Europe is in the process of reducing the contribution of fossil fuels in its energy balance, especially in power generation, by replacing them with increasing quantities of biomass. Today, significant amounts of biomass are used, for example imported wood pellets from America, at prices higher than potential production within the EU. However, regional distribution and the size of European forests cannot support the gradually increasing needs for biomass, and this offers a chance for wider use of cellulosic energy crops, such as perennial grasses. This article presents the cost of growing perennial grasses for energy use on marginal lands of Europe, allowing investors to identify the most profitable energy crop. Three crops are compared, namely Arundo donax, Miscanthus and switchgrass, and the question is: which one of them is the most profitable energy crop?
The need for alternatives in Europe – why find the most profitable energy crop?
Perennial energy crops have an opportunity to gain market share in the European energy sector, in power generation, industrial applications, space heating and so on. Unlike wood, they can quickly contribute towards envrionmental and energy sufficiency goals. If cultivated on marginal lands, they might be still attractive to the farmer, because of the low opportunity cost of inferior or unused land and the low input requirements of perennial grasses.
The significance of perennial energy crops is due to the fact that they are capable of giving satisfactory yields under stress conditions on less-fertile lands and that they are not practicularly demand agricultural inputs. Under the current food versus fuel dilemma, the question of economic sustainability of perennial grasses cultivation on marginal lands is posed from many directions.
Under current economic and climatic conditions in South Europe, perennial grass production cost in marginal lands is significantly affected by the degree of „land marginality”. Estimates say that an average yield loss of about 40% is due to land marginality. Thus, it is crucial for the biomass suppliers to identify the most economical, or the most profitable energy crop, to sustain a well-functioning business model.
A comparison of Arundo donax, Miscanthus and Switchgrass
To find out which species is the most profitable energy crop, several aspects of these plants were assessed. These perennial energy crops have economic lives ranging between 15 and 20 years. For the financial calculations, the study assumed 15-year economic life for all three plants and used a discount rate (cost of funds) of 5%.
Arundo donax was proven to be more productive than Miscanthus and switchgrass, also its cost/tonne is lower: 54,4 euros/tonne. On the other hand, Miscanthus is about as costly per tonne of output as switchgrass (around 65-80 euros), also Miscanthus is more expensive to grow.
As for yields, the performance of Arundo donax is about 37.7 tonnes DM/hectare/year, while for Miscanthus this number is 28.7 tonnes DM/hectare/year, meaning
Arundo donax has about 25% higher yield than Miscanthus.
As for return to land and management, the study assumed a selling price of 65 euro/tonne of dry matter biomass. Of course, the selling price of biomass from perennial grasses depends on the region, the market, relevant taxes and subsidies and the price of substitutes. It was found that estimated returns would probably not meet farmer’s expectations with the exception of giant reed.
Four out of eleven reports for giant reed in South Europe estimate total production costs over 1000 euros/hectare. Almost all studies assume a farm gate selling price (market value minus the selling costs) of biomass equal to 65 euros/tonne DM. This figure has been quoted in many reports during the past years, although biomass from perennial grasses may take different routes to the market at different selling prices. Still, the economic performance of Miscanthus was found less attractive than that of Arundo donax. The farm gate profit of marginal land cultivation is very slim and the financial risks associated with Miscanthus cultivation is high. A profit of 128 euros/hectare was estimated for Miscanthus cultivated on standard agricultural lands, whereas in the case of giant reed the estimate is 470 euros/hectare. Comparing Arundo donax and Switchgrass cultivation on marginal lands, the results were the following: a profit of 170 euros/hectare for giant reed, and 19 euros/hectare for switchgrass – almost ten times less.
As for production costs, on marginal lands, giant reed is estimated to require 609 euros/hectare, while the production of Miscanthus is around 633 euros/hectare. Although switchgrass requires the lowest production costs on marginal lands (440 euros/hectare), it has the lowest profit: 121 euros/hectare on standard agricultural lands.
As it can be seen, various factors must be analysed and considered before making an investment. Summarizing all the results, giant reed was found to be the most cost-effective and most profitable energy crop, mainly because of its relatively high yields and better abilites to adapt to extreme conditions in comparison to the other two crops.