[Editor's Note -- we published Mr. Khosla's introductory piece, What Matters in Biofuels? here. He now gets into the details of his perspective on biofuels and his firm's investment thesis.]
Part 1: Production technologies: where are we?
The financial crisis of 2008 set back a number of projects and slowed actual construction of pilot and demo plants like it did in all industries, be they biofuels or traditional fossil energy projects. That, coupled with the negative press for corn ethanol, slowed progress and funding of biofuels to a crawl, causing delays of up to two years in many business plans. But despite these challenges, entrepreneurs have persevered and in many cases are further along than expected in achieving practical economics that now justify their first commercial units (FCUs).
FCUs are particularly hard to fund given that they are first-of-a-kind technology, and there is now a risk-averse capital funding environment. Further, FCUs are generally of smaller size than the optimal scale commercial plant, are not “value engineered” (the goal of the FCU should be, in my view, cash break-even or better, and proof of technology, not cost optimization), and hence their output suffers from more challenging economics in commodity product markets.
Hence, some companies like Amyris, Gevo and LS9 have targeted higher-value specialty products to commercialize, until yields improve, scale increases and costs and capital raising risks decline. By starting with high value products and going to progressively lower value (per gallon) markets the addressable market size will continually expand for these companies, eventually hopefully encompassing most of the fuels market -- among the lowest price per gallon markets. Some like Coskata and Lanzatech (and others) are developing multi-product technologies, which gives them optionality. Others like KiOR have gone directly into fuels because of their technology, supply chain compatibility and current production costs, which can be competitive with fossil oil.
Below is a rough summary of the major technology pathways and our current comments on them. We reserve the right to change them as we learn more or the technologies progress; in fact, this progression of views and the emergence of other new technologies is expected. Over the last two years I have been pleasantly surprised at the progress in direct-to-hydrocarbon renewable fuels. Finally, there are efforts that are too early in their development to characterize, such as Synthetic Genomics, Virent, Codexis, electro-fuels, etc., to estimate with any reliability, and others for which not enough information is available to us.
Incidentally, given the amount of R&D that is now done in private companies that don't publish their results, I find knowledge of status among academics to be relatively out of date, too. Unfortunately, a somewhat unreliable rumor mill appears to be the best balance of reliable/current information along with informed projections of technology pathways’ potential.
Table 1 summarizes the major technology pathways (leaving out the currently commercial starch/sugar to ethanol processes; bolded companies are part of the Khosla Ventures Portfolio).
Table 1: Major Biofuel Technology Pathways
|
Pathway |
Feedstock |
Outputs |
Comments |
FCU (minimum size cash flow positive facility)[1] |
|
Liquid fermentation to higher alcohols, hydrocarbons and esters Examples: LS9, Gevo, Amyris, Solazyme |
Sugars (e.g., corn, sugar cane, hydrolysis sugars from cellulosic feedstocks) |
Highly controlled, single chemical output, pathway dependent (e.g., iso-butanol, FAME, Esters, lipids, Farnesene) fuels are less likely to be economic if they need significant post-processing. Direct production of fuel blends like butanol or FAME may allow for earlier entry into fuels. Costs are less critical for chemicals. |
Suitable for specialty chemicals and specialty fuels (e.g., jet). Starting to build first commercial units: target 2012 to 2013. Need to reach commercial yields at demo, and test 2,000-gallon-tank scale to prove economics or 100K gallon/year facility scale to have reliable data; many do; various chemical outputs give them options. |
Retrofits/bolt-ons costing $40M to $100M to cash flow facility. Varies widely, but small $ allows low-risk bootup. Companies that require new facilities will have difficulty booting up unless facility is very low cost. |
|
Liquid fermentation of cellulosic feedstocks to ethanol Examples: Mascoma, Verenium, Qteros, (Novozymes, Danisco) |
Sugars via hydrolysis of cellulosic material (described below) |
Ethanol |
Enzymatic processes such as Novozymes are unlikely to be competitive. Cheap cellulosic sugars may help enable these pathways. In Mascoma’s case, use of CBP (consolidated bioprocessing) helps alleviate the high cost of enzymes and may have lowest cost in this class, but none are economic yet. |
$175M to $300M |
|
Gas fermentation Examples: Lanzatech, Coskata, Ineos |
Steel/coal waste gas; syngas from biomass or coal |
Highly controlled, single or multi chemical output (e.g., ethanol, 2,3-Butanediol, & other specialty chemicals) |
High capex for biomass, but low opex; low capex & opex for waste gases; suitable for ethanol, more upside in chemicals; FCU in 2012 to 2013 |
$400M to $500M for commercial plant with biomass gasification including fermentation; $50M to $100M for backend waste gas conversion |
|
Catalyzed thermo-chemical cracking Example: KiOR |
Lignocellulosic biomass, all types, from wood whole logs, ag & wood wastes, algae etc. |
Relatively easy “drop-in” renewable crude oil. With hydrotreating, can produce fuel blendstock |
Scalable process, familiar to oil industry. Similar supply chain and uses, FCU operational in 2011 to 12; likely to be competitive unsubsidized near term at $80 oil; high-value distillates |
$75M to $125M |
|
Solar fuels Examples: Sapphire, Cellana, Aurora Algae, General Atomics, Petro algae |
Waste water, CO2 + sunlight |
Lipids that can be converted to biodiesel (FAME, green diesel, jet fuel or other), or nutraceuticals |
No clear near term path to economic viability. High theoretical yields per acre (>4,000 gal/acre), but not proven. Pilot and demonstration scale. We are skeptical of economics in this category; larger environmental risk for GMO open pond organisms |
Hundreds of millions(?) |
|
Natural oil hydro-treatment to produce hydrocarbons Example: Dynamic Fuels |
Natural oils and fats (palm, vegetable, animal fat, etc.) |
Hydrocarbon fuels |
Limited scalability due to feedstock |
~$100M to $150M |
|
Pyrolysis oil hydro-treatment to produce hydrocarbons Examples: UOP/Ensyn, Neste |
Wood chips and wood waste |
Hydrocarbon fuels |
Significant hydro-treating required due to high oxygen content to produce hydrocarbons |
~$100M to $200M(?) |
|
Transesterification of vegetable oils, animal fats |
Natural oils and fats (palm, vegetable, animal, etc.) |
Biodiesel |
Limited scalability. Often food-based and likely less economic. Land use concerns due to low yield. |
|
|
Gasification with thermochemical conversion to ethanol, methanol and hydrocarbons Examples: Choren, Rentech, Range |
Cellulose/ hemicellulose/lignin |
Syngas for fermentation, or for chemical catalysis conversion to ethanol, methanol, or Fischer Tropsch to hydrocarbons |
Chemical catalysis for ethanol and Fischer Tropsch likely uneconomic. High capex, high opex. |
Hundreds of millions |
|
Liquid Catalytic conversion of sugars to hydrocarbons Example: Virent |
Sugars (e.g., corn, sugar cane, hydrolysis sugars from cellulosic feedstocks) |
Hydrocarbon fuels |
Limited information available, clean sugars and hydrogen appear required for good outputs. I am somewhat skeptical but have to admit less than full knowledge of details. |
unknown |
Table 2: (cellulose to fermentable sugars)
|
Acid (Concentrated HCl) hydrolysis Example: HCl |
Biomass Cellulose/ hemicellulose |
Sugars for fermentations |
Potential for integration or retrofits pulp and paper mills, and increased productivity of renewable chemicals and non-food sugars. Changes scalability of sugar fermentation processes. |
$35M to $40M for FCU; $180M to $200M for optimal commercial plant |
|
Enzymatic hydrolysis Example: Novozymes (front-end), Danisco |
Biomass Cellulose/ hemicellulose |
Sugars for fermentation |
Potential for retrofits for corn & sugar ethanol plants, does not appear economic near term; Mascoma CBP reduces cost by reducing process steps but not yet economic. |
|
There are dozens of companies all taking different approaches, and vying for different markets.
Some technologies, like Gevo, LS9 and Amyris, focus on creating a single molecule, whereas other technologies, such as KiOR, create a diverse mix of chemistries (much like crude oil has) but at lower cost that can be blended with crude oil and dropped directly into a refinery, or if hydrotreated can be used as gasoline or diesel blendstock. These processes result in a range of production costs, many of which will be acceptable, depending on the end-products. For example, thermochemical processes which yield mixtures of chemistries (such as crude replacements) should aim for costs below $20 to $25/ barrel of oil equivalent (feedstock costs including 15 percent IRR on capital investments) and be market competitive within 5 to 7 years of their launch (without subsidies).
Biology-based pathways that create precise molecules can afford more expensive production processes and feedstocks due to the ability to tune the end-products and target higher value chemicals segments with higher price points. In many instances, product separation/ purification or post processing is a critical cost factor. In the long run, fuel processes must use low cost non-food feedstocks (for scalability and cost) and high yield, low cost production processes, have minimal post-process steps to get to marketable product, or produce a valuable co-product (it’s important that the market for this co-product is of similar size to the main product, or else it won’t scale).
For high value chemicals, these issues are less critical due to lower cost sensitivity. Some processes, like those of Synthetic Genomics, are early enough to be difficult to assess viability in my view, though they appear to carry significant environmental risk (much like the GMO controversy) if used in open ponds or open ocean. In bioreactors, most algae-based processes carry high capital cost risks. Other processes like Virent, Qteros, Joule and numerous others are less well known to me.
The next page covers the major technologies in more detail.
Tags: algae, amyris, aurora algae, biofuel economics, biofuel policy, biofuel production, biofuel research, biofuels, cellana, choren, coskata, danisco, dynamic fuels, general atomics, gevo
