Sugar & the Energy Matrix: Why Ethanol is Not Enough

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The fall in global sugar prices has meant that today sugar cane has greater value as an energy feedstock than as a food.

The function of price has been to ensure that the market finds a way to place surplus sugar. And it appears to be doing this in terms of placing surplus cane to ethanol.

With the global sugar economy potentially facing a longer period of surplus, the convergence with the energy market is needed. However, for those in the industry seeking to sustain revenues through the downturn in the business cycle, earnings from ethanol are not enough. Energy from electrical power is now becoming an important source of income for sugar mills from Brazil to India and Australia. However, it is in Brazil that the economic impact of this is now becoming more pronounced.

Demand for Energy is Rising

“Capturing the income potential from cane biomass is important to ensure the future efficiency of the sector and sustain income through the downturn in the business cycle.”

Toby Cohen, Head of Analysis
  • According to the IEA projected energy growth in OECD countries, where electricity markets are well established and consumption patterns are mature, is slower than in non-OECD.
  • Brazil has the largest electricity market in South America. Its installed capacity is comparable to that of the United Kingdom, which is similar in terms of current GDP
  • Brazil’s state-run Energy Research Corporation expects growth in energy demand to run at approximately 4.5% over the next decade. While this is above the current growth rate in GDP it may prove conservative with fuel demand rising at 7%.

Clean Energy

  • Brazil is a global leader in clean energy. Hydroelectric power meets the majority of Brazil’s electricity demand.
  • However, the dependence on hydropower makes Brazil vulnerable to power shortages in drought years.
  • High electrical energy prices are good for Brazil’s sugar and ethanol sector as it is a net exporter of energy.
  • Today electrical energy from cane bagasse meets around 7% of Brazil’s needs.

Investment in Clean Energy

  • Since 2007, 14 sugar and ethanol groups have structured joint ventures with financial and industrial partners to capture value from biomass through co-generation.
  • Under these new structures a total of 1,000 mega watt hours (MWh) of installed capacity has been negotiated.
  • The return from co-generation provides greater stability than the return from a conventional milling investment. This can bring significant value to a mill seeking to deleverage as the mill can also sell off the energy asset at a higher multiple than the underlying business enabling fresh capital to be introduced either to reduce debt, as well as overall cost of capital, or for re-investment.
  • This is a growth area within Brazil today and Czarnikow is the lead advisor operating in this space having been engaged in transactions governing 380 MWh of installed capacity.
  • During the 2013/14 season the sector exported 15.067 Giga Watt hours of electricity. We therefore estimate the total value of electrical energy sales at BRL 4bn.
  • This crop, for an individual mill with high pressure boilers and generating an energy surplus of 70KW/tc, we can estimate that electrical energy sales add around 20% to revenues from sugar and ethanol.

“The energy business has become the best returning part of the cane milling industry. Realising the value from this through partnership with strategic investors from outside the sector is the sensible choice for a mill to make. Mills can then either seek fresh equity to de-leverage, reduce overall cost of capital, or for reinvestment – for example in cane to increase supply volumes to match industrial capacity, diluting fixed costs.” 

Luis Felipe Trindade, Co-Head of Corporate Finance

The Potential for Growth

  • Today all of Brazil’s sugar mills use bagasse to generate steam and electrical energy for internal use. However, just 170 plants have the capacity to export electricity.
  • Of these 170 plants there is a wide variance in volume reflecting efficiency gaps in technology and management.
  • The shift from manual to mechanical harvesting has impacted agricultural efficiencies. However, the shift to green harvesting has also given the sector the opportunity to commercialise the cane straw as biomass.
  • In addition, technology is enabling greater electrical energy generation per tonne of cane.
  • The opportunity consequently exists to increase production from 22KWh/tc, which some of the least efficient assets are achieving, to138KWh/tc representing the best in class today. 
  • This means that sugar cane sector has the potential to treble the volume of electricity generated.


  • Low global sugar prices continue to stress the financial health of the sugar industry and the outlook for earnings remains difficult.
  • For sugar mills seeking to sustain revenues through the downturn in the business cycle, earnings from sugar and ethanol are not enough on their own and there is a need to capture additional income streams from energy. 
  • Cane is an excellent source of biomass as well as sucrose. The future will be determined by those able to broaden their revenues at this stage in the business cycle.

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