| Bio-diesel in Oregon |
 |
|
|
 |
| An overview by the Oregon Department of Agriculture |
|
A biodiesel industry in the Pacific Northwest (PNW) has the potential for enhancing rural and farm economies, aiding national security through development of a domestic renewable fuel, and decreasing greenhouse gas emissions.
Biodiesel can be processed from any type of animal fats and plant oils. A more complete list of potential domestic resources for biodiesel include (1) food grade cooking oils, such as soy, canola, palm, peanut, sunflower, and other oilseeds such as mustard; (2) off quality and rancid vegetable oils; (3) animal fats: lard, tallow, chicken fat, fish oils and (4) used cooking oils from restaurants (yellow grease). In Oregon, canola, rapeseed, mustard and a few other crops are the most applicable for production and conversion, along with waste grease from the food service or processing industry.
Presently, one biodiesel production facility exists in Oregon with the capcity to convert about 1 million gallons per year into biodiesel. This facility (SeQuential Biofuels, Salem) is using yellow grease, soy and canola oils as feedstock. Consumption is rising and now amounts to about 2 million gallons per year, or 0.4% of petroleum diesel sold in the State (2005). Approximately two dozen retail fuel outlets handle bio-fuel, mostly sourced from the mid-west.
Nationally, due to federal mandates to phase down sulfur levels in diesel fuels, bio-diesel -- with its higher lubricity characteristics -- can be a viable replacement for blending with petroleum diesel. California is currently the largest market for bio-diesel, consuming about 25% of national production. Oregon is in a prime location to produce bio-diesel for local markets and the California market.
|
|
|
| Bio-diesel production from oil seed consists of four major steps |
|
- production of the crop, harvesting, and transportation to the processing destination;
- on-site storage and handling of the oil-seed, processing the seed/extraction of oil and other bio-products;
- further processing the virgin oil and other byproducts into specific consumer or wholesale products, such as bio-diesel, bio-lubricants, animal feeds from seed millings, etc.;
- transporting the products to market distribution points and consumer retail sales.
|
|
|
| The process involving waste grease includes |
|
- collecting the waste grease from restaurants, processing plants, rendering facilities and other sources of vegetable oils or animal fats;
- further processing the oils into biodiesel or other byproducts. Since there is no meal associated with this feedstock, there is no additional handling requirements for that commodity.
- transporting the products to market distribution points and consumer retail sales.
|
|
|
| Cost structure |
|
The major economic factor to consider for input costs of biodiesel production is the feedstock, which is about 80 percent of the total operating cost. It takes around 7.5 pounds of fat or oil to produce a gallon of biodiesel. If a feedstock (canola or mustard) is 13 cents per pound, and the amount of oil in the seed is 40% by weight, the feedstock cost could be nearly $2.44 per gallon. Other important costs including plant overhead, labor and methanol, which must be added to the feedstock to transform it into biodiesel. Waste grease is in the range of 25-50 cents per pound and is be the most economical for initiating a biodiesel industry. But supplies are limited and could not sustain a larger plant.
However, there are federal tax incentives for biodiesel production/distribution amounting to $1 dollar per gallon for agriculturally-derived biodiesel (or 1 cent per each 1 percent blend, i.e., a B20 or 20% blend would qualify for a 20 cent/gallon federal excise tax incentive). The tax credit is generally taken by the blender, but this incentive helps keep biodiesel in a cost competitive range with pure petroleum diesel.
|
|
|
| Factors inhibiting the biodiesel industry in Oregon and the PNW |
|
- lack of infrastructure -- there is now minor crushing capacity in Oregon, along with the single processing facility. However, it will require larger processing plants to ensure growers of a market to grow feedstock crops.
- lack of awareness by consumers, relating to latent demand. However, awareness is growing and the Legislature will again consider proposals to implement a Renewable Fuel Standard which may require blending levels of biofuels tied to in-state or regional production of feedstock.
- financing resources and costs of production. This may also be addressed, at least in part, by incentives which the Legislature may consider, as well as changes made by the Oregon Department of Energy in the administration of the Business Energy Tax Credit. Growers can now claim pro-rate use of equipment and inputs toward biofuel feedstock production for a tax credit which has "pass through" options to sell the credit.
Several efforts are underway to address these barriers:
Research and industry efforts in the PNW, supported by State and Federal policies and programs, are developing new strategies and technologies to overcome barriers to production. One focus is aimed at producing higher value co-products and establishing optimized business models. Attention will be focused on more efficient uses of the seed meal, the crop fiber, and, glycerin -- a lower value by-product of biodiesel production. Bio-lubricants and other bio-based products are also the focus of development and market efforts.
|
|
|
| Current business efforts |
|
- There are several projects underway in Oregon to construct biodiesel processing facilities. Some are still in the planning stage, others have selected a site and are working through the permitting process. And a few have reached the construction stage.
- The Oregon Department of Energy and the Oregon Department of Agriculture attempt to keep a running list of projects, but some prefer to keep their project confidential until they are sure of moving forward.
|
|
|
| State and Federal resources |
|
1. Business Energy Tax Credit
The Oregon Business Energy Tax Credit (BETC) is valued at 35% of ‘eligible costs' for any particular project. Renewable Resource Projects that use solar, wind, hydro, geothermal or biomass to produce energy, displace energy, or reclaim energy from waste may qualify for a tax credit. Renewable resource projects must replace at least 10 percent of the electricity, gas, or oil used. The energy can be used on site or sold. For farmers, capital costs associated growing feedstock/crops for alternative fuel production are eligible, including cost of seed, chemicals, pro-rated tractor/equipment usage, etc. The credit is a dollar-for-dollar credit against State of Oregon Business taxes owed. The tax credit can be sold or "passed through" to other entities which desire a tax credit for the net present value of 25.5% of the eligible costs. Be sure to contact the OR Dept. of Energy before planting to understand all details and to qualify.
Business Energy Tax Credit (Evan Elias, 503-378-6044)
http://www.energy.state.or.us/bus/tax/taxcdt.htm
- Tax credit up to 35% of project cost, depending on project life.
- Eligible projects include energy efficiency, recycling, transportation, and renewable resources such as biomass production, wind, solar, geothermal, waste heat, fuel cells, water, microturbines and Sterling engines.
- Tax credit can be taken over 5 years against Oregon business excise (income) tax.
- Projects that cost less than $20,000 can take credit in one year. Unused credits can be carried forward up to 8 years.
- Projects must be pre-certified by the Office of Energy
- Credits can be sold or passed through to other business entities.
- Legislative concept for 2007 session would raise the BETC to 50% of project cost.
2. Low Interest Energy Loan: Oregon Department of Energy
http://egov.oregon.gov/ENERGY/LOANS/selphm.shtml
6.5% for 15 years. For projects that:- Save energy
- Produce energy from renewable resources such as water, wind, geothermal, solar, biomass, waste materials or waste heat
- Use recycled materials to create products
- Use alternative fuels
USDA Programs:
3. Renewable Energy and Energy Efficiency Grant Program (SEC. 9006) A competitive grant that provides grants (25%) and loans for renewable energy development and efficiency enhancement for activities related to farms, ranches, and rural businesses. For FY 2006, $23 million allocated to this program. Contacts William Hagy, USDA, D.C., 202-720-7287; or Don Hollis, USDA, Oregon, 541-278-8049, ext. 129).
4. Bioenergy Program (SEC. 9010) Farm Bill: The Commodity Credit Corporation (CCC) pays processor for feedstock from qualifying commodities used to increase production of biodiesel or ethanol facilities. The subsidy is available after initial construction and first phase of production for increased eligible gallons of bioenergy produced. $23 million in payments in 2005. http://www.fsa.usda.gov/daco/bio_daco.htm#2005
5. Conservation Security Program Renewable Energy Credits
Available only in approved CSP watersheds.
See: http://www.nrcs.usda.gov/programs/csp/
- Reduce energy consumption and earn $150 for a 5% reduction; $250 for a 10% reduction and $500 for a 20% reduction of total BTUs for the agricultural operation.
- Conduct an energy audit of agricultural operations and earn $500.
- Recycle 100% of the on-farm lubricants and earn $200 per year.
- Use fuels blended with renewable agricultural products such as bio-diesel and fuel grade ethanol and earn $125.00 per 500 gallons of the renewable fuel component (ex: 2500 gallons of 20% bio-diesel = 500 gallons of renewable fuel for a payment of $125.00).
- Generate renewable on-farm energy such as solar, wind, geothermal or methane and earn $2.50 per 100 kWh.
- Reduce machinery field operations and earn up to $0.90 per acre.
- Use of manure to supply at least 90% of nutrient needs of plants.
Grower self-assessment workbook:
http://www.nrcs.usda.gov/programs/csp/pdf_files/CSP_SelfAssess_Workbook_F.pdf
6. Value-added Producer Grant (VAPG)
http://www.rurdev.usda.gov/rbs/coops/vadg.htm
∑ The USDA/VAPG is intended to help independent agricultural producers enter into value-added activities.
Eligible uses:
∑ Planning activities (conduct a feasibility study, develop a business plan, develop a marketing plan); or
∑ Working capital to operate a value-added business venture.
∑ Renewable energy projects are eligible for this funding.
∑ 50% of project cost; requires 1:1 match.
∑ This grant is very competitive. Opens once per year.
- For more information, contact:
Dan Streng, USDA Rural Development , 101 SW Main St., Ste. 1401, Portland, OR 97204-3222 Phone: (503) 414-3366, dan.streng@or.usda.gov
7. Energy Trust of Oregon: Open solicitation program
http://www.energytrust.org/RR/index.html
∑ Eligible renewable technologies include new electricity generation facilities or new additions to existing facilities fueled by: Wind energy; Solar energy; Geothermal energy; Hydroelectric facilities located outside protected areas; Biopower projects now receive funding through an RFP.
∑ Eligible projects must either be located in the Oregon service territory of Pacific Power or Portland General Electric, or have a power purchase agreement with one of those utilities. Off-grid projects are not eligible for Energy Trust support.
8. EPA Programs: West Coast Collaborative Ag Diesel Project
http://www.westcoastcollaborative.org/wkgrp-ag.htm
∑ The Agriculture Workgroup is exploring opportunities to share information and seek funding for a variety of projects including: retrofits or efficiency improvements for diesel agriculture pumps; biodiesel production; and use of emulsified fuel in heavy equipment.
∑ Current projects being funded:
http://www.westcoastcollaborative.org/
9. Property Tax Exemption
Enterprise Zone Exemption (ORS 285C.055)
Through a short-term tax exemption, an Oregon enterprise zone induces eligible businesses of all sizes to make additional investments that will improve employment opportunities, spur economic growth and diversify business activity. Qualifying new plant & equipment in a zone receives a total exemption for at least three and in some cases up to five consecutive years from the local assessment of ad valorem property taxes, which can otherwise have a deterring effect on private investors seeking to start or enlarge operations with a substantial capital outlay. Enterprise zone property (except hotel/resorts and utilities) also is exempt for up to two years while it is being constructed or installed.
http://www.econ.state.or.us/enterthezones/whatare.htm
10. Ethanol production facilities (ORS 307.701)
Upon compliance, the real and personal property of an ethanol production facility that meets the requirements of subsection (3) (see below) is exempt from taxation. The exemption shall be 50 percent of the assessed value of the property determined under ORS 308.146. The exemption under this section may be claimed for five assessment years. There is a sunset provision of 7/1/08.
Subsection (3) An ethanol production facility may qualify for exemption from taxation under this section if the facility: (a) Is first in the process of construction, erection or installation as a new facility after July 1, 1993; (b) Is or will be placed in service to produce ethanol within four years after January 1 of the first assessment year for which the exemption under this section is claimed; and (c) Within four years after January 1 of the first assessment year for which the exemption under this section is claimed, is or will be certified by the State Department of Agriculture as a facility that produces ethanol capable of blending or mixing with gasoline. The blend or mixture shall meet the specifications or registration requirements established by the United States Environmental Protection Agency. http://www.leg.state.or.us/ors/307.html
Note: A local business has explored the comparative options of the ‘Enterprise Zone" and ‘Ethanol' tax exemption - taking the Enterprise credit in the first five years and the ethanol credit in subsequent years. This may be an issue in need of further exploration.
FEDERAL INCENTIVES FOR BIOFUEL PRODUCTION
11. Biofuel Excise Tax Exemption or Income Tax Credit
Either the refiner, producer, terminal operator, wholesaler or other gasoline marketer which produce gasoline blends, consisting of 10% ethanol and 90% gasoline, are exempt from 5.4¢ of the per gallon federal gasoline excise tax. Blends less than 10% ethanol receive prorated exemption. The exemption equates to 54¢ per gallon of ethanol used that are at least 190 proof. For methanol, the credit is 60¢ per gallon of alcohol if the methanol is at least 190 proof and 45 cents if the methanol is between 150 and 190 proof. This credit can be taken as an excise credit as illustrated, or income tax credit. This mixture credit is available only to the blender, who must produce the mixture and either use it or sell it as motor fuel.
12. American Jobs Creation Act of 2004 (HR. 4520)
This bill amends and extends the alternative fuel excise tax credits. Upon implementation of this bill January 1, 2005, the Treasury will be responsible for awarding 51 cents/gallon of alcohol (ethanol) mixed with gasoline, 60 cents/gallon of alcohol (excluding ethanol) mixed with gasoline, 50 cents/gallon of biodiesel mixed with traditional diesel, and $1.00/gallon of agri-biodiesel mixed with traditional biodiesel. The definition of agri-biodiesel is biodiesel produced from virgin vegetable oils derived from corn, soybeans, sunflower seeds, canola, cottonseeds, crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds, as well as from animal fats. The tax credit is applicable to the producer of the biodiesel and alcohol fuel mixture for fuel sold after December 31, 2004 and in the case of ethanol will terminate after December 31, 2010 and in the case of biodiesel will terminate after December 31, 2006.
13. Energy Policy Act
Energy Policy Act of 1992 (EPAct), Public Law-102-486, Title XIX-Revenue Provisions, Sec. 179A A $2,000-$50,000 federal adjustment allowance to gross income is available for the incremental cost to purchase or convert qualified clean fuel vehicles. Up to $4,000 federal tax credit is available for 10% of the purchase price of an EV. This is an adjustment allowance to gross income for the clean fuel vehicle property portion of a vehicle and certain refueling properties. A tax deduction for the purchase of a new original equipment manufacturer (OEM) qualified clean fuel vehicle, or for the conversion of a vehicle to use a clean-burning fuel, is provided under the Energy Policy Act of 1992. The amount of the adjustment allowance to gross income for qualified clean fuel vehicles is based on the gross vehicle weight (gvw), the type of vehicle and the value of the vehicle's clean fuel vehicle property, as defined in IRS Code Section 179A.
The tax deduction for clean fuel vehicles is available for business or personal vehicles, except EVs eligible for the federal EV tax credit. The adjustment allowance to gross income is not amortized and must be taken in the year the vehicle is acquired. A tax deduction of up to $100,000 per location is available for qualified clean fuel refueling property or recharging property for EVs. The equipment must be used in a trade or business.
Contacts: Justin Klure, Justin.Klure@state.or.us OR Dept. of Energy
Brent Searle, bsearle@oda.state.or.us OR Dept. of Agriculture
|
|
|
| Crop production capacity |
|
15 million gallons of bio-diesel production would require between 100,000 and 300,000 acres, depending on yields and type of crop (oil content).
All proposals for oil-seed extraction in Oregon are based on cold-extraction/press technology rather than hexane extraction. The latter process produces more oil from the crop, but creates environmental issues and limits some markets and uses of both the products and the seed millings.
Canola and rapeseed are both members of the same botanical family; however "Canola" is specific to varieties that meet the canola standard for low erucic acid and glucosinolates, mostly used for food grade and cosmetic uses. Rapeseed grades are high erucic acid and apply to varieties designed for industrial use. One processing plant in Idaho is presently writing grower contracts for rapeseed. Canola is shipped to processing plants ranging from Canada to the Midwest. Depending on prices, acreage in Oregon can presently range from a few hundred to a few thousand acres in the Columbia basin for dryland wheat rotation. Mustard seed is an annual, cool season crop that can be grown in a short growing season. A relative of canola, mustard seed (Brassica spp.) has the advantage of being more tolerant to drought, heat and frost. Mustard seed acreage has been upwards of 2,000 acres when prices were favorable. Yields range from 1,000 to 1,200 lbs./acre. Mustard seed is presently shipped to a mill in Montana for processing. Canada is the principal producer of mustard for international markets and exports much of it to the U.S.
Present restrictions on canola in the Willamette Valley prevernt wide scale production at the present. If appropriate protocol for negating potential impacts on other seed crops can be addressed, and if a crushing facility were located in the Willamette Valley, estimated acreage devoted to canola or rape seed could be as much as 50,000 acres. Prices of other crops would compete for growers' commitments to this crop. If profitable prices can be achieved (13-14 cents/lb.) to the grower, 50,000 acres at yields of 3,500 lbs./acre could furnish a 8-10 million gallon plant.
Facilities in The Dalles or Eastern Oregon would be somewhat larger, probably 20-40 million gallons or larger to support regional feedstock production. Crop yields would be lower (~1,500 - 2,000 lbs./acre) and require between 200,000 - 450,000 acres for this size facility. In order to minimize transportation costs and address regional markets, a series of smaller facilities could be located in Eastern Oregon and Washington. As a rotation crop with wheat, these oil seed crops can assist with addressing pest issues, enhancing soil tilth and water retention, and increasing grain crop yields in susbsequent years.
Canola can be grown on the same ground only twice in a five year rotation in Eastern Oregon, and once in a four year rotation in Western Oregon to prevent disease buildup in the soil.
Growers' planting decisions will be based on:
- Alternative crop price comparisons.
- Input costs, including whether they can use the same equipment.
- Incentives to the grower.
- Additional benefits of crop rotational value, soil/fertility value, etc.
- Whether there is a nearby market for the crop (growers usually pay transportation costs) or delivery system for energy (intertie ability).
- Potential opportunity for upstream returns (cooperative or LLC involvement).
- Technology developments that enable new ways of using resources, crops, and waste streams.
- Risk management tools available (i.e., crop insurance, etc.).
- Chemical use history on the farm site (may impact choice of following crops).
|
|
|
| Byproducts |
|
Glycerol is a co-product produced in the transesterification process of producing biodiesel. Glycerol is used in pharmaceuticals, cosmetics, toothpaste, paints and other commercial products. The market for glycerol has been volatile in the past. It´s been said that glycerol is good for everything except making money -- an indication of the challenge in finding a profitable use for this byproduct. Extensive biodiesel production could flood the glycerol market and lower the glycerol price.
Seed meal is the other byproduct of the process and can be a valuable livestock feed, depending on the seed type. In fact, the meal product portion of the operation can be more profitable than the biodiesel production, since the fuel is a commodity feeding into a very competitive market.
Other products that can be produced from the processed oil could include lubricants and other specialty oils. The amount of refining and marketing of additional products can add complexity and cost, but also increase potential revenue streams to the operation.
|
|
|
| Facility costs |
|
Oil seed extraction methods vary depending on the type of commodity being processed and the desired end product. All known plants in Oregon would be using a cold press or other extraction method that does not rely on solvents. The resultant extraction is less (80% or so), but a wider variety of options are available for the end products and there is less plant cost related to handling of solvents and environmental concerns.
There are essentially three stages to the processing, each of which requires specialized machinery: 1) preparation of the seed (shelling, grinding, etc.), 2) extraction, pressing, or extrusion of the oil, and 3) refining of the oil for the desired product (degumming, bleaching, deordorizing, etc.). The machinery cost necessary for these three stages -- fitting a 100-200 ton per day capacity facility (12-15 million gallons) designed for handling the specialty needs of mustard seed, canola, rapeseed, or other specialty seed crops that might be grown in Oregon -- is roughly $3-5 million. This does not include costs for land; the building/facility to house the machinery; storage facilities for the raw product, meal, and oil; environmental compliance issues; or any improvements in transportation infrastructure necessary for the facility. A rough total estimate for the entire turn-key operation may be $10-20 million, depending on siting issues, environmental issues, infrastructure, land costs, etc. A rough rule-of-thumb for biodiesel facilities is about $1 dollar per gallon of production capacity.
A smaller plant based on yellow grease would not have the storage and handling needs of large volumes of seed and meal, but would have requirements for storage of the yellow grease. There is also no need for a crusher. Estimated costs of a 1-2 million gallon facility would be in the range of $1 million.
With the proper business plan, product mix, and marketing, a biodiesel and specialty bio-product facility can be financially viable. The specific funding structure (mix of equity, debt, investor, grower, grants, tax credits, etc.) will vary by project.
The primary obstacles or challenges to biofuels in Oregon include a lack of infrastructure, processing and manufacturing that relies on incentives that create market pull and provide price justification to cover costs of production; challenges in siting and permitting; and no standard legal framework or templates for growers to use in structuring ownership and financing.
Putting these projects together takes significant management and coordination, along with technical expertise; diligent research into technologies and equipment applicable to specific projects; significant up-front commitment to see the project through the permitting, siting and financing -- which can be streamlined on industrail zone land, or may involve years of hearings and petitions if trying to rezone land; and different forms of grower organizations -- such as LLCs or other creative ways of raising capital, including new-age cooperatives --requiring adept legal guidance.
|
|
| |
|
|
