Next generation ethanol on the way

The new ethanol

17 June 2010 17:00  [Source: ICB]

With global fuel needs increasing, better technologies are aiding ethanol producers to increase yields and reduce the use of food-related feedstocks

Rex Features/Chris Eyles

USING ETHANOL as a gasoline replacement has always had some controversy attached to it, the greatest of which was the complaint that corn-based ethanol was using valuable food as fuel.

But technical advances have allowed non-food-related crops to be used in the production of cellulosic ethanol (CE), and there are several in the industry who feel that CE is the next generation of biofuels and will be competitive with gasoline.

The gap between corn ethanol and CE is narrowing more quickly than expected, says Laurence Alexander, analyst at global investment bank Jeffries & Company. "Better enzymes, genetically modified crops and better plant designs are facilitating this process, and we expect companies to increasingly emphasize feedstock flexibility as a way to reduce feedstock risk," he says.

The roadmap for the commercialization of CE has four phases, points out Cynthia Bryant, marketing manager - global fuels for Novozymes North America, a bio-industrial products manufacturer. These include: lab scale, pilot scale, demonstration scale, and commercialization.

As the industry progresses to the next scale, it gets closer "to a proven technology that is commercially viable," says Bryant. "We are now entering into the demonstration scale, which is the last step before commercialization."

Novozymes expects the first commercial scale facilities in the US to be operational in 2011-2012.

In the next few years, oil will reach and stay at or above $85/bbl, "and [CE] will be on energy parity with gasoline," says Joseph Skurla, president and CEO of DuPont Danisco Cellulosic Ethanol (DDCE). Formed in 2008, DDCE is a 50:50 joint venture between US chemicals major DuPont and Danish food and enzymes company Danisco's Genencor division.

"Demand is not going to change anytime soon," says Skurla. "Every type of energy source will be important to the world - ethanol, wind, fossil fuels, all of them. The availability of diverse energy sources will be critical to global stability."

The US Energy Independence and Security Act (EISA) of 2007 mandates 15bn gal/year (68bn liters/year) of corn ethanol by 2015, and current US ethanol capacity is 12.4bn gal/year.

It is estimated that ethanol displaced roughly 375m bbl of oil in 2009, about one month's worth of demand.

Most autos cannot run on fuel that is more than 10% ethanol, but around 7.6m US vehicles can run on fuel that is 85% ethanol (E85). Alexander says this auto segment is growing by 10-15%/year.

The EISA's Renewable Fuel Standard (RFS) mandates the use of 100m gal/year of cellulosic biofuel through 2010, and increases to 250m gal in 2011, then rises to 16bn gal/year by 2022.

About 2m-3m gal of the 16m gal of CE required will come from corn, and the rest from wood or "energy crops," such as switchgrass or sorghum, notes Skurla. He says energy crops are more efficient to grow: 10 tonnes/acre as opposed to corn's 2 tonnes/acre, and they can be grown on ground that is less than ideal for other crops.

The proven yield is 85gal of CE from one tonne of material, but DDCE's goal is 90 gal/tonne.

The next stage will be the industry's move from solely starch-based feedstocks to lignocellulosic-based feedstocks. DDCE plans to build a captive commercial-scale project for start-up in 2013. The company will begin licensing its technology next year.

The "advantage is that cellulosic feedstocks are completely disconnected from food value chains," says Damien Perriman, vice president of business development for US-based biotechnology company Verdezyne.

With ethanol on track to consume an estimated 31% of US corn production from 2010-2011, the US Department of Energy has implemented $1bn (€811m) in funding support for CE, with "more government support likely," says Alexander.

According to Novozymes, because of the abundance of additional biomass that can be used as a feedstock - such as corn stover, woody biomass, municipal solid waste and so on - CE has the potential to provide approximately 30% of US gasoline demand - around 50bn gal/year by 2030.

"We will develop an industry that efficiently utilizes a variety of feedstock sources that are indigenous to [their specific] regions," says Bryant.

One of the major hurdles is the creation and design of the "conversion machine," or the microorganism, says Perriman. "Engineering microorganisms to perform better than current systems will pave the way to a more efficient and cost-effective commercial processes."

DDCE says it has brought down the cost of enzymes in production by 50% and is now able to produce cellulosic ethanol for less than $2/gal. "That cost will continue to come down," says Skurla.

CAPITAL CRUNCH
Positive returns will help encourage investment, because, according to Alexander, tight credit markets and rising construction costs have delayed CE demonstration projects.

Many projects were delayed by the global economic recession. "Everybody has been affected," says John McCarthy, CEO and president of Qteros, a US-based process technologies developer. "The challenges have been more financial than technical over the past few years."

"We will develop an industry that efficiently utilizes a variety of feedstock sources that are indigenous to regions" Cynthia Bryant, marketing manager - global fuels, Novozymes North America

A commercial scale CE facility is going to cost $250m-350m to build, says McCarthy. "As a result, access to capital - whether public or private - has been a challenge given what has happened in the global economy over the last couple of years."

Growth can be slow in the US because "unfortunately we tend to over-think and over-politicize things too much, and as a result, tend to miss some opportunities that are more efficiently achieved elsewhere," says McCarthy.

The advent of large, well-capitalized energy players (such as US refiner Valero Energy and compatriot major ExxonMobil) into this market "has changed the dynamics of how these projects get financed," he adds.

Capital costs for new ethanol capacity have risen to about $2/gal, up from $1.50/gal from 2003-2004. "Some of the increase has been driven by design changes, but the lion's share reflects higher metal prices and higher labor costs," says Alexander.

Right now the industry is subsidized, and "the key is to not be subsidized and running at a profit," says Skurla.

Subsidies will not end in the next two years, "but perhaps the next five to 10 years," says McCarthy.

"The biofuels industry has taken on one of the most formidable industries - the oil industry - to develop a substitute product," says Bryant. "We believe cellulosic ethanol technology can become economically competitive with gasoline, but in order to do so, it will need the support of the government to help the first plants to be built so that we can continue to move up the technology learning curve and develop the same production optimization as we have achieved with petroleum-based gasoline."

Logistical issues are another hurdle with ethanol, notes Bill Day, executive director of media relations at Valero. Because of ethanol's affinity for water, it is difficult to transport it through pipelines. "Ethanol is best transported by barge or railcar, which tends to be more costly and less efficient than pipeline," says Day.

Ensuring that US renewable fuels policies remain consistent to ensure that the industry gets off the ground is the other great hurdle it faces, says Skurla.

Day points out that in recent months, ethanol has been priced lower than gasoline, which has encouraged "discretionary" blending in areas where ethanol blending is not already mandated. "Increases in the federal government's RFS will also create a minimum amount of demand for ethanol going forward," he says.

As well as maintaining RFS mandates, if CE tax incentives are extended, "eventually the cellulosic ethanol industry will be able to compete with gasoline on an energy parity basis without subsidies," says Skurla.

Read Doris de Guzman's Green Chemicals blog

By: Ivan Lerner
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