Grupo de Economia da Energia

The future of biofuels X: the two sugar rushes

In biofuels on 21/11/2011 at 00:30

By José Vitor Bomtempo

In the rush to develop new processes and products that will compose the bio-industry of the future, searching for suitable feedstocks is a strategic point, especially in the case of biotechnology-based processes. As some innovative projects try to overcome the original stage and make scale up to demonstration and commercial one, ensuring access to feedstocks becomes critical. For many of these processes, and probably for the most innovative ones, sugar is feedstock of choice.

As a consequence, a real sugar rush similar to gold rush for bioprocesses occurs. In fact, evidenced in recent months not only one but two sugar rushes: a more immediate and commercial / strategic nature one, in order to ensure the best sugar that exists today – the Brazilian sugarcane – and other one with technological nature to seek the plentiful sugar existing in plants in general (2/3 of the lignocellulosic material is composed of sugars: cellulose and hemicellulose).

Sugar rush in Brazil – the Brazilian sugar rush

Amyris, LS9, Solazyme, Butamax, Codexis, Iogen, Virent and Mascoma are some of the most popular among new bio-industry companies. Their strategic moves are often highlighted by specialized press. Some of them have already made their IPO and has already picked up major partners such as BP, DuPont, Shell and Total. These and many other companies have been pre-selected at 1st phase of PAISS (BNDES / FINEP Plan to Support Innovation of Sugarcane and Sugar Chemistry Sectors), BNDES/FINEP joint program, which aims to finance the bio-industry of the future.

Interestingly, these companies come to Brazil even in the initial stage of development of the projects, in pilot stage yet.  For them our country is, above all, the route of the precious sugar, essential for the development at business scale of the projects. The base of scale ethanol production is another attraction. In many cases, new fermentation processes can be adapted to conventional ethanol plants, decreasing the investment costs for producing new biofuels and bio-products. That is what Amyris, for example, is attempting to do in its production models under progress. We must not forget also that access to the sugarcane bagasse can also have strategic value, especially if we consider other sugar rush to be discussed later.

Foreign investments in biofuels in Brazil are estimated at US$ 20 billion and are also directed to the production of conventional biofuels. But what do we stand out in the sugar rush is the projects coming even under way. This is a unique phenomenon, with no precedent in other major technological revolutions.  Definitely it is an interesting subject for researching in economics and innovation management. But it is also a phenomenon that public policies need to understand and incorporate with creativity in their goals.

Could these technology-based companies coming Brazil to play an important part of the world bio-industry contest boost local capacity? What entry formats in the country are being used? What forms of integration have been adopted? What relationships have been established with the Brazilian innovation system? Is there any sense to establish some form of local content for the bio-industry? Why not encourage interest in or even buyout these companies? Is it more important for the country making biodiesel from castor than creating an advanced manufacturing base?

We could wonder if there is a new and original opportunity: acquire and internalize the knowledge that was developed in American universities and transformed into companies by entrepreneurial venture of capital risk supported by DOE and USDA programs. These are initial questions that the sugar rush can raise and put under discussion. A subject that deserves further discussion and, especially, new ideas for policies and strategies.

Sugar rushanother sugar rush

But the sugar rush is more extensive than the American companies coming for sugar cane in Brazil. Indeed, the maturity of the plant biomass as feedstock for bio-industry only will occur when sugars, which are almost 2/3 of lignocellulosic materials, are “released” and made available for conversion processes at attractive cost. The solution to this obstacle for the future of bioprocess is focusing on technology efforts of companies and research centers such as NREL. As it is related to the nature of the technological innovation process, a clear definition of a problem to be solved guides and highlights research efforts. Many proposals have emerged and some technology-based companies have been devoted to this problem.

A great announcement called attention recently to a new and possible revolutionary solution for the production of sugars at low cost: the process based on treatment of the lignocellulosic material by water vapor in the supercritical state, announced by company Renmatix. The announcement and importance that the technology could have came from New York Times news on September 27, whose title is: A way to make fuel out of wood? Add water

It addresses a process that uses about 100% of water vapor to release the sugars and promises a cost about five cents per pound. The announcement caused some controversy and skepticism from some analysts. Renmatix’s main investor is Kleiner Perkins, a risk capital funds.  Amyris CEO, John Melo, is a member of company’s board of directors.  But this is just one project and alternatives that have attracted the attention of analysts in recent months.

Some companies already known due to production of biofuels projects are now considering problem of the sugar rush. For example, KL Energy (Petrobras partner in cellulosic ethanol) and Codexis (Raízen as shareholder). In addition to these, new businesses, before that absent from the scenario of innovative projects, have joined the rush. Besides Renmatix aforementioned, we mention Proterro, Comet Biorrefining and HCL Cleantech. A description of the lines of action of each of them can be found in Jim Lane’s article, September 15.

Some points should be highlighted regarding these companies’ innovation strategies. Firstly, there is a diversity of technological solutions to the problem. There are at least three different paths in progress. The classic situation for a better solution or, satisfactory at least, which can be adopted by the industry and provide the development of bioprocesses appears again. The target is evident: five cents per pound. The second point is the direct involvement of the major companies interested in sugars. Renmatix have direct relationships with Amyris. HCL is in connection with LS9 and Virent. Solazyme is part of Proterro’s scientific council. Not to forget to mention that Codexis is linked to Raízen.

If we go back to the beginning of the article, we see that these companies are those most important participants in the Brazilian sugar rush. The cycle is closed. The core problem is the availability of cheap sugar. Nowadays, the source is sugarcane in Brazil. The source in the future may expand to other areas as the capability to release low-cost sugars from lignocellulosic materials increases greatly the supply of biomass for the industry. This does not mean that sugarcane with bagasse and straw included will lose its competitiveness. It has been suggested that cultivated as a source of biomass and not directly from sugar, cane could play a central role continuously as a feedstock of the future. But it is evident that there is a window of opportunity in relation to the sugar rushes that Brazil should not miss.

The sugar rushes suggest two agendas for P&D&I policies. The first one is focused on how to internalize the knowledge of technology-based companies coming here seeking existing feedstocks and conditions for development of their innovative products and processes. The second one is the future, technological efforts to develop processes for the treatment of biomass to release sugars. They are two agendas related and focused on sugar rushes.

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