NEUSS, Germany – Detlef Volz has a cautionary tale for Canadian producers considering investing in biodiesel production facilities.
He has witnessed how fast a thriving industry can fall into turmoil because of changing price dynamics and government policies.
Volz is general manager of C. Thywissen GmbH, an oilseed crushing plant in Neuss that is part owner of a nearby biodiesel plant.
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The facility can produce 240,000 tonnes of biodiesel a year, but like many other plants in Germany it is not operating at full capacity.
Volz and other industry experts estimate the German biodiesel industry is functioning at about 40 percent of its capacity.
It is a far cry from the heyday of only a year ago when biodiesel demand exceeded supply, vegetable oil costs were low and fossil fuel prices were sky high.
“You could really make a fortune by producing biodiesel and people put plants everywhere, in the middle of nowhere, with no water and no rail connection,” Volz said.
Things were going so well the German government decided to remove some of the tax exemptions propping up the biodiesel sector. In January the government exposed five percent biodiesel (B5) blends to the full 65 cents per litre fuel tax.
It offset those measures by introducing a mandate requiring petroleum companies to use at least five percent biodiesel in their supplies.
It also began to phase in new tax rules for pure biodiesel fuel (B100). Starting in January, the fuel was subject to a tax of 13 cents per litre, which will rise by nine cents a year until it reaches full taxation in 2012.
Volz said 95 percent of B100 consumers are truck fleets.
“They are very good at using their calculators. If it doesn’t calculate they will not use it.”
Under the new tax regime biodiesel is selling for 16 cents per litre less than regular diesel, which is barely enough to entice truckers to use the fuel because of the higher maintenance costs and lower efficiency associated with biodiesel.
Tack on another nine cents of taxes in January 2008 and the B100 market will all but disappear, especially in light of what’s happening with rapeseed costs, the main raw material ingredient in European biodiesel.
When the government introduced its new energy tax law, rapeseed prices were $216 per tonne cheaper than they are today. That is having a disastrous effect on Germany’s biodiesel sector when combined with lower fossil fuel prices.
Volz said the mandate has created a 1.5 million tonne market for B5 fuel but the removal of the tax exemption has almost killed the B100 market.
He expects biodiesel demand to fall to 1.8 million tonnes in 2008, down from a peak of three million tonnes in 2006 in a market that has the capacity to produce five million tonnes of the fuel.
The mandate package that was sold as a way to support the industry has come back to haunt producers.
“It’s kind of a boomerang. It went completely the other way it was supposed to,” Volz said.
Share prices for some biodiesel companies are one-sixth the value they started at, major producers have cancelled expansion plans and new plant construction has stalled.
Volz predicts original plants that are attached to oilseed crushing operations, such as the one owned by Thywissen, will survive, but many producer-owned facilities in remote areas will either close or continue operating well below capacity.
Even if Germany recovers from the setback and manages to meet the European Union’s resolution of a 10 percent mandate in all member states by 2020, that would amount to only three million tonnes of demand.
“(That) is something we already had one year ago,” said Volz.
