A novel process economics risk model applied to biodiesel production system

In this paper, the concept of value at risk (VAR) is introduced to study process economics related to biodiesel production and use. Although the VAR concept is actively used in financial engineering for stock investment and trading, it has never been used in process economics. A methodology to develop a VAR model for a biodiesel process facility has been proposed and analysed. The impact of different cost related risk factors is modelled using a stochastic process and interdependence in a Bayesian Network format. The analysis reveals that cost underestimation is the most significant risk factor in biodiesel economics. The VAR model is analysed for 1, 5, and 10 VAR for 5 years of plant operations. Analysing VAR at any point of time (i.e. year 2) shows that with a 1% chance, 5% chance and 10% chance, the maximum loss would be $6.26, $9.52 and $11.34 million respectively (up to year 2). When VAR is considered in the process economics the return period is significantly affected and is increased by 21 months. This study recommends that VAR should be considered as an integral part of process economics, especially for new product or process design.