December 22, 2006 Version 1

Michigan Biofuel Production Cooperative

Development Plan

Supported by the STATE OF MICHIGAN ENERGY OFFICE

Community Energy Project Grant GRANT NO. PLA-06-43

Original version created by Leidel Energy Services a not for profit company

Available for download at www.biodieselmichigan.com

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Did you know?

Benjamin Franklin started the first successful

cooperative organization!

Franklin is known for many things, but we honor him for creating the first successful

cooperative in America in 1752, "The Philadelphia Contributionship for the Insurance of

Houses from Loss by Fire."

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EXECUTIVE SUMMARY Biodiesel is a renewable, petroleum fuel substitute made from fresh or used vegetable oils as well as animal fats by way of a modest amount of simple, albeit greasy, chemistry. This document will attempt to provide a comprehensive review of the technical issues, logistics, regulation, safety, and tax issues surrounding the small or micro-scale production of biodiesel from waste restaurant fryer oil. Some business related issues will be discussed with a particular emphasis on the formation of a small scale cooperative business venture to produce, distribute, and educate on the use of recycled veggie oil biodiesel.

This document provides numerous resources and examples to small scale biodiesel production, as well as a custom engineered 1/8 million gallon per year batch type production engineering & business model, complete with parts list, cost, sources, as well as a operating cash flow model and seven year expense projections. The business model describes the self collection of used restaurant oil to provide for a profitable operation.

Whether it is you endeavor to start a 1/8 million gallon per year cooperative, as described here, a local homebrew club, or merely brew a few gallons of biodiesel for your own education and enlightenment, this document will set you on path for success.

This will be an open source document that will be posted on the internet for use, review, and contribution by other enthusiasts and biodiesel entrepreneurs. Although the focus of this document is on the State of Michigan, most of what is discussed will pertain to any biodiesel operation, anywhere in the United States or abroad.

DISCLAIMER This document is a combination of a new engineering design, business plan, as well as a compilation of information from various internet resources including the US government, the State of Michigan, and numerous not-for-profit organizations. The creators of this document assume no liability for omissions, inaccurate information, or for any activities base all or in part on the guidance provided herein. This document does not offer any guarantees of accurate legal, tax, and regulatory advice or counsel. Readers are obligated to know and understand all safety, legal, and regulatory issues in their own state and locality.

Having said that.. ENJOY & PERSEVERE!!!

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TABLE of CONTENTS

EXECUTIVE SUMMARY ............................................................................................. 3 DISCLAIMER............................................................................................................... 3 TABLE of CONTENTS................................................................................................. 4 INTRODUCTION ......................................................................................................... 6 BIODIESEL CHEMISTRY............................................................................................ 7 SUGGESTED COOP STARTUP PLAN & PHASING .................................................. 9

Some of the SE Michigan suppliers ....................................................................... 10 Biodiesel Fuel Tank with Natural Building Enclosure Estimate .............................. 10 Organizational structure(s) & How to Incorporate .................................................. 12 Why a Cooperative?............................................................................................... 12 Example Mission Statement................................................................................... 13 Membership Information ........................................................................................ 13

SMALL SCALE PRODUCION COOP BUSINESS MODEL ....................................... 15 Business Request Page......................................................................................... 15 Board of Directors / Management .......................................................................... 15 Staffing................................................................................................................... 15 Feedstock Supply................................................................................................... 16 Cash flow example................................................................................................. 17 Seven Year Cash Flow with Membership Investment ............................................ 18 Possible Scenarios for Larger ( or Million Gallon per Year) Operations .......... 18 Market Analysis...................................................................................................... 19 Marketing Plan ....................................................................................................... 21 Distribution ............................................................................................................. 21 Competition............................................................................................................ 22 Start-Up Financing ................................................................................................. 22 Insurance Needs .................................................................................................... 22 Exit Scenarios ........................................................................................................ 22

FEEDSTOCK PROCUREMENT................................................................................ 23 Restaurant waste oil availability & quantities (yellow grease) ................................ 23 Restaurant waste oil collections ............................................................................. 23 Purchasing of oil feedstock .................................................................................... 26 Methanol ................................................................................................................ 26

PRODUCTION TECHNOLOGY ................................................................................ 27 The major steps required to synthesize biodiesel are as described below............. 27 Purification of Waste Oil Feedstock ....................................................................... 27 Neutralization of free fatty acids ............................................................................. 28 Transesterification.................................................................................................. 28 The Reaction.......................................................................................................... 29 Base catalyzed mechanism ................................................................................... 29 The Process........................................................................................................... 29 Micro scale processor and operation ..................................................................... 31 Make your own processor ...................................................................................... 31 Purchase a micro scale processor ......................................................................... 31

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STORAGE, HANDLING & DISPENSING .................................................................. 40 Cold weather handling ........................................................................................... 41 Storage and Dispensing Study Stand Alone Natural Building Biodiesel Fueling Site (Piedmont Biofuels)......................................................................................... 43

DISPOSAL OF SIDESTREAMS & WASTE ............................................................... 43 Glycerin.................................................................................................................. 43 Methanol Recovery ................................................................................................ 44 Waste Water Management .................................................................................... 44 Water Waste vs Magnesium Silicate...................................................................... 44

TAXES, TAX CREDITS, AND OTHER INCENTIVES................................................ 45 Federal Government Excise Tax & Blender Credit................................................. 45 State of Michigan ................................................................................................... 46

REGULATIONS......................................................................................................... 47 Storage tanks & regulations ................................................................................... 47 Above ground storage tanks .................................................................................. 48 Waste restaurant oil transport ................................................................................ 48

CONCLUSION........................................................................................................... 50 APPENDIX A : Education & Advocacy Web Site...................................................... 51 APPENDIX B: Straight Vegetable Oil Conversion Information ................................. 52 APPENDIX C : Biodiesel Cooperative Survey & Results.......................................... 53 APPENDIX D : List of Biodiesel Cooperatives and Clubs......................................... 55 APPENDIX E : Material Safety Data Sheets............................................................. 56 APPENDIX F : Small Scale Production Plant Design ............................................... 57 APPENDIX G : SAMPLE MEMBERSHIP AGREEMENT.......................................... 59 APPENDIX H : SAMPLE BYLAWS (or ARTICLES OF INCORPORATION) ............ 62 APPENDIX I : COOPERATIVE START-UP INFORMATION.................................... 68 APPENDIX J : MICHIGAN FORM 4334 ................................................................... 72 APPENDIX K : LIQUID INDUSTRIAL WASTE DOCUMENTS ................................. 74

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INTRODUCTION Biodiesel is a renewable fuel derived from a chemical reaction of alcohol and vegetable or animal oils, fats, or greases. These oils or fats are chemically altered in order to allow use in any diesel engine or home oil heating system, with little or no modification. A process called transesterification removes the glycerin component of the oil (which is a triglyceride molecule), resulting in a much thinner, or less viscous, product which stays liquid down to much lower temperatures. Biodiesel can be used in any diesel engine in pure form or blended with petroleum diesel in any percentage. Existing gas stations, pumps, and tanks can use biodiesel, providing a near seamless integration into our vast petroleum infrastructure. Even a commonly used blend of 20% biodiesel and 80% petroleum diesel (B20) will significantly reduce harmful pollutants, as well as carbon dioxide gas, reducing your vehicles contribution to climate change.

One of the most exciting aspects of biodiesel is the fact that it is readily produced from used restaurant fryer oils. Restaurants must properly dispose of significant quantities of waste veggie oil (often referred to as grease, or its trade name, yellow grease). The oil may therefore be easily be acquired for small scale biodiesel production operation. Using recycled waste fryer oil to produce biodiesel provides the benefits of a U.S. grown, renewable fuel, as well as offering a low cost option to recycle a waste product and put it to good use reducing carbon dioxide and other harmful emissions.

Although the quantity of waste oil derived biodiesel will only play a limited roll in curbing our addiction to petroleum, there is no reason not to take full advantage of this recycled, renewable fuel. Together with ethanol, conservation, public transportation, and numerous other new automotive technologies, it is possible to curb our petroleum consumption significantly. Presently in 2007, the United States imports over 2/3rds of its petroleum supply, which is presently about 20 million barrels per day.

This report delves into the many aspects of biodiesel chemistry, production technology, safety, storage & handling, and cold weather use. Further, this report will delve into tax and regulatory issues which relate to biodiesel production, and finally, it will present a business model for a micro-scale production cooperative. Case studies, articles of incorporation, cash flow models, and other business issues will be presented which will provide somewhat of a road map for the startup of a small biodiesel club, commercial venture, or member owned cooperative.

An educational effort will accompany this report which will include a number of workshops and educational presentations. In addition, an educational web site has been created and will be maintained to promote biodiesel and present this information to the general public.

www.biodieselmichigan.com

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Much of the information displayed in this document was gathered from various other cooperatives, state agencies, and federal agencies. This document owes many thanks to Piedmont Biofuels, Yokayo Biofuels, the International Co-operative Alliance, and numerous other university and non-profit organizations.

BIODIESEL CHEMISTRY Biodiesel use should not be confused with the combustion of straight vegetable oil, or SVO. SVO may be used directly into a diesel engine. However, the fuel supply system must be modified by the addition of a second fuel tank, heating systems, and fuel switching to accommodate SVO (see Appendix B). In the case of biodiesel, the engine and fuel systems are not modified, but we instead modify the fuel so that it can be used in any stock diesel engine. A typical vegetable oil consists of a triglyceride molecule as shown below.

There are many types of fatty acid chains, and the makeup of these will determine both the properties of the vegetable oil AND the final biodiesel product. Being a tri-glyceride, there are three fatty acid chains bound to one alcohol molecule, a molecule of glycerin (or glycerol). To produce biodiesel, the glycerol is split away with the aid of a catalyst, and the remaining free-floating fatty acid chains are then capped off with a lower level alcohol molecule such as methanol or ethanol. Methanol is presently the lowest cost option, as well as a bit easier to use. However, methanol is currently produced from natural gas, while ethanol is typically produced from corn, or other renewable feedstocks making it a more attractive feedstock from a renewable or sustainable perspective..

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In its most simple form, the transesterification process, shown above, is merely a heated mixing process, where warm veggie oil is mixed in the presence of a catalyst. The glycerol molecule is striped away, and replaced with three individual methanol molecules to make there biodiesel molecules. This is called transesterification since the both the starting triglyceride and resulting biodiesel molecules fall into the organic chemistry category of an ester. Therefore, they are trans - ester - ified.

Next, we the startup of a number of different sized production and distribution operations including some a business model for a 1/8 million gallon per year cooperative. This will be followed by the discussion of the logistics and technologies required to bring biodiesel fuel to your local region. Although this report focuses on the State of Michigan, most of the information presented pertains equally to any location throughout the country.

Fatty Acid Alcohol Glycerin

Vegetable Oil

Biodiesel FA

FA FA

FA

Alcohol Glycerol

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SUGGESTED COOP STARTUP PLAN & PHASING

During my investigations into small scale biodiesel production, I paid particular attention to member owned and operated cooperatives, their inception, development, and operation. A common experience with many of these coops was an initial venture into homebrewed biodiesel, followed by a declining interest in self-production, and/or a rapid increase in requests for biodiesel from new members. The end result is a move to a bulk purchasing program to keep up with increasing demand.

Therefore, it only seems practical to anticipate this need for a bulk purchasing program, and plan accordingly.

A second production philosophy that I propose, will be to start small, gain experience and proficiency, before planning larger and more expensive operations. All of these phases will be discussed below.

Phase 1 A bulk purchasing program from a local biodiesel wholesaler. Phase 2 Micro scale biodiesel production club, or cooperative

(5,000 to 10,000 gallon per year capacity) Phase 3 Ramp up to a small scale biodiesel production cooperative or for-

profit business venture (125,000 gallons per year capacity will be describe here)

Even before the above Phase 1 is undertaken, any potential biodieseler would be well advised to perform several (or many, many) one-liter, kitchen biodiesel batch processes in order to become familiar with the process and potential missteps. This one-liter method will later be used as a preliminary test batch for large batches. It is much better to learn with, and have mistakes with, one liter of oil and then perform the 500 gallon process flawlessly! A step-by-step description of the one liter process is found at: www.kitchen-biodiesel.com Bulk Purchasing and Dispensing Start-Up There are numerous models of successful bulk purchasing cooperatives to learn from. A few of these will be discussed below in the Case Studies section. Below is a listing of several biodiesel suppliers in the southeast Michigan area. Updated information and additional links will be maintained at: www.biodieselmichigan.com

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Some of the SE Michigan suppliers Karbowski Oil Company 1694 Marquette Avenue Bay City, Michigan 48706 Phone: 989-686-2111 or 800-637-7806

GE Wacker 9050 MI State Road 52 Manchester, MI 48158 734-428-8366

RKA Petroleum 28340 Wick Road Romulus, Michigan 48174 Phone: 734-946-2199 or 800-875-FUEL Fax: 734-946-4772

Atlas Oil 24501 Ecorse Road Taylor, Michigan 48180 Telephone: 800-878-2000 Fax: 313-731-0264

Next is a cost estimate for a 1,000 gallon tank equipped with a 12 volt DC solar powered fuel pump, housed in an insulated and passively solar heated natural built enclosure. This concept is modeled after one constructed by Piedmont Biofuels in North Carolina. A brief description of the Piedmont site is shown in the Case Studies section. Biodiesel Fuel Tank with Natural Building Enclosure Estimate Item Cost 1,000 gallon steel fuel tank $ 3,000 Fuel pump (12VDC with meter) $ 500 Six ballastard (6 inch steel filled with concrete, installed) $ 600 100 W solar PV panel with frame $ 500 Charge controller & voltage meter $ 100 Battery $ 100 Electrical installation $ 500 Straw bale enclosure materials $ 500 South facing windows $ 300 Enclosure installation labor and misl. $ 1,500 Total Estimate $ 7,600

Micro Scale Production Start-Up

The startup costs and planning for this type of operation are minimal. A shared biodiesel processor will be needed, and this can either be custom made or purchased. Look in the Production Technology section for information and resources for both home-made systems and purchased.

Likewise, the facility space and utility requirements for this type of operation is minimal. Typically a residential or commercial garage space is utilized. The same care must be taken with this micro sized operation as with any other operation to ensure a completely safe and environmentally sound setup. A micro scale, custom built processor can range from a few hundred to a few thousand dollars in cost to construct. The least expensive option for entry into the biodiesel homebrew game might be the Jonny Appleseed Processor, with open-source plans available on the internet. Several suppliers now

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provide pre-assembled parts kits for these units, which turn a conventional water heater into a pumped mix tank for making biodiesel.

A purchased unit will cost several thousand dollars. Additional tanks for water washing, storage, as well as a number of 55 gallon drums for methanol and the crude glycerin byproduct will make for a more complete operation, but are not required. The location should be a somewhat central area with a safe environment, available for evening and weekend work hours. Facility needs include adequate electrical, water, and sewerage connections for the selected biodiesel processor. These will be rather minimal due to the small size of the proposed systems. A heated space is vastly preferable in climates such as Michigan due to the nature of working with waste restaurant grease, which quickly becomes difficult to filter, pump, or work with below the 50-60 F. This document will not recommend any particular product or system, but hopefully the information provided will guide you toward an appropriately designed unit or aid you in the fabrication of your own custom built system. There are many internet forums and user groups where potential members may find each other to form such a group. Just a few of these include: www.biodieselmichigan.com www.biodieselnow.com http://biodiesel.infopop.cc www.biodieselcommunity.org (has the Jonny Appleseed processor design) Facility space requirements for a micro start-up operation are minimal. A garage or section of an industrial shop would work just fine. The space should be heated, and water, 240VAC, and a sanitary drain are all preferable for year round operation. Small Scale Cooperative Start-Up The location issues with a small scale operation are similar to the above, except that more space will be needed, and more attention must be given to regulations. Facility needs are a bit more elaborate here, and much of it will depend upon the volume of production, and the final plant design. A custom engineered plant design has been developed for the proposed Michigan Biofuel Coop, and the next section discusses a business plan for this operation. A materials list containing the cost, manufacturer, and source of each of the major piece of equipment is located in the appendix. Although stainless steel tanks and processors are by far the material of choice, this plant is designed around high density polyethylene (HDPE) tanks and processors. HDPE is quite safe at working temperatures of up to 140 deg F, but care must be taken to ensure safe operation. Electric heating elements should never be installed directly in HDPE. Tank and batch sizes should be kept down to manageable sizes, and careful attention must be paid to secondary containment and engineering for safety. More information is presented on production technology in a later section below.

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Organizational structure(s) & How to Incorporate In the State of Michigan, the proposed organizational structure will be a not for profit corporation. Articles of Incorporation will be filed with the Michigan Department of Labor and Economic Growth, Corporation Division. Although the cooperative model has been discussed here, many for profit structures are could be used as well. The corporation, Limited Liability Corporation, partnerships, or limited partnerships are all potential organizational models for a biodiesel production operation. More information as well as the required incorporation documents can be found for the filing of a new business entity at www.michigan.gov/corporations . Additional information on new business startups can be found at the Michigan Economic Development Corporation site at www.michigan.org/medc/services/startups

Why a Cooperative? The principles of a cooperative are very closely aligned with the philosophies of a biodiesel venture which produces a locally recycled, renewable fuel, for consumption in the very community where it was produced. Below are some of these principles as described by the International Co-operative Alliance from 1995 at www.ica.coop. Voluntary and Open Membership Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination. Democratic Member Control Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives members have equal voting rights (one member, one vote) and cooperatives at other levels are also organized in a democratic manner. Member Economic Participation Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership. Autonomy and Independence Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy. Education, Training and Information Cooperatives provide education and training for their members, elected representatives, managers and employees so they can contribute effectively to the development of their cooperatives. They inform the general

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public particularly young people and opinion leaders about the nature and benefits of cooperation. Cooperation among Cooperatives Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures. Concern for Community Cooperatives work for the sustainable development of their communities through policies approved by their members.

Example Mission Statement Michigan Biofuels Cooperative is a member-owned business motor fuel production and distribution venture. The Cooperatives goals are to create and maintain an economically, environmentally, and socially sustainable energy future, locally rooted, and responsive to the needs of its members and communities across Southeast Michigan. Michigan Biofuels Cooperative will harness the buying power of its members to secure access to products & services that reduce dependence on foreign oil, are environmentally sustainable, and benefit the local community and its economy. Michigan Biofuels Coop performs the following core functions:

Develop & invest in local sustainable energy projects Negotiate access to and volume discounts on energy-related products & services Organize on-line and in-person opportunities for members to share experiences,

collaborate, access resources, and build consensus

Membership Information Membership Profile Michigan Biofuels Coop members are residential and business energy consumers in the southeast Michigan area who agree to support the following priorities:

Use less energy Use energy from renewable and sustainable sources Strengthen the local economy Engage in sustainable energy education, public policy advocacy, and community

building initiatives Membership Qualification Membership is open and voluntary without gender, social, racial, political or religious discrimination. Any person or legal entity, who declares him or herself to be interested in the Co-ops objectives and purpose, who agrees to be a patron of the Co-op and to abide fully by its articles of incorporation, bylaws, rules and regulations, who executes a Membership Agreement, remits the required Membership Fee, and who meets such other qualifications as may be prescribed by the Board of Directors, is eligible to become a member of the Co-op.

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The board of directors or its delegate approves applications for membership, and any application for membership may be rejected in the sole and absolute discretion of the board of directors or its delegate. Member status (membership) is effective as of the time the membership share is purchased. Membership Commitments Members commit to supporting the co-ops mission, letting Michigan Biofuels Coop know when the co-op is meeting or exceeding expectations or otherwise make suggestions. Members commit to participating in the democratic process, directly or by proxy, and taking part in an annual (or otherwise scheduled) meeting to build consensus on how to move this cooperative forward. An enrollment equity share in Michigan Biofuels Coop is proposed to be $500. This is a one time fee. No annual membership dues are proposed, since the operating expenses will be covered by the fuel sales, both to members and outside sales. The equity shares will assist in paying off the capital equipment loan used to fund the plant construction and initial equipment purchases. Once these are paid off, the coop may choose to reinvest in additional equipment and operations or pass the savings back to the membership through lowered fuel prices. Once sound financial basis has been established for the cooperative, member equity shares are refundable if members leave the cooperative. Membership Benefits Members will have access to:

Biodiesel and other sustainable energy products and services at significant discounts

Michigan Biofuels Coops online energy resources Reliable information on sustainable energy A share of Michigan Biofuels Coops distributed profits Member-only offerings A vote in membership meeting decisions Education and community building events Opportunities for volunteer work on committees and projects building sustainable

energy resources in our region Membership shares are not like investments in a for-profit corporation. They do not increase in value over time. They do not provide an equity return or dividends. Membership shares entitle the member-owner to receive access to Michigan Biofuels Coops products, services, and programs. When people join a housing cooperative, they purchase a member equity share and receive a place to live. When people join a food cooperative, they purchase a member equity share and receive food. In the same manner, when people join Michigan Biofuels Coop, they purchase a member equity share and receive energy products and services.

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SMALL SCALE PRODUCION COOP BUSINESS MODEL This section may be taken independently as a business plan for a small scale production startup venture. All that would be needed for an independent document would be the creation of a new table of contents and executive summary and some specific information of the proposed facility space and management team.

Business Request Page

This section should include your business description with general information such as your company name, address and contact information. If you are requesting financing include the requested dollar amount.

Other information you should include is the terms and predicted timeline should include month and year the loan is required; the purpose of the loan should be specific. Also include how money will be spent, the type of collateral, dollar amount, and type of equity you are proposing. As owner how much cash will you invest, or what type of assets will you contribute?

Finally list the contact person at the firm who is responsible for the proposed business plan.

Board of Directors / Management

A founding group of members will make up a governing Board of Directors. There will then be an annual or bi-annual election to determine the continuing Board makeup.

One half-time management position is included in the salaried staff. This would be for a president or chief operating officer position who could direct the day to day operations.

Staffing

One option for a coop operation would be 100% membership sweat equity labor. This option is quite viable, but a more traditional staffing arrangement is described for this business model. A total of three full time equivalent, or FTE, positions are listed below. Salaries are modest due to the non-profit nature of the coop. Additional labor would be provided by coop members as needed.

Position Salary at stated hours Full time annual salary FTE time Processing $ 20,000 $ 40,000 0.5 Collections $ 20,000 $ 40,000 0.5 Administrative $ 15,000 $ 30,000 0.5 Management $ 25,000 $ 50,000 0.5 Sales $ 30,000 $ 30,000 1.0

TOTAL $110,000 $ 190,000 3.0

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Feedstock Supply

The primary cost of biodiesel is the oil feedstock. For a soy oil base operation, the oil feedstock is typically 70-80% of the total cost of production. It takes about 7.3 pounds of fresh or used vegetable oil to produce one gallon of biodiesel.

The price of soybean oil varies widely but over the last few years has tended to stay in the range of $0.25 to $0.35/lb. This means the virgin feedstock cost will be between $1.75 and $2.56/gallon. The cost of yellow grease, or used & purified waste restaurant oil has tended to stay in the range of $0.15 to $0.20/lb. This means the virgin feedstock cost will be between $1.10 and $1.46/gallon.

The business model described here incorporates restaurant oil collections as part of the operations. A zero cost for oil is carried for the first years of operation, but labor and equipment costs are required to incorporate oil collections in the coop model. Presently, most restaurants pay a fee for a waste oil company to dispose of their used oil. The oil then makes its way to a rendering company who purifies it, and resells it as a commodity called yellow grease for the prices mentioned above.

The option to purchase a stable supply of yellow grease should be fully investigated during the coop planning phases. This would vastly simplify operations and startup logistics, but would also increase the cost of the final product.

Studies are available which have reviewed waste oil availability per person and per restaurant. One such study is available at www.biodieselmichigan.com. By studying 30 metropolitan areas across the United States, it was found that yellow grease production averaged 1.2 gallons / year / person and 847 gallons / year / restaurant. Therefore, to support a 1/8 million gallon per year operation, 147 average restaurants will be needed for waste oil collections.

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Cash flow example The below cash flow example is for the coop operation within the first five years of operation without the inclusion of enrollment equity share purchases from new members. The 125,000 gallon annual production capacity is allocated to 5% losses, 45,000 gallons to membership consumption, and 73,750 gallons to outside sales. With self collected (zero cost) oil feedstock, the cost of production is $2.51 per gallon. By charging $2.75 per gallon to outside sales, the membership cost is estimated to be $2.00 per gallon to maintain a small positive cash flow. Account Description Monthly Annual Unit Cost Qty Unit NotesAnnual Production Capacity 125,000 gallons production plant design capacityAnnual Production Output 118,750 gallons actual production output minus 5% losses

Biodiesel Sales - Coop 7,500$ 90,000$ 2.00$ 45,000 gallons 150 members, 15k miles/yr @25 MPG using B50 avg.Biodiesel Sales - Outside Sales 16,901$ 202,813$ 2.75$ 73,750 Glycerin Sales 781$ 9,375$ 0.50$ 18,750 gallons 20% of productionTax Incentives 1,875$ 22,500$ 0.50$ 45,000 $0.50 per gallon for waste oil derived biodiesel

Revenue 27,057$ 324,688$ 2.60$

Feedstock Oil -$ -$ -$ 125,000 gallons self collected at zero cost from restaurantsMethanol 2,813$ 33,750$ 1.50$ 22,500 gallons 18% of productionCatalyst 521$ 6,250$ 0.05$ 125,000 gallons estimationUtilities 521$ 6,250$ 0.05$ 125,000 gallons estimationSales Commissions 375$ 4,500$ 5% commission above salaryTaxes - US & MI -$ -$ -$ 125,000 gallons $0.06 sales + US excise $0.15 + MI road $0.144

Costs 4,229$ 50,750$ 0.41$ all taxes paid by customer at point of sale

Gross Margin Subtotal 22,828$ 273,938$ 2.19$

Vehicles - Pickup & Delivery 1,623$ 19,476$ 1,623$ 12 payments $80,000, 5 years @ 8%, Delivery & Pick-UpProcessing Equipment 1,014$ 12,168$ 1,014$ 12 payments $50,000, 5 years @ 8%Collection Equipment 609$ 7,308$ 609$ 12 payments $30,000, 5 years @ 8%Rent 3,000$ 36,000$ 3,000$ 12 payments 3,000 sq/ft * $10

Lease Expenses 6,246$ 74,952$ 0.60$

Processing 1,667$ 20,000$ 40,000$ 0.5 FTE FTE = full time equivalent employeeCollections 1,667$ 20,000$ 40,000$ 0.5 FTE see collections pageAdministrative 1,250$ 15,000$ 30,000$ 0.5 FTE part-time clerical helpManagement 2,083$ 25,000$ 50,000$ 0.5 FTESales 2,500$ 30,000$ 30,000$ 1.0 FTE base salaryEmployer Tax 1,783$ 21,395$ 194,500$ 11% includes commissionsBenefits 810$ 9,725$ 194,500$ 5% includes commissions

Staffing Expenses 11,760$ 141,120$ 1.13$ 3

Office Expenses 2,083$ 25,000$ insurance, suppliesProfessional Fees 500$ 6,000$ 150$ 40 hours legal, environmental, tax, industry consultingLicenses/Memberships 417$ 5,000$ nbb $2500Waste Disposal/Recycling 417$ 5,000$ wagMaintenance & Repairs 542$ 6,500$ 130,000$ 5% on vehicles, equipment

Operating Expenses 3,958$ 47,500$

Expenses Subtotal 21,964$ 263,572$ 2.11$ Cost + Expenses Subtotal 26,194$ 314,322$ 2.51$

Profit 864$ 10,366$ 0.08$

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Seven Year Cash Flow with Membership Investment Using the above annual cash flow model and adding the $500 per member enrollment investments in years one through four as shown, the coop will produce a positive cash flow from the first year of full production. Year six will see a decrease in leasing expense due to the expiration of the five year capital equipment loans taken during year one. The coop would either reinvest these profit into new production and distribution operations or would lower the fuel cost to its membership.

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7New members 25 50 50 25 0 0 0

Total membership 25 75 125 150 150 150 150Revenue 337,188$ 349,688$ 349,688$ 337,188$ 324,688$ 324,688$ 324,688$

Cost 50,750$ 50,750$ 50,750$ 50,750$ 50,750$ 50,750$ 50,750$ Lease Expense 74,952$ 74,952$ 74,952$ 74,952$ 74,952$ 36,000$ 36,000$

Staffing Expenses 141,120$ 141,120$ 141,120$ 141,120$ 141,120$ 141,120$ 141,120$ Operating Expenses 47,500$ 47,500$ 47,500$ 47,500$ 47,500$ 47,500$ 47,500$

Expenses Subtotal 263,572$ 263,572$ 263,572$ 263,572$ 263,572$ 224,620$ 224,620$ Cost + Expenses Subtotal 314,322$ 314,322$ 314,322$ 314,322$ 314,322$ 275,370$ 275,370$

Annual Profit 22,866$ 35,366$ 35,366$ 22,866$ 10,366$ 49,318$ 49,318$ Cumulative Profit 22,866$ 58,231$ 93,597$ 116,462$ 126,828$ 176,145$ 225,463$

Possible Scenarios for Larger ( or Million Gallon per Year) Operations The below are four cash flow summaries for two larger operation scenarios, both with self collected oil and purchased oil. The first two scenarios include a million gallon per year (gpy) operation and a gpy operation with 100% of the oil feedstock purchased at $0.20 per pound, which equates to $1.50 / gallon. The next two scenarios are for a self collecting facility which incorporates oil pickup within the business model. These summaries are shown merely to illustrate the difficulty in making a profitable small scale biodiesel production without getting zero cost feedstock, even thought the cost of collections must be accounted for. Scenario Summary (gpy = gallons per year production)

250,000 gpy, yellow grease purchase

500,000 gpy, yellow grease purchase

250,000 gpy, waste grease collection

500,000 gpy, waste grease collection

Production 250,000 500,000 250,000 500,000 Oil Purchased 250,000 500,000 - -

Vehicle Payments - - 12 12 Collection FTEs - - 0.24 0.60

Revenue 537,500$ 1,100,000$ 537,500$ 1,100,000$ Costs 513,750$ 1,041,250$ 138,750$ 291,250$

Leases 47,616$ 47,616$ 59,784$ 59,784$ Staffing 153,063$ 157,188$ 162,663$ 181,188$

Office 60,500$ 60,500$ 60,500$ 60,500$ Expenses 261,179$ 265,304$ 282,947$ 301,472$

Profits (237,429)$ (206,554)$ 115,804$ 507,279$

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Market Analysis Below is the historical use of number two fuel oil for on road applications in the State of Michigan. Over one billion gallons are consumed each year. For a mere 2% biodiesel penetration, there would need to be over 20 million gallons of biodiesel produced or imported into the state. Add to this construction, marine, power generation with diesel engines, and boiler fuel use and you can see that the market is quite vast.

Michigan No. 2 Diesel Fuel Consuption (On-Road)

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Nationally, total production capacity is approximately 580 million gallons per year, expanding to 1,400 million gallons in the near future. It is important to note that production capacity differs from the actual number of gallons sold. For 2006, it was estimated that over 250 million gallons were sold nationally. Graphs illustrating biodiesel sales, plant capacity, and plant construction are shown below. All of this information was provided by the National Biodiesel Board at www.biodiesel.org.

Estimated US Biodiesel Production

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580 million gallons per

year of production capacity

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Marketing Plan The proposed cooperative business model contained in this document is designed to produce 1/8 million gallons per year, or a mere 0.01% of the Michigan diesel fuel market. For a cooperative, marketing is not a real concern since the cooperative members would consume the entire product.

For an average passenger car, driving 15,000 miles per year, this would equate to 208 coop members if the average coop fleet fuel economy was 25 miles per gallon, considering a mix of trucks and more fuel efficient diesel cars. This is a lot of members to expect one cooperative to recruit and maintain, therefore some amount of outside sales would be needed at the full production capacity of 1/8 million gallons per year.

Due to winterization of the fuel during colder months, less than a B100 blend will be consumed during some months, reducing the consumption of biodiesel. For example, 150 members driving the 15,000 miles per year at the average 25 MPG, but using an annual average of 50% biodiesel, would consume 45,000 gallons of B100 per year, or 36% of the annual production.

As a rough idea of the marketing needs of a for profit venture selling to school districts, one modest sized school system with 12 busses running three 15 mile routes, twice a day, at 10 MPG would consume nearly 14,000 gallons of fuel per year. Using a B20 blend year-round would require 2,900 gallons of pure biodiesel per year. This operation would serve 43 of this sized school district, or much fewer school districts of larger size.

Therefore it would be anticipated that some outside sales will be required, either directly to end users such as multiple school districts or to one of the local distribution companies. After contacting two SE Michigan distribution companies (Karbowski, Atlas, and Wacker) it is quite certain that only one of the local distribution companies would purchase any excess production capacity as long as the proper quality and documentation could be maintained.

Additionally, boating marinas, public retail stations, off road diesel fuel users, home heating fuel, as well as stationary diesel generators are all potential markets for any potential surplus production. With a one billion gallon per year total market, marketing will be a minor concern of a facility of this size.

Distribution

Distribution requirements will be minimal due to the small size of this operation. One or more local, self serve B100 tanks of the type described in the earlier section would be sufficient for member access to the fuel. These tanks will be filled, as will outside sales customers via one tanker truck which will be owned an operated by the cooperative.

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Competition

Most biodiesel is presently procured from out of state production. Several new production facilities are in various states of development throughout the state. The vision of this operation will be to source the feedstock locally and market the product locally.

Due to the extremely large #2 fuel market, competitive issues will not be a serious concern for many years to come.

Start-Up Financing Initial equipment loans will be obtained for plant construction oil collections and delivery equipment and vehicles. An estimate of 160,000 in total costs is used for this model with a five year loan at 8% interest. Early profits could either be reinvested, used to reduce membership fuel costs, or could possibly be used for early repayment of these capital equipment loans.

Insurance Needs Check with your local insurance provider regarding a recommendation on types and levels of coverage for any production, storage, or fueling facility. Insurance is required by the Michigan DEQ permitting process for transport of liquid industrial waste (which includes used restaurant oils). A motor carrier is to maintain financial responsibility for bodily injury, property damage, or environmental damage to third parties caused by accidental occurrences. The minimum amount is $750,000 per occurrence or $300,000 for vehicles under 10,000 pounds gross vehicle weight. Exit Scenarios Exit may take place in several possible ways: 1. Sale of a Profitable Operation: The project starts generating profit in the second year of operations and positive cash flow appears in the same year. This creates a valuable operation with good chances for the initial coop members to sell their participation at good favorable price to new investors.

2. Project Failure: The total cost of the initial equipment is approximately $30,000. The process as a whole may potentially be sold at a sizable profit. It has already been delivered and installed, and production can begin immediately following sale. At the present time, there is a very high interest in biofuels and biodiesel, and the likelihood of finding a buyer would therefore be high. If the plant must be sold in parts, this may not take more time, and the selling price of the equipment may vary from 25% to 50% of the purchase price of individual pieces of equipment..

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FEEDSTOCK PROCUREMENT

Restaurant waste oil availability & quantities (yellow grease) According to a 1998 study which reviewed restaurant waste oil from 30 randomly selected municipalities, there are roughly 1.4 restaurants for every 1,000 people. On average, these restaurants produced nearly 6,300 pounds of yellow grease per year, or 840 gallons per restaurant per year. Obviously, there is a wide variation in the amount of oil produced at individual restaurants, as is the quality.

Restaurant waste oil collections For a small scale biodiesel operation, it would be very advantageous to obtain the best quality oil available in order to minimize the filtering and de-watering as well as to maximize the quality of the resulting biodiesel fuel. While a large rendering company merely takes it all, the good, bad, and the ugly, the micro biodiesel operation should be very, very selective. Look for clear, golden liquid waste oil. The characteristics of the feedstock will carry through into the finished product. If you look into the waste grease bin, and see a white, creamy mass of lard, just walk away, never to return. The highly hydrogenated oils will congeal at much higher temperatures than non-hydrogenated soy, corn, or canola oils. Be aware that waste oil collection is a well established business, and someone is already providing this service. Therefore, you will be taking business away from someone, for each restaurant from which you collect oil. Do not expect this company to be helpful. At the present, most restaurants are paying a fee for this service, and may likely be very open to a free service provided by a recycling biofuel operation. Approach the manager and explain your operation and you will likely get a warm reception. If not, move on to the next restaurant. Approaching the Prospect Produce some marketing materials including a personalized letter of introduction with a description of the service you offer and what you will do with their oil. Provide a list of referrals and references, a copy of a Service Guarantee, and perhaps a sheet explaining biodiesel. Get paid for oil

This might look like a deal-breaker but if you dig a little further you might find that they had to pay in the past and wouldn't be surprised to get a bill instead of a check in the future. The promise of guaranteed free service along with an explanation of what you plan to do with their oil might bring them around.

Have free service

Same issue but may be combined with one of the following: How to approach restaurants etc. for their oil By far the best and easiest way to approach stores is in person. The best time to talk to a manager or the owner is between 2 and 4 from sunday through thursday. Keep in

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mind that bothering a restaurant manager during lunchtime or whatever time of the day is busiest for them won't help you to get their oil. Even if they are paying a modest monthly service fee, it's still not a big enough deal for many managers to take the time to think about. Be up-front about why you want their grease. Most restaurant owners know that the rendering companies that collect their grease are doing so for a profit, and might just like the idea of providing it to someone local to use as fuel. Be sure to emphasize the benefits you can provide them rather than talking about your own needs. Brag yourself up! If you have 10 restaurants, let them know. If you have 30 or 40, definitely let them know! Objections and How to Handle Them Concern: No room for drums or restricted by law to use dumpsters

This happens most often in crowded areas where trash is stashed in an alley or where parking spaces are worth more than garbage storage space, generally crowded downtown areas. In most setups the old collection container won't be removed when the drums are installed. Also, space for maneuvering a truck or trailer in for the pickups may be limited so it is best to check how much space you would have to work with first before talking to the manager.

Concern: Possibility of drums tipping over from wind or vandals

Offer to tie a strap around the drums and secure them to a pallet as a base. Concern: Might attract wildlife

Provide a medium-sized brick to place on the lid or build a fenced-in enclosure. You could put a grate inside their drums to keep critters out. Otherwise, putting the lid back on properly will keep most animals out.

Concern: Overall appearance of garbage area

Offer to provide the best, cleanest, rust-free drums you can come up with. Concern: Don't want to be stuck with drums of grease if you don't show up

When you encounter this objection just note the restaurant and come back in a few months when you have a few dozen customers and let them see that you are serious.

Concern: Already have an in-kitchen collection system

In-kitchen systems are hooked up to the sewage systems in restaurants which allows the oil to float on top of the water. The oil has to be sucked out by a truck that runs a hose down into the basement of the restaurant.

Ask the manager if they would be willing to set aside some of their fryer oil in jugs or a pail for you. Reducing the frequency of grease-trap empty-ings will save them money if they pay for the service.

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Where to Look for Oil Aside from restaurants and bar & grills, there are many other potential sources of used fryer oil and grill grease out there. These include:

Bakeries Banquet Facilities Bed and Breakfasts Bowling Alleys Casinos Caterers Food Processors Golf Course/Country Clubs Grocery Stores Hospitals Hotels/Motels Office Buildings with Cafeterias Pizza places Schools/Universities Shopping Malls Taverns and Nightclubs

Bakeries

Most of the oil stays in the donuts when they are fried, and more oil or lard is added to the fryers as it is used up. Still, they may have some waste so check.

Food Processors

These are companies that "pre-fry" foods like potato chips and other snacks. See Food Processing and Manufacturing in your yellow pages.

Hotels/Motels

Double-check hotels to see if they have a restaurant that isn't listed in the Restaurant pages. Also see if they have a kitchen for room service.

Pizza Places

Most don't have fryers but it's worth a try. Frequently not listed in the restaurant section.

Schools and Universities

High-schools and grade-schools are taking out their fryers around here, but our centers for higher-learning still cook with oil and grease.

Taverns and Nightclubs

Call them between 8:00 and 10:00 pm as a potential customer and ask if they serve any food besides pizzas and sandwiches. Only about 1 in 10 will so you will make a lot of phone calls but save a lot of travel time checking out each one.

Example Brochure discussing your waste oil collections Courtesy of Pog Oil, Brookville, MD

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Purchasing of oil feedstock Although small scale oil collections are not overly difficult, and it is a very good learning tool for the beginning biodieseler, collections of large quantities requires some significant planning, equipment, and labor. Prior to jumping to a larger scale operation, you could consider purchasing the raw or processed yellow grease from an established collection company. Here are a few SE Michigan waste oil collection companies: Darling International Inc www.darlingii.com 3350 Greenfield Rd Melvindale, MI 48122 (313) 928-7400 Kelly's Rendering Svc 1679 Michigan Blvd Lincoln Park, MI 48146 (313) 389-7870 Evergreen Grease Svc www.evergreengrease.com 4382 3rd Street Adrian, MI 49221 (517) 264-9913

Methanol To find methanol suppliers, I usually dig into the yellow pages and search several categories: Automotive Racing, Petroleum Distributors, Chemical Distributors Automotive Racing - The easiest place to find methanol is usually through auto race tracks, racing engine builders, or performance shops. These sources are likely to sell it 'by the gallon' although that is not always the case. Some racetracks are seasonal. Try Yellow Pages: Check performance, auto, racing, racetracks.

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Petroleum Distributors - Methanol is also an alternative fuel and is used in some applications as a fuel additive. Your might try calling bulk petroleum distributors. They are likely to carry it year-round, but are likely to sell only full drums or totes. If any of the places you call don't carry it ask them if they know who does. Try Yellow Page Listings: petroleum, fuel, or gasoline, wholesale or bulk.

Chemical Distributors - There are two major categories of chemical distributors; places that cater to laboratories and researchers and places that cater to industry. The laboratory supply houses usually sell everything at a premium. Industrial chemical supply houses are more affordable but usually require a business license or other proof of legitimate business use. I have had good luck faxing orders in beforehand using business letterhead (including non-chemical businesses like construction companies, since that is the line of work I'm in). If they question what you're buying it for, explain what you're doing- it should make sense to them. They're concerned about methamphetamine labs and the like so they may seem leery of an obvious non-business user, but should understand if you explain the fuel application. In the Yellow Pages, both types of chemical suppliers are usually listed together under 'chemicals'- you just have to call about pricing to figure out if you can afford to deal with them, it's likely to be higher than at a race fuel supply or a petroleum place.

PRODUCTION TECHNOLOGY

The major steps required to synthesize biodiesel are as described below.

Purification of Waste Oil Feedstock

If waste vegetable oil is used, it is filtered to remove dirt, charred food, and other non-oil material often found. Water is removed because its presence causes the triglycerides to hydrolyze to give salts of the fatty acids instead of undergoing transesterification to give biodiesel.

At home, this is often accomplished by heating the filtered oil to approximately 120C. At this point, dissolved or suspended water will boil off. When the water boils, it spatters (chemists refer to it as "bumping"). To prevent injury, this operation should be done in a sufficiently large container (at most two thirds full) which is closed but not sealed.

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In the laboratory, the crude oil may be stirred with a drying agent such as magnesium sulfate to remove the water in the form of water of crystallization. The drying agent can be separated by decanting or by filtration. However, the viscosity of the oil may not allow the drying agent to mix thoroughly.

Neutralization of free fatty acids

A sample of the cleaned oil is titrated against a standard solution of base in order to determine the concentration of free fatty acids present in the waste vegetable oil sample. The quantity of additional base catalyst required to neutralize the acid is calculated.

Transesterification

While adding the base, a slight excess is factored in to provide the catalyst for the transesterification.

The calculated quantity of base (sodium or potassium hydroxide) is added slowly to the alcohol and it is stirred until it dissolves. Sufficient alcohol is added to make up three full equivalents of the triglyceride, and an excess is added to drive the reaction to completion.

The solution of sodium hydroxide in the alcohol is then added to a warm solution of the waste oil, and the mixture is heated (typically 50 C) while agitating with a mechanical paddle or mix pump for several hours (2 to 4 typically) to allow the transesterification to proceed.

Once the reaction is complete, the glycerol will precipitate out and fall to the bottom. The bottom glycerol may then be drained off from the bottom, leaving approximately 85% of the original reactants as a top layer of biodiesel and some remaining alcohol. The excess alcohol can be distilled off from the crude biodiesel and/or the crude glycerol. More excess alcohol remains in the glycerol than the biodiesel, and often the alcohol in the crude biodiesel is not reclaimed for small scale operations. This residual alcohol can be extracted with a water wash, or merely by evaporation (either passive, or via an air bubble wash). If water washed, the biodiesel must then be dried by distillation, evaporation, or with a drying agent.

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The Reaction

Triglyceride + (3) Methanol Glycerol + (3) Biodiesel Esters

Where the R1, R2, and R3 represent the long fatty acid chains.

During the transesterification process, the triglyceride is reacted with alcohol in the presence of the catalyst. The main reason for doing a titration to produce biodiesel, is to find out how much additional alkaline is needed to ensure a complete transesterification in the presence of additional free fatty acids found in used oils. Experimentally, 6.25 gm per liter of NaOH produces a very usable fuel. From field experience, a recommendation (without titrating) might be to use about 6 g NaOH when the waste vegetable oil is light in color and about 7 g NaOH when it is dark in color.

The alcohol reacts with the fatty acids to form the mono-alkyl ester (or biodiesel) and crude glycerol. The reaction between the lipid (fat or oil) and the alcohol is a reversible reaction so the alcohol must be added in excess to drive the reaction towards the right and ensure complete conversion.

Base catalyzed mechanism

This reaction is base catalyzed using a chemical such as dry sodium hydroxide (also called NaOH, caustic soda, or lye), dry potassium hydroxide (KOH, or caustic potash), or a prepared solution of sodium or potassium methoxide. The dry catalyst (KOH or NaOH) is dissolved in the alcohol to make a convenient method of dispersing the otherwise solid catalyst into the oil. The catalyst needs to be very dry, and exposure to free air will allow it to absorb moisture. Therefore, minimize the amount of time that any containers are left open, and tightly seal lids for storage. Any water in the process promotes the production of unwanted soaps and inhibits the transesterification reaction.

Once the alcohol / catalyst mixture is made, it is added to the triglyceride. There are several competing reactions, so care must be taken to ensure the desired reaction pathway occurs. Most methods do this by using an excess of alcohol.

The acid / base catalyzed method is a slight variant and is not covered here.

The Process

Preparation: care must be taken to monitor the amount of water and free fatty acids in the incoming biolipid (oil or fat). If the free fatty acid level or water level is

CH2COOR1 | CH2COOR1 + (3) CH3OH (CH2OH)2CHOH + (3) CH3COOR1 | CH2COOR1

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too high it may cause problems with soap formation (saponification) and the separation of the glycerin by-product downstream.

Catalyst is dissolved in the alcohol using a standard agitator or mixer.

The alcohol/catalyst mix is then charged into a closed reaction vessel and the biolipid (vegetable or animal oil or fat) is added. The system from here on is totally closed to the atmosphere to prevent the loss of alcohol.

The reaction mix is kept just below the boiling point of the methanol (which is 64.5Celcius, or 148Fahrenheit ) to speed up the reaction. The reaction will take place at room temperature, but approximately 130 F is recommended as a compromise of speed and safety. By no means do you want to exceed the boiling point of the alcohol, or you will build up pressure and emit toxic vapors. Recommended reaction time varies from 1 to 8 hours; under normal conditions the reaction rate will double with every 10 C increase in reaction temperature. Excess alcohol is normally used to ensure complete reaction. Typically 20% methanol is used.

The glycerin phase is more dense than biodiesel phase and the two can be gravity separated with glycerin simply drawn off the bottom of the settling vessel. In some cases, a centrifuge is used to separate the two materials faster.

Once the glycerin and biodiesel phases have been separated, the excess alcohol in each phase is removed with a flash evaporation process or by distillation. In other systems, the alcohol is removed and the mixture neutralized before the glycerin and esters have been separated. In either case, the alcohol is recovered using distillation equipment and is re-used. Care must be taken to ensure no water accumulates in the recovered alcohol stream.

The glycerin by-product contains unused catalyst and soaps that are neutralized with an acid and sent to storage as crude glycerin (water and alcohol are removed later, chiefly using evaporation, to produce 80-88% pure glycerin).

Once separated from the glycerin, the biodiesel is sometimes purified by washing gently with warm water to remove residual catalyst or soaps, dried, and sent to storage.

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Micro scale processor and operation

Make your own processor I would encourage anyone with the desire and mechanical aptitude to do a bit of internet research after reading through this document and constructing your own processor. This is merely a heated mixing process, with as many of the bells & whistles designed into the system as you see fit. To further your own processor design, you can start with web sites such as www.journeytoforever.org , www.biodieselcommunity.org , www.b100.org, but do not forget to look at the wealth of practical information on the web forums such as www.biodieselnow.com and http://biodiesel.infopop.cc .

Purchase a micro scale processor This report is in no way endorsing any particular processor or design. Here are a few possible vendors who can supply a fully functional unit. I strongly suggest researching any unit on one or more of the biodiesel discussion forums prior to a purchase. A good unit will need provisions for heating the batch, washing, drying, as well as a well designed system for getting the oil in and out of the processor.

www.biodieselgear.com www.utahbiodieselsupply.com www.homebiodiesel.com www.communitybiodiesel.org

The next four diagrams below are courtesy of a graduate student from James Madison University. Many thanks to Christie Joy Brodrick, of the Alternative Fuels Lab, James Madison University. Multiple presentations and a full webcast of an April 3, 2006 biodiesel conference are available at www.cisat.jmu.edu/biodiesel/conference2006.html These are followed by a number of other illustrations of the biodiesel process and some potential plant layouts. A more detailed schematic and parts list for a million gpy plant is located the Appendix.

Reactor Built by James Madison University Students for less than $2,000. www.cisat.jmu.edu/biodiesel

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Fuel Meister $2,999.00, plus Oil heater kit $399.00 Find this unit at www.biodieselsolutions.com. It now has only one tank, and the methoxide mix tank has been eleimintated

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Johny Appleseed open source plan processor can be constructed for under $1,000. Visit www.biodieselcommunity.org for plans and information.

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Biodiesel Gear, Model 60 for $2750.00 Found at www.biodieselgear.com This unit has an integral side mounted heater.

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Appalachian State University Collaborative Biodiesel Project Plant Layout www.biodiesel.appstate.edu Contact: appstatebiofuels@gmail.com

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Full Circle Farm proposed plant layout www.fullcirclefarm.com

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STORAGE, HANDLING & DISPENSING

Solvent Properties Biodiesel, in addition to being fuel, is an effective solvent, and will act accordingly. This means that: a) Biodiesel will dissolve existing solids- created through usage of petroleum (petro) diesel- in your vehicles fuel system. These solids will clog your vehicles fuel filter. When this happens depends on many factors, but can be recognized by the following symptoms: power loss, engine sputtering, difficulty starting, and poor fuel mileage. When you notice these symptoms, you will have to replace your vehicles fuel filter (possibly more than once, depending on the amount of petro solids in the fuel system). Keep at least one spare fuel filter on hand at all times. b) Biodiesel will, over time, dissolve most types of paint. For this reason keep a clean, soft, dry rag on hand when fueling, to gently wipe off any spillage. When the rag becomes soaked with biodiesel, put it in a dark, closed storage container to await proper disposal. Do not leave fuel-soaked rags crumpled up in the sun. Under such conditions, the rags are prone to spontaneous combustion due to oxidation and the heat generated during that process. c) Biodiesel will degrade rubber components in older vehicles fuel systems faster than petro diesel. These components include some hoses, seals, and o-rings. Most diesel vehicles made after 1993 use synthetic components, eliminating this problem. Please contact the manufacturer for answers on specific parts. Should your rubber components need replacement, we recommend Viton substitutes.

Material Compatibility B100 will degrade, soften, or seep through some hoses, gaskets, seals, elastomers, glues, and plastics with prolonged exposure.

The following materials are adversely affected by pure biodiesel (B100); Nitrile, Polypropylene, Polyvinyl, Tygon, and Fluorosilicon and may be present in your fuel delivery system, particularly those made before 1993. Consult your Original Engine Manufacturer (OEM). They can be replaced by the following materials: Teflon, Nylon 6/6, Viton A401-C, and Viton GFLT. It is advisable to set up a monitoring program to visually inspect the equipment once a month for leaks, seeps, and seal decomposition. It would be wise to continue these inspections even after one year, as the experience is still relatively limited with B100.

Biodiesel Cold Weather Properties Depending on its feedstock, 100% biodiesel can gel at temperatures as high as 40 degrees Fahrenheit or higher without added anti-gel. During the winter months, the only way to be certain your fuel will not gel is to maintain a percentage of petro diesel in your fuel supply (exact quantity varies with climate). This is especially recommended for vehicles with electronically-controlled, highly- sensitive fuel injection systems, such as those found in Volkswagen TDIs and Chevrolet/GMC Duramaxs.

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Some methods for keeping a diesel fuel system operational in winter are: 1) An engine block heater to keep the engine warm at night. This helps with starting on cold mornings. 2) A fuel tank heater, which circulates coolant through a pipe in the fuel tank. 3) An electric element fuel line heater, which heats the fuel at one point. 4) A coolant-operated fuel heater, which uses hot coolant and a heat exchanger to heat a section of the fuel line. 5) An electric fuel line heater. This is like an electric blanket for the fuel line, which extends from the fuel tank to the fuel filter. 6) For stand alone generators, you can divert the heat from the exhaust to your storage tank. 7) Sonic agitators can be inserted into your storage tank. 8) Winterizing agents and additives.

Fuel Storage Most tanks designed to store diesel fuel will store B100 with no problem. Acceptable storage tank materials include aluminum, steel, fluorinated polyethylene, fluorinated polypropylene, Teflon, and most fiberglass.

Brass, bronze, copper, lead, tin, and zinc may accelerate the oxidation of diesel and biodiesel fuels and potentially create fuel insolubles (sediments) or gels and salts when reacted with some fuel components. Lead solders and zinc linings should be avoided, as should copper pipes, brass regulators, and copper fittings. The fuel or the fittings will tend to change color and insolubles may plug fuel filters. Affected equipment should be replaced with stainless steel, carbon steel, or aluminum.

The use and handling of biodiesel is very similar to that of petro diesel, except that more care must be taken in cold climates to avoid gelling. All diesel fuel has cold winter gelling issues, and this is handled for use by the supplier by blending #1 kerosene and other additives as the outdoor temperatures drop. I have been told that the petro diesel pump may have as much as a 50% kerosene blend at times to keep it flowing.

Cold weather handling Your options for cold weather include blending with #2 petro diesel, blending with #1 kerosene, using anti-gel additives, or installing a fuel system heating package such as those used on straight vegetable oil conversions. Although additives are not cheap, they will likely be less expensive than the cost of kerosene to reach your desired gel point. Kai Curry, CEO of Biodiesel Blue, in Minnesota out of MN distributes many millions of gallons of biodiesel per year. Kai mentioned that additives will likely cost $0.10 to $0.15 per gallon. Although the type of vegetable oil used, and hence, the resulting biodiesel will have as much to do with its gel properties as some of the winterization techniques, here are some suggested starting points. The typical pour point of untreated #2 petro diesel is around 3 oF while soy methylester B100 is around 27 oF. Ethanol based biodiesel performs better at cold temperatures. Some experimentation would be in order to determine the most economical and effective solution for your biodiesel supply.

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Above 40 oF B100 should be fine 20-40 oF B50, blend biodiesel into the petro diesel 0-20 oF B20 Below 0 oF petro diesel

Blending must be done at warmer temperatures, preferably in the 60-70 oF range. Never blend B100 into cold petro diesel (below 40 oF), and avoid blending your additives into cold biodiesel as well. It is very important to mix it before it gets cold. Once things gel, it is not enough to just get it up above the temperature it would normally gel at. You have to warm it much more to get it into its original state. This is why prevention is far better than warming after the fact. Some people have successfully used gasoline or ethanol to keep things flowing as the temperature drops. Apparently, using gasoline is discussed in some of the Mercedes owners manuals. Here is on example of an additive specifically tailored for biodiesel. Arctic Express Biodiesel Antigel is purported to prevents fuel gelling in B20 fuels in temperatures as low as -40F. The product literature states that it exceeds the Cold-Filter Plugging Point (CFPP) and Pour Point performance of a B20 fuel blended with 50 percent #1 kerosene, and it reduces or may eliminate the requirement for blending with #1 fuel.

The National Renewable Energy Labs has published a document called, Biodiesel Storage & Handling. It is quite informative, but deals less with real handling issues and more with general biodiesel issues, across the board. It can be found at www.biodieselmichigan.com.

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Storage and Dispensing Study Stand Alone Natural Building Biodiesel Fueling Site (Piedmont Biofuels) An elegant example of a B100 fueling site for a biodiesel cooperative in North Carolina, [cooperative name], is pictured here. It consists of a conventional fuel tank housed in a straw bale constructed enclosure with a south facing, passive solar design. A solar panel powers a battery operated 12VDC pumping setup. More information on this and many, many other biodiesel issues may be found at their web site: www.biofuels.coop

DISPOSAL OF SIDESTREAMS & WASTE

Glycerin The biodiesel process will produce a significant amount co-product in the form of crude glycerin. This is not an insignificant issue, but several options are available such as:

sale as crude glycerin to a refiner, composting for small amounts, combustion in a waste oil burning furnace, mixing with sawdust or other material for combustion, distillation to pure glycerin which has a higher value, or new chemical processes such as conversion to ethylene or propylene glycol

which can then be sold. Whatever is done with the glycerin, the methanol should first be removed. Very, very small quantities may merely be set out in the sun or open air to evaporate the alcohol (OUTDOORS!!). But preferably, a distillation recovery process should be used. Since methanols boiling point of 148 deg F is far below glycerins 554 deg F, recovery of excess methanol is not difficult. Next, an acid can be used to neutralize any remaining catalyst. This is often called acidulation, and a salt compound will form that will precipitate out. One interesting and useful combination of ingredients involves using a KOH catalyst, and a phosphoric acid acidulation step. The salt precipitate will be a potassium / phosphorous compound that is wonderful as a fertilizer. Lastly, the 554 deg F boiling point makes purification of the remaining crude glycerin very difficult, and not recommended to the home brewer.

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Methanol Recovery Methanol recovery will not be discussed in detail here. It involves a distillation step, and is often only performed on the glycerin due to the higher percentage of methanol seen in bottom glycerin. For the biodiesel component, it may be preferable to air bubble off any small amounts of methanol prior to water wash or magnesium silicate cleaning. This seems to be a good and often used technique.

Waste Water Management Proper care must be taken for disposal of plant waste streams. Wash water will contain small amounts of glycerin and methanol, and can contain significant amounts of soap. The sanitary sewer system is capable of managing normal wash water, but safeguards must be put in place to make sure no unintended discharges are made to the sanitary sewer systems. An oil-water separator may be prudent, or required prior to connection to the sanitary sewer drain. One interesting method of wastewater management is biological treatment via a series of engineered bio-ponds or wetlands cascaded to purify the wash water prior to discharge or reuse. Refer to some of the literature or user forums for more information on this topic. Piedmont Biofuels and others are experimenting in this area.

Water Waste vs Magnesium Silicate There is a waterless option with the use of a cleaning compound such as magnesium silicate, the same substance as talcum powder. Use 1-2% (by weight) magnesium silicate powder mixed for 20-30 minutes. Then you filter through 1 micron filter, and you are done. No water wash & no potential emulsification problems & NO waste water problems!! This is a very inexpensive product with one of the friendliest MSDS sheets you will ever read. Or purchased online at locations such as www.fryerpower.com At 2%application rate (by weight), the additional cost to the biodiesel will be approximately 25-30 cents per gallon.

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TAXES, TAX CREDITS, AND OTHER INCENTIVES

Please note that taxes, forms, and regulations frequently change. It is best to check with the original sources to get the most current and up to date document and rules.

There seems to be a multitude of taxes and regulations to consider when undertaking to make biodiesel. There are regulations dealing with oil tanks and storage, fire safety, waste water, transporting used vegetable oil (even small quantities). Then there are tax issues relating to the production of biodiesel and its sale as an on-road motor fuel. Below is an attempt to get you started in the right direction.

Taxes per gallon of diesel fuel sold in Michigan: Federal Excise Tax $0.244 per gallon Michigan Road Tax $0.12 per gallon (this was recently reduced in Sept 2006, petro-diesel is taxed at 15 cents per gallon) Leaking Underground Storage Tank Tax: $0.001 per gallon Environmental regulation fee $0.00875 per gallon Michigan Sales Tax 6% of the total

Federal Government Excise Tax & Blender Credit

The American Jobs Creation Act of 2004 created a biodiesel federal blending credit for $1.00/gallon for agri-biodiesel and $0.50/gallon for waste oil biodiesel. The Energy Policy Act of 2005 extended this credit out until December 31, 2008. The Energy Policy Act also created a small agri-biodiesel producer tax credit for biodiesel of $0.10/gallon for the first 15 million gallons of annual production. Lastly, the Energy Policy Act also allows for a $30,000 income tax credit for E85 and B20 fueling infrastructure.

Form 637 is the registration application that all biodiesel producers and blenders must complete. (Note: Becoming officially registered may take a considerable amount time. Planning accordingly to meet the deadlines proscribed by the IRS is critical. For information about the registration process and timing, contact your local IRS Field Office.) There are numerous designations on the type of activity that your business may undertake and still take part in this tax credit. The instructions for Form 637 will describe many activity letters, or designated categories which you must select from. Please see the Fedreal IRS Form 637 Instructions for further information. www.irs.gov/pub/irs-pdf/f637.pdf

Form 720 is the Quarterly Federal Excise Tax Return. Entities utilize this form to report and pay federal excise tax. www.irs.gov/instructions/i720to/index.html

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Biodiesel Mixture Credits are calculated on Schedule C, Line 13 as shown in the excerpt below. The value of the calculated credits is reported in Part 3; Line 4-Claims on the Form 720.

General excise tax information: http://www.irs.gov/businesses/small/article/0,,id=99517,00.html http://www.biodiesel.org/news/taxincentive/ Small agri-biodiesel producer tax credit for ($0.10 per gallon) for the first 15 million gallons of annual agri-biodiesel production is claimed on IRS form 8864 http://www.irs.gov/pub/irs-pdf/f8864.pdf Contact name for further assistance: Marty Jones, in Flint with the IRS (excise tax info) 815 S. Saginaw Flint, MI 48502 Phone: 810-235-7388

State of Michigan State Sales tax information can be found on the Michigan Department of Treasury web site at http://www.michigan.gov/taxes/0,1607,7-238-43529---,00.html For sales tax totaling less than $750 per year, a business must file annually, for less than $3,600 per year, filing is quarterly, and for above $3,600, filing is monthy. Michigan Road Tax is filed using a Form 4334, Motor Fuel Untaxed Products Return which was not available on-line as of January 2007. See Appendix J for a copy of this form. Environmental Protection Regulation Fee is charged for all petroleum products in the State of Michigan at $0.00875 per gallon. Since biodiesel is not a petroleum product, this fee is not required. This fee is mentioned here for reference only, and more information can be found on the Department of Treasury web site at

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http://www.michigan.gov/treasury/0,1607,7-121-44402_44415_44416-7302--,00.html The Michigan Next Energy Authority (MNEA) provides tax incentives for business activities and property related to the research, development, and manufacturing of alternative energy technologies. See the Michigan Economic Development Corporation website at www.michigan.org/medc/ttc/Alternative.Energy/Financial.Incentives Contact name for further fuel tax assistance:

Mary Schafer, Supervisor Customer Contact Special Taxes - Motor Fuel Phone: 517-636-4619 Fax: 517-636-4593 Email: schaferme@michigan.gov

REGULATIONS Biodiesel storage, handling, and safety is regulated by a number of agencies. The State of Michigan Department of Environmental Quality has permitting responsibility for above and below ground storage tanks, as well as permitting for industrial waste water from a production facility. Vegetable oil and B100 are not treated the same as diesel fuel, and the new requirements imposed on above ground fuel storage tanks do not apply. However, once any diesel fuel is blended with B100, then the storage tank regulations for diesel fuel fully apply. The Michigan DEQ also regulates the transport of used restaurant oil as a liquid industrial waste, requiring all vehicles to be registered as described below. The Michigan Occupational Safety and Health Administration MI (OSHA) will be have jurisdiction over workplace safety including proper documentation of all chemicals and products on site. It is beyond the scope of this document to delve into all aspects of industrial workplace safety, but careful attention to a safe plant design is paramount.

Storage tanks & regulations Storage Used restaurant cooking oil is classified as a regulated oil by the Clean Water Act, therefore storage requires fulfilling the provisions of 40 CFR 112, for having a Spill Prevention, Control & Countermeasures Plan (SPCC Plan). In addition, Michigan law Part 5spillage of oil and polluting materials administrative rules promulgated pursuant to Part 31, Water Resources Protection, of the Natural Resources and Environmental Protection Act, 1994, PA 451, as amended, requires that any facility that stores oil or fuel with an aboveground capacity of 660 gallons or larger in any single tank, or 1,320 gallons or larger total capacity of all oil tanks, drums and other containers on-site to have a Pollution Incident Prevention Plan (PIP Plan). Storage of raw material inputs for producing biodiesel fuels such as methanol and lye may also be regulated if stored in large enough quantities. The Grand Rapids project managed these inputs in small incremental volumes.

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Above ground storage tanks Tanks under 1,100 gallons are exempt from the Michigan DEQ review process. B100 has a flash point of around 300 F, which means it is not a flammable liquid, but is still considered combustible. Here is an informational memorandum from the Michigan DEQ on above ground storage tank issues: www.deq.state.mi.us/documents/deq-std-IM15.pdf And here you will find the above ground storage tank site for the Michigan DEQ http://www.michigan.gov/deq/0,1607,7-135-3311_4115_4237---,00.html Here is a link to a very informative presentation: http://www.deq.state.mi.us/documents/deq-std-AST-Motor-Fueling.pdf For the full