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Life Cycle Cost Analyses for Determining the Feasibility of Bioethanol as a Substitute for Gasoline

Nicky Leonard Nasution

The Joint Graduate School of Energy and Environment, King Mongkut’s University of Technology Thonburi, Thailand

Abstract: The scarcity of fuels derived from crude oil such as gasoline has lead to a search for another alternative fuels from other sources. One of the promising fuel technologies that has potential to substitute gasolineis bioethanol. An economic analysis needed to determine under what conditions bioethanol will be able to compete with gasoline. Life cycle costanalysis (LCCA) can be conducted in order to evaluate ethanol life cycle costs based on the conditionsdefinedin each case.

The objectives of this paper are (1) to explain the term LCCA and (2) to show how LCCA is used to estimate the feasibility of bioethanol to substitute gasoline. Cases of LCCA developed in Thailand and China in which cassava is selected as raw material are presented in this paper. Six basic processes are explained in order to describe steps involved in LCCA. The reviews on the cases shows the selected cases share similarity on cost drivers inside the system and the ethanol production in China is more competitive than ethanol production in Thailand compared to gasoline. The conclusions of each study provide information that can be used by decision makers to encourage the application of bioethanol as a substitute for gasoline.

Key word: Life cycle cost analysis, bioethanol, cassava, Thailand, China.


1.1 Background

The dependence on fossil fuel has been slowly decreased by many industrial and developing countries. The environmental issue become one of the reason why the world has tried to reduce the using of fuels based fossil. Another reason is the increasing price of fossil fuels in the last decade. This event has made fossil fuels become an expensive commodities.

This phenomenon tends to be the cause of searching an alternative fuel based crops. An alternative fuel technologies has been developed to derived fuels from crops through a biological processes, which leads to term “biofuels”.

Biofuelsare a wide range of fuels, which are in some way derived from biomass. The term covers solid biomass, liquid fuels,and various biogases. Since gasoline is widely used as vehicle fuel all over the world, the alternative technologies to substitute gasoline become popular topic in some developing country.

A potential candidate to reduce the dependence on gasoline is ethanol. Ethanol can be used as a fuel for vehicles in its pure form, but it is usually used as a gasolineadditiveto increase octane and improve vehicle emissions. However, ethanol is also by product of petroleum refining. Therefore, the term of bioethanol has begun gaining attention among public and scientists since the increasing of oil price in 1970s. A few decades later, the world started growing awareness onthe need to increase energy security, and concern over greenhouse gasemissions from fossil fuels.

Bioethanolis an alcoholmade by fermentation process of the sugar components inplant materials and it ismade mostly from sugarand starchcrops. The latest advanced technology has used cellulosic material and algae to produce ethanol. The oxygen content in ethanol can improve the fuel combustion process, reducing the emission of pollutants such as carbon monoxide, ozone-forming unburn hydrocarbons and carcinogenic particulates [1].

The development on fermentation technology has encouraged developing countries to start their own program to reduce the using of gasoline with bioethanol. However, to fully convert the fossil fuel into bioethanol, an economic analysis is needed to estimate its feasibility to substitute gasoline. There will be various factors in costs issues that can affect the potential of bioethanol to compete with conventional gasoline. Therefore, a Life Cycle Cost Analysis (LCCA) can be conducted based on fair comparison to provide the information needed to compare bioethanol and gasoline. This economic analysis will be explained further later on.

1.2 Goals

The goals of this paper is (1) to explain the term LCCA and (2) to show how LCCA is used to estimate the feasibility of a product.

2. Definition and Selection procedure of case studies


2.1 Definition of LCCA

A universal definition of the term LCCA will be hard to find. Since LCCA maybe applied in various types of system. Therefore, a standardized definition is needed to express the term generally. Kawauchi et al [2] in their publication report from Norwegian University of Science & Technology refer to international standard IEC 60300-3-3: Life Cycle Costing, defined LCCA as “ Process of economic analysis to assess the life cycle cost of a product over its life cycle or a portion thereof”. Another international standard can be found in National Institute of Standard and Technology (NIST) Handbook 135, 1995 edition [3], the NIST defined LCCA as “ the total discounted dollar cost of owning, operating, maintaining, and disposing of a building or a building system over a period of time”.

By looking at the definition above it is clear that, in an attempt to improve the design of products and reduce design changes, cost, and time to market, LCCA has emerged as an effective approach to addressing these issues in today's competitive global market. LCCA provides a framework for specifying the estimated total incremental cost of developing, producing, using, and retiring a particular item. Therefore, one may conclude that main objective of LCCA is to provide information for decision making, e.g., in purchasing a product, in optimizing design, in scheduling maintenance, or in planning revamping [2].


Procedures of conducting LCCA will be vary due to differences among the systems analyzed. However, Kawauchi et al [2] has summarized six basic processes commonly occured on conducting LCCA. The six basic processes are, “ Problems definition”, “ Cost element definition”, “System Modeling”, “ Data collection”, “Cost profile development”, “Evaluation”. The six basic processes will be explained further below.

2.2 The Six Basic Processes

2.2.1 Problems Definition

The first step of any LCCA is to clearly defined the scope of work that wished to be analyzed. The scope of work is correlated to the determining the cost elements. The scope of work, for instance, is assumption on condition of process conversion biomass to ethanol, model of equipment, and activities inside the plant. Then one should defined the evaluation criteria definition, this is the purpose of the assessment. Defined the operational philosophy development, one should have a clear philosophy on how to run the plant.

2.2.2 Cost Elements Definition

As stated above, the main elements of Life cycle cost (LCC) are the acquisition and ownership costs. Therefore, one may begin to identify the costs included in the system and create the cost breakdown structure (CBS). The elements should be as detail as possible in order to create a better profile of costs involved in the system. For instance,one may divide the cost category into three parts. (1) Life acquisition cost, which include the purchasing, installing and commisioning the equipments, insurance and design and administration cost. (2) Life ownership cost, which include labor, spare parts, logistic and energy consumption over the lifetime of the project. (3) Life lost cost, which include cost caused by malfunction in the plant that requires the plant to shut down, the hazard cost and warranty cost.

2.2.3 System Modeling

The most significant cost drivers in LCCA, are the availability and maintainability [2], one should create a proper model connecting the input parameters and the cost element. Generally, one should consider the (1) availability of production facilities, (2) maintenance and inspection modeling, (3) logistics modeling, (4) risk modeling, (5) human error modeling and (6) industrial ecology modeling.

2.2.4 Data Collection

The accuracy of data collection is crucial to improve the certainty of the estimation. There are two ways to collect data in LCCA. First, one can use actual data. If the actual data is available, one just simply applied the collected actual data to the model of cost elements defined. If the actual data is not available, one can used the second way. The second way is to estimate the data relevant to the non-available data. The probable actual data available are the price of the feedstocks, equipments, chemical, water, etc. The probable unavailable data is the operation and maintenance cost. Usually, one can refer to data stored in operating companies and adjusted it to the system defined.

2.2.5 Cost Profile Development

A development of the cost profile is needed on making financial judgements. A cost profile over the entire Life Cycle (LC) will provide information of affordability analysis considering a long term financial planning. For financial judgement, one should also consider the effect of inflation, interest rates, exchange rates, taxation, etc. The ability of money to purchase the goods will also decreases through time. Since the cost elements consists in LCCA will be incurred some time in the future, one should discount all the expenses to a spesific desicion point. Since the cost profile is essential, all of the conducted cases should consider about it.

2.2.6 Evaluation

The evaluation may consist sensitivity analysis and uncertainty analysis. Sensitivity analysis is used to examines the impact of changes in input parameters on the result. While the uncertainty analysis is an effort to consider possible ranges of the estimate and their effect on decisions. The uncertainty analysis estimate the uncertainties in LCCA, when it’s done a better figures will provide confidence and convinced decision makers in their judgements. Some case studies found to be conducted uncertainty analysis only. However, including the sensitivity analysis in the assessment help to improve the evaluation quality. Next is identifying the cost driver(s) in the system and used the information to make desicions.


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