Electricity prices in Brazil's power market are expected to remain close to the regulatory bottom in coming months, prompting sugar and ethanol milling companies to search for new demand outlets to offload sugarcane bagasse surpluses.
Bagasse — the biomass from the sugarcane crushing process — is widely used in the Brazilian sugar and ethanol industry to meet the energy needs of its own production processes and, more recently, to generate surplus electricity for sale on the national grid.
But the power clearing price (PLD) has not moved from the regulatory floor — which is currently set at R69.04/MWh ($14.03/MWh) — since October 2022 and some experts predict it will remain at the bottom for at least another 12 months.
The lower prices reflect higher-than-average rain levels during Brazil's rainy season this year, which then dragged into the dry season, because of a strong La Nina weather phenomenon.
That resulted in record levels for water storage — measured at 82.45pc on 25 August, according to data from chamber of electric energy commercialization CCEE — which is used in hydroelectric generation. The PLD is heavily regulated and calculated through a computational model that strongly factors in water storage level and rain data.
That outlook has encouraged the sugarcane sector to explore different sales avenues for the surplus bagasse from its mills, especially those that are not tied to boilerplate long-term energy contracts.
"Surplus bagasse is sold to generate energy for the production of orange juice in Sao Paulo state, also home to most of the sugarcane industry," an ethanol firm energy director told Argus. "But all the new investment in second-generation ethanol has also led to some increase in bagasse demand."
He was hinting at sugarcane milling group Raizen's cellulosic, or second generation (2G), ethanol pilot plant at its Costa Pinto Bioenergy Park in Piracicaba, on the outskirts of Sao Paulo. In the 2022-23 harvest season, the unit produced 30.3mn l (525 b/d) of the 2G specification, which is made with bagasse as well as discarded tops and leaves from the cane harvest.
Sources said that Raizen acquired surplus bagasse from nearby mills to help boost supplies to meet its second-generation ethanol production targets. "It's hard to say whether this is going to be a proper market in the future, but ensuring supply of raw materials is a dilemma common to all biofuels," the energy director said.
Raizen's second E2G unit should come online in September at its Bonfim Bioenery Park in Guariba, also in Sao Paulo, which should require vast amounts of bagasse supplies to reach its 82mn l/yr of total capacity. The firm, a joint venture between Shell and Brazilian conglomerate Cosan, has ambitious plans to have 20 E2G units in operation by March 2031, with installed capacity to hit 1.6bn l/yr by 2031.
Mato Grosso do Sul and Goias industry players discussed similar arrangements, but with producers of ethanol from corn from the center-west states.
Inpasa Brasil's Dourados corn ethanol plant, in Mato Grosso do Sul, and Sao Martinho's Boa Vista unit, in Goias, both have secured bagasse supplies from nearby cane millers to power their operations, sources said.
In both cases, bagasse trading is carried out on an over-the-counter basis, with sellers eyeing the regional supply-demand balance, logistics costs and the trade-off with the energy market. Typically, the price buildup considers the product value and freight rates, but each share can vary widely from one region to another, according to local biomass values.
From subproduct to feedstock
In Brazil, the sugar and ethanol industry expanded its role in the domestic electricity matrix from 2000s onwards, meaning sugarcane residues such as surplus bagasse that were previously discarded emerged as a valuable resource.
Besides energy, bagasse can also serve as a natural fertilizer, an exportable commodity in the form of pellets or a suitable component for animal feed.
Nailing a proper bagasse production figure is challenging because of the many factors and variables behind the complex decision-making process that precede obtaining the residue. The mix choice between sugar and ethanol, or even how modern a plant's facilities are, influence how much steam will be needed for the operation and, consequently, the leftover bagasse.
Research conducted by renewables national laboratory LNBR, which is a part of sugarcane research center CNPEM, estimates that Brazil has a production potential of 162mn metric tons/harvest of bagasse, with the center-south accounting for 92pc of national production.
