IDEAS home Printed from https://ideas.repec.org/a/eee/appene/v258y2020ics0306261919316654.html

Risk-conscious optimization model to support bioenergy investments in the Brazilian sugarcane industry

Author

Listed:
  • Mutran, Victoria M.
  • Ribeiro, Celma O.
  • Nascimento, Claudio A.O.
  • Chachuat, Benoît

Abstract

The past decades have seen a diversification of the sugarcane industry with the emergence of new technology to produce bioenergy from by-product and waste process streams. Given Brazil’s ambitious goal of reducing green-house gas emissions by over 40% below 2005 levels by 2030, it is of paramount importance to develop reliable decision-making systems in order to stimulate investment in these low-carbon technologies. This paper seeks to develop a more accurate optimization model to inform risk-conscious investment decisions for bioenergy generation capacity in sugarcane mills. The main objective is for the model to enable a better understanding of how Brazilian government policies, such as the electricity price in the regulated market, may impact these investments, by taking into account the uncertainty in sugar, ethanol and spot electricity markets and the interdependency between production and investment decisions in terms of saleable product mix. The proposed methodology combines portfolio optimization theory with superstructure process modeling and it relies on simple surrogates derived from a detailed sugarcane plant simulator to retain computational tractability and enable scenario analysis. The case study of an existing sugarcane plant is used to demonstrate the methodology and illustrate how the model can assist decision-makers. In all of the scenarios assessed, the model recommends investment in extra bioelectricity capacity via the anaerobic digestion of vinasse but advises against investment in second-generation ethanol production via the hydrolysis of surplus bagasse. Furthermore, the decision to upgrade the cogeneration system with a condensation turbine is highly sensitive to the electricity price practiced in the regulated market, capacity constraints on the sugar-ethanol mix, and the accepted level of risk. Another key insight drawn from the case study is that recent market conditions have favored a production focused on the sugar business, making it challenging for policy-makers to create attractive scenarios for biofuels. Long-term electricity contracting appears to be the main hedging strategy for de-risking other products and investments in the sugarcane business, provided it is priced adequately.

Suggested Citation

  • Mutran, Victoria M. & Ribeiro, Celma O. & Nascimento, Claudio A.O. & Chachuat, Benoît, 2020. "Risk-conscious optimization model to support bioenergy investments in the Brazilian sugarcane industry," Applied Energy, Elsevier, vol. 258(C).
    • Handle: RePEc:eee:appene:v:258:y:2020:i:c:s0306261919316654
    DOI: 10.1016/j.apenergy.2019.113978
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0306261919316654
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.apenergy.2019.113978?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Oliveira, Sydnei Marssal de & Ribeiro, Celma de Oliveira & Cicogna, Maria Paula Vieira, 2018. "Uncertainty effects on production mix and on hedging decisions: The case of Brazilian ethanol and sugar," Energy Economics, Elsevier, vol. 70(C), pages 516-524.
    2. David E. Bell, 1982. "Regret in Decision Making under Uncertainty," Operations Research, INFORMS, vol. 30(5), pages 961-981, October.
    3. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    4. Carpio, Lucio Guido Tapia & Simone de Souza, Fábio, 2017. "Optimal allocation of sugarcane bagasse for producing bioelectricity and second generation ethanol in Brazil: Scenarios of cost reductions," Renewable Energy, Elsevier, vol. 111(C), pages 771-780.
    5. de Souza, Fabio Cavaliere & Legey, Luiz Fernando Loureiro, 2010. "Dynamics of risk management tools and auctions in the second phase of the Brazilian Electricity Market reform," Energy Policy, Elsevier, vol. 38(4), pages 1715-1733, April.
    6. Yokoyama, Ryohei & Tokunaga, Akira & Wakui, Tetsuya, 2018. "Robust optimal design of energy supply systems under uncertain energy demands based on a mixed-integer linear model," Energy, Elsevier, vol. 153(C), pages 159-169.
    7. Resul Cesur & Pinar Mine Gunes & Erdal Tekin & Aydogan Ulker, 2023. "Socialized Healthcare and Women’s Fertility Decisions," Journal of Human Resources, University of Wisconsin Press, vol. 58(3), pages 1028-1055.
    8. Pazuch, Felix Augusto & Nogueira, Carlos Eduardo Camargo & Souza, Samuel Nelson Melegari & Micuanski, Viviane Cavaler & Friedrich, Leandro & Lenz, Anderson Miguel, 2017. "Economic evaluation of the replacement of sugar cane bagasse by vinasse, as a source of energy in a power plant in the state of Paraná, Brazil," Renewable and Sustainable Energy Reviews, Elsevier, vol. 76(C), pages 34-42.
    9. Arnold, Uwe & Yildiz, Özgür, 2015. "Economic risk analysis of decentralized renewable energy infrastructures – A Monte Carlo Simulation approach," Renewable Energy, Elsevier, vol. 77(C), pages 227-239.
    10. Cheng, Lingfeng & Anderson, C. Lindsay, 2016. "Financial sustainability for a lignocellulosic biorefinery under carbon constraints and price downside risk," Applied Energy, Elsevier, vol. 177(C), pages 98-107.
    11. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    12. de Moraes Dutenkefer, Raphael & de Oliveira Ribeiro, Celma & Morgado Mutran, Victoria & Eduardo Rego, Erik, 2018. "The insertion of biogas in the sugarcane mill product portfolio: A study using the robust optimization approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 729-740.
    13. Dias, Marina O.S. & Junqueira, Tassia L. & Cavalett, Otávio & Pavanello, Lucas G. & Cunha, Marcelo P. & Jesus, Charles D.F. & Maciel Filho, Rubens & Bonomi, Antonio, 2013. "Biorefineries for the production of first and second generation ethanol and electricity from sugarcane," Applied Energy, Elsevier, vol. 109(C), pages 72-78.
    14. Grisi, Edson F. & Yusta, Jose M. & Dufo-López, Rodolfo, 2012. "Opportunity costs for bioelectricity sales in Brazilian sucro-energetic industries," Applied Energy, Elsevier, vol. 92(C), pages 860-867.
    15. Dantas, Guilherme A. & Legey, Luiz F.L. & Mazzone, Antonella, 2013. "Energy from sugarcane bagasse in Brazil: An assessment of the productivity and cost of different technological routes," Renewable and Sustainable Energy Reviews, Elsevier, vol. 21(C), pages 356-364.
    16. Rego, Erik Eduardo, 2013. "Reserve price: Lessons learned from Brazilian electricity procurement auctions," Energy Policy, Elsevier, vol. 60(C), pages 217-223.
    17. Yılmaz, Sebnem & Selim, Hasan, 2013. "A review on the methods for biomass to energy conversion systems design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 25(C), pages 420-430.
    18. Kermani, Maziar & Wallerand, Anna S. & Kantor, Ivan D. & Maréchal, François, 2018. "Generic superstructure synthesis of organic Rankine cycles for waste heat recovery in industrial processes," Applied Energy, Elsevier, vol. 212(C), pages 1203-1225.
    19. Karmellos, M. & Georgiou, P.N. & Mavrotas, G., 2019. "A comparison of methods for the optimal design of Distributed Energy Systems under uncertainty," Energy, Elsevier, vol. 178(C), pages 318-333.
    20. de Carvalho, Ariovaldo Lopes & Antunes, Carlos Henggeler & Freire, Fausto, 2016. "Economic-energy-environment analysis of prospective sugarcane bioethanol production in Brazil," Applied Energy, Elsevier, vol. 181(C), pages 514-526.
    21. Costa, Caliane Bastos Borba & Potrich, Erich & Cruz, Antonio José Gonçalves, 2016. "Multiobjective optimization of a sugarcane biorefinery involving process and environmental aspects," Renewable Energy, Elsevier, vol. 96(PB), pages 1142-1152.
    22. Khatiwada, Dilip & Leduc, Sylvain & Silveira, Semida & McCallum, Ian, 2016. "Optimizing ethanol and bioelectricity production in sugarcane biorefineries in Brazil," Renewable Energy, Elsevier, vol. 85(C), pages 371-386.
    23. Rockafellar, R. Tyrrell & Uryasev, Stanislav, 2002. "Conditional value-at-risk for general loss distributions," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1443-1471, July.
    24. Schnitkey, Gary, . "Fertilizer Prices Higher for 2019 Crop," farmdoc daily, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics, vol. 8.
    25. Katharine Ricke & Laurent Drouet & Ken Caldeira & Massimo Tavoni, 2019. "Author Correction: Country-level social cost of carbon," Nature Climate Change, Nature, vol. 9(7), pages 567-567, July.
    26. Moraes, Bruna S. & Junqueira, Tassia L. & Pavanello, Lucas G. & Cavalett, Otávio & Mantelatto, Paulo E. & Bonomi, Antonio & Zaiat, Marcelo, 2014. "Anaerobic digestion of vinasse from sugarcane biorefineries in Brazil from energy, environmental, and economic perspectives: Profit or expense?," Applied Energy, Elsevier, vol. 113(C), pages 825-835.
    27. Bechara, Rami & Gomez, Adrien & Saint-Antonin, Valérie & Schweitzer, Jean-Marc & Maréchal, François, 2016. "Methodology for the design and comparison of optimal production configurations of first and first and second generation ethanol with power," Applied Energy, Elsevier, vol. 184(C), pages 247-265.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. da Silva, Aline Veronese & Rato, Thaís Araújo Tarelho, 2024. "Navigating the transition: The impacts of electricity tariff regulation on distributed generation in Brazil," Utilities Policy, Elsevier, vol. 90(C).
    2. Munir Younes Soares & Dorel Soares Ramos & Margareth de Oliveira Pavan & Fabio A. Diuana, 2023. "Barriers to the Expansion of Sugarcane Bioelectricity in Brazilian Energy Transition," Energies, MDPI, vol. 16(2), pages 1-18, January.
    3. Fuess, L.T. & Cruz, R.B.C.M. & Zaiat, M. & Nascimento, C.A.O., 2021. "Diversifying the portfolio of sugarcane biorefineries: Anaerobic digestion as the core process for enhanced resource recovery," Renewable and Sustainable Energy Reviews, Elsevier, vol. 147(C).
    4. Elias, Andrew Milli & Longati, Andreza Aparecida & de Campos Giordano, Roberto & Furlan, Felipe Fernando, 2021. "Retro-techno-economic-environmental analysis improves the operation efficiency of 1G-2G bioethanol and bioelectricity facilities," Applied Energy, Elsevier, vol. 282(PA).
    5. Izanloo, Milad & Aslani, Alireza & Zahedi, Rahim, 2022. "Development of a Machine learning assessment method for renewable energy investment decision making," Applied Energy, Elsevier, vol. 327(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lyrio de Oliveira, Lucas & García Kerdan, Iván & de Oliveira Ribeiro, Celma & Oller do Nascimento, Claudio Augusto & Rego, Erik Eduardo & Giarola, Sara & Hawkes, Adam, 2020. "Modelling the technical potential of bioelectricity production under land use constraints: A multi-region Brazil case study," Renewable and Sustainable Energy Reviews, Elsevier, vol. 123(C).
    2. Cervi, Walter Rossi & Lamparelli, Rubens Augusto Camargo & Seabra, Joaquim Eugênio Abel & Junginger, Martin & van der Hilst, Floor, 2020. "Spatial assessment of the techno-economic potential of bioelectricity production from sugarcane straw," Renewable Energy, Elsevier, vol. 156(C), pages 1313-1324.
    3. Aquila, Giancarlo & Coelho, Eden de Oliveira Pinto & Bonatto, Benedito Donizeti & Pamplona, Edson de Oliveira & Nakamura, Wilson Toshiro, 2021. "Perspective of uncertainty and risk from the CVaR-LCOE approach: An analysis of the case of PV microgeneration in Minas Gerais, Brazil," Energy, Elsevier, vol. 226(C).
    4. Charilaos Mertzanis, 2013. "Risk Management Challenges after the Financial Crisis," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 42(3), pages 285-320, November.
    5. Carminati, Hudson Bolsoni & Milão, Raquel de Freitas D. & de Medeiros, José Luiz & Araújo, Ofélia de Queiroz F., 2019. "Bioenergy and full carbon dioxide sinking in sugarcane-biorefinery with post-combustion capture and storage: Techno-economic feasibility," Applied Energy, Elsevier, vol. 254(C).
    6. de Moraes Dutenkefer, Raphael & de Oliveira Ribeiro, Celma & Morgado Mutran, Victoria & Eduardo Rego, Erik, 2018. "The insertion of biogas in the sugarcane mill product portfolio: A study using the robust optimization approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 729-740.
    7. Oliveira, Cássia M. & Pavão, Leandro V. & Ravagnani, Mauro A.S.S. & Cruz, Antonio J.G. & Costa, Caliane B.B., 2018. "Process integration of a multiperiod sugarcane biorefinery," Applied Energy, Elsevier, vol. 213(C), pages 520-539.
    8. Kashanian, Motahareh & Pishvaee, Mir Saman & Sahebi, Hadi, 2020. "Sustainable biomass portfolio sourcing plan using multi-stage stochastic programming," Energy, Elsevier, vol. 204(C).
    9. Cui, Xueting & Zhu, Shushang & Sun, Xiaoling & Li, Duan, 2013. "Nonlinear portfolio selection using approximate parametric Value-at-Risk," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 2124-2139.
    10. Malavasi, Matteo & Ortobelli Lozza, Sergio & Trück, Stefan, 2021. "Second order of stochastic dominance efficiency vs mean variance efficiency," European Journal of Operational Research, Elsevier, vol. 290(3), pages 1192-1206.
    11. Yao, Haixiang & Huang, Jinbo & Li, Yong & Humphrey, Jacquelyn E., 2021. "A general approach to smooth and convex portfolio optimization using lower partial moments," Journal of Banking & Finance, Elsevier, vol. 129(C).
    12. Branda, Martin, 2013. "Diversification-consistent data envelopment analysis with general deviation measures," European Journal of Operational Research, Elsevier, vol. 226(3), pages 626-635.
    13. Vladimir Rankovic & Mikica Drenovak & Branko Uroševic & Ranko Jelic, 2016. "Mean Univariate-GARCH VaR Portfolio Optimization: Actual Portfolio Approach," CESifo Working Paper Series 5731, CESifo.
    14. Harris, Richard D.F. & Mazibas, Murat, 2013. "Dynamic hedge fund portfolio construction: A semi-parametric approach," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 139-149.
    15. Karma, Otto & Sander, Priit, 2006. "The impact of financial leverage on risk of equity measured by loss-oriented risk measures: An option pricing approach," European Journal of Operational Research, Elsevier, vol. 175(3), pages 1340-1356, December.
    16. Víctor Adame-García & Fernando Fernández-Rodríguez & Simón Sosvilla-Rivero, 2017. "“Resolution of optimization problems and construction of efficient portfolios: An application to the Euro Stoxx 50 index"," IREA Working Papers 201702, University of Barcelona, Research Institute of Applied Economics, revised Feb 2017.
    17. Hsieh, Chung-Chi & Lu, Yu-Ting, 2010. "Manufacturer's return policy in a two-stage supply chain with two risk-averse retailers and random demand," European Journal of Operational Research, Elsevier, vol. 207(1), pages 514-523, November.
    18. Dominique Guegan & Bertrand K Hassani, 2014. "Distortion Risk Measures or the Transformation of Unimodal Distributions into Multimodal Functions," Documents de travail du Centre d'Economie de la Sorbonne 14008, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    19. Soleimani, Hamed & Govindan, Kannan, 2014. "Reverse logistics network design and planning utilizing conditional value at risk," European Journal of Operational Research, Elsevier, vol. 237(2), pages 487-497.
    20. Yuichi Takano & Keisuke Nanjo & Noriyoshi Sukegawa & Shinji Mizuno, 2015. "Cutting plane algorithms for mean-CVaR portfolio optimization with nonconvex transaction costs," Computational Management Science, Springer, vol. 12(2), pages 319-340, April.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:appene:v:258:y:2020:i:c:s0306261919316654. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.