Challenges to the development of a dedicated energy crop.

While the multiyear commitment needed from growers made written contracts a necessity, a conscious effort was made to avoid an overly burdensome or legalistic contract. Thus, all bidders executed a three-page written contract consisting of the University's standard form plus one page of additional terms (Epplin et al. 2007). The solicitation of bids began with an informational meeting that included: presentations on the project, switchgrass and switchgrass production (including a switchgrass production budget), the contract, and the bidding process. The forms needed for submitting a bid were distributed at the end of the meeting. County extension educators also took copies back to their counties for distribution to other interested individuals.

Bidders submitted a minimum and maximum acreage, with the University reserving the right to choose any acreage within that range. Due to the limited budget and the desire to contract with a number of different growers, the bidders were clearly informed that bids with relatively small acreages (i.e., approximately ten acres each) would be favored. While most of the bids proposed slightly more acreage than desired, few were for substantially more. However, one bidder was excluded because he offered a minimum of 70 acres. Anecdotal evidence also indicated that the low acreage allotments dissuaded some producers from bidding. In general, bidders seemed to understand the bidding process and the payment structure, and variation in the bids and per-acre amounts conformed to expectations.

[FIGURE 1 OMITTED]

Results--Land Lease Structure

Figure 1 illustrates the number of tons harvested per month for the eight-month and two-month harvest systems. Harvested tons differ across months because the number of harvest hours per day varies with average day length, and the number of harvest days varies with expected weather. If harvest is restricted to July and August, more than 390,000 tons would be scheduled for harvest in July and an additional 345,000 tons in August. If harvest could be spread over eight months, only 135,000 tons would be scheduled for harvest in July. Relatively few tons are harvested in October because of weather-related constraints on the number of harvest days. The expected October harvest is 40,000 tons. As reported in table 1, the optimal number of harvest units for raking-baling-stacking increases from 19 for the eight-month harvest system to 56 for the two-month harvest system. The average investment in harvest machines increases from $10.8 to $26.7 million as the length of the harvest season declines from eight to two months.

Table 1 includes a summary of results for both harvest systems. The number of harvested acres per year, which would be the same as the number of leased acres required to fulfill plant needs, is greater for the eight-month harvest system. This result is because the expected harvestable yield of switchgrass declines five percent per month from September through February. While the 2,000 tons per day biorefinery is expected to process 700,000 tons per year, excess tonnage must be harvested to offset expected storage losses. Thus, the harvested tons requirement is greater for the two-month harvest system.

Land rental and field costs per ton are similar for the two systems. The estimated cost to lease the land and produce, harvest, and store the switchgrass is $36.88 per ton for the eight-month harvest system and $52.75 per ton ($16 more) for the two-month harvest system (figure 2). The length of the harvest window matters, and this finding illustrates the potential economic value of a wide harvest window. It also suggests a potential economic problem for biorefineries designed to use crop residues as exclusive feedstock. For example, Nielsen (1995) estimates that the average harvest window for corn stover in the upper Midwest is 40 days. If corn stover were used as a single feedstock, a rather substantial investment would be required in harvest machines.

[FIGURE 2 OMITTED]

Results--Production Contract Structure

A summary of the eleven bids received by the University of Tennessee is provided in table 2. Contracts for a total of 92 acres were awarded to Bidders 2 through 6. On the basis of his acreage requirements, Bidder 1 was excluded from consideration, even though he was the low-cost bidder. Thus, contract awards were based on securing as many acres and as many different growers as possible, given the budget and structure of the bids.

While an expected average annual yield of 5.5 tons per acre was used for awarding bids for the four-year contracts, research trials conducted in the region suggest that an average annual yield of 7 tons per acre is more appropriate for an eleven-year period (the expected life of a switchgrass planting). Assuming a yield of 7 tons per acre, the weighted average of the accepted bids is $54.70 per ton. However, if only the lowest cost bids (Bidders 1 and 2 from table 2) had been accepted, the weighted average for the 92 acres would have been $35.99 per ton. Thus, the bidding process provides at least two possible cost levels: the weighted means of the low-cost bids ($35.99 per ton) and of the accepted bids ($54.70 per ton).

There are a number of reasons why these amounts might differ from those that might be obtained by a biorefinery. The informal acreage restriction imposed as part of the bidding process probably limited the number of bids and increased bid amounts by limiting the bidders' abilities to take advantage of size economies. Other reasons why the bids might not be representative of the costs of switchgrass to a biorefinery include: increased familiarity with switchgrass production costs and yields; structure of the contract (multiyear commitment at a fixed price); competition among potential buyers; and bias either in favor of or against participation in University research and/or contracting with the University. Therefore, the average bid price necessary to contract for the 100,000 to 125,000 acres necessary to provide feedstock for a 2,000 tons per day biorefinery may differ from that required to contract for 92 acres.

Discussion

The objective of the research was to determine the cost to produce switchgrass for both a land-lease alternative and a farmer-contract alternative, to determine if NREL's estimated delivery cost of $35 per dry ton is realistic, and to identify likely challenges to the development of switchgrass as a dedicated energy crop. The low-cost bids of $35.99 per ton and accepted bids $54.70 per ton obtained in the Tennessee project are comparable to the $36.88 and $52.75 per ton estimates obtained for the eight-month and two-month harvest systems with the Oklahoma model. When the $12 to $12.54 per ton transportation costs are included, the estimated cost to deliver feedstock ranges from $48 to $67 per dry ton. This finding is consistent with Petrolia's (2006) estimated cost to deliver corn stover to a 2,045 tons per day biorefinery in Minnesota of $54 per dry ton (excluding a payment to the farmer).

The $48 to $67 estimate is substantially more than the NREL goal of $35. At 90 gallons per ton, the feedstock component estimated cost is $0.53 to $0.74 per gallon of ethanol, as opposed to NREL's goal of $0.39. The exercise provides some insight as to what would be necessary to achieve NREL's goal of $35 per ton of delivered feedstock. It is unlikely that land, storage, and harvest costs (with existing harvest technology) could be much less than those estimated for the land-lease, eight-month system. Reductions in cost necessary to achieve the $35 goal would most likely require increases in switchgrass yields per acre.

The structure of a mature cellulosic feedstock production and delivery system may not resemble the atomistic system that we observe for U.S. grain, oilseed, and fiber production. If the low-cost feedstock is a perennial with a long-stand life and wide harvest window, such as switchgrass, market forces may drive the structure toward vertical integration. For a mature industry, feedstock production, harvest, and transportation may be centrally managed and coordinated. Established stands of healthy switchgrass are expected to require minimal attention and thrive for years. It is expected that an annual application of fertilizer and a single harvest would be sufficient, in which case switchgrass production for use as a dedicated energy crop could evolve to resemble a vertically integrated timber production and processing business.

A major limitation is that neither study considers the potential year-to-year variability in switchgrass yields. It may be optimal for a biorefinery to maintain a feedstock buffer. The model considers existing harvest technology that illustrates the consequences of a narrow harvest window on the cost to deliver cellulosic biomass. Restricting harvest from eight to two months per year increased the estimated delivered cost by 33% from $49 to $65 per ton. This finding illustrates the potential economic value of a wide harvest window. It also suggests a potential economic problem for biorefineries designed to use crop residues as exclusive feedstock. A conversion system that could use a variety of feedstocks including crop residues, wood wastes, and dedicated energy crops such as switchgrass, would have several potential advantages including a wide harvest window and a more variable rural landscape.

References