Survey: cellulosic ethanol will be cost competitive by 2016

Source: By Erin Voegele, Ethanol Producer Magazine • Posted: Tuesday, March 19, 2013

An industry survey conducted by Bloomberg New Energy Finance has determined cellulosic ethanol is on course to be cost competitive with corn ethanol by 2016. According to BNEF, the survey collected data and predictions on the production costs of 11 leading companies in the cellulosic ethanol space.

In a statement announcing the results, BNEF said survey data demonstrates that in 2012 the cost to produce cellulosic ethanol was approximately 40 percent higher than the cost to produce corn ethanol. While the cost to produce corn ethanol averaged approximately 67 cents per liter ($2.54 per gallon), the cost to produce cellulosic ethanol was about 94 cents per liter ($3.55 per gallon). Survey respondents said that they expect the price of cellulosic ethanol to match that of corn-based ethanol by 2016.

“The cellulosic ethanol industry has something of a history of over-promising cost reductions and under-delivering,” said Harry Boyle, lead biofuel analyst for BNEF. “However, it may be dangerous to assume that it will not become competitive this decade. If our survey proves accurate, cellulosic ethanol will make meaningful inroads into the vehicle fuel market during the last years of this decade.”

According to the report, there has already been significant improvement to the cost of cellulosic ethanol production. BNEF estimates that the minimum price at which ethanol can be profitably sold based on the semi-commercial plants currently coming online is approximately 94 cents per liter, a 46 percent improvement of the pilot scale costs of $1.75 per liter in 2008. In the report, BNEF points out the largest cost contributor to minimal ethanol selling price in 2012 was capital expenditure, which accounted for 41 percent of the cost. Feedstock and enzyme costs each accounted for a relative 27 percent and 16 percent.

Yields have also improved since 2008. According to BNEF, the maximum theoretical ethanol yield per dry metric ton of corn stover is 427 liters. In 2008, yields reached 58 percent of that maximum, increasing to 66 percent in 2012. The report notes that yield improvements have contributed 28 percent of the reduction in the minimal ethanol selling price achieved since 2008. By 2016, the report states that yields are expected to exceed 75 percent of the theoretical maximum. This is expected to increase to 96 percent by 2025.

The reduced cost of enzymes has also be a factor contributing to the reduction in cellulosic ethanol production costs. BNEF said enzymes contributed 30 percent of the total production cost in 2008, but represented only 16 percent of the cost in 2012, a 72 percent reduction. By 2016, the cost of enzymes is expected to drop to 8 cents per liter.

The survey also addresses capital expenditures and feedstock costs. While capex costs are expected to drop, the cost of feedstock will increase as a percentage of total production costs. In addition, BNEF notes in the study’s executive summary that it expects to see an shift in focus within the next decade from improving technology, to a more significant focus on logistical planning, demonstrating a maturing of the industry.