Investment of R$6bn is company’s biggest step in this segment
11/08/2022
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Paulo Neves — Foto: Divulgação
Raízen unveiled Monday a R$6 billion investment package to build five new second-generation ethanol plants over the next five years. This is the company’s biggest step in the advanced biofuels segment. The investments were made possible after an agreement with Shell to sell the product for 10 years for €3.3 billion.
The company will have nine 2G plants in operation, under construction or announced, among the 20 it promised at the time of its IPO last year. The company raised R$6.9 billion with investors, and since the offering it has announced R$9 billion in 2G ethanol investments.
The first unit is expected to start operating next year and will join the Piracicaba unit, which has been operating for eight years. The units announced Monday will start operating between 2025 and 2027.
All new plants will have the capacity to produce 82 million liters of 2G ethanol per year and will use sugarcane waste that is currently unused, such as straw and bagasse. The five units will deliver 3.3 billion liters of biofuel to Shell over 10 years and will also have the capacity to produce and sell to more customers.
The volumes delivered to Shell will go to foreign markets, a priority destination for Brazil’s cellulosic ethanol. Unlike the domestic market, the international markets pay more for 2G ethanol because of its smaller carbon footprint compared to other biofuels and because it does not use additional agricultural lands for production.
“It doesn’t compete with food, which solves the ‘food-versus-fuel’ equation,” which is valued abroad, said Paulo Neves, Raízen’s vice president of trading.
The preferred market is Europe, but other destinations are also in the sights, such as Japan and California, which offer a premium to low-carbon intensity biofuels.
Almost all the cellulosic ethanol produced today by Raízen is exported, exception for a small portion that is sold to O Boticário for a perfume line.
The contract with Shell provides security for the company to build the units because it secures the return on investment. Other companies taking the first steps in advanced biofuels have adopted the same model. One example is ECB Group, which has a green diesel project.
Once the investment is paid off, 2G ethanol will be more competitive than first-generation ethanol, made from agricultural feedstock, since its production cost is much lower because it uses residues from the field. “In first-generation ethanol, you have the land, the cost of the inputs. In 2G ethanol, after capex, there is only opex, which is lower,” he said.
The company foresees an EBITDA margin of nearly 50%, with maintenance investments of R$50 million per plant per year.
The contract foresees a minimum price for the delivery of 2G ethanol to Shell, but the effective amount will be adjusted monthly according to market prices, currently at €1,400 per cubic meter. The additional value will be “shared” between the parties.
Raízen’s product will be able to meet both the demand to supply light vehicles, replacing gasoline and the production of aviation biokerosene or other uses. “We will deliver to the industrial companies that offer the best value,” said Mr. Neves.
*By Camila Souza Ramos, Fernanda Pressinott — São Paulo
Source: Valor International