Optimal Design of a Biofuel Supply Chain Considering Government Subsidies: Mixed-Integer Linear Programming Model

Renewable energies have gained a significant attraction due to the increasing growing demand for energy and environmental concerns. As one of the alternatives to fossil fuels, bioethanol from switchgrass is considered. To realize the strategic and tactical biofuel supply chain decisions, in this study, we developed a different mixed-integer linear programming model aiming to minimize total annualized costs over a 5-year planning horizon by incorporating financial incentives and comparing the models with and without budget consideration. Using this model, the optimal allocation of material flows is determined along with optimal supply and pre-processing locations for producing a gasoline (95%)-ethanol (5%) blend. The monetary incentives include i) a constant budget for the whole Bioethanol Supply Chain (BSC) planning; and ii) treating the distribution of the budget as a decision variable. To illustrate the application of the proposed model, a case study of Iran is investigated. Results indicate the requirement of a monetary incentive to produce bioethanol and establish plants for bioethanol processing. The cost savings resulting from the optimal allocation of monetary incentives were higher than those from constant monetary incentives. The sensitivity analysis of the model indicates that the biomass-to-ethanol conversion rate has the highest impact on the total costs.