Infrastructure funds

Why Indonesian bagasse ?

Let’s jump in with a concrete example: Replacing an old boiler at a Sugar mill costs about 12M USD. Heating efficiency goes up from 60% to 80%, freeing up to 65,000 ton of bagasse per year. If your cost of capital is 15%, this translates into a 28 USD/ton of biomass. Meanwhile, the operating costs of a wood plantations is in the 50 to 65 USD/ton range.

Bagasse is a excellent renewable fuel, used around the world for power generation. The most striking example is Brazil, with 7GW of installed capacity and bagasse covering ~5% of total electricity demand. Thailand, India, Mauritius, and many others follow suite.

In Indonesia, the national power utility, PLN, is not purchasing electricity generated from bagasse at a reasonable price. Without a carbon tax, biomass needs regulatory support to compete with coal. Indonesia not only lacks this support, but the government is effectively subsidizing coal by forcing exporters to direct a portion of their output onto the domestic market at a low, controlled price.

It is the recent emergence of a global market for biomass pellets (see this video), that makes it possible for Indonesian mills to profit from bagasse. A single, moderately larger sugar mill (1 million ton per year of cane processing capacity) can save up to 200,000 ton per year of bagasse if refurbished with modern equipment. With 26 sugar mills of that size in Indonesia, about 2 million tons per year of torrefied bagasse pellets could be produced.

2 million tons per year a is sizable amount, but not enough to cover all of global demand. Since other countries will continue to use bagasse for on-site power generation, it is likely that wood plantations remain the marginal supply which sets the price equilibrium for pellets.

Indonesian bagasse could very well be enjoying a long term producer surplus in the pellet market.

Regulation

Unlike utility scale solar and wind, MOBIONU’s projects do not require approval from ESDM or PLN, making it much likely to succeed and faster to execute.

The permits required are limited to:

• Trade Business License (SIUP - Surat Izin Usaha Perdagangan): Issued by the Ministry of Trade
• Export Approval (SPE - Surat Persetujuan Ekspor), also issued by the Ministry of Trade
• Industrial License (IUI - Izin Usaha Industri), managed by the Ministry of Industry, obtained through the Online Single Submission (OSS) System.
• Environmental Permits: SPPL (Surat Pernyataan Kesanggupan Pengelolaan dan Pemantauan Lingkungan Hidup - Statement of Capability for Environmental Management and Monitoring), obtained through the Online Single Submission (OSS) System.

Profitability

At current market prices for biomass pellets, project yields are around 15% unlevered. These return can be further enhanced through carbon credits.

Revenues will be denominated in JPY, KRW, USD or EUR, lessening currency and macro risks.

Biomass buyers are generating electricity with these pellets, and getting paid through long term Feed in Tariffs. They are therefore incentivized to fix their cost of supply over the long term.