Challenges to the development of a dedicated energy crop.

The Energy Policy Act of 2005 includes a provision designed to double the production and use of ethanol in fuels by 2012, and to ensure that by 2013, a minimum of 250 million gallons per year of ethanol is produced from cellulosic sources, such as corn stover, wheat straw, and switchgrass. Cellulosic ethanol (CE) has a much greater potential volume than grain-based ethanol. For example, if the entire 2005 U.S. corn crop of 11.1 billion bushels had been converted to ethanol, the resulting product would have contained less than 9% of the energy contained in the 2005 U.S. net crude oil imports. Perlack et al. (2005) have estimated that it is technically feasible for the United States to produce more than a billion tons annually of cellulosic biomass that could be used as feedstock. If cellulosic biomass could be converted into ethanol at a rate of 90 gallons per dry ton, a billion tons could be used to produce ethanol containing approximately 26% of the BTUs of the 2005 U.S. net crude oil imports.

While some biomass could be obtained from wood wastes and crop residues, an energy crop will be required to obtain a billion tons annually. After extensive research, the Bioenergy Feedstock Development Program at the Oak Ridge National Laboratory selected switchgrass as a model biomass feedstock (McLaughlin et al. 1999; Fuentes and Taliaferro 2002). Perlack et al. (2005) posit that 55 million acres of cropland, idle cropland, and cropland pasture could be seeded to a dedicated perennial energy crop, such as switchgrass. Similarly, English et al. (2006) conclude that with some economic incentives, switchgrass could be established on more than 100 million U.S. acres.

Research and development is ongoing in an attempt to develop economically competitive methods to produce CE (Aden et al. 2002; McKendry 2002; Mosier et al. 2005; Service 2007; Wyman 1994). The U.S. Department of Energy's National Renewable Energy Laboratory (NREL) has established a goal of producing CE for $1.07 per gallon ($0.10 for enzymes, $0.58 for conversion, and $0.39 for feedstock) by 2012 (Pacheco 2006). NREL estimates that a yield of 90 gallons per dry ton and a delivered feedstock cost of $35 per dry ton could be attained.

If and when an economically competitive CE system is developed, it is anticipated that the agricultural community would be actively engaged in the production, harvest, storage, and transportation of feedstock to biorefineries. Relative to corn grain, cellulosic material, such as switchgrass is bulky and difficult to transport. Feedstock acquisition logistics for corn grain to ethanol plants are relatively simple--post a competitive price, and corn grain will be delivered by the existing marketing system. The infrastructure for production, harvest, storage, transportation, and price risk management of corn grain is well-developed; for switchgrass, it is virtually nonexistent.

In the absence of spot markets, obtaining a reliable flow of feedstock could involve: (a) contracting with individual growers; (b) contracting with a group of growers through a cooperative arrangement; (c) arranging long-term land leases similar to Conservation Reserve Program (CRP) leases; and/or (d) acquiring land. While land ownership may seem unreasonable, evidence shows otherwise. For example, one of the six companies awarded a U.S. Department of Energy contract to build a scaled-up CE facility expects to use feedstock produced exclusively on the more than 130,000 acres owned by the company.

Several potential incentive structures exist to achieve conversion of 50-100 million acres of U.S. land to the production of switchgrass as a dedicated energy crop. This article is focused on two of these structures. The first assumes a fully vertically integrated system, in which the biorefinery enters into long-term leases of land (similar to CRP leases). Production, harvest, storage, and transportation would be managed by the biorefinery. The second alternative assumes that the biorefinery enters into long-term production and harvest contracts with individual farmers. The farmers would be responsible for switchgrass establishment, management, and harvest, while the biorefinery would be responsible for transporting harvested feedstock from the farm to the biorefinery. The objectives of the research are: to determine the cost to produce switchgrass for both the land-lease alternative and the farmer-contract alternative, to determine if NREL's estimated delivered cost of $35 per dry ton is realistic, and to identify likely challenges to the development of switchgrass as a dedicated energy crop.

For the land-lease alternative, results of a model that includes 55 Oklahoma counties as potential production regions are presented. For the contract alternative, the process used to establish production contracts with Tennessee farmers is described and results are presented.

Methods--Land Leases

A multi-region, multi-period, mixed integer mathematical programming model similar to that described by Tembo, Epplin, and Huhnke (2003) and Mapemba et al. (2007) was constructed. The model was formulated and solved to determine the cost to produce, harvest, store, and transport a flow of switchgrass biomass to a biorefinery and identify the optimal biorefinery location from among several potential sites.

Expected yields were obtained from Graham, Allison, and Becker (1996) and Fuentes and Taliaferro (2002). Expected biomass yields differ across months of the year due to stage of growth and field losses that occur after plant maturation. Biorefinery size was based on biomass feedstock requirements of 2,000 dry tons per day. Based on estimates provided by forage storage specialists, storage losses were assumed to be 1% per month. The biorefinery was assumed to operate 350 days per year.

Assumptions regarding the type of harvesting method were based on modifications of results of a biomass harvest cost study reported by Thorsell et al. (2004). Based on their findings, it was assumed that biomass would be harvested in large, rectangular solid bales, stored in or near the production fields, and transported by truck to the biorefinery when needed. It was also assumed that harvest crews, either independent operators, or crews coordinated by central management of the biorefinery would conduct the harvest. Weather data were used to determine probability distributions for the number of days per month suitable for harvesting switchgrass for each county. The 95 % probability level from the harvest day distributions was selected so that the number of harvest days per month was set equal to the number of days that would be suitable for harvest in nineteen of twenty years. The model endogenously determines the number of harvest machines.

Shipment and processing of biomass can be done in any of the twelve discrete periods (months of the year). In months when biomass is harvested, it may be placed in storage or transported directly from the field to the biorefinery. Another assumption was that up to 10% of the cropland acres in a county could be bid away from other uses at a long-term lease rate of $60 per acre per year. The average 2006-7 cropland cash rental rate for Oklahoma dryland crop acres was $30 per acre, with a range from $10-$60 per acre (Doye and Sahs 2007). The $60 level was selected to enable management to lease land suitable for seeding to switchgrass production and to compensate land owners for a longer time commitment than required by an annual cash lease.

Two harvest systems were modeled. The first harvest season extended from July through February of the following year (eight-month system), while the second was restricted to July and August (two-month system). This restriction was imposed to determine how the length of the harvest season affects the cost of delivering a ton of switchgrass.

Methods--Production Contracts

The University of Tennessee Institute of Agriculture, through the federally funded Tennessee Switchgrass Project, was selected to determine the potential for large-scale production of switchgrass as a dedicated energy crop. One objective of the Tennessee project was to determine the incentive required to entice farmers to produce switchgrass. To achieve this objective, a competitive bidding process was conducted in the spring of 2005. The bidding process explicitly allowed the University to consider the bidder's ability to produce switchgrass and to evaluate their suitability for the project in addition to the amount bid. The factors used to determine bidder ability and suitability included: geographical location, experience, access to necessary equipment, cropping history of plot, and the range of acres the bidder was willing to devote to the program (Epplin et al. 2007).

The bids had two cost components: an annual base payment stated in dollars per acre and an incentive payment stated in dollars per ton of switchgrass produced per year. To evaluate the bids, a single per-acre total bid was calculated by assuming an average annual yield of 5.5 tons per acre. Thus, total per-acre bids were assumed to be equal to the base payment plus the average expected yield (5.5 tons per acre) multiplied by the incentive payment. Since the bidders were informed that this formula would be used to calculate total per-acre bids, the bids resembled a first-price sealed bid auction.