Economics of Biofuel Production

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    The Economics of Biofuel

    Production and UseGuy Hitchcock

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    Biofuel production

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    Conversion

    processFeedstockFuel distribution

    and retail

    By product sales

    Conversion inputs

    Cost elements of biofuel production

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    Liquid biofuel feedstocks

    Biodiesel oil bearing crops

    Rape seed, sunflower, soya oil, palm oil

    Waste vegetable oils

    Bioethanol starch and sugar crops

    Cereals, sugar beet, sugar cane

    All feedstocks are traded on the food

    commodity markets Typically feedstock accounts for 80-90% of

    biofuel cost

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    Rape seed, wheat and crude oil

    prices, 1997-2007

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    Biomethane feedstocks

    Commercial or domestic waste may

    provide a revenue for AD as a waste

    treatment option

    Agricultural manures are used in

    partnership with farmers, with digestate

    spread back to land

    Energy crops have a cost of lost food

    production

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    Second generation fuels

    Wide range of input feedstocks

    Woody biomass, waste, etc

    Generally lower cost feedstocks Non-food crops so less competition with

    food

    Can use whole crops so get better landuse and energy balance

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    Conversion costs

    Capital cost of conversion plant

    Operating cost of plant such as labour,

    energy costs and other input materials Revenue from by products

    Biodiesel: crush cake, glycerine

    Wheat ethanol: distillers grains Biomethane: bio-fertilisers

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    Conversion estimates for biodiesel

    from rape seed

    SAC IEA Concawe

    Small

    Large

    Small

    Large

    Large

    Plant cap ex 0.425 0.227 0.046

    Plant op ex 0.076

    By-product

    income

    0.265 0.184 0.145

    Total 0.160 0.043 0.20 0.05 -0.023

    Conversion costs in /litre

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    Conversion estimates for ethanol

    from wheat

    IEA Concawe BTG ITPS

    Small LargePlant Cap Ex 0.10 0.06 0.072 0.28 0.012

    Plant Op Ex 0.24 0.22 0.148 0.210

    By-product

    income

    0.07 0.07 0.084 0.15 0.114

    Total 0.27 0.21 0.136 0.13 0.108

    Conversion costs in /litre

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    Biomethane and 2ndgeneration

    conversion costs

    Biomethane

    Less data on costs

    Swedish experience suggests 0.65-0.75 /kg

    2ndgeneration

    Not yet commercially available

    Study estimates for cellulosic ethanol 0.16 to0.26 /litre

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    Fuel tax incentives

    VAT fixed for all fuels

    Fuel duty

    100% reduction for all biofuel

    100% reduction for a limited amount

    Partial reduction

    Obligations UK RTFO provides revenue from tradable

    certificates

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    Diesel pump prices across Europe

    including duty and VAT

    0

    10

    20

    30

    40

    50

    60

    70

    80

    90

    100

    110

    Cyprus

    Malta

    Romania

    Slovenia

    Bulgaria

    Lithuania

    Latvia

    Luxembourg

    Spain

    Estonia

    Greece

    Poland

    Belgium

    Hungary

    Portugal

    Austria

    Ireland

    France

    CzechRepublic

    Netherlands

    Denmark

    Slovakia

    Finland

    Italy

    Germany

    Sweden

    UK

    pence

    (p/litre)

    Tax and Duty

    Excluding Tax and Duty

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    Cost of RME VS EU diesel excluding

    taxes

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    Price of RME vs UK diesel including

    taxes

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    Cost of wheat ethanol vs EU

    gasoline excluding taxes

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    Price of wheat ethanol vs UK

    gasoline including taxes

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    Summary of production

    economics

    Feedstock cost accounts for 80-90% of

    cost of liquid biofuels

    Feedstocks are traded on food markets

    and so affected by food demand

    Taxes are next biggest impact with duty

    reductions generally needed to makebiofuels cost competitive

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    Biofuel use

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    Cost elements of biofuel use

    Vehicle costs

    Capital cost of vehicles

    Additional maintenance and servicing costs

    Fuel costs

    Base cost of fuel

    Fuel consumption and mileage Taxes and financial incentives

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    Vehicle costs - 1

    Biodiesel

    No additional capital

    Possible additional service costs

    Additional fuel filter changes

    Possible shorter service intervals

    Bioethanol

    0-1,500 additional capital for FFV

    Conversion kits approx 500

    No additional servicing costs

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    Ford Focus FFV

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    Vehicle costs 2

    Biomethane capital costs

    cars and vans: 2,500 - 5,000

    dual-fuel diesel heavy duty vehicles: 25,000

    - 40,000

    spark ignition heavy duty vehicles: 35,000 -

    50,000

    Biomethane servicing possibly 0.01/kmmore than diesel

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    Fuel costs

    Fuel Fuel cost MPG

    Biodiesel Similar to diesel 1-5% less than diesel

    Bioethanol Similar to gasoline 25% less than gasoline

    Biomethane bi-fuel or

    dedicated

    30-50% less than

    diesel

    Same as gasoline,

    15-20% less than

    diesel

    Biomethane dualfuel

    30-50% less thandiesel

    Similar to diesel

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    Taxes and financial incentives

    Vehicle grants

    Company car tax reductions as are

    available for example in the UK and

    Sweden

    Reduction on congestion charges or road

    tolls

    Reduced parking charges for biofuel cars

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    Full life costing

    Capital cost of the vehicle, amortised over its

    life

    Fuel cost over the life of the vehicle accounting

    for fuel consumption and annual mileage

    Servicing and maintenance costs

    National and local incentives such as vehicle

    tax reductions, congestion charge reductionsand parking benefits

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    Full life costing: EU average gasoline

    and diesel, biofuels with no duty

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    Full life costing: UK tax and duty rates

    for all fuels

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    Summary of use economics

    Cost effectiveness of biofuel use depends on:

    vehicle costs and how these are amortised over the

    life of the vehicle;

    service and maintenance costs; fuel costs and fuel consumption for the vehicle;

    vehicle mileages;

    national and local taxes and incentives

    These factors will vary from use to use, and

    between countries, regions and even cities.