Business Model Conept and Thoughts

Recently with the new Renewable Fuel Standard being promulgated by the EPA and Obama administration (commonly referred to as the "RFS2") a change has taken place. Specifically the creation of carve outs for certain biofuel technologies. Next generation biofuels such as cellulosic ethanol, gas to liquids, and other type technologies are being given set aside market share.

The RFS2 proposes to that the existing Renewable Industry Numbers ("RINs") system and set aside requirements for petroleum refiners and importers to buy a specific amount of cellulosic ethanol and waste to ethanol in their biofuel requirements. With this there is new value attached to cellulosic ethanol. This is coupled with a renewed funding effort by the US DOE, USDA and others to get cellulosic ethanol plants off the ground.

Close to home Trillium Fiber Fuels just pulled a $750,000 grant to build a cellulosic ethanol plant (this after a sizable grant to experiment with various feedstocks about a year ago). But as I look at it I'm seeing some serious bring to market issues with smaller cellulosic plants. Namely that it doesn't make sense to build a host of small commercial scale ethanol plants in regions where there are already idle corn ethanol plants.

The issue I see is the cost of capital, the need to return an investment to this capital, and the fact that if the cellulosic technology is proven it will likely be licensed and integrated right back into the already existing corn ethanol plant. These corn ethanol plants also already have two really important things for a cellulosic ethanol plant. Namely expertise making ethanol to ASTM specification and the ability to place this product in the stream of commerce (no small feat for a sub-5 million gallon plant with no experience).

So here is my thought (and a regulatory question as well). Being on the west coast we need to import our corn and will continue to do so for the foreseeable future. Why not focus on making cellulosic carbohydrate instead of ethanol, Then run the carbohydrate through the already existing corn based ethanol process. Qualify this product as a next generation fuel by carbohydrate volume placed in the process with the corn.

It makes logical sense. This being the method preferred for counting electron when generating green power from solar or wind projects. The real issue is does the EPA trust ethanol producers enough to do so given that there might be a full $1 a gallon additional value in a cellulosic gallon of ethanol.

This raises two questions to be feasible. One is the cost of freight and creation of the cellulosic sugar something that I believe can be managed. Second, will the RFS2 allow a measurement of this product placed in a batch with corn ethanol. Essentially we would create the same debate that exists with ConocoPhillips and their Renewable Diesel process where they add fats into the crude oil pre-distillation at the refinery.

Just some thoughts.

Some more of my thoughts on Food vs. Fuel

Please consider a few thoughts I regularly mention when presenting on biofuels and the food-versus-food debate is brought up by someone who simultaneously thinks that biofuels are a net-energy loser but somehow agriculture is more energy positive without it.

Propose the question: "Where does ethanol come from?"

Corn carbohydrate.

Or to be exact something likely to be processed into corn-syrup (a process that takes energy as well) and then sold as a cheap filler to real food. This processed food being most aptly described recently in the book In Defense of Food as being a "food-like-substance".

The only thing sustained by corn-carbohydrate in the US is diabetes. Corn protein on the other hand is highly sought by any agricultural process feeding animals. The corn mash is the real value of corn and it is preserved in the process passed along as a value added good to feed lots.

Ethanol allows a growing corn market with a safer off-take partner in our vehicles appetites versus that of the low-price-leader junk food manufacturer. It also provides more high protein for the market with a wider future market mix for this agricultural input. In short, I don't weep for Lil Debbie's price pressures at my local 7-Eleven.

The next step, sustainability, is to improve our process. Reduce the inputs of petroleum fertilizer, water, and ultimately CO2 emissions while increasing our productivity. To reduce the inputs while maintaining or growing crop yields is the definition of wealth creation. This is the crux of business sustainability and the 'Lever of Riches' presented to us by the new clean tech movement afoot. Making more with less and improving the overall quality of life for those at every step of the value chain.

In the past the focus has always been on more. More calories, more weight, more yields. Now we must focus on quality and ethanol gives us a floor to work with. A floor for the transition from MORE to BETTER.

I realize that there are many who see no value in American mainstream Agriculture. They only see mono-crops, GMO's, and a spendthrift approach to consuming inputs in the ever expanding welfare state of Corporate farming. I on the other hand tend to look at modern American agriculture similarly as to how I consider the Egyptian pyramids. A giant monument of what human ingenuity can achieve. Overlooking the issues of human bondage and destruction these monuments to Pharaoh ego represent. Between the pessimist and optimist positions there is a huge middle ground of progress that can be achieved.

Food versus Fuel is the definitive issue of this middle ground. Where today is not a position of optimum results but it is definitely worth building upon. Progress can be had and I believe that ethanol moves us further towards a total better result than a farm and energy policy that doesn't include it.

The Future of Algea - Off-Take Production

The future of algae is finding someone willing to pay you to play with it.

I've talked to dozens of start-up entrepreneurs with dreams of phytoplankton business. All these business models with the hopes of developing a new crude oil for the next century. The "crude dreams" of oil production from an endless uber-productive super-algae that would feed the humanity protein as well as feed our insatiable vehicles carbohydrates distilled into ethanol and fats reacted into biodiesel.

The big issue though. How do you pay for the capital cost of a algae bio-reactor? The device that will take water, light, CO2 and make the bugs into an industrial input. Will angels and VC pay for the magical devices that will make algal goo. This goo in turn being cut, distilled, processed, reacted and made into the endless variety of products that we currently source from petroleum.

Deep pockets in this market though are tough to come by. What is now looking apparent is the need for someone already paying to deal with algea. A current cost stream begging for a better solution.

One such industry is commercial fish farms. To that end I came across a recent article that caught my eye. Though this is not a unique idea its still one to watch. What makes it innovative is the fact that the technology might actually work. In the word of biofuels technical talk is cheap and demonstration is worth millions in Federal funding.

From an article from Greenbang.com:

Under PetroSun’s BioFuels Aquaculture Lease Programme, participating farm operators would receive a rent incentive and monthly royalties in return for access to their pond algae. In future, farmers could also gain additional benefits from a carbon credit program, the company said.

PetroSun (a leader in algae technology in the US) has announced what I would call an interesting and very viable business model. To co-locate with fish farms that have an algae maintenance concern. Instead of these farms paying the internal cost to deal with algal growth they will get a return for partnering with PetroSun to create value from the biological reality association with commercial aquaculture.

A Discussion on New Feedstocks for Biodiesel

The NBB has has some podcasts up from the National Biodiesel Conference earlier this month.
The best session worth looking at is the one on new feedstock development. Its definitely worth a listen.

There is a great deal of positive agricultural technology making its way down the pipe. Soybeans that produce more oil, algae that is ready for commercial demonstration, higher oil yielding corns, and the list goes on and on.

In the past, process food products was the goal. Now it is a value added chain that starts with biofuel, moves on to food, and ends with a host of other products.

It looks to me like any industry that really focuses on R and D and diverse product development can follow the petroleum production example. A diverse feedstock set of inputs moving through a consistent refining process. Ending with a host and diverse number of value added products and underlieing commodities.


The Podcast panelist include:


Alan Weber, economic consultant to National Biodiesel Board,

Dr. Jack Brown from the University of Idaho (who is Scottish so he brings a European perspective to the biodiesel feedstock business),

Keith Bruinsma, Vice President of Corporate Development for ethanol producer VersaSun (which is not far from biodiesel as you’ll hear in the clip),

John Sheehan, Vice President of Strategy and Sustainability for Live Fuels (which is developing algae-based biodiesel),

John Soper, Senior Research Director for Soybean Product Development for Pioneer International (bringing the seed developer’s perspective to the conversation).

If you are interested in feedstock development this is the Podcast for you.

Fueling Oregon with Sustainable Biofuels

The Oregon Environmental Council has a new report they have recently published. Its an impressive document which covers a great deal of ground in a short number of pages. I'm only half way through it but I can tell you its worth the read if your into the subject.

Meticulously researched but easy to read. In depth citation while still being accessible as they compact many complex issues into a few paragraphs each. If you are doing any research paper on biofuels I recommend this document as a starting point. Daniel Gilman, the primary author, did an excellent job.

This pamphlet looks like a great starting off point for something much bigger. I realize that's not the way it normally works with research documents but I really like what I'm seeing and its really relevant to the debate going on nationally now. I also can't help but notice that most of this book could be exported to any state in the U.S. and still be just as relevant as it addresses the technological issues associated with biofuels.

Download the PDF here: Fueling Oregon with Sustainable Biofuels, October 2007.

Also worth checking out are many of the other research and informational projects the OEC has been involved in. Available from their website under Publications as well as the OEC's Biofuels4Oregon page which also offers a listserve for Oregon relevant biofuels information.

NOTE: This post originally released 11-26-07

Willow - Potential Biofuel Feedstock

Joel Ens, a grad student from the University of Saskatchewan, has proposed willow as a potential biofuel and biomass feedstock. The willow offers characteristics of growing long consistent branches rapidly. The full article available by stopping by the Biobased News.

I've never heard of a pruning a fast growing tree. Looking this direction might have real potential for Oregon. Oregon being a highly productive nursery tree state, the Willamette Valley having a great deal of rain fall, and the idea of landscaping trees serving a dual purpose should be promising.

I have heard similar proposals around bamboo as a great perennial crop. The big difference with willow being a twenty year scope of rotation versus a few years for bamboo. The bamboo root ball become to dense after a few years but bamboo as a crop should allow multiple harvests a year. The great consistent rain fall of the Willamette Valley in Oregon also contributing a great deal to the productive potential for a bamboo biomass crop.

Australia's Largest Biodiesel Refiner Closes Two Plants

Want to see how not to build an industry? Look at this story found in the Fairfax Digital edition about Australia Renewable Fuels.

One of the largest criticisms of biofuels in the U.S. is its supposed need for subsidy. The fact that the larger biofuel players build their businesses solely on these subsidies as well doesn't help much either. We need to change this emphasis and replace it with a focus on the unique emissions and low carbon benefits of biofuels instead. We should focus our market development on the same approach used by natural gas thirty years ago (the natural gas industry marketed their product as a diversification away from petroleum with better emissions under the Clean Air Act).

I just thought the PR spin of the article was worth note. A business failing to succeed and blaming government for not offering enough support should be pointed at as an abomination to be avoided. Similar to the dot-com era's promise mounting losses as required to build a market, a successful biofuels industry should never expect the support of government. You can't build a market on such ethereal hopes.

When a business fails to establish appropriate cash flow, develop the necessary markets for off take, and maintain a long term relationship for feedstock - its not government's fault. Its the fundamental underpinnings of a flawed business model. One expecting a future grant of utility status to biofuel producers which is extremely unlikely.

Australia's largest biodiesel producer shuts two plants and lays off 30 people. This in the face of world record petroleum prices. The fact that Australian Renewable Fuels cites expensive tallow (or successful competition for feedstocks) as the fault of its own shortcomings is an insult. It should not be tolerated and it definitely should not be pitied.

The management of Australia Renewable Fuels blames high tallow prices for the plant closures. Follow the logic of their argument. A.R.F. is complaining about biodiesel's success with is driving demand for tallow and pushing prices up (they are complaining about the international competition for tallow). High petroleum would also have an economic cross-elastic effect on tallow as a substitute for a whole host of products (so they are complaining about high oil prices which they should be cheering).

Government should be indifferent to a single companies success. The only fault I would accept would be an expectation of a more active government on CO2 emissions (i.e. they bet wrong on a low carbon fuel standard in their business model).

Also worth note. The fact that Australian Renewable Fuels points to U.S. markets (New Mexico in particular) as where to take its imperfect business model on the road shows the importance of biofuel policy that focuses on developing real markets for the product just not a price sensitive substitute with petro.

You can build a $1 tax credit into your business model but from what I've seen the market washes it away (leveling prices out leaving the economics nearly the same). The real focus of our policy shouldn't be price but actual benefits. Biodiesel and ethanol should be the new natural gas type silver bullet for industry. Stable pricing from local domestic suppliers and cleaner emissions.

We need to break from the guaranteed profit expectations currently pervading our industry. In particular as a justification of a business model at every biofuel plant's fundraising pitch.

Wisconsin State Invests in Soy Crushing

Wisconsin state makes a big bet on developing a value added biofuels industry. The state is pushing to become more than just a source for feedstocks. From the Wisconsin Ag Connection online.

First step. $4 million investment grant towards a soy crushing facility. This grant being matched from the ag industry as well.

Living in the Pacific Northwest are big issue is getting feedstock supplies lined up for production. Getting the fields to grow rotations of oil and appropriate carbohydrate crops for biofuels.

In Wisconsin it turns out the issue isn't getting the feedstocks grown. Its getting them used in state. From the article:

WSA Director Bob Karls says Wisconsin soybean farmers have been working for 15 years to bring a soybean processing facility to the state. While Wisconsin is the 13th largest soybean producer in the country, it is the only one of these states without its own soybean processing facility.