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.