Terrabon: Accelerating commercialization of drop-in fuels, waste-to-energy

October 15, 2010 |

In Texas, the Digest spent time this week with Gary Luce, CEO of Terrabon, whose advanced biofuels technology converts MSW and other residues into drop-in biogasoline, renewable diesel and jet fuel.

The company, which has attracted investment from Waste Management and Valero among other companies, has been rapidly gaining traction this year, and is set to make its stage-gate decisions on construction of its all-equity first small commercial execution in the first half of 2011.

BD: What are the key events coming up in Terrabon’s path to commercialization?

GL: We expect to get to the initial stage gate in Q1 of next year, and the second stage in Q2. The major issues we are evaluating are to make sure we stay on target with our net yield and capital cost as we scale up. We have retained 3rd party evaluators, and they are coming in to help us now.

We are finishing up the key milestones at our demo plant, and when we expect to approve our “plus or minus ten percent” engineering plan and be breaking ground by next year. It’s an all equity facility, with a target of processing 220 dry tons of MSW per day, into 5 million gallons of biogasoline per year. We’ll do two or three projects at that size, then scale from there.

What geographies are you looking at for your projects?

Our internal criteria are the WM supply stream and Valero’s distribution – that gives us options on the West Coast and in Texas, for starters.  We have locations in both areas. On the west coast, we have to see how some of the politics play out in California, and we see advantages in the northwest where they are looking at low power prices from BC hydro that make our economics more attractive.

BD: Terrabon has been moving quickly, even accelerating? What are the key advantages that have allowed you to keep up the momentum?

GL: My view in this industry you really have to create a technology not only that adds value, but really enables the feedstock supplier to do something fundamentally different. In our case, creating drop-in fuels at the refinery rather than at the terminal, we offer some extra degree of freedom at the refinery level, and that’s been attractive to our partners.

The thing that gives us advantage is really the size of the check – we don’t have to run this at 1000 tons per day to hit our economic targets. That means we have a lower cost of construction. Also, we have skid-based design, we’ve been able to use some off the shelf technologies, and all of that gives us a certain deployment advantage. The result? With the check we need to write, we don’t have to have debt, and the first one we will show at demonstration, we’ll have a positive return on equity for first plant.

But its more than just the size of capital, its how partners see the value of technology, because we mean to license our technology, not build and operate, and we’ll make our money through licensing, support and engineering fees. Our partners will have the biomass, and we’ll have different partners.

BD: So many advanced biofuels companies are diverting first to biochems as a first product set. What about Terrabon?

GL: We like the size of the transportation market – the higher price certainty de-risks the market, and gives us a broad set of geographies.

BD: Why is MSW accelerating compared to other next-gen biofuels?

GL: People have enough facts now, to look at the supply chain. Other technologies were based on notions of how the energy crop chain was going to come along at the same time as the processing technology and the downstream distribution. My view is that eventually will get there, but a lot slower than expected. The regulatory framework moved, the technology moved, but the feestocks moved more slowly, and now there’s a hesitancy until an energy crop supply chain exists.

The great side of an energy crop is that you can control content – at the end of the day, sorghum is sorghum. With MSW you have more variables, but you also have the higher ability to get paid paid for feedstock or acquire at low cost.

Also with MSW you can get a really strong partnership, in our case, not only a supplier but an investor, and close alignment that flows from that.

BD: When you look at other advanced biofuels technologies, do you think that a broad portfolio will succeed, or only a handful?

GL: My view is that all boats rise with the tide. There may be a couple hundred technologies out there. Maybe 30 technologies will play in the end game. With ethanol, there’s the blend wall issue with ethanol. With the broad group of drop-in fuels, you don’t have that issue. And in our case we can produce biogasoline but also push along later into the jet and diesel range.

BD: What are the factors that have allowed you to make progress rapidly with your partners?

GL: My background coming out of McKinsey, oil, power and gas, is an understanding how energy is delivered, not just how the commodity is made. That means all the GDP that gets created around the commodity, where generation is a small component of value delivered. My goal was not developing a technology but delivering a solution, where everyone gets a piece of the value chain. My skid guy has to make a margin, my refiner has to be able to optimize his facility. My waste partner has to get some value, as opposed to paying $20 to put a ton in the ground. I have to create and maintain those relationships.  For example, Shell through CRI, or Texas Systems & Controls – a big skid shop – and various engineering firms.

BD: A lot of biofuels policies out there aimed at creating and sustaining markets. What policies work?

GL: Keeping the volume mandates in place – ensuring they don’t change those. If they waiver off that policy, it creates uncertainty in investors’ mind, and in the market. They have to have the courage to maintain the policy until the fundamental obligors start having to pay fines. Then, they will be  the ones that create the impetus.

Second, there are some policy issues in RFS2 on setting the RINS. Right now there’s one national decision, based on the average wholesale price in November, instead of regional options and quarterly versus annual. You see, one price, one time, sets up a time management risk dimension. If the policy gets gets taken out to a quarterly vs annual, it takes risks out.

Third, in the vertical we are working on now, with MSW, it would be helpful to better define what pieces qualify for advanced vs what qualifies for cellulosic. It’s fuzzy right now, for MSW. Also, we all want to document what we are doing but we do not want to saddle small companies with a big bureaucratic requirement.

BD: When you look at the opportunities on a global, what locations have the right combinations for you in terms of markets for the fuels, the feedstocks you need and can afford. What will be the key factors for you as you look to expand overseas?

GL: We look at North America, Brazil, India, China, and our IP estate parallels that. To move forward with those areas, which comes first, which later – it’s really about the partner we go to market with, because we’ll license it out.

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Category: Fuels

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