Gen2 Biofuel Feedstocks: The Coming Surge in Energy Crops and Cellulosic Sugars

by Pavel Molchanov (Raymond James) As energy investors know well, it is much better to own the oil than to refine it. In other words, the bulk of the value is in the upstream of the value chain. Next-generation (Gen2) biofuels and renewable chemicals have a somewhat different market dynamic – there is considerable value in the proprietary IP for processing – but feedstock providers can nonetheless capture a sizable share of the economics. With this in mind, following recent channel checks and in the context of our Gen2 coverage, in this report we highlight the addressable market for two subsets of Gen2 biofuel feedstocks: energy crops and cellulosic sugars.

...(D)edicated energy crops are specifically designed to be used in biofuel applications. Energy crops offer five key advantages: (1) high yield density: increasing crop yields per acre shortens the collection radius for biofuel plants; (2) high net energy balance: compared to corn (and, to a lesser extent, sugarcane), energy crops need less energy input per unit ofenergy output; (3) low input requirements: reduced water and fertilizer needs are a key source of savings; (4) ability to grow on marginal land: energy crops can grow in a broad range of environments, including those not well-suited for most food crops; and (5) customization potential: energy crops have the potential to be tailored for specific production and refining processes.

...For fermentation-based Gen2 companies – especially those specializing in renewable chemicals and other high-value end products – sugar is a crucial feedstock. While sugar can obviously be easily produced from sugarcane and some other food crops, cost is clearly a limiting factor amid a global bull market for agricultural commodities. This is why companies such as Amyris and Solazyme (which currently rely on sugarcane) and Gevo (which is using corn) have indicated their desire to eventually shift towards alternative feedstocks – once they become available on a commercial scale.

...Some biofuel producers take a vertically integrated approach and, therefore, aim to do this inhouse. However, there is a small but growing subset of companies that are developing cellulosic sugars for sale to third parties, either via direct product sales or technology licensing.

...The process of converting cellulosic material into fermentable sugars is called saccharification, and it can be performed via several types of hydrolysis. When the material is saccharified, separating the carbohydrates, the sugar is released. The main byproduct, lignin, can be used to provide the energy for the production facility and/or serves as an additional source of revenue. There are three main types of hydrolysis, which we discuss below. To be clear, all three of these are development-stage technologies that have yet to scale up commercially.

- Proterro. Instead of breaking down cellulosic biomass, these cellulosic sugars are produced by combining water, carbon dioxide, sunlight, and nutrients. READ MORE and MORE (Biofuels Digest) and MORE (Automotive Industries)