The Case For Cellulosic
Eric Rund believes the country will need to turn to alternative crop sources in the future to meet ethanol demand.
September 15, 2008
In this article, Rund shares his thoughts on the biofuels market today and the reasons why he thinks biofuel-focused growers will be trading in corn and soybeans for miscanthus and other cellulosic feedstocks.
Q. Why are you so bullish on cellulosic ethanol?
In the short term, we'll be making ethanol out of corn because we know how to grow corn, and that's what is being supported right now. But more will be needed than corn alone can support. For example, the Senate version of the Energy Bill is calling for 36 billion gallons of renewable fuel to be produced by the year 2012. Corn growers can realistically produce 15 billion gallons by the year 2012 by increasing yields and adding a few extra acres, but we can't really do any more than that without pulling corn out of the feed market. So that leaves 21 billion gallons to come from elsewhere. Farmers need to look at that, and try to position themselves to take advantage of that future demand.
The only logical place to fill the gap is cellulosic sources. Both the government and private industry are spending billions to develop systems to convert cellulosic material, and I think that three or four years from now we are going to have the technology available.
Q. But what will be the "feedstock?"
Well, there are only so many wood chips to go around, and in my opinion, based on fuel yield, switchgrass and wheat straw aren't going to do it. Here in Illinois, I'm working on how we can take advantage of a future market for what we can grow here. And at the University of Illinois, research on miscanthus, a high fuel yielding grass, is showing real promise. A crop like that, if not that crop itself, is one that we as farmers can provide to the market.
The issue with miscanthus is that it will take longer term planning and some vision, and that's much different than growers in this area usually work. You can't decide this March to plant it and have a harvestable crop in October. It takes two to three years to get the production going.
Not much miscanthus is grown because it is a sterile plant. The most common way to increase acres is by transplanting the rhizomes. With switchgrass, you plant the seed like with most other crops. And there isn't a knowledge base on how to grow, harvest, and store it. But the information is coming. BP Amoco has put out a half a billion dollars toward figuring it out — the University of Illinois received $100 million to work on biomass production, while the University of California at Berkeley got the right to work on the processing issue.
Why miscanthus? Right now, the ethanol yield from corn is 500 gallons per acre. Miscanthus can generate 1,500 gallons per acre. It is a perennial, it requires very little fertilizer, and once established, there is no need for herbicide. You harvest the crop once a year between late fall and early spring.
Q. When could miscanthus production actually become a reality?
Well, it's a chicken and egg thing. No one is growing it because there's no market for it, and there's no market for it because no one can produce a steady, large supply of it. So it's in limbo at this time. Now, there are some ideas that hold promise: Monsanto invested in a company called Mendel that does a lot of miscanthus research, as well as other biomass. And BP Amoco is also invested in the Mendel venture. So there is a lot of big money in research toward developing biomass markets for miscanthus and other crops.
Q. How can the chicken and egg issue be overcome?
I'm not sure how the biofuel market is going to move forward, but we know that it's not going to turn cellulosic right away because the process is not ready. One way it could move forward faster would be if a biomass could serve to fuel corn ethanol plants in the short term. Installing fluidized bed boilers beside the natural gas boilers in corn ethanol plants allows the flexibility to use the cheapest fuel. Fluidized bed boilers can burn almost anything including coal, dried distillers grain, and any biomass. Not only would this reduce the production cost of ethanol, but a plant so equipped would provide a flexible market for biomass. It would give growers a chance to learn to grow and handle that biomass while creating the power source for the corn ethanol plant. Then four to five years from now when the cellulosic process is more practical, the plant can convert because it has a source of biomass stock.
The other opportunity may come from regulation. Illinois recently passed a renewable fuels portfolio that mandates that a certain percentage of the electricity generated in the state needs to be renewable — 75% is earmarked for wind power, but the other 25% must come from somewhere else. You could burn a biomass such as miscanthus in coal firing plants in Illinois. There are a lot of models for this, particularly in Europe, where it has been done for years. This could be the way biomass gets started.
Q. What do you see happening in the near term?
I think we are already starting to see a reduction in the amount of investment in ethanol from corn, and I think the reason is that speculators are seeing what I've laid out to you. There is new technology coming in, and if we invest in corn technology we may not be able to get our money out before the new vision gets here. That has cooled the heels of a lot of guys who want to throw money at it.
I think you could still get your money back in five years if you started now, but the cost of construction has gone up, interest rates are up ... it's cut into the exuberance over corn ethanol. I think that healthier investing is going on right now, with more consideration to goals for returns.