Navigant Research Blog

EPA’s Clean Power Rule a Setback for Emerging Algae Industry

— October 2, 2014

From ethanol refineries to steel mills, major industrial processors are partnering with emerging advanced biofuels producers to monetize their emissions in a process loosely referred to as carbon capture and utilization (CCU).  With carbon regulations once again gaining traction, this could prove to be the paradigm of industrial synergy.  Industrial players generate revenue from a liability, otherwise regarded as waste; biofuels producers gain access to carbon-rich flue gases, which their proprietary industrial microbes or algae consume, resulting in the production of bio-based fuels and chemicals.

Companies targeting waste streams as a strategic feedstock for advanced chemical and biofuels production avoid one of the primary hurdles to commercial scale for conversion processes: the lack of access to inexpensive feedstock.  In the case of flue gas, advanced biofuels producers avoid a costly frontend feedstock conversion that can derail project feasibility.

Growing on CO2

There are many advanced biofuels ventures targeting carbon-rich gaseous feedstock sources through colocation partnerships with industrial facilities.  In the United States, BioProcess Algae, which designs, builds, and operates commercial-scale bioreactors that convert light and CO2 into high-value microbial feedstock, has deployed a demonstration plant at a first-generation ethanol plant in Iowa.

Algae are the ideal partner for industrial carbon emitters, digesting CO2 as they grow.  The more CO2 the algae consume, the faster they grow.

During this process, the algae return clean oxygen to the environment while also producing high-value oils and proteins.  These oils and proteins can be used in the production of transportation fuels, animal feed, chemicals, and food products.  As an added bonus, once the lipids and other co-products have been extracted from the algae, the residues can be used as a fuel for power generation, either co-fired in combustion facilities or converted to biogas in an anaerobic digester.

Left Behind

Among many advanced biofuels production pathways, algae’s unique advantage is high per-acre productivity.  Microalgae can potentially produce 2 to 20 times more oil per acre than other plants, making algae platforms a compelling solution to offsetting petroleum imports without converting large swaths of farmland to grow dedicated energy crops.

Unfortunately for the emerging U.S. algae industry and other companies targeting flue gas in the United States, though, the Environmental Protection Agency (EPA) excluded CCU as an approved strategy for emissions mitigation in its proposed Clean Power Rule.

Most algae companies today have long-term aspirations to partner with utilities for access to CO2 produced at power plants.  With nearly 5,000 potential industrial sources of CO2 across the United States – most of these power generation facilities – the addressable market for these emerging technologies is significant.  At its demonstration facility in Hawaii, Cellana currently relies on flue gas from diesel generators to feed its algae.  A CO2 source from power plants could potentially make the operation more economically feasible in the future, according to the company.

While algae companies argue that their technologies are ready for prime time after years of researching and building small-scale test projects, challenges remain.  Industrial algae production is effectively an agricultural play that requires advances in cultivation and harvesting to lower production costs to a level that can compete with commodity products.

 

Going Small, Gas-to-Liquids Finds a Niche

— July 2, 2014

Typically, converting gaseous fuels like natural gas to liquids requires high upfront capital investment and substantial energy inputs to maintain operations and results in significant energy loss.  Despite these challenges, smaller-scale gas-to-liquid (GTL) deals have increased sharply of late.  They include a joint development project involving Waste Management, NRG Energy, Velocys, and Ventech to develop a platform than can convert landfill gas to renewable fuels and chemicals.

To date, GTL projects have been built in only the most extreme cases – where macroeconomic trends are especially favorable or when liquid fuels are unavailable (e.g., Germany during World War II and South Africa under apartheid, both of which relied on coal-to-liquid conversion).

These narrow circumstances explain why just five GTL facilities are in operation globally today, despite GTL technologies being proven commercially.  The most high-profile project, Shell’s Pearl Plant in Qatar, commissioned in 2011, cost a whopping $18 billion to construct, or about $8 per gallon of annual production capacity.  With such a high price tag, the project’s return on investment (ROI) hinges on a free supply of natural gas feedstock and a per-barrel oil price in excess of $40 (brent crude was trading at about $110 per barrel just before ISIS’ recent advance in Iraq).  Meanwhile, Shell recently cancelled another high-profile GTL project slated to be built in Louisiana, citing high estimated capital costs and market uncertainty regarding natural gas and petroleum product prices.  In short, commodity prices matter.

Modular Mode

In light of this limited market uptake, the recent surge of smaller-scale GTL projects is unexpected.  Targeting stranded or associated gas resources, however, these systems are able to skirt many of the macroeconomic barriers to the large-scale GTL projects described above.

Usually wasted or unused, stranded or associated gas presents a number of financial challenges to bring to market using conventional infrastructure.  In other words, the problem lies not in getting the gas out of the ground, but in finding a practical, economical, and efficient way of moving it to market.

In the case of stranded gas – gas fields located near local markets that are usually too small or in places too distant from industrialized markets – smaller-scale GTL processing can convert natural gas into a liquid product that is cheaper to transport.  In associated gas applications, where gas is either flared or injected into oilfields to maximize recovery, smaller-scale GTL can unlock new revenue streams.

Smaller and Safer

In both cases, smaller-scale GTL conversion has significant advantages over conventional infrastructure.  Shrinking the hardware allows greater tailoring of systems to the local resource supply and reduced construction costs.  The modularity of GTL systems allows capital to be allocated in phases, reducing risk to project investors.  And because the modules and reactors are designed only once and then manufactured many times, much of the plant can be standardized and shop-fabricated in skid-mounted modules.

The opportunity for smaller-scale GTL remains significant.  Stranded and associated gas is relatively abundant (estimated at 40%-60% of the world’s proven gas reserves).  One of the more exciting opportunities that has gained attention more recently is the pairing of frontend conversion technologies for processing abundantly available solid biomass and waste into synthetic gas (or syngas) which unlocks many more opportunities globally for smaller GTL platforms.  Navigant Research’s recently published Smart Waste report forecasts that annual revenue from municipal solid waste energy recovery will increase to $6.5 billion worldwide by 2023, due in part to the expansion of emerging technologies like small-scale GTL.

 

In the United Kingdom, Biopower’s Future Dims

— July 29, 2013

Earlier this month, in what some are calling a “blow to Britain’s renewable power industry,” RWE npower announced that it would close its aging Tilbury power station.  The German electricity generator, a key player in the United Kingdom’s power market, cited a lack of investment capacity and challenges associated with converting the plant to use wood, waste oil, and other biomass materials in place of coal.

In a separate development, the U.K. government confirmed in its most recent draft Energy Market Reform (EMR) delivery plan that facilities dedicated to exclusively burning biomass for power generation would not qualify for subsidies.  The exclusion from EMR’s Contracts for Difference (CfD) subsidy scheme is a nail in the coffin for an industry that was bursting with proposals for new-build large-scale projects just a few years ago.

The timing of Tillbury’s closure and the exclusion of dedicated biomass under EMR are in part coincidence, but together they bring the challenges facing biopower in the United Kingdom – ranging from environmental concerns to feedstock access to economic feasibility – into sharp focus.

Backlash

In its short quest to convert from coal to biomass, the antiquated Tilbury plant had overcome a fire in early 2012 that consumed nearly 6,000 tonnes of stored wood pellets as well as stiff resistance from those who challenge the environmental sustainability of burning organic resources in place of fossil fuels. In particular, the backlash against biomass stations has been widespread across the United Kingdom, forcing the abandonment of several proposed plants in recent years.

Although it is classified as renewable, the carbon impact associated with burning biomass remains an unsettled issue among policymakers from Washington to Brussels to London.  Campaigners also argue that the scale of demand for dedicated biomass fuel in the United Kingdom, mostly in the form of imported wood pellets, is unsustainable on two fronts.

First, the availability of biomass at home and abroad in sufficient quantity to meet the U.K.’s energy supply needs remains highly dubious.  The country currently supplies roughly 15 million tons of biomass from within its own borders, mostly in the form of agricultural residues and biogenic wastes.  Estimates, meanwhile, put total biomass demand at 102 million tons to meet an aspirational target of 6 GW of dedicated biomass power capacity by 2020, vastly exceeding domestic supplies.  With domestic biomass availability constrained by the U.K.’s limited land area, a rapid expansion of biomass importing capacity from North America and Russia would be needed.  The Tilbury plant alone would have burned more than 3 million tons of wood pellets per year – compared with 13 million tons burned in the entire European Union (EU) in 2012.

Second, biopower opponents cite the negative impacts associated with burning more biomass on the world’s forests, a key carbon sink in the fight against climate change.  While the EU has proposed sustainability policies for the use of solid biomass to generate electricity, ensuring global compliance remains a challenging proposition.

Exodus

Meanwhile, the U.K. government has embarked on an ambitious effort to overhaul its incentive structure to spur investment in renewables.  With subsidies for dedicated biomass scrapped altogether, effectively eliminating a key price support mechanism necessary to drive project viability, the government has sent a clear message that it favors cogeneration (CHP), coal-to-biomass conversion projects like Tilbury, or co-firing of coal and biomass over new-build dedicated biomass facilities.

The uncertainty surrounding the future of biopower subsidies under proposed EMR schemes, combined with sticky environmental concerns, has already led to the abandonment of 2 GW of biopower development projects in recent years.  The absence of dedicated biomass in the EMR, alongside Tilbury’s closure, is likely to spark a biopower exodus in the United Kingdom.

 

Feedstock Shortages Fuel Pellet Boom

— April 12, 2013

Facing unresolved feedstock challenges – including access, cost, and security of supply – the global biomass power market is teetering on the verge of obsolescence.  Combined with controversy around emissions, changes in subsidy programs, and a boom in natural gas power generation, an increasing number of projects have  been cancelled in recent months across the United States and Europe.  Meanwhile, a wave of biomass pellet plant installments may presage an industry boom – albeit much later than otherwise expected.

In the United Kingdom alone, roughly one-third of announced biomass power projects across the country have been abandoned in recent years.  Many of these were dedicated facilities, ranging from 100 MW to 300 MW of capacity.

The Achilles heel of biomass power production is sourcing an adequate supply of feedstock at a reasonable cost.  Biopower’s problem is not so much a function of scarcity – biomass is ubiquitous and currently the fourth largest energy resource worldwide after coal, oil, and natural gas – but it’s an inefficient source of carbon relative to fossil fuels.  Unlike coal, oil, and natural gas, biomass lacks density in two ways.  First, it’s scattered across large swaths of land (such as forest thinnings from national forests) and must be collected and aggregated.  Second, its energy density is three-fifths that of coal, adding a premium to the cost of transporting volumes from source to customer.

Competing against low-price fossil fuels like coal and natural gas, biomass feedstocks can’t afford to rack up costs associated with harvesting, aggregating, processing, and transportation without heavy subsidization.  Where coal producers capture efficiency through economies of scale and an international transport infrastructure, biomass production remains, at best, a cottage-based market.

Pellet Pull

For these reasons, the financial viability of biomass power falls off a cliff when resources are sourced outside of a 50-mile radius, making larger projects with bigger biomass appetites much riskier.  These projects typically bank on a concentrated local source combined with the import of biomass pellets from international suppliers, a market still in its infancy.

Today, wood pellets are one of the largest internationally traded solid biomass commodities used specifically for energy purposes, but they represent only a fraction of the scale of the global coal trade.  Biomass pellets have lower moisture content than raw biomass, which decreases fuel degradation during the storage period, increases energy density, and creates a more homogeneous composition, all of which translate to higher energy efficiency during combustion.

Growth in biomass power generation is dependent upon the expansion in the international trade of wood pellets over the next decade – principally from Canada, the Southern United States, Russia, and Baltic region of Europe to the European Union and Asia Pacific.  Responding to the sudden surge in the global trade of industrial biomass pellets, Energy Exchange APX-ENDEX was launched in November 2011, becoming the world’s first dedicated exchange for biomass renewable energy.  The exchange is expected to bring more transparency to the market by adopting several certification schemes for industrial wood pellets already used in today’s bilateral contracts in order to ensure that the wood pellets originate from sustainable wood sources.

With the trade in industrial pellets still in its infancy, many biomass power plant operators like RWE in Germany and Drax Group in the United Kingdom have taken matters into their own hands, investing in upstream pelleting facilities outside their domestic markets.  Many oil majors – from Conoco to Chevron – are getting in on the action as well.  Although the biomass pellet market is heating up, it will be 5 to 10 years before biomass power generation picks up steam.

 

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