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Hong Kong biodiesel companies to use spilled palm oil as feedstock

Biofuels Digest - Wed, 08/16/2017 - 6:40pm

In Hong Kong, the 211 tons of palm oil that spilled last week when two ships collided and washed up on the beach will be collected and turned into biodiesel. Two biodiesel companies were approached and at least one of them has taken up the request. It said most of the profits from biodiesel produced using the collected palm oil would be donated to environmental organizations. At least 1,000 tons of oil was spilled as a result of the crash and forced the closure of 13 beaches.

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Brazil sells 796 million liters of biodiesel at most recent auction

Biofuels Digest - Wed, 08/16/2017 - 6:39pm

In Brazil, 796 million liters of biodiesel were contracted at the most recent ANP biodiesel auction held recently to supply the B8 mandate during September and October. A total of 33 producers offered 878.3 million liters at the auction, while 99.61% of the sold fuel held the social seal to ensure participation of family farmers. The average price was 73 cents per liter while a total of $583.8 million worth of fuel was auctioned during the two days.

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Appeals court says EPA too harsh in evaluating Sinclair Oil’s RFS waiver request

Biofuels Digest - Wed, 08/16/2017 - 6:37pm

In Colorado, an appeals court ruled that the Environmental Protection Agency was too harsh in its evaluation of Sinclair Oil’s waiver request from RIN compliance. Though the agency granted 29 requests between 2013 and 2016, it denied Sinclair’s request saying that its two Wyoming plants would not be put out of business by complying with the Renewable Fuel Standard as they were profitable. The request has been booted back to the EPA by the court for another evaluation.

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North Dakota ethanol plant secures grant funding to help expand

Biofuels Digest - Wed, 08/16/2017 - 6:37pm

In North Dakota, the state’s senators have secured $341,000 in funding for Tharaldson Ethanol’s planned $3.4 million expansion through the U.S. Department of Agriculture Rural Development’s Rural Energy for America Program. The plant produced its billion gallon of ethanol back in April when it also announced the planned expansion. The expansion project will boost production by 7% to 180 million gallons, up 38% from the original installed capacity in 2008, making it the sixth largest plant in the US.   

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Novozymes’ H1 bioenergy sales up 7% thanks to increased US ethanol production

Biofuels Digest - Wed, 08/16/2017 - 6:35pm

In Denmark, Novozymes’ bioenergy sales rose 7% during the first half of the year to $206 million, in part thanks to increased conventional ethanol production in the US during the period that rose 4% on the year. The company expects ethanol production to fall during the second half of the year due to significant stocks, so sales are expected to fall in line, leaving end-of-year results slightly stronger than last year. The company also said it is preparing to launch its biomass conversion business.

Novozymes: The Digest’s 2015 5 Minute Guide

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California ethanol premium over NY rebounds thanks to Brazilian cargo delays

Biofuels Digest - Wed, 08/16/2017 - 6:34pm

In California, delayed imports of Brazilian ethanol has helped the region’s premium over New York return to normal levels after a well supplied market weighed on prices earlier in the summer. Plants located along the Union Pacific rail line were also said to be having some challenges, further supporting the premium. Platts said the premium was 4.75 cents per gallon on Tuesday for the 95.01 carbon intensity rating fuels at $1.5975/gal. It also estimated Low Carbon Fuel Standard credits were $3.50 higher at $91.50/mt.

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University of British Columbia researcher boosts methane production 172%

Biofuels Digest - Wed, 08/16/2017 - 6:33pm

In Canada, new research from a professor of engineering at UBC’s Okanagan Campus might hold the key to biofuels that are cheaper, safer and much faster to produce. Starting with materials commonly found in agricultural or forestry waste—including wheat straw, corn husks and Douglas fir bark—she compared traditional fermentation processes with their new technique and found that Douglas fir bark in particular could produce methane 172 per cent faster than before.

The new process pretreats the initial organic material with carbon dioxide at high temperatures and pressures in water before the whole mixture is fermented, she explained. The new pretreatment process uses equipment and materials that are already widely available at an industrial scale, so retrofitting existing bioreactors or building new miniaturized ones could be done cheaply and easily.

In addition to producing biogas faster and cheaper, she says her new technique may also make methane production safer.

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Philippine industry seeking green light for palm oil as biodiesel feedstock

Biofuels Digest - Wed, 08/16/2017 - 6:32pm

In the Philippines, the leading industry association is calling on the government to expand permitted biodiesel feedstocks to include domestic palm oil instead of just coconut oil. Palm oil currently costs less than half as much as coconut oil at $725 per metric ton. The current blending mandate is for 2% but coconut oil producers have been pushing for a higher blend in order to boost demand. The specs for biodiesel as they currently stand were written with coconut oil in mind.

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MetGen, Sweetwater unlocking lignin – the roughest, toughest, ornieri’st material that ever bushwhack’d a pioneer in the Valley of Death

Biofuels Digest - Wed, 08/16/2017 - 2:29pm
MetGen, Sweetwater Energy say “there’s gold in them thar side-streams”

For all of your questions about the advanced bioeconomy there’s just the one answer and that is “lignin”.

Why don’t we see more biobased chemical plants built these days? Lignin. Why do people shy away from hardwoods as a raw material even though it’s sustainable, available, reliable and affordable? Lignin. What raw material have more people tried to make money out of and failed than anything else? Lignin. If the bioeconomy really catches fire, it’ll be because of a breakthrough in what? Lignin.

The Yosemite Sam of materials

It’s the meanest, toughest hombre of a material that ever came out of the ground, it’s the Yosemite Sam of the advanced bioeconomy — unreliable, inconsistent, grumpy, fiery, strident, incapable of improvement, impossible to do anything with, and impossible to ignore. So people just burn it. It smells faintly like vanilla and almonds, but it ought to smell like $20 bills going up in smoke.

“Ya no good, bush-whackin’ lignin, ya valueless varmint!

But trapped deep inside lignin are some aromatic molecules that are easily worth $1500-$2000 per tonne — more than fuels, more than most bulk chemicals. More than some people I know. And you can find them in wood, which sells for far less than $100 per ton as a raw material. Yet, if you walk around the biomass industry, you’ll find pellet plant after pellet plant — chopping up wood to sell to Scandinavia as a source of affordable, renewable heat and power. Worth perhaps $80 per ton in heat value.

What’s the problem? The answer to all your questions is lignin.

But there’s been more work on lignin of late than ever before. NREL has a lignin valorization project, focused on fractionating down into parts, and looking at multiple pathways to build those parts back up into molecules of value. The key? You have to get down to a small enough weight and size, and the more consistency the better. That’s where you unlock the true value

Good news, lignin fanbase. Sweetwater Energy has finalized a licensing and joint technology development agreement with the Finnish company MetGen Oy for MetGen’s LIGNO technology platform which facilitates the enzymatic break down of Sweetwater’s ultra-clean lignin into its fundamental component parts.  This will allow the development of a full range of high value lignin-based products.

LIGNO’s secret? It’s MetGen’s enzyme set — in this case, bred for kraft pulp applications and thereby these alkaliphilic enzymes can effectively function at a pH up to 11, where lignin becomes fully soluble, with an added benefit of outstanding thermo-tolerance — think up to 80- degrees.

“Say yer prayers, lignin, ya long-chain’d galoot!”

Sweetwater and MetGen will carry out the commercialization of both technology platforms at Sweetwater’s small commercial facility in Rochester NY and will roll the technology out to facilities world-wide.

“I smells sugars a-cookin’ … and where there’s sugars, there’s value”: The Sweetwater backstory

From the outside, it might appear that Sweetwater has bounced around a bit, seeking the right technology fit. But the business vision has been consistent, precisely because it is a business vision and not a scientific odyssey to develop a solution and then find a problem to fix.

The goal has been realizing value out of, initially, hardwoods. For cellulosic anything, the main cost is in the feedstock, and if you don’t extract the full value, you’ll find it impossible to compete with corn  — much less petroleum. Corn doesn’t leave anything on the table.

So it comes down to lignin. Because if you are getting 60% yield on the sugars and  getting $80/ton of value on the lignin, you can’t make a viable business. In hardwoods or anything else.

Sweetwater’s Sunburst technology

Pretreatment has been the bear for Sweetwater — they’ve worked with four different technologies, painfully and slowly, and finally they came across Sunburst, which they developed as a patented process that converts over 94% of total sugars to monomeric sugars, while producing few downstream inhibitors.  Most recently, Sweetwater Energy achieved what it described as “world-record results”, more than 91 gallons of industrial ethanol per dry metric tonne of biomass.

As Sweetwater’s Scott Tudman  explained to The Digest, “pretreatment for us is the critical step, we were searching, we wanted to get 90% of the sugar or more, and then a clean lignin residual you could monetize. Sunburst gets us there, and in our model the lignin now yields more than what we get from the sugar. We’re almost on the verge of being a lignin company, because this collaboration with MetGen allows us to fully unlock that lignin value, and with that high value we can bring down the cost of cellulosic sugars, and compete with cane and corn.”

Sweetwater recently upgraded its demo facility to process biomass at a small commercial level– up to three tons of biomass per day, using a state-of-the art extrusion technology at its core. Sweetwater is achieving over 97% hemicellulose conversion to monomeric sugars in less than 10 seconds, and over 93% conversion of cellulose to monomeric glucose through enzymatic hydrolysis, fully converting 94% of total theoretical sugars in the original biomass to monomers.

“Solubilize faster, you lily-livered lignin … Solubilize faster or I’ll blast your head off!”: The MetGen gambit

“Enzymes have to be about more than hydrolysis,” MetGen CTO Matti Heikkilä told The Digest.  “Given the price of wood raw materials, you cannot afford to not use the 30% lignin content,. You have to valorize. But it’s a very complex molecule set, with lot of rings attached and no particular form, and  burning is an easy way out.”

The problem, as MetGen and Sweetwater explain, is in the solubility. If you can solubilize lignin, you can get it down to to well below 50 kilodeltons, and then you can start to  put it in adhesives and could replace formaldehyde.

“Down in that .3, .5 , 7 kilodeltons range,’ said Heikkilä, “you are almost at the primary precursors, down to 2-4 ring complexes and now you can do quite specific applications — foams, composite PVA packaging.” Caution here. MetGen isn’t developing a drop-in form of biobased PVA. Rather, this is about making materials that do the same job — that command values in the range of $1500-$2000 per tonne.

“I paid my four bits to see the high divin’ act … and I’m-a gonna see the high diving act!:  MetGen and Sweetwater, together

So, this partnership is about matching Sweetwater’s UltraClean lignin to MetGen’s LIGNO technology — but is this a tactical partnership of two companies that think alike about capturing value and like to collaborate — or are there technical and value reasons that these two techs go together well?

Think, “a bit of both”.

Yes, it’s a long-standing relationship and they share a vision on the importance of lignin valorization. And yes, MetGen’s enzymes are robust and will work with multiple raw materials and processes. So, why Sweetwater?

For MetGen, it comes down to yield. You see, lignin’s always been the stepchild in the value chain and everyone has chased and teased out all the sugars they can find, and then all that residue from sugar extraction gets thrown out with the lignin. So, the lignin side-stream is filled with things that aren’t lignin, including residual carbohydrates.  It doesn’t kill the MetGen enzyme, but you impact yield. The cleaner and purer the lignin, the more value you get. More sugar in the first pass, purer lignin in the side-stream. Whether this is about plastic foams or adhesives and resins.

For Sweetwater, it’s about that valorization drive. Their UltraClean lignin is good as filler, but not yet consistent enough and at too wide a particle size to be exciting to the likes of Dow DuPont as a pathway to new chemistries — where the value is. So, perfect together in many ways.

Blast my scuppers, why isn’t anyone else doing this?

It’s as if everyone gave up.

“There’s surprisingly little scientific work done in this area,” said Heikkilä. “We’re pioneering and have a good head start. One of the reasons is that some of the intermediate materials have not been available widely — MetGen has just come up with the routes.”

So, ya lignin-lovin’ buck-toothed barnacle, what’s next?

Look for Sweetwater to wrap up a Series B funding for the company and the financing for it’s first commercial plant in Minnesota as soon as this fall.

Sweetwater CEO Arunas Chesonis told The Digest, “Plant 1 is for industrial alcohol that’s GMO free — we get over a half dollar premium for that, it’s a simple product to make, and it’s a small market well suited to a small commercial plant where we can produce 4 million gallons and prove our pretreatment process works. For now we’ll sell the lignin into the activated carbon market, and 6000 tons per year with that, and we have two sets of offtakes for the plant’s production.

How is the company getting through the problem of technology risk? They’re taking the insurance route on that and expect to have that wrapped up in the next 90 days, also.

Feedstock, not yet signed, but the company said that the Minnesota needs a relatively nominal 50,000 tonnes for the small commercial plant — easy for the market to handle. It’s a $100 million project and will require half equity, half debt.

But then, there’s Europe, too. The Horizon 2020 program has big budgets snd big ambitions and for a big flagship EU project, those clean Sweetwater sugars and their high yields will come in handy to make the numbers work, so we wouldn’t drop dead of surprise if the two partners become part of a big Horizons 2020 application.

The Bottom Line, ya’ muley-headed maverick

As we said, no matter your question, lignin is the answer. Including to a question like “a breakthrough in what area will transform cellulosics from a sideshow to the main show?” So, it’s the right time and the right focus — the partners believe they have it nailed, and we won’t have long to wait to see whether and to what extent this will transform markets.

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3D printable resin: The Digest’s 2017 Multi-Slide Guide to melt-stable engineered lignin thermoplastic

Biofuels Digest - Wed, 08/16/2017 - 12:38pm

The DOE is supporting an Oak Ridge-led project to produce and commercialize lignin-derived, industrial-grade composites with properties including 3D printability, rivaling current petroleum-derived alternatives. The project outcomes? A novel family of commercial-ready, lignin-based 3D-printable composites. Also, suitable for high-volume applications. With recyclable compositions retain their unprecedented mechanical properties. Also, utilizing unmodified lignin at ≥50 (%) volume to produce engineered plastic materials with values ranging $2000-$5000/metric ton.

A team led by ORNL’s Amit K. Naskar out of the Carbon & Composites Group Materials Science & Technology Division prepared these illuminating slides for the 2017 DOE Project Peer Review meetings.

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Study shows North Dakota ethanol industry added $623.4 million to state’s economy in 2015

Biofuels Digest - Tue, 08/15/2017 - 6:33pm

In North Dakota, a study by North Dakota State University’s the Department of Agribusiness and Applied Economics, The Center for Social Research, says the state’s ethanol industry added $623.4 million to the economy during 2015 including 234 FTE direct jobs and another 873 FTE secondary jobs. Secondary impacts from the ethanol industry were $411.1 million for the state’s economy. The state’s five ethanol plants have a combined total of 498 million gallons of installed production capacity.

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Greenfield Global exploring significant production expansion at Quebec ethanol plant

Biofuels Digest - Tue, 08/15/2017 - 6:31pm

In Canada, Greenfield Global Inc. announced that it has commenced a feasibility study to significantly expand operations for sustainable biofuel production at its biorefinery in Varennes, Quebec.

The first ethanol plant built in Quebec, the Varennes distillery is a model for waste water management and energy efficiency. The plant already produces some of the lowest carbon fuel ethanol in North America and is on its way to becoming part of a state of the art biorefinery complex. The potential expansion stands to increase its annual ethanol production capacity by 70% (from 170 mly to 300 mly).  The feasibility study will also incorporate the adaptation of emerging advanced biofuels technologies using non-traditional feedstocks and processes, including cellulosic ethanol, renewable diesel, and renewable natural gas.

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POET breaks ground at $120 million Marion expansion site

Biofuels Digest - Tue, 08/15/2017 - 6:30pm

In Ohio, POET-Marion broke ground Tuesday to expand its production capacity from 70 million gallons per year to 150 million gallons per year. The project will also increase production of dried distillers grains from the current 178,000 tons annually to 360,000 tons. With the groundbreaking, site work has officially begun, with project completion slated for Q3 of 2018.

This expansion is the largest project in the Marion area since the construction of the original POET Biorefining – Marion in 2008. The $120 million project will have a profound impact on the local economy, including 225 temporary construction jobs and 18-21 new permanent jobs at the site. It also adds new corn demand at a time farmers sorely need support.

POET: The Digest’s 2015 5 Minute Guide

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IGPC undertaking C$120 million expansion to double production

Biofuels Digest - Tue, 08/15/2017 - 6:28pm

In Canada, IGPC is undertaking a C$120 million expansion of its ethanol plant in Ontario that will double its production capacity to 378 million liters per year, consuming 2,500 metric tons of locally-produced corn per day. The expansion that will come online by November 2018 includes the addition of a co-gen power facility that will capture waste thermal heat for use within the plant. Air Liquide is taking advantage of the expansion as well by co-locating a carbon dioxide capture facility.

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Brazilian ethanol production passes 2 billion liters during H2 July

Biofuels Digest - Tue, 08/15/2017 - 6:27pm

In Brazil, more than 2 billion liters of ethanol were produced during the second half of July, with hydrous representing 1.14 billion liters of the total while the rest was anhydrous. More than 11.5 billion liters have been produced so far this season since April 1. A total of 1.11 billion liters of hydrous ethanol were sold from the center-south region during July in addition to 823.70 million liters of anhydrous. Only 185.83 million liters were intended for export while the rest of the sales were for domestic consumption.

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Goa launches biogas bus trial with eye on adding 40 to its fleet in February

Biofuels Digest - Tue, 08/15/2017 - 6:26pm

In India, Goa has launched its first biogas bus as a pilot project ahead of next February’s planned introduction of 40 such Scania buses. The pilot including the biogas bus and two ethanol buses was launched on Independence Day and will be operated by state-run Kadamba Transport Corporation Limited. The biogas will be supplied by the MSW facility in Saligao. Surplus biogas was being flared at the plant above the 873kW of power produced to operate the facility, while another 375kW could be exported to the grid.

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Ethanol crush margins continue to increase despite higher production and growing stocks

Biofuels Digest - Tue, 08/15/2017 - 6:25pm

In the Midwest, ever-stronger crush margins thanks to falling corn prices ahead of a bumper crop have producers cranking out ethanol despite ethanol prices remaining range-bound for the past several weeks. Ethanol production remains well over a million barrels per day. Platts reported that the crush margin was around 28.39 cents/gal on Monday, up 2.59 cents/gal from the week prior. Stocks continue to rise as well in four out of five regions, with national stocks at 21.347 million barrels the end of last week.

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Karnataka first Indian state to cut much-needed red tape on ethanol trade

Biofuels Digest - Tue, 08/15/2017 - 6:24pm

In India, Karnataka has become the first state to implement amendments to the Industries Development and Regulation (IDR) Act by dropping the requirement for permits issued from the excise department for the movement of ethanol. The move is among the requests by the ethanol industry for the government to reduce red tape and facilitate improved ethanol trade. Industry is expected to take advantage of Karnataka’s precedent by urging other states to follow suit, such as Uttar Pradesh, the country’s largest ethanol producer.

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The Valley of Fog: As Sundrop moves on from Louisiana, what’s up and what’s wrong with Loan Guarantee programs?

Biofuels Digest - Tue, 08/15/2017 - 10:00am

In Louisiana, reports surfaced in Alexandria’s TownTalk online paper that Sundrop Fuels has struck an agreement to sell the 1200-acre site where it once planned to build its $450 million, 50 million gallon capacity first commercial plant to produce green gasoline from woody biomass.

The company selected the site, the former location of the Cowboy Town entertainment complex, in November 2011 and completed the purchase in January 2012.

The CEO of Central Louisiana Economic Development Alliance, Jim Clinton, told TownTalk that “The company tried extremely hard to make this work. Sundrop management did everything within their power. By the time they got to the point where they could build the plant, the economics had changed and the politics had changed.”

Sundrop has now confirmed that “It has become clear given the new politics in Washington that our application through the DOE Loan Guarantee program is not going to progress further.  As such we are not going to be able to finance and build the facility in Louisiana so there is no point in tying up money there.”

So, an unfortunate step backwards for the manufacturing sector — and an interesting proof point that the DOE Loan Guarantee program success is closely tied to the revival of domestic manufacturing. We hope a temporary one — Sundrop’s technology and team march on, with we hope another project emerging soon. Perhaps offshore, perhaps one with financing not tied back to Washington’s shifting sands. Asia has long been in the long-term focus of the company.

Sundrop’s vision

Sundrop said that its Louisiana site could support, when fully built out, more than  225 million gallons of capacity for 87-octane biogasoline. The company also said that “Future full-scale biorefineries will also annually produce more than 200 million gallons of fuel that is fully compatible with fuel industry quality standards and available at an unsubsidized cost of about $2 per gallon (~$0.53 per liter).”

The emissions picture was striking. The company said that it would reach the 60% greenhouse gas emission reduction necessary to qualify for cellulosic RIBs.

The Sundrop Technology

Sundrop has developed three step process which it described thus:

1. Grinding of biomass. A unique, non-grinding biomass preparation process that converts any type of wet biomass, whether wood, wood residues, energy grasses, rice hulls or other types of agricultural wastes, into a homogenous powder form. This creates a consistent, highly reactive feedstock, regardless of its initial form, for processing in the Sundrop Fuels conversion technology.

2. Gasification. This pre-processed feedstock advances into the Sundrop Fuels proprietary BioReforming system where the biomass is converted into ultra-clean synthesis gas.

3. Conversion to end products. The resulting synthesis gas then moves into the downstream portion of the Sundrop Fuels plant where it is efficiently converted into finished gasoline, diesel, aviation fuel or other chemicals ready for direct sale to the market. This step is accomplished using well-established, commercially proven, licensed technologies.

Adding Hydrogen via natural gas

As Sundrop noted, “Advanced biofuels production has historically been limited because plant material feedstock has generally about a one-to-one ratio of hydrogen-to-carbon, while gasoline used in today’s combustion engines must have twice as much hydrogen as carbon.  To correct this imbalance, many other biofuels processes simply do not utilize one-third of these renewable carbons, rejecting them as carbon dioxide into the air.

“Sundrop Fuels, however, resolves the imbalance not by throwing away renewable carbon, but by adding hydrogen to the production process.  The supplemental hydrogen feedstock is obtained from abundant, clean-burning natural gas using a traditional steam methane reforming process.

“Because the company adds hydrogen to the renewable biomass being converted in its ultra-high temperature BioReforming reactor, virtually one hundred percent of all the carbon in the plant material is converted into biogasoline.  The process generates extremely low amounts of CO2 or tar.

Sundrop’s Wonder Years

The high point in the company’s fortunes to date was reached in July 2011 when Sundrop received $175 million in investment, $155 million of that from Chesapeake Energy accounting for a 50% stake in the company.

It is one of the first investments to come from Chesapeake’s new $1 billion investment facility it will undertake with its new company Chesapeake NG Ventures Corp during the next 10 years. The remaining investment came from Sundrop’s existing investor Oak Investment Partners.

We reported in October 2012 that Sundrop Fuels said it expected to begin construction early next year on its first commercial plant. The company had begun to hire plant managers and plans to begin training entry-level and other staff positions in late 2013, with construction then expected to be complete in 2014.

In July 2013, we reported that Sundrop Fuels had selected IHI E&C International Corp as their contractor for the project, and had begun preparing their site for the plant, which will occupy about 100 of the 1,213 acres that the company purchased in February. Construction was reported then scheduled to begin late in 2013, with operations expected to begin at the end of 2015.

LED’s Lead Development Group identified and began actively cultivating Sundrop Fuels in early 2011, and the Alexandria area emerged as a promising location because of its access to major electrical and natural gas supplies and because of the abundance of wood byproducts the region boasts. The state’s targeted incentives for workforce training and research and development helped Louisiana win the project over several other states in the South and Southwest.

Because of the refinery’s broad use of suppliers and support industries, Louisiana Economic Development estimates nearly eight indirect jobs will be created by the project for every direct Sundrop Fuels job. To secure the project, LED offered Sundrop Fuels performance-based grants for building and financing costs ($14 million over 10 years), as well as $4.5 million to reimburse relocation costs of research and development operations and key employees.

Sundrop Fuels also expected to apply for a private activity bond allocation of $330 million or greater, which will help the State utilize capacity that otherwise would have gone unused; the private activity bond allocation will enable the company to reduce its project financing costs.

The Sundrop origin story

Late in 2010, Sundrop Fuels, emerged from stealth mode as a solar gasification-based renewable energy company.

“As you know, Sundrop Fuels did indeed begin as a “solar fuels” company, but over the last year or so that model has changed,” the project’s Steve Silvers told the Digest in July 2011. “The biomass to advanced drop-in biofuels process uses natural gas to power the RP Reactor. The economics of the business made considerably more sense if we could run the thermochemical plant 24 hours a day – hence natural gas, rather than solar.

According to Silvers, “We already had to have natural gas coming into the facility because we’re stealing the hydrogen from natural gas to add to the biomass being gasified as to create the fuel-ready 2-to-1 hydrogen to carbon ratio. Additionally, like other biofuels companies, we are benefiting from the strategic partnership of a large energy company.”

The plant expected to salvage wood waste from renewable forests in Central Louisiana and adjacent regions and use that biomass as a feedstock. Sundrop Fuels also will extract hydrogen from abundant supplies of Louisiana natural gas, combining the hydrogen in a proprietary reactor with carbon extracted from wood waste. The result — up to 50 million gallons of fuel a year — will represent the world’s first renewable green gasoline that’s immediately adaptable to existing pumps, pipelines, engines and transportation infrastructure.

By 2020, Sundrop Fuels expects to produce more than 1 billion gallons of renewable fuel annually through its process (including but not limited to its Louisiana facility), meeting nearly 10 percent of the federal government’s stated goal for renewable fuels refined from cellulosic material and other alternatives to crude oil.

Bullish through 2015

Though construction did not materialize in Louisiana in 2013, the company said in 2014 that it had expanded plans to build biofuels plants globally, with focus on Asia and North America.

And in January 2015, the company began expansion of its advanced R&D laboratory and simulation facility at its Longmont, Colorado headquarters, including a new fully integrated pilot plant system. The facility was capable of testing a wide variety of feedstocks from around the world. Previously, the company had been testing its high-temperature BioReforming Reactor at since summer 2014 at the Energy and Environmental Resource Center (EERC) in North Dakota.

In March 2015, good news arrived from Washington when Sundrop Fuels received approval for Part 1 of its application for a US Department of Energy loan guarantee, and in December the company said that it had begun commissioning and operation of its Integrated BioReforming Demonstration Facility (IBDF) at the company’s headquarters in Longmont, Colorado.

Are Loan Guarantee programs effective?

It’s this loan guarantee application that has been at the center of the company’s fortunes of late — and this is the one that ultimately was abandoned this summer.

Veronique de Rugy, Senior Research Fellow at George Mason University, testified in a devastating fashion before the House Committee on Oversight and Government Reform, Subcommittee on Regulatory Affairs. Here’s an excerpt that gives you the flavor.

The failure of Solyndra has attracted much attention, but the problems with loan guarantees are much more fundamental than the cost of one or more failed projects. In fact, the economic literature shows that every loan guarantee program (a) transfers the risk from lenders to taxpayers, (b) is likely to inhibit innovation, and (c) increases the overall cost of borrowing. At a minimum, such guarantees distort crucial market signals that determine where capital should be invested, resulting in lower interest rates that are unmerited and a reduction of capital for more worthy projects. At their worst, these guarantees introduce political incentives into business decisions, creating the conditions for businesses to seek financial rewards by pleasing political interests rather than customers. This is called cronyism, and it entails real economic costs.1 

So what can we make of these figures? First, it should be noted that very few permanent green jobs were created under the 1705 loan program, or any of the other loan programs…o the extent that green jobs were created, the $6.7 million taxpayer exposure per job is quite spectacular. 

Second, our data demonstrates that under the 1705 program most of the money has gone to large, established companies rather than to startups. Companies that benefited included established utility firms, large multinational manufacturers, and a global real estate investment fund. In addition, the data shows that nearly 90 percent of the loans guaranteed by the federal government since 2009 went to subsidize lower-risk power plants, which in many cases were backed by big companies with vast resources. 

Quoted in the New York Times recently,  David W. Crane, NRG’s chief executive, explained, “I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects,” he said. “It is just filling the desert with panels.”

De Rugy offered this slide on who got the money:

The 2014 Loan Program Office report

The last comprehensive public performance report we have on DOE Loan Guarantee Program dates to late 2014. At the time, the program’s executive director, Peter Davison, painted a starkly different picture to de Rugy’s perspective. He wrote:

In the five years since it issued its first conditional commitment, LPO has helped launch the utility-scale photovoltaic (PV) solar industry, deploy the next generation of concentrating solar power, revitalize the U.S. nuclear industry, commercialize cellulosic biofuels, and accelerate the growth of advanced and electric vehicle manufacturing.

As of September 2014, 20 projects supported by LPO are operational and generating revenue. Already, $3.5 billion in loan principal has been repaid on these long-term loans, which have an average tenor of 22 years. In addition, more than $810 million in interest payments have already been earned. For loans that have been disbursed to date, we expect to earn more than $5 billion in total interest payments over the full term of the loans — all of which goes back to the benefit of taxpayers.

Today, actual and estimated loan losses to the portfolio are only approximately $780 million, or only a little over 2 percent of the program’s loans, loan guarantees and commitments.

The Loan Programs Office in late 2014 offered up this slide on how the money was managed:

Looking at the Market Failure to back advanced industrial biotechnology

One thing that all parties agree on, loan guarantees have been developed to address the market’s failure to back certain projects. Meanwhile, the data demonstrates is that almost all the money went to solar, and precious little to bioenergy, or other advanced technologies.

Are loan guarantees workable and effective and do they address the real problems? As de Rugy noted:

In a 2003 speech to the National Economists Club in Washington, D.C., then–Federal Reserve Governor Edward M. Gramlich argued that loan guarantee programs are unable to save failing industries or to create millions of jobs, because—he explained—the original lack of access to credit markets is caused by serious industrial problems, not vice versa. If an applicant’s business plan cannot show a profit under reasonable economic assumptions, private lenders are unlikely to issue a loan, and rightly so. 

If the original access to credit market is caused by serious industrial problems — what are those problems, aside from late-stage industry failure? They generally refer to four failures:

1. Late-stage company failure. Loan guarantees and bailouts have been criticized for tying up capital in support of failing companies at the end-of-life stage.

2. Trade and currency imbalance. Public intervention has sometimes been caused by currency valuation problems. A currency that is overvalued relative to industrial output (because, for example, of the financial appeal of a fungible, low-risk, basket currency) can lead to excessive costs for domestic production relative to imports.

3. The lack of interest in debt markets for projects that have perceived technology risk, because of the low rates of return on these projects discourage appetite for risk. It’s the Valley of Death problem — projects can’t get financing until they are demonstrated at scale to work, but they can’t be demonstrated at scale to work until they get financing.

4. The most unique benefit of green technology — reducing carbon emissions — goes to society and not the project itself. Or the financial benefit to the project is considered unreliable (e.g. RIN credits under the Renewable Fuel Standard).

Loan guarantees in the modern sense of the DOE program generally address #3 and #4. In a loan guarantee program, the public steps forward through government entity to invest in the project to realize the social benefit — though the public role is limited to issuing debt or guaranteeing debt issued by commercial financiers.

Problems, perceived or real?

Cronyism, backing projects that would have financed anyway and simply offering them a lower-cost loan, the problem of the government “picking winners” between competing companies and technologies and sectors, the moral hazard of removing the incentive for deep project due diligence — these are objections that are typically raised by critics of Loan Programs.

In general, programs get caught between two problematic outcomes. If the default rate is too high, there is criticism of the public cost and accusations of lax oversight. If the default rate is too low, it can indicate a healthy program, or one that is simply competing with the private sector in backing commercially-feasible projects, rather than focusing on higher-risk, higher-reward projects.

Consider the multiple failures that the DOE experienced in backing the development of fracking technology. Seen from a DOE project portfolio point of view, the program was a colossal waste of public money — many failures, just one real success. Yet, DOE galvanized an industry that changed the world.

The Digest’s Take: Fix the bigger problem first, and you may find it’s less expensive, too

In our view, the market failure lies in the due diligence problem — advanced projects struggle to get a fair “day in court” because banks don’t have the technical resources for the underwriting that complex projects require, and projects themselves rarely have the financial resources.

The Valley of Death is actually a Valley of Fog that people avoid because, who knows, maybe it’s filled with coyotes and rattlesnakes. Markets have long dealt with commodity price risk for both raw materials and refined product: after all, petroleum has that risk, too, as does agriculture. But technology risk is more about the uncertainty of whether something works as designed, rather than the problem of peering into the future of prices. The most attractive solution is intelligence — as opposed to hedging, insurance or transfer of risk to the broader public.

If there is a social benefit to be realized, a co-operative public-private effort to develop better, faster and cheaper due diligence is a far less costly adventure than guaranteeing loans that can’t get financing because of insufficient risk profiling.  Rather than founding new programs to take elevated risks, why not minimize risks?

Something worth noting about entrepreneurs — they are celebrated as risk takers, but this is a complete misunderstanding of what entrepreneurs do. They are risk minimizers — and that skill is what permits them to operate successfully in high-reward sectors and utilize new technologies in new ways. Reducing risk is something that society, projects and investors all benefit from.

It’s something that the DOE itself is beginning to look more deeply at — whether the traditional concepts of component readiness (technical readiness levels) correspond to system readiness. We might add, project readiness.

Something for the public and the private sectors to work on, soon and with serious intent: to better understand and score the nature of forward risk. If the financial sector is actively and supportively in the mix from the outset, it can help unlock financing through the market itself. Markets don’t mind returns commensurate with the risks: but they shy away from the unknown, and advanced technology too often stalls in the Valley of Fog.

Categories: Today's News

Partner Power in Process Piloting: The Digest’s 2017 Multi-Slide Guide to the Advanced Biofuels Process Demonstration Unit

Biofuels Digest - Tue, 08/15/2017 - 9:43am

What is the Advanced Biofuels Process Demonstration Unit, where is it, who does it serve and how?

Located at Berkeley Lab, the ABPDU aims to “support the commercialization of industry-, academic-and DOE-driven biofuels and bio-products by providing a key technical resource and an agile, flexible team for process development and demonstration. The project aims to have at least one industry sponsor per year commercially launch a biofuel / bio-product and secure private funding based on data generated at the ABDPU.”

So far, 29 Industry partners, including 26 US small businesses, have become partners of the Unit in developing and testing new, advanced processes. The ABPDU’s director, Dr. Todd Pray, gave this illuminating overview of the unit, capabilities and team at the DOE’s 2017 Project Peer Review event.

 

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