[The Vector] Biofuel Bounces Back

A trainload of biofuel in Sweden Source: Bjoertvedt, Creative Commons

In the US, the biofuel industry is undergoing something of a revival. Mothballed plants are reopening. Across the globe biofuel industry leaders are extremely bullish about their ability to bring down operating costs, to generate fuels from sources that don’t compete with food crops, and to design fuels for special purposes such as aviation. Will the industry live up to its promises the second time round?

Click to read more on Biofuel Bounces Back

In January 2009, the 60 million gallon ethanol plant at Coshocton, Ohio closed because of low demand and low prices, less than a year after it had first opened. 

Now the plant’s owners Altra Biofuels are reopening Coshocton.  At Keyes in California, AE Biofuels is investing $4.5 million to bring their 55 million gallon production plant back into operation. The $130 million plant at Keyes was originally opened in 2008 before it too was closed in 2009.

The interest of US car makers in developing greener vehicles is encouraging news for biofuel producers. Tax breaks on corn ethanol make it profitable for gasoline suppliers to blend it into their product, even when the ethanol is more expensive than the gasoline. The International Energy Industry reports that US ethanol subsidies totaled $7.7 billion in 2009. Across the globe, they maintain that biofuels received more subsidies than any other form of renewable energy.

Globally, despite the subsidies, biofuel demand remains very sensitive to movement in crude oil prices. Malaysia, the world’s second largest producer of palm oil after Indonesia, announced plans in 2008 to become a global leader in biodiesel. But biofuel production has actually plummeted in the face of cheap crude oil and higher palm oil feedstock prices. In fact, first generation biofuel production has slumped right across South East Asia. The problem is that governments in Asia have not enforced implementation of biofuel blend mandates, according to a report in Biofuel News.

There is opposition to the subsidies for first generation biofuels from unexpected quarters. Former US Vice President Al Gore has u-turned and attacked them. He supported the subsidies during his Presidential campaign.

The ethanol industry, which will consume over 40% of the US 2010 corn harvest, does not deliver enough of an energy gain, says Gore. And he calls his previous support a mistake caused by his soft spot for Tennessee and Iowa farmers, according to a Reuters report. Gore also has no doubt that demand from the ethanol industry contributed to the 2008 hike in food prices that hit the world’s poorest very hard.

Generational change

However, Gore continues to support second-generation biofuel technologies. This new generation uses chemicals to extract sugar from wood waste and other materials. The advantage, says Gore, is that these materials don’t compete with food crops while producing fuels that will continue to be needed by industries such as aviation.

These second generation fuels are being tested by some very large potential customers. The US Navy successfully test flew a Seahawk helicopter and an F/A-18 Super Hornet on an avation fuel – biofuel blend based on camelina seeds. The Navy’s vision is a 50:50 biofuel blend across ships and aircraft by 2012.

In late November, TAM, Brazil’s largest airline, test-flew an Airbus A320 off the coast of Rio de Janeiro, fuelled by a 50:50 blend of jatropha seed biofuel and conventional aviation fuel. The President of TAM, Libano Barroso, says the airline is looking to support an aviation biofuel industry in Brazil.

The Brazilian test flight follows successful biofuel tests by Air New Zealand, Continental, Japan Airlines, KLM and Virgin Atlantic. Barroso says jatropha-based biofuels emit up to 80% less carbon than traditional aviation kerosene, and it can complement rather than compete with food crops..

The Russians are also looking to develop a second generation biofuel industry. At a recent press conference, Deputy Transport Minister Valery Okulov announced that they are looking at using sawdust, roots and knots from their massive lumber industry as a source for aircraft biofuel. Russian Technologies Corporations, a state-owned company plans to begin production on its first biofuel plant in Siberia in March or April of 2011, according to a report in AvioNews.

US companies are bullish about the potential of second generation biofuels. Speaking at the Advanced Bioenergy Markets conference in San Francisco in mid-November, Kirk Haney, CEO of SG Biofuels said jatropha is a fuel with a future.

“Jatropha has 5 million acres planted today, 30 million is expected by 2015. Jatropha 1.0 returns of around 8%, which are not an institutional grade prospect, are 26% today with jatropha 2.0, with a cost of $1.40 per gallon today, or $58 a barrel.”

In the US, fuel development from waste biomass is attracting some canny investors. GE Financial Services have invested $8 million in Cool Planet Biofuels to develop a system that generates gas from woodchips and crop residues for catalytic upgrading to conventional hydrocarbon fuel.

The Keyes plant in California aims to be part of this second generation. AE Biofuels will begin commercialization of their patented enzymatic technology for cellulosic ethanol production to enable them to replace 25% of their corn feedstock with agricultural wastes.

According to Harrison Dillon, President of biofuels development company Solazyme: “In the past, it’s been “what you get is what you get” with petroleum, soy, canola. You designed your technology around the limitations of the oil. Today, we start the conversation with our partners with, “What kind if oil would you like?”

Déjà vu all over again?

But all this optimism about the potential of biofuels sounds kind of familiar. Weren’t we here before? In fact, the revival in the bioethanol industry is still a long way short of the original vision. Earlier this year, the US Department of Energy  reduced its goal for second generation biofuels on the market in 2011 from 100 million gallons to just 5.3 million gallons, citing the difficulty in securing financing.  The Renewable Fuels Association says that target will not be met.