Advanced biofuels - the case for government intervention


Advanced biofuels, or second generation biofuels, are fuels that can be made from various types of biomass.  It is a rapidly emerging area of development for the biofuels sector.  A recent report on the global advanced biofuels industry has estimated a compounded annual growth rate of 14% pa to 2023 – over four times the global GDP rate – although we believe that this understates its potential in the coming years.  

A 2012 report by the UK’s Low Carbon Innovation Coordination Group (LCICG) on the key innovation needs and opportunities within the UK bioenergy sector (“TINA - Technology Innovation Needs Assessment – Bioenergy”) identified that bioenergy has significant deployment potential in the UK and could meet 10% to 25% of the UK’s total primary energy supply by 2050. But despite the huge potential within the bioenergy sector, advanced biofuels technologies are currently just entering the demonstration phase and much work is still to be done by universities and industry to develop new processes and improve existing ones.  But here’s the rub.

Innovation in this area is expensive and high risk for the private sector.  Therefore, public sector support to share the risk is critical.  The successful completion and operation of a demonstration plant is seen as a necessary stage gate to private sector investment.  For a technology to move from lab scale to an operating demonstration plant can cost more than £100 million.  Innovators can often struggle to get beyond the pilot stage of development – a classic valley of death conundrum. But the 2012 TINA on biofuels identified that Innovation plays a key role in achieving the necessary levels of deployment and at the lowest cost.  The TINA concluded that innovation in bioenergy has the potential to save the UK energy system some £42 billion over 2010-2050 – of which £23 billion is from advanced biofuels.

At the university level, the UK has built up considerable biofuels expertise – mainly on the back of UK government funding.  This expertise, supported by direct and indirect government funding, has enabled the development of innovative start-ups such as Green Biologics, Future Blends and Velosys.  The universities and start-ups exist in a close symbiotic relationship which creates value for both parties.  The researchers benefit by having the opportunity to develop new technologies and to have a career path in the academic and private sector.  The start-ups benefit by having access to leading science, staff and facilities to prove their technology and thereby attracting global interest.  The UK benefits through the creation of a virtuous cycle of academic research being spun out into new companies, drawing in investment and capital and licensing revenues, creating well paid jobs for UK’s scientists and engineers, and creating new scientific opportunities for development and commercialisation.  

However, without well targeted, long-term strategic public funding through lab, pilot and demonstration scale support programmes, the scientists and early stage companies will (and often do) go off-shore; taking UK’s initial investment with them.  We must keep them here and ensure the UK benefits from this exciting new area of low carbon industrial development.  That means a long-term Government funded national innovation programme that engages with Innovators in the early stages of their technology development and supports them until the technology has been commercialised.  

Whilst the newly-established TSB Bio industry Catalyst and other grant programmes are available, they are – by their nature – discrete competition-based programmes that do not provide Innovators, and their backers, with assurance that if they meet their technology development stage gates, they will have the financial support to complete their journey.  They also lack the expert support necessary to continuously develop, test and refine the business case for the innovation.  Finally, there is a large gulf between where the existing programmes stop and where commercial investors pick up.

The Carbon Trust believes that Government intervention is critical to underpin the continued development of the UK bioenergy sector, and recommends that the following measures should be considered:

  • Align Government support programmes in bioenergy into one or two programmes that act as an end to end commercialisation runway for bioenergy technologies.
  • Extend these programmes to span the gap between pilot and 1st commercial plant, potentially through a combination of grants, loan guarantees and risk capital.
  • Provide incubation support to all participants to maximise the probability of success.

Read more about our work in low carbon technology innovation.