Lux recently presented at the BIO World Congress on Industrial Biotechnology. Although the event’s topics ranged from renewable chemicals and materials to biofuels to synthetic biology, three key themes emerged: Continue reading
Liquid Light recently signed a technology development agreement with The Coca-Cola Company to accelerate the progress of its CO2 to mono-ethylene glycol (MEG) conversion technology. This news follows Coca-Cola’s recent unveiling of its first PET plastic bottle made completely from plant materials.
With this announcement, Liquid Light joins Virent, Gevo, and Avantium on the Coca-Cola PlantBottle project. Gevo focuses on developing bio-PX as a precursor to bio-TPA, Avantium looks into FDCA for polyethylene furanoate (PEF), while Virent focuses on developing an alternative route to bio-PX for the (client registration required) production of bio-PET. Liquid Light aims to produce ethylene glycol from CO2, which would further augment Coca-Cola’s existing PlantBottle Packaging Program when the Liquid Light technology converts biogenic carbon sources.
But if Coca-Cola can already produce 100% bio-based PET, why did the company just sign this agreement with Liquid Light? Now that Coca-Cola has achieved its 100% bio-based PlantBottle, the company wants to implement the exclusive use of this bottle by 2020. However, it will not be able to do this on a global commercial scale while remaining cost competitive with (client registration required) petroleum derived alternatives. This is where Liquid light comes into play. The company claims its route to be a lower cost alternative to the ethanol to MEG route used to produce the bio-MEG in Coca-Cola’s PlantBottles today.
When we spoke with the company last year, we were told of a hypothetical model where a Liquid Light MEG facility would be an alternative to the Quest CCS Project, which plans to bury 1 million tons of CO2 per year underground. In this scenario, a Liquid Light facility would use the 1 million tons per year of CO2 to produce around 625,000 tons per year of ethylene glycol. Assuming a cost of carbon dioxide of $77/ton and a 10% discount rate, the company projected operational expenses of $402 million per year, which translates to approximately $640 per MT of MEG. Current selling prices for commercial volumes of MEG range from roughly $800 per MT to $1,000 per MT, thereby potentially leaving enough margin to compete on price parity with incumbents. If Liquid Light is able to achieve its cost claims, this gives Coca-Cola the ability to kill two birds with one stone: expanding its options for sourcing bio-MEG, while also obtaining it at a price on par, or even lower, than incumbents.
With its recent flurry of bio-PET announcements, Coca-Cola is becoming a leader in developing and implementing bio-based alternatives into its product portfolio; however, we are seeing other companies follow suit. For instance, (client registration required) LEGO’s recent sustainability announcement emphasizes the vast amounts of time and money companies are willing to invest in order to go green. Announcements like this emphasize the growing opportunities for companies looking to address sustainability concerns in existing value chains.
As the alternative fuels industry diversifies and scales up, financing is always the key to technology commercialization. While several sources of financing drive the whole industry forward, we investigate the trends of corporate financing from oil majors, based on a non-exhaustive database of over 1,000 deals and partnership engagements from 2000 through September 2014. With the focus on financial engagement, we only look into the private placement, equity stake, joint venture (JV), mergers and acquisitions (M&A), other than general partnerships. For example, we counted BP’s bioethanol JV plant with British Sugar, but we didn’t include BP’s research work with the Energy Biosciences Institute. We then drew a graph based on the investment counts (rather than invested companies) of the seven most activate oil majors in our database, namely, Shell, BP, Total, Valero, Chevron, Petrobras and Reliance. Particularly, repeated investment activities on the same company would be counted as multiple. We further sorted the investment by six core technology families – algae, biomass to sugar, catalysis, crop development, fermentation (and enzyme development), and pyrolysis/gasification.
From our analysis of their activities in the alternative fuels industry, we find that:
- BP leads the investment frequency in a variety of technology families. Particularly, it has a strong focus on the crop development by transgenics and breeding, with repeated investments made to Chromatin (client registration required) and Mendel Biotechnology (client registration required). It also continues investing on biomass to sugar technology including to handle cellulosic biomass, such as REAC Fuel (client registration required).
- Shell is not a fan of crop development, but has a wide coverage on other technologies. For example, it invested on multiple rounds and formed a JV with Iogen (client registration required), but terminated the JV in 2012. Then the oil giant formed partnerships and JVs with Codexis (client registration required), Cosan, and Novozymes to continue its interests in cellulosic ethanol. Shell shifted its shares in Codexis to Raizen, its ethanol JV with Cosan and “formed the largest sugar and ethanol company in the world”. It also partnered with Virent (client registration required) on the biomass catalytic conversion to produce renewable gasoline, and Cellana (HR BioPetroleum) on algae biofuel. Moreover, Shell Foundation also funded Husk Power System (client registration required) on gasification development.
- Total and Chevron are the most active corporate investors in the fermentation domain. Total did the private placement on the IPO of Gevo (client registration required) and formed a JV with Amyris (client registration required) with both focusing on corn and sugar cane feedstocks. Gevo is focusing on isobutanol fermentation and Amyris is doing the bioconversion to produce isoprenoids. On the other hand, Chevron invested in Codexis (client registration required) and LS9 (client registration required) with its concentration on the genetic engineering, while LS9 was acquired by Renewable Energy Group in early 2014 (client registration required). All invested companies by these two giants are diversifying their revenue streams with drop-in fuels, specialty chemicals, and/or drugs in downstream markets.
- Velero has a strong focus on the drop-in fuel production either by bioconversion or catalysis. Valero owns 10 facilities in the U.S. with over 1,000 MGY corn ethanol capacity. However, it is also interested in cellulosic ethanol with its funding of Qteros, Mascoma Corporation (client registration required), and Enerkem (client registration required). Additionally, the focus on waste feedstock can be reflected by its investments in the ill-fated Terrabon (client registration required), which was focused on wet waste-to-gasoline.
- Investments of oil majors in developing countries are more constrained by local resources and policy drivers. For example, Reliance is investing the algae technology developers such as Algae.Tec (client registration required), Aurora Algae (client registration required), and Algenol Biofuels. Petrobras is concerned with fuel production from sugar cane or bagasse, such as BTG-BTL (client registration required) and BIOecon, which combine the feedstock advantage and local policy driver. Other oil majors not listed in the graph, such as Chinese oil majors, Sinopec and PetroChina (CNPC), are shifting their focuses from food ethanol to cellulosic ethanol and coal-to-ethanol, which is responding to the call of the Chinese government to discourage the food ethanol industry (see the report “Fueling China’s Vehicle Market with Advanced and Coal-based Ethanol” — client registration required.)
- Less active oil majors in this space include ExxonMobil and ConocoPhillips. They only made sporadic investments – such as Synthetic Genomics (client registration required) by ExxonMobil and ADM by ConocoPhilips. Additionally, ExxonMobil mobile recently teamed up with Iowa State University to research pyrolysis.
What They Said
In its latest 10-K, Gevo revealed that for the year ended December 31, 2013, it incurred a net loss of $66.8 million and had an accumulated deficit of $262.2 million. Its liquid assets at December 31, 2013 totaled $24.6 million. The company also expects to incur further losses as it continues to fund the development of its products. In the same report, the company also stated: “notwithstanding, there can be no assurance that we will be able to raise additional funds, or achieve or sustain profitability or positive cash flows from operations. Based on our operating plan, existing working capital at December 31, 2013 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2014 without additional sources of cash. These conditions raise substantial doubt about our ability to continue as a going concern.”
What We Think
At first glance, it is easy to pick Gevo as a winner. It offers a clear value proposition, namely employing a retrofit strategy to produce a drop-in chemical, isobutanol. The retrofit strategy enables the company to have a lower capital outlay and a shorter path to commercialization, while the chemical equivalence of Gevo’s isobutanol to existing isobutanol means that its applications and market are well understood. On top of that, Gevo has managed to enter into off-take agreements and strategic relationships with an enviable portfolio of global companies, such as ICM, Sasol, Mansfield, Toray, the U.S. Military, and Lanxess. However, Gevo’s recent financial situation paints a very different picture on the company.
Gevo’s production started in May 2012 when the 22 MGY-retrofitted ethanol facility it acquired in 2010 in Luverne, Minnesota (Agri-Energy Facility) came online. Not long afterwards, a contamination occurred. This, along with economics favoring the production of ethanol over isobutanol, led Gevo to pause its isobutanol operation – it was only in June 2013 that the company resumed operations (client registration required). Despite the infection being apparently gone, the facility has yet to produce isobutanol at nameplate capacity (18 MGY of isobutanol per year).
Gevo’s survival is contingent upon its ability to produce isobutanol in a timely and economic manner. The production delays might spell imminent trouble for Gevo not only because it casts doubts on the process’ viability, but also because the company must race against the clock to meet the supply orders that it has previously agreed to. In the case of late or reduced isobutanol delivery, Gevo must pay Sasol and other offtakers shortfall fees. Being one of the pioneers in the bio-based chemical space, Gevo has the opportunity to capitalize on a lucrative market with few direct competitors. However, as a pioneer, Gevo must quickly learn from its mistakes to scale its first of its kind production facility.
With the mere $24.6 million in its pockets as of December 31, 2013 (taking into account that the annual net loss in 2013 and 2012 was $66.8 million and $60.7 million, respectively), coupled with the lethargic investment market (client registration required), it is uncertain whether Gevo will make it very long, and it may have to rely heavily on its corporate partners.
Some sparks of hope remain, however. First, Gevo might soon be able to derive some cash from the licensing of its GIFT separation technology; the Argentinean ethanol producer, Porta Hnos, recently signed a letter of intent to become an exclusive licensee of the GIFT technology in Argentina. In addition, Lufthansa has recently tested Gevo’s isobutanol as potential fuel, and a supply order may follow. Gevo’s strong corporate partners are likely to keep funding Gevo as it works around the technical hurdles it faces as it scales. Regardless, unless the Agri-Energy facility ramps up quickly to its nameplate capacity or Gevo receives some extra cash injection to sustain its operations, clients should monitor Gevo cautiously.
Investment and growth in bio-based material and chemical capacity continues to increase globally. Aggregating 229 sites from 217 companies that are planned, operating, or have been shuttered between 2005 and 2017 paints an interesting picture, whether considered by feedstock, product category or the geography where scale-up is strongest. Categorizing the products – 133 chemicals and classes like succinic acid and polyols – into seven main product categories (e.g., intermediate chemicals, polymers, and specialty chemicals) and 22 subcategories shines the light on the highest potential areas for producers and potential adopters:
Bio-based intermediate chemicals (e.g, adipic acid and lactic acid) is the biggest singular growth driver in the coming years, growing from 2.0 million metric tons (MT) to 4.9 million MT in 2017, while growth in first-generation facilities stalls. Adding further volume to the overall bio-based space, today’s 1.1 million MT bio-derived polymer capacity will grow at an 18% CAGR through 2017 as companies like Avantium build new sites, and production of bio-oil and its derivatives is set to grow from 1.0 million MT today to 1.8 million MT in 2017. Finally, specialty chemicals (e.g., farnesene) are set to boom at a 46% CAGR on a relatively low existing base between now and 2017. In contrast, the nascent bio-based advanced material space, comprised of products like bee silk, continues to have a negligible capacity through 2017.
As the bio-based industry matured, the pendulum moved from fuels to chemicals and companies like Solazyme, Elevance, and Amyris pushed back plans for entering the fuel market and instead focused on available chemical markets. Now that these companies are reaching commercial production volumes and are looking to set up strong downstream offtake markets, strategies are shifting even further away from fuels. As companies look to generate revenue, expect to see continued movement into existing and high-value specialty markets. A key to this on-going growth will be a continuation of the partnering behaviors already exemplified by key players in the industry. Years of collaboration and partnership have resulted in the first wave of bio-producers reaching scale and putting products on the markets. Larger patterns and trends continue to evolve, and a variety of partnership models – some focusing on strong upstream relationships and other focusing on downstream offtake – are showing success. LanzaTech, Agilyx, and Renmatix are key companies with an upstream, feedstock focus, while Genomatica, Solazyme, Gevo, Elevance, and Segetis are working on downstream business development.
Assembling the partnerships for feedstock, process and product in the right geographies will define the long term winners in this space. The masses rushing towards natural gas feedstocks are only enhancing the opportunities for thought leaders and strategic thinkers in higher carbon bio-based materials and chemicals who can position to win now as well as long after the natural gas frenzy is over.
Source: Lux Research report “Cultivating Capacity for Bio-based Materials and Chemicals through 2017” — client registration required.
Much of the press in the butanol industry over the past few months was focused on the big news from the big names – think Butamax’s Highwater Ethanol retrofit plans (client registration required), Gevo’s Q3 2013 financial disclosures (client registration required), and the closing of Green Biologics’ series B funding round (client registration required) – and the media domination continues. Gevo announced it closed a public offering of common stock and warrants on Dec 16, 2013, which the company said raised approximately $22.6 million. The raise was expected after the Q3 disclosure and will be used to repay $5.1 million in outstanding long-term debt obligations, ramp up production and sales at the Luverne plant, and may use use it to fund working capital or other general corporate purposes.
However, in an emerging industry such as biobutanol, isn’t any press good press? While these releases provide ongoing insight into growth at the forefront of the biobutanol sector, the heavy focus on companies reaching scale can overshadow approaches in other stages of the development pipeline. With that in mind, we thought we’d take a step back and see what ideas were brewing in other labs. Recently, we spoke with Jeremy Minty, a postdoctoral researcher at the University of Michigan, who is working to develop the technology to produce isobutanol via a single fermentation using multiple strains: a Trichoderma reesei fungus and engineered Escherichia coli.
Jeremy said the basic idea is to design a synthetic microbial community to produce target molecules in one step. With the current process, the T. reesei converts corn stover to sugar, while the E. coli converts the glucose directly to isobutanol and other metabolic byproducts. He further mentioned results from the proof-of-concept demonstration show isobutanol production of 60% of the theoretical yield (on a gram isobutanol per gram of feedstock basis), 30% selectivity for isobutanol, and titers up to 2 g/L. Ongoing research is focused on understanding what is driving the metabolic flux towards side products and improving yield. Additionally, Jeremy mentioned titer and productivity improvements would need to be improved as well for commercial scale implementation of the technology, but the technology could be applied to the production of biopolymers in personal care products and cosmetics or bulk or building-block chemicals, such as lactic acid.
Most butanol fermentations today are single-strain, so the multi-strain approach is a divergence from the typical direction we’ve seen in the bio-utanol field. While the number of unit operations in a plant would come down, it is balanced by the increase in process control complexity. In any practical application, a balance between rate and yield of the two species would need to be maintained in order to keep consistent commercial production. As we’ve seen with Gevo, maintaining the desired strain while scaling up (client registration required) a single-strain fermentation isn’t trivial and the risk associated with a multi-strain scale-up will be something to consider.
Beyond the general microbial consortia approach to production, the process is also leveraging another relatively unique approach – the use of fungi for in situ biomass-to-sugar conversion. In order to commercialize cellulosic chemical and fuel technologies, cheap biomass to sugar technologies are a key enabling component (see the report “Cellulosic Chemicals and Fuels Race to Compete with First-Gen Sugar Economics” — client registration required). Unlike enzymatic, supercritical water, and concentrated acid hydrolysis methods for cellulosic sugar conversion, this approach avoids extra separation, concentration, or cleanup steps. While the economics of tradeoffs between cost and performance would need to be assessed, this approach is another hat thrown into the ring in an industry looking for a winner.
Last week, industry giants Coca-Cola, Ford Motor, Heinz, Nike, and Proctor & Gamble formed a partnership agreement designed to integrate 100% plant-based polyethylene terepthalate (PET) into their product lines at commercial scale. This news rides on the coattails of Coca-Cola’s announcement to partner with Virent, Gevo (Client registration required.), and Avantium (Client registration required.) to accelerate development of their current 30% plant-based monoethylene glycol (MEG) PlantBottle (Client registration required.). To date, purely bio-based PET technologies exist. In fact, there are many plant-based routes to terepthalic acid (TPA), which can then be converted to PET. These include both fermentation and catalytic processes that are currently too expensive at commercial scale.
Coca-Cola’s goal is to convert all petroleum-based PET products to plant-based PET, which represents 52% of the total packaging within the company. Heinz licensed the MEG PlantBottle technology from Coca-Cola, and hopes to achieve similar goals. Furthermore, Ford shifted from using petroleum-based PET to currently use 25% soy-based polyols for seat cushions, recycled resins for underbody systems, post-industrial recycled yarns for seat fabrics, and repurposed nylon to make cylinder head covers in its bio-based portfolio. Considered a drop-in solution, bio-based PET replicates the mechanical and chemical properties of petroleum-based PET. Therefore, the 100% plant-based PET can potentially be used for all of these end products.
This consortium acts as a catalyst to grow the bio-based PET industry to produce plastic bottles, clothing, shoes, automotive carpets, and other furnishings, and essentially any product made from traditional PET. These industry behemoths will inevitably commercialize the technology due to their current R&D partnerships, access to suppliers, collaborations with universities, and extensive monetary resources. Furthermore, this will enhance the strength of the bio-based materials and chemicals industry by promoting collaboration along the entire supply chain, especially as the rate of forged partnerships is expected to slow in 2012. (See the report “Solving the Bio-Based Chemicals Partnership Puzzle.” Client registration required.)
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.
Solazyme’s much-anticipated initial public offering (IPO) finally happened last Friday, selling about 11 million shares at $18 – raising $198 million in total, twice what it expected when it filed (see the March 29, 2011 LRMCJ – client registration required). Today the stock is trading up 20% at about $22, for a valuation of $1.3 billion.
While that dwarfs Gevo (trading at 30% above its IPO price, valuation at $475 million), it’s comparable to Amyris (trading at twice its IPO price, valuation at $1.3 billion). All of this bodes well for the next bio-based chemicals IPO, Myriant, which which announced its filing last week and is looking to raise $125 million. Myriant recently took in $60 million from PTT Chemicals and started constructing a plant in Louisiana, due to open in 2013 (see the January 13, 2011 LRMCJ and the January 27, 2011 LRMCJ – client registration required). Among the notable data in the filing is a memorandum with China National BlueStar Group for a “jointly-owned, 220-million-pound biosuccinic acid plant in Nanjing, China, and an agreement for the exclusive supply of biosuccinic acid to BlueStar.”
We’ve noted the importance of startups’ “social network” of partnerships (see the report “Green Materials’ Social Networks”), and clients might rightly compare the soaring valuations of bio-based fuels and chemicals with the increasingly frenzied valuations of actual social networking companies of LinkedIn (post-IPO valuation of $7.3 billion), Skype (bought by Microsoft for $8.5 billion), and Facebook (valued at $50 billion in its last round of fundraising). There is undeniable hype driving both fields today, and investors should take a cautious stance based on the companies’ partnerships, plants, and future plans. While bio-based chemical and fuel companies have long-term contracts and hard assets that social networking sites don’t, the real long-term driver of their success will be the difference between their feedstock and manufacturing costs and oil prices; the former are declining predictably with scale and the latter looks to rise for some time to come.
As we mentioned in an earlier post, Solazyme recently filed for an initial public offering (IPO) targeting $100 million. This wasn’t a surprise: Just as we had seen Amyris form multiple strong partnerships in the months leading up to its IPO (see the July 6, 2010 LRBJ*), Solazyme’s been revving up its own stable of new partnerships. It’s been forging partnerships in fuels and chemicals more intensely in recent months than it has throughout its lifetime. Since September, the company has inked deals with Bunge, Unilever, and Roquette (see the September 14, 2010 LRBJ* and the November 9, 2010 LRBJ*) on top of existing relationships with companies like Chevron, Honeywell, Abengoa, and Virgin (see the August 17, 2010 LRBJ*), and a joint development agreement with Dow announced last week.
Some highlights from the company’s S-1 include the company’s claims that it has already achieved “attractive margins when utilizing partner and contract manufacturing for the nutrition and skin and personal care markets,” and that it believes it can undercut fuels “when we commence production in larger-scale, built-for-purpose commercial manufacturing facilities utilizing sugarcane feedstock,” citing oils at a cost below $1,000 per metric ton, $3.44 per gallon, or $0.91 per liter.
Solazyme also notes that its Roquette JV will fund an approximately 50,000 metric-ton-per-year facility for nutrition products, which would be the first serious challenge to DSM-owned Martek (see the January 13, 2011 LRMCJ*). The company also mentioned a deal with Colombia’s national oil company (NOC), Ecopetrol, and a Brazilian letter of intent to form a JV that would add capacity of 400,000 metric tons of oil per year – nearly a thousandfold increase over the 455 metric tons the company produced in 2010.
But for all its strengths, Solazyme still lost $16 million last year on $39 million in revenue. By comparison, Amyris brought in $65 million in 2009, the year before its IPO.
While there are always reasons to be cautious when a loss-making company files for an IPO, one of the biggest challenges Solazyme will face is the public market’s mistaken association of its technology with older technologies like corn ethanol or dodgy algae developers. Solazyme is indeed an algae company. But it is wholly different from certain competitors, whose reliance on hype rather than commercially viable technologies poison the pond (pun intended) for legitimate players like Solazyme, Phycal, and Algenol (see the November 13, 2010 LRBJ*, the August 17, 2010 LRBJ*, and the March 10, 2009 LRBJ*). Gevo and Amyris represent better comparisons for Solazyme, and both had relatively successful IPOs (see the October 12, 2010 LRBJ* and the February 10, 2011 LRMCJ*).
* Client registration required.