The timing for building a biobased economy as an option to the current petroleum-based one, to provide fuels, chemicals, materials and energy sustainably for the long term future cannot be better. And the challenges any more intense.
There are widespread concerns over the availability of crude oil – especially at prices one has been accustomed to. While the theory that we are past the peak of crude oil output is endlessly debatable, there are strong environmental reasons for migrating to larger and better use of bio-resources, such as cellulosic biomass, for energy and chemicals production.
But there are significant challenges that will need to be surmounted in order to make the transition. The process will neither be quick nor smooth and at least in the beginning, expensive and in need of considerable hand-holding through fiscal and policy support. At the same time, there are justifiable concerns that food security could be impacted by any dramatic land use pattern changes. The concerns, often emanating from Europe's green lobby, relates to cutting down on pristine forests for growing energy crops or shifting away from cultivation of food crops to feed energy markets.
The technological challenges that such a fundamental transformation will require are immense; most of the technologies now under development are only just out of the laboratories and will need considerable investments in scaleup and downstream processing to make an impact at the marketplace. Only a handful – if that – are on the cusp of commercial viability and they should make an impact sooner.
The first bunch of technologies for making chemicals and fuels from biomass typically started with sugars and starches, which are more labile materials that can be chemically transformed far more easily than more recalcitrant materials like cellulosic biomass that are now the focus of attention. There is now wide acceptance that the role of the first generation technologies for biofuels – bio-ethanol from corn andsugar; or biodiesel from oils & fats, to cite the two most common examples – is neither desirable nor sustainable in any significant manner. They are, at best, stepping stones in the technology development path to the exploitation of more widely distributed cellulosic biomass and agricultural wastes.
Capital injections needed
The market for renewables is difficult to pin down. Burril & Company (USA), a consultancy, estimates it at $8.3-trillion – comparable to the GDP of China – and growing significantly. Government mandates will have a big role in driving this business; some estimates suggest that merely complying with the US Renewable Fuel Standards will need investments in 300 bio-refineries!
According to Mr. Roger Wyse, Managing Director, Burril & Co, availability of biomass and capital, and relenting emphasis on innovation and technology development are vital to enable a transition to a bio-based economy. "Market pulls for green products exists and chemical companies are responding to this signal," he says.
Industrial biotechnology companies need massive capital injections, particularly at the stage when their technologies go from laboratory to semicommercial scale. Traditional sources of capital include venture capital, angel investors, corporate partnerships and the capital markets, but tapping into these has not been easy and is likely to get more difficult as the dismal macroeconomic situations in many developed countries will lead to tightening of belts and lower the propensity of investors – of all types – to take on risks.
For the last few years, venture capital inflows into the industry have declined, perhaps due other opportunities. Corporate partnerships have been more common in the agri- and pharmabiotech areas, and are only now making a small impact in the area of industrial biotechnology. Although recent IPO techfinancings in 'green technology' companies have done well from a valuation perspective, a number of companies have filed their prospectus, but are taking a cautious approach to tapping the market.
Mr. Mark Verbruggen, CEO & President, Natureworks (USA), a leading producer of polylactic acid (PLA), the world's leading bio-plastic, believes financial markets have become more risk averse and "this is a problem for this capital intensive industry."
While raw materials like sugar and starch have been the easy pickings that have been exploited so far, the use of lignocellulosic raw materials will be the breakthrough. Scaling up these technologies will require access to enormous amounts of biomass, at the right price over a long-term and with the right logistics in place.
This quest recently brought a number of companies – mostly from the United States – to Malaysia at the 2011 Pacific Rim Summit on Industrial Biotechnology and Bioenergy, organised by the US-based Biotechnology Industry Organisation (BIO). The event, traditionally held in Hawaii, ventured out of the country for the first time, in a telling commentary on South East Asia's attraction as an investment destination with the right combination of feedstock and capital.
"The technology for converting biomass to chemicals is being developed in US and Europe, but the biomass is in South East Asia and in Latin America," says Mr. Wyse.
Malaysia, in particular, has outlined the broad contours of a programme to leverage the entire biomass from palm plantations, in contrast to just exploiting the fruit as food, for oleochemicals production or as raw material for biodiesel. The Malaysian government reckons the amount of biomass available will rise from about 80-mt now to about 100-mt by 2020, driven by increases in yield, not acreage. The price points at which this will be available will be determined by costs of transportation from plantations to processing mills, but the government estimates that at a globally competitive price of US$80 per tonne about 25-mt should be available.
Competitive pricing challenges
Mr. Lars Hansen, Regional President (Europe), Novozymes, an enzymes producer, warns that the bio-refining industry is up against a very efficient and well entrenched industry with a strong value chain, viz. the petrochemicals industry. "We need to compete against them, and this is not feasible unless feedstock pricing is right," he adds.
The significance of what the bio-refineries have to compete with becomes obvious when one eyes the size of the competition: nearly 87% of global chemical production still relies on fossil fuels and a significant portion of this is made in large plants with mature, wellunderstood technologies and significant economies of scale. Contrast this with the small-sized operation of even the largest bio-refinery in the world, even granting the early stage of its development!
Mr. Wyse believes the new technologies can be competitive in the current markets for chemicals, only if sugars can be produced from them in the range of 25-30 cents per kg.
Mr. Verbruggen believes the rising cost of feedstocks is cause for worry. He cites the example of corn, which traditionally ruled at US$2-3 per bushel, but now sells for US$6.50 after touching a high of US$8. "One has seen a similar spike in the price of sugar. Biomass derived products can still compete as long as oil rules above US$100 per barrel, but margins will be squeezed," he says.
Mr. Per Dahlen, AUM Business Creations Pte Ltd., a Singapore-based consultancy, says the key to success in the business is creating the right partnerships, especially with feedstock producers. "If we took all the sugar and vegetable oils that are produced in the world and converted them to fuels, there will still not be enough to meet current market needs, let alone that of the future."
Mr. Derek Atkinson, Business Development Manager, Purac (USA), a leading producer of lactic acid, believes investors need to feel confident that the biomass supplier can consistently provide over the long-term. "Incentives that encourage options such burning of biomass for power generation, serve to discourage investments in more far sighted technologies."
Dr. Manfred Kircher, Cluster Industrielle Biotechnologie, Germany, says that given the voluminous nature of biomass and the difficulty of moving materials long distances in a cost-efficient manner, the first transformations biomass will necessarily have to happen close to the source of the feedstock.
Cellulosics are coming, but the price at which the fermentable sugars are available holds the key!