1. The Economics of Biofuel Production and Use
Guy Hitchcock

2. Biofuel production

3. Cost elements of biofuel production
By product sales
Conversion process
Fuel distribution
and retail
Feedstock
Conversion inputs

4. 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

5. Rape seed, wheat and crude oil prices, 1997-2007
Rape seed average 200 euro/tonne
Wheat Average 120 Euro/tonne
Both have gone up a lot in last year or so
WVO around Euro/litre

6. 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

7. 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

8. 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

9. Conversion estimates for biodiesel from rape seed
Conversion costs in €/litre
SAC
IEA
Concawe
Small
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
Sources:
SAC –‘Economic Evaluation of Biodiesel Production from Oilseed Rape grown in North East Scotland’, SAC, 2005
IEA – ‘Biofuels for transport’, 2004
Concawe – EUCAR, JRC, Concawe, ‘Well-to-Wheels analysis of future automotive fuels and powertrains in the European context’, 2007 version 2c

10. Conversion estimates for ethanol from wheat
Conversion costs in €/litre
IEA
Concawe
BTG
ITPS
Small
Large
Plant 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
0.084
0.15
0.114
Total
0.27
0.21
0.136
0.13
0.108
Sources
IEA – ‘Biofuels for transport’, 2004
Concawe – EUCAR, JRC, Concawe, ‘Well-to-Wheels analysis of future automotive fuels and powertrains in the European context’, 2007 version 2c
BTG – Biomas technology Group report 2004
ITPS - “Techno-economic analysis of bio-alcohol production in the EU”, 2002

11. Biomethane and 2nd generation conversion costs
Less data on costs
Swedish experience suggests €/kg
2nd generation
Not yet commercially available
Study estimates for cellulosic ethanol 0.16 to €/litre

12. Fuel tax incentives VAT fixed for all fuels Fuel duty Obligations
100% reduction for all biofuel
100% reduction for a limited amount
Partial reduction
Obligations
UK RTFO provides revenue from tradable certificates

13. Diesel pump prices across Europe including duty and VAT
Tax element ranges from 39% in Malta to 61% the UK

14. Cost of RME VS EU diesel excluding taxes

15. Price of RME vs UK diesel including taxes

16. Cost of wheat ethanol vs EU gasoline excluding taxes

17. Price of wheat ethanol vs UK gasoline including taxes

18. 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

19. Biofuel use

20. 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

21. Vehicle costs - 1 Biodiesel Bioethanol 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

22. Ford Focus FFV

23. Vehicle costs 2 Biomethane capital costs
cars and vans: €2,500 - €5,000
dual-fuel diesel heavy duty vehicles: €25, €40,000
spark ignition heavy duty vehicles: €35, €50,000
Biomethane servicing – possibly 0.01€/km more than diesel 

24. 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

25. 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

26. 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

27. Full life costing: EU average gasoline and diesel, biofuels with no duty
See fact sheet for details on assumptions

28. Full life costing: UK tax and duty rates for all fuels
See fact sheet for details on assumptions

29. 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.