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February 29, 2012

The Spray Foam Industry: Moving to Soy?

by Scott Schnelle

As an energy consultant for home retrofits, I often have customers and acquaintances ask my opinion regarding green technologies and energy efficient products. Undoubtedly, with the recent surge of the green movement and a shift toward becoming more environmentally sustainable, now is a great time to invest in these types of products.

One product that has been getting more and more attention lately is spray foam. The product itself has been around for many years, but it has recently risen in popularity for a couple of reasons. Here, I’ll discuss spray foam briefly and then touch on some tips for investing in this market.

First, spray foam is a more environmentally efficient method of insulation as opposed to traditional fiberglass installation. Spray foam is usually several times more expensive, depending on the size of the spray foam tanks being used. Bigger tanks are cheaper per ounce. That being said, the spray foam installation is often quicker and easier, and after factoring in labor costs, spray foam can compete with fiberglass in many applications solely on price.

The product itself is a thick, foaming substance that sprays out in a thin layer but quickly begins expanding on contact. After about 60 seconds, it ceases expanding and begins to harden.

Otto Bayer developed the product in the 1930s while he was trying to develop an alternative to the rubber tire. It was also used in World War II in the German U-boats as floatation material. In the ‘60s and ‘70s, the product began infiltrating into the residential market as home insulation. In recent years, home improvement television shows have spurred a new interest in spray foam. Most customers that come to us cite these types of programs as their point of familiarity with the product.

My company highly recommends this product. It’s great for large gaps and cracks that need to be air-sealed. It also acts as a great insulator and can be used to save time in some applications like rim joists.

Because the product has been around for many years, I would not consider spray foam an “up-and-coming” product. However, I believe it is gaining quite a bit of popularity because of the green movement and the push for greater energy efficiency. I also believe that we’ll see a drop in the price of this product as more people use it and it is manufactured on a larger scale.

Currently, my company uses a spray foam product from Dow Chemical Company (DOW), though we do not necessarily endorse any one company or brand. All major industry players carry spray foam products, including Johns Manville (a subsidiary of Berkshire-Hathaway, BRK-A and BRK-B), Owens Corning (OC) and Certainteed (a subsidiary of Saint-Gobain (SGO.PA). Another company worth exploring is BioBased Technologies, LLC.

Biobased is based in Arkansas and specializes in polyurethane foam insulation products. The notable aspect about BioBased Technologies is that they use a soy-based product, which is becoming a new trend within the spray foam movement. Other soy-based insulation companies include InsulSoy, Emega Biopolymers, Urethane Soy Systems and Green Bear Innovation. Though, it is safe to say that BioBased is the industry leader in the soy-based product.  I see soy-based spray foam growing in popularity faster than traditional spray foam.

Soy based foam could even become the industry standard in residential applications in the future, most likely because traditional spray foam products are are quite toxic. We have had a few cases where employees fail to use their masks properly and subsequently report pain in their lungs and a shortness of breath. It is extremely important to wear a protective body suit along with a breathing mask if ever applying spray foam.  The soy-based product is much safer for the installer and the homeowner as well. The level of volatile organic compounds (VOCs) are much lower with the soy product, and I think as awareness about the harmful effects of VOCs becomes more widespread, more people will be seeking a safer product. Our company is currently working with distributors in the area that carry soy-based spray foam.

Though Johns Manville has a line of spray foam products, they have yet to introduce a soy-based product. The same is true for Owens Corning and Certainteed. I believe that this is because soy-based spray foam is still relatively new. Soy-based spray foam has many advocates, but it also has been the subject of some criticism. For instance, many believe that the environmental benefits are overstated, as soy-based spray foam could open up its own set of environmental problems including pesticide use and the use of genetically-modified crops. However, many agree that these potential problems still outweigh the carbon footprint and toxins associated with traditional spray foam.

About the Author:  Scott Schnelle is an energy auditor with Energy Link, a home retrofit company based out of Columbia, Missouri. EnergyLink specializes in increasing energy efficiency in homes through comfort sealing, duct renovations, insulation, heating and air and more.

Editor's Note (4/9/12):

I was contacted by a representative of BioBased Technologies (a company highlighted in the article) who felt that it was misleading regarding the safety of their product.  Here is what she had to say:

[Scott Schelle] mentions spray foam insulations that incorporate soy, and we are one of the manufacturers of these products. The main environmental benefit is that our products seal and insulate a structure so that it uses less energy for heating and cooling, but several of our products also replace a portion of the petroleum polyols with bio-based polyols (in our case soy). We’ve been able to do this and still produce an insulation product that works. But it is still a spray foam insulation. That means it is still a two-component system, one part, the A side, is the same as traditional spray foam insulations. There are still worker safety measures that must be followed during and after installation, and occupants or other workers cannot be in the structure when the product is installed. These safety measures are the same for all spray foam insulation products, regardless of whether or not they incorporate bio-based content. Those are detailed at www.spraypolyurethane.org.
The bio-content in any product allows us to incorporate a rapidly renewable-based polyol for a portion of the petroleum-based polyols. This article makes it sound as if the bio-content impacts these safety measures, and it does not. We want everyone to understand that any spray foam insulation product has specific safety guidelines that must be followed.
Jennifer Wilson
Brand Manager | BioBased Technologies®

February 27, 2012

Historic Oil/Gas and Gas/Coal prices provide opportunity for fuel switching

Oil Gas and Coal Gas Ratio That sound you hear is the stampede of shale gas drillers away from dry gas plays. The irrational exuberance of shale gas drillers, chief amongst them Chesapeake's voluble Aubrey McLendon, is leading to an impressive destruction of capital. The long run marginal cost is significantly above the current spot price. With natural gas storage bursting at the seams, natural gas is reverting to its historical nuisance byproduct as drilling moves to liquid rich plays. While not sustainable in the long term, the present pricing situation presents opportuinities to displace coal generation and some oil in the transport sector.

Both the gas/coal and oil/gas ratios are at record levels:
oil gas coal gas ratio

Sources: Natural Gas (EIA); Oil (EIA); Coal (EIA)

Natural gas is now cheaper than coal on a per unit energy basis, and a btu of natural gas also yields more electricity than coal. Only half of coal plants have scrubbers, with older plants now facing the decision of whether to upgrade or to switch to natural gas. Central Appalachian coal at $60/ton is now selling below its mining cost of $65 -$75/ton, which means there is limited scope for coal prices to adjust downwards should fuel switching accelerate.

The oil gas ratio is at record levels also, which has translated to large differentials between CNG and gasoline/diesel (making for compelling payback period calculations):
average retail fuel price
Source: Alternative Fuels Data Center; Clean Energy Fuels

This presents an opportunity for Clean Energy Fuels if they can increase the volume of fuel they sell, as their margin per gallon of gasoline equivalent is currently in the range of 35c.

alternative fuel consumption
Source: Alternative Fuels Data Center; EIA Annual Energy Review 2010

In 2010 2.4% of US primary energy consumption in the transport sector came from natural. With the possibility of a strike on Iran, the oil/gas ratio could go significantly higher, which may result in a knee jerk narrowing of the CLNE oil/gas ratio spread as hands are wrung about $4/gallon gas.

clne oil gas ratio

Disclosure: None

February 25, 2012

Investing In Offshore Wind Power

Tom Konrad CFA

Offshore Wind in the United States

Last week, the long-embattled Cape Wind project got a break: Utility NStar(NST) agreed to buy 27.5% of the proposed offshore wind project's output.  Together with a previous power purchase agreement with National Grid (NGG), this gives Cape Wind a buyer for 77.5% of the project's total projected output.  Jim Gordon, Cape Wind's President speaking at Offshore Wind Power USA in Boston, called the NStar deal the "starting gun" for Cape Wind's financing round.

Yet speakers and attendees at Offshore Wind Power USA agreed that the Cape Wind story remains a cautionary tale for potential offshore wind developers, rather than a signal the the US offshore market is open for business.  While the Bureau of Ocean Energy Management has made progress in defining the leasing process, this process is still expected to take six to eight years to complete.  There remains a notable lack of coordination between and among the score federal and state agencies which have a say in the process.

Perhaps more importantly, the Production Tax Credit (PTC) and Investment Tax Credit (ITC) were not extended as part of the payroll tax cut extension.  The American Wind Energy Association is continuing to pursue the PTC extension through other legislation, but many observers at the Offshore Wind conference opined that these incentives will not see any action until Congress' lame duck session, after November election.  Few offshore wind developers are willing to invest to move their projects forward until they have some certainty about the PTC and ITC, so most offshore wind projects in the United States are likely to remain on hold at least until the end of the year.


Offshore wind in the US is far from the whole story.  The European Offshore Wind industry is entering its full commercial stage, with projects amounting to several gigawatts of capacity expected to be built over the next few years, making the global industry worthy of investors' attention.

European offshore wind is not without hiccups.  The European financial crisis has slowed (but not stopped) financing for wind farms, despite the fact that some farms require investments in the billion Euro range.  Another recent problem, which will be familiar to onshore wind developers, is grid interconnection.  Although Germany has a legal requirement that transmission operators connect new wind farms to the grid, this is an unfunded mandate, and the transmission companies do not have the funding or even enough of the right sort of cable to meet this obligation in a timely fashion.  Grid connections for two large wind farms were recently delayed by 12 and 15 months because of such problems, costing the developers hundreds of millions of euros in electricity sales.

Offshore Wind as an Investment

Such hiccups happen in new industries, and they can lead to buying opportunities for investors.  Often the best time to buy stock is after most people realize everything is not smooth sailing, but before all the problems are resolved.  This allows excess returns, as stocks which were initially priced as highly risky investments gain value as the industry learns to tackle such challenges.

 As the only renewable energy resource able to produce power on the scale of hundreds of gigawatts close to the world's most energy-hungry and population dense cities in Europe and America's Eastern seaboard, offshore wind will play a prominent role in the transition away from fossil fuels.  The only question in my mind is when this transition will occur.  My feeling is that this maturation of the offshore wind market (at least in Europe) will come within the next few years, leading to substantial rewards for investors with good timing.

Offshore Wind Stocks

Most onshore wind turbine manufacturers either already have turbines designed for offshore use, or are developing them.  The current market leaders are Siemens (SI) and Vestas (VWDRY.PK), but Vestas is rapidly losing ground to a host of new entrants, including Chinese players like Sinovel (601558.SS) who are largely responsible for the fierce price competition which led to the poor performance of wind power stocks in 2011. 

Given the inauspicious competitive environment among turbine manufacturers, I think better investments are to be found in other parts of the wind farm.  According to Walt Musial, the manager of offshore wind and ocean power systems at the National Renewable Energy Laboratory, the turbines only account for 32% of the cost of a wind farm, on average.  Fully 52% of the cost lies in other farm components, such as support structures, the undersea cables that collect power from the turbines and send it to shore, and the various power converters needed.

In short, many of the best offshore wind investments are the companies I call Strong Grid Stocks: the companies which help grid operators move electricity in bulk.  I'd include among these cable manufacturers such as Prysmian (PRYMF.PK) and General Cable (BGC) (recall the German wind farms with grid connections delayed in part because of lack of cable, a sign of scarcity which leads to pricing power.)  I'd also include the companies such as Siemens (SI), ABB Group (ABB), and Alstom (AOMFF.PK) who supply many aspects of the power conversion and interconnection hardware needed to tie wind farms to the grid.  One of the reasons Siemens is expected to maintain its position as the world's leading offshore turbine supplier for the next few years is the company's ability to supply many of the parts and services offshore wind farms require in addition to the turbines.  Alstom also seems to be following this strategy by introducing a broad range of new products (including a new 6MW direct drive turbine) for offshore wind.

Besides equipment manufacturers, offshore wind is likely to be a boon to shipbuilders with the capability of constructing the specialized ships needed to install large wind turbines and foundations, which are in short supply.  Harbors near promising wind farms will also have to be improved to accommodate the large ships needed to install them, which is likely to help dredging companies such as Great Lakes Dredge and Dock (GLDD).


Offshore wind is destined to be a significant part of the energy seascape in the coming decades, and the industry is just getting its sea legs at the beginning of what will prove to be a long voyage.  As of yet, I feel it it too early for most stock market investors to embark on this particular cruise, except perhaps on the sturdy platform of a large company with businesses in many other sectors, but which stands to benefit from the future growth of what promises to be a large and prominent renewable energy sector.


DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

February 22, 2012

Photovoltaics: 11 Trends to Watch in 2012

2011 Report Card plus my 2012 trends and predictions.

by Edgar Gunther

20112012 Contrary to my stated goal, the Photovoltaics: 8 Trends to Watch in 2011 review and 2012 photovoltaic (PV) trends and predictions post has once again extended well into February. As usual, I won’t be grading on a curve.

Photovoltaic Market Demand Growth
Last year, I said:

In 2011, I predict at least 35% global PV installation demand growth despite Feed-in Tariff (FiT) headwinds in Germany, Italy, France, the UK, Ontario, and the Czech Republic.

Grade: Pass

To be honest, I’ve been pessimistic since midyear 2011 and was even more so when there was limited demand elasticity impact from declining module prices on 3Q11 (third quarter of 2011) PV installations. Perhaps it was my turn for PV business “Doom and Gloom, an Overreaction”.

Let’s credit IHS iSuppli (21.2 GW, GigaWatt), IMS Research (22-24 GW), and Solarbuzz (23.6 GW) for sticking with their 2011 PV forecasts albeit with upward revisions although installations pushed out into the fourth quarter. Both IMS Research and iSuppli now believe global 2011 PV installations exceeded 26 GW.

In the second part of the prediction, I said:

I don’t see the US more than doubling again in 2011 so PV installations will be below 2 GW.

Grade: Pass

While the final numbers are not yet in, Greentech Media Research has projected about 1.7 to 1.8 GW of US PV installations in 2011 based on the U.S. Solar Market Insight Report collaboration with the Solar Energy Industries Association (SEIA).

In 2012, I predict at least 25% global PV installation demand growth. I am tempted by the under since the early year Feed-in Tariff (FiT) headwinds seem stronger than ever with serious talk of a 1 GW cap in Germany and PV installations in Italy expected to decline sharply from 2011. Has the German PV market peaked with the estimated 7.5 GW of installations in 2011?

Per “Solar CEOs See Boom in China Will Ease Glut in 2012: Energy” by Alex Morales and Jacqueline Simmons for Bloomberg, Trina Solar Limited (NYSE:TSL) CEO Jifan Gao expects 5 GW to be installed in China and “global demand of 30 gigawatts to 35 gigawatts” in 2012.

For the US, I’ll prognosticate at least 75% PV installation demand growth buoyed by modules purchased under the expiring 1603 Treasury Grant safe harbor, utility scale solar projects, and residential growth.

1603 Treasury Grant and Tax Equity
As far as I can tell, the
Payroll tax cut extension deal on the table does not include the extension of the 1603 Treasury Grant Program (TGP). Outside of the budget, this may be the last opportunity to revive the program until after the US 2012 Presidential Election.

The scramble for tax equity already began last year when “Solar Industry Momentum at Risk” by Arno Harris at the Clean Energy Future Blog marked the point when new solar project development for 2012 and beyond was impacted by the 1603 TGP expiring yearend 2011.

US solar trade claim against China
Solar Trade War: It Just Doesn’t Matter” by Eric Wesoff at Greentech Media argues the impact of tariffs, punitive or otherwise, on Chinese solar manufacturers will be limited because of a shift to regionalized manufacturing of “trade-compliant” cells and modules.

For political reasons, I’ll go further to argue the imposed tariffs will not be punitive but amount to a slap on the wrist. Indications are China will respond with equivalent retaliation against polysilicon imports from the United States. The message is abundantly clear from a headline just today at DigiTimes: “Four China polysilicon firms demand government start anti-dumping and anti-subsidy investigation against US firms, according to China media”.

I think the Harmonized Tariff System of the United States (HTSUS) schedule for the complaint subheadings will impose duties in a range from 2.5% to 10% on cells and modules manufactured in China and imported to the US. The duties will be tiered; cells will have a lower tariff than modules to encourage NAFTA (North American Free Trade Agreement) based module assembly.

Why these duties? Back in 2009, Trina Solar received an unfavorable ruling classifying solar modules as DC generators because of the bypass diodes and was required to pay a 2.5% duty. While the tariff ruling was reported by the New York Times in “Solar Panel Tariff May Further Strain U.S.-China Trade”, the revocation on technical grounds [DOC] a year later was not publicized. The Solar Energy Industries Association (SEIA) lobbied for the reversal. I believe the incident provides a useful benchmark for reasonable tariffs on Chinese solar cell and module imports to the US that will be reflexively imposed on US polysilicon imports to China in response.

I don’t know why, but CASM versus CASE reminds me of Spy vs. Spy.

Polysilicon and solar grade silicon outlook
Regarding polysilicon, I said:

I’ll hazard to guess polysilicon spot prices will remain below $100 per kg in 2011 if solar companies plan to make profitable PV modules for declining FiT end markets. Long term polysilicon supply contracts are the only way to be competitive in the PV industry if you are not vertically integrated.

Grade: Fail

Well, my price prediction wasn’t bold, but my second statement has been disproven by contract cancellations and prepayment forfeitures in favor of polysilicon and wafer supply from the spot market.

The Photovoltaic Polysilicon Conundrum did resolve itself in the 4Q11 (fourth quarter of 2011) with polysilicon spot prices crashing below $35 per kg (kilogram) to $24 per kg with some reports from China as low as $21 per kg.

On the 2012 polysilicon outlook, Mr. Johannes Bernreuter, head of Bernreuter Research, said:

Even if only the four or five largest polysilicon manufacturers in China survive, the global production volume in 2012 could still be around 300,000 MT. So, there is continuing pressure to lower utilization rates or shut down production since 250,000 MT of supply should be sufficient even in an optimistic scenario. If the photovoltaics market should actually rise to 35 GW this year – the upper end of Trina’s forecast – I would expect the total polysilicon demand (including the consumption of the semiconductor industry) at approx. 280,000 MT.

I expect polysilicon spot prices will remain below $38 per kg in 2012 and may briefly dip below $20 per kg at some point later in the year as the largest polysilicon supply versus demand correction since the Internet bubble plays out.

Thin Film Photovoltaics
For thin film PV, I said:

In 2011, I eschew the CdTe (Cadmium Telluride) followers and assert MiaSolé and Solar Frontier are the thin film contenders to watch for signs of Second Solar emergence. I view Stion as a 2012 story.

Grade: Pass

According to GTM Research in “Who is the World Leader in CIGS Solar Shipments?” by Eric Wesoff, Solar Frontier emerged as the leading challenger to First Solar producing 577 MW (MegaWatts) of CIS (Copper Indium Selenium) thin film PV modules in 2011. Solar Frontier also marked 2011 with numerous installations and inked a 150 MW deal with enXco, Inc. to begin 2012. MiaSolé ranked third on the list with 60 MW of thin film PV module production although they are now seeking a partner.

At PHOTON’s 4th Thin Film Conference, Stion said the first 100 MW line is ramping to scale with commercial shipments starting in 1Q12.

Beyond the Solar Frontier, I’ll be watching Stion and strategic partner TSMC Solar Limited, a subsidiary of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), along with MiaSolé and the Solibro division of Q-Cells SE (FRA:QCE, QCLSF.PK) for a third thin film contender.

CSP (Concentrating Solar Power)
On the CSP front, I said:

In 2011, I predict another major southwestern US CSP project will fail because of legal or financing challenges or both.

Grade: Pass

Two days later, “Tessera / Stirling Sell Their Other Major Dish Project to a PV Developer” was the one of a number of CSP projects failing or switching to PV.

A review of the California Energy Commission list of Large Solar Energy Projects reveals glaring errors in the CPUC (California Public Utilities Commission) Status of RPS Projects (RPS_Project_Status_Table_2012_Feb_Final) spreadsheet. For example, the entry for the eSolar, Inc.Gaskell SunTower Concentrating Solar Power (CSP) project is listed as “Approved in Development” and “On Schedule”. Unable to recall the project being financed, I asked eSolar about the status, and eSolar was kind enough to respond:

eSolar sold the Gaskell land assets and is not aware of any development plans.

HCPV (High Concentration PhotoVoltaics)
In 2011, I said:

Instead of swinging for a CPV forecast strikeout, I’ll predict 2011 will be a record year for CPV start-up company failures as their funding runs out and investors lose patience with building better mousetraps while PV industry leaders like SunPower Corporation (NASDAQ:SPWR) and maybe Trina Solar Limited (NYSE:TSL) decide to enter the medium and low Concentration PV market segments.

Grade: Fail

I don’t think Soliant suspending operations and being acquired by EMCORE Corporation (NASDAQ:EMKR) quite counts as a record year for failures. SunPower did launch the Concentrated Photovoltaic (CPV) C7 Tracker at SPI 2011.

Solar Junction Wins $19.2M for CPV” by Eric Wesoff at Greentech Media said:

In 2011, two of the leaders in CPV, Amonix and SolFocus, commissioned 15 megawatts and 5 megawatts, respectively.

Amonix, Inc. completed the largest North American HCPV installation at 5 MW (MegaWatt) in Hatch, New Mexico USA, after an earlier 2 MW installation at the University of Arizona’s Solar Zone in Tucson, Arizona USA.

Amonix is supplying CPV systems for a 30 MWac (MegaWatt alternating current) project developed by Cogentrix Energy for Public Service Company of Colorado (PSCo), a subsidiary of Xcel Energy Inc. (NYSE:XEL) in Alamosa, Colorado USA. The project is supposed to be completed by 2Q12.

After the tragic loss of CEO Brian Robertson, Amonix faces a challenging 2012 PV market and the politically charged cleantech stimulus debate with headlines like “Some 200 laid off at North Las Vegas Amonix solar plant” by Aida Ahmed for the Las Vegas Sun. I know Amonix was developing the next generation 8700 system and saw the 8700 MegaModules installed on a test array at the Las Vegas manufacturing facility during a factory tour in November 2011. I had taken up Mr. Robertson’s open invitation to visit the facility when I knew my journeys would take me through Las Vegas. So I accept the retooling explanation and believe Amonix has already manufactured all the CPV systems for the Alamosa project.

2011 proved to be a banner year for Soitec SA (EPA:SOI) efforts in HCPV. Soitec has approved PPAs for 155 MW of CPV for San Diego Gas & Electric (SDG&E), a subsidiary of Sempra Energy (NYSE:SRE), and a 150 MW Tenaska CPV project PPA for SDG&E was also approved by the CPUC. Soitec crowned the year celebrating the purchase of its North American manufacturing facility in San Diego, California USA.

Venture capital investments continued to flow to CPV companies. GreenVolts and Semprius investors included ABB Technology Ventures and Siemens Venture Capital respectively, while Morgan Solar raised funds in part from Enbridge Inc. (NYSE:ENB).

By the way, the GreenVolts Byron project is listed in the CPUC Status of RPS Projects as “Approved in Development” and “Delayed”. As far as I know, the project has been completed.

I predict at least 100 MWp (MegaWatt-peak) of HCPV will be installed in 2012.


On Texas Tea of the petroleum variety, I said:

I do think an oil price spike is possible, but I predict oil will stay below $135 per barrel through 2011 barring a force majeure event.

Grade: Pass

2011 per barrel oil prices ranged from $85.66 to 113.08 per barrel across domestic and imported supply according to U.S. Energy Information Administration (EIA) data. The Roland Berger Strategy Consultants analysis indicates oil prices will fall between $97 and $120 per barrel based on the most reliable forecasts from oil exporters Mexico, Saudi Arabia, and Russia.

Once again I’ll predict oil will stay below $135 per barrel through 2012 barring a force majeure event including tensions with Iran over the country’s nuclear program. I don’t believe rumblings of oil prices dipping to $85 per barrel or even $70 per barrel unless the global economy tanks into recession.

PV Industry Shakeout

With increasing PV industry scale, supply, and price competition in 2011, I expect the number of failing PV start-ups and established manufacturers to accelerate. I predict Solyndra will manage to survive 2011.

Grade: Fail

A number of PV and solar firms failed, filed for bankruptcy, or were taken under in 2011. If Solyndra had just managed to hang on for another four months, my prediction would have come true. I wrote a number of posts on Solyndra before the implosion researching product and systems costs and asking Is the Future of Solyndra Flat?

Forget Solyndra, I think Solar Millennium filing for bankruptcy restructuring is the biggest solar shakeout story of 2011 and will be an ongoing saga.

As the PV industry shakeout intensifies in 2012, even more companies across the value chain will fail than in 2011. I predict at least one of the CIS/CIGS start-up companies listed in the PV Blog Poll will fail in 2012.

PV IPOs (Initial Public Offerings)
I said:

Rather than doubling down Las Vegas style, I’ll switch gears to product manufacturers and pick MiaSolé to IPO in 2011 (please see “MiaSolé Raising $100M and Preparing for 2011 Solar IPO”) and assume any legal issues will be resolved (“MiaSolé Fingered in Patent Suit”).

Grade: Fail

The IPO drought continued in 2011. While MiaSolé made steady progress improving module efficiency, the company switched CEOs late last year and began 2012 by announcing a 10% workforce reduction.

I don’t believe a western PV module manufacturer will IPO in 2012. Outright acquisitions or majority stake strategic investors are far more likely possibilities.

My 2012 “Out There” Prediction
I didn’t go “Out There” in 2011 so there is no grade.

In a multiyear “Out There”, I predict the General Electric Company (NYSE:GE) will either divest it’s majority investment in thin film PV manufacturer PrimeStar Solar or move production offshore by yearend 2014 when they come to their offshoring, portfolio theory, photovoltaic senses.

Please vote in the sidebar PV Poll: Which CIS/CIGS start-up companies will fail next (may choose up to 3)?

Sorry for the over promotion of this experiment in crowdsourcing. I’d like the RSS and email readers to vote.

DISCLOSURE: No position in any of the stocks mentioned.

Edgar Gunther is a photovoltaic enthusiast who researches and pens the GUNTHER Portfolio under the Photovoltaic Blogger moniker. The GUNTHER Portfolio is an eclectic collection of niche Blog posts about solar photovoltaic technologies, companies, industry developments, and occasional energy politics sprinkled with insight, analysis, and irreverent commentary.

February 21, 2012

The Rocky Road to Biofuels Heaven

Codexis chief out, Ceres IPO delayed

Jim Lane

Ceres delays IPO (again); Codexis CEO and enzyme guru Alan Shaw resigns.

In California, visionary industry leader Alan Shaw resigned as CEO of Codexis (CDXS) and the Ceres IPO, scheduled for last Thursday, did not occur and has yet to be rescheduled as of press time. The Ceres IPO remains on the NASDAQ calendar.

At the same time, Ceres said that current shareholders had indicated that they would purchase up to 1 million shares in the company’s upcoming IPO, and the company warned that severe drought conditions in south-central Brazil will adversely affect sweet sorghum crop yields.

The changes at Codexis and delayed IPO at Ceres are indications that life in the public markets remains a rough one for early-stage industrial biotech companies. The changes at Codexis come after the company’s shares fell 65% off their initial IPO price of $13.00 in 2010, despite the company’s relatively steady performance in its fuels business and a fork into the renewable chemicals business, including a landmark deal with Chemtex.

At Ceres: confidence from insiders, drought in Brazil

The company reports: “We are receiving reports that while some of the 2011/2012 sweet sorghum crops being produced from our seeds are growing quite well, others are suffering from the adverse weather conditions. As a result, we expect that this drought will likely lead to overall reduced yields for the 2011/2012 sweet sorghum crops and may adversely affect the demand for our seeds for the 2012/13 growing season.

Ceres: still a good IPO deal?

IPO Candy writes in Seeking Alpha: “If Ceres succeed, the newly discounted share offering of $16 to $17 might be a bargain…The long-term financial model of the company aims at operating margins of 47% to 63%. To put these in context the gross margins at Monsanto are 51%. If one believes these margins to be achievable and applied to a $400M revenue level in 2016 the company supports a per-share intrinsic value of $65.”

Changing of the Guard at Codexis

Over at Codexis, the company reported that Peter Strumph, formerly Senior Vice President and Business Head of Pharmaceuticals, was appointed as the company’s interim Chief Executive Officer, after CEO Alan Shaw resigned “to pursue other interests”, though the company said that Shaw will continue to serve as a special advisor to the Board of Directors.

Shaw served as President of Codexis since its inception and Chief Executive Officer since 2002, and led the company development and 2010 IPO, which was the first in the current wave of industrial biotech initial public offerings.

As interim CEO, Peter Strumph brings more than twenty years experience in senior manufacturing and operations management in the biopharmaceutical industry, including executive leadership positions for ten years at CV Therapeutics where he managed their operational, development and commercial activities.  He joined the company in 2010 and oversaw a 49% annual increase in pharmaceutical product sales in 2011.

Rumors that the board of directors were getting antsy about the company’s dismal share performance began to circulate last fall, and the company set out to beef up its management team with, among other appointments, the tapping of longtime Coskata executive Wes Bolsen as the company’s CMO.

In recent weeks, CFO Bob Lawson announced that he would leave the company as soon as the annual report filing season was concluded, in order to join an earlier-stage Silicon Valley software firm. On Friday, the news broke that Shaw would leave the company.

The fatal blow?

Slow progress on cellulosic biofuels was usually cited as a problem with visibility on profits at Codexis. As Shaw mused late last year to the Digest, “We’re late to our own party.”

Investors and board directors may well have been ultimately dismayed not only by the lack of visibility with Shell, or progress in renewable chemicals, but by the collapse of the company’s efforts to develop an enzyme-based carbon capture business at coal-fired power plants.

After signing a 2010 collaboration agreement with Alstrom, and investing in CO2 Solution, Codexis announced quietly in its annual report that its carbon-capture ventures were being wound down.  The timing was a surprise. Alstrom initially signed a 16-month research deal with Codexis and CO2 Solution in December 2010, but would the venture down unexpectedly less than 12 months into the announced R&D effort. It was symptomatic of the company’s struggles to find near-term, lucrative markets for its transformational technologies.

Where will Codexis go?

The company’s prospects in the fursl area are limited to and by its relationship with Shell and Raizen, the Shell-Cosan JV in which Shell deposited its Codexis shares. Shell has not yet fully declared its long-term biofuels strategy, although it has focused its renewable strategy broadly around biofuels. Delays in its cellulosic biofuels deployment – operating a pilot plant through Iogen since the early 2000s but not yet committed to a commercial-scale deployment, have severely limited visibility on Codexis’ future.

In biofuels, the company expects to participate with its CodeXyme cellulase enzymes in a pilot scale cellulosic ethanol plant in 2013 at a Raizen plant in Brazil, with commercial-scale operations scheduled for no sooner than 2015. In renewable chemicals, the company has said that it expects to commence pilot scale production of its new line of CodeXol detergent alcohols this year, with demonstration scale production in 2013 and commercial-scale deployment in 2014. The timelines and upside, apparently, proved too slow for Codexis investors as they unneeded management at the firm.

The Bottom Line

Worth remembering that the road to biofuels heaven is paved with stones that impatient investors occasionally use to pelt industry CEOs into oblivion.

Woe betide the early-stage industrial biotech company that regards the public markets as a Get Out of Jail Free card, suitable for adding capitalization to companies, replenishing the  depleted funds of a company’s venture capital backers, and offering a risk-free exit for trapped insiders.

What is clear from the performance of industrial biotech company sin the IPO after market – where it is selling shares, or pricing its stock, not according to the deep understanding of early-stage investors or even the roadshow-level understanding achieved with institutional investors through the IPO. In the aftermarket, the companies have struggled to find investors among more retail-oriented value investors, who value visibility and cash flow above all other considerations, and sellers continue to be in decent supply even as buyers have proven elusive, driving down prices.

In the case of Ceres, the market hasn’t even waited for the IPO post-lockup period to show a certain level of uneasiness with the commercial timelines of industrial biotech. Based on the company dropping its expected IPO price from a midpoint of $22 to a midpoint of $16.50, and enduring two missed pricing dates, it would be fair to speculate that the company is having one heck of a time finding buyers for the 4 million shares that will be sold for around $66 million to new investors.

Only last year, Solazyme (SZYM) sold some 14 million shares into the same market at roughly the same price, more than tripling the haul that Ceres is looking at. Now, Solazyme has been the #1 ranked company in the 50 Hottest Companies in Bioenergy two of the past three years, but Ceres has been solidly among the top echelon of that poll for several years. and the company has largely delivered on the development timelines it has shared with the market.

Public markets supply capital, they do not supply patience, and the long-term commercialization timelines for companies such as Ceres and Codexis are proving to be deeply-discounted by retail investors for the market, policy and technology risk that long timelines impose on otherwise fine companies. In short, companies need to provide nearer-term cash flow stories in order to support the valuations they seek.

Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe  here.

February 18, 2012

A Harsh Winter for Sinovel and China's Wind Industry

By Lou Schwartz

The Year of the Dragon has gotten off to an inauspicious start for the Chinese wind industry and in particular, Sinovel Wind Group Co. (Shanghai:601558, a.k.a. Sinovel), China's leading wind turbine manufacturer.

In early February, with the official end to the “Spring Festival” only days away, Sinovel reported decidedly chilly preliminary estimates of its FY2011 performance, confirming that Sinovel and indeed the whole Chinese wind industry had, in the words of one Chinese wind industry insider “entered a winter that would be hard to endure”.

Sinovel estimated that its net income for FY2011 declined by more than 50% compared with 2010 profits of 2.856 billion Yuan (~$450 million USD). The decline in profitability of Sinovel in 2011 was attributed to several factors: intense competition in the Chinese wind turbine market, delays in the development of certain wind farm projects and a series of mishaps that adversely affected the grid, which were caused by turbine defects evident during low voltage ride through (LVRT) events.

According to an official with Longyuan Power, the detection of turbine defects, which brought about the low voltage ride through issues has resulted in new rules, which, among other things, require that all wind turbines undergoing upgrades to address this problem obtain the approval of the State Grid Electric Power Research Institute prior to being put back in service. These inspections, being time consuming, have put further pressure on turbine manufacturers. This is an issue that certainly impacts Sinovel because of its large base of installed turbines, and particularly because some of the most prominent incidents occurred at the Gansu Province, Jiuquan wind farm, where Sinovel’s turbines predominate.

In addition to the fiscal and technical challenges Sinovel faces this year, the company also is confronting legal claims of more than $1.2 billion USD and a worldwide public relations blowback as a consequence of the souring of its relationship with AMSC (AMSC), formerly American Superconductor Corporation; indeed Sinovel has become a poster child for U.S. government complaints about Chinese trade practices in discussions with Xi Jinping, China’s incoming leader, who is visiting the U.S. this week.

As previously reported, AMSC has filed for arbitration and also has filed three civil lawsuits in Chinese courts against Sinovel and companies related to Sinovel, alleging breach of contract and intellectual property theft. And while the initial impression is that the Chinese legal system has settled into its role of protecting Sinovel through delay and favoritism, the existence of the litigation has had a decidedly chilling effect on Sinovel’s ambitions to become a serious player worldwide. This was in evidence in November 2011 when Mainstream Renewable Power put on hold its deal for Sinovel to supply it with up to 1 GW of wind turbines.

Sinovel has ridden the wave of rapid wind energy development in China to become the largest producer of wind turbines in China and as a consequence of China’s rapid growth in wind power production, the world’s second largest turbine manufacturer. In 2010 4386 MW worth of Sinovel turbines were installed; in all, China installed a total of 18,928 MW in 2010, which gave Sinovel a 23% market share. The early estimates are that China’s installed wind capacity in 2011 grew by 20,666 MW, but of that total, Sinovel’s installations decreased to 3700 MW and its market share declined to 18%, leading one to speculate that 2010 may have been Sinovel’s high water mark.

(Total installations in 2009 in China were 13,750 MW and Sinovel’s share was 3510 MW or 25.5%; in 2008 wind turbine installations in China totaled 6246 MW and Sinovel’s share was 1403 MW or 22.5%.  In 2011 Goldwind Science and Technology’s wind turbine installations totaled 3600MW; in third place was State Power with 3000MW of installations; and in fourth place was Guangdong Province’s Mingyang Wind Power (MY) with 1500MW in installations. The precipitous decline in installations from foreign turbine manufacturers continued in 2011 with the Vestas (VWDRY.PK) being number one among foreign manufacturers with only 660MW, followed by GE (GE) with 400MW.).

Because Sinovel’s rapid growth has been accompanied by a decline in market share amid intense competition, and shares of Sinovel now are selling for 50% of the price they fetched when the dispute with AMSC became public last year, the company enters this year under increased financial pressure; this financial pressure in turn has necessitated Sinovel to return to financial markets to, among other things, supplement its working capital, despite having gone public in a blockbuster IPO in January 2011 (raising the equivalent of nearly $1.5 billion USD on the Shanghai Stock Exchange).

So how does China’s wind industry plan to pass this harsh winter? Of course, simply suffering is a time-honored tradition. One of the most evocative phrases used by the Chinese is “Chi Ku” (to “eat bitterness”) and apparently the Chinese wind industry already is eating a large amount of bitterness.

Next there is hope that the Chinese government will step up the pace of wind turbine installations and on this point there was encouraging news this week when the Chinese government announced the start of the second Offshore Wind Power RFP process for an anticipated total of 1500-2000 MW of installed capacity. At the same time, the State Energy Administration announced its goal of supporting the development of a total of 30,000 MW of offshore wind capacity by 2020; to put this ambitious goal into perspective, presently China has just 1380 MW of offshore wind power installed. Some are estimating that the offshore wind market alone will be worth 100 billion Yuan (~$16 billion USD) through 2020.  

Because we have seen this movie played out countless times in a wide array of Chinese industries, we know that the central issue for the Chinese wind industry is how to avoid the cutthroat price competition that juices the sector as it debilitates the industry’s players. There has been a remarkable decline in wind turbine prices over the last four to five years: in 2008 the price of a 1.5-MW wind turbine in China was ~$1.48million USD; by late 2011 the price of a 1.5-MW wind turbine had dropped almost in half to ~$762,000 USD!

The Chinese accomplished this feat of halving the price of a MW of wind power, in large part by rapidly developing an indigenous manufacturing industry that has been able to produce turbines and their components at substantially lower prices. If for nothing else, the Chinese are well known for their penchant to incessantly pressure their suppliers to sell at increasingly uneconomic prices. But here is the interesting point: one of the few categories of suppliers to the wind turbine industry that didn’t make price concessions over the past several years were foreign companies with technology that the Chinese needed but hadn’t been able to replicate indigenously. The prime example of this, of course, is the electrical components and control systems produced by AMSC. A simple “back of the envelope” calculation displays in high relief this conundrum: while the price of Chinese wind turbines and most of their components were declining steadily over the past four to five years, the cost of electrical and control systems supplied by AMSC under its 2008 contract with Sinovel remained constant, so that what accounted for (approximately) 9% of the total cost of a Sinovel wind turbine in 2008, grew to be a 12% item by late 2011!

This dynamic clearly gave Sinovel the incentive (as claimed by AMSC) to steal AMSC’s intellectual property or (as claimed by Sinovel) to develop its own indigenous capability in electrical components and control systems so that Sinovel would be able to reduce the cost of its turbines in this hyper-competitive environment in China today and hopefully halt the slide in its market share.

One somewhat perplexing aspect of this tale is that Sinovel’s relationship with its key technology supplier has become rocky just when the technological requirements that may give Sinovel a competitive edge going forward have grown. With an increasing number of 6-MW turbines, the expected rapid growth of offshore wind farms, and myriad grid connection issues, one would expect that Sinovel might be able to claw its way back up the market share ladder with a superior command of technology. And this is what makes the falling apart of the Sinovel/AMSC relationship mystifying.

Did Sinovel’s chairman, Han Junliang, just spectacularly miscalculate or did he know or believe that Sinovel could keep up with the growing technological requirements that might set Sinovel apart, with or without AMSC? In the glow of its $1.4 billion USD IPO in early 2011, did Sinovel feel at liberty to make off with AMSC’s crown jewels hoping that it could innovate beyond the AMSC technology platform or perhaps hoping that the cost benefits would be enough to keep Sinovel in the game long enough for it to figure out what to do next? Did Han Junliang underestimate how rising competition would affect Sinovel’s profits or is it precisely because he saw that those profits were rapidly shrinking that he felt compelled to lower Sinovel’s costs at the expense of AMSC?

In any event, it remains to be seen how Sinovel will weather the harsh winter that has now beset China’s wind power equipment manufacturing industry. And it will be fascinating to see whether the much anticipated innovation revolution that many insist is imminent in China will arrive in time to benefit Sinovel. In the interim, the best approach for Sinovel may be to settle with AMSC and allow the partnership to resume based on a new paradigm that fairly compensates foreign technology, which in turn allows for a gradually declining return per unit in recognition of the changing economics of the wind turbine industry. Stay tuned.

Lou Schwartz is a lawyer and China specialist who focuses his work on the energy and metals sectors in the People's Republic of China. Through China Strategies, LLC, Lou provides clients research and analysis, due diligence, merger and acquisition, private equity investment and other support for trade and investment in China's burgeoning energy and metals industries. He can be reached at lou@chinastrategiesllc.com.  This article first appeared on Renewable Energy World.

February 17, 2012

BlueFire and the race for low-cost sugars

Jim Lane

BlueFire Renewables (BFRE.OB) low-cost sugars subsidiary, SucreSource, announces a major project in Korea backed by oil refiner GS Caltex.
Who else is gaining traction in the race to provide low-cost sugars? A generation of magic bugs — who turn sugars into renewable fuels, chemicals, flavors, fragrances and more — await them.

In California, SucreSource, a wholly owned subsidiary of BlueFire Renewables (BFRE.OB), has signed agreements with GS Caltex, a Korean petroleum company and oil refiner jointly owned by Korean conglomerate GS Group, and Chevron, to build a cellulosic sugar plant in Korea. GS Caltex provides over 50 percent of Korea’s oil needs.

“This agreement validates SucreSource’s business model of selling its cellulosic sugars and, as in this case, sugar producing process to synergistic back end proprietary chemical companies to produce high value products,” said Arnold Klann President & CEO. “As a major petroleum producer, GS Caltex is a perfect partner with which to initiate the business build out. Korea, like the U.S., China, and several other nations, is moving away from food-based sugars to produce high-end products such as biobutanol, ethanol, ethyl levulinate and various other chemicals.  SucreSource is a first mover in this space and has the proven technology to meet this increasing cellulosic sugar demand head-on. This facility will be the first of many to be built.”

The facility will process 2 tons of construction and demolition debris per day into cellulosic sugar, which will be converted into a high value chemical by GS Caltex’s proprietary technology. The facility will be owned and operated by GS Caltex with SucreSource providing the process design package, equipment procurement and technical and engineering support. Once the initial facility is validated, SucreSource will work with GS Caltex to develop and build larger commercial scale facilities in Korea and throughout the world.

“Both parties agree that this is the first step towards commercial deployment of cellulosic chemicals in South Korea and, potentially, their trading partners,” said John Cuzens, CTO for BlueFire Renewables.

SucreSource and GS Caltex have already commenced work on the project. SucreSource is actively pursuing other partnership opportunities and hopes to announce more relationships soon.

More about BlueFire

BlueFire Renewables, Inc. was established to deploy a commercially ready, patented and proven Concentrated Acid Hydrolysis Technology Process for the profitable conversion of cellulosic waste materials (“Green Waste”) to renewable fuel sources, including Cellulosic Ethanol, Biodiesel, BioJet Fuel, and Drop-in Directs.  BlueFire received an increase to its Grant totaling $88 million under the American Recovery and Reinvestment Act in December of 2009.  BlueFire’s biorefineries will be located near markets with high demand for ethanol and will use locally available biomass.

Advanced Biofuels as a system of systems

We see the announcement at BlueFire and GS Caltex as another sign that the industry is heading towards what we described in September as The Third Way.

At the time we wrote:

“Taking fungible, already aggregated crops and using them for industrial biotech may be an efficient way for a company to get into business, but it is fatally flawed for standing up an entire, at-scale industry. Just ask any US ethanol or biodiesel producer how much they loved 2008-09. Or ask “why there is an ethanol shortage in Brazil, and India?”

It is the problem of borrowing Dad’s carwax or Mom’s kitchen to start a kid-owned business in car-washing or selling lemonade by the roadside, and trying to take it to scale. Scale ruins relationships, when a feedstock is shared. It’s a variation on the Tragedy of the Commons.

Well, the Third Way is about providing alternatives through a systematic approach. Companies like Amyris (AMRS), Solazyme (SZYM) and LS9 are moving towards the Third as they begin to develop relationships  with companies that are developing dedicated, low-cost, at-scale sources of sugars.

Low Cost Sugars: The Contenders

There are companies like Proterro, Comet Biorefining, HCL Cleantech, Codexis (CDXS), and Renmatix that are avowedly all about low-cost sugars.

Then, there companies like Edeniq, BlueFire or KL Energy that can go all the way to cellulosic ethanol, but also have a particularly strong technology in pre-treatment and saccharification – that it, producing a cellulosic sugar.

The road to low-cost sugars can be divided into four pathways.

The Acid path

HCL Cleantech

The Bottom Line: Closest ties to date are with Coskata, LS9. Likes wood. New CEO Philippe Lavielle is expected to take the company through a major expansion into the US this year.

The latest: In July, the US Department of Energy awarded $9 million dollars to LS9 and its partner HCL Cleantech to improve and demonstrate an integrated process to convert biomass feedstocks into fermentable sugars and then into diesel and other biofuel and biochemical products. As part of the DOE grant, the two companies are combining their proprietary technologies to produce drop-in advanced biofuels and other valuable bio-based chemicals mainly from wood waste and other agriculture waste.

More on HCL here.


The Bottom Line: Closest ties are with Elkem. Preferred feedstocks are woods and agricultural wastes.

The latest: In October 2010, Weyland commenced production of cellulosic ethanol at its pilot plant in Bergen. The plant, which was formally opened by State Secretary Per Rune Henriksen, has a 200,000 liter (53,000 gallon) annual capacity.
The Weyland process is based on concentrated acid hydrolysis with the company’s core technology being a method (patent pending) for recovering acid consumed in the process. Weyland’s can utilize a variety of different feedstocks, such as wood and agricultural waste, and wood waste from demolition

More on Weyland here.

The Enzyme path

Codexis (CDXS)

The Bottom Line: Closest ties to date are with Raizen (Shell-Cosan) and Chemtex. Likes bagasse. Expected to go through a major expansion in chemicals this year and in 2013, through the Chemtex partnership. Key tie-in with Dyadic (DYAI.PK) gives them massive manufacturing capabilities – Dyadic is also tied in with Abengoa (ABGOY.PK). Fuels await strategic directions from Shell.

The Latest: In California, Codexis announced a 16% year-over-year gain in 2011 revenues to $123.9 million,  and a loss of $16.6 million, or $0.46 per share, compared to a loss of $8.5 million in 2010. On a non-GAAP basis, Adjusted EBITDA was $4.3 million for fiscal 2011 compared to $9.9 million for fiscal 2010. Codexis management the drag on earnings represented investment by the company in developing its renewable chemicals business following purchase of technology rights from Maxygen. For 2012, Codexis forecasts revenues in line with or exceeding 2011 results, and a positive EBITDA.

Two key product lines were launched in 2011, CodeXyme cellulase enzymes and CodeXol detergent alcohols. CodeXol is going through the scale-up from pilot and is not expected to reach commercial scale before 2015. CodeXyme is based around unlocking low-cost sugars from, initially, sugarcane bagasse, on the fuels side through its partnership with Raizen, the Shell-Cosan JV, and via an expanded set of feedstocks and focused on renewable chemicals through a partnership with Chemtex – the latter included a projected 25 million gallon facility based in the US.  CEO Alan Shaw commented that he expects the company can generate as much as $1 billion in global revenue by 2020 through the commercialization of its enzyme platform.

More on Codexis here.


The latest: This month, Edeniq advised that it is expanding as it plans to launch its new pilot cellulosic ethanol plant after receiving a $25 million grant from the Department of Energy.  The plant will produce up to 50,000 gallons/ year and will employ up to sixty people. Feedstocks for the plant will include wood, switchgrass, and corn stover.

Also, the company acquired SmartFlow technology, a Georgia firm, on undisclosed terms.

KL Energy

The Bottom Line: Closest ties are with Petrobras. Preferred feedstocks are corn stover and sugarcane bagasse.

The latest: Last year, KL Energy started testing its cellulosic ethanol production process using Brazilian sugarcane bagasse. Modifications have been made to allow for the physical and chemical differences between bagasse and woody biomass and, most importantly, a new fermentation process has been designed. Ultimately, the plant will switch to a clear mash fermentation process that is used in Brazilian sugarcane mills.

KL recently signed a development agreement with state oil giant Petrobras to bring its technology to Brazil.

More on KL here.

Comet Biorefining

The Bottom line: Closest historic ties are with Mascoma, via Comet CEO Andrew Richard.

The latest: In Ontario, Comet Biorefining announced that it has signed an exclusive agreement with Fulton Engineered Specialities Inc., a leading low cost manufacturer of modular process equipment and systems. Under the agreement, Fulton will provide turn‐key manufacture of Comet’s modular cellulosic sugar process systems on an exclusive basis. Fulton Engineered Specialties is a designer and fabricator of custom pressure equipment and skid mounted, designed, fabricated and tested chemical process systems.

Comet Biorefining has demonstrated its cellulosic sugar technology at pilot scale and is currently scaling up to commercial applications. Comet Biorefining’s goal is to license its Cellulosic Sugar Technology worldwide

Comet CEO Andrew Richard said, “The key to success for the biofuels and bioproducts industry is low cost sugar. A significant component of low cost sugar is low capital cost. Fulton is a world leader in low cost, custom equipment manufacture, with operations in several countries.”

More on Comet here.


The Bottom Line: Agrivida’s technology triggers enzymes inserted into plants, that begin to rapidly breakdown of cellulose, to produce lower-cost sugars which can be fermented into biofuels and renewable chemicals. Closest ties are with Syngenta to date.

The latest:  Agrivida plans to deliver three enzymes to bring down the cost associated with corn-based ethanol to $0.80 per gallon. After receiving $6.8 million in grants from the USDA and the Department of Energy’s ARPA-E program earlier this year, Agrivida plans to deliver these three enzymes for corn this fall.

“We are expressing all the cell wall degrading systems in the plant,” explains Agrivida CEO Michael Raab, “as the core part of our technology. We can control the activity of those enzymes so that in the plant we can express all the enzymes in dormant form. After harvest, we activate the enzymes in the material, so you don’t have to pretreat in the same way. It makes the process lower temperature, with a moderate PH, and takes out a lot of capital costs and those high costs of dilute acid pretreatment. Also, we really reduce the enzyme loading.”

More on Agrivida here.

The hydrolysis path

Sweetwater Energy

Through 2010, Sweetwater scientists concentrated on developing a new cellulosic sugar extraction technology, while the engineering team built a pilot facility to extract and sell sugar from corn silage—a type of whole-corn storage technology that is currently used predominantly to feed cattle. The pilot facility manufactured sugar through late 2010 and early 2011. The sugar was sold to two companies working with the Department of Defense in an effort to make bio-based jet fuel.

In the spring of 2011, with the experience gained from running the pilot facility and the advances Dr. Parekh made in the laboratory, Sweetwater laid out the plans for its first demonstration cellulosic plant, which will be completed in summer of 2012.

More on Sweetwater, here.

The Supercritical path

In supercritical, biomass is split into cellulose and sugar in supercritical water at high temperature and pressure in a two-step process.


The Bottom Line: Closest ties are with Amyris and BASF (Amyris CEO John Melo is a member of the Renmatix board). Favorite feedstock is wood.

The latest: The world’s leading chemical company, BASF, invested $30 million out of a $50 million investment round announced in January by Renmatix.  “The Plantrose technology could allow us in the future to broaden our use of renewable raw materials while improving the cost effectiveness of our value chains even further. In the partnership with Renmatix, BASF is pursuing a new direction while simultaneously underlining its corporate strategy of offering even more sustainable solutions,” said Dr. Josef R. Wünsch, Senior Vice President Modelling, Formulation Research and Technology Incubation at BASF.

Also, Renmatix announced last week that former Pennsylvania governor Mark S. Schweiker joined the company as Senior Vice President (SVP) and Chief Relationship Officer.

More on Renmatix here.

The Biosynthetic path


The Bottom Line: Closest ties are with Solazyme. Very early stage, still.

The latest: The company is developing its solid-phase delivery system, at last report still on a bench-scale system.

Proterro’s biosynthetic process combines an engineered photosynthetic microorganism with a modular, solid-phase bioreactor to provide a fermentation-ready feedstock, called Protose. Produced by combining only water, carbon dioxide, sunlight and nutrients in the biosynthetic process, Protose is projected to cost less than such feedstocks as sugar cane and cellulosics, and can be used to produce a variety of commercial scale fuels and chemicals through standard industrial fermentation methods.

More on Proterro here.

Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe  here.

February 15, 2012

Biofuels and Biomaterials raise $1.374B in equity in past 12 months

Jim Lane

33 equity transactions, averaging $40M – who got what, for what, from whom – what’s hot now?Eguit raises

In Florida, Biofuels Digest reported that advanced biofuels and biomaterials companies raised $1.374 B in equity financing in the past 12 months, based on deal flow reported in the Digest’s daily newsletter and online news service.

Overall, the Digest reported 33 transactions, including five successful IPOs, in eight categories.

The largest equity raise of the year was $227 million raised by Solazyme(SZYM) in its IPO. Other notable equity raises included $123M raised by Gevo(GEVO) and $150M raised by KiOR(KIOR) in their IPOs, a $72M raise by Renewable Energy Group (REGI) in its IPO last month, and private rounds of $75 million by Fulcrum Bioenergy, $70 million by Joule Unlimited, $60 million by Enerkem, $50 million by Elevance Renewable Sciences, and $50 million by Renmatix.

Among categories with more than one equity raise in the past year, advanced fermentation technologies recorded the highest raise per transaction, at $57.24 million, primarily owing to the two successful IPOs from Solazyme and Gevo. Thermocatalytic technologies, including KiORs large IPO, averaged $51.14 million in seven transactions.

Category Raised Deals Avg.size
Advanced fermentation $687.00 12 $57.25
Hybridgasification-fermentation $39.00 2 $19.50
Thermocatalytic $358.00 7 $51.14
Cellulosicsugars $50.00 1 $50.00
Croptechnologies $111.00 8 $13.88
XTL $45.00 2 $22.50
Biocomposite $12.50 1 $12.50
Transesterifcation $72.00 1 $72.00

Advanced fermentation – $687M

In January, LanzaTech closed its Series C round with new investment totaling US $55.8 million led by the Malaysian Life Sciences Capital Fund. New investors include Petronas Technology Ventures Sdn Bhd, the venture arm of Petronas, the national oil company of Malaysia, and Dialog Group, a leading Malaysian integrated specialist technical services provider to the oil, gas and petrochemical industry. Specific investments in the round were not disclosed by the company. Existing investors Khosla Ventures, Qiming Venture Partners and K1W1 also participated in the round. To date, the company has raised more than $85 million

In July, OPX Biotechnologies announced that it raised $36.5 million in its Series C investment round. US Renewables Group led the C-Round investor syndicate, which also included new investor DBL Investors with participation by existing investors Mohr Davidow Ventures, Braemar Energy Ventures, Altira Group and X/Seed Capital. USRG managing director Jonathan Koch has joined the OPXBIO Board of Directors. To date, OPXBIO has raised $60 million with venture investors.

In May, BioAmber, a developer of bio-based succinic acid, raised $45 million in a Series B financing that will accelerate the commercialization of succinic acid and modified PBS (polybutylene succinate, a renewable, biodegradable polymer). The round was led by NAXOS Capital Partners and included Mitsui & Co, Sofinnova Partners, and the Cliffton Group. Proceeds will fund ongoing development work in the field of succinic acid, including the second generation organism being developed with Cargill, the technology licensed from DuPont that converts succinic acid to 1,4-butanediol (BDO).

In May, Cobalt Technologies announced that it had closed a $20M Series D funding round.  The round was led by The Whittemore Collection Ltd., the investment vehicle of Parsons & Whittemore, formerly one of the world’s largest manufacturers of market pulp and builder of some 60 pulp mills in 28 countries.
All of Cobalt’s current venture investors also participated, including Pinnacle Ventures, Malaysian Life Sciences Capital Fund, VantagePoint Capital Partners, Life Sciences Partners, @Ventures, Harris & Harris and Burrill and Company.

In July, Elevance Renewable Sciences raised $50 million in a Reg D capital round with undisclosed investors. The company, which last raised $100 million in a capital round completed in December, declined to state use of proceeds. But the company is scheduled to start construction later this year on a $225 million project in Natchez, Mississippi.

In June, Avantium completed a $36M million financing round with new investors Sofinnova Partners, Aster Capital and De Hoge Dennen as well as existing investors Aescap Venture, Capricorn Cleantech Fund, ING Corporate Investments and Navitas Capital.

In May, Solazyme netted $227M in their IPO.

In March, Gevo raised $123.3 million in their IPO.

In December, Alta Vista Securities announced they had closed a $7M joint venture for three biofuel plants in the Philippines with Pacific Biofuels.  Each plant will have a capacity to process 80,000 tons of agricultural waste per year, which will then produce about 37,800,000 liters of total biofuels products comprising of 30,240,000 liters of mixed alcohol and about 7,560,000 liters of LPG.

In December, TMO Renewables announced that it completed a £7.6 round ($11M) of financing. Taken in combination with £4.6m raised in January 2010, the proceeds will serve will serve as working capital as the company moves towards commercialization.

In January, Joule Unlimited announced the closing of a $70 million third round of funding, bringing its total to just over $110 million raised to date. The round included investments from both new and prior undisclosed institutional and private sources that joined Flagship Ventures, Joule’s founding venture capital investor.

In October, Plaxica raised a further £5m ($8M) in equity funding from Imperial Innovations, Invesco Perpetual and NESTA Investments. Plaxica has raised approximately £10m to date from its investors.

Hybrid gasification – fermentation – $39M

In October, ZeaChem announced it raised $19 million in Series C financing, led by Birchmere Ventures, and partner Sean D.S. Sebastian has joined the ZeaChem Board of Directors. Follow on investment was provided by existing investors Firelake Capital, Globespan Capital Partners, Mohr Davidow Ventures, PrairieGold Venture Partners and Spring Ventures.

In August, Coskata raised $20M in a Series D round of financing.  The major investors from previous rounds participated, including The Blackstone Group, Khosla Ventures, Total Energy Ventures International (part of Total, one of the world’s major Oil and Gas groups), ATV, Globespan Capital Partners, General Motors, Arancia, and Sumitomo. Coskata plans a final close of the transaction in Q4 of 2011.

Gasification – thermo-catalytic – Fischer-Tropsch – Pyrolysis – $358M

In July, InEnTec converted itself from an LLC to a corporation under the laws of the State of Delaware, and has filed a Form D with the SEC disclosing a $20 million capital raise, with a goal of $69 million.

In June, Enerkem had closed a $60 million financing round that includes Valero Energy Corp. who joins existing investors Waste Management (WM), Rho Ventures, Braemar Energy Ventures and Cycle Capital, who have each invested in the new equity round.

In June, KiOR raised $150 million in its IPO.

In April, Frontline BioEnergy announced that it has completed its Series B financing, and a set of transactions with SGC Energia that will bring new capital investment to Frontline, an agreement for SGC Energia to license Frontline gasification and gas conditioning technologies and a multi-year contract for Frontline to provide a range of engineering services to support SGC Energia.

In March, CoolPlanetBioFuels announced that Google Ventures has joined its $20 million Series B funding round. Google’s investment was undisclosed, though we note that previous reports focused on an $8 million Series B round, suggesting that Google Ventures invested as much as $12 million into the venture.

In February 2011, Fulcrum Bioenergy announced that it has closed a $75 million Series C financing. A portion of the financing will be used to fund the equity capital for the company’s Sierra BioFuels Plant, a commercial-scale production facility designed to convert household garbage to  ethanol, renewable electricity and other high value chemical products.

In February 2011, the Oxford Catalysts Group has raised £21 million ($33M) before expenses from the conditional placing of 26,250,000 new shares, which will be used to accelerate the Group’s ongoing transition from a research and development organisation to a commercial product company.

Cellulosic sugars – $50M

In January, BASF announced plans to invest $30 million in the US technology firm Renmatix, as part of Renmatix’ $50 million Series C investment round.

Crop technologies – $111M

In January, Algae.Tec announced that a A$5M ($5M) Placement through Patersons Securities Limited had been successfully completed. The company announced last week that it had signed a binding MOU for a 50/50 equity joint venture with Shandong Kerui Group Holding, for the construction, in Dongying (Shandong province) of an 8.7 million gallons (33 million liter) algae biofuels facility. The proposed project would also generate 33,000 tones of biomass per year.

In December, NexSteppe raised $14 million in Series B Funding.  The new round of funding was led by Braemar Energy Ventures, and as a result, Dennis Costello, Partner at Braemar, has joined the company’s Board of Directors. NexSteppe will use the proceeds from the round to scale up its sweet sorghum, high biomass sorghum and switchgrass breeding programs, and to advance its first products toward commercialization.

In October, Chromatin announced completion of a $10 million first closing of its Series D financing round that included two strategic investors — BP Ventures and Unilever Technology Ventures — as well as three investors who participated in earlier rounds of financing: Quantitative Investment Holdings, the Malaysian Life Sciences Capital Fund, and Illinois Ventures.

In October, Synthetic Genomics and Mexico-based Plenus announced the formation of a new company, Agradis. The privately held agricultural biotechnology company will focus on developing and commercializing products to sustainably improve crop production efficiency using new advances in genomics and plant breeding. Agradis has also announced the closing of a $20 million Series A financing round which will be used to establish the company infrastructure and to support product development and commercialization.

In August, Aurora Algae raised another $22 million, bringing its total fund raise to $72 million so far. The company has moved away from being a biofuels pure play to focusing on nutraceuticals. The newest funding round will go towards the building of its first commercial scale plant in Australia. The company is currently running trials at its pilot plant there. Greg Bafalis, Aurora CEO, stated, “Biofuels will eventually come, but they shouldn’t be your focus now.”

In April, seed breeding company Kaiima raised $18 million from Kleiner Perkins Caufield & Byers and current investors Draper Fisher Jurvetson (DFJ) and DFJ Tamir Fishman Ventures Ltd., bring in a total of $26 million in financing, to enhance its Clean Gene Multiplication technology.

In March, Solix Biofuels announced it had secured more than $16 million from Bohemian Ventures, The Southern Ute Alternative Energy Fund and I2BF Global Ventures, as the first part of its Series B financing round. The new funding will drive the commercialization of Solix’s industrial algae growth system, utilizing Solix’s proprietary, high-productivity photobioreactors.

In February 2011, Rosetta Green closed an initial public offering which raised gross proceeds of 21,900,960 NIS ($6.06 million).

XTL – $45M

In December, Agilyx raised $25 million in series-C funding led by Keating Capital, and the startup has already raised funds from Waste Management, venture firm Kleiner Perkins, French oil giant Total, and investors at Chrysalix Energy, Saffron Hill Ventures and Reference Capital.

In October, Siluria attracted $20 million for a technology platform to convert methane to chemicals, plastics, and fuels. Siluria’s Series B financing was led by the U.K. based  Wellcome Trust, joining Siluria’s founding investors Alloy Ventures, ARCH Venture Partners, Kleiner Perkins Caufield & Byers, Altitude Life Science Ventures, Lux Capital, and Presidio Ventures in this Series B.

Biocomposite – $12.5M

In June, Cereplast entered into a Securities Purchase Agreement with select institutional investors. Under the terms of the purchase agreement, the company will raise $12.5 million in an offering of 7% senior subordinated convertible notes due June 1, 2016.

Transesterification – $72M

In January, Renewable Energy Group raised $72 million in its IPO.

 Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe  here.

February 12, 2012

Solar Stocks Double from Lows

L. Myron Clark

A two-day surge on Feb. 8-9 took at least thirteen solar energy stocks more than twice their recent lows.  These names represent about half the publicly traded companies in the industry (on an unweighted basis). 

The "two-bagger" stocks follow somewhat different patterns, as indicated in the two graphs below.  Several of them hit their 52-week lows in late September or early October 2011, close to the bottom in the broad market.  Those lows ranged from 80% (YGE) to 86% (JKS) below the respective 52-week highs.  The companies include: Jinkosolar Holding Co (JKS), LDK Solar Co (LDK), Suntech Power Holdings Co (STP), Trina Solar Ltd (TSL), and Yingli Green Energy Holding Co (YGE).

Early lows

Note: prices through Feb 9th; shaded area in chart is for comparison to SPX

Others in this group bottomed in November or December, when portfolio purging hit the out-of-favor solar sector. Their lows were even more extreme, ranging from 88% (CSIQ) to 91% (HSOL) below the respective 52-week highs.  The companies include: Canadian Solar Inc (CSIQ), Daqo New Energy Corp (DQ), Hanwha Solarone Co Ltd (HSOL), and Renesola Ltd (SOL).

Later lows

Note: prices through Feb 9th; shaded area in chart is for comparison to TAN, the Guggenheim Solar ETF, as an industry benchmark

If you squint, you can find even bigger bounces off the lows among stocks categorized as "Deficient" for failing to meet NASDAQ Continued Listing Requirements.  (You could call this the Icarus category, except that hardly any company in the industry can evade that label after the plummet of 2011.)  These include: Ascent Solar Technologies Inc (ASTI), Daystar Technologies Inc (DSTI), Energy Conversion Devices Inc (ENER), and Westinghouse Solar Inc (WEST)
     A backhanded honorable mention goes to Evergreen Solar Inc (ESLRQ) , which is operating under bankruptcy.  The stock is up about 700% from its low: that is, from 1 cent to 8 cents.

The recent outperformance of many smaller stocks, after they had gone down longer and farther, indicates that investors in this sector have switched abruptly to a "risk-on" mode.  While it's a bit unseemly for speculative fervor to follow so closely on the heels of mordant despair, the shift in sentiment is not as dangerous as wild-eyed buying would be at the top of the market.  However, an unsettling tug-of-war appears to be shaping up between momentum-fueled optimism and fundamental-based skepticism.  This portends a lengthy spell of volatility until the solar industry undergoes further consolidation and pricing firms. 
    In my previous posting following the January spike in solar stocks, I predicted a partial repeat of the pullback that followed the sector's bounce off the bottom in October 2011.  That was fairly accurate for about two weeks, in contrast to the 2-month decline through late 2011.  Another iteration seems like a reasonable guess.  Short-covering rallies tend to have sharp reversals, so Part 2 of this analysis will examine short positions in these stocks.


L. Myron Clark is an independent industry analyst based in the Boston area.  He previously covered the technology services industry as an analyst with Gartner Inc.  He has an undergraduate degree from Cornell and also pursued postgraduate studies there.  Mr. Clark has traveled extensively and has a broad range of interests in energy and environmental topics.

February 11, 2012

Developments in the Solar Corporate Bond Market

by Corporate Bonder

The global bond market is huge. Data from the Bank for International Settlements shows that the total size of the global debt securities market (domestic and international securities) was $99.5 trillion as at June 2011, of which $89.9 trillion were notes and bonds. Governments accounted for $43.7 trillion of outstanding debt securities, financial organizations $43.8 trillion, corporations $11.0 trillion and international organizations $1.0 trillion.

Against that, Bloomberg has estimated that there are $230bn outstanding of fixed-interest securities that meet their “green bonds” definition. And of course the IEA talks of $1 trillion of investment a year needed for the global shift to a low-carbon economy.

The Solar Corporate Bond Market

There’s been a lot commentary on the collapse in the solar market and the accompanying share prices of solar companies. In this first of what we plan will be a quarterly market update we’ll have a look at the bond market for the solar industry and how it has been affected by market developments.

To illustrate the state of the market we found three solar companies that have issued corporate bonds and another five with convertible bonds outstanding. The bonds are listed below; they show that the market is clearly distressed, with yields on a number of bonds greater than 20%, despite a significant rally in solar convertible bonds during January. Credit spreads of greater than 1000 are typically thought of as being at distressed levels. The pricing data is as at February 7th 2012 (Bloomberg).

Table: List of bonds (convertible and conventional) issued by solar companies. Market prices trading at distressed levels.
Bond Price Yield Credit Spread
WFR (MEMC) 7.75 19 USD 84.3 11.0 950
SOLARW 6.375 16 EUR 61.5 22.4 1884
SOLARW 6.125 17 EUR 58.5 20.6 1855
REC 11% 14 NOK 97.9 12.9 912
REC 0% 16 (FRN) NOK 77 14.3 1162
REC 9.75% 18 NOK 71.8 18.2 1428
REC 6.5% 14 EUR CONVERT 60.9 38.2 2949
SPWR 4.75 14 USD CONVERT 91.8 9.0 842
SPWR 4.5 15 USD CONVERT 87 9.4 876
TSL 4 13 USD CONVERT 87.7 13.7 1289
STP 3 13 USD CONVERT 73 34.6 3356
JASO 4.5 13 USD CONVERT 84.8 18.6 1761
SOL 4.125 18 USD CONVERT 67.8 12.0 1405

REC Case Study

REC (RNWEF.PK) is a useful case study as it has publicly listed senior debt, subordinated convertible debt and listed equity which we can use to compare the performance of different parts of the capital structure. The chart illustrates the total return (rebased to 100 at 15 April 2011 when the longer bonds were issued) for all listed instruments in the capital structure.

The senior bonds have exhibited less volatility and a smaller fall in market price due to their lower risk profile than the convertible bond and the equity. Nevertheless, having lost less will be of little comfort to investors that bought the longer dated senior bonds at or around the issue price of 100, as they are now priced in the 70s. The fall in the price of the bonds reflects a substantial increase in the market’s perception of the risk in the sector and uncertainty regarding the value of solar assets. This does not bode well for solar companies looking to raise finance in the debt markets at present as the required yields are simply too high to make the businesses viable. The lowest risk solar companies in the market may be able to access markets but most companies will have to wait until yields come down and investor appetite improves before they can issue bonds.

Implications for Other Renewable Energy Companies

Corporations with solar activities amongst a much larger set of businesses (eg. integrated utilities or industrial conglomerates) are better placed to raise corporate finance for solar activities as the interest rates the market requires on these more diversified businesses are currently significantly lower.

While the solar market’s woes are unhelpful to the broader renewable energy market, many of the issues are specific to the industry and therefore should not inhibit the borrowing ability of corporations operating in other renewable energy activities. The current sovereign and financial sector malaise is a much more serious issue for broader renewable energy financing at the present time.

REC bond spreads
REC bond spreads

Bryn Jones, manager of the Rathbone Ethical Bond Fund commented: “the solar market continues to suffer from a number of headwinds, however senior bonds with higher coupons or structured debt can outperform equity in more stressed conditions. As a result this could support the view for more Structured Bonds issuance within the renewable energy space.”

Corporate Bonder is a corporate bond fund manager in the London. This article first appeared on the Climate Bonds Initiative blog.

February 10, 2012

The Biofuel IPO Pipeline: Delays, Shifts, and Accelerations

Jim Lane

In this two-part series, we look at the IPO market for industrial biotech stocks. Today, we look at 10 companies in the IPO queue right now.

Who’s been revising their prospectus, and what does that mean?

In Part II of our series, we look today at Ceres, Myriant, PetroAlgae (PALG.PK), BioAmber, Elevance, Genomatica, Enerkem, Mascoma, and Fulcrum Bioenergy.

In Part I, yesterday, we looked at the performance of the six IPOs to date in the aftermarket, and at important changes in Coskata’s recent filings.

Ceres: delaying its IPO

Headline news from the world of IPOs: a decision by Ceres to delay their IPO pricing for one week. The company did not offer an explanation, but its fair to assume, after the company cut its price targets from $21-$23 to $a range of $16 to $17, that the offering is encountering unexpected headwinds.

The complete coverage of the original filing, Ceres’s $100M IPO: The 10-Minute Version is here.

PetroAlgae: Changing its name to Parabel

One of the companies that has been in the queue for over a year now is PetroAlgae (PALG.PK), which responded to slow IPO going yesterday by announcing a name change to Parabel.

“In the past year, the company has significantly accelerated its commercialization as a result of key strategic changes,” said Anthony Tiarks, CEO of Parabel. “We have developed a scalable and flexible customer licensee model and our technology is now being implemented at pilot scale around the world. Our priority is to facilitate the commercial-scale production of animal feed and potentially human food ingredients, using non-genetically modified and non-algae micro-crops. We believe it is the right time for these important developments and achievements to be given expression through a new name.”

The complete coverage of the original filing, PetroAlgae’s IPO: The 10-Minute Version is here.

Mascoma: Adding More Valero, DOE support to the Mix

In december, Mascoma announced that it has signed a cooperative agreement with the DOE to assist in the design, construction and operation of its first commercial-scale hardwood cellulosic ethanol facility. The combination of the $80 million from DOE and the remainder from Valero effectively completes the financing for the first project. Groundbreaking is scheduled for the first half of next year, with opening of the facility scheduled for year-end 2013. It will have an initial name plate capacity of 20 million gallons, expandable to as much as 80 million gallons. Kinross Cellulosic Ethanol LLC, a joint venture formed by Mascoma and Valero, will develop and operate the Kinross facility.

The complete coverage of the original filing, Mascoma’s $100M IPO: The 10-Minute Version is here.

BioAmber: Raising $20 million in a private offering

In a filing to update its S-1 last week, BioAmber disclosed that on November 4, 2011, it issued in a private placement an aggregate of 20,061 shares of common stock at a per share cost of $997.00 for aggregate consideration of $20 million to Naxamber S.A., FCPR Sofinnova Capital VI, Mitsui & Co., Ltd. and Clifton Equities Inc.

The complete coverage of the original filing, BioAmber’s $150M IPO: The 10-Minute Version is here.

Genomatica – May forego Tate & Lyle agreement

In its most recent S-1 amendment, Genomatica disclosed that its Tate & Lyle commercial development may be terminated by Tate & Lyle if they have not elected to proceed to the second phase consisting of demonstration-scale manufacturing by March 2012, or if they have not elected to proceed to the third phase consisting of commercial-scale BDO production by September 2013.

The complete coverage of the original filing, Genomatica’s $100M IPO: The 10-Minute Version is here.

Elevance – Ramping up production

In its most recent amendment, filed in December, Elevance dropped a reference to “Our products are currently manufactured at commercial scale using tolling facilities, enabling us to validate our target cost of production for our biorefineries.” Instead the company wrote: “We have produced our chemicals at commercial scale through multiple production campaigns ranging in size from 23 metric tonnes (50,000 pounds) to 450 metric tonnes (one million pounds), including two production campaigns that utilized our proprietary biorefinery process, the first of which was completed in November 2010.

The company also disclosed in its update that it lost $10.4M in Q3.

The complete coverage of the original filing, Elevance’s $125M IPO: The 10-Minute Version is here.

Fulcrum – commenced construction at Sierra, reducing cost per gallon

In its most recent amendment, Fulcrum dropped a reference to “The core element of our technology has been demonstrated at full scale,” and “we expect to produce approximately 10 million gallons of ethanol per year at an unsubsidized cash operating cost of less than $1.30 per gallon, net of the sale of co-products such as renewable energy credits.” Instead, it added, “we expect to produce approximately 10 million gallons of ethanol per year at an estimated production cost of less than $1.25 per gallon, net of revenue from the sale of co-products, such as renewable energy credits and recyclables, of approximately $0.45 per gallon.”

The company also discussed results from its Series C preferred stock financing: “we raised an aggregate of approximately $93.0 million from both existing and new investors, including affiliates of USRG Management Company, LLC and Rustic Canyon Partners, as well as a subsidiary of Waste Management, Inc., or Waste Management, the largest waste management company in the United States. We also entered into a credit agreement with a subsidiary Waste Management to provide a project loan facility of up to $70 million to be available to fund a portion of the construction costs of Sierra.”

The complete coverage of the original filing, Fulcrum Bioenergy’s $115M IPO: The 10-Minute Version is here.

Myriant – deeper losses, more production

At Myriant, the company’s latest amendment added a reference to: “We have already produced 24 metric tons of biosuccinic acid in support of internal and customer/vendor sampling and testing programs. We scaled up these quantities from an initial fermentation vessel size of five liters to 50,000 liters from January 2008 to February 2011 at various locations.”

The company also disclosed that its losses expanded to $28M in 2011, but that the loss included $12.6M in interest expense, which reflected conversion of senior convertible notes into equity in January 2011, resulted in a charge to interest expense to fully amortize the remaining value ascribed to the warrants issued as well as an interest charge associated with the beneficial conversion feature of the notes.

The complete coverage of the original filing, Myriant’s $125M IPO: The 10-Minute Version is here.

Coskata – Settled lawsuit with INEOS Bio

We look at the Coskata update in yesterday’s Digest, here.

The complete coverage of the original filing, Coskata’s $100M IPO: The 10-Minute Version, is here.

Enerkem – IPO just filed

Enerkem has not yet revised its F-1 registration statement, which was just filed. The complete coverage of the original filing, Enerkem’s $125M IPO: The 10-Minute Version is here.

 Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe  here.

February 09, 2012

The Performance of Biofuel IPOs

Jim Lane

 In this two-part series, we look at the IPO market for industrial biotech stocks.
Who’s up, who’s down, who’s in the queue, and where might all this take us? Plus, an important update from Coskata.

In Part I, today, we look at the performance of the six IPOs to date in the aftermarket, the Ceres IPO which is ready to price its IPO tonight, and look towards the IPO queue at important changes in Coskata’s recent filings.

In Part II, tomorrow, we look at how Ceres performed, we’ll have an update on Amyris (AMRS), and we’ll look at the other companies in the IPO pipeline – Myriant, PetroAlgae (PALG.PK), Bioamber, Elevance, Genomatica, Enerkem, Mascoma, and Fulcrum Bioenergy.

Who should care about IPOs and company performance? Well, investors, without question. But other producers too – as ‘news you can use’ and also because strong IPOs mean strong investor interest in venture funds. Policymakers, too – strong IPOs make viable companies and drive commercialization and balance sheets that lead to scale. Plus, the R&D community – IPOs offer indicators of the direction research will take, as well as making strong collaborative partners.

For the intrepid retail investor, IPOs have been running hot, performing cold. Though many early-stage venture capital investors can still realize returns on their investments in companies such as Codexis (CDXS), Amyris (AMRS), Solazyme (SZYM), KiOR (KIOR), Renewable Energy Group (REGI) or Gevo (GEVO)– for the average small investor, it has been a rough ride.

In the IPO window that opened in April 2010 with Codexis’ successful IPO, six companies in the biofuels and renewable chemicals sector have gone public, and as a class they are between 8 and 61 percent off their IPO price.

Crushed in the aftermarket

It wasn’t always so. Last spring, as Gevo and Solazyme were going public, the stocks were flying off the shelf, and investors pushed stocks like AMRS as high as $33.85, SZYM up to $27.47, and GEVO up to $26.36.

IPO Date IPO Price Post IPO Hi Low Today Change Marketcap($M)
Codexis 4/21/10 13 14.10 3.91 5.05 -61% 181
Amyris 9/28/10 16 33.85 8.77 9.02 -44% 410
Gevo 2/8/11 15 26.36 5.18 9.4 -37% 243
Solazyme 5/27/11 18 27.47 7.68 11.78 -35% 702
KiOR 6/24/11 15 23.85 8.67 13.01 -13% 1330
REG 1/19/12 10 10.29 8.56 9.24 -8% 264
Ceres 2/9/12
16.5 16.50 16.5

Since then, most of the companies have stayed entirely in line with their original plans, as expressed to their investors in there pre-IPO road shows and beyond, and most have stayed in line with their technical and economic targets and on their growth curve. Market reaction? They got crushed.

Accordingly, we can see the current price environment as more of a measure of the public’s appetite for risk (like, about zero), than as a verdict on the technologies and companies themselves. The stocks went through dizzying declines that pushed the Biofuels Digest Index by almost 15 percent in six months, and individual stocks lost as much as 75 percent of their value.

The Recovery

Generally, the six (REGI, being only three weeks in the public markets, doesn’t factor much in to the aftermarket analysis), have recovered off their lows. Gevo has rebounded 80 percent from its $5.04 low, Solazyme (SZYM) has recovered 53 percent to $11.78, and KIOR is up 50 percent to $13.01.

But market caps tell a story about the expectations of the market, in a different way than price does – who is expected to go big? There. we see a lot of differentiation. Pyrolysis rules – KIOR, with its $1.3 billion market cap, leads the way. The remainder, with the exception of REG, are fermentation technologies. There, Solazyme is in the $700 million range, Amyris trails at $400 million, and the rest are in the $180 million to $243 million range.

REG, which focuses on transesterification of veggie and waste oils into biodiesel, is at the top of the trailing class, at $264 million.

Opportunity? GEVO, KiOR and SZYM are trading close to their most recent $9, $14 and $13 targets (respectively, as projected by Raymond James analyst Pavel Molchanov), while AMRS has a pretty good upside, with a target price of $20, as of December.

The Ceres IPO

Ceres is expected to price tonight, and has dramatically cut its expected price range to $16-$17, down from the $21-$23 range expected just a few weeks ago.

It’s been a common theme. Amyris struggled on price at the gate, as well as Codexis and KiOR, and more recently, Renewable Energy Group. Gevo and Solazyme performed better in the IPO itself, but of course have fallen off substantially since.

Now, Ceres is the first of the biotechnology feedstock plays to come to market. It’s upside? Potentially, there are a lot of customers for energy cane, switchgrass and sweet sorghum, among the crops targeted by the company, which focuses on improving traits such as salt tolerance, drought-resistance and works on yield enhancement.

Coskata, INEOS Bio settle lawsuit: Coskata revises S-1

Moving over to Coskata, the company recently revised its IPO documentation to reflect a settlement of its lawsuit with INEOS Bio, which reflected a trade secret dispute.

From the revised S-1: “On January 12, 2012, the parties signed a settlement agreement in which they agreed to dismiss all claims. Pursuant to the settlement, Ineos will receive from us a $2.5 million cash payment and 2,125,000 shares of Series D preferred stock, after which all the asserted claims will be dismissed, and a mutual release of future claims will become effective.

“However, the release does not preclude Ineos from bringing claims against us arising out of conduct occurring after the effective date of the settlement agreement, or from bringing certain claims against us arising out of conduct prior to the effective date of the settlement agreement.

“In addition, Ineos has the right to receive 2.5% of future ethanol royalties and license fees received by us from third parties who license our technology, subject to a cap with a net present value of $20 million, which will be increased based on future interest rates.”

Bottom line for INEOS? Validation, broadly speaking, of their claims of harm, and some potentially valuable relief through participation in Coskata’s upside. For Coskata, the company has more freedom to operate, and can offer a far greater degree of certainty on IP risk to its investors in the IPO process

Other Coskata IPO updates? Shutdown of the demo plant; aiming at natural gas and biomass mix?

The most striking update is that the company quietly shut down its Lighthouse demonstration unit in Madison, Pennsylvania.

The company explains: “We suspended continuous operations at Lighthouse due to the considerable costs associated with such operations and because our key objectives for operating the facility had been met. These objectives included confirming commercial design metrics, testing commercial-ready microbial strains and demonstrating the conversion of multiple feedstocks into ethanol. Most of Lighthouse’s personnel were relocated to the research facility at our headquarters in Warrenville, Illinois. Our Lighthouse facility is available to be restarted as new micro-organisms are ready for evaluation at this scale and the site lease is extended.”

Another update? Coskata might well be joining the group of XTL technologies. This is a group of technologies that are working on a broader set of feedstocks than biomass (BTL), including natural gas (GTL) and in some cases coal-to-liquid (CTL). In its revised filing, Coskata has signaled its interest in working with natural gas, which itself has attracted increasing attention from the Obama Administration and the Congress as a base for enhancing energy security.

The company explains: “We plan to install a natural gas reformer to ensure a continuous supply of syngas. Consistent with operations at our Lighthouse facility, we expect to operate this reformer on a nearly continuous basis. It is therefore likely that a portion of the ethanol produced at Phase I will not be considered renewable.”

The bottom line for Coskata: freedom to operate, and conserving cash through shutdown of the demonstration unit, which after 15,000 hours had likely yielded up all the engineering data needed for the first commercial plant. Its tough not to be able to work on demonstrating other feedstocks, but Coskata’s focus is clearly on the first commercial facility, and taking on other challenges later. Tough business decisions, and a transformative technology: two reasons why Coskata has quietly emerged as a favorite among analysts looking at the IPO pipeline.
 Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe  here.

February 07, 2012

The End of Elastic Oil

Tom Konrad CFA

The last ten years have brought a structural change to the world oil market, with changes in demand increasingly playing a role in maintaining the supply/demand balance.  These changes will come at an increasingly onerous cost to our economy unless we take steps to make our demand for oil more flexible.

We're not running out of oil.  There's still plenty of oil still in the ground.  Oil which was previously too expensive to exploit becomes economic with a rising oil price.  To the uncritical observer, it might seem as if there is nothing to worry about in the oil market.

Unfortunately, there is something to worry about, at least if we want a healthy economy.  The new oil reserves we're now exploiting are not only more expensive to develop, but they also take much longer between the time the first well is drilled and the when the first oil is produced.  That means it takes longer for oil supply to respond to changes in price. 

In economic terms, the oil supply is becoming less elastic as new oil supplies come increasingly from unconventional oil.  Elasticity is the term economists use to describe how much supply or demand responds to changes in price.  If a small change in price produces a large change in demand, demand is said to be elastic.  If a large change in price produces a small change in supply, then supply is said to be inelastic.

Elasticity of Demand

On the demand side, the elasticity of our demand for oil reflects the options we have to using oil for our daily needs. At a personal level, we can quickly cut our demand for oil a little bit by combining car trips, keeping our tires properly inflated, etc.  But the ability to make such reductions is often limited, and even such simple measures come at a cost of time or convenience, which is why we're not doing them already.  If we live in an area without good public transport (as most of us do) we can't stop driving to work without losing our job, so we keep driving to work, and paying more for the gas to get there.

Over the longer term, our personal options to cut oil consumption increase.  We can move closer to work, or to somewhere where we can walk or use public transport to get to our job. This is why the most fuel-efficient vehicle is a moving van. 

Replacing a car with a more fuel efficient vehicle is an option for those who have money or credit, but the people who are under the most pressure from high fuel prices are unlikely to be able to afford such options.  If they can't resort to ride sharing or public transport, they may simply lose their jobs because they can't afford to get there. 

The reduction in fuel use that comes from people losing their jobs and no longer commuting to work also contributes to the elasticity of demand, and I mention it to highlight the point that while reductions in fuel use can be benign (properly inflated tires, for instance), they can also be harmful to the economy.  Reductions in demand due to high prices are often called demand destruction, and it's just as unpleasant as it sounds.

Elasticity of Supply

Since our options for reducing oil demand in response to rising prices range from inconvenient to expensive, to downright painful, it's clear why the media and politicians focus so much attention on the other half of the equation: When supply adapts to changes in demand, voters don't have to make uncomfortable choices. 

But there are also limits to the ability of oil supply to adjust.  Most OPEC nations, including Saudi Arabia, need at least a $100/bbl for oil to keep their budgets in balance, so why would they increase production to reduce the price below that?  In fact, as (subsidized and hence inelastic) OPEC domestic consumption continues to increase faster than supply, OPEC net exports will continue to fall, further raising the price needed to balance exporters' budgets. 

While fiscal issues constrain OPEC's elasticity of supply, geology and politics constrain oil supply elsewhere.  Brazil's giant pre-salt fields, like deep water discoveries in the Gulf of Mexico and elsewhere, are much more expensive and slow to develop than were past discoveries.  Canada's tar sands are large mining operations, and are similarly slow and expensive to develop.

Put simply, if the oil were quick and easy to get at, we'd have gotten it already.  All these factors mean that the elasticity of oil supply is falling, so oil demand has to adjust more in response to changes in price than in the past.


Since there is little reason to assume that the elasticity of oil demand has changed significantly (do we have more options for doing without oil than we did ten or twenty years ago?) while the elasticity of oil supply has fallen, we have to expect that overall oil price elasticity has fallen as well, and these changes should show up in oil market data.

Using oil annual supply, price and consumption data from the EIA and IEA, and making some back-of the envelope adjustments to account for the difference between their different definitions of what constitutes oil, I made some estimates of the price elasticity of oil supply and demand.

Since neither demand nor supply can respond instantly to changes in price, I first had to estimate the average reaction time.  To do this, I looked at the correlation between changes in the oil price and changes in supply and demand with various lags.  I used price and volume changes over a period of three years because three year changes gave me the strongest results, although one and two year changes were similar. 

Below you can see the correlations between three year changes US and worldwide supply and demand with three year changes in US oil prices (WTI) and world oil prices (Brent), after various lags:

Oil correlation of price and volume.png

Note that we're looking for negative correlation between price and demand (we use less oil when we have to pay more for it), and positive correlation between price and supply (companies produce more oil if they can get more money for it.) 

From the chart, we can see that world oil supply has historically taken about one year to respond to changes in world prices (the blue line peaks at 40% correlation with a one year lag), while domestic US oil production (supply) has typically taken about four years to respond to changes in the oil price, but that response is much stronger than the response of world supply.

The difference between the response between US and world oil supply makes sense because domestic oil production operates in a much freer market than world oil supply, where changes are mostly dominated by political decisions in a few OPEC nations.  Political decisions are quicker than drilling new wells (one year as opposed to four), but they are only about half as responsive to changes in price.

On the demand side, we see very little response to changes in price at all.  The correlation between demand and price is always positive, showing that changes in supply have accounted for virtually all of the market response to oil price changes over the period. 

Changes Over Time

To test my hypothesis that supply is becoming less elastic, I split my data set into two periods, one from 1987 to 2000, and one from 2001 to 2010.  If the hypothesis is correct, we will see less supply and more demand price response in the later period than in the earlier one.

The graphs which follow show significant changes in how both supply and demand respond to changes in price.  Perhaps the most significant change is that we now see a response in the demand for oil to the oil price.

In the early period, only US demand for oil shows a small response to price, with a slight negative correlation (-30%) between three year changes in US demand and changes in price.  World oil demand still shows no measurable price response.   I take this to indicate that at the end of the last century, Americans responded to changes in the oil price by using the relatively easy options such as eliminating discretionary trips when oil prices rose, but price was not an important factor for determining world oil consumption.

Oil correlation of price and volume Early.png
In the later period, the US demand no longer shows a short-term response to rises in the oil price, perhaps because the easy reductions in oil use have already been made, but we now see a relatively strong response to higher oil prices (with a -90% correlation) over a period of four years for both US and world oil demand.  This probably corresponds to such changes as purchasing more efficient vehicles, and minimizing commutes by moving closer to work or working more from home.

Oil correlation of price and volume Late.png

World oil demand's very significant response to changes in the oil price implies that demand is now playing a much bigger role in the adjustments the oil market makes to changes in price than it has in the past. 

Because oil supply has become less elastic and less responsive to changes in price, oil prices have become much more volatile in order to force market adjustments. 

The chart below shows that while the magnitude (either up or down) of annual changes in supply and consumption have been in the 3% to 7% range for the last quarter of a century, the magnitude of oil price changes has been rising relentlessly.  In the 1990s, oil prices usually changed by an average of 25% or less per year, while they now typically change by three or four times that amount in any given year.

Average Magnitude of Changes.png

If the price elasticity of the oil market had not been falling over time, the increasing magnitude of changes in oil prices would have produced a similar increase in the magnitude changes in oil supply and demand.

As the Market For Oil Becomes Less Flexible, We Should Make the Market for Transportation Services More Flexible to Compensate

If what we care about are the effects on the economy, it does not matter how much oil is in the ground.  Over the last ten years, we have see a structural change in the oil market which will continue to have far-reaching effects on the economy even if we manage to increase the amount of oil produced. 

Before 2000, oil supply did the heavy lifting when it came to balancing supply and demand in the oil market.  That is no longer the case, and the oil price signal has grown significantly stronger in order to elicit a response in demand.

With 2% of the world's oil reserves, changes in the US supply of oil will remain insignificant in the world oil supply demand picture, developments in the Bakken shale and cheer leading from political leaders notwithstanding.  On the other hand, as the consumer of a quarter of the world's oil supply, we can have a significant effect on the world oil market by making sure that our economy can adjust quickly and easily to changes in the oil price.

What measures can we take to increase the elasticity of oil demand, and reduce the pain of demand destruction?  Measures which increase our citizen's options for reducing oil use. 

  • Increased investment in alternative modes of transport, such as mass transit (both buses and rail), bike lanes, bike and car sharing, and walking improvements to allow many more workers the option of getting to their jobs without the use of a personal car.
  • Improvements in our nation's rail system to allow more freight to be shifted from truck to rail.
  • Increasing gas taxes slowly and predictably over time to both fund the above improvements, and to signal to consumers that they need to prepare for long term higher prices by purchasing more efficient vehicles and changing where they live so that they have the ability to reduce their driving.
  • The use of road congestion pricing, pay as you drive insurance, and other price signals that give people the right market signals and enhance the most efficient use of our nation's roadways.
  • Encouraging the electrification of transport (including the alternative transport options mentioned above) to provide transport options which are not dependent on oil.

In short, we need to make the market for transportation services more efficient by encouraging new entrants (mass transit, bikes, trains) and competition with the incumbent car/internal combustion engine infrastructure.  Competition within the car infrastructure should also be encouraged by sending price signals such as the slowly and predictably increasing gas tax mentioned above to better reflect the dangers to our economy posed by the new oil market regime.

Thanks to Jim Hansen of Ravenna Capital Management for his help.  This article was first published on Forbes.com.

February 06, 2012

Enerkem’s $125M IPO: The 10-Minute Version

Jim Lane

The second technology focused on unlocking value in municipal solid waste comes to the public markets.

Here’s our 10-minute version of the filing, with a translation of the risks into English.

In Canada, Enerkem has filed an F-1 registration statement for a proposed $125 million initial public offering. The number of shares to be offered in the proposed offering and the price range for the offering have not yet been determined. The lead book-running managers for the offering are Goldman Sachs, Credit Suisse and BMO Capital Markets.

The company is currently ranked #7 in the world in the 50 Hottest Companies in Bioenergy. The rankings recognize innovation and achievement in fuels and are based on votes from a panel of invited international selectors, and votes from Digest subscribers.

Enerkem, which in the first three quarters of 2011 lost $19.1 million while recording $887K in revenues (primarily government grants) becomes the 15th company to file for an IPO in the industrial biotech boom, which began with a successful listing on the NASDAQ by Codexis (CDXS) in 2010. IPOs by Amyris (AMRS), Gevo (GEVO), Solazyme (SZYM), and KiOR (KIOR) have followed. In recent months, Coskata, PetroAlgae (PALG.PK), Bioamber, Myriant, Ceres, Genomatica, Mascoma and Elevance Renewable Sciences and Fulcrum Bioenergy have also filed S-1 registrations for proposed IPOs.

Here’s the F-1 registration, in a conveniently downsized 10-minute Digest version – with some commentary along the way as to what is driving value in the Enerkem model, opportunities for the intrepid investor, and some risks which we have translated from the ancient and original SEC into modern English.

Company Overview

From the F-1:  “We develop renewable biofuels and chemicals from waste using our proprietary thermochemical technology platform.

We intend to take advantage of the abundant supply of municipal solid waste, or MSW, which we expect to be paid to use as feedstock, to profitably produce cellulosic ethanol, a second-generation biofuel. We believe that our waste-based biofuels provide one of the most advanced solutions to the growing world demand for renewable sources of energy, while also addressing the challenges associated with waste disposal and greenhouse gas, or GHG, emissions.

Our pilot facility in Sherbrooke, Canada has been in operation since 2003 and has a throughput capacity of 4.8 metric tons per day. We have successfully increased, or scaled-up, our throughput capacity tenfold, or 10x, to 48 metric tons per day in our commercial demonstration facility in Westbury, Canada. The Westbury facility has a production capacity of 1.3 million gallons per year, or MMGPY.

Our first standard 10MMGPY commercial facility is currently under construction in Edmonton, Canada. We have developed a modular, copy-exact and scalable approach for equipment production and installation that we anticipate will allow us to have our systems manufactured by third parties as pre-fabricated, replicable modules under fixed-price contracts.

The Technology

From the F-1: “Our proprietary technology platform converts MSW and other heterogeneous waste feedstocks, consisting of mixed textiles, plastics, fibers, wood and various other forms of waste, into a pure, chemical-grade synthesis gas, or syngas. This syngas is then converted into biofuels and chemicals through well-established catalytic reactions.

Feedstock preparation. The MSW we plan to use as feedstock is first sorted, using equipment and processes used in existing sorting and recycling facilities in order to remove unusable materials. During this process, typically approximately 40% of the MSW is removed from the waste stream and approximately 60% of the MSW is shredded to be used as feedstock.

Gasification through a bubbling fluidized bed. Our proprietary bubbling fluidized bed gasification reactor breaks down the feedstock into its constituent parts or molecules, a process that is called thermal cracking. In the same reactor, these broken-down molecules are then blended with steam to produce syngas.

Syngas cleaning and conditioning. Our bubbling fluidized bed gasification process yields a crude syngas that is fed into our proprietary syngas cleaning and conditioning process. This process upgrades the crude syngas to a chemical-grade syngas that can be refined into liquid fuels and chemicals.

Catalytic conversion into final products. We typically start by reacting a portion of our syngas with a commercially available catalyst to produce methanol, which we can either sell as an end-product or use as an intermediate to make other products. To produce ethanol, we react methanol with carbon monoxide from our syngas with a commercially available catalyst to produce methyl acetate. The final conversion step in our ethanol production process entails splitting the methyl acetate by inserting a hydrogen molecule that is extracted from the produced syngas.”

The Market

MSW Market. The United States generated 435 million metric tons of MSW in 2009, of which approximately 289 million metric tons, or 66% was landfilled. The company projects that approximately 140 million metric tons is suitable for ethanol production through gasification, yielding up to 14 billion gallons of ethanol annually.

The remaining landfill capacity for MSW in the United States as of 2009 equates to approximately 19 years of remaining life at 2009 MSW disposal rates, down from 26 years in 1995. 30% of Canadian landfills reported having an expected remaining life of fewer than ten years.

Tipping fees. According to the Waste Business Journal, an industry publication, average tipping fees for landfills in the United States were $47 per metric ton in 2009. The company projects that every $10.00 dollars per metric ton of tipping fees that they receive will generate revenue of approximately $0.12 per gallon.

Global fuels market. According to the Energy Information Administration, or EIA, global crude oil and liquid fuel consumption of approximately 87 million barrels per day, or bbl/day, equates to approximately a $2.5 trillion market in 2010, at an average price of approximately $79 per barrel.

US Renewable Fuels Market. The U.S. Renewable Fuel Standard mandates 16 billion gallons per year of cellulosic biofuels, which include cellulosic ethanol, be blended by 2022. The company projects cellulosic ethanol in the United States at operating costs, before depreciation and amortization, of $1.50 to $1.70 per gallon in a 10MMGPY facility.  They estimate that they can reduce costs to approximately $1.05 to $1.25 per gallon by building 40MMGPY facilities (four of our 10Mgy units).

Price floor. In the US, the EPA creates cellulosic biofuel waiver credits, or CWCs, for purchase for that year. The CWCs to be made available for sale to obligated parties in 2012 for the higher of (1) the amount by which $3.22 per gallon (in 2011 prices) exceeds the average wholesale price of a gallon of gasoline in the United States or (2) $0.27 per gallon (in 2011 prices).

Chemicals. Methanol can act as a building block for acrylic acid, with a market size of $3.1 billion in North America and $10.9 billion globally; n-Propanol, with  a market size of approximately $1.5 billion in North America and $3.0 billion globally; and n-Butanol, with a market size of approximately $2.4 billion in North America and $7.5 billion globally.

The Risks, Translated from SEC-speak

Among the lowlights of reading S-1 registrations are the endless pages of risk disclosures couched in an alloy of SECspeak and legalese.

We offer these excerpts from the original S-1, and a translation into English, prepared by our Digest lexicologists.

In SECSpeak: We have not yet completed the manufacturing of our first standard 10MMGPY prefabricated module and design defects may occur in our equipment and/or modules, which may adversely affect our business and financial results.

In English: Oy vey, build-out, schmild-out, vat could be de problem?

In SECSpeak: Our, or any of our partners’, inability to obtain an adequate supply of MSW may adversely affect our business and financial results.

In English: “Waste is a Terrible Thing to Mind.”

In SECSpeak: Changes in government regulations, including mandates, tax credits, subsidies and other incentives, could have a material adverse effect on our business and results of operations.

In English: G-Man, give me some lovin’.

In SECSpeak: Infrastructure constraints pose uncertain market barriers for ethanol.

In English: “Alex, I’ll take ‘Blend Wall’ for five hundred, please.”

In SECSpeak: We may need substantial additional capital in the future in order to expand our business.

In English: That giant sucking sound you hear: that’s our CAPEX fund.

In SECSpeak: We have not produced ethanol at a scale needed for the development of our business or built the facilities needed for such production. Furthermore, the conversion of methanol into ethanol in large commercial volumes may prove to be more challenging than we anticipate and may not initially be possible in a cost-effective manner.

In English: Psst! The secret phrase is “Range Fuels.”

In SECSpeak: Our partners may not adequately operate the systems utilizing our proprietary technology platform or safeguard our intellectual property and confidential information, which may adversely affect our business.

In English: Dang it Zeke, how do you work this darn thing anyway? Is this right? Oops. Eew, that’s not right.

In SECSpeak: Our ability to compete may decline if we are required to enforce or defend our intellectual property rights through costly litigation or administrative proceedings.

In English: Psst! The secret phrase is “Butamax and Gevo.”

In SECSpeak: We rely in part on trade secrets to protect our technology, and our failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

In English: Psst! The secret phrase is “INEOS Bio and Coskata.”

The Strategy

From the F-1: “1. Build, own and operate new facilities.
2. Pursue development opportunities with select industry-leading companies.
3. Focus on reducing our costs.
4. Expand internationally.
5. Innovate and develop new products.”

The Commercialization Plan

From the F-1: 1. Westbury, Canada demonstration, 2009-2011.
We completed the installation of methanol production equipment in Westbury in 2011, and the facility commenced production of methanol in June 2011. We intend to add ethanol production equipment to the Westbury facility in 2012 to enable a production capacity of 1.3MMGPY.

2. Edmonton, Canada first commercial plant.
In 2010, we commenced construction of our first standard 10MMGPY commercial facility in Edmonton. We intend to build, own and operate this facility, which is located on a municipal landfill to provide us proximity to feedstock. We have secured a 25 year MSW feedstock supply agreement with the City of Edmonton. We expect to ready our Edmonton facility for methanol production in the first quarter of 2013.

3. Pontotoc, Mississippi second commercial plant.
We plan to commence construction of an additional 10MMGPY commercial facility in Pontotoc in the fourth quarter of 2012. The Pontotoc facility will be located on a landfill site and will be constructed by our wholly-owned subsidiary Enerkem Mississippi Biofuels LLC. We estimate that it will take approximately 18 months to build the facility.

In December 2009, we were awarded U.S. Department of Energy, or DOE, conditional financial assistance of $50.0 million under the American Recovery and Reinvestment Act of 2009 — Demonstration of Integrated Biorefinery Operations Program, for the development of the Pontotoc facility.

4. Varennes, Canada third commercial plant.
We also plan to commence construction of a 10MMGPY commercial facility in Varennes as early as the first quarter of 2013. We estimate that it will take approximately 18 months after commencement of construction to build the facility. This facility will be constructed by Varennes Cellulosic Ethanol L.P., a 50/50 joint venture with GreenField Ethanol Inc., one of the largest ethanol producers in Canada. The Varennes facility will be located on the site of GreenField’s grain ethanol facility in Varennes.

5. Waste Management and Valero
Our term sheet with an affiliate of Waste Management (WM) contemplates the sale of systems utilizing our proprietary technology platform for the potential development of up to six sites with a combined ethanol production capacity of 100-120MMGPY. With Valero, we have entered into a non-binding term sheet to sell our systems for the development of up to six stand-alone facilities with a combined ethanol production capacity of 80-250MMGPY and additional facilities to be co-located with existing Valero facilities. We expect that our arrangements with Waste Management and Valero would also provide us with an option to own up to 49.5% or 50.0% of these facilities, respectively.

6. Other Projects and Considerations
We have prioritized, based on specific selection criteria, 68 landfills in the United States as potential sites for development by us or our strategic partners. These locations represent a combined waste inflow of 40 million metric tons of unsorted MSW, which represents a potential production of 2 billion gallons of ethanol per year using approximately 200 of our standard 10MMGPY modules.

Enerkem as it sees itself:  6 Competitive Strengths

From the F-1: “Converting heterogeneous waste to biofuels and chemicals. We believe that we are the first company to produce a pure, chemical-grade syngas using heterogeneous waste in a commercial demonstration facility. Since 2003, we have tested and validated our technology with MSW from numerous municipalities, as well as a broad variety of other feedstock, at both our pilot and demonstration facilities.

Lowest scale-up among cellulosic ethanol producers. The scale-up from our commercial demonstration facility in Westbury to our planned standard 10MMGPY commercial facilities represents approximately a 2x scale-up in gasification and gas conditioning equipment size and approximately a 7x scale-up in throughput capacity.

Large market opportunities and an attractive cost structure. Our primary product focus is cellulosic ethanol, a significant market opportunity that is driven by a rapidly growing market demand for renewable biofuels, and is further bolstered by government mandates and incentives. In addition, we believe our cost structure benefits from the ability to locate our compact facilities on or near landfill sites, the abundant supply of negative cost MSW feedstock and our competitive production costs.

Tangible commercial pipeline. In addition to our first standard 10MMGPY commercial facility under construction in Edmonton, we have two 10MMGPY commercial facilities under development in Pontotoc and Varennes. Beyond these projects, we have prioritized 68 landfills in the United States as additional potential sites for development by us or our strategic partners, representing a potential production of 2 billion gallons of ethanol per year using 200 of our standard 10MMGPY modules.

Key strategic relationships with industry-leading partners. We have entered into a non-binding arrangement with an affiliate of Waste Management (WM) to sell systems using our proprietary technology platform for the potential development of up to six sites with a combined ethanol production capacity of 100-120MMGPY.

With Valero, we have entered into a non-binding term sheet to sell systems using our proprietary technology platform for the development of up to six stand-alone sites with a combined ethanol production capacity of 80-250MMGPY and additional facilities to be co-located with existing Valero facilities.

Experienced management team. Our executives and senior managers have built our business from the ground up and have extensive experience in research and development, business development, project financing, procurement and plant operations.”

Financing to date

Enerkem has incurred substantial net losses to date, losing $C5.9 million in 2008, $C3.7M in 2009, $11.8M in 2010 and 19.1M for the first nine months of 2011.

From the F-1: “On March 13, 2009, in connection with a $4,000,000 loan from Atel Ventures, Inc., we issued a warrant to Atel Ventures, Inc. pursuant to which it is entitled to purchase 9,682 Series 3 Class A preferred shares at an exercise price of C$46.00 per share.

“On January 27, 2010, we issued 828,667 Series 4 Class A preferred shares at C$46.00 per share, for an aggregate purchase price of C$38,118,896.

“On April 25, 2011, we issued 475,559 Series 1 Class B preferred shares at C$124.17 per share for an aggregate purchase price of C$59,050,161.

The bottom line

As essentially pre-revenue companies go, here’s a gem. The right partners, a low-cost, locked-in, always available, non-commodity feedstock. The upstream is gold. Downstream? Who better than Valero, which has been turning its own ethane production and distribution arm into a corporate shining star.

All of which brings us to the midstream. There are three and only two concerns, but they are, how do we put it, items to watch and note.

First, like so many others who have come to market in this IPO wave, Enerkem has not completed a commercial scale facility – so there is what is becoming “the usual” scale-up risk. In Enerkem’s case, it’s a 7X scale-up, far less than many others who have made it across the IPO chasm.

Second, bringing down the costs. Enerkem emphasizes its ability to manage down the operating costs – , absent an execution at scale, that will have to be taken on faith. Again, a common feature of the IPOs in this sector.

The third? Yikes, Enerkem hasn’t made ethanol yet at its demonstration plant. Now, methanol to ethanol is not exactly rocket science – the catalysts and technology have been around for some time. But, there it is – they haven’t made a drop of the intended product at the Westbury plant.

Ethanol is selling in the 2013 futures market for $2.11 per gallon, and there’s about $0.27 per gallon in cellulosic waiver credits available – that gives the company a target, today, of around $2.38 for its operating costs, capex and margin. Right now, it’s a light margin – but with some work down on cost through scale, the margins look sweet.

The complete S-1 registration statement.

All 250-or-so pages in all their glory. The complete F-1 registration statement is here.

Disclosure: None.

Jim Lane is editor and publisher** of Biofuels Digest where this*** article was originally published.  Biofuels Digest is the most widely read Biofuels** daily read by 14,000+ organizations.  Subscribe*** here.

February 05, 2012

Ten Clean Energy Stocks for 2012: 10% more than other top-10 lists

Tom Konrad. CFA

A "bonus" stock pick this year.  Also, notes on New Flyer Industries and Finavera Wind Energy.

Maybe it was because Seeking Alpha did not carry my annual list of 10 Clean Energy Stocks for 2012 this year, but no one seems to have noticed that there were actually 11 stocks in the list.  Call it the Spinal Tap of top-ten lists.

If anyone did notice the extra pick, they didn't leave a comment.  What happened was that I have two number 8 stocks, but there is enough text between them that neither I nor most of my readers could see both 8's at once on the same screen.  Oops!

I had 10 originally, but my messed up numbering led me to think I did not have enough, and so I went back and added Honeywell (HON) at the last minute, choosing to play it safe with a large cap energy efficiency company.  So far this year, Honeywell has produced the expected safe results, but because clean energy stocks (especially solar) have been on a tear,  Honeywell's 10.5% return has dragged down the portfolio's average a little.  But who's complaining?


I'll be complaining if including Honeywell makes my list not beat PBW, my clean energy benchmark for the first time in 2012.  As of February 3rd, PBW is up 20.7% and my broad market benchmark IWM is up 12.3%.  Meanwhile, my (ahem) eleven stocks are up an average of 15.0%, with New Flyer's monthly dividend payment bringing the portfolio's total return to 15.1%.  Readers who hedged their portfolios by buying a put on SPY as I suggested did worse (since the market was up in January), slightly under-performing even the broad benchmark with a total return of 12.0%.  But the year is still young.


The main reason this portfolio has underperformed broader clean energy was my decision not to include any solar stocks.  Solar stocks have been rapidly making large percentage gains from the miserable lows they hit at the end of last year.  The Guggenheim Solar ETF TAN is up 32% so far this year, and solar stocks are prominent among PBW's holdings.

I toyed with including a solar stock or two in the list, for similar reasons to those I discussed last October, but I decided to hold off simply because I don't follow solar closely enough to make informed selections. 

Finavera Wind Blows Back

In truth, the portfolio was doing considerably worse only a week ago, but recently got a boost from a couple stocks which had been lagging.  First, Finavera Wind Energy (FNVRF.PK)
 updated investors on progress towards environmental permitting of its projects, highlighting the fact that two of their projects are within months or receiving final permits:

Regularly published power industry data provides some context for the valuation of wind energy projects. The data illustrates the average multiples paid for projects in 2011. Early stage projects have sold for more than $60,000/MW. Projects that are fully permitted and have a power purchase agreement have sold for more than $500,000/MW. The jump in value from the early stage to the next stage is significant. Finavera currently finds itself at this inflection point. Our projects are being valued in the public markets as early stage, yet we are a few short months away from being fully permitted on our first two projects. We believe Finavera is on the cusp of a significant asset re-valuation.

At $0.43, Finavera is now up only 5% for the year, but if those permits are granted it has a lot farther to go.  Investors who bought the stock last month when it was trading in the $0.25-$0.30 range are already feeling smug (I added to my positions, but mostly between $0.35 and $0.40.)

New Flyer Puts the Pedal to the Metal

Second, New Flyer Industries (NFYEF.PK/NFI.TO) stock has been accelerating since January 19th.  The unusual action prompted regulators to ask New Flyer to disclose that New Flyer has been in discussions "regarding a potential commercial and strategic relationship."  But company CEO Paul Soubry says there are no deals closing, and several analysts agree.

The stock has been incredibly under-priced since last summer.  North American transit bus orders have been slow for the past two years, and New Flyer has been reducing its backlog as a result.  But the flip side of the slow bus market has been a rapidly aging bus fleet and increasing pressure on transit operators to replace aging buses. 

The share price run-up is most likely the result of investors realizing that this is a massively under-priced stock in a cyclical market which is about to enter an expansionary phase.


Although my stocks are suffering this year from my long-term decision to mostly avoid solar, I'm not complaining about the returns, and I'm very happy to see Clean Energy stocks finally heading in the right direction after a gruesome year in 2011.

DISCLOSURE: Long NFYEF, FNVRF, and puts on IWM and SPY.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

February 03, 2012

Lux Boosts Their Micro-Hybrid Vehicle Forecast to 39,000,000 Cars a Year By 2017

John Petersen

A couple days ago Lux Research published a new report titled “Every Last Drop: Micro‐ And Mild Hybrids Drive a Huge Market for Fuel‐Efficient Vehicles” that focuses on rapidly growing markets for micro-hybrid vehicles and their battery systems.

During 2011, automakers sold an estimated 5,000,000 micro-hybrids worldwide, mainly in Europe. By 2017, Lux forecasts global micro-hybrid sales of 39,000,000 cars a year and a $6.3 billion annual market for their battery systems, which represents an across the board average of $161 per vehicle compared to an auto industry average of less than $60 per vehicle in 2009. While most US investors aren't even aware that micro-hybrid technology exists, it's already crossed the chasm and become a mainstream automotive technology.

To put the micro-hybrid phenomenon into perspective, most auto industry observers believe combined global sales of HEVs, PHEVs and EVs will be lucky to reach the 2,000,000-vehicle a year mark by 2017. Electric drive technologies may become mainstream architectures for 2025 and beyond, but for the next six years there's no doubt that cheap and easily implemented micro-hybrid technologies for mass-market vehicles will be at the epicenter of battery industry growth and profitability.

The term micro-hybrid is used to describe idle elimination systems that reduce fuel consumption by turning the engine off when it's not being used to power the wheels. They typically replace both the starter motor and the alternator with a belt-driven starter-generator, or BSG, upgrade to a better battery and add required control electronics. No other changes are necessary. While a BSG will offer a couple horsepower of cranking and generate a couple kilowatts of electricity, BSG's are not robust enough to drive a vehicle's wheels. Nevertheless, they're simple to combine with existing engine architecture and very cheap to implement. Because of their mechanical simplicity, micro-hybrids only cost $400 to $1,000 more than a conventional vehicle, but promise fuel savings of 5 to 15 percent. Micro-hybrids are a baby step, but 39,000,000 baby steps a year can cover a lot of ground and save about 15 millions of barrels of oil per year.

In their latest report, Lux divides micro-hybrids into three distinct classes that require different types of batteries.

Light Micro-Hybrids are typically sub-compact and compact cars that offer limited stop-start functionality and don't have regenerative braking. The current batteries of choice for light micro-hybrids are enhanced flooded lead acid batteries. The global market for light micro-hybrids is expected to grow to 8.5 million vehicles per year by 2017.

Medium Micro-Hybrids range from sub-compact through full-size cars that offer greater stop-start functionality and may offer limited regenerative braking. The current batteries of choice for medium micro-hybrids are enhanced flooded lead acid batteries and advanced AGM batteries. The global market for medium micro-hybrids is expected to grow to 22.2 million vehicles per year by 2017.

Heavy Micro-Hybrids are typically mid-size and full-size cars that offer the highest level of stop-start functionality, take full advantage of regenerative braking and implement other fuel economy innovations. Because of their extreme power demands, heavy micro-hybrids need better performance than the best AGM batteries can offer. The global market for heavy micro-hybrids is expected to grow to 8 million vehicles per year by 2017.

The following graph from the latest Lux report shows how the market is expected to evolve over the next six years.

2.3.12 Lux.jpg

On a regional basis, Lux is forecasting that:
  • The European micro-hybrid market will grow from over 4 million units in 2011 to 12.6 million units by 2017.
  • The North American micro-hybrid market will grow from a standstill in 2011 to over 8 million units by 2017.
  • The Japanese micro-hybrid market will grow from about 400,000 units in 2011 to over 6 million units by 2017.
  • The Chinese micro-hybrid market will grow from under 300,000 units in 2011 to 8.9 million units by 2017.
Last November I used the following table to highlight the differences between the daily battery load in a normal car and the daily battery load in a micro-hybrid for a typical city driving commute with 15 engine-off opportunities per leg.

Power Event
Conventional Stop-Start
Initial engine start 500 Amp Seconds 500 Amp Seconds
Engine-off accessory loads
45,000 Amp Seconds
Engine restart loads
4,500 Amp Seconds
One-way battery load 500 Amp Seconds 50,000 Amp Seconds
Round-trip battery load 1,000 Amp Seconds 100,000 Amp Seconds

We're all familiar with the flooded lead-acid batteries that have been standard automotive equipment for decades and I don't think anybody would suggest that they can do 100 times the work without quickly failing. The automakers know that better batteries are needed, but they all want to get by with the cheapest better battery they can find because every dollar of cost matters in mass-market products.

Some automakers are using enhanced flooded batteries for their light and medium micro-hybrids solely because of cost considerations. They reason that enhanced flooded batteries offer twice the lifetime energy throughput of their simpler siblings and twice the throughput is always a good thing. The problem, of course, is that the numbers don't balance if you double the throughput of the battery and expect it to do 100 times the work.

A similar, albeit less dramatic, dynamic exists for the automakers who are upgrading medium micro-hybrids to AGM batteries that cost twice as much as their more primitive cousins but offer ten times the lifetime energy throughput. After all, improving performance by an order of magnitude is huge – until you understand that they're increasing the required work by two orders of magnitude. The bottom line is that AGM batteries will be the best available technology for micro-hybrids until a significantly better solution emerges, proves its merit and becomes available at relevant scale. Once a better solution is widely available, the market must gravitate to better performance unless the incremental cost exceeds the value of the incremental fuel savings.

I follow two companies that will be the first big beneficiaries of the rapid global adoption of micro-hybrid technologies. Johnson Controls (JCI) and Exide Technologies (XIDE) both manufacture enhanced flooded batteries for micro-hybrids and are rapidly expanding their AGM battery manufacturing capacity in North America and Europe. They will clearly be preferred suppliers for light and medium micro-hybrids from American and European automakers for the foreseeable future. While enhanced flooded batteries won't have a huge impact on either revenues or profits, their rapidly expanding AGM battery sales will double their per vehicle revenue and triple their per vehicle margins. It truly is a manufacturer's dream scenario. As micro-hybrid production numbers ramp rapidly over the next few years I expect both companies to outperform the market's expectations by a wide margin.

From my perspective the most interesting segment is heavy micro-hybrids that demand more performance than AGM batteries can hope to deliver. These next generation systems will push the frontiers of micro-hybrid technology by maximizing regenerative braking and adding other nuanced features like passive boost, which disables the BSG during acceleration, opportunity charging, which increases power to the BSG when the vehicle is decelerating, and engine-off sailing, which turns the engine off while the vehicle is rolling to a stop. The heavy micro-hybrid market is the prime target for two advanced technology systems that are working their way through the development and commercialization process, and stand a good chance of becoming industry leaders over the next few years.

In the fall of 2010, Maxwell Technologies (MXWL) and Continental AG introduced a dual device system that matches a supercapacitor module from Maxwell with an AGM battery and control electronics from Continental. The first design win for the Maxwell-Continental system is diesel powered micro-hybrids from Peugeot-Citroën. A comparable system will be used by Mazda in it's iELOOP heavy micro-hybrid. Other automakers will almost certainly follow their lead in adopting dual device systems for heavy micro-hybrids.

A second advanced energy storage system for heavy micro-hybrids is the PbC battery from Axion Power International (AXPW.OB). The PbC is an integrated battery-supercapacitor hybrid that combines lead-based positive electrodes from a battery with carbon based negative electrodes from a supercapacitor in a single cell. While the PbC is not yet available as a commercial product for heavy micro-hybrids, it is two and a half years into evaluation by BMW and other leading automakers, and offers a performance profile that simply can't be matched by anything short of a lithium-ion battery pack. If Axion can clear the last testing and manufacturing hurdles, the PbC has the potential to be a game changer in the heavy micro-hybrid space because it offers 5X the capacitance of dual device systems and 5X to 20X times the dynamic charge acceptance after a few months in service.

Last week I spent some time with a former Enersys engineer who noted that there are only two components in a car that automakers refuse to put their brand on. The first is the tires and the second is the battery. If a consumer has problems with either of those components, the automakers say, "Take it up with the manufacturer" who frequently says, "You abused our product by pushing it beyond design limits."

While the traditional blame game has a long and storied history, it can't continue indefinitely because micro-hybrids are being sold by the automakers as fuel efficiency and emissions control systems. Over the short term, the automakers will continue to play the game of using cheap batteries that can't stand up to the duty cycle. Over the longer term, applicable regulations will change to require that the OEM battery installed in a micro-hybrid be designed to satisfy the requirements of the vehicle's electric load profile.

For investors who want to benefit from the micro-hybrid vehicle trend but don’t have the time or inclination to study the various energy storage technologies in depth, a balanced portfolio weighted in favor of the large established battery manufacturers makes the most sense. While I have a personal favorite, I expect all four companies to outperform over the next three to five years.

Disclosure. Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

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