Design of a Small Scale Biodiesel Production System

Transcription

1 Design of a Small Scale Biodiesel Production System Jeffrey Anderson Jessica Caceres Ali Khazaei Jedidiah Shirey Sponsor: Dr. Terry Thompson of North Point Farm

2 2 Agenda Context Analysis Stakeholder Analysis Problem and Need Statements Design Alternatives Design Methodology Simulation and Results Recommendations Project Management Figure 1: Corn field in Northern VA (photo credit: activerain.com)

3 3 Area of Interest Spotsylvania and Stafford Counties in Virginia ( Fredericksburg, VA area ) Farm data for these two counties from the 2007 U.S. Department of Agriculture Agricultural Census: 72,000 acres of farmland 592 farms ranging from 1 to acres Average cropland on farm: 75 acres Figure 2: Map of the Fredericksburg, VA Area. Source: Google maps

4 4 Decreasing Net Income The average net income of the farms is negative. Nearly 58% deficit increase between 2002 and GAP 1997 was the last year farmers, on average, saw a positive net income. *Note: Net income = total sales, government payments, and other farmrelated income less total farm expenses. *Inflation Adjusted to 2007 dollars Figure 3: Net Cash Farm Income of Operations Average per Farm

5 5 Farm Production Expenses 164% increase: $23,990 to $63,500 per farm between 1997 and 2007 Oil Price dependent categories account for 21% of total production expense: fertilizers, lime, and soil conditioners 122% increase gasoline, fuels, and oils 137% increase *Note: All dollars are inflation adjusted to 2007 dollars Last year farmers made a profit in Fredericksburg Figure 4: Diesel Prices Central Atlantic Region (Inflation Adjusted) Source: United States Energy Information Administration Gap (230% Increase)

6 Biodiesel 6 A biofuel made from living or recently living organisms such as vegetable oils, animal fats, or algae. Benefits: Can be used in existing diesel engines. More environmentally friendly life-cycle reduction in carbon emissions. Studies have shown a 41% (Univ. of Minnesota) - 78% (US Dept. of Energy) life-cycle reduction in carbon emissions compared to petro-diesel. Net Energy Ratio (NER) = Units of energy OUT/Units of energy IN USDA sponsored studies have shown a Net Energy Ratio for soybean based biodiesel production. U.S. production of oil and gas: NER of ~15; 3 5 times that of biodiesel. U.S. Biodiesel Production In 2012, 969 million gallons were produced according to the U.S. Energy Information Agency (EIA) 7200% increase since In 2011, U.S. demand for diesel fuel rose to approximately 62 billion gallons; 62 times that of biodiesel production.

7 Lifecycle Biodiesel Production Process 7 Start Select Biodiesel Acreage Clean the Oil Methanol Catalyst (KOH) Legend Crop Alternative Oil Press Functionality Biodiesel Processor Functionality Potential Income Select Crop Prepare Land Plant Crop Maintain Crop Harvest Crop Extract Oil from Crop Titrate Oil Blend Oil and Methoxide (Transesterification) Drain Glycerin Wash the Biodiesel Verify Standard D6751 is met Methoxide Storage Sell Glycerin Sell Biodiesel Use Biodiesel Sell Meal Figure 5: Lifecycle Biodiesel Production Process Flow Chart

8 8 Agenda Context Analysis Stakeholder Analysis Problem and Need Statements Design Alternatives Design Methodology Simulation and Results Recommendations Project Management

9 9 Primary Stakeholder Farmer Main Objectives Make money by selling new product Secondary Stakeholders Main Objectives Tensions Neighboring Farmers Invest their money in their community by purchasing their fuel from a local biodiesel producer. Minimizing risks and hazardous spills increases biodiesel production expenses. Farm Workers Earn a salary by helping with the production process of biodiesel Providing training and safety gear increases production cost. Workers handling products incorrectly can cause injury, loss of life, property damage, or environmental contamination. Food Consumers Purchase crops for their consumption at a stable price Reducing the amount of crops produced could cause in increase in crop price Government Promote alternative fuels Achieve energy independence Reduce carbon emissions Regulate biodiesel production Creating a safe environment according to regulations increases production cost. Following ASTM standard D6751 increases production cost

10 10 Agenda Context Analysis Stakeholder Analysis Problem and Need Statements Design Alternatives Design Methodology Simulation and Results Recommendations Project Management

11 11 Problem Statement A lack of net profit and increasing fuel prices threaten the long term sustainability of farms located in Fredericksburg, VA. Farmers rely heavily on petrochemical diesel, which has increased in price by nearly 230% since 1997, the last year that farmers in the Fredericksburg area of Virginia had a net profit.

12 12 Need Statement There is a need for a small-scale biodiesel production system for farms located near Fredericksburg, VA. The design of our biodiesel generation system will take into account the whole life-cycle process of biodiesel production, from crop planting to the final biodiesel yield. Win-win for stakeholders: Farmers: Create a new product to sell and/or save money on fuel costs Workers: Work in safe environment and earn a paycheck Neighboring Farmers: Potential access to locally produced biodiesel an investment in their community Food consumers: Loss of food supplies minimized Government: Further goal of energy independence

13 13 Scope System Components: Crop Alternative Vegetable Oil Press Biodiesel Processor Research indicates that vegetable oil press and biodiesel press were comparable to each other and interchangeable Focus on crop type used for vegetable oil source Enables optimization of crop acreage and biodiesel output

14 14 System Component Selection Oil Press Manufacturer: Cropland Biodiesel Cost: $ Freight Shipping Capacity: ~200 lbs/hour Biodiesel Processor Manufacturer: All American BioDiesel Cost: $ Freight Shipping Capacity: 80 gallons/day These capacities were chosen because of their ability to complete the crop to biodiesel process in 6 days or less per acre devoted to biodiesel production (assuming 8 hours of run time per day). Figure 6: 3 ton Oil Press Figure 7: 80 gallon Biodiesel Processor

15 15 System Requirements 1. The system shall be able to produce biodiesel that has a Net Energy Ratio greater than The system shall be able to produce biodiesel that conforms to ASTM Standard D6751.

16 16 Agenda Context Analysis Stakeholder Analysis Problem and Need Statements Design Alternatives Design Methodology Simulation and Results Recommendations Project Management

17 17 Design Alternatives Investigated approximately two dozen crop options Five crop alternatives selected based on regional availability, cost, and productivity: Canola Corn Peanut Soybean Sunflower Best crop alternative will be determined through Monte Carlo simulation

18 18 Agenda Context Analysis Stakeholder Analysis Problem and Need Statements Design Alternatives Design Methodology Simulation and Results Recommendations Project Management

19 19 Simulation Objective The objective of our simulation is to determine: 1) Biodiesel yield and NER of each crop alternative 2) The Net Present Value (NPV) of each crop alternative at the end of the system lifespan This will allow us to plot the utility versus the NPV of each alternative and enable us to recommend the best crop alternative. Two part simulation: Biodiesel Production Simulation and Business Simulation

20 20 Primary Simulation Assumptions Lifespan of the machinery is 15 years Farmers have the proper equipment to plant, harvest, and prepare crops Unlimited demand for biodiesel, glycerin, and meal exists Farmers have the land capacity and knowledge to perform crop rotations as appropriate No machinery recycling profit

21 21 Monte Carlo Simulation Design Crop Yield Vegetable Oil Yield Crop Alternative Biodiesel Production Simulation Biodiesel Yield Glycerin Yield Meal Yield Business Simulation Net Present Value 10 Acres 15 Acres 20 Acres Biodiesel Acreage Net Energy Ratio KEY Random Variable Output

22 22 Biodiesel Production Design of Experiment

23 23 Biodiesel Production Simulation Random Variables Canola Corn Peanut Soybean Sunflower Crop Yield Beta(1740, 2233) [1] Beta(2538, 7148) [2] TRIA(1350, 3070, 3800) [3] Beta(1412, 2646) [3] UNIF(967, 1510) [3] Vegetable Oil Percentage Normal(.42,.0001) [4] Normal(.04,.0001) [4] Normal(.42,.0001) [4] Normal(.16,.0001) [4] Normal(.43,.0001) [4] Oil Press Efficiency Lognormal(0.9, 0.92, 0.02) [4] All distributions were fitted using the Kolmogorov-Smirnov (KS) test 1 - D. Starner, A. Hamama, H. Bhardwaj, Prospects of canola as an alternative winter crop in Virginia, USDA Census of Agriculture, 2007 Census, Volume 1, Chapter 2: County Level Data 3 - USDA, National Agriculture Statistics Service, Crop Production 4 Multiple sources

24 24 Net Energy Ratio Equation Variables with largest impact: Biodiesel yield per acre and diesel usage per acre Contributing source: Hoover, Scott; Energy Balance of a Grassroots Biodiesel Production Facility, 2005

25 25 Product Yield Equations Variables with largest impact: Crop yield per acre and oil content Contributing source: Seth R. Fore, William Lazarus, Paul Porter, Nicholas Jordan, Economics of small-scale on-farm use of canola and soybean for biodiesel and straight vegetable oil biofuels, Biomass and Bioenergy, Volume 35, Issue 1, January 2011, Pages

26 Business Simulation Design of Experiment 26

27 27 Business Simulation Random Variables Crop Price Canola Corn Peanut Soybean Sunflower Gamma(1.7,.5, 6.3) [3] Weibull(2.1, 1.6, 1.5) [1] Norm(.25,.0016) [2] MinExtreme(9.7,1.8) [1] Weibull(2.1, 1.6, 1.5) [1] Meal Price Lognormal(203, 345, 130) [4] Norm(255, 653) [9] Norm(200, 400) [4] Gamma(128, 39,2) [4] Lognormal(33, 106, 39) [4] Planting Costs 205 Triangular(204, 207, 438) [5] Logistic(602, 48) [6] Triangular(83, 147, 246) [7] 191 Diesel Price Triangular(3.73,4.28,4.29) [8] All distributions were fitted using the Kolmogorov-Smirnov (KS) test 1 - farmdoc, University of Illinois, US Price History 2 - USDA, National Agriculture Statistics Service, Crop Production 3 - USDA, Economic Research Service, Wheat Tables: Acreage Production 4 USDA, Agricultural Marketing Service, National Monthly Feedstuff Prices 5 USDA, Economic Research Service, Historical Costs and Returns: Corn 6 USDA, Economic Research Service, Historical Costs and Returns: Peanut 7 USDA, Economic Research Service, Historical Costs and Returns: Soybean 8 U.S. Energy Information Administration, Central Atlantic No 2 Diesel Retail Prices 9 By-Product Feed Pricing List, University of Missouri Extension

28 28 Business Simulation Equations Net Present Value Equation I0 is the initial machinery costs, n is the length in years, t is the year, k is the discount factor, p is inflation rate, and Ft is the balance of revenues and expenses. Net cash flow Chemical expenses, dollars per acre Crop costs, dollars per acre Lost revenue cost, dollars per acre Glycerin revenue, dollars per acre Meal revenue, dollars per acre State biodiesel incentives, dollars per acre Biodiesel acreage on farm, acres Biodiesel sales, dollars Yearly maintenance costs, dollars Derived from: Economic simulation of biodiesel production: SIMB-E tool ; Lopes, Neto, and Martins

29 29 Agenda Context Analysis Stakeholder Analysis Problem and Need Statements Design Alternatives Design Methodology Simulation and Results Recommendations Project Management

30 30 Simulation Implementation For the simulation, we used Oracle Crystal Ball, an Excel add-in Why Crystal Ball? During research we found deterministic Excel spreadsheets Crystal Ball allows us to create similar models but with stochastic processes 50,000 iterations were run for each simulation Farm Size: 75 acres

31 31 Results: Biodiesel Yield (Gallons/Acre) Crop Type Peanut Canola Sunflower Soybean Corn Mean Standard Deviation Distribution Beta Beta Beta Beta Lognormal

32 32 Results: NER and Cost per Gallon Mean Peanut Canola Sunflower Soybean Corn Average NER P(NER>1.0) Requirement Met Yes Yes Yes Yes No Mean Corn Canola Sunflower Soybean Peanut Cost per Gallon -$14.65 $0.69 $2.60 $3.26 $4.14

33 33 Data Analysis Fuel savings for biodiesel production acreage are accounted for in the cost of production. Biodiesel yield from devoted acreage must exceed farm requirements before biodiesel sales can begin. Inflow comes from meal, glycerin, and biodiesel sales. Mean Peanut Canola Sunflower Soybean Corn Acres Needed (out of 75 acres)

34 Results: Net Present Value 34

35 35 Results: Probability of NPV being > $0.00 Biodiesel Acres Corn Canola Sunflower Peanut Soybean 10 of Biodiesel Acres Canola Corn Sunflower Peanut Soybean 15 of Biodiesel Acres Canola Corn Sunflower Peanut Soybean 20 of 75 <

36 36 Net Present Value 10 Acres NPVs at 10/75 Biodiesel Acres $20, $10, $0.00 -$10, $20, $30, npv canola (10,2%) npv corn (10,2%) npv peanut (10,2%) npv soybean (10,2%) npv sunflower (10,2%) -$40, $50, Year Corn: Positive NPV by 2017 (within 5 years) with a 2% discount factor. Due to: High corn meal yield drives down the cost/acre (mean meal revenue = $505/acre). Negative lost profit budget line due to the savings from not selling corn at a loss. Soybean: Positive slope; would need 40 years without addition capitol costs to yield a positive NPV.

37 37 Net Present Value 15 Acres NPVs at 15/75 Biodiesel Acres $40, $30, $20, $10, $0.00 -$10, $20, $30, $40, $50, Year npv canola (15,2%) npv corn (15,2%) npv peanut (15,2%) npv soybean (15,2%) npv sunflower (15,2%) Corn: Positive NPV by 2015 (within 3 years) with a 2% discount factor. Canola: Positive NPV by 2017 (within 5 years) with a 2% discount factor.

38 38 Net Present Value 20 Acres NPVs at 20/75 Biodiesel Acres $50, $40, $30, $20, $10, $0.00 -$10, $20, $30, $40, $50, $60, Year npv canola (20,2%) npv corn (20,2%) npv peanut (20,2%) npv soybean (20,2%) npv sunflower (20,2%) Canola: Positive NPV mid 2014 (within 2 years) with a 2% discount factor. Corn: Positive NPV by early 2014 (within 2 years) with a 2% discount factor.

39 39 Sensitivity Peanut: If the selling price of biodiesel per gallon is raised to: $13.00, at 10 biodiesel acres $7.50, at 15 biodiesel acres $6.50, at 20 biodiesel acres Then peanut could achieve an average positive NPV in 15 years. Sunflower could attain an average positive NPV by increasing biodiesel acres to approximately 45 of the 75 acres. Soybean could reach an average positive NPV in 15 years if the farm size was raised to 125 acres, and all acreage was utilized for biodiesel production.

40 40 Agenda Context Analysis Stakeholder Analysis Problem and Need Statements Design Alternatives Design Methodology Simulation and Results Recommendations Project Management

41 41 Value Hierarchy Choose Best Crop Alternative Biodiesel Yield (gal/acre) 0.5 Planting Season Length (days) 0.3 Production Hazards 0.2

42 Utility 42 Utility Analysis Utility for 20 acres, 2% discount factor Utility vs NPV: 10%, Mean, 90% Best Quadrant Canola Corn Peanut Soybean Sunflower Net Present Value (dollars)

43 Recommendation We recommend Canola as the optimal crop alternative Same hazard level as other alternatives High biodiesel yield minimizes food supply impact High NPV provides profit for farmer When 20 of 75 acres are committed to biodiesel production, Canola has a nearly 100% chance of being profitable. 43

44 44 Agenda Context Analysis Stakeholder Analysis Problem and Need Statements Design Alternatives Design Methodology Simulation and Results Recommendations Project Management

45 45 Work Breakdown Structure Figure 15: Work Breakdown Structure

46 46 Project Risk Risk Mitigation Poster printing problem Multiple poster revisions submitted for review Absent presenter at conference All group member will become well-versed in all aspects of the project

47 Project Schedule 47

48 Project Schedule 48

49 49 Project Budget Hourly rate for each team member: $40 Rate comparable with junior engineer rate Estimated number of hours to complete project: ~ 3000 hours Overhead rate: 2.1 times base rate: $84 per hour Total project cost: 3000 hours x 84 dollars/hour Total Project Cost ~ $250,000

50 Amount Spent (dollars) 50 Earned Value Earned Value Planned Value (PV) Actual Cost (AC) Earned Value (EV) 0.00 Figure 7: Earned Value

51 Ratio 51 CPI and SPI CPI and SPI September October November December January February March April CPI SPI Figure 8:CPI and SPI

52 Design of a Small Scale Biodiesel Production System Jeffrey Anderson Jessica Caceres Ali Khazaei Jedidiah Shirey Sponsor: Dr. Terry Thompson of North Point Farm