Potential for cost reduction for advanced biofuels Adam Brown, Energy Insights Brusssels, 11 February 2020 IEA Bioenergy, also known as the Technology Collaboration Platform for Research, Development and Demonstration on Bioenergy, functions within a Framework created by the International Energy Agency (IEA). Views, findings and publications of IEA Bioenergy do not necessarily represent the views or policies of the IEA Secretariat or of its individual Member countries.
Project Team 2 www.ieabioenergy.com
Project objectives ▪ Project under Task 41 of IEA Bioenergy, funded by EC with in kind contributions from Sweden, Netherlands and Germany ▪ Update and extend the SGAB Cost study to provide estimates of the current costs of producing a selection of relevant novel advanced biofuels; ▪ Identify the scope for cost reduction for these advanced biofuels in the medium and long term; ▪ Compare these costs with likely trends in fossil fuel prices, and those of conventional biofuels. ▪ Examine the consequences for policy measures, including carbon pricing, required to stimulate advanced biofuels production. 3 www.ieabioenergy.com
Methodology ▪ Collect/update information from industry and other sources on current costs, and scope for cost reduction ▪ Normalise and rationalise the data on current costs (capital/operation/feedstock) in final product cost ▪ Evaluate potential for cost reduction − For next x plants based on data information from industry − Sensitivity to lower cost capital − Extrapolate to large scale deployment ▪ Compare with future fossil fuel price scenarios with and without policy support 4 www.ieabioenergy.com
Companies contacted by pathway 5 www.ieabioenergy.com
Current cost estimates 200 Production cost EUR/MWh 150 100 Feedstock Costs 50 Operating Costs Capital Total 0 - 50 Low High Low High Low High Low High Low High Low High Low High Low High Low High Low High Cellulosic Cellulosic Methanol and Methanol and FT Liquids – FT Liquids – Bio-oil - Bio-oil - HVO AD ethanol ethanol “1 1/2 methane- methane- Biomass Wastes coprocessing standalone Gen” biomass wastes 6 www.ieabioenergy.com
Current cost estimates Production cost EUR/MWh 160 140 120 100 80 60 40 Current fossil fuel price range 20 0 (equivalent to 40 - 70 USD/BBL ) 7 www.ieabioenergy.com
Scope for cost reduction – medium term ▪ Capital and operating cost reductions − capital reduced by between 25 and 50 % (cellulosic ethanol) and 10 and 20% for thermal processes − operating costs reduced by 10 to 20 % − fuel component assumed constant ▪ Reduction in capital charge − from 10%/15 years to 8%/20 years 8 www.ieabioenergy.com
Scope for cost reduction – medium term Production cost EUR/MWh 160 140 120 100 80 60 40 Current fossil fuel prices 20 0 Cellulosic ethanol Bio based Waste based Bio based FT Waste based FT Bio-oil meoh/methane meoh/methane Liquids liquids coprocessing Current costs After improvements Lower finance ▪ Cost reduction 10-27% for capital/operating costs ▪ Further 5-16 % for improved capital charges 9 www.ieabioenergy.com
Long term cost reduction potential ▪ Contribution of advanced biofuels in lower carbon scenarios implies massive ramp up in production ▪ Over 4000 large scale (200MW output) plants to provide 25 EJ as in long term 2DS scenario ▪ Learning curve approach used to examine potential impact on costs Unit production cost Learning rate 100 5% 10% 80 15% 20% 60 40 20 0 1 10 100 1000 Cumulative production 10 www.ieabioenergy.com
Long term cost reduction potential 100 80 Production cost EUR/MWh 60 40 20 0 10 x 100 x 10 x 100 x 10 x 100 x 10 x 100 x Cellulosic ethanol Methanol/Methane FT Liquids Biooil and processing 20 15 10 5 0 Learning rate % Graph shows impact of learning for 10 and 100x capacity expansion at different learning rates 11 www.ieabioenergy.com
Fossil fuel and carbon price trends Eur/MWh 120 100 80 60 40 C price Oil costs 20 0 lo hi lo hi lo hi lo hi CPS NPS SDS 2017 2040 Source: IEA WEO 2018 Note: CPS: Current policy scenario; NPS: New Policy Scenario; SDS: Sustainable Development Scenario 12 www.ieabioenergy.com
Long term cost reduction potential 100 Potential future fossil fuel plus carbon price range 80 Production cost EUR/MWh 60 40 Current fossil fuel price range 20 0 10 x 100 x 10 x 100 x 10 x 100 x 10 x 100 x Cellulosic ethanol Methanol/Methane FT Liquids Biooil and processing 20 15 10 5 0 Learning rate % Comparison with fossil fuel and carbon prices from IEA scenarios (2040) shows advanced biofuels can be competitive under these conditions 13 www.ieabioenergy.com
Cost gap and equivalent carbon price Eur/TCE* 140 500 120 400 100 80 300 Cost gap - EUR/MWh 60 200 40 100 20 0 Current Reduced Current Reduced Current Reduced Current Reduced Current Reduced Current Reduced Cellulosic ethanol Methanol/methane bio Methanol/methane waste FT liquids bio FT liquids waste Bio oil -20 -40 TCE = ton CO 2 eq. 14 www.ieabioenergy.com
Cost not the only issue! Market Resource access Cost availability Low carbon transport fuels Social and other Infrastructure GHG impacts sustainability costs issues 15 www.ieabioenergy.com
Overall key conclusions ▪ Comparison of the estimates of the current costs of production of the range of advanced biofuels with the prices of the fossil fuels that they aim to replace indicates a significant cost gap. ▪ There is scope for medium term cost reductions of between 20 - 50% due to technical advances and improved financing terms. ▪ If the medium-term cost reductions discussed above can be achieved the gap will be narrowed but will still be significant for many of the pathways. ▪ In the longer term, there is further scope for cost reduction due to learning effects, if there is an extensive increase in the production capacity of advanced biofuels. There is the prospect of the technologies being competitive in the context of anticipated fossil and carbon prices. ▪ Large scale deployment will depend on continuing policy support. First industry will need support during the demonstration and the risky and costly early commercialisation of the technologies, so as to bridge the “valley of death”. ▪ Continuing strong support will be needed either via strong carbon price signals, or by incentivising low carbon fuels. ▪ Cost is not the only issue! 16 www.ieabioenergy.com
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