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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.
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