Economics of Biofuel Production

8/10/2019 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.

Documents

Economics of Biofuel Production