Author Archives: Yuan Sheng Yu

DuPont Acquires Dyadic’s C1 Enzyme Technology for $75 Million

Earlier this week Dyadic announced DuPont will acquire its C1 industrial enzyme technology platform for $75 million. While the deal transfers nearly all of Dyadic’s industrial enzyme technology assets to DuPont, the announcement also disclosed that Dyadic will continue to have co-exclusive rights to the C1 technology specifically for pharmaceutical applications. For pharmaceutical applications, DuPont will make royalty payments to Dyadic upon commercialization. Dyadic’s C1 technology is currently licensed to companies such as Abengoa for cellulosic ethanol production and BASF for the animal feed, food, and textile industry. In the pharmaceutical industry, Dyadic licenses its technology to Sanofi-Pasteur for production of vaccines, antibodies, and therapeutic proteins (client registration required).

DuPont is no stranger to bolstering its enzyme technology portfolio through acquisitions, acquiring Danisco in 2011 for a total of $6.3 billion. However, DuPont isn’t alone, as many of the larger companies in the space made similar transactions in the enzyme industry over the last few years. At the start of 2013, Novozymes acquired Iogen Bio-Products, Iogen’s industrial enzyme division that produced enzymes for a range of industries including grain, animal feed, and pulp and paper (client registration required). The transaction totaled $80 million and did not include Iogen’s assets in cellulase enzymes. Later that year, BASF acquired Verenium for approximately $62 million. By this time, BP had already acquired Verenium’s cellulase enzyme portfolio in June 2010 for $98.3 million (client registration required). While all the transactions, except for the Danisco acquisition, are relatively equal in size to the Dyadic acquisition, the economic environment in which they occurred were drastically different.

In January 2013, oil prices were approximately $95 per barrel WTI Crude when Novozymes decided to purchase Iogen without its cellulase enzyme technology. Later that year in October, oil prices were just under $104 per barrel WTI Crude when BASF acquired Verenium. Notably, the Dyadic acquisition stands out, as oil prices have plummeted to approximately $45 per barrel WTI Crude this month. Yet the transaction price is in the same range as the previous examples even though DuPont acquired something more – the cellulase enzyme technology that is licensed to DuPont’s competitor, Abengoa. In May 2012, Abengoa expanded its rights under the non-exclusive license agreement the parties entered into in February 2009. The first iteration of the license agreement gave Abengoa the right to use Dyadic’s C1 platform technology to develop, manufacture and sell enzymes for use in second generation biorefining processes to convert biomass into sugars for the production of fuels, chemicals and/or power in certain territories. This iteration of the license agreement expands the license to worldwide rights and gives Abengoa the ability to produce, use, and sell C1 enzymes in first as well as second generation biofuels and other bio-based processes.

But the reason for the relatively low transaction bill doesn’t necessarily reflect the value of the C1 platform. It’s list of current licensees ranging from small start-ups (client registration required) to large corporations and across various industries made it a prime target and will likely strengthen DuPont’s own enzyme platform. The link to Abengoa’s enzymatic technology is an added bonus as it may mean some leverage over a direct competitor. What it does show is that the current economic climate of low oil prices is ripe for opportunity for those with the capital and long term vision to supplement their current biotechnology portfolios.

Growing Biofuels: Dedicated Feedstocks for Alternative Fuels

The biofuels industry continues to receive backlash from the public as “food vs. fuel” pundits paint a misconceived picture that food crop-based biofuels diverts food away from our dining tables towards our vehicles (client registration required). While we do not agree with detractors that biofuels growth is the cause of rising food prices, we do agree the shift away from food crops is necessary as volatile prices drastically affect biofuel production costs. Cellulosic biomass became a popular choice as technology developers vied for position in the emerging market for next-generation biofuels. However, with misplaced feedstock expectations, companies felt the economic impact as feedstock cost remains the most significant aspect of biofuels production regardless of technology.

One solution is the use of energy crops, dedicated feedstocks cultivated specifically for biofuels production, either as a source of biomass or production of bio-oil. Energy crops range from miscanthus to jatropha and are typically characterized by high yields and require little to no maintenance. Additionally, companies developing energy crops are targeting non-arable lands to reduce competition with food crop production. While driven mostly by academic research, energy crops have emerged in recent years as well as crop development techniques to improve existing crops in the biofuels value chain through transgenic and non-transgenic approaches. In the following section, we analyze 19 companies on our Lux Innovation Grid (LIG), identifying key factors for successful growth and commonalities among laggards.

Top Analyst Insight Graphic_6_7_15

  • Strong financial support driving growth and beginning to separate companies from the rest of the pack. Crop development for biofuels applications remains a nascent and niche market in the larger agriculture industry. It is even more imperative for companies to secure financial backing to carry its technology from the greenhouse to field trials and eventual commercial-scale production. SGB Inc. develops elite jatropha hybrids with six field trials across the globe and plans for an additional four field trials by the end of Q2 2015, consisting of over 2,500 acres. While a stigma remains around jatropha due to its headline failures in Africa (client registration required), SGB was able to secure $11 million in a Series C in July 2014. Flint Hills Resources is a major investor, strategically positioning itself with bio-oil energy crops to integrate into its existing biodiesel portfolio. NexSteppe develops sorghum strains enhanced for both biomass and cellulosic sugars and reported in April 2015 it sold 25,000 acres of its sorghum in Brazil this past growing season. It too, also recently raised $22 million in a Series C in September 2014 with investors including DuPont and Total, which is known for its shrewd investments along the entire bio-based value chain (client registration required).
  • Companies struggling to gain footing in the immature space lack a focused business model. It is not surprising to find start-up companies developing various technologies for different applications. However, we have stressed in the past the importance of corporate leadership in guiding translational research positioned for commercialization(client registration required). Edenspace has faced the consequences for its lack of business model focus developing plant varieties for calcium biofortification, phytoremediation of groundwater, and cellulosic ethanol. Founded in 1998, the company has attempted to move all three businesses forward in parallel facing numerous challenges along the way resulting in minimal revenue, while any one of these arms could be viable on its own. Performance Plants on the other hand, has strengthened its business model through strategic corporate partnerships. Utilizing domestic expertise, it works with companies like Bayer CropScience and Stine Seed to navigate the regulatory hurdles surrounding genetically modified crops, through licensing agreements.
  • Emergence of established pulp and paper players looking to play into the bioenergy space. Both SweTree Technologies and ArborGen have been around for 15 years, commercializing hybrid tree species primarily for the pulp and paper industry. However, in conversations with both companies within the last year, an interest in utilizing trees for bioenergy applications has emerged from its existing pulp and paper industry customers. Research on modified trees as a source of biomass for bioenergy has been ongoing at the academic level for several years, and major pulp and paper players can utilize its existing infrastructure to generate an additional revenue stream through dedicated trees for biomass. Trees are also advantageous from a cost perspective with relatively stable prices compared to commodity crops, with prices changing at most 6%, while corn and soybean faced price fluctuations with highs of up to 25% on a year-to-year basis. The stability in price is one of the major reasons why next-generation biofuels are shifting away from food crops, and with well understood logistics overall, biofuel production costs can potentially be reduced.

With the energy crop development space relatively young, many of the companies find themselves in the top-left high-potential quadrant. Major biofuels producers seeking value chain security and willing to invest in long-term research and development (R&D) find themselves with a variety of plant species and technological approaches. Through strategic partnerships, acquisition of strong IP, and utilizing existing logistics and infrastructure, corporations can quickly catapult any given company to the top of the energy crops space. Clients in the pulp and paper industry may seek near-term opportunities, as hybrid trees offer an alternate market in bioenergy that fits with existing infrastructure and business. For clients with long-term biofuels ambitions, energy crops offer a strategic play worth investigating as part of a fully integrated biofuels platform, in a space likely to face feedstock shortages in the future.

EPA Releases 2014 RIN Data, Uncovering the Truth About Cellulosic Biofuel Production

Last month the U.S. Environmental Protection Agency (EPA) released 2014 Renewable Identification Number (RIN) production data. The RIN is used by the EPA to track biofuel trading as a unique RIN is generated for each volume of biofuel that is produced. While RINs are not a commodity, there is a monetary value associated with RINs as an incentive for renewable fuel production. One RIN is equal to 1 gallon of ethanol equivalent, therefore fuels such as biodiesel generate 1.5 RINs per gallon and heating oil and renewable diesel generate 1.6 RINs per gallon and 1.7 RINs per gallon, respectively.

In total, 17.2 billion RINs were generated with 33.0 million RINs for cellulosic biofuel (D3). For the first time since the implementation of the D3 category in 2010, the mandated volume, revised to 17.0 million gallons in 2014, was met. In this insight, we will look at the five major categories of the Renewable Fuel Standard (RFS): Cellulosic Biofuel (D3), Biomass-Based Diesel (D4), Advanced Biofuel (D5), Renewable Fuel (D6), and Cellulosic Diesel (D7). Additionally, we will analyze the surge in D3 RIN generation in 2014 and its impact on cellulosic ethanol commercialization. First, we define each RIN category and describe the 2014 mandated volumes, as well as the number of RINs and gallons generated in 2014.



  • Cellulosic Biofuels (D3). Though introduced into the RFS in 2010, cellulosic biofuels have faced the most scrutiny as lofty volume mandates were consistently missed, resulting in numerous revisions and reductions in volume. In 2012, the EPA went as far as removing the volume mandate for cellulosic biofuel (client registration required). In 2014, D3 production became a reality with nearly 33.0 million RINs generated. While the commercial operation of two major cellulosic ethanol facilities in the U.S., Abengoa (client registration required) and POET-DSM (client registration required), is a major step, it contributes a minor drop in the bucket as the EPA qualified biogas-derived CNG and LNG for D3 RINs in July 2014. We will take a more in-depth look at D3 generation in the second part of this insight.
  • Biomass-based Diesel (D4). 2.7 billion D4 RINs, or 1.75 billion gallons, were generated in 2014, surpassing the mandated 1.28 billion gallons in 2014 in the RFS. Biodiesel makes up the majority of biomass-based diesel with major producers such as Archer Daniels Midland and Cargill. The U.S. remains the second largest biodiesel producer behind Europe, with a projected biodiesel capacity of 3.6 billion gallons in 2018 according to our Alternative Fuels Tracker (client registration required).
  • Advanced Biofuels (D5). Many fuel types contribute to advanced biofuels, with 143.0 million RINs, or 131.1 million gallons, generated in 2014. More specifically, D5 RINs are generated from sugarcane ethanol, biodiesel production that co-processes renewable biomass, ethanol from non-cellulosic portions of crops, and biogas from waste digesters, amongst others. 90.3 million gallons were accounted for by sugarcane ethanol, with 20.4 million gallons from biogas, 11.9 million gallons from naphtha, and 8.4 million gallons from non-ester renewable diesel. Heating oil and renewable CNG made up the remaining volumes with 71,177 and 6,344 gallons, respectively. Companies such as Algenol Biofuels, Oberon Fuels, and Diamond Green Diesel (client registration required) all have certified pathways for D5 RIN generation.
  • Renewable Fuel (D6). Renewable fuel is the largest RIN category, consisting of 14.3 billion RINs generated, or 14.2 billion gallons, that fell short of the revised 15.21 billion gallons mandated for 2014. D6 RINs are primarily first-generation corn ethanol and as mandate volumes push past the 10% blend wall limit (client registration required), there is little market pull for additional ethanol production as oversupply has become a recent phenomenon. However, led by the top five producers, Archer Daniels Midland, POET, Valero Energy, Green Plains Renewable Energy, and Flint Hills Resources, corn-ethanol production is projected to reach 15.6 billion gallons by 2018 according to our Alternative Fuels Tracker.
  • Cellulosic Diesel (D7). Cellulosic diesel was the smallest category with only 59,305 D7 RINs generated in 2014. Cellulosic conversion to diesel still remains a niche market as the market continues to focus on converting cellulosic feedstock into ethanol. However, in November 2014 Ensyn received D7 approval for its Rapid Thermal Processing (RTP) technology that converts woody biomass into heating oil.

Given all of the attention on cellulosic biofuels, the D3 RIN numbers have received the most attention, and the below figure shows Cellulosic Biofuel (D3) production by month in 2014. While volume mandates were reached for the first time, we take a closer look at D3 data and uncover the reality of cellulosic biofuels in the U.S.


  • A total of 683,643 gallons of cellulosic ethanol was produced in 2014, merely 2.1% of total D3 generation during the year. With major cellulosic ethanol projects coming online in 2014 there was an expectation for commercial scale production to occur; however, there appears to be major shortcomings. Looking at RIN data from December 2014, only 89,327 gallons of cellulosic ethanol were produced signifying a much slower initial ramp up of POET-DSM’s and Abengoa’s facility than expected which both began operations in September 2014 and October 2014, respectively. In the past we have seen major commercial facilities come online, only to disappoint with low production volumes. INEOS (client registration required) faced contamination issues in its syngas fermentation and KiOR’s (client registration required) biomass fluid catalytic cracking (BFCC) succumbed to technical issues as the company eventually filed for bankruptcy. While we do not expect either Abengoa or POET-DSM to have such a dramatic fall from grace, the production in 2014 leaves little room for optimism.
  • 32.2 million gallons of renewable CNG and renewable LNG were produced in 2014 and these fuels are responsible for the high volume of D3 RINs in 2014. In July 2014, the EPA announced that biogas-derived CNG, LNG, and electricity (client registration required) for electric vehicles (EV) would qualify for D3 RINs as seen in the surge in the figure above. While we were previously skeptical about the ability of biogas to add significant volumes, it appears that it has not only achieved but surpassed the EPA’s expectations. Issues with biogas upgrading costs and fueling infrastructure for CNG and LNG will remain a major hurdle for widespread adoption (see the report “Modeling the Cost of Biomethane Production” — client registration required), but the opportunities for fleet vehicles, both light duty and heavy duty, exist in 2015.

In 2015, it will be critical for existing cellulosic ethanol producers to prove its capability with actual production volumes. With the addition of DuPont Danisco’s facility in 2015 there will be 80 million gallons per year of nameplate capacity from the three major projects alone. In a time of low oil prices, it is even more critical for producers to strategically aggregate feedstock and reduce production cost (client registration required) (see the report “Quantifying Cost and Availability of Cellulosic Feedstocks for Biofuels and Biochemicals” — client registration required). Companies such as Quad Country Corn Processors (QCCP) and Edeniq develop a bolt-on solution that may mitigate upstream barriers; however, it would only contribute a few million gallons per year of capacity. With uncertainty surrounding the RFS (client registration required), a lot of focus will be on newly proposed Cellulosic Biofuel (D3) mandate volumes. We will closely monitor additional data throughout 2015 to assess the viability of cellulosic ethanol production.

Government Funding Agencies Beware… Water Splitting for Energy Independence Remains an Economic Pipedream


The dream of using water as a fuel source has been around, in academia at least, for decades, with a plethora of approaches being investigated for water splitting primarily using electricity via renewable sources to generate these electrofuels. Indeed, with energy independence a major topic in political and corporate rhetoric immediately following the 2008 U.S. election, both the Advanced Research Projects Agency-Energy (ARPA-E) and U.S. Department of Energy (DOE) took their cue to help make the dream a commercial reality. In 2009, ARPA-E began its electrofuels program, providing $49 million in funding to 11 academic institutions and an additional two companies to develop microbial organisms capable of converting carbon dioxide and hydrogen into liquid fuels. Similarly in 2009 and 2010, the U.S. Department of Energy (DOE) funded the University of North Carolina – Energy Frontier Research Center (UNC EFRC) and the Joint Center for Artificial Photosynthesis, respectively. The DOE made a $122 million investment for five years for the latter institute spearheaded by the California Institute of Technology and U.S. DOE Lawrence Berkeley Laboratory. Both consortiums focus on developing catalyst-based systems for light capture, water electrolysis, and catalytic conversion of carbon dioxide and hydrogen to liquid
fuels. In the waning period of these investments, where do we stand?

The bottom line is that the cost of electrofuels remains far away from viable. Building a cost model for the electrolysis process which considered electricity from various routes, such as natural gas and coal as well as renewable electricity from biomass, solar, and wind, as well as generously assuming commercial scale production, electrofuels produced from microbes cost $230 per barrel, while a catalytic conversion to make electrofuels produces fuels for $208 per barrel. Based on
the current capabilities, water splitting makes up the vast majority of electrofuel production cost, and the major bottleneck for electrofuels to come within shouting distance of being cost competitive with petroleum. With technology improvements – specifically advances in microbial yield and catalyst efficiency – production costs for electrofuels drop to below $150 per barrel.

However, the same themes of an energy renaissance are evident even in the realm of hydrogen to fuels commercialization. There are various sources of hydrogen, such as steam methane reforming of natural gas and gasification of biomass into syngas that can make hydrogen cheaper. Although not electrofuels in the strict sense, these are best bets at cost parity, in which using conventional natural gas and coal-generated electricity and making hydrogen from natural gas makes fuels cost competitive at just over $90 per barrel of oil equivalent. The obvious nearer term value will encourage the downstream microbial-conversion and catalytic conversion technologies to move towards alternative hydrogen sources while the water splitters keep toiling. That is if the funding for their toil remains alive. Electrofuels developers are likely to idle their water electrolysis research and development (R&D) and seek commercialization partners with alternative hydrogen sources. ARPA-E has already made transitions to focus funding on gas-to-liquids (GTL) technologies amidst cheap natural gas prices in the U.S. in recent years.

Is there a path to get a return on the U.S. government’s electrofuels investments to date? Perhaps, but the nearer term value will lie in geographies lacking the natural gas bonanza that dominates the U.S. energy landscape today. Both Japan and Western Europe, each with renewable energy pedigree, an infatuation with the hydrogen economy and lacking a natural gas endowment would be the logical places to start courting both government and corporate funding partners. Then again, can the U.S. public stomach another government-funded energy initiative getting handed off to interests outside the borders?

Source: Lux Research report “Analyzing Electrofuels’ Potential for Cost Parity” — client registration required.