Cellulosic ethanol heads for cost-competitiveness by 2016

The cost of enzymes, pre-treatment and fermentation have fallen significantly, but cellulosic biofuels still have some way to go to reduce project capital expenditure if they are to be competitive with corn-based ethanol and with gasoline

London, 12 March 2013 – Ethanol manufactured from non-food "cellulosic" feedstock is on course to be cost competitive with corn-based ethanol by 2016, according to an industry survey conducted by research company Bloomberg New Energy Finance.

The survey collected data and predictions on the production costs of 11 leading players in the cellulosic ethanol industry. All use a technique, commonly called enzymatic hydrolysis, to break down and convert the complex sugars in non-food crop matter, and a fermentation stage to turn the results into ethanol. The results showed that in 2012, the cost of cellulosic ethanol production was $0.94 per litre, around 40% higher than the $0.67 per litre (1) cost of producing ethanol from corn, which dominates the US biofuel market and is competitive with US gasoline. By 2016, respondents thought the price of cellulosic ethanol would match that of corn-based ethanol (2) .

Harry Boyle, lead biofuel analyst at Bloomberg New Energy Finance, said: "The cellulosic ethanol industry has something of a history of over-promising cost reductions and under-delivering. However, it may be dangerous to assume that it will not become competitive this decade. If our survey proves accurate, cellulosic ethanol will make meaningful inroads into the vehicle fuel market during the last years of this decade."

The survey found that the largest cost elements for producers in 2012 were project capital expenditure, feedstock and enzymes. The operating costs of the process have dropped significantly since 2008 due to leaps forward in the technology. For example, the enzyme cost for a litre of cellulosic ethanol has come down 72% between 2008 and 2012.

Improvements in running costs for cellulosic ethanol plants will turn the spotlight squarely onto capital costs, which survey respondents expected to make up fully 45% of the overall expense of manufacturing a litre of cellulosic ethanol by 2016 – with feedstock contributing a further 34%. Developers will have to find ways of reducing the initial outlay on the plant, and reducing risk to attract cheaper financing. Boyle said: "We expect therefore to see a shift in focus over the next five to 10 years – from technology enhancements to logistical planning – that in turn suggests the industry is maturing."

Globally, there are 14 enzymatic hydrolysis pilots; nine demonstration-stage undertakings; and 10 semi-commercial scale plants either announced, commissioned, or due online shortly. Five of the semi-commercial facilities are located in the US, but a swing towards Brazil is expected in the near future, with two announced there so far. Bloomberg New Energy Finance defines a semi-commercial facility as having capacity of 90m litres per year, requiring an initial outlay of approximately $290m. By 2016 the second and third tranche of plants will be reaching commissioning, with annual capacities ranging from 90 to 125m litres. The initial outlay per installed litre is expected to fall from the original $3, to $2, due to economies of scale and a reduction in over-engineering.

This report details improvements in all the main stages of the cellulosic ethanol production process including pre-treatment, enzymatic hydrolysis and fermentation. The improvement in sugar release is reviewed, as is the switch from chemical to physical pre-treatment, which is making a difference in sugar release. The report assesses capex figures for equipment prices, experience curves and required rates of return. It also includes a sensitivity analysis of potential improvements in the coming years, and how they could speed up or slow down the industry's route to profitability.

Journalists are welcome to request a copy of the Executive Summary of the report. They can do so by emailing james.isola@cubitt.com.

Bloomberg New Energy Finance (BNEF) is the definitive source of insight, data and news on the transformation of the energy sector. BNEF has staff of more than 200, based in London, New York, Beijing, Cape Town, Hong Kong, Munich, New Delhi, San Francisco, São Paulo, Singapore, Sydney, Tokyo, Washington D.C., and Zurich.

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