Grupo de Economia da Energia

The future of biofuels VII – what does Brazilian role?

In biofuels on 09/05/2011 at 00:30

By José Vitor Bomtempo

In last article, we discussed the Petrobras strategy, arguably the most important actor in the future of energy in Brazil. We can infer from the initiatives of the company an effective participation in the biofuels industry. But this participation seems to occur in a view more committed to the current industry – so-called first-generation – than with the industry of the future – so-called advanced biofuels and other bio-products.

This perspective is supported when comparing Petrobras with other major oil companies such as Shell and BP (see the previous articles, the future of biofuels IV and V), which combine position in the current industry and a strategy for building new industry. Total is other oil company that has increased interestingly its portion on biofuels of the future. Total will be back on the next article. The question today is to examine the Brazilian role in the industry of the future and for this we must examine beyond the role of Petrobras.

The recent introduction of PAISS (BNDES / FINEP Plan to Support Innovation of Sugarcane and Sugar Chemistry Sectors) and, at the same time, the massive arrival of foreign companies in Brazil interested in investing in advanced biofuels are two points that can be discussed: what does the country’s role in the industry of the future?

You could say that to some extent the future of advanced biofuels occurs in Brazil nowadays. Who are the players? Typically, the American startups – technology-based companies – generally supported by large oil companies. Perhaps the most interesting part of these games is Amyris – Total “versus” Shell/Cosan-Iogen-Codexis-Virent.

Other presences announced can be Butamax (BP-Dupont Project for biobutanol) and Solazyme, among other less present in the specialized press. All these companies came for, firstly, a critical resource for their projects: low cost sugars, reinforcing the idea that sugarcane is much more important (when we talk about the industry of the future) than ethanol.

There are research and demonstration units installed and installing in Brazil, and commercial production, at least while the cellulosic sugars are not available at competitive costs in other countries, also tends to be located in Brazil, taking advantage, in many cases, of existing ethanol plants.

Note that, except Shell-Iogen cellulosic ethanol project, all other projects aim at other advanced fuels, such as drop in, and chemicals (bio-based chemicals). At the same time, it was informed recently the shutdown of operation in the Dedini lignocellulosic ethanol pilot plant due to CTC revelation that the second generation ethanol in Brazil is unpredictable due to lack of government support.

We can not forget, as a positive counterpoint on the Brazilian side, the success of the Braskem regarding ethanol-based biopolyethylene, which seems to provide interesting opportunities in the chemical-based renewable raw materials for the company. In this environment, we have PAISS, BNDES – FINEP plan.

PAISS, established on March 17 and currently open for submission of letters of interest from companies wishing to apply for funding offered, intends to invest R$ 1 billion reais, distributed in RS$ 250 million per year, for four years, in 3 thematic areas deemed innovatives. The thematic areas are: 2nd generation bioethanol, New sugarcane products and Gasification. A maximum of 5 projects will be select per thematic area. The forms of support are varied and meet the usual instruments of BNDES and FINEP.

How does PAISS face challenge of building the biofuels and bioproducts industry of the future? The first positive aspect is the explicit acknowledgment that the future is bigger than ethanol. Even if one of the thematic areas to be dedicated to ethanol, it should be noted that the detailing of the area identifies at least three sub-areas, among 5 to be contemplated, which represents the basic knowledge to take full advantage of sugarcane in such a way: collecting and transporting straw, pretreatment of biomass and production of enzyme/hydrolysis processes.

In relation to new sugarcane products the plan is dubious, merely mentioning that they must be produced by means of biotechnological processes – which may have been an excessive restriction in the current phase of the industry where technological alternatives are still diverse and disputed (see The future of Biofuels – Part III).

The third thematic area – Gasification – seems to overestimate this technological alternative in relation to its situation on the international and domestic scenarios. We could understand better a support to the thermochemical route if the view would be broader – other commodities, in addition to sugarcane, as agricultural and forestry wastes and refuses, for example, and also other technological alternatives besides gasification, such as pyrolysis to produce bio-oil.

Regarding the methods of applying funds, PAISS offers alternatives currently existing on BNDES and FINEP platforms, which may allow a reasonable flexibility to adapt to the various cases that may arise.

What about the volume of funds to be applied? We have some parameters for comparison: industry operated around US$ 650 million in venture capital in the USA, in 2010; DOE Biomass Program has invested US$ 217 million in 2009; in the recent IPO US$ 107 million were raised by Gevo, and US$ 78 million by Codexis; the contribution of Total to Amyris’s capital with 17% of interest costs US$ 133 million, a demonstration unit of lignocellulosic ethanol costs about US$ 50 million.

Considering the above parameters, the volume of funds to be invested by PAISS (R$ 250 million annually, i.e., about US$ 150 million) can be deemed as expressive as the first effective initiative to finance the technological evolution of the industry.

We expect that companies become able with good projects, funds to good quality borrowers, there are new players besides those mentioned in this article and, especially, the program also develops in its view on industry of the future.

Firstly, the continuity has to be ensured. Four years is a very short time to build a new industry. Remember that BP is investing US$ 50 million annually, for 10 years, only to structure a bioenergy research center, the EBI. Secondly, the program learns from the process and it also innovates support mechanisms and mainly the coordination of processes. After all, besides technology, there is a great learning experience (worldwide) in the search for innovations in its own way to innovate. Thus, we can expect that the Brazilian contribution to the new industry is more than being the efficient source of sugar.

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