As the focus on biomass energy has intensified, 'green energy' and 'sustainability' have emerged as today’s buzzwords on the back of initiatives such as the EU’s Renewable Energy Directive, which outlines the EU’s aim to derive 20% of its share of energy from renewable sources by 2020.

“Biomass is perceived by many as a subsistence energy source, and when they think [of] biomass in African countries, they think of firewood in poor, rural households,” says Sonia Medina, chief operating officer of Africa Renewables (AfriRen).

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The World Bank found that governmental policies, especially in Africa, tended to focus on fuel-switching, as the biomass energy sector was viewed almost entirely negatively. “In many parts of Africa, biomass use by households has been difficult to address because the resource is often not commercially available and therefore little incentive [exists] to preserve it,” says Lucio Monari, the World Bank’s sector manager for the African energy group. However, the biomass industry is evolving and sub-Saharan Africa could see an upswing in demand from foreign markets.

Turning green

Renewable energy policy in Europe will generate an increase in biomass demand of 44% by 2020, as the energy, industrial and residential sectors all step up their usage, according to findings by the European Biomass Review. While biomass is viewed as an attractive alternative energy source, and as EU countries make changes in order to meet renewable energy goals, the demand for imported biomass will rise.

“I am not surprised by the upswing,” says Andrew Perkins, partner at Ernst & Young’s environmental finance division. “There needs to be more renewable energy produced and biomass is a logical next step.”

Management consultancy McKinsey & Company forecast an increase in biomass demand when it predicted that Africa’s potential to raise the volume and value of its agricultural production could lead the sector to grow to be worth $880bn per year by 2030. Within this sector, McKinsey found that biofuel processing is the fastest-growing opportunity in Africa’s downstream markets. In fact, if global oil prices remain above $70 per barrel, Africa could become Europe’s major biofuel supplier, leading biofuels to become a $23bn market by 2030.

“If you look at European utilities, they are actively trying to set up supply chains, [with] some already supporting imports from overseas,” says Hannes Lechner, principal of global bioenergy practice at Pöyry Management Consulting. “There is a strong focus on importing from North America, Canada, and [now] Brazil. In the longer term, we could see western Africa develop into a biomass supplier.”

With the potential value of biomass trade for sub-Saharan African estimated by the African Review of Business and Technology to be $2bn by 2013, some companies have begun making inroads into the continent to capture this opportunity.

First in

In January 2012, Takoradi Renewable Energy, a London-based subsidiary of biomass producer AfriRen, secured a $5m credit facility from Standard Chartered Bank Ghana to support its first biomass energy project in Africa.

“We source the biomass from plantations in west Africa, [and] in this case it is in Ghana,” says Ms Medina. “The life cycle of the rubber trees is 30 years. Once the life cycle is complete, we come in and transform the trees that do not produce rubber any more into fuel. We process them [as] woodchips and we transport it to Denmark because we have a long-term agreement with Verdo Energy, a Danish utility.”

This method of transforming redundant rubber trees into woodchips displaces the need to burn coal and, AfriRen maintains, assists Europe in meeting its renewable energy policy target. Following deals with Ghana Rubber Estates and Verdo, this loan will finalise AfriRen’s Ghana distribution chain, and should see the company double its total biomass exports from Africa to Europe by 2016.

AfriRen is not alone in capitalising on Africa’s biomass sector. Since its creation in 2007, Buchanan Renewables has been producing woodchips from unproductive rubber trees in Liberia for export to Europe. According to the company’s data, it has already secured more than $100m in revenues through long-term export contracts with major European utility companies. With $120m-worth of investments already made in Buchanan, which is majority-owned by Switzerland-based private investment firm Pamoja Capital, the business appears to be thriving.

“[Buchanan] is similar in many respects to AfriRen,” says Marek Guizot, the UK’s principal and head of forestry at Pöyry Management Consulting. “With the end of [civil] hostilities in Liberia, rubber-wood plantations are being rejuvenated, and over-mature trees are a potential source of biomass supply, which can be harvested straight away at a relatively low cost.”

It seems that this sector not only caters to a demand from resource-hungry countries, principally in Europe, but it also presents several African countries the prospect of economic diversification through developing their biomass markets into an important source of FDI.

“That is a good example of the potential opportunity and the money that is there to finance these types of supply-chain developments,” says James Barrett-Miles, director of Ernst & Young’s environmental finance division.

Potential pitfalls

AfriRen and Buchanan’s successes may raise the allure of a greener future that can be met through biofuels, increasing investor expectations that the world’s energy needs can be met through biomass while lowering greenhouse gas emissions, making this all the more attractive to companies. Yet McKinsey warns potential investors in the sector to tread with care, reminding them that this is still a nascent industry that is full of uncertainty. “Although this is undoubtedly an opportunity, it is not an easy opportunity to develop, and there is considerable risk,” says Mr Guizot.

Analysts are quick to point out that while both AfriRen and Buchanan’s achievements are notable, their business model is yet to prove itself in the long term. “One of the challenges is that the European and global sustainability regulation is evolving rapidly and there is very little global consistency on what sustainability standards look like,” says Mr Barrett-Miles. “Any development of a commercial export market needs to have a close eye on where that regulation is going to ensure that the sustainability angle is delivered. Otherwise the commercial aspect of the [project] is severely weakened.”

Emphasising that some of the west African countries that companies source the biomass from are post-war economies, whose rubber plantations were left unattended for several years, Mr Guizot says: “Buchanan, for example, is taking advantage of a situation where there is a temporary oversupply of biomass, in the case of the over-mature rubber plantations. Once that is harvested, the amount of biomass that can be sustainably produced will drop significantly.”

Harnessing power

The private sector involvement within the biomass sector in Africa has generally consisted of small-scale players, and the risk remains high. “There are several obstacles at the moment that are tough for private sector players to circumvent,” says Mr Guizot. “For example, issues around land tenure and the public perception of what is considered to be a land grab by private sector organisations. It is [also] a question of what kind of support African governments can offer smaller private investors to be more successful in their projects.”

While the biomass industry is in its infancy, it can play a fundamental role in Africa’s future economic prospects. McKinsey maintains that Africa can both export and utilise its biomass, and effectively leapfrog straight to the renewable energy age. The opportunity can also be captured if the bioenergy needs of Europe are provided by sub-Saharan Africa through a well-coordinated supply chain.

“You will see the trend of companies harvesting biomass in sub-Saharan Africa, and then distributing this to Europe and [the US] continuing,” says Jean Devlin, global risk analysis consultant at Control Risks. “You can already see that there is a significant amount of capital being deployed at the moment and that is likely to continue. I think the trend we are seeing now will grow over the next five to 10 years.”