Submitted to: Journal of Cotton Science
Publication Type: Peer reviewed journal
Publication Acceptance Date: 7/22/2003
Publication Date: 12/5/2003
Citation: Holt, G., Simonton, J., Beruvides, M., Canto, A.M. 2003. Engineering economic analysis of a cotton by-product fuel pellet operation. Journal of Cotton Science. 7(4):205-216. Interpretive Summary: Byproducts from a cotton gin have not traditionally been considered a reliable revenue generator. Instead, the approximately 2.25 million tons of byproducts generated each year have been viewed as a cost liability to gins and producers alike. In this paper, a study was undertaken to determine the feasibility of constructing and operating a facility to process cotton byproducts into fuel pellets for use in commercial pellet stoves and boilers. The analysis was performed as a new operation at a commercial cotton gin that averaged 55,000 bales per year production. Economic considerations incorporated cost of constructing the facility, as well as variable costs of transportation, labor, manufacturing, power, raw material supply, and maintenance. The evaluation used was performed by modeling the variable costs and assessing their effect on a specified return on investment (ROI) of 15%. Forecast modeling using a worst-case scenario, based on higher capital cost, was performed in order to provide an overall conservative economic analysis. Results from the forecast model indicate the probability of obtaining a 15% ROI to be 29.95% (if shipped to market by truck) and 54.4% (if shipped to market by railcar). All analyses performed included the costs of shipping the product to three distribution hubs from a production plant located near Lubbock, TX. The distribution hubs evaluated in this study were Albuquerque, NM, Denver, CO, and Kansas City, MO.
Technical Abstract: In crop year 2001, Texas produced 4,153,866 bales of upland coton. From the bales produced, there was an estimated 680,400 t (750,000 tons)of waste generated in the ginning process. Moving cotton byproduct from a liability to a source of income would be a positive strategy for ginners, oil mills, and textile industry and producers. Processing cotton byproducts into fuel pellets would furnish a renewable resource that could be used to reduce the consumption of fossil fuels while having a minimal impact on the environment. The objective of this study was to explore the cost feasibility of creating a fuel pellet manufacturing operation utilizing cotton gin byproducts. In order to conservatively address key elements such as marketing, transportation, and manufacturing, an economic model was developed and evaluated assuming a worst-case scenario. The cost system model was developed and analyzed using Crystal Ball Software to examine the factors influencing the sensitivity of critical areas such as cost and profits. The cost system model simulated changes for twenty-four cost variables associated with the proposed fuel pellet operation. Results from the analysis indicate the probability of obtaining a 15% return on investment as 29.95% or 54.4%, depending on whether the product was shipped to various distribution hubs via truck or rail, respectively. Based upon the information contained in this study, it appears that a fuel pellet operation can be a viable means of utilizing cotton gin byproducts to enhance revenue.