Report illustrates interconnected web of alternative fuel players

By Kris Bevill | April 23, 2012

A report recently released by Boston-based advisory firm Lux Research Inc., titled “Mapping Empires, Goldmines, and Landmines in the Alternative Fuels Network,” examines the role of partnerships within the alternative fuels sector and concludes that the industry has become deeply interconnected in the past few years, centering around a handful of oil majors, technology developers and next-generation ethanol producers. “We expected some connectivity, but we were surprised by how much there was and how tight that part of the network was,” said Andrew Soare, Lux Research analyst and lead author of the report. The report’s authors found that 80 percent of the alternative fuels network, which includes more than 750 companies, is connected in some way, most by just a few degrees of separation.

Information for the report was gathered by first compiling a comprehensive database of alternative fuels industry stakeholders and analyzing that database for trends over time to evaluate how the space has evolved, Soare said. After analyzing the industry as a whole, the analysts were also able to zero in on specific sectors, such as cellulosic ethanol.

While the amount of interconnectivity among industry players was greater than expected, Soare said the most surprising finding was the high level of ongoing research-oriented partnerships in the industry as a whole. The analysts discovered that the number of those types of partnerships reached its peak in 2010 and has remained high since. “That was very counterintuitive to us because you would expect that as the industry is maturing and more partnerships are occurring, they would transition from research and development/product development agreements to commercialization agreements,” he said. “But that was not the case. Research is actually picking up. It emphasizes some of the technical struggles (in) the industry, as well as how it’s expanding to novel feedstocks, novel fuels and different processes.”

An exception to the ramping up of research partnerships is cellulosic ethanol, however, which was shown to have a surprisingly low rate of university-industry collaborations. The report’s authors recommended that industry players, particularly the downstream participants, should seek to form more alliances with research organizations to advance research and innovation in the cellulosic arena.

The report also showed that technology developers focusing on biochemical pathways appear to have had greater success in forming partnerships to date than those focused on thermochemical routes. Novozymes, Shell and renewable diesel producer Amyris hold the dominant positions in the biological arena, followed closely by BP and Chevron with the largest number of partnerships in the "both or neither" (biological and thermochemical) category, according to the report.

The report also examines the geographical locations of partnerships and found that North America continues to dominate the industry and the partnerships tracked by Lux Research. Two-thirds of the companies on Lux Research's partnership map are North American companies and, according to the report, since 2004, 80 percent of venture investment dollars in alternative fuels have been allotted to North American companies.

Asian involvement in the alternative fuels sector is on the rise, however, with most Asian corporations seeking to invest in technology that can be deployed in Asia, where demand is growing and feedstock is plentiful. The report's authors singled out Australia as being a region of the world known for risky investments, noting that a number of the less promising alternative fuel developers, many of which are focused on algae-based technologies, have struck deals with Australian organizations. The authors diplomatically stated that not all Australian partnerships are necessarily doomed to fail, however. They pointed to a consortium made up of Coskata, GM, Caltex, Veolia and Mitsui as having the potential to succeed with a proposed waste-to-ethanol plant in Australia because, while Coskata's technology carries risk, the group's corporate weight may carry it through, they said.

Europe is dominated by a small number of companies, many of which also participate in a large share of the international partnerships. Shell, BP, Novozymes and Total are all headquartered in Europe, and are also in the position to capitalize on partnerships elsewhere, according to the report. Soare noted that because Europe is already tightly consolidated, aligning with those companies could be very important for technology developers.

Lux Research conducted its analysis to better evaluate partnerships within the industry, where the value lies in a specific chain and how it is evolving over time, Soare said. The firm expects that partnerships will continue to be formed throughout the next several years as they play a vital role for technology developers seeking to commercialize their processes. "Because this industry is competing with a trillion dollar market in oil, the costs need to be extremely low, the availability and reliability need to be high, and to effectively scale-up with the high capital costs and the need for infrastructure, for fuel testing, for feedstock access, for financing—for all of these reasons, new technologies need partners,” he said.