In 2007, Congress set target goals for the production of renewable fuels—36 billon gallons per year by 2022, with a clear path of volumetric stepping stones to get there. While corn ethanol is on target to reach the 15 billion gallons per year cap, the remaining 21 billion gallons—16 billion gallons cellulosic fuel, 1 billion gallons renewable diesel, and 4 billion gallons of other advanced fuels—are lagging.
Now it's 2011, and cellulosic fuel production targets have not been met. The 2010 target was reduced from 100 million gallons to 6.5 million, forcing a steeper path to the 2022 target. Why haven’t we achieved the targets, and will we get there?
First, some perspective. It has only been 10 years since the U.S. Congress passed the Biomass Research and Development Act of 2000, the first federal policy to support production of biobased products. Cellulosic biofuels received their first specific incentive with passing of The Energy Policy Act of 2005 and policy supports have continued to grow.
The decade has brought serious research dollars to the advanced biofuel effort. BP, Shell, and Exxon have all invested millions. In 2008, Ethanol Producer Magazine listed nine companies planning to open commercial-scale cellulosic ethanol plants in the U.S. A year later, in the midst of a substantial economic downturn, half those projects were scratched or placed on hold. Many of the remaining companies had changed locations or feedstocks, most embracing non-cellulosic “starter” feedstocks to lower their entry costs.
At present, there appear to be about a dozen companies planning commercial-scale cellulosic refineries in the next few years.
While the turnover reflects recent economic constraints and technology hurdles, the continued entry of new companies provides some forward momentum to the industry. As a result, the U.S. sits at a pivotal junction—the jump to commercial production.
The transition to commercial scale is known in the industry as the "Valley of Death"
This transition to commercial scale, known as the “Valley of Death,” is a critical stage for evaluating economies of scale, market potential, and looming techno-economic barriers in emerging technologies. Making this leap is difficult for many new ventures but it seems especially problematic for biorefineries for several reasons.
The success of a commercial biorefinery requires an assured, high quality biomass supply. Conversely, the success of biomass producers hinges on a reliable market to absorb their product. In effect, two new interdependent supply chains must co-evolve within very thin margins of economic viability and the risk associated with either endeavor is thus multiplied.
This risk is compounded by uncertainty in government support policies, spurred by caution to avoid unwanted indirect effects. The resulting lack of consensus definitions for renewable fuels and renewable biomass complicates the policy landscape for biofuels and negatively affects investment in capital expenditures for processing and adoption of energy crops by farmers and foresters.
Cellulosic refineries require additional infrastructure for breaking down biomass, with 2 to 3 times the capital costs of a standard corn or sugarcane ethanol plant, and risk is relatively high for these first-generation facilities. Leveraging public institutions such as the Department of Energy and the U.S. Department of Agriculture in the loan guarantee process has emerged as a useful bridging tool but it is still not easy.
The DOE process is slow and rigorous and while the USDA process is less cumbersome, Enerkem reports interviewing 60 banks before finding a lender. Long-term contracts between farmers and fuel companies mitigate some risk for lending institutions, freeing up investment capital needed for technology adoption and scale-up in both arenas. At least a third of the companies seriously planning commercial plants have contracts in place for feedstocks well in advance of breaking ground.
Enerkem reports interviewing 60 banks before finding a lender for its cellulosic biofuel venture
The final challenge is not just scaling one refining pathway, but an entire industry. Even if all the currently planned facilities are built, their combined capacity will only be around 300 million gallons per year, falling short of the adjusted federal target.
To meet 2022 target volume, an aggressive build rate will be required. USDA calculates that 527 refineries with 40 million gallon per year capacity would be needed at a capital cost of $168 billion—the equivalent of one new refinery per state per year over the next ten years.
Unfortunately, construction of new facilities is not likely to be a linear process. Rather, a short learning period of three to five years is expected while the first wave of plants undergoes testing and optimization.
A secondary growth period should follow with construction of improved refineries but production volume will most likely remain under target, providing leverage for critics of the industry.
The final phase of accelerated fuel production should result in measurable market penetration. The rate of this build-out of second- or third-generation refineries will depend on construction costs, local permitting barriers, the availability of financing in the context of market signals, political drivers, and, of course, the price of oil.
Current research in academic centers and industrial labs has the potential to substantially enable and improve prospects for these latter stages of development. Process innovations continue to make huge strides.
Enzyme costs for plant deconstruction have fallen 80 percent in the last two years
For example, enzyme costs for cellulosic depolymerization have fallen 80 percent in the last two years. In short, the industry is moving ahead.
While the potential to reach the target volumes is evident, how fast the industry can get there will remain unclear until the first scaled refineries are up and running.Policies that facilitate the transition to commercial-scale will continue to be vitally important to achieving the goal of displacing a significant volume of fossil fuel with renewables options.