Amazing questions get asked at industry conferences — and except for attendees, you generally don’t hear them, or the answers.
With great sessions at conferences, delegates are usually keen to get a hold of the powerpoint decks. But how do you get a hold of the great Q&A that follows the presentations — or the pertinent questions that get left unanswered when sessions run out of time?
We’ve been saving classic questions this year — and here are the answers, too. We’ve divided these up into six areas: R&D, Policy, Feedstocks, Production & Commercialization, and Downstream Markets and Infrastructure, and Finance.
Q. Are you aware if universities in other countries are changing their teaching programs (both undergraduates or graduates) to train student so they gain skills both in science and business/economics, which are needed for the biofuels industry?
A. As the questioner knows, generally the life sciences and commercial topics are taught separately, and the traditional route for combining these is to take an undergraduate science degree and combine it with a graduate degree in business administration. But, should it always require a second degree? That’s good for institutions, boosting enrollments and revenues — but tough on students and their families, particularly in emerging economies. Colleges of agriculture are generally the strongest in this respect — typically blending science and business in their undergraduate programs.
But can you emerge from a major university with a science or engineering degree, and no credit hours in anything related to business or economics? You surely can.
Q. The US land grant school and the USDA extension service is crucial to the success of US agriculture. Are there efforts to export this concept/model/system?
A. The land grant and extension systems in the US go back more than a hundred years ago, and the Morrill Act of 1862 (for land grant colleges) and the Smith-Lever Act of 1887 (establishing cooperative extension programs). While the financing mechanism for establishing science-based colleges is probably obsolete — agricultural extension services are becoming more popular around the world, and have been around for decades. FAO supports a lot of this activity. Canada has a highly developed system. Brazil, Argentina too, and its widely in place in the EU. China has a huge program which is undergoing reform. In the developing world, especially Asia, its been spotty since the World Bank scaled back its activity in the sector.
Q. What’s going on in engine design to work with companies like Mercedes Benz and others to develop advanced biofuels-friendly engines, such as high-blend ethanol engines?
A. Ricardo developed one. Cummins just launched a real amazing engine. Adoption by car-makers has been slow — chicken-and-egg problems, mostly. New US fuel economy standards have stimulated a whole new round of discussions on ways that advanced ethanol engines (e.g. E30) can offer sufficient increased compression ratios to substantially raise fleet fuel economy. The new CAFE standards will begin biting in the 2020s, so there’s a while to wait, but not forever.
Meanwhile, the US advanced engine technologies effort continues to focus research on electrics and fuel cells, at the moment.
Q. Why are there so many industry associations that companies are expected to support. Why can’t there be a more unified message, and a unified structure?
A. Yes, there is a soup of acronyms and associations: RFA, Growth Energy, NBB, BIO, ABFA, ABO, and emerging ones on the renewable chemicals side too like the re:chem alliance. Generally, ethanol companies have special challenges on feedstock (“food vs fuel”), and infrastructure (“blend wall”) that make it difficult to simply have one big industry organization that deals with all. Drop-in fuels and specialized feedstocks like algae have special challenges related to coming along in R&D after the RFS was originally designed, and in the case of feedstock associations, they have feed and fiber markets to address as well. Then again, companies targeting chemicals have special needs as well that organizations like BIO have been working on for years.
So, there are good reasons for multiple associations — though we wouldn’t be surprised to see some contraction over the next two years as some interests converge — e.g., fuels and chemicals, or a desire to see one big ethanol advocacy group.
Q. We almost never hear about climate change at major conferences now, and how this industry is leading to a more sustainable energy and materials supply chain. Have we lost the focus on climate?
A. Probably it is fairer to say that governments have lost sight of climate to some extent, and those who have remained focused on climate are less focused on fuels, preferring to focus on power. And, finance markets were never crazy about climate. So, the industry addresses it but doesn’t emphasize it as it once did, in response to market signals.
Q. To what extent does a Republican-controlled Senate in 2015 help or hurt the biofuels industry?
A. You can expect that a bill to mend or end the Renewable Fuel Standard would emerge in 2015 from the Senate and House in 2015 if GOP-controlled. The votes aren’t there to end it, but probably there are votes to amend it. If there are significant protections for popular pathways like drop-in fuels, there may be a veto-proof majority in the Congress.
Q. Do companies need carbon to have a cost (carbon tax, carbon price) to make their business plans viable? If so, what’s being done to
A. Companies have long abandoned depending on carbon prices, because investors don’t believe they have stability. The fall of the Australian government over the carbon tax last year would have convinced any hold-outs. However, there are more stable mechanisms like Low-Carbon Fuel Standards, and investors generally believe they will be around for a while in selected regions like the US West Coast and Northeast. And if the RFS is repealed in the US, expect that individual states like Iowa would proceed to develop a state or regional standard.
Q. What are the costs for feedstocks like wood chips — is power market demand distorting that cost, and can fuel costs be competitive based on feedstock costs?
A. Competitive renewable fuels are entirely dependent on affordable feedstocks. To ensure those, industry must continue to develop value-add applications for new feedstocks faster or better than competing industries.
In the special case of power and woodchips, Renewable Power Standards are pushing more and more utilities to biomass to meet renewables mandates — and yes, that is driving up the costs of woodchips faster than the price of fuels is going up, and that stresses the business model. In those cases, companies will likely target other higher-value markets such as chemicals or high-value fertilizers, in addition to or in replacement of the fuel markets.
For crops like corn stover — the fuels industry has an advantage in having developed strong grower relations, long-term contracting options, and one-stop shopping in terms of shipping corn and stover to the same facility. With sugarcane trash and bagasse, the same applies. So, it depends on the feedstock.
Q. A state like Florida is looking for alternative crops to replace citrus on 500,000 acres, devastated by HLB disease. Sugar beets, cane, sorghum can be grown in these markets at scale, and there is sun, rain, land and infrastructure. What’s the hold up?
A. Growers are conservative, and generally want to see an established markets before they commit the capital to plant huge numbers of acres. So, they’ll need to see established technologies with solid offtake agreements first. On the traditional ethanol side, the technologies are there but there’s real concern about growing the demand. On the drop-in fuel side, the markets are there (for example, aviation) but the technology is only now getting ready for commercial deployment. We’ll see if growers also can make money growing feedstocks in Florida that are affordable for fuels — keeping in mind that the cost of retail fuels is around the cost of retail water.
Q. Sustainable biomass supply. How do you keep growers engaged in growing volumes and target crops for every cycle. Incentives? Tax relief?
A. Tax credits and federal assistance is likely to be available only for crop establishment — the public needs renewable fuels, and is likely to help bear some of the risk for growers in the shift from established markets to new markets like fuels. After that, the growers and producers will be on their own, in all likelihood.
As mentioned above, the most important thing is app development. If fuels represent the highest-and-best use for a feedstock because the fuels developers have made the investment in realizing the potential of the feedstock and can offer a huge market (even if at low margins), they will succeed. If they offer a $3 market and some other buyer offers a $5 market — well, the market will rule on that in the obvious way.
Production and commercialization
Q. Why take biomass and convert to fuels instead of converting to higher value chemicals? Has the “bioeconomy” become a religion that ignores the technoeconomic facts and doesn’t differentiate between technically feasible and economically viable? How will society and the economy continue to prosper by switching to a cellulosic biofuels with an EROI of less than 3, and as low as 1-1.3? What about the economics of these fuels once the co-products have become commodities with very low margins.
A. Perhaps the most important thing is to see renewable fuels as a source, not THE source, for fuels in the marketplace — and to see fuels as an application for a given chemical.
Project develoeprs geenrally don’t focus solely on margin. They need to see margins that exceed a financing hurdle rate — but after that, they look at market size. Otherwise, everyone would be developing niche nutraceuticals to sell at GNC.
One other thing. We probably should avoid the religion of focusing on “cellulosic” feedstocks. They certainly are out there — but its often used as a proxy for “advanced biofuels” or “ABC” (anything but corn) fuels. That’s problematic, as there are plenty of non-cellulosic feedstocks — for example, waste fats, greases and oils — that are powering growth in renewable diesel and biodiesel.
For some time, we may see companies bring forward green chemistry applications for their process — where they have those high-value opportunities and can finance them, they should. Eventually, you will see companies starting to target fuels for some of those technologies — either as producers or as licensors — where they see the economics are there.
Take renewable diesel as an example. The technologies started coming forward a number of years ago — we’ve now seen nearly a billion gallons in capacity deployed, by very serious companies like Neste Oil, Valero and Eni. And there are another billion gallons that have been announced by newer, smaller companies starting to license those technologies. We’ll see how much of that gets built, but you get the idea. Once a technology is proven out, replication can happen fast and there are plenty of technologies that have good fuel economics — just as there are plenty that have good chemical economics, and some have hybrids.
Other molecules will follow. Take cellulosic ethanol as an example. Though the instability of the Renewable Fuel Standard and lack of pump infrastructure causes some heartburn over whether the expected market will be there — for sure, these fuel developers are bringing forward molecules that make a viable financial return. Biobutanol is likely to come along later in the decade, and the Virent/Shell technology is aimed at biogasoline, diesel and jet fuel — and will be just one of the jet fuel technologies likely to be available.
Q. What’s the future for bio-ethanol, or ethanol as a a fuel, or as an intermediate to make drop-in fuels, or as a feedstock for biochemicals?
A. Ethanol will remain a great feedstock for ethylene, and a great alcohol fuel, and a great precursor to make a drop-in fuel. That’s the technical viability — proven, tested and true. From there, it all comes down to the economics — what’s the path to building the highest possible market for the molecule?
For example, it is not the case that ethanol will never be used as a precursor for making, for example, jet fuel — so long as the price of ethanol is higher than the resulting value produced in making jet fuel. That’s the Natural Law of Alternative Commodity Markets. NLACM, and it applies right now, because the market for ethanol as a transportation fuel is not saturated.
When the market is saturated, either the price of ethanol will fall, or production capacity will stop growing, or producers will find alternative markets such as jet fuel precursors. The margins probably will be smaller for jet fuel precursors, possibly, than for road transportation — but maybe not; it depends on how commodity prices evolve. But if petroleum refiners only targeted the highest value molecule in the supply chain, they would make a lot less fuel — and fuel prices would rise accordingly (relative to chemicals) — and you would have a whole lot of people asking why you would EVER make a $3 chemical when you COULD make a $5 fuel.
Q. What kind of assurance can ethanol plant operators receive — from companies bringing forward new organisms such as consolidated bioprocessing (CBP) or isobutanol-producing magic bugs — that the technology companies have solved the contamination and inhibition problems that have been seen in the first wave of deployments?
A. Deployment issues ultimately are like politics — everything is local. First, technologies must be demonstrated at meaningful scale. Second, you may see side-by-side systems emerge, such as Gevo is deploying, that offer the ethanol producer the opportunity to convert one unit at a time, and switch back and forth depending on commodity prices, and technical problems. Third, you’ll see an awful lot of emphasis on best practices and training. Fourth, you may see some performance guarantee contractual arrangements emerging to insulate the ethanol producer against downside risk during a short but defined transition period.
Q. In Brazil, GOL Airlines has been a pioneer – but what about airlines like TAM and AZUL? And in other markets, why are some airlines like British Airways, Qantas and KLM taking the lead while others seem to do much less?
A. Some of it comes down to market size — bigger players tend to have more at stake and more resources to pioneer solutions. Some see first-mover advantages in securing the best technologies, the best infrastructure assets. Some feel more pressure from their customers and stakeholders. Some have developed the technical and commercial teams, earlier, to turn hopes into results faster than others. So, there are a variety of reasons that bring certain companies forward.
The good news — specific to Brazil — is that TAM, Gol and Azul have all been active in testing and certifying biofuels. TAM starting back in 2010. Azul starting in 2012 and Gol highly active in the past 2 years.
Q. Biochar. Love it, but what about potential carcinogens, and how much can you really blend into the soil?
A. The application rates are not well established, and will vary by crop — but one study recently looked at the application of 50 tons of biochar per hectare — which boosted thale cress and lettuce yields by 100%. By contrast, strawberry markets — which are bound to be an early target for biochar — use 250-500 pounds of conventional fertilizer per hectare.
Our take — expressed earlier this year in the Diegst – is that asking a farmer to pay more than $100-$200 per acre for a soil amendment or aplying more than a couple of tons per hactare, is asking for trouble.
As far as carcinogens, that will be up to appropriate local authorities to ensure that only safe BioChar is approved for sale. And they generally do a good job.
Q. Butanol. What are the car manufacturer’s views regarding maximum blend levels?
A. Our understanding is that, from an operating point of view, biobutanol blends of up to 60-70 percent are acceptable. The limitation is going to be on oxygen content. At 16.1 percent, isobutanol has the same oxygen content as E10 ethanol. That’s going to be a practical limit for the near future.
Q. Is it true that “plant bottles” can’t be recycled like petroleum bottles? If so ,what can be doen with used plant bottles. Is corn starch taboo as a feedstock? Would Coca-Cola finance the construction of the first manufacturing plants?
A. The Coca-Cola 100% renewable plant bottle proposes to use exact same molecules, just renewable sourced, as the petroleum bottle. So they would be equally recyclable.
Consumer preference will rule in terms of feedstocks. Right now the preference (at least in biobased MEG) has been sugarcane. Coke has invested in MEG manufacturing, including a partnership with India-based JBF Industries to build a billion-pound biobased MEG plant in Brazil. So, there’s interest there — will come down to viable technology and business cases. Coke has already invested in Gevo, Avantium and Virent, relating to its Plant Bottle goals.