Navigant Research Blog

In Ethanol, Cellulosic Coming To Push out Corn

— October 20, 2014

The last few months have been big for cellulosic biofuels in the United States.  The first of three commercial-scale cellulosic ethanol plants to come on line this year, Project Liberty, opened in Iowa in September.  In July, the U.S. Environmental Protection Agency (EPA) expanded the definition of the cellulosic biofuel pathway to include biogas used for transportation via compressed natural gas (CNG), liquefied natural gas (LNG), or electricity.  At full capacity, Project Liberty will produce 25 million gallons annually; the two other plants scheduled to open this year will run at 25 and 30 million gallons, respectively.  If the plants are successful, this could be the beginning of cellulosic ethanol supplanting corn-based ethanol’s hold in the U.S. biofuel market.

Cellulosic ethanol’s major advantage over corn-based ethanol is that its feedstock is organic material waste rather than food/grain.  This avoids controversial issues regarding food vs. fuel, and minimizes the conversion of arable land to farm land, which experts contend makes cellulosic ethanol far more environmentally sustainable and less politically divisive than corn-based ethanol.  The disadvantage of the fuel is that it’s ethanol.

Flat Gas

Ethanol’s end market is gasoline, primarily used for light duty vehicles in the United States and Brazil.  It can only supply up to 10% of the fuel in a vast majority of the vehicles in use in the United States due to regulatory constraints and reluctance on the part of automakers and fuel retailers to adopt higher ethanol-gasoline blends.  If gasoline consumption in the United States was growing, this aspect wouldn’t be a problem, but it’s not.

In Navigant Research’s reports, Global Fuels Consumption and Light Duty Vehicles, it is estimated that light duty vehicles account for 94% of gasoline consumption in the United States.  Over the next 10 years, the light duty vehicle fleet will become far more energy efficient, thanks to vehicle electrification, vehicle lightweighting, and engine downsizing.  The end result is that the amount of gasoline-ethanol blends consumed in 2023 will likely be 12% less than 2014 levels.

The Cellulosic Edge

Consumption of ethanol is driven by the Renewable Fuel Standard (RFS), which mandates specific volumes of biofuels be blended into the fuel supply.  The standard is adjusted each year to reflect anticipated industry production volumes by biofuel pathway, so that biofuel producers can be assured their product will be purchased by blenders.

Given cellulosic ethanol’s sustainability appeal over conventional ethanol, and the limited market in which these pathways compete, and despite the high cost of cellulosic compared to conventional ethanol, it’s likely that annual adjustments to the RFS will ensure that cellulosic production feeds into the U.S. fuel pool at the expense of conventional ethanol.  That means that the EPA may be inclined to lower conventional ethanol mandates against increases in cellulosic capacity – making cellulosic more valuable to blenders than conventional ethanol.  As a result, conventional U.S. ethanol will likely become an export fuel, going to foreign markets that currently make up a little over 45% of the global market.

 

Distributed Biogas Gains Footing in Revised Standard

— September 8, 2014

In July, the U.S. Environmental Protection Agency (EPA) finalized an extension of the beleaguered Renewable Fuel Standard (RFS2) to carve out a pathway for renewable biogas to qualify as a cellulosic fuel.  Expanding the scope of the RFS2 beyond liquid transportation markets could have promising implications for the slow-to-emerge cellulosic biofuels market.

Under the RFS2, the EPA requires domestic refiners and importers of transportation fuel to blend increasing volumes of renewable fuels into conventional gasoline and diesel.  The EPA sets the renewable volume obligations for various renewable fuels every year, and regulated entities must demonstrate their compliance by acquiring and retiring renewable identification numbers (RINs), which are publicly traded credits that fluctuate in value.

RINs provide an important financial incentive for the nascent advanced biofuels industry, helping these fuels compete with conventional fuels in the marketplace.  Cellulosic biofuels, a fuel pathway slated to deliver the greatest volume under the rule, have fallen short of expectations every year due to less capacity being built than otherwise predicted.

Expanding Universe

Under the expanded rules, biogas-derived compressed natural gas (CNG), liquefied natural gas (LNG), and electricity used to power electric vehicles would qualify for cellulosic RINs.  The final rule is likely to lead to a substantial increase in the production of cellulosic biofuels and create new markets for materials previously regarded as waste.  Opportunities for upgrading biogas to so-called bioCNG or bioLNG – also referred to as biomethane or renewable biogas and already used in fleet applications like garbage trucks and municipal buses – currently show high promise for biogas-to-transportation fuel.

As outlined in the U.S. government’s Biogas Opportunities Roadmap report released last month, biogas has broad applications across a range of diverse industries.  Livestock farms, industrial wastewater treatment facilities, industrial food processing facilities, commercial buildings and institutions, and landfills all produce biogas – either directly or in the form of waste feedstocks that can be converted into biogas.  According to Navigant Research’s Renewable Biogas report, the biogas capture market across the United States is expected to reach more than $4 billion in annual revenue by 2020.

All in all, biogas remains a vastly underutilized resource across the United States when compared to countries like Germany that have used a range of incentives to drive investment, particularly in agricultural applications.

The Curse of Versatility

The challenge for biogas in the United States is that to some it’s a fuel source, to others a waste mitigation strategy, and to others a distributed generation resource.  That makes it difficult to tailor policies that address all potential opportunities.  Adding to the confusion, distributed biogas is often treated by utilities as a strategic resource alongside solar PV and small wind, when in fact it can be utilized in the form of a traditional generator set, a fuel cell, or sometimes concurrently, in combined heat and power configurations.

With these issues in mind, the EPA’s final rule relating to biogas introduced a relatively novel and subtle feature for renewable energy markets: incentive flexibility.  Under the rule, the EPA not only expands the scope of RFS2, but allows the same amount of renewable electricity derived from biogas to give rise to RINs for transportation applications and renewable energy credits for electricity generation, while also qualifying for incentives under state renewable portfolio standards.

This potential for multiple revenue streams unlocks the versatility of biogas as a resource and is likely to attract new investment in the U.S. biogas market.

 

In the Islands, Renewable Energy Scales Up Rapidly

— July 22, 2014

Renewable energy project developers are touring islands these days, salivating at the opportunity to displace diesel-powered electricity systems that can cost as much as $1/kWh with significantly lower-cost clean power.  Prominent examples include Iceland, where, according to the country’s National Energy Authority, roughly 84% of primary energy use comes from indigenous renewable energy sources (the majority from geothermal); Hawaii, where energy costs are 10% of the state’s GDP and where the state government has set a goal of reaching 70% clean energy by 2030; and Scotland (part of a larger island), with a goal of 100% renewable energy by 2020.  Several smaller, equally interesting island electrification initiatives present great opportunities for companies looking for renewable energy deployment opportunities that are truly cost-effective for customers and developers.

These opportunities include:

  • In Equatorial Guinea, a 5 MW solar microgrid planned for Annobon, an island with 5,000 inhabitants off the west coast of Africa, is intended to supply 100% of the power for residential needs.  The project is funded by the national government with power produced at a rate 30% cheaper than diesel, the current primary fuel source.  It is scheduled for completion in 2015 and is being installed through a partnership between Princeton Power Systems, GE Power & Water, and MAECI Solar.
  • The Danish island of Samsø is the first net zero carbon island, where 34 MW of wind power generate more electricity than is consumed on the island.  Fossil fuels are still utilized, so  Samsø is not truly a 100% renewable energy island as often reported.  The project was conceived and designed as part of a 10-year process begun in 1997, following the Kyoto climate meeting in Japan.
  • The island of Tokelau, an atoll in the South Pacific, is home to 1,500 inhabitants and produces up to 150% of its electrical needs with solar PV, coconut biofuels-powered generators, and battery storage – displacing 2,000 barrels of diesel per year and $1 million in fuel costs.
  • El Hierro, the westernmost of Spain’s Canary Islands, is home to 10,000 residents.  With an innovative combination of wind power and pumped hydro acting in tandem, the island is projected to generate up to 3 times its basic energy needs.  Excess power will be used to desalinate water at the island’s three desalination plants, delivering 3 million gallons of fresh water per day.
  • The Clinton Global Initiative has a specific Diesel Replacement Program for islands, focused on deploying renewable energy projects and strategies tailored to the unique needs of its 20 island government partners.  The objective is not only to create cost-effective solutions to reduce carbon, but also to help many of these island nations reduce the often enormous debt that results from relying on imported diesel fuel for electricity.

There are many more opportunities, including Crete, Madeira, Bonaire, La Reunion, the U.S Virgin Islands, and the Philippines (7,127 islands) – which last summer set a 100% renewable energy target within 10 years.

Not all of these projects, particularly the more sophisticated ones, have gone smoothly.  The logistical challenges of island construction add to the overall cost of the projects.  The risk of extreme tropical weather events is always present, including the risk of actually being underwater if sea levels rise as anticipated.  Thus far, financing for many of these projects has come from public-private partnerships, and as I’ve written previously, the coming avalanche of adaptation funding means those avenues are expected to be around for the foreseeable future.  But given the strong economic arguments for residential systems, resorts, agriculture, and other energy-intensive applications that often rely on diesel power for electricity, onsite distributed projects often pencil out without public assistance.

 

Gasification Projects Drive Smart Waste Evolution

— June 27, 2014

As the waste industry slowly evolves toward more integrated solutions for municipal solid waste (MSW) management, increasing volumes of trash are now being handled by so-called smart technologies.  Waste-to-fuels (W2F) – a subsegment within the energy recovery market that converts MSW into finished fuels, like ethanol and jet fuel – has become especially active, with advanced gasification technologies reaching important commercial milestones.

Enerkem, a Canadian company that recently gained first-mover status with the opening of a 10 million gallon per year (MGY) waste-to-methanol plant in Edmonton last month, is the first pure-play W2F project in development to reach the commissioning stage.  The company plans to add an advanced ethanol module later this year.  In April, British Airways and U.S.-based Solena Fuels (which are jointly developing GreenSky London, a 19 MGY facility converting landfill waste into jet fuel, bionaptha, and renewable energy) announced the selection of a site to commence commercial development and commissioning by 2017.

Faced with high capital costs, both projects depend on the low cost and widespread availability of waste as a feedstock to drive initial viability and future expansion.

Landfilling

According to World Bank estimates, nearly 1.5 billion tons of MSW is generated globally each year.  This total is expanding rapidly due to urbanization and rising levels of affluence in developing economies across Asia Pacific and Africa.

While 16% of MSW generated globally is never collected in the first place, and 27% is diverted for either material or energy recovery, more than 50% is still dumped in landfills, according to Navigant Research estimates.  Although there is plenty of trash to go around for higher value applications like W2F, market development depends on tightening regulations driving landfill diversion, since landfilling is typically the lowest-cost solution in areas where waste is actively managed.

In Western Europe, and to a lesser extent, North America, where waste diversion is gaining the most traction, momentum appears to be increasingly on the side of emerging companies like Enerkem and Solena Fuels commercializing breakthrough energy recovery conversion technologies.

Smart Waste

As forecast in Navigant Research’s report, Smart Waste, annual revenue in the smart MSW technology market – of which, energy recovery is a key subsegment – is expected to more than double from $2.3 billion in 2014 to $6.4 billion in 2023.  Annual revenue from smart MSW technologies is expected to surpass conventional technologies by 2019.

Annual MSW Management Revenue by Technology Type, World Markets: 2014-2023

 

(Source: Navigant Research)

While Waste Management in North America remains an active investor in Enerkem and other early-stage companies commercializing smart MSW technologies and solutions, traditional waste haulers face a revenue decline similar to that faced by traditional electric utilities.  As more MSW is targeted as a strategic feedstock, there is less trash for waste haulers to manage, resulting in less and less revenue.

Despite this evolution, companies like Enerkem and Solena Fuels still have a long road ahead.  These companies must compete for municipal contracts – in most cases, with traditional waste haulers – often pitting the high capital cost of an advanced energy conversion facility against landfilling on one hand and relatively inexpensive fossil fuel refineries on the other.

Enerkem’s Edmonton facility is estimated to cost $7.50 per gallon of production capacity to build.  GreenSky London, which incorporates the Fischer-Tropsch gasification process to convert MSW to synthetic gas (syngas), is expected to cost more than $14.00 per gallon of production capacity.  While the initial capital cost of such facilities is expected to decline over time, both platforms will depend on multiple revenue streams to be commercially viable.

 

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