Algae
Algae promises yields up to 25 times greater than soybeans, and introduces a potentially abundant feedstock. We looked at more than 20 different algae companies looking to produce a variety of fuels – ethanol, biodiesel, biocrude – from algae. Genetic modification is being applied to produce strains that are higher yield and easier from which to harvest and extract oil. However, the costs are still very high, and it is unlikely to be a commercial force in less than a decade.
Biofuels Challenges
Betting on science covers 12 technologies, of which six are biofuels. The cost and time to commercialisation and scale-up of the biofuel technologies are heavily impacted by a number of factors (see Figure 2). These include the current market situation and specific challenges, and government commitment and support in overcoming these challenges.
Ethanol Blending Wall
For ethanol, the key constraint is turnover of the vehicle fleet. In 2007, the median age of a passenger vehicle in the US was 9.2 years, meaning turnover will be almost a decade. Only flex-fuel vehicles (FFVs) are currently allowed to use blends of more than 10% ethanol, but the American Coalition for Ethanol is pushing to raise the blending wall to 15% and to increase the allowable corn ethanol share of the Renewable Fuel Standard (RFS). This would buy the industry time to commercialise and roll out cellulosic ethanol. If the blending wall does not change, then the pace of the industry will be constrained by the roll-out of FFVs and the ethanol refuelling infrastructure.
Acceptance of Genetic Engineering
Genetic engineering is a key lever in using biomass to produce fuel. Many countries have legislation that restricts the use of genetic modification (GM). For example, in the EU, legislation such as the Regulation on Genetically Modified Food and Feed (2003) demands approval before GM plants can be used commercially. This is only granted under certain conditions (proven safety, freedom of choice, labelling and traceability). However, acceptance ofGMfor fuel production is slowly growing.
Feedstock Logistics
With harvesting and reprocessing accounting for up to50%of feedstock costs, the infrastructure and processes required to effectively harvest and transport these materials to refining plants will be a key focus area. Beyond the above challenges facing biofuels, the biofuels industry as a whole will have to address broader obstacles in coming years. Most prominent is competition, from the internal combustion engine and from electrification and plug-in hybrid electric vehicles (PHEVs).
Implications for Innovators
The science has made significant progress, but innovatorsnowhave to turn their attention to business strategies that could make the difference between success and failure.
Leading Roles for Scientists
While R&D capability remains crucial to innovating companies, equally important for successful commercialisation is the ability to communicate effectively with regulators and the public to ensure a fact-based debate at the right level of detail.
Business Model Flexibility
In today’s biofuels, the vertically integrated model has proved resilient to the volatility in feedstock and product prices. However, this model is not available to all companies entering the biofuels market. Given the challenges, a range of options will be relevant with the aim of controlling and managing risk across the value chain, from full vertical integration to joint ventures, to bilateral long-term contracting.
Execution and risk management skills As scientific discovery moves to commercial deployment, and gasoline and diesel costs remain the commercial benchmark, operational excellence can make the difference between success and failure. The high performers will invest in skills needed to optimise their supply chains and maximise operating margins in order to ensure that they remain commercially competitive against gasoline and diesel. They will also have to improve their risk mitigation skills given that feedstock markets and oil prices will continue to be volatile.
Accenture’s research demonstrates that a variety of alternative fuel sources have the potential to transform the supply and demand of hydrocarbons sooner than many expect. However, despite the move towards low carbon policies across the world, many hurdles stand in the way of these disruptive technologies. The innovative pioneers will now have to extend their skills from science to commerce, while governments will have to reinforce their scientific knowledge if they are to regulate effectively. Above all, they will both have to adapt to a market in which an unprecedented variety of alternative fuel sources will pose complexity and commercial threats, as well as opportunities
This article was first published in April 2010 in Petroleum Review and is reproduced by kind permission of the Energy Institute, 61 New Cavendish Street, London W1G 7AR.