A few people have asked if I can reproduce more of my Forbes columns here, because they don’t like wading through the ads there to get to the content. This week I wrote an update on the progress toward cellulosic ethanol commercialization, and given my previous coverage on the topic (especially Why I Don’t Ride a Unicorn to Work) this seems like an appropriate subject to discuss here.
Last week the U.S. Environmental Protection Agency (EPA) announced that during the first quarter of 2016, just over 1 million gallons of cellulosic ethanol were produced. In fact, production for the month of March jumped 64% from the previous month to 446,000 gallons produced, the highest levels of the modern era. Production this year is well ahead of the pace in 2015, when 2.2 million gallons of cellulosic ethanol were produced for the entire year.
So, have we finally reached the long-promised realization of commercial cellulosic ethanol?
Before addressing that, let’s review a couple of terms. For the purpose of this discussion a renewable fuel is one that is derived from recently living biomass (as opposed to fossil fuels, which are derived from “ancient” biomass). First generation renewable fuels (aka “biofuels”) are those made in large volume today, such as ethanol produced from corn and sugarcane, and biodiesel produced from vegetable oils. Of the 34 billion gallons of biofuel produced in 2014, 97% of the total was via first generation ethanol (74%) or biodiesel (23%) processes.
Second generation biofuels, also commonly known as “advanced biofuels”, generally fall into one of two categories. Hydrotreated vegetable oil (HVO), also known as “green diesel”, is produced from hydrotreating technology utilizing the same kinds of feedstocks that are used to make conventional biodiesel. Instead of reacting the feedstocks with methanol as in the conventional biodiesel process, they are reacted with hydrogen. The products of this reaction are diesel-length hydrocarbons — green diesel — and propane (as compared to glycerin as the biodiesel byproduct). About 3% of the world’s 2014 biofuel volume was produced via this method.
The technology hurdle for green diesel is higher than for biodiesel, and as a result there are fewer players. The global leader is Finland’s Neste Oil, although there are a handful of other players. The single biggest feedstock to date for this process has been palm oil, but this feedstock has also been highly criticized for environmental reasons. (There is another category of green diesel that involves gasification of biomass followed by the Fischer Tropsch reaction to produce hydrocarbons, but there are no commercial plants in operation).
The second category of advanced biofuel is the one presently of greatest interest in the U.S., and that is cellulosic ethanol. Conventional ethanol production utilizes a fermentation process to convert starches or simple sugars to ethanol. Cellulose is an important structural material for plants, and it is made up of many repeating sugar units. These repeating sugar units can be broken down by various processes into the component sugars, which can then be fermented into ethanol. The process of breaking down cellulose into sugars was discovered in France in the 1800’s, and cellulosic ethanol production was first commercialized in Germany in 1898. Commercialization in the U.S. followed in 1910, but the process was ultimately abandoned for economic reasons.
Up to this point, the advanced biofuel sector has proved to be a good way for investors to lose money. While there aren’t any publicly-traded companies whose focus is primarily cellulosic ethanol, there are a number of companies that have already gone bankrupt, or are in the process of doing so, by trying to produce advanced renewable hydrocarbons that can compete with oil. KiOR is probably the most famous publicly-traded example, going from an IPO that valued the company at $1.5 billion in 2011 to being bankrupt in 2014. Other companies that have competed in the advanced renewable hydrocarbon space have seen 90% or greater losses since their IPO (e.g., Solazyme, Gevo, Amyris).
The layman’s explanation for the reason is pretty simple. Advanced biofuels are attempting to compete with petroleum, but the reality is that with petroleum, nobody had to plant or harvest the biomass, and nobody had to apply the heat and pressure to convert it into an energy-dense liquid fuel. With biofuels, you have inputs of energy and manpower at every step — and the cost of those inputs adds up. That’s why petroleum made from ancient algae can be produced for a couple of dollars per gallon, but renewable petroleum produced from algae can be more than 10 times that cost. That’s why you don’t see any large-scale algal biofuel operations.
Circling back to the opening paragraph, which companies are responsible for this year’s cellulosic ethanol production? Over the past couple of years, several companies have announced the startup of plants. The key players have been:
- INEOS – Startup of its Indian River BioEnergy Center in Florida was announced in 2012 with nameplate capacity of 8 million gallons per year.
- Quad County Corn Processors – Announced first production in July 2014; claims their process is producing 2 million gallons per year from corn kernel fiber.
- POET – Project LIBERTY plant in Emmetsburg, Iowa startup was announced in September 2014. Capacity was announced at 25 million gallons per year, and later downgraded to 20 million gallons with the potential for 25.
- Abengoa Bioenergy – Announced start up in October 2014 of their 25 million gallon per year plant in Hugoton, Kansas.
- DuPont – Announced start up in October 2015 of its $225 million plant in Nevada, Iowa with a nameplate capacity of 30 million gallons per year.
From published reports, it appears that the INEOS facility isn’t producing any ethanol, and Abengoa shut down its plant last December and then declared bankruptcy. Quad County is sort of a wild card, as its potential seems to be limited to a small amount of residual ethanol production at existing corn ethanol plants.
It would appear that most of the current cellulosic ethanol production is coming from POET and DuPont. I suspect that the jump in production in March was DuPont working out some of the kinks in their process. Still, if one assumes that the production is all coming from those two companies, March’s record production only amounts to about 10% of the combined nameplate capacity of the plants.
Thus, whether we are now entering the realm of “commercial” cellulosic ethanol production really depends on how that term is defined. If commercial means production that can stand on its own and compete in the marketplace, the answer to that is still “No.” That will remain the case until you see companies like DuPont building new cellulosic ethanol plants following their experience with the first one. If anyone can do it DuPont can, but I wouldn’t place any bets on that just yet.