Codexis (CDXS) and Mascoma show that low-cost sugar is the key, as advanced biofuels moves from R&D into industrial era.
There used to be a restaurant in lower Manhattan called Exterminator Chili. Decorated in Elvis garb, it served world-class chili for the enlightened chow hound, in three grades of heat: residential (hot), commercial (blistering), and industrial (melt steel in your mouth).
The proprietors would have understood little about advanced biofuels and nothing about the importance therein of low-cost sugars. But they did understand that the bigger the scale, the hotter you were. And that the highest summit was the reaching of industrial scale.
Why hath industrial scale proved so elusive in advanced biofuels?
“The government rushed into investments, with no diligence,” says Codexis chief Alan Shaw. “They are just not industrialists, in my opinion.”
Two major announcements this week drive the point home in advanced biofuels.
In California, Codexis introduced its CodeXyme Cellulase enzyme product line for bio-based chemicals, converting biomass to low-cost sugars. The platform, which includes a pretreatment process as well as enzymes for conversion and post-pretreatment, was developed with Chemtex, and utilizes the cellulase platform developed for Shell, and already is in use at Iogen.
In New Hampshire, Mascoma and Valero announced a joint venture to develop and operate a 20 million gallon per year commercial-scale cellulosic ethanol facility in Kinross, Michigan. The cost to construct, commission and start-up this facility is expected to be approximately $232 million. These costs are fully funded, with Valero providing the majority of the financing, and the remainder from awards by the U.S. Department of Energy (DOE) and the State of Michigan. Construction of the Kinross facility is anticipated to start in the next three to six months and is expected to be completed by year-end 2013.
The common problem: high-cost sugars
Codexis CEO Shaw has made the point before: when it comes to making drop-in fuels or many renewable chemicals, “first generation sugars are a failed model, particularly for diesel. The problem in the sector has been the lack of a cellulosic technology.”
The difficulty, he has explained, is the problem of making $275 per tonne sugar work in a $750 per tonne diesel market, when you lose 60 percent of the mass in the conversion, when the oxygen is blown off from biomass to make a hydrocarbon.
Reaction from industry? “I agree,” commented UOP general manager Jim Rekoske, whose company does a lot of the upgrading work from, say, renewable oil to diesel and jet fuel.
The common solution: low-cost sugars
Though it has proven incredibly time-consuming to develop the operating systems for liberating cellulosic sugars from biomass at affordable rates, companies such as Mascoma and Codexis say they have cracked it. Codexis, using its collection of technologies that improves the activity and performace of enzymes. Mascoma, with its consolidated bioprocessing approach, which eliminates the separate hydrolysis step altogether, performing the hydrolysis and fermentatinon in one consolidated step.
Novozymes and Genencor are also in the race, with small start-ups such as HCL CleanTech and Comet Biorefining also focused on the same niche. Then, there are companies like Proterro, which synthesize (or is that sun-thesize?) low-cost sugars directly from water, CO2 and sunlight using a modified organism, bypassing biomass altogether.
Codexis and the pursuit of renewable chemicals
Now, in the case of Codexis, the company is focused, with CodeXyme, on the production of higher value chemicals, such as CodeXol Detergent Alcohols. The company expects to have commercial samples for customers in the chemicals industry broadly available in the second half of 2012. In the meantime, and in the fuels arena, the company is focusing on its deliverables for Shell and its fuels JV with Cosan, Raizen.
Mascoma, Valero and the pursuit of renewable fuels
By contrast, the Mascoma-Valero deal is all about fuels, specifically low-cost cellulosic ethanol. Under the agreement Valero will provide project management to build and will operate the Kinross facility, will hold a majority interest in the joint venture, and will have the option to expand the Kinross facility’s capacity to up to 80 million gallons per year. Meanwhile, Mascoma will receive royalties for a certain time period based on ethanol yield milestones. In addition, Mascoma and Valero have developed a framework agreement for partnering on additional cellulosic ethanol facilities beyond Kinross.
The Brazil option
“At Cosan Day in New York [their day for analyst presentations],” commented Shaw, “Cosan said that two of their top four priorities in the next 2-3 years relate to deploying second-generation technologies.”
It’s not hard to see why, Shaw contends. “Raizen is Brazil’s largest sugar producer. The liberate sucrose from the cane, and sell it as sugar or ferment it into ethanol. They have mountains of bagasse, which generates very low value for them. In our process, we liberate glucose from biomass. It can’t be used for the sugar market, but it can be used to make ethanol. So, ethanol producers can divert more of the sucrose to the lucrative sugar market, and use glucose to make ethanol. It’s making gold from dirt. We’ve modeled it at $50 per ton, and in Brazil it can be aggregated for as little as $10 per ton.”
So, customers? “Chemical companies, sugar producers, and engineers,” says Shaw. “But, above all, the sugar companies.
Back in North America
In North America, many of the primary feedstock producers are sitting on their hands, owing to the problem of aggregation. Corn producers are balking at the aggregation of corn stover without government support. Forest owners are similarly strapped for cash.
Waste stream feedstock companies have been highly active to date, among other reasons because the feedstock is already aggregated. Hence Valero’s co-investment with Darling in renewable diesel from animal rendering waste (Diamond Green Diesel), or its co-investments with Waste Management in Terrabon and Enerkem.
But, now, the barriers may be falling. Valero has bitten the bullet with Mascoma – combining with Mascoma’s private investors, and the federal government (in the form of DOE grants), to bring the technology to industrial scale in the US.
Over in Florida, BP has also moved forward in developing its own vertically integrated approach, where it will directly develop and contract with farmers for dedicated energy crops such as miscanthus.
The business model
Well, Mascoma is tight lipped, owing to their impending IPO. But Codexis says, “We make very good margins on the enzymes. But we think of this as a complete operating system for low-cost sugars. And I want us to be focused on getting this OS adopted as the OS of choice.”
“The flood gates will open,” says Shaw. “There is no shortage of cash or capital. What is desperately thin on the ground is confidence. When proved, other capital will follow. Meanwhile, look at Guido Ghisolfi over at M&G, who said ‘I have put $300 million of my own family’s money into this.’ That’s the kind of vision you are starting