Life cycle cost and sensitivity analysis of palm biodiesel production H.C. Ong a,⇑ , T.M.I. Mahlia a,b , H.H. Masjuki a , Damon Honnery c a Department of Mechanical Engineering, University of Malaya, 50603 Kuala Lumpur, Malaysia b Department of Mechanical Engineering, Syiah Kuala University, Banda Aceh 23111, Indonesia c Department of Mechanical and Aerospace Engineering, Monash University-Clayton Campus, P.O. Box 31, Victoria 3800, Australia article info Article history: Received 2 July 2011 Received in revised form 13 March 2012 Accepted 15 March 2012 Available online 30 March 2012 Keywords: Life cycle cost Techno-economic analysis Biodiesel Palm oil Sensitivity analysis abstract 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 bio- diesel 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. Sen- sitivity 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, bio- diesel 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. Ó 2012 Elsevier Ltd. All rights reserved. 1. Introduction Our over dependence on fossil fuels has caused various negative impacts on global climate by emissions of greenhouse gases (GHGs), and local air quality by emissions of hydrocarbons, NO x and particulate matter. There is therefore an urgent need to find alternative energy sources which are clean, reliable and yet eco- nomically feasible. The possibility of future oil scarcity places the additional requirement for the alternative to be renewable. Cur- rently, renewable energy contributes only 13.3% of the total global energy use [1]; much less for transport fuels. Being biomass based, biodiesel is a renewable fuel and, because of its ease of use in existing engines, is considered to be an ideal substitute for fossil fuel derived diesel fuel. Its use brings addi- tional benefits through its lower environmental impact, especially in respect of air quality [2–6]. It is for these reasons that there have been many studies examining the development of biodiesel as an alternative transport fuel [7–10]. The biodiesel industry is still in its infancy but is growing rapidly. The world total biodiesel production in 2007 was 8.4 million tons and it increased to 20 million tons in 2010; it is expected to reach 150 million tons by 2020 [11]. However, variability in feedstock and fossil fuel price, as well as the production capacity of biodiesel, have given rise to instability within the industry [12]. These factors have affected the economical viability of biodiesel at a global scale. Many countries have introduced legislation setting mandatory bio- fuel targets to assist the development of this important fuel [13,14]. Biodiesel is produced by the transesterification of a biomass de- rived oil or fat. Palm oil is one of the highest oil bearing crops pro- ducing on average 4–5 tons of oil/ha annually. This yield is about 10 times and 6 times the yield of soybean and rapeseed oil respec- tively [15]. Palm oil is rich of phytonutrients such as tocopherol, tocotrienol, carotenoid, sitosterol and sterol. Malaysia is the world’s second largest producer and exporter of palm oil after Indonesia. In 2010, it produced 17 million tons of palm oil compared to 23 million tons in Indonesia [16]. Fig. 1 shows the top 10 palm oil producing countries around the world [17]. Malaysia has approximately 362 palm oil mills, processing 71.3 million tons of fresh fruit bunch per year, which produces an estimated 19 million tons of crop residue annually in the form of empty fruit bunch, fibre and shell [18,19]. In Malaysia, the current installed biodiesel production capacity is about 10.2 million tons for palm oil based biodiesel [20]. A life cycle assessment study conducted by Yee et al. [21] showed that palm biodiesel has a positive energy yield ratio of 3.53 (output energy/in- put energy) which is large compared to 1.44 for rapeseed oil. Palm oil is therefore one of the most efficient oil bearing crops in terms of land utilization, efficiency and productivity. 0016-2361/$ - see front matter Ó 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.fuel.2012.03.031 ⇑ Corresponding author. Tel.: +60 16 590 3110; fax: +60 37 967 5317. E-mail address: ong1983@yahoo.com (H.C. Ong). Fuel 98 (2012) 131–139 Contents lists available at SciVerse ScienceDirect Fuel journal homepage: www.elsevier.com/locate/fuel