Early stages of beyond petroleum strategy for BP, year 2000, steve wittrig assessment of future of biofuels for transport and chemicals

1. Bioethanol Status
General Overview/Executive Summary
On May 23, I visited the bioethanol/biotechnology teamat the National Renewable Energy Laboratory
(NREL) in Golden, Colorado. This group is the nexus for the technology development and
commercialization efforts in the US for creating processes forethanol from cellulosic biomass (e.g.,
agricultural wastes,forest thinnings,municipal solid waste/sewage sludge,energy crops). NREL is the
primary government laboratory for bioethanoland biotechnology. They have a large (approx. 5000 sq ft,
$12 MM) integrated bioethanoldemo plant; several laboratories for bioengineering, product
characterization and process development; and a team of engineers working on process
simulation/economics to compare the various processes in development and to guide the research. In
addition, they manage several DOE grants to companies working on various aspects of the technology and
have technology partnerships with most of the substantialprecommercial demonstrations of bioethanol
production.
Their general goal in bioethanolis to reduce the cost of production of ethanolto $0.60/gal within 15 years
(equivalent to cost of production of sugarat $0.04/lb). Achieving this goal will require very significant
advances in feedstockcost and reliability, pretreatment and enzyme costs,fermentation technology and
process integration. Current estimated costs for the most promising technology (enzymatic hydrolysis)are
about $1.50/gal. See Figure 1 for their projections of costs if they achieve the technical targets they have
set out (I have a very detailed draft of their technology plans and objectives for anyone that’s interested.)
Figure 1
Bioethanol Cost Projections, From NREL Presentation
For those that want a bottomline assessment early on in this report, my opinion is that these cost targets are
going to be very tough to meet for a stand alone, moderately sized facility that only produces ethanoland
electricity (the base case portrayed in Figure 1). The overall program has the same “feel” as many of the
synthetic fuel programs that we worked on in the late 70’s and early 80’s. That is, brave targets set out for
several different aspects of the technology along with plausible research programs for achieving each one
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
Base Case Best of
Industry
Year 2005 Year 2010 Year 2015
EthanolProductionCost($/gal)
$15 / dry
ton
$25 / dry
ton
$40 / dry
ton

2. but, overall, a low composite probability of being able to make all the targets and construct a successful
integrated process out of it.
That being said, there are several factors that could lead to this becoming important technology and,
potentially, a very large source of ethanol. I list some examples below.
 Other, more valuable, products from the sugars produced in the first step. Industry input to NREL in
the last year has been strongly along the lines that the sugars produced in the firs t hydrolysis step are
significantly cheaper than from corn or sugarcane and that the highest value use of those sugars is not
necessarily to “degrade” (i.e., ferment) them all to fuel grade ethanol. This has caused a general
rethinking of the approach that they were taking to maximizing ethanolyield from a range of sugars
through complex bioengineering of fermentation organisms. For instance,the Arkenol plant is now
aimed at a split of producing citric acid and ethanol. As this general idea develops, biotechnology may
lead to the potential for several high value products at sufficient scale to support substantialindustry
with ethanol as a large volume byproduct.
 Revenue from waste management. For example, the Masada plant will take in municipal solid waste at
$50/ton tipping fee and sewage sludge at $85/ton. Only about 20% of the projected revenue of the
plant is from sales of ethanol. This allows a much more “relaxed” set of constraints on ethanolyield
and therefore, presumably, less sophisticated and more robust processing and biotechnology (e.g.,
converting only the glucose using standard fermentation organisms).
 Possible government and/or“societal” credits or subsidies for consideration of greenhouse gas
avoidance (e.g., carbon credits), energy security, etc.
 Larger scale. The current base case size of bioethanolplants is about 1/5 the ethanolproduction of the
largest corn based ethanolplants. This is due to the fact that the radius of collection for currently
proposed sources ofbiomass gets so large that the cost of feedstock becomes prohibitive. In the future,
if large scale concentrated reliable biomass sources become available (e.g., energy crops (land or sea
based),municipal waste), the conversion plants will become larger and benefit from economy of scale.
General conclusions for bioethanol:
 This type of technology will not be producing substantialvolumes of ethanolin the next ten years.
The biotechnology is still developing to support it and the process integration is in an early stage (first
wave of substantialintegrated plants at semi commercial scale starting up in 2002). If everything goes
right (and that’s a pretty big if), we might have the first relatively competitive plants (probably still
subsidized at that point) at substantialscale starting up in 2007/2008. The industry will wait to see
performance from those plants before any substantialsubsequent build will take place.
 In the longer term, this push for technology from governments and society in general is likely to lead
to advances in biotechnology/engineering and entreprenuerial niches that make projects happen based
on a variety of revenue sources beyond ethanol. This will be supported by trends toward sustainability,
greenhouse gas reduction,local energy security, agricultural interests and advances in genetic
engineering.
 This is not something that is a short term threat to our ethanolbusiness nora short term source of
ethanol for oxygenated fuels. It is something that we should be thinking about now in terms of the
2010+ time frame. It is possibly the first wave of biotechnology based industry that could be of the
scale to have an important impact as a competitor for commodity petrochemicals (starting with acetic
acid, solvents and polylactic acid). It could build on the subsidized platform of corn-derived ethanolas
an oxygenated component of clean fuel for internal combustion engines. Eventually, it could develop
into a preferred base fuel (either for IC engines or fuel cells) based on producing a liquid fuel that has
much lower life cycle emissions of CO2.
The remainder of this report will be sections with more detail on various aspects ofthis technology for
those that wish to see more detail - General Economics and Leverage Points, Large Projects in Progress and
Interesting Miscellaneous Points of Interest
General Economics and Leverage Points

3. Figure 2 shows a general overview chart of the primary cost elements associated with the current state of
technology. As best I have determined, this graph represents current “best of industry” technology with
$25 per ton feedstock (i.e, very optimistic current status). I can confirm the exact case if that becomes
important in any decisions we want to make. Several points below:
 Feedstockcost is a dominant element. $25 per ton is well below any current estimates for costs ofvery
large volume feedstocks (e.g., corn stover, energy crops). Current estimates are more along the lines of
$30-40 per ton.
 Pretreatment and enzyme production (for cellulose breakdown) are the largest areas targeted for cost
reduction in the process. NREL is looking for a 10 X improvement in combined cost and effectiveness
of the cellulase enzymes. NREL is working on a significant improvement in cost and effectiveness of
pretreatment using countercurrent flow reactors.
 A very large influence on the economics is the integration with power/steamproduction and the
assumptions on the cost and the ability to export electicity to the grid. If the project can be associated
with an existing power plant, most of the capex and distribution costs can be avoided and this can
significantly improve the overall economics. This is being explored in the Collins Pine Project.
Cost Contribution by Process Area - Enzymatic Based ProcessCost Contribution by Process Area - Enzymatic Based Process
Figure 2
Bioethanol Cost Elements, From NREL Presentation
-$0.25 -$0.15 -$0.05 $0.05 $0.15 $0.25 $0.35 $0.45
Feedstock
Feed Handling
Pretreatment
Ethanol Fermentation
Enzyme Production
Product Purification
Stillage Treatment
Waste Water Treatment
Utilities
Storage
Cost per Gallon of Ethanol
Capital Raw Materials Process Electricity Grid Electricity Fixed Costs
Boiler/Turbogenerator

4. Large Projects in Progress
There are several large projects being advanced to prove early versions of bioethanol technology. They are
mostly based on niche opportunities for low cost feedstock, some government support,and investorinterest
in proving a leading technology for what is perceived as a very large volume opportunity. Bullet point
summaries of the major projects below:
BCI Jennings Project
 20 million gallon per year ethanolfrom bagasse facility in Jennings, LA
 $120 MM project
 Goldman Sachs/Lehmann Bros coordinating bond financing, should be done within a month
 Based on conversion of an old corn ethanol plant
 Dilute acid hydrolysis in conjunction with U.S. patent No. 5,000,000 for recombinant E. coli
 DOE has provided about 10% of the total capital to reduce the project risk
 NREL has provided technology demonstration support
 Estimated commercial operation date 2001 (probably slipping to 2002)
Masada NY Project
 10 million gallon per year ethanolfrom municipal solid waste facility in Middletown, NY
 Industrial revenue bonds,$200-$250 MM project
 Majority of revenues from waste treatment; only about 20% of revenues from ethanol
 Have acquired feedstockcommitments and site commitment
 Permitting is underway
 Need vendor and process guarantees
 Estimated commercial operation date 2001 (probably slipping to 2002)
Gridley Project
 20 million gallon per year rice straw and wood waste to ethanol project
 $80 MM project
 BCI-Gridley LLC is the owner/operator & BCI is the technology provider
 NREL/BCI CRADA - a Cooperative Research and Development Agreement to demonstrate BCI
ethanol production technology at the bench and pilot scales
 New biomass ethanolfacility to be co-located with the Ogden Pacific Power POPI biomass power
plant
 NREL to coordinate production of lignin for combustion tests at Energy and Environmental Research
Center in North Dakota
Collins Pine Project
 $1.1 million award from the CEC PIER Program second general solicitation
 Collins Pine/BCI joint venture proposed
 Convert softwood forest thinnings and mill residues to ethanol at Collins’ Chester, CA facility
(lumber mill and 12 MW biomass power plant)
 Ethanol and biomass power integration issues will be investigated
 Evaluate higher value products from softwood extractives
Arkenol

5.  8 million gallon per year rice straw to ethanol project
 $100 MM project
 Near Sacramento
 Producing citric acid and ethanol
 Key engineering, permitting, and financing activities are under way through a partnership with DOE,
which has committed $4 million
Interesting Miscellaneous Points of Interest
 BCI appears to be the overall leader in developing and commercializing the technology. Two of
NREL top people in this area have left in the last few years to join BCI. They are leading three
different projects (Jennings, Gridley and Collins Pine). They are mentioned as the group with the most
savvy in putting togetherprojects and the business framework around them.
 The two largest (dominant) players in the enzyme industry are Novo and Genencor (both in
California). All of their competitors are an order of magnitude smaller. NREL has been working with
both companies to convince them to carry out development projects to create cellulase enzyme systems
for bioethanol. Up until this year, neither company was willing to divert the resources from other
higher value projects. Earlier this year, both decided that the otheraspects of the bioethanol
technology were far enough along that it was worth the effort. Both submitted proposals in response to
a DOE RFP. Genencor was just awarded a $15 MM, 3 year contract to develop an enzyme system
with 10 X improvement in cost effectiveness compared to current performance. They believe that is a
plausible objective.
 There are various classes offermentation organisms (ethanologens)basically divided into yeasts and
bacteria. The strategy appears to be to take the best performers and, through genetic engineering and
directed evolution, improve their characteristics with respect to the range of sugars they can convert,
their rates, their tolerance to inhibition and their capability to operate at progressively higher
temperatures. From my admittedly uninformed perspective on this, there don’t appear to be any clear
front runners in this race because there is still a long way to go and these things depend on the
pretreatment and the substrate/feedstock. They did mention three important groups - BCI’s E Coli,
NREL’s Zymomonas and Nancy Ho’s modified yeasts. It will be worth a visit to Purdue to see what
residual rights we have for ProfessorHo’s work. I will follow up on that.
 They are also working on possible high value products that might be produced from lignin. At this
point, their processes and economics are based on burning the lignin to produce steam and electricity
to run the plant (and for exported electricity). They are working on depolymerization and
hydrodeoxygenation of the excess lignin to produce high octane fuel blending components. One area
of possible interest to us is that the product contains subtantialamounts of xylenes that might be useful
as a chemical feedstock.