Cost benefit and risk analysis of biofuel production in Pakistan

Abstract: To meet rising demand of energy, bioenergy is getting great attention in an energy-deficient country; Pakistan. In this respect, food and non-food feedstocks are being examined economically, environmentally and in terms of energy balance. Work in this thesis deals with supply side analysis of liquid bioenergy options in Pakistan. The main purpose is to measure net economic returns by computing costs and benefits of 1st and 2nd generation biofuels production from the perspectives of private producer. For this purpose, four types of feedstocks i.e. jatropha, switchgrass, corn and sugarcane were selected in accordance with the specific agrarian facts, soil properties and climatic conditions of Pakistan. Due to constrain of unavailability of reliable data for efficient conversion standards in Pakistan, data requirements of biofuel production procedures were adapted from neighbouring and efficiently producing countries. Standard cost-benefit technique was applied to analyze and compare net returns of all the four feedstock-based biofuels in monetary terms. For risk assessment in all biofuels production, Monte Carlo simulation was applied. The results indicated positive net returns only for jatropha. Hence all other feedstocks possessed negative profits and shown economic inefficiency. The major reason was found to be the high feedstock price. A sensitivity analysis was conducted to check the break-even price of feedstock. It indicated that 8%, 30% and 44% decrease in prices of switchgrass, cane molasses and corn, respectively, could make net returns for biofuels positive. Furthermore, a risk analysis was conducted to evaluate the level of risk for each fuel source. The results indicated that there is a trade-off between net returns and risk; high net profits possess high level of risk. Choices of production level in the case of uncertainty vary depending upon the requirement of different criteria. In conclusion, this study favours the production of jatropha biodiesel.