Top 10 Biofuels Predictions for 2011

As the sunset of 2010 gives way to the dawn of 2011, here at the Digest we resist the holiday temptation to look back over the challenges and highlights of the year gone by, and instead once again roll out our crystal ball as we list the Digest’s 10 Biofuels Predictions for 2011.

Last year’s predictions: 6 marks out of 10

For our 2010 batch of predictions, we give ourselves 6 marks out of 10.

We gave ourselves 1 full mark for predicting the spread of Low Carbon Fuel Standard activity, the boom in renewable chemicals, a jatropha revival sparked by new investments in SG Biofuels, and increased traction in heterotrophic algae and cyanobacteria.

We gave ourselves a half mark on the surge in aviation biofuels (but incorrectly predicting that Bio-SPK would be certified in 2010), fast growth in long range marine biofuels / green port deals (one big order came in 2010, but we predicted two), gains in production capacity in advanced biofuels and cellulosic biofuels (advanced biofuels met targets, cellulosic ethanol missed), and oil company ethanol acquisitions (we predicted the Big One in the US, instead it was in Brazil with the Shell-Cosan deal).

We gave ourselves a zero on the US Congress revising its Renewable Fuel Standard (didn’t happen), and guessing wrong that the bond market would move into biofuels via a REIT play (instead, the Mintz Levin-Stern Brothers-Kreig DeVault model on bond-backed loan guarantees looks to be the winner).
Top 10 Biofuels Predictions for 2011

#10. USDA Loan Guarantees.

Well, this one is a little like shooting fish in a barrel, because we expect this to be announced almost immediately, and close by the first quarter. We expect up to four loan guarantees – USDA originally wanted six by January 1, 2011 – to close in the first quarter, before the US Congress can swipe the money away from the program. We expect to see a lot of added loan guarantees financed not only by the project finance market, but the bond market.

#9. The ethanol blender tax credit (VEETC) sunsets – the blender pump program rises.

We have noted that not only has Growth Energy been talking up incentives for blender pumps (that can dispense higher blends of ethanol – E20, E30, E50 etc), Secretary of Agriculture Tom Vilsack has been humming the same tune. Meanwhile, it is time for people to start running for President again, and with the Iowa presidential caucuses just 12 months away, we expect all major candidates to have worked out their farm-state messaging in support of advanced biofuels. Blender pumps incentives – which help create market access – are likely to be more popular than ethanol tax credits, which had a rough time in Congress this year before getting renewed for one year.

#8. No action on the US Renewable Fuel Standard.

Having fallen on our swords predicting action by the Congress in 2010, we expect action will now be deferred until 2012, after the new Congress has dealt with more pressing deficit-related issues and more of a consensus has emerged on how to tinker with the structure and targets of the RFS once the giant can of worms gets opened.

#7. IPO fever continues unabated.

Gevo will be working through its roadshow, and we expect to see a small IPO in the first half come through for the biobutanol pioneer. The 68 percent rise in Amyris shares since its IPO in September will have a lot of naysayers on Wall Street rethinking the love they have so far lathered onto microbial fermentation companies. We also expect one more first-generation fuels company to come to the market in 2011, likely from the biodiesel side – while companies like LS9, Solazyme are likely to be sorely tempted to go out next year, subject to making good progress on meeting yield and titer targets. One outlier – why not, if they get to their full 20 Mgy capacity for cellulosic ethanol, Range Fuels? On the cellulosic ethanol side, the next candidates are Coskata and Mascoma but we can’t quite see how they will get enough progress towards their first commercial plants done by year end for an IPO – but good candidates for 2012.

#6. Build your house of BRIC.

Russian remains an unexplored opportunity – those vast forests of silver birch are crying for a market, as the wood is tough to use in traditional forestry-related industries. But woe betide the advanced biofuels company that has not fully articulated, staffed, and embarked on a strategy for at least two of Brazil, India and China. Just on sugarcane assets alone – not to mention vast tracts of idled land in Brazil and India and large internal markets for fuels and chemicals in India and China – these countries are increasingly a “must have” in the strategic quiver.

#5. Renewable chemicals, plastics dominate early-breakout strategies.

Some strategic investors like DuPont and India’s Reliance have yet to place big bets in this sector. For sure, Elevance’s latest $100 million capital round – and the time it took LS9 to raise $30 million with a more fuel-centric strategy – has sent all the signals needed to investors and biofuels CEOs that placing renewable chemicals as an intermediate step or the centerpiece of the strategy, is key to raising money and attracting partners for scale-up. Companies that hold out for a fuel-centric strategy will need tie-ins with Big Oil to ensure the capital and market access to reach the scales at which making commodity fuels are feasibly competitive with fossil fuels.

#4. Cellulosic ethanol expands.

We expect to see new capacity this year from American Process (small demonstration), COFCO/Sinopec (3 million gallon demonstration), Enerkem (10 million gallon first commercial plant), Fiberight (6 million gallon demonstration), and Ineos BIO (8 million gallon demonstration). Plus, Range Fuels has indicated that they expect to ramp up additional production modules to reach as much as 4 Mgy in 2011.

#3. Renewable diesel dominates capacity.

While cellulosic ethanol grows slowly, we expect Neste Oil to complete another 240 million gallons of capacity in Rotterdam, which will bring its renewable diesel capacity up to 560 million gallons and, combined with Dynamic Fuels 75 million gallon renewable diesel plant in Louisiana, will make renewable diesel the big dog in advanced biofuels capacity for the next few years.

#2. The Year of the Bolt-on.

Look for several announced partnerships between US corn ethanol or Brazilian cane ethanol plants and advanced biofuels technologies. Whether it is adding microbial fermentation of sugar for diesel production, or fermenting bagasse to make ethanol, or converting plants from ethanol to biobutanol, the “bolt-on” technologies should be expected to have a big year.

#1. Strategic investors rule.

Although project finance will make a small recovery, and the bond market will provide some liquidity for expansion of advanced biofuels capacity, fresh equity at the scale needed for commercial expansion is going to come increasingly from committed Strategic investors. We expect waste, pulp and paper, oil majors and national oil companies, and chemical companies, to be the biggest investors. Big Biotech and major oil & grains aggregators will be the other players increasingly active on the scene. At the same time, expect companies like Shell to sharpen their portfolio by focusing on their best expansion opportunities, and dropping technologies that do not meet near-term commercial or long-term value targets.

source: biofuelsdigest