Raizen, Iogen commence construction on the first of what could be up to eight projects by 2024.
After years of developing cellulosic ethanol technology in Canada, Iogen turns on the afterburners in Brazil with bagasse and cane straw. And finds the right partner in Raizen.
In Brazil, Raizen has started construction on a 10 million gallon per year cellulosic ethanol plant using Iogen Energy technology. The $100 million project, located adjacent to Raízen’s Costa Pinto sugar cane mill in Piracicaba, São Paulo, is expected to start up in Q4 2014.
Iogen Energy is a joint venture between Raízen and Canada’s Iogen Corporation. Iogen built the industry’s first demonstration-scale cellulosic ethanol plant in Canada back in 2004 and has in recent years optimized its process for sugarcane bagasse and cane straw, following the establishment of the $12 billion Raizen JV between Shell (a major Iogen shareholder) and Cosan, which combined an array of ethanol production and distribution assets in and for the Brazilian market.
(In all, Raízen produces 2.2 billion liters of ethanol annually, 4 million tons of sugar, and has installed capacity of 900 MW of electric energy derived from sugar cane bagasse. The company has over 4,500 service stations for retail fuel distribution in Brazil, 700 convenience stores, 53 fuel distribution depots, and aviation fuel businesses in 54 airports in Brazil.)
Since 2004, Iogen has produced more than 2 million litres of cellulosic ethanol in its $100 million demonstration plant using agricultural residues such as wheat straw, corn stover and bagasse as feedstocks.
Financing was provided by the Brazilian National Development Bank, BNDES, which earlier had announced funding of $89 million for the Raizen second generation project.
The project background
The project is the first in the world, at commercial scale, that integrates the technologies for conversion of bagasse and cane straw into the process of conventional sugarcane ethanol.
The construction announcement follows one year of development, engineering, and design work associated with the commercial cellulosic biofuels facility. After concluding that Iogen had the most advanced technology for building co-located commercial plants at Raízen’s sugar cane ethanol facilities, Raízen committed an initial investment for the project through the Iogen Energy JV in July 2012, revealing those details publicly in October of last year.
Last November, Raizen CEO Vasco Dias projected that the Shell-Cosan joint venture expects to have eight plants producing advanced ethanol by 2024.
In June 2012, the company announced that it would invest $7 billion in a program to reach 100 billion tonnes in cane crushing capacity, a 50 percent increase over current capacity. At the time, Raizen exec VP Pedro Mizutani said that the company, which now has 10 percent of the cane crushing capacity in Brazil, would increase production by 5 million tonnes at its current plants, and achieve the remainder of growth through new project, as well as acquisitions.
Iogen’s pivot to bagasse
Iogen’s switch in focus from Canada to Brazil for its first commercial project was a major news story last summer.
In May 2012, the stunning news came from Manitoba that Shell had canceled a long-contemplated cellulosic ethanol venture in Canada. But at the time a Shell spokesman in an emailed statement at the time said of Iogen, tersely, “We think the technology is viable.” Prompting the Digest and other observers to speculate that Shell decided that it liked Brazil more than Manitoba, was going forward there, and focusing more and more on bagasse.
That appears to be the case — that what we saw in spring 2012 was not so much a strategic shift away from cellulosic investments in the likes of Iogen, as a shift towards Brazil where Raizen, rather than Shell, would be the project and investing partner.
The rationale for bagasse can be summed up quickly: Raízen has a lot of it, and it is already aggregated and brought into the plant as part of the process for extracting cane juice from the cane. In other words, whether you are making sugar or ethanol, you have already paid to bring the bagasse into the plant.
But there’s cane straw to be considered, too. In traditional manual harvesting, the cane trash is burned in the fields. With the decision by the Brazilian government to require mechanized harvest by 2017, there’s been the question of what to do with all the straw.
How much? As a rough guide — and referring to dry tonnes — a cane field produces one third sugar, one third bagasse and one third tops and cane trash. Using that rough math, a 125 million (dry) tonne annual Brazilian cane harvest produces around 62 million tonnes each of bagasse and tops/cane trash. At 80-100 gallons per tonne, there’s enough biomass in Brazil’s current cane capacity (if all of it was used) for 10-12.5 billion gallons of ethanol, or 37-47 billion liters.
We put the practical figure at more like 40 percent of that – leaving the remainder to be used as biomass in the field for nutrient purposes, or burned for power generation.
The R8 and R9 technology
In many ways, the key decisions were taken in 2010, when Shell “announced a further investment in Iogen Energy, for the purpose of accelerating the commercial deployment of Iogen Energy’s process for making cellulosic ethanol from agricultural residue. As part of the ongoing joint development agreement between Shell, Iogen Corporation and Iogen Energy, Shell made a significant incremental commitment to fund research and development activities at Iogen Energy until mid-2012.”
At the time Iogen was using its R7 technology – the purpose of the new funding was to develop and demonstrate the R8 and R9 technology releases that were aimed at significantly reducing the capital and operating costs per gallon of cellulosic ethanol.
Indeed, this project checks in at $10 in capex per gallon — almost exactly the same capital cost that originally went into the 1 million gallon
By July, right on the clock, Raízen had taken up the lead on the project and by October of last year, Raizen CEO Vasco Dias was saying, “We believe Iogen has one of the most robust, well proven, and competitive technologies in the cellulosic ethanol business.”
Why? First of all, uptime.
Even more, the titers.
Next steps for Iogen
Well, there’s quite a future in Brazil, alone, with the Raízen goal of eight projects by 2024. But Iogen also plans to pivot back to the US and EU markets. The nature of those plans? “The Company is committed to building effective strategic partnerships with leading players in the industry,” said Iogen in a press statement, “and believes that successful alliances, such as its one with Raizen, will be needed to deliver on the multi-billion dollar global cellulosic biofuel opportunity.
The 2014 goals are intriguing — just as much as the Raizen project is the goal to reduce capex to $5 per gallon.
Iogen’s long, long journey
The roots of the technology date all the way back to 1975, when Patrick Foody Sr. initiated work on a “steam explosion” process to improve cellulose digestibility for use as animal feed 1978 – US DOE contracts to investigate the performance of steam explosion for energy production. The process is found to deliver superior results compared with the prior state of the art pretreatments.
1980 – The company initiates research on enzymes and biotechnology.
1982 – The company builds an integrated 1 tonne per day cellulosic ethanol pilot plant, using wood as a feedstock.
1990 – Iogen enters the commercial enzymes business, focusing on producing enzymes that digest natural fiber. In 2013, Iogen sold its commercial enzyme business to Novozymes.
1991 – Iogen forms an alliance with Amoco for the development of cellulosic technology, ending in 1995 when Amoco terminated alternative fuels development.
1999 – With $15.8 million investment from Petro Canada and $10 million from Technology Partnerships Canada, Iogen initiates construction of the world’s first demonstration-scale plant.
2002 – After a worldwide search for leading technology, Shell makes an initial commitment of $46 million to invest in developing Iogen cellulosic biofuel technology.
2004 – Iogen initiates commercial sale of cellulosic ethanol from its demonstration plant. Over the following years, Iogen invests in several rounds of demonstration plant upgrades, solving production scale-up issues.
2006 – Goldman Sachs invests $40 million in Iogen.
2007 – Volkswagen invests $10 million in Iogen, and studies the German potential.
2010 – Shell and Cosan announce the intent to form a Brazilian joint venture, and Shell transfers its holdings in Iogen Energy to Raízen.
2012 – Shell announces termination of its pursuit of a cellulosic ethanol project in Canada. 2013 – Raízen begins construction.
Reaction of the partners
“This announcement is just the beginning of our partnership with Iogen,” says Vasco Dias, CEO of Raízen. “We believe Iogen has the most robust, well proven, and competitive technology platform in the cellulosic ethanol business and, after this first facility is complete, we plan to combine Iogen’s cellulosic ethanol with seven more of our sugar cane production operations. We see tremendous potential for this technology in meeting the world’s growing demand for cleaner and more sustainable fuels, and we anticipate a long and profitable future.”
“The technology being deployed has undergone extensive testing and validation work. We have nine years of demonstration scale operating experience with cereal straw and corn stover, so by operating over 6 months with the Brazilian bagasse, we were able to identify differences, troubleshoot problems, collect information, and adapt designs for reliable low-cost operation” said Brian Foody, CEO of Iogen.
“We’re very excited to be working with a major industry player like Raízen to deliver large scale cellulosic ethanol production” says Foody. “Raizen is an incredibly dynamic partner with immense know-how and expertise in first generation ethanol production. We share a common vision for the global potential of our technology and the importance of developing a successful first project. This project with Raizen is a key step towards rolling our technology out around the world.”
The bottom line
By solving, with bagasse and cane straw, the problems of affordable, aggregated feedstock — and by focusing on the Brazilian market when Raízen controls massive downstream distribution and marketing assets and there is a steady market for ethanol — the complications of financing and producing cellulosic ethanol were generally focused in on affordable technology and the risk therein.
With a willing financing partner in BNDES — and a new generation of technology bringing the capex of the project down to $10 per gallon and $5 per gallon on the horizon — Raízen and its partners Iogen and Novozymes has ultimately solved the puzzle of cellulosic ethanol, which is to say, how to arrange all the pices so that they are sustainable, affordable, reliable and available — and all at the same time.
In the end, a good acquisition deal for Novozymes and Iogen — the former gets a great entry position for Brazil’s second-generation market, while Iogen raised much-needed capital to complete its technology package. Both will be winners.
Now, given Iogen’s substantial experience with the realities of operating and commissioning a cellulosic ethanol plant — we are hopeful that the process will be quick and smooth.
It all will come down to two factors — how ready-for-prime-time the team and technology is on deployment, and how ready the Costa Pinto plant and team are for the changes in their own traditional processes; for example, changing the way they used bagasse to generate power for their process, and executing on their plans to aggregate and utilize cane straw.
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