Can new feedstocks take on commodities like canola?

Just as mainstream markets begin to embrace corn-based ethanol and soybean-based biodiesel, a new crop of entrepreneurs is hot on the hunt of better “boutique” feedstocks and better methods to make and sell biofuel.

Like beermakers dabbling in microbrews, mavericks in the biofuels world are getting creative with their ingredients. Their craft varies greatly from the industry standard of blanketing available farmland with corn and soybean (or in Brazil’s case, sugar cane) to yield only a single-digit percentage of the world’s fuel needs.

Candidates for new fuel feedstocks include biomass waste products such as sawdust and sludge, a variety of oil-producing algae, oil-rich seeds such as canola and mustard, and wild grasses such as switchgrass and miscanthus. Entrepreneurs are attempting to extrapolate energy in everything from sea plankton to rejected Little Debbie snack cakes. In each case, the key is finding a boutique feedstock that offers a high yield without being a critical food source. As the search for economically attractive feedstocks continues, researchers are also improving the process by which biofuels are produced.

Of money and mandates
The reason research money is pouring into these endeavors is that conditions for the perfect biofuel storm have hit. The negative conditions of high oil prices, worry over global warming and dependence on foreign oil have prompted state and local mandates for biofuel use, as well as a federal ethanol incentive in place until 2010. In early 2006, the Washington Legislature passed a law requiring that by 2008 all diesel sold in the state be at least 2 percent biodiesel. Lawmakers in Oregon and other states are mulling similar legislation. Portland was the latest to hop on that bandwagon when its city council in July 2006 approved a measure requiring stations to blend 5 percent biodiesel and 10 percent ethanol at citywide pumps starting July 2007.

Ethanol plants like this one, are popping up around the country. Courtesy Pacific Ethanol

Two to three ethanol plants open each month in the United States, and about 4.5 billion gallons are expected to be produced domestically by the end of 2006. Biodiesel capacity is also gushing, from 75 million gallons refined in 2005 to about 325 million gallons projected to be refined this year.

Big Oil has accepted the presence of blended biofuels, and big money is flooding into biofuel start-ups. Companies such as Chevron (NYSE: CVX), Shell (NYSE: RDS-B) and BP (NYSE: BP) recently launched biofuel subsidiaries. David Morris, vice-president of the Institute for Local Self Reliance, estimated in a recent analysis that Wall Street will pour $3 billion into ethanol investments in 2006.

The policy support and stream of capital to ethanol and biodiesel is good news for eager West Coast entrepreneurs such as John Plaza of Imperium Renewables, as his company undertakes construction of a $40 million, 100-million-gallon-per-year biodiesel facility in Gray’s Harbor, Wash. It also buoys Cascade Grain President Chuck Carlson, whose $192 million ethanol plant, partially backed by German investment family Berggruen Holdings, is being built in Clatskanie, Ore. The sheer number of regional projects cropping up signals the West Coast is set to enjoy a major share of the biofuels boom.

The business of biofuels is changing.  According to Morris, just three years ago half of ethanol refineries and 80 percent of proposed plants were majority-owned by farmers. Now, Morris says, 80 percent of new production is not farmer controlled.

The size of the average biofuel plant has also more than doubled in the past few years, with most new projects aiming to produce 100 to 125 million gallons annually. The larger scale is considered crucial to ramping up production for thirsty demand, from ethanol for passenger vehicles to biodiesel for semis barreling down the freeway. One billion gallons of biodiesel, for example, would be under 2 percent of the annual fuel needs of the American Trucking Association’s diesel rigs.

“It’s all about scale, in that we’re never going to produce enough to make a difference environmentally and other ways unless we scale up,” says Ian MacNeil, vice president of Seattle biodiesel start-up Planetary Fuels LLC. “The larger the batch, the more economical it is to make.”

No secret sauce
While America’s corn and soybean heartland has until now produced the majority of raw material for biofuels, Northwest farmers are beginning to see prices that make sense for them to increase acreage of regional feedstock crops like canola and mustard seed. “If yields were increased, prices could possibly go lower,” says Brent Searle, special assistant to the director of the Oregon Department of Agriculture.

Jay Gordon, a dairy farmer in Elma, Wash., is even attempting to grow organic canola for biodiesel. The economics will work, he told Oregon Public Broadcasting, because the organic meal byproduct can feed his cows in winter.

But while feedstock costs represent a significant percentage of the price of making biofuel, a little bit of profit must be distributed to everyone in the fuel-making chain for overall infrastructure to mature, Searle said.

“If you have huge plants looking only for the cheapest feedstock, in my perspective it won’t benefit the agricultural community here and is not a sustainable model,” Searle says.

John Plaza, Imperium Renewables. Courtesy Imperium Renewables

Plaza, a former pilot who risked his 401K some years ago to found Seattle Biodiesel, made waves in the biofuel community when his newly renamed company Imperium Renewables announced it had leased land in Gray’s Harbor to build a biodiesel plant [see “Washington readies large biodiesel plant,” SIJ, July 2006]. In the press, Plaza let it be known Imperium would likely use imported palm oil as feedstock at the new plant, scheduled for completion in 2008. Industrial palm cultivation has been blamed for rainforest decimation in tropical regions. The pronouncement caused many to wonder if Imperium was making the same mistakes as fossil fuel refiners by depending on centralized production and imports.

“How sustainable do you think that is?” asks Al Gosiak, president of Pendleton Grain Growers, a farmers cooperative and seed-crushing operation near Pendleton, Ore. “Isn’t that the type of short-term capitalist swine-dog thinking that got us where we’re at in the first place?”

Gosiak, who labels himself a “good Republican with red state credentials,” says his preferred model is to decentralize feedstock crushing, setting up as many as six crushers near where feedstocks are grown. He also says he wants to give farmers a share of the profits.

“The main issue confronting us all is to define what sustainability really means, and what are we willing to do to get there,” Gosiak says. “Isn’t it a wiser idea setting up cooperatives, giving farmers an interest in the business?”

Plaza defends Imperium’s growth strategy and credentials. “First of all, when did having 36 employees dedicated to change and a healthy planet get labeled ‘big’?” Plaza asks. “Yes, we have big plans — we will be one of the biggest biofuel producers in the U.S., we hope! That is why we started this. It takes big production to really make it available to folks.”

Plaza says press reports mistakenly characterized palm oil as a main feedstock at the new plant. “We never said we were going to use 100-percent palm,” he says. “We indicated palm oil, amongst a group of oils, would be used by our facility. We anticipate approximately 40 percent of our production could come from palm oil.”

Acknowledging the downside of palm production in Southeast Asia, Plaza says that by being involved and demanding sustainable palm oil production, his purchasing power can force change.

Planetary Fuels’ Ian MacNeil says he understands Imperium’s desire to use palm oil, not only for its low price but also for its high iodine content which makes it a good blending agent with low-iodine soy. But Planetary is aiming for smaller-scale production and partnering with crushing facilities and regional distributors to produce between 2 and 8 million gallons of biodiesel per facility, with total production of about 30 million gallons. “There’s no secret sauce,” MacNeil says. “We just aim to produce with a cost-competitive model. Time to market is key.”

Planetary is not currently planning palm oil use in its feedstock strategy. MacNeil says current feedstock choices include canola and soy, and if needed, beef tallow, “yellow” grease and other waste products from animals.

Many in the industry say the problem of finding the best and lowest-priced feedstocks for both ethanol and biodiesel is nowhere near solved. Some researchers deride corn-based ethanol because its yield is relatively low compared to the energy and environmental costs of raising corn [see “Ethanol’s wherewithal,” SIJ, May 2006].

Earth Policy Institute President Lester Brown wrote in a recent Eco-Economy Update that sugar prices have risen since Brazil focused its domestic fuel program on bioethanol production. The possibility of rising food prices from biofuel demand threaten to cause hunger and political instability in grain-importing countries, Brown cautioned.

Cellulosic technology promises to increase the efficiency in converting biomass to ethanol, and it creates a number of profitable energy feedstocks from what was once considered mere waste: wood chips, switchgrass, etc. and other grasses — for use as profitable feedstocks.

Pond scum to phytoplankton

A melting pot of rejected snack cakes, stale beer and apple cider pulp is brewed for ethanol. Courtesy Ecogenics

Mark Cardoso, president of Ecogenics based in Sevierville, Tenn., is a longtime biofuels proponent. For the past decade, Cardoso has experimented with a vast number of boutique feedstocks — everything from rejected Little Debbie snack cakes to stale beer to homegrown algae — to make both ethanol and biodiesel. Instead of letting entrepreneurs and investors grab the lion’s share of the biofuels opportunity, Cardoso says he wants to license his technology and know-how to communities and entities interested in self-sufficient biofuel production.

“I’m absolutely committed to another way,” he says. “Whether I’ll succeed is another question.” Using food crops for fuel is ultimately untenable, Cardoso says. “The real wealth is in waste and garbage,” he says. “Small is big. We need to look to the world of microbes and molecules for help.”

Algae are currently one of his favorite boutique feedstocks. Cardoso is experimenting with a trial to see which of his homegrown algae varieties is the most efficient at yielding oil for biodiesel.

Microalgae like these are being engineered to aid in biofuel production. Paul Roessler. Courtesy NREL DOE

Cardoso is not alone. Planetary’s MacNeil sees great promise in algae as a feedstock, and a handful of new companies, some clustered in Australia, are racing to find efficient means to turn large amounts of the greenish-brown pond scum into biofuel gold.

Meanwhile, Craig Venter, the scientist-investor who helped crack the human genome, has formed the company Synthetic Genomics Inc. to design “specifically engineered cell level bio-factories” — or in other words, entirely new organisms that can make fast and efficient biofuel. And in the tiny town of Alicante, Spain, researchers are busy breeding phytoplankton for biofuel oil.

Prescient biofuel advocates admit that no single source can be a silver bullet feedstock. Efficiency and conservation are considered equally if not more important weapons in battling climate change and building a renewable energy economy. In the biofuels business, many winners and losers are still to come.

“Remember all the companies that invented some really kick-ass Internet technologies that never had time to make it to market before the market crash?” MacNeil asks. “That’s what’s going to happen to this industry. Right now it’s wild growth and still so much opportunity available. We are convinced to get in and stay in, the model has got to be self-sustaining.” ●