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Aviation Biofuel: Technology-Ready, Needs Capex Infusion, RIN Reforms

By all rights, many believe aviation biofuel producers should be attracting deep-pocketed investors ambitious enough to build the infrastructure necessary to meet a clearly burgeoning industrial-sized demand. At the Aviation Biofuels Development Conference, representatives from eight companies presented strong evidence of a sector that has proven various technologies and is beginning to address its feedstock and cost issues.

Opinion was divided over whether investors would begin returning to the sector after some were burned by losses from first-generation corn ethanol investments several years ago.  But participants said reforms to the Renewable Identification Numbers (RIN) regime used to buy and trade it could bridge the gap to industrial scale, and others boasted their product and cost improvements industry’s favorable business opportunities.

A RIN system reformed with some kind of validation from the rule-making underway now would boost the confidence of investors who might be gun shy of biofuel investment, said Graham Noyes, a partner at renewable energy law powerhouse Stoel Rives.  “Advanced Biofuel RINs for 2013 are 2.7 bill gallons, or $2.4 billion.  Plants will succeed in part because of RIN revenue, and we need that to ramp to a $20-billion industry in the next decade.”

Eric McAfee, CEO for Aemetis, which has developed a 100 percent drop-in bio jet fuel using a drought-loving, non-food Ethiopian mustard seed hybrid called carinata, was more specific about necessary RIN system reform. “The most urgent thing that needs to happen in aviation biofuels is to level the playing field with Brazilian ethanol,” he declared.  The EPA included Brazilian ethanol in its original definition of “advanced biofuel” because it derived from sugar cane rather cornstarch, providing its producers a $0.36-per-gallon subsidy.

Despite changing from corn feedstock, McAfee said, several U.S. applications to produce advanced biofuel have been languishing at the EPA for 18 months.  As a result, he says, Aemetis is incurring losses of $2 million a month at its California facility due to cheaper, RIN-subsidized Brazilian ethanol imports.  He urged Sara Bittleman, senior energy advisor to Agriculture Secretary Tom Vilsack, to use her connections at the EPA to get the U.S. applications approved quickly.

Meanwhile, speakers repeatedly noted the strengths of a business case for alternative jet fuel.  For John Heimlich, vice president and chief economist for Airlines 4 America, a mandate to use biofuels, such as the one issued by the European Union, is unnecessary, as biofuel would provide some relief from record jet fuel prices and price volatility. In 2012, he said, traditional jet fuel is on track to exceed its all-time high price of $3.07/gallon. 

In July 2011, American Standards for Testing Materials (ASTM) approved the use of up to 50 percent renewable synthetic fuel components, referred to as hydro-processed esters and fatty acids (HEFA), with the more conventional kerosene-type jet fuel used in most of today's commercial aircraft. (ASTM) has also approved the use of Gas-To-Liquid (GTL) fuels and is expected to approve Alcohol to Jet with Aromatics (ATJ), by end of 2013.  Since HRJ/HEFA was approved, more than ten commercial airlines have carried flights using renewable jet fuel, according to the Carbon War Room. 

Michael Lakeman, regional director of biofuels for Boeing, said the state of aviation biofuel is “technically viable, with a quality standard higher than that for fossil fuels, and in demand, that is, in commercial use with airlines and strong U.S. military support.” 

U.S. military support is clear, with the U.S. Navy declaring it wants a 50/50 blend by 2020 and the U.S. Air Force hoping to reach 50 percent biofuel use by 2016, said Mark Riedy, partner at Mintz Levin and general counsel for the American Council On Renewable Energy (ACORE).

Producers such as Byogy Renewables and Aemetis tout the virtues of their 100% drop-in fuel.  With its feedstock agreement with Brazilian sugar cane ethanol producer Itapecuru Bioenergia, Byogy President and CEO Kevin Weiss said, “We believe we can get the refining cost for ethanol down to 60 cents a gallon,” adding that it would make his jet fuel probably 2.5 times that. “We’re very close to price parity with oil,” he said.  Meanwhile, Aemetis’ McAfee said his company will make the first flight test with 100% bio-jet fuel on October 20 in Canada.

Today’s global jet fuel usage is between 60-70 billion gallons per year (BGY), while current bio-jet fuel production is only about 400 million gallons per year, or 0.5% of global usage, said George Boyajian, vice president of Primus Green Energy.  Increasing production to meet even Boeing’s internal goal of 1 percent of total jet fuel consumption, or 600 million gallons by 2015, requires significant refinery expansion and capital investment.

In a number of cases, the aviation industry is stepping in, said James Dack, vice president at Stern Brothers & Co., with recent announcements of collaboration and “some indication of plans to make capital investments.” This includes a September deal between Lufthansa and Algae Tec. Lufthansa is reportedly arranging 100% financing of the European algae to biofuel production facility and agreeing to buy 50 percent of the project’s crude. Qatar Airways and Byogy Renewables’ entered a deal last April for Qatar to invest in scaling up Byogy's ATJ process and buy the sugarcane-based fuel.

Dack was optimistic about commercialization. “I believe we are at a point where we could move into commercial deployment with debt and equity financing. There are certain tech VC firms that are more aggressive, willing to go a bit further with project finance, to construct the technology.”  He cited a report by Pike Research that reported a potential $170 billion in new capital investment for bio-refineries between 2012 and 2022.

Others were less sanguine.  Primus’ Boyajian said with current capacity of about 1.14 percent of total consumption, it would have to expand 8 times to reach 10 percent by 2017.  “It’s just not going to happen, as you would need 62 100-million-gallon plants to reach that goal, or $62 billion in financing,” he said. 

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