Investigating investment risk factors in biomass embedded power generation projects

MBA, North-West University, Potchefstroom CampusDuring the last decade, commercial and industrial businesses in South Africa have been severely impacted by increased load-shedding and rising electricity prices. This has, in part, contributed to an increase in the number of companies investing in embedded generation. Sunflower-crushing plants present unique opportunities for embedded generation in the agro-processing industry. The husks produced by these plants can serve as a high-energy content fuel source, which, if correctly utilised, can be converted to power for use by the crushing plant. Unfortunately, information regarding biomass power generation in the South African context is sparse, and no known source investigates renewable energy for sunflower-crushing plants in particular. As such, crushing-plant owners and other investors have little information available to evaluate the possible risks associated with investing in the opportunity of embedded generation in this industry. This study aims to partially address the gap in research by identifying and assessing risks unique to the opportunity. A literature review was used as the basis for identifying risks. Statistical evaluation of relevant data enabled the development of models considering several variables' stochastic nature. Monte-Carlo simulations (MCS) of the financial performance allowed the calculation of risk metrics such as value at risk (VaR). Risk mitigation strategies were also identified through the literature study and serve as a framework for risk mitigation strategies suggested in this study. The results revealed several inherent risks that need to be accepted by investors. Factors include uncertainty in production levels, the possible impact of load-shedding, and the future escalation in Eskom electricity tariffs. Risks that could have a significant effect but can be mitigated were also identified, with strategies proposed to either transfer or control risks. The risks were further mapped according to impact, likelihood, and level of mitigation, and together with the recommendations give decision makers insight into the most pertinent risks and focus areas for risk management. The study forms a basis for further research in biomass renewable power generation and risk management.Master