In March, the U.S. Renewable Fuel Standard (RFS) saw a record 617,908 gallons of cellulosic ethanol registered for Renewable Identification Numbers (RINs). This is the highest number of RINs generated in a single month since the RFS was established. However, before we begin announcing the ramp-up of commercial cellulosic ethanol production, a comparison to historical production numbers shows that things are still (slowly) proceeding at a business-as-usual pace.
The 53.2 billion gallon biofuel industry has enjoyed capacity growth of 19.6% annually since 2005, but growth will slow to just 3.2% annually through 2017. Ethanol represents 65.9% of global biofuel capacity in 2013 and increases slightly to 66.0% in 2017. Biodiesel capacity is 17.1 Billion Gallons per Year (BGY) today and will rise to 18.6 BGY in 2017. Corn and sugarcane feed 81.9% of the world’s ethanol production today, while rapeseed, palm, and soy supply vegetable oil to 62.1% of biodiesel.
Stymying biofuel capacity expansion are deep logistical and financial issues with today’s bio-based fuels and feedstocks. Next generation fuels, such as renewable diesel, butanol, biojet, and biocrude, currently make up 1.9% of the global biofuel capacity; however, with an annual growth rate of 18.7% from now through 2017, it grows its capacity share to 3.3%. The leading next-generation fuel is renewable diesel (reaching 1.1 BGY of capacity in 2017). Additionally, next-generation feedstocks are not tied up in the food supply and could unlock significant economic advantages, assuming novel conversions commercialize. Waste oils and cellulosic biomass dominate the next-generation feedstock capacity growth, contributing to 2.7 BGY and 1.3 BGY of expected capacity in 2017.
A solid dose of pragmatism is still needed to successfully navigate this opportunity. In the over-hyped cellulosic ethanol space, only 384 MGY of the announced 782 MGY will come to fruition, led by companies such as Beta Renewables, POET-DSM, and Abengoa. Meanwhile, renewable diesel from waste will emerge as a key biofuel process, while butanol and biocrude producers have the flexibility to sell into the chemicals market, but their effect on overall biofuel capacity remains minor. Competition from natural gas vehicles (NGVs), electric vehicles (EVs), and fuel-cell vehicles (FCVs) coupled with improving fuel efficiency could decrease the biofuel addressable market. Alternatively, development of cellulosic technologies and higher blends of today’s biofuels could accelerate the market.
Beyond the next few years, in tallying up the difference between long-term biofuel blending targets (ranging from 2015 to 2030) and the expected biofuel production capacity in 2017, highest probability geographic opportunities emerge. There are several countries – such as the U.S., Japan, India, and France – where future capacity falls short of long-term blending targets by more than 1 BGY. Though government biofuel targets may be dropped or downsized, these countries represent leading demand-driven regions to build still more new biofuel capacity.
The vision of what, where and when is readily derived. The path requires a holistic view of feedstock, technology and market to maximize success.
Source: Lux Research report “Emerging Feedstocks and Fuels Spark Biofuel Capacity Expansion through 2017” — client registration required.
The U.S. Environmental Protection Agency (EPA) recently released the proposed Renewable Fuels Standards (RFS) for the 2013 calendar year. Not surprisingly, the blending targets for all four biofuel categories recognized by the EPA (cellulosic biofuel, biomass-based diesel, advanced biofuel, renewable fuel) have increased. However, the new targets for cellulosic biofuel (client registration required) especially have been a major source of controversy.
The EPA issued a $6.8 million penalty on blenders for failing to meet the 6.6 million gallon cellulosic biofuel mandate for the year 2011. This fine was met with considerable resistance by the oil and gas trade group, American Petroleum Institute (API), because the EIA estimated that there were no known commercial production of cellulosics in 2011, making it impossible for refiners to meet those requirements. The 2012 blending mandate for cellulosics was 8.65 million gallons, a number refiners didn’t meet given that the EPA estimated that the total cellulosic biofuel production in 2012 was just 21,000 gallons. In response to the lack of supply, the U.S. Court of Appeals ruled that the EPA cannot fine refiners for not meeting the blending mandates with biofuels that don’t physically exist.
Many cellulosic producers blame the unreliability of RFS mandates for its slow growth. However, in order to ultimately compete in the fuels market, cellulosic producers need to prove that its fuel can compete on a cost basis to first generation ethanol as well as fossil fuels. The U.S. government has already created a $30 billion market for biofuels through its blending mandates, an enormous opportunity that cellulosic producers have yet to penetrate thus far, because capital and operating costs are too high.
After the ruling, it is not surprising that API was unhappy with the subsequent proposed cellulosic biofuel blending mandate of 14 million gallons for 2013. Cellulosic biofuel production is beginning to ramp up, and if producers such as Kior and Abengoa progress on schedule, blenders should have the ability to meet the RFS. However, delays are expected, and it is likely that the supply will again not meet the regulated demand (client registration required). Cellulosic biofuels producers are on the clock for the next two years, and the outcome of these first production facilities will set the tone for possibly more permanent cellulosic blending regulations in the future.
As we mentioned in an earlier post, Solazyme recently filed for an initial public offering (IPO) targeting $100 million. This wasn’t a surprise: Just as we had seen Amyris form multiple strong partnerships in the months leading up to its IPO (see the July 6, 2010 LRBJ*), Solazyme’s been revving up its own stable of new partnerships. It’s been forging partnerships in fuels and chemicals more intensely in recent months than it has throughout its lifetime. Since September, the company has inked deals with Bunge, Unilever, and Roquette (see the September 14, 2010 LRBJ* and the November 9, 2010 LRBJ*) on top of existing relationships with companies like Chevron, Honeywell, Abengoa, and Virgin (see the August 17, 2010 LRBJ*), and a joint development agreement with Dow announced last week.
Some highlights from the company’s S-1 include the company’s claims that it has already achieved “attractive margins when utilizing partner and contract manufacturing for the nutrition and skin and personal care markets,” and that it believes it can undercut fuels “when we commence production in larger-scale, built-for-purpose commercial manufacturing facilities utilizing sugarcane feedstock,” citing oils at a cost below $1,000 per metric ton, $3.44 per gallon, or $0.91 per liter.
Solazyme also notes that its Roquette JV will fund an approximately 50,000 metric-ton-per-year facility for nutrition products, which would be the first serious challenge to DSM-owned Martek (see the January 13, 2011 LRMCJ*). The company also mentioned a deal with Colombia’s national oil company (NOC), Ecopetrol, and a Brazilian letter of intent to form a JV that would add capacity of 400,000 metric tons of oil per year – nearly a thousandfold increase over the 455 metric tons the company produced in 2010.
But for all its strengths, Solazyme still lost $16 million last year on $39 million in revenue. By comparison, Amyris brought in $65 million in 2009, the year before its IPO.
While there are always reasons to be cautious when a loss-making company files for an IPO, one of the biggest challenges Solazyme will face is the public market’s mistaken association of its technology with older technologies like corn ethanol or dodgy algae developers. Solazyme is indeed an algae company. But it is wholly different from certain competitors, whose reliance on hype rather than commercially viable technologies poison the pond (pun intended) for legitimate players like Solazyme, Phycal, and Algenol (see the November 13, 2010 LRBJ*, the August 17, 2010 LRBJ*, and the March 10, 2009 LRBJ*). Gevo and Amyris represent better comparisons for Solazyme, and both had relatively successful IPOs (see the October 12, 2010 LRBJ* and the February 10, 2011 LRMCJ*).
* Client registration required.