The Greensome Foursome: POET, Novozymes, Abengoa, NexSteppe on the industry outlook for 2014

As several major cellulosic biofuels ventures head for scale in 2014, we look at the companies, the major barriers (as they see them) for further capacity-building, sources for future investment, and a focus on feedstock.

In California, NexSteppe CEO Anna Rath, Novozymes North American president Adam Monroe, POET VP Doug Berven, and Abengoa Bioebnergy EVP Chris Standlee were on stage at the BIO International Convention to assess the future of cellulosic biofuels and industrial biotechnology.

Joining them as moderator was Digest editor Jim Lane.

Introducing the companies

BD: Anna Rath, tell us a little about NexSteppe.

AR: We are in the business of developing and selling the seeds used. Our first business line is in sweet sorghum; Biomass sorghums in a second business line. We have sales in Brazil and USA and also have potential partnerships in 15 countries and in the process of extending those into new countries and other partnerships as well.

BD: Chris Standlee, give us an overview for Abengoa.

CS: We are a Spanish-based company with 70 years of experience primarily in engineering and construction and investments in water, environmental, large investments in electric transmission lines etc. In the US we have 4 facilities and the 2nd generation facility. Commercial scale in Kansas starts in a few weeks. We’re committed to the US market, having 2 IPOS in the USA recently. The 2nd generation biofuels space is very important, and we are also very interested in energy crops, and municipal solid waste. Down the line, we will be diversifying into some other products such as butanol from biomass.

BD: Adam Monroe, an overview for Novozymes?

AM: We are a $2 billion dollar Science and Technology based company, and we are in 40 different markets with over 700 products. Enzyme is our core business with the conversion (biomass and biofuels). We focus on microbiology to help farmers with growing crops, and that’s a very hot business for us today. We have invested $100M developing the conversion of biomass and thus have allowed them to partner all over the world. We see a real bright future in this space.

BD: Doug Berven, tell us where POET is?

DB: Poet has 1.6 billion gallons of capacity, with 1,500 employees and 26 plants in 7 states. We are predominantly making ethanol out of grain. Our first cellulosic facility is in Emmetsburg, Iowa. It’s our most important project, and is known as Project LIBERTY. It’s a POET-DSM joint venture.

The Renewable Fuel Standard

BD: The Renewable Fuel Standard is under sustained attack. Doug Berven, first give us an overview on the standard — and what’s the case for keeping it?

DB: RFS is a renewable fuel standard requiring the blending of 36 million gallons per year by the year 2022. It ramps up annually as production comes on line. This year, for the first time, the EPA has cut back on the proposed target, and is 2 billion gallons less than our industry can, which gave a big hand to our opponents, the oil companies. We will always be at the mercy of the Middle East if we are not able to change the EPA look on this. We need to be allowed to compete on market share. If this is the case we will have a chance to compete with oil companies with economies of scale.

BD: Adam Monroe, you serve a huge number of companies producing fuels under this standard. What is the EPA thinking – are they right, are they crazy?

AM: There are some who want to have the advancement of biofuels and others that don’t. This year, the RFS law calls for 14.4 billion gallons and the EPA has proposed 13 billion. The reason for this on the EPA side is because they do not think the infrastructure is ready for more than 10% ethanol.

BD: Chris Standlee, your company is a major producer, and has been investing heavily in building cellulosic ethanol capacity. What does it mean to you when the EPA heads in the direction it does?

CS: Abengoa has always been a big believer on biofuels. The RFS prompted us to build 3 facilities with 100 million production. Those first ones are first gen, now we are focused on second generation. We have invested already $3 billion dollars in the US on both generations. The USA is paying $1 billion dollars a day to import foreign petroleum as a country. That’s what biofuels changes, the imports. As an industry we need to educate our own policy makers and the EPA., because we do not have an infrastructure problem, we have a policy maker problem.

BD: Anna Rath, you develop feedstock. How does a policy like the RFS affect you. Wouldn’t you just say “we’re a market driven company, we’ll make feedstock for power, fuels or chemicals, whatever the market demands?”

AR: We are market people at NexSteppe, so on one hand we don’t care about the EPA ,mandates. But in another way , we do. Without RFS, we will grow more outside the USA than in the USA because of laws and restrictions and how they play out. Because we’re from this market, we are very interested in helping on the feedstock side.

The policies that matter

BD: Doug Berven, what’s the industry bottom line: What are the government policies that matter most?

DB: There’s the RFS. Then, there are also the new CAAFI standards, that call for 54.5 miles per gallon by 2025. These are standards that will make automakers find the higher octane fuels to achieve those targets. And ethanol is the lowest cost high-octane fuel on the planet.

But most importantly, the government has to standby the investments and these rules. But the problem is the politics and the power that has been there for 200 years.

Making cellulosic a winner

BD: Adam Monroe, what do you see as making cellulosic biofuels a major success?

AM: The guys that have the money like DuPont and Poet will be able to make the difference. Now there many companies that recognize the opportunities, but the problem is establishing the feedstock. We need scale to make cellulosic fuels work economically, so we need farmers that will need to understand how it works and will agree to work with us. Grow the feedstock supply chains and get them established. This is the key.

The feedstock challenge

BD: Chris, is feedstock the greatest challenge? Abengoa is starting in Hugoton, Kansas — how are feedstock logistics working out?

CS: Feedstock is a problem and I agrees with Adam. This is a challenge. Putting a second generation facility in conjunction with first-gen facility was one of the reasons to choose Hugoton. We have the corn production. Also, Western Nebraska is irrigation-grown and that tends to produce more stalk. Also we have large wheat production, and a key switchgrass producer in Oklahoma. In all, we need 300,000 tons per year to produce 25 million gallons.

BD: Anna Rath, you’ve heard that feedstock is the big challenge and I’m sure that’s nothing but good news to your ears, so I won’t follow up with you directly on that point. I’d like to ask you about brazil. A few years back,. everyone was headed for Brazil, the airports were crowded with project developers. Now, no so many. But you’ve snuck up to 60% market share in Brazil in your target. What are lessons learned from Brazil?

AR: The biggest lessons are that you can’t control policy or the pace of technology development.

Sourcing investors and investment

At this stage, the audience began to ask questions, and one of the first came from GranBio managing director Vonnie Estes: “First commercial facilities are coming along. But where is the investment coming for the second facility, given all the restrictions with policy makers?

Abengoa’s Chris Standlee replied.

CS: In the case of Abengoa we got a DOE grant and loan, and used our own monies for our first generation facility. But the next facility we want to do with an investor. We have actually found tremendous interest on co-investment and including oil companies. So that is good. But, it is not necessarily in the US or in Europe. There’s Brazil and there’s lots of interest in Asia. That’s if the EPA cannot figure out what we need as an industry. But I have great hopes that the EPA will understand our issues — and that cellulosic biofuels will continue to be an opportunity for investment in the US.

BD: We’ve talked much about policy, and some about feedstock. Adam Monroe, are there challenges left in technology that are pressing, or is it really about policy?

AM: Policy. We have to make sure we have a market and make sure that the feedstock suppliers have companies to supply.

Inspiring confidence with growers

BD: Anna Rath, what do growers want to see that will give them the confidence to move forward?

AR: Well, our crop grws in 120 days and we grow in addition to the sugarcane, so it is all added value, and that’s simpler for the grower. It’s a very simple decision because it is very straightforward. Plus, sorghum is not a new crop either so it is familiar to the growers and they are not massive investments involved. There isn’t a 10-year commitment so it is a lot easier.

Competition from low-cost natural gas

BD: Doug Berven, we’ve talked about policy, feedstock, technology, markts. What about externalities like natural gas. With cheap gas available in the US, can we simply burn that for fuel and go home and not worry about building all this new producution capacity for advanced biofuels.

DB: Well, we sure enjoy the natural gas prices because they help us to make lower cost ethanol. But, uh, no. It will be more expensive proposal to use gas versus ethanol, and from an environmental standpoint, ethanol is better. Certainly natural gas has a great story for power generation, but not necessarily for the transport sector. Ethanol will be along for a long time.

The role of co-products

BD: Time for one final question. Chris Standlee, w’ve talke mostly about ethanol here. In the future, do you see the focus staying there, or will we see integrated bio-refinery producing a suite or products.

CS: There will be a suite for sure. We are very accustomed to co-products based on our first-generation assets. In second-gen, right away we will see a focus on combustion of lignin for power generation. But we’ll see other uses emerge for that left-over, and we’ll see other products develop, such as biomaterials or for chemicals markets.

BD. Final word, Adam Monroe. You see it also as an integrated biorefinery model?

AM: Yes.