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Tranquility Base Here. The Crescentino project has landed.

| September 18, 2012

Once described as a “moon shot”, Beta Renewables’ commercial-scale cellulosic ethanol project hovers just over the lunar surface, weeks from completion.

It’s transformative cost structure may well reignite the cellulosic rockets.

The first thing you notice about the Beta Renewables cellulosic ethanol plant in Crescentino is the size and scope. Tucked away in the sprawling, agriculture-rich plain that lies just south of the Italian Alps in the vicinity of Torino, the towering columns dominate the surrounding landscape like the gantryways of Kennedy Space Center’s launch pads, lording it over the Florida flatlands at Cape Canaveral.

After the long “five years away” era of cellulosic biofuels, where systems fit on benches, or in small shacks that held pilots, the Digest had recently profiled large-scale demonstrations started coming along at locations like Boardman, Oregon (ZeaChem), and Rome, New York (Mascoma), Kalundborg, Denmark (Inbicon) and Sherbrooke, Quebec (Enerkem). They were a startling expansion in size.

This year, the 8 million gallon INEOS Bio facility in Vero Beach, Florida has been completed and is going through its commissioning process now. It is awesome in its own right.

But to see a 20 million gallon cellulosic biofuels project, up close and in person, is like seeing the Saturn V rocket for the first time. The Titan that powered Project Gemini, the Redstones and Atlases that powered Project Mercury, look like midget rockets launched out of backyards by comparison.

Crescentino is a project many thought would never get built. Several years of industry skepticism preceded a decision by Beta’s parent Chemtex (itself a subsidiary of M&G, one of the world’s largest producers of PET for synthetic fibers and plastic bottling) to build the project off its own balance sheet.

The controversy, over the past couple of years, has been whether it was actually possible to deliver cellulosic ethanol for $1.25 per gallon on an operating basis – by delivering 10-12 cent sugars – based on a design that would cost, on a capex basis, around $5 per installed gallon of capacity.

For a couple of years now, Beta Renewables CEO Guido Ghisolfi has been lighting up offices and conferences in and around the industry with his brand of genial optimism and the message that cellulosic biofuels was a near-term reality, not a moon shot. He got much of the same reception that Werner Von Braun got in DC when he first presented ideas about how to reach the moon.

Of course, they also said that Edison would never get the light bulb working, only a fool would go looking for oil in Texas, and the lunar surface was made of cheese.

Well, it’s definitely time to get past the nay-saying. Crescentino is nearing its final weeks of construction, they expect to be in operation by year-end, and it is expected that at least a half-dozen “if you build it, we will come” conditional commitments from partners will go live in the first half, and Beta Renewables will be off to the races with somewhere between 60 and 300 million gallons of capacity in construction projects.

As we do in Digestville, let’s look at the data.

A really, really low cost of ethanol

The magical machine at Beta Renewables is its Proesa technology, and in particular its process for generating low-cost renewable sugars. Here’s the Proesa math. Beta projects that it can recover one unit of ethanol for every 4-4.5 units of biomass, or around 2 units of biomass for every unit of renewable sugars.

It’s projected biomass cost is $40-$50 per tonne, or around $80-$100 per tonne of recoverable sugars, with around $150 per ton for the enzyme load. That’s $230 to $250 tonne, or around 10 cents per pound for the sugars – bump that up to 12 cents to account for other variable and fixed costs.

Beta Renewables CEO Ghisolfi is skeptical of getting, at this time, corn stover at $50 per tonne. “We think corn stover is going to cost $80-90 per tonne, and it has some big surprises. It’s not stable, it will ferment; you have to dry or you lose some sugars in the percentage that’s already fermented by the time you get to it.”

One of the reasons that his projects are multi-feedstock. “Other crops are available,” he says. “For example, in North Carolina, there are the sprayfields. These are the lands where hog farmers are forced to put in biomass to absorb the waste streams. With those, you also get to do business with a corporation that is a single counterparty, as opposed to 100 farmers.

The ethanol economics

The ethanol numbers have a similar structure to the sugars data. $40-$50 for the biomass, or $160-$225 for the recoverable ethanol component per tonne. The yeast they peg at $10-$15 per tonne. $150 per tonne for the enzymes, and $50 for other fixed and variable costs. The total is $370-$440 per tonne or $1.11- $1.31 per gallon operating cost. They continue to guide based on a $5 per gallon capital cost per 20 million gallon project.

How did the capex go so low?

You might have heard numbers of around $200 million for the Cresentino project thrown around. Since then, then exchange rate between Euros and dollars has changed somewhat – and 36 percent of the Cresentino project is in a boiler technology to produce green energy that was a unique feature of this location’s permitting process (and qualifies the plant for a lucrative incentive for green power available in Italy for plants completed before the end of 2012).

The Digest’s understanding is that the cost was €90M for the cellulosic biofuels capacity itself, or around $5.60 per gallon for the capex this first time around.

Why so low? It’s in the Proesa technology.

As Ghisolfi explains, “At the time we bought Chemtex in 2004, they already had a first gen biofuels technology. This was before food vs fuel, in the middle of the ethanol boom, and we looked closely at it. What we saw was that there a number of players supplying technology. ICM, Fagen, Katzen, Delta T, Praj, Lurgi tand a number of smaller firms.

“We thought the model that was generally around back then would not work in the EU in the long term. Here, recycling is important, mass balance is important, sustainability is important. Burning coal instead of gas, not re-using process heat or steam, as was the case in many designs, was not a sustainable technology.

“We wanted a technology that was worldwide, non-food, subsidy-free, multiple feedstocks, that would work outside of the corn belt. But we didn’t want simply to go for cellulosic ethanol by throwing money at the problem of pre-treatment and extracting sugars.

“Our R&D focus was a low temp, low steam environment, to disturb less. We knew that the acid bases can extract 70% sugars – but then you have an acid soup, and you need wonder enzymes just to survive the exotic PH conditions.

“If you can change the nature of the processing conditions, you change the nature of all the equipment in the plant – because the processing conditions you have imposed on yourself also impose significant costs in the kind of engineering, the kind of systems and materials you need.

“My father (M&G founder Vittorio Ghisolfi) said his goal was to “banalize” what was rocket science technology, and that’s what we have worked on here.”

You can see some of the ideas behind Proesa in this patent app.

And more background on Proesa in this Cate Renewables presentation, here.

The Big Spend and the Big Invest

The company has bet big. It has 250 people working in its labs, which cost €30M per year just for the talent, and an additional €10M in R&D-related expenses, annually. Now, Chemtex established Beta at a €250M JV with TPG.

“With VC investors,” Ghisolfi recalled, “you talk to funds that invest $10-$15M. It’s hard for us to play with those because we had already built what they would look to fund – the technology and a pilot. So we focused on a handful of groups that were interested in and able to fund much larger investments.

“For ourselves, we were forced to invest, because technology is like bread, you have to sell it when you have it, and we simply weren’t able to raise all the external funds because people were skeptical. The first mover has problems but advantages.”

The business model

The company is doing a North Carolina project. “We realized after Crescentino, that we had to have presence in the US,” observed Ghisolfi. “But for the next Project Alpha – we’ll guarantee the numbers but will take a partner.”

The company expects to expand quickly, licensing 4-5 projects at the lower 20 million gallon capacity and 4-5 at the larger 35-40 million gallon size. Feedstocks are expected to vary – a mix of wheat straw, rice straw, bagasse, arundo donax, corn stover, or poplar depending on the costs and availability.

“We have a number of conditional agreements in place that go forward when the first plant is fully commissioned,” Ghisolfi said. “As far as feedstocks, we’ll do whatever is possible and practical.”

The biggest project area in the near term, with partners, will flow from the company’s partnership with Graal Bio. “The project will use 50 percent sugarcane tops and leaves, and 50 percent bagasse. We see this as an opportunity to add 30-40 percent more capacity at existing plants, by using bagasse, and the tops and leaves. The government has outlined an impressive program to expand sugarcane cultivation, but it will take several years to put in all the roads and infrastructure to open up opportunities in the west of Brazil, so working with existing plants offers more near-term opportunities, in our view.”

The bottom line

A friend of the Digest, reflecting on the chances for 10-15 cent sugars and the companies chasing those targets, described them as “Moon shots. I truly wish them luck, but they face significant tech and scale issues to be big players. If any of them can really be the cheap, why are they not producing cellulosic ethanol right now and making a killing?”

Well, that was some time ago, but it applies in the here and now. Producing cellulosic ethanol right now and making a killing. That appears to be the path that Beta Renewables is marching down. It may well have been a moonshot to have built Crescentino.

Every once in a while, though, the Eagle really does land, and one small step for a man really does translate into one giant leap for mankind.

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