What’s My Feedstock Worth? A primer for measuring bio-value

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What’s it worth? It’s the cry of a thousand fortune-hunters combing garage sales and close-out auctions this spring. Whether you are owner or seller, you need to know the underlying value of a feedstock in the advanced bioeconomy — and that is not the same thing as its current market price.

In fact, what makes a feedstock useful in the advanced bioeconomy is the spread between price and value — if the cost of valorization (the money you spend to capture that value) is less than that spread, you’ve got a winner, and you can play in the biggest commodity market of all, the fuels market. Otherwise, you’ll be looking at niche markets.

Sure, it’s easy to point to today’s Brent crude oil benchmark price of $50 and say, that’s what my feedstock is worth, at least in the fuel markets — but there’s a little more to it than that. Here are the steps to determining value.

The fuel value

Step 1: the organic fraction

A convenient starting point is a ton of feedstock, or 2000 US pounds.

Every bioeconomy has an organic fraction, and you start there — eliminating the weight of any trace metals, water, plastics, dirt and so on. The amount you eliminate could be trivail (e.g. bone dry crop) or major (unsorted, sloppy-wet muncipal solid wasteI.  So, you’ll end of up with anywhere between say 800 and around 1990 pounds of usable material. (Note to readers: in this step, we include any plastic material in your feedstock, such as MSW — it may not be something you can biologically do anything with, and it may not be renewable, but plastic is organic material and it does have a fuel value.)

Step 2: the Cs, Os and Hs

Now, you divide that organic material into its three components — oxygen, carbon and hydrogen, by weight. to use a simple example, a table sugar is C6H12O6 and is 53.3 percent oxygen, 40 percent  carbon, and 6.7 percent hydrogen. (Note to readers: For the purpose or calculating ratios and percentages, use a value of 12 for carbon, 1 for hydrogen and 16 for oxygen)

Ok, here is where it gets a little tricky.

Step 3: Adjusting for the carbon: hydrogen ratio

You can keep all your Cs and Hs so long as the ratio of carbon to hydrogen is between 4:1 and 6:1. If you have too much carbon, you have to shed that value. You probably won’t have too much hydrogen, but if you do, shed that until you either get up to that 4:1 ratio or down to 6:1.

Step 4: Adjusting for maximum oxygen

You can keep all your Os, so long as the ratio of oxygen to the remaining Cs and Hs is 40 percent or less. Anything higher, and you have to shed that value.

Step 5: Convert those feedstock pounds into theoretical fuel value

Now, to convert your remaining feedstock pounds into fuel value, multiply the remaining hydrocarbon pounds by 0.15, and the oxygen pounds by 0.32. (Note to readers: We’ll get into the explanation of why those numbers, and not others, later on  — they’re going to seem non-sensical to some of you For now, let’s just do the math).

An example: the fuel value of table sugar

Let’s use a real-world example to illustrate. We’ll start with a ton of table sugar. That’s all refined organics, so we don’t have to eliminate any non-organic material. We noted the 53.3/40/6.7 ratio of oxygen, carbon and hydrogen, above. So, we have 1066 pounds of oxygen, 800 pounds of carbon and 134 pounds of hydrogen.

Looking at steps 3 and 4, our carbon to hydrogen ratio is fine, but we have to shed 444 pounds of oxygen to get the oxygen ratio down to its maximum value of 40% Now to step 5. So, we have 1556 pounds remaining in out original ton of table sugar feedstock, and we can convert that into $339 — and that’s the value of our feedstock.

Right away we see the problems

You might have paid something like $6.48 for a 10 lb bag of C&H table sugar recently, which if you multiply it out cost you $1296 for that ton, and that’s one good reason no one will ever convert retail table sugar to a fuel. Wholesale sugar can make sense in selected markets, but never retail.

That’s NLACM in action — the Natural Law of Alternative Commodity Markets, which states that you will never convert a feedstock if the converted molecule’s value is less than the feedstock’s original value. That’s one of the reasons that ethanol producers don’t generally make jet fuel — even though you can make excellent jet fuel from ethanol – they make more producing two molecules of ethanol than one molecule of jet fuel, from the same amount of feedstock.

Theoretical ain’t actual

Now, we get into the interesting part, which is valorization — realizing your theoretical value. You can start by slashing 15 percent off the value of your feedstock right away. You might eventually find a bioconversion process than can capture more than 85 percent of the theoretical yield in actual yield, but you won’t find one easily, or right away.

Carbon value

It is not all tough news when it comes to valorizing your feedstock.

Feedstocks that are renewable can get an assist from a Low Carbon Fuel standard (as California, B.C. and Oregon have), a tax credit, a blending mandate, or a renewable fuel standard as the US has. That can add demand to the market — making it possible for you to compete at higher prices. It can add carbon value into your value equation.

Carbon value can be substantial. In this analysis of real-world data, industry consultant Michele Rubino found that cellulosic ethanol has as much as $2.20 per gallon in carbon value. That’s around $660 per ton.  Huge.

Is there an existing process?

If someone has a biorefinery in action now that uses your feedstock, there’s good news and bad news. The good news is that you can valorize your feedstock without the pain, cost and risk of developing your own or waiting around for a process to develop. The bad news is that, depending on how common or complex the process is, the bioconverter and all the partners in the supply chain are going to take a bite out of your feedstock’s value.

Or, it might dictate multiple markets for your feedstock because of how it works.

For example, take a bushel of corn.

Fuel, baby. You could gasify it, and make an intermediate known as syngas (a soup of hot hydrogen and carbon monoxide), which can then be converted into a liquid hydrocarbon fuel — the oxygen gets blown off in the process, and you probably lose carbon because you’re going to be short on your hydrogen in that process. The whole end-product gets valued as fuel, but you’re going to be looking at losing more than half of the weight.

Fractionation. Or, you could use ethanol fermentation. Plenty of corn ethanol plants around. In their process, about a third by weight becomes protein, about 1 percent becomes corn oil, about a third becomes CO2 and about a third is ethanol.   But the value of your feedstock in the protein markets is more or less is unconverted market price, and corn oil values at around 25 cents a pound. That CO2 may be captured for the liquid carbon dioxide market, or it may not. In any case, these alternative markets will change the value of your feedstock.  But in the case of corn ethanol bioconversion, the process losses are lower than the gasification example above.

The unused fraction problem

We mentioned above the CO2 fraction that existing ethanol fermentation processes create — that’s a product of how yeast converts sugar to alcohol, and you see it in action every time you pop a champagne cork.

The bioeconomy is replete with processes that extract value only from a portion of the feedstock. Sugar cane processing doesn’t do anything with the bagasse leftover except burn it, and they generally spread vinasse on fields to add some fertilizing value. Pulp & paper processing doesn’t generally use lignin except to burn it (although Borregaard converts it to vanillin), and that can be a third of the feedstock or more.

No process, or lousy economics with existing processes at scale?

Well, welcome to the advanced bioeconomy — the search for new processes that unlock value.  In this quest, you’ll take on Valley of Death failure risk, potentially huge R&D costs that hopefully are offset with grants and partner co-investing, there’s the cost and risk or scale-up, there’s commodity price risk (especially, unexpected NLACM issues), market barriers, policy risk if there’s support for the bioeconomy at a policy level, regulatory risk (such as, getting the fuel certified, a plant permitted and so forth).

There’s also the thermodynamic problem, which has to do at the end of the day with how much energy you have to put into certain feedstocks to convert them — and you can easily end up with a process that costs more in energy than energy is created. That can be just fine in some cases — after all, it’s well worth using electric or fuel energy to produce mechanical energy — you consume more fuel or power energy than you get back in mechanical energy when you are running a car, but the usefulness factor has to be considered.

The list goes on — and it is daunting enough that very few feedstock owners actually develop a process. They generally have used one already out there, and improved it along the way. They have left process development up to companies specializing in that.

The thermodynamic challenge

To cite an example, you can do the math as we’ve outlined and come up with a theoretical fuel value of $120 for a ton of pure carbon dioxide — not exactly gasoline value, but it’s not nothing, and might look tempting if you have some extra CO2 in a process somewhere. But CO2 is notoriously energy intensive to convert to anything — what’s known as the bond energy is high, and generally it’s a task that generations of engineers have happily left to plants while they focus on more tempting targets like hydrocarbons or carbohydrates. Clearly plants use CO2 to make carbs — so there’s value in there, but all processes are subject to the thermodynamic test, and that’s another barrier in realizing the full value from a feedstock.

The Amortization challenge

One of the most daunting issues is realizing the full value of your feedstock occurs when you have to build out your own process, and you are competing against producers who have amortized the cost of their production facility, and you haven’t. Most oil refineries in the US have long ago amortized the value to the refinery’s construction — though they are still amortizing their ongoing improvements. Even many first-gen biorefineries are approaching that point if they are on 10 or 15-year amortization schedules.

For an advanced process, the capex can be anywhere from $4 to $15 per gallon of nameplate capacity for a first commercial plant, and over 15 years of amortization that will add $0.28 to $1.00 to every gallon of fuel produced, or $300 for

Market Price vs Fuel Value

Naturally, developers are looking for opportunities where feedstock pieces are well below their fuel value. But, there are rampant examples where the market price for the fuel does not approach the theoretical value. Sadly, in renewable fuels, that’s the standard case.

For example, in our value model above, some may have wondered why we give a higher value for oxygen than for hydrocarbons, when hydrocarbons carry the energy value. That has to do with octane, which oxygenated fuel molecules like ethanol have more of. Octane boosters are more valuable in the market then fuel, if you look at the data, here.

But, you can’r sell unlimited amounts of octane boosters molecules. Once you have raised octane of gasoline from 85 to 87 (which you do with 10 percent ethanol blends), you’ve covered the spread between the 854-85 octane fuels that refineries like to make and the 87-octane fuels that drivers need to drive. The baseline market for octane-boosting molecules in the United States becomes a buyers market at around 14 -15 billion gallons, depending on how may customers buy premium fuels, and prices will plunge.

Non-price Market barriers

All kinds of non-price barriers exist between fuels and consumers, all of which erode fuel prices even when the value is high.

For example, you may have a wonderful fuel that ASTM hasn’t got a category for. You may have a fuel that does not drop-in to existing engines and you have blend limits if you can use them at all. You may have to distribute fuels through competitors, who wish you dead and will do anything to undersell your molecule so that they can oversell theirs. You may have a wonderful feedstock and no affordable way to aggregate it, store it or transport it to a refinery that can use it.

For instance, there’s lot of grease in every city sewer system, and cities hate it — it literally gums up the works, and costs money to extract, treat and deal with. Municipal grease has great fuel value, but there are few processes that can handle it (has to do with the free fatty acid levels, which are too high for conventional processing), and almost no one aggregates the stuff.

The Bottom Line

There’s value in that feedstock, and you can analyze it, and analyze the barriers that stand between you and valorizing your feedstock at full value. If you start with the fuel value and the carbon value, you might well find that there is a gigantic spread between the price of the feedstock (to grow it, or acquire it) and the market value — worth taking on all the supply chain, R&D and non-price barriers and challenges.