The energy industry is particularly adept at taking raw material and turning it into products. Whether producing heat, power, or fuel, the model has proven exceptionally efficient at moving highly concentrated and homogenous resources over long distances through intricate supply chains.
For the oil industry, time and investment has allowed for the development of a multi-trillion dollar, asset rich supply chain that spans the globe. Benefitting from staggering economies of scale and capitalizing on a century of experience, this distribution model supplies the lifeblood of modern civilization. The bio-based economy, which aims to take the carbon trapped in biomass and supplant a portion of this fossil fuel monopoly on the back of renewable feedstocks, must turn this model on its head if it is to realize the ambitions of its most ardent proponents.
To date, bioenergy has gained traction mimicking the fossil fuel model, siphoning expanding volumes of concentrated commodity goods to produce power and fuel. Today’s ethanol industry was built almost exclusively on corn in the U.S. and sugar cane in Brazil; biodiesel on rapeseed and palm oil in the EU and soy in the U.S. For biopower, wood is the feedstock of choice. These industries were essentially bolted onto existing supply chains.
Until recently, this model has proven to be marginally profitable, largely supported by subsidies and production encouraged by ambitious government mandates. Generally, biomass resources are consumed locally due in part to the logistical and economic inefficiencies associated with transporting over long distances. But as more and more governments impose biofuel and biopower production mandates, and restrictions on international trade ease, demand for concentrated feedstock is quickly outstripping available supplies.
Facing this reality, the bioenergy industry has been on an aggressive R&D campaign to expand its feedstock pool. From switchgrass to miscanthus, camelina to jatropha, and macroalgae to microalgae, the proliferation of feedstocks suggests that the path to global scale will be anything but straight. With a number of industrial biotechnology ventures aiming to tweak the characteristics of various feedstock strains, innovation is happening quickly. Even so, as I discussed in Pike Research’s report, Biofuels Markets and Technologies, it will be at least a decade before large volumes of such varietals are widely available.
While numerous reports suggest that there is more than enough biomass available globally to meet substantial demand from biopower and biofuels production, the costs associated with harvesting, aggregating, transporting, and processing many of these feedstocks have proven to be mostly prohibitive. And this assumes sufficient acreage has been planted to support such efforts. Even where feedstock tonnage is available, supply chains have proven far too immature to attract the scale of investment needed to keep pace with ambitious production mandates.
The degree of complexity associated with processing such a wide variety of feedstocks is of serious concern. Differing characteristics suggest that all biomass will have to be processed locally before shipping further afield. Whether this can be done economically remains to be seen.
And so the bioenergy sector finds itself at a crossroads. On one hand, it could continue expansion of proven conversion processes using commodity-based feedstocks (e.g. fermentation of corn starch and sugar cane for fuels or combustion of wood for power); on the other, double down on advanced feedstocks to unlock further growth in the biobased economy. A decision either way will have long-term consequences, necessitating annual investment in the billions and sinking capital into new infrastructure.
Based on our analysis, over the next decade growth of the biobased economy is likely to be supported by biomass hubs centered on existing commodity-based feedstocks as depicted in the figure below, from the International Energy Agency:
The model will help meet demand growth in international markets, but more robust growth is likely to be tempered by rising feedstock costs. To compete head-to-head with fossil fuels, bioenergy will need to upend the traditional energy model and optimize a complex network of supply chains built around a slew of diverse, locally-grown feedstocks.