State of the Industry, November 2016: A Digest ABLC Next Special Preview

November 3, 2016 |

bd-ts-110416-ablc-preview-smAll this week, we’ve been highlighting a series of 5 special industry announcements occurring during ABLC Week. The New CEO at the National Biodiesel Board, the historic partnership between the Carbon War Room, SKyNRG and Sea-Tac Airport to shift the way renewable jet fuel is purchased to move renewables faster towards commercial-scale. Also, S2G BioChem, Mondelēz collaborating on a new sweetener process, and REG’s new high performance musk ingredient, its first commercial product for Life Sciences unit.

We have one more major announcement, clearly to go, something that will be made live from ABLC on the opening morning. We also we have the Hot 40 announced at 6pm Pacific Time, the 40 hottest emerging companies in the advanced bioeconomy as voted by our readers and invited international selectors. So, it’s a frenzy, as ABLC week always is.

But what does it mean?

As we noted in our State of the Industry remarks last night at the outset of ABLC, the trendlines are clear. The advanced bioeconomy is making a far more broad assault on everyday norms and materials than back in the days when biofuels were, just about alone, the break-out application.

Shift to nutrition

The momentum began to shift away from grain-based biofuels as earl as 2009, when the Summer of Algae and the rise of aviation biofuels were felt. Not long after, we saw a huge rise in the number of renewable chemicals ventures — many of them responding to runaway oil prices and strategic investor interest in finding alternatives. That interest remains strong today even as oil prices have returned to decade-ago norms.

Meanwhile, the pivot towards nutrition and wellness is strong these past months. Companies such as Ripple Foods and Impossible Foods have raised epic investment rounds and attracted legions of fans to the world beyond the cow as a meat and milk source.

The pivot to biomaterials and genetics

But let’s not overlook two other important trends — the pivot towards biomaterials and the development of genetic toolkits that are changing timelines and possibilities for the entire gamut of companies that use and could use  industrial biotechnology to make useful ingredients and refined end products. So, whether it is fabric via Bolt Threads, leather from Modern Meadow, plastic from Newlight Technologies or Mango Materials, or microbes, genetics, or processes from the likes of Gingko BioWorks, Zymergen, Arzeda, Gen9, Caribou Biosciences or Industrial Microbes — the companies are new, the technologies are new, but the goal of transformation remains the same. Only the pace is changing and the scope. Faster and broader, that’s the trend.

Policy and finance are struggling to catch up and keep up. Going to industrial scale is always a task not for the financially faint of heart — and no more so than in fuels, where the benefits of the technologies in many cases are social ones — rather than accruing directly to the investor.

The Soviet of renewables financing

The current financial structure is really a Soviet, when you think about it, or communistic if you prefer. Individuals (financiers, researchers, engineers, marketers, end-users) are supposed to sublimate their individual interests for the good of the many (the three E’s of emission reduction, energy security or economic development). Ventures with shaky economics in low oil price times, but excellent social attributes, are expected to be produced by the invisible hand of the market based on some vague and unstable expressions of interest from the Kremlin.

The current financial system has had the same rate of success as the old Soviet one. All power to the Soviets! went the cry in 1918, and decades of underperformance and misery were the result.

Here’s a Renewable Fuel Standard, but we won’t enforce it. Here’s your EU Renewable Energy Directive, which we’ll water down to meaninglessness about halfway through and strand all the capacity you’ve built. Here are your loan guarantees, but we’ll suck you dry before you get one so limited in scope that you can’t finance a plant with one. Here are your tax credits, although you’ll get them sometimes years after the production year we intended to incentivize.

Critics describe this as policy instability, as if it is built on some legislative volcano that might erupt and might not. In actuality, renewable fuel and transport policy is built on a beach, and gets swamped with every tide. You can set your watch by this so-called policy instability.

Transferring assets to the Soviet

If finance is to be available, there’s one way and only one way. The expectation that private interests will transfer assets into the Kremlin in happy support of social goals has to be tossed out. The social benefits must be transferred to the investors, not the users, the blenders, the public or anyone else. If there’s rural economic benefit that society gains from sustainable transport projects,  a portion of that benefit must be monetized and locked into the project for the investors, like candy inside a piñata — perhaps hard to reach but in no doubt that the reward is there. Same goes for greenhouse gas emissions or energy security. These social benefits must be measured in dollars and a meaningful portion of these assigned as an incentive to investors.

If there are technology risks, it is the public’s benefit to proceed ahead and take those ricks, not the investor’s. The public must offer loan guarantees for 100% of technology failure, not 60 or 80 percent of it.

Imagine offering federal bank deposit insurance to consumers at, say, 60% of the deposit. It’s ludicrous, it would cause a run on banks not seen since the Great Depression. Bank deposits (up to a reasonable figure) are 100% guaranteed by the FDIC for the obvious reason, and it is the same for loan guarantees. Let the debt providers provide the capital — which they are excellent at — instead of taking the risk, which they are terrible at.

Overcompensating the pioneer

Without a revolution in the financing of renewables — overcompensating the pioneers instead of under-compensating them — sustainable transport will remain in the same barren, undeveloped state that California lingered in for hundreds of years until Spain, then Mexico and finally the United States got the right idea about providing whopping incentives to pioneers.

In the days of the Homestead Act, 160 acres awaited a pioneer, free of charge, so long as they stayed with the land and invested their own effort in improving it. Railroads were granted huge blocks of land to help them monetize the construction of a transcontinental transport system.

Industrial pioneers are supposed to get the huge rewards, not a “thank you” and a photo opp. They’re not buying Girl Scout Cookies.

Direct and tangible rewards for pioneer investors, paid for out of the social benefits that these projects bring, will do what they have always done with greedy investors — and who is not greedy when it comes to investment? It gets the job done. And now, the technologies are already, they are impressive and broad — and some high-margin, small-market ones are so financially compelling that they will find corporate support, regardless of whether there are changes at the White House or not.

But for the billions of pounds of commodity-priced bulk fuels and chemicals — reaching the next level requires a re-thinking of the sharing of the wealth.

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