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Biodiesel as a Business

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What is Biodiesel? • Biodiesel is defined as the mono-alkyl ester of fatty acids derived from vegetable oils or animal fats, commonly referred to as B100. • Biodiesel must meet the specifications of ASTM D6751 • Biodiesel blends are a mixture of Biodiesel with petroleum diesel, commonly referred to as B20, B5, B2.

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Transesterification O || CH2 - O - C - R1 | | O | || CH - O - C - R2 + 3 CH3OH → | (KOH) | O | || CH2 - O - C - R3 Triglyceride

Methanol

O || CH3 - O - C - R1 O || CH3 - O - C - R2

+

O || CH3 - O - C - R3 Mixture of Fatty Esters

CH2 - OH | CH - OH | CH2 - OH

Glycerin

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Standard Recipe 100 lb Oil

+ +

21.71 lb → Methanol

100.45 lb + 10.40 lb + 10.86 lb Biodiesel Glycerol Excess Methanol Plus 1 lb of NaOH catalyst

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Biodiesel Standard ASTM D6751-06 Property

Method

Limits

Units

Flash point, closed cup

D 93

130 min

°C

Water and sediment

D 2709

0.050 max

% volume

Kinematic viscosity, 40 ° C

D 445

1.9 – 6.0

mm2/s

Sulfated ash

D 874

0.020 max

wt. %

Total Sulfur S 15 Grade S 500 Grade

D 5453

15 max 500 max

ppm

Copper strip corrosion

D 130

No. 3 max

Cetane number

D 613

47 min

Cloud point

D 2500

Report to customer

°C

Carbon residue

D 4530

0.050 max

wt. %

Acid number

D 664

0.50 max

mg KOH/g

Free glycerin

D 6584

0.020

wt. %

Total glycerin

D 6584

0.240

wt. %

Phosphorus

D 4951

0.001

wt. %

Vacuum distillation end point

D 1160

360 °C max, with 90% recovered

°C

Sodium/Potassium

UOP 391

5 max combined

ppm

Storage stability

To be determined

To be determined

To be determined

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Steps to Starting a Biodiesel Business • • • • • • •

Conduct a feasibility study Write a business plan Form a board or group of business persons Solicit Financing Hire an engineering company Develop your markets Build the plant and the business

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Feasibility Study Areas • State of the Biodiesel industry • Business structure or type of organization • Production processes and technologies • Feedstock choices and considerations • Transportation availability • Markets and marketing issues

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Feasibility Study Areas • Plant size and construction cost • Operating cost and manpower requirements • Environmental issues • Risk factors • Financial analysis and case scenarios • Site selection criteria

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Important Business Factors • • • • • • • •

Feedstock supply Market size Government incentives Competition Financing and source of funds Business structure and community involvement Sensitivity analysis Plant and operating cost

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Why Do Sensitivity Analysis? • Historical prospective of cost • Identifies cycles in pricing • Identifies which cost have the largest affect on profits • Helps in price negotiations for feedstock and other chemicals

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Sensitivity Analysis on Soy Bean Oil

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5 mm gpy Biodiesel Production Cost Biodiesel Production Cost Summary Customer: CIRAS Iowa State University Case: Product cost with $0.22/lb Soybean Oil feed (5 mm gpy plant size) Cost/gal ($) 1.672 Cost of Feedstock Cost of Feedstock Transport 0.076 0.011 Cost of Acid 0.108 Cost of Base Catalyst 0.001 Cost of Sodium Hydroxide 0.122 Cost of Methanol 0.022 Cost of Heat Energy 0.004 Cost of Electricity 0.079 Cost of Labor 0.128 Depreciation 0.040 Cost of Maintenance Cost of Admin and Overhead 0.025 0.030 Cost of Marketing Total 2.320 Biodiesel Production Cost

Cost/liter ($) 0.442 0.020 0.003 0.029 0.000 0.032 0.006 0.001 0.021 0.034 0.011 0.007 0.008 0.613

% of Total 72.1% 3.3% 0.5% 4.7% 0.1% 5.3% 0.9% 0.2% 3.4% 5.5% 1.7% 1.1% 1.3% 100.0%

Distribution of Biodiesel Production Cost (%) 5.5%

Feedstock

4.1%

3.4%

Chemical

1.1% 10.5%

Energy Labor Depreciation 75.4%

Overhead and Maintenance

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Plant Cost • Basic estimates vs. All equipment estimates • Installation Cost + Equipment Cost = Installed Cost • Installation cost equals 1 ½ to 2 times the equipment cost • New versus used equipment

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Advantages of Large Plants • Large plant > 10 million gpy • Does a larger Biodiesel plant size make sense? – Don’t only look at the numbers

• Benefits of a larger plant – Equipment cost per gallon produced are less for larger capacity plants – Operating expenses are usually less

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Disadvantages of Large Plants • Need more customers • Need more financing or capital investment • Usually higher transportations costs • Loss of efficiencies and quality when operated at reduced capacities or as a batch plant

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Picture from National Biodiesel Board website www.biodiesel.org

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Current and Proposed Biodiesel Production • Current biodiesel production in the US: – Estimated 581 million gpy

• Proposed biodiesel production in the US listed on National Biodiesel Board website: – Estimated 1.4 billion gpy

• Other plants being considered: – Estimated 250 million gpy

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Why Write a Business Plan? • Forces you address all aspects of starting a biodiesel business. • It’s a road map for your business to follow – a living document. • Proves that you have considered all aspects and risks of the biodiesel business and states how you are addressing them. • Important for securing investors and financing.

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Parts of a Business Plan • • • • • •

Request Page Table of Contents Executive Summary Business Description Management Market Analysis

• • • • •

Marketing Plan Product of Services Manufacturing Plan Financial Data Supporting Documents

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Ten Key Points to Remember When Writing a Business Plan • Be honest • Write in easy to understand terms • Describe your company’s image and why you are starting a biodiesel business • Provide the reader with an understanding of your business and how you will use the loan or monies • Evaluate the company's management team

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Ten Key Points to Remember When Writing a Business Plan • Do your strategic planning and put it in the business plan • Quantify your markets and market area • Illustrate major points or assets you have in the business • Nature and complexity will vary • Business plan is your sales document

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Resources • Biodiesel Workshop, material from the Biodiesel Production, Analytical, and Business workshops, Iowa and Idaho, 2005, http://www.me.iastate.edu/biodiesel • National Biodiesel Board, http://www.biodiesel.org • USDA • CIRAS and Iowa State University

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Resources John Van Gerpen, Rudy Pruszko, Davis Clements, Brent Shanks, and Gerhard Knothe, Building a Successful Biodiesel Business, 2005, Iowa. Available from http://www.biodieselbasics.com

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Rudy Pruszko Center for Industrial Research and Service Iowa State University Extension Dubuque, Iowa 52001 Phone 563-557-8271 ext 251 Email: [email protected] CIRAS website: http://www.ciras.iastate.edu