As nations grapple with emissions, oil-security, and energy-price matters, aggressive investment, regulation, and corporate involvement have propelled the alternative-fuels industry to commercial relevance. Alternative fuels today have a total capacity capable of replacing 4.8% of current oil capacity.
However, growth has slowed significantly. Since 2005, annual capacity growth has been roughly 22%; but growth through 2015 will be about 5% per year. As supply grows and logistical hurdles associated with feedstock and fuels increase, a new crop of technologies is emerging to add to the growing alternative-fuels space.
According to Lux Research, the world has capacity to produce 32.7 billion gal (124 billon L) of ethanol, 15.6 billion gal (60 billion L) of biodiesel, and 1.0 billion gal (4 billion L) of other alternative fuels today—4.8% of the 1023 billion gal (3872 billion L) conventional market.
Flawed though they are, biodiesel and ethanol account for 98% of all biofuels in the world. But because of those flaws—technical and logistical issues, fuel blend limits, and the nagging food vs. fuel debate—ethanol and biodiesel capacity will grow relatively slowly for the next five years, with ethanol growing at 5.6% annually and biodiesel 1.9%. Even with their slow growth, ethanol and biodiesel will remain the dominant fuels in 2015, accounting for 96% of total alternative fuels. Then they will start to cede ground to the faster-growing renewable diesel, which is the brightest crayon in the box of other fuels.
Ethanol is the most geographically consolidated biofuel, with Brazil and the U.S. accounting for 76% of global ethanol capacity thanks to massive supplies of sugarcane and corn, respectively, and favorable government support. Europe represents a meager 9.3% of global ethanol capacity, and China dominates the Asia-Pacific region in ethanol capacity today. North America and South America have a combined 4.2 billion gal (16 billion L) of biodiesel capacity installed today, representing 29% of the global biodiesel capacity. Europe dominates biodiesel capacity with 46% of the global total, or 6.6 billion gal (25 billion L).
Public sector support
Alternative transportation fuels stand where they do today thanks in large part to aggressive government targets of alternative-fuels blending, and the subsidies and loan guarantees to help reach that goal. These policies—and their level of success—vary from region to region and even city to city, because the entire alternative-fuels ecosystem is hyperlocal. Regulators hope to help alternative-fuels developers compete with the economics of oil by subsidizing crops and fuel blends, minimizing processing and logistical costs, and putting other rules in place that capitalize on local feedstocks to produce fuels for local markets.
Government support for biofuels comes in many flavors, with mandates, tax credits, tariffs, and loans the most common. Overarching mandates such as the Renewable Fuel Standard (RFS) in the U.S. are constantly under the microscope; this is currently the case due to high corn prices and unavailable advanced biofuels. Loan guarantees, similarly, are getting their fair share of scrutiny—the “No More Solyndras” Act to limit U.S. Department of Energy loan guarantees is currently heading to the Senate.
Throughout the world, debt crises and sagging economics are forcing regulators to slash budgets, and fuel incentives are often on the chopping block. Although pockets of government support exist today, investors and producers should focus on economics first, and look to government support later.
Generally speaking, yeast ferment corn- and sugarcane-based sugars into ethanol, and vegetable oils are catalytically converted into biodiesel. Biofuel companies, for the most part, capitalize on the “hyperlocal” nature of this industry—sourcing feedstock, producing fuel, and selling that fuel all in one region. As the aforementioned food crop economic and regulatory issues push fuel producers onto second-generation feedstocks, cellulosic ethanol producers are emerging with a range of different conversion technologies to economically extract sugar from cellulose. This conversion has been historically very expensive, but as costs decline producers are looking to capitalize on vastly cheaper and more abundant agricultural and forestry waste as the biofuel feedstock of the future.
Cellulosic fuel efforts will still be nascent in 2015, so that fuel type will remain a small percentage of biofuels even in the most optimistic scenarios. Even if all announced facilities are built on time, cellulosic ethanol would represent only 1% of total ethanol capacity in the world in 2015. Besides ethanol, cellulosic sugars will be converted into butanol, diesel, plastics, and other chemicals.
Additionally, waste feedstocks such as sludge, municipal waste, and waste vegetable oil are becoming a more attractive option, while the ultimate next-generation alternative-fuels feedstock, algae, mostly remains behind scale and is often used to produce omega-3’s, not fuels.
In addition to tapping into new feedstocks, companies are making new types of fuels; renewable diesel by Neste Oil is leading the way. (Renewable diesel is more similar to regular diesel than is biodiesel and can be blended into regular diesel at higher concentrations.)
Many next-generation fuel producers are inherently flexible, as producers can straddle the line between making fuels and chemicals. Selling into chemical markets can help producers get product online early, as those markets typically have higher-value products and an easier road to market. Gevo, for example, is producing bio-based isobutanol, which can be blended into gasoline or converted to diesel or jet fuel, though the company is targeting the solvent and chemicals markets (for rubber and PET, among others). Similarly, Virent’s aromatics platform can produce renewable gasoline, and also paraxylene for PET.
Large oil companies such as Shell and BP are not the only corporations driving this next wave of biofuels forward; OEMs such as General Motors and Volkswagen have several relationships with start-up biofuel developers including cellulosic ethanol hopefuls Mascoma and Coskata and renewable diesel producers Solazyme and Amyris. While these fuels are rather easy to drop into the existing fuel supply, other automakers are targeting novel fuels that would require a larger overhaul on infrastructure.
For example, Swedish DME maker Chemrec is part of a BioDME consortium that includes Haldor Topsøe, Total, Volvo Trucks, and Delphi. Through this collaboration, Haldor Topsøe will provide the technology to convert syngas to DME for use in Volvo’s DME-compatible trucks. The DME is transported to four fueling stations run by Preem and is used to power 10 Volvo trucks. Volvo reported positive results from the tests thus far, with the trucks covering over 450,000 km (280,000 mi) and experiencing a noticeable reduction in emissions.
While DME has an uphill battle to penetrate the passenger vehicle market due to infrastructure needs, this fuel type may find an easier path to market in truck and off-highway applications. Many delivery trucks and construction vehicles return to the same base every day and would require only one central fueling station, rather than multiple public stations.
Unlike other transportation applications in which the end user is purchasing the fuels, jet fuel purchasing is more centralized. With centralized purchasing, airlines are willing to invest in developing jet fuel opportunities, since jet fuel is such a large part of operating expenses. Both the aviation and off-highway industries present opportunities for developers to avoid some of the issues associated with fueling infrastructure that limit so many other alternative fuels.
This article was written for SAE Magazines by Andrew Soare, Analyst, Lux Research.