The future of second-generation biofuel  

McKinsey has a report on second generation (2G) biofuel production - The future of second-generation biomass.

The promise of the second-generation (2G) bioconversion industry is that it will transform cellulose-based, nonedible biomass and agricultural waste into clean and affordable high-value fuels or chemicals. (The first-generation, or 1G, technology converts edible biomass.) In this way, 2G could offer an alternative source both of energy and of chemical-industry inputs, which other renewable technologies cannot provide.

That is 2G’s potential, but the industry failed to deliver on this promise for almost a decade. However, there has been progress in recent years. Since the inauguration of the first commercial-scale 2G plant, in 2013, eight more have opened around the world, of which some, not surprisingly, are failing, while others are progressing. Most are in North America, two are in Brazil, and one is in Europe—all markets with mature 1G biomass industries and governments that support cellulosic ethanol.

Second-generation projects have also begun attracting interest in China, India, Indonesia, and Malaysia in the form of government initiatives to coordinate action and to facilitate the establishment of a 2G ethanol market. As these trends suggest, the technology could be approaching the acceleration phase that marked the development trajectory of other industries, such as wind power, solar energy, and shale gas. In each case, growth was modest at first and then took off

At feedstock costs of $30 to $50 a ton and validated levels of technology performance, 2G production economics can compete on cost with 1G bioethanol and certain more expensive oil sources,2 particularly at locations where 2G operations can piggyback on existing 1G infrastructure, such as sugarcane bagasse feedstock or corn stover at 1G plants that already process sugarcane and corn, respectively. On a marginal-cost basis, 2G is already structurally more attractive than 1G because its running costs3 are lower.

However, there are two important risks: feedstock security (which can be addressed through forward contracts) and technology. Building new commercial-scale plants will encourage simplification and standardization, while also leading to scale efficiencies that reduce capital expenditures. As with the development of wind farms, leading players should eventually be able to offer investors turnkey operations. Government support could improve the business case substantially for some 2G plants, and there are precedents for this: Germany helped build initial capacity for solar power, as the United States did for the 1G industry.