Projects » Renewable energy » Mozambique Biofuel Pricing Framework

Mozambique Government & RVO: Testing Draft Biofuel Pricing Framework

Biofuel Pricing Framework Mozambique

Client: Government of Mozambique and Netherlands Enterprise Agency
Period: June - September 2014

An appropriate biofuels pricing framework is crucial for the take-off of the biofuel sector. To further the use of biofuels in Mozambique, the Government of Mozambique and the Netherlands Enterprise Agency initiated a research project and contracted Partners for Innovation  to carry out the research.

The aim of the project was to test the draft Mozambican pricing framework for biofuels and to investigate biofuel pricing mechanisms in other countries.

The main insights about biofuel pricing in other countries were:

  1. Industrial policy is needed. A so-called industrial policy is needed for biofuels sector development. An industrial policy is a mix of creating market demand, supporting the development of the industry, easing investments, bringing clarity about roles and opportunities, etc. Industrial policies are put in place through collaborative approaches between government and private sector.
  2. A pricing mechanism is required for sector take-off. A pricing mechanism is necessary within this industrial policy because biofuels have to compete with the mature fossil fuel sector and are in most cases more costly than fossil fuels.
  3. Three types of biofuel pricing mechanisms exist. Throughout the world there are basically three types of biofuel pricing mechanisms:
    1. Market-oriented pricing. This system has been successful in creating significant biofuel markets in Brazil, the EU and US. Government does not directly intervene on prices but indirectly through taxation and policies that impact either supply or demand conditions.
    2. Cost-plus pricing. Cost-plus pricing is a mechanisms used in emerging countries. It means that government identifies the cost for biofuels production, blending and distribution in a country and uses this cost to determine biofuels reference prices. The draft biofuel pricing frameworks in Malawi and South Africa are based upon the cost-plus principle.
    3. Maximum pricing. Maximum pricing is also used in emerging countries. Governments set a “cap price” or determine a fixed price.

Specific recommendations were formulated for the Mozambican situation and reported to the Mozambican government.

Project steering of behalf of the Mozambican Inter-Ministerial Committee on Biofuels (CIB) is done by the National Directorate of New and Renewable Energy (DNER), in close cooperation with the Agriculture Promotion Centre of the Ministry of Agriculture (CEPAGRI), and the Netherlands Enterprise Agency (RVO).

More info?