However, the industry is currently waiting for government to finalise its fuel support strategy which will be released in August this year. "This will give a strong indication to farmers and fuel producers about the financial support they will receive from government to get the industry up to the standard where it can compete with the established fossil fuel industry," Frost & Sullivan industry analyst Cornelis van der Waal tells Engineering News.
He states that the technology used in the industry is mainly based on European and American technology but it is expected that the cost of technology will decrease significantly over the next ten years. However, producers will have to develop the local market, and will have to invest in the available technology at current prices.
Van der Waal says that the biofuels industry is currently stagnant, but considerable investment is being planned and will commence as soon as government unveils its fuel support strategy.
"The aim is to substitute at least 4,5% of all fuels consumed by 2010," explains Van der Waal. He adds that additional production will have a number of positive spin-offs for the country. "The first is increased employment in the agricultural and biofuels industry. The second is the retention of valuable currency that would have been spent on acquiring crude oil products. This, in turn, should have a positive influence on the overall economy," he says.
There are a number of challenges currently facing the biofuels industry. Van der Waal says these include the lack of certainty regarding subsidies as well as the lack of guaranteed offset markets. He says the challenge of skills development is also an important aspect to consider in the industry, as well as the challenges being faced in sufficient feedstock production, without affecting food production.
But, the production of bioethanol and biodiesel for local consumption and even for export purposes, is the biggest potential for growth in the industry.
The development of this market is a direct result of the increased fossil fuel prices experienced over the last three years. The technology used for biofuels has been around for many years but as a result of relatively low fossil fuel costs the biofuels industry was not competitive with traditional fuel production processes. The main challenge will be to develop an industry that is sustainable even when the price of crude oil drops to levels of about $40 to $50 a barrel.
Frost & Sullivan is currently participating in a study on the Southern African biofuels market which will provide a clear indication of the state of the industry, concludes van der Waal.