Team:Alberta/HumanPractices/CostAnalysis

HUMAN PRACTICES

• COST ANALYSIS
  • Preliminary Analysis
  • Impact
  • Potential
  • Conclusion
  • References
• Governmental Involvement
• Eureka

Cost Analysis

While, MycoDiesel resolves the ethical issue of food crop usage as inputs for biodiesel production, Team Alberta wanted to further emphasize the benefits of our project’s approach. As the inputs to our production process are largely industrial wastes, MycoDiesel also promises to provide substantial cost advantages, savings that can potentially be passed on to consumers. Given the current economic hardships throughout the majority of the developed world, MycoDiesel’s approach is an attractive potential solution to attenuate ever-increasing consumer fuel prices.

Team Alberta received the help of Alex Siu, an accounting student at the University of Alberta School of Business, who conducted a preliminary cost analysis study to explore the potential savings that can be realized from synthesizing biodiesel using MycoDiesel's approach.

Preliminary Cost Analysis

Given that our laboratory production process remains in its infancy and is not ready for commercial analysis, to achieve the most reliable cost information, the large-scale production of soybean biodiesel was used as a model for our estimates. Within our analysis, the net cost of relevant direct materials was estimated to be zero, given that they are industrial byproducts that are readily disposed of throughout industries. According to You et al. (2008), the direct material input of soybean biodiesel production represented 64.8% - 75.9% of the total cost of production1. Keeping with the most conservative estimate, i.e. one that posses the highest non-direct material cost, our analysis will estimate that 64.8% of total cost of production is attributable to current B100 pump prices. However, it should be noted that with the relatively recent trend in rising food prices, raw material input prices may actually present a large share of production costs. The following tables estimate the cost breakdown of 2011 B100 fuel prices within the United States, the estimated retail and production costs of our fuel, and the estimated retail cost of our fuel relative to other similar fuels.

When the estimated cost of biodiesel made by our production process is compared to tradition fuels, a significant decrease in price is observed. With the exception of E85, which is not considered to have the same efficiency, a 32% price reduction is seen.

The method of analysis used was to estimate the reduction in the total cost by separating current fuel prices into separate cost components that make up the current market price.

*The market for biodiesel in Canada, in contrast to the United States, is still very much in its infancy. Therefore, the costs of biodiesel production and retail costs are not readily available if at all in some provinces.

The Impact on the Average American Family and Canadian Family

The impact of biodiesel on food prices throughout the world remains controversial. The most popular opinion on this issue appears to be that there is a direct correlation between the use of food crops as inputs in biodiesel production processes and an increase in food prices. The biofuel industry, however, refutes this claim, citing multiple reasons of why biofuel production is not the primary reason for this observed increase in price. As our approach to biodiesel production do not make use of any essential food crop, our analysis is able to avoid this controversy. Nonetheless, without conclusive evidence on the impact of biofuels (and its future replacement with our biodiesel) on world food prices, our analysis used the most conservative estimate and assumed that there will be an insignificant impact on the average American family’s and Canadian family’s food prices.

While generally neither American families nor Canadian families own and operate diesel-powered vehicles, certain diesel-powered vehicles are becoming more popular within these markets. Given current economic hardships, filling up at the pump is often a significant burden on today’s families and thus we wanted to illustrate how consumers could save on each tank if they were driving in Toronto, New York and Los Angeles. The table below represents the cost breakdown and estimated local price of our fuel relative that to the local cost of diesel. Estimates were also made for the local price of an 80% diesel 20% biodiesel mixture, which represents the current largest biodiesel substitution feasible in current infrastructure.

From this table we can see that even after adding sales tax to our fuel, it represents a significant cost savings to consumers in both direct and 20% substitution.

To further exemplify the cost savings associated with our alternative biodiesel usage, we compared the estimated fill up cost of a 55L Diesel Engine Volkswagen Jetta and a 60L Diesel Engine Chevy Cruise. These models are two of the most common diesel powered vehicles on American and Canadian roads.

The Potential

While use of diesel-powered vehicles is relatively uncommon in North America, use of such vehicles in Europe is incredibly popular. To emphasize the impact of such a trend reaching North America and the potential savings to families, we decided to end this cost analysis with data on current gasoline expenditures. While reading these data, keep in mind that our production processes represented a savings of 32% and that similar savings could be observed should similar advances be made in gasoline production processes.

The American Family

According to the 2009 American Consumer Expenditure Survey, the average family with dependents has an average annual expenditure $68,841 USD or $72494.24 USD after adjusting for inflation. Of these expenditures, gasoline accounts for $2,868 USD or $3020.20 USD after adjusting for inflationi. (Inflation is based on a rate of 5.3%.)

If the price of fuel could be reduced by a similar 32%, the average American family with dependants could save $996.46 USD per year. This reflects upon direct savings seen at the gas service station.

Moreover, further potential savings could be incurred resulting from reduced transportation costs of various household goods.

The American Individual

Similarly, the average American individual with no spouse and no dependents spent an average of $1,360 USD on gasoline in 2009. After adjusting the figures for inflation, in 2011 the amount spent on fuel would approximately be $1432 USD. Taking the savings of 32% we could reduce those expenditures by $458 USD.

The Canadian Family

According to Statistics Canada, the average Canadian household will spend 3.8% of their income on motor vehicle fuelii. The average Canadian family with two children and two working adults earned $85,600 CDN in 2009 according to Statistics Canada. After adjusting for inflation that would be approximately 90,000 CDN in 2011iii. Given the 3.8% expenditure on motor vehicle fuel and applying this to the adjusted income yields $3420 CDN, an estimate on the total amount of money spent on gasoline and fuel products for a typical Canadian family. Again, this value could be reduced by 32%, yielding $1094 CDN in annual cost savings.

Conclusion

If our product can successfully scale into commercial production it holds much potential to change the future of energy in countries. Our estimates clearly show the potential economic viability of such an alternative fuel. Therefore, not only environmentally, but also economically as seen here, there is significant reason to further investigate our approaches as a means for providing lower

References