"Analizar la Aplicabilidad de los Biocombustibles en el Perú“

Peru Hydrocarbon Assistance Project
WBS Activity No. 142
Dirección General de Hidrocarburos
"Analizar la Aplicabilidad de los
Biocombustibles en el Perú“
William G. Matthews
Donald O’Connor
February 3, 2006
Table of Contents
1.
2.
2.1
2.1.1
2.1.2
2.1.3
2.2
2.2.1
2.2.2
2.2.3
3.
3.1
3.1.1
3.1.2
3.1.3
3.2
3.2.1
3.2.2
3.2.3
3.3
3.4
3.4.1
3.4.2
3.5
3.5.1
3.5.2
3.6
3.6.1
3.7
4.
4.1
4.2
4.2.1
4.2.2
4.2.3
4.3
INTRODUCTION.......................................................................................... 1
BIOFUELS OVERVIEW............................................................................... 3
Ethanol ........................................................................................................ 3
Use as a Vehicular Fuel ............................................................................. 3
Production Processes ............................................................................... 4
Standards and Characteristics ................................................................. 4
Biodiesel ..................................................................................................... 7
Use as a Vehicular Fuel ............................................................................. 7
Production Processes ............................................................................... 8
Standards and Characteristics ................................................................. 8
PERU TRANSPORTATION FUELS SECTOR ............................................11
Gasoline ......................................................................................................11
Supply, Consumption and International Trade........................................11
Refinery Production ...................................................................................11
Volume of Ethanol Required in Gasoline at Different Concentrations ..13
Diesel...........................................................................................................14
Supply, Consumption and International Trade........................................14
Refinery Production and Imports .............................................................14
Volume of Biodesel Required in Diesel at Different Concentrations.....15
Storage & Dispatching Infrastructure and Ownership/Operation ..........16
Summary of Sector Organization .............................................................17
Structure .....................................................................................................17
Attitudes to Introduction of Biofuels ........................................................18
Fuel Qualities and Specifications .............................................................19
Gasoline ......................................................................................................19
Diesel...........................................................................................................20
Integration of Biofuels – Blending with Hydrocarbons...........................21
Gasoline ......................................................................................................21
Fuel Pricing & Taxation .............................................................................25
ETHANOL IN PERU ....................................................................................27
Current Situation........................................................................................27
Ethanol Feedstocks ...................................................................................27
Sugar Cane .................................................................................................28
Molasses .....................................................................................................29
Bagasse ......................................................................................................29
Ethanol Production ....................................................................................29
1
4.3.1
4.3.2
4.4
4.5
4.5.1
4.5.2
5.
5.1
5.2
5.3
5.4
5.5
6.
6.1
6.2
6.3
6.3.1
6.3.2
6.3.3
6.3.4
6.4
7.
8.
8.1
8.2
Molasses .....................................................................................................29
Sugar Cane .................................................................................................29
Market Development ..................................................................................33
Other Applications for Ethanol .................................................................34
Ethanol-Diesel Blends (E-Diesel) ..............................................................34
High Level Ethanol-Gasoline Blends and Hydrous Ethanol...................40
BIODIESEL IN PERU ..................................................................................42
Current Situation........................................................................................42
Biodiesel Feedstocks.................................................................................42
Biodiesel Production Costs ......................................................................44
Market Development ..................................................................................45
Other Applications for Biodiesel ..............................................................46
ALTERNATIVE FUEL IMPLEMENTATION BARRIERS .............................47
Research and Development + Deployment..............................................49
Market Barriers Perspective......................................................................52
Biofuel Development from a Market Barriers Perspective .....................57
Normal Market Barriers..............................................................................57
Market Failure Barriers ..............................................................................61
Summary Market Barriers..........................................................................63
Summary Market Development Barriers ..................................................64
Market Transformation ..............................................................................65
COMMENTS ON BIOFUELS LEGISLATION..............................................68
SUMMARY - CONCLUSIONS AND RECOMMENDATIONS ......................70
Conclusions................................................................................................70
Recommendations .....................................................................................73
Annexes
1.
2.
3.
4.
5.
6.
Biofuels Legislation
Persons Met
Fuel Ethanol Specifications
Biodiesel Specifications
Cartavio Sugar/Ethanol Plant Visit
Area Devoted to Oil Palm in Peru
2
1. INTRODUCTION
In recent years for economic, social or environmental reasons, there has been
increasing activity and interest in the production and consumption of vehicle fuels of
biomass origin, or biofuels, worldwide.
In the coast and forest regions of Peru, suitable areas exist, in terms of quality of the
soil and climatic conditions, for the development of crops that provide the volumes of
adequate raw material to produce both anhydrous ethanol and biodiesel, the two
principal biofuels.
Pursuant to the policy of stimulation of biofuels activity in Peru, legislation concerning
the promotion of biofuels has been passed: Ley 28054 de Promoción del Mercado de
Biocombustibles and its relevant regulation Decreto Supremo Nº 013-2005. The texts
for these are attached as Annex 1.
The goal of this policy action and attendant legislation is:
•
To promote investments in the activities of production and commercialization of
these biofuels,
•
To propagate the environmental, social, and economic advantages of biofuels
use through the protection of public health and the environment and the creation
of new jobs
•
To contribute to the National Strategy of the Fight against the Drugs by means of
the cultivation of alternative crops in the coca zones of the country.
Following up on these objectives, the General Directorate of Hydrocarbons (DGH) of the
Ministry of Energy and Mines (MEM) through the Peru Hydrocarbons Assistance Project
(PHAP) developed the terms of reference for a study to examine the hydrocarbons and
biofuels sectors in Peru and to evaluate the biofuels regulation within that sectoral
framework. It is in this context that the Canadian Petroleum Institute (CPI) the
Canadian Executing Agency (CEA) for PHAP subcontracted the consultants William
Matthews and Donald O’Connor to carry out this study.
Mr. Matthews arrived in Lima on October 18, 2005 and proceeded to visit with
hydrocarbons and biofuels sector representatives in order to gather information and to
apprise these stakeholders of the anticipated biofuels program. Mr. O’Connor arrived
November 1, 2005 and the two consultants together completed the stakeholder data
gathering and review work. Annex 2 provides a summary of the persons met during the
assignment. On November 11, prior to their departure on November 12, a Preliminary
Report of findings and issues to date was presented to officials of DGH.
This report constitutes a draft of the final report for this activity. The intention is to
circulate copies of this report to various stakeholders prior to a seminar/workshop to be
held in February, 2006 with all the interested parties in attendance. The objective is to
present all the issues relevant to biofuels production and commercialization in an open
forum of all the stakeholders pursuant to finalizing the report for this activity.
Chapter 2.0 herein provides an overview of biofuels to put in perspective the nature,
extent of use and characteristics of ethanol and biodiesel. Chapter 3.0 covers the
existing hydrocarbons sector, including certain issues relating to the integration of
biofuels with the conventional fuels supply/distribution chain. Chapter 4.0 covers the
1
existing and prospective ethanol situation in Peru – raw materials, production methods,
technology, costs and pricing. Chapter 5.0 covers the existing and prospective biodiesel
situation in Peru - raw materials, production methods, technology, costs and pricing.
Chapter 6.0 discusses the typical barriers which exist to the development of biofuels
markets, while Chapter 7.0 discusses issues related to the existing biofuels legislation
which result from the consultants’ analysis of the sector and discussions with
stakeholders.
Chapter 8.0 wraps up with a summary of conclusions and
recommendations deriving from the consultants’ review and analysis.
The consultants would like to acknowledge the support and advice of DGH officials in
the execution of their tasks during this assignment, in particular, Ing. Luis Zavaleta
Vargas and Sra Angie Garrido Ponce and the kind co-operation of all the government
and industry sectoral officials who contributed to the consultants’ understanding of the
issues related to the application and promotion of biofuels in Peru.
2
2. BIOFUELS OVERVIEW
Broadly defined a biofuel is any fuel that derives from biomass — recently living
organisms or their metabolic byproducts, such as manure from cows. It is a renewable
energy source, unlike other natural resources such as petroleum, coal and nuclear
fuels. The carbon in biofuels was recently extracted from atmospheric carbon dioxide by
growing plants, so burning it does not result in a net increase of carbon dioxide in the
Earth's atmosphere. As a result, biofuels are seen by many as a way to reduce the
amount of carbon dioxide released into the atmosphere by using them to replace non
renewable sources of energy.
Within the context of this study biofuels are more narrowly classified as the two principal
vehicular fuels derived from agricultural crops: Ethanol and Biodiesel:
2.1 Ethanol
Ethanol or ethyl alcohol, is a primary alcohol containing two carbon groups
(CH3CH2OH) which may be produced in a petrochemical process from ethylene or
biochemically by fermentation of various sugars from carbohydrates found in agricultural
crops and cellulosic residues from crops or wood.
2.1.1
Use as a Vehicular Fuel
Ethanol derived from agricultural crops has been used as a motor fuel in North America
since the early 1900s. In 1908 Henry Ford designed his Model T to run on ethanol.
Ethanol gasoline blends were used in parts of the United States prior to the Second
World War but through the 1950’s and 1960’s there was no ethanol used in gasoline in
North America.
Peru’s neighbour, Brazil, is the most important fuel ethanol producer in the world, is the
largest exporter of ethanol and has the most comprehensive domestic consumption
program. Brazil has used ethanol as a transportation fuel since the 1920’s. Brazil’s
current program was started in 1975 driven by a combination of mitigation of the first oil
shock of 1973 and a desire to stabilize revenues to its large sugar industry. Production
in 2004 was some 15 billion litres. All Brazilian ethanol is produced either directly from
sugar cane or indirectly from molasses, a byproduct of the sugar industry. In the 1970’s
Brazil mandated the use of ethanol in gasoline (gasohol) and focused on fully dedicated
hydrous ethanol vehicles. The latest trend, initiated in 2003, is towards “flex-fuel”
vehicles which are capable of using a complete range of ethanol/gasoline fuels
containing from 0 to 100% ethanol. The consumption of fuel ethanol in Brazil now
represents roughly 30% of the total energy consumed by spark ignition engines.
In 1979 the US Congress established the federal ethanol program to stimulate the rural
economy and reduce the dependence on imported oil. The production and use of
ethanol as a motor fuel in the United States and in Canada has increased continuously
since that time. There are now over 13 billion litres of ethanol used in gasoline in the
United States and Canada each year. This represents about 2.4 % of the gasoline
volume or 1.6 % of the energy in the gasoline pool. Most of the ethanol is used in lowlevel blends of 5-10% ethanol in gasoline. In North America fuel ethanol is currently
produced mostly from starch containing crops such as corn, wheat and milo.
3
The 2004 world production of fuel ethanol in was 40,711 million litres, of which:
Million litres
Brazil
15,078
USA
13,362
China
3,644
Europe
3,300
As noted Brazil and USA combined account for some 71% of total world production.
2.1.2 Production Processes
Ethanol my be produced from naturally-occurring sugars in sugar cane or sugar beet
crops, or from starchy crops such as corn and wheat. There is also a route to ethanol
production through the conversion of cellulose to sugar compounds.
The fundamental biochemical production process is the fermentation of biomasssourced sugars via yeast. In the case of sugar cane juice and byproduct molasses the
sugar is naturally occurring and fermented directly. In the case of starchy crops such as
grains and corn the starch must be enzymatically converted to sugar followed by the
yeast-induced fermentation process. In the case of lignocellulosic residues such as
straw or wood the cellulose must be chemically or enzymatically converted to sugar and
then fermented. The fermentation process produces a liquid of low ethanol
concentration (“beer”), which must then be concentrated through distillation and
molecular sieving. Conventional distillation will produce a maximum 95% ethanol
controlled by the formation of an ethanol-water azeotrope at that 95-5 concentration.
Since water interferes with gasoline combustion and prevents the ethanol from being
miscible with the gasoline, the hydrous 95% alcohol cannot be used in gasohol blends
for conventional unmodified spark ignition engine systems. The azeotropic limit is
overcome and anhydrous 99% ethanol is produced, either through extractive distillation
(old technology) or molecular sieves (latest technology)
Figure 1 is a flowsheet of a typical production scheme for ethanol from sugar cane –
either directly from cane juice or indirectly from byproduct molasses.
2.1.3
Standards and Characteristics
Fuel ethanol is now used in several types of blends and formulations in spark ignition
engines. In all countries other than Brazil the most common blend is up to 10% - known
as E10 Gasohol or E10 gasoline. The 10% maximum blend amount was established
based on the advice from automobile manufacturers who will not warranty their vehicles
for gasolines with higher than 10% ethanol content. Brazil, with a high degree of selfsufficiency in vehicle production, has used up to 25% (anhydrous) ethanol as gasohol
blends and 100% hydrous (in dedicated vehicles) and most recently has introduced
“flex-fuel” vehicles, which can use a complete range of ethanol content fuels from 0 to
100%.
4
M
ol
as
se
s
Raw
Sugar
Sugar Processing
Molecular
Cane
Juice
Sugar Cane Pressing
Cane
Juice
Bagasse
Evaporation
Figure 1: Ethanol from Sugar Cane
Standards for fuel ethanol are well developed in all the major producing countries and
are evolving as gasoline specifications change and become more restrictive. In the US
ASTM D4806-04a is the “Standard Specification for Denatured Fuel Ethanol for
Blending with Gasolines for Use as Automotive Spark-Ignition Engine Fuel” and
CAN/CGSB-3.511 is roughly equivalent, as is draft norm for Peru. Brazil’s standard,
Technical Regulation DNC - 01/91 covers both hydrous and anhydrous fuel ethanol
The specifications for Brazil, USA and Canada are included as Annex 3. An excellent
Website with the specifications for all types of ethanol, including fuel ethanol for some
thirty-six countries is: http://www.distill.com/specs/
For excise reasons fuel ethanol must be blended with an additive or “denatured”. The
denaturant is usually unleaded gasoline in concentrations of 1% to 5%. In the
establishment of fuel ethanol specifications the main focus is on controlling the range of
denaturant content, guaranteeing a minimum of ethanol content and ensuring that
impurities are at a minimum level that will not render the final blended gasohols offspecification vis-à-vis finished gasoline standards.
Some of the notable characteristics of fuel ethanol are:
5
•
Octane: Although the octane (RON) of pure ethanol is only 112, ethanol exhibits
a much higher effective octane in blending with gasoline – in the range of 130132 RON.
•
Vapour Pressure: Although the Reid vapour pressure (RVP) of pure ethanol is
not particularly high – about 2.4 psi, the effective blending RVP is much higher –
about 18 to 22 RVP, depending on the ethanol concentration. For example the
addition of 10% ethanol to gasoline usually increases the RVP by roughly 1.3 psi.
•
High Oxygen Content: Ethanol contains some 35 weight % of oxygen, which
enables the oxygenation of compounds such as carbon monoxide and volatile
organics (VOCs) in the combustion process, resulting in lower emissions of these
compounds.
•
Fuel Economy: Although ethanol has 35% lower energy content per litre than
gasoline, the more complete combustion of abovementioned compounds
combined with an increase in the volume of combustion products and the effect
of greater charge-air cooling results in a much lower reduction in fuel efficiency
than anticipated by the differential in energy content; this lower reduction in fuel
efficiency has been observed to be more pronounced in older vehicles
•
Material Compatibility: Some materials used in fuel systems tend to degrade over
time, such as elastomers used to make hoses and valves. Other fuel system
components are made of metals and plastics and must be compatible with the
expected range of fuel composition. Some older elastomers were found to
deteriorate more rapidly in the presence of aromatics (found in higher
concentrations in unleaded gasolines) and alcohols. However, since the mid1980s, all vehicles have used fluoroelastomers, which are specifically designed
to handle all modern gasolines, including ethanol/gasoline blends. The
experience of using ethanol blends in areas covered by the oxygenated gasoline
program in the U.S. has not registered higher rates of materials degradation or
failure than areas using conventional gasolines
•
Emissions: Ethanol/gasoline reduce CO, and VOC emissions; although Nitrogen
oxide compounds (NOx) emissions may increase actual tests have shown that
the effect of blends on NOx emissions was mixed, the response ranged from an
increase of 0.47 grams per mile to a reduction of 0.43 grams per mile. Ethanol
reduces particulate emissions, especially fine particulates that pose a health
threat to children, senior citizens and individuals suffering from respiratory
ailments
•
Greenhouse Gas (GHG):
Considering the full crop production and fuel
consumption cycle there is a net reduction in carbon dioxide in the ecosystem.
Ethanol reduces GHG emissions because the sugar cane, grain or other biomass
used to make the ethanol absorbs carbon dioxide as it grows. Although the
conversion of the biomass to ethanol and the burning of the ethanol produce
emissions, the net effect is a large reduction in GHG emissions compared to
fossil fuels such as gasoline.
6
2.2 Biodiesel
Biodiesel is an ester produced by chemically reacting vegetable or animal fat with an
alcohol, usually methanol. Chemically, it is a fuel comprised of a mix of mono-alkyl
esters of long chain fatty acids. A lipid transesterification production process is used to
convert the base oil to the desired esters and remove free fatty acids. As the name
implies it has properties similar to diesel fuel except it is made from renewable
resources.
2.2.1
Use as a Vehicular Fuel
Biodiesel can be used in conventional diesel engines in its neat form or blended with
conventional diesel fuel. One common blend in the United States is 20% biodiesel and
80% petroleum diesel (B20). It can also be used as an additive to enhance the
lubrication properties of petroleum diesel fuel.
In neighbouring Brazil there have been initiatives since the 1920’s to promote use of
vegetable oils. Following the limited success in the 1980s of the “Pró-óleo” and “OVEG”
Programs in 2002 the Brazilian Ministry of Science & Technology implemented the
Research & Technology Development “PROBIODIESEL” National Network. In 2003 an
Interministerial Commission evaluated feasibility of Biodiesel in Brazil and set
recommendations for a program. In the same year a Brazilian Biodiesel specification
(ANP 255/03) was developed and in 2004 permission was promulgated to use 2%
biodiesel + 98% diesel blends (B2). In December 2004: a National Biodiesel Program
was announced. Under this program, 2 percent of the country's diesel fuel must be
mixed with biodiesel in 2008 and 5 percent by 2013. Given estimated Brazilian diesel
consumption of 40 billion litres annually, 800 million litres of biodiesel is needed by
2008.
Although Brazil currently produces only around 20 million litres of biodiesel annually
there are projects to produce an extra 250 million litres within the next two years. One of
the government's main objectives is to aid small farmers in impoverished northern and
northeastern Brazil. As a means of testing supply and market price and encourage
more production a first biodiesel auction was organized recently (mid-November, 2005
by the Brazilian National Petroleum Agency (ANP) at which a total of 92 million litres of
biodiesel was offered.
Estimated total world production of biodiesel in 2004 was 2000 million litres. Important
users of biodiesel worldwide, with approximate 2004 volumes are:
Millions litres
Germany 1,000
France
350
USA
100
7
2.2.2
Production Processes
Biodiesel is made through the transesterification of vegetable and animal oils. The
process scheme is shown in Figure 2. The raw oil is reacted with methanol or ethanol1
in the presence of sodium hydroxide or potassium hydroxide as a catalyst. The
Biodiesel is separated from the byproduct glycerine and water washed to produce
specification biodiesel product. Typical vegetable oil sources are soy, canola, tempate,
castor bean and palm. Another source of raw oil is waste vegetable oils from industrial
food processing or restaurants. This waste oil is known as “yellow grease”. Animal oils
such as tallow from meat processing or fish oils may also be used.
Transesterification Process
Figure 2: Biodiesel Production Scheme
2.2.3
Standards and Characteristics
Specifications for biodiesel have been developed in the major producing/consuming
countries. The US biodiesel specification is ASTM D 6751 for all biodiesel fuel bought
and sold in the US. D 6751 covers the incorporation of pure biodiesel (B100) into
conventional diesel fuel up to 20% by volume (B20). Higher blend levels may be
acceptable, depending on the experience of the engine company. Biodiesel is also
registered with the Environmental Protection Agency (EPA) as a fuel and fuel additive.
1
The use of ethanol as a reagent in Biodiesel production has not been studied as extensively as has the
use of methanol but research is proceeding apace since it has the advantage of being sourced from
biomass and being more readily available in many settings; it is also less toxic than methanol.
8
In Europe there are three existing specification standards for diesel & Biodiesel fuels
(EN590, DIN 51606 & EN14214). EN590 (actually EN590:2000) describes the physical
properties that all diesel fuel must meet if it is to be sold in the EU, Czech Republic,
Iceland, Norway or Switzerland. It allows the blending of up to 5% Biodiesel with
'normal' DERV - a 95/5 mix. In some countries such as Germany, much of the diesel
sold routinely contains this 95/5 mix. DIN 51606 is a German standard for Biodiesel, is
considered to be the highest standard currently existing, and is regarded by almost all
vehicle manufacturers as evidence of compliance with the strictest standards for diesel
fuels. The vast majority of Biodiesel produced commercially meets or exceeds this
standard. EN14214 is the standard for biodiesel now, having recently been finalized by
the European Standards organisation CEN. It is broadly based on DIN 51606.
Brazil established its biodiesel specification, ANP 255, in 2003. .
The US, European and Brazilian biodiesel specifications are included as Annex 4.
Some of the notable characteristics of biodiesel are:
Positives:
•
Energy trade balance: Biodiesel is produced domestically, which helps reduce a
country’s' dependence on imported petroleum.
•
Rural Economy: The development of a biodiesel industry strengthens the
domestic, and particularly the rural, agricultural economy.
•
Renewable Resource: It is a renewable fuel that can be made from agricultural
crops and/or other feedstocks that are considered waste, such as cooking oil and
trap grease. This helps conserve non-renewable resources and makes the best
possible use of materials which may be perceived as having little or negative
value.
•
Safe, Environmentally Benign: Biodiesel is readily biodegradable and non-toxic.
Continued testing indicates that biodiesel degrades as fast as and is as safe as
sugar in the environment, and when blended with petrodiesel accelerates the
diesel's degradation in the environment.
•
Tailpipe Emissions: Biodiesel and biodiesel blends significantly reduce harmful
tail pipe emissions.
Exhaust emission improvements include substantial
reductions in carbon monoxide, hydrocarbons, carcinogenic compounds and
particulates. Pure biodiesel has zero sulphur – hence SOX emissions are
eliminated.
•
Net Negative GHG: Biodiesel produces less GHG from the tailpipe and,
considering the crop production cycle, biodiesel sourced from vegetable crops is
a significant net negative GHG generator.
•
High Lubricity: Diesel fuel blends with biodiesel have superior lubricity, which
reduces wear and tear on engines and makes the engine components last
longer.
9
Negatives
•
Low Temperature Flow characteristics: Biodiesel has a relatively high pour point
compared with most petrodiesels; special precautions have to be taken in cold
weather to avoid gelling in the fuel system. The extent to which pour point is
higher than typical petrodiesels depends on the precursor raw oil source. Virgin
vegetable oil precursors tend to produce biodiesel esters with lower pour points
than those from waste oils or animal fats.
•
Solvent Effect: Biodiesel is a fairly strong solvent affecting natural rubber hoses
and gaskets in the fuel system and some paints at blends greater than 20%.
•
Fuel Filter Clogging: The abovementioned solvent effect results in a cleansing
effect on a diesel fuel system, removing accumulated deposits; this can result in
fuel filter clogging during the first two or three uses of biodiesel.
•
Feedstock Availability And Cost: Competition with high priced food uses for oils
results in an expensive feedstock to biodiesel production. The high cost of
production that results remains the greatest obstacle to market penetration for
biodiesel in blends or as a pure fuel. Although recycled waste oils can be used to
reduce costs, these sources are limited and present problems in production and
usage. For example, waste frying oil is often hydrogenated which increases its
pour point significantly.
•
T90: The maximum temperature at which 90% of the material boils off in
standard distillation test is an important standard for finished diesel. A high T90
usually results in higher tailpipe emissions of particulates. Depending on the
precursor source of biodiesel it usually has a higher T90 point than petrodiesel.
Tests have shown, however, that this higher boiling point does not correlate with
higher particulate emissions or affect vehicle/engine performance adversely in
any way.
10
3. PERU TRANSPORTATION FUELS SECTOR
Although the principal concern of this study is the production and distribution of biofuels
in Peru, it is essential to analyze and understand the size, structure and configuration of
the conventional hydrocarbons fuels sector, since both fuel ethanol and biodiesel
cannot be economically distributed and sold as neat fuels outside of the existing
transportation fuels distribution system and must be integrated within it.
3.1
3.1.1
Gasoline
Supply, Consumption and International Trade
Table 1 provides a summary of the supply, demand and international trade in gasoline
in Peru for the year 2004. Total supply available, mostly from local refining and a small
import of high octane blendstock (HOBS) was some 11.4 million barrels (1,809 million
litres). Of this total supply of gasoline stocks, the domestic market only required 8.0
million barrels (1,266 million litres) accounting for 70% of total refinery naphtha/gasoline
stocks. Some 3.4 million barrels, or 30% of total refined products, was surplus to
domestic requirements and had to be exported.
Table 1
PERU
Gasoline Supply/Demand
Balance, 2004
000s barrels
Supply
3.1.2
Imports finished
Imports HOBS
Refinery (From Crude)
25
326
11,025
TOTAL
11,376
Demand/Consumption
Exports
Consumption
3,416
7,960
TOTAL
11,376
Refinery Production
Figure 3 illustrates the location and ownership of the Peruvian refineries and their share
of gasoline production in 2004. The largest refinery RELAPASA at la Pampilla near
Lima is owned by Repsol/YPF and produces 41% of the national gasoline requirement.
The Talara refinery of PETROPERU produces 36% of the requirement followed by its
Conchan refinery just south of Lima, which produces 15%. The remaining 8% is
accounted for by the minirefineries - Iquitos and El Milagro plants owned and operated
by PETROPERU and the Pucallpa facility owned by PETROPERU but operated by
Maple Corporation.
11
EL MILAGRO
TALARA
PETROPERU
4%
IQUITOS
PETROPERU
1%
PETROPERU
36%
REPÚBLICA
DEL PERÚ
PUCALLPA
PETROPERU/ MAPLE
3%
41%
LA PAMPILLA
15%
REPSOL YPF
CONCHAN
PETROPERU
Refinery
% of Total Mogas Supply --%
PERU GASOLINES - SCHEMATIC OF SUPPLY SOURCES, 2004
Figure 3
The bar chart, Figure 4, shows the production at each facility in 2004 by octane grade
and the weighted average octane of each refinery’s gasoline pool. The most important
octane grades are 84 and 90 RON accounting for 49% and 37%, respectively of
national consumption. The average octane for the entire country is 87.9 RON. The
inland minirefineries produce the 84 octane grade exclusively, with the exception of a
small amount of 90 RON blended at Iquitos.
12
Peru - Gasoline Production for Domestic Market
2004, by Grade and Average Octane
Mbbls
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Average
RON
8,203
97
95
90
84
2,932
12%
4%
30%
53%
9%
6%
37%
3,394
49%
10%
7%
43%
40%
1,244
10%
1%
53%
338
35%
Talara
87.9
La Pampilla Conchan
88.7
88.5
96%
0%
4%
100%
0%
205
87
100%
0%
Iquitos
Pucallpa
El Milagro
T0TAL
84.3
84.0
84.0
87.9
Figure 4
3.1.3 Volume of Ethanol Required in Gasoline at Different Concentrations
Based on the 2004 national sales volumes of gasoline Table 2 summarizes the volumes
of fuel ethanol required to blend with gasoline at concentrations of 5.0%, 7.8% and
10.0%. The amount required for the concentration of 7.8%, corresponding to the
Peruvian legislation, is 102 million litres, if applied throughout the country.
Table 2
PERU Gasoline 2004 Volumes
ETHANOL REQUIRED IN BLENDS
Concentration
000 bbls
million litres
5.0%
410
65
7.8%
640
102
10.0%
820
130
13
3.2
3.2.1
Diesel
Supply, Consumption and International Trade
Table 3 provides a summary of the supply, demand and international trade in diesel in
Peru for the year 2004. Total supply available, from local refining and import sources
was some 23.7 million barrels (3,776 million litres). Peru has a major deficit in diesel
and some 9 million barrels or 38% of total supply was imported.
Table 3
PERU
Diesel Supply/Demand Balance
2004
000s barrels
Supply
Imports finished
Refinery (From Crude)
TOTAL
Demand/Consumption
Exports
Consumption
TOTAL
9,062
14,687
23,749
419
23,330
23,749
3.2.2 Refinery Production and Imports
Figure 5 illustrates the location and ownership of the Peruvian refineries and their share
of diesel production in 2004 as well as the share represented by imports. The import
share of total requirements is 38% while the RELAPASA/Repsol YPF refinery at la
Pampilla produces 30 % of the national diesel requirement. The Talara refinery of
PETROPERU produces 24% of the requirement. Imports plus La Pampilla and Talara
refineries accounts for 92% and the remaining 8% is accounted for by Conchan and the
inland minirefineries - Iquitos and El Milagro plants owned and operated by
PETROPERU and the Pucallpa facility operated by Maple Corporation.
14
EL MILAGRO
PETROPERU
TALARA
4%
IQUITOS
PETROPERU
1%
PETROPERU
24 %
REPÚBLICA
DEL PERÚ
PUCALLPA
PETROPERU/ MAPLE
1%
38 %
30 %
3%
LA PAMPILLA
REPSOL YPF
CONCHAN
PETROPERU
Refinery
Imports
% of Total Diesel Supply --%
PERU DIESEL - SCHEMATIC OF SUPPLY SOURCES, 2004
Figure 5
3.2.3
Volume of Biodiesel Required in Diesel at Different Concentrations
Based on the 2004 national sales figures for diesel, the amount of biodiesel required at
2%, 5% and 10% blend concentrations is shown in Table 4. The amount required for
the concentration of 5%, corresponding to the Peruvian legislation, is 189 million litres, if
applied throughout the country.
Table 4__
PERU Diesel 2004 Volumes
Biodiesel REQUIRED IN BLENDS
Concentration
000 bbls
million litres
2.0%
475
76
5.0%
1187
189
10.0%
2375
378
15
3.3
Storage & Dispatching Infrastructure and Ownership/Operation
Gasoline and diesel are distributed to service stations and large, direct consumers
through a network of storage terminals. The extent and location of these is illustrated in
the map, Figure 5. The major bulk of the volume is moved through the coastal
terminals, which are supplied by tanker from local refineries and import sources; the
onward shipping is by road tanker to service stations and large clients. A smaller
IQUITOS
EL MILAGRO
TALARA
Yurimaguas
Piura
Tarapoto
Eten
PUCALLPA
Salaverry
Chimbote
Pasco
Supe
LIMA/CALLAO
Marine Terminals
CONCHAN
Consorcio Terminales
PETR0PERU
Cusco
Pisco
Repsol/YPF
Vopak/Serlipsa
Juliaca
Inland Terminals
GN
Trading
Mollendo
Ilo
PERU STORAGE AND DISPATCHING TERMINALS FOR OIL
PRODUCTS
Figure 5
proportion of the volume is moved through the secondary inland terminals which are
supplied by road and rail from the coastal terminals. The most important terminal
operators are:
A. Independent, Unintegrated:
• Consorcio Terminales is a joint venture of the Peruvian holding company
Graña y Montero and Oiltanking a large Dutch independent terminal operator.
16
It operates seven marine terminals under concession from owner PetroPeru
as well as two small inland terminals.
• Vopak Serlipsa is a joint venture between. Serlipsa Corporación S.A, a
Peruvian company involved logistics and other services and the Dutch
company Royal Vopak N.V the number one storage company in the world for
petroleum products and chemicals. It operates, under concession from
PetroPeru, the large terminal in Callao, near Lima as well as a small inland
terminal at Cerro de Pasco.
B. Integrated with Refining and Distribution in Supply Chain
• PetroPeru owns and operates two marine terminals associated with its
refineries at Talara and Conchan, a terminal at each of its inland refineries El
Milagro and Iquitos and three additional small inland terminals.
• Repsol/YPF owns and operates a large terminal at La Pampilla associated
with the RELAPASA refinery and its import receiving facilities.
3.4 Summary of Sector Organization
3.4.1
Structure
Table 5 illustrates in summary form the structure of the Peruvian petroleum products
sector.
There are two vertically integrated companies: the Peruvian subsidiary of the multinational Repsol/YPF, and the state-owned PetroPeru who are involved in refining,
storage and dispatching, wholesale and retail distribution, are active throughout Peru
and, combined, have a dominant position in the market. In the Peruvian context these
two companies could be classified as “majors”.
The company Maple Corporation2 operates under long term lease the small PetroPeruowned Pucallpa refinery in the jungle (“selva”) area of eastern Peru. In its jungle region
it is fully integrated into storage and dispatching and wholesale and retail distribution of
petroleum products.
Table 5
2 Vertically Integrated
Repsol/YPF
PetroPeru
Regional,
integrated
Maple
Corp
2 Unintegrated
Terminal Operators
Consorcio
Terminales
Vopak
Serlipsa
Wholesaler
-Retailers
Unintegrated
Retailers
Refining
Storage &
Dispatching
Wholesale
Distribution
Retail Distribution
2
Maple also is involved in oil and gas exploration and production and has plans for an ethanol-from
sugar cane project in the northern coastal region of Peru.
17
In storage and dispatching, as summarized above (3.3), in addition to the integrated
companies with their own facilities, there are the two independent unintegrated terminal
operators, Consorcio Terminales and Vopak Serlipsa, operating solely in this segment
of the sector.
In wholesale and retail distribution, besides the integrated “majors” there are several
companies who are involved in both wholesaling and retailing activities. Companies
such as Ferush and PECSA, contrasted with Repsol/YPF and PetroPeru, could be
called “independents”; they are engaged in wholesale trade as well as the operation of
“tied” service stations bearing the company’s logo and colours but are not involved with
refining or terminal activities.
A significant number of the some 3,300 total service stations in Peru are owned and
operated by individuals or companies who are independent of other sector activities –
they are not tied to wholesalers. These types of unintegrated retailers are known as
“bandera blanca” and generally operate under straight arm’s length supply
arrangements with wholesalers.
3.4.2
Attitudes to Introduction of Biofuels
The consultants’ interviews with industry stakeholders indicated the following attitudes
towards the introduction of biofuels into the Peruvian hydrocarbon fuel products:
•
The two vertically integrated “majors” Repsol/YPF and PetroPeru were opposed
to the introduction of biofuels in general. Among other issues, they particularly
opposed the introduction of ethanol on the grounds that it would result in a larger
surplus of gasoline base stock for them to export at distress prices. PetroPeru
indicated, however, that they could use ethanol as a high octane blendstock to
replace the HOBS they are now importing into Talara, as well as possibly
replacing the cracked stock they now ship around through the Panama Canal
and up the Amazon to Iquitos refinery.
•
The vertically integrated regional operator “Maple Corp” was not opposed to
biofuels introduction. They have their own fuel ethanol project in the prefeasibility stage, but it is on the northern Peruvian coast and intended primarily
for export sales. Regarding ethanol for their refining and marketing operation in
the Selva they indicated that there would be ethanol supply from an operation in
nearby Tarapoto.
•
The unintegrated terminal operators were neutral to the introduction of ethanol
and biodiesel for the most part. They indicated that they would accommodate
whatever modifications the industry needed to have in their depots in order to
receive, store and blend fuel ethanol and biodiesel. One of them raised the
point, however, that they operated the depots on a concession from the owner,
PetroPeru, and any investments for additions and modifications would have to be
approved by them since the mechanism for recovery of investments would be an
effective reduction in concession rental fees.
18
•
3.5
Two of the independent unintegrated marketers were enthusiastic supporters of
biofuels based on the possibility of exploiting marketing opportunities.
Fuel Qualities and Specifications
3.5.1 Gasoline
The key gasoline specifications which relate to ethanol blending are minimum octane
number (RON) and maximum Reid Vapour Pressure (RVP)
Octane:
Peru has four grades of gasoline designated by minimum octane number (RON) of 84,
90, 95 and 97. Since ethanol has an effective gasoline/gasohol blending octane in the
range of 130 to 132 RON, the addition of ethanol to existing gasoline grades would
have the effect of providing octane in excess of minimum requirements for each grade.
Table 6 provides a summary of the approximate RON of blends of ethanol of different
concentrations with the existing gasoline grades in Peru.
Table 6
PERU Gasoline Grades
Octane Number (RON) at Different Ethanol Concentrations
(Nominal) Gasoline Grades
Concentration
of ethanol
84
90
95
97
5.0%
7.8%
10.0%
86.3
87.6
88.6
92.0
93.1
94.0
96.8
97.7
98.5
98.7
99.7
100.3
This approach is consistent with the configuration contemplated by the Peruvian
legislation.
A second approach, rather than simply adding ethanol to existing gasoline grades and
“giving away” octane quality, would be to prepare unfinished blendstocks without
ethanol added such that when anhydrous ethanol is added in the prescribed
concentration the national octane standard is met. Table 7 illustrates roughly the
required octane of the unfinished blendstocks corresponding to the finished octane
standards at different ethanol concentrations.
19
Table 7
PERU Gasoline Grades
Minimum Octane Number (RON) of Required Blendstocks
at Different Ethanol Concentrations
Finished Gasoline Grades
Concentration
of ethanol
84
90
95
97
5.0%
7.8%
10.0%
81.6
80.1
78.9
87.9
86.6
85.6
93.2
92.0
91.1
95.3
94.2
93.3
Reid Vapour Pressure (RVP):
RVP is a measure of the volatility of a gasoline. High volatility/high RVP correlates with
high emissions of volatile organic compounds from the vehicle fuel system which are
major contributors to formation of ground-level ozone (smog). A high RVP can also
cause vapour lock in older vehicle fuel systems at elevated temperatures.
The Peru National specification in force at the moment is maximum RVP of 84 kPa or
12.0 psi. The standards body, INDECOPI, has developed a more stringent maximum of
69 kPa or 10.0 psi which has not as yet been adopted as the National standard. It is
understood that gasoline from local refineries is produced at about 9 to 10 psi RVP so
that there is 2 to 3 psi of room below the maximum. The addition of ethanol in the
concentration range of 5% to 10% would add roughly 1.3 psi RVP to the existing
grades. Providing there is at least 1.3 psi of room (below maximum) in existing grades
this should not pose a problem and the existing National standard of 12.0 psi would not
be exceeded.
3.5.2 Diesel
The key diesel specifications which relate to biodiesel blending are the maximum
temperature at which 90 volume % recovery is achieved and the maximum pour point.
This is known as the T90 point. The addition of biodiesel to petrodiesel tends to
increase the T90 point. The impact of biodiesel blending component on both 90% point
and pour point of the finished blend depends on the origin of the raw oil which is
transesterified into biodiesel ester.
In terms of diesel standards in general the maximum sulphur content and minimum
cetane number are key specifications but are affected positively by the addition of
biodiesel to petrodiesel stocks. Biodiesel has zero sulphur and a cetane number higher
than the typical 45 to 50 which apply in finished diesel standards.
The quality standards establishment body in Peru is INDECOPI “El Instituto Nacional de
Defensa de la Competencia y de la Protección de la Propiedad Intelectual”. Although
INDECOPI has recommended standards for both gasoline and diesel, these have not
20
been adopted into law and the existing National standards, which for the most part are
not as stringent INDECOPI’s, are still being applied by the industry. Table 8 illustrates a
few key specifications for diesel.
As indicated the existing regulations call for a T90 of 360 oC, while INDECOPI has
recommended a T95 of 360 oC. The maximum pour point of +4 oC in the National spec
is replaced by a less defined spec governing low temperature flow or performance in the
case of INDECOPI. The latter does not refer to pour point and simply states that the
Cloud Point should be equal to or lower than the lowest ambient temperature
anticipated.
Table 8: Peru Key Automotive Diesel Specifications
National
Maximum Temp 90 vol% recovered oC
INDECOPI
360
Maximum Temp 95 vol% recovered oC
360
Maximum Pour Point oC
+4
Nothing specified –only
cloud point “according
to ambient temp” but
with no value specified
Maximum Sulphur Content weight %
0.50
0.035
Minimum Cetane Number
50
51
Minimum Cetane Index
45
46
In the case of sulphur content the National standard is still 0.5 weight % maximum while
the INDECOPI recommended specification is 0.035%. This sulphur standard applies to
domestically-produced diesel; imported diesel must be maximum 0.25 weight %
sulphur.
The Minimum Cetane Number and Index in effect as a National standard are 50 and 45
respectively while INDECOPI is recommending these to be increased slightly to 46 and
51 respectively.
3.6 Integration of Biofuels – Blending with Hydrocarbons
3.6.1
Gasoline
Due to problems with water absorption and ethanol-water phase separation within
logistics systems such as pipelines, marine tankers and storage systems it is customary
21
to blend the ethanol into gasoline blendstocks as close to the final consumer as
possible. As discussed under 3.4.1 above the Peruvian legislation prescribes that the
ethanol will be added to finished gasoline grades, already at their specification octanes
of 84, 90, 95 and 97. The legislation also specifies that the ethanol blending will take
place only in registered storage depots with the storage depot operator in charge of the
blending operation.
On this basis a schematic of the typical storage depot “Before” and “After” is provided in
Figures 6 and 7. In both cases the existing gasoline tanks retain their same service
since the anhydrous ethanol is simply being in-line blended into the finished gasoline
grades as they now exist. The resulting rough octane values were estimated and
shown in Table 6 above. The modifications as shown in Figure 7 are to add (or convert
from spare) an anhydrous ethanol tank and install in-line blending facilities such that the
blended gasohol “E8” corresponding to each grade can be loaded into road tankers for
delivery to service stations. This approach where there is a “giveaway” of octane quality
still exists to a degree in the US and Canada but was more prevalent in the US and
Canada in the early days of ethanol use by unintegrated independent gasoline
distributors who were voluntarily adding ethanol in order to achieve a “clean” or “green”
gasoline” marketing publicity advantage over the larger integrated companies and had
no means of purchasing lower octane pre-blendstocks.
Although inconsistent with the Peru legislation the second approach, which is typical of
the blending configuration in most countries where there is a compulsory ethanol
content requirement would be to produce and utilize lower octane unfinished
blendstocks to blend with anhydrous ethanol to arrive at finished octane quality as
discussed under 3.4.1. Figure 8 is a schematic which illustrates the “After” case for the
depot configuration when blendstocks are supplied with octanes estimated and shown
in Table 7 above such that the finished gasoline grades correspond to the specification
octanes without any quality giveaway. Since in-line blending is utilized, no extra
tankage other than the anhydrous ethanol storage is required since the tanks previously
in finished gasoline service can be used for the corresponding lower octane unfinished
blendstocks.
Another ethanol blending practice which does not conflict with the Peru legislation is the
mixing of the anhydrous ethanol and gasoline blendstock sequentially in road tankers.
This “splash blending” is still being done in the US and Canada, particularly by
independents. Figure 9 illustrates this procedure. The requisite amount of anhydrous
ethanol is added at a storage location separate from the gasoline blendstock storage
depot and then it is “topped up” at the gasoline depot with the gasoline blendstock to
meet the desired quality and volume.
22
Gasoline Terminal Configuration at Present
Delivery by Tanker,
Road or Rail
84
90
95
Service
Stations
97
Figure 6
Gasoline Terminal Configuration with Gasohol
T ankage & Blending Additions in Red
E99
E99
Delivery by Tanker,
Road or Rail
84
90
95
E8
Service
Stations
97
+ Modifications and additions to safety / firefighting
Figure 7
23
Gasoline Terminal Configuration with Gasohol
T ankage & Blending Additions in Red
E99
E99
Delivery by Tanker,
Road or Rail
Blendstock
80.1
84
Blendstock
86.6
90
Blendstock
92.0
95
Blendtock
94.2
97
Service
Stations
E8
+ Modifications and additions to safety / firefighting
Figure 8
Splash Blending of Ethanol in Road Tankers
Anhydrous
Ethanol
Plant
Through
Storage
E99
E99
E99
Direct from
Plant
Gasoline Depot
Delivery by Tanker,
Road or Rail
84
90
95
E8
Service
Stations
97
Figure 9
24
3.7 Fuel Pricing & Taxation
Prices of crude oil and petroleum products in Peru are liberalized – they are established
by supply and demand in a free and open competitive environment. Reference prices
for petroleum products are established weekly based on an import parity formula but are
used principally for the purpose of administering a price stabilization fund and not to
actively intervene in the price establishment process.
Table 9: Peru Price Structure September 2005, Soles/gal
Prices S/./gal
PRICE EX-REFINERY
TAXES
RODAJE (Vehicle tax) 8% of
ex-refinery –only on gasoline
ISC (fixed unit tax on fuels)
IGV (19% value added)
COMMERCIAL MARGIN
COMBINED WHOLESALE
AND RETAIL MARGIN
(Imputed by difference)
IGV on MARGIN (19% value
added)
FINAL PRICE
Total taxes as % Final Price
97
7.09
GASOLINES RON
95
90
6.92
6.41
84
5.93
DIESEL 2
6.95
0.57
0.55
0.51
0.47
3.85
2.19
3.62
2.11
3.31
1.94
2.60
1.71
1.40
1.59
1.31
1.24
0.31
0.38
0.17
0.25
0.24
0.06
0.07
0.03
15.25
14.68
12.54
11.17
10.14
45%
44%
46%
43%
30%
Table 10: Peru Price Structure September 2005, US$/gal
PrIces US$/gal
PRICE EX-REFINERY
TAXES
RODAJE (Vehicle tax) 8% of
ex-refinery –only on gasoline
ISC ( fixed unit tax on fuels)
IGV (19% value added)
COMMERCIAL MARGIN
COMBINED WHOLESALE
AND RETAIL MARGIN
(Imputed by difference)
IGV on MARGIN (19% value
added)
FINAL PRICE
Total taxes as % Final Price
GASOLINES RON
DIESEL 2
97
2.14
95
2.09
90
1.94
84
1.79
0.17
0.17
0.15
0.14
-
1.16
1.09
1.00
0.79
0.42
0.66
0.64
0.59
0.52
0.48
0.40
0.38
0.09
0.12
0.05
0.08
0.07
0.02
0.02
0.01
4.61
4.44
3.79
3.37
3.06
45%
44%
46%
43%
30%
2.10
25
Tables 9 and 10 are summaries of the price structure for the four grades of gasoline as
well as automotive diesel for the period September 2005, expressed in Soles/gallon and
US$ /gallon respectively.
As indicated combined taxes are a major component of the final price, amounting to 43
to 45% on gasolines and 30 % of the final price of diesel. The largest tax element is the
ISC (impuesto selectivo al consumo); it is fixed in per gallon terms, while the rodaje
(vehicle tax) is an ad valorem at 8% of the ex-refinery price, charged only on gasolines.
The IGV (Impuesto General a las Ventas) is a value-added tax, charged at a 19% rate
on the sum of ex-refinery price plus rodaje and ISC.
26
4. ETHANOL IN PERU
Ethanol is not currently being used as a vehicle fuel in Peru in any organized fashion.
There was some anecdotal evidence provided that small amounts of ethanol were being
used as a gasoline blending agent in some regions. Most of the focus in Peru on the
use of fuel ethanol has been on the use of low level blends with gasoline. It should be
noted that in some regions of the world ethanol is being used in low level blends with
diesel fuel on an experimental basis and in other regions high level blends, such as E85, are being used in specially produced vehicles. The focus of this work has been on
low level ethanol blends since these fuels are generally accepted by vehicle
manufacturers and do not require any modification or replacement of the existing
vehicle fleet.
4.1 Current Situation
Ethanol production in Peru is currently limited to 13 plants with a capacity to produce
336,500 litres per day of hydrous ethanol. Not all of the plants are currently operating
but those that are in operation are producing between 30 and 40 million litres per year.
These ethanol plants are generally associated with a sugar mill and use molasses as
the feedstock. The ethanol that is produced is used for industrial applications, potable
alcohol, and some is exported to other countries in South America and sometimes to
Europe.
One of these plants, Complejo Agroindustrial CARTAVIO, La Libertad, has installed
equipment to produce anhydrous ethanol that would be suitable for blending with
gasoline but they have not yet commissioned the equipment. The consultants visited
this sugar/ethanol plant complex and details of the visit and the plant, including photos,
are included as Annex 5.
4.2 Ethanol Feedstocks
The most likely feedstocks for fuel ethanol production in Peru are sugar cane or
molasses production from existing sugar mills. The production of potential ethanol
feedstocks is shown in Table 11 following.
Table 11: Peru – Potential Ethanol Feedstocks
Feedstock
Tonnes (2004)
Sugar Cane
7,950,000
Rice, Paddy
1,816,621
Maize
1,180,769
Barley
176,901
Wheat
168,744
Quinoa
27,040
Oats
11,521
Other Cereals
7,000
Sorghum
135
Rye
69
27
Peru is self sufficient in rice with only small quantities imported and exported. Significant
quantities of corn (Maize) are produced but almost 1,000,000 tonnes of corn are also
imported each year. Production of 100 million litres of ethanol would require 250,000
tonnes of maize. The other cereal grains are not produced in large enough volumes to
sustain a fuel ethanol industry in the country.
Figure 10
4.2.1
Sugar Cane
Peru has a long history of sugar cane production. The cane production has been
growing at a rapid rate in the past decade as shown in Figure 10.
The acreage devoted to sugar cane is about 75,000 ha and is growing. Cane yield
ranges from 100 to more than 150 tonnes/ha and is also increasing. The total amount of
cane harvested approaches 9 million tonnes per year.
The sugar content of the cane averages about 14 tonnes/ha but not all of the sugar can
be extracted and crystallized so sugar production is between 800 and 900,000 tonnes
per year. One advantage that sugar producers in Peru have is the ability to harvest the
cane 12 months a year and thus operate the sugar mills on a continuous basis. This
results in better utilization of the capital equipment and lower costs associated with the
equipment. This benefit would also apply to ethanol production as well as sugar
production.
The US Department of Agriculture is projecting that in the near future Peru will once
again be self sufficient in sugar production and become a larger sugar exporter than
they are today. Peru sugar producers currently receive some protection from low world
sugar prices by way of a variable import tariff. This support can be up to 15 cents/kg.
28
4.2.2
Molasses
Twenty to thirty percent of the sugar in the cane cannot be easily crystallized and
becomes molasses. The annual molasses production is therefore in the range of
240,000 to 270,000 tonnes per year. This molasses is used for ethanol production, for
animal feed, as a flavouring, and as the feedstock for yeast production. About one half
of the current production is used for producing the 30 to 40 million litres of ethanol
currently being manufactured.
Molasses values will vary with local and international supply and demand but are
generally in the range of $30 to $70/tonne. One tonne of molasses will produce 260
litres of ethanol.
4.2.3
Bagasse
One of the leading developers of this technology is the Brazilian company Dedini. They
are developing a process for converting bagasse to ethanol and have a 5000 litre/day
pilot plant at a Copersucar mill. Another leading developer is the Canadian company
Iogen, who are currently working with straw as the feedstock. They have a
demonstration scale plant in Ottawa, Canada producing 4 million litres per year. Neither
of the technologies is currently being commercialized but both should be watched
closely for possible applications in Peru.
4.3 Ethanol Production
Ethanol production costs are dominated by feedstock costs in more regions of the world
and Peru is no exception. This holds true both for ethanol produced from molasses as
well as ethanol produced from sugar cane.
Capital costs are important as well and there are economies of scale that can be
achieved through ethanol production in large facilities. These economies are greater in
developed countries that have high labour costs. In the United States the average
ethanol plant has a production capacity of 160 million litres per year whereas in Brazil
(which is a lower cost producer) the average plant size is 40 million litres per year.
4.3.1 Molasses
The ethanol production costs as a function of the price of molasses is shown in Figure
11.
With molasses selling for $30 to $70/tonne over the past several years this would
suggest that the opportunity cost of ethanol production is between 20 and 36 US cents
per litre (cpl).
As sugar production increases so will molasses production. The sugar processors will
have to find new markets for the molasses and will likely accept returns at the low end
of the price range. Once sugar cane production reaches 10 million tonnes per year
there will be an additional 100,000 tonnes of molasses available and this could produce
25 million litres of fuel ethanol at an opportunity cost of about 25 cpl.
4.3.2 Sugar Cane
It is also possible to produce ethanol directly from sugar cane juice. In this process the
ethanol yield is generally between 85 and 90 litres/tonne of cane.
29
In Brazil many of the ethanol plants can swing production between sugar and ethanol
and do so depending on the relative prices for each product. This keeps ethanol prices
closely tied to world sugar prices. The sugar prices in Peru are shown in Figure 12.
40.0
35.0
Ethanol, cpl
30.0
25.0
20.0
15.0
10.0
5.0
0.0
30
35
40
45
50
55
60
65
70
Molasses, $/t
Figure 11
0.45
0.40
US $/kg est.
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Raw sugar, ex plant
Figure 12
The costs of producing ethanol in Peru have been estimated from sugar prices supplied
by INEI and adjusting for sugar refining costs, adding ethanol production costs and
30
adjusting for yield. The relationship between ethanol costs and sugar costs is shown in
Figure 13.
80
70
Ethanol, cpl
60
50
40
30
20
10
0
10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50
Sugar, cents/kg
Figure 13
In Figure 14 the ex-refinery and ex-ethanol plant production prices for gasoline and
ethanol are compared without taxes. The ethanol prices are calculated from the sugar
70
60
50
40
30
20
10
Ethanol
Gasoline
Ju
lio
J
En ulio
er
o
20
05
J
En ulio
er
o
20
04
J
En ulio
er
o
20
03
J
En ulio
er
o
20
02
J
En ulio
er
o
20
01
-10
J
En ulio
er
o
20
00
En
e
ro
19
99
0
Difference
Figure 14
31
selling prices and represent the opportunity cost to the producer under the current sugar
supply and demand situation. It can be seen that for most of the past six years ethanol
would have been more expensive than gasoline. In the past several years there has
been an increase in both the world oil price and the world sugar prices so that ethanol
would still be about 15 cpl more expensive than gasoline.
There are taxes on both gasoline and ethanol and the difference in taxes provides some
level of incentive for ethanol use. Most stakeholders, both inside and outside of
government, are assuming that the current level of taxation on ethanol will remain in
place when ethanol is used as a fuel component. Ideally this should be explicitly stated
by the government to remove any uncertainty concerning fuel taxation. The typical
taxation levels for gasoline and ethanol are summarized in Table. 12a. The ethanol
price has been assumed to be 51 cpl. This has been chosen to approximately equal to
recent 90 RON gasoline price to highlight the price difference caused by taxation and
would be in the mid-range of ethanol costs based on production from sugar cane in the
past few years (it is higher than the highest end of molasses-based ethanol cost, but
ethanol from sugar cane will ultimately be the marginal production mechanism if the
required national volumes are to be achieved).
Table 12a: Peru – Taxes on Gasoline and Ethanol, $/gal
Gasoline, September 2005
Ethanol
84
90
$/gal
As % 90
RON
Price, ex plant ex-tax
1.79
1.94
1.94
100
Rodaje
0.14
0.16
0.16
100
ISC
0.79
1.00
0.42
42
IGV
0.52
0.59
0.48
81
1.45
1.74
1.06
61
3.24
3.68
3.00
82
Total taxes
Price ex-plant tax incl
In this case, ethanol enjoys a tax incentive of $0.39 per gallon for 84 RON and $0.68
per gallon for 90 RON. This assumes that Rodaje applies to ethanol as well as gasoline
and there was some uncertainty regarding this3. It also assumes that the 20% ISC
applies to ethanol for industrial applications will also apply to ethanol from gasoline. The
tax incentive for ethanol is a result of the difference in tax rates for the ISC on gasoline
(fixed rate ~ 44 to 50%) compared to ethanol (20% ad valorem). This is not the ideal
3
Since all the three taxes, including rodaje, are paid by the refiner at refinery gate and/or by importer at
entry point and billed to the wholesaler in the ex-refinery price, it is difficult to see what the mechanism
would be to charge rodaje on the ethanol portion of the gasoline, since it is brought to the storage depot
and blended there and is not part of the ex-refinery taxed volume.
32
way to provide an incentive, as the size of the incentive is larger when the difference in
ex-plant price between gasoline and ethanol is the largest. Under these conditions less
incentive will be required for ethanol and not more.
Table 12b provides another variation of this price and tax comparison between
gasolines and ethanol. The September prices for gasoline shown in Table 12a reflected
among the highest world prices for crude oil and related products – in the range of $
67/barrel for West Texas Intermediate (WTI). If gasoline prices ex-refinery at half of the
September level are assumed (reflecting about $30/barrel WTI) and compared with
ethanol at 51 cpl the results are summarized in Table 12b.
Table 12b: Peru – Taxes on Gasoline and Ethanol, $/gal
Gasoline, 50% of
September 2005 levels
Ethanol
84
90
$/gal
As % 90
RON
Price, ex plant ex-tax
0.90
0.97
1.94
200
Rodaje
0.07
0.08
0.16
200
ISC
0.79
1.00
0.42
42
IGV
0.33
0.39
0.48
123
Total taxes
1.19
1.47
1.06
72
Price ex-plant, tax incl
2.09
2.44
3.00
123
As indicated even with lower total taxes, ethanol produced from sugar cane at the midrange of costs would not be competitive with 90 RON gasoline based on $30 WTI with
the current tax structure. Exoneration from Rodaje would still leave ethanol some 15%
higher cost at plant gate than 90 RON gasoline.
It is recognized that there are many other permutations and combinations of possibly
lower ethanol costs with gasoline prices over a range of world prices but this illustrates
the need to examine the tax structure for ethanol in order to render the plant gate price
of ethanol competitive with gasoline within an array of possible gasoline price futures.
Without a certain stability created in price competition between ethanol and gasoline,
investors will be reluctant to risk their capital in new ethanol-producing ventures.
4.4 Market Development
If all ethanol were to be added to the gasoline in Peru today there would be a
requirement to either import a portion of the feedstock or some of the ethanol to meet
the demand. In several years that should not be the case as increased sugar production
will result in more molasses being produced and eventually in some sugar being sold on
world markets. Under the export scenario full use of fuel ethanol should represent a
viable alternative to sugar exports.
33
In the meantime there are several opportunities for fuel ethanol in the country that need
to be encouraged. PetroPeru imports high-octane blend stock to meet the octane
requirements at the Talara refinery. This expensive imported material could be replaced
with domestic ethanol produced from molasses at the existing sugar mills. PetroPeru
also ships high octane cracked stock from Talara, through the Panama Canal around to
the Amazon and upstream to the simple Iquitos topping refinery to meet its octane
blending requirements. This extremely costly movement could be eliminated if
domestically-produced ethanol could be supplied to Iquitos as blendstock.
There are also several independent gasoline marketers who have expressed some
interest in using ethanol as part of their product and marketing strategy. These
companies need to be encouraged as experience with and the demonstration of ethanol
gasoline blends on a voluntary basis will make the eventual introduction of ethanol in all
gasoline less controversial and easier to implement.
The choice of 7.8% ethanol in gasoline as the blend for Peru is unusual as this
particular blend is not used anywhere else in the world. The most common blend is 10%
ethanol. That is used in the United States, Canada, and now Australia. Higher blends of
20 to 26% ethanol are used in Brazil and lower blends of 5% ethanol are used in
Sweden. The low 5% blend was chosen to circumvent an existing fuel specification.
Work is underway in Europe to increase the blend to 10% ethanol.
There is little reason to think that introduction issues would be less with 7.8% ethanol
than with 10% ethanol. Issues such as vapour pressure increases and water tolerance
are marginally reduced at 10% compared to 7.8%. Materials compatibility issues should
not be significantly different at 7.8 and 10%.
4.5 Other Applications for Ethanol
The use of ethanol in diesel fuel blends and in high-level ethanol-gasoline blends could
be considered. Ethanol in diesel is being demonstrated in parts of the United States and
in Brazil. Methanol and diesel blends were previously demonstrated in Chile with some
success. The draw backs to ethanol diesel blends include the lowering of flash point of
the fuel and the resulting implications with respect to fire and safety codes, and the lack
of support for the blends from major oil companies and many equipment suppliers. The
advantage is that it would back out diesel fuel imports, which are larger than gasoline
blend stock imports and strategically could be attractive to the country.
The high level blends require special vehicles, which are not currently available in Peru.
Market penetration of E85 would therefore be slower than for E10, which can be used in
the existing fleet.
Technologies are being developed for the conversion of cellulosic materials to ethanol
rather than converting sugar or starch feedstocks. This technology could have a
significant impact on the Peruvian sugar industry since it would allow the conversion of
the bagasse to ethanol. Some sugar mills have more bagasse than they need for
supplying their own energy requirements.
4.5.1 Ethanol-Diesel Blends (E-Diesel)
Ethanol diesel blends can not be considered as a commercial fuel anywhere in the
world. There are a number of trials and demonstrations underway in Canada, the United
States and in Brazil that are gathering valuable experience with the handling and use of
34
the fuel. Some of the essential issues that must be addressed before the fuel is likely to
see widespread adoption are discussed below.
Ethanol diesel blends require an additive to keep the two components in suspension. A
number of different terms are used when discussing ethanol-diesel blends, and it is
important to properly understand the definitions to avoid confusion. These are described
below.
Solution. A solution is a single-phase liquid system, homogeneous at the molecular
level. Some e-diesel formulations may be a solution of ethanol, plus additives, in
diesel fuel.
Solvent. A solvent is a liquid substance capable of dissolving one or more other
substances. A cosolvent is a solution component that imparts solvent behaviour to a
system where solubility does not exist or is limited otherwise.
Miscible. The term miscible or miscibility means that two or more components are
capable of being mixed in any ratio without separation into two phases. Two liquids
that are immiscible cannot be blended to make a solution (like oil and water).
Ethanol and diesel fuel are not accurately described as either miscible or as
immiscible. Some ethanol can be dissolved in diesel fuel at room temperature, but as
the temperature is lowered, the solution will separate in to two phases.
Emulsion. A system consisting of a liquid dispersed with or without an emulsifier in
an immiscible liquid as very small droplets (as fat in milk). Emulsions tend to look
cloudy or milky. E-diesel is not usually an emulsion. Stability of emulsions is always
a concern, and emulsions may separate into two phases during storage.
Micro-emulsion. A chemically and thermodynamically stable ultra-fine (or colloidal)
dispersion of a dispersed liquid phase in an immiscible host phase. A micro-emulsion
is clear, like a solution, but actually consists of droplets or micelles dispersed in the
host phase. The micelle size is roughly one micron. A surfactant additive called an
emulsifier and a small amount of water are typically required for formation of a microemulsion. E-diesel formulations are most likely micro-emulsions.
Emulsifiers are known to extend the stability of ethanol-diesel blends to lower
temperatures at ethanol blending levels as high as 15% or even 20% in conventional
No. 2 diesel. However, stability of e-diesel micro-emulsions under a range of storage
conditions still need to be demonstrated in commercial applications.
Different additive packages are presently available from several different suppliers, and
several of the known emulsifiers or emulsifier manufacturers are listed in the following
table. For a 15% ethanol blend the emulsifier blending level ranges from 0.75 to 5%,
depending upon the base fuel properties and additive supplier.
Emulsifiers are also known to improve the water tolerance of ethanol-diesel blends. An
emulsifier is required, even at 5% ethanol, for the fuel to remain a single phase in the
presence of water and provision of water tolerance is a main function of emulsifiers. In
addition to emulsifier effects, a number of other benefits are claimed for the emulsifiers.
These include improved lubricity, detergency, and low temperature properties.
35
Emulsifier Manufacturers and Blending Levels (percent by volume)
Emulsifier Producer
AAE Technologies, Inc/Octel Starreon,
LLC
Akzo-Nobel
Betz-Dearborn, Inc.
Pure Energy Corporation
Biodiesel
Preferred Ethanol Level
7.7 or 10
Emulsifier Level
0.5
10 to 15
5, 10 or15
1 to 4
0.25, 0.35-0.75, or
1
1 to 5
10
5 to 15
10
Because of the low cetane number of ethanol (on the order of 8) the additive package
(i.e. the emulsifier plus other additives) must also include a cetane-enhancing additive
such as ethylhexylnitrate or ditertbutyl peroxide. Depending upon the cetane additive
blending level, the e-diesel cetane number can be increased relative to that of the
blending diesel.
There are a number of concerns regarding engine performance on the fuel. These
include the idea that the solvency effect of ethanol might loosen deposits in older
vehicles causing breakdowns. Another concern is that because of e-diesel’s higher
volatility there may be greater incidence of pump and injector cavitation, leading to
increased wear and hot restart problems. The issues of ethanol’s impact on exhaust
emissions and on energy efficiency are addressed below.
Exhaust Emissions
Regulated pollutant emissions for e-diesel fuels produced by three manufacturers have
been reported. As shown in the following figure, studies at three different laboratories
show comparable PM emissions benefits for all three forms of e-diesel examined, with
the observed PM reduction a linear function of fuel oxygen content. However closer
examinations of the data indicates significant variation in PM emissions with e-diesel
formulation, and in some cases PM emissions reductions in excess of 30% have been
obtained at 7.7% ethanol. E-diesel developers claim large reductions in smoke opacity
as well.
PM Emissions of E-Diesel
The three studies cited in the chart below show clear and consistent PM emissions
benefits. However other studies have shown a PM increase over the AVL 8-mode tests
(Sluder, et al., 2001) or PM decreasing over only a fraction of the engine map (Cole, et
al., 2001). Additional studies will be required to fully understand potential emissions
benefits for all engine models and driving cycles.
The situation for CO emissions is less clear, but given observed correlations between
CO and PM it seems likely that CO emissions are decreasing in concert with PM
emissions on a cycle average basis. Many reports indicate a lower rate of reduction for
CO compared to PM. Results for both AAE and PEC e-diesel showed a 15 to 20%
decrease in emissions of CO (at 10% ethanol content). CO emissions increased in the
study of Betz Dearborn e-diesel but were still one order of magnitude below the
emission standard for heavy-duty engines. The model has been programmed for a
factor of 1.5 applied to the ethanol content equaling the CO reduction.
36
0
2
4
15% Ethanol
-60
AAE
PEC
BetzDearborn
10% Ethanol
-40
7.7% Ethanol
-20
5.7% Ethanol
Percent Change in PM Emission
0
6
8
Weight Percent Oxygen in Fuel
It is likely that addition of ethanol will have no effect on cycle average NOx emissions as
long as the cetane number of the e-diesel is matched to that of the blending diesel. If
the emulsifier package is formulated to increase the cetane number relative to the base
fuel by 5 or more cetane numbers, it may be possible to realize NOx benefits. Because
of the cost of cetane improving additives there may be significant economic barriers to
this approach, and the same NOx benefit could be obtained by adding cetane improver
to a conventional diesel.
Total hydrocarbon emissions increased by as much as 100% in all three studies, but
were still an order of magnitude below the hydrocarbon emissions standard for heavyduty engines. It is unknown to what extent emissions can be effected by the emulsifier.
A diesel oxidation catalyst or other advanced catalytic after treatment technology could
easily reduce the hydrocarbon emissions to very low levels.
Energy Efficiency
The low heating value of ethanol is 42% lower than that of a typical diesel fuel on a
volume basis, as shown in the following table. Blending of ethanol with diesel lowers the
volumetric energy density in proportion to the ethanol content of the fuel as shown in the
calculated heating values in the table. The lower fuel energy content will translate
directly into a lowering of miles per gallon fuel economy. The engine efficiency, in terms
of BTU consumed per unit of power produced, does not appear to change when ethanol
is added in the zero to 15% range. At some blending level modification to the fuel
injection system to allow injection of larger quantities of fuel is likely to be required for
engine performance and for fuel injector/pump durability.
37
Heating Value of Diesel, Ethanol and Blends
Fuel
LHV, btu/gal (MJ/L)
% Decrease from Diesel
Typical Diesel
132,000 (36.6)
-5% Ethanol/Diesel
129,222 (35.8)
2.1
10% Ethanol/Diesel
126,443 (35.1)
4.2
15% Ethanol/Diesel
123,665 (34.3)
6.3
Ethanol
76,431 (21.3)
42
Regulatory
Diesel Fuel Specification
Ethanol diesel blends will not meet the specifications for diesel fuel when it is blended
with a specification diesel fuel. The primary reason will be the flash point of the fuel.
There is little that can be done to alter this property so that the blend will meet the
specification as it is caused by characteristics of the ethanol.
Flash point is the lowest temperature at which the vapour pressure of a liquid is
sufficient to produce a flammable mixture in the air above the liquid surface in a vessel.
Vapour pressure is a related property, which is defined as the pressure exerted by a
vapour over a liquid in a container at a specified temperature. Vapour pressure and
flash point are important from both a fire safety standpoint and from the standpoint of
evaporative hydrocarbon emissions. Typical combustion safety metrics for diesel,
ethanol (neat) and gasoline are listed in the following table. The flash point for ethanoldiesel blends is very similar to the flash point of pure ethanol, which is as much as
50 C lower than that of typical diesel.
Additionally, in a report prepared for Growmark, Inc., Battelle demonstrated that blends
of 10, 15, and 20% ethanol in conventional diesel exhibit combustion safety
characteristics essentially identical to those listed in the following table for pure ethanol.
These data were acquired on diesel ethanol blends that contained no emulsifier.
However, the presence of emulsifiers has no effect on flash point. There is some
possibility that flashpoint could increase for ethanol blending levels below 10%. Thus,
additional data are required to quantitatively understand the flash point issue. It is also
notable that the ethanol denaturant used in the Growmark study was most probably
natural gasoline. The use of a higher boiling (lower vapour pressure) denaturant such
as kerosene may have an impact on flash point.
Approximate Combustion Safety Characteristics of Neat Fuels
Vapor pressure@38°C, psi
Flash point, °C
Boiling point (or range), °C
Autoignition temperature, °C
Flammability limits, vol%
Flammability limits, °C
Typical Diesel
0.04
55-65
170-340
230
0.6-5.6
64-150
Ethanol
2.5
13
78
366
3.3-19.0
13-42
Typical Gasoline
7-9
-40
33-213
300
1.4-7.6
(-40)-(-18)
38
The National Fire Protection Association (NFPA) has established guidelines for the safe
storage and handling of flammable liquids. This code uses flash point to distinguish
between different liquid fuels. A Class I liquid has a flash point below 38 C (100 F)
and a Class II liquid has a flash point above this level. Ethanol and gasoline are Class I
liquids while diesel is a Class II liquid.
Addition of ethanol to diesel fuel changes its NFPA classification to Class I. This means
that e-diesel has more stringent storage requirements than conventional diesel,
including more distant location of storage tanks from property lines, buildings, other
tanks, and vent terminals, as well as the requirement of flame arrestors on all vents.
Essentially e-diesel must be stored and handled like gasoline. This places a
considerable end user education burden on the industry to insure that the product is
properly transported, stored, dispensed and used. The need for distributors and end
users to make modifications to storage tanks and fuel handling equipment will also have
significant cost. Some stakeholders in the e-diesel industry believe that low-flash point
limits the market to centrally refuelled fleets, where there can be considerable control
over fuel handling.
In addition to storage requirements, there may be additional safety requirements for
transport of e-diesel by truck or for on-board vehicle fuel tanks. In particular, neat
ethanol can produce a flammable mixture in a vehicle fuel tank under a wide range of
temperatures. This contrasts with the situation for gasoline where the vapour is too rich
to be flammable at all but the lowest ambient temperatures, and for diesel where the
vapour is too lean to be flammable. Because e-diesel appears to have vapour pressure
properties identical to those of neat ethanol, the flammability of the tank vapour space
may also be an issue here. An examination of regulations affecting fuel transport, onboard tanks and refuelling equipment is required to begin to understand the safety
implications of e-diesel use. Fire safety experts and insurance underwriters will have to
be consulted to determine if new fire safety standards need to be developed for this
fuel, or if the existing regulations are adequate.
Furthermore, the low flash point may create safety issues with the engine fuel system
design. Equipment manufacturers that permit use of e-diesel may be exposing
themselves to liability. OEM’s view the low flash point as a major hurdle, especially in
the existing fleet.
Engine Manufacturers
Currently engine manufacturers will not warranty their engines for use with e-diesel
because of not only concerns about safety and liability, but also materials and
component compatibility. A large body of test data acquired in close cooperation with
the OEM’s will be necessary to address this issue.
Ethanol is chemically very different from diesel fuel components and will interact
differently with elastomers and metal surfaces. This may also be true for emulsifier
chemicals. It may also be that some emulsifiers protect the elastomers and metals from
“seeing” the ethanol and materials compatibility issues are not significant. There may
also be a difference from one emulsifier to another.
Demonstration of similarity of e-diesel with conventional diesel fuel in terms of materials
compatibility is a necessary prerequisite to engine durability testing. If similarity cannot
39
be demonstrated, an understanding of what materials must be replaced and of suitable
replacements must be obtained. Engine durability testing and fleet studies are the
ultimate test of materials compatibility. However, if certain materials need to be replaced
on engines using e-diesel this should be known before initiation of durability or fleet
studies.
A number of field demonstrations of e-diesel are ongoing or have recently been
completed. Marek (2001) recently described several studies and this description is
briefly summarized here. In 1999, Archer-Daniels-Midland (ADM) began a test using
three new 1999 Mack trucks equipped with Mack E7 engines. Two of the trucks were
operated on Pure Energy Corporation (PEC) e-diesel with 15% ethanol (E-15) while the
third was operated on diesel as a control. These trucks have each accumulated more
than 270,000 miles with no fuel related problems. A second field test of PEC E-15 was
initiated at the Chicago Transit Authority, also in 1999. Fifteen e-diesel buses and fifteen
controls were operated for roughly 20,000 miles each. No fuel related problems were
encountered, and fuel economy for the two fifteen vehicle fleets was identical. A number
of farm equipment tests have also been reported with no fuel-associated problems. One
difficulty with studies of this type is the lack of statistical analysis, a particularly
important requirement for field demonstrations because of the relatively high uncertainty
associated with real-world data.
While the field demonstrations suggest that e-diesel will not cause engine durability
problems, they do not eliminate the need for more carefully controlled laboratory
durability studies of engines and engine components. A 500-hour durability test using
PEC 15% e-diesel was recently completed by the University of Illinois using a Cummins
B5.9 engine. Because the expense of running a controlled study was too great (i.e.
running two 500-hour durability tests in parallel) the study relied on examination of
engine components for abnormal wear and analysis of the lubricant for abnormal levels
of wear metals. The study found that e-diesel promotes abnormal wear and corrosion
on certain parts of the Bosch fuel pump and fuel injectors. There was also a materials
incompatibility problem with an electronic sensor on the fuel pump. The excessive fuel
pump wear was thought to be caused by excessive backlash in the timing device
because of high fuelling rates, and thus may have been caused by the lower energy
content of the e-diesel. On the positive side, there was no increase in metal
contaminants in the lubricant and use of e-diesel appeared to reduce the amount of
injector nozzle coking relative to petroleum diesel.
To facilitate large-scale commercialization of e-diesel, major vehicle and parts
manufacturers must warrant their products for use with this fuel. Engine manufacturers
warranty the materials and workmanship of their engines, and are able to void the
warranty if certain fuels are used in an engine that was not designed for them. The
same is true for individual engine parts, such as fuel injectors. Therefore, it is important
to gain acceptance of e-diesel by engine manufacturers for warranty coverage. It seems
likely that a fuel will have to have a significant number of users before engine
manufacturers will become interested in considering warranty issues.
4.5.2 High Level Ethanol-Gasoline Blends and Hydrous Ethanol
The solubility of ethanol in gasoline is primarily a function of temperature and the
presence of water. The actual composition of gasoline can also play a small role. When
40
ethanol is used at the 10% (volume) level the blend of ethanol and gasoline can contain
about 0.5% water at a maximum. This means that the ethanol used for blending must
be essentially free of water since there is some water usually dissolved in the gasoline
(0.03%) and water can be picked up in the distribution system leaving little room for the
use of ethanol that contains more than 1% water.
The ability to dissolve water in a blend is a non-linear function of the rate at which
ethanol is blended. At a 5% ethanol blend less than 0.25% water can be tolerated in the
system and since the gasoline contains the same 300 ppm of water the amount that can
be added with the ethanol is lower than at a 10% blend level.
If higher ethanol concentrations were to be considered for use in purpose built vehicles
then more water can be tolerated. The new generation of flexi fuel vehicles being sold in
Brazil would appear to function on Brazilian gasoline (25% anhydrous ethanol) as well
as on 100% hydrated ethanol and all blends in between. These are special purpose
built vehicles and the typical Peruvian gasoline powered vehicle, that has been
designed to operate on gasoline with low or no levels of oxygen, would experience
severe operating issues if they were operated on either hydrated ethanol or probably
even a 25% anhydrous ethanol blend.
Apart from the vehicle performance/usage issues the use of high-level blends and/or
hydrous ethanol, in addition to conventional gasoline or low level blends, would require
considerable additions to the existing infrastructure. In effect additional, separate
grades would now have to be distributed. Separate, segregated tanks and pumps
would be required for these separate grades of motor fuels. These would have to be
installed in existing service stations or in new, dedicated outlets.
41
5. BIODIESEL IN PERU
Biodiesel can be produced from a wide variety of feedstocks and the resultant products
have similar but not identical properties. The fuel mixes well with petroleum diesel fuel
and can be used in blends that include less than 1% biodiesel up to the use of 100%
biodiesel in unmodified diesel engines.
Increased use of biodiesel from domestic feedstocks in Peru would reduce the need for
imported petroleum diesel fuel. This would positively impact the countries balance of
payments. Biodiesel can also be made in relatively small scale operations and thus may
be ideally suited to supplying the fuel needs in some of the more remote regions of the
country.
5.1 Current Situation
Biodiesel is not yet commercially available in Peru but there has been considerable
research undertaken at the universities and there is a 75 million litre per year biodiesel
production facility under construction south of Lima4.
5.2 Biodiesel Feedstocks
Biodiesel can be made from a wide variety of feedstocks including vegetable oils, waste
restaurant grease, animal fats (Tallow) and fish oils. All of these feedstock categories
are present in Peru.
In the case of vegetable oils, the Peru oil crop production is summarized in Table 13. In
order to add 5% biodiesel to the entire petroleum diesel stock in Peru, 165,000 tonnes
of feedstock will be required. This is equal to the level of vegetable oils imported into
Peru.
The largest crop is palm oil but the country is a net importer of vegetable oils so even
this production would need to be expanded in order to meet the requirements for a
biodiesel industry. The supply and demand situation is summarized in Table 14.
Most of the vegetable oil is used for food and food manufacturing.
The supply of yellow grease and tallow are usually a function of the human population
(yellow grease) and the animal population (tallow). Some of the biodiesel proponents
have estimated that 4 million litres per year of yellow grease in available for collection in
the Lima area. This may be low. The volumes available in North America cities are often
estimated at 4.5 litres/person/year. This is probably not directly applicable to Lima but it
suggests that an upper limit of yellow grease availability could be as high as 36 million
litres/year.
Fish oil is another possible feedstock. Only limited experience with this feedstock is
available in the world but some biodiesel is produced from Peruvian fish oil in Canada5.
4
The Heaven Petroleum/HERCO biodiesel production facility is being built at the HERCO petroleum
depot site, some 30 km south of Lima. Feedstocks will be locally-collected waste oils and palm oil from a
producer with a plantation in the Selva with whom they have a supply contract, including agreed price for
the palm oil unloaded at the plant. Daily biodiesel production capacity will be 60,000 gallons.
5
The Nova Scotia-based company, Ocean Nutrition Canada uses fish oils from local and imported
sources to produce nutrition products such as Omega-3. After extracting these products the residual oil is
sold to a biofuels producer.
42
Biodiesel feedstocks are relatively expensive. Palm oil is priced about $530/tonne in
Lima and given the significant levels of oil imports the local price can be expected to
vary with world market conditions. Yellow grease is often priced less than vegetable oils
and while generators of the waste receive little value for the product the collection and
processing costs can be significant.
Table 13: Peru Oil Crops Production, tonnes
2003
2004
Oil Palm Fruit
180,446
208,538
Seed Cotton
126,125
160,460
Cottonseed
80,000
69,672
Olives
38,089
42,198
Oil of Palm
35,000
42,000
Coconuts
22,989
21,283
Palm Kernels
8,000
9,000
Groundnuts in Shell
5,188
5,200
Soybeans
1,928
2,581
750
850
Sesame Seed
76
75
Castor Beans
0
0
Linseed
Table 14: Peru Oil Crops Supply/Demand Balance, tonnes
2001
2002
Production
151,673
146,139
Imports
135,288
167,341
Stock Change
-25,600
-25,700
8,288
7,047
253,073
280,732
Feed
28,571
42,857
Seed
3,549
3,770
Waste
17,588
18,694
Food Manufacture
88,288
87,435
113,701
126,062
1,568
2,002
Exports
Total Supply
Food
Other Uses
43
5.3 Biodiesel Production Costs
Biodiesel production costs are dominated by the feedstock costs. The feedstock costs
and the biodiesel selling prices can be very volatile. In Figure 15 the prices of vegetable
oil, animal fats and diesel fuel are compared. In North America the price of yellow
grease is usually close to but just below the price of animal fat.
0.70
0.60
$/litre
0.50
0.40
0.30
0.20
0.10
Veg Oil
Animal Fat
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
0.00
Diesel Fuel
Figure 15
One litre of biodiesel feedstock produces approximately one litre of biodiesel.
Depending on the price of the feedstock the biodiesel feedstock will represent 75 to
90% of the total production cost of the product.
Like ethanol there is some confusion regarding the level of taxation that biodiesel would
attract. It is the understanding of most stakeholders that there is no ISC on biodiesel. If
this is the case then there is a tax incentive for biodiesel. The taxation of petroleum
diesel and biodiesel is compared in Table 15.
Table 15: Peru – Taxes on Petrodiesel and Biodiesel, $/gal
Petroleum Diesel
September, 2005
Biodiesel
Plant Price
2.10
2.10
ISC
0.42
0.00
IGV
0.48
0.40
Wholesale Price
3.00
2.50
44
The tax advantage for equal plant gate prices is $0.50/gal. The Diesel fuel price is the
price for September 2005 (equivalent to about $67/barrel WTI) and the biodiesel price is
equivalent to a feedstock cost of about $525/tonne (typical of palm oil prices).
Again the price incentive structure is not ideal. The tax incentive is larger when biodiesel
prices are low and less support is required and when biodiesel production costs
increase then the level of the tax support will decrease. This structure does not provide
long term stability to alternative fuel providers. Even if the biodiesel price were to stay at
this level the advantage over petrodiesel would disappear if world oil price, reflected by
WTI crude, were to drop below about $45 to $50/barrel.
5.4 Market Development
Biodiesel is an attractive fuel option for Peru because of the high level of imported
diesel fuel, the relative ease of implementation and the air quality benefits that biodiesel
blends offer.
Biodiesel feedstocks are relatively high in price and usually require some level of
financial incentive to equalize the price with petroleum diesel fuel.
There is an opportunity to use feedstocks other than vegetable oils for biodiesel
production and these alternative feedstocks should not be excluded from any national
program. These alternative feedstocks are often lower in cost than vegetable oils and
improper disposal of them can cause environmental damage. Creating value from waste
products is always good public policy.
Biodiesel blends of greater than 5% can be used successfully in modern diesel engines
especially in most of Peru where cold weather operating problems are not a major
issue. The United States has a large amount of experience with 20% biodiesel blends
and Germany has used 100% biodiesel for a number of years.
The use of 100% rapeseed biodiesel in Germany was due in part because the German
interpretation of the EU Tax directive was that biodiesel was not mineral oil and
therefore there was no tax on it. Blends were mineral oils and therefore were subject to
tax. The biodiesel was also used almost exclusively by the independent sector up to
2005 (when the tax incentive on blends was introduced) and it was thus almost entirely
outside of the existing distribution system. About one half of the biodiesel was sold
through retail outlets and the other half was delivered direct to end use trucking
fleets.The fuel apparently worked in all climate conditions but rape biodiesel has the
best cold weather properties.
Annex 6 provides an overview of the area in hectares in Peru which is planted in oil
palm. Palm oil biodiesel has cold weather properties close to tallow at the other end of
the spectrum. It may be OK for use in the jungle regions but if any of the vehicles
traveled from the jungle through the mountains it could cause problems when the
temperature dropped.
If the users in the jungle areas had their own fuel tanks then 100% palm oil biodiesel
could probably be delivered to them directly from the biodiesel plant and that could be
quite an efficient distribution system compared to what they currently have for diesel
fuel. If they have to use the retail network then that would mean the installation of
45
another tank and pump in the service stations . The 100% German experience was all
voluntary, people used it in part because it was cheap. If some engines had any
performance issues they just switched back to petro diesel. Some loss of power at the
top end is usual just because you can't get as much fuel into the engine. Any
underpowered vehicles would therefore experience some operational issues.
Substituting palm biodiesel for petrodiesel or mandating it for certain regions is a
different issue and more experience with the fuel in the regions would be necessary
before all stakeholders could be convinced that diesel should be replaced.
This option of regional use of 100% biodiesel should not be eliminated but some caution
is required before it is regulated into use.
Biodiesel fuel quality is an important aspect of a successful biodiesel program. Biodiesel
standards need to be developed that are appropriate for Peruvian engines. Too often
national standards have been developed to create barriers rather than assist with
implementation. In this regard care must be taken when simply copying standards
developed in one region for use in Peru to ensure that market barriers are not being
erected.
5.5 Other Applications for Biodiesel
Biodiesel can also be used in other applications where diesel fuel or heating oil is used
and not just in road transportation applications. In a voluntary introduction it will be
important to allow access to as wide a market as possible to allow the biodiesel market
to grow rapidly. If a mandated market introduction is contemplated then a narrow market
focus can be successful.
46
6. ALTERNATIVE FUEL IMPLEMENTATION BARRIERS
Creating markets for alternative fuels is not an easy task. There are significant issues
that must be addressed for these markets to develop. There are no examples anywhere
in the world where alternative fuel markets have developed without some level of
government intervention. This intervention usually takes the form of either a significant
tax incentive to equalize (or provide an advantage to) the cost of the alternative fuel
compared to gasoline or diesel fuel, or to mandate the use of the alternative fuel (with or
without a tax incentive).
The issue of creating markets for energy technologies has been the subject of
considerable focus at the International Energy Agency over the past five years. In 2003,
the IEA published a report “Creating Markets for Energy Technologies” that considered
the process of market development. This was not specifically focused on transportation
fuels but the findings can be directly applied to the task of creating markets for
alternative transportation fuels.
The technological and market developments required to transform the energy
system will be conceived and implemented largely in the private sector. But
success in this endeavour will not be determined exclusively by market forces.
Governments that value the wider benefits of cleaner and more efficient energy
technologies will work in partnership with market actors to ensure there are real
opportunities for technologies to make the difficult transition from laboratory to
market. This book is about the design and implementation of policies and
programs for that purpose.
Governments are motivated to assist not only because they have a responsibility
for the pursuit of long-term societal goals and stewardship of the planet, but also
because they understand that their policy settings help to determine whether
markets develop and operate efficiently. Policymakers must therefore understand
the markets concerned and they must have a highly developed capacity to mount
effective programs. In both cases, experience is the best teacher.
The IEA reviewed 22 case studies of what they determined were successful energy
market developments in IEA countries over the past twenty years. In studying the
cases, the IEA considered three perspectives on deployment policymaking. These three
perspectives have developed over the last quarter of a century.
•
The Research, Development and Deployment Perspective, which focuses on the
innovation process, industry strategies and the learning that is associated with
new technologies;
•
The Market Barriers Perspective, which characterizes the adoption of a new
technology as a market process, focuses on decisions made by investors and
consumers, and applies the analytical tools of the economist;
•
The Market Transformation Perspective, which considers the distribution chain
from producer to user, focuses on the role of the actors in this chain in
developing markets for new energy technologies, and applies the tools of the
management sciences.
47
In part, the three perspectives are three vocabularies for looking at the same issue but
each adds something that the others are missing. The strength of the R&D plus
Deployment concept is its vision of the future and its focus on the technology itself, its
costs and performance and the process of market entry through niche markets. The
market barriers approach uses economic analysis to improve the understanding of the
barriers to market entry and provides some discipline to the analysis of market
intervention measures that could be used as policy tools. The Market Transformation
perspective encourages sensitivity to the practical aspects of crafting policies that
produce the desired effects.
The IEA concluded that the adoption of clean energy technologies would not be likely to
succeed unless all three perspective were considered and that it is necessary to:
• Invest in niche markets and learning in order to improve technology cost
and performance; and
• Remove or reduce barriers to market development that are based on
instances of market failure; and
• Use market transformation techniques that address stakeholders'
concerns in adopting new technologies and help to overcome market
inertia that can unduly prolong the use of less effective technologies.
Visually the IEA summarize the three perspectives as shown in Figure 16.
Figure 16: Overall Perspective on Technology Market Development
Around this central theme, a close reading of the IEA case studies revealed more
detailed messages about the nature of successful policy-making. Some key points are:
48
•
Deployment policy and programs are critical for the rapid development of
cleaner, more sustainable energy technologies and markets. While technology
and market development is driven by the private sector, government has a key
role to play in sending clear signals to the market about the public good
outcomes it wishes to achieve.
•
Programs to assist in building new markets and transforming existing markets
must engage stakeholders. Policy designers must understand the interests of
those involved in the market concerned and there must be clear and continuous
two-way communication between policy designers and all stakeholders. This
calls for the assignment of adequate priorities and resources for this function by
governments wishing to develop successful deployment initiatives. Programs
must dare to set targets that take account of learning effects; i.e., go beyond
what stakeholders focused on the here-and now may consider possible.
•
The measures that make up a program must be coherent and harmonized both
among themselves and with policies for industrial development, environmental
control, taxation and other areas of government activity.
•
Programs should stimulate learning investments from private sources and
contain procedures for phasing out eventual government subsidies as technology
improves and is picked up by the market.
•
There is great potential for saving energy hidden in small-scale purchases, and
therefore the gathering and focusing of purchasing power is important.
•
Most consumers have little interest in energy issues per se, but would gladly
respond to energy efficiency measures or use renewable fuels as part of a
package with features they do care about.
The three perspectives from the IEA have been briefly considered here so that the
issues that may impede market development for ethanol and biodiesel in Peru and that
require addressing from a policy perspective can be identified and addressed.
In the rest of this chapter, each individual perspective is described in more detail and
then the market development issues for biofuels are assessed from that perspective.
The description of the different perspectives draws heavily on the IEA report but the
tools found in each of the perspectives have been applied to the specific application of
biofuels market development.
6.1
Research and Development + Deployment
While it is likely that most of the technology that will be employed in producing biofuels
in Peru will be developed technologies from other parts of the world it is still important to
consider the R&D + D perspective. There are lessons that can be learned from this view
even with applying existing technology in new regions and in the case of ethanol there
is the potential to one day produce ethanol from bagasse with technology currently
under development.
Many groups consider product or technology development as a linear process which
moves from research and development through to the end market as shown in Figure
17.
49
Figure 17: Stages of Development
In practice, the technology development process is cyclic in nature rather than linear
with decisions being made at each stage having an influence on any eventual market
success and in the later stages feedback between the market experiences and further
technology development are very important. It is this feedback between deployment and
R&D that is critical for success and that is why the IEA called this perspective Research
& Development + Deployment.
The market uptake of new biofuel technologies has two positive effects. First, there is
the physical effect of using renewable energy and the reductions in greenhouse gas
emissions that would accompany this and the second effect is the learning effect of how
to produce new energy sources less expensively and more effectively. It is the
combined effect that produces the real impact for new technologies.
In the case studies that the IEA considered they found that many government
sponsored deployment programs defined success in terms of sales growth and market
penetration. They found that this was too narrow a view and it neglected the link
between the programs and private sector investment decisions. Decision makers in
industry often consider the initial costs of market learning too high and too risky.
Governments on the other hand have scarce public resources and can’t bear the total
cost of moving a new technology to market. However, in many of the case studies early
government involvement in the deployment process played a crucial role in encouraging
private sector involvement and in activating the learning process among the market
participants.
The IEA describes the process of the interaction between the governments and the
private sector as shown in Figure 18.
The figure summarizes how public sector and industry R&D interact to produce a
‘virtuous cycle’ in which government support encourages corporations to try out new
technologies in genuine market settings. The two vertical arrows represent the
encouragement for industry R&D and production with a new technology brought about
by government policies. Expanded output and sales stimulate the ‘plus’ cycle in the
diagram: industry R&D increases further, which enhances the technology stock, which
in turn further stimulates production. The production increases also stimulate the
learning process and the ‘minus’ cycle in the diagram, resulting in reductions in the cost
of production. This further stimulates sales and the cycle reinforces itself. The figure
also indicates the role of experience and learning curves, which will be discussed next
in this chapter. They provide a quantitative measure of market learning and the
efficiency of the feed-back from market experience (“M”) to production and industry
R&D, which leads to cost reductions and improved technology.
50
Figure 18: Influences on the Learning Process from Public Policies
The figure also provides a powerful argument in favour of government support for
technology deployment, if government is supporting research it should also be
supporting deployment.
Experience Curves
There is overwhelming empirical evidence that deploying new technologies in
competitive markets leads to technology learning, in which the cost of using a new
technology falls and its technical performance improves as sales and operational
experience accumulate. Experience and learning curves, which summarise the paths of
falling technology costs and improving technical performance respectively, provide a
robust and simple tool for analysing technology learning.
Viewed from the Research, Development and Deployment (R&D + D) perspective, the
curves provide a method to set targets and monitor programs; this includes a way of
estimating program costs and providing a guide to phasing out programs as
technologies mature and no longer require the support of deployment measures.
The shape of the curves indicates that improvements follow a simple power law. This
implies that relative improvements in price and technical performance remain the same
over each doubling of cumulative sales or operational experience. As an example, the
experience curve for ethanol production costs in Brazil is shown in Figure 19. Similar
curves can be developed for the US ethanol industry. Ethanol production costs have
declined continuously over the past 25 years as experience with the technology has
51
been gained. When this technology is transferred to Peru most of the technology can
also be transferred but some will have to be learned locally. Thus it can be expected
that over time fuel ethanol (and biodiesel) production costs will decline. Any support
provided in the early years of market development should be able to be slowly reduced
and experience is gained and costs decline.
Figure 19: Experience Curve for Brazil Ethanol Production Costs
The straight line captures a very important feature of the experience curve. Anywhere
along the line, an increase by a fixed percentage of the cumulative production gives a
consistent percentage reduction in price. This means that for technologies having the
same progress ratio, the same absolute increase in installed capacity will yield a greater
cost decrease for young technologies (i.e., they learn faster) than old technologies. This
also means that the same absolute increase in cumulative production will have more of
a dramatic effect at the beginning of a technology’s deployment than it will later on. For
well-established technology, such as oil refineries using conventional technology, the
volume required to double cumulative sales may be of the order of 100 million bbls/day,
so the experience effect will hardly be noticeable in stable markets.
6.2
Market Barriers Perspective
The Market Barriers perspective views the adoption of new technologies as a market
process and focuses on the frameworks within which decisions are made by investors
and consumers. Anything that slows down the rate of adoption can be referred to as a
market barrier. The emphasis on this perspective to market development should be on
understanding the barriers and in what role the government may act to reduce those
barriers. The Research and Development and Deployment perspective focussed on the
innovation and its relative advantages, the Market Barriers perspective considers more
of the social systems and communications issues with respect to diffusion of the
technology. The Market Barriers perspective is probably the most important one for the
introduction of biofuels in Peru.
52
Inertia is likely to be found in well-established markets based on conventional energy
technologies that have been around for many decades. For a variety of reasons – such
as ingrained consumer attitudes combined with the large expense involved in trying to
change them or the advantages that existing sellers have if their technologies are based
on costly capital infrastructure that has been paid for in the past – the market system
may be sluggish when it comes to welcoming new products. In the past several
decades, many proponents of energy conservation and diversification believed that
normal market processes were far too slow at bringing about the widespread use of new
energy technologies that were urgently needed to enhance energy security and the
environment. They suggested that this was due to various barriers in the way of the
rapid market penetration of technologies that were obviously superior in their view and
they advocated government action to reduce or eliminate them. This view has created
some debate about the proper role of government in addressing the barriers with the
incumbent energy producers and many economists on one side and energy technology
developers and environmentalists on the other side.
Out of this debate came what the IEA are calling the Market Barriers perspective, a view
that focuses on the desirability of facilitating the adoption of cleaner and more efficient
energy technologies, but by way of policies consistent with the underlying objectives
and constraints of a market system. The objective of promoting energy conservation is
still there, but subject to the constraint that the policy measures used to pursue that goal
are economically efficient. Put another way, it is the perspective that results when the
barriers that tend to slow the rate of adoption of new technologies are identified and
subjected to analysis within the framework of neoclassical economics.
The various market barriers that are viewed as important are well known. The following
table provides a summary list, along with some typical measures that are taken to
alleviate the barriers. Note that a list of this sort is not comprehensive and is not meant
to suggest that the individual barriers are tight categories. The barriers overlap and
there is interaction between them and their effects on decisions to invest in new
technologies.
Not all of these barriers apply to bioenergy in general or to biofuels specifically. In the
following table, the market barriers are assessed for bioenergy in general and some
other energy technologies. It is apparent from the table that the barriers that bioenergy
faces are not that different from the barriers facing other forms of renewable energy or
even new forms of fossil energy.
53
Table 16: Types of Market Barriers
Barrier
Key Characteristics
Typical Measures
Uncompetitive market
price
• Scale economies and learning
benefits have not yet been realized.
• Learning investments
Price distortion
• Costs associated with incumbent
technologies may not be included in
their prices; incumbent technologies
may be subsidized.
• Regulation to internalize
‘externalities‘ or remove subsidies
• Availability and nature of a product
must be understood at the time of
investment.
• Standardization
Information
Transactions costs
Buyer's risk
• Costs of administering a decision to
purchase and use equipment
(overlaps with “Information” above).
• Perception of risk may differ from
actual risk (e.g., ‘pay-back gap‘)
• Difficulty in forecasting over an
appropriate time period.
Finance
Inefficient market
organization in relation
to new technologies
• Additional technical development
• Special offsetting taxes or levies
• Removal of subsidies
• Labelling
• Reliable independent information
sources
• Convenient & transparent
calculation methods for decision
making
• Demonstration
• Routines to make life-cycle cost
calculations easy
• Initial cost may be high threshold
• Third party financing options
• Imperfections in market access to
funds.
• Special funding
• Incentives inappropriately split
owner/designer/user not the same.
• Restructure markets
• Traditional business boundaries
may be inappropriate
• Adjust financial structure
• Market liberalization could force
market participants to find new
solutions
• Established companies may have
market power to guard their
positions.
Excessive/ inefficient
regulation
• Regulation based on industry
tradition laid down in standards and
codes not in pace with development.
• Regulatory reform
Capital Stock Turnover
Rates
• Sunk costs, tax rules that require
long depreciation & inertia.
• Adjust tax rules
Technology-specific
barriers
• Often related to existing
infrastructures in regard to hardware
and the institutional skill to handle it.
• Focus on system aspects in use of
technology
• Performance based regulation
• Capital subsidies
• Connect measures to other
important business issues
(productivity, environment)
54
Table17: Summary of Market Barriers by Technology
Small-scale
Hydro
Windpower
Clean Coal
Bioenergy
0
0
++
++
Price Distortion
++
++
++
++
Informational
+
+
+
++
Risk
+
++
++
++
Financial Barrier
++
+
++
+
Market Organization
++
*
+
*
Regulatory Processes
++
++
++
++
Equipment Turnover Rate
+
+
++
+
none
Systems
integration
Infrastructure
complexities
none
++
++
++
++
Barrier
Cost
Technology Specific Barriers
Environmental
Notes:
0
+
++
*
For some applications costs are close to competitive with established technologies
Weak barrier, not a key constraint
Strong barrier, primary focus of sector participants
Not obviously applicable
According to the principles of market economics, governments should intervene in the
economy only in a situation in which the market fails to allocate resources efficiently and
where the intervention will improve net social welfare. In the ‘strong‘ form of this view,
barriers in the way of the adoption of new technologies should be dealt with by
government action only if they involve market failure. In those cases, government
should intervene to correct the market failure (again, subject to the intervention
increasing net social welfare). Once this has been done, according to the market
barriers perspective, government should leave decisions on the purchase of new
technologies to the private sector. Therefore, one should consider to what extent the
barriers identified involve market failure and whether there are any qualifications to the
market failure argument. It is critical to note that not all market barriers involve market
failure.
Some of the market barriers shown in Table 16, such as higher product costs, the risk of
product failure, the high cost of finance for small borrowers, and others included in the
table, are normal and inherent aspects of the operation of most markets and they
should be allowed to influence decisions in energy markets just as they influence
decisions in all other markets. These barriers do not usually satisfy the market failure
criterion because they involve necessary costs that have to be covered for all goods
55
and services; the existence of the barriers themselves does not provide a reason for
favouring new energy technologies, which (in the classical economists view) should
have to compete for investment dollars with everything else of value if resources are to
be allocated efficiently.
Most instances of market failure involve externalities, which occur in a market
transaction if any of the costs or benefits involved in it is not accounted for in the price
paid for the product that is sold. If there are costs that are external to the market (i.e.,
the buyer does not pay some of the costs incurred in producing the product), a negative
externality occurs. If there are external benefits, a positive externality occurs.
An example of a classic market barrier that can involve market failure is the cost and
inconvenience to consumers of finding and analyzing information about energy-saving
equipment (the communications issue of technology diffusion). Consumers require
small amounts of technical knowledge to become aware that a useful new energyefficient product is available and to evaluate the claims of competing brands. Given the
administrative costs involved in large numbers of small market transactions, it is hard to
imagine that such an information service would be offered exclusively by private firms
through individual market transactions. Neither would potential suppliers of such
information be very interested in such a market because they would know that the
consumer who buys such information could so easily pass it on to others. Thus too little
of this kind of information service would be provided relative to the benefit of it to
consumers. These factors rationalize the involvement of government agencies in
disseminating information on energy efficiency.
Certain aspects of a market's structure may lead to inefficiency. For instance, a firm with
monopoly power may be able to fend off competition from a new technology. In some
countries or local markets, suppliers of financial services may not face much
competition and this can result in unnecessarily high interest costs for financing
purchases of energy-saving equipment.
The equipment turnover barrier may be high for those technologies that address
markets that are not growing fast and are served by a few dominant players that fight for
market share. The transportation fuels market would be a classic case. Bioenergy
technologies that try to penetrate this market could be termed disruptive technologies.
They must fight with the incumbent technology for the relatively scarce market. Markets
that are growing fast and served by many participants are generally easier to penetrate
and the technologies that will address these markets could be considered incremental
technologies. The incremental technologies will have lower market barriers.
One can see that government action may be warranted in the case of some market
barriers and not in others. In some situations, dealing with barriers in a pragmatic way
can be a matter of making sure that normal aspects of market infrastructure (e.g.,
consumer protection laws, laws of contract) are working well in markets for energy
technologies. Table 18 classifies the barriers identified in Table 16 as normal barriers or
market failure barriers.
56
Table 18: Classification of Market Barriers
Barrier
Barrier Type
Uncompetitive Market Price
Normal
Price Distortion
Market Failure
Information
Market Failure
Transactions Costs
Market Failure
Buyer's Risk
Normal
Finance
Normal
Inefficient Market Organization
Market Failure
Excessive/ Inefficient Regulation
Market Failure
Capital Stock Turnover Rates
Market Failure
Technology Specific Barriers
Normal
6.3 Biofuel Development from a Market Barriers Perspective
Each of the identified barriers for new energy technologies will be evaluated to
determine its applicability to biodiesel market development.
6.3.1 Normal Market Barriers
There are four types of normal market barriers identified, uncompetitive market price,
buyer’s risk, finance, and the potential for technology specific barriers. These are
discussed below.
Uncompetitive Price
The cost of producing biofuel is often higher than the cost of diesel fuel, although the
absolute value of the difference between the two is a function of commodity prices. In
times of high oil prices and low agricultural prices, the gap can be small (or not exist at
all) and when fossil energy prices are low, the gap can be large. In the regions of the
world where biofuels have been used the gap has been eliminated through the use of
tax incentives provided by governments. These tax incentives can also be viewed as
learning investments. Governments have also invested in research and development in
order to help to drive down the costs of production.
Even where there is an incentive there is often concern on the part of some lenders,
developers and marketers that the incentives could be removed in the future making
their investments in biofuel production and marketing unprofitable.
In previous sections the production costs of ethanol and biodiesel were estimated. It
was determined that the biofuel production cost (or opportunity cost) was often higher
57
than the gasoline or diesel fuel cost. The taxation system in Peru for these biofuels will
reduce this uncompetitive cost barrier but it has been noted that there are problems with
the structure of the tax incentive as it provides a higher incentive when biofuels are
more competitive and a lower incentive when they are less competitive.
Biofuels also faces the problem of commodity price volatility. This can be addressed
with a well conceived incentive program.
Buyer’s Risk
The Buyer’s Risk could also be termed business risk and it is important to note that it is
the perception of risk that may be more important than the actual risk. The gap between
perception and actual risk is larger when an industry is new and one of the measures
that reduced this gap and the buyer’s risk for any venture is experience.
The business risks identified by biofuel plant operators in other parts of the world are
summarized below.
•
Risks related to equity financing
o The idea for a biofuel plant development may originate with a small group
of individuals who then undertake to raise equity for the project. There is
no guarantee that the process can be successfully completed once it is
started. In most cases, the investments made by individuals are placed in
trust until certain thresholds are met and are returned if the equity drive
fails, the original proponents may still lose their initial investment.
o Individual equity drives can have additional specific risks such as
restrictions on locations of participants, the presence or lack of brokers,
the lack of a secondary market to sell shares in the future, no guarantees
that future sales of units will not dilute the original shareholders.
o These risks are generally reduced or eliminated once the equity drive has
been successful.
•
Risks related to debt financing
o There are no guarantees that after the equity is raised that sufficient debt
will be available to complete the project. The project may be abandoned
and some of the invested money lost.
o Lenders may place restrictions on the corporate activities that reduce the
rights and flexibility of the operation and the equity holders.
o The inability to generate sufficient revenue from the operation to support
the debt may reduce the value of the equity raised.
•
Construction and development risks
o The owners are not generally experts in construction and design and must
rely on third party specialists to carry out this work. Much of the ultimate
operating success of the facility may be dependent on the performance of
the contractors and the quality of their work.
o The equity and debt is often raised before definitive agreements for
construction are in place. There is a risk that there could be increases in
cost and reductions in performance at this stage.
58
o In some cases in the US, the contractors and designers are taking equity
positions in plants, which can lead to conflicts of interest.
o Unforeseen issues may arise during construction.
o The plant may not perform as expected or it may cost more than
expected. Generally, increased costs must be covered by equity
injections.
•
Operation risks
o A Board of Directors often controls the operation and there may be some
conflicts of interest between the Board and shareholders in general.
o In the case of new operations, the company often has no experience with
biodiesel, and co-products production and marketing and relies on third
parties for some functions that are critical for success.
o Demand for the products is generally driven by factors outside of the
influence of the owners.
o In some cases, new unproven technologies are being considered for
adoption or demonstration. These carry high levels of risk.
•
Biofuel production risks
o The actual production of biofuel is dependent on the supply of the raw
materials, which fluctuate in price and quality. Higher input costs cannot
always be recovered in the selling prices.
o Profitability is also dependent on the existence of production and tax
incentives, which are not usually guaranteed.
o The industry may be competitive and they may be more competitive
operations, which can produce and sell biodiesel at lower costs.
o Successful operations require skilled operating personnel. These may be
difficult to obtain and retain in some locations.
o Plants are subject to environmental regulations, which may change over
time.
•
Corporate structure risks
o Depending on the corporate structure chosen there may be additional
risks for investors. In a partnership, the distributions of cash may not be
sufficient to cover the investors tax liability.
o Cash distributions are not guaranteed and may fluctuate with plant
performance and market conditions.
It can be seen that the Buyer’s risk generally is reduced as a project proceeds through
fundraising and construction. There are methods of reducing some of these risks
through insurance, bonding and structural approaches but these generally add cost to a
project. In general, the more successful projects that there are, the lower the perception
of risk becomes.
Once a plant is operating and has demonstrated that it meets the design criteria then
the risks tend to be mostly commodity risks. In some cases, it may be possible to hedge
59
and offset these risks but these programs can be expensive and they may not be
available to all producers.
The types of policy measures that can be considered to address this barrier are
investments in demonstration projects, programs to reduce commodity risks, and
assurances that there will not be changes in government programs that would
negatively impact performance.
Finance
A barrier that is somewhat related to Buyer’s Risk is that of finance. Most projects are
financed by a combination of equity and debt. Raising the debt portion can be
challenging for a number of reasons including imperfections in market access to capital.
Debt providers generally have no opportunity to participate in any project upside so they
focus on ensuring that there are no downsides to their participation. They focus on the
issues of what could go wrong.
Lenders have many opportunities presented to them and they choose those
opportunities that provide them with their best returns or most limited risk. Many lenders
also specialize in certain sectors of the economy. These are sectors for which they
understand the risks and rewards. New sectors require lenders to become comfortable
with the risks or at least the perception of the risks. The first projects are therefore the
most difficult to finance since there is no track record which lenders can rely on. It is
extremely important that the first projects be successful. Problems or failures with early
projects increase the difficulty in demonstrating that new projects won’t have the same
problems.
In the United States, most biofuel projects have had their debt financing led by banks
that specialize in the agricultural sector. Sometimes these banks syndicate their loans
with other lenders that are not agricultural specialists but these other lenders rely on the
expertise of the lead institutions.
Note that in cases where there is imperfect access to capital, finance barriers could be
considered a market failure barrier and increased government involvement may be
warranted. The involvement could include special funding, third party financing options,
loan guarantees or other approaches.
Technology Specific Barriers
There can be technology specific barriers to the creation of biofuel markets. One
example is the issues raised by adding biodiesel to diesel fuel. The process increases
the blends propensity to gel in cold weather conditions. In the existing diesel fuel
distribution infrastructure, this creates the need to handle the product in a different
manner. This need for special handling can create additional costs but they can be
overcome as shown by the widespread use of biodiesel in Europe where many of the
same issues have been addressed. There are similar issues with respect to ethanol and
the problems of phase separation in the presence of excess water.
Technology specific barriers can also be related to the skills necessary to handle the
differences between new systems and the existing infrastructure. Programs to
overcome these barriers generally focus on increasing knowledge and promoting a full
systems approach to dealing with issues.
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6.3.2 Market Failure Barriers
Market failure type barriers are more difficult for individuals to overcome since they are
systems related. A stronger case can be made for government intervention to address
these barriers. The five categories of market failure barriers are discussed below and
whether or not they are barriers to the development of a biodiesel market.
Price Distortion
Price distortion arises when some of the costs or benefits that arise from using a
product are not reflected in the selling price. The most common example of this is the
environmental costs that arise from using products that pollute the environment. These
costs are real and are paid for by society through reduced crop production, increased
maintenance costs and higher health costs. They are not generally included in the
product cost.
Governments can and have taken action to remove these price distortions. One
example with transportation fuels was the tax differential applied to leaded gasoline by
some governments prior to the ban on the use of leaded gasoline. That additional tax,
which removed the financial incentive for using lower cost leaded gasoline, was very
effective at accelerating the switch from leaded to unleaded gasoline.
In the case of biofuels, the lifecycle analysis indicates that there are greenhouse gas
reductions from using the fuels and there are also reductions in the emissions of some
of the tailpipe contaminants from using the fuel. These should have some value and
could be used to offset the higher cost of the fuel.
Information
Markets work best when all participants have the information required to make informed
decisions. The time and effort required to gather and analyze the information about new
products can act as a serious impediment to their adoption. It was shown earlier that the
communication of information about innovations is a very social process and one that
can take considerable time, effort and financial resources. Proponents of new energy
technologies often do not have the necessary resources to make this happen.
Policy options that can be used to address the issue of insufficient information include
providing reliable independent information, standardization and labelling activities.
Transaction Costs
Closely aligned with the issue of information is the issue of the cost of making decisions.
Large numbers of small purchases are costly and can overwhelm the benefits of
choosing cleaner energy technologies. If consumers had to make a separate purchase
for the biodiesel portion of their diesel purchase the added inconvenience and cost of
the transaction would make many buyers and sellers think twice about the purchase.
This is not likely to be the case for biofuels since the transaction for the biofuel is likely
to be upstream of the point of consumer purchase and be a transaction between the
biofuel plant and the fuel marketer. Downstream of this transaction, all subsequent
transactions should be transparent. Transaction costs are not likely to be a significant
barrier to the development of a biodiesel market.
Inefficient Market Organization
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Inefficient market organization applies when one firm or a small group of firms act in a
similar manner and using the advantages of being the incumbent suppliers to resist the
market penetration efforts of the new technology. In the case of transportation fuels,
there are many end users of the fuel but they all purchase the product from a limited
number of companies. These are also the companies that produce the competing
products, diesel fuel and gasoline. In order for biofuels to penetrate the market and be
available for the ultimate end user, it must be integrated into the existing distribution
system.
Excessive/Inefficient Regulation
Regulations and standards are often prescriptive and not directly performance driven.
This can be effective and efficient in cases where there is significant experience with a
product and the performance can be controlled in a prescriptive manner. The system
does not function particularly well when new products are introduced that may not have
the wealth of experience associated with their use and may not behave in exactly the
same manner as the incumbent technology.
In many countries, regulations are developed through a consensus process involving
producers, consumers, and regulators. In most cases, the producers are the most
knowledgeable members of the panels and exert a strong influence on the outcome. In
the case of new products, the incumbent producers can use this dominance to resist
change to the specifications that might favour a new product.
The best example of the problems that inefficient regulation imposes for biodiesel is
probably with the T90 limits for blends. Pure biodiesel is composed of esters and many
have T90 points above the limit for all hydrocarbon diesel fuel. As more biodiesel is
blended into diesel fuel, the blend reaches a point where it no longer meets the T90
specification. The question should be do esters have identical combustion properties to
the hydrocarbon components used in diesel fuel? Only if the answer is yes can there be
any justification for enforcing identical specification on biodiesel as used for petroleum
diesel fuel. This issue has held up the development of a biodiesel blend specification in
Canada and the United States for some time.
Capital Stock Turnover
The petroleum industry has invested significant money in the construction of refineries
to convert crude oil into gasoline and diesel fuel. The addition of a fuel component
produced outside of this existing infrastructure has the potential to reduce refinery
throughput, which has a negative impact on the economics of refining. If the volume of
additional product supplied to the system is large enough, it could result in marginal
refineries being closed and written off.
Peru is an importer and exporter of petroleum products. New transportation fuels can
have an impact on the throughput of existing refineries but it has been noted that the
country is a net importer of diesel fuel and does import some gasoline blending
components and these components could be replaced with ethanol. The economy is
also growing and demand for petroleum products will continue to grow so there should
be an opportunity to maintain and even increase refinery throughputs at the same time
as expanding the use of biofuels.
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6.3.3 Summary Market Barriers
The market barriers identified for biodiesel are summarized in Table 19.
For the normal market barriers, the category of uncompetitive prices is rated as being a
medium to high market barrier for biodiesel and low to medium for ethanol. The range is
created by the different feedstock costs
Table 19: Summary Market Barriers
Barrier
Biodiesel
Ethanol
Medium-High
Low to medium
Medium
Low to medium
Medium-High
Medium-High
Low
Low
Low
Low to medium
Medium
Medium
Transactions costs
Low
Low
Inefficient market organization in
relation to new technologies
High
High
Excessive/ inefficient regulation
Medium
Medium
Low
Low to medium
Normal Market Barriers
Uncompetitive market price
Buyer’s risk
Finance
Technology-specific barriers
Market Failure Barriers
Price distortion
Information
Capital Stock Turnover Rates
The buyers risk is primarily influenced by the relative lack of experience with the design,
construction and operation of these plants in Peru.
The financing risk is rated medium to high. These facilities are difficult to finance
because they are still relatively new and do not have a long successful track record. The
producers are dependent on the tax incentives for their profitability and the markets for
the products are not well developed.
For the use of biodiesel, there is considerable know-how in Europe with respect to the
distribution and use of that is directly transferable to Peru and the technology related
barriers are ranked low. There is also a large body of experience with ethanol in South
and North America.
In the cases of the market failure type barriers, the use of biofuels provides some
reductions in greenhouse gas emissions and reductions in some of the criteria air
63
contaminants from vehicles, these benefits are not factored into the price of the product
and thus there exists some price distortion.
There is some level of knowledge about biofuels in the market place but there is still a
requirement and an opportunity to increase consumer knowledge about the fuel so the
information barrier is ranked low to medium.
Transaction costs are not expected to be a barrier to increased biofuels use.
The market organization is inefficient related to biofuels. The distribution of biofuels from
the producer to the final user is essentially controlled by a small group of integrated oil
companies. This group has been reluctant to embrace alternative fuels. This group has
used the argument of reduced refinery throughput and stranded assets in the past as
justification for not using these alternatives.
In many regions of the world, the incumbent fuel marketers have used the inefficient
standards and regulatory system as a means to slow the development of appropriate
standards for biodiesel. The lack of appropriate standards can slow the market
development of biofuels. The position of the auto manufacturers in Peru with respect to
a 7.8% limit on ethanol and no biodiesel use is an example of erecting barriers through
standards.
6.3.4 Summary Market Development Barriers
There are four primary and two secondary barriers to the development of biofuel
markets in Peru. The primary market barriers are:
1. High biofuel prices. This is partially offset by tax incentives but the tax
incentives provided in Peru would appear to be a legacy of taxation on
industrial ethanol production and vegetable oil production for food purposes
and not as a result of a deliberate biofuels policy. They do not function in an
efficient way to address the volatility of the cost differential.
2. Inefficient market organization. The major petroleum companies are not the
end users of biofuels but they do provide the distribution system by which
biofuels reach the end consumer. The larger oil companies have shown little
interest in biofuel marketing.
3. Finance risk. Raising the debt portion of the required capital can be difficult. In
many regions of the world this is a significant issue. While no lenders were
visited in Peru this is likely to be an issue here judging from the comments
made by some proponents.
4. Business risk. Successful new businesses must raise equity and debt
financing, have plants designed and built, operate the new facilities and adapt
to changing market conditions. This is difficult to do the first time but becomes
easier with each new successful operation as can be seen with the US
ethanol industry.
The secondary barriers are:
1. Price distortion. The marketplace does not place a monetary value on
environmental impacts. Fuels that reduce greenhouse gases or exhaust
emissions sell for the same price as fuels that don’t impact emissions. In most
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cases, this price distortion is offset by the tax incentives offered by the federal
government and some of the provinces.
2. Excessive/inefficient regulation. Biofuels have some different properties than
petroleum based fuels. The standards developing bodies in most of the world
have been trying to have biofuel blends meet the same specifications as
petroleum fuels. Biofuels have a different chemical composition than
petroleum diesel and it is reasonable to expect that performance based
specifications would be a better approach than the prescriptive approach that
is currently being followed.
6.4
Market Transformation
The term market transformation refers to a significant or even radical change in the
distribution of products in a given market. A market transformation program refers to
actions taken by government (or sometimes by some other entity acting in the public
interest) to facilitate the market transformation process. In effect, the long-term objective
of most such initiatives is to make a new efficient or low impact technology or producttype the preferred ‘norm‘ in a market place.
The objective of a market transformation program is to make changes that are both
substantial and sustainable. An isolated instance in which a government supports the
introduction of a new energy technology does not constitute a market transformation
program. Market transformation is about creating substantial change in the market for a
particular class of products: changes in the behaviour of consumers so that they choose
to buy more efficient goods or services; changes in the behaviour of producers, so that
they bring to the market only efficient (or at least more efficient) models; changes in the
behaviour of wholesalers and retailers in regard to what they make available to final
buyers; and changes in the capabilities of suppliers in related markets to provide
whatever ancillary goods and services are needed (e.g., suppliers of equipment parts
and other intermediate goods, installers, repair companies). When the process is
completed, a successful market transformation program will have had a lasting and
significant effect.
This perspective thus also addresses the social aspects of technology diffusion but in a
different way from the Market Barriers perspective. It focuses more (but not exclusively)
on the end use of the technology or the market rather than on the whole supply chain.
In the work of the IEA on creating markets, the idea of a market transformation
perspective is further expanded. It considers the market transformation perspective as
fitting into a larger picture of what can be done by governments to help build markets for
new energy technologies. The RD&D and the market barriers perspectives are useful,
however these perspectives do not address an important additional process affecting
market deployment. The RD&D perspective deals primarily with the implications of
learning and the interactions between R&D and market development, particularly for the
cost and performance of new technologies. The market barriers perspective identifies
obstacles in the way of new technologies and suggests ways to deal with them that
conform to the constraints of market economics, but does not deal in depth with how to
implement change. Although economic analysis is rich in insights about problems in
existing markets, it does not say very much about the steps needed to create new
markets out of the entrepreneurial process. Correspondingly, the IEA focuses the
65
market transformation perspective on the outcome to be achieved and then runs the
logic back through all the factors that would be necessary to attain that outcome:
improving technology cost and performance and removing barriers, but also actively
creating the conditions that facilitate the rapid market uptake of new more efficient
products.
A key aspect of the Market Transformation process is to identify all of the important
decision makers according to the different roles they play. In the technology diffusion
process, the importance of these key influencers in promoting the uptake of new
technology is well understood. Table 20 illustrates that the number of different market
players can be large and varied. While some of the roles played by market actors
overlap and many actors have multiple roles, the table indicates that consulting with
stakeholders, and involving some of them in the transformation process in other ways,
is a large job. It is nevertheless a centrepiece of most market transformation programs.
The chances of having a performance enhancement or a new product accepted can be
greatly increased through the involvement of important market players, especially when
the changes are technically complex and currently accepted products are well
established.
Working with stakeholders can be done by tapping into existing networks, such as trade
associations and consumer groups, or by building new networks of contacts. For
instance, in technology procurement programs developing cooperative networks among
buyer-groups is important. Industry associations may develop their own networks to
work together on building the foundations for the offering of a new product. Some, but
not all, of these strategies are applicable to some of the biomass energy opportunities
Three broadly based models that are often used in market transformation programs are:
•
Procurement Actions
•
Strategic Niche Management
•
Business Concept Innovation.
There may be some potential to assist in the development of new alternative fuel
markets with procurement actions. Governments are usually large purchasers of
transportation fuels and changing their purchases to alternative fuel can send a strong
signal to the market place. Procurement processes are thus natural vehicles for
encouraging technology market development – they offer an entry point for influencing
industry decisions in a framework that governments know well. In the market
transformation perspective, a procurement specification list provides a useful pathway
for program designers to get into the details of market operations.
Procurement programs are ineffective where the volume of product represented by the
purchasers is not sufficient to cause the creation of production economies of scale. In
general, the more capital intensive the production process, the less likely that
procurement actions will be a useful tool for market development.
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Table 20: Types of Market Actors Involved in Case Study Projects
Typical Role
Market Actor
Buyer
Facility operators
Buyer & seller
Distributors, wholesalers, retailers, purchasers,
contractors, service companies, utilities, energy
distributors
Development
Planners, architects
Development – manufacturing
Manufacturing companies, parts suppliers
Financing
Funding brokers & other financial institutions
Information dissemination
Energy agencies, mass media companies
& agencies, individual investors
Policy & funding
Government agencies, other public institutions
Policy – formulation & decisions Politicians, regulatory agencies & other public
authorities
Represent special interests
Trade associations, consumer associations, other
NGOs
Basic research
Universities
Research & development
Research institutes, corporate research labs
Seller
Equipment installers, energy distributors
Special tasks (e.g., policy
analysis)
Consultants
Technology user
Homeowners, consumers, customers, end-users
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7. COMMENTS ON BIOFUELS LEGISLATION
Legislation concerning the promotion of biofuels has been passed in Peru as follows:
Ley 28054 de Promoción del Mercado de Biocombustibles and its relevant regulation
Decreto Supremo Nº 013-2005. The texts for these are attached as Annex 1.
General
The main thrust of the legislation as stated is to encourage the development of biofuels
in a free, open and competitive environment, within the bounds of maintaining health
safety, environmental and vehicle performance standards. This principle should be
honoured throughout the legislation. There should not be any restrictions in the
legislation which unduly stifle the creativity of individual operators/entrepreneurs in
introducing new technology or approaches to biofuels supply and commercialization.
The provisions of the legislation are not mandatory; there are no sanctions if operators
do otherwise than prescribed in the regulation.
Specific to Articles in the Regulation
Art 3 Definition of Biodiesel: This specifies esterification of oils of vegetable origin
only. This would exclude animal fats and fish oils as well as possible waste oils which
may contain animal oils or fats.
Definition of Bases for Blending: This specifies that the bases for blending with
ethanol are the current finished gasolines of 84, 90, 95 and 97 RON. This could be
restrictive.
Definition of Ecological Gasolines: This specifies that this gasoline is a mix of the
four current finished gasolines and fuel alcohol. This implies that there would be no
specification for the final finished ecological gasoline blends but only for the blending
components of which it is comprised. There would be no way of checking on and
enforcing the finished gasoline quality since no specification would exist.
Art 6 Fuel Alcohol - Gasoline Mixture Percentage: This is specified as 7.8% - no
more and no less. 10% is the most common percentage above which there are
problems with automobile manufacturers’ warranties. 5 % has been a frequent starting
point in blends elsewhere. Even if 7.8% is decided as a maximum there should be
freedom to blend lesser percentages.
Art 7 Schedule for Gasohol Introduction: This specifies as follows for application and
use of the fuel alcohol blended gasolines:
• As from June 30, 2006 the regions of: La Libertad, Lambayeque, Ancash, Piura
and the provinces of Barranca and Huaura of the Lima Region.
• As from January 1, 2008 in the regions of: Loreto, Ucayali, Amazonas, San
Martin and Huánuco.
• As from January 1, 2010 in all the country.
The immediate June 30, 2006 date seems to be based on gasohol use in the traditional
northern coastal sugar-producing regions. This is theoretically where the ethanol
should be readily available, but there is only one plant (Cartavio) that has any hope of
supplying anhydrous ethanol on this date. Based on a rough estimate of gasoline
68
consumption in these regions the Cartavio plant could probably supply about half to 2/3
of the requirements. All the supply would have to be by road tanker to appropriate
depots serving the regions. The logistics and attendant costs to all regions from
Cartavio would have to be verified to see if they are reasonable or possibly, in some
cases, prohibitive.
Art 8 Biodiesel percentage in Petrodiese: This specifies 5% as the percentage of
biodiesel to be blended with present finished petrodiesels – no more no less. Biodiesel
blends of greater than 5% can be used successfully in modern diesel engines especially
in most of Peru where cold weather operating problems are not a major issue. The
United States has a large amount of experience with 20% biodiesel blends and
Germany has used 100% biodiesel for a number of years.
The Heaven
Petroleum/HERCO plant has made arrangements for oil feedstocks and plant design to
operate at a 20% biodiesel blend and would suffer financially if forced to operate at low
percentages such as 5%.
Art 9 Schedule for Biodiesel Introduction: This specifies as follows for application
and use of biodiesel blend:
•
January 1, 2008 the regions of: Loreto, Ucayali, Amazonas, San Martin and
Huánuco.
• From January 1, 2010 in all the country.
The earlier date applying to the northern Selva regions, seems to be based on the
likelihood that these would be the location of crops yielding oil as feedstock for biodiesel
production. This date is restrictive however to entrepreneurs such as Heaven/HERCO
who are set up with waste oil and palm oil sources and have a biodiesel plant coming
on stream within a few months. If they were forced to wait until January 2008 they would
suffer financially by having to await returns on their investment.
Art 13 Blending Location: This specifies that the mixtures of Fuel Alcohol with
gasoline and of Bio-diesel with diesel will be performed in the Gasoline Depots and the
blending operations will be in charge of the Operator of the Gasoline Depots. In the
case of ethanol with gasoline this wording would not preclude the “splash blending”
practice discussed under 3.5.1 and illustrated in Figure 9 page 23. Even though the
ethanol would be added to its tank compartment before the road tanker arrives at the
petroleum product depot, the final blending with gasoline would be done in the depot
under the control of the depot operator.
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8.
SUMMARY - CONCLUSIONS AND RECOMMENDATIONS
8.1 Conclusions
1. There are four gasoline grades designated by Research Octane (RON) 84, 90.
95 and 97 but the sales volume is dominated by the 84 and 90 grades,
accounting for some 86% of the total.
2. The weighted average octane of the total national gasoline pool is relatively low
at 87.9 RON.
3. There would be benefits to rationalizing the gasolines available to lesser number
of grades e.g. to two or three maximum; the savings would be in production,
storage and dispensing infrastructure and operating costs
4. The RON 84 grade will likely soon be phased out as the weighted average model
year of the automobile fleet advances
5. The volume of anhydrous ethanol required for blending the entire national
gasoline pool to 7.8% is 102 million litres, based on 2004 sales volumes.
6. It is estimated that roughly 20 million litres would be required for blending all the
gasoline to 7.8% in the north coastal regions (La Libertad, Lambayeque, Ancash,
Piura and the provinces of Barranca and Huaura of the Lima Region) where
ethanol is to be introduced by mid-2006.
7. Blending ethanol at 7.8% with the existing finished grades would produce
finished gasolines with significantly higher octanes than the specifications as
follows:
Blendstock/Finished
84/87.6 90/93.1 95/97.7 97/99.7
8. The maximum Reid Vapour Pressure (RVP) of the finished blends may exceed
the national specification since ethanol has a very high blending RVP.
9. Ethanol blends will result in lower tailpipe emissions of major pollutants and net
reduction in greenhouse gas in the ethanol production/consumption cycle
10. Biodiesel blending with petrodiesel will decrease sulphur content and increase
cetane number of the finished diesel.
11. Biodiesel production and use will reduce diesel imports, and improve the
domestic rural economy
12. Biodiesel blends are more readily biodegradable in the event of spills, result in
significantly lower tailpipe emissions of major pollutants and result in net
reduction in greenhouse gas in the biodiesel production/consumption cycle
13. There are two options for blending ethanol with gasoline in the existing gasoline
storage depots:
a. In-line blending of ethanol with the gasoline base stock upon loading of
road tankers; this involves the installation of ethanol receiving and storage
and in-line blending facilities as well as some additions/modifications to
safety and firefighting facilities and materials.
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b. “Splash blending” in the existing gasoline depots of gasoline into road
tankers which have already been partially loaded elsewhere with the
requisite amount of fuel ethanol; this option requires no ethanol storage or
in-line blending at the existing depot site.
Both of these options are compatible with the existing biofuels legislation
14. Current production of hydrous ethanol in Peru is wholly from molasses, a
byproduct of sugar production
15. There is insufficient molasses at present or for the foreseeable future to produce
the volume of anhydrous ethanol required for the national gasoline pool at 7.8%
concentration in gasoline
16. The choice of 7.8% ethanol in gasoline as the blend for Peru is unusual as this
particular blend is not used anywhere else in the world. The most common blend
is 10% ethanol.
17. The most likely source of future ethanol production beyond the molassessourced volumes will be directly from sugar cane (juice).
18. Based on opportunity values for sugar and the expected future variability of
oil/gasoline prices it is anticipated that ethanol costs/prices will at times be
uncompetitive with gasoline prices based on equal taxation.
19. The production cost of biodiesel in Peru, based on current palm oil prices would
be some $2.10/gallon ex-plant excluding taxes
20. The differential taxation of fuel ethanol and biodiesel at levels lower than the
gasoline and diesel base stocks is the most common method worldwide of
providing an incentive for the development and commercialization of biofuels.
21. The taxation of biofuels in Peru is not clearly defined. Since fuel taxes are
charged and collected by refiners or importers and charged to wholesalers in the
ex-refinery price upstream of the storage depots, tax on biofuels blended in
depots would not automatically be captured at gasoline and diesel taxation rates.
At present prospective fuel ethanol producers are assuming they will have the
same tax treatment as hydrous ethanol. In the case of biodiesel the stakeholders
are assuming (similar to food oils) that there will be no ISC levied – only IGV.
22. Biodiesel blends of greater than 5% can be used successfully in modern diesel
engines especially in most of Peru where cold weather operating problems are
not a major issue. The United States has a large amount of experience with 20%
biodiesel blends and Germany has used 100% biodiesel for a number of years.
23. It is common for some government intervention in the marketplace to promote
alternative fuels. Biofuel markets are unlikely to develop on their own without this
intervention.
24. The intervention is usually in the form of tax incentives to equalize or provide a
price advantage, through the use of mandates, or both.
25. The attitude of the various stakeholder groups in Peru towards biofuels was not
significantly different from the views held by similar stakeholders in other parts of
the world.
71
26. The market barriers facing biofuels in Peru are generally the same as those
facing biofuels in other countries.
72
8.2
Recommendations
1. The biofuels taxation situation should be thoroughly analyzed and clarified. A
study pursuant to this should include, inter alia, the following elements:
a. What taxes are to be charged, e.g. Rodaje on ethanol in gasoline? ISC on
biodiesel in diesel?
b. At what point in the supply chain are these taxes documented and
collected?
c. Recognizing the need to support and encourage the introduction of
biofuels in competition with hydrocarbons what are the recommended tax
rates on biofuels?
d. Should there be a sliding scale mechanism to provide more support
incentives in situations when biofuels costs are high and competing
hydrocarbons prices are low?
2. The decision to use a 7.8% ethanol blend should be reviewed; a move towards
10% would not result in any difficulties with the finished gasoline specifications,
vehicle performance or its mechanical integrity.
3. The use of ethanol in diesel fuel blends should be studied and considered for
promotion.
4. The Biodiesel maximum allowable blend composition should be reviewed. An
increase from 5% to 20% would not impact on engine or fuel system
performance and would result in a more financially viable scale of production and
blending operations for biodiesel operators
5. The following modifications in the regulation to the Biofuels Law Decreto
Supremo Nº 013-2005 should be made:
Art 3 Definition of Biodiesel: This should be expanded to include animal fats
and fish oils as well as waste oils which may contain animal oils or fats.
Art 8 Biodiesel percentage in Petrodiesel: This should be modified to
increase the maximum allowable to 20%.
Art 9 Schedule for Biodiesel Introduction: This should be liberalized to
accommodate an earlier introduction of biodiesel; operators will be ready to
supply the Lima area by mid-2006.
6. The following Articles of the regulation should be reviewed with a view to
possible modifications:
Art 3 Definition of Bases for Blending: and Definition of Ecological Gasolines.
These should be reviewed in light of possible difficulties with testing and
enforcement of final gasoline quality specifications. The existing definitions
may also preclude using ethanol as an octane enhancing component, which
is one of its primary attributes.
Art 6 Fuel Alcohol - Gasoline Mixture Percentage: Increase maximum
allowable to 10% and allow freedom to blend lesser percentages
73
Art 7 Schedule for Gasohol Introduction: These dates should be technically
reviewed to see if they are practical in light of lack of supply facilities and
difficult and costly logistics from the one facility that will exist.
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LEY N° 28054
EL PRESIDENTE DE LA REPÚBLICA
POR CUANTO:
LA COMISIÓN PERMANENTE DEL CONGRESO DE LA REPÚBLICA;
Ha dado la Ley Siguiente:
LEY DE PROMOCIÓN DEL
MERCADO DE BIOCOMBUSTIBLES
Artículo 1°.- Objeto de la Ley
La presente Ley establece el marco general para promover el desarrollo del
mercado de los biocombustibles sobre la base de la libre competencia y el libre acceso a
la actividad económica, con el objetivo de diversificar el Mercado de combustibles,
fomentar el desarrollo agropecuario y agroindustrial, generar empleo, disminuir la
contaminación ambiental y ofrecer un mercado alternative en la Lucha contra las
Drogas.
Artículo 2°.- Definición de biocombustibles
Se entiende por biocombustibles a los productos químicos que se obtengan de
materias primas de origen agropecuario, agroindustrial o de otra forma de biomasa y
que cumplan con las normas de calidad establecidas por las autoridades competentes.
Artículo 3°.- Políticas Generales
El poder Ejecutivo implementará las políticas generales para la promoción del
mercado de biocombustibles, así como designará a las entidades estatales que deben
ejecutarlas.
Son políticas generales:
1. Desarrollar y fortalecer la estructura científico-tecnológica destinada a generar la
investigación necesaria para el aprovechamiento de los biocombustibles;
2. Promover la formación de recursos humanos de alta especialización en materia de
biocombustibles comprendiendo la realización de programas de desarrollo y promoción
de emprendimientos de innovación tecnológica;
3. Incentivar la participación de tecnologías, el desarrollo de proyectos experimentales
y la transferencia de tecnología adquirida, que permitan la obtención de
biocombustibles mediante la utilización de todos los productos agrícolas o
agroindustriales o los residuos de éstos;
4. Incentivar la participación privada para la producción de biocombustibles;
5. Incentivar la comercialización de los biocombustibles para utilizarlos en todos los
ámbitos de la economía en su condición de puro o mezclado con otro combustible;
6. Promover la producción de biocombustibles en la Selva, dentro de un Programa de
Desarrollo Alternativo Sostenible;
7. Otros que determine el Poder Ejecutivo para el logro de lo establecido en el artículo
1° de la presente Ley.
Artículo 4°.- Uso de biocombustibles
El poder Ejecutivo dispondrá la oportunidad
establecimiento del uso del etanol y el biodiesel.
y
las
condiciones
para
el
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Artículo 5°.- Programa de Cultivos Alternativos
DEVIDA como Ente Rector en la Lucha Contra las Drogas en el Perú, conjuntamente con
los Gobiernos Regionales y PROINVERSIÓN elaborarán Proyectos dentro del Programa
de Desarrollo Alternativo, que promoverán la inversión privada, así como fondos de
Cooperación Internacional en la zona de ceja de selva orientados a la obtención de
biocombustibles. Las entidades estatales dentro del portafolio de combustibles,
dispondrán la compra de biocombustibles producidos dentro de los programas
vinculados a la Lucha contra las Drogas.
DISPOSICIONES COMPLEMENTARIAS
Y TRANSITORIAS
Primera.- Créase el Programa de Promoción del uso de Biocombustibles –
PROBIOCOM, el cual estará a cardo de PROINVERSIÓN, que tendrá por objeto
promover las inversiones para la producción y comercialización de biocombustibles y
difundir las ventajas económicas, sociales y ambientales de su uso.
Segunda.- Constituyese una Comisión Técnica encargada de proponer y
recomendar las normas y disposiciones complementarias para el cumplimiento de la
presente Ley, observando los siguientes lineamientos básicos:
a. Elaborar el cronograma y porcentajes de aplicación y uso del etanol anhidro,
como componente para la oxigenación de las gasolinas, así como el uso de
biodiesel en el combustible diesel.
b. Proponer un programa de sensibilización a los usuarios y a las instituciones
públicas hacia el uso de etanol anhidro y biodiesel.
Tercera.- La Comisión Técnica señalada en la disposición precedente está
presidida por un representante del Consejo Nacional del Ambiente – CONAM- e
integrada por los representantes de:
a. Ministerio de Energía y Minas.
b. Ministerio de Economía y Finanzas.
c. Ministerio de Agricultura.
d. Agencia de Promoción de la Inversión PROINVERSIÓN.
e. Comisión Nacional para el Desarrollo y Vida sin Drogas – DEVIDA.
f. Sociedad Nacional de Minería, Petróleo y Energía.
g. Asociación Peruana de Productores de Azúcar y Biocombustibles.
Cuarta.- La Comisión Técnica, referida en la disposición segunda, tendrá un plazo
de ciento ochenta días desde la entrada en vigencia de la presente Ley, para remitir al
Poder Ejecutivo sus propuestas y recomendaciones.
Quinta.- El Poder Ejecutivo reglamentará la presente Ley en un plazo no mayor a
noventa días de recibida la propuesta de la Comisión Técnica.
Comuníquese al señor Presidente de la República para su promulgación.
En lima, a los quince días del mes de julio de dos mil tres.
CARLOS FERRERO
Presidente del Congreso de la República
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HILDEBRANDO TAPIA SAMANIEGO
Tercer Vicepresidente del Congreso de la República
AL SEÑOR PRESIDENTE CONSTITUCIONAL DE LA REPÚBLICA
POR TANTO:
Mando se publique y cumpla.
Dado en la Casa de Gobierno, en Lima, a los siete días del mes de agosto del año dos
mil tres.
ALEJANDRO TOLEDO
Presidente Constitucional de la República
BEATRIZ MERINO LUCERO
Presidenta del Consejo de Ministros.
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APRUEBAN REGLAMENTO DE LA LEY DE PROMOCIÓN DEL MERCADO DE
BIOCOMBUSTIBLES
DECRETO SUPREMO
Nº 013-2005-EM
EL PRESIDENTE DE LA REPÚBLICA
CONSIDERANDO:
Que, el artículo 1 de la Ley Nº 28054, Ley de Promoción del Mercado de
Biocombustibles, establece el marco general para promover dicha actividad, sobre la base
de la libre competencia y acceso al mercado, con el objeto de diversificar el mercado de
combustibles, fomentar el desarrollo agropecuario y agroindustrial, así como generar
empleo, disminuyendo los niveles de contaminación ambiental existentes, además de
constituir una alternativa contra el cultivo ilícito de la hoja de coca;
Que, la Segunda Disposición Complementaria y Transitoria de la Ley Nº 28054
constituyó una Comisión Técnica encargada de proponer y recomendar las disposiciones
para el cumplimiento de la presente Ley, teniendo como base la elaboración del
cronograma y porcentajes de aplicación y uso del etanol anhidro, como componente para la
oxigenación de las gasolinas, el uso de biodiesel en el combustible diesel, incluido el
diseño de un programa de sensibilización a los usuarios e instituciones públicas para el uso
del etanol anhidro y biodiesel;
Que, la Quinta Disposición Complementaria y Transitoria de la Ley Nº 28054 facultó
al Poder Ejecutivo a reglamentar la presente Ley; De conformidad con la Ley Nº 28054; y,
en uso de las atribuciones previstas en los numerales 8 y 24 del artículo 118 de la
Constitución Política del Perú;
DECRETA:
Artículo 1.- De la aprobación del Reglamento de la Ley Nº 28054 - Ley de
Promoción del Mercado de Biocombustibles
Aprobar el “Reglamento de la Ley Nº 28054 - Ley de Promoción del Mercado de
Biocombustibles” que consta de dos (2) Títulos, diecinueve (19) Artículos y dos (2)
Disposiciones Transitorias, que forman parte integrante del presente Decreto Supremo.
Artículo 2.- De la Derogatoria
Derogar los dispositivos que se opongan a la presente norma.
Artículo 3.- Del refrendo
El presente Decreto Supremo será refrendado por el Presidente del Consejo de Ministros,
el Ministro de Energía y Minas, el Ministro de Economía y Finanzas y el Ministro de
Agricultura.
Dado en la Casa de Gobierno, en Lima, a los treinta días del mes de marzo del año
dos mil cinco.
ALEJANDRO TOLEDO
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Presidente Constitucional de la República
CARLOS FERRERO
Presidente del Consejo de Ministros
GLODOMIRO SÁNCHEZ MEJÍA
Ministro de Energía y Minas
PEDRO PABLO KUCZYNSKI
Ministro de Economía y Finanzas
MANUEL MANRIQUE UGARTE
Ministro de Agricultura
REGLAMENTO DE LA LEY Nº 28054 - LEY DE PROMOCIÓN DEL MERCADO
DE BIOCOMBUSTIBLES
TÍTULO I
DISPOSICIONES GENERALES
Artículo 1.- Objeto
El presente Reglamento promueve las inversiones para la producción y
comercialización de Biocombustibles, difundiendo las ventajas económicas, sociales y
ambientales de su uso, y establece los requisitos técnicos de seguridad para su producción
y distribución; de modo que salvaguarde la salud pública y el medio ambiente y coadyuve a
la Estrategia Nacional de Lucha contra las Drogas promoviendo la inversión en cultivos
alternativos en las zonas cocaleras del país.
Artículo 2.- Referencias
Cuando en el presente Reglamento se haga referencia a la Ley, se entenderá que
se está haciendo referencia a la Ley Nº 28054 - Ley de Promoción del Mercado de
Biocombustibles. Asimismo, cuando se mencione un artículo sin hacer referencia a norma
alguna, estará referido al presente Reglamento.
Artículo 3.- Definiciones
En el presente Reglamento se utilizarán los siguientes términos cuya
definición se detalla:
Biocombustibles: Son los productos químicos que se obtienen a partir de materias
primas de origen agropecuario, agroindustrial o de otra forma de biomasa y que cumplen
con las normas de calidad establecidas por las autoridades competentes para su uso como
carburantes.
Etanol: Es el alcohol etílico cuya fórmula química es CH3-CH2-OH y se caracteriza
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por ser un compuesto líquido, incoloro, volátil, inflamable y soluble en agua. Para los
efectos de este reglamento se entiende como el alcohol obtenido a partir de caña de
azúcar, sorgo, maíz, yuca, papa, arroz y otros cultivos agrícolas.
Etanol Anhidro: Tipo de alcohol etílico que se caracteriza por tener muy bajo
contenido de humedad y ser compatible con las gasolinas con las cuales se puede mezclar
en cualquier proporción para producir un combustible oxigenado para uso motor.
Sustancia Desnaturalizante: Sustancia extraña, generalmente gasoline motor sin
contenido de plomo, que se agrega al alcohol carburante para convertirlo en no potable y
para evitar que sea desviado para usos diferentes al de los componentes oxigenantes de
combustibles.
Alcohol Carburante: Es el Etanol Anhidro desnaturalizado, obtenido de la mezcla del
etanol anhidro con la sustancia desnaturalizante en un pequeño porcentaje; entre 2 y 3%
en el caso de ser gasolina motor sin contenido de plomo.
Biodiesel: Mezcla de ésteres (de acuerdo con el alcohol utilizado) de ácidos grasos
saturados e insaturados de diferentes masas moleculares derivados de la
transesterificación de aceites y grasas de origen vegetal. Para fines del presente
reglamento se entiende como una sustancia oleaginosa obtenida a partir del aceite de
palma, higuerilla, soya, girasol y otros aceites vegetales.
Bases de Mezcla: Son las gasolinas de 97, 95, 90 y 84 octanos, y el Diesel Nº 1 y
Nº 2, comercializados en el país y cuyas calidades se establecen en las normas técnicas
peruanas correspondientes.
Gasolina Ecológica: Es la mezcla que contiene gasolina (97, 95, 90, 84 octanos
según sea el caso) y Alcohol Carburante.
Diesel Ecológico: Es la mezcla que contiene Diesel Nº 1 ó Nº 2 y Biodiesel.
Artículo 4.- Normas Técnicas
Las características técnicas del Alcohol Carburante y del Biodiesel deben cumplir lo
establecido por la correspondiente Norma Técnica Peruana aprobada por el Instituto
Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual INDECOPI.
Artículo 5.- Alcances y ámbito de aplicación
El presente Reglamento se aplica a nivel nacional y establece las normas que
deben cumplir los productores de Biocombustibles, comercializadores y
distribuidores.
TÍTULO II
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DE LA PROMOCIÓN DE LOS BIOCOMBUSTIBLES
CAPÍTULO I
PORCENTAJE Y CRONOGRAMA DE APLICACIÓN Y USO DEL ALCOHOL
CARBURANTE Y BIODIESEL
Artículo 6.- Porcentaje de mezcla - gasolinas
El porcentaje de Alcohol Carburante en las gasolinas que se comercialicen en el
país será de 7,8 (siete coma ocho) por ciento. Las mezclas que contengan 92,2% de
gasolina y 7,8% de Alcohol Carburante se denominan gasolinas ecológicas según grado de
octanaje: 97E, 95E, 90E y 84E.
Artículo 7.- Cronograma para gasolinas
Cronograma de aplicación y uso del Alcohol Carburante en las gasolinas:
- A partir del 30 de junio del 2006 las gasolinas ecológicas serán producidas y
comercializadas en las regiones: La Libertad, Lambayeque, Ancash, Piura y las provincias
de Barranca y Huaura de la Región Lima.
- A partir del 1 de enero de 2008 en las regiones: Loreto, Ucayali, Amazonas, San
Martín y Huánuco.
-
A partir del 1 de enero de 2010 en todo el país.
Artículo 8.- Porcentaje de mezcla - Diesel
El porcentaje de Biodiesel en el diesel que se comercialice en el país sera de 5,0 (cinco
coma cero) por ciento. La mezcla que contenga 95% de Diesel Nº 1 o Nº 2 y 5% de
Biodiesel se denomina Diesel Ecológico Nº 1E y Nº 2E.
Artículo 9.- Cronograma para Diesel
Cronograma de aplicación y uso del Biodiesel:
- A partir del 1 de enero de 2008 el Diesel Nº 1 Ecológico y Diesel Nº 2 Ecológico se
comercializarán en las regiones: Loreto, Ucayali, Amazonas, San Martín y Huánuco.
- A partir del 1 de enero de 2010 en todo el país.
Artículo 10.- Declaración Anual de Producción de biocombustibles Los productores
nacionales de Alcohol Carburante y de Biodiesel deben presentar al Ministerio de Energía y
Minas, en el mes de enero de cada año, sus planes de producción quinquenal de Alcohol
Carburante y de Biodiesel, detallando el volumen de producción mensual y el área
geográfica en la cual se realizará. El productor que no presente su plan de producción será
considerado con producción cero por el Ministerio de Energía y Minas.
Artículo 11.- Modificación de cronograma
El Ministerio de Energía y Minas con una anticipación no menor a 12 meses, podrá
modificar el cronograma de aplicación y uso establecido en los artículos 7 y 9 del presente
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Reglamento cuando los productores nacionales no puedan abastecer el volumen de
Alcohol Carburante y Biodiesel requerido para el consumo nacional.
Artículo 12.- Comercialización Mayorista
Los distribuidores mayoristas de combustibles líquidos debidamente registrados en
el Ministerio de Energía y Minas son los únicos autorizados a comprar Alcohol Carburante y
Biodiesel en el mercado nacional.
Artículo 13.- Lugares de Mezcla
Las mezclas de Alcohol Carburante con gasolinas y de Biodiesel con diesel se
realizarán en las Plantas de Abastecimiento y las operaciones de mezcla estarán a cargo
del Operador de la Planta de Abastecimiento.
CAPÍTULO II
PROMOCIÓN DE CULTIVOS PARA BIOCOMBUSTIBLES
Artículo 14.- Promoción de Proyectos de Inversión
Los Proyectos de inversión en cultivos para la producción de Biocombustibles
cumplirán con la Ley del Sistema Nacional de Evaluación del Impacto Ambiental. Estos
proyectos deberán tener en cuenta la zonificación ecológica y económica de la región,
cuenca y/o localidad, y de no existir la misma, se tomará en cuenta la Capacidad de Uso
Mayor de los Suelos.
Artículo 15.- Del Mecanismo de Desarrollo Limpio
En el marco del Protocolo de Kyoto, los proyectos que busquen el incentive
económico del Mecanismo de Desarrollo Limpio - MDL, podrán coordinar con
PROBIOCOM, sin perjuicio de las competencias del Consejo Nacional del Ambiente.
Artículo 16.- De los Cultivos Alternativos
La Comisión Nacional para el Desarrollo y Vida sin Drogas - DEVIDA, proporcionará
la información necesaria a los Gobiernos Regionales y al Ministerio de Agricultura sobre las
áreas que requieran de Programas de Cultivos Alternativos, con la finalidad de promocionar
la producción de biocombustibles en la selva, ofreciendo un mercado asegurado a la
inversión privada y productores organizados.
Artículo 17.- Programa de Cultivos Alternativos
DEVIDA, como Ente Rector en la Lucha Contra las Drogas, cumplirá con las
siguientes funciones:
a) Recibirá y calificará a la empresa privada interesada en desarrollar proyectos
agroindustriales o industriales en las áreas requeridas de cultivos alternativos, para la
producción de alcohol carburante y biodiesel.
b) Elaborará proyectos agroindustriales destinados a la producción de alcohol
carburante y biodiesel, para desarrollarse en las zonas requeridas de sustitución de cultivos
ilícitos, en coordinación con el Ministerio de Agricultura y PROBIOCOM.
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c) Coordinará con los Gobiernos Regionales los proyectos a desarrollarse en las
áreas calificadas por DEVIDA para la sustitución de cultivos ilícitos, con el propósito de
generar condiciones favorables a la inversión privada.
d) Canalizará hacia la empresa privada previamente calificada, las líneas de crédito
nacional e internacional que sea captada para la producción de biocombustibles.
e) Coordinará con PETROPERÚ y con los productores y comercializadores de
combustible privados, la suscripción de convenios de adquisición de biocombustibles,
producidos dentro del Programa de Desarrollo Alternativo vinculado a la Lucha Contra las
Drogas y Cuidado del Medio Ambiente.
f) Auspiciará a la empresa privada, si fuera necesario, en la instalación de la
agroindustria para la producción de biocombustibles, en las áreas que no estén
directamente comprometidas con la sustitución de cultivos ilícitos dentro de su ámbito de
acción.
CAPÍTULO III
PROMOCIÓN PARA EL DESARROLLO DE TECNOLOGÍAS
Artículo 18.- Del desarrollo de tecnologías
El Poder Ejecutivo, a través del Consejo Nacional de Ciencia, Tecnología e
Innovación Tecnológica - CONCYTEC y las Universidades, promociona e incentive la
creación y el desarrollo de nuevas tecnologías para la producción, comercialización y
distribución de biocombustibles.
CAPÍTULO IV
PROGRAMA DE PROMOCIÓN DEL USO DE BIOCOMBUSTIBLES
Artículo 19.- Creación del Programa del Uso de Biocombustibles
El Programa del Uso de Biocombustibles (PROBIOCOM) se encuentra bajo la
dirección de PROINVERSIÓN, entidad que se encargará de emitir las directives para su
funcionamiento en un plazo no mayor a 90 días a partir de la vigencia del presente
reglamento.
DISPOSICIONES TRANSITORIAS
Primera.- En tanto no sean aprobadas las normas técnicas peruanas por el Instituto
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Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual INDECOPI, son de aplicación las normas técnicas internacionales.
Segunda.- Los productores nacionales de Alcohol Carburante y de Biodiesel deben
presentar al Ministerio de Energía y Minas, dentro de los 60 días de vigencia del presente
reglamento sus planes de producción quinquenal de Alcohol Carburante y de Biodiesel,
detallando el volumen de producción mensual y el area geográfica en la cual se realizará.
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Actividad WBS 142 “Analizar la Aplicabilidad de los Biocombustibles en el Perú”
Persons Met
Oct 18 – Nov 11, 2005
1. GOVERNMENT
Ministerio de Energía y Minas
Dirección General de Hidrocarburos
Gustavo Navarro V.
Director General
Asesores DGH
Ing. Luis Zavaleta Vargas
Angie Garrido Ponce
Ministerio De Agricultura
Dirección General de Promoción Agraria
Ing. Alexander Chávez Cabrera Ph.D. Especialista en Cultivos
Superintendencia Nacional de Administracion Tributaria (SUNAT)
National Environment Council (CONAM)
Peruvian Program on Climate Change (PROCUM)
Jorge Álvarez
Environmental Specialist
2. DOWNSTREAM OIL INDUSTRY
Integrated Refiner-Marketers
Repsol YPF
William Ojeda Urday
Gerente Seguridad, Calidad, Medio Ambiente, Compras y
Sistemas
PETROPERU
Jaime Santillana Soto Gerente Dpto. Mercado Externo
Edgardo Candela Velazco Gerente de Comercialización
Alfredo Coronel Escobar
Gerente Dpto Control Operativo
José Estrada Valverde Jefe Unidad Técnica, Dpto. Control Operativo
Augusto Núñez Zela
Jefe Unidad de Negociaciones, Dpto. Control Operativo
Regional Refiner-Marketer
Maple Gas Corporation of Perú
Cesar Valderrama Morón Vicepresidente de Operaciones e Ingeniería
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Arturo Ruiz R
Quality issues
Terminal Operators
Consorcio Terminales
Roberto Cairo
Gerente General
Jorge Burgos Toledo
Gerente de Operaciones
Franklin Muñoz Junco Gerente Técnico
Roxana Reluz Vela
Asistente Técnico
Vopak Serlipsa
Kees Bergmans
Gerente General
Ramón Camero Roldan Gerente de Terminales
“Independent” Wholesaler –Retailers
Ferush
Carlos Fernández Ushella Gerente de Administración y Finanzas
HERCO - also same group for “Heaven Petroleum” for Biodiesel Production and
Commercialization
Samir Abudayeh Giha Gerente de Comercialización y Finanzas
Alberto Siles
Julio Figueroa Guzmán Ing. Consultor
3. BIOFUELS INDUSTRY
Sugar/Ethanol Industry
Asociación Peruana de Productores de Azúcar y Biocombustibles (APPAB)
Freddy Flores Herrera Gerente General
Complejo Agroindustrial CARTAVIO (in La Libertad just north of Trujillo –
ETHANOL)
Hugo Dávila Trinidad Asesor de Gerencia
Biodiesel Industry
Heaven Petroleum (see above under HERCO)
4. UNIVERSITIES – BIOFUELS RESEARCH
Universidad Nacional Agraria La Molina
Javier Coello
Part of Biodiesel Research Team - Laboratorio de Energías
Renovables, assigned by British NGO in sustainable
development “Soluciones Prácticas – ITDG”
Ing. Liliana Castillo Sánchez Docente – Departamento Tecnología de Alimentos
Universidad Nacional de Ingeniería
Diego Cáceres Rolando Final Year Student Petrochemical Engineering
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Sergio Sedano
Final Year Student Petrochemical Engineering
5. AUTOMOTIVE INDUSTRY
Asociación de Representantes Automotrices del Perú (ARAPER)
Peter Davis Scott
Consultor
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Fuel Ethanol Specifications
Fuel Ethanol Specifications
Brazil
National Department of Fuels
Technical Regulation DNC - 01/91
Specifications for Anhydrous Fuel Ethanol ("AEAC")
and Hydrous Fuel Ethanol ("AEHC").
Characteristics
1. Appearance
2. Total acids, as acetic acid
Units
__
AEAC
(Anhydrous)
AEHC
(Hydrous)
Clear and free of
suspended matter
Methods
Visual
mg/litre
30 max
(30 p.p.m)
30 max
(30 p.p.m)
MB-2606
(NBR-9866)
3. Electrical conductivity
µS/m
500 max
500 max
MB-2788
(NBR-10547)
4. Chlorides, as Cl.
mg/kg
__
1 max
(1 p.p.m)
MB-3055
(NBR-10894)
5. Sulphate, as SO4
mg/kg
__
4 max
(4 p.p.m)
MB-3055
(NBR-10894)
6. Specific gravity at 20°C,
(at point of production)
kg/m³
791.5 max
809.3±1.7
MB-1533
(NBR-5992)
7. Specific gravity at 20°C, denatured with
3% v/v gasoline (at point of sale)
kg/m³
__
808.0±3.0
MB-1533
(NBR-5992)
8. Material non-volatile at 105°C, (at point
of production)
mg/litre
30 max
(30 p.p.m)
30 max
(30 p.p.m)
MB-2123
(NBR-8911)
9. Copper, as Cu.
mg/kg
0.07 max
(0.07 p.p.m)
__
MB-3054
(NBR-10893)
10. Iron, as Fe.
mg/kg
__
5 max
(5 p.p.m)
MB-3222
__
11. Sodium, as Na.
mg/kg
__
2 max
(2 p.p.m)
MB-2787
(NBR-10422)
12. Acidity/alkalinity
pH
__
7.0±1.0
MB-3053
(NBR-10891)
13. Residue on evaporation, (at point of
sale)
mg/litre
__
50 max
(50 p.p.m)
MB-2053
(NBR-8644)
14. Ethanol content,
(at point of production)
°INPM
99.3 min
93.2±0.6
MB-1533
(NBR-5922)
15. Ethanol content, when denatured with
3% v/v gasoline, (at point of sale)
°INPM
__
92.6 to 94.7
MB-1533
(NBR-5922)
16. Gasoline content,
(at point of sale)
mg/litre
__
30 max
(3.0% v/v)
CNP/DIRAB
No. 209/81
1
Annex 3
Fuel Ethanol Specifications
United States of America
The American Society for Testing and Materials (A.S.T.M.) have established a standard
D4806-98 for "Denatured fuel ethanol for blending with gasoline, for use as automotive
spark-ignition engine fuel", which is generally accepted throughout the industry. For full
details and test procedures, reference should be made to the standard, which is
available from A.S.T.M.
1. Ethanol, %v/v:
92.1 min.
2. Methanol, %v/v:
0.5 max. (5,000 ppm)
3. Water, % v/v:
1.0 max. (10,000 ppm)
4 Solvent-washed gum, 5 max. (50 ppm)
mg/100ml:
5. Chloride ion, mg/L:
40 max. (40 ppm)
6. Copper content,
mg/kg:
0.1 max. (0.1 ppm)
7. Acidity, as acetic
acid, %w/w: *
0.007 max. (70 ppm)
8. Appearance:
Visibly free of suspended or precipitated contaminants (clear
and bright).
9. Denaturant:
A minimum of 1.96% v/v, and a maximum of 4.76% v/v of
natural gasoline, gasoline components or unleaded gasoline.
* Note: There was an error in the original standard. It stated "mass % (mg/Litre)" which
are not the same units, whereas the relevant analytical method specifies "%w/w."
2
Annex 3
Fuel Ethanol Specifications
United States of America
Fuel Ethanol Ed 75 – Ed 85
(otherwise referred to as “E85”)
Specifications
The American Society for Testing and Materials (A.S.T.M.) have established standard D
5798-98a for "A fuel blend, nominally 75 to 85% v/v denatured fuel ethanol and 25 to 15
addition % v/v hydrocarbons, for use in ground vehicles with automotive spark-ignition
engines". For full details, test procedures and a review of the significance of the
properties specified, reference should be made to the Standard, which is available from
A.S.T.M.
Note re classes:
The vapor pressure is varied for seasonal and climatic changes, by having three vapor-pressure classes
of fuel ethanol Ed 75 - Ed 85. In most states, class 1 fuel is required in the summer months, class 2 in the
spring and fall, and class 3 in the winter months. For a detailed table of classes required for each state for
each month, reference should be made to the Standard, which is available from A.S.T.M.
Properties
1.
Ethanol + higher alcohols,
minimum % v/v
2.
Hydrocarbon/aliphatic ether,
% v/v
3.
Vapor pressure,
(a) kPa
(b) P.S.I
Specification for classes
Class 1
Class 2
Class 3
79
74
70
17-21
17-26
17-30
38-59
5.5-8.5
48-65
7.0-9.5
66-83
9.5-12.0
4.
Lead,
maximum mg/litre (p.p.m. w/v)
2.6
2.6
3.9
5.
Phosphorus,
maximum mg/litre (p.p.m w/v)
0.2
0.3
0.4
6.
Sulphur,
maximum mg/kg (p.p.m w/w)
210
260
300
All Classes
7.
Methanol,
maximum % v/v
0.5 (5000 p.p.m v/v)
8.
Higher alcohols (C3 - C8),
2 (20,000 p.p.m v/v)
3
Annex 3
Fuel Ethanol Specifications
maximum % v/v
9.
Acidity, as acetic acid,
maximum mg/kg (p.p.m w/w)
50
10. Solvent-washed gum content,
maximum mg/100 ml (p.p.m w/w)
5 (50 p.p.m w/v)
11. Unwashed gum content,
maximum mg/100 ml
20 (200 p.p.m w/v)
12. Total chlorine as chlorides,
maximum mg/kg (p.p.m w/w)
2
13. Inorganic chloride,
maximum mg/kg (p.p.m w/w)
1
14. Copper,
maximum mg/litre (p.p.m w/v)
0.07
15. Water,
maximum % mass
1.0
16. Appearance
This product shall be visibly free of suspended
or precipitated contaminants (clear and bright).
This shall be determined at ambient
temperature or 21°C (70°F), whichever is
higher.
4
Annex 3
Fuel Ethanol Specifications
Canada
Department of National Revenue, (Customs and Excise) Excise Act.
Specifications for Denatured Alcohol Grade (D.A.G.) 2-F (anhydrous).
1.
Composition:
100 litres of anhydrous
ethyl alcohol and 1 liter
of unleaded gasoline.
2.
Ethyl alcohol, % by volume:
98.75 min.
3.
Density, kg/L @ 20°C:
0.789 max.
4.
Water content, % by weight (Karl Fischer):
0.10 max.
5.
Flashpoint, °C (Tag closed tester):
5
6.
Color, APHA:
10 max.
7.
Non-volatile matter, g/100ml:
0.0030 max.
8.
Acids, g/100ml, as acetic acid:
0.003 max.
9.
Copper, mg/L:
0.1 max.
10. Chlorine, mg/kg:
10.0 max.
5
Annex 4
Biodiesel Specifications
Biodiesel Specifications
USA ASTM 6751 (July 2003)
Property
ASTM Method
Flash Point
93
Water & Sediment
2709
Carbon Residue
4530
Sulfated Ash
874
Kin. Viscosity, 40C
445
Sulfur
5453
Cetane
613
Cloud Point
2500
Copper Corrosion
130
Acid Number
664
Free Glycerin
6854
Total Glycerin
6854 0.
Phosphorous
4951
Distillation, T90
AET 1160
S 15 Limits
130 min
0.05 max
0.05 max
0.02 max
1.9 - 6.0
15 max
47 min
Report
No. 3 max
0.80 max
0.020 max
240 max
10 max
360 max
S500 Limits
130 min
0.05 max
0.05 max
0.02 max
1.9 - 6.0
500 max
47 min
Report
No. 3 max
0.80 max
0.020 max
0.240 max
10 max
360 max
Units
degree C
vol.%
wt. %
wt. %
mm²/sec.
ppm
degree C
mg KOH/g
wt. %
wt. %
ppm
degree C
S15/S500 designation only applies officially to B100 at
this time, not to blends
Petrodiesel, D975, plans to use same nomenclature
When applied to blends:
–
S15 B20 is B20 with total sulfur level less than 15 ppm
–
S500 B20 is B20 with total sulfur level less than 500 ppm
–
Companies can market other levels if they want:
S30 B20 would be B20 that has less than 30 ppm
S30 B100 would be biodiesel with sulfur less than 30
1
Annex 4
Biodiesel Specifications
European
Criteria
Density @ 15°C (g/cm³)
Viscosity @ 40°C (mm²/s)
Flashpoint(°C)
Sulphur (% mass)
Sulphated Ash (% mass)
Water (mg/kg)
Carbon Residue (% weight)
Total Contamination (mg/kg)
Copper Corrosion 3h/50°C
Cetane Number
Methanol (% mass)
Ester Content (% mass)
Monoglycides (% mass)
Diglyceride (% mass)
Tridlycende (% mass)
Free Glycerol (% mass)
Total Glycerol (% mass)
Lodine Number
Phosphor (mg/kg)
Alcaline Metals Na. K (mg/kg)
Derv (EN590)
0.82-0.86
2.0-4.5
>55
0.20
0.01
200
0.30
Unknown
Class 1
>45
Unknown
Unknown
Unknown
Unknown
Unknown
Unknown
Unknown
Unknown
Unknown
Unknown
Biodiesel
(DIN51606)
0.875-0.9
3.5-5.0
>110
<0.01
<0.03
<300
<0.03
<20
Class 1
>49
<0.3
>96.5
<0.8
<0.4
<0.4
<0.02
<0.25
<115
<10
<5
Biodiesel (EN14214)
0.86-0.9
3.5-5.0
>101
<0.01
0.02
<500
<0.03
<24
Class 1
>51
<0.2
>96.5
<0.8
<0.2
<0.4
<0.02
<0.25
120
<10
<5
2
Annex 4
Biodiesel Specifications
Brazilian
ANP 255, 2003
3
Annex 5
Visit to the Agroindustrial Complex of Cartavio, La Libertad
by William Matthews and Donald O’Connor
November 8, 2005
A day trip was organized to the Cartavio Agroindustrial Complex in Trujillo State and the
two consultants toured the complex which included the sugar mill, molasses production,
bagasse handling and production and the anhydrous ethanol plant.
The tour of the Cartavio complex was preceded by an excellent presentation by Sr.
Hugo Dávila Trinidad the Management Advisor (Asesor de Gerencia) of Cartavio.
His presentation covered the following topics:
•
The sugar production facilities in Peru – number and location of mills and total
production capacity
•
Molasses production related to sugar production and the molasses supply /
consumption balance
•
Range of molasses prices in Peru and the dynamics of pricing
•
Total (hydrous) ethanol production at present
•
Ethanol shipping logistics
•
Flowsheet/schematic of the Cartavio production complex, including bagasse
production to electricity generation, bagasse to paper mill, sugar production and
alcohol production.
•
The extent of protection of the Peru sugar industry and impact on internal pricing
of sugar
Tour of the Complex
The following gallery of photographs summarizes the tour of the Cartavio facilities :
Irrigation Pump & Cane fields
The entire northwest coastal area of Peru is very dry and depends upon pumping of
deep ground water for the crops. Groundwater is diminishing and studies are underway
to conserve water through drip irrigation techniques.
Trucking to the Mill
Although Cartavio has significant cane of its own planted, much of the supply to the mill
is from independent cane producers who receive a contractually agreed % share of the
gross value of the sugar produced.
Cane Crushing and Bagasse Recovery
The extraction of the sugar cane juice from the cane involves the production of a
significant amount of waste lignocellulosic material – bagasse which is recovered and
used for both electric power generation within the plant and sold locally as a raw
material for paper production. The plant grinds some 5,000 tonnes/day of cane,
1
producing 1,500 tonnes/day of bagasse. The installation of a new boiler utilizing most of
the bagasse renders the plant self-sufficient in electricity.
Cane Juice Concentration and Recovery of Sugar
The cane juice extracted in the cane crushing process is concentrated through
evaporation, forming sugar crystals in suspension; the liquid is then passed through
centrifuges to separate the sugar crystals from the remaining liquid, molasses.
Ethanol Production
Molasses Fermentation
With the addition of the appropriate yeast, molasses is fermented to a “beer” with an
ethanol concentration of 7 to 8%.
Ethanol Distillation and Dehydration
The “beer” from the fermentation process is distilled to produce a 95% ethanol 5% water
azeotrope also known as hydrous ethanol. Because it is an azeotropic mixture the
ethanol in this 95/5 ethanol /water mixture cannot be concentrated further through
simple distillation. An extractive distillation process is installed at Cartavio and will be
commisioned to further dehydrate the ethanol to 99% using cyclohexane as the
extraction agent. This is older technology ; most plants now use molecular sieves to
dehydrate hydrous ethanol.
The (hydrous) ethanol production capacity is 60,000 litres/day but they were only
producing 50,000 litres/day because of a shortage of molasses. Plans are to initiate
anhydrous (fuel) ethanol production in mid-2006.
2
3
4
5
6
7
8
9
Annex 6
Area Devoted to Oil Palm in Peru
Palm production requires a permanent diversion of the land to the crop. Three to four
years are required between planting the trees and the first production crop is obtained
and then many more crops are obtained from the tree. Beginning in 1991, the United
Nations Office on Drug’s and Crime began to undertake projects in Peru to convert land
from cocoa production to palm production. A number of projects have been successfully
undertaken and the area dedicated to palm production is growing. The current area
devoted to palm is shown in the following figure.
10
There is the potential to increase this area by a factor or two or three, providing not only
the potential for increased farm income in rural regions but also employment at the
crushing facilities and potentially the biodiesel production plants. There is also the
existing potential to offset palm oil imports for current applications in addition to the
potential biodiesel market.
Palm is produced on the east side of the Andes, an area where petroleum imports can
be difficult and costly to supply. The production of a local source of fuel for diesel trucks
could have additional benefits such as reducing the transportation subsidy required for
diesel fuel in the region, a more secure local supply as well the economic benefits from
the production of palm oil and biodiesel.
11