Life cycle cost and sensitivity analysis of palm biodiesel production

Increased biodiesel production is being proposed as one solution to the need to ease the impact of increased demand for crude oil and to reduce emissions of greenhouse gases. Despite this, biodiesel has yet to reach its full commercial potential, especially in the developing countries. Besides technical barriers, there are several nontechnical limiting factors which impede the development of biodiesel such as feedstock price, production cost, fossil fuel price and taxation policy. This study assesses these by undertaking a techno-economic and sensitivity analysis of biodiesel production in Malaysia, the second largest producer of crude palm oil feedstock. It was found that the life cycle cost for a 50 ktons palm biodiesel production plant with an operating period of 20 years is $665 million, yielding a payback period of 3.52 years. The largest share is the feedstock cost which accounts for 79% of total production cost. Sensitivity analysis results indicate that the variation in feedstock price will significantly affect the life cycle cost for biodiesel production. One of the most important findings of this study is that biodiesel price is compatible with diesel fuel when a fiscal incentive and subsidy policy are implemented. For instance, biodiesel price with subsidies of $0.10/l and $0.18/l is compatible and lower than fossil diesel price at crude palm oil price of $1.05/kg or below. As a conclusion, further research on technical as well as nontechnical limitations for biodiesel production is needed before biodiesel can be fully utilized.

► Life cycle cost and payback model are developed to calculate the biodiesel production.
► Life cycle cost for 50 kton of palm biodiesel for a lifetime of 20 years is $665 million.
► The payback period is 3.52 years.
► Sensitivity analysis results indicated that crude palm oil cost has significantly impact to biodiesel production.
► Biodiesel price is compatible with diesel fuel when the subsidy policy is implemented.