Strategies for Financing and Building Biofuel Plants


INSIGHT


  • THERE ARE A NUMBER OF ASPECTS TO CONSIDER, BUT DEMAND FORECASTING, WATER MANAGEMENT AND SUPPLY CHAIN MANAGEMENT ARE OFTEN UNDERESTIMATED.

  • THE CORONAVIRUS CRISIS MAY HAVE DELAYED AND DRIED UP FINANCING FOR NEW FACILITIES. THE CORONAVIRUS HAS AFFECTED FINANCING, LENDING, TRANSPORTATION DEMAND AND AIR TRAVEL, AND THE PRICE OF OIL. THE PRICE OF OIL HAS A DIRECT IMPACT ON THE FINANCING OF NEW BIOFUEL PLANTS.

  • BIOFUELS COMPETE HEAD TO HEAD WITH LIQUID, TRANSPORTABLE FOSSIL FUELS. OIL HAS BECOME CHEAPER AND CHEAPER. 

  • THE DEVELOPMENT OF NEW BIOFUEL PLANTS WILL LARGELY DEPEND ON THE PRICE OF OIL. THE PRICE OF OIL IS A CRUCIAL FACTOR EXPLAINING THE PROFITABILITY OF BUILDING NEW BIOFUEL PLANTS.



1. Some aspects to consider when building a biofuel plant…


The first part is to assess the potential for biofuel within a given region. That means doing a careful market analysis and assessing capacity and demand, as well as other market players. Are other companies planning to build a plant in this area? This ties in broadly with point number 2.

The next step is to analyze the regulatory environment. The regulatory issues involved in building a plant can hinder construction and delay construction and operation to the point where it is no longer worthwhile. In many cases, subsidies remain an important consideration for building a biofuel plant. This includes Sustainable Aviation Fuel (SAF) plants. Public funding and support is still needed to build a variety of algae biofuel plants and facilities to produce sustainable aviation fuel, to name just two examples. Without subsidies, it is difficult for biofuel plants to compete with hydrocarbon fuels. In many cases, the actual price would not justify such an investment without subsidies. 


2. Why demand forecasts are an important component of investment decisions.


A demand forecast is absolutely critical in determining whether it makes sense to build a biofuel facility at a particular site. Who’s to say that other plants aren’t already being built near the one you’re planning? What if other facilities are built in relative proximity in the future, even though you have already purchased the land, obtained all operating permits, and completed construction to begin operations?

Market demand for different fuels can change quite rapidly depending on the economic conditions at a particular location. This must be taken into account. An investor needs a multi-year forecast. An accurate assessment of the various fuel inputs is particularly important. Such an assessment must take into account the regional availability of supplies.


3. Site assessment and area inspection.


One must evaluate the local site where a plant is to be built. This includes a detailed market analysis to determine the potential for building the plant. This includes the following characteristics of a potential plant:

  • Does the site have the correct geological characteristics required for construction at a particular location. 
  • Is the site and underlying soil contaminated in any way? Do we need to conduct a geological survey and at what depth?
  • Can the operator access water resources for operation, maintainance and construction of a biofuel plant. Can the operator access a wastewater system? Is a wastewater system located in close proximity to the biofuel facility?


4. You need to assess the legal environment of the project.


The legal environment plays a major role. Do we have all the legal and operational permits to start construction and / or begin operations? Different countries have different legal requirements.

The legal requirements relate not only to operational management, but also to the social and legal environment. Many countries have only recently established regulatory frameworks that allow for the growth of renewable energy. Often, specific legislation was required to support the growth of a renewable energy industry. This usually requires extensive compliance.

There are a variety of sources for biofuel production. Algae fuel has perhaps the greatest potential. Algae fuel can be scaled up. Said fuel can have a profound impact on the entire economy precisely because it is scalable. But algae fuel requires a significant supporting infrastructure. The plants can only be built in very specific locations, possibly near wastewater treatment plants, to maximize impact.

The most common way of processing algae fuel is to squeeze out the oil it contains. The actual processing of biofuel is energy-intensive. This remains a major concern for biofuel companies. The energy return on the energy invested (EROI) is relatively low. This can mean weighing whether the size of the plant, with all the necessary supply chains, makes it worthwhile to build. Again, water requirements need to be given special consideration.


5. Conclusion


  • Look at the entire value chain and ensure a consistent and effective system. An effective system should include all suppliers of the facility you are building. Little things can make a big difference.

  • Economies of scale matter for biofuel plants. The more disparate the sources, the more energy intensive the process of collecting material from different sources. Biofuels already have a low energy return compared to hydrocarbons.


Many thanks for the shared interest in the energy world!



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