Center on Financial Risk in Environmental Systems: Biofuels
Managing Financial Risks in Algae Production for Biofuel and Co-products
This project explores financial risks to algae production under market and environmental uncertainty for biofuel and co-products, and financial tools for risk management are analyzed for their usage by an algal biorefinery.
Algae products (including biofuel) are becoming increasingly economically competitive due to advances in cultivation, harvesting and conversion technologies, as well as a push to integrate production of fuel with production of high value co-products and economically valuable industrial processes (e.g., wastewater treatment). As fundamental advances continue to bring algae closer to widespread commercial viability, there is growing pressure to develop design and operational paradigms that succeed financially and environmentally. At the same time, uncertainties in several areas could make algae a risky investment. Understanding how to plan for and dynamically manage these risks will be key to promoting the success of individual plants and the growth of the algae industry. At the cultivation stage, algae producers face uncertainties in environmental systems (i.e., water availability, solar irradiation, temperatures) and markets (e.g., for nutrients, carbon dioxide) that significantly impact plant output, costs, and revenues. Equally daunting are uncertainties in the prices for algae products, as well as regulatory support (e.g., loan guarantees, fuel standards). These uncertainties create an additional hurdle for would-be algae producers, who already face difficulties in convincing financiers to invest in a nascent technology. This project involves detailed process modeling of algae production facilities within a stochastic framework to develop novel ways to manage algae producers’ risks in multiple areas. For example, an index-based insurance instrument that considers both weather and market conditions is developed, which is particularly timely given the passage of the 2018 Farm Bill in which the USDA declared algae to be a “crop” that can be covered by federal crop insurance programs.
Recent Publications involving personnel from the Center on Financial Risk in Environmental Systems, with superscripts denoting graduate students (M = masters; D = doctoral) and Post-doctoral Researchers (P) working in the Center.
Kleiman, R. M., Characklis, G. W., & Kern, J. D. Managing Weather-Related Financial Risk in Algal Biofuel Production Bioresource Technology (in preparation)
Kleiman, R. M., Characklis, G. W., Kern, J. D., & Gerlach, R. Characterizing Weather-Related Biophysical and Financial Risks in Algal Biofuel Production. Applied Energy (in revision)
Kern, J. D., Characklis, G. W., Gorelick, D. E. and C. M. Macklin. “Multi-Objective Optimal Siting of Algal Biofuel Production with Municipal Wastewater Treatment in Watersheds with Nutrient Trading Markets,” Journal of Water Resources Planning and Management. doi.org/10.1061/(ASCE)WR.1943-5452.0001018
Kern, J. D., Hise, A. M., Characklis, G. W., Gerlach, R., Viamajala, S. and R. D. Gardner (2016). “Using Life-Cycle Assessment and Techno-Economic Analysis in a Real Options Framework to Inform the Design of Algal Biofuel Production Facilities,” Bioresource Technology, 225, doi.org/10.1016/j.biortech.2016.11.116.
Hise, A. M., Characklis, G. W., Kern, J. D., Gerlach, R., Viamajala, S., Gardner, R. D. and A. Vadlamani (2016). “Evaluating the Relative Impacts of Operational and Financial Factors on the Competitiveness of an Algal Biofuel Production Facility,” Bioresource Technology, 220, pp. 271-281, doi:10.1016/j.biortech.2016.08.050.
US Department of Energy
Award # DE‐EE0008247 and Award # DE-EE0005993