by Jim Lane (Biofuels Digest) For the advanced bioeconomy, the question remains and will remain for some time, where are the gallons? Specifically, projects that use biobased feedstocks that can be converted into renewable fuels, chemicals, advanced foods, and biobased materials.
Projects have not materialized in the numbers that would support rapid growth because of immature technology (expressed in unreliable operation, or high costs), and poor returns for the risk profile associated with technologies as they mature.
The risks, in turn, are driven by three major factors:
1. Technology risk.
2. Commodity price risk.
3. Market access risk, closely associated with policy risk relating to mandates.
With these concerns addressed, the growth scenario would be very different. Military, governments, airlines, chemical manufacturers, and consumer-facing brand marketers with sustainability goals have broadly indicated a robust interest in these technologies and products. Airlines alone have indicated that up to 50 percent of their demand would be available to low-carbon fuels — and that represents 10 billion gallons of added fuel demand in the US alone.
Sources disagree, in speaking with The Digest, on the pace of growth less because of confusing demand or price signals, but because of the uncertainties relating to the pace of addressing the risks.
One thing they do agree on: policy and market access risks are closely related to, and derivative from, technology and commodity price risk. In short, demand would be a whole lot higher if low-carbon alternatives were more mature and commodity price risks were more manageable.
No debt financier wants to back a $200 million project that would realize $10 million in a scrap auction unless there is almost no risk of project failure. And even government loan guarantees are available only in narrow circumstances — the project fundamentals cannot be materially and obviously at high risk.
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How much can feedstock cost?
Leaving aside boutique markets for exotic materials — for example, astaxanthin — generally speaking, project developers speak to The Digest about products with price ranges of $500 to $2000 per ton — or $0.25 to $1.00 per pound. Putting the yields and the product prices together, you can see right away that, with a 25% yield and a $500 price target, even nickel a pound feedstocks will not allow for recovery of capital costs and a return for investors commensurate with all that risk.
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What’s likely to cost less than 5 cents a pound in the near and mid-term?
Generally speaking, woods and residues. Energy crops will come later — if for no other reason, because of the timelines for widespread grower adoption and crop establishment.
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Financing
Financing have not materially evolved since bond funding emerged as a debt instrument, and sentiment remains broadly and sharply against the sector in the pure financial investors — strategic investors have been the source of most project capital.
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We see the possibility that a new financing instrument might emerge where the risks are transferred to those with carbon exposure.
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Bright spot: food
Looking for growth? Think proteins and advanced foods. That’s where you’ll find hot entries like Impossible Foods, Beyond Meats, Modern Meadow, Muufri, TerraVia, Calysta — and Cellana with it’s multi-product strategy encompassing fuels, nutraceuticals and feed. The markets are large and, as anyone who had ever paid $5.00 for a 4 oz bag of potato chips at a movie theater can attest, the prices at retail can exceed $30,000 per ton for a finished product. Fishmeal is selling well north of $1000 per tonne, and there is excitement over new offerings through biotechnology for sweeteners like EverSweet to vegan-friendly foods that offer real protein, only cutting out the middlecow.
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The 5 technology drivers
We wrote about them in “Big Data, robotics and synth bio: Driving The New Agriculture” last week — and all of these areas are hot, hot, hot. READ MORE