The Trash Spread: Enerkem heads for scale, with advanced biofuels from MSW

| September 7, 2012

Breakthroughs in making consistent syngas from negative-cost municipal solid waste spells “big prospects” for Enerkem in biobased fuels and chemicals.

“A weed is a plant whose virtues have not yet been discovered.” Ralph Waldo Emerson

In oil we have the crack spread, corn ethanol and soy-based biodiesel we have the crush spread; with municipal solid waste, we should begin tracking the trash spread.

As with all of the traditional commodities, that’s the difference between the value of the raw materials and the product you propose to make. It’s the refiner’s margin.

How are the spreads today? Crack spread, 69 cents; corn ethanol, 83 cents (including ethanol and distillers grains). The trash spread? A whopping $2.65 for waste-to-ethanol – because its a negative cost feedstock (in the $0.12 per gallon range).

So, why aren’t waste to fuels facilities popping up all over North America? To some extent, they are – with the caveat that the technology is new and companies are building out demonstrations and first commercial plants right now. INEOS Bio’s fist small commercial is in commissioning, Fulcrum is working towards first commercial, and Enerkem is building its first 10 million gallon commercial plant in Edmonton, Alberta right now.

Another reason is that investors and lenders have been irrationally inexhuberant about the sector. Why is that? Generally, uncertainties, of which there are three.

1. Will landfill tipping fees hold up? Can MSW remain a negative or zero-cost feedstock for long?
2. Will the market for ethanol continue to provide room for growth?
3. Do the processing technologies pass the SARA test – are they sustainable, affordable, reliable, and available?

To obtain answers, the Digest has been diving into trash the past several weeks, and recently did an onsite visit at Enerkem’s demonstration plant.

And the answers are…”yep”, “doesn’t matter” and “yep”.

As we do here in Digestville, let’s go through the data.

Tipping fees

Nationally, they are on the rise. In 2009, an Enerkem study concluded that the average tipping fee was $47 per ton. This summer, a study by Waste Recycling News pegged the national rate at $49.27, and said that they expect the rate to increase by $1.25 per year over the next 10-15 years.

But we’ve seen feedstocks, like fryer oil for biodiesel, shift quickly from negative cost to a hefty cost in the $2+ per gallon range. Why wouldn’t that happen with MSW?

Enerkem CEO Vincent Chornet expects that MSW will remain available on a tipping fee basis for 10 to 15 years. “This is a more sophisticated technology,” he remarked, “there was a lower barrier to entry for grease, because esterification was a widely-available technology. It will be quite a while before enough of these facilities can put pressure on these feedstocks, so that value can go up. For now, municipalities recognize this as a valuable alternative, because their citizens don’t want landfills or incineration.

Eventually, Chornet predicts, “MSW will price. It will happen even if it is beyond 10 years. That’s why it is important to have the lowest cost technology that can handle it.”

The ethanol market

Ethanol production at Enerkem's Westbury (Que.) demonstration plant

Well, there are concerns about ethanol demand, for sure – given the heat on the US Renewable Fuel Standard. So, why do we rate that as a “doesn’t matter?” Virtually all of the technologies on the market are integrated biorefineries capable of producing multiple products – and if they have purposefully focused on ethanol it is because the passage of RFS2 galvanized them into action on ethanol. But other markets are available.

Take Enerkem, for example. They can, even more easily, produce acetic acid, ethyl acetate, or methanol. Essentially, Enerkem is a low-cost methanol producer, making methanol from syngas, and syngas from biomass. From that point, it is a matter of traditional chemistry to move from, for example, methanol to ethanol. A company could license, for example, the ExxonMobil MTG (methanol to gasoline) technology and make gasoline. And there are numerous opportunities to make bulk chemicals.

Methanol is an ingredient used in a variety of compounds. Around 40 percent of methanol is converted to formaldehyde, and, from there, into products such as plastics, plywood, paints and textiles. Methanol is also used as a solvent and antifreeze, as well as a transportation fuel.

Acetic acid is used for the production of vinyl acetate monomer (VAM), but its fastest growing use is for its second largest derivative, purified terephthalic acid (PTA), which is driven by the demand in polyethylene terephthalate (PET) bottle resins and polyester fibre.

Ethyl acetate is used in a variety of coating formulations, such as epoxies, urethanes, cellulosics, acrylics and vinyls. Applications for these coatings are numerous, including wood furniture and fixtures, agricultural, construction and mining equipment, auto refinishing, maintenance and marine uses. Methyl acetate is mainly used as a chemical solvent for cleaning/coatings, and in its high-purity form, as a solvent for the pharmaceutical industry.
SARA technologies

This week, we visited Enerkem’s Westbury plant in southeastern Quebec, and reviewed the Edmonton project with management.

Taking the SARA test

Sustainable.

To some extent, a no-brainer, because the feedstock in this case is municipal solid waste.

According to Enerkem’s Chornet, there are in excess of 500 municipalities that have sufficient MSW available to feasibly install an Enerkem solution, and the company has received “dozens of calls” from municipalities looking to investigate construction of an Enerkem facility. Depending on the range of MSW available per facility, the potential production capacity of these systems as a whole would be between 4.7 and 19 billion gallons of ethanol capacity. At the upper limit, that’s 90 percent of the amount of advanced biofuels required under the Renewable Fuel Standard by 2022.

One aspect worth mentioning – and that’s the development of what is called an RDF spec. Refuse-derived fuel (RDF) is a fuel produced by shredding and dehydrating solid waste (MSW) with a Waste converter technology. RDF consists largely of combustible components of municipal waste such as plastics and biodegradable waste.

So, what Enerkem is processing is not so much MSW as RDF – the municipality must “manufacture” its RDF to the plant’s spec – for example, a 20% cap on moisture and 15% on inert materials such as glass. The RDF is pushed into the Enerkem facility on a continuous basis by a screw process.

Affordable.

Much of this was covered off in the company’s recent IPO filing. Enerkem’s economics project that it can provide acceptable returns based on zero-cost feedstock, and elevated returns where tipping fees are available

Reliable.

Much of the reliability question has been the subject of some of the grants the company has picked up, from groups such as the US Department of Energy. The key here is really to produce a consistent, affordable syngas on a 24/7 continuous basis, from inconsistent supplies of MSW. The RDF spec helps greatly – but essentially that is where a lot of the time in this project has gone. Assuring a steady flow of methanol, which can then be upgraded to ethanol or other higher-value products.

“The real question is the uniformity of heat distribution,” adds CTO and co-founder Esteban Chornet. “You can’t have a blind heat spot. That’s why we have developed our spec to give us a fluff that we can work with consistently, and why in our process the gas “sleeps” for a few seconds, to make it more homogenous.”

Bottom line, the demonstration unit is several thousand hours into its life. Methanol has been demonstrated. Ethanol has been demonstrated. As Chornet explains, “The front end has been resolved for a long time. The challenges we’ve faced [in designing a lowest-cost plant] have been mechanical, not chemical – in the engineering.”

Available.

Site prep at Enerkem's Edmonton (Alb.) first commercial plant, as of May 2012

The Enerkem approach has been to develop, for the first commercial plant, a complete supply chain based on pre-assembled modules, shipped on skids, with local operations limited to site prep and pipefitting. The design package is based on 10 million gallon modules – so that the plant can be expanded on a modular basis to produce more product where more MSW is available. It’s been designed as a system for rapid scale-up.

In the case of the Edmonton project, cement is being poured and site prep will be completed this year, with pipefitters on site in mid 2013 to complete the plant.

The bottom line

We’ll give the (near to) last words to Tim Cesarek, who was managing director of Waste Management’s Organic Growth Group – essentially, an in-house venture capitalist – and then joined Enerkem last year. What the company is fundamentally about, in his view, is an ability to produce consistent syngas from inconsistent MSW.

“If you see the economics, the value that waste has when it has been sorted and collected, that’s important. But when you see that syngas gives you options, a quicker path to market, and higher value downstream, you begin to admire the team, and respect the rigor with which they have approached this task.”

The last words? Where we began today’s story, with Ralph Waldo Emerson.

“Do not go where the path may lead, go instead where there is no path and leave a trail. Build a better mousetrap and the world will beat a path to your door.”

Projects

Edmonton, Alberta

Type: Commercial
Status: Completed in 2013
Feedstock: Sorted industrial, commercial and institutional waste
Planned Product: Cellulosic Ethanol
Expected Capacity: 38 million litres/ 10 million gallons per year

Enerkem, through its affiliate Enerkem Alberta Biofuels, has signed a 25-year agreement with the City of Edmonton to build and operate a plant that will produce and sell next-generation biofuels from non recyclable and non compostable municipal solid waste (MSW). It is expected to be the world’s first major collaboration between a metropolitan centre and a waste-to-biofuels producer to turn municipal waste into methanol and ethanol.

Varennes, Quebec

Type: Commercial
Status: Under development
Feedstock: Sorted industrial, commercial and institutional waste
Planned Product: Cellulosic Ethanol
Expected Capacity: 38 million litres/ 10 million gallons per year

The facility will be built and operated by Varennes Cellulosic Ethanol L.P., a joint venture formed by Enerkem Inc. and GreenField Ethanol Inc. It will be located in Varennes, Québec (near Montréal), next to GreenField Ethanol’s current first-generation biofuels facility. The Government of Québec plans to inject $27 million in this project through the Ministry of Natural Resources and Wildlife and Investissement Québec.

Pontotoc, Mississippi

Type: Commercial
Status: Under development
Feedstock: Sorted municipal solid waste and wood residues
Planned Product: Cellulosic Ethanol
Expected Capacity: 38 million litres/ 10 million gallons per year

The company has signed an agreement with the Three Rivers Solid Waste Management Authority of Mississippi (TRSWMA) for the supply of municipal solid waste (MSW) per year. The facility will be located on the Three Rivers’ landfill site.   The project has been selected to receive an award of up to US$ 50 million from the U.S. Department of Energy (DOE), and obtained a conditional commitment in January of 2011 for an US $80 million loan guarantee by the USDA.

More on Enerkem

The 10-Minute IPO - review of Enerkem at the time of its February 2012 IPO filing.

Valero, Waste Management invest in the company (2011)



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