Poor Bioenergy Industry

Bioenergy industry seems to be an emerging industry in China. But in fact, the bioenergy enterprises in China have not seen the profits by now.

Bioenergy is renewable energy made available from materials derived from biological sources. In its most narrow sense it is a synonym to biofuel, which is fuel derived from biological sources. In its broader sense it includes biomass, the biological material used as a biofuel, as well as the social, economic, scientific and technical fields associated with using biological sources for energy.

What’s above is the description of bioenergy in Wikipedia. In China, bioenergy brought the listed companies a good beginning, but didn’t give them a good way to earn money. Jiangsu Fengyuan Biochemical Co., Ltd (Fengyuan Biochemical), which is the leading enterprise in China’s bioenergy industry, can produce 440 thousand tons of fuel ethanol every year. But its bioenergy sector can not see profits without the subsidies from the government. Another company – Beihai Gofar – has to assume the heavy burden from its bioenergy project because it has not gained the approval from the government to start the bioenergy production.

As the largest fuel ethanol manufacturing enterprise in China, Fengyuan Biochemical has already had the ability to satisfy the demand for fuel ethanol of the whole Anhui Province, 7 cities in Shandong, 5 cities in Jiangsu and 2 cities in Hebei.

Taking a fancy to the leading position of Fengyuan Biochemical in fuel ethanol field, China National Cereals, Oils and Foodstuffs Corporation (COFCO) spent 1 billion yuan (USD 146.4 million) in taking Fengyuan Biochemical at the end of 2006, with the aim of making more and more places use the fuel ethanol. This merger helped COFCO to gain three of the four licenses to produce fuel ethanol and 70% of the fuel ethanol production capacity in China.

At first the production of fuel ethanol was only based on the aged corns, wheat and so on, of which the corns played a more important role. But with the enlargement of the production scale of fuel ethanol and the development of the other grain processing industries, the aged grain has nearly been consumed and the demand for the new grain is increasing. However, the grain supply in China tends to become intense. The central government has to pay attention to the food safety problem. In that case, the National Development and Reform Commission (NDRC) published the Guiding Opinion on Facilitation of the Healthy Development of Corn Refined Processing Industry in September 2007, clearly stipulating that the local governments or enterprises in different places shall not build projects of fuel ethanol without approvals in the name of processing corns during the 11th Five-year Period (2006-2010), which can result in the blind development of corn processing capacity. Meanwhile, the local governments were asked to comprehensively clear up the projects under construction or to be constructed. The central government also encourages the development producing fuel ethanol from the non-grain materials. These policies confront the fuel ethanol companies with the dual stress of the raw materials and cost.

Now, Fengyuan Biochemical still produces fuel ethanol from the corns and maintains its profits with the subsidies from the government. Its 2008 Annual Report showed that the revenue of the fuel ethanol and its byproducts was 2.348 billion yuan (USD 348.8 million), taking 48.90% of its total income. The gross profit ratio was -16.05%. In that period, the government gave the company 2,251 yuan (USD 329.6) as the subsidies for each ton of fuel ethanol it produced. In 2008, the company produced more than 400 thousand tons of fuel ethanol and the subsidies it received from the government was 900 million yuan (USD 131.8 million). It is quite easy to see that the company is very dependent on the subsidies from the government for the fuel ethanol.

In 2007, Fengyuan Biochemical made up the deficits and gained surpluses, which also depended on the subsidies of 430 million yuan (USD 62.95 million) from the government in that year.

So far as we know, there is a large gap between the efficiency of producing fuel ethanol in China and the USA. In China, to produce one ton of fuel ethanol costs 12 tons of water while in the USA it only costs 1.8 tons. In China, one ton fuel ethanol can be produced from as many as 3.3 tons of corns while in the USA 2.8 tons of corns are enough. Meanwhile, much more pollution will be seen in China in the process of producing fuel ethanol. Compared with the one in the USA, the technology of producing fuel ethanol in China is somewhat behindhand with the problems of high cost, low quality and serious pollution. If the enterprises want to break even or gain profits, they have to depend on the subsidies from the government. In addition, the grain production in China can not meet the increasing demand of producing fuel ethanol. Therefore, the fuel ethanol producers in China must find a way to produce the fuel ethanol from the straws and some other kinds of vegetable fiber, which is the most efficient way to solve the problem.

In order to reduce the cost, many enterprises have tried to use cassava and coral plants to produce the fuel ethanol.

Beihai Gofar is one of first listed companies to produce fuel ethanol from cassava in China. According to the report, Beihai Gofar once had no core business, but after acquiring the whole shares of Guangxi Gofar Bioenergy Co., Ltd, the company established the biofuel as its core business. Its leaders and workers presumed that the biofuel can be their economic pillar in the future. However, its project of producing fuel ethanol has not been approved by the government and the company is struggling in debts trouble.

On July 18, 2008, Hainan Yedao Co., Ltd published an announcement, saying the company planned to cooperate with a large-sized state-owned oil chemical enterprise in a project which can produce 100 thousand tons of fuel ethanol and 20 thousand tons of liquid carbon dioxide (food level) from cassava each year. The total investment of the project was 350 million yuan (USD 51.24 million). However, its progress was quite slow. In 2008, the project was just “ready for construction”.

Anhui Guofeng Imp. & Exp. Co., Ltd (Anhui Guofeng) is trying to make breakthrough in producing fuel ethanol from coral plants. At the end of 2006, Guofeng Group, which is the major shareholder of the company, had its bio-diesel first-phase project launched. This is the largest bio-diesel project by now. Therefore, people all thought that this project would be injected into Anhui Guofeng, which is a listed company. However, this thing has never happened.