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The Value of Switching Production Options in a Flexible Biorefinery

  • Kassu Wamisho Hossiso and David Ripplinger

Abstract

This study analyses the value of a switching option in a flexible biorefinery plant that produces ethanol and sugar juice in a single plant using energy beets. A real-options approach is used to compute threshold prices and optimal switching decision rules for switching between sugar and ethanol production modes. The analysis shows that it is economically optimal to keep producing ethanol then switching to sugar juice, given the stochastic price parameters of the two products.

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Copyright

This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.

Corresponding author

Correspondence: Kassu Wamisho Hossiso ■ Bureau of Economic AnalysisU.S. Department of Commerce4600 Silver-Hill Rd.Suitland, MD 20746 ■ E-mail: kassu.hossiso@bea.gov ■ David Ripplinger ■ Department of Agribusiness and Applied EconomicsNorth Dakota State University811 2nd Ave N.Fargo, ND 58102 ■ E-mail: David.Ripplinger@ndsu.edu

Footnotes

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The authors would like to thank Edie Nelson and Christopher Steiner for their editorial assistance, and two anonymous reviewers and the editor for their insightful comments on a previous version of this paper. This paper was prepared by Kassu Wamisho Hossiso (in collaboration with David Ripplinger) in his personal capacity.

The opinions expressed in this paper are the author's own and do not reflect the views of the Bureau of Economic Analysis, the U.S. Department of Commerce, or the United States government.

Footnotes

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The Value of Switching Production Options in a Flexible Biorefinery

  • Kassu Wamisho Hossiso and David Ripplinger

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