Market sources explained the mechanism for advanced biofuels pricing, with interesting estimations of the total mandate to be filled in 2018. We complete these information with hard fact gathered from the GSE guidelines covering the application of the March 2, 2018 decree.
Sources very familiar with the Italian market confirmed that the share of biomethane within the advanced sub-target (75% of 0.6% e.c) would be fulfilled by only 20%. We already mentioned (see BMR n°256) that the share of other advanced biofuels (0.25% of 0.6% e.c) would be completely fulfilled. Consequently, advanced biofuels will account for only 0.24% e.c of 2018 fuel sales. Like we explained in another previous issue (see BMR n° 240), it means that the maximum share for conventional biofuels (6.4% e.c) will fully apply, which is a positive news in terms of biofuel demand.
We also received some explanations about how the advanced biofuels (mainly POME, Spent Bleach Earth and Empty Fruit Bunch) were negotiated between producers and Italian obligated parties. One advanced certificate (CIC) is received for each 5 Gcal of advanced biofuels sold to the market. That is equivalent to about 0.43 mt of POME ME for example. Obligated parties buying physical advanced biofuels must pay to the GSE EUR 375 for every CIC, translating to EUR 646/mt (assuming for Fame that 1 toe = 1.16 mt). The GSE then pay this amount to producers who received quota allocation to supply advanced biofuels in Italy.
The GSE explains in its guidelines that the contract negotiated between the producer and the Italian buyer “ must include a purchase price of advanced biofuel not higher than the average monthly quotation (of the month prior to the delivery of the biofuel), published by Platt’s, of the product within which the biofuel is mixed for the ‘final use as fuel”, (…), reduced by 5%.” It means that the price of POME can’t be higher than gasoil – 5% + EUR 646/mt. Or if we take a gasoil at USD 680/mt and EUR/USD rate at 1.16, not higher than EUR 1’202/mt. According to our sources, the premium paid for POME ME was about EUR 100/mt over UCOME, so closer to EUR 950/mt.
