An Institute of Industrial Commercialization
by Jim Lane (Biofuels Digest) … If you invest $2 million, $10 million, and $30 million every other year in bringing a technology forward to the commercial threshold (and you’d be a miracle worker in doing so) – and it results two years later (after construction) in a 2 million gallon demonstration plant costing $40 million and two years after that in a 40 million gallon commercial scale plant costing $280 million, well, that’s $362 million invested over nine years in a high-risk project.
Sounds daunting. But it gets worse. On an all-equity basis, you’d need to make a profit of $3 per gallon of fuel produced, in order to realize a 20%+ internal rate of return. That’s table stakes for getting high-risk investment dollars out of venture capitalists – a lot of them want even more. Even with some debt, you’d need a profit of $2 per gallon – unobtainable.
20% returns? Those VCs – they’re not vultures, though they may feel that way at times. With the failure rates they see on new technologies, they need those kind of returns, Else they can’t raise funds from angels and institutions, who want elevated rates to justify the elevated risks.
…So, there’s the time problem – what’s anyone doing about it? Well, we mentioned that companies and investors are imperfectly attempting to shorten the timelines, as well as bring in public and strategic investors who can afford to think in longer timelines because they can accept lower returns. There are limited on strategics and public investors – how much they have and what they can do with it.
The best area of opportunity is in reducing timelines to commercialization.
…What the world needs is one less institution doing basic or applied research, I mean, we’ve built an awful lot of pilot plants – and one more institution (which is to say, one) dedicated to reducing the commercialization timeline. Because capital right now is neither sustainable, affordable, eligible or available at the returns offered today. READ MORE
