South Africa already has a tradition of investing in alternative fuels, driven by the necessity to keep the country's wheels turning during the 1980s when international sanctions restricted oil supplies.
However, much of the investment and research into alternative fuels was focused on the process of converting some of South Africa's abundant stocks of coal into fuel. Now, the emphasis is on linking the agricultural sector to the energy industry and to empower rural communities within the power sector.
With the continuing high price of fossil fuels, alternative energy sources have become more attractive after having long been relegated to the back burner due to their uncompetitive costs. Though the biofuels to be produced at the five facilities are expected to cost between $50 and $70 a barrel, in line with current oil prices.
Under the joint IDC-CEF scheme, facilities to produce biofuel using various raw materials will be established in the towns of Hoedspruit and Ogies in Mpumalanga, Cradock in the Eastern Cape, and Makhathini and Pondoland in KwaZulu-Natal.
When operational, the facility at Craddock will turn out 90m litres of biofuel annually by processing sugar beets while the Ogies plant will use maize as its basic ingredient to produce 150m litres of fuel. The Hoedspruit, Makhathini and Pondoland facilities will all use sugar cane, with the last two also using cassava and sweet sorghum. The annual outputs of these three plants will be between 100m and 150m litres of biofuel.
According to Noel Kamrajh, project manager for IDC, detailed engineering studies have been carried out for the Eastern Cape and Mpumalanga developments.
"Both studies are due for completion in September and construction is likely to start in January next year," Kamrajh told the local media.
When fully up and running, the five plants will produce up to 1bn litres of biofuel annually, contributing 1.3% percent to South Africa's gross domestic product, he said.
Another biofuel project has been launched in Port Elizabeth's Coega industrial development zone, with a facility to process a type of non-indigenous tree known as wild wattle into fuel pellets.
The project will see the construction one of the world's largest biomass pellet processing plants in the world and provide direct employment for 60 people at the facility and a further 3000 in the Eastern Cape's Amathole district, where the raw material will be collected.
When completed, the plant will export 10,000 tonnes of pellets to clients in Europe, said Willie Claassen, CEO of Eastern Cape Biomass Fuel Pellets.
"Biomass Fuel Pellets has already secured off-take agreements with the Nordic countries to where the product will be transported," Claassen said in late February.
South Africa is also looking at ways to encourage investments in the biofuels industry. Currently, there is a 40% rebate on the fuel levy for biodiesel, introduced in 2006 and producers of biodiesel whose output is less than 300,000 litres annually enjoy an exemption from all duties.
The South African revenue service and the treasury are reportedly putting together a tax-incentive regime for a bioethanol industry to be included in the 2008 budget.
Andre Makenete, the president of the Southern African Biofuels Association, said it is essential for the government to develop a well-thought out package of incentives to foster a viable local biofuels industry.
Tax rebates alone would not deliver the economic return on capital required by investors, Makenete told the second African Biofuels conference, held on March 26.
While biofuels will never fully eliminate South Africa's dependence on oil, they could reduce its reliance on imports and further cut the trade deficit. Perhaps just as importantly, in line with the objectives of the ASGISA, a shift towards alternative energy sources could also fuel a regeneration of the country's rural economy.