Coexistence of Pressure and Opportunity: Analysis of Prospects of Second Generation Biofuels

The world-renowned growth consulting company Frost & Sullivan Frost & Sullivan published a research report in August 2010, stating that although the current second-generation biofuel market is facing many problems and the market size is not large, its prospects are attractive. With the gradual maturation of second-generation biofuel technology, future market development will increase exponentially.

The second-generation biofuel refers to the agricultural or forestry wastes such as straw, rice straw, sawdust, or algae and pulp waste liquids as the main raw materials, and is converted into bioethanol or biodiesel using cellulase or other fermentation methods. The most important difference between the second-generation biofuel and the first generation is that it no longer uses food crops as raw materials, thereby minimizing the supply of food. The second-generation biofuels not only help reduce the dependence on traditional fossil fuels, but also reduce greenhouse gas emissions and play an important role in achieving global sustainable development. Many countries have formulated or are implementing relevant plans to vigorously develop second-generation biofuels.

Frost & Sullivan expects 2011 to be a year of large-scale industrialization of second-generation biofuel technology, and the market will expand at a rate of 200,000 tons per year. Around the year 2017, second-generation biofuels are expected to become an important part of energy.

technical analysis

The development of the second-generation biofuels is inseparable from the technology. Only the constant updating of its technology can give it an advantage and continue to open up markets. At present, the main technical methods of biofuel production technology are mainly hydrolysis fermentation, gasification fermentation, gasification catalytic synthesis and pyrolysis. Although these technologies are still in the experimental stage, in recent years, countries and major companies have invested heavily in research and development, and the results are constant.

Our country has abundant cellulose resources. It is estimated that the total output of crop stalks, grains and glutinous rice cakes produced in China is as high as 780 million tons per year, among which corn stalks account for 42.4% of the total 330 million tons, wheat straw accounts for 150 million tons and 19.7%, and rice straw Straw accounted for 120 million tons and accounted for 15.3%. The three types of cellulose accounted for more than 77.4% of the total cellulose production in the country. However, at present, a large amount of straw is mainly used for direct biomass power generation, and the combustion conversion efficiency is not high. Due to the lack of mature straw fuel ethanol technology, the conversion cost of cellulose to ethanol production is high. Once this technology has achieved a major breakthrough, both the calorific value of the products produced from the unit straw and the value calculation of the products will constitute a powerful competitor for biomass direct-fired power generation.

The technology used for cellulosic ethanol is mainly hydrolysis and fermentation technology, which first uses weak acids, weak bases, or enzymes to hydrolyze raw materials, destroy cellulose and hemicellulose, and convert it into C5 and C6 sugars. These sugars are further fermented into alcohol.

The advantages of cellulosic ethanol technology are based on the use of hot water and enzymes. The process is simple and carbon emissions are significantly lower than other biofuel technologies. No high temperature and pressure are needed throughout. At the cellulose pretreatment stage, cellulose can be completely hydrolyzed, and lignin that cannot be processed can also generate energy through separate combustion. Of course, it also has its disadvantages, such as higher pretreatment costs, lower yields, and so on. Now the research teams and related scientific research organizations of major companies have increased the research and development efforts of the pretreatment process and the new hydrolyzing enzymes and yeasts, making the development of the technology full of opportunities. On June 28, 2010, DSM announced the development of a new yeast technology that is said to double the efficiency of hydrolysis and fermentation.

Market analysis

The second generation of biofuels is currently in its infancy and has not yet formed large-scale production in the country. The major domestic biofuel companies, including Jilin Fuel Ethanol Co., Ltd., Henan Tianguan Group, Anhui Fengyuan Biochemical Co., Ltd. and Heilongjiang China Resources Alcohol Co., Ltd., are all first-generation biofuel companies. However, with the rising food prices in recent years and the introduction of non-food biofuel policies by the Chinese government, these companies are actively developing the next generation of biofuel technologies. Since 2008, the key non-food fuel companies have adopted 1.5 generations of biofuel technology. The main raw materials used are southern China, sweet potato, southwest, sweet sorghum, North China and East China. With the rise in the cost of potato in recent years, whether the production of bioethanol from potato can maintain profitability is a major issue for the industry.

China's participation in the second-generation biofuel technology research and development is only a few companies such as Henan Tianguan Group, but the scale of operations is still very small. Novozymes has already cooperated with COFCO Group and Sinopec to study cellulosic ethanol. In 2008, the cost of cellulosic ethanol in the United States was about 2-4 US dollars per gallon 3.6-7.2 ***/liter. The cost of producing ethanol from corn as raw material in the first generation of ethanol plants is approximately US$1.5/gallon per gallon, but with taxation and distribution expenses, the price is higher than the gas price. The price of fiber ethanol must be reduced through viable technologies.

Technological development and market competition

Since the entire industry is still in its infancy, the market is small and there is no fierce market competition. Once the pre-entered enterprises have established technological advantages, they will be in a favorable position in market competition. With the increase of policy support and the increase of newly-entered enterprises, it is expected that the pace of technological progress in the future will be faster and faster.

Alternatives**

As a substitute for traditional fossil fuels, the importance of biofuels will gradually increase with the reduction of reserves of oil, coal, and other energy resources, as well as rising prices. However, due to the relatively high production cost and immature technology, biofuels are also subject to other renewable energy sources including biomass direct-fired power generation, solar energy, wind energy, and hydropower. However, in the foreseeable future, biofuels are expected to become more and more important due to their compatibility with existing gasoline engines, diesel engines, and their ability to be blended with gasoline and diesel fuel, as well as their high energy density and convenient energy storage.

Stable sales model

In China, biofuels include both bioethanol and biodiesel. The main sales channels of the bioethanol market are PetroChina and Sinopec gas stations. Because of the small scale of the biodiesel market, the current mainstream channels are factory direct supply supplemented by private gas stations. Since the selling price of bioethanol is linked with refined oil, the purchase price is also executed according to the relevant documents of the NDRC, so it is not affected by the channel bargaining power. However, due to the lack of guidance from relevant documents, the biodiesel market has a small production and supply volume, scattered customers, and unstable market channels. The government needs further guidance and support to achieve regularization and stabilization.

Raw material supply is scattered and insufficient

Sufficient and stable supply of raw materials can support the rapid development of biofuels. Take cellulosic ethanol in China as an example. Cellulose ethanol is mainly based on agricultural and forestry waste materials. According to the statistics of the Ministry of Agriculture of the People's Republic of China, the annual output of agricultural waste such as straw is over 700 million tons. However, only 300 million tons or more of the remaining farm waste is removed from landfills and biomass. At present, there is no unified straw supplier in China, mainly relying on biofuel companies to buy from farmers and large farms themselves, which also increases the cost of straw acquisition, storage and transportation.

Market entry threshold high

The second generation of biofuels belongs to the high-tech industry. Enterprises in the industry must maintain a high level of investment in technology research. Therefore, the requirements for entrant funds are relatively high. Especially at this stage, the technology of the entire industry is not yet mature, and it will be possible to make a return after a sustained large investment.

As the second-generation biofuel industry can ease energy shortages and environmental pressures, it can stimulate the rural economy, increase the income of farmers, and promote the construction of new countryside. Therefore, there is tremendous potential for development in the country. Throughout the developed countries such as the United States and Europe, a series of policies to support the second-generation biofuel industry have also been released in 2010, raising the proportion of advanced biofuels such as cellulosic ethanol in future industrial development. In the long run, the prospects for the future development of the biofuel industry are still optimistic.