Requirements and Viability for Biofuels in South Africa
Brian Tait
Manager: Alternative Energy, Sasol Technology
INTRODUCTION
Biofuels are renewable liquid fuels manufactured from sustainably produced agricultural resources. They are considered carbon dioxide neutral in that the CO2 emitted during production and utilisation is reabsorbed by the plant material. The two most important biofuels are biodiesel and bioethanol, which can be blended with diesel and petrol, respectively. Both these renewable fuels are receiving much attention worldwide in developed and developing countries.
The international drivers of biofuels include high crude oil prices, energy security concerns and reduced import dependency, utilisation of agricultural surpluses, creation of additional employment, and environmental concerns over greenhouse gas emissions. This has led to state intervention, mainly in the form of tax incentives to stimulate investment in increased biofuels capacity.
The European Union has set biofuels blending targets of 2% by the end of 2005, and 5.75% by 2010. Most EU countries provide full fuel tax exemption on biofuels. Similarly, the US has federal and state initiatives to grow the biofuels industry. A fuel tax reduction of 1 US cent per 1% biodiesel blended has been granted and bioethanol receives a federal tax credit of .14 per litre where it is used in a 10% blend with petrol. Generally, throughout the rest of the world, in countries as diverse as Brazil, Egypt, India and Thailand, some form of tax concession is applied to biofuels.
Biofuels hold many macroeconomic benefits for a country engaging in biofuel manufacture. In a South African context these include:
* Environmentally friendly fuel through indigenous production.
* South Africa is signatory to the Kyoto Protocol.
* Energy security and diversification.
* Actively contributing to regional economic development.
* Creation of employment opportunities.
* Positive impact on the balance of payments.
* Positive cost-benefit ratio.
* Strengthen domestic, rural agricultural economy.
* Giving farmers viable alternative markets.
* Assist in remedying protein deficiency.
Noting these benefits, the South African government has undertaken to develop a framework within which the renewable energy industry can operate, grow and contribute positively to the local economy and global environment. There is a desire to increase the share of modern, renewable energy and a target of 10,000 GWheq by 2013 has been set. Biofuels are a focus area of the initiative and a tax concession of a 30% reduction in the general fuel levy has been announced.
BIODIESEL
Biodiesel is a natural liquid fuel made by the transesterification of vegetable oil with an alcohol, such as methanol. It is generally blended with fossil diesel and can be used in existing engines and fuel injection equipment without modifications. Various commercial oil sources include sunflower, soya, canola and palm oils. A by-product of oilseed pressing is a protein-rich oilcake that is used in animal feeds. Animal fats, marine and algal oils, and non-edible oils, such as jatropha, are also possibilities.
1t oil + 0.1t methanol = 1t biodiesel + 0.1t glycerol
Europe, particularly Germany, France and Italy, is the leader in biodiesel production Significant capacity has been added in many countries over the last two years and numerous biodiesel plants have been announced worldwide
Sasol has been investigating the viability of a biodiesel plant in South Africa for a while. The project is now in a final feasibility stage and no decision to proceed with the project has been made yet. The plant would be located inland, but no specific location has been chosen.
BIOETHANOL
Bioethanol is produced via the fermentation of starch or sugar feedstocks, such as maize, sugar juice and molasses. 95% of world ethanol production is in fact bioethanol with 5% of production derived synthetically. Much attention is being devoted to cellulose-based ethanol, but technical and economic challenges must be overcome before the process can be implemented commercially.
1t maize = 0.3t ethanol + 0.4t DDGS + 0.3t CO2
10t sugar cane = 1t sugar = 0.5t ethanol + 0.5t CO2
DDGS or distiller's dried grains and solubles is a protein-rich animal feed product.
Ethanol is widely promoted as an octane-enhancing and clean-burning petrol additive. 70% of world production is consumed in fuel, with the remainder being used in beverages and industrial applications. Brazil is the largest producer of ethanol with production of 10 million tonnes in 2004. 320 sugar/ethanol plants are in operation and 33 new projects (September 2004) are under construction. Ambitious plans to expand the ethanol industry by 40% over the next five years have been announced.
Further capacity expansion is anticipated in the US where ethanol is produced predominantly from maize. The Senate Energy Bill is set to double the ethanol consumption in fuel and an additional 4 to 8 million tonnes per annum of ethanol capacity is expected over the next three to five years. Under these conditions, it is expected that the US will overtake Brazil as the largest ethanol-producing country. 16 new plants are under construction (December 2004).
From Sasol's point of view, bioethanol would be an interesting addition to our product portfolio and complements our existing synthetic ethanol production. Besides being a product in itself, ethanol is also a chemical feedstock for esters, etc. We are at a scoping phase in our bioethanol project and are considering various feedstocks in selected African countries (including South Africa).
VIABILITY IN SOUTH AFRICA
Let us assume that we wish to target 10% biofuels over the next several years, i.e. 1.1 million m3 bioethanol and 0.77 million m3 biodiesel (based on 2004 consumption). Let us assume for bioethanol that 40% is derived by sugar cane and 60% is derived from maize. For biodiesel, let us assume 20% from soya, 40% from sunflower and 40% from jatropha. These assumptions are an example and do not imply a recommendation.
The approximate feedstock requirements would then be:
* sugar cane 8.8 million tpa
* maize 2.1 million tpa
* soya 0.8 million tpa
* sunflower 0.8 million tpa
* jatropha 0.8 million tpa
While these crop production volumes for biofuels are very feasible in South Africa, the real question is will such an initiative make economic sense for an investor. Answering this question is extremely difficult and fraught with dangers as the nature and conditions of each specific project will be different. What follows is an attempt to generalise and give an "average" overview for an industry based on 10% biofuels blending, i.e. these figures do not apply to a specific venture and are an industry-level indication.
The price of biofuels is a debatable issue, but let us assume for sake of argument that it is the basic fuel price. This ignores the cost of blending and the lower energy value of both biodiesel and bioethanol when compared to fossil fuels. If we take March 2005 as an example, then biodiesel = R2.39 per litre and bioethanol = R2.17 per litre.
Let us take the example of a plant capacity of 100 ktpa. Scale-of-economy applies strongly to both biodiesel and bioethanol and a sub-scale plant is unlikely to be viable unless specific circumstances merit it. A very rough order of magnitude indication of capital expenditure is:
* Biodiesel R400 million
* Bioethanol (maize) R250 million
* Bioethanol (sugar) R300 million
Assuming an investor wanted to achieve a pre-tax return on investment of 25%, then in order to achieve this, the following feedstock prices would be necessary. Note again these are a rough order of magnitude and are an indication of the average needed for a 10% biofuels industry and are not necessarily an indication for a specific project and rely on very generalised underlying assumptions.
* maize R835/t
* sugar cane R120/t
* soya R1,000/t
* sunflower R800/t
CONCLUSIONS
The crop prices needed to establish a 10% biofuels industry in South Africa are unsustainable and in general are below production costs. Although oil companies are supportive of biofuels blending, the economics do not suggest a large, sustainable biofuels industry is possible in South Africa under the current dispensation. In order to achieve any reasonable capacity for biofuels manufacture, the government would have to provide more attractive incentives to encourage private sector investment.
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