Turning waste to cash in green chemicals

Chemicals run the world. It’s in your cleaning products, cosmetics, medicines, food, electronics, agriculture fertilizers, and construction materials. This massive industry generates $4.7 trillion dollars in annual revenues.

It’s also the most carbon intensive. Chemical manufacturing requires large amounts of energy for heating, pressurizing, and driving chemical reactions, drawing mainly from fossil fuels. The chemical industry generates roughly 2 billion metric tons of carbon dioxide (CO2) per year, accounting for approximately 5% of global greenhouse gas emissions.

Electrifying this sector is challenging. Some chemical reactions require extremely high temperatures that are difficult to achieve efficiently with electric heating. Chemicals are also a commodity - buyers are mainly making purchasing decisions based on cost. 

In order to tackle this industry, green chemical startups must be able to 1) power these chemical reactions using electricity instead of fossil fuels and 2) sell these chemicals at the same price as competitive, incumbent chemical manufacturers who enjoy economies of scale. Startups must be able to start with a zero green premium at small scales while still profiting per unit.

This week, we explore how startups are accomplishing this by using waste feedstocks as input into their chemical process and innovating chemical processes that work at lower temperatures and can be powered by renewable energy. These innovations are allowing them to sell their products at the same price as their fossil fuel alternatives while enjoying a nice margin… not in decades, but in the next 2-3 years.

Why now?

IRA tax credits

Advanced Energy Project Credit (Section 48C) offers up to a 30% tax credit for investments in clean energy manufacturing which supports chemical startups investing in new green manufacturing facilities or upgrading existing ones. The Clean Hydrogen Production Tax Credit provides up to $3/kg tax credit for clean hydrogen production over 10 years, benefitting startups developing low-carbon hydrogen production technologies. The Carbon Capture and Sequestration Tax Credit (Section 45Q) offers up to $85 per ton for carbon captured from point sources and permanently stored which can apply for chemical processes that store or use CO2. (Frost and Sulivan 2022)

Dropped costs of renewable energy in the United States

Both solar and wind costs to generate electricity dropped dramatically over the last decade. Utility-scale solar PV costs fell 82% between 2010 and 2020. Onshore wind costs declined 39% between 2010 and 2020. Around 86 per cent (187 gigawatts) of all the newly commissioned renewable capacity in 2022 had lower costs than fossil fuel-fired electricity. (IRENA 2023) Renewable electricity has become cost effective enough to power chemical processes profitably. 

What you should know

A quick refresher on chemistry. Chemicals are made from building blocks. The most fundamental building block is an atom (hydrogen, oxygen, and carbon) that connect to form molecules (H2O) which then connect to form complex chemicals (ex. Methanol). These complex chemicals are then refined to form speciality polymers that end up in most materials in the modern world.

Core chemicals processes and their associated greenhouse gas emissions: 

Primary chemical products can be split into three $BB market segments:

1. Bulk chemicals (~$153.3B U.S. market, e.g., ethylene, propylene, BTX) are used as feedstocks for a variety of products such as plastic resins, synthetic rubbers, and manufactured fibers.

2. Inorganic chemicals (~$45B U.S. market, e.g., chlorine, caustic soda, and hydrogen) are used primarily as feedstocks in plastics (e.g., Polyvinyl Chloride or PVC) with a long tail of ancillary uses, including soap and glass production.

3. Specialty chemicals (~$92B U.S. market) differ from bulk chemicals as specialty chemicals mostly have one or two uses while bulk chemicals may have dozens. Specialty chemicals are wide-ranging, including adhesives, pharmaceuticals, flavors, cosmetic additives, and pesticides.

Excerpts from DOE Liftoff Report 

Waste to chemicals

Startups are upcycling waste streams at zero to minimal costs and building green building blocks that feed into massive billion-dollar markets.

Headlines

Twelve closed $645M in funding led by TPG rise.

Infinium raised an investment of up to $1B from Brookfield Asset Management.

Key challenges and innovations

Challenge #1: Transportation costs from the waste site to the end customer can eat away at margins.

GTM strategy innovation:

Helix Carbon has developed an electrolyzer technology that can be co-located with industrial facilities, easily scaled up or down, and is self contained. They are capturing the waste CO2 on site, producing valuable chemicals on site, and selling the chemicals back to the customer directly. Zero transportation costs.

Because XFuel’s production facilities can use a wide range of feedstocks, locations do not have to be selected with a particular source of waste in mind, making it easier to locate production facilities close to end users and to build them out rapidly.

Challenge #2: Waste streams can be filled with impurities from particulates to heavy metals.

Tech innovation:

Startups are pushing science forward in removing impurities without compromising performance. DiviGas has innovated a new membrane that works at higher temperatures than other membranes and is resistant to common acidic compounds in the gas mix formed from sulfur and chlorine, which means it can handle more caustic and untreated input flows without degrading.

Challenge #3: Chemical processes can require high temperatures and pressure to form chemical reactions.

Tech innovation:

Oxylus Energy has developed the first known electrochemical process of converting CO2 to methanol at ambient temperatures and pressures, helping them to keep costs down.

Using a novel DNA-tethered approach, the researchers at Helix Carbon were able to boost the Faradaic efficiency of the reaction to 100%+, meaning that all of the electrical energy that goes into the system goes directly into the chemical reactions with no energy wasted. When the catalysts are not tethered by DNA, the efficiency is only about 40%. 

Challenge #4: Major capital upgrades in the chemicals & refining sectors usually happen every 1–5 years (depending on the asset) and plant owners are looking for a 10%+ IRR.

Strong customer ROI:

Startups must demonstrate their ability to meaningfully beat the IRR threshold to make their technologies attractive to customers. DiviGas offers customers a 2-3x return on investment since they can save millions of dollars on hydrogen that is recovered instead of lost. A compelling ROI can incentivize old school customers to change.

Challenge #5: The value chain for captured carbon is complex and can require many steps from capturing carbon to storing the carbon.

Tech innovation:

The beauty of creating a one-step CO2 to chemicals process is that a startup like Helix Carbon doesn’t have to rely on so many value chain players to deliver their solution. They are a single-stop shop solution for customers, reducing costs and complexity.

Bear/Bull Cases

Bull (why things can go right):

• The next election cements the IRA tax credits for these early stage startups

• Electricity prices continue to drop

• Modular, drop-in green chemicals technologies scale up meaningfully

• There are enough waste feedstocks for startups to reach economies of scale

• Greater demand for waste feedstocks increases supply ex. Researchers are predicting that biomass production can grow to a billion tons depending on supply/demand factors

• Industrial clusters like the US Hydrogen hub provide the opportunity to cost share and scale infrastructure deployment

• Startups find a foothold in Europe where natural gas prices have driven up the production cost of energy-intensive chemicals

Bear (why things can go wrong):

• A republican election slows down IRA deployment 

• Novel innovations stumble when they reach commercial scale; the approaches here are early TRLs and have not been proven at scale yet 

• Large-scale infrastructure build out for hydrogen and captured carbon slows; little infrastructure exists today, and the build-out can be lengthy and challenging due to permitting and cost

• Competition for waste feedstocks increases, driving up costs and depressing margins

• A global oversupply of chemicals continues to depress margins for chemical producers

• Electricity prices increase due to spikes in natural gas or extreme weather events