Value creation in bio-energy

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1 Value creation in bio-energy Steve Hartig President Biofuels at DSM Bio-Based Products & Services Carnegie Biofuels seminar - December 11, 2012 Copenhagen

2 Safe harbor statement This presentation may contain forward-looking statements with respect to DSM s future (financial) performance and position. Such statements are based on current expectations, estimates and projections of DSM and information currently available to the company. DSM cautions readers that such statements involve certain risks and uncertainties that are difficult to predict and therefore it should be understood that many factors can cause actual performance and position to differ materially from these statements. DSM has no obligation to update the statements contained in this presentation, unless required by law. The English language version of this document is leading. A more comprehensive discussion of the risk factors affecting DSM s business can be found in the company s latest Annual Report, which can be found on the company's corporate website, Slide 1

3 Overview Introduction Bio-energy Value creation timeline Slide 2

4 Biotechnology is one of DSM s key competences Materials Sciences Nutrition Process Technology Biotechnology Materials Chemistry Analysis & Characterization Advanced Synthesis Slide 3

DSM has a broad range of bio-based platforms Cell Culture Algae Fungi/ Yeast Enzymes Microbial Advanced Chemistry In house bio-processes Biobased market positions Fermentation processes Enzymes

5 DSM has a broad range of bio-based platforms Cell Culture Algae Fungi/ Yeast Enzymes Microbial Advanced Chemistry In house bio-processes Biobased market positions Fermentation processes Enzymes Anti-infectives Cultures Several vitamins Yeast extracts Enzymes for Food, Feed Pharma Enzymes for Pharma Biologics Cultures Biocatalysis Vitamins Semi-synthetic antibiotics APIs and building blocks Biopharmaceuticals Development Advanced bioenergy Bio chemicals Renewable raw materials for polymers Slide 4

From technology to a total business model

chemicals & materials Biosuccinium Succinic

6 From technology to a total business model DSM Bio-Based Products & Services Bio-energy Cellulosic Bioethanol Renewable Diesel Industrial Biogas synergy Bio-based chemicals & materials Biosuccinium Succinic Acid Bio-based Adipic Acid Emerging Portfolio Slide 5

Building on proven biotechnology competences CLASSICAL BIOTECH (19 th century) MODERN BIOTECH (20 th century)

enzymes (e.g. Phytase, Lactase, Proteases,... ) Metabolic engineering (e.g. Vitamin B2, Cephalexin, Arachidonic acid) Biocatalysis (e.

Cellulosic Yeast & Enzymes Renewable bio-diesel Biogas Platform chemicals: - Succinic acid - Adipic acid

7 Building on proven biotechnology competences CLASSICAL BIOTECH (19 th century) MODERN BIOTECH (20 th century) BIOECONOMY (21 st century) Yeast Ethanol Yeast extracts Vitamins Penicillin Enzymes Citric acid Food & Feed enzymes (e.g. Phytase, Lactase, Proteases,... ) Metabolic engineering (e.g. Vitamin B2, Cephalexin, Arachidonic acid) Biocatalysis (e.g. Pharma intermediates (PharmaPLE) Cell culture (e.g. Per C6TM cell line) MethaPlus (Biogas) Advanced Cellulosic Yeast & Enzymes Renewable bio-diesel Biogas Platform chemicals: - Succinic acid - Adipic acid Microbial oil platform A unique track record of continuous innovation during 3 centuries Slide 6

Biotechnology is a clear differentiator for DSM > 150 years of biotechnology experience (Nederlandsche Gist- en Spiritusfabriek, 1869) Clear biofuels focus from start of bio-based program: Cellulosic

8 Biotechnology is a clear differentiator for DSM > 150 years of biotechnology experience (Nederlandsche Gist- en Spiritusfabriek, 1869) Clear biofuels focus from start of bio-based program: Cellulosic ethanol Enzymes & Yeast Fit for use in specific environment (pre-treatment, feedstock focus, ) We know how to design, build & operate large scale installations DSM has solid scientific track record 2011 R&D 476m (5% of net sales), 2000 scientists In 2011, 262 scientific papers in peer-reviewed journals Innovation Funnel & PMP process Intellectual Asset Management 250+ patents filed per year >100 professionals worldwide Slide 7

9 Introduction Bio-energy Value creation timeline Slide 8

10 Bio-energy at DSM: three exciting platforms Cellulosic bio-ethanol Renewable diesel Bio-gas Slide 9

11 Cellulosic bio-ethanol: very attractive opportunity Global cellulosic bio-ethanol market expected to grow to 18bn gallons by 2022* 20 Market expectations cellulosic bio-ethanol (global demand in billion gallons) * Resulting in market value for enzymes & yeasts of ~ US$ 3-5bn by 2022 US is the largest market, followed by China en Brazil US China Brazil EU * derived from Hart s Global Energy Study Slide 10

Strong commitment from US EPA EPA 2022 forecast: 7.8bn gallons of cellulosic bio-ethanol from corn crop residue (U.S.) Which means, by 2022, ~ 150-200 plants to produce cellulosic bio-ethanol from

12 Strong commitment from US EPA EPA 2022 forecast: 7.8bn gallons of cellulosic bio-ethanol from corn crop residue (U.S.) Which means, by 2022, ~ plants to produce cellulosic bio-ethanol from corn crop residue could be required in the US according to the Renewable Fuel Standard* EPA has approved the use of E15 for vehicles built since 2001 *: RFS2 update: U.S. EPA announced on Nov 16, 2012 that it would not waive the Renewable Fuel Standard, as had been officially requested mid-august due to drought conditions. This decision was well received by all advanced biofuels players Slide 11

DSM s technology is the core enabler Biotechnology and chemical

Pretreatment Bioconversion Recovery Further conversion Sugar sources

straw Woodchips Physical Steam Crushing Chemical Acid/base Enzymatic

Filtration Absorption Crystallization Etc.

13 DSM s technology is the core enabler Biotechnology and chemical conversion expertise are key for highest overall yield Biomass Pretreatment Bioconversion Recovery Further conversion Sugar sources Starch (corn) Cane Beet Cellulose sources Corn stover Bagasse Wheat straw Woodchips Physical Steam Crushing Chemical Acid/base Enzymatic Hydrolysis Fermentation (yeast) C5+C6 C6 General Distillation Filtration Absorption Crystallization Etc. Final product Building block Advanced bioethanol Conversion Polymers Compounds Parts Chemo-catalytic conversion Slide 12

14 Crucial role for enzymes and yeasts Slide 13

15 Biomass as a source of fermentable sugars Biomass Plant cells Lignin Cellulose Hemi-cellulose Glucose Xylose Arabinose Glucose Galactose Mannose Slide 14

DSM s enzymes & yeasts suitable for broad residue range Aspen Bagasse Cane straw Corn

Wheat straw DSM cellulase enzyme cocktail properties: Fast liquefaction Acidic

DSM Advanced yeast properties: Industrial strain Ferments 5 most abundant sugars in

16 DSM s enzymes & yeasts suitable for broad residue range Aspen Bagasse Cane straw Corn bran Corn cobs Corn fiber Corn stover Pine Rape straw Rice straw Spruce Switch grass Wheat straw DSM cellulase enzyme cocktail properties: Fast liquefaction Acidic conditions High temperature Single production strain, suitable for on site manufacturing DSM Advanced yeast properties: Industrial strain Ferments 5 most abundant sugars in biomass Glucose Galactose Mannose Xylose Arabinose Lignin Offering excellent conversion properties Slide 15

Thermostable enzymes are most cost effective Parameters of Interest High dry matter Low enzyme dose No contamination Fast hydrolysis Fast fermentation High ethanol yield Cost effectiveness

17 Thermostable enzymes are most cost effective Parameters of Interest High dry matter Low enzyme dose No contamination Fast hydrolysis Fast fermentation High ethanol yield Cost effectiveness Pretreatment is done at high temperature (~200 0 C); Liquefaction/hydrolysis is then best done at high temperature as well. DSM developed enzyme mix performing in high C temperature range Slide 16

High performance in broad temperature range DSM enzymes giving fast liquefaction active above 60 0 C Fast viscosity reduction enabling high dry matter level High

18 High performance in broad temperature range DSM enzymes giving fast liquefaction active above 60 0 C Fast viscosity reduction enabling high dry matter level High tolerance for inhibitors Active at acidic ph Resistant to higher temperature * * Trichoderma and competitive enzymes operating at temperature range of C Slide 17

Successful enzyme cost reduction Strain improvement led to two new generations of enzyme production microorganisms: strain 1 & 2 8-fold improved strain

19 Successful enzyme cost reduction Strain improvement led to two new generations of enzyme production microorganisms: strain 1 & 2 8-fold improved strain performance For enzyme production These improved the productivity of the initial strain by a factor of 8, which correlates to an 8-fold reduction in enzyme cost Slide 18

glucose C5 Variation in biomass feedstock

fermentation broth C6 C5 C6 Hemicellulose

20 DSM s outstanding advanced yeast Cellulose degradation yields mainly glucose C5 Variation in biomass feedstock leads to different sugar mix in fermentation broth C6 C5 C6 Hemicellulose consists of heteropolymeric C5 and C6 sugars Lignin is a non-fermentable aromatic polymer Hemicellulose 20-55% (C5) & Cellulose 20-45% (C6) Slide 19

21 Successful tests of our yeasts on pilot-scale Source: Bob Wooley (Abengoa Bioenergy) World Congress on Industrial Biotechnology & Bioprocessing Toronto, Ontario, Canada May 9, 2011 Resulting in >80 gallon/mt pre-treated corn stover Slide 20

22 DSM s state of the art yeasts: commercially available 20 Xylose consumption 10 Ethanol Production g/l 8 4 RN1001 Lab scale RN1016 Commercial g/l RN1001 Lab scale RN1016 Commercial ph 4.5 3g/l acetate hours hours State of the art yeasts are ready to be used in large scale fermentation facilities Slide 21

23 Our business model: DSM as software provider Value Creation Alliance Partners Co-development/ Commercial Co-development/Feedstock Application Developers Off take Partners/Customers First Commercial (20-25 mg) Region Specific Biorefineries License Model Enabling Technology Demo Plant Time DSM creates enabling technology ( software ) to facilitate construction of demo and commercial Plants Slide 22

Project Liberty: Cellulosic bio-ethanol plant Currently being constructed in Emmetsburg, Iowa Total investment US$250 million Designed to produce more than

24 Project Liberty: Cellulosic bio-ethanol plant Currently being constructed in Emmetsburg, Iowa Total investment US$250 million Designed to produce more than million gallons Replicate technology throughout POET s existing network of 27 corn ethanol plants One of the first commercial scale plants in the world Slide 23

25 Production costs comparison & development Corn ethanol Cellulosic bio-ethanol POET Pilot Plant $4.13 POET - DSM Plant ~ $3 POET - DSM Goal Source: POET and DSM Source: Poet and DSM Slide Future

26 Meanwhile, in Emmetsburg, IA. Ground Breaking March 13, 2012 Vertical construction in progress Start-up expected end 2013 Moving to commercial volumes in 2014 Slide 25

Advanced biodiesel: another huge opportunity Routes to renewable diesel

cooking oils Advanced biodiesel Sugar Source non-photo synthetic Hydroprocessing to

Recent EU-directive on Biodiesel has put a cap on vegetable oils (rapeseed, palm,

27 Advanced biodiesel: another huge opportunity Routes to renewable diesel Conventional biodiesel Vegetable oils Exajoule (EJ): 1 EJ = J Processed cooking oils Advanced biodiesel Sugar Source non-photo synthetic Hydroprocessing to diesel specification Photo synthetic Thermo/ Catalytic Image source: IEA BLUE Map Recent EU-directive on Biodiesel has put a cap on vegetable oils (rapeseed, palm, soy, cooking oils) Standards now exist (ASTM D : 50% biofuel blend) Airlines now using biofuels (eg. Aeromexico, Finnair, KLM, Lufthansa, Thai Airways, United Airlines and Alaska Airlines) EU Emission Trading Scheme (ETS) now include airlines (in theory!) Slide 26

BP-DSM advanced biodiesel pathway DSM and BP extended and deepened their collaboration on the development of microbial oils Technology: Non photosynthetic conversion of

material Use proprietary heterotrophic microorganism to convert sugars into lipids/oils Lipids produced have profiles and/or properties similar to conventional vegetable

28 BP-DSM advanced biodiesel pathway DSM and BP extended and deepened their collaboration on the development of microbial oils Technology: Non photosynthetic conversion of sugars into oils for transportation fuels (biodiesel, aviation fuels) Access cost effective, sustainable sugar juice extracted from sugar cane or ligno-cellulosic material Use proprietary heterotrophic microorganism to convert sugars into lipids/oils Lipids produced have profiles and/or properties similar to conventional vegetable oils (rape seed, soya bean oil), or tailored to specific applications Upgrade lipids/oils to FAME or hydrocarbons through existing chemical or thermo-catalytic conversions Slide 27

Renewable diesel offering exciting advantages Advantages over conventional biodiesel from vegetable oils: Advantages over alternative advanced biodiesel options: Access to wide variety of biomass

29 Renewable diesel offering exciting advantages Advantages over conventional biodiesel from vegetable oils: Advantages over alternative advanced biodiesel options: Access to wide variety of biomass feedstocks which can be produced at scale and in high yield Ability to tailor the product for variety of diesel and aviation-fuel needs Reduced exposure to fluctuations in price of vegetable oils Avoidance of availability and sustainability concerns surrounding conventional biodiesels Built on technologies already proven at scale (rather than technologies that are still in lab-stage of development) Less capital extensive than thermocatalytic / thermo-chemical biomass conversion alternatives Has potential to produce sugars and oils at higher yields than photosynthetic approaches, and at lower costs Slide 28

30 Biogas: renewable energy with high potential Biogas has a wide range of end-use applications Strong green credentials: mitigating GHG emissions from organic side & residue streams Benefits from infrastructure for natural gas and vehicles powered by (bio)methane Increasing number of government incentives to stimulate biogas or bio-methane production Biogas market expected to grow by ~7% p.a. to ~100 BCM in 2020 (US$ 35bn) Market for biogas enzymes and process improvement: ~US$ 1bn by Market expectations (*) biogas (US$ billion) 18 +7% *: Source : DSM analysis, conservative scenario for biogas based on: Pike Research ( 12) Slide 29

DSM, first mover in advanced biogas Enzymes: Leading supplier of advanced biogas enzymes for conversion of agricultural and industrial residue streams Over 100 years of innovation has made DSM a

31 DSM, first mover in advanced biogas Enzymes: Leading supplier of advanced biogas enzymes for conversion of agricultural and industrial residue streams Over 100 years of innovation has made DSM a world leader in the formulation, production and supply of enzymes Process /Equipment: DSM developed advanced biogas process (high intensity industrial Biogas Plant of the Future) Exciting synergies: Commercial cellulosic bio-ethanol plant in US, offering exciting synergies for biogas Slide 30

DSM leading supplier of enzymes for biogas A highly active biocatalyst capable of increasing capacity in the biogas operation DSM s MethaPlus S/L Enzyme is able to hydrolyse plant fibers

32 DSM leading supplier of enzymes for biogas A highly active biocatalyst capable of increasing capacity in the biogas operation DSM s MethaPlus S/L Enzyme is able to hydrolyse plant fibers (polysaccharides such as cellulose and hemicellulose) and so makes them more accessible for gas-forming microorganisms Safe ride to higher energy and resource efficiency for improved productivity of the whole plant Much more power in the fermenter Slide 31

Enzymatic) Fermentation (Microbial) Increased efficiency & speed of conversion Decreased footprint Lower

33 Equipment development key: Biogas Plant of Future Hydrolyze (waste) organic solids to a liquid slurry which can be processed in a standard waste water treatment system Pre-treatment (Mechanical, Chemical, Enzymatic) Fermentation (Microbial) Increased efficiency & speed of conversion Decreased footprint Lower cost per m 3 biogas Advanced biogas process: high intensity industrial BPoF Biogas Plant of the Future Slide 32

34 Emerging partnerships through value chain Waste streams Industrial Agricultural Feedstock (residue) producers e.g. Breweries, pulp & paper Enzyme Producers Energy suppliers & distributors Equipment producers Slide 33

Example: Improved eco-footprint for breweries Waste streams and GHG emissions are increasing concerns for breweries Producing energy out of waste streams is an emerging opportunity Applying DSM s

35 Example: Improved eco-footprint for breweries Waste streams and GHG emissions are increasing concerns for breweries Producing energy out of waste streams is an emerging opportunity Applying DSM s Biogas Plant of the Future concept and using DSM s biogas enzymes results in a total production cost of ~ 0.45 / m 3 CH 4 equivalent while simultaneously reducing GHG emission and waste streams Global trend of Climate & Energy will drive growth in biogas in the coming decade Slide 34

36 Introduction Bio-energy Value creation timeline Slide 35

37 The way forward Sales First commercial batch of advanced C5 yeasts produced in 2012 First revenues from advanced biogas enzymes in 2012 Partnership with BP in advanced biofuels extended in 2012 Bio-succinic acid plant (Italy) being started up end of 2012, moving to commercial volumes in 2013 Start-up cellulosic bio-ethanol plant in Emmetsburg (US) in 2013, moving to commercial volumes in Projected sales (cellulosic bio-ethanol, biogas and later on licensing) from JV to grow to > US$ 200m*. Future license income could add up to several tens of millions of US$. Organic growth & partnerships * Due to IFRS rules as of 2013 DSM will consolidate the JV using the equity method Slide 36

38 Wrap-up: bio-energy, an exciting potential Huge market potentials, driven by global megatrend of climate & energy Exciting partnerships established - POET: leader in bio-ethanol - BP: leader in bio-based energy DSM holding leading biotechnology positions: - Yeasts (cellulosic bio-ethanol, renewable diesel, industrial biogas) - Enzymes (cellulosic bio-ethanol and biogas) Leadership is building on 150 years of experience and innovation in enzymes and yeast DSM s business model is: Demonstrate technology (bioconversion software ) through strategic investments and partnerships along the value chain License integrated process (hardware + software ) to bio-based entrepreneurs Sell conversion technology (yeasts, enzymes) Slide 37

39 Contact: DSM Investor Relations P.O. Box 6500, 6401 JH Heerlen, The Netherlands (+31) internet: visiting address: Het Overloon 1, Heerlen, The Netherlands

Why did DSM step into this?

Why did DSM step into this? Every innovation starts with a dream believe promise crisis unsolved customer need technology breakthrough Page 1 Future has Origin 1980s NASA s CELSS (Closed Environment Life