If John Nicholas has his way, diesel will become the premier alternative fuel in the UK, as his company’s refinery produces a non-stop flow of biodiesel for the first time.
If John Nicholas has his way diesel will become the premier alternative fuel in the UK, as his company’s refinery produces a non-stop flow of biodiesel for the first time.
With a little help from Gordon Brown, Australian John Nicholas is about to use the UK as a bridgehead for his assault on Europe’s burgeoning market in biodiesel. When biodiesel – the ‘green’ alternative to conventional diesel, produced from oils and fats – received the chancellor’s blessing via a tax break in 2002, Nicholas was quick off the mark.
Last month Biofuels Corporation, the company of which he is chief executive, began building what it claims is the biggest biodiesel refinery in the world, with production due to start early next year. Without Brown’s announcement, said Nicholas, the £21m plant could have been built in his native land rather than on Teesside.
The relatively low cost of conventional fuel down under, which made biodiesel less competitive, was already causing him a headache – but Brown’s tax break of 20p per litre was the clincher. ‘We were having difficulty making a biodiesel plant work under the fuel tax regime in Australia,’ said Nicholas. ‘The UK, however, has the highest taxed fuel on the planet, followed closely by Germany.’
Biodiesel is gradually emerging as a credible alternative to mineral diesel. The fuel is processed from cooking or vegetable oil, including rape, canola, soya, linseed, palm, coconut, mustard and cotton. It has clear environmental benefits. The extra oxygen in it promotes complete combustion of greenhouse gas carbon dioxide and water, reducing exhaust pollutants like carbon monoxide, unburned hydrocarbons and small particles of soot by up to 90 per cent. The fuel also contains less sulphur, and if used as an additive to ultra-low sulphur diesel (ULSD) it improves engine lubricity and wear-resistance.
Nicholas and fellow Australian Max de Grussa, Biofuels’ business development manager, began drawing up their UK plans within a month of Brown’s 2002 announcement. Nicholas had previously helped to develop the solar power industry in north Australia and managed the Tjuwanpa Outstation Resource Centre, providing power to remote settlements via solar, diesel and wind hybrid systems.
Biofuels Corporation’s plant pioneers a large-scale technology designed to provide continuous production of the fuel. As in conventional methods, a process called transesterifcation breaks up triglycerides in the plant oils, which liberates the valuable by-product glycerol, and links the fatty acids with methanol, reducing their acidity and potential for engine corrosion. But, unlike traditional batch techniques, the plant will pump out biodiesel non-stop. The technology comes from Austrian company Energea. ‘It’s continuous flow in the true sense of the word,’ claimed Nicholas. ‘The esterification reaction occurs in five seconds, as opposed to traditional batch technologies that take significantly longer.’
The Energea process saves space and is more efficient at a lower cost, Nicholas claimed. Biofuels will produce 250,000 tonnes of biodiesel a year alongside by-products of 22,400 tonnes of glycerine and 5,500 tonnes of fertiliser potassium sulphate. Despite not yet having produced a single tonne, the company is loudly declaiming its commercial prospects. Biofuels expects to make a pre-tax profit of £6.2m in its first year on a ‘conservative assumption’ of sales of £110m. Nicholas claimed a third of the plant’s output for the next five years is sold already, and he plans to have the rest accounted for by early 2005. In five years the company expects to have five refineries – the second starting construction next year, funded by revenue from the first plant.
But for all its ambitious plans Biofuels is not the only player in the market. A firm called Argent Energy is building a biodiesel refinery in Scotland. This will convert tallow and waste cooking oils produced by fast food and catering industries and could produce about 50,000 tonnes of biodiesel a year at full capacity, the company claimed.
Nicholas is unruffled by the competition, and claimed it is impossible to build a viable industry on small batch processing of cooking oil. The Teesside plant will instead use crop vegetable oils – imported palm from Malaysia and Indonesia, soya from south America and rape from domestic sources. Indigenous sources are more expensive, so Biofuels is relying on imports, maybe leaving it vulnerable to price fluctuations.
One thing Nicholas can apparently rely on is the government’s continued support for the sector. This year’s budget revealed that the duty incentive of 20p per litre would remain for at least three years. The industry’s target is for a tax rebate of up to 30p, which it claims is necessary if the UK is to meet an EU directive of 5.75 per cent biodiesel usage by 2010. Currently biodiesel makes up less than 0.05 per cent of petrol and diesel sales. The government is reluctant to offer too much duty incentive, however, because the total annual costs to the exchequer would be more than £0.5bn. Cottage industries that have sprung up in villages around the UK to fill diesel tanks on the cheap are already feeling the full ire of the customs authorities.
Indeed, too much positive government intervention could be as bad for Biofuels as too little. The Department for Transport last month ended a consultation period to decide whether to introduce a statutory obligation for oil refineries to produce a certain percentage of biofuel, similar to the renewable obligation that applies to the electricity generation sector. This could be a critical moment for Nicholas and his colleagues. An obligation on existing diesel producers would steal Biofuels’s lead on the market, and Nicholas refused to comment on his company’s plans if government intervention did move in that direction.
Whatever incentive the government gives, Nicholas believes that the fuel has enough commercial potential to attract industry on its own. ‘Apart from government support there are a couple of trends we think are real. One is that in the next 50 years the crude oil suitable for diesel will contain more and more sulphur. Biofuels are low sulphur, yet provide the lubricity performance of sulphur fuels.’
He also pointed to the high cetane number of biodiesel – a measure of how soon the diesel fuel ignites when compressed. ‘The cetane level of mineral diesel is likely to decrease over the next 50 years. The current standard of cetane levels is at least 51. Mineral diesel is at 52, so it is quite close to the lower limit.’ Biodiesel performs as well if not better, claimed Nicholas.
As a future low-carbon fuel, biodiesel is also emerging as a possible competitor to hydrogen fuel cells because a distribution infrastructure is already in place. ‘For the next 30 years hydrogen will remain a boutique fuel until someone can crack the economics of converting all the service stations in the west to hydrogen fuel cell stations,’ said Nicholas. Biodiesel will fill that transitional gap and may also compete as a long-term alternative, he claimed.
For the moment, however, only a two to five per cent blend with mineral diesel will be implemented in the UK. Nicholas said the government has pushed for a blend of two per cent so UK industry is already ahead. ‘Biofuels and most other companies are already doing it at five per cent as an industry standard. It’s going to be interesting to watch the market dynamic to see who sells what blends both in the UK and Europe. It could differentiate companies and the product they’re offering the consumer.’ A blend at five per cent solves lubricity issues and means supermarkets can sell it as ‘green’ and yet still comply with EN 590, the approved standard for ULSD.
Even higher blends could mean lower sulphur. ‘You can make it at higher percentages. In Germany and Austria it’s used at 100 per cent so technologically it’s not an issue.’ But engine component warranties are holding back these blends in the UK. More than a five per cent blend breaches EN 590, the ceiling for some diesel-injection components.
Despite this Nicholas is confident that higher-blend biodiesel will be taken up on a wide scale if component manufacturers see the benefits. ‘No-one is going to pretend that biodiesel is the panacea for the type of transport that diesel serves, but it’s certainly going to be an important part of the picture.’
Biodiesel has its limitations and drawbacks. It has greater detergent qualities that will cleanse the carbon out of engines previously run on conventional ULSD, so if used in too strong a mix in the early stages of use it may cause fuel lines and filters to become blocked. It is hydroscopic and will absorb water, causing potential problems with storage and distribution in both the refinery and the engine. Natural rubber components on older diesel engines may deteriorate more quickly than normal if in contact with the fuel. And there are obvious worldwide land limitations that restrict the crop feedstock levels.
But Nicholas remained bullish. ‘I am optimistic about the decisions the government is going to make over the next few years. It’s all been speculative up until now, but now there’s a large, reliable producer on the stage. I am hoping they will be keen to protect the biodiesel industry so that results from it will continue to grow.’