Transition from fossil-fuel to renewable-energy-based smallholder bioeconomy: Techno-economic analyses of two oil palm production systems

Abstract

Oil palm is the largest source of livelihoods and vegetable oil consumption to most rural households of developing economies in Asia, Africa, and South America. The heavy reliance on fossil-fuel-based energy in palm oil production raises national concerns about reducing carbon emissions and achieving Nationally Determined Contributions in Nigeria. This study investigates the feasibility of typical smallholder palm oil mills using techno-economic analyses. The energy options are diesel and biogas, representing conventional and renewable energy; the latter is a product of anaerobic digestion of palm oil mill effluent and bio-residues that are used to generate electricity. The results show that with a 100% loan, the net present values (NPV), internal rate of return (IRR), return on investment, and payback period are US$214,426, 40%, 35%, and 2.3 years for the diesel systems; the values are US$150,404, 26%, 20%, and 3.6 years for the biogas systems, respectively. The conventional diesel option performs better economically. However, if the biogas system enjoys a 100% initial investment grant and tax exemption in the first four operating years, the IRR will be equal to the diesel system and the NPV higher at US$343,328, making the biogas system more competitive. We conclude that the renewable-energy-based (biogas) system is economically feasible to replace fossil-fuel-based (diesel) systems. There is a need to conduct a cradle-to-grave life cycle assessment to fully understand the environmental impacts of the two contrasting systems, which will help support decision-making and interventions to mitigate climate and promote a greener palm oil economy in Africa.