New research addresses biomass supply variation risk

By Anna Simet | January 26, 2016

Recently published research shows variations in the biomass supply chain could have implications on cellulosic biofuel development cost as well as reduce overall potential for cellulosic biofuel production, but that feedstock diversification and portfolio strategies can effectively mitigate risk.

According to researchers Rajdeep Golecha and Jianbang Gan, there are large (up to 20 percent) year-to-year variations in biomass supply. Developing pretreatment and long-term storage technologies for stover, increasing resilience of corn yield and harvested area, and using multiple feedstock types and sources, among other options, can help alleviate the impact of these yearly stover yield variations on stover utilization rate and biomass/biofuel production costs, according to Golecha and Gan. However, how these options will work alone and together with market arrangements remains to be answered and calls for further endeavors, they believe.

Using Game Theoretic analysis, Golecha and Gan examine different market structures for biomass and suggest that a free market structure for biomass can take the form of oligopoly-oligopsony, and expose both biorefineries and farmers to significant price volatility. While storage cannot mitigate these large year-to-year supply variations, the researchers recommend optimal contracting strategies between cellulosic biorefineries and farmers to mitigate them.

Golecha and Gan suggest using a derisked supply market structure under Game Theoretic analysis, which involves retaining a supply region to protect cellulosic biorefineries against biomass supply shocks. They find fixed-price, long-term supply contracts between biorefineries and biomass suppliers as the ideal and lowest-risk option. By carefully evaluating the trade-offs between biomass transport cost, biomass price, alternative feedstock availability, and loss in the event of a supply deficit, they find that cellulosic biorefineries can reduce cost of biomass by 10 to 20 percent.

“Biomass storage is quite expensive due to demurrage losses, and it would be practically unfeasible to manage these large year-to-year supply variations through storage only,” Golecha says. “Our findings on market structure and contracting strategy are quite interesting, as they not only mitigate risk but also reduce biomass cost when the trade-offs are appropriately evaluated and optimized.”

Gloecha says he and Gan have further found that biomass diversification and portfolio strategies are very effective in mitigating supply risks. “While storage and pretreatment could be effective for managing seasonal supply variations, techno-commercial strategies of market structure, contracting, and diversification are more prudent for managing year to year supply variations,” he says.

The research papers, “Effects of corn stover year-to-year supply variability and market structure on biomass utilization and cost” and “Optimal contracting structure between cellulosic biorefineries and farmers to reduce the impact of biomass supply variation: game theoretic analysis” have been published in international journals Renewable and Sustainable Energy Reviews, and with Biofuels, Bioproducts and Biorefining, respectively.