Options analysis for long-term capacity design and operation of a lignocellulosic biomass refinery

• Strategic capacity planning for a multi-product biorefineries.
• Real options optimization under price and demand uncertainty.
• Options include investment deferral, and investments in RD&D and flexible platforms.
• Monte Carlo simulations with uncertain feedstock supply and product markets.
• Results indicate high value in RD&D, deferral, and incremental capacity design.

The growth of the lignocellulosic fuels has been hindered by technological and market uncertainty. This paper optimizes strategic investment decisions by prospective biobased fuel and chemical enterprises. A real options-based stochastic integer programming model is developed in this paper. We model a hypothetical, vertically integrated lignocellulosic enterprise that produces cellulosic ethanol and biosuccinic acid. Uncertainty is represented in bioproduct demands and prices. Strategic options including investment in research and development, investments in a flexible production platform and deferral of project investment are modeled. A hypothetical market model is also developed to correlate crude oil prices with the evolution of bioproduct markets. The discounted value of equity free cash flows is optimized. The optimal results include multiple capacity design plans based on the long term evolution of bioproduct markets. Monte Carlo simulations are also conducted to quantify the risk adjusted NPV's and returns on investment for the optimal capacity design trajectories.