cost-benefit analysis of biofuels in south africa · 2018. 12. 21. · direct jobs direct jobs...
TRANSCRIPT
Brian Tait
July 2012
Financial models of bioethanol and biodiesel manufacture were constructed ◦ Bioethanol from grain sorghum (2% blending with petrol) ◦ Biodiesel from soya beans (2% blending with diesel) ◦ With and without ROA producer incentive proposed by Infinergy to
the DOE
Financial models (without incentive) were transformed into economic models using shadow pricing
All models are in real terms based on 2011 prices
CBAs were constructed for bioethanol and biodiesel individually
The following economic benefits are considered: ◦ Net revenue from bioethanol and biodiesel manufacture (pre-tax) ◦ Value of reduction in GHG emissions ◦ Value of increased energy security ◦ Value of additional direct job creation on the biofuels plants ◦ A separate analysis considers the value of economy-wide job creation
in addition to the above factors
The following economic costs are considered: ◦ Capital investment in the biofuels manufacturing plants ◦ Investment in working capital
Individual CBAs aggregated to present consolidated biofuels industry CBA
Capex ◦ Direct transfer payments (finance charges, interest, etc.)
were removed and a shadow exchange rate applied to those components that would be imported
Biofuel Selling Price ◦ Excludes any incentives/tax rebates ◦ Cost of blending is subtracted as an economic cost
Raw Materials ◦ Valued at export parity (alternative value)
By-Products ◦ Valued at market prices
Utilities ◦ Based on opportunity costs
Labour ◦ Direct plant labour valued at market prices (skilled/semi-
skilled nature of jobs)
Other Direct and Indirect Costs ◦ Valued at market prices
Carbon Dioxide ◦ Sourced from European Commission Guidelines ◦ Value = R252/t CO2eq
◦ Range: R70 – 454/t CO2eq
Energy Security ◦ Biofuels are local production from indigenous sources ◦ Based on avoided cost of strategic stockholding
(infrastructure and product cost) ◦ Value = 49 c/l of biofuel (less than 1 c/l over total fuel
pool) ◦ Range: 42 – 56 c/l
Direct Jobs ◦ Direct jobs created were included as a benefit to the economy
due to the current global recessionary environment, as well as the on-going high unemployment levels in South Africa, i.e. they are resources that have been added to the economy, and are hence a benefit
◦ Valued at actual cost of plant jobs only (excludes management and office staff)
Economy-wide Jobs ◦ Separate CBA analysis includes economy-wide job creation as
this is the main driver of biofuels in South Africa ◦ Based on shadow price of labour (R27 per hour) or R53,077
p.a. per job ◦ Range: R12,093 – R73,908 p.a. per job
Bioethanol
Biodiesel
Conservative estimate of 55,700 jobs based on direct plant jobs, raw material production and transport only
Bioethanol Industry without Incentives
Bioethanol Industry with Incentives
Incentives required (R/l bioethanol) – Real values
Discount Rate 8%NPV (R'000) -1,824,854 IRR 0.6%
Discount Rate 8%NPV (R'000) 262,903 IRR 9.1%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 20321.70 1.69 1.59 1.50 1.49 1.39 1.29 1.20 1.10 1.00 0.90 0.81 0.71 0.61 0.52 0.25 0.15 0.05 -
Biodiesel Industry without Incentives
Biodiesel Industry with Incentives
Incentives required (R/l biodiesel)* - Real values
* Excludes tax rebate of R0.76/l
Discount Rate 8%NPV (R'000) 451,000 IRR 10.2%
Discount Rate 8%NPV (R'000) 990,880 IRR 13.1%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 20320.77 0.69 0.62 0.54 0.47 0.39 0.32 0.24 0.17 0.09 0.02 - - - - - - - -
Bioethanol Industry
Bioethanol Industry including Economy-Wide Job Creation
Discount Rate 8%NPV (R'000) 347,191 IRR 9.2%BENEFIT-COST RATIO 1.20
Discount Rate 8%NPV (R'000) 6,592,468 IRR 27.3%BENEFIT-COST RATIO 3.44
Biodiesel Industry
Biodiesel Industry including Economy-Wide Job Creation
Discount Rate 8%NPV (R'000) 3,616,076 IRR 22.5%BENEFIT-COST RATIO 2.78
Discount Rate 8%NPV (R'000) 23,442,661 IRR 81.4%BENEFIT-COST RATIO 12.07
Consolidated Biofuel Industry
Biofuel Industry including Economy-Wide Job Creation
Discount Rate 8%NPV (R'000) 3,963,260 IRR 15.3%BENEFIT-COST RATIO 1.89
Discount Rate 8%NPV (R'000) 30,035,122 IRR 52.0%BENEFIT-COST RATIO 7.18
Note effect of ROA incentive in reducing price risk to biofuel manufacturer, who must accept a regulated selling price
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R
% Change in Variable
Financial Model of Industry Without Incentive - IRR
Capital Cost Raw Material price Ethanol Price DDGS Price
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Ch
ange
in IR
R
% Change in Variable
Financial Model of Industry With Incentive - IRR
Capital Cost Raw Material price Ethanol Price DDGS Price
Note the extreme sensitivity of biodiesel to soya meal price. If the soya meal price falls to export parity because of biodiesel production in excess of 2% blending, the ROA incentive would have to increase substantially in order for the manufacturer to remain viable
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Ch
ange
in IR
R
% Change in Variable
Financial Model of Industry Without Incentive - IRR
Capital Cost Raw Material price Biodiesel Price Soya Meal Price
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Ch
ange
in IR
R
% Change in Variable
Financial Model of Industry With Incentive - IRR
Capital Cost Raw Material price Biodiesel Price Soya Meal Price
Monte Carlo simulation performed on CBA by defining probability distributions for all the elements. Ranges of the surrogate prices were indicated previously
Standard deviation of Net Revenue was calculated from historical data
A standard deviation of 10% was applied to capex and direct labour
Biofuel industry excluding economy-wide job creation: ◦ 80% probability that NPV > R3.8 billion ◦ 99.97% probability that NPV > 0 ◦ 80% probability that IRR > 14.7% ◦ 99.97% probability that IRR > 8% (social discount rate) ◦ 80% probability that BCR > 1.84
Biofuel industry including economy-wide job creation ◦ 80% probability that NPV > R16.9 billion ◦ 80% probability that IRR > 34.7% ◦ 80% probability that BCR > 4.5
Total Output estimated from Input-Output tables of the South African economy
Total economic impact ±0.5% of GDP
Annual Value in R millions
Direct Income 901
Labour 152
Profits 749
Total Output 14,654
Total Operational Expenditure 6,224
Indirect and Induced Output 8,430
Total Taxes 628
Direct Taxes 174
Indirect Taxes 454
TOTAL ECONOMIC IMPACT 16,183
Localised impacts Distribution effects between income groups South Africa’s reputation Reduction in welfare payments Pollutant impacts of vehicle tailpipe emissions Population movements Clean Fuels II savings Vegetable oil production Eutrophication Higher sorghum and soya prices
Macro-economic effects are positive with improvements to South Africa’s Balance of Payments (import substitution), contribution to GDP and job creation
Economic impact analysis indicates a total economic impact of R16.2 billion, of which R14.7 billion is the result of an increase in total output. Total job creation is estimated at least 55,700 new jobs
The results of the financial analysis confirm that a producer ROA incentive would be appropriate in terms of ensuring the financial sustainability of the investments. The incentive accomplishes this by mitigating commodity price risk
The individual biodiesel and bioethanol cost benefit analyses confirm that these industries have a net benefit to South Africa – and by extension the consolidated biofuels industry has a NPV of R3,963 million with an IRR of 15.3%
If economy-wide job creation is taken into consideration, the NPV increases to R30 billion and the IRR increases to 52.0%
Non-quantified costs and benefits are also listed and in balance it appears that the positive externalities outweigh the negative impacts, but these effects could not be quantified
Hence, it is recommended that the biofuels industry in South Africa be supported by all stakeholders and at all levels of Government
Financial support is recommended as per the ROA incentive to ensure industry sustainability. The incentive represents a direct transfer within the economy and is not considered an economic cost
The value generated by the industry represents a transfer of wealth from motorists (fuel costs and possibly increased levies) to the second economy and is consistent with all South African policies including the IPAP II and the New Growth Path