An economic evaluation
was conducted for a batch reactor's utilization in producing biodiesel using
Jatropha oil, methanol, and sodium hydroxide as a catalyst. The assessment
encompassed a fundamental scenario in which the reactor can convert 306.36
metric tons per year of Jatropha oil, methanol, and sodium hydroxide. This
setup's computed fixed capital investment amounted to ₦5,795,231.72
million Nigerian Naira, alongside a minimum cost of biodiesel production at
₦ 417.75 per kilogram. The complete capital outlay reached
₦6,817,919.67, yielding a 74% rate of return and a payback period of
1.07 years. The Net Annual Profit after Taxes (NAPAT) was also determined, totalling
₦5,017,979.06. In conclusion, the study confirms the batch reactor's
adaptability to various vegetable oils and alcohols for efficient biodiesel
production, establishing its economic viability.
The surge in global population, industrialization, and
transportation has led to an upswing in energy demand (Sani et al., 2013). While fossil fuels currently stand as the most
abundant energy reservoir, they come with drawbacks like emitting greenhouse gases
and the depletion potential, posing a threat to energy security (Kusumaningtyas et al., 2017). Greenhouse gas
emissions, primarily caused by these fossil fuels, play a central role in
driving global warming and climate change (Nauman
Aftab et al., 2019). As a result, it's imperative to curtail the use of
fossil fuels and develop a well-structured strategy. It becomes vital to
establish alternative, environmentally friendly, and renewable energy solutions
to address this concern. Among these alternatives, biodiesel emerges as a
highly promising option (Kusumaningtyas et al.,
2017). Biodiesel offers numerous benefits such as low sulfur and
aromatic content, non-toxic nature, renewability, biodegradability, clean
combustion, reduced emissions of greenhouse gases including carbon monoxide,
minimized health risks due to lower release of cancer-causing substances, and
favorable lubricating properties (Akubude et
al., 2021).
Economic expenditures encompass costs linked to
employment, labor outlays, pricing of alternative products, and the expenditure
on raw materials and energy essential for any industrial operation (Ofori-Boateng & Lee, 2011). The evaluation
of costs and benefits is primarily conducted within economic analyses. To
enhance the efficient allocation of resources, this process begins by
appraising projects based on their economic feasibility. It aims to gauge the
impact of a project on overall well-being (Edomah,
2018).
Numerous investigations have been conducted to comprehend
the optimal reactor type for addressing technical obstacles in biodiesel
production through transesterification. In recent periods, technological
approaches or procedures in biodiesel manufacturing have made substantial
advancements with the introduction of diverse reactors in varying sizes.
Varieties of reactors available include batch reactors, continuously stirred
tank reactors, fixed bed reactors, bubble column reactors, microchannel reactors,
membrane reactors, reactive distillation, and hybrid catalytic plasma reactors (Akubude et al., 2021). The literature
indicates that numerous studies have been conducted to comprehend the economic
aspects of various reactors in the biodiesel production process. (El-Galad et al., 2022) examined different
pathways for producing biodiesel, incorporating tetrahydrofuran as a
co-solvent. The findings revealed that the approach with the lowest total
capital investment, net after-tax profit, and the payback period was achieved
using this method, specifically with values of M$2.32, M$10.54, and 0.19 years,
respectively. Moreover, they attained a remarkable after-tax rate of return of 5.13%.
(van Kasteren & Nisworo, 2007)
explored the costs associated with manufacturing 8,000 to 125,000 tons of
biodiesel annually using a continuous supercritical methanol process and used
cooking oil. (You et al., 2008) delved
into the economic aspects of a continuous homogeneous alkali-catalyzed process,
utilizing soybean oil and producing 8,000 to 100,000 tons of biodiesel
annually. Furthermore, (West et al., 2008)
analyzed the expenses of producing 8,000 tons of biodiesel per year using four
waste cooking oil-based processes: continuous homogeneous alkali-catalyzed,
continuous homogeneous acid-catalyzed, continuous heterogeneous acid-catalyzed,
and continuous supercritical methanol. Similarly, (Marchetti & Errazu, 2008) calculated the costs of producing
36,036 tons of biodiesel annually using these same four techniques. Among these
processes, the continuous heterogeneous acid-catalyzed approach demonstrated
the lowest manufacturing costs.
Comprehending the financial ramifications of utilizing
batch reactors for biodiesel production is essential from an economic
perspective. Despite the widespread use of batch reactors across various
industries and educational settings for student practicals, this research
specifically focused on evaluating the economic feasibility of a batch designed
to manufacture 1000 liters of biodiesel per hour through a cost-benefit
analysis.
2.0 BIODIESEL PRODUCTION
Transesterification stands as the predominant technique
employed for producing biodiesel using a batch approach, with the operational
temperature kept close to the boiling point of alcohol. This process involves
the reaction of three moles of methanol with one mole of triglyceride (TG)
found in vegetable oils or animal fats. This reaction occurs typically in the
presence of a base catalyst, usually NaOH or KOH at a concentration of 0.1-1%
relative to the oil. This results in the creation of mono-methyl ester and the simultaneous
production of glycerol. To ensure optimal reaction progress, an additional
amount of alcohol is commonly used at a 6:1 molar ratio about the oil (Nauman Aftab et al., 2019; Van Gerpen et al., 2004).
However, challenges exist within the biodiesel production process using
transesterification. These challenges include extended reaction times, elevated
operational expenses, inefficient resource utilization, and diminished
production efficiency. Recent research efforts in the field of biodiesel
synthesis have been directed towards the advancement of process intensification
techniques to address these obstacles (Zhang et
al., 2003).
3.0 PROCESS DESCRIPTION
Biodiesel is produced through the
transesterification of vegetable oil with alcohol using sodium hydroxide as a
catalyst. After biodiesel has been produced, the byproduct, such as glycerol,
will be drained out using a pump and stored in the glycerol tank. Then water
from the water tank will be pumped into the biodiesel in the reactor for a
water wash before drying, and finally, it will be stored in the biodiesel tank
as shown in Figure 1.
Figure 1 Process Flow Diagram for Biodiesel Production
4.0 ECONOMIC ANALYSIS
The economic analysis essentially entails the evaluation
of costs and benefits. It starts by ranking projects based on economic
viability to aid better allocation of resources. It aims to analyze the good
impact of a project (Cheng et al., 2016).
4.1 Factors for Evaluating Projects
As well as economic performance, many other factors have
to be considered when evaluating projects; such as: 1. Safety 2. Environmental
problems (waste disposal) 3. Political considerations (government policies) 4.
Location of customers and suppliers (supply chain) 5. Availability of labor and
support services 6. Corporate growth strategies and 7. Company experience in
the particular technology.
4.2 Steps in Economic Analysis of Batch Reactor for
Biodiesel Production
Figure 2 depicted steps involve in economic
analysis for biodiesel production.
4.2.1 Estimation of
Equipment Cost
Table 1 depicted the cost of equipment as
obtained from different market agencies.
Fixed-capital investment (FCI) is the capital needed to stream the required manufacturing
facilities of the plant (Peters et al., 2003).
Table 2 shows the calculated fixed capital investment for this study.
Table 2. Fixed Capital
Investment
S/N
Item
Factor
Amount
(₦)
1
Equipment
1.00
1,420,339.93
2
Installation
0.50
710,199.97
3
Instrumentation
and Control
0.40
568,159.97
4
Piping
0.30
426,119.98
5
Electrical
0.30
426,119.98
6
Buildings,
Process, and Auxiliary
0.60
852,239.96
7
Service
Facilities and Land Improvement
0.60
852,239.958
8
Land
0.08
113,631.99
9
Engineering
and Supervision
0.05
71,020.00
10
Legal
Expenses
0.03
42,612.00
11
Construction
Expenses and Contractors Fee
0.11
156,243.99
12
Contingency
0.11
156,243.99
Total
5,795,231.72
Source of Factor:(Peters et al., 2003)
4.2.3 Estimation of
Working Capital
Working capital (WC) represents the funds
necessary to sustain plant operations, encompassing various components: inventory of raw materials and supplies,
stocks of finished and partially manufactured goods, outstanding payments from customers
(reflecting approximately one months production cost), cash allocated for
monthly operating payments like salaries, wages, and raw material procurement,
as well as liabilities like accounts payable and taxes due. Consequently,
working capital is calculated as 15% of the total capital cost (Peters et al., 2003).
4.2.4 Estimation of
Total Capital Investment
Most estimates of capital investment are based on the
cost of the equipment required, total capital investment is the sum of the
fixed-capital investment and the working capital (Peters et al., 2003).
Total Capital Investment = Fixed-capital
Investment + Working capital4.1
Total Capital Investment =
₦6,817,919.67
Working Capital = ₦1,022,687.95
4.2.5 Estimation of
Total Production Cost
Total Production Cost is the total of all costs of
operating the plant, selling the products, recovering the capital investment,
and contributing to corporate functions such as management and research and
development (Peters et al., 2003) as revealed in
table 3.
Table 3. Total Production Cost
S/N
Item
Factor
Amount (₦)
1
Raw Materials
0.110
10,889,581.29
2
Operating Labor
0.100
9,899,619.36
3
Direct Supervisory and Clerical Labor
0.010
989,961.94
4
Electricity
0.200
19,799,238.71
5
Fuel
0.200
19,799,238.71
6
Water
0.200
19,799,238.71
7
Maintenance and Repair
0.100
579,523.17
8
Operating Supplies
0.030
173,856.95
9
Laboratory Charges
0.010
989,961.94
10
Depreciation
0.200
1,363,583.93
11
Local Taxes
0.010
57,952.32
12
Insurance
0.040
231,809.27
13
Financing (Interest)
0.010
68,179.20
14
Over Head Cost
0.053
5,246,798.26
15
Administrative Cost
0.022
2,177,916.26
16
Distribution and Marketing
0.020
1,979,923.87
17
Research and Development
0.050
4,949,809.88
Total
98,996,193.56
Source of Factor:(Peters et al., 2003)
4.2.6 Calculating
Revenue
Revenue is generated from the sale of the product or
products produced by the plant. The total annual revenue from product sales is
the sum of the unit price of each product multiplied by its rate of sales (Peters et al., 2003) as shown in table 4.
4.2
Table 4. Annual Sales Revenue
S/N
Parameters
Unit
Value
1`
Price of
Biodiesel (Rs75/kg) *
₦
417.75
2
Price of Glycerol (Rs 50/kg) *
₦
278.50
3
Number of
Days of Production in a Year
days
276
4
Biodiesel Produced
kg/yr
276,000
5
Glycerol
Produced
kg/yr
29,278.08
6
Sale of Biodiesel
₦/kg
99,925,800.00
7
Sale of Glycerol
₦/kg
8,153,945.27
Total Annual Sales Revenue
₦/yr
108,079,745.28
Source: Indian
Market, 2022*
1 Rs
Equivalent to 5.57 Nigerian Naira (₦)
4.2.7 Depreciation
Depreciation
stands out as a unique expense as it involves allocating funds to the company's
treasury. The underlying idea of depreciation revolves around the recognition
that physical assets degrade and lose value over time, leading to a decline in
their worth. This decline in value is termed as physical depreciation and
signifies the reduction in the value of an asset due to alterations in its
physical attributes. Factors like wear and tear, corrosion, accidents, and the
natural effects of time all contribute to physical depreciation. Such
depreciation diminishes the functionality of the asset due to these physical
changes. On the other hand, functional depreciation encompasses all other
reasons for an asset's value decline. A notable example of functional
depreciation is obsolescence, which occurs when technological advancements
render an existing asset outdated. Other causes for functional depreciation
include a decrease in demand for the asset's services, shifts in population,
alterations in public authority requirements, inadequate capacity, and the
abandonment of the enterprise (Peters et al.,
2003). The calculation of depreciation can be achieved using equation
4.3.
4.3
Where D = Annual
Depreciation, I = Original Investment, and L = Length of Straight-line recovery
period.
Return on investment is a performance measure used to
evaluate the efficiency or profitability of an investment or compare the
efficiency of several different investments (Max et al., 2003).
Cash flow is the amount of funds that enter
the corporate treasury as a result of the activities of the project (Peters et al., 2003).
Cash flow = Net Annual Profits after Tax +
Depreciation4.8
4.2.10 Payback Period
The payback period is defined as the number of years
required to recover the original cash investment. In other words, it is the period
at the end of which a machine, facility, or other investment has produced
sufficient net revenue to recover its investment costs (Kiran, 2022; Peters et al., 2003).
A simple method for estimating the pay-back time is to
divide the total initial capital (fixed capital plus working capital) by the
average annual cash flow:
4.9
Table 5. Profitability
S/N
Parameter
Unit
Value
1
Total Annual Sales
₦
108,079,745.28
2
Total
Production Cost
₦
98,996,193.56
3
Income Tax
Rate
%
35
4
Total
Capital Investment
₦
6,817,631.66
5
Gross
Annual Profit
₦
7,719,967.79
6
Net Annual
Profit After Taxes (NAPAT)
₦
5,017,979.06
7
Depreciation
₦
1,363,583.93
8
Return on
Investment ROI
Per years
74%
9
Cash flow
₦
6,381,562.99
10
Payback
Period
Years
1.07
5.0 SENSITIVITY ANALYSIS
5.1 Simple Sensitivity Analysis
Sensitivity
analysis involves investigating the impact of uncertainties in forecasts on a
project's feasibility. Initially, the total investment cost and cash flows were
computed using specific values for different factors, creating a baseline for
analysis. These values were outlined in Sections 4.2.4 and 4.2.9 and are also
displayed in Table 5. Adjustments were made to the prices of biodiesel and
glycerol, as indicated in Table 6. These adjustments reveal those changes in
price influence both cash flow and project profitability. This highlights how
vulnerable cash flows and economic metrics are to inaccuracies in forecasted
figures. Conducting a sensitivity analysis provides insight into the level of
risk associated with evaluating the project's forecasted performance.Top of Form
Table 6. Sensitivity Analysis
S/N
Price of Products
(₦)
Sale of Biodiesel (₦)
Sale of Glycerol (₦)
Total Sale
(₦)
GAP
(₦)
NAPAT
(₦)
1
111.40
30746400
3261578
34007978
-66351798
-43128669
2
139.25
38433000
4076973
42509973
-57849804
-37602373
3
167.10
46119600
4892367
51011967
-49347809
-32076076
4
194.95
53806200
5707762
59513962
-40845815
-26549780
5
222.80
61492800
6523156
68015956
-32343820
-21023483
6
250.65
69179400
7338551
76517951
-23841826
-15497187
7
278.50
76866000
8153945
85019945
-15339831
-9970890
8
305.35
84276600
8940062
93216662
-7143115
-4643025
9
334.20
92239200
9784734
1.02E+08
1664157.8
1081702.6
10
362.05
99925800
10600129
1.11E+08
10166152
6607999
11
389.90
1.08E+08
11415523
1.19E+08
18668147
12134295
12
417.75
1.15E+08
12230918
1.28E+08
27170141
17660592
13
445.60
1.23E+08
13046312
1.36E+08
35672136
23186888
14
473.45
1.31E+08
13861707
1.45E+08
44174130
28713185
15
501.30
1.38E+08
14677102
1.53E+08
52676125
34239481
16
529.15
1.46E+08
15492496
1.62E+08
61178119
39765778
17
557.00
1.54E+08
16307891
1.7E+08
69680114
45292074
GAP = Gross Annual Profit
NAPAT = Net Annual Profit After Taxes
6.0 CONCLUSIONS
The
objectives of this study were successfully met, yielding the subsequent
outcomes, which encompass: evaluation of equipment expenses totaling
₦1,420,339.93, assessment of working capitals amounting to ₦1,022,687.95, determination of fixed capital investment
valued at ₦5,795,231.72, resulting in an overall capital investment of
₦6,817,919.67. Furthermore, there was an estimation of total production
costs reaching ₦98,996,193.56, accompanied by revenue of
₦110,079,745.28. After-tax profits were measured at ₦5,017,979.06.
The return on investment (ROI) stood at 74% annually, with a payback period of
1.07 years. The cash flow amounted to ₦6,381,562.99. In conclusion, the
study demonstrates that the batch reactor can accommodate a variety of
vegetable oils and alcohols for biodiesel production. Economically, the
project's feasibility is evident, as revealed by sensitivity analysis. This
analysis indicates that changes in biodiesel and glycerol prices have a
significant impact on project cash flow and profitability, further affirming
the project's viability.
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Top of Form
Cite this Article: Bello, Z; Aliyu, AB; Sayau, A (2023).
Economic Analysis of Batch Reactor for Biodiesel Production. Greener Journal of Science, Engineering
and Technological Research, 12(1): 49-56.
