Chain, Chain, Chain – Chain of Fuels: Mascoma, Sud-Chemie on short path to parity with gasoline

March 2, 2012 |

Can companies like Mascoma and Sud-Chemie, by transforming the economics of cellulosic ethanol, compete at parity with gasoline – no subsidies, no five-years-to-commercial-scale, no kidding?

Today, we continue a three-part series, “Shake It Up, Baby: The Rock Stars of Biofuels unveil their latest hits”, looking at some of the newest and hottest alternatives to the more established routes to advanced biofuels and chemicals,

Part I – I Want a New Bug

In Part I,  yesterday, “I Want a New Bug,” we looked at the formation of Lygos, and the magic bugs, coming primarily out of the Keasling Lab at Berkeley and JBEI, that produce biofuels and renewable chemicals directly from sugar and cellulose without using an enzymatic process.

(“I want a New Bug” also refers, in part, to the announced licensing deal between Sapphire Energy and Earthrise Nutritionals, which will bring spirulina, a long-time popular form of cyanobacteria, for the first time into the cauldron of invention over at Sapphire’s HQ.)

Part II – “Chain-Chain-Chain, Chain of Fuels

In Part II, today – “Chain, Chain, Chain – Chain of Fuels,” we look at the latest on consolidated bioprocessing, in which a single organism both produced a fermentable sugar, and then ferments it; and we also look at the timelines and costs associated with producing enzymes from the target biomass itself. Specifically, we’ll highlight the latest on Mascoma and Sud-Chemie.

Part III – ‘[LL] Cool Planet Rocks the Bells”

In Part III, Monday, “‘[LL] Cool Planet Rocks the Bells” we look in-depth at the mysterious world of CoolPlanet Biofuels to discover what is causing companies like Google, BP, Constellation Energy and NRG to invest in a company that says it can sustainably produce up to 3,000 gallons per acre of renewable gasoline from giant miscanthus.

When POET announced its stunning deal with DSM to establish a cellulosic ethanol JV, POET-DSM, with an overall capital contribution of $500 million, news also came out that the overall cost of POET’s Project Liberty would be in the $250 million range for the 25 million gallon facility, or $10 per gallon.

Operating costs? “CAPEX, OPEX, no subsidies,” were reported to be in the $2.35 range at the plant’s proposed opening in 2013. Now, amortizing the capital expenditure over, say, 20 years (or 50 cents per gallon) we came up with a figure of roughly $1.85 as the operating cost per gallon at Project LIBERTY. An astonishing achievement considering that the company started out in the $6.00 per gallon range when it built its pilot plant in Scotland, SD back in 2008; and at this stage, the leader on cost and timeline in terms of deploying cellulosic ethanol at scale.

But it its own way, the POET achievement makes the business case for alternative technologies such as Mascoma and Sud-Chemie are shopping around.

The costs at Mascoma

Over at Mascoma, while the capital costs are more significant at its reference scale of 20 million gallons – around $11.51 per gallon at an estimated $232 million for the first commercial facility at Kinross, Michigan, the company’s technology, by working on hardwoods that can be aggregated under better economics than corn stover, can be operated at larger capacities. Ultimately, the Kinross facility is designed to reach a 40 million gallon capacity at an overall CAPEX of $9.50 per gallon, while POET has indicated that it believes that 25 million gallons is the sustainable capacity for add-on cellulosic ethanol capacity at corn ethanol plants.

On operating costs, Mascoma appears to be slightly ahead of POET, projecting a $1.77 unsubsidized operating cost per gallon, compared to the $1.85 we estimated for POET.

Adding the CAPEX and OPEX together, we show (based on a 20 year amortization of the plant’s construction cost) Mascoma in the $2.24 per gallon range for its 40 Mgy capacity, compared to POET’s $2.35 per gallon.

It’s far too early to call a winner in cellulosic ethanol, but certainly you have two front-runners in POET and Mascoma.

Improvements? According to Mascoma, “the estimated operating cost of $1.77 for our planned hardwood CBP facility in Kinross, Michigan, assumes that the facility is built to our specifications with a hardwood to ethanol conversion yield of 83 gallons per BDT, which is what we expect when the facility is fully operational. All of the operating cost estimates set forth in the table above assume a hardwood feedstock cost of $66 per BDT of hardwood logs (as well as an additional $7 per BDT to convert the hardwood logs to hardwood chips) and estimated operating expenses for a 20 million gallons per year facility.”

Mascoma’s foundational technology

The foundational technology at Mascoma is consolidated bioprocessing, in which Mascoma’s engineered microorganism both extracts the available sugars from biomass and ferments them, all in one step. No need for those additional enzymes to extract sugars from biomass, which are generally available at 50 cents a gallon today, and perhaps as little as 30 cents per gallon in the future.

In Mascoma’s S-1 registration statement, they outlined their projected costs at scale:

Feedstock costs 0.87
Enzyme costs 0.10
Raw material costs (e.g., organism nutrients) 0.14
Processing costs (e.g., electricity and water) 0.14
Other costs (e.g., denaturant, labor, maintenance and overhead) 0.52

In addition to eliminating operating costs by eliminating the enzymes, Mascoma has some advantages on construction costs because the facility does not need space to handle enzyme deliveries, or tanks to do the enzymatic hydrolysis. Less steel, smaller footprint.

A tough problem: hardwood costs

One area for improvement, the cost of feedstock. The company is projecting hardwood acquisition costs of $66 per bone-dry ton, plus $7 per ton to produce woodchips. Over at POET, they are expecting corn stover to cost them around $55 per ton – that’s a 25 percent cost advantage for corn stover. The problem for woody biomass? Wood is increasingly priced according to it oil-equivalent energy value, for the electricity market, and proposals like the clean energy standard – by mandating the purchase of clean energy by US utilities (who can pass along their costs to power customers), are bound to put more pressure on wood prices.

The MGT first-generation ethanol product

Accordingly, it is not entirely surprising that Mascoma’s first product in the market by passes the wood chip market altogether – providing a consolidated bioprocessing assistance to corn ethanol producers – presumably, at first, with its main investor, Valero, which currently owns 8 percent of US first-generation corn ethanol capacity. Mascoma has a five-year agreement with Lallemand, to market the MGT product.

According to Mascoma, “Our genetically-modified MGT yeast product can be used by corn ethanol producers as a drop-in substitute for existing yeasts. We believe that our initial MGT product will reduce the enzyme costs of corn ethanol production by approximately $0.01 to $0.02 per gallon, based on laboratory test runs and management estimates of total enzyme costs between $0.03 to $0.04 per gallon of corn ethanol.”

In biofuels, at scale, have no doubt: pennies matter. Two pennies saved per gallon, across the US first-generation fleet, amount to a total savings of $278 million per year, or more than the CAPEX needed to build a cellulosic ethanol plant at scale.

Latest from Mascoma? The company announced in December that FDA, after scientific review, supports the use of the Mascoma Grain Technology yeast product as a processing aid in the production of animal feed, which is a by-product of the corn ethanol conversion process.

The company also indicated that pilot-scale test runs of its next generation MGT product, as conducted by ICM, demonstrated ethanol yield improvements of up to 3.4%.

Over at Sud-Chemie

But over at Sud-Chemie, the CAPEX is radically lower.  Their system is designed to ultimately cost less than $100 million for a 20 million gallon (60,000 tonne) plant, and is expected to have operating costs that are competitive with first generation ethanol, and the company is expected to commence licensing in 2012.

“Our unique selling proposition?” asks Dr. Andre Koltermann, Group VP, Corporate R&D at Sud-Chemie. “We are one of the few companies worldwide that have process development and enzyme development under one roof. We are independent from enzyme supply, because we make our own during the process itself, using only a small fraction of pretreated feedstock. We have optimized enzymes for feedstock and operating conditions.”

Bottom line, no shipping of enzymes, produced offsite at its own industrial biotech production facility. Two, in one. Hence, low capex.

“We will deliver the complete technology,” said Koltermann. “The basic engineering package, also include all biotech software, microorganisms for producing enzymes, downstream processing, for producing the ethanol, and also help with the start up.”

OPEX? “Our target is clearly the same production costs as for the costs of first generation ethanol – we are pretty close now,” said Koltermann. CAPEX? “We are in the range,” Koltermann added, “or a greenfield plant, in the very low three digit million. That’s for our 55,000 – 60,000 tonne [reference] plant (20 million gallons). That’s for the early plants – we can can achieve double-digits later on.”

We noted last year: “Caution, these are “in the long run” figures, keep in mind Sud-Chemie is in “low three digit millions” now and “we can can achieve double-digits later on.” In other words, you can get a license as soon as 2012, but not necessarily a license to print money.”

But the company is, without a doubt, making strong progress. Last July, Süd-Chemie began construction on its cellulosic ethanol project in Straubing, where it expects to produce 1,000 metric tons of ethanol annually from 4,000 tons of wheat. The project will cost €28 million, and is subsidized by the Bavarian State Government and Germany’s Federal Ministry of Education and Research with approximately €5 million.

The bottom line

It is way to early to call winners in cellulosic ethanol. But the outlook on the competing product, RBOB gasoline – is encouraging. The cost for the April RBOB contract is $3.35 per gallon, and it stays in the $2.87-$3.35 range almost all of 2013, as of trading yesterday.

On the BTUs, then, ethanol trades even with gasoline when the cost is $2.24 per gallon. That’s exactly where Mascoma is today, according to their S-1. That’s unsubsidized. That’s not considering the high-octane properties of ethanol, or the carbon gains from cellulosic feedstocks. That’s CAPEX, OPEX, the whole shebang. That’s pretty amazing for an industry just getting up on its feet.

And may explain why some oil refiners are so desperate to un-do the Renewable Fuel Standard before the guys in the lab at Mascoma, Sud-Chemie and POET wreck the economic case for gasoline any faster than they already are. Though others like Valero are seeing gold in them thar hills.

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Category: Fuels

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