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PROCESS ECONOMIC ANALYSIS OF BIO-OIL PRODUCTION FROM WOOD

RESIDUE USING PYROLYSIS IN SOUTH-WESTERN NIGERIA

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 Journal of Applied Chemical Science International
2(1): 12-23, 2015

PROCESS ECONOMIC ANALYSIS OF BIO-OIL

PRODUCTION FROM WOOD RESIDUE USING
PYROLYSIS IN SOUTH-WESTERN NIGERIA
L. T. POPOOLA*, B. K. ADEOYE, A. S. GREMA, A. S. YUSUFF
AND A. A. ADEYI
Department of Chemical and Petroleum Engineering, Afe Babalola University, Ado-Ekiti, Ekiti State,
Nigeria [LTP, ASY and AAA]
Department of Food Science and Technology, Federal University of Technology, Akure, Nigeria [BKA]
Department of Chemical Engineering, University of Maiduguri, Borno State, Nigeria [ASG]
[*For Correspondence: E-mail: popoolalekantaofeek@yahoo.com]

ABSTRACT

Due to the envisaged fossil fuel depletion as a result of increasing energy consumption per capital and
environmental degradation resulting from its global warming, there is necessity for long-term
alternative energy sources. This work investigated process economic analysis of bio-oil production from
wood residue generated in major cities of south-western Nigeria. The basis of calculation was 2,316
Ton/day of wood residue generated from cities examined. The effects of bio-oil selling price, wood
residue purchasing price, discount rate and annual electricity cost on IRR (Internal Return Rate) and
NPV (Net Present Value) were examined. Internal rate of return increases periodically at any selling
price of bio-oil for the first five years of operation examined. At fixed bio-oil selling price, NPV
decreases with increasing discount rate. Negative NPV was observed at discount rate of 8%, 10% and
12% for fixed bio-oil selling price of ₦40. At fixed wood residue purchasing price and annual electricity
cost, the internal return rate increases with increasing year of investment while NPV decreases with
increasing discount rate. At constant discount rate, the NPV for this investment decreases with
increasing wood residue purchasing price and annual electricity bill. However, for each year, increase
in annual electricity bill and wood purchasing price reduce the internal return rate by magnitude of
one (1). The results obtained were in good agreement with previous literatures. This indicates that this
project will yield profit for the investor.

Keywords: Pyrolysis, wood residue, economic analysis, bio-oil, net present value, internal return rate.

INTRODUCTION Ocean and in the West by Republic of Benin. This

In Nigeria, south-western region is one of the six
geopolitical zones. It falls on latitude 6º to the
North and latitude 4º to the south. It is marked by
longitude 4º to the West and 6º to the East. It is
bounded in the North by Kogi State, in the East by
Edo and Delta States, in the South by Atlantic
zone includes seven states including Lagos, Oyo,
Ogun, Ondo, Kwara, Osun and Ekiti states where
their common spoken language is “Yoruba”. The
high rate of increase in wood residue generation in
major cities of south-western Nigeria (Lagos,
Abeokuta, Ibadan, Ile-Ife, Ilorin, Ado-Ekiti and
Akure) has called for its transformation into useful

12

energy products (bio-oil). The potentials of bio-oil
production from wood residue using fast pyrolysis
in these major cities had been uncovered. The
potential of producing 1,161,242.4 litres/day of
bio-oil using fast pyrolysis from a total of 2,316
Ton/day of wood residue generated from cities
examined was discovered with liable revenue
generation of ₦21.2 billion/year from the sale of
this bio-oil at ₦50/litre (Popoola et al., 2013).
However, effective economic analysis of the
process is very important to know the capital and
operating costs involved.
Biomass (such as wood residue) has always been a
major source of energy for mankind and is
presently estimated to contribute to the order of
10-14% of the world’s energy supply (McKendry,
2002). Energy security coupled with rural and
urban job development is other driver that
supports the use of biomass to produce fuels,
chemicals and other products (Ringer et al., 2006).
Pyrolysis technology has the capability to produce
bio-fuel with high fuel-to-feed ratios. Therefore,
pyrolysis has been receiving more attention as an
efficient method in converting biomass into bio-
fuel during recent decades (Demirbas, 2002).
Flash or fast pyrolysis is at a demonstration stage
and has the potential to produce up to 60% - 80%
(w/w) as bio-oil. Bio-oil is an acidic, viscous,
water-soluble liquid that has a dark-brown colour
and a pungent smoky odour (Farag et al., 2002). It
is made up of 20-25% water, 25-30% water
insoluble pyrolytic lignin, 5-12% organic acids, 5-
10% non-polar hydrocarbons, 5-10%
anhydrosugars and 10-25% of other oxygenated
compounds (Milne et al., 1997). Although bio-
oil’s heating value is half of light or heavy fuel oil
on an equal volume basis, it releases almost no
SOx and 50% less Nox emissions in gas turbines
over light oil (Dyna Motive Energy Systems
Corporation, 2001). Because of bio-oil’s acidic
nature, it is corrosive to common materials such as
carbon steel and aluminium. The oxygen content
in bio-oil also leads to oxidation reactions and
thus, the liquid must be kept in a vacuum
container to prevent this process (Brady, 2002).
Slow or conventional pyrolysis produces more
charcoal (35%-40%) than bio-oil. Pyrolysis is one
of a number of possible paths for converting
biomass to higher value products. As such, this
13
Popoola et al.
technology can play a role in a bio-refinery model
to expand the suite of product options available
from biomass. The process of pyrolytic
decomposition of dry and ash free biomass can be
represented as (Twaiq et. al., 1999):
• • •
CH
6 HBOOB  CH
1 charOchar  nv1CO nv2CO2  nv3 H2 
• • •
nv4 HO
2  nv5C1.16H4  nv6CH
6 6.2O0.2
(1)
•
where nv1 = number of moles CO involved in
the process
•
n v 2 = number of moles CO2 involved in
the process
•
n v 3 = number of moles H2 involved in the
process
•
n v 4 = number of moles H2O involved in
the process
•
n v 5 = number of moles C1.16H4 involved
in the process
•
n v 6 = number of moles C6H6.2O0.2
involved in the process
Several fast pyrolysis reactor technologies exist
today. Some include ablative reactors, entrained
flow reactors, rotating cone reactors, vacuum
pyrolysis reactors, circulating fluidized bed
reactors and deep bubbling fluidized bed reactors
(Brady, 2002). Municipal solid waste-to-energy
plants have high capital costs and in order to make
these plants financially viable, project financers
required the plant to obtain a reliable stream of
low-cost fuel (LaRiviere, 2007). The techno-
economic analysis also showed that research on
upgrading the bio-oil should continue (Ringer et
al., 2006). Bio-oil costs for previous biomass fast
pyrolysis techno-economic studies had been
examined alongside with technology evaluation
and economic analysis of waste tire pyrolysis,
gasification and liquefaction (Wright et al., 2010).
In general, the higher the capacity of the pyrolysis
equipment, the lower its capital cost of per unit
and the lower its depreciation cost (Xifeng, 2003).
Fig. 1 is a simplified pyrolysis process diagram.

Economic analysis of bio-oil production had been
executed in different study areas around the globe.
Cottam et al. (1994) investigated techno-economic
modeling of biomass flash pyrolysis and
upgrading systems. Correlations from the
University of Waterloo were used for a plant that
can process 1,000 tonnes/day of wood with 7%
moisture content at $43.2/dry tonne. The result
revealed that feedstock cost had significant effect
on bio-oil cost. Islam et al. (2000) had estimated
the cost of producing crude bio-oil and
catalytically treated bio-oil using data from a 0.3
kg/hr pilot plant. The total capital investments
were $97,000 and $389,000 for 100 kg/hr and
1,000 kg/hr plants respectively while feedstock
cost, equipment cost and operating labor were
identified as important variables. Farag et al.
(2002) presented a report on technical,
environmental and economic feasibility of bio-oil
in New Hampshire’s North Country. It was shown
that bio-oil production economics were affected
by the low-grade wood chips cost and plant size.
Also, approximate cost for bio-oil from a 440 US
ton wet wood/day was $0.89/gal or $0.16/Mbtu
while that of a 110 US ton wet wood/day plant
was $1.21/gal or $0.216/Mbtu.
Xifeng (2003) examined bio-oil pyrolysis and its
potential for China. It was shown that the
anticipated profit for a pyrolysis plant to produce
and sell bio-oil is about 400 ¥/ton. Ringer et. al.
(2006) developed an ASPEN model to simulate
the operation of the bio-oil production plant.
Based on a 550 tonne/day biomass feed, the cost
of the bio-oil for a fully equity financed plant and
Fig. 1. Simplified fast pyrolysis process diagram (www.dynamotive.com)
14
Popoola et al.
10% internal rate of return was estimated to be
$7.62/GJ on a lower heating value (LHV) basis.
Pytlar (2010) presented status of existing biomass
gasification and pyrolysis facilities in North
America. Badger et al. (2011) performed techno-
economic analysis for a 100 dry tonne/day fast
pyrolysis transportable plant. The cost for the bio-
oil from fast pyrolysis was valued at $0.94/gal.
Energy cost bio-oil and char was valued at
$6.35/MMBTU with the assumption that the cost
of feedstocks was $25/wet ton or $50/dry ton.
Recently, Rogers et al. (2012) did comparative
cost estimation analysis of bio-oil production from
Miscanthas and SRC (short rotation coppice)
Willow through fast pyrolysis. Break even selling
price of bio-oil from Miscanthus for plant capacity
of 50–800 tonne/day was estimated. It was shown
that there was virtually no difference in production
costs of bio-oil for plant sizes more than 400
tonnes/day, and there was little difference in the
processing cost for SRC willow and Miscanthus.
Hamaguchi et al. (2013) investigated bio-oil and
bio-char as additional revenue streams in South
American kraft pulp mills. Detailed balances with
a focus on modern eucalyptus mills were
developed for the purpose of showing how the
integrated production of bio-oil or bio-char would
affect the operation of a 1.5M tonne/annum kraft
pulp mill in South America. The economic
analysis executed revealed that satisfactory
internal rates of return could be achieved for
multiple technologies depending on the price of
electricity, terrified pellets, or bio-oil.

SCOPE
This work examined process economic analysis of
bio-oil production from wood residue using major
cities in South-Western Nigeria as case study. The
basis for this economic analysis is the generation
of wood residue in these major cities amounting to
2,316 Ton/day which had earlier been investigated
by Popoola et al. (2013). Rapid capital cost
estimation was executed using historical costs and
step counting methods. EXCEL was used in the
calculation of net present value (NPV) and
expected internal rate of return (IRR) for this
investment after five years of plant operation. The
results obtained from Excel were transferred into
MATLAB environment to generate corresponding
graphical plots. Local Nigeria naira (₦) currency
was used throughout with exchange rate of $1
equals ₦158.
ECONOMIC ANALYSIS
The economic analysis of bio-oil production from
wood residue using fast pyrolysis is very
important to know the anticipated profit that may
like be generated and know the necessary facilities
required for the completion of the production. The
cost of a pyrolysis production plant could be
classified into two main categories: capital
investment, and operating or variable costs. Thus,
consideration should be given ton capital and
production costs of the process.
Capital Cost
The capital cost includes all equipment, including
feed preparation, planning, and construction. A
total of 2,316 Tons/day of wood residue can be
generated in examined areas (Popoola et al.,
2013). Thus, six (6) units of fluidized bed
pyrolysis reactor (FBPR) that can process 400
metric tons/day of wood residue will be needed.
The cost of a standard fluidized bed pyrolysis
reactor that can process 400 metric tons/day of
wood residue has been estimated to be $14.3
million (≈ ₦2.26 billion @ exchange rate of $1 =
₦158) (Stewart, 2002). Also, for 100 metric
tons/day of wood residue to be processed by the
FBPR, 2.5 MW turbine is required. Thus, 60 MW
turbine will be required for 2,316 metric Ton/day
of wood residue. The cost of 2.5 MW turbine had
15
Popoola et al.
been estimated to be $1.7 million (≈₦268.6
million) (Farag et al., 2002). The cost per gallon
capital cost which is the cost for the plant to
produce the bio-oil should be included which is
$0.77 (≈₦121.7) for 400 metric ton/day of FBPR.
The potential of producing 1,161,242.4 litres/day
(306,767.8 gallons/day) of bio-oil in the
investigated areas of study had been revealed
(Popoola et. al., 2013). The summary is given in
Table 1 below on the basis of 2,316 metric ton/day
of wood residue to produce 306,767.8 gallons/day
of bio-oil.
Hint: $1 = ₦158 with the current exchange rate
(www.currencyexchangerate.com), 1 litre =
0.2642 US gallon.
Assumptions made in generating Table 1 include:
 Turnkey package is made.
 Land will be provided by the community as
they will the major beneficiary in terms of
employment opportunities.
 Government make the establishment to be
tax free.
Capital Cost Estimation Methods
For comparison purpose, two methods of rapid
cost estimation are examined. These include:
Historical Costs
This method is based on the fact that an
approximate estimate of the capital cost of a
project can be obtained from knowledge of the
cost of earlier projects using the same
manufacturing process. The capital cost of a
project is related to capacity thus (Sinnott, 1999):
n
S 
C2  C1  2  (2)
 S1 
where C2 = Capital cost of the project with
capacity S 2 ,
C1 = Capital cost of the project with capacity S1 ,
n = 0.6 (Estrup, 1972),
 Popoola et al.

Table 1.Capital costs for bio-oil production from wood residue

S/N Description of item/cost Quantity Unit price (₦) Total price (₦)
1 Cost of 400 metric ton/day of FBPR 6 2,260,000,000 13,560,000,000
2 2.5 MW Turbine 24 270,000,000 6,480,000,000
3 Cost per gallon capital cost 306,768 121.7 37,333,665.6
4 Cost to produce bio-oil per therm Lump Sum Lump Sum 150,000,000
Total 20,227,333,666

According to history, capital cost required for 400 For this work, 7, 314,123, 656 gallon/yr
tonne/day of wet wood plant size is $ 14,300,000 (2,316 Ton/day) of wood residue is required to
(Farag et al., 2002). For 2,316 tonne/day, the
produce 1, 604, 234, 609 gallon/yr of bio-oil.
capital cost is calculated thus:
Thus, reactor conversion is calculated thus:
0.6
 2, 316  1, 604, 234, 609 gallon/yr
C2  $14,300, 000   (3) s  (8)
 400  7,314,123, 656 gallon/yr
 C2  $41, 015, 043.43 (4)  s  0.22 (9)

The approximate capital cost required to process
2,316 tonne/day of wet wood residue using this
method is ₦ 6,480,376,861/day (₦2.37×1012
/year).
Step Counting Methods
Here, the capital cost is determined by a number
of significant processing steps in the overall
process. A simple correlation for plants that are
predominantly liquid and/or solid phase handling
processes is given thus (Evans et al., 1988):
Also, the plant capacity is 845,340 tonne/year
(2,316 tonne/day) and number of functional units
is 7. The reactor conversion is 0.22. The result
obtained for the reactor conversion is in
accordance with previous literature (Fogler et al.,
1981). Thus, equation (6) is used for our
approximate calculation as the process is liquid
phase handling with plant capacity above 60,000
tonne/year.
0.675
C  150  7   845, 340 0.22  (10)

0.30
C  130, 000 N  Q s  (5)  C  £29, 228, 073.96 (11)

for plant capacities under 60,000 tonne per year. The approximate capital cost required is
₦7,307,018,490 (£29,228,073.96) at exchange
0.675 rate of £1 = ₦250.
C  150 N  Q s  (6)
Operating Cost
for plant capacities above 60,000 tonne per year.
The operating cost is summation of the variable
Where
cost and fixed cost.
C = Capital cost in pounds sterling,
N = Number of functional units, Variable Costs
Q = Plant capacity, tonne per year
Variable cost includes purchasing cost of the
s = reactor conversion
wood residue, cost of grinding the low grade wood
residue, cost of drying the low grade wood residue
mass of desired product
s (7) and utility cost. Wood residue purchasing cost is
mass reactor input $17/wet ton (≈₦2,600/wet ton). The cost of

16

grinding 2-inch wood chips to approximately 0.04
inches is assumed to be $5/ton (≈₦800/ton) (Islam
et al., 2000). Cost of drying the low grade wood
residue to less than 10% moisture content is
assumed negligible as the char and syngas
produced in the process will be burnt to supply the
heat required to dry the low-grade wood. The
utility cost includes cost of electricity used per
year, nitrogen used to provide fluidization in the
fluid bed reactor, miscellaneous chemicals and
natural gas used in the process. A wood-fired
pyrolytic plant that processes 400 tonne/day of
wood residue requires $920,462/year (≈₦145.5
million/year) for electricity, $320,000/year
(≈₦50.6 million/year) worth for Nitrogen gas in
the reactor, $480,000/year (≈₦75.8 million/year)
for miscellaneous chemicals and $352,856/year
(≈₦55.8 million/year) for natural gas (Mullaney,
2002). Thus, the multiplication factor is 5.8 of all
costs for a wood-fired pyrolytic plant that
processes 2,316 tonne/day of wood residue. Table
2 is the summary of all the variable costs
involved.
Fixed Costs
Fixed cost includes non-production costs, labour
costs, maintenance cost and bio-oil transportation
cost. This varies based on the wet wood plant
capacity. Combined non-production cost for
labour; utility; and services and supplies had been
estimated to be $446,250 per year (≈₦70.5
million/year) for 700 tonne per day wood-fired
plant (Badger, 2011). A wood-fired facility
required to process 700 US ton/day needs a total
of 21 employees with 16 devoted to production
and 5 to non-production. The labor cost for said
wood-fired plant is $975,000/yr (≈₦154.1
million/year) (Gregoire et al., 1994). Yearly
maintenance costs are estimated to be 10% of
capital cost of the plant and include maintenance
labour (Ulrich, 1984). Transportation is estimated
Table 2. Variable costs
S/N Description of item/cost
1 Wood residue purchasing cost
2 Cost of grinding wood chips
3 Electricity cost
4 Cost of nitrogen gas
5 Cost of miscellaneous chemicals
6 Cost of natural gas
Sub-total
17
Popoola et al.
at $0.05/gal (≈₦8/gal) for liquid oil (Stewart,
2002). A total of 424 million litres/year (≈ 112
million gallons/year) of bio-oil is proposed to be
produced from 845,340 metric tonne/year of wood
residue generated in these major cities in south-
western Nigeria (Popoola et al., 2013).
Hint: 1 gallon = 3.785 litres
Based on the information gathered above, a plant
scale-up is done from 700 tonne per day to 2,316
metric tonne per day wood-fired plant. The
multiplication factor is 3.3 (i.e. 2,316/700) for the
scale-up. Thus, the following Table 3 is obtained.
Table 4 is the summary of total annual operating
costs with loan payment.
Total annual operating costs = Variable Costs +
Fixed Costs (12)
Bio-Oil Selling Price
Bio-oil is as a fuel for electric power generation
can be used directly as fuel in boilers to produce
heat and steam. However, significant problems of
bio-oils as a fuel such as poor volatility, high
viscosity, coking, corrosiveness and cold flow
problems when compared with its counterpart
fossil fuel (diesel) has lowered the price of bio-oil.
In order to provide potential customers an
incentive to switch to bio-oil and to compensate
for any end-use device modifications, bio-oil price
is placed at 50% discount to diesel. Thus, its price
is placed at ₦80/litre compared with Nigerian
current price of ₦160/litre for fossil fuel (diesel).
The total quantity of bio-oil expected to be
produced from 845,340 Tons/year of wood residue
is 424,000,000 litres/year. The summary of
revenue generated from the sale of produced bio-
oil is presented in Table 5.
Quantity Unit price (₦) Total price (₦)
845,340 2,600 2,197,884,000
845,340 800 676,272,000
- Lump Sum 843,900,000
- Lump Sum 493,500,000
- Lump Sum 440,000,000
- Lump Sum 323,600,000
4,975,156,000
 Popoola et al.

Table 3. Fixed costs

S/N Description of item/cost Quantity Unit price (₦) Total price (₦)
1 Non-Production cost - Lump Sum 233,000,000
2 Labour cost - Lump Sum 509,000,000
3 Maintenance cost - Lump Sum 2,060,000,000
4 Transportation cost 112,000,000 8 896,000,000
Sub-total 3 3,698,000,000

Table 4. Total annual operating costs with loan payment

S/N Costs and loan payment Amount(₦)

1 Variable costs 4,975,156,000
2 Fixed costs 3,698,000,000
Total (operating costs) 8,673,156,000
3 Annual loan payment 1,400,729,829
(10 yr term, 8% interest rate)
Total annual operating costs with loan payment 10,073,885,829

Table 5.Revenue generated from the sale of produced bio-oil

S/N Description of cost Quantity (litres) Unit price (₦) Total price (₦)
1 Bio-Oil Cost 424,000,000 80 33,920,000,000
Revenue generated from selling bio-oil 33,920,000,000

Internal Rate of Return and Net Present Value RESULTS AND DISCUSSION

The IRR of an investment is the interest rate at
which the net present value of costs (negative cash
flows) of the investment equal the net present
value of the benefits (positive cash flows) of the
investment. Internal rate of return (IRR) is the rate
of return that investors would earn if they invested
in the project. The net present value (NPV) is the
total present value of a time series of cash flows. It
calculates the net present value of an investment
by using a discount rate and a series of future
payments (negative values) and income (positive
values). Rate is the rate of discount over the length
of one period.
Return on investment will be calculated on a per
gallon basis; income tax will be averaged over the
plant life and that average will be calculated on a
per gallon basis
n values j
NPV   (1  rate)
j 1
j
(13)
where n = number of cash flows in the list of
values.
For the capital cost estimation methods examined,
step counting and historical cost methods were
used to check for preliminary accuracies of total
capital cost required for bio-oil production. The
total capital cost required for bio-oil production
from 2,316 metric Ton of wood residue on daily
basis using fast pyrolysis has been estimated to be
₦20,227,333,666. The historical cost method gave
an approximate capital cost of
₦6,480,376,861/day. This gives an error percent
of approximately 68%. The step counting method
used estimated the capital cost to be
₦7,307,018,490/day with error percent of
approximately 63.9%. This is an indication that
the step counting method predicts better than the
historical cost method. However, the two methods
cannot be used in rapid cost estimation of bio-oil
production from wood residue because of their
low accuracies. According to literature,
preliminary (approximate) estimates used in initial
feasibility studies and to make coarse choices
between design alternatives have accuracy
typically±30 per cent (Sinnott, 1999).
This work investigated the effects of bio-oil
selling price and some variable costs (wood
residue purchasing price and annual electricity

18

cost) on the internal rate of return and net present
value for bio-oil production plant processing 2,316
tonnes of wood residue per day. Excel was used in
the calculation of net present value (NPV) and
internal rate of return (IRR) for this investment
after five years of plant operation. Also, the
economic implication of the production process
was examined for the first five years of operation.
Internal rate of return (IRR) is the rate of return
that investors would earn if they invested in the
project while the net present value (NPV) is the
total present value of a time series of cash flows.
The concept of net present value (NPV) can used
to evaluate the profitability of an investment.
Fig. 2 shows the plot of internal return rate against
varying bio-oil price for first five-year of
investment. At lower bio-oil selling price of less
than ₦80 for the first year of operation, there was
negative internal return rate. This is an indication
that investor would not have earned any profit at
this selling price for first year of investment. Also,
the fixed selling price of bio-oil at ₦80 was
favourable for this investment as positive internal
return rate persists even at the first year of
operating the plant. However, internal rate of
return increases periodically at any selling price of
bio-oil for the first five years of operation
70
60
50
40
Internal Return Rate (%)
30
20
10
0 1st Year
-10
-20
-30
40 50 60 70
Bio-Oil Price (Naira)
Fig. 2. Internal return rate against varying bio-oil price for first five-year of investment
Popoola et al.
examined. This indicates this project will yield
profit for the investor.
The plot of net present value (NPV) against
discount rate at varying bio-oil price is presented
in Fig. 3. The net present value for the investment
increases with increasing bio-price at fixed
discount rate. However, at fixed bio-oil selling
price, the net present value decreases with
increasing discount rate. Also, there was negative
NPV at discount rate of 8%, 10% and 12% for
fixed bio-oil selling price of ₦40. A minimum of
bio-oil selling price at ₦60 is recommended for
the investor for the examined discount rate in
order to avoid negative net present value of the
investment. This result also indicates that
investing in bio-oil production from wood residue
using pyrolysis is favourable. The plot of internal
return rate against varying wood residue
purchasing price for first five-year of investment
is depicted in Fig. 4. At fixed wood residue
purchasing price, the internal return rate increases
with increasing year of investment. However,
varying wood residue purchasing price has little
significance on the internal rate of return for each
year. There tend to be little decrease in the IRR at
a magnitude of minus one (1) for each year of
investment. This estimate was executed at
constant bio-oil price of ₦80.
2nd Year
3rd Year
4th Year
5th Year
80 90 100 110 120
19
 Popoola et al.

10
x 10
12

40 Naira
10 60 Naira
80 Naira
100 Naira
8
Net Present Value (Naira)

-2
4 5 6 7 8 9 10 11 12
Discount Rate (%)

Fig. 3. Net present value against discount rate at varying bio-oil price

40

35

30
Internal Return Rate (%)

25

20
1st Year
2nd Year
15 3rd Year
4th Year
5th Year
10

5
2400 2500 2600 2700 2800 2900 3000 3100 3200
Wood Residue Purchasing Price (Naira)

Fig. 4. Internal return rate against varying wood residue purchasing price for first five-year of
investment
Fig. 5 represents the plot of net present value
against discount rate at varying wood residue
purchasing price. At constant discount rate, the
NPV for this investment decreases with increasing
wood residue purchasing price. Also, at constant
wood residue purchasing price, the NPV for this
investment decreases with increasing discount
rate. This is in agreement with previous literatures
that NPV for investment decreases with increasing
variable cost and discount rate [(Couper, 2003),
(Baasel, 1974) and (Walas, 1990)]. The plot of
IRR against varying annual electricity cost for first
five-year of investment is shown in Fig. 6. Due to
instability in the prices of variable costs, the
effects of changing annual electricity cost on IRR
of investment was examined. At fixed annual

20
 Popoola et al.

electricity cost, IRR increases significantly from
the first year of investment to the fifth year.
However, for each year, increase in annual
electricity bill reduces the internal return rate by
magnitude of one (1). This same behaviour was
exhibited when the effect of wood purchasing
price (variable cost) on IRR was examined. The
plot of net present value against discount rate at
10
x 10
7.5
varying annual electricity cost is depicted in Fig.
7. NPV decreases annually with increasing
electricity bill and discount rate. Thus, a
favourable discount rate that will maximize profit
must be adopted. These calculations were done on
the assumption that the bio-oil selling price is
₦80.

7 2400 Naira
2600 Naira
6.5 2800 Naira
3000 Naira
Net Present Value (Naira)

5.5

4.5

3.5

3
4 5 6 7 8 9 10 11 12
Discount Rate (%)

Fig. 5. Net present value against discount rate at varying wood residue purchasing price

40

35

30
Internal Return Rate (%)

25

20 1st Year
2nd Year
3rd Year
15
4th Year
5th Year
10

5
0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4
Annual Electricity Cost (Naira) 9
x 10

Fig. 6. Internal return rate against varying annual electricity cost for first five-year of investment

21

10
x 10
7.5
7
6.5
Net Present Value (Naira)
6 1,200,000,000 Naira
5.5
4.5
3.5
3
4 5 6 7
Discount Rate (%)
Fig. 7. Net present value against discount rate at varying annual electricity cost
CONCLUSION AND RECOMMENDATION
Process economic analysis of bio-oil production
from 2,316 Ton/day of wood residue generated in
major cities of south-western Nigeria had been
examined. EXCEL had been used in the
calculation of net present value (NPV) and
expected internal rate of return (IRR) for this
investment after five years of plant operation. The
results obtained were in good agreement with
previous literatures indicating an economically
favourable environment for interested investor. It
is recommended that Nigerian government should
look critically into this as this will serve as
alternative energy source for envisaged fossil fuel
depletion, enhance waste management generated
from wood residue and reduce the alarming
unemployment rate in our country.
COMPETING INTERESTS
Authors have declared that no competing interests
exist.
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