The purpose of this chapter is to identify practical issues related to the economics of developing switchgrass as a dedicated energy crop and to provide estimates of the price for delivered switchgrass biomass that would be required to compensate for the cost of inputs used to produce and deliver it to a biorefinery. As noted in the introduction, the potential for switchgrass biomass depends on (a) its production cost relative to alternative sources of feedstock and (b) a system to convert lignocellulosic biomass into economically competitive products.

The estimated breakeven price for switchgrass biomass delivered to a biorefinery ranges from $60 to $120/Mg. For the base estimates obtained from the programming model, 27 percent of the delivered cost of $60/Mg is for transportation from the field to the biorefinery; 26 percent is for harvest (windrowing, raking, baling, stacking) costs; 20 percent is for land rental; 14 percent is for fertilizer; and 13 percent is for establishment. Increasing yield could reduce most but not all the costs on a per unit basis. As modeled, harvest costs per Mg are found to be very similar across a wide range of yields per hectare. Given the rather substantial cost economies associated with harvest machines, and given that a biorefinery is expected to require a continuous flow of feedstock, if switchgrass is established on millions of hectares, a highly coordinated harvest system would be more economical than a haphazard system.

Switchgrass harvest would extend over as many months as permitted by feedstock quality requirements, weather, and policy. Given the quantity of biomass required, and the lack of an existing infrastructure to harvest a continuous flow of massive quantities of biomass, a harvest system would likely develop that exploits the economies of size associated with harvest machines. Whether or not independent companies develop, such as those that exist for grain harvest in the Great Plains, remains to be seen. Alternatively, harvest crews and harvest machines could be managed as wholly owned subsidiaries of biorefineries.

Rational land owners would not enter into switchgrass biomass feedstock production until a market is available. A rational investor would not invest in a biorefinery that did not have a reasonable plan for obtaining a flow of feedstock. One alternative would be for the biorefinery to engage in long-term leases with land owners to acquire the rights to a sufficient quantity of land to produce feedstock to meet its needs.

The U. S. Energy Independence and Security Act of 2007 mandated the production of 61 billion liters of cellulosic biofuels by 2022. But, no commercial sized facilities were operating in 2011. Hence, it seems reasonable to conclude the development of a commercially viable system for production of liquid biofuels has not progressed as rapidly as anticipated. Desirable feedstock properties, the biomass to biofuel conversion rate, and the investment required in plant and equipment differ depending on which one of several competing technologies is used. Determination of the most efficient system will require a holistic field-to-bioproducts model that simultaneously considers land procurement, feedstock production, harvest, storage, transportation, processing, and the value of the final products. Modeling each of the competing conversion systems using a "field to fuel" approach could provide useful information to compare the expected economics of each system and identify unique bottlenecks.

A number of additional issues remain. A system to manage the risk associated with switchgrass yield variability and the risk of fire of standing and stored switchgrass will be required. Knowing how a biorefinery would respond to short crops is not clear. In years of above average yields, not all land would have to be harvested. However, in years of below average yields, the biorefinery may not have sufficient feedstock to operate throughout the year.

If an economically competitive biorefinery technology is developed, entrepreneurs confident of their technology with an enforced government mandate that their produced biofuels be purchased, could contract and convert land from current use to the production of switchgrass or some other dedicated energy crop, in a relatively short period of time. Ambiguities as to what determines feedstock quality and how to provide a flow of feedstock throughout the year are likely to be resolved much more quickly if the annual payment to the land owner is set. Leased land would enable the company to manage a portfolio of switchgrass stands, or a portfolio of energy crops, feedstock quality, and harvest, to optimize the field-to-fuel process. Unwillingness of biorefinery entrepreneurs to engage in long-term lease contracts could be interpreted as a signal that they are unsure of the economics of their conversion technology. The ultimate challenge is to discover, develop, design, and demonstrate an economically competitive biorefinery technology necessary for a profitable business model.

Acknowledgements

Research findings reported in this chapter were produced by projects supported by the USDA NIFA Biomass Research and Development project number 0220352; by USDA NIFA Hatch grant number H-2824; by the Oklahoma Agricultural Experiment Station; by the Jean & Patsy Neustadt Chair; by the Samuel Roberts Noble Foundation; and by a USDA National Needs Graduate Fellowship Competitive Grant no. 2008-38420-04777 from the National Institute of Food and Agriculture. Support does not constitute an endorsement of the views expressed in this paper by the USDA or by the Samuel Roberts Noble Foundation.