Wood Biofuels, Venture Capital and Skin Moisturizers

A fundamental mismatch exists between clean energy projects and venture capital funds.  This conclusion, in a Harvard Business School working paper “Venture Capital Investment in the Clean Energy Sector” by Shikhar Ghosh and Ramana Nanda, emphasized investor expectations of extraordinary financial returns from successful projects in order to balance out numerous failed projects.  The problem with energy projects is that they can take decades to succeed, require enormous capital resources and, in the case of liquid biofuels, compete in an efficient commodity market (i.e. oil).  This working paper was published in 2010 and cited by David Rotman in Technology Review.

In 2011, Forisk and the Schiamberg Group published a study – Transportation Fuels from Wood: Investment and Market Implications – that evaluated 36 cellulosic biofuel projects and estimated commercialization timelines for 12 technology approaches in the United States.  Projects producing drop-in fuels appeared to have superior potential for investors and timber markets.   While we found major technical hurdles that would likely disrupt commercialization, we identified promising projects and strategies including, for example, gasification technology (for diesel and/or jet fuel) and catalytic fast pyrolysis.

Now, in 2012, recent announcements reaffirm the relevance and implications of these previous studies:

• U.S. cellulosic producers will massively miss EPA projections and mandates dictated by the 2007 Renewable Fuel Standard.  As noted by Mike Orcutt in “U.S. Will be Hard-Pressed to Meet its Biofuel Mandate” (May 9, 2012), “Congress [in 2007] vastly overestimated the government’s ability to create a market for cellulosic biofuels.”
• Biofuel projects continue to retool.  Forisk’s 2011 study emphasized the advantages to investors from firms with flexible end product strategies focused on drop-in fuels and other chemical products.  Amyris, a firm that applies synthetic biology technology to produce alternatives to conventional chemical and petroleum products, announced in their Q1 2012 earnings call that they are getting out of the biofuels business.  Rather, the firm will focus on higher-valued products, such as skin moisturizer.

“Transportation Fuels from Wood” is now available at 60% off the original publication price.  For more information, please click here.

Wood Bioenergy: Fun House Mirrors and Fact Checking Cellulosic Ethanol

This month I met with the Lt. Governor of a state with a substantive forest industry.  The discussion centered on ways to support forest owners, wood markets and job creating projects.  Then the conversation turned to the potential of wood-based liquid biofuels – such as cellulosic ethanol – and the Lt. Governor turned to me and asked, “Mr. Researcher, what would YOU do?”

After accepting the fact that we weren’t actually on a first name basis, I replied, “I would make it easy for users of wood to operate in your state without betting on any specific technology.”

The Lt. Governor liked the first half of the answer, but not the second half.  The fear of “missing out” on a “wood biofuels boon” has distorted policymaker views of wood market realities.  The sexy, explosive potential of reorienting US transportation fuels to rely on renewable “just-add-sun-and-water” raw materials has made fact-based discussions about the sector akin to strolling through a carnival fun house.

I remember, as a twelve-year old, looking from mirror to mirror at a county fair.  Tall and thin in this mirror; short and stumpy in that mirror.  We use mirrors both to show us what we want to see, and what we don’t.  And when we see what we don’t want, we either change our view, or change mirrors.

When it comes to liquid biofuels and cellulosic ethanol, multiple mirrors continue to reflect a consistent set of facts.  Our team has three years of research, a comprehensive US liquid biofuels study and ongoing market evidence that cellulosic ethanol faces the thorniest of practical challenges in an increasingly difficult context.  So, what are the facts?

• No cellulosic ethanol facilities operate at commercial scale.  Wood Bioenergy US tracks every announced and operating wood-using bioenergy project in the continental United States.  As of December 7, 2011, this represented 456 projects.  Of these, 39 are liquid fuel projects.  How many are operating at commercial scale?  Zero.
• Cellulosic ethanol faces unsolved technology hurdles.  The lack of wood biofuels projects is consistent with the results of our study “Transportation Fuels from Wood: Investment and Market Implications of Current Projects and Technologies.”  For 36 cellulosic biofuel projects, we estimated an 11 year lag between when the projects expect to operate and when our technology analysis indicates the technology could overcome hurdles and be viable at commercial scale.
• Government subsidies and EPA mandates failed.  The Wall Street Journal (“The Cellulosic Ethanol Debacle,” 12/14/11) recently detailed the failure of subsidies and mandates to spur progress and, by implication, facilitate deceit and unrealistic projections.

Finally, the context for these projects has become increasing stark.  In a US market environment where gasoline use has been declining this year and where supplies of natural gas have been increasing, the political urgency and investment potential of these projects dissipate.

Wood Bioenergy: Impacts on Timberland Investors from Biofuels Projects

Questions and comments regarding a study we published with the Schiamberg Group have focused on (1) why a given wood-using transportation fuel project is different or “special” and (2) potential impacts to timberland investors and managers.   The study – Transportation Fuels from Wood: Investment and Market Implications of Current Projects and Technologies – includes the status of 36 cellulosic biofuel projects, estimated commercialization timelines for 12 technology approaches, and implications for bioenergy and timberland investors in the US.   These projects seek to convert wood to fuels including ethanol, butanol, diesel, gasoline, and jet fuel.

With respect to the exact and extraordinary circumstances associated with each wood biofuels project, we defer to the late Senator Daniel Patrick Moynihan, who said “Everyone is entitled to his own opinion, but not his own facts.”  Our research focused on verifiable, third-party sources to confirm the current status and commercial viability of known projects.  While our team, as forestry “enthusiasts”, would love to see growing demand for wood and the associated incentives to increase investments in forestry and forest health, a project cannot be considered viable until the relevant technology has been proven at commercial scale.   We encourage dialogue and will update our analysis as new facts present themselves.

For timberland investors, the overall, potential impacts from this sector appear modest, though specific local markets could benefit within the next ten years.  On a national scale, demonstration and commercial projects could use up to 8.8 million dry tons of wood per year by 2030. According to project announcements, this total wood demand would occur by 2018. A commercialization scenario projects 8.8 million dry tons of wood per year 11 years later in 2029. In other words, we estimate an 11 year lag between when the projects expect to operate and when our technology analysis indicates the technology could overcome hurdles and be viable at commercial scale.  This figure from the study illustrates the story:

The study models and graphs data for all US regions: the US South dominates the potential incremental wood use from the transportation fuel projects evaluated.  At the most basic unit of analysis, the local wood basket circling each liquid fuel project, the population of timberland owners and investors with significant exposure to potential increases in raw material demand from announced projects would include those with timberland investments in markets that include lower risk, higher potential projects.  These markets include Alabama; California; Michigan; Mississippi; and Tennessee.

While some projects show particular promise and advantages, our general results indicate that major technical hurdles will likely disrupt commercialization for most technologies under development.  For more information about this study, please click here.

Wood Transportation Fuels: Study Finds 11-Year Gap Between Announced Production and Viability of Technologies

Our team just published a study with the Schiamberg Group that evaluates the wood-based transportation fuel sector in the United States.  The study builds on Forisk’s tracking and screening of all operating and announced wood-using bioenergy projects in the US (453 projects as of April 28, 2011; click here for summary).  While wood pellet and wood-to-electricity projects use established technologies proven at commercial scale, wood biofuel projects continue to face major technological, feedstock and policy challenges.  That said, there is a wide range of technologies and business models in development in the wood transportation fuels sector.

The study – Transportation Fuels from Wood: Investment and Market Implications of Current Projects and Technologies – includes the status of 36 cellulosic biofuel projects, estimated commercialization timelines for 12 technology approaches, and implications for bioenergy and timberland investors.   The map shows all projects by location and size covered in the study.

Location of Operating and Announced Liquid Fuel Projects in US

These projects seek to convert wood to fuels including ethanol, butanol, diesel, gasoline, and jet fuel.  Projects producing drop-in fuels appear to have superior potential for investors.   However, major technical hurdles will likely disrupt commercialization for most technologies under development.

While the study finds an 11 year gap on average between estimated technology viability and firm announcements, it highlights promising approaches.   This includes the gasification technology under development by firms like Rentech and ClearFuels for diesel and/or jet fuel. INEOS New Planet, Rappaport Energy and Coskata, and Kior are pursuing innovative approaches using gasification and microbes, and catalytic fast pyrolysis.

For more information about this study, please click here.