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Will the Chinese Biofuel Market Follow Solar’s Footsteps?

While the Chinese government attempts to address its pollution problem and deal with ever-growing fuel demand, it has turned its attention towards its biofuels market. Since electric vehicles have not yet achieved a large market penetration, in part due to lack of widely available infrastructure such as charging stations, industry has set its sights on developing viable biofuel technology.

Currently sugar fermentation-based fuels from edible and non-edible feedstocks dominate the ethanol biofuels industry with more than 99 percent market share, however food and agricultural production security issues have pushed the government to reduce subsidies and refocus efforts on advanced biofuel research and production. Therefore food-based ethanol production will eventually fade out, according to a new report from Lux Research.

The government currently heavily supports the biofuels industry under its 12th Five-year Plan, with advanced ethanol (aka cellulosic ethanol) currently receiving the largest subsidy rate at RMB 1,400/ton as of 2012, while ethanol from food-based feedstocks receives RMB 500/ton and ethanol from non-edible food-based feedstocks (such as non-edible cassava) receives RMB 70/ton. China also has an overall biofuels mandate (E10), which calls for 10 percent biofuels by 2020.

These subsidies have caused the biofuels market to shifted towards cellulosic R&D, with the government funding several research and academic institutions for various technologies. Since production costs are still high for cellulosic-based fuels, which currently sit at about RMB 6,500 to RMB 8,000/ton to produce, “the enzyme research is urgent for Chinese cellulosic ethanol development and gaining quite a bit of government funding,” according to the report.

Research is also focused on taking advantage of production by-products and residues to further generate profit and reduce production costs. This support and research has brought several multinational biofuels players to China, such as Novozymes and LanzaTech, to partner with Chinese state-owned companies to further develop and commercialize technologies. 

“Collaboration between foreign technology providers and large Chinese producers would be essential to seize the vast opportunities in China's fast-growing ethanol market,” said Nancy Wu, Lux Research analyst and the lead author of the report.

Aside from cost, the cellulosic fuel industry still faces some major barriers in China, including processing and transportation of feedstocks. Lux analysts predict that producers that set up shop near high cellulosic density areas will benefit most, but this also means that there is great upstream opportunity in the market in terms of collection and storage.

In the long-term, however, analysts warn that if the government does not continue its funding stream, industry slowdown will be extremely likely and may mirror the recent difficulties of its solar market, which underwent huge investment followed by rapid consolidation.

“Other than the policy drivers, the Chinese hypes of ‘world’s largest’ and ‘world’s first’ actually impact all emerging technology fields…Therefore, overinvestment has been frequently cited in China’s renewable energy sector,” according to the report. “Hence, massive capital investment will squeeze the fuel ethanol market, but should go through the reality check of market adoption, technology differentiation and the developing sustainability.”

Lead image: Biofuel via Shutterstock

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