Perspectives on Biofuel R&D – Business Opportunity and Important ChallengesOpportunity and Important Challenges

Dr. Doron GalMusea Ventures and Biofuel International

Biofuel R&D Workshop – Some Key Messages• Fundamental drivers for biofuels are here to stay.

• Biofuels to capture large share of fuel growth not a• Biofuels to capture large share of fuel growth – not a vniche!

• The biofuel market offers significant demand for R&D

• Cellulosic is the next wave in ethanol – but multiple• Cellulosic is the next wave in ethanol – but multiple vR&D paths and goals are needed

• Integrated sustainability is a necessary context for vbiofuel R&D

• Key technological challenges require an vinterdisciplinary effort

• Israel may have good core capabilities!

Fundamental drivers are here to stay!

Positive impact on CO2 and energy balance provenP tPercent

CO2 balance*Non-renewable energy consumptionby fuel used*/**

100

2

100 -20%

y

-20%100

8080

90%-80% -75%

80

25

-90% -95%

25

51020

5

25

Oil-based gasoline

Corn ethanol

Bio-diesel

Gaso-line***

Corn ethanol

BiodieselCellulosic ethanol

Cellulosic ethanol

* Well-to-wheel ** Production of ethanol from biological feedstock required non-renewable energy, e.g., for production of fertil

*** Refers to gasoline only, excluding energy required for exploration, refining, etc. Source: Farrell et al.,"Ethanol can contribute to energy and environmental goals", Science, January 27, 2006

Biofuels to capture large share of fuel growthFUEL MARKET Fossil fuels

Biofuels

FUEL MARKETBillion gallons

700180

Fossil fuels

70 8080

110•CAGR of 15%; 1/3 of

total growth

10520

110 g

•More than oil from Saudi Arabia

H id t ti l620

510

•Huge upside potential

2020 base case

510

2005actual

Scenario: USD 40/bbl crude

base caseactual

Source: Tecnon, McKinsey analysis

Each USD/bbl crude (or subsidies) makes a hugedifference in biofuel penetration Penetration in

transportation fueltransportation fuel(2020)Percent

400

300

350 50

Biomass 40

200

250

300

30

limit 40

Base case

150

200

20

50

10010

Crude oil price

020 30 40 50 60 70 80

0

pUSD/bbl

Source: FAPRI, FAOSTAT, expert interviews, McKinsey analysis

Biofuels provide significant business opportunitiesBASE CASE

Market 2020BASE CASEUSD billions

Biofuel production 100

40Farming

Engineering 30

40Farming

Engineering 30

3Seeds

3Enzymes/organisms

3Logistics

Big players are starting to move

Seeds/ Germplasm

Enzymes/Biotech/FT Conversion Blending/

distributionFeedstocksupply

Plant engineering

E i i

Seeds/plant biotech

Biotech

Engineering companies

Biotechcompanies

ChemicalsChemicals

Grain processors

Oil majors

Race for privileged access to IP, land, and

partners is on

Source: Press clippings, expert interviews, McKinsey

June 26, 2007

U.S. Is Creating 3 Centers for Research on Biofuels

By Matthew Wald

WASHINGTON, June 25 — The Energy Department is creating three bioenergy research centers to find new ways to turn plants into fuel.p

The three centers, which the department described as three start-up companies with $125 million each in capital, will be in Oak Ridge, Tenn.; Madison, Wis.; and near Berkeley, Calif. They will involve numerous universities, national laboratories and private companies. The goal of the centers, which are to be announced on Tuesday, is to bring new

Venture-One

technologies to market within five years.

July 11, 2007

“VCs invested more than $1 billion in alternative energy-related h l i i 2006 “Ii i bi f l $740 illi itechnologies in 2006. “Iinvestments in biofuels grew to $740 million in

2006 from $110.5 million in 2005. Solar investments rose to $378 million in 2006 from $242 million in 2005 while wind energy attracted $380 million last year compared with $1.5 million in 2005.

” The future looks even rosier with forecasts projecting investments in alternative energy sources expected to reach between $6.2 billion and $8.8 billion by 2009“.

Cellulosic technology will be the next wave for bioethanol

Straw, grass, wood

Enzymes

•More abundant feedstock

Sugar Lignin Protein•More CO2 savings

•Lower cost

g

F t

g

B E t tFerment Burn Extract

Ethanol Energy FeedCommercially available as of

~ 2010/12??

Source: Expert interviews, McKinsey

Cellulosic is the next wave in ethanol, but impact varies by regionUSD/ llUSD/gallon

C ll l i th l*Ethanol from Cellulosic ethanol*

0.91.2US corn

Ethanol from current crops

0.70.8Brazil sugarcane

0.7

1.2

0.9

1.6EU wheat

Indiasugarcane

0.6

0.7

1.8

0.9sugarcane

China corn

0.80.9SEAsugarcane

Replacement in some, co-existence in

* Production cost estimates for 2020, based on energy crops as feedstock source, with the exception of US (corn stover) and China (rice straw)

Source: NREL, USDA, SRI, expert interviews, McKinsey analysis

,other regions

The future of biodiesel is still openFULL PRODUCTION COSTFULL PRODUCTION COSTUSD/gallon

1.8 - 2.9*

1.3 - 2.3**•Regulatory support?

•Winning technology?

•Marketing/pricing

Vege- BTL

to consumer?

Vegetable oil biodiesel

BTL syndiesel

* Lower range from palm oil (South East Asia); higher range from rapeseed oil (Europe)** Higher-range estimated current cost; lower-range-estimated long-term target cost

Source: NREL, SRI, USDA, Oil World, McKinsey analysis

The Shaky Triangle

Renewable Energy

The Shaky Triangle

Renewable Energy(Bio-ethanol, bio-diesel, biomass)

LandLandWater

Food Environment

CO i i f il l l i i j l d

The medicine is sometimes worse than the illness

• CO2 emissions from oil palm plantations in jungle and peat land - 50 to over 100 tonnes of CO2 per hectare per year.

• The palm oil yield is between 3 and 6 tonnes per hectare per • The palm oil yield is between 3 and 6 tonnes per hectare per year; preventing fossil fuel emissions of only 9 to 18 tonnes.

• Indonesia is third largest contributor of CO2 in the world; g 2 ;with 8% of the global emissions. Delft Hydraulic Report, 2006

Promising Directions: Plant science and agrotechnology to increase adjust plant productivityj p p y

Increased productivityIncreased productivity

Irrigation

Promising Directions: Cellulosic Ethanol – Different approaches within one technology

Ligno-cellulosic Pretreatment Enzymatic

digestionFermen-tation Bioethanol

biomass

• Agricultural residues

digestion tation

• Cellulase added

• Add C5 pathway to

• Steam explosion

• Perennial grasses (e.g., switch-grass, mis-canthus)

separately• Cellulase

expressed in feedstock

current organism

• Create new microor-

• Acidic hydrolysis

• CO2 explosion

canthus)• Wood

eeds oc• Cellulase

produced by fermentation organism

c ooganism• NH3 explosion

organism

Biobutanol - Clostridium acetobutylicum

Butanol production inhibits microbial growth even at low concentrations – the product of the fermentation is less than 2% b t lbutanol.

An energy-intensive distillation step is required for purification.

Process generates highly toxic bi-products

Process is not well-understood

Promising Directions: Algae

Oil Yields for Leading Crops

Feedstock Gal/Acre Liters/HectareSoybean 44 400

Sunflower 88 800

Rapeseed 110 1000

Castor 140 1300

Jatropha 170 1500p

Oil Palm 650 5800

Biomass FT >500 >5000Biomass FT >500 >5000

Algae >5000 >50000

Algae Issues:

Open or closed system?

Closed: Cost, light

Open: Contamination, temperature variations, productivity

Water removal

Enough biofeedstock to replace 50% of fuelINCREMENTAL FEEDSTOCK POTENTIAL 2020*

200Wheat/corn

INCREMENTAL FEEDSTOCK POTENTIAL 2020*, Million tons

800Sugarcane •Moderate agricultural yield

1,000Agricultural residues

g yincrease

•Food/feed demand first

1,000Energy crops

demand first

•No cutting of rain forest

900Forestry

T t l 3,900Total

Enough for 360 billion gallonsbillion gallons

Wheat, corn, and sugarcane include total amount for biofuels available, cellulosic feedstock only incremental amountSource: FAPRI, FAOSTAT, expert interviews, McKinsey analysis