Biomass Terminals/depots For Solid Biomass Fuel (Biofuel) Production
Biomass Terminals/depots For Solid Biomass Fuel (Biofuel) Production
Business Model Description
Invest in or project financing for solid biofuel processing terminals/ depots to produce quality assured biomass fuel (Chips, Pellets, Briquettes, Charcoal) by utilizing fuelwood, wood residues and waste agricultural biomass.
Expected Impact
Biomass Terminals to produce solid biofuels as indigenous, renewable, clean source of thermal energy to replace imported fossil fuels, particularly for MSMEs and rural sector
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Sri Lanka: Western Province
Sector Classification
Renewable Resources and Alternative Energy
Development need
Sri Lanka's dependence on imported fossil fuels is a critical challenge for economic development given the adverse impact on energy security and the environment. Over 20% of the thermal energy is catered to by imported fossil fuels (5) and can be replaced by biomass as a low cost sustainable option. In addition it will help achieve 2050 carbon neutrality targets.
Policy priority
National Energy Policy & Strategies 2019 emphasizes on assuring energy security; enhancing self-reliance, caring for the environment, and enhancing the share of indigenous RE forms of energy. Thus, the policy seeks to reduce the country's dependence on fossil fuels, that are 100% imported, while addressing adverse environmental impacts including climate change (2).
Gender inequalities and marginalization issues
Lack of access to modern energy services and technologies is a concern, which are crucial to women’s opportunities to engage in economic activities, reduce drudgery of household work and overall quality of life. Livelihoods dependent on Agriculture and other income generation activities would also benefit from better access to modern energy and technologies including from renewable energy sources. (3)
Example; In 2016, the modern biomass dryer was provided for fish drying businesses in Tangalle and have cut short their production hours from ten to four hours a day and increased their production from 200 kgs to 800 kgs per month. It has also increased the living standards of these women working in the organization. It is a depiction of women entrepreneurship which has to be encouraged in Sri Lanka.
Investment opportunities introduction
Ample availability of RE resources (Biomass resource map identify 92,600 ha)(1) and the need for the use of alternative, sustainable and indigenous energy sources provides investment opportunities across many end-use energy sectors (232,000 MSMEs in the manufacturing sector) (11). Further, demand for energy services is growing with the economic development.
Key bottlenecks introduction
Lack of land availability; grid Infrastructure and integration issues; lack of long-term data on resources; limited industrial environment to support large scale development, deployment and operation; limited access to green finance. The existing Act does not allow power wheeling and multi-buyer model, limiting the scope of renewable energy projects.
Alternative Energy
Development need
Biomass is the main source of thermal energy, contributing to 74.4% of the energy demand in industry and 57.2% of the household & commercial sector (5). It is only low cost thermal energy source for rural households and micro, small and medium enterprises (MSMEs). Thus, sustainable production and supply of biomass energy resources could contributes to the economic development.
Policy priority
National Energy Policy 2019 - The policy underlines that RE resources will be exploited based on a priority order arrived at, considering economics, technology and quality of each resource. It specifically mentions that commercial availability of biomass-based fuel products will be encouraged for utilisation in industrial and household use (2).
Gender inequalities and marginalization issues
Biomass and gender is commonly associated with the women’s responsibility to fetch fuelwood as part of the household chores and obligations. The demands of women resulting from continuous reliance on fuelwood have received little attention. The less explored areas are associated with RE technologies, decentralized energy development (6).
Investment opportunities introduction
Sustainably solid biomass fuel production provides opportunities for commercial investment for biofuel producers/ suppliers and biomass energy technology (BET)(10 companies and 200 potters) with provision of building a larger local market.
Key bottlenecks introduction
The forest products transport and storage related regulations limit the adequate supply of fuelwood for biofuel processing facilities. Uncertainties in both fossil fuel and fuelwood prices make it difficult for companies to get involved in development of supply chains of biomass. Another gap is limited availability of data due to informal character of biomass sector.
Biofuels
Pipeline Opportunity
Biomass Terminals/depots For Solid Biomass Fuel (Biofuel) Production
Invest in or project financing for solid biofuel processing terminals/ depots to produce quality assured biomass fuel (Chips, Pellets, Briquettes, Charcoal) by utilizing fuelwood, wood residues and waste agricultural biomass.
Business Case
Market Size and Environment
< USD 50 million
> 25%
170,000 households are using conventional cook stoves. More than 200,000 MSMEs too depend on conventional technologies.
National Energy Policy & Strategy directs SLSEA to double the commercial supply of biomass and biomass-based fuel products to reach one million tonne per year to cater to industrial thermal applications and households (2).
Indicative Return
20% - 25%
Total investment for a biomass terminal of capacity 100 t/day, producing processed solid biofuels (wood chips, pellets and briquettes) is about USD 8 million for a 10 year period. Based on the cost and selling price of present companies have this IRR of about 24%
Investment Timeframe
Short Term (0–5 years)
The relatively low cost raw materials (fuelwood) and demand for processed biofuels for thermal energy applications allow the businesses to afford higher profit margins. The estimated payback period is around 3-4 years.
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Impact Case
Sustainable Development Need
Energy security is a concern. Over 20% of the thermal energy demand in industry and 35% in the household & commercial sector are catered by imported fossil fuels (5), while sustainable supply of biomass is a challenge (20).
Gender & Marginalisation
Energy poverty (the absence of sufficient choice in accessing adequate, affordable, reliable and environmentally benign energy services) are disproportionately affects women who are primarily responsible for collecting fuelwood for cooking for their households and communities (21). Multidimensional Energy Poverty Index of Sri Lanka is 0.431 in 2016 mainly contributed by lack of access to modern cooking fuel (35)
Expected Development Outcome
Biomass terminals will ensure the adequate supply of biofuels, which could replace fossil fuels used in thermal energy applications, to enhance energy security, while mitigating GHG emissions (5), (27).
Gender & Marginalisation
Use of modern biofuels would provide benefits for women and marginalized communities through less reliance on conventional fuelwood and low efficient technology use, particularly by saving time for collection of fuelwood and improving working environment (6), (26).
Primary SDGs addressed
7.1.2 Proportion of population with primary reliance on clean fuels and technology
33% of the households use clean fuels & technologies for cooking (LPG, Electricity & advance solid biofuels). Note that Sustainable Development Council (SDC) reports unavailability of data for this indicator (28). However, approximations on cook stove users indicate that about 30% of the households use LPG and electric (29) and 20% of the households use improved biomass cook stoves (30), (31).
37% of the households use clean fuels & technologies for cooking (LPG, Electricity & advance solid biofuels). Note that, as at present, there is no specific national target. The IOA on biofuel fired improved cook stoves associated with this IOA (on Biomass Terminals) targets to replace 250,000 conventional kerosene and biomass stoves by advance solid biofuel stoves.
Secondary SDGs addressed
Directly impacted stakeholders
People
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
The outcome would be affected with regulatory barriers in harvesting, transportation and storage of fuelwood. Change in land can affect biodiversity and other factors (eg: reduction in groundwater)
Potential increase in the electricity tariff (particularly due to the present economic crisis) could have significant impact on the cost of biofuel produced and thus on the financial viability of businesses in this space.
Lack of experience in modern BETs (pelleting, briquetting) may affect the optimum operation of the machinery, and increase the repair and maintenance costs and downtime at the plant.
The lack of data and information due to the informal nature of the biomass energy sector may hinder the efficient planning and risk mitigation (32).
Gender inequality and/or marginalization risk: If adequate handholding and capacity-building support is not built into the business model approach, the local communities may have challenges in effective engagement with satellite biomass collection centres and may compromise the potential benefits for such communities.
Impact Risks
Anticipated fuel switching critically depends on relative cost differences of the fuels. The fossil fuel subsidies may impact the financial feasibility of switching to biofuels.
Unless investments in this space are encouraged, MSMEs and rural households will continue to face challenges in their access to affordable, reliable, sustainable and modern energy (biofuels) solutions and therefore hinder overall social-economic development in the country. MSMEs (24% of establishments are engaged in manufacturing) and rural households (77.4% rural and 4.4% estate/plantations)
Failure in biofuel industry will have a significant impact on achieving climate targets that Sri Lanka has set out for itself. As set out in NDC targets and national climate change policy (2003)
Gender inequality and/or marginalization risk: hinder entrepreneurial opportunities with limited access to clean energy given that large number of women work force are in the informal space or MSMEs
Impact Classification
What
Biomass terminals assists production of indigenous, renewable biofuels to replace fossils in ensuring energy security & environment sustainability, while empowering women/marginalized groups.
Who
Local entrepreneurs involved with biomass supply chain and associated government entities, plantation companies & local communities biofuel users (particularly MSMEs & rural households).
Risk
Regulatory barriers for transport & storage of fuelwood, financing gaps, price volatilities, data gaps and lack of competencies on advanced BETs may cause risks.
Contribution
Reduce dependency on imported fossil fuels and mitigate GHG emission. Conversion of about 30% of the households who use LPG and electric cookstoves into modern biofuel cookstoves (29)
How Much
Production of 150,000 tonnes of solid biofuels per year (57,000 ton of oil equivalent with GHG mitigation potential of about 200 Gg CO2/yr).
Impact Thesis
Biomass Terminals to produce solid biofuels as indigenous, renewable, clean source of thermal energy to replace imported fossil fuels, particularly for MSMEs and rural sector
Enabling Environment
Policy Environment
National Energy Policy and Strategies (2019): It states that processed biomass fuel will be facilitated through efficient collection of existing resources, processing, value addition, storage and distribution, and nurturing biomass supply chains, indicating direct relevance to biomass terminals (2).
National Climate Change Policy (2003): It refers energy sector through GHG mitigation, where the emphasis is given to (i) explore the potential of clean and RE sources and enhance their production, accessibility and affordability; (ii) economic incentives for less carbon intensive fuels (34).
Updated Nationally Determined Contributions (2021): Under mitigation, fuel-switching to biomass energy, ensuring the sustainable supply for industry is included as an intervention (19).
National Forestry Policy 1995: Though this policy does not cover the energy sector directly, it supports forest products (including fuelwood), industries and marketing. It highlighting the need of rationalizing the felling and transport regulations for trees on private lands (35).
National Environment Action Plan (NEAP) 2022-2030: It provides the strategies and action plans to address environmental challenges. One of the action areas is prevention of open burning and open dumping of solid waste. This supports the use of biomass waste for generation of biofuels (25).
Financial Environment
Though the National Energy Policy and Strategies 2019 states that innovative financing schemes and financial instruments will be introduced to encourage RE development, so far no specific financial incentives have been developed for biofuels or BETs (2).
Locally manufactured briquettes and pallets using bio mass wastes are exempt from VAT (41)
Sri Lanka Green Finance Taxonomy (2022): It facilitates the disclosure of taxonomy-aligned activities and the offering of green finance products, such as loans, bonds, and funds, by market participants including local financial institutions and large corporations. It covers biomass processing (40).
Regulatory Environment
National Environmental (Protection and Quality) Regulations No. 1 of 2008: According to this regulation (and subsequent amendments), no person shall, discharge, deposit or emit waste into the environment or carry on any prescribed activity that cause or are likely to cause pollution (36).
SLSEA Act No. 35 of 2007: This provides mandate for SLSEA to identify and manage appropriate RE conversion technologies (including Biomass Energy Technology (BETs)), conversion and utilization norms and practices including the preparation, maintenance and updating of an inventory of technologies with performance data (37).
SLS Specification for Principle, Criteria and Indicator for Sustainably Produced Fuelwood (2016): This describes the sustainability requirements for production of fuelwood. It includes a basic traceability for the certified wood through the supply chain, including transport and pre-preparation (38).
Forest (Amendment) Act, No. 65 of 2009: This is an ordinance to consolidate and amend the law relating to conservation, protection and sustainable management of the forest resources and utilization of forest products; to provide for regulation of the transport of timber and forest products (39).
Marketplace Participants
Private Sector
Biomass Terminals such as Eco Therm Energy Solutions, Samprox International . and WHG Rice Mills. Regional Plantation Companies will be engaged as fuelwood suppliers for Biomass Terminals such as Talawakelle Tea Estates PLC, Elpitiya Plantations and Watalwala Plantations
Government
(i) Forest Department (FD), Rubber Research Institute of Sri Lanka (RRISL), Coconut and Cultivation Board (CCB), as fuelwood suppliers; (ii) Sri Lanka Sustainable Energy Authority (SLSEA) as the facilitator and regulator of the biomass energy sector.
Multilaterals
UNDP, FAO for technical and financial assistances.
Non-Profit
Non-Governmental Organizations (NGO) and Community-Based Organizations (CBO) as fuelwood growers, collectors and suppliers.
Public-Private Partnership
Multi-stakeholder partnerships among Government (FD, RRISL, CCB), Private sector RPCs and Local communities/CSOs with resource mobilization and cost/profit sharing for the supply of fuelwood for the Biomass Terminals
Target Locations
Sri Lanka: Western Province
References
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