Tag Archives: industry
Why The Advanced Biofuel Industry Is Struggling
By Robert Rapier | Fri, 13 September 2013 Last week, The Economist posed the following question: “What happened to biofuels?” The biofuels in question are so-called second generation biofuels that are produced from trees, grasses, algae, — in general, feedstocks that don’t also have a use as food. The appeal is obvious to anyone concerned about the world’s dependence on petroleum, and further worried that a major shift to biofuels will cause food prices to rise. So let’s address that question. Entrepreneurs Revive a Century-Old Idea About a decade ago, a number of entrepreneurs began to use their political influence to convince the US government that the only things keeping the US from running our cars on advanced biofuels was lack of government support, and interference from oil companies. These advocates eventually won over enough political support that state and federal governments began to funnel large amounts of taxpayer dollars into advanced biofuel ventures. President Bush spoke of running cars on switchgrass in his 2006 State of the Union address. The federal government sought to deal with supposed oil company intransigence with a mandate requiring gasoline blends to contain growing volumes of corn ethanol initially, but starting in 2010 advanced biofuels as well. The federal government mandated that by the year 2022 the fuel supply had to use 36 billion gallons of biofuels, with 21 billion gallons coming from advanced biofuels. But the history of cellulosic fuels goes back much further than many of those entrepreneurs realized, and many set out to reinvent the wheel with tax dollars. It was nearly 200 years ago, in 1819, when French chemist Henri Braconnot discovered how to break cellulose down into component sugars, which can then be fermented to ethanol. The Germans first commercialized cellulosic ethanol production from wood in 1898, and the first commercial cellulosic ethanol plant in the US was built in 1910 to convert lumber mill waste into ethanol. Nevertheless, many budding biofuel entrepreneurs insisted that this was a field in its infancy, and therefore required generous government support until it could stand on its own. Some attempted to produce fuel from wood via a different route. Wood (or natural gas or coal) can be partially burned to produce synthesis gas (syngas), which consists of hydrogen and carbon monoxide. That syngas can be converted into diesel (among other fuels) using the same process that Germany used to produce fuel in World War II. The problem is that this is a terribly expensive process, and so there are only a handful of commercial plants around the world that use either natural gas or coal (South Africa, which had its roots in their inability to secure petroleum because of sanctions resulting from their apartheid policies). We do have a small trickle of advanced biofuels that are beginning to collect EPA credits. In other words, for the first time the EPA is officially approving batches of these fuels for sale into the market. This first took place last year with a batch of 20,069 gallons from a company that subsequently went bankrupt. And therein lies the challenge. Of course this stuff can be produced. But can it be produced economically? The answer to that is no, the approaches that have been taken to date are nowhere near that point regardless of the hype to the contrary. Moore’s Law to the Rescue? The high costs have never been a deterrent for Silicon Valley entrepreneurs who wielded Moore’s Law as the solution to every problem. In their minds, the advanced biofuel industry would mimic the process by which computer chips continually became faster and cheaper over time. But advanced biofuels amounted to a fundamentally different industrial process that was already over 100 years old. A decade into this experiment it is clear that Moore’s Law isn’t solving the cost problem. In an interview with Wired Magazine in 2006 called My Big Bet on Biofuels , Vinod Khosla, one of the co-founders and the first CEO of Sun Microsystems, described his investment in Kergy (which later became Range Fuels). He wrote that to his knowledge, they had invented “the first anaerobic thermal conversion machine.” In fact at that time there were hundreds if not thousands of these gasifiers around the world, mostly used to produce power (a much lower cost proposition than biofuel production). My experience touches on all of these areas: biomass conversion, gasification, and production of liquid fuels — and I wrote a number of articles critical of the claims coming from the Range Fuels/Khosla camp. Some referred to me as “Range Fuels’ Number 1 Critic.” But the mainstream press couldn’t say enough great things about the company, right up until they declared bankruptcy in 2011. Hundreds of millions of dollars of taxpayer and investor dollars had been wasted, and the company never produced a drop of qualifying renewable fuel. Now some might say that failure is just a part of doing business and trying new things. That’s true, and I would never have criticized these companies and their promoters except they were influencing energy policy on the basis of inflated claims and collecting tax dollars as a result. If entrepreneurs try and fail on their own dime, then that’s their business. (I work for an energy entrepreneur). But if they take tax dollars, it’s my business as a taxpayer. And if they take investment dollars, it may become my business if I am advising investors. Epic Analyst Fail In fact I did give a fair bit of investment advice as some of the advanced biofuel firms began to take their companies public. Amyris (NSDQ: AMRS), Gevo (NSDQ: GEVO), and KiOR (NSDQ: KIOR) were three Vinod Khosla-backed companies that went public, and the value of his stakes has reportedly declined more than a billion dollars since (nearly a billion dollars at the time of that article, but the shares of all those companies continued to decline). I have been asked by investors about the prospects for each of these three companies (among others) since their IPOs, and every time I warned people away. That has proven to be good advice, because since their respective IPOs Amyris is down 85 percent, Gevo has fallen 89 percent, and KiOR is down 88 percent. Yet one analyst after another recommended these firms to clients, and then continued to reiterate those recommendations. Take KiOR, for example. KiOR uses a process in which they rapidly heat up wood chips to form a bio-oil, which can then be upgraded with hydrogen in pretty standard refining equipment to produce diesel and gasoline. KiOR has their own spin on the process, but the basic process has been around for a long time. The problem has always been cost. After the IPO, the market promptly bid KiOR’s value up to $2 billion. In response, I wrote an article arguing that KiOR was grossly overvalued. (I explained my decision not to short the company even though I felt they were grossly overvalued, but some investors contacted me to tell me they did short the company on the basis of my recommendations). But analysts remained undeterred. After KiOR announced a net loss of $31.3 million for the first quarter of this year, several analysts reiterated ratings of “Overweight” or “Outperform” on the company. For instance, Pavel Molchanov from Raymond James reiterated the “Outperform” rating that he first made on August 15, 2011 when shares were at $11. When second quarter results came in far below projections, Molchanov reiterated the Outperform rating and $9 price target. Shares are now down under $2, a drop of more than 50 percent just since the Q2 results were released. The point here is that this was totally predictable from the chemistry and low energy density of biomass, and of the science involved in trying to economically turn that into a low margin commodity like fuel. There is no magic catalyst or magic process that can overcome that. No matter how I sliced the numbers, I couldn’t see how any of these biomass to fuel companies were going to make any money other than through government largesse. (I am not saying that no scheme will ever work economically, but many in these space don’t understand the challenges and thus they fail by over-promising and under-delivering). So I advised investors to stay away, even as the analysts continued to believe the hype that many of these companies put out. No Funeral Just Yet KiOR isn’t dead yet though. In fact, I talked to a reporter on Monday, and advised that they would probably bounce off the bottom soon. There is probably one or two cycles of more positive news ahead, and they may very well get additional injections of cash from Mr. Khosla. As if on queue, shares were up 25% in trading on Tuesday. But even though the share price may see sharp gains at times, the road ahead will be very challenging for them, and the risk of bankruptcy is high in the long-term. So I would continue to avoid most companies in this space, unless you simply want to put some money down in lieu of a trip to Vegas. I don’t feel the same way about the entire renewable energy space. Solar photovoltaic (PV) panels, for instance, benefit from Moore’s Law effects, but their manufacture is very different than the production of biofuels from biomass. And in fact, we are seeing not only exponential growth in the installation of solar PV panels, we see costs dropping exponentially. I have been reiterating my view for more than six years that I think the future belongs to solar power. The mistake from biofuel entrepreneurs, politicians, and investors in that space was that this is how things would play out for biofuels. By. Robert Rapier Continue reading
Food Price Fears Push EU Lawmakers To Put A Lid On Biofuels Growth
Published 12 September 2013 The European Parliament has voted to limit the use of fuels made from food crops because of fears that biofuels can push up grain prices or damage the climate, further undermining the once booming industry. Lawmakers voting in Strasbourg on Wednesday (11 September) set a ceiling on the use of such fuels at 6% of overall transport fuel demand in the European Union in 2020. Although slightly higher than the 5% cap proposed by the European Commission in October, it deals a blow to EU biofuel producers by effectively preventing them from increasing current output. In 2009, the bloc set a target for a 10% share of renewable energy in transport, with almost all of it to come from so-called first generation crop-based fuels. Biofuels, such as ethanol made from sugar or biodiesel from rapeseed, are blended with conventional transport fuels and added to vehicle fuel tanks. They were originally intended to reduce transport carbon emissions and cut Europe’s dependence on imported oil. But faced with claims that Europe’s thirst for biofuels was driving up global food prices, and scientific evidence that some biofuels are more harmful to the climate than even conventional fossil fuels, the Commission was forced into a rethink. “We can’t stick with a policy that has such a negative effect on the countries of the south and on food prices. At the end of the day, the parliament has voted in favour of an acceptable limit,” French Liberal MEP Corrine Lepage, who led the parliamentary debate, said after the vote. With first generation biofuel consumption already at around 5% of total EU transport demand, and with almost enough installed production capacity meet the 10% target, a limit of 5 or 6% would call time on the once booming industry and force some existing plants to close. Lawmakers backed an amendment that would force energy companies from 2020 to take account of the indirect emissions caused by crop-based biofuels, which increase overall demand for land and, as a result, encourage rainforest clearance or draining peatland. That would effectively ban the use of biodiesel from oil crops such as rapeseed, palm and soy, which according to the EU’s scientific models are more damaging than conventional diesel when their overall impact on the environment is taken into account. The biodiesel industry says the scientific models used in the studies are highly uncertain and based on flawed assumptions. Algae and waste In order to try to make up the shortfall created by the cap on first-generation fuels, the parliament said the EU should set a new 2.5% sub-target for the use of advanced, non-crop fuels made from algae or agricultural waste in 2020. A coalition of industry and environmental groups – including the European Climate Foundation and Danish advanced biofuel producer Dong Energy – have said that full sustainable use of agricultural and forestry waste could supply 13% of EU road transport fuel by 2020. “This potential will only be realised if EU biofuel and related industries are given investment certainty and a stable policy framework by the European Parliament and Council,” the group said in a statement. One aspect of the vote that offered a glimmer of hope to the biofuel industry was that lawmakers demanded further talks about the rules before opening negotiations with EU countries to finalise them. With EU governments yet to finalise their common position, talks on the proposals look likely to extend into next year. If they are not concluded by April, European Parliament elections scheduled for the following month could push back the law until 2015. Several European governments are opposed to capping the use of biofuels as some dispute claims the demand for crop-based oils drives deforestation and food insecurity in other parts of the world. They fear the collapse of the conventional biofuels industry after a number of countries had already begun investing in the feedstock-based fuels before the EU began advocating a move away from them. POSITIONS: French Liberal MEP Corinne Lepage , who steered the negotiations in Parliament, said MEPs had voted to set “a reasonable cap on first generation biofuels,” at 6% of overall transport fuel consumption. “This is an important signal that support should be focused on advanced biofuels from 2020,” Lepage said. “I regret however that the Parliament did not give a negotiation mandate that would have allowed the file to be concluded without further delay in order to give industry certainty regarding its investments”, she added. Speaking for the industry, the European Biodiesel Board (EBB) underlined that Parliament had “de facto” refused to give a mandate for negotiations with member states over the proposed biofuels legislation, effectively postponing a decision until after the 2014 European elections. In particular, the EBB stressed the Parliament’s doubts over proposals to measure land displacement caused by biofuels production – so-called Indirect Land Use Change, or ILUC. “The rather indecisive results seen today show that doubt persists in using a rather young discipline for policy making,” says Raffaello Garofalo EBB secretary general , adding that including ILUC factors, even for reporting, would convey the wrong signal to citizens. “European regulators should be proud of the commitment of the EU biodiesel industry to promote a greener economy, foster agriculture and support industrial jobs. European biodiesel should set an example for higher standards, not be punished based on inconclusive science,” said Garofalo, adding: “Europe cannot afford to threaten nearly 220,000 jobs based on simplistic ILUC assumptions.” Turning to advanced biofuels, the EBB said Parliament had chosen “a schizophrenic proposal maintaining present double-counting support but excluding Used Cooking Oil and Animal Fats from the 2.5% specific target allocated to advanced biofuels.” “Waste and residues based biodiesel provide up to 95% greenhouse gas reduction compared to fossil fuels and it is not justified not to count it among advanced biofuels. Should the European Union be truly committed to reduce CO2 in transport, reliance on effective solution such as biodiesel from waste and residues should be fostered and biodiesel from waste and residues should be included in the advanced sub-target,” concluded Garofalo. The Greens/EFA group in Parliament welcomed the “tentative steps” taken by MEPs to “address flaws” in the EU’s biofuels policy but said problems remained regarding displacement of food production. Green climate spokesperson Bas Eickhout said: “Ensuring that the emissions resulting from indirect land use change are accounted for under the fuel quality directive from 2020 onwards will help ensure the EU is not promoting the use of biofuels that clearly have a negative climate impact. This would help steer investors and the fuel industry away from bad biofuels in the medium-term. “However, regrettably, a narrow majority voted against starting negotiations with the Council to conclude this legislation. This will further delay the urgently needed action to tackle climate-damaging biofuels.” Eickhout also regretted that lawmakers also failed to include emissions resulting from indirect land use change in the calculation of greenhouse gas savings limit for biofuels under the EU’s renewables directive.” This contradictory vote ignores the overwhelming evidence that Europe’s biofuel consumption is leading to the destruction of tropical rainforests, with major greenhouse gas implications. There will consequently be no guarantee that land-based biofuels perform better than conventional oil-based fuels in the near future.” “It is also seriously disappointing that Parliament voted to allow a 6% share of land-based biofuels like food crops in the overall fuel mix. Feeding crops into cars has fuelled rising food prices and rainforest destruction and the EU should not be further exacerbating these trends by promoting the use of agricultural land for fuel. We should be shunning the use of food crops for fuel altogether but this 6% ‘cap’ is clearly too high. It is highly questionable why the EU should continue promoting biofuels without putting essential climate safeguards in place.” Commenting on the vote, Nuša Urbancic, clean fuels manager for Transport & Environment , said: “Today’s vote calls into question the willingness of the European Parliament to fix the failed EU biofuels policy. Until an agreement is reached, it is uncertain for investors and the environment what the future of biofuels will be. What is certain though is that Europeans will have to keep paying for another seven years for biofuels that pollute more than the fossil fuels they are supposed to replace.” Commenting on the Parliament’s vote, Imke Lübbeke , r enewable energy senior policy officer at WWF European Policy Office said: “While it is positive that MEPs have drawn a line in the sand and introduced a limit for biofuels, EU legislation needs to do more. Parliament wants to delay accounting for indirect land use change from biofuels – a significant problem – until 2020, and even only in one of the two relevant pieces of legislation, leaving a major gap. “Their action today does not give the market the right incentives to provide cleaner biofuels for the European transport sector. It is now up to the EU Member States to act responsibly, and improve the Parliament’s position, helping Europe on its transition to a more sustainable energy future.” Rob Vierhout, the secretary general of the European ethanol industry group ePure , said: “It is disappointing to see that the European Parliament has decided to significantly reduce the market for conventional biofuels in Europe. At a time when we need to boost our economy it is difficult to see why MEPs agree to curtail jobs and investment in a sector that helps Europe to grow the production of clean and sustainable fuels.” Greenpeace was more radical, saying in a statement that MEPs had “supported the increased use of environmentally damaging biofuels, while at the same time calling on the EU to account for the destructive effects of these fuels on food production and greenhouse gas emissions.” “Today’s incoherent vote was clearly the result of horse-trading. The Parliament wants the EU to drive on both sides of the road: to recognise that biofuels made from food crops are destructive to the environment, but to continue supporting them politically and financially,” Greenpeace EU forests policy director Sebastien Risso . Greenpeace called on EU countries to “stop and reverse” the expansion of harmful biofuels. “The full carbon footprint of biofuels must be accounted for and public support and subsidies for environmentally and socially damaging biofuels must be phased out. Priority must be given to real solutions for greener transport, including innovative energy efficiency technologies to reduce energy consumption in transport, green mobility in cities, and cars and trains which run on renewable electricity.” Global anti-poverty group Oxfam congratulated MEPs for having avoided “the worst case scenario”. But it said Parliament was “still guilty of neglecting the needs of both the people and the planet”, saying a 6% cap on biofuels is “far above current levels of consumption”. “Today’s vote also introduces a new 7.5% binding target for the share of bioethanol in petrol; this would mean that by 2020 Europeans will have to buy 2.5 times more grain based biofuels than they currently do,” said Marc Olivier Herman , Oxfam’s EU biofuels expert . “In their efforts to appease the biofuels industry and agricultural lobbyists, MEPs have failed in their duty to represent the best interests of their electorate and the one in eight people going to bed hungry each night. As a result, millions will continue to be susceptible to volatile food prices, deforestation and further land-grabbing. EU governments must now pick up their slack.” NEXT STEPS: 2013/2014 : EU member states to agree common position on the proposal 2014/2015 : EU Parliament and member states expected to conclude negotiation on the proposed legislation EurActiv.com with Reuters Continue reading
Cima Green, Augsburg Energy Survey US Biodiesel Industry
Taylor Scott International News Taylor Scott International Taylor Scott International, Taylor Scott Continue reading
