Monday, September 17, 2012

Audi, Joule ink partnership, as Joule heads for scale with $1.28 per gallon advanced fuels

 September 17, 2012

Joule continues to move out of stealth and into the light with its transformative Sunflow-E and Sunflow-D fuels, made biologically from waste CO2, sunlight and saline water with no intervening biomass step.

Now, Audi joins the party.

In its transition — from Joule Intriguing Yet Undisclosed, to Joule Available At-Scale — Joule critics and fans have been wondering when the testing partners would emerge to validate the fuels – when the lifecycle analysis would emerge. Overall, when the kind of role would be announced that, say, Boeing and numerous airlines have been performing for some time with aviation fuels.
Wonder no more. Today, Joule is expected to announce a global, exclusive partnership with no less than Audi, to accelerate the commercialization of its sustainable transportation fuels, Sunflow-E and Sunflow-D, for the global ethanol and diesel markets respectively.

Audi and Joule

Though financial terms have not been disclosed, so far we understand that the partnership is mutually exclusive, and that Audi selected Joule as its exclusive partner in the development of biologically-derived diesel and ethanol, after extensive evaluations of Joule’s proprietary technology and commercial plans. The relationship will help spur production of Joule Sunflow-E and Sunflow-D, including fuel testing and validation, lifecycle analysis and support for Joule’s SunSprings demonstration facility located in Hobbs, New Mexico, which began operations this month. Joule will also benefit from Audi’s considerable expertise and global reach as well as from the strength of its brand. In turn, Audi will have a first mover advantage as Joule’s exclusive partner in the automotive sector.
For Audi, the agreement fits with its stated objective to become a carbon-neutral personal transportation provider for generations to come. In addition to this pioneering initiative with Joule, the Audi carbon-neutral mobility strategy is exploring a range of innovations offering the potential to reduce the impact of premium mobility, including developments in manufacturing and recycling vehicles at the end of their lifecycle.

A little more about Audi

There have been strong hints for some time that Audi was looking deeply into the biofuels developer pool looking for a suitable partner. Back in 2010, two Audi A3 TDIs running on RenDiesel fuel (from Rentech) achieved a “flawless” performance during a 1,000-mile test spanning the length of California. During the test, one vehicle achieved 39.7 mpg while the other attained an average of 43 mpg. The standard EPA average for highway fuel economy for the Audi A3 TDI is 42 mpg.
The timing for a partnership with a US fuel developer aiming at commercialization by mid-decade may not be entirely accidental, given that Audi is also constructing its first manufacturing center in North America at the moment – adding to the monstrous Volkswagen Group complex near Puebla, Mexico – which is expected to open in 2016 and initially produce gasoline and diesel-powered SUVs for the North American market.
At the same time, Audi (and its parent Volkswagen Group as a whole) has been deploying TDI diesel technology broadly, one of the most significant platforms for extending diesel engines into the passenger car sector in North America. Not to mention that they have been recommending B5 biodiesel to offset some of the engine damage potential associated with ULS diesel. Bringing us to a short diversion on the subject of fuel efficiency.

A little more about 54.5 MPG fleet fuel efficiency by 2025

You probably heard about it recently. The US government, in cooperation with automakers – is raising the corporate average fuel economy standard to 54.5 mpg by 2025. You might be wondering how industry is going to do that without putting every US driver into a gasoline-powered tricyle.
Well, three trends will help. One, the continuing electric-gasoline hybridization of portions of the fleet. Two, the march towards greater availability of diesel. Third, Ricardo reports that nearly 3 out of every 4 vehicles will require a gasoline-type, higher octane fuel to operate a growing list of engine technology options. “Future powertrain solutions will have a natural thirst for higher octane fuels,” Ricardo concludes, pointing towards the role of ethanol in boosting octane ratings. You see, higher octane fuels means higher compression engines, which are more energy efficient.
In comments to the U.S. Environmental Protection Agency on Tier3/LEV III vehicle and fuel guidelines, the Auto Alliance noted, “to help achieve future requirements for the reduction of greenhouse gas emissions, we also recommend increasing the minimum market gasoline octane rating, commensurate with increased use of ethanol. Adding ethanol to gasoline increases its octane rating.”

Reaction from Audi and Joule

“We are very pleased to announce this strategic partnership with Joule, which offers genuine potential for CO2-neutral mobility,” said Reiner Mangold, head of environmental product at AUDI AG. “Joule and the fuels it is developing can ultimately enable sustainable mobility, as its highly-efficient process consumes waste CO2 emissions, avoids depletion of natural resources and doesn’t require agricultural feedstock or arable land. It is the ideal sustainable fuel platform for Audi to support.”
“This relationship brings us one step closer to our goal of delivering Liquid Fuel from the Sun to vehicles everywhere. We are proud to partner with a world-class company like Audi, whose resources, reputation and commitment to quality will help boost our commercial plans,” said William J. Sims, President and CEO of Joule. “In just a few years, we have made significant strides towards offering sustainable fuel production at the costs, productivity and scale that have eluded biofuels, and with Audi as a key supporter of our demonstration facility, we expect to have global market impact in the near future and well beyond.”

The latest on the Joule system

As we profiled last week, Joule just completed construction on its first commercial-scale unit down in Hobbs, New Mexico. “We’ll keep adding to it every month and complete the build out by Q1,” noted Joule CEO Bill SIms in a conversation with the Digest.
Sims noted that what you would see at Hobbs is a series of 1 meter “capsules” – very different design from what has been displayed on the company’s website or featured at its pilot plant in Leander. “Those were solar panel looking devices, which we overbuilt for the purposes of testing. What we have are long capsules — many side by side. The basic reference design is a 10-acre “module” system which Joule ultimately aims to develop as a skid mounted system, that requires, locally, only the connecting of the pipes.
In contrast to fermentation systems, the Joule system can start up quickly. “There’s no waiting for years. If our target for a project is 1000 modules, we can build 250 right away, and keep adding on. That derisks the technology and project for investors.” Upgradable? “Absolutely upgradable,” Sims confirms, “and the units can produce either Sunflow-E or Sunflow-D, based on market conditions. The only difference is in the central plant where we do our final separation because we capture ethanol at vapor phase, and others in the liquid phase.”


“So far,” says Sims, “we have used our own money for pilot and demo. The next step is three Alpha plants at 250 acres each. We have identified locations and partners for all three, and those will be announced soon enough. We expect projects to start with the alphas in 2013 and production in 2014. Then a beta phase, with less than a handful of improvements, mostly interim steps on the productivity, and we’ll take that step in 2015. Then, we’ll be at full size in 2016.” Coincidentally the same time frame for the new Audi plant to open in Mexico.

Limits on size

“There is no limit on size in the process itself,” noted Sims. “Nutrients are inexpensive and readily available. A 600 MW power gen facility partner gives us enough CO2 for 25,000 acres. Because we use brackish water or seawater, there’s no limit there either.”

Business model and deployment at scale

“We expect to be an owner in all the facilities,” said Sims. “We don’t expect to simply license. As part of our ownership, we’ll bring new technology, and improvements to the organisms and design; we’ll be a good and motivated partner.”
“There are many sources out there who have capital and have a CO2 problem,” Sims noted. “Also, there are people looking for sources of the output – who need the sunflow e or sunflow-d. And there are governments looking to fund projects.”
On subsidies and other forms of government support, Sims was welcoming but not insistent. “If they are out there, we’d like to get them too, and we believe we will qualify for the RINs, although we have to file the paperwork and are doing that now. There is a substantial ethanol market. It comes down to cost and availability of market – and, for us, the fact that we are not using water or food.”

Raising funds

“Certainly, the money raised last year,” Sims said, “will get us through demo phase, and the first module in the ground. We are now deciding what next phase could look like.” A wider investor base, perhaps? “Yes, it could certainly include a wider investor base.”

The bottom line

So, what does the latest from Joule mean? Sims takes a fairly low-key line. “If the skeptics thought we would never get to demo scale, we have. At the same time, all we have accomplished is what we said we were going to do, operating outside and at larger scale, producing Sunflow-E and eventually Sunflow-D. We do get a chance with these steps to reinforce that we are not an algae company, or a catch processor, that we have organisms that act as small production machines. We hope people are going to be able to see the modularity aspect.”

Our take?

We continue to note the $1.28 (unsubsidized) all-in cost for Joule fuels that the company continues to guide the market with. That includes both capital and operating costs, 70/30 debt equity, 15 year depreciation, and reasonable interest rates. That’s lower than any other project we are currently aware of – there’s some distance to go before the company’s economics are fully proven out at scale, but they have taken huge strides toward full commercialization. We also note the scale – 25,000 acres at 25,000 per gallon – 625 million gallons per site (potential). That’s considerably larger than any other biobased production facility – and begins to approach small oil refinery operations for scale. Fascinating.