Biofuel Discount Rates and Stochastic Techno-Economic Analysis for a Prospective Pennycress (Thlaspi arvense L.) Sustainable Aviation Fuel Supply Chain

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.

How does the financial performance of sugar-using firms compare to other agribusinesses? An accounting and economic profit rates analysis

“…The beta factor, β, which is specific for each firm i and year t, is estimated using the software Beta Suite by WRDS following the specifications in Trejo-Pech et al (2021). The beta parameters are obtained by regressing the firm's monthly historical stock returns on the corresponding market risk premia.…”

“…The beta factor, β, which is specific for each firm i and year t , is estimated using the software Beta Suite by WRDS following the specifications in Trejo-Pech et al . (2021).…”

A Techno-Economic Analysis Comparing a Hammermill and a Rotary Shear System to Process Woody Biomass for Biofuel Production

“…The WACC parameter in this TEA is 8% [19]. A 17% tax rate (Equation ( 3)) is assumed according to the Aviation Sustainability Center's guidelines for investment evaluation [20].…”

“…This is because instead of using only point estimates for relevant variables, stochastic models simulate potential values drawn from a series of historical data according to a statistical distribution and iterate the model thousands of times to provide descriptive statistics of the evaluated outputs. Therefore, stochastic analysis becomes particularly important for highly uncertain projects in the biofuel sector [19]. Previous biofuel TEAs have used the PERT distribution [19,[28][29][30].…”

“…Therefore, stochastic analysis becomes particularly important for highly uncertain projects in the biofuel sector [19]. Previous biofuel TEAs have used the PERT distribution [19,[28][29][30].…”