An Integrated Biorefinery Solution Nets Efficiency, Diversity and Enhanced Returns

By Mark Warren | October 02, 2006
In a commodity-based business, it is imperative to look for ways to differentiate and improve the value of your brand and product from that of your competition. Changes that bring improved flexibility, diversification and leverage by capturing the benefits of economies of scale can add new value to a plant and help establish a competitive advantage. One emerging approach in the biofuels industry is an integrated biorefinery strategy that combines the refining of ethanol and biodiesel into a common site. This approach enables plants to better capitalize, capture and leverage their core set of assets, diversify their risk and revenue streams, develop new market opportunities, and deliver enhanced shareholder value to their investors.

The integrated biorefinery strategy delivers numerous synergies and advantages to its shareholders and management. Here are some of them:

-Enhanced scale efficiencies and cost savings as compared with a stand-alone plant
--Capital cost savings by optimizing upfront costs for initial project development
---Rail, road, natural gas, water, waste water and electricity capital costs can be leveraged across multiple operations
---Potential for storage synergies
---Development costs for projects are minimized
---Labor savings between facilities through the sharing of resources
---Administrative savings through elimination of overhead which is geared around a single management team
---Improved freight rates from moving more gallons of renewable fuel coupled with the opportunity to develop unit train capabilities at the facility to address market requirements

-Diversification of revenue and risk while providing greater business flexibility
--In addition to scale and cost savings, the plant will have diversification. Instead of one major feedstock and one major product and coproduct, the bio-refinery has double the feedstocks and products, thus diversifying risk and its revenue streams
--Most Midwestern ethanol or biodiesel plants are located relatively close to available feedstocks. A Midwestern location of the biorefinery can be an advantage because of the relatively large soybean and corn production coupled with crushing assets and rendered plants in the region. If feedstock oil prices for biodiesel begin to materially appreciate, the bio-refinery could add oilseed processing assets. This would allow the venture to manage feedstock oil risk and capitalize on the high returns from oil seeding processing
--Higher value opportunities for the business

-Corn oil from the ethanol process can be utilized as a feedstock to make biodiesel. This could provide 20 percent of the feedstock needs for a 30 MMgy biodiesel plant. (5 million to 6 million gallons annually for a 100 MMgy ethanol plant) This process
converts corn oil, a low value feed ingredient, (market price of 17 cents per pound) and converts it into biodiesel (market price of 30 to 40 cents per pound)
-Opportunity to leverage unutilized carbon dioxide from the ethanol plant to crush soybeans on-site, thus minimizing the biodiesel plant's feedstock exposure in the market
-Longer-term opportunity to transition into other agriculture, alcohol, and petroleum derivatives

These represent real examples of ways that a self-contained and truly integrated business platform can help create a more sustainable business and enhance shareholder value. The biorefinery is a new approach that doesn't depend on new and potentially riskier technology, but instead mitigates risk by bringing together proven business models in a manner that enhances shareholder return. In fact, by taking the integrated biorefinery approach, shareholders can conservatively expect to improve returns on initial investment by 8 percent to 12 percent.

A Case In Point
The evolution of the renewable energy sector is moving at a rapid clip, and those anticipating the next evolution of the business will be better positioned to succeed over time. Today, biofuel businesses are enjoying the benefits of strong petroleum prices coupled with relatively stable-priced agricultural inputs. At some point, markets will tighten and competition will increase, which underscores the importance of defining and quantifying a plant's competitive advantage in order to improve its odds of success. Finding and implementing ways to position your plant to move off the "margin" of the industry cost curve will become increasingly important to long-term sustainability.

Ascendant Partners is presently working with industry leaders to develop renewable fuel portfolios and integrated biorefining business models. A project in northeast Kansas is positioned to be the first integrated biodiesel and ethanol biorefinery to come on line. It is slated to produce 30 MMgy of biodiesel and 50 MMgy of ethanol, both of which were based on regional market fundamentals.

To explore the biorefining possibilities for your business, contact Ascendant Partners at (303) 221-4700.

Mark Warren is a partner with Ascendant Partners, an independent consulting organization dedicated to helping agribusiness, food and renewable energy companies succeed. See the company's Web site at www.ascendantpartners.com, or reach Mark at (303) 221-4700.