Navigant Research Blog

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.


The Corn Ethanol Empire Strikes Back

— June 8, 2012

In recent weeks, Gevo flipped the switch on its first commercial-scale facility making advanced biofuels and renewable chemicals.  Retrofitting a brownfield ethanol facility in Minnesota to produce isobutanol from corn starch, a chemical that packs more energy than conventional corn-starch ethanol, the development may signal the beginning of the next wave of bioenergy innovation.

Principally designed to do one thing – ferment large quantities of corn starch into millions of gallons of ethanol – first generation production facilities are inefficient energy users and produce a great deal of waste.  Retrofitting first generation ethanol facilities, which are prodigious consumers of electricity and water, is proving to be a bankable (read: “capital light”) strategy for ramping up production of biofuels while reducing the industry’s environmental footprint.

In a typical ethanol retrofit, innovative conversion processes and technologies are “bolted onto” existing assets to create an integrated biorefinery.  Modeled after petroleum refineries, integrated biorefineries use biological matter to produce a range of end-products: transportation fuels, chemicals, and heat and power.  These facilities are designed to be more efficient, sustainable, and profitable than first generation corn-starch ethanol refineries.  Gevo’s 12 million gallon per year facility is just one of several integrated biorefineries arising from the ashes of first generation ethanol.

Accounting for around 10% of U.S. liquid fuel consumption in the transportation sector, corn starch-derived ethanol is a well-entrenched juggernaut in the global alternative energy landscape.  As discussed in Pike Research’s Biofuels Markets and Technologies report, the United States currently leads all countries in ethanol production with nearly 13.9 billion gallons per year in 2012 (Brazil is next with an estimated 7.3 billion gallons).  The industry grew 720% between 2000 and 2010, with strong foundational support from an even stronger agricultural lobby.  From a pure growth perspective, it has been hailed as the most significant success story in American manufacturing.

But despite ethanol’s rapid rise in the United States, the industry has faced significant backlash in recent years.  This opposition has stoked heated debate both inside and outside the industry.  From contributing to increases in food prices, causing indirect land use change (ILUC), and exacerbating efforts to reduce greenhouse gas (GHG) emissions, first generation ethanol has become a punching bag for environmentalists and tech-oriented clean energy enthusiasts alike.

Policy momentum has shifted as well.  The revised Renewable Fuel Standard (RFS2) administered by the Environmental Protection Agency (EPA) capped corn starch-derived ethanol at 15 billion gallons per year, shifting support to advanced biofuels derived from cellulose and other non-food resources.  VEETC, a key tax credit that played an instrumental role in the industry’s growth over the past decade, lapsed in 2011.

Lacking goodwill and facing a sluggish economy, growth within the industry has dropped off considerably in recent years from its 2008/2009 high.

Despite a precipitous drop-off in plant construction, existing ethanol facilities in the United States could provide fertile ground for the next wave of clean energy expansion.  With an estimated $45 billion in subsidies granted by the U.S. government over the past 30 years and more than $30 billion worth of steel already sunk by major players like Valero, ADM, and POET, the greatest near-term biofuels opportunity is likely to lie in brownfield plant conversions and retrofits rather than greenfield builds.  Gevo’s recent success suggests that we are likely at the bottom of this next innovation cycle.

As I’ll highlight in Pike Research’s upcoming Scaling the Bio-Based Economy webinar, emerging business models are demonstrating that existing ethanol assets provide a platform for the integration of a host of Smart Energy technology systems.  Bio-digesters, for example, can process waste streams into biogas for onsite power generation and process wastewater.  Companies like Lanzatech and algae producers such as Algae-Tec are seeking to prove that the waste carbon dioxide produced by ethanol facilities can be used to produce advanced biofuels and renewable chemicals.  Meanwhile, the integration of combined heat and power (CHP) technology offers plant managers the ability to consume energy more efficiently.


Bioenergy Seeks a Distribution Model

— February 1, 2012

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.


Kick-Starting the Bio-Based Economy

— January 30, 2012

Massive, varied, and intricately woven into the fabric of modern industrial society, the global chemical industry was valued at over $4 trillion in 2011, according to Pike Research’s Green Chemistry report.  The non-pharmaceutical chemicals industry in the United States is valued at around $700 billion per year.

The rise of bio-chemicals promises to transform that industry.  Bio-based chemicals and plastics – often referred to as bio-based products – are commercial or industrial products (other than food or feed) that are derived from biological products or biomass.  They serve as direct replacements for the building blocks used in petrochemical production.

At last week’s 3rd Annual Bio-based Chemicals Summit, in San Diego, upstart biomass innovators and stalwart petrochemical industry stakeholders converged to capitalize on opportunities in the emerging bio-based economy.  Excitement is high, but it is largely a derivative of unrealized potential in the biofuels industry.  That potential could be accelerated by federal action: this week, President Obama is expected to unveil his Blueprint for a Bioeconomy.  (The bio-chemical sector is covered under our Bioenergy Advisory Service, which was launched last week.)

The bio-based segment of chemical production looks poised for dramatic growth.  As discussed in our recent report, Biofuels Markets and Technologies, there has been a significant shift away from a primary emphasis on biofuels production towards high-value, low-volume bioproducts in the last couple of years.  Currently, the US Department of Agriculture (USDA) estimates that at least 20,000 bio-based products are currently being manufactured in North America.  USDA has certified dozens of products with a “bio-preferred” label, which denotes a high percentage of bio-based ingredients.

The shift in strategy away from biofuels and towards bio-based products aims to generate near-term revenue to facilitate broader scale-up efforts.  Ultimately, stakeholders envision a pervasive, renewable bio-based economy, comprising power, heat, fuel, and chemicals production derived from biomass resources.

The strategy flies in the face of existing biofuels policy in the United States, which one presenter in San Diego called “ass-backwards.”  From subsidies to loan guarantees to grants, the federal government has relied on a number of mechanisms to ramp up biofuels production.  Where there are bio-based chemical incentives, they are typically treated as complimentary to biofuels policy.

Shifting this paradigm is of chief concern among bioproduct advocates.  Bioproducts, the logic goes, are a natural stepping stone to biofuels production, which is tasked with supplanting an entrenched and highly profitable petroleum fuel industry.  The price tag for doing so is daunting – roughly $16 billion per year to meet the Renewable Fuels Standard (RFS) mandate.  Requiring less capital and feedstocks, widespread bioproducts production is viewed as a lower hurdle that can spearhead development in the utilization of biomass as a replacement to crude oil.

Despite its promise, the bioproducts market faces many challenging obstacles that will likely stifle growth in the United States over the near-term.  Three key issues are summarized briefly below:

  • First, EPA’s regulation of industrial chemicals under the Toxic Substances Control Act (TSCA) may lead to delays and increases in the time-to-market.  While bio-based chemicals are subject to review, many petroleum-derived chemicals were grandfathered in when the regulation came into force in the 1970s.
  • Second, limited access to feedstocks may confine production to areas with access to regional biomass supply chains, potentially stifling growth in the industry.  Even where feedstocks may be prevalent, cost remains a barrier to the commercialization of biobased production from advanced (non-commodity) feedstocks, such as camelina, jatropha, algae, and switchgrass.
  • Third, accessing capital for scale-up remains a difficult challenge.  Although higher-value bio-based products require less capacity than biofuels production, many investors are wary of building a first plant given the associated technology and market risks.  Without steel in the ground, it’s difficult for the industry to accurately assess the risks of subsequent investment.

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