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By Robert Rapier on Mar 19, 2013 with 32 responses

First Commercial Cellulosic Ethanol Plant in US Goes Bankrupt

First Qualifying Cellulosic Ethanol

bankruptcyLast year, to much fanfare, the first batch of qualifying cellulosic ethanol was produced (i.e., it qualified for credits under the EPA program for certifying ethanol for sales). I reported on the development at that time.

Western Biomass Energy LLC, a subsidiary of Blue Sugars Corporation (previously KL Energy) reported the major milestone of claiming the first cellulosic ethanol tax credits under the RFS2 for a 20,069 gallon batch of cellulosic ethanol produced from bagasse (sugar cane waste) in April 2012.

However, regular readers are aware that for years I have been deeply skeptical that cellulosic ethanol as envisioned by — and ultimately mandated by — the US government will be an economic and scalable fuel option. The obstacles to success are significant, and I have described them in detail on many occasions.

Nevertheless, there is the possibility that in some niche applications that modest amounts of cellulosic ethanol may be produced for sale. One of those niches is from waste biomass such as bagasse that is produced during the processing of sugarcane. But in general – despite the proclamations from promoters like Vinod Khosla – the chemistry and physics are formidable obstacles working against the success of cellulosic ethanol. I will state in no uncertain terms that I don’t believe it can ever be mass-produced more cheaply than corn ethanol, and that industry’s financial troubles are well-documented.

Another Reality Check

I was extremely skeptical that the batch of cellulosic ethanol produced by Western Biomass was anything more than a publicity stunt rather than an indication that they had actually managed to conquer the economics of the process. My skepticism was heightened when they never produced another qualifying batch for the rest of the year, and that one batch they did produce was exported to Brazil to be used at the Rio+20 Conference.

Now comes news that Western Biomass Energy has filed for Chapter 11 bankruptcy protection. In my column in which I reported on the initial production of cellulosic ethanol from Western Biomass, I noted:

Cellulosic ethanol commercialization still faces a number of challenges. Capital and operating costs are expected to remain higher than for corn ethanol producers, and even they are currently struggling with low margins. The ethanol market also faces the hurdle of the blend wall, which makes it difficult to expand domestic production without increases in E15 and E85 consumption, and/or ethanol exports.

It will continue to be true that as long as the US government incentivizes these ventures, companies will continue to pursue them. But I believe it is also true that every gallon of production they make will be produced at a significant per gallon loss. Mother nature simply didn’t design cellulose to be easily accessible, and extracting the cellulose, converting the cellulose into sugars, fermenting those sugars to ethanol, and finally purifying that ethanol will continue to be capital and energy-intensive operations.

Investors Should be Cautious

In addition to Western Biomass, one other company has produced qualifying cellulosic fuel. Vinod Khosla-backed KiOR announced earnings this week, while at the same time announcing that they had shipped their first batch of qualifying cellulosic diesel. This was presented as great news, and KiOR’s share price initially surged on the news. But a closer reading of their financial statement signals the kind of warning flags about KiOR that I have been waving for over a year:

The Pasadena, Texas-based firm lost $0.28 per share during the fourth quarter, falling short of the $0.15 per share loss in Q4 2011. However, it beat the Wall Street consensus of a loss of $0.32 per share.

Fourth quarter revenue rounded out at $87,000 – the company’s first revenue since inception. This fell drastically short of the $1.62 million analysts hoped for.

So, revenues were 95% less than expected. Yikes. Also the company’s cash and cash equivalents declined by $91 million over the previous year, down to $41 million. KiOR’s clock is ticking. They will likely find more investors willing to take a chance on them, but even though I have a couple of friends who work there, I am not optimistic about their long-term chances of competing in the motor fuel arena. As long as natural gas prices remain low, they will probably limp along, but their heavy dependence on cheap natural gas is a risk factor unrecognized by most investors.

Link to Original Article: First Commercial Cellulosic Ethanol Plant Goes Bankrupt

By Robert Rapier

  1. By newpapyrus on March 19, 2013 at 6:28 pm

    Converting biowaste into methanol rather than ethanol makes a lot more economic sense. Plus methanol can easily be converted into gasoline.

    Marcel F. Williams

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  2. By Ben on March 19, 2013 at 10:05 pm

    Welcome back.

    There you go raining on the parade, again. Why do insist on pointing out these inconvenient truths? Can’t you just pretend that all is well in Bioenergy Land and if we can only secure enough R&D funding, and start-up capitalization/loan guarantees, and production credits and a mandate or two on volume requirements, everything will be peachy. Why must you insist on bottom-line disciplines that speak to efficiacy not to mention sustainability?

    You’re ruining the fun. And to think, that fine editor, Lane, over at Biofuel Digest has his readers sipping on the Koolaid about a new, insiduous plot he calls “Deathenol.” It has to be another one of those “vast, Right-wing conspiracies.” Gosh, it’s enough to make one wish for sequestration just to distract from the daily grind of trying to cost-effectively dehydrate fibre!

    Alas, we can rest assurred that QE IV will ease the way for a new era of investor interest in cellulosic biofuels that we’ll call nexgen wonder fuels that allow ICE to leap small buildings in a single bound. Hey, never underestimate the power of a government fiat in the form of a superfluous statute or, better yet, a counterproductive regulation. This is quite a country. Or, in the words of Dr. Frankilin to the lady on the street that hot summer day in Philadelphia, “a republic, if you can keep it. ”

    As I said, welcome back–though I know you’re bent on ruining the fun:)

    Ben

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  3. By ben on March 20, 2013 at 10:20 am

    KiOR, with its languishing stock and no profitability anywhere in sight, brings to mind an old anecdote that may speak to the heart of the matter.

    As the doctor arrives home after an earlier meeting with his accountant, he’s greeted by his wife. “How’d the meeting go?” “Well, I have some bad news and some good news” the doctor offers. “Okay, I guess you should give me the bad news first” she replies.

    “The bad news is that I’m somehow losing nearly $25 for every patient that I’ve seen so far this year.” Oh, my, that’s absolutely terrible—we’ll be ruined in short order! What could possibly be good news?” she asks. “Why, it’s rather simple, I’m planning to make it up
    in volume!”

    Therein lies the logic of making fuel from wood when you have to pay too much for the wood, process energy, capital expensing, product transport, etc. against the backdrop of an energy market producing low-cost NG in abundance and oil for what could prove to be fairly stable costs for balance of the decade. Then, of course, there’s that dependable North Star in Washington called federal energy policy offering swiss-cheeze support of renewables in support of transitioning to a new era of American economic competitiveness. Wow, it’s rather amazing the company has a $600M market cap. Then again, we are still subsidizing sugar production in America despite the epidemic of juvenile diabetes. Little wonder that confidence abounds in our public policymakers!

    Ben

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    • By mlebauer on March 22, 2013 at 10:33 am

      Excellent!!

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  4. By Mark on March 20, 2013 at 5:38 pm

    The problem as I see it with converting “cellulosic” substrates is the inefficiencies inherent in releasing extra acidic, extra expensive enzymes on ground up wood fiber to convert only a small percentage of this carbon-containing wood into simple sugars. And then of course, continue forward in a further inefficient process to convert those five and six carbon sugars into C2 ethanol via fermentation with yeasty biobugs. Then dump out all the residue remaining and begin another biology-driven batch… Hummmmm…

    All the residue remaining is still chock-full of carbon atoms — the building block for both float-on-water hydrocarbon and water soluble oxycarbon versions of alternative fuels.

    So…?

    Why not convert every carbon atom in the cellulosic wood chips into CO & H2 intermediate synthesis gas instead? Have NO carbon atom building blocks left from the total volume of woody feedstock substrate.

    THEN either convert this mid-stream synthesis gas into C1 methanol or C1-C10 higher mixed alcohols. This is the missing efficiency link and missing conversion link.

    So how about using a special, Henry Ford Model-T SIMPLE, 1-2 psi low pressure gasifier to do this carbon-conversion job on the front end very efficiently and 24×7 continuous. Something available, yet not well known – yet with variable residency times, not a quick gasification flash in the pan, but a slow, meticulous full gasification cycle taking over 20 minutes – and accomplish this without a smokestack and no emissions.

    What would the NIMBY’s think?

    CarbonBridge

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    • By mlebauer on March 22, 2013 at 10:31 am

      If you think that would work, put together a business case and present it to a VC. I’m sure Vinod Khosla would love to hear from you, he’s lost enough of his investor’s money on the failed projects he’s funded so far.

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    • By Talli Somekh on March 24, 2013 at 2:05 pm

      There are plenty of companies doing this, particularly are Coskata. Robert was involved with another company working on the same approach called Choren. Technically it’s feasible but the CAPEX is massive.

      Coskata has recently switch to producing syn-fuels from natural gas because of lower CAPEX requirements and remarkably cheap feedstock costs.

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  5. By MontagueWithnail on March 21, 2013 at 5:04 am

    I don’t want to overly defend KiOR or WBE, or any other CE company for that matter; I agree it’s pretty likely that none of them will make it in the end, or at least not in a way that will give any value back to the original investors.

    However, I do think there’s something unpleasant about a peak oil advocate offering an enthusiastic character assassination of companies are that are actually try to do something that might eventually be able to help partly mitigate peak oil related problems.

    I agree CE won’t be stand-alone viable (if ever) for a decade or two, when fossil prices have increased dramatically from where they are now, but I don’t agree that it is fundamentally a given that it will never be useful to society. Pioneers that are willing to invest their money or careers in trying to develop new technology (whether it works in the end or not – and no one ever found out by not trying) are doing a social good, and they deserve our support not our Schadenfreude. Government subsidies may not generally be a good thing, but in the case of science and technology development, considering how much society benefits from it and how much risks early developers take, I think the case is for much more funding, not less.

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    • By Robert Rapier on March 21, 2013 at 12:47 pm

      “Enthusiastic character assassination?” Would you mind quoting from the article any passages that you feel support that notion? For years we have dealt with promoters taking taxpayer dollars based on overblown promises. I am reporting facts that support my contention that this field is not viable, not saying “Ha!Ha! They failed.”

      “I don’t agree that it is fundamentally a given that it will never be useful to society.”

      But that’s not what I wrote, is it? I have said on many occasions — including again in this article — that this could work in some niches. It just won’t be scalable.

      “Pioneers that are willing to invest their money or careers in trying to develop new technology…”

      Part of the problem is that much of this isn’t new technology. It is old, failed technology being repackaged as new technology.

      “I think the case is for much more funding, not less.”

      But how to dole out that funding? So far, it’s been largely to those who make the most outrageous promises. When they do fail, it needs to be highlighted so we stop doing this.

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      • By MontagueWithnail on March 22, 2013 at 5:49 am

        With regards to the subsidy point, why don’t you educate us? From over here it looks like the US government offered a subsidy for production, and so logic would suggest that US taxpayers/consumers gave almost no subsidy since there was almost no production, and investors carried all the risk and losses instead. Presumably they knew at the time that they invested that there was no guarantee it would work, and took the risk anyway. What I don’t know is whether other more direct subsidies were given to these companies as well. Is that what you’re saying? If so some facts and figures would be useful.

        Regarding your point about this being old failed technology, I have heard this said about, well, pretty much everything in the early days. It’s often not until something has been done on a decent scale for several years that people figure out how to actually do it well and the costs come in line with reality and start to make sense. It takes vision, perseverance and a huge amount of risk to get from one place to the other. PV is the perfect example, how many years did they scoff at that? I
        wouldn’t mind betting they said it about fracking as well at the start. Sometimes it takes an external change in the market to change a technology’s fortunes (fracking again!), but who’s to say the people involved didn’t see it coming?

        Sorry you didn’t like the feedback, I’ve never read your blog before, and I would like to keep reading it and be more active in the peak oil/alternative energy blogosphere, but to me the whole tone of the article felt triumphalist and I thought it was worth letting you know. I guess you just didn’t want to hear it.

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        • By Robert Rapier on March 22, 2013 at 6:18 am

          “From over here it looks like the US government offered a subsidy for production, and so logic would suggest that US taxpayers/consumers gave almost no subsidy since there was almost no production, and investors carried all the risk and losses instead. ”

          Wrong. There have been numerous grants and loan guarantees that taxpayers have had to cover. The amount is at least in the hundreds of millions of dollars, and many of those projects should have never been funded.

          “It’s often not until something has been done on a decent scale for several years that people figure out how to actually do it well and the costs come in line with reality and start to make sense.”

          There were making cellulosic ethanol at a larger scale than anything running today 100 years ago. It has been tried again and again over the past century. There are very fundamental reasons that it doesn’t work economically and will be at best at niche solution.

          “to me the whole tone of the article felt triumphalist and I thought it was worth letting you know. I guess you just didn’t want to hear it.”

          It was just an inaccurate comment, so I pointed that out.

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          • By MontagueWithnail on March 22, 2013 at 6:29 am

            You’re so quick to tell me I’m wrong, but if you read my comment again, maybe you will notice that I was asking a question

            Quote: “What I don’t know is whether other more direct subsidies were given to
            these companies as well. Is that what you’re saying? If so some facts
            and figures would be useful.”

            Don’ bother replying, I won’t read it.

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            • By Robert Rapier on March 22, 2013 at 6:37 am

              The problem is the you haven’t bothered to do much research, and so you are making very basic mistakes regarding my motivations and such. And yes, lots of dollars have been wasted on this. And I have written for many years numerous posts on why this approach would fail, and I have written numerous posts on the dollars that have been involved. I don’t like spending my tax dollars on things that are based on overblown hype and not sound scientific analysis.

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        • By mlebauer on March 22, 2013 at 10:14 am

          While unlike Robert, I’m not knowledgeable about CE technology, I would note an assumption too many make about technology in general. They observe the IT industry and apply the lessons of its experience to other technological branches. That is, microprocessor speeds, hard disk and memory chip capacities, as well as software sophistication has proceeded at a rate of X, often defined by pseudo-scientific metrics such as “Moore’s Law”. They assume that similar developments are possible in any industry, if only enough funding is provided.

          In doing so they make 2 poor assumptions:
          1. The ability of costs and capabilities to improve depends on the ratio of intellectual property to materials (IP / M) in a given product. The materials in the average laptop or smartphone are relatively cheap compared with the aggregate value of the IP, making a high raio. That is not the case for advanced batteries, for example, which include a lot of costly materials mined from rare sources. It is also not true for bio-fuels, which are derived from bulk commodity products (corn, cellulose) and require a lot of energy inputs to produce, making a low ratio.

          2. That there is a ready market for new products that will eagerly switch from the tried and true, if only presented with the option. People switch from something familiar only if the alternative is “disruptive,” which means the alternative provides a cheaper or qualitatively better experience for the user, and the switching costs aren’t that high. Think CDs replacing vinyl, or cell phones replacing land lines. In those cases the switching cost is limited to buying a new player, or a new phone. For ethanol, what’s the advantage? It’s more expensive than gasoline, has less energy content, is difficult to distribute, and could be damaging to your car (forcing you to buy a new car). Same with solar and wind. On the other hand, shale gas has emerged as cheaper than the alternatives, with ready infrastructure to use it in utilities. It is disruptive to energy markets

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    • By mlebauer on March 22, 2013 at 11:17 am

      It’s refreshing when people cease to be “advocates” and decide to present factual information without an agenda. That allows those seeking options and solutions to problems to make decisions with insight, making them less susceptible to hucksters selling snake oil.

      Fossil fuels are of course finite, but there’s a lot more to it than that, as there are lots of different fossil fuels, with different costs of production and consequences of use. Alternatives also have consequences and cost profiles. These facts should be examined honestly, WITHOUT advocacy.

      Thanks to Robert for offering just such an approach.

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  6. By Emiliano Maletta on March 21, 2013 at 7:23 am

    Very good article!!

    Here some news on Land Use Change and biofuels: http://bioenergycrops.com/land-use-changes-and-bioenergy-sustainability/

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  7. By Jibby on March 21, 2013 at 1:29 pm

    Growing crops for energy use at this point doesn’t make that much sense based on energy gains per land use (when compared to PV, for example).

    1 acre gets you 159 bushels of corn, which gets you about 440 gallons of ethanol. 440 gallons of ethanol gets about 35 million BTU, which is equivalent to 10 MWh per year assuming there is one corn harvest each year.

    To take this one step further, the EIA reports that the US consumed about 8.5 million barrels per day (or ~3 billion for the year) of motor gasoline in 2012. 1 barrel being 42 gallons, would mean that to replace this gasoline use, you would need ~130 billion gallons of corn ethanol, which would require over 1 million sq km of land (about 10% of the surface area of the US and well over 1/2 of all arable land).

    Now, 1 acre of PV gets you about 90 kW of installed PV (I based this off a random 45 MW PV park that covers 500 acres in California). Assuming a radiation of about 1,500 kWh/kWp/a, this same 1 acre nets you 135 MWh per year (this would decline slightly over time as the panels degrade).

    That is more than 10 times the energy output per acre, showing really how much more effective PV is than bio ethanol. And it doesn’t require arable land. I haven’t done a calculation, but I am sure you can post similar numbers for wind.

    Of course, there are advantages to having liquid fuels, but based on this, it seems to me developing electric vehicle infrastructure and PV would be a better investment than corn ethanol production. If you see some flaws in this analysis, I’d be happy to hear it (for example, I am not sure about the costs of producing corn ethanol compared to PV, which I am more familiar with).

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    • By MontagueWithnail on March 22, 2013 at 6:01 am

      Isn’t the whole point of Cellulosic Ethanol to produce fuel from biomass without dedicating high quality farmland to energy? I realise a lot of people are talking about growing various grasses as a crop to feed CE, but surely the point is that those crops will be pushed to the poorer soil where mainstream agricultural crops will be marginal anyway (such as more or less the whole South East US). Anyway, the real point should be to utilise the by-products – the straw, the stover, cotton stalks, forest residuals etc, that don’t require any extra land at all. By my very calcs there must be at least a peta-joule of that stuff growing every year in the US alone, if you could capture 10% of that, it would be a decent industry in its own right.

      I get your point about PV, and you partly answer it yourself, but you compare it to the EROI on corn ethanol so … yes that is truly dreadful, but the point about cellulosic ethanol (especially from by-products) – IF it ever works – should be to massively improve that EROI.

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      • By Jibby on March 22, 2013 at 7:18 am

        Good point – I agree that the biofuels industry should be focusing on by-products and existing sources of feedstock or those that don’t compete heavily with traditional crops. Of course, this is not necessarily what is happening, so hopefully regulations can be put in place (if they aren’t already there) that ensure the industry is headed in a helpful direction.

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      • By Optimist on March 22, 2013 at 3:19 pm

        Byproducts is definitely the way to go.
        Ethanol is definitely NOT.
        Fermentation is NO way to make fuel (low value, high volume). Fermentation works great on pharmaceuticals (high value, low volume).
        IF anybody ever figured a way to convert cellulose to sugar at high efficiency and affordability, it would make more sense to sell the high value product (the sugar) rather than convert it to a low value fuel.
        IF biofuels (from byproduct) is to succeed, it will be via a thermo-chemical (crude, high volume) approach, rather than the refined fermentation route.
        Q: Who owns the thermo-chemical technology?

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        • By Kelso Sharp on March 22, 2013 at 6:47 pm

          Well, here is the thing with this, its already possible and with a much better cost to energy ratio than ethanol, a 2 step process of taking biomass, any biomass really, and converting to Pyrolysis oil, and taking that and converting it to bio-diesel through hydro-treating. Its not perfected at this point and fairly inefficient at this stage of development, but it IS better than trying to do CE, and it has a better ratio for energy cost to energy produced. It also produces a diesel fuel that identical to petro diesel, and can be use exactly the same way as diesel is now. It’s able to completely replace Diesel with no adverse effects.

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    • By mlebauer on March 22, 2013 at 10:28 am

      One major flaw in your argument: range anxiety and inability to use EVs for long distance travel. EVs can’t be charged as quickly as IC vehicles can be fueled. The only option is a modular battery system, like Israel considered. But the infrastructure barriers in a continental nation like the US are probably too formidable to overcome.

      Battery technology is also not coming along much better than cellulosic ethanol. EVs will likely be a niche technological branch that will not make it mainstream.

      Further, PVs are having a hard time competing with fossil fuel sources, short of massive government intervention. The path of PVs powering EVs is only viable with the use and source of electric power as permanent dependents on government policy.

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  8. By Jay Alt on March 21, 2013 at 2:40 pm

    Interesting. Did Western BioMass build in a commercial scale production facility, or were their small lots produced in a pilot plant? If the latter, the headline overstates your opinion.

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    • By Robert Rapier on March 21, 2013 at 3:08 pm

      Western Biomass specifically referred to their plant as a commercial facility. In my opinion, no, it wasn’t a commercial-sized facility.

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  9. By mlebauer on March 22, 2013 at 10:01 am

    Robert, do you have any information on correlation between the government subsidies in CE and campaign contributions to important politicians (especially in the Executive branch)?

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    • By Robert Rapier on March 22, 2013 at 3:21 pm

      I haven’t seen a study, but what I think you will find is that oil company contributions tend to go to Republicans, and to Democrats in states with oil reserves, clean energy lobby contributions tend to go Democrats, and corn ethanol lobby money is spread across political parties on both sides in the Midwest.

      I heard Vinod Khosla indicate years ago that he is a Republican, but I have also read that he has given substantial money to Democratic candidates, and I know he has funded initiatives designed to divert oil money into clean energy.

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      • By mlebauer on March 22, 2013 at 4:07 pm

        Just being provocative, there’s unfortunately plenty of influence linked campaign funds spread around.

        However, the topic was CE, which as a development technology would have a narrow constituency. Rather than a broad group of direct beneficiaries that you’ll find with established businesses (oil and ethanol), where broad regional members of Congress would support it for campaign funding and support it would largely on contributions alone. Thus it would make sense to influence the executive rather than legislative branch. Plus, Congress has been limiting earmarks, making executive agency funding (such as DoE) a better source of private subsidies.

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  10. By Frances Campbell on March 26, 2013 at 10:57 am

    one question–how much did this ethanol producer contribute to the messiah’s campaign chest? was this a political reward?

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  11. By Carney3 on March 28, 2013 at 10:15 am

    Ethanol isn’t the only biofuel, or even the only alcohol fuel, that can be made from inedible biomass. What about methanol with an M? Methanol can be made not only from natural gas and coal but any biomass without exception including crop residues (such as the cobs, stems, and leaves from ethanol corn farms), weeds (staggering tonnage of kudzu and water hyacinths need to be cleared annually anyway), trash, even sewage.

    We need to make sure that flex fuel vehicles are fully flex fueled, not solely qualified to run on ethanol but instead are also methanol compatible. Even smarter, we should require all new gasoline cars to be fully flex fueled. It would cost automakers only $130 per new car at the factory at most.

    http://www.openfuelstandard.org/2011/05/why-support-open-fuel-standard-act-of.html

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    • By Robert Rapier on March 28, 2013 at 3:19 pm

      I have spoken in favor of methanol as a cost effective fuel for many years. I have discussed it in columns here, and at length in my book. Likewise for DME.

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      • By Carney3 on March 29, 2013 at 8:45 am

        Excellent; thanks. I’ll have to check all that out.

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  12. By jameshrust on June 8, 2013 at 9:44 pm

    Range Fuels in Georgia built by Vinod Khosla went bankrupt in January 2011. Federal, state, and local taxpayers lost about $170 million.
    Regards,
    James H. Rust, Professor of nuclear engineering (ret.)

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