Advanced biofuels feedstocks – who’s got game?

As POET lands a record biomass harvest in prep for a 2013 cellulosic ethanol launch, the Digest looks at stover, jatropha, miscanthus, switchgrass, MSW, wood and animal residue.

Are costs going down, and capacity going up fast enough?

In Iowa, as part of the 2011 harvest, word has arrived from POET, that farmers around Emmetsburg, Iowa have baled approximately 61,000 bone-dry tons of corn crop residue. The bales of corn cobs and light stover will be delivered to a biomass storage site in Emmetsburg, where POET is developing its Project LIBERTY, the  25 million-gallon-per-year cellulosic ethanol plant scheduled to come online in 2013.

According to POET, the harvest number represents 15 new contracts and an additional 5,000 tons above last year’s total as POET moves toward a target of 285,000 tons of biomass per year for Project LIBERTY.

Farmers are waiting for word on the status of the Biomass Crop Assistance Program (BCAP) in the 2012 federal budget before delivering the bales to POET’s 22-acre stackyard. The program is an incentive that helped many of the farmers start harvesting cellulosic feedstock last year.

Pricing of the harvest has not been released, but the range is believed to be in the $45-$55 per ton range, excluding the impact of any BCAP payments to growers. At 90 tons of ethanol per ton of cellulosic biomass, that’s in the $0.50-$0.61 per gallon range, for the feedstock cost.

Now, in a world of $6 corn, those sub-$1 costs sound terrific, but the projects can be expensive on a capital and operating cost basis, and POET needs the feedstock costs to be low to support the $1.78 per gallon (and dropping) operating cost for cellulosic ethanol that it achieved by late 2009.

POET by the numbers

How expensive is the POET project? $216.8 million, according to a profile of the project published last summer in Business 380. http://business380.com/2011/07/07/poet-to-begin-building-cellulosic-ethanol-plant-in-august/ That’s $8.67 per gallon. Spread over 15 years, that’s about $0.60 additional cents per gallon, leaving not much room between current ethanol prices and the cost of bringing cellulosic fuels to market.

Bottom line, cellulosic ethanol is coming quite soon, but the developers have to (carefully, carefully) monitor the numbers.

One of the ways to get the amortized capital cost per gallon down, is to raise the number of gallons per facility. POET, in their analysis, sees 25 million gallons as the right number for cellulosic ethanol made from corn stover, harvested from the radios around an existing ethanol plant where the grower can make money and the plant can afford the feedstock. The limitation is, ultimately, the cost of hauling biomass.

Low-cost feedstocks

So, what’s a good cellulosic biofuels developer to do? Well, there are two options that are being pursued by developers right now.

One, target an ultra-low cost feedstock. The other, target a much higher yield of biomass per acre of land. In the case of the former, feedstocks like municipal solid waste are certainly available in the current market at zero cost, which includes transportation to the biofuels processing plant. In some cases, a tipping fee per ton can be recovered, making it a negative-cost feedstock.

That’s what Enerkem is up to, for example, and companies such as BlueFire Renewables, Fulcrum Bioenergy and Terrabon, that are also targeting MSW. Take away that $0.50 – $0.60 cost of biomass, per gallon, and projects can get quite attractive in a relative hurry.

Another option is wood and wood residues, and animal rendering residues. Prices vary incredibly by location, but we are hearing costs as low as $20 per ton and as high as $50 per ton, so consider them to be on the low side, generally, of where corn stover is at the moment. Plus, wood is available at scale, and there are no issues in aggregating wood biomass.

Cobalt and Coskata are two companies working on the former, while Diamond Green Diesel and Dynamic Fuels are two companies working on the latter. Generally, animal rendering residues are going into the renewable diesel and jet fuel markets, while wood waste is currently targeted towards gasoline replacement in the form of ethanol, biobutanol and drop-in gasoline.

High-yield feedstocks

The second remedy is to make a high-yield crop. That’s where switchgrass, miscanthus, energy cane and oilseeds crops like jatropha come in.

On the jatropha side, SG Biofuels has contracted for 250,000 acres of its JMax seed, and is guiding analysts toward a $1.40 per gallon cost today, or around $60 per barrel of jatropha oil. Ultimately, SG says, their models suggest that $30 per barrel of jatropha oil is a feasible goal. There are upgrading costs for taking jatropha oil into biodiesel or, say, jet fuel, but they are vastly lower than cellulose biomass.

Now, 250,000 acres is impressive, but jatropha takes several years to reach its full yield potential, and jatropha is a tropical bush that is not executed to be grown in the temperate zones that form most of US  or European cropland.

So, what’s the latest on purpose-grown energy crops like miscanthus. Speaking yesterday at Advanced Biofuels Markets, Neal Gutterson, CEO of Mendel Biotechnology, projected that his company would be able to supply seed for up to 300,000 acres by 2015, with a target cost of $55 per ton. That’s not much of a difference between miscanthus and corn stover. But (and its a big but), miscanthus yields in the 12 ton per acre range are hoped for, even expected, at scale.

By contrast, recoverable corn stover is in the 2-3.5 tons per acre range, given that at least a ton or son has to be left on the field for soil sustainability purposes. That means that miscanthus yields are in the 5X range of corn stover. If corn stover can support a 25 million gallon project, miscanthus should be able to support a 100 million gallon plant. Substantially reducing the capital cost, per gallon of capacity. Small wonder that BP is opting for miscanthus as a go-to feedstock for its plans to expand cellulose ethanol development to Texas and/or Louisiana.

Switchgrass? Not quite as high right now, but in the 10 tons per acre range according to Ceres for its latest varietals. That’s a good option for the locations where miscanthus does not thrive.

Bottom line?

Feedstocks are coming along fast. Harvesting systems are not quite as well advanced – the companies are overcoming this – stover and cobs being the most advanced. For MSW, harvesting is obviously not a problem, but there’s generally not enough landfill to support more than 50 million gallon projects, according to most authorities..

The big holdback – accumulating enough seed, and lining up the growers. There’s a lot of risk in contracting acres for seed, if there’s no grower customer on the back end. Meanwhile, the growers are generally delayed by uncertainty over the 2012 Farm Bill (i.e. will BCAP payments survive) and the lack of a market for baled cellulosic biomass. It’s a classic chicken and egg, meaning that we foresee a lot more activity in already harvested waste residues for the next couple of years while biomass supply and demand gets slowly established.