INSIDE: BIOFUELS TAX CREDITS EXTENDED IN 11TH HOUR JANUARY 2011
Growth Paths There’s More Than One Way to Grow a Biorefining Company Page 30
Plus Going Public
in Today’s Market Page 26
AND With 8 Trade Associations, Biofuel Producers Search for Unity Page 20
www.biorefiningmagazine.com
CONTENTS |
JANUARY ISSUE 2011 VOL. 02 ISSUE 01
20
POLICY
Searching for Unity
Is it strength in numbers or too much confusion? BY ERIN VOEGELE
26
30
FINANCE
BUSINESS
Stepping into the Public Light
Breakout Potential
Going public can be the right move―for some BY BRYAN SIMS
Different approaches to growing companies BY LUKE GEIVER
CONTENTS DEPARTMENTS 4 Editor’s Note
9 Legal Perspectives
6 Advanced Advocacy
10 Business Briefs
Reinstated BY RON KOTRBA
Washington’s Shotgun Wedding BY MICHAEL McADAMS
7 Industry Events
Biorefinery Project Finance Techniques BY DEAN R. EDSTROM
People, Partnerships & Deals
12 Startup
Biorefining News & Trends
Upcoming Conferences & Trade Shows
8 Talking Point
Tax Strategies for Biorefining Startups BY DEBORAH SWEENEY JANUARY 2011 | Biorefining | 3
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EDITOR’S NOTE
The huge news at press time is the signing into law of the big $850-plus billion tax bill that included the retroactive reinstatement of the biodiesel and renewable diesel blender credits, as well as the exten-
REINSTATED RON KOTRBA, EDITOR RKOTRBA@BBIINTERNATIONAL.COM
sion of the volumetric ethanol excise tax credit; not to mention extension of the investment tax credit, section 1603, and the alternative fuels mixture credit. For those who have been living under a rock for the past year, the biodiesel and renewable diesel tax credits expired at the end of 2009 and went through brutal ups and downs throughout the past year in anticipation of renewal. The lapse had devastating effects on the U.S. biodiesel industry, and, less quantifiably so, may have also depressed domestic renewable diesel project development. Earlier this year, the U.S. ethanol industry began to question whether its credit would suffer the same fate as the renewable and biodiesel credits did, and all of the hardship that came with it. Interestingly, the biodiesel industry, which has been proudly displaying its designation as the first commercially available advanced biofuel in America (per U.S. EPA’s calculation of lifecycle reduction of greenhouse gas emissions compared to baseline petroleum diesel), began to adapt to a world without a tax credit—one can argue that the biodiesel industry has been forever changed as a result of its experiences in 2010—as biomass-based diesel renewable identification number (RIN) prices soared in recent weeks to 80-plus cents a credit. With each gallon of biomass-based diesel producing 1.5 RINs, this comes out to $1.20 per gallon, a fifth more than the $1 per gallon tax credit. Producers registered under EPA’s RFS2 program were taking advantage of this, and plants were beginning to manufacture fuel again. The downside to RINs, however, is the oncea-year reporting period, causing volatility in the RIN market place: prices spike as obligated parties scramble to meet their obligations by the end of the year, after which prices can dip dramatically. The retroactive nature of the biodiesel and renewable diesel tax credits will provide a cash injection to the industry, specifically for those who held on to the hope that the credit would come back and continued blending biodiesel, and the surety of the credit through 2011 will surely be positive. But the trade associations, such as the Advanced Biofuels Association and the National Biodiesel Board, will have their work cut out for them in 2011 as they push for multiyear extensions to bring investor confidence back into their respective sectors.
FOR MORE NEWS, INFORMATION AND PERSPECTIVE, VISIT BIOREFININGMAGAZINE.COM/THEBIOREFININGBLOG
ASSOCIATE EDITORS Luke Geiver this month gives us “Breakout Potential,” a feature article that explores the idea that there’s more than one way to successfully grow biorefining companies.
4 | Biorefining | JANUARY 2011
“Searching for Unity,” written by Erin Voegele, examines the dynamics behind the eight trade associations vying for political wherewithal on Capitol Hill for their members.
Bryan Sims’ feature article, “Stepping into the Public Light,” investigates the drive behind some biorefining companies going public to establish themselves and grow.
EDITORIAL EDITOR Ron Kotrba rkotrba@bbiinternational.com ASSOCIATE EDITORS Erin Voegele evoegele@bbiinternational.com Luke Geiver lgeiver@bbiinternational.com Bryan Sims bsims@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com
ART ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com
PUBLISHING CHAIRMAN Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com VICE PRESIDENT Tom Bryan tbryan@bbiinternational.com
SALES VICE PRESIDENT, SALES & MARKETING Matthew Spoor mspoor@bbiinternational.com EXECUTIVE ACCOUNT MANAGER Howard Brockhouse hbrockhouse@bbiinternational.com SENIOR ACCOUNT MANAGER Jeremy Hanson jhanson@bbiinternational.com ACCOUNT MANAGERS Chip Shereck cshereck@bbiinternational.com Marty Steen msteen@bbiinternational.com Bob Brown bbrown@bbiinternational.com Gary Shields gshields@bbiinternational.com Andrea Anderson aanderson@bbiinternational.com Dave Austin daustin@bbiinternational.com CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com SUBSCRIBER ACQUISITION MANAGER Jason Smith jsmith@bbiinternational.com ADVERTISING COORDINATOR Marla DeFoe mdefoe@bbiinternational.com
Customer Service Please call 1-866-746-8385 or email us at service@bbiinternational.com. Subscriptions to Biorefining are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States, Canada or Mexico To subscribe, visit www.biorefiningmagazine.com or you can send your mailing address and payment (checks made out to BBI International) to: Biorefining Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to (701) 746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at (701) 746-8385 or service@bbiinternational.com. Advertising Biorefining provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Biorefining advertising opportunities, please contact us at (701) 746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Biorefining Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or e-mail to rkotrba@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.
Please recycle this magazine and remove inserts or samples before recycling COPYRIGHT Š 2010 by BBI International
JANUARY 2011 | Biorefining | 5
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ADVANCED ADVOCACY
Washington’s Shotgun Wedding Celebrating the long-awaited passing of U.S. biofuels tax credits BY MICHAEL McADAMS
T
he new year is likely to bring an event that Washington hasn’t seen in a very long time. A president trying to get back on his feet after a sizeable mid-term electoral defeat, while trying to maneuver a legislative and political landscape made increasingly complex not only by the newly empowered Republicans, but also factions from within his own party. It’s likely to play out much like an old-fashioned shotgun wedding with a future father in-law ready to call out any missteps by an anxious groom. The nuptials began with a tenuous legislative dance last month when, on Dec. 15, the Senate, by a vote of 81 to 19, approved President Obama’s compromise tax package. The following day, despite three months of rancorous positioning, the House of Representatives agreed to the Senate bill by a vote of 277 to 148. For the biofuels industry this was a long time coming. It has been more than two years of waiting that has resulted in job losses among our companies, so this was the best news of the holiday for those who might now be able to go back to work building better fuels. The final bill, which the president quickly signed into law following the late night vote in the House, renewed the existing biofuels tax credits. Specifically for the ethanol industry, Congress renewed the current ethanol tax credit at 45 cents per gallon despite a highly contentious and political fight waged by a significant opposition. But the credit was simply extended until Dec. 31. The bill also extended the ethanol tariff for an additional year and left the current 54-cent tariff rate in place. As for the biodiesel and renewable 6 | Biorefining | JANUARY 2011
diesel industries, the bill retroactively extended the biodiesel and biomass-based diesel credits from Jan. 1, 2010, until Dec. 31, 2011. The same treatment was afforded the alternative fuels mixture credit. Additional effort to give algae producers parity with cellulosic producers, by adding them to the definitions of the cellulosic production tax credit, simply ran out of time and encountered resistance to any new provisions being placed in the package. The algae industry and others made a significant and worthy effort to position this issue as one of the priority amendments to be considered when the new Congress goes to work. The tax package provides our industry much needed and long awaited economic encouragement, but there is much work to be done in the new year. At the end of the year-long push, the combination of biofuels associations and individual companies were unable to convince the Congress to add biofuels under coverage of the Investment Tax Credit, section 1603. In fact, the president’s original compromise with the Republican leadership struck the provision from continuation. This was largely the result of the Republicans’ focus on repealing new provisions which had been authorized under the American Recovery Act. Once the bill was released to Capitol Hill, lawmakers of both parties reviewed the effectiveness of the 1603 provision and were compelled to extend the refundable credit for an additional year. Our industry’s efforts to add a new component fell short, however, due to concerns over additional added cost and simply time. In somewhat of a surprise, the Senate Appropriations Committee attempted to
cut back the Biomass Crop Assistance Program at USDA, a move that was withdrawn at the last hour. At press time, a continuing resolution was being considered that would fund the government at current levels, including the BCAP program at 2010 levels. Our industry’s enhanced efforts to work more closely together over the past six months must continue, with an even clearer focus on how to sustain current first-generation fuels while building the necessary public policy to expedite the deployment of the second generation advanced biofuels. We will return to a new Congress in 2011 with a quarter of the entire House being freshman members. This will require an extensive and compelling education effort on behalf of the biofuels industry. The political fights that we witnessed over the past six months on tax policy will not go away. They will be renewed afresh and a new policy discussion will begin. The biofuels industry will need to be ready to engage as a collective force once again, as we will be faced with the last year of the tax provisions, again. Perhaps our New Year’s Resolution as an industry should be to develop a comprehensive game plan that reflects a reasonable set of requests from all of us associated with the biofuels industry. A toast to the new year from the nation’s capital. Author: Michael McAdams President, Advanced Biofuels Association (202) 747-0518 mmcadams@bhfs.com
EVENTS CALENDAR |
International Biomass Conference & Expo
May 2-5, 2011
America’s Center, St. Louis, Missouri The largest, fastest growing biomass event was attended in 2010 by 1,700 industry professionals from 49 states and 25 nations representing nearly every geographical region and sector of the world’s biomass utilization industries—power, thermal energy, fuels and chemicals. Plan to join more than 2,500 attendees, 120 speakers and 400-plus exhibitors for the premier international biomass event of the year. (701)746-8385 | www.biomassconference.com
Fuel Ethanol Workshop & Expo
June 27-30, 2011
Show Me the World’s Largest Biomass Event 5/2
Get ready, Show Me State, for the largest, most intense biomass conference of the year because the 4th annual International Biomass Conference & Expo is coming to the America’s Center May 2-5, in St. Louis. This dynamic event unites industry professionals from all sectors of the world’s interconnected biomass utilization industries: biobased power, thermal energy, fuels and chemicals. Organized by BBI International and coproduced by Biomass Power & Thermal and Biorefining magazines, the conference brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop―the world’s premier educational and networking junction for all biomass industries. The event is where future and existing producers of biobased power, fuels and thermal energy products go to network with waste generators and other industry suppliers and technology providers. It’s where project developers converse with utility executives; where researchers and technology developers rub elbows with venture capitalists; and where Fortune 500 executives and influential policy makers sit side-by-side with American farmers and foresters. The largest, fastest-growing event of its kind, the 2011 show is expected to draw nearly 2,500 attendees. In 2010, 1,700 attendees registered, bettering 2009’s attendance by 80 percent and doubling the attendance of the inaugural show. This growth is fueled by a world-class Expo and an acclaimed program. The 2011 program will include 30-plus panels and more than 100 speakers, including 90 technical presentations on topics ranging from anaerobic digestion and gasification to pyrolysis and combined heat and power, all within the structured framework of six customized tracks: Crop Residues; Dedicated Energy Crops; Forest & Wood Processing Residues; Livestock and Poultry Wastes; MSW, Urban Wastes & Landfill Gas; and Food Processing Residues. The conference will help biomass industry stakeholders identify and evaluate technical and economic solutions that fit their operation. It’s time to tap into the revenue generating potential of sustainable biomass resources. Get started today by registering for the 2011 International Biomass Conference & Expo at www.biomassconference.com.
Indiana Convention Center, Indianapolis, Indiana The FEW is the largest, longest-running ethanol conference in the world, and is renowned for its superb programming which focuses on commercial-scale ethanol production—both grain and cellulosic—operational efficiencies, plant management, energy use, and near-term research and development. Speaker abstracts are being accepted through February 25th. (701)746-8385 | www.fuelethanolworkshop.com
International Biorefining Conference & Trade Show
September 14-16, 2011
Hilton Americas – Houston, Houston, Texas This event will unite bioconversion technology providers and researchers from around the world with agriculture, forestry, and refining professionals to discuss and examine the scale-up and commercial establishment of advanced biofuels and biobased chemicals. Organized by BBI International and produced by Biorefining magazine, the International Biorefining Conference & Trade Show brings together agricultural, forestry, waste, and petrochemical professionals to explore the value-added opportunities awaiting them and their organizations within the quickly maturing biorefining industry. Speaker abstracts are now being accepted online. (701)746-8385 | www.biorefiningconference.com
Northeast Biomass Conference & Trade Show
October 11-13, 2011
Westin Place Hotel, Pittsburgh, Pennsylvania With an exclusive focus on biomass utilization in the Northeast—from Maryland to Maine—the Northeast Biomass Conference & Trade Show is a dynamic regional offshoot of Biorefining and Biomass Power & Thermal magazine’s International Biomass Conference & Expo, the largest event of its kind in the world. The 2nd annual conference will connect current and future producers of biomass-derived electricity, industrial heat and power, and advanced biofuels, with waste generators, aggregators, growers, municipal leaders, utilities, technology providers, equipment manufacturers, investors and policymakers. (701)746-8385 | www.biomassconference.com/northeast
JANUARY 2011 | Biorefining | 7
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TALKING POINT
Tax Strategies for Biorefining Startups Helpful hints for business H growth in the bioenergy sectors g BY B Y DEBORAH SWEENEY
B
iobased fuel and chemical firms are gaining increased public and scientific attention, driven by factors such as oil price spikes, the need for increased energy security and concern over greenhouse gas emissions from fossil fuels. As popularity increases, so does the demand for biofuel- and chemical-based products. As such, many firms are interested in circulating their products throughout the marketplace. As always, the tax implications of any business decision must be considered. Several strategies exist to make taxes and the cost of starting a company manageable and less expensive for these firms, and all small businesses. No doubt the number of startup biofuel and chemical firms will rise as a result of the industry’s growing popularity. The Small Business Jobs Act, enacted by President Obama in 2010, helps these businesses in several ways. The startup expense deduction allows taxpayers to deduct up to $5,000 in qualified trade or business startup expenses. Startup expenses are defined as costs related to creating an active trade or business, or investigating the creation or acquisition of an active trade or business. For those businesses already established, the act contains an S Corporation Built-in Gain Period. A C corporation that converts to an S corporation, usually for tax purposes, now must hold appreciated assets for five years, rather than the previously existing 10 years, to avoid the tax on the appreciation at the highest tax rate (35 percent). Shortening the hold period by
8 | Biorefining | JANUARY 2011
five years will help S corporations save on taxes for appreciated assets. In terms of tax strategies, businesses should first find a tax-friendly business structure. The first step in reducing tax liability is to make sure that your business is structured as a tax-friendly entity. Some forms of business entities require that the business pay taxes on the money it earns throughout the year and that the business owner pay taxes on the income he or she receives. This results in a double taxation scheme that costs the business twice. Most types of business entities, however, do not have to pay double taxes, and any tax owed is paid by the owner who receives the income. When structuring your business then, make sure you choose a form of business that will avoid double taxation and help you meet your tax saving goals. Next, become an excellent bookkeeper and learn your deductions. Whether or not you have an accountant or a bookkeeper, maintaining extremely accurate records and learning the potential business deductions is key to paying lower taxes and avoiding a tax audit. Hiring an accountant to manage your taxes is a great idea and helps itemize expenses into the most tax efficient filing. There are many deductions for small business owners that the average entrepreneur may not even know about. This is especially true within the biofuel and chemical industries as the American Recovery Act amends several provisions of the U.S. Tax Code, expanding or providing new renewable energy incentives for businesses and utilities that produce or utilize renewable energy.
These incentives generally take the form of tax credits for the production of electricity from and facilities that utilize wind, refined coal, geothermal, biomass, solar, and combined heat and power systems. Learn the list of deductions and, after that, write everything down. The combination of knowing what deductions are allowable and meticulous record keeping will make tax returns easier to manage. Finally, make sure your taxes are done properly and on time. If for some reason you can’t have your taxes done by the deadline, filing an extension as soon as possible, and before the deadline, avoids any potential problems with the IRS. Making estimated tax payments too will reduce the burden when it comes time to pay the whole bill and will help guarantee that when that day comes, you will have the money available. If after all of your preparation, you don’t have money to pay your taxes, the IRS offers a variety of programs to help you out, including payment and settlement plans. The recent enactment of tax incentives for alternative energy means potential for the biofuel and chemical industry. Firms seeking to circulate their products throughout the marketplace should consider creating a tax strategy in order to avoid unnecessary expenses so they can focus on maximizing profit and efficiency, thus resulting in success for their business. Author: Deborah Sweeney CEO, MyCorporation Business Services Inc. (818) 224-7642 dsweeney@mycorporation.com
LEGAL PERSPECTIVE |
Biorefinery Project Finance Techniques Detailed planning is required to fund projects successfully BY DEAN R. EDSTROM
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roject finance is a creative, sophisticated means to secure debt and other financial resources to construct major industrial facilities with minimum reliance on recourse to equity owners. The principal advantage of project finance is reducing the impact of the financing package on the owners’ balance sheet and other lending relationships. The techniques developed in project finance can be useful in the biorefining industry to finance capital-intensive projects like biorefineries, chemical plants and similar facilities. The key characteristic of project finance is that the “project” is intended to support the financing required for its construction and operation, without significant dependence on the balance sheets or guarantees of project equity owners. The equity participants might be a single owner, or two or more joint venture parties, typically with an interest in the plant’s feedstock or production. How the equity is divided is likely to depend more on input or off-take relationships and management or operating expertise than on actual cash invested, or land and equipment provided. The equity may be divided into classes having different interests and rights. The debt financing is even more likely to be stacked with different rights and returns. Typically, one or more banks or financial institutions will provide long-term senior debt for a significant percentage of the as-built value of the asset, secured by a first mortgage on that asset. Subordinated debt of one or more tranches will enjoy a higher return based on the additional risk undertaken. Subordinated debt to finance equipment and working capital will most likely be secured by equipment, inventories and receivables. In each case, the lenders will focus principally on the anticipated
cash flow of the project to sustain principal and interest payments on their loans. The package may also include other financial resources or benefits integral to the enterprise’s financial viability, such as industrial revenue bonds, tax incentives, government grants and similar enhancements. Matching the requirements of the project with the applicable tax regime can be both challenging and productive. For instance, a major fertilizer plant was constructed in a manner to qualify as movable personal property to avoid being taxed as real property. The political dynamics and contractual arrangements need to be analyzed carefully to assure that government enhancements will remain in place for the duration of the project, or at least until the debt has been repaid. Project cash flow will typically depend on long-term contracts to supply feedstock, energy and transportation, and to purchase outputs. The contracting parties could be other major players in the industry and could be one or more of the equity owners of the project. These supply or purchase agreements will normally remain in place for the duration of the project or financing, subject to some latitude for adjustments if circumstances change. If one party is on both ends of the production stream, a tolling agreement might be considered. Management or operating agreements will be required. In all cases, the lenders will evaluate the strength and staying power of the contracting parties because they will inevitably be the source of the cash flow required to service the debt. If the equity owners are parties to these agreements, they will indirectly provide some measure of guarantee. The lenders will insist on several financial and operating covenants in their loan agreements. Both the project developers and
lenders will need to assess ssess the likelihood of noncompliance with covenants and the consequences of failure or default on the part of the project. Lenders may require limited recourse to equity participants or contracting parties in the event the project’s ability to meet its obligations is threatened. Although separate lending agreements may be carefully drafted between each financing source and the project, intercreditor agreements are advisable to clarify the differing rights of the lenders among themselves. Bringing all of these pieces together requires lengthy and detailed planning. Financial projections will be essential, including highly credible construction and equipment cost figures and operating forecasts buttressed by long-term agreements. The plant location will determine the availability of grant and tax benefits and the operating and tax expenses to be incurred. A detailed schedule or critical path from planning stage to operations will guide the process. The team required to accomplish planning will include finance, operations, sourcing and marketing, legal and accounting representatives. Interdependent agreements will address everything from construction to asset ownership upon debt repayment. Variables will make almost every project unique; imagination and flexibility will be essential. Early discussions with financing sources will be important to assure a realistic plan. The conceptual phase isn’t too early to approach potential financing sources. Outside advisors will bring expertise to the table to produce a financing package that will be viewed favorably by potential lenders. Author: Dean R. Edstrom Partner Attorney, Lindquist & Vennum (612) 371-3955 dedstrom@lindquist.com
JANUARY 2011 | Biorefining | 9
BUSINESS BRIEFS Getting Funds Along with the $2.5 million Syngest received from the Iowa Power Fund and Iowa Office of Energy Independence, the San Francisco-based company also raised $3.5 million in new cash equity.
San Francisco-based SynGest Inc. has been approved to receive $2.5 million from the Iowa Power Fund and Iowa Office of Energy Independence for the design and engineering stage of a biomass-to-ammonia production facility in Menlo, Iowa. Contingent upon receiving the state funding, SynGest managed to successfully raise an additional $3.5 million in new cash equity, according to CEO Jack Oswald. The future facility, expected to carry a total capital cost of $135 million, will utilize approximately 130,000 tons of decommissioned railroad ties as feedstock to produce 50,000 tons of biobased anhydrous ammonia annually through a pressurized oxygen-blown biomass gasifier operating in an expanding bed fluidized mode. Butamax Advanced Biofuels LLC announced in December that the U.S. Patent and Trademark Office has granted a patent encompassing Butamax’s isobutanolproducing biocatalyst. The patent is titled, “Fermentive Production of Four Carbon Alcohols.” Butamax has filed an extensive patent portfolio for its proprietary technology across the biofuel value chain, including biocatalyst, bioprocess and fuels. A number of Butamax’s patent applications have been successfully accepted into the USPTO’s Green Technology Pilot Program for accelerated review. “This biocatalyst patent is a reflection of our 10 | Biorefining | JANUARY 2011
first-mover position in isobutanol,” says Tim Potter, CEO. As more of our patent portfolio matures, our patents will play an important role in our efforts to develop and commercialize biobutanol for the global transport fuel market.” German airline Lufthansa has announced plans to fuel select commercial passenger flights with a 50/50 mix of biofuel and traditional kerosene jet fuel. According to the airline, the project is backed by the German government within the framework of its aviation research program, which aims to increase the sustainability of air traffic. Biofuel used for the project will be procured from Neste Oil, which recently began operations at a renewable diesel plant in Singapore. The six-month trial program is slated to begin in April. During the research period an Airbus A321 that travels commercially along the Hamburg-Frankfurt-Hamburg route will be fueled with the 50 percent biofuel mix, pending the fuel’s certification. According to Lufthansa, the primary goal of the project is to conduct a long-term trial to study the effect of biofuel on engine life and maintenance. Neste Oil has announced the start-up of its new renewable diesel plant in Singapore. Production at the facility will be ramped up on a phased basis. According to Neste Oil, the 800,000 ton (240 MMgy) plant was completed on schedule and on budget. A similar-sized NExBTL
plant, which is under construction in Rotterdam, Netherlands, is expected to be commissioned in the first half of 2011. In addition, Neste Oil already operates two smaller renewable diesel plants in Finland. According to Jarmo Honkamaa, Neste Oil’s deputy CEO and executive vice president, all the plants are able to use a wide variety of renewable raw materials to produce NExBTL diesel. “Currently Neste Oil uses palm oil, rapeseed oil and waste animal fat sourced from food industry to produce its NExBTL diesel,” he says. Neste Oil’s NExBTL production process involves hydrotreating feedstock.
SOURCE: DOW CORNING
ILLUSTRATION: SYNGEST INC.
People, Partnerships & Deals
Coming Soon Dow Corning HY-3200 Emulsifying Soy Wax is a biobased home care product soon to be available on the market.
Bolingbrook, Ill.-based Elevance Renewable Sciences Inc. and Dow Corning Corp. have introduced a new biobased home-care product, Dow Corning HY3200 Emulsifying Soy Wax, the third in a growing family of biobased product lines based on Elevance’s novel metathesis of natural lipids. According to Andy Shafer, vice president of sales and market development for Elevance, Dow Corning HY3200 provides emulsifying characteristics that the industry typically receives from polyethylene glycol, a polyether compound traditionally made from petroleum and used in various industrial manufacturing applications. He added that the biobased ingredient also acts as a thickening agent that simplifies formulations. The product will be commercially available in 2011.
A researcher at the University of Arkansas has created the first methane-producing microorganism that can metabolize complex carbon structures. The project could lead to the development of a microbial process to recycle waste products, such as glycerin from biodiesel plants, into a renewable form of natural gas. According to David Lessner, an assistant professor of biological sciences who is leading the research, the project focused on methanogens, which are methane-producing anaerobic microorganisms. “These are microorganisms that grow only in anaerobic—or oxygen free—environments, but they are found in very diverse environments,” he says. “They grow by producing methane gas as an end product.” The research conducted by Lessner
Tweaking Genes University of Arkansas assistant professor Daniel Lessner says methanol strains generated by manipulations were carried out in the anaerobic chamber in his lab.
and his colleagues focused on a strain of methanogen known as Methanosarcina acetivorans. According to Lessner, this particular strain was used because it can naturally consume more substrates or chemicals than most other methanogens.
PHOTO: ZEACHEM INC.
The Organic Matrix Combustion catalyst (OMX) and FT microchannel reactor system have won the Institution of Chemical Engineers (IChemE) 2010 award as the Innovative Product of the Year. Made by U.K.-based Oxford Catalysts Group, the catalyst is part of the winning system that features a novel FT microchannel reactor at a plant in Austria. According to Matt Stalker of IChemE, the awards “are the most prestigious in chemical and process engineering worldwide. They are global in reach, attract entries from all over the world,” and have been presented for the past 17 years, he said. The OMX is characterized by crystallites that feature a terraced surface to enhance activity, combining a metal salt with an organic compound to create a process that stabilizes the catalyst when used in the FT microchannel reactor, which utilizes 900 microchannels in the millimeter range. As the winner of the bioprocessing award, Stalker said the OMX/FT reactor system was considered the best product originating from the process industries to be manufactured commercially after July 2009.
PHOTO: UNIVERSITY OF ARKANSAS
BUSINESS BRIEFS |
In Progress Zeachem is using the $25 million DOE grant to help build its Oregon biorefinery.
Lakewood, Colo.-based ZeaChem Inc. achieved two key financial milestones that will help bring online its 250,000 gallonper-year demonstration-scale biorefinery currently under construction in Boardman, Ore. First, the company obtained a guaranteed maximum price, under the EPC agreements with engineering firm Burns & McDonnell, for construction of the project’s core facility. Second, ZeaChem intends to use a $25 million grant from the U.S. DOE to fund the independent front and back-end cellulosic process components, which will enable ZeaChem to produce fuel-grade cellulosic ethanol as well as intermediate chemicals
from nonfood biomass. John Nobles, president of Burns & McDonnell’s process and industrial group, says, “Since 1898, we have built a reputation of making our customers successful with practical technology advancements and predictable costs. We look forward to helping ZeaChem deploy their technology.” As part of the Obama Administration’s continuing commitment to accelerating R&D to develop a more sustainable transportation system, the U.S. DOE is accepting applications for up to $30 million in total funding for small-scale process integration projects that support the development of advanced biofuels. Specifically, the funding opportunity provides up to $30 million over the next three to four years to support as many as five projects. The projects will focus on optimizing and integrating process steps that convert biomass into biofuels and bioproducts that will eventually be used to support hydrocarbon fuels and chemicals. These process improvements could include pretreatment methods that alter the biomass to improve the yield of sugars in subsequent process steps; less costly and more efficient enzymes that produce sugars; and fermentation organisms and catalysts that convert the sugars into fuel and chemical intermediates. Successful applicants are expected to demonstrate the research potential to improve the economics and efficiency of their proposed processes. SHARE YOUR INDUSTRY BRIEFS To be included in Business Briefs, send information (including photos and logos if available) to: Industry Briefs, Biorefining, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You may also fax information to (701) 746-8385, or e-mail it to rkotrba@bbiinternational. com. Please include your name and telephone number in all correspondence.
JANUARY 2011 | Biorefining | 11
STARTUP
Biorefining News & Trends
Empowering Simulations with Supercomputing The U.S. DOE has awarded supercomputing time to three biofuel-related projects through its Innovative and Novel Computational Impact on Theory and Experiment program. The awarded time will allow researchers to use computer simulations to perform virtual experiments that would otherwise be impossible or impractical to perform. One of these three teams will be performing complex simulations to explore how biojet fuel performs in aircraft engines, as part of a project titled, “Large Eddy Simulation of Two-Phase Flow Combustion in Gas Turbines.” The project, led by Thierry Poinsot, a researcher at the European research institution CERFACS, has been awarded 10 million processor hours. According to Poinsot, the supercomputing time his team was awarded will be used to simulate the performance of existing aircraft and helicopter engines; specifically the conversion channels of these engines. “This is the place where the kerosene and the air are mixed and burned to get the power, it is really the heart of the engine,” he says. Existing aircraft engines have been optimized to effectively and efficiently burn kerosene, not biofuels. Before changing to a new fuel source, such as biojet fuel, it is important to understand how the engine will react. This is because any change in fuel can affect engine stability, such as oscillation, Poinsot says, which could lead to dangerous in-flight problems. Simulating biobased fuel use in existing aircraft engines with the DOE’s supercomputers will allow Poinsot and his team to identify possible problems in less risky conditions. “We want to study combustion stabilities for normal fuels, the ones we have today,” Poinsot says. “Then we plan to use biofuels to see if they could lead to prob12 | Biorefining | JANUARY 2011
PHOTO: ARGONNE NATIONAL LABORATORY
Biofuels projects awarded time on U.S. DOE’s most powerful supercomputers
Computing Power Argonne National Laboratory’s IBM Blue Gene/P supercomputer has a computational capacity roughly equivalent to 26,000 laptops.
lems in terms of instabilities. That is the ultimate goal of the project.” Although the biofuels component of the project is new, Poinsot says his team has been studying aircraft engines through simulations for several years. He also notes that he expects this line of study to continue well into the future. “Demand for these studies is huge in Europe at the moment, and it’s about the same in the states actually,” he says. “Every company is looking for a way to predict engine performance.” In addition to publishing the results of the research in scientific journals, Poinsot says he expects the outcomes to provide real and immediate benefits to industry. “Since we are computing real engines, we hope to be able to give some guidance to companies working on these engines, to try to avoid instability,” he says. “That is the goal of the program of course, to try to control these things at the design stage.”
Biofuels projects at Oak Ridge National Laboratory and the University of Washington have also been awarded supercomputing hours. An ORNL project led by researcher Jeremy Smith, titled, “Cellulosic Ethanol: Simulation of Multicomponent Biomass System,” was awarded 30 million processor hours. The project aims to provide simulation models of biomass and biomass enzyme interactions, with the ultimate goal of allowing for improved second-generation biofuel yields. The University of Washington project, titled, “Towards Breakthroughs in Protein Structure and Design,” has also been awarded 30 million process hours. The project, led by UW researcher David Baker, will include simulations of “de-novo” enzyme design for fixation of carbon dioxide to create biofuels. —Erin Voegele
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Advancing Algae
NMSU embarks on extensive algae initiative funded by the U.S. military Researchers at New Mexico State University have been awarded a $2.3 million grant from the U.S. Air Force to study all aspects of algae jet fuel production, from cultivation to utilization. According to Shuguang Deng, a NMSU professor of engineering leading the study, the project is slated to last approximately 12 months. One key aspect of the study is to determine if NMSU’s technology is feasible, Deng says. “If it is feasible, then what will be the cost?” he asks. “We want to find out what the bottom line is.” The project is designed to address each stage of algae-based biojet fuel production. Deng and his team will use two algae cultivation methods, an open pond system and a bioreactor. “We are trying to optimize energy production from the algae species,” he says. “Not only biomass, but more importantly I think for this project is the lipids, because we need oil.” The team is currently producing about one dry kilogram of algae a month, but Deng says that rate will increase to approximately 15 to 20 dry kilograms per month by March 2011. Algae produced by the team will then be transferred to Deng’s lab, where his team will work on extraction and conversion processes. “We are working on a few options right now,” Deng says. One involves multiple steps, including drying, extraction and reforming. “We’re also working a very new process, called extractive conversion,” he continues. “So, we will do the extraction and conversion in a single step.” Fuel produced in NMSU’s lab will be transferred to the University of Central Florida, where it will be burned in a jet engine to
determine what effects it might have on the engine components and fuel system. Since the project is only slated to last 12 months, Deng says the team will be unable to perform any long-term studies. “If possible, we would like to continue this project with the Air Force for another one or two years,” he says. At the close of the project, Deng and his team will supply the Air Force with samples of both the finished biojet fuel and the algae oil. Deng also notes that he has been approached by the Canadian Aviation and Aerospace Museum, which would like to create an exhibition to display a sample of the algae oil and biojet fuel. According to Deng, the U.S. currently imports about 30 percent of its energy from abroad. Domestically produced advanced biofuels could help reduce that percentage. He also notes that annual jet fuel use on a global basis equates to approximately 80 billion gallons, with the U.S. Department of Defense alone consuming nearly 4.6 billion gallons of that. In addition to providing a national benefit, NMSU’s algae research will also benefit its local community. “I think New Mexico State is establishing itself as a national leader on algae biofuel as a resource,” Deng says. “I think this grant is going to boost our [program] and is also going to help us build up its foundation for the future.” —Erin Voegele
Alien Visitors?
Roswell, N.M., may be better known for the alleged crash-landing of extraterrestrial spacecraft in 1947, but the town will soon become a new haven for algal research when California-based OriginOil Inc. and Sustainable Resources Inc. jointly deploy an Advanced Algae Center devoted exclusively to algae commercialization. The planned center was once the headquarters for the U.S. DOE’s Aquatic Species Program from 1978 to 1996. Once deployed by mid-year, the center will provide algae researchers, engineers and producers a uniquely secure and unbiased environment to test their technologies and
processes on a wide variety of algae species before commercial deployment, according to Origin Oil CEO Riggs Eckelberry. “We need to have a place where everyone can experiment without having to give up intellectual property,” Eckelberry says. “All too often, many consortium deals favor the operators who have no IP and the technology companies are left short.” With its abundant sunshine and low production costs, the location offers an ideal setting for algae growth, according to Eckelberry. “If we can attract people in sort of a magnet site to grow the algae, harvest it and then convert it into fuels, feed and fiber
PHOTO: ORIGINOIL, INC.
Why all roads in algae R&D may converge in New Mexico―again
Algae Doctor OriginOil Scientists, like Michael Green, may soon be working on algae out of Roswell, N.M., famed for its ties to extraterrestrials and UFOs.
products, then people would have a place to showcase what they have,” he says. “I think it will put Roswell back on the map this way.” —Bryan Sims JANUARY 2011 | Biorefining | 13
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The Energy Expert Speaks Secretary Chu on China, energy and the ideal transport fuel
A luncheon is never just a luncheon when the U.S. DOE Secretary Steven Chu shows up, especially when he delivers a speech on energy. During a recent National Press Club event, Chu gave a presentation titled, “The Energy Race: Our New Sputnik Moment,” and while he spoke on the growing superpower of China and the idea that innovation is the key to prosperity and progress, he also commented on what he believes is the most ideal transport fuel, adding that “this is a complicated economic issue.” For Chu, corn ethanol was a good way of getting the American public to realize driving a vehicle on ag-based fuels is possible, but that we need to focus on developing the new technology that can supersede ethanol made from starches. “Ethanol is not an ideal transportation fuel. Gasoline, jet fuel, kerosene and diesel fuel are much better things to use,” he said, “because they don’t require changing the infrastructure.” Now, Chu says, we need to focus on producing biofuels that can be directly substituted into any ratio or gas tank. “Wealth creation is created by innovation,” he said during the speech, pointing to three new bioenergy research centers that are working to create a process for drop-in fuels. The hope, he said, is that the U.S. can recognize the economic opportunity in energy, and continue to pump in investments towards research and development. —Luke Geiver
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On The Straight And Narrow
Vertichem eyes the multibillion dollar specialty chemicals market Vertichem Projected Revenue Streams
While other biorefining firms may be chasing the biofuels market, Toronto, Ontario-based Vertichem is aggressively pursuing the specialty chemicals market. To help forge its commercialization efforts, the company formed a 50/50 joint venture with the Warner Babcock Institute in Boston to investigate new applications for its lignin and xylose-based specialty chemicals derived from woody biomass. According to Mike Smith, vice president of communications for Vertichem, the company intends to focus on the robust lignin market, which it estimates has a nearly $70 billion market potential. Vertichem’s lignin could a viable alternative to petroleumderived PVC pipe and fillers, adhesives and polyurethanes. “We hope to [pull 50 percent] of our income stream from that $64 billion market,” Smith says. Similarly, Vertichem expects 32 percent of its revenue to come from a $1.5 billion market for xylose, which can be used in personal care products like toothpaste or food additives. Although Vertichem is also capable of producing a cellulosic pulp and paper material from its proprietary process, which can be further converted into biobased solvents or cellulosic ethanol, Smith says Vertichem will focus its R&D efforts on penetrating the lignin and xylose markets first before it gets heavily involved in the biofuels space.
“We’re looking to partner on a collaborative basis with major chemical companies like Dow Chemical or BASF,” Smith says, adding that global consumer products manufacturers like Proctor & Gamble have already expressed interest in Vertichem’s potential. Prior to its joint venture with the Warner Babcock Institute, Vertichem received a $3 million equity investment to help launch the company and commenced on a $25 million equity drive with additional funding rounds expected to come, Smith says. As part of its commercialization efforts, Vertichem has identified a site near Vicksburg, Miss., for a planned biorefinery that will have an estimated production output volume of 2.5 tons per day. The company has already secured feedstock arrangements with Anderson Tully Co., the largest sawmill in the U.S., which holds 3.4 million acres of forest land and produces approximately 250 dry tons per day of hardwood waste. Vertichem looks to get 1 percent of that volume to feed its future biorefinery, which is expected to break ground sometime in mid- to late 2011, with product sales projected to come out by late 2012 or early 2013, according to Smith. “At that point, in 2013, you can start banging out two or three more of these commercial biorefineries because the company will be generating significant revenue by then,” he says. —Bryan Sims
PHOTO: MARIAN GOLDMAN PHOTOGRAPHY
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Omega Reigns Supreme Richard Gross utilizes a biocatalytic fermentation route to produce omega-hydroxyfatty acids produced from plant-based fatty acids using a selective yeast strain called Candida tropicalis. Omega-hydroxyfatty acids can be polymerized to make bioplastics or degraded into biofuel like biodiesel.
Stemming From Biocatalytic Roots
How plant-based lipids are creating more value-added bioproducts It all started when a project director from the U.S. Defense Advanced Research Projects Agency approached Richard Gross and challenged his jointly owned company, SyntheZyme, to develop a bioplastic that could be degraded back to a liquid fuel. Consequently, the professor of chemical and biological science of Polytechnic Institute at New York University successfully developed a method for producing a biodegradable bioplastic using yeast that feed on plantbased lipids such as those from palm oil. Specifically, Gross employs a biocatalytic fermentation route that uses a genetically modified strain of Candida tropicalis that, when fed on plant-based fatty acids, is capable of producing large quantities of monomers called omega-hydroxyfatty acids. When the omega-hydroxyfatty acid monomers are strung together in long repeating units, they form a polymeric bioplastic material that could be used as a viable substitute for petroleum-based polyethylene. His findings were published in the Journal of the American Chemical Society. “I wanted to be able to break the plastic back down to molecules that look a lot like biodiesel,” Gross tells Biorefining. “I knew I had to redesign the fatty acid so that it has another functional group on the other side of the molecule so I could make polymers from it.”
With help from two DARPA funding cycles totaling approximately $4 million, Gross was able to focus much of his work on identifying an ideal yeast strain. “Engineering the organism involved removing 16 enzymes; essentially moving 16 gene fragments from the yeast to finally get to the yeast that can make a monomer,” Gross says. “We got really good yields and have demonstrated the potential to develop a low-cost process from a carbon source like palm oil.” According to Gross, the biocatalytic fermentation pathway is capable of producing approximately 112 grams-per-liter of omega-hydroxyfatty acid from plant-based fatty acid. “That’s about two grams per liter per hour,” Gross says, adding that production run rates are being improved to increase the desired yield of omega-hydroxyfatty acids. “The fermentation takes about 55 hours, but we’re looking to bring that down to 40 hours or so and improve the productivity a bit,” he says. “They’re close to commercially acceptable numbers.” Traditionally, omega-hydroxyfatty acids are produced via a difficult and expensive petrochemical pathway that leads to a highcost product. “People have been using these to make fairly long chain hydroxyl acids that can be cyclized to make the musk in fragrances,” he says.
Gross says samples of its omegahydroxyfatty acid were sent to some of the prominent specialty chemical manufacturers in the market. So far, the interest is overwhelming. “They’ve assessed our product and they like what they’re seeing,” Gross says, adding that he envisions SyntheZyme deploying a pilot plant within the next three or four years capable of producing 30 million tons annually of omega-hydroxyfatty acid materal. “We’re discussing possible collaborations to bring our product to market.” As it turns out, the challenge initiated by DARPA was originally intended to serve a dual purpose: to produce a bioplastic, and biodiesel for military engines after it’s depolymerized to omega-hydroxfatty acid monomer units. With the successful production of polymerizing omega-hydroxyfatty acids to form bioplastic now complete, research is underway to convert the bioplastic into biodiesel, according to Gross. In addition to producing bioplastics based on its biocatalytic fermentation technology, SyntheZyme is also capable of producing a suite of bioproducts for applications in fragrances, vinyl monomers, biosurfactants and biopesticides. The company is backed by 16 granted and pending patents. —Bryan Sims
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A Crude Lesson in Oil History Energy crop demonstrations help, but a look into the past says it all The number of products made from a barrel of crude oil today is almost infinite. Someday, we’ll say the same thing about the number of products made from an energy crop like miscanthus or willow. But, for that to happen, we need to remember those early days of crude oil discovery to understand the true potential of energy crop utilization, says Barry Caslin, bioenergy specialist for Irish-based Teagasc, a semi-state organization that focuses on agriculture and food development. “If we talked about a barrel of oil in the context of when crude oil was discovered, the first thing that was produced from crude oil was kerosene,” Caslin explains. “Kerosene was the easiest thing to distill off. The majority of the rest was just thrown away,” he says. “Today, you would think that as a ludicrous and wasteful way to carry on.” It’s that same waste-not mindset taken with a barrel of crude today that Caslin says could be used to transform the need and use of energy crops for tomorrow. “I would like people to think about the current organic chain in the same way,” he
Table 1: Edenderry Biomass targets 2020 – Total 500,000t
says, “bearing in mind Category Biomass Type (kt) we are at the beginEnergy Crops Willow 100 ning and just taking Miscanthus 10 the fuel out of that chain doesn’t seem Forest Materials Sawmill residues 100 a very sensible way forward.” In addition Forestry thinnings 100 to biofuels, Caslin says, “we are going to Dry Materials Wood Pellets, Palm 190 have to take out the Kernal Shells, energy component Almond Shells, etc. for power generation and take out platform SOURCE: TEAGASC chemicals.” farmers,” he says. Caslin says it is difficult While the idea that an energy crop to see where our energy crop developments could, and should, have multiple uses isn’t will be in 30 to 40 years and that farmers new, Caslin and his team from Teagasc are will play a large role in the development of making sure others get the point. During an sustainable products made via energy crops. energy crop demonstration day, local farmFor those who aren’t completely sold on ers and other delegates met to discuss marthat potential, more events like Teagasc’s ket possibilities, followed by a harvesting are a good thing, but remembering the demonstration that featured a Biobaler. “In history of crude oil use (or nonuse, in this a single pass the Biobaler cuts and comcase) might be even better at predicting just pacts biomass into a dense, round bale,” how much potential there really is. Caslin says of the machine. “Live practical —Luke Geiver demonstrations always go down well with
Fulcrum Pushes Ahead
With no shortage of loan program criticism, at least one project is greenlighted Fulcrum BioEnergy Inc.’s Sierra BioFuels Plant project has been selected by the U.S. DOE to enter the final stage of the department’s loan guarantee program. According to Fulcrum, the company has received a detailed indicative term sheet from DOE and has begun the negotiation process to advance the loan towards closure and funding. “We recognize that until the loan is closed, there is no assurance that a loan guarantee will actually be issued,” says Fulcrum President and CEO E. James Macias. “However, as we move ahead and negotiate terms of the loan with DOE, and it continues its technical, commercial and financial due diligence through the closing of the loan guarantee, we are optimistic that a conditional commitment and loan guarantee will be issued.” The Sierra BioFuels Plant will be located near Reno, Nev. Using post-sorted municipal solid waste as feedstock, the plant is expected to produce 10.5 MMgy of cellulosic ethanol and 16 megawatts of renewable electricity. Construction is scheduled to begin immediately following the award of a loan guarantee, with completion targeted 16 | Biorefining | JANUARY 2011
Historic Development Construction on Fulcrum BioEnergy’s Sierra BioFuels Plant in Nevada is set to begin, pending approval of a U.S. DOE loan guarantee.
for 2012. Fulcrum estimates the project will create 53 full-time and more than 450 temporary jobs. “With equity capital in place, the DOE loan guarantee represents a vital financing tool to allow our $120 million project to move forward, opening the door to an exciting new industry,” Macias says. —Erin Voegele
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The Drayton Valley Bio-Mile
Projected Market Growth
$1.7 billion $3 billion $2 billion
Hard times inspire a futuristic biocluster in Canada
$2.5 billion $3 billion
PHOTO: DRAYTON VALLEY BIO-MILE
The first part of the Drayton Valley Bio-Mile’s story is nothing out of the ordinary. Around 2008, things for the small community of Drayton Valley, Alberta, were looking pretty bleak. The shutdown of an OSB plant, costing the town nearly 500 jobs and 12 percent of the tax base, didn’t help. For a town of 7,000, that’s huge, says Mayor Moe Hamdon. But after searching for a way to save the community, Hamdon and his team decided the Energy Hot Spot The Bio-Mile will allow best way back to prosperity was to Drayton to utilize the energy-rich environment use the vast resources surrounding surrounding the city. the town: oil and gas, forestry and agriculture. “Economic development happens from two drivers,” Hamdon says. “Desperation or inspiration. Clearly, the beginning was desperation.” The answer for Hamdon was what is now called the Drayton Valley BioMile, an industrial cluster based on a single premise; one person’s waste (or industry in this case) can be another person’s input. The goal is to take wood fiber and plant-based biomass from the surrounding region and facilities, and produce a wide array of products including traditional sawmill products, electricity, plastics and resins, cellulosic fuel, synthetic natural gas, biobased chemicals and more. The one-square-mile area will partner with a Weyerhaeuser sawmill and the Valley Power cogeneration facility. In its completion, Hamdon says, the site will feature a power plant, a greenhouse, a research center, a biochar facility that could make green chemicals, and other technology to produce renewable fuel. “The agricultural community will also be involved with purpose-grown crops,” he says. Wood waste from the mill will be used for electricity and steam generation, which can then be used to make syngas, and from there, renewable fuel and biobased chemicals, depending on the technology used. “When you look at the sustainability aspect of it and what we hope to achieve, it is something that excites a lot of people,” Hamdon says. And he’s right. The Bio-Mile has already received support from both the federal and provincial governments. As for partners, the list includes CLIB2021, a German-based bioindustrial consortium that has chosen Drayton Valley as the site for its first North American headquarters, where the group will study cellulosic fuels and biochemicals; Otoka Energy, a biomass-to-energy company that has plans to set up a power plant in 2011; TTS Inc., a research and development firm that is planning to bring two 30,000-square-foot fiber-mat facilities to the Bio-Mile; Weyerhaeuser Co.; the University of Alberta; and a slew of others. Hamdon says if a person drove by the Bio-Mile today, there wouldn’t be as much to see as there will be in another year. But even that will just be the beginning, says Hamdon. “Our vision sees it (that square mile) going beyond its borders.” —Luke Geiver
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Escalating expansion SBI Energy’s study, titled “Biorenewable Chemicals World Market,” predicts the biochemical sector will more than double over five years. SOURCE: SBI ENERGY STUDY SUMMARY, “BIORENEWABLE CHEMICALS WORLD MARKET.”
Exponential Growth, Increasing Demand Study predicts significant growth in the biobased chemicals industry A recent study conducted by SBI Energy predicts that the renewable chemical industry will grow to $7 billion by 2015, more than doubling the expected $3 billion market value for 2011. SBI Energy attributes this increase to steady growth in the two largest biorenewable chemical markets, the platform and intermediate biorenewable chemicals sectors, as well as key regulatory and research developments. According to SBI Energy, platform biorenewable chemicals will continue to represent approximately twothirds of the market over the next five years, with glycerin and lactic acid continuing to dominate the sector. The company also predicts that intermediate biorenewable chemicals will grow at an even stronger rate. SBI states that bioethylene will be the largest intermediate biochemical in the space. However, due to its significantly higher production cost, polyhydroxyalkanoates (PHA) will represent the most revenue in the sector. In the next five years, the study predicts that annual production of polylactide (PLA) will double, the production of 1,3 propanediol will triple, and the production of PHA will quadruple. The study also shows that the U.S. and European Union were the top two markets for biobased renewable chemicals in 2009, with a respective 22 percent and 19 percent of product sales. While both regions are described as top markets for nearly all types of biochemicals, larger sales of biobased polymers allowed the U.S. to claim leadership in the industry. SBI Energy states that China continues to be a strong market for glycerin and lactic acid, but notes that the country hasn’t yet become a strong contender for other biochemical segments, such as biobased polymers. —Erin Voegele JANUARY 2011 | Biorefining | 17
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Profitable Trade-Off While biobased resin sales may be lagging in the U.S., El Segundo, Calif.-based Cereplast Inc. is capitalizing on the rising demand in Europe. A central component driving this growth is the result of two countries in particular—Italy and Austria—expected to place a ban on the sale of petroleum-derived plastic bags by January. According to Cereplast CEO and Chairman Frederic Scheer, the robust market opportunity is a result of two distinct economic dynamics at play. “In the U.S., 8 percent of all imported oil is going into the chemical and plastic sector both for feedstocks and for processing,” Scheer says. “In Europe, that number is 35 percent. Why? Because Europe doesn’t have the refining capacity that we have in the U.S. and therefore they import most of their material, which happens to be petroleum.” Since September, Cereplast shipped approximately 200 tons per month of blown film resin to RI.ME. Masterbatch, a leading European supplier of colorized resin used in the production of plastics, which increased its initial monthly order in November. Scheer says he expects shipments to Europe to double by the end of the year, reaching approximately 1,000 tons per month by the second quarter of 2011. For its 2010 fiscal year, Cereplast is on track to boost sales significantly to $8 million to $10 million of revenue, versus generating $2.7 million in 2009. By 2011, Scheer says he expects a 300 percent jump to about $25 million to $30 million in revenue. “Right now, we’re looking at about 70-plus percent of our bioresin product going to Europe,” Scheer says. Cereplast owns and operates a bioplastic resin production plant in Seymour, Ind., with a maximum annual output volume of 80 million pounds. Starch-based raw materials, such as corn
PHOTO: CEREPLAST INC.
How one U.S. biobased resin manufacturer is capitalizing on rising demand in Europe
Biobased Expansion According to Cereplast Inc. CEO and Chairman Frederic Scheer, the company is making headway into producing increased volumes of its bioplastic resins to Europe.
or wheat straw, are used to produce its bioresins. Cereplast is also exploring the potential to develop monomers using algae biomass. By 2012, the maximum output volume by its production facility should be enough to translate into approximately $100 million in revenue, according to Scheer. “By then, we’ll be shipping 80 million pounds of bioresin from our Seymour facility,” he says. “We believe we could probably multiply that capacity three to four times if demand comes to the U.S., which I anticipate will come. Time will tell.” Launched in 2001, Cereplast started selling its 100 percent renewable-based compostable resins in November 2006 and its hybrid resins at the end of 2007. The compostable resins target single-use disposables and packaging applications, while the hybrid resins can replace up to 50 percent of the petroleum-derived content in conventional plastics with plant-based resins. In June 2009, Cereplast introduced a biobased foamable resin under its compostable resins line to compete with Styrofoam and other foamable petroleum-derived resins. —Bryan Sims
Breaking Down Biobased Growth There’s no better way to gauge industry growth than to test for it How do you measure progress in the expansive biobased materials industry? Start with testing. EcoPoly Solutions, a bioplastic and oxo-biodegradable manufacturing and testing company has built a state-of-the-art facility to test and manufacture biodegradable plastics. The lab utilizes a climate-controlled system that regulates air quality and moisture, or humidity content, and performs four main tests: physical, the mechanical properties of a material throughout that material’s lifecycle; analytical, the extent of breakdown caused by microorganisms; biodegradation, the level of breakdown possible by microorganisms like bacteria, fungi or algae; and eco-toxicity, the material’s impact on the environment once broken down. 18 | Biorefining | JANUARY 2011
The facility “is unique because it combines the most modern, sophisticated analytical equipment for advanced polymer investigation and chemical changes, combined with biodegradation and ecological investigations,” says Steve Arsenault, director of sales for EcoPoly. The facility will certainly allow the company to develop the most advanced biodegradable products, as Arsenault says, but it might do more as an indicator for an industry. After all, the new facility isn’t testing strictly new products for future use. The laboratory is also confirming the quality of biobased products in use today. —Luke Geiver
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Preparing New Pathways CARB addresses updates to Low Carbon Fuel Standard The California Air Resources Board recently adopted Resolution 10-49 in regard to the state’s Low Carbon Fuel Standard. Although the move garnered a great deal of attention in the traditional biofuels industry due to an indication the board will reduce the carbon intensity value associated with indirect land use, the resolution also referred to actions that will benefit the second- and third-generation biofuel sectors. Currently, the LCFS Look Up table primarily addresses first-generation biofuels. With several advanced biofuels projects moving forward in California, it is important CARB addresses new technologies and fuels. In its resolution, CARB notes that it is persistently working to develop carbon intensity values for specialized fuel pathways, including those for anaerobic digestion and thermochemical biomass conversion. In addition, CARB says it is working
to issue guidelines that will identify fuel pathways that are expected to have either no, or negligible, land use effects on carbon intensity. It seems likely that many secondand third-generation biofuel processes could fall under this category. CARB staff has also
been directed to a certification process that would allow a production method to establish direct carbon intensity values for new or modified fuel pathways through an executive order process. —Erin Voegele
The Post-Fossil Fuel Future Material Ask the Teijin Group about the potential for bioplastics in Japan
Although most plastic components found in today’s automobiles are petroleum, after recognizing a problem with conventional bioplastics hindered by low heat resistance levels, the Teijin Group of Osaka, Japan, developed Biofront, a bioplastic material with a melting point of 210 degrees Celsius. At the China International Green Industry Expo, the company showed it off, and now the Japanese-based materials and technology developer has its sights set on China. “Teijin has been steadily developing and refining applications of Biofront in the form of fiber, resin and film,” says Rie Mashiba of the investor relations office of Teijin. That work has led to a highly impact resistant, antibacterial and flame retardant material made with plant-based Poly-L lactic acid polymer, all of which can be used for automotive front panels, clothing materials or eyeglass frames, according to Mashiba. The company might not have to wait to enter the Chinese market, however, as work in conjunction with Mazda has already started, and a Biofront-based molding compound made specifically for Panasonic Electric Works has already allowed the company to enter the housing device and digital electronic product markets.
As for the future of the material the company calls the “postfossil fuel future material,” expect more. By the end of 2011, the company hopes to establish a mass production system with a 5,000ton annual capacity, and eventually, Mashiba says, “several tens of thousands of tons of this advanced bioplastic.” The secret is in Teijin’s ability to control reactions at the molecular level, and limit hydrolytic degradation in high heat and humidity that occurs during the production process, which results in a product virtually equivalent to polyethylene terepthalate, or PET. —Luke Geiver JANUARY 2011 | Biorefining | 19
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Searching for
Unity With eight trade groups, too many voices may prove to be a liability the industry can’t afford BY ERIN VOEGELE
In late 2010, the Global Biofuels Alliance tossed its hat into the biofuels arena, bringing the total number of trade organizations serving the bioreďŹ ning sector to eight. While some of these voices, including the Renewable Fuels Association, the American Coalition for Ethanol and National Biodiesel Board have an extensive history of serving the interests of first-generation biofuels, several new organizations have popped up in recent years to support the development of second- and third-generation companies. When the policy goals of these disparate trade organizations align, it is possible for them to speak to federal lawmakers with a powerful chorus of voices, which has clear benefits for
JANUARY 2011 | Biorefining | 21
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Those leading these trade organizations seem to understand the danger and consequences that can result from treating each other as competition rather than allies, and have taken important first steps towards creating more harmony in their messages and their goals.
the industry as a whole. When different factions of the industry start pushing opposing messages that frame each other as competitors, however, the results can be overwhelmingly negative. These competing messages can confuse federal lawmakers and undercut the ability to develop the policy objectives that all sectors of the biorefining industry need. Those leading these trade organizations seem to understand the danger and consequences that can result from treating each other as competition rather than allies, and have taken important first steps towards creating more harmony in their messages and their goals. That said, most agree that there is always room for improvement.
Unraveling the Dynamics The very characteristics that define the biorefining industry are a big part of the reason so many trade organizations are necessary. “Given that there are so many innovative technologies, and so many different types of advanced biofuels and biobased chemicals from distinct feedstocks, it’s natural that there would be a variety of organizations representing
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Ethanol Expert Growth Energy CEO Tom Buis says that competing messages can be helpful, but it is important those messages don’t result in confusion.
Biodiesel Leader NBB leader Joe Jobe says it is important that the biorefining industry pull together to face common challenges.
different sectors,” says Mary Rosenthal, executive director of the Algal Biomass Organization. “Each technology and each feedstock—whether corn, vegetable oils, cellulosic materials, municipal solid waste, algae and so forth—has unique characteristics, challenges and opportunities that make multiple trade groups necessary.” The fact that each biorefining sector has grown over a different timeline is also a factor. “I think when you look at the biofuels industry, you have to look at it from a historical context,” says Michael McAdams, president of the Advanced Biofuels Association. “Ethanol was the only biofuel in the '80s and '90s.” Organizations such as RFA developed during that time to support ethanol, so it makes sense that this is where their focus remains. Rather than seeing first-generation fuels as competition, it is important to note that those companies and their respective trade organizations are the ones who have laid the groundwork for advanced and cellulosic fuels. “If you would not have the [RFA], I don’t know that you would have had the ethanol policies that you have in this country right now,” McAdams says. “My hat is off to Bob Dinneen and the job RFA has done over the past 20 years to create a viable first-generation ethanol industry.” However, when an existing statute
Advanced Advocate Michael McAdams, president of the Advanced Biofuels Association, stresses that the biorefining community must work together.
Algae Activist Mary Rosenthal, executive director of the Algal Biomass Organization, notes there is space in the market for all biofuels companies to be allies, not competitors.
base has been around for 25 years, there are some challenges when it comes to altering those statutes to accommodate new fuels and new technologies, McAdams continues. It is important to note that each trade organization is simply trying to advocate for what it thinks is best for its members. With 14 billion gallons of corn ethanol already in production, those in the second- and third-generation sectors often argue those resources should be redeployed to help support their development in the same way they were used to support the development of first-generation fuels in the past. Conversely, however, organizations serving first-generation interests want to see those incentives and resources continue to support their members, through either maintaining current policies or redeploying those resources to develop infrastructure. “That is a natural tension,” McAdams says. “There is a natural tension that the biofuels industry has because they are competing with each other, and they are offering different products with different performance mechanisms. If I’m making a drop-in molecule, I want help building my first-of-kind plant. If I’m making a corn ethanol molecule, I want to grow my current market by establishing infrastructure. Those objectives don’t necessarily
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Biorefining Trade Associations Advanced Biofuels Association ABFA officially organized in 2009. The organization currently has 33 members and serves all sectors of the advanced biofuel industry, including renewable drop-in fuels producers and algae developers. ABFA is growing rapidly with a membership that increased by a third last year. The organization serves advanced biofuel companies of all kinds.
www.advancedbiofuelsassociation.com
Algal Biomass Organization ABO formed in 2008 to promote and advocate for the development of commercial markets for algae-derived products, including algae-based fuels and nonenergy applications for algal biomass. The organization currently serves approximately 59 member companies.
www.algalbiomass.org
American Coalition for Ethanol ACE formed in 1988 with the goal of bringing together a wide range of groups in support of ethanol that serves as a grassroots voice for the U.S. ethanol industry. The organization currently serves approximately 1,500 members from both the ethanol industry and the agricultural and industry communities that support the fuel.
www.ethanol.org
Biotechnology Industry Organization BIO formed in 1993 and developed an industrial environmental component in 1997. That component of the organization evolved over time and is now the fastest-growing segment of BIO with approximately 85 members. The organization serves advanced biofuels producers, as well as the biochemical and bioproducts sectors.
http://bio.org
Global Biofuels Alliance GBA formed in 2010 with the primary goals of supporting the reinstatement of the biodiesel tax credit, and giving a voice to the producers, traders, feedstock suppliers and equipment manufacturers in the renewable diesel and biodiesel industries.
www.globalbiofuels.org/
Growth Energy Growth Energy was formed in late 2008. While the organization focuses primarily on corn ethanol, it does also support the cellulosic ethanol industry. Growth Energy currently represents approximately 70 ethanol plant members, several of which are active in the cellulosic space.
www.algalbiomass.org
National Biodiesel Board The NBB was formed in 1992 with a focus on soy-based biodiesel. The organization extended two years later to support all biodiesel feedstocks, and eventually evolved from a development group into a comprehensive trade organization that currently represents 340 members.
www.biodiesel.org
Renewable Fuels Association RFA was organized in 1981 to serve as voice for the ethanol industry. Organizational membership includes a broad range of individuals and businesses that support the expansion of the U.S. fuel ethanol industry. RFA producer members represent approximately 90 percent of U.S. ethanol production.
www.ethanolrfa.org
align. It’s problematic.” Many of these tensions are a direct result of the mission-oriented disconnect between different components of the biorefining industry. “Every organization has its own charter and its dues-paying members expect the organization to work on their behalf,” Rosenthal says. “I believe it’s possible to not only support our members’ expectations, but collaborate with the biofuels ecosystem to achieve a favorable policy environment that benefits us all.”
Unintended Consequences In truth, the vast majority of damage from those competing messages seems to be unintended. “We’ve said things without appreciating our brethren,” McAdams says. “We’ve confused people, and much of it may have been unintended. Not out of malice, but just out of trying to do the right thing for the sector they know, and not understanding the impacts it had on the broader biofuels industry. Maybe we’ve had the unintended effect of confusing people and pitting ourselves against each other when we need to come together.” Growth Energy CEO Tom Buis notes that sometimes competing messages can be a good thing, as long as those messages don’t confuse Congress and result in inaction. “Differences of opinion are often helpful,” he says. “There are a lot of different voices out there, but I think people work together where they can. Where there are differences, we try to work those out for the best of the industry. When you have differences of opinion—of how you get somewhere, what the goal is, and different opinions on how you can get there—that can sometimes get very confusing to policy makers. That’s why you have to just keep working hard to make sure that everyone has the same goal, and work out your differences on how you get there.” The real challenge is getting people
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to actually work together to create concrete solutions. While competition is good in the marketplace, it’s not always productive in the arena of policy. “Convincing a large number of segmented and fractionated trade groups to agree and work together on issues is incredibility difficult,” says National Biodiesel Board CEO Joe Jobe. “However, that is precisely what is necessary in order to have policy and other successes with limited resources. The overall universe of biorefining products is relatively small, and mostly in emerging stages of development. Yet, those limited resources are scattered among dozens of disunited trade groups independently pursuing duplicative—or even contrasting—goals and messages. One of the natural tendencies is for individual groups to differentiate their products by publically touting its benefits compared to other specific bioproducts. The end result is that bioproducts trade groups often work against each other when they should be working together. While various technologies should complete in the markets on the merits and strength of individual precuts, it is essential that at this stage in our collective development, we pull together to face the enormous challenges before all of us.” According to Brent Erickson, executive vice president of industry biotechnology at the Biotechnology Industry Organization, the multitude of voices in the biorefining arena is both a blessing and a curse. “It’s really a two-edged sword,” he says. “On the negative side, we sometimes have disparate voices with different points of view, and that’s kind of confusing to Congress. On the positive side, we actually have more voices where we do have common policy goals, and a louder chorus calling for Congress to support those.”
help realign the resources that are left to try to jump-start the future industry. But there has got to be give and take amongst these various trade organizations. They’ve got to work together, not against each other.” Erickson notes that the industry needs to adopt what he calls the “Ronald Regan principle.” “Ronald Regan said no Republicans should speak ill of other Republicans, and I think in the biofuels space we would all adopt the rule that no biofuels company or association ought to speak ill of other biofuels technologies, fuels, molecules, or processes,” he says. “United we stand; divided we fall. We have enough external challenges and enemies, we don’t need internal ones. I think we need to stay unified. I think when the economy turns down and resources become scarce, people tend to become hypercompetitive. I’m not sure that’s always positive. We need to be really careful about how we talk about each other—especially in public.” Rosenthal agrees that those in the biorefining industry need to start seeing each other as allies rather than competition. “We believe strongly that when it comes to advanced biofuels, a rising tide lifts all boats,” she says. “We believe that by partnering with other trade groups, we can better leverage our collective resources, educate policymakers and the public, and promote the industry. I think we all recognize that a unified front is needed to ensure success for the whole industry. Regardless of feedstock or technology, we must work together to help policymakers understand the benefits of domestic and renewable fuels. It’s important that everyone understand that we are contributing to job creation and reducing our dependence on foreign oil.” As the industry continues to mature, these objectives might come together in a natural way. “Our overarching guiding principle is that we want to establish a biobased economy, and part of the way we have a biobased economy is to have biorefineries,” Erickson says. “We want to see the development of integrated biorefineries that are like oil refineries, where you take in agricultural feedstocks and make multiple products, not just fuels— fuels, chemicals and plastics. I would hope that all the biotech associations could rally around that concept, because that’s the future. That’s where we need to go, and that enables people to agree.”
The process of developing new federal policy objectives can be murky, and compromise is the key.
Creating Harmony The nature of competing goals is problematic for the industry, and a challenge that must be overcome, McAdams says. The process of developing new federal policy objectives can be murky, and compromise is the key. When it comes to policy, the first- and second-generation sectors of the industry are too often seen as working against each other. “They are kind of at odds with each other, and we need to work together to be more harmonious to support our first-generation brethren—stand on the shoulders of our first-generation brethren and deliver the promise of a second-generation advanced and cellulosic industry. That is what really needs to happen here.” The solution is simple, McAdams says. “Not everybody gets what they want, and we sit down and try to have a holistic conversation where people become reasonable,” he says. “We protect the first-generation assets that have been built, which are key to national security and backing out foreign crude, and
24 | Biorefining | JANUARY 2011
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JANUARY 2011 | Biorefining | 25
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FINANCE
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FINANCE |
Taking a company public may be a viable finance vehicle for some, but not all BY BRYAN SIMS As air is necessary to breathing, capital is the lifeblood for early-to-middle stage biobased fuels and chemicals firms looking to accelerate commercialization efforts and introduce their novel products to the marketplace. But in order
to achieve their goals, they’ll need more capital in the form of cash to compete against petroleum giants that dominate the market today—a tall order. While traditional means of raising capital, such as private equity and venture capital, remain necessary sources for funding technological developments at the R&D and pilot-scale levels, and for sustaining working capital expenditures, there is an equally effective financing alternative. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, the action is known as an initial public offering (IPO). The act of filing an IPO shouldn’t viewed as a reflection of venture funds drying up completely, according to Andrew Soare, research associate for Lux Research. Rather, he says,
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an IPO is one of a few avenues biobased developers can take to obtain capital where several rounds of venture funds haven’t been enough to achieve desired performance and results. “After several rounds of venture funding, it’s tough to justify more venture capital funding and you definitely need to turn to alternative methods,” Soare says. “One of those methods is through the public markets.” Contrary to the dot com boom of the mid- to late-1990s, the biofuel industries have fallen short of achiev- One Step At A Time Going public ing IPO success in re- is simply one way cent years. In 2007, for a biobased fuel or example, Renewable chemical firm is able to gain credibility and Energy Group Inc., profitability in the a biodiesel firm, can- market, according to celled its plans to raise Lux Research $150 million, while associate Andrew Soare. Seattle-based Imperium Renewables set aside its ambitions for a $345 million IPO, in 2008. The IPO window may be widening in response to a rebounding economy, however. Today's investor seems to be more willing to evaluate each company on its merits rather than in creating a basket of everything in the sector, as in years past. “Investors, especially IPO investors, are not looking for concepts or products 28 | Biorefining | JANUARY 2011
that maybe won’t be made available in the next three or four years,” says Scott Sweet, managing partner for IPO Boutique, an IPO advisory firm based in Lutz, Fla. “They’re looking for top- and bottom-line growth with no debt. Emerging, yet promising [biofuel and biobased chemical companies] generally don’t meet that criterion, so one has to have a very compelling story to bring a biorefining company public right now.” Rather than taking their companies public on a “one wave floats all” mindset dictated Mindful Of by favorable market Milestones Before conditions, biorefining going public, according to Amyris companies are taking CFO Jeryl Hilleman, a more strategic apcompanies should proach today before shoot for realistic considering an IPO. milestones to create value for investors “Successful puband shareholders. lic companies have a good handle on the milestones they intend to achieve, and how those milestones combine to create value for investors,” says Jeryl Hilleman, chief financial officer for Emeryville, Calif.-based Amyris Inc. In October, Amyris closed on its $84.8 million IPO, falling short of its $100 million target. The key behind Amyris’ compelling story is that it has successfully developed genetically engineered and screening tech-
nology that enables the company to modify how microorganisms process sugar through their metabolic pathways. By controlling the metabolic pathways, Amyris designs microbes to serve as living “factories,” or biorefineries, to produce target molecules such as farnesene from biomass. Amyris first developed and applied its novel technology to create microbial strains that produce artemisinin, an effective antimalarial therapeutic. “Being able to articulate and then deliver on these milestones is important right from the start of being public,” Hilleman explains. “Companies should test themselves [to ensure] if they are ready to operate with these additional pressures and timeframes in order to achieve the benefits of being public.” For firms that were successful filing and closing their IPOs, like Amyris, the decision was not easy. However, the move brings with it advantages developers can capitalize on.
It’s About Time In going public, the company gains the ability to tap into a broader network of investors and a larger pool of investment capital, with which it can raise more capital through additional stock offerings. It also increases investor exposure and the potential to attract and retain more highly qualified personnel. Depending on the financial standing of a company and how aggressive its commercialization efforts are, the time
FINANCE |
may not be right for some, Soare says. “This financing act isn’t the last step for these companies,” Soare says. “They’re still far away from profitability, but it will help them gain credibility in the marketplace.” For Amyris, its IPO gave it the attention it needed to access a broader customer base that it might not otherwise have had when it was a private entity, according to Hilleman. “Our customers are looking for long-term suppliers and conduct extensive due diligence on us as a company,” she says. “By becoming a public entity, we’re more visible to our customers on an ongoing basis, operating under the controls and governance they would expect from a supplier of key ingredients. Thus, our decision to go public was heavily influenced by our customers.” Filing its IPO was a key driver behind Amyris’ solidifying existing manufacturing contracts while creating new ones as it works to commercialize biobased farnesene. In November, Amyris signed a manufacturing contract agreement with global agribusiness firm Tate & Lyle to produce biofarnesene at Tate & Lyle’s bulk ingredients operations in Decatur, Ill. Prior to that, the company entered into a similar agreement with a facility of Biomin GmBH in Piracicaba, Brazil. Amyris is using contract manufacturing capacity to produce farnesene at commercial scale to supply customer demand in advance of the start-up of its first commercial plant under the joint venture with Grupo Sao Martinho. The company said it
expects to begin production of biobased farnesene at the Biomin facility in the first half of 2011. Amyris also has a partnership with global flavors and fragrance company Firmenich S.A. to develop a cost-effective and reliable source of a key ingredient used in the fragrances and flavors market. Oil conglomerates Royal Dutch Shell and Total have invested in Amyris and are betting on the company’s technological efforts to thrive in the biorefining sector. According to Hilleman, Amyris doesn’t intend to become more aggressive than it already had been with its commercialization strategy of biobased farnesene, on either domestic or international fronts. “We expect to continue the same intense commercialization process that we started well before the IPO,” Hilleman says. “In fact, we believe that the fast pace and intensity we’ve brought to this process throughout our history is a big part of why we’re able to go public, having demonstrated execution over time of technical, business, production and scale-up advances.”
Looking Ahead Among other companies that joined Amyris in the IPO foray were Californiabased biocatalyst developer Codexis, which closed on its IPO value of $78 million in April, below its $100 million target. Prior to its successful IPO, Codexis originally filed with financial regulators to go public in April 2008, but withdrew the filing by fall of that same year. Other biorefining compa-
nies in the IPO pipeline are Gevo Inc. and PetroAlgae Inc., which both filed for IPOs in August. Gevo targeted a value of $150 million while PetroAlgae targeted $200 million. At press time, both were pending the close of value for their respective IPOs. Although advanced biofuel and biobased chemical companies both face risks and opportunity, the renewable energy IPO market is considered less than ideal by many investors. But, according to latest data released by Lux Research in October, global biofuel capacity is forecasted to grow 7.8 percent annually to 53 billion gallons by 2015, while biomaterials are on pace to grow at a 17.7 percent per year clip to reach 8.1 million tons. “I see a small amount of IPO filings in 2011, but only those that are highly venture backed by the best names,” Sweet says. “We’ve done far more IPOs already in 2010 than in 2008 and 2009 combined by far. I envision the IPO market to be strong in 2011.” Author: Bryan Sims Associate Editor, Biorefining (701) 738-4974 bsims@bbiinternational.com
JANUARY 2011 | Biorefining | 29
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BUSINESS
Moving Out With help from Battelle Ventures, research in the lab can go from bench-scale to big business. PHOTO: BATTELLE
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BUSINESS |
Breakout Potential There’s more than one way to grow a company, and in the end there can be more than one winner BY LUKE GEIVER
Proterro Inc. doesn’t have any issues with office furniture or parking spots. In fact, the promising startup, which is
developing a fermentation-ready sugar that uses a bioreactor process, is a virtual company that doesn’t even have employees, or at least, not the kind of employees one might think an advanced biofuel up-and-comer would have. CoolPlanetBiofuels, another potential advanced biofuels winner, does have employees—and they’re good. Mike Cheiky, president of the Camarillo, Calif.-based company, has received the World Economic Forum Technology Pioneer for the Energy and Environment award twice and has been issued 40 patents, with several more on the way. Both companies have arrived at the same place, however: they're on the cusp of breaking out as the latest, greatest, unknown technology providers that could change the future of biofuel production. Here’s how they did it, and why each company’s growth path, although very different, shows that the winner’s platform for advanced biofuel players is large enough for several to stand on.
A Sweet Story Surprisingly, the Proterro story is not a unique one, according to Kef Kasdin, general partner for Battelle Ventures and CEO of Proterro. “This virtual company model is one that we have adopted in several cases in our portfolio,” Kasdin says. Currently, the company has a CEO, a CFO and a vice president of development, but no one else is employed solely by Proterro. Admittedly, Kasdin wears two hats, currently acting as the CEO while continuing to fulfill her duties for Battelle Ventures’ early stage capital ven-
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ture fund, the same fund that helped Proterro get off the ground. Through a $220 million fund offered by the Battelle Memorial Institute, Proterro was awarded $5 million from Battelle Ventures and Braemer Energy, and as Kasdin explains, the funding was granted more on what Proterro didn’t have rather than what it did. “One of the innovations that we came up with at Battelle,” she says, “was that if we identify a platform at the laboratories, it was probably a better course to think about this virtual company route to meet certain milestones in terms of the company’s commercialization developTwo Worlds ment, before starting to add Synthetic Accomplishment Creating a fermentation-ready fortified sucrose, called Protose, includes genetically modifying cyanobacteria to produce a new strain that is a sustainable, geoflexible and economical As the current CEO of a lot of internal resources.” feedstock. Proterro, Kef Kasdin works for the promising The key to the virtual constartup, while cept, as Kasdin says, is to performing duties for Battelle Ventures as demonstrate the viability of the technology,” she says, by subconminimize the costs related well. to building up management teams, leasing tracting certain Proterro-based work out to engineers and scienoffice space, lab space and new equipment. tists already working at a lab. “It’s like sponsored research,” she “The other part,” she says, “is that these early-stage technology explains. “We are paying them to do our project as part of their developments to commercialization are a very risky process. Some responsibilities.” The nice part about the whole approach, according to Kasdin, is the help you get at the lab. “You can get some of these just don’t work out.” very high level, senior, brilliant scientist and engineers” who have access to “wonderful capital investment that, typically, the governTwo Worlds Instead of sacrificing any capital on lab equipment or office ment has already paid for.” Proterro pays for the access, but does supplies, Battelle has found a way to leverage its resources and it in a way that is much more capital efficient than recreating all make a company such as Proterro possible. The Battelle Memorial those tools needed in small startups. Now, as Proterro stands on the brink of exiting the virtual Institute also manages six of the U.S. DOE’s national laboratories, model, Kasdin explains the next trick to making it all work. In a and Kasdin says the virtual approach used at Proterro has taken typical model, the first CEO will act more as a project manager, advantage of that relationship. In 2006, Kasdin began looking for an answer to many of but eventually, as Kasdin predicts will happen for her role, the the biofuel dilemmas of today regarding feedstock, transport and CEO will step down and be replaced by another better-suited busiprocess methods. After examining the entire landscape, including ness person. Proterro will eventually get to a point where somewhat other VCs and the U.S. DOE were investing in, she started to one who has business connections in the biofuels and biobased put together a story to take to all of the labs managed by Battelle. chemical world is needed, she says. “We are going to reach a point After linking up with Proterro’s current CFO John Aikens in an at Proterro when we would benefit from having somebody that effort to unearth the latest technology at one of the labs, Kasdin comes out of the biofuels industry.” and Aikens eventually arrived at the same conclusion. The answer they were looking for, however, was not in any of the labs. Their A Perfect Partner If the Proterro approach to building a startup to become a idea, and the foundation of Proterro’s technology, was to create a prominent force in the biofuels industry represents the virtual or feedstock that could cut out the growing, harvesting and transport nontraditional method, CoolPlanet Biofuels is the exact opposite. issues seen today by other energy crops. “What if there was a way The company, which is developing a thermal processor to convert to circumvent all that,” Kasdin says the two contemplated, “and just go from sunlight, carbon dioxide and water, directly to simple biomass into multiple gas streams for catalytic upgrading to consugar.” Apparently there was a way, but to develop the idea into a ventional fuel components, all of which can be integrated into a reality, Kasdin had to utilize Battelle’s experience with the virtual transportable modular shipping container each producing roughly 1 MMgy, is already backed by North Bridge Venture Partners, and model, or, as the practice calls for, “renting.” “We leveraged other people’s capital at other labs to actually recently partnered with GE Energy Financial Services as well.
32 | Biorefining | JANUARY 2011
BUSINESS |
While Kasdin touts Proterro’s approach, there’s no doubt that Ricardo Angel, senior vice president of GE Energy Financial Services, is sold on the CoolPlanet process to the degree, in fact, that he has earmarked the startup as an investment. “If and when the company needs more capital,” he says, “we will put more capital in there.” And there's more to winning Angel's confidence than backing. Angel says, “From our end, we always like to think that we are a group that is different than other VC groups. We add value and we do add capital like others do, but in addition to that, we can leverage the GE platform overall.” GE boasts nearly 3,000 PhD’s, experts and research facilities to leverage, all together with “a lot of money,” according to Angel. As the company evolves, Angel says, GE understands very well what it takes to scale up the process of commercializa- Starting Point The Battelle Memorial Institute oversees six national labs across the U.S, and Battelle Ventures tion, and, what it takes to integrate dif- looks for promising projects to take out of those labs. ferent systems. GE Energy Financial Services, one of five arms of GE, can add different forms of capital to CoolPlanet through credit finance, to $5 million per project, and prefers to come in on the second project finance or through working capital, Angel says. “Not too round of funding. Investing in a series A round has happened many people can bring that to these types of before, he says, but it’s more of an anomaly. Fortunately, even if the two companies’ growth plans are difcompanies.” The joint venture between CoolPlanet- ferent, one going bare bones just to get out of the lab, the other Biofuels and Angel’s GE team may sound utilizing the vast resources of a major energy company, there is like a perfect match for CoolPlanet, but as one similarity between both, and it has to do with winning. The the numbers Angel presents show, work- phrase has been used before but it bears repeating. Both Kasdin ing with a team like GE’s might be difficult. and Angel stressed one idea: that in the advanced biofuels spec“Over time our group probably looks at trum, there is room for multiple winners. “We would be happy to more than 1,000 companies or businesses a invest in a few additional players,” Angel says. Kasdin adds that The Elite year,” he says, “and out of that, we usually do “there is huge market potential” for new processes. Regardless of Ricardo Angel of GE Energy Financial good work with probably 30 companies, and the model used to get from potential to reality, however, Angel Services looks at more each year we probably invest in around six says this about the current state of the industry, “We are seeing a than 1,000 companies companies.” So, if a company is looking for good amount of opportunities right now. I think this is the right a year. Only about six, however, are selected additional funding, is the best path the one environment to invest.” to work directly with that leads to a perfect partner like GE Energy him. Author: Luke Geiver Financial Services, or is it the one that ends Associate Editor, Biorefining (701) 738-4944 up with a virtual approach championed by Battelle? lgeiver@bbiinternational.com Angel says his team invests in tech-based companies that have breakthrough potential in a large market. As for Kasdin, the virtual approach is best suited for taking nascent technologies out of the lab. To determine the right investments, Angel says they look at all the components of a company as a whole, and one particular variable will not typically set a company apart. “It’s not a simple equation where you have 20 percent for management, 20 percent for technology, or 20 percent for market” to determine the value of a company, he says. In the end, GE usually invests $2 million
JANUARY 2011 | Biorefining | 33
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