Biofuels Digest’s 10-Minute Guide to Obama’s New Energy Policy

http://www.biofuelsdigest.com/bdigest/2013/03/18/biofuels-digests-10-minute-guide-to-the-obama-administrations-new-energy-policy/

Jim Lane | March 18, 2013 

 

Major push from Obama on energy. 

 

From DOE: “Liquid fuels demand can be sufficiently reduced so that biomass can meet all liquid fuel needs.”

 

What’s up? What is an Energy Security Trust, anyway? The Digest’s 10-Minute Guide tells all.

 

In an address at the Argonne National Laboratories on Friday, President Obama said:

“You see, after years of talking about it, we’re finally poised to take control of our energy future.  We produce more oil than we have in 15 years.  We import less oil than we have in 20 years…But the only way we’re going to break this cycle of spiking gas prices for good is to shift our cars and trucks off of oil for good.  That’s why, in my State of the Union Address, I called on Congress to set up an Energy Security Trust to fund research into new technologies that will help us reach that goal.

“I’m proposing that we take some of our oil and gas revenues from public lands and put it towards research that will benefit the public, so that we can support American ingenuity without adding a dime to our deficit…devising new ways to fuel our cars and trucks with new sources of clean energy – like advanced biofuels and natural gas – so drivers can one day go coast-to-coast without using a drop of oil.

“And in the meantime, let’s keep moving forward on an all-of-the-above energy strategy.  A strategy where we produce more oil and gas here at home, but also more biofuels and fuel-efficient vehicles; more solar power and wind power. We can do this.”

A companion study released the the Department of Energy was, in its way, more ambitious and more specific: “TEF does not project that all liquid fuels will be eliminated from the future transportation sector, but rather that demand can be sufficiently reduced so that biomass can meet all liquid fuel needs.”

The Energy Security Trust. Is it a new idea? 

No. In his 2013 State of the Union address, President Obama called on Congress to create an Energy Security Trust Fund, which would free American families and business from painful spikes in gas prices. The President’s plan builds on an idea that has bipartisan support from experts including retired admirals and generals and leading CEOs, and it focuses on one goal: shifting America’s cars and trucks off oil entirely.

 

How does it work?

Over 10 years, the Energy Security Trust will provide $2 billion for critical, cutting-edge research focused on developing cost-effective transportation alternatives. The investments will support research into a range of technologies – things like advanced vehicles that run on electricity, homegrown biofuels, and domestically produced natural gas. It will also help fund a small number of real-world experiments that try different transportation techniques in cities and towns around the country using advanced vehicles at scale.

 

Does it involve new taxes?

No. The funding will be provided by revenues from federal oil and gas development, and will not add any additional costs to the federal budget.

 

President Obama’s complete remarks are where?

They’re here.

 

Does the White House’s have a short take on the Energy Security Trust?

Yep. Here you are.

 

What is the Transport Energy Futures (TEF) study?

It’s a new study from the U.S. Department of Energy, the National Renewable Energy Laboratory, and Argonne National Laboratory that finds the United States has the potential to reduce petroleum use and greenhouse gas (GHG) emissions in the transportation sector by more than 80% by 2050 – and proposes pathways towards that goal.

 

What is the strategy?

• Stopping Growth in Transportation Sector Energy Use
• Using More Biofuels
• Expanding Electric and Hydrogen Technologies

 

What’s the overall 15-point Obama Energy Strategy, again?

1. Challenges Americans to double renewable electricity generation again by 2020.
2. Directs the Interior Department to make energy project permitting more robust.
3. Commits to safer production and cleaner electricity from natural gas.
4. Supports a responsible nuclear waste strategy.
5. Sets a goal to cut net oil imports in half by the end of the decade.
6. Commits to partnering with the private sector to adopt natural gas and other alternative fuels in the Nation’s trucking fleet.
7. Establishes a new goal to double American energy productivity by 2030.
8. Challenges States to Cut Energy Waste and Support Energy Efficiency and Modernize the Grid.
9. Commits to build on the success of existing partnerships with the public and private sector to use energy wisely.
10. Calls for sustained investments in technologies that promote maximum productivity of energy use and reduce waste.
11. Leads efforts through the Clean Energy Ministerial and other fora to promote energy efficiency and the development and deployment of clean energy.
12. Works through the G20 and other fora toward the global phase out of inefficient fossil fuel subsidies.
13. Promotes safe and responsible oil and natural gas development.
14. Updates our international capabilities to strengthen energy security.
15. Supports American nuclear exports.

 

Where’s the Fact Sheet on that?

Right here.

 

Why the transport sector, specifically?

The transportation sector accounts for 71% of total U.S. petroleum consumption and 33% of U.S. total carbon emissions.

 

What are the 9 Interconnected reports that make up the overall TEF study?

1. Deployment pathways issues including the development of, transition to, and challenges of advanced technology
2. Non-cost barriers to advanced vehicles such as range anxiety, refueling availability, technology reliability, and consumer familiarity.
3. Opportunities to improve non-light-duty vehicle efficiency for medium- and heavy-duty trucks, off-road vehicles and equipment, aircraft, marine vessels, and railways
4. Opportunities for switching modes of transporting freight, such as moving freight from trucks to rail and ships.
5. Infrastructure expansion required for deployment of low-GHG fuels, including electricity, biofuels, hydrogen, and natural gas
6. Balance of biomass resource demand and supply, including allocations for various transportation fuels, electric generation, and other applications.
7. Opportunities to save energy and abate GHG emissions through community development and built environment strategies
8. Trip reduction through mass transit, tele-working, tele-shopping, carpooling, and improvement of vehicle performance through efficient driving
9. Freight demand patterns, including trends in operational needs and projections of future use levels.

 

How much biofuels use does the TEF study anticipate?

Up to 100 percent of fuel needs, if the US hits its 2050 fuel efficiency, hydrogen fuel, and electrification goals as well. Even at the EIA baseline projected fuel demand in 2050, biofuels could supply as much as 50 percent of the jet fuel market, and 30 percent of the gasoline and diesel markets if EERE biofuel technology goals are met. Getting to the point where biomass could provide 100 percent of vehicle liquid fuels requires reducing the need for fuel through the efficiency and demand management measures described above, including deployment of electricity or hydrogen fuel alternatives.

 

Will this require an avalanche of infrastructure?

Some. “While new fuel types require new infrastructure, the share of infrastructure cost within total fuel costs is very small (1.5-3 percent), and these costs can be made up for in fuel cost savings of more efficient advanced vehicles.”

 

Where can I start to dig deeper into the overall plan and the TEF study?

You can start here at the TEF home page.

 

Who was responsible for TEF?

TEF is a collaboration between EERE, the National Renewable Energy Laboratory (NREL), and Argonne National Laboratory (ANL). The project benefitted from the input provided by a steering committee that included some of the nation’s foremost experts on transportation energy from the Environmental Protection Agency (EPA), the U.S. Department of Transportation (DOT), academic researchers, and industry associations.

 

What is NEPA and what is happening there?

NEPA is the National Environmental Policy Act of 1970, a product of the Nixon Administration.

 

Er, Nixon? What’s new there?

The President’s strategy includes requiring federal agencies, under NEPA’s authority, to include climate change impact in reviewing proposed projects. For example — leases to drill for coal, or export coal to China, or construct oil pipelines like the Keystone XL pipeline, could be reviewed not only for air pollution and water fouling, but for overall greenhouse gas impact.

 

Are the changes in NEPA reviews ho-hum, or a big deal?

Big deal. Brendan Cummings, senior counsel for the Center for Biological Diversity told Bloomberg that the result will be “a major shakeup in how agencies conduct NEPA” reviews.

 

Does the President have this authority under NEPA?

Generally, yes. NEPA grants a right of Federal review of proposed projects for environmental impact — and climate change certainly falls broadly within that category. The devil is going to be in the details — after all, how much specific contribution to a problem like climate change be attributed to a single project?

 

Is a NEPA review capable of derailing a project?

No. A NEPA review is, at the end of the day, aimed at producing a thorough vetting process, rather than a specific outcome. Projects go through NEPA reviews — there is a robust commentary opportunity — but regulators, in the end, make decisions on permits. NEPA does establish a forum for introducing or reviewing data that will be used in a regulator’s decision — or, in lawsuits that may be filed to reverse a ruling.

 

Overall, is there going to be opposition from the right on the Energy Security Trust?

Forbes’ Houston-based energy columnist Christopher Helman writes: “This is a terrible idea — and a backdoor to the imposition of a nationwide carbon tax — that congress should not allow to pass.

“There is absolutely no reason why we need a dedicated Energy Security Trust to fund the national labs, or to fund any kind of alternative energy research. If congress wants to fund research it can pass a bill to fund research…Isn’t congressional appropriation how the federal government is supposed to pay for such stuff?

“Then consider that the Department of Energy has in recent years built up an insanely terrible record of wasting taxpayer money by directing funds to private companies, many of which have simply gone belly up (but not before paying lavish bonuses to executives).

 

Why is there opposition from the left?

Here’s some flavor. “This approach will only encourage more dirty energy production…[and] doesn’t create any additional cost for using fossil fuels, thus creating no incentive for firms to divert resources into safer, cleaner and more renewable sources of energy,” Tyson Slocum, director of Public Citizen’s energy program, told bizjournals.com.
 

Amyris: The Owner’s Manual

http://biofuelsdigest.com/bdigest/2011/05/03/amyris-the-owners-manual/

Jim Lane | May 3, 2011 |

Your broker has told you about this high-flying “bio-something” stock, AMRS, that’s up 60 percent in the past six months.

What is Amyris, and what’s ahead? The Digest goes in-depth, and talks with CEO John Melo.

So, what exactly do you own when you buy into Amyris?

You now own a piece of a company that uses synthetic biology to produce a C15 hydrocarbon, farnesene, (at present from sugarcane syrup), which can be sold as-is or upgraded into a host of industrial chemicals used in fragrance, oils, lubricants, and even as a diesel or jet fuel.

Why is that important? It replaces building blocks or finished products made commercially today from fossil crude oil. It’s one of the first-movers in what US Energy Secretary Steve Chu described as “the glucose economy” that, in his view, will replace the oil economy.

Oh, the oil economy. That one. The $3 trillion traffic in crude oil that powers, well, just about everything.

“We’d like to create a biofene economy,” Amyris CEO John Melo told the Digest. “There, green is the value add, not an opportunity for a price premium.”

Let’s focus on that for a second. Aren’t all “green” products supposed to cost more, but in some way benefit the planet?

Wasn’t it a New England utility that recently signed a 20-year wind energy deal where it guaranteed three times the market rate per KWh, with a price escalation clause? (A deal which prompted Lignol CTO Colin South to drily observe to the Digest, “If I could get those terms, I’d be building capacity right now, instead of talking to you.”

Shouldn’t there be some huge feed-in tariff, or carbon tax, required to make Amyris rpoducts anywhere near comparable on price? Well, apparently, there are exceptions.

Here’s the claim from Amyris and its owners: it can make farnesene and the downstream products at a substantially lower cost than the comparable building blocks can be made from fossil crude oil. And its signing on partners at a dizzying pace, and starting commercial-scale production as you read.

Dang it, Adam Smith: you’re right again, markets function. Even green ones.

A biofene economy?

Why is a biofene economy significant for customers? From the broadest point of view: farnesene, made from a renewable resource, gives marketers of finished products — and their end-use customers, that is to say, thee and me — a break from the rollercoaster of oil prices.

Melo says, The alternative [crude oil-based product] has volatility in supply. A basis for our customer discussion is their exposure to crude. In our verticals, we hear from customers that they would like to move 10-20 percent of volume [to renewable-based suppliers], to get a better mix.”

Melo should know. A long time senior team veteran of BP and other majors, Melo has one of those historic years in 2010, leading Amyris through a celebrated IPO, instead of working through the huge transformation at BP that has taken place since last year’s oil spill.

Does he think about BP and the ‘year that might have been’, has he stayed on at the oil giant?

“Last year, I watched Tony Hayward on the TV and thought, it could have been any one of us. I feel blessed; BP was not exactly an exciting place to be, this past year. But I think about this too: BP, when I was there, created a case for me, for all of us, why it was good, and good business, to do the right thing. I’m thankful for that.”

Beyond premium, the green discount

Among the many things that BP is reputed to stand for – beyond petroleum, bad planning, big polluter – one of the acronym de-codes ought to be “beyond [the green] premium”.

For some time, BP Biofuels chief Phil New has called on the renewables industry to get beyond terms like “advanced biofuels,” which are distinctions based in process, and think about “advantaged biofuels,” or distinctions based in cost.

His point: there is no green premium – the broad customer market, at the end of the day, is unwilling to pay a consistently higher rate for products made from renewable resources. At best, it’s a tie-breaker – products made from renewables, made at the same cost and displaying the same performance, will win orders from industry over traditionally made products.

Melo agrees, emphatically. “For our customer – the price discussion is simple. We cannot be more expensive, the quality has to as good or better, and there has to be reliability.”

But there’s a more important territory that is being explored, and one in which Amyris is one of a handful of companies securing first-mover advantage: beyond the green premium, there lies the green discount, which is to say products made from renewables with sustainable cost advantages over its crude oil-based competition.

In these huge commodity markets green discounts do not provide lower prices to the consumer, but higher margins to the companies supplying their first trickle of product into the commodity streams.

“Take flavors and fragrances,” says Melo, where we have numerous different products, and in all of them the market price is different levels. We set our price based on the market price, but we have a significant cost benefit in every case.”

Later on, if and as production volumes grow, we may well see these “advantaged” products (as opposed to “advanced” or “green” products) produced in sufficient volumes that they will begin to downshift consumer prices, and squeeze the margins of traditional suppliers. Perhaps they will snuff some of those traditional suppliers entirely out of their traditional markets, or all of them.

Pickin’ mighty molecules

There are tens of thousands of molecules out there that have some industrial application, and margin and opportunity is how Amyris structures its approach. Melo comments, “We focus on an application that has the greatest margin, where we are structurally cost advantaged. We target the #1 or #2 company, and bring to them a strong value proposition based on cost, reliability and quality.”

Shell Oil recently forecast that 30 percent of the fuels markets will be replaced by biofuels, by 2050. The International Energy Agency forecast a 27% market share for biofuels by 2050. That represents, in the fuels markets alone, a shift of 225 billion gallons – 351 billion gallons, taken against the entire spectrum of uses for the barrel of oil.

But that’s a long ways away, generations of innovation from now. For now, we remain focused not on who and how traditional suppliers will exit the market, but how renewables companies, using synthetic biology, will enter the market.

The Brazilian gambit

To date, we have known more about where, as opposed to when, and how. 2010-11 was the winter of Brazil. But Amyris has been down there for some time; they were the pioneer in the market, in so many ways. The Portugal-born Melo has a caution for others who go down expecting a gold-rush mentality, some kind of switched-on, deal-a-minute expectation borne of watching the flurry of MOUs , partnerships and offtake agreements that have been pouring out of the Amyris offices of late. It takes time, Melo cautions.

“Be patient. Be local. Sector is very tight. Family business, or family in control. Takes a long time, you have to deliver a lot, there are high expectations. First meeting, you think, the people are wonderful, we’ll be in business in six months. Then, you have 20 more meetings. It takes tremendous patience to build the case.”

But Amyris has been reaping the rewards of first-mover advantage, and that’s been a major factor in its celebrated stock rise, now trading at a 65 percent premium to its IPO opening price last September.  Along with Gevo and Codexis, they’ve opened the IPO window again for industrial biotech. Sometimes, that has resulted in a confusion over the distinctions between the three.

Gemyris, Codexvo…er, who exactly are these companies again, and why are they distinct?

As we wrote in “Gevo: The Owners Manual”: “Gevo and Amyris have been run together by public investors lately, into a sort of Gemyris, companies powered by magic bugs that ferment ordinary crop-based sugars into suites of exotic fuels and chemicals that will slowly take over the world.

“There are common elements, for sure. Both companies have their strong roots in synthetic biology, and both feature exotic magic bugs engineered from yeast. Both had investment roots in Silicon Valley, with Khosla Ventures in their pedigrees.

Both have been rocketing up the 50 Hottest Companies in Bioenergy, with Amyris landing #1 this year and Gevo #5.  Both had celebrated IPOs this past year, and have been performing strongly in the aftermarket, with both up more than 60 percent over their debuts.

About there, the Gevo-Amyris similarities fade.

So let’s turn to Amyris, its biofene market and its applications

Amyris’s business model is in producing high-value products through low-cost fermentation. From fermentation of sugar cane syrup via bolted-on units at existing sugar and ethanol mills, Amyris produces a C15 molecule, farnesene, that can be finished, or used as a building block, for products in six verticals: cosmetics; flavors & fragrances, polymers & plastic additives; lubricants; consumer products; and fuels.

It’s expected product stream is closely tied to a series of production, marketing and offtake partnmerships. Here are a few of the major ones scheduled to commence delivery between 2011 through 2013:

Squalane, for Soliance
Amyris lubricants, for US Venture
Niche diesel, for BPTrans
Base oils, for the Cosan JV
Biofene, to Gruppo M&G
Supply to Firmenisch
Supply to Givaudan
Biofene, to Proctor & Gamble
Lubricants, to Total

The Amyris Ring of Partnerships

Amyris is best understood as a web of partnerships, which form the core strategic element in its capital-light, distributed path to market.

They have partnership models to build value across the supply chain. They exist in four types.

1. Production partnerships, such as with Sao Martinho, in that case in the form of a JV that brings production capacity.

2. Development and supply agreement partnerships, such as with Firmenich, that provide  offtake markets and also provide a partner-managed marketing and distribution function.

3. Marketing and distribution partnerships, such as with Soliance, that include an offtake agreement and cooperation on marketing and distribution activities.

4. Integrated partnerships, such as with Cosan, that provide feedstock, manufacturing capacity, a cooperative marketing and distribution effort, and a fuel customer.

Capital: a staged business model to accelerate the volume ramp

The capital strategy evolves as the products and partnerships move forward. The nearer-term products utilize Amyris capital and contract manufacturing – but by mid-decade, Amysis will have moved through cost-sharing partnerships to partnerships where the partners absorb the capital cost of bringing products to market.

Phase 1, in 2011, represents contracted manufacturing using Amyris capital, in partnership with Tate & Lyle, Antibioticos and Biomin.

In 2012-13, the company moves to joint ventures, in which capital outlay is shared, primarily with Sao Martinho and Paraiso Bioenergia.

In 2013-14, the company moves to 3rd party mills for production, using partner’s capital – based on partnmerships with Total, Cosan, Sao Martinho, Bunge and Guarani.

The Fuel Story

So, where in all this is the biofuel story. Amyris will be participating in three distinct fuels markets in the early to mid 2010s: diesel additives, diesel and jet fuel.

2011-12, look for the launch of niche diesel additives and blends with BR and Mercedes Benz.

In 2012-2015, expect an entry into Brazilian diesel and European diesel markets with Shell and Total.

In the 2014-2020 period, look for entry into commercial jet fuel market with General Electric, Embraer, and Total among the partners. Efforts will begin with development and testing in 2011-12, and moving to demonstration scale by 2013-15.

The Chemicals story

There are a lot of molecules out there. To make the story easier to follow, we have prepared a chart, by vertical sector, product, partner, year of market entry, the price per kilo of the target product, and the market size.

The bottom line: inflection points

It’s a sophisticated web of partnership, as we have noted. Use this owners guide to measure progress – analysts are using it too, to project value and set target prices. Watch the flow of announcements – is Amyris hitting its targets in terms of market entries, and timelines.

With every “hit,” start adding to the target price, because some level of risk is assigned into each one. With every “miss”, knock down the value according to the market size of the product. Look for new verticals that open up, or new partnerships that address value.

The overall opportunity: staggering, by any measure. In the chemicals market alone, Amyris’ product pipeline through 2015 has it entering $66 billion of markets, with customers talking in terms of moving 10-20 percent of contracts to renewables companies. That’s $6.6-$13.2 billion in potential orders, and expect product margins of as much as 30-40 percent, or $2-$5.2 billion for the total opportunity for the sector. (Note, we said “opportunity,” not projected sales.)

That’s leaving aside the fuel markets. And shows how much discount (for risk, time and competition) is built into Amyris’ current market cap of $1.16 billion, given that a public company should easily support that market cap on as little as $47 million in net earnings.

The Sexy Fuel

http://www.biomassmagazine.com/articles/5494/the-sexy-fuel

 

Why isn’t biomass sexier in the U.S.? I’ve been told it’s the “sexy fuel” in Germany, and again I wonder: when will we catch up?

 

By Lisa Gibson | May 02, 2011

 

Why isn’t biomass sexier in the U.S.? I’ve been told it’s the “sexy fuel” in Germany, and again I wonder: when will we catch up?

Germany increased its number of pellet-fueled heating plants from 3,000 in the year 2000 to about 125,000 in 2009, mostly in residential and small-scale commercial applications. That’s an astonishing climb in nine short years and it’s not the only European country to exponentially increase its wood pellet use recently.

Andrea Stahl, commercial specialist with the U.S. and Foreign Commercial Service in Germany, told me that the energy change encompasses much more than just feedstock, but also energy efficiency, changed mobility concepts and change of lifestyle. Her wording is so splendid that I won’t try to paraphrase: “Being resourceful no longer has the stigma of being uncool, funless, wearing self-knitted baggy clothes and munching dust-dry cereal.” Instead it’s quite the opposite. It’s a status symbol to own a smart car, buy eco-friendly foods and wear eco-friendly clothing. Fine. I get it. German hippies are cool.

So how do we make hippies cool in the U.S.? I realize that’s a gross stereotypical generalization, but all kidding aside, I think you see where I’m going with this. I’ve said it before and I’ll say it again and again: we need incentives; reasons to produce and use pellets that come with meaningful benefits. And apparently, that needs to come hand in hand with an attitude adjustment. We have a ways to go, but it seems the wheels are beginning to turn, albeit painfully slowly.

For instance, Vermont is working on an incentive for residential pellet heat in lieu of oil to spur use of the local, clean alternative. In the face of biomass plant proposal cancellations, including one in Pownal, Vt., I have to admit I got a little giddy when I heard about this incentive and hope it catches on elsewhere in the country. And the USDA recently held an open solicitation for proposals to study the feasibility of providing crop insurance to producers of biomass feedstocks like corn stover, straw and woody biomass. Crop insurance for biomass? Yes please.

Alright, so wood pellets are slowly getting a little sexier in the U.S. and export opportunities up the quotient a bit more. Global pellet markets, specifically in Europe, are booming and expected to continue their climb to the top of the world’s renewables pedestal.

And you knew this was coming: Biomass Power & Thermal’s International Biomass Conference & Expo this week in St. Louis will of course touch on those global opportunities more than once. Most notable, though, is Wednesday’s plenary session “From Here to There and There to Here: Examining Global Project Development,” which features four speakers including the U.S. Industrial Pellet Association’s executive director, Seth Ginther. For more information on the conference, visit www.biomassconference.com. It’s important to note that the recent foul weather in the region will not affect the conference, and the airport is back to full operation following the beating it took from an enormous tornado.

So since we haven’t caught up to Germany in wood pellet use, I suppose the plus side is we have plenty of room to grow. And I’m über excited to see where that growth takes us.