Annette Dunlap, MBA Extension Associate NC State University Value-Added Business Opportunities in Biofuels: Risks, Rewards & Regulations Annette Dunlap, MBA Extension Associate NC State University

Table 3: VALUE ADDED TREE Adopted from Paul Miller's Value Added Tree in A Biobased Vision for Montana and the Pacific Northwest. 2003. Source:http://www.attra.ncat.org/attra-pub/biodiesel_sustainable.html#qualitiesandquantities

Ethanol Plant Products Oxygenate additive E85 Aviation fuel DDGS CO2

Is corn a good choice as an ethanol plant feedstock in NC?

Inbound corn is $.55/bushel higher – mainly due to transportation costs

Translation: There are higher risks for investors who choose to build an ethanol facility in NC with corn as the primary feedstock.

Bulk Biodiesel is still an expensive proposition

Translation: Bulk plant operators need to find alternative income streams in the early years.

Ethanol Plant Risk Factors Processing technology Marketing & operation Government & regulatory

Processing Technology Risks Plant engineering and construction Plant operation Experience makes a difference!

Marketing & Operations Risk Changes in the cost and availability of inputs (feedstock, natural gas) Changes in the price and demand of outputs (ethanol, distillers grains) Correlations between the costs of the inputs and the prices of the outputs as a measure of risk

Correlation Between Selected Monthly Price Series for 1992-2003 Unleaded Gas DDGS Corn Grain Sorghum Nat’l Gas Elect. Ethanol .58 .26 .14 .17 .49 .09 Unleaded -.15 -.11 -.05 .64 .77 .74 -.25 .35 .97 -.21 .19 Sorghum -.17 Nat’l. Gas -.26 Sources: USDA, EIA, Feedstuffs, Neb. Ethanol Board

Correlation between Return on Common Equity & Input/Output Prices Sources: USDA-NASS, US DOE Energy Information Admin, Feedstuffs, Neb Ethanol Board

Government & Regulatory Risks Current industry dependence on subsidies to operate profitably Changes in environmental regulations may make targets for renewable fuels difficult to achieve Changes in government policies and tax structures may affect plants while they are still under construction or newly operational

What can make a facility successful? Economic feasibility Input costs vs. output prices Market feasibility Transportation Facility Location Demand for outputs Technical feasibility Experience with ethanol plants Technology in place Financial feasibility Ability to manage risk/return ratio Management feasibility Skill and expertise of management team

Adoption – Diffusion of New Technologies Early Majority “Valley of Death” Late Majority Laggards Early Adopters Innovators

Regulations Air permit NPDES discharge permit Surface water containment permit. Aurora plant must have a water capacity use permit

Summary Value-added alternatives provide the greatest opportunity to capitalize on the emerging biofuels industry BUT Newly emerging industries always carry a high level of risk Investors must be able to sustain losses in the early years Investors should work with people already experienced in the industry in developing and carrying out their plans

Where to go for more information NC Department of Revenue forms: http://www.dor.state.nc.us/downloads/motor.html IRS Forms: http://www.irs.gov (Publication 510 and Form 720) Detailed information on federal and state programs: http://www.eere.energy.gov/afdc/progs American Coalition for Ethanol: http://www.ethanol.org