As a land-locked country without any significant deposits of crude oil, Armenia is 100% dependent upon fuel imports to meet a growing demand for petrol in the motor transport sector. Moreover, dramatic increases in world crude oil trading prices over the past year are already being passed onto and reflected at retail petrol outlets. In addition, prices for petrol in Armenia are expected to increase at an even more rapid rate in the future as long-term import contracts lapse and are renegotiated at higher market prices over time.
Bio-ethanol for blending as a motor fuel has the potential to reduce imports of petrol through displacement, reduce foreign exchange drains, increase energy security of supply in a traditionally unstable region of the world, create value from domestically grown bio-ethanol feedstocks on surplus lands, create jobs in depressed rural areas, and improve local air quality particularly in congested urban areas.
Findings of Recent World Bank Funded Project on Bioethanol Production
The prospect for creating a new and sustainable bio-ethanol fuel industry utilizing marginal or surplus lands not presently being tilled for the production of food (143 thousand hectares in total) is quite promising in Armenia in the near to mid term, especially in rural areas that are currently experiencing extremely high rates of unemployment and low economic growth rates.
The most promising bio-ethanol feedstocks (from 20 considered) in the near to mid term include: Jerusalem artichokes, feed corn, sweet sorghum, and chicory while the most promising feedstocks in the mid to longer term include grain straws and possibly fast growing hybrid trees such as poplar, willow, and mulberry.
The results of the preliminary sectoral environmental review indicate that the overall environmental impacts of a biofuel production and usage in Armenia would be considered positive including the reduction of Greenhouse gas emissions over time.
Assessment of Potential Bio-Ethanol Market Size and Estimated Ceiling Price
A forecast of bio-ethanol production market size required to achieve selected blending levels by volume with petrol in thousands of tonnes per annum is presented in the table below (10% Growth in Demand for Petrol, in Thousands of Tonnes per Annum)
Potential Co-Product Markets and Estimated Prices
The sale of co-products from a planned bio-ethanol plant is essential to ensure the economic viability of such a project. Potential co-products from a Jerusalem artichoke plant include:
Pulp which can be utilized as a high carbohydrate animal feed
Feedstock for anaerobic digestion to produce heat and power
CO2 for the non-alcoholic beverage industry and dry ice
Key Technical Findings and Recommendations
The preferred scenario for developing a new bio-ethanol industry in Armenia is promoting two processing of 7,000 tonnes per annum capacity each at separate locations in the near to mid term;
The most promising bio-ethanol feedstocks that can be produced in large quantities on surplus lands by 2014 include Jerusalem artichoke, feed corn, sweet sorghum, and possibly chicory.
Estimate of Total Financing Requirements for Bioethanol Plant for Jerusalem artichoke
A comparative summary of cost to construct and total financing requirements is presented in the table assuming a limited recourse project financing with a 60/40 debt to equity ratio (in 2008 U.S. Dollars)
Preliminary Financial Analysis
The major variables for the financial analysis of a biofuels project are bio-ethanol price, feedstock price, co-product price, and energy costs. The assumptions used were:
Bio-Ethanol Retail Price. The bio-ethanol retail price used in the financial forecast is $1.34 (410 AMD) per liter of denatured bio-ethanol. The net price includes denatured bio-ethanol product sold at $1.34 per liter less shipping ($0.01/liter) and a 1% sales commission.
Bio-Ethanol Yield. A yield of 92.4 liters of denatured bio-ethanol for each tonne of Jerusalem artichoke (at 80% moisture or less) processed was used in the financial analysis. The yield level of different types of Jerusalem artichoke is under review and current studies conducted in Armenia are showing significantly higher yields for some of the hybrid species than the project team actually included in its financial projections in an effort to be as conservative as possible in its modelling activities.
Feedstock Price. Feedstock prices were set to ensure the plant has a minimum Return on Investment (ROI) of 15%. These prices were used in the financial model and represent the highest price that the processing plant can pay for feedstocks, and any price below these figures will earn the investor additional profits and higher returns.
