New SDTC fund to assist development and demonstration of second-gen biofuels

$500 million over seven years

The federal government is targeting later-stage development of biofuels technology with a new $500-million fund to be managed by Sustainable Development Technology Canada (SDTC). The size of the Biofuels Fund reflects the greater complexity of so-called second generation technologies required to convert feedstock to biofuel as well as the cost of building larger demonstration-scale facilities.

Funding for the Biofuels Fund was announced in the last federal Budget and brings SDTC's total funding to date to $1.05 billion. It is intended to complement the existing SDTC fund with companies able to tap into both as their technologies move toward the marketplace.

"The fund aims to turn second generation of feedstocks into a revenue stream. Canada is well suited to this," says Vicky Sharpe, SDTC's president and CEO. "We've looked at government intentions and how to build a Canadian technology base. Canada has quite a number of very good companies funded from our first fund that now need substantial scale-up to get to market. The private sector is now well equipped or willing to go into this area without assistance. There's a high cap ex (capital expenditure) gap."

The NextGen Biofuels Fund will provide up to 40% of eligible project costs — a slightly higher ratio than SDTC's existing Tech Fund (see page 2) – or $200 million, whichever is less. Funding is repayable over a period of 10 years after a project is completed based on a company's free cash flow. To be eligible, applicants must be Canadian-registered companies, which includes subsidiaries of foreign-based firms. Intellectual property can also be sourced from outside Canada. Applications to the fund are now being accepted and can be made at any time, as opposed to the twice-annual call for proposals used for SDTC's Tech Fund.

fund suits iogen corp request

The invisible gorilla lurking behind the government's willingness to support demonstration scale technology development is Iogen Corp, Canada's biggest producer of cellulosic ethanol and a world leader in the technology required for volume conversion. It its Budget announcement of the new fund, the government explicitly mentioned Iogen and its demonstration-scale facility, located in the Ottawa area.

Iogen has expressed frustration in the past over government delays in providing assistance and is being courted by other countries in a bid to land the firm's first production-scale facility.

Earlier this year, Iogen received a commitment of up to US$80 million from the US Department of Energy to construct a plant in Shelley ID as part of a similar program to fund scale-up of second generation technologies for ethanol production. The proposed Iogen plant would produce up to 18 million gallons of ethanol annually from agricultural residues such as wheat, barley and rice straws, corn stover and switchgrass.

SDTC will receive $200 million this year to kick-start the Biofuels Fund and is slated to receive $25 million in FY08-09, followed by $45-million installments for the subsequent five years.

"We will be able to fund up to March 31/17 with repayments up until 2027," says Sharpe. "We're talking to a number of companies in the $500-million volume and production size. Oil companies are also looking to understand how to respond appropriately to this."

The switch from first generation to second generation biofuels production marks a dramatic shift in the attitudes towards ethanol as an energy source. First generation technologies typically require feedstocks such as corn, which are far more energy intensive than waste sources derived from the production processes used in agriculture, forestry and meat processing (for biodiesel).

While Canada is not alone in aggressively pursuing cleaner alternative energy sources, it has several key advantages. The most obvious is the wealth of potential feedstocks that don't require diversion of foodstuffs such as corn. Research strength in both the private and public sectors is considered another critical advantage, keeping Canada at the forefront of second generation technologies.

A 2006 SDTC position paper says that it would like to contribute to a 14-fold increase in biofuels production by 2015.

complements other measures

SDTC's Biofuels Fund complements other measures in the last Budget in support of renewable fuel production. The Budget provides for up to $1.5 billion over seven years as an incentive for producers of ethanol and biodiesel. The incentives range from 10 cents to 20 cents for three years before declining and are intended to help industry develop a business case for their production.

The Budget also introduced regulations requiring that 5% of gasoline be comprised of a renewable fuel such as ethanol by 2010. Farmers will be provided with $365 million to encourage the production of renewable feedstocks.

Curiously, upstream activity for biofuels is being curtailed. Queen's Univ-based BIOCAP Canada Foundation has failed to secure follow-on funding to continue its successful efforts at building research consortia to develop biomass for future energy sources (see page 6).

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