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11 Feb 2011 04:02:35

On cellulosic ethanol

Billionaire investor Vinod Khosla says he's happy that it looks like 50 percent of his biofuels investments will be successful – mentioning his original expectation that 80-90 percent of them would fail. Among the areas where we've seen his views evolve the most is in the area of cellulosic ethanol.

It was just a few years back that Khosla Ventures was touting a series of investments in Mascoma, and Range Fuels. Today, he is suggesting that changes may need to come in those companies' business models if they are to compete successfully. About investments such as Coskata and Lanzatech, he remains more bullish.

What exactly is going on in the space? How is it evolving? In this special report, we take a look at the leading cellulosic biofuels companies, where they are in their quest for parity and scale, and how the race for value and valuations is proceeding.

First, let's break it down a bit – cellulosic biofuels (or even the subset of companies focused on cellulosic ethanol) is too broad to discuss all in one go. Let's look at the technologies and categorize them.

These are the ones we head the most about. Companies pre-treat the cellulose to soften it, often with a harsh broth of chemicals, and then use enzymes to tease out the trapped sugars from the cellulose, and then another set of enzymes are used, in a separate chamber, to ferment the sugars into ethanol. This became the standard paths toward cellulosic ethanol when the DOE came out with its 2007 round of grants, and the projects using this approach are pretty familiar to most biofuels watchers these days. POET, Abengoa, Iogen, KL Energy, Dupont Danisco Cellulosic Ethanol and Inbicon are four that have routinely graced the 50 Hottest Companies in Bioenergy, along with enzyme suppliers like Codexis, Novozymes and Genencor.

There are some exciting and important variations on this path, involving a few more of the Hot 50. One is the use of weak sulphuric acid instead of enzymes to do the hydrolysis – that's BlueFire Renewables. Another is the use of a magic microorganism that can accomplish the saccharification and fermentation in one step. That's called consolidated bioprocessing and, by saving a whole step in the process, the capex and the open of the process can come down dramatically. That's what all the fuss over Mascoma and Qteros is all about – both have CBP magic bugs.

Another fine point of distinction is the range of sugars that a given cocktail of enzymes (for it's not a single one but usually 5-10 that are used) can operate on both five-carbon and six-carbon sugars. In processing, the more the merrier, and part of the excitement over Verenium these many years has been their special enzymes that work with the tougher-to-get-at five-carbon sugars.

The other point of distinction has been in the feedstocks, and the affordability thereof. Generally speaking, the companies working on agricultural residues have had their hands full figuring out how to aggregate the biomass at an affordable price. Wood biomass plays like Mascoma have had a slightly easier time of it, and companies like Fulcrum, BlueFire and Enerkem that are work on municipal solid waste, have had the most success in moving forward. With wood and MSW, the aggregation is basically already in place – with MSW, there's the added beauty of negative feedstock cost in the form of a tipping fee.

So what's the problem? Where's all the ethanol? Aside from the two lost years due to the global economic meltdown of 2008 and the Great Recession that followed, the technologies have been struggling with the rate and yield of their conversion processes.

What are those? Rate: well that's how fast the process works. The faster you make it, the lower your operating costs. Yield: that's how much of the biomass is converted into ethanol or other fuels or chemicals – the more you make in a given batch, the lower your capital costs.

The bottom line for the companies using hydrolysis is that the costs haven't generally come down as fast or as much as nice hoped. Companies like Iogen have been at work at pilot scale for going in seven years. A few are still moving more or less in a timely manner towards their targets and could be considered best of class – such as Mascoma, Qteros and POET. The others may well hit their targets, but would be considered either risky propositions or in the too-early-to-tell bucket.

Khosla has gone bearish on the hydrolysis space, though he likes some of the best of class plays like Mascoma. Novozymes, for its part, has pushed back its timelines for commercialization from 2012–2013 to 2014–2015.

Though hydrolysis has ruled the headlines for the large part, the syngas fermentation technologies seem to be getting more traction, faster, as the story plays out in cellulosic biofuels.

What do the technologies do? Generally, they use someone else's gasification technology to heat up the biomass into a syngas of hydrogen and carbon monoxide. Then, specialty microorganisms ferment the syngas into a target fuel or chemicals, generally ethanol.

Who's doing it? Among the best known are Coskata and Lanzatech. In the case of Lanzatech, they have the additional, capital light virtue of being able to ferment already available gases, such as steel waste gases, and save on the cost of the gasifier. Then there is ZeaChem, which is a hybrid doing gasification and hydrolysis – but they do it with a special Mahican bug that does not produce carbon dioxide as a by-product. That's significant – less carbon lost to carbon dioxide means more carbon available to make fuels and chemicals, and ZeaChem is projecting yields 30–40 percent higher than some of the other cellulosic biofuels companies (not that this is a slam dunk in itself – one still has to worry about rate).

Generally, Khosla is bullish about syngas fermentation, and all the projects in this space are moving along more or less on schedule, given the capital situation. Coskata landed a huge USDA loan guarantee, LanzaTech is executing a project in China, and ZeaChem is finishing off a semi-works demonstration over the next few months up in Oregon.

One thing to watch. That bit about using someone else's gasifier. It's key technology, and not everyone has a good solution for the economics needed for biofuels. ClearFuels has really been getting going with its gasifier technology of late, and j's working with Coskata and recently opened a dialogue witness LanzaTech.

In this space, biomass is gasified, but instead of a magic bug fermenting the gas into fuels and chemicals, the gas is converted thermochemically by passing it over a catalyst as it cools, which reforms the gas into a targeted liquid field or chemical. Fang Fuels is the best known technology using this approach, and Khosla (and investor) has been urging management to make changes in their process. The difficulty in this field is twofold – the aforementioned problems with someone-elses-gasifier, and also the problem of designing a catalyst, usually involve rare metals, that achieves the targeted yields.

In the broader field of cellulosic biofuels, there are some competing technologies that look like they are potentially gaining an advantage over the basic cellulosic ethanol players. Technologies like the fermentation of sugars into alkanes, which are diesel or chemical precursors – companies like Amyris and LS9 are getting well down the track with those. Plus the pyrolysis technologies from the likes of KiOR, Ignite Energy, and Anellotech. Or, the bioforming technology of Virent, which gasifies and then thermochemically reforms the syngas into a diesel fuel. Or, the fomentation technologies that produce biobutanol as opposed to ethanol.

Who will win the race? Witness so much fuel needed, it is not really a question of who is number one, but who is in the face. Every company that completes a path to $1.40 per gallon fuels or chemicals is going to be a winner. And we should start to know by next year who is going to get there.

This article is written by Jim Lane.

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