Answers for your Questions about Biofuels
In California, attendees at the MIT/Stanford Venture Lab event continued to flood the channels with follow-up questions to the expert panel from Green Pacific, AE Biofuels, SynGest, Chevron and Flagship Ventures. More about VLAB.
The questions, combined with those that came in via cards passed around at the event, are an excellent example of those items that are “on people’s minds” when it comes to bioenergy projects.
Here are some answers to your questions, based on the Digest article archive and discussions with producers, plus answers to some of the questions that were addressed at the event.
Q. Costs, costs, costs . . . what are current, 3 and 5 year targets for production costs, and what is the target wholesale fuel price (leaving us with an idea of the expected margin for the business).
A. Production costs range widely by producer, but most advanced biofuels producers are aiming to be competitive with $70 per barrel oil, or roughly $2.37 gasoline, translated to a retail price. Target fuel prices are, according to the EIA, $2.46, $2.88 and $3.04 per gallon, for 2010, 2013 and 2015 respectively. Typically, individual producers reach these rates based on commercial scale, so keep an eye out on their timelines as well as the projected cost of feedstock in their models.
Q. Will producers rely on cap and trade and/or tax subsidies to achieve profitability?
A. Generally, no. It doesn’t help all that much anyway — a carbon benefit of $15 per ton translates into 15 cents per gallon retail, or about $4.43 per barrel of oil.
Q. For the enzymatic producers, is anyone achieving volumes on a scalable, cost effective basis?
A. Scalable, yes — KL Energy has a scalable solution today. But the largest producer today is at 1.4 Mgy — that’s Verenium. It all changes in the next year, when Range Fuels 20 Mgy facility comes on line, followed by plants built by Abengoa and POET.
Q. When will the first cellulosic 30 mgy facility come on line, and what will project costs be?
A. The first advanced biofuels facility at the 30 Mgy level is expected to be the 75 Mgy Dynamic Fuels plant at Geismar, Louisiana, with a project cost of $138 million. Specifically using cellulose, the first expected project at the 30 Mgy level would be a Gevo project, for which the company has not released a project location yet but may well be an ethanol retrofit – the expected capacity is 50 Mgy for the biobutanol producer. Several cellulosic ethanol projects will open in 2010-11 – Range Fuels’ 20 Mgy project in Soperton, GA, scheduled for Q2; POET’s 25 Mgy Project Liberty, scheduled for 2011 but no date yet announced; and Iogen’s 23 Mgy project in Saskatoon, Saskatchewan, Canada, also in 2011 with the specific month not yet announced.
Q. What is the perspective of private/public collaborations on research – specifically, start-ups and research universities with private funding augmented with the POTENTIAL for grants.
A. Generally, public-private collaborations are looked on highly favorably. For example, the two consortiums just announced by the DOE for $80 million in funding included more than a dozen institutions each, roughly evenly divided between institutions and early-stage advanced biofuels producers. Generally, the consortia are led by institutions such as the National Labs and corporations receive the smallest share of funding.
Q. Which are more attractive to investors at this moment in time; cellulosic or microbial based biofuels?
A. I think “cellulosic” is a proxy for “cellulosic ethanol” because all microbial systems work on cellulose. Based on what is getting financed at this time, microbial systems that produce renewable drop-in fuels. Projected capacity for DIFs is 39 percent of total global advanced biofuels capacity by 2013, compared to 35 percent for cellulosic ethanol and 24 percent for biobutanol.
Q. What is the current perspective of the necessary breakthroughs in algal biofuels development; genetic engineering, yield improvements, processing (harvesting, extraction, refining), or the biorefinery business model.
A. With DARPA teams reporting that they have reached the $2 per gallon threshold, presumably “scale” is the most important breakthrough to come – meaning an industrial system of controls, plus staff training, to translate pilot-level results to commercial scale. For most algal ventures, yields are fine — the most important breakthroughs are lipid extraction and dewatering, plus keeping ponds free of predators or other “shocks” that kill an algal system.
Q. Can you confirm that syndicates are no longer desirable (single investors for seed round preferred).
A. Generally, syndicates are the rule rather than the exception except at the seed level, where single investors are still seen where VCs are, essentially, funding and incubating their own concepts. Flagship Ventures and DFJ Mercury have been notably active in this respect, and CMEA has also indicated that they might create their own energy companies.
Q. With the recent expiration of the $1 production tax credit for biofuel producers, how will the US meet its biofuels mandates?
A. The $1 tax credit affects biodiesel immensely, but does not impact ethanol or other advanced biofuels which will make up more than 90 percent of the mandate. In terms of the RFS, the impact is likely to be minor, and in any case the tax credit may well be restored.
Q. How do you get the oil out of microalgae?
A. An area of continuous innovation. At the moment, generally by hexane extraction in the lab, and screw presses have been used. Newer techniques look at cavitation, osmotic pressure, or bursting cell walls using microbes.
Q. Which type of regulation do you think is more effective in driving the biofuels industry and addressing climate change? RFS2 or the California Low Carbon Fuel Standard?
A. Generally, the Low Carbon Fuel Standards will drive advanced biofuels more, while RFS2 will drive more first-generation fuels. See “How is a market real if it must be mandated?” below.
Q. In the wild, fires consume massive cellulosic mass. Can this be harvested and reduce fire hazard?
A. Yes, and it will be harvested if and when companies such as Lignol that target this biomass gain funding for commercial scale projects.
Q. What are the five top candidate biomass materials in the US (i.e. corn stalks, wheat straw etc)?
A. Right now, corn cobs are in the lead along with waste forest residues, and corn stover. Switchgrass and miscanthus are likely to be the next feedstocks used at scale. Municipal solid waste is going to be hugely popular, and pilot systems are in place using it today.
Other questions were answered by the panelists at Stanford.
Q. How do you think “environmentalists” view “genetically modified algae”?
A. Panelists agreed that GMO algae is not currently in development, except experimentally, but agreed that genetic modification was a hot issue with the environmental community. Flagship’s David Berry commented that his group prefers the term synthetic biotechnology to synthetic biology, because it makes the distinction that fuel companies are not creating life, rather they are creating industrial systems.
Q. What are current financing sources for biofuel companies?
A. Chevron’s Paul Bryan emphasized the role of strategic investors on oil & gas as a source of funding for companies focused on drop-in renewable fuels that do not require infrastructure changes to be viable.
Q. For algae, how long is the investment horizon from lab to industrial scale, and becoming economically self-sustaining without subsidies?
A. For the DARPA teams, about 18 months from funding to their current $2 per gallon results. But results vary from company to company and Green Pacific Biologicals added that the process could take up to 10 years depending on the technology under development.
Q. Water is conspicuously absent from the discussion…where is the water going to come from to grow all of this feedstock?
A. Syngest’s Jack Oswald emphasized that the feedstock for many biofuel projects comes from natural rainfall, and that a real area of concern is reducing the water intensity of processing systems. He said that, generally, advanced biofuels have a stronger potential than first-generation systems for being less water intensive.
Q. How is a market real if it must be mandated?
A. The panelists emphasized that they plan for their companies on the basis of zero subsidies, because of policy instability. Eric McAfee of AE Biofuels writes: “Our team has read RFS2, talked to the RFA, reviewed the regulation with the EPA, and done other research. We fail to see how investors should commit billions of dollars of 5-year project funding for advanced fuels to:
1. An annually adjusted cellulosic and advanced fuel mandate (meaning there may or may not be a market for the advanced fuel when the plant is built); and
2. A penalty of $1.56 per gallon that is only paid on cellulosic ethanol gallons that are not purchased, but is not due on gallons that are purchased (meaning the price of cellulosic ethanol could trade at the same price as corn ethanol – this is currently the situation, since the price of cellulosic RIN’s is currently exactly the same as corn RIN’s).
This RFS2 structure for advanced fuels appears to fail in its primary purpose: growing production and blending of advanced fuels.
Q. What is the outlook for green crude production?
A. David Berry of Flagship said that — insofar as green crude referred to biodiesel, those projects are no longer looked at by Flagship, but projects that are looking at the diesel fuels are very much the type of company that is getting funded and gaining traction, with companies such as LS9 and Joule Biotechnologies as examples.
Q. Which VC firms aside from Flagship invest in biofuel projects today?
A. More than a dozen. See my re-cap, Who’s Your Daddy?
Q. Would you fund biofuel start-ups outside of the US?
A. Flagship’s David Berry said that VCs like Flagship are active investors, and want to be close to their investments and management teams, generally ruling out direct foreign investment. Partnerships — for example the Malaysian Life Sciences Fund – a joint venture between Malaysian investors and Burrill & Co — are an example of vehicles that offer foreign investment opportunities.
Q. If cellulose is removed from the food agriculture system, how will soil quality be sustained?
A. AE Biofuel’s Eric McAfee cited research that extensive amounts of corn stover, for example, can be safely removed without impact on soil quality.
Q. What are your thoughts on feedstock supply in the developing world? Does the food vs fuel debate not hold up there as well?
A. Especially in the developing world, the problem is not land availability but technology. Maize yields in Africa are a fraction of those seen in the US. However, I caution against simply seeing Africa as an energy source for Europe. As I wrote last week to a Digest subscriber:
“The principles I developed for the Dodgen Lecture were formed very much with Africa in mind. My experiences in the developing world have changed me; if they had not done so, I would have been convinced by the information and perspective I have gained from exchanging emails and in phone calls with people in so many countries during the Digest years.
“I suppose, as a student of history, I come to the story of African opportunity with a memory of all the riches that diamonds were supposed to bring to Africa, or coffee would bring to Africa, or oil would bring to Africa. I have no doubt from my correspondents, and from history, that if Africa were to become the bioenergy supplier to Europe and the world — many would be the benefits, but few of the would flow to the people of Africa. I did not include in my published text a lengthy story I told in Mississippi on Thursday regarding the troubled history of Port Harcourt in Nigeria. It’s a harrowing tale of wealth extracted, land despoiled, riches transported to Switzerland, and little left for for the people of the Delta once the oil is gone.
“The reason? Hardly anyone gives a fig in America or China or the UK when they come to the pump to buy their fuel whether this fuel was extracted with honesty, justice and fairness — in short, with the greater good or the commonweal in mind. All we see is price, and generally we take the lower price. If we take the higher price, it is for reasons of convenience to ourselves rather than spending a little more to make a better world in which we, Westerners ourselves, would be the great beneficiaries.
“If bioenergy is cheaply extracted in Brazil it is because slavery has returned to Earth with all its miserable knock-on effects. It degrades the slave to extract it, it degrades the producer, and it degrades the consumer. Yet, price drives us to it. For sure, slavery is outlawed in Brazil – what of it? The promise of filthy riches has turned many a blind eye in human history, and will do so again.
“Further, who will really benefit? The worker in the field? The small farmer? Forget it – it will be the absentee landowner and the government bureaucrat who will gain the lion’s share of bioenergy wealth if it is based on export. Their wealth will not liberate Africa any more than oil wealth did – in fact, it produces fealty to corrupt regimes that dole out millions to their supporters in return for blind obedience and odious services rendered.
“Instead, I like to think of a world where energy, instead, is grown in the village, by the village, and for the village. Why wait for some corrupt regime to install a national grid to electrify the African rural areas? A small village, using microfinance, can electrify itself using bioenergy in fields that are, in many cases, under the control of the village or the clan. The impact of that energy will bring riches far more valuable than dollars to the village. It will bring the potential for heat and power for education, health and communications systems. It will bring local jobs for villagers who will have one less reason to move to the city. It can produce fertilizer as well as fuel and power, that can increase food yields by a factor of 5 or 6. Meanwhile — why should all the cheap energy flow to Europe where it powers a technology-driven society that out-competes Africa every time — and makes a world more divided into haves and have-nots than ever before. Let rich countries produce their own energy, rather than buy it cheaply from Africa by trading a few crumbs of technology and aid for it.
“I think that the only way for bioenergy —or any renewable energy — to succeed, is if we rid ourselves of the cycle of exported energy, and hidden consequences. The losers — in a world defined by “Not in My Backyard, But Quite OK in Yours” — will be the ordinary African every time.
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