Navigant Research Blog

Bioenergy Transition: The Challenge Ahead

— October 13, 2014

Despite the relative abundance of biomass as a fuel source in many places, the bioenergy industry has failed to gain the traction as a cornerstone renewable resource that many envisioned just 5 to 10 years ago.  Facing stagnant industry growth, the industry is in desperate need of a shot in the arm from policymakers.

Baseload biomass plants, for example, were especially hard hit by the restricted lending and general economic malaise of recent years.  Commercial installed capacity was historically much higher than wind and solar power combined, but it has been eclipsed by wind generation sources in recent years.  Global installed capacity currently stands at an estimated 3% of global generating capacity.

The European Union (EU), which envisioned a broad surge in bioenergy power and heat production to deliver its 20-20-20 goals, expects to achieve just 83% of its target by 2020.  A combination of market forces, weakened policy support, contentious debate over the sustainability of bioenergy, and the relative success of wind and solar has stifled investment across the industry.  Contending with similar but more severe headwinds, growth for the bioenergy industry in the United States has been mostly nonexistent.

New Openings

With the regulatory vice tightening on carbon-emitting power producers in the past year, however, the opportunities to co-fire diverse biomass feedstocks in coal-burning plants or switch these plants over to dedicated biopower production looks to be shaping up as an attractive proposition again.  As a feedstock, biomass remains a compelling option for reducing carbon emissions from centralized power plants because it eliminates the need for a significant overhaul of existing hardware.

Unfortunately, while recent policy and regulatory developments in the EU and United States look promising on paper, they are unlikely to give the industry the boost it needs in the near term.

Under its framework for climate and energy policies presented in January 2014, the European Commission called for 27% renewables by 2030.  Meanwhile, the Environmental Protection Agency’s (EPA’s) proposed Clean Power Rule in the United States is a potentially positive development for the bioenergy industry.  Yet, biomass will need to be recognized under the Clean Air Act as a renewable source of energy, with a favorable carbon profile when compared to fossil fuels, for the industry to gain significant traction.

Cost Gains

Longer-term developments look more positive.  According to a recent McKinsey Insights article, bioenergy in Europe has the potential to lower the levelized cost of energy (LCOE) by up to 48% by 2025 through gains like boiler efficiencies and greater plant standardization.  Although the relative abundance of cheap coal and softer emissions regulations in the United States (relative to Europe) require greater LCOE gains to reach price parity with coal-based generation, these developments would be positive for bioenergy development in both regions.

For bioenergy to capitalize on these positive trends, logistical challenges related to the collection, aggregation, transportation, and handling of biomass will need to be overcome.  Higher growth will depend on breakthroughs in carbon densification processes for biomass resources, for example, and the increasing commoditization of biomass feedstocks (including the expansion of the international trade in pellets) for power production.

 

Lufthansa Leads Biofuels Hunt

— May 6, 2014

Lufthansa announced last month that it has teamed up with U.S.-based Gevo to research the blending of alcohol-to-jet (ATJ) fuel with conventional kerosene for use in commercial flights.  While it’s not surprising that ATJ will be on the fast track for testing and ASTM approval for use in commercial operations, Lufthansa’s support of the ATJ biojet pathway demonstrates that it’s conducting an intensive search for a viable advanced biofuels conversion pathway.

Lufthansa is among the leading airlines that have sought partnerships with emerging companies at the vanguard of biofuels innovation.  On paper, the German carrier accounts for more than 40% of the biofuels purchased by commercial airlines since 2008.  It was the first commercial carrier to operate biofuels-powered flights, launching an initiative to fly more than 1,000 commercial flights between Hamburg and Frankfurt in 2011 powered by biofuels derived from jatropha, camelina, and animal fats.

Succumbed

In some respects, Lufthansa has become the canary in the aviation biofuels coal mine.  It abandoned the Hamburg-Frankfurt route in 2011, citing difficulty finding a sufficient volume of biofuels.  The move presaged a dramatic decline from 31,000 biofuels miles flown in 2012 by commercial carriers to just 3,000 in 2013.

Commercial Airline Biofuels Miles Flown by Flight Type, World Markets: 2008-2013

 

(Source: Navigant Research)

Among the industries actively seeking alternative liquid biofuels, the aviation sector has been one of the most aggressive in pursuing its sustainability goals.  While laudable, this significantly narrows the potential feedstock pool for an industry anxious to lower operating costs, hedge against future oil price spikes, and improve its carbon footprint.  The drop-off in biofuels miles flown reflects the challenge of pairing a low-cost conversion technology with an abundant and sustainable feedstock.

At least 75% of global biofuels production today is derived from just two feedstocks: cornstarch in the United States and sugarcane in Brazil.  The remaining share is produced from other food-based feedstocks like soy, canola, palm, and coarse grains converted to first-generation ethanol and biodiesel.  Despite a relative abundance, both ethanol and biodiesel lack key performance attributes of kerosene-based jet fuel, making them nonstarters for use in jet engines.

Just two fuel pathways are approved for commercial use in the aviation industry today.  The first, FT-SPK, is a gasification and catalytic process (Fischer-Tropsch) that was put into use by the Nazis during World War II and in South Africa under apartheid.  The second, HEFA (or Bio-SPK), involves hydrotreating oils derived from oil-bearing plants, animal fats, and used cooking grease.  This latter pathway has supplied nearly 100% of the fuel burned in the nearly 600,000 miles of biofuels-fueled flights that have occurred since 2008.

A disproportionate share of the biofuels consumed by airlines during this period has been produced from used cooking grease, a feedstock typically discarded as waste.  While produced in abundance in urban areas, the relative volume of used cooking grease represents just a drop in the bucket compared to the nearly 90 billion gallons of kerosene-based jet fuel consumed annually by commercial airlines and militaries around the world.  It was never the silver bullet envisioned by the aviation industry for offsetting petroleum use.

The Search Continues

While many commercial carriers remained focused on participating in demonstration flights and establishing commercial routes, Lufthansa refocused its efforts on scouring the globe for technologies with the potential to operate at an industrial scale.

In 2012, the airline inked a deal with Australia-based Algae.Tec to build a large facility in Europe based on a modular design that uses shipping containers.  Although the algae industry remains an outlier in the crowded advanced biofuels technology landscape, along the algae frontier, Algae.Tec is an even greater outlier with a potentially game-changing platform.

Lufthansa’s recent deal with Gevo to pursue ATJ offers the airline another potential pathway to industrial-scale biojet production based on fermentation.  With the lion’s share of global biorefinery infrastructure based on fermentation platforms, Gevo is pursuing a capital-light approach based on the retrofitting of existing conventional ethanol refineries.  Assuming ASTM approval of ATJ, Navigant Research’s recent Aviation and Marine Biofuels report projects that 180 million gallons of ATJ will be produced globally by 2024.

 

Targeting Aviation, Dedicated Energy Crops Take Root

— March 10, 2014

In our forthcoming report on aviation and marine biofuels, we forecast that global nameplate production capacity will reach 2.3% of global jet fuel demand.  This is just shy of 2.5 billion gallons of installed production capacity, up from just under 750 million gallons in 2014.  Depending on whom you speak to, this would be either a significant achievement or an abject disappointment.

For the optimists, surpassing a critical threshold of 1% is viewed as an important milestone in the emerging aviation biofuels market.  Experience with the commercialization of new technologies demonstrates that 1% to 2.5% market penetration often represents a technology inflection point, leading to accelerated market acceptance and diffusion.  Current nameplate production capacity for aviation biofuels stands at 1%, beating Boeing’s target to do so in 2015 by nearly 2 years.

For the pessimists, 2.3% in 2020 falls well short of aspirational industry targets.  The International Air Transport Association (IATA) has set a goal of meeting 6% of aviation fuel demand by sustainable aviation biofuels by 2020; Boeing’s primary competitor in the aircraft manufacturing business, Airbus, is targeting 5% by 2020.

Below Threshold

Adding further fodder for the pessimists, actual bio-derived jet fuel (biojet) production at emerging advanced biorefineries will fall below nameplate capacity.  Note that petroleum jet fuel – a high-performance kerosene-based product tailored for turbine engines – represents roughly 10% to 15% of the refined gallons produced from a barrel of crude oil.  Based on forecasts, the actual production of biojet fuel in 2020 is likely to represent just 1% of total jet fuel consumption.  ASTM certification of green diesel as a blend fuel with jet fuel would increase this share to just below 2%, still a ways off from achieving a technology diffusion threshold.

One of the primary obstacles impeding growth in the aviation biofuels market is feedstock availability.  It’s a multifaceted problem with no single solution.  While aspirational targets may prove lofty, based on recent developments, they may have accomplished their primary purpose: to stimulate industry investment, innovation, and development.

Two developments, in particular, show significant potential despite scant attention in the U.S. media.

From Prairies to Desert

Brassica carinata, or simply carinata, is an industrial oilseed mustard crop with two subtle characteristics: its oils produce long carbon chain molecules (C22) that can be tailored to match the carbon length (C9-C15) of petroleum-based jet fuels (picture a sawmill using whole logs rather than scrap timber); and it produces more fuel per acre on semiarid lands than any other oilseed in existence today.  The result is better yields of finished fuel than soy or other conventional oilseed crops, a significant achievement for an industry aiming to reach a production threshold measured in the billions of gallons.

Agrisoma Biosciences, a Canadian-based crop company, currently has exclusive global rights to commercialize carinata.  This effort is gaining traction in North America.  Technology developed by Applied Research Associates (ARA) and Chevron Lummus Global is processing test batches of carinata into renewable fuels that are 100% replacements for petroleum based fuels.  In 2012, Canada’s National Research Council (NRC) flew the world’s first 100% biojet civilian flight powered by carinata-derived fuel.  While Popular Science magazine named the milestone one of the top 25 scientific events of 2012, the event was overshadowed by a surge of aviation biofuels tests and commercial flights logged that same year.  More than 15 individual aviation biofuels initiatives took place that year, each relying on a fuel blend of no more than 50% biofuels.

Halfway around the world, a team of researchers in Abu Dhabi led by the Masdar Institute, Boeing, and Etihad Airways is studying the potential of halophytes, a salt-resistant desert crop that can be grown on marginal land.  Scientists leading the effort plan to build an integrated aquaculture ecosystem in which waste seawater from a fish and shrimp farm will nourish halophyte crops, which in turn, act as a filter that cleans the water for discharge into mangrove swamps.  The consortium recently announced that halophytes show even more promise than originally expected as a source of renewable fuel for jets.

 

EPA Resets the Biofuel Industry

— November 27, 2013

Earlier this month, the EPA proposed revisions to biofuel blending quotas for 2014 under its controversial revised Renewable Fuel Standard (RFS2).  With a proposed reduction of an estimated 3 billion gallons – a volume roughly equal to 20% of current nationwide biofuels production – it’s the first time the agency is seeking to reduce the total biofuel requirements below the legislated targets.

Covering conventional ethanol produced primarily from corn starch and conventional biodiesel produced from food-based vegetable oils like soy, along with advanced biofuels derived from non-food feedstocks, RFS2 is the backbone policy driving biofuels production in the United States today.  The EPA has adjusted annual volumes for advanced biofuels in prior years, but the recent announcement is unprecedented both in the political dimensions and market ramifications.  It’s also the first time the agency has attempted to put the brakes on conventional ethanol production.  As described by Jason Bordoff, former special assistant to President Obama and senior director for energy and climate change at the National Security Council, the announcement marks a “drastic change in the Administration’s biofuel policy.”

Why the shift?  Below is a brief look at the key forces at play.

Big Oil’s New Swagger

Moving further offshore, mining heavy oils, and channeling investments into next-generation biofuels, oil majors have been scrambling for new growth opportunities in recent years.  In an unexpected reversal of fortune, these companies are positioned to ride a wave of new production from shale oil that has many analysts predicting the United States could become the world’s leading producer of oil within the decade.  Petroleum companies have recently slashed their biofuel investment portfolios while waging an all-out attack on the RFS2 in the courts and on Capitol Hill.  While not quite a “capitulation” by President Obama,  as some described it, the recent announcement by EPA represents a significant victory for the incumbent oil industry, which maintains that it should not be penalized under RFS2 when there is insufficient volume of biofuels to blend in the first place.

The EPA seems increasingly comfortable with facilitating a smooth commercialization glide path for biofuels rather than forcing a top-down overhaul of the liquid fuels market.  Biofuels Digest summarizes the EPA’s intent under the ruling this way: “The practical goal for the EPA is not to use the RFS2 renewable fuels schedules as a driver to produce investment in capacity-building or infrastructure for distribution.  Rather, the EPA opts for a more passive role of providing a market for those capacities that are, in fact, built – based on incremental, if any, changes in infrastructure.”  The onus for attracting investment has been placed squarely on the back of the emerging biofuels industry.

Crashing Ethanol’s Party

Higher pump prices in recent years, meanwhile, have resulted in consumers driving less.  At the same time, improved efficiency under CAFE standards means it takes less fuel to travel the same distance.  The rise of the Prius and Tesla’s recent success are harbingers of an emerging fleet of next-generation vehicles that will further trim consumption.  As a result, as biofuels production increases and oil demand flatlines, the headroom for absorbing supply has shrunk much faster than policymakers predicted when drafting the original RFS2 mandate.

Corn starch ethanol is proving to be a victim of its own success.  The United States currently produces roughly 50% of the total gallons of biofuel produced globally – mostly ethanol – which nearly exceeds the capacity of the U.S. gasoline market to absorb excess production (see blend wall issue).

(Source: EIA)

Policymakers, meanwhile, have shown a reluctance to incentivize demand in new consumer markets.  E15 (15% ethanol) has proven to be complex to implement and E85 (85% ethanol) has been a nonstarter.  This leaves the U.S. ethanol industry in an awkward position.  Either it must now initiate a grassroots campaign to attract billions in new investment for distribution infrastructure or look to export markets to offload excess supply.

 

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