Copy right: Gaia Association, Addis Ababa, Ethiopia - Project Gaia

54 Pages·2015·0.9 MB·English

Copy right: Gaia Association, Addis Ababa, Ethiopia

Published By Gaia Association 2014

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Gaia Association

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Holistic Feasibility Study of a National Scale-up
Programme for Ethanol Cook stoves and Ethanol
Micro Distilleries (EMDs) in Ethiopia

Feasibility study of EMDs: Market, Financial and Economic
Analyses

December 2014
Gaia Association is an Ethiopian resident charity organization established in 2005 to
promote the use of renewable ethanol fuels for household energy in Ethiopia. The Gaia
Association seeks to reduce household energy dependence on imported petroleum and
hazardous solid bio-fuels, improve indoor air quality by preventing smoke-related health
problems, and increase user safety and quality of life.

This Ethanol Micro Distillery and Ethanol Cookstoves Market, Financial and Economic
Feasibility Study Report is an output of the Holistic Feasibility Study of “A National Scale-up
Program for Ethanol Cook stoves and Ethanol Micro Distilleries (EMDs)” project funded by
DFID, with contribution from the Norwegian and Danish governments through the Strategic
Climatic Institutions Programme (SCIP). However, the views expressed and information
contained in this document are not necessary those of or endorsed by DFID or contributing
governments, which can accept no responsibility or liability for such views, completeness or
accuracy of information or for any reliance placed on them.
Table of Contents

1. Introduction 1

2. Market Analysis 2
2.1. Demand Analysis 2
Household Cooking Fuels and Stoves 2
Trends in Fuel Substitution 3
Relative Costs of Various Types of household Cooking 5
Households Preferences Fuels and Stoves 6
Demand for Ethanol for Cooking 6

3. Financial Analysis 10
3.1. Financial Impact on Households 10
3.2. Financial Analysis of Ethanol Micro-distilleries 10
Investment Costs and Financing Sources 11
Financial Analysis Results 12
Sensitivity Analyses 13

4. Economic Analysis 16
4.1. Assumptions and Scope of the Economic Analysis 16
4.2. Results of the Economic Analysis 16
Valuation of Avoided Deforestation 16
GHG Emission Reduction and Carbon Revenue 17
Economic Viability of Micro –Distilleries 18
Sensitivity Analysis 20
Foreign Exchange Savings 21
Impact on Employment Creation 22

5. Conclusions and Recommendations 23
5.1. Conclusions 23
5.2. Recommendations 24
References
List of Tables

Table 1 Relative Costs of Cooking on a useful energy basis (October 2014 prices Addis
Ababa)
Table 2 Fuel and Stove Characteristics Sought by Households
Table 3 Estimated Number of Urban and Households Shifting to Ethanol
Table 4 Demand for Ethanol for cooking by type of fuel displaced (2014)
Table 5 Estimates of Household Expenditure Savings from Using Ethanol
Table 6 Estimated Initial Investment Costs of EMDs
Table 7 Summary of Financial Analysis Results
Table 8 Sensitivity of FNPV on Price of Ethanol
Table 9. Sensitivity of FNPV on Price of Feedstock
Table 10 Estimated Value of Avoided Deforestation
Table 11 GHG Emission Reduction and Carbon Revenue
Table 12 Summary of Economic Viability of Ethanol Production using micro- distilleries
Table 13 Impact on Foreign Exchange from Kerosene Import Substitution
Table 14 Employment Generation Potential of EMDs

List of Figures

Figure 1 Energy Consumption by Fuel Type
Figure 2 Distribution of Households by Cooking Fuel use in Ethiopia, 2011
Figure 3 Distribution of RURAL Households by Main Type of Cooking Fuel
Figure 4 Distribution of URBAN Households by Main Type of Cooking Fuel
Figure 5 Estimated Number of Households by Type of Main Cooking Fuel
Figure 6 Demand for Ethanol for Cooking by Rural and Urban and Fuels Substituted
Figure 7 Projected Ethanol Demand and Supply
Figure 8 FNPV of EMD Plant and Production Scenarios
Figure 9 ENPV of EMD Plant and Production Scenarios
Figure 10 Sensitivity of ENPV Molassess micro-distilleries to Ethanol Prices
Figure 11 Sensitivity of ENPV Sugarcane Micro Distilleries to Ethanol Prices

List of Annexes

Annex A Projected Financial Statements
ABBREVIATIONS AND ACRONYMS

Abbreviation Stands for

CO Carbon dioxide
2
CO e Carbon dioxide equivalent
2
CRGE Ethiopia’s Climate-Resilient Green Economy
CSA Central Statistical Authority
DFID Department for International Development, UK
EIRR Economic Internal Rate of Return
EMD(s) Ethanol Micro Distillery(ies)
ENPV Economic Net Present Value
ETB Ethiopian Birr
FIRR Financial Internal Rate of Return
FNPV Financial Net Present Value
GHG Greenhouse gases
GTP Growth and Transformation Plan
Ha/ha Hectare
HH(s) Household(s)
IPCC Intergovernmental Panel on Climate Change
MoFED Ministry of Finance and Economic Development
MoWIE Ministry of Water, Irrigation and Energy
SCIP Strategic Climate Institutions Programme

CURRENCY EQUIVALENTS

Exchange Rate Date: December 30, 2014
Currency Unit = Ethiopian Birr (ETB)
1 USD = 20.0987 ETB
1 ETB =0.0498 USD
Source: http://www.nbe.gov.et/market/dailyexchange.html
1. Introduction

1. Like most Sub Saharan countries, the vast majority of the households in Ethiopia
rely on traditional energy sources (fuelwood, charcoal, crop residues and animal dung)
for their daily cooking and baking needs. Owing to rapidly growing population, fuelwood
and charcoal use has been growing steadily and has directly led to increased deforestation. It
is estimated that between 1990 and 2000, the Country lost an average of 140,900
hectares of forest per year. With decline in biomass resource availability, households’
costs of energy acquisition has steadily increased and eroded household welfare

2. Bio-ethanol offers opportunities for substitution of biomass energy sources and
kerosene consumption in Ethiopia. However, the development of bio-ethanol in general
and bio-ethanol for cooking has been hampered by poor institutional framework and lack
of a comprehensive study on the technical and economic viability of ethanol for cooking.
In order to address these limitations, Gaia Association in collaboration with the Ministries
of Water, Irrigation and Energy; and Environment and Forest; the Horn of Africa Regional
Environment Centre and Network (HoAREC&N); and Project Gaia Inc., has initiated the
present “Holistic Feasibility Study of a National Scale-up Programme for Ethanol Cook
Stoves and Ethanol Micro Distilleries (EMDs) in Ethiopia”. The Project is financed by
DFID’s Strategic Climate Institutions Programme (SCIP).

3. The main objective of the Holistic Feasibility Study of a National Scale-up
Programme for Ethanol Cook Stoves and Ethanol Micro Distilleries (EMDs) is to
contribute to the development of the bio-ethanol sub-sector in Ethiopia by analysing the
feasibility of ethanol micro distilleries and ethanol fuel for cooking.

4. This report analyses the market for ethanol production and assess the financial
and economic feasibility of different scales of micro-distillery plants using various
alternative feedstock scenarios including molasses, sugarcane, and a mix of other
feedstock: sweet sorghum stalk, sweet potato, cactus and cassava.

5. The report is structured as follows. Section 2 analyses the market for ethanol
production. It looks at various production and plant scenarios for ethanol production and
estimates of demand for ethanol for cooking. This is followed by Section 3 which
presents the financial analysis. This includes estimates of the financial impact of
ethanol for cooking Programme on households and feasibility of ethanol micro-
distilleries using different feedstock option: molasses, sugarcane, and a mix of sweet
sorghum stalk, sweet potato, cactus and cassava.

6. Section 4 provides economic analysis –incorporates wider benefits including
valuation of avoided energy-related deforestation and GHG emission reductions and
carbon revenue opportunities. Finally, Section 5 summarizes some of the conclusions
and recommendations.

December 2014: Feasibility Study of EMDs: Market, Financial and Economic Analysis
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2. Market Analysis

2.1. Demand Analysis

2.1.1. Household Cooking Fuels and Stoves

7. Ethiopia is endowed with diverse energy resources. These include biomass,
hydropower, solar, wind, geothermal, coal and natural gas. Despite the presence of
considerable energy resources, the Country has one of the least developed energy sector
in the world.

8. In 2007, approximately 89% of the total final energy consumption was derived
from bio-energy sources1 (see Figure 1). Firewood and charcoal combined accounted for
74% percent and agricultural residues (dung and crop residues) for 15% percent.
Petroleum and electricity play a less important role in the national energy supply system.
Their share in total consumption is 11% (8% petroleum fuels and 3% electricity).

Electricity
3%
Petroleum
8%
%
7
6
d,
o
o
w
el
u
F
%
% % 3
e8nB9eio%rg-y harcoal, 7 Dung, 12 p residue,
C o
Cr

Figure 1. Energy Consumption by Fuel Type

9. According to a recent survey by the Central Statistics Agency (CSA), 96% of
Ethiopian households (15.5 million households in 2011) used biomass fuels as their main
sources for cooking. At country level, about 81.4 percent of the households use firewood,
around 11.5 percent cook with leaves/dung cakes and only 2.4 percent use kerosene for
cooking. The majority of rural households use firewood (84.4 percent) and few of them
(12.7 percent) use leaves/dung cakes (see Figure 2).

1 MoWIE (2013)

December 2014: Feasibility Study of EMDs: Market, Financial and Economic Analysis
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10. The use of modern source of cooking fuel such as butane gas, electricity and
kerosene for cooking is uncommon in the rural areas (0.4 percent). Use of kerosene in
urban areas stands at 13.8% following firewood (65.4%), charcoal (7.7%), electricity
(2.4%) and leaves (5.3%) are also used rarely by urban households. On the other hand,
only 0.2% of the households in rural areas are observed to use charcoal for cooking. In
the previous surveys, however, no household was reported to use charcoal as source of
cooking fuel.

Others 0.03
None 0.01
Biogas 0.00
Butane gas 0.00
Kerosene 0.02
Dung/manure 0.77
Crop residue/leaves 0.29
Charcoal 0.03
Purchased firewood 0.46
Collected firewood 11.08
- 2 4 6 8 10 12
Million households

Figure 2. Distribution of Households by Cooking Fuel use in Ethiopia, 2011 (CSA, 2012)

2.1.2. Trends in Fuel Substitution

11. Cooking fuels use in the urban and rural areas change quite frequently due to
changes in prices and availability of fuels. In rural areas, the percentage of households
who reported firewood as their primary cooking fuel has increased from 76% in 1996 to
over 90% in 2011 (see Figure 3). The increase in the number of households who use
firewood is accompanied with a decline in the proportion of households who reported
branches, leaves and twigs (BLT) and agricultural residues (crop residues and dung) as
primary cooking fuel (from 19.1% in 1996 to 8.4% in 2011).

12. In urban areas, a significant change has taken place between 1996 and 2011
where the number of households who reported kerosene as their primary cooking fuel
has declined, from 21.5% to 4.9% (see Figure 4). Households that would have used
kerosene as their primary cooking fuel have switched to other fuels mainly charcoal. The
proportion of households who reported charcoal as their primary fuel increased 8.3% to
17.5% during the same period. Such a shift towards a less convenient and efficient fuel
suggests price may have been the main driver.

December 2014: Feasibility Study of EMDs: Market, Financial and Economic Analysis
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13. The key energy issues in the domestic sector are the widening gap between
sustainable supply and demand for biomass fuels; adverse environmental impact of
household energy use at the indoor, local and global scale; and relatively high proportion
of household income spend on energy for cooking.

90.8
84.4
78.2 78.8
75.5
Firewood
Charcoal
Leaves/Dung cakes
Kerosene
Others incl. Gas/Electricity
19.1 20.1
17.2
12.7
8.4
005...221 001...251 030..38 002...252 000...222
1996 1998 2000 2004 2011
Figure 3. Distribution of RURAL Households by Main Type of Cooking Fuel (1996-2011)

65.4
62.9 63.3
61.7
57.9
Firewood
Charcoal
Leaves/Dung cakes
Kerosene
21.5
18.9
17.2 17.5
13.8
77..65 9.5 8.3 7.7 7.7
4.3 5.53 66.3 55..39 4.9
2.7
1996 1998 2000 2004 2011
Figure 4. Distribution of URBAN Households by Main Type of Cooking Fuel (1996-2011)

December 2014: Feasibility Study of EMDs: Market, Financial and Economic Analysis
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