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In 2013, both Canada and the US are opening their first ever commercial-scale advanced biofuels plants, also known as biorefineries.

Last week, the Globe and Mail published an article entitled “Spinning Waste to Liquid Gold”, where Vincent Chornet, CEO of Enerkem, discusses opening Canada’s first commercial-scale waste-to-biofuels plant in Edmonton this fall. The total cost of building the plant is $100 million dollars. Enerkem and Greenfield Ethanol are also building a second full-scale facility in Varennes, Quebec, which is set to open in 2014. Each of these plants will produce 38 million litres per year of advanced biofuels. Enerkem has secured a very reliable feedstock by placing it’s biorefinery near major cities where waste is plentiful. Enerkem’s plants will drastically reduce the amount of non-recyclable municipal solid waste going to landfills or incinerators and turn them into green fuels.

INEOS Bio just opened the first commercial-scale advanced biofuels plant in the U.S., as seen in this week’s article in the Wall Street Journal. The $130 million dollar plant will produce 30 million litres per year, a small fraction of the 13 billion gallons of ethanol the U.S. consumed in 2012.

It is extremely expensive to build a biorefinery and it takes about 3-4 years to complete construction. However, if we want to be leaders in the world’s future energy markets and secure a more sustainable future, we must commercialize advanced biofuels technology through an upscaling process where technology is tested at the pilot and demonstration phases to be then used in commercial-scale plants.

Biorefinery. Photo by Penn State on flickr.com creative commons

Biorefinery. Photo by Penn State on flickr.com creative commons

Billions are needed to develop the advanced biofuels industry and build new commercial plants. So far, 2.3 billion dollars in capital investment have enabled construction of our current Canadian first-generation biofuels facilities. This includes 23 biodiesel plants producing about 956 million litres per year, and about 23 ethanol plants producing 1.8 billion litres per year. That’s about $600,000 to $950,000 per million litres of fuel according to a report by the Conference Board of Canada.

How do you finance a biofuels plant?

First, the entrepreneurs wishing to build a plant must form a registered company. The company management team must have a demonstrated track record of implementing similar projects. They must then secure sponsors, also known as equity investors, to provide the initial capital investment.  The company then tries to obtain a large loan to build the plant(s) and supporting facilities. The loan, given the risk profile, has an associated high rate of interest.  The loan is usually backed-up by a lien on either current assets or future revenue stream. Along the way, the government(s) may further offset the size of the loan needed with grants, and/or tax credit benefits.

Last, a long-term “offtake” agreement is needed between the company building the plant and a buyer of the future product (i.e. biofuel, bioproducts or energy). This will guarantee that someone buys the plant’s future products and will make it easier to obtain financing for the plant, as you’ve secured a future market.

What do you need all this money for?

The money will be used to pay:

  • Construction costs
  • Interest during construction
  • Debt service if project revenues are insufficient to pay interest and principal (Principal is the amount borrowed or the amount still owed on a loan, separate from interest)
  • Maintenance and operating costs
  • Project “soft costs”: land, engineering, environmental studies, feedstock studies, independent engineers report etc.
  • Legal and financial costs

What are the risks involved for the people financing the biofuels plant?

The following risks need to be addressed:

  • Construction risks, e.g. Completion guarantee, technology failure, fixed price, completion date, insurance/warrantees on parts
  • Market risk, e.g. supply / demand forecasts, government policies, competing suppliers
  • Feedstock supply: e.g. adequacy of available feedstock, long-term availability, long-term fixed price, adequate on-site storage
  • Technology risks, e.g. new and emerging technologies like cellulosic ethanol
  • Operational risks
  • Economic performance, e.g. generates food debt coverage, stable project returns

What are the greatest barriers to producing/developing biofuels?

According to a 2009 survey by statistics Canada, the greatest barriers for bioproduct firms in order of importance are:

  • Lack of capital investment
  • Cost and timeliness of regulatory approval
  • Cost of biomass (e.g. price, transport cost etc.)
  • Difficulty of entering commercial marketplace
  • Ongoing regulatory costs/requirements (e.g. on-site requirement for engineers)

What can be done to help offset the costs of building advanced biofuels plants?

In order to help grow the advanced biofuels sector, federal support for advanced biofuels technology is critical in Canada, especially for the early stages of commercialization.

To grow, the advanced biofuels industry would benefit from:

  • Increase blend levels in the renewable fuels mandate to create the demand and market access for renewable fuels. Canada is currently achieving its 5% ethanol mandate. New market opportunities are therefore limited.
  • Government capital support program to help finance first projects by attracting private capital investment (risk sharing)
  • Government operating tax incentives for advanced biofuels. This also attracts private capital investment. First generation plants receive an operating incentive of $0.10 per litre declining to $0.03 per litre until 2017. A federal operating incentive that is higher on a per-litre basis for advanced biofuels would help support higher capital costs and technology risks associated with the commercialization of these new technologies.
  • Infrastructure development, e.g. flex-fuel vehicles, incentives for blenders pumps (E30, E85)
  • Carbon-based incentives, e.g. Cap-and-trade

 

For more information see:

Results from Statistics Canada’s Bioproducts Production and Development Survey. 2009. Statistics Canada.

Ethanol’s Potential Contribution to Canada’s Transportation Sector. 2011. Conference Board of Canada.

Federal Budget Consultation. Government Initiatives for Next Generation Biofuels. 2011. Enerkem.

 

The author,  Annie Webb, writes the blog Spaced-Out Scientist.

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