Jamaica Biofuels Report - Ministry of Energy

iodiesel subsidize it one way or another, e.g., through lower excise taxes or mandatory use, and such asubsidy would probably be necessary, based on the analysis presented below.Section 4.2 of the main report discusses possible uses for biodiesel and concludes that stationaryapplications represent the largest and most easily accessible market. As of January 20, 2011, Petrojamsells diesel fuel at the refinery gate, net of taxes, for J$64.5161 per Liter (US$2.85 per gal.). (Seehttp://www.petrojam.com/index.php?q=latest-prices.) Taxes add another J$27.4041, bringing the totalto J$91.9202 per Liter (US$4.06 per gal.). Biodiesel has a 10% lower calorific value per gallon, so theequivalent biodiesel price ex-refinery, without taxes, would be $2.57 per gallon. One way for Jamaica toencourage the formation and growth of a biofuels industry would be to exempt biodiesel from thesetaxes, which would bring the equivalent value to US$3.65 per gallon.While agronomic trials are under way, and crops suitable for Jamaican conditions have not beenselected, the scale and cost of vegetable oil supply remain difficult to predict. On the other hand, withvalues for the biodiesel fuel product and experience elsewhere with conversion costs, it is possible tocalculate how much a processor could afford to pay for feedstock and realize an attractive return oninvestment under different price and scale scenarios.With this in mind, results of four cash flow simulations appear below. These reflect plant capacities of 3million and 15 million gallons per year and product prices equivalent to Petrojam’s diesel with andwithout value-added and special consumption taxes, as shown in Table 1.Product PricePlant Scale US$2.57 per Gallon US$3.65 per Gallon3 Million GPY Scenario A Scenario B15 Million GPY Scenario C Scenario DTable 1: Biodiesel Production ScenariosThe simulations reflected the following additional assumptions:• Investment per annual gallon of plant capacity:- US$2.50 (3 million gpy)- US$1.00 (15 million gpy)• Methanol and other reagents: US$0.25 per gallon of product• Other plant operating cost: US$0.15 per gallon per year• Sales, general and administrative costs:- US$100,000 per year (3 million gpy)- US$500,000 per year (15 million gpy)• Depreciation: 15 years, strait line• Taxes: 20 percent of net income• Annual escalation rate: 3 percent per year (product price; feedstock and processing costs• Hurdle rate of return on investment (discounted cash flow IRR): 15 percent per yearFor illustration and simplicity, the 15 percent ROI assumes 100 percent equity financing. Debt leveragecould improve this value for equity holders in an actual project. The implicit feedstock valuescorresponding to the four scenarios are as follows:103