Alternative Energy Projects in Valuable Niches

Emerson’s Douglas Morris, a member of the alternative energy team, shares his observations from the recent Advanced Biofuels Markets conference and Advanced Biofuels Association (ABFA) board meeting.

The 2011 Advanced Biofuels Markets conference and ABFA board meeting were both held this past week in San Francisco, California. I’m not going to discuss the board meeting other than to say that Emerson is a member of the ABFA and this organization, led by ABFA president Mike McAdams, will play an integral role in advancing this industry.

As with recent Advanced Biofuels conferences, I found the San Francisco attendance to be brisk and the discussion topics very relevant. This shouldn’t be too surprising as Silicon Valley is a nexus for capital for many advanced biofuels companies. One common theme, though, is that there will likely be fewer plants built over the next couple of years as government incentives end. Not to say that there isn’t money available, but for a project to be built, it will need to have very sound economics.

In my opinion, the projects that move ahead must meet at least two of the following criteria:

  1. They produce a drop-in fuel or chemical
  2. They are developed by a company that has undergone an initial public offering (IPO) and has a solid capitalization/cash position
  3. The project is backed by a large multinational and doesn’t require access to debt markets

There have been a few companies that have gone IPO in the past two years (Codexis, Amyris, KiOR, Solazyme, and GEVO) and these companies all have projects planned to move ahead with their commercialization strategies. INEOS Bio is a company moving ahead with a project backed by its large European parent company.

Also discussed was one macro trend that may affect those companies producing renewable chemicals. With the price of natural gas hovering around $4 a therm [100,000 British thermal units (BTUs)], it may be difficult for these producers to compete with companies that use natural gas as a feedstock. To counter this, renewable players will need to look at niche applications where they can produce high-value products with high margins. Solazyme is a company that is executing this strategy by producing high-value cosmetics from algae.

I’m looking forward to seeing the progress of this industry over the next few years. There is a clear need for alternatives to begin to fill the ever-growing need for transportation fuels and bulk chemicals.



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