Cost Benefit Analysis of petrol grade bioethanol production in South Africa
Date
2014-01-21
Authors
Moodaly, Asogan
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Abstract
South Africa has one of the highest unemployment rates in the world, and it is in
this context that the Accelerated and Shared Growth Initiative of South Africa
(“ASGISA”) promoted biofuels as a job creation initiative. However, a socioeconomic
Cost Benefit Analysis (“CBA”) needs to be carried out to determine if an
industry needs fiscal support; and whether said industry generates a net benefit to
the economy and society when externalities are taken into consideration. The
CBA focussed on bioethanol production from grain sorghum.
Secondary data in terms of historic fuel pricing from the Department of Energy,
capital costs and input costs from the Department of Energy, grain pricing from
SAGIS, inflation rates from StatsSA and externality estimates from the literature
were used to populate five Excel models. The five models comprised two financial
models (with and without incentives) for two individual bioethanol plants, as well
as a consolidated industry socio-economic model.
The results of the modelling confirmed that the industry does require incentives in
order to be viable from a private investor perspective; and that the currently
proposed 15% ROA incentive model generates acceptable returns for investors
with a real hurdle rate of 6%.
The socio-economic model confirmed that there is an 86.644% probability of the
industry creating a net socio-economic benefit to South Africa if energy security,
greenhouse gas impacts, tailpipe emission impacts and emission impacts of
feedstock production and bioethanol production are taken into account. The
benefit was calculated against a real social discount rate of 8%.
The macro-economic benefits such as job creation and improvements to balance
of payments are yet to be quantified and are recommended for further research.
The bioethanol production industry is worthy of Government support due to the
net socio-economic benefit to South Africa.
Description
MBA thesis
Keywords
Bioethanol, Cost-benefit analysis