Biofuel – Pricing Scenario 13 th October 2008 New Delhi PetroFed: National Seminar on Biofuels - 2008

Biofuel – Pricing Scenario 13th October 2008

New Delhi

PetroFed: National Seminar on Biofuels - 2008

National Policy on Biofuels

• Indicative target of 20% of blending – both biodiesel and ethanol by 2017• Responsibility of storage, distribution & marketing of biofuels with OMC’s• Minimum Purchase Price (MPP) for Bio-diesel to be linked to the prevailing retail price of

diesel besides taking in to account the entire value chain of biodiesel production• MPP of bio-ethanol linked to actual cost of production/ import price of bio-ethanol• MPP to be determined by the Biofuels Steering Committee • In event of diesel/ petrol prices falling below MPP of biofuels, OMC’s would be compensated

by GoI• Biofuels eligible for fiscal incentives and concessions available to RE• Biodiesel exempted from excise duty and bio-ethanol enjoys concessional excise duty of 16%• No other central taxes/ duties proposed to be levied on biofuels machinery/ engines • State Governments to be advised to provide VAT/ Sales Tax and other taxes / levies for

biofuels and associated plants and machinery

Slide 3PricewaterhouseCoopersOctober 2008

Slide 3

Global Crude Oil Price Scenario

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Crude oil price scenario

0

20

40

60

80

100

120

140

160

1990

1995

1998

2000

2002

2004

2006

2007

2008

2009

2010

2011

2012

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2015

2016

$ p

er

Ba

rre

l 13

2

Source: Energy Information Administration, Cushing OK Spot Price and NYMEX, May 23, 2008


Slide 4

Pricing of conventional fuel in India

132

65

50.16

31.8627.09

70

0

10

20

30

40

50

60

2003 2004 2005 2006 2007 2008

Rs/

Lit

re

0

20

40

60

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100

120

140

$/B

arre

l

Petrol* (INR/litre) Diesel* (INR./litre) crude (US$/barrel)

• The Indian basket of crude oil has increased by almost 400% during the period 2003 to 2008, the retail prices of petrol and diesel were increased only by 55% and 60% respectively during this period


Slide 5

India passes on less price to consumers than in developed world. Worst, the oil companies recover much less out of that.

Note :The term Gasoline as used here refers to the Regular Unleaded Gasoline.

0 0.5 1 1.5 2 2.5

India

USA

Canada

Japan

Spain

France

Germany

Italy

UK

(USD per litre) Source: IEA Statistics Energy Prices and Taxes: First Quarter 2008

0 0.5 1 1.5 2 2.5

USA

India

Canada

Japan

Spain

France

UK

Germany

Italy

(USD per litre)

Ex-tax price Tax component

Ex-tax Price & Taxes GasolineDiesel

Comparison of fuel prices across countries

Increased crude oil price will impose excess burden on oil companies


Slide 6

Pricing of conventional fuel in India

• A large part of the retail prices of petrol and diesel is made up of taxes and duties as shown

• 44% of the prices of petrol and 24% of the prices of diesel are due to taxes, duties, cess etc

• The latest price of ethanol quoted by the ethanol manufacturers to oil companies is INR 19.55/litre

• The range of cost-effective ethanol pricing is Rs 19-20 per litre that is much lesser than the ex-tax price of petrol (~Rs 27/lt)

• The current range of bio-diesel pricing is 27.46 that is comparable to HSD ex-tax price

27.9 27

23.85

8.1

0

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60

Petrol DieselR

s/ L

itre

Ex Tax Price Taxes

Source: IEA Statistics Energy Prices and Taxes: First Quarter 2008

Price mentioned is for Delhi


Slide 7

Life cycle cost estimation of an integrated bio-diesel plant

• Biofuel production cost is dominated by feedstock cost as well as the capital related cost

• Feed stock accounts for 30-50% of biodiesel production varying due to plant capacity and choice of feedstock.

• Feedstock costs correspond to over 50-60%% of total ethanol production• The levelized cost of biodiesel is Rs 27.46/Lt derived with certain assumptions

• Cost of Jatropha seeds Rs 6 Per Kg • Market price of glycerine is Rs 30 Per litre • Market price of oil cake is Rs 3 Per Kg

Rs27.46

Plantation Cost , 38%

Expellation and Distribution Cost, 20%

Refining Cost, 24%

Dostibution cost and Producer Margins, 28%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1


Slide 8

Life cycle cost analysis of an integrated bio-diesel unit

• Cost of biodiesel is factor of three components

• Cost of feed stock

• Market price of Oil Cake, and

• Market price of Glycerin

• Future price of oil cake and glycerin is unpredictable that can affect the economics of bio-diesel.

25.527.4

32.3 35.640.8

45.2

0

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30

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50

5 6 7 8 9 10Seed Price (Rs per KG)

Pri

ce (

in R

s p

er

Litr

e)

Jetropha Oil Price Bioduesel Price

`̀

Cost of Biodiesel v/s Cost of Glycerine

30.08

29.0127.46 26.61

25.72

24.63

20

22

24

26

28

30

32

10 20 30 40 50 60Selling Price of Glycerine (in Rs/Lt)

Co

st o

f Bio

die

sel (

in

Rs/

Lt)


Slide 9

Life cycle cost analysis of an integrated bio-diesel unit

• In future, the feedstock price is expected to

increase due to increasing trade, resulting

in increasing fuel market price

• At fixed selling price, increase in feedstock

price:

• improves the profitability for farmers

• shrinks the profitability/IRR for

production (Refining) of biodiesel

• Price of feedstock will largely be affected

by global demand of biofuel especially in

EU countries.

Feed stock price v/s Project IRR for Cultivation

6.0%8.2%

10.69%13.2%

15.7%17.9%

0%

5%

10%

15%

20%

5 6 7 8 9 10

Feed stock price (in Rs.Kg)

Pro

ject

IRR

Feedstock price v/s project IRR for Refining

18.60%

12.63%10.11%

7.79%

4.25%

15.07%

0%

5%

10%

15%

20%

5 6 7 8 9 10Cost of Feedstock (in Rs)

Pro

ject

IRR


Price premium rapeseed

Continues to grow since 2000.

Good opportunity for Jatropha

based Biodiesel to introduce globally

• Increasing price of edible oils will entail feed security issue globally and so the trend will be to use more inedible oils such as Jatropha/Karanja in the global market affecting their price.

EU feedstock pricing scenario


Slide 11

EU - biodiesel pricing scenario

• EU consumes edible oil for bio-fuel production

• Soya, Rapeseed, sunflower and palm oil are key constituent for biodiesel

• Wheat and corn are key constituents for Bioethanol

• Feedstock price comprises of >60% of the total Biodiesel cost in EU countries

• Price for rape seed increased from € 600/tn in 2002 to € 1050/tn in 2007

• For bioethanol production, wheat price increased from $ 106/ tn in 2002 to $ 209/tn

Biodiesel Price Development in Germany

91100

107

121

127117

102115

708090

100110120130

2005 2006 2007 2008

Pric

e in

€ct

/lt

Biodiesel Price Mineral Oil Diesel

Price in €cents per litre Cost Break uprapeseed oil price at the mill 71Refining 7Taxes - glycerin cost 12cost of mixing -Logistic 9Additional Technical Expenses 8Total cost of Biodiesel 107Average Diesel Price 117


12

EU Level

• Subsidy on bio-fuel promotion as a part of agricultural policy

• Unilaterally €45/ha supported by Common Agricultural Policy from 2003

• Fuel Tax exemption as well as Environmental tax exemption also applied

• Policy Goal - 2% by 2005 and 5.75% by 2010 as mandated by EU

France

• In 1992 provided partial excise duty exemption for bio-diesel

• In 2004 made bio-ethanol blended into petrol tax exempt – basic aim to bridge gap between bio-fuels and traditional fuels

• Finance Law 2005 – introduced Ecotax – which is liable to petrol distributers – they do not pay this if they meet the blending requirements as laid down by the government – target 5.75% by 2010

• Use a tender system for importing bio-fuels – foreign producers get a excise duty exemption if they meet conditions for supplying to the French market.

• Excise tax exemption on Bio-diesel: €0.25/litre (62% of exemption rate) - however, value-added tax is applied both of diesel and BD consumption

Learning’s from the EU


13

Germany

• In 1999 introduced ecotax for fossil diesel in addition to mineral oil tax while bio-diesel was

provided full exemption from both of these taxes

• Germany exempted bio-diesel from all taxes for blends with fossil fuels till 2005

• €0.63/litre exempted, but began to convert into partial exemption policy

• From 2006, €0.15/liter is levied on Bio-diesel consumption

Spain

• One of the biggest bio-ethanol producers in EU – feedstock barley and wheat

• Provided tax exemptions to bio-ethanol plants which in in 2002 allowed all plants to be tax

exempt till 2012

• Provides 10 year guaranteed fiscal support to commercial biofuel plants.

Learning’s from the EU


Slide 14

Lessons from Renewable Energy PromotionVarious Support Mechanisms for Renewable Energy

Direct Mechanism

Investment Based Mechanism

Quota System Fixed Price System

•Investment Subsidy•Tax Credits•Low Interest Loan

•Tradable Green Certificates•Tendering

Feed - In Tariff

Indirect Mechanism

Taxation of fossil fuels

Reduce Subsidies for fossil fuels


Renewable Energy Promotion Mechanisms in Europe


Impact of Feed in Tariff – Phenomenal Growth in Solar Capacity in Germany

3 3 3 3 4 7 12 10 12 4078 80

150

600

850 850

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Annually Installed Power Capacity ( in MWp)

1000 Roof Top Programme

100,000 Roof Top Programme

Feed-in Law

New Feed-in Law


Slide 17

Conclusion

Credit Assistance for Cultivation

•To make the IRR more lucrative, nationalized banks and cooperatives should be encouraged to provide adequate finances to farmers/ entrepreneurs to go for large scale plantations of TBOs.

Tax Exemption

•To make the biodiesel more price competitive, Tax exemption is the most important cost cutting measure

• Latest Policy states that production, distribution etc are fully exempted from tax

• A tax holiday for 5-10 years for all newly set up units of production and processing of biofuels from non-edible oils.

Technology Transfer

• Mechanism to encourage tech transfer in the country from European companies

MPP

•Cost plus approach to fix the price

•As stated in the policy, price should be reviewed on regular basis keeping in mind interest of all stakeholders

Documents

Biofuel – Pricing Scenario 13 th October 2008 New Delhi PetroFed: National Seminar on Biofuels - 2008