Metahara Sugar Factory in Oromia Regional State 200 km from Addis Ababa. 10,000 ha sugar under cultivation. Distillery capacity of 12.5 million liters/year

Opportunity for Fuel Production in

Bioethanol as a Clean Cooking Fuel 8th Bioenergy Week, 16 – 18 March 2021 What does ethanol offer as a cooking fuel?

Technically simple – Ethanol cooking fuel is straight forward. While fuel blending with gasoline is complicated and must have upgraded fuel infrastructure, stove fuel sales and handling are straight forward. Lucrative market for producers – Ethanol for cooking can support prices equal to or better than blending. Scalable market – The cookstove fuel market is as big or bigger than the blending market. A 5% penetration of stoves in Addis Ababa would demand 50 million liters of ethanol per year. Dependable market – Once people cook with ethanol, they depend on it. Demand will not go away, only increase. Import substitution – Ethanol is a modern, clean, local fuel. It is an excellent replacement for both LPG and . Ethanol stoves can be made locally. Social dividends – The payback to society is high. The Ethiopian Sugar Corporation becomes even more important to the nation than it already is. Why Cooking with Ethanol?

Cooking represents 70% to 90% of total energy demand in most developing countries. UN agencies and NGOs have been trying to address this need with “improved combustion” wood and charcoal-burning stoves. These have largely failed to deliver. The World Health Organization is calling for cleaner-burning stoves. Thus, a new approach is needed. Why Ethanol for cooking? The consumer: Ethanol is already a cost-competitive and consumer-tested fuel • Many developing countries have an urgent need for more energy in the cooking sector. • The ever-increasing use of fuelwood and charcoal for cooking is impacting human health, local environments and contributing to climate change. • There is no substitute to liquid fuels for efficiency, mobility and cost of delivery. Direct heating with liquid fuel is the cheapest, most efficient way to deliver energy for cooking, especially to hard to access areas. • Kerosene is losing favor because it is a dirty, dangerous fuel—causing many burns and fires. LPG, a great cooking fuel, can be difficult and expensive to deliver. • Kerosene and LPG are imported fuels, demanding scarce FOREX. This is costly for countries with soft currencies. While kerosene and LPG may need subsidies, ethanol needs no subsidy. • today is competitive with the cost of purchased fuelwood, charcoal and kerosene. Because the price of these fuels has risen to $1.00 or more per day, ethanol can compete effectively with these fuels. • Ethanol can enter the market without subsidies. But if VAT is charged selectively on some fuels but not others, it is good for ethanol to enjoy equal treatment.

4 Why Ethanol for cooking? The producer: Cooking fuel is the largest and easiest fuel market for producers

• Greater supply of energy, in the form of a convenient, practical fuel, needs to be attracted into the household sector. There are limitations with all existing fuels, electricity, charcoal, kerosene, wood and LPG. Ethanol is greatly needed. • The household energy market is huge—and less demanding technically than fuel blending for transportation. Producers can make money in this market. • The household energy sector is overlooked by business leaders and policy makers, and it has long been overlooked by ethanol producers. Stop thinking beverage. Start thinking fuel. • The cooking market provides diversification for producers. It is a supplier’s market; once demand is built, the market will not go away. • The cooking fuel market is stable and predictable. • Ethanol fuel can use the kerosene infrastructure. As kerosene leaves the market, bioethanol can take the place of kerosene with limited infrastructure investment . • To compete in today’s world, sugar producers must produce not just sugar but also ethanol and power. The nation needs fuel. • Cooking is a good market for ethanol producers. It puts a human face on what they do.

5 Lessons from the Global Tracking Framework: Cooking fuel is the largest and easiest fuel market for producers Losing ground: In Africa, of 29 million new people added in 2012-14, only 4 million had some access to clean energy, while 25 million did not.

Hardly gaining: In Asia, of 94 million new people added during the same period, 54 million had access to clean energy while 40 million did not.

Of 3.04 billion people without access to clean energy, 807 million are in Sub-Saharan Africa and 2.1 billion in Asia.

We cannot not solve the problem of cooking and energy access only with LPG or more efficient use of wood and charcoal stoves. We need another clean fuel option in addition to LPG. And we need a fuel that is produced locally, within the Tanzanian economy that does not demand the use of FOREX.

6 Why ethanol, why alcohols? A little chemistry

ethanol

7 Kerosene has too much carbon. LPG has less. And ethanol, even less. Plus, an oxygen!

Kerosene is a mixture of hydrocarbons with number of carbon atoms ranging from 6 till 16. Its chemical formula might look like this: C16H32.

All of this carbon takes a lot of oxygen to burn up. It is the unburned carbon which causes smoke and soot. LPG is a mixture of prominently two hydrocarbons propane (C3H8) and butane (C4H10). So, although a , LPG burns much cleaner.

8 The Problem of

Black carbon (BC) from incomplete biomass and fossil fuel combustion is the most strongly light-absorbing component of particulate matter (PM) air and the second most important climate-forcing human emission. It is estimated to contribute 25 to 50% of warming globally. Studies show that proximity to highways and smoke from cookstoves are major risk factors in human health. If you live near a busy road and cook with wood or charcoal, or your neighbors do, you are at risk. Black carbon has local climatic effects. It disrupts weather patterns. It causes crop damage from surface dimming that results as airborne black carbon moves across the land and intercepts sunlight.

9 Rural cooking smoke is making Delhi air pollution worse (Oct. 26, 2017) Ambient air pollution in Delhi has worsened. Multiple sources contribute to this increase, including industry, transport, dust, waste burning, seasonal crop burning (outside Delhi), power plants, and diesel generator sets.

One often overlooked source is coming from the homes of people living beyond Delhi's city limits. That source is cooking and space heating using solid fuels. http://cleancookstoves.org/about/news/10-26-2017-rural-cooking-smoke-is-making-delhi-air- pollution-worse.html Addis Ababa’s annual average concentration of fine particulate matter (PM2.5) is three times the World Health Organization (WHO) guidelines. This is raising serious health concerns among its residents.

A 2017 Global Burden of Disease Study showed that air pollution is the second highest risk factor for death and disability in Ethiopia. It is estimated to be responsible for 2,700 deaths annually in Addis Ababa alone. Without action to control air pollution, this figure is estimated to rise to 6,200 deaths annually by 2025.

Addis Ababa’s major air pollution sources are transport, industry, waste management facilities, and smoke from household cooking.

Source: https://breathelife2030.org/news/addis-ababa-ethiopia- celebrates-first-international-day-clean-air-blue-skies/

11 Every morning and evening, Addis Ababa fills with smoke from cooking fires. India’s urban pollution must serve as warning to African cities. 12 Ethiopia’s Ambitious Sugar and Ethanol Production Plans

Thirteen sugar factories planned, under construction or operating, with a projected 3.6 million mt of sugar, 339 million liters ethanol, and 250 MW excess power to the grid.

Current production, about 400,000 mt sugar and 21 million liters ethanol. (Current sugar demand 720,000 tons.)

13 Sugar Factory Sugar Ethanol Electricity Status Finchaa Sugar Factory 270,000 mt 20 million liters, producing 31 MW, 10 MW to grid Operating, producing ethanol

Metahara Sugar Factory 136,000 mt 12 million liters, producing 9 MW Operating, producing ethanol

Wonji Shoa Sugar Factory 220,000 mt 12.8 million liters, projected 31 MW, 20 MW to grid Sugar factory modernization completed. Omo-Kuraz Sugar 1,250,000 mt 140 million liters, projected 225 MW, 145 MW to grid Two plants completed, two under Factories I, II, III and IV total total construction Kessem Sugar Factory 260,000 mt 30 million liters, projected 26 MW, 15 MW to grid Producing sugar and power

Tendaho 300,000 mt 31 million liters, projected 60 MW, 38 MW to grid Sugar production trials completed

Arjo Diddessa 230,000 mt 12 million liters, projected Operating

Wolkaiyt Sugar Factory 484,000 mt 41.6 million liters, projected Construction 95% completed

Tana Beles Sugar, 2 plants 484,000 mt 40 million liters, projected 45 MW, 25 MW to grid

Production in 2019 400,000 mt 21 million liters Imported 410,000 tons sugar in 2019

Eventual capacity 3,634,000 mt 339 million liters 250 MW to grid Current: ENA, REN and fuel uses.

Current demand 720,000 mt 6 – 10 million liters used in blending

Source: https://etsugar.com/projects/

14 Ethanol Supply Chain Ethanol moves efficiently by tanker truck from the distillery to a fuel depot on the city outskirts

15 A stove manufacturing company, A&H Development Solutions, is ready to manufacture the ethanol stove and distribute both stoves and fuel widely in Addis Ababa, as soon as government authorities agree to allocate ethanol for stove fuel. An ethanol stove carbon finance program is ready to subsidize stove purchases for consumers. 16 An ethanol stove using 1 liter of ethanol will displace 2½ to 4 kg of charcoal per day and 8 to 12 kg of fuelwood. It will displace 1.2 liters of kerosene and 0.5 kg (1 liter) of LPG.

Under the Project Gaia cookstove program of activities, a stove will earn 4 to 6 tons of CO2-e per year.

17 In 2015 Gaia Clean Energy and its collaborators published a comprehensive national strategy for Ethiopia on how to scale up ethanol fuel. This was funded by the Strageic Climate Institutions Program (SCIP). SCIP’s purpose is build Ethiopia's capacity to cope with climate change and respond to the challenges of transitioning to a climate resilient green economy. The Ethiopian Directorate was an important collaborator in the study. Topics covered:  Policy Brief on Ethanol Fuels  Ethanol micro distilleries and ethanol stoves—Technology Brief  Feedstock Resources for Bioethanol Production  Market, Financial and Economic Analysis  Household Energy Assessment  Marketing Strategy  Private Sector Development Brief

This was called a “holistic study” because it was designed to be comprehensive. It is a valuable resource at hand to serve government and the private sector.

One of the key strategies it laid out is the approach of “micro-distilleries,” 1,000 to 5,000 daily liters of production in size, designed to fit farm scale operations and exploit niche feedstocks.

18 19 Micro Distilleries: Producing from Dedicated Feedstock Supplies

2,500 liter/day micro distillery in Ilori,

20 Dedication of the Former Women Fuelwood Carriers’ Association (FWFCA) microdistillery in Addis Ababa, October 2015

21 1,000 Liter / Day Molasses Based ethanol microdistillery (EMD) built by Gaia Clean Energy in partnership with the Former Women Fuelwood Carriers’ Association (FWFCA) Yeast Propagation / Multiplication

Stainless-steel Yeast activation/multiplication vessel

23 Fermentation process

Fermentation recirculation pump Distillation process

Water Softener Steam Boiler 25 Distillation Tower FWFCA women producing ethanol at the plant.

26 A new micro distillery opportunity: ACOS Ethiopia P.L.C., a leading bean exporting company, located in Adama

The Acos 5,000 liter/day distillery and protein extraction plant will produce protein for human consumption, ethanol for cooking fuel, and a high-quality animal feed for cattle.

27 Food and Fuel: Protein Extraction, Ethanol and Animal Food Processing from Rejected Beans

Rejected beans have little value and cannot be fed raw to animals. They are processed enzymatically, protein and starch are extracted (starch to ethanol), and the remaining enzyme-enriched material is a highly digestible animal feed. 28 Rajneesh Tyagi, Chief Executive Officer Spectrum Technologies Ltd Managing Director, Proveta Nutrition, Ltd.

Addis Ababa Head Office +251115541337 +251911231706 General Manager : Kassahun Bekele Kassahun Bekele and Rajneesh Tyagi are soliciting partnership AdamaPlant interest in the ACOS Bean Distillery and Protein Extraction Plant. +251221115139 +251914303508 If interested, please contact ACOS, or you may contact us at Plant Manger: Girma Zewude Project Gaia / Gaia Clean Energy.

ACOS ETHIOPIA P.L.C. Adama 29 Financial Planning and Analysis

Fuel Producer’s Business Opportunity

Project Gaia is assisting with this project and has developed a sophisticated EXCEL Model to assess opportunity.

Project Gaia and Gaia Clean Energy will work with any client to develop his or her business plan, technical approach and step by step implementation for producing ethanol fuel.

30 Financial Model Description

Assumptions Calculations: Fixed Assets Depreciation & Amortization Expenses Working capital requirements Investment Cost and Financing Sources Loan Repayment Input Purchases, Inventory and Sales Output Worksheet Revenue Worksheet Cost of Sales Inventory Staff-related costs Marketing and Promotion Pro forma financial statements (1) Input Worksheet. The Input Overhead Costs worksheet comprise various assumptions Financial return (e.g. currency exchange rate, tax rate, Key financial ratios RBF incentive amounts, fixed assets, depreciation methods, working capital (2) Calculation Worksheet. The requirements, loan amounts and terms, worksheet contain various calculations sales targets, selling prices, staffing costs, such as: economic projections, sources (3) Output Worksheet. This worksheet marketing activities and costs, and and uses of funds, operations and includes pro forma financial overhead costs), which are derived from maintenance, project revenue, loan statements: cash flow statement the project documents or from other repayment, and miscellaneous income statement, and balance sheet relevant sources. calculations. and key ratios, net present value (NPV), The worksheet is designed to allow users and interest rate of return (IRR). to be able to change the numbers used in the model, but not the formulas.

31 Use of the Financial Model

Project stage Promoter (UNIDO) Service Provider Verification Agent 1. Pre-proposal • Modify the assumptions in the model • Modify the assumptions in the stage and estimate cost of procurement model in order to test the sensitivity • Evaluate the impact of taxes and of financial viability – which negotiate tax rates with the scenarios will generate enough cash Government Authority flow and reasonable return on • Facilitate the submission of investment while being the lowest standardized, comparable and financial offer complete financial proposals from bidders 2. Bidding and • Evaluate whether assumptions in the • Negotiate incentive payment contract financial model submitted by bidders amounts with the bidders negotiation stage are realistic; predict project performance and value for money • Negotiate incentive amounts with the bidders 3. Operation stage • Monitor and track project performance • Monitor and track project • Monitor and track • Assess the impact of changes in performance project performance assumptions overtime and negotiate • Assess the impact of changes in new incentive amount assumptions overtime and negotiate new incentive amount

32 Key Assumptions

General Assumptions: Financing: Project life (in years ): 15 years Loan(s) Amount $200,000.00 Exchange rate: local currency units per US$ 1: 31.88 Grace period (in years) 2 years Plant capacity (in liters per day ): 1,500 liters/day Loan Repayment period (in years) 5 years Average ethanol production (in liters per day): 1,200 liters/day Long-term Lan Borrowing interest rate (in percent per year) 10.00% Number of working (in days per year): 300 days/year Depreciation/amortaization Rate: Sugarecane feedstock price (in US$ per tonnes): $16 per tonne Land cost 10.00% Ethanol yield (in liters per tonne of feedstock input): 58 liters/tonne Civil works and buildings (in percent): 5.00% Ethanol factory gate price (in US$ per liter): $0.68 per liter Plant machinery, equipment and commissioning (in percent): 6.67% Corportat profit Tax (as percent of annual profit): 10.00% Office Equipment and furnture (in percent): 20.00% Vehicle and other fixed assets (in percent): 20.00% Investments Pre-operating expeneses (in percent): 20.00% Initial Investment (including taxes, if any): Land cost $10,000.00 Working capital requirements Sugarcane feedstock (in number of months): 90 days Civil works and buildings $30,000.00 Diesel fuel (in consumption in number of months): 90 days Plant machinery, equipment, commissioning Chemicals 3 months Sugarcane milling $50,000.00 Salaries and wages 3 months Distillation unit $185,000.00 Generator, 45 KVA diesel generator $20,000.00 O&M Costs Vinasses conversion to low-grade fertilizer $5,000.00 Diesel consumption 25 liters/day Labaratory Equipment $3,000.00 Purchase price of diesel fuel $0.68 per liter Transport of plant machinery, equipment to site $7,500.00 Chemical inputs $1,125 per month Plant commissioning and staff training $20,000.00 Water bill $0 per month Office Equipment and furnture $10,000.00 Other costs $50 per month Vehicles $20,000.00 Repair & Maintenance (as percent of cost of plant machinery) 1.50% Pre-operative expenses $5,000.00 Key Assumptions

Salaries and benefits Position Number Salary Chemical input and costs General Manager 1 number $300 per month Input requirement for 30 Days for 1000 liters/day plant capacity Process Engineer 1 number $250 per month Description Unit Quantity Price, US$ Boiler Operators 3 number $150 per month Active -Dry Yeast (saccharomyces cerevisiae) kg 10 50 Fermentation & Distilation 3 number $150 per month Urea kg 100 50 Feedstock preparation 3 number $120 per month Znso4 and Mgso4 kg 50 250 Administration & General Service 1 number $150 per month Phosphoric Acid(H3PO4) liters 50 325 Accountant 1 number $150 per month Sulphuric Acid (H2SO4) liters 50 100 Cashier 1 number $150 per month Polybion Injection Of Vitamin B-complex(2ml) vials 15 75 Marketing 1 number $150 per month Detergent For Fermentor Cleaning (1 Kg) kg 20 35 Cleaning material (brush) piece 4 15 Driver 1 number $120 per month Lime (powder) kg 150 35 Cleaning 4 number $100 per month Antibiotic(oxytetracycline) 300 15 Guards 4 number $100 per month Procanepenicilline or Benzil Penicilline (10 lac units) vials 75 50 Position name 0 number $0 per month DAP (Disodium Ammonium Phosphate) kg 15 5 Position name 0 number $0 per month Antifoam Agent liters 50 20 For Softener (NaCl) kg 50 10 For Cooling Tower (Anti Scavet, Anti Alagi, Anti Bacteria) liters 50 15 Provident Fund (as a percentage of salaries) 2.50% Saw dUSt/Agroforest kg 2,000 75 Salary Increases (as an annual percentage): 0.00% Total cost 1,125 Chemical cost, per liter of ethanol 0.03 Staff uniforms $500 year Telecom & Posts $600 year Marketing Expenses $1,200 year Office Supplies $600 year Legal & Audit fees $1,000 year Fuel and Lubricants $2,400 year Miscellaneous expeneses $0 year

Personnel Insurance (as a percentage of salaries) 2.00% Plant Insurance (as a percentage of investment cost) 1.50% Discounted Cash Flow

Discounted Cash Flow - Total Capital Invested Jan/19 Jan/20 Jan/21 Jan/22 Jan/23 Jan/24 Jan/25 Jan/26 Jan/27 Jan/28 Jan/29 Jan/30 Jan/31 Jan/32 Jan/33 Jan/34 Cash Outflow Fixed investment Land cost 10,000 ------Civil works and buildings 30,000 ------Plant machinery, equipment, commissioning 290,500 ------Office Equipment and furnture 10,000 - - - - 10,000 - - - - 10,000 - - - - - Vehicles 20,000 - - - - 20,000 - - - - 20,000 - - - - - Pre-operative expenses 5,000 ------Interest payment on long-term loan - - - 31,079 27,804 24,200 20,236 15,876 ------Repayment of Long-term Loan - - - 32,759 36,035 39,639 43,603 47,963 ------Profit tax - - 2,014 1,814 1,594 1,991 2,427 3,006 3,534 4,114 4,114 4,114 4,214 4,214 4,214 4,214 Total Cash Outflow 365,500 - 2,014 65,653 65,433 95,830 66,266 66,845 3,534 4,114 34,114 4,114 4,214 4,214 4,214 4,214 Cash inflow - - Operating Income before depreciation - 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 Total Cash inflow - 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 69,009 Net cashflow (365,500) 69,009 66,995 3,356 3,576 (26,821) 2,743 2,164 65,475 64,895 34,895 64,895 64,795 64,795 64,795 64,795

Return on Investent (ROI) NPV at loang-term loan borrowing interest rate ($81,977.28) NPV at 5% discount rate $27,855.16 NPV at 7.5% discount rate ($36,115.32) Internal Rate of Return (IRR) on Equity 6.0% Sensitivity Analysis

Increase/decrease in NPV at Ethanol factory gate price, Ethanol price, borrowing NPV at 5% NPV at 7.5% % $/liter IRR interest rate discount rate discount rate 6.0% ($81,977) $27,855 ($36,115) 30% 0.88 27.5% $381,121 $687,901 $512,972 25% 0.85 24.0% $303,938 $577,893 $421,457 20% 0.82 20.5% $226,755 $467,886 $329,943 15% 0.78 17.0% $149,572 $357,878 $238,428 10% 0.75 13.4% $72,389 $247,870 $146,914 5% 0.71 9.8% ($4,794) $137,863 $55,399 0% 0.68 6.0% ($81,977) $27,855 ($36,115) -10% 0.61 -2.4% ($237,901) ($194,082) ($220,872) -15% 0.58 -7.5% ($319,288) ($309,436) ($317,117) -20% 0.54 -14.3% ($402,909) ($428,586) ($416,261) -25% 0.51 #NUM! ($487,544) ($549,583) ($516,767) -30% 0.48 #NUM! ($572,179) ($670,580) ($617,273)

Decrease/Increase in NPV at sugarcane purchase cost, Sugarcane cost, borrowing NPV at 5% NPV at 7.5% % $/Tonne IRR interest rate discount rate discount rate 6.0% ($81,977) $27,855 ($36,115) 30% 20.8 -4.5% ($273,069) ($243,920) ($262,457) 25% 20.0 -2.6% ($240,202) ($197,342) ($223,593) 20% 19.2 -0.7% ($207,584) ($151,105) ($185,019) 15% 18.4 1.1% ($175,912) ($106,028) ($147,492) 10% 17.6 2.8% ($144,600) ($61,401) ($110,366) 5% 16.8 4.4% ($113,289) ($16,773) ($73,241) 0% 16.0 6.0% ($81,977) $27,855 ($36,115) -5% 15.2 7.5% ($50,666) $72,483 $1,010 -10% 14.4 9.1% ($19,354) $117,111 $38,136 -15% 13.6 10.6% $11,957 $161,739 $75,261 -20% 12.8 12.1% $43,269 $206,367 $112,387 -25% 12.0 13.5% $74,581 $250,994 $149,513 -30% 11.2 15.0% $105,892 $295,622 $186,638

Our contacts at Project Gaia:

Desalegn Getaneh, Director of Gaia Clean Energy [email protected] Wubshet Tadele, Project Gaia, Inc: [email protected] Harry Stokes [email protected]

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