Economy of scale for biomass refineries: commodity vs. contract pricing, area utilization factor, and energy crops.

An engineering model was created to determine feedstock delivered cost and unit ethanol production cost (UEPC) as a function of biorefinery size and to compare contract and commodity purchasing methods for feedstock. In this model, not only does UEPC increase when the ethanol producers switch from contract pricing to commodity pricing but the optimal refinery size also becomes smaller. Previous studies used fixed distributions for the area utilization factor (AUF) in feedstock collection. In this study, the uniform distribution assumption was rejected as being improbable, particularly for a commodity market system. All scenarios for the AUF, AUFmax, and variable AUFmax resulted in a diseconomy of scale. This analysis suggests that biorefineries are better off employing the contract pricing method rather than the commodity pricing method because of the lower UEPC and greater profit.