Abstract
The international aviation industry has the goal to gradually reduce carbon emissions mainly by using sustainable aviation fuel (SAF). However, currently SAF cannot be produced at competitive prices relative to petroleum-based jet fuel. Pennycress is a crop whose oilseed could be used as a relatively low-cost feedstock to produce SAF, potentially benefiting farmers and the environment. This stochastic techno-economic analysis (TEA) studies an enterprise buying pennycress oilseed from farmers, extracting the bio-oil and selling it to a biorefinery that converts bio-oil into SAF. Maximum buying prices (MBP)—prices that yield a zero net present value—the crushing enterprise could pay farmers for pennycress oilseed are estimated. To conduct the analysis, discount rates are estimated based on financial data of biofuel firms, thus providing a realistic benchmark to evaluate profitability and feedstock buying prices. Estimated risk-adjusted discount rates vary between 12 and 17%, above rates typically used in similar valuations. Estimated stochastic MBP range between 10.18 and 11.73 ¢ pound−1, which is below the price at which farmers are willing to plant pennycress, according to recent research. By considering the crushing facility’s inherent cash flow structure and risk, the distributions of stochastic modified internal rate of return suggest the crushing enterprise could be economically attractive at a 14% discount rate, our most likely estimate. However, between 11 and 17% times the cash flow model is simulated, the firm falls under financial distress. Overall, the findings suggest potential barriers for deployment of a SAF supply chain without governmental incentives or related policies.
Highlights
The international aviation industry is motivated to reduce their greenhouse gas footprint over the few decades
A crushing enterprise could play an important role on deployment of a sustainable aviation fuel (SAF) supply chain due to its direct contact with farmers growing field pennycress, the feedstock for SAF
The deterministic model was converted into a stochastic one by simulating pennycress bio-oil prices, pennycress meal cake prices, and oilseed to bio-oil conversion rates according to a Program evaluation and review technique (PERT) distribution drawing values from a series of historical prices of soybean oil and Distillers’ dried grain with solubles (DDGS) as proxies for bio-products prices and conversion rate parameters from previous research
Summary
The international aviation industry is motivated to reduce their greenhouse gas footprint over the few decades. Taking 2005 as the baseline, the industry is expected to reduce 50% of carbon emissions by 2050 (Hileman et al, 2013; Khanal and Shah, 2021; Tanzil et al, 2021) Factors such as improved fuel consumption and infrastructure are important, but the use of biomass derived, or sustainable aviation fuel (SAF) is projected to be the most important factor driving carbon reduction in aviation (Wang et al, 2019; Khanal and Shah, 2021). Most of the abovementioned survey-based studies report that financial managers use the firm’s estimated weighted average cost of capital (WACC) as a reference or baseline to define the discount rate used for investment evaluations. The WACC considers the mix of capital debt (D) and capital equity (E), expected rates of return by debt and equity capital providers (Rd and Re), and an income tax rate (t) that accounts for the fact that interest payments are tax deductible: WACC
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