alternative fuel portfolio analysis using a stochastic mac curve approach kevin fingerman 1 colin...

Alternative fuel portfolio analysis using a stochastic

MAC curve approach

Kevin Fingerman1

Colin Sheppard2, Andrew Harris1

1Humboldt State University/Schatz Energy Research Center

2University of California, BerkeleyTransportation Engineering

Energy Policy Research ConferenceSeptember 10th, 2015

Alternative Fuels Readiness

Low Carbon Fuel Standard• GHG reduction from transport can be broken

into three distinct policy agendas– Reduction in total VMT– Increase in vehicle fuel efficiency– Reduction in fuel Carbon intensity (CI)

• LCFS addresses the third case. 10% reduction in average fuel CI by 2020.

• Offers a convenient “goal post” for aggregate alt fuel deployment.

The Fuels

Marginal Abatement Cost Curves

Marginal Abatement Cost Curve

(MAC Curve)

Cost model elements (MACC y axis)Vehicle Cost(levelized)

$/MJ

• Incremental above BAU conventional vehicle• Limited to new vehicles• 2020 projections where possible

Distribution Cost(levelized)

• Applies to EV, H2, Flex Fuel• Inclusive of financing

Fuel Cost• Incremental above (or below) gas/diesel• Built from the “ground up” in most cases• Co-varied based on historic prices

Probability distributions derived from time series data and known uncertainties enable Monte Carlo simulation of prices

2020 Fuel Throughput

Fuel penetration (MACC x-axis)

• Each fuel penetrates the various segments based on its characteristics.

• Ethanol is constrained by the blend wall, but enters all gasoline segments.

• Biodiesel ≤20% of all diesel segments• EV ≤70% of new LDVs• PHEV ≤100% of new LDVs• H2 ≤65% of new LDVs• Etc.

Incremental Cost of Alternatives

Costs are Random Variables with Covariance in Fuels

LCFS Target

To achieve target:~$37M net cost2.5% of BAU

Portfolio MAC

Average MACC (500 trials)

Internal variation

Sensitivity to incremental cost of BEVs

Sensitivity to gasoline price

Sensitivity to biofuel pricesSu

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General findings• We’ll be seeing a lot more EVs in an LCFS market. This is

robust to almost any conceivable circumstance (including repeal of LCFS).

• There's no silver bullet, due to market limitations, we need to pursue a variety of alt fuels to meet the LCFS goal.

• We should expect credit prices in excess of $200/T. ARB may end up limiting prices, thereby reducing impact.

• Since there is an either/or element to this (unlike the McKinsey curve we’re familiar with), naive $/T analysis misses key dynamics.

kevin.fingerman@humboldt.edu

THANKS!

Questions?

Issue with MAC Approach

Sorghum ethanol cheaper than gasoline and cheapest MAC in most cases but very small ability to offset emissions.

Market opportunities eaten up by ethanol, leaving us far short of the target.

Solution

Other alt fuels allowed to go ahead of some of the sorghum ethanol even though more expensive in order to reach target.