Parratt & Associates Scoping Biorefineries: Temperate Biomass Value Chains

7.3 Challenges

The development of biorefineries is in its infancy. There are several challenges to overcome to ensure the potential returns from biomass value chains can be achieved.

1. Challenges to Commercialisation

The development of temperate biomass value is faced with an uncertain commercial future within Australia. Modelling of biorefineries that illustrate the scale and economies of scale for optimally efficient biorefineries exist. No biorefineries of the projected scale exist outside the wood pulp industry. Integrated biomass value chains have not yet developed to the extent necessary to understand the all the mechanisms required to extract value at each step nor how to drive behaviours appropriately to deliver the benefits from commercialisation. The emerging industry will face technical, financial, environmental and social hurdles to realise a change in the industrial landscape.

In Chapters 3 and 4 an analysis of growing, delivering and transforming temperate biomass in bioproducts of customer and community value were considered. These can be summarised as;

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  identification, access and control over feedstock at quantity and quality is required;
  
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  efficient extraction of valuable components of the temperate biomass using appropriate pre-treatments;
  
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  efficient transformation of biomass sub-components either biochemically or thermochemically to products of value; and
  
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  logistics and management of both biomass inputs (farm or forest gate to biorefinery) and distribution of products from biorefineries to existing channels (oil refineries or chemical companies) or new processors for further value-adding.
  

Each of parts of the value chain has technical challenges to improve the efficiency, throughput and environmental sustainability. These are subject to active well funded research and development overseas.

Intellectual property (IP) impediments are often cited as a particular challenge to overcome with regard to the development of an industry. There are two perspectives to the issue of IP and IP management. One is ownership and protection, the other is access and freedom to operate in the market of interest to the company or industry. Australia is a signatory to all the relevant international treaties and recognises its obligations regarding protection and utilisation of registered IP and as such the protection, ownership, access and freedom are subject to satisfactory legal requirements. The challenges for IP management then are more focussed on freedom to operate and access than ownership and protection.

Researchers and business have an opportunity to develop, register, protect and commercialise IP in Australia and internationally. In Australia for industrial biotechnology and biomass transformation researchers and business are secondary participants in almost all facets of the supply chain, when compared to international activities. A failure to invest in significantly beyond the farm or forest gate in R&D has resulted in Australia primarily being technology importers. Significant activity has been undertaken in the improvement of crop and tree varieties, soil management and farm of forest management. Yet in comparison, internationally R&D for processes and products further along the supply chain has had a significantly greater focus. The data presented in Table 7.1 and Table 2.2 show that seventy five percent of the value creation for biomass transformation lies beyond the growing, harvesting, storage and transport. Commercially, the major issue is ensuring freedom to operate at an appropriate price and building an appropriate IP portfolio either by licensing or by R&D. Government role is to facilitate and ensure access on reasonable terms especially where the national interest and public good need to be protected. The development of bio-based products from temperate biomass provides multiple entry points along the value chain with multiple technologies appropriate for these access points.

2. Role of business and investment

Change to industrial processes within a sustainable framework will require investment from business, government and the community. Internationally governments have used their various economic stimulus packages implemented to buffer the impacts of the Global financial crisis to invest in the transition to bio-economies. The Australian Clean Energy Initiative, along with State Government proposals have emphasised renewable energy for stationary power generation. No new Australian initiatives have been targeted to overcome the challenges of biomass transformation for non-fuel biobased products.

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  Investment by government is essential to:
  
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  Create infrastructure;
  
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  Ensure sustainable environmental and social outcomes from biomass value chain development;
  
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  Create and facilitate industry growth and development by putting in place polices targeted at parts of the value chain (Figure 6-1 and 6-2).
  
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  Encouraging existing international industry stakeholders to investment in Australia.
  

Investment by business is essential to:

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  Develop new processes for the growing, collection and storage of biomass;
  
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  Provide storage facilities that will ensure continuous supply of biomass to biorefineries;
  
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  Develop global supply and value chains;
  
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  Where appropriate grow new energy crops in larger quantities whilst ensuring no indirect or direct land use changes occur away from food production.
  

A challenge for business in the past three years has been access to capital at interest rates that do not overtax the development of the industry. Figure 6-1 provides an insight to the problems faced by business at early to mid-stage development. Discussions held with industry provided two contrasting views on the development of biorefineries. New emerging companies struggle to access funding for research and for pilot to demonstration scale developments. In the US and Europe governments have provided significant capital to aid the transition from small to medium size enterprises. This has been particularly significant in the US where in excess of US$600M has been allocated to demonstration size facilities. This is in addition to significant funding provided to R&D through agencies such US Departments of Energy and Agriculture. No such funding has been provided in Australia.

The venture capital and private equity markets in Australia have been slow to embrace support for industrial scale biotechnology. The peculiarities of the Australian venture and private equities markets exasperate the problems. In Australia venture capitalists and private equity funders are more risk adverse, fund smaller amounts per investment and want to minimise risk by funding further up the value curve. Government sponsored funds, though adding highly sort after capital tend to deliver funds to venture fund managers under the same model, spreading capital widely but thinly. Discussions with current major chemical industry and forestry participants did not see capital access as a major challenge. While recognising the need to achieve returns on investment, the right projects capable of delivering immediate cash flow on start-up were seen as fundable. The issues for these industry stakeholders were related to an appropriate and certain regulatory and legislative environment.

3. Research and Development

The current R&D activity in Australia for biomass transformation is small compared to international standards. Though the Rural Development Corporations and State and Federal Departments of Agriculture have long supported the development of rural industries pre farm or forest gate the investment post gate in R&D for biomass value chain participants is low. In addition to those areas noted in 7.3.2 targets for research were discussed in Chapter 3-5 and can be summarised as research;

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  in crops and forest plantations to improve crop rotation, environmental sustainability, natural resource management, land use change and location for best biomass production is required;
  
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  into the manipulation of micro-organisms for improved rates of transformation and yields;
  
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  into process technologies for collection, storage and biomass processing is required to improve yields and efficient cost effective delivery to biorefineries; and
  
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  into the pre-treatment of biomass for specific end products, the process optimisation within biorefineries (similar to those now being achieved after 100 years of development in the petrochemical industries) and integrated biorefineries for multiple product streams from a diverse range of biomass. Particular emphasis needs to be given in to the role of enzyme and catalyst technologies and the potential for synthetic biology applications.
  

Just as there is a requirement for whole of government policy development in sustainability of biomass production and value chain development, a whole of government effort is required for funding and setting of strategic directions for R&D. Work being undertaken by the Rural Research and Development Council, the Prime Minister’s Science, Engineering and Innovation Council ( specifically, the Energy-Water-Carbon Intersection Working Party) are important for the development of a whole of government research and innovation agenda. There are different priorities in different departments who have to deliver to specific Ministerial and policy requirements. However, as stated by members of the Commonwealth whole of government coordination is an ideal, however it can lead to a lack of task leadership and no designated funding support.

4. Policy and Regulation

The policy and regulatory framework was considered with a particular emphasis on sustainability issues relating to energy from biomass and skills development. The challenge for policy and regulation is its complexity at the local, state, commonwealth and international level. There are differences and uncertainty within states as to the likely impact of the LRET and pending CPRS legislation. Without exception all companies consulted as part of this report development were concerned by the lack of certainty on the CPRS and how it would affect their business outcomes. Biomass transformation to bio-based products (non energy) will receive no credit under the current or proposed carbon mitigation schemes. Most respondents considered the price of carbon as important and it would provide incentives to aid in the start-up phase for the business and market development. However, all opined that a business built on subsidies was not a sustainable business proposition.

Some State governments have introduced mandates for use of renewable energy, - the only clear legislative driver for biomass to bio-product development. A national sustainability framework is not in place to guide the development and deployment of biomass production systems. In Europe and US mandates targeting bio-production have not been effective because of a lack of regulation of natural resources²³⁸. The management and certification of sustainable production of biomass is considered a potential policy and regulator issue. Whether this may become an issue causing the possible forming trade barriers is yet to be determined.