Government Mind Games are Driving Investors Away from Biofuel & Other Bio-Based Projects
by Colin Ley (AgFunder News) The closer you get to the commercialization of a development, the harder it becomes to raise capital, and recent government activities around the world are not making life easier for innovators, speakers at the World Bio Markets (WBM) conference told delegates in Amsterdam last week.
“While the fun end of the innovation process of research and piloting will often attract venture capital or angel investors, the financing challenge becomes a lot tougher when you’re looking to build a commercial plant that is going to cost north of $100 million,” Canada-based project funding consultant, Jeff Passmore, told a high-profile biofuels and bioenergy audience.
“That’s the stage where developers have to start talking to strategic investors, which in the bio-based sector means big chemical, oil or enzyme companies. They’re the only ones with sufficiently deep pockets and sufficiently patient money.
“However, they won’t invest unless there is certainty, which is where the world’s governments are hardly helping at present. Strategic investors want to know that the rules aren’t going to change on them, and that’s where today’s governments have a significant role to play.
“The biggest fear such strategic investors have is that they will end up with ventures that have turned into ‘stranded assets.’ They don’t want to commit anywhere up to $300 million on a commercial plant, for example, and then watch governments come along and change the rules, as has happened with RED in Europe or RFS in the US.”
“Strategic investors want to know that the technology they are backing will make a material difference to their business over the long term,” he said. “Big oil companies, for example, have a hurdle return rate of about 20% internal rate of return before they’ll invest.
“Ask them to invest in a second generation biofuels venture that will give a 9% return, therefore, and they’ll say ‘no chance’ unless they see they can make up their returns on plants four-to-infinity while accepting less from the first three. That can be a real stumbling block, especially in today’s regulatory climate.”
“For me, personally, I’d go for world carbon pricing for biofuels. That would take care of 80% of all the current regulations. You’d still need rules to cover deforestation, clear land regulations and so on, but much less than we have today.” (Marcel van Heesewijk, founder and CEO of Investancia) READ MORE