New business model for aviation biofuels needed, to avoid price volatility, supply shortages

In Washington state, Evan Smith of Verno Systems published a highly interesting article attributing the failures of first generation biofuels to the failure of the “capital intensive midstream business model” where plants did not control their upstream or downstream costs and revenues, and writes that with respect to airlines and biofuels more of the same is on the way unless models are changed.

“The risk of doing nothing is that biofuels become available to airlines at some uncertain point in the future under supply terms identical to, if not worse than, petroleum jet fuels,” argues Smith. “That is, biofuels will be available in spot purchase agreements at a price that factors in most, if not all of, the carbon market benefits associated with the biofuel.”

Smith contrasts the approach that utilities have taken to a wind development model that affords “advantaged, stable pricing of wind output, and ensured that they would secure any benefits from renewable energy credits generated by those projects,” and now offers a material hedge against price volatility elsewhere in energy markets.

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