Sugarcane Economics

Although the sugarcane-based ethanol industry is booming in Brazil, only a handful of companies are developing processing plants in the U.S., where market conditions in most parts of the country can't support them. A few projects are poised to thrive in unique pockets of the country, but the crop's real potential will rely upon the commercialization of cellulosic technologies.
By Erin Voegele | February 04, 2009
Sugarcane has been grown in the U.S. for centuries even though land most suitable for its cultivation is scarce. Commercial production of the tropical grass is limited to select areas of Florida, Louisiana, Texas and Hawaii. Edward Richard, a research leader with the USDA Agricultural Research Service's Sugarcane Research Unit in Houma, La., says U.S. sugarcane production is limited to about 1 million acres nationwide. It's no wonder the U.S. ethanol industry relies on corn since farmers planted more than 85 million acres last year.

Even though sugarcane production levels are relatively minor, a great deal of research and development is dedicated to developing new varieties of the crop that are more suitable for cultivation in the U.S. Ben Legendre, a professor and department head of the Audubon Sugar Institute at Louisiana State University's Agricultural Center, says the major emphasis of this research is to increase sugar yields and reduce crop input costs. This includes extensive breeding programs to develop sugarcane varieties that are resistant to diseases, insects and weeds, and better adapted to colder temperatures.

Sugarcane efficiently turns sunlight and chemical inputs into energy and requires a minimal amount of fertilizer, compared with other ethanol feedstocks. "Your total input costs are less [with sugarcane] than with corn or some of the other crops that are used for ethanol production," Richard says. The energy balance is also greater. While corn generally produces about 1.5 units of energy for each unit of energy it consumes the energy balance of sugarcane is approximately eight to one, Legendre says.

Even with all of these advantages, sugarcane ethanol projects have struggled to gain a foothold in the U.S. because the economics simply don't make sense in most areas. Using current technology, Legendre says it takes about 14 pounds of sugar to produce 1 gallon of ethanol. The price of U.S.-produced raw sugar currently hovers at about 20 cents per pound, and has remained stable for nearly two decades. With the current economics, ethanol producers in most areas simply wouldn't be able to afford it.

Pockets of Potential
There are, however, specific pockets of the U.S. where sugarcane ethanol production could be feasible. Pacific West Energy LLC is currently moving ahead with sugarcane ethanol production on the island of Kauai in Hawaii. According to William Maloney, the company's president and chief executive officer, Hawaii's unique economy holds opportunities that will allow this project to thrive.

Pacific West Energy's ethanol production project involves converting an existing sugar mill on Kauai. To make the facility competitive, it will be capable of producing sugar and/or ethanol. This should provide the company with a safety net if the price of ethanol dramatically drops or the price of sugar sharply increases. Other elements of the project include doubling the land currently dedicated to sugarcane production, and modernizing harvesting methods.

The key to sugarcane ethanol economics today is to take advantage of the byproduct value of electrical generation, Maloney says. In addition to producing ethanol, Pacific West Energy's proposed plant will also burn bagasse to produce electricity through a combined heat-and-power system. "Not only will we provide all of our own energy for our process, but we will also export a significant amount of energy to the utility," Maloney says.

A variety of factors make Hawaii's island economy uniquely suited to sugarcane ethanol production, according to Maloney. The state already has an established sugarcane industry and land suitable to grow the crop. Hawaiian sugarcane producers also receive lower payments for their sugarcane when compared with farmers in the continental U.S. because they have to ship their raw sugar to California to be refined. This means that an ethanol producer in Hawaii will be better able to afford the price paid to a farmer for their sugarcane production. "If you are a sugar producer in Hawaii, the point when it makes sense for you to switch to ethanol is at a lower price point than it would be for a producer in Louisiana or Florida," Maloney says.

Hawaii also has some of the highest national prices for electricity and liquid fuels and is a captive home market in which to sell the fuel. In addition, it has some of the highest ethanol prices in the U.S., allowing Pacific West Energy to sell the fuel at a higher price than it could in other areas of the country. The company will also receive the highest value for the excess electrical production that it provides to the grid because of the island's high electricity prices. "I've always looked at it as the perfect storm—or perfect influence—of positive factors," Maloney says.

Additional benefits include a 30-cent-per-gallon state production incentive, which will help offset building costs. Maloney has been pursuing the project since 2005. Pacific West Energy's plant is currently permitted at 12 MMgy of capacity, although Maloney expects that will be increased to 15 MMgy. Depending on the lending environment, he estimates the plant could be on line by 2010.

The Imperial Valley of California is home to another sugarcane ethanol project, which is being pursued by California Ethanol & Power LLC and is currently in the development stage.

According to David Rubenstein, the company's chief operating officer, the project is in the permitting stage and is expanding the amount of sugarcane being cultivated. "We had just over 100 acres last year," he says. "This year we have more than 500 acres planted and growing."

CE&P expects to break ground by late 2009 and be operational by 2011. The proposed plant would have the capacity to produce 60 MMgy of ethanol and about 50 megawatts of electricity by burning bagasse in a combined heat-and-power system. A portion of that electricity will be used to power the plant and the remaining power will be sold back to the grid.

The plant will require approximately 40,000 acres of sugarcane. "We think the valley could ultimately support five plants total," Rubenstein says. The development of additional plants is scheduled to begin as soon as the first plant is operational.

Rubenstein says his company is working closely with five groups of farmers to develop the sugarcane plots to support ethanol production in the valley. The project will bring a sustainable, profitable crop to the Imperial Valley, he says. "This will be a consistent crop that will produce consistent streams of revenue for the farmers," Rubenstein adds. The project will also create numerous job opportunities in the region.

Waiting for Cellulosic Technology
While the economics of sugarcane ethanol production seem to be limited to specific pockets of the U.S., the larger potential for sugarcane ethanol development is dependent on the commercialization of cellulosic technologies that will be able to utilize waste sugarcane bagasse.

The Audubon Sugar Institute is one of many entities developing a cellulosic technology. "We have developed a process where we can produce 70 to 80 gallons of ethanol per ton of bone-dry fiber," Legendre says.

Sugarcane processing facilities in the U.S. generally burn a portion of the waste bagasse recovered during raw sugar production as a source of heat and power. However, this process utilizes only a portion of the bagasse, leaving 20 percent to 30 percent as waste. Legendre says processing facilities could potentially use this excess bagasse to produce ethanol. "Right now it would be a win-win situation where we would produce sugar and ethanol," he says. Legendre says his organization could develop a pilot plant to test the technology by 2010.

At the same time, USDA ARS's Sugarcane Research Unit is developing a sugarcane-based dedicated biomass feedstock called energy cane. The fiber content of energy cane is much higher than sugarcane, which has a fiber content of about 12 percent. "Every year we plant about 80,000 to 100,000 new varieties of seedlings to evaluate," Richard says. "About 10 percent of [these varieties] are dedicated energy canes that we know are not going to be suitable sugarcane varieties, but they could be suitable as energy cane varieties."

One benefit of an energy cane over sugarcane is that the crop can be grown under drier conditions. As part of the research, domestic sugar varieties are currently being crossed with wild material from areas in India and China, where the plants grow naturally in colder temperatures. Richard says energy cane production trials have been started in some areas of the country, but it will likely be 2010 before the results of those trials are available.

One major hurdle must be cleared, however, before these cellulsoic ethanol projects can move forward. The technology has to be commercially viable. "We keep hearing that cellulsoic technologies will be profitable in the next five years," Richard says. "But, we've been hearing that for a long time."

Erin Voegele is an Ethanol Producer Magazine staff writer. Reach her at [email protected] or (701) 373-8040.