Author Archives: Andrew Soare

Terrabon files for bankruptcy, as strategic investors re-evaluate portfolios

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Waste-to-fuels company Terrabon filed for Chapter 7 bankruptcy protection in September. Terrabon CEO Gary Luce said that the firm was “unable to obtain additional funding,” and approximately 60 employees were laid off. The company had a history of missing key milestones, and we flagged this nearly one year ago in our last profile of the company (client registration required.) Two years ago, the company was expecting a $25 million funding (client registration required) round in the first half of 2011.

Terrabon was developing a multi-step process to convert wet waste into drop-in gasoline and jet fuel. The process features bacteria fermentation, pyrolysis, then a catalytic conversion into gasoline. In this multi-step process, yield loss was a significant factor, and Terrabon expected a yield of 70 gallons per ton of dry feedstock, much lower than fellow waste convertors like Enerkem (90 gallon/ton) and Fulcrum (120 gallon/ton). Terrabon, however, was targeting different feedstocks than most other waste convertors, focusing on wet waste. Terrabon focused on a mix of municipal solid waste (MSW), sludge, and biomass, and its feedstock was 30% solids, much lower than that of its competitors.

Among its investors, Waste Management and Valero decided not to give out the big dollars necessary to keep the company afloat and build its first commercial facility. Looking first at Valero’s portfolio, it becomes clear the rocky track record Valero has in this space. First and foremost, Valero is the third largest ethanol producer in the U.S. (client registration required) behind POET and ADM, though recently it idled a 110 MGY facility in Nebraska (client registration required.) Valero also invested in biofuel failure Qteros (client registration required), behind-schedule producers Enerkem and Mascoma, and cellulosic ethanol company ZeaChem. Beyond cellulosic ethanol, Valero is scaling up a renewable diesel facility in a joint venture called Diamond Green Diesel.

Terrabon’s other strategic investor, Waste Management, similarly has several waste-to-fuel companies in its portfolio (client registration required), including Enerkem, Fulcrum, and Agilyx. Most recently, WM invested in pretreatment company Renmatix, capping off its $75 million Series C. While the recent Renmatix investment (and investment in Genomatica before that) shows that WM isn’t pulling out of the fuels space altogether, we do expect to see strategic investors like WM continue to pare down portfolios. This doesn’t mean that strategic investment will go away, or even decrease, just that new companies and technologies may take the place of current investments. Oil giant Shell, for example, significantly downsized its relationships with Iogen and Codexis (client registration required) this year.

Corporate investment in this space boomed in 2007 and 2008, see the report “Hedging Bets with Flexibility in Alternative Fuels” (client registration required), and the partnering web expanded most rapidly in 2008 and 2009, see the report “Mapping Empires, Goldmines, and Landmines in the Alternative Fuels Network” (client registration required.) Over the past four to five years, strategics funded innovation at these start-ups, and now these producers need to perform commercially. Missing technical and project scale milestones won’t cut it anymore, and the corporate parents are kicking their kids out of the house, to sink or swim on their own. Expect to see more relationships falter in this space, but even more form as innovative companies continue to emerge, promising new sources of fuels and novel conversions, and new types of organizations partner their way into the alternative fuels arena.

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Our Take on Recent Headlines about SG Biofuels, CoolPlanet, and Joule Finance Deals

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What the media reported about SG Biofuels: SG Biofuels recently completed a $17 million Series B funding round – the first funds raised for the company since a $9.4 million Series A in September 2010*. SG Biofuels said the funding will “advance commercialization efforts,” and that it has customers for 250,000 acres of jatropha.

What we think: SG is developing advanced jatropha to produce oils for biodiesel production. It claims its technology doubles the natural jatropha yield, and is targeting marginal, and otherwise undesirable, land for cultivation. Like other potential energy crops, jatropha has a very limited production capacity and, today, agricultural, municipal, and forestry waste are available in much larger quantities, and thus represent stronger near term options for next generation biofuels (see the report “Biofuels’ and Biomaterials’ Path to Petroleum Parity“*).

Aside from the lack of scale, jatropha faces issues* associated with crushing facility infrastructure, transportation, as well as toxicity. To overcome these key hurdles, SG has several strong partnerships positioned throughout the value chain, including Bunge, Life Technologies, and Flint Hill Resources. The latter two invested in the recent round. Because of these key relationships, SG is in a good position to be a leader in the jatropha-based fuels space, and companies looking to develop oil crops should engage, with the aforementioned key hurdles in mind.

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What the media reported about CoolPlanet BioFuels: Before the new year, CoolPlanet BioFuels raised an undisclosed amount of Series C funding round that included old investors GE, Google Ventures, ConocoPhillips, NRG, and new investor BP. CoolPlanet raised its $20 million Series B in March 2011.

What we think: With this new investment round, CoolPlanet continues its push to amass capital and world-class strategic investors. The company is developing small-scale (1MGY), portable pyrolysis units to convert agricultural waste such as wood chips and corn stover into a gasoline replacement.

The small-scale facilities open up niche markets for the units, while making it easier for the company to raise the necessary capital, collect the biomass, and attain the permits for construction. Though further data is necessary to affirm the efficiencies and economics of CoolPlanet’s small-scale production, the company is uniquely positioned as it is producing ethyl BTX, a gasoline equivalent and drop-in fuel.

For both SG and CoolPlanet, the key investors are also strategic, and such relationships will be essential as both companies scale. As start-ups continue the ongoing hunt for capital, corporate investors are leading the push while institutional investors withdraw from the industry (see the report “Hedging Bets with Flexibility in Alternative Fuels“).

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What the media said about Joule Unlimited: Joule Unlimited recently raised $70 million in private equity investment, bringing in over $110 million over the lifetime of the company, which broke ground at its first production site in 2011.

What we think: Though its fundraising to date has been impressive, we maintain our skeptical view on Joule due to the company’s inability – or unwillingness – to provide details on its lofty claims* In our previous conversation, CEO Bill Sims was unable to answer basic questions* about its Dutch subsidiary and fundamental cost metrics, among other items.

However, the real concern with Joule, underscored by the recent news item, is its lack of commercial partners. The company’s recent funding round, unlike SG’s and CoolPlanet’s recent rounds, did not feature any corporate investors. Though Joule’s ability to raise money in an environment where institutional investors are turning elsewhere does warrant some praise, its lack of commercial partners will hurt the company as it scales up its novel technology and faces a myriad of technical challenges. Companies and investors should approach with caution.

* Client registration required.

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Alternative Fuels: Rating Bioprocessing Companies on the Lux Innovative Grid

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As the alternative fuels industry rapidly approaches maturity, reports of IPOs and commercialization have blended with headlines about spectacular failures and cheap acquisitions. The remaining players navigate a landscape of prospective partners, funding, and scale as well as serious uncertainty (read: opportunity).

A thorough examination of the field reveals contenders, dark horses, and long-shots within several technology classes, including pretreatment, bioprocessing, and gasification. While many of these companies appear similar on paper, we applied the Lux Innovation Grid in a recent report to rate them in three dimensions – business execution, technical value, and maturity. Drawn from that report, this week’s graphic reveals likely winners and losers among Alternative Fuel bioprocessing companies which, as a group, offer strategic flexibility in feedstock and end-products.

The crowded Dominant Quadrant is due in part to the successful IPOs of Amyris, Gevo, and Solazyme, as well as the impending commercial scale of companies like LS9, Cobalt, and LanzaTech. Aemetis edges into the Dominant Quadrant thanks on the technological potential of its Z microbe, which simultaneously breaks down cellulosic biomass and converts the sugars into isoprene. ZeaChem also lands in the Dominant Quadrant due to high partnership and momentum scores, fueled by a recent funding round and joint development agreement with P&G.

Cellulosic ethanol producers Qteros and Mascoma both claim low cost production and robust organisms, but both fall into the High Potential Quadrant due to sagging business execution scores. Qteros’ Q microbe could lead to more efficient processing of biomass; but it recently laid off most of its staff, including its CEO. Touting similar technology, Mascoma filed for an IPO* in September, but could see its public launch hindered by capital intensity and slowing momentum.

Lastly, OPXBiotechnologies shows some interesting potential for developing microbes for acrylic acid (with partner Dow) and diesel as part of the ARPA-E funded Electrofuels project: https://portal.luxresearchinc.com/research/tidbit/8436*. But, on the fuels side, it falls into the Long-Shot Quadrant due to a competitive landscape score of 2, and a partnership score of 2, with an overall Lux Take of “wait and see.” Joule, on the other hand, we rate as a “caution” thanks to a barrier to growth score of 1, no commercial partners, and wholly unproven claims.

Source: Lux Research report “Refining Alternative Fuels Innovators into Winners and Losers.”

* Client registration required.

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Investors pump $930 million into alternative fuel technologies

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Graphic of the WeekIn 2010, investors gave $930 million to alternative fuels start-ups, a four-year low. However, investment climbed dramatically to an all-time high of $698 million for companies with flexible technologies that can use a variety of feedstocks or generate diverse end products. Flexibility increases a technology’s addressable market, provides secondary revenue streams, and unshackles technologies from price volatility.

Specifically, synthetic biology start-ups – which develop novel organisms ranging from Escherichia coli (E. coli) to yeast – have attracted the most funding since 2004: $1.84 billion or 28.4% of the total. Investment dipped just 16.7% from $436.5 million in 2007 to $358.3 million in 2009, and investments actually peaked last year at $447.0 million, representing 25% growth over 2009. Driving this growth were companies with novel and flexible technologies to make both fuels and chemicals, such as Solazyme ($60 million Series D), LanzaTech ($18 million Series B), and LS9 ($30 million Series D). Since those 2010 transactions, Solazyme and several other venture-backed companies in the space have launched successful IPOs (Client registration required).

But investors shouldn’t ignore other flexible technologies. Investment in thermochemical processes (pyrolysis, gasification, torrefaction) did not trail far behind synbio. Technologies in this category account for 43.3% of the funding thus far in 2011. Representative companies include Virent and Elevance, whose catalytic processes produce a range of fuels, rubbers, oils, and plastics. Technologies capable of using agricultural, solid, or gaseous waste, such as LanzaTech, GlycosBio, and Ignite Energy, present further opportunities for investors.

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New energy technologies, renewable or not, hurt by regulatory uncertainty

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GE and the University of Wyoming recently announced the delay of their $100 million clean coal research center. GE blamed its decision on low natural gas prices, unclear energy regulation, and lower energy consumption due to the recession. The center, set to come online in 2012, would have gasified coal into syngas (a mixture of CO and H2) for further conversion to electricity. GE will reevaluate the decision in 18 to 24 months.

This announcement comes on the heels of American Electric Power’s (AEP) cancellation of its $668 million commercial-scale carbon capture and sequestration (CCS) project. The “weak economy” and “Congress’ inability to act on climate policy” were cited as the reasons for cancellation. AEP already operates a pilot-scale CCS facility in West Virginia that captures 20 MW of carbon dioxide from the nearby coal power plant and buries it underground. The commercial project, half-funded by the federal government, would have expanded the facility to capture 220 MW of carbon dioxide (from a 1,300 MW plant).

Back in Wyoming, regulatory uncertainty has shelved 87 GW of proposed coal-based power generation in recent years. We have seen fickle government support crash the biodiesel industry,* slow the cellulosic ethanol industry,* pull the plug on the hydrogen economy,* and build an unpredictable solar market in Italy.* And with carbon legislation looming, but nowhere near ubiquitous, a lack of policy is hurting non-renewable energy as well. While governments continue the energy policy debate, clients should spend extra time and money to invest in alternative energy technologies that offer profitability without government support.

* Client registration required.

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Biofuels: Synthetic biology leads in investment dollars, but will it deliver?

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Biofuels: Synthetic biology leads in investment dollars, but will it deliver?Although synthetic biology companies trail other biofuel firms in terms of commercialization and scale, their flashy claims of spinning custom-built microbes into complex chemicals and drop-in fuels have captured the attention and dollars of investors. Last year, we saw LS9 and Solazyme, among others, secure large funding rounds. Additionally, Amyris Biotechnologies successfully launched the market segment’s first IPO. Gevo followed suit with a February IPO, in which it raised $107 million. And, just last week, Solazyme filed its own plans for public launch, with aims to raise $100 million.

As our Lux Innovative Grid for synbio indicates, many competitors land in the Undistinguished and Long-shot quadrants – although plenty of potential contenders join Amyris, Gevo and Solazyme in the Dominant quadrant.

In addition to its spot in the Dominant quadrant here, relative newcomer BioAmber occupies a similar position in our Grid for the Fermentation segment of biofuels. While it’s focused on the production of succinic acid – a flavoring agent, plasticizer, and coating, among other things – the firm’s genetic modification technology also applies to the fermentation of adipic acid, which was the focus of a recently signed licensing agreement. Its position in the Dominant quadrant here stems from a high business execution score due, in part, to strong partnerships with Mitsui, Samsung Ventures, and Greenfield Ethanol.

Metabolix and LS9, both of which modify microbes to convert sugar to fuels and chemicals, round out the Dominant quadrant. Metabolix’s main efforts are through a joint venture with ADM to produce polyhydroxyalkanoate (PHA), which is at commercial scale today. Its PHA is used for agricultural mulch film, a polypropylene replacement in consumer products applications, and for packaging applications. LS9’s strong partner list and technology to produce alkanes in single-celled organisms (see the August 3, 2010 LRBJ – client registration required) positions the company among the leaders in the group.

Source: Lux Research report “Today’s Top Technologies in Bioplastics and Biofuels.”

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Buzz around compostable SunChips bag proves too loud for consumers

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PepsiCo subsidiary Frito-Lay discontinued compostable packaging for its SunChips snack brand following consumer complaints about noisy bags. The company introduced the polylactic acid (PLA)-based and 100% compostable packaging roughly 18 months ago, but discontinued the bag in five of its six SunChips flavors. (Packaging for Original flavor SunChips remains loud and compostable).

Opponents of the packaging expressed their dissatisfaction against what some jokingly referred to as “ear pollution” via formal complaints to the company, a decline in purchasing (down 10% by some reports), and social networking “snack-lash.” While the news is comical to some, it actually has important implications for companies turning to green alternatives for existing products.

Companies looking for bio-based alternatives generally consider performance (durability, temperature resistance, tensile strength, etc.) and cost when evaluating new materials. But like any other product, consumer opinion is what drives sales, and it is something that product developers cannot overlook. Slapping a “100% compostable” label on packaging can spark sales, but the unintended consequences of incorporating bio-based materials can sometimes cause more harm than good. As companies turn to bio-based materials for existing products, product developers will need to focus on making identical products, with the same smell, sound, taste, look, feel, and cost in order to compete with established petro-derived products. A recent conversation with a senior engineer from PepsiCo who works in bio-based plastics acknowledged this shift in focus when he said that SunChips will maintain their biodegradability vision as a top priority – “after overcoming the problems with the noise.”

The SunChips affair is reminiscent of wind turbine opponents who complained of impaired views, or tortoise advocates who fought a 400 MW solar thermal power plant in the Mojave desert (see the March 4, 2010 LRSJ – client registration required). It once again demonstrates that, although consumers support the green movement, they are unwilling to compromise the niceties of the petroleum world: scenic ocean views, rare tortoises, and quiet snacking.

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Will PetroAlgae and Gevo poison the IPO pond for other biofuel and biomaterial developers?

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In early August, PetroAlgae filed for an immodest $200 million IPO with the U.S. Securities and Exchange Commission (SEC). The filing contains a number of aspects that warrant closer scrutiny.

The company grows “selectively bred” strains of an aquatic algae-like plant called duckweed in open ponds. PetroAlgae claims its process yields up to 14,000 gallons of oil per acre per year (see the March 24, 2009 LRBJ – client registration required), and that its production is “economical versus $20/barrel oil.” Its prospective yield compares favorably with competitors’ claims, like Solix’s 2,200 gallons of oil per acre per year. But unlike Solix, PetroAlgae has had no success producing oil.

According to the company’s S-1 filing, it experienced net losses of $8.3 million, $20 million, and $30.3 million in 2007, 2008, and 2009, respectively, on zero dollars in revenue, ever. Even firms with much more significant product revenues have struggled in the current market. Solyndra withdrew its filing (see the June 24, 2010 LRSJ*), A123Systems’ stock is off over 60% from its initial pricing, and Codexis has shed 40% of its IPO value in just four months. So accompany with no revenue to date and very uncertain prospects for producing an economically competitive product is unlikely to be a winner. Despite its lofty claims, expect PetroAlgae to either withdraw its IPO, or flop mightily.

Gevo, which also filed for an IPO in early August, is looking to raise $150 million. Underwriters include UBS, Goldman Sachs, and Piper Jaffray. Gevo develops yeast to ferment corn, cane, or cellulose-derived sugars in order to produce butanol and isobutanol (see the August 11, 2009 LRBJ*). This filing does not come as a surprise, as we heard from our network several months ago that a Q3 filing was forthcoming (see the April 27, 2010 LRBJ*). This news comes only a few days after Gevo announced the acquisition of a Minnesota ethanol facility it planned to retrofit into an isobutanol production plant. The retrofit will cost $17 million, and will produce 18 MGY of isobutanol when complete in Q1 2012. According to Gevo’s S-1 filing, its net accumulated deficit is $50.3 million, with a net loss of $8 million in Q1 2010 alone. 

Although Gevo’s (relatively) capital light business model is a reason for praise, its S-1 indicates that it will need to invest another $17 million in the Minnesota plant to retrofit. That’s in addition to the $20.7 million for the plant itself – a steep bill to foot with no revenues in sight for almost two more years, even if all goes as planned. In its filing, Gevo reports it “expects our relationships with customers such as Total Petrochemicals, Lanxess, Toray Industries, and United Airlines to contribute to the development of chemical and fuel market applications of our isobutanol.” The relationships that Gevo develops with these companies (and other commercial chemical and fuel companies) will make or break the company – but the large losses and long time to revenue its asking investors to stomach might be enough to sink this IPO.

Both offerings are indeed risky in this environment, as we have seen Codexis shares drop from $13 per share at IPO to about $8 currently. Clients should maintain some healthy skepticism as these two firms prepare for risky and uncertain public offerings. Although Gevo has a better chance of success than PetroAlgae, both firms have the potential to poison the biofuels and biomaterials pond for years to come. On the heels of Codexis’s shaky debut, it won’t take much more bad news for investors to sour on the biofuels space. What’s more, with other recent IPOs like Tesla (see the June 23, 2010 LRPJ*) and IPO candidates like Bloom Energy (see the June 30, 2010 LRPJ*) looking uncertain, on top of disappointments like A123 and debacles like Solyndra, the “cleantech” theme risks ending its run as a Wall Street darling.

*Client registration required

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Lux’s Q1 2010 Solar Supply Tracker sees growing production amidst slight oversupply

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Last month, we released the Q1 2010 version of the Lux Research Solar Supply Tracker (see Solar Supply Tracker, Q1 2010 – client registration required). It includes figures on production and capacity data throughout the value chain through 2013.

Notably, the Tracker revealed that total module production for 2010 will be 12.6 GW, an increase of about 4.7 GW from 2009 production. We’ve also updated the Lux Research demand forecast, which predicts 12.1 GW of market demand in 2010, signifying a slight oversupply this year.

Crystalline silicon (x-Si) will account for 76% of total new module production in 2010. Most of the remaining share will be split between inorganic thin-film PV – particularly thin-film silicon (TF-Si) fueled by a slew of entrants – and cadmium telluride (CdTe), overwhelmingly provided by First Solar. Each will each account for 11% of 2010 module production. Companies like Avancis, Würth Solar, and Solibro will each produce a handful of Copper indium gallium diselenide (CIGS) modules in 2010, to round out the balance of new module production.

In terms of geography, Asia continues to dominate the manufacturing scene, accounting for 45% of polysilicon production, 78% of wafer production, and 71% of module production in 2010. Though Asia dominates in absolute production, several companies are adding capacity in North America, hoping to capitalize on promising demand in the U.S. and Canada, including Canadian Solar, SunPower, and Yingli.

A number of companies made notable changes to production and plans in Q1. Upgraded metallurgical silicon (UMG-Si) producers Dow Corning and Timminco stopped production at their Brazilian and Canadian facilities, respectively. Both companies cited decreased market demand, and will leave capacity idle with plans to reevaluate demand in a few years.

While UMG-Si players are hurting, top-tier polysilicon suppliers are thriving. The top six polysilicon producers – Hemlock, Wacker, GCL, OCI, REC, and MEMC – will supply 75% of the total polysilicon to the market in 2010. Further downstream, several companies beat expectations and are accelerating ramp schedules. Taiwanese wafer player Green Energy Technology, cellmaker Neo Solar Power, and Chinese module manufacturer Solarfun all increased or accelerated capacity addition plans, citing increasing customer demand. Although Solarfun garnered more market share with its increasing capacity, it could not crack the top five module manufacturers. First Solar remained in the top spot, followed by Suntech Power, Sharp, Canadian Solar, and Trina Solar.

Looking out several years, supply remains slightly above demand throughout the value chain – except at polysilicon, where a significant supply overhang remains. As we witnessed this quarter, this supply overhang forced more expensive producers to shut down production lines, as their processes are no longer economically viable. Expect more consolidation and additional polysilicon players shutting down production facilities, as well as significant shuffling of market share as new technologies gain  traction, the vertical integration trend continues, and delayed subsidy cuts in Europe keep demand high.

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