the economics of biofuel production and use

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The Economics of Biofuel Production and Use Guy Hitchcock

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The Economics of Biofuel Production and Use. Guy Hitchcock. Biofuel production. Cost elements of biofuel production. By product sales. Conversion process. Fuel distribution and retail. Feedstock. Conversion inputs. Liquid biofuel feedstocks. Biodiesel – oil bearing crops - PowerPoint PPT Presentation

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Page 1: The Economics of Biofuel Production and Use

The Economics of Biofuel Production and Use

Guy Hitchcock

Page 2: The Economics of Biofuel Production and Use

Biofuel production

Page 3: The Economics of Biofuel Production and Use

Conversion processFeedstock Fuel distribution

and retail

By product sales

Conversion inputs

Cost elements of biofuel production

Page 4: The Economics of Biofuel Production and Use

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

Page 5: The Economics of Biofuel Production and Use

Rape seed, wheat and crude oil prices, 1997-2007

Page 6: The Economics of Biofuel Production and Use

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

Page 7: The Economics of Biofuel Production and Use

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

land use and energy balance

Page 8: The Economics of Biofuel Production and Use

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

Page 9: The Economics of Biofuel Production and Use

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

Page 10: The Economics of Biofuel Production and Use

Conversion estimates for ethanol from wheat

IEA Concawe BTG ITPS

Small LargePlant Cap Ex 0.10 0.06 0.072 0.28 0.012Plant Op Ex 0.24 0.22 0.148 0.210By-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

Page 11: The Economics of Biofuel Production and Use

Biomethane and 2nd generation conversion costs Biomethane

– Less data on costs– Swedish experience suggests 0.65-0.75

€/kg

2nd generation– Not yet commercially available– Study estimates for cellulosic ethanol

0.16 to 0.26 €/litre

Page 12: The Economics of Biofuel Production and Use

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

Page 13: The Economics of Biofuel Production and Use

Diesel pump prices across Europe including duty and VAT

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Tax and Duty

Excluding Tax and Duty

Page 14: The Economics of Biofuel Production and Use

Cost of RME VS EU diesel excluding taxes

Page 15: The Economics of Biofuel Production and Use

Price of RME vs UK diesel including taxes

Page 16: The Economics of Biofuel Production and Use

Cost of wheat ethanol vs EU gasoline excluding taxes

Page 17: The Economics of Biofuel Production and Use

Price of wheat ethanol vs UK gasoline including taxes

Page 18: The Economics of Biofuel Production and Use

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 make biofuels cost competitive

Page 19: The Economics of Biofuel Production and Use

Biofuel use

Page 20: The Economics of Biofuel Production and Use

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

Page 21: The Economics of Biofuel Production and Use

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

Page 22: The Economics of Biofuel Production and Use

Ford Focus FFV

Page 23: The Economics of Biofuel Production and Use

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€/km more than diesel 

Page 24: The Economics of Biofuel Production and Use

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 – dual fuel

30-50% less than diesel

Similar to diesel

Page 25: The Economics of Biofuel Production and Use

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

Page 26: The Economics of Biofuel Production and Use

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 reductions and parking benefits

Page 27: The Economics of Biofuel Production and Use

Full life costing: EU average gasoline and diesel, biofuels with no duty

Page 28: The Economics of Biofuel Production and Use

Full life costing: UK tax and duty rates for all fuels

Page 29: The Economics of Biofuel Production and Use

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.