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April 18, 2014

Cosan: Brazillian Sweetheart

by Debra Fiakas CFA

The first thing we think about Brazil in the context of alternative energy is sugar cane and ethanol.

In the last growing season Brazil producer 596 million tons of sugar cane, a feat that secured Brazil’s position as the largest sugar cane grower in the world.  About 55% of the crop was used to producer ethanol and the balance ended up as sugar.  Brazil’s sugar cane industry association has predicted that despite a severe drought, the 2014-2015 growing season will be even more productive with expected sugar cane production in the range 632 million tons to 636 million tons.  About 40% of Brazil’s sugar cane is produced by a highly populated group of independent farmers. 

Investors are perhaps more interested in the processors.  The three largest processors in Brazil include Cosan Ltd (NYSE:CZZ), Sao Martinho and Acucar Guarani.

Like many of the other sugar cane processors Cosan is integrated backward in to sugar cane growing and as well as forward into ethanol production.  Cosan controls the world’s largest sugar cane processor Raizen, SA in a partnership with Royal Dutch Shell.  Riazen has a capacity to crush as much as 65 tons annually, but only reached 62 million tons in the 2013-2014 growing season.  That represents approximately 10% of Brazil’s sugar cane crushing capacity.  The company earned $4.5 billion in sales in the last twelve months, representing 15.7% growth over the prior year.   Cosan earned a 3.2% net profit during the year.
 
Raizen is expected to benefit from government support for ethanol production.  The Brazilian national development bank recently announced major financing package for the construction of Raizen’s cellulosic ethanol project in Sao Paulo state.  The plant is apparently designed to rely on Iogen’s cellulosic ethanol technology and is estimated to require US$90 million for construction.  Raizen management has bragged that within ten years it will have as many as eight plants producing advanced ethanol.  Already the company has pledged to invests US$7 billion to increasing sugar cane crushing capacity by 50% or 100 billion tons. 

Cosan trades on the NYSE under the symbol CZZ and has been on a long-term downward journey since the beginning of last year.  That has left the stock trading at 11.4 times forward earnings.  Before investors jump to buy these seemingly cheap shares, it is well to look at the long-term and short-term character of the stock’s trading.  The stock has been attempting something of a seasonal recovery over the past month as the company has just released its financial results for the year ending March 2014, which coincides with the last growing season.  The upward trend appears to be proceeding with some strength, but it might be prudent to wait for the stock to take a bit of a breather before loading up for a long position.
 
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.

February 26, 2014

The 10 Hottest Trends in Algae

Jim Lane 

Algae has been touted as the ultimate platform for fuels, chemicals, nutraceuticals, proteins — even cancer therapies.
There’s been a rate of progress that would impress any devotee of Moore’s Law — and a series of wacky claims that would impress any devotee of P.T. Barnun.

So, what are the real trends?

We’ve traveled several years now since the “Summer of Algae” when it seemed like half the venture capitalists in life sciences were forming algae ventures, or thinking about them. Since then — a cluster of research projects and proto-companies have been tackling the real-world challenges of yield, harvesting, dewatering and application development.

Below are the Top 10 Trends that should be commanding your attention.

1. Big Oil, L’il algae

Sapphire-Energy-Hot-50_4[1].jpg

This past week, algae observers were startled to learn that Reliance Industrial Investments, the Indian oil holding company, placed a $2.4M purchase order for Algae.Tec algae production technology as a follow-up to an initial investment of A$1.5M by Reliance, with additional investments of AU$1.2 million over the next 2 years. The purchase order for Algae.Tec modules will be supplied and completed over approximately the next nine months. The Algae.Tec solution is less than one tenth the land footprint of pond growth options, while its enclosed module system is designed to deliver the highest yield of algae per hectare, and solves the problem of food-producing land being turned over for biofuel production.

Overall, it’s Reliance’s third algae investment. A Credit Suisse report on the company, (see page eight of the report, downloadable here), revealed last year that Reliance has invested a total of $116 million (Rs6.2 billion). $93.5 million (Rs5.0 billion) in Algenol and 22.5 million (Rs1.2 billion) in Aurora Algae.

But there’s more algae activity stirring in the world of Big Oil. In November, Sapphire Energy and Phillips 66 announced a strategic joint development agreement to work together to collect and analyze data from co-processing of algae and conventional crude oil into fuels, and to complete fuel certifications to ready Sapphire Energy’s renewable crude oil for wide-scale oil refining.

Under the agreement the companies will expand Sapphire Energy’s current testing programs to further validate that Green Crude can be refined in traditional refineries and meet all of the Environmental Protection Agency’s (EPA) certification requirements under the Clean Air Act. This includes determining the optimal operating conditions for processing algae crude oil into American Society for Testing and Materials-certified diesel, gasoline and jet fuel. Once the study is finished, the companies will work together to complete the EPA certification process to register a new fuel product entering the market. Sapphire Energy is now producing crude oil daily from algae biomass cultivated and harvested at the company’s Green Crude Farm, located in Columbus, N.M.

Meanwhile, let’s not forget the Synthetic Genomics-ExxonMobil relationship, which debuted in spectacular fashion with a $500M initial spending target in 2009. Last year, SGI announced a new co-funded research agreement with ExxonMobil to develop algae biofuels. The new agreement is a basic science research program that focuses on developing algal strains with significantly improved production characteristics by employing synthetic genomic science and technology. Financial details of the agreement were not disclosed. Last year, ExxonMobil CEO Rex Tillerson told PBS, “We’ve come to understand some limits of that technology, or limits as we understand it today, which doesn’t mean it’s limited forever. The venture is “probably further” than 25 years away from successfully developing fuels.”

The last public update on ExxonMobil’s algae efforts was here.

2. Making Mo’ Better

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Algae is renowned for its production potential — after all, the mass can double in as little as 24 hours — meaning that it could dwarf the productivity of terrestrial plants. But translating potential into industrail scale “business as usual” hasn’t been a joyride.

Hence it was big news when, last March, Algenol confirmed that the company had exceeded production rates of 9,000 gallons of ethanol per acre per year — and company CEO Paul Woods said that ” I fully expect our talented scientific team to achieve sustained production rates above 10,000 by the end of this year.” Just last September, in the opening plenary session at the Algae Biomass Summit, Woods revealed that the company, at its 4-acre, outdoor Process Development Unit in Lee County, Florida, had achieved continuous production of ethanol at the 7,000 gallon per acre level.

It was a substantial increase over the company’s original target of 6,000 gpa, and were achieved in outdoor operation under normal operating conditions. With the news, Woods confirmed that the company, after completing major construction activities at their integrated pilot scale biorefinery in 2012, has fully shifted focus to demonstrating the commercial viability of Direct to Ethanol technology at its pilot facility and identifying sites for commercial projects to begin in 2014.

3. Scale

Now, Solazyme (SZYM) doesn’t like to think of itself as an algae company any more than Budwesier wants to be known as a yeast company — both prefer to define themselves by their products rather than around the details of their fermentation technology. Nevertheless, Solazyme does use algae fermentation — and they have been getting to massive scale.

Last month, the company announced that commercial operations have commenced at both Archer Daniels Midland Company’s (ADM) Clinton, Iowa facility, and the downstream companion facility operated by American Natural Products in Galva, Iowa. Volumes shipped to Brazil are being utilized for market development activity in advance of the opening of the Solazyme Bunge Renewable Oils Moema facility. As stated previously, production at the ADM and ANP facilities is expected to ramp to a nameplate capacity of 20,000 MT/yr within 12-18 months, with targeted potential expansion to 100,000 MT/yr in subsequent years.

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The company noted, in a release, that “truckloads of product are now shipping from the Iowa operations for use in applications including lubricants, metalworking and home and personal care. These shipments are being made pursuant to multiple supply agreements as well as spot purchases, and include reorders.” Highlighting the flexibility of Solazyme’s technology platform, Solazyme, ADM and ANP have successfully manufactured three distinct and unique tailored oil products at the facilities, and products are currently being sold and distributed in both the U.S. and Brazil.

The Clinton news is a follow-through from the news in December 2012 that Solazyme has announced the completion of multiple initial fermentations in 500,000 liter fermenters at ADM’s Clinton, Iowa facility — about four times the scale of the vessels in Solazyme’s own Peoria, IL facility. That set of runs broke through the ferment wall: namely that, hitherto, no next-generation producer had successfully achieved linear scale-up in 500,000 liter (or larger) fermenters. It’s simply impossible for fermentation-based technologies to affordably produce fuels and chemicals in small fermentation tanks — its way too much capex, too much opex to produce, say, 10,000 liters at a time.

Also at scale in fermentation? DSM and Alltech.

3. Bring on the Apps

“We’re like the iPhone,” said Heliae CEO Dan Simon, “and companies like Triton are bringing forward the apps”. We may well see companies like Heliae selling licenses for its production technology to customers who in turn license and introduce apps, to generate fuels, chemicals, nutraceuticals, as well as complex proteins, enzymes, and other biologics that are cost-effective and have immediate applications in agricultural, pharmaceutical, and other retail markets.

Progress with the “iPhone” is becoming pretty clear, with Heliae booking $4.2M in sales already in 2014 for their raceway-based algae growing technology, after recently completing a $13 million demonstration plant. Although the company has equipment on site to develop fuels from the algae, and the company has previously turned algae into jet fuel on site, Heliae is focusing on the growing side of the equation. The company brought in more than $1 million in revenue last year.

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So, what are the hot apps?

Proteins. Almost 10 years ago, out of Dr. Steve Mayfield’s lab at Scripps and later at the University of California at San Diego, a series of discoveries made it possible, for the first time, that algae could be used a platform for synthetic biology and genetic innovation — just as yeast and e.coli had been used for years. Now,tThere are subtle and microscopic reasons why algae could be a platform to rival e.coli — some related to superior folding (proteins that don’t fold properly are generally inactive, or can become toxic or change their function). Mayfield’s technology ultimately led to the formation of Rincon Pharmaceuticals in 2004 to pursue commercialization. Sapphire ultimately acquired, and pursued proteins as a side project.

By 2010, Mayfield was reporting in Plant Biotechnology Journal that seven diverse human therapeutic proteins could be produced in Chlamydomonas reinhardtii, a green alga used widely in biology laboratories as a genetic model organism, with a 60 cents-per-gram protein production costs. Even then, that was “about the same cost estimates for the least expensive protein expression systems presently available, and considerably cheaper than mammalian cell culture,” Mayfield and his team reported at the time.

With expected improvements in the ability to express proteins in algae, “and the continued reduction in algal biomass cost associated with the large scale efforts to use algae for biofuel production, we anticipate at least a ten-fold reduction in the costs over the next few years, which should make algal protein production the least expensive platform available.”

Ultimately, some of the old Rincon IP was spun out of Sapphire and back to Mayfield and Pyle, who then founded Triton last fall. Triton’s platform is known as PhycoLogix, and uses algae to produce compounds that other organisms cannot, that can be safely consumed without modification, and can be cultivated at large scale inexpensively. Heliae ibvested $5M late last year.

Nutraceuticals. In September, Algaeon announced the signing of a multi-year, multi-million dollar supply agreement with Valensa International to provide high value “condition specific” nutraceuticals to the marketplace. Algaeon, in cooperation with Valensa, is using its extensive knowledge of algae production to bring a new level of efficiency and quality for algae-based ingredient supply to the nutraceutical market. Algaeon will develop manufacturing processes and technology while Valensa will produce finished form condition specific products that will be sold to marketers with recognized brands.

DHA. This is the secret ingredient in Fish Oil or Omega-3s sold at your pharmacy for its health benefit. In late 2011, Sofiprotéol, the industrial and financial arm of the French plant oils and proteins sector, established a JV with Fermentalg to “industrialize, produce and market oils from microalgae that are rich in oils from the Omega 3 family (EPA-DHA)” — with a goal of assuring “the development of its patented process until the early scale-up phases of its technology.” Sofiprotéol is providing the bulk of financing. In early 2013, it was training its focus on “omega-3 fatty acids, coloring agents, antioxidants and biopolymers, etc” according to an interview in Algae Industry Magazine. A signature Series C capital raise in Q3 of this year — which netted $16M and attracted existing investors ACE Management, Demeter Partners, Emertec Gestion, and Picoty Algo plus new investors IRDI and Viveris — was in support of a focus on “industrial scale up and commercialization” of its microalgae production for use in “animal feed, biofuels, cosmetics, food, health, and specialty chemicals.”

Also hovering around the DHA scene is Alltech. Their major move into microalgae dates to the acquisition of a former Martek Bioscience plant in Winchester, Kentucky. The plant, which contains 1.26 million liters of fermentation capacity on a 17-acre campus, had been originally built as a yeast production plant, then produced vitamin B2 for Coors, and ultimately was acquired by Martek, before Alltech bought the plant for $14 million. Alltech has publicly discussed a $200 million investment in transforming the plant into heterotrophic algae production facility in Winchester, Kentucky — with a focus on production of DHA. The renovated plant opened in April 2011. Right now, the plant can produce 20 tons of algae per 11-day campaign — a capacity of roughly 1800 tons per year at current productivity. 1800 tons of algae would have a theoretical maximum, at this stage, of a theoretical maximum of 176 tons of DHA production.

Hybrid platforms. Last year, Cellana announced the launch of its ReNew brand and ReNew Omega-3 line of algae-based products. The ReNew brand was developed to meet the growing demand for more sustainable Omega-3 human health products, animal nutrition products, and biofuel feedstocks. The ReNew portfolio is comprised of four main product categories: ReNew Omega-3, including both ReNew Omega-3 products includes ReNewEPA and ReNewDHA, ReNew Feed as a nutritional product for the animal feed market; ReNew Fuel as an algae-based biocrude, particularly for jet fuels for commercial and military aircraft; and ReNew Algae, available in bulk for customers to apply their own extraction technologies and develop customized solutions within these application areas. The ReNew product line is derived from Cellana’s scalable, sustainable, and patented ALDUO algae production technology. Cellana’s six-acre Kona Demonstration Facility on Hawaii’s Big Island has produced more than nine tons of algal biomass for commercial testing. At this time, Cellana is raising money for a commercial-scale facility.

Another company with multiple product lines is Aurora Algae. Aurora burst onto the scene in June 2008 with the announcement that it had raised $20 million in series A financing from Oak Investment Partners, Noventi and Gabriel Venture Partners. The company completed an 18-month pilot in early 2009 and said that it has more than doubled the productivity of its selected strains. By August 2013 Aurora said it was looking to move its planned commercial-scale project algae project to Geraldton, Australia where it already has a test project. It has stated that it needs to expand from 6-acre system to 250 acres to be commercially successful.

The company’s key technology – an optimized strain of salt-water algae that is lighter in color than wild-type algae—allows deeper penetration of sunlight, thereby extending the zone for algae reproduction and increasing yield. That’s the Aurora secret sauce: to outcompete, as a form of crop protection, simply to grow too fast for predators and competitors to get a foothold. The four product lines are: A2 Omega-3—a family of Omega-3 oils aimed at the nutraceutical and pharmaceutical markets. The first offering in this family, A2 EPA Pure will make the benefits of EPA available to a broader market since it is derived from an allergen-free, vegetarian source. Plus, A2 Feed—a family of protein-rich algal grains for the animal and aquaculture markets; A2 Fuel—a family of biomass and biodiesel applications; and A2 Protein—a family of protein-rich powder products for the food and beverage industry.

4. No more venting money, er, I mean CO2.

Then there’s the flue stack — which you might as well call the Money Stack, becasue of all the money that is vented every time a company vents CO2. One of the most interesting plays in algae to use it as a means of monetizing CO2 ‚— turning it from a headache into an opportunity.

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BioProcess Algae is helping Green Plains Renewable Energy to scale up its CO2-based algae experiment into a commercial-scale add-on facility. What started out as a lab test that grew and grew until it reached 400 ft-long greenhouses has led to Omega-3 production as well as high value pellets and feed selling from $1,500 to $10,000 a ton, compared to $200 a ton for corn. Omega-3 activity? The company in 2012 announced a commercial supply agreement for EPA-rich Omega-3 oils with KD-Pharma for use in concentrated EPA products for nutritional and/or pharmaceutical applications.

5. Extremophiles

New algae — or rather, undiscovered or otherwise under-appreciated algae — well, algae companies and research organizations have their scouts traveling even more obscure paths than a major league baseball scout.

One of the hottest areas for development — extremophiles. Organisms that love unusual heat or pressure conditions that make them very robust in algae growth systems (for example, algae that can tolerate hot temperatures can out-compete other swimmers in the pond). So, consider this: scientists are researching the production of oil-producing algae, as well the feasibility of commercial-scale biofuel production based on microbes discovered in Yellowstone National Park.

Part of a multi-institutional project funded by a grant through the Sustainable Energy Pathways program at the National Science Foundation, it is one of many algal biofuel research projects at MSU. The project, which also includes the University of North Carolina and the University of Toledo, is part of a federal effort to tackle some of the fundamental problems in developing enough biofuels fuels to provide up to 50 percent of the nation’s transportation fuel. The U.S. Department of Energy funding the project.

6. The Pyromaniax

Hitherto, most algae systems have relied on extraction. That is, grow the algae, dewatering, then extract the valuable oils or proteins. But a number of ventures, such as Sapphire Energy and Algenol, are looking to pyrolylze the whole algae or algae residues.

In Washington state, engineers have created a continuous chemical process that produces useful crude oil minutes after they pour in harvested algae. The research by engineers at the Department of Energy’s Pacific Northwest National Laboratory was reported recently in the journal Algal Research. In the PNNL process, a slurry of wet algae is pumped into the front end of a chemical reactor. Once the system is up and running, out comes crude oil in less than an hour, along with water and a byproduct stream of material containing phosphorus that can be recycled to grow more algae.

With additional conventional refining, the crude algae oil is converted into aviation fuel, gasoline or diesel fuel. And the waste water is processed further, yielding burnable gas and substances like potassium and nitrogen, which, along with the cleansed water, can also be recycled to grow more algae. The system runs at around 350 degrees Celsius (662 degrees Fahrenheit) at a pressure of around 3,000 PSI, combining processes known as hydrothermal liquefaction and catalytic hydrothermal gasification. Cautionary note? The PNNL system runs continuously, processing about 1.5 liters of algae slurry in the research reactor per hour. So, it’s pre-pilot. And it is not going to be cheap to build out, at scale, a system that requires 350 degrees and 3000 PSI.

Along those lines, Sapphire and Linde announced last year that they will expand their partnership to commercialize a new industrial scale conversion technology needed to upgrade algae biomass into crude oil. Together, the companies will refine the hydrothermal treatment process developed and operated today by Sapphire Energy at pilot-scale. In addition, they will jointly license and market the technology into an expanded list of industries, including algae, municipal solid waste, and farm waste, in order to upgrade other biomass sources into energy. The agreement spans a minimum of five years through the development of Sapphire Energy’s first commercial scale, algae-to-energy production facility.

7. One word. Plastics.

What about new materials? Plastics have been promising. In December, the Institute for Plastic Technology in Valencia profiled its EU program looking into various materials that can be produced from algae to create adhesives, paints and dyes using a technology developed by Alicante-based Biofuel Systems. The 42-month research program includes 13 different companies. The first stage of the project will be to identify fast-growing algae to later be processed.

8. Scrubbers

Then, there is algae’s abilities not only as a product, but as a platform for scrubbing wastewater — which has been a use for algae for years. But recently, algae’s abilities to scrub out highly toxic materials has been put to the test.

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Last month in Japan, a research group led by Yoshihiro Shiraiwa of the University of Tsukuba identified seventeen microalgae,aquatic plants and algae that are able to efficiently remove radioactive cesium, iodine and strontium from the environment were identified. The research was conducted to deal with the The findings add to existing bioremedial options which could help to decrease radiopollution in the Fukushima area.Such measures are of utmost importance, because a large quantity of radioactivity has been released. The researchers noted that further studies are needed on the mass cultivation and efficient coagulation and sedimentation of these algal strains before their findings can be put into practice.

Plus, there are tools to keep the algae ponds free of pests, predators, competitiors and the like. Along those lines, in November OriginOil announced that academic testing has verified its new Algae Screen growth optimizer effectively controls bacteria and microscopic predators in commercial algaeproduction, helping to promote high rates of cultivation of the most valuable species. “Initial test results saw a dramatic drop in contaminant load while the culture still maintained target cell integrity,” said Dr. Matt L. Julius of the Department of Biological Sciences at St. Cloud State University in Minnesota. “This is one technology that will change the industry once it is fully validated.”

9. Kelp is On the Way

What about macroalgae, also known as kelp? In California, researchers from Bio Architecture Lab published in the journal Nature an alginate monomer transporter they discovered that will help to significantly boost the efficiency of cellulosic ethanol production from brown macroalgaes. Using fermentation, the researchers were able to achieve 83% theoretical yield from the sugars.

Several years ago, BAL and Norway’s Statoil announced a wide-ranging strategic partnership for the production of renewable, sustainable and low cost ethanol derived from macroalgae grown off the coast of Norway. Statoil will fund BAL’s research and development (R&D) and demonstration projects, and if successful, will also fund the commercialization of BAL’s technology in Norway and elsewhere in Europe. During the initial phase of the partnership, BAL is responsible for developing the technology and process to convert Norwegian seaweed into ethanol. Statoil is responsible for developing and managing the seaweed aquafarming operations, with consultation from BAL, which already has established aquafarming operations in Chile. Upon the successful achievement of key milestones, Statoil and BAL would develop a demonstration scale facility in Norway.

10. Building the better mousetrap algae.

Final trend? Bulding a better algae through genetic enhancement. That work has been mostly undertaken by Sapphire, which has been engaged in some brute force biology to get the industry going.

In late 2012, for example, Sapphire Energy and Institute for Systems Biology announced a strategic partnership to significantly increase oil yield and improving resistance to crop predators and environmental factors in order to further the advancement of commercialized algae biofuel production. “Sapphire is dealing with one of the most complicated problems known to humans: how to make fuel from a renewable resource,” said Nitin Baliga, director of Integrative Biology at ISB. ”Together, we have complementary expertise that will allow us to understand, reverse engineer and rationally alter the gene networks for fuel production in algae.”

But the effort continues elsewhere. Last November in Tennessee, researchers at Vanderbilt University have found that when the biological clocks of cyanobacteria were stopped in their daylight setting, the amount of several biomolecules that they were genetically altered to produce increased by as much as 700 percent when grown in constant light. “We have shown that manipulating cyanobacteria’s clock genes can increase its production of commercially valuable biomolecules,” said Carl Johnson, Stevenson Professor of Biological Sciences at Vanderbilt University.

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

February 11, 2014

Rentech: Pulp, Pellets and Fertilizer

by Debra Fiakas CFA

Rentech-Logo197x90[1].pngA shareholder group has taken aim at alternative energy and fertilizer producer Rentech, Inc. (RTK:  Nasdaq), offering a slate of nominees for the next election of directors.  They claim Rentech management is overpaid and doing a very poor job of executing on the company’s strategic plans.  The nominees were a focus of discussion in the last post.  Now we will take a closer look at Rentech’s operations.

The majority of Rentech’s revenue is generated from the sale of fertilizer products from the Company’s plants in Dubuque, Iowa and Pasadena, California.  Rentech earns a 47.6% operating profit margin at its Dubuque ammonia plant, but its ammonium sulfate plant in Pasadena operates at a loss.  Indeed, in the first nine months of 2013, Pasadena lost $38.5 million on $110 million in sales.  The Pasadena operation was a part of the Agrifos acquisition in November 2012.  Things have not gone smoothly since low-cost ammonium supplies from China have put downward pressure on prices.  What is more a wet planting season reduced demand in North America.

Approximately 13% of sales are generated by one of Rentech’s recent acquisitions.  Fulghum Fibres, which was bought in May 2013.  Fulghum processes wood fibers and sells wood chips and bark to the pulp and paper industry.  The group generated an 8.0% operating profit margin in the first nine months of 2013.

Rentech is developing additional interests in wood pellets, which it has named the Atikokan and Wawa Projects.  The company came by both projects through acquisitions in May and June 2013.  The company expects to produce 125,000 metric tons of wood pellets annually at Atikokan and another 360,000 metric tons at Wawa, Ontario, Canada.  Neither plants are producing revenue, and so turned up a $4.2 million operating loss in the first nine months of 2013.

Although Rentech is no longer producing biofuel, the company owns a fistful of energy technologies such as gasification methods for biofuel production.  The company earns the odd license or consulting fee  -  $300,000 in the first nine months of 2013.  That is unfortunately not enough to cover the costs of research and development.  The operating loss reported so far in 2013 is $5.0 million.

There are no big success stories in Rentech’s various operations.  The company has used a fair bit of cash for acquisitions  -  $65.6 million in the first nine months of 2013.  Rentech has also sunk some money in building out the Atikokan and Wawa facilities among other projects.  Capital spending climbed to $60.5 million so far in 2013.  There is another $120 million in construction projects lined up for 2014, most of which is for expansion and upgrades at the Dubuque fertilizer plant.  There is $180.4 million in cash in the bank and another $4.6 million in assets up for sale that can be used to pay the bills. 

If nothing else these few paragraphs should alert investors to a busy, complicated business model at Rentech.  Concede that point to the shareholder group criticizing Rentech leadership.  Keeping the ship on an even keel takes some management skills.  Perhaps that is why management has demanded the sort of paychecks at that shareholder group has labeled excessive.   

Figuring out if the current stock priced near $1.80 per share is a bargain, requires quite a bit of figuring  -  asset values, future cash flow potential. Alternatively, investors can simply use their better judgment and wait until the shareholder meeting is concluded and see who is still standing after shareholders vote on director nominees.

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.

February 06, 2014

Rentech: Do We Want The Sharpest Pencil?

by Debra Fiakas CFA

Rentech-Logo197x90[1].pngLast month a shareholder group led by two of Rentech’s largest shareholders sent a letter to the biofuel developer’s board of directors.   Rentech, Inc. (RTK:  Nasdaq)) is adrift, the group claims.  The alternative energy business has failed.  The fertilizer plant is a bust and the wood pellet project is never going to deliver adequate return on invested capital.  What is more management is paid too much for the size of Rentech’s operations.  The group wants its own slate of nominees in the proxy for director positions.

Rentech leadership responded to the letter with a polite promise to consider the qualifications of the nominees.  The company’s annual meeting is expected later this year.

So let’s take a look at the four nominees ourselves.  All four have lengthy lists of prior experience in venture capital and private equity.  The have been board members of this company and that company.  However, only one of the four, Larry Holley, has any operating experience, including a stint at a fertilizer production plant.  He is also the only one of the four that has an engineering background.

Investment bankers and venture capitalists make excellent board members.  They know how to read the financial statements.  They are skilled at calculations of profitability and returns on investment.  They look good sitting around the board room in suits.  Unfortunately, financiers can quickly figure out the odds on someone else’s innovation, but little vision of their own.  We could expect this group of nominees to tell us a great deal about how little merit there is in Rentech’s present game plan, but not much more.

Shareholders can also expect this group of nominees to find a number of very clever ways to direct Rentech resources to the two firms leading this concerned shareholder group  -  Engaged Capital and Lone Star Value Management.  Activist shareholder groups typically have little reticence in accepting consulting fees, director compensation and other creative compensation arrangements to the benefit of their expertise.

Cash usually shouts loudest when it comes to telling a company’s story.  In the most recently reported twelve months Rentech converted 6.9% of its sales to cash, generating $26.8 million in operating cash flow.  That is below average for a fertilizer operations, but mighty impressive for a company developing alternative energy technologies.

Rentech leadership may need to sharpen its collective pencil to refine its strategic plan, not to mention do a better job of executing on its various projects.  However, in my opinion, the slate of new directors offered by these ‘concerned shareholders’ does not appear qualified to sharpen, refine or otherwise execute on much more than their own special interests.

Next post we will look more closely at Rentech operations  -  pulp, pellets and fertilizer.

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.

May 21, 2013

The Farm Bill: 5-Minute Guide to the Energy Title

  Jim Lane
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Only 5 min BigStock Photo

What’s in that Durn-tootin’ US Farm Bill, anyhow?

For the harried taxpayer, some relief. For energy security and rural economic development, targeted investments that now head to the legislative floor.

Here are the need-to-knows.

In Washington, the House and Senate Agricultural committees have now passed their respective versions of the proposed 2013 farm bill, which would take effect for fiscal 2014 through fiscal 2018.

Both bills have energy titles — meaning that, should they find passage, as expected this summer, in the House and Senate, the measures in the Energy title will come up for negotiation in the House-Senate conference, but not the existence of the title itself. In today’s Digest, we look at the two different versions of the Energy title — what’s getting funding, what’s not — and how much, and how.

Weighing the bills

The Senate’s bill weighs in at 1150 pages, no ounces — the House Bill at a comparatively light 576 pages.

The Overall Farm Bill

The Senate version reduces spending by $18B over the previous Farm Bill ($24.4B if the sequestration provisions are repealed by Congress, which itself slashed $6.4B), to $955B over a 10 year period between 2014 and 2023.

The Energy Title

Overall spending on the Energy Title is increased by $780M (2014-2023) under the proposed Senate version.

By section, the changes are

Biorefinery Assistance — $216M
REAP — $240M
Biomass R&D — $130M
BCAP — $174M
Other programs — $20M

Timeline to passage

House Ranking Minority Member Collin Peterson said, “With today’s action, I’m optimistic the farm bill will continue through regular order and be brought to the House floor in June. If we can stay on track, I think we should be able to conference with the Senate in July and have a new five-year farm bill in place before the August recess.”

The Details

Definitions

The House Bill does not add language to include renewable chemicals under the provisions of an Energy title — the Senate does.

Biobased Markets Program

Both the Senate and House include a biobased markets program. The House voted $2 million in discretionary funding (e.g. subject to annual appropriations). The Senate expanded the program’s scope to include assembled products, expands outreach and educational efforts, a study on market impact — and adds $3 million in mandatory funding from the Commodity Credit Corporation in addition to the $2M in discretionary funding offered by both the House and Senate.

Biorefinery Assistance

The House offered $75M per year here in discretionary funding, while the Senate offered $100M in for 2014 in mandatory funding and $58M in each of 2015 and 2016. The Senate also broadened the language to include renewable chemicals and biobased materials.

Repowering Assistance Program

The House authorized $10M for the program per year in discretionary funds, while the Senate did not vote funding.

Bioenergy Program for Advanced Biofuels

The Senate Bill authorizes $20M annually in discretionary funds, while the House authorizes $50M per year, also discretionary.

Biodiesel fuel education program

The Senate version keeps this program intact, but changes it from discretionary to mandatory funding. The House version doubles discretionary funding to $2M per year.

Rural Energy for America Program (REAP)

Both the Senate and House versions ask the Secretary to develop a three-tiered application process (for projects costing up to $80K, 80-2200K, and over 200K) and structure the comprehensiveness of the information required according to the cost of the program. The House version authorizes $45M per year in discretionary funding. The Senate offers $20M in annual discretionary funds, and $68M in mandatory funds via the Commodity Credit Corporation.

Biomass Research and Development

The Senate version offers $30M in annual discretionary funding, and $26M in mandatory annual funds. The House version authorizes $20M in annual discretionary funding.

Feedstock Flexibility Program

Both the Senate and House voted to extend this little-known, no-cost program through 2018. It’s purpose:

For each of the 2013 through 2018 crops, the Secretary shall purchase eligible commodities from eligible entities and sell such commodities to bioenergy producers for the purpose of producing bioenergy in a manner that ensures that section 7272 of this title is operated at no cost to the Federal Government by avoiding forfeitures to the Commodity Credit Corporation.

Biomass Crop Assistance Program

The House version eliminates the prohibition on animal, food or yard waste, and algae — and strikes the authorization to “assist agricultural and forest land owners and operators with collection, harvest, storage, and transportation of eligible material for use in a biomass conversion facility.” The House also increases funding from $20M to $75M per year, but changes this from mandatory to discretionary funding.

The Senate version adds a prohibition on funding “invasive species” and restricts use of lands enrolled in the conservation reserve program or is native sod — and generally prohibits food crops. The Senate version also sets a maximum BCAP term of 5 years for annuals or perennial crops and 15 years for woods.

Towards collection and harvesting, a maximum of $20 per ton for up to four year, on a matching dollar basis.

The Senate authorizes $38.6M per year in mandatory funding.

Forest Biomass for Energy program

The Senate voted to repeal the program, while the House version simply ignores and thereby effectively kills by de-funding.

Community wood energy program

The Senate voted to keep this program at $5M per year in discretionary funding, while the House version votes to reduce annual funding to $2M.

The Senate also creates a new category of ‘biomass consumer cooperative’ —”a consumer membership organization the purpose of which is to provide members with services or discounts relating to the purchase of biomass heating products or biomass heating systems.’’ and offers grants of up to $50K towards the establishment of expansion of such cooperatives.

The Bottom Line

It’s not a visionary Farm Bill for Energy — more about fine-tuning and maintaining provisions that were originally introduced in 2002 and 2008. But there’s a lot more meat on the bone, so to speak, with $780M in increased funding over a 10-year period.

On the other hand, it’s not a hugely expensive program when seen in the context of the federal budget — representing an addition expenditure of $0.26 per capita, per year.

There isn’t all that much for a House-Senate conference to bicker about — primarily, the status of renewable chemicals on the downstream side, and the inclusion of various new types of crops on the upstream side.

And there are funding differences that need to be ironed out – in particular, the balance between mandatory funding and discretionary embraced in the Senate version – while the House generally opts for a discretionary approach, especially for high ticket items.

There’s language in the BCAP program that will need to be settled out.

The Digest continues to point to opportunities for the creative use of Conservation Reserve program land — sensitive to and subject to hunting and environmental uses — for bioenergy projects, and thereby highlights the prohibition on BCAP funds being used for CRP lands, as envisioned in the Senate version of the bill (but not the House bill). We hope the House and Senate come to a creative mutual approach on this provision.

Read More:

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.

April 16, 2013

Casella Waste Systems: Cheap Enough to Recycle?

by Debra Fiakas CFA

Solid waste has been one of the business types that has a natural hedge against macroeconomic distress.  No matter how bad things get, as long as our neighbors draw breath there will be trash to handle.  Casella Waste Systems, Inc. (CWST:  Nasdaq) sits in the shadow of larger waste handlers such as Waste Management (WM:  NYSE) and Republic Services (RSG:  NYSE).  Consequently, it is often passed over by investors despite a significantly better profit margin.

One of the reasons investors might not take Casella seriously is its history of net losses.  However, the bottom line is only part of Casella’s story.  After hitting peak sales in 2007 and then suffering the effects of recession, the company has delivered successively higher sales in each of the last four years.  What is more Casella generates strong cash flows  -  enough to cover capital expenditures.

So now that I have started ‘bull’ case for CWST, I have to let investors down a bit.  Casella’s profit margins have been eroding.  Even as sales began to recover in fiscal year 2010 (ending April 2010), higher costs began to nip away at profits.  The gross profit margin was 28.4% in the nine months ending January 2013.  This compares with 31.9% in the same period of the previous year.  The profit margin peaked in fiscal year 2010 at 33.7%.

Protracted economic stress has also shown up on the Casella’s balance sheet.  The company’s financing interval has been deteriorating over the last four years.  Mind you, Casella gets more than enough credit from its suppliers to cover capital requirements for inventory and accounts receivable.  Indeed, payables days have consistently exceeded the sum of inventory and account receivable days.  The problem is that the cushion diminished dramatically over the last few months.  It could be a temporary situation or the signal of a new business reality for Casella.

Casella’s waste disposal and recycling services for municipalities have put the company in line for favorable financing.  Its most recent financing was accomplished through the sale of $5.5 million in solid waste disposal revenue bonds that will bear interest at the rate of 0.2%.  We expect such arrangements to remain a small portion of Casella’s total debt.  Nonetheless, it will have the effect of reducing total interest cost.

It is a mixed bag of analysis, but it is a cheap bag.  CWST has a negative price/earnings ratio because of net losses.  However, on the basis of cash flows, the stock looks very attractive.  The waste management group trades at 11.7 times cash flow, but Casella is on sale for 3.8 times CFO.  Casella does not pay a dividend so any investors taking a long position in CWST must count on price appreciation.  Unfortunately, the stock has exhibited little upward momentum in recent months.  Thus the stock might be cheap, but realizing a gain from this bargain will require patience and plenty of time to wait for price recovery.
 
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. 

February 04, 2013

Biobased and Biofuel Investments: A System

Jim Lane

A Biofuels and Biobased investment primer: An 18-combination, 8-character system for classifying bio investments
Here’s our investment primer on how to size up the risks and the rewards and tune them to meet your goals.
And, a system for organizing opportunities.

So, you’re thinking about investing in bio? Here’s the good news – you’re not alone. Here’s the bad news – you’re not alone.

There are retail, private equity, hedge fund, sovereign wealth, strategic, grower, VC and institutional investors snooping around too, and making active investments.

For one thing, carbon’s making a comeback as the economy recovers and the weather continues to get wilder, whackier and scarier. As DOE Deputy Chief of Staff Jeff Navin observed, “Just because the appetite to tackle it went away, didn’t mean the [climate change] problem went away”.

As investors are discovering, the whole world changes when the rain doesn’t fall where it used to fall.

Though there are hundreds of companies, you can parse it all down into some pretty simple categories – in order to measure the rewards (which, generally speaking, you’ll hear a lot about from the promoters) against the risks (er, less chatted up).

That’s what we’re going to cover today — with three broad strokes: stage, stream and degree of novelty. There are only 18 combinations. They are the first keys to unlocking opportunities.

3 Streams

There are lots of ways to sector out the biobased space. The most useful way is to divide it, like oil &gas, into upstream, midstream and downstream. The way these work are a little different, and here’s how.

Upstream. In a word, feedstocks – typically crops or residues. Could be anything as mainstream as year’s corn crop, to something as exotic as carbon monoxide and water or municipal solid waste and sludge. A seed company or a grower fits into this category. More exotically, an algae grower does too. Sometimes, a polluter does, if there’s a residue in the mix. If you’re invested in Syngenta, Monsanto or Ceres, you are right here.

Midstream. These are the processing technologies. Could be standard fermentation that has been used for centuries to make alcohols from grain – could be exotic technologies that make bio-oils and char. They could be owner-operators of projects, or technology licensors. If you are invested in Solazyme, Gevo, Renewable Energy Group or Amyris, you fit right here.

Downstream. These are the molecules themselves – their distribution into the marketplace.

2 degrees of novelty

There’s known, and there’s novel. For example, gasoline is known, ethanol is novel (though less so).

Known molecules cause no infrastructure change or change in other processes. Making renewable diesel or jet fuel is an example.

Novel molecules can be substitutes with new uses, such as using biofene as a lubricant— or known molecules that have never been feasible before (e.g. using adipic acid as an intermediate pre-cursor for nylon 6,6 – which wasn’t economically feasible before).

Known molecules have equivalent performance. Novel molecules can be varied – they can perform better, or worse.

3 investment stages

There’s early stage, mid-stage and late-stage. Now, everyone has a different definition – for instance, late-stage can mean “pre-IPO” for VC investors. SO, here’s how we look at it.

Early stage. The proof of concept phase. Not just proving that, for example, you can train an given organism to secrete a hydrocarbon. It means — from the first moment of the idea until the point where, at any scale, the process is shown to work and is feasible.

This assumes that results hold up during scale-up, the molecule performs as expected in an engine or in green chemistry, input and product prices hold, and that the process bolts into the rest of the field-to-wheels supply chain as expected).

Proof-stage. The point from proof of concept to proof of process.

Late-stage. Process is proven, economics are known. From here, it is a a matter of lining up location, customers and capital in an optimal way. For example, Shell’s Gas-to-Liquids project in Doha, Qatar.

OK, so you’re done. There are 18 different combinations – ranging from “Early-stage, novel, upstream” (e.g. a jatropha seed developer) to a “late-stage, known, downstream” (e.g. investing in a fuel marketer that is distributing, as an offtaker, renewable diesel from a producer’s sixth commercial plant).

You can use acronyms if you like. You use U, M or D for stream, E, P or L for stage, and K or N for novelty. In the examples cited above, you have ENU, and LND. There are just 18 combinations.

Assessing risk and opportunity

From that point, you can start to make some rational investment risk assessments. It’s helpful to line up opportunities within categories (like for like), and compare.

For example, early-stage investments tend to be smaller, and riskier – than later-stage. The “will it work?” factor looms large, early-on. Later, you have more certainty — and, as a result, less upside. The more you understand technology and market forces, the more you will like the early-stage.

Upstream technologies are more fully exposed to the biobased sector, than midstream and downstream, while the farther you move down the stream the more you are exposed to a market in a given molecule (downstream), or the arbitrage between the molecule price and feedstock price (midstream).

In terms of novelty — for sure, novel technologies have transformative economics on price as well as cost – known molecules tend to offer opportunities in terms of cost savings (cheaper production) or market share shifts (as customers adopt, for example, equally-priced molecules with attractive carbon attributes).

By contrast, novel technologies can have superior performance, or can eliminate a step in a chemistry – even if they cost more, they can offer customers amazing opportunities. But the more novel the molecule, feedstock or technology, the more important the IP protection is, and potentially devastating the loss of patent protection is — speed to market will matter in terms of producing ROI.

A real-world example

Let’s take a popular area for investment these days — adding technology to enable an existing ethanol plant to make biobutanol.

They are currently in proof-stage, making known molecules, and midstream. Call it a MPK.

So, there you have it. The biobased world of thousands of molecules, a hundred feedstocks and several dozen technologies, parsed down into 8 simple letters, and 18 combinations, that you can use to rate opportunities for risk and reward.

In the retail investing world, in debt-side investing, or in pre-IPO equity investing — there are companies of all combinations available. Parse away.

Disclosure: None.

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

November 28, 2012

Ceres and Syngenta to Promote Sorghum in Brazil

Jim Lane

Cereslgo[1].jpgCeres, Inc. (CERE) and Syngenta sign a major deal to stimulate sweet sorghum adoption. Brazilian producers seek paths for expanding ethanol production.
What are sorghum’s chances of being the darling of the expansion story?

In California, Ceres, Inc. (CERE) announced that it has signed a sweet sorghum market development agreement with Syngenta. The companies will work together to support the introduction of sweet sorghum as a source of fermentable sugars at Brazil’s 400 or more ethanol mills.

Under the agreement, Syngenta and Ceres intend to collaborate on small-scale trials as well as larger demonstration-scale field evaluations with mills this season. Syngenta will provide its considerable agronomy resources to evaluate its portfolio of crop protection products alongside Ceres hybrids, and Ceres will provide both seed and research support. Both companies will coordinate outreach to ethanol mills and develop industry training programs.

Brazil and sweet sorghum

The prospects of sweet sorghum, once the hybrids have proven themselves in local trials, are robust in Brazil: The crop can extend the ethanol production season by up to 60 days in Brazil, can be grown on fallow sugarcane land and processed using the same equipment, and requires less water and other inputs than sugarcane. Brazil’s government announced in its annual agricultural plan for 2012-2013 that sweet sorghum would be considered a strategic crop.

The geography of Ceres' sweet sorghum product trials in Brazil

Ceres and the Brazilian market

Last season, Brazilian mills planted Ceres sweet sorghum on more than 3,000 hectares (7,400 acres), and the company has completed the registration process in Brazil for its new generation of sweet sorghum hybrids.

Last season in Brazil trials of these new hybrids demonstrated large increases in biomass, extractable juice volume and total harvestable sugar compared to commercial products introduced just last year. In product development trials and at the company’s breeding center, where field evaluation plots are irrigated and managed more closely than commercial fields, these hybrids averaged 80 or more metric tons per hectare. Subsequent field evaluations in the Southeast U.S. this summer have confirmed similar results.

That’s the good news.

A slowdown in adoption

On the negative side, roll-out of Ceres’ new hybrids is slower than expected. Where the company expected planting in the tens of thousands of hectares this year, it will remain in the thousands, according to management, for the 2012-13 cane season.

Accordingly, Michael Cox at Piper Jaffray wrote that “Due to the drought conditions in Brazil during the last growing season, field trial yields for CERE sweet sorghum hybrids were down resulting in a slower adoption of the seed technology in the upcoming FY13 planting season…we are shifting our model out by a year and lowering our price target. Despite the expectation of lower planted hectares in FY13, we believe the likely increase in ethanol blending in Brazil next year will increase demand for sweet sorghum and ramp product adoption.”
The path to stimulating product adoption

In its most recent management call, the company pledged to use creative efforts to market the new hybrid seed. Hence the Syngenta deal – and overall, Ceres said that it expects to work with more than 20 mill customers, up 40 percent from last year.

The bottom line

Brazilian ethanol production needs to grow, affordably – the country’s fuel demand continues to be strong, yet producers would like to expand sugar production to take advantage of high global prices. Sweet sorghum offers compelling options – if the hybrids work economically, and if the adoption is there.

To help push product adoption, CERE is implementing creative means to market the new hybrid seed. Additionally, management expects to work with more than 20 mill groups, which is a nearly a 40% increase in milling customers.

At Raymond James, energy analyst Pavel Molchanov wrote: “It goes without saying that collaboration with a leading agribusiness company like Syngenta represents further endorsement of Ceres’ technology and the viability for rising adoption of sweet sorghum by Brazilian mill owners.”

Given the parallel news this week Raizen is beginning to provide increased visibility on its goal of increasing its production by more than 50 percent, in a $7 billion investment program, sweet sorghum remains at the epicenter of the Brazilian ethanol expansion story – even if its timeline of adoption looks slower in the mid-term as Brazil recovers from drought.

One note in this week’s announcement we’ll continue to track: the emphasis on evaluating Syngenta crop protection products with Ceres hybrids. That could mean fungicides and herbicides – both may be needed to assure a healthy growing environment for sweet sorghum going forward – and the news may generate some ideas about yield shortfalls during last year’s drought-affected season.

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.

November 23, 2012

Ceres, Inc.: a 5-Minute Guide

Jim Lane

Cereslgo[1].jpgAddress:
1535 Rancho Conejo Blvd., Thousand Oaks, CA 91320

Founded:
1996

Annual Revenues:
$6.6 million (Fiscal Year ended Aug. 31, 2011)

Type of technology:
Plant biotechnology, gene marker-assisted breeding and other genomics

Fuel Type:
Biomass is the common denominator to advanced biofuels, biopower and bioproducts and is independent of the end-fuel molecule.

Major investors:
Ceres is a public company. Its common stock trades on the Nasdaq Global Market under the ticker symbol CERE. Pre-IPO investors include Warburg Pincus, Soros Private Equity Partners, GIMV and Oppenheimer.

Past milestones:
Completed IPO in February 2012.

Demonstrated at commercial-scale that sweet sorghum could be used as a season-extending feedstock for Brazil’s 400+ ethanol mills.

The company’s 2nd-generation of sweet sorghum hybrids significantly outperformed its initial products during the 2011-2012 growing season in Brazil.

The Brazilian government’s agricultural research corporation, Embrapa, selected Ceres to evaluate its leading sweet sorghum variety for use in ethanol production.

The company’s high-biomass and stress tolerance traits have demonstrated biomass yield increases of ~50% under non-irrigated conditions.

Ceres and a research collaborator in the U.K. completed the first high-resolution genetic map of miscanthus. This milestone is expected to speed development of economically viable seeded miscanthus varieties.
Ceres Switchgrass.png
Ceres CEO Richard Hamilton (right) and Dr. Richard Flavell, chief scientific officer, evaluate improved switchgrass (miscanthus). Image source: Ceres

Established world’s largest energy grass trialing network

Future milestones:
Ongoing commercial sales and scale-up in pace with bioenergy industry in Brazil, Europe and the United States.

Ceres Traits to Watch
Enhanced conversion: Substantial reductions in the cellulase enzyme cocktails required to release fermentable sugars from plant biomass.  This trait could be a key enabler of the large-scale use of biochemical processes and fermentation

High-biomass, low-input traits:  High yields and greater yield stability on low-rent, marginal land. Feedstock is 50-70% of operating costs, and land rents can be a significant cost component. These traits could provide a major lever against cost and enable larger volumes/facilities.

Business model:
Seed sales and trait licenses

Competitive edge:
Genetics, intellectual property, early-mover advantage

Distribution, research, marketing or production partnerships or alliances.
R&D: Texas A&M (leading sorghum genetics), Samuel Noble Foundation (Switchgrass genetics) and the Institute of Biological, Environmental and Rural Sciences Institute of Aberystwyth University in the U.K. (Miscanthus genetics).

Development stage: Commercial

Company website : http://www.ceres.net/
Also BladeEnergy.com

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.

November 09, 2012

Running from the bear: Making Biofuels From Municipal Solid Waste

By Ed Hamrick

320px-Schrotthaufen_Berlin[1].jpg
Municipal solid waste in Berlin. Photo by S. Müller via Wikimedia Commons
Remember the one about the two guys in the woods who are seen by a hungry bear?

They start running from the bear, and one guy says to the other guy “Why are we running? Everyone knows you can’t outrun a bear”. The other guy says “I don’t need to outrun the bear, I only need to outrun you”.

Any company can find a market for their ethanol if they can make ethanol much cheaper than the corn ethanol companies in the US or much cheaper than the sugar cane companies in Brazil. If a company carefully counts pennies, carefully uses energy, carefully uses water and finds a cooperation model with incumbents in the MSW market, then it can be quite profitable.

The global MSW market

There are more than two billion tons of MSW produced worldwide every year, with more than 250 million tons per year produced in the USA every year. Disposal of MSW is a thousand year old industry and there’s an efficient and well-established system for collecting it, transporting it and disposing of it. There’s a steady supply of MSW year-round. People pay money for disposing of their MSW. On the surface it looks easy – get a municipality to pay you to take the MSW, make ethanol from it, and pay someone to put what’s left over into their waste dump. It’s not that simple.

The most valuable fraction of MSW is waste paper, comprising up to 40% of MSW in developed countries but only 5% in developing countries. But new Kraft paper pulp costs $800 per ton. Another significant fraction of MSW is food waste, comprising up 20% of the MSW in developed countries and up to 60% in developing countries.

Note that Kraft paper and food waste that haven’t been pulped aren’t good biofuels feedstocks. The wood fibers in paper form a strong mesh of 5 to 50 layers, covered in coatings. Together, this prevents enzymes from accessing the cellulose. Unpulped food waste isn’t a good feedstock either – that’s why we first boil food and then chew it – to form a pulp that enzymes in the body can convert to sugars.

It isn’t difficult to get paper pulp and food pulp from MSW – but it’s very difficult to do this cost-effectively for two reasons: the microorganisms in MSW and the physics of water.

Food waste is ideal for microorganisms – they thrive on the sugar and starch in food waste, and the longer the waste sits in garbage cans or in bags on the curb, the more these microorganisms grow (exponentially). Decomposing food waste stinks and is full of dangerous pathogens, so people want it to be disposed of far from where they live. Where population densities are low, it’s easy to find a ravine to dump it into – this is how MSW has been disposed of for millenia.

Where population densities are high, it needs to be transported to where people don’t live. Even the world’s largest country, Russia, has a severe MSW problem in its large cities because it’s expensive to transport MSW far away to where there’s empty land and because existing waste dumps near the large cities are filling up. Russia has immense expanses of empty land suitable for landfills, but it’s very expensive to transport millions of tons of MSW to this empty land. Garbage trucks don’t get good gas mileage, and it’s expensive to transport MSW long distances.

Why not incinerate MSW?

 
Movinggrate[1].jpg
Municipal solid waste during combustion in a moving grate incinerator. Public domain photo by Ole Poulsen via
Wikimedia Commons
The first thing that comes to mind for solving this problem is “Ok, let’s just burn it and then truck the ashes out of town”. There’s one big problem – food waste is wet and is 80% water. The physics of water are unyielding – it’s very expensive to cause water to go from liquid water to water vapor. It costs about $5 per ton of water to heat water to boiling, and another $15 per ton of water to make water go from a liquid to water vapor, so it’s expensive to burn something that’s wet. The paper and plastics in MSW burn nicely, but the wet food waste uses up a lot of the energy you get from burning mixed MSW.

No sane person would buy MSW to make money from burning it – but it is a way to get rid of the MSW, albeit inefficiently. The other problem with burning MSW is that it gives off toxins, and these toxins are costly to scrub. Plastics burn efficiently, but there’s a small fraction of PVC (polyvinyl chloride) which is toxic when burned. MSW also contains batteries, and these give off heavy metals when burned. To solve this, people want incinerators to be located far, far away from where their children play, but then there’s again the problem of the cost of transporting the waste.

So the technical challenge of making biofuels from MSW is to make biofuels in populated areas without creating an environmental nuisance. Germany is a densely populated country and uses either incineration with stringent environmental scrubbing or anaerobic digestion with odor removal equipment and subsequent disposal of the digestate.

Why not make power?

Toronto, Canada has people put their food waste and other organics in blue bags which get picked up every two weeks, get pulped using BTA pulpers, and processed with anaerobic digestion. However, neither incineration nor anaerobic digestion are a way to make a profit – they both run at a loss. Incineration gets rid of MSW, but the money from selling the electricity it produces is less than the cost of doing the incineration and scrubbing the gasses. Toronto pays millions of dollars every year to dispose of their organic wastes with anaerobic digestion. Anaerobic digestion produces 50% methane and 50% carbon dioxide, but it’s expensive to convert this to pure methane. Even if the methane is purified, nobody will pay enough for the methane to pay for cleaning it.

Burning the methane/CO2 mixture can produce electricity, but Canada won’t pay subsidies for this electricity and it’s more expensive to produce this electricity than to make electricity from natural gas.

What about anaerobic digesters?

The next thing that comes to mind is “Ok, let’s incinerate the MSW or use anaerobic digestion, and find a municipality that will pay us enough to make a net profit.”. This is what fueled the solar industry – governments promised subsidies, people bought expensive solar panels, and then then governments stopped the subsidies. Italians, Spaniards, and others have found themselves saddled with years of payments for their solar panels without getting the subsidies promised them. No rational company depends on subsidies for their future profits, since these subsidies can (and do) go away.

So, what’s the solution?

So what’s the solution to profitably making biofuels from MSW? A solution needs to be located in neighborhoods where the existing transfer stations are located. This minimizes transportation costs and re-uses existing waste collection infrastructure. When the wind blows, the smell can’t annoy the neighbors. It has to be profitable without subsidies, since subsidies can (and do) go away. It can’t emit any toxins into the environment – it has to be something that people won’t object to when it’s located near where their children play. It can’t dump dirty water into the sewers – this is expensive.

The physics of water are at the root of a solution – using hot (but not boiling) water to simultaneously kill microorganisms, pulp food waste and pulp waste paper. Microorganisms die when heated in water at 70 C (158 F) for 30 minutes. When the microorganisms die, the waste stops giving off odors. However, heating MSW above 70 C gives off a strong stench (hence the saying “a steaming pile of garbage”). Boiling water is expensive, so a solution needs to heat the MSW to between 70 C and 95 C while concentrating the odors so they can be put through an odor removal system. Food waste softens at 85 C and above (the pectin is loosened) – drop an uncooked potato on the ground and a cooked potato on the ground to see how the former bounces and the latter pulps. Paper forms a pulp when subjected to shear forces, and this is most efficient above 60 C (140 F).

320px-Pulper[1].jpg
Pulper. Public domain photo by Patxi Aguado via
Wikimedia Commons
The most cost-effective way to pulp waste paper is using a drum pulper, similar to the Metso OptiSlush or the Andritz (ADRZF) Fibreflow drum pulpers. A drum pulper is a large rotating drum, usually at least 2.4 m (8 feet) in diameter and at least 20 m (65 feet) long. These are used all over the world to take waste paper, add water, and lift and drop the wet waste paper at more than 10 revolutions per minute. This lifting and dropping causes shear forces that separate the wood fibers from the wet paper. Using a drum pulper, it costs about 10 kWh to pulp a ton of waste paper, which costs about $0.80 per ton of waste paper at $0.08 per kWh.

A drum pulper will also pulp food waste using these same shear forces, if the food waste is first heated to 85 C (185 F). A temperature of 85 C will also kill all the microorganisms in MSW. Heating MSW from 25 C (77 F) to 85 C costs about $5 per ton, and rotating the drum pulper for an hour will cost another $2 per ton. Separating the pulped paper and food waste from the inorganic fraction will cost another $1 per ton (using a trommel screen and a dewatering device).

Our solution for separating carbohydrates from MSW is based on this idea. MSW is pulped with process water in a heated drum pulper at high consistency transforming the food waste and waste paper to a pulp. This pulp contains sugar and starch from food waste and paper fibers from waste paper. A screen with additional process water separates clean recyclables from the pulp. A hydropulper removes sand, grit and glass fragments from the pulp. A dewatering device separates paper fibers from the pulp. The remaining pulp is added to the process water. The process water is treated with alpha-amylase enzymes to convert starch to sugar. The overflow of the process water is a sugar and starch solution that reaches an equilibrium concentration. No water is added in this process and commercially available drum pulpers, screens, hydropulpers and dewatering equipment can be used.

This produces three fractions from the MSW. The clean fraction with plastics, metals, glass and other inorganics can be separated using a materials recycling facility (MRF) to get some value from recyclables. The sugar-water fraction and the paper fiber fraction can be used together to produce ethanol or other products using enzymatic hydrolysis. The remainder after enzymatic hydrolysis can be used as a soil improver since there aren’t any heavy metals in the organic fractions.

Our solution removes the odors from the MSW by suctioning the air from the entry to the drum pulper and treating it with commercially available odor removal equipment. Using a drum to concentrate the odors works better than using a positive pressure in the whole building, since buildings aren’t completely airtight.

Our solution doesn’t shred the MSW. Shredding MSW is noisy, the shredders sometimes explode, and shredding MSW puts heavy metals into the waste stream. If you shred MSW, you can’t use the remaining organics after enzymatic hydrolysis for soil improvement or compost because there are strict limits on heavy metals put back into soil. Food waste pulp and waste paper pulp don’t contain heavy metals – tests have shown heavy metals below the limits of detection.

Water treatment is an under-appreciated requirement. Garbage is dirty, and any time you pour water over garbage, it gets very dirty. You can’t just flush this water into the sewer. World Waste Technologies built a factory in Anaheim in 2006 to extract paper fibers from MSW. They went out of business and sold the factory for scrap because they were producing dirty water that would have cost more to clean than the money they’d make from the paper fibers.

Our solution uses process water that’s refreshed by the 80% water in the food waste. No fresh water is used, and no waste water is treated. The water from the food waste is eventually disposed of with the residual organics as soil improvement or compost.

Running from the bear

The economics of biofuels are complicated, with issues like the blend wall (too much ethanol being produced already for blending with gasoline), RINs, etc.

At the Advanced Biofuels Markets conference last week, Philippe Lavielle of Virdia gave a thought-provoking keynote address about the viability of various feedstocks for making biofuels — but he didn’t mention MSW as a viable feedstock.

For sure, if a company does dumb things like using autoclaves (converting water to steam), producing waste water, burning wet MSW, producing a low-value product like methane, or has an otherwise complex solution full of conveyers and sorting equipment, then they won’t outrun the other guy running from the bear.

Ed Hamrick is investor in and a director of Greenworld Fuels, a waste-to-energy technology company – and can be contacted at edhamrick@gmail.com.  This article was first published at Biofuels Digest, and is reprinted with permission.

October 28, 2012

Solazyme: a 5-Minute Guide

Jim Lane

Solazyme logo.pngYear founded:

2003

Annual Revenues:

$38 billion (DuPont overall for 2011)
$1.2 billon (Industrial Biosciences unit for 2011)

Company description:

Solazyme, Inc. is a renewable oil and bioproducts company that transforms a range of low-cost plant-based sugars into high-value oils. Headquartered in South San Francisco, Solazyme’s renewable products can replace or enhance oils derived from the world’s three existing sources – petroleum, plants and animal fats. Initially, Solazyme is focused on commercializing its products into three target markets: (1) fuels and chemicals, (2) nutrition and (3) skin and personal care.

Stock: NASD: SZYM

Type of Technology(ies):

Solazyme has developed a proprietary biotechnology platform that creates tailored oils to address products across the fuels and chemicals, nutritional, and beauty and personal care markets. Solazyme’s innovative capability to “tailor oils” refers to their ability to produce oil with specific desired chain lengths, saturation and functional branching, providing benefits and functionality beyond those typically available with traditional oils.

Feedstocks:

Solazyme’s unique platform is feedstock flexible. The company is able to utilize a wide variety of plant sugars—including sugarcane-based sucrose, corn-based dextrose, and other biomass sources such as cellulosics —to produce their oils.

Products (e.g. ethanol, biobutanol, biodiesel, renewable diesel, renewable jet fuel, power, organic acids, bioplastics etc)

—         Solajet™: 100% algal-derived renewable jet fuel

—       Solazyme’s 100% algal-derived hydrotreated renewable jet fuel (HRJ-5) meets military specifications

—         SoladieselRD® : 100% algal- derived renewable diesel

—       Solazyme’s 100% algal-derived hydrotreated renewable diesel  (HRF-76) meets military specifications

—         Algenist™, a line of advanced anti-aging skincare products formulated with alguronic acid, sold at 850 Sephora locations throughout the US and Europe and all 26 Canadian Sephora stores. Algenist has been sold on Canada’s only nationally televised shopping service, The Shopping Channel, in addition to QVC in the US, one of the largest multimedia retailers in the world. Algenist is also available throughout the United Kingdom in all 60 retail locations of the innovative beauty retailer, Space NK.

—         Through Solazyme Roquette Nutritionals, our wide platform offers an entirely new category of natural, sustainable, and multifunctional ingredients based on microalgae that help consumers live healthier lives. Our portfolio includes a variety of whole food ingredients that deliver better tasting foods with a vastly superior health profile compared to ingredients in the market today.

Product Cost

-         Solazyme’s lead microalgae strains producing oil for the fuels and chemicals markets have achieved key performance metrics that they believe would allow them to manufacture oils today at a cost below $1,000 per metric ton ($3.44 per gallon or $0.91 per liter) if produced in a built-for-purpose commercial plant.

Offtake partners

Solazyme has entered into non-binding offtake agreements with Dow Chemical and Qantas. Dow Chemical will purchase up to 20 million gallons (76 million liters) of Solazyme’s oils in 2013, rising to up to 60 million gallons (227 million liters) by 2015. Qantas will purchase a minimum of 200 to 400 million liters of Solazyme’s jet fuel per year.

Past Milestones

-         Produced over 283,000 liters of military-spec diesel (HRF-76) for U.S. Navy contract. Further solidifying its relationship with the U.S. Navy, Solazyme has completed production of over 283,000 liters of in-spec marine diesel fuel, HRF-76, for the U.S. Navy, in fulfillment of the first phase of its Defense Logistic Agency (DLA) contract that calls for production of up to 550,000 liters in two phases. The initial fuel production for phase 1 of this contract was completed ahead of schedule and is currently expected to be delivered ahead of the contract delivery date. Additionally, the U.S. Navy has indicated its intent to exercise its phase 2 option and has transferred funding to the DLA, which is set aside exclusively for the phase 2 modification, which is currently being negotiated. The phase 2 fuel would be produced through the first half of 2012. Furthermore, Solazyme’s algal-derived marine diesel has been successfully tested in a United States Navy Riverine Command Boat, and Solazyme’s jet fuel has been successfully tested in a MS 60S Seahawk helicopter demonstration.

-         Signed framework agreement with Bunge Limited for commercial renewable oil plant in Brazil. Both companies have entered into a framework agreement for the formation of a joint venture focused on the production of triglyceride oils in Brazil. The JV will focus on the production of triglyceride oils from sugar cane, and will result in the construction of the first commercial facility dedicated to tailored oils. The plant, which will enable the production of 30 million gallons of triglyceride oils per year, will break ground in 2012 and begin operations in 2013. The facility will be located adjacent to a Bunge owned sugar cane mill in Brazil, and will leverage both Solazyme’s breakthrough sugar-to-oil technology and Bunge’s sugarcane milling and natural oil processing capabilities.

-         Partnered with Dow Chemical for development of Solazyme’s micro algae-derived oils for use in bio-based dialectic insulating fluids. Solazyme and Dow Chemical announced a non-binding agreement for the execution of both a joint development agreement and a letter of intent to advance the development of Solazyme’s algal oils for use in bio-based dialectic insulating fluids. Under the LOI, Dow Chemical will purchase up to 20 million gallons (76 million liters) of Solazyme’s oils in 2013, with the figure rising to up to 60 million gallons (227 million liters) by 2015.

-         Purchase of Peoria, IL facility and commencement of the build-out of Peoria facility including DOE approval of relocation of IBR . Solazyme will shift the location of its integrated biorefinery to its Peoria facility. Solazyme began the build-out of this recently acquired facility, adding fermentation capacity and performing upgrades after completion of the acquisition in May 2011. The fermentation portion of this facility is expected to be operational in the second half of 2011, with end-to-end manufacturing expected in the first half of 2012. Acquiring additional capacity and shifting from toll manufacturing to in-house production represents an important milestone.

Future Milestones

-         In 2012, Solazyme expects to break ground on their first Fuels and Chemicals facility; the facility is slated to come online in 2013

-         In 2012, Solazyme plans to increase their owned capacity to approximately 8.000 metric tons through the expansion of a Peoria facility as well as the completion of their Phase I and II Solazyme Roquette Nutritionals facilities

-         By the end of 2014, Solazyme expects to be approaching its goal of having 550,000 metric tons of production capacity by 2015, which would support over $1 billion in product revenue

Business Model: (e.g. owner-operator, technology licensor, fee-based industry supplier, investor)

-         Partnership model – Solazyme looks for strategic partners in major markets to drive forward development and commercialization.  In addition to funding development work and performing application testing, Solazyme’s expects that their partners will enter into long-term purchase agreements (offtakes) with them. They are currently engaged in development activities with multiple partners, including Chevron, Dow, Ecopetrol, Qantas and Unilever, any of which could represent attractive future offtake opportunities. They expect future partnerships to provide access to distribution, merchandising, sales and marketing, customer relationship management and product development knowledge and resources. In conjunction with these development activities, Solazyme has entered into non-binding letters of intent with Dow and Qantas for the purchase of our products (offtakes). Subject to certain conditions, including entry into a supply agreement, Dow will purchase up to 20 million gallons (76 million liters) of our oils in 2013 rising to up to 60 million gallons (227 million liters) by 2015 and Qantas will purchase a minimum of 200 to 400 million liters of our jet fuel per year.

-         Market entry- Solazyme has developed a sequential market entry strategy as their technology is capable of producing oils for multiple markets. Solazyme’s business strategy has been to enter into high value market as they ramp up production capacity. The flexibility of their technology platform, coupled with the myriad uses of oil gives them a $1.5 trillion dollar addressable market. Initially, they are focused on three large markets: Skin and Personal Care, Nutritionals, and Fuels and Chemicals. They have targeted commercialization in the higher margin Skin Care and Nutritionals segments, while aggressively ramping their planned manufacturing in Fuels and Chemicals.

Competitive Edge(s):

Feedstock and target market flexibility. Solazyme’s technology platform provides them with the flexibility to choose from among multiple feedstocks on the input side and multiple specific products (and markets) on the output side, while using the same standard industrial fermentation equipment. A manufacturing facility utilizing a given plant-based sugar feedstock can produce oils with many different oil compositions. Conversely, Solazyme can produce the same oil compositions by processing a wide variety of plant-based sugar feedstock. This flexibility enables Solazyme to choose the optimal feedstocks for any particular geography, while also enabling us to produce a wide variety of oils from the same manufacturing facility.

Low production cost enables broad market access. The production cost profile Solazyme has already achieved provides attractive margins when utilizing partner and contract manufacturing for the nutrition, and skin and personal care markets in which they are currently selling their products. Based on the technology milestones Solazyme’s have demonstrated, they believe that they can profitably enter the fuels and chemicals markets when they commence production in larger-scale, built-for-purpose commercial manufacturing facilities utilizing sugarcane feedstock.

Tailored oils. Solazyme has created a paradigm that enables the company to design and produce novel tailored oils that cannot be achieved through blending of existing oils alone. These tailored oils offer enhanced value as compared to conventional oils. Their oils are drop-in replacements such that they are compatible with existing production, refining, finishing and distribution infrastructure in all of their target markets.

Technology proven at scale. Solazyme believes that they have produced more non-ethanol, microbial-based fuels and oils than any other company in the advanced biofuels industry. From January 2010 through February 2011, Solazyme produced well over 500,000 liters (455 metric tons) of oil. To satisfy the testing and certification requirements of the US Navy, Solazyme partnered with Honeywell UOP to refine a portion of this oil into over 200,000 liters (182 metric tons) of military specification marine diesel and jet fuel.

Further solidifying its relationship with the U.S. Navy, Solazyme has completed production of over 283,000 liters of in-spec marine diesel fuel, HRF-76, for the U.S. Navy, in fulfillment of the first phase of its Defense Logistic Agency (DLA) contract that calls for production of up to 550,000 liters in two phases. The initial fuel production for phase 1 of this contract was completed ahead of schedule and is currently expected to be delivered ahead of the contract delivery date. Additionally, the U.S. Navy has indicated its intent to exercise its phase 2 option and has transferred funding to the DLA, which is set aside exclusively for the phase 2 modification, which is currently being negotiated. The phase 2 fuel would be produced through the first half of 2012.

Commercial products today. In 2010, we launched our first product, the Golden Chlorella® line of dietary supplements, as a market development initiative, with products incorporating Golden Chlorella® currently being sold at retailers including Whole Foods and GNC. In March 2011, we launched our Algenist™ brand for the luxury skin care market through marketing and distribution arrangements with Sephora International, Sephora USA and QVC. Distribution of our Algenist™ line of skin care products is expected to reach more than 850 retail stores worldwide by year end, including all 26 Canadian Sephora stores. Algenist has been sold on Canada’s only nationally televised shopping service, The Shopping Channel, in addition to QVC in the US, one of the largest multimedia retailers in the world. Algenist is also available throughout the United Kingdom in all 60 retail locations of the innovative beauty retailer, Space NK.

Research, or Manufacturing Partnerships or Alliances.

Solazyme is working with a range of companies and government organizations, including Chevron, the Department of Energy, Department of Defense, Dow Chemical, Bunge, Ecopetrol, Roquette, Sephora, Qantas, Unilever, and the U.S. Navy.

Notably, Solazyme has launched a JV agreement with Roquette (SRN), signed JDA extensions with Chevron, Unilever and Bunge, and entered into offtake agreements with Dow Chemical and Qantas. Solazyme also recently announced a JV agreement with Bunge focused on production of triglyceride oils in Brazil. Additionally, the U.S. Department of Defense (DoD) selected Solazyme to research, develop and demonstrate commercial scale production of algae-derived biofuel, meeting the U.S. Navy’s specifications for military tactical platforms. To date, Solazyme has delivered the largest quantities of non-ethanol, microbial-based fuels and oils in history to the US Navy.

As a result of their R&D, Solazyme has become the only company that has produced and delivered large quantities of microbial derived non-ethanol advanced biofuels that meet industry specifications as well as tough military fuel specifications.

Stage (Bench, pilot, demonstration, commercial):

Commercial

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.

October 13, 2012

Bio-Power Shows Competitive Edge

David Appleyard
 
IRENA, the International Renewable Energy Agency, has published a study on the costs of biomass power generation, concluding that the most competitive projects can generate electricity at a cost as low as US$0.06/kWh.

bigstock-Bio-Power-Plant-With-Storage-O-8861098.jpg
Bio Power Plant With Storage Of Wooden Fuel photo via BigStock
Around the world, large quantities of agricultural and forestry wastes go underutilised and the agency argues that using these wastes as a feedstock to provide power and heat can cost less than electricity from the grid.

According to the study, the total installed cost of biomass power generation technologies varies significantly by technology and country. For example, the total installed costs of stoker boilers were between US$1880 and $4260/kW in 2010, while those of circulating fluidised bed boilers were between $2170 and $4500/kW and anaerobic digester systems of between $2570 and $6100/kW.

Operations and maintenance (O&M) costs can make a significant contribution to the levelised cost of electricity (LCOE) and typically account for between 9% and 20% of the LCOE for biomass power plants, the study finds. However, they can account for a lesser percentage than this in the case of co-firing and greater for plants with extensive fuel preparation, handling and conversion needs. Meanwhile, fixed O&M costs range from 2% of installed costs per year to 7% for most biomass technologies, with variable O&M costs of around $0.005/kWh. Landfill gas systems have much higher fixed O&M costs, which can be between 10% and 20% of initial capital costs per year.

A key finding is that secure, long-term supplies of low-cost, sustainably-sourced feedstocks are critical to the economics of biomass power plants. Feedstock costs can be zero for wastes which would otherwise have disposal costs or that are produced onsite at an industrial installation, for example, black liquor at pulp and paper mills or bagasse at sugar mills. Feedstock costs may be modest where agricultural residues can be collected and transported over short distances.

However, citing the trade in wood chips and pellets, the authors note that feedstock costs can be high where significant transport distances are involved due to the low energy density of biomass. The IRENA analysis covers feedstock costs of between $10/tonne for low cost residues to $160/tonne for internationally-traded pellets.

Reducing Costs

Potential for cost reductions in biomass power generation equipment is complicated by the range of technologies available, from the mature to those still at the pilot or R&D stage, and by the often significant variations in local technology solutions, the IRENA analysis states.

Many biomass generation technologies are mature and are not likely to undergo significant technological change, while cost reductions through scale-up will be modest. However, for the less mature technologies, significant cost reductions are likely as commercial experience is gained.

Gasification technologies using wood or waste wood as feedstock may achieve capital cost reductions of 22% by 2020, while those for stoker/BFB/CFB direct combustion technologies will be more modest at between 12% and 16%. By 2015 cost reductions for BFB and CFB gasification technologies could be in the order of 5% to 11%, while for direct combustion cost reductions they may be 0% to 5%. anaerobic digester (AD) technologies could benefit from greater commercialisation, and cost cuts of 17% to 19% might be possible by 2020, with cost reductions of 5% to 8% by 2015.

However, the authors conclude that combustion technologies are well-established and are generally bankable if the project economics are solid. Gasification with low gas energy content and internal combustion engines are an established niche technology in India, but shifting from these simple gasifiers to ones with greater efficiency, using oxygen as a reactive agent, gas clean-up and gas turbines to scale-up this technology to larger power plants still requires more demonstration, especially because it requires expensive gas clean-up, which is currently the main focus of gasification technology improvements. In AD systems, the main technological development needed is linked to the digesters (as better control of the process: enzymes, pH, temperature) and pre-combustion gas clean-up.

According to IRENA, the main question regarding the viability of biomass power plants lies in the development of a reliable feedstock supply chain, especially because long-term feedstock agreements are essential for financing any biomass project. Predicting biomass cost reduction potentials is challenging because many factors are involved, such as the supply chain, resource potential, sustainability criteria and so forth.

Research into cost saving processes is currently underway. For example, it has been shown that denser fuel pellets can offer LCOE savings, but the drawback is that often the pelletisation process results in significant feedstock loss and increased cost. At the same time, the storage and transportation costs of denser pellets are significantly lower than other options, such as baling. Efforts to integrate biomass with traditional agriculture, for example through the use of crop rotation and agricultural intensification, may lead to yield increases and price reductions, the report continues. Sustainable harvesting techniques, such as one-pass harvesting, can reduce harvest site fuel consumption significantly. Further, developing synergies between harvest and transport, for example by using self-compacting wagons for both harvesting and transportation, may also provide cost savings, they add.

Analysis of the potential for biomass feedstock cost reductions for the European market to 2020 suggests that cost reductions of 2% to 25% could be achieved, although average cost reductions for energy crops by 2015 are difficult to estimate. It is assumed that dedicated energy crops will be 5%-10% cheaper as the result of harvesting and logistic improvements by 2015. Trends for forestry and agricultural residue prices and costs are more uncertain due to the complex balance of positive and negative effects.

Competitive Impact

The economics of biomass power generation are critically dependent upon the availability of a secure, long-term supply of feedstock at a competitive cost.

Observing that feedstock costs can represent 40% to 50% of the total cost of electricity produced, the authors note that the lowest cost feedstock is typically agricultural residues. For forestry, the cost is dominated by the collection and transportation costs. The low energy density of biomass feedstocks tends to limit the economical transport distance from a biomass power plant. This can place a limit on the scale of the plant, meaning that biomass struggles to take advantage of economies of scale.

The prices of pellets and woodchips are quoted regularly in Europe by ENDEX and PIX for delivery to Rotterdam or North/Baltic Sea ports and do not include inland transport to other areas.

Prices for biomass sourced and consumed locally are difficult to obtain. Prices paid will depend on the energy content of the fuel, its moisture content and other properties that will impact the costs of handling or processing, the document notes.

Dedicated energy crop availability is strongly related to cost, representing the important impact that the best crop, land and climate conditions can have on feedstock costs.

Other important cost considerations for biomass feedstocks include the preparation the biomass requires before it can be used. Analysis suggests that there are significant economies of scale in biomass feedstock preparation and handling. The capital costs for preparation and handling can represent around 6% to 20% of total investment costs. Assuming a heat value of forest residue with 35% moisture content to be 11500 kJ/kg, the handling capital costs could therefore range from a low of $772/GJ/day to as high as $2522/GJ/day.

In Europe, the analysis identified feedstock costs of between $5.2 and $8.2/GJ for European sourced woodchips. Local agricultural residues were estimated to cost $4.8 to $6.0/GJ. Imported pellets from North America are competitive with European wood chips if they must be transported from Scandinavia.

Prices for feedstocks in developing countries are available but relatively limited, the report notes. In the case of Brazil, the price of bagasse varies significantly, depending on the harvest period. It can range from zero to $27/tonne with the average price being around $11/tonne, where a market exists.

In India, the price for bagasse is around $12 to $14/tonne, and the price of rice husks is around $22/tonne. Multiple biomass resources are available, as rice straw, rice husks, bagasse, wood waste, wood, wild bushes and paper mill waste.

Levelised Costs

The range of biomass-fired power generation technologies and feedstock costs result in a large range for the LCOE of biomass-fired power generation. Even for individual technologies, the range can be wide as different configurations, feedstocks, fuel handling and, in the case of gasification, gas clean-up requirements can lead to very different installed costs and efficiencies for a technology.

Assuming a cost of capital of 10%, the LCOE of biomass-fired electricity generation ranges from a low of $0.06/kWh to a high of $0.29/kWh, IRENA states.

Where capital costs are low and low-cost feedstocks are available, bioenergy can provide competitively priced, dispatchable electricity generation. However, with higher capital costs and more expensive fuel costs, power generation from bioenergy is not likely to be able to compete with incumbent technologies without support policies in place. Many of the low-cost opportunities to develop bioenergy-fired power plants will therefore be in taking advantage of forestry or agricultural residues and wastes where low-cost feedstocks and sometimes handling facilities are available. The development of competitive supply chains for feedstocks is therefore very important in making bioenergy generation competitive.

When low-cost stoker boilers are available and fuel costs are low stoker boilers producing steam to power a steam turbine offer competitive electricity at as low as $0.062/kWh. However, where capital costs are high and only imported pellets are available to fire the boiler, the LCOE can be as high as $0.21/kWh.

Combustion in BFB and CFB boilers has a slightly higher LCOE range than stoker boilers due to their higher capital costs.

The LCOE range for gasifiers is very wide, in part due to the range of feedstock costs, but also due to the fact that fixed bed gasifiers are a more proven technology that is cheaper than CFB or BFB gasifiers.

The LCOE for gasifiers ranges from $0.065/kWh for a fixed bed gasifier with low-cost bioenergy fuel to $0.24/kWh for a small-scale gasifier with an internal combustion engine would be suitable for off-grid applications or mini-grids. However, although this is expensive compared to grid-scale options, it is more competitive than a diesel-fired solution.

CHP systems are substantially more expensive but they have higher overall efficiencies, and the sale of heat produced can make CHP very attractive, particularly in the agricultural, forestry and pulp and paper industries; where low-cost feedstocks and process heat needs are located together. The LCOE of stoker CHP systems ranges from $0.072 to $0.29/kWh, including the impact of the credit for heat production. Gasifier CHP systems have a higher but narrower range from $0.12 to $0.28/kWh due to their higher capital costs.

Landfill gas, anaerobic digesters and co-firing have narrower cost ranges. For landfill gas, this is due to the narrow capital cost range and the fact that this also determines the fuel cost. For anaerobic digestion, the capital cost range is relatively narrow, but the feedstock can vary from free for manure or sewage up to $40/tonne for energy crops for digestion. For co-firing, the incremental LCOE cost is as low $0.044 and $0.13/kWh.

Cost of Biomass

According to the IRENA analysis, the LCOE of biomass-fired power plants ranges from $0.06 to $0.29/kWh, depending on capital and feedstock costs. Where low-cost feedstocks – such as agricultural or forestry residues and wastes – are available and capital costs are modest, biomass can be a very competitive power generation option.

Even where feedstocks are more expensive, the LCOE range for biomass is still more competitive than for diesel-fired generation, making biomass an ideal solution for off-grid or mini-grid electricity supply, the report concludes.

The document adds that many biomass power generation options are mature, commercially-available technologies, for example direct combustion, co-firing, anaerobic digestion and municipal solid waste incineration. While others, such as atmospheric biomass gasification and pyrolysis, are less mature and only at the beginning of their deployment, still others are only at the demonstration or R&D phases, for instance integrated gasification combined cycle, bio-refineries and bio-hydrogen.

The potential for cost reductions is therefore very heterogeneous. Only marginal cost reductions are anticipated in the short term, but the long-term potential from the technologies not yet widely deployed is good.

David Appleyard is Chief Editor of Renewable Energy World. He also currently holds the position of Chief Editor for sister publication Hydro Review Worldwide. A journalist and photographer, he graduated with a degree in Applied Environmental Science.

September 01, 2012

Ag Goddess Smiles Favorably on Ceres, Investors Frown

by Debra Fiakas CFA

Recently, in compiling our lists of remarkable small-cap stock trades, I was surprised to find the shares of Ceres, Inc. (CERE:  Nasdaq) among stocks setting new 52-week lows.  Ceres has only been trading since its initial public offering in February 2012, when the company sold 5.0 million shares at $13.00 per share.  After a brief trade higher in the early spring, Ceres shares have been steadily losing ground, finally setting an all-time low of $6.02 last week.

Named after the Greek Goddess of Agriculture, Ceres is a self-styled energy crop producer.  Ceres has developed proprietary seeds for sweet sorghum and switchgrass to be used as feedstock for ethanol production.  Ceres seeds are genetically modified to produce crops that require less water and fertilizer and are tolerant of higher salt levels in soil.  Higher yields and consistent availability lead to improved economics for large-scale ethanol production.

A big part of Cere’s IPO pitch was the market opportunity in Brazil where ethanol production is highly dependent upon seasonal production of sugarcane.  Sweet sorghum is compatible with existing equipment and helps fill in the gap between sugarcane crops.  Ceres worked with a joint venture led by Petrobras in a commercial planting of sorghum that for all practical purposes was successful. 

The Greek Goddess has other reasons to smile on Ceres.  Amyris (AMRS:  Nasdaq) used Cere’s sorghum syrup in its proprietary yeast fermentation system to produce Amyris’ farnesene, an oil used in producing diesel.  Amyris had been widely reported as exiting biofuels to concentrate chemical know-how in the cosmetics sector.  However, in July 2012, Amyris announced a revision of its collaboration with Total, Gas and Power, SA (TOT:  NYSE) to carry the renewable farnesene torch forward.  Total agreed to give Amyris $30 million this year to continue a research and development program.  The verdict is still out on whether the developments at Amyris will make a difference for Ceres.

 With the U.S. corn crop severely reduced by drought this year, ethanol producers may look at sorghum with greater interest.  Sorghum fields are still in relatively good condition this year, demonstrating the plant’s hardiness.  The problem is that farmers do not find sorghum an attractive crop.  Unlike corn, which has many uses, there are few buyers for sorghum.  Thus promoting sorghum in the U.S. probably means a collaboration like that in Brazil with a crop sponsored by an ethanol producer.

  Even if investors have lost confidence in Ceres to make sorghum a favored ethanol feedstock, the Company has plenty of capital to keep trying.  At the end of May 2012, Ceres had $67.7 million in cash on its balance sheet, just a bit more than the $65.2 million it raised in its 2012 IPO.  In the last twelve months Ceres used $25 million of its cash to support operations and continued development work on new seeds.  Even if the company makes no attempt to curtail spending, I estimate Ceres has a big enough nest egg to keep trying to another two years.

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.  CERE is included in the Cellulosic Ethanol group of Crystal Equity Research’s Beach Boys Index.

August 27, 2012

Don’t Let Waste Go to Waste

Marc Gunther

trash canReduce. Reuse. Recycle.

It sounds simple. It’s not.

Just ask Bill Caesar, who runs the recycling and organic growth units of Waste Management (WM), America’s biggest trash company, which has $13.3 billion in revenues last year.

It’s hard to get many cities and towns to embrace recycling.

It’s hard to get homeowners to figure out which plastics go into which bin.

It’s expensive to build out the infrastructure needed to separate materials, and ship them to customers.

And now, to make matters worse, the prices that buyers are willing to pay for cardboard, used paper, metals and plastics have fallen, on average, by about a third. A ton of solid waste used to yield about $150 in recycling revenues, more or less. Today, it’s closer to $100. Here’s a chart.

“The commodities are global in nature,” Bill told me the other day. “When the French stop buying things, the Chinese stop making things, and when that happens, they need fewer boxes and the price of recovered paper in the US falls.”

Who would have thought that the EU’s troubles would slow progress towards zero waste?

Bill and I met this week to after he spoke at Wastecon, the big convention organized by SWANA in the Gaylord National Resort and Convention Center outside Washington, where I cam across the recycling robot, above. (Of course you know SWANA as the Solid Waste Association of North America. Some time ago, garbage became solid waste and the city dump turned into a sanitary landfill.) Waste Management still takes most of the garbage municipal solid waste that it collects to dumps sanitary landfills–it owns more than 250 active landfills–but Bill’s job is keep stuff out of the ground. His unit looks for ways to extract more value from waste, either by recycling, or composting organic waste, or turning waste into energy.

This is a big deal, and big shift for the company.  [See my 2010 FORTUNE story Waste Management's New Direction.] Dave Steiner, the company’s CEO, likes to say: “Picking up and disposing of people’s waste is not going to be the way this company survives long term. Our opportunities all arise from the sustainability movement.”

Still, the shift is happening slowly. Waste Management recycled about 10 million tons of materials in 201o, its latest sustainability report says, up from 8.5 million in 2009. Still, well over half of the garbage collected by Waste Management–about 70%, Bill estimates–still goes to landfill. The company’s goal is to recycle 20 million tons a year.

Today’s low commodity prices won’t change Waste Management’s core strategy, which is to extract as much value from the waste stream as possible, Bill says. Commodity prices will rise again. Commercial and residential customers want the company to recycle. Energy prices are likely to go up, so the company’s bet on waste-to-energy technologies should pay off.

Bill Caesar
Bill Caesar


“The long term trends are good,” Bill says. “We’re continuing to build facilities. We’re not going anywhere.”

Waste Management’s investment strategy, which he oversees, focuses on smaller companies that can help recover energy or materials from waste. It has a portfolio of more than two dozen acquisitions, joint ventures or project investments, some of which will surely fail.

“It’s advantageous to us to invest in a series of companies at small scale because we don’t know what’s going to work,” Bill says. “Our intention is to learn, and once believe there is something there, be in a position to commercialize those offerings.”

For example, Waste Management owns a stake in a Harvest Power, a Massachusetts-based company that processes organic waste (food, yard waste, etc.) to make  renewable energy and soil, mulch and organic fertilizer. It’s also an investor in Agilyx, which takes difficult-to-recycle waste plastics and turns them into crude oil, essentially reclaiming the hydrocarbons used to make the plastic. Other companies in which Waste Management has invested include Enerkem, whose technology converts waste into ethanol and renewable chemicals, and Fulcrum BioEnergy, which turns household garbage into transportation fuels.

While these are all young companies that still need to prove themselves, what’s striking is how much innovation is going on in garbage industry. Wisely, Waste Management has decided that rather than stick with its old model of taking waste to the landfill, and risk being challenged by others, it is seeking to disrupt itself.

Bill told me that’s why he was excited to join the company. He was hired in 2010 as chief strategy officer, after more than a decade as a consultant at McKinsey & Co. Before that, and before business school at Duke, he worked for the CIA and the state department as a Russian specialist and spent a year in St. Petersburg after the collapse of the former Soviet Union. So he knows that big changes can happen, and they create opportunities.

“This industry is at an inflection point,” he says, “and that doesn’t happen very often.”



DISCLOSURE: I was paid to moderate a sustainability event for Waste Management last February.


Marc Gunther writer for Fortune, GreenBiz and Sustainable Business Forum co-chair, Fortune Brainstorm Green 2012 and a blogger at www.marcgunther.com.  His book, Suck It Up: How capturing carbon from the air can help solve the climate crisis, has been published as an Amazon Kindle Single. You can buy it here for $1.99.

April 26, 2012

Covanta Tackles the Biofuel Front-End

Jim Lane

Making good, affordable syngas from municipal solid waste to unlock 9 billion gallons of low-cost covantalogo.pngfuel? Covanta’s (CVA) hot new gasification technology makes a big dent in the big challenge.

Just after mealtimes, in the hours after mail delivery, and occasionally when the world’s youth resolve certain unhygienic conditions prevalent in the science experiments known as teenage rooms, we as a species make that materials-or-waste decision known as tossing the garbage.

The MSW opportunity

Here in the US, “Americans generate about 4.3 pounds of municipal solid waste per person per day, or 260 million tons per year nationwide, of which a little over 130 million tons is biogenic” according to Auburn University professor David Bransby. At biofuels conversion rates of 70 gallons per ton, that represents just north of 9 billion gallons of cellulosic biofuels from it every year.

So, why is there not a rush to embrace technologies such as Enerkem, Terrabon, Coskata, Fulcrum Bioenergy or others that convert MSW into liquid fuels?

After all, the sins of waste generally condemn us, if you take Dante’s The Divine Comedy as your guide to the afterlife, to the third circle of Hell. There gluttons and sloths, with their sins of waste, are “forced to lie in a vile slush produced by ceaseless foul, icy rain.” Sounds remarkably like a gig working in an outdoor, dirty Murf (materials recovery facility, where people sort the trash by hand) on a remote island north of the Shetland Islands.

Rough job in the afterlife, eh? So, why are we not more focused on deploying those hot technologies that can save us from a bad fate here on Earth and, apparently, much worse in the hereafter?

The Syngas challenge

The bumps in the road are three. One, the technology is expensive over the generally small radius in which MSW can be profitably aggregated. Two, the technologies themselves are just reaching commercial demonstration scale. Three, they all could use a more affordable stream of optimized syngas.

Generally speaking, enzymatic technologies do not work well with MSW because of the variable mix of waste – basically, there could be anything in there, and magic bugs can be finicky.

So, one of the generally common features of the new generation of technologies coming forward is a front end gasification system. The gasifier produces what is known as a synthesis gas, composed of hydrogen and carbon monoxide, which is what you get when you heat up the biomass at temperatures of between 400 and 1500 degrees under optimal pressure conditions.

Syngas, as its commonly known, can be fermented into biofuels by magic microorganisms (such as the case with Coskata, INEOS Bio) or via catalytic technologies (as in the case of Enerkem, Terrabon or Fulcrum).

But that front end problem – getting the right syngas at the right price. Well, that’s been an area where a lot of companies have been working.

A leap forward from Covanta

Which is why it is big news this week that Covanta Energy Corporation (CVA) announced at the North American Waste-to-Energy Conference that it has completed commercial demonstration testing on its 300 ton per day modular system, called CLEERGAS (Covanta Low Emissions Energy Recovery Gasification).  The technology has demonstrated the ability to gasify unprocessed post-recycled municipal solid waste (MSW) in a commercial setting, while reducing emissions and increasing energy efficiency.

Covanta’s gasification unit has been processing 350 tons per day of post-recycled municipal solid waste and has demonstrated superior reliability at 95+% availability. Municipal solid waste, which does not have to be pretreated, is subjected to high temperatures and reduced air on the gasification platform, where it undergoes a chemical reaction that creates a synthesis gas, or syngas.  The syngas is then combusted and processed through an established energy recovery system, followed by a state-of-the-art emissions control system.

“We are always working to stay on the cutting edge of technology to convert waste into clean energy,” said Anthony J. Orlando, Covanta’s president and chief executive officer.  “This new gasification technology is truly exciting. Communities interested in emerging technologies can now partner with Covanta’s industry leading team to assure successful project execution.”

“Successfully completing this commercial demonstration was a major step in developing new facilities capable of gasifying unprocessed post-recycled municipal waste,” said John Klett, executive vice president and chief technology officer. “Moving forward, our research and development efforts will continue to improve the syngas quality created in the gasification process.  One day, we anticipate this syngas will be utilized as a fuel in a combined cycle facility and potentially, in the production of liquid fuel.”

The Bottom Line

Now, Covanta’s technology works with post-recycled MSW, which means there is some processing that goes along with the technology. Well, sure, all bio-based technologies need to separate out the refrigerators and the plastics from the biogenic waste. Note that Covanta says that their system does not require pretreatment. That’s interesting. What that means in a commercial setting will be figured out over time.

Syngas, keep an eye on it. We have found more profitable, breakthrough ways to use it, than make it. We will see, over time, the extent to which Covanta has solved “the front end problem” – but the fact that they are releasing a 350-ton per day front end technology, well, that unit should support around 9 million gallons of renewable fuel. String together a couple of them, and you have a very nice size syngas platform for the new fermentation and catalytic technologies coming forward.

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.

March 20, 2012

Ceres, Inc.: Taming, Mapping, and Enhancing Genomes for Bioenergy

Jim Lane

Cereslgo[1].jpgNewly-public Ceres (CERE) makes major breakthrough on miscanthus; is the gigantic energy grass ready for prime-time? Why is miscanthus driving so much attention, yet deserving more?

In California, followers of NASDAQ prices noted yesterday that shares in the newly-public Ceres (CERE) rocketed up 15 percent to close at $17.52. What happened? It was revealed yesterday, in the peer-reviewed, online journal PLoS One that Ceres and the Institute of Biological, Environmental and Rural Sciences (IBERS) at Aberystwyth University in Wales have completed the first high-resolution, comprehensive genetic map of miscanthus. The full article is here.

In other crops, this type of comprehensive genetic mapping has significantly shortened product development timelines. Hence, the lift in the stock.

Proving that money is not, as it turns out, the root of all evil. Apparently, it can drive the attention of NASDAQ investors away from the dramatics of The Kardashians or NCAA basketball and towards the frontiers of science, in ways that ruler-slapping, ninth-grade biology teachers can only dream of.

The breakthrough in miscanthus

As published in the journal article, Ceres researchers mapped all 19 chromosomes of miscanthus, a towering cane-like grass that can be used as a feedstock for advanced biofuels, bio-based products and power generation. The multi-year project involved generation and analysis of more than 400 million DNA sequences creating a blueprint of the genetic alphabet of the plant.

Among the massive volumes of data, researchers found 20,000 genetic differences, called markers, that allow geneticists to differentiate individual plants based on small variations in their DNA.

More than 3,500 of these markers were used to create the genetic map, and are valuable for crop improvement purposes. In contrast, previously announced mapping projects discovered only about 600 markers and did not fully characterize the structure of all the miscanthus chromosomes, a necessary step in establishing a high-tech plant breeding program. Previously, most miscanthus research had been focused on field trials, and little was known about its genetics.

A little more about miscanthus giganteus

220px-Miscanthus_giganteus[1].jpg
Miscanthus giganteus.  Photo: Pat Schmitz, via Wikipedia Commons
  Ceres is not the only company pursuing miscanthus. Mendel has developed high-performing elite varieties of Miscanthus that are competitive in yield with the public varieties but which can be propagated and scaled much more efficiently.  That is, propagated from seed instead of cuttings.

Mendel has just embarked on a 4-year trial of miscanthus, in partnership with BP, with a goal of making that a key feedstock for BP’s cellulosic ethanol expansion in the US and elsewhere.

Targets for improvement? Yield, stress tolerance (including water, salt or nutrient or pathogen), control of plant shape and form, flowering time, bulk-up rate for rapid planting and propagation.  More on Mendel’s pioneering work, here.

Of wolves and fishmatoes

The progress is miscanthus reminds us that, in bioenergy, we are rapidly progressing beyond the hunter-gatherer era, in which investors, scientists, touts and policymakers hurtled between one wild wolf of a next-gen feedstock and another – once there was wild jatropha, then wild algae, then wild switchgrass, then wild king grass – “aha, this is the wonder feedstock!…no this one is!…no, this one is.”

Many of them were promoted as domesticated puppies when they were, it turns out, wild wolves that we did not understand at all well as agriculturalists.

Most of them have come under domestication programs, which starts with hybridization, using Mendelan cross-breeding principles. It works, but it can be slow – it has taken eighty years to boost US corn yields from 30 to 160 bushels per acre through hybridization, and the introduction of transgenic traits such as pesticide or herbicide resistance.
Ceres Switchgrass.png
Ceres CEO Richard Hamilton (right) and Dr. Richard Flavell, chief scientific officer, evaluate improved switchgrass.  Image source: Ceres

Beyond hybridization, there are three basic methods of improvement. There is the exploration of the opportunities within the existing genome – for every organism has genes that are currently not expressed (to use an easily understood example, the genes that produce eye color), and switching existing genes on and off to discover the optimal combinations, that’s the basic level of genetic improvement.

Then, there is the field of activity generally known as directed evolution. Here, scientists mutate genes at random, those mutations are screened for valuable properties, and genetic winners in each round of evolution are then themselves put through further rounds of variation. Now, Nature herself produces variation by this method, so consider it a sped-up, industrialized version of a natural process.

The last and most controversial activity is actively moving genetic material from one organism to another in ways that are unlike the processes of Nature. For example, there was an effort to make tomatoes more resistant to cold by inserting genes from a cold-resistant fish – making a fishmato (which in every other way basically looks and tastes like a tomato, but underneath the hood, so to speak, its a fishmato. And, parenthetically, offering some sort of ethical challenge to vegans.

The Bottom Line

No matter the genetic approach a scientific team is taking, time is the enemy. Time stretches out the ROI until the rate falls below the risk threshold that justifies investment. Or simply kills patience, or exposes R&D to the possibility of being overwhelmed by competing discoveries. The cardinal principle of the Western film is that the cavalry must arrive in time to save the settlers.

The best-known general accelerator of genetic improvement? Genetic mapping. Once you see the genome in all its diversity, and mark the areas of interest – crop improvement can come at accelerated rates. Hence the excitement over the news from Ceres and IBERS.

Miscanthus, as we know, is a crop whose fans seem to grow even faster than the skyscraper-like grass itself. Extravagant test yields in the 25 ton per acre range have been reported by, for example, Repreve Renewables, using a varietal known as Freedom originally developed at Mississippi State.

With yields in those ranges, 2500-3300 gallon per acre yields are possible with terrestrial crops, yields that today can only be accomplished with that aquatic micro-wolf, micro-algae.

Are those numbers real? For the test plots, no reason to doubt the data. But grown at scale, exposed to pests and sub-optimal conditions in large-scale monocultures? Hmmm.

But the opportunities in, say, miscanthus, improve mightily when a genetic map is at hand.

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.

December 11, 2011

PetroAlgae’s IPO: The 10-Minute Version

Jim Lane

Can PetroAlgae find a market for its feed among the aficionados of alfalfa and fishmeal, with fuels on the side?

In its recent IPO revision, it says “sure can”.

04[1].jpg
In Florida, PetroAlgae (PALG.PK) has filed a massive revision to its S-1 registration for a proposed initial public offering.

The company is currently ranked #55th in the world among the Hottest Companies in Bioenergy. The rankings recognize innovation and achievement in fuels and are based on votes from a panel of invited international selectors, and votes from Digest subscribers.

PetroAlgae, which in the year to date has lost $19.05M while recording no revenues, is one of 13 companies that have filed for an IPO in the industrial biotech boom, which began with a successful listing on the NASDAQ by Codexis (CDXS) in 2010. IPOs by Amyris (AMRS), Gevo (GEVO), Solazyme (SZYM), and KiOR (KIOR) have followed. In recent months, Bioamber, Myriant, Ceres, Genomatica, Mascoma and Elevance Renewable Sciences and Fulcrum Bioenergy have also filed S-1 registrations for proposed IPOs.

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

Company Overview

From the S-1: “We provide renewable technology and solutions to address the global demand for new economical sources of feed, food and fuel.

Our objective is to be the leading global provider of technology and processes for the commercial production of micro-crop biomass. We have developed proprietary technology, which we believe will allow our customer licensees to grow aquatic micro-crops at accelerated rates for conversion into products for both agriculture and energy markets. Our strategy is to license and provide management support for micro-crop production facilities in equatorial regions around the world…We intend to generate revenue from licensing fees and royalties primarily from customer licensees.”

The Model

From the company’s most recent 8-K: “On October 25, 2011, PA LLC entered into an amended and restated license agreement with AIQ…The Agreement provides for three separate phases: the Preliminary Phase, Phase I and Phase II.

“In the Preliminary Phase, AIQ will construct and operate a pilot-scale bioreactor of 0.75 hectares to test and demonstrate the growth and harvesting aspects of the Company’s technology. If the parties agree that the Preliminary Phase has been operated successfully, the Company and AIQ will proceed to Phase I, during which the first commercial-scale unit increment of 150 hectares…The Company has agreed to construct the 150 hectare commercial growth unit on a turnkey basis. In Phase II, AIQ will continue to expand the project in 150 hectare unit increments, including growth, harvesting and processing modules, until the facility forms a unit of up to 5,000 hectares. …The Company will receive a royalty on net sales of the products generated from every unit and unit increment during the 20-year term of the license.”

The Costs

From the S-1: “The estimated capital expenditure for a 150 hectare facility as an entry point is $12 million (excluding the cost of land and improvements)—a model that we believe involves manageable costs, risks and build-out times…Due to economies of scale, we believe that a 600 hectare unit would deliver an attractive internal rate of return on our customer licensees’ investment. Ultimately, we expect that our customer licensees will expand their facilities in 150 hectare increments at similar costs in order to complete facilities of up to 5,000 hectares. Depending on economies of scale, we expect that the capital expenditure for a 5,000 hectare facility will be approximately $375 million (excluding the cost of land and improvements).”

The Technology

From the S-1: “Our proprietary technology uses indigenous micro-crops that are not genetically modified and demonstrate an optimal growth profile for a particular geography and environment. These micro-crops will then be grown, harvested and processed in a manner that we believe will optimize the production of our micro-crop biomass, which our customer licensees can use to produce three products.

Our technology platform primarily consists of four components: micro-crop selection and testing, growth and harvesting techniques, processing technology, and control systems….we have developed a scalable and flexible model based on micro-crop growth units of 150 hectare increments.”

The ProductsAlgae Harvest

From the S-1:

Lemna Protein Concentrate, or LPC: LPC is a free-flowing powder containing a minimum 65% crude protein. We expect that our customer licensees will manufacture LPC for use in both animal and, potentially, human markets. Based on internal and third-party testing, we believe that LPC is similar in quality to fish meal. We believe that LPC can also be used as an alternative to kelp meal in fertilizer applications. Based on research conducted by the University of Idaho, we believe that LPC is strongly positioned as a fish meal alternative due to its nutritive qualities.

Lemna Meal, or LM: LM is a carbohydrate-rich free-flowing powder containing a minimum 15% crude protein. We expect that our customer licensees will manufacture LM for use in animal feed markets. We also believe that LM could be used in fertilizer and animal bedding applications. Trials conducted by the University of Minnesota demonstrated that LM is a high quality alternative for alfalfa meal in diets for dairy cattle. Third-party testing is continuing with other animals that are customarily fed alfalfa, such as swine and horses.

Biocrude: With a small change in process parameters (but not equipment), our processing system can produce Biocrude rather than LM. Biocrude is a renewable energy feedstock that, through the use of a variety of third-party conversion systems currently under development, could potentially be converted into renewable fuels.

Fortification of Basic Human Food Products: We believe that LPC can eventually serve the global market for fortification of basic food ingredients for malnourished populations, particularly in developing and emerging countries. In the long term, we believe we can develop a higher protein content product from lemna using alternative separation techniques.
The Market

From the S-1:

Fish Meal: Fish meal, most of which is produced by the commercial fishing of wild schools of small fish, is a critical ingredient in the diets of nursery animals and aquaculture stocks. Global fish meal demand for aquafeed is expected to reach approximately 7 million metric tonnes in 2012 and to rise every year thereafter to approximately 16 million metric tonnes in 2020, a rate which is expected to significantly outpace supply.

Alfalfa meal: Alfalfa meal is a premium forage ingredient, used to meet nutrition and growth requirements in numerous animal diets. For dairy and swine alone, the global demand for alfalfa meal will be approximately 254 million metric tonnes in 2012, rising every year thereafter to approximately 262 million metric tonnes in 2020.

The Strategy

From the S-1:

1. Rapid deployment and support of modular and highly scalable license units.
2. Leveraging our capital-light licensing model.
3. Expansion of our customer base on a global scale.
4. Further development of our technology and pursuit of additional applications for our products.
5. Assisting our customer licensees in the identification of off-take partners.
6. Creation of brand loyalty.

The Risks, Translated from SEC-speak

Among the lowlights of reading S-1 registrations are the endless pages of risk disclosures couched in an alloy of SECspeak and legalese. We offer these excerpts from the original S-1, and a translation into English, prepared by our Digest lexicologists.

In SECSpeak: We are a development stage company. As a result, we have no significant history of revenues, operating or net income, cash flows or the other financial performance metrics that will affect the future market price of our common stock.

In English: Drats! Since 2006, that kiddie lemonade stand down the road has consistently outsold us.

In SECSpeak: We expect that some of the contracts with our initial early-adopter customer licensees will provide for the build-out of a turnkey license unit of 150 hectares after the successful completion of the testing phase of our technology…Because our customer licensees’ payments will be capped, we will bear the responsibility for construction costs in excess of those anticipated, which could cause us to suffer significant losses on these license units.

In English: We get to write the check if any of these projects turn into a money pit. Using, er, your money.

In SECSpeak: Our initial contracts are or will be subject to significant conditionality, including that the pilot-scale facilities built by our customer licensees achieve certain minimum levels of projected investment return, and the failure to meet these conditions may lead to the termination of these contracts.

In English: Our little lemna may not go forth and multiply at exactly the rate at which we need them to.

In SECSpeak: Although we have successfully built a fully operational demonstration facility (approximately one hectare) and have extracted small field-scale quantities of LPC, LM and Biocrude for technical validation, we have not demonstrated that our technology is viable on a commercial scale, which we define to mean an operation consisting of at least 150 hectares.

In English: Your backyard may be larger than our current global acreage.

In SECSpeak: Market acceptance of our LPC and LM will be a function, among others, of digestibility and palatability (the assessment of which will require additional laboratory and field study). Should these studies not proceed favorably, the market for our LPC and LM may not materialize or could be materially diminished.

In English:

Scenes from PetroAlgae Heaven, or, Why Mikey the Little Bull better like it.

Scene: A breakfast table in a tropical pastureland. Three calves encounter a box of LemnaMeal.

Calf #1: What’s this stuff?
Calf #2: Something called lemna. It’s supposed to be good for you.
Calf #1: Did you try it?
Calf #2: I’m not gonna try it. You try it.
Calf #1: I’m not going to try it.
Calf #2: Let’s get Mikey to try it. He hates everything.
Calf #1: Yeah, he hates everything.
(Mikey the Little Bull munches, ruminates, smiles in a bull-ish sort of way, then begins consuming lemna meal vigorously)
Cow #2: He likes it! Mikey likes it!
Voiceover: If you love LemnaMeal just like Mikey the Little Bull, have we got an alfalfa alternative and a hot IPO stock for you.

In SECSpeak: Patents are a key element of our intellectual property strategy. We have currently filed patent applications for six families of technologies, both in the United States and in foreign jurisdictions…Our patent applications are in the early stages and we have not received substantive feedback from relevant patent offices regarding the viability of our patent applications.

In English: Our technological advantage may, in the future, be freely downloadable from the internet.

In SECSpeak: Most of our planned production capacity will be in equatorial regions around the world, which will limit the number of prospective customer licensees willing to license our technology, and our business will be adversely affected if we do not operate effectively in those regions…operations of our customer licensees generally should be within approximately 15 degrees of latitude from the equator for optimal performance.

In English: Our showcase customer prospect, AIQ, operating in a country located between the 17th and 56th parallels, may not have received the information about 15th parallel viability in exactly the same manner as you have.

In SECspeak: The initial public offering price will be substantially higher than the pro forma net tangible book value of each outstanding share of our common stock immediately after this offering. If you purchase our common stock in this offering, you will suffer immediate and substantial dilution. If previously granted warrants or options are exercised, you will experience additional dilution.

In English: Victory has a zillion shareholders who will pop up out of the woodwork with options and warrants, defeat has a bunch of senior debt that will subordinate and crush you.

PetroAlgae as it sees itself: 7 Competitive Strengths

From the S-1:

1. Strong economic returns to our customer licensees without the need for government subsidies.

2. Highly scalable and flexible technology, with initial license units providing the basis for larger-scale operations in the future.

3. Fully integrated, comprehensive solution that transforms simple, naturally occurring inputs, such as sunlight, water and indigenous micro-crops, into valuable outputs.

4. Product compatibility with the existing agriculture infrastructure.

5. First mover advantage in providing renewable micro-crop technology to produce products that serve the global animal feed market.

6. Experienced management team with a track record of innovative growth, value creation and commercial scaling of businesses.

Financials to date

From the S-1:

“To date, we have not been profitable and have incurred significant losses and cash flow deficits. For the fiscal years ended December 31, 2010, 2009, and 2008, we reported net losses before non-controlling interest of $44.5 million, $36.8 million, $20.2 million, respectively, and negative cash flow from operating activities of $22.8 million, $27.6 million, and $11.8 million, respectively. For the nine months ended September 30, 2011, we reported net losses of $19.1 million and negative cash flow from operating activities of $13.4 million. As of September 30, 2011, we had an aggregate accumulated deficit of $117.1 million. We anticipate that we will continue to report losses and negative cash flow for the next several years.”

The Bottom Line

With nine renewable fuel and chemical IPOs in the queue, its a crowded field in biofuels, and PetroAlgae has re-focused its filing around its opportunities in the global feed business. It’s becoming a common tale as companies strive to differentiate themselves from others in the pipeline.

The name. One thing that has not changed is the name. “PetroAlgae” doesn’t fit the company well any more – a new name reflective of their capabilities in feed and fuel would do nicely.

Customer engagement model. In its revised filing, there are some other significant changes, some of which are highly positive. One, of course, is the appearance of a well-structured customer agreement with AIQ. Whether PetroAlgae technology works at scale, in Chile, is another question for the intrepid investor. But the progression from a 0.75 hectare pilot, to a 150-hectare model farm, and adding additional units towards a 5,000 hectare system, is a logical progression.

Entry price. Moreover, the entry level price, for that 150 hectare model farm at around $12 million in capital investment excluding land, is one heck of a lot smaller a nut for the early adopter. Interestingly, the company is projecting that (under unspecified conditions) customers can make good returns on a 600-hectare system.

Economies of scale. The astute analyst may note that the capital costs do not come down much in the full-scale system ($80K per hectare for 150 ha, vs $75K per hectare for the full-scale system), but the operating costs will come down sharply and offered accelerated returns.

Eh, biocrude? A close reading of the S-1 will reveal no discussion of Foster Wheeler or any other company developing small- or large-scale technologies that turn bio-crude into renewable fuel. There continues to be ongoing development in this area – presumably, PetroAlgae determined that it would not use valuable S-1 space to promote third-party technology, but we see that as a significant limitation for the investor looking at this IPO. Given that, at around 50 tons per hectare per year, just one full-scale PetroAlgae farm would suffice for the alfalfa and fish meal demands of entire countries – more discussion of the path towards performance in the renewable fuels market is going to need to be spelled out in more detail, in our view.

Overall? PetroAlgae has shifted to a feed and feedstock play, as have many of the companies developing algal-based technologies or using micro-crops. So, not entirely surprising that the S-1 has migrated in this direction, and highly welcome as well. In the final analysis, the alfalfa market is key here. If Mikey the Little Bull really likes it, this one might go far.

The complete S-1 registration statement.

Prefer 160-or-so pages in all their glory? The complete revised S-1 registration statement is here.

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.

November 29, 2011

Bagasse – the Big Prize

Jim Lane


Like MSW? You’ll love bagasse. Lot of the advantages of waste, and there’s a lot more available.
220px-Proserpine-Sugar-Mill-rail-tracks-1188[1].jpg
 Heaps of bagasse, covered with blue plastic, outside of a sugar mill in Proserpine, Queensland.  Image via Wikipedia.

Sugar’s the new oil, DOE Secretary Steven Chu is fond of saying. Codexis agrees, but argues that sugarcane residue (instead of competing for cane syrup) is the path to the real riches.

Petroleum – we all know what it is, but what does the word actually mean? It’s a mash-up from Latin and Greek. Petra+oleum. It means “rock-oil”.

What makes that etymology factoid significant is that, to find oil, you generally find the rock first. Unlocking the oil from the rock – that’s the magic from which all value flows.

Then, there’s bagasse.

So, as Steven Chu says, when the oil runs out, the sugar goes on.

You can extract sugar from a lot of things. Things that generally cost too much to begin with, or are in short supply (compared to the vast demand for oil), like corn starch, or wheat, or cellulosic wonderstuff.

Then, there’s bagasse. That leftover residue at the sugar mill after squeezing out all the cane juice.

Exciting enough that Cobalt recently signed an agreement with the 10th largest global chemical company, Rhodia, to pursue a fast track program to evaluate, design, and build 30,000 – 75,000 ton plants based on Cobalt Tech’s technology to transform  South American bagasse into butanol.

Now, a lot of the excitement about Brazil has centered around the cane syrup, not the bagasse.

Pshaw, says Codexis [NASD:CDXS] CEO Alan Shaw.

The problem with the easy sugars

codexis[1].gif

Shaw grabs a magic marker and begins to scribble out the equations on a white board in Redwood City. “It costs $275 a ton for the sugar,” as he pencils out the conversion from sugar carbohydrates to hydrocarbons, “and you lose up to 60 percent in the conversion. You need 3-5 tons of sugar to make a ton of diesel, once you have blown off all the oxygen. No one is going to pay more for your diesel because it is renewable. Acrylic acid, adipic acid – now there you have some good margin to work with. But not diesel fuel.”

Now, the spread between the cost of Southern pine and the cost of diesel fuel is pretty wide. Somewhere in the $70 per ton range compared to, say, $800 per ton for diesel fuel. So, there’s something to be said for gasification, so long as the hydrogen to carbon balance is optimal. But even there, Shaw sees problems.

“There’s nothing wrong with the OPEX [operational expenditures], with almost any of the advanced biofuel companies. It’s the CAPEX [capital expenditures].” He’s right, of course. Coming up with $200-$400 million checks for first of kind technologies, which usually means securing something on the order of $200-$350 million in project debt. Well, that’s proven to be a tall order for the early stage companies, by and large.

The winners, so far: low cost feedstock, capital

To date, the projects moving forward have had relatively strong loan guarantees (INEOS Bio, POET, Abengoa [ABGOY.PK]), or been backed by immense balance sheets (BP). The other projects getting through have featured zero-cost feedstock (e.g. Enerkem), are small demonstration projects mainly financed with government grants, or are conceived as low-cost bolt-ons to existing technology (e.g. steel mills, ethanol plants).

Zero-cost feedstock. Hmmm, we’ll come back to that.

A handful of cellulosic biofuels technologies are banking on a licensing model, and going no farther on their own balance sheet than demonstration scale. Some of those are engineering firms, like the Beta Renewables JV that is part owned by Italy’s giant engineering firm M&G through its Chemtex subsidiary.

The goal of the demonstration? To convince customers that the technology works, and to convince themselves to guarantee that technology will work. Knowing that any customer will demand a performance guarantee, and if they don’t, their bankers will.

Widening the window to success, narrowing the path to failure

But there’s something else. That’s broadening the conditions for success. These days, its not at all impossible – in fact it’s almost commonplace to design a technology at bench scale that achieves the rate, titer and yield needed to make cellulosic biofuels successful.

But there’s the problem of temperature. Distillation is at high temperature, by its nature, you are separating products by using differential boiling points. But enzymes, generally, don’t like those high temperatures. Narrowing that temperature differential saves energy – lots of it.

But its more than that. By widening the conditions at which cellulosic biofuels can succeed, it widens the range of choices for the engineers. Easier to use off-the-shelf parts, for example. Easier to tolerate conditions than have to design expensive work-arounds. Easier to have a hotter pre-treatment process.

That’s been a goal of the Chemtex-Codexis partnership – to broaden the conditions, as well as to create a library of enzymes that feature heightened rates of activities.  So that enzymes not only work effectively in some narrow range that only a biologist could lovingly maintain, they work in the broad range suitable to massive fermenters with variable “weather conditions” inside.

Is Shell a possessive, or permissive, partner?

How does Shell view these activities from Codexis – don’t they have everything wrapped up in terms of biofuels that comes from the Codexis labs?

“It’s a question for our partners at Shell,” says Shaw. “But we know that their abiding interest is in developing the lowest opex and capex for their cellulosic biofuels business, and having a ‘most favored nation’ status with respect to the winning technology. A stronger Codexis means they are less likely to have to wait, and have more opportunities for wealth creation, no matter how we reach a solution that solves the problem, at scale.”

Next stop for the technology? Well, expect to see it in Brazil sooner than later. Sugarcane is 1/3 sugar, 1/3 bagasse and 1/3 tops and leaves, in round numbers. As mechanical harvesting brings the tops and leaves off the fields and into the mix, it can release the bagasse for higher value creation opportunities, than simply burning it to generate power, as happens today.

Given a 50-mile radius, says Shaw, there are opportunities for utilizing up to 60,000 metric tones of bagasse, per project, in the nearer term, and up to 100,000 MT in the future.

$600 billion, by the numbers

That bagasse is already paid for, aggregated at the mill. You can make $3 fuels or $6 chemicals from it, with feasible margins on either. Say, at 100 gallons per tonne. And there are more than a billion tonnes of bagasse available from the land that the Brazilian government has approved for cane cultivation. So, somewhere north of $600 billion in value, just in the bagasse.

Which is where the value really lies, says Shaw. The cane sugar, he says, is too exposed to the food markets and commodity speculation. But no one eats bagasse, and you need advanced technology to unlock the value. That’s a barrier to entry that preserves value, he says.

And right now, its an advanced technology that’s affordable priced.

The path less travelled: KiOR

logo[1].png

Take KiOR [NASD:KIOR], for example, an outstanding technology using Southern pine to make cellulosic biofuels, at scale, at impressive margins. It’s $250 million per pop for a KiOR plant, the feedstock costs $72 per bone dry ton, and there are a couple of hundred million tonnes available. It’s a value proposition that has a lot of investors salivating. You get Haley Barbour and Vinod Khosla as your partners – not bad at all. Costs you $1.6 billion to own that seat at the “future of energy” table. You get about 1 percent of, say, Facebook, for that.

Compare Codexis. The feedstock is already paid for in the cane harvest, there are ultimately more than a billion tones available. You get Shell and M&G as your partners. Costs you $160 million to own that seat.

Now, KiOR’s model – build, own, operate, will control more of the value-chain, and more of the margin. But you could just about buy Codexis (at today’s “affordable” share prices) for the money that Khosla and friends pumped into Range Fuels. Now, that may well prove to be one of the most affordable seats at the Final Table in the World Biofuels Scale-Up Shootout  that will ever come around. It’s what the US spends on oil imports in, say, a six-hour stretch.

Rewind to Apple 2002?

It’s Apple 2002 promise, at Apple 2002 prices. Now, can Alan Shaw and team pull it off? At Codexis, they think so – do you think so? We’ll continue to watch the space closely.


DISCLOSURE: The author has no positions in the stocks mentioned.

Jim Lane is editor and publisher of
Biofuels Digest.

August 23, 2011

Trash Stocks Trashed: An Income Opportunity?

Tom Konrad CFA

Dumpster diving for high yielding gems.

An earlier version of this article was written at the end of July and published on my Forbes blog, before the August market implosion. I've updated it here to reflect the new stock prices and some recent company news.

Renewable energy has many advantages over fossil energy.  One of the most important is that it's renewable.  As supplies of Oil and other fossil fuels are used up, they become harder and more expensive to extract, while renewable energy is generally getting cheaper over time, due to improving technology.

Unfortunately, while there is no real limit to how expensive fossil fuels might become, as we start using more and more renewable energy, we will start running into resource constraints which will eventually end the decline in renewable energy prices.  Where fossil energy uses a small capital investment up front, followed by a long tail of fuel cost, renewable energy requires a large capital investment up front, followed by little or no fuel cost.  Unfortunately, that up-front capital investment is not just money: it's an investment in capital equipment such as solar panels or wind turbines using much more raw material than an equivalent fossil fuel plant.

Commodity prices are already high and rising higher because of buoyant demand in developing countries.  The transition to clean energy will only accelerate this trend, as old fossil fuel based generation is replaced with new renewable energy that require a far larger investment of industrial metals.  This is what Jeff Vail calls the Renewables Gap, and John Petersen calls the Alternative Energy Fallacy.  We cannot transition to clean energy without making other significant changes to our economic system: the resources in energy and raw materials are not there.  In reality, we must make those changes, because we simply do not have the resources to transition to clean energy while continuing business as usual.

Commodities and Trash

Rising commodity prices have recently been hurting waste haulers even as volumes fall during the recession.  On July 28, Waste Management (WM) missed Q2 Earnings expectations by $0.12, earning $0.50 per diluted share.  Waste Management's CEO, David Steiner, attributed a $0.04 earnings shortfall to increased operations and maintenance due to rising commodity prices in the earnings call, yet "[h]igher commodity prices, improved recycling volumes, acquisitions and year-over-year yield increases contributed to the [year over year] revenue growth."  Overall volumes dropped due to a slower economy, and management attributed a decline in revenues to this, in addition to increased competition. 

The other side of rising commodity prices is not a cost, but a revenue source.  This comes in two forms: Recycling and Waste-to-Energy.  Waste Management is expanding in both these areas, with significant waste to energy operations, which benefit from rising energy prices, and recycling operations, which benefit with rising prices for recycled paper, plastics, and metals. 

Stocks Trashed

While Waste Management has fallen from around $36 to below $30 (17%) because of the earnings miss and market decline, another waste and water purification stock I follow, Veolia Environnement SA (VE) has been much worse hit, falling from $26 to $15 (42%) because of lower guidance related to restructuring because of declining volumes, plans to downsize, and an accounting fraud in its US division.  Veolia has been hit by declining volumes and increased competition in the US, as well as European economic woes. 

Yet both Waste Management and Veolia are high yielding companies, and are beginning to look tempting to income investors as dividend yields are pushed up by declining stock prices. Unfortunately, Veolia's restructuring could easily lead to a dividend cut since the company already distributes most of its earnings to shareholders in the form of dividends, and this could lead to a further fall in the stock price, if it is not already priced in. 

Progressive Waste Solutions (BIN) also missed second quarter earnings, a shortfall the company blamed on bad weather.  The stock fell further than many others in the recent sell-off because much of it's revenue comes from Western Canada, where the economy is heavily dependent on the oil fields.  But I seriously doubt that oil price declines will come anywhere near the levels needed to seriously dent the oil sands boom, so investors' fears over oil seem to be providing a buying opportunity in this stock, as outlined in a recent Barron's article.

The downtrend in waste stocks has been industry-wide, with the Global X Waste Management ETF (WSTE) having declined 18% over the last three months, while the S&P 500 index has declined less than 15%.  This under-performance is surprising in an industry which is often considered a defensive play.

WSTEvSPY.png

Safe Income From Trash?

While I'm tempted by the high current yields, I want to be sure that the companies can easily cover their rather high dividends with earnings going forward.  I'd like a stock with a high dividend yield, but with that dividend well covered by earnings and Free Cash Flow (FCF).  I'm also looking for a low leverage ratio (debt to equity,) so that the effects of any future decline in revenues will have only a moderate effect on earnings.  Below, I show dividend yield compared to three years of earnings yeilds and estimates as well as trailing FCF yield and debt to equity ratios for several waste management stocks.

As long as earnings and FCF yields are comfortably higher than the dividend yield, the company in question should be able to continue to pay (or even increase) the dividend.
Waste Co Stats.png

Per Share
Stock Price Dividend 2010 EPS 2011 Est 2012 Est FCF Debt/Equity
Waste Management (WM) $29.40 $1.36 $2.10 $2.14 $2.44 $2.04 1.38
Veolia (VE) $15.18 $1.47 $1.60 $1.85 $1.95 $0.85 1.94
Casella Waste (CWST) $4.81 $0.00 $0.24 -$0.50 $0.09 -$0.13 4.95
Republic Services (RSG) $27.50 $0.80 $1.71 $1.88 $2.13 $2.25 0.87
Progressive Waste (BIN) $20.91 $0.51 $0.94 $1.12 $1.30 $1.54 0.79
Waste Connections (WCN) $30.99 $0.30 $1.24 $1.48 $1.71 $1.74 0.83
Data Source: Yahoo! Finance

As I noted earlier, while Veolia has an attractive yield of almost 10%, but with earnings and Free Cash Flow yields only slightly higher, and FCF far below, Veolia will probably have trouble maintaining its dividend if the fierce competitive environment and low waste volumes persist or worsen, with 84 cents of every dollar earned being paid out as dividends.  With a Debt to Equity ratio of almost 200%, the company is quite vulnerable to further drops in revenue, although they may be able to pay off some of this debt by selling divisions as part of the downsizing. 

Waste Management's dividend payout is also higher than I would like at 64% of earnings and 67% of free cash flow, but the lower debt to equity ratio makes this more manageable, so I expect they will be able to maintain the current dividend.

Of the other companies listed, both Republic Services and Progressive Waste are beginning to look attractive because their lower dividends (at 3% and 2.5%) are very well covered by earnings and cash flow, and their low debt means that earnings will be more resilient in the face of a potential continued revenue decline.  On the other hand, if earnings continue to grow as projected, these two companies have plenty of room to increase dividends further.

Conclusion

The falling volumes and increased competition in the waste management industry, along with the last few week's market decline have made these stocks into attractive income investments.  Since the sector has a reputation for earnings stability, the recent earnings misses and revisions have hit investors particularly hard, leading to potential buying opportunities.  Nevertheless I feel there is still room on the downside, so it's probably better to dip a toe into the trash bin rather than engaging in full scale dumpster diving. 

The most attractive names right now are Waste Management and Republic Services, while Veolia's gigantic dividend will tempt braver investors, and Progressive Waste is probably worth including in a portfolio for additional diversification.  I have a bias toward Waste Management and Veolia because they have stronger focuses on recycling and waste-to-energy, which I believe will serve them well if commodity and energy prices continue to rise due to growth in emerging economies. 

DISCLOSURE: Long WM,BIN.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

April 09, 2010

The Best Peak Oil Investments, Part V: Algae


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.


September 21, 2009

Forestry Stocks and ETFs: The Back Door to Cellulosic Biofuels Investing

ETF % Producers Expense Ratio Daily volume Close 9/17/09
WOOD 60% 0.49% 10K $36.66
CUT 40% 0.65% 70K $17.41

Even given my cursory analysis of each fund's holdings, WOOD stands out as clearly superior to CUT for investors interested in a Forestry ETF as an investment in Biomass, because of the significantly higher exposure to producers than consumers.  CUT does have better liquidity, but that hardly makes up for the lower expense ratio of WOOD, and high exposure to wood consumers.

Stocks

Even the 60% exposure of WOOD to biomass producers is not enough so that I think these funds are a good way to invest in the sector.  It would be theoretically possible to get exposure just to producers by going long WOOD and shorting CUT, but such theories tend to work a lot better in theory than in practice.

Hence, I feel the best approach to get exposure to wood producers is with individual stocks.  Most of the holdings of these two funds are international, but there are still a few  US-listed ones.  With the caveat that I have not researched any of these companies, here are the US-traded holdings of the two funds that seem to be mostly wood and pulp producers, as opposed to biomass consumers:

Company/Ticker % of WOOD % of CUT Notes
Aracruz Celulose S.A.(ARA) 4.73% 4.97% Brazilian wood pulp producer 
Plum Creek Timber Co. Inc. (PCL) 5.55% 2.24% US Timber REIT; in DJ Sustainability index
Potlatch Corp (PCH) 6.5% 1.35% US Timber REIT; Forests are FSC certified

While a portfolio of only three stocks is not very diversified, few investors are likely to commit more than 10% of their portfolio to forestry, and devoting 3% or less of your portfolio to a single company should bring adequate diversification.  The loss of global exposure (the ETFs contain several Japanese and European companies as well as US and Brazilian ones), but this loss seems worth avoiding significant exposure to an industry (paper and packaging) with a significant input (pulp) that we expect to become more expensive due to competing uses.

Timing

Just as farmers are now benefiting from higher corn and soy prices because of the production of ethanol and biodiesel, it seems fairly certain that timber companies will benefit from higher prices for both lumber and previously unused slash.  Nevertheless, there remains a question of when.  Cellulosic ethanol plants are still in the pilot stage, with not nearly enough being produced to make a difference to the forestry industry's revenue.  In contrast, cofiring wood and using it for heat are both established industries.  At the moment, however, these uses for wood tend to be driven by the prices of alternative fuels (coal and heating oil), and not by reduced carbon emissions. 

Although forest waste and sawdust can be practically free at the source, the cost of gathering and transport often means that they are nearly as expensive as the alternatives at the point of use.  In order for the industry to overcome the logistical barriers, a price on carbon emissions is probably necessary.  For US investors considering Plum Creek or Potlatch, it probably makes sense to wait until we see action from the US on climate change before investing.

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.

August 17, 2009

Biochar's Likely Market Impacts

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

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.

 

July 30, 2009

Biochar Investing

Tom Konrad, Ph.D., CFA

BioChar, or using black carbon directly as a soil amendment holds the promise of both increasing agricultural yields and locking up carbon in the soil for centuries or millennia.  Are there ways for stock market investors to benefit?

The technology is simple, but the results are potentially quite profound.  By pyrolyizing (heating in the absence of oxygen) biomass, and mixing the resulting char into the soil, it is possible to produce 

  1. Energy, in the form of heat, electricity, and or liquid fuel
  2. Carbon sequestration
  3. More productive agricultural land.

Key to producing both energy and sequestering carbon is what would otherwise have happened to the biomass if it had decayed under normal conditions: The carbon content would have been returned to the atmosphere as CO2 or methane.  Pyrolysis produces two products: pyrolysis gasses or BioOil, which can be burned for energy or upgraded into transportation fuels, such as jet fuel, gasoline, and diesel, and char, which  can either be used as a fuel (charcoal- the same stuff we grill hamburgers on), or as a soil amendment (biochar.)  

Biochar resists ordinary decomposition in the soil, and hence stays there for centuries or millennia.  In addition, it enhances soil fertility.  Although biochar alone has not been shown to enhance soil fertility.  Biochar's complex surface area and intricate pore structure is hospitable to soil bacteria and fungi which help plants absorb nutrients from the soil.  Christoph Steiner, a researcher at the University of Georgia's Biorefining and Carbon Cycling Program says, "We believe that the structure of charcoal provides a secure habitat for microbiota, which is very important for crop production."

For all these reasons, biochar has broad support in the environmental community as one more tool to devote to combating climate change.

An Investing Perspective

Such win-wins are essential for us to tackle climate change without crippling our economy, but can stock market investors benefit?  The low-tech nature of creating biochar is a challenge.  No high technology is needed to create charcoal.  In fact, the benefits of biochar as a soil amendment were discovered thousands of years ago by Amazonian aborigines who used the process to enhance crop production in the poor soils of the Amazonian basin.  Portuguese colonialists called it terra preta, or "Black Earth."

Modern pyrolysis enhances traditional methods of creating charcoal by capturing the volatile organic compounds as Bio-oil, reducing pollution and creating a second potential value stream.  One company attempting to commercialize this process is Dynamotive Energy Systems (DYMTF.OB), which recently obtained an independent analysis of their upgraded BioOil, confirming that 80% by weight could be distilled into gasoline, jet, and diesel fuel.  Dynamotive expects that it can "deliver advanced (second generation) fuels from biomass at a cost of less than $ 2 per gallon of ethanol-equivalent fuel in facilities processing about 70,000 tonnes of biomass per annum."

Although I have not taken an in-depth look at Dynamotive's business model, I'm cautious.  The price of the biomass input is highly variable, and will have considerable impact on the eventual fuel cost. The company's technology seems to center around upgrading the BioOil, but I am uncertain if this is the best use of the volatile organics; it may end up being much simpler to simply burn them to generate electricity or heat to use on site.  

There is also private competition.  There are at least two private companies: Carbon Diversion, Inc., and Alterna developing competing reactors for producing energy and biochar.  Just as I discussed regarding Algae biofuel companies, public equity investors should be cautious when the majority of an industry is still private; because the private companies do not disclose, it becomes much more difficult to tell which company is in the strongest competitive position.

In the same article, I concluded that price and supply of feedstock will be essential to the profitability of advanced biofuel companies, and I see the likeliest beneficiaries to be the growers of the biomass feedstock advanced biofuels companies such as Dyamotive use in their processes.  The potential for additional revenue streams from biochar and carbon offsets could accrue to the technology firm, but it could just as easily accrue to the owner of the biomass, depending on the local competitive uses for the biomass.  Meanwhile those same biomass growers may benefit from increased productivity with biochar.

Probing Deeper

At the moment, I don't see any practical way to invest in the potential of biochar.  However, next month I plan to attend the North American Biochar Conference 2009 in Boulder.  I hope to discover ways investors can help sequester carbon through Biochar, and see a good return on their investments at the same time.cees ibi biochar logo 2009.png

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.

July 09, 2009

$3 Billion For Cleantech & Alt Energy

Charles Morand

The DOE made public earlier today the amount of money that will awarded to clean power projects in lieu of the usual tax breaks: $3 billion.

This will allow project proponents to receive a direct cash grant now instead of a Production Tax Credit or an Investment Tax Credit later on. The guidance document notes the following:

"Section 1603 of the Act’s tax title, the American Recovery and Reinvestment Tax Act, appropriates funds for payments to persons who place in service specified energy property during 2009 or 2010 or after 2010 if construction began on the property during 2009 or 2010 and the property is placed in service by a certain date known as the credit termination date (described more fully below in the Property and Payment Eligibility section). Treasury will make Section 1603 payments to qualified applicants in an amount generally equal to 10% or 30% of the basis of the property, depending on the type of property."
 
This is the cherry on a sundae of cash handouts announced over the past few months for the alt energy and cleantech industries. Solar and wind installations - which account for the lion's share of alt energy investments - have yet to come back to life in any significant way. It is hoped by both government and industry people that this new measure will provide sufficient impetus in the near term to carry the sector through the remainder of the recession.

To be continued... 

June 22, 2009

Cellulosic Ethanol and Advanced Biofuels Investments

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:

Click to Enlarge

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:

Click to Enlarge

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.

April 02, 2009

Investing In Wood Pellets, Part II - A Stock

Two weeks ago, I wrote about the emerging wood pellets industry and how this form of biomass was experiencing rapid growth as a coal substitute in power generation, mostly in Europe as a result of renewable energy and climate regulations. In the time since I wrote that article, I have been looking for ways to invest in the global wood pellets sector. Unfortunately, my search came up mostly empty (except for 1 stock discussed below).

In response to my previous post, a reader pointed me to an article Joe Romm at Climate Progress had recently written about biomass co-firing. In that article, we learn that co-firing biomass with coal has the technical and economic potential to replace at least 8 GW of America's coal-based generating capacity by 2010 (~2.4% of  the 2007 nameplate coal installed capacity), and as much as 26 GW by 2020 (probably somewhere between 5 and 8% by then). We also learn that demonstrations and trials have shown that biomass can replace up to about 15% of the total energy input at coal-fired plants with only minor modifications - this is thus probably a good figure to go by given that international trade in pellets can overcome supply limitations in the US.

As I was searching for ways to invest in the wood pellets sector, I came across some additional information on the current state of the market provided by Andritz Group. In 2008, the global market for wood pellets was estimated at around 9 million metric tons in volume, which replaced around 6.3 million metric tons of coal (you thus need around 1.43 metric ton of pellets per ton of coal displaced). Whereas coal packs in about 24 gigajoules of energy per metric ton, wood pellets contain about 17 GJ/metric ton (17 x 1.43 = 24.31). To put the volume numbers into perspective, over the past few years, the US electric power sector has been using around 1.04 billion short tons of coal per year, or about 944 million metric tons. 15% of this total would represent around 144 million metric tons of coal, or about 206 million tons of pellets. There is thus plenty of theoretical room to grow in the US alone, even if you cut that number down by 50%.        

The fuel substitution from those 9 million metric tons of pellets has helped save around 7.5 million metric tons of CO2 emissions. Assuming CO2 prices of €25 ($33)/metric ton, this could be worth around $248 million gross, from which the fuel cost difference would be subtracted to get to a net figure. Although I did not run the numbers, it is safe to assume this difference yields a positive amount given how popular wood pellets have become in Europe for exactly that purpose (i.e. meet regulatory limits on greenhouse gas emissions). 

What drew my attention to wood pellets the most is that they offer a standardized means of moving carbon-neutral energy around, much in the same way crude oil or coal are used to transport carbon-positive energy (of course neutral and positive are relative terms in this context, but let's leave that discussion for another time).

The North American forest industry is currently facing a difficult time, and using biomass for power generation is one means of killing two birds (the environment and the economy) with one pellet, although as the numbers above indicate it is no a panacea. In fact, wood biomass will most likely never account for more than 10-15% of total power production and is unlikely to be cost competitive with coal without a price on carbon. However, given that a price on carbon is forthcoming in the US, it is fair to assume that wood pellets will represent one of those fundamental bridge solutions to reduce the costs of moving to a de-carbonized economy. This is a point Joe Romm makes in his articles on the topic.    

However, the trade in wood biomass for power generation cannot be expected to scale up if a standard isn't adopted around which transportation logistics and technology requirements can be established. Wood pellets provide this standard. This is why I have left other wood biomass sources such as wood chips or waste wood from logging operations out of my analysis. If a sizeable market for wood biomass is to emerge, it will have to be in the form of a market for pellets. 

A Wood Pellet Stock

The wood pellet production process is relatively simple (see video below): (1) wood material is dried and turned into a dough-like mass by being passed through a hammer mill; (2) and this mass is then squeezed through a high-pressure die with holes of the size required (i.e. standard pellet size) - the pressure causes a rise in temperature which causes the lignin in the wood to plastify and hold the pellet together.    

Andritz Group (ADRZF.PK) currently has, according to itself, an about 50% share of the global market for wood pellet production equipment. Andritz is an Austrian firm that provides equipment and services for the global hydro power, pulp & paper, steel, animal feed & biofuels and other industries. In fact, following the acquisition of a large chunk of GE Energy's hydro power operations, Andritz cemented its position as a dominant player in large hydro globally.

The main problem with Andritz is that its US listing is on the Pink Sheets Grey Market (this is common for foreign shares), making it hard for some investors to trade the stock through their brokers. Moreover, trades on the Grey Market are not always efficient as the lack of a Market Maker for the security can result in lower liquidity and higher prices. The quality of the company is not problematic however, as Andritz is a blue chip stock in Austria.

Despite this limitation, Andritz is, in my view, an interesting beast. In 2008, revenue (€3.61 billion/$4.85 billion) was broken down as follows between the business segments: Hydro (electromechanical systems and services for large hydro power stations), 33%; Pulp & Paper (equipment and services for all forms of pulp and paper production), 37%; Metals (production and finishing lines for metallic strip), 16%; Environment & Process (equipment and services for solid/liquid separation for various industries), 10%; and Feed & Biofuel (equipment and services for production of animal feed and biomass pellets), 4%.   

Balance sheet-wise, the company is well-positioned to weather the current storm: although it had gross debt (bonds, bank debt and leases) of about €432 million ($580 million) as at the end of 2008, its €822 million ($1.1 billion) in cash and marketable securities gave it ample net cash (debt minus cash & equivalents) of about €390 million ($524 million). The current ratio is only 1.29. However, around 35% of current liabilities are accounted for by a revenue recognition liability which has no bearing on liquidity. Dividing only cash and equivalents €822 million ($1.1 billion) by accounts payable (€306 million/$411 million) plus the current portion of debt and lease obligations (€37 million/$50 million) yields a ratio of around 2.4, which is very healthy and even begs the question: what is the company planning on doing with all this cash?.

Operationally, Andritz has been stable over the past five years, maintaining stable EBITDA, EBIT and net margins in the neighborhood of 7.5%, 6.0% and 4.2% respectively. However, cash flow from operations has been somewhat volatile, standing at €255 million ($343 million) in 2008 but only €33 million ($44 million) in '07.

The stock is currently off around 65% from its high of May 2008 (the Pink Sheets listing). Andritz is trading at a trailing 12-month PE of about 7.9x and price-to-book of about 2.08x. On a PE basis, that is a cheap stock, especially given that the company's scale and market share in the hydro segment probably confer it a certain amount of earnings power. The stock pays a dividend per share of €1.10 for a yield of 5.08%, which is quite attractive in my view (this information is for the Frankfurt listing so one would need to inquire to his/her broker to know what the figures are for US investors purchasing the Pink Sheets security).

Conclusion

Although the wood pellets concept is attractive (I certainly thought so when I first attended a workshop on it), the global trade in them remains comparatively small and largely Europe-focused for the time being. As a result, finding ways to play this emerging sector in the stock market is rather difficult. However, if activity by private firms is any indication of the future of this industry, then it could turn out to be interesting niche to be in, although it will not grow past a certain point and is no panacea.

The one stock I identified as global leader in wood pellets, Andritz, is actually attractive for a number of other reasons. The exposure to large hydro is very interesting, in my view. Although certain greens find large hydro objectionable, most individuals and organizations concerned about climate change agree that it's better than the fossil-fuel alternatives, and the sector is forecasted to get a boost from installations in China and India over the next few years. The focus on industrial energy efficiency should also be of interest given the focus this area received in the Obama Stimulus Package.

But this is a stock that will unfortunately be hard or impossible to trade for many small investors. You might just have to wait a few more years to see more interesting plays on wood pellets emerge on a stock exchange near you!

The Wood Pellet Production Process: A Vid!

DISCLOSURE: Charles Morand does not have a position in Andritz.

DISCLAIMER: I am not a registered investment advisor. The information and trades that I provide 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 disclaimerhere.

March 19, 2009

Investing In Wood Pellets, Part I

Last week, I mentioned that I had attended a conference focused on opportunities in the biomass and bioenergy sectors. One of the article ideas I got from this conference was on the emerging market for wood pellets (tightly packed sawdust and other wood shavings) for heat and electricity. How interesting that, over the weekend, the magazine Science published an article suggesting that the US should ramp up its use of wood for small-scale heat and electricity production (the article is not available free of charge but you can find a summary here).



The Wood (Pellet) Advantage

It must be stated from the get-go that wood harvested at sustainable levels will never account for a significant percentage (i.e. >20%) of total energy consumption. The Science article states that total US energy consumption currently stands at around 100 quads annually, and that wood-based energy makes up about 2% of this. At sustainable harvest levels, the authors estimate that wood could represent about 5 quads, or roughly the amount of energy contained in the Strategic Petroleum Reserve. That number is for all wood-based energy and not only pellets, so the potential market for the latter is even smaller.

That said, wood pellets are rapidly gaining acceptance as a readily-available, carbon-neutral fuel source that can be used on its own or co-fired in coal plants. The global trade in wood pellets is not especially extensive just yet, so pricing data can be a little difficult to obtain. Various sources I looked at seem to put the price range at between $150-200/ton. The International Energy Agency conducted a detailed study of the global marketplace for wood pellets in 2007, and reported that pellets cost in the neighbourhood of $11.50/million BTU. It is therefore no surprise that with residential fuel oil and, increasingly, nat gas prices pushing above that level in 2007 and 2008, wood pellets bbecame a popular option in the colder US Northeast and Northwest.

Environmentally, wood pellets are considered greenhouse-gas neutral as wood is existing biomass (i.e. not ancient biomass trapped beneath miles of Earth's crust) and it is assumed that forest re-growth will, in time, sequester the carbon dioxide emitted through photosynthesis.

With regards to conventional air pollutants, SOx emissions are reduced almost on a 1-to-1 basis when pellets are co-fired with coal (i.e. a 20% pellet/80% coal mix will reduce SOx emissions by 20%). The relationship between wood and NOx is apparently not as straight forward and I didn't find a good source on this.  

The Science article claims that advanced wood combustion technologies can reach thermal efficiencies of around 90%, which compares very favorably with other fossil-fired technologies.

The Wood Pellet Trade

At the end of 2006, pellet demand in the US stood at around 1.4 million tons, a >200% jump on 2002. Pellets in the US are used mostly in residential and small-scale applications and very little if at all in large-scale power generation. Although pellet popularity is growing, the US market remains comparatively small.  

The real story volume-wise has been occurring in Europe, where renewable power generation and greenhouse-has emissions regulations have triggered a boom in wood pellet use. Current EU commitments call for 20% of final energy consumption to come from renewables by 2020 and the meeting of the Kyoto Protocol's targets. It is estimated that the EU currently supplies about 4% of its total electricity from wood waste (vs. 2% in the US) and this number is expected to double by 2010. Current consumption is now greater than 6 million tons annually.

In 2006, EU nations consumed around 5.5 million tons of pellets, but produced only 4.5 millions, an 18% 'deficit'. Canada is currently the largest pellet exporter to the EU but there is also significant export potential in the US, as evidenced by the fact that pellet manufacturing capacity has been expanding rapidly.

In the US, the low price of coal and its prominence in power generation (coal accounted for roughly 48% of electricity generated in the US in 2008) present the biggest challenges to the growth of the wood pellets market. However, upcoming greenhouse gas regulations could change this. Because wood pellets are considered greenhouse gas neutral, co-firing them with coal reduces CO2 emissions on a 1-to-1 basis.

This has been one of the major drivers in Europe, and can represent a comparatively cheap way of transitioning toward cleaner power generation technologies. Given the relative abundance of biomass across North America (don't forget Canada, the biomass superstore to the North), federal greenhouse gas caps could jump start the wood pellets market here.

Wood Pellets Stocks

This is admittedly a sector I knew very little about, so ramping up my industry knowledge alone took a bit of time. When I started my search for stocks on this, nothing evident jumped at me. I therefore thought I would break this article into two, with the next part dedicated only to company analyses. I will publish it next week. In the meantime, if you know of stocks related to this, please let me know.

January 13, 2009

Focus On Clean Power Income Trusts

Last week, Tom brought you a piece on the Algonquin Power Income Fund (AGQNF.PK), in which he opined that shift in investor attention away from capital gains toward yield might eventually provide a catalyst for the prices of yield-focused securities such as income trusts to rise. So-called utility trusts, or income trusts where the underlying corporation is engaged in utility activities such as power generation, are a common feature of the Canadian income trust sector (the mother of all income trust sectors). A sub-set of utility trusts is the clean power utility trust, where the power generation assets consist of technologies such as wind, small hydro, biomass and waste-to-energy (WtE). Though new tax rules have effectively made it impossible for new income trusts to be brought to market (barring certain exceptions such as REITs), existing clean power utility trusts (existing as of Oct. 31, 2006) get to operate under the old tax regime until 2011.

The clean power utility trust model is similar to the clean power Independent Power Producer (IPP, see definition) model, whereby firms are pure-play clean power generators (i.e. they own only generation assets) that sell their electricity to utilities, with the exception that the tax treatment awarded to income trusts allows them to pay higher yields by avoiding double taxation.

While changes in legislation mean that this investment vehicle is dying a slow death, Tom was correct to point out that in times where the prospects for strong capital gains are uncertain and interest rates low, income trusts provide a good way for investors to access high yields. What's more, clean power utility trusts, this most unique of Canadian investment sub-sector, allow investors (including US investors) to play North American clean power in a way that does not entail a risky bet on a technology play but is rather much more akin to a utility investment.

Clean Power Utility Trusts             

Name Ticker Related Corp. Entity (Ticker) Yield (%)* Assets
Algonquin Power Income Fund AGQNF.PK N/A 9.16 Hydro, Cogen, WtE, Wind, Water/Wastewater
Boralex Power Income Fund BLXJF.PK Boralex (BRLXF.PK) 19.77 Biomass (wood residue), Hydro, Nat Gas Cogen
Macquarie Power & Infrastructure Income Fund MCQPF.PK N/A 18.88 Nat Gas Cogen, Wind, Biomass (wood residue), Hydro, Long-term Care Home
Innergex Power Income Fund INRGF.PK Innergex Renewable Energy (INGXF.PK) 10.81 Hydro, Wind
Northland Power Income Fund NPIFF.PK Northland Power (not public) 9.44 Nat Gas Cogen, Wind
Great Lakes Hydro Income Fund GLHIF.PK N/A 8.01 Hydro

*As at close on Friday Jan. 9, 2008

One of the major risks facing income trusts is distribution cuts, something that generally happens when the fundamentals of the underlying business are severely diminished or distributions were set too high to begin with (in order to attract investors). As can be noted from the table, the yields on some of these trusts (i.e. Boralex Power Income Fund and Macquarie Power & Infrastructure Income Fund) appear to indicate that investors are anticipating distribution cuts and are demanding a risk premium. Yet preliminary screens on both funds don't uncover much evidence that distribution cuts are in the cards (caveat: these were very preliminary screens).  

While growth will be challenging as long as credit conditions remain tight (individual projects typically use over 50% debt), the underlying business model and existing assets of these funds remain largely immune from a slowing economy - they are utilities with a clean twist. Barring another major round of indiscriminate selling in equity markets, investments in one or more of the clean power utility trusts is a good way of generating returns in the form of cash yields (something that's worth a lot more than the promise of future capital gains in this economic environment) from a comparatively low-risk sector.

Some of the things to look for as red flags in assessing these trusts are: liquidity position (cash on hand; quick ratio) and ability to borrow for emergency purposes (undrawn line of credit); leverage level (debt-to-capital ratio) and the need to roll over debt in the next 12 months; any signs that operating conditions have deteriorated (e.g. for wood biomass, indications that pulp/saw mill closures related to the bad economy are decreasing fuel supply).

DISCLOSURE: Charles Morand does not have a position in any of the securities discussed above.

DISCLAIMER: I am not a registered investment advisor. The information and trades that I provide 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.

January 23, 2008

Cellulosic Electricity: Stock Analysts v. Venture Capitalists

Romm v. Kholsa

In a persuasive series of articles, entitled "Pragmatists vs. Environmentalists" (Parts I, II, and III) on Gristmill, Vinod Khosla provides the reasoning behind his "dissing" of plug-in hybrids, which drew the ire of Joeseph Romm.  Neither seems to think the argument is settled, and Joeseph Romm returns fire here.

As someone who knows as much about investing as Joe Romm and has written as much about Climate Change and Energy Policy as Vinod Khosla, I feel the need to jump into the debate and settle the matter.  (Will either of them will notice?)

To summarize, Khosla argues that cellulosic ethanol shows more promise for reducing carbon emissions than plug-in hybrids because he sees the barriers to plug-ins (the need to improve batteries and clean up the grid) as harder to surmount than the barriers to cellulosic ethanol (the improvement of conversion technology.)  In his words, 

I consider replacing coal-based electricity plants (50-year typical life) a much longer, tougher slog than replacing oil with biofuels (15-year car life).

Romm blasts back reiterating the multiple problems of corn ethanol in response to the first of Khosla's series, but has not yet responded to his point about cellulosic.  I thought I'd tackle the point about cellulosic myself.

There Isn't Enough Biomass

According to the National Renewable Energy Laboratory's From Biomass to Biofuels [.pdf] study, given all the available biomass in the United States, we will only be able to displace a little less than 2 billion barrels of oil equivalent a year.  But we currently use about 7 billion barrels of oil a year, so to displace all our oil usage, we would need nearly a 4x increase in fuel efficiency (not the 1.5x increase in internal combustion engines Khosla talks about.) 

 1.3 billion ton.bmp
Image source: NREL (From Biomass to Biofuels)

If the problem we're trying to solve is the need to displace petroleum as the transport fuel of choice (because of both climate change and peak oil), Khosla's "solution" can at best only tackle about 40% of the problem.

A Third Way: Cellulosic Electricity

Now let's return to Khosla's belief that it is simpler to replace the fuel (petroleum) in vehicles than the fuel (coal) in the grid, because of the longer lifetimes of coal plants than cars.  If you take a moment to review my article Ten Insights into Carbon Policy, you will note (insight #2), co-firing biomass in existing coal plants is more effective for reducing carbon emissions than turning it into liquid fuels.  You will also note (insight #9) that electric drivetrains are inherently more (5x) efficient than gasoline drivetrains.Image Source: European Biomass Industry Association

Khosla may be right that we are not going to shut down old coal plants quickly (although my own utility, Xcel Energy, is planning to do just that.)  But even given an existing fleet of coal plant some biomass can be cofired with coal in existing plants with relatively easy retrofits.  Cofiring biomass is part of the Arizona Renewable Energy Assessment, which Black and Veatch predict would cost about 6-7 cents per kWh, and the limited amount included in the assessment is mostly due to Arizona's limited biomass resource.

According to the NREL report referenced above, converting biomass into cellulosic ethanol can be done at about a 45% efficiency (i.e. 45% of the energy of the biomass makes it into the fuel.)  In contrast, biomass can be converted at 33-37% efficiency [pdf] when cofired.  Combining this with the 5x improvement of drivetrain efficiency that comes with electric propulsion, and the same amount of biomass converted to what I'll call "cellulosic electricity" will take a vehicle 3.8x as far as it would in the form of cellulosic ethanol.  In a more recent article on Biomass, Vinod Khosla states "we consider [Energy Return on Investment] a less important variable than carbon emissions per mile driven."  If carbon emissions per mile driven are the most important variable, a 3.8x increase in miles driven on the same energy source will lead to a less than 27% of the carbon emissions per mile driven.

While cellulosic electricity is still not sufficient to displace all of our current petroleum use, it comes much closer than cellulosic ethanol.   Biomass cofiring with coal also tends to reduce SOx and NOx emissions.

Direct Combustion of Biomass

Biomass is a distributed resource, seldom available in large quantities in any one place.  This will be a problem for the cellulosic ethanol and cellulosic electricity industries.  Only a fraction of the available biomass will be close enough to existing coal plants that it will be practical to transport for cofiring.  Cellulosic visionaries see a system of distributed ethanol plants, yet that still leaves the problem of getting the fuel to market, since the current pipeline system for petroleum products has difficulty accommodating ethanol.  

On the other hand, while distributed direct- fired biomass generation of electricity is probably twice as expensive as cofiring with coal, distributed generation leads to opportunities for Combined Heat and Power (CHP), or cogeneration.   CHP can displace heating fuels such as natural gas, propane, or electricity, and often have combined efficiency from 50% to 80%.  In addition to the potential of displacing additional fossil heating fuel, cellulosic electricity is identical to the fossil fuel derived kind.  Therefore, unlike cellulosic ethanol, cellulosic electricity is completely compatible with the existing electric grid, leading to far fewer difficulties in transport.

A Cellulosic Sideshow

While I'm sure that economic techniques to convert various forms of biomass into ethanol and other liquid fuels will be developed, including by some of the companies in Khosla's portfolio, I think it is unlikely that a large fraction of what is likely to become an increasingly valuable and scarce resource, biomass, will be used for ethanol.  As a scarce resource with relatively inelastic supply, the price will rise to the point where only the most efficient uses will be profitable.  In most cases, cellulosic ethanol is unlikely to be one of the most efficient uses of biomass.

Khosla's dichotomy of replacing cars versus replacing coal plants is a false dichotomy.  While it is easy to retrofit gas cars to burn ethanol, it is also easy to retrofit coal plants to burn some biomass.  Given the dispersed and varied nature of the feedstock, both solutions are likely to coexist for a long time, but biomass cofiring has a little-heralded head start (unlike cellulosic ethanol, it is already progressing beyond the experimental stage), and cofiring's superior efficiency should allow it to keep, and widen its lead.

But Vinod Khosla will have little reason to weep.  His Concentrating Solar Power investments will also be fueling our cars, and his "clean coal" technology has the potential to produce carbon-negative cellulosic electricity.

March 04, 2007

Change Winds Blow for Renewable Energy Income Trusts

Renewable energy is still very much in its infancy, which means that companies in the space are either profitless or high-multiple startups, or divisions of much larger companies (GE Wind (NYSE:GE), or utilities such as FPL Group (NYSE:FPL) and Xcel (NYSE:XEL) which get much of their power from conventional generation.) This presents a dilemma for investors who understand the compelling drivers for the sector, but whose risk tolerance or financial needs indicate an income-based investing strategy.

Canadian Income Trusts in Renewable Energy

A few Canadian Income Trusts have historically gone some way towards filling this niche. These include the Boralex Power income trust (BPT-UN.TO / BLXJF.PK), Algonquin Power (APF-UN.TO/AGQNF.PK), and the Clean Power Income Fund (CLE-UN.TO/CEANF.PK).

The Boralex Power Income Fund owns an electricity generating asset mix of approximately 45% hydroelectric (by 2005 revenues), 32% wood residue (biomass) with some cogeneration, and 23% natural gas fired cogeneration. It is managed and 23% owned by its parent utility, Boralex (BLX.TO/BRLXF.PK).

Algonquin Power Trust owns a mix of hydroelectric generation (25% of sales), cogeneration (42% of sales), Alternative fuels (9% of sales), and infrastructure (24% - mostly waste disposal and treatment. Percentages based on 2005 data.) Alternative fuels (mostly landfill gas, municipal solid waste, and some wind) comprise the fastest growing segment of the portfolio.

Finally, the Clean Power Income Fund, which trumpets itself as "the first income fund to be certified under Canada’s Environmental ChoiceMProgram," owns a mix of electricity generation assets consisting of landfill gas (37% based on 2005 cash flow), biomass (27%), hydropower (26%), and wind (10%). They are completing the Erie Shores 99MW wind project which will increase the wind portion of the portfolio.

Disappearing Tax Advantages

While none of these have the stability of a bond fund, they have gone some way towards bridging the gap between volatile startups and predictable income, allowing a broader spectrum of investors to participate in renewable energy. However, they were all organized to take advantage of a provision of Canada's tax code which conferred significant tax advantages, similar to the advantages enjoyed by REITs and Master Limited Partnerships in the US. Those tax advantages were scheduled to be phased out over the next four years to the surprise of the financial markets in November, and while some are still fighting the tax law changes, the trust management of these three trusts have, by their actions acknowledged the reality of the changes.

Within the last week, The Clean Power Income Fund board has agreed to be acquired by Algonquin Power, subject to the approval of its unitholders, while The Boralex Power Income Fund has announced that it is up for sale, possibly to be acquired by its parent, Boralex, which currently owns 23% of the fund and acts as its manager.

Risks and Opportunities

For the traditional income investor, primarily interested in stability, all this activity and the volatility is bad news, but it presents opportunities for the risk tolerant investor interested in purchasing solid, income producing assets, something of a rarity in retail renewable energy investing. It's impossible to say what good price entry levels are for any of these funds, but they are all considerably cheaper than they were before the tax changes were announced in November.

Prospective investors should also understand the tax implications (which depend not only on the changing laws, but on the nationality and tax status of the account used) before investing.

Tom Konrad, Ph.D.is an independent investment adviser registered in the state of Colorado who helps people reach their investment goals while protecting the environment.

DISCLOSURE: Tom Konrad and some of his clients hold positions in The Clean Power Income Trust and the Algonquin Power Trust.

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.

June 08, 2006

Intrepid to Begin Clean Green Gas Production

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) has received the gas conditioning equipment slated for use in creating pipeline quality gas from its Whitesides Biogas facility. The two semi loads of proprietary equipment will be installed over the next several weeks and brought into operation. The equipment is unique in that it can process a smaller gas stream from the existing two digester array, as well as the full ten digester array that is currently under construction.

The cost of this gas conditioning equipment is equivalent to the entire book value of the existing plant, effectively doubling the asset value of the facility. Independent sampling of the product gas will be performed to verify the entire system's ability to produce pipeline-quality gas. The company plans to sell product gas from the existing two digester system in July and then begin the installation of the additional eight tanks which will be completed in late 2006. [ more ]

April 25, 2006

Intrepid Commences Major Expansion at Alternative Fuel Plant

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) announced that it has ordered the additional eight digester tanks and has begun the excavation work to accommodate the five-fold expansion of their operating Whitesides Biogas Production Plant near Rupert, Idaho. This expansion will take Intrepid's annualized gas production to as high as 95,000 mcf annually, a quantity sufficient to heat 1,000 homes in the Boise, Idaho area. [ more ]

April 19, 2006

Veridium Updates License for Exclusive Rights to CO2 Bioreactor

Veridium Corp. (VRDM.OB) announced its execution of an amended license agreement with Ohio University ("Ohio") for its patented bioreactor process for reducing greenhouse gas emissions from fossil-fuelled combustion processes.

Veridium's original license with Ohio provided for non-exclusive rights to the technology for the purpose of processing exhaust gas streams from electrical utility power generation facilities, and exclusive rights to the technology for applications involving all other sources. The amended license agreement increases the scope of Veridium's license to provide for exclusivity in all applications, including electrical utility power generation facilities. [ more ]

March 31, 2006

Veridium Receives Order to Increase Ethanol Production Efficiencies

Veridium Corp. (VRDM.OB) announced its receipt of an order from a Wisconsin based ethanol producer for the second stage of Veridium's patent-pending Corn Oil Extraction Systems(TM).

Veridium's proprietary new Corn Oil Extraction Systems(TM) extract high grade corn oil from an ethanol by-product called distillers dried grain ("DDG"). Currently, the majority of ethanol production is based on a dry milling technique that utilizes more than 1 billion bushels of corn to produce 3 billion gallons per year of ethanol. The dry mill process converts the starch from the kernel of corn into sugar and then the sugar into ethanol. The balance of the corn (non-starch components) then goes through a dewatering and dehydration process where the byproduct is sold as a commercial feed ingredient called DDG. DDG contains the majority of the corn oil that was present in the kernel. Today, the 1 billion bushels of corn currently used in the dry mill ethanol process contain roughly 300 million gallons of corn oil that is currently sold for about $0.03 per pound as commercial feed. The new Veridium technology presents another option - cost effective conversion of the oil in the ethanol by-product into biodiesel. [ more ]

March 15, 2006

NanoLogix Announces Completion of Welch's Hydrogen Bioreactor Facility and Commencement of Hydrogen Production

NanoLogix Inc. (NNLX.PK) announced today that the Company has completed the construction of its first commercial hydrogen bioreactor facility at a Welch's Food plant in North East, Pennsylvania. The company also announced that the facility will begin hydrogen generation from Welch's waste organic matter on or about the first of April 2006.

The technology behind the hydrogen bioreactor, developed and patented by NanoLogix in coordination with the Gannon University Department of Environmental Science & Engineering, allows for the limitless production of hydrogen from organic containing waste waters and any waste organic materials, such as sewer water, ground up garbage, etc. [ more ]

February 01, 2006

Syntroleum and Sustec Announce Coal-to-Liquids Joint Venture

Syntroleum Corp (SYNM) announced today that they have entered into a Memorandum of Understanding that provides for exclusive joint business development of projects that will integrate Sustec's FUTURE ENERGY GSP® gasification technology with Syntroleum's Fischer-Tropsch (FT) and Synfining® technology.

The joint venture is aimed at converting coal and other carbonaceous materials such as petroleum-coke, residual fuel oil and biomass into ultra-clean fuels. Each company will own 50 percent of the joint venture. [ more ]

January 25, 2006

DynaMotive Signs Licensing Agreement for Ukraine and Baltic States

DynaMotive Energy Systems Corp. (DYMTF) announced that it has granted a master license to Rika Ltd., a company that has extensive operations in Latvia and Ukraine. Under the Agreement, Rika has agreed to market DynaMotive's technology as well as develop and operate facilities in the territories. Two projects are initially targeted for development.

Rika Ltd. and DynaMotive have further agreed to scope the feasibility of bio energy crops in Ukraine, where Rika has leased 25,000 hectares of farm land. The companies are considering the allocation of 10,000 hectares for growth of biomass for BioOil production. Once in production, it is estimated that each hectare will yield up to 30 tonnes of dry biomass per annum. This will potentially provide for a total production capacity of 300,000 tonnes annually of biomass, equivalent to 800 tonnes per day of processing capacity. [ more ]

January 18, 2006

Environmental Power Corporation's Subsidiary Signs Joint Business Development Agreement with Applied LNG Technologies

Environmental Power Corp (EPG) announced that its wholly-owned subsidiary, Microgy, Inc. has entered into agreement with Applied LNG Technologies USA, Inc. , for the development of biogas-supplied LNG projects in California. The Agreement provides that Microgy and ALT (http://www.altlngusa.com) will cooperate to identify, evaluate and develop projects, principally in California, that combine Microgy's anaerobic digestion technology, which extracts methane-rich biogas from animal waste, and ALT's LNG transport and distribution technology. [ more ]

January 17, 2006

DoE Provides $310,000 Grant to ThermoEnergy to Begin Development of Zero-Air-Emission Industrial Power Plants

Thermoenergy Corp. (TMEN.OB) announced the start of a $310,000 federally funded project to develop compact zero air emission power plants for medium to heavy industry. Commonly referred to as Combined Heat & Power (CHP) plants, these systems would allow main-stream industries to switch from natural gas to lower priced alternative fuels to supply their energy needs. Switching fuel sources could allow many companies to save hundreds of millions of dollars in energy costs, reduce air pollution, keep their US based plants operating, and lessen dependence on imported energy resources. [ more ]

December 23, 2005

DynaMotive Announces MOU with Mitsubishi Canada Limited for Marketing and Distribution of Dynamotive's Fast Pyrolysis Technology

DynaMotive Energy Systems Corp. (DYMTF) announced today that the Company and Mitsubishi Canada Ltd., have entered into a wide-ranging Memorandum of Understanding ("MOU") which expresses their mutual intentions to develop definitive agreements for marketing and distribution of DynaMotive's patented technology in Canada and internationally. [ more ]

Clean Break has more to say about this agreement as well. [ more ]

This is the second MOU announcement they have made in the last month and it looks like something is happening here. This stock has been moving strong this last month and it has piqued my interest. I will have to take a closer look at it and I have added it to my potential buylist.

dymtf_20051223.png

December 13, 2005

Adam Curry's Bio-Diesel

The Podfather (ex-MTV VJ) Adam Curry gives details about his new Bio-Diesel Benz on his most recent podcast. [ more mp3 file ]

If your not familar with podcasting, you don't know what your missing. Here are some links for you here, here, and here.

There is also a great podcast produced by The Watt that provides updates on Alternative Energy and Cleantech.

December 06, 2005

Capstone Introduces a New Generation of MicroTurbine Energy Systems

Capstone Turbine Corp (CPTC) announced that next month the company will begin shipping an enhanced line of 65-kilowatt microturbine models that will replace its popular C60 series of power and heat generators.

The new natural gas fueled C65 and C65-ICHP (with factory-integrated heat recovery) will deliver higher electrical and thermal output without any change to the product's weight and dimensions, which are much lighter and more compact than similar capacity generators. This reduces footprint requirements and enables greater flexibility in indoor, outdoor and rooftop setting. [ more ]

Capstone also released news that the new C65 model will also be retrofitted so that it can use waste gases from landfills and sewage treatment plants as an alternative to natural gas. The stock gapped up this morning over 6% and looks like it is trading nicely off the current near-term support levels of $3.50.

cpst_20051206.png

I will be adding to my current holdings of this stock this morning in the Marketocracy mutual fund. This will bring my total up to 2/3rds of my planned holdings for this stock.


October 25, 2005

NanoLogix and Welch Foods Inc. Sign Agreement for Hydrogen Bioreactor

NanoLogix Inc. (NNLX.PK) announced that it has signed an agreement to install a NanoLogix hydrogen generation system using Welch Food's waste organic matter. The NanoLogix methodology for hydrogen production is being developed for the limitless production of hydrogen from organic containing waste waters. The NanoLogix reactor will utilize multiple proprietary methodologies for synergistically creating a hydrogen bioreactor. The hydrogen production method will utilize organic waste from Welch Food's waste stream. [ more ]

NanoLogix is very much a penny stock and has been steadily declining over the last year. It now sits at a low of $0.15. They are primarily a genomics/biotechnology company and are in the process of transforming themselves into an hydrogen production company. The company first hit my radar when they started to use their biotechnology for bioremediation for toxic land cleanup. The press release above is the first news presented that details a commercialized effort to enter the hydrogen marketplace. Hopefully the press releases will keep flowing from the company to generate some interest in the stock.

October 12, 2005

ADM Enters the Biodiesel Market

Archer-Daniels-Midland Co. (ADM) has announced plans to build a 50 million gallon Biodiesel production facility in North Dakota. This will be ADM's first wholly-owned venture into biodiesel in the US. Currently the US consumes about 30 million gallons of Biodiesel a year. This is a significant investment by ADM in the US marketplace.

"ADM is a world leader in renewable fuels," stated Mike Livergood, ADM Vice President-Global Oleo Chemicals. "Leveraging the success of ADM's experience in the biodiesel market in Europe and ADM's success in the ethanol market in the U.S., we are pleased to bring biodiesel, a cleaner burning and renewable fuel, to the U.S. market through this facility." [ more ]

This press release quickly follows an release announcing the plans to build a third Biodiesel production facility in Germany. ADM is the largest biodiesel producer in Germany and one of the leading producers in Europe.

October 03, 2005

DynaMotive added to Watchlist

Clean Break has found another company to add to the watchlist.

DynaMotive Energy Systems Corp. (DYMTF), uses a patended "pyrolysis" process to convert forest and agricultural waste -- everything from sawdust to tree bark -- into a clean-burning renewable fuel it calls BioOil. This fuel can be used for power generation in gas turbines, diesel engines and boilers. Tyler has a nice writeup about the company at his CleanBreak website.

DynaMotive joins Intrepid Technology and Resources, Inc. (IESV) and Green Energy Resources (GRGR) in the biomass space on my watchlist.

They are also trying to compete in the synthetic fuel space as well.

Successful Conversion of DynaMotive's BioOil to Synthetic Gas Demonstrates Potential for Production of Synthetic Diesel and Other Advanced Fuels
announced today the successful conversion of BioOil to Syngas following full-day gasification testing at the research institute Forschungszentrum Karlsruhe (FZK), Germany on September 16th. The objective of testing DynaMotive's BioOil was to establish if it could be gasified and converted to Syngas with characteristics within the predicted range.

The test results showed that DynaMotive Energy Systems Corporation's BioOil is suitable for Syngas production through demonstrating that a consistently good quality, industrial grade Syngas composition with low methane was achievable. With these very encouraging results, further testing and optimization of Syngas composition will be planned. [ more ]

In other synthetic gas news, Syntroleum Corp (SYNM) is under pressure today due to the closing of a well off the coast of Nigeria. Syntroleum said in late August that it felt the Aje-3 well "could be an ideal location for Syntroleum's unique marine-based GTL technology." [ more ]

SYNM is currently trading down over 30% today.

June 20, 2005

Environmental Power Corporation Unveils Superior Anaerobic Digester Technology

Environmental Power Corp (EPG) is formally commissioning the first of its electricity generating anaerobic digester systems. This facility has been designed and constructed by Microgy, Inc., Environmental Power's principal operating subsidiary. The facility is believed by Microgy to produce substantially more electricity from a given quantity of animal and organic wastes than any other anaerobic digester system built for commercial purposes in the United States. [ more ]

Intrepid Signs 15 Year Supply Agreement With Intermountain Gas

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) announced the signing of a memorandum of understanding that includes purchasing ITR's planned methane produced natural gas using anaerobic digester technology at participating diaries in southern Idaho.

The agreement runs for 15 years and provides for Intermountain to purchase all of the pipeline quality methane gas produced by the digesters and delivered to the Intermountain distribution system by ITR over the life of the contract. Furthermore, Intermountain will provide assistance for the installation, operation and maintenance of the gas gathering system that will collect and transport the gas produced by the participating dairies. Prices paid will be determined by current market conditions with a "floor price" to help secure ITR's financing. [ more ]

May 11, 2005

RCAI & Topia Energy Production Ltd. to Partner on Biodiesel Production & Distribution Company

rcaa_logo.gif
Reclamation Consulting and Applications Inc (RCAA) announced the signing of a Letter of Intent between Topia Energy Production Ltd. and RCAI to create a new company called Topia Global Energy. This Joint Venture company, to be owned 50/50 by Topia Energy Production Ltd. and RCAI, will focus on the production and distribution of BioDiesel worldwide. [ more ]

NanoLogix Study Confirms Early Success Of Hydrogen Bioreactor

Infectech Inc (IFEC) announces that preliminary data and results of a study which confirms laboratory proof-of-concept measurements have shown it possible to generate hydrogen in high yields via the use and adaptation of its intellectual property. In this study, the bioreactor produced biogas consisting of 50% hydrogen by volume, without any trace of methane.

Recently, NanoLogix, Inc. (formerly Infectech, Inc.) signed a feasibility study with the Department of Environmental Science and Engineering of Gannon University in Erie, PA to develop a bioreactor which utilizes NanoLogix's patented bacterial culturing methods in order to produce hydrogen inexpensively. [ more ]

May 04, 2005

FuelCell Energy Power Plant Running on Waste Byproduct to Generate Stable Electricity Source for Showcase Eco-Community in Kyoto, Japan

fcel_logo.gifFuelcell Energy Inc (FCEL) announced that one of its 250-kilowatt Direct FuelCell® (DFC®) power plants, sold by its Asian distributor Marubeni Corporation (TSE:8002 - News), will supply power as part of the electric grid servicing a school, a hospital, apartment buildings and city hall in a planned, renewable energy community on the western coast of Japan.

In keeping with the Kyoto Eco-Energy organization's desire to balance intermittent power generated by sources such as wind and solar, a 250 kilowatt DFC plant will efficiently convert waste from a food processing plant into high quality electricity. Heat energy produced by the power plant also will be used to warm water flowing into the food waste digestion process, thus increasing overall system efficiency. [ more ]

May 03, 2005

China and Green Energy Resources Open Renewable Energy Talks

Green Energy Resources, Inc. (GRGR) announced it has met with Chinese government ministers to discuss Renewable Energy. Negotiations were led by Mr. Andrew Tong of Green Energy Resources China office. China enacted a new Renewable Energy law in March, and signed the international Kyoto Treaty. Discussions center on a 10 year, 250 million ton deal to deliver wood biomass for Co-firing to China. Green Energy Resources would buy 10 woodchip ships built and manufactured in China valued around $350 million dollars, and provide shipping lease back options to the Chinese government in the future. [ more ]

April 13, 2005

Green Energy Resources Plans Expansion

Green Energy Resources, Inc. (GRGR) announced plans for expansion. The company plans to sell upwards of 50 million tons of wood biomass to the utility industry for cofiring. Cofiring is an environmentally friendly application of mixing wood biomass with coal to reduce harmful green house gases. Coal powered generation accounts for 51 % of American electric power. The potential market is in excess of 250 million tons annually and valued over $12 billion dollars. The Federal EPA Air rules effective last month,favor cofiring as the most viable and cost effective option for the utility industry. The company plans to add at least five new representatives to liason with the coal and utility industries. [ more ]

April 04, 2005

Intrepid Receives Clean Air Exemption

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) announces that the Idaho Department of Environmental Quality has provided written concurrence that the Whitesides Biogas Facility meets the permit to construct exemption requirements of Idaho rules for the control of air pollution. Intrepid submitted an exemption request based on calculations and modeling of air emissions for the plant. To the company's knowledge, no other dairy digester system has produced the emissions modeling to receive an exemption. Two compounds of sulfur in digester emissions, hydrogen sulfide and sulfur dioxide, are regulated under the Clean Air Act. The Whitesides Biogas facility has sulfur removal equipment that provides a competitive edge in an area where emissions, and compliance to clean air requirements, is a growing concern. Future, larger digester projects may require an air permit, but the groundwork established in the DEQ review of the Whitesides data will aid the company in the preparation of those permits. [ more ]

March 23, 2005

Green energy seen as $100 billion market in decade

Renewable energy like wind and solar power and hydrogen fuel cells could blossom into a $100 billion a year global market in less than a decade as technology costs fall, according to a study.

The combined market for "green" sources of energy has already grown 68 percent since 2002 to more than $16 billion last year, according to Clean Edge, a research and publishing firm based in California. [ more ]

You can view and download the complete Clean-Energy Trends report at the following link. [ more ]

March 22, 2005

Philadelphia to bring 'Green' Energy to the World

Green Energy Resources, Inc. (GRGR) announced today the opening of a port facility in Philadelphia. The port will export up to 1 million tons annually of wood biomass internationally. The renewable energy industry has created an opportunity for the United States to become energy exporters.

Philadelphia joins several other cities exporting wood biomass, including Cape Canaveral, Fla., Mobile, Ala., Wilmington, N.C., and Baltimore, Md. Green Energy Resources is looking to open facilities in New York, Tampa, Fla., and California in the future. [ more ]

Intrepid Demonstrates Water Conservation Technology

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) announced that its proprietary anaerobic digestion process may provide a significant benefit in conserving and recycling water in drought-stricken Idaho.

Dr. Dennis Keiser, ITR's President, noted, ``Dairies are big users of water and water conservation is becoming a critical consideration for their sustained operations, particularly given the severe drought conditions that threaten the agriculture industry in southern Idaho and other parts of the country. Processing manure using ITR's system provides the potential to recycle significant volumes of wastewater back into beneficial reuse in a variety of agricultural or other applications. [ more ]

Environmental Power Corporation's Microgy Subsidiary Signs Chaffee Farms to Development Agreement

Environmental Power Corp (EPG) announced that Chaffee Farms in New York has signed a Development Agreement to deploy an anaerobic digestion ("AD") system from the Company's primary operating subsidiary, Microgy Cogeneration Systems ("Microgy").

Chaffee Farms, located in Niagara County, is the third farm in the state of New York to sign a Development Agreement with Microgy. This proposed, on-farm facility would use manure from Chaffee Farm's approximately 800 dairy cows, and other organic waste, to generate methane-rich biogas. [ more ]

March 21, 2005

Green Energy Aims to Take Bio-Mass from 4th Largest Energy Production in World to #1

Green Energy Resources, Inc. (GRGR) met coal producers to discuss cofiring and development of premixed fuels. Cofiring is an environmentally friendly application of mixing wood biomass with coal, to reduce harmful green house emissions. Biomass is the 4th largest energy source in the world, with potential application in 65% of the US and world power generation markets. Retrofitting existing coal burning power plants (for cofiring) would elevate biomass into the top three energy sources in the world. Barrons featured Green Energy Resources in this weeks edition, reporting its 1st qtr profit and forecasts for growth in 2005. [ more ]

ENER1 to Turn Florida's Tourism Waste and Citrus Peel Waste into Renewable Energy

ener1_logo.gifENER1 INC (ENEI) announced that it had received an award of $550,000 from the Florida Hydrogen Initiative to develop a renewable energy source that will power a rest area on an interstate highway. ENER1's 10 Kilowatt (KW) fuel-cell based energy source uses methanol created from Florida's two largest industries -- food waste from theme parks and orange peels from citrus processing.

The project, known as the HyTech Rest Area, is an example of Florida's commitment to developing its hydrogen infrastructure. To be completed in 18 months, it will provide not only a demonstration and test-bed for the technology, but will also act as a sustainable energy "road show" for tourists and commuters and as a briefing center for state agencies and local government entities looking to deploy this technology for their own projects. [ more ]

March 16, 2005

Intrepid Technology Announces 30 Million Cubic Feet a Day in Natural Gas Production

intrepid_logo.gifThe announcement of a natural gas pipeline, built by Intrepid Technology and Resources, Inc. (IESV), in the heart of southern Idaho's dairy industry has one rural mayor pretty energized.

Mayor Paul D. Isaacson in Wendell believes that the renewable energy company will not only bring to his community as many as 125 jobs, but it will measurably reduce the affects of the 350,000 head of milk cows and cattle that surround the area. [ more ]

March 09, 2005

Intrepid to Build Gas Pipeline for New Biogas Plant

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) has determined that due to recent positive developments related to new financing options and better than predicted gas production rates being experienced at the Company's operating Whitesides facility, expansion of the previously announced WestPoint Dairy Project now will include a commercial pipeline.

The WestPoint Dairy, on which ground breaking will begin this spring, is ITR's second commercial biogas production facility and is the "anchor" dairy for the much larger Westside Project planned for the Wendell, Idaho area. [ more ]

February 24, 2005

Intrepid's Biogas Plant Processes First 500,000 Gallons

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) announces that its biogas facility at the Whitesides dairy has processed over 500,000 gallons of manure in its initial month of operation.

The manure has been rendered into irrigation water and fed back into the dairy's lagoons for use during the upcoming irrigation season. The process has proven reliable with improvements already made to the feed and control system. The hydrogen sulfide removal system, which was designed to meet pipeline gas specifications for the contaminant, has performed flawlessly. [ more ]

February 15, 2005

ITR Receives Alternate Energy Grant

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) has signed a contract with the Idaho Department of Water Resources Energy Office, whereby a $289,000 U.S. Department of Energy grant will be awarded to ITR. The funds will be used to upgrade ITR's Idaho Falls alternative vehicle fuel Compressed Natural Gas (CNG) station. Upon completion, the modifications will transform the CNG station to a state-of-the-art Liquid Natural Gas/Compressed Natural Gas (LNG/CNG) public fueling facility. [ more ]

February 10, 2005

Environmental Power Corporation's Microgy Cogeneration Systems, Inc. Subsidiary Signs Project Development Agreement with South-Tex Treaters, Inc.

Environmental Power Corp (EPG) announced that its wholly-owned subsidiary, Microgy Cogeneration Systems, Inc. ("Microgy"), has entered into a Project Development Agreement with South-Tex Treaters, Inc. of Odessa, Texas ("South-Tex"), which for almost 20 years has been a leader in the gas processing industry.

The agreement provides that Microgy and South-Tex will cooperate to identify, evaluate and develop projects in the United States that combine Microgy's anaerobic digestion technology, which extracts methane-rich biogas from animal waste, and South-Tex's cleaning and compression technologies that can be used to refine biogas to a pipeline-grade methane. [ more ]

February 09, 2005

Intrepid Begins Commercial Use of Bio Gas

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) that the Methane gas being produced at the Whitesides bioreactor located near Rupert, Idaho is now being used as process heat in the anaerobic digester replacing previously utilized expensive propane.

ITR President Dr. Keiser stated, "This is obviously a significant step in demonstrating the commercial viability of our Methane to market technology where clean gas is produced and sold for residential, industrial or transportation applications. This technology and our proprietary processes and this first use of our gas bring us significantly closer to actual gas sales. The hydrogen sulfide equipment is working exceptionally well and the biogas being produced is absolutely odorless after processing." [ more ]

February 04, 2005

Biogas Production Exceeds Expectations

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) announces that its biogas facility at the Whitesides dairy has achieved its production goal two months after starting up the plant. The flow of biogas significantly exceeds the 30 cubic feet per minute yield the company had predicted for the two-digester tank system.

This is a significant milestone in the company's business plan. Specifications for gas conditioning equipment, that will bring the Methane to pipeline quality, are now being established based on actual gas yields. Preparations are underway to begin using produced biogas as process heating for the digesters, eliminating the use of expensive natural gas. [ more ]

This penny stock has moved up over 50% in the last couple of days.

January 31, 2005

RCAI Signs New Exclusive Distributorship Agreement with Topia Energy for Biodiesel

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Reclamation Consulting and Applications Inc (RCAA) announced that it has signed a new Exclusive Distributorship Agreement with Topia Energy, Inc. for the sale and distribution of biodiesel.

Ottawa-based Topia Energy, Inc. is Canada's largest commercial producer and supplier of biodiesel fuel oils with production capabilities throughout North America. Biodiesel is the only fuel to be classified as entirely non-toxic; it biodegrades faster than sugar, is ten times less toxic than table salt and produces exhaust that some say smell like popcorn or French fries. [ more ]

January 28, 2005

Intrepid Announces Second Methane Gas Plant

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) announces it has signed the agreements to design and build its second methane production facility. This renewable energy production plant will be built on the 6000 head WestPoint Dairy near Wendell, Idaho.

ITR will own and operate the plant with the WestPoint Dairy granting a 20-year lease on the property in exchange for ITR processing the approximate 20 million tons of annual animal waste that the dairy produces. The WestPoint Dairy will retain the mineral rich liquid effluent and solid material that remains after processing. ITR will also provide the dairy with additional engineering services that maximize the effectiveness of the operation to the dairy. [ more ]

January 27, 2005

Intrepid's Gas Production Plant Achieves Fully Automated Status

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) announces the company's flagship Methane anaerobic digester located at the 4000 head Whitesides Dairy near Rupert Idaho has achieved a fully automated operational status.

The anaerobic digester, which processes animal and industrial waste products, produces substantial quantities of Methane gas as a by-product. Methane is the primary combustible component in normal household and commercial natural gas.

ITR intends initially, to sell the excess gas to a pipeline carrier. However ITR will, in 2005, power an alternate fuel vehicle with this gas making ITR one of the few companies ever to take animal waste and utilize it to power a car or truck in the United States. This will also make ITR's compressed natural gas (CNG) filling station in Idaho Falls the first commercial station in the U.S. to dispense gas from a waste product for vehicle use. [ more ]

January 22, 2005

Infectech, Inc. Signs Deal With Gannon University to Build Hydrogen Bioreactor for Affordable Alternative Energy Source

Infectech Inc (IFEC) has signed a feasibility study with the Department of Environmental Science and Engineering of Gannon University in Erie, PA to develop a bioreactor which utilizes Infectech's patented bacterial culturing methods in order to produce hydrogen inexpensively.

Infectech believes the most likely method for low cost production of massive quantities of hydrogen as an alternate energy source is hydrogen combustion using Clostridia bacteria, which produces hydrogen as a by-product. Infectech has ascertained through its patent counsel that there are eleven relevant U.S. patents concerning the database containing the terms "Clostridia" and "Hydrogen Production." Infectech presently owns five of these eleven issued patents. [ more ]

January 21, 2005

Nathaniel Energy Moves Toward Completion of Final Testing of Thermal Combustors in Italy Project

Nathaniel Energy Corporation (NECX) entered into an amendment to its agreement for the waste- to-energy power plant project in Cologna Veneta, Italy, resolving the contract issues announced on November 2, 2004.

Under the amended contract, the Company received $300,000 at the time of signing, and will receive $750,000 upon the completion of final testing of the first Thermal Combustor(TM), and will receive $1,050,000 upon the completion of final testing of the second Thermal Combustor(TM). Nathaniel Energy will also receive $275,000 for reimbursement of shipping and handling costs upon the completion of final testing of the second Thermal Combustor(TM). [ more ]

December 21, 2004

RCAI Expands Customer Base Through the Sale of BioDiesel Fuel Oil

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Reclamation Consulting and Applications Inc (RCAA) announced that it has initiated an aggressive marketing program for the sale of BioDiesel fuel oil manufactured by Topia Energy.

Topia Energy has developed a unique BioDiesel blending process, and is Certified: BioDiesel Driven(TM). In order to earn the right to call their fuel Certified: BioDiesel Driven(TM), Topia must subject their product to rigorous and consistent long-term testing. BioDiesel Driven(TM) is a mark of quality that BioDiesel users trust to meet the most rigorous standards in the world. [ more ]

November 24, 2004

Biogas-Fueled MicroTurbine Energy Systems to Debut in India

Capstone Turbine Corp (CPST) has been selected to provide a biogas-to-energy demonstration project in West Bengal, India. The project is expected to be online mid-2005. It will be the first installation of Capstone MicroTurbine(TM) energy systems in India.

The project will encompass two new anaerobic digesters (which create biogas from manure), gas pre-treatment equipment, two Capstone C30 systems and a microgrid to export power. [ more ]

November 23, 2004

Intrepid's Energy Plant Begins Operation

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) has completed all required testing on their bioreactor located at the Whitesides dairy near Rupert, Idaho and have began the process of loading animal waste from the dairy into the twin 35,000 gallon tanks. [ more ]

This is a significant development for this company. The stock is trading up over 10% today on this news. The next milestone is a confirmation of the methane gas output for this plant and if it will meet or exceed projections.

Pennsylvania to Generate 3,600 Megawatts of Wind Power by 2016 Due to New Standard

As mentioned in a previous entry, the Pennsylvania legislature passed SB1030, the Alternative Energy Bill, on November 20, 2004 which will require a total of 18% of Pennsylvania's electricity to be generated by alternative energy sources by 2020.

The standard requires 8% of Pennsylvania's electricity to be generated by so-called "Tier I" renewable sources of energy by 2020. Tier I resources include solar, wind, geothermal and biomass. The standard also requires 10% of the state's electricity to come from a second category of resources that include waste coal, integrated combined coal gasification technology, municipal solid waste, large-scale hydro, demand-side management and distributed generation systems. [ more ]

November 22, 2004

Green Energy Resources Announces New Supply Contracts

Green Energy Resources, Inc. (NYIL) announced today that it has signed a new supply contract with Texas Energy Resource Management. Texas Energy has three locations in Eastern Texas including a chip mill facility in Crockett, a recycling facility in Buna and a recycling facility in Houston. This contract will supply approximately 500,000 tons annually of whole tree wood chips. The chips are exclusively for export to other NYIL customers throughout the EU. [ more ]

November 18, 2004

Another State Mandate for Alternative Energy

Right on the heels of Colorado passing Amendment 37, Pennsylvania is waiting for State House approval on the passage of their own legislation mandating clean energy production. [ more ]

This new bill states that by 2020, utilities would be required to provide 18 percent of the electricity used in Pennsylvania from alternative sources, like wind, solar and waste coal. Wind should be the big winner for this region.

GE Global Research to Lead DOE Projects in Production Of Hydrogen; Projects are Part of $75 Million Research Effort Announced by DOE to Support the President's Hydrogen Fuel Initiative

GE Global Research, the centralized research organization of the General Electric Company (GE), announced that it was selected by the Department of Energy (DOE) to lead $11 million of research projects in the development of hydrogen as a fuel source. The programs are focused on near and long term solutions for the production of hydrogen with sustainable, clean technologies. GE Global Research will contribute approximately $2.5 million to the projects with the balance coming from DOE and other industry partners. [ more ]

This project plans to study the creation of hydrogen from solar water splitting, naturual gas/bio production, and next generation electrolyzer technologies to make more efficent fuel cells.

November 05, 2004

Colorado Voters Approve Amendment 37

Colorado voters have approved an amendment requiring utilities to get part of their electricity from the sun, wind or plant and animal waste.

The amendment requires the state's seven largest utilities to get a portion of their retail electricity sales from renewables, beginning with 3 percent in 2007 and climbing to 10 percent by 2015. Four percent of the renewables should be solar sources. [ more ]

New Hampshire Begins Coal Switch to Biomass

After its official groundbreaking, the Northern Wood Power Project, New Hampshire's first non-hydro, commercial-scale renewable energy project, is now underway at the Schiller Station in Portsmouth.

The US$75 million project, developed by Public Service of New Hampshire (PSNH), will replace a 50 MW coal-fired boiler with a new boiler of equal size that will burn wood chips and other clean wood products. In addition to creating a market for woodchips from the state's many logging operations, the facility will become a major regional contributor of renewable energy. [ more ]

November 03, 2004

Nathaniel Energy Announces Successful Proof of Process of Thermal Combustor(TM) Technology in Italy and Provides Update on Project

Nathaniel Energy Corporation (NECX) announces the successful gasification of refuse derived fuel (RDF) in Italy, proving that its patented technology is successful and viable on a commercial level.

The Company successfully gasified and combusted RDF and produced over one megawatt of electricity with one of its Thermal Combustors(TM) in Cologna, Veneta, Italy. [ more ]

October 13, 2004

Northern Power Systems Awarded Contract for On-Site Power System at New Jersey Vegetable Oil Processing Plant

prtn_logo.gifAarhus United USA Inc. has awarded Northern Power Systems, Inc. a subsidiary of Distributed Energy Systems Corp (DESC), a contract for a $1.7 million turnkey on-site power system that will use the oil distillate and waste byproduct of the company's vegetable oil processing operations as fuel. Northern's system will be designed to deliver 65% of the Port Newark, New Jersey facility's electrical needs and 12% of its thermal consumption. The NJ Clean Energy Program has deemed the fuel a renewable source that is CO2 emissions-free and has therefore committed funds to pay 30% of the project cost. [ more ]

October 06, 2004

Green Energy Resources Announces Merger Update and Sales Projections for 2005

Green Energy Resources, Inc. (NYIL) will acquire three (3) biomass power plants in Italy as a result of the recently announced merger/acquisition of ICL. The plants will generate approximately $150 million annually ($1.1billion dollars through 2012) and provide a before tax profit of approximately $30 million for each of the next seven (7) years. The merger is on target to be completed before the end of December 2004.

Green Energy Resources export sales of woodchips from the United States are projected at approximately 2 million metric tons for 2005, generating approximately $100 million dollars in gross sales revenues. New export clients include buyers in Sweden (200,000 Mts annually), Netherlands (120,000 Mts annually) and the UK (150,000 Mts annually). [ more ]

September 28, 2004

Brazilian Sugar Miller COSAN Begins Use Of O2Diesel

O2Diesel Corp (OTD) announced that one of the largest sugar millers and ethanol producers in the world, COSAN (annual revenues of US$500 million) of Brazil, began using O2Diesel(TM) in the diesel powered fleet located at their mill in Barra Bonita, State of Sao Paulo. This mill is the world's largest sugar and ethanol production facility with the capacity to process 6.8 million tons of sugar cane per year. The patented fuel technology developed by O2Diesel Corporation of Newark, Delaware, will be used in a wide variety of trucks and agricultural equipment. COSAN operates 12 mills in Southeastern Brazil with an annual consumption of approximately 50 million liters (13,208,993 gallons) of diesel fuel. [ more ]

September 23, 2004

Biodiesel B2 Blend Selling Below Average Diesel Cost at Salt Lake City Pumps

Green Star Products Inc (GSPI) announced today that according to an article published in the Salt Lake Tribune (September 17, 2004) B2 biodiesel blend is now selling at 3 cents below average diesel price in Salt Lake City, Utah.

The article states, "Alternative fuel enthusiasts have a new place to fill up. The first biodiesel fuel pump in Utah opened Thursday at Dal Soglio Sinclair, 7398 S. 700 West, in Midvale. The station now sells diesel fuel that is a 2 percent biodiesel blend (B2), along with conventional unleaded gasoline. The B2 blend costs $1.94 per gallon, which compares favorably to the average cost of diesel in the Salt Lake City-Ogden area, about $1.97 per gallon." [ more ]

Clean Diesel Technologies Announces Significant Emissions Reductions from Independent Testing of Platinum Plus Fuel Additive

Clean Diesel Technologies Inc. (CDTI) announced today that it has completed extensive independent testing of its Platinum Plus® fuel-borne catalyst (FBC) in a wide range of fuels on four different engines at Southwest Research Institute in San Antonio. Results from these tests confirm that the FBC, when added to various commercial diesel fuels, can provide up to 35 percent reduction in diesel particulate emissions (PM) and up to 11 percent NOx reduction. Both particulates and NOx are a major focus of worldwide efforts to reduce diesel emissions, and the U.S. EPA has challenged the industry to clean up the more than 11 million existing diesel engines that are used in a wide range of on-road and off-road applications. While new engines will see dramatic emissions reductions starting in 2007, many existing engines will continue to be in service for another 10-20 years. [ more ]

September 22, 2004

Fuel cell converts waste to power

Researchers from the University of Wisconsin at Madison have found a way to use the carbon monoxide to produce more energy in a reaction that can take place at room temperature.

The method could eventually be used in portable systems that use renewable fuel produced from plant matter, said James Dumesic, a professor of chemical and biological engineering at the University of Wisconsin at Madison. The process could also be used to treat wastewater and contaminated gas streams, he said. [ more ]

September 20, 2004

Energy stocks for the conscience-driven

The CS Monitor has a good article about the investment potential of Alternative Energy stocks.

"You can't ride off into the sunset with a hydrogen-powered SUV - or to a middle-class solar home. But as the decades-long transition away from oil begins to take shape, some ethical investors sense a bonanza. " [ more ]

September 14, 2004

2005 Jeep Liberty CRD will be powered by biodiesel

DaimlerChrysler AG (DCX) announced plans to use B5, a 5% blend of biodiesel, in each new Jeep Liberty Common Rail Diesel (CRD) sport-utility vehicle coming off the assembly line. The news is a landmark choice by US auto manufacturers in advancing the use of cleaner burning biodiesel. Chrysler Group President and CEO Dieter Zetsche called the decision an important first step in encouraging wider use of clean, renewable fuels. [ more ]

September 08, 2004

Intrepid Prepares to Enter the California Energy Market

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) and the California Dairy Campaign (CDC) announce a partnership to make available ITR's proprietary digester technology to the California dairy industry.

Gary Bullard, CDC's environmental project manager was one of the attendees at ITR's demonstration of their first methane bioreactor in Rupert, Idaho. on August 23. "I left the demonstration convinced that the technology and processes that I saw were of paramount importance to our member dairies". Mr. Bullard further stated, "California, which is the nation's largest dairy state, with many individual dairies that exceed 10,000 head, is facing an unprecedented environmental challenge to the continued and successful operation of these dairies due to State requirements on the removal and disposition of animal wastes and the associated air, soil and water quality standards which are the most stringent in the nation." [ more ]

September 07, 2004

Environmental Power Corporation's Microgy Subsidiary Signs Second California Farm for Digester-Based Feed Production System

Environmental Power Corp (POWR) announced today that it has signed an agreement with Seifert Dairy Farms of Acampo, CA for the on-farm location of an animal feed production system based on Microgy's anaerobic digester ("AD") technology.

The Seifert Dairy project is the second such facility proposed for development under Microgy's Feed System Project Development Agreement with The Scoular Company ("Scoular"), a $2.3 billion in sales merchandiser of agricultural commodities. As previously announced, this Development Agreement anticipates Microgy constructing up to 50 systems designed to use an efficient, environmentally sound process to produce animal feed. [ more ]

September 04, 2004

First Container Load of Biodiesel Shipped to Asia

American Biofuels (ABF), a biodiesel production company 35% owned by Green Star Products Inc (GSPI), announced today that its first container load of U.S. produced biodiesel is on its way to Asia.

The ABF shipment is believed to be the largest order of biodiesel ever shipped from the United States to Asia. The oceangoing container carries approximately 6,000-gallons of biodiesel packaged in over 100-barrels. This is a first major step in opening Asian markets to U.S. produced biodiesel and biodiesel technology. [ more ]

September 01, 2004

Xcel Energy Announces Proposed Renewable Energy Project Selections

Twenty-five proposed renewable energy projects featuring hydroelectric, biomass, wind, solar and biofuel technologies have been selected to receive more than $22 million from the Xcel Energy (XEL) Renewable Development Fund.

More than 200 renewable energy project proposals were considered, three times the number submitted in the program's first funding cycle in 2001. [ more ]

August 31, 2004

Biodiesel Now Available at Public Pump in Salt Lake City Area

Yesterday the National Biodiesel Board announced that a pump station in Utah is selling a 2% biodiesel blend (B-2) at the same price as regular diesel. Even though there are more than 300 pumps nationwide selling biodiesel, this is the first time in the United States that a biodiesel blend has been offered at regular diesel prices. [ more ]

The Bio-Diesel is being supplied by Green Star Products Inc (GSPI)

August 30, 2004

Renewable energy touted in new study

Nearly 36,000 jobs could be created in Texas if an increase in the national renewable energy standard were adopted, according to a new study released by the Union of Concerned Scientists.

A national standard would require that 20 percent of the country's electricity come from clean, renewable sources like wind, biomass and solar. [ more ]

Newsweek Special Report

"Experts generally agree that our current reliance on fossil fuels is unsustainable. Already oil is near $50 per barrel, and the great millions of Chinese and Indians destined to take to the road in the next decades have not yet gotten behind the wheel."

This week Newsweek has written several special reports about alternative energy in all its forms. All of these reports can be found at the following link. [ more ]

August 27, 2004

Campaign for renewable energy begins

Colorado House Speaker Lola Spradley, R-Beulah. and U.S. Rep. Mark Udall, D-Eldorado Springs, co-chairs of Amendment 37—the Renewable Energy Initiative—kicked-off their statewide campaign Thursday with stops throughout Colorado.

Amendment 37 would require 10 percent of Colorado's electricity be generated from renewable energy by 2015. The program is scaled beginning with a 3 percent requirement by 2007, 6 percent by 2011, and 10 percent by 2015. [ more ]

August 23, 2004

Biomass Takes Center Stage in Renewable Energy Industry

Green Energy Resources, Inc. (NYIL) announces it has agreed in principle to merge with Italiana Commissionaria Legnami (ICL) of Monza , Italy. ICL has offices in New York and Brazil. The terms of the merger have not been disclosed.

ICL is the largest importer of woodfiber fuel in Italy. In 2003 ICL supplied approximately 80,000 tons of woodchips per month to the Italian market. The proposed merger will seek to capture the vertical market from procurement, to transportation, to power generation plants and would create one of the largest international biomass/ renewable energy companies in the world today. The combined company is expected to have a capacity to deliver well over one million tons of woodfiber fuel annually. The product is delivered by the two woodchip carriers under contract to existing power plants. All the biomass fuels comply with the strict UTCS certification system and the Kyoto protocol. [ more ]

Tekron Inc. and Vydexa Industrials Corporation Engaged by Barbados Sugar Industries Ltd. to Restructure and Develop the Island's Sugar Cane Industry

tekron_logo.gifTekron Inc. (TKRN) is pleased to announce that Tekron Inc. and Vydexa Industrials Corporation of London, Ontario have received a contract to prepare a feasibility study for Barbados Sugar Industries Ltd. (BSIL) and restructure the fledgling sugar cane industry in Barbados.

The objective of the assignment is to develop an industrial base for production of fuel alcohol and other higher value products from sugar cane biomass. The project undertaking will encompass all aspects necessary for decision-making, relating to technologically sound and profitable utilization of sugar cane biomass residues that are left after conventional sugar extraction, presently practiced in Barbados. [ more ]

August 19, 2004

Indiana Farmers on Bio-Diesel Tour to Tennessee

A busload of Indiana farmers rolled into town Tuesday to refuel their tour bus with bio-diesel from a tank previously used exclusively by Franklin trolleys.

“Part of this trip is to promote soy-based diesel,� said Alan Kemper, chairman of the Indiana Soybean Growers Association. “Franklin is one of the few places with soy diesel.� [ more ]

August 17, 2004

Environmental Power Corporation's Microgy Subsidiary Signs First Farm for Digester-Based Feed Production System

Environmental Power Corp (POWR) announced today that it had signed an agreement with De Snayer Dairy of Lodi, California, for the on-farm location of an animal feed production system based on Microgy's anaerobic digester technology. Microgy expects to own and operate the proposed facility that will utilize manure from De Snayer's dairy operations to generate biogas for the operation of equipment developed to process feed ingredients, utilizing a process that is being pioneered by The Scoular Company. [ more ]

August 16, 2004

Toyota Considering Making Diesel-Electric Hybrid Vehicles

Toyota Motor Corp (TM) are developing a hybrid drivetrain system that can be used for gasoline, diesel, natural gas and fuel-cells. [ more ]

August 12, 2004

Intrepid Evaluates Offers on Gold Property to Accelerate Development of Alternate Fuel Plants

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) announced today that they have received multiple offers from recognized buyers on their Montana gold property located near the ghost town of Garnet in southwestern Montana.

This sale will allow ITR to appreciably escalate their build out of anaerobic digester plants in southern Idaho and will result in accelerating the expansion of the nearly completed Whiteside refinery and allow construction to begin on the second methane refinery as early as the end of 2004. The sale of the Garnet mine will have a substantial and materially significant effect on ITR's ability to become a leader in the burgeoning alternate fuels industry. [ more ]

August 03, 2004

Intrepid Technology Installs First of A Kind Alternative Energy System

intrepid_logo.gifIntrepid Technology and Resources, Inc. (IESV) has begun the final stages of construction on ITR's methane gas refinery located near Rupert, Idaho with the arrival today of the twin 35,000 gallon steel digester tanks.

ITR notes that the system, a first of its kind, has generated considerable interest within the dairy and livestock industry nationwide. This reinforces the belief that demand for the proprietary anaerobic digester systems will remain robust; especially as abundant and reliable new energy sources are needed globally. [ more ]

July 31, 2004

‘Hydrogen economy’ is a ruse—all hype, no hope

An editorial article from South Carolina's TheState.com expresses concern for funding for Fuel Cell research. The guess columnist expresses his concerns and feels that they would be better served looking at Biomass alternatives.

An abstract of this opinion article is show below, with a link to the full story.

A growing group of distinguished scientists sees the “hydrogen economy� as a ruse � a distraction from the much more viable alternative of biofuels. Nor has the hydrogen illusion escaped the notice of astute investors, as the major fuel-cell companies have seen their share prices drop by half over the past four months from what were already severely depressed values. [ full story at thestate.com ]

Since we are investing in both, we are still not concerned about a move towards Biomass alternatives. He is also missing one point in his editorial. These Biomass fuels can also be used to generate Hydrogen for our fuel stacks.

July 30, 2004

Biological Drive: One man's quest to put corn in your car

AutoWeek has an article about one man's quest to travel the entire United States using anything but gasoline to power his variety of alternative fuel vehicles. Featured are bio-diesel Hummers and RVs, a solar-powered canoe, and an poop-powered scooter

[ full story at autoweek.com ]

July 29, 2004

Clean Electricity From Sugar Cane Using Fuel Cell Technology

intelligent_energy_logo.jpgIntelligent Energy Inc., a leading energy solutions business, today announces that it has successfully completed trials of its ethanol based fuel cell technology system. These trials show that sufficient electricity can be generated for a rural home from equipment little larger than a shoebox, using fuel derived from sugar cane. [ full press release ]

Kerry's High-Wattage Energy Plan

BusinessWeek.com discusses John Kerry's plan to increase alternative energy usage for the country.

John Kerry's blueprint for energy independence doesn't suffer from lack of ambition. In early August, he'll unveil an energy plan that he says can break America's addiction to foreign oil, revitalize the U.S. auto industry, help farmers and coal miners, fight global warming, and create jobs -- all for just $2 billion per year. "We can live in an America that is energy independent," Kerry promises. [ full story at businessweek.com ]

July 15, 2004

Intrepid Prepares to Sell Gold Mine

intrepid_logo.gifIntrepid 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.

July 09, 2004

Homemade Bio-Diesel Maker In A Taxing Situation

An Eastern Iowan made his own fuel to save money, but now the state says not so fast. The state wants to make sure it doesn't miss out on its tax money...

...The tax would be 22 and a half cents a gallon. The same as diesel. He makes anywhere from five to twenty gallons of biodiesel a month. At the most, it would mean an additional four dollars to the state each month. Toal-Rossi says, "I'm not opposed to paying the tax, it's really the paperwork that's more of a hassle for me." [ full story ]

Never underestimate the inefficiency of the government. In Maryland, they give you a tax break (courtesy of the Soy Bean farmer lobby) for the use of Bio Fuels. This is one issue that needs to be addressed at the Federal level if we ever hope to ease our reliance on foreign oil.


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