What happened to biofuels?

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Energy technology: Making large amounts of fuel from organic matter has proved to be more complex and costly than expected

Bio fuelsSCIENTISTS have long known how to convert various organic materials into liquid fuel. Trees, shrubs, grasses, seeds, fungi, seaweed, algae and animal fats have all been turned into biofuels to power cars, ships and planes. As well as being available to countries without tar sands, shale fields or gushers, biofuels can help reduce greenhouse-gas emissions by providing an alternative to releasing fossil-fuel carbon into the atmosphere. Frustratingly, however, making biofuels in large quantities has always been more expensive and less convenient than simply drilling a little deeper for oil.

Ethanol, for instance, is an alcoholic biofuel easily distilled from sugary or starchy plants. It has been used to power cars since Ford’s Model T and, blended into conventional petrol, constitutes about 10% of the fuel burned by America’s vehicles today. Biodiesel from vegetable fats is similarly mixed (at a lower proportion of 5%) into conventional diesel in Europe. But these “first generation” biofuels have drawbacks. They are made from plants rich in sugar, starch or oil that might otherwise be eaten by people or livestock. Ethanol production already consumes 40% of America’s maize (corn) harvest. A new ethanol plant in Hull will become Britain’s largest wheat buyer, using 1.1m tonnes a year. Ethanol and biodiesel also have limitations as vehicle fuels, performing poorly in cold weather and being capable of damaging unmodified engines.

Governments also jumped on the biofuels bandwagon. George Bush saw biofuels as a route to energy independence, signing into law rules that set minimum prices and required refiners and importers to sell increasing amounts of biofuel each year. 

Toil and trouble

But instead of roaring into life, the biofuels industry stalled. Start-ups went bust, surviving companies scaled back their plans, and consumer interest waned as first-generation biofuels prices rose. The spread of fracking, meanwhile, unlocked new oil and gas reserves and provided an alternative path to energy independence.  What went wrong?

“Even if processes can be economically scaled up, that might highlight a further problem.”

Making a second-generation biofuel means overcoming three challenges. The first is to break down woody cellulose and lignin polymers into simple plant sugars. The second is to convert those sugars into drop-in fuels to suit existing vehicles via a thermochemical process (using catalysts, extreme temperatures and high pressures) or a biochemical process (using enzymes, natural or synthetic bacteria, or algae). The third and most significant challenge is to find ways to do all this cheaply and on a large scale.

In 2008 Shell, an energy giant, was working on ten advanced biofuel projects. It has now shut most of them down, and none of those that remain is ready for commercialisation. “All the technologies we looked at worked,” says Matthew Tipper, Shell’s vice president for alternative energy. “We could get each to produce fuels at lab and demonstration scales.” But bringing biofuels to market proved to be slower and more costly than expected.

The optimism of five years ago may have waned, but efforts to develop second-generation biofuels continue. Half a dozen companies are now putting the final touches to industrial-scale plants, and several are already producing small quantities of second-generation biofuels. Some even claim to be making money doing so.

Consider Shell. Raizen, its joint venture with Cosan of Brazil, produces more than 2,000m litres of first-generation ethanol annually from sugarcane juice. Usually, the fibrous stalks left over are burned for power or turned into paper. Still, next year Raizen will start turning them into second-generation bioethanol, using a cocktail of designer enzymes from Iogen, a Canadian biotechnology firm. Raizen hopes to produce 40m litres of cellulosic ethanol annually, cutting costs and boosting yield by co-locating its cellulosic operation with a traditional ethanol plant. Under this model, second-generation biofuels complement and enhance first-generation processes rather than replacing them outright.

Three plants in America are producing cellulosic ethanol from waste corn cobs, leaves and husks POET-DSM Advanced Biofuels (75m litres) and Dupont (110m litres), both in Iowa and Abengoa (95m litres) in Kansas. But the first company to produce ethanol using enzymes on an industrial scale is Beta Renewables, a spin-off from Chemtex, an Italian chemical giant. An 80m-litre cellulosic ethanol plant in Crescentino, near Turin, has been running at half capacity over the summer, using straw from nearby farms. It will run on corn waste in the autumn, rice straw in winter, and perennial eucalyptus in spring. Beta Renewables has already licensed its technology for use in Brazil and Malaysia and expects to sell several more licences by the end of the year. All Beta’s plants can make biofuels at a profit, albeit only in areas with cheap feedstocks, says the firm’s boss, Guido Ghisolfi.

Just as this cellulosic ethanol comes onto the market, however, demand for fuel is waning in many developed countries due to improvements in fuel efficiency and lingering economic weakness. As a result, the need for ethanol for blending is falling, too. In America, petrol containing up to 15% ethanol, permitted by the EPA and promoted by ethanol producers, is still a rare sight on station forecourts.

Other biofuel companies are continuing to pursue drop-in fuels. One attraction is that, unlike ethanol, the demand for which depends largely on government mandates that it be blended into conventional fuels, drop-in fuels are less susceptible to changing political whims. Another is that drop-in fuels are commonly made with sugar as a feedstock, either conventionally sourced or cellulosic, and sugar is widely available and easily transported.

Stepping on the gas

Amyris, based in California, genetically engineers yeasts and other microbes to ferment sugar into a long-chain hydrocarbon molecule called farnesene. This can then be processed into a range of chemicals and fuels. After a few rocky years when it was over-promised and under-delivered, Amyris is now producing limited quantities of renewable diesel for public buses in Brazil and is trying to get its renewable jet fuel certified for commercial use.

Solazyme, another firm based in California, is also focusing on renewable diesel and jet fuels, in its case derived from algae. Microscopic algae in open-air ponds can use natural sunlight and atmospheric or industrial-waste carbon dioxide to produce oils. But harvesting the fuel, which is present in only very small proportions, is expensive and complicated. Solazyme grows algae in sealed fermenting vessels with sugar as an energy source. The US Navy has used tens of thousands of litres of its algal fuels in exercises. Propel, an American chain of filling stations, recently became the first to offer algal diesel. But although its technology clearly works, Solazyme remains cagey about the economics. A 110m-litre algae plant in Brazil, due to be up and running by the end of the year, may clarify Solazyme’s commercial potential.

If drop-in biofuels have an impact worldwide, they will have to be economically away from the tropical climes of South America, where sugar can be grown cheaply. The only commercial facility currently making drop-in fuels directly from woody biomass is operated by a start-up called KiOR. Its 50m-litre plant in Columbus, Mississippi, turns pine-tree chips into drop-in petrol and diesel for customers including FedEx, a logistics firm, and Chevron, an oil giant. KiOR uses a thermochemical process called fluid-catalytic cracking that borrows many technologies from conventional oil refineries and, unlike fussier biochemical systems, should scale up quickly. KiOR is planning a 150m-litre facility in nearby Natchez. However, the Columbus plant is not yet running at anywhere near full capacity, and KiOR has a lot of debt and is still losing money. In August, disgruntled investors launched a class-action lawsuit.

Some observers doubt whether even the most sophisticated biofuels can compete with fossil fuels shortly. Daniel Klein-Marcuschamer, a researcher at the Australian Institute for Bioengineering and Nanotechnology, conducted a comprehensive analysis of renewable aviation fuels. He concluded that producing first-generation bio-jet fuel from sugarcane would require oil prices of at least $168 a barrel to be competitive and that some second-generation algae technologies would require crude oil to soar above $1,000 a barrel (the current price is around $110) to break even. Mr Klein-Marcuschamer has made his model open-source to help the industry find ways to make biofuels more competitive.

Even if second-generation processes can be economically scaled up, however, that might, in turn highlight a further problem. To make a significant dent in the 2,500m litres of conventional oil that American refineries churn through each day, biofuel factories would have to be able to get a staggering quantity of feedstock. Mr Ghisolfi of Beta Renewables points out that a factory with an annual output of 140m litres needs 350,000 tonnes of biomass annually to operate. “There are only certain areas, in Brazil and some parts of the US and Asia, where you can locate this much biomass within a close radius,” says Mr Ghisolfi. “I am sceptical of scaling to ten times that size because getting 3.5m tonnes of biomass to a single collection point is going to be a very big undertaking.”

Billions of tonnes of agricultural waste are produced worldwide each year, but such material is thinly spread, making it expensive to collect and transport. Moreover, farms use such waste to condition the soil, feed animals or burn for power. Diverting existing sources of wood to make biofuels will annoy builders and paper-makers. Planting fuel crops on undeveloped land is hard without controversy: one man’s wasteland is another pristine ecosystem. Dozens of environmental groups have protested against the EPA’s recent decision to permit plantations of fast-growing giant reed for biofuels, calling it a noxious and highly invasive weed. Just as the food-versus-fuel argument has proved controversial for today’s biofuels, flora-versus-fuel could be an equally tough struggle for tomorrow’s.

Of course, all this was before EVs came of age. 

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

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