In a bid to de-carbonize the transport sector, vehicles with different electrification standards receive the most attention. Even then, liquid fuels are expected to linger around a little longer due to the transmission infrastructure surrounding the globe distributing fuels with high energy per kilogram as compared to batteries.

This creates a gap in the market which is slowly getting filled by biofuels. The production of biofuels has continued to increase globally over recent years. Annual production of biofuels has increased to approximately 80 billion in the last few years from 10 billion in the early 2000s. A huge percentage of this development is pushed by governments focusing on alternative sources of fuel in a bid to minimize the globe’s dependability on fossil fuel. Read about the pros and cons of biofuels.

Biofuels have eradicated approximately 250 million metric tones of carbon according to studies carried out by MBP Solutions Ltd. This can be considered as the equivalent to eliminating 5 million vehicles off the road beginning the year 2007. First generation biofuel is also referred to as starch-based ethanol and defines a broad majority of biofuel that is included as a 10% mixture in gasoline presently.

From various developed countries, it is obtained from corn where corn sugars are purified in ethanol through a process similar to that involved in the making of whiskey. Currently, the production of corn has increased rapidly. In the same way, its conversion efficiency has also increased.

In order to maximize their objectives, individuals in the supply chain have come up with robust concepts. The distribution infrastructure, however, has not received similar enhancements which have caused unease with regards to a blend wall.

Corn Ethanol

Corn ethanol faces lots of criticism and objections. For instance, opponents of big environmental organizations, to the fact that it is a government program, and other petroleum entrepreneurs who view it as a competitor. Apart from all that, corn ethanol is a tremendous step towards achieving renewable clean liquid fuels that can be instrumental in minimizing carbon emissions.

Facts about Ethanol

Ethanol comes with a high octane rating meaning that by blending it into gasoline, one does not have to blend it with more expensive and hazardous additives to increase octane levels to the standard minimum of 87. This is a fact that many cost comparisons ignore.

In comparison with gasoline, ethanol energy per gallon is less. However, it comes with a high octane rating which plays a huge role in enabling it to produce more power in a high compression ratio engine. This explains why ethanol is used as the standard fuel in formula 1 racing cars.

New Corn Separation Procedures

New corn oil separation procedures allow experts to obtain food grade oil and enable them to make biodiesel. Corn production levels are currently on the rise which is aimed at keeping speed with the rising gasoline consumption. This has given rise to more corn related food products.

Many people opine that considering the energy needed to grow corn makes corn ethanol hardly net positive. However, this equation is presently improving with the enhancement of conversion efficiency and farm productivity. These improvements will, however, fade compared to the minimized carbon footprint made possible by cellulosic or second generation ethanol.

A plant’s woody parts are cellulosic. They can either be the stalks or leaves which do not have much food value. Cellulosic parts also include forestry residue, grass, and wood chips. This creates an opportunity for less energy robust plants which can grow without cultivation or fertilizers.

While starch oriented ethanol utilizes ancient distillation methods, obtaining sugars that are biochemically stored in cellulose was an unfamiliar method to many people. Many biotech startups are developing demonstration plants using different approaches in the present day.

Finally

Biofuel demand has been particularly high in the developed countries with many other countries across the globe expected to follow suit in coming years. Production of biofuel is driven by first-generation biofuel production obtained from crops which are also used as feedstock and human food. While first generation biofuels have been applauded as suitable alternative sources of energy, their production has encountered controversy specifically in terms of their effects on the feed and food market.

The Indian Government has finally come out with a policy mandating 5% compulsory blending of ethanol with fuel. The Oil Marketing Companies will have to procure ethanol from the biofuel producers and in case of shortfall will have to import the fuel. Note 13 states had already imposed a 2% blending mandate and this will now increase to 5% for the whole country. Most developed countries like USA and Europe already have mandatory biofuel blending in fuels. The US has set very ambitious targets of blending in 22 billion gallons of biofuel with gasoline by 2022 and also subsidizes the industry heavily.

Read Advantages of Biofuels.

However the 2nd generation cellulosic biofuels have not grown sufficiently as the technology is still immature. This had led to a large diversification of food crops into producing ethanol for the transportation industry. This has led to a lot of criticism as it is leading to a global surge in food prices as major food producers like US divert corn for ethanol instead of exporting them as food and feed for livestock. While 5% blending of ethanol might be alright the Indian government needs to be careful in not increasing the limit as the country can scarcely afford to contribution to the rise in global food prices given that hundreds of millions of its own citizens go hungry every day.

The main beneficiaries of the this regulation will be the sugar companies in India who produce large volumes of ethanol during sugarcane processing like Balrampur Chini and ethanol equipment manufacturer Praj Industries.

Read more about Sugar Manufacturers in India.

Hindu

The Cabinet Committee on Economic Affairs (CCEA) on Thursday gave its approval of the pricing formula for procurement of bio-ethanol by oil marketing companies (OMCs) as suggested by the expert committee. The procurement price of ethanol will be decided henceforth between oil companies and ethanol suppliers. This programme is currently being implemented in 13 States with blending level of about two per cent against a mandatory target of five per cent.

What are Biofuels

The liquid fuels that can be obtained from biomass like plant matter or by the waste that living creatures produce, such as manure is known as Biofuels. The extensive range of organic materials used for biofuel production includes starch and sugary plants such as corn, wheat or sugar cane; oily plants such as rape seed, soya beans or jatropha; vegetable oils and animal fats; wood and straw.

First Generation Biofuels

Examples of 1st generation biofuels are bioethanol from starch or sugar crops and biodiesel from oil-rich plants. As these fuels are primarily derived from crops, they divert food away from the human food chain.

Second Generation Biofuels

Almost all Second generation biofuels are new technologies and do not have commercial production. Sources include agricultural waste such as corn stover, straw and bagasse; industrial waste such as sawdust and paper pulp; woody biomass from forestry; municipal solid waste including household food and garden waste and paper products.

Biofuels Advantages

  1. Renewable – Biofuels are produced from plants and other organic material, so it can be replenished constantly. They are  non-toxic, biodegradable and greenhouse gas neutral. This is in contrast to the fossil fuels, which are constantly in the process of being depleted.
  2. Clean – Biofuels are environment-friendly. They are much efficient & cleaner than fossil fuels, producing less air pollution and using materials that would otherwise be considered as waste products. Biofuels cause much less greenhouse gas emissions in comparison to the conventional types of transport fuels.
  3. Energy Security – The main reason for propogating the use of biofuels and making it mandatory in the USA was for energy security reasons is estimated that the military cost of securing foreign oil is between $45 – $115 Billion.
  1. Inexpensive – They can be made easily by using local materials. Biofuels are very cheap to afford. They are the cheapest types of fuels available in the world.
  2. Flexible – can be easily mixed with other fuels. When you want to use Biodiesel in a a conventional petrodiesel engine it is not necessary to make any modifications to that engine whatsoever.
  3. Additives – Biofuels like ethanol and biodiesel are better for car engines than fossil fuels. Even if not being used as the main fuel source, they can be used as additives to improve performance.
  4. Carbon neutral – the amount of carbon dioxide created by the burning of biofuels is equal to the CO2 absorption capacity of the plants. Hence, no extra CO2 remains in the atmosphere. it releases up to 78% less Carbon Dioxide than conventional petroleum diesel. This green fuel does not contain any sulphur and using it results in a significant reduction of unburned hydrocarbons, carbon monoxide and particulate matter.
  5. Waste Reduction – Second Generation Biofuels make use of waste matter mostly which is not only good for utilizing the industrial, agricultural and municipal waste but also generating fuel. Most of the disadvantages of 1st generation biofuels is removed in the second generation.

Biofuels

The liquid fuels that can be obtained from biomass like plant matter or by the waste that living creatures produce, such as manure is known as Biofuels. They  are mostly used to help meet transportation fuel needs.

Types of Biofuels

The two most common types of biofuels in use today are ethanol and biodiesel.

Ethanol

Any biomass which is high in carbohydrates can be fermented to produce Ethanol. Today, ethanol is made from starches and sugars. Ethanol can also be produced by a process called Gasification, where high temperatures and a low-oxygen environment is used to convert biomass into synthesis gas. This synthesis gas also known as syngas, can then be chemically converted into ethanol and other fuels. Ethanol can be used as a fuel for vehicles in its pure form, but it is usually used as a gasoline additive to increase octane and improve vehicle emissions. It is widely used in the USA and in Brazil.

Biodiesel

is obtained by mixing alcohol which is usually methanol with vegetable oil, animal fat, or recycled cooking oil. Chemically, it consists mostly of fatty acid methyl esters. Pure biodiesel (B100) is the lowest emission diesel fuel. Biodiesel can be used in any diesel engine when mixed with mineral diesel. It is also used as an additive (typically 20%) to reduce vehicle emissions.

Solid biofuels

Examples include wood, sawdust, grass trimmings, domestic refuse, charcoal, agricultural waste, non-food energy crops, and dried manure.  One of the advantages of solid biomass fuel is that it is often a by-product or residue  of other processes, such as farming, animal husbandry and forestry. Hence, it is an efficient means of utilising something that is waste & converting it into something very useful.

Then there are Second generation biofuels. These are advanced biofuels produced from sustainable feedstock. Many second generation biofuels are under development such as Cellulosic ethanol, Algae fuel, biohydrogen, biomethanol, biohydrogen diesel, mixed alcohols and wood diesel. This is posing a challenge to the mankind as more land & resources would be required to produce feedstock for biofuels rather than getting utilized for food production.

Hence research work is going on to develop biofuel crops that would require less land and use fewer resources. For example algae is one such source for biofuels that could utilize unprofitable land and waste water from different industries, because it can be grown in waste water. Also algae do not affect the human food chain.

Pros of Biofuels

  • Renewable – Biofuels are produced from plants and other organic material, so it can be replenished constantly. This is in contrast to the fossil fuels, which are constantly in the process of being depleted.
  • Clean – Biofuels are environment-friendly. They are much efficient & cleaner than fossil fuels, producing less air pollution and using materials that would otherwise be considered as waste products. Biofuels cause much less greenhouse gas emissions in comparison to the conventional types of transport fuels.
  • Inexpensive – They can be made easily by using local materials. Biofuels are very cheap to afford. They are the cheapest types of fuels available in the world.
  • Flexible – can be easily mixed with other fuels.
  • Additives – Biofuels like ethanol and biodiesel are better for car engines than fossil fuels. Even if not being used as the main fuel source, they can be used as additives to improve performance.
  • Carbon neutral – the amount of carbon dioxide created by the burning of biofuels is equal to the CO2 absorption capacity of the plants. Hence, no extra CO2 remains in the atmosphere.

Cons of Biofuels 

  • Food vs. Biofuels – with the increased use of biofuels there will be an urge to grow more of the crops meant for biofuel production instead of food crops. A reduced food production can increase the price which may lead to inflation.
  • Loss of habitat – More land would be required to be cultivated for Biofuel production. This is already considered a major problem, as it may result in a loss of habitat for various species of plants and animals.
  • Harmful Nitrous oxide production – Although there is not enough carbon dioxide emission that would cause the greenhouse effect, yet the burning of materials to produce biofuels emits enough nitrous oxide to create a greenhouse effect.
  • Limitations in its use in vehicles – Some kinds of biofuels require modifications to vehicle engines and they are still being used as additives rather than a fossil fuel replacement.
  • Ignorance – Biofuels are not widely available and not many people are aware about it.

Biofuels are still in a nascent stage & needs lot of research & development to make it more popular. Given some of its disadvantages, one of its biggest advantage is that there are chance of it being used as a replacement of fossil fuel which is so fast depleting & is not  renewable.

 

 

 

Algae Based Biofuels Introduction

Algae Based Biofuels have been hyped in the media as a potential panacea to our Crude Oil based Transportation problems. Algae Based Biofuels as a Green Investing Opportunity is still some years away as the technology is still quite nascent.Despite a lot of hoopla and a number of IPO’s with synthetic biofuels as business,large scale commercial production and profits are still some time away.However the promise of this technology to revolutionize the Fossil Fuel powered Transportation Sector is Huge.Large Oil and Gas is already positioning itself in a small way to take advantage of this opportunity.Shell has been the biggest investor in Biofuels with a $12 Billion tie up with Brazilian Sugar Giant Cosan.The advantages of Algae Biofuels are being propagated by strong backers like Bill Gates ,Rockefeller family and Exxon Mobil.The main advantages of algae based biofuels are Efficient Land Usage,Reduction in Global Warming affect and ability to be directly used in vehicles and aircraft.However Algae Biofuel Technology is still quite immature despite startups like Solazyme,Algenol,Sapphire Energy and Synthetic Genomics having made impressive strides.

Solazyme Introduction

Solazyme a Chevron backed small algae biofuel based startup has bagged big name investors for its Series D Funding Round.It has bagged Food Companies like Bunge,San-Ei Gen and Unilever as Investors besides Chevron as Fuel Distributor and Branson as an Airline consumer.The Food Companies as investors makes a lot sense  as Solazyme is thinking of tapping the Food Markets for its algae based products.Besides these wins,Solazyme has bagged a huge150,000 tons Fuel Follow-on Supply Contract.This order reflects the success in delivering the earlier 20,000 tons contract.Solazyme has also received a R&D and Supply Contract to develop biofuels for US Navy Jets.

Recent Algae Based Biofuel IPOs – Mixed Performance

Solazyme IPO follows on the footsteps numerous BioFuel Startups which have recently issued shares in  US IPOs like Codexis, Inc. (NASDAQ: CDXS), Amyris, Inc. (NASDAQ: AMRS), Gevo, Inc. (NASDAQ: GEVO).Solazyme has not revealed the Pricing yet for its IPO though it has filed a S-1 with the SEC .Amyris has been one of the most successful IPOs in the US market over the last year giving a 1 year return of over 90%.Gevo and Codexis too have outperformed the Nasdaq in the last 1 year giving a return of 10%,though Codexis is giving negative returns for its IPO investors while Gevo is just about in the black..With Oil and Coal prices shooting through the roof,Biofuels are again back in vogue even as Government mandated compulsory mixing of Biofuels in Transportation makes these companies somewhat immune to oil price volatility.

Solazyme Technology

Solazyme use standard industrial fermentation equipment to ferment  oil-producing microalgae plant sugars in dark fermentation tanks,  utilizing “indirect photosynthesis,” in contrast to common open-pond and photo bioreactor approaches followed by other algae biofuel companies.Note they save on effort of separating  the water from the produced oil . Solazye says it can utilize a wide variety of renewable plant-based sugars, such as sugarcane-based sucrose, corn-based dextrose, and sugar from other sustainable biomass sources including cellulosics.

Solazyme Cost and ASP

Solazyme says it will be able to produce algae oil for the fuels market at “below $1,000 per metric ton ($3.44 per gallon or $0.91 per liter).The company claims to have decreased its cost from almost $10,000 ton in 2007 which certainly seems quite impressive.The Company is projecting an ASP of around $2000 per ton from the Fuels Market,$10,000 from the Nutrition Market to $2 million from the Skincare Market (midpoint).IF the company is able to realize these kinds of selling prices,then it will be fabulously profitable,though it remains to be seen.

Solazyme Market

The company is targeting 3 markets with a total value of $3.1 Trillion.

  1. Fuels and Chemicals – Renewable oils can be refined and sold as drop-in replacements for marine, motor vehicle and jet fuels
  2. Nutrition – Microalgae-based food ingredients including oils and powders that enhance the nutritional profile
  3. Skin and Personal Care -Portfolio of innovative and branded microalgae-based products. Our first major ingredient is Alguronic Acid

Solazyme Production and Manufacturing

Fom January 2010 through February 2011, they produced well over 500,000 liters (455 metric tons) of oil which implies a run rate of around 3 million liters.In March 2011, they entered into an agreement to purchase a development and commercial production facility with multiple 128,000-liter fermenters, and an annual oil production capacity of over 2 million liters located in Peoria, Illinois (the Peoria Facility).The company has signed multiple non binding contracts with partners to producer and market biofuel.Aims to commence production of oils for the fuels and chemicals markets at one large commercial facility by 2013 and additional facilities in 2014 and 2015.

Solazyme Partners

  1. Chevron Under the terms of the current agreement, Chevron is providing research funding through June 30, 2012.
  2. US Navy. In September 2010, we entered into a firm fixed price research and development contract with the DoD, through the Defense Logistics Agency, Fort Belvoir, VA (DLA), to provide marine diesel fuel. We agreed to produce up to 550,000 liters of Soladiesel HRF-76 marine diesel for the US Navy’s testing and certification program
  3. Dow.The agreement is mutually exclusive in the area of microbe-based oils for use in dielectric insulating fluids until January 1, 2013. In conjunction with the execution of the joint development agreement, we entered into a non-binding letter of intent whereby Dow could purchase up to 20 million gallons (76 million liters) of our oils in 2013 rising to up to 60 million gallons (227 million liters) of our oils by 2015, subject to certain conditions.
  4. Roquette. In November 2010, we entered into a joint venture agreement with Roquette.
  5. Sephora. In December 2010, we entered into an exclusive distribution contract with Sephora International to distribute our Algenist™ product line in Sephora International stores in Europe and select countries in the Middle East and Asia.

Solazyme Financials


Solazyme has generated $38 million in revenues in 2010 almost 300% increase over 2009.R&D program revenues represented 100% of our total revenues in 2008 and 2009 and 60% of our total revenues in 2010. Revenues from government grants and agreements represented 82%, 44% and 43% of total R&D program revenues in 2008, 2009 and 2010, respectively.The company is generating losses as it is still in the startup phase and has around $52 million in accumulated losses with around $80 million in cash and ST investments.Debt is currently negligible.The financials are quite good compared to similar algae biofuel companies.

Solazyme Advantages


1) Low Capex Requirements as it relies on partners for both manufacturing and marketing of products in different end markets.Uses standard fermentation equipment and has a customer centric approach to technology development
2) Customers and Contracts – The company has manged contracts with Big Customers like the US Navy and US Airforce 50/50 joint venture with Roquette, one of the largest global starch and starch-derivatives companies.

3) Largest Producer of Algae Based Biofuel to date.The company benefits from US government promotion of Biofuels through the Energy Independence and Security Act of 2007 set targets for alternative sourced liquid transportation fuels (approximately 14 billion gallons in 2011, increasing to 36 billion gallons by 2022). Of the 2022 target amount, a minimum of 21 billion gallons must be advanced biofuels

Solazyme Valuation

The Company valued itself at $85 million in 2009 to around $430 million in 2011 based on the stock options it gave to its management.Currently Amyris is the most expensive company with a market cap of around $1.3 billion.Note Solazymes ships more algae based fuel than Amyris.Also it is targeting the same markets as Amyris does,however Amyris has double the revenues generated by Solazyme.I think Solazyme will also look to target a market cap of around $750-1000 million.

Summary
Investment in Solazyme is more akin to a VC/PE investment rather rather than an equity investment.The company is probably not going to be profitable for the next few years.The risks are common to a high-tech startup such as technology risks,liquidity risks,management bungling etc.However Solazyme seems a tempting buy given its seductive technology and its contract and customer wins till date.Might be a interesting though risky buy if the valuations of the IPO are not too set too high.

Greenworldinvestor Articles expanding on this one
  1. Chinese Renewable Energy Company Ming Yang Wind Power to IPO in US – Should you Buy it
  2. First Wind Holdings Review and Analysis – Pure Play USA Green Utility IPO looks a risky leveraged bet
  3. Exxon to invest a Minuscule amount in Algae based Biofuels
  4. Valero Energy positions itself strongly for a Green Future by investing in Biofuels
  5. Is Algae Based Biofuel a Great Green Investment Opportunity

Algae Based Biofuels as a Green Investing Opportunity is still some years away as the technology is still quite nascent.Despite a lot of hoopla and a number of IPO’s with synthetic biofuels as business,large scale commercial production and profits are still some time away.However the promise of this technology to revolutionize the Fossil Fuel powered Transportation Sector is Huge.Large Oil and Gas is already positioning itself in a small way to take advantage of this opportunity.Shell has been the biggest investor in Biofuels with a $12 Billion tie up with Brazilian Sugar Giant Cosan.Valero has also smartly invested in a number of biofuel startups despite being one of the strongest opponents of Green Energy.Exxon has only promised huge investments without investing much till date.

Solazyme ropes in Unilever,Branson as investors,bags big Navy Contract

Solazyme a Chevron backed small algae biofuel based startup has bagged big name investors for its Series D Funding Round.It has bagged Food Companies like Bunge,San-Ei Gen and Unilever as Investors besides Chevron as Fuel Distributor and Branson as an Airline consumer.The Food Companies as investors makes a lot sense  as Solazyme is thinking of tapping the Food Markets for its algae based products.This is a smart strategy with other biofuel companies also thinking of making food ingredients.Besides these wins,Solazyme has bagged a huge150,000 tons Fuel Follow-on Supply Contract.This order reflects the success in delivering the earlier 20,000 tons contract.Solazyme has also received a R&D and Supply Contract to develop biofuels for US Navy Jets.The US Navy is targeting 50% of its Fuel to come from Green Sources by 2020.This would mean a huge source of revenue for Solazyme if it continues to perform well in these contracts.

Solazyme Completes World’s Largest Microbial Advanced Biofuel Delivery to U.S. Military

Solazyme, Inc., a renewable oil production company and the leader in algal biotechnology, announced today that it has completed delivery of over 20,000 gallons of algal-derived shipboard fuel to the U.S. Navy, constituting the world’s largest delivery of 100% microbial-derived, non-alcohol, advanced biofuel.  Solazyme also announced the signing of a new contract with the U.S. Department of Defense (DoD) for a research and development project that will produce 150,000 additional gallons in 2010-2011, which is 7.5 times larger than the previous order.

Last September, Solazyme announced two DoD contracts to research, develop, and demonstrate commercial-scale production of algal-derived advanced biofuels to meet the U.S. Navy’s rigorous specifications for military tactical platforms for both ships and jets. The first contract called for the production of 20,000 gallons of Soladiesel®HRF-76, which was fulfilled with this fuel delivery, and the second called for 1,500 gallons of the world’s first 100% algae-derived jet fuel for testing and certification by the U.S. Navy.

For Solazyme, a perfect blend of investors – Bizjournals

Solazyme has acquired a potpourri of strategic investors in announcing is latest $60 million round, causing this reporter to wonder: When is a startup no longer a startup?
It’s also getting a lot of money from really big companies. Solazyme today announced that Unilever has joined its Series D Round of funding along with other strategic investors plus venture firms VantagePoint Venture Partners, The Roda Group, Braemer Energy Ventures and Lightspeed Venture Partners. Solazyme maintains a research and development agreement with Unilever to co-develop soaps and other personal care products using the South San Francisco-based startup’s renewable algae oil.