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18 Mar 2011 02:03:27

Biofuels at the crossroads



In just a few days, the largest and broadest collections of speakers and attendees in bioenergy and its related fields will come together at World Biofuels Markets, and they do so just as advanced biofuels approach a crossroads that divides the R&D phase from the commercialization phase. We note that Clean Tech Reports has annoucned that biofuels revenues globally grew more than 30 percent last year, to $58 billion globally, and are expected to double again by 2020. That's astonishing, and welcome, but it's not always a bed of roses every day in the business of bioenergy.

It is worth noting a series of trends that will challenge, or make easier, that transition from promise to reality.

Good news: advances in processing technology
In the past year, we've seen costs coming down across the line. Last spring, new cellulosic ethanol enzyme collections appeared from the likes of Novozymes and Genencor, with the prospect on the horizon for sub-fifty cent per gallon enzymatic hydrolysis and fermentation. Later in the year we started hearing costs of $1.40 per gallon from the consolidated bioprocessing magic bugs from Qteros et al, and had set their sights on $1.00 per gallon or less before mid-decade. By fall we had the word from jatropha developers such as SG Biofuels that they had also reached the $1.40 per gallon threshold and were also aiming for $1.00 per gallon. In recent days, we heard via the Solazyme IPO S-1 that they had reached $3.44 per gallon for algal oil (if production had been at full commercial scale, instead of smaller, contract fermenters). In all, from every corner this year, costs have been coming down dramatically, and with oil prices hitting $111 per barrel for benchmark Brent crude, parity on an unsubsidized basis with fossil-based fuelsis coming closer and closer to reality.

Bad news: the ever-shifting sands in policy-maker land
By contrast, the steady drive towards commercial-scale and pricing was matched bot by steady end-game resolve by national governments, but rather we saw a herky-jerky inconsistency in national policy that freaked out the investment community right across the landscape. The EU flirted with reductions in mandated biofuel targets. The US is engaged with a serious discussion over cancelling the ethanol tax credit altogether, and waited until there were just a handful of days left in 2010 before renewing the biodiesel tax credit for last year. In India, a fractious debate over biofuels targets and fixed pricing, in the face of rising global sugar prices, has bedeviled the buildup in Indian ethanol. The Philippines have been debating the scope of their mandate, while both the EU and Brazil have threatened action at the WTO over protective tariffs and subsidies.

Good news: high-value chemicals now, big-value fuels later
Why make a $2 fuel when you can make a $5 chemical, asks Cobalt CEO Rick Wilson, who has shifted his companies focus from biofuels towards chemicals. Bluefire Ethanol was renamed BlueFire Renewables. Aurora Biofuels became Aurora Algae. Blue Marble Algae became Blue Marble Biomaterials. Meanwhile, Amyris Biotechnologies and Joule Biotechnologies became Amyris and Joule Unlimited. In each case, there was an ibcreasing emphasis on an integrated biorefinery concept, aimed at replacing the whole barrel of oil rather than just the fuel fractions, and focused on near term opportunities in renewable chemicals. Meanwhile, chems-focused companies like Rivertop Renewables, Verdezyne, Segetis, and Genomatica made significant strides towards commercial-scale.

"Why make a $2 fuel? Because no one cares if you make a $5 chemical," answers Lignol CTO Colin South. "If you want to have some small island of profit and you can make a $5 chemical, well that is excellent. But what the world is focused on is the problem of transportation fuels. It is true that policymakers are, in these cash-poor days, offering more enthusiasm than tangible support, but the world has turned its attention to this sector because of the opportunities to change the equation for liquid fuels."

Bad news: myths and myth-makers abound, and are growing so fast you'd think they were in a fermenter
It is repeated so often by so many people in so many quarters that "the US uses 32 percent of its corn crop for ethanol" that you really have to remind yourself that the statement is completely false. The true statement is that 32 percent of the US corn crop is delivered to integrated refineries that make feed and fuel, but that is a completely different thing. For every ton of ethanol, they produce two tons of animal feed, which goes right back into the feed supply system and, frankly, is a better feed for cattle to be eating in any case, because the starch is removed. The same as taking all the cakes and potatoes out of a human diet, and eating low-carb veggies.

So why do people say it? Well, its always a good question why people lie or repeat a lie, but it reminds us that there are agendas in the marketplace. Usually agendas funded by people who want cheap corn for cattle and chicken feed, or people who generally oppose monoculture farming in all its dimensions and simply pick on ethanol because it is easier than picking on food.

Good news: the opening of the IPO markets
Starting with the IPO that no one thought would get across the line – Codexis, which raised more than $80 million in its spring IPO, the gates finally re-opened for public finance of biofuels companies. By the close of summer, Amyris barely crossed the line with its $100 million IPO, but its stock roared upwards throughout the fall, and initial investors had doubled the value of their stakes by Christmas, when it became a billion-dollar company measured by market value, before it had sold its first bucket of Biofene. Right after the first of the year, Gevo completed at $123 million IPO that was oversubscribed, and also jumped more than 20 percent over its opening-day price of $15. Just this week, Solazyme filed its S-1 for a $100 million IPO that it expected to gather huge backing. On the Sydney and Frankfurt exchanges, Algae.Tec managed to float itself and raise several million dollars as a development-stage company. In all, its been an absolutely outstanding year for advanced biofuels in the public markets.

Bad news: project finance markets still closed
Before we break out the champagne, we want to note that project finance markets are still closed to biofuels, on the whole, with project after project reporting the difficulty in obtaining loan guarantees to assist in mitigating the risk of first-of-kind technologies, along with the known problem of obtaining sufficiently strong feedstock supply and offtake contracts.

We turn again to Lignol's Colin South for some explanation. "I live in New England, where recently a wind project announced a 30-year power purchase agreement with a major utility that will pay them 19 cents per kilowatt hour, with an escalation clause. That's excellent, they are to be commended. But I have to say, that's three times the price for fossil fuel-based power in our region. If I could land a 30-year offtake contract, with a price escalation clause, with a major fuel distributor, that gave me, say $9 per gallon, I think I would be raising some project financing right about now. The markets treat biofuels differently, and that is a fact of life we have to live with."

So there we have it. Good news and bad news – challenges and opportunities. It has been an amazing year. Indeed we are at the crossroads, where the stakeholders in emissions, energy security and economic development face the choice on taking advantage of all the positives, or focusing on the negatives. It is a stark choice, for a big year, as World Biofuels Markets opens and the global industry gathers together once more to partner up, strategize, compare notes, crow over success, commiserate over challenges, and study up on all the opportunities and how to climb over all the barriers. It promises, as always, to be one heck of a week.

This article was written by Jim Lane, the editor of Biofuels Digest.


Discussion Thread  

18 Mar 2011

Question:

If the animal feed that is a byproduct of corn ethanol production is so valuable, then why do livestock producers oppose ethanol subsidies?




Discussion Thread  

 


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