After years of assurances that commercially scalable cellulosic is "on the cusp," how close is industry now to reaching that goal? During today's OnPoint, Javier Garoz, CEO of Abengoa Bioenergy, discusses his company's latest timeline for rolling out commercially scalable cellulosic ethanol and explains why his industry has had multiple misfires at predicting success. He also talks about how changes to the renewable fuel standard could affect investments in his company.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Javier Garoz, CEO of Abengoa Bioenergy. Javier, thank you so much for coming on the show.
Javier Garoz Neira: Thank you, Monica.
Monica Trauzzi: Javier, how concerned are you that EPA's revised 2014 volume targets for renewable fuels could negatively impact investments in your company and the cellulosic industry?
Javier Garoz Neira: I am extremely concerned. I'm extremely concerned that, you know, a reversing policy might create a big disruption and a negative impact, not only in Abengoa Bioenergy, but also in the whole sector, in the whole industry. And, you know, we came to the country in 2000. We started acquiring three plants. We have built another three ones. We are a large manufacturer, or a large ethanol producer in the country and, you know, this reversing policy would be really a big hit for us, and I would say for the whole industry.
Monica Trauzzi: So what is the key message you're trying to deliver to lawmakers and regulators as you do sort of this blitz of meetings?
Javier Garoz Neira: You know, I would like to make a strong statement, you know, and that would be that definitely what has been driving this industry for the last 10, 15 years is a strong policy that has been able to take the industry to, you know, its mature situation right now. And not only in the corn ethanol, but also it's creating the right framework for the cellulosic ethanol, the second-generation ethanol, you know, to flourish going forward. So I would say that definitely the worst thing that could be done at this point is a reverse in the policy that has created a profitable, self-sufficient, pretty efficient, competitive industry, you know, capable to comply with the needs of the country and also to be able to be explored abroad in the future.
Monica Trauzzi: But the fact is that for years we've heard assurances from your industry through both trade organizations and individual companies that commercial cellulosic was on the cusp. Why did you all do such a bad job at managing the timeline and predicting success?
Javier Garoz Neira: Okay. You know, it's -- producing cellulosic ethanol is not about making magic. It's about being able to extract the sugars from the fibers that exist in the biomass and turn that into alcohol through a fermentation process. It is a pretty old, let's say, technology in the fermentation side, but being able to extract the sugars from the fiber is not a trivial thing. So it has been taking the efforts of the industry for the last 10 years, and as a matter of fact, Abengoa has already invested over $1 billion U.S. to be able to develop this technology. I think it's a significant amount of money that companies like gas and some other key leaders in this market will demonstrate that it's feasible, it's doable, and it's mature enough in 2014, which I think is going to be the pivotal year for this industry to demonstrate that cellulosic ethanol is a reality.
Monica Trauzzi: So outline specifically the timeline that you're looking at, then, for commercial viability.
Javier Garoz Neira: I'm looking at, you know, our plan is going to start the ... generation this, I would say this month and next month. Mechanical completion will be done by the beginning of Q1 2014. There will be a ramp-up to produce cellulosic ethanol, let's say four, five, six months maximum, so by the second half of 2014, I'm extremely confident, and I can bet that Abengoa Bioenergy will be producing cellulosic ethanol, you know, and putting that ethanol in the market.
Monica Trauzzi: At a cost-competitive rate?
Javier Garoz Neira: I would, let me tell you, nothing, it's no technology in its infancy is competitive at the beginning. So it will take a little while, but I can tell you we're not far away.
Monica Trauzzi: How long?
Javier Garoz Neira: Let me tell you two years to be on the same level that the corn ethanol is today.
Monica Trauzzi: Will cellulosic eventually be cost-competitive with gasoline? Will we get to that point?
Javier Garoz Neira: It's already competitive. You can see a spread between, you know, comparing gallon to gallon between gasoline and ethanol, there's a spread of $1, so it's already competitive, so we are capable to achieve the same level of cost production, we will be competitive with the cellulosic ethanol in the market.
Monica Trauzzi: So what would you then identify as the most critical market concern that you have?
Javier Garoz Neira: I can tell you the most important thing for me today is to have a strong commitment from the government that has been demonstrated since 2007, with the formulation of the [renewable] fuel standard, that has to stay firm as it is, and therefore, there shouldn't be any reversal in the policy and it should stay firm. So no lowering the volumes for the corn ethanol and no, let's say, step back in the formulation of the law as it is when looking at 2022.
Monica Trauzzi: But you can understand why the debate is happening and why there's so much frustration.
Javier Garoz Neira: There will be some frustration about, you know, the timing to get the cellulosic ethanol in the market. I understand that, and then I think the law is a phenomenal framework that copes with enough flexibility to really reallocate balance, you know, or extend the timelines, but there's no reason for the government to reduce the allocation for or the quotas for the corn ethanol. There's no reason for that, and I can tell you that if that happens without first generation, we will not see second-generation cellulosic ethanol flourishing in this country. So it's a fact, and I want to state clear with that. The reason for that is, you know, over the last 10 years, we have seen investors of Abengoa, of Abengoa shareholders and many others, put in their money and their savings and their investments, you know, to, let's say, back up and to demonstrate commitment with the RFS, building a capacity in the country that comes to, you know, 15 billion gallons as of today. If we definitely demonstrate that this is worthless, no one is going to, let's say, support the second generation. So we will not see second generation if we get hit on the first generation.
Monica Trauzzi: Have you had investors tell you that they will back out?
Javier Garoz Neira: Of course. I can tell you I'm visiting investors every single day because I'm preparing the company for the ramp-up in the second-generation business. I will not, let's say, build more plants in the first generation, but we will concentrate our efforts on the second generation. Every time I face any single potential investor, what they say is I like your idea, I like your business, I truly trust in your capabilities. You are an extremely good, let's say you have demonstrated to be a well-proven, you know, promoter developing projects and, therefore, I know you can make it, but I want to see that the RFS remain firm. If it doesn't remain firm, then we will not, let's say, put our money behind the second generation.
Monica Trauzzi: What's the level of competition like between your company and your counterparts, companies like DuPont and Poet? You're all sort of working to reach the same goal of commercially viable cellulosic, but how much competition exists?
Javier Garoz Neira: There will be a lot of competition, but you know what is happening today? Every time I sit together with some of those, you know, competitors, what they're saying is now it's about joining forces. Now it's about demonstrating that this is viable and feasible, so we are joining forces, all of us, we're joining forces to create this industry. This is not going to be about building one plant, neither two plants. If you look at the 16 billion gallons that, you know, demand that is stating for 2022, it will mean, like, 300 plants like our plant in Kansas, with a capacity of 25 million gallon per year. So definitely, this is not going to be about just one plant. There will be room for some key leaders like any of those companies that you have already mentioned that they have also demonstrated their capabilities and, you know, among all of us, we will be able to, let's say, take over the next generation of cellulosic ethanol.
Monica Trauzzi: All right, Javier. We'll end it right there. Thank you for coming on the show.
Javier Garoz Neira: Thank you, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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