Jamaica Biofuels Report - Ministry of Energy

Sensitivity to Sugar Price30.00%25.00%20.00%IRR 15.00%10.00%5.00%0.00%$400 $425 $450 $475 $500 $525 $550Sugar Price ($/tonne)Figure 2: IRR Sensitivity to Sugar PriceSensitivity to ethanol price at a fixed sugar price of $480 per tonne is shown in Figure 4. At thisprice, ethanol production offers an IRR of 15% and higher when ethanol is at or above US$ 0.50per liter, comparable in terms of heating value to US$3.00 per gallon gasoline. However atUS$0.45 cents per liter, only ten percent less, the IRR of the ethanol investment drops to 3.3percent per year. This is clearly an inadequate long-term level. However,if sugar prices declineat the same time, and it is not unusual for sugar prices and crude oil process to be linked, ahigher IRR would result (see Fugure 3). The key to an investment in an ethanol plant is theanticipated long-term future trends in sugar and ethanol prices. Although, one might expectpetroleum prices to increase over time, that cannot be guaranteed. Similarly, one might expectfrom historical performance that current sugar prices will fall.To offset pricing risks, the mill could retain its sugar production capacity as a hedge against highsugar and low ethanol prices. This would involve building the new ethanol distillery next to theadjacent sugar refinery and making provisions to “mothball” each plant when the other isoperating. Some modest additional costs would be needed (e.g. ability to dry plant and,perhaps, an inert gas system to purge air from closed vessels). While combined operation istheoretically possible, designing an ethanol distillery to run at less than 75% full capacity is achallenge, and for the overall size of Duckenfield we believe this would be less attractive.Another issue is the need for a reliable source of ethanol to supply the Jamaican domesticmarket.95