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

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.