Brazil's Ailing Sugar Cane Growers Get Boost From Anti-Coal Push

  • Sugar cane pellets may replace coal for energy generation
  • Pellet demand will surge as nations shift away from coal

Global efforts to curb the use of coal-fired power plants may provide a lifeline to Brazil’s embattled sugar cane industry.

That’s the bet of companies including Cosan SA Industria e Comercio, co-owner of the world’s largest sugar cane processor, which formed a $130 million joint venture for making sugar cane-based biomass pellets that can be burned to produce electricity.

Power generators are already expanding their use of biomass pellets made from wood to displace coal in thermal power plants. Cosan expects global demand for pellets to swell 60 percent over the next five years, creating a huge market for Brazilian pellets made from bagasse, the fibrous by-product of sugar-cane processing that usually ends up as waste.

"There’s a constant trend of replacing coal and other sources of pollution with renewable ones for power generation," said Mark Lyra, president of Cosan Biomassa, the joint venture formed by Cosan and Sumitomo Corp. "There’s no going back because policies to fight climate change are being reinforced around the globe. By using sugar-cane residue, Brazil is positioned to become the Saudi Arabia of renewable energy.”

Biomass pellets made of wood dominate the industry, and almost all of them come from forests in Europe, the U.S. and Canada. Cosan and Sumitomo expect the global market to jump to 40 million metric tons in five years, from 25 million tons now.

Brazil, the world’s biggest cane grower, may be able to produce as much as 80 million tons a year from bagasse, enough to supply the entire industry, according to Cosan.

"Pelletized sugar cane biomass is a new commodity being created to serve the low-carbon economy,” said Lyra.

The growing demand for biomass pellets comes as nations seek to curb their reliance on coal, which produces about one-third of the world’s electricity, according to the World Resources Institute in Washington, D.C.

Japan’s wood pellet imports more than doubled last year to a record 232,425 tons, according to the nation’s finance ministry. The trade ministry has approved more than 2,000 megawatts of new woody biomass projects since the July 2012 introduction of incentives known as feed-in tariffs, which would require about 40 million cubic meters of wood material a year, almost double Japan’s annual domestic wood production, according to estimates by the Biomass Industrial Society Network.

Sumitomo expects the country’s pellet consumption to reach as much as 10 million tons a year by 2030, according to Yoshinobu Kusano, the company’s general manager for biomass. That will help Japan meet its target of cutting greenhouse gas emissions by 26 percent by 2030, part of its commitments under the global climate agreement completed in Paris in December.

The pellet plant in Sao Paulo state recently began production and will initially produce about 175,000 tons annually. Output may reach 2 million tons a year by 2025 and the joint venture will first target Japan, South Korea and Europe.

Climate Change

Sumitomo’s Summit Energy unit is building Japan’s largest biomass power plant in Handa, which will have 75 megawatts of capacity and is expected to go into operation next year.

“As climate change becomes a global concern, the demand of biomass fuel must increase drastically,” Kusano said in an e-mail. Sumitomo will continue to use wood-based pellets, and will increase its use of those made from sugar cane, and Brazil is “one of the best countries to produce bagasse pellets.”

The U.S is also shifting away from coal, making it a potential market for Cosan Biomassa. If the U.S. increases its use of biomass as a power source by 5 percent, it could boost pellet demand by as much as 28 million tons and move from an exporter to an importer, according to the company.

‘Big Potential’

The European market also has potential, from both utilities that are seeking to reduce emissions and consumers that burn pellets in residential boilers for heating, according to Elchin Mammadov, European utilities analyst at Bloomberg Intelligence. “Brazil’s biomass industry has a big potential, which is not well used yet,” he said by phone.

Other ventures in Brazil are also betting on rising demand for biomass for energy production. Vignis SA was formed in 2011 and is developing a cane variety that yields as much as six times more biomass than crops usually used to produce sugar. Companies including Raizen Energia SA and soybean processor Caramuru Alimentos SA have used it for energy.

Bagasse from cane is “extremely competitive” and may eventually replace coking coal in Brazil’s cement and steel industries, said Luis Claudio Rubio, Vignis’s chief executive officer. He expects sales to triple to 50 million reais ($13.8 million) in 2016, and then swell to 150 million reais next year as the company expands its planted area.

NexSteppe Inc. is developing new types of sorghum that can be used to produce high-efficiency biomass pellets. The San Francisco-based company is growing the crops in Brazil, and Ricardo Blandy, vice president for Latin America, said in a phone interview that his goal “is to open new markets in Latin America.”

Struggling Industry

Brazil’s sugar-cane industry has struggled in recent years as sugar prices had their longest slump since the early 1960s and domestic ethanol prices were capped by government fuel policy. About 50 ethanol and sugar mills have closed and 70 filed for bankruptcy in Brazil since 2011, according to the industry group Unica.

Cosan’s sales totaled 43.7 billion reais in 2015 and could climb to as much as 48 billion reais this year, the company said in a regulatory filing last month. Earnings before interest, taxes, depreciation and amortization were 4.23 billion reais in 2015, Cosan said. Shares are up 9 percent in the past 12 months, compared to a 2.7 percent gain for Brazil’s benchmark stock gauge.

Bagasse pellets emit about one-16th the carbon dioxide of coal, when burned in Brazil; they produce about one-sixth the emissions of coal plants in Japan, which are more efficient, according to Cosan Biomassa.

Wood pellets are much more expensive, about $150 to $210 a ton, compared to about $51 for coal in Newcastle, Australia, the global benchmark. Lyra wouldn’t provide a price for sugar-cane pellets, though he said they’re "competitive" with wood.

"These products don’t compete on price," said Lyra. "Companies that are looking to use renewables as a replacement have assets fueled by coal that has a deadline to disappear."

"We are taking a material Brazil has to spare,” he said. “This is to give value to a material that would be wasted."

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