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Finance & Development, December 1980
Article

Renewable energy: alcohol from biomass: The economics of producing ethanol and its use as a source of energy

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
December 1980
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Harinder S. Kohli

Biomass ethanol, a form of alcohol produced from the fermentation of biomass (agricultural and forestry products), is the major renewable energy source which offers immediate prospects of providing a premium liquid fuel based on domestic resources to partially substitute for petroleum products in certain developing countries and a few developed countries. Other major renewable energy sources, forestry products and hydroelectric power, are most suited to the production of nonliquid forms of energy. The use of ethanol—the commonly used name of ethyl alcohol—as a substitute for the lighter petroleum products (such as diesel, gasoline, and naphtha) would complement efforts to promote coal, firewood, and hydroelectric power as substitutes for heavier petroleum products (fuel oils).

Alcohol has been produced from biomass for at least 2,000 years when the Egyptians made it for drinking. The basic technology for producing ethanol from a number of biomass raw materials is proven and can be easily transferred to most developing countries; many technical improvements are currently being developed to further enhance its economics. Ethanol production requires medium-scale industrial units located in rural areas and therefore can become an important additional source of permanent rural employment at a relatively low cost. In addition, alcohol production can absorb surplus agricultural production during periods of low demand, stabilize rural incomes, and help stem the migration of rural population to the urban centers.

A longer study. Alcohol Production from Biomass in the Developing Countries (September 1980), is available on request from the Publications Unit of the World Bank, Washington, D.C. 20433 U.S.A.

Two types of alcohol are of main interest to the developing world: ethyl alcohol (ethanol) and methyl alcohol (methanol), both of which can be produced either from hydrocarbon (petroleum and gas) products or from biomass. Because of technological constraints to using methanol as a gasoline additive, and because biomass raw materials in most non-oil developing countries are likely to be more suitable for ethanol (rather than methanol) production, ethanol is considered as the alcohol of most immediate interest to the oil importing developing countries. This article, therefore, discusses primarily the potential and prospects of ethanol production from biomass in these countries. All references to alcohol production, unless otherwise stated, relate to the production of ethanol.

Despite its many attractions, ethanol cannot offer a general solution to the energy problems of the developing countries. In the immediate future, practical difficulties are likely to limit the economic production of ethanol on a very large scale, except in a few developing countries such as Brazil. More important, over the medium term, the availability of sufficient agricultural land would be the constraint to any large substitution of petroleum on a worldwide scale. Even if the entire current world production of molasses, sugarcane, corn, and sweet sorghum, for which commercially proven fermentation technology is available, were converted, the total ethanol production would substitute for only a fraction of total current world oil consumption. These prospects will improve if the yields of energy producing crops are substantially increased and new technologies are developed for the economic conversion of cellulosic materials, but these developments are unlikely to have any major impact during the next 5–15 years. Despite these modest prospects for developing countries as a group, ethanol production in individual developing countries, particularly those with a substantial agricultural base, could lead to significant savings in their individual petroleum imports.

Major uses of ethanol

Currently, ethanol has three main applications: (1) as an alcoholic beverage; (2) as an intermediate chemical; and (3) as a raw material for the production of other chemical products. In the last two applications, biomass ethanol has been steadily losing ground to cheaper petroleum-based substitutes including synthetic ethanol. Around the beginning of this century, ethanol was also considered as an attractive automobile fuel. Chemical applications still constitute the largest use of ethanol worldwide.

With the more than tenfold increase in petroleum prices during the last decade, biomass ethanol is again being considered as a substitute for petroleum products. Biomass ethanol has four possible major applications in this role, as: (1) boiler fuel to substitute for fuel oil or other fuels; (2) a gasoline substitute; (3) a diesel substitute; and as (4) a chemical product or raw material for other chemical processes. The use of ethanol as boiler fuel does not exploit its potential as a superior liquid fuel; and as a substitute for diesel, ethanol suffers from serious technical drawbacks. On the other hand, its unique physical and chemical properties increase ethanol’s value, beyond its heating value, as a substitute for gasoline and as a chemical feedstock.

The use of ethanol as a gasoline blend or as a substitute for gasoline has drawn the most attention both because it can directly substitute for a premium petroleum product used worldwide and because this application can take advantage of its many physical and chemical characteristics. When used in an internal combustion engine, ethanol significantly improves combustion efficiency and also results in higher octane rating and improvements in engine starting, carburetion, and emission quality. Ethanol can be used as automobile fuel either as “gasohol,” in which case anhydrous (99.8 per cent) ethanol is mixed with gasoline up to a 20 per cent ratio, or as hydrous or straight alcohol, in which case hydrated (94 per cent purity) ethanol is used straight. The economic value of alcohol as a gasoline additive is about 15-20 per cent higher than as a straight gasoline substitute.

Production of alcohol

Ethanol can be produced from three main types of biomass: (1) sugar-bearing materials (such as sugarcane, molasses, and sweet sorghum) which contain carbohydrates in sugar form; (2) starches (such as cassava, corn, babassu—a wild palm tree—and potatoes), which contain carbohydrates in starch form; and (3) celluloses (such as wood and agricultural residues) whose carbohydrate form is more complex.

The main attractions of sugar-bearing raw materials for alcohol production lie in the fact that their carbohydrate content is already in the fermentable, simpler sugar form and that they also produce their own source of heating fuel in the form of bagasse. The average ethanol yield per ton of the major potential biomass raw materials, as well as estimated ethanol yield per hectare of land, in developing countries is shown in Table 1.

Table 1Average ethanol yields of main biomass raw materials in developing countries
Biomass
Ethanol yieldyield
per ton ofper hectareAnnual
biomassof landethanol yield
Biomass(In liters(In tons(In liters
raw materialper ton)per ha)par ha)
Sugarcane70503,500
Wood160203,200
Sweet sorghum86353,010
Corn37062,220
Cassava180122,160
Sweet potatoes125151,875
Babassu803200
Molasses270
Source: World Bank.

Indicate data are not relevant, since molasses is a by product.

Source: World Bank.

Indicate data are not relevant, since molasses is a by product.

Until recently, alcohol production from biomass was based on old technology, since the demand for ethanol as a drink or a chemical was not very dependent on production costs. Therefore, process and equipment design have not benefited from the recent advances in the design and engineering of other chemical plants. However, with the increasing interest in ethanol as a fuel, a large number of major engineering companies, equipment manufacturers, and others have taken steps to improve the technology and design of alcohol plants. Most of these efforts have been in four major areas: (1) development of continuous fermentation technology to yield higher alcohol concentration (up to 12 per cent alcohol content liquor instead of 8-10 per cent currently possible) to substantially reduce energy requirements for producing ethanol; (2) improvement of the energy efficiency of ethanol production through more efficient distillation and heat recovery systems; (3) utilization of agricultural wastes for feedstock or fuel; and (4) development of alternative energy crops, such as sweet sorghum, wood, and babassu, to reduce reliance on sugar-based biomass.

Practically all existing biomass-based alcohol plants use sugarcane and molasses and are relatively small. Except in the case of Brazil, there is also a lack of actual experience in the construction of a large number of plants of different sizes and at different locations. There is practically no large-scale experience with plants that use other raw materials such as wood and cassava. In addition to considerable industrial development and demonstration work necessary to improve the efficiency of the production process, significant efforts are needed in the agricultural sector to improve crop yields, develop optimum crop rotation patterns, and convert some existing subsistence crops (such as cassava and babassu) into commercial energy crops.

Economics of production

The economics of biomass ethanol production and use depend on a number of complex factors, some of which are difficult to quantify. A rough comparison of key factors in the production of alcohol from different biomass materials is shown in Table 2. As is evident from the table, the economics of the production of ethanol is dependent on a number of factors that vary from country to country and from project to project. These include diverse elements, such as the lack of experience with producing ethanol on a commercial scale, the availability and relative costs of the factors of production, such as land and labor, and the relative advantages of producing ethanol over using traditional fuels, such as gasoline or ethylene. Compounding the difficulty of assessing the economic viability of ethanol programs is the varying degree of emphasis placed by different governments on the subject of independence from imported fuels. It affects the strength of commitment to a program for producing ethanol as a substitute for imported fuels.

Table 2Ethanol production from different biomass materials
UnitMolassesSugarcaneCassava1Corn1
Yields
Ethanol yield/ton of biomassliters/ton27070180370
Biomass yield/hectare of land2tons/hectare50126
Ethanol yield/hectare of landliters/hectare3,5002,1602,220
Processing plants
Economic plant size rangeliters/day60–240,000120–240,00060–120,000120–240,000
Number of operating daysdays/year180180275275
Annual production in 120,000 liters/day plant:- million liters/year21.621.633.033.0
- million U.S. gallons/year5.75.76.96.9
- tons/year17,10017,10026,10026,100
Installed cost of 120,000 liters/day plant in:
Low-cost countries3millions of U.S. dollars6.87.69.19.1
Medium-cost countries3millions of U.S. dollars7.69.511.411.4
High-cost countries3millions of U.S. dollars11.414.317.217.2
Economics as gasoline additive
Ex-plant biomass raw material cost for 10 per cent economic rate of return4
At US$31/bbl f.o.b. crude5US$/ton621413
At US$35/bbl f.o.b. crude5US$/ton7016171.26
At US$43/bbl f.o.b. crude5US$/ton8520231.86
Ex-plant biomass raw material cost for 8 per cent economic rate of return4
At US$31/bol f.o.b. crude5US$/ton651416
At US$35/bbl f.o.b. crude5US$/ton7317191.46
At US$43/bbl f.o.b. crude5US$/ton9022252.16
Source: World Bank.— Indicates negative figure.… Indicate data are not relevant, since molasses is a by product:

Based on current plant designs and fuel oil as fuel source.

Based on current average yields in Brazil, except for corn, which is based on U.S. average.

Low-cost country data for sugarcane plants based on Brazil costs. Medium-cost countries, such as Thailand, are assumed to have costs about 25 per cent higher than low-cost countries. High-cost countries, such as Sudan, which have very limited domestic plant construction capabilities are assumed to have capital costs about 50 per cent higher than medium-cost countries. These cost estimates are general indicators, and actual plant costs would depend on individual country, market, and site factors. All costs in late-1979 U.S. dollars.

For medium-cost countries.

Assuming ethanol value equal to that of gasoline in volume terms. Gasoline price assumed as 1.3 times that of ex-refinery light Arabian crude price, by volume; this relationship assumed to go down with Increased crude prices. Crude price assumed to increase at 3 per cent per annum in real terms, gasoline price at 2.5 per cent per annum, and raw material cost at 1 per cent per annum.

For corn, US$/bushel. One bushel weighs 56 lbs. One ton is equivalent to 39.4 bushels.

Source: World Bank.— Indicates negative figure.… Indicate data are not relevant, since molasses is a by product:

Based on current plant designs and fuel oil as fuel source.

Based on current average yields in Brazil, except for corn, which is based on U.S. average.

Low-cost country data for sugarcane plants based on Brazil costs. Medium-cost countries, such as Thailand, are assumed to have costs about 25 per cent higher than low-cost countries. High-cost countries, such as Sudan, which have very limited domestic plant construction capabilities are assumed to have capital costs about 50 per cent higher than medium-cost countries. These cost estimates are general indicators, and actual plant costs would depend on individual country, market, and site factors. All costs in late-1979 U.S. dollars.

For medium-cost countries.

Assuming ethanol value equal to that of gasoline in volume terms. Gasoline price assumed as 1.3 times that of ex-refinery light Arabian crude price, by volume; this relationship assumed to go down with Increased crude prices. Crude price assumed to increase at 3 per cent per annum in real terms, gasoline price at 2.5 per cent per annum, and raw material cost at 1 per cent per annum.

For corn, US$/bushel. One bushel weighs 56 lbs. One ton is equivalent to 39.4 bushels.

A recent World Bank study analyzed the economics of ethanol production in “standardized” plants operating under conditions that are expected to prevail in different countries. While this analysis cannot substitute for the specific country and project analyses, which must be undertaken to determine merits of large-scale ethanol production in individual countries, it has identified certain general indicators that can be used to select countries and situations where further detailed reviews appear justified.

Sugarcane. In the “medium-cost countries” (see Table 2), sugarcane-based ethanol production is likely to be economic at the base crude oil price levels of about US$30 per barrel f.o.b. Arabian Gulf (roughly equivalent to an ex-refinery gasoline price of about $1 per U.S. gallon) increasing in the future at an annual rate of 3 per cent in real terms, provided the economic cost of sugarcane at the factory gate is less than about $14 per ton. Sugarcane production costs in many sugar producing countries such as Brazil are considered to be below this level. The economic viability of ethanol production rests heavily on assumptions about the economic price of gasoline and its future increases, and upon the cost of biomass raw material. The economics of ethanol production from sugarcane are also sensitive to the capital cost of producing ethanol, which is determined by the installed plant costs of the alcohol distillery, the number of operating days per year, and economies of scale.

Molasses and cassava. Production of ethanol from molasses with surplus bagasse as the fuel source for the production process in a medium-cost country is likely to be economic at a crude oil price of about $30 per barrel when the economic cost of molasses is less than $60 per ton at the plant. However, when fuel oil (or some other high-value fuel) is used in the distillery instead of surplus bagasse because of inefficiencies in plant operations, the economics of ethanol production become significantly less attractive. Cassava- and corn-based ethanol plants are less attractive than those using sugarcane and molasses, due to the need to purchase an outside source of energy, and their higher capital costs. To compensate for these drawbacks, these plants must obtain their raw materials at a relatively low cost; delivered cost of cassava would need to be below about $13 per ton and of corn less than about $1 per bushel for plants using currently available technology and a petroleum fuel source. These costs are given as general examples, since as mentioned earlier, the economics of ethanol production vary for each country and each project. Although in the long run ethanol production from wood offers considerable promise, significant improvements in technology will be required before wood becomes an economic source of liquid fuel.

Alcohol production from biomass energy and agricultural self-sufficiency ratios for selected countries—19761

Source: Developed by Dr. N. Rask from Food and Agriculture Organization and World Bank data.

1 These results indicate country situations where biomass energy programs may be feasible. The basic analysis could be further refined by taking into account averages for several years and focusing directly on food instead of the agricultural self-sufficiency measure used in this framework.

Prospects in developing countries

The economic justification of biomass ethanol production in individual countries depends mainly on the circumstances of their agricultural, industrial, and energy sectors. The general prospects for such production can be assessed by identifying first, the countries which offer a favorable agricultural and energy balance, and then those countries that offer the economic conditions that are likely to make alcohol production viable. As shown in the chart, several situations can be envisaged in which production is economic. The developing countries with a surplus agricultural production but an energy deficit, such as Brazil, Sudan, and Thailand, are likely to have the strongest incentives to develop large biomass energy programs in order to reduce their dependence on imported energy. Most of the countries with viable alcohol programs are likely to belong to this group. Many of the large developing countries, such as Bangladesh and Pakistan, however, are net importers of both agricultural products and energy. The lack of adequate agricultural production is normally related to the scarcity of agricultural resources and would be reflected in the higher economic cost of biomass raw materials. In most of these countries, therefore, ethanol production is likely to be attractive only if based on surplus low-cost biomass materials such as molasses and agricultural crop residues (or sugarcane during periods of world sugar surpluses). In countries with surplus energy, such as Mexico, Nigeria, and Venezuela, there is little incentive to launch major biomass energy programs.

Biomass ethanol production can generate a large number of jobs, primarily in the rural areas, at a relatively low cost compared to the cost of additional jobs in industry in the urban areas. For example, it is estimated that the additional direct employment to be created by Brazil’s alcohol program between 1980-85 will total about 450,000 at an investment cost of about $10,000 per job. While the actual number of new jobs that can be created by potential alcohol production in other countries would depend on the size of their alcohol programs, and while the cost per job would be different, biomass alcohol production does offer an attractive opportunity for increasing rural employment.

Competition for land use

Large-scale alcohol production would almost always require difficult economic, social, and political decisions. The most important of these concerns the use of land. Large-scale biomass alcohol production would pose the question of whether, and to what extent, such a developments likely to increase competition for land and other agricultural resources which would otherwise produce food or cash crops. The issue is most usefully discussed within the context of each country. Basic considerations in assessing the extent of future competition for agricultural resources are the relative price movements for energy and food. On a global basis, a sharper increase in energy prices than in prices for food or most other agricultural products is plausible, at least over the next decade. Assuming this occurs, the potential conflict over land use between food, export, and energy crops will escalate as economic forces increasingly tend to draw agricultural resources into energy production. Biomass energy production will thus require difficult choices. Therefore, priorities must be determined carefully.

The potential conflict over land use may be more imaginary than real in countries where abundant agricultural resources exist and new land can be brought into production at reasonable cost. Elsewhere, appropriate government policies may reduce possible competition between energy cropping and production of food and other agricultural commodities. The basic aim of these policies should be to reduce the cost of the raw materials used in biomass energy production. Several possibilities exist: (1) increased yields per hectare of the traditional energy crops are usually possible, thereby reducing the overall land requirement for biomass energy; (2) energy crops other than sugarcane (such as sweet sorghum and wood) could increase alcohol production per hectare and thereby reduce the planted area for biomass production. Annual alcohol production per hectare from sweet sorghum, for example, may be as much as 50 per cent greater than that for sugarcane; and (3) production of raw materials which grow on lands marginal for agriculture should be encouraged. The global area under timber on land with limited agricultural potential greatly exceeds the land available for sustained agricultural biomass production, and forest products could become important sources of ethanol (and methanol) if cellulose conversion technology can be improved and utilized on a commercial scale. The soundest long-term approach to the conflict between food and energy is likely to involve promoting the use of raw materials, such as wood and cassava, which can be grown on lands not generally suitable for production of food.

Need for government policies

While promoting alcohol production, strong and complementary government policies will be essential to accommodate the different and often conflicting needs of various sectors of the economy. Ethanol production from biomass would require close coordination between the industrial, agricultural, energy, and transportation sectors.

The main areas needing government policy actions would include:

  • Active promotion of ethanol use for gasoline blend (or other economic applications) through demonstration projects and agreements with the automobile and chemical industries.

  • Development of energy-efficient ethanol plant designs.

  • Promotion of alcohol production by guaranteeing delivery and facilitating assured raw material supplies.

  • Encouraging production of biomass raw materials by offering appropriate incentives and providing the necessary agricultural research, extension, and credit facilities.

  • Designing a cohesive pricing system to overcome typical large distortions in the prices of inputs from the energy, industrial, and agricultural sectors.

  • Providing financial incentives to promote production of alcohol as a petroleum substitute.

The World Bank is assisting the developing countries in: evaluating the potential, prospects, and viability of alcohol production; developing policies necessary to prudently exploit this potential where justified; designing national alcohol programs; transferring appropriate technology through financing of these programs; and formulating and strengthening institutions responsible for this activity. The Bank’s initial work in a number of countries indicates that assistance from agencies such as the Bank is urgently needed in these crucial areas to allow the developing countries, either with surplus biomass raw materials or with large biomass production potential, to efficiently develop their renewable energy source. World Bank support of alcohol production programs based on biomass is consistent with its efforts to promote development of nonconventional and renewable sources of energy. This new area of activity will complement increased Bank lending for the development of conventional energy sources such as petroleum, gas, coal, and hydroelectric power.

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