Hitting a New Stride

The biorefining sector reached an important new milestone this year with at least five companies undergoing successful initial public offerings (IPOs). As we move into the new year, members of industry will take another important step as significant quantities of commercial production begin to come online. According to Biorefining Magazine archives, more than two dozen companies around the world have announced they aim to achieve monumental new milestones next year. Some will develop demonstration-scale projects in an effort to prove out their technologies at scale. Others will break ground on commercial-scale plants. A select few will even bring commercial-scale capacity online. By the close of 2012, the landscape of the industry could be changing. As advanced biofuel and biobased chemical plants begin putting commercial quantities of product into the marketplace, the industry should gain a new air of legitimacy.

Successful IPOs from companies such as Codexis Inc., Solazyme Inc., Gevo Inc., Amyris Fuels LLC, and KiOR Inc. have defined the biofuels industry in 2011. “Those companies all went public this year, and they went public to great, great success,” says Advanced Biofuels Association President Michael McAdams. “That’s a good sign for the future.” Paul Winters, director of communications at the Biotechnology Industry Organization, adds that those IPOs not only demonstrate the maturation and progress made by the biorefining sector, but it represents a larger movement in the industry beyond biofuels as companies making renewable chemicals are also represented.

These IPOs are critically important to those individual companies as well as the industry as a whole, says Cobalt Technologies CEO Rick Wilson. “To run a startup, you need financing,” he says. “The people who invest in these early-stage companies do so realizing that many of them will fail. But, the ones that succeed will make a lot of money. Without an IPO they could never be convinced that there is a chance they could see their money. So, an early-stage investor would put their money in now that they have confidence the IPO window is open. The fact that there are going to be examples and cases where they will be able to get 10 times their money is only going to serve further investment in this segment.”

Gevo CEO Pat Gruber says when Gevo went public, it demonstrated that a really good public offering could be done in this space. “We 10-times oversubscribed,” he says, “and that gave confidence to the whole sector. No one really knew if there was an investment appetite for our kinds of businesses. Now, with us, Solazyme, KiOR and the rest, I think there probably is. That offers up a new way of raising money. That’s good.”

The success of the industry’s first IPOs isn’t all that defined this year. Gevo President Chris Ryan says another factor is the level of commercialization the sector has achieved. “Up until this year, the only thing the world had seen was a bunch of joint development agreements,” he says. Members of industry have now begun to put the first real commercial supply agreements into place. For Gevo this is reflected in the commercial offtake agreements for its biobutanol product. “It’s quite impressive, I think, that we have the majority of our first two plants sold out,” Ryan says. “And these aren’t little plants.”

James Iademarco, vice president of biobased chemicals and materials at DSM N.V., adds that 2011 has also been marked by significant advancements in biobased chemical production technology. “It’s very exciting,” he says, noting there has been movement on advanced technologies in biological, thermochemical, chemo-catalytic and other catalysis pathways. Jim Sturdevant, director of Poet’s Project Liberty, says that dozens of companies around the world have been working for nearly a decade to develop cellulosic ethanol production technologies. Several of those companies are now progressing with plans for commercial deployment. “I think it’s probably fair to say, from an industry perspective, the technology has made great advances, and is in many cases ready to go,” Sturdevant says.

While access to funding has been a particularly troublesome issue in the biorefining sector since the start of the global recession, Sturdevant says that seems to be turning around. “The challenge for the last couple of years has been financing,” he says. “Part of the problem there is our economy itself and the reluctance of lenders to lend to innovative technologies.” He notes there has been some success, however, thanks to the U.S. DOE and USDA loan guarantee programs, adding that “some cracks have been forming in the wall of this financing barrier.”

Into the Future

While 2011 was a big year for biorefining, 2012 is promising some impressive developments. On an individual basis, companies such as Gevo have plans to roll out commercial production. On an aggregate basis, the entire sector seems poised to move ahead with funding, scale-up and production plans.

Funding in general, and IPOs specifically, will continue to be a defining force in the industry. “My prediction is there are lots of companies teeing up to do an IPO, and I think the bar is going to get raised for IPOs considerably,” Wilson says. While some have been able to file an IPO on what essentially boils down to a promise, Wilson says he thinks the expectations will change. “I think we could see the requirement that a company that files an IPO has commercial production and is making money,” he says, adding there may also be a more rigorous expectation that companies fully prove out a technology on the demonstration scale. In addition, he says he expects investors will be less interested in supporting companies that depend on government subsidies.

Iademarco outlines three things he expects to see next year, and all involve investment or funding. “I think you are going to see a continual investment in biobased chemicals,” he says, provided the financial markets stay relatively stable. “I think you are going to see some of these companies that are venture-backed go public.” He also says larger, established chemical companies, either downstream customers or incumbents, will become more active in making investments in these technologies.

BIO partners with another organization to produce a quarterly business outlook survey. It’s sort of a business confidence index for the bioenergy and biorefining industry, Winters says. While the first two quarters of the year showed a high degree of confidence in continuing IPO activity, the most recent report showed a decline and noted that there was expectation within the business community that more financial activity would be present in the form of mergers and consolidation. Winters also points out that the IPO market fluctuates within the year, and that the latest report could simply reflect a seasonal shift in the market. For the past dozen years, he says, the third quarter has tended to be slow for the biotechnology sector. “The fourth quarter of the year will probably see some pickup,” Winters adds. While there is likely to be another round of IPOs next year, Winters notes that whether they are as large as 2011’s will depend on the overall state of the economy and market, as well as the strength of the companies that come out for public offerings.

McAdams adds that market volatility could also have an impact in 2012. “I know there are several more looking to go for it,” he says of companies filing IPOs. “I don’t know whether the market volatility will lend itself to having a year in 2012 like we had in 2011, or whether, for that matter, we have enough companies that are far enough along to go public. I think there is more in the queue and I hope we can keep this momentum going. All the companies are rooting for each other, which is a great sign.”

For those that went public this year, 2012 will be when they have to prove themselves. “We’re going to find out who is real and who isn’t in terms of what they’ve promised the street,” Gruber says. “And I hope everybody is real.”

These companies, including public and private firms that announced commercial construction and operation activities planned for 2012 are being watched closely by everyone, Winters says. The U.S. EPA is keeping close tabs on the biofuel companies in order to fulfill its obligation to set the RFS2 compliance levels, and Congress, the U.S. DOE and USDA are monitoring many projects backed by federal funding so they can produce a return on investment for tax payers. Institutional investors, such as banks, are looking for proof the industry can succeed. “Once success is demonstrated, they are willing to back construction of new projects,” Winters says. 

Iademarco also stresses how important it will be for biorefining companies to meet their production goals. “You hear a lot of noise,” he says. “It is going to be interesting to see who is able to deliver on their promises and really get production going for customers, because that is going to be important anytime you have an emerging market. If biobased chemicals are going to be successful, these customers need to know that there are established, credible suppliers.”

McAdams notes that the ability to meet stated goals will be important to the entire sector. “I think the proof is in the pudding,” he says. “I think it’s very important for companies across the industry to deliver the goods. I think we are going to see a number of companies next year really begin to deliver some significant volumes. That’s not only good for them personally, it’s good for the industry.”

While IPOs and private investment opportunities will obviously be an important issue in 2012, McAdams stresses that the U.S. military’s contribution to the industry will represent the No. 1 opportunity for the advanced biofuels industry next year; specifically, the funding that will come from the defense department under Title 3, the Defense Production Act. “I think that is probably the No. 1 opportunity to see some cooperation and partnership to actually build a commercial facility between the government and private sector,” he says. “That is something that we all need to be watching, and rooting for and delivering. I’d put it as No. 1 in the list of things to look for in 2012. I remain incredibly optimistic that we are going to be able to fund the $510 million and that will be the seed money to demonstrate that partnership.”

Winters agrees that all branches of the U.S. military will be a driving force in the future of the biorefining industry. The military—not just the Navy, but every branch—has set goals for increased use of alternative energy, he says. “The military is one of the best organizations in the world for setting goals and meeting them, and they have the expertise and knowhow to reach them.”

The Farm Bill, in whatever form it becomes law, will also have a significant impact on the industry in 2012. The legislation is important because it has not only served as an R&D driver, but also in production of biomass Winters says. “We want to see the farm bill become a driver of the entire biorefinery range of products and uses for biomass,” he adds.

In the current political environment, a lot of people are included to throw the baby out with the bathwater in terms of partnerships between government and clean energy technologies, McAdams says. That environment shows no signs of changing next year. “I think it will be very important,” he says, “for those in the cleantech sector to remind policymakers of the great success that can result for partnerships between the federal government and new industry. For the federal government to walk away, particularly from advanced biofuels, at this time would be a really bad mistake. I think it would be a mistake where we would see our competition around the world in places like Brazil and China take the lead. I don’t think this is a time in American history where we want others to take the lead on innovative and proprietary technologies that we invent right here at home.”

Author: Erin Voegele
Associate Editor, Biorefining Magazine
(701) 540-6986
[email protected]

Reaching New Milestones

2012 will bring many developments in biorefining. Here is a partial list of what’s expected to happen next year.

• Ineos New Plant BioEnergy’s 8 MMgy cellulosic ethanol and 6 mW biopower plant is expected to be commissioned in April.

• Solena Group Inc. is expected to begin construction on a 16 MMgy biojet fuel facility called GreenSky using Rentech’s Fischer-Tropsch synthetic fuel technology platform in the U.K, with commercial operations scheduled for 2014.

• DSM N.V. and Roquette Freres have plans to build a 10-kiloton-per-year commercial biosuccinic acid plant adjacent to an existing Roquette facility in Cassano Spinola, Italy, scheduled for operation in fourth quarter. 

• Cobalt Technologies and Rhodia will develop a demo plant in Brazil to produce biobased n-butanol from sugarcane bagasse. Cobalt also expects to complete its Alpena, Mich., demo plant to convert hardwood into biobased n-butanol, and the company expects to break ground on a commercial-scale facility.

• Gevo Inc. is expected to begin operations at its first commercial-scale biobutanol plant, an 18 MMgy facility co-located with a corn ethanol plant in Luverne, Minn.

• Fulcrum BioEnergy LLC recently filed for an IPO and is expected to complete construction on its 10.5 MMgy cellulosic ethanol plant and 16 mW biopower facility, Sierra Biofuels.

• Novozymes partner Mossi & Ghisolfi Group broke ground on a 13 MMgy cellulosic ethanol plant in Italy this year with production planned for next.

• A joint venture between Novamont and Genomatica is working to complete a biorefinery at year’s end to produce 40 million pounds of Genomatica’s butanediol for use in Novamont’s bioplastic products.

• Elevance Renewable Sciences Inc. is retrofitting a Natchez, Miss.-based 80 MMgy biodiesel plant to produce specialty chemicals for use in personal care products, detergents, plastics, and lubricants, scheduled to be operational.

• Dow Chemical Co. and Mitsui & Co. Ltd. announced a new joint venture to produce biopolymers, the first phase of which will include construction of a new sugarcane ethanol plant in Brazil, followed by building adjacent ethanol-to-ethylene and polyethylene production facilities.

• EdeniQ Inc. is developing a 2-ton-per-day cellulosic ethanol plant in Visalia, Calif., scheduled for operation in first quarter.

• Independence Bio-Products aims to expand its algae demo plant in eastern Texas into a 390-acre commercial-scale facility.

• ZeaChem Inc. is targeting development of a 25 MMgy commercial-scale facility using specialized microorganisms to convert biomass into fuel and chemical molecules.

• UOP LLC, a Honeywell company, has begun construction on a pyrolysis demo plant in Hawaii that will convert forest residues, algae and other cellulosic biomass into transportation fuels. Initial production is expected to begin next year, with full operation in 2014.

• Algae technology developer Heliae Inc. recently leased land to build a small commercial algae production facility near its headquarters in Arizona. Construction is scheduled to begin.

• PepsiCo is scheduled to begin pilot-scale production of biobased polyethylene terephthalate.

• Algae.Tec Ltd. is collaborating with the Manildra Group to construct a demonstration algae facility adjacent to an ethanol plant in Australia. The project could be operation by first quarter.

• KiOR Inc. is developing an 11 MMgy renewable diesel plant in Columbus, Miss., which is scheduled to begin operations during second half of the year.