When Life Gives You Lemons…make ethyl acetate

June 30, 2010 |

In Washington, BIO’s World Congress on Industrial Biotechnology and Bioprocessing is underway, and by the time you are reading this, it may well be over. More than 700 industry professionals gathered this week to confer, argue, commiserate, brag, beg, spy, kvetch and inspire.

Usually a few days at BIO feels like a stretch at Top Gun – the best of the best duking it out for supremacy, and the sky’s the limit.

The line-up was as it should have been. Vinod Khosla, Jim Woolsey, Cathy Zoi, Tom Vilsack, and Steen Riisgaard  among the keynoters, and more CEOs than there are stars in heaven.

But it felt like Top Grimace this year.

Many of the attendees had sour looks on their faces most of the week, giving the distinct impression that they had been sucking on lemons. Judging from the traction that many were noting the absence of, maybe they are.

Keynoter Vinod Khosla was in a particularly sour mood, concluding after a review of biofuels technologies that the only ones worth investing in were, er, the ones he had invested in. Gevo good, Butamax bad. Amyris good, algae bad. Magic bugs good, enzymes bad. My portfolio good, your portfolio bad.

Apparently Khosla had missed the opening remarks by BIO Exec VP Brent Erickson, who noted that the biofuels industry was getting snippy and fractious, and that companies and their supporters needed to work together more harmoniously in order to realize the sector’s policy and financial goals.

A $230 billion bio-based economy by 2030

But the dismal mood is at odds with the data.  The “Future of Industrial Biorefineries” report from the World Economic Forum was unveiled by Novozymes CEO Steen Riisgaard, concluding that bio-based fuels, energy, and chemicals have the potential to generate up to $230 billion in revenues by 2030.

Authored by professor Sir David King of Oxford University, the report also found that with expanded large-scale biorefinery production, dependence on fossil fuels could be dramatically reduced.  The WEF projected that the global biofuels market will triple to $95 billion by 2020, the biomass for power market will double, bio-based products will grow to $15 billion, and bio-based chemicals will make up 9 percent of the global chemicals market.

A copy of the report is here.

Business model pyrolysis

Bio-based products on view at this year's BIO World Congress on Industrial Biotechnology and Bioprocessing

So why all the sour looks at BIO?

Well, it might have been the acrid smell from the  large number of business plans that have undergone thermo-chemical conversion in the past 12 months.

The transformation in the business plans and models is primarily from wild excitement over biofuels to wild excitement over renewable chemicals.

Of course, there’s reason for the hoopla. Despite the absence of mandates, subsidies or tariffs in the renewable chemical space, a number of bio-based chemicals companies have been making substantial progress. There has been a sea change in how companies such as LS9, Gevo, Amyris and others are being talked about – in many ways due to the significant headwinds in financing large-scale, low-cost biofuels for the mass market. Detergents, organic acids, solvents and coatings are all the rage.

Yelling “IPO” in a crowded theater

Some VCs are moving strategically, some with a decidedly larger dose of the panicked rush for exits you would experience if someone in Silicon Valley yelled “IPO” in a crowded theater.

Whatever the motivation, numerous early-stage investors appear to have shifted their integrated biorefinery children decisively towards the smaller, high-value markets in renewable chemicals as, at least, a “make money now” opportunity.

As a prominent CEO told me, “why would I make $2 fuel when I could make a $5 chemical using the same process?” That’s a good question for 2010. It wasn’t a bad one for 2007, either. In some cases it feels like a strategic shift – in others, a version of the “just win, baby” philosophy of Oakland Raiders owner Al Davis.

A number of companies that are focused solely on organic acids — Verdezyne’s adipic acid, Myriant’s succinic acid, Rivertop Renewables’ glucaric acid, Glycos Bio’s technical grade ethanol and acetic acids — are raising dollars and confidently moving towards small-scale commercialization over the next 2-3 years. More about that in our sister publication, Biotech Digest.

Fuels to chemicals and chemicals and chemicals and, well, chemicals

But the cross-over from chemicals to fuels and back again is – that is to say, the integrated biorefinery model — is another trend at BIO.

ZeaChem is continuing to finish out a suite of 2-carbon products including ethyl acetate, acetic acid and ethanol. LS9 is continuing down a two-pronged strategy of diesel fuels and surfactants that are the chief components in detergents. Amyris last week announced a whole slew of partnerships to exploit its ability to make low-cost farnesene for the cosmetic and other industries, while remaining on track to produce diesel fuel (in the form of farnesane) from sugarcane. Solazyme is making renewable fuels for the US Navy (among others) as well as renewable oils for the food and fragrances industries.

Heard on the Floor: Tax credits, E15, loan guarantees and more

Where does that leave cellulosic ethanol, loan guarantees, the biodiesel tax credit, E15, the USDA Biofuels roadmap and a host of other industrial and policy development issues that were on the table last week, on the table this week, and will still be on the table after BIO is over?

Well, here is what the Digest heard on the floor:

1. E15. Dead on arrival. The EPA is expected to approve E15 late in the summer with a series of conditions (such as only approving it for late model cars) so splintered that the retail fuel distribution system will never implement it. An industry which has been loathe to install E85 pumps is unlikely in the extreme to install E15 pumps and E10 pumps in the same location, or blender pumps that require car owners to consider model year in order to dial-in the correct fuel. In short, victory in E15 will have been bought at such a price that it is indistinguishable from defeat.

2. Loan guarantees. The DOE and USDA are making slow progress on moving companies through the loan guarantee process, but progress there is.

Mark Riedy of Mintz Levin, who along with Stern Brothers and Krieg DeVault have developed a bond approach to financing biofuels, reports “We met with DOE senior officials last Friday in Washington, DC on our bond finance proposal. They loved it, said no barriers exist for its immediate use and asked us to commence the submission of applications for renewable fuels and power, batteries, electric vehicles, transmission infrastructure and even for clean energy infrastructure for the development of the US Marcellus shale gas reserves like pipelines and processing units. At USDA, we continue to await the the agency’s final sign-off which we expect shortly, and will commence filing applications there very soon. To get funding size scale at USDA, we will “stack” applications between the agencies fuel and electricity loan guarantee programs.”

3. The biodiesel tax credit. We hear that the tax credit is still alive, but at this point it appears to provide some financial relief to the industry, but given that it is June, there are open questions being asked about whether there is any stability that can come from a one-year tax extension that passes so late in the year.

4. The USDA Biofuels Roadmap. Some are skeptical about the tonnage of energy grasses in the plan, but Ceres CEO Rich Hamilton confirmed that he didn’t see any issues in reaching the 10-12 ton per acre yields from energy grasses that would be required to realize the plan’s overall feedstock vision. Hamilton also pooh-poohed concerns that there would be ruinous competition for biomass between coal-fired power producers looking to co-fire biomass, and biofuels processors. He noted that the radius to the processing plant is the key factor – some geographies are well suited to produce biomass for power, some are too far from coal-fired plants to serve that market and would be focused on fuels.

5. Cellulosic ethanol. The vulture financiers are getting out to cellulosic ethanol companies. 100 percent equity financing for cellulosic ethanol appears to be available, for 50+ percent of the company, valuations far too small for the companies to accept. We’ll see how whether the companies or the vultures vary those terms and do business.

The Last Word: The Digest’s “If only we had a nickel for every time we heard” department:

“Loan guarantee”. “Brazil”. “Bolt-on to an ethanol plant”. “Retrofit of an ethanol plant”. “Capital light.” “Asia is more aggressive”. “[DOE Assistant Secretary] Cathy Zoi needs to take Bioenergy 101”.

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