Brazil doubles down on next-gen biofuels: BNDESPAR invests $294 million in GraalBio, BNDES adds $137M in financing

January 22, 2013 |

BrazilBrazilian development arm takes 15% stake in cellulosic ethanol venture, and sweetens with low-cost loan for the first commercial project.

In Brazil, BNDESPAR, the Banco Nacional de Desenvolvimento Econômico e Social (BNDES) venture group, announced a $294 million equity investment in GraalBio — aimed at the developing technology and projects in cellulosic ethanol and renewable chemicals.

According to the agreement, BNDESPAR will hold 15% of GraalBio, and will take a seat in the Board of Administration.

According to BNDES and GraalBio, the BNDES investment will flow on a co-investment schedule with the Grandin family, which controls GraalBio. The Gradins will make a $147 million investment in the first phase of GraalBio’s growth, and has announced plans to invest $1.96 billion over the next 7 years.

The first 2G ethanol production plant in the Southern Hemisphere should begin to operate early in 2014. The unit, which is being built in São Miguel dos Campos city, Alagoas State, shall have a nominal production capacity of 82 million liters (21 million gallons) per year. The total project investment is worth $171 million.

Project financing

GraalBio’s project was accepted under the PAISS (Support Program for Innovation in the Sugar Energy and Sugar Chemistry Sectors) of BNDES — and will receive financing in the amount of $137 million, to be used in the construction of the first industrial line.

Feedstock, processing technology partnership with Beta Renewables

Initially, the unit will be expected to use sugar cane bagasse and straw as raw materials.

In the set up of the ethanol 2G unit in this country, GraalBio entered into a partnership with Beta Renewables and Chemtex, affiliates of the Italian group Mossi & Ghisolfi, that developed the PROESA pre-treatment and biomass conversion technology.

Enzyme partnership with Novozymes, yeast partnership with DSM

Besides Mossi & Ghisolfi, GraalBio maintains alliances with the Danish Company Novozymes, the world leader in the enzymes industry, and the Dutch Company DSM, that will be in charge of supplying the genetically modified yeasts that should ferment the second generation ethanol.

Expanding Brazilian ethanol production

According to GraalBio, using bagasse and cane straw has the potential to expand national biofuel production by up to 45%, without requiring investments in new plantations and without competing with food production. In addition, the company pointed to Brazil’s 450 million hectares of underused agricultural land – as an opportunity to make Brazil a key player in the biobased revolution in the world.

R&D

GraalBio also announced plans to open a synthetic biology research laboratory, located in the Campinas Techno Park in Sao Paulo state. By mid-year, GraalBio expects to open a pilot plant in Campinas with the objective of improving cellulosic ethanol technology and develop biochemical pathways.

The Bottom Line

President Barack Obama, in his inaugural speech in Washington, recommitted the US to battling climate change with innovative technologies — but here Brazil is putting its money where the US’s mouth is, doubling down on early-stage technology with a $431 million total financing package which could be the catalyst for a boom in low-cost Brazilian ethanol.

We also note that the trends in next-gen biofuels are sharply turning towards Brazil and Asia, where combinations of family office and sovereign wealth investment are proving more robust than the tentative nexus of US and EU project finance and farmer co-ops.

It was the latter which proved so powerful in the development of first generation ethanol in the US and the EU, but investor confidence has faltered materially in the face of the logistical and cost challenges of next-gen biofuels.

However, the risks that have caused US and European investors to blink – have proven to come at levels, for Brazilian investors, that are commensurate with the rewards. Some of that relates back to the unique properties of sugarcane bagasse, a feedstock aggregated at the sugarcane mill in the process of making sugar and ethanol, and paid for in that process.

Traditionally, bagasse was burned to supply power for the mills, and not always with maximum efficiency as the secondary goal was simply to get rid of the waste. Further, cane straw was burned in the field — a practice that will be fully banned in Brazil with the full introduction of mechanized harvesting by 2017.

The investors have concluded that the switch a portion of the bagasse and straw from power production and disposal to higher-value fuels and chemicals.

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