Economic feasibility analysis of diesel replacement by vinasse biogas in a sugarcane fleet: a portfolio optimization approach

Abstract Climate change has taken center stage in international debate in recent years. In this circumstance, several agreements and frameworks were established to reduce pollution and environmental degradation. For instance, the 2016 Paris Agreement was established to set goals to reduce greenhouse gas emissions at international and national levels, respectively. In the climate change context, the bioenergy sector has gained significant importance as a sustainable alternative to fossil fuels. In Brazil, sugarcane presents an opportunity to replace fossil fuel with sugarcane byproducts and wastes, increasing renewable energy generation. In recent years, ethanol production waste, known as vinasse, has gained popularity due to its potential to generate biogas. This residue has a high energy content and is an excellent substitute for fossil fuels. In addition, vinasse biogas presents two possible applications in the sugarcane sector: electricity generation and diesel replacement. Given this, the sugarcane industry can potentially increase its participation in the energy sector beyond bagasse and straw, byproducts already used as renewable energy sources. Thus, it is necessary to evaluate the impacts of biogas insertion in the sugar and ethanol sector. This research aims at studying the alternative of switching fossil fuel use to vinasse biogas in sugarcane truck fleets. The primary tool used in this study was the portfolio theory. The optimization model was built, including investment costs from biogas production and diesel replacement and revenue generated from Brazilian carbon credits (CBIO), seeking to minimize the risk, measured through Conditional Value at Risk (CVaR), for a given return. In this model, the role of biogas is analyzed considering a hypothetical plant, and results show a positive economic impact of biogas production. Results show that the CBIOS market incentivizes a higher rate of diesel-to-biogas substitution, leading to positive environmental implications. Portfolios with CBIOS achieve nearly 100% diesel substitution, compared to around 80% in scenarios without CBIOS. However, the investment strategy of the model varies depending on the profit range. In the profit range of R$131 to R$152 million, the model focuses on biogas generation and converting diesel engines to biogas. Within higher profit ranges, the model shifts the allocation of vinasse biogas for electricity production as the need for profit increases and prioritizes an increase in sugar production.