Biofuels internationals Interview with DONG Energy's Vice President Anna-Lena Jeppsson.
Last year saw the publication of the EU Directive 2015/1513 on 9 September, already nicknamed the 'ILUC amendment'. This directive defines sustainability and the conditions under which biomass for transport fuel may be produced in order to reach the target of 10% renewables in all the transport fuels. The amendment also, in practice, prohibits growth of first generation ethanol and biodiesel production, so the 7% cap on these fuels leave a clearly defined market of 3% for the advanced fuels such as the Inbicon 2G ethanol. However, we generally believe caps on fossil fuels rather than on renewables, to be more effective.
Mandatory blending is important in this sensitive initiation phase as it serves to ensure investors that the politicians are committed moving forwards. However, double counting also helps ensure the prices to support an attractive business case. The fact that advanced fuels are double counting contributes to the value of this fuel, as it can gain the necessary premium in the market without subsidies.
We believe that, with our inventions in lignin applications, the future cost of second generation ethanol over time can become lower than first generation. This shift could initiate conversions of existing 1G plants to cellulosic, and hence the potential volume is many fold higher than what we see now. Moreover, there is political interest to keep up the pace, to ensure independence of imported oil, and to create the many jobs in rural areas that this technology also brings.
Right now there are a number of companies in Europe that have identified the advanced biofuel space as an attractive one to enter. Furthermore, there is a view that a first mover advantage is very significant when it comes to securing biomass supply. Once a plant is established in an area, and has made its supply contract with the local farmers, it will be difficult for a second plant to enter this area.
The combination of visionary and entrepreneurial companies and the abundance of biomass in some regions could lead to up to 15 second generation ethanol plants being built in the EU before 2020. I believe that a successful start-up could spur a second wave of followers post 2020, while the first-movers will start building their second, third and fourth plants.
However, the political uncertainty has been a challenge. The industry has waited 10 years to get to 0.5% blending requirement. Fortunately, this now appears to be gaining momentum.