Tag Archive | biofuels

biofuels become mandatory

derek hanekomBio-fuels brought in by law……

In launching South Africa’s bio-economy strategy, following the failed 2001 national version, minister Derek Hanekom also failed to mention that the reason that no entrants had been incentivised to join to date was because the new strategy now makes it an imperative for fuel companies to buy bio manufacturers output.

The new framework document stated that regulations regarding the mandatory blending of biofuels with petrol and diesel “were among the tools deemed to be the most appropriate legal instrument to achieve the desired outcome”.

October 1 2015

Mandatory blending regulations, which were set to come into effect on October 1, 2015, would guarantee the uptake of all biofuels supplied by licensed biofuels manufacturers by compelling licensed manufacturers of petroleum products and their wholesaling arms to buy and blend all the biofuels made available by licensed biofuels manufacturers.

According to earlier reports, fuel producers would be required to blend a minimum of 5% biodiesel in diesel and between 2% and 10% of bio ethanol in petrol.    Meanwhile, the framework document said an appropriate Biofuels Pricing Framework had also been created by the DoE, in conjunction with National Treasury and other economic departments, to financially incentivise the production of biofuels.

Biodiesel manufacturers would be granted a 50% general fuel levy exemption and would be entitled to accelerated depreciation on their manufacturing facilities and other tax incentives.

Making up for the past

At the launch, Minister Hanekom said that the bio-economy strategy would take the previous strategy from 2001 to the next level, creating an “enabling environment that will allow government departments, industry, venture capital and other stakeholders to move forward with initiatives that will be able to meet the challenges and embrace the opportunities of the future”.

This science-based strategy which was approved by cabinet in November last year positions bio-innovation as an essential factor in achieving the industrial and social development goals of the New Development Plan (NDP).

sorghumAll departments involved

The strategy proposes that bio-innovation will become an integral part in the activities of a wide spectrum of government departments including health, environment, energy and rural development.

Regulations relating to the licensing of manufacturers of biofuels, as well as criteria for the eligibility for government support were also included in the document.

The new bio-economy strategy, the minister said, is aligned to the National Development Plan, which considers science, technology and innovation key to the South African developmental agenda, as advances in these fields underpin advances in the economy and in society.  It is expected by government that by 2030 biotechnology and bio-innovation will be making a “significant contribution to South Africa’s gross domestic product.

Previous articles on this subject
http://parlyreportsa.co.za//energy/doe-talks-biofuels-and-biomass/
http://parlyreportsa.co.za//cabinetpresidential/biofuels-development-stays-in-limbo/

Posted in Energy, Enviro,Water, Facebook and Twitter, Fuel,oil,renewables, Land,Agriculture, LinkedIn, Public utilities, Trade & Industry0 Comments

DOE spells out biofuels and biomass

Biomass, biofuels and jobs……

On the subject of creating biofuels and biomass, the department of energy told parliamentarians that the main objective of any such exercise, if it was undertaken in the agriculture industry, would be to create jobs.       However, such a move towards the use of biomass would not take place if national food or water security was jeapordised in any way.

This answer was given to the portfolio committee on energy by Muzi Mkhize, chief director hydrocarbons, department of energy (DOE), when briefing parliamentarians on DOE’s current strategy towards biofuels.  He said that in the South African context, a specific requirement of the biofuels strategy was to create a link between first and second economies and the focus was not only on jobs but specifically on creating employment in under-developed areas.

Key incentives

Bio-fuels, he said, like most renewables, required incentives in order to be cost-competitive against conventional fuels, the upside of such a direction being the saving in balance of payments, energy supply security and economic growth factors that were more stable that the volatile traditional oil market.

He referred to 2006 estimates, where a targeted 2% biofuels scenario was estimated to create about 25,000 jobs.

With the IPP third round completed, Mkhize said biofuels would contribute to the national renewable energy policy, the director general, DOE, having already advised that 93 independent power producers (IPPs) had applied for licences in the third round of requests for submissions. Thus biomass, he said, together with IPPs were contributing greatly towards targets that South Africa had in the journey to reduce greenhouse gas emissions.

As far as biofuels manufacturing facilities were concerned, Mkhize listed eight locations where bioethanol or biodiesel had or were being licensed. He said that biodiesel would fall within the fuel tax net and manufacturers would receive a rebate of 50%. Bioethanol would not, however.

Incentives upgrade

As was the case with all renewable energy projects, a 50:30:20 depreciation allowance on capital investment over three years would apply but DOE had started discussions which were underway to improve incentives as this was not sufficient to attract investors, it was felt.

“Infant industry” incentives over a twenty-year benchmark period were being looked at, he said, with an initial incentive of 3.5c per litre to 4c, to be recovered through a levy to be included in the national monthly price determinations.

Overproduction threat

It was pointed out by parliamentarians that about 229 million litres of fuel were sold annually for about R9,2bn and if all players in the fuel industry joined the process as required, there would be an excess with about 4-6% of biofuels produced over the national call for 2%. Who would take up the excess, they asked.

Mkhize was also asked what agro studies had been done and how were farmers responding to a possible call for biomass crops. Also, they asked, if there was drought or some similar disaster, what would happen to the fuel industry in the reverse case of a shortage of biomass.

Mkhize said there was a general agreement in place only on agricultural biomass and this was “only in the form of mindset until pricing and subsidy issues were finalised, so accordingly the question of national quantities in relation to fuel company needs did not arise”.  However, he confirmed that the fuel industry would not be allowed to suffer from a shortage of biomass delivered.

Treasury and subsidies

In answer to more questions, Mkhize said a licence to produce biomass would not disallow a farmer from switching crops, say from soya to maize.  But, he added, all this was total speculation until “national treasury came up with the answers on subsidies”.

When MPs complained that the picture given by DOE “was no more than a snapshot of where we were on biofuels exactly one year ago”, Mkhize said he was trying to show the milestones that had been reached in the enormously difficult stage that the fuels industry had reached with regard to the entry of biofuels, which was a strategic issue.

Gas the issue

He said there were issues such as LPG remaining the forerunner of natural gas to be investigated as this household market had to expand and added, “We are looking at the system used commercially of bringing gas from Mozambique to Durban and whether this is the basis for further development.”

Mkhize promised his department would deliver shortly on promises to deliver DOE’s plan for gas expansion but this was not part of the biofuels or biomass study. All such matters were intertwined in terms of the integrated resources plan with the eventual integrated energy plan for the whole country.

Making a profit

On new entrants to biomass to fuel production, Mkhize responded to questions that it had been shown that the breakeven point for any biomass plant was a constantly changing factor over a long period and it was difficult to establish at what point a subsidy of, say, 2% would assist.

He said breakeven studies showed from a 2% profit, moving down to 5% loss for a long while, and then eventually moving up to 10% profit had been the standard established and banks did not like that kind of venture. Models he said were difficult to establish that were both profitable in either the short or long term.

There had been great disappointment when oilcake made from soya had proven too costly for biodiesel and it had been found that better recoveries could made through the food industry. This had proved a setback, Mkhize said.

Sugar cane

In answer to queries on sugar cane possibilities for biomass, as practised in Brazil and possible land shortages in South Africa, Mkhize said that the SA Sugar Assoc had said that land was available but that sugar cane was more likely to be linked to co-generation of electricity energy. Brazil, he said, had a vast subsidized lower income biomass agricultural industry but was producing on a large scale for biodiesel, not bioethanol as would be required in SA.

Mkhize concluded that the DOE biofuels task team was studying very carefully the forward national food security and water situation, “because”, he said, “we cannot afford to subsidize an industry in the form of small scale farmers if we are at the same time threatening food security and water availability at the same time.”

Back to jobs

However, he said that the country at the moment could not ignore the huge potential for job creation that could be brought about by such a new industry and the present lack of agricultural knowledge on the subject would eventually be substituted by experience gained by the new entrants as they established themselves.

In answer to questions on where blending would take place and “whether this was upstream or downstream in the fuel industry”, meaning at refineries or at depots it was assumed, Mkhize said a lot would depend on where the crop was grown; the wish to support crops grown in rural areas; sustainable projects that had been developed; and water availability.

previous articles on this subject
http://parlyreportsa.co.za//cabinetpresidential/biofuels-development-stays-in-limbo/
http://parlyreportsa.co.za//energy/south-africa-at-energy-crossroadsdoe-speaks-out/
http://parlyreportsa.co.za//energy/ipp-3-delayed-until-mid-august-says-doe/

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Biofuels development stays in limbo

Nobody building

sorghumIn a major presentation by the department  of energy (DOE) it became quite evident that governments biofuels strategy was still only a theory and whilst eight biofuels projects had licences either granted in principle or issued in practice, not one plant has yet gone into the building phase to meet government’s target of creating an estimated 25,000 jobs.

Ms Mokgadi Modise, chief director of clean energy at DOE, told the portfolio committee on energy up front that it was acknowledged by DOE that South Africa’s biofuels strategy could not get off the ground unless the state came up first with clear policy regulations and incentives to industry.

Big plans for 2013

Nevertheless, entrants to the industry that had indicated a firm commitment to the biofuels production had provided a cumulative figure to DOE that would exceed the 2013 target they had originally envisaged of some 400m litres, about 2% of the national fuels pool.

She said that whilst this was an encouraging start, there was little hope of any target date being met primarily because no support mechanisms from Treasury were yet put out; no regulations or pricing mechanisms had been established but only talked about and government was still undecided on blending options – the most suitable crops being mainly sorghum, soya, sugar and canola.

Blending issues

The minimum blending level of 5% biofuels into conventional diesel and petrol were set last year, in a gazette published accordingly, she said.

Currently, Modise said, DOE acknowledged that bio-ethanol falls outside the fuel tax net but bio-diesel, if supplied, would not, although manufacturers, would receive their 50% from the fuel levy in this case. Blending options were the six refineries in South Africa and at all the fuel depots, which amounted to 2 large depots for each of the seven oil companies.

Having heard their options, it was assumed by DOE that two of the companies would blend at their refineries and the balance of oil companies would blend at their depots. She gave no names.

On capital investment by the oil companies, she noted that R278m would have to be spent on refinery blending for this to be possible and a minimum of R460m on depot blending.

Looking outside SA

Parliamentarians noted that satisfactory diversification processes seemed to be going on in the liquid fuels industry and there were obviously attempts to create sustainable jobs but they asked what export markets were being created and how was the product going to be transported.

Modise said these issues had not yet been explored by DOE but she needed a joint meeting with the departments of science and technology, the department of agriculture including water department and treasury officials present before any such questions could be answered.

She said feasibility studies were being conducted with the refinery companies in order to establish whether or not they would “buy in” and that the department of science and technology were to supply their research findings by 31 March. A decision had to be taken by the same date on whether or not to exclude maize as a permitted feedstock.

Treasury answers needed

In answer to questions on financing, Modise said that IDC had put R1.5m aside for support but treasury needed play out its support programme on incentives and might make a statement before the national budget took place.

Parliamentarians said that if jobs were to be created in the right areas then Modise and DOE had to ensure that any such incentives must speak to the issue of distance from the market place if growth of agriculture in the “homelands” areas was to be encouraged. Modise said that was the kind of question that DAFF and treasury had to get together on.

On the one major biofuels plant that had been in the newspapers, namely the Craddock facility which had IDC backing, Modise said it still only had a conditional “granted” licence as not all requirements, mainly financial, had been met in order to issue a licence – only a temporary “granting” being considered. There was also a well-developed plan in Port Elizabeth but this was still on hold. A “granted” licence was a strong indication but an “issued” licence gave the right to operate.

Things too vague, says chair

In conclusion, chair Sisi Njikelana said there must be immediate follow up by Parliament on the whole issue of biofuels since DOE had to get beyond just local strategy and move towards the creation of an enabling environment. He had no sense, he said, on finality on manufacturing possibilities or issues, or even a road map on what was happening generally.

Modise responded by saying that DOE needed certain  “triggers” at the stage to happen; for example for the government needed to start talking to SADC for a start to see if the country really should be really working to just a 2% figure of the local market alone; treasury and particularly  agriculture had to provide clarity on policy; and technical issues under debate had to be finalised.

Feedstock,incentives,transport et al

Lance Greyling of the ID said the possibility of creating thousands of jobs in the biofuels industry had started in 2007 and there was still an air of frustration and expectation.   He told DOE that whilst it may seem possible to exceed the originally set target of 400m litres a year, the security of supply of feedstock was still a worrying issue, as was transport to manufacturing points and a proper tax incentives plan, including recovery cost factors to the liquid fuel companies.

Much more work had to be also with the department of rural development and land reform as well, he said, on the issue of getting small holders being able to get crops as well to their market in order to assist in rural development.  The implementation of the whole biofuels strategic plan was far too slow, he said.

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