
Co-Product Markets

• Identify co-products based on process and
  feedstock
• Are there nearby markets for the co-products?
• Oilseed Meal
• Glycerol
• Soapstock

Courtesy of biodiesel.org
48
Oilseed Meals

• Up to 80 of bushel of soy (48/60 lbs)
• Up to 67 of bushel of Brassica oilseeds (40/60
  lbs)
• Mechanical extraction yields higher oil content
  in meal 7 to 13
• Solvent extraction yields lower oil content in
  meal lt1.5 (boosts protein concentration)
• Typically sold dry or pelletized as livestock
  feed
• Priced based on protein content against soy meal
  as standard
• High fat meals sold at a premium
• Other meal uses organic biocontrol agent,
  fertilizer, edible food grade

49
Glycerol /Glycerin

• 10 of material balance
• Several grades of Glycerol possible 80 (crude,
  bulk), 99.5 (USP), 99.8 (Kosher)
• Glycerol refining optional additional cost
• Primary market is USP grade for pharmaceutical
  uses gt1200/ton
• Market subject to downward pressure from
  oversupply EU problems

50
Soapstock

• By-product of crude vegetable oil refining
  washing, degumming, neutralization
• Up to 17 of incoming crude oil
• High fatty acid content
• Can also be converted into biodiesel
• Cheaper than oilseed feedstock
• Used as a surfactant and emulsifier
• Can be sold as animal feed
• Other applications dust suppressant, fatty acid
  production
• 0.15 - 0.20/lb (300-400/ton)
• Cannot ignore value as co-product

51
Financial Analysis
52
Financial Analysis

• Use conservative assumptions
• Evaluate 2 or 3 plant sizes
• Use ROI or IRR for profitability
• 25 minimum pre-tax ROI, 30 for better projects
• Returns are most sensitive to feedstock cost and
  product sales price

53
Establish Project Statistics
54
Determine Staffing Requirements
55
Determine Construction Cost Components
56
Establish Construction Costs
57
Identify Owners Costs

• Land, roads, rail site development
• Administration building/furnishings
• Utilities, water treatment, fire water
• Permits
• Startup costs and training
• Construction interest and loan fees
• Inventory costs
• Owners Costs can add 20-30 per gallon to the
  overall project cost

58
Quantify Owners Costs
59
Set Key Parameter Assumptions
60
Results of Financial Analysis
Project Summary
61
Results of Financial Analysis
Pro Forma Projection
62
Typical Operating Costs Revenue Soy Oil

• Variable Operating costs
• Crude Soy Oil _at_ 0.25/lb ...1.92/gal
• Energy..0.05/gal
• Chemicals, catalysts, reagent...0.18/gal
• Labor....0.03/gal
• Water/Waste0.02/gal
• Administrative costs...0.17/gal
• Debt service ...0.07/gal
• Total Cost of Production...2.44/gal
• Biodiesel _at_ 1.90/gal....1.90/gal
• USP Glycerin _at_ 1200/ton...0.38/gal
• Total Revenue ... 2.28/gal
• Pre-tax income ..... (0.16/gal)

63
Typical Operating Costs Revenue RFO

• Variable Operating costs
• RFO _at_ 0.15/lb ...1.15/gal
• Energy..0.05/gal
• Chemicals, catalysts, reagent...0.18/gal
• Labor....0.03/gal
• Water/Waste0.02/gal
• Administrative costs...0.17/gal
• Debt service ...0.07/gal
• Total Cost of Production...1.67/gal
• Biodiesel _at_ 1.90/gal....1.90/gal
• USP Glycerin _at_ 1200/ton...0.38/gal
• Total Revenue ... 2.28/gal
• Pre-tax income .......0.61/gal

64
Breakeven AnalysisOil Feedstock with RFS
65
Breakeven AnalysisBiodiesel Selling Price
66
Its Feasible. So now what?

• Complete a business plan
• Obtain commitment for the site
• Select process design company and begin
  preliminary engineering work
• Begin discussions with lenders
• Complete prospectus for stock offering
• Obtain required permits
• Secure equity and debt financing
• Hire a project coordinator
• Begin construction

67
Commercialization Strategy

• Follow ethanol industry model
• Site with adequate feedstock supply, utilities,
  transportation and markets
• Utilize successful design/build firms
• Hire experienced product marketing and risk
  management firms
• Assemble first rate management team
• Need 40 equity, 50 better
• Projected Return on Equity should be 30 or higher

68
Lessons Learned
69
Why Biofuels Projects Fail

• Poor management
• Undercapitalized
• Increased price of raw materials or lower price
  for products
• Plant is too small/not competitive
• Poor feasibility study/business plan
• Plant does not perform up to specs

70
Successful Biofuels Projects

• Strong management team
• Many are farmer owned with feedstock delivery
  contracts
• Win/Win marketing agreements
• Reputable design/build companies
• Profitable 25 to 30 average annual ROI

71
The Last Word

• In most circumstances
• Without RFS, vegetable oil not currently feasible
• Without RFS, RFO are still potentially feasible
• Increasing demand for biodiesel (even 200 million
  gallons per year!) does not mean higher prices if
  supply keeps pace with demand
• Do not use a high biodiesel price to justify your
  project
• Do not rely on USDA CCC program payments to
  make/break project

72
Thank You!
bduff_at_bbibiofuels.com 303-526-5655 www.bbibiofuels
.com