Cellulosic Ethanol Background

Most of my previous comments on the ethanol sector highlighted corn based ethanol producers, but the holy grail in ethanol production is to do it from woody waste products, rather than from a valuable commodity like corn. Now for a little background:

In fermentation, yeast consumes sugar, and produces alcohol (e.g. ethanol) and CO2 as waste products. When making wine, the high concentrations of alcohol eventually kill off the yeast and terminate the fermentation. When making leavened (rising) bread, the consumption of the sugar eventually terminates the fermentation process (where the desired product is the CO2, which makes the bread rise), or it is ended by baking. Table sugar is sucrose, which is a two part (disaccharide) sugar easily cleaved into glucose and fructose. Fructose is one of the most digestible sugar for yeast. Honey, along with a bunch of impurities that give it flavor, is a nearly equal mixture of glucose and fructose derived from the cleavage of sucrose.

Corn is high in starch, which is a polymer (polysaccharide) of glucose, meaning starch is made up of a bunch of glucose molecules linked together. Cellulose - the structural component of green plants - is a slightly different polymer of glucose. Wood contains cellulose as well as lignin and many other non-sugar related compounds. So, to use fermentation to get alcohol, as all ethanol production does, you need to start with some digestible sugar for the yeast. But the raw materials at your disposal (corn starch, cellulose, wood) are not those sugars, but rather polymers of those sugars. Think of the sugars as bricks, and the polymers as walls made of bricks. For the yeast to get at the bricks, you have to break the walls - cleave the polymers into their basic sugar monomer units. One of the basic ways to do that is using enzymes, which are very complicated molecules that have just the right structure to take large, stable molecules and cleave them at just the right place. Think of enzymes as a really smart construction guy with a jackhammer. You don't want to break all the bricks, you just want to separate them. You can do dumb things like run into the wall with a truck (an analogy to acid or base baths, etc), but that will break a lot of the bricks, and leave big sections of the wall intact. If that were good enough, it would already be done (and it is as a precursor step). But it's not good enough for a profitable business (as history proves), so the smart (enzyme) approach is mandatory. But enzymes are complicated (difficult to manufacture), and finicky molecules that demand to be treated right (precise chemical conditions).

So, the big basic issue in cellulosic ethanol production, the reason we haven't been doing it for 30 years already, is the enzymes. Some of the enzyme chemistry is well characterized, for instance for the production of high-fructose corn syrup from corn starch. Because that process is well known, and the necessary enzymes can be had for cheap, corn has been the preferred feedstock for ethanol production.

Now, most of this knowledge is at least 30 years old, and some of it is thousands of years old. So the enzymatic production of sugar from cellulosic and/or woody sources has been worked and worked and worked on. It is not new. Science is a tough game - mostly things don't work. Even when they do work in a lab, they often don't work on a larger scale. If you've ever tried doubling or quadrupling a recipe and have it not come out quite right, you'll have some taste for this. Even if you can get it to work on a large scale, you still have to do it profitably. And that part is particularly difficult, since there are thousands and thousands of chemical reaction pathways that give only trace products. That might look good enough in a lab, and on a bench-top production level, but be completely unprofitable on a large scale. And it is decidedly not the case that you can just take any old chemical reaction pathway and with a bit of tweaking increase the product output. It's more likely that you can't.

Now, in a new field where something has never been tried before, new entrants deserve some slack since nobody really knows what the odds of success or failure are. But in old fields, it's a completely different ballgame. There you know that the odds of failure far outweigh the odds of success, and in these sorts of endeavors we hold to a high standard of proof-of-production. Talk is cheap. Lab results are less cheap, but still cheap. Small scale bench production is cheap. We want real proof-of-production since the road is littered with previous failures that almost got there but then didn't.

Only after that proof-of-production, is it worth delving into whether the particular player has any hope of profitable operations. So that's the standard, and that's the reason for the standard. We'll see what we can find in this sector over the next few posts.

Related:

Ethanol Stocks Reviewed On Seeking Alpha

All articles on Alternative Energy stocks

Comments

[Sam Goodwin:]

What a difference a year makes. Last year (2006) everyone was just getting to know cellulosic ethanol. This year it is all the buzz. I think last summer was the prime time for traditional ethanol, this summer cellulosic ethanol will get the spotlight. After reading InvestInCellulosicEtha..., it is incredible to me how fast this industry is moving. It seems that every week someone is announcing a new breakthrough in cellulosic ethanol technology. Can anyone receommend some good cellulosic ethanol stocks?

2007 Apr 18 10:27 PM