The Digest’s 2018 Visual Guide to the economics, politics of renewable fuels

One last slide for you today. Have you ever wondered why biodiesel refiners like REG have put so much time and money into building a hydrocarbon business through their Dynamic Fuels acquisition (now REG Geismar). Or, why companies like Valero that would sorely love to see the end of the Renewable Fuel Standard are nearly doubling capacity at the Diamond Green Diesel JV with Darling. Even though the worldwide demand for diesel fuel is under severe challenge?

This slide may help. It shows the value economics for renewable diesel hydrocarbon fuel in California. We based this on the known economics relating to REG’s acquisition of Dynamic Fuels, and we amortized that acquisition price over 15 years (the plant is already a few years old, so we didn’t opt for a 20-year amortization).

So, you see the appeal right away. Low capex. Waste fats and greases are the opex at around 1.80 per gallon. We’ve added in estimated operating costs, and you can see the prices as expressed by adding RIN value, California LCFS value and the underlying fuel value.

You may ask, why don’t we add those values into conventional corn ethanol but we apply them for renewable diesel? After all, corn ethanol generates RINs and also generates LCFS credits.

The difference is that ethanol is sold as a unique fuel in the US and all those benefits are priced in when you buy a gallon. In other words, you are paying for the market value of the energy and the market’s valuation of the credits, all bundled together.