The Year of Consolidation: TMO enters receivership

So many great technologies, not enough chairs. Or cash, rather. And so the music stops, and cellulosic biofuels pioneer TMO Renewables finds itself entering administrative receivership in the UK.

What happened, what’s next. One-off or trend?

The story of TMO Renewables is like many in the cellulosic ethanol game. A highly regarded microorganism, a dedicated management team, good pilot data and a demonstration plant in Surrey, and a flurry of projects in development from licensing in the US to projects in China and Brazil.

It’s product? TMO is licensor of a cellulosic microbe that produces up to 15 percent more ethanol than traditional fermentation technology, and reduces energy inputs in the fermentation and distillation process. Investors have included: Jupiter Asset Management, Noble Group, RAB Capital, Presnow Limited, Diverso Management, and Libra Advisors.

So, it will be a shock to many that TMO Renewables has entered administrative receivership — a procedure in the United Kingdom “whereby a creditor can enforce security against a company’s assets in an effort to obtain repayment of the secured debt,” according to Wikipedia.

What happened? It’s a typical story in cellulosic biofuels. Primarily operating on a licensing model, expected licensors of the technology such as Fiberight and Greenfield Energy have themselves been unable to advance expected projects at the expected rate. Starving the licensor, in this case TMO, of working capital. We’ve seen other supplier firms such as biomass harvesting companies, suffer unexpected slowdowns in cash flow as projects get pushed back through the inability to attract capital at affordable rates.

Now — administration through a receiver doesn’t inevitably lead to a dissolution of the company — we’ll have to await further developments before anyone is auctioning off the intellectual property, which could be expected to attract substantial interest in the industry.

The Notice of Administration

Date: 24 December 2013
Appointment of Administrators In the High Court of Justice, Chancery Division Companies Court, London

TMO RENEWABLES LIMITED. Nature of Business: Other research and experimental development.

Joint Administrators’ Names and Address: Benjamin John Wiles and Philip Francis Duffy (IP Nos 10670 and 9253), both of Duff & Phelps Ltd, The Shard, 32 London Bridge Street, London, SE1 9SG Further details contact: The Joint Administrators on +44 (0) 20 7089 4700. Alternative contact: Lucy Hamilton, Email: [email protected], Tel: 020 7089 4771.

TMO’s Brazilian project

The company was last heard from, in terms of substantive project updates, last spring when it announced a JV agreement with Usina Santa Maria Ltda to build the first commercial production plant in Brazil to convert sugar cane waste to ethanol. Under the MOU, TMO in joint venture with Usina, will build, own and operate a 10 million litre second generation ethanol pilot plant to convert bagasse to cellulosic ethanol. This will be followed by the construction of full-scale industrial plant.

The plant will be located alongside a sugar mill owned by Usina Santa Maria at Cerquilho. The plant was scheduled to go into production in 2014.

The China options

In August 2012, TMO Renewables announced the signing of an MOU with the authorities of Heilongjiang, China, to secure long term large volume biomass feedstock supply for future biofuel production facilities from Heilongjiang State Farm, the largest state owned farming corporation in China.

The MOU was the first step towards building the first of a future series of second generation biofuel production facilities in China. TMO will be able to assess the full potential of the HSF feedstock using its Process Demonstration Unit (PDU) in Surrey. The UK’s first cellulosic demonstration facility, the PDU has been used to conduct feasibility studies on a wide range of feedstocks to determine the optimal process for each material for clients at a commercially relevant scale.

In the US

A primary customer for TMO in the US has been Fiberight, which received a USDA conditional loan guarantee commitment for $25 million back in January 2012, but has not yet completed its plant.

The project? A 55,000 square foot facility that will produce cellulosic ethanol by converting municipal solid waste and other industrial pulps into advanced biofuels, as well as using conventional renewable biofuel derived from seed corn waste. When operational, the facility is expected to produce approximately 3.6 million gallons of cellulosic ethanol per year.

Fiberight also received a $2.5 million grant from the Iowa Power Fund in 2010. The company will work with the Benton County landfill to supply a portion of the feedstock for the project. The total project cost is estimated at $59.5 million.

The Fiberight project is a case in point, in terms of the struggles to get first commercial plants built. The original Fiberight-TMO deal was signed in September 2010. It was a 20-year, $500 million deal to supply the American company with its proprietary GM bacteria used to break down MSW into biofuels. Fiberight observed at the time that, in its belief, TMO’s technology was three to five years ahead of the US. Fiberight said at the time that it expected to build 15 plants in the US using TMO’s technology over the the next five years.

Here we are 39 months into that five-year timeline, and still on the first commercial project. Fiberight’s latest estimate is that it will commence construction on a $20 million garbage sorting and recycling complex in Marion, Iowa during the spring.

Some of the sorted waste will be used to make compressed natural gas, while the remainder will be used for cellulosic ethanol production at Fiberight’s Blairstown, IA plant, a former corn ethanol facility being converted over to the new technologies. An agreement with the city of Marion requires Fiberight to have the waste sorting plant in operation by the end of 2014.

The technology and investment — and comparisons to other systems

How much to utilize the TMO system? The investment of $47-$60 million to implement provides up to 15 Mgy in additional fuel production at a traditional 100 Mgy ethanol plant. According to former CEO Hamish Curran, system payback comes within three years.

In this effort, the company doubtless is going to run into competition from the suppliers of fermentable industrial sugars or makers of biobutanol technology, such as Sweetwater Energy, Gevo, Green Biologics or Butamax.

For example, Sweetwater’s deal with Pacific Ethanol supplies customized industrial sugars for the production of cellulosic ethanol. The agreement supports the construction of a cellulosic biorefinery at the Pacific Ethanol Stockton facility capable of producing up to 3.6 million gallons of cellulosic ethanol annually, contingent upon Sweetwater Energy obtaining the necessary financing and permits.

Sweetwater Energy will use its patented, decentralized process to convert locally available cellulosic material, such as crop residues, energy crops, and wood waste into a sugar solution, which Pacific Ethanol will ferment into cellulosic ethanol in Stockton.

Dan Sanders Jr., Vice President of Front Range Energy, which also inked a 15-year, $100 million deal with Front Range Energy, noted that “Supplementing our corn with this sugar allows us to displace some of the volatility of the corn market, with the goal of moving a higher and higher percentage of our production to cellulosic.”

Or take the biobutanol conversion pathway. In that case, Gevo’s retrofit package would set an ethanol producer back roughly $40 million for a 100 million gallons facility, and take 12 months to complete. The process would result in a 20 percent drop in gallonage (to roughly 80 million per year), but it’s isobutanol, which sells for a high premium over ethanol. Think $3.50-$4.00 per gallon compared to $1.94 for the February 2014 ethanol contract.

Metrics

Improved efficiencies at TMO’s 12,000 sq. ft. demonstration facility are projected to produce ethanol for less than two dollars per gallon, marking a crucial step toward commercialization.

Utilizing cassava stalk, TMO’s conversion process will yield 70 to 80 gallons of 2G ethanol per ton of feedstock.

Capital

In December 2011, the company announced that it completed a £7.6M round of financing.  Taken in combination with £4.6m raised in January 2010, the proceeds were the foundation of the company’s working capital as it moves towards commercialization.

The bottom line

There’s nothing more in focus in the past two years than options to convert first-generation ethanol plants to new organisms and processes, and for producers interested in the ethanol market, the TMO organism provides a relatively straightforward means of lifting yield by up to 15 percent.

For now, with concerns about growth in the US ethanol market relating to the current battle over the Renewable Fuel Standard — growth may well be focused on China and Brazil, especially the latter. But capital is tight for Brazilian operators — meaning that companies like TMO are going to have to likely bring along financing packages in order to proceed at an orderly pace and keep their own working capital flows on schedule.

Alternatively, they will have to look to established players with balance sheets. One of the reasons why we have been somewhat mystified, after the dissolution of Blue Sugars, that TMO has not been able to advance a project with Petrobras. Clearly the Brazilian giant is seeking a big solution to facilitate its entry into cellulosic ethanol; clearly $47 million in not going to break the bank for the petroleum giant, And there surely the pressure is on from the Brazilian government to find ways to produce more ethanol without losing opportunities in the sugar market.