A Bio-Ethanol Fuel Program for Armenia

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An existing ethenol plant in Armenia.

BY KENDRICK WENTZEL and AREG GHARABEGIAN

Renewable Resources and Energy Efficiency (R2E2) Fund of Armenia commissioned a feasibility study to determine possibilities of producing bio-ethanol in Armenia. This study was financed by the World Bank as a grant from the Global Environment Facility (GEF). Enertech International, Inc. and BBI International from US in cooperation with DHD Contact LLC of Armenia were awarded a contract to conduct this feasibility study.

As a land-locked country without any significant deposits of crude oil, Armenia is 100 percent dependent upon fuel imports to meet a growing demand for gasoline. Moreover, increases in world crude oil prices are being passed onto and reflected at retail gasoline outlets. In addition, prices for gasoline in Armenia are expected to increase at an even more rapid rate in the future than world markets. Moreover, natural gas prices from Russia are expected to increase in the future making CNG more expensive and causing upward pressure on gasoline prices as well. Such trends will make alternative motor transport fuels such as bio-ethanol more competitive in the market. Finally, bio-ethanol for blending as a motor transport fuel has the potential to reduce imports of gasoline through displacement, reduce foreign exchange drains, increase energy security of supply in a traditionally unstable region of the world, create value from domestically grown bio-ethanol feed stocks on surplus lands, create jobs in depressed rural areas, and improve local air quality particularly in congested urban areas.

One of the key factors for determining the overall success of a bio-fuels program is the availability of appropriate feed stocks at attractive prices. Corn and sugarcane serve as the major feed stocks for current bio-ethanol production throughout most of the world, but virtually any feedstock with high sugar or starch content can be utilized for bio-ethanol production. Armenia’s climatic conditions are not suitable for sugarcane production; however, there are several alternative crops suitable to Armenia’s climate for cultivation on available agricultural land that is not intended for the production of food crops. In particular, Jerusalem artichoke has been identified as a crop with great potential as a feedstock for bio-ethanol production in Armenia in the near to midterm. It can be cultivated on land that is currently fallow. Moreover, it possesses relatively high carbohydrate content, especially in its root tuber, thereby making it extremely suitable for bio-ethanol production. Farmers grow Jerusalem artichoke for their own use, but there is no large scale production due to the small market for it.

Tanks to be used for processing JAs.

Tanks to be used for processing JAs.

Similarly, feed corn for livestock and poultry is a suitable crop for the soils and micro climates found in several parts of the country. Feed corn can be processed in such a manner as to extract all of the starches contained in the feedstock corn for conversion into bio-ethanol while at the same time producing important animal feed co-products. The byproduct will have a higher percentage of protein, fats, and carbohydrates than that found in unprocessed dry corn which is currently the principal animal feed used by livestock and poultry producers in Armenia. Similar byproducts can also be produced using Jerusalem artichoke.

Presently there is no large scale feed corn production in Armenia, but there are some to increase production to reduce the import and to develop a local market for feeding livestock. These plans call for having 10,000 hectares under feed corn production in Tavush District in northern Armenia.  

The preliminary feasibility study suggested developing two very different types of bio-ethanol plants: one based on Jerusalem artichoke to be situated in the vicinity of Sisian and Goris in Syunik District; and a second plant based on feed corn grown in Tavush District. These two districts have high rural unemployment rates and have microclimates suitable for the production of the identified feed stocks.

There are a number of advantages and disadvantages that should be recognized from the outset when considering a decision on whether or not to implement a nationwide bio-ethanol program. With respect to advantages, bio-ethanol can be produced from domestic renewable feedstock sources, helps to stimulate agricultural employment in depressed rural areas, and can provide farmers and bio-ethanol processing plant owners with a dependable revenue stream. In addition, bio-ethanol is non-toxic and biodegradable can lower air emissions in major metropolitan areas such as Yerevan and Gumri when combusted as a motor transport fuel, can reduce overall greenhouse gas emissions, and can reduce foreign exchange drains on the Armenian economy. Lastly, the bio-ethanol that leaves the facility needs no further processing other than blending with gasoline.

On the other hand, a nationwide bio-ethanol program could face several challenges. Ethanol has a lower energy content value compared to gasoline and could face an initial public acceptance hurdle. In addition, higher blended levels of ethanol in gasoline (e.g., greater than 10 percent) are not compatible with existing non-flex fuel vehicles, pipeline infrastructure, distribution systems, or tanks and pumps at retail outlets. If the imported gasoline is not of a high quality or contains moisture, there will be performance and maintenance problems with automobiles that are operated with fuels mixed with bio-ethanol and the program will in all likelihood be perceived as a failure by the consumer public. In addition, no markets currently exist in Armenia for useful animal feed by-products from bio-ethanol conversion processes.

Assessment of Potential Bio-Ethanol Market Size and Estimated Ceiling Price

A forecast of bio-ethanol production market size was conducted to achieve the 5 percent blending levels by volume with gasoline. These projections formed the basis of the decision to develop 14,000 tons per annum of bio-ethanol production capacity by 2014. Therefore, the recommended capacity sizes for each of the two proposed plants is 7,000 tons per year.

Construction of a 7,000 metric tons per year bio-ethanol plant would cost $17 to $19 million (2008 dollars) depending upon specific conversion technology chosen by the developer. The major variables for the financial analysis of a bio-fuel project are bio-ethanol price, feedstock price, co-product price, and energy costs.

Due to the lack of reliable price information for the proposed feed stocks (Jerusalem artichoke and feed corn), the financial analysis was necessarily conducted by setting an acceptable rate of return on investment (i.e. – 15 percent) and solving for the cost of the feedstock that would generate this return over time. A variety of scenarios was analyzed to assess the sensitivity of the projected results to the different assumptions.  

If yields are around 40 to 45 metric tons per hectare, pricing for Jerusalem artichoke is expected to be approximately $50 per metric ton (15 AMD per kilogram). The financial model showed that the processing plant can pay up to $88 per metric ton for Jerusalem artichoke and still achieve a Return on Investment (ROI) of 15 percent. Analysis was based on using a bio-ethanol price of 410 AMD per liter ($1.34 per liter).

The 2008 price for imported feed corn into Armenia was approximately $400 per metric ton (120-140 AMD/kg). This price is significantly above the world market price of corn, likely at least in part due to high transportation costs and small trading volumes. Results of the analysis indicate that while higher yield seeds are now being used by local farmers, the upward pressure on corn production costs especially from the higher cost of fertilizers, weed suppressants, and diesel fuel for tractors is offsetting enhanced revenues from higher crop yields. However, given that the financial model was set to achieve a minimum ROI of 15 percent, financial projections indicated that the processing plant could only afford to pay up to $393 per metric ton for feed corn and still remain attractive to potential investors.

Land Availability for Feedstock Production

On average, only 70 percent of tillable land in Armenia is presently being used. In some Districtes such as Vayots Dzor, only 23 percent is used but in Gegharkunik up to 90 percent is used. Guiding principles for identifying suitable land during conduct of the bio-ethanol program assessment were to:

Focus on surplus lands only

Consider lands from the Soviet era that are not presently being utilized for food production, Primarily concentrate on marginal lands between 1,000 and 2,400 meters in elevation or else saline soils that cannot be utilized for food production regardless of elevation,
Rule out lands that are not accessible by mechanized farm equipment, or
Include endangered species of plants or animals.

An extensive study was conducted to determine the best locations for growing acceptable feedstocks from the perspective of prevailing climatic conditions, soil suitability, elevation constraints, and possible access to irrigation. It was concluded that Sisian and Goris will be the preferred location for growing Jerusalem artichoke and Tavush District for growing feed corn.

There are approximately 16,800 hectares of land immediately available for expanded agricultural production in the vicinity of Sisian and Goris. Approximately 87,600 metric tons of Jerusalem artichoke is needed for production of 7,000 metric tons of bio-ethanol. Given an expected yield of 40 metric tons per hectare, approximately 2,190 hectares of land would be required. This would still leave 87 percent of the available land for food crop production in the future.

Similarly, there are 10,370 hectares of unused agricultural land presently available in Tavush District. The dry mill with corn fractionation plant will process about 23,000 metric tons of feed corn per year for producing 7,000 metric tons of bio-ethanol per annum. Given an expected average yield of 4 metric tons per hectare in Armenia, 5,750 hectares of land would be needed. This would still leave 45 percent of the available land for future food crop production.  

Anticipated Developmental Impacts

Rural development is another important driver for worldwide support of bio-fuels. Since feed stocks are grown on agricultural land, increasing demand results in increased economic development in rural areas; however, bio-fuels policies have faced increased scrutiny in recent years. The two most controversial topics are the food versus fuel issue, and the actual level of environmental benefits accruing from bio-ethanol programs. While producers benefit from feedstock price increases, consumers can suffer from increased costs for food supplies. This is particularly true for less economically developed populations where the share of income used for food is high. In reality, the demand from bio-fuels is far from the biggest driver for increasing food prices. The increase in the price of energy has a much larger impact on food prices.  

Moreover, the proposed projects are expected to have significant and positive developmental impacts and benefits to Armenia. The following are most important benefits:

A bio-ethanol feedstock production program of this magnitude will have an instant and measurable positive economic and job creation impact upon the two most depressed parts of Armenia.

Most of the construction work would be provided by local Armenian contractors; overseen by an international contractor with experience in bio-ethanol plant construction. New jobs would be created both directly and indirectly. These jobs will require new skills and training to operate and maintain the two plants.

Substantial tax revenues would be generated, as well as money spent in local rural economies.

Environmental Impacts

Bio-ethanol production can have positive and negative impact on the environment. Considering all of the potential bio-ethanol fuel cycle environmental aspects, it can be concluded that on the whole the project will have a favorable impact on the environment in Armenia, particularly in urban areas such as Yerevan and Goris. The main positive aspect of the proposed project will be the reduction of air pollutions. With a nationwide program goal of 5 percent ethanol blending it is anticipated that carbon dioxide emissions will be reduced by 3,300 metric tons per year or by at least 15 percent of the level of such emissions in 2007. Considering a projected increase in the number of vehicles that will be added to the current stock in the future, this anticipated emissions reduction will have a tendency to increase over time.  

Other environmental concerns are mostly related to land use changes triggered by higher agricultural product prices. The higher prices provide an incentive to increase production, which in many cases means expanding the amount of land used for agriculture. If the expansion land is currently forested, turning it into arable land will require deforestation resulting in environmental harm which will likely outweigh the benefits of bio-fuels for many years. However, here again, bio-ethanol production as envisioned for Armenia will result from greater utilization of unutilized crop lands or marginal lands and not result in reductions of forested lands

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6 Comments

  1. Bobby Fontaine said:

    You left out two very important words when discussing what should be looked at with regard to the future of ethanol for Armenia, hydrous ethanol and gasification used for the production of ethanol. If Armenia follows the United States model for ethanol, their program will fail there just like the one here is. Look to the Netherlands and Brazil for advice on hydrous ethanol and understand that gasification may be the better alternative for how to produce it.

    Be wary of outside advisers on ethanol. There are many sides to the ethanol issue, much of which are the wrong direction to go but advice on how do it that way comes from the most popular sources, the same sources that sponsored MTBE as an oxygenate that turned out to be a miserable failure except for the few who talked everyone into using it who made billions, even trillions off it.

    Be aware that the right way for ethanol is simpler, safer, and cheaper, and needs far less investment therefore leaving little opportunity for international bankers to invest in it. The wrong way is expensive and creates unsafe unstable products that don’t even function well as fuels. But they do need a lot of start up capitol to get working therefore leaving you dependent on big international bankers to get you started and then to bail you out when the program fails, which will also leave your political environment in a lurch for having supported it, just as it has in the U.S.

  2. Patrick said:

    Very Well written article.

    Although there are some points I still question, this is still a sign of progressive thinking in out community.

  3. cc said:

    Biofuels are a fluke and a short term solution to Armenia’s energy woes. First Biofuels usually lead to deforestation; something which Armenia is already on pace to do with all the mining… secondly and (definitely for sure) all the construction and development for biofuels will further harm to the local ecosystems people use for drinking water (if its even clean). Thirdly, biofuels are horrible for MPG. Basically, in order to create biofuel one has to degrade the environment just to produce fuel and knowing previous investors; they’ll leave peoples livestock and natural habitated degraded
    Although the alternatives have not hit the market quite yet, electric cars OR cheaper cars (like the India company $2000 for a small-a$$ car) might seem like a more sustainable solution. But for exports and money generating ideas- I think Armenia should focus on more sustainable solutions for the country before considering new export ideas.

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