As a land-locked country without any significant deposits of crude oil, Armenia is 100 percent dependent upon fuel imports to meet a growing demand for gasoline. Increases in world crude oil prices are being passed on to and reflected at retail gasoline outlets, and prices for gasoline in Armenia are expected to increase at an even more rapid rate in the future, as long-term import contracts lapse and are renegotiated at higher market prices. Natural gas prices from Russia are expected to increase making compressed natural gas (CNG) more expensive and causing upward pressure on gasoline prices as well. Such trends will make alternative motor transport fuels such as ethanol more competitive in the market. Finally, ethanol for blending as a motor transport fuel has the potential to reduce imports of gasoline through displacement, reduce foreign exchange drains, increase energy security of supply in a traditionally unstable region of the world, create value from domestically grown ethanol feedstocks on surplus lands, create jobs in depressed rural areas, and improve local air quality particularly in congested urban areas.
 
 Feedstocks
 One of the key factors for determining the overall success of a biofuels program is the availability of appropriate feedstocks at attractive prices. Corn and sugarcane serve as the major feedstocks for current ethanol production throughout most of the world, but virtually any feedstock with high sugar or starch content can be utilized for ethanol production. 
 
 Armenia's climatic conditions are not suitable for sugarcane production; however, there are several alternative crops suitable to Armenia's climate for cultivation on available agricultural land that is not intended for the production of food crops. In particular, Jerusalem artichoke has been identified as a crop with great potential as a feedstock for ethanol production in Armenia in the near to midterm future. It can be cultivated on land that is currently fallow and it possesses relatively high carbohydrate content, especially in its root tuber, thereby making it extremely suitable for ethanol production. Farmers grow Jerusalem artichoke for their own use, but there is no large scale production due to the small 
 market for it.

 
 Similarly, feed corn for livestock and poultry is a suitable crop for the soils and micro climates found in several parts of the country. Utilizing a dry mill corn fractionation process, feed corn can be processed in such a manner as to extract all of the starches contained in the feedstock corn for conversion into ethanol while at the same time producing important animal feed co-products. The byproduct will have a higher percentage of protein, fats and carbohydrates than that found in unprocessed dry corn, which is currently the principal animal feed used by livestock and poultry producers in Armenia. Similar byproducts can also be produced using Jerusalem artichoke.
 
 <center><img src="/images/upload/20090504042942.jpg" alt="" /></center>
 SOURCE: AREG GHARABEGIAN
 
 Presently there is no large scale feed corn production in Armenia, but the Ministry of Agriculture has developed a program of increasing production to reduce the import and to develop a local market for feeding livestock. The goal is to have 14,826 acres of corn production in Tavush Marz in northern Armenia. The program has seen limited success. 
 
 Where farmers use good techniques, the yields have been satisfactory, but in many cases the yields have been far below what would have been expected.
 
 The preliminary feasibility study suggested developing two very different types of ethanol plants: one based on an inulin extraction process for Jerusalem artichoke to be situated in Syunik Marz; and a second plant based on a dry milling process with fractionation utilizing feed corn grown in Tavush Marz. These two regions have high rural unemployment rates and microclimates suitable for the production of the identified feedstocks.
 
 There are a number of advantages and disadvantages that should be recognized from the outset when considering a decision on whether or not to implement a nationwide ethanol program. With respect to advantages, ethanol can be produced from domestic renewable feedstock sources, helps to stimulate agricultural employment in depressed rural areas, and can provide farmers and ethanol processing plant owners with a dependable revenue stream. In addition, ethanol can lower air emissions in major metropolitan areas when combusted as a motor transport fuel, can reduce overall greenhouse gas emissions, and can reduce foreign exchange drains on the Armenian economy. 
 
 On the other hand, a nationwide ethanol program could face several hurdles and challenges. Ethanol has a lower energy content value compared to gasoline and could face an initial public acceptance hurdle. In addition, ethanol blends greater than 10 percent are not compatible with existing non-flexible fuel vehicles, pipeline infrastructure, distribution systems, or tanks and pumps at retail outlets. If the imported gasoline is not of a high quality or contains moisture, there will be performance and maintenance problems with automobiles that are operated on fuels mixed with ethanol, and the program will in all likelihood be perceived as a failure by the consumer public. In addition, no markets currently exist in Armenia for useful animal feed by-products from ethanol conversion processes.
 

 Potential Ethanol Market Size 
 Table 1 (shown above) forecasts the ethanol production needed annually to achieve the 5 percent blending levels, by volume, with gasoline.
 
 These projections formed the basis of the decision to develop 14,000 metric tons per year of ethanol production capacity by 2014. Therefore, the recommended capacity sizes for each of the two proposed plants is 7,000 metric tons per year based on the assumption that the Armenian government would mandate 5 percent blending of ethanol by volume with gasoline by the year 2014.
 
 Construction of a 7,000 metric ton per year ethanol plant would cost $17 million to $19 million (2008 dollars) depending upon specific conversion technology chosen by the developer. The major variables for the financial analysis of a biofuel project are ethanol price, feedstock price, co-product price and energy costs.
 
 Due to the lack of reliable price information for the proposed feedstocks (Jerusalem artichoke and corn), the financial analysis was necessarily conducted by setting an acceptable rate of return on investment and solving for the cost of the feedstock that would generate this return over time. A variety of scenarios was analyzed to assess the sensitivity of the projected results to the different assumptions. 
 
 If yields are around 40 to 45 metric tons per hectare, pricing for Jerusalem artichoke is expected to be approximately $50 per metric ton as farmers move towards more modern production practices. The financial model showed that the processing plant can pay up to $88 per metric ton for Jerusalem artichoke and still achieve a return on investment of 15 percent. 
 
 The 2008 price for imported feed corn into Armenia was approximately $400 per metric ton. This price is significantly above the world market price of corn, likely at least in part due to high transportation costs and small trading volumes. Results of the analysis indicate that while higher yield seeds are now being used by local farmers, the upward pressure on corn production costs especially from the higher cost of fertilizers, weed suppressants, and diesel fuel for tractors is offsetting enhanced revenues from higher crop yields. Farmers will have to beat this price if they hope to enter into long-term contracts with an ethanol processing plant. However, given that the financial model was set to achieve a minimum ROI of 15 percent, financial projections indicated that the processing plant could only afford to pay up to $393 per metric ton for feed corn and still remain attractive to potential investors.
 
 Based on these results and competitive guidelines, either plant could provide sufficient economic returns. The risk is perceived to be greater with Jerusalem artichoke due to the lack of commercial production experience, cost data regarding cultivation and harvest, and historical pricing data in the commercial marketplace. However, in the final analysis, such risks are common to any new dedicated energy crop.
 
 Land Availability for Feedstock Production

 On average, only 70 percent of tillable land in Armenia is presently being used. Guiding principles for identifying suitable land during conduct of the ethanol program assessment were to:
 
 ›Focus on surplus lands only
 	
 ›Consider lands from the Soviet era that are not presently being utilized for food production and unlikely to ever be brought back into useful production
 	
 ›Primarily concentrate on marginal lands between 1,000 and 2,400 meters in elevation or else saline soils that cannot be utilized for food production regardless of elevation
 	
 ›Rule out lands that are not accessible by mechanized farm equipment or include endangered species of plants or animals
 
 An extensive study was conducted to determine the best locations for growing acceptable feedstocks from the perspective of prevailing climatic conditions, soil suitability, elevation constraints and possible access to irrigation. It is anticipated that the local farmers, not agri-businesses, would be responsible for planting and growing feed corn. Harvested feed corn would then be stored in humidity-controlled storage containers or buildings for use throughout the season. A study of available land for corn growing shows there is the capability to produce the required amount within 50 km of the proposed plant.
 
 Potential Coproduct Markets
 The sale of coproducts from a planned ethanol plant is essential to ensure the economic viability of such a project, especially if no direct financial subsidies will be provided by the government to guarantee an ethanol program's success over time. Potential coproducts from a Jerusalem artichoke plant include pulp to be used as a high carbohydrate animal feed as well as feedstock for combined heat and power systems. Potential coproducts from a corn fractionation plant include DDGS and corn oil. In addition, both processing plants are expected to produce dry ice and liquid carbon dioxide as coproducts.
 
 Anticipated Developmental Impacts

 Rural development is another important driver for worldwide support of biofuels. Since feedstocks are grown on agricultural land, increasing demand results in increased economic development in rural areas; however, biofuels policies have faced increased scrutiny in recent years. The two most controversial topics are the food versus fuel issue, and the actual level of environmental benefits accruing from ethanol programs. In Armenia, only unused marginal lands or surplus will be utilized and only non-food feedstocks will be grown for conversion into ethanol, unlike major ethanol programs in the United States, Europe and Brazil.
 
 Moreover, the proposed projects are expected to have significant and positive developmental impacts and benefits to Armenia. The most important benefits include:
 	
 ›Stimulation of Employment in Depressed Rural Areas. An ethanol feedstock production program of this magnitude will have an instant and measurable positive economic and job creation impact upon the two most depressed parts of Armenia.
 	
 ›Human Capacity Building. Most of the construction work would be provided by local Armenian contractors- overseen by an international contractor with experience in ethanol plant construction. New jobs would be created both directly and indirectly. These jobs will require new skills and training to operate and maintain the two plants.
 	
 ›Technology Transfer. There has been little experience with ethanol processing plants for Jerusalem artichoke on a major commercial scale. Only small demonstration facilities using Jerusalem artichoke have been implemented to date. In a sense, this project will create a whole new industry in Armenia.
 
 ›Economic Development Benefits. Substantial tax revenues would be generated, as well as money spent in local rural economies.
 
 Environmental Impacts
 Considering all of the potential ethanol fuel cycle environmental aspects, it can be concluded that the project will have a favorable impact on the environment in Armenia. The main positive aspect of the proposed project will be the reduction of air pollutions. With a nationwide program goal of 5 percent ethanol blending, it is anticipated that carbon dioxide emissions will be reduced by 3,300 metric tons per year or by at least 15 percent of the level of such emissions in 2007. Considering a projected increase in the number of vehicles that will be added to the current stock in the future, this anticipated emissions reduction will have a tendency to increase over time. 
 
 Other environmental concerns are mostly related to land use changes triggered by higher agricultural product prices. By historical averages, current prices for commodities such as corn and soybeans are high. The higher prices provide an incentive to increase production, which in many cases means expanding the amount of land used for agriculture. If the expansion land is currently forested, turning it into arable land will require deforestation resulting in environmental harm which will likely outweigh the benefits of biofuels for many years. However, ethanol production as envisioned for Armenia will result from greater utilization of unutilized crop lands or marginal lands and not result in reductions of forested lands.

 
 Suggested Policy Measures for Consideration 
 Suggested government energy and transportation policy measures to stimulate ethanol market development in Armenia include the following:
 
 ›Develop a fuel standards program by 2009
 
 ›Mandate a minimum fuel blending program at 5 percent by volume by 2014 coupled with an excise tax on imported ethanol in an effort to create a new industry
 
 ›Increase mandated blending requirement to 10 percent by volume by 2020
 	
 ›Classify ethanol as a motor transport fuel for tax purposes rather than as ethanol for use in alcoholic beverages 
 
 ›Institute vigorous enforcement of fuel quality standards testing at fuel depots and retail outlets
 	
 ›Treat ethanol as a renewable energy resource
 	

 ›Develop and implement a nation-wide public awareness program to introduce and promote the production and use of ethanol 
 
 Kendrick Wentzel participated in the study as a project manager for Enertech International. Reach him at <a href="mailto:enertech@friend.ly.net">enertech@friend.ly.net</a>. Areg Gharabegian participated as the environmental and biomass specialist. Reach him at <a href="mailto:areg.gharabegian@parsons.com">areg.gharabegian@parsons.com</a> or (626) 440-6047.

The Tavush Marz area of Armenia was determined to be well-suited for a dry mill corn ethanol facility./SOURCE: AREG GHARABEGIAN

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Jerusalem artichoke has been determined to be a feedstock with great potential for ethanol production in Armenia. Farmers currently grow the crop for their own use on a small scale.

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The Renewable Resources and Energy Efficiency Fund of Armenia recently commissioned a feasibility study to determine the possibility of producing ethanol in Armenia. The study, financed by World Bank as a grant from the Global Environment Facility, was conducted by Enertech International Inc. and BBI International in cooperation with DHD Contact LLC of Armenia.

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