BiofuelEconomics

Birgir Örn SmárasonElín Ósk Reynisdóttir

Sustainable Energy OptionsUAU212FGroup 3

Introduction to Biofuel economics

Promise as a substitute for fossil fuels

Costs of biofuels are highly dependent on feedstock, process, land and labour costs, credits for byproducts, agricultural subsidies, food (sugar) and oil market.

Biofuel roadmap. Biofuel supply grows rapidly and reaches 32 EJ in 2050 (IEA, 2011).

Economic Benefits

Renewable feedstocks

Carbon emissions can be offset by their feedstocks carbon uptake

Biofuels can be produced domestically

Economic Costs

Biofuel feedstocks include many crops that would otherwise be used for human consumption

Land use patterns may change, resulting in GHG emissions

Biofuel production and processing practices can release GHGs

The quantity of food brought to market might decrease

Water quality could suffer

Biofuel production cost

F Production cost projections. Estimates reflect global averages (IEA, 2011).

USD 2 to 48/GJ for liquid and gaseous biofuels

US cents 3.5 to 25/kWh (USD 10 to 50/GJ) for electricity or CHP systems larger than about 2 MW,

USD 2 to 77/GJ for domestic or district heating systems with feedstock costs in the range of USD 0 to 20/GJ

Methane

Produced by Sorpa Domestic production Forreign currency usage is saved Domestic jobs

Benefits of using methane for the customer

Assumptions: Biofuel car in use for 15 years Travel distance per year is 16.000 km Fuel usage per 100 km is 10l

According to Sorpa the fuel savings are 0,556 Euros per liter if bio-methane is used

That gives the total savings in fuel cost for a car 13.333 Euros or 2.100.000 Icelandic kronas

Macroeconomic benefits in using Methane

According to Sorpa the foreign currency savings in Iceland are 10.000 Euros per car.

There off due to Icelandic bio-methane 8.200 Euros (given that 30% of retail price for petroleum is cost in foreign currency).

And there off due to CO2-eq. Savings 1.800 Euros (Given CO2-eq. Savings = 33 Euros/Tkg).

Biodiesel from rapeseed

The cost for growing one hectare of rapeseed is the following in Icelandic kronas:

Tillage, seeding and fertilizing 30.000

Fertilizers 70.000

Seeds 7-10 kg 10.000

Threshing 20.000

Other costs 20.000

Total cost 150.000

Biodiesel from rapeseed

The income for growing one hectare of rapeseeds in Icelandic kronas is the following:

Middlings, 2 tons 150.000

Vegetable oil, for example 100kg 100.000

Biodiesel, for example 900kg 150.000

Straws 50.000

Glycerol, recycled through a distillation 25.000

Other income 25.000

Total income 500.000

Bioenergy from micro-algae

Example from Iceland – Biodiesel factory

Example of a biodiesel factory in northern Iceland, making biodiesel from rapeseed

The total investment cost for the biodiesel plant in norther Iceland is estimated to be 31.5 million ISK or 251.000 USD

Example from Iceland – Biodiesel factory

Financial cost - Working capital is 90,000 USD in 2010 and 2013 but 80,000 USD in 2014 and 10,000 in 2017

Total financing is 538,000 USD

Example from Iceland – Biodiesel factory

Revenue Price of biodiesel. 79.1 ISK/L or about 0.643 USD/L. Price of Animal Meal: (Rapeseed Meal): 60 ISK/kg or about 0.48 USD/kg. Price of Glycerin: 14.7 ISK/kg or about 0.12 USD/kg.

The author concluded that the project was on the boarder of being fesible. With a minus 24,000 USD NPV of equity and a 14% IRR of equity. Despite a negative NPV and an IRR of equity under MARR, which is 15%, the sensitivity analysis finds that only a 10% higher price for the byproduct of rapeseed meal will result in 22% IRR of equity instead of 14%.