Cost of biodiesel production

May 2003

The primary influences on the cost of manufacture of biodiesel are as follows:
• Capital and operating costs of the plant, including the processing plant, services, catalyst, feedstock and product storage, and buildings.
• Feedstock used in the process: tallow, vegetable or waste oil, and alcohol, most typically methanol.
• The glycerol byproduct, which provides a secondary revenue stream to the biodiesel produced or acts as an offset against the unit cost of biodiesel production.
• The yields and quality of the biodiesel and glycerol produced from the tallow/oil and methanol inputs.
Although the price of conventional diesel fuel is not a direct component of the cost of biodiesel production, it provides the baseline against which the cost of biodiesel production must be compared. From the perspective of the biodiesel producer, the price received for its biodiesel output will most likely bear a close relationship, if not equivalence, to the price of diesel and therefore will be a direct influence on the profitability of the producer’s operation.
When reviewing the cost of biodiesel production, it quickly becomes apparent that it is difficult to typify this cost as its components, notably the principal feedstocks and the byproduct glycerol, are subject to considerable and unrelated market price fluctuations.
Also, the cost of conventional diesel fuel, which is directly related to the price of crude oil, is subject to similar fluctuations, creating uncertainty in targets for biodiesel production costs.
The cost study undertaken in this study concentrates on risk analysis and the price fluctuations inherent in the feedstock and product markets.

By: J. Duncan

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