Brazilian integrated sugarcane ethanol, sugar, and bioenergy major Raízen S.A. has announced that it has signed a long-term agreement to supply second-generation cellulosic ethanol (E2G) produced from sugarcane biomass to Shell Trading Rotterdam B. V. (Shell). In total, Raízen will supply 3.3 billion litres (3.3 million m³) of E2G that will be produced in five new plants with an expectation to start operations between 2025 and 2027.
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According to a statement, the agreement between the parties establishes the supply 3.3 billion liters (3.3 million m³) of cellulosic ethanol that will be produced in five new “E2G” plants to be built by Raízen with an expectation to start operations between 2025 and 2027.
Large-scale production of sugarcane-based cellulosic ethanol will position Raízen as a leading global provider of waste-based, low-carbon fuels and feedstock to replace fossil fuels. The size of this deal underscores that our E2G technology has achieved commercial scale and is able to support our customers’ decarbonization journeys around the globe, said Ricardo Mussa, CEO of Raízen.
Shell Trading Rotterdam will receive the ethanol produced by these five new plants for the first ten years of operation of each plant, with supply guaranteed until 2037.
Global demand for sustainable fuels is growing. Combining Raízen’s innovative sugar-cane waste technology with Shell’s global distribution network and customer relationships will help to meet that demand, said Andrew Smith, EVP for Shell Trading and Supply.
The new plants will enable Raízen to operate highly integrated bioenergy parks, while the supply deal will help Shell with its strategy of becoming a net-zero emissions energy business by 2050.
Billion dollar investment
Raízen will build the new plants between 2023 and 2027. Each plant will take up to 22 months to be operational at a CAPEX of approximately BRL 1.2 billion per plant (≈US$232.37 million), for a total of BRL 6.0 billion (≈ US$1.16 billion) in real terms.
The revenue from sales under this agreement will be equivalent to at least EUR 3.3 billion, which Raízen says ensures a “predictable and robust level of returns in line with the Company’s business plan.”
The agreement also establishes a price adjustment linked to the E2G spot price at the time of supply of the product. As such, if the market price is above the minimum price established, the premium will be divided between the parties.
Raízen expects an EBITDA Margin of approximately 50 percent, while maintenance CAPEX is estimated at around BRL50 million (≈ US$9.7 million) per plant per year, yielding a robust cash flow.
Plans for 20 E2G plants by 2030
Shell contributed the cellulosic ethanol technology during the formation of Raízen, a joint venture with Cosan S.A., in 2011.
Since then, Raízen has developed and scaled up the process for making low-carbon intensity ethanol from sugarcane waste, and currently operates the world’s largest E2G plant at the Costa Pinto Bioenergy Park, which is expected to achieve record production of 30 000 m³ in the 2022’23 crop year.
In its operating model, the residues and waste of sugarcane biomass are processed at its Bioenergy Parks, expanding the biofuel production capacity by about 50 percent, without any additional planted area.
Investments will be funded by the proceeds from Raízen’s IPO and from business cash generation, combined with an optimized capital structure.
Raízen reaffirms its plan to have 20 E2G plants by crop year 2030’31, with an installed production capacity of approximately 1.6 million m³ per annum.
With proven proprietary technology, Raízen will thereby consolidate its position as the world’s largest producer and provider of cellulosic ethanol, commercializing most of it under long-term agreements.
This agreement with Shell, in addition to the other existing ones, expands Raízen’s E2G backlog of contracts to a minimum of EUR 4.3 billion equivalent to 4.3 million m³ of E2G already sold under long-term contracts.