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Learn about the cost elements, conversion processes, and distribution in biofuel production. Discover feedstock options, conversion costs, and fuel tax incentives to make informed decisions.
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The Economics of Biofuel Production and Use Guy Hitchcock
Cost elements of biofuel production By product sales Conversion process Fuel distribution and retail Feedstock Conversion inputs
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
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
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
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
Conversion estimates for biodiesel from rape seed Conversion costs in €/litre
Conversion estimates for ethanol from wheat Conversion costs in €/litre
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
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
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
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
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
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
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
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
Full life costing: EU average gasoline and diesel, biofuels with no duty
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.
