Adoption of switchgrass cultivation for biofuel under uncertainty: A discrete-time modeling approach

Burli, Pralhad; Forgoston, Eric; Lal, Pankaj; Billings, Lora; Wolde, Bernabas

doi:10.1016/j.biombioe.2017.06.012

Adoption of switchgrass cultivation for biofuel under uncertainty: A discrete-time modeling approach

Journal Article · Wed Jul 05 00:00:00 EDT 2017 · Biomass and Bioenergy

DOI:https://doi.org/10.1016/j.biombioe.2017.06.012· OSTI ID:1769630

Burli, Pralhad ^[1]; Forgoston, Eric ^[2]; ^[2]; Billings, Lora ^[2]; Wolde, Bernabas ^[2]

Montclair State University, NJ (United States); University of Florida
Montclair State University, NJ (United States)

Production of biofuels from cellulosic sources, such as switchgrass, is being encouraged through man- dates, incentives, and subsidies. However, uncertainty in future prices coupled with large establishment costs often inhibit their cultivation. Owing to their inability to incorporate uncertainty and dynamic decision-making, standard discounted cash flow techniques are ineffective for analyzing such in- vestments. We formulate a discrete-time binomial framework to model output prices, allowing us to incorporate price uncertainty, stand age, and variable crop yields into the analytical framework. We analyze the feasibility of investments in switchgrass cultivation under varying price transition paths, evaluate the relationship between risk and profitability, and estimate the value of flexible decision- making options wherein the farmer can alter cultivation choices. Here, we find that switchgrass cultivation is only 32% likely to be profitable in the base model and infer that on-farm management could play an important role in entry and exit decisions. We also find that subsidies are important for project viability and policymakers could consider incorporating payments for ecosystem services to encourage adoption.

View Accepted Manuscript (DOE)

Research Organization:: Univ. of Florida, Gainesville, FL (United States)

Sponsoring Organization:: National Science Foundation (NSF); USDOE; USDOE Office of Energy Efficiency and Renewable Energy (EERE), Transportation Office. Bioenergy Technologies Office; USDOE Office of International Affairs (IA)

Grant/Contract Number:: PI0000031

OSTI ID:: 1769630

Alternate ID(s):: OSTI ID: 1495862

Journal Information:: Biomass and Bioenergy, Journal Name: Biomass and Bioenergy Vol. 105; ISSN 0961-9534

Publisher:: ElsevierCopyright Statement

Country of Publication:: United States

Language:: English

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09 BIOMASS FUELS
bioenergy
cellulosic
profitability
switchgrass
uncertainty

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