Projections of future costs

The projections of production costs were done based on feedstock cost forecasts from World Bank report published in October 2017. The utilized data was the one for global feedstock cost in constant (2010=100) USD. It was used only to calculate the percentages of feedstock cost growth globally. Later the global growth percentages were applied to the feedstock costs of 2016 which were used at LCOF calculations in order to find out how feedstock cost would approximately change in the US and Brazil by 2030 and 2040. First of all annual global feedstock cost growth in percentages was calculated up to 2025. Then the average growth by

% for 5 years namely from 2020 to 2025 was calculated. Then the average growth by % for the next 5 years was calculated namely for 2025-2030 years. After that the average

percentage of feedstock cost change for 5 years was found as a mean between price change of 2020-2025 and 2025-2030 years. Then the annual percentage growth from World Bank data from 2016 till 2025 was applied to feedstock costs of 2016 for the US and Brazil which were initially used at LCOF calculations. To find out the feedstock cost growth from 2025 till 2030 at the US and Brazil the global average growth by % for 2025-2030 years was applied.

And then to find out the feedstock costs at the US and Brazil in 2035 and 2040 the mean percentage value between global feedstock cost change of 2020-2025 and 2025-2030 was applied. The initial data and the results of the projections are presented in appendix 3 for corn ethanol and in appendix 4 for sugarcane ethanol.

The data for feedstock cost forecasts at the US and Brazil for 2030 and 2040 was not found in secondary sources. The data for Brazilian sugarcane feedstock cost projections was not found at all. The only more or less relative data for corn feedstock is USDA (2017) projections but they are only up to 2026 and in nominal USD. The World Bank report which was finally used for calculations of cost forecasts along with projections in constant USD has also projections in nominal USD for corn and sugar globally. It was decided not to use the data with nominal USD because the inflation rates forecasts used by USDA and World Bank were different. Also in case if use projections of feedstock costs in nominal USD all the cost components of LCOF like capex total, Opex_fix annual, transportation costs and additional costs and benefits have to be deflated with the same inflation rates as the ones used in calculations of nominal feedstock cost forecasts done by World Bank and USDA. But in case of World Bank it was not clear how they calculated their nominal cost projections and with which inflation rates forecasts. So in order to avoid calculation mistakes it was decided to use only projections in constant currency. Therefore the projections show how the biofuel prices would change without inflation influence. Figure 49 below shows the biofuel production cost changes in 2030 and 2040.

Figure 49 Sugarcane and corn ethanol production cost projections for 2030 and 2040 in constant 2016 € (own artwork)

As it can be seen from the graph production costs of corn ethanol slightly grow from 56 € per MWh or 0.361 € per liter in 2016 to 56.9 € per MWh or 0.367 € per liter by 2030 and 59.6 € per MWh or 0.384 € per liter by 2040. While production costs of sugarcane ethanol fall quite dramatically from 43.5 € per MWh or 0.281 € per liter in 2016 to 32.2 € per MWh or 0.208 € per liter by 2030 and 27.8 € per MWh or 0.179 € per liter by 2040. As it has been already concluded from sensitivity analysis, feedstock cost fluctuations influence corn and sugarcane ethanol production costs a lot. It is the most influencing component of LCOF formula in cases of corn and sugarcane ethanol along with conversion efficiency. This is why for example if the data for feedstock costs was calculated not in constant currency but in nominal then the situation with production costs would be different. Figure 50 below shows how the corn and sugar prices would change by 2030 in nominal and constant USD globally. When feedstock costs are projected in nominal USD the inflation makes projections being higher in cost by 2030. It can be seen that constant USD prices for corn grow just slightly, and its influence can be observed on production cost forecasts from figure 49 above: production costs grow not much. Though if corn cost projections in nominal USD were used then due to the inflation influence production costs of corn ethanol would grow more sharply by 2030 and 2040 following the dynamics of corn feedstock growth. In case of sugarcane ethanol if feedstock cost forecasts were used in nominal USD then production costs of sugarcane ethanol would

43,5$

be just slightly falling by 2030 and 2040.

Notes: data for 2017-2030 is based on forecast

Figure 50 Corn and sugar prices 1970-2030 (World Bank 2017a, 41, 50)

The fact that LCOF of biofuels depends so much on feedstock cost fluctuations makes the situation with projection calculations from one hand quite complicated. The feedstock cost projections data is not easy to get from secondary sources. Also the projections, which were finally found from the World Bank report are changing in every report update. So it is possible that after some years the projections of feedstock costs might change dramatically depending on the market situations. Though from the other hand when feedstock costs influence so much LCOF of biofuels then the model for projections of LCOF can be roughly updated just by changing the old feedstock cost forecasts with the new ones. And in case if after some years the more exact data related directly to the US corn costs and Brazilian sugarcane costs was published by some organization then it would be better to update the model with these more relative costs.