At this moment in time, the biodiesel industry is experiencing extreme economic hardship. As a result, it is estimated that domestic biodiesel plants are producing at only 10% of capacity.
There are a number of reasons why the biodiesel industry is suffering:
- Mandates haven’t become effective yet (some states will implement next year e.g., MA and PA), and the recent Renewable Fuels Standard (RFS2) was delayed till 2010.
o Without mandates there is very little incentive for the petroleum industry to invest in or support biodiesel (the biodiesel industry is largely reliant on the petroleum industry for adoption into the on-road market)
- Current infrastructure is not compatible with biodiesel
o Infrastructure has not been developed and the volume is not available to support investment in infrastructure for wide scale distribution.
- Plant locations are often not in close proximity to feedstock, off take customers or both
- Lack of capitalization, lack of quality controls, inexperienced management
- The economics have been inverted - feedstock pricing volatility and price increases have made it difficult to make consistent profits and to be competitive
- Limited worldwide feedstock market
- Plant technology is often limited to a single or very few feedstock’s
- Excessive operating costs (labor and costs of inputs), running inefficient plants, lack of sophistication and automation, etc.
Although biodiesel is the only recognized alternative liquid biofuel other than ethanol, the petroleum industry is reluctant to incorporate it into the supply chain due to a number of characteristics which require special handling and treatment for biodiesel:
o Higher cold flow properties than petroleum diesel which limits the use and blends of biodiesel in colder climates
o Biodiesel tends to attract water in tank and storage systems
o Increased NOx emissions compared to petroleum diesel
o Oxidation instability – causing injector deposits, lacquer formation and fuel system corrosion
o Water separation causing bacterial growth and fuel injection system corrosion
o Biodiesel is a solvent which helps to clean out engines but can also cause increased maintenance (filter changes) and destruction of gaskets and other parts
The final blow for biodiesel is coming as the country considers a stipulation of the RFS2 which would limit the use of corn or soy as feedstock’s to meet the volume requirements of the bill. Corn and soy are non-conforming to indirect land use concepts. This proposed stipulation would drastically reduce the currently available feedstock for the biodiesel industry to support winter month biodiesel supplies for a large portion of the US. Although the final version of the RFS2 is pending, standards are moving in the direction of more restrictive limitations for the biodiesel industry.
But biofuels aren't going away. Over the course of the last year or so, new technologies have emerged and are becoming available which solve many of the issues which have plagued the first generation of biofuels (biodiesel and corn based ethanol). The growth of the next genertion of biofuels technology will be driven by among other things:
- The demise of the first generation of ethanol and biodiesel technology (as discussed above)
- Increasing Renewable Fuels Standards production volume requirements beginning in 2010
- California Air Resources Board (CARB) and RFS2 lifecycle GHG emissions requirements
- Onset of new sources of feedstock in volume (jatropha, camelina, penny cress, algae etc.)
- Increased value of RINs and other credits and biofuels incentives
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