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Market niche for SVO

SVO today only represents a marginal niche in the transport fuel market. The majority of vehicles running on SVO are converted standard vehicles, but conversion equipment kits are available for many common engine models. Most diesel engines on the market today could be converted to SVO operation, including advanced TDI versions and special engines used in 3-litre/100km vehicles. One of the main suppliers of conversion equipment has also developed an engine specifically designed for SVO operation. Additionally a tractor manufacturer markets a tractor specifically adapted for SVO operation as part of a market introduction programme. Thus the technology must be assessed as available and market ready, even though large-scale production does not yet exist.

If all agricultural land in EU-15 were included in a 6-year crop rotation with rape the total SVO output would cover roughly 9% of total transport energy consumption. Thus even in this extremely optimistic scenario SVO would only cover a modest share of the energy demand

If all agricultural land in the EU-15 were included in a 6-year crop rotation with oilseed rape the total SVO output would cover roughly 9% of total transport energy consumption. Thus even in this extremely optimistic scenario SVO would only cover a modest share of the energy demand. A more realistic scenario, accounting for competing uses of land, etc. would look at a market share below 5%. Thus if SVO is not a main fuel, where is then the niche it could occupy?

  • The low processing needs means that SVO can be produced locally which, from a transport point of view, is an advantage, but at the same time may lead to production being of lower quality as control schemes will be more difficult to implement.
  • The local production may make evasion of taxes, including VAT, a significant problem, and as such represent a problem similar to the problems posed by "farm shops" where eggs, etc. are sold directly from farms. Policy-makers may therefore be reluctant to embrace SVO.
  • The rather unsophisticated production technique may mean that there is little room for more capital intensive investments in the field, as it is more difficult to manage and get a reasonable return from micro investments. Thus industry and investors may be reluctant to embrace SVO. In this context biodiesel offers them a better alternative, as the processing requirements are better suited for larger investments in conversion plants.
  • The need for a separate distribution infrastructure means that fuel distributors are generally reluctant to embrace SVO. It does not increase the overall market, but it adds costs in the distribution link as it needs separate tanks, pumps, etc.
  • The need to modify engines means that automakers will need to market an additional model of their engines, increasing average costs (because of average smaller production series) but not profits, as it competes with their own diesel vehicles.

In view of the many structural obstacles it is difficult to see SVO taking off without outside intervention. SVO is an interesting technology in search of its proper niche. To avoid its having to overcome all the obstacles at once there is a need to identify a niche where some of them are absent. Agricultural tractors could be one such niche:

  • Tractors will typically only be used close to the SVO production site;
  • Tractors are generally not exposed to the same stringent environmental regulations since they are mostly used away from urban areas, and can as such use a fuel which has promising environmental parameters, even though they may not have been fully verified scientifically;
  • Fuel for tractors is an internal production cost in agriculture, and as such is typically exempt from VAT;
  • Tractors represent a well defined market of a size (2-4% of fuel consumption) comparable to the resources which can reasonably be expected to become available;
  • Tractors are typically filled from a local tank on the farm and as such do only rely on a wholesale distribution infrastructure where SVO is not produced on the farm itself.

A number of factors, such as the use of a local storage tank, short distances travelled, tax regime, etc. make agricultural use an attractive potential niche for SVO

Thus converting the tractor fleet (and potentially other off-road machinery) to SVO could be the relevant niche for this fuel. Additionally there will always be the idealists. Some farmers using SVO would probably opt for a similar solution for their private cars, but this is no different from today where some may fill their cars with diesel from their own storage tank even if this is not always legal for safety or taxation reasons.

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