Accenture defined disruptive fuel technologies as those that:

• Reduce hydrocarbon fuel demand by more than 20% by 2030;
• Save greenhouse gas emissions (GHG) by more than 30% relative to the hydrocarbons they replace;
• Will be commercial in less than five years; and
• Will be competitive at an oil price of $45 to $90 at their commercial date.

Accenture divided the technologies into three groups:

Evolutionary. Technologies that stretch today’s assets and resources. These are “no-regret” technologies, as they represent actions that can be made today to make a significant impact on CO₂, energy security and the optimization of local resources. These include:

• Next-generation internal combustion engine. Significant gains are achievable, which are often overlooked. Getting more miles per gallon out of conventional vehicles achieves the same end-goals of lowering carbon emissions and increasing energy security as the movement toward the electrification of transport. While there are significant requirements for infrastructure and incentives to bring about the widespread electrification of vehicles, improvements to the internal combustion engine could be quickly deployed and assuage many of the voices currently clamoring for change.

• Next-generation agriculture. There is significant potential for improvement in agriculture, particularly given the historic advances made with genetic modification (GM) of crops to obtain desired characteristics, increase yield and reduce harvesting and processing costs. This is coupled with the innovation seen in first-generation players to drive down costs, energy and water use, and GHG emissions. The biggest challenge is in the deconstruction stage, with high costs for pretreatment and enzymes. These costs have to go down, but improvements will come from optimizing the whole system, from feedstock to production.

• Waste-to-fuel. The production of transport fuel from waste is a nascent technology, largely in the lab and pilot stages of commercialization at present. Subsequently, while there are small local government pilot projects in place, there is little legislative support or financial incentive to develop the technology at the current time. If the technology can be brought to scale, then waste feedstock processing could solve two problems at once—a source of low-cost, low-carbon renewable fuel, and a solution to the ever more critical issue to landfill reduction.

• Marine scrubbers. This technology could avoid both the need for significant capital investment to upgrade refineries to produce more low sulfur fuel oil (LSFO) and greater dependence on costlier, low sulfur crudes. It also has the potential to significantly and economically reduce emissions from seagoing vessels beyond that which can be achieved by simple fuel switching. Marine scrubbing is technically feasible—several companies have successfully tested the technology on demonstration projects. However, the final technology winner has not yet been identified, with investment dollars currently spread across seawater and fresh water solutions.

Revolutionary. Technologies that support the creation of fungible fuels, enabling the use of the existing distribution infrastructure. These technologies would remove the distribution infrastructure constraints on the speed and scale of penetration of biomass-based fuel. These include:

• Synthetic biology: sugarcane-to-diesel. If the economics of synthetic biology applied to the sugar-to-diesel pathway could come close to the sugar cane-to-ethanol economics, then there would be significant potential in diesel markets given the cost and availability of sugar cane (compared to the traditional biodiesel feedstocks such as palm, soy and rapeseed). The use of synthetic biology to convert sugars to diesel has advanced significantly in the past one to two years, and it is close to commercial viability. Two companies, Amyris and LS9, are planning to break ground on commercial plants in 2011, with production starting by 2013.

• Butanol.Fuel from butanol is a highly desirable product with energy content similar to gasoline—higher octane and less affinity to water—meaning it can be transported through existing pipelines, use existing infrastructure and be blended with gasoline at ratios much higher than ethanol. However, there are issues hampering the production of butanol and the economics are unproven. Researchers are looking to adapt traditional butanol production (via the ABE or acetone-butanol-ethanol process) by consolidation of process steps and potential genetic modification of bacteria. Genetic engineering and advances in synthetic biology could also lead to breakthroughs from companies such as Gevo and Butamax, who have proven the technology at pilot scale and are both planning commercial plants in the next few years.

• Bio-crude. The benefits of a bio-crude that could take advantage of existing refining and distribution infrastructure with little extra investment are clear, and could lead to a breakthrough in the adoption of renewable fuels worldwide. Given this potential, what is most surprising, said Accenture, is how few companies and technologies there are, compared with many of the other technologies covered in this report. There are uncertainties over the technology, but with the right level of investor funding, bio-crude could be a disruptive technology for transport fuel.

• Algae. Technologically, the algae industry is very fragmented—possibly the most fragmented of all of the industries covered in this report, Accenture noted. There are many players, and the oil industry (including Shell, ExxonMobil, BP, Valero and Chevron) is looking at a range of methods to eliminate steps in the process to reduce complexity and cost. As companies try to find the lowest cost option, several different operating models are emerging. Accenture provided case studies of companies with plans for commercial production within five years. However, there are considerable technical constraints.

  In ExxonMobil’s announcement of its investment in Synthetic Genomics (earlier post), the company stated that “significant work and years of research and development still must be completed,” with the key challenge being “the ability to produce it [algae] in large volumes which will require significant advances in both science and engineering”. It is therefore likely, Accenture concluded, that it may take more than current estimates of five years in order to reach commercial scale.

• Biojet (renewable hydrocarbon fuels for aviation). The aviation industry will face increased pressure to increase efficiency (because of the cost of fuel and competitive nature of the market) and reduce carbon emissions. The outlook for airline biofuels is positive as it is one of the few ways to reduce emissions and many of the technology challenges have been overcome. However, Accenture noted, the scale is questionable given the feedstock supply constraints and the competing demand for biofuels in road transport. This demand for feedstock will continue to support developments in high-yielding feedstocks such as algae and also provide support to other alternatives to diesel for cars and trucks, i.e., save the feedstock for jet fuel (where there are limited alternatives to biofuels) versus using it for road. Improvements in design and operational efficiency will continue to be important.

The game changer. Electrification and the technologies that are needed for the scale-up of plug-in hybrids (PHEVs) and to enable the opportunities that PHEVs could bring in optimizing generation and transportation resources. Technologies in this area include:

• Plug-in hybrids. Plug-in electric vehicles have received increasing amounts of attention from government and industry, indicating they will be part of the future vehicle landscape, with PHEVs (plug-in hybrids) likely to be the most disruptive model within the next five years. PHEVs benefit from lower-running costs than both internal combustion engines and HEVs, as well as extended driving range over EVs, but the capital cost of the battery and availability limitations still need to be overcome for the economics to work favorably without regulatory incentives.

  Moreover, while PHEVs have the potential to be emission-free, the reduction in GHG emissions is highly dependent on the generation mix and will therefore vary by country. The ability of the grid to withstand PHEV penetration rates will further vary by country. However, using smart, off-peak charging, the grid will be able to manage initial PHEV penetration and enable load leveling for utilities.

• Controlled charging. Controlled charging enables utilities to manage energy demand more effectively and consumers to benefit from lower off-peak tariffs. This will be key in delivering the aspirations of widespread electrification of vehicles. Municipalities across the globe have announced ambitious roll-outs of charging point infrastructure. The growth of the controlled charging market will be heavily dependent on the uptake of plug-in electric vehicles and how incentives for the growth of PHEVs and EVs are driven/managed by policymakers and businesses.

• Vehicle-to-grid (V2G). V2G is technically feasible with demonstration projects currently underway. These projects vary in focus, with some assessing the communications between the vehicle and the grid, some looking at how to maximize vehicle storage to increase the quantity of renewables being used, and some looking at a more integrated smart grid offering.

  All projects, albeit in the early stages, have proven that V2G has the potential to significantly disrupt the supply and demand relationships—with end-electricity consumers potentially becoming an essential grid storage resource—and change both the electric power and transport fuels landscapes, Accenture concludes. However, to reach this potential, V2G is dependent upon the commercialization of electric-drive vehicles, cooperation between the various industry players, and the education of consumers. Initial electrification initiatives will determine the latter’s potential success.

Accenture concludes that, while all 12 technologies are in development today, they may not all be successfully brought to market. To improve the chances of commercialization, policy makers will be required to:

• Underwrite the risk of first plants through mandates, tax incentives or even direct investment.

• Provide clear policy and guidance for key issues such as intellectual property protection, synthetic biology, battery technology and the efficient use of water and energy in producing biofuels.

• Support short term pragmatic solutions, such as improved vehicle engine efficiency and the use of waste as a bridge to longer term innovations.

Never before have we demanded so much from our regulators and governments. The science has made enormous progress, but it now requires government leadership to accelerate the commercial viability of these low emission technologies. That means our policy makers need to understand the technologies enough to make the necessary trade-off decisions quickly and to address issues such as genetic modification and intellectual property rights head on. They will also need to provide financial support and consumer incentives.

—Melissa Stark, Senior Executive at Accenture and lead author of the report

The report makes 10 key findings:

1. There is low-hanging fruit where the debate should no longer be about “if” or “how,” but about “when” and “how fast.” Proactive government regulation has the potential to support and accelerate the sustainable development of these technologies. Examples include increasing crop yield; rewarding improvements in water and energy use; supporting waste to energy or fuel; and continuing to roll out higher-efficiency standards.

2. Genetic engineering is transforming biofuel production (feedstock, deconstruction and conversion), often eliminating, combining or simplifying steps.

3. Algae could exponentially increase available feedstock.

4. Technologies and assets will be combined and evolve. Accenture’s view is that the final scale will be achieved by a combination of first- and second-generation technologies—rather than by any one technology in isolation. There is increasing creative application of multiple technologies to the process of using biomass to produce different products, while continuing to reduce costs.

5. Batteries are the “feedstock” of electrification and constrain its potential. The case for the electrification of vehicles is well understood. In the same way that feedstock characteristics and supply constrain the potential of biofuels, battery characteristics and supply constrain electrification, highlighting a number of challenges that need to be overcome.

6. Electrification heralds two key players in transport fuels:utilities and battery manufacturers.

7. At least in the next five years, possibly even 10, PHEV scale-up is not dependent on comprehensive “smart” grids.

8. There will be increased activity in the airline and marine industries on options to reduce GHG.

9. Markets will optimize around their own domestic agenda, local resources and local economic development opportunities.

10. The trajectory of supply, demand and GHG footprint of transport fuels is being reshaped now.

Key implications for business. Accenture suggests that competitors in the market for new transport fuels must consider key actions:

• Place scientists and engineers in leadership positions, not only to drive technology development, but to support sound regulations and policy by facilitating debate and understanding of the pros, cons and trade-offs between the technologies.

• Improve cooperation between multiple sectors, for instance between the battery, utilities and car industries.

• Accelerate commercial viability by improving project management excellence and supply chain optimization to reduce costs and increase margins.

• Improve risk management to mitigate the volatility of immature markets, for instance the price of new feedstocks or the level of electricity demand for PHEVs.

Resources

• Betting on Science: Disruptive Technologies in Transport Fuels (Study Overview)