5.1 Conventional biodiesel

Biodiesel today is most commonly manufactured from oil or flat (triglycerides) crops by the chemical process of transesterification. If dealing with oil seeds or waste fats (e.g. tallow, used vegetable oils, white grease or yellow grease), the oil and fats need to first be extracted or refined by mechanical or chemical means. After this the liquid oils or refined fats go through an esterification process that separates the fatty acids (hydrocarbon chain) from the glycerine molecule to which they are attached. It then re-attaches them to an alcohol, which is usually methanol or ethanol. This can be done without catalysts, but reaction times are longer and more energy is required. This means small amounts of catalysts (e.g. sodium or potassium hydroxide) are typically used to improve the economics of production. The resulting compounds are FAME or fatty acid ethyl esthers (FAEE) biodiesel and glycerine.

During the process of converting a vegetable oil or animal flat into biodiesel, unwanted reactions can occur and various chemical substances can develop that can contaminate the fuel. The biodiesel can be contaminated by free fatty acids (FFAs), solid particles, mono- and di-gylcerides, catalyst salts, glycerine, methanol, water etc. The FAME biodiesel itself can have variable properties as a result. Separation of the glycerine and FAME products therefore needs to occur rapidly, and further distillation will usually be necessary to achieve a uniform product that meets stringent biodiesel fuel standards.

Conventional biodiesel capital costs

The total installed costs for biodiesel plant are typically cheaper than for ethanol and are typically between USD 0.45 to USD 0.8/litre/year of capacity (Figure 5.1) in developed countries (APEC, 2010 and Iowa State University). Total installed costs can be lower in developing countries, where the local cost component of the manufacturing can help keep costs down. The Facility for Euro-Mediterranean Investment and Partnership of the European Investment Bank analysed the potential for biodiesel production. It estimated installed costs for a range of countries in North Africa and the Middle East at USD 0.25 litre/year of production capacity (Agra CEAS, 2011).

The level of FFAs in the feedstock has an important impact on the cost of the biodiesel plant. The higher the level of FFA in the feedstock, the higher the capital costs, as extra equipment is needed for the pre-treatment of the feedstock before it can go through the transesterification process (Figure 5.2).

There are significant economies of scale for biodiesel plants (Figure 5.2).26 These economies of scale for the plant size are balanced by feedstock yields and availability, as higher transport costs from an ever increasing radius around the plant will reduce the cost savings from larger plant sizes at a certain point.

Figure 5.1: Total installed costs for biodiesel plants by feedstock

Source: APEC, 2010.

Figure 5.2: Biodiesel installed costs as a function of annual capacity and FFA content of feedstock

Source: Van Gerpen, 2008.

Feedstock costs and biodiesel yields for biodiesel

World prices for vegetable oil feedstocks for conventional biodiesel are presented in Figure 5.3. As can be seen, global prices have been increasing and more than doubled for palm oil and soybean oil between 2000 and 2012. Palm oil prices were around USD 950/tonne in 2012, down from their peak of around USD 1050/tonne in 2011, but still 2.4 times higher than in 2000.

Yields from vegetable oils typically vary between 1000 litres/tonne of oil to around 1120 litres per tonne of oil (APEC, 2010; AGRA CEAS, 2011; and Iowa State University, 2013). Taking high and low global feedstock costs between 2009 and 2012 yields cost per litre of between USD 0.82 and USD 1.12/litre for soybean oil-based bio- diesel. For palm oil based biodiesel the range was from USD 0.64 to USD 0.94/litre. Assuming jatropha production costs are around 80% of palm oil costs (APEC, 2010), jatropha biodiesel may have had feedstock costs of USD 0.53 to USD 0.78/litre between 2009 and 2012. Rapeseed oil prices in Europe (Rotterdam, free on board prices) grew steadily between 2000 and 2007. They rose sharply in 2008 to a peak of over USD 1 700/tonne in July of that year before collapsing. Prices climbed again in the second half of 2010 and peaked in April 2011 at USD 1 447/tonne before declining steadily to around USD 1 200/tonne in February 2013. Prices between 2009 and 2012 for rapeseed in Europe have therefore yielded feedstock costs of USD 0.67 to USD 1.38/litre of biodiesel.

Figure 5.3: Global coconut, rapeseed, soybean and palm oil prices, 2000 to 2012

Source: World Bank, 2013.

Table 5.1: Conventional biodiesel global crop prices and feedstock costs per unit of biodiesel, 2009 to 2012

Sources: APEC, 2010; IMF, 2013; and World DataBank, 2013.

Other production costs and co-product credits

The main non-feedstock operating costs for conventional biodiesel plants are for methanol or ethanol and any catalysts used in production. However, there are important costs for process heat (natural gas) and scheduled and unscheduled maintenance of the plant. Figure 5.4 presents the estimated "other operating costs" per litre of biodiesel equivalent.

The revenue from the glycerine produced as a co-product is dependent on the volatile market for this product. However, it is estimated to typically fall in the range of USD 0.01 to USD 0.06/litre of biodiesel produced (APEC, 2010 and Agra CEAS, 2011). Recent values for the United States were around USD 0.03/ litre for biodiesel produced from soybean (Iowa State University, 2013).

Total production costs for conventional biodiesel

The total annualised cost of conventional biodiesel from oil seed crops is dominated by feedstock cost. Recent price volatility has meant the estimated costs of production have varied widely between 2009 and 2013. Estimates of the annual average biodiesel production costs in the United States range between USD 1.01 and USD 1.37/litre between 2009 and 2012, with average production costs in 2012 of around USD 1.3/litre (Figure 5.5).

The average annual production costs for biodiesel from palm oil in Malaysia between 2009 and 2012 are estimated at between USD 0.79 and USD 1.8/litre, with an average in 2012 of around USD 1.05/litre. Production costs for jatropha oil were estimated to have been lower, due to the assumption that feedstock costs are around 80% of palm oil costs. Biodiesel from rapeseed in Europe is estimated to have had the highest production costs between 2009 and 2012. Average annual production costs are estimated at between USD 1 and USD 1.5/ litre. In 2012, they are estimated to have been around USD 1.35/litre.

Figure 5.4: Non-feedstock operating costs for conventional biodiesel plants by feedstock

Source: APEC, 2010.

Figure 5.5: Conventional biodiesel total production costs ranges for 2009 to 2012 by feedstock

Sources: Agra CEAS, 2011; APEC, 2010; IMF, 2013; Iowa State University, 2013; World DataBank, 2013 and IRENA analysis.

26 The scaling factor for biodiesel plants is estimated to be between 0.65 and 0.89 (Amigun, 2008 and Yii-Der. 2008).