Bioeconomy Curves and Slides, Snakes and Ladders

by Jim Lane (Biofuels Digest) Over the years we’ve all seen a lot of curveballs in the advanced bioeconomy. You see companies like Valero, which lobby the United States Congress with unbridled intensity to get rid of the Renewable Fuel Standard, on the verge of becoming the single-biggest producer of RINs in the United States (with news that they might take capacity at Diamond Green Diesel up to 540 million gallons).

You see companies like Solazyme which love the Renewable Fuel Standard and drive up to nearly a billion-dollar post-IPO valuation based on delivering fuels at volume, then announcing that there are even more exciting opportunities in nutrition and changing the name of the company to pursue that, only to sell themselves for $20 million to Corbion.

There are quite a number of examples of the Chutes and Ladders kind. Companies rise up, then inexplicably plunge. Companies that have plunged into total obscurity, finally put together the critical JV or first commercial financing. Everyone heading for Brazil, then no one heading for Brazil. Many fleeing California for Texas, citing high production costs. Then many pouring back into the California market, citing the high prices.

But lately there’s been a spate of curves offered up of the economic chart kind that offer some real insight into where the advanced bioeconomy might head next when it comes to early-stage venture opportunities and models.

With expectations of $100 oil and an enhanced Renewable Fuel Standard passed in 2007, here’s the expectation that we saw in projection after projection of the volume in renewables.

What actually happened was that the biomass-based diesel and corn ethanol sectors produced what was expected, more or less. The Cellulosic sector has fallen wildly short of expectations on volume — producing in the hundreds of millions rather than the billions of gallons.

In part, that was driven by the oil price scenario — the prospect of lower prices crushed investment in many technology developers and technologies starved.

Long before the oil price debacle, there was the natural gas price crash — and that was a fundamental reason that many investors stayed away from renewables. Cheap methane arrived in volume while cheap sugar did not.

We think that it (the Trough of Disillusionment on the Gartner Curve of innovation) might have been reached in 2015 or 2016 after all, following the realization that oil prices would not rebound and that the expected wave of cellulosic fuel technologies would not deliver anywhere near as fast as hoped. That crushed expansion hopes for fuels — which had the Renewable Fuel Standard to assure a market but lacked the investment drivers. Chemicals lack an assurance of market, so they’ve simply been crushed or delayed by persistently low oil and gas prices, excepting in selected cases where they can compete against tremendously complicated and expensive production processes from oil or gas (such as selected nutraceuticals and one-step organic acids), or where they offer functional advantages over traditional molecules (such as PEF’s functional advantages over PET as a clear plastic).

But there have been so many project announcements this year that it would be impossible to label 2017 as the Trough of Disillusionment’s low point.

People who will never pay more than $3 per gallon for algae fuels are more than happy to pay $25 at GNC for 45 grams of algae oil as a nutraceutical. That equates to $1,744 per US gallon, by volume — in case you wondered. Or $555,000 per metric ton.

Or, consider the burger. $17 is not unheard of for a quarter-pound Impossible Burger, and after subtracting perhaps a third for the other ingredients by weight, consider that a burger made with biotechnology checks in at a value of something like $845 per gallon equivalent (if we did equivalent weights), or $202,985 per ton. And the Impossible Burger is said to be gearing up to ship a million pounds a month right now.

Larger markets — they make sense if there’s a strategic doing corporate venturing, and they want a venture investor to help them with early-stage technology risk. READ MORE