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Friday, December 12, 2014

Cellulosic Ethanol: Will Technical Success Bring Commercial Success?

By Douglas G. Tiffany, U of M Extension Educator, Agricultural Business Management

For the last fifteen years or so, speakers at biofuels conferences would often say that production of cellulosic ethanol would be a commercial reality in just "five more years." Issues cited for the delays ranged from needed enzyme breakthroughs leading to lower costs, the need for tougher fermenting organisms, high capital costs, and then the issues of biomass infrastructure and markets were noted. The "five years away" statement was repeated so often, it was treated as a joke. As a production economist and biofuels researcher, it is interesting and rewarding to see how this once futuristic idea is being developed.

No longer a joke, much needed R & D has occurred following federal loan guarantees that supported plant construction for the commercial production of cellulosic ethanol, which is now upon us in the Midwest. Harvest of corn stover and cobs for the 2014-15 processing season has occurred at plants owned by Dupont, Poet-DSM, and Abengoa. Each of these three production plants represents somewhat different approaches to producing biofuels from sources that previously were considered impossible.

Laboratory research and pilot studies have brought these innovators to their current position and will continue, but measurements of performance metrics will now occur based on commercial scale plants.
Internal and external reviewers will be looking for reliable operation of each of the four plants that will be necessary to guide improvements in pretreatment, fermentation, and in logistics of biomass, contracting of stover supplies and the removal of stover in a manner that is economic and sustainable in terms of soil organic carbon. The refinements of performance at production scale will set the stage for campaigns to profitably expand the numbers of plants licensed to utilize more elegant technologies to exploit alternative feedstocks.

Additional feasibility studies for potential locations with available feedstocks are likely to occur. Business models will be tweaked. Bankers will have the opportunity to tour the facilities, observe continuous operations and review pro forma budgets in determining loan terms for financing portions of the new plants.

The bankers, investors and consultants will all be considering their own SWOT analysis and discussing and considering the strengths, weaknesses, opportunities and threats associated with cellulosic ethanol. This is a great time to speculate at bit on these four factors that will determine if additional cellulosic plants will be built based on any of the three operational pilot models being built in the Midwest. Appearing below are some of my favorite factors at this time as I consider the matter:

• The technology used has the ability to use cheap, plentiful, local feedstocks.
• Biofuels produced in this manner will have lower carbon footprints than conventional ethanol.
• Improvements in enzyme costs and pre-treatments methods have occurred and will continue.
• Mechanical harvest and logistics of corn stover systems have progressed pretty well.
• Soil stewardship is being implemented with target removal rates for particular soils.

• More research and operational experience will still be needed to make the process reliable.
• Capital costs of the first plants are high (perhaps 10X dry grind ethanol) due to the long residence times needed to pretreat and then process the cellulosic feedstocks.
• Conversion of C5 sugars will at first be minor, but hold potential for more profitability.
• Markets for biomass feedstocks are undeveloped, but contracting relationships are occurring.
• It appears transformation and use of lignin in biomass remains a challenge.

• Success with cellulosic ethanol and advanced biofuels will herald further advances in renewable chemical production.
• Carbon footprints of the overall processes can be lowered with electricity and steam produced from residual biomass material.
• RINS values, supported by Renewable Fuels Standards, reward cellulosic and advanced biofuels.
• Interest rates are currently low.

• Weaker government support for biofuels will be very damaging to further investment in these technologies at this time.
• The return of higher interest rates could be a problem for financing cellulosic capacity of technologies lacking performance history.
• Reductions of Renewable Fuels Standards by EPA, as has happened in 2014 would be harmful.
• Cheap natural gas and the lack of carbon taxes favor conventional fossil fuels.

Numerous investors are thinking about some of the SWOT issues noted above as well as others. The three plants will have to run for a while and then try to market their investments in new technology to others, hoping to capitalize on the prize of cellulosic ethanol. The progress toward cellulosic ethanol has seemed torturous to many up to this time; however, the pace is about to quicken. There are likely to be substantial rewards for reliable technologies involving equipment, enzymes and fermenting organisms by those firms that can demonstrate or offer substantial performance guarantees for ethanol production methods that do not require starch molecules. There will be lots of excitement ahead in efforts to develop viable cellulosic ethanol businesses based on corn stover. Considerable study has occurred revealing the magnitude of corn stover supplies around the country and the potential to utilize this biofuels feedstock. How it all plays out for stover producers and investors in cellulosic ethanol plants will depend on careful consideration of SWOT factors and more hard work and thought by teams of talented people.

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