Contents. Page. Contents i-1 List of Figures i-2 List of Tables i-3

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1 Contents Page Contents i-1 List of Figures i-2 List of Tables i-3 1. Biofuel Industry in the Biofuel Leading Countries 1 2. Potential of Biofuel s Raw Material 8 3. The Biofuel Production and Consumption in Thailand Policies and Measures to Promote Biofuel in Thailand The Development Trend of Automobile Industry Analysis on Fuel and Biofuel Demand in Future Benefits and Impacts of Biofuel Promotion The Strategies to Promote the Development of Biofuel in the Transport Sector Proper Fuel Pricing Structure in Thailand 29 PTIT Executive Summary i - 1

2 List of Figures Page Figure 1 Ethanol Production from Sugarcane and Cassava in Figure 2 Potential of Ethanol Production from Sugarcane and Cassava in Figure 3 Feedstock Options for Ethanol Production in Figure 4 Biodiesel Production from Oil Palm in Figure 5 Potential Biodiesel Production from Oil Palm in Figure 6 Ethanol Consumption in Gasoline 12 Figure 7 Biodiesel (FAME) Consumption in Diesel 15 Figure 8 Alternative Energy Development Plan (AEDP 2015) 16 Figure 9 Forecast of Small Cars Sales (Light Duty Vehicle) Classified by Types of Fuel Consumed Figure 10 Forecast of Gasoline (Transportation Sector) Consumption According to Oil Plan 2015 and EEP 2015 Figure 11 Forecast of Gasoline (Transportation Sector) and Ethanol Consumption According to Energy Plan Figure 12 Forecast of Gasoline and Ethanol Consumption in Figure 13 Forecast of Diesel (All Sectors) Consumption According to Oil Plan 2015 and EEP 2015 Figure 14 Forecast of Diesel (All Sectors) and Biodiesel Consumption According to Energy Plan Figure 15 Biodiesel Mixture Options in Figure 16 Economical, Social and Environmental Benefits from the Development of the Biofuels Industry Figure 17 Benefits from Development of Ethanol Industry 24 Figure 18 Benefits from Development of Biodiesel Industry 25 Figure 19 The Measures to Encourage the Use of Ethanol According to AEDP Figure 20 The Measures to Encourage the Use of Biodiesel According to AEDP Figure 21 Strategies to Promote the Ethanol Production and Consumption 28 Figure 22 Strategies to Promote the Biodiesel Production and Consumption PTIT Executive Summary i - 2

3 List of Tables Page Table 1 Production of Ethanol, Biodiesel and HVO in Biofuel Leading Countries in Table 2 Table 3 Table 4 An Overview of Ethanol Development in the World Leading Ethanol Production Countries An Overview of Biodiesel Development in the World Leading Biodiesel Production Countries E20 & E85 Car Owners Behaviour and Factors Influencing Consumers to Avoid Using E20 & E PTIT Executive Summary i - 3

4 Executive Summary The project on Biofuel Strategy for Transportation Sector focuses on the data analysis and investigation of the biofuel industry in terms of the production potential and product distribution, the engine technology which supports biofuels and the understanding of consumer s behaviour. The results from the study will be used as guidelines in determining the strategy to promote the biofuel consumption in the transportation sector in the future. 1. Biofuel Industry in the Biofuel Leading Countries Different countries in the world have set up policies and plans in developing the biofuels based on different justifications (e.g., environmental impacts, energy security and benefits to the agricultural sector and society, etc.) which vary according to the need of each country. As a result, there have been continuous growths of the biofuel production in the global energy market. In 2014, the productions of ethanol and biodiesel worldwide were 94.0 and 29.7 billion litres, respectively (as shown in Table 1). The highlights of the development of the biofuel industry in the leading biofuel countries are as shown in Tables 2 and 3. Table 1 Production of Ethanol, Biodiesel and HVO in Biofuel Leading Countries in 2014 Remark: HVO = Hydrotreated Vegetable Oil Source: REN21, Renewable 2015 Global Status Report PTIT Executive Summary 1

5 Table 2 An Overview of Ethanol Development in the World Leading Ethanol Production Countries Policy/Target Supporting Measures USA Brazil China EU Implemented Renewable Fuel Standard (RFS) in Structured 2007 s RFS-2 plan to utilize 36 billion gallons of renewable energy (136 billion litres) in Revised RFS-2 plan in 2015 to reflect the target to utilize biofuel for the period of Regulated the minimum ethanol blend to be E10 in all states. Implemented credit system for the renewable energy component through RINs. Defined infrastructure measures. PR to build confidence in utilizing E15 (Government/Auto Industry). Financial support for the plant investment and R&D in producing the advanced ethanol. Adopted "National Alcohol Program" (Proalcool) as national agenda in Regulated the minimum ethanol blend to be E27 nationwide. Defined tax privileges for fuel ethanol. Defined tax privileges for FFV. Provided loan support for the ethanol producer in improving the productivity. Provided loan support for R&D of the advanced ethanol production into commercial scale. Exempted the ethanol import tariff. Targeted to utilize 15% of the renewable energy in Targeted to produce ethanol up to 4 million tons (5.07 billion litres) in Targeted to produce cellulosic and non-grained ethanol up to 300 million tons in Regulated the minimum ethanol blend to be E10 in 6 provinces. Provided financial support for the ethanol production from various raw materials. Defined tax privileges for fuel ethanol Regulated the ethanol price to be 91.1% of gasoline 93. Implemented EU Energy & Climate Change Package (CCP) with the target, "20/20/20" in % GHG reduction when compared to that of % energy efficiency increase. - 20% renewable energy utilization. Renewable Energy Directive (RED) - increase the proportion of renewable energy in the transportation sector by at least 10% in Fuel Quality Directive (FQD) reduce GHG in the transportation fuel by 6% in Regulated the minimum ethanol blend in gasoline. Defined tax privileges to subsidize ethanol price to be lower than that of gasoline. Defined tax privileges for FFV. Structured anti-dumping duty for the ethanol import from the USA. Implemented a two-fold credit system for the advanced renewable energy according to RED calculation guideline. PTIT Executive Summary 2

6 Table 2 An Overview of Ethanol Development in the World Leading Ethanol Production Countries (continued) Ethanol Production and Consumption Key Success Factors USA Brazil China EU Largest ethanol production and export in the world. Ethanol production was 54.1 billion litres. Ethanol export was 3.1 billion litres. E10 was available at all service stations whereas E15 is available in 16 States and E85 is limited to only some States. There were approx million FFVs. Commercial cellulosic ethanol started up in Federal government structured the biofuel policy specifically and systematically. The advantage of corn as raw material. Mandate for the minimum ethanol blend ratio in gasoline. Leadership in technology. The governmental support of the R&D in advanced biofuels. Second largest ethanol production and export in the world. Ethanol production was 28.6 billion litres. Ethanol export was 1.4 billion litres. Gasohol was distributed as E25-E27 and hydrous E100. Gasohol sold as E25-E27 and hydrous ethanol E100 There were approx. 21 million FFVs. Commercial cellulosic ethanol started up in The government set up the biofuel policy to promote ethanol very seriously and continuously. Mandate for the higher ethanol blend ratio in gasoline. Building up ethanol demand with FFV cars. The advantage of sugarcane as raw material and the R&D on the sugarcane cultivation and stock. The focus on increasing the efficiency of ethanol factories. Third largest ethanol production and export in the world. Fuel ethanol production was 2.9 billion litres. E10 was available in all areas in 6 designated provinces and some cities in the other 5 provinces. There were limitations on the production of cellulosic ethanol in terms of the supply of the raw materials to be used and the delay in the development of technology to shift its R&D to commercial scale. Mandate for the ethanol blend ratio in gasoline. Fuel ethanol production was 5.2 billion litres. Ethanol utilization was 3.5% of the total gasoline consumption. France was the largest ethanol producer (1.2 billion litres). Germany was the largest consumer (1.5 billion litres). Federal government structured the biofuel policy specifically and systematically. PTIT Executive Summary 3

7 Obstacles Table 2 An Overview of Ethanol Development in the World Leading Ethanol Production Countries (continued) USA Brazil China EU The integrated collaboration of government agencies and industry. Some oil companies rejected to sell USA adjusted its biofuel target down E15/E85. for in its RFS-2 plan EU s anti-dumping duty for the ethanol resulted in impact to ethanol export import from the USA. from Brazil. Remark: - Data of gallon = litres The production costs were higher than those of imports because of the high price of corn and the government stopped the financial support for the ethanol produced from food crops. Ethanol consumption was lower than the target since the government did not have plan to increase the ethanol mix in gasoline to be more than 10% and did not have plan to expand the ethanol enforcement areas to other provinces. The industry lacked confidence in the target set for cellulosic and non-grain ethanol. The production costs were higher than those of imports because of the high price of raw materials (beet, wheat and grains). The policy to limit the proportion of biofuels produced from food crops to be less than 7% of renewable energy in the transport sector resulted in industry lacking the motivation to invest. PTIT Executive Summary 4

8 Table 3 An Overview of Biodiesel Development in the World Leading Biodiesel Production Countries Policy/Target Supporting Measures USA Brazil China EU Implemented Renewable Fuel Standard (RFS) in Structured 2007 s RFS-2 plan to utilize 36 billion gallons of renewable energy (136 billion litres) in Revised RFS-2 plan in 2015 to reflect the target to utilize biofuel for the period of Regulated the biodiesel mix blend to be different in each state (B2-B10). Special tax privileges for biodiesel producer. Provided financial and loan support for the biodiesel producer. Structured "National Biodiesel Production Program" (PNPB) in Targeted to utilize 15% of the renewable energy in Targeted to produce biodiesel up to 1 million ton (1.14 billion litres) in Regulated the biodiesel mix blend to Special tax privileges for biodiesel be different in each state (B2-B10). producer. Tax reduction for biodiesel import. Tax reduction for biodiesel import. Provided financial support for the Issuance of the quality standards of B5. palm growers to improve the Conducted test in marketing B2-B5 in productivity and reduce the costs of 23 service stations in Hainan in 2010 the cultivation of the oil-for-fuel crops. but did not succeed. Implemented EU Energy & Climate Change Package (CCP) with the target, "20/20/20" in % GHG reduction when compared to that of % energy efficiency increase. - 20% renewable energy utilization. Renewable Energy Directive (RED) - increase the proportion of renewable energy in the transportation sector by at least 10% in Fuel Quality Directive (FQD) reduce GHG in the transportation fuel by 6% in Regulated the different biodiesel mix blend in different countries. Structured anti-dumping duty for the biodiesel import from the USA Argentina and Indonesia. Implemented a two-fold credit system for the advanced renewable energy according to RED calculation guideline. PTIT Executive Summary 5

9 Table 3 An Overview of Biodiesel Development in the World Leading Biodiesel Production Countries (continued) Biodiesel Production and Consumption Key Success Factors USA Brazil China EU Largest biodiesel production in the world. Biodiesel production was 4.7 billion litres. Started the biodiesel import in B2, B5 or B10 were available in some states. Production of biodiesel in the world. Production of 4.7 billion litres of biodiesel. Began import of biodiesel in the year 2013, B2, B5, or sold, in some State-B10. Federal government structured the biofuel policy specifically and systematically. Cooperation from the private sector, specifically from the manufacturer of diesel engines in developing the engines to support the higher biodiesel mix. The governmental support of the R&D in advanced biofuels from non-food crops. 2 nd largest biodiesel production in the world. Biodiesel production was 3.4 billion litres. Biodiesel export was 40.3 billion litres. Increase the proportion of biodiesel blend from B5 to B7 since the end of The government set up the biofuel policy to promote ethanol very seriously and continuously. The advantage of soybean as raw material for producing biofuels. Biodiesel production was 1.1 billion litres. Biodiesel consumption was 1.2 billion litres (50% in industry, 30% in transport sector and 20% in agricultural machinery and fishery). Biodiesel production was 12.7 billion litres. Need to import 1.5 million tons/year of raw materials (crude palm oil, soybean, rapeseed). Germany was the largest producer (3.4 billion litres). France was the largest consumer (2.8 billion litres). Started the Hydrotreated Vegetable Oil production (HVO) in Federal government structured the biofuel policy specifically and systematically. PTIT Executive Summary 6

10 Obstacles Table 3 An Overview of Biodiesel Development in the World Leading Biodiesel Production Countries (continued) USA Brazil China EU The federal government did not plan to increase the biodiesel mix in the biodiesel enforcement areas. Infrastructure: the need to transport biodiesel in rail instead of pipeline system and the need to improve the equipment in case of service stations mixing biodiesel at more than 5% ratio. Remark: - Data of gallon = litres The government did not plan to increase the proportion of biodiesel mix over B7 resulting in slow growth of biodiesel consumption. The government did not structure the biodiesel mix because of the uncertainty in the supply quantity; the price of used vegetable oil which was the main raw material in producing biodiesel and quality standards of biodiesel produced from used vegetable oil. Oil traders had no incentives in selling the biodiesel in their service stations. Thus, the distribution channel for the biodiesel was limited to only the service stations in the small cities or in the remote areas. Biodiesel plant had uncertainty in acquiring the raw materials, resulting in low capacity utilization and experiencing business loss. More than half of the plant was forced to stop production. Biodiesel plant experienced low capacity utilization because of high raw material costs resulting in increasing imports, whose prices were more competitive, from other regions. In addition, the EU financial crisis had forced many farmers small biodiesel plants to shut down their productions. The EU Directive for the fuel suppliers to reduce GHG intensity down by 6% in The uncertainty in the regulation to limit the biofuels that come from the Indirect Land Use Change (ILUC) and the news that the EU was not likely to target biofuels utilization at all after 2020 might result in the termination of investment in biofuels in EU. PTIT Executive Summary 7

11 2. Potential of Biofuel s Raw Material 2.1 Potential of Ethanol Production from Sugarcane and Cassava In 2015, Thailand had over 9.6 million rais of sugarcane crops which yielded sugarcane at 11.1 tons/rai equivalent to 106 million tons of sugarcane and 5 million tons of molasses, a byproduct of sugar production of which 1.1 million tons were used to produce liquor, MSG and other products, 0.3 million tons were exported and the remaining was used to produce ethanol at the capacity of 2.5 million litres/day. Thailand also had an area of 9.0 million rais of cassava crops which yielded cassava at 3.6 tons/rai equivalent to 32.4 million tons of cassava of which 7.1 million tons were used in food industry and others and 2.4 million tons was used to produce ethanol at the capacity of 1 million litres/day totalling up Thailand s ethanol production to 3.5 million litres/day. The imported cassava was 12.1 million tons (4.1 million tons quantifiable and 8 million tons unaccountable) and the exported cassava was 35 million tons. Figure 1 Ethanol Production from Sugarcane and Cassava in 2015 Note: - 1 ton of sugarcane has tons of molasses as by-product, 1 ton of molasses can produce 250 litres of ethanol and 1 ton of cassava can produce 160 litres of ethanol. - 1 kg of cassava chip is produced from 2.25 kg of cassava and 1 kg starch is made from 4.1 kg of cassava Source: Office of Agricultural Economics, Department of Alternative Energy Development and Efficiency, data processed by PTIT. PTIT Executive Summary 8

12 If Thailand can increase the cultivation area and yields of sugarcane and cassava in accordance with the 2036 strategic agricultural plan, it will be able to produce as much as 6.7 million litres/day of ethanol from molasses and cassava as shown in Figure 2. Figure 2 Potential of Ethanol Production from Sugarcane and Cassava in 2036 * Calculated from the sugarcane area and yield defined in the sugarcane strategic plan. Note: - 1 ton of sugarcane has tons of molasses as by-product, 1 ton of molasses can produce 250 litres of ethanol and 1 ton of cassava can produce 160 litres of ethanol. - 1 kg of cassava chip is produced from 2.25 kg of cassava and 1 kg starch is made from 4.1 kg of cassava Source: Office of Agricultural Economics, Department of Alternative Energy Development and Efficiency, data processed by PTIT. However, if ethanol demand was targeted at 11.3 million litres/day in accordance with AEDP 2015, Thailand will need to find other feedstock to supplement the ethanol production. PTIT recommended that the sugarcane juice or concentrate syrup should be used as additional raw material for ethanol production since the cost to produce ethanol from sugarcane juice or concentrate syrup is lowest 1 when compared to molasses and cassava. By doing so, a supplementary 5.6 million litres of ethanol can be obtained from sugarcane juice or concentrate syrup which is equivalent to 29.3 million tons of sugarcane consumption (16% yield of sugarcane 1 The production cost of ethanol from sugarcane juice or concentrate syrup is Baht/litres (Material costs are Baht/litres and cost of production is baht/litres), The production cost of ethanol from molasses is Baht/litres (material costs are Baht/litres and cost of production is baht/litres) and the production cost of ethanol from cassava is Baht/litres (Material costs are Baht/litres and cost of production is baht/litres) PTIT Executive Summary 9

13 produced in 2036). It is noticeable that the quantity to be used is not very high and considered insignificant to affect the sugarcane production. The production of ethanol from molasses is estimated to be 4.7 million litres/day with the remaining 1.0 million litres/day ethanol produced from cassava (2.4 million tons cassava) bringing the feedstock proportion of sugarcane juice, cassava and concentrate syrup to 41:9:50 as shown in Figure 3. Figure 3 Feedstock Options for Ethanol Production in 2036 * Calculated from the sugarcane area and yield defined in the sugarcane strategic plan. Note: - 1 ton of sugarcane have tons of molasses as by-product, 1 ton of molasses can produce 250 litres of ethanol, 1 ton of sugarcane juice cassava can produce 100 litres of ethanol and 1 ton of cassava can produce 160 litres of ethanol. - 1 kg of cassava chip is produced from 2.25 kg of cassava, 1 kg starch is made from 4.1 kg of cassava Source: Office of Agricultural Economics, Department of Alternative Energy Development and Efficiency, data processed by PTIT. 2.2 Potential of Biodiesel Production from Oil Palm In 2015, Thailand had over 4.3 million rais of oil palm which yielded 2.6 tons of palm/rai with 17% oil content. The country could produce a total of 1.9 million tons of crude palm oil (CPO) with 0.2 million tons imported and 0.1 tons exported. 0.9 tons of CPO were domestically consumed and processed in the food industry while the remaining 1.1 million tons of CPO was used for producing 3.3 million litres/day of biodiesel (including 0.3 million tons of stearin for biodiesel production). PTIT Executive Summary 10

14 Figure 4 Biodiesel Production from Oil Palm in 2015 * Included 0.3 million tons of stearin for biodiesel production calculated from 25% of CPO used in food and palm oil industry. Remark: 1.0 million tons/year of CPO can produce biodiesel at 3.0 million litres/day or 1,093 million litres/year Source: Department of Internal Trade of Thailand, Department of Energy Business, data processed by PTIT According to AEDP, if the targets on palm oil plantation areas and yields were achieved (7.5 million rais of palm plantation with 3.5 tons/rai yield and 20% oil content), Thailand will be able to produce 5.3 million tons of CPO with 0.1 million tons of CPO exports while there is a need for a 0.2 million tons of CPO import for the off seasonal balance (assume an equal amount of CPO import and export as that of 2015) with CPO consumed and processed as raw material in the food industry at 1.2 million tons (average growth rate at 3.5%/year) and the remaining 4.2 million tons of CPO used for biodiesel production (including 0.4 million tons of stearin for biodiesel production) bringing a total biodiesel production to 12.5 million litres/day as shown in Figure 5. Figure 5 Potential of Biodiesel Production from Oil Palm in 2036 * Included 0.4 million tons of stearin for biodiesel production calculated from 25% of CPO used in food and palm oil industry. Remark: million tons/year of CPO can produce biodiesel at 3.0 million litres/day or 1,093 million litres/year - The average growth rate of food and palm oil industry is 3.5%/year Source: Department of Internal Trade of Thailand, Department of Energy Business, data processed by PTIT However, it was found from the evaluation of AEDP, based on the existing CPO potential, that the biodiesel production at 14.0 million litres/day in 2036 will not be achievable. Therefore, PTIT Executive Summary 11

15 in order to boost the biodiesel production to reach the goal, the government must come out with the development plan to increase the yield to more than 3.5 tons/rai and improve the efficiency of the oil extraction process to bring the oil content to be higher than 20%. In addition, there may be need to pull back the CPO export volume and use it to increase additional biodiesel production. 3. The Biofuel Production and Consumption in Thailand 3.1 Ethanol Production and Consumption In 2015, there were 21 ethanol plants with the nameplate capacities of 4.4 million litres/day. However, the actual production rate was 3.2 million litres/day accountable for 73% of the total ethanol production which consisted of 2.08 million litres/day of molasses based (65%), 0.19 million litres/day of sugarcane juice based (6%) and 0.95 million litres/day of cassava based (29%). There are currently 3 more ethanol plants under construction with additional capacity of 1.2 million litres/day. Therefore, the total nameplate capacity of Thailand including these new constructed ethanol plants is 5.6 million litres/day. Owing to the phase out of gasoline 91, along with the emergence of new vehicle types especially E20 and E85 cars in the market, the gasohol consumption has gradually increased. In 2015, the ethanol consumption was 3.5 million litres/day (13.2% of total gasoline consumption). Figure 6 Ethanol Consumption in Gasoline Remark: 2559e data refer to average data of January-April, 2016 Source: Energy Policy and Planning Office, Department of Energy Business, Department of Alternative Energy Development and Efficiency PTIT Executive Summary 12

16 Despite ethanol consumption is increasing, the proportion of ethanol consumption to gasoline is conversely decreasing. It is deduced that the low gasoline price in the market influences the prices of E20 and E85 to be less competitive when compared to those of gasohol E10 (gasohol 95 and 91). Moreover, a number of consumers lack confidence in the quality of E20 and E85, thereby, select fuels which do not match with vehicle types. 3.2 Consumer Behaviour of the Gasoline Car Owners on the Use of Gasohol From the survey study on the consumer behaviour of the gasoline car owners on the use of gasohol through the interviews of 590 E20 and E85 car owners in randomly chosen 16 gasoline stations in the four provinces including Bangkok and its vicinity, Chiang Mai, Khon Kaen and Surat Thani, the following highlights were concluded: - Only 45.5% of the E20 car owners chose to use E20 as fuel of their choices while the remaining 54.5% chose to use E10 instead. - Only 44.5% of the E85 car owners chose to use E85 as fuel of their choices while the remaining 55.5% chose to use E10 (28.2%) and E20 (27.3%), respectively. From the field data analysis, it was found that there were a few factors which influenced the E20 and E85 car owners to avoid filling E20 and E85 in their cars; i.e., % of the E20 car owners who chose to use E10 did not believe in E20 quality % of the E85 car owners who chose to use E10 did not believe in E85 quality % of the E85 car owners chose to use E20 because they believed that E85 was not economical when compared its value with that of E20 and another 31.3% felt that they did not have good accessibility to E85 service stations. PTIT Executive Summary 13

17 Table 4 E20 & E85 Car Owners Behaviour and Factors Influencing Consumers to Avoid Using E20 & E85 Remark: * Quality Factors i.e. fuel quality, slow acceleration, damage to engine, skeptical to use Other Factors i.e. recommend by others, non-confidence in quality Source: Data processed by PTIT, March 2016 Results from the study on the behaviour of the gasoline car owners in using their fuels indicated that more than half of them was not utilizing E20 and E85 even though they could. It is therefore possible that in the case that the government can structure the measures to encourage users to switch to use the fuel type to match their cars, it will likely increase the ethanol consumption to match the AEDP 2015 target. 3.3 Production and Consumption of Biodiesel The data of 2558 showed that there were a total of 12 biodiesel (FAME) plants with the total installed capacity of 4.9 million litres/day, producing an approximated 3.4 million litres/day of biodiesel, or 69% of the installed biodiesel production capacity and using crude palm oil (CPO) as raw material. Biodiesel consumption in Thailand has increased dramatically because of the increasing demand of diesel fuel and the growing biodiesel blend ratio to B7. However, in any case that there might be a CPO shortage, the Ministry of Energy could evaluate the situation whether the biodiesel mix should be adjusted down. PTIT Executive Summary 14

18 Figure 7 Biodiesel (FAME) Consumption in Diesel Remark: 2559e data refer to average data of January-April, 2016 Source: Energy Policy and Planning Office, Department of Energy Business, Department of Alternative Energy Development and Efficiency 4. Policies and Measures to Promote Biofuel in Thailand Thailand has been promoting the use of renewable energy over the last 10 years. The Ministry of Energy, through the Department of Alternative Energy Development and Efficiency (DEDE), had launched several energy policies and plans including the 15-Year Renewable Energy Development Plan ( ) and the 10-year 25% Renewable Energy and Alternative Fuel Development Plan ( ). All these plans focus on developing domestic energy sources to substitute for crude oil import from foreign countries as their first priority. Promoting biofuels including ethanol and biodiesel in the transportation sector has proven to be feasible since these products can be manufactured and commercialized using available technology and raw materials in the country. In 2015, the Ministry of Energy formulated five energy master plans covering 2015 to 2036 to be in synchronization with the national plan strategized by the National Economic and Social Development Board. The five plans included the Power Development Plan (PDP), Energy Efficiency Plan (EEP), Alternative Energy Development Plan (AEDP), Natural Gas Management Plan (Gas Plan) and Fuel Management Plan (Oil Plan). On September 17, 2015, Prime Minister Gen. Prayut Chan-o-cha, Chairman of the National Energy Policy Commission (NEPC) has approved Alternative Energy Development Plan (AEDP 2015). AEDP 2015 is targeted was to increase the proportion of renewable energy to 30% of the total energy consumption in the PTIT Executive Summary 15

19 country by 2036 with the detailed biofuel target to promote ethanol consumption to 11.3 million litres/day and biodiesel consumption to 14 million litres/day, as shown in Figure 8. Figure 8 Alternative Energy Development Plan (AEDP 2015) Source: Department of Alternative Energy Development and Efficiency In addition, the government also has several supporting measures to promote the use of biofuels continuously, such as the control of B100 mixing ratio in biodiesel, pricing measures, automobile taxation and public relation program to build confidences for consumers, etc. 5. The Development Trend of Automobile Industry 5.1 World s Automotive Technology Trends Nowadays, consumers usually have the needs for automobiles which are more environmental friendly and have better energy efficiency. Because the environmental problems affect the population around the world; thus, automotive industry is forced to develop energy saving, eco-friendly, safe and clean automotive technology for consumers. In the area of energy-saving automotive technology, in addition to the development of automotive performance, the car manufacturers are also developing automotive technology that can be used with alternative energy such as ethanol and biodiesel or hydrogen automotive technology that is driven by a motor, such as hybrid car, electric car etc. Technology for hybrid cars and electric cars has been developed rapidly over the past 10 years. The development of technology to obtain PTIT Executive Summary 16

20 high-efficiency and cheaper batteries has helped to accelerate the use of hybrid cars, electric cars, which are now available commercially. However, both hybrid cars and electric cars require a sizeable market for their economy of scale to compete with conventional fossil fuel cars. It is forecasted that the number of electric cars and hybrid car sales will increase significantly in 2020 while the number of fossil fuel cars will reduce gradually, as shown in Figure 9. Figure 9 Forecast of Small Cars Sales (Light Duty Vehicle) Classified by Types of Fuel Consumed Source: International Energy Agency (IEA), Automotive Technology Trends in Thailand Thailand manufactured cars for export market up to 60% of its fleet and thus, it is necessary to take into account of the changes in technology, consumer tastes and trends around the world. Trends in the automotive technology changes will be mostly focused on cleaner technology, more energy saving and better safety for consumers. Thailand has enforced EURO 4 emission standard requirements for cars using diesel and gasoline engines since 2012 while standardizing EURO 3 quality for diesel engine trucks and motorcycles which are considered to be more advanced than many other countries in ASEAN region. In addition, Thailand also has an international standard for energy efficient cars (Eco Car). In phase 1, CO 2 emission from Eco Car must not exceed 120 g/km, and must meet EURO 4 standards criteria. In the more stringent phase 2, Eco Car s CO 2 emission must not exceed 100 g/km and must meet EURO 5 standards. For the production of energy efficient and renewable energy automotive, Thailand has measures to support Eco Car which is small and lightweight and has low fuel consumption as well as support the use of renewable energy, such as ethanol and biodiesel. At present, almost PTIT Executive Summary 17

21 all of the new generation gasoline passenger cars produced in Thailand can use gasohol E20 and diesel cars can use biodiesel B7. Moreover, Thailand also has a policy to promote investment for manufacturing Electric Vehicle (EV) domestically to make Thailand one of the production centres of Electric Vehicles in the future. This policy is set up in parallel with other developments while taking into considerations for the impacts that this new policy might have on cars with internal combustion engine (ICE) especially ECO Car and 1-ton pickup truck, which are the product champions of Thailand s automotive industry and the impacts on the Plug-in Hybrid Electric Vehicle (PHEV) which are currently produced in the country. 6. Analysis on Fuel and Biofuel Demand in Future 6.1 Forecast of Gasoline and Ethanol Demand based on Existing Energy Plan From the Business as Usual; BAU, case following Oil Plan 2015, it was found that the gasoline (transportation sector) demand was 24.2 million litres/day in 2015 and it was expected to increase up to 51.6 million litres/day in In the case that the energy conservation measures in EEP 2015 were successfully implemented, the gasoline (transportation sector) demand in 2036 would decrease to 20.7 million litres/day as shown in Figure 10. Figure 10 Forecast of Gasoline (Transportation Sector) Consumption According to Oil Plan 2015 and EEP 2015 Remark: - BAU scenario according to Oil Plan 2015, EEP scenario according to EEP Gasoline consumption according to energy plan Source: Data processed by PTIT PTIT Executive Summary 18

22 When comparing ethanol consumption target of AEDP 2015 at 11.3 million litres/day with gasoline (transportation sector) demand in 2036, it was found that the average mixture of ethanol in gasoline was calculated to be 22% and 55% under BAU scenario and EEP 2015 scenario, respectively, as shown in Figure 11. Figure 11 Forecast of Gasoline (Transportation Sector) and Ethanol Consumption According to Energy Plan Remark: - BAU scenario according to Oil Plan 2015, EEP scenario according to EEP Ethanol consumption according to AEDP Gasoline consumption according to energy plan Source: Data processed by PTIT 6.2 Forecast of Gasoline and Ethanol Demand from Gasoline Vehicle Use According to the forecast of gasoline and ethanol demand in 2036 based on the assumption of the number of gasoline vehicles and the related factors at current situation, gasoline and ethanol (E24) demand will be 49.3 million litres/day and 11.8 million litres/day, respectively. However, in the case that the growth of gasoline vehicle market is diminishing due to some vehicles switching to use alternative energy sources (e.g., EV and LPG/NGV) and the higher efficiency of gasoline vehicle, the gasoline and ethanol demand will then be 23.5 million litres/day and 9.0 million litres/day (E38), respectively, as shown in Figure 12. PTIT Executive Summary 19

23 Figure 12 Forecast of Gasoline and Ethanol Consumption in ) Present Scenario 2) EEP Scenario Remark: - Survey study on the gasoline car owners behaviour on the use of gasohol by PTIT, March Include gasohol E10 demand 6 ML/Day of motorcycles Source: Data processed by PTIT When evaluating the forecasted gasoline and ethanol demand in 2036, it can be concluded that: - In the case that gasoline demand in 2036 increases in accordance with the Oil Plan 2015, the promotion of ethanol consumption to reach the target of 11.3 million litres/day is feasible. The result of the forecast of the gasoline and ethanol demand in 2036 under present scenario indicates that although gasoline vehicle user adopts mismatching gasoline type, but with the continuous growth of gasoline vehicle market at present, the ethanol consumption can still increase to reach the target. PTIT Executive Summary 20

24 - In the case that gasoline demand in 2036 decreases in accordance with EEP 2015, the promotion of ethanol consumption to reach the AEDP 2015 s target at 11.3 million litres/day is infeasible. The result of forecast of the gasoline and ethanol demand in 2036 under EEP 2015 scenario indicates that even though the government phases out the use of gasohol E10 which will persuade the gasoline vehicle users to switch to use gasohol E20 along with the implementation of the promotion program to increase the proportion of E85 cars to 90% of the market, the ethanol consumption will still be lower than the target. 6.3 Forecast of Diesel and Biodiesel Demand based on Existing Energy Plan From the Business as Usual (BAU) case following Oil Plan 2015, it was found that the diesel (transportation sector) demand was 53.1 million litres/day in 2015 and it would increase up to million litres/day in In the case that the energy conservation measures are successfully implemented in accordance with EEP 2015, the diesel demand in 2036 will decrease to 59.1 million litres/day as shown in Figure 13. Figure 13 Forecast of Diesel (All Sectors) Consumption According to Oil Plan 2015 and EEP 2015 Remark: - BAU scenario according to Oil Plan 2015, EEP scenario according to EEP Diesel consumption according to energy plan Source: Data processed by PTIT When comparing biodiesel consumption target of AEDP 2015 at 14.0 million litres/day with diesel (all sectors) demand in 2036, the averaged mixture of biodiesel in diesel is 13% and 24% under BAU scenario and EEP 2015 scenario, respectively, as shown in Figure 14. PTIT Executive Summary 21

25 Figure 14 Forecast of Diesel (All Sectors) and Biodiesel Consumption According to Energy Plan Remark: - BAU scenario according to Oil Plan 2015, EEP scenario according to EEP Diesel consumption according to AEDP Diesel consumption according to energy plan Source: Data processed by PTIT It was found that promoting the use of biodiesel in accordance with AEDP 2015 under BAU (B13) scenario and EEP (B24) scenario was infeasible. It is due to the fact that biodiesel consumption in transportation sector is still limited because vehicle engine manufacturer only accepts the maximum FAME mixture proportion at B Analysis of Biodiesel Consumption Alternatives In order for the government to increase biodiesel mixture in diesel to 14 million litres/day in 2036, the segregation of diesel into two grades (transportation and others) should be considered. The implementation can be nevertheless different among alternatives as shown in Figure 15. PTIT Executive Summary 22

26 Figure 15 Biodiesel Mixture Options in 2036 Remark: - BAU scenario according to Oil Plan 2015, EEP scenario according to EEP Diesel consumption according to AEDP 2015 Source: Data processed by PTIT It should be noted that the analysis in this study was based on the assumption that the government managed to segregate the diesel quality standards into two grades and diesel and biodiesel demand followed energy plan. In practical, in order to specify appropriate biodiesel mixture proportion, it is necessary to consider various factors which might have impacts on the biodiesel. This includes government s policy, technical limitation of vehicle, vehicle engine development to fit with higher biodiesel mixes, B100 quality standard and potential of raw material. Hence, the aforementioned biodiesel consumption options are based on preliminary analysis but should function as guidelines for government to consider appropriate tools to establish the policies in promoting biodiesel mixture in the future. 7. Benefits and Impacts of Biofuel Promotion 7.1 Benefits from Development of Biofuel Industry The development of the biofuel industry contributed significantly to improve the economic, social and environment as shown in Figure 16. PTIT Executive Summary 23

27 Figure 16 Economical, Social and Environmental Benefits from the Development of the Biofuel Industry The evaluation of the potential benefits in promoting biofuel consumption was conducted by comparing the alternative to use the raw materials from agricultural products to produce biofuel to substitute petroleum product (Comparative Analysis). This calculation is to illustrate the overall benefits from the biofuel promotion at present (2015) versus its expected benefits in Results of the calculated benefits from the development of ethanol and biodiesel industries are as shown in Figure 17 and Figure 18. Figure 17 Benefits from the Development of Ethanol Industry * Equal to million tons of sugarcane Remark: Calculation based on 2015 price Source: Data processed by PTIT PTIT Executive Summary 24

28 Figure 18 Benefits from the Development of Biodiesel Industry * Total quantity of raw material was calculated on the assumption that biodiesel was only produced from CPO Remark: Calculation based on 2015 price Source: Data processed by PTIT 7.2 Impact on Refinery Refinery should manage the production proportion to be replaced with biofuels by selling this volume as feedstock (in case of naphtha) to petrochemical industry. This may result in the loss of opportunity cost due to possible lower export price to be obtained when compared to sales to the domestic market. However, the impacts on refinery are different, case by case, because of the differences in unit operations, process, production technology and refinery constraints. 7.3 Impact on Automobile Industry The promotion of E85 vehicles or high FFV in the market was aimed for the increasing ethanol consumption in accordance with AEDP 2015 target. However, such implementation can directly affect the automobile industry since the introduction of FFV vehicles into the market can be inconsistent with the global trend in producing automobiles in Thailand because about 50-60% automobile production is for export market of which the automobile manufacturer has to consider the global market changes to be in alignment with the global technology and consumer demand. Furthermore, Thai government is working on a new policy to promote EV manufacturing in the country in the future. Therefore, with so many unclear policies working against the automobile industry, it can possibly cause the automobile industry to lose confidence to invest further and may consequently lead to the possible relocation of automobile manufacturing plant. PTIT Executive Summary 25

29 8. The Strategies to Promote the Development of Biofuel in the Transport Sector 8.1 The Strategies to Promote the Development of Biofuel to Meet AEDP 2015 The measures to encourage the use of ethanol and biodiesel according to AEDP 2015 are as shown in Figures 19 and 20. Figure 19 The Measures to Encourage the Use of Ethanol According to AEDP 2015 Figure 20 The Measures to Encourage the Use of Biodiesel According to 2015 AEDP The policies and measures to stimulate the production and consumption of biofuels in Thailand to promote the sustainability in the long term should be structured by taking into account for the applicable technology and the balance of agricultural product utilization in different capacities without creating the burden to the macroeconomics of the country in order to benefit the industry, the agricultural sectors, and the social as a whole. PTIT Executive Summary 26

30 8.2 Biofuels Policy and Strategy Proposals In addition to the instruments to encourage the use of biofuels according to AEDP, the government should also incorporate the urgent measures to drive for the use of biofuels in the transport sector as the following: Measures to Encourage the Proper Fuel Type for E20 & E85 Cars The government should structure the strategy to encourage the car owners to use the fuel in accordance with the type of their cars; i.e., E20 cars to use E20 fuel and E85 cars to use E85 fuel because more than half of the existing cars in the market today can actually use E20 but refuses to use it. The strategy should include the price measures, public education on the suitable gasohol quality to be used for vehicles, and building up confidence for consumer in using gasohol. By encouraging some car owners to switch their fuel to match their cars better, the government can increase the ethanol consumption to achieve the 11.3 million litres/day of ethanol target as planned in AEDP Define Bio-fuel Pricing Structure to Reflect Actual Energy Value The government should structure the biofuel pricing to reflect its actual energy value so that the consumers can appreciate the energy value which corresponds to the price of each fuel type and the process should help to motivate the consumers to efficiently match the various types of fuels with their cars better. In addition to the above-mentioned pricing structure, the government can choose to use the supplementary measure in adjusting or manipulating the demand of any specific gasohol of interest by the oil fuel fund mechanism to create a difference in the fuel prices. As for the control of the money inflow into the fund and the severance pay from the fund to generate the price gaps between fuels, the oil fuel fund subsidy in this scheme will only be amicably exercised among the gasoline pool to avoid the cross subsidy so that the policy on biofuels can be sustainable and is not a burden on the fund balance position as well as the overall economy of the country in the long run. The Continuous Public Relations to Build Understanding and Confidence in the Use of Biofuels The government has the obligation to strategize the public relations plan to promote the use of biofuels earnestly and continuously. By teaming up with the automobile manufacturers in designing the public relations plan, the government should have a constructive and productive channel to build better understanding and confidences in the quality of biofuels for the public PTIT Executive Summary 27

31 and simultaneously communicate the benefits of biofuel development for the country through these fact releasing channels. The aim for the consumers to change their behaviour to select the correct fuel for their cars is achievable through the strategy to utilize the most effective public relations tool in giving consumers confidences in order that they will switch to use the suitable fuels. With all of these approaches, the government should have the follow-up process for these continuing public relation programs to monitor the results and adjust the methodology to accomplish the mission. 8.3 The Plans to Promote the Biofuel Production and Consumption in the Transport Sector The plans to promote the biofuel production and consumption in the transport sector consist of four comprehensive strategies covering the areas of marketing, raw materials, policies and regulations, and R&D, as shown in Figures 21 and 22. Figure 21 Strategies to Promote the Ethanol Production and Consumption PTIT Executive Summary 28

32 Figure 22 Strategies to Promote the Biodiesel Production and Consumption 9. Proper Fuel Pricing Structure in Thailand The fuel pricing structure being used in the transportation sector does not reflect the real value of energy Instead, it is a tool designed by the government to control the retail prices in the market. As a result, the consumers are shielded from the free market mechanism when the fuel prices change. This has an adverse impact in that the consumers don t have trust in the retailed fuel prices. Over the years, there have been increasing awareness and understanding of the energy issues leading to the need for more realistic pricing structure which can reflect the true value of energy. If this concept is adopted and implemented, it will open an era of fairness, transparency and understanding of the fuel prices. It can also lead to the improvement of energy efficiency in the fuel utilization in the transportation sector because the consumers can appreciate the energy value which is directly corresponding to the fuel price which is not skewed from reality and the consumers can then choose by their own the type of fuel that meets their needs so as to achieve maximum efficiency. PTIT Executive Summary 29

33 9.1 Gasohol Pricing The price of gasoline-typed fuel should be structured in relative to the energy value of fuel ethanol (Actual Fuel Value) such that the consumers can realize the actual energy value which is corresponding to the fuel price. The government can then use the oil fund mechanism as a policy tool to create the price differences among the gasohol products to influence the consumers to use any particular type of gasohol product over the others. 9.2 Biodiesel Pricing Similar to gasohol, the price of diesel-typed fuel should also be structured in relative to the energy value of biodiesel (Actual Fuel Value) such that the consumers can realize the actual energy value which is corresponding to the fuel price. The government can then use the oil fund mechanism as a policy tool to create the price differences among the multiple diesel products to influence the consumers to use one particular diesel product over the others. As for the oil fund mechanism in compensating or subsidizing the fuel prices, it should be exercised on the basis that the oil fund portion to be used will be allocated within the same product pool (i.e., either gasoline pool or diesel pool separately) without cross subsidy with different types of fuels. This concept will help to sustain the biofuels in an effective way and will not create the burden to the oil fuel fund, as well as the overall economy of the country in the long run. PTIT Executive Summary 30