Lofty Biofuels Goals Rest On Investor Leaps Of Faith
SIOUX FALLS, S.D. — The U.S. could produce enough ethanol to displace nearly a third of all gasoline use by 2030, but gas would have to cost more than it does today for the plan to work, according to a study released Tuesday by Sandia National Laboratories and General Motors Corp.
The researchers found that annual ethanol production from plant waste and energy crops could reach 90 billion gallons by that date, with 75 billion gallons coming from cellulosic feedstocks such as switchgrass, corn stover, wheat straw and woody crops.
Cole Gustafson, a biofuels economist at North Dakota State University in Fargo, N.D., said the 90 billion figure is the most aggressive he's heard to date, far surpassing a federal mandate calling for 36 billion gallons of renewable fuel to be blended into gasoline by 2022.
"I really question if we can even make that," Gustafson said. "This technology has been very slow to evolve."
The government would need to protect the industry from low-priced competitors.
"What we end up finding is that we're going to have some significant challenges with regard to competing with very low priced petroleum products," said Art Pontau, Sandia's deputy director of combustion and industrial technologies.
The "seed to station" floor cost of ethanol without taxes is $1.50 per gallon, and gasoline will undercut it if it's priced below $2.25 per gallon without taxes, or $2.65 at the pump, the study found.
The average national retail cost for a gallon of gasoline on Tuesday was about $1.93. One year ago at this time a gallon cost about $2.95.
The cost of E85 ethanol was $1.655 per gallon Tuesday.
The study took a value-chain approach to cellulosic ethanol, accounting for the variety of feedstocks and processes to convert crops to fuel, as well as storage, transport and distribution issues, Pontau said.
"We didn't pick the most optimistic assumptions or the most pessimistic," Pontau said. "We tried to pick something that we thought would be manageable in this sort of environment and time scale."
Pontau said the study is designed as an evolving model that the industry can use to identify places where investment in research and development makes sense.
It found that cellulosic ethanol could compete with $90-per-barrel oil, assuming 91 gallons of ethanol could be produced from a dry ton of biomass, building a cellulosic ethanol plant would cost $3.60 per gallon of capacity and plants would pay an average of $40 per dry ton of feedstock.
Government incentives including carbon taxes, excise tax credits and loan guarantees could help draw investors by mitigating risk, Pontau said,
The study found no fundamental barriers to large-scale production of biofuels, assuming the technology matures as projected.
"We anticipate that there'll be an ever increasing efficiency in both the processing approaches and ability to get more yield per acre of the feedstock," he said.
Gustafson is not so sure.
"The challenges that we face in doing this are almost insurmountable," he said.
Existing corn ethanol plants have consistent performance benchmarks that translate well to a balance sheet, but the cellulosic industry is experimenting with a broad range of feedstocks that can be confusing to investors.
"Those variances are very unsettling to Wall Street, because they aren't assured that the technology in one place is going to work in another," Gustafson said.
On Tuesday, Vancouver-based Lignol Energy Corp. said it was putting on hold its plans to build a Colorado cellulosic plant that was to convert wood residues into ethanol. The biorefinery, a joint project with Suncor Energy, had been awarded a $30 million Department of Energy grant.
"They had technology that was looking very promising. The federal government thought so because they kicked in the dollars," Gustafson said. "But obviously, because of both market conditions and logistics, they're having a very difficult time going forward."
David Pimentel, a Cornell University ecology and agriculture professor and longtime ethanol critic, called the 90 billion gallon number "off the wall."
Unlike corn, cellulosic feedstocks have much fewer starches and sugars, and they're held tightly by a plant's lignin. Companies are working on ways to improve the process, but they're having difficulty making cellulosic ethanol cost competitive, he said.
A more reasonable goal would be 10 billion gallons a year from cellulosic ethanol within the next 10 years, Pimentel said.
Filed by Dave Burdick
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DIRK LAMMERS | February 10, 2009 12:02 PM EST |