Biofuel Pain Could Be Primafuel's Gain

[pagebreak:Biofuel Pain Could Be Primafuel's Gain]

Ethanol companies are being squeezed through the ringer, with high prices for the crops they use to make the fuel, low prices for selling the fuel and a credit crunch that has made it more expensive to finance new facilities.

News of plants being postponed or cancelled have become commonplace (see Mascoma to Play Smaller Role in Pilot Project, Plans for Two Cellulosic-Ethanol Plants Scrapped, Another Ethanol Plant Gets Cancelled, Poet Cancels Ethanol Plant, Ethanol Margins Suffer, and Ethanol’s Tough Times Continue).

So it might seem like a less-than-ideal time to sell to the biofuels industry.

It’s just those pain points that make ethanol look especially alluring to Primafuel. The Signal Hill, Calif.-based company – which this month announced it has launched a new biofuel-technology subsidiary, Primafuel Solutions, in Basehor, Kansas – has begun to sell a system that it claims can cut ethanol manufacturers’ energy costs by 5 percent to 10 percent or produce up to 10 percent more ethanol from the same amount of corn.

The system, called Smaart Oil, separates fats and oils out of distillers grains, an ethanol byproduct typically used as cattle feed, which biofuel companies can sell for additional revenue. It also captures leftover sugars and yeasts, which can be recycled back into the ethanol plant to produce more fuel, said Rahul Iyer, chief marketing officer and co-founder of Primafuel.

Sugars and fats aren’t particularly good for cows, so removing these materials results in better cattle feed, he said. And producing more ethanol – as well as an additional product, fats and oils – from the same corn makes refineries more cost-effective, he said.

Using Smaart Oil, a 55-million-gallon ethanol facility could produce 2 million to 3 million gallons of fats and oils, Iyer said. That’s significant because fats and oils are worth good money, even in the crude form in which the system would deliver them, he said. “It’s a fat-constrained world, not a starch-constrained world,” Iyer added.

Primafuel expects its customers to see a return on their investment in approximately 12 months, and offers different performance guarantees for each of its plants, Iyer said.

Because it takes one acre of soybeans to make just 100 gallons of soybean oil, the technology also could potentially save acres of cropland, he said.

And that could help combat concerns about biofuels’ impact on food (see Lester Brown Talks Smack About Ethanol, this International Herald Tribune story about biofuels' emissions and this study from nonprofit Oxfam International).

The European Union is considering a proposal to reduce its biofuel target, which currently calls for 10 percent of its car and truck fuels to come from renewable sources by 2020, to 4 percent by 2015 based on concerns about biofuels’ impact on the environment and on food prices.

“If one ethanol facility is suddenly putting a million gallons on the market, we’re talking about essentially generating virtual acres – and a lot of them,” Iyer said. “It’s these kinds of technologies that we believe can, in the very near term, help improve the sustainability of biofuels, in addition to adding to the economic viability as well.”

Sales Signal Industry Interest
Primafuel already has “a healthy pipeline of sales” that it plans to announce soon, according to Iyer, who wouldn’t disclose any figures. The company also plans to have its first commercial system up and running within a month or two, he said.

“Given the fact that the corn-ethanol industry is in a less-than-comfortable position, any capital investments that can significantly boost the output of an ethanol facility is attractive right now,” he said. “We’ve been received very, very warmly.”

That may be somewhat surprising, considering that Primafuel certainly isn’t the first company to claim it can separate corn into different parts to generate more products.

Companies such as AMG Engineering, Broin and MCM have also developed so-called “fractionation” technologies to produce additional products alongside ethanol, but the market for those technologies has been limited so far.

The grain-milling company FWS Technologies, for example, two years ago announced it had developed a dry fractionation process, but so far hasn’t announced any commercial sales. The company is currently “showcasing its simplicity and ease of use in our pre-commercial scale up facility,” according to its Website.

In 2006, CEO Rick Chale complained that in times of high ethanol prices, companies focus all of their capital on building new plants as quickly as possible, and when ethanol prices are low, companies don’t have the upfront capital needed to build so-called “clip-on factories,” attached to ethanol factories, to make them more efficient.

Still, Primafuel thinks the tighter market could make companies more receptive to spending money to become more efficient. And Iyer said the promise of future technology advancements also has helped to differentiate it from its competitors.

[pagebreak:Primafuel Continued]

The next generation of the technology, which Primafuel expects to bring to the market next year, will purify oils and fats into food-grade quality and extract free fatty acids that could be used to make biodiesel, he said.

Further generations also will aim to make more products from the same bushel of corn, such as by turning glycerin into biochemicals for products such as bioplastics, biopolymers and stabilizers, he said.

Primafuel plans to design each new “clip-on” technology to plug into each other, so that customers can make incremental upgrades rather than having to buy whole new systems, and also is trying to design new technologies that will fit into other companies’ fat- and oil-extraction systems, he said.

Rick Kment, a biofuels analyst with research firm DTN, said the idea of making additional products at ethanol facilities makes sense.

“The purpose is to really try to maximize the value that comes out of the back end of an ethanol plant,” he said, adding that increasing this value could shorten the payback time, reducing the overall construction cost of a plant.

Kment added that he’s not sure the fractionation movement will end up being a significant trend in the market, and that it’s hard to pick winners among the different competitors at this early stage.

Growing the Market by Going Small
As in many other industries, a number of biofuel companies expect that the fuels would be cheaper to make in larger volumes.

But Primafuel disagrees. While the economies of scale may reduce the cost of converting crops into fuel at large biofuel refineries, they face two common problems: getting those materials to the plant and getting the fuel out to distributors.

The company thinks the solution is to go small, not big, with companies setting up larger numbers of smaller facilities that are sized to use the amount of biomass available nearby.

Aside from its waste-stream technology, Primafuel Solutions is also developing stand-alone biofuel refineries that are modular, so they can be made in a factory for potentially lower cost, and that are a standard size, as well as “skid mounted,” or welded onto a frame, so they can be forklifted and transported by truck.

Using thermochemical technology – which uses heat, pressure and catalysts, rather than enzymes, to convert the biomass into fuel – and an efficient reactor design, the company expects its refineries to cost less per gallon than current refineries, making it economical for customers to build smaller plants.

The idea is to make them easy to transport, so they can be located near the feedstocks, and what Iyer calls “appropriately sized,” so that companies don’t have to transport those materials long distances to feed the plant. The refineries could also be moved if the feedstock in one area runs out or if, say, a supplier moves or closes, he said.

“If you have to scale to massive sizes to make money and you have to truck in switchgrass, you have a problem,” he said in an interview in December. “You can’t move forestry from Tahoe very far or chaparral from L.A. very far. … Moving [woody biomass] too far is crazy.”

Kment said Primafuel’s idea could work if the company focuses on using byproducts from other processes – wood waste from a furniture plant, for example – where the production of ethanol is a byproduct rather than the main product of the plant.

“If they would use feedstock from an existing business, that would be economical because they wouldn’t have to make the capital investment they would have if they were building the whole structure just for the ethanol,” he said.

He doesn’t expect the model of smaller plants to overthrow the current dominance of larger ones.

“Larger plants, where ethanol is the main focus and core of the business, are still going to gain some efficiencies by being larger,” he said. “At the same time, if manufacturers [that are] not in the ethanol industry right now decide to put smaller ethanol facilities in as a way to add value to their waste product – rather than making ethanol production their core business – I think that will work.”

Aside from developing technology for conventional ethanol and biodiesel plants, Primafuel also plans to get into cellulosic biofuels with technology to convert woody biomass, instead of corn, into ethanol and other fuels. But the current market doesn’t support the investment needed for the mass commercialization of next-generation biofuels, Kment said.

The first application of the cellulosic technology will likely be to boost the profitability and sustainability of conventional biofuels by converting the lignans and other currently unusable parts of corn into ethanol.

Founded in 2005, Primafuel has until now mainly been focused on building biofuel infrastructure, such as railroad spurs to transport the fuel, and tanks and a warehouse in which to store and blend the fuel.

The company has been working to develop a large project, including both infrastructure and its first biodiesel refinery, at the Port of Sacramento.

The project, which is being considered for approval by the air quality district, originally called for a 60-million-gallon refinery made up of modules with the capacity to each produce 10 million gallons, but the total size of the project and the rollout of the modules is now being determined by the district, Iyer said.

Primafuel is financing its infrastructure projects through debt financing, rather than through venture capital.

The company previously raised an unannounced Series A round from an unnamed Silicon Valley venture firm. In December Iyer said Primafuel was pursuing a second round, but last week he said the company hasn’t yet closed a second round and plans to wait and see if it’s needed.