Report highlights corn ethanol’s role in cellulosic development

By Erin Voegele | April 03, 2015

Third Way has released a report highlighting the connection between first- and second-generation ethanol and the need for continued implementation of the renewable fuels standard (RFS). 

Within the report, Third Way points out that 80 percent of commercial cellulosic ethanol capacity in the U.S. has been developed by companies with extensive backgrounds in corn ethanol. According to organization, continued investment from these companies is critical to growing U.S. cellulosic capacity, especially in the near-term. First Way also stresses that certain proposals to reform the renewable fuel standard (RFS) would discourage engagement from the corn ethanol industry, causing delays in the commercialization of cellulosic ethanol in the U.S. Tampering with the RFS could also drive investment overseas.

Third Way’s report notes that there are two main obstacles the industry has to overcome to commercialize cellulosic ethanol production. The first is technology; the second is economics. Regarding technology challenges, the report indicates today’s cellulosic ethanol producers have addressed technology challenges by taking advantage of in-house research and development capabilities they developed through their corn ethanol businesses and by coaxing top biotechnology firms into strategic partnerships. The report offers Abengoa’s in-house research and development, Poet’s partnership with Royal DSM, and Quad County Corn Processors’ partnership with Syngenta as examples.

Regarding economic challenges, the report notes that cellulosic ethanol plants—like any first of kind project—are expensive to build. The average cost is estimated to be roughly five times the per-gallon cost of a standard corn ethanol plant. “And because of the technology and regulatory risks associated with cellulosic projects, the few lenders who are willing to invest expect incredibly high returns,” said Third Way in the report. “The first generation companies that have overcome this challenge used resources and expertise acquired from their corn ethanol businesses to secure financing and to cut their capital and production costs.”

In general terms, the report notes that the recent financial crisis and instability in federal biofuels policy has dampened investor interest in biofuels. However, the technology risks of cellulosic ethanol, which were publicized by several high-profile failures, have made venture capital and private equity financing for these plants even harder to secure. To overcome these challenges, established ethanol companies have taken advantage of opportunities that would be difficult for the average startup to access. The report points to the examples of Abengoa, DuPont and the Poet-DSM partnership as entities that were able to self-finance their cellulosic efforts. The report also addresses ways cellulosic companies have aimed to cut capital and operating costs. One such strategy involves colocating cellulosic facilities with existing corn ethanol plants.

Within the report, Third Way notes that the four ethanol companies it examined all have plans to rapidly expand their technologies to additional facilities. This expansion could help bring the cost of cellulosic ethanol down. However, the organization points out that efforts to alter the RFS could derail those plans.

“While proposals to gut only the corn section of the RFS may not be intended to endanger the development of cellulosic ethanol, this is exactly what would occur. Given the nuances of current fuel markets and how they interact with the RFS, these proposals will discourage cellulosic ethanol investment by companies with a large stake in corn ethanol—the very companies that are helping to commercialize this long-sought fuel,” said Third Way in its report.

Bob Dinneen, president and CEO of the Renewable Fuels Association, said the report underscores the synergy that exists between grain ethanol and cellulosic ethanol technologies. “The continued evolution of biofuels depends on consistent policy and growing markets. Legislative efforts to undermine either will set the nation’s energy and economic future back generations. Third Way should be commended for adding a thoughtful component to this ongoing discussion and I can only hope that it is read with interest by Senators Feinstein and Toomey,” he said.

The Advanced Ethanol Coalition also applauded the report.  “The Third Way report on the RFS is a breath of fresh air in a discussion often polluted with misinformation,” said Brooke Coleman, executive director of the AEC. “The report highlights the fact that second generation biofuels are piggybacking on the successes of first generation biofuels, in much the same way that innovations in the solar and wind industries are outgrowths of the successes of those industries to date. But the biggest point, coming from a thought leader in the space like Third Way, is that Congressional intervention on the RFS would be highly detrimental to the deployment of cellulosic biofuel. There is certainly some tuning that needs to occur administratively, but Third Way is right that Congress should leave the RFS alone.”

Tom Buis, CEO of Growth Energy, also spoke out in support of Third Way’s report. “This report confirms what the biofuels industry has been saying for some time now – that you cannot have cellulosic ethanol without the continued production and support of grain-based ethanol. The two are tied together and first-generation ethanol production is the true building block for the next generation of fuels,” he said.

A full copy of the report, titled “Cellulosic Ethanol is Getting a Big Boost from Corn, for Now,” is available on the Third Way website