What Happened to the Promise of Biofuels?
Spring is here, and the air is fresh with new hopes and possibilities. We’ll get to those in a minute. First, let’s remind ourselves of one, haunting, apocalyptic reality: we are actually running out of fossil fuels. Also, the burning of those fossil fuels releases gas that traps heat in the Earth’s atmosphere, and scientists have shown that this is causing the global climate to change. You probably already know this, and think this article is seriously killing your optimistic springtime vibe, so let’s get to the new hopes and possibilities part. That’s where biofuels come in.
Of course we’ve been hearing about the promises of biofuels for decades now. Just how hard is it to create biofuels from algae and then scale the process so that everything runs on biofuels? How far away are we from that? According to Transparency Market Research, the global biofuels market was $168.18 billion in 2016 and projected to reach $246 billion by 2024. While that number sounds massive, it’s still less that 10% of the total oil market. If you look at the below diagram from the Visual Capitalist, you’ll see that the size of the biofuels market today is about the same size as the gold market:
If predictions are to be believed, then biofuels will move from about 10% to 14% in the next 7 years. Biofuels are becoming an essential component of the world’s renewable energy mix, and they have the financial support of big oil companies and billionaire venture capitalists alike to continue growing that number. We wanted to take a look at some of the more promising startups working on biofuels to see what they’re getting up to.
Founded in 2007, Toronto-based Pond Biofuels was recently named a major player in the algae biofuel market, converting raw smokestack emissions from heavy industries into algal biomass. Algae is extremely fast-growing, consuming twice its weight in carbon dioxide, making it a cost-effective and sustainable way to keep the Earth’s carbon levels in check. A ton of algae can yield 100 liters of diesel, and the residual biomass can be used as a renewable coal substitute—pretty impressive. At the end of 2016, Pond Biofuels was named as one of the final 27 teams advancing in the $20M NRG COSIA Carbon XPRIZE, which is exactly what it sounds like… a $20 million prize awarded to the most promising company working to sequester environmental carbon. In January’s news, Pond announced a strategic relationship with SNC-Lavalin, an engineering and construction group with offices in 50 countries, to develop and deliver Pond’s carbon recycling technology worldwide. Together, Pond and SNC-Lavalin would design, propose, and construct projects using Pond’s technology, and start converting carbon dioxide into commercial products on a larger scale. They have taken in an undisclosed amount of funding so far.
Synthetic Genomics is a company we’ve written about before and perhaps one of the most promising synthetic biology startups we’ve come across. Founded in 2005, this Californian startup Synthetic Genomics has taken in $375 million in funding to develop transportation fuels from algae. Algae can yield 5X more biofuel per acre than plant-based biofuels like sugar cane or corn. Back in 2009, Synthetic received a huge $600 million funding commitment from Exxon Mobil (NYSE:XOM), who is looking to redeem their reputation on environmental friendliness by seeking out a biofuel source that could be reproduced on a large scale. Exxon settled on photosynthetic algae, and Synthetic Genomics. No indication has been given as to how far away we are from pumping algae-based gas at the local Exxon Station but the fact that both companies renewed their algae partnership in January of this year means things must be on track.
Founded in 2000, Montreal-based startup Enerkem has taken in $316 million to produce renewable biofuels and chemicals from solid waste. Enerkem uses a proprietary thermochemical technology, and the waste from large municipalities, to produce cellulosic ethanol. Ethanol is the most popular of all biofuels representing 76% of global biofuels consumption. In short, Enerkem is proving to be very successful in the garbage-to-ethanol business, and is already planning to build a $200 million ethanol facility in Rosemount. They already operate a demonstration plant and pilot facility in Quebec, and they’re beginning their first full-scale commercial operations in Alberta. As for economic viability of Enerkem’s technology, converting waste into chemicals and biofuels is competitive with landfills and is actually 2X more capital efficient than incinerating waste.
Founded in 2003, Georgia startup Renmatix has raised $122 million to start selling biofuel technology at a commercial scale. Unlike other biofuel companies, Renmatix is focused on licensing its technology instead of building its own refineries. What is this technology? The company developed a way to use high temperatures and high water pressure to break down plant waste (like wood chips) into biofuels. They call it “supercritical hydrolysis”, and say that the process can be completed in minutes, instead of previous methods that took up to a couple of days. In September of last year, Renmatix took in a $14 million funding round which was led by Bill Gates. Alongside that funding round, global energy major Total (NYSE: TOT) signed a licensing agreement to use Renmatix’s technology to produce a million tons of sugars every year to be used for biofuels or biochemicals. To put that number in perspective, a million tons of cellulosic sugars are enough to drive 1 million cars for 2,000 miles or make 120 billion compostable plastic cups.
Founded in 2007, Californian startup Fulcrum has taken in $156 million to convert household garbage into low-carbon transportation fuels, including jet fuel, diesel, and ethanol. Like Enerkem, Fulcrum’s approach relies on the abundant and renewable feedstock of municipal solid waste. Oil giant BP recently invested $30 million in the Company, and United Airlines is also on board, reporting that they plan to fly a regular domestic route using only alternative fuel. Domestic trash will fuel future United Airline flights from Los Angeles to San Francisco.
One promising biofuels startup we’ve talked about before is Joule which merged with Red Rock Biofuels back in November of 2015. Since that merger, we haven’t heard much. The same goes for Sapphire Energy, a biofuels startup we talked about before which has taken in a whopping $322 million in funding. Their website is now just a single page leading us to believe that not much is happening these days over there.
For retail investors, the promises of using synthetic biology to produce biofuels or other chemicals just hasn’t been realized so far. Exxon Mobil is the world’s largest oil company, and the fact that they’ve renewed their commitment with Synthetic Genomics shows that biofuels continue to be economically viable even with today’s lower oil prices. Biofuels aside, you can’t go wrong with picking up some shares of Exxon which has not only paid but increased dividends for 34 years running. To put this in perspective, if you bought shares 34 years ago that investment would be paying you a “yield on cost” of 28%. You can bet that if biofuels are the way forward Exxon will be on top of it.