Seminar: The Biorefinery Opportunity: Real or Imagined?
Speaker: Jeff Passmore – President, Passmore Group
Date: February 13, 2012
About the Speaker
Jeff Passmore is the founder and President of the Passmore Group, where he provides policy and communications advice to clients in the public and private sectors in order to accelerate the deployment of innovative energy and environmental solutions. He previously served as Executive Vice President of Iogen Corporation, an Ottawa-based company with extensive experience in cellulosic ethanol production. He has also served roles in various renewable energy organizations, including the Canadian Renewable Fuels Association, the Solar Energy Society of Canada, and the Canadian Wind Energy Association.
About the Seminar Series
This presentation is part of an ongoing series of seminars on aspects of sustainable energy which are organized by the Carleton Research Unit in Innovation, Science and Environment (CRUISE) and the Carleton Sustainable Energy Research Centre (CSERC). The seminar series was established in 2010, and since then has covered diverse topics ranging from examinations of the sustainability of nuclear power, to Aboriginal energy projects in Canada and their ability to catalyze action on climate change.
All figures stated in this document are repeated here as presented by Mr. Passmore during his presentation.
Biorefineries
Biorefineries can be understood as a sustainable analogue to petrochemical refineries; much as a petrochemical refinery receives hydrocarbon inputs which are developed and separated into a variety of products, a biorefinery accepts biomass inputs and processes them into biofuels and bioproducts. Biofuels include products such as biodiesel and ethanol products; in contrast bioproducts are a diverse set leading to such ultimate products as plastics, adhesives, rubbers, fibres, and textiles, among others.
The value proposition of biorefineries is clear: the global market potential in 2015 for major bioproducts from biorefineries such as green chemicals, alcohols, bio-resins, and wood/glass/carbon fibres is projected to total almost $194 billion, according to a number of presented industry figures. In comparison, Canada’s forest products industry, widely recognized as a large resource-based contribution to the economy, is projected to total only $50 billion in the same year. While the market value of biofuels and bioproducts is already large, this value will continue to grow as the market further develops. At the same time, use of biorefineries in the production of bioproducts may serve to stabilize price of biofuels; this stability is likely to help biofuels earn market share in the colossal crude oil and liquid fuels market, which the US Energy Information Agency estimated at a total of $2.5 trillion in 2010. It is this greater market for fuels which Mr. Passmore envisions as the true goal for biorefineries: while bioproducts represent a sizeable market, the market for biofuels is where the long-term value proposition for biorefineries is to be made.
The capacity to implement biorefineries already exists at present; they have been the subject of a wealth of research, and many start-ups have appeared, as well as a number of operational renewable fuel and renewable chemical demonstration plants. These technical demonstrations, combined with what Mr. Passmore estimates as 150 million tonnes of biomass immediately available from North America and Europe (given an assumption of 30% availability), indicate sufficient capacity for the initial set of biorefineries to produce the first billion gallons of biofuels. Despite this, no commercial facilities are currently operating.
Challenges to Biorefinery Development
Mr. Passmore posits that the greatest challenge to the creation of operational biorefineries and the beginning of a viable industry is essentially one of money: a fully integrated “greenfield” biorefinery, purpose-built to produce biofuels and bioproducts on a large scale, requires $400 to $700 million in capital. In addition, great uncertainty also exists surrounding the marginal cost of production of biofuels, which lie at the heart of the biorefinery proposal. While technical demonstrations indicate feasibility of operation, the uncertainty surrounding the marginal costs of production cause facilities to be classified as below investment grade (below BBB). In this situation, the total investment is too high for venture capitalists, while large strategic investors are unwilling to invest due to low returns. While some market share is available to green products by virtue of their “green” nature, Mr. Passmore argues the majority (>85%) must compete on price; without certainty of costs, biorefineries are not an attractive investment at present.
Alternative Approaches
With large-scale facilities stalled due to financing concerns, alternative approaches are necessary in order to boost confidence, and subsequently attract investment. To these ends, Mr. Passmore proposes two possibilities: small-scale plants or retrofitted facilities, and “bolt-on” systems to operating facilities.
A first solution lies in the creation of small-scale plants producing higher margin products. Whereas biofuels lie at the heart of the “greenfield” facility proposition, these specialized plants would emphasize production of lower-volume but higher-margin bioproducts. In doing so, the plant would increase profitability while also increasing understanding of the marginal costs involved in biofuel production. Such plants could be purpose-built on a small-scale, or alternatively be created through retrofitting of existing facilities; Mr. Passmore suggests the former pulp and paper mill in Thurso, Quebec, which now operates as a specialty cellulose and biomass cogeneration facility, as a notable example.
A second potential solution is the development of “bolt-on” systems, which are integrated with operating facilities that are already producing biomass as a byproduct of their main business. This approach offers an elegant solution, allowing for both the productive use of waste biomass as well as securing a low cost, stable input for production of biofuels or bioproducts. Opportunities for such systems exist in many industries such as pulp and paper mills, but as they cannot be purpose-built like standalone facilities, identification of potential partnerships and definition of the value-added proposition to the company are key factors in their development and potential to succeed.
Both of the approaches explored above may be sufficient to achieve the milestone production of the first billion gallons of biofuel, thereby helping to ease the transition to larger-scale biofuel production. However, Mr. Passmore argues that these gains will still be insufficient to launch the biorefineries industry: ultimately, large-scale facilities with large amounts of financing are required.
How to Make it Happen? Policy Solutions
To these ends, Mr. Passmore proposes government intervention in the form of carefully crafted tariffs or similar instruments as a means of stimulating investment in the production of biofuels. As governments are interested in stimulating development and reaching a “tipping point” to trigger market changes, and not in the biofuels themselves as a physical product, Mr. Passmore suggests programs which reward companies which achieve success in bringing product to market, but which would also result in no government expenditure in the event of failure. Such instruments would be similar in nature to the power purchase agreements seen in Ontario’s renewable energy standard offer program (RESOP) or the Feed-in Tariff program (FiT) which replaced it. Through such government programs, Mr. Passmore argues that price stability could be achieved, thereby unlocking private capital and allowing the development of the biorefinery industry to proceed. He also notes that such industry development is likely an eventuality: as seen previously in other renewable energy technologies such as wind turbines, should Canada fail to invest early on the product will still eventually reach the Canadian market. The only remaining question is thus whether sufficient political will exists to foster development of a domestic biorefinery industry.
by Gordon Baird,
M.A. Candidate in Sustainable Energy Policy
To view his presentation, click on the following link: