biofuels –the spotlight on the new green gold · • forecast the current and future biofuel...

East African Power Industry Convention 2007, Addis Ababa, ETHIOPIA

Biofuels – The Spotlight on the New Green Gold

Cornelis van der Waal

� East African Power Industry Convention 2007, Addis Ababa, ETHIOPIA

Table of Contents:

1. Opportunities and Barriers in Emerging Biofuel Ma rkets in East Africa …Slide 3

2. Regulatory Trends in African Biofuels ………… ............................................Slide 1 9

3. Drivers and Restraints in Growing a Country’s Bi ofuel Potential ………… Slide 24

4. Evaluating Biofuel Development in Global Markets ….................................Slide 26

5. Assessing the role and Responsibility of the Gov ernment within the

• Industry …………………………………………………………………………… Slide 33

6. Key Success Factors ……………………………………………………………… .Slide 35

7. Contact Information ………………………………………………………………… Slide 38


East African Biofuels Markets

1. Opportunities and Barriers in Emerging Biofuel M arkets in East Africa


Overview of the Research

� Frost & Sullivan recently completed a study on Biofuels in Sub-Saharan Africa.

� Countries that were analysed include:• South Africa, Botswana, Ghana, Zambia, Kenya, Malawi, Tanzania, Mozambique

and Zimbabwe� Countries not included:

• Ethiopia, Uganda, Somalia etc – Future Research

• Features of the Research:• Forecast the current and future biofuel market size and growth rate • Analyse the key trends • Assess and analyse the drivers, restraints and challenges facing the industry.• Analyse the legislative environment regulating this market in Sub-Saharan Africa.• Review and provide visibility of the key players in this market.• Evaluate and analyse market growth opportunities.


Current State of Biofuels Production in Africa

� Biofuel production in Africa at present minimal

• Malawi - ethanol

• Zimbabwe – ethanol

• Many small scale projects with less than 10 000 litres per annum

• Various feedstocks used including old cooking oil, jatropha, sunflower seed, maize, sugar cane etc.

� So what is driving this market then?

• Government compulsory blending rates

• Commitments under the Kyoto Protocol

• Opportunities in feedstock production for export purposes


What the Sceptics Say

� Insufficient water

� Increased fuel volumes not needed –better utilisation of what is available (Demand Management) required.

• Potentially more busses etc.

� Price of food to go up.

• An increase in US production of ethanol, made from maize, in early 2007 led to a rise in the price of the crop on the international market, which in turn prompted a surge in the price of tortillas, a corn-based bread that is a staple among Mexicans.

• For 95 litres of pure ethanol, some 200kg of maize is needed, or the equivalent of enough calories to feed a person for an entire year.

� Profitability is not possible at oil prices below $90 per barrel.

� Insufficient human capital to drive the implementation.

� Insufficient skills to grow the agricultural industry (food vs. fuel).

� Cost of equipment and continued commitment to biofuels.

� Damage to engines and the cost of technology conversion.

� Drought and other factors will ruin the industry.

� Lack of storage capacity for both feedstock and biofuels (cost is preventative).


What the Pro-biofuels Group Says

� Job creation and poverty alleviation.

� Right policy framework profitability is possible at oil prices above $50 (Current $70+).

� World demand for fuel is increasing – Biofuels could fill this gap.

� Land and labour is widely available in Africa – Marginal land can be productive!

� A variety of crops can be used to produce biofuel.

� The power of small-scale farmers should not be underestimated – BUT selecting the right support models is essential.

� Real opportunity to reduce greenhouse gas emissions.

� Opportunity for non-oil producing African countries to decrease dependence on oil producing countries.

� Opportunity for governments to increase infrastructural spendingand gain return on investment.

� Ideal vehicle to empower women and marginal communities.


Life Cycle Analysis

�Market is in the development” stage.

�Countries are still formulating strategies.

�Production in Malawi, South Africa and Zimbabwe albeit on a very small scale.

�Major biofuels production is expected in 2010 when Sub-Saharan Africa is expected to produce at least 2053 million litres resulting in regional revenues of $1540 million.

�From 2010 to 2013 the market is expected to grow robustly at an average rate of between 4 and 7 per cent per annum.

�It is expected that market developments on other continents will have a strong influence on the long term success of biofuels in Africa.

�A sustainable biofuels industry in Africa will depend on:

• Improved market co-ordination

• Investment in transport infrastructure

• Decentralised processing capabilities

• Improved storage to reduce the seasonality of employment in biofuels

“The gradual move away from oil has begun. Over the next 15 to 20 years we may see biofuels providing a full 25% of the world’s energy needs.”– Alexander Müller, Food and Agriculture Organization of the United Nations

Sub-Saharan Biofuel Market: Life Cycle AnalysisSource: Frost & Sullivan

Biodiesel Market

Ethanol

Market Development Market Maturity Market Decline


Similarities to the Internet Lifecycle?

Internet lifecycle

Infancy Boom Bust Reality

� There is a real danger that biofuels development can follow the same route as eCommerce did in the late 90’s.

� Early planning and sensible policies need to be developed in order to create sustainability


End use of Biofuels

Mechanical equipment powered by traditional fossil fuels (e.g. tunnelling equipment)

Mining and Industry

Potential replacement of kerosene

“Biogel” – produced in South Africa and being exported to Botswana

Heating and Cooking

Both large-scale and small-scale generators

Power Generation

Supplement and blend with traditional fossil fuels

All road, rail and even sea transportation

Transport

ApplicationIndustry

•The key application for biofuel will be transportation. Other potential end uses are detailed below:


Opportunities

� There are various opportunities:

• Opportunity in the agricultural industry

• Opportunity in the production industry

• Opportunity for government to increase tax income, reduce

poverty and increase employment

• Opportunity for equipment suppliers to start producing biofuel

equipment locally (including motor engine modification

technologies)

• Opportunity for increased managerial, sales, engineering,

marketing and agricultural skills

• Opportunity for governments to improve rural infrastructure – real

return on investment


Total Fuel Demand� Regional petrol demand growth:

Between 2 to 3 % pa while diesel demand growth: Between 5 to 7% pa.

� In 2006, petrol consumption for the 6 countries mentioned totalled 2310 million litres (36.0 per cent of the overall demand) and diesel consumption totalled 4112 million litres (64.0 per cent of the overall consumption).

� Overall fuel consumption totalled 6422 million litres in 2006.

� Total fuel demand in 2013 is expected to reach 8439 million litres of which 31.4 per cent will be petrol demand and 68.6 per cent will be attributed to diesel demand.

� Frost & Sullivan forecasts biofuel demand by applying the expected mandatory blending levels for each country to the expected fuel consumption.

East African Fossil Fuel Market Growth

0

2000

4000

6000

8000

10000

2006 2007 2008 2009 2010 2011 2012 2013

Mill

ion

Litr

e

Petrol vs. Diesel Consumption in East Africa

01000200030004000500060007000

2006 2007 2008 2009 2010 2011 2012 2013

Year

Mill

ion

Litre

Petrol

Diesel


Ea st Africa n P e ro l Consum ption (2006)

K eny a19.5%

M alawi4.5%

Zam bia9.1%

Tanz ania22.1%

Zim babwe40.3%

M oz am bique4.5%

Ea st Africa n Die se l Consum ption (2006)

K eny a32.2%

M alawi4.2%

Zam bia8.7%

Tanz ania21.8%

Zim babwe23.9%

M oz am bique9.3%

Regional Fuel Demand

� Zimbabwe was the largest fuel

consumer in 2006 – but this will

change in 2007/8.

� Increased diesel demand in

mining, construction and

transport industries.

� Opportunity even if no biofuel

production (feedstock export).

� Fuel demand worldwide expected

to increase.

� Limited new exploration success.

� Biofuels to fill the gap.


Quantifying the Opportunity

737 Million LitresTotal

43 Million LitresE10B5Zambia

47 Million LitresE20B10Malawi

207 Million LitresE10B10Kenya

161 Million LitresE10B10Tanzania

57 Million LitresE10B10Mozambique

217 Million LitresE10B10Zimbabwe

Volume of Biofuel (2010)

E LevelB LevelCountry

� Various governments have committed to various biofuels levels

� Based on this it is possible to forecast the volume of biofuel needed

� However, these volumes will only be reached if various steps are taken by government to increase attractiveness for investors.


Barriers Preventing Market Development

� Poorly developed

rural infrastructure

� Afro-pessimism

� Lack of subsidies

(Tax Holidays?)

� Lack of

comprehensive

planning

� Food vs. fuel land

demarcation

� Financial

constraints

� Technical difficulties

� Skills shortages

� Food vs. fuel

debate

� Water

� Skills

Contributing Factors

High but Decreasing

� Lack of electricity

� Lack of communication

infrastructure

Current

Infrastructure

High but Decreasing

� Lack of international

co-operation

� Lack of enforced

blending ratio’sGovernment

Policies

High and Increasing

� By-product

managementBiofuel Plant

Construction

High and Increasing

� Destruction of natural

biodiversity

� Suitable land

Sufficient

Feedstock

Production

ImportanceChallenge


Feedstock Analysis

Biodiesel� Any agricultural product that is

high in plant oil

• Sunflower seed, palm oil, coconut oil, peanuts, jatropha and even avocado’s.

• In many countries jatropha is seen as the most promising because of its drought resistant nature, it does not compete with food produce and there are various other uses for by-products.

• Even discarded cooking oil can be used!

Ethanol� Any agricultural product that is

high in starch or sugar

• Maize, wheat, sugar cane, cassava, sweet sorghum or even potatoes.

• In most countries sugar cane and sweet sorghum are being considered.

• Sweet sorghum holds significant potential because it does not compete with food produce, uses less water than sugar cane, can be harvested twice per annum and has various important by-products.


Feedstock Production Models

Biofuel Producer

Commercial Farmer

Commercial Farmer

Commercial Farmer

Commercial Farmer

Commercial Farmer

Commercial Farmer

Biofuel Producer

Small Scale Farmer

Small Scale Farmer

Small Scale Farmer

Small Scale Farmer

Small Scale Farmer

Small Scale Farmer

Small Scale FarmerSmall Scale

Farmer

Commercial Farmers Only Small Scale Farmers Only

Commercial Farmer


Feedstock Production Models

Nucleus Farming� Integrate agricultural

community

� Added profit for commercial farmers

� Skills transfer to small scale farmers

� Resources shared more equally

� Development increased

� Level of organization decreased (smaller units)

Biofuel Producer

Commercial Farmer

Commercial Farmer

Small Scale FarmerSmall Scale

FarmerSmall Scale

Farmer

Small Scale Farmer

Commercial Farmer

Commercial Farmer

Small Scale Farmer

Small Scale Farmer

Small Scale Farmer

Small Scale Farmer



2. Regulatory Trends in African Biofuels


5.0%2016

5.0%2013

5.75%2010

10.0%2020

20%2030

10%2012

10%2030

Biofuels Legislation on a Global Basis

?


Regulatory Trends

� Government has many roles to fulfil and finding the right balance is essential!

� Legislation to develop the industry is critical.

� Subsidy levels, potential participants and mandatory blending levels have to be spelt out.

� Feedstock development should not increase food prices – land demarcation??

� A balance between the need of business and social development has to be found.

� Sustainability is the key –even if global oil prices were to decrease!

Biofuels StrategyBiofuels Strategy

SustainabilitySustainability

SOCIAL

ENV IRONMENTAL

ECONOMIC


Regulatory Trends

�Currently no specific legislation makes direct mention of biofuels but the following are in place:

�Transport Policy 2003-emphasise the importance of environmental protection in all aspects of transport services and therefore supports biofuel production.

�Petroleum Act of 1980-regulates the pricing of petroleum products and will be used as the basis for calculating the biofuel selling price.

�Legislative

Tanzania

�Energy Act of 2006 to be amended to include biofuels and will be operational from July 2007.

�The Act establishes the Energy Regulatory Commission whose role would be to regulate production, distribution, supply and use of all forms of energy and ensures adherence to the principles of fair competition.

�A free market mechanism will determine the energy pricing and government will only regulate where necessary.

�Legislative

Kenya

�The Energy Act of 2006 is currently in use and provides:

� Compulsory ethanol blending ratio of 20 per cent is stipulated.

�No other legislation is currently in operation, but it is expected that governments biofuels consulting team will table new legislation before the end of 2008.

�Legislative

Malawi


Regulatory Trends

� There is no legislation specifically for biofuels.

� The Zambian Bureau of Standards working together with the Energy Regulatory Board will check and set the standards for biofuels production.

Legislative

Zambia

� The government of Mozambique is preparing appropriate legislation for introducing biofuels, including fuel specifications. This legislation is not expected to be fully functional before the end of 2008.

Legislative

Mozambique

�The Petroleum Act of 2007 currently govern operations in liquid fuels.

�No substantive strategy has been developed as yet but a draft Renewable Energy Policy will be presented to cabinet at the end of 2007. This seeks to amend some provisions of the Petroleum Act and promote biofuels productions through regulating incentive models.

�Government is currently considering a policy towards a 10% compulsory blending ratio for Ethanol and biodiesel.

Legislative

Zimbabwe



3. Drivers and Restraints in Growing a Country’s Bi ofuel Potential


Market Drivers and Restraints

Low Medium High

Global Warming

Government Fiscal Support

Sporty Image, flexifuel option

Poverty Alleviation

DRIVERS

RESTRAINTS

Fuel specs put 5% cap on market

size

Technical fuel

problems

Oil majors reluctant to

blend biofuels

High ethanol blends require

engine alterations

Tax relief is required to compete

Fuel Independence



4. Evaluating Biofuel Development in Global Markets


Global Developments

� There is a lot of hype around biofuels world wide.

� Biofuels are now being produced and consumed all over the world.

� The industry is however still developing and will only succeed through continued commitment.

� Various feedstocks are being used – many of these impeding food supply.

� However there are various other crops that could be utilised that will not impede.


EU Biodiesel Capacity Vs Demand

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Austri

a

Czech

Rep

ublic

Franc

e Ger

man

y

Italy

Nether

lands

Poland

Portu

gal

Spain

Sweden UK

EU 25

Total

('000

tonn

es)

Current Capacity Total Capacity 5.75% target capacity requirement

European Biodiesel Market has Over Capacity


European Bioethanol Market is Growing

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Czech

Rep

ublic

Franc

e

German

yNetherl

ands

Poland

Spain

Sweden UK

Cap

acity

('0

00 m

3)

Current Capacity Future Capacity 5.75% Target Capacity Requirement


Asia Pacific Biodiesel Consumption

0

1000

2000

3000

4000

5000

6000

7000

8000

2006 2007 2008 2009 2010 2011

'000

s T

onne

s

South Korea

Japan

New Zealand

Australia

India

China

Singapore

Thailand

The Philippines

Indonesia

Malaysia

�Forecast assumes Governments set blending mandates�Introduction of such policies is uncertain

Asia Pacific Biodiesel Market Forecast


North American Biodiesel Market Forecast

�Scenario A: High price of world crude oil, continuation of federal incentives, and lower net feedstock costs

�Scenario B: Decreasing international price of crude oil, discontinuation of tax incentives post 2008, and constant feedstock costs.


Brazilian Ethanol: Key Figures

� Bioethanol Production

Capacity: 18 billion litres.

� Growth Rate: 14% per

annum over the last 3

years.

� Vehicle Fleet (2005): 23

million in total with most

flexi fuel.

� Mandatory Ethanol

Blending: 23%.

� Switching price point:

70% of gasoline price.

� Biodiesel Production

Capacity (2007): 1.7 billion

litres from 7 plants.

� Total investments: $286

million.

� 840 million litres/year for

2006 and 2007.

� Potential Domestic Market

(2008): 1 billion litres.

� Federal Law nº 11.097

� 2005-2007:up to 2%

� 2008: 2% mandatory

� 2013: 5% mandatory



5. Assessing the role and Responsibility of the Gov ernment within the Industry


Role and Responsibility of Government

�Government has various roles� Balance the need for economic development vs. conservation and sustainability.

� Regulating agricultural activity.

� Regulating biofuel production (including the mandatory blending levels).

� Creating a legislative framework to set parameters for producers and feedstock providers.

� Be an active participant in the industry (i.e. become a producer themselves).



6. Key Success Factors


Key Success Factors/ Risk Minimization

� Security of Feedstock: � Back Integration

� JV’s� Supply Contracts

� Price In, Price Out � Low Cost Feedstock� Quality Products� By Products

� Technology � Proven Technology

� Off Take Security � Quality Biodiesel

� By-Products

� Product Quality & Consistency � Expertise, Technology

Value Chain Integration =Successful Biodiesel Project



7. Contact Information


Phil HowarthOperations DirectorFrost & Sullivan+27 21 680 [email protected]

John RaspinPractise DirectorEnvironment Group+44 20 7915 [email protected]

Kate HowarthSales ManagerFrost & Sullivan+27 21 680 [email protected]

Cornelis van der WaalIndustry AnalystEnvironment & Building Technology+27 21 680 [email protected]

Frost & Sullivan Contacts

biofuels –the spotlight on the new green gold · • forecast the current and future biofuel...

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