Policy, finance, technology, feedstocks, markets, prices, opposition.
Here’s what’s on your mind, as the critical 2013 deployment year for biofuels looms.
Great topic suggestions from Digest readers have been pouring into my inbox all week — for the private, pre-ABLC briefing that we are prepping for DC this April.
(By the way, thank you to the many people who RSVPd for the Sunday, April 14 Private Briefing – which is now full up. And thank you for all the kind comments regarding the upcoming ABLC 2013 program! More on ABLC here.)
In many cases, there’s no need to wait for April to get into the questions — and the discussion isn’t so sensitive that a private briefing is necessary to foster a free dialogue.
So here are 15 burning questions as suggested by various Digesterati — divided for convenience into upstream midstream, downstream, policy and finance sections and some answers.
1. The future of RFS2 and What the industry needs to get done with the RFS to make it a more effective policy instrument for advanced biofuels.
The Digest’s Take. The battle over RFS2’s future has shifted. Opponents now point to surging US production in natural gas and oil – saying, we don’t want to change RFS2, we want to repeal it, it’s not needed: corn ethanol is too damaging to food and oil interests, advanced biofuels are not arriving in sufficient quantities.
Industry’s answer is likely going to have to be evidence of growing production – especially of advanced biofuels from non-food feedstocks.
“We’re late, but we’re here” is better than “five years away.” If there is significant deployment activity in the US, at least, in 2013 – with the likes of Beta Renewables, POET-DSM, Dupont, INEOS Bio, KiOR, Gevo and/or Butamax and a host of other companies that are working up plans for first commercial projects – well, that certainly would be enough to prevent repeal.
2. LCFS beyond California?
The Digest’s Take. As soon as the Supreme Court rules on the constitutionality of California’s Low Carbon Fuel Standard – if it is not struck down, expect that it will be emulated elsewhere on a state level. The Northeast and elsewhere on the Pacific Coast would be areas to watch.
3. Are the corn and advanced/cellulosic industries aligned or will they be opposed as time goes on and what are the ramifications of this?
The Digest’s Take. Aligned for now. Some in the corn world get tired of waiting for advanced biofuels to arrive, and some in the drop-in fuels area get tired of the food vs fuel and market access controversies. Long-term, it will depend to the extent to which corn stover becomes an important feedstock. If wood, algae or energy crops become the dominant platform for advanced biofuels, you may find that corn and advanced biofuels interests may bifurcate.
4. Report on traction that opponents to renewable biofuels policy etc. have /are making. The public relations battle – strategies for influencing consumers. Natural Gas developments and impact on development of biofuels/bioproducts/bioeconomy.
The Digest’s Take. On the environmental side, not much has changed – there continues to be broad support for biofuels, tempered by a heavy opposition from harder-line environmentalists that continue to be vexed by monoculture, GMOs, water usage, and internal combustion engines as a whole.
On the markets side, the emergence of shale gas and tight oil is a game-changer. Now, it is not easy or cheap to build a natgas vehicle infrastructure, the vehicles are some ways off, and there’s range anxiety to contend with – many of the same issues that plug-in electrics contend with. But rising fossil fuel production tends to dampen enthusiasm for the energy security aspects of “home-grown” fuel – making it more about economic development issue for rural areas, and that’s a tougher sell, nationally.
5. Fiscal cliff and less government spending – consequences for investment?
The Digest’s Take. The cliff is certainly preventing anyone from getting other things done – like tax extenders and 2013 government budgets in the short term. Long-term, to the extent that the inevitable compromise will produce a smaller government – expect that the US will, in the longer term, exit its financing of commercialization activities and focus on R&D. But expect there to be a long discussion about the scope of R&D – to move beyond producing one-off alternative technologies that run into blend walls, valleys of death, infrastructure problems — and focus on producing alternative ecosystems.
1. Wood, ag residue collection and transportation equipment and practices
The Digest’s Take. On the woods side, the pulp and paper industry is pretty good at this already and there haven’t been so many concerns raised. On the ag residue side, more of an issue – tools, teams, training and costs. DuPont’s Jim Collins says: “For now, we think that the group that owns the plant, will own the equipment and work with growers to harvest. As a next wave, you’ll see specialists and they work their way across the country, to bale, stack and stage — or even some entrepreneurial growers that are willing to invest in the equipment, which requires heavier gauge balers than for wheat straw. Further down the line, we see a lot of progress with John Deere on the development of a single pass system for corn and stover harvest.”
1. What technical breakthroughs that are feasible in the next two to three years would have the biggest impact on the industry? What could turn this space upside down?
The Digest’s Take. Without a doubt, drop-in fuels and low-cost cellulosic sugars.
Only drop-ins serve new markets like aviation, and work their way around the ethanol blend wall, a shortage of FFVs — and, in particular, biomass-based intermediates receive much warmer support from refiners, because they don’t cut into refinery business. Game changers in the next 2-3 years – will Joule’s technology deliver on the numbers at scale, will KiOR be able to scale-up to where their costs are competitive with incumbent fuels.
On the sugars side – there’s BlueFire, Blue Sugars, Renmatix, Proterro, Comet and Sweetwater already in the mix – and more to come. 15 cents sugars would be a game changing event — especially for financiers and companies like LS9, Solazyme and Amyris that depend on them.
1. Fuels v. Products. In addition to the obvious “flight to higher margin” which makes perfect business sense, are there other benefits people are experiencing – perhaps unexpectedly – from this shift?
The Digest’s Take. The shift from fuels to chemicals and other higher-value products has the added benefit of removing some infrastructure concerns in deploying volumes at scale. Moreover, as it is a market currently unsupported by subsidies or mandates, it is inherently less controversial.
An interesting phenomenon seen not only with biomass but with natural gas – changing the source mix changes the desired location for manufacturing industries. Expect that lower energy costs and more abundant energy will power a renaissance in manufacturing jobs.
2. RJF (renewable jet fuel) and the DoD
The Digest’s Take. It should be expected that, should the US reasonable negotiate its “fiscal cliff” – the Obama Administration’s $510 million commercialization program for aviation biofuels, centered around the Navy, will finally get funded and underway. It’s goal of financing technology at sufficient scale to be cost-competitive is generally well-known. It’s goal of buying down the cost of the feedstock to ensure that the fuels are competitive – that’s the USDA’s role in the project, and perhaps the most important one.
3. Canadian RFS, and US RFS2 implications for Canadian Cellulosic ethanol exported to the U.S. Canadian public lands, based woody biomass utilization and criteria.
The Digest’s Take. Canada’s the land of milk and honey. Massive quantities of wood and ag residues, a society that well understands the importance of a healthy forest products industry, and available government support through vehicles like STDC. Our expectation is that Canada will focus more on energy exporting with its cellulosic production – rather than imposing a large mandate on itself and expose itself to financial uncertainties that have bedeviled even the rich coffers of the American financial markets.
4. Market trends and growth perspective for platform chemicals and Biofuel markets outside the U.S. Where are the big opportunities?
The Digest’s Take. In a word, Asia. The story in Brazil and the US is fairly well-understood, and the EU is increasingly likely to be an importer. The wildcard is Asia. Looming shortages in raw energy in many part of the continent, abundant bioresources, replete with capital in many cases, and with fast-growing economies much in need of affordable energy. If Asia isn’t doubling its biobased energy and product production every couple of years through the 20102 and 2020s, we’d be mighty surprised.
Downstream: routes to market
1. Routes of RFS compliance: E15 verses E85. FFV future.
The Digest’s Take. E85, dead. E15, years away and controversial. E30, a more friendly option on some levels – requires a flex-fuel vehicle, but it is a sweet spot for engines and may become important in the context of meeting CAFE targets later on. Here’t the big however, however. E85 was killed by not pricing it rationally vis-a-vis gasoline, and not concentrating demand. If a cluster approach to FFVs is not employed, and E30 is not priced at an appropriate (10 percent) discount to gasoline (as it is in Brazil) – you can forget this market opportunity too.
2. Hybrids – electric / fuel vehicles are here. Can they run on pure biofuels?
The Digest’s Take. Hybrids are here and run on biofuels just fine. One of these days someone is going to get the weight right on a renewable diesel-electric hybrid – and that will be a monster in fuel efficiency. Plug-in electrics? Not going to be around in meaningful numbers for a long, long time.
1. Estimated value of future cellulosic RINS as it relates to financing.
The Digest’s Take. If we could predict RIN values, we’d probably close down the Digest, buy a seat on a trading floor, trade RINs, and buy a Caribbean nation within the year. Same goes for share prices, weather, oil prices and so forth.
Here’s what we can say for sure. RINs are useless in financing advanced biofuels, because no debt guys we know do anything except zero them out, regarding that as speculative upside for equity rather than a fully-hedged means of producing revenue to support project debt payments. In fact, all the VCs we know zero them out too.
2. How the leading advanced biofuels companies are obtaining funding in spite of headwinds from CAFÉ (reduced fuel demand), CNG and opposition to the RFS.
The Digest’s Take. Well, here’s the pathway. You start with fuel cost. If you are at $85 oil parity or better, good. Short of that, its time for a “flight to margin” shift to chemicals. Offtake? A commitment (or commitments) to buy the first 5 years production, good. 10 years better. Short of that, you’ll be an all-equity financing play. Feedstock? You need contracts that support your costs – how kong term, depends on the feedstock.
From there, you need mountains of data supporting your supply chain. How do you aggregate feedstock, ship it, store it – and if your feedstock plans looks anything like “if you build it, they will come” you are definitely in the Hurt Room. Rate, titer, yield – for every process step.
And here’s the really fun news. Do all that, you still will be all-equity for the first commercial, and probably the second – unless you have a loan guarantee from your friend in equity reserve, the USDA, which is getting out of that business excepting smaller business & industry type loan guarantees in the $20M range.
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