Energy Management Research Journal (EMRJ)

Research Article

Investment analysis of a research and development project for cellulosic ethanol production in Brazil

Reynaldo L. N. Taylor–de–Lima^1,2, Luiz Fernando L. Legey², Luiz Fernando M. Bandeira³ and Adriano Fraga³

¹TL CONSULTORIA, Taylor de Lima Consultoria Ltda ME, Rua Viúva Lacerda, 249, Humaitá, 22261–050 Rio de Janeiro, RJ, Brazil.

²Department of Energy Planning, Graduate School of Engineering (COPPE), The Federal University of Rio de Janeiro (UFRJ), Centro de Tecnologia, Bloco C, Sala 211, Cidade Universitária, Ilha do Fundão, 21941–972 Rio de Janeiro, RJ, Brazil.

³Petrobras Research Centre – Avenida Horácio Macedo, 950, Cidade Universitária, Ilha do Fundão, Rio de Janeiro, RJ – 21941–915, Brazil.

Submitted: April 29, 2020; Accepted: September 16, 2020.

Abstract

This paper analyses the decision–making process of investments in research and development (R&D) projects. A case–study of the development of a technology based on the biochemical conversion of sugarcane bagasse for the production of lignocellulosic ethanol in Brazil is presented. The methodology used is based on the representation of development stages and decision gates, which together with decision trees is able to handle the many uncertainties related to R&D projects. In each decision gate, three possible options are simulated: abandoning the project (i.e., ceasing investments), maintaining its course, or improving its performance by adding more resources. This allows for a wait–and–see approach that incorporates identified sources of uncertainty at intermediate stages of development, thus increasing the chances of project feasibility. Comparisons of project values with and without flexibility — i.e., when options are available or not — show that while the project’s value without flexibility is negative, it becomes positive when flexibility exists.

Keywords

biomass conversion; cellulosic ethanol; research and development; economic feasibility; decision analysis; uncertainty.

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