“Benjamins for Biofuels”: Part I: Who’s getting money now, and how
Today, Biofuels Digest debuts the first article in a series on where the industry is obtaining financing this year — one year after the seizure of Freddie Mac and Fannie Mae, and the collapse of Lehman Brothers, triggered the global financial meltdown.
In part I of the series, we will look at creative financing sources being used today.
In Part II, we will look at the role of DOE, USDA and international energy ministries in providing liquidity to the bioenergy market as it struggles to finance the construction of advanced biofuels capacity as required in the Renewable Fuel Standard and international mandates.
In Part III, we will explore winners and losers among the companies – those who have adapted to changing conditions, and those who have not.
In Part IV, we will look at the financing landscape over the next 12 months for fuel capacity, feedstock, and infrastructure investments to bring both first-generation and advanced biofuels to a broader market.
Part I: Who’s Getting Money Now, How
1. Cheap sugar, baby.
Many strategies have been mooted, but one perennial is still popular. Have the cheapest way to make a load of sugar. Simple sugars are the new gold: if you can make it fast enough and cheap enough, customers and their own financing backers will beat a path to your door.
Sometimes, though, you can just be the biggest, baddest sugar project in a local market, even if your technology is not quite ready for the 22nd century. This Philippine project went down just such a road, obtaining $30 million in equity from Itochu and others.
In the Philippines, the Japanese firm Itochu is joining local investors in funding Green Future Innovations, which has proposed a $100 million, 14 Mgy sugarcane ethanol plant in San Mariano, Isabela. The investors will put up $30 million in equity, and the remainder will be project debt finance. The project will supply ethanol to the local market, which is moving from an E5 mandate today to an E10 mandate in 2011. The facility will utilize sugarcane from an 11,000 hectare plantation, which will also supply bagasse for a 19 MW power project associated with the development – 13 MW will go to the grid while the remainder will support farming and distilling operations.
2. The Baby Bloomers
Nothing is getting funded in bioenergy this year quite as fast and furiously as algae-related ventures. These young companies, the baby bloomers, have been landing scads of VC and public funding, leaving their brethren in advanced bioenergy scratching their heads in wonder, disbelief, and occasionally a bit of spite.
This government-funded project landed $70.5 million based on stimulating green jobs in a depressed region, and as a carbon strategy. Not to mention the promise of fuel, and biochar that can be converted into energy at a higher clip than simply burning biomass.
In Arizona, the U.S. Department of Energy announced that Arizona Public Service has been awarded $70.5 million from the American Recovery and Reinvestment Act (ARRA) to expand its ongoing algae-based carbon mitigation project.
The project will now be tested with a coal-based gasification system that aims to minimize production of carbon dioxide when gasifying coal. The host facility for this project is the Cholla Power Plant located in Holbrook. Funding for the project expansion falls under the ARRA’s $1.52 billion funding for carbon capture and storage from industrial sources.
Arizona Public Service will scale up a concept for coproduction of electricity and substitute natural gas via coal gasification, while scaling up an innovative reutilization technology where power plant CO2 emissions are biologically captured by algae and processed into liquid transportation fuels.
The project is also expected to provide stimulus to a region which has experienced 13 percent unemployment. The funding will be provided in increments, with the first phase released to fund a feasibility study. In the project, APS will seek to grow algae fast enough to absorb carbon dioxide released from burning biochar to make electricity – the biochar in turn will be created from syngas created from coal. said.
3. Swing Your Partner
Public-private partnerships have been a hallmark of bioenergy projects for quite a while. But never more importantly than now, when local authorities despair over rising costs of landfills, and bioenergy developers are hard-pressed to raise the benjamins for their projects. A Canadian partnership between the city of Edmonton, the province of Alberta (home province of Canadian prime minister Stephen Harper) and Enerkem shows how it can get done – not only for a waste-to-energy projetc, but an R&D center to boot.
In Canada, Enerkem, the City of Edmonton and the Government of Alberta commenced construction of a joint advanced energy research facility. The research facility, a collaboration between Enerkem, the City of Edmonton and the Alberta Energy Research Institute (AERI), will focus on the conversion of various types of waste from industrial sectors and from the municipal sector, to produce green transportation fuels and chemicals.It will be adjacent to the commercial waste-to-biofuels production facility, which will soon begin construction and will produce 10 Mgy of ethanol. Construction completion is scheduled for the first quarter of 2010. Funding for the $10 million center comes from the Government of Alberta through AERI.
4. Drop Right In
Earlier this year, the Digest published a controversial essay, “Drop In, Tune Out, Turn On,” saying that drop-in fuels were the future, and that food-vs-fuel would fade as an issue. While ethanol and biodiesel projects continue to surface with amazing technologies and smart management, drop-in fuels such as renewable diesel have been receiving more and more attention from investors.
In this financing round, Amyris raised $24.7 million – less than it had hoped, but one of the big winners for the summer of 2009 – for its renewable diesel ventures.
In California, Amyris Biotechnologies said in an SEC filing that it has raised $24.7 million in Series C financing after offering $62 million in shares last July to investors. The $24.7 million represented the first closing in the Series C round, and included existing investors Khosla Ventures, Kleiner Perkins Caufield & Byers, TPG Biotech and Votorantim Novos Negocios.
Amyris was ranked #3 in the 2008-09 50 Hottest Companies in Bioenergy.
The company had previously raised $70 million in its Series B round in September 2007 from investors including DAG Ventures, Khosla Ventures, Kleiner Perkins Caufield & Byers and TPG Ventures, and a total of $120 million, according to Amyris spokeswoman Annika Jensen.
5. One man’s Meat is another man’s Feedstock
Mascoma has found an interesting way to advance its business operation: take lignin, a by-product of its cellulosic ethanol technology, and use it as a catalyst for a partnership with Chevron, which has developed a set of lignin-to-transportation fuel technologies on its own.
In New Hampshire, Mascoma announced that it has entered into a feedstock processing and lignin supply agreement with Chevron Technology Ventures. Under terms of the agreement, CTV will provide various sources of lignocellulosic feedstock to Mascoma. Mascoma will then convert the feedstock to cellulosic ethanol through its proprietary process, which produces lignin as a by-product. Mascoma will provide this lignin to CTV for evaluation.
“This is an important moment for us at Mascoma,” said Dr. Jim Flatt, President of Mascoma. “The upgrading of our byproduct lignin to high value transportation fuels is an important step in our effort to prove the effectiveness of integrated biorefineries. It has been our goal all along to make our process as integrated and sustainable as possible.” Lignin is a complex chemical compound derived from woody biomass.
After biomass has been converted through Mascoma’s proprietary Consolidated Bio Processing method, which breaks down the sugars in the cellulose and turns it into ethanol, energy-rich lignin is left over.
6. It’s Been So Long, Darling
Several companies that have long been rumored to be contemplating a bigger role in bioenergy have included Darling, the international rendering giant; Bayer, Total, and ExxonMobil. This summer both Exxon and Darling entered the field via bioenergy partnerships.
Both come with caveats: Exxon’s algae partnership with Synthetic Genomics is conditioned on an undisclosed set of milestones; Darling’s waste-to-fuels partnership with Valero is very publicly conditioned on additional financing from DOE. Not that Darling and Valero are playing hardball with Washington…
In Louisiana, a report published in a recent edition of the Digest, suggesting that Valero was prepared to enter the biodiesel business, was confirmed when Darling International and a Valero subsidiary announced that they intend to form a joint venture to produce 135 Mgy of renewable diesel from animal fat at a plant near Norco. The companies said that the proposed plant would be located next to the existing St. Charles refinery, and that JV would seek DOE loan guarantees to assist with the financing of the facility. The companies said that DOE funding is a must-have in order to go forward with the project.
7. Government is Your Friend
In so many ways, all financing projects are getting through based on some government assistance – grants, tariffs, subsidies, incentives, mandates or other support. But Canada’s quarterly hand-out of $550 million in grants for bioenergy commercialization has been a lifeline in keeping Canada moving forward in developing new products for its beleaguered forest products industry, as well as maintaining forward momentum on climate change.
Companies like Nexterra have received up to $77 million for biomass gasification and other technologies – more than any US project, where the DOE has been more content to make small bets. One note: none of the “small bets” in cellulosic ethanol funded by the DOE in 2008 have been built, while Canadian projects are moving forward. Hint, hint.
In Canada, Sustainable Development Technology Canada said that it will award up to $550 million in its next cleantech funding round. SDTC is a not-for-profit corporation created by the Government of Canada to finance and support the late-stage development and pre-commercial demonstration of clean technologies. SDTC helps companies through the critical juncture when capital and scaling costs become formidable challenges and the risk profile deters many other investors. To date, SDTC has allocated $ 376 million to 154 clean technology projects. An additional $905M million has been leveraged from project consortia members, for a total portfolio value of $1.3 billion. SDTC is accepting applications until October 21, 2009.
8. The Old Switcheroo
When in doubt, turn about. I think a sailor said it first, but US Ethanol managed the same feat when it moved its target from ethanol to power generation, using biomass. Getting it done, making it happen sometimes means changing your whole focus, as when PetroAlgae got going with lemna instead of algae, and here US Ethanol proceeded with…well, not ethanol. Recognizing that ethanol is a great intermediate has also been a hallmark of ventures like ZeaChem that are also getting traction.
In Washington state, US Ethanol has announced that a planned $100 million Northwest Ethanol project will convert now to power generation, and will produce 24 MW from wood-waste, including wood chips and hog fuel.
The original project concept was to produce corn-based ethanol, but the new project will save $27.,5 million in capital costs and makes the project easier to qualify for federal economic stimulus money and other funding sources for biomass projects. The project, which will be built in Longview, will still ultimately include celluosic ethanol in its development, but as a later stage.
The company said in documents that it will issue of the Washington Economic Development Finance Authority tax-exempt economic development revenue bonds to finance the project.
9. Jumping Jack Flash it’s a Gas, Gas, Gas
One of the hot products still getting funded is gasification. Whether it is Coskata for its technology for producing ethanol, or S4’s plasma gasification technology, or the biogas project by the Tulalip Tribes described below – gas is, as they say, expanding. An additional tip: both Tulalip and the Southern Ute tribes have been financing bioenergy, which is considered to be an excellent long-term use of earnings from tribal gaming businesses.
Earlier this year, the Tulalip Tribes and local dairy farmers, with a grant from DOE and USDA, have established a biogas project to remediate dairy waste streams and provide electricity to Puget Sound Energy and the grid. The federal agencies providing funding for the initial feasibility study, and state funds helped with the search for an anaerobic digester. The resulting partnership between Tulalip Tribes, the Sno/Sky Agricultural Alliance, Northwest Chinook Recovery and Washington State Dairy Federation uses 30,000 of waste per day to generate heat and 2 MW of power.
According to the DOE, US Tribal lands have the potential to meet more than 14 percent of America’s energy needs with wind power, and by using solar resources and bioenergy, could meet all of America’s energy needs. 5 percent of US land and 10 percent of energy resources (conventional and renewable) are on US Tribal land.
10. Venture capital as you knew and loved it: “We’re not dead yet.”
It has become the conventional wisdom to write obits for the VC industry, citing the rising cost of projects and the lack of an IPO market for exits. However, as has happened many times before, Khosla Ventures demonstrates that it is called “contrarian” not only by its critics, but its admirers who have poured in $1 billion into the company’s new fund because, like another famous Silicon Valley institution, it can “think different.”
In California, Khosla Ventures has announced two new cleantech investment funds with a combined $1 billion in fresh capital.
The first fund, $250 million in size, will fund new startups, while the larger $750 million fund will provide fresh capital to companies that are seeking funds for scale up and commercialization.
The second fund is an example of an approach to solve the “valley of death” problem that befalls companies as they transition from small early-stage companies and find themselves too big for traditional VC investments but too early to attract project finance interest.
According to a report in Forbes, Khosla will set up a “conflicts committee” for the new funds that will oversee and limit re-investment in old companies that have not succeeded. Bnet.com is reporting that “Talk is growing of a spate of cleantech IPOs down the road.” Khosla invested in Coskata, Amyris, LS9, RangeFuels, LanzaTech, Gevo and KiOR, as well as an interest in Cello Energy, which recently attracted interest when the company was assessed $10 million in liability to an earlier round investor. Among other Silicon Valley giants, Burrill & Company has also commenced development of a new cleantech fund.
11. I want to say one word to you. Just one word. Are you listening? Plastics.
To survive, diversify. That’s the theme of companies like Solazym, ZeaChem and Glycos Bio that are targeting feed, chemicals and nutraceuticals with technologies originally developed for the fuel market. Whether it is ingredients like algal oils for food products, or intermediates like propanediol, companies that focus on a wide-range of higher-value products are getting more funding traction.
Having said that – diversify but do not entirely divert. Markets that look promising today might collapse from oversupply, just as the ethanol market did — the true markets for renewables will remain power and fuel, because they have the size to absorb the capacity that new companies are capable of generating.
In Massachusetts, Novomer announced that it has completed a Series B funding round of $14 million, led by OVP Venture Partners. The company makes low-cost plastics, polymers and other chemicals from renewable feedstocks including CO2 and carbon monoxide. The company has raised $21 million to date, to exploit the potential of catalysts developed by Geoff Coates at Cornell University.
Investors also participating in the round included Physic Venture Partners, Flagship Ventures and DSM Venturing. The company’s first product, a polypropylene carbonate sacrificial binder, was released last year.
12. Only Nixon (and Bioenergy projects) could go to China
In #9, we mentioned the Indian tribes, first encountered by Columbus as he sought out a faster way to get to China. There days, no one is finding a faster path to China than bioenergy project developers. If you haven’t had your passport stamped in Shanghai, Beijing, or Shenyang, time to hit the road and explore options. China’s capital accumulations, growth rate, and growing carbon problems (in this decade it became the world’s #1 CO2 emitter) make it a ripe target for hot technologies.
In Colorado, algae photobioreactor pioneer Solix Biofuels announced the completion of its $16.8 million Series A capital funding that added Shanghai Alliance Investment to its group. Proceeds will be used to finance construction and commencement of operations at the company’s Coyote Gulch Demonstration Facility, which will be operational by late summer 2009. I2BF Venture Capital, Bohemian Investments, Southern Ute Alternative Energy LLC, Valero Energy Corp., and Infield Capital also invested in this round.
Solix COO Dr. Bryan Willson said that the company is currently at around 2500 gallons per acre, and said that the company is on track to achieve cost parity with $80 oil in 3-4 years.
The company has launched a third-generation of its bioreactors, a 20-meter system that integrates CO2 delivery and increase surface area. The system is water-supported to reduce cost. A fourth generation of photobioreactors is now under development. Willson said at the recent Biofuels: Science and Innovation conference in San Francisco that the problem with contamination of open-pond algae systems had not, in his opinion, been yet overcome.
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