The Hottest Slides in Bioenergy: Part V of 5

October 30, 2013 |

Hot-slides-ABLCNFrom the leaders in bioenergy and chemicals—  the real issues and trends — today, a focus on politics, government, financing and deployment.

In California, ABLC-Next has concluded for this year — and industry leadership in R&D, commercialization, policy and finance will reconvene at ABLC 2014 — the Advanced Biofuels Leadership Conference — in Washington DC on April 21-23 of next year.

Between now and then, we are providing highlights from this year’s presentations. Today, part V of our look at the hottest slides from ABLC-Next.

The Voices in the Conversation — giving you their outlook on the most important issues and trends:

Brent Erickson, EVP & Head, Environmental & Industrial Biotechnology Section, BIO

Brooke Coleman, Executive Director, Advanced Ethanol Council

Mike McAdams, President, Advanced Biofuels Association

Lauren Harmon, VP, Government Relations, LanzaTech

Chris Tindal, Director for Operational Energy, US Navy

Paul Bryan, former DOE Biomass Program chief

Chris Groobey, Partner, Wilson, Sonsini

John May, Managing Director, Stern Brothers

Mark Riedy, Partner, Kilpatrick Townsend

Steve Watson, Head of Product Management, Elsevier Biofuel

Brent Erickson, EVP & Head, Environmental & Industrial Biotechnology Section, BIO

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One of the bright surprises of 2013? The revival of E85 ethanol as a strategy for compliance with the Renewable Fuel Standard. Much of that is being driven by high fuel prices and low corn prices.

There’s been evidence of a revival in per-pump sales — and CARD did a study identifying up to 1.8 billion gallons of supply could be channeled through E85 sales. Here, BIO’s Brent Erickson nails it with a slide on the comparative value, on an energy-content basis — turns out that for the past 6-7 months that traditional unleaded gasoline and E85 have been at parity prices and in recent months, E85 has been offering a better deal to consumers.

Add to that 14 million flex-fuel cars and 80% of them within 10 miles of an E85 pump — and you have something like 6 billion gallons of demand in the addressable market, and that makes for a good argument that CARD’s numbers might be right on the money. Moving from successful E10 deployment to successful E85 deployment, says Erickson, is an excellent means of de-pressurizing the debate around the Renewable Fuel Standard.

Brooke Coleman, Executive Director, Advanced Ethanol Council

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Remember taxes — that’s the message from the Advanced Ethanol Council’s Brooke Coleman, who notes that tax policy has traditionally driven new energy adoption. In this case, Coleman adds that the industry has something important to defend (the Production Tax Credit) and much on the table that might be gained — for example, access to Master Limited Partnerships that could open up a new channel of investment for biofuels project deployment.

Mike McAdams, President, Advanced Biofuels Association

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In this slide, Mike McAdams gives the lowdown on the American Petroleum Institute’s outlook on the “right sized” biofuels mandate for 2014. A sharp cut from the scheduled 18.15 billion gallons – down to 14.4 billion. More importantly, the assumption going around industry is that, for a variety of reasons, the axe is likely to fall harder on corn ethanol than advanced biofuels.

That, demonstrates McAdams in this “money slide”, is a myth. In fact, API drops the hammer harder on advanced biofuels and biomass-based diesel. A cut of nearly half in advanced biofuels — despite their bigger carbon gains and relative popularity on Capitol Hill because in most cases they don’t compete with the food chain. Plus, a complete shut-out in biomass-based diesel growth, capped at 1.28 billion gallons in the API outlook — a drop of 20-30 percent from expected final 2013 production.

Lauren Harmon, VP, Government Relations, LanzaTech

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Policy uncertainty got you down, in the US. Hopeful that governments are more steadfast elsewhere around the world? Think again, says LanzaTech’s Laurel Harmon. In this slide, she highlights that policy uncertainty is a global phenomenon.

Though different issues impact different regions — carbon in the EU, change of government in Australia, and market-mix issues in China — governments have retreated from their strongly staked-out positions taken in the 2000s. It’s not all bad news — in some regions, the discussion is not about retreating from renewable fuels but rather how best to incentivize.

Nevertheless, demonstrates that policy stability can continue to be a goal of the renewable fuels movement — but in all likelihood should not be on anyone’s list of “must-haves” for commercialization if commercialization is expected soon. In fact, commercialization may well drive policy certainty, rather than the other way around.

Chris Tindal, Director for Operational Energy, US Navy

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Speaking of good news, the Navy’s Chris Tindal reports in this slide the basic thrust of US Navy policy on green fuels adoption — and the news is good. One supposes that the Navy has more experience with weathering adversity in pursuit of long-term goals and victories.

Highlights? 4 Phase 1 awards have been made in the Defense Production Act, with Phase 2 awards for commercial construction expected by mid-2014. The Navy is seeking to foster the production of 170 million gallons of drop-in compatible (that is, military spec fuels) by 2016.

Fantasy fuels? Hardly. $25 a gallon. Not at all. The target price? Weighted average price is expected to be under $4/gallon in 2013 dollars. That’s less than you pay for conventional fuel at the pump in California.

Who would have thought it possible. Drop-in, mil-spec fuels available at parity prices and in commercial-scale volumes by 2016. The Navy is getting it done.

Paul Bryan, former DOE Biomass Program chief

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As we wrapped up our look at policy, former DOE Biomass Program chief Paul Bryan, now lecturing at Berkeley, gave a sober assessment at opportunities within the DOE with respect to biofuels. Interest has broadened to include “the whole barrel” with chemicals in focus, now. But there’s “little prospect for large, grant-based projects” any time soon. Expect smaller, focused projects aimed at gaps, and long-range R&D for new technology breakthroughs, rather than overall support for commercialization.

In terms of gaps, Bryan projected that DOE Funding Opportunities would emerg shortly for “integrated processes” at smaller scale, “enabling technologies” and “core conversion: technologies.

Chris Groobey, Partner, Wilson, Sonsini

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The bad news? There is still zero USDA 9003 closings in 2012 and 2013 YTD, with Myriant’s USDA B&I loan the only project financing of any sort in 2012 and 2013. There are limited lenders of record for USDA programs, and no “names you know” unguaranteed lenders. It’s hard to get attention of mezz investors and other funny money. Meanwhile, at USDA there are slow pace issues and OMB is suffering from a case of skepticism. All of which has prompted a shift to JVs, strategic investments and non-US projects.

But’s it not all bad, says Wilson Sonsini’s Chris Groobey — in this highlight slide he highlights $181 million in new USDA money for its Section 9003 program to assist commercialization — as well as a new USDA working group on improving transaction velocity. And more money may be coming available as other projects fall by the wayside. He noted the good news that Sapphire Energy paid off it 9003 loan. Applications are due in January — time is of the essence — but Groobey reminded delegates that “USDA needs a win too.”

John May, Managing Director, Stern Brothers

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Speaking of the Myriant B&I financing, John May, whose Stern Brothers group completed that financing, offered this very helpful slide, with a simplified project financing structure. What can projects bring to the table? Five elements, Stern says, are essential. Feedstock agreement, technology licensing agreements, and EPC contract, an operation & maintenance agreement between the project developer and the operator, and offtake agreements. Ideally, longer-term is better, credit worthy counterparties, with as much offered by way of technology guarantees by teh EPCs as possible, But May highlighted the development of technology insurance as an alternative to technology “wraps” and guarantees from the EPCs; wraps have not generally been forthcoming.

Mark Riedy, Partner, Kilpatrick Townsend

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In this slide, one of the longtime gurus of renewable energy project finance, Mark Riedy, highlighted the opportunities with Master Limited Partnerships — legislation is before Congress now to make this mechanism available to renewable fuels.

72 energy-related, publicly-traded MLPs represent a market capitalization exceeding $445 billion as of 12/31/12, up from $350 billion as of 12/31/11, $220 billion as of 12/31/10 and $22 billion as of 12/31/06.

So, that’s a massive capital channel. For investors, here’s the key: MLP tax liability is not subject to a corporate income tax. Taxed at personal, ordinary income level as a pass-through entity (so one, not two, levels of taxation). They average dividends at approximately 6%. Right now, MLPs must derive 90% of their income, at present, from depletable natural reserves such as oil, gas and coal, but are not under an annual percentage income distribution requirement as are REITs.

Steve Watson, Head of Product Management, Elsevier Biofuel

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Market trends, anyone? How about the shift from fuels to chemicals? In his overall presentation, Elsevier’s Steve Watson highlighted that patent applications and journals on bio-based chemicals have rocketed up by a factor of nearly 30 in the past 8 years. Growth really jumped starting in 2008 — when the total of journals and patent apps was under 50 – today, just shy of 300 for the year to date.

But what chemicals, exactly, are driving the interest? Glycerol, first and foremost, which has been on a tear. Next, organic acids  — lactic acid, succinic acid and levulinic acid at the tip of that stack. On the sugar alcohols side, xylitol. Among derivatives of sugar, hydroxymethylfurfural — hard to say, but its a versatile and valued platform chemical.

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