Analyzing the Trade-Offs between Meeting Biorefinery Production Capacity and Feedstock Supply Cost: A Chance Constrained Approach

Commercial-scale switchgrass production for cellulosic biofuel remains absent in U.S. A well-recognized difficulty is the steady provision of high-quality feedstock to biorefineries. Switchgrass yield is random due to weather and growing conditions, with low yields during establishment years. Meeting biorefinery production capacity requirements 100% of the time or at any other frequency requires contracting sufficient amount of agricultural land areas to produce feedstock. Using chance-constrained programming, the trade-offs between the degree of certainty that refinery demand for feedstock and the cost of contracting production acreage is assessed. Varying the certainty from 60% to 95%, we find the costs of production, logistics and transportation ranged from 27% to 96% of the cost of 100% certainty. Investors and managers need to consider the cost of certainty of biomass acquisition when contracting for production acreage.