Wood Bioenergy: Project Count Up, but Viable Volumes Decline in June

30 06 2011

The June issue of Wood Bioenergy US indicates that, as of June 28, 2011:

  • The continental US has 457 wood-consuming, announced and operating bioenergy projects (up from 453 in May).
  • In total, these projects represent potential, incremental wood use of 130.5 million green tons/year by 2021.
  • Based on Forisk analysis, projects representing only 68.7 million tons/year pass basic viability screening.
These results represent a net decline from the estimated, viable wood consumption of 71.1 million tons/year reported in the May issue.  Eight fewer projects passed Forisk’s screening methodology in June than in May.  The biggest factor: we modified the status screen to exclude projects that are on hold or shut down, even if the project uses a proven technology and has made significant progress towards operability. “On hold” indicates that a project is at a standstill for an unspecified amount of time.  Click here to download the complete free summary.
#
Again, the project-by-project results confirmed analysis of the US biofuels market published last month by Forisk Consulting and the Schiamberg Group.  KiOR’s lackluster IPO  and falling oil prices harden doubts about the short-term commercial prospects of investments in the wood-based liquid transportation fuel sector in the continental United States. To learn more about the study, click here.
Advertisements




KiOR’s IPO Fizzles; Forisk Analysis “Nailed It!”

27 06 2011

Last month, our team published a project-by-project study of the US biofuels sector called “Transportation Fuels from Wood: Investment and Market Implications of Current Projects and Technologies.”  One of the 36 projects evaluated in the study is KiOR, which went public on Friday (June 24, 2011) at $15 per share, nearly 30% below the top of the expected range.  The IPO proved uneventful, with shares closing where they started at $15.

An investor and buyer of our research contacted me over the weekend.  “You guys nailed it!” he said.

So far, that appears to be the case.  Our technology assessment of KiOR indicates a high level of technology risk and that commercialization could be at least eight years into the future. In addition, the firm produces end products that require additional refining; these are not drop-in fuels.

KiOR, which lost $45.9 million in 2010, remains unprofitable and has yet to produce at commercial scale.  While KiOR has the potential to be a successful biofuels company, the IPO simply gets KiOR closer to the capital it must have to give the commercial scale facilities any chance of completion, regardless of whether or not the technology functions and yields materialize as planned.

In addition, the bedrock support for biofuel tax credits has cracked.  On June 16th, the U.S. Senate voted 73 to 27 to repeal the 45 cent per gallon tax credit on biofuel and the 54 cent per gallon tariff on imported ethanol.  While the House is expected to reject the measure, it received broad bipartisan support.  This signals another red flag for investments in wood biofuel projects dependent on government-based subsidies.

For more information about this study, please click here.





Wood Biofuels: KiOR Doubles Size of IPO; Investors Should Not Expect Speedy Payback (if any)

5 06 2011

Last week, Pasadena, Texas-based KiOR filed with US regulators to increase the size of its initial public offering to $200 million, doubling its initial filing of $100 million in April (KiOR doubles size of IPO, Reuters, June 1, 2011).  KiOR plans to produce crude oil using non-food biomass types such as wood chips and switch grass.  In addition, KiOR was included in a study published last month – Transportation Fuels from Wood: Investment and Market Implications of Current Projects and Technologies – that includes the status of 36 cellulosic biofuel projects in the US, commercialization timelines for 12 technology approaches, and implications for bioenergy and timberland investors.   The list shows all projects covered in the study.

For each technology, the study ranks the level of technical risk, provides a commercialization timeline, and estimates the expected yields at commercial scale. The results indicate that major technical hurdles need to be solved and will delay or disrupt commercialization for most of the technologies under development.

What were the implications for firms such as KiOR?  KiOR currently operates a pilot plant in Pasadena. The firm is developing commercial scale biorefineries to make gasoline and diesel blendstocks from wood.  Its initial-scale plant in Columbus, Mississippi is under construction. KiOR has secured three off-take agreements for fuel produced at its Columbus location with Hunt Refining Company, Catchlight Energy, and FedEx Ground Services. The company also plans commercial scale facilities in Mississippi (likely in Newton and Bude), Georgia, and Texas. KiOR received a $75 million interest-free loan from the state of Mississippi to build the Columbus plant. KiOR received a term sheet for a DOE loan guarantee for $1 billion announced in February 2011. As of May, the loan guarantee was in the due diligence process and requires that KiOR begin construction by September 30, 2011.

With both strong public and private sector backing, KiOR has the potential to be a successful biofuels company. However, our technology assessment indicates a high level of technology risk and that commercialization could be at least eight years into the future. In addition, the firm produces end products that require additional refining; these are not drop-in fuels.  Finally, the increased IPO simply gets KiOR closer to the capital it must have to give the commercial scale facilities any chance of completion, regardless of whether or not the technology functions and yields materialize as planned.

Relative to other firms in the study, KiOR has a shorter technology gap as the overall results find an 11 year gap on average between estimated technology viability and firm announcements.

For more information about this study, please click here.