Long term planning and hedging for a lignocellulosic biorefinery in a carbon constrained world

• Published in: Energy conversion and management 2016-10, Vol.126, p.463-472
• Main Authors: Cheng, Lingfeng, Martínez, M.G., Anderson, C.L.
• Format: Article
• Language: English
• Subjects: Biofuel; Downside risk; Spot price; Stochastic program; Swap contract
• ISSN: 0196-8904; 1879-2227
• DOI: 10.1016/j.enconman.2016.08.017

•Optimal long-term ethanol production and hedging in a realistic decision sequence.•First stage production planning influenced by price forecast and carbon tax policy.•Production scheduling and hedging influenced by price trend and storage capability.•Swap contracts and inventory can hedge risk and increase financial viability. While bioethanol has become a promising candidate for replacing fossil based transportation fuels, its economic feasibility still eludes industry investors. In particular, uncertainties exist in both production processes and associated markets. Hence, it is critical to develop process technology and strategize the operation and hedging decisions that improve financial viability. This paper considers long-term production scheduling under the impact of carbon tax constraints and ethanol spot price uncertainty, as well as risk management via ethanol swap contracts. More specifically, a framework consisting of a two-stage stochastic program and a two-factor time series model is presented to determine the weekly production rate and swap portfolios to maximize the process profit under spot price uncertainty.