Next generation biofuels still faces challenges heading towards launch

23 June 2011 16:37  [Source: ICB]

Esther D'Amico/New York

The sector has come a long way, and construction of commercial-scale cellulosic ethanol units is beginning.Yet there are a number of challenges, including financing

Cellulosic ethanol producers and suppliers are optimistic that in as little as three to five years, mid-size commercial operations will be the industry norm.

Indeed, many commercial-scale projects are under construction with others announced. But analysts caution that this nascent market, which uses grasses and non-edible components of plants as feedstock, still has to prove itself to investors before it truly takes off.

"Scaling up from demo to commercial-scale is going to be a challenge," says Tamasz Kaminski, renewable energy analyst at US-based consultancy Frost & Sullivan.

"Developers still need to improve the technology of conversion and, most likely, to simplify the conversion process from its current complex, multistep [approach]."

In other words, producers need to increase the economic viability of second-generation ethanol over the already established first-generation ethanol, and improve feedstock flexibility, he says.


Cellulosic ethanol still faces growing pains before production can ramp up to commercial levels

Even so, industry players say their technology has come a long way in the last decade and that costs are decreasing. Ambitious European and US government production goals and promised incentives for renewable fuels have helped spur growth, they say.

The EU's Renewable Energy Directive calls for the EU to derive 20% of its energy needs and 10% of its transportation fuel needs from renewable sources by 2020. In the US, the Renewable Fuel Standard mandates 36bn gal of renewable fuel by 2022, with 16bn gal derived from cellulosic ethanol.

Producers say cellulosic ethanol technology has advanced greatly in recent years and that lignocellulosic biomass is cheap and abundant.

"We produce a lot of biomass in the world, and most of it gets thrown away," says Cynthia Bryant, director of global business development at Denmark-based enzymes firm Novozymes. "For the last decade, the challenge has been how to process this material in an economically viable fashion and to develop the technology to break this stuff down."

Some producers say technology issues are not the main culprit holding the industry back. Arnold Klann, CEO of US-based BlueFire Renewables, says the industry "should be much further along" than the relatively small-scale projects currently being built.

"The real issue is that the true capital markets - the debt and the equity markets - are unwilling to finance a first-of-a-kind facility," says Klann. "The technology is ready. For the most part, equity is prepared to build these projects, but the guarantees for the debt are not available."

Klann says that private investors have helped to finance deals, but he blames the US Department of Energy (DoE), which provides biofuel loan guarantees, for "dragging its feet." Government loan guarantees like the DoE's are necessary for "bankers to feel comfortable enough to put up the debt to finance these first commercial plants," he says.

BlueFire has been awarded DoE funding to build a cellulosic ethanol facility at Fulton, Missouri, but it has yet to receive total reimbursement under the program, Klann says. The company is, however, in discussions with the US Department of Agriculture regarding this agency's loan guarantee program.

BlueFire's 19m gal/year facility at Fulton will run on wood waste feedstock and use a patented concentrated acid hydrolysis process. Construction began in November 2010. Completion, expected in the third quarter of 2013, is "being held up right now till we close the rest of the financing," Klann says. BlueFire, he notes, is not the only ethanol producer dealing with such financing issues.

Meanwhile, advances in biotechnology have helped reduce enzyme and process costs dramatically over the last five years, contributing to industry growth, says Javier Salgado, president of Spain-based Abengoa's bioenergy unit. He says such advances will continue and result in the industry becoming commercially competitive with crude oil prices in the next three to five years.

Salgado says the industry is not standing still. "There is a huge amount of equity and money coming into this industry," especially from oil firms, including UK-based BP, US-based ExxonMobil, Brazil's Petrobras, Anglo-Dutch major Shell, France's Total and US-based refiner Valero, Salgado says. "They are throwing hundreds of millions of dollars into this industry to develop cellulosic ethanol."

Oil companies have been buying up ethanol and related assets for the last few years. Deals include BP's $98.3m (€68.4m) acquisition of US-based Verenium's cellulosic biofuels business last year, including a 36m gal/year demonstration plant at Jennings, Louisiana, US; and Total's undisclosed investment in US biofuels developer Coskata.

In early June, Shell and Brazilian sugarcane and ethanol firm Cosan officially launched their $12bn Raizen joint venture with capacity of more than 2bn liters/year (528m gal/year). Shell says the venture will generate electricity from sugarcane bagasse and take advantage of Shell's know-how and partnerships in advanced biofuels.

As part of the deal, Shell contributed its 15.7% share of US-based biocatalysis and enzymes firm Codexis, as well as Shell's stake in Iogen Energy - its 50:50 joint venture with Canada-based enzyme producer Iogen. Plans are underway for Codexis's biocatalysts to be used in Iogen Energy's 500,000 liter/year cellulosic ethanol plant already operational at Ottawa, Canada, sources say.

Commercial-scale cellulosic ethanol facilities under construction include Italy-based chemical firm Mossi & Ghisolfi Group's (M&G) 13m gal/year plant at Crescentino, Italy, which it says will produce ethanol at a price competitive with gasoline.

M&G broke ground on the plant in April and anticipates start-up next year. The plant will initially use wheat straw and eventually transition to cane plant arundo donax, Bryant says.

INEOS New Planet BioEnergy (INPB), a joint venture between Switzerland-headquartered chemical company INEOS and US-based New Planet Energy, is building an 8m gal/year facility at Vero Beach, Florida, US.

The facility will use yard, vegetative and household waste as feedstock and is set for completion in 2012. It will use an INEOS Bio-patented technology that uses bacteria to convert the gases derived from biomass into ethanol.

Abengoa, which has a 5m liter/year demonstration plant at Salamanca, Spain, has even bigger ambitions, Salgado says. The company will begin building a 25m gal/year unit at Hugoton, Kansas, US, in July that will use corn stover as feedstock. The facility is scheduled for operation in the second half of 2013.

US-based chemical major DuPont, which closed its acquisition of Denmark-based enzymes producer Danisco in May, plans to build a commercial facility at an as-yet-unnamed site in Iowa, US, under the DuPont Danisco Cellulosic Ethanol (DDCE) joint venture it formed with Danisco in 2008. The plant is expected to start up in 2014.

DuPont says it will build the plant based on know-how gained from its Vonore, Tennessee, US-based demonstration biorefinery. DDCE started up the 250,000 gal/year Vonore biorefinery last year. Danisco's Genencor provides enzyme technology to the venture.

Enzyme technology has accounted for much of the R&D investments in cellulosic ethanol, producers say. Several enzyme suppliers say they have made significant progress in developing technology that can break down biomass and do so cost-effectively.

Genencor's latest line of Accellerase enzymes are feedstock and pretreatment-flexible, and they achieve higher sugar and biofuel yields, says Aaron Kelley, senior director of business development for biomass enzymes at Genencor. The enzymes are being used in Denmark-based renewable energy firm Dong Energy and Denmark-based biofuel technology companyInbicon's 1.5m gal/year plant at Kalundborg, Denmark that uses straw as feedstock.

Novozymes is supplying the M&G plant at Crescentino as well as several other large projects, Bryant says. The company introduced new CTec2 enzymes last year that it says enable production of cellulosic ethanol at a price below $2/gal for the initial commercial-scale plants scheduled to start up this year.

US-based ethanol producer POET will use the CTec2 enzymes at its commercial-scale cellulosic ethanol plant now under construction at Emmetsburg, Iowa, US. The plant, which will share infrastructure with POET's adjacent corn ethanol facility, will use corn cobs as feedstock and is expected to be operational by year-end or early 2012.

South Africa-based chemical firm Sud-Chemie's sunliquid process has an integrated enzyme technology that optimizes enzymes "for the specific feedstock and the reaction conditions to guarantee the highest yields," says Andre Koltermann, group vice president, corporate R&D and head of biocatalysis and bio-refineries at Sud-Chemie.

The company, which Switzerland-based chemical firm Clariant acquired in May, will use the technology when it starts up a 1,000 tonne/year facility at Straubing, Germany by year-end or early 2012. Sud-Chemie is already in talks with several parties regarding licensing, Koltermann says.

Advances aside, critics maintain that overall production costs of cellulosic ethanol remain too high, and that the process itself is too complex compared with corn- or sugar-based ethanol. Thus, they do not expect second-generation biofuels to replace first-generation biofuels.

Michael Knauf, senior vice president of Bioindustrials at Codexis, says he understands the arguments over production and costs. However, "the basic economics of making ethanol either from starch or Brazilian sugarcane or cellulosic materials are pretty much the same," Knauf says. "It really is a matter of the commodity prices and the processing costs.

"Basically everyone's in agreement that if the commodity [prices] are in line, meaning that the cellulosic feedstock and the processing costs can be controlled, which is what we're working on, then the cost of producing cellulosic ethanol would be quite competitive with corn and sugar ethanol," Knauf says.

Also, the supply of lignocellulosic biomass is stable, he says, "and I think folks would really like to have a feedstock that's not tied to food."

caption Cellulosic ethanol still faces growing pains before production can ramp up to commercial levels

Read the latest news and analysis at the ICIS Chemicals & the Economy blog, written by Paul Hodges.

Author: Esther D'Amico

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