Explaining the experience curve: Cost reductions of Brazilian ethanol from sugarcane

Production costs of bio-ethanol from sugarcane in Brazil have declined continuously over the last three decades. The aims of this study are to determine underlying reasons behind these cost reductions, and to assess whether the experience curve concept can be used to describe the development of feedstock costs and industrial production costs. The analysis was performed using average national costs data, a number of prices (as a proxy for production costs) and data on annual Brazilian production volumes. Results show that the progress ratio (PR) for feedstock costs is 0.68 and 0.81 for industrial costs (excluding feedstock costs). The experience curve of total production costs results in a PR of 0.80. Cost breakdowns of sugarcane production show that all sub-processes contributed to the total, but that increasing yields have been the main driving force. Industrial costs mainly decreased because of increasing scales of the ethanol plants. Total production costs at present are approximately 340 US$/methanol3 (16 US$/GJ). Based on the experience curves for feedstock and industrial costs, total ethanol production costs in 2020 are estimated between US$ 200 and 260/m3 (9.4–12.2 US$/GJ). We conclude that using disaggregated experience curves for feedstock and industrial processing costs provide more insights into the factors that lowered costs in the past, and allow more accurate estimations for future cost developments.