Assessment of Bioethanol Investment Decisions: The Case of Three Bioethanol Distilleries in the Philippines

Date

5-2018

Degree

Bachelor of Science in Agribusiness Management

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Cherry Lou R. Nuñez

Committee Member

Dinah Pura T. Depositario, Mar B. Cruz, Loida E. Mojica, Normito Zapata, Jr.

Abstract

Bioethanol is a renewable energy used as an alternative fuel for transportation. Many investors were attracted in bioethanol production because of various reasons and factors. This study was conducted to assess the decisions of bioethanol producers to invest in the Philippines. Particularly, this study intended to: (a) describe the three current bioethanol distilleries in the Philippines; (b) determine the factors related to the decisions of the three current bioethanol distilleries to invest in bioethanol production; (c) identify the problems encountered by the three bioethanol distilleries; and (d) formulate recommendations for the three bioethanol producers and determine potential entrants of the bioethanol industry.

Primary and secondary data were both used in this study. The bioethanol distilleries that were interviewed were the three major producers of bioethanol in the Philippines. Furthermore, Engr. Kristel M. Gatdula and the Biofuels Research Team of UPLB, headed by Dr. Rex B. Demafelis, was interviewed for additional information regarding the bioethanol distilleries and the status of the industry in the country. The secondary data such as the situation of the bioethanol industry, significant external environment factors and other relevant information were gathered from published and unpublished materials such as journals, books, and references from World Wide Web. Qualitative analysis was used to assess the data that were gathered.

Distillery A entered the bioethanol industry to diversify their products and expand the market of their products. The company used a concentric diversification type of business strategy wherein the company creates new product to reach new consumers. It can produce 30,000 liters ethanol per day using molasses as feedstock from different sugar mills. On the other hand, the parent company of Distillery B expanded their sugar business and modernized their operations to become an integrated sugar manufacturing company in the Philippines. Thus, the company acquired Distillery B in order to expand their sugar business given that they have existing sugar mill where they can source out the feedstock for bioethanol production. Distillery B can produce 135,000 liters of bioethanol per day using molasses and sugarcane as feedstocks. Lastly, out of the three current producers, Distillery C was the only one who intentionally invested on building bioethanol distillery in the country. The company believes that venturing in renewable energy is a social responsibility towards the environment. This includes different environmental concerns that Biofuels Act aims to solve such as air pollution caused by the combustion of fossil- based fuel such as gasoline. Distillery C can produce 100,000 liters of bioethanol per day using molasses as feedstock from their own sugar mill.

The results showed that the common external driving force among the three producers was the drive of protecting the environment and the full support to the program of the government. Bioethanol, having more oxygen content than gasoline, is more efficient to combust than gasoline thereby it is expected that this alternative fuel produces lower GHG emissions compared to fossil-based fuels because biofuels use crops that sequester carbon dioxide (CO2). Furthermore, the three producers wanted to expand their business and market because there was a huge market for bioethanol. Additional incentives such as specific tax and value added tax exemption under the Biofuels Act and fiscal and non-fiscal incentives under the Renewable Energy Act also attracted more bioethanol investors. Overall, results of this study state that there are two major problems encountered by these bioethanol distilleries: the insufficient supply of feedstock and the high price of domestic ethanol versus imported ethanol. To meet the growing demand for bioethanol, the country needs additional potential investors which could be from sugar millers who may expand their business into distilleries.

Based on the results of the study, the following recommendations were formulated. For potential key players in the bioethanol industry, two main challenges were identified to bridge the bioethanol supply gap and accelerate local bioethanol investment– insufficient feedstock availability and high domestic ethanol price. Philippines uses only molasses and sugarcane for bioethanol production. However, available molasses in the country cannot cater the demand for an E20 blend. Additionally, sugarcane production for bioethanol is limited to the marginal and underutilized lands of the country. Although it was identified that there were about 1.2 million ha suitable marginal lands in the country, accessibility to these areas must be taken into consideration. For the three companies, it is more profitable to invest in other renewable energy products like bioenergy. Some companies like Distillery B, build co-generation facilities to convert sugarcane trash wastes into electricity and is used to run the facility. Distillery A and Distillery B should adapt a cost-effective wastewater treatment facility to solve their waste generation problems.

Language

English

LC Subject

Biomass energy industries, Investment analysis

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993 2017 M17 C35

Notes

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Document Type

Thesis

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