This report presents an analysis of the potential investment in a plant for the production of biodiesel from used cooking oil (UCO). The analysis includes a review of the current market situation, a break-even analysis, and an investment analysis considering different scenarios for the price of biodiesel.
The biodiesel market in the EU has been growing steadily, with production of biodiesel from UCO increasing from 2.3 million tons in 2018 to 2.8 million tons in 2020. The leading countries in terms of production are the Netherlands, Germany, and the UK. The majority of UCO is sourced domestically, but a significant amount is also imported from overseas, particularly from Asia.
The break-even analysis shows that with a market price of biodiesel of 1.00 euro per litre and a price of UCO of 600 euros per metric ton, the maximum processing cost per ton of UCO that the producer can afford to break even is 350 euros. If the processing cost is lower than this, the producer would make a profit, while if it is higher, the producer would make a loss.
The investment analysis shows that the net present value (NPV) of the proposed investment is zero, indicating that the investor should be indifferent to investing immediately or not. However, if the investor waits one year before investing, the NPV could be positive if the price of biodiesel is 1 euro or 1.5 euros per litre, suggesting that the investor should invest. If the price is 0.5 euros per litre, the NPV would be negative, suggesting that the investor should not invest. The value of the option to wait is 952,381 euros.
The main sources of uncertainty about the biodiesel price include fluctuations in the price of crude oil, changes in government policies and subsidies for biofuels, and variations in the supply and demand for UCO and biodiesel. These factors can cause the price of biodiesel to be volatile and unpredictable.
In conclusion, the decision to invest in the biodiesel production plant should be based on a careful consideration of the potential risks and rewards. The investor should monitor the market conditions and make a decision when the expected NPV is positive. The option to wait provides a valuable opportunity to gather more information and reduce uncertainty.