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ethanol

Second generation ethanol production

Photo by Shutterstock

Second generation ethanol production

Compare IOA
Country
Brazil
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Renewable Resources and Alternative Energy
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Alternative Energy
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
15% - 20% (in IRR)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
Brazil produced over 26% of the world's total ethanol used as fuel, which is 7 billion gallons (6)
Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Affordable and Clean Energy (SDG 7)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
Responsible Consumption and Production (SDG 12) Climate Action (SDG 13) Life Below Water (SDG 14)

Business Model Description

Scale-up generation of second generation ethanol (through facilities that reuse residue from production of first generation ethanol) for consumer markets

Expected Impact

Reduce deforestation and CO2 emissions while contributing to energy security

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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Disclaimer

UNDP, the Private Finance for the SDGs, and their affiliates (collectively “UNDP”) do not seek or solicit investment for programmes, projects, or opportunities described on this site (collectively “Programmes”) or any other Programmes, and nothing on this page should constitute a solicitation for investment. The actors listed on this site are not partners of UNDP, and their inclusion should not be construed as an endorsement or recommendation by UNDP for any relationship or investment.

The descriptions on this page are provided for informational purposes only. Only companies and enterprises that appear under the case study tab have been validated and vetted through UNDP programmes such as the Growth Stage Impact Ventures (GSIV), Business Call to Action (BCtA), or through other UN agencies. Even then, under no circumstances should their appearance on this website be construed as an endorsement for any relationship or investment. UNDP assumes no liability for investment losses directly or indirectly resulting from recommendations made, implied, or inferred by its research. Likewise, UNDP assumes no claim to investment gains directly or indirectly resulting from trading profits, investment management, or advisory fees obtained by following investment recommendations made, implied, or inferred by its research.

Investment involves risk, and all investments should be made with the supervision of a professional investment manager or advisor. The materials on the website are not an offer to sell or a solicitation of an offer to buy any investment, security, or commodity, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction.

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Country & Regions

Explore the country and target locations of the investment opportunity.
Country
Brazil
Region
  • Brazil: São Paulo
  • Brazil: Minas Gerais
  • Brazil: Goiás
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Sector Classification

Situate the investment opportunity within sustainability focused sector, subsector and industry classifications.
Sector

Renewable Resources and Alternative Energy

Development need
Sustainability Development Report 2019 gives a score of 91.7 on SDG 13 (Climate Action) for Brazil, with 'Significant challenges remaining' subscores prevalent across indicators. (1) Brazil faces the risk of an energy blackout over the next decade due to increased energy demand driven by population and economic growth (2)

Policy priority
Brazil's National Energy Plan (PNE 2030) stresses the need to meet the increased energy demand over the next years and to diversify the electricity mix, favoring renewable energy (3) (4)

Gender inequalities and marginalization issues
Research in Brazil demonstrates that in rural areas, girls are 59% more likely to complete primary education by the age of 18 if they have access to electricity, and that rural women & men are 10.2% more likely to be employed if they have access to electricity in comparison to their counterparts without access. (22)

Investment opportunities introduction
Increased policy momentum creates a strong context for new and enhanced investment, with the contribution of solar and wind towards the Brazilian energy matrix expected to grow to 44% by 2040, up from 4.4% in 2015 (5)

Key bottlenecks introduction
The key bottlenecks include small-scale illegal commercialization in forestry management, the large amount of capital required to set up businesses, bureaucratic decision making durations, the immediate profit motive encouraging short-term exploitation over long-term sustainability and the reduction of existing subsidies.

Sub Sector

Alternative Energy

Development need
Sustainability Development Report 2019 gives a score of 91.7 on SDG 13 (Climate Action) for Brazil, with 'Significant challenges remaining' subscores prevalent across indicators. (1) Brazil faces the risk of an energy blackout over the next decade due to increased energy demand driven by population and economic growth (2)

Policy priority
PNE 2030 and the 2030 National Determined Contribution (NDC) require Brazil to cut down its emissions by 43% until 2030, and increase the share of renewables in its energy portfolio. (5)

Industry

Biofuels

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Pipeline Opportunity

Discover the investment opportunity and its corresponding business model.
Investment Opportunity Area

Second generation ethanol production

Business Model

Scale-up generation of second generation ethanol (through facilities that reuse residue from production of first generation ethanol) for consumer markets

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Business Case

Learn about the investment opportunity’s business metrics and market risks.

Market Size and Environment

Critical IOA Unit
Describes a complementary market sizing measure exemplifying the opportunities with the IOA.

Brazil produced over 26% of the world's total ethanol used as fuel, which is 7 billion gallons (6)

Brazil produced over 26% of the world's total ethanol used as fuel, which is 7 billion gallons (6) Brazil produced over 26% of the world's total ethanol used as fuel in 2017, or over 7 billion gallons (6)

Ethanol fuel is almost exclusively used for vehicle fuel in Brazil. 90% of cars sold in Brazil today are flex fuel and 70% of the country's light vehicle fleet have flex fuel engines. This is around 70M vehicles (7)

Indicative Return

IRR
Describes an expected annual rate of growth of the IOA investment.

15% - 20%

A feasibility study using economic data applicable to the Brazilian situation showed an IRR for second generation ethanol production of 12-19% for large-scale operations (8)

There is potential for returns on investment to be even greater given recent studies show R&D can greatly contribute to reducing production costs in distilleries (8)

Investment Timeframe

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

Short Term (0–5 years)

Though second generation ethanol production leverages already-existing first generation ethanol production facilities, profitable production requires capital expenditure at scale. Benchmark investor Raizen has set up and commercialized second generation ethanol in under five years (9)

Second generation ethanol commercialization following production at already existing units is smooth given already existing buyer and distributor channels and markets

Ticket Size

Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.

USD 1 million - USD 10 million

Market Risks & Scale Obstacles

Capital - Limited Investor Interest

The short-term economic case for traditional ethanol production has been viewed in isolation (and often, independently) of the environmental and mid- to long-term economic case for second-generation ethanol

Capital - CapEx Intensive

While second generation ethanol production leverages regular ethanol production facilities, the additional technology involved requires capital costs that some investors may not want to take on if not effectively financed

Any additional subsidies to traditional, non-renewable fuels could hurt ethanol’s price competitiveness

Support to traditional fuels might hurt ethanol production
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Impact Case

Read about impact metrics and social and environmental risks of the investment opportunity.

Sustainable Development Need

Under current energy generation levels, Brazil risks an energy blackout over the next decade as a result of population & economic growth expectations (10)

In order to meet its NDCs, Brazil needs to expand and diversify its energy mix through an increase in the share of sustainable biofuels to 18%. This will require it to double its ethanol production by 2030

First generation ethanol production uses sugarcane, most of which is produced in or near the Atlantic Forest. It is estimated that 12.2% of deforestation in Brazil from 2002 to 2012 was caused by economic actors expanding sugarcane plantations (11)

Gender & Marginalisation

Women and girls are often primarily responsible for collecting fuel and water at the community level. This leads to “time poverty”- women spend a considerable amount of time gathering biomass for fuel in the informal sector (22)

Expected Development Outcome

Increase sustainable biofuel supply in the market, lowering the proportion of non-renewable fuels and less sustainable biofuels (e.g., by recycling byproducts from first generation ethanol production, such as bagasse and straw)

Reduce the deforestation caused by the increased production of first generation ethanol

Reduce CO2 emissions generated from first generation ethanol by 35% (9)

Gender & Marginalisation

Increased employment opportunities and income for women and local communities living in deforested areas

Primary SDGs addressed

Affordable and Clean Energy (SDG 7)
7 - Affordable and Clean Energy

7.1.2 Proportion of population with primary reliance on clean fuels and technology

7.2.1 Renewable energy share in the total final energy consumption

Current Value

95.59% (21)

43.79% (21)

Target Value

100%

Secondary SDGs addressed

12 - Responsible Consumption and Production
13 - Climate Action
14 - Life Below Water

Directly impacted stakeholders

Planet

The environment: Less pressure to deforest to grow sugarcane, emissions reduction due to second generation ethanol being cleaner to produce, and reduced vehicle CO2 emissions from expanded use of biofuels

Indirectly impacted stakeholders

People

Vehicle users, both private and public transportation, have higher availability of fuels to pick from

Outcome Risks

Competition between food and fuel production from sugarcane can decrease food security and worsen labor conditions on the fields

Destruction or damage of high-biodiversity areas, deforestation through production of sugarcane; and intensive production can contribute to the degradation of soils through the use of chemicals

Impact Risks

Unexpected impact risk: Intensive production can damage the environment and decrease food security

Impact Classification

A—Act to Avoid Harm

What

The outcome is likely to be positive, important and intended because this investment could reduce deforestation and CO2 emissions

Risk

The model is based on external factors such as the high availability of sugarcane by-products from first generation ethanol production

Impact Thesis

Reduce deforestation and CO2 emissions while contributing to energy security

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Enabling Environment

Explore policy, regulatory and financial factors relevant for the investment opportunity.

Policy Environment

(Brazilian National Energy Plan, PNE 2030): PNE 2030 and the 2030 National Determined Contribution (NDC) require Brazil to cut down its emissions by 43% until 2030, and increase the share of renewables in its energy portfolio. (5)

(The Social Biodiesel Program): Introduces tax breaks for biofuel production

The new administration has made a campaign promise to further increase Brazil’s global ethanol competitiveness (12)

The new administration plans on making more land available for farmers to produce sugarcane, particularly in the Mata Atlantica (São Paulo and Minas Gerais) and the Amazon, which will generate more by-products for second generation ethanol production (13)

Financial Environment

Financial incentives: RenovaBio introduced a system of tradeable carbon savings credits (CBios), modelled on the credits traded under California’s Low Carbon Intensity Program (bill under reassessment by current administration) (15)

Fiscal incentives: Tax breaks for biofuel production through the "Better Sugarcane Initiative", the "Social Biodiesel Program" (14)

Other incentives: Export opportunities as European markets enforce biofuel floors in their transportation sector (16)

Regulatory Environment

(CombustiveBrasil): CombustívelBrasil initiative launched in 2017 to stimulate free competition and attraction of investments for the fuel supply sector, meaning price of biofuels can compete with traditional fuels (14)

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Marketplace Participants

Discover examples of public and private stakeholders active in this investment opportunity that were identified through secondary research and consultations.

Private Sector

Corporations such as Usina Coruripe, Raizen, Iogen and Novozymes (9) Investors such as Biosev, controlled by Dreyfus, is one of top 10 investors in Brazil (16). FG/A financial advisors, Copesucar, Cosan and Bunge are other investors (17)

Non-Profit

Programa Bonsucro has the goal of reducing environmental impact of sugarcane production

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Target Locations

See what country regions are most suitable for the investment opportunity. All references to Kosovo shall be understood to be in the context of the Security Council Resolution 1244 (1999)
country static map

Brazil: São Paulo

São Paulo concentrates 60% of first-generation ethanol production in the country as well as larger-scale production infrastructure that can be leveraged to produce second generation ethanol. Paráná, Minas Gerais and Goiás produce 8%, 8% and 5% of the country's ethanol, respectively (14)

Brazil: Minas Gerais

Paráná, Minas Gerais and Goiás produce 8%, 8%, and 5% of the country's ethanol, respectively (14)

Brazil: Goiás

Paráná, Minas Gerais and Goiás produce 8%, 8%, and 5% of the country's ethanol, respectively (14)
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References

See what sources were used to establish the investment opportunity’s data and find resources that could be consulted to explore more.
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