Next-generation biofuels face challenges

by Susan Reidy
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In the near term, next-generation biofuels production in the U.S. faces its share of hurdles.

The industry must overcome high capital and production costs, acquire financing for pre-commercial development and develop biomass supply arrangements, according to the report, "Next-Generation Biofuels," from the U.S. Department of Agriculture’s (USDA) Economic Research Service (ERS).

Next-generation biofuel production capacity is estimated to reach 88 million gallons by the end of this year, according to the ERS report. Most of that production, however, will come from one facility that will use non-cellulosic animal fat to produce green diesel.

As for cellulose biofuels, the ERS report estimates that production capacity will be 10 million gallons by the end of this year, far less than the 100 million gallons hoped for in the original 2007 Energy Independence and Security Act. Earlier this year, the U.S. Environmental Protection Agency (EPA) lowered the cellulose requirement for this year from 100 million gallons to 6.5 million gallons to bring it more in line with production estimates.

Total next-generation capacity is expected to reach 350 million gallons by 2012 with cellulosic biofuel accounting for 200 million gallons. Still, the report said, the industry will have trouble meeting mandates required in future years and the ultimate goal of 16 billion gallons by 2022. Overcoming the current blend wall that allows for only 10% ethanol in gasoline, or expanding E85 markets, could help cellulosic ethanol, the report said. But the answer may be in other alternative fuels such as green diesel, green gasoline and butanol.


The U.S. has about 30 next-generation companies developing biochemical, thermochemical and other approaches for producing alternative fuels. More than two dozen next-generation companies in Europe, Canada, Brazil, China and other nations are in various stages of development, the ERS report said.

In the U.S., Range Fuels and Dynamic Fuels are expected to be among the first to complete commercial next-generation facilities. The Range Fuels plant in Soperton, Georgia, U.S. will use pine tree waste as a feedstock and will produce methanol. Capacity was reduced from 10 million to 4 million gallons, and ethanol production is expected at a later stage of development.

Dynamic Fuels will use animal fats to produce 75 million gallons per year of bio-based diesel fuel at its facility in Geismar, Louisiana, U.S. Production is expected to start in the second half of this year.

POET, which has a pilot plant in Scotland, South Dakota, U.S., may have the first commercial cellulose ethanol plant, the report said. POET is co-locating a cellulose facility that will use corn cobs as a feedstock with an existing corn ethanol plant in Emmetsburg, Iowa, U.S. The cellulose facility is expected to start operations in late 2011 or early 2012.

It’s estimated that about 50% of nextgeneration plants will exclusively use agricultural biomass including crops, vegetable oils, animal fats, crop residues and energy crops. About 20% of companies will use forestry products as feedstocks. The initial impact of next-generation biofuel production on agriculture will be small, because fuel production will be limited, the ERS report said. Eventually, agriculture could play a significant role as next-generation production expands. Studies have shown that of all potential biomass sources, agricultural is the most significant.

Just within the next two years, several companies plan on producing significant amounts of fuel from agricultural biomass including: POET, 25 million gallons from corn cobs; Abengoa, 11.6 million gallons from corn stover, wheat straw and switchgrass; and Verenium, 36 million gallons from energy grasses.


Next-generation biofuels face a number of challenges including high production and capital costs. Production costs for cellulose ethanol in 2007 were estimated at $2.65 per gallon compared to $1.65 per gallon for corn ethanol. However, companies such as POET and Novozymes have reported they have lowered costs in the last several years.

One area of uncertainty is the cost of biomass, which needs to be low to offset higher conversion and capital costs. The Biomass Research and Development Board said in 2008 that farmgate prices of $40 to $45 per ton would be needed to secure feedstocks for production of 12 to 16 billion gallons of cellulosic ethanol.

The range of prices may underestimate the cost of increasing biomass yields on marginal lands and the incentives needed for harvesting, gathering and delivering bulky biomass to the refinery, the ERS report said.

Dedicated energy crops would have to compete with the lowest value crops. The new Biomass Crop Assistance Program will give farmer’s more incentive to plant dedicated energy crops.

Capital investment costs for cellulose ethanol also are three to four times higher than corn ethanol. These are just estimates because no actual cost data for commercial operations are available. Estimates from 2004 said a biomass-toliquid facility would cost between $650 million to $900 million for a 100-million-gallon facility, compared to $65 million to $195 million for a biodiesel plant and $130 million to $230 million for a corn ethanol plant.

Newer data suggests a next-generation facility using a biochemical conversion process would cost $320 million while a facility with a thermochemical process would cost $340 million.

Finding the money for next-generation facilities has required a variety of strategies including venture capital, government grants and loan guarantees, alliances with large corporations and partnerships with academic institutions.

Venture capital in clean technology increased significantly from 2002 to 2008, for a total of $8.5 billion in 2008. Solar accounted for 40% of that total, followed by biofuels at about 10%. In 2009, overall clean-technology venture capital decreased by one-third due to the global recession. Funds have shifted from traditional corn-based production toward next-generation biofuels and algal biodiesel.

Public sector support has been a major source of funding with the U.S. Department of Energy announcing $564 million in grants in December 2009. The U.S. Department of Agriculture extended three major loan guarantees in 2009-10, and states have also provided funding to individual projects.

Another common strategy is partnering with large corporations in the energy, automotive, forestry and seed product industries. This gives small companies access to engineering and marketing expertise, and in some cases conversion technologies, the ERS report said. Corporations such as BP, Shell, Chevron and Valero have partnered with next-generation biofuel companies.


Finding a steady yearly supply of biomass is another challenge facing nextgeneration biofuels production, the report said. The U.S. has the potential to produce enough biomass to meet a third of current U.S. fossil fuel transportation demand.

But that doesn’t mean the biomass will be economically viable. Many companies are working with local biomass producers to develop feedstock for pilot and demonstration plants to lay the groundwork for larger operations, the ERS report said.

Another concern is the blend wall, which limits the amount of ethanol that can be blended into gasoline. Corn ethanol will be able to meet the current demand, leaving little opportunity for cellulosic ethanol to compete, the report said.

The EPA is expected to decide later this summer whether to increase the blending percentage from 10% to 15%. This would help alleviate the blend wall, and improve the opportunities for cellulose, as would expanding the use of E85.

Developers and investors may turn away cellulosic ethanol in favor of another class of next-generation biofuels because of the current limited market, the ERS report said. These "drop in" fuels can be used as gasoline or diesel substitutes in current vehicles and can also be distributed in the existing transportation fuel infrastructure.