Jim Lane

Companies creating opportunities in feedstocks are getting lots of love from investors, and giant downstream partners like BP and Shell.

What’s up in the new upstream?

It has not escaped the attention of investors that Renewable Energy Group’s (REGI) IPO resulted in a $262 million valuation for a company actively earning $2.11 per share through the sale of 200 million+ gallons of biodiesel, while Ceres recently increased the target for its IPO to a valuation above $500 million, despite being, in essence, a pre-revenue company.

What gives? The secret, it turns out, is in feedstock. In recent months and years, as more and more advanced biofuels processing technologies have made it through pilots and demonstrations of their technology and head for commercial-scale, investors have been focused on the fact that value-creation in biofuels has generally conferred an awful lot of dollars on feedstock growers, and not so much for the processing technologies and downstream marketers.

Controlling feedstock costs

For that reason, companies like BP Biofuels have been making control of the feedstock costs, through direct grower contracting, a central feature of their business models. And processing companies that have been getting significant traction towards commercialization, are generally those that have spent the most time and attention locking down the feedstock costs.

Examples? Well, there are plenty, such as POET’s Biomass Division, the technologies such as INEOS Bio, Fulcrum and Enerkem that have secured long term, zero-cost MSW supply contracts; companies like LanzaTech and Joule that utilize and have secured long-term supply of low cost, industrial off-gases such as carbon monoxide or carbon dioxide; or companies like Mascoma and ZeaChem that have establish long-term relations with forest biomass companies like JM Longyear and Greenwood Resources.

Over the past five years, there have been a raft of celebrated bankruptcies and shutdowns in the bioenergy sector – restructuring at Pacific Ethanol, Aventine Renewables, and VeraSun, as well as (at one time) the  shut-down of huge percentage of global biodiesel capacity. Many of the companies and plants have revived and re-opened, but consider this: just one generation after the days of FarmAid, hardly a grower (of first generation feedstocks) has not enjoyed pretty good times, throughout the past five years.

Limits there are, as is widely understood, on the availability of first-generation feedstocks. In some cases, pricing pressure, as in the case of maize or soybeans. In other cases, regulatory pressure such as the EPA’s ruling that palm oil biodiesel has insufficiently low greenhouse gas emissions to qualify as an advanced biofuel.

Value creation, value unlocking, value add

In the Digest’s Feedstock Framework, we see three types of companies.

First, those that are chasing value creation – turning low-performing feedstocks into economic rock stars through yield intensification, often through hybridization and unlocking favorable traits that are hidden in the genome.

Second, companies involved in value unlocking. That is, taking next-gen feedstocks already available at scale – generally, residues, and finding processing or extractive technologies that tease out valuable material streams out of what, previously, was thought of as waste, fit only for dispersal and disposal.

Third, companies involved in value adding. That is, taking existing feedstocks already available at scale, and already providing material ROI to their growers and processors, and using synthetic biology to produce higher-value products from the feedback.

In some cases, these are processors, some cases seed developers, some cases developers of magic bugs. But all of them are working on the right side of the value equation in bioenergy and biomaterials – which may help explain why investors are giving them so much attention as they come to the markets for capital – whether it is financial investors, or serious strategic players working in the downstream markets, such as BP Biofuels, Shell, Valero or Tesoro.

A Feedstock Framework

Below, we have parsed the major feedstocks into the buckets of “value creation”, value unlocking and value add.

Note: The companies cited are for illustrative purposes – there are, for example, tons of companies working on micro algae and agricultural residues that we did not have space to mention – and no disrespect is intended if a favorite company of yours is not included. And, yes, some of these feedstocks (e.g. algae) fit to some extent in both the sugars and oils department. But you get the general idea.

Value creation (new feedstocks)

Oil crops
Microalgae	Sapphire Energy, Solazyme (SZYM), Phycal, Aurora Algae, many others
Jatropha	SG Biofuels
Carinata	Agrisoma
Camelina	Sustainable Oils, Green Plains (GPRE)

Sugars: cellulosic and otherwise
Macroalgae	Sea6/Novozymes(NVZMY.PK), BAL, Kumho
Miscanthus	Mendel
Switchgrass	Ceres
Woody biomass	ArborGen
Sorghum	Chromatin

Value unlocking (residues)
Bagasse	Codexis (CDXS)
Municipal solid waste	Enerkem, Fulcrum, Terrabon, BlueFire(BFRE.OB), INEOS Bio, Coskata
Animal fats & wastes	Dynamic Fuels, Neste Oil, Diamond Green Diesel
Wood residues	ZeaChem, Mascoma, Cobalt, KiOR(KIOR), American Process
Waste gases	Proterro, Joule, LanzaTech
Agricultural waste	POET/DSM, Abengoa(ABGOY.PK), Novozymes, Dupont (Genencor)

 

Value adding (existing feedstocks)
Corn starch	Gevo(GEVO), Butamax, Green Biologics, Genomatica
Cane syrup	Amyris(AMRS), LS9

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.

Posted by Guest Contributor at 11:20 AM | Permalink | Comments (0)

Jim Lane

Obama unveils an “all-out, all of the above” energy strategy. But is it really “all of the below”? Just election talk? Is ginning up a bioeconomy shelved for a year, or just a week?

Meanwhile, hopeful news from Novozymes (NVZMY.PK) and the World Economic Forum.

In Washington, President Barack Obama gave his State of the Union speech, and dashed hopes and expectations of a revival strategy for US industry through encouraging growth of the bioeconomy. His annual presidential address became the first in a number of years to avoid any mention of biofuels, ethanol, the bioeconomy, or biotechnology.

In a speech which mentioned jobs 32 times, the high-export, high-productivity US agriculture sector also failed to score a single mention. The closest the president came to mentioning biofuels was in touting that US oil imports were at their lowest point in 16 years – without mentioning that the key factor in that import achievement was the rise in domestic biofuels production.

Instead, the president proceeded to embrace an “all out, all of the above” energy strategy – focusing on an intense increase in domestic oil and natural gas production, and borrowing the “all of the above” phrase which, until recently, was most closely associated with conservative Texas Republican, Gov. Rick Perry.

The centerpiece of his strategy? Natural gas. “We have a supply of natural gas that can last America nearly 100 years.  And my administration will take every possible action to safely develop this energy.  Experts believe this will support more than 600,000 jobs by the end of the decade,” the president said.

Clean energy? The president opted to give up on hopes for legislation (except for a one-line exhortation for Congress to renew the Section 1603 tax credits that are used for wind and solar development), and focused on authorizing permits for 10 GW of renewable power production on federal land – that’s equivalent to about 1% of US power production capacity.

The focus on oil & gas production was surprising as Obama Administration policy, but unsurprising as re-election strategy: removing a line of attack that the President’s opponents were planning for the 2012 election campaign.

Has the Obama Administration shifted from an “Action News” to an “All Talk” strategy – shifting from policy implementation to framing the election conversation? We think so. We expect to hear a lot more about Mitt Romney’s 14 percent tax rate this year, than about policies and programs to revive manufacturing, or deploy clean energy.

For now, whither goes biofuels?  The word from Washington is that the President will unveil his Blueprint for a Bioeconomy next week – we’ll see then what the Administration has in mind for industrial biotechnology.

And now, a word from Davos: “Moving towards a next-generation ethanol economy”.

From Davos, where the World Economic Forum is gather this week, came something a little more weighty and specific than the State of the Union speech.

Bloomberg New Energy Finance launched its report “Moving towards a next-generation ethanol economy”. Commissioned by Novozymes (NVZMY.PK), the report estimates the socioeconomic prospects of deploying advanced biofuels in eight of the highest agricultural-producing regions in the world, i.e. Argentina, Australia, Brazil, China, EU-27, India, Mexico and the USA.

“An estimated 17.5 percent of the agricultural residue produced could be available today as feedstock for advanced biofuels. With this amount, enough advanced biofuels could be produced to replace over 50 percent of the forecasted 2030 gasoline demand,” said Steen Riisgaard, Novozymes’s CEO.

The report shows that the eight regions analyzed have the potential to diversify farmers’ income, generate revenues ranging from $1 trillion to $4.4 trillion between today and 2050 and create millions of jobs. Including 1.4 million jobs in the USA, according to the report.

Why the Obama shift in the State of the Union?

Why the shift towards fossil fuels? The President is aiming for re-election, by appealing to swing state voters with the hope of economic gains from increased domestic oil production. The focus of the President’s speech – which pinned hopes economic growth on a revival of American manufacturing and energy production – generally focused on reducing inequality between rich and poor through revision of the tax code.

The real all-of-the-above: advanced biofuels as it approaches commercial-scale

As an example of all-of-the-above energy development that works, look these eight projects we profiled recently in the Litmus Test. First commercial projects from newly-minted public companies Solazyme (SZYM), Gevo (GEVO) and KiOR (KIOR). Two trash-to-biofuels projects from INEOS Bio and Enerkem, located in Florida and Alberta. Europe’s largest biosuccinic acid project, scheduled to be opened by DSM in France. The world’s largest cellulosic ethanol project to date, being readied by Beta Renewables in Italy. And a large-scale renewable diesel project from the Darling (DAR)-Valero partnership that is expected to be ready just as 2013 gets underway.

Eight different technologies, a range of feedstocks, deployment around the globe. It’s a flowering of innovation.

State of America’s biofuels industry

For even more perspective, this week, leaders some of the top biofuels companies in the country are offering their thoughts on the state of the advanced biofuels industry, in a special episode of the Advanced Biofuels Association’s Better Fuels Moment online video series.

The episode features Joel Velasco, senior vice president of Amyris (AMRS); Jack Huttner, executive vice president, commercial and public affairs of Gevo; and Michael McAdams, president of the Advanced Biofuels Association, ABFA.

McAdams noted that the special episode emphasizes that, “Washington now has a real opportunity to invest in clean energy fuels, smarter investments based on performance, not a lifetime of subsidized handouts from Washington.  This opportunity can strengthen America’s energy security while creating jobs here at home, today.”

The Bottom Line

The good news – the release of the “blueprint for a bioeconomy”, expected next week, may offer more substantiation of an “all of the above” strategy. And, for sure, commercialization is rapidly moving out of the realm of government support and towards the private sector. Note that both KiOR (KIOR) and POET-DSM dropped their DOE loan guarantees, saying they were unnecessary for their projects.

For industry – it is a reminder that Obama Administration is likely to support in the form of purchase rather than development – government-as-customer rather than government-as-investor. Those that get themselves off the government dope may well find themselves with a significant first-mover advantage, not to mention some hefty government contracts for drop-in diesel and renewable jet fuel.

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.

Posted by Guest Contributor at 10:01 AM | Permalink | Comments (0)

Jim Lane

Rewind to 2011 with a “best of” New Year’s story? Bah, humbug! Today, Biofuels Digest looks forward to the sunny possibilities of 2012 in bioenergy.

As the sunset of 2011 gives way to the dawn of 2012, here at the Digest we resist the holiday temptation to look back over the challenges and highlights of the year gone by, and instead once again roll out our crystal ball as we list the Digest’s 10 Biofuels Predictions for 2012.

Top 10 Biofuels Predictions for 2012

10. Advanced biofuels capacity surges to 1 billion gallons, globally. We see 570 million gallons in capacity from Neste Oil alone; 137 Mgy from Diamond Green, 75 Mgy from Dynamic Fuels, 62 Mgy from KiOR, 37 Mgy from Gevo, and 25 Mgy from POET.  New, smaller commercial facilities (8-20 Mgy) are expected from Amyris, Chemtex, Solazyme, INEOS Bio and POET; the rest, 50 Mgy in capacity at Nature Works and Metabolix, and small demonstrations and pilots from nearly 200 other companies.

9. Merger-Mania. 200 companies can’t all continue to march forward, developing advanced bioenergy projects. Projects that have completed pilots are going to be ripe for merger and acquisition as they search high and low for expansion capital and find that the well is getting quite dry, as many oil and chemical giants will have already placed their bets. Look for projects to attempt to tap feedstock providers next – absent that, the projects seeking $100M+ for commercial-scale expansion will be looking to make themselves more attractive to investors by issuing so much equity to investors that it will feel like a merger even if the projects remains technically independent.

8. Selected IPOs go forward. The buzz around Elevance and Genomatica continues to be strong, and Fulcrum and Mascoma have put themselves into very strong positions with financing deals from Valero (VLO) and Waste Management (WM). All of the IPOs in the queue, and there are 10 of them, have merit, but we expect that several of them might opt instead to be acquired.

7. Momentum shifts to Asia. Brazil has ruled the roost for the past two years – now, sugarcane shortages, surging demand, and the fact that many of the partners have already chosen their partners for the Brazilian shuffle – well, momentum is shifting to Asia. For those that can utilize palm oil or palm waste – think Indonesia and Malaysia. Cassava? Thailand or Vietnam. Cane? That’s India. Need industrial partners, coal, or residues from forest, animal or municipality? That’s China. Thinking algae? Think a little farther to the south, in Algstralia, where cane is also in relatively plentiful supply.

6. US Renewable Fuel Standard is revised. Though most US biofuels trade associations have kept strongly to a “don’t mess with the RFS” strategy, its common sense that the forces that opposed the VEETC ethanol tax credit – chicken and beef producers, anti-corn activists and small government zealots – will now pivot their full attention to the Renewable Fuel Standard, showcasing the shortfall in the cellulosic biofuels pool. Oil companies may be divided on the RFS given their increasing investments in the sector, but chemical investors won’t care much, and the algae-based biofuels developers will support a revision of RFS targets.

5. Oil and chemical companies rule. Venture capital is just about maxed out in advanced biofuels, and the players that are making a difference are a handful of visionary feedstock-side investors (ADM, Cargill, Bunge) on light duty, more aggressively so from Waste Management. But the big dollars will be downstream in 2012. Valero and BP are stepping up, Shell expects to deploy billions in Brazil, and Petrobras, too. The major Indian oil companies may go big, and we expect to see more and more interest in the sector from Dow, BASF, Dupont, Rhodia and others in the chemicals businesses.

4. Aviation biofuels capacity increases, but US $510M investment de-funded. Aviation biofuels will continue to get hotter and hotter – more and more airlines will try small purchases to try and stimulate large-scale production and helping costs to come down. But we expect only a series of delays and frustrations in US government efforts to fund its $510M commitment to invest in military and aviation biofuels. It’s going to be “sorry” from the House of Representatives throughout 2012 on the question of either re-purposing funds from earlier appropriations, or granting new funds for the Navy’s and the DOE’s side of the investment. After the US elections, in 2013 – that’s a different story.

3. Ethanol producers begin switch to biobutanol and chemicals en masse. If last year was the year of the IPO, as 2009 was the summer of algae, 2012 will be the year that ethanol producers begin to switch over to higher-value molecules, such as butanol or various organic acids. For ethanol producers, its the path of least resistance in getting around the ethanol blend wall. For the high priests developing the new technologies and magic bugs, its an opportunity to partner with companies that have feedstock, infrastructure, 90 percent of the required steel in the ground, and existing markets for co-products.

2. “Carbon capture & re-use” is the new buzzword. It’s been “carbon capture and storage” for some time, but it is beginning to dawn on technologists that, in the end, the costs are too high and the technology can only help stem the flow of carbon into the atmosphere, not provide a permanently sustainable solution. The problem is not that there is too much carbon. There is exactly as much carbon now as 100 years ago – it is a distribution problem. Carbon that needs to be in the soil, helping to produce food and fuel, is trapped in the atmosphere and in the ground. Technologies that capture carbon emissions before they are vented into the atmosphere, and pipe CO2 to technologies that can utilize CO2 to make products for a fast-growing world – that’s where the action will be.

1. US Farm Bill contains reduced, targeted energy title. A new farm bill is due in 2012, and there continue to be a question as to whether there will be a Farm Bill at all, any kind of Energy title within the bill, and what that title might look like. Our belief? Yes, the grand coalition that brings forth a Farm Bill will re-form, fractiously as ever. Yes, Virginia, there will be an energy title. But, holy Vilsack, will it be smaller or what? Look for the energy title to focus on four key programs programs – a revised biomass crop assistance program, designed to help bring cellulosic feedstocks to market; direct equity to inject in commercializing advanced biofuels for military use, that utilize rural biomass; loan guarantees to ensure that a project finance market emerges for advanced biofuels, at scale; finally, a blender pump program to help industry to circumvent the E10 ethanol blend wall with expanded E30 and E40 availability.

Last year’s predictions: 8.5 marks out of 10

For our 2011 batch of predictions, we give ourselves 8.5 marks out of 10.

We gave ourselves 1 full mark for predicting a new set of USDA Loan Guarantees, the end of the VEETC ethanol tax credit, status quo on the US Renewable Fuel Standard,  the continuation of IPO Fever, the dominance of renewable chemicals among early-breakout strategies, the domination of renewable diesel in production capacity, the advent of numerous “bolt-on” deals including increasing US-Brazilian ties, and for the rise of the strategic investors.

We gave ourselves a half mark on our prediction that Brazil, India and China would dominate the development headiness – not much activity, in the end, in India, and more in the US than expected.

We gave ourselves a zero on expanded capacity in cellulosic ethanol – it expanded, but not nearly as much that would justify including it in our predictions.

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.

Posted by Guest Contributor at 08:48 PM | Permalink | Comments (0)

Jim Lane

Following a stinging WSJ editorial board critique on cellulosic biofuels, we leave a fact-filled voice mail for News Corp to hack.

Meanwhile, Mascoma lands $80M and heads for scale.

The Wall Street Journal editorial page writers recently published a stinging indictment of cellulosic biofuels.

Bottom line: the Journal is offering the shortfall in the cellulosic biofuels pool (around 2% of the overall US Renewable Fuel Standard this year), as evidence that government mandates and subsidies do not work, and that the US government has shoveled a lot of money into advanced biofuels for nothing.

Was it brain-failure?

Well, they must be stupid at Valero, announcing this week that the company would invest some $150 million in the new Mascoma cellulosic biofuels plant in Michigan. And at Waste Management (WM), too, announcing last week that they would provide the bulk of financing for Enerkem’s initial commercial-scale cellulosic ethanol facility, and $70 million in financing (a few weeks back) for Fulcrum Bioenergy’s first commercial cellulose biofuels facility in Nevada. Hoo-hah, what morons!

Why are companies like BP, Shell, Valero, Dupont, Dow, Waste Management, Tyson, and Darling all investing in what is, we are now informed, a phantom? Have they all gone simultaneously bonkers?

And yet … perhaps companies like Waste Management and Valero are not investing because of the $1.01 per gallon cellulosic biofuels tax credit, which expires next year before these projects are even completed. Or because of corporate brain-failure. They think that – perish the thought – that they are going to make money from the technology.

It came just the same

As the Grinch might say,“It came without swaps, or options, or fees, it came without points that will knock out your knees. It came without puts, or Ponzi-sourced cash, those foolish folk making fuel out of trash. But despite all our efforts to sell ‘em on oil, they went for renewables after all of our toil. Their investments came, they came just the same.”

It makes you almost wish that the voice-mail hackers at News Corp had targeted, say, Waste Management, instead of celebrities from the entertainment industry, over the past decade. They might have learned something useful from their innovative approach to privacy invasion.

Hack this voice mail

As a gift to our brothers-in-journalism at News Corp, we left a message on the Biofuels Digest voice mail this morning, explaining how much qualifying advanced biofuels capacity is now available to fill the 2 billion gallons that will be mandated in 2012 by the US Government.

That would be, er, around 13 billion available gallons. With some 4 billion gallons in added advanced biofuels capacity announced around the globe for opening by 2016. Four years after the cellulosic biofuels tax credit expires.

There you go again, another example of abject failure in public-private partnerships. You put up a mandate and what do you get? 13 billion lousy gallons to fill a 2 billion gallon mandate. Could there be any more compelling evidence available that mandates do not work? Sheeesh.

For more information on the topic, News Corp can hack our voice mail instead of, say, Madonna’s. 786-393-8530: hack away.

Who’s investing faster than the US Government?

When it comes to RFS-qualifying advanced biofuels capacity, there are a couple of companies investing faster than the US government, as it turns out.

Lord, what fools. Who could those be? Mere pawns for quick destruction by real companies, real companies like oil companies.

Um, that would be Shell and BP.

Oops.

The pool, by the numbers

As we have repeated so many times it just gets nauseating, cellulosic biofuels are a component within the advanced biofuels pool.

Here’s how a pool works. If cellulosic biofuels come up short, the other qualifying fuels can easily slip in to fill the gap. Sort of like, when one oil well dries up, you can make up the shortfall by drilling another. And when Saudi Arabia dries up, oil-wise, the Journal can urge us to drill the heck out of the Arctic National Wildlife Reserve. Or the ocean. Or Neptune. And so on. That’s how pools work.

Just so you know.

Pointing out that one component of the overall pool is behind, well that’s like taking one stock out of the Dow Jones Industrials and saying that, because one component stock is underwater, the world of equities is going to hell.

In retrospect, the Congress was simply wrong to prescribe one portion of the pool so narrowly. They were just asking for trouble back in 2007. It has become a poster child for the failure of advanced biofuels, despite the fact that the world is awash in capacity to fill the RFS mandate.

For example, the Diamond Green Diesel project from Valero and Darling (DAR), scheduled for completion next year with 137 million gallons in capacity. Or more than 500 million gallons in renewable diesel capacity that Neste Oil has brought online in the past there years. Or the 75 million gallon Dynamic Fuels project that Syntroleum and Tyson opened last year. Just to name a few.

Are market-makers important?

Now, for sure, the RFS mandated market is a helpful thing, because it provides assurance of market access. Anyone who ever tried to launch a web browser to compete with Internet Explorer knows that it can take government action to get a rival technology distributor (in this case, fossil oil, as opposed to Microsoft) to make a disruptive, competitive product available to their customers.

And DOE loan guarantees and project grants are a useful thing. Government support in the early days was instrumental in other technologies, too. For instance, that 7th wonder of private enterprise, the oil pipeline. The internet. The GPS system that helps you navigate around town. Just to name a few.

Mascoma heads for scale

Therefore, its not exactly bad news when, this week, Mascoma announced that it has signed a cooperative agreement with the DOE to assist in the design, construction and operation of its first commercial  commercial-scale hardwood cellulosic ethanol facility.

The combination of the $80 million from DOE and the remained from Valero effectively completes the financing for the first project. Groundbreaking is scheduled for the first half of next year, opening of the facility 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.

Reaction from Mascoma

“This DOE award is a significant milestone for Mascoma, and the biofuels industry, as it completes the financing for the development and construction of a first-of-its-kind 20 million gallon per year cellulosic ethanol facility in Kinross,” stated Bill Brady, President and CEO of Mascoma.

“Mascoma is honored to receive this award and we are fortunate to have such a strong partnership with the DOE for the Kinross project. We look forward to the continued support from and collaboration with the DOE,” added Michael Ladisch, Ph.D., Chief Technology Officer of Mascoma, Principal Investigator for the DOE award, and Distinguished Professor at Purdue University.

Reaction from DOE

“Biofuels hold great potential, not only for reducing our dependence on foreign oil, but also for creating new jobs and economic opportunities for America’s rural communities,” said Valerie Reed, Ph.D., Acting Biomass Program Manager, Office of Energy Efficiency & Renewable Energy, of the DOE. “The cooperative agreement between Mascoma and the DOE will enable the construction of a new commercial-scale advanced biofuels facility, and the only one using CBP technology. It is indeed a significant step towards meeting America’s energy challenges with cost-effective and sustainable bioprocesses.”

Money pits?

This week, Motley Fool writer Travis Houim described biofuels as a “green energy money pit,” citing Solazyme, Amyris, and Rentech in particular, as publicly traded companies he recommended avoiding. Houim wrote:

“The first problem is scale. Right now none of the companies mentioned above makes fuel in any sort of scale, having only proven their technologies in labs or pilot plants. But moving to a large scale means sourcing more fuel and building larger plants. When it became time for corn ethanol to make that jump, the increased demand for corn resulted in higher prices and any advantage ethanol had evaporated.

Now, let’s observe for the record that Amyris (AMRS) has three commercial-scale facilities under construction, Solazyme (SZYM) is doing commercial-scale work at tolling facilities and it building its first commercial, and Rentech (RTK) just completed construction of a demonstration-scale plant. It’s more than a little disingenuous to focus in on the existing capacity when so much steel is going into the ground.

Can the feedstock remain affordable?

But let’s hone in on that last point. It’s a fair question. Is there enough feedstock that advanced biofuels can scale up to meaningful numbers without causing a run-up in feedstock prices?

Oak Ridge National Laboratory thinks so. In the revised “Billion Ton Study, (a/k/a Son of Billion Ton), they projected that, in their baseline assumption, there will be 193 million tons of woody biomass – the type that Mascoma uses – available at under $60 per bone dry ton, by 2030, to support scale-up at Mascoma and its brethren. That’s enough to support more than 80 projects of Mascoma’s scale. That’s just in the United States, not disturbing anyone else’s supply, or with costs rocketing up to unaffordable levels.

Is the Billion Ton Study correct? Time will tell. But certainly, the potential is there and deserves a little more than derision. See our “Son of Billion Ton – the 10-Minute Version”, for full details.

Warning signs to watch

Now, there’s one metric worth watching. The CAPEX for the Mascoma project. At $230 million for its 20 million gallon first phase, that’s $11 per gallon. Now, that’s for 20 million gallons. We’ll have to wait for Mascoma, probably, to get through its IPO before we have a lot of commentary on what it will cost, per gallon, to build out larger-scale facilities.

Moreover, once sufficient industry demand was established for solar panels, the price for manufacturing dropped, and fast. It was that very phenomenon that ultimately doomed Solyndra.

But that number had better come down. In the long-run, it is only one component, along with the operating costs, that determine the viability of cellulosic biofuels. But it narrows the field of potential investors when the project equity portion is north of $50 million, much less north of $200 million.

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.

Posted by Guest Contributor at 06:47 PM | Permalink | Comments (1)

Jim Lane

Codexis (CDXS) and Mascoma show that low-cost sugar is the key, as advanced biofuels moves from R&D into industrial era.

There used to be a restaurant in lower Manhattan called Exterminator Chili. Decorated in Elvis garb, it served world-class chili for the enlightened chow hound, in three grades of heat: residential (hot), commercial (blistering), and industrial (melt steel in your mouth).

The proprietors would have understood little about advanced biofuels and nothing about the importance therein of low-cost sugars. But they did understand that the bigger the scale, the hotter you were. And that the highest summit was the reaching of industrial scale.

Why hath industrial scale proved so elusive in advanced biofuels?

“The government rushed into investments, with no diligence,” says Codexis chief Alan Shaw. “They are just not industrialists, in my opinion.”

Two major announcements this week drive the point home in advanced biofuels.

In California, Codexis introduced its CodeXyme Cellulase enzyme product line for bio-based chemicals, converting biomass to low-cost sugars. The platform, which includes a pretreatment process as well as enzymes for conversion and post-pretreatment, was developed with Chemtex, and utilizes the cellulase platform developed for Shell, and already is in use at Iogen.

In New Hampshire, Mascoma and Valero announced a joint venture to develop and operate a 20 million gallon per year commercial-scale cellulosic ethanol facility in Kinross, Michigan. The cost to construct, commission and start-up this facility is expected to be approximately $232 million. These costs are fully funded, with Valero providing the majority of the financing, and the remainder from awards by the U.S. Department of Energy (DOE) and the State of Michigan. Construction of the Kinross facility is anticipated to start in the next three to six months and is expected to be completed by year-end 2013.

The common problem: high-cost sugars

Codexis CEO Shaw has made the point before: when it comes to making drop-in fuels or many renewable chemicals, “first generation sugars are a failed model, particularly for diesel. The problem in the sector has been the lack of a cellulosic technology.”

The difficulty, he has explained, is the problem of making $275 per tonne sugar work in a $750 per tonne diesel market, when you lose 60 percent of the mass in the conversion, when the oxygen is blown off from biomass to make a hydrocarbon.

Reaction from industry? “I agree,” commented UOP general manager Jim Rekoske, whose company does a lot of the upgrading work from, say, renewable oil to diesel and jet fuel.

The common solution: low-cost sugars

Though it has proven incredibly time-consuming to develop the operating systems for liberating cellulosic sugars from biomass at affordable rates, companies such as Mascoma and Codexis say they have cracked it. Codexis, using its collection of technologies that improves the activity and performace of enzymes. Mascoma, with its consolidated bioprocessing approach, which eliminates the separate hydrolysis step altogether, performing the hydrolysis and fermentatinon in one consolidated step.

Novozymes and Genencor are also in the race, with small start-ups such as HCL CleanTech and Comet Biorefining also focused on the same niche. Then, there are companies like Proterro, which synthesize (or is that sun-thesize?) low-cost sugars directly from water, CO2 and sunlight using a modified organism, bypassing biomass altogether.

Codexis and the pursuit of renewable chemicals

Now, in the case of Codexis, the company is focused, with CodeXyme, on the production of higher value chemicals, such as CodeXol Detergent Alcohols. The company expects to have commercial samples for customers in the chemicals industry broadly available in the second half of 2012. In the meantime, and in the fuels arena, the company is focusing on its deliverables for Shell and its fuels JV with Cosan, Raizen.

Mascoma, Valero and the pursuit of renewable fuels

By contrast, the Mascoma-Valero deal is all about fuels, specifically low-cost cellulosic ethanol.  Under the agreement Valero will provide project management to build and will operate the Kinross facility, will hold a majority interest in the joint venture, and will have the option to expand the Kinross facility’s capacity to up to 80 million gallons per year. Meanwhile, Mascoma will receive royalties for a certain time period based on ethanol yield milestones. In addition, Mascoma and Valero have developed a framework agreement for partnering on additional cellulosic ethanol facilities beyond Kinross.

The Brazil option

“At Cosan Day in New York [their day for analyst presentations],” commented Shaw, “Cosan said that two of their top four priorities in the next 2-3 years relate to deploying second-generation technologies.”

It’s not hard to see why, Shaw contends. “Raizen is Brazil’s largest sugar producer. The liberate sucrose from the cane, and sell it as sugar or ferment it into ethanol. They have mountains of bagasse, which generates very low value for them. In our process, we liberate glucose from biomass. It can’t be used for the sugar market, but it can be used to make ethanol. So, ethanol producers can divert more of the sucrose to the lucrative sugar market, and use glucose to make ethanol. It’s making gold from dirt. We’ve modeled it at $50 per ton, and in Brazil it can be aggregated for as little as $10 per ton.”

So, customers? “Chemical companies, sugar producers, and engineers,” says Shaw. “But, above all, the sugar companies.

Back in North America

In North America, many of the primary feedstock producers are sitting on their hands, owing to the problem of aggregation. Corn producers are balking at the aggregation of corn stover without government support. Forest owners are similarly strapped for cash.

Waste stream feedstock companies have been highly active to date, among other reasons because the feedstock is already aggregated. Hence Valero’s co-investment with Darling in renewable diesel from animal rendering waste (Diamond Green Diesel), or its co-investments with Waste Management in Terrabon and Enerkem.

But, now, the barriers may be falling. Valero has bitten the bullet with Mascoma – combining with Mascoma’s private investors, and the federal government (in the form of DOE grants), to bring the technology to industrial scale in the US.

Over in Florida, BP has also moved forward in developing its own vertically integrated approach, where it will directly develop and contract with farmers for dedicated energy crops such as miscanthus.

The business model

Well, Mascoma is tight lipped, owing to their impending IPO. But Codexis says, “We make very good margins on the enzymes. But we think of this as a complete operating system for low-cost sugars. And I want us to be focused on getting this OS adopted as the OS of choice.”

The floodgates

“The flood gates will open,” says Shaw. “There is no shortage of cash or capital. What is desperately thin on the ground is confidence. When proved, other capital will follow. Meanwhile, look at Guido Ghisolfi over at M&G, who said ‘I have put $300 million of my own family’s money into this.’ That’s the kind of vision you are starting to see.”

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.

Posted by Guest Contributor at 02:57 PM | Permalink | Comments (0)

Jim Lane

Should biofuels have its own reserve accounting system and accompanying balance sheet booster, just as the oil & gas industry has?

Ceres CEO Richard Hamilton says “yes”, and explains why, and how.

At the Advanced Biofuels Markets conference earlier this month in San Francisco. Richard Hamilton, CEO of Ceres, advanced the remarkable proposition that biofuels companies – on the “level playing field” theory advanced by opponents of government mandates and subsidies, should   have the right to book their reserves of crude renewable oil production, in a parallel to the reserve accounting system which forms the bulk of the oil & gas industry balance sheet.

About proved reserves and balance sheets

Most investors understand proved reserves. Under specific (and generally conservative) SEC rules, proved reserves (that is, which have a 90% or higher probability of being feasibly extracted) can be added to the balance sheet.

These reserves currently total 44 billion barrels for the top six oil exploration companies (ExxonMobil, BP, Shell, Total, ConocoPhillips and Chevron), and when we speak about the massive oil company balance sheets, this is very much in the mind of the investors when they value each company, especially in terms of their predicted future ability to produce revenues.

The complete Hamilton presentation

Hamilton’s presentation can be viewed here, and it contains a call to action on the final slide which is well worth considering. (But, please note, the call to action email should be sent to bsimmons@capitoldecisions.com – make sure you have that spelling correct).

Why have what Hamilton calls “renewable reserve accounting”? For one, it creates a system for valuing biofuels companies that parallels the way we value oil companies, which helps make them inherently more fungible, more comparable, more apples to apples.

Transitioning from an agriculture model to an energy model

Especially if we are to decouple biofuels from the agricultural model, which in all regions is heavily subsidized and in which government plays a heavy-handed role – and instead move biofuels over into the less regulated, more market-based system that underlies energy trading.

Hamilton notes in his remarkable presentation that a system for renewable reserves could, in fact be developed. He based his illustration on the tonnage of biomass per acre, the conversion yields in gallons per ton, and a contract term for which the underlying land would be dedicated to energy production.

Think of it, then, as an above-ground oil or gas field.

Hamilton points out that, over time, despite technological innovations, the cost of finding and developing new oil reserves is increasing, and this is a metric by which energy (bio or fossil-based) should be measured in a standard way. Hamilton notes that the three-year average Finding & Discovery (F&D) investment by the six largest independent oil companies is $20 per barrel, rising to $34 per barrel in 2010, and that the six IOC’s spent an aggregate of $100 billion on exploration & production last year.

What does $100 billion buy you?

What does $100 billion buy you? he asks. On the fossil side, about 3 billion barrels in reserves. On the bio side, if the goal is to produce a crude oil equivalent (rather than a finished fuel or chemical), the costs aren’t much higher for, say, the first stage of pyrolysis (before upgrading to finished fuel). In terms of reserves, you would end up with, say, somewhere between 2.5 and 3 billion barrels of oil equivalent.

Now, what would you rather have, goes the thinking – 3 billion barrels of crude (ready for refining) – and lord knows where the next 3 billion will come from or at what cost. Or 3 billion barrels of renewable crude (ready for refining), and you know exactly where the replacement is going to come from. And you have a pretty good idea that , because of technological innovation, costs of finding, developing and producing biomass reserves is likely to decrease.

That’s one of the nuggets in Hamilton’s system – the argument that biofuels companies ought to be able to acquire and manage reserves and be valued as companies for that potential – and not strictly for their production today.

Why is reserve accounting valuable?

For example, if oil demand dips, oil company reserves don’t – they still have the benefit, from an investment point of view – of being valued on their reserves as well as on day-to-day demand in the market.

Now, agriculture is not generally valued this way. In ag, reserve accounting does not generally exist, and companies are to a great extent valued based on market demand, margin and actual stockpiles (for example, processed grain held in silos). You don’t get bennies from the market just because there is a 90% or higher potential that you can get more production out of a given field, at a later date.

But, to protect agriculture from the mad price swings that accompany commodity grain markets, there is a lot of government protection built into the agricultural system – floor payments, mandated government purchases, price controls, subsidized food, and so on. No one wants a return to the market conditions of, say, the Great Depression, or the global commodity collapse of the 1890s.

But Hamilton argues, if biofuels are asked to transition out of system by which global agriculture is valued and protected, as opponents of mandates and subsidies would demand, why shouldn’t biofuels have access to a parallel system by which global energy is valued and protected?

A fair go

It’s a fair question. Shouldn’t biofuels get a fair go?

Now, Hamilton’s outlook is, essentially, a conversation-starter rather than a complete system. Whether a biomass field should be valued over, say, a 15-year or 100-year period, should be debated. Tonnage per acre, whether than is 2 or 15, should be agreed and understood.

Crucially, a cost would need to be established that parallels the technology cost associated with production & exploration. For the purpose of establishing a reserve, for example, should all the costs of growing, extracting and refining fuel molecules be included? Likely, not – after all, the total cost of refining fuels is not applied to oil & gas reserves. But what cost should be applied to “prove the reserve”? The cost of leasing land, or above that the cost of growing the biomass, or above that some limited refining cost to turn it into, at least, a barrel of crude oil equivalent?

Here at the Digest, the latter case strikes us as the most comparable – something like the lowest cost of growing, and then converting carbs into a biocrude.

Moving from conversation-starter to system

For sure, the devil is in the details. But the focus for today, is on a startling idea that deserves a wider conversation.

As Hamilton himself says, the world of carb-derived fuels features no to low carbon, low discovery risk, declining E&P costs per barrel, and fields that don’t peak and decline.

Why shouldn’t such a system have a parallel to the hydrocarb-derived fuel – one that fits the current accounting system and business model?

If biofuels, in short, are expected to live without agriculture’s USDA shelter, shouldn’t it have the SEC’s oil & gas shelter?

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.

Posted by Guest Contributor at 03:00 PM | Permalink | Comments (0)

Jim Lane

13 companies knocking on the door of greatness – will they make the grade?

13 companies. 5 already public – eight filing for IPOs. In the first category, Codexis, Amyris, Gevo, Solazyme and KiOR. In the second category, PetroAlgae, Myriant, Ceres, Mascoma, Genomatica, Elevance Renewable Sciences, Fulcrum Bioenergy and OriginOil.

They’ve shown what it takes to get to the threshold of great things – do they have the Right Stuff to succeed at scale?
The public companies

It’s been a good October for the newly public companies, after a miserable summer. Amyris (AMRS), up 15 percent last week.Solazyme, Inc. (SZYM), up 10 percent for the month to date. Codexia (CDXS) up 8 percent for the month. Gevo (GEVO), up 35 percent for the month. KiOR (KIOR), up 4 percent in the last two weeks.



For the most part, valuation on these early-stage companies, is part perception, part reality. The value depends on how much you place faith in the business plan, the technology and the management. There’s not much by way of revenue, and nothing in the earnings department, for early-stage investing. That’s why it is potentially so lucrative.

But perception must give way to reality – and, actually, the public companies are happy for that. Hungry for it. Generally, they’ve been dumbfounded at the lack of investor enthusiasm through  a tough summer – because the companies have been building out their business plans as they told investors they would.

For Solazyme and Amyris, there was the expectation of new partners and new production capacity. Done. For Codexis, the expectation of a deal with Raizen in Brazil to expand into bagasse-based renewable chemicals., Done. For Gevo, it was time to sign up new capacity and work towards conversion of their first commercial-scale plant to isobutanol production. Done. For KiOR, it has been a time of building capacity – underway.

Pavel Molchanov, alt energy analyst for Raymond James, commented: “Following this rating change, KiOR becomes our third Market Perform-rated stock in the alternative fuels space.  The key difference is that our rating on our other two Market Performs – Codexis and Rentech – reflects fundamental concerns about their business models, as opposed to valuation.  Our top pick in the space – and, in fact, the only Strong Buy-rated stock in our alternative energy coverage universe – remains Amyris.  We have Outperform ratings on Clean Energy Fuels, Gevo, and Solazyme.”

Fair? The stocks have generally been performing, throughout the summer, poorly in comparison to the broad equities markets. The space between current prices and analyst-based target prices is reaching astonishing levels. Solazyme, a 46 percent discount to its target price; Gevo, a 38 percent discount. Amyris, a 34 percent discount.

Inflection points?

For Solazyme, their next major JV announcement,. For Amyris and Gevo, start-up of their Sao Martinho JV and Luverne plants, respectively. Rentech, completion of its Colorado-based PDU next year. Codexis, its first major commercial arrangement outside of the Shell universe, or clarification from Shell on its strategy and timing.

The disappointments for ethanol in 2008, biodiesel in 2009-10, and the performance of the public advanced biofuels stocks in 2011 has created a potentially chilling effect for the seven stocks that wish to move forward with their IPOs.

Grading the class of eight IPO hopefuls

The star students – the A’s. With the eight new IPOs, sentiment has been running strongest amongst observers for Genomatica and Elevance – the renewable chemicals story is playing well, we hear. Liked by investors? Higher product margins, less capital intensive path to scale.

A-minus. Ceres is considered a special case, being such a long-term play and a very broad investor base, should an IPO prove unattractive.

Incomplete. OriginOil (OOIL.OB) is too new to the IPO group to have generated substantial section.

Leaving PetroAlgae (PALG.PK), Myriant, Mascoma, and Fulcrum Bioenergy.

Looking like a gentleman’s C. Of the four, PetroAlgae is considered the long-shot, given the long time the company has been in the IPO mix without pricing, and given the large capital raise ($200 million) and somewhat complex ownership structure.

The Solid B’s. Myriant, Mascoma and Fulcrum are all – like most of these new IPOs – financing events rather than liquidity events for investors. The current owners are trying to get more cars on the freeway, not heading for the exits.

Fulcrum is financing its waste-to-energy project in Nevada. Chief appeal? A low-cost feedstock story, and a great emissions picture,. What could be finer than converting garbage to fuels? Myriant is financing a scale-up of its ambitions in succinct acid. Chief appeal? Like Genomatica and Elevance, they are capitalizing on the large, relatively high-margin markets. On the down-side, a number of companies chasing succinct acid and the ongoing question of whether any of these companies can produce product at parity with the fossil fuel-based incumbents.

Mascoma – well, consolidated bioprocessing hard been a high-flying cellulosic biuofuels technology for a long time. That’s its challenge – like PetroAlgae, its been out there raising capital for quite a while. What do we hear from investors. The scale-up challenges are still generally not well understood by the market, and the daunting capital intensive nature of the projects, has put a question mark on the company’s ability to continue to scale. It’s a very light question mark, given all the progress the company has made, but enough to dull their momentum in an unenthused market. Many observers thought that Valero’s $50 million investment commitment would tip the scales for the company – but a more dramatic downstream partnership announcement may be just the ticket for the company to move forward.

The bottom line

So, thirteen companies – the lucky 13? Well, we doubt that all of them will, in the very long-term, survive the coming consolidation in biofuels. But if they haven’t quite yet fully locked in first-mover advantage, they have their noses out in front of the pack.

Others in the mix? Companies like INEOS Bio, Dupont Danisco Cellulosic Ethanol and BP Biofuels with access to huge balance sheets have to be considered among any real list of the potential winners in biofuels. Plus hot technologies like LS9, Cobalt, Qteros, Mendel, and Sapphire, to name just a few, that have remained on the private side of the equation.

Jim Lane is editor and publisher of Biofuels Digest.

Posted by Guest Contributor at 08:18 PM | Permalink | Comments (1)

Jim Lane

Iowa algae and corn ethanol project points the way towards optimizing delivery of feed, fuel, carbon reduction.

In our 10-part series, the Bioenergy Project of the Future, based on extensive interviews with industry leaders, we outlined what is expected to be the multi-product, multi-input structure of biofuels and biomaterials projects in the future.

In step 1, we identified the acquisition of an existing first-generation ethanol plant as an appropriate base, because it had so many assets already in place, including a feedstock aggregation system, relations with growers and customers, rail lines, roads, water, power and so on.

In steps two through nine, project developers would add in a variety of inputs and outputs that would increase the product value, stabilize the input costs, and improve the carbon footprint and impact of the project.

2. Cellulosic biomass feedstock
3. Renewable chemicals
4. Advanced drop-in biofuels
5. Algal fuels and materials
6. Bio-ammonia
7. Renewable diesel
8. Lowest-cost waste feedstocks
9. Solar, wind and other renewables

Bioenergy Projects of the Future, today

The most complete realizations of that vision at scale, to date, are the POET Liberty Project in Emmetsburg, Iowa; the Gevo biobutanol project in Luverne, Minnesota; the Amyris (AMRS) SMA Indústria Química project in Brazil; and the Green Plains Renewable Energy (GPRE) project in Shenandoah, Iowa – in which an algal fuels and biomaterials project in underway in partnership with BioProcessAlgae.

The Green Plains project is by far the least-known of the three – given POET’s position as the largest privately-owned, dedicated ethanol producer, and given the deserved hoopla over Amyris’ and Gevo’s (GEVO) successful IPOs in the past year.

In the POET project, they have taken on the most direct route to the Bioenergy Project of the Future, by adding in  cellulosic biomass feedstock, and moving on to the production of fuels in 2013 when the 25 million gallons Project LIBERTY plant officially opens at scale.

In the Amyris project, they have established a joint venture with an existing 8.5 million tonne sugarcane ethanol project in Pradópolis, Sao Paulo state, Brazil, owned by Usina São Martinho. Starting in Q2 2012, Amyris and São Martinho plan for the joint venture plant to produce Biofene, a renewable hydrocarbon, which would be used as an ingredient in detergents, cosmetics, perfumes, industrial lubricants, and diesel. In their case, they are still testing out cellulosic feedstocks, but have added in renewable chemicals and renewable diesel to expand their high-value product portfolio.

In the Gevo project, they have acquired an existing corn ethanol plant as a base, and are busy converting that production over to isobutanol, which is scheduled to commence at-scale in March 2012. In the Gevo case, they have skipped over (for now) the addition of cellulosic feedstock, but likewise added in renewable chemicals and advanced drop-in fuels to diversify the product portfolio.

The Algae Option

Of all of them, the Green Plains Renewable Energy and BioProcess Algae project in Shenandoah is the first to reach step five of the multi-step transition we identified – which is to bolt-on an algal fuels and materials capability to an existing corn ethanol production system

It’s all still at relatively small-scale. The partners will have to prove they can sustainably produce, harvest and process the algae. But it’s significant in three ways, for sure.

First, it massively changes the carbon footprint and impact of a corn ethanol project. Almost one-third of the corn kernel, by weight, is transformed into carbon dioxide in the ethanol fermentation process, and the algae can remediate that usage by absorbing the CO2 in its own growth process. It’s not carbon sequestration – that’s different, because the algae itself will be utilized for fuels and biomaterials. But it is capture and re-use, or a second bite of the cherry, and dilutes the carbon impact by creating a second batch of fuels or materials for the same given bushel of corn.

(You may be wondering how they grow algae at all in the state of Iowa during the colder six months of the year, without using bioreactors that are simply too cost intensive. Ah, that’s where the process heat and steam that comes off an ethanol paint comes in handy.)

Second, it changes the economics of the corn ethanol project. Though it remains exposed to the commodity price swings in the corn market, except to the extent to which it can achieve fixed-price or partially-fixed contracts with growers – it is far less exposed to the commodity price of ethanol. Biodiesel, for example, comes into play, or other bio-based materials made from algae – omega-3 laden fatty acids, for example that make for rich protein.

More importantly, the economics of algae do not work unless a project is using the entire biomass – either for feed, to gasify for fuel, or to provide energy back to the system. So, making algae work as a feed system is important to the economics.

Third, making algae work as a secondary feed source can substantially add to the feed options available to the meat and dairy industries, that have been sore as heck in having to compete with ethanol plants for corn-based feed, and have been running a first class, textbook “fear, uncertainty and doubt” campaign against ethanol that has befooled and beguiled, apparently, most of the US Congress.

So – for many reasons, one of the big question marks is whether algae strains that can tolerate industrial gases will work as an animal feed.

The big question: will it work as animal feed?

So it is significant that, yesterday, Green Plains Renewable Energy and BioProcess Algae announced the successful completion of the first round of algae-based poultry feed trials. The algae strains produced for the feed trials demonstrated high energy and protein content that was readily available, similar to other high value feed products used in the feeding of poultry today.

The algae strains used in the feed trials were grown in BioProcess Algae’s Grower Harvester reactors co-located with Green Plains’ ethanol plant in Shenandoah, Iowa. The test was conducted in conjunction with the University of Illinois led by Dr. Carl M. Parsons, a leading expert in the field of poultry sciences.

“This was the first time we tested algae as a poultry feed-product and many of the qualities found were similar to high protein soymeal, but with higher energy content,” said Dr. Parsons. In addition to the high energy and protein content, the testing found amino acid profiles similar to existing feed components. The University of Missouri analyzed the results and provided an independent third-party validation.

“Based on these first-round tests, we will continue the development of this and other high-quality animal feed products from our algae. We will proceed with further testing for poultry and begin evaluating a replacement product for fishmeal,” said Tim Burns, Chief Executive Officer of BioProcess Algae. “We can now look into the opportunity to use algae as a ‘carrier’ for higher value products going into poultry feed such as Omega-3s.”

Next steps

So, there’s reason for increased optimism on the algal fuels and materials front. Next steps for BioProcess Algae include further feed trials, and more importantly, continuing to knock down the production cost. Their current costs, at the scale they are producing, are sure to be too high, but how fast they knock them down in their science of growth and engineering of a low-cost production system will be key. We expect that, if they had a path to parity with $80 oil already figured out, the public might well have heard about it.

For now, we stay tuned.

Jim Lane is editor and Publiser of Biofuels Digest.

Posted by Guest Contributor at 03:56 AM | Permalink | Comments (0)

by Ivan Castano

Second-generation biofuel IPOs are all the rage this year with recent deals pricing well above initial expectations and a growing number of companies expected to tap the capital markets in coming months. But analysts caution some of these companies will have a hard time wooing investor interest unless they become more transparent about their accounts and future path to profitability.

"None of these companies will be earning much any time soon so investors want to see clarity and visibility about the enterprise story behind the companies," says Stacey Hudson, an analyst with Raymond James. "If they have a strong story and the right technology, there is definitely appetite out there. Investors have become more comfortable and knowledgeable for second-generation biofuel companies."

Certainly, investors have been keen to bankroll the latest IPO’s, sending their post-IPO valuations sharply higher. Late last month, algae-for-biofuels firm Solazyme (SZYM) priced its IPO at $18, the top of the initial price range and saw its shares jump 15% on its trading debut, raising $227m.

Rising Value

The last two deals before it - Gevo (GEVO)and Amyris (AMRS)- have seen their stock increase 32% and 83% respectively. Others including Codexis (CDXS), Metabolix (MBLX)and Syntroleum (SYNM), also performed well, helping the second-generation biofuels sector boost its market capitalization to $3.8bn in the past 14 months.

Eager to profit from this momentum, investment banks are scrambling to price deals before market sentiment changes with one senior IPO banker saying his firm is working on at least 18 potential deals. So far, however, the only well-publicized IPO hopefuls include Petroalgae (PALG.OB), Ceres, Myriant and Kior. Hudson expects Kior will do well because it has a "strong technology" and uptake partnerships. However, she says Petroalgae, which has been hoping to IPO since last year, may struggle because of "some week elements in its business model."

Caroline Taylor, an analyst at the Energy Biosciences Institute in Berkeley, says Ceres has a good strategy because it is a feedstocks company.  She said that establishing the feedstocks for advanced cellulosic fuels is crucial for commercial development, given that the largest cost associated with production is for the feedstock.

Standing Out in the Crowd

In the biofuels game, having an economically feasible business model is crucial at a time when many firms are struggling to make money amid soaring feedstock costs and falling oil prices. Kior's core business is transforming non-food biomass into so-called renewable crude oil that can then be refined to make a variety of gasoline and diesel blends. It says it can sell its crude oil at a much lower price than biofuel, which typically sells at $3-4 a gallon.

Meanwhile, Ceres, which hopes to raise as much as $100 million to expand its output of genetically modified crops to make biofuels, says it is developing sweet sorghum as an alternative to sugarcane to make biofuels. It is also working to improve corn and soybean yields as well as making other crops that can better tolerate drought and salt. Ceres also has some high-powered partnerships in place, including Monsanto, which is helping it research and develop some of its products.

Myriant, which is also eyeing some $100m in its flotation, makes "biocatalyst" technology for the conversion of renewable feedstocks into special chemicals including succinic acid. Petroalgae, meanwhile, sells a technology it claims helps improve the growth and harvest rate of plant micro crops or algae to generate proteins that can be used to make biofuels, animal feed and human food. While it hoped to IPO last year, the company has struggled to find the right window to come to market. Some say it's failure to attract investment from ExxonMobil, which sunk $600m into algae-to-biofuels rival Synthetic Genomics in July 2009, raised questions about the value of its technology.

Showing just how crucial technological differentiators have become in the industry, observers said Solazyme's success was primarily due to it's ability to grow algae in fermentation tanks without sun or photosynthesis processes, which are used by most rivals. In a recent report analyzing the upcoming IPOs, Raymond James states technology will be a make-or-break factor for the success of future second-gen biofuel IPOs. But so will other factors including a clear proof of concept, roadmap to profitability, strong strategic partners and adequate and inexpensive access to feedstock.

Ivan Castano is a freelance journalist based in Miami. His work has appeared in Thomson Reuters’ International Finance Review (IFR), Dow Jones’ Financial News, Euromoney, Trade & Forfaiting Review and a range of trade publications covering the capital markets, private equity, loan, credit and restructuring markets.

This article was first published on Renewable Energy World, and is reprinted with permission.

Posted by Guest Contributor at 03:32 PM | Permalink | Comments (0)

Debra Fiakas

After a series of bankruptcies laid the U.S. ethanol industry on its back a few years ago, the survivors got the message  -  become economically viable or go out of business.  The industry has been scrambling to adopt new processes that utilize other non-food materials or at least get more out of the corn that has been the mainstay feedstock for the U.S. ethanol industry.  

Enter Greenshift Corporation (GERS:  OTC/BB) with its corn oil extraction process and a new step in the corn-ethanol production process.  Greenshift may change the economics of corn-ethanol production by giving producers new revenue streams.  

In the U.S. corn-ethanol industry the dry mill process is most typical with the whole corn kernel going into the fermentation stage.  After the fermentation process that turns the sugars in the corn kernel to ethanol, the leftovers or “corn stillage” are usually put through water extraction and drying stages.  The dried by-product called distillers grain is sold as animal feed.  Cattle or hog finishers are only to happy to get distillers grains since the protein content is near 30%.

However, distillers grains also has a high fat content  -  12% to 15%.  Greenshift’s corn oil extraction process removes corn oil from the corn stillage, providing ethanol producers another revenue producing by-product.  The corn oil can then be sold as biofuel feedstock or as an alternative animal feed ingredient.  What is left in the stillage goes on through the usual water extraction and drying process.  Greenshift claims its process removes as much as 80% of the oil from the corn stillage.

Greenshift has managed to license its process to a half dozen or so ethanol and corn handling concerns, including most recently Marquis Energy for its Wisconsin ethanol plant.  Marquis previously licensed the Greenshift technology for its plant in Illinois.  Green Plains Renewable Energy, Inc. (GPRE:  Nasdaq) is also a licensee.  In a recent letter to shareholders, Greenshift CEO Kevin Kreisler predicted that current license agreements would be sufficient to bring the company to break-even at the operating level.  

As rosy as the story might sound, GERS is only for the most risk tolerant investor.  The stock is trades more than 70 million shares per day at a price that is well under a half penny.  Those of us who need to sleep at night might wait until Green Plains has implemented the Greenshift technology.  Green Plains expects to complete deployment by the end of March 2011 and claims the change could enhance operating income by $15 million to $19 million per year.  If Green Plains is able to make good on its claims, it could be a good reason to look more carefully at GERS.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  GERS and GPRE are included in Crystal Equity Research’s Beach Boys Index in the Ethanol Group.  

$GPRE, $GERS

Posted by Debra Fiakas at 07:50 PM | Permalink | Comments (2)

Jim Lane

Will the new fermentation technologies completely shatter preconceptions about biofuels and bio-based products – and redefine the way in which Western Civ approaches the production of fuel, food, feed, and fiber? The new Brew Barons are working hard to make that so.

See part 1 of  'Brew Barons', here.

LanzaTech

The LanzaTech process increases industrial energy efficiency by capturing waste gases (CO, CO2) and converting them to valuable fuels and chemicals. LanzaTech provides an opportunity to produce large volumes of low carbon fuel and chemicals at low costs using a countries own resources, reducing dependence on foreign imports and GHG footprint.  Simply utilizing the available steel mill waste gases, LanzaTech could produce more than 30 billion gallons of ethanol per year.  This would have a significant impact on the global energy landscape.

Two weeks ago, LanzaTech signed a memorandum of understanding with Posco, a Korean conglomerate with interests in steel, power, energy, engineering and construction, to convert the steel maker’s flue gases to ethanol and other value added products. LanzaTech uses its gas fermentation technology to produce ethanol and also 2,3-Butanediol (2,3-BD), a key building block used to make polymers, plastics and hydrocarbon fuels. It has investment from K1W1 (New Zealand), Khosla Ventures (US) and Qiming Venures (China) as well as funding from the New Zealand and US governments.

LanzaTech CEO Jennifer Holmgren commented, “This means that LanzaTech is now working with 2 of the top 5 global steel manufacturers (some would say the #2/3). From my perspective this shows the traction that the LanzaTech technology is receiving in the market place and the potential impact that our technology is likely to have in the coming years.  We are creating a nice pipeline of commercial projects so that as we get to scale – we don’t do it one commercial production facility at a time but multiple commercial production facilities in parallel with a variety of partners globally.”

In January,  IndianOil and LanzaTech signed a Memorandum of Understanding to collaborate on a demonstration of LanzaTech’s proprietary gas fermentation technology collaboration in a technology demonstration at one of the India Oil refineries. that will enable IndianOil to produce fuel grade ethanol.

LS9

The cryptically-named LS9 uses a e.coli-based fermentation to convert of renewable plant biomass into advanced biofuels that are drop-in compatible with the existing infrastructure.  The same technology platform enables the production of a diversity of high-value chemicals.

Last month, LS9 announced the initiation of a second development and commercialization partnership with Procter & Gamble.  This additional partnership draws on LS9’s unique technology to broaden the portfolio of renewable chemicals to be used in P&G’s consumer products. It followed a $30M series D financing round led by BlackRock that came just as the company reached #4 in this year’s 50 Hottest Companies in Bioenergy.

In 2010, LS9 announced a major scientific breakthrough that will significantly lower the cost of producing “drop‐in” hydrocarbon fuels that are low‐carbon, sustainable and compatible with the existing fuel distribution infrastructure. This breakthrough has allowed LS9 to accelerate its technology and demonstrate alkane production at pilot scale.

In the article “Microbial Biosynthesis of Alkanes” published in Science magazine, a team of LS9 scientists announce the discovery of novel genes that, when expressed in E.coli, produce alkanes, the primary hydrocarbon components of gasoline, diesel and jet fuel. This discovery is the first description of the genes responsible for alkane biosynthesis and the first example of a single step conversion of sugar to fuel‐grade alkanes by an engineered microorganism.

Biofuels Digest profiled LS9 most recently in “LS9 raises $30M, adds BlackRock – what does it mean?”

Mascoma

The unique technology developed by Mascoma Corporation uses yeast and bacteria that are engineered to produce large quantities of the enzymes necessary to break down the cellulose and ferment the resulting sugars into ethanol.  Combining these two steps (enzymatic digestion and fermentation) significantly reduces costs by eliminating the need for enzyme produced in a separate refinery.  This process, called Consolidated Bioprocessing or “CBP”, will ultimately enable the conversion of the solar energy contained in plants to ethanol in just a few days.

In January, Mascoma announced that Valero Energy  has joined as an investor in the company. Further, Mascoma, Valero, and Mascoma’s operating subsidiary, Frontier Renewable Resources, (jointly owned with J.M. Longyear) have signed a non-binding letter of intent to support the construction of Mascoma’s 40 million gallon cellulosic ethanol plant in Kinross, Michigan.  Groundbreaking on the project is slated for later this year.

Under the terms of the letter of intent, Valero would potentially invest up to $50 million of the equity required to finance the project through Frontier Kinross LLC, a subsidiary of Frontier, and would enter into an off-take agreement for the project’s ethanol production. As further support of the project, Valero will provide project development and construction oversight services.

Frontier will use hardwood pulpwood, which is selectively harvested, naturally regenerated, and is an underutilized, abundant resource in the area surrounding the Kinross biorefinery. Mascoma’s 200,000 gallons of cellulosic ethanol per year demonstration facility in Rome, New York, has demonstrated the viability of the technology over the past two years and sets the stage for the commercial facility.

Mascoma recently announced the acquisition of SunOpta BioProcess Inc. (SBI), a world-leading fiber preparation and pretreatment company, creating a company with comprehensive capabilities for converting non-food cellulose (wood chips, energy crops and organic solid waste) into ethanol and high value co-products. With the addition of SBI and Valero, Mascoma has now covered the entire process of commercializing cellulosic ethanol, from raw materials supply, to pre-processing, through Mascoma’s CBP process and into final distribution.

Novozymes (NVZMY.PK)

Novozymes’ core technology for the biofuels industry is enzymes that break down different types of feedstock into fermentable sugars for conversion into ethanol.  Within this area, Novozymes develops solutions for two distinct types of ethanol technology: cellulosic ethanol and starch-based ethanol.

Novozymes cellulosic ethanol work is the largest endeavor the company has ever undertaken, with over 150 scientists dedicated to the effort.  Not only is Novozymes’ developing and offering the leading enzyme solutions for cellulosic ethanol technology, but we have also expanded our research focus into optimizing the pretreatment, hydrolysis and fermentation process steps.

In 2010 Novozymes launched the first commercially viable enzyme for the cellulosic ethanol industry, Cellic® Ctec2.  The 1.8X average performance improvement over a variety of feedstocks is enabling our partners to reach a commercially viable enzyme cost window and overall production costs.  We have also worked with many of our partners to help optimize their process technology in order to lower enzyme use cost and find the right balance in process tradeoffs to lower capital and operating costs.

As the world leader in bioinnovation, Novozymes produces enzymes that optimize the conversion of grains such as corn, barley, wheat and other starch raw materials into ethanol. Unrivalled in their performance and ease of use, our enzymes enable higher yields, faster throughput and lower processing costs. Our tailored solutions – including custom enzyme blends – match the specific needs of our customers’ processes for liquefaction, saccharification, fermentation enhancement, and viscosity reduction.

Novozymes’ enzyme solutions provide robust performance on a wide variety of feedstocks. Cellulosic ethanol employs biomass feedstocks such as corn stover, wheat straw, sugarcane bagasse, woody residues, switchgrass, etc. For starch-based ethanol, the primary feedstocks are corn, barley, wheat, sugarcane, etc.

OPX Biotechnologies

OPXBIO is a Colorado-based company using biotechnology to convert renewable raw materials into biochemicals and biofuels. Applying its proprietary EDGE™ (Efficiency Directed Genome Engineering) technology, it will manufacture bio-based products that are more economical and sustainable than petroleum-based alternatives.

OPXBIO’s first product will be bioacrylic, which will be the chemical equivalent of petroleum-based acrylic, which is currently an $8 billion market that is growing at 4% per year. OPXBIO intends to produce bioacrylic at a lower cost ($0.50/lb) than petroleum-based ($0.65 – 0.75/lb today) and will commercialize bioacrylic through a joint venture with the first plant being operational in 2014.

OPXBIO’s second product is biodiesel, which it is working on through a $6 million grant from the U.S. DOE ARPA-E program. The company is partnered with the National Renewable Energy Lab (NREL) and Johnson Matthey to biologically produce biodiesel through fermentation from carbon dioxide and renewable hydrogen.

OPXBIO’s EDGE technology allows it to optimize the microbe and bioprocess 1,000 to 5,000 times faster than traditional genome or microbial engineering, and it is extremely robust allowing OPXBIO to work on multiple products and utilize numerous feed stocks.

POET

POET doesn’t get enough attention for its market-leading efforts in deploying enzyme-based cellulosic ethanol. Its 25 Mgy Project LIBERTY complex, which is now scheduled to commence construction in early 2012, awaits the outcome of a loan guarantee application from the DOE. But POET has been a leader in pushing the limits of fermentation technology in first-generation ethanol as well. It can produce up to 3.0 gallons of ethanol per bushel of corn with its proprietary BPX technology. BPX also reduces energy needs for fermentation by 8 to 15 percent compared to other ethanol production processes.

Last month, POET reported that farmers are now allowed to deliver bales of biomass to the company’s storage site in Emmetsburg that will supply the company’s future cellulosic ethanol plant. When operational, the facility will accept 300,000 tons of biomass but for now, area farmers harvested 56,000 tons of corn cobs, leaves, husks and some stalk this fall.

Farmers had been waiting to deliver the biomass to POET while guidelines for the U.S. Department of Agriculture’s Biomass Crop Assistance Program (BCAP) were finalized. Farmers on last week began completing the application process, and they started delivering bales soon after.

Last August, POET commenced construction of a new 22-acre biomass storage facility that will house up to 23,000 tons of biomass bales. The facility will form part of the Project LIBERTY complex. Meanwhile, potential suppliers of biomass to the plant have received  $100,000 in incentive payments towards establishment of their own harvesting systems. Farmers associated with the POET project will start the collection of a 56,000 ton harvest of corn cobs and light stover, which will be used as feedstock for the Project LIBERTY facility.

The facility will eventually consume 300,000 tons or more of biomass, which according to POET’s released figures could be sustainably harvested from a 468 square-mile area. By contrast, a 100 Mgy corn ethanol plant can be sustained by a 325 square-mile area using POET’s process.

Qteros

Qteros’ CBP platform is based on its broadly protected, feedstock-agnostic micro-organism, the Q Microbe.  Qteros’ near-term feedstock strategy includes corn stover, wet distiller grains (WDGs) and bagasse processed at cellulosic ethanol facilities that are co-located with existing corn and sugarcane ethanol plants. Longer term, Qteros plans to focus its strategy on greenfield facilities processing energy crops (e.g., sorghum and energy cane) which represent the greatest opportunity for global commercial scale production of cellulosic ethanol.

The Q Microbe is one of Qteros’ key competitive advantage as the organism possesses the native ability to hydrolyze a broad array of biomass and efficiently ferment all sugars into ethanol.  As such, Qteros is optimizing a micro-organism with native biological capabilities versus attempting to engineer one from scratch. Specific ethanol-producing attributes of the Q Microbe include: The preferential digestion of oligomeric versus monomeric sugars which significantly reduces pretreatment severity; the natural production all enzymes required to digest biomass; and a natural ability to simultaneously co-ferment all C5 and C6 sugars, thereby streamlining unit operations and reducing costs. Additionally, the Q Microbe is an anaerobic organism which minimizes production-related contamination risks associated with aerobic production processes.

In January, Qteros and Praj Industries announced  a strategic partnership to accelerate commercialization efforts for industrial-scale cellulosic ethanol production.

Under the agreement, Qteros and Praj will collaborate on a highly focused, multi-year development program with the objective of rapidly developing and commercializing Process Design Packages (PDPs) that enable cellulosic ethanol production using Qteros’ Q Microbe-enabled CBP platform and Praj’s technology and expertise in the conversion of biomass to ethanol. This unique licensing model serves to provide both a highly efficient and low-cost solution to the market, while also allowing Qteros and Praj to deploy their capital in an efficient and leveraged manner. Importantly, the companies plan to retrofit Praj’s existing pilot plant in Pune, India with Qteros’ technology platform, which will then become the foundation for accelerated production scaling as part of its commercial planning.

At the same time, Qteros announced that it closed the initial $22 million tranche in its Series C financing, with an undisclosed group of new and existing investors. The completion of this $22M financing is expected to provide sufficient funding to accelerate the Company’s development and commercialization plans.

Solazyme

The company generally shies away from promoting itself as an algal biofuels company, because it focuses its messaging around its products rather than its process – same, by the way, as Budweiser.

Biggest news lately – a partnership with Qantas to develop renewable jet fuels, and the widely-circulated expectation that Solazyme will file its S-1 registration form for an IPO by the end of March.

The Qantas deal? Solazyme announced that it has begun a collaboration with Qantas, to pursue the potential for commercial production of Solazyme’s microbial derived aviation fuel, Solajet, in Australia. This represents the first collaboration in the Asia-Pacific region to explore the use of Solajet in commercial aviation.  There is currently a six billion liter a year demand for aviation fuel in Australia.

Qantas is also working with another US company, Solena, to determine the feasibility of using MSW for production of biojet fuel.

Solazyme’s unique renewable oil production process uses microalgae to convert biomass directly into oil and other biomaterials, a process that takes a matter of days and can be performed in standard commercial fermentation facilities cleanly, quickly, and at low cost and large scale. Its renewable oil and bioproducts technology has manufactured tens of thousands of gallons of oil -  in fact in 2010 alone we will produce approximately 100,000 gallons of oil.  Solazyme’s latest technology breakthrough on tailoring the oil by carbon chain length and saturation offers a distinct advantage to its partners in the fuels and chemicals industry.  The oils that Solazyme produces can act as replacements for fossil petroleum and plant oils and compounds in a diverse range of products from renewable chemicals to cosmetics and food ingredients.

Solazyme made the decision several years ago to grow heterotrophic algae in the dark and harvest renewable oils – and have become the unquestioned leader in the quest to make an integrated biorefinery commercially successful in the production of renewable oils for fuels, foods and other bio-based products. Along the ways they’ve racked up an impressive array of partners, and won contracts to supply biofuels to the US Department of Defense. More importantly, in every way, they have personified throughout their organization what it means to be an advanced bio-based company – in the ways that they have triumphed, and in the ways they have faced adversity.”

Terrabon

The company’s technology is called MixAlco – an advanced bio-refining technology used by Terrabon’s experienced staff of chemical engineers to convert low-cost, readily available, non-food, non-sterile biomass into valuable chemical precursors such as organic acids, ketones and secondary alcohols that can be processed into renewable hydrocarbon fuels.

The biomass used as feedstock includes biogenic municipal solid waste (MSW), sewage sludge, forest product residues such as wood chips, wood molasses and other wood waste, and non-edible energy crops such as sorghum.

Terrabon can produce mixed secondary alcohols (a mix of isopropanol, 2-butanol, 3-pentanol, 2-pentanol, etc), green gasoline, green diesel and green jet fuel.  At the moment Terrabon is focusing on producing green gasoline and jet fuel.

In January, Terrabon revealed that it has exceeded its goal of producing 70 gallons of renewable gasoline per ton of MSW using its patented acid fermentation technology, MixAlco, paired with CRI/Criterion’s renewable fuel catalyst technologies. The company’s demonstration plant in Bryan used cafeteria waste and paper shreddings from Texas A&M University for the trial.

Verdezyne

Verdezyne is a privately held company developing and commercializing novel genetically engineered microorganisms for use as “factories” to manufacture chemicals and fuels, using renewable feedstocks. Verdezyne’s unique microorganisms permit greener, cleaner and more cost effective production of chemicals and fuels as compared with traditional methods. The Company is commercializing its technology through partnerships with leading chemical and fuel manufacturers.

Verdezyne is a product-focused company that is leveraging its technology platform to optimize the metabolic pathways, microorganisms and fermentation processes that enable economical production of renewable fuels and chemicals, focusing in this stage of development on biobased adipic acid (a platform chemical), and bioethanol, made from C6 sugars, C5 sugars (biomass, cellulosic sugars), plant-based oils, by-products from plant-based oil processing, paraffins

ZeaChem

ZeaChem combines the best of biochemical fermentation and thermochemical processes into a hybrid process that achieves 40% higher yield than other cellulosic processes. ZeaChem’s patented biorefining process uses an acetogen – a naturally occurring species of bacteria adapted to digest the tough carbon chains of cellulose – to extract the maximum amount of energy available from the feedstock. ZeaChem offers the highest yield, lowest production cost and lowest carbon emissions profile of any known biorefining process

ZeaChem’s patented process offers the highest yield, at the lowest cost, with the lowest fossil carbon footprint of any known biorefining method. Incorporated in 2002, ZeaChem is headquartered in Lakewood, Colorado and operates a research and development facility in Menlo Park, California.

ZeaChem’s 250,000 gallon per year demonstration scale cellulosic biorefinery is currently under construction in Boardman, Oregon.

In December, ZeaChem obtained a guaranteed maximum price, under the Engineering, Procurement and Construction agreements with engineering firm Burns & McDonnell, for construction of its demonstration cellulosic ethyl acetate and ethanol plant in Boardman. The company also announced that it has secured full construction funding for the core facility. The $25 million grant from the U.S. DOE will be used to fund the independent front and back-end cellulosic process components, enabling ZeaChem to produce fuel grade ethanol as well as intermediate chemicals from non-food related biomass.

The core unit of the biorefinery is currently under construction at the site location in Boardman and foundations are being poured, and the company will begin producing 250,000 gallons (annually) of cellulosic ethanol in 2011.

Jim Lane is the Editor and Publisher of Biofuels Digest.

Posted by Guest Contributor at 10:25 AM | Permalink | Comments (0)

Jim Lane

Will the new fermentation technologies completely shatter preconceptions about biofuels and bio-based products – and redefine the way in which Western Civ approaches the production of fuel, food, feed, and fiber? The new Brew Barons are working hard to make it so.

The Regents of the University of Washington generally only admit under conditions of duress – waterboarding is typically employed – that I graduated from their institution. At issue? What they felt was an inappropriate level of focus on beer and other fermentation products as a subject of personal discovery disguised as undergraduate research.

They’ve been laughing in Seattle since I left, but unintentionally I may just have the last laugh. It may be the case that fermentation, in its modern incarnation, may indeed be the key to saving Western civilization from itself.

Is there enough energy, food, fiber and feed for all? Advances in industrial fermentation – a/k/a an incredulous “you’re making what? from what? using what? – will be the key to answering that question.

The stars of this drama are using everything from sorbitol to steel waste gases, grass clippings, pulp mill black liquor, sludge, cane trash, vinasse, leftover chili, and potato peels that never found a home.

They are using two basic strategies – fermenting liquids and, more unusually, fermenting gases too. Most are fermenting liquids; companies utilizing gas-phase fermentation, like Coskata, LanzaTech and IneosBio, are just now proceeding towards demonstration at scale.

Their microorganisms have become so focused and well trained that they are creating phosphate-free detergents, ethanol, organic acids, diesels, gasoline, base and novel chemicals, even synthetic anti-malarials. Just today, Codexis (CDXS) announced that it has developed a process to capture CO2 from coal-fired power flue stacks by fermenting the waste gases.

Intriguingly, researchers from Cornell this week reported, in “Bacterial Community Structures Are Unique and Resilient in Full-Scale Bioenergy Systems” (Proceedings of the National Academy of Sciences, Feb. 22, 2011), analysis of 400,000 gene sequences of the microbes in the sludge at nine Budweiser facilities that treat wastewater in bioreactors. Anheuser-Busch InBev recoups 20 percent of its heat energy use through the methane produced by these nicrobes, saving the company millions of dollars every year. The intrigue: the Cornell engineers are looking to prevent methane production by the microbes, and instead, to shape the bacterial communities to produce carboxylates, which are a precursor to the alkanes found in fuels.

“We are going to shape these communities so they start making what we want,” said Cornell’s Largus Angenent, associate professor of biological and environmental engineering.

Now that’s the, ahem, spirit. That’s the outlook that why these fermentation-meisters are responsible – along with the Kings of Catalysis – for shaking up the world in a very positive way.

The new Brew Barons

They are the new Brew Barons. In an earlier age, they might have been content to make White Lightning, or craft brews. Today their targets are jet fuel, renewable gasoline, renewable diesel, ethanol, a boatload of renewable chemicals, plus feed grains, food oils, pharmaceuticals, nutraceuticals, and more.

One thing is for sure. Based on the advances they are making, anyone who begins a sentence with “biofuels are…” isn’t up on the science. They are too turbulent to be characterized – too fast-moving to be catalogued or pigeon-holed. The nature, potential, and value of biofuels are changing nearly as rapidly as feedstocks in a fermenter.

Who are they? Let’s look at some of the best and the brightest.

Algenol

An interesting approach. Algenol are utilizing algae to make starches, which they then ferment into ethanol.

Algenol Biofuels and Dow Chemical are in the process of constructing a $50 million pilot algae biofuels plant in Freeport, Texas. The plant will be located with Dow’s existing chemicals complex, and will supply CO2 as well as land for the pilot algae facility. Dow said that it was interested in Algenol’s ability to use algae to produce ethanol, which could be used as a base for making ethylene, which is in turn a feedstock for many types of chemicals. The plant is designed to produce 100,000 gallons of ethanol per year at a target price of between $1.00 and $1.25 per gallon, according to CEO Paul Woods, who added that groundbreaking is expected to commence this year. Traditionally, chemical companies have been using natural gas as an ethylene feedstock.

Amyris (AMRS)

It was an unheralded IPO – a lot of people passed on it at $16, now the stock is riding at $32 less than six months later, and the company just received this week its first purchase order for Amyris renewable squalane. The order was generated through collaboration with Amyris’s partner, Soliance, a leading green ingredient provider to the cosmetic industry based in France.

Last week, Amyris announced that it had completed multiple runs of its fermentation process using its engineered yeast to produce renewable farnesene, in 100,000 and 200,000 liter capacity fermenters. These runs were completed through contract manufacturing operations in North America and Europe.

The results of these fermentation runs, including yields, were consistent with previous runs at smaller scale. Amyris expects to commence commercial production of Biofene in the second quarter of 2011 and ramp production through manufacturing arrangements with entities including Biomin and Tate & Lyle.

In addition, Amyris and Grupo São Martinho, a leading sugar and ethanol producer in Brazil, have commenced site preparation on their joint venture production facility at Usina São Martinho. All of these facilities will utilize fermentors with capacities ranging between 100,000 and 600,000 liters.

Amyris is building an integrated renewable products company by applying its industrial synthetic biology platform to provide alternatives to select petroleum-sourced products used in specialty chemical and transportation fuel markets worldwide. They genetically modify microorganisms, primarily yeast, and use them as living factories in established fermentation processes to convert plant-sourced sugars into potentially thousands of target molecules. Their first commercialization efforts have been focused on a molecule called farnesene, which forms the basis for a wide range of products varying from specialty chemical applications such as detergents, cosmetics, perfumes and industrial lubricants, to transportation fuels such as diesel.

They have developed genetic engineering and screening technologies that enable us to modify the way microorganisms, or microbes, process sugar. By controlling these metabolic pathways, they design microbes to serve as living factories, or biorefineries, to produce target molecules that we seek to commercialize. Their platform utilizes proprietary high-throughput processes to create and test as many as 1,000 yeast strains a day in order to select those yeast strains which are most efficient. They first developed and applied our technology to create microbial strains to produce artemisinic acid, a precursor of artemisinin, an anti-malarial therapeutic. This work was funded by a five year grant awarded by the Bill & Melinda Gates Foundation to the Institute for OneWorld Health. We have granted a royalty-free license to this technology to sanofi-aventis for the commercialization of artemisinin-based drugs.

Bluefire Renewables (BFRE.OB)

BlueFire often gets overlooked because they are not using enzymes for the crucial hydrolysis step, and missing out on the attention that is generated by companies like Codexis (CDXS), Genencor and Novozymes (NVZMY.PK) for their enzyme customers. But fermenting their acid hydrolysis brother indeed they are, and operating a successful, proven technology for a number of years now.

Next step – they are awaiting loan guarantees – like Fulcrum, BP Biofuels, POET and a number of others – in order to proceeed with their Fulton,Mississippi-based cellulosic ethanol project. The facility will be engineered and built by Wanzek Construction, Inc., a wholly owned subsidiary of MasTec Inc. (MTZ) , for a fixed price of $296 million which includes an approximately $100 million biomass power plant as part of the facility.

In recent months, BlueFire had also announced the securing of 15-year offtake and feedstock contracts with credit worthy partners, and has thereby became the first advanced biofuels company to secure all three legs of the requirements generally associated with DOE loan guarantees. BlueFire is working with both the USDA and DOE loan programs, and over the past three years has secured $88 million in DOE grants.

Last month, BlueFire Renewables announced that Lincoln Park Capital Fund will invest up to $10 million in the company.  Upon signing the agreement, LPC invested $150,000 in BlueFire as an initial investment under the agreement at $.35 per share together with warrants to purchase an equivalent number of shares at an exercise price of $.55 per share.  BlueFire intends to use the proceeds of this transaction for general corporate purposes and to aid in the closing of additional financing for the Fulton project.

Cobalt Technologies

Cobalt Technologies is commercializing cellulosic biobutanol, a versatile platform molecule for the renewable and profitable replacement of petrochemicals and petroleum.  The Company’s technology efficiently converts diverse non-food feedstocks – initially, hemicellulose extracts from woody biomass and sugar cane bagasse – into biobutanol.  Cobalt will offer complete systems for biomass power facilities and retrofitting pulp and paper plants with a cost-effective biorefinery module, taking advantage of benefits of co-location (feedstock supply, logistics, permits) while enhancing overall facility returns.  Feedstock for the biorefinery will be low-value hemicellulose extracted from woody biomass (or bagasse) that otherwise would be burned for energy.

Biobutanol can be used as is in paints, coatings and other chemical products, a 1.2 billion gallon, $6 billion market.  It can also be converted via known chemistry into a wide range of high value products, including 1-butene, isobutene and butyraledehyde derivatives, replacing petrochemicals and accessing a 67 billion gallon, $300 billion market, and full performance jet fuel and diesel.  Biobutanol can also be blended with gasoline, diesel and ethanol to reduce emissions.

Engineered to achieve low costs through high productivity, energy efficiency and the use of low-cost feedstock, Cobalt is making biobutanol and its derivatives a cost effective substitute to petroleum-based materials.

Codexis (CDXS)

Codexis’ platform is based on proprietary directed evolution biocatalysis technology.  Codexis manufactures industrial biocatalysts for use in creating faster, more efficient and environmentally-friendly manufacturing processes and industrial scale in the bioindustrials and pharmaceuticals markets.

At the ARPA-E Energy Innovation Summit this week in Washington, DC, Codexis will announce significant progress towards developing economical, commercial scale technology to reduce carbon dioxide emissions from coal-fired power plants.  The program is supported by an ARPA-E Recovery Act program grant.

The grant supports development of custom enzymes to decrease energy needed to capture CO2 from coal-fired power plants.  Enzymes developed by Codexis under the grant have been shown to be functional and stable in relatively inexpensive and energy efficient solvents for 24 hours at temperatures up to 75⁰C.  Use of these solvents with fully developed enzymes is expected to reduce the energy needed to capture CO2 within the plant by 30%.

These reductions are possible through development of customized carbonic anhydrase (CA) enzymes, or biocatalysts.  CA is an enzyme which catalyzes the transfer of carbon dioxide in nature – for example, CA enables carbon dioxide to be released from blood into the lungs during respiration. However, the natural enzyme does not function at the high temperatures and harsh industrial conditions in coal-fired power plant flue gas.  In research being presented this week, enzyme performance has been improved by about 100,000 times over natural forms of the CA enzyme.

Biofuels Digest profiled Codexis most recently in “Resistance is Futile: Codexis and the chase for low-cost cellulosic feedstocks".

Coskata

Coskata was in the news most recently with the securing of a massive (though conditional, subject to closing) loan guarantee from  the USDA that will power the company towrds its first commercial demonstration.

It’s an intriguing technology (that finds itself currently entangled in a lawsuit with INEOS), that employs a three step process: gasification, biofermentation, and separation. During gasification, the feedstock is thermally broken down to form synthesis gas (syngas). During the second step, fermentation, the syngas is sent to a proprietary bioreactor where patented microorganisms consume the gas and produce ethanol. The last step of the Coskata process uses conventional distillation and dehydration technology to separate the ethanol from the water, resulting in pure, fuel-grade ethanol.

Coskata’s feedstock flexible process can utilize virtually any carbonaceous feedstock, including energy crops such as: switchgrass and miscanthus; wood chips, forestry products, corn stover, bagasse and other typical agricultural wastes; municipal solid waste and industrial organic waste like petroleum coke.  Their feedstock flexibility allows for enormous geographical and economic advantages over other fuel technologies.

Coskata’s hybrid process, combining gasification and biofermentation, leads to several competitive advantages in terms of efficiency, affordability, and flexibility.

Coskata’s highly efficient hybrid technology allows for one of the lowest costs of production in the industry.  Their microorganisms are specific to ethanol production and our technology has the ability to extract the entire energy value of the feedstock. Finally, they are not dependent on expensive enzymes or chemicals and pre-treatment costs are significantly lower than any non-gasification based technology available today.

Second, Coskata’s ethanol conversion process is one of the most feedstock flexible technologies among advanced biofuel startups and is able to create a high quality fuel from virtually any carbon-containing material. This feedstock flexibility also leads to geographic flexibility, allowing the company to build facilities virtually anywhere around the world where feedstock is available.

Genencor

Known primarily in the biofuels neck of the woods as an enzyme supplier, Genencor picked up a 2010 Biofuels Digest Award for the development of its C5 BioIsopren platform for use in the production of branched chain hydrocarbons, C10 gasoline; C15 biodiesel and jet fuel blend stocks that they collectively refer to as BioIsoFuels.

Isoprene is an important commodity chemical used in a wide range of industrial applications ranging from the production of synthetic rubber for tires and coatings to use in adhesives and development of specialty elastomers.  Current production of isoprene is derived entirely from petrochemical sources.  There is an increasing global need for more isoprene and a simultaneous environmental imperative to reduce green house gases, both of which can be achieved by a high efficiency fermentation based process for polymer grade isoprene production.  BioIsoprene™ will have broader commercial applications beyond the biochemical uses of isoprene in synthetic rubber, adhesives and specialty elastomers.  As a C5 hydrocarbon, BioIsoprene™ has inherent fuel properties and represents a key biobased intermediate that can be converted to a drop-in transportation fuel additive using chemical catalysis to C10 and C15 biobased hydrocarbon fuels, thus addressing performance gasoline, jet fuel and biodiesel markets.

Genencor develops enzymes and enzymes systems that enable starch as well as a wide range of cellulosic biomass processing to deliver fermentable feedstocks for use in the production of biochemicals and biofuels.  Feedstocks may include; corn, wheat, rye, barley, sorghum, triticale and rice. They  develop biological systems capable of producing biobased chemicals from a wide assortment of feedstocks including refined sugars from starch and biomass-derived feedstocks.

Genomatica

Genomatica’s technology is used to make major intermediate and basic chemicals in a direct, one-step process. This one-step process means fewer processing steps, lower capital costs, greater efficiency, and reduced overall cost. We are able to go directly from renewable feedstocks to the product of interest, as demonstrated with their recent partnership with Waste Management (WM). Genomatica’s technology offers sustainable chemicals at lower costs than petroleum-based alternatives.  The unique integration of technologies cuts years and millions of dollars of R&D investment from developing bio-based processes for making low-cost chemicals.  The organisms and complete manufacturing processes for  Genomatica’s targeted products are developed with high productivity due to our platform.

Their platform has been proven through an astonishing 2.5 year timeline to pilot production for1,4-butanediol, or BDO; and through $20 million of industry and government collaborations. The platform allows them to cost-effectively perform high-throughput ‘in-silico’ (computer-based) design and testing of highly-optimized organisms, manufacturing processes and economics. This results in more efficient, focused lab work, much faster product development and time to commercial-scale manufacturing, lower-cost production, and de-risking of the process.

Gevo, Inc. (GEVO)

Another celebrated IPO – Gevo just debuted at $15 not too long ago, but is already trading at a 30% premium, riding the NASDAQ currently at $19.71 after flirting briefly with $22.

Gevo has two proprietary technologies that combine to make it possible to retrofit existing ethanol plants to produce isobutanol, a four carbon alcohol which serves as a  hydrocarbon platform molecule.  We have developed a robust industrial scale yeast biocatalyst to produce isobutanol without typical byproducts operating at parameters equivalent to commercial ethanol producers.  The second piece of technology is a separations unit that operates continuously and removes isobutanol during fermentation.  This helps reduce distillation requirements, thereby reducing process energy consumption.

Gevo will produce isobutanol, a four carbon alcohol that can be dehydrated using well known technology to isobutylene, a C4 hydrocarbon.  Isobutanol has 30% more energy content than ethanol and can be blended into gasoline without modifying automobile engines.  Isobutanol is a low RVP blendstock and less soluble in water than ethanol.  It can be transported in pipelines and be dispensed in existing retail pumps.  Isobutanol is a biofuel that carries a RIN value of 1.3 and It can be an advanced biofuel from corn if it achieves a 50% GHG reduction.

Isobutanol also has a market as a chemical solvent.  The opportunity for isobutylene spans many C4 markets in jet fuel, paraxylene, PET and other multi-billion dollar applications in fuels, synthetic rubber, chemicals and plastics.

Gevo has a number of off-take agreements and has announced non-binding letters of intent to supply Total for gasoline blendstock; United Airlines for biojet; Lanxess for butyl rubber; and, Toray industries for p-xylene.

INEOS Bio

INEOS Bio was most recently in the news with the groundbreaking at its 8 million gallon per year advanced bioenergy facility in Vero Beach, Florida. The facility will also produce up to 6 MW of renewable power from municipal solid waste and yard and wood residues, enough to power more than 4,000 residences. INEOS New Planet BioEnergy is a joint venture between INEOS Bio and New Planet Energy, which received a $50 million grant from the DOE last year towards construction of the INEOS New Planet demonstration plant.

The INEOS Bio process is a combined thermochemical and biochemical technology for ethanol and power production.  It is comprised of four main steps:  (1) feedstock gasification, (2) synthesis gas fermentation (3) ethanol recovery and (4) power generation.  The process utilizes a patented fermentation process, where cleaned, cooled synthesis gas is converted selectively into ethanol by a naturally occurring anaerobic bacteria.  The process has been under development for 18 years.

Last June, INEOS Bio received a $10.8 million in grants from the Department for Energy and Climate Change and the Regional Development Agency One North East towards the construction costs  of its waste-to-ethanol BioEnergy Process Technology project at the INEOS Seal Sands site in the Tees Valley. The 7.9 Mgy (30 million liter) project will also produce 3 MW of renewable power and will be completed in 2012. The plant which will utilize 100,000 tonnes of municipal solid waste (which it will convert at a 25 percent yield) will create 40 permanent and 350 construction jobs, and will become the base of a larger commercial INEOS Bio plant that will open in 2015.

Part II of 'Brew Barons' is here.
Jim Lane is the Editor and Publisher of Biofuels Digest.

Posted by Guest Contributor at 08:04 PM | Permalink | Comments (0)

Marc Gunther

Biofuels development at Codexis headquarters in Redwood City, CA.

In the overcrowded biofuels business, it’s hard to tell the pretenders from the contenders.

Every company claims to possess breakthrough technology that is just about ready for commercialization. Just ask Algenol, Amyris (AMRS), Bluefire Renewables (BFRE.OB), Coskata, Genencor, Gevo (GEVO), LS9, Mascoma, Novozymes (NVZMY.PK), Range Fuels, Synthetic Genomics (which is funded by ExxonMobil) and Terrabon. In the last couple of years, I’ve taken a look at Poet, (See Poet, seeking patronage), Qteros (Qteros: Turning mud to big money) and Solazyme (Gee whiz, algae!), among others.

Today, I’ll turn my attention to Codexis (CDXS), which, like its rivals, has a beautiful website, big ideas and very little in the way of commercial production of a biofuel not made from food. That’s the problem here — a sustainable biofuel such as cellulosic ethanol, which is ethanol made from the wood, grasses or the non-edible parts of plants, always seems to be a few years away, despite the hopes of venture capitalists and politicians.

It was back in 2007, after all, Congress mandated that the U.S. use 100 million gallons of cellulosic ethanol yearly by 2010, and 250 million gallons by 2011. Congress, alas, can’t mandate technological progress or persuade algae to grow faster, no matter how much money it throws at the problem, so neither target will be met, not by a long shot. For a skeptical view of the biofuels biz, see Robert Rapier’s blogpost, Cellulosic Ethanol Reality Begins to Set In. A former ConocoPhillips exec and a chemical engineer, Rapier doesn’t think that “large-scale commercialization of cellulosic ethanol will ever be viable.”

And yet…many scientists, investors and corporate executives, including some in the oil industry, believe strongly in biofuels, which brings us to Codexis. Shell has invested $350 to $400 million in Codexis, according to the company’s CEO, Alan Shaw, who spoke with me this week in Washington. “It’s the largest privately funded biofuels program in the world,” Shaw told me.

Codexis also has partnerships with Merck and Pfizer, because its enzymes can be engineered to produce pharmaceuticals, and with Alstom (AOMFF.PK), which is using Codexis technology to capture carbon dioxide emissions from coal-fired power plants.

“Our model is to work with Big Brother,” Shaw said.

Codexis (CDXS), which was spun out of a biotech firm called Maxygen in 2002, went public last April. The company reported $107 million in revenues in 2010, with most coming from Shell, which, in effect, is outsourcing its biofuels R&D to Codexis. The company isn’t making money yet and the stock’s down by about 20% since the IPO.

If I’d taken biology and chemistry in college, I might be explain to explain Codexis’s technology in a sophisticated away. Here’s the best I can manage: In brief, the company rearranges the DNA of enzymes–which are proteins that speed up or slow down chemical reactions–in order to make new industrial processes possible and make existing processes faster, cleaner and more efficient than conventional methods.

In Codexis’s biofuels business, that means turning feedstocks like sugar cane bagasse and leaves, wheat straw, woody biomass, or waste from pulp and paper mills into sugars that can then be fermented into ethanol.

Shaw does not believe that using corn or sugar as feedstocks makes long-term sense for the biofuels business. He’s surely right about that. The environmental benefits of corn ethanol are questionable at best, and groups including the American Meat Institute, the American Jewish World Service, the Competitive Enterprise Institute and moveon.org (strange bedfellows!) all oppose further federal subsidies for corn ethanol.

Sugar, meanwhile, costs more than $700 a ton, which makes the economics of turning sugar cane into ethanol very challenging. Prices will only raise as the world’s population grows, Shaw says. Instead of turning sugar into ethanol, why not find ways to take biomass with no food value and turn it into sugar?

That’s Codexis’s approach, of course. In Canada, Codexis is working with Iogen, which has been making cellulosic ethanol from wheat straw in a small demonstration plant since 2004. In Brazil,  Codexis is working with Cosan (CZZ), the world’s largest sugar and ethanol company, and Royal Dutch Shell, which have formed a joint venture called Raizen. They’ll focus on sugar cane bagasse, leaves and stalks, none of which are edible.

Shaw told me that he expects to see Codexis’s technology used in pilot plants in Canada this year and Brazil next year.

And when will the technology be commercialized?

“You’re talking about hundreds of millions of dollars of investment,” Shaw said. “Large scale, I think we’re looking at 2015.”

In the long run, there ought to be a future for sustainable low-carbon biofuels. Even if the automakers electrify most or all of their cars, clean transportation fuels will be needed to power planes, trains and ships.

What’s more, no industry wants to be dependent on oil forever–not even the oil industry.

DISCLOSURE: None.

Marc Gunther is a contributing editor at FORTUNE magazine, a senior writer at Greenbiz.com and a blogger at www.marcgunther.com.

Posted by Guest Contributor at 10:15 AM | Permalink | Comments (0)

by Debra Fiakas CFA

There are not many companies with the courage to stage an initial public offering, but renewable chemicals and materials producer Amyris, Inc. (AMRS:  Nasdaq) was undaunted.  The company sold 5.3 million shares at $16.00 earlier this month, raising $78.8 million in net proceeds. 

Amyris has done fairly well in raising capital.  In December 2009, the Department of Energy awarded Amyris a $25.0 million grant to build a pilot plant that will produce diesel and petrochemical substitutes through the fermentation of sweet sorghum.  Then Temasek Holdings invested $47.8 million into the company.

The Amyris vision is lofty  -  build a “fene economy.”  Investors might be scratching their heads over that one.  Amyris engineers microbes and has developed a molecule called farnesene.  The molecule can be the building block for a variety of products such as detergents, cosmetics, perfumes and industrial lubricants, and to transportation fuels like diesel.  The company has ubiquity in mind for farnesene-based products, replacing existing products that are derived from petroleum, plant or animal sources and that may be of lower quality or higher price.  While sweet sorghum is the feedstock for the diesel pilot project, the company plans to use Brazilian sugarcane for its ambitious farnesene production. 

Management claims commercialization is just around the corner and expects revenue streams to begin flowing in 2011.  Amyris has revenue from consulting and licensing, but development costs and other operating expenses have run high.  The company reported a net loss of $76.0 million in the twelve months ending June 2010.  For perspective we note that operations only used $45.9 million in cash during that period.

After the offering, Amyris estimates there will be approximately $294 million in cash on the balance sheet.  The company has no debt so the cash kitty is available for further research and development work.  Amyris has not been working exclusively behind the research bench.  A stable of partners has been assembled that gives Amyris access to production and distribution capabilities and expertise.  The business model allows Amyris to remain focused on what they know best  -  chemistry  -  while partners and customers figure out how best to incorporate that chemistry into marketable products.

Investor enthusiasm is running strong for the company.  AMRS price rose in the days following the offering and have remained solidly above the offering price even if investors have not been treated to a “soaring” stock price.  We would like to see some seasoning of this stock before committing large amounts of capital.  Nonetheless, the company has an interesting business model that should earn strong margins as sales ramp.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  AMRS is included in the Crystal Equity Research Beach Boys Index in the Biofuel Group.

Posted by Debra Fiakas at 04:37 PM | Permalink | Comments (0)

Bill Paul

In the wake of the massive Gulf of Mexico oil spill, it’s clear the U.S. needs to end its crude-oil addiction as much to protect its economy as the environment.

To move the future forward, America needs one company in particular to come through on behalf of all Americans. In a cruel twist of fate, that company is ExxonMobil (XOM), which is working on arguably the most important energy-research project in the world today. Namely, a project to replace crude with genetically-modified algae that can be cost-effectively refined using existing refinery equipment.

A year ago when Exxon announced its algae project with biotech pioneer J. Craig Venter, the company said that it would take at least 5-10 years to produce commercial quantities of algae-based fuels. “My suspicion, and it’s just a suspicion, is that they still see it as five to 10 years away,” says Addison Wiggin, editorial director of The Daily Reckoning, who has been looking into the Exxon-Venter project for a forthcoming documentary on entrepreneurs in the post-crisis financial world.

Too long. As video of the black death pouring out of that ruptured pipeline gushes onto every American TV and computer screen, it's time for President Obama to declare a new Manhattan Project, a new man-to-moon space race. The goal must be to take America off its crude addiction in less than five years with a literally home-grown industry that will create tens of thousands of agricultural and other jobs without jeopardizing the existing oil industry’s trillion-dollar infrastructure.

Exxon shares would surge the moment this plan became publicly known; however, the President can’t allow the investor payoff to be too bountiful. There will have to be safeguards against Exxon controlling the applicable patents in order to prevent the company from controlling America’s energy future.

Algae oil is no panacea, the President will further need to say. Accelerated development of plug-in electric and all-electric vehicles is needed in order for the U.S. to have, by 2020 or sooner, a nationally-secure, environmentally-sound transportation infrastructure.

In a second twist of fate, not only would Exxon shares likely surge in price, so too might the shares of utilities that generate a lot of electricity from coal. Companies such as Duke Energy (DUK), Southern (SO) and FirstEnergy (FE) might lose their pariah image if part of the President’s strategy were to capture coal plants’ carbon dioxide and use it to accelerate algae growth.

For risk-inclined investors who believe that all this may be on the way, a company that might be worth a closer look right now is tiny OriginOil. (OOIL.OB). The company has started signing up customers as it begins commercializing a technology for producing biofuel from algae using CO2 emissions captured from smokestacks.

Disclosure: No positions

ED NOTE: Follow this link for a look at four algae oil companies, including OriginOil.

Posted by Bill Paul at 06:00 PM | Permalink | Comments (1)

Tom Konrad CFA

There are two types of solution to the liquid fuels scarcity caused by stagnating (and eventually falling) oil supplies combined with growing demand in emerging economies.  The most obvious is to find a substitute to replace oil.  Each potential substitute has barriers to its use which stand in the way of it from becoming a complete substitute for petroleum based fuel.  Understanding those barriers also leads us to the investment opportunities that arise from these substitutes. 

In the last two articles of this series, I looked at barriers to adoption for alternative fuels, and the limits and constraints that will likely prevent most of them from reaching sufficient scale to replace our current oil use. 

The first barrier was the last of existing infrastructure for many fuels: the lack of a fueling infrastructure that would allow drivers to fuel their vehicles when and where they need to at competitive prices, while the lack of a distribution infrastructure can keep the fuel from getting to the regions of the country where it is needed.  The second barrier is energy density: in order to deliver the range that people expect from their vehicles, an alternative fuel and the tank or battery that holds it works best if it is both light and compact.

The constraints were the total available supply (current and long term), alternative uses which might divert that supply to more economic purposes than fuel, and the damage producing and using the fuel does to the climate and environment.

To be a success, an alternative fuel must be able to overcome both barriers, and not have such severe constraints that there is little fuel available.  The barriers put limits on the short term profitability of the technology.  The constraints limit the short-term or long-term size of the market for the fuel, and the economics of the fuel.

Investment Opportunities

The table below summarizes the discussion in parts VI and VII.  I've rated the barriers and constraints for each fuel from A to F, with F being the least favorable to the adoption of the alternative fuel, and A being the most favorable.

Barriers	Biofuels	Electricity	H2	NGV	GTL	CTL
Fueling Infrastructure	A	C	F	F	A	A
Distribution Infrastructure	D	A	D	A	A	A
Density	A	F	C	C	A	A
Overall Barriers	B	C	D	C	A	A
Constraints	Biofuels	Electricity	H2	NGV	GTL	CTL
Current Supply	C	B	F	B	B	B
Long Term Supply	B	A	A	F	F	F
Alternative Uses	C	C	D	C	C	C
Climate/Environment	C	A	A	D	D	F
Overall Constraints	C+	B+	C+	C-	C-	D+

H2= hydrogen; NGV = Natural Gas Vehicles; GTL=Gas to Liquids; CTL= Coal to Liquids.

Hydrogen (Barriers D / Constraints C+)
If you agree with my assessments in the previous articles and as laid out in the above chart, it seems clear that hydrogen is a non-starter as an alternative fuel: the barriers are much worse for hydrogen than any of the other alternatives, and while hydrogen does have the long term advantages of potentially unlimited supply with minimal environmental impact, electricity has these same advantages, but has fewer barriers to overcome.

Natural Gas Vehicles (Barriers C / Constraints C-)
Natural Gas Vehicles are questionable as a peak oil mitigation strategy as well.  Natural gas is usually touted as a transitional fuel as we move away from oil and towards renewables.  But with the barriers to vehicle electrification no worse than the barriers to NGVs, a direct transition to electric vehicles seems a better choice. 

Biofuels (B/C+) and Gas to Liquids (A/C-)
  Biofuels and Gas to Liquids will likely have roles to play, but these roles will be limited by supply constraints.  Companies that can solve some of the problems for these two alternatives (such as land and water use for biofuels) may be profitable investments.  Algae is one possible way to overcome the supply constraints and environmental degradation caused by biofuels, but as I discussed in Part V, the publicly traded algae companies and technology is still too early stage to make attractive investments.  Biofuel feedstocks grown in salt water also have good long term potential.

The big questions lie with Vehicle Electrification and Coal to Liquids (CTL). 

Coal to Liquids (A/D+)
CTL would have a lot of potential as a short-term peak oil mitigation strategy if either 1) we choose to ignore the associated climate impact, or 2) we find and develop an economical way to sequester the associated carbon emissions.  I personally don't think that carbon sequestration is likely to be economical except in special (and small scale) situations such as enhanced oil recovery, but if a company manages to crack this nut, it is likely to be an excellent investment opportunity.

Likewise, so long as the true costs of greenhouse gas emissions are not paid by the polluters, high oil prices may make coal to liquids plants quite profitable in the short term given the ease with which synthetic diesel can be used in the current distribution and retail infrastructure.  However, such plants would be subject to potentially bankrupting regulatory risks because of the real chance that regulators may decide to price these externalities at a later date.  These risks mean that many lenders will be unlikely to finance Coal to Liquids plants.  We have seen a similar trend with many banks deciding not to finance new coal-fired electricity generation because of regulatory risk.  This trend is not all one-way, however, as some lenders (like the World Bank) are less subject to market forces, and may continue to fund environmentally harmful projects if they feel such projects are in line with other goals, such as development.

Vehicle Electrification (C/B+)

Where the prospects for Coal to Liquids are all short-term, the prospects for vehicle electrification are all long-term.  Energy density and the cost of batteries present serious near-term barriers to vehicle electrification.  In contrast, the long term prospects for vehicle electrification are much brighter than for any other alternative fuel.  The potential to deliver clean renewable electricity from wind and solar is sufficient to power all the worlds current electricity and transportation needs hundreds of times over.  Electric vehicles have the added advantage that they can smooth the natural variability of these most abundant renewable electricity sources by charging when the wind blows and the sun shines.

But the prospects for vehicle electrification come with a huge caveat: Plug-in Hybrid Electric Vehicles (PHEVs) and pure Electric Vehicles (EVs) are far from cost-effective ways to displace oil because of the huge cost, weight, and volume requirements of batteries.  Batteries are getting better, and many governments are pouring in the funding dollars, but for now only the mild vehicle electrification available with conventional hybrids uses batteries cost-effectively enough to make economic sense, even with a doubling or tripling of gas prices.  PHEVs and EVs can make sense as niche vehicles where performance (sports cars), silence (golf carts), or environmental sensitivity is at a premium.  They may also make sense for some fleet vehicles that follow predictable routes and can benefit from multiple battery swaps or charging sessions per day (mass transit, postal vehicles) but the cost-benefit analysis of such applications will be very sensitive to the application.  Smaller vehicles such as electric bikes and scooters also have great potential because their lower power and range requirements are easier to meet with current commercial battery technology.

Even these more limited applications for vehicle electrification are large compared to the current battery market.  As I wrote in part II, battery companies, especially those making progress with chemistries not currently the subject of intense investor interest, are compelling investment prospects.

Conclusion: The Best Peak Oil Investments

There is no perfect substitute for fossil fuels.  In the end, we are going to have to find ways to address the reality of peak oil that go farther than simply replacing one fuel with another: we are going to have to reduce our usage.  Fortunately, a number of strategies for reducing fuel use exist.  Not only is there considerable potential to increase vehicle efficiency, but there are also many ways to encourage conservation which can have net economic benefits for society.  For investors, these strategies also hold promise, although it is not always obvious how companies can turn a profit from helping consumers consume less.  

The "Best Peak Oil Investments" are not be the substitutes I have been talking about so far.  The best peak oil investments are the technologies that allow us to use less oil and still get our transportation needs met.  Future articles in this series on peak oil investment strategies will attempt to tease out the investment opportunities that arise from reducing our use of oil, not just finding substitutes for it.

Here are links to the previous articles in this series:

1. Biofuels
2. Hydrogen and Vehicle Electrification
3. Natural Gas Vehicles
4. GTL and CTL
5. Algae
6. Barriers to Substitution
7. Substitution Constraints
   

DISCLOSURE: None.

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.

Posted by Tom Konrad at 06:24 PM | Permalink | Comments (0)

Tom Konrad CFA

There are two types of solution to the liquid fuels scarcity caused by stagnating (and eventually falling) oil supplies combined with growing demand in emerging economies.  The most obvious is to find a substitute to replace oil.  These substitute have barriers to their use as a replacment petroleum based fuel.  Understanding those barriers also leads us to the investment opportunities that arise from these substitutes. 

As I wrote the first five parts of this series, looking into potential substitutes for gasoline and diesel, it was clear that many potential substitutes would need to overcome barriers to its adoption.  This article and the next will look at these barriers, and what they say about the potential for investments in substitutes for liquid fuels from petroleum.  Part VII will look at factors which constrain the supply of these substitutes.  Part VIII will combine the resulting understanding of these barriers and constraints to highlight the investment opportunities arising from them.

Barrier: Infrastructure

One great advantage gasoline and diesel have over most of the proposed alternatives is an extensive infrastructure.  In addition to an extensive pipeline network, we also have a large number of competing fueling stations.  If a new fuel requires new fueling stations, like natural gas and hydrogen, or charging points and (potentially) battery swapping stations (electricity) it may not be enough to make sure that enough filling stations exist for would-be drivers to make long trips.  If there is only one national network of filling stations, drivers will likely become concerned that the lack of competition will mean that they overpay for fuel.

Among the possible substitutes, the synthetic fuels discussed in part IV, as well as biogasoline are the best placed in that they can use existing infrastructure. 

In terms of having a nationwide transportation network, the best placed substitutes are natural gas and electricity.  In terms of point of sale delivery, electricity has an advantage in that it's safe and relatively cheap to place charging infrastructure in parking lots, and most homes already have the capability of charging an electric vehicle, although it takes a long time from the 120V outlets in most garages.  Most homes do not have natural gas in the garage, and even when they do, a compressor is necessary. 

Conventional biodiesel and ethanol can be dispensed from the same pumps used for fossil fuels, but both present some difficulties in transport and storage.  Biodiesel cannot be allowed to get too cold, because it begins to congeal, so in colder climates, storage tanks as well as transport tankers must be insulated and even heated.  Ethanol cannot be shipped through pipelines that are also used for gasoline, because it absorbs too much water.  Hence ethanol and biodiesel are mostly shipped in tanker trucks and rail cars.  But both can be blended with conventional fuels, meaning that little new dispensing infrastructure is needed.  The importance of a competitive fueling infrastructure can be seen in in this November 2009 statement from the Trucking industry to the US Senate [pdf] about the conversion of trucking from diesel to natural gas.  They say,

It is not sufficient to have a single LNG vendor with stations built at strategic locations along key freight corridors. Absent a competitive refueling infrastructure, trucking companies could face unreasonably high prices at individual retail LNG stations that have no competition in a particular geographic area. While competition exists in the natural gas industry, the high barriers to entry for retail LNG refueling stations may slow the development of a competitive refueling infrastructure. A competitive LNG refueling model would require the presence of multiple entities selling LNG in the same geographic area.

This objection applies to any potential alternative vehicle which locks the user into one fuel, and includes Electric Vehicles (EVs) such as the Nissan Leaf and Hydrogen Fuel Cell Vehicles, but not to flex fuel vehicles (E85 ethanol) or biodiesel (which can be used in any diesel engine.)  It also does not apply to Plug-in Hybrid Electric vehicles, such as the Chevy Volt, because while charging points and battery swapping stations may be limited, the existing fueling infrastructure provides supply competition.

The fuel with the weakest infrastructure is hydrogen.  Like natural gas, it needs specialized filling stations, but hydrogen lacks a national pipeline network.

Incomplete infrastructure can be either a barrier or an opportunity.  If a potential fuel is compelling for other reasons, firms well placed to provide the necessary infrastructure should be able to profit handsomely.  If, on the other hand, a fuel lacks an existing infrastructure and also faces significant other barriers, it will be unlikely to become a significant transportation fuel, and infrastructure investors are likely to lose their shirts along with everyone else interested in the fuel.

Barriers: Energy Density

When talking about energy density, it's important to consider not only the fuel, but the tank.  Both volume and weight are important.  Few fuels are as energy-dense as gasoline and diesel, both of which can be stored in simple, unpressurized fuel tanks.  In contrast, the fuel tank for electric vehicles is the battery, and batteries are not only large and heavy for the amount of energy they store, they are also extremely expensive and degrade over time.  Although the cost of driving an electric vehicle are very low compared to gas or diesel, the large up-front investment in batteries makes the total cost of owning an eelctric vehicle higher except for drivers who use the vehicle for frequent, short trips with time to recharge in between. 

The big winners for energy density are synthetic fuels, as well as conventional biofuels such as ethanol and biodiesel.  Although ethanol has been criticized because it only contains about 2/3 of the energy of the same volume of gasoline, it's close enough that people using ethanol don't have to completely change their behavior in order to use it in a conventional vehicle.  In contrast, electric vehicle manufacturers find that the range of their vehicles is constrained not only by the cost of batteries, but also by their size and weight.  Weight is particularly important, because as a vehicle gets heavier, more of the energy is used to move the vehicle rather than the occupants, which in turn requires even more batteries.

In between energy-dense biofuels and bulky batteries lie gaseous fuels: natural gas and hydrogen, which have good energy per gram, but require heavy pressurized tanks to pack them into a space small enough to fit in a vehicle.  Hydrogen requires a pressurized tank that takes up a lot of space, even if it is not very heavy.  Natural gas can either be used as Compressed natural gas (CNG) or Liquid Natural Gas (LNG.)  CNG is similar to hydrogen, although it is a little more energy dense.  LNG has the same energy density as diesel, but requires considerable energy to compress into that form, and is not available from a home fueling station.  Hence, natural gas vehicles present a tradeoff between energy density and fueling infrastructure.

Conclusion

Considering just the barriers of energy density and infrastructure, it is clear why the conventional biofuels ethanol and biodiesel gained an early lead over alternatives such as electricity and hydrogen.  The big questions about biofuels arise from constraints in their total supply, and the harm that many forms of biofuel agriculture do to the environment.  Synthetic fuels made from natural gas and coal (GTL and CTL) can also have excellent energy density and can take advantage of existing infrastructure and vehicle fleets, but so far have not been adopted in a large way becasue they have had to compete with cheap oil.  As oil prices rise, we will probably also see the rise of synthetic fuels, but, like biofuels, their long term prospects will be limited by total supply and possibly by concern about the environmental harm they do. 

Such supply constraints and environmental concerns will be the subject of Part VII.  Previous articles have been:

1. Biofuels
2. Hydrogen and Vehicle Eletrification
3. Natural Gas Vehicles
4. Synthetic fuels: GTL and CTL
5. Algae
   

DISCLOSURE: None.

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.

Posted by Tom Konrad at 10:14 AM | Permalink | Comments (7)

Tom Konrad CFA

There are many proposed solutions to the liquid fuels scarcity caused be stagnating (and eventually falling) oil supplies combined with growing demand in emerging economies.  Some will be good investments, others won't.  Here is where I'm putting my money, and why.  This fifth part takes a look at the growing consensus that our biofuels should come from non-food crops grown on land that is not otherwise productive, and the one crop that shows promise of delivering the high yields needed to satisfy our enormous thirst for fuel is algae.

In part I of this series on Peak Oil investments, I looked at Biofuels and Biochemicals as a substitute for petroleum based transportation fuels and chemicals.  I concluded that the best such investments were investments in biofuel feedstocks, but one such feedstock I didn't mention was algae.  

The Promise of Algae

If you need to own your own feedstock to be a profitable biofuel company, you can either grow it, or make use of the waste from some other economic activity.   The potential of biofuel from waste is inherently limited by the waste currently produced, and the amount of available waste is likely to fall over time as the economy becomes more resource-efficient because of rising commodity prices.  While I think compaines that control waste streams care good investment opportunities, waste is inherently limited when it comes to replacing oil.  It's the very limitation of waste as a resource that makes it a good investment.

If you grow your feedstock on good agricultural land, you will be giving up the opportunity to produce valuable food.  If you grow hardy non-food crops on marginal land, you will probably have very low yields.  For instance, Jatropha has long been heralded as a non-food crop that can produce oil for biodiesel on marginal land, but the best Jatropha yeilds are produced on well-drained soil with ample fertilizer and rainfall or irrigation.  Since most arable land and available water are already in use, the potential for additional biofuel production from conventional crops is limited.

Many observers herald biofuel from algae as a way to thread this needle.  Algae grown in open ponds is likely to produce 5,000-10,000 gallons of oil per acre per year, while companies using bioreactors have made claims approaching 10 million gallons per acre.   The higher-end claims for algae in bioreactors are either pure fantasy, or would require vertical farms with artificial light, but a 100,000 gallons per acre per year (1/100th of the high-end claims) is generally considered achievable.  For comparison, Zeachem is aiming for 2,000 gallons of ethanol per acre of sugarcane per year, one of the most productive conventional biofuel crops.  Corn produces less than 500 gallons of ethanol per acre per year.

The potential of a hundred times improvement in fuel yields over conventional crops keeps people excited about algae.  On paper, such yeilds would allow algae to replace oil in our economy.  Actually achieving these yields is tricky.  Open ponds have problems with contamination by wild algae, and evaporate enormous amounts of water into the atmosphere.  They also need to be fed with carbon dioxide and nutrients to achieve good yields, without so much stirring that the algae (which prefer still water) are disturbed.  Bioreactors help solve the contamination and water evaporation problems, and can allow more surface area for light absorption and algal growth.  But bioreactors cost much more than open ponds, and require more maintainance and attention to keep them at the proper temperatures and light levels.  Like open ponds, they need to be fed CO2 and micronutrients to achieve optimal growth without creating too much turbulence for the algae to grow.

Yes, But

One of the greatest dangers for Alternative Energy investors is confusing great technological potential with great investment potential.  I recently argued that solar stocks are not a good long term investment because of extreme competition and a rapidly evolving technology.  The same arguments apply to algae companies, most importantly the the point about rapidly evolving technology.  While solar technology got its start in the 60s and 70s, algae research began only in the 1990s.  We still don't know what sort of bioreactors will end up being economic, which types of algae will work best, and what the best ways to extract the oil from the algae will be.  This is an extremely immature technology, and as such, it is unlikely to be a profitable sector for investors in public companies.  With over 200 startups working on algae, only four of which are public (see below), the most likely winners are private companies.   Many of the winners have not even been incoprorated yet. 

That said, I think that bioreactor companies will probably dominate the industry over the long term.  In the short term, open ponds probably have an advantage, because they require less technological development and lower capital cost, but their long term potential is limited compared to bioreactors.  Open ponds are only practical in areas with abundant water, and these locations will likely be suitable for other forms of farming.   High-productivity algae farms will need to be located near a source of carbon dioxide, such as a power plant, and be in sunny locations.  These conditions will probably favor the bioreactors, which can be located in dry, sunny locations. 

Stocks

Here's a quick list of the publicly traded companies I know of that are working on algae, and what they do:

Green Star Products, Inc. (GSPI.PK).  Green Star's primary business seems to be selling continuous flow biodiesel reactor technology.  This is not a great business because it's currently hard to sell biodiesel for more than the cost of the inputs needed to make it.  They have also developed a formulation of micronutrients that they think are excellent for increasing the productivity of certain algae strains.

OriginOil, Inc. (OOIL.OB). Origin has developed a process using electromagnetic fields to extract oil from living algae without killing the cell.  If they can make it work at reasonable cost, this technology should be a real boon to the industry.  Unfortunately, the company is losing money hand over fist, and does not have revenues or cash to speak of.  Since the company will have to keep raising new money from investors for the foreseeable future, the stock will almost certainly continue to fall until it can begin to fund its operations internally.

PetroAlgae, (PALG.OB). PetroAlgae is attempting to commercialize an open pond "microcrop" technology (they are working with other small aquatic plants such as duckweed as well as algae.)  Yields will likely be relatively low for algae because they do not add carbon dioxide to the process, and they will have to cope with large water losses from evaporation.  Like OriginOil, PetroAlgae has no revenues and will need to raise money soon to continue operations.  On March 5, the company privately sold stock at $8 per share, despite the fact that its shares are currently trading for around $22 on the open market.  I can't imagine why the stock has climbed since it went public in 2008 at around $3.  If you can find shares to borrow, this looks like a stock to short.

PetroSun Inc. (PSUD.PK).  Back in September 2007, PetroSun made a splash as the first public company to try to commercialize algae for biofuel.    I was skeptical at the time, and said so in March 2008.  My skepticism now seems justified, since now their website has a couple mentions of algae, but the catfish farms they converted into algae farms in 2009 are not mentioned, and their only projects and prospects are traditional oil and gas projects.  The stock is down to $0.045 from $0.16 since I panned it in 2008.

Conclusion

Algae has great promise for producing liquid fuels in sufficient quantity to replace petroleum, and it can do so without using excessive water or farmland.  That potential, however, is fairly far off.  The technology is capital intensive and far from commercialization, a combination almost certain to make investors in the public stocks poorer rather than richer.  If and when fuel made from algae is available in significant quantity to make a dent in our thirst for fossil fuels, it will probably have been developed by companies that public investors cannot currently buy.  Stock market investors should wait until this industry matures from its current infancy to something closer to adolescence.  Buyers of the current batch of infant companies are likely to suffer the fate of other new parents: many sleepless nights.

Other articles in this series on Peak Oil investments:

1. Biofuels
2. Vehicle electrification and hydrogen
3. Natural Gas Vehicles
4. Biomass-to-Liquids, Gas-to-Liquids, and Coal-to-Liquids.
   

DISCLOSURE: None.

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.

Posted by Tom Konrad at 08:31 AM | Permalink | Comments (0)

Tom Konrad CFA

There are many proposed solutions to the liquid fuels scarcity caused by stagnating (and eventually falling) oil supplies combined with growing demand in emerging economies.  Some will be good investments, others won't.  Here is where I'm putting my money, and why.  This first part looks at biofuel strategies for replacing oil.

World oil supplies are stagnant, and in the not-so-distant future will begin to decline.  If economic growth continues, demand for oil will increase as well.  This will lead to a long term rise in oil prices, which will only stop if 1) high oil prices or other factors stop or reverse economic growth, or 2) we find some way to use much less oil for the same amount of economic activity.  Each of these scenarios will have winners and losers.  In other words, investment opportunities. 

Substitution

The most obvious strategy for dealing with peak oil is substitution.  If we can find another form of energy in place of oil, then our economy can grow without more painful adjustments.  These strategies are among the most popular, because they hold out the hope that we'll be able to transition with a minimum of pain.  That is wishful thinking.  There will be a market for petroleum substitutes, but those substitutes are likely to be more expensive and supply-limited than oil currently is.  We will have to adapt in other ways as well as using substitutes.

The leading substitutes include

1. Biofuels and Biochemicals
   
2. Electric vehicles
3. Hydrogen
4. Natural Gas
   

Biofuels and Bioplastics include a whole range of technologies which convert plant and animal matter into useful substances similar to the extremely useful transportation fuels, chemicals, and plastics that we currently get from oil. 

Only some biomass is easy to convert into fuels, like sugars and starches into ethanol, and oils into biodiesel.  But it is no coincidence that such biomass is also useful as food.  We eat these things because our bodies can easily convert them into useful energy.  We don't eat wood chips or grass because they are difficult to digest and convert into energy.   Biofuels substitution strategies all essentially involve diverting biomass from somewhere else in the economy (or land on which to grow the biomass from other forms of agriculture) to producing oil substitutes.  The more inputs we divert, the more expensive the products we might have used those inputs for become.  This produces a commodity squeeze, when the inputs become more expensive but the price for the output is set by the oil price.  Such a commodity squeeze led to the current problems in the corn ethanol and biodiesel industries.

Fortunately, we currently have a lot of biomass in our economy that is currently wasted.  Waste oil can be easily converted into biodiesel, and companies are looking at ways to convert the various components of Municipal Solid Waste into ethanol or other biofuels.  Municipal solid waste has a lot of biomass in it, but its uneven nature means that it's hard to convert into ethanol.  Some of the best such waste is industrial food waste because it is othen quite uniform, and homogeneity makes it easier to convert into fuels. 

Although we are an extremely wasteful society, the amount of waste that can usefully be converted into oil substitutes is small relative to the amount of oil we currently use.  That means that as conversion technologies are developed, there will be a scramble for useful feedstock to convert to biofuels.  Since the limiting factor for biofuels is likely to be feedstock, the companies most likely to benefit from a trend towards biofuels are the people who own the feedstock.  For example, corn farmers have done much better out of the ethanol boom than the ethanol producers.  Although many ethanol firms have filed for bankruptcy, and the ones that survived are barely profitable, corn acreage and prices are still high compared to 5 years ago.

Monthly corn price chart from tradingcharts.com

Conclusion

The best biofuels investments are likely to be the companies that own or can produce the feedstocks.  I particularly like the companies that own or control municipal waste, since it's currently free or even has a negative price (i.e. people will pay you to take it off their hands.)  That's why Waste Management (WM) was one of my Ten Clean Energy Stocks for 2010.  I also like forestry companies, since they currently produce forestry waste that could become a valuable feedstock for cellulosic ethanol, or simply be co-fired in existing coal plants to generate electricity without net carbon emissions.

I'll take up some of the other substitution strategies in the next part of this series.

DISCLOSURE: Long WM.

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.

Posted by Tom Konrad at 12:09 AM | Permalink | Comments (6)

Portfolio theory can lend insights into which carbon abatement strategies policymakers should pursue.  If policymakers listen, what will it mean for green investors?

Tom Konrad, Ph.D., CFA

Good Info, Not Enough Analysis

I've now read most of my review copy of Investment Opportunities for a Low Carbon World.  The quality of the information is generally excellent, as Charles has described in his reviews of the Wind and Solar and Efficiency and Geothermal chapters.  As a resource on the state of Cleantech industries, it's generally excellent.  As an investing resource, however, it leaves something to be desired.  Each chapter is written by a different expert in a particular field, which means that the information is up to date, and comprehensive, but this approach means that there is little attempt to compare the potential of the different investment opportunities presented.  What is the point of in-depth research into carbon abatement technologies if we do not then take the next logical step and emphasize the technologies with the greatest potential for carbon abatement and investment returns?

A Portfolio Approach

The most useful attempt at investment decision-making is buried in the otherwise uninspiring last part of the book. A summary of a 2007 report from the London Accord, A Portfolio Approach to Climate Change Investment and Policy is buried among self-promoting chapters from companies such as Nissan (NSANY)and BP (BP) promoting their (real) investments in clean technology,   The report uses a Monte Carlo implementation of Modern Portfolio Theory to determine low-risk mixes (portfolios) of carbon-mitigation strategies, and was written by Professor Michael Mainelli of Z/Yen Group, and James Palmer.

While intended primarily for policy decision-makers, A Portfolio Approach attempts to determine which portfolio of carbon reduction technologies is likely to produce a desired level of climate change at the lowest cost (or highest investment returns) at the lowest risk of failing to achieve the reduction goal.  Phrased this way, it is easy to see why portfolio theory is an appropriate tool, since it is designed to minimize systematic (overall) risk even when all individual strategies in the portfolio have significant risks of achieving the expected returns and carbon reductions.

Data

The data on various carbon reduction strategies came mainly from the 2007 IPCC Working Group report, "Mitigation of Climate Change."  This report is not complete, omitting some technologies with significant CO₂ reduction potential, in particular solar thermal collectors such as solar hot water heaters and larger installations for process heat in industrial processes.  "Solar," as referred to in the report, refers solely to solar Photovoltaic and Concentrating Solar Power (CSP.)

One decision I found questionable was to ignore the carbon reduction potential of investments with "negative abatement costs on the basis that these investments should be undertaken under any business-as-usual scenario, and are not strictly investment measures as a response to climate change." (p5/22)  This is circular logic.  For an investment with negative cot to exist, there must be a market failure.  Almost by definition, in a well functioning market, all investments with negative cost will have already been made.  Simply saying that these investments "should" be made assumes that these market failures will correct themselves without any effort on the part of policymakers.  Why should energy market failures correct themselves in the future if they have not already?  

In the authors' defense, they run one scenario (#3) in which investments with negative abatement costs are allowed, and they state "Further examination of negative abatement proposals seems in order, as it should be important to understand why these investments fail to be made under current financial conditions.  Neglected negative abatement may justify regulatory intervention by policymakers, e.g. imposing minimum building or transportation efficiency requirements." (pp.17/22 and 18/22)  

From the hedging in this statement, and the fact that they spend less time discussing scenario 3 than either of their other two, I conclude that something prevents the authors from giving market failures the attention they are due.  I find this an extremely common failing among financial practitioners, and believe it is an unfortunate and common consequence of in-depth training in financial modeling.  Most financial models contain an assumption of market efficiency, and do not produce meaningful results in cases of large and persistent market inefficiencies.  Without tools to model market inefficiencies, practitioners are prone to ignore them, convincing themselves that the inefficiencies are unimportant or will cure themselves.  Most of the critiques of "Green Jobs" programs are based on this fallacy.

Put another way, if you have a hammer (a modeling technique which assumes market efficiency, such as modern portfolio theory), you tend to see all problems as if they are nails (efficient markets.)

Results

Since the authors only look at scenarios 1 and 2 (those which ignore negative cost investments) in depth, these are the scenarios I will focus on.  I believe the results of these scenarios are still relevant answers to the question, "After negative cost investments in energy efficiency have been made, which positive cost investments should we pursue?"  Even if all the necessary carbon reductions could be achieved with negative cost investments, it would most likely be unwise to pursue such an approach to mitigate climate change: like all investments, there is no assurance that the expected reductions/returns will be achieved.  Pursuing a wide variety of carbon-reduction strategies provides the greatest chance that some such strategies will achieve the expected reductions, and others will exceed expectations, thus making up for any investments in the mitigation portfolio which do not achieve the expected reductions.

The chart below shows a series of "frontier portfolios": That is, portfolios of carbon abatement investments which achieve specified levels of carbon abatement at minimal cost.  The vertical axis is gigatons (Gt) of equivalent CO₂ emissions (CO₂e) reduced annually, and the horizontal axis is the annual investment needed to achieve this level of reduction.

 

There are diminishing returns for carbon abatement, with the cost of incremental abatement increasing significantly above 15 Gt CO₂e per year, and no practical increase in abatement beyond 20 15 Gt CO₂e and $400B expenditure per year.  

For comparison, to stabilize the atmospheric concentration of CO₂ at 350 ppm, a goal which, according to Joe Romm, will require 8 Gt CO₂e (approximately portfolio 2) of reduction by 2030, and another 10 Gt CO₂e (for a total of 18 Gt CO₂e, or portfolio 4) by 2060.  Since the model does not include negative cost investments in energy efficiency or solar thermal collectors, it is likely that these levels of abatement could be achieved at considerably lower cost by incorporating these opportunities.

The pie charts in the first column show the fraction of carbon abatement expected from each investment in the selected frontier portfolios, while the second column shows the cost of each investment.  The two columns differ because different investments produce different levels of abatement per dollar of investment.  For instance, the cost wedge for Biofuels in portfolios 3 and 4 are much larger than the corresponding abatement wedges.  This indicates that abatement with biofuels is more expensive on a per-ton basis than for the other investments in those portfolios.

I will focus on portfolios 2, 3, and 4, since those are the portfolios which deliver the necessary levels of abatement, which we will need to ramp up to over the coming years and decades.

Forestry

The most striking thing about these portfolios is that Forestry dominates CO₂ abatement, as well as cost in portfolios 2 and 3.  The more aggressive portfolio 4 has three relatively large cost wedges: Building Efficiency, Forestry, and Biofuels.

Unfortunately, according to the report's authors, the carbon abatement from Forestry is very uncertain.  To make matters worse, the methodology used in the report is extremely sensitive to the expected returns (or abatement, in this case) of particular investment classes.  Small errors in the expected returns can lead to frontier portfolios which are dominated by a single investment class, in this case Forestry.  The report notes that "forestry abatement potential is highly uncertain." (p.8/22)  While we can conclude that forestry is likely to be a significant part of our carbon abatement strategy, there is a good chance that forestry will not dominate the mix as it does in the model.

For stock market investors who want to allocate part of their portfolio to forestry, I recently wrote about investing in forestry stocks and forestry exchange traded funds (ETFs). While I was focusing on the potential for forestry to benefit from biofuels and bio-electricity in the article, any marginal demand for forestry services (including carbon sequestration) should benefit this sector.

Hydropower

Hydropower is also a significant investment in these portfolios.  Much of this investment will probably take place in the developing world, but there are also significant opportunities for upgrades to facilities at existing dams in the developed world.  I looked at the potential for hydropower stock market investments last year.

Biofuels

Biofuels also contribute significantly to all the portfolios, especially in the higher abatement scenarios, although the costs are high relative to other investments.  I don't believe that this is very realistic if we are also going to have large contributions to carbon abatement from forestry.  My guess here is that the authors did not take into account the negative interactions between forestry and biofuels, where an increase in one will drive up the costs of the other because of competing land and water use.  Land used for forestry cannot also be used for biofuels, and vice versa.

Wind

We see significant contributions from wind in portfolios 3 and 4, and the costs and potential for wind are much better understood than for many of the other scenarios.  Better yet for stock market investors, investments in wind are simple, with two wind energy ETFs allowing a simple investment in the sector.  Of the two, I have a slight preference for FAN (you can see my reasoning here.)

Efficiency, in all its Forms

Finally, port folio 4 shows considerable investment in Building Efficiency and Industrial Efficiency (which we usually refer to as just Energy Efficiency), while portfolio 2 has a good slice of Transport efficiency (what we usually call Clean Transportation.)  Keep in mind that these slices are only investments that do not have "negative cost," that is they do not cost less than new investments in conventional generation.  Since efficiency dominates investments with negative cost, the total investments in all forms of efficiency are likely to be many times what we see in these graphs.  While there is not yet an energy efficiency ETF available, there is one focused on clean transportation, the Global Progressive Transport ETF (PTRP).  I also have a few stock picks in clean transport.

For industrial and building efficiency, there is no ETF, but here are five of my favorite efficiency stocks, and you can find a much larger list of energy efficiency stocks here.  It's also important to note that smart grid stocks will fall into this category as well, at least for the purposes of the report.   Here are five of my favorite smart grid stocks.

Geothermal

Geothermal also has a small slice of portfolios 2 and 4.  This is significant given the small current size of the industry: even these small slices imply rapid growth for an underappreciated sector.  I mentioned three geothermal stocks to consider here, but I have since sold my stake in Raser Technologies (RZ), and will probably not repurchase it.  Our Twitter followers saw that first.  Charles did a good run-down of the public geothermal stocks in June.   

Other Thoughts

It's also worth looking at what is not in the efficient portfolios, but since this entry is already quite a thesis, I'll save that for later.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments 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.

Posted by Tom Konrad at 12:52 PM | Permalink | Comments (6) | TrackBacks (0)

Tom Konrad, Ph.D., CFA

Dyadic International hopes to use proprietary gene discovery to revolutionize cellulosic biofuel and pharmaceuticals.  Investors should stay away.

Dyadic International (DYAI.PK) says they are applying their "proprietary enabling biotechnologies for multi-billion dollar markets in industrial enzymes, biofuels and biotherapeutics."  A very exciting prospect, and just the sort of thing I've long warned investors to avoid.  In short, they are a company with gigantic claims and not a lot of track record to back them up.

Why I Care (I don't, really)

In our survey of readers, one respondent asked that I write more about stocks to avoid.  Dyadic added me to their press list a couple months ago, probably in response to my popular article on investing in advanced and cellulosic biofuels.  If so, it's ironic. If anyone at Dyadic had read the article and thought about it a little, they would have known that I would not recommend anyone buy the stock, just based on their business plan, let alone the disturbing information I found in their press releases (see below.)

Recently, Dyadic sent me an email starting with the line "As you have shown a prior interest in Dyadic International..." (I didn't.) I decided to take a look at the company.  Here is what I found:

Out of Date Filings, Possible Previous Securities Laws Violations

• The company has not filed an annual or quarterly report since 2006, at which time they were losing money.  Lacking more recent information, we can only assume that the financial situation has worsened.  Because of this, Dyadic does not even meet the minimal requirements to be on our stock list.
• The company has recently reached an agreement with the SEC in which they agreed to cease and desist from violating certain securities laws.
• They recently hired an auditor and they "plan" to begin filing financial reports on PinkSheets.  This would be good news, to someone who believes those plans are credible.  

Conclusion

At this point, I stopped looking.  Why would anyone buy stock in a company that is not providing current information, and whose promises sound too good to be true?  Given limited cash, why not invest it in a company that provides current information and promises to do something useful but believable?  Here are 39 green companies which do just that.

UPDATE: Dyadic has now published audited financial statements for 2007 and 2008.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments 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.

 

Posted by Tom Konrad at 11:26 PM | Permalink | Comments (4) | TrackBacks (0)

Biochar is still mostly a research and cottage industry, yet it has the potential to impact returns for a broad range of investors.

Tom Konrad, Ph.D., CFA

Biochar, or amending soil with biomass-derived carbon, shows great potential to improve the productivity of soils, as well as to increase the utilization of fertilizers by plants, while sequestering carbon to reduce the drivers of climate change.  On August 10, I went to the 2009 North American Biochar Conference to look at the potential for investors. 

Before I went, I took a look at the publicly traded companies involved in biochar.  I did not learn of  any new public companies at the conference, but I have nevertheless become increasingly convinced that biochar has a large role to play in moving to a sustainable economy, not just for energy, but for agriculture.

While the biochar industry is still too early stage for most stock market investors, understanding the economics of biochar will give investors insight into the effects the broad use of biochar will have on the overall economy, and their other investments.  Many types of public companies are likely to be impacted.  Some industries likely to be affected are  

• Agricultural and forestry companies, which may benefit from increased yields and an additional market for their products,
• Advanced biofuel companies which may have to compete with biochar companies for feedstock, as well as for a place in low carbon fuel standards with a biofuel with a much lower carbon footprint, 
• Any participants in environmental markets for carbon offsets, since biochar is likely to be a source of carbon credits.

Carbon Sequestration

Long-term carbon sequestration in the soil is the headline benefit of biochar.  Depending on how the biochar is made, it may stay in the soil for thousands of years.  Biochar has both volatile and fixed or "recalcitrant" carbon fractions.  The volatile fraction decays relatively rapidly, over a few years or decades, while the recalcitrant fraction stays in the soil for centuries or millennia.  The relative fractions depend on the feedstock and how the char is made, but debate continues about the best conditions and feedstocks for a high recalcitrant fraction, which can be the vast majority of the char.

As a potentially vast source of carbon offsets, biochar has the potential to reshape offset markets for carbon dioxide.  Although biochar is not currently accepted as an offset in any climate trading regime, many expect that it will soon qualify.  Peter Weisberg, an Offset Project Analyst at The Climate Trust not only expects that biochar will qualify as carbon sequestration, but says that The Climate Trust is interested in purchasing offsets from biochar projects.

If biochar does qualify for carbon finance, it will place downward pressure on the price of carbon offsets... to a point.  As anyone who has grilled a hamburger knows, char can also be burned to produce useful heat.  Anyone who buries char gives up the use of that energy.  I asked a couple experts what they thought might be the value of the forgone energy.  David Laird, a Research Soil Scientist at the US Department of Agriculture thinks the break even point would be about $10/ton of CO₂, or about $30-$40/ton of carbon.  Dr. Joel Swisher,  Chief Technology Officer at carbon-offset provider Camco International, thinks the number is somewhere between $10 and $20 per ton of CO₂, or about $50/ton carbon.

While these prices are higher than offsets currently trade on most exchanges, they also assume that the only benefit of incorporating biochar into the soil is the carbon sequestration aspect.  That is not the case.

Improved Soil

In all but the most optimal growing conditions, biochar increases plant productivity.   Although the mechanisms are not completely understood, most studies show that biochar allows plants to more effectively use Nitrogen and Phosphorus, as well as other nutrients that either occur naturally in the soil, or are added with either organic or inorganic fertilizers.  It also aids water retention.

The effects of this are significant increases in plant growth, especially in poorer soils or with limited fertilizer or water; heavily fertilized and higher quality soils show lesser effects.  In poor conditions, some studies have seen boosts to plant productivity by as much as 40%, although 15-25% is a more normal range, to judge by the studies presented at the conference.

This improved soil fertility has several benefits, each of which could serve as an added enticement for farmers to use char.  Because plants can use the available nutrients more effectively, a farmer should be able to use less fertilizer and still achieve a high rate of growth from his plants.  Not only does this save the farmer money, but because less fertilizer is used, and a greater fraction of it is taken up by plants, there is less resulting pollution in the form of fertilizer runoff and nitrous oxide formation. Nitrous oxide is a potent greenhouse gas and also depletes the ozone layer.

The cost savings from reduced fertilizer use, lowered irrigation costs from improved water retention, as well as any reduced costs of meeting environmental regulations may all have value to farmers which might induce them to sell biochar based offsets at prices below that dictated purely by the cost of the energy forgone.  

These reduced costs for farmers, as well as the potential new revenue streams from offsets and increased crop productivity add weight to my previous conclusion that investing in farms and other sources of biomass feedstocks is one of the best ways to benefit from bio-energy (biofuels, as well as biomass based electricity and biomass cofiring.)

Other Commodities

Increased plant productivity with bichar may eventually increase the supply of available biomass for bio-energy applications and food.  This may benefit the economics of any biofuel technology, but I expect the gains to only be marginal, since most biofuels are commodity businesses, and an increase in feedstock supply may increase volume, but is unlikely to improve long term margins.

Reduced fertilizer use might also be expected to reduce prices in fertilizer markets, but to the extent that fertilizer is made from commodities such as natural gas (which have a wide variety of other uses,) the effect on fertilizer prices can also be expected to be marginal.

Renewable Energy

The whole story, however, is not just the char.  During pyrolysis, a whole range of volatile organic compounds are emitted from the biomass feedstock, and these can be used to 

1. Produce bio-oil, which can be upgraded into liquid fuel.  The company Dynamotive (DYMTF.OB) is working to commercialize this process, as I discussed in my investing in biochar article.
2. Fuel a generator to produce electricity.
3. Produce heat for some other process.

The choice between these options depends on a range of factors, most importantly scale and if there is a local need for heat.  

Some biomass feedstocks, such as poultry litter are available in massive quantities in a single location.  This allows the use of a larger scale plant, and hence will most likely lend itself to the production of higher value energy which requires more processing, such as bio-oil based liquid fuel.  Hence, if a liquid fuel production process is widely adopted, it may not only help the company which commercializes it, but it may also produce significant added value and clean up a pollution problem for producers of concentrated biowaste, such as poultry producer Tyson Foods (TSN).

The specific type of biomass also affects the use of the volatile organics.  Some sorts of biomass, such as corn stover, contain large amounts of silica or other impurities which can cause buildup in electric generators and add to maintenance costs.  In such cases it may make more sense to produce bio-oil or heat, rather than electricity.

Heat can be produced by directly burning the volatile organics, or recovered in a combined heat and power operation when generating electricity. Generating heat is the simplest process, and hence will lend itself most readily to distributed biochar facilities.  The catch is that, in order to capture the economic value, there has to be a local use for the heat.

One practical variation is the use of specially designed efficient cookstoves in the third world.  These are optimized to both improve cooking efficiency, indoor air quality, and biochar production.  Biochar advocates hope this approach could impact developing nations in a number of significant ways including improved health of woman and children, improved nutrition from the garden amendment, and decrease the need for biomass in cooking due to improved cook stove efficiency.

Even if the heat is not used, however, it is important to flare the gasses released when creating biochar, since volatile organics are pollutants in their own right.

Conclusion

Biochar, although a simple technology, is still at a very early stage of commercial development.  Nevertheless, stock market investors would be wise to be aware of the broad ranging effects the industry might have on carbon trading, biofuel, fertilizer, and agricultural markets.  Even these industries may not be a complete list: There is ongoing research into using biochar for remediation of mine tailings.  Backyard gardeners may also be able to improve their productivity and reduce fertilizer use by incorporating biochar into their soil.  

It is important to note that not all biochars are created equal.  Most biochars are slightly basic, and will produce greater benefits in acidic soils.  It's worth knowing the properties of what you plan to be putting in your soil before you incorporate it.  It's also worth noting that biochar has its greatest effects when combined with small to moderate amounts of conventional or organic fertilizers, since biochar is not a fertilizer in and of itself, but rather helps plants make better use of the nutrients in fertilizer.

Mantria sells a commercial biochar called EternaGreen from a biochar plant in Tennessee, with a distribution center in Georgia. I hope this is just the first of many, so most of us will be able to use biochar without having to worry about the carbon footprint of shipping.  Or, rather than waiting, we can make (probably lower quality/less recalcitrant) biochar ourselves.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments 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.

 

Posted by Tom Konrad at 10:55 AM | Permalink | Comments (4) | TrackBacks (0)

There's much excitement about second generation biofuels made from cellulosic feedstocks and algae, be they cellulosic ethanol, biodiesel, biocrude, or electricity from biomass.  There will be winners, but they may not be the technology companies.

Tom Konrad, Ph.D., CFA

At the 2009 Advanced Biofuels Workshop, there were two major themes: developing new feedstocks, especially algae, and the development of new pathways to take biomass into products such as biocrude, which can be used in exiting oil refineries.  

Big Market, Many Competitors

The current federal Renewable Fuel Standard requires the use of 36 million gallons of biofuels, including at least 21 billion gallons of advanced biofuels by 2022.  Advanced biofuels are defined as fuels other than corn-based ethanol and with greenhouse gas (GHG) emissions half that of the fuel they replace.  This creates a gigantic market, so large that some industry observers doubt if it can be met.

Many of these fuels will not be ethanol, a fuel which poses problems with the current fuel transport and distribution infrastructure.  Even for cellulosic ethanol, there are several different processes that different companies are pursuing: Acid hydrolysis, Thermochemical conversion, Biochemical conversion, and Consolidated Bioprocessing, and combinations of these three used in various combinations by various companies.  

Potential products not only include fuels such as ethanol, butanol and higher-carbon alcohols, but biocrude which can be fed into existing refineries.  Other potential products include plastics, and many other products currently produced by the petroleum based energy industry.  

The bewildering array of potential pathways and products make for a very challenging investment landscape.  An investor in any company would need a lot of confidence that the company they are investing in will be able to take their chosen feedstocks to a potential salable product at lower cost than all the competitors out there.  Unsurprisingly, nearly every company feels it has the best process.

Lessons From the First Generation

With so many variables, I find it's often better to take a step back to see what impact the development of the advanced biofuels market will have on the larger economy.  Will there be impacts on the broader economy which will be independent of the eventual mix of products and processes in the advanced biofuels market?

We can learn from the experience of first generation biofuels.  

Below is a chart from William Thurmond, President of Emerging Markets Online and author of Algae 2020: Biofuels Commercialization Outlook, and Biodiesel 2020: A Global Market Survey:

It shows how biodiesel feedstocks (Palm oil, rapeseed oil, and soybean oil) are increasingly following diesel prices.  There is a massive overcapacity for biodiesel production in the EU, as shown in the shown in the following graph, also from Thurmond:

With this excess capacity, if biodiesel feedstock prices were to fall relative to diesel prices, biodiesel producers would purchase feedstock either until they fill their excess capacity, or until feedstock prices rise again to a point where it is no longer profitable to run additional biodiesel capacity.  Put another way, biodiesel producers cannot be more than marginally profitable (and may be unprofitable) so long as there is significant excess capacity.  Excess capacity can only be filled if additional feedstock can be found, or plants permanently shut down.

What does this mean for advanced biofuels?  As advanced biofuel technologies advance, feedstocks prices are likely to rise.

Why Advanced Biofuels are Different

Unlike with biodiesel and starch based ethanol, many second generation feedstocks are not generally internationally traded; many are actually waste streams from other processes, such as yellow and brown grease (the restaurant industry), corn stover, forest trimmings (the lumber industry,) and even municipal waste.  The more that these feedstocks are internationally traded and easy to transport (such as yellow and brown grease), the more likely they are to follow the patterns seen in the feedstocks for first generation biofuels.  According to Thurmond, this has already happened with yellow grease, and the rise in price was a surprise to most biodiesel industry participants.

Many emerging biofuels companies have learned this lesson.  ZeaChem's strategy specifically includes setting up a long term contract to purchase feedstock from dedicated energy plantations because "the availability of sustainable, cost effective raw materials is essential for an economically viable cellulosic biofuel facility," according to Andy Vietor, ZeaChem's CFO, who spoke at the workshop.  BioFuelBox Corporation is tackling the same problem from a different direction: by developing a biorefinery that they expect can produce biodiesel from a zero-cost waste stream (trap grease), but I'm not sure that they have completely absorbed the lesson.  Even trap grease will acquire some value if they can consistently make fuel from it.  I think they could improve their business model by selling their technology as a turnkey solution to the waste stream owner.

Investments and the "Everything vs. Fuel" debate

Investors who expect advanced biofuels to be successful should pay close attention to feedstocks.  Just as supply constraints for batteries will shape the electric and hybrid electric auto market, limited supplies of biomass will shape the advance biofuels industry.  

If an advanced biofuel company expects to make biofuel from an easily shippable commodity, such as wood chips, they'd be advised to stay away, unless that company also plans to contract for their supply of feedstock well ahead of time, and such agreements will probably constrain a company's ability to react to changing conditions.  Lack of flexibility can be fatal to start-up companies.

Companies which produce easily transportable feedstocks being considered by advanced biofuel companies stand to benefit from new markets for their products.  These include forestry companies (wood chips), waste management companies, and most owners of arable or marginal land.  Wood chips are likely to see price escalation even without the advent of advanced biofuels based on them.  Wood chips and pellets can be cofired in many existing coal power plants with only relatively inexpensive modifications, a process which offsets large amounts of carbon emissions at very low cost.  Biomass cofiring was the cheapest renewable energy opportunity identified in California's RETI study last year.  For an apples-to-apples comparison, the greater efficiency of electric motors means that electricity produced from biomass can propel an electric vehicle 81% farther than an otherwise comparable ethanol-fueled vehicle running on cellulosic ethanol produced from the same amount of biomass.

Furthermore, the existing biofuel industry may also find better uses for cellulosic feedstocks than turning them into biofuels.  I attended a session at the 2009 Fuel Ethanol Workshop the following day where gasification of cellulosic waste streams such as corn cobs or stover was presented as an economical way to reduce the carbon footprint of corn ethanol by displacing natural gas used in the production process.

The flip side of the feedstock equation is that industries which compete for feedstock with the biofuels industry are likely to be hurt by rising prices.  Advanced Biofuels may resolve the "Food vs. Fuel" debate, but they will be doing so by, at least in part, replacing it with a new "Everything vs. Fuel" debate.  For instance, the paper industry (especially those companies which do not own forestry assets) will likely be hurt by rising pulp prices, like Mexicans who found they could not buy tortillas.  Recycled paper pulp is an excellent cellulosic feedstock as well.  On the other hand, businesses which produce or collect paper waste may find more robust markets for their products.

This line of reasoning might also give you pause if you're considering warming your home with a wood pellet stove.  The advent of biofuels from wood chips will mean that the price of your wood pellets will start to track the price of petroleum, just like the price of vegetable oils are already doing.   From an economic perspective, heating with wood pellets may become not much different than using heating oil.  We saw the start of this trend last year with wood pellet factories starting to price dairy farmers out of the market for sawdust in the Pacific Northwest.

Algae to the Rescue?

Algae is the only feedstock that has the potential to be productive enough to supply most of our current liquid fuel demand, but it is still unproven.  Most current algae to biofuel production methods cost an order of magnitude more than the fossil fuels they hope to displace.  This is why most algae biofuel companies are currently targeting higher-value synthetic bioproducts, such as animal feed additives.  But Will Thurmond believes that some algae companies may be cost competitive with fossil fuels as early as 2012, but only in his most optimistic scenario; the process of bringing down costs could take much longer.

There are now three publicly traded Algae companies.  I've previously written skeptically about PetroSun (PSUD.PK,) and Thurmond told me, "Petrosun appears to doing well in the news, but if you examine their financial statements, it's a different story."   More recently OriginOil (OOIL.OB) and PetroAlgae, (PALG.OB) have also gone public.  PetroAlgae is the industry high flyer, and is doing some interesting work growing duckweed, at least according to a hallway conversation.  Unfortunately, the stock is so thinly traded that it would be difficult for even a small investor to get in without significant price impact.  OriginOil shows better volumes, but they, too, are early in their technological development.

Algae has great promise, but the only investments currently available to the retail investor are very early stage.  Even if we were to assume that the algae industry will quickly meet its potential, these three companies only amount to a tenth of the current players, and the rigors of being a public company are not the best environment in which to develop an emerging technology.  Algae could well be a monumental success story, but that does not mean that any of these three companies will participate in that success.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments 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.

Posted by Tom Konrad at 03:01 PM | Permalink | Comments (3) | TrackBacks (0)

by Tom Konrad

Celluslosic Ethanol is all the rage.  A less noticed, but significant "Biofuel 2.0" is biofuel based on algae.

Follow the Biomass

As I have consistently argued (see these recent articles on John Deere, Biogas, Cellulosic Ethanol vs Biomass Electricity, and Renewable or Green Diesel)  the people most likely to make money from biofuel are not the processors and distributors (who compete directly with petroleum or other fossil fuel-based products, and so have little pricing power), but the producers of feedstock, which, like oil, is in very limited supply, and so they will have pricing power.

When it comes to converting sunlight into biomass, algae is the most productive type of plant.  According to this chart from Five Star Consultants , Biodiesel from algae has the potential to produce enough fuel to drive a Prius-type car 370,000 miles per acre per year (MAY), compared to 2,000 to 31,000 MAY for conventional biodiesel crops, while ethanol from switchgrass could produce 32,500 MAY.  Furthermore, some strains of algae are as much as 40% oil by weight, leading to the hope of a large supply of oil which is much easier to convert into biodiesel than it is to ferment even corn (let alone cellulosic biomass) into ethanol.

With an order-of magnitude advantage, it would seem that algae is the green wave of the future, and actually so productive that it could produce enough biomass feedstock for us to continue to drive our SUVs with our current reckless abandon. 

Theoretically, biodiesel produced from algae appears to be the only feasible solution today for replacing petro-diesel completely... In practice however, biodiesel has not yet been produced on a wide scale from algae, though large scale algae cultivation and biodiesel production appear likely in the near future (4-5 years). - Oilgae.com.

Ponds or Reactors?

There are two basic approaches to growing algae: open pond and closed reactor.  The open pond method, which is what Petrosun Drilling (OTC:PSUD) recently announced they are pursuing, involves growing the algae in open ponds of water, much like it grows in nature.  Open ponds are clearly quite cheap, but they require a reliable supply of water to replenish that lost from evaporation (making them impractical in all but the wettest parts of the country (Petrosun's first farm will be on the Texas coast, and use saltwater, which helps with this problem.)  The lack of temperature and weather control can further decrease yields from the theoretical potential.

The other problem with open ponds is that it is impossible to keep other types of algae (a.k.a. weeds) out, meaning that high percentages of oil in the final crop will be impossible to attain. This means that biofuel produced from pond algae will require much more extensive processing to be turned into fuel.  It's easy to grow pond scum, but turning it into something useful is harder.

The other option is the algae bioreactor, one type of which (from Solix biofuels) was referenced in the chart above.  The Solix technology uses closed plastic bags agitated by rollers, has climate control with the use of controlled radiative cooling, and uses concentrated carbon dioxide emissions to enhance algal growth.  (The best description of the technology is at Algae @ Work, a company which was started by Solix's former CTO seeking to apply the technology to carbon capture.)  

To me the bioreactor approach (Solix's technology is only one version) seems most likely to achieve the promise of extremely high yields, and even that is not without problems.  Large scale bioreactors are complex systems.  As such, they will be expensive and take great efforts to move from the lab to commercial scale.

Ken Regelson, the author of the chart above, and he believes that Solix does not have "a prayer of achieving their expected yields per acre" but that he used the number from Solix because he has yet to get authoritative numbers from anyone else.  

What about Petrosun?

I wrote this article because readers wanted to know about Petrosun Drilling (OTC:PSUD), an oil exploration company that has been promoting their algae biodiesel efforts since September.  Other than Petrosun, the only public companies I know of which are seriously looking into algae based biodiesel are large conglomerates: Boeing (BA), Chevron (CVX), Royal Dutch Shell (RDS-A) and Honeywell (HON), which can take the long view and have large research budgets to finance their efforts for as long as it takes.  If you click through the company names to the news stories, you will note the common theme: These are all research stage projects.  

Petrosun has not filed even an unaudited quarterly report since March 2007.  Given that it is also promoting exciting technology, I detect the whiff of snake oil salesmen.  Although readers are clearly interested in this company, until they begin to file current information, I don't consider it worth my time to investigate further.  Petrosun's main product is much more likely to be snake oil than algae oil.

Even if Petrosun does execute on its algae farms, will there be any first mover advantage?  It seems unlikely to me; growing algae in open saltwater ponds will depend on access to suitable land near coastlines... later entrants who can acquire suitable land should be able to produce algae just as efficiently as Petrosun, since they do not seem to have any special technology or expertise.  After all, the company is simply an unsuccessful oil exploration company with a algae farm division.

DISCLOSURE: Tom Konrad and/or his clients have positions in these stocks mentioned here: HON.

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.

 

Posted by Tom Konrad at 03:06 PM | Permalink | Comments (11) | TrackBacks (0)

The first and last word in any discussion of biofuels should always be "Feedstock."  Feedstock is the "Bio" out of which biofuels will eventually be made, whether it be corn, sugar, jatropha, algae, palm oil, switchgrass, forestry waste, or municipal solid waste.  

Before the era of peak oil, we lived in a world of plenty, which meant that we could squander energy, not only by driving Hummers, but by feeding energy intensive products such as corn crops to livestock, and by dumping "free" sources of energy such as garden waste and used cooking oil into landfills.

The era of cheap energy is over.  The signs are all around, and even peak oil deniers point to expensive-to-extract reserves such as deep water drilling, Canadian tar sands, and even Colorado's Oil Shale.   These sources of oil are not only more expensive to extract, they are are also more carbon-intensive, meaning that regulation of greenhouse gas emissions will raise their price further.

Commodity Squeezes

In terms of biofuels, I've long argued that there is simply not enough feedstock available, and that even if there were enough feedstock to replace all the oil products we use today, there are many other potential uses which will compete for the output of scarce land and water, such as a replacement for coal in electrical generation, and fodder for livestock.  Biodiesel producers may find that the best quality oil is bought up by refineries to make green diesel instead.  In fact, it seems that almost any form of biomass can be converted to Bio-crude and processed in a conventional refinery.  We'll even have to decide if municipal waste should be recycled, burned for electricity, or turned into cellulosic ethanol.

I'm unconvinced that anyone knows exactly how the limited feedstocks we have available will be used, or what process will be most efficient in converting them into their final form.  This makes it difficult to find a biofuel investment that I can be confident will succeed.  One biofuel technology after another has been caught by a commodity squeeze, first corn ethanol and now biodiesel makers.  Polyannaish investors expecting limitless supplies of feedstock for cellulosic ethanol should take note.  Higher commodity prices do not always lead to more supply.  Sometimes higher prices lead to lower demand, and the next boom could easily become the next bust.

The Sure Winner

The only sure winners from limited and increasingly valuable biomass will be the people who produce it: farmers, foresters, and (perhaps) trash haulers and recyclers.  What do farmers do when they have spare cash?  They buy farm equipment, quite often from Deere & Co. (NYSE:DE)  Few stock have ridden the biofuel boom as well as Deere, with the stock rising 400% in the last four years in a nearly uninterrupted uptrend, without the thrills and spills that have turned so many investors off of corn ethanol.  

The beauty of Deere as a biofuel investment is that there is no need to know what the biomass will be used for, or what form it will come in.  In nearly every scenario I can envision, Deere is likely to be a major supplier to the industry which grows it.  From algae to Jatropha, if Deere does not yet sell equipment to plant, tend, and harvest it, it seems a good bet that they will design one.  This technology agnosticism, combined with their wide dealer network in agricultural areas, makes the company seem to me the safest way to bet on biofuels as a trend.

Deere's close relationship with farmers also gives them an opportunity to profit from another up-and-coming crop: Wind.

Even with a 9-year run up, the stock currently trades at a trailing P/E of 22, and despite its construction arm, has not yet been hit hard by the turbulence in the housing market.  Since I expect the housing situation to only get worse over the coming months, a sharp decline in construction income or a continued broad market decline may be just what prospective investors need to pick up this solid biofuel play on the cheap.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in DE.

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.

Posted by Tom Konrad at 10:46 PM | Permalink | Comments (1) | TrackBacks (0)

Biopact reports that Salzburg AG has opened its first biomethane gas station, allowing owners of Compressed Natural Gas vehicles to use their blend of 20%.  This is the first retail station I have heard of selling a cellulosic-derived fuel to retail customers (are there others?)

Prospective Cellulosic Ethanol investors should take note... while cellulosic feedstocks are likely to supply much of our liquid fuels in the future (although not as much as we currently use), cellulosic ethanol is unlikely to have the field (so to speak) to itself.  Ethanol's low energy density and difficulty of transport will be continuing barriers to its adoption as the cellulosic fuel of choice.  Also, biogas from anaerobic digesters and landfills is already used to generate electricity and fed into pipelines.  There are other contenders to displace ethanol as the heir-apparent to gasoline as well, such as 2,5-dimethylfuran (DMF), and ETBE as a substitute fuel additive.

While conventional gas vehicles can easily be modified to accept ethanol, that advantage may be outweighed (at least in some areas) by the advantage that biogas (after purification) is chemically identical to natural gas, and so there is no difficulty in shipping it through the existing pipeline infrastructure.  A vehicle conversion to compressed natural gas (CNG) costs approximately $2,000 to $4,000, although Salzburg AG is offering it for less than $1000, at which price the lower running costs for CNG should give a payback of only a few years.

While the 10,000-15,000 passenger vehicle miles per acre quoted are lower than those expected from switchgrass derived ethanol and even ethanol from corn (see this link for great graphic comparison), the lack of inputs makes grass-derived biogas much more sustainable than ethanol from corn, and the established market and infrastructure for natural gas will make biogas producers much less vulnerable (but not immune) to local fuel gluts.

This article at After Gutenberg makes much more detailed examination of the benefits of Bio-CNG.

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.

Posted by Tom Konrad at 08:10 PM | Permalink | Comments (0) | TrackBacks (0)

I've recently agreed to do a of couple presentations on "Investing In Green Energy" at conferences this October, and so I've decided it's time to update and expand on some graphs I constructed this spring: I created a pair of graphs which give an overview of how different electricity generation technologies compare.  These are not precise graphs with anything resembling scientific accuracy, but I think they're a useful too for understanding the strengths and weaknesses of various technologies.  

This is my attempt to do the same for transportation fuels.  Note that I'm really only talking about cars and trucks here.  In a discussion with a group of private equity investors, we came up with six to eight metrics that we thought would be useful for characterizing transportation fuels, and I then distilled them into three groups of similar metrics so that I could display them in graphic form.  Here they are:

Quantity

    How much of this fuel is available?  How much capacity is there to replace the oil used to run our current transportation fleet with this fuel?  (This is a measure of how much can be produced in a given year, not the ultimate size of the resource.) This is represented in the graphs below by the size of the spheres.

Availability

Represented on the horizontal axis; farther to the right is better.

Components:

1. Infrastructure:  How easily can we get this fuel to our vehicles?
2. Density: Is the fuel both compact and light weight?    How much will we have to change our existing infrastructure to use this fuel well?  Is the energy storage medium sufficiently compact and light to fit into vehicles similar to the ones we use today. 
3. Safety: Is it safe enough to use in vehicles similar to those we use today?

MPC (Miles per Cost)

Represented on the vertical axis.  Fuels that will take you farther for less cost (economic and social/environmental) are above more costly/damaging fuels.

Components:

1. Mileage: How far can you go for $1?
2. Social/Emissions/Environmental benefits: How far can you go on fixed level of emissions?

The scale is relative, and assumes vehicles of comparable weight and aerodynamics.

The Graphs

Taking it all together, the fuels I expect to be used the most will be the ones which are farther to the right (they are easier to use.)  The first graph represents my understanding of the current transportation fuels landscape, while the second represents what I expect to be the case in 20-30 years.  

Click on the graphs for larger versions with titles and key.

Current Fuels Comparison

Future Fuels Comparison

If you don't like my assumptions, you can also download the Excel Spreadsheet I used to generate them, and see how it looks with your changes.

Note that all these metrics involve a lot of qualitative judgment, and just plain guesswork when we're talking about the future fuels graph.   For an investor, refining your own view of where each potential fuel is headed will be the key to achieving the returns you hope for.  The trick will be to invest in companies that will benefit as a fuel moves towards the upper right hand corner of the graphs, as it becomes more available and easier to use, or as it becomes less expensive to produce the same amount of travel relative to the other alternatives.

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.

Posted by Tom Konrad at 06:28 AM | Permalink | Comments (0) | TrackBacks (0)

Ernst & Young recently came out with its quarterly rankings of the investment attractiveness of the main national biofuel markets (PDF file). The report contains three indices: the All Biofuels Index, the Ethanol Index and the Biodiesel Index. No big surprise with most of the results.

The report also outlines some of main deals to have occured in the global biofuels space in Q2, and notes two worrying developments. First, the German biodiesel market appears less than healthy at the moment, with many refiners operating at below 50% capacity. Second, Chinese authorities recently placed a moratorium on granting new permits for the production of cereal-crop-based ethanol on concerns over food price inflation in the country.

On the positive side, the report notes growing interest in the use of jatropha as a feedstock for the production of biodiesel. Jatropha does indeed have a number of qualities that make it ideal for biodiesel production, and some money is starting to change hands in that sector. It may, however, be a tad early for investors to be able to play this.

The biofuels space is an interesting beast, standing at the confluence Western governments' efforts to protect their farmers and emerging markets' attempts to find a in. I remain skeptical about the long-term prospects of the industry as a whole, and outright bearish on corn-based ethanol. Nevertheless, many governments are pushing so hard to make this happen that there are bound to be some opportunities in the near and medium terms.

Posted by Charles Morand at 12:29 PM | Permalink | Comments (0)

September is starting out as the month of speculation about a massive three day air strike on Iran. 

Is Bush ready to attack Iran while our troops are still trying to stabilize both Afghanistan and Iraq?  In February, administration officials were denying it.   The preparations now going on could simply be the stick part of a negotiating strategy; the bad cop to Russia's good cop.  But Bush's chances of successful cooperation with Putin could be better.

What if?

If Bush does launch a massive three day air strike on Iran, what will that mean for alternative energy stocks?  I think it would have to be favorable.  We can certainly expect the oil price to rise sharply, which tends to be good for alternative energy.  Because a war with Iran would almost certainly disrupt world oil supplies, not only from Iran but from neighboring states such as Saudi Arabia.

Of Alternative Energy stocks, the ones likely to see the greatest appreciation from a war induced oil price spike are the ones most aligned with energy security, with a lesser advantage seen by the rest.  If the region remains in turmoil for a long time (and the wars in Iraq and Afghanistan certainly point to that as a possibility) then the rest of alternative energy will probably follow.

Here is my list of the alternative energy stocks I think would benefit most from short and long term increases in the price of oil:

Batteries/Hybrids: 

Short term: Hybrid car makers such as Toyota (NYSE: TM) and Honda (NYSE: HMC) will benefit as people spooked by high gas prices buy hybrids.

Longer Term: All carmakers will be introducing efficient cars, so component makers with an advantage in efficiency such as Magna International (NYSE: MGA), as well as battery and capacitor manufacturers will benefit.  A war with Iran might cause car makers to stop waiting for better Lithium Ion batteries and just go with the tried and true NiMH batteries in a big way.

Biofuels

Short term: Ethanol from corn is lousy on the environment, but almost all the energy that goes into it is domestic.  So most corn ethanol producers will benefit.  I have mixed feelings about biofuels, but ADM is my favorite, because they have a dominant position, and produce their own feedstock. Biodiesel producers will also get a boost, for the same reason, but try to find ones which don't rely too much on the commodity oil markets.

Longer Term: Look to cellulosic ethanol companies, such as BlueFire Ethanol Inc. (OTCPK: BFRE), and ethanol from sugar companies such as Brazil's Cosan (NYSE: CZZ.)  

Coal-to-Liquids

Short term: Coal to Liquids (CTL) firms are likely to get a big short term boost because coal is domestic.

Long term: CTL may have trouble due to constraints in the domestic supply of coal.

In general technologies that can be used for transportation fuels will see big benefits, with lesser benefits being felt by electricity generation technologies.  I've declined to list hydrogen here, because I think it's not a very good transportation fuel due to its low density, the additional energy costs of compression, as well as the high cost of fuel cells.

DISCLOSURE: Tom Konrad and/or his clients have positions in MGA, ADM.

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.

 

Posted by Tom Konrad at 04:52 PM | Permalink | Comments (0) | TrackBacks (0)

In the most recent two installments of Energy Tech Stocks' interview with me cover my views on transmission stocks, and biofuel stocks.  Readers of AltEnergyStocks know that I am a big fan of electricity transmission, a theme I keep coming back to.  You also know that I have a very ambivalent relationship with both ethanol and biodiesel.  So I liked Bill's transmission article, but I just wasn't able to convey to him the subtleties of how I feel about biofuels.  But he got one thing right: the owners of biofuel feedstock are likely going to be the biggest winners.

Relevant articles on Biofuels

Competition in Ethanol

An Insider's View of the Ethanol Industry

Let Them Eat Grass

Blue Sun Biodiesel

Biodiesel's Competition

My Biodiesel Jeep

The Answer is Trading in the Wind

While you're on the Energy Tech Stocks site, read a little about trading of wind power futures (here and here.nbsp; While I personally have no interest in speculating in wind futures, I predict this will be a great boon to wind farm owners and climate scientists everywhere.  I also predict hedge funds which will use strategies based on emerging inverse correlations between wind power futures and natural gas futures, probably sooner than anyone might guess. 

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.

Posted by Tom Konrad at 02:17 AM | Permalink | Comments (0) | TrackBacks (0)

Intrepid Technology and Resources, Inc. (IESV) a renewable energy company announced today that they have begun to evaluate various proposals to purchase their gold property at Garnet, Montana. [ full release ]

The sale of this gold property will give Intrepid additional capital to concentrate fully on its biofuel business.

Posted by Mark Anderson at 07:42 AM | Permalink | Comments (0)