Presentation on theme: "1 Private Equity Funds Renewable Energy Investment Opportunities SEPTEMBER 2006."— Presentation transcript:
1 Private Equity Funds Renewable Energy Investment Opportunities SEPTEMBER 2006
2 The diminishing worldwide oil reserves coupled with increasing consumption in emerging economies and environmental concerns are causing governments and corporations to reassess their energy strategies. Important legislation has been passed globally to encourage the development, production and usage of alternative renewable fuels The diminishing worldwide oil reserves coupled with increasing consumption in emerging economies and environmental concerns are causing governments and corporations to reassess their energy strategies. Important legislation has been passed globally to encourage the development, production and usage of alternative renewable fuels Brazil has been producing sugarcane based ethanol since 1970, has a national distribution infrastructure in place, is a pioneer in automotive flexible fuel technology, is the worlds lowest cost ethanol producer, and has available land to increase current production by 100% without encroaching on the Amazon rainforest. It is also the world’s second largest soybean producer which confirms its potential in the bio diesel sector Brazil has been producing sugarcane based ethanol since 1970, has a national distribution infrastructure in place, is a pioneer in automotive flexible fuel technology, is the worlds lowest cost ethanol producer, and has available land to increase current production by 100% without encroaching on the Amazon rainforest. It is also the world’s second largest soybean producer which confirms its potential in the bio diesel sector We are convinced that the bio fuels sector will significantly outperform the GDP in the next decade. We are convinced that the bio fuels sector will significantly outperform the GDP in the next decade. We are also confident that there is opportunity for Private Equity Funds to deliver excellent returns as a result of carefully selected investments throughout the Brazilian agri energy value chain We are also confident that there is opportunity for Private Equity Funds to deliver excellent returns as a result of carefully selected investments throughout the Brazilian agri energy value chain Summary
3 Source: Energy Information Administration According to the US EIA’s Annual Energy Outlook (2006), oil prices are not likely to ease in the coming quarter century. In accordance with new global consumption patterns, EIA estimates that oil prices will hover near or above $50 through 2030. Oil Consumption Increase
4 Environmental Concerns "There is new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities"
6 Ethanol is a high octane clean burning alcohol that can be distilled from multiple natural products such as corn, sugar beets, sugar cane, switch grass, other biomass or any type of cellulose waste. Its applications are Human consumptions Industrial, medical, cosmetic transportation fuel Advantages include the fact that it is a renewable source of energy, reduces carbon emissions by up to 80% in comparison to gasoline, and emits no sulphur dioxide. The principal functional disadvantage is lower fuel efficiency (25% less than gasoline). Ethanol from Sugarcane is the lowest in production costs and highest energy yields. Brazilian cane based ethanol costs at least 50% less that US Corn ethanol. Energy yields of sugar cane ethanol are up to 4 times other feed stocks. Ethanol can be used as fuel for automobiles either alone (E100) in a modified engine or in a gasoline blend for standard petroleum engines Ethanol blends reduce the consumption of petroleum fuels, as well as air pollution. In Brazil gasoline has a mandatory 20-25% ethanol content. In the US Ethanol is also increasingly used as oxygenated additive for standard gasoline, in replacement of methyl t-butyl ether (MTBE), substance responsible for groundwater and soil contamination. Brazil has developed the technology for flex fuels cars that run any blend of gasoline and ethanol offering the consumer flexibility to choose at the pump. Lower cost compared to other biofuel options; No need for investments in new technologies : flex-fuel vehicle is already a reality in some markets worldwide; No need for huge investments in infrastructur e: fuel distribution and storage systems already available and easily adapted from gasoline to ethanol; More energy security and better balance of energy sources; Significant carbon emission reduction in line with Kyoto Protocol requirement s; Immediate alternative for consumer to choose between ethanol and gasoline; Many countries can produce and export ethanol, although some have clear competitive advantages What is Ethanol ?
7 Ethanol is a renewable source of energy: It is primarily the result of conversion of the sun's energy into usable energy. Ethanol has a positive energy balance: It yields more energy than it takes to produce it. According to American Coalition for Ethanol it takes 35.000 BTU to turn a bushel of corn into a gallon of ethanol that contains 77.000 BTU Ethanol has a positive impact on air quality: Burns more cleanly than unleaded gasoline Reduces greenhouse gas emissions by 12-19% in a 10% blend. (Argonne National Lab) Reduces carbon emissions by up to 80% and eliminates sulphur dioxide emissions Reduces greenhouse gas emissions by 35-46% and reduces fossil energy use in and a 50-60% when used as a motor fuel (Argonne National Lab) Ethanol is highly biodegradable, making its usage safer for the environment Ethanol is highly biodegradable, making its usage safer for the environment Environmental Aspects of Ethanol
8 Some Economic Highlights US In 2005 the ethanol industry added US$ 32.2 billion to American GDP Of which US$ 5.1 billion were spent on raw material, other inputs and goods and services. It is expected that RFS 1 will create additional US$ 6 billion in new investments in renewable fuel production facilities by 2012. Brazil The sugar and alcohol industry will turn over in excess of R$ 34 billion (US$ 15.8 billion) during the 2006/2007 crop, an increase of 10% over last year's crop. Investment in new crushing facilities expected to take place until 2010 is over US$ 13 billion, of which US$ 5 billion are already in progress. 1 RFS Renewable Fuel Association Industry Outlook 2006 2 UNICA – União da Agroindustria Canavieira de São Paulo
9 Sugar cane is harvested manually or mechanically and then sent to a processing plant where it is roller-pressed to extract the cane juice and bagasse (biomass). The juice is then either dried to produce sugar or fermented for alcohol production. The liquid is fermented by yeasts that break down sucrose into CO2 and ethanol. The ethanol is then distilled, yielding hydrated ethanol (5% water). The acidic residue of the distillation is neutralized with lime and sold as fertilizer. The hydrated ethanol may be sold as automotive fuel or dehydrated and used as additive or for industrial purposes. The average cost of production in Brazil, including farming, transportation and distribution is around U$ 17 cents per liter (US$ 0,63 per gallon). The dried bagasse may be used to generate energy used in the production process itself, or for sale into the energy grid. Lower cost compared to other biofuel options; No need for investments in new technologies : flex-fuel vehicle is already a reality in some markets worldwide; No need for huge investments in infrastructur e: fuel distribution and storage systems already available and easily adapted from gasoline to ethanol; More energy security and better balance of energy sources; Significant carbon emission reduction in line with Kyoto Protocol requirement s; Immediate alternative for consumer to choose between ethanol and gasoline; Many countries can produce and export ethanol, although some have clear competitive advantages Sugar Cane Ethanol Production
10 Source: Credit Suisse and Prospectiva Consultoria estimates Brazil is the lowest cost producer of sugar and ethanol worldwide Sugar Cane Ethanol Production Sugar production costs (US$ cents/ pound) 8.90 10.40 11.20 12.50 15.00 28.60 BrazilThailandAustraliaSouth AfricaUSAEU
11 Global Demand Transportation accounts for more than 50 per cent of the global oil consumption, approximately 13.2 billion liters per day. The US consumes around 3.3 billion liters per day and Europe around 2.6 billion liters per day, but the consumption in developing countries such as China and India is increasing rapidly. The annual ethanol fuel consumption is currently at 36 billion liters, or approximately 2.5 per cent. of total gasoline used for transportation worldwide. The following table/graph illustrate how demand for ethanol is projected to increase: Ethanol Demand (Billion litres) Region200320052010 Brazil12.871417.41 USA10.613.2518.93 Canada0.380.761.51 EU1.514.9212.87 Japan0.761.897.19 Others1.51 2.27 Total27.6336.3360.18 Source: New York Board of Trade 0 10 20 30 40 50 60 70 200320052010 (Billion liters) BrazilUSACanadaEUJapanOthers
12 Global Supply Country2005 (Mi liters) United States16,139 Brazil15,999 China3,800 India1,699 France908 Russia749 Germany431 South Africa390 Spain352 UK348 Thailand299 Ukraine246 Canada231 Poland220 Indonesia170 Argentina167 Others3,838 Total45,988 Fonte: F.O. Litch Brazil and the United States represent 2/3 of the global production of ethanol Outros 12% África do Sul 1% China 9% Índia 4% França 2% Rússia 2% E.U.A 33% Brasil 37%
13 15 million tons Sources: F.O. Licht’s The “Pro Alcool” in the early 70s and current flex fuel vehicles programs have made Brazil theleading country in alternative fuel usage. It is the largest, consumer and exporter of ethanol inthe world. Brazil crushes 383 million tons of sugar cane/year, producing 15.3 billion liters ofethanol and 27 million tons of sugar. 13.2 billion liters 2.1 billion liters 12 million tons SUGAR 27 million tons ETHANOL 15.3 billion liters Ethanol is blended with all gasoline in a 20-25% mix or sold pure (100% hydrated ethanol).Most of the production is sold locally. DOMESTIC EXPORTS Brazilian Ethanol Production
Source: Anfavea - 2006 Flex (Alcohol or Gasoline)Alcohol OnlyGasolineDiesel 5% Brazilian Light Vehicles Market Sales 0% 20% 40% 60% 80% 100% jan/03jun/03nov/03abr/04set/04fev/05jul/05dez/05 73% 20% Start of Flex-Fue l Sales Brazilian Ethanol Local Consumption
15 Brazil has 90 million hectares of potential agricultural use. The country has unique conditions to attend world’s increasing demand without encroaching the Amazon Rain Forest Source: EMBRAPA, UNICA Amazon Rain Forest Area of Expansion Potential Area of Current Plantation Brazilian Potential for Expansion
16 Source: IBGE e CONAB – adapted by MAPA Brazil Amazonic Forest 345 Pastures 220 Protected areas 55 Annual crops 47 Permanent crops 15 Cultivated forest 5 Cities, lakes and roads 20 SUB-TOTAL 707 Other uses 38 Available land 106 TOTAL 851 Million hectares
17 S&A MILLS IN OPERATION – SEASON: 2005/06 BAHIA 5 MILLS RIO DE JANEIRO 8 MILLS SÃO PAULO 147 MILLS MATO GROSSO DO SUL 9 MILLS GOIÁS 15 MILLS TOTAL = 347 RIO GRANDE DO SUL 1 MILL MINAS GERAIS 30 MILLS PARÁ 2 MILLS TOCANTINS 1 MILL PERNAMBUCO 28 MILLS MARANHÃO 5 MILLS R. G.NORTE 3 MILLS MATO GROSSO 12 MILLS CEARÁ 4 MILLS PIAUÍ 1 MILL ALAGOAS 26 MILLS SERGIPE 4 MILLS ESPÍRITO SANTO 6 MILLS PARANÁ 27 MILLS PARAÍBA 8 MILLS AMAZONAS 1 MILL 25/07/2006
18 Recent Brazilian legislation has established that all diesel fuel sold from 2008 onwards contain a 2% bio diesel blend increasing to 5% from 2013. Estimated assured demand 1 billion lts. rising to 2.5billion lts. Biodiesel can be made from any oilseed or any source of fat. (animal or vegetal) Brazil is the second largest producer of soy beans; Advantages are similar to ethanol: renewable energy, environmental friendly, low producing cost in Brazil, balance of trade. Challenges of a new industry: capitalization, execution risk, management, logistics Biodiesel
19 -INSECTICIDES - BIOLOGICAL CONTROL; RESISTENT VARIETIES -CHEMICAL INDUSTRY - SUCRO-CHEMISTRY ALCOHOL – CHEMISTRY REPLACING PETRO-CHEMISTRY (PLASTICS, LYSIN) -POLLUTION - LOCAL (GASES EMISSIONS) REGIONAL (ACID RAIN) GLOBAL (CARBON UPTAKE) - MOBILITY - RENEWABLE FUELS (LIQUID FUELS) REPLACING LIQUID FOSSIL FUELS -FERTILIZERS - AGRICULTURAL RESIDUES (FROM AGRI-INDUSTRIAL) RETURNING TO SOILS -POWER - AGRICULTURAL FIBERS REPLACING FOSSIL FUELS FOR ELECTRICITY -JOBS/INVESTMENTS - JOBS CREATION (MILLIONS) IN A DECENTRALIZED WAY IN THE RURAL SECTOS -TECHNOLOGY - BREAKTHROUGHS (FFV; HYBRIDS FFV; BLENDS FOSSIL – RENEWABLE; GMO; BIOREFINERIES SUGARCANE, OR CORN, OR SOYBEAN, OR BEETS, OR..... AGRI-ENERGY A GREAT REVOLUTION – A NEW GREEN REVOLUTION: PEACE; MARKET ACCESS AS A WAY FOR A BETTER FUTURE FOR ALL..... FOR THE EARTH!!!
20 Ladies and Gentlemen In the last few months we are all seeing a mounting tide of interest in ethanol, biodiesel and in all sorts of renewable fuels. Of these, ethanol, be it produced from corn or from sugar cane, is the one that occupies the center of attentions. This is due, in no small measure to the Brazilian experience and entrepeneurship. My country was the first to decide to face the risks of a new technology and to incentivate the producers, the automakers and the consumers to participate in the ‘alcool project PROALCOOL, thus making the vision of an enormous fleet of cars moved by ethanol a reality. Allow me a brief lpersonal digression: I cannot hide my enormous pride in saying that this famous adventure got the first impulse, in 198x, when the then vice Governor of the State of São Paulo wrote a letter to President Geisel (who had been president of Petrobras and therefore knew a lot about oil) defending this idea of cars fueled by ethanol.Many people thought this man to be na slighthly crazy old farmer. Well, this man was my late father and I worked with him since the initial days of the ethanol saga
21 Cont. But this is history and I am here to talk about the Future. I think I do not have to reveal to you that I am a firm believer on the future of ethanol. I believe that more and more cars will be manufactured to run on ethanol; I believe that the growing use of ethanol will make the air cleaner and the greenhouse effect less severe; I believe therefore that the demand for ethanol will expand exponentially; I believe that many countries will become large producers of ethanol but I also believe and bet that, for some years to come, Brazil will remain one of the largest producers of ethanol and that in a level field, in a flat world without extravagant taxation and protection, Brazil’s ethanol will remain the cheapest. Furthermore I am confident that Brazil can expand the land occupied by sugar cane by xxx thousand hectares, i.e., yy% of the present area, without touching one single square centimeter of the Amazon. And finally, I am also absolutely sure that the producitvity of our fields and mills will double in 5 year time, due to best varieties, better planting techniques, improvements in the machinery and improvements in the crushing and milling of the sugar cane, not to mention the important and overdue improvements in processing the bagasse and every gram of biomass to generate energy.
22 cont Ladies and Gentlemen: As I am such a staunch believer in the future of ethanol and – specially – the future of ethanol in Brazil that you may not believe in everything I have been saying. Or maybe, you are taking all this with a ‘grain of salt’... Do not protest, I am not insulted by your eventual doubts. I know it is hard to believe in the fantastic prowess of the Brazilian alcohool program. Being this so, I have decided to simply read for you a few paragraphs of a text by another author ARTICLE NYT I had breakfast in São Paulo, exactly 10 days ago, with the author of this piece who is also the author of “The World is Flat” The following day, Thomas Friedman published this article in the NYTimes and ended it with the following lament: “If only we were as smart as Brazil... Do not lament, do not cry for us: JOIN US!.