Navigant Research Blog

As Coskata Zigs, Biofuels Market Zags

— August 7, 2012

Last month Coskata, a well-regarded advanced biofuel company profiled in our 2011 Biofuels Markets and Technologies report, announced that it will shelve plans to build a U.S. Department of Energy-backed commercial biomass-to-ethanol conversion facility in Alabama.  Instead, the company will focus on commercializing a natural gas-to-ethanol facility, aiming to ride the shale gas wave sweeping across the United States.

Natural gas has always featured prominently in Coskata’s long-term plans, but will now ride shotgun as the company seeks a financially viable road to commercialization.  For a segment of the biofuels industry still navigating the Valley of Death, Coskata’s lane-change shifts the commercialization landscape for advanced biofuels significantly.

The announcement is also a blow for gasification conversion platforms – a process that uses heat and, in some cases, a limited amount of oxygen to convert biomass into a synthesis gas (syngas) – and points to a more challenging road to scale-up for the advanced biofuels industry as a whole.

Race to Cheap Feedstock

Like other companies (e.g., Sundrop Fuels and Primus Green Energy) that sought to rely on abundant forest and agricultural residues for near-term fuels production, Coskata has found relatively inexpensive natural gas too hard to resist.

The pivot to natural gas does not necessarily suggest that biomass gasification is a non-starter from a technological standpoint, but rather that the current economics related to the biomass component appear to be mostly prohibitive.  Non-food biomass feedstocks and handling are typically the most expensive piece of advanced biofuel production facilities, and they often come with a great deal of supply risk.  Establishing logistically and economically viable supply chains and biomass handling infrastructure has remained a persistent barrier to advanced biofuels scale-up, as I discussed earlier on this blog.

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 this material have proven to be high.  The biomass sourcing and gasification challenge ultimately forced RangeFuels into bankruptcy last year.  For its part, Coskata acknowledges it is faced with challenging economics associated with using biomass as a raw resource.

Already partnered with French oil and gas giant Total, Coskata is among the most well-funded advanced biofuel companies in the field.  Meanwhile, producing syngas from natural gas is a well-established, commercially viable pathway.  Mitigating feedstock cost also lowers the barrier for advanced biorefineries, which, given the many associated risks – feedstock, technology, and policy – face significant financing challenges from the venture and private equity communities.

Ultimately, Coskata’s gamble is intended to eliminate a key component of risk for advanced biofuel projects and lower the barrier to commercial ethanol production from non-food feedstocks.

Biomass Syngas Woes

Although many advanced biofuel companies share the biomass gasification front-end step with Coskata, they differ in the technology used to convert the syngas to fuel or chemicals.  Given the steady drumbeat of biomass syngas defectors, it seems clear that biomass or gasification (or a combination of the two) is untenable in the near-term.

While the abandonment of the biomass gasification front-end component may be a short-term solution for getting steel in the ground, Coskata and other gasification start-ups could very well jump ship on the advanced biofuels bandwagon altogether if natural gas gains momentum as a transportation fuel in the United States and other key markets.  Currently, programs to convert natural gas to biofuel are not supported by federal mandates or loans.  And for Coskata, there is the additional challenge of accessing a saturated ethanol market in the U.S., unless it can find traction in nascent bio-based chemical and product markets.

Long-term, the natural gas pivot could fast-track a number of once promising advanced biofuels ventures to commercial success.  But with at least 1800 additional biorefineries required to meet global biofuels mandates alone by 2022, costing an estimated $580 billion, the apparent shelving of biomass syngas technologies points to a more constrained expansion of advanced biorefinery infrastructure over the next decade.


In Severe Drought, A Silver Lining for Advanced Biofuels

— August 7, 2012

With much of the arable land in the United States experiencing a significant and extended drought, the question arises: Why would we sacrifice food production for fuel crops such as corn?  Underlying this question are two major concerns about the use of corn ethanol for gasoline substitutes or additives.

The first issue is that of rising food costs, and the complications added by biofuel production.  Droughts reduce crop yields, driving up the cost of primary foodstuffs, such as grains and vegetables.  Furthermore, corn planted in the U.S. for fuel ethanol is inedible for humans, reducing the area of land dedicated to food production; approximately 40% of the U.S. corn harvest is for ethanol.  The net effect is, then, straightforward: food costs more because of grain-based fuel production.

The second issue is more subtle.  Since corn used for fuel is also affected by the drought, yields decrease, the cost of ethanol increases, and ethanol as a source of renewable fuel becomes less competitive.  Unfortunately for industrial distillers, the federal subsidies for corn ethanol expired at the end of 2011.  Such subsidies might otherwise be able to help the producers cope with these decreasing margins.  To compound this distress, the supply of ethanol (though not necessarily corn-based) as a gasoline additive is required to grow at the same rate as gasoline consumption.  This bodes poorly for corn’s future as an economically viable renewable fuel source.

There may be a bright side to this story, however.  Expensive advanced biofuels could benefit from the current economic conditions to gain traction in the market.  Advanced processing of biofuels tends to utilize the waste products of food production, minimizing the impact of droughts on food prices compared to the current situation.  Furthermore, these new fermentation methods utilize robust crops, such as switchgrass, that are generally drought resistant, and precursor crop yields would not be negatively affected by the current climate conditions.   These properties alleviate the concerns about reduced food production as well as the direct effects on yields for fuel production.

Unfortunately, while various enzymatic methods are being developed to turn cellulose into sugar for fermentation, these advances have not yet reached economies of scale.  Supporting the industry’s development, the U.S. departments of Energy (DOE) and Agriculture (USDA) have recently announced a $41 million investment in diversifying feedstocks and the technologies that allow them to produce ethanol.

Thus, though the circumstances facing many U.S. farmers and ethanol refiners are unfortunate, the long run implications of the current drought may be positive.  While ethanol necessarily contains less energy than gasoline, cellulosic biofuels reduce greenhouse gas emissions by about 86% compared to gasoline and, like all forms of ethanol, are biodegradable.  Since the fuel is produced using food byproducts or inedible vegetation from non-arable lands, its cultivation doesn’t impact food production. More than a dozen advanced biofuel refineries are currently in operation in the U.S., with more coming online in the near future.


No Hydrogen Please, We’re British

— August 6, 2012

Every Olympics has its notable no-shows.  For the 2012 London Olympics, this group includes Rafael Nadal, Brittney Griner, and five large red fuel cell buses.  Transport for London (TfL) has been running the buses on a route near the Olympic Park since the end of 2010, and has three more set to join the fleet this year.  There had been some expectation that running the buses in and around the Olympics would provide a showcase for the benefits of fuel cell technology.  Unfortunately, the buses have been grounded for the Olympics due to “security concerns.”  According to press reports, the Olympic Delivery Authority put the kibosh on hydrogen deliveries to the buses’ fueling station, which is in an area under tight security restrictions for the Olympics.  What’s not noted in the press accounts is that there are also restrictions on conventional liquid fuel deliveries in the Olympic perimeter.  This is all part of the extremely stringent controls put in place to secure a major global event in a city that has been hit by terror attacks in the past.

The good news is, the Olympic authorities approved the use of the fuel cell buses themselves.  But stopping fuel deliveries to the hydrogen station effectively shut down the buses, as the closest alternative hydrogen station is some distance away from the buses’ route.  Worse, a mistaken impression has been created that the hydrogen fuel might be dangerous.

The fleet will be back in service in September, when it can resume the important work of testing out the buses in real world operations.  Reports are that the buses have suffered down time previously due not to the fuel cells but to maintenance and spare parts issues.  This mirrors some problems with an early fleet of fuel cell buses at AC Transit; these had reliability problems due to the ZEBRA batteries, not the fuel cells.  But these are the kinds of issues that get worked out with new technologies in real world service.

Meanwhile, a local official has already taken the opportunity to complain about the fuel cell buses and instead call for adopting a “here-and-now” technology: all-electric buses.  This response is symptomatic of a larger problem.  Public officials, and the public, keep falling in love with the “perfect” green technology, setting themselves up for disappointment when their technology love turns out to be less than perfect.  Both fuel cell and battery buses need more real world deployments to allow manufacturers to refine the technology further for the demanding transit market and to drive down costs.  As I will discuss in my upcoming report on the market for electric drive buses, price is still the biggest obstacle for battery electric, fuel cell and even hybrid buses, which have captured a large share of the U.S. market and seen major growth in the past two years in the U.K., thanks to stimulus funding.  But transit agencies are going to be reluctant to pay significantly higher prices for buses as they face tighter budgets and stimulus funding ends.  This, not terrorists out to pilfer hydrogen, is the real challenge for fuel cell buses.


Is Demand Response The Wrong Strategy?

— August 6, 2012

Warren Causey, who has earned his right to provocative punditry, postulated recently on Smart Grid News that perhaps demand response and dynamic pricing are wrongheaded ideas.  He’s not the first to make this argument; this question is at the heart of the industry’s hand-wringing over “consumer engagement” for the last several years.  In fact, you could say that the wisdom of driving consumer behavior change is perhaps the only rational consumer argument worth having.

A while back, I argued that opponents on both end of the political spectrum should have reasons to embrace dynamic pricing: Tea-Partiers should support free market-based energy pricing, and Occupy-movement types would surely embrace forcing wasteful power users to “pay their fair share.”  So I believe linking consumers with the real cost of electricity is good idea that, if done well, will benefit many across the value chain.

However, what if the fundamental premise is wrong? The concept of demand response is based on the assumption that electricity, which inconveniently requires generation and consumption to be time-synchronized, is a scarce and expensive resource.  Hence it needs careful optimization.  Will this always be true?

Earlier in my career, my job was defining product requirements for networking equipment and associated silicon.  I argued the finer points of media access protocols, quality-of-service mechanisms, and advanced queuing algorithms, all in the name of “bandwidth optimization,” because, as everyone knew, bandwidth was a scarce and highly valued resource.  That was less than 15 years ago.  Then came cheap, plentiful, high-capacity fiber, dense wave division multiplexing, and advanced digital signal processing for twisted-pair copper wires, and suddenly bandwidth wasn’t so scarce anymore.  And simple (and wasteful) Ethernet, alongside simple (and wasteful) IP, trounced the ATM, FDDI, Token-Ring, and myriad other “bandwidth efficient” protocols of the age.  Eventually this simple but wasteful technology became responsible for dismantling and rearranging the entire telephone industry.  Fortunately, I had the opportunity to ride the fun side of that wave, but many experienced the more destructive side.

One of the commenters on Causey’s SGN article mentions the “Enernet” pitch developed by Bob Metcalfe (Ethernet inventor, venture capitalist, and industry pundit), who claims that the same market dynamics behind the telecom revolution can apply to energy, if we get the incentives right.  Having witnessed Bob’s talk evolve during a stint at one of his companies, I agree with his major points, though the parallels he draws can be overdone.

So what technologies could end the scarcity of electric power?  Today’s fracking-enabled, cheap, and seemingly abundant natural gas is already upsetting the energy management apple cart, at least in North America.  Advances in energy storage and net-zero energy buildings and homes (whether via green construction, local renewable generation, small fuel cells, or a combination) are other potentially disruptive examples.  Even straightforward energy efficiency initiatives may have the side effect of reducing the percentage of load available for demand response.

Does this mean that we should ignore the near-term benefits of dynamic pricing, demand response, and other supplier-grid-consumer connections? I think not.  But Causey is right that our industry must be open to challenging fundamental assumptions, and be on the watch for inevitable waves of creative destruction.


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