ETHANOL-FROM-LIGNOCELLULOSICS

THE FEASIBILITY OF

AN INDUSTRIAL-SCALE DEMONSTRATION

OF AN

INTEGRATED CONVERSION PROCESS

GORTON TIMBER COMPANY PTY. LIMITED DECEMBER 1994

TABLE OF CONTENTS
Chapter 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Overview and Summary 1 2 3 4 5 6 7 8 10

Background The Utility of Lignocellulosics The Fuel Economy The Conversion of Lignocellulosics to Liquid Fuels Ethanol and Lignin from Lignocellulosics The Potential for Commercial Development The Proposed Demonstration of Conversion Technologies The Feasibility of the Proposed Demonstration Summary Rationale for Development of an Economic Utility for Surplus Lignocellulosics

Chapter 2 2.1 2.2 2.3 2.4 2.5

2.6 2.7 2.8 2.9

Introduction The Ecological Framework The Emergent Ecological Dysfunction The Emergent Diseconomies of Biomass Utility The Economic Implications of Surplus Lignocellulosics 2.5.1. Cotton 2.5.2. Grain 2.5.3 Other Agricultural Crops 2.5.4 Forestry 2.5.5 Pastoral Activities 2.5.6 Summary The Economic Viability of Biomass as Fuel The Potential for Cost-Effective Conversion The Case for Conversion to Ethanol and Lignin Co-products Summary Review of the Feasibility of Commercialising a Cost-Effective Process of Conversion Lignocellulosic Resources

13 13 14 15 16 16 17 17 17 18 18 18 20 22 24

Chapter 3 3.1 3.2

3.3

Introduction Nominal Price and Other Factors of Effective Cost 3.2.1 Nominal Price 3.2.2 Moisture Content 3.2.3 Cellulosics and Lignin Content 3.2.4 Feedstock Preparation 3.2.5 Storage and Seasonal Availability 3.2.6 Summary of Effective Cost Factors The Occurrence of Surplus Lignocellulosics and their Availability as Feedstocks

25 26 26 27 28 29 29 31 32

II

Chapter 3 - continued Agricultural Crop Stubbles Agricultural Crop Processing Residue - whole plant harvest Forest Crop Management Residues - silvicultural thinnings and harvest residues 3.3.4 Pastoral Industry Management Residues 3.3.5 Summary Preliminary Conclusion as to Feedstock Availability The Components of Nominal Price Further Reviewed 3.5.1 Freight 3.5.2 Harvest and Preparation for Loading 3.5.3 Production 3.5.4 Conclusion A Brief Review of Prospective Regional Benefits 3.6.1 Feedstock Supply 3.6.2 The Conversion Process 3.6.3 Feedstock Production 3.6.4 Summary Chapter Summary and Conclusion Review of the Feasibility of Commercialising a Cost-Effective Process of Conversion Fuel Demand 48 51 51 51 52 52 55 56 56 57 58 59 59 60 61 61 62 62 63 65 66 67 68
III

3.3.1 3.3.2 3.3.3

32 33 33 35 36 37 38 39 39 40 41 42 42 43 43 44 45

3.4 3.5

3.6

3.7

Chapter 4

4.1 4.2 4.3 4.4 4.5

4.6 4.7

4.8

Introduction Issues Confronting Fuel Demand The Liquid Fuel Demand Sector 4.3.1 Australian Crude Oil Resources 4.3.2 Refinery Balance A Perspective on the Demand for Liquid Fuels The Quality of Liquid Fuel Supplies 4.5.1 Crude Oil Resources 4.5.2 Processing Cost/Refinery Balance 4.5.3 Infrastructure Compatibility 4.5.4 Consumption Quality 4.5.5 Alternative or Substitute Resources 4.5.5.1 Substitute Gaseous Fuels 4.5.5.2 Alternative Liquid Fuels Conclusion re. Liquid fuels The Role for Ethanol-from-Lignocellulosics 4.7.1 Ethanol as a Liquid Fuel 4.7.1.1 The Circumstances of Supply 4.7.1.2 Methods of Incorporation 4.7.2 Lignin as a Solid Fuel 4.7.2.1 Co-generating Capacity 4.7.2.2 The Potential for an Associated Co-generation Facility Summary and Conclusion

Chapter 5 5.1 5.2

The Design of a Cost-Effective Conversion Process The Technical Considerations 70 70 71 72 73 76 78 79 82 82 85 87 89 90 92 93

5.3

5.4

5.5

Introduction A Broad Perspective of Conversion Processes 5.2.1 A Superficial Review of the Chemistry 5.2.2 Yields from Potential Feedstocks 5.2.3 Conversion Processes and Issues of Cost-Efficiency 5.2.4 Objectives for the Attainment of a Cost-Effective Conversion A Review of the Status of Conversion Technologies 5.3.1 A Perspective on Process Costings 5.3.2 A Current review of the State of the Art 5.3.3 The View from NREL 5.3.4 Conclusions The Integrated Process Proposed for Demonstration 5.4.1 The Process Design 5.4.2 Expert Review of the Process 5.4.3 Research and Development Conclusion The Feasibility of an Industrial-Scale Demonstration of the Conversion of Lignocellulosics to Ethanol and Lignin Co-products

Chapter 6

6.1 6.2 6.3 6.4 6.5 6.6

6.7

6.8

Introduction Site Selection Process design and Expert Review 6.3.1 Brief for Expert Review 6.3.2 Report for Expert Review Proposals Invited Site Evaluation 6.5.1 Evaluation in the Negative 6.5.2 Positive Evaluation Demonstration Program 6.6.1 Pre-treatment and Hydrolysis 6.6.2 Fermentation 6.6.3 Ethanol Recovery and Waste Treatment 6.6.4 Lignin 6.6.5 By-products 6.6.6 Processing Consumables 6.6.7 Co-generation 6.6.8 Summary Project Personnel 6.7.1 Operational Personnel 6.7.2 Technical and Scientific Personnel 6.7.3 Summary of Personnel Requirements Project Costs 6.8.1 The Plant 6.8.2 Intellectual Property 6.8.3 Personnel

94 94 98 99 99 106 108 109 110 111 111 112 112 112 113 113 114 114 115 115 116 117 118 119 121 124
IV

Chapter 6 - continued 6.8.4 Process Revenue and Expenses 6.8.5 Residual Value 6.8.6 Summary of Project Costs Economic Viability 6.9.1 A 50 Megalitre Plant 6.9.2 Personnel for a 50 Megalitre Plant 6.9.3 Processing Consumables at 50 Megalitre Output 6.9.4 Overheads 6.9.5 Viability According to the IFP Formula 6.9.6 An Alternative View of Economic Viability 6.9.7 Conclusion as to Economic Viability Conclusion as to Project Feasibility Terms of Reference and Study Proposal Invitation for Proposals [IFP] by Industry to Undertake a Demonstration Project 126 129 130 130 132 134 134 135 136 137 139 139

6.9

6.10

Appendix 1Appendix 11 -

CHAPTER 1
Overview and Summary
1.1 Background

The origin of this feasibility study can be identified as the 1990 tabling in the NSW Parliament of the Select Committee Report entitled "Investigation into Ethanol and Alternative Fuels in New South Wales". In consequence of that report the NSW Department of Minerals and Energy, in 1991, issued a public call for proposals to demonstrate an integrated process for the conversion of lignocellulosics to ethanol. An important requirement was that proposals should exhibit substantial support from industry. In response to that 1991 call, a proposal was jointly submitted by Apace Research Ltd and The University of New South Wales Biotechnology Department. They proposed for demonstration essentially that process recommended in a 1990 report by Unisearch Ltd to the NSW Select Committee. Substantial support for that proposal was elicited from industry, including parties representative of lignocellulosics production and processing. Those parties were the New South Wales Sugar Milling Co-operative Ltd, Boral Ltd and the Forestry Commission of NSW. Eventually it was decided, in late 1991, not to proceed with a demonstration. Funding was instead provided for further R & D on the hydrolysis component of the process proposed by UNSW/Apace, together with an evaluation of the ethanol yields likely from a range of prospective lignocellulosic feedstocks. In addition, NSW Agriculture was engaged to review the likely availability of surplus lignocellulosics. Both of these projects have recently been concluded. Although the demonstration proposed in 1991 was not undertaken, the industry support for the UNSW/Apace proposal was sufficiently keen for both Boral Ltd and the Forestry Commission of NSW to provide financial assistance for the subsequent evaluation of ethanol yields from various lignocellulosic materials. Additional assistance in this matter was provided by CSR Ltd making available the use of test-scale feedstock treatment facilities and operating personnel. In the meantime, Boral Ltd broadened the scope of its interest in the matter to include the prospective use of ethanol as a transport fuel. In January 1992 Boral's Aztec Transport successfully competed in the Energy Challenge. The Aztec entry was a substantially unmodified Mack truck grossing 42 1/2 tonnes and fuelled by Diesohol E15, an emulsified ethanol/diesel blend containing 15 per cent hydrated ethanol. The emulsifier was that developed by Apace Research Ltd. By 1992 Apace's diesohols had an extensive background of field trials outside Australia but had not previously been publicly demonstrated in their country of origin. The use of Diesohol E15 in the 1992 Energy Challenge attracted the attention of the Commonwealth Department of Arts, Sport, the Environment and Territories. Initially, the attraction of the ethanol/diesel blend was seen in the context of issues related to urban air quality and Greenhouse emissions. The prospects for ethanol-from-lignocellulosics generally having a broader impact subsequently came to be appreciated.

In August 1992 a workshop was conducted jointly by the Land and Water Resources R & D Corporation (LWRRDC) and the Rural Industries R & D Corporation (RIRDC) to consider the impediments upon dry land agroforestry as an avenue for the remediation of degraded rangelands. It is understood that the workshop recognised that the major disincentive confronting landholders in respect of agroforestry generally is the lack of any intermediate financial return with which to meet management costs incurred during the long period prior to harvest of the mature crop. In that light the LWRRDC/RIRDC workshop concluded that the prospects for such as ethanol-from-lignocellulosics to remedy that disincentive should be pursued. Despite the 1991 decision not to proceed with the then proposed demonstration, the industry support for that proposal remained. Each of Boral and CSR independently expressed interest in an alternative proposition whereby a demonstration project might be undertaken on a lignocellulosic processing site having a waste-stream which could be applied as conversion feedstock. The advantages envisaged were two-fold. In utilising the waste-stream it would be disposed of with an added value to be credited against project costs. These costs would be further reduced by virtue of the plant having a residual value for continued waste disposal on the host site. By late 1992 that concept for a demonstration project had attracted the support of the Commonwealth. In December 1992, the Minister for Resources agreed to fund a study directed to the feasibility of industry demonstrating a conversion process based on an existing lignocellulosic waste-stream. Later in December 1992 the Prime Minister announced, within a Statement on the Environment and subject to the outcome of the earlier proposed feasibility study, the provision of up to $2 million to assist industry with a demonstration project. The administration of the feasibility study and, hence, of the proposed Commonwealth assistance to any eventual project was assumed by the Department of Primary Industries and Energy. Early in 1993 Terms of Reference for the study were issued in conjunction with a public call for proposals. A copy of the Terms of Reference and of the proposal submitted for this study comprise Appendix 1 of this report. 1.2 The Utility of Lignocellulosics

Lignocellulosic material comprises the fibrous structural component of plants - the roots, stem and branches. Lignocellulosics consist of some two-thirds carbohydrate and one-third lignin. The lignin supplies the majority of the structural rigidity of the plant. In annual plants lignin is less abundant than in perennials. The carbohydrate component is mostly cellulose but hemicellulose is a substantial constituent. Vegetative biomass managed for the dominant purposes of food and fibre production usually also produces lignocellulosic material surplus to those dominant purposes. Even when the dominant purpose is the production of lignocellulosic fibre much of the total of lignocellulose production is of insufficient quality and so is surplus to that purpose. Some of the lignocellulosic material, although directly surplus to either food or fibre production, nevertheless has an agronomic or ecological value at the site of its production. Lignocellulosics having such indirect values are not surplus to the management of the overall resource. After providing for those less immediate environmental values, it is the lesser quantity of lignocellulosics remaining which comprises the surplus potential source of fuel.

The incidence of lignocellulosics produced surplus to the dominant purposes of food and fibre production imposes a burden on resource management. As the relative economic value of primary production declines, the pressure increases for landholders to either avoid or offset that burden. On the evidence now available with respect to environmental degradation it is accepted that avoidance is not ecologically sustainable. The alternative, that of offsetting the management burden, requires that those surplus lignocellulosics be invested with an economic value presently lacking. Being surplus to the production of either food or fibre it may be assumed that only fuel remains as a potential utility for such lignocellulosics. Fuel is the use to which surplus lignocellulosics have traditionally been put. Nevertheless, the fuel economy over the past century has come to be dominated by fossil hydrocarbons. The application of lignocellulosics as fuel thus must be consonant with the economic parameters dictated by those dominant fossil fuels. If they are to be used as liquid fuels, lignocellulosics must be converted from their solid form. The conversion of surplus lignocellulosics for the purpose of their application as a liquid fuel has the potential to also create for that surplus an utility as either food or fibre. As whole materials the surplus is unusable as food or fibre but its deconstruction to the separate lignin and carbohydrate fractions results in new opportunities for the utilisation of lignocellulosics. There is a range of widely recognised fibre utilities for each of cellulose and lignin. Considerable potential also exists for the further processing of those components to foods. The imperative for the management of surplus lignocellulosics is the development of avenues whereby their economic value may be increased sufficient to at least offset the cost of their management. In the event of realising that objective, the burgeoning diseconomies of primary production would be attenuated and the benefits would extend to a facilitation of ecologically sustainable development. 1.3 The Fuel Economy

The incidence of lignocellulosics surplus to the production of food and fibre is not novel. Such surplus material was traditionally applied as fuel. The novelty is the loss by that surplus of its economic utility. That loss has arisen in consequence of the displacement of lignocellulosics by hydrocarbons as components of fuel supply. Although that displacement is itself relatively recent - it may not be a century since its occurrence - the effects of that displacement have become apparent only during the past 25 years. Of the hydrocarbon fuels it is almost certainly the liquid petroleums which have had the greatest economic impact. With respect to the fuel consumption infrastructure, that which has been developed for the utilisation of liquid petroleums is least amenable to the use of unconverted lignocellulosics. Nevertheless, it is the liquid fuel sector which offers the greatest scope for the utilisation of surplus lignocellulosics as a component of fuel supply. As raw fuels, the energy content of crude oils is some 50% more expensive than that of the coals which dominate the solid fuel sector. Furthermore, by comparison with coals to electricity, the crude oils require a greater degree of conversion processing before yielding the products demanded by the liquid fuels sector. Finally, of the two classes of hydrocarbon fuels, it is crude oils which are least abundant relative to demand. Each of these factors has the effect of facilitating the prospective conversion of lignocellulosics to some form of alternative liquid fuel. The issue of greatest importance to the near-term outlook for liquid fuels is the maintenance of refinery balance. Refinery balance is the extent to which the demand for the various products of
3

crude oil refining is matched by refinery output. The maintenance of that balance is of great significance to both the cost and the quality of the various petroleum fuels. The economic viability of an alternative liquid fuel will be enhanced to the extent that its use contributes to the maintenance of refinery balance. Other avenues whereby an alternative liquid fuel may present advantages to the liquid fuel sector include resource security and consumption quality. The consumption quality referred to is that of the level and toxicity of emissions from fuel combustion. The broader issue of Greenhouse emissions might generally favour any fuel sourced from biomass in preference to fossil hydrocarbons. A narrower and somewhat more immediate issue is that of urban air quality. Oxygenation is one of the more important means for improving the consumption quality of liquid fuels. The source of that oxygenation will be alcohols. With respect to the Greenhouse issues, it would be preferable that those alcohols be produced from biomass. Although there is anticipated to be no near-term global shortage of crude oil, its availability is not well matched to the incidence of national demand. The economies exhibiting greatest demand are generally not self-sufficient. The near-term outlook for Australian crude oil resources is a decline from the present 80% self-sufficiency to only 50% by the year 2000. That decline is forecast to result in an increased trade deficiency amounting to double the current $1,500 million incurred annually for imported crude oil. 1.4 The Conversion of Lignocellulosics to Liquid Fuels

With respect to fuel demand it is apparent that surplus lignocellulosics might most advantageously be directed to the supply of liquid fuels. In that event the conversion would be to one or other of methanol and ethanol. Either may be employed neat or as a blend with liquid petroleum fuels and both alcohols effect fuel oxygenation. The imperative for lignocellulosics surplus to the production of food or fibre is that they be invested with an enhanced economic value. That such an enhancement may result from their application as fuels is proposed only on the basis that, in their unconverted form, surplus lignocellulosics enjoy no prospect of an alternative utility. Of the three forms of energy - food, fibre and fuel - that of fuel is the least valuable. The prospective application of lignocellulosics as liquid fuels requires their conversion from solid form. Such conversion creates the opportunity to separately capture the lignin and the carbohydrate components. As separated components, each has then acquired the potential to be used as one of food or fibre. Both food and fibre being more valuable than fuel, that newly acquired potential should maximise the prospects for value-adding. Only the conversion of lignocellulosics to ethanol and lignin co-products is consistent with preserving that wider potential. Although the lignin may be utilised as a solid fuel, the option for its use as one of food or fibre is maintained. Similarly, although the carbohydrate fractions may both be converted to ethanol, it also is widely utilised as a component of foods and fibres. That fuel is of less value than either food or fibre virtually guarantees that ethanol and lignin produced at a cost acceptable to the fuel economy will have maintained the option for their alternative application to higher value end uses. No such options are retained by the alternative conversion of lignocellulosics to methanol.

As a liquid fuel, ethanol enjoys a number of advantages over methanol. The more important advantages are ethanol's greater energy density and its lesser toxicity and corrosivity. Each of these advantages, both separately and in combination, result in ethanol's greater compatibility with the existing liquid fuel infrastructure. Despite these advantages the cost of ethanol production - particularly from lignocellulosics - has thus far proven excessive. Nevertheless, the advantages of ethanol as an alternative liquid fuel are so well accepted that, internationally, very little attention is directed to the alternative conversion of lignocellulosics to methanol. 1.5 Ethanol and Lignin from Lignocellulosics

Despite the attractions of a conversion of surplus lignocellulosics to ethanol and lignin coproducts their realisation remains prospective. The technical difficulties of cost-effective conversion are magnified by the constraints imposed by the fuel economy upon the definition of cost efficiency. The cost structure of the fuel economy imposes a low ceiling on the acceptable price for conversion outputs. Relative to that ceiling, the cost of feedstocks for conversion is high. Lignocellulosics surplus to the production of food and fibre may be supplied at the marginal cost of their production. That marginal cost is, however, generally equivalent on an energy basis to the cost of crude oil. Although crude oil itself requires an expensive conversion to the various liquid petroleum fuels, the process of oil refining is undertaken on a scale far exceeding that possible for lignocellulosics conversion. Whilst surplus lignocellulosics may be made available at a marginal cost, the elements of the total cost of supply are least marginal in the case of transport and only slightly more so in most instances of harvest. It is only the actual production cost prior to their harvest which, for surplus whole lignocellulosics, is totally marginal. The lesser scale to which the conversion of lignocellulosics is limited results from their extensive but energy-sparse occurrence. This accentuates the greater significance of transport as a factor in their cost of supply. Combined with the necessarily limited scale of a conversion facility, the also limited margin between the cost of feedstocks and the acceptable price of outputs demands that product yield be maximised. It is in the maximisation of product yield that the technical difficulties of conversion are most evident. The objectives critical to the achievement of maximal ethanol yield are: an efficient hydrolysis of cellulose an effective fermentation of hemicellulosic sugars. For minimising the nett cost of ethanol production, maximising the credits to be had from the co-production of lignin is also an important consideration. The nature of the lignin yielded varies according to feedstock. In some instances the molecular weight of the lignin will render it unsuitable for a fibre or other end-use having a value higher than that of solid fuel. In other instances the method employed for lignin extraction will be detrimental to its potential value. The cost-efficiency of maximising the end-use value of lignin will determine the net co-product credit available to a conversion process. The optimum scale of commercial conversion is anticipated to be an ethanol output of between 50 and 100 million litres annually. For the production of 50 megalitres of ethanol fermentation requires - irrespective of the substrate - a gross consumption of 500 million litres water. The conventional processes for ethanol recovery and waste treatment generally do not effect the recycling of that water to the conversion facility. Even where water supplies are not themselves a limiting factor, the treatment and disposal of that waste-stream is a substantial cost to the
5

process. In the event of its widespread commercialisation, that process cost is of less importance than the underlying issue of water consumption. 1.6 The Potential for Commercial Development

Anticipating the eventual demonstration of a cost-effective conversion, the potential for its commercial implementation was reviewed. That review of feasibility considered both the availability of potential feedstocks and the capacity of the fuel economy to absorb the outputs. The availability of feedstocks was reviewed in terms of the occurrence in New South Wales of lignocellulosics surplus to the existing production of food and fibre. The near-term potential for commercialisation will depend upon currently available materials rather than those which may in future become available in consequence of an initial commercialisation. The review was restricted to New South Wales because of the greater availability of relevant data. The resource situation in NSW may be readily translated to other States or regions by reference to the incidence elsewhere of the respective food and fibre production activities underlying the NSW data. Factors determining the availability of surplus lignocellulosics as feedstocks are numerous. The relative importance of each factor varies according to the particular material. The ultimate limitation of availability was assumed to be a price for delivered feedstock not exceeding the equivalent of $50 per dry tonne. In addition to harvest and freight costs, the factors included moisture content, materials composition, seasonality of supply and, hence, storage requirements. The combined effect of each of these factors was concluded as generally indicating a potential availability in the order of half the existing occurrence of surplus lignocellulosics. Nevertheless, of the fourteen identified regions of NSW, nine were assessed as each being capable of supporting a 50 megalitre facility drawing 250,000 tonnes of feedstock from within a radius of 100 kilometres. Five of those nine regions exhibit the capacity to support two or more such facilities. It was concluded that the feasibility of commercialisation in the near term would not be limited with respect to feedstock availability. The capacity of the fuel economy to absorb the respective ethanol and lignin co-products was reviewed in terms of the outlook for liquid fuels supply and demand. Subject to there being a capacity to absorb fuel-grade ethanol there was envisaged no likelihood of an insufficient capacity to utilise the lignin co-product. The energy requirements of the conversion process would itself absorb much of that co-product as a solid fuel. Any surplus not having a higher value end-use would be applied to generate electricity for public sale using a co-generation facility to be incorporated with the conversion plant. The potential market for fuel-grade ethanol was assessed to exceed by a large margin the supply which could be anticipated from commercial development in the near term. Having regard to the exigencies of refinery balance and the emergence of issues of urban air quality, the capacity to absorb fuel-grade ethanol during the period up to 2004/05 is in the order of two thousand megalitres annually. That potential demand is additional to any contributions to fuel supply which are proposed for such as "Natural Gas". The optimum scale of a single commercial facility for the conversion of lignocellulosics to ethanol and lignin co-products is anticipated to not exceed 100 megalitres annual ethanol output. Even though more than one such plant is required to justify commercial development it is evident that demand for their outputs is unlikely to be a limitation. In reviewing the capacity of the liquid fuels sector to accommodate the supply of fuel-grade ethanol, the means for its delivery and incorporation with fuel supplies were considered. In the near term, the use of ethanol as a component of blended petroleum fuels is regarded as the
6

avenue of greatest utility to the existing consumption infrastructure. Appropriate methods for such an incorporation are well-established. The existing consumption infrastructure is highly compatible with petroleum fuels incorporating ethanol. Although the likely sites of conversion facilities are in most cases distant from those of the majority of liquid fuels consumption, backloading of ethanol within the existing distribution system will facilitate the necessary transfer between those sites. Depending on the method employed, the incorporation of ethanol can be effected at one of a number of points in the distribution system. 1.7 The Proposed Demonstration of Conversion Technologies

The impetus for the proposed demonstration arose from the combination of a number of factors including: The past investment in the development of Australian technologies which languish for want of opportunities for their demonstration as a pre-requisite to commercial development. The growing urgency for the development of an utility for lignocellulosics surplus to food and fibre production. The increasing evidence of a deterioration in self-sufficiency of liquid fuels coupled with burgeoning pressures on refinery balance. The mounting interest in the prospect that ethanol could contribute to the achievement of environmental objectives in the event of its sufficient availability as a liquid fuel. The maintained interest by industry following its earlier support for the 1991 demonstration proposal.

The concept for the demonstration was that it should be of sufficient scale to yield commercially valid results. That would require a plant which, at the conclusion of the project, would have a residual value to the host site for value-adding an existing lignocellulosic processing wastestream. The proposed project is characterised as an "industrial-scale" demonstration because the quantities of inputs and outputs will be in units (e.g. truckloads) employed in commercial circumstances. At that scale, the demonstration should result in a valid commercial evaluation of the process. The enlistment of participation by industry in the project is principally directed to the timely commercial development of the demonstrated process. With respect to the issues identified as critical to the commercial prospects of a conversion process, the Australian technologies warranting demonstration address all except that of an efficient hydrolysis of cellulose. In designing an integrated conversion process specification it was necessary to select a system of pre-treatment and hydrolysis to integrate with the respective Australian technologies for fermentation and ethanol recovery. That selection was resolved in the light of the international status of conversion technologies, reviewed during the Tenth International Symposium on Alcohol Fuels convened in late 1993. Prior to their submission to industry participants, the process specifications were independently reviewed for an assurance that they exhibited technical viability. The subsequent independent evaluation by participants was then directed to the feasibility of the project. The essential elements of project feasibility were suggested to participants as being: The prospects for commercialising the process as specified. The capacity of the prospective host site to accommodate the project. The cost of the project, nett of benefits to accrue from value-adding the existing
7

lignocellulosic waste-stream. The extent to which technical viability may be further assured by the specification having retained the capacity for either the adoption of emerging alternative technologies or retreating to conventional processes.

In undertaking their evaluation, participants were to be at liberty to pursue any alternative technologies or other amendments to the specified process which might be revealed as preferable on either technical or economic grounds. These variations to specification could validly encompass proposals to stage the introduction of process complexity or to vary the scale of the demonstration plant. A detailed Invitation for Proposals (IFP) was submitted to the various industry participants. The responses invited were: firstly, a general appreciation of the feasibility of the proposed project and, in the event of that evaluation being positive; secondly, a subsequent and detailed proposal seeking the financial assistance offered by the Commonwealth for the conduct of the project.

Any such a proposal would then be subject to negotiation with the Commonwealth as to the availability of the financial assistance sought by the proponent. The IFP is set out at Appendix II of this report. 1.8 The Feasibility of the Proposed Demonstration

Those surplus lignocellulosics most readily available as prospective feedstocks on a commercial scale are: cotton stubbles, forestry residues, sugar cane bagasse. In each case associated with an existing processing industry, an excess of these or related materials is accumulated and disposed of at some cost to the processor. In proposing a demonstration of technologies for the conversion of lignocellulosics to ethanol and lignin coproducts it was envisaged that the plant would effect a value-added disposal of an existing waste-stream. That value-adding during the project would, together with the residual value of the plant to the host site, result in a net credit against project costs. The various lignocellulosic processors who had previously expressed an interest in that proposition were invited to participate. In each case, the prospective host site has a wastestream sufficient to supply the feedstock required for an annual output of 2 million litres ethanol. Each site is also proximate with a resource of surplus lignocellulosics adequate for increasing the scale of conversion should such prove warranted. The capacity of prospective industry participants to effect the commercialisation of a cost-effective conversion was also taken into account in the course of site selection. The financial and other commitment necessary on the part of site-owners for the conduct of the project dictated that they should independently assess its feasibility. Factors unique to each site and its waste-stream also operated to make that process of independent evaluation the most practicable for the purpose of this study. Prior to their submission to industry participants the process specifications were independently assessed for viability by Raphael Katzen Associates International Inc (RKAII) of Ohio, USA.
8

RKAII reported that the specification is technically viable and firmly concluded that the proposed demonstration is warranted. Nevertheless, despite that assurance, technical feasibility remained a site-specific issue to be assessed by participants. Technical feasibility largely depends upon the integrity of the conversion process with the dominant commercial activity of the host site. The process of conversion is continuous whereas the existing commercial operations may occur with daily or seasonal shutdowns. A system of feedstock preparation and delivery appropriate to each site and its waste-stream was necessarily excluded from the universal process specification submitted to participants. The suitability of the various waste-streams as conversion feedstocks was beyond the scope of the preliminary RKAII review. These and other site-specific factors of technical feasibility would bear directly upon an evaluation of project costs. However, rather than the likely cost of the demonstration project, economic feasibility was the matter of prime importance to participants. With respect to economic feasibility, the first consideration would be the commercial potential for a cost-effective conversion and whether that potential is consonant with a participant's business strategy. The next issue would be to establish the order of project costs justifiable having regard to the assessment of commercial potential. Only then, given its relevance to project costs, would the matter of technical feasibility be closely addressed. This order of priority is consistent with the commercial focus sought by the enlistment of industry participation. The imputation of a commercial focus commenced with obtaining industry support for a demonstration project. Those who had expressed interest in participating and who subsequently nominated a prospective host site were understood to have predicated their interest on a favourable view of the commercial potential for a conversion process. The likely quantum of project costs and of the input required from participants was indicated by our study proposal. It was therefore anticipated that the issue of economic feasibility would not forestall participation by those invited to evaluate project feasibility. That expectation proved to be ill-founded. Of the six parties invited to participate as prospective project proponents, five accepted. Auscott Ltd declined, having concluded that the likely cost of a project exceeded the resources available for its prosecution. Whilst regrettable, Auscott's decision was not so disappointing as the later withdrawal by four of those five who had accepted the invitation to participate. In each case, the grounds for withdrawing participation were so basic as to preclude the submission of any useful evaluation of project feasibility. Other than CSR, no participant withdrew on the grounds of either the commercial prospects for a cost-effective conversion or of the technical feasibility of the process specification. Boral Ltd decided that, despite its previous support, the commercial prospects did not accord with its business strategy. The conclusion by NSW Sugar Milling Cooperative Ltd was that the necessary commitment exceeded its available resources. T. Bowring and Associates was unfortunately forced to withdraw after losing access to its proposed site. None of these responses constitutes a valid contribution to this study of project feasibility. Until shortly before completing this report there remained two industry participants - CSR Ltd and Morwell Enterprise Centre. CSR's withdrawal of participation followed the undertaking of a brief technical and commercial evaluation in November 1994. Details of that evaluation were not supplied. It is understood, however, that the negative conclusion was based on reservations as to the commercial outlook for ethanol as a liquid fuel in Australia.
9

The Morwell Enterprise Centre (MEC) has submitted a favourable evaluation. A demonstration project is proposed on the former BCLV site at Morwell, Victoria. That site, adjacent to a large timber mill, is proximate with other substantial forest processing activities. Feedstock for the plant will largely be comprised of the waste-stream from the adjacent mill. The MEC has estimated a cost of $5.5 million for the project. That cost is nett of revenues from value-adding but does not account for any residual value of the plant. The MEC's project proposal is submitted as a confidential appendix to this report. The general appreciations of project feasibility sought from industry participants were to have been incorporated with this report. In the event, only that from the MEC is available as a valid and independent evaluation. To compensate for the lack of other evaluations we have prepared an estimate of costs on the assumption that the universal process specifications are adopted without modification. Our estimate is not site-specific and assumes only a moderate degree of integration with the host site. On those bases we would anticipate project proposals to cost in the order of $4.5 million after crediting both value-adding revenues and a residual value to the host site. Economic viability cannot be reliably evaluated without the results from a demonstration project. Nevertheless, a preliminary estimate, sufficient for an assessment of project feasibility, is possible. With reference to project costings the capital and operating costs of a 50 megalitre plant were evaluated on the assumption of a 30 year life. The operating costs included feedstocks at $50 per dry tonne. Provision was made for working capital and for all ancillary infrastructure including feedstock preparation and the co-generation of process energy. Based on the only moderate conversion efficiencies specified, a form of break-even analysis was applied to derive a nominal selling price for the ethanol output. That analysis, incorporating factors for both capital redemption and a return on investment, yielded a selling price of 44 cents per litre of hydrated ethanol. A conventional financial analysis of the estimated capital and operating costs for a 50 megalitre plant yielded an internal rate of return (IRR) exceeding 10 percent on an ethanol price of 44 cents per litre. At 50 cents per litre the IRR is 15 percent. These returns are to be considered in the context of returns available from commercially mature processes. It is not appropriate to apply a premium for risk. The risk factor is carried by the demonstration project. Underpinned by the assessed commercial potential for a cost-effective conversion, the preliminary estimate of economic viability supports a positive conclusion as to project feasibility. Following its independent commercial evaluation, the Morwell Enterprise Centre has submitted a project proposal. As of December 1994 that proposal has yet to be fully funded. Nevertheless, and in the absence of clear evidence to the contrary from other participants, we report that an industrial-scale demonstration of an integrated conversion process is feasible as proposed. 1.9 Summary

The conversion of surplus lignocellulosics to ethanol lignin co-product represents a mutually advantageous response to many of the issues presently confronting fuel demand and renewable resources. Adopting that response would be both economically desirable and ecologically sound. This proposition has received a growing and widening appreciation since 1990. The commercial prospects for a cost-effective conversion are enhanced by the outputs being consonant with the existing fuel consumption infrastructure. These factors are at once both preconditions for project feasibility and the impetus for its undertaking.
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Canvassed in Chapter 2 is the rationale for applying surplus lignocellulosics to the supply of fuel. The availability of conversion feedstocks in NSW is reviewed in Chapter 3. Relative to the underlying resources elsewhere, comparable availabilities are anticipated throughout Australia. The cost structures of both prospective feedstocks and hydrocarbon fuels indicate that only a conversion to liquid fuel is likely to be cost-effective. Feedstock availability assessed in NSW is sufficient to yield ethanol in the order of 2500 megalitres per annum. Lignocellulosics may be converted to either ethanol or methanol. Only alcohols can effect the oxygenation of liquid fuels which results in an improved urban air quality. As a fuel, ethanol's advantages over methanol are several and its disadvantages nil. The value-adding of lignocellulosics is greater by their conversion to ethanol. That conversion creates the opportunity for the deconstructed lignocellulosics to be applied to end-uses of a value higher than fuel. The commercial prospects for lignocellulosics as a source of fuel are reviewed in Chapter 4. The principal consideration is that of ethanol as a liquid fuel. The advantages for the liquid fuel economy relate to both the quantity and quality of supplies. Over the near and medium terms those advantages would be maximised by blending ethanol with liquid petroleum fuels. A range of blending methods is available to facilitate the maintenance of refinery balance. Low level blends are wholly compatible with the existing consumption infrastructure. With hydrocarbon fuels maintaining their pre-eminence, the forecast demand for liquid fuels in 2004/05 could nevertheless absorb in the order of 4000 megalitres ethanol blended at an average of 10 percent. It is a measure of how elusive has been a cost-effective conversion that the commercial prospects are yet to be realised. The various issues and the status of conversion technologies are reviewed in Chapter 5. Intense efforts during the past decade have isolated those conversion routes offering greatest cost-efficiency. The process specification prepared for this study is consistent with those recent findings. In that light the specification was favourably evaluated by Raphael Katzen Associates International Inc of the USA. Project feasibility consists of both economic and technical elements. The commercial focus sought from industry participants was expected to impart an emphasis on the economic elements. In the event, however, that emphasis resulted in three participants withdrawing without undertaking a valid evaluation of feasibility. Also due to that emphasis a fourth participant withdrew, largely on the basis of reservations as to the commercial outlook for fuel ethanol. Only one participant, Morwell Enterprise Centre (MEC), has so far completed a sitespecific evaluation. That evaluation was favourable and MEC has submitted a project proposal. The enlistment of industry participants and their various responses to the invitation for an evaluation of project feasibility is reported at Chapter 6. The site-specific evaluation provided by MEC is included but was not sufficiently detailed to inform this report. That detail is, however, contained in the project proposal which comprises a confidential appendix hereto. To compensate for the lack of detailed site-specific evaluations from participants, Chapter 6 sets out an estimation of costings against which project proposals may be considered. Those costings assume projects conforming with the conversion process submitted for evaluation by participants. Subject to its being not site-specific, the estimated project cost is $4.5 million, nett of credits for conversion outputs and a residual value. A project costing a nett $4.5 million would be consistent with the original expectations for this study. It was also expected that the demonstrated process, at commercial scale, could reasonably be anticipated to yield ethanol at a cost consistent with its being used as a
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liquid fuel. The estimated capital and operating costs of a 50 megalitre plant conforming with the process specifications are set out at Chapter 6. At 50 cents per litre of ethanol the estimates yield an internal rate of return of 15 percent. That yield is indicative of a commercial viability sufficient to justify a demonstration project. This report concludes that a demonstration as proposed is feasible. However, industry support has so far been found difficult to muster. It is apparent that the issues underlying the commercial prospects for ethanol-from-lignocellulosics are not yet widely appreciated in Australia. A cost-effective conversion would facilitate the timely development of an ecologically sustainable economy consistent with maintaining current living standards. That outcome is highly desirable with respect to a number of pressing issues ranging from the management of renewable resources through regional development to the quality of fuel supplies. The urgency of these various issues commends the proposed demonstration as not only feasible but warranted.

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CHAPTER 2
Rationale for the Development of an Economic Utility for Surplus Lignocellulosics
2.1 Introduction

Before 1991, any consideration in Australia of the production of ethanol as a fuel was limited to the perception of benefits in respect of fuel demand, and to the prospect that sufficient quantities might be produced to render ethanol a viable alternative source of liquid fuel. Attention paid to improving lignocellulosics conversion processes was predicated only upon their greater availability as a feedstock source. That attention has owed little to consideration of the benefits which might result from the creation of a demand for those lignocellulosics. In stark contrast to that fuel demand focus, much of the current interest in the production of ethanol from lignocellulosics relates to the benefits that would accrue from an economic utilisation of surplus lignocellulosics. In many respects the conversion of lignocellulosic feedstocks to ethanol and lignin co-products is the means to an end, rather than the end in itself. The fact that the means has its own merits with regard to fuel demand is a fortunate conjunction whereby both the resource and its application following conversion would confer benefits mutual to both the supply and the demand sectors of the fuel economy. 2.2 The Ecological Framework

The interest that has developed since the 1940s in issues characterised as 'environmental matters' has led to the recent enunciation of the concept of Ecologically Sustainable Development (ESD). At its core, the concept of ESD is to acknowledge that the human economy is a component of the total ecology and that economic development must be consistent with ecological processes. Those processes depend on having access to solar energy through the photosynthesis mechanism employed by vegetative biomass - itself a component of the ecology. By their subsequent utilisation of vegetative biomass, every other component of the ecology - the human economy being no exception - is thus dependent on vegetation for its energy requirements. In its turn, vegetative biomass is dependent upon other components of the ecology during its life cycle. Ecological processes are thus characterised by their mutual dependence. The interface between the ecology as a whole and its component, the human economy, is most clearly defined at the point where vegetative biomass is economically utilised. It is that point at which, for the attainment of its broader objectives, ESD must be implemented. The utilisation of vegetative biomass by the human economy has been, in effect, a process of the energy consumption, perhaps more readily appreciable by reference to the various forms of energy in terms of their end-uses - food, fibre and fuel. Of these three forms of energy, it is probably fuel that is consumed in greatest quantity. The traditional source of fuel has been the lignocellulosic component of vegetative biomass. Lignocellulosic materials - volumetrically and as measurable energy - coincidentally comprise the majority of that biomass.
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The human economy is ecologically unique in its demand for energy in the form of fuel. In ecological terms, the demand by that economy for energy as fibre is, relative to population, also very high. Despite these unusual features of the human economy, the application of vegetative biomass to the full range of its potential end-uses is ecologically benign. The demand for energy in the form of fibre merely represents a sequestration of the biomass and essentially constitutes a temporary suspension of the life cycle. By comparison with that of fibre, the consumption of vegetative biomass as either food or fuel constitutes, within the ecological life cycle, an active function of decay. The decay process inherent in the life cycle represents the decomposition of carbohydrates to their constituents, including carbon dioxide. Whether by the respiration of food or by direct combustion, the mechanism of decay is oxidation. The combustion of lignocellulosics as fuel results in no greater emission of carbon dioxide than that which arises from its decay by respiration when consumed as food. Accordingly, applying vegetative biomass to the full range of its potential triple utility - food, fibre and fuel - is ecologically sound and is thus consistent with the concept of ESD. 2.3 The Emergent Ecological Dysfunction

The ecological dysfunction that has emerged since the post-18th Century development of an industrial economy is primarily the result of the displacement of lignocellulosic fuels by hydrocarbon fuels. That dysfunction is evident at three levels within the system of ecological processes: (A) (B) (C) the accumulation of atmospheric carbon dioxide affecting the transfer of solar energy; the increased domination of its host ecology by the economy; and the domination of the human economy by the fuel consumption factor.

The symptoms of that primary dysfunction at each of these three levels are described below. 1 Referred to as the Greenhouse Effect, the accumulation of atmospheric carbon dioxide is not the result merely of the use of hydrocarbon fuels but, rather, is the cumulative result of that combustion in addition to the continuing emissions of carbon dioxide through the process of biomass decay. Without initial resort to the use of energy-dense hydrocarbon fuels for the subsequent evolution of combustion technologies, the development of the modern economy would have been impossible. Nevertheless, the powering of mechanical aids made possible by modern combustion technologies has enhanced the ecological predominance of the human economy so much as to threaten its host ecology. Its ecological status being derived from fuel consumption, the human economy has become dominated by fuel - to the relative economic disadvantage of food and fibre production. The economic predominance of fuel serves to diminish, to the extent of its displacement by hydrocarbon fuels, the economic value of vegetative biomass utilised only for the production of food and fibre. Given the relatively greater demand by the economy for energy as fuel, the supply of that fuel other than by the consumption of biomass produced surplus to food and fibre demand, is ecologically unbalanced.
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To remedy the ecological dysfunction occurring through the economically incomplete utilisation of vegetative biomass requires only that the energy value inherent in biomass produced surplus to food and fibre demand be used to meet fuel demand. To the extent that the use of hydrocarbon fuels is thus reduced and the economic value of vegetative biomass accordingly enhanced, the ecological sustainability of the human economy will be increased. The restoration to vegetative biomass of the fuel component of its triple utility - food, fibre and fuel - will increase its economic value and, in so doing, will address the above-described primary ecological dysfunction by virtue of its: reducing the accumulation of atmospheric carbon dioxide; encouraging the preservation of the ecology by enhancing its economic value; and balancing the ecological supply of energy with the economic demands for food, fibre and fuel. The Emergent Diseconomies of Biomass Utility

2.4

Relative to the value of food and fibre production, fuel has emerged as the predominant energy demand factor of the modern economy. Combustion technologies based on hydrocarbon fuels have rendered uneconomic as a fuel source the unconverted lignocellulosics produced surplus to the production of food and fibre. These events have combined to inflict a double blow to the economic value of vegetative biomass In the first instance, the management of vegetative biomass for the production of food and fibre has seen, especially since the 1930's, an enormous increase in the proportion of fuel used as an input to that production. To the greater extent, the fuel input is represented by the indirect fuel component intrinsic to the capital infrastructure supporting that production. Nevertheless, direct fuel inputs are also substantial as increasing reliance is placed on machinery in the quest for greater labour productivity. In the second instance, the capital infrastructure of production is universally powered by combustion technologies developed to utilise hydrocarbon fuels. Without its being converted to suit those combustion technologies, the energy value of vegetative biomass is not amenable to economic utilisation as a fuel for that infrastructure. As fuel increases in its importance as an input to the production of food and fibre, so does the need to balance that importance by enhancing the fuel utility of the vegetative biomass produced surplus to its supply of food and fibre. The continued reliance of the human economy upon vegetative biomass for food and fibre is in itself ecologically sound, but the denial of access by that biomass to the demand for fuel applied to its production is both ecologically dysfunctional and economically disadvantageous. The relative economic value of food and fibre production has declined in response to the increased predominance of fuel as a factor in the cost of production. The arrest and reversal of that decline requires that vegetative biomass produced surplus to the demand for food and fibre be invested with the capacity to be utilised as the fuel required for its modern management. Whole lignocellulosic materials comprise the vast majority of that surplus biomass production.

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2.5

The Economic Implications of Surplus Lignocellulosics

Rather than their having been displaced by hydrocarbon fuels, it is instead the cost of their being surplus to the production of food and fibre that imputes to surplus lignocellulosics their negative impact upon the economics of food and fibre production. Were those lignocellulosics amenable - either directly or following their conversion to economic utilisation as either food or fibre, the cost of their management would be recovered in the form of a higher gross value of food and fibre produced from vegetative biomass. By the same token, the ecological dysfunction arising from the failure to use those lignocellulosics to produce fuel would equally be avoided if they were used to produce either food or fibre or both. The fundamental problem is, both ecologically and economically, that they are surplus. The increasing predominance of fuel as a factor of economic value has resulted in the measure of economic utility generally having become skewed in favour of the fuel input required to produce any item of economic value. Despite that predominance, the economic value of a unit of fuel energy remains less than that of either food or fibre energies. As the energy input for the production of food and fibre increasingly becomes one of fuel energy, so the value of that food or fibre tends to decline to the value of fuel. It is thus that the increased predominance of fuel as a factor of economic value has resulted in the relative decline in the economic value of food and fibre production. The economic value of that decline in the value of food and fibre production is that it has enhanced the negative impact of the unrecovered cost of managing lignocellulosics surplus to food and fibre production. Being surplus, the lack of a sufficient economic utility for lignocellulosics might be addressed only by restoring their potential as a source of fuel. In so doing, the energy inherent in surplus lignocellulosics would be applied to offset and thus recover the fuel-denominated cost of their management in conjunction with food and fibre production. The enhanced negative impact of unrecovered costs associated with the management of surplus lignocellulosics is made evident to primary production enterprises by the combined operation of: the relative decline in the primary economic value of the food and fibre utility of vegetative biomass; and the increase, relative to its reduced economic value, of the fuel-denominated cost of managing lignocellulosics surplus to food and fibre production.

The circumstances whereby costs are incurred in the management of lignocellulosics surplus to food and fibre production are canvassed below with regard to various examples of primary production. In each instance, the exogenous cost of hydrocarbon fuels applied to that management is potentially amenable to recovery by the application of those surplus lignocellulosics as an endogenous source of that fuel requirement.
2.5.1 Cotton

Cotton is a fibre crop with a high primary economic value (ie giving a better than average financial return to the primary producer). Its production generates a substantial lignocellulosic residue from a moderately woody perennial plant which is managed as an annual. The lignocellulosic residue is the dead plant left standing in the field after the cotton harvest.
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Currently, the process of plant removal is by mowing, raking, windrowing and burning - or some variation on that theme. The use of labour and machinery in that process and the energy value of the burned cotton stubble would suggest that a means whereby that energy might be applied and so pay for the cost of stubble removal (up to $70/hectare) would enhance the primary economic value of the total operation. There are a number of agronomic reasons why the cotton stubbles have a low or negative economic value as soil mulch.
2.5.1 Grain

Grains embrace an extensive range of food crops, usually of only moderate primary economic value. The production of grains generates a substantial lignocellulosic residue from annual plants. The woodiness of grain-producing plants is generally low, and consequently their postharvest utility as livestock fodder or soil mulch is greater than that of cotton plants. The agronomic value of grain crop stubbles is nonetheless limited, and in some instances it is desirable to remove a large proportion of the stubbles to reduce their capacity to harbour disease carry-over within the cropping cycle. It is the need to remove some stubbles from the field that leads to a surplus of lignocellulosics from grain cropping. As with cotton stubbles, the removal and disposal of grain crop stubbles is a cost borne without recompense by the primary producer. The prospect of recovering that cost by realising the inherent energy value of those surplus lignocellulosics would enhance the presently moderate primary economic value of grain production.
2.5.3 Other agricultural crops

The revenue-negative production of lignocellulosic material in association with food and fibre production is not limited to cotton and grains. Most agricultural crops and their various postharvest processing generate surplus lignocellulosics which give rise to costs unrecouped by their primary producers. The prospect of recovering those costs, by capturing the inherent energy value of the surplus material, is desirable in all instances.
2.5.4 Forestry

A primary production activity specifically directed to the harvest of lignocellulosic materials, forestry is nevertheless heavily burdened by large quantities of surplus lignocellulosic material unsuited to the market for forest-sourced fibre. Of all the various instances of vegetative biomass utilisation, forests have been most disadvantaged by the displacement of lignocellulosics by hydrocarbon fuels. Although that substitution effectively occurred well over a century ago, its negative economic effect on forest management has yet to be widely appreciated. Indeed the incidence of that negative effect is ironic given that the early development - circa.1700 - of formalised forest management was largely directed at restricting the demand for forest materials as fuels. No doubt the subsequent emergence of fossil fuels as a substitute was then regarded by foresters as a blessing It could now be regarded as a curse. The reason for it having yet to be widely recognised as such is probably due to the length of the forest crop cycle. The present surplus of unmarketable lignocellulosic material is a major source of expense to current forest management. The removal of surplus stems from the forest is a management objective arising from their constriction of the growth of surrounding fibre-quality stems. The prospect of recouping that expense by regaining a role for forests as a supplier of fuel as well as
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fibre is extremely important for the sake of achieving an acceptable primary economic value for forestry production.
2.5.5 Pastoral activities

Whether for food or for fibre production, the husbandry of livestock grazing upon vegetative biomass is a form of cropping and harvesting based on the management of that biomass. In various instances, that management incurs costs arising from the incidental production of surplus lignocellulosics. Woody weed infestation of the rangelands of western NSW is probably the most readily apparent example. That infestation is of negative value to the dominant purposes for which those lands are managed. Being largely unsuitable for the economic production of food and fibre, it is only the prospective use of these surplus lignocellulosics for fuel which may recoup the expenses associated with their management. Without such a means of expense recovery, the primary economic value of managing rangelands will remain unacceptable.
2.5.6 Summary

The foregoing are instances of primary production activities whereby the relative decline in the economic value of food and fibre production has accentuated the negative economic value of managing surplus lignocellulosics. In all cases of food and fibre production from the management of vegetative biomass, there is a concomitant production of lignocellulosics surplus to that dominant purpose. Volumetrically, that surplus is of the order of 40% of the dominant food and fibre production within a stable production cycle. Being surplus to food and fibre production and their management cost being denominated increasingly in terms of fuel input, it is thus implicit that the economic viability of primary production would be enhanced by using those surplus lignocellulosics to produce fuel. 2.6 The Economic Viability of Biomass as Fuel

Restoring the third component of the potential triple utility of vegetative biomass - food, fibre and fuel - will help to: remediate the emergent ecological dysfunction and reverse the decline in economic viability associated, in each case, with the production of food and fibre energies from vegetative biomass following its displacement a century ago as a source of fuel energy. Were lignocellulosics not surplus to the production of food and fibre it would be unnecessary in either case to propose that they be utilised as fuel. The economic viability of the proposition to use surplus lignocellulosics as a source of fuel is constrained by the fuel market being dominated by hydrocarbon fuels. The parameters of constraint are defined by the fuel consumption infrastructure having evolved from the application of combustion technologies which themselves were developed for the utilisation of coals and crude oils. The existing infrastructure, being essentially monolithic, demands that any alternative source of fuel be accommodated substantially in conformity with the status quo. The practicality of using surplus lignocellulosics as a fuel source depends on their being converted to a form amenable to consumption by the existing infrastructure. That conversion
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will be radical in the case of infrastructure that consumes liquid fuels but, for infrastructure that consumes solid fuels, the conversion need only be mild. The effective cost of fuel derived from lignocellulosics and rendered amenable to consumption by the existing demand infrastructure will comprise its cost delivered for pre-consumption processing, plus the cost of that processing. The economic viability of that effective cost will depend on its relationship with the effective cost of processed hydrocarbon fuels. The necessary preliminary conversion of an alternative fuel prior to its consumption need not impute an economic disadvantage to that fuel. Hydrocarbon fuels themselves require a high degree of pre-consumption processing. For example, most of the energy supplied by combusting coals is consumed as electricity after its generation and reticulation to the point of consumption. And liquid petroleum fuels, although supplied as pre-combustion energy, nevertheless require the preliminary refinement of crude oils. Since the parameters of economic viability are those imposed by conventional hydrocarbon fuels, a review of the composition of their effective cost is warranted to establish a frame of reference for considering lignocellulosics as a potential alternative. Such a review is summarised in the following table. Composition of effective cost Black coal to electricity Crude oils to liquid petroleums $18/barrel 6GJ/barrel 0.31 11.0/litre 25-30/litre nil 25-30/litre 14-19/litre nil 14-19/litre 135%

Raw fuel delivered for processing:Nominal cost Nominal energy content Energy cost (cents/MJ) Cost per unit of sale (cents) Range of selling prices ex-processing (cents) Less: Component applicable to reticulation Equals: Effective cost per unit of sale (cents) Inferred processing cost (cents) Less: Component referable to processing combustion Equals: Processing cost exclusive of combustion losses (X-CP) (cents) X-CP cost/raw fuel cost (by unit of sale)

$50/tonne 24 GJ/tonne 0.21 0.75/kwh 6-18/kwh 3-15/kwh 3/kwh 2.25/kwh 1.50/kwh 0.75/kwh 100%

The above review should be regarded as no more than a fair illustration of two points germane to the prospective economic viability of lignocellulosics as an alternative fuel. The first is to establish that in each case there is a substantial proportion of processing cost relative to effective costs. The second point is to indicate in each case a likely competitive price for raw fuel directed to either the electricity or the liquid petroleum markets. Irrespective of the price available for raw fuel, the economic viability of surplus lignocellulosics will require that the cost of their pre-consumption processing be accommodated within the
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totality of a competitive effective cost. Technologies for the conversion of lignocellulosics to electricity are essentially those utilised for coals, and thus the price for raw fuel applied to electricity is effectively capped at that of coals. With that price representing a floor, the higher price for raw fuel applied to liquid petroleum fuels and the also greater processing cost incurred with respect to crude oils together offer the greater scope needed to accommodate the radical conversion of lignocellulosics to liquid fuels. The economic value of energy consumed as a fuel is very much less than that of food or fibre when considered on the comparable basis of their respective energy content. Any component of vegetative biomass is potentially combustible as fuel - whether sugars, starches or celluloses. By comparison with the energy value of hydrocarbons reflected in the foregoing review and ranging from 0.21-0.31 cent per megajoule of raw fuel delivered for processing, the harvested value of food and fibre ranges upwards from that of the lowest 0.38 cent/MJ applicable to some pulpwoods and would most commonly exceed 1.00 cent/MJ. Thus it is only the material surplus to a dominant purpose of food and fibre production which is potentially available as an economic source of fuel. Other than some food or fibre processing wastestreams comprised of sugars and starches, the vast majority of that surplus material is cellulosic. With the potential availability of vegetative biomass for fuel production being limited to that which is surplus to a dominant purpose, that biomass can be supplied at only the marginal cost of its collection and delivery for processing before consumption. It is by virtue only of that marginal pricing that surplus biomass has the capacity to accept the low price of energy in the form of fuel which is otherwise supplied by hydrocarbons. It is not at this stage envisaged that the proportion of biomass surplus to food and fibre production would be sufficient to displace hydrocarbons as the predominant source of fuel supply. Nevertheless, if sufficient surplus biomass were available to make a significant contribution to meeting fuel demand, that availability would be an important factor determining the economic viability of biomass energy production. Quality as well as the quantity of the feedstock would be another significant factor. The economic viability of biomass as a source of fuel may thus be summarised as comprising: the potential for its cost-effective conversion to a form amenable to consumption by the existing demand infrastructure; its availability in sufficient quantity at a price for raw fuel dictated by that of the predominant hydrocarbon fuels; and the potential for its use as fuel to significantly enhance the supply of fuel in terms of either quantity or quality.

The importance of these various issues, while great in themselves, rank as secondary to the larger issues of the economic implications for food and fibre production and the associated ecological dysfunction, which arise from biomass surpluses not being utilised. 2.7 The Potential for Cost-effective Conversion

The majority of vegetative biomass potentially available for fuel are those lignocellulosics surplus to food and fibre production and remaining at the point of harvest. Lesser surpluses accumulate as lignocellulosic processing residues, and relatively minor surpluses of nonlignocellulosics are also found to accumulate as processing residues.
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Of all of the biomass potentially available to become fuel supplies, it is only those surplus lignocellulosics remaining at the point of harvest which occur in quantities sufficient to offer a significant contribution to the supply of fuel in terms of the quantity currently demanded. The occurrence of lignocellulosic surpluses at the point of harvest is commonly less than 10 tonnes per hectare and usually less than half that in the case of a stabilised harvest cycle such as that of annual crops. Whether at the point of harvest or accumulated as processing residues, the lignocellulosics would have a moisture content commonly in the range of 30-60% on a dry weight basis (dwb). Collection costs associated with the spatial rarity of harvest-point surpluses and the inherent moisture content of those and any other surpluses are important factors in determining a competitive price for raw fuel. Lignocellulosics generally exhibit an energy content of 16-22 GJ per dry tonne. At the lower end of that range and given a raw fuel price of coal for electricity generation of 0.21 cent/MJ, a competitive price for lignocellulosics applied to electricity would be some $34/tonne (dry). Similarly, given crude oil costing 0.31 cent/MJ, a competitive price would be $50/tonne (dry) for lignocellulosics directed to the liquid petroleum fuel market. The significance of the moisture content factor may now be considered. Applying a moisture content factor of 50% (dwb) to the raw fuel prices as inferred above would require those prices to be deflated by one-third to derive a competitive real price for materials delivered for conversion. At a lower real price of either $22 or $33 per tonne (wet or green), the need to cover collection costs of harvest-point materials suggests that the higher of the two prices would be needed to effect supply. Lignocellulosics already accumulated as processing residues, while subject to the same moisture content factor of price deflation, are not similarly constrained by collection costs in their capacity to accept the lower price dictated by coals. In the preceding review of economic viability, it was concluded that the cost structure of the liquid petroleum fuel market, allied with the effective floor price resulting from the lower cost of coal as a raw fuel, offered considerable scope to accommodate the cost of the radical conversion necessary to direct lignocellulosics to the liquid fuel market. By comparison, the cost structure of the electricity market and the similarity of conversion processes together act to impose upon lignocellulosics the cost of coal as a ceiling price rather than as a floor price. Acknowledging the likely higher cost of the radical conversion of lignocellulosics needed to gain access to the liquid fuel market, the prospect of doing so while achieving a price for raw fuel higher than that imposed by coals is not only attractive but, on evidence to date, necessary. Were that not so, other lignocellulosics as well as those accumulated as processing residues (eg bagasse) would also currently be useable as, in effect, alternatives to hydrocarbon fuels. In considering the potential availability of a cost-effective process for the conversion of lignocellulosics to electricity, it should be noted that not only is the existing technology essentially the same as for coal but that also there is scope for improving the efficiency of coal combustion technologies. Were such improvements to be realised, they may act to further deflate the competitive price of lignocellulosics. That would occur in the event that such improvements were not equally effective in respect of lignocellulosic combustion efficiencies. The production of electricity is a radical conversion of raw fuel. That process includes combustion and results in losses of the raw fuel energy content. The cost of those combustion losses is incurred by the electricity producer. By comparison, the conversion of crude oils to liquid petroleum fuels, whilst also radical, does not encompass combustion. In that case, the consumer incurs the cost of combustion losses.
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For consumers, the cost of the radical conversion to produce liquid fuels supplied on a precombustion basis is a measure of the lesser constraints on the cost-efficiency of their production. That measure indicates the technical scope for the also radical conversion needed to produce liquid fuels from lignocellulosics. In the event that they can, as solid raw fuel, be supplied at an energy cost on par with that of crude oils, the economic viability of lignocellulosics as an alternative source of liquid fuels requires only that the cost-efficiency of their subsequent conversion is also similar to that relatively expensive conversion required for crude oils. Given the issues canvassed above, it is concluded that the greater potential for cost-effective conversion exists with respect to the use of biomass as an alternative source of liquid fuel. 2.8 The Case for Conversion to Ethanol and Lignin Co-products

The incentive for the development of a cost-effective means for using lignocellulosics as a source of fuel is, essentially, that the lignocellulosics are surplus. However, in seeking to utilise that surplus to remedy both the ecological dysfunction and the economic disadvantage it gives rise to, the underlying causes of that surplus should first be appreciated. Lignocellulosics are comprised of carbohydrates and their organic derivatives. It is the indigestibility of whole-lignocellulosics which causes them to be unsuited to food supply. Those lignocellulosics surplus to the demand for fibre are the unconverted materials unsuited to that market. Thus it is the nature of lignocellulosics as unconverted whole materials which renders them surplus to the production of food or fibre in the various forms demanded for consumption. The same is not necessarily the case in respect of the various components of those surplus lignocellulosics. The deconstruction of lignocellulosics to separate their constituent sugars and lignin creates the opportunity to use lignocellulosics as food and fibre. The same opportunity is not enjoyed by the unconverted surplus. The potential food and fibre utility of deconstructed lignocellulosics is illustrated as follows with regard to its various components, viz: Lignin - a binder for the pelletisation of coals, minerals and animal feeds; a constituent of adhesives; a rubber reinforcement c.f. carbon black; a water-shedding soil bindercum-stabiliser; an extender of artificial masonry. Hemicellulose - the production of the sweetener, xylitol; as furfural, a solvent of petroleum refining and a constituent of industrial resins; as acetone and butanol cosolvents; as acetic acid applicable to the food (eg vinegar) and plastics industries. Cellulose - as a strengthener for enhancing the quality of re-cycled paper; fodder for livestock; a thickener of foods, detergents and cosmetics.

Although this exemplifies the potential utility of deconstructed lignocellulosics as food or fibre, it is acknowledged that there appears to be no obvious demand for such utility. Less obvious, however, is the fact that such uses are presently made of the various constituents when those constituents are made available as by-products of food and fibre processing eg lignins surplus to paper manufacture, cellulose waste ex textile manufacture. Although demonstrably not the sole potential utility remaining to those whole-lignocellulosics that, as unconverted materials, are surplus to food and fibre production, the great demand for fuel energy remains the most substantial potential utility for that surplus.
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The cost-effective use of lignocellulosics as fuel is acknowledged to depend on their conversion to a form amenable to consumption by the existing energy demand infrastructure, which has evolved from the development of hydrocarbon combustion technologies. The cost structure of the liquid fuel consumption sector has been identified as offering the greater potential for the cost-effective conversion of lignocellulosics. In considering options for converting lignocellulosics to a liquid fuel, it would be preferable to effect a choice whereby lignocellulosics were rendered useable not only as fuel but also, to an extent, as a source of food or fibre. The conversion of lignocellulosics to ethanol and lignin is a process that has that greater merit. The deconstruction of lignocellulosics to separate their constituent cellulosic sugars and lignin is a necessary preliminary to the fermentation of those sugars to ethanol. In separating the lignin, the conversion process immediately creates for lignocellulosics a potential non-fuel utility, both in respect of that lignin and of the cellulosic sugars fraction of the feedstock. Naturally, proposing the subsequent fermentation of the sugars precludes the previously instanced alternatives for their utilisation. Such is not the case in respect of the lignin. The previous examples of the utility of non-fuel lignin are not applicable to the entire range of lignins yielded by various lignocellulosic materials. But those not suited are applicable to its use as a solid fuel and, as such, enjoy an important cost advantage over whole-lignocellulosics directed to solid fuel supply. The separated lignin comprises that component of the lignocellulosic feedstock which is most cost-effectively priced as an alternative raw fuel competitive with coals. Concurrent with the separation of the lignin component, the fermentation of cellulosic sugars itself gives surplus lignocellulosics a prospective utility greater than that of fuel alone. Despite the large and increasing quantities of ethanol directed to fuel consumption, even larger quantities are currently consumed as food and fibre. As 'fibre', we refer to the use of ethanol as an industrial solvent and as a component of industrial products. The conversion of lignocellulosics to ethanol at a cost whereby it may be economically utilised as fuel would offer the opportunity of penetrating that industrial market. Conversion to ethanol and lignin is the only process for converting lignocellulosics to fuel that can at the same time create the potential for their deconstructed components to also be applied, at least in part, to the supply of food and fibre. To retain that potential is an important consideration in seeking to maximise the utility of lignocellulosics which, in unconverted form, are presently surplus to the production of food and fibre energies. Irrespective of those considerations of potential food and fibre utility, the prospective conversion of lignocellulosics to ethanol and lignin for consumption as fuel offers important benefits, by comparison with the alternatives. Of those alternatives, the cost structure of the solid fuel market serviced by coals has been shown to be less attractive than that of the liquid fuel market serviced by crude oils. Within the liquid fuel market, the alternative for lignocellulosics conversion is the production of methanol. As an alternative liquid fuel, ethanol exhibits a greater compatibility than methanol with the existing fuel infrastructure. That greater compatibility ranges from ethanol's greater efficacy as an alcohol/petroleum blend, its lesser corrosivity and its lesser toxicity - both before and after combustion.

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In the final analysis the case for the proposed conversion of surplus lignocellulosics to ethanol and lignin co-product is, by comparison with prospective alternatives, favourable on the following grounds: the acquisition of a degree of utility as either food or fibre in addition to that of fuel; the application of the outputs to one or other of both sectors of fuel consumption; and the greater compatibility of ethanol with the liquid fuel consumption sector.

Standing against the above grounds is the unresolved doubt as to whether the conversion of lignocellulosics to ethanol and lignin co-products can be done at a cost consistent with their utilisation by the existing fuel consumption infrastructure. The proposed demonstration of new conversion technologies is directed to the resolution of that doubt. 2.9 Summary

The benefits to accrue from the economic utilisation of lignocellulosics produced surplus to the management of vegetative biomass for food and fibre production have been reviewed in terms of: the ecological framework whereby biomass exhibits the potential triple utility of food, fibre and fuel supply; the ecological dysfunction arising from the displacement of lignocellulosics as a source of fuel supply; and the diseconomies experienced in consequence of lignocellulosics being surplus to biomass utility.

The utilisation of lignocellulosics for the supply of fuel has been proposed as the necessarily sole option for those produced surplus to food and fibre supply. That prospect has been considered in terms of: the economic viability of biomass as a source of fuel; the potential for cost-effective conversion; and the case for conversion to ethanol and lignin co-products.

In proposing that the conversion of lignocellulosics to ethanol and lignin would substantially address the need to remedy both the ecological dysfunction and the economic disadvantage of their being surplus, it is concluded that such conversion is to be preferred over other options. That preference is subject to the feasibility of commercialising a cost-effective process of conversion.

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CHAPTER 3
Review of the Feasibility of Commercialising a Cost-Effective Process of Conversion Lignocellulosic Resources
3.1 Introduction

The commercial feasibility of the production of ethanol and lignin from lignocellulosics will depend in the first instance on the demonstration of a cost-effective conversion process. Whether such a demonstration may be warranted depends not only upon the prospects for its success but also upon the prospects for the commercial implementation of the process. Commercial-scale implementation depends on there being a sufficient demand for the output and an adequate supply of inputs to the process. The likelihood of sufficient demand is substantially the subject of the review of the fuel market, set out in Chapter 4. That review concludes that, in terms of forecast consumption of liquid petroleum fuels in Australia during the ten years to 2004-05 and the likely exigencies of refinery balance and indigenous crude oil supplies during that time, the market is likely to have the capacity to absorb ethanol production of 1500-2000 megalitres annually. Such a level of demand would be sufficient to warrant the commercial development of a cost-effective process for producing ethanol. That assertion of sufficient demand can confidently be made despite the current absence of a reliable indication of the likely optimum scale of a commercial ethanol-from-lignocellulosics production facility. No single facility is likely to be optimally scaled at anything like 1500 megalitres of annual ethanol production. Existing commercial facilities for producing ethanol from sugar and starch feedstocks are generally of a scale less than 100 megalitres of annual output, and utilise technical infrastructure of a cost and complexity similar to that proposed for demonstration in the context of this study. Although the 1990 report to the NSW Parliament envisaged the optimum scale of an ethanolfrom-lignocellulosics facility to be 50 megalitres annual output, we consider that scale as likely to be at the lower end of a range which could extend upwards to 100 megalitres. However, in the absence of results from the proposed demonstration project, there are too many factors unknown to justify, for the purpose of this feasibility study, any assumption of optimum scale other than 50 million litres. For an annual capacity of 50 million litres of ethanol from lignocellulosics, the quantity of such feedstocks required is of the order of 170,000 dry tonnes per annum. This anticipates an ethanol yield of 300 litres/tonne of feedstock. It is also assumed that the cost of that feedstock should not be greater than $50/dry tonne. That assumption awaits confirmation by demonstration and, in any event, largely depends on the available price for the ethanol output. The demonstration project that is the subject of this feasibility study will provide the data needed to establish the commercial prospects for the conversion process. In anticipation of that data, this review of lignocellulosic resources is directed to a consideration of the likely volumes, and their distribution, of prospective feedstocks. The occurrence of lignocellulosics surplus to the dominant purposes of food and fibre production will be greater than that of their commercial availability as conversion feedstock.
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The commercial availability of feedstocks will principally be determined by their effective cost as inputs to the conversion process. That cost will be comprised of the nominal price of material in the form in which it is delivered for conversion relative to the yield of ethanol and lignin recoverable from that material. The factors affecting that relativity, and reviewed below, are anticipated to be: moisture content; the respective content of cellulose, hemicellulose and lignin; the extent and cost of feedstock preparation required post-delivery; the storage requirement of feedstocks; and the seasonal availability of feedstocks.

In addition to those factors whereby the effective cost is derived relative to the nominal price of feedstock, the nominal price is itself comprised of: the cost of feedstock production at the site of its occurrence; the cost of its harvest and loading at the site of production; and the cost of freight to and unloading at the site of conversion.

These various issues are reviewed having regard to the differing circumstances likely to apply to the range of prospective feedstocks anticipated to be commercially available: agricultural crop stubbles; agricultural crop processing residues; and forest crop management residues.

Not specifically reviewed in conjunction with the above but separately reviewed in similar terms within this Chapter are the potentially valuable surplus 'woody-weeds'. The factors affecting the commercial availability of woody weeds are similar to those distinguishing forestry residues from agricultural residues. Following the preliminary review of nominal price and its relationship to the effective cost of feedstocks, we review the occurrence of surplus lignocellulosics on a regional basis and their availability as prospective feedstocks. The Chapter concludes by further reviewing the components of nominal price in the context of issues of significance to the regional supply of feedstocks. The overall review of the prospective commercial availability of surplus lignocellulosics for conversion to ethanol and lignin co-product is predicated on the determinants of the economic viability of biomass as fuel as canvassed in Chapter Two. In that context it is only lignocellulosics surplus to food and fibre production which are likely to be available at only their marginal cost. Delivered for conversion at a nominal price sufficient to recover only the marginal cost of their supply, it is anticipated that surplus lignocellulosics will prove to be a raw fuel priced competitively with the predominant hydrocarbon sources of fuel supply. 3.2 Nominal Price and Other Factors of Effective Cost
3.2.1 Nominal Price

The lignocellulosics proposed as feedstocks are those surplus to and produced in conjunction with a dominant food or fibre production activity. As such, the cost of their production is, in reality, nil. Indeed, given the need in many instances to remove such surpluses for the sake of
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the dominant productive activity, the cost of production as an ethanol feedstock may well be less than nil. Nevertheless, to assure the supply of such material and recognising the costs likely to be incurred by a primary producer in supervising the collection and delivery of such materials for a commercial purpose, it is realistic to impute to the production component of the process a nominal price of $3-8 per wet (or green) tonne. As with the cost of production so too is the harvesting and loading of surplus lignocellulosic material likely to incur only a marginal cost in cases where the material would in any event be removed from the point of its production without recompense. That prospect would apply almost universally to lignocellulosics surplus to agricultural production, while in the case of forestry and pastoral activities, covering the full cost of harvesting and loading at the point of production could be required. Despite instances where removal is presently undertaken without recompense, it is again assumed that the gross cost of harvesting and loading shall be borne in full by all lignocellulosics supplied as feedstocks. That gross cost would appear likely to range from $10-20 per wet tonne. Of the three components of the nominal price of lignocellulosic feedstocks, the freight from point of harvest represents a cost additional to any imposts that might otherwise be incurred by a primary producer in the course of managing lignocellulosics produced surplus to a dominant food or fibre production activity. As such, the freight expense in no way enjoys the character of a cost marginal to the dominant activity. The gross cost of freight depends to a large extent upon the distance travelled and the time to travel it. Typical costs per tonne range from $10 over 50 km to $20 over 150 km. In summary, the nominal price of lignocellulosics delivered for conversion is likely to be in the range of $23$48 per tonne (wet or green). In terms of the assumed maximum effective cost of $50 per tonne (dry), the various factors whereby that cost is derived relative to the nominal price of supply are canvassed below. Probably the most significant of those factors is the moisture content of the materials delivered as feedstock.
3.2.2 Moisture Content

In the case of agricultural crop residues, the majority of such feedstocks would contain moisture of the order of 15% on a dry weight basis. In the case of forest residues in the form of silvicultural thinnings, the range of moisture content varies widely from 30% to 95% on the basis of dry weight. The effect of moisture content as a factor in determining the effective cost of feedstock is illustrated below: Nominal price Effective cost in $/tonne, adjusting for moisture content % (dwb) in $/tonne (green) 10 15 20 30 40 50 60 80 100 20 25 30 40 50 22 28 33 44 55 23 29 35 46 58 24 30 36 48 60 26 33 39 52 65 28 35 42 56 70 30 38 45 60 75 32 40 48 64 80 36 45 54 72 90 40 50 60 80 100

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3.2.3

Cellulosics and Lignin Content

Whilst moisture content as reflected above is revealed as a critical factor in determining the effective cost of feedstock as delivered, the likely yield of ethanol from dry feedstock is also expected to vary in accordance with the differing lignocellulosics which may be utilised. The ethanol yield is dependent on the cellulosics contained in the feedstock. An indicative range of expected cellulosics and lignin content is set out below. Material Grain straws - average Bagasse - average Cotton Stubbles - average Cotton ginning trash - average Forest Hardwoods - average Forest Softwoods - average Cellulose 31-44 39 36-40 39 n.a. 40 n.a. 38 n.a. 50 40-50 n.a. Constituents % dwb Hemicellulose 16-36 30 26-29 28 n.a. 10 n.a. 28 n.a. 28 20-30 n.a. Lignin 7-11 10 10-13 12 n.a. 20 n.a. 26 n.a. 22 25-35 n.a.

It will be noted that in most cases the above distributions of content do not add to 100% and that, where ranges are available, there is a wide variation in likely distributions. This data is considered to be only of illustrative value. In terms of their respective significance as determinants of the effective cost of feedstock, the advantage agricultural residues enjoy in the form of lower moisture content is to some extent counterbalanced by their generally higher proportion of hemicellulose. Ethanol yield from the hemicellulose fraction is currently much lower than from the cellulose fraction of the total cellulosic content. Reflecting the presently expected conversion efficiencies, the resultant ethanol yields from feedstocks may be illustrated as follows: Feedstock A B C % Cellulose 35 40 50 % Hemicellulose 35 30 25 Ethanol yield (litres/feedstock tonne) 267.4 287.5 336.8

The above range of yields, when compared with the range of adjusted costs per dry tonne of feedstock, suggest that feedstock A, having a delivered cost of $40 per dry tonne, would nevertheless be on a par with Feedstock B @ $43 per tonne and with Feedstock C @ $50 per dry tonne after accounting for their respective ethanol yields.

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3.2.4

Feedstock Preparation

At some stage of the supply function, the feedstock must be rendered amenable to introduction to the conversion process. The action required is that necessary to reduce the feedstock to an acceptable composition of particle sizes and moisture content. The specification of acceptability proposed for the conversion process to be demonstrated is that of particle sizes less than a volume of 1 cubic centimetre and exhibiting a ratio of surface area to volume greater than 7.5:1. The moisture content specified is less than 15% on a dry weight basis (ie 100 kg dry = less than 115 kg wet (or green)). Preparing feedstock to make it suitable for introducing into the conversion process may incur costs additional to those of harvesting and transport. That will certainly be the case where materials are delivered in a form that does not meet the specifications for prepared feedstock. It may also be the case with feedstock delivered within specification for process input, depending on the extent to which feedstock preparation would in any event occur during the course of harvesting and transport to the conversion facility. The extent of additional post-delivery preparation required for various feedstocks remains to be determined during the course of the demonstration project, when the effective cost of feedstocks will be evaluated.
3.2.5 Storage and Seasonal Availability

The following issues will play a role in determining the order in which elements of harvest, transport and preparation are undertaken during the feedstock supply function: the time over which the harvest cycle of the dominant cropping activity occurs; the time available within the harvest cycle for the removal of the lignocellulosics surplus to that dominant activity; the form in which that lignocellulosic material is most economically transported from its site of production; the extent to which double-handling of feedstocks may be avoided by their conversion to prepared form during the harvest and transport elements of the supply function; and the manner in which feedstock might best be stored pending its being drawn upon for introduction to the conversion process following final preparation.

To illustrate the issues set out above, we set out the following scenarios with respect to various prospective feedstocks. We preface these scenarios by noting that lignocellulosics are susceptible to deterioration by the action of micro-organisms succoured by the moisture content of the stored material. Deterioration may increase with the content of stagnant free air in the stockpile. A further point to note is that, during the period from harvest to utilisation, the prospects for losses increase in direct proportion to the extent of multiple handling of the material. The combination of these considerations suggests that the longer the time of storage, the greater the density in which the material should be stored. Subject to that injunction, the least degree of handling should be undertaken furthest in time from the introduction of the material to the conversion process.

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Scenarios surplus lignocellulosic materials a) Agricultural crop stubbles eg grain (wheat etc) and cotton harvest cycle: removal time: collection options: loading options: freight options: unloading options: post-harvest preparation: storage/throughput ratio: storage deterioration: annual < 28 days stems, baled whole; bale elevators; flat-bed open; handling required; required; 92%; low; chaff, binned loose augered or blown enclosed body dumped to stockpile unnecessary 92% high

This summary of the issues surrounding agricultural crop stubbles indicates that their utilisation by a year-round conversion process would involve, because the material becomes available during only some 8% of a year, a post-harvest storage period of up to 11 months. During that long period, the materials would be best stored in the dense form of compressed bales, most practicably bales comprising whole stems (although chaff may also be compressed providing it is enveloped). Much of the long storage period could be on-farm rather than subsequent to delivery. b) Agricultural crop processing residues eg sugar cane bagasse harvest cycle: removal time: collection options: loading options: freight options: unloading options: post-harvest preparation: storage/throughput ratio: storage deterioration: biennial (NSW); <120 days na na na na required; 40%; moderate; annual (Qld) <200 days

required 25% moderate

Sugar cane bagasse is a processing residue but is, nevertheless, a whole-lignocellulosic material. Because the sugar harvest involves whole plant collection, the further costs of collection postharvest do not arise and those issues are accordingly not applicable. The removal time indicated is that period during which the cane harvest occurs, and comprises the crushing season for the sugar mill. The post-harvest processing refers to the reduction required with respect to both the moisture content and particle size of the bagasse in post-crushing form. c) Forest crop management residues eg silvicultural thinnings harvest residues bagasse harvest cycle: removal time: collection options: loading options: freight options: unloading options: multiannual continuous roundwood; log elevation; flat-bed open; handling chipped at harvest site augered, blown or bucketed enclosed body dumped to stockpile
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 post-harvest preparation: storage/throughput ratio: storage deterioration:

required; required; 15%; low;

unnecessary 5% high

The term 'crop management residues' is employed to distinguish this material from processing residues of a fibre conversion activity such as sawmilling. The crop management residues is that component of forest growth surplus to the dominant activity of producing fibre. Whether or not they are harvested at the same time as fibre-quality stems, the removal of such crop management residues is nonetheless a separate and additional function. The removal time is described as continuous because, within a forest region, residues can be harvested variously throughout the region on a continuing basis. The options for collection and hence freight etc will be available in accordance with factors ranging from site accessibility to the intensity of residue removal. Post-harvest preparation could occur at a site intermediate to the forest and the conversion plant. Whether preparation occurs at an intermediate site or at the destination site, the overall storage factors should be those applicable to roundwood. Nevertheless, an inefficient transfer of prepared feedstock from an intermediate site could result in the prospective deterioration being high rather than low.
3.2.6 Summary of Effective Cost Factors

Other than the sufficiency of volumes of the various prospective feedstocks, their availability has so far been reviewed in terms of their likely cost to a conversion process. Factors contributing to that effective cost have been identified as: the nominal price; the moisture content; the conversion yield; the practicalities of harvest and storage; and the likely need for post-harvest feedstock preparation. Of those factors, it is nominal price that must be responsive to each of the others in achieving a cost acceptable to a commercial conversion process. Subject to the results of the demonstration project, it is anticipated that the effective cost of feedstock should be not more than $50 per dry tonne. The likelihood of nominal prices of $23$48 per tonne of delivered feedstock is suggested. That range of nominal costs is comprised of: primary producer royalty $ 3 $8 per tonne harvesting $10 $20 per tonne freight $10 $20 per tonne Not all the surplus lignocellulosic materials will be economically available for conversion to ethanol and lignin. The economic availability will be limited to that proportion of the total resource that proves acceptable by virtue of its effective cost to the conversion process. To assess the likelihood of an adequate feedstock supply for the purpose of commercialising the conversion process, we now review the current gross volume of lignocellulosics produced surplus to existing dominant food and fibre production activities.

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3.3

The Occurrence of Surplus Lignocellulosics and their Availability as Feedstocks

For the sake of expedience, this review is limited to the situation in NSW. However, substantially similar volumes of surplus lignocellulosics are likely to be found elsewhere in proportion to the extent of food and fibre production undertaken in those areas. The review in NSW is based on the regional occurrence of the materials. In respect of agricultural crop stubbles, the data are derived from the recent report by NSW Agriculture to the NSW Office of Energy as to the likely availability of such materials for conversion to ethanol and lignin. The volumes quoted represent annual availability unless otherwise noted.
3.3.1 Agricultural Crop Stubbles

Region/LGA. Distribution

Cereals Coarse grains Cotton stubbles

tonnes

Other

Total

Macquarie Valley - Dubbo - Narromine - Warren - Bogan Namoi Valley - Narrabri - Gunnedah - Quirindi - Manilla - Parry - Tamworth Gwydir Valley - Moree Plains - Walgett
Source: NSW Agriculture

320,890 32,150 100,450 83,690 104,590 390,040 171,520 114,840 49,190 19,970 33,120 1,400 649,840 523,590 126,250

23,940 2,660 18,250 2,550 490 295,330 37,350 141,390 92,850 390 22,370 980 101,280 99,550 1,730

77,570 15,300 62,270 130,030 123,260 6,500 270 -303,520 282,170 21,350

34,050 2,730 16,180 14,880 260 133,260 31,660 63,080 34,780 70 3,600 70 86,260 81,670 4,590

456,450 37,540 150,180 163,390 105,340 947,660 363,790 325,810 177,090 20,430 59,090 2,450 1,140,900 986,980 153,920

The table above represents the occurrence of surplus agricultural lignocellulosics for less than half of the area of NSW used for agricultural activities. South of the Macquarie Valley region are the Lachlan, Murrumbidgee and Murray Valley regions, where, although cotton is not an important crop, each of cereals, coarse grains and other crops are grown on a scale comparable with those tabulated above. Among those important agricultural crops of southern NSW is rice, most of which is produced in three concentrated irrigation areas Coleambally, west of Narrandera; the adjacent MIA south of Griffith; and a third near Finley, in the Murray Valley. NSW Agriculture has estimated that the total rice stubble produced in these concentrated regions would be approximately 965,000 tonnes annually. Currently the annual plantings of wheat in NSW ranges from 2 to 3 million hectares. The wheat plantings included in the above table account for only some 400,000 hectares. The majority of the balance is planted in the Lachlan, Murrumbidgee and Murray Valley regions.
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NSW Agriculture has estimated that in excess of 4 million tonnes of stubble from cereal crops other than rice could have been available for collection from the 1989-90 harvests in NSW.
3.3.2 Agricultural Crop Processing Residues whole plant harvest

Sugar cane is the principal agricultural crop whereby the whole plant is harvested in the course of collecting its food or fibre yields. Jerusalem artichokes and cauliflowers are other such crops, but their present total volume of production is neither as great nor as concentrated as to immediately commend them as potential feedstocks. Bagasse is produced in large volumes and is available in high concentration because of the scale at which commercial sugar milling is undertaken. During the 1988 season, the NSW Sugar Milling Cooperative crushed some 1.58 million tonnes of cane and the 1992 NSW harvest was 1.9 million tonnes. Fresh cane yields more than 13.5% bagasse on a dry weight basis (dwb) although, as crushed output, the moisture content of bagasse is of the order of 60% dwb. The NSW Sugar Milling Cooperative effectively represents the total of NSW sugar cane production, and progress is presently well advanced towards the attainment of a targeted annual crush of 2.5 million tonnes of cane. Assuming a base NSW sugar cane production of 2 million tonnes per annum, the dry weight yield of bagasse would amount to 260,000 tonnes per annum. Less than half of that, say 125,000 tonnes (dwb), is used as solid fuel in the operation of the sugar mills. The remaining 135,000 tonnes (dwb) is surplus, and demand for that bagasse is limited. By way of acknowledgement of the pre-eminent role of Queensland in the production of sugar, it is noted that cane production in Queensland exceeds 25 million tonnes per annum. The bagasse yield therefrom is thus 3.25 million tonnes (dwb), of which 1.68 million tonnes (dwb) is surplus to sugar mill fuel requirements.
3.3.3 Forest Crop Management Residues silvicultural thinnings and harvest residues

The volumes of these materials surplus to the dominant purpose of fibre production are somewhat uncertain. But it is certain that the volumes are substantial and increasing. In early 1992 we were advised by the then Forestry Commission of NSW that its uncommitted silvicultural surpluses annually amounted to some 5 million tonnes. Those tonnages refer only to the public forests of NSW. Again during 1992, the Forestry Commission of NSW, in a review of opportunities for the development of additional paper production in NSW, estimated the annual supply of pulpwood available to such a development and including that from the resources of private forests, as: Far North Coast 900 30 930 Mid-North Coast 600 40 640 Sth-Coast/ Tablelands 800 340 1,140 Bathurst/ Tumut 450 450 Total (000 tonnes) 2,300 860 3,160

Eucalypt spp Softwood spp Total ('000 tonnes)

The total of 3.16 million tonnes does not include some 500,000 tonnes regarded as unavailable because of distance from potential pulp-mill sites.

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Most of the volume of surplus silvicultural materials occurring on private forest holdings in the above areas is focussed on with respect to a prospective paper industry. We estimate that those private forest holdings would account for some one million tonnes of the 3.16 million tonnes total. The earlier 1992 estimate by the Forestry Commission of NSW inferred that material conforming with the pulpwood specification would be matched 1:1 with material of lesser quality. We suggest that, in the case of private hardwood forest holdings, the sub-pulpwood specification material would occur in a proportion exceeding 1.5 : 1 of pulpwood quality material. Thus private hardwood forest holdings yielding one million tonnes of pulpwood quality residues could be expected to also yield at least 1.5 million tonnes of residues unsuited as pulpwood. The situation with regard to softwoods would be rather the reverse, whereby pulpwood quality volumes would exceed sub-pulpwood quality volumes in a ratio of 1.5:1. Based on the foregoing assessment of the differing characteristics of public and private forests in NSW with regard to the overall quality of surplus silvicultural materials, we arrived at the following estimation of their occurrence in NSW: Pulpwood Public Quantity('000 tonnes) 2,500 Specification Private 1,000 Other Public 2,500 Other Private 1,500 Total (000 tonnes) 7,500

Of the estimated total of 7.5 million tonnes of annually occurring surplus silvicultural material, 4.0 million tonnes is unsuitable for pulping and a further 0.5 million tonnes of pulpwood quality is beyond an acceptable distance from any potential paper industry site. The remaining 3.0 million tonnes, being both of pulpwood quality and suitably sited, enjoys some prospect of demand by the paper industry. As a guide to the likelihood of such an occurrence, it is noted that a single prospective pulpmill would annually require feedstock of 1.5-2.0 million tonnes, and its capital cost would be $1.0-1.5 billion. The eventuality of more than one such development could not be regarded as likely inside the next 20 years. This evaluation of the annual surplus of silvicultural and other management residues was submitted to State Forests of NSW for consideration. As at August 1994, State Forests' best estimate of uncommitted annual surpluses totals 4.42 million tonnes. This estimate excludes prospective nearterm pulpwood commitments of the order of 1.2 million tonnes of plantation softwood. The regional distribution of that estimate, which includes private forests, is set out below. Region North Coast Northern Tablelands Mid-North Coast Hunter South Coast Southern Tablelands Albury-Murray Dubbo-West Annual surplus ('000 tonnes) 1,390 550 460 260 460 630 240 430 TOTAL ('000 tonnes) 4,420
34

The lesser estimate above of the annual occurrence of surplus forest management residues has been adopted for the purpose of this review.
3.3.4 Pastoral Industry Management Residues

The materials presently focused on as prospective feedstocks sourced as 'residues' of pastoral industry management are the woody weeds found in Western NSW. A summary of the volumes of woody weeds recently reported upon by NSW Agriculture is set out below. Local Government Area Bogan Bourke Brewarinna Cobar Central Darling Walgett Unincorporated TOTAL (000 tonnes) Tonnes ('000) 813 47,676 4,497 43,077 33,205 3,427 90,615 223,310 TOTAL (000 Ha) Area occupied ('000 ha) 201 3,067 482 3,947 3,096 144 5,760 15,687

This is a massive supply of lignocellulosic material, which is presently seriously reducing the grazing capacity of affected areas and is, in consequence, 'surplus' to the dominant pastoral activity conducted on these lands. In the case of both the Bogan and Walgett LGAs, the 'woody weeds' occur in addition to the agricultural crop stubbles reported upon in Section 3.3.1 above. In the case of each of the other LGAs (and the Unincorporated Area), agricultural crop stubbles also occur in useful volumes. It will be noted that the 'woody weeds' are found in volumes which average 14 tonnes per hectare, although the density is variable. The recent report by NSW Agriculture classified densities as: high (27.0 tonnes/hectare); medium (15.0 tonnes/hectare); and low (5.4 tonnes/hectare). By comparison with agricultural crop stubble densities of 2-4 tonnes/hectare and forest silvicultural residue densities of 4-40 tonnes/hectare, even the low density of 'woody weeds' reflected in the case of Bogan LGA (4 tonnes/hectare) appears favourable from the viewpoint of collection costs. In its estimation of total woody weed occurrence, NSW Agriculture noted that some 36% of the total biomass represented leaves as distinct from plant stems and branches. NSW Agriculture's review of collection methodologies suggests that transportation of the harvested material would be best undertaken following the breaking down of that material at the site of harvest into a form of woodchip. Given that the foregoing estimates of the available tonnage of biomass are calculated 'green weight' and that tonnage includes 36% leaf matter which we would expect to be lost in the course of harvest and subsequent on-site processing we would suggest a likely dry feedstock yield from the gross availability of woody weeds to be in the order of 45% of that gross. Applying a feedstock yield factor of 45% to a low-level density of woody weed infestation 5.4% tonnes/hectare the inferred tonnage of available feedstock is 2.4 tonnes/hectare. In the case of medium and high density infestations, a similarly inferred feedstock yield is 6.7 tonnes/hectare and 12.1 tonnes/hectare respectively. In the event that a commercially viable conversion facility requires an annual input of 250,000 tonnes of such feedstock, we would
35

estimate the prospective availability of woody weeds as a feedstock for the production of ethanol and lignin as set out below. Woody weed infestation Feedstock yield (tonnes/ha) Annual area of harvest (ha) Freight draw radius (km) Area for 20 years supply (million ha) Freight draw radius (km) Low 2,4 104,170 19 2.09 85 Medium 6.7 37,310 11 0.75 50 High 12.1 20,660 9 0.42 37

The extrapolation included above, regarding the area required to provide for twenty years of feedstock supply, presumes that the woody weed resource will not be recurring. That would certainly be the ambition of landholders presently anxious to remove that material from their grazing lands. Providing that a twenty year economic life for a conversion facility would be commercially realistic and that the feedstock resource did not recur, it is nevertheless apparent, with regard to the freight distances likely to be encountered, that most of the prospective resource is adequately concentrated.
3.3.5 Summary

To summarise this review of the occurrence in NSW of surplus lignocellulosic materials and of their prospective availability as feedstocks, we tabulate hereunder their distribution on a regional basis. In recognition of the various environmental and economic factors which would act to reduce their availability to an amount less than their gross occurrence, we preface our tabulation by noting the basis of the deflation factors which we have applied in reaching our assessment. a) Agricultural crop stubbles the seasonal variability of their occurrence and harvest, the agronomic desirability of their retention, and the existence of some competitive demand for their alternative use; availability as feedstock estimated as 30% of gross. b) Agricultural processing residues those identified are solely bagasse. The estimated gross occurrence has been calculated nett of its currently being applied as processing fuel. Because that fuel requirement would equally be met following conversion to ethanol and lignin, the real availability of such materials as prospective feedstocks substantially exceeds the gross occurrence as calculated. This reality would effectively more than compensate for fluctuations in seasonal availability occurring in consequence of markets and the weather; availability as feedstock estimated as 100% of gross. c) Forest management residues the long-term availability of these materials is difficult to estimate. Whilst access to some of the gross occurrence may be denied, proposed extensions of the resource will, together with the present occurrence otherwise increasing over the next twenty years, serve to largely offset any such reductions. After making due allowance for the scant prospect of a competing demand for the estimated occurrence and also for variations in its likely suitability for conversion, we estimate its availability as feedstock to be 50% of gross. d) Pastoral industry management residues both currently and in the future, these residues are surplus to any dominant activity of food and fibre production. Their availability will, however, depend on the economic value to landholders of undertaking their removal. We estimate the annual availability of woody weeds as 2% of gross.
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Summary NSW Regional Occurrence of Surplus Lignocellulosics and their Availability as Feedstocks Region Ag crop stubbles Ag crop residues Availability 100% Forest residues (% occurrence) 50% Pastoral residues Deflated regional avaiability (000 tonnes per annum) 830 230 130 230 1,000 310 170 470 270 410 1,050 1,550 1,810

30%

2%

Occurrence ('000 tonnes)

Far North Coast Lower North Coast Central Coast South Coast Southern NSW Centrl/Sthrn Tablelands Centrl/Westn Slopes North West Slopes Northern Tablelands Northern Plains NW Plains Centrl/Westn Plains SW Plains Far West

2,965(est) 455 945 1,140 50 80 2

135 --

1,390 460 260 460 240 630 40(est) 390(est)* 550 -

810 3,425 52,170 76,280 90,615

3.4

Preliminary Conclusion as to Feedstock Availability

In the introduction to this Chapter it was noted that the lignocellulosic feedstock required for 50 megalitres of ethanol output would be some 170,000 tonnes (dry). It was also noted that the optimum scale of conversion may be greater than 50 megalitres annual output and that feedstocks as delivered would most likely exhibit moisture content in excess of 15% on a dry weight basis. To take account of those two factors it is our opinion that the commercial sufficiency of regional feedstocks should be that of an annual availability of 250,000 tonnes (wet or green) of surplus lignocellulosics.
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According to the preceding table of regional lignocellulosics availability in NSW it is apparent that nine of the 14 regions surveyed could supply feedstock at the rate of 250,000 tonnes (green) per annum. Except for the 5 regions in which pastoral residues are reflected, the tabulated annual availabilities are indefinitely renewable. Despite the assumption of their being non-renewable, the availability of pastoral residues exhibited by three of those five regions is more than sufficient to assure a supply over 20 years. In the case of one of the other two pastoral regions reflecting a lesser availability of woody weeds, those materials are associated with other materials themselves renewable and sufficient to annually supply 250,000 tonnes (green) feedstocks. Not included in the preceding table is the regional availability of centralised crop processing residues other than that of bagasse. Such other residues (eg grain hulls, cotton ginning trash and sawdust) are potentially available in large quantities. In the case of ginning trash, commonly generated at the rate of 0.35 tonnes per hectare of harvested crop, its NSW availability amounts to some 60,000 tonnes. Sawmill residues in NSW are estimated at 280,000 tonnes. For both the Lower North Coast and South Coast, they are sufficient to increase feedstock availability above the 250,000 tonne threshold. 3.5 The Components of Nominal Price Further Reviewed

It has been assumed, subject to the trials of feedstocks to be undertaken during the demonstration project, that the effective cost of feedstock should not exceed $50/tonne (dry). That cost is the product of a number of factors applied to its nominal price. Of those factors reviewed, probably the most significant is that of the moisture content of the delivered material. The supply of 250,000 tonnes (green) feedstock being assumed to be the equivalent of 170,000 tonnes (dry) infers for the delivered material a moisture content of 47% on a dry weight basis (dwb). Given an assumed maximum real cost of $50/tonne (dry) and ignoring other factors also relevant to the derivation of that cost, a moisture content of 47% (dwb) implies a maximum nominal price of $34/tonne of delivered feedstock. The review of the various factors of effective cost suggested a nominal price range of $2348/tonne (green) of delivered material. Taking into account the significance of moisture content, it is apparent that commercial availability should be assessed in the context of feedstock being delivered at a nominal price of less than $35/tonne (green). Having established the likely sufficiency of available lignocellulosics in at least nine of the 14 regions of NSW surveyed above, the issue remaining to be considered with respect to their likely commercial supply is the prospect of their nominal price being $35/tonne (green) or less. That issue is most practicably considered in terms of a notional region. In terms both absolute and relative to their regional availability, the components of nominal price which are of greatest significance are: the cost of harvest and loading; and the cost of freight and unloading. By comparison with the above components of nominal price, that of the cost of producing surplus lignocellulosics is both minor and largely irrelevant to the assessment of regional feedstock availability. Of the prospective feedstocks, only those residues already accumulated at a processing site are not subject to the incurrence of harvesting and freight costs. The majority of prospective feedstocks are those surplus at the site of food or fibre harvest. The spatial density of their availability ranges upwards from a low average of 3 tonnes per hectare.
38

The requirement for 250,000 tonnes feedstock available at a spatial density of 3 tonnes per hectare suggests the need to source supplies from 90,000 hectares. Having regard to the significance of distance upon the cost of freight, it is anticipated that the source of feedstock should not be more than 100 km distant from the conversion site. A radius of 100km defines an area of 3 million hectares. If only half that area were productive of feedstocks, the annual supply of 250,000 tonnes would represent a harvest averaging only 0.167 tonnes/hectare. This review of the likely costs of harvest and freight as components of nominal price proceeds on the basis of a feedstock harvest averaging 3 tonnes or more per hectare and a freight distance of less than 100km.
3.5.1 Freight

Of the components of the nominal price of feedstock, that of its freight from the site of harvest is totally lacking in the characteristics of a marginal cost. The following is an estimate of the likely gross cost of freight as a component of nominal price. Based on conventional road transport units with a nominal payload of 20 tonnes, the supply of 250,000 tonnes feedstock would require the delivery of 12,500 loads. Within a freight draw of 100km, it maybe expected that the daily rate of delivery would be two loads per truck. Since three-quarters of the area defined by a 100km radius lies outside a distance of 50km, an average freight draw may be 75km from harvest site. Over a period of 40 weeks (5 days each) per annum, a single freight operation would deliver 8,000 tonnes of feedstock at the rate of 2x20 tonne loads per day. The total distance travelled over draws averaging 75km, and including unloaded return journeys, would amount to 60,000 kilometres. In these circumstances, the capital and operating costs of the truck would be some $8 per tonne of delivered feedstock. Similarly, the freight labour component at $200/day would equate to $5/tonne of feedstock. The likely gross cost of freight is thus estimated at $13/tonne.
3.5.2 Harvest and Preparation for Loading

Although the cost of feedstock harvest may prove to be merely marginal in cases of surplus lignocellulosics being in any event removed from their site of production, that will not be so for the majority of materials prospectively available. The following estimation of the cost of harvest and loading proceeds on the assumption that it will be the gross cost of that activity which is carried by the nominal price of delivered feedstock. Utilising conventional harvesting equipment as variously applicable to the differing nature of the respective potential feedstocks, we would estimate the capacity of a harvest team as being the collection and despatch of 100 tonnes of feedstock per day. Over 40 weeks (5 days each) per annum, each such team would effect the supply of 20,000 tonnes of feedstock. The capital investment in equipment employed by that team should not exceed $500,000 and, that being so, the annual capital cost would be of the order of $100,000. Similarly the cost of machinery operation would be unlikely to exceed $100,000. The $200,000 total of the capital and operating costs of harvesting and loading machinery thus equates to $10/tonne of feedstock. The labour component of such a well-equipped harvest team would amount to no more than four people. At $200 per day per person the total labour cost is thus estimated as $8/tonne of feedstock harvested at the rate of 100 tonnes per day.
39

Combining these estimates, the gross cost of feedstock harvest amounts to $18/tonne. That cost could be on the high side of harvest costs ranging upwards from $10 per tonne. The current cost of pulpwood harvest is commonly of the order of $18/tonne and that cost is one having no component of a marginal-cost nature. By comparison, the cost of stubble removal currently incurred by cotton farmers is of the order of $10/tonne. Such material could be supplied at a harvest cost of little more than that of the removal cost presently unrecovered.
3.5.3 Production

The component of nominal price most likely to be a marginal cost is that of the production of lignocellulosics surplus to the dominant purpose of food and fibre production. In most cases, the present value of those surplus materials is negative. In such cases the supply of feedstocks at nil charge for their production would constitute a financial benefit to the primary producer. The circumstances and extent to which costs are incurred are reviewed below. There are broadly two sets of circumstances whereby costs are incurred by a primary producer in respect of surplus lignocellulosics: (A) (B) costs are realised in cases where the material is subject to removal for the sake of the dominant activity and the removal cost is not recouped; or costs are not realised in cases where the material is not removed but its retention results in a diminution of the productive capacity of the land on which it remains.

For the majority of primary production enterprises, the circumstances of cost incurrence are those in (i) above. Examples are: all cases of agricultural crops where plant stems are not the source of the food or fibre harvested; most cases of plantation forestry; and most cases of pastoral lands management. The costs incurred for the removal of surplus lignocellulosics in these cases is wide in range and variable year by year. Although the minority, those whose circumstances are as per (ii) above are nevertheless of substantial importance. The cases in point are generally limited to either regrowth or native forests or to pastoral lands of marginal grazing value. Their importance arises from the fact that the total area of land covered approaches that subject to the alternative circumstances. The negative effect on a regional economy of large areas of unproductive land is often of greater impact than that of productive lands being merely disadvantaged by the unrecouped costs of managing surplus lignocellulosics. By way of a review of the costs arising from the incidence of lignocellulosics surplus to the dominant purpose of land management, we offer the following estimates set out below. Dominant Purpose Production Annual gross margin ($/ha) Cereals - rice - wheat Cotton Forestry - regrowth Lignocellulosics surplus to land management Costs as a % Costs incurred Production of dominant ($/ha) (tonnes/ha) gross margin 8-10 2-3 1-3 1-2 5-7 2-3 15-35 2-5 1% 2% 4% 25%
40

500-700 140-180 400-700 10-30

- plantation Pastoral with weed infestation - mild -dense

60-100

2-3

5-7

12%

4.8 1-3

0.1 2-3

0.5 3-10

60% 250%

In the case of cereals production it is apparent that the recovery of costs would not greatly enhance gross profitability. Nevertheless, the prospective savings would be transferred directly to net profit. In a mixed farming environment, the area of wheat crop per farm would range upwards from 400 hectares. For 400 hectares of wheat, $1,000 of costs would be recoverable in terms of the above scenario. Both cotton and rice are crops which require, by comparison with wheat, a substantial forward commitment by growers. Cotton, however, is distinguished by its generally greater average farm area. Like wheat, the lower end of the scale of cotton plantings would be 400 hectares. The cost of stubble removal, although perhaps only 4% of the gross margin, would nevertheless amount to between $6,000 and $14,000 on 400 hectares. Forestry is generally undertaken on a large scale the low annual gross margin per hectare requires that to be so. To commercial forestry, the cost of surplus lignocellulosics either represents lost productivity where surpluses are not removed or is actually realised in the course of their removal. Either way, costs of 12%-25% of gross margin mean that between one year in eight and one year in four of production is cancelled out. In the case of smaller holdings, the effect is to totally deny any net profitability. That is the reason for agroforestry, farm woodlots and the like being viewed by landholders with such reluctance. The cost of surplus lignocellulosics to the economic viability of rangelands subject to infestation by woody weeds is, as indicated above, nothing less than disastrous. Indeed it could be argued that landholders would be well-advised to consider growing woody weeds instead of grazing livestock were the commercial development of a market utilising those woody weeds as conversion feedstock to eventuate in due course.
3.5.4 Conclusion

It is apparent that the incidence of surplus lignocellulosics imposes a cost upon the dominant primary production activity. Consequently, a producer would still receive a financial benefit by supplying such material at no charge. In the event that a price greater than nil can be afforded for the production component of feedstock supply the benefit would be that much greater again. The preceding estimates of likely freight and harvest costs total $31/tonne of delivered feedstock. In each case, the labour inputs have been charged at the annual rate of $40,000 per person earned over 40 five-day weeks. The capital and operating expenses of harvesting machinery have been costed at the high end of those likely to be incurred, and so, to a lesser degree, have those in respect of road transport vehicles. Within the $35/tonne suggested as the acceptable nominal price of feedstocks, the costs of harvest and freight total $31 per tonne. Thus there exists the capacity to pay a further $4/tonne for material whose production presently imposes upon its producers a cost they are unable to recover. In some cases that cost is sufficient to threaten the economic viability of the principal production activity.

41

We conclude that the supply of surplus lignocellulosics is possible within the anticipated upper limit of $35/tonne for feedstocks delivered for conversion. 3.6 A Brief Review of Prospective Regional Benefits

Such benefits as may accrue from the commercialisation of a process to convert surplus lignocellulosics to ethanol and lignin co-products would be substantial in the context of regional rural economies. The following is merely a summary of the direct benefits anticipated from a regional conversion plant consuming 250,000 tonnes of feedstock. We do not presume to offer this review as a complete analysis of regional economic benefits. The preceding further review of the nominal price of feedstock estimated the costs of its components on the assumptions of freight over 75km and the harvest of low densities of materials. According to the various circumstances of regional availability, lesser freight distances and greater densities may apply. In the case of centralised processing residues, little in the way of harvest and freight costs may be chargeable to feedstock supply.
3.6.1 Feedstock Supply

The range of direct labour inputs to the harvest and freight of 250,000 tonnes of feedstocks may, according to various regional circumstances, be represented by the scenarios set out below. Harvest and Freight of Feedstock EITHER i) Where surplus materials are presently gathered and disposed of at the site of their production: additional preparation for loading instead of disposal transportation to conversion plant Days Labour

500-1,250 3,000-6,000

TOTAL SITUATION (i) 3,500-7,250 OR ii) Where surplus materials are presently not applied and thus their harvest at the site of preparation represents labour inputs additional to those presently employed: their harvest and preparation for loading transportation to conversion plant (per (i) above)

5,000-10,000 3,000 - 6,000

TOTAL SITUATION (ii) 8,000 -16,000 Of the above various labour inputs, those at the high end of scenario (ii) above are the basis of the preceding review of the nominal price of feedstocks. Across both scenarios (i) and (ii), the wider range of labour inputs in respect of harvest is, by comparison with that of freight, a measure of the degree to which feedstock harvest exhibits the character of a cost marginal to the dominant production activity. As distinct from harvest labour inputs, those of freight enjoy no prospect of a marginal character. The range of freight labour inputs merely reflects differences in the distance over which feedstocks are to be delivered. Of the estimated $18/tonne cost of feedstock harvest, $10 is related to the use of harvest machinery. Of the two, labour and machinery, the near term could witness, by comparison with
42

the assumption underlying that estimate, a greater degree of labour being employed, instead of machinery. Accordingly, we consider harvest labour inputs as most probably being at the high end of the above range, whilst machinery inputs are more likely to be less than those estimated. Assuming that only the labour component were sourced from within the region, a single conversion plant drawing 250,000 tonnes of feedstock and paying local labour at the rate of $12.50/tonne for the harvest and freight of that feedstock would thus inject to the regional economy $3.2 million in wages. Valuing labour at $200/day, that $3.2 million represents 16,000 days labour which, over a 40 week operational year @ 5 days/week, amounts to 80 fulltime jobs directly engaged in feedstock harvest and delivery. In summary and depending upon whether the circumstances of feedstock supply are those of scenario (i) or scenario (ii) above, the demand for harvest and transport labour could range anywhere from 20 to 80 full-time jobs in a region. Only in the case of prospective feedstock being already gathered and delivered to a central processing site for the purpose of undertaking the dominant food or fibre harvest would there be no incremental demand for harvest and freight labour in the course of feedstock supply.
3.6.2 The Conversion Process

Not previously considered, being irrelevant to this review of prospective feedstock supply, the following estimation of labour inputs required for the operation of a conversion plant is introduced in the context of prospective regional benefits. A plant for the cost-effective conversion of lignocellulosics to ethanol and lignin would be one operating continuously during a 24 hour period and, during a year, for at least 47 weeks. Although operating continuously, the 250,000 tonnes of feedstock would nevertheless be delivered to the site only during weekdays. Similarly, the disposal of ethanol output may be limited to the same periods. We estimate that these materials handling activities, daily involving some 55 loads of feedstock and a further six loads of ethanol despatch, would require the labour of at least five during an eight hour day shift. For the continuous operation of the conversion process proper, three shifts would be required. Making the maximum provision for automatic monitoring and control of processing operations, it is nevertheless doubtful whether less than five people could be employed to cover those three shifts. In summary, the labour requirements for a plant consuming 250,000 tonnes of feedstock and producing 50 megalitres of ethanol output could be expected to be the equivalent of at least 25 full-time jobs. This estimation takes no account of any feedstock preparation which may also be undertaken on the site.
3.6.3 Feedstock Production

The preceding review of the components of the nominal price of delivered feedstocks anticipated that primary producers would receive some payment in respect of the production factor. Nevertheless, pending the evaluation of various prospective feedstocks, the capacity to pay for those feedstocks remains to be determined. Consequently, with regard to prospective regional benefits, we would not propose reliance upon any element of payment for production in addition to that for the harvest and freight labour inputs considered above. It is the recovery of costs currently incurred without recompense which, for primary producers, offers the greater prospective benefit to be created by a commercial demand for surplus
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lignocellulosics. This review of regional benefits arising from the production factor of feedstock supply is therefore limited to the recovery of cost. With regard only to the direct benefits to primary producers, realisable by way of cost recovery in respect of otherwise surplus lignocellulosics, their value to a region would range from $250,000 to $2.5 million. That range is derived in terms of the annual supply of 250,000 tonnes of feedstock and is based on the estimation of management costs incurred as set out in the preceding review of the components of nominal price. Feedstock Costs incurred ($/tonne) 1-10 n.a. 2-3 0-5 Regional costs recoverable ($'000) 250 - 2,500 n.a. 500 - 750 0 - 1,250

Agricultural crop stubbles Agricultural crop processing residues Forest crop management residues Pastoral rangeland weed infestation

In the case of a rangeland pastoral region, the benefit may be only as high as $1.25 million. Nevertheless, its effect upon the economy of that region would be far greater than that upon a more profitable agricultural region.
3.6.4 Summary

To conclude this brief review of the implications for regional development of a single ethanolfrom-lignocellulosics plant drawing 250,000 tonnes per annum of feedstocks, we summarise as follows our above estimates of direct benefits: $ million 3.2 1.0 2.5 6.7

A.The supply of feedstocks up to 16,000 days labour B. The conversion process at least 25 full-time jobs D.The value to primary producers in recouped costs up to TOTAL

Acknowledging that $6.7 million may be at the high end of the scale, it is nevertheless the case that, for most regions, the prospective benefits would be substantial. The region which may benefit least substantially would be one wherein the majority of feedstocks are those surplus lignocellulosics already collected in the course of a centralised processing function. The milling of sugar cane would be a case in point. However, in the only sugar producing region of NSW, the bagasse component of regional surplus lignocellulosics is considerably overshadowed by the large volumes of forestry residues also available. Any region where a substantial volume of surplus forestry residues occurs could expect to realise benefits amounting to at least half of the $6.7 million estimated above. Although this review of prospective regional benefits has focused only on the situation in NSW, we are confident that similarly attractive scenarios would emerge from a similar review of most rural regions in Australia. Indeed, such a broader review of the prospective benefits of applying surplus lignocellulosics to the production of fuel has been undertaken concurrently with this feasibility study. The broader review has been done on behalf of each of the Energy, Land and Water Resources, and Rural Industries R & D Corporations. As distinct from this feasibility study, the broader
44

review considered a range of conversion systems and hence different fuel outputs which may be achieved from surplus lignocellulosics. The original motivation for the review was the joint desire of LWRRDC and RIRDC to identify a viable economic incentive for landholders to undertake agroforestry and similar revegetation activities for the purpose of protecting and repairing land and water resources. Potential regional investment and employment benefits were also an attraction. Chapter 2 showed that arguably the best ecological option for vegetative biomass surplus to the production of food or fibre is to use the surplus to produce fuel. Both the resource availability and the consequent regional benefits of such utilisation differ only little if the fuel produced is other than ethanol and lignin. That, however, will depend on the critical issue of the nominal price payable for feedstocks in respect of the fuel to be produced. 3.7 Chapter Summary and Conclusions

This review of lignocellulosic resources has been related to the feasibility of commercialising a process for their cost-effective conversion to ethanol and lignin co-products. Although the previous Chapter noted that there are uses for both co-products other than fuel supply, it has been assumed for the purpose of this review that it is to the fuel market that those outputs would be directed. The feasibility of commercial development depends, in the first instance, upon there being sufficient available feedstocks. Beyond the issue of feedstock occurrence, their availability depends on whether the nominal price that may be offered is adequate to effect their supply. The commercial capacity to offer a nominal price will be dictated by the effective cost of feedstocks to the conversion process. Given the prospect of directing process outputs to the supply of fuel, the cost structure of the conversion process must be competitive with that established by the hydrocarbon fuels which dominate the fuel economy. Subject to the findings of the demonstration project, the preliminary assumption made for the purpose of this review is that the effective cost of feedstocks should not exceed $50 per dry tonne. At that cost, the energy content of lignocellulosics is priced similar to that of crude oil at $18/barrel. Factors whereby the effective cost of feedstocks is derived relative to the nominal price of their supply are reviewed. The factor of greatest significance would appear to be that of the moisture content of the delivered material. Pending the conclusions to be drawn from the results of the demonstration project, also unknown is the optimum commercial scale of a conversion plant. Presently it is estimated to be of the order of 50 megalitres per annum of ethanol output. It is unlikely to be less than that and may well be greater. Given anticipated yields of ethanol, a plant of 50 megalitres capacity would require 170,000 tonnes (dry) feedstock. Making a reasonable provision for the likely moisture content of available feedstocks we have assumed a sufficient availability to be 250,000 tonnes of annual supply. That provision made for feedstock moisture content suggests within the limits of an effective cost of $50/tonne (dry) a capacity to pay for the supply of feedstocks being limited to a nominal price of $35/tonne (green). Such a limitation on nominal price has, given the distancesensitivity of the freight component of that price, important implications for the extent to which a conversion plant may be scaled at greater than 50 megalitres of output.

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The reviewed occurrence of lignocellulosics surplus to the production of food and fibre exceeds that of their commercial availability as conversion feedstocks. The occurrence reviewed is only that surplus directly related to the current production of food and fibre in NSW. The lesser availability of that surplus for the supply of conversion feedstocks arises, in the first instance, as a result of seasonal variations in their production and of competing calls for their use. Principal among the latter is the desirability of their being retained in situ for such environmental considerations as soil quality enhancement, micro-climate amelioration and wildlife habitat maintenance. Taken together with the likely sufficiency of the nominal price payable, these various factors act to deflate the occurrence of surplus lignocellulosics to that of their lesser commercial availability as feedstocks for conversion. With respect to the nominal price of feedstocks as delivered, it is only those lignocellulosics produced surplus to a dominant purpose which are potentially available at only the marginal cost of supplying them. The extent to which the cost of supply is marginal in character is maximal in respect of the production factor, moderate to slight in respect of harvest and loading and almost non-existent in respect of freight. Only those materials accumulated at sites of centralised crop processing are immune to the cost of harvest and freight, but these comprise the minority of lignocellulosics surplus to food and fibre production. The majority of that surplus is those materials remaining at the point of food and fibre harvest. The spatial density of the occurrence of surplus lignocellulosics remaining at the point of food and fibre harvest is a factor of some importance to the cost of also harvesting those materials as feedstocks. In some cases, however, that harvest cost may prove to be marginal to their being removed in any event from the site of their production for the sake of the food or fibre crop to follow. Nevertheless, to account for other cases where no such removal is otherwise undertaken, the assessed cost of the harvest component of their nominal price has been estimated to be the likely gross cost. As with the harvest component, so has the freight component of the nominal price of feedstock supply been estimated as that of its likely gross cost. In estimating the cost of freight, particular attention has been paid to the spatial density of prospective feedstocks. That attention is warranted in response to the sensitivity of freight costs to the distance over which material must be transported. It was apparent without the need for a subsequent further review that the supply of feedstocks over a distance of greater than 100 kilometres would be prohibitively expensive. Having established on a preliminary basis that the maximum nominal price for delivered feedstock should be assumed to be $35/tonne (green), and having also identified other factors such as seasonal variability and the prospect of competing demands, the availability of feedstocks was assessed. In recognition of freight as a limiting cost factor and relating that to the spatial density of their occurrence, the incidence of surplus lignocellulosics has been reviewed on a regional basis. The availability of surplus lignocellulosics was then estimated for each region in accordance with the respective deflators suggested as appropriate to each feedstock. The commercial availability has been assessed as generally 50% or less than that of occurrence. In the event that commercial availability could be of the order of 50% of the occurrence of surplus lignocellulosics, the components of nominal price were further reviewed with regard to the likelihood that the presumed maximum of $35/tonne (green) would be commercially feasible. It was established that the lesser spatial density of materials estimated to be available compared favourably with that of a notional density of materials necessary for the supply of 250,000 tonnes from within a radius of 100 kilometres. It was subsequently apparent that the total of harvest and freight costs may not exceed $31/tonne (green) and that, in consequence,
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there remained some capacity to include within the nominal price of feedstock supply an element of payment for the production factors. The further review of the respective components of the nominal price of delivered feedstocks necessarily identified the likely labour and capital components of the cost of harvest and freight. That further review also considered the marginal nature of the cost of producing surplus feedstocks by way of identifying the management costs incurred by virtue of the materials being surplus to the dominant purpose of food and fibre production. In the light of that further review, a brief assessment was made of the prospective direct economic benefits to a region anticipated to eventuate from the commercial development of a conversion process We would conclude from this review of the lignocellulosic resources of NSW that the commercial development of a conversion process would be feasible in terms of the sufficiency of prospective feedstocks. Of the fourteen regions summarised, at least nine exhibit the capacity to annually supply 250,000 tonnes of feedstock. At that rate, five of those nine regions could be anticipated to accommodate three or more facilities.

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CHAPTER 4
Review of the Feasibility of Commercialising a Cost-Effective Process of Conversion Fuel Demand
4.1 Introduction

The lignocellulosic materials identified in Chapter 3 as available for conversion are those presently produced concomitant with but surplus to the production of food and fibre. To some extent their being so surplus occurs by virtue of those lignocellulosics, in their unconverted form, being unsuited to utilisation as either food or fibre. It is evident, however, that by deconstructing lignocellulosics to their components cellulosic sugars and lignin they would acquire a prospective utility, as food or fibre, presently denied to the parent material. Nevertheless, in proposing the development of an economic utility for lignocellulosics surplus to the production of food and fibre, it must be presumed that their application as fuel would offer the best prospect for effecting their demand. Of the three forms of economic demand for energy - food, fibre and fuel - that for fuel increasingly predominates, both as measured energy consumption and as a factor in the economic value of goods and services consumed. In itself, the value of fuel is largely predicated upon the prices of coals and crude oils which, between them, dominate the supply of raw fuel. Their domination is enhanced by the fuel consumption infrastructure having been developed to utilise those hydrocarbon fuels. The economic viability of any alternative fuel is thus to be determined within the parameters established by the reliance of the fuel economy upon coals and crude oils. Amongst those parameters determining the economic viability of alternative fuels are: the price of the energy content of raw hydrocarbon fuels, and the cost of converting raw fuel to a form amenable to consumption by the existing infrastructure. Economic viability is achievable providing these parameters are satisfied in combination. Lignocellulosics surplus to the production of food and fibre have in recent history been denied their remaining prospective utility - that of fuel - by virtue of their failing to be cost competitive within either of the solid or liquid sectors of the fuel economy. As an alternative solid fuel, lignocellulosics require a conversion by combustion essentially similar in both nature and cost to that incurred by coals. However, as a raw fuel, the cost of lignocellulosics is generally excessive as against coals. By comparison, applying lignocellulosics to the liquid fuels sector appears feasible in terms of raw fuel cost but that prospect requires a radical conversion of the solid feedstock. The cost-effective undertaking of that conversion has so far proven elusive. Their being surplus does not imply that lignocellulosics can be supplied for conversion at nil cost. However, those materials which are surplus may be supplied at their marginal cost of production. Nevertheless, together with the additional costs of their harvest and freight, the real cost of surplus lignocellulosics delivered as feedstocks would commonly be in the order of $50 per dry tonne. Subject to the moisture content of the material, for delivered lignocellulosics exhibiting a real cost of $50 per dry tonne, their nominal price would be in the order of $35 per green tonne. That nominal price is expected to be sufficient to attract the commercial supply of those lignocellulosics identified as available for conversion.
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Reviewing (Section 2.6) the cost structures of the fuel sectors currently supplied by, respectively, coals and crude oils, liquid fuels derived from crude oils clearly carry a higher price in terms of their effective cost to the consumer. The energy content of crude oils is, at $18/barrel, priced some 50% higher than that of steaming coals at $50/tonne. Furthermore, relative to the raw fuel energy cost, the conversion cost of refining crude oils to liquid fuels is more than 30% greater than that of coals combusted to produce steam for electricity generation. At $50/dry tonne, the energy content of whole lignocellulosics is priced similar to that of crude oils at $18/barrel. In Chapter 2, the economic viability of lignocellulosics as an alternative source of fuel was reviewed. In terms of their real cost as raw fuels, it was concluded the nominal price of delivered feedstocks should not exceed: as against coals, $22/tonne (green) as against crude oils, $33/tonne (green). Whilst whole lignocellulosics, even though supplied at marginal cost, are usually not so, the lignin co-product of their conversion would likely be cost-competitive with coals as an alternative solid fuel. By the same token, disposing of lignin into the solid fuel sector reduces the effective cost of the cellulosic component of lignocellulosic feedstocks. That reduction facilitates ethanol production at a cost likely to be competitive in the liquid fuel sector. These outcomes arise as comparative advantages not enjoyed by either the application of whole lignocellulosics as alternative solid fuels or by the conversion of whole lignocellulosics entirely to a form of alternative liquid fuel. In converting lignocellulosics to ethanol and lignin co-products, the initial process is a deconstruction of feedstocks to their cellulosic sugars and lignin components. The subsequent disposal of the lignin to the solid fuel sector at a price competitive with coals results in the remaining sugars bearing four-fifths of the feedstock cost whilst comprising only two-thirds of the material. Nevertheless, at that stage, the conversion is itself partially complete. Consequently, as raw fuel, the separated sugars are enhanced in value relative to the original parity of unconverted lignocellulosics at $50/tonne (dry) with crude oils at $18/barrel. This scenario of cost dispersion amongst the deconstructed components of whole lignocellulosics is summarised as followsA. Energy cost parities - whole lignocellulosics as raw fuels: solid fuels sector (coals) - $34/tonne (dry) liquid fuels sector (oils) - $50/tonne(dry) For materials comprised of cellulosic sugars (as to 2/3) and lignin (1/3) an overall cost of $50/tonne (dry) imputes to their respective components a cost of: lignin @ $34/tonne (dry) (1/3 x $34 = $11) sugars @ $58/tonne (dry) (2/3 x $58 = $39) Although imputing a cost of $58/tonne for those sugars might appear to infer a raw fuel cost greater than that of the crude oil equivalent ($50), parity is, in fact, maintained. Given an ethanol mass yield of 42% sugars, a sugars cost of $58/tonne implies a base cost for ethanol of $138/tonne ($0.11/litre). This base cost compares with that of crude oils at $0.11/litre ($18/ barrel).

Having regard to the price of the energy content of raw hydrocarbon fuels, lignocellulosics appear to satisfy the first parameter of economic viability as a source of liquid fuel. Also apparent is that only the lignin component is likely to be priced consistent with the cost of coals.
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The prospect of applying lignocellulosics to the supply of liquid fuels remains, however, dependent upon the necessary radical conversion being itself cost-effective. In converting lignocellulosics to a liquid fuel, the choices are: methanol a thermochemical process which converts all of the feedstock components but with a greater energy consumption, and ethanol a biochemical process which converts only the feedstock sugars components but with a lesser energy consumption. Considering only methanol as against ethanol, the limiting conversion rates of the respective thermochemical and biochemical processes are essentially similar, at around 50 percent energy efficiency. However, a distinction favouring ethanol is the co-production of lignin. Applying the energy of the lignin co-product to the conversion of lignocellulosics, ethanol production results in a nett energy yield exceeding that from methanol. Whilst the processes of conversion to methanol or to ethanol and lignin are radical, so is the refining process converting crude oils to liquid fuels and co-products. The conversion cost of crude oil refined to liquid fuels appears in energy terms to range between 130-160% of the cost of raw fuel feedstock (Section 2.6). In comparable terms, and for advanced technologies in each case, anticipated conversion costs are in the order of 225% for methanol and 160% for ethanol. For currently commercial processes the cost of conversion, again relative to the cost of raw fuel, is 460% for methanol and 485% for ethanol. By comparison with conversions to methanol, there is a greater likelihood of converting lignocellulosics to ethanol and lignin at a cost similar to that of refining crude oil to liquid fuels and related co-products (eg. bitumen). Accordingly, the second of the two parameters defining the economic viability of alternative fuels would appear best met by pursuing the ethanol and lignin co-product avenue for applying lignocellulosics to fuel supply. Further grounds warranting a pursuit of the ethanol conversion route for utilising surplus lignocellulosics include: only by their conversion to ethanol and lignin co-products does the deconstruction of lignocellulosics to their constituent sugars and lignin acquire for the surplus an opportunity for its utilisation as food and fibre in addition to admitting of its use as fuel. in separating the constituents preparatory to sugars fermentation, at least the lignin is rendered amenable to accepting that lower price which, dictated by coals, is otherwise insufficient to effect the supply of whole lignocellulosics as only a solid fuel. The application of surplus lignocellulosics as an alternative source of fuels would substantially benefit the regions producing those materials. Providing that a conversion is cost-effective within the parameters imposed by the dominant hydrocarbon fuels, its commercial development will, nevertheless, depend upon there being advantages to the demand sector of the fuel economy. It is appropriate to acknowledge that, with respect to currently commercial processes, those for the conversion of lignocellulosics to methanol are the more cost-effective. As an alternative liquid fuel, methanol exhibits many of the properties ascribed to ethanol for the enhancement of supply but, in all such instances, methanol is inferior. Consequently, despite the commercial advantage currently enjoyed by methanol conversion processes, the vast majority of effort, directed to achieving the cost-effective application of lignocellulosics as a source of liquid fuels, is in respect of ethanol.

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This review, in the context of fuel demand, of the feasibility of commercialising a cost-effective conversion of lignocellulosics proceeds on the basis of the conversion being that to ethanol and lignin co-products. It is unlikely that, in energy terms, the cost of ethanol and lignin co-products can be reduced to less than that of the respective dominant hydrocarbon fuels to which they are proposed as alternatives. Alternative sources of fuel supply must, therefore, rely upon the provision of benefits other than those of energy cost in order to offer commercial advantages in respect of fuel demand. The following review is directed to a consideration of those other benefits which ethanol and lignin, as alternative components of fuel supply, may confer upon the demand sector of the fuel economy. 4.2 Issues Confronting Fuel Demand

Apart from that of the energy-related prices of various components of fuel supply, the issues confronting the demand sector of the fuel economy are: the sufficiency of quantities of supply, the quality of supplies, and the environmental consequences of consumption. In considering other sources of fuel supply as a means of addressing these issues it is necessary to distinguish that element of the demand sector consuming solid fuels from the other, consuming liquid fuels. Of the three issues identified, all are confronted by the liquid fuels sector. The solid fuels sector is confronted only with the last of those three the environmental consequences of consumption. As an avenue of alternative fuel supply, the conversion of lignocellulosics to ethanol and lignin co-products applies to both the solid and the liquid fuels sectors. Each of the issues confronting those sectors is addressed by the prospective supply of ethanol and lignin. Since the liquid fuel sector is confronted with all three of the identified issues, it stands to benefit more than the solid fuel sector of demand. 4.3 The Liquid Fuel Demand Sector

With respect to those issues confronting liquid fuel demand in Australia, the prospective role of ethanol is multilateral, variously addressing resource extension, refinery balance, engine emissions and Greenhouse targets. The majority of liquid fuel demand is that of transport fuel. The two factors of importance to the issue of a sufficiency of quantities of crude oil-sourced fuel supply are: Australian crude oil resources, and Refinery balance.
4.3.1 Australian Crude Oil Resources

Self-sufficiency is presently in the order of 80% but is forecast to be less than 50% of demand within 6 years (i.e. by 2000). Such a decline is forecast on a "most likely" basis. The present shortfall of 20% in self-sufficiency costs the Australian economy some $1,500 million annually by way of imported requirements. The further decline in self-sufficiency is forecast to result, in 1998-99, in net imports costing $3,000 million at current values.

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4.3.2

Refinery Balance

Crucial to the economics of the oil industry is the cost-effective matching of demand for the range of refined product with the refinery output of that range. That objective is achieved principally by the selection of crude oil feedstocks, together with the technical processes of refining that crude into the range of its components. As a means of matching demand with product supply, the effect upon that demand of relative product pricing runs a distant second. In Australia over the past twenty years there has been, relative to that for gasolines, a substantial increase in the demand for diesel (ADO) and turbine (AVTUR) fuels. That relative increase has created difficulties for the maintenance of refinery balance. So far as it has already occurred, those difficulties have been met by an enhancement of refining techniques but further such relative increases are expected. Demand for ADO is currently in the order of 60% of that for gasoline but is forecast to be 75% by 2005. Indicative of the rate of that change in relative demand, the position 20 years ago was that the then demand for ADO was some 40% of that for gasoline. In general, the reason for the relative increases (both actual and prospective) in demand for ADO and AVTUR (middle-distillates) is two-fold. On the one hand, Diesel-cycle engines and turbine engines are more fuel-efficient and so are preferred by industry. As the economy grows so does the demand for middle-distillates to fuel the engines of industry. At the same time as the stock of industrial engines increases there is also less scope for improving the fuel-efficiency of those already efficient engines. On the other hand, Otto-cycle (spark ignition) gasolinefuelled engines, having been comparatively inefficient, in recent years have proved amenable to substantial improvements in their fuel-efficiency. More than that, however, gasoline-fuelled engines, due to their greater flexibility of power-output, have been and remain the preferred means of powering personal transport. The vehicles of personal transport are also inefficient relative to payload. The improved payload efficiency of modern lighter vehicles, coupled with the improvements to engine fuel-efficiency, has resulted in an overall improvement in gasoline consumption efficiency far exceeding that effected in relation to middle-distillates. Refineries have so far accommodated the increased relative demand for middle-distillate output, both by tailoring feedstocks and by the use of improved cracking technologies to widen the middle-distillate cut (yield) from the refinery barrel (crude oil feedstock). Further technical enhancement will be required to meet the relative demand forecast for middle-distillates. Some of those technologies (e.g. hydrocracking) are very expensive and their use may result in an increased cost of refinery product. Without such enhancements a further increased output of middle-distillates may yield fuels of lesser quality. A lesser quality fuel would itself result in both a reduced consumption efficiency and, relative to the volume of fuel consumed, greater pollution by way of engine emissions. The extent to which producers can meet the burgeoning pressures on refinery balance will depend upon one or more of the three fuel demand factors quantity, quality and cost. 4.4 A Perspective on the Demand for Liquid Fuels

Of the two elements - crude oil resources and refinery balance - the greater constraint upon liquid fuel supplies is imposed by refinery balance. The expected decline in Australia's selfsufficiency of crude oil may be addressed by greater importation. Other than by importation, the additional supply of liquid fuels may be achieved by: the utilisation of alternative liquid fuels, and the substitution of liquid fuels with solid and gaseous fuels.
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Having regard to the difficulty already posed for refinery balance by the prospect of further relative increases in the demand for middle-distillate fuels, the key issue is the extent to which those additional liquid fuel supplies can assist in meeting that demand. The overwhelming majority (90+%) of liquid fuel is consumed by mobile installations. Their mobility is made possible by those installations carrying their own fuel requirements. Of significance to mobile installations are the requirement for traffic route flexibility and the matter of vehicle payload capacity. The nature and availability of fuel supply is of importance to both those issues. With respect to stationary installations accounting for the minority of liquid fuel demand, maintenance of that demand is largely assured in consequence of fuel availability in remote locations. Excepting cases of units in remote locations, the majority of stationary installations now utilise solid or gaseous fuels. That has occurred by their being re-engineered to consume electricity or for the direct combustion of reticulated gas. As distinct from alternative liquid fuels, the extension of liquid fuel supplies by substituting gaseous or solid fuels is subject to some practical limitations. Only on a post-combustion basis are both gaseous and solid fuels fully interchangeable with liquid fuels. Most demand for liquid fuels is, with respect to consumption, on a pre-combustion basis. The mobile installations accounting for that demand employ internal combustion engines. For those engines, solid fuel is not an option. For mobile installations, it is nowadays only the electric motor which can be considered a costeffective external combustion engine by which means solid fuels can economically be substituted for liquid fuels. That being so, the use of solid fuels by mobile installations can occur only by their being re-engineered to employ electric motors. The electrification of mobile installations is most practicable with respect to railways whereby the limited requirement for traffic route flexibility can accommodate the necessary reticulation of electricity. Presently, heavy duty railway engines account for only 2% of the demand for liquid fuels. Being 600 megalitres of diesel fuel, that demand is of greater significance to refinery balance. Subject to economic constraints, that demand could perhaps be reduced by half through extensions of the electrified network. Beyond that reduction, any other substitution of liquid fuels by electricity will most likely reduce gasoline consumption with negative results for refinery balance. Unlike solid fuels, gaseous fuels are suitable for internal combustion engines. To the extent that mobile installations remain dependent upon internal combustion engines, gaseous fuels could effect a substantial extension of liquid fuel supplies. However, unlike alternative liquid fuels, gaseous fuels are not wholly interchangeable with conventional liquid fuels. As with solid fuels, that lack of interchangeability is also of greater significance to the refinery balance factor of liquid fuel supplies. The gaseous fuels offering the prospect of a degree of liquid fuel substitution are liquefied petroleum gas (LPG) and the so-called Natural Gas. Natural Gas is largely methane and is most commonly a fossil fuel yielded in conjunction with crude oil. As a fuel for mobile installations, Natural Gas is usually compressed and supplied as CNG. In response to limitations upon the commercial utility of CNG for mobile installations, Natural Gas may instead be liquefied and supplied as LNG. With respect to mobile installations employing internal combustion engines, the degree to which gaseous fuels are not wholly interchangeable with liquid fuels is reflected in each of the following areas:
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fuel distribution and availability, payload capacity, operating range, and engine efficiency.

Given the immediacy of both a decline in crude oil self-sufficiency and of emerging problems for refinery balance, these issues are of great importance to any consideration of other sources from which the demand for liquid fuels may be satisfied. The near-term outlook for refinery balance indicates that it is the middle-distillate fuels, ADO and AVTUR, which will be most limited as to supply. These fuels are of the greatest economic importance. The mobile installations depending on middle-distillates are also the most sensitive to the commercial implications of limitations to the interchangeability of gaseous and liquid fuels. Of the classes of liquid fuels currently consumed by mobile installations, middledistillates are least amenable to substitution by gaseous fuels. The outlook for refinery balance in terms of liquid fuel demand by mobile installations is summarised as follows A1.Demand (ML) Gasoline - leaded Gasoline - unleaded TOTAL GASOLINE 1991/92 10,574 6,459 17,033 2004/05 1,965 17,191 19,156

A2. Demand (ML) Middle-Distillates -AVTUR - ADO TOTAL TOTAL A1 AND A2

1991/92 3,430 9,628 13,058 30,091

2004/05 6,357 13,854 20,211 39,367

B Measures of relative demand relevant to refinery balanceProportionate Demand "Middle-distillates" : Gasoline ADO : Gasoline 1992/3 77:100 57:100 2004/05 105:100 72:100

The engines employed by mobile installations and fuelled by middle-distillates are: AVTUR Turbines, and ADO - compression ignition, reciprocating. In both cases the majority of these engines power heavy duty vehicles and are preferred for their greater fuel-efficiency under constant load. By comparison, mobile installations having a relatively greater requirement for engines of light weight and flexible power output prefer the use of spark ignition engines, fuelled by gasoline. The reliance upon ADO-fuelled engines is greatest with respect to the surface heavy transport sector and other heavy duty mobile installations. The employment of turbines in mobile installations is limited to the air transport sector. Gasoline-fuelled engines predominate in the
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light transport sector, both passenger vehicles and light commercial. There is, however, a substantial use of ADO-fuelled engines in light commercial vehicles. Whether the demand for liquid fuels sourced from crude oils may be facilitated by the supply of gaseous fuels utilised as substitutes will depend, as with alternative liquid fuels, upon their costeffective availability to consumers. Given the economic inertia of the existing consumption infrastructure, such enhancements of supply cannot occur without having regard to the dictates of the present liquid fuel economy. Those dictates relate to the compatibility and interchangeability of fuels. Subject to those considerations, an extension of liquid fuel supplies may occur either by their blending with alternatives or by switching demand from liquid fuel to a substitute. In the near to medium-term, the economic life of the existing stock of engines, coupled with the majority of liquid fuel supply continuing to be the conventional refinery products, will tend to favour the prospect of supply being extended by a fuel suiting conventionally-fuelled mobile installations. The prospective alternative liquid fuels the alcohols when blended with the respective petroleum liquid fuels, are suitable for use in all of the conventional engine types. Even if liquefied, the blending of gaseous fuels with liquid fuels is not an option. Not only is that blending not an option for gaseous fuels but they are not universally suitable for the various engines types. Both L.P.G. and Natural Gas are suitable for use in spark-ignition engines but are quite unsuited to use by compression ignition engines. Natural Gas is best suited to high compression engines and as a turbine fuel. LPG is unsuited to either. Within the next 10 years the pressure of increased fuel demand will be greatest with respect to engines conventionally fuelled by middle-distillates. The demand for AVTUR is forecast to increase by nearly 50% but there is little prospect of either alternative or substitute fuels being utilised by the air transport sector as turbine fuel. That being so, the extent to which the maintenance of refinery balance may be facilitated by either alternative fuels or substitute fuels is limited to their effect upon the demand for ADO. Given that there is no prospect within the medium term of a reduction in the forecast consumption of conventional turbine fuel, the maintaining of the current refinery balance effective for the year 2004/05 would require, for that year alone, an extension of ADO by 5700 ML to meet the forecast demand for diesel fuel. Whether the scale of that extension equivalent to some 60% of current demand is either possible or desirable, will be determined having regard to the quality of liquid fuel supplies. 4.5 The Quality of Liquid Fuel Supplies

In reviewing the sufficiency of quantities of liquid fuel supplies it was noted that the majority is consumed by mobile installations employing internal combustion engines. Other than by the adoption of electric motors, the substitution of liquid fuel supplies by solid fuels is not an option. To the extent that mobile installations continue to rely upon internal combustion engines, the two courses remaining open for an extension of liquid fuel supplies are: alternative liquid fuels - the alcohols substitution by gaseous fuels - LPG and Natural Gas. The two factors of significance to a sufficiency of liquid fuel supplies are crude oil resources and refinery balance. Other than a sufficiency of supply, the demand for liquid fuels depends upon the quality of supply.

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The factors determining the quality of liquid fuels may be economic or technical in character. In many cases the determinants share both characteristics. An indicative listing of quality determinants is set out below and ranked as to their importance as issues. Those both economic and technical in character are highlighted by an asterisk. First Order Crude Oil Resources* Processing cost/refinery balance* Sovereign security Consumption quality* Infrastructure compatibility* Alternative or substitute resources* Economic impacts Environmental impacts

Second Order Third Order

Other than the grouped ranking, the above alphabetical listing infers no significance as to relative importance. It is proposed that only those above issues sharing economic and technical characteristics be reviewed.
4.5.1 Crude Oil Resources

The nature of crude oil resources is very far from homogenous. They are most commonly classified as either "light" or "heavy" crudes. Although of technical relevance, variations in their respective availability will be of greater significance to the economics of fuel supplies. It is anticipated that future supplies of indigenous oil will be greater in their proportion of heavy crudes. Their differing value as feedstocks for conversion to liquid fuels may be judged by the terms "Sweet" and "Sour" applied by oil refiners to light and heavy crudes respectively. Employing conventional refining technologies, the heavy crudes yield lesser amounts of the important liquid fuels middle- and higher-distillates. As such, the value of refinery output is less for a given volume of feedstock input. Nevertheless the distribution of that lesser output is favourable with respect to the yield of middle-distillate fuels. The future employment of enhanced refining techniques may further increase that favourable yield distribution. In doing so, the cost of those advanced technologies will to some extent be recovered by virtue of an increase in the total value of refinery product. Such will tend to offset the conventionally lesser value of heavy crude as feedstock. The greater significance of the economic characteristic of crude oil supplies is two-fold. The expected decline from 80% to 50% in self-sufficiency has important implications for Australia's balance of trade but, otherwise, availability in the short- to medium-term is not expected to limit supplies. The range of that availability as between "light" and "heavy" crudes will also be a factor in cost of refinery production and, hence, in the quality of liquid fuel supplies. Nevertheless, such variations in feedstock supply are principally economic in character. Distinctions in their technical quality will remain amenable to remediation by the tailoring of inputs subject to their respective cost.
4.5.2 Processing Cost / Refinery Balance

With respect to the quality of liquid fuels supply, the issue of feedstock processing cost is of greater importance -- both economically and technically -- than that of crude oil resources. That is especially the case in the short- to medium-term, within which time-frame the fuel consumption infrastructure is most economically resistant to the proposition that demand may be adjusted to supply. Given that economic inertia, it is thus the technical characteristic of the
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processing cost issue which predominates. The economic characteristic is least subservient in the context of refinery balance. It is in the area of refinery balance that both the economic and technical characteristics of processing cost are concentrated. Further to the preceding review of refinery balance in terms of a sufficient quantity of liquid fuel supplies, this review of the quality of supplies and of the influence of processing cost upon that quality proceeds on the basis that the maintenance of refinery balance is predicated upon the economic inertia of the fuel consumption infrastructure. As previously noted, the maintenance of refinery balance may be facilitated by the utilisation of either alternative liquid fuels or gaseous fuels. Despite the maintenance of refinery balance being, in the short- to medium-term, predicated upon the fuel consumption infrastructure, the latter is a second-order issue. This apparent inconsistency is overcome by proposing that the maintenance of refinery balance should, in the first instance, be achieved through the optimal utilisation of crude oil resources. Since it is the gaseous fuels which are sourced from crude oil resources, that proposition may be interpreted to infer that the utilisation of gaseous fuels should be preferred to the extent that their use, as substitutes for liquid fuels, facilitates refinery balance.
4.5.3 Infrastructure Compatibility

The status of refinery balance is determined by the extent of demand for each of the components of refinery output. The demand for the range of refinery products is determined by the requirements of the fuel consumption infrastructure. In the preceding review of liquid fuel demand those requirements were identified as relating to: fuel distribution and availability, payload capacity, operating range, and engine efficiency. The quality of liquid fuel supplies is, with respect to the second-order issues of infrastructure compatibility and consumption quality, determined by the extent to which those requirements are met. Consequently, in facilitating the maintenance of refinery balance whilst meeting those requirements, the proposed substitution by gaseous fuels must itself be consistent with the meeting of those requirements. The economic inertia of the liquid fuel consumption infrastructure can most readily be appreciated by reference to both the investment in facilities for fuel distribution and to the current stock of engines. In the case of fuel distribution, the remaining economic life of facilities is valued at in excess of $6 billion. The value of the existing engine stock is unknown but the remaining economic life of gasoline engines would average not less than 8 years and, in the case of diesel and turbine engines, not less than 15 years. In this context it is clear that, given the capital committed to the existing infrastructure, the quality of fuel supplies must remain consistent with that infrastructure over the medium term. Other than that capital commitment, the operating costs of that infrastructure over the medium term are also economically inflexible. For mobile installations, the requirements of payload capacity and operating range are important elements of the cost of their operation. The gross operating size of vehicles is limited by practical and environmental constraints. Within those constraints, the on-vehicle fuel storage requirements as to both weight and volume is an important determinant of both payload and operating range. With respect to the operational
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economic framework of mobile installations, fuel quality is measurable by reference to its impact upon both operating range and payload capacity. Whilst operating range and payload capacity are subject to the vehicle's fuel storage requirement, that requirement for storage is itself determined by engine efficiency. The efficiency of energy conversion determines the rate of fuel consumption so that the fuel storage requirement is a function of the required operating range relative to the rate of fuel consumption. Other than the rate of fuel consumption, engine efficiency will be affected by fuel quality in terms of its effect upon engine wear and, hence, operational life. The emission of combustion pollutants has also emerged as an important consideration with respect to engine efficiency. Such emissions are very much subject to fuel quality.
4.5.4 Consumption Quality

The separate issue of consumption quality is distinguished from that of infrastructure compatibility despite the inclusion of engine efficiency as an element of the latter. The distinction arises by virtue of consumption quality being an issue which is predominantly technical in character whereas that of infrastructure compatibility is more greatly economic. The consumption quality of a fuel is maximised to the extent that the engine is designed for that fuel. For the existing infrastructure, the consumption quality of fuel supplies will be maximal to the extent that it suits the current stock of engines. Having regard to the outlook for fuel supplies in terms of quantity and, more particularly, in terms of refinery balance, it is apparent that infrastructure compatibility and consumption quality will each be matters for compromise. To the extent that such compromisation is minimised, the quality of fuel supplies will be enhanced. Subject to its effect upon the rate of engine wear being economically acceptable, the consumption quality of a fuel is determined with respect to engine efficiency and the emission of combustion pollutants. Increasing the efficiency of energy conversion is not always accompanied by a reduction in polluting emissions. In the case of the stable fuels the middleand lower-distillates and the solid fuels increased engine efficiency is paralleled by a reduction in emissions. By comparison, the more volatile fuels the higher distillate liquids (e.g. gasoline) and the gaseous fuels produce with increased engine efficiency an also increased emission of pollutants. Indeed, the extent of that countervailence increases with increased fuel volatility. Over the medium-term, say out to 2025, the fuel requirement for mobile installations will largely continue as being that for internal combustion engines. There will, however, be incremental changes to the existing consumption infrastructure as the current stock of engines is replaced. Those changes will be greatest with respect to the fleet of light duty vehicles. Except for those changes, the consumption quality of fuel supplies will remain predicated upon the requirements of the existing engine stock. ugh the design specifications of the existing stock are largely fixed, there are two avenues whereby the consumption quality of fuels may be enhanced: alterations to fuel specifications, and alterations to engine design by retro-fitting. The alteration of fuel specifications with the intent of maintaining or enhancing the consumption quality of liquid fuels will be restricted to the refinery processing function, including the incorporation of alternative liquid fuels with refinery output. Such altered fuel specifications may achieve improvements to either or both engine efficiency and emissions.
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Retrofitted alterations to engine design for the sake of consumption quality will most likely be undertaken for the purpose of emissions only.
4.5.5 Alternative or Substitute Resources

With respect to the quality of liquid fuel supplies the matter of alternative or substitute resources is ranked as a third-order issue. Their utility is, in the first instance, subject to its effect on refinery balance and, in the second instance, is dependent upon their infrastructure compatibility allied with their consumption quality. Their prospective value to the maintenance or enhancement of the quality of liquid fuel supplies is most readily appreciated in the context of infrastructure compatibility but, in the final analysis, that value will to the greater extent be determined by their effect upon refinery balance. In the preceding review of a sufficiency of the quantity of liquid fuel supplies the issue of refinery balance clearly emerged as the more pressing consideration due to the burgeoning demand for middle-distillate fuels. Any problems which may arise in relation to refinery balance will be solved only by addressing the demand for middle-distillates. In proposing that the maintenance of refinery balance should, in the first instance, be achieved through the optimal utilisation of crude oil resources, the focus is initially turned to the gaseous fuels as prospective substitutes for liquid fuel supplies.
4.5.5.1 Substitute Gaseous Fuels

The gaseous fuels, LPG and Natural Gas, are valuable sources of energy. In pursuit of the optimal utilisation of the crude oil resources from which they are derived, both the technical and the economic characteristics of those gaseous fuels are at odds with the maintenance of refinery balance in terms of the existing stock of engines. As substitutes for liquid fuel supplies the gaseous fuels are revealed as being essentially incompatible with the liquid fuel demand infrastructure. For mobile installations over the medium term the utilisation of gaseous fuels will be of maximal value when applied to the incremental changes arising from the replacement of existing stocks. The maintenance of refinery balance requires that the supply of middle-distillate fuels be extended or that the demand for middle-distillates be constrained. Even when liquefied, gaseous fuels cannot be blended with liquid fuels. Their extension of liquid fuel supplies is therefore impossible. It is only by their employment as substitutes, thus effecting a constraint upon the demand for liquid fuels, that gaseous fuels can contribute to the enhancement of liquid fuel supplies. The technical characteristics of gaseous fuels are quite different from those of the conventional liquid fuels. Those differences are most apparent with respect to fuel reticulation and storage. For mobile installations, considerations of fuel reticulation and storage are of great significance to both payload capacity and operating range. With respect to engine efficiency, in those engines designed for the conventional liquid fuels, the use of gaseous fuels is wasteful of their inherent energy. Maximisation of engine efficiency requires that maximum engine compressions be employed. Both LPG and Natural Gas will tolerate engine compressions greater than those acceptable for gasolines. In the case of Natural Gas, its tolerance of compression approaches that of a diesel engine but the ignition requirements of Natural Gas are similar to that of gasoline and quite different to those of diesel fuel. A maximisation of the value of gaseous fuels as substitutes for liquid fuel supplies requires that those gaseous fuels be consumed by engines dedicated to their use. Engines designed for liquid fuels may be engineered to accept gas or liquid fuel separately by a replication of the fuel
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delivery system coupled with a switch-over system. Such dual-fuelling inevitably results in an inefficient use of the gaseous fuel. The economic characteristic of that inefficiency is often masked by concessional pricing of the gaseous fuel but no such masking can disguise the incompatibility of gaseous fuels with respect to their effect upon vehicle storage requirements and operating range. That is especially the case with respect to the heavy duty sector of mobile installations, which sector is most dependant upon the supply of middle-distillates.
4.5.5.2 Alternative Liquid Fuels

As between the alternative or substitute resources, the alternative liquid fuels are more compatible with the existing consumption infrastructure. Whilst, as neat fuels, the alternative liquids are also best used in dedicated engines, their great advantage is that, as liquids, they may be blended with the conventional liquid fuels. This advantage applies to both the economic and the technical elements of the quality of liquid fuel supplies. The maintenance of refinery balance being most sensitive to the demand for middle-distillates, the capacity for the alternative liquid fuels to be incorporated with conventional fuel supplies provides the means by which those supplies may be extended. Having regard to the inertia of the consumption infrastructure, the extension of liquid fuel supplies is much to be preferred over that of a substitution of demand. Subject to the degree of incorporation, the extension which may be afforded by alternative liquid fuels is amenable to consumption by all the types of engines comprising the existing stock. Accordingly, the prospective extension of supplies may be focussed upon that sector of fuel demand which from time to time is most greatly constrained by either crude oil supplies or the maintenance of refinery balance. With respect to the quality of liquid fuel supplies, the issue of consumption quality is increasingly being considered in terms of engine emissions. Apart from the global concerns surrounding atmospheric carbon dioxide generated from fossil fuels, the more popularly immediate concern is with respect to urban air quality and the emissions of nitrogenous pollutants in particular. The combustion efficiency of fuel depends upon a sufficient oxygen supply and the thermodynamic efficiency of the engine increases with engine compression. The air aspirated by engines to supply the oxygen required for combustion is comprised of some 78% nitrogen and only some 20% oxygen. Whilst increasing the intake of air improves the engine's supply of oxygen and increases combustion efficiency, the result is a parallel increase in the emission of nitrogenous pollutants. That result would be avoided by supplying the additional oxygen as a component of the liquid fuel. Unlike hydrocarbons, the alcohols are oxygenated. As alternative sources of supply, the alcohols are uniquely capable of enhancing the consumption quality of liquid fuels by virtue of their supplementing the oxygen required for combustion. Being hydrocarbons, the gaseous fuels irrespective of their derivation are devoid of oxygen and quite incapable of effecting any reduction in the engine's requirement for air. Of the alcohols, ethanol has a higher energy density and is both less corrosive and less toxic than methanol. On those grounds ethanol is technically more compatible with the existing consumption infrastructure and exhibits a higher consumption quality. The extent of ethanol's technical advantage is measurable by reference to the use of the respective alcohols as blends with diesel fuel. Without volumetric consumption penalty or the need for engine modifications, ethanol may be blended at up to 15% by volume whereas methanol blends cannot exceed 10% in achieving a similar utility. Despite its technical disadvantages, methanol presently enjoys a cost advantage which grants it a greater economic compatibility with the existing infrastructure. That advantage applies only
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to the methanol produced from Natural Gas but is inapplicable to methanol sourced from biomass. Only when sourced from biomass do the environmental advantages of methanol approximate those of ethanol. Nevertheless, having regard to the exigencies of liquid fuel supplies in terms of both quantity and quality methanol sourced from Natural Gas offers advantages greater than those available from the direct employment of Natural Gas as a substitute for liquid fuel supplies. 4.6 Conclusions re Liquid Fuels

This review of the liquid fuel sector concludes with the following summary of preceding observations. The maintenance of refinery balance is the imperative for both the quantity and quality of liquid fuel supplies; As a measure of the scope for enhancing liquid fuel supplies as to quantity, the maintenance of refinery balance at current levels relative to middle-distillate demand would require an extension of ADO supplies in the order of 5700 megalitres for the year 2004/05; Subject to considerations of fuel quality, enhancing liquid fuel supplies as to quantity is achievable through the utilisation of both alternative liquid fuels and substitutes for liquid fuels; As substitutes for liquid fuels, only gaseous fuels can be applied to internal combustion engines; In terms of fuel quality and the existing consumption infrastructure, alternative liquid fuels are to be preferred over the substitution of gaseous fuels; Of the alcohols ethanol is technically superior to methanol as an alternative liquid fuel. The capacity clearly exists for the liquid fuel sector to absorb, to the advantage of both the quantity and quality of fuel supplies, quantities of ethanol sufficient for its commercially viable production. 4.7 The Role of Ethanol for Ethanol-from-Lignocellulosics

As components of fuel supplies the use of ethanol and lignin co-products is of relevance to both the solid and the liquid fuel sectors. Nevertheless, over the medium term, both sectors will continue to rely upon the conventional sources of fuel coals and crude oils respectively. The issues presently confronting fuel demand are, variously, a sufficiency of quantities of supply, the quality of that supply and the environmental consequences of consumption. All three are issues of substance for the liquid fuel sector. For the solid fuel sector, the environmental consequences of consumption is the only substantial issue. The preceding review of the liquid fuel sector largely confined itself to the supply issues, quantity and quality, and did not dwell upon the environmental consequences of consumption. For both the solid and the liquid fuel sectors the environmental consequences of consumption are essentially similar. The majority of those consequences arise at the point of fuel combustion. As between the two sectors, that issue is most greatly distinguished with regard to urban air quality. In an urban context, the majority of combustion arises from liquid fuels. Any contribution by surplus biomass to the supply of fuel effects a reduction in the consumption of fossil-sourced fuels and so achieves a degree of resource conservation together with a net reduction in Greenhouse emissions. Lignocellulosics comprise the great majority of surplus biomass. By comparison with surplus sugars and starches, it is only surplus lignocellulosics which are available in quantities sufficient to make a substantial contribution to
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the supply of fuel. Their conversion to ethanol addresses each of the three issues of liquid fuel demand, including the special element of urban air quality. The co-production of lignin in large volumes addresses that issue confronting the solid fuel demand sector. The cost structure of the liquid fuels sector, when compared with that of the solid fuels sector, favours the direction of lignocellulosics to the supply of liquid fuels. The status of liquid fuels supply over the medium term equally favours that proposition. The conversion of lignocellulosics to methanol would address each of the issues confronting liquid fuels demand but carries with it no co-product relevant to the solid fuel sector. In terms of the quality of liquid fuel supplies, ethanol is to be preferred over methanol all else being equal. The liquid fuels sector has been reviewed in terms of the quantity and quality of supplies. This further review considers the means by which ethanol and lignin, respectively, may be incorporated with fuel supplies. Factors of importance to that consideration are the effect of the method of incorporation upon the environmental consequences of fuels consumption the circumstances under which the alternative sources of fuel supply are made available. In the conversion of lignocellulosics to ethanol and lignin it is the production of ethanol which is the predominant purpose. Accordingly, the incorporation of lignin with solid fuel supply is predicated upon the incorporation of ethanol with liquid fuel supplies. The circumstances of ethanol production influence the means whereby it may be incorporated with liquid fuel supplies.
4.7.1 Ethanol as a Liquid Fuel

The anticipated maintained reliance upon crude oil resources for the satisfaction of liquid fuels demand clearly suggests that the utility of alcohols as an alternative source of supply will be maximised by their incorporation with supply as blends. As a fuel, ethanol has the advantage of an energy density 48% greater than methanol (23.4 and 15.8 MJ/litre respectively). By comparison the energy densities of automotive gasolines and automotive diesel fuels are, respectively, 34.2 and 38.6 MJ/litre. Thus it might be expected that the utilisation of alcohols within liquid fuel supplies would incur the cost of a volumetric consumption penalty albeit a substantially lesser penalty in the case of ethanol. In fact, no volumetric consumption penalty is incurred when alcohols are used in low level blends. As has been demonstrated with the emulsions Diesohol M10 and Diesohol E15, the alcohol improved the combustion characteristics sufficient to overcome the reduced energy density of the blend. As the proportion of alcohol increases, the relatively greater energy density of ethanol serves to emphasise its advantage as a fuel. In any event, the greater toxicity and corrosivity of methanol remain as its disadvantages.
4.7.1.1 The Circumstances of Supply

In Australia, the siting of lignocellulosic-based ethanol plants is likely to be distant from the majority of liquid fuels demand. The fuel distribution infrastructure would, nevertheless, link the two and so offer the prospect of backloading ethanol as far as a crude oil refinery. In some circumstances, that backloading capacity may be inadequate. Any inadequacy would be greatest at the ethanol production end of the distribution chain but it would be minimised by siting the ethanol plant as nearly as possible to a regional fuel depot. The volumetric percentage of ethanol incorporated with liquid fuel supplies would be similar to the volumetric proportion of refinery output delivered to regional fuel depots. Accordingly, the
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backloading capacity between regional depots and a refinery would probably be adequate. That adequacy would apply whatever the means employed to incorporate ethanol with fuel supplies, including those consumed in urban areas. Any necessity for backloading as far as a refinery will depend upon the method employed for ethanol's incorporation with liquid fuel supplies. The availability of methods varies in accordance with the differing natures of the ethanols which may be produced. Broadly, the difference is as between hydrated and anhydrous ethanol. The former, containing some 5% water, is less costly to produce but anhydrous ethanol is more simply blended with gasolines.
4.7.1.2 Methods of Incorporation

In the context of the quantity and quality of liquid fuel supplies, the issue of refinery balance must be of prime consideration but, with respect to the environmental consequences of consumption, urban air quality may be considered as pre-eminent. There is the potential for some conflict as between refinery balance and urban air quality. Even when limiting consideration to the matter of urban air quality, the incorporation of ethanol with fuel supplies by an inappropriate means can result in counter-productive effects. The applicability of the various methods depends upon whether the ethanol is hydrated or anhydrous. Although anhydrous ethanol is simply blended with gasolines it is both more expensive to produce and it suffers from a greater tendency to hygroscopy. The blending of anhydrous ethanol also carries, of the various methods, the greatest risk of an increased rate of evaporative emissions. In those circumstances the benefits arising with respect to engine emissions in consequence of fuel-oxygenation can be to some degree offset. Nevertheless, until recent years during which other methods of incorporation have been developed, the use of anhydrous ethanol as an extension of gasoline supplies has been the only avenue commercially adopted. It remains the predominant method of incorporation. International experience to date has largely (measured by volume applied) been restricted to the utilisation of anhydrous ethanol blended with gasoline fuel. In the USA some 10% of all gasoline-based consumption comprises gasohol, i.e. gasoline/ethanol blends of 10% anhydrous ethanol splash blended with refinery output. The availability of such gasohols is generally restricted to the mid-western States where the ethanol is produced as a by-product of processing corn grain for food. The volume of anhydrous ethanol production directed to liquid transport fuel in USA is around 5000 million litres annually. Other than its support for the use of anhydrous ethanol splash blended with gasolines, the Clean Fuels program in the USA has vigorously pursued the reformulation of gasolines by the use of ethers as fuel oxygenates and octane enhancers. This course has been adopted in response to the disadvantages arising from the hygroscopy of anhydrous ethanol and its tendency to increase evaporative emissions. A similar reformulation of diesel fuels has also been proposed. Because of an abundance of methanol from petroleum-sourced Natural Gas, reformulation in the USA has largely preferred the methyl ether, MTBE, over the ethanol-derived ETBE. Nevertheless, both ethers have a similar impact upon combustion efficiency and exhaust emissions. From simple splash blending to fuel reformulation describes the range of complexity of methods for incorporating ethanol with liquid fuel supplies. Both those methods require that the ethanol be anhydrous. The reformulation process is complex and, as a method of incorporation, is refinery-based.
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Within the described range of complexity are the methods of -solvency and emulsification. Both are applicable to the cheaper hydrated ethanol. The use, by these methods, of hydrated ethanol is advantageous, not merely with respect to the cost of ethanol production but, more importantly, with respect to its handling. Hydrated ethanol requires a lesser degree of protection from contamination by water than does the hygroscopic anhydrous ethanol. The co-solvency method has focussed upon achieving the blending of hydrated ethanol with gasolines. Solvents such as n-butanol are used but co-solvency has not yet been commercially developed. The cost of solvents has so far proven excessive. The emulsification method has been developed, with a focus upon diesel fuels. Although not the only means by which hydrated ethanol may be incorporated with petroleum fuels, its emulsification with ADO is currently available commercially and has an extensive background of international field-trials. Within the time-frame for a commercialisation of the cost-effective ethanol production, it is expected that the field trials of Diesohol presently underway in Sweden (together with trials proposed in other countries whose engine producers are similarly authoritative) will have achieved for emulsified ADO blends the approval of original equipment manufacturers (OEM's). Whilst focussed to date upon diesel fuels, emulsification is also applicable to gasolines. A gasoline blend emulsifier is in the course of development. Each of the various methods of incorporating ethanol with liquid fuel supplies has technical merits of particular relevance to one or another of the three general issues confronting the demand for liquid fuels. Depending upon the relative importance of each of those issues, the advantage of one method over another can be determined. Having regard to there being two broad classes of liquid fuel demand that for the higher-distillates and the other for the middledistillates it is unlikely that only one of the methods should be promoted to the exclusion of others. Indeed, because of there being those two classes of demand, it is probable that the availability of a range of methods will prove to be an advantage. In determining the net benefits of any method of incorporation, the cost of the agency itself is of great significance. Every proposed method is directed to a low level of incorporation, generally ranging between 5% and 20% ethanol. Assuming that the objective is price parity as between blended and unblended fuel, then it is the ethanol component of the blend which must fully absorb the cost of the blending agent. Although the required quantity of blending agent varies directly in accordance with the proportion of ethanol employed, the sensitivity of the ethanol price is inversely proportional to the level of ethanol incorporated in the blend. The result is that the lower the level of ethanol blend the more sensitive is the price of ethanol to the cost of the blending agent. The lower cost of hydrated ethanol will assist its absorption of the cost of the blending agent. Nevertheless, the cost of blending agents applicable to hydrated ethanol will be an important factor in determining the extent of that relative advantage. Considered independently, the descending order of the two groups of blending cost factors would be as follows: 1.Cost of EtOH Production - Anhydrous* - Hydrated 2. Method of Incorporation - Fuel Reformulation* - Co-solution - Emulsification - Splash blending*

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An amalgamation of these two groups of cost factors could result in a change to the order of blending method costs. However, given the present cost of ethanol, it is likely that the overall cost of each method of incorporation, again ordered highest first, would currently remain as: Fuel reformulation Co-solution Emulsification Splash-blending. Nevertheless, whilst splash blending, despite its requirement for anhydrous ethanol, is currently the least expensive method of ethanol incorporation, it is applicable only to the extension of gasoline supplies. Considering the prime importance of refinery balance to both the quantity and quality of liquid fuel supplies, it may be anticipated that one of the presently more expensive methods will emerge as being more cost effective in addressing the full range of issues confronting liquid fuel demand. That prospect must await the wider commercial availability of ethanol. In the meantime there is no doubt as to there being a sufficient range of available blending methods to permit the utilisation of ethanol as a component of liquid fuel supplies.
4.7.2 Lignin as a Solid Fuel

The utility of the lignin co-product is expected to vary in accordance with the feedstock from which it is derived. The least-value utility of that lignin is considered to be that of a solid fuel. It is envisaged that, as a solid fuel, the lignin co-product would be applied to the co-generation of electricity and steam within the context of an ethanol-from-lignocellulosics conversion plant. In the first instance that energy will be applied to operate the conversion plant but it is expected that the quantity of lignin yielded will, together with solid by-products, exceed the process requirements for steam generating fuel. Otherwise than for a higher-value utilisation, applying that surplus lignin as a solid fuel is proposed in the context of emerging opportunities for co-generated electricity. The merits of so doing are presently not well established but there is a reasonable likelihood that they will warrant that proposed application. In the first instance, lignin has a calorific value similar to the brown coal upon which, for instance, the State of Victoria presently relies for much of its electricity generation. In the second instance, a current NSW proposal for co-generation using bagasse as the fuel would suggest an equally well-founded application for the lignin coproduct. The expectation that lignin-fuelled co-generation will prove to be commercially viable is supported by the following observations: The production of ethanol requires a supply of steam so the cost of installing steam generating capacity in excess of that required for the conversion process is marginal. The further costs of upgrading that steam as necessary for co-generation and of disposing of any surplus electricity to the public grid would also be marginal but of greater significance. An ethanol-from-lignocellulosics industry would be resource-based and thus extensively located in regional areas. The transmission costs of supplying electricity to regional areas from distant mainstream supply are high and increasingly are borne by regional consumers. A local generating capacity based on lignin co-product would be selling that capacity into a high-priced market without incurring the same transmission costs. Whilst cost comparisons have not been made, it is noted that in the USA the installed capacity for the generation of electricity from waste-streams such as sawmill residues
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and grain hulls exceeds 6000 megawatts. That US capacity is disposed of into a market which is generally supplied by private enterprise on a commercial basis. The tendency in Australia for electricity production to also travel the road of private enterprise suggests a growing likelihood that lignin-fuelled co-generation will be similarly commercially viable. The commitment to a reduction in the output of fossil-sourced carbon dioxide should provide some impetus for the substitution of fossil-fuels with biomass as a source of electricity generating capacity. The lignin co-product of ethanol production, when applied to that end, would assist the attainment of that policy objective. The above reference to biomass-fuelled electricity generation in the USA and of its likely relevance to Australia warrants further consideration. Firstly, it is noted that 6000 megawatts is similar to the total of mainstream capacity in Queensland and to 60% of that in NSW. Secondly, biomass-fuelled generating units are commonly of less than 10 MW and often as small as 4 MW capacity. The circumstances in which units of that capacity are commercially viable in the USA are not dissimilar to those under which opportunities for private electricity generation are seen as emerging in regional Australia. In those US circumstances the biomass fuel is usually a whole-lignocellulosic waste-stream. Its utilisation is largely motivated by the need to effect its disposal. However, apart from facilities needed for its combustion, all those additional facilities required to apply that heat to the generation of electricity and for its distribution could be justified only by revenue from electricity sales. In the case of an ethanol-from-lignocellulosics plant which already includes a co-generating facility largely fuelled by lignin co-product, the marginal cost of expanding that facility to permit the external sale of surplus electricity may be no less justifiable.
4.7.2.1 Co-generating Capacity

The optimum scale of a commercial ethanol-from-lignocellulosics plant in Australia was proposed by the 1990 Unisearch Ltd report to the NSW Minister for Minerals and Energy as likely to be 50 million litres annual ethanol output. The proposed demonstration project will provide a better guide to optimal commercial scale. In the meantime, an output of 50 million litres is adopted as the reference scale for considering economic feasibility. Based on an ethanol yield of 300 litres per dry tonne of feedstock, the production of 50 million litres will be accompanied by some 50,000 dry tonnes lignin co-product. In accordance with the specification of the process proposed for demonstration, some 16,000 dry tonnes of flocculated solids will also be yielded as by-product. The least value of both these materials is boiler fuel. As envisaged, both the lignin co-product and the flocculated solids will be used to fuel the cogeneration of electricity and steam in a combined heat and power (CHP) facility associated with the ethanol plant. The conversion process requirement for low-grade steam, together with the low-grade steam required for feedstock pre-treatment and drying the solids output will be sourced from the exhaust of a steam turbine driving the electricity generator. Given an energy content of 19 GJ and 14 GJ respectively per dry tonne of lignin and of flocculated solids, a co-generation of electricity at 30 percent conversion efficiency would be sufficient to meet the electricity demand specified for the 2 megalitre demonstration plant. The turbine exhaust would more than satisfy the demand for low-grade steam. At commercial-scale efficiencies the co-generating capacity is anticipated to exceed the conversion demand for electricity.Although the specified energy efficiency of the demonstration plant is high, its 2 megalitre scale imposes some limitations. A 50 megalitre plant could anticipate a pro-rata
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saving in the order of 5 percent of the process demand for electricity. Furthermore, the associated co-generation facility may well achieve an electricity yield greater than 30 percent of fuel energy. Were those greater efficiencies, in combination, to represent the equivalent of a 35 percent conversion efficiency, a surplus of 2 MW capacity would result.
4.7.2.2 The Potential for an Associated Co-Generation Facility

It is apparent by reference to the costings set out in Chapter 6 (Sections 6.8 and 6.9) that an economic conversion requires the process to be self-funding of its demand for electricity and steam. That requirement can be met only by an associated co-generation facility. The surplus lignocellulosics having an immediate commercial potential as feedstocks are those currently associated with the regional processing of food and fibre. That suggests the likelihood of ethanol production proximate with such as cotton gins and plants milling grains, sugar-cane and timber. Their each also having a requirement for electricity and steam, any surplus cogeneration capacity enjoyed by a neighbouring ethanol plant would be readily disposable. Some 80 percent of the price of mainstream electricity relates to its transmission. Consequently, disposing of surplus electricity to the public grid is not a greatly attractive proposition. Far more attractive is the substitution of a neighbouring demand for mainstream supply by an erstwhile consumer's privately generated surplus. Under those circumstances the value of the surplus electricity is equal to the mainstream price whilst transmission costs are minimal. The prospects for such a scenario are greatest in the rural regions. An ethanol plant's requiring an associated co-generation facility, and its likely proximity with food or fibre processing, is anticipated to provide the impetus for an installed regional cogeneration capacity exceeding that inferred by a supply of solid fuel comprising only the lignin and by-products of conversion. It is envisaged that such greater capacity would be fuelled by materials unacceptable as ethanol feedstocks. Feedstock trials to be undertaken are expected to reveal some surplus lignocellulosics to be unsuited for conversion. Where those materials occur in conjunction with others acceptable as feedstocks, also harvesting the former may prove cost-effective despite their utility being limited to boiler fuel. Other materials, such as the bark adhering to roundwood harvested either for fibre processing or as ethanol feedstocks could also be cost-effectively applied as boiler fuel. Similarly, waste grain hulls accumulated by a neighbouring miller, and municipal waste generally, would add to the regional availability of fuel for co-generation. Adding to the some 2 MW of generating capacity internally surplus to ethanol production, those other materials unsuited as feedstocks can be expected to fuel at least a further 1 MW of capacity. Relative to a 50 megalitre plant consuming some 250,000 tonnes of feedstock and yielding that 2 MW of surplus electricity, a supply of additional boiler fuel in the order of only 10,000 tonnes would be needed to increase that surplus to a 3 MW capacity. The availability of such materials as additional boiler fuel is evident by reference to the example of a softwood sawmill at Caboolture, QLD, currently seeking to dispose of the 300,000 tonnes of pine bark annually yielded. Proposing the prospect of a surplus of generating capacity associated with ethanol production as contributing to the achievement of Greenhouse emissions targets may appear excessively ambitious. Although the feedstock availability in NSW (Chapter 3 - Section 3.4.5) suggests that some thirty 50 megalitre plants could be serviced, the installation within the next ten years of more than 600 megalitres capacity would seem unlikely. At a surplus of 3 MW per plant, that
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level for ethanol production would result in some 35 MW of biomass-fuelled capacity available to substitute for coal-fuelled supplies. By comparison, NSW mainstream capacity is 10,000 MW. In 1990/91 NSW produced some 60,000 gigawatt hours electricity and a lesser 48,000 GWh was consumed. Some of the difference, 12,000 GWh, is accounted for by transmission losses. Assuming an 80% base load, production was in the order of 68 percent of capacity. Given the excess of mainstream capacity there may appear little merit in it being added to by biomassfuelled co-generation. Despite appearances to the contrary, a generating capacity of 35 MW surplus to the electricity demand by ethanol production is not insignificant. At 80% base load, that capacity would produce some 245 GWh electricity. That represents well over half of 1990/91 consumption by the agricultural sector in NSW and is similar to the 270 GWh of solar production in that year. Relative to regional electricity demand and given the potential for cost-savings by regional processors proximate with an ethanol plant, the prospect of an associated co-generation facility having some 3 MW excess capacity has at least parochial attractions. 4.8 Summary and Conclusions

The issues confronting the demand sector of the fuel economy are, variously, the quantity and the quality of supplies and the environmental consequences of fuel consumption. Whereas solid fuel demand is presently confronted with only the last of these issues, liquid fuel demand is subject to all three. The effective cost to consumers of those solid and liquid fuels supplied from conventional hydrocarbon sources is unlikely to be bettered by ethanol and lignin co-products. Nevertheless, given the issues variously confronting fuel demand, it appears that, as an alternative source of supply, lignocellulosics offer sufficient advantages to warrant consumer acceptance of the outputs of a cost-effective conversion. That prospect is most apparent with respect to ethanol and the demand for liquid fuels. For liquid fuels, the forecast decline in crude oil self-sufficiency, coupled with the parallel burgeoning of relative demand for middle-distillates, are important to the issue of supply quantity. Of the two, the pressures on refinery balance are also of importance to the quality of supplies. Alternative liquid fuels and substitute gaseous fuels both offer to address these supply issues. However, the liquid fuel consumption infrastructure displays a substantial economic inertia. Consequently, over the medium term, the extension of supplies must be consonant with the existing demand format. On that basis, alternative liquid fuels more readily address those issues confronting liquid fuel demand. Some indication of the scope for extending supplies can be gained from a review of the outlook for refinery balance. Of the increase forecast for the relative demand for middle-distillates, it is likely that only the consumption of ADO is amenable to an acceptance of alternative or substitute fuels. That being so, and were refinery balance to be maintained at current relativities, the alternative and substitute fuels would between them be required, in 2004/05 alone, to effect the replacement of 5,700 megalitres of ADO demand. Actually replacing that quantity is not proposed as a likely necessity. Rather, it indicates the potential at that time for extending the supply of liquid fuels. The near-term employment of advanced refining technologies would largely avoid any need for such a large replacement of ADO demand. Nevertheless, the relief granted by those
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technologies may be offset by measures taken to remedy the environmental consequences of gasoline consumption. Such measures will tend to exacerbate pressures on the maintenance of refinery balance. Those remedies may include the employment of alcohols for fuel oxygenation. Unless also applied to middle-distillate fuels, any action otherwise having the effect of extending only gasoline supplies will be counter-productive for the overall quality of liquid fuels. Irrespective of the weight given to each of the supply issues in the course of optimising the economics of satisfying liquid fuel demand, it is concluded that the medium term development of commercial-scale supplies of ethanol will not exceed the capacity of the liquid fuel sector to absorb those supplies. However, since demand follows supply, it is presently difficult to quantify that capacity. Nevertheless, whether as 5% of total liquid fuel demand or 15% of only the demand for ADO, a quantity in the order of 2,000 megalitres in the year 2004/05 is believed to fairly indicate the near-term prospects for ethanol consumption. Were a process of conversion to otherwise warrant same, it is unlikely that its commercial development would be conditional upon ethanol demand being more than 100 megalitres per annum. The respective characteristics of the various methods by which ethanol may be incorporated with liquid fuel supplies provides an assurance that, whatever the sector of demand, the utilisation of ethanol can be directed to best effect with respect to both supplies and consumption. With the possible exception of fuel-reformulation technologies, none of those methods has a demand threshold greater than the output of a single commercial plant. The optimum scale of lignocellulosics conversion is anticipated to be 50 megalitres annual ethanol output. The conversion of lignocellulosics to ethanol is also of relevance to that environmental issue confronting solid fuels demand. Applying the lignin co-product to the generation of electricity would address the Greenhouse effect to the extent that biomass fuels effect a net reduction in carbon dioxide emissions. In a technical sense, whole lignocellulosics may equally be directed to that end. Nevertheless, such a course is unlikely to be economically viable. It is only the lignin fraction of ethanol feedstock which can be expected, within the existing fuel cost structure, to be cost-effective as a solid fuel. In addition to the lignin co-product fuelling an associated co-generation facility, a 50 megalitre ethanol plant has the potential to expand that generating capacity beyond its internal demand. The mere fact of a conversion plant existing, together with the regional infrastructure for supplying ethanol-quality feedstocks, provides opportunities not otherwise occurring for a contemporaneous utilisation of lesser quality material directed solely to fuelling the cogenerational capacity of the plant. Although, in the medium term, any surplus capacity is unlikely to represent a substantial proportion of mainstream electricity generation, its significance to regional demand could be much greater. The relatively high cost of regional electricity supply will also enhance the economic viability of co-generation as an element of lignocellulosics conversion to ethanol and lignin co-products. The commercial development of a cost-effective process of conversion is concluded to be feasible with respect to fuel demand.

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CHAPTER 5
The Design of a Cost-Effective Conversion Process The Technical Considerations
5.1 Introduction

It is apparent from the foregoing review of the feasibility of commercialising the conversion of lignocellulosics to ethanol and lignin co-products that both feedstock materials and the capacity to utilise conversion outputs are sufficient to warrant the development of a cost-effective process. Such a development would, with respect to surplus lignocellulosic resources and the regions of their occurrence, be ecologically sound and economically advantageous. The application of the ethanol and lignin conversion outputs as components of fuel supply would appear to offer both economic and environmental benefits to be enjoyed not only in the region of their production but also more generally with respect to fuel demand. In short, the realisation of a cost-effective conversion of surplus lignocellulosics to ethanol and lignin is anticipated to be mutually advantageous to each of the supply and the demand sectors of the economy. That such advantages as are envisaged are presently prospective begs the question as to why they have yet to be realised. Apart from the relatively recent emergence of greater pressures to achieve that realisation the principal reason for its not having occurred is the technical difficulty traditionally experienced in effecting an economically viable conversion process. In reality it is only during the past twenty years since the first "oil shock" of the mid-70's and subsequently spurred on by emerging environmental concerns that concerted efforts have been made internationally to overcome those technical difficulties. Even so, it cannot be said that those efforts have been vigorously pursued consistently throughout that time. In the course of our review of the application of vegetative biomass as fuel it was noted that the utilisation of unconverted materials is not wholly consonant with the requirements of the developed fuel economy whereas the conversion of those materials to ethanol is consistent with the demand for liquid fuels. Furthermore, with respect to lignin, the application of lignocellulosics as either fibre or fuel in the form of lignin represents avenues of utility which are otherwise unavailable to the unconverted source material. 5.2 A Broad Perspective on Conversion Processes

The production of ethanol from vegetative biomass involves the conversion of the susceptible carbohydrate component of that biomass to the alcohol naturally produced by fermentation. The majority of the susceptible carbohydrates of vegetative biomass fall into one of the three chemical sub-groups: sugars, starches and celluloses and that is the ascending order of their greater abundance. The least abundant sugars are the only one of those sub-groups directly amenable to fermentation. In order to ferment either starches or celluloses they must first be hydrolysed to sugars. The cost-effective hydrolysis of starches is relatively simple by comparison with that of celluloses, despite the similarity of the two. A superficial review of the chemistry involved may provide some background to the issues underlying the choice of technologies for the conversion of lignocellulosics to ethanol.

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5.2.1

A Superficial Review of the Chemistry

The generation of vegetative biomass is effected by the process of photosynthesis whereby solar energy converts carbon dioxide and water to carbohydrates, oxygen and water. The process may be represented thus: 6CO2 + 12H2O Growth > ----------------------------------< Decay C6H12O6 + 6O2 + 6H2O

The carbohydrate C6H12O6 is a common simple sugar one of the monosaccharides. Not all C6 monosaccharides are the same, since variations occur in their molecular configuration. Both glucose and fructose are examples of such variations. In the process of vegetative growth, monosaccharides are further converted to variously more complex carbohydrates in accordance with plant requirements. These range from: Disaccharides e.g. sucrose C12H22O11; to Polysaccharides of which both starch and cellulose are examples. It will be noted that the "addition" of a molecule of water, H2O, to a disaccharide will result in two molecules of its monosaccharide constituents thus: C12H22O11 + H2O hydrolysis 2(C6H12O6) Such a process of hydrolysis occurs in the making of jam whereby the fruit acids, when boiled with sucrose, produce glucose and fructose. Other than by the application of acid, hydrolysis may be effected by the action of an enzyme. Enzymatic hydrolysis is the process employed by yeasts or bacteria in fermenting glucosidic disaccharides (e.g. common sugar) to ethanol and carbon dioxide. The action is: i. C12H22O11 + H2O enzymatic hydrolysis 2(C6H12O6); and ii. C6H12O6 fermentation 2(C2H5OH) + 2(CO2) The matter of converting polysaccharides to ethanol and carbon dioxide is also a two stage process but is somewhat more complex with respect to the hydrolysis function. In an industrial situation that complexity is reflected by the time factor and also by the process inhibitions which are experienced. Both these factors tend to limit the achievement of complete hydrolysis. Polysaccharides, whether starches or celluloses, are monsaccharidic chains comprised of, e.g. (C6H10O5)n, where n represents the number of units in each chain. With respect to starches n is commonly of the order of 200+ but, in the case of celluloses n is many times that of starches and may range up to 2000+. It is not, however, merely the greater molecular weight of celluloses which renders them more difficult than starches to hydrolyse. As with the above depiction of the "addition" of a molecule of water to a disaccharide so the hydrolysis of a glucosidic polysaccharide to produce sugars occurs as follows: C6H10O5 + H2O hydrolysis C6H12O6 Being a chain of C6 components, that hydrolysis must occur at each point of component linkage to achieve total conversion. In the case of starches, whose three-dimensional structure is more simply chain-like, those glucosidic linkages are exposed and therefore readily accessible. By comparison, the three-dimensional structure of celluloses is crystalline. Their crystalline structure results in celluloses containing a large number of glucosidic linkages which are not exposed and are thus not readily accessible. It is that lesser accessibility of their glucosidic linkages which renders the hydrolysis of celluloses more difficult than that of starches.
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In the case of lignocellulosic materials the difficulty encountered with respect to the hydrolysis of cellulose is further heightened by the cellulose also being enclosed within an envelope of lignin. The chemistry of lignin is extremely complex and variable. Suffice to say that it is not amenable to ethanol production. It is, however, susceptible to dissolution and, in so removing the lignin, the previously protected cellulose is exposed for subsequent hydrolysis. The process of lignin dissolution is well understood, it being an early step in gaining access to cellulose for the purpose of such as paper manufacture. The interface between the cellulose and the lignin in which it is enveloped is comprised of "hemicellulose" a generic name for a polymer group commonly derived from pentose sugars having the general composition C5H10O5. Resembling polysaccharides and usually consisting of an acidified five-carbon grouping as distinct from the unmodified six-carbon grouping of cellulose, the hemicelluloses hydrolyse readily. Their hydrolysis often occurs in conjunction with a process of lignin dissolution. The principal hemicellulosic, methylglucoronoxylan, which hydrolyses to xylose, comprises some 75% of the total of C5 sugars available for conversion to ethanol. Hemicellulose represents a substantial proportion of the total carbohydrates within lignocellulosics. The process of lignin dissolution and the accompanying partial hydrolysis of hemicellulose itself incurs no loss of sugars in the course of exposing the cellulose. However, the more vigorous process required for subsequent cellulose hydrolysis, if undertaken in the presence of the C5 sugars, will destroy the hydrolysed hemicellulosic fraction. This loss substantially reduces the potential ethanol yield from the conversion of lignocellulosics.
5.2.2 Yields from Potential Feedstocks

From the foregoing it may be appreciated that traditional ethanol production processes have preferred as substrates disaccharides such as sucrose. It is similarly apparent that starches rank second in the order of preference for conversion. However, their being in demand as foods, simple sugars and starches are much less available than are the cellulosics. In any event, the ethanol yields from sugar and starch feedstocks are, by comparison with the potential yields from lignocellulosics, not excessively attractive. In consequence, the rationale for pursuing the development of an efficient conversion of lignocellulosics to ethanol is not limited to their being available in greater quantities. Of at least equal importance is the prospect of the greater potential rate of conversion relative to the mass of source feedstock. Generally, any polysaccharide hydrolysed to 1 kg of glucose will theoretically produce 0.51 kg ethanol and 0.49 kg carbon dioxide but, in practice, the ethanol yield would do well to exceed 90% of the theoretical maximum. The factors affecting practicable conversion efficiencies are numerous, especially when cost is taken into account. However, consideration of conversion efficiencies practicable with respect to lignocellulosics warrants a preliminary comparison of the potential yields from various of the more recognised sources. In order of what may be their traditional preference as feedstocks the expected yields, net of processing losses, are: 1. Sugar Cane sucrose average 14% of green cane - 76 litres ethanol per tonne of green cane. 2. Sweet Sorghum sucrose 76 litres ethanol/green tonne 3. Cassava starch 150 litres ethanol/green tonne. 4. Cereal Grains starch 400 litres ethanol/tonne (MC 11%). By comparison with the above yields of ethanol, that anticipated from the conversion of lignocellulosic feedstocks is, in accordance with the process specifications prepared for this study, as follows:
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 ex cellulose & hexose fractions (50% of feedstock dwb) ex hemicellulose & pentose fractions (24% of feedstock dwb)

266 litres/dry tonne 44 litres/dry tonne

TOTAL YIELD 310 litres/dry tonne. The total yield of 310 litres ethanol per dry tonne of feedstock might, for comparison with the above reference feedstocks, be more fairly stated as some 150 litres per green tonne. Even thus deflated the yield compares favourably and is based upon an expected overall feedstock to ethanol conversion efficiency of only 63%, being 74% in the case of the cellulose and hexose fractions but 34% in the case of the hemicellulose and pentose fractions. The future achievement of 74% with respect to hemicellulose and pentoses would increase the yield by a further 50 litres.
5.2.3 Conversion Processes and Issues of Cost Efficiency

A process for the conversion of polysaccharidic feedstocks to ethanol and any co-products or by-products is essentially comprised of three functions: hydrolysis fermentation product recovery. The extent to which these functions can be integrated and undertaken contemporaneously whilst effecting rates of conversion consistent with maximising yields will determine the cost efficiency of the overall process. The greater prospect of functional integration exists with respect to hydrolysis and fermentation. Whether simple sugar, starches or celluloses, their physical availability to a viable industrial process requires that the source feedstock undergo a preliminary mechanical disintegration. Sugar cane is crushed to express the sucrose-rich sap stream whilst starches are similarly recovered by the milling of grains or the shredding of such as cassava tubers. Such preliminary processes of mechanical disintegration are unlikely to be avoidable because, although undertaken in nature by the enzymatic action of fungi and bacteria, the natural processes are unacceptably slow in effecting total disintegration. As distinct from that containing the more freely held sugars and starches, the internal food storage component, the lignocellulosic materials are relatively inert, comprising as they do, the structural component of vegetative biomass. Even in the case of plant stem materials harvested dead, e.g. crop stubbles, their susceptibility to the natural agencies of preliminary enzymatic decomposition is considerably less than that of the food storage structure. Accordingly the cost effective employment of biological agencies for the preliminary decomposition of lignocellulosic feedstocks is a prospect even less likely than that applicable to feedstocks yielding the sugars and starches. The universal need for applying mechanical assistance to achieve the preliminary physical disintegration of any feedstock represents the limit to which functional integration may be achieved by the employment of biological processes. The degree of functional integration readily achievable in the case of sucrose feedstocks is, with regard to the hydrolysis and fermentation stages, high because the ethanol conversion agency commonly employed, yeasts, are naturally adapted to undertaking those functions simultaneously. A similar degree of functional integration is achievable, but less readily so, in the case of starch feedstocks.
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By comparison with sucrose feedstocks, the hydrolysis of the polysaccharide starches requires a mechanism less commonly natural to the fermentation agency usually employed. Indeed, because polysaccharides are, unlike the sucrose disaccharide, insoluble in water, the liquefaction of starches must be undertaken preliminary to their hydrolysis and subsequent fermentation. Thus the hydrolysis function itself is, with respect to starches, a two-stage process. In commercial circumstances, the liquefaction of starches is currently most commonly effected by a mild acid which treatment also achieves partial hydrolysis to the extent of up to 40%. Hydrolysis is subsequently completed enzymatically. In the alternative to acid liquefaction, enzymatic liquefaction of starches occurs in nature, usually by bacteria or by fungi (other than yeast). Those same agencies also proceed to effect hydrolysis and, in the case of bacteria, their action carries through to fermentation. Thus, with respect to starch feedstocks, progress is well-advanced towards the achievement of a genetically engineered and commercially viable microorganism capable of effecting the complete range of liquefaction, hydrolysis and fermentation functions in a cost-effective manner. In that event the degree of functional integration with respect to starches would be similar to that applicable to sucrose fermentation. As with starch-based feedstocks, the utilisation of integrated processes for the simultaneous hydrolysis and fermentation of lignocellulosic feedstocks has been seen as desirable for the achievement of a conversion more cost-effective than that conventionally experienced. However, for lignocellulosics, the integration of biological processes is not now envisaged as extending to their liquefaction. Consequently, whether opting for fully integrated biological processes the Simultaneous Saccharification and Fermentation (SSF) route or discrete hydrolysis and fermentation steps Separate Hydrolysis and Fermentation (SHF) the hydrolysis of lignocellulosics requires a preliminary non-biological preparation step. The longstanding experience in respect of lignocellulosics has been that hydrolysis has not been cost effective. In a practical sense complete liquefaction and hydrolysis may be regarded as that of some 15% short of the theoretical maximum. That is approximately double the level of hydrolysis experienced with methods recognised as least cost-ineffective. The various shortcomings experienced may be summarised as follows: only the more accessible polysaccharides principally the hemicelluloses have been hydrolysed. hydrolysis has been greater, but in the subsequent course of partially hydrolysing the less accessible celluloses, the earlier hydrolysed hemicelluloses have been destroyed. hydrolysis has been complete and both classes of sugars have been recovered but the cost of the agency of liquefaction and hydrolysis has nullified the achieved efficiency. In most instances of that efficient liquefaction and hydrolysis, the agency has been concentrated acid. The nullifying cost of concentrated acid has been largely that incurred by its not having been recycled by cost effective means. To a lesser extent that cost has been related to the high corrosivity of the acid. In part due to the problems of utilising concentrated acid much of the international research effort of recent years has been directed to the alternative employment of biological processes. With regard only to hydrolysis, the use of biological agencies is also seen as the means for avoiding the deficiencies of mild acid incomplete hydrolysis. However, the focus upon biological processes is not owed solely to the ambition for achieving complete hydrolysis without the associated costs.

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As the conditions for the hydrolysis of cellulose vary from those required for hemicellulose, so do the fermentation requirements vary for the two classes of sugars. Consistent with the underlying objective of cost-effective functional integration, considerable effort has been directed to the development by genetic engineering of agencies to effect the contemporaneous fermentation of the C5 and C6 sugars hydrolysed respectively from the hemicelluloses and celluloses. So as to build upon that improved fermentation technology and, in so doing, to overcome the difficulties associated with acid hydrolysis the incorporation of a biological hydrolysis capacity has been vigorously pursued. Irrespective of the feedstock sucrose, starches or cellulosics and irrespective of the degree of hydrolysis and fermentation integration SHF or SSF every so far cost-effective process of fermentation requires volumes of water large in relation to the volume of ethanol generated in the fermentation broth. In the case of yeasts the fermentation broth must, by the addition of water, be maintained with a concentration of ethanol less than 810% otherwise the yeasts' activity will be impeded. By comparison with the conventional use of yeasts there is some prospect of instead using bacteria with a tolerance for greater levels of ethanol concentration but that greater tolerance would not be substantial. The principal objective motivating the use of bacteria is not increased ethanol tolerance but the prospect of achieving both faster and greater rates of sugars conversion. As previously noted, 1 kg of sugar will yield approximately 0.46 kg ethanol. It is thus apparent that the volume of water required to maintain the ethanol concentration at less than 810% of the fermentation broth is some five times that of the sugar feed. In addition to that large volume of water, the broth will contain the non-sugar nutrients required by the fermentation agency. In the process the agency consumes the non-sugar nutrients together with some sugar and produces, in addition to ethanol and carbon dioxide, small quantities of fermentation byproducts. Depending upon the extent of yeast/bacteria recycling, the various by-products include a proportion of "spent" organism. Accordingly the liquid output typically comprises some 79% ethanol together with water amounting to some 85 88% and a further 3 8% of unfermented sugars, acids and other fermentation products. The constraint of a low ethanol concentration in the fermentation "beer" accentuates the need for a cost-effective process to separate that low proportion of ethanol from the large output volume of "beer" and to then, in an environmentally acceptable manner, dispose of the large stillage remnant following ethanol recovery. The uneconomic conversion of lignocellulosics has most readily been apparent within the ethanol recovery function. Because of the poor hydrolysis and/or poor fermentation of C5 sugars, the ethanol yield from the fermentation step has been both low and heavily contaminated by undesirable fermentation by-products. These failings become most obvious when, applying energy-reliant distillation processes, less ethanol is yielded than is necessary, by reference to its energy value, to cover the energy inputs required for its recovery. Worse, the resultant waste-stream is, by comparison with that from sucrose or starch conversions, not only greater relative to the volume of ethanol recovered but is more noxious because of the higher proportion of fermentation by-products. We say above that the diseconomies of lignocellulosics conversion are "most readily apparent" within the ethanol recovery function because the at-least-as-important diseconomies of inadequate sugars conversion have normally been masked by a lack of regard for the factor of feedstock cost. We also observe that the waste-stream problem is "worse" than that of the energy imbalance because the energy input to the distillation process is usually steam generated by the combustion of surplus lignocellulosic fuels having otherwise a nil or negative value.
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The two factors whereby substantial cost is incurred in the conventional distillation processes of ethanol recovery and waste treatment are: i. that of the energy required to "boil off" the ethanol from the beer; and ii. that of disposing of the remnant stillage or dunder. The first of the above factors is variable according to whether the ethanol output required is hydrated or anhydrous. Anhydrous incurs the greater cost and requires not only additional energy but also some chemical and/or non-evaporative physical assistance. The waste disposal factor may also be reduced to one of energy since evaporation may be applied to the stillage to effect the separation of its water component from that of its solids content. In so doing, the water component is rendered suitable for disposal - which could include recycling to the process. The separated solids are valuable as fertiliser whereas, if left in the water, the cost of removing the gross volume is sufficient to nullify their commercial value. In conjunction with improved fermentation technologies, whereby conversion rates have been increased, organism recycling and/or retention has been enhanced and the energy generated by the exothermic fermentation process has been harnessed for the purpose of ethanol recovery, substantial improvements to the energy efficiency of conventional distillation processes have been effected. These improvements extend to reductions in the solids and ash content of the stillage consequent upon the lesser output of non-ethanol, non-water components in the fermentation beer. In their totality, however, these improvements fall short of achieving that necessary for the widespread use of a cost-effective process for the production of fuel-grade ethanol. Two shortcomings are of particular relevance to the Australian environment: none of the improvements are directed to the reduction of net water consumption by the overall process the treatment and disposal of a substantial and high BOD waste stream remains a problem. The particular relevance to Australian circumstances of an objection raised in respect of a high net water consumption might be assumed to be well accepted. That such a process incurs that net water consumption by way of discharging contaminated water is, however, of relevance to not only the water deficient majority of Australia. It is equally relevant in areas of adequate water supplies. Indeed the difficulties of waste-stream remediation in high rainfall areas are in many ways greater than those which would be encountered in drier climes. These objections regarding distillation processes must be overcome in order to realise the potential of a costeffective conversion process. Irrespective of the other cost-efficiencies, the commercial prospects for a process which retains a substantial net requirement for water discharged as a high BOD waste-stream would be severely limited.
5.2.4 Objectives for the Attainment of a Cost-Effective Conversion

The development of a cost-effective process for the commercially viable conversion of lignocellulosics to ethanol and lignin must be directed to effecting: the maximum hydrolysis of both the cellulosics and hemicellulosics the maximum fermentation of both the C6 (principally glucose) and C5 (principally xylose) sugars the minimum requirement for energy in the process of ethanol recovery and wastetreatment the minimum net consumption of water by the process as a whole. 76

Further, in attaining the above objectives, the process must be cost effective with regard to its utilisation of processing consumables. In considering avenues for the achievement of a cost-effective process, due regard must be had to the circumstances in which lignocellulosics conversion is likely to occur on a commercial scale. In the first instance, the achievement of the prospective benefits which have been identified for the resource base is predicated upon the potential feedstocks being lignocellulosics surplus to a dominant food or fibre production activity. Being so surplus the imperative is that the conversion process be one of whole-lignocellulosics utilisation and capable of paying for those materials as dedicated inputs. In the second instance the economically viable supply of lignocellulosics to a conversion facility requires that the cost of their transportation to the conversion facility be consistent with the capacity of the process to pay for feedstocks. That requirement almost certainly constrains the siting of the conversion facility to that of the region of the feedstock occurrence. Given that siting constraint and the extensive regional occurrence of prospective feedstocks, the commercial development of a conversion process will in large measure be determined by regional supplies of water as net inputs and the concomitant regional capacity to absorb the process waste-stream. The maximum of functional integration achievable in the development of a cost-effective conversion would be desirable but there is reason to doubt that such is a necessary pre-condition for economic viability. There are a number of separate grounds for that doubt. The first such ground for doubt relates to the issue of how much greater may be the benefit to accrue from the maximum degree of functional integration. As noted above, the limit of functional integration is that of the necessity to employ non-biological means for the preliminary feedstock disintegration. Fermentation being necessarily biological, the extension of biological processes upstream to include hydrolysis would appear attractive. Nevertheless the requirement for non-biological liquefaction as a preliminary step continues to amount, in effect, to a two stage process. That being so, the alternative extension downstream of the non-biological liquefaction so as to also effect an efficient hydrolysis would result in no less a degree of integration prior to fermentation. Presently it remains uncertain that even a process exhibiting a substantial lack of functional integration cannot, despite that lack, be cost-effective. For instance, a process firstly dissolving out the lignin and, with it, the hemicellulose (partially hydrolysed) would achieve the total separation of the cellulose. Subsequent hydrolysis by means specifically suited to each of cellulose and hemicellulose may sufficiently increase sugars yields as to warrant the inconvenience. Again, with respect to functional integration within the fermentation stages, the separate fermentation of the C5 and C6 sugars streams may also prove more cost-effective. For instance, with regard to the process proposed for demonstration, the rate for C5 sugars conversion is anticipated to be only 35% whereas that for C6 sugars is 85%. The low yield from C5 sugars arises despite their being 95% hydrolysed and recovered. The loss amounts to 50 litres per tonne (dwb) of feedstock were a conversion rate of 85% to also apply to C5 sugars. The anticipated deficiency arises almost entirely within the process of joint fermentation.

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 An important stage whereby the prospect of an increased functional integration has received little attention is that of ethanol recovery. The integration of ethanol recovery processes with the treatment of the waste-stream arising therefrom would offset a lesser integration within other stages. 5.3 A Review of the Status of Conversion Technologies

A review conducted in 1985 by the then Solar Energy Research Institute (SERI) of the USA nowadays the National Renewable Energy Laboratory (NREL) concluded that SSF conversion processes clearly offered the greatest prospect of cost savings necessary for the costeffective production of ethanol from lignocellulosics. Accordingly the majority of NREL research activity regarding lignocellulosics conversion has been with respect to SSF technologies. Currently NREL is embarking upon a pilot demonstration of the SSF technologies which have been developed but they do not yet represent a complete conversion process. The SERI conclusion assumed that the post-fermentation processes of ethanol recovery and waste-treatment will continue to be the conventional techniques of distillation together with the remediation and disposal of a substantial high BOD waste-stream. That assumption led to the conclusion that the achievement of all necessary cost-savings within the overall process must occur up to and including the point of fermentation. Further, the SERI conclusion has been reached by comparing the prospects for SSF with the SHF (mild acid) alternative and its poor sugars yield. The SHF (concentrated acid) process was not seriously considered. The difficulties associated with concentrated acid were then seen as excessive. Of the two bases for the conclusion reached by SERI the second is of less significance. It was and remains accepted that the deficiencies of the SHF processes are amenable to remediation. For the hydrolysis-efficient concentrated acid process the need is to both recycle the acid and to avoid its corrosivity. In the case of the mild acid process, the improvement required is with respect to hydrolysis efficiency. In either case the deficiency might, rather than being remedied, more simply be avoided. Avoidance might occur by process staging such as that of employing acid or other solvents to effect liquefaction followed by the separate hydrolysis of each of the hemicelluloses and the celluloses. The pursuit of any one of these possible courses to achieve a cost-effective hydrolysis would substantially discount the rationale for pursuing SSF. The more significant of the bases for the conclusion reached by SERI is that assumption made with regard to post-fermentation processes of ethanol recovery and waste treatment. The effect of that assumption was the conclusion that, as between SSF and SHF, SSF alone offered cost savings sufficient to render cost-effective the conversion of lignocellulosics to ethanol. The conclusion by SERI as to the necessity for pursuing the SSF route so as to achieve a costeffective lignocellulosics conversion would seem likely to have reached a willing audience. The conclusion confirmed the focus of the majority of programs directed to wholelignocellulosics conversion and which had been commenced prior to the SERI review. Although not all were totally committed to SSF per se, the remainder of that majority were at least pursuing the enzymatic hydrolysis of cellulose within an SHF process. One of the few programs distinguished by its pursuit of acid hydrolysis processes was that conducted by the Tennessee Valley Authority in association with the Swedish Pulp and Paper Research Institute. With respect to lignocellulosics conversion, no program appeared to have been focussed on ethanol recovery and waste treatment. Some programs had, as a secondary objective, alternative end-uses for the hemicellulosic component as a response to difficulties with xylose fermentation.
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The foregoing is our perception of the position as reported by Unisearch Ltd in 1990. Entitled "Review of the Status and Prospects of Processes to Convert Cellulosic Materials to Ethanol" and supplied to the NSW Department of Minerals and Energy, Unisearch concluded in favour of a process comprising: high temperature (220oC) and pressure (2200 kPa) mild (1%) sulphuric acid pretreatment to achieve: - hemicellulose hydrolysis to xylose, etc. - pre-treated cellulose; enzymatic hydrolysis of cellulose to glucose etc. with a 50% enzyme recycle; simultaneous fermentation of C5 and C6 sugars; ethanol recovery as appropriate, being: - Apace Research Ltd process to achieve hydrated (95%) ethanol - further processing for anhydrous ethanol, if required. Aspects of the proposed process regarded as warranting further research and development in the context of an industry-sited pilot plant were: optimisation of high temperature etc. pretreatment according to feedstock cellulase cost reductions by process optimisation and strain mutation cellulase consumption reductions by hydrolysis process optimisation the development of xylose fermentation agencies by - either, the enhancement of agencies for its direct fermentation - or, the isomerisation of xylose to xylulose prior to fermentation. simultaneous fermentation of C5 and C6 sugars. The ethanol recovery and waste-treatment process proposed for hydrated ethanol output was considered to be sufficiently developed for pilot plant demonstration. With respect to alternatives to various of the process steps as proposed by its report, Unisearch concluded that monitoring of the following would be desirable: acid-catalysed organosolve saccharification process the use of thermophilic bacteria to achieve SSF. The Unisearch report concluded by identifying the areas offering great potential for effecting reductions in the cost of ethanol from lignocellulosics. In most cases the areas identified corresponded with those aspects as noted above warranting further R & D. A further area identified as being of similar importance is that of credits for lignin production.
5.3.1 A Perspective on Process Costings

The 1990 Unisearch report and the 1985 review by SERI each provide costings in support of process avenues respectively preferred for the achievement of a cost-effective conversion. At this distance the actual costings are of little value except insofar as they can be related in order to gain some perspective on the underlying issues. The Unisearch report provides some broad costings of processes reviewed and includes a summary of that component of the SERI review relating to processes based on biological hydrolysis. A detailed costing of the process proposed by Unisearch is also supplied but is of doubtful validity, at least with respect to the capital components. None of the other costings supplied are comparable with that detailed costing or with one another.
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In terms of the status of conversion technologies, the SERI review itself offers the more useful perspective. In essence, a comparison is offered as to the respective status in 1985 of processes based on enzymatic hydrolysis as against acid hydrolysis and concludes therefrom as to the potential for cost reductions. The comparisons are summarised below in terms of an approximation of Australian currency whereby US cents/kg = AUD cents/litre. Ethanol Cost 1985 Status 90 53 43 (cents/litre) Potential 38 53 43

enzymatic hydrolysis mild acid hydrolysis concentrated acid hydrolysis

The 52 cent reduction identified as prospective for the processes based on biological hydrolysis is comprised of: applying SSF instead of SHF as at 1985 30 credit re. xylose fermentation not effected in 1985 20 credit re. lignin co-product not applied in 1985 2 Neither of the acid hydrolysis systems was regarded by SERI as having potential for further cost reductions. The key point to note regarding the above comparison is that biological processes offered the greatest potential for cost reductions only because they were initially more expensive. Even assuming that the potential advantages of SSF were to be wholly realised, its anticipated lower cost is not much lower than those of the acid processes as they stood in 1985. The process proposed by the Unisearch report could be characterised as intermediate with respect to the above cases. It proposed mild acid hydrolysis of the hemicellulose followed by enzymatic hydrolysis of the cellulose. It further anticipated a 50% enzyme recycle in addition to xylose fermentation. Other benefits identifiable within the process proposed by Unisearch were those of savings in ethanol recovery and waste-treatment. Evaluated by Unisearch at the equivalent of 7 cents/litre the post-fermentation savings would be applicable to any conversion process. To draw a comparison between the costings derived from the SERI review and that of the Unisearch proposal it is necessary to firstly identify the components of the SERI costings of processes based on biological hydrolysis. The component costings can then be applied as the basis for a comparative evaluation of the process proposed by Unisearch. That comparison is set out as follows: SERI COST COMPONENTS ENZYMATIC HYDROLYSIS 1985 SHF POTENTIA L SSF ------cents/litre------13 11 8 8 22 4 UNISEARCH PROCESS COST COMPARISON c/l

Feedstock (1) Pretreatment (mild acid) Enzyme Production

13 8 16 (4a)
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Hydrolysis Fermentation Distillation Environment (1) & (2) Utilities (1) Sub-total (3) Less: Further credits Xylose fermentation Lignin co-product TOTAL (3)

13 4 6 9 12 87 (90)

15 4 6 11 59 (60)

13 4 5 (4b) 3 (4b) 12 74

20 2 65 (68)

20 2 37 (38)

20 .. 2.. 52

Notes: 1. Variations in costs occurs relative to greater ethanol yield with improved cellulose hydrolysis achieved by SSF. 2. "Environment" refers to stillage, etc. disposal. 3. Component costs are derived from bar chart analysis but they do not add to the equivalent of total costs as stated by SERI. The stated totals are noted in brackets. 4. Unisearch process - "savings" relative to SERI's 1985 SHF process (a) 6 cents (22 - 16) attributed to 50% enzyme recycle (b) 7 cents in total attributed to utilisation of combined ethanol and waste-treatment system addressing both distillation and environment cost elements {(6 + 9 cents) - (5 + 3)} The above comparison is, in respect of the Unisearch process, unavoidably crude. Nevertheless, given the greater reliability of the accompanying SERI costings, the following observations are invited: a having regard to the composition of the 30 cent advantage attributed by SERI to SSF, it is unlikely that more than 10 cents (c.f. 6 cents per Unisearch comparison) would be equally applicable to an SHF (enzymatic) process. applying a xylose fermentation credit of 20 cents to either of the acid-based processes costed by SERI as per 1985 status would result in both those processes yielding ethanol at less cost than that anticipated for SSF. given that separate fermentation itself costs 4 cents, the hydrolysis component of SSF costs 15 cents after accounting for the cost of enzyme production. the total cost of pre-treatment/liquefaction and hydrolysis within an SSF process is 23 cents; the remaining process stages cost 27 cents before applying credits for xylose fermentation and lignin co-product.

c d

On the basis of the last observation it is possible to conclude, by reference to SERI's acid-based process costings, that liquefaction and hydrolysis by acid processes is less costly than that anticipated for SSF. In any event, the two issues which emerge as critical to a cost-effective conversion are: xylose fermentation, and cellulose hydrolysis Neither are dependent on SSF. Indeed, xylose fermentation is not dependent on any process of enzymatic hydrolysis. Cellulose hydrolysis need not be enzymatic but cannot be efficient using mild acid.
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5.3.2

A Current Review of the State of the Art

The preceding perspective on process costings indicates that processes based on enzymatic hydrolysis have much ground to make before achieving production costs equal to those anticipated by SERI in 1985 for acid-based processes as they then stood. Furthermore, in merely equalling the output cost of acid-based processes, the enzymatic processes would be reliant upon achieving the majority of potential xylose fermentation. Since the achievement of xylose fermentation is not dependent on enzymatic hydrolysis, the same credit would equally be applicable to acid-based processes. In that case their lead in cost-efficiency would be maintained. Despite the advantage which would be imparted to acid processes generally by an effective xylose fermentation, such has yet to be achieved beyond about 50% of its potential. In the absence of a substantially efficient xylose fermentation, the enhancement of cost-efficiency would greatly depend upon effective cellulose hydrolysis. There are only two processes able to achieve the effective hydrolysis of cellulose: concentrated acid hydrolysis enzymatic hydrolysis Mild acid processes are incapable of effective cellulose hydrolysis. At the high temperatures necessarily employed, the rate of glucose decomposition is above 80% of the rate of cellulose hydrolysis. Given that inherent defect and in response to the apparent lack, in 1985, of prospects for effecting acid recovery so as to improve concentrated acid processes, SERI and others concluded in favour of enzymatic processes. Of the many programs directed to lignocellulosics conversion, that initiated by SERI (now NREL) could be regarded as one of the few now focussed upon whole-lignocellulosics feedstocks. The supply of such materials, harvested as surplus to the production of food and fibre, unavoidably incurs a substantial input expense to a conversion process. The majority of other lignocellulosics programs have, in recognising the inherent inefficiencies of other conversion technologies, resorted to employing only processing residues and post-consumption waste-streams which, as feedstocks, represent nil or negative costs to a conversion process. This feasibility study is focussed, as is NREL, upon the more abundant but expensive wholelignocellulosic feedstocks. The selection of an hydrolysis process was seen to be a key issue for the timely achievement of a cost-effective conversion of the subject feedstocks. Apace Research Ltd was engaged to design an integrated conversion process as the basis for the proposed demonstration project. In preparation for that undertaking we accompanied Apace in attending the Tenth International Symposium on Alcohol Fuels hosted by NREL at Colorado Springs in November 1993. The conclusions reached by our enquiries at that time as to prospective conversion processes are best prefaced by NREL's own view of the state of the art.
5.3.3 The View from NREL

Principally through the National Renewable Energy Laboratory (NREL) Division of the Midwest Research Institute the US DOE Biofuels Program has, for the past decade, funded research into the cost-effective conversion of cellulosic biomass to ethanol. The objective has been the achievement by 2000 of ethanol as an important component of liquid fuel supplies in the USA. Fundamental to that objective has been the necessity to utilise the lignocellulosics as feedstocks. It is only lignocellulosics which are sufficiently abundant as to generate ethanol in quantities of significance to liquid fuel demand.
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The NREL base case process has been directed to techniques of bioconversion, largely in response to the conventional perception of the deficiencies of the traditional acid-based technologies. It has recently become apparent that progress with bioconversion processes has not been made sufficient for the timely achievement of the Biofuels Program objective. In October 1993 NREL issued an invitation for the submission of proposals whereby an economic improvement of its base case process may be effected. In the presentation of that invitation NREL identified key aspects of weaknesses in its base process and summarised the relative merits of alternative technologies for addressing those aspects. The process weaknesses identified by NREL were:- comminution and pretreatment, cellulase cost, C5 and minor C6 sugars fermentation, and by-products as credits. Also noted as requiring attention is the matter of environmental impacts arising from a future commercial-scale development of a cost-effective process. This last issue is principally related to the ethanol recovery and waste-treatment component of an overall conversion process. That component is not included in the NREL demonstration plant presently under construction. Neither is that component addressed by NREL in its summary of alternative technologies. Our enquiries as to that omission have confirmed that it arises due to there being no perception by NREL of alternatives to modern distillation processes. The relative merits of alternative technologies, as summarised by NREL, are presented as follows: Comminution the degree of feedstock particle size reduction preparatory to introduction to the process must be minimal beyond the degree of shredding or chipping which is ordinarily undertaken for conventional commercial purposes such as paper making. Reductions up to that point are quite efficient but the energy requirements for achieving smaller particle sizes increase exponentially with the extent of further reductions. This element of processing cost must be optimised with respect to the pre-treatment process adopted. Pretreatment possible methods are categorised as:- biological, chemical, mechanical and other physical. The pre-treatment element is principally directed to the achievement of liquefaction as a pre-condition for subsequent hydrolysis. Subject to optimisation with respect to feedstock comminution, the preference would be for pre-treatment to integrate with the hydrolysis process. On the basis of either or both energy efficiencies and liquefaction efficiencies the purely mechanical and other physical methods are dismissed. Although not specifically addressed by NREL it is appropriate to record that, among the mechanical and other physical methods which may be dismissed for lack of cost-effectiveness is that of steam explosion. Biological methods adapting natural decomposition processes are also not costeffective. The chemical methods are regarded as being the appropriate avenue of pre-treatment. Because of the extent to which chemical methods may integrate with the hydrolysis process they are considered below in that context. Hydrolysis within the chemical category of pre-treatment methods considered by NREL are the classes chemical and chemomechanical. Given the need to optimise comminution with pretreatment, the chemomechanical class is of greater relevance. With separate regard to only the hydrolysis function, the methods are classed as either acid or enzymatic. It is the use of acid which creates the opportunity to integrate pre-treatment and hydrolysis. In response to the disadvantages traditionally experienced with acid hydrolysis, the NREL base case has been directed to enzymatic processes. The original intention had been to integrate the three stages, pretreatment, hydrolysis and fermentation - the last being necessarily biological.
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The subsequent conclusion with respect to biological pre-treatment acknowledges the need for a non-biological step. Of the preferred chemomechanical pre-treatments none other than acid processes are cost-effective. In effecting enzymatic hydrolysis after employing an acid pretreatment, the stages must be separate with an intermediate pH adjustment. Although this course has been pursued successfully with respect to starch substrates it is evidently not costeffective in the case of celluloses. That deficiency is due to the much greater the cost, both absolute and relative, of the cellulase. Having concluded that enzymatic hydrolysis is, in itself, unlikely to be cost-effective and also recognising that it must be preceded by an acid-based chemical pre-treatment has inevitably led NREL to the view that acid hydrolysis should be reconsidered. There are two types of acid hydrolysis and the disadvantages of each are well understood. Both date their commercial development from the 1930's. Of the two, concentrated acid presently has no commercial application but mild acid is still utilised in the (formerly) Soviet Union and is conventionally regarded as the simpler. It is, in reality, more complex but less challenging if its inefficiencies can be ignored. Because of its much lower sugars yield it is only when feedstocks have a nil or negative cost to the process that the lesser consumption of acid can render mild acid the more cost-effective. The technical disadvantages and complexities unique to mild acid hydrolysis are numerous and include: the necessity for two processing stages to separately hydrolyse each of the hemicellulose and the cellulose even thus idealised, the maximum cellulose conversion is between only 30 - 50% and that requires residence times of less than 3 seconds. the expensive requirement for temperatures of up to 220 degrees C the concomitant yield of decomposition products which are inhibitors of fermentation. Concentrated acid hydrolysis was and remains unique for its conversion yields of some 90% in respect of both hemicellulose and cellulose. Those yields are achieved at temperatures of less than 100 degrees C. Concentrated sulphuric acid is a very efficient agent of cellulose liquefaction and hydrolysis and is very inexpensive. Even so, the greater acid consumption at double the weight and often more than ten times the concentration has, against the usually inefficient circumstances of mild acid utilisation, proven prohibitively expensive. The high boiling point of sulphuric acid has caused its recovery to be an elusive objective. The alternative use of hydrochloric acid at several times the price has been considered because its lower boiling point renders it more amenable to recovery. Nevertheless, hydrochloric acid is far more expensive to utilise by virtue of its greater corrosivity. A technical disadvantage to some extent shared by both acid processes, the corrosivity of mild acid employed with high temperatures is not substantially less and may even be greater than that of concentrated sulphuric acid. With the recent advent of resistant materials, the issue of corrosivity is currently of little significance as a factor of comparative cost. Subject to acid recovery, the cost efficiency of concentrated acid hydrolysis is superior in every other respect. Fermentation the challenge is to achieve the joint fermentation of the two classes of sugars yielded by lignocellulosics. The alternative would require the sugars stream to be split so as to undertake a discrete fermentation of each of the pentose and hexose elements. In either event, the inability to ferment pentoses has been the major difficulty.
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Despite their proclivity for hexoses, several strains of yeast have been identified as agents of xylose fermentation under microaerophilic conditions. By genetic engineering, the xylolitic capacities of those yeasts have been enhanced to permit their fermentation of xylose in the aerobic conditions under which they more usually operate as agents of hexose fermentation. Although the use of bacterial agents is more usually proposed in the context of an integration of the hydrolysis and fermentation steps to achieve SSF, there are two such applications proposed for use within a discrete fermentation stage. Both are directed to xylose fermentation. In the first instance, a bacterial isomerisation of xylose to xylulose will facilitate the employment of the traditional and ethanol-tolerant glucolytic yeast strains for xylose fermentation. Due to the equilibrium of isomerisation this course must be employed in a simultaneous fermentation and isomerisation system (SFIX). Current SFIX yields are similar to that achieved with xylolitic-enhanced yeasts but the rates of conversion are faster. The cost of the isomerase remains to be reduced and it must be immobilised in use to achieve pH compatibility with the attendant yeasts The second and more potent instance of the use of bacterial agents in a discrete fermentation process would involve the construction of ethanologenic bacteria by transfer to E.coli of Zymomonas genes. The reported yields and rates of conversion are very high and include arabinose conversion. Ethanol Recovery and Waste-Treatment there is no review of this matter included in the NREL summary. The likely reasons for that omission are noted in the introduction to this section.
5.3.4 Conclusions

Given its longstanding commitment to bioconversion processes, NREL's 1993 solicitation represents an expression of deep misgiving as to whether they will be the avenue for a timely achievement of cost-effective conversion. Nevertheless, pending the development of an efficient xylose fermentation, a cost-effective conversion remains heavily dependent upon achieving an efficient cellulose hydrolysis. Other than by a biological process, efficient cellulose hydrolysis is achievable only by concentrated acid. That summation of the preceding NREL evaluation is consistent with the results of our and Apace's enquiries during and following the Tenth ISAF in November 1993. There is, apart from the SHF enzymatic system, no biological process of cellulose hydrolysis available or suitable for demonstration. The cost-efficiency of separate enzymatic hydrolysis is totally unacceptable for the conversion of feedstocks representing a positive cost to the process. The extent of that defect is evidenced by the recent experience in Canada of using an SHF enzymatic system for the conversion of waste-paper. The process required that the feedstock cost be negative in the order of $C 50 - 75 per tonne. Whilst SHF (enzymatic) is excessively expensive, an SSF process was anticipated to be costeffective when using separately produced enzymes. Current advice is that, even for SSF, the cost of separately produced cellulases remains excessive by between 400 and 1000 percent. Furthermore, the optimum conditions for cellulase activity differ substantially from those for the accompanying fermentation. Simultaneous saccharification and fermentation will thus be suboptimal when employing a separately produced enzyme in conjunction with a yeast for fermentation.
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The biological processes presently under development are generally focussed on achieving xylose fermentation integrally with an SSF conversion of cellulose. The media proposed are bacteria. Apart from the matter of xylose fermentation, the motive is the avoidance of the so-far prohibitive cost of separate cellulase production. The bacterial process instanced by NREL is mirrored by one under development at UNSW but directed to Zymomonas enhancement. The UNSW process appears the more advanced of the two but is, nevertheless, far from ready for demonstration. Unless by a bacterial process such as that under development at UNSW, the achievement of SSF cellulose conversion is unlikely ever to be cost-effective. Every biological process, whether SSF (bacterial), SSF (enzymatic) or SHF, requires a preceding and separate mild acid pre-treatment with intermediate pH adjustment. The optimisation of feedstock comminution with pre-treatment infers that pre-treatment will be chemomechanical. A chemomechanical mild acid pre-treatment is essentially that of a mild acid hydrolysis system. That being so, a biological hydrolysis of cellulose must carry the cost of a mild acid hydrolysis system in addition to that of the biological system itself. As is evident from the preceding perspective on processing costs, the "savings" downstream of pre-treatment and hydrolysis must be substantial. In fact those "savings" cannot be sufficient without an effective xylose conversion. Xylose conversion is not dependant upon cellulose hydrolysis although its potential may be achieved by an SSF (bacterial) process directed to both. As between technologies for xylose fermentation per se and for SSF (bacterial), the former are far advanced and ready for demonstration. They are, however, not yet so effective as to offset the cost of an inefficient cellulose hydrolysis. Although a mild acid pre-treatment system efficiently hydrolyses hemicellulose it achieves negligible cellulose hydrolysis. A subsequent cellulose hydrolysis comprises a separate stage. In employing a mild acid process for that subsequent stage, the earlier cost of pre-treatment is, in effect, incurred a second time. The yield of C6 sugars from mild acid hydrolysis is unavoidably both low and contaminated. The contamination itself incurs a further processing cost, due either to remediation or to the inhibition of subsequent fermentation. In any event, since the prospective agency for xylose fermentation in such an SHF process is a yeast better suited to glucose fermentation, the low yield of C6 sugars will result in a poor total conversion despite the earlier efficient xylose hydrolysis. Every case of advanced mild acid hydrolysis currently proposed for demonstration is reliant on feedstocks having a negative cost to the process. Their cost-efficiency will no doubt improve with advances in effecting xylose fermentation. Nevertheless the inherent deficiency of cellulose hydrolysis by mild acid processes has no apparent prospect of remediation. Without such remediation, mild acid hydrolysis is unlikely ever to be cost-effective for feedstocks representing a positive cost to a conversion process. Given the status of both bioconversion processes and that of mild acid hydrolysis there is currently and for the foreseeable future no better system for cellulose hydrolysis than that of concentrated acid. Equally effective for hemicellulose, concentrated acid hydrolysis was, in 1985, acknowledged as the then most cost-effective process despite its lacking an acid recovery system. The subsequent development of a sulphuric acid recovery system together with an improved conversion yield renders concentrated acid hydrolysis technology most immediately applicable for a cost-effective conversion of feedstocks having a positive process cost. The employment of concentrated acid hydrolysis necessarily results in an SHF conversion. Nevertheless, the downstream integration of the hydrolysis of both cellulose and hemicellulose
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with an optimised stage of feedstock comminution and pre-treatment far exceeds that possible for an SSF system up to the point of fermentation. However, rather than functional integrity, cost-efficiency is more greatly dependent upon sugars conversion. Given an effective hydrolysis of both cellulosics within an SHF process, the focus of cost-efficiency then becomes xylose fermentation. The development of xylose conversion processes is most advanced with respect to fermentation. Using glucolytic yeasts with an enhanced capacity for xylose conversion, the state of process development is such that there are a number of such organisms ready for demonstration. In the context of a joint fermentation, the xylolitic capacity of such organisms remains less than that required for maximal xylose fermentation. Nevertheless, their use following an efficient hydrolysis of cellulose achieves from a joint fermentation a total conversion far greater than would otherwise be possible. Processes for ethanol recovery and waste-treatment have generally received little attention in the context of lignocellulosics conversion. The majority of modern ethanol recovery processes are dependent upon idealised fermentation processes. Their energy efficiency depends upon high concentrations of ethanol in the fermentation broth and they are ill-equipped to effect wastestream remediation in the event of substantial broth contamination. There is little short-term prospect of lignocellulosics conversions meeting either of those requirements. Having regard both to those requirements and to the issues for lignocellulosics conversion previously canvassed, the integrated and low energy consumption process developed by Apace Research Ltd remains unique in its suitability for a system of lignocellulosics conversion. 5.4 The Integrated Process Proposed for Demonstration

The demonstration of an integrated conversion process has been proposed to employ the fermentation technology developed by the Biotechnology Department of UNSW and the ethanol recovery and simultaneous waste treatment technology developed by Apace Research Ltd. Between them, these two technologies comprise the second and third of the three basic functions - hydrolysis, fermentation and ethanol recovery - of an integrated conversion process. Of the four issues to be addressed in effecting the necessary improvements to overall cost-efficiencies, the UNSW and Apace technologies address three, namely: UNSW fermentation of the C6 and C5 sugars. Apace reduction of energy inputs required for ethanol recovery and waste treatment. Apace reduction of the net water consumption by the process. A mechanism for effecting the first basic function, hydrolysis, remained to be identified in the course of the feasibility study. In order to design an integrated conversion process employing the respective UNSW and Apace technologies the major decision required was that with regard to the hydrolysis function. The difficulties encountered in this stage of the conversion of lignocellulosics and their implications for cost-efficiency, particularly when the feedstocks are realistically costed, have been extensively canvassed in the foregoing review of the status of technologies. In the absence of a demonstrable and cost-effective biological process of cellulose hydrolysis it was concluded that the immediate technical viability of the plant i.e. its capacity to produce ethanol could best be assured by an acid-based technology. The prospective availability of such technologies for the conversion of both celluloses and hemicelluloses in conjunction with the necessary feedstock pretreatment ranged from:
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 Steam explosion assisted by mild acidification as proposed by Unisearch in 1990. Steam explosion and/or mechanical disintegration in conjunction with high temperature mild acid hydrolysis conventional but ineffective Mechanical disintegration in conjunction with low temperature concentrated acid hydrolysis highly effective subject to issues of acid recovery and corrosivity. Despite the preceding review of the status of technologies apparently clearly favouring concentrated acid hydrolysis, its adoption by the demonstration project would depend upon its state of development. The 1990 Unisearch proposal for steam explosion as a dedicated pretreatment followed by the separate hydrolysis of the respective hemicelluloses and celluloses required due consideration. A further alternative, involving a pre-treatment by an organic solvent to separate the lignin and hemicelluloses from the celluloses with subsequent separate hydrolysis was recorded by the Unisearch report as warranting consideration. In summary there were considered to be three technologies upon which to base the pretreatment and hydrolysis elements of the process specifications for the proposed demonstration project. The three choices were: Dedicated pre-treatment by steam explosion followed by separate hydrolysis of the separated hemicellulose and cellulose outputs demonstrated technology available from Stake Technology Ltd of Canada. Dedicated pre-treatment by organic solvents followed by separate hydrolysis of the separated hemicellulose and cellulose outputs demonstrated technology available from Raphael Katzen Associates International Inc. of USA, et al. Combined pre-treatment and hydrolysis using recycled concentrated acid recently developed at the University of Southern Mississippi of USA. The practicalities of selecting a process for the pre-treatment and hydrolysis of feedstocks extend beyond issues of its likely technical suitability. At least as important are issues associated with its commercial availability to the project. The matter of commercial availability is not limited to merely the licensing of a selected technology but includes the availability of expertise in respect of its operation. With regard to the three technologies identified above, the issues with regard to their technical suitability were resolved as follows: Stake Technology Ltd a well developed process of pretreatment but incapable of efficient hemicellulose hydrolysis. Pre-treated cellulose requires a subsequent hydrolysis which cannot be cost-effective unless by an SSF process. The subject technology is presently utilised in Canada in a demonstration of waste-paper conversion. The demonstrated economics are that feedstocks must be cost-negative in the order of $C 50 - 75 per tonne. Although Staketech offered its technology to the project it was deemed both technically and economically unsuitable. ALLCELL (registered name) an organosolve process currently under demonstration by Raphael Katzen Associates International Inc. Directed to the extraction of pristine lignin and yielding hydrolysed hemicellulose this process also requires subsequent cellulose hydrolysis. The ALLCELL process is focussed upon yielding cellulose for fibre-end uses with a prior maximum yield of high value lignin from selected feedstocks. This process would not have been suitable on either technical or economic grounds and its availability was not pursued. Concentrated Acid a system of sulphuric acid recovery has recently been the subject
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of successful trials in a mini-plant at the University of Southern Mississippi. Improvements to the acid impregnation system have also been effected. The state of development is such that all parameters necessary for engineering design will have been determined by the time of a commitment to the project. The inherent conversion efficiency of a concentrated acid process is well established. The technical suitability of the respective pre-treatment and hydrolysis systems clearly favoured a concentrated acid system incorporating acid recycle. The employment of such technology would greatly enhance the efficiency of the total conversion process. In addition to its technical suitability the system has been offered for use by the project, together with the necessary expertise for its commissioning and operation. The decision was clearly resolved in favour of the concentrated acid system developed at the University of Southern Mississippi.
5.4.1 The Process Design

Apace Research Ltd was engaged to design an integrated conversion process employing the most advanced of available technologies. The design parameters were that the process must be: technically viable i.e. capable of output to specification, consistent with the objectives identified for a commercially viable conversion of wholelignocellulosics,applicable to the range of prospective feedstocks, and adaptable to both emerging technologies and conventional processes. The process design was to be subject to expert review prior to its submission to project participants for their independent evaluation. In the course of identifying technologies for incorporation with the process design, alternatives to those developed by Apace and UNSW were to receive due consideration. To that end all expressions of interest registered in conjunction with the call for this feasibility study by proponents of other technologies were pursued with an invitation to participate. There was no response received to any such invitation. The preceding review of the status of conversion technologies is the result of our and Apace's enquiry in the course of identifying technologies suitable for incorporation with the process. The process as designed is consistent with that review and the technologies selected are amenable to integration with one another. The integrated specification conforms with the design parameters as set out above. The process as designed is outlined as follows A Comminution/Pre-treatment/Hydrolysis the facilities for feedstock comminution are to be specified by a site-owner according to the waste-stream endemic to its site. The degree of comminution required is generally consistent with that applicable to processing for fibre end-uses. Post-comminution functions are performed by the concentrated sulphuric acid process via a twin-screw extruder and effecting simultaneous hydrolysis of cellulose and hemicellulose. This is a low temperature system and achieves hydrolysis in the order of 90% efficiency for both cellulose and hemicellulose. Fermentation a simultaneous fermentation of pentoses and hexoses is performed by a xylolitic-enhanced yeast in a high productivity continuous cell recycle and sugar limited system with ethanol concentration nominally 7.4 wt%. The system and the yeast are as developed by UNSW. For the specified yeast, conversion is 90% glucose and 40% xylose. A greater efficiency of pentose conversion is anticipated by the near-term availability from UNSW and others of alternative fermentation organisms which can be substituted for that specified in the system as designed.
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Ethanol Recovery and Waste Treatment the Apace system of a concentrated potassium carbonate induced phase separation, simultaneously effecting ethanol recovery and wastetreatment. Solids are flocculated and removed and the water is recycled to earlier process stages. The output is 92.43 wt% ethanol and flocculated solids exhibiting a 1.5% moisture content (dwb). The potassium carbonate agency of phase separation is reconcentrated and recycled in conjunction with water recycle.

The net water consumption of the process is approximately 1.3 litres per litre of ethanol. The majority of that consumption is represented by the moisture content (93.5% dwb) of the lignin co-product of the process. The gross energy output of the process is approximately 44 MJ per litre of ethanol production. Exclusive of the ethanol component, the gross energy yield is, per litre of ethanol, 24 MJ. The required energy input to the process is less than 9 MJ per litre of ethanol output. Depending upon the utility of the lignin co-product for a non-fuel end-use, the process is self-funding of energy inputs with the potential for surplus non-ethanol energy to be applied to electricity co-generation.
5.4.2 Expert Review of the Process

A review of the process design was undertaken by Raphael Katzen Associates International Inc. of Cincinnati, Ohio, USA. RKAII are process engineering consultants expert in the field of technologies for the conversion of lignocellulosics to ethanol. The report issued by RKAII is quoted verbatim and in its entirety as follows. Subject: Final Report on Items A and B Expert Review of Apace Research's Lignocellulose-to-Ethanol Process On the basis of information and data supplied to us by Apace, TVA and University of Southern Mississippi representatives, we have completed our Expert Review on the feasibility of a demonstration facility for the proposed process. Review Item A In order to reach an opinion concerning technical feasibility, we have considered a number of key points in the proposed process, described below: 1. Acid Hydrolysis

The process utilizing concentrated sulfuric acid to gelatinize cellulosics, including hemicellulose and cellulose in wood and agricultural residues, followed by dilution and heating to facilitate hydrolysis of the gelatinized hemicellulose and cellulose to five-carbon and sixcarbon sugars, is based in part on well-established technology. The introduction of extrusion technology for the preliminary cellulosic gelatinization stage is based in part on laboratory and pilot plant work but has not yet been established on demonstration or commercial levels. The design proposed by TVA will be tested in their and USM's mini-pilot plant, parts of which are now under construction. The proposed process conditions have been developed from laboratory and pilot plant test work done in the 1940's (Dunning & Lapthrop), but adjusted to somewhat different acid concentration and loading conditions. Changing from the conditions of the earlier researchers, to the conditions now proposed by TVA, could achieve a substantial improvement, but would require some verification. The design proposed by TVA is based in part on laboratory and pilot plant work, but will be further tested in their and USM's mini-pilot plant, parts of which are now under construction. Results of these operations would facilitate the Apace demonstration plant design.
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2.

Acid-Sugar Separation and Concentration

Separation of sugars from the dilute sulfuric acid involves a novel application of ion-exclusion technology. The ion-exclusion process application is somewhat similar to that in commercial practice for recovering sugar from beet molasses. The novel application with substantial sulfuric acid content has been tested on a small pilot scale at USM but has had only relatively short-term operation of 100 hours, or less. Although observation of the short-term operation indicates little or no deterioration of the resin, a 20% annual replacement allowance has been made in the projected design. Thus, the life expectancy of the ion-exclusion resin is open to question. Material balances developed by Apace and TVA/USM can be correlated. Observations at USM indicate that there is some acid carried along with the sugars, and some sugars carried along with acid stream discharged from the ion-exclusion process. Acid content of the sugar stream is not critical, but should, as is proposed, be minimized to reduce pH adjustment requirements. On the other hand, in subsequent evaporation/concentration of the acid for recycling, sugars present in the acid stream can create difficulties. The presence of those sugars not only has the potential for fouling of the evaporator heat transfer surfaces but can also cause loss of some of the sugars proposed to be recycled. Increase in sugar elution water can minimize this potential problem, but at the possible expense of increased evaporation load in sugar concentration. 3. Fermentation

In addition to the detailed description of the continuous fermentation process, including yeast recycle, conditions for propagation of the yeast must be delineated. The specific organism selected by Apace from research done at the University of New South Wales, Candida tropicalis yeast, apparently has quite high selectivity for C6 sugars conversion to ethanol but that for conversion to C5 sugars is substantially lower. Apart from the organic acids already identified, acetic and lactic, information is needed concerning other chemicals which may be produced from the C5 fermentation. 4. Ethanol Recovery

The process proposed by Apace, recovering ethanol by its displacement from aqueous solution using concentrated potassium carbonate to achieve phase separation and absorb the water content, is quite interesting, as by comparison with conventional processes it could reduce the energy requirement substantially. However, we cannot comment on the economic value of the separated 92 wt. % ethanol recovered therefrom and the cost-efficiency of the process for reconcentrating the diluted potassium carbonate solution, which also remains to be proven. There is, also, despite the process specification, a question of carryover of potassium carbonate in the aqueous content of the recovered ethanol. This could require an evaporation step to purify the product. Review Item B. This Expert Review anticipates for the demonstration plant design more comprehensive information available from the TVA/USM mini-pilot plant operation. Other than that, design basis questions for commercial facility design will best be answered in the operation of the proposed Apace demonstration facility. Therefore, the design of the Apace unit must be sufficiently flexible to take into account reasonable deviations from the currently specified design and operating conditions.

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1.

All in all, the combination of the extrusion-acid hydrolysis process, the ion-exclusion process, the novel fermentation yeast, and the "salting-out" ethanol recovery system, appears to be technically feasible and worth evaluating in a demonstration facility of the scale proposed, to establish both technical and economic feasibility. Information and data provided in Revision 3 of the Process Specification, for the Expert Review of the Item B stage of the study, has sharpened focus on the process questions indicated in Review Item A above. The material submitted by Apace, including process description and design information from Apace, TVA, USM and UNSW, is a basic requirement for prospective site owners to obtain knowledge of the process definition, design and operating conditions, and general integration of material and energy flows. However, for such parties to submit proposals, they will probably also require an equipment list indicating sizes, pressure and temperature ratings, materials of construction and, as for the extruders, any special design characteristics. Although this Expert Review indicates that the proposed Apace process is viable from a technical standpoint, the questions raised in Review Item A definitely indicate the need for the demonstration facility to determine more accurately the technical problems which may develop and the proposed solutions.

2.

3.

No data was available on estimated costs, either of investment or operations, on a projected commercial scale. This can only be determined by operation of the demonstration plant and projection of data from that facility to commercial scale investment and operating requirements. At that time, comparison can be made with alternative competitive technologies, for which investment and operating costs at commercial scale are available. With respect to operating costs, the process indicates relatively high yields of ethanol and low to moderate energy consumption. However, because of the complexity of the process, and the corrosive nature of the acid medium, both in the hydrolysis stage and in evaporative recovery, capital cost may be on the high side. The conclusion reached by RKAII is that the process is technically viable as specified. Having regard to the state of development of each of the specified components, the proposed demonstration is warranted. The reservations expressed are consistent with the conclusion that the issues to be resolved can be determined only by demonstration as proposed.
5.4.3 Research and Development

The proposed demonstration project will incorporate a program of research and development. That program will principally be directed to the optimisation of the specified process with respect to the lignocellulosic waste-stream endemic to the site. The issues to be addressed in that context will generally be those variously identified by RKAII in the course of its expert review. On the basis of that optimisation the underlying cost-efficiency of the process will be evaluated. That evaluation will enable the identification of issues needing to be resolved with a view to commercialising the process. It will be at that stage that decisions as to the adoption of other technologies will first be required. Subject to the results of that initial optimisation the R & D program will proceed to an evaluation of feedstocks identified as prospectively available in the event of commercialisation. It can be anticipated that the conversion quality of respective feedstocks will be variable and that the conditions of the initial optimisation will require variation accordingly. That will be the
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basis for a determination of the commercial viability of the various feedstocks and, hence, of the process. In this context the adoption of other technologies will again be a matter for consideration. Generally, the initial optimisation, the subsequent evaluation of a range of feedstocks and the establishment of commercial viability accordingly is the extent of the R & D program which is proposed for the demonstration project. Within that program it is expected that the issues critical to the cost-efficiency of an optimised process, in order of importance, will be: maximising the value of lignin co-product pentose conversion efficiency. That expectation is consistent, given the other efficiencies anticipated by the process design, with those matters identified in the course of a review of the status of technologies. Although the design specification is for an acid-based SHF conversion, the plant is inherently amenable to any alternative bioconversion process including SSF. That amenity is best described by reference to the respective conversion stages. Comminution and Pretreatment an acid-based chemomechanical process is regarded as a prerequisite for bioconversion. The proposed concentrated acid system is adaptable to the use of mild acid to effect only pretreatment prior to subsequent cellulose hydrolysis. Hydrolysis a separate hydrolysis of each of cellulose and hemicellulose may be effected. The separate recovery of hydrolysed hemicellulose may be desirable for maximising the fermentation of pentoses. Fermentation the system specified will accommodate any developments with respect to xylose/pentose fermentation including those directed to an SSF bacterial conversion. Ethanol Recovery and Waste-Treatment the proposed system may be adapted for use as an intermediate process for delivery of highly concentrated ethanol to a subsequent process of refinement. These opportunities for a wide range of R & D applications arise in consequence of the design parameter requiring the process specification to be adaptable to both emerging technologies and conventional processes. Section 6.6 outlines a demonstration program for incorporation with project proposals. 5.5 Conclusion

The objectives necessary to attaining commercial viability are set out at Section 5.2.4 and the status of conversion technologies is reviewed in Section 5.3. According to the conclusions reached by that review, the process proposed for demonstration incorporates those technologies more likely than other possible choices to effect, in the near-term, a conversion exhibiting the cost-efficiencies necessary for commercialisation. The expert review by RKAII of the integrated process specification concludes in favour of its technical viability and recommends its demonstration as proposed. Accordingly the specification was submitted to industry participants for their independent evaluation of project feasibility.

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CHAPTER 6
The Feasibility of an Industrial-scale Demonstration of the Conversion of Lignocellulosics to Ethanol and Lignin Co-products
6.1 Introduction

Realisation of the benefits anticipated from a commercial-scale conversion of lignocellulosics firstly requires that the process be demonstrated as cost-effective. Although technologies may be researched and developed in laboratories and semi-technical mini-plants, that scale of demonstration is inadequate for the confident prediction of commercial viability. An intermediate scale of demonstration is required to replicate cost-efficiencies under conditions which are industrially realistic. At an annual output of 2 megalitres ethanol, the proposed scale of the demonstration plant is only some 2 - 4 percent of that anticipated to be commercially optimal. Nevertheless, at that scale the plant would be operating with industrial units of inputs and outputs that is, by the truckload. The associated trials of various lignocellulosic materials identified as prospective commercial feedstocks will also, at that scale, be realistic. The results of the demonstration project, with respect to both the conversion process and the feedstock trials, will provide a valid evaluation of commercial viability. As proposed, the demonstration project will have a clear commercial focus. The enlistment of participation by industry in this study has been intended to heighten that focus. That industry participation was sought for the attainment of three objectives: the timely commercial implementation of a cost-effective process the imposition of a commercial discipline upon the conduct of the project the availability of a site for a commercially valid demonstration. Participation by industry was invited on the basis that the participant would be the proponent of a demonstration project. The invitation for proposals which was submitted to industry participants consisted of three elements: an integrated process specification comprised of the technologies identified as likely to achieve a cost-effective conversion an independent expert review of the process specification for the assurance of its technical viability and the merits of its proposed demonstration an outline of the scope of proposals sought and of some of the issues to be considered. Industry participants were invited to formulate proposals generally in accordance with their usual procedures for project evaluation. An important element of that evaluation would be that, by its independent enquiry, a participant should satisfy itself as to the merits of the project. 6.2 Site Selection

The process of site selection Item 3 of the Work Program for this study was undertaken to identify those to be invited as industry participants. The participation sought was their

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independent conduct of Item 4 of the Work Program Site Evaluation. In the course of site selection, issues considered were: the likely capacity of a site-owner to commercialise a cost-effective process the availability of a site having a lignocellulosic waste-stream sufficient to constitute the feedstock necessary for a plant scaled at 2 megalitres of ethanol output It was intended that the process of site-selection should result in the enlistment of four industry participants. The outcome sought was the tendering of up to four proposals to undertake a demonstration project with the financial assistance offered by the Commonwealth. This feasibility study was originally supported by a number of industry parties among whom, being prospective site-owners, were: Auscott Ltd Boral Ltd CSR Ltd NSW Sugar Milling Co-operative Ltd Being in each case substantial processors of lignocellulosics, expressions of support by the above derived from their respective involvement with work undertaken for the NSW State Energy Research Fund. That work arose out of a 1991 call for demonstration proposals. The interest of the NSW Sugar Milling Co-operative Ltd dated from a long-standing association with The University of New South Wales Biotechnology Department and Apace Research Ltd in the field of lignocellulosics conversion. The Terms of Reference for this study, issued in January 1993, elicited additional interest expressed to the Commonwealth government by the following, as prospective site-owners ICI Australia Operations Pty Ltd Morwell Enterprise Centre Shepparton Kyabram Rodney Development Corporation Wimmera Development Association These additional expressions of interest were acknowledged early in the course of this study and each was invited to consider participation as provided. Subsequently, a further expression of interest was received from T Bowring and Associates. Of the above nine expressions of interest, six were formally invited to participate as prospective site-owners. The terms of that invitation were as follows: We refer to our feasibility study regarding the prospect of undertaking a three year RD&D programme to demonstrate the economic and technical viability of the production of ethanol and lignin co-product using lignocellulosic feedstocks. In response to your having expressed interest in the prospect of offering your lignocellulosic processing site at ............... for the proposed demonstration plant, we are pleased to hereby invite you to undertake, entirely at your expense, the necessary review of the proposed process specifications in accordance with Item 4 of our study's Work Programme. In the event that your Item 4 review favours the prospect of your tendering a proposal to take up the offer by the Commonwealth of dollar-for-dollar financial assistance up to $2 million, the matters referred to in Item 5 of our Work Programme will also be addressed in finalising your proposal. Were, however, the result of your Item 4 review not to favour your proceeding to tender a detailed proposal to undertake the three-year RD&D programme you will nevertheless provide us with the results of your findings and the reasons for your unfavourable conclusion so that they may be incorporated in our final report to the Commonwealth.
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Presently, the preparation by Apace Research Ltd of the detailed process specifications is in hand. We anticipate that the process will comprise an integration of the following patented technologies: combined pre-treatment and hydrolysis by concentrated acid per Tennessee Valley Authority (Dr. George Farina); combined fermentation of cellulose and hemi-cellulose per University of New South Wales Biotechnology (Professor Peter Rogers); and simultaneous ethanol recovery and waste-treatment per Apace Research Ltd (Dr. Russell Reeves). The integration of the technologies to comprise a complete process has necessarily required a substantial degree of intellectual input by each of the parties. Accordingly, this invitation is tendered subject to your being prepared to conclude a confidence agreement as per the accompanying draft. For the purpose of providing you with a preliminary assurance as to the likely technical and economic viability of the general process specification to be supplied for your review, we have arranged to engage Raphael Katzen Associates International Inc (RKAII) of Ohio, USA. We propose that the general process specification will be submitted to you subject to a favourable review by RKAII and, in that event, the specification will be accompanied by the report from RKAII. We anticipate that the report by RKAII will be available one month after we have supplied RKAII with the detailed process specification. The specification will be very detailed and will include both mass and heat balances. The specification will be all the more reliable for that detail and hence your review in terms of Item 4 should be facilitated. Given the original intention that our feasibility study be finalised by the end of April, 1994 we invite you to accept the following timetable for undertaking Item 4 of our Work Programme Week 0 Week 3 our providing you with the specification and accompanying RKAII report. your advising us of your preliminary findings and an indication of the consequent likelihood of your tendering an offer to undertake the demonstration programme on your site. subject to your favourable advice as above, your further advice of having substantially completed Item 4 subject to the issues to be considered by Item 5 of our work programme. our providing you with a detailed schedule of the proposed RD&D programme and associated requirements as per Item 5 of our Work Programme. your advising us of your having agreed with the respective external technical experts i.e. Apace Research Ltd et al upon the format and modus operandi of a three-year RD&D programme to be incorporated in your offer to the Commonwealth. your providing us in confidence with a first draft of your proposed offer so that we may advise as to whether it appears to adequately address the issues and intentions underlying our study. your providing us in confidence with your finalised offer for its incorporation as a commercial-in-confidence appendix to our report to the Commonwealth.

Week 5 -

Week 6 Week 8 -

Week 9 -

Week 12 -

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In view of the present status of the preparation of the process specification, we expect that the end of February 1994 will mark Week 0 above. Consequently, finalisation of our report will not be achievable by the end of April 1994. Nonetheless, a delay is to be preferred if, in so doing, a better result is the outcome. We look forward to your participating in our feasibility study as invited herewith and we thank you for your interest to date. Your acceptance of this invitation will not constitute the incurrence of any actionable liability other than as provided by the proposed confidence agreement, the conclusion of which is a condition of your acceptance. By the same token our inviting your participation as proposed above does not create any actionable liability as between the Gorton Timber Company Pty Ltd and yourselves. Both our invitation and your acceptance are each to be construed only as expressions of interest made in good faith. In the event, five acceptances were received. Auscott Ltd declined the invitation to participate as a prospective site owner. Its reasons were as follows: resources considered inadequate for the task; reservations as to the sufficient availability of cotton crop residues for an eventual commercialisation in the context of that industry.

The reservations expressed by Auscott with respect to the future supply of cotton stubbles were accounted for in the evaluation of feedstock availability set out in Chapter 3. That evaluation is consistent with those reservations. The five site-owners which accepted the invitation are set out below, together with a summary of the merits of their prospective participation: Boral Ltd - a large Australian corporation having substantial interests in both fibre and fuel energies, Boral's capacity to effect the commercial development of a costeffective conversion is undoubted. - site proposed - Maxwell's Creek timber mill at Dungog, NSW; lignocellulosic waste-stream is approximately 6000 tonnes per annum; proximate regional resources of surplus lignocellulosics are sufficient to substantially increase the scale of conversion should such be warranted. CSR Ltd - a large Australian corporation with diverse interests including substantial timber processing activities, forest holdings and the production of ethanol from sugar-milling waste-streams; CSR undoubtedly has the capacity to commercially develop a cost-effective conversion. - site proposed - a hardboard mill at Raymond Terrace, NSW; lignocellulosic wastestream is approximately 1 megalitre per day of xylose contaminated water; proximate regional resources of surplus whole lignocellulosics sufficient to balance that waste-stream as conversion feedstock and, in consequence, to increase the scale of conversion. Morwell Enterprise Centre - a regional consortium including Coal Corporation of Victoria, Gippsland Water and Latrobe Regional Commission; participation proposed in conjunction with, amongst others, Amcor Ltd (APM Forests Pty Ltd et al); Amcor also being a large Australian corporation (paper manufacturer and forest owner), a sufficient capacity to effect commercial development is anticipated. - site proposed - the former BCLV plant at Morwell, Vic., adjacent to a large softwood sawmill; locally available lignocellulosic waste-streams exceed the 6000 tonnes annual feedstock requirement and proximate regional resources of surplus
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lignocellulosics considerably exceed that anticipated to be necessary for commercial development. NSW Sugar Milling Co-operative Ltd - the largest miller of sugar cane in NSW and having a long-standing interest in the prospective conversion of bagasse to ethanol and lignin; the association of the co-operative with the Manildra Group was considered by us to imply a sufficient capacity to commercially develop a cost-effective conversion. - site proposed - the Broadwater, NSW, sugar mill annually yielding bagasse in excess of the 6000 tonnes necessary for the proposed 2 megalitre scale demonstration plant; proximate regional resources, both bagasse and forest residues, well in excess of feedstock quantities likely to be required for commercial development. T Bowring and Associates - the least commercially substantial of those invited, this participant was, nevertheless, associated with a group of industry and regional entities having a long-standing interest in the conversion to ethanol of agricultural processing waste-streams generated in the Goulburn Valley region of Victoria. Among those interested was the Shepparton Kyabram Rodney Development Corporation. - site proposed - a disused milk condensory at Merrigum, Vic, together with an underutilised distillery at nearby Shepparton, Vic. In combination, these two plants contained much equipment appropriate to the proposed demonstration project; a preexisting proposal (for the conversion of wheat straw sourced from the Wimmera District of Victoria) was to be amended to conform with the objectives of this study. Although of lesser commercial substance than the others, T. Bowring and Associates had the advantage of a pre-existing proposal upon which to base its participation. That advantage was imparted by an initially greater appreciation of the technical issues and of the likely infrastructure requirements. By comparison, the greater resources of the other participants should have enabled them to overcome any initial lack of familiarity with the nature of this matter. 6.3 Process Design and Expert Review

The technical requirements for effecting an efficient conversion of lignocellulosics to ethanol and lignin co-products have been reviewed in Chapter 5. Key issues identified are: cellulose hydrolysis pentose fermentation Whilst these elements of conversion have been found to pose difficulties, the difficulties are predominantly those of cost rather than technique. The technique of employing concentrated acid for an efficient cellulose hydrolysis is well understood. Fermentation of pentoses under microaerophilic conditions is also substantially effective. In both cases, the problem is their cost-efficiency. Apace Research Ltd undertook for this study the design of an integrated conversion process to be submitted to industry participants for their independent evaluation. The process design was consistent with our review of the status of conversion technologies as reported in Chapter 5. That review is based upon enquiries during and subsequent to the Tenth International Symposium on Alcohol Fuels convened in Colorado, USA, during November 1993. The designed process is comprised of: concentrated acid hydrolysis simultaneous fermentation of pentoses and hexoses simultaneous ethanol recovery and waste treatment
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The parameters established for the design, and an outline of the integrated process are both set out at Section 5.4.1 of this report.
6.3.1 Brief for Expert Review

Prior to submitting the design and specifications to industry participants for their independent evaluation, the integrated process was subjected to expert review. That review was undertaken for the study by Raphael Katzen Associates International Inc (RKAII) of Ohio, USA. The brief for the review by RKAII was as follows: A. Re. Item 1 of our Work Programme - peruse the integrated process specifications to be submitted by us so as to advise your opinion as to whether they constitute a process brief adequately defined so as to permit site-owners to embark upon their commitments per Item 4 of the Work Programme. No other evaluation of the merits of the process specification is required in this context. B. Re. Item 2 of our Work Programme - conduct an expert review of the process specification as to its merits compared with other processes, both conventional and emerging, measured in terms of the likelihood that:i having regard to the extent that process components as proposed are untried, the technical viability (i.e. the capacity to produce ethanol and lignin irrespective of cost) is assured by virtue of the process specification having retained the flexibility needed to permit resort to conventional processes; and given the definition of economic viability appended hereto, the process specification as proposed is capable of achieving ethanol and lignin production at a conversion processing cost of the order of $US 0.11 per kilogram of ethanol output; and based on your knowledge of conventional and alternative processes, the process specification as submitted will effect production of ethanol and lignin at a cost substantially lower than production costs generally expected from those other technologies.

ii

iii

The principal object of the proposed programme is to demonstrate a conversion process which is, of itself, technically viable and which also has an acceptable likelihood of proving to be economically viable. Unless there is overwhelming and readily available evidence that the process specification as proposed is less likely than some alternative of achieving those objects we do not believe that there is, for the purpose of our study, a need for the extensive consideration of alternative processes.
6.3.2 Report of Expert Review

The report issued by RKAII is quoted verbatim at Section 5.4.2 herewith. In essence, that report concluded that: the integrated process is technically feasible the demonstration proposed is warranted by the status of component technologies a 2 megalitre plant is a scale appropriate for the proposed demonstration the commercial viability of the process can be evaluated only by a demonstration such as that proposed.

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That element of the review brief referring to a definition of economic viability was not undertaken by RKAII. The matter of economic viability, in the context of that definition, is addressed at Section 6.9 of this Chapter. In anticipation of industry participants requiring some further explanation of aspects of the report issued by RKAII, we requested some supplementary information. Our queries and, in bold type, the corresponding responses by RKAII are set out below. References by RKAII to "Apace process" mean the integrated process rather than only the Apace technology. Re: RKAII Expert Review - Supplementary enquiries The imperative, in Australia if not elsewhere, is that ethanol production on a scale sufficient to adequately supply alternative liquid fuel must depend upon whole-lignocellulosic feedstocks and must also effect conversion with the minimum net consumption of water. With respect to whole-lignocellulosic conversion, there is no prospect that the quantity of ethanol necessary to effect a worthwhile impact upon fuel supplies might otherwise be produced by the application of technologies which rely upon a dominant other cellulose processing industry, e.g. paper, to provide and also, to some extent, subsidise the cost of feedstock. Much of the prospective lignocellulosic resource occurs, and hence the prospective locale for ethanol-from-lignocellulosics production would occur, in rural areas having limited supplies of water. Those same areas would be most advantaged by the local availability of lignin, whether for electricity co-generation or for soil stabilisation. Also, unlike the USA, it is not an option to propose the utilisation of surplus lignocellulosics as an unconverted solid fuel for the generation of electricity in competition with our abundant coal resources. There is, however, the opportunity to apply the lignin, co-produced with ethanol, as a solid fuel for the co-generation of electricity into the coal-dominated market. In addition, there is also the prospect of applying large quantities of lignin as a soil stabiliser. An instance would be its likely use in maintaining an extensive light-duty rural road network. The foregoing generally describes considerations underlying the choices of technologies made in the course of specifying the conversion process proposed for demonstration. The following supplementary enquiries are prefaced accordingly: 1. Having regard to the wide-ranging expertise of RKAII in the field of lignocellulosics conversion to ethanol, is it the view of RKAII that the conversion process proposed for demonstration represents -- the best/ a poor -- choice of emerging technologies to suit Australian circumstances as presented above? The RKAII view of the Apace conversion process is that it represents another potential choice of emerging technologies. At this point in time it is not feasible to determine whether the Apace process is technically and economically either the best or a poor choice among the emerging technologies. 2. Considering the availability of alternative technologies which have achieved development beyond the status of those proposed by us for demonstration, does RKAII regard as unwise or unwarranted in any or all cases the choices of technologies which have been made? RKAII does not regard demonstration of the Apace process as unwise or unwarranted, but is definitely recommending demonstration of the process.
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3. Acknowledging the essentially unproven status of the chosen technologies and the complexity of aspects of the proposed process, would RKAII - strongly/mildly recommend that opportunities for staging the introduction of that complexity be further developed at this stage of the project? RKAII has already recommended that the TVA/USM mini-pilot plant data be made available as soon as such information is developed, for use by the site owner carrying out design of the demonstration facility. 4. In offering your opinion as to the technical feasibility of the process are we to understand RKAII to mean that the plant will -- definitely/ probably/ possibly -- be capable of ethanol production and with what degree of confidence does RKAII hold that opinion? RKAII believes that the proposed demonstration plant will definitely be capable of producing ethanol from a technical standpoint, but RKAII cannot, at this point, advise concerning the economic feasibility. The latter determination will depend on evaluation of results obtained from the demonstration plant operation and optimization. 5. We understand that RKAII envisages a staged introduction of complexity in terms of "... the next larger scale facility." Does RKAII not regard as feasible such a staging occurring by way of adding complexity to the plant during the R D & D programme and thus, over time, achieving the conversion efficiency envisaged by the process specifications? RKAII has suggested that the demonstration plant could be simplified by carrying out the three different evaporation operations without use of vapor recompression facilities, which may be difficult to acquire for the relatively small-scale demonstration plant. Engineering evaluation of the demonstration plant data can readily be adapted by well-known engineering and energy economics of vapor recompression for an eventual larger scale commercial installation. If a larger scale commercial facility is not foreseen, it may be feasible to add vapor recompression facilities to the demonstration plant at a later date. In addition to the above matters we would be grateful for any perspective - whether intuitive or calculated (approximate or otherwise) - which you can offer regarding the following points in your Expert Review a. Item A.1 para 2 does the proposed change of conditions promise to effect an improvement on earlier results? To what degree (e.g. none/totally) does the achievement of that improvement affect the technical viability of the proposed plant? The proposed changes in conditions can result in an improvement of earlier results. However, such changes would not so much affect the technical feasibility as they would the investment and operating economics. b. Item A.2 para 2 is the possible expense of increased evaporative load likely to be prohibitive? sufficient to offset the advantage? a minor cost relative to the value of sugar otherwise lost?
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Is the incurrence of that expense warranted solely or the basis of avoiding evaporator fouling? Potential increased evaporative load would have to be evaluated from the demonstration plant results. This is not expected to be critical from an energy stand-point, but may be required not only in relation to value of sugar possibly lost, but also the effect of sugar degradation on the physical operation of evaporative equipment (due to possible fouling). Here again, the relative economic results can only be determined from experience with the demonstration plant operation over substantial periods of time. c. Item A.3 is the description of the fermentation process insufficiently comprehensive? What degree of need attaches to the additional delineation of propagation conditions for purpose of evaluating technical viability (as distinct from economic viability)? Re. Candida tropicalis selectivities "quite high" and "substantially lower" - relative to what in each case? Is the information lacking re. other products of C5 fermentation a - major / minor issue and what concerns did RKAII have? With respect to the fermentation process, we are looking at a relatively new organism. Specific conditions relating to propagation, recycle and reuse will depend on viability and possibly mutative effects, which can only be determined with long periods of operation of the demonstration plant, including extensive organism recycle. With respect to potential yields, the data indicates that the Candida tropicalis can achieve yields and selectivities from C6 sugars as high as those achieved with saccharomyces and other organisms. With respect to fermentation of five-carbon sugars, the Candida appears to be similar to other yeasts and some bacteria, which produce moderate ethanol yields in the range of 50% to 60%, but with production of substantial amounts of other products, such as organic acids. The real target will be the results reported by Ingram at the University of Florida, with his recombinant bacteria, which appear to achieve up to 90% of theoretical ethanol yields, with minimal by-products. The question of yields and selectivity is a major issue. However, a related minor issue is the cost of separation and disposition of by-products, such as acetic acid and lactic acid, which if not separately recovered, can be quite costly in terms of need for waste treatment. d. Item A.4 Re. reduced energy required by comparison with conventional processes? by comparison with usual expectations for lignocellulosic broths? sufficient to redress otherwise expected diseconomies? The reduced energy indication pertains particularly to the potassium carbonate salting out of ethanol, which can essentially eliminate the thermal requirement for stripping and rectifying ethanol. However, as indicated, if there is some potassium carbonate carryover with the ethanol, an evaporation step may be required, which would have a modest energy requirement compared to distillation. - Re. information on economics are you noting that the economics of carbonate reconcentration will depend on the cost of otherwise replenishing it?
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have yet to be proven insofar as the energy requirement will counteract the earlier noted advantage? Is the lack of economic information a matter to be addressed during the demonstration programme or is the lack to be rectified as a pre-condition for proceeding with the project? The cost of potassium carbonate reconcentration should not be a major operating cost concern, with the eventual use of vapor recompression. However, depending on the degree of dilution, the capital requirement for the evaporator and vapor compressors could be affected appreciably. These questions could certainly be answered with protracted operation of the demonstration plant, but could not be determined prior to such operation. e. Item B.1 para 1 Is the sufficient flexibility lacking in the process specifications or are you observing that flexibility should be introduced during a subsequent plant design process? We are proposing that the eventual design of the demonstration plant be conservative enough to provide flexibility for some of the variables we have indicated. With data coming available from the mini-pilot plant, it should be possible to develop a design with a moderate amount of flexibility, say with respect to sugar and acid concentrations after separation; evaporative capacity; ethanol and byproduct concentrations from fermentation; and, in the separation operation, to allow study of these variables and permit optimization during the demonstration plant operation. f. Item B.1 para 2 Is the appearance of technical feasibility entirely clear or is it clouded by doubt as to one or more process aspects which you could nominate in order of importance; and, in that case/ those cases nominated to what extent is technical feasibility (ie. ability to produce ethanol) rendered doubtful (slightly/highly)? There is no question, as a result of the RKAII expert review, concerning the technical feasibility of the Apace process. The questions which have arisen pertain particularly to the economic results, as the technical stages of operation are studied and optimized in the demonstration plant. As indicated, we consider the sugar/acid separation, relative concentrations and purities, to be one of the most critical aspects of the process. We also consider the potassium carbonate/ethanol separation process to be the next most critical. For example, what happens to the acetic and lactic acids which are present from the fermentation of C5 sugars? These would probably react with the potassium carbonate to form potassium acetate and potassium lactate. What effect would these salts have on the potassium carbonate (salting out) process? Possibly these acids may have to be separated by ion-exchange, prior to the potassium carbonate processing of the dilute ethanol from fermentation. Is the process worth evaluating merely as one of a number of possible conversion processes, and thus of little more than academic interest, or is there some greater merit than that?

As indicated in our report, the Apace process is certainly worth evaluating. Although it is one of several developing lignocellulose conversion processes, it shows considerable potential with respect to the use of ion-exclusion for acid
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recovery, use of another fermenting organism which can convert both C6 and C5 sugars, and the relatively unique ethanol concentration process. Reduced energy requirements are one of the more promising aspects of the Apace process. Is the scale of demonstration proposed appropriate (excessive/desirable) both for technical development and/or for economic evaluation?

The scale of the demonstration plant, approximately 8 tons per day of lignocellulose feedstock (dry-basis), is reasonable for both technical and economic evaluations. Is the sharpened focus merely an improvement or is it closer to (almost/entirely) that identification of detail required at this stage of developing the proposal?

The sharpened focus referred to in our report refers to additional identification of process details and operating conditions which would be available at the time of demonstration plant design, from the mini-plant operation at TVA/USM. g. Item b.2 para 1 In your specialised experience / in terms of general process engineering, is the apparently required equipment: "run-of-the-mill"? to some extent (great/minor) unusual? available only as a one-off requiring design and manufacture? Most of the equipment required for the demonstration plant is run of the mill. However, there are some special items, such as the ion-exclusion facility, which require special design and operating know-how. In reference to the cost of such items, the demonstration plant design will indicate whether they are reasonable in cost, or expensive. as above, are the consumable inputs common / not usually available / expected to be highly expensive?

Ion-exclusion data obtained several years ago indicated a very high investment, for both the resin beds and the resin charge. However, improvements developed at USM indicate a major reduction in both requirements. Item B.3 para 2 Re. high yields of ethanol - relative to what? Re. low to moderate energy consumption - relative to what? Re. capital cost on the high side - relative to what? Relative yields of ethanol relate to saccharomyces fermentation of C6 sugars and recombinant bacterial fermentation of C5 sugars. Energy consumption would be related to other technologies utilizing, for example, enzymatic rather than acid hydrolysis, and the more advanced ethanol distillation/dehydration processes available commercially. Capital cost would also be evaluated, relative to these alternatives. Re. acid corrosivity does this anticipate the certainty of a high initial capital cost due to the necessity for special materials or does it instead refer to the risk that, although special materials are not needed, equipment deterioration may be
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rapid/more rapid than might be inferred from the specification and thus mean a reduction in useful life over which to charge the capital invested? With respect to acid corrosion, we are assuming that materials which will not last at least ten years, and preferably in twenty years of service, would not be acceptable commercially. However, a demonstration plant could be built of less resistant materials, as it would not require such a long life. Nevertheless, if it is eventually used on a commercial basis, as has been suggested, then it would have to be durable. Although considerable use can be made of relatively low cost fiber reinforced plastics (FRP), resistant membranes and special brick or ceramic linings, the greatest problem occurs in the sulfuric acid evaporator, where, as acid is concentrated, it goes through the most corrosive stage (in the range of 30% to 55% concentration). Re. evaporative recovery is this referring only to acid recovery or does it refer also to some / all other downstream elements of the process including ethanol recovery?

With respect to evaporator operations, economic evaluation will relate to the equipment design and control system for the highly integrated three evaporation systems (six bodies combined with four vapor compressors). This complexity, although yielding major energy reduction, can involve high cost of both equipment and control system. By way of conclusion: We would be grateful for your advising, by comparison with the inferred expectation of the process as specified an overall sugars conversion of 70% of the theoretical maximum -- your intuitive estimation of the likelihood (% highly likely; % unlikely) of that efficiency being achieved. With the reported results obtained from the laboratory and limited mini-pilot operation so far, an overall sugar conversion efficiency of 70% of theoretical would be feasible. This is particularly true in the case of woody feedstocks which have a modest hemicellulose content (about 20%). On the other hand, in the case of agricultural residues such as bagasse, the higher hemicellulose content (30% to 35%), would result in a lower average yield. It will have been noted that RKAII emphasises the prospective advantage of there being further design data becoming available from the mini-plant at the University of Southern Mississippi. That data is anticipated to facilitate the engineering design of the demonstration plant. The availability of that data was not a pre-requisite for the evaluation by RKAII of technical feasibility. In addition to the expert review conducted by RKAII, a further review of the process specification was undertaken by Burns Philp Research and Development Pty Ltd (B-P). That further review was intended to bring an Australian perspective to the review process. The report issued by B-P expressed, by comparison with that of RKAII, greater reservation as to the technical feasibility of the integrated process. Concerns expressed by B-P were: evaporator fouling by residual sugars in the separated acid reliability of the specified fermentation yields efficiency of the ethanol recovery process in removing inhibitors to fermentation prior to the recycling of recovered water.
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The reservations expressed by B-P generally accord with points made by RKAII. Nevertheless, the conclusion reached by B-P as to technical feasibility was not so confident as that expressed by RKAII. The differing tenors of the reports issued by each of RKAII and B-P should be considered having regard to the following: B-P has no experience in the conversion of lignocellulosics whereas RKAII is internationally acknowledged as expert in that field the expertise of B-P is greatest with respect to fermentation processes RKAII had the opportunity for extensive liaison with each of the proponents of the respective technologies whereas the review conducted by B-P lacked that advantage. In acknowledgement of its doubts as to the reliability of its conclusions, B-P issued its report upon the condition that its distribution be restricted to only those participating in this study. Furthermore, B-P advised that it believed itself unable to provide industry participants with any additional services of review. 6.4 Proposals Invited

Each participant was invited to submit a proposal for the demonstration of an integrated conversion process at a scale of 2 megalitres of annual ethanol output. The process specification prepared for this study was submitted to participants on the basis of its representing an integration of the respective technologies both available for use by the proposed project and, in combination, likely to effect a commercially viable conversion. The invitation for proposals (IFP) issued to participants was summarised as follows. SUMMARY - This invitation is comprised of * Introduction pp. 4 - 11 The concept of the demonstration plant being also a facility for "value-adding" an existing surplus lignocellulosic waste-stream; the rationale for investigating the feasibility of demonstrating a cost-effective lignocellulosics-to-ethanol process; a basis for the evaluation of prospective economic viability. * Feasibility Study pp. 12 - 14 An outline of the study as commissioned but including the detail of the Work Programme Items 4 and 5 from which this invitation arises and the issues to be addressed by proposals. * Outline of Proposal Sought pp. 15 - 17 A description of the various matters to be addressed in the course of participation in Work Programme Item 4 and a suggested approach to those matters; a timetable for the development of proposals. * Issues for Consideration pp. 18 - 38 In anticipation of a proponent dealing with this invitation in accordance with its usual procedures for project development some general advice is nevertheless tendered in respect of various issues which may be expected to require some attention in the course of participation in the feasibility study; the various issues addressed and the advice tendered is offered for
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guidance only, in case such should prove to be of assistance; the issues addressed are as follows:A B C D E F G H I J K L M Technical Resources p. 18 Financial Matters p. 19 Proprietary Rights p. 19 Project Vehicle p. 20 Modus Operandi p. 21 Proposed RD&D Programme p. 23 Plant Specifications p. 25 Plant Infrastructure p. 26 Ethanol Disposal p. 29 Personnel Costs p. 32 Plant Scale & Operational Continuity p. 35 Processing Costs p. 37 Risk Evaluation p. 38

* Scope of Proposal pp. 39 - 41 The intention of the feasibility study is to elicit a number of offers by industry to undertake a demonstration of the conversion process and in so doing to take up the offer of Commonwealth financial assistance; the proposals sought from industry are those submitted on the basis of a proponent having independently evaluated the technology proposed for demonstration and, having concluded favourably as to its viability and as to the prospects for commercialisation, offering to undertake the proposed project; the scope of proposals sought is in two parts Firstly a report as to conclusions drawn in the context of the matters set out at Work Programme Item 4 of the feasibility study; and, if warranted, accordingly, an offer to undertake the project, such offer addressing the offer of Commonwealth financial assistance and comprising, in effect, a sufficient expansion of the firstly sought report so as to enable the Commonwealth to consider that offer with a view to negotiating the availability of financial assistance.

Secondly -

In seeking more than one such offer it is not intended to achieve a process of competitive tendering. * Conclusion p. 41 This invitation is submitted in response to a previously expressed willingness to participate in the feasibility study by the undertaking of Item 4 of the Work Programme and to thereby have the opportunity to submit an offer to undertake the demonstration project with Commonwealth financial assistance. In the submission of an offer no liability shall be incurred and no obligation shall be imposed. Integral to the invitation was the accompanying process specifications together with the report by Raphael Katzen Associates International Inc. The text of the IFP is set out as Appendix II of this report. The scope of proposals sought distinguishes the process of evaluating the feasibility of the proposed demonstration from that of the subsequent submission of an offer to undertake a
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demonstration project. Responses as to feasibility were to be reported herewith whereas project offers submitted were to comprise confidential appendices to this report. 6.5 Site Evaluation

In their acceptance of invitations to participate in this study, each participant was understood to have agreed to conduct an evaluation of feasibility in terms of Item 4 of the Work Program for the study Site Evaluation. Work Program Item 4 (WP4) is described as follows: The universal specifications as per Item 1, following, as per Item 2, expert evaluation (and amendment accordingly) shall be submitted to each of the short-listed site owners - maximum of four including each of Boral Ltd and CSR Ltd - for evaluation by each site owner of the technical and financial requirements for the construction and operation of the demonstration plant on the site. This evaluation shall include the various matters set out at page 4 of the Terms of Reference for this study, viz: the size of the local resource to ensure that it is large enough to support a fuel ethanol industry on a sustainable basis preliminary plant design and specifications estimation of the impact on current operations at the selected site, including use of its available wastes or residues and infrastructure assessment of environmental impacts labour and other requirements for operation capital and operating costs, and sources of finance (including an evaluation of respective cash and kind contributions from participants and their claims on commercial rights), and administration for the plant together with any other issues particular to each site and its owner.

As part of the evaluation by each site owner there shall, in the course of undertaking this item of the work programme, be carried out by the site owner its own independent review of the available technologies and their commercial prospects. This review by each site owner may include at its discretion the engagement of outside consultants in addition to internally available resources. Accordingly each of up to four site owners shall satisfy itself as to the merits of its proposed involvement in the demonstration programme. When finalised, each such site evaluation will represent in effect a proposal tendered to the Commonwealth for its consideration as to which proposal shall attract the financial support offered by the Prime Minister in December, 1992. The term "universal" refers to the integrated process specification being not specific as to a particular site. The concluding reference to the evaluation representing a proposal tendered for consideration presumes an evaluation concluding in favour of that prospect. The extent of resources likely to be necessary for undertaking the process of site evaluation was foreshadowed by our study proposal. That proposal envisaged an input by each participant in the order of 70 days for WP4. Similarly, the resources anticipated as necessary for the conduct of a demonstration project were indicated by the Commonwealth's offering assistance of up to $2 million on a dollar-for-dollar basis. Despite these clear intimations, subsequently canvassed in the process of site selection, the commitment sought from industry participants appears not to have been fully appreciated until their receipt of the Invitation for Proposals (IFP).

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6.5.1

Evaluation in the Negative

Excepting the case of T. Bowring and Associated, participants concluding with negative evaluations of project feasibility reached that conclusion on grounds unrelated to the technology proposed for demonstration. In those cases, the objections proved so basic as to forestall the undertaking of the evaluation sought for the purpose of WP4. The respective negative evaluations are summarised as follows it was decided that the business of ethanol production did not accord with the company's strategy for the future. Costings supplied by us were assessed by Boral as reflecting a re Boral Ltd turn on investment of 15% per annum, after tax. Nevertheless, that return must properly be regarded as uncertain, it being subject to the results of the proposed demonstration. Given both that uncertainty and the return itself, Boral concluded that there was insufficient incentive to amend its business strategy so as to accommodate business prospectively arising from the project. Further assessment of the proposal was therefore to be regarded as unwarranted. following a delay due to changed conditions on the site, project feasibility was briefly reviewed in November, 1994 and further participation in this study was declined. It is understood that the project was assessed to be of excessive risk having regard to reservations as to the commercial outlook for ethanol as a liquid fuel in Australia. Because of its delayed participation, CSR, unlike others concluding in the negative, had the advantage of access to Chapters 5 and 6 of this report. It is understood that no major objection was reached by CSR to the conclusions set out therein. NSW Sugar Milling Co-operative Ltd the scope of the proposal is larger than originally understood. Current commitments to R & D, including a prospective co-generation facility, render resources insufficient for participation as envisaged. T Bowring and Associates based on a pre-existing proposal for the conversion of wheat straw to cellulose and for the fermentation of only the hemicellulose fraction, this participant proposed a variation to the integrated process submitted for evaluation. In order to effect conversion of the whole feedstock to ethanol, it was proposed to retain the pre-existing concept in respect of the hemicellulose and lignin fractions and to separately hydrolyse the cellulose using a high temperature mild acid system. The separately yielded pentoses and hexoses would also be separately fermented. In the case of pentose fermentation, an organism developed for that sole purpose would be employed. Ethanol recovery and waste-treatment would be effected using the process developed by Apace Research Ltd. Apart from the now discredited mild acid system of cellulose hydrolysis, other aspects of this proposition have considerable merit. A preliminary evaluation in respect of the proposed Goulburn Valley site was submitted. Regrettably, a key element of infrastructure, the disused milk condensory,
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CSR Ltd

has since been sold and is no longer available. The participant since then being unable to identify an alternative site, we report that this case is to be numbered among the negative. Despite this element of the study failing, in four out of the five sites selected, to yield a useful response, there remains, other than the six invited, no party identified whose participation, with hindsight, might better have been sought. That is not to say that there are, in Australia, no other parties having the capacity to participate as invited. It is, instead, to observe that the commercial prospects for a cost-effective process are as yet insufficiently appreciated.
6.5.2 Positive Evaluation

In response to the first element of the scope of proposals sought, an evaluation in terms of WP4, the only positive evaluation so far received is that from the Morwell Enterprise Centre (MEC). Summarised in accordance with the various elements of WP4, the MEC evaluation was as follows: Size of local resource for the demonstration plant, 6,500 tonnes of sawmill residues from neighbouring and nearby mills; for eventual commercial-scale conversion, in excess of 500,000 tonnes of silvicultural and processing residues. Preliminary design specifications the integrated process specification as submitted is accepted as the basis, subject to variations as may be proposed in consultation with design engineers recently (August '94) invited to tender in respect of plant construction. Site impacts the proposed site is a disused plant constructed to petroleum refinery standards and includes infrastructure, facilities and utilities appropriate to not only the demonstration plant but also to a commercial-scale conversion. For both feedstock resources and fuel markets the site is conveniently located. Environmental impacts the site is fully licensed for the class of activity represented by the demonstration project. Facilities are either locally available or exist on-site for the appropriate disposal of co-products and by-products. Labour and other operational requirements being sited in an established industrial region, there is available a highly skilled workforce suited to the project; the operational requirements are largely in existence on the site. Capital and operating costs this information not supplied in detail but a total of $5.5 million has been indicated. Sources of finance this issue not yet resolved. Project administration this to be determined. The last two elements are currently being addressed. As at 31st August 1994, the key issue remaining unresolved was that the technologies proposed for demonstration had yet to be assessed to the satisfaction of a prospective partner in the project. Subject to that assessment of technologies, an eventual proposal may be at variance with the integrated process specification. Such a variation would not necessarily be either unwarranted or unacceptable. A detailed project proposal, comprising a confidential appendix to this report, was submitted by Morwell Enterprise Centre in October, 1994. That proposal indicated that industry funding had not been secured to the extent necessary to match the offered Commonwealth assistance. Furthermore, the owners of the technologies proposed for demonstration had not committed to the project. As of December, 1994 both these matters remain to be resolved.
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6.6

Demonstration Program

The matter of the RD&D program to be incorporated with the project was addressed by the invitation issued to participants for their submission of project proposals. The definition and costing of that program was envisaged as a matter to be resolved subject to considerations specific to both the site and the proponent. Whilst the detail of an RD&D program is a matter to be addressed by each participant, the general parameters for that program were established by the concept underlying this study. That concept is of a demonstration plant utilising, to the commercial benefit of the site, an existing lignocellulosic waste-stream. The existence of that waste-stream infers the prospect of a site with some elements of the infrastructure necessary for the demonstration plant. The commercial benefit prospectively arising from the value-adding of the waste-stream, together with the prior existence of elements of necessary infrastructure, are anticipated to result in a project costing less than might otherwise be the case. Because of the proposition that the plant will effect the value-added disposal of an existing waste-stream, the demonstration program should initially focus on achieving an optimised conversion of that feedstock. Subject to the achievement of that optimisation, the second objective of the program would be the evaluation of a range of materials identified as prospective feedstocks. In the event that the initial optimisation proved unsatisfactory, the program would be directed to a consideration of possible alternatives in respect of elements of the conversion process. A plant configured according to the specifications proposed has a substantial capacity to adopt variations. That capacity is outlined at Section 5.4.3 of this report. The variations described encompass much of the range of alternatives which may warrant consideration in the event of an unsatisfactory optimisation. Integral to the project envisaged is the utilisation of data emerging from the mini-plant at the University of Southern Mississippi (USM). The availability of that data was anticipated by RKAII as facilitating the engineering design phase of the demonstration project. Since the time of the RKAII review (March 1994), arrangements have been made by Apace Research Ltd for the Australian project to use the USM mini-plant equipment. In effect, that prospect would result in the incorporation of the program at USM with that proposed in Australia. The advantage of such an eventuality would be mutual.
6.6.1 Pretreatment and Hydrolysis

The demonstration project is essentially dependant upon the availability of the selected technologies. Although a technology is known by virtue of its patent, its availability is subject to its use being licensed. In the case of the specified concentrated acid process developed at USM, the terms of that licence are anticipated to reflect the cost of the mini-plant. The matter of project cost is addressed at Section 6.8. With respect to the demonstration program, the extent to which the USM mini-plant project may be regarded as integral will depend upon arrangements made to licence the use of that technology. Much of the necessary equipment, including process software, is currently unique to that mini-plant. In the event that the technology is utilised as specified, it is likely that folding the USM mini-plant program into the Australian project will be the most practical and economic approach. The scale of the USM mini-plant hydrolysis and acid recovery system is appropriate to 1
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megalitre of ethanol output. The additional reactors necessary to effect conversion at a scale of 2 megalitres can be supplied in addition to the current mini-plant equipment. The use by the Australian project of, in effect, the USM mini-plant at an increased scale is anticipated to be a substantial element of the demonstration program.
6.6.2 Fermentation

The specialised technology proposed for demonstration in respect of the fermentation stage is that of the fermenting organism. Generally, the required equipment is standard to fermentation processes. The specified organism, Candida tropicalis, has been developed by the Department of Biotechnology, University of New South Wales (UNSW). That organism is not the only one suitable for the purpose. It has, however, with others also under development by UNSW, been offered for use by the project. An important element of the demonstration program will be the evaluation of Candida tropicalis and other suitable organisms.
6.6.3 Ethanol Recovery and Waste Treatment

The specified technology, that developed by Apace Research Ltd, is unique. Invented to address problems conventionally encountered with lignocellulosics conversion, its utility in not limited to such substrates. Nevertheless, its efficacy increases with fermentation broths of lesser ethanol yields. Key elements of this process to be evaluated by the demonstration program are: the rate of ethanol recovery the efficiency of waste-treatment the recycling of potassium carbonate the removal of fermentation inhibitors from recycled water the utility of ethanol recovered The last of these elements, ethanol quality, will require evaluation principally with respect to the use of that ethanol by its blending with petroleum fuels. As specified, the yield will be hydrated ethanol. The prospects for upgrading that yield to anhydrous product would also warrant evaluation by the program. Such an upgrading would extend the range of uses for the conversion product.
6.6.4 Lignin

The co-production of lignin is of substantial importance to the economics of a conversion process. As specified, it is proposed that the lignin yield be applied to fuel the generation of the steam necessary to the process. The lignin is yielded with a moisture content exceeding that appropriate to boiler fuel. The demonstration program will necessarily include an evaluation of processes for the cost-effective reduction of that moisture content prior to the introduction of the lignin to the furnace. Of potentially greater importance, some of the various feedstocks to be evaluated will be found to yield lignins of a quality suited to end-uses of a higher value than boiler fuel. Evaluations of those various lignins for their potential utilities should be an important element of the program. In the case of some feedstocks yielding lesser quantities of ethanol, a greater value of their lignin may be sufficient to counter an otherwise unacceptable commercial utility.

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6.6.5

By-products

There are various by-products yielded by the specified conversion process. Those applicable to other than boiler fuel have been valued (see Section 6.8.4) at 5 percent of the total of production outputs, or the equivalent of 3.2 cents per litre of ethanol output. On either basis, the value of these by-products is worthy of attention. The various by-products, including those applicable as boiler fuel, are: Cellulose not hydrolysed Flocculated Solids, including sugars unfermented Carbon dioxide Calcium Salts Spent Yeast The last two listed are those which, together, are valued at the equivalent of 3.2 cents/litre ethanol. Evaluation of their utility should be an element of the RD&D program. The cellulose not hydrolysed is yielded with the lignin. The proposed evaluation of the lignin yield will provide the opportunity to also consider the utility of that cellulose. More likely, however, than the cellulose itself having any especial value as such, the issue will be whether any non-fuel utility identified for the lignin depends on that cellulose being separated and, if so, at what cost. The flocculated solids yielded at the point of ethanol recovery are not anticipated to warrant attention other than as a boiler fuel. The carbon dioxide, otherwise vented, may warrant capture as a saleable product but that is unlikely.
6.6.6 Processing Consumables

The performance and utility of processing consumables is essentially a consideration for those elements of the demonstration program directed to the respective technologies in which they are employed. Nevertheless, the supply, handling and storage of these various materials will warrant some attention. Because of their industrial novelty relative to the demonstrated conversion, consumables which can be anticipated to require particular consideration are: Feedstocks IEC Resin Yeast Of these, issues with respect to feedstocks are of greater significance in the context of an eventual commercialisation of the demonstrated process. Even though the demonstration plant achieves a conversion sufficiently cost-effective to warrant its use on a commercial scale, elements of feedstock supply at that scale may remain to be considered, despite the proposed feedstock trials. The functional integrity and scale of the demonstration plant should permit a commercially valid evaluation of issues relating to the IEC resin and the yeast. In the case of the resin, the particular consideration additional to that of its efficacy in the separation of acid and sugars will be its service life in that role. Similarly, the special consideration with respect to the yeast will be, as distinct from its fermentation efficiency, the requirements for its cost-effective replacement by propagation in-process. Except for its incorporation of the conversion technologies to be demonstrated, together with the facilities needed for the acceptance of solid lignocellulosics as conversion inputs, the design of the plant is not anticipated to cater for the preparation of feedstocks other than the waste113

stream endemic to the site. The proposed trials of a range of prospectively commercial feedstocks are anticipated to require that the necessary preparation of those materials be undertaken external to the demonstration plant. In the event that conversion yields are in some instances found to be commercially attractive, then the requirements for the economically viable supply of such materials, including their commercial-scale preparation as feedstocks, will require subsequent consideration. It should, however, be an element of the demonstration program itself to define the parameters of acceptability for such of those materials as demonstrate appropriate yields. The definition of those parameters should be cognisant of the characteristics of those materials in harvested form and thus address the practical issues of their prospective supply as feedstocks.
6.6.7 Co-generation

It is anticipated that the potential for the commercial development of a conversion process will be maximised to the extent of its capacity to accommodate an associated facility for the cogeneration of the steam and electricity required by the process. These energy inputs have been evaluated to be in the order of 45 percent of conversion costs (see Section 6.8.4). The merits of a combined heat and power (CHP) co-generation facility operated in conjunction with the principal conversion process should be an important consideration for the demonstration program.
6.6.8 Summary

The outcome of the demonstration program should be a commercially valid evaluation of the cost-efficiency of conversion. Initially, the focus will be upon the technical aspects of conversion and the optimisation of the process with respect to the waste-stream endemic to the site. Subject to that optimisation proving to be cost-effective, the program will proceed to an evaluation of a range of prospectively commercial feedstocks. Otherwise than with respect to the objectives outlined above, the detail and structure of the demonstration program remains to be defined by an industry participant in the course of its submitting a project proposal. In anticipation of such proposals electing to employ the process specification submitted to site-owners for their consideration, the general structure of the program is envisaged as: confirmation of the assessed technical viability of the process optimisation of the conversion of the endemic waste-stream. consideration of the adoption of alternative conversion processes re-optimisation in the event of process re-configuration trials of a range of commercially prospective feedstocks evaluation of the utility of the demonstration plant in respect of the site and its waste-stream evaluation of the prospects for a commercial implementation of the demonstrated conversion. As with the plant itself, the demonstration program to be devised by a proponent will be substantially site-specific. The detail of the program will similarly be dependent upon the resources available to a proponent and its ambitions for the project.

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6.7

Project Personnel

The personnel required for the conduct of a demonstration project may be classified as: those supplying the technical and scientific inputs, and those engaged in the operation of the plant. The various phases of the project will witness levels of contributions by each of those classifications according to the detail of a proposed demonstration program. Furthermore, the extent of those respective contributions will vary in accordance with the emerging success of the project and upon the modus operandi for its conduct. As issued to participants, the invitation for proposals (IFP) addresses the matter of personnel requirements. Among the various issues for consideration set out in the IFP, Item J Personnel costs, canvasses the subject directly. Other items are considered to be also relevant to this matter. The full text of the IFP comprises Appendix II of this report. The requirement for personnel classified as operational will generally depend upon the extent to which the demonstration plant integrates with the host site and its predominant operations. The conversion process is essentially continuous. A host site whose predominant operations are also continuous and which yields a waste-stream directly acceptable as conversion input will accommodate a demonstration plant with the minimum requirement for additional personnel to operate that plant. Technical and scientific inputs to the project are anticipated from two sources. Personnel associated with the entities whose technologies are incorporated in the demonstrated process will be involved in: plant design and commissioning evaluating the efficacy of the process in operation advising responses to such evaluations The main source of technical and scientific inputs will be the entity managing the conduct of the project. That entity would supply the process engineering expertise needed to monitor plant operations and respond accordingly. Such inputs will comprise the necessary day-to-day supervision of the project and the responsibilities entailed should be matched by appropriate authority. The project manager will represent the interface between the demonstration program and the principal commercial operations on the site. Responsibilities for project operations will include the acquisition of consumables and the disposal of outputs. Those activities will need to be coordinated with the proximate commercial operations. Considerations envisaged are canvassed at Item E Modus Operandi, of the IFP. Depending on the arrangements made by a proponent for the management of the project and for the involvement of entities supplying the technologies, there is scope for technical and scientific personnel to fulfil some of the role envisaged for operational personnel. Under that scenario the total personnel requirements would be less than were there to be maintained a clear demarcation of roles for the two classifications.
6.7.1 Operational Personnel

In the event that the process demonstrated is similar to the specification prepared for this study and given that there is no "multi-skilling" of personnel roles or any substantial integration of the
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plant with the predominant operations on the site, we estimate the likely requirement for operational personnel as follows: DutiesFeedstock input @ 900 kg/hour and general attendance pre-treatment and hydrolysis system 1 - Disposition output lignin etc. co-product yielded @ 515 kg/hour, servicing ceramic membrane screens including disposition spent yeast yielded @ 30 kg/hour and general attendance fermentation system Disposition output ethanol co-product yielded @ 260 litres/hour disposition of flocculated solids and calcium salts ex ethanol recovery yielded @ 115 kg/hour and general attendance ethanol recovery and waste treatment system TOTAL No/Shift 1

1 3

The continuous operation of the process would require 3 shifts per day over seven days. An annual shut-down of 4 weeks is envisaged. Under these circumstances, the equivalent of 3024 days labour per annum would be required from operation personnel. Given that one full-time job amounts to 220 days labour per annum, the required number of operational personnel is between 13 and 14.
6.7.2 Technical and Scientific Personnel

Supervision and monitoring of the continuous operation of the plant would require the attendance during every shift of a technician. That person would be capable of responding to technical issues as the need arises during each shift. Such issues would include elements of maintenance and of operational adjustments. In addition to the emergence of technical issues requiring prompt responses, the role of that technician would encompass the management of the activities of the three operational personnel during the shift. Over 48 weeks of continuous operation there would be 1008 shifts, each equivalent to one day's employment. The annual requirement for technical supervision, given that one full-time job amounts to 220 days labour per annum, is the equivalent of between 4 and 5 personnel. The conduct of the RD&D program will require inputs from scientific personnel. These inputs may be anticipated to occur generally during only one of the three daily shifts. A basic input would be that of responding to the record of plant operation during the preceding two shifts. Together with liaison with the project manager, that basic input would require the full-time services of one person. Determination as to appropriate responses to issues emerging from the operation of the plant would be undertaken by the project manager. That role will include the occasional engagement of any additional expertise required for the solution of specific problems. As each issue is addressed by a response, that response would be implemented and the results monitored by the personnel supplying the basic scientific input generally during the day shift. In the event of the plant operating on a continuous basis, it is likely that the incidence of issues requiring responses will be a minor impost on the project manager. Under those circumstances, the project manager will largely be occupied with the evaluation of results from the operation of the plant and with the conduct of the associated RD&D program. Nevertheless, allowing for the
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necessity of wide-ranging expertise to cover all aspects of evaluation and of the associated RD&D program, it is anticipated that the function of project management will require the equivalent of two full-time personnel.
6.7.3 Summary of Personnel Requirements

The requirement for project personnel has been described on the basis of the minimum incidence of "multiskilling" and of the least integration of the operations of the plant with the host site. Under these conditions and in circumstances of the plant's continuous operation to specification, the personnel requirements are summarised as follows: Operational personnel Technical and Scientific personnel: Technical Supervision Scientific Supervision Project Management up to 14 full-time up to 5 full-time 1 full-time equivalent 2 full-time

The quantum of the above personnel requirements considerably exceeds that suggested by the IFP at Item J - Personnel Costs. A proposal which has a requirement for personnel in the order described above would be the sort which the concept for this study was intended to avoid. That is particularly the case with respect to operational personnel. The concept of a demonstration plant utilising an existing waste-stream envisages that the required operational personnel would largely be those already employed by the site-owner in the disposal of that waste-stream. Under those circumstances, the requirement for additional personnel to operate the demonstration plant on a continuous basis may be no more than 25 percent of that set out above. The balance would be supplied by a re-deployment of the site's existing workforce. The net requirement for technical and scientific personnel may also be less than that identified. The concept for the proposed demonstration envisaged a substantial management role for the proponents of the subject technologies. In that event there would be some merging of the activities of supervision, evaluation and management which have been distinguished in the above description. Under those circumstances the requirement for technical and scientific personnel would be some 75 percent of that described. In conclusion, the personnel requirements identified above should be regarded as more an assessment of roles to be undertaken than an estimate of the number of persons required to perform those roles. The cost of the project would be excessive were a proposal to include the gross requirement for personnel which may be inferred from the above assessment of roles to be performed. Furthermore, the concept for the project includes the proposition that the total cost will be partially recoverable on its conclusion by the residual value of the plant to the host site as an ongoing means of value-adding the endemic waste-stream. In the case of operational personnel, the residual value of the plant will be maximised to the extent that they are sourced from a redeployment of the workforce presently engaged in the disposition of that waste-stream.

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6.8

Project Costs

The invitation of project proposals from industry participants envisages that the costings will be those estimated by each proponent. Even though a proponent elects to accept the process specification provided for its evaluation, various cost factors would be site-specific. Were a proposal to also provide for some variation to the specified technologies or to the method of their integration, the range of possible costings would be further widened. Integral to the participation sought from industry was the proposition that each participant should, by independent enquiry, satisfy itself as to the merits of the specified technologies. Accordingly, it would be appropriate for a proposal, in the light of that enquiry, to be developed at variance with the process specification. Valid grounds for proposing such variations to the specification are not limited to the technologies themselves. Providing that a proposal is directed to conversion at a scale in the order of 2 megalitres annual ethanol output and that it also provides for the trialling of a range of whole-lignocellulosic feedstocks, a proponent may vary the process specification according to the requirements of the proposed site. Principal among those requirements would be the nature of the site's lignocellulosic waste-stream and its prospects for being value-added by the conversion proposed. The extent of that value-adding will determine the residual value of the plant and hence the net cost of the project at conclusion. Other than the waste-stream, site-specific cost factors would be: infrastructure requirements and the suitability of those existing, integrity of the project with existing site activities, availability and cost of process consumables, saleability of process outputs, and accessibility of expert personnel. Some of these factors would be influenced by the choice of technologies but, for the majority, the circumstances and manner in which the technologies are utilised would be of greater significance. The process specification provided to participants for their evaluation encompasses the maximum of energy efficiency. That efficiency is achieved by the use of processes such as vapour recompression and membrane filtration. It is anticipated that a proponent may elect to trade-off the capital cost of such "transfer" processes against a greater energy consumption. The energy saving "transfer" processes instanced are not themselves unproven. Their use is not required to achieve an evaluation of the cost-efficiency of the conversion technologies upon which the project is focussed. That evaluation can take account of any variations to costefficiency which could have been achieved had greater process sophistication been installed. Alternatively, the installation of more sophisticated "transfer" processes for the sake of proving their adaptability to the overall conversion could be delayed pending the achievement of acceptable results from key conversion processes. In either case, providing that a proposal is for the demonstration of a complete conversion system, the staged installation of process sophistication would be an acceptable approach to the conclusion of the project. Minimisation of project costs is desirable only to the extent that the success of the demonstration is not jeopardised. The interests of both the project proponent and those whose technologies are to be demonstrated would best be served by a successful outcome. Whilst avenues for achieving reductions in the project cost should be explored, not only
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the financial commitment by a proponent is at issue. Also at stake are the commercial prospects of the technologies and the investment already committed in the course of their development to the point of readiness for demonstration. In essence a project proposal must represent a joint venture by the proponent and the owners of the intellectual property underlying the technologies to be demonstrated. Their contributions are, respectively, the necessary financial resources and the right to use those technologies. Rights to the technologies are protected by patent. Under these circumstances both parties must be in agreement as to the format of the project, including the specification of the demonstration plant.
6.8.1 The Plant

Pending the submission of project proposals, the specification of the demonstration plant is assumed to be that supplied to industry participants for their evaluation. In anticipation of those necessarily site-specific evaluations, we have obtained some costings of the equipment specified by the integrated process designed for this study. Of the three conversion stages, only the equipment required for fermentation can be considered wholly conventional. In that case it is the agency of fermentation rather than the hardware which is to be demonstrated. That equipment required for the third stage, ethanol recovery and simultaneous waste-treatment, is also conventional as to the hardware componentry but its application in that configuration and for that technical process will be novel. For both these stages of conversion the costing of the required equipment presented no unusual difficulties. Unlike that for the second and third stages of the specified conversion, the equipment required for the concentrated acid hydrolysis is in many respects unique. Twin-screw extruders are commercially available for mild acid hydrolysis systems but the materials from which they are fabricated are unsuited to concentrated acid. Furthermore, the profiles of those conventional screws do not comply with the advantageous design developed for this technology. The only suitable extruders in existence are those built for the mini-plant at the University of Southern Mississippi. In addition to the unique extruders, this stage of the process specifies the use of an ion-exclusion chromatography system for the separation of the acid and sugar components of the hydrolosate. Both the hardware and the resin required for that system are commercially available but the controlling software is unique. From the standpoint of the equipment required for the demonstration plant, the screw profiles for the extruders and the software controlling the ion-exclusion chromatography system are both part of the patented technology for this stage of conversion. As was noted by RKAII in its expert review (Section 5.4.2) and subsequently confirmed by its supplementary advice (Section 6.3), those design specifications would be necessary to construct the equipment required for this stage. In reviewing the various matters to be addressed by the demonstration program (Section 6.6), it was anticipated that the incorporation of the USM mini-plant program with an Australian demonstration project would be to the mutual advantage of both parties. Arrangements made to permit that eventuality include the supply of the mini-plant equipment and process software. Those arrangements are consistent with the need for not only the design data as part of the intellectual property required for the project but also for the equipment itself. The scale of the hydrolysis and acid-sugar separation system comprising the USM mini-plant is the equivalent of 1 megalitre annual ethanol output. Increasing the scale of that system to 2
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megalitres equivalent would require only the manufacture of additional extruders and an increase in the capacity of the resin tanks. The existing extruders were manufactured by USM. They, together with all of the other mini-plant equipment, have been offered to the Australian project at cost. Only the USM resin tanks, being of plastic, would be unsuited to a 2 megalitre scale plant. USM has offered to manufacture the additional extruders needed. The larger resin tank capacity has been incorporated in the equipment costings obtained by us. Other than the supply of equipment from the mini-plant at USM, the costings supplied to us by Burns Philp cover the balance of equipment needed for a demonstration plant designed in accordance with the integrated process specification prepared for this study. In both cases the costings are accurate to a tolerance of 20-30 percent. That is, firm costings could vary by plus or minus 10-15 percent. The costings from both sources are summarised as follows: A Feedstock Pre-treatment, Hydrolysis and Acid-Sugar Separation Equipment: - ex USM mini-plant - additional extruders ex USM - shipping ex USA to Australia Sub-total (i) B 797,100 400,000 11,000 $1,208,100

Resin Tanks, Lignin Separation System, Fermentation System and Ethanol Recovery and Waste-treatment system equipment: - resin tanks - lignin separation system - acid and sugar evaporators - miscellaneous vessels and reactors - filters and micro-filter potassium carbonate evaporator - sundry compressors - sundry heat exchangers - sundry pumps - sundry mixers - allowance for piping, valves and installation Sub-total (ii) TOTAL (A + B) 243,200 590,000 153,661 143,100 140,000 76,660 54,000 36,510 34,493 16,200 223,174 $1,710,998 $2,919,098

In addition to the above costings totalling some $3 million, further expenditures on ancillary equipment could be expected as follows electrical works, say $300,000 PLC control system, say $200,000 The total expenditure on the equipment required for the plant is thus estimated in the order of $3.5 million. None of the equipment included in the above schedule of estimates is likely to be available on an existing lignocellulosic-processing site. As an alternative to incurring that order of cost "up120

front", the staged introduction of process complexity is unlikely to reduce the initial expenditure by as much as $0.5 million. Consequently the likely minimum expenditure required for equipment is in the order of $3 million. Despite the limited opportunity for minimising the equipment cost of the project, one of the several advantages of proposing that the demonstration plant be accommodated on an existing commercial site is that a "greenfields" project would be considerably more expensive. Among the likely additional costs to arise in the case of a "greenfields" project are the following: Land Services Equipment Infrastructure some 2 hectares (plant footprint 600 square metres) electricity and water steam generation administration and labour accommodation safety facilities security facilities sundry civil works

Of those listed, an existing operational site is likely to require expenditure only in respect of some elements of infrastructure. For a "greenfields" site we would estimate the above likely additional costs to total in the order of $1.5 million. By comparison, the additional infrastructure required to accommodate the plant on an existing site would be closer to $0.5 million. That, however, will depend on the extent to which the plant can be integrated with its host site. In summary, we would anticipate that the demonstration plant itself will represent some $4 million of the cost of project proposals.
6.8.2 Intellectual Property

The right to make commercial use of patented technologies is commonly acquired from the owners of that intellectual property in return for the payment of such as a licence fee or a royalty. Royalties are usually payable pro-rata with some variable such as output quantities. The acquired right may be delimited as its currency and its operational range. For technologies dependant on a demonstration of their commercial prospects, recompense for their use in the demonstration project would usually not be sought. Rather, in welcoming the opportunity presented, those owning the intellectual property would be inclined to waive their rights in return for their participating in the project. The terms of that participation is a matter to be negotiated with a project proponent. That issue is canvassed by the IFP at Item C. It is envisaged that, in the event of a successful demonstration, a proponent will have given some undertaking as to subsequent commercialisation of the technologies in return for an interest in the rights to their use. A proposal to demonstrate the integrated conversion process specified would require the cooperation of those in each case having proprietary rights to the stages: concentrated acid hydrolysis and acid-sugars separation combined fermentation of pentose and hexose sugars simultaneous ethanol recovery and waste treatment
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Each of the respective technologies has been developed to the point of its warranting demonstration at the scale proposed. Nevertheless, as between the three technologies, the specified hydrolysis stage is both more and less ready for demonstration at that scale. The mini-plant at USM operates at a scale equivalent to 1 megalitre of annual ethanol output. The mini-plant has superseded an earlier pilot project whose results were relied upon by RKAII for its expert review. In addition to its increased scale of operation, the mini-plant has introduced some further refinements of the hydrolysis system and is fully integrated with the acid-sugar separation system incorporating acid recovery. The RKAII review noted that the availability of the USM mini-plant design data would be desirable for proceeding with the Australian demonstration. The USM project being now underway, that design data is now available. Nevertheless, pending the conclusion of that project, its results are yet to emerge. Prudence dictates that a financial commitment to the demonstration of that technology should be contingent on that forthcoming conclusion being satisfactory. In that event, the demonstration may be undertaken with even greater confidence than already expressed by RKAII. The review of technologies (Chapter 5) clearly revealed that the hydrolysis function is critical to the technical viability of lignocellulosics conversion. Furthermore, as indicated by the equipment costings (Section 6.8.1), the hydrolysis/acid-sugars separation stage accounts for some 30 percent of the cost of the plant. The cost of the hydrolysis stage would be no less significant whatever the technology selected. Every alternative technology requires a mild acid pretreatment. At least one industry participant has been quoted by Werner and Pfleiderer a price of $US 1 million for a conventional mild acid twin screw extruder rated at one tonne per hour capacity. This price exceeds the cost of equipment having a similar capacity as offered for use in Australia on conclusion of the mini-plant project at USM. From a commercial standpoint, there is a considerable advantage in the Australian demonstration having access to a technology package comprised of the equipment from the USM mini-plant and, together with the project results and design data, the expertise for operating that stage of the conversion. The commercial advantage lies in a combination of the greater technical assurance to be had on completion of the USM project, together with the supply of both hardware and know-how which is otherwise unavailable. In the course of Apace Research Ltd designing the integrated process specification prepared for this study the parties owning the intellectual property underlying the USM mini-plant have offered their co-operation in the Australian demonstration. Under the arrangements made by Apace for the supply of the mini-plant equipment at its cost to that project, it is proposed that the Australian project also meets the other costs of the USM project. Those other costs are: Personnel (4.5 man-years) Consumables, USM overheads and travel Equipment not transferable to Australia TOTAL (AUD) $257,000 63,000 109,400 $429,400

In return, a proponent of the Australian demonstration will, by virtue of having financed the mini-plant project, acquire an interest in that US technology. That interest will be held in conjunction with those currently owning that intellectual property.

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Whether the demonstration project should bear the cost of a proponent's acquisition of rights to the various technologies is a matter for negotiation. The circumstances under which the hydrolysis/acid-sugar separation stage may be utilised are somewhat distinct from those applicable to both the fermentation and the ethanol recovery stages. Only in the case of the specified US technology is there any likelihood of the cost of intellectual property being identifiably separate from either the cost of equipment or the cost of personnel. Nevertheless, all three stages rely for their commercial prospects upon their being demonstrated as part of an integrated conversion process. In the case of the fermentation and the ethanol recovery stages, the cost to the demonstration project of the underlying intellectual property will be solely that of the participation of those holding the proprietary rights. That participation, together with a similar input on the part of the US entities, is evaluated at Section 6.8.3 Personnel. The offer of the USM mini-plant equipment "at cost" is subject to the demonstration project also meeting the other USM project costs of some $430,000. The prospect of the demonstration project bearing that further cost appears reasonable when the alternatives are considered. Were the equipment required for the specified US technology to be sourced elsewhere it would still be necessary to acquire the USM mini-plant design data. As with the other technologies to be demonstrated, that data might be supplied in return for its owner's participation in the demonstration project. However, because that technology will by then have been proven in the mini-plant it is more likely that the supply of that data would be subject to a licence fee. The subsequent commercial manufacture of the equipment would incur the expense of a cost-plus price, generally in the order of actual cost plus a margin of 30 - 40 percent. Compared with the equipment to be supplied ex the mini-plant for $1,208,100 (see Section 6.8.1), the additional USM project costs of some $430,000 are equivalent to a margin of some 36 percent. That margin effectively includes what might otherwise be a licence fee for the design data. Of the some $1.2 million for the mini-plant equipment, the hydrolysis extruders account for some $0.9 million. The required design data is that for both the hydrolysis extruders and the acid-sugars separation system. Nevertheless, even applying the whole of the $430,000 of additional USM project costs to only the extruders, their gross cost of some $1.33 million compares favourably with a mild acid extruder costing $1.39 million, as quoted by Werner and Pfleiderer. The additional expense of some $430,000 so as to finance that portion of the USM project not directly transferable to the Australian demonstration may be regarded as an acquisition of intellectual property. The supply of mini-plant equipment on the advantageous terms quoted is conditional upon the Australian project meeting that additional expense. The commercial advantage is that, in addition to that cost being entirely offset by the otherwise greater expenditure on the required equipment, its being met results in an acquisition of proprietary rights which would be of great value upon commercialisation of the process. The terms of that acquisition remain to be negotiated by a proponent. Excepting the case of the US technology, the cost to the project of intellectual property will be reflected only in the cost of personnel. The subsequent value of that intellectual property upon commercialisation of the demonstrated conversion will be a matter to be negotiated by a proponent in arranging the participation of those owning the rights to patented technologies. As an expense clearly separate from project personnel, the cost to the project of $430,000 in respect of the USM mini-plant project is the sole item of expense directly attributable to intellectual property.
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6.8.3

Personnel

The requirement for project personnel was first reviewed by the IFP at Item J - Personnel Costs. That assessment envisaged a high degree of integration between the host site and the demonstration project. Also envisaged was a substantial operational role for those participating as owners of the subject technologies. The personnel costs anticipated by the IFP amounted to $855,000 over three years. That cost reflected an overall personnel input of 406 man-weeks. Since preparing the IFP additional information has emerged with respect to the operational requirements of a plant configured according to the process specification prepared for this study. At Section 6.7 the personnel requirement is reviewed in terms of tasks to be performed. The required numbers of persons in various operational categories were estimated on the bases of both a minimum incidence of "multiskilling" and the least integration of the project with host site operations. That estimate concluded that the continuous operation of the plant over three years would require the services of: Plant operation over three shifts - 14 persons full-time Technical and scientific inputs - 8 persons full-time. Allowing for labour on-costs, that level of employment would result in a payroll of no less than $1 million per annum, or $3 million over the life of the project. The matter of personnel costs is highly site-specific. It is also dependent on the particular requirements of a proponent with respect to the demonstration program and the modus operandi of the project. Nevertheless, a personnel requirement resulting in the project having an annual payroll of $1 million would not be feasible. Also not feasible is the lesser requirement previously anticipated by the IFP. In response to the obvious cost implications of that quantum of inputs estimated from the bases adopted at Section 6.7 it was noted that project feasibility requires site integration of a high order. Furthermore, the performance of technical and scientific tasks must include some merging of those various activities. Were those two objectives met it was estimated that the operational labour could be reduced to as little as 25 percent of the gross requirement and, in the case of technical and scientific inputs, to 75 percent. In that event, the cost of personnel would be in the order of $1.5 million over three years. There are two factors critical to the realisation of personnel costs. The first is the continuity of plant operations and the second is the terms negotiated for the participation of those owning the proprietary rights to the technology. Operational continuity cannot be assumed to be at designed maximum for more than two-thirds of the three-year project life. For the remaining one-third of the time the requirement for operational personnel will be minimal. Under those circumstances, realisation of a cost for operational personnel in the order of $600,000 over three years is feasible as set out below. With respect to the participation of those representing the technologies, Apace Research Ltd et al have offered to provide proponents with all of the technical and scientific inputs, including project management, at a cost of $900,000. That cost includes the engagement of external consultants such as RKAII as necessary. It also covers travel and accommodation expenses. Having regard to the gross requirement for personnel inputs estimated at Section 6.7, the feasibility of a total personnel cost in the order of $1.5 million is assessed as follows, relative to the operational scenario outlined by the IFP:
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Weeks 0 - 39 Plant Commissioning Nil requirement for operational personnel; induction of technical supervisors during weeks 37 - 39; attendance by both supervising scientist and project management throughout this period. Weeks 40 - 91 Program Phase 1 optimisation of plant operation consuming site waste-stream; plant operation assumed continuous throughout this period; of the required 14 operational personnel, 5 are supplied from the ranks of technical supervisors and the remaining 9 commence employment at Week 40; shift-work operation requires attendance of 12.6 employees per week against 14 available for rostering. Weeks 92 - 143 Program Phase 2 given optimised operation achieved in Phase 1, plant maintained on continuous operation but accepts externally sourced materials for feedstock trials; personnel requirements as for Phase 1. Weeks 144 - 156 Program Phase 3 assumed wind-down of project operations during this period; given a successful demonstration, plant operation may proceed on a continuous basis but on account of the site-owner (see Section 6.8.5 - Residual Value); except for technical personnel no others are employed by the project to operate the plant during this phase.

The foregoing operational scenario anticipates a net requirement for personnel less than the gross estimated at Section 6.7. Those lesser personnel inputs and their cost are evaluated as follows: Management Scientist Technicians Operators - 5 man-years - 3 man-years - 11 man-years - 18 man-years @ $ 30,000 Add: Shift/Site Allowances, say TOTAL $ 273 000 195 000 526 800 = $540 000 54 000 594 000 $1 588 000

According to site-specific circumstances, the estimated cost of $594,000 for operational personnel may be objected to as being too low. On the other hand, that estimate makes no allowance for any re-deployment from the host site of labour otherwise currently engaged in the disposal of the existing waste-stream. Such a re-deployment could result in a net cost to the project less than estimated above. Of greater significance to the likely total cost of personnel is the contribution to its reduction which could result from the terms negotiated with the owners of intellectual property for their participation. The above inputs by technical and scientific personnel include project management. Their estimated cost totals $994,800 but do not provide for the expenses of travel and accommodation or for the occasional engagement of consultants. Such expenses, according to project site and the success of the demonstration, could easily add $ 250,000 to personnel costs. By the same token, those and some of the other "payroll" costs of technical and scientific personnel could be
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borne by those having proprietary rights to the technologies to be demonstrated. Such an effective subsidisation of project costs would be offered by those parties in acknowledgment of their interests in the matter. Whether any such subsidisation were to be offered would be an issue to be addressed by a proponent in negotiating participation of such parties. Were Apace et al to participate in accordance with their recent offer to proponents, the technical and scientific personnel, together with the additional expenses of travel etc. and consultants, would cost $900,000. That is consistent with the cost of $885,000 anticipated by the IFP. Both the IFP and the recent offer by Apace et al presume that project management will be undertaken by those representing the technologies. Comparing the preceding estimates totalling some $1.25 million for services offered by Apace et al for $900,000, a subsidy of $350,000 is inferred. That represents a substantial saving in return for the participation sought. Subject to the detail of project proposals to be submitted it is concluded that personnel costs in the order of $1.5 million may be anticipated.
6.8.4 Process Revenue and Expenses

The operation of the 2 megalitre scale plant during the demonstration program is an important element of project costing. The personnel requirements are estimated at Section 6.8.3. This section reviews the revenue to be derived from processing outputs and the expenses incurred for consumables. The quantum of inputs and outputs is derived from the process specification prepared for this study. The values ascribed to each of the input components generally result from enquiries made of commercial suppliers to the Newcastle region of NSW. Outputs of the ethanol and lignin co-products are valued according to reasonable expectations. The values of by-products are assumed by reference to existing markets for similar materials. The respective values of inputs and outputs will vary according to the markets proximate to each site. Quantities will vary in accordance with the process detail adopted for a proposal. A further source of variation will be the success encountered during the project. That success will determine the continuity of plant operation. Success will be measurable by reference to both the yield and value of outputs as against the costs incurred for consumables. Whilst the operation of the plant is anticipated to result in a net revenue to the project, there will be an preliminary expense incurred in the nature of working capital. That expense will represent the cost of a start-up quantity of consumables. The start-up quantity is comprised of both an initial-charge of materials and stored buffer stocks. Only in the case of feedstocks is any initial expense for start-up consumables likely to be inapplicable. Fundamental to the project is the concept of the plant value-adding the waste-stream endemic to the host site. It is envisaged that such waste-stream will supply the majority of feedstocks consumed during the project. The initial phase of the demonstration program will consume only those materials. Since they are of nil or negative value to the host site, the supply of such materials should not constitute an element of project costs. Only those feedstocks sourced external to the site for evaluation during subsequent phases of the program should be a realised cost to the project. The program objective is the evaluation of the commercial viability of the conversion process, including its capacity to pay for feedstocks. It is anticipated that a realistic price for the commercial supply of feedstocks is $50 per dry tonne. Having regard for the commercial focus of the project, the costing of process consumables includes all feedstocks at that price.
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Nevertheless, recognising their nil or negative value to the host site, project costs should be credited in respect of waste-stream materials consumed. That approach is adopted for this review. As with waste-stream feedstocks, a similar approach is taken to valuing the lignin co-product. Excepting small quantities taken for an analysis of their prospective commercial utility, it is envisaged that the lignin co-product will be applied as boiler fuel on the host site. Assuming its calorific value to be similar to the feedstock, its value as a solid fuel is nominally the same as the waste-stream. This presumes that the endemic waste-stream is itself suitable as boiler fuel but is surplus to site requirements. That being so, the lignin is "sold back" to the host site at the same price as that for which the feedstock is "bought-in". Under those circumstances the displacement by that lignin of material otherwise consumed as boiler-fuel will effectively add to the quantity of waste-stream available as feedstock and so may deflate the extent of valueadded. Offsetting that deflation is the input of steam to the demonstration plant. That input is anticipated from a surplus boiler capacity on the host site. In reviewing the cost of the demonstration plant no provision was made for the steam required by the process. That anticipated the supply of steam by the host site. It is assumed that the available steam would be low-grade or suitable only for heating rather than the supply of mechanical energy. The required mechanical energy is assumed to be supplied by electricity. In costing the energy inputs, the requirement for electricity distinguishes that which is necessary to power electric motors from the more general mechanical energy which could be supplied by steam were sufficient surplus available. The steam requirement indicated by the costing is not optional but need only be low-grade. The steam costing is based on a price of $50 per dry tonne for boiler fuel. That is consistent with the approach adopted to valuing the feedstock inputs and the lignin co-product. The costing incorporates an allowance for depreciation and maintenance of the boiler. The respective evaluations of processing revenues and expenses, and of the preliminary expense to be incurred for stored buffer stocks of materials and for initially charging the system, are set out in the following tables. TABLE 1 - MATERIALS - INVESTMENT IN STOCKS AND INITIAL CHARGES PRELIMINARY INVESTMENT N/A 2 050 65 337 080 4 000 742 1 852 8 000 $ 353 789

ITEM Feedstocks Sulphuric Acid 98 wt% Water (industrial) SMB/IEC Resin Yeast Candida Tropicalis Yeast Nutrients (N,P,K,Na) Lime (calcium hydroxide) Potassium Carbonate (anhydrous)

UNIT PRICES $50/dry tonne $1000/kl $0.50/kl $6360/kl $5000/T $350/T $225/T $1000/T

QUANTITIES Stocks Charges 40T 0.22T 2kl 0.05kl 110kl 20kl 6kl 47kl 0.5T 0.3T 2T 0.12T 8T 0.23T 2T 6T TOTAL

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TABLE 2 - PROCESS REVENUES - ANNUAL (7920 HOURS OPERATION) Ethanol 92.43 wt% Lignin/Cellulose Flocculated Solids Carbon dioxide Calcium Salts Spent Yeast - 2030kl - 2135T (dwb) - 685T (dwb) - 1950T - 200T - 225T @ $0.50/litre @ $50/T @ $40/T @ Nil/T @ $100/T @ $200/T 1 015 000 106 750 27 400 N/A 20 000 45 000 $ 1 214 150

TOTAL PROCESSING REVENUES

TABLE 3 - PROCESS EXPENSES - ANNUAL (7920 HOURS OPERATION) A. Materials .Feedstock - throughput 6200T (dwb) @ $50/T Consumeables - make-up quantities - Sulphuric acid 98 wt% - Water (industrial) - Yeast Candida Tropicalis - Yeast Nutrients (N,P,K,Na) - Lime (hydrated) - Potassium carbonate (anhydrous) 310 000

- 20kl @ $1000/kl - 2600kl @ $0.50/kl - 1T @ $5000/T - 48T @ $350/T - 182T @ $225/T -13T @ $1000/T Subtotal Materials

20 000 1 300 5 000 16 800 40 950 13 000 407 050

B. Energy Conversion Processing - Electricity - Steam - Mechanical - as electricity

- 1 188 000 kwh @ $0.08/kwh - 1 980 000 kg @ $0.015/kg - 2 851 200 kwh @ $0.08/kwh Subtotal Energy

95 040 29 700 228 096 352 836

C. Maintenance Say 10% of materials TOTAL PROCESSING EXPENSES 40 705 $800 591

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Considered together, Tables 2 and 3 reflect a "net revenue" of $413,559 per annum from the continuous operation of the plant over 330 days. That sum is exclusive of the operating labour requirement separately funded by the demonstration project. Similarly, no depreciation is charged on the plant also funded by the project. The estimated net revenue does, however, account for the sale back to the host site of co-products and by-products as boiler fuel and is net of purchasing from the host site steam and feedstocks derived from the endemic waste-stream. On the basis of the waste-stream and, given a surplus steam capacity, the solids output "soldback" as boiler fuel both having a nil value to the host site, the above net revenue understates the value to the project of the plants' operations. For the purpose of assessing the value-adding to be credited against the project costs, the annual net revenue is re-calculated as follows Revenues - per Table 2 Less: Expenses - per Table 3 Sub-total (i) Addback: Expenses re. items of nil value to host site - Feedstocks/waste-stream - Steam ex surplus capacity Sub-total (ii) Subtract: Revenues re. items of nil value to host site - Lignin/cellulose 106 750 - Flocculated Solids 27 400 ADJUSTED NET REVENUE $ 1 214 150 800 591 413 559

310 000 29 700 753 259

134 150 619 109

The adjusted net revenue of $619,109 per annum is anticipated to arise only during the two year period encompassing Phases 1 and 2 of the demonstration program. With respect to project costs, the crediting of $1,238,218 will be offset by the preliminary cost of $353,789 detailed in Table 1. The net reduction in project costs arising from the value-adding of the waste-stream is thus $884,429.
6.8.5 Residual Value

Undertaking the demonstration in conjunction with a host site generating a lignocellulosic waste-stream of nil or negative value is expected to result in a lesser project cost. The valueadding of that waste-stream during the project will yield a credit to be applied against project expenses. That credit is estimated in the order of $850,000 (Section 6.8.4). At the conclusion of the project it is proposed that the demonstration plant be acquired by the host site for the continued value-adding of that waste-stream. Proposals should, therefore, make provision for a final credit against project costs of the residual value of the plant. Estimating that residual value in advance of the demonstrated cost-efficiency of the plant is not possible. Consequently, any provision made by proposals for residual value will be conditional on the project results. Nevertheless, in anticipation of those results conforming to the process specifications prepared for this study, that residual value is estimated as follows.
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Annual value-adding: Gross value as per Section 6.8.4 Less: Operating personnel as per Section 6.8.3 NET VALUE-ADDED Capitalisation of net value-added Assuming: Remaining useful life of plant - 10 years Discounting future cash flows - 15% p.a. Then: Net Present Value of Value-added = Value of processing consumablesStocks in store, etc. on acquisition as per Table 1 Section 6.8.4 Less: Provision for total replenishment after 5 years N.P.V. $353,789 discounted @ 10% p.a. NET VALUE

$619,109 529,000 $ 90,109

$452,239

$353,789 219,765 $134,024

The total of B. plus C. above, $586,263, represents the estimated residual value of the plant to the host site at the conclusion of the project. That value is, subject to the results of the demonstration program, to be credited against project costs.
6.8.6 Summary of Project Costs

The various estimates of component costs are summarised as follows The Plant - Section 6.8.1 Intellectual Property - Section 6.8.2 Personnel - Section 6.8.3 Processing Consumables - Section 6.8.4 (Table 1) $4.00 million 0.43 million 1.50 million 0.36 million

GROSS COST $6.29 million Less: Credits Net Revenues from Processing - Section 6.8.4 $1.23M $1.81 million Residual value of Plant - Section 6.8.5 $0.58M NET COST $4.48 million In anticipation of proposals to be submitted it is concluded that the net cost of the project will be in the order of $4.5 million. 6.9 Economic Viability

A reliable evaluation of economic viability is the purpose of the demonstration project. The demonstrated cost-efficiency of the conversion process will not be the sole determinant of economic viability. The additional factors are both economic and environmental. Unless that
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cost efficiency suggests an optimum scale of conversion which is consistent with those other constraints, the inferred economic viability may be commercially invalid. In anticipation of proposals for a demonstration project the feasibility of commercialising a costeffective conversion has been reviewed. Chapter 3 considers the availability of feedstocks and, in Chapter 4, the prospective disposal of the outputs as fuel is reviewed. In their totality neither feedstock supplies nor the fuels market suggest any gross limitation to commercialisation. Nevertheless, it is apparent that the optimum scale for any one plant should not exceed 100 megalitres and might preferably be in the order of 50 megalitres of annual ethanol output. For this study the role of industry participants is to assess the feasibility of demonstrating the cost-efficiency of conversion at a scale of 2 megalitres ethanol output. Pending that demonstration, an evaluation of economic viability must initially assume the process performing to specification. The risk of that performance being otherwise may also be estimated but generally that risk is accounted for by the proposed scale of the demonstration. For the assistance of participants, the invitation for proposals (IFP) formulated a description of the relationship of the various input and output factors of conversion. (See Appendix II, pp 8 11.) The ultimate target for conversion cost efficiency is the production of fuel grade ethanol at a price on par with the untaxed cost of liquid petroleum fuels ex refinery. According to the formula set out in the IFP at pp 8 11, that target may be attained, were a 90 percent conversion efficiency achieved, on a conversion process costing $0.20/kg ethanol output. That cost is additional to the cost of feedstocks. The targeted parity is based on those feedstocks costing $50/dry tonne. As formulated, the cost of conversion processing, Cp, is comprised of: capital labour consumables overheads. An assessment of those various components can be based on estimates derived for the purpose of costing the proposed demonstration. According to the process specification prepared for this study, the expected conversion efficiencies are less than the 90 percent required to achieve a Cp of $0.20/kg ethanol in accordance with the IFP formula. The specified efficiencies are 74 percent re. cellulose and 34 percent re. hemicellulose. Applying those efficiencies to the otherwise unchanged factors, the formula reveals that Cp must be as low as $0.13/kg ethanol for ethanol to maintain a selling price, Se, of $0.31/kg ($0.25/litre). By comparison, the cost of consumables alone for the specified process is, per Section 6.8.4, in the order of $0.46/kg ethanol ($0.37/litre). Utilising the IFP formula in this manner is, however, inappropriate. In proposing that participants might use the formula set out in the IFP, it was anticipated that their evaluation of economic feasibility would proceed on the basis of project costings. Firstly estimating a cost for conversion processing at a commercial scale, the formula would then be applied to determine the values of factors such as the selling price of ethanol and the cost of feedstocks. The following review adopts that approach. Furthermore, it is assumed as given that the effective cost of feedstocks is $50/dry tonne and that the commercial scale is 50 megalitres annual ethanol output.

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6.9.1

A 50 Megalitre Plant

Set out at Section 6.8.1 is the cost of the 2 megalitre demonstration plant, estimated to be $4 million. Included are the following groups of equipment: to be supplied ex the USM mini-plant other items, the balance $1,208,100 $1,710,988

Only the second above group is appropriately scaled-up according to conventional engineering rules of thumb. The first above group includes a substantial component costed on a "one-off" basis. Those "one-off" components would be susceptible to greater than the usual economies applying for the purpose of scaling-up. To estimate the cost of equipment for a 50 megalitre plant, the above costings are scaled-up as follows: A Equipment ex USM: - presently unique hydrolysis items - other more common items - freight ex USA to Australia Sub-total Less: PLC System included (see C. below) ADJUSTED TOTAL 440,600 756,500 11,000 1,208,100 135,700 1,072,400

Allowing for the presently unusual nature of this equipment, its cost at 50 megalitres scale by comparison with 2 megalitres scale, is estimated to be: ($1,072,400 x 25) x 40% = $10,724,000 B. Other equipment costed at $1,710,988 for 2 megalitres scale, is scaled-up to 50 megalitres applying the conventional rule of thumb to cost: ($1,710,988 x 25) x 60% = $25,665,000 C.Control Philosophy and necessary software and hardware for the demonstration plant is estimated to cost $335,700, comprising: - PLC System ex USM (transferred from A. above) - other items per Section 6.8.1 Scaling up to a 50 megalitre plant is estimated to cost ($335,700 x 25) x 30% = $2,518,000 135,700 200,000

D.Electrical works for the demonstration plant is estimated at Section 6.8.1 to cost $300,000. For a 50 megalitre plant the cost is estimated to be: ($300,000 x 25) x 50% = $3,750,000 The total cost of equipment items A - D inclusive is $42,657,000. In establishing that equipment on a commercial site, other equipment not required by a demonstration plant on a host site will also be required. Additionally, the site itself and the infrastructure for a selfcontained operation must be provided for. Key groups of equipment for a commercial-scale operation are:
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* Feedstock comminution and pre-drying infeed * Electrical co-generation (CHP) The costs of infrastructure and civil works are estimated as follows: I) II) III) IV) Land - providing relative to the plant footprint a site ratio of 14:1 so as to accommodate feedstock storage etc., say 20 Ha costing $500,000. Buildings - operational and service units, total $2,500,000 Infrastructure - bunding, roading and general site works, water supplies and fire etc. protection facilities, altogether totalling $3,000,000 Ancillary equipment (a) Weighbridges etc 1.5 million (b) Feedstock handling etc 3.0 million (c) Steam and electrical co-generation 5.0 million Sundries say $500,000

V)

The above items (I) (V) of infrastructure and civil works represent costs estimated to total $16,000,000. Finally, in order to set up the plant as a going concern, further capital must be outlayed for stocks of consumables, the initial charging of the system with such as IEC resin and the cash required to fund operations. With reference to Section 6.8.4, Table 1 evaluates the preliminary investment in processing materials to be $353,789 for the 2 megalitre demonstration plant. The majority of that expenditure relates to the IEC resin. Feedstocks are not included. Describing that further required funding as working capital, it is estimated as follows: (a) Materials stocks - as per Table 1 $353,789 x 25 = Add: Feedstocks - one month's supply @ $50/dry tonne = $8,844,725 708,333 TOTAL $9,553,058 (b) Operational cash to the value of one month's sales of ethanol output @ $0.50 litre = $2, 083,330

The total required working capital is thus $11,636,388. To summarise, the initial capital investment required for a 50 megalitre scale plant is estimated to total $70,293,388 comprised of: Equipment Site and Infrastructure Working Capital $42,657,000 $16,000,000 $11,636,388

At some $70 million, that initial investment is equivalent to $1.40 per litre of ethanol output capacity. Were the scale greater, say 80 megalitres capacity, the required capital investment similarly estimated would amount to some $108 million or the equivalent of $1.35 per litre of ethanol capacity. The operational life of a commercial plant may be assumed as thirty years. Not all of the equipment will remain serviceable throughout that time. It is therefore assumed that, during that thirty years, a series of refurbishments will be required. For the purpose of this review of economic viability, those subsequent investments are estimated to be:
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Years 5, 10, 20 and 25 - minor refurbishments totalling $10M; Year 15 - major refurbishment totalling $25 million; Year 30 - capital recovered from scrapping of plant and sale of site, $5 million. Added to the initial investment, the above subsequent investments during a 30 year operational life result in a total capital outlay of $100 million, net of the capital recovered on scrapping the plant at the end of that period. During that 30 years, the quantity of ethanol produced will total 1500 megalitres. Accordingly, as a component of the cost factor, Cp, the capital element of that processing cost is 7 cents/litre ethanol.
6.9.2 Personnel for a 50 Megalitre Plant

The cost of personnel for the demonstration project is estimated at Section 6.8.3. That estimation is largely inapplicable to a commercial scale operation. The further estimate of personnel costs following the transfer of the demonstration plant on conclusion of the project (see Section 6.8.5) is similarly inapplicable for the purpose of scaling-up to 50 megalitres capacity. As with the demonstration plant when fully operational, a commercial plant is expected to operate continuously for 330 days per annum. That is particularly the case for the conversion process but need not be so for either feedstock receival and comminution or for the despatch of ethanol output. For a 50 megalitre plant operating as a self-contained commercial entity, the cost of required personnel is estimated as follows: A Feedstock receivals and comminution - 250,000 Tonnes over 45 weeks; activity during 5 days/week, day-shift only; required crew 7 persons 7 x 225 labour days = 1575 days labour input 1575 days x 52/45 weeks = 1820 days labour paid 1820 days @ $200/day including on-costs = $364,000 p.a. Conversion processing including feedstock pre-treatment 250,000 tonnes (equivalent 170,000 dry tonnes) over 48 weeks (336 days); activity during 7 days/week, 3 shifts per day; required crew 8 persons per shift 8 x 3 shifts x 336 days = 8064 days labour input 8064 days x 52/48 weeks = 8736 days labour paid 8736 days @ $225/day including on-costs = $1,965,600 p.a. Ethanol despatch - 50 megalitres over 48 weeks; activity during 5 days/week, day shift only; required crew 1 person 1 x 240 labour days = 240 days labour input 240 days x 52/48 weeks = 260 days labour paid 260 days @ $200/day including on-costs = $52,000 p.a.

The total of estimates A - C above is $2,381,600 inclusive of on-costs. Allowing further costs in respect of plant management, the estimated cost of personnel for a 50 megalitre plant is some $2.5 million per annum. With reference to cost factor Cp, the labour element of processing cost is 5 cents/litre ethanol.
6.9.3 Processing Consumables at 50 Megalitre Output

At Section 6.8.4, Table 3 sets out the cost of consumables for an output of 2.03 megalitres hydrated ethanol. At a concentration of 95 percent by volume, that output is equivalent to 1.93
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megalitres anhydrous ethanol. The formula offered by the IFP refers to a yield of anhydrous ethanol. For conversion on a commercial scale it is expected that the lignin co-product will be applied as solid fuel to supply the steam and electricity required by the process as specified. The equipment required for a combined heat and power (CHP) co-generation facility is included in the costings at Section 6.9.1. Under that scenario the conversion process will be self-supporting of its energy requirements. Whilst there may be a surplus of energy generated by the associated CHP facility no sales of surplus energy are assumed for the purpose of this review of viability. Instead, the energy consumed by the process is estimated to cost nil. Adopting the above scenario, and based on the costings at Section 6.8.4, that element of processing cost factor Cp referrable to consumables is calculated as follows: (i) At 2 megalitres scale: Consumable materials - per Table 3 Less: Credits re. by-products per Table 2: - Calcium Salts 20 000 - Spent Yeast 45 000

$407 050

65 000 NET COST $342 050

ii) The net cost of consumables is assumed, irrespective of scale, to remain unchanged relative to ethanol yield. With respect to (i) above, the yield of anhydrous ethanol is 1.93 megalitres. Accordingly the cost of consumables is equivalent to 18 cents/litre ethanol. Given the relativity assumed at (ii) above, the estimated cost of consumables at 50 megalitres scale is also 18 cents/litre ethanol. Of that 18 cents, 17 cents relates to the cost of feedstock. The IFP formula accounts for feedstock separately from other processing consumables. Accordingly, for cost factor Cp, other processing consumables is estimated to represent 1 cent/litre ethanol.
6.9.4 Overheads

Of the four elements comprising the cost of conversion processing, Cp, as per the IFP formula, that of overheads is most difficult to estimate without reference to a specific case. Nevertheless, the composition of overheads is anticipated to encompass: Operating expenses e.g. communications, insurances, maintenance, process royalties, land taxes, etc. Return on capital invested. The more substantial of the overhead items is that of a return on investment. As envisaged at Section 6.9.1 the investment in a 50 megalitre plant is long-term in nature. For the purpose of this review, the investment is assumed to be wholly equity. Historically, the real rate of return on long-term equity is little more than 4 percent per annum compounded annually. Converted to simple interest over 30 years, that return is equivalent to some 7.9 percent per annum. An annual real return of some 8 percent is not dissimilar to that currently yielded by long-term bonds. It may be objected that a real return of 8 percent per annum is insufficient to justify the risk applying to an investment in a 50 megalitre plant. Countering that, there is little evidence of
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equity investments yielding any better real return. As to the risk factor, this review of economic feasibility assumes that the prospective investment is made in a commercially-mature industry exhibiting no greater risk than most manufacturing processes in which equity is invested for a real return usually less than the 8 percent contemplated in this instance. Over 30 years, the estimated total investment required for a 50 megalitre plant is $100 million, net of $5 million recoverable at the conclusion of the venture. Having regard to the staging of that investment (see Section 6.9.1) its value at commencement of the venture, discounting at 8% per annum is some $81 million. Given an annual output of 50 megalitres ethanol, a required return of 8 percent per annum on $81 million infers an overhead of 13 cents/litre ethanol output. Additional to that 13 cents/litre are the operating expenses of the plant. At Section 6.8.4, Table 3 provides for a maintenance expense equivalent to 10 percent of the cost of consumable materials. Were that to apply pro-rata to a 50 megalitre plant, the annual maintenance expense would exceed $1 million. Already provided in respect of maintenance are the cost of refurbishments as a component of capital expenditure (see Section 6.9.1) and a component of the personnel costs (some $245,000 of Item B Section 6.9.2). Having regard to those other provisions, the overhead element of maintenance is estimated to cost a further $1 million per annum. Other operating expenses, including those instanced, might amount to $1.5 million per annum, including production royalties at the rate of 1 cent/litre of ethanol produced. Operating expenses thus totalling $2.5 million annually are equivalent to 5 cents/litre ethanol. For the purpose of evaluating overheads as a component of processing cost they are estimated to total the equivalent of 18 cents/litre ethanol.
6.9.5 Viability According to the IFP Formula

Use of the formula set out by the IFP (Appendix II pp 8 - 11) to assess the economic viability of the process to be demonstrated, firstly requires an estimation of factor Cp, processing cost. That factor excludes the cost of feedstocks separately identified as factor Cf. The components of processing cost other than feedstocks have been identified and evaluated as follows: Capital - 7 cents/litre ethanol (Section 6.9.1) Labour - 5 cents/litre ethanol (Section 6.9.2) Consumables - 1 cents/litre ethanol (Section 6.9.3) Overheads - 18 cents/litre ethanol (Section 6.9.4). These various estimates total 31 cents per litre of ethanol output. The IFP formula addresses the process in terms of mass units. Converting litres to kilograms, the processing cost is 38 cents per kilogram of ethanol. Other issues to be considered are the values to be ascribed to factors Pj, the selling price of lignin, and ai, the ethanol yield from each feedstock component fermentable to ethanol. As formulated, the evaluation of economic feasibility envisages the disposal of lignin as a solidfuel at a price of $30/dry tonne. In that scenario, it is assumed that the lignin will generate more than sufficient steam and electricity to meet the energy requirements of the process. It is thus anticipated that a surplus of electricity will be available for sale from the process. That
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availability will depend on achieving a conversion efficiency sufficiently exceeding 30 percent as to warrant the facilities for selling such surplus. An efficiency of some 30 percent in the conversion of lignin to steam and electricity is assured. That efficiency is sufficient to meet the energy required by the process. The greater efficiency needed to warrant the sale of surplus electricity is yet to be demonstrated. Accordingly, in estimating the cost of consumables it was assumed that the process would supply its own energy requirements but no surplus. On that basis, no cost was attributed to energy inputs at Section 6.9.3. Consistent with that approach, no other value is ascribed to the lignin co-product for the purpose of this review. Thus the estimated value of factor Pj is nil. The specified conversion efficiencies for fermentable components are, as previously noted, cellulose 74 percent and hemicellulose 34 percent. These are the respective values applicable to factors ai of the IFP formula. Consistent with the review of feedstock availability at Chapter 3, a value of $50 per dry tonne is retained for this review of viability. The value of factor Cf is therefore 5 cents/kg. Applying the IFP formula to solve for factor Se, the selling price of ethanol output, using the following factors: Cf = $0.05/kg feedstock Pj = nil Cp = $0.38/kg ethanol ai = 74% cellulose and 34% hemicellulose xi = 50% cellulose and 28% hemicellulose yi = 0.568 cellulose and 0.581 hemicellulose The value of Se is $0.57. At 57 cents per kilogram of anhydrous ethanol, the equivalent price per litre is 46 cents (anhydrous) or 44 cents (hydrated). In reviewing the technologies available for a cost-efficient conversion it was variously noted in Chapter 5 that a hemicellulose conversion at only 34 percent efficiency could likely be bettered. Organisms other than that specified are currently available and demonstrate conversion efficiencies for both hexoses and pentoses in the order of 90 percent. If, during the demonstration program, a yield from hemicellulose achieved at the same efficiency as that for cellulose, the value of factor Se would be reduced to $0.53/kg ethanol or 41 cents/litre (hydrated). The IFP formula is essentially a break-even analysis. The incorporation of an allowance for each of capital redemption and a return on capital invested is a valid approach to the use of break-even analyses. Nevertheless, the allowances made in this instance being themselves only estimates, the order of uncertainty is greater than would be the case were estimated provisions for capital factors unnecessary. A conventional financial analysis based on cashflows dispenses with the need to provide for those capital factors. Instead, those factors are themselves yielded by such an analysis. Section 6.9.6 reviews economic viability in conventional terms.
6.9.6 An Alternative View of Economic Viability

The evaluation of viability set out at Section 6.9.5 in accordance with the IFP formula is not a conventional approach to the issue. The utility of the formula is greatest with respect to sensitivity analysis. Pending results from the demonstration project, all of the formulated factors are either estimates or assumptions. Any alternative evaluation of the economic viability of the process will also be wholly reliant on estimates or assumptions but there will be less of
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them. Among the unknowns which required estimation in order to use the IFP formula was that of a return on capital investment (see Section 6.9.4). Estimated at 13 cents/litre ethanol, that component of factor Cp represented nearly 30 percent of the selling price of ethanol yielded by the IFP formula. A conventional approach to evaluating economic viability is to consider the estimated cashflows. From those cashflows can be inferred a rate of return on investment. The acceptability of that inferred return will indicate likely economic viability, subject to perceived risk. The method to be adopted is that of solving for an internal rate of return whereby the present value of cash outflows equals the present value of inflows. The various cashflows are those derived from the estimates employed in Section 6.9.5. Additional assumptions could have been made with respect to taxation but, for this review, an evaluation on a before-tax basis is preferred. Accordingly, the various cashflows inflows and (outflows) are as follows: * Capital - per Section 6.9.1: Year 0 Year 5 Year 10 Year 15 Year 20 Year 25 Year 30 Annual receipts and payments Receipts - 50 megalitres ethanol @ $0.44/litre Less: Payments - Labour (Section 6.9.2) - Consumables (Section 6.9.3) - Operating expenses (Section 6.9.4) $22,000,000 2,500,000 8,551,250 2,500,000

$(70,293,388) $( 2,500,000) $( 2,500,000) $(25,000,000) $( 2,500,000) $( 2,500,000) $ 5,000,000

13,551,250 $8,448,750

NET RECEIPTS (ANNUAL)

In combination, the above series of cashflows yields an internal rate of return (IRR) exceeding 10 percent per annum. Were the selling price of ethanol increased to $0.50/litre, the IRR yielded is 15 percent per annum. In either case these returns are somewhat understated. According to the process specified, the consumables costed above at $8.55 million would yield 5.75 megalitres ethanol. Consequently, at $0.44/litre ethanol the above nett receipts are understated by $330,000 per annum or some $10 million over 30 years. In addition, the stated IRR's are calculated on the basis of compounding those nett receipts annually. In ordinary commercial dealings the above nett receipts would be a series of 12 amounts of $704,062.50. Compounding those 12 receipts at a rate of 10 percent per annum (0.83 percent per month) increases their annual value by some $0.78 million. Ignoring further compounding from one year to the next the understatement amounts to in the order of $23 million over 30 years.

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Given that both understatements are sufficient to cover the subsequent capital investments totalling a nett $30 million, an approximate adjustment on that basis yields an internal rate of return of 11 percent per annum on an ethanol selling price of $0.44/litre. Similarly but with ethanol selling at $0.50/litre, the IRR is almost 16 percent per annum.
6.9.7 Conclusion as to Economic Viability

The results of the demonstration project at a scale of 2 megalitres annual ethanol output will permit the evaluation of risk and uncertainty as required prior to a commercial implementation of the process. Pending those results it must be assumed that the process will perform to specification. Even granted that assumption, the costings for a 50 megalitre plant, both capital and operating expenses, themselves remain to be better evaluated in consequence of the project. The risks and uncertainties inherent in the process to be demonstrated are largely allowed for by virtue of the scale of the project and the financial incentives available for its conduct. Consequently, the assessments of economic viability set out at Section 6.9.5 and 6.9.6 should be considered as though they were certainties. Given certainty, the prospective production of ethanol at a cost permitting its sale at $0.44 per litre whilst yielding a real return in excess of 10 percent per annum clearly suggests a positive outlook for economic viability. 6.10 Conclusion as to Project Feasibility

The concept proposed for this feasibility study was that a demonstration project be conducted on an established lignocellulosic processing site. The processing waste-stream generated on that site should be sufficient to supply the feedstock needed for conversion at a scale of 2 megalitres annual ethanol output. Presently having a nil or negative value to the activity conducted on the host site, the value-adding of that waste-stream by its conversion to ethanol and lignin co-products should represent a credit to offset the gross cost of the demonstration project. A clear commercial focus was sought for the study by providing that industry participants be invited to independently evaluate project feasibility. Invitations were issued in response to expressions of interest and subject to the suitability of a prospectively available site for the project. Prospective site-owners were also to be demonstrably capable of commercialising a successfully demonstrated conversion process. Invitations were issued to six prospective site-owners, namely: Auscott Ltd re. a cotton gin at Narrabri, NSW Boral Ltd re. a timber mill at Dungog, NSW CSR Ltd re. a hardboard mill at Raymond Terrace, NSW Morwell Enterprise Centre re. the former BCLV plant adjacent to a sawmill at Morwell, Vic. NSW Sugar Milling Co-Operative Ltd re. a sugar mill at Broadwater, NSW T. Bowring and Associates re. a proposed cereal straw conversion project in the Goulburn Valley region of Victoria. The details of sites selected and the capacity of site-owners to eventually commercialise the demonstrated process are set out at Section 6.2. Industry participants were invited to independently evaluate the feasibility of the proposed project having regard to a process specification prepared for this study. The considerations underlying process design and a summary of that design are set out in Chapter 5. Prior to
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submitting that specification to participants it was subjected to expert review, principally to permit a preliminary assurance as to technical feasibility. Aspects of the matter of process design and the preliminary expert review are described at Section 6.3. Consequent upon that favourable review, the process design was submitted to five industry participants for their evaluation and, as appropriate, their responses. Participants were invited to evaluate project feasibility in terms of the matters encompassed by Item 4 of the Work Program (WP4) for this study. Details of proposals invited are set out at Section 6.4. Essentially participants were requested to undertake WP4 and, irrespective of the result, to submit their evaluation for incorporation with this report. In the event of a favourable evaluation, proposals for undertaking a demonstration were also sought. Such proposals would be submitted to the Commonwealth as confidential appendices to this report. An important element of project proposals is the provision made for the demonstration program to be undertaken during the project. This study has identified a number of issues important to the commercial prospects for a conversion process. Those issues are outlined at Section 6.6. A demonstration proposal would necessarily provide for the project to address some or all of those issues, consistent with the process to be demonstrated and with financial constraints. Whilst a proponent was supplied with a detailed process specification, variations to that design would be a valid result of the independent evaluation sought from participants. Those variations, together with other site-specific issues could be expected to dictate the emphasis placed by a proposal upon the possible design of a demonstration program. During the latter stages of this study it became apparent that participants who had concluded negatively as to project feasibility would not be supplying responses of use to the report in terms of Item 4 of the Work Program. At the same time other participants had either responded in insufficient detail or had so far been unable to progress an evaluation to the point of addressing the matters in question. At the time of concluding this report, the various evaluations by participants are as set out at Section 6.5. In response to the paucity of site-specific industry submissions regarding Item 4 of the Work Program, a general evaluation of the project feasibility was undertaken. That assessment is not specific to any one site or participant. It is submitted only as a guide against which any eventual proposal might be considered. The general assessment assumes that the process to be demonstrated conforms with the specification prepared for this study. On that basis the issues assessed are: Project Personnel - Section 6.7 Project Costs - Section 6.8 Process Viability - Section 6.9. Consistent with the original concept for the proposed demonstration, the cost of the project is estimated to be $4.5 million after allowing for credits in respect of processing outputs and a residual value of the plant to the host site. Based on project costings scaled up to 50 megalitres, the process is considered to be economically viable. Those scaled-up costings indicate a prospective selling price for the ethanol output of 44 cents per litre. At that price, the process exhibits an internal rate of return exceeding 10 percent per annum. In the final analysis, project feasibility was to be determined by the industry participants. Nevertheless, undertaken pending the submission of project proposals, this review of likely costs and economic viability supports the prospect of participants concluding in favour of their
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undertaking a demonstration of the conversion process specified for this study. In the event, only the Morwell Enterprise Centre has so far submitted a project proposal. The negative conclusions reached by other participants were not based on any objection contradicting our evaluation of project feasibility.

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