Elephant grass biorefineries: towards a cleaner Brazilian energy matrix?

As of 2012, the share of the Brazilian domestic energy supplied by renewable energy was 42.4%, the highest among all major economies in the world. Nonetheless, there are opportunities to increase this share even further. One such opportunity is the adoption of biorefineries that could represent a viable and sustainable alternative to replace the need for oil, coal, natural gas and other non-renewable energy sources with biomass. The fact that biomass has the flexibility to be converted into distinct outputs such as electricity, biofuels, charcoal and chemicals, along with the uncertainty regarding market prices, may allow the firm to create value from the optimal exercise of these embedded options. Thus, the objective of this study is to analyze if converting a biomass power plant based on Elephant grass into a biorefinery adds value to the project and if the proposed biorefinery is economically feasible. The analysis was conducted by adopting a hybrid commercialization model where part of the plant's power generation installed capacity was sold through a 20 year long-term fixed supply contract and the remainder was optimally negotiated in the short-term market in the form electricity, charcoal or ethanol. The results show that all option values are positive ranging from approximately 90–101 million dollars, which indicates that they add value to the project. In addition, the resulting NPVs of all biorefinery strategies were positive, which indicates that biorefineries using the commercialization scheme proposed in this study represent a feasible and interesting opportunity for a sustainable energy matrix diversification. [ABSTRACT FROM AUTHOR]