In California, more than 350 delegates gathered at Advanced Biofuesl Markets to set industry priorities for the next six months,seal partnerships, and exchange outlooks on 2012. It didn’t take long for the Top 10 priorities to become clear.
1. Raise cash, deliver cash flows, storm coming.
“We are late to our open party,” Codexis CEO Alan Shaw said, describing the opportunities that have eluded cellulosic ethanol and the attention that has been granted, out of necessity, to technologies such as pyrolysis and thermo-catalytic or advanced sugar fermentation.
Because of the slow arrival of cellulosic biofuels, policy uncertainty over RFS has increased. Many companies have experienced “slow going” in raising capital for commercial scale.
Accordingly, cash is king — raise as much cash as possible at every opportunity to ensure that 2012 is a year of opportunity, not survival. Whether the goal is to scale-up, acquire related technologies, or ride out a year of policy uncertainty, numerous CEOs, across the spectrum agreed that a war chest is an important thing to have.
“Things that investors, in the end, don’t’ care about,“ said Raymond James analyst Pavel Molchanov. “Whether you are using fermentation or gasification. Whether you are commercializing in the U.S., Brazil or elsewhere. They care that you have proof of concept, and a path to commercialization that they can count on, and the strategic partners that you will need.”
2. Scale is within reach.
Gevo’s first commercial plant switches over to isobutanol by the end of the first half of 2012. ZeaChem’s demonstration is complete by year end. Rentech’s demonstration is mechanically complete now. INEOS Bio’s first commercial-scale IBR opens in the first half of 2012. POET and Abengoa will break ground shortly on their first commercial plants. LS9 has reached the 20,000 liter fermenter scale. Solazyme will complete its first commercial plant in 2013.
Case in point: Rentech announced that all systems required to start up the Company’s integrated bio-refinery (IBR) in Commerce City, Colorado are mechanically complete. Commissioning, validation and start-up of the renewable energy demonstration facility are underway. The project has reached this milestone within the original budget and schedule.
The IBR project was co-funded by a $23 million grant from the U.S. Department of Energy to manufacture and install at the Rentech Energy Technology Center a 20 ton-per-day Rentech-ClearFuels biomass gasifier, with Rentech contributing another $36 million. The gasifier is designed to produce bio-synthesis gas from various high impact wood waste and sugar cane bagasse feedstocks.
The IBR is anticipated to produce certified renewable fuels in late 2011. This demonstration-scale project is expected to lead to the final design basis for commercial-scale facilities using the combined technologies, including for potential biomass-to-energy projects that are contemplated in the southeastern United States, Hawaii and Canada.
Are advanced biofuels “five years away?” More like five months.
3. 2012, rough year for policy. Will Title 3 get funded?
There’s widespread apprehension that the Renewable Fuel Standard, RFS2, will be amended. Widespread expectation that no new tax credits or tax credit extensions will be signed. Widespread worry that the U.S. Navy will not be able to fund its portion of the proposed $510 million equity investment in drop-in advanced biofuels for military uses.
4. The urge to merge.
“Impressive technologies disguised as companies” — a descriptor heard more than once at ABM. We heard more than once about the importance of companies surrounding their core technologies, rapidly, with partners, parents, or subsidiaries that fill in the rest of the value chain. Not to mention the importance of a strong balance sheet.
LanzaTech, BluerFire Renewables have an impressive China strategy. Do you? “Deals in China that have, fundamentally, the same costs and risks as deals in the US and Europe, are getting funded because strategic investors have decided that it is better to take the risk of owning a technology that costs 25-50 percent more per gallon than fossil fuels, than take the risk inherent in a fossil fuels-only strategy.
6. Aviation, military, chemicals and mandated markets.
“We don’t have a 10 percent ethanol mandate, we have a 90% petroleum mandate, and chemical companies, airlines want to get control over costs.” We heard variations on that theme all week. Investors are bullish on the early stage markets in chemicals, military and aviation. Road transportation fuels — there’s a growing conviction that perhaps it is only the vertically-integrated plays such as BP, Shell, Dupont are building, that will have the muscle to robustly serve the road transport sector given the skittish “now you see ‘em, now you don’t” nature of mandates.
7. Low-cost cellulosic sugars.
Whether it is pure-plays like Proterro, Sweetwater Energy, Renmatix or Comet Biorefining, companies are advancing towards commercialization.
Yesterday at ABM, Arnold Klann, CEO of BlueFire Renewables, announced the formation of a wholly-owned subsidiary, SucreSource. The new subsidiary will focus specifically on the production of cellulosic sugars to establish an at scale commercialization pathway for companies with back-end fermentation, bio-reactor and catalysis processes.
Others are focusing in, too. Codexis is aimed at this market.
SucreSource will capitalize on the process design packages already completed by BlueFire, providing either a 34,000 tons per year or 163,000 tons per year source of cellulosic sugars. These designs are ready to build today and provide the scale necessary for the industry to meet the growing demand for advanced biofuels.
BlueFire’s process is a high yield (85 percent or better conversion), multiple sugar stream, optimal solution to unlocking cellulosic sugars from biomass. It can process multiple and mixed feedstocks, does not require genetically modified organisms (GMO’s), and operates at low temperature and atmospheric conditions using BlueFire’s patented Arkenol Acid Hydrolysis Technology.
8. Flexibility, please.
Companies have been warned to ensure that their core technology has the broadest possible set of favorable operating conditions. The less flexibility on, say, Ph levels or temperature tolerance — the less wiggle room that process engineers have in designing systems that have affordable commercial scale CAPEX.
“The industry is fine on OPEX — the trend lines are good. It’s the CAPEX. $10 per gallon of capacity, or more? It’s hard to raise at those levels. The CAPEX must come down.” That’s an oft-heard sentiment.
9. Range Fuels.
“Someone has to step in and keep that company from defaulting on its loan, and triggering the loan guarantee.” Whether it is through merger, acquisition, through the current investors serving or retiring the debt, there is a clear sense that it is a poor hour, in the wake of Solyndra, for a major USDA-granted loan guarantee to go into default.
10. Big Ideas
The industry needs a Biomass Reserve accounting system, says Ceres CEO Richard Hamilton. Oil companies have that system for accounting for their proved reserves — why can’t biomass projects?
The industry needs technology risk insurance, says Wilson Sonsini’s Chris Groobey. “The government has been doing the wraps around the technology risk, but the private sector has to step up with a pool of capital, like Lloyds, that takes on the technology risk as an opportunity to make money.