Second-Generation Biofuels Gain Traction But Growth Challenges Remain

Some 5 billion gallons of second-generation biofuels could hit the market in five years, a new research report by consultancy Frost & Sullivan revealed last month. However, analysts say the fledgling sector remains challenged by high feedstock and production costs due to a complex production chain.

In its report “Next Generation Biofuels Set to Displace Fossil Fuels in the Transportation Sector,” Frost & Sullivan states second-generation biofuels will be available on a commercial scale in five years.

This, it claims, is due to big investment commitments in Europe and the U.S. where myriad facilities are being built. Ambitious global efforts to achieve higher bioenergy blends by 2020 will also help spur the industry’s development. In Europe, for example, the 20/20/20 decree hopes to raise energy by 20%, decrease GHG emissions by 20% and ensure 20% of all energy generation comes from renewables in 9 years.

Frost & Sullivan analyst Tomasz Kaminski says several European biorefineires are already producing cellulosic biothenol, the main second-generation biofuel and that this is expected to increase in coming months.

He says first-generation biofuels based on edible stocks are facing growing pressures as adequate landfields to harvest corn and soy become increasingly difficult to find and the food industry steps up complaints about crop inflation, boosting the food versus fuel debate.

Second generation biofuels such as cellulosic bioethanol can use greater and more diversified feedstocks than first generation bioethanol or biodiesel, providing a bigger energy yield per harvested square mile.

Cellulosic bioethanol is currently being made of plant, agricultural and city waste. Other next generation biofuels such as algae-based biofuel and so-called “drop-in fuels” featuring hydrocarbon molecules that mirror the physical properties of gasoline, are also on the drawing board though their commercial development is expected to take longer.

Kaminski adds second-generation biofuels also help cut CO2 transport emissions by 80% compared to much lower rates for current bioethanol and biodiesel blends. Corn-based bioethanol, for examples, continues to be criticized for actually increasing CO2 rates due to its intenstive, “fuel burning” production process.

Growth Catalysts

Despite its potential, however, next generation biofuels face significant production and technological challenges.

Converting biomass into biofuels remains a very costly and complex task that must become more efficient to increase the fuels’ commercial appeal.

Producers “need to simplify the biomass-to-biofuel conversion, use less energy and optimize the process to deliver byproducts that can generate higher revenues for the refinery,” Kaminsky says, adding that these include chemicals to make household cleaning products.

More crucially, the so-called thermochemical conversion pathway used to turn biomass into fuel must be improved, adds Heather Youngs, a bioenergy analyst at the Energy Biosciences Institute at UC Berkeley.

“Longer lasting and more robust catalysts are needed to increase economies of scale,” she notes. “A thermochemical plant requires twice the feedstock of a biochemical one so a robust catalyst process is crucial” to ensure efficient production.

Youngs notes newer and better catalysts (which are usually made of rare metals) are required to help lower thermochemical plants’ production costs by decreasing the likely hood of “catalyst poisoning”. This happens when biomass components react adversely with the catalyst, destroying it and forcing manufacturers to purchase a new one.

“It’s very expensive and complicated to downscale these refineries right now,” Youngs adds.

Kaminsky says second-generation biofuel producers should step up cooperation with research institutions and universities to come up with technological innovations. They should also make optimal use of governments’ financial assistance.

Over-hyped Targets?

Regarding Frost & Sullivan’s production forecasts, Young says those may be difficult to achieve. She notes a dozen publicly announced U.S. projects with the capacity to make 300 million gallons per year of second-generation biofuel are planned by 2015 while a similar number is also on schedule in Europe.

Moreover, 530 refineries are needed to meet the U.S.’s 2022 biofuels target and so far none of them have been built.

On top of technical challenges, procuring a diversified range of biomass feedstock remains a big setback, Youngs says. So far, most demonstration scale second-generation plants operate on either forest or agricultural residue which supply chains are not yet well established.

Youngs notes farmers are unwilling to sign long-term feedstock supply contracts without firm refinery purchasing commitments. In turn, refineries are having a hard time offering these as a lack of project financing makes it difficult to decipher when their plants will come on-stream.

“Financing is a big issue,” she adds. “It’s hard to get loan guarantees. Who wants to finance a refinery with no guaranteed feedstock and who wants to finance a farmer to plant a crop that has no market yet?” “You are building two supply chains simultaneously and this is a big challenge.”


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Ivan Castano is a freelance journalist based in Miami. His work has appeared in Thomson Reuters’ International Finance Review (IFR), Dow Jones’ Financial News, Euromoney, Trade & Forfaiting Review and a range of trade publications covering the capital markets, private equity, loan, credit and restructuring markets. He is fully bilingual in Spanish and English having been raised in Ecuador, Colombia and Spain. Ivan has worked and lived in Los Angeles, New York, Madrid and London.

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