Life cycle simulation-based economic and risk assessment of biomass-based fuel ethanol (BFE) projects in different feedstock planting areas

Abstract

Abstract Increasing attention is being paid to biomass-based fuel ethanol (BFE) for its contributions to moderating oil crisis, reducing environmental impact, and promoting local economy. This paper aims to assess and compare the economic viabilities and investment risks of three BFE projects in different feedstock planting areas in China. Internal cost models of wheat-based fuel ethanol (WFE) in Central China, corn-based fuel ethanol (CFE) in Northeast China, and cassava-based fuel ethanol (KFE) in Southwest China are developed. The projects’ net cash flow (NCF) and net present values (NPV) are pursued by internal cost model simulation with the Monte Carlo method. According to the simulation results, KFE project is economically viable for its positive expected NPV and its expected internal rate of return (IRR) (12%), while CFE and WFE are not economically viable for their negative expected NPVs. Sensitivity analysis is performed to find out the key determinants of the projects’ expected NPVs and to evaluate their future economic viabilities. The analysis results indicate that CFE has better potential to become economically viable comparing to WFE project. Possible measures to improve the expected NPV of CFE are then proposed.