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The Enzyme wars

| February 24, 2012

Novozymes releases a new, high-performance enzyme for advanced cellulosic biofuels: Cellic CTec3. Will Novozymes win the enzyme wars? Will enzymes defeat gasification?  When will renewables defeat fossil fuels on cost?

In Denmark, Novozymes announced their latest enzyme product, Cellic CTec3.  Novozymes reports this enzyme enables cost-efficient conversion of biomass to ethanol and performs 1.5 times better than Novozymes’ previous platform cellulase enzyme, Cellic CTec2.

In their product release, Novozymes highlighted that it takes 50 kg of Cellic CTec3 to make 1 ton of ethanol from biomass, and made the comparative claim that it requires at least 250 kg of a “competing enzyme product” to make the same amount of ethanol. In assessing the cost of cellulosic fuels made with the enzymes, compared to gasoline, Novozymes judges that it is close, but still behind.

With the release, Novozymes released a chart, illustrating their progress in reducing the cost of cellulase enzymes over the past years – while at the same time identifying that costs still bedevil the cellulosic ethanol industry in its infancy, and that hopes for reaching parity with the production of corn ethanol, or gasoline, will await the release of at least another generation of enzymes from Novozymes or its competitors.

The problems have been threefold.

First, the operating costs – primarily, the costs of enzyme production, delivery and the resultant logistics.

Second, the capital costs – for example, high enzyme loads have forced cellulosic ethanol pioneers to consider the construction of on-site enzyme production to reduce an intolerable cost and logistic flow of enzyme delivery trucks to their proposed plant locations.

Third, there is the slow nature of the cellulosic ethanol timeline itself. As former Codexis CEO Alan Shaw noted to the Digest, shortly before he was ousted by an impatient board of directors, “we are late to our own party.”

The enzyme wars

What are the enzyme wars? It is a war on four fronts.

First, the front where renewable fuels fight to be affordable, compared to fossil fuels. It is a battle over technology, and over protection money paid directly and indirectly to fossil fuels to make them seem cheaper than they are.

Second, the front where gasification and enzymatic technologies view for supremacy in renewable fuels, and where drop-in fuels via with ethanol and biodiesel. It is a battle over technology, feedstock costs, infrastructure investment, and to some extent biorefineries vs all-in-one refineries.

Third, the front where the makers of enzymes compete with each other, both to supply outside projects and their own. It is a battle over technology, business model, investment and vision.

Should enzymes be produced by a vertically integrated company, or by a specialized third parties?  Should enzyme producers become project developers, fee-based suppliers, partners, or investors. Should enzymes be produced on site, or at-scale somewhere else? Should enzyme improvement focus on enzyme cost reduction, or reducing the capex and opex of biorefineries by focusing on enzyme load, rate and yield?

Finally, the question of whether the Mascoma “consolidated bioprocessing” approach to organisms, which expresses enzymes (and eliminates the high cost of buying or producing separate enzymes) is the breakthrough enabler. Or, to what extent can enzymes can be grown within the plant itself and delivered with the biomass, as Syngenta does with Enogen.

All these questions and more, are at stake in the battle for enzyme supremacy.

Where are the gallons?

Choruses of “where are the gallons?” have caused policy difficulties for the biofuels industry struggling to find ways to produce renewable fuels to meet the Renewable Fuel Standard targets, in an era when virtually all DOE grant funding through 2008 went to cellulosic ethanol ventures, yet none of them have yet reach production of even 2 million gallons per project per year.

Though technology timelines are uncertain, and for sure cellulosic ethanol is at last becoming a reality, with more than 200 million gallons in capacity now under construction around the globe, the US Renewable Fuel Standard called for the blending of 250 million gallons of cellulosic biofuels in 2011, and 500 million in 2012, and the shortfalls are expected become more dramatic each year through at least the middle 2010s, as cellulosic biofuels, and in particular cellulosic ethanol, struggles to catch up with the projected volumes the industry had once hoped to make by 2012.

The shortfall did not only come from enzymatic hydrolysis technologies  – for it was 70 million gallons of production from (gasification-based) Range Fuels and Cello Energy that was originally expected by EPA to be online in 2010, of the total 75 million gallon RFS pool for that year.

It had been hoped at one time that cellulosic ethanol production, from enzymatic hydrolysis or other technologies, would begin to come online at commercial-scale in 2011. That was the driving force in a large-scale set of demonstration- and commercial-scale grants made in 2008 by DOE, to companies such as POET, Abengoa, and Iogen.

The 2008 grants also embraced the thermocatalytic pathway – which accounted for the grants to Range Fuels and ALICO. Plus, the acid hydrolysis pathway, which was represented by BlueFire Renewables.

In the 2009 stimulus bill, there was a further set of grants to integrated biorefineries, and there were hopes that these could come online in 2012 or 2013 to help meet the rapidly expanding volumes of cellulosic biofuels in the RFS schedule.

A map released by Novozymes with the launch of Cellic CTec3 shows the progress to date. There are 12 cellulosic biofuels projects under advanced development, to date, using the enzymatic pathway. There’s a total of 255 million gallons. Not nothing, for sure, but well behind the hopes of where the industry could be in the 2013-15 timeline.

Enzymatic vs gasification pathways to renewable fuels

The slow path to commercial scale has allowed gasification technologies to come forward as a serious challenger to enzyme-based technologies, as a path to affordable renewable fuels.

In recent years, as we look at the projects coming online in advanced biofuels, we see 43 projects in total, worldwide, using enzymatic hydrolysis, out of 207 in development around the world. 40 now embrace some form of gasification technologies – the principal competitor – including syngas fermentation, the Fischer-Tropsch process, and pyrolysis, to name a few.

And companies embracing gasification have been making faster progress towards demonstration and commercial-scale. Rentech’s PDU is already completed, after receiving stimulus funding. KiOR is ready to construct its first commercial facility. INEOS Bio is completing theirs, and Enerkem is well on the way. Of course, it is cost that in some cases drives these – Enerkem and INEOS can use municipal solid waste, available at nominal or even negative cost. LanzaTech can use waste carbon monoxide.

The Enzymatic pathways, the competitors

So far, no one company has run away with all the orders in enzymatic hydrolysis. Looking at the 12 projects in the Novozymes chart, we have six different suppliers of the conversion organisms: Novozymes, DSM, Genencor, Abengoa, BP, Mascoma. Four of those are producers who chose to make their own enzymes and vertically integrate their model.

In our Digest chart, we have looked at the gallonage, and the market share. We see BP, with its Verenium enzyme technology, leading at 42% market share, with Abengoa (making its own enzymes in partnership with Dyadic), and Novozymes hovering at around 15% each, with Genencor and DSM not too far behind.

Now, DSM is a special case. Their agreement calls for the development of an enzyme, in partnership with POET in the POET-DSM joint venture. They don;t have a competitive enzyme at the moment, and for the next four years, POET will continue to work under its contract with Novozymes.

Essentially, DSM bought their way into the race with a $500 million investment commitment to the joint venture, which would result in at least 650 million gallons of capacity, should POET-DSM construct 25 million gallon cellulosic facilities at each of POET’s network of corn ethanol plant. With enzymes costing, in the future, somewhere in the 30 cent range, that represents about $195 million in enzyme business (maybe more, if the enzymes cost more or POET expands to its full goal of 2 billion gallons of cellulosic capacity). Now, Novozymes makes a 58% margin in its enzyme business, overall – suggesting a profit stream of $113 million for DSM in bringing enzymes to the POET network.

Genencor? Their primary work to date has been in support of Dupont Cellulosic Ethanol, although they do also supply enzymes to Inbicon.

Codexis is, in fuels, a captive of Shell, though their partnership in detergent alcohols with Chemtex suggests that, were they free to supply enzymes in the fuels business, they might be a substantial competitor to Novozymes, which is the fuel-side incumbent with Chemtex and its parent M&G. For now, we await Shell’s strategic decisions on cellulosic biofuels – will they exit the business and free up Codexis to pursue fuel-side customers, or decide to deploy at scale?

When at parity?

The most important challenge? It remains the same as ever, getting to parity with fossil fuels.

Here’s the cruel math, there. If gasoline trades at $3, then on an energy basis ethanol will need to trade at around $2.20. That’s OPEX, CAPEX, and margin. If feedstock is costing $55 per ton, as POET believes it will, and the process yields even as much as 100 gallons per ton ( that’s the high end of the range, right now), that’s 55 cents for the feedstock.

With 30 cents for the enzymes, and $8 per gallon of capacity for at-scale CAPEX amortized over, say, 15 years (now, $8 is low for today, but USDA thinks that’s the long-term range), you have about 72 cents per gallon left for all the operating expenses, and to cover the cost of debt and equity. Possible? That’s almighty tight. One of the reasons that POET, we believe, chose to go with DSM which, in offering equity, was sharply reducing the timelines to commercial feasibility.

It doesn’t happen with this generation of enzymes – though, as Novozymes suggests, the math is getting closer (and rightly points out that this generation is working more on reducing CAPEX than OPEX, and reducing the operating cost of the facility, as much as raw enzyme cost).

Cellic CTec3 was two years in the making, since the release of Cellic Ctec2. Assuming that we have a Cellic CTec4 by 2014, two more years from now – and assuming that by some chance that generation would be close enough to parity to really support cellulosic biofuels at scale, we could expect new plants fully taking advantage of that technology (not only in swapping out enzymes, but in designing cheaper plants to build and operate) by 2015 or 2016.

The bottom line

For Novozymes, biofuels heaven looks to be still, cruelly, a few years away. Less than the dread “five years away” that was so often tossed at cellulosic biofuels. But, as far as parity with fossil fuels, not for now, unless it is the Novozymes model that is struggling, and its enzyme competitors have parity up their sleeve in much shorter order. It was Mandela who coined the phrase “Long walk to freedom,” and towards energy freedom, it appears to be the same. Sigh.

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