Biofuels’ financial catalyst

Vicky Sharpe, President and Chief Executive Officer of Sustainable Development Technology Canada, laments the fallout from “absolutely appalling” news media coverage of first-generation agricultural biofuels which suggested that any gains were at the expense of food production.

Acknowledging a backlash that undermined government and public support, she nevertheless is adamant that public funding equal to or in excess of private investment is crucial to research, development and exploitation of biofuels’ huge potential.

“It does require public money,” Sharpe told the 5th annual Canadian Renewable Fuels Association summit. “It is not a commercially viable opportunity just yet.”

Founded in 2001, her organization is a government-led not-for-profit foundation which supports development and demonstration of clean technologies. It operates a $550 million SD Tech Fund in support of projects that address climate change, air quality, clean water and clean soil. More important to the renewable fuels sector, its $500 million NextGen Biofuels Fund, announced in the 2007 federal budget, supports the establishment of “first-of-kind large demonstration-scale facilities” for second-generation production from non-edible sources.

Sharpe, who has a doctorate in microbiology and chemistry, told summit delegates that the U.S. has the strongest commitment to biofuels and is the only country which distinguishes between first- and second-generation fuels. That said, she expects the U.S. to achieve little more than half of its “really high” production goals. President George W. Bush has called for the use of 35 billion gallons of alternative fuels, including biofuels, by 2017.

In contrast, Canada’s legislated goals – mandated by amendments to the Canadian Environmental Protection Act which were passed by Parliament last summer – begin with a requirement of 5% average renewable content in gasoline by 2010 and then 2% in diesel and heating oil by 2012, subject to a successful demonstration. Gasoline-powered vehicles have been able to burn up to 10% ethanol in gasoline since the 1980s and many diesel-engine manufacturers warrant the use of 5% or higher biodiesel blends. One of the main attractions of biodiesel is that it generates 93% more energy than is required to make it, according to the American National Standards Institute.

When in introduced the draft legislation as bill C-33, the government said its proposals would reduce annual greenhouse gas emissions by about four megatonnes. That’s equal to taking nearly a million vehicles off the road.

Sharpe expects most of the earlier biofuels targets to be met from first-generation sources and that capital investment in the $8-13.5 billion range is “roughly what we’re looking at.” The scale of the investment was such that governments, oil companies, other industries and the capital markets “obviously need to play an important role” and that international capital was “absolutely” necessary “to get the job done.”

Price could be a hurdle for second-generation biofuels, which Sharpe said are coming in at about $1.60-$1.80 per litre. They needed to be closer to $0.50-$1.20/l to be practicable. “We have momentum (and) we have to build on it, but let’s not over-promote.” Doing so, she said, generates cynicism.

Since its inception, SDTC has become a “very positive story” in that some $200 million has been invested in 16 companies with a “very good range of capability.” STDC mitigates its exposure by committing up to 40% of a project’s costs to a cap of $200 million, the investment being repayable from cash flow once a project is viable.

The foundation currently is reviewing the latest applications for NextGen funding. “The future of biofuels lies in cellulosic ethanol and next-generation biodiesel, produced from non-food feedstocks that do not encourage land-use changes,” Sharpe said in announcing the call for applications. “The projects that SDTC wants to support . . . will bring cellulosic ethanol and next-generation biodiesel one step closer to market and help secure Canada’s position as a world leader in the renewable fuels industry.”