Economic Analysis of Jatropha Bio-diesel Production in Sri Lanka

Abstract

There has been an increasing trend in investments in renewable energy sources in the recent years. This study assesses the economic and financial feasibility of Jatropha production in Sri Lanka under the prevailing policy regime. The nominal protection coefficient and effective protection coefficients were employed to gauge the level of protection for bio-diesel production using Jatropha in Sri Lanka. The cost benefit analysis was performed to assess the feasibility of Jatropha bio-diesel production in Sri Lanka. The conventional measures like NPV, BCR, and IRR were used in financial and economic terms. Nominal Rate of Protection (NPR) was calculated by dividing the local Jatropha bio-diesel price by the border price of biodiesel. The NPR for Bio-diesel implies that nearly 47% of protection at local market level. Effective Protection Rate (EPR) for seed production is 90%, for oil extraction and bio-diesel processing it is 128%. Implication of this is that the producers will be protected and they receive returns 47% greater than what they would have received under free market conditions for Jatropha cultivation. Except for the benchmark situation, all other considered scenarios produce a favourable NPV, BCR and IRR for Jatropha bio-diesel production. Economic benefits due to CO2 reduction were also considered in the analysis.