Author Archives: Andrew Soare

Who’s Positioned to Prosper From 1.5 Billion MT of Cellulosic Feedstock?

Making Moves in Alternative Fuels in 2015

As the alternative fuels space continues to mature and evolve, many technology developers are ramping up to commercial scale, while others are floundering financially. With many “next-generation” commercial fuel projects coming online in 2014 and 2015, 2015 will be a crucial year for market growth of alternative fuels. Combining the expectation of commercial expansion with the reality of low oil prices, processes that were feasible at $100 per barrel of oil now must now compete with $50 per barrel of oil. First-generation feedstocks, such as corn, sugarcane, rapeseed, and soybean, still represent nearly 95% of the alternative fuels space, but feedstock economics and the ever-continuing food vs. fuel debate has led developers to tap into novel feedstocks.

One key category of companies are those looking to leverage the 1.5 billion MT of cellulosic feedstock currently available around the globe (excluding municipal solid waste). Forty-two companies are actively pursuing cellulosic feedstocks, of which, the 26 companies pursuing biomass-to-sugars dominate. Assessing these on both a business execution and a technical value basis, industry leaders like Novozymes, POET, Dyadic International, and Beta Renewables rise to the top of the pile. These are the companies making the most commercial progress, leading the way as the cellulosic sugars industry matures.

What should cellulosic feedstock industry participants and observers watch for in 2015? American Process, at a critical juncture with GranBio’s Bioflex 2 facility scheduled for construction and a choice between American Process and Beta Renewables pretreatment process. Meanwhile, Beta Renewables themselves will be looking to reduce production costs through improved feedstock aggregation, and moving forward with potential projects targeting chemicals with its existing strategic partners. BTG-BTL will be looking for production at Empyro facility at claimed costs between $33 per barrel and $35 per barrel. That said, it may not all be plain sailing for the strong to get stronger. POET’s ethanol production volume at Project Liberty will be interesting to observe as 2014 RIN data indicates a slower ramp up than expected.

Source: Lux Research report “Key Alternative Fuel Companies and Developments in 2015” — client registration required.

Long-Term Growth in Today’s 53.2 BGY Biofuel Market will be Led by Novel Fuels and Novel Feedstocks

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The 53.2 billion gallon biofuel industry has enjoyed capacity growth of 19.6% annually since 2005, but growth will slow to just 3.2% annually through 2017. Ethanol represents 65.9% of global biofuel capacity in 2013 and increases slightly to 66.0% in 2017. Biodiesel capacity is 17.1 Billion Gallons per Year (BGY) today and will rise to 18.6 BGY in 2017. Corn and sugarcane feed 81.9% of the world’s ethanol production today, while rapeseed, palm, and soy supply vegetable oil to 62.1% of biodiesel.

Stymying biofuel capacity expansion are deep logistical and financial issues with today’s bio-based fuels and feedstocks. Next generation fuels, such as renewable diesel, butanol, biojet, and biocrude, currently make up 1.9% of the global biofuel capacity; however, with an annual growth rate of 18.7% from now through 2017, it grows its capacity share to 3.3%. The leading next-generation fuel is renewable diesel (reaching 1.1 BGY of capacity in 2017). Additionally, next-generation feedstocks are not tied up in the food supply and could unlock significant economic advantages, assuming novel conversions commercialize. Waste oils and cellulosic biomass dominate the next-generation feedstock capacity growth, contributing to 2.7 BGY and 1.3 BGY of expected capacity in 2017.

A solid dose of pragmatism is still needed to successfully navigate this opportunity. In the over-hyped cellulosic ethanol space, only 384 MGY of the announced 782 MGY will come to fruition, led by companies such as Beta Renewables, POET-DSM, and Abengoa. Meanwhile, renewable diesel from waste will emerge as a key biofuel process, while butanol and biocrude producers have the flexibility to sell into the chemicals market, but their effect on overall biofuel capacity remains minor. Competition from natural gas vehicles (NGVs), electric vehicles (EVs), and fuel-cell vehicles (FCVs) coupled with improving fuel efficiency could decrease the biofuel addressable market. Alternatively, development of cellulosic technologies and higher blends of today’s biofuels could accelerate the market.

Beyond the next few years, in tallying up the difference between long-term biofuel blending targets (ranging from 2015 to 2030) and the expected biofuel production capacity in 2017, highest probability geographic opportunities emerge. There are several countries – such as the U.S., Japan, India, and France – where future capacity falls short of long-term blending targets by more than 1 BGY. Though government biofuel targets may be dropped or downsized, these countries represent leading demand-driven regions to build still more new biofuel capacity.

The vision of what, where and when is readily derived. The path requires a holistic view of feedstock, technology and market to maximize success.

Source: Lux Research report “Emerging Feedstocks and Fuels Spark Biofuel Capacity Expansion through 2017” — client registration required.

Algenol Cancels Plans for $500 Million Algae-to-Ethanol Facility

What They Said

Algae-to-ethanol company Algenol recently announced that it was cancelling plans to build a $500 million production facility in Florida. The company blamed the Florida governor for the decision to cancel the facility, citing a bill the governor signed to repeal the required 10% ethanol blend in gasoline.

What We Think

Algenol works with algae that consume CO2 and sunlight, and within the cell produce ethanol, which the algae excrete. The technology was invented in 1984, and the company previously expected to build an integrated demonstration facility in Florida by 2011, though that timeline was pushed back to 2013. Now, the company is looking outside of Florida for its first commercial facility, a $500 million facility that would produce 15 MGY to 20 MGY of ethanol. Algenol blamed the governor’s recent bill to repeal Florida’s E10 mandate as the cause for this decision, even though federal mandates (the RFS2) govern U.S. ethanol blending. The company claims that its ethanol is over $0.50 per gallon cheaper than gasoline, but still the company needs a required market with long-term E10 blending.

Struggling biofuel companies are eager to blame anybody but themselves for their plant closings and poor performance, whether politicians, oil companies, or investors, but the curious part about Algenol’s blame game is the fact that it can easily ship ethanol to other states, assuming the market in Florida is not accessible. However, struggling algae companies need to blame someone, and blame they will. The real cause behind Algenol cancelling plans for a commercial facility is within the company, and not the Florida ethanol market. Algenol’s capital costs are very high, and it is likely very difficult for the company to raise funding; additionally, it may have technical hurdles with its system and organism that it has to overcome. We are skeptical of Algenol’s ability to raise the necessary capital to move forward with its first production facility. In this space, a company blaming the government is an all-too-common red flag, indicating a doomed company looking to push blame away from themselves, and clients should view such proclamations with caution.

Terrabon files for bankruptcy, as strategic investors re-evaluate portfolios

Waste-to-fuels company Terrabon filed for Chapter 7 bankruptcy protection in September. Terrabon CEO Gary Luce said that the firm was “unable to obtain additional funding,” and approximately 60 employees were laid off. The company had a history of missing key milestones, and we flagged this nearly one year ago in our last profile of the company (client registration required.) Two years ago, the company was expecting a $25 million funding (client registration required) round in the first half of 2011.

Terrabon was developing a multi-step process to convert wet waste into drop-in gasoline and jet fuel. The process features bacteria fermentation, pyrolysis, then a catalytic conversion into gasoline. In this multi-step process, yield loss was a significant factor, and Terrabon expected a yield of 70 gallons per ton of dry feedstock, much lower than fellow waste convertors like Enerkem (90 gallon/ton) and Fulcrum (120 gallon/ton). Terrabon, however, was targeting different feedstocks than most other waste convertors, focusing on wet waste. Terrabon focused on a mix of municipal solid waste (MSW), sludge, and biomass, and its feedstock was 30% solids, much lower than that of its competitors.

Among its investors, Waste Management and Valero decided not to give out the big dollars necessary to keep the company afloat and build its first commercial facility. Looking first at Valero’s portfolio, it becomes clear the rocky track record Valero has in this space. First and foremost, Valero is the third largest ethanol producer in the U.S. (client registration required) behind POET and ADM, though recently it idled a 110 MGY facility in Nebraska (client registration required.) Valero also invested in biofuel failure Qteros (client registration required), behind-schedule producers Enerkem and Mascoma, and cellulosic ethanol company ZeaChem. Beyond cellulosic ethanol, Valero is scaling up a renewable diesel facility in a joint venture called Diamond Green Diesel.

Terrabon’s other strategic investor, Waste Management, similarly has several waste-to-fuel companies in its portfolio (client registration required), including Enerkem, Fulcrum, and Agilyx. Most recently, WM invested in pretreatment company Renmatix, capping off its $75 million Series C. While the recent Renmatix investment (and investment in Genomatica before that) shows that WM isn’t pulling out of the fuels space altogether, we do expect to see strategic investors like WM continue to pare down portfolios. This doesn’t mean that strategic investment will go away, or even decrease, just that new companies and technologies may take the place of current investments. Oil giant Shell, for example, significantly downsized its relationships with Iogen and Codexis (client registration required) this year.

Corporate investment in this space boomed in 2007 and 2008, see the report “Hedging Bets with Flexibility in Alternative Fuels” (client registration required), and the partnering web expanded most rapidly in 2008 and 2009, see the report “Mapping Empires, Goldmines, and Landmines in the Alternative Fuels Network” (client registration required.) Over the past four to five years, strategics funded innovation at these start-ups, and now these producers need to perform commercially. Missing technical and project scale milestones won’t cut it anymore, and the corporate parents are kicking their kids out of the house, to sink or swim on their own. Expect to see more relationships falter in this space, but even more form as innovative companies continue to emerge, promising new sources of fuels and novel conversions, and new types of organizations partner their way into the alternative fuels arena.

Our Take on Recent Headlines about SG Biofuels, CoolPlanet, and Joule Finance Deals

What the media reported about SG Biofuels: SG Biofuels recently completed a $17 million Series B funding round – the first funds raised for the company since a $9.4 million Series A in September 2010*. SG Biofuels said the funding will “advance commercialization efforts,” and that it has customers for 250,000 acres of jatropha.

What we think: SG is developing advanced jatropha to produce oils for biodiesel production. It claims its technology doubles the natural jatropha yield, and is targeting marginal, and otherwise undesirable, land for cultivation. Like other potential energy crops, jatropha has a very limited production capacity and, today, agricultural, municipal, and forestry waste are available in much larger quantities, and thus represent stronger near term options for next generation biofuels (see the report “Biofuels’ and Biomaterials’ Path to Petroleum Parity“*).

Aside from the lack of scale, jatropha faces issues* associated with crushing facility infrastructure, transportation, as well as toxicity. To overcome these key hurdles, SG has several strong partnerships positioned throughout the value chain, including Bunge, Life Technologies, and Flint Hill Resources. The latter two invested in the recent round. Because of these key relationships, SG is in a good position to be a leader in the jatropha-based fuels space, and companies looking to develop oil crops should engage, with the aforementioned key hurdles in mind.

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What the media reported about CoolPlanet BioFuels: Before the new year, CoolPlanet BioFuels raised an undisclosed amount of Series C funding round that included old investors GE, Google Ventures, ConocoPhillips, NRG, and new investor BP. CoolPlanet raised its $20 million Series B in March 2011.

What we think: With this new investment round, CoolPlanet continues its push to amass capital and world-class strategic investors. The company is developing small-scale (1MGY), portable pyrolysis units to convert agricultural waste such as wood chips and corn stover into a gasoline replacement.

The small-scale facilities open up niche markets for the units, while making it easier for the company to raise the necessary capital, collect the biomass, and attain the permits for construction. Though further data is necessary to affirm the efficiencies and economics of CoolPlanet’s small-scale production, the company is uniquely positioned as it is producing ethyl BTX, a gasoline equivalent and drop-in fuel.

For both SG and CoolPlanet, the key investors are also strategic, and such relationships will be essential as both companies scale. As start-ups continue the ongoing hunt for capital, corporate investors are leading the push while institutional investors withdraw from the industry (see the report “Hedging Bets with Flexibility in Alternative Fuels“).

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What the media said about Joule Unlimited: Joule Unlimited recently raised $70 million in private equity investment, bringing in over $110 million over the lifetime of the company, which broke ground at its first production site in 2011.

What we think: Though its fundraising to date has been impressive, we maintain our skeptical view on Joule due to the company’s inability – or unwillingness – to provide details on its lofty claims* In our previous conversation, CEO Bill Sims was unable to answer basic questions* about its Dutch subsidiary and fundamental cost metrics, among other items.

However, the real concern with Joule, underscored by the recent news item, is its lack of commercial partners. The company’s recent funding round, unlike SG’s and CoolPlanet’s recent rounds, did not feature any corporate investors. Though Joule’s ability to raise money in an environment where institutional investors are turning elsewhere does warrant some praise, its lack of commercial partners will hurt the company as it scales up its novel technology and faces a myriad of technical challenges. Companies and investors should approach with caution.

* Client registration required.

Alternative Fuels: Rating Bioprocessing Companies on the Lux Innovative Grid

As the alternative fuels industry rapidly approaches maturity, reports of IPOs and commercialization have blended with headlines about spectacular failures and cheap acquisitions. The remaining players navigate a landscape of prospective partners, funding, and scale as well as serious uncertainty (read: opportunity).

A thorough examination of the field reveals contenders, dark horses, and long-shots within several technology classes, including pretreatment, bioprocessing, and gasification. While many of these companies appear similar on paper, we applied the Lux Innovation Grid in a recent report to rate them in three dimensions – business execution, technical value, and maturity. Drawn from that report, this week’s graphic reveals likely winners and losers among Alternative Fuel bioprocessing companies which, as a group, offer strategic flexibility in feedstock and end-products.

The crowded Dominant Quadrant is due in part to the successful IPOs of Amyris, Gevo, and Solazyme, as well as the impending commercial scale of companies like LS9, Cobalt, and LanzaTech. Aemetis edges into the Dominant Quadrant thanks on the technological potential of its Z microbe, which simultaneously breaks down cellulosic biomass and converts the sugars into isoprene. ZeaChem also lands in the Dominant Quadrant due to high partnership and momentum scores, fueled by a recent funding round and joint development agreement with P&G.

Cellulosic ethanol producers Qteros and Mascoma both claim low cost production and robust organisms, but both fall into the High Potential Quadrant due to sagging business execution scores. Qteros’ Q microbe could lead to more efficient processing of biomass; but it recently laid off most of its staff, including its CEO. Touting similar technology, Mascoma filed for an IPO* in September, but could see its public launch hindered by capital intensity and slowing momentum.

Lastly, OPXBiotechnologies shows some interesting potential for developing microbes for acrylic acid (with partner Dow) and diesel as part of the ARPA-E funded Electrofuels project: https://portal.luxresearchinc.com/research/tidbit/8436*. But, on the fuels side, it falls into the Long-Shot Quadrant due to a competitive landscape score of 2, and a partnership score of 2, with an overall Lux Take of “wait and see.” Joule, on the other hand, we rate as a “caution” thanks to a barrier to growth score of 1, no commercial partners, and wholly unproven claims.

Source: Lux Research report “Refining Alternative Fuels Innovators into Winners and Losers.”

* Client registration required.

Investors pump $930 million into alternative fuel technologies

Graphic of the WeekIn 2010, investors gave $930 million to alternative fuels start-ups, a four-year low. However, investment climbed dramatically to an all-time high of $698 million for companies with flexible technologies that can use a variety of feedstocks or generate diverse end products. Flexibility increases a technology’s addressable market, provides secondary revenue streams, and unshackles technologies from price volatility.

Specifically, synthetic biology start-ups – which develop novel organisms ranging from Escherichia coli (E. coli) to yeast – have attracted the most funding since 2004: $1.84 billion or 28.4% of the total. Investment dipped just 16.7% from $436.5 million in 2007 to $358.3 million in 2009, and investments actually peaked last year at $447.0 million, representing 25% growth over 2009. Driving this growth were companies with novel and flexible technologies to make both fuels and chemicals, such as Solazyme ($60 million Series D), LanzaTech ($18 million Series B), and LS9 ($30 million Series D). Since those 2010 transactions, Solazyme and several other venture-backed companies in the space have launched successful IPOs (Client registration required).

But investors shouldn’t ignore other flexible technologies. Investment in thermochemical processes (pyrolysis, gasification, torrefaction) did not trail far behind synbio. Technologies in this category account for 43.3% of the funding thus far in 2011. Representative companies include Virent and Elevance, whose catalytic processes produce a range of fuels, rubbers, oils, and plastics. Technologies capable of using agricultural, solid, or gaseous waste, such as LanzaTech, GlycosBio, and Ignite Energy, present further opportunities for investors.

New energy technologies, renewable or not, hurt by regulatory uncertainty

GE and the University of Wyoming recently announced the delay of their $100 million clean coal research center. GE blamed its decision on low natural gas prices, unclear energy regulation, and lower energy consumption due to the recession. The center, set to come online in 2012, would have gasified coal into syngas (a mixture of CO and H2) for further conversion to electricity. GE will reevaluate the decision in 18 to 24 months.

This announcement comes on the heels of American Electric Power’s (AEP) cancellation of its $668 million commercial-scale carbon capture and sequestration (CCS) project. The “weak economy” and “Congress’ inability to act on climate policy” were cited as the reasons for cancellation. AEP already operates a pilot-scale CCS facility in West Virginia that captures 20 MW of carbon dioxide from the nearby coal power plant and buries it underground. The commercial project, half-funded by the federal government, would have expanded the facility to capture 220 MW of carbon dioxide (from a 1,300 MW plant).

Back in Wyoming, regulatory uncertainty has shelved 87 GW of proposed coal-based power generation in recent years. We have seen fickle government support crash the biodiesel industry,* slow the cellulosic ethanol industry,* pull the plug on the hydrogen economy,* and build an unpredictable solar market in Italy.* And with carbon legislation looming, but nowhere near ubiquitous, a lack of policy is hurting non-renewable energy as well. While governments continue the energy policy debate, clients should spend extra time and money to invest in alternative energy technologies that offer profitability without government support.

* Client registration required.

Biofuels: Synthetic biology leads in investment dollars, but will it deliver?

Biofuels: Synthetic biology leads in investment dollars, but will it deliver?Although synthetic biology companies trail other biofuel firms in terms of commercialization and scale, their flashy claims of spinning custom-built microbes into complex chemicals and drop-in fuels have captured the attention and dollars of investors. Last year, we saw LS9 and Solazyme, among others, secure large funding rounds. Additionally, Amyris Biotechnologies successfully launched the market segment’s first IPO. Gevo followed suit with a February IPO, in which it raised $107 million. And, just last week, Solazyme filed its own plans for public launch, with aims to raise $100 million.

As our Lux Innovative Grid for synbio indicates, many competitors land in the Undistinguished and Long-shot quadrants – although plenty of potential contenders join Amyris, Gevo and Solazyme in the Dominant quadrant.

In addition to its spot in the Dominant quadrant here, relative newcomer BioAmber occupies a similar position in our Grid for the Fermentation segment of biofuels. While it’s focused on the production of succinic acid – a flavoring agent, plasticizer, and coating, among other things – the firm’s genetic modification technology also applies to the fermentation of adipic acid, which was the focus of a recently signed licensing agreement. Its position in the Dominant quadrant here stems from a high business execution score due, in part, to strong partnerships with Mitsui, Samsung Ventures, and Greenfield Ethanol.

Metabolix and LS9, both of which modify microbes to convert sugar to fuels and chemicals, round out the Dominant quadrant. Metabolix’s main efforts are through a joint venture with ADM to produce polyhydroxyalkanoate (PHA), which is at commercial scale today. Its PHA is used for agricultural mulch film, a polypropylene replacement in consumer products applications, and for packaging applications. LS9’s strong partner list and technology to produce alkanes in single-celled organisms (see the August 3, 2010 LRBJ – client registration required) positions the company among the leaders in the group.

Source: Lux Research report “Today’s Top Technologies in Bioplastics and Biofuels.”

Buzz around compostable SunChips bag proves too loud for consumers

PepsiCo subsidiary Frito-Lay discontinued compostable packaging for its SunChips snack brand following consumer complaints about noisy bags. The company introduced the polylactic acid (PLA)-based and 100% compostable packaging roughly 18 months ago, but discontinued the bag in five of its six SunChips flavors. (Packaging for Original flavor SunChips remains loud and compostable).

Opponents of the packaging expressed their dissatisfaction against what some jokingly referred to as “ear pollution” via formal complaints to the company, a decline in purchasing (down 10% by some reports), and social networking “snack-lash.” While the news is comical to some, it actually has important implications for companies turning to green alternatives for existing products.

Companies looking for bio-based alternatives generally consider performance (durability, temperature resistance, tensile strength, etc.) and cost when evaluating new materials. But like any other product, consumer opinion is what drives sales, and it is something that product developers cannot overlook. Slapping a “100% compostable” label on packaging can spark sales, but the unintended consequences of incorporating bio-based materials can sometimes cause more harm than good. As companies turn to bio-based materials for existing products, product developers will need to focus on making identical products, with the same smell, sound, taste, look, feel, and cost in order to compete with established petro-derived products. A recent conversation with a senior engineer from PepsiCo who works in bio-based plastics acknowledged this shift in focus when he said that SunChips will maintain their biodegradability vision as a top priority – “after overcoming the problems with the noise.”

The SunChips affair is reminiscent of wind turbine opponents who complained of impaired views, or tortoise advocates who fought a 400 MW solar thermal power plant in the Mojave desert (see the March 4, 2010 LRSJ – client registration required). It once again demonstrates that, although consumers support the green movement, they are unwilling to compromise the niceties of the petroleum world: scenic ocean views, rare tortoises, and quiet snacking.