Tag Archives: Feasibility / Costing

Ethanol From Corn – Costing

I hope this is not becoming too much of a biofuels blog, but I found this very interesting and was particularly struck by how a quick calculation can bring insight – maybe we need to to this more often in food processing!

While the “energy cost of ethanol” is much more difficult to calculate, the cost of production is much simpler. However, many people talk about the benefits of Ethanol without really knowing what it costs – like any costing it is not an absolute but depends strongly on time and location.

R-Squared Energy Blog has done a great of job of showing how to do a simple calculation of the cost of ethanol, presenting references to the costs he uses.

R-Squared Energy Blog_ Corn Ethanol Economics.jpg


By comparing the cost of ethanol production to the market price for fuel ethanol he avoided the effect of subsidies. However, it clearly shows that there’s not much margin in the business and that raw material prices (90% of total) is the predominate input cost. This has positive (scientific progress could have significant effects on yield both on farm and in plant) and negative (rising food prices) sides to it and is similar to the biodiesel scenario except that value of oil cake, the byproduct of that process, has a more significant effect on cost, than DDGS. In summary he found:

Times are tough for ethanol producers. This is what the economics roughly look like at $5 per bushel of corn and $8/MMBTU of natural gas. To produce 1 gallon of ethanol requires:

* $1.85 of corn

* $0.33 of energy

* $0.14 of enzymes, yeast, etc.

* $0.23 of labor, maintenance, and various miscellaneous expenses

There is a DDGS credit per gallon of ethanol of $0.55. Thus, the total cost to produce a gallon of ethanol today is $1.85 + $0.33 + $0.14 + $0.23 – $0.55, or exactly $2/gallon of ethanol. For reference, the February contract for ethanol in the Midwest as of this writing is $2.15. And $2/gallon is merely cost of production. It doesn’t take into account any return on investment.

Also note that due to the lower energy content, this production cost is equivalent to a $3 per gallon production cost for gasoline – and that this production cost is a moving target: As long as the ethanol mandates are driving up the price of corn and increasing the demand for and cost of natural gas, corn ethanol producers must chase their tails in a vicious cycle. Producers are going to be hard-pressed to ever match the 2006 windfall that was given to them when the MTBE phaseout drove ethanol prices sky-high.