As they continue to feel the pinch from high production costs, biofuel players are increasingly getting creative about ways to boost their bottom line. One of those strategies, which analysts see as a growing trend, has been to use manufacturing by-products to sell as feedstock for the beauty, nutraceutical and lubricant industries.

Underscoring that move, start-up Verdezyne recently announced BP Alternative Energy Ventures and Dutch chemicals company DSM will help it bankroll a pilot plant to make adipic acid, which is used to make carpet fiber or plastic feedstocks. The process, which uses genetically engineered yeasts, will be more environmentally benign and cheaper than using oil to make ethanol. Amyris, a Brazilian biofuels and "renewable chemical" firm, also announced it will build a factory to make farnesene, a hydrocarbon used to make cosmetics and lubricants, to hedge its bioenergy franchise.

Heather Youngs, a bioenergy analyst at the Energy Biosciences Institute at UC Berkeley, expects this trend to continue as biofuel firms look for ways to lift profits 

"It's a good short-term solution around the industry's cost problems," she said. "Some of these by-products have much better profitability" than biodiesel or bioethanol which margins are heavily linked to volatile oil prices.

According to Youngs, biofuels-from-algae companies are increasingly using leftover lipids from making biodiesel and selling it to nutraceutical and beauty companies. The former can use the product to make food and health supplements while the latter can use it to make hand cream or shampoo, among other products.

To benefit from these markets, large biofuel and bioethanol companies will likely invest in specialty chemical suppliers to bring them in-house to handle this growing part of their franchise or hire outsourcing firms to handle it. 

"As the biorefinery model matures we are going to see a lot of different business models to get the most value out of the biomass," Youngs concluded.