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There are significant challenges facing the integration of biomass feedstocks into a cost- competitive supply system. The absence of an infrastructure capable of producing sufficient dedicated biomass feedstocks to supply an economically-viable conversion facility is a major challenge facing the biofuels industry. This lack of infrastructure is particularly apparent in localized targeted biofuel production areas/regions. The challenges and limitations presented in this section provide insight on the areas where further research and development are needed to improve the economic and financial competitiveness of biomass feedstocks with petroleum.

Cellulosic Biomass Feedstock Spot Markets

Spot markets, similar to that existing for corn grain or other commodities, provide demanders with an efficient mechanism to obtain an immediate supply of biomass feedstock at an efficient price. Currently, there are no spot markets for cellulosic

biomass, so conversion facilities must rely on production areas located in close proximity to the plant for supply. To obtain a stable supply of biomass feedstock, conversion facilities could engage in: (1) contracting with individual growers, (2) using a

cooperative arrangement to contract with a group of growers, (3) arrange long-term land leases such as Conservation Reserve Program leases, and/or (4) purchase crop land (Epplin et al. 2007). The production of dedicated energy crops must be equally as profitable as conventional crops for any of these options to be viable and to induce

farmers to produce dedicated energy crops instead of the next best alternative (Walsh 1994; Fumasi, Richardson, and Outlaw 2008). Fewell, Bergtold, and Williams (2011) suggest additional incentives may be required to realize such land use conversion by producers.

Cellulosic Biomass Feedstock Storage Degradation

Loss of quantity and quality of biomass during storage is just one more challenge facing the biofuels industry. Storage is a necessary component of the biomass feedstock supply system because dedicated biomass feedstocks typically have a narrow harvest window compared to the year-round need of the conversion facility. Moisture content plays a major role in biomass degradation and studies indicate decreasing moisture levels to less than 15 percent will aid in the preservation of the material. Idaho National Laboratory estimates dry matter loss must be reduced to less than five percent to meet government and private sector cost goals (Hess, Wright, and Kenney 2007).

High-Energy Sorghum Moisture Content

A major hurdle in minimizing the cost to supply a biomass conversion facility with HES is the high-moisture content of the harvested crop. HES harvested for silage with no field drying time has a moisture content ranging from 60 to 75 percent, depending on the season and growth stage. The moisture content in the fall season is difficult to predict as it is not dependant on the crop itself, but is also dependant on weather patterns. The high-moisture content increases trucking costs due to state regulations. For example, the

Texas Department of Transportation’s load limits (achieved with maximum transport trailer capacities) result in a substantial number of loads of wet material being hauled to the conversion facility to obtain a sufficient amount of dry material to meet minimum daily plant requirements. A somewhat effective method for reducing the moisture content is terminating the HES plant with a herbicide prior to harvesting. This technique reduces the moisture, but not on a scale that makes it an extremely attractive option, plus involves added production costs (Rooney 2010).

Another option for reducing excessive moisture transport is cutting the HES and allowing it to field dry. This could reduce the moisture content to 45 to 55 percent, but soil is picked up when the biomass feedstock is harvested, which reduces the conversion efficiency of the biomass feedstock. This method also produces higher field losses than other techniques, averaging around 10 percent (Blumenthal 2010). Further, the potential of high rainfall events during the harvest season in some locations (Raun 2010; Leidner 2010) suggests caution is appropriate with respect to pursuing in-field drying of mowed biomass feedstock. Also, there is the threat of lodging due to rain and wind, further reducing potential yield.

Biomass Feedstock Portfolio

A diverse portfolio of biomass feedstocks will most likely be required to supply a biomass conversion facility because it is intended to operate year-round. There are a

variety of alternative biomass feedstock sources available near the Middle Gulf Coast,82

Edna-Ganado, Texas area such as forestry residues, rice hulls, rice straw, gin trash, Coastal Bermuda hay and milo/corn hay (Carraway 2009; Popp 2010; Raun 2010). Most of these sources have large secondary markets and are expensive to acquire. The

availability of these biomass feedstocks is dependant on a variety of factors outside the control of the conversion facility and, thus, the conversion facility cannot solely rely on these sources for supply. These alternative sources must be supplemental to the

dedicated biomass feedstocks grown specifically for biofuels production by the conversion facility. Targeting specific production regions sets boundaries on biofuels production/sourcing opportunities as well as opportunity costs related to existing enterprises. In addition, when alternative sources come into play will typically be those times the dedicated feedstock is in short supply due to factors that also impact the alternative. It is expected there will be serious pressure on all feedstock alternatives.

Conversion Efficiencies of Alternative Biomass Feedstocks

There is a considerable variation in the conversion efficiencies of alternative biomass feedstocks (Rooney 2010). The conversion efficiency is based on the composition of the biomass feedstock and on the growth stage of the plant. For HES, soluble sugars are low during the early growth stages and increase until mid-September when they spike,

whereas lignin increases throughout the growing season (Rooney 2010). The varying

“Near” is intended to mean within 150 miles of the M iddle Gulf Coast, Edna-Ganado, Texas area

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composition of the biomass feedstocks makes it difficult to supply the conversion facility with a consistent quality of biomass feedstock. For conversion facilities to be efficient and cost competitive, a form of quality control reducing inconsistencies in biomass feedstock composition and moisture content will be required. In this thesis research, the conversion efficiencies of HES and SG are assumed equivalent throughout the year. However, the Sorghasaurus model is capable of accounting for differences in such©

efficiencies if they can be specified by the model user(s).

Switchgrass as an Insurance Strategy

The assumed approach in this thesis of producing SG for non-HES periods and/or as an insurance strategy ignores the possibility of purchasing coastal bermuda hay from area producers (Falconer 2011). But as mentioned, if the dedicated feedstock is in short supply, then it is expected the alternatives (e.g., bermuda hay) will also be in short supply and thus very expensive. As noted in the thesis, there are numerous reasons for the approach taken, but it is recognized further investigation of an appropriate insurance strategy is appropriate, given the limited availability of objective knowledge of (1) the existing hay market in the area where during drought or weather extremes is associated with ever-increasing prices and (2) the responsiveness/capability of area producers to supply requisite quantities inasmuch as needed times for such would probably correspond to production issues in the hay sector similar to HES and SG production problematic issues. Certainly, the potential of relying on Coastal Bermuda and other forages, including Johnsongrass (Sorghum halepense) are deserving of further attention.

Another potential issue related to SG is the assumed yield level. The assumed yield is based on a review of literature and discussion with researchers across several states. But, it is only fair to acknowledge other studies are using significantly higher per acre yields. A higher SG yield would improve the economics results of this thesis as evidenced by the sensitivity scenario which evaluated this issue, but not to the degree probably anticipated by many.

Switchgrass Costs

Several concerns are relevant in regards to the accuracy of the costs associated with SG biomass feedstock production in the targeted study area, recognizing the various

assumptions made as a result of the dearth of available pragmatic data. During the latter stages of this thesis research, Rooney (2011) noted several areas worthy of further investigation:

• The assumed single planting of SG for stand establishment may

understate what could be the need for seeding some/much of the acreage twice (or even three times) and over two years;

• The ten-year life cycle assumed in this thesis research may be excessive, with perhaps a six-year life cycle more realistic;

• In actual practice, planting of SG would not occur during the initial year but rather be phased in over time as allowed by availability of custom services, weather conditions, etc.;

• SG harvest should not be allowed during the initial spring or extended spring/early summer regrowth periods (e.g., April and May or March- July) – the consequences of doing so need to be quantified as should the83

prospects for doing a proportion of the SG harvest during those months in association with the last year of the respective acreage’s life cycle; • The management of SG insurance acreage is deserving of attention in

regards to whether or not, and if so how, it is fertilized and treated with herbicides; and

• The consequences of lengthened SG harvesting schedules in association with lowered heat units available for field drying during fall and winter months should be evaluated.

Trafficable Days

Risk associated with trafficable days is included in this thesis research to illustrate how weather can impact timing of field operations. This feature of the research provides insight to field timing and yield. Not included are the risks of hurricane or other

catastrophic weather events which have the potential of driving yield to near zero. Such an event represents a major threat to the cash flow and sustainability of biomass

feedstock supply.

At the suggestion of Rooney (2011), other Texas AgrLife Soil and Crop Science faculty are being

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In addition, the trafficable day estimate used in this research originated during the mid 1970s in association with research by Whitson et al. (1981) and Bordovsky (1979) in the Corpus Christi, Texas area. Should more research of the type noted in this thesis be pursued, these estimates should be updated and the protocol applied to other geographic regions as well.

High-Energy Sorghum Dryland Yield Curve

Uncertainties exist in regards to feasible HES, SG, and other biomass feedstock production yields in localized areas; that is, there is not an abundance of localized production yield data for biomass feedstocks (Blumenthal 2010; Rooney 2010). The yield data used in this thesis research are experts’ subjective estimates based on research plots across much of Texas, including the detailed planting date/harvest date harvested yield/harvest moisture content relationships assumed. These data are critically important in terms of their effects on bottomline delivered biomass feedstock costs and,

consequently, are deserving of attention in future research relations. Site-specific field trials in areas for which construction of biomass conversion facilities is being considered are a worthy consideration for further research.

Availability of Land for Biomass Feedstock Production

A majority of the land ideal for crop production is already used to produce food and fiber crops for animal and human consumption. Acquiring this land for the production of biomass feedstocks would require significant cost, potentially making this approach cost

prohibitive. Thus, it is perceived marginal land (e.g., pasture) will have to be used to produce biomass feedstocks which will reduce the yield potential and increase the production cost of biomass feedstocks.

According to Lee (2010), there are 1.2 million acres of improved

pasture/grassland within a 60-mile diameter circle centered along U.S. Highway 59 between Edna and Ganado, just west of El Campo, Texas. Recognizing the more than 110,535 acres of HES (in a three-year rotation), the approximate 37,225 acres of SG required to supply the 30-million gallon conversion facility year-round, and the approximate 40,000 acres of insurance SG acreage, suggest a total of 187,760 acres or 12.5 percent of this total 1.2 million acres is required to support the conversion facility. An emerging demand of this magnitude for such acreage potentially could affect the land rental market and, thus, result in the land cost estimates used in this thesis research to be an understatement of what might actually occur.

Crop Rotation Semantics and Economics

Exactly how production of HES and SG would be implemented in the Middle Gulf Coast, Edna-Ganado area is subject to debate. In this thesis research, it is assumed that a three-year rotation would be used for HES production, with one year of production and two years of rotation out of production. Pasture is assumed to be the norm during the out-of-HES production years, with entities other than the CBFFE subleasing the acreage in those years and being responsible for all cultural and grazing activities. A simplified sensitivity analysis was enacted late in the thesis research exploring the potential impacts

of greater rental income being associated with field crops being grown by the subleasees. The scope of production systems and the extent to which one or multiple entitiy(ies) actually perform which cropping activities are deserving of additional attention in the future.

Irrigation

A basic assumption of this thesis research is that HES production will require supplemental irrigation during the immediate post-planting stages, for all planting periods. There is some speculation that might not be the case, particularly for late spring planting periods (Rooney 2011). Further investigation of the weather data provided by Raun (2010), perhaps with a growth model, appears appropriate, given the magnitude of capital investment required for irrigation wells and the nature of the results associated with sensitivity scenarios focused on this issue. The current context of irrigation in this thesis research is that it is assumed to reduce risk and, therefore, much of the costs are in investment to establish stands, suggesting only marginal costs to actually irrigate. Further, it is potentially possible that irrigation costs are overestimated because it is assumed the wells are used only on HES during an extremely limited period of time – could those wells be used on other crops during other periods of the year (and the associated fixed costs spread a bit)? However, it is also assumed that the investment in wells and canals for one year’s production would be sufficient and capable of reaching all HES; e.g., irrigation infrastructure for about 37,000 acres in year one will also handle the

second and third year acres. A more in-depth exploration of these topical issues are warranted.

Storage Operations

This thesis research assumed and accounted for the costs of delivering and storing high- moisture content HES at the front gate of the biofuel refinery. The costs of removing excess moisture prior to the conversion facility process and management of such excess moisture disposal are ignored in this research’s cost estimates . The exact magnitude84

and relative importance of such costs are dependent on the method of removal, but could require construction of evaporation ponds or other disposal means. However, storage costs may be overestimated for dry SG biomass feedstock as most probably the bunkers would not be needed, but some form of tarp cover would be. Future research should examine these elements of the holistic biofuel logistics supply chain costs, possibly including a more explicit interface with the conversion facility.

Temporal Land Productivity

There are implications of harvesting the maximum biomass from an acre of land even if it will be fallow for the following two years. The organic matter of the soil will be depleted, impacting the sustainability of production, requiring ever greater levels of

Additional discussion of this issue is included in the Storage Operations section of the baseline data

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fertilizer nutrients. Not considered in this analysis is the temporal increase in fertilizer nutrients required to maintain yield of biomass.

Environmental Implications

The level of irrigation has implication for groundwater, but also of importance is the impact of fully harvesting above-ground biomass and resulting soil erosion and runoff with nutrients and pesticides. Elevated levels of nutrients in the runoff can have serious consequences to streams and water bodies causing algae blooms and depleted oxygen levels. Adusumilli et al. (2011) is investigating this externality issue.

Policy Issues

There are a myriad of potential policy implications associated with the types of results presented in this thesis research. For the environmental impacts which are externalities imposed on the community and society, there is a need to explore policies to internalize the externalities. This suggests a means for producers of biomass feedstock to implement best management practice to mitigate the erosion and runoff of nutrients and pesticides (e.g., research in progress by Adusumilli et al. 2011). In addition, water law and

regulations are dynamic in many regions of Texas and the U.S. Of particular importance is the discussion regarding groundwater in Texas and is it property of the landowner or is “the right of capture” to prevail (Texas Legislature Online 2011). These are decisions that rest with the Texas Legislature. This may have crucial implications in selected regions of Texas to the point of restricting pumping. Similarly, the contemporary move

to reduce/eliminate biofuels subsidies (e.g., Dlouhy 2011) has interesting policy and biofuels demand/supply implications. The Renewable Fuels Standard (RFS) has been reduced by the U.S. Environmental Protection Agency (2011), but how they react in the future is unknown, simply adding one more element of risk and uncertainty. The value of, and need for, comprehensive economic and policy-oriented research to complement production initiatives are critical to avoiding subsequent poorly-defined investment in and operation of biofuel production systems. With current and nearby anticipated production technologies, potential economic viability of cellulosic dedicated biomass feedstock crops is dependent on subsidies and/or the RFS. Further, issues related to permitting and other legal ramifications were ignored along with potential issues of liability.

Global Climate Change (GCC)

GCC is not explicitly addressed in this research. Depending on the future scenario one considers, GCC could dramatically impact the results. For a drier scenario, but with more severe storms, increased irrigation may be required along with a greater risk of major yield losses due to storms and high winds. There are multiple future scenarios associated with GCC, with each having a different potential impact.

Alternative Fuels

The world is actually relatively new to investigating alternative future fuels. The initial response was feed grains and biomass to a mobile fuel. But, there is significant research underway that has the potential to preempt both feed grains and biomass as energy biomass feedstocks. There is the potential of a totally-different paradigm based on fuel cells as hydrogen fuel cells, electricity, methanol, natural gas, or another has yet

unidentified option(s).

Energy Balance Calculations

A topic of interest in biofuels production is that of energy balance; that is, how much energy is being used and how much is being produced? (Pimental and Patzek 2005). An attempt was made during this thesis research to include appropriate metrics within the