Economic feasibility of small-scale ethanol production in Texas

The average production cost per gallon of 182-proof ethanol from the 9000 gallons per year operation was $4.82, whereas that for the 144,000 gallons per year plant wa $1.74. Per-gallon production costs were reduced nearly 64 percent in the case of the larger plant. Production costs were partitioned into fixed and variable costs. The fixed cost per gallon for the 9000 gallons per year plant is $.190, whereas the 144,000 gallons per year operation has an average fixed cost of $0.19 per gallon. The variable cost per gallon for the 9000 gallons per year plant is $3.14, whereas the variable cost per gallon for the 144,000 gallons per year operation is $1.77. Most of the difference in production costs between the two operations is attributable to labor and plant utilization. The sensitivity of production costs for either plant to changes in key parameters was examined. The parameters included: feedstock price, discount rate, by product value, planning horizon, and labor cost. An imputed value of 182 proof ethanol was determined to assess the profitability of either plant size. The value of ethanol is substantially higher when it is considered as an ingredient in the production of gasoline-alcohol blends as opposed tomore » a direct replacement for petroleum-based fuels. Given the resulting production costs of $4.82 and $1.74 per gallon for the 9000 gallons per year and the 144,000 gallons per year operations respectively, the imputed market value of $1.59 per gallon of 182-proof ethanol indicates that the opportunity for profit does not exist. The economic picture is somewhat brighter for the 144,000 gallons per year plant, although it too fails to be economically feasible. The production cost in this case exceeds potential returns by $0.15 per gallon. However, this difference is somewhat ameliorated by investment tax and depreciation credits. 23 references, 11 tables.« less