1. 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

2. Table 3: VALUE ADDED TREE Adopted from Paul Miller's Value Added Tree in A Biobased Vision for Montana and the Pacific Northwest
Source:

3. Ethanol Plant Products
Oxygenate additive
E85
Aviation fuel
DDGS
CO2

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

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

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

7. Bulk Biodiesel is still an expensive proposition

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

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

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

11. 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

12. 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

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

14. 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

15. 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

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

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

18. 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

19. Where to go for more information
NC Department of Revenue forms:
IRS Forms: (Publication 510 and Form 720)
Detailed information on federal and state programs:
American Coalition for Ethanol: