Will 2014 be the year when cellulosic biofuels arrive at your gas pump?

Source: Tiffany Stecker, E&E reporter • Posted: Tuesday, November 5, 2013


With luck, by the end of next year, there will be seven fully operational cellulosic ethanol facilities in the world.That’s more than double the three that are up and running now: KiOR in Mississippi, INEOS Bio in Florida and Beta Renewables in Italy, and it offers the most promising future to date for a sector that has had a difficult time getting on its feet.”I think the future is bright; I think the industry can be built very quickly,” said Christopher Standlee, executive vice president of Abengoa Bioenergy, the developer of a 25-million-gallon-per-year facility in Hugoton, Kan., that will turn corn stover, wheat straw and other agricultural wastes into fuel.Abengoa Bioenergy, which expects to open its plant in January, says it is slated to become the second cellulosic ethanol plant to produce at full capacity, following INEOS Bio’s 8-million-gallon-per-year agricultural waste-to-fuel facility that opened last July. From there, POET-DSM is expected to open its 20-million-gallon cellulosic ethanol plant early next year in Emmetsburg, Iowa, followed by GranBio’s 22-million-gallon plant in northeast Brazil and DuPont Biofuels’ 30-million-gallon-capacity plant in late 2014 in Nevada, Iowa.

These plants come after years of delays, bankruptcies and stunted growth for the cellulosic fuels industry, which seeks to break down the tough fiber in plant matter to extract sugars from agricultural residues, grasses and household waste. According to the 2010 final rule for the second version of the federal renewable fuel standard (RFS), the country should have been producing 1 billion gallons of cellulosic biofuels. Up until last year, not one drop was sold commercially and blended into the fuel supply.

This week, U.S. EPA is set to release its proposal for the amount of biofuels that oil companies are required to mix into the U.S. fuel supply, which includes cellulosic biofuels, biodiesel, advanced biofuels and conventional corn ethanol.

EPA Administrator Gina McCarthy has expressed admiration for cellulosic biofuels. If a recently leaked document on the 2014 proposal is any clue, it shows in her strategy.

A ‘very difficult’ start-up

The document, first reported in Greenwire earlier this month, indicates that 23 million gallons of cellulosics must be blended, a nearly fourfold increase from the 6-million-gallon level set in the final 2013 rule. This is coupled with a scale-back for both conventional biofuels and advanced biofuels — fuels that result in at least 50 percent less greenhouse gas emissions than fossil fuels. Corn ethanol production would be capped at 13 billion gallons, down from 13.8 billion for 2013. Advanced biofuels, which include cellulosic fuel, biodiesel and sugar cane ethanol imported from Brazil, would be limited to 2.21 billion gallons, a decline from this year’s 2.75 billion (Greenwire, Oct. 9).

A 23-million-gallon goal is realistic, said Pavel Molchanov, an analyst at Raymond James and Associates. KiOR, which turns pine trees into renewable diesel and gasoline, alone will account for 13 million to 15 million gallons. Nevertheless, nothing is guaranteed.

“There are three plants in the world that have been completed; that’s obviously not a lot of history,” Molchanov said.

Once the start date has begun, plants must slowly ramp up to their maximum production, a process that can take up to six months.

“It’s very difficult to start up and reach consistent production,” said Christopher Standlee, executive vice president of Abengoa Bioenergy. “There are always things that need to be adjusted.”

Standlee considers Abengoa to be “realistic and very conservative” in its expectations for growth and expects the facility to reach full production by the second half of the year.

“Starch [conventional corn ethanol] went from 2 percent to 10 percent; that’s dramatic growth,” he said. “We don’t see a reason why second-generation fuels won’t have the same growth.”

Steve Hartig, general manager of licensing for POET-DSM Advanced Biofuels, thinks his facility will reach a half-year’s worth of its 25-million-gallon production capacity in 2014.

“We think 7 to 12 million [gallons] next year,” said Hartig, who said EPA officials spoke to him after the date on the leaked draft, a sign that the leaked numbers could change. “If the 23 million number is what they come out with, that seems on the low side.”

As the company with possibly the last cellulosic plant to open next year, DuPont will not contribute much to next year’s volumes, said Jan Konickx, global business director for DuPont Biofuels. The new technical facilities will slowly phase in and ramp up.

Cellulosic is not limited to the heartland, however. GranBio and the 20-million-gallon-per-year Beta Renewables facility in Crescentino, Italy, whose fuel relies on technology developed by Chemtex, are considering registering their fuels under the RFS.

These fuels are unlikely to come into the United States under the RFS next year but could enter the market eventually, said Brooke Coleman, executive director of the Advanced Ethanol Council. Enerkem, an Edmonton, Alberta, municipal waste-to-ethanol plant that will begin producing cellulosic fuel in early 2015, has taken on an “RFS-based” strategy, he added.

API and corn ethanol producers aren’t celebrating

The American Petroleum Institute, which has lobbied hard to repeal the RFS, took EPA to court earlier this year for setting million-gallon mandates for cellulosic fuel when none was being produced. Bob Greco, API’s group director for downstream and industry operations, is not convinced that the sector has broken a threshold.

“We have to look at the past history,” he said at a recent teleconference on the RFS. “It takes time for any industry to get up to full scale, operating consistently every year.”

“That just hasn’t been the case, despite increasing mandates,” Greco added.

If the draft does foretell EPA’s upcoming proposal, it will be bad news for conventional ethanol and biodiesel producers, as both industries have shown they can produce much more than the limits expressed in the draft. Buyers of renewable identification numbers, or RINs — credits that can be bought by the oil companies in lieu of blending actual gallons of ethanol — should be quite happy, as the price of RINs will fall in an oversupplied economy.

“Ethanol producers will suffer because their market pool will decrease,” said Alejandro Zamorano, a biofuels analyst with Bloomberg New Energy Finance. “Blenders will be happy because they will need to purchase less renewable fuels and less RINs. Refiners with blending capacity will need to worry less about sourcing biofuels.”

The RFS has been mandating more ethanol that can be blended at a 10 percent rate in the gasoline supply, a number that is expected to fall over the years as vehicles become more efficient under the president’s corporate average fuel economy standards. This is known as the “blend wall” — a wall that the ethanol industry has tried to ease by quelling fears around 15 percent blends (E15) and encouraging car buyers to consider flex-fuel vehicles, which can run on mixtures with as much as 85 percent ethanol. EPA approved E15 for use in 2011, but various automobile, boating and power tool groups claim the fuel damages engines.

If less ethanol lowers the pressure on the blend wall, this could bode poorly for biodiesel makers.

“Biodiesel producers will suffer because the incentive to use biodiesel as a blend wall-breaching renewable fuel will disappear,” Zamorano said.

Finally, if ample renewable fuel capacity is available for compliance with actual gallons, rather than credits to represent gallons, that means RINs will no longer be high demand, Zamorano said.

Biodiesel, which has a 2013 target of 1.28 billion and can additionally qualify to supplement the advanced fuels pool, would also suffer from the levels in the proposed draft. The industry is on target to produce 1.7 billion gallons of biodiesel and renewable diesel this year.

“We certainly are hoping that this proposal will be an improvement on the leaked draft,” said Anne Steckel, vice president of federal affairs for the National Biodiesel Board. “It would cause dozens of biodiesel plants to close and create thousands of layoffs, while severely jeopardizing future investment in this industry, which is the leading producer of EPA-designated advanced biofuel today.”