The insertion of biogas in the sugarcane mill product portfolio: A study using the robust optimization approach

Abstract

Biogas generation from vinasse, a problematic residue from the ethanol process, has been discussed as an alternative to increase sustainability and profitability in the Brazilian sugarcane industry. Recent studies have widely assessed the technical feasibility of biogas projects. However, the economic impact of this new product on the overall results of sugarcane mills still needs to be addressed, as this is still an incipient technology in the sector. As price risks represent a significant issue for production decisions in the sugarcane industry, and they may be addressed through portfolio diversification, this paper aims to examine the implications of the insertion of biogas into their product portfolios. A risk measure broadly used in literature, CVaR, was applied in the optimization model proposed. Additionally, a robust counterpart for the model was developed to deal with price uncertainties and assess their potential impact on the portfolio decisions. The models were validated through both a ceteris paribus and a factorial analysis, and the results obtained allowed the understanding of the role that biogas production may play in the sugarcane industry. In both models, standard and robust, the use of biogas for the substitution of diesel stands out as the only economic application. The results also indicate that, for most of the price scenarios performed, electricity generation from biogas is not economically feasible. Furthermore, it was highlighted that the insertion of biogas into the portfolio yields a gain in the overall efficient frontier of sugarcane mills. Thus, in conclusion, this study presents strong evidence of the economic feasibility of biogas generation in the Brazilian sugarcane industry and the model developed to perform this analysis is shown to be a powerful tool to further assess the impact of price policies on their production decisions.