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.
- 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.