The probable winners will be those with deep pockets and patience, such as Royal Dutch Shell, BP, DuPont, agriculture giant Archer Daniels Midland, or the rare

start-up with revenues from another business, such as a drug or chemical pro­ducer. For the rest, the demonstration biorefineries now being built are more like pilot plants that are more demonstration plants for conglomerates to be gobbled up. The business model that makes sense for most of the small companies is demonstrating the technology and getting it into the hands of those who have balance sheets.

The first challenge is growing enough green plant material. The numbers are daunting. Producing 30 billion gallons of fuel takes 300 million or more tonnes of plant material — more than the total weight of cars and light trucks sold in the United States over the past 10 years. Growing this much cellulose would take at least 30 million acres of land.

As a result, some biofuel players are looking at other sources of non-food material. One of the cheapest sources now is garbage, such as municipal waste. Weyerhaeuser is exploring growing energy crops in its forests, along with using wood waste. Range Fuels will tap into forests in the southeastern United States for its Georgia facility. Another example of the value of waste comes from the city of Naples, Italy, which has a huge waste problem. Naples does not have enough plants to turn waste into gas or other recycled products. For centuries the Dutch have been traders, and the waste of Naples is now loaded onto trucks and brought to Holland where it is recycled! The Dutch know the value of waste!

Large financial resources and patience will also be essential when it comes to turning these enormous amounts of cellulose into liquid fuel. It is a far more complex process than fermenting starch or sugar into alcohol, which humans figured out how to do millennia ago.

"Big Oil” is now teaming-up with second-generation fuel producers. Shell is joining up with Iogen (which already has a pilot plant making cellulosic ethanol), with Codexis (a producer of man-made enzymes), with algae company HR BioPetroleum and with Virent.

Among the major players, two of the most promising efforts are the DuPont — Danisco joint venture in Tennessee and BP-backed Verenium, which plans a commercial cellulosic ethanol facility in Florida. Both of these already have expertise in every step of their complicated processes, putting them ahead of start­ups that only have some of the pieces.

The future of biofuels, therefore, probably looks like this: farmers will grow millions of acres of switchgrass and other energy crops on land not taken out of food production; those crops will help fight global warming and improve soil quality by adding carbon to the soil; and they can be processed into low-carbon fuels that are seamlessly delivered to filling stations and pumped into the gas tanks of trucks and cars.

The following paragraphs list some companies that are at the forefront of second-generation biofuels. Be aware that I do my research under the highest pro­fessional standards, but the information should nevertheless not be taken as a guidance for investments, unless fully at your own risk. Investments in stocks can go up or down.

Stocks or private equity may carry a high degree of risk that may or may not be suitable for you. I cannot be held responsible for any losses or damages that may arise from wrongly interpreted information.

Weyerhaeuser (NYSE: WY; www. weyerhaeuser. com), the forestry giant, might be able to turn trees no longer needed for paper in the digital era into fuel. Weyer­haeuser today manages 20.5 million acres of forests.

Danisco (www. danisco. com). This stock has been delisted, but it is a good example how well a second-generation biofuel stock can develop. The Swiss are the best watchmakers and the Danes are the best enzyme producers. Danisco is a great enzyme producer and specialty food ingredients company, whose products make it possible to breakdown tough plant fibers into ethanol. Novozymes (see below) and Danisco, the two Denmark-based companies, are two of the world’s leading enzyme technology companies, with about 90% of the market for the chemicals that are needed in ethanol production.

In early 2011, DuPont announced it had entered into a definitive agreement for the acquisition of Danisco for $5.8 billion in cash and assumption of $500 million of Danisco net debt. Today, DuPont is a clear leader in industrial biotechnology with science-intensive innovations that address global challenges in food pro­duction and reduced fossil fuel consumption. The stock of Danisco went from €20 on 1 January 2010 to €93.12 on 16 June 2011 when it was delisted. This takeover scenario can play out for other bioenergy stocks as well (Figure 20.1).

Danisco is a leading technology-driven organization, with outstanding research and application development capabilities. The company has specialty food ingre­dients, including enablers, cultures, and sweeteners that generate about 65% of total sales; and Genencor, its enzymes division, represents 35% of total sales. Danisco and DuPont are already joint venture partners in the development of cellulosic ethanol technology. Danisco has nearly 7000 employees globally with operations in 23 countries.

01.01.2002 01.01.2004 02.01.2006 01.01.2008 01.01.2010 Figure 20.1 Danisco chart. Source: http://www. finanzen. net/aktien/Danisco-Aktie.

Novozymes (NZYM #B; www. novozymes. com) is the second enzyme producer with headquarters in Denmark. Novozymes main goal is to reduce the costs and enlarge the availability of enzymes as a basis for cellulosic ethanol. Novozymes produces the following enzymes:

• Household enzymes: enzymes used in laundry detergents and automatic dish­washing machines.

• Food and beverage enzymes: enzymes for the baking, brewing, fruit juice, wine, and other food industries, including dairy, oils, and fats industries.

• Bioenergy enzymes: enzymes used for the conversion of cellulosic material and organic waste into fermentable sugars for the bioenergy industry.

• Feed and other technical enzymes: enzymes used by the starch, textile, and the animal feed industries.

Novozymes is now expanding strongly in China and has created a joint venture with the Shengquan Group to produce cellulosic ethanol.

Bioenergy International (Security number: AOLAXT), Graz, Austria is building biorefineries worldwide where not only vegetable oils but also animal fats can be converted into biodiesel.

SCA (Security number: 856193; www. sca. com) from Sweden, an abbreviation of Svenska Cellulosa Aktiebolaget, is the largest forest owner in Europe and will likewise benefit from energy production out of cellulose.

Linde (Security number: 856193), a German producer of industrial gases, had a record year in 2011 and is very optimistic for the coming years. Linde had a turnover of around €12.4 billion in 2011 and strives to grow to a turnover of €14 billion by 2014. Linde is developing practical ways of extracting biofuels from algae. Algenol Biofuels (www. algenol. com), of Bonita Springs, Florida and the technology organization The Linde Group have agreed to collaborate in a joint development project in order to identify the optimum management of carbon dioxide and oxygen for Algenol’s algae and photobioreactor technology. The companies will cooperate to develop cost-efficient technologies that capture, store, transport, and supply carbon dioxide for Algenol’s proprietary process for the production ofbiofuels from carbon dioxide, salt water, and algae, as well as remove oxygen from the photobioreactor.

The goal ofthe joint venture is to deliver sustainable low-cost alternative biofuels and green chemistry. It is possible to produce green hydrogen out of microalgae, although the yield does not yet justify large industrial-scale production. With the help of light-absorbing mechanisms, the algae use sunlight, water, and carbon dioxide to generate oxygen and sugar. The sugar is then converted to starch or biomass. If the algae are deprived of oxygen, they use solar energy to create hydrogen instead.

This hydrogen production process has great potential to become a key tech­nology for sustainable hydrogen. After all, microorganisms in nature generate approximately 200 million tonnes of hydrogen each year, which is immediately consumed by other neighboring single-cell organisms. However, if microalgae produce hydrogen on a large scale in controlled environments, it could be segre­gated, captured, and used commercially.

There are also a number of other companies leading the way in “drop-in” technologies, as listed in the following paragraphs.

Codexis (Security number: A0Q2S4; www. codexis. com), based in Redwood City, California, is one of the leaders in the “the drop-in fuels” field and makes spe­cialized enzymes that rearrange molecules. In collaboration with Shell and Cosan, Brazil’s third-largest sugar producer, Codexis plans to build a factory capable of producing 400 million liters (2.5 million barrels or 105 million gallons) of drop-in fuel every year. The other companies will provide money, reaction vessels, and sugar. Codexis will provide the enzymes and genetically engineered bacteria and microorganisms needed to make the drop-in fuel.

The project is part of a joint venture by Shell and Cosan, who own a 16.4% stake in Codexis. Codexis’ enzymes and bacteria can turn sugar into molecules called straight-chain alkanes. Such alkanes are the main ingredients of diesel fuel. So sugar is converted into a diesel fuel! In April 2010, Codexis became the first start­up involved in drop-in fuels to float itself on a stockmarket — which in this case was NASDAQ (NASDAQ: CDXS), America’s main market for high-tech stocks. Codexis is a very promising company, but the stock has dropped dramatically.

Amyris (NASDAQ: AMRS; www. amyris. com) has a product that it claims is a drop-in biodiesel and it has hooked up with an oil company, Total of France, which owns 17% of the firm. Amyris’ biodiesel is made of genetically engineered yeast, rather than bacteria. However, Brazilian sugar is again used as the raw material. Amyris has formed a joint venture with Santelisa Vale, Brazil’s second-largest sugar company, and is busy refitting some of that firm’s ethanol plants in order to make drop-in diesel. The Codexis-Cosan-Shell and the Amyris-Santelisa-Total partnerships are the furthest along of the drop-in fuel businesses. Amyris has also taken a beating since its initial public offering (IPO) on the NASDAQ, but it has very strong links with the sugar and oil industry.

Gevo (NASDAQ: GEVO; www. gevo. com) of Englewood, Colorado makes “better bugs”. The company will use enzymes and genetically engineered bugs to produce butanol. The aim is to turn out an annual 2 billion liters of butanol by 2014. BP is building a butanol pilot plant to do this near Hull in the north of England and also has big ambitions for the fuel. Like ethanol, butanol is an alcohol. Butanol has four carbon atoms in its molecules, whereas ethanol has two. Proportionately more of the energy from the feedstock ends up in the final fuel. Gevo went public in March 2011 (NASDAQ: GEVO). The relationship between GEVO and BP has turned sour, since GEVO is suing BP over patent infringements. GEVO itself has 11 patents issued by the U. S. Patent and Trade Office (USPTO) with approximately 400 additional patent applications. GEVO is backed by the French oil company Total SA (FP) and the specialty chemicals maker Lanxess AG (LXS).

Solazyme (Security number: A1H8LA; solazyme. com), another firm based in South San Francisco, is the last of the Bay-area drop-in contenders and is, in many ways, the most intriguing biotechnology company. It wants to use single-celled algae to make its fuel. Solazyme’s approach is unusual, though. Instead of growing its algae in sunlit ponds, it keeps them in the dark and feeds them with sugar. At first sight this seems weird as the attraction of algae lies in the fact that algae photo — synthesize. That means that they can be engineered with the whole sunlight-to — fuel process in one genetically engineered package. Sunshine being free, this looks

a brilliant idea. However, looks can be deceptive. If you keep your algae in ponds the rays of sunlight do not always strike them at the best angle, because even algae sometimes shade one another if they are growing densely. Photobioreactors — complicated systems of transparent piping through which alga-rich water is pumped — overcome those problems, but they cost a lot and are hard to keep clean.

In May 2011, Solazyme did an IPO on the NASDAQ (NASDAQ: SZYM) and netted $227 million — a new record in second-generation biofuels.

Solazyme has signed a contract with the American Navy. The Navy intends that, by 2020, half the fuel it uses (over 6 billion liters a year, mainly diesel and jet fuel) will be from renewable sources. Solazyme is arguably the most prominent leader in the field of algae-derived oils. Solazyme has been providing it with trial quan­tities of both from its production facilities in Pennsylvania and Iowa. The algal oils are not themselves good fuel; however, the UOL refinery in Houston takes care of that, producing shipshape alkanes of the sort the Navy likes.

DSM (Security number: A0JL27; www. dsm. com), the Dutch life sciences and chemicals company, is moving into the embryonic, but potentially huge, market for second-generation biofuels. DSM’s second-generation technology has two components. (1) An enzyme, derived from a fungus discovered originally in a Swiss compost heap, which breaks down the cellulose in wood, plant stalks, and other agricultural waste. (2) This produces a range of sugars, which are then converted by DSM’s "advanced yeast” strain into ethanol — the standard biofuel.

Although DSM believes it will generate substantial revenues from selling the enzymes and yeast required to make second-generation biofuels, the company is also considering playing a more central role in biofuel production.

The first stage in second-generation biofuels production involves mashing up biomass into a hot "stew,” in which the enzyme converts the cellulose fibers into a mixture of sugars. DSM’s new enzyme comes from a fungus that evolved to do this in the steamy environment of rotting compost; it works at temperatures as high as 65°C, adding to the efficiency of the conversion process. The second stage uses DSM’s "all you can eat” strain of yeast. It can make ethanol from sugars produced from second-generation biomass.

DSM aims to break the dominant market position that the two Danish-owned companies, Novozymes and Danisco, hold in enzymes for first-generation bio­fuels. It has formed a joint venture with POET, in the United States, to produce cellulosic ethanol from agricultural waste.

Dynamic Fuels (dynamicfuelsllc. com), a joint venture between Syntroleum and Tyson Foods, is an exciting company. Dynamic Fuels is not publicly traded but you can buy stock of the two parent companies Syntroleum (NASDAQ: SYNM) and Tyson Foods (NYSE: TSN). Syntroleum produces synthetic fuel by the Fischer-Tropsch process, which can use natural gas, coal, or biomass as feedstock. Tyson Foods is one of the world’s largest processors and marketers of chicken, beef, and pork food pro­ducts. Tyson has around 2.3 billion pounds (1 billion kg) of fat to use as feedstock and is pushing the biofuels industry to explore use of cheap animal fats.

A new plant has been built under the Dynamic Fuels flag that converts inedible fats and greases into renewable fuels like biokerosene. With an investment of over $150 million and the creation of over 300 jobs, the initial 75 million gallons (280 000 m3)

per year plant will contribute much-needed incremental clean and environmentally friendly fuel to the U S transportation fuel supply.

Biomass also continues to emerge as a significant potential source for clean, renewable fuels. The US Departments of Agriculture and Energy estimate that over 1.3 billion dry tonnes per year of biomass can be produced — enough to produce biofuels to meet more than one-third of the current demand for trans­portation fuels. Syntroleum’s Fischer-Tropsch and Bio-Synfining™ processes are ideally suited to produce ultra-clean, renewable fuels from biomass, and the company is pursuing projects in this area.

This plant is nationally recognized as the very first “commercial-scale” biofuels plant to open in the United States. Dynamic Fuels is also producing jet fuel at the facility for the USAirForce. It was also stated that during marketing efforts for the new Dynamic Fuels plant, major US and international oil, chemical, and consumer companies expressed significant interest in products produced at the facility.

On 15 March 2011, Syntroleum made the official announcement that the Dynamic Fuels plant in Geismar, Louisiana had reached full production capacity and was producing at design rates of 75 million gallons (280 000 m3) per year or 5000 barrels (790 m3) per day. The company stated the Dynamic Fuels facility achieved 100% conversion of 20 different renewable feedstocks into American Society for Testing and Materials (ASTM)-quality diesel. The Dynamic Fuels facility is able to produce high — quality products ranging from jet fuel to summer grade diesel.

In September 2011, KLM starting flying more than 200 flights between Paris and Amsterdam using biokerosene (see Chapter 19). Hydroprocessed renewable jet fuel is processed using used cooking oil and handled by Dynamic Fuels at its Geismar plant and supplied by SkyNRG.

Rentech (NYSE: RTK; www. rentechinc. com) is producing synthetic jet fuel and renewable diesel at its demonstration plant in Commerce City, Colorado. This facility currently produces Jet A fuel for commercial aviation and it has made its first commercial sale to the US Air Force. This facility also produces Rentech’s clean diesel (“RenDiesel”). It takes urban yard and woody green waste to produce ultra-clean and renewable fuels. It is estimated that Rentech will produce 600 barrels per day of synthetic fuel as well as 35 MW of renewable power.

Sustainable Oils (www. susoils. com), Sustainable Oils, LLC. Sustainable Oils, LLC is a joint venture between Targeted Growth, Inc. and Green Earth Fuels, LLC. A producer of Camelina-based fuels, announced that it has been awarded a con­tract by the US Defense Energy Support Center (DESC; now renamed the Defense Logistics Agency Energy) for 40 000 gallons of Camelina-based jet fuel. The fuel will be delivered to the Naval Air Systems Command fuels team and will support the Navy’s certification testing program of alternative fuels. The contract includes an option to supply up to an additional 150 000 gallons of Camelina-based jet fuel.

Camelina was selected by the DESC because it does not compete with food crops, has been proven to reduce carbon emissions by more than 80%, and has already been successfully tested in a commercial airline test flight. In addition, Camelina has natu­rally a high oil content, is drought tolerant, and requires less fertilizer and herbicides.

AltAir Fuels (www. altairfuels. com). AltAir Fuels is a privately held company. AltAir Fuels and the USDA have established the Biomass Crop Assistance

Program ("BCAP") for the production of the oilseed crop camelina sativa as a feedstock for sustainable, low carbon aviation fuel, renewable diesel and specialty chemicals. The BCAP program will cover over 50,000 acres Washington, Montana and California. Farmers who participate in the program are eligible to receive reimbursement of a majority of the cost of their camelina acreage for up to five years. In December 2009, the Air Transport Association of America announced that 14 airlines from the United States, Canada, Germany, and Mexico (Air Canada, American Airlines, Atlas Air, Delta Air Lines, FedEx Express, JetBlue Airways, Lufthansa German Airlines, Mexicana Airlines, Polar Air Cargo, United Airlines, UPS Airlines, and US Airways) had signed Memoranda of Under­standing with AltAir for the entire output of a new biofuel facility that will be constructed in Mississippi and Washington state. In addition, Seattle-based Alaska Airlines and Honolulu-based Hawaiian Airlines signed MOU with AltAir Fuels.

Solena (www. solenafuels. com). One of the leading pioneers in producing syn­thetic drop-in fuels is the Solena Group from Washington, DC. Solena bioker­osene allows airlines and shipping companies to utilize a sustainable energy source without any changes to their engines or infrastructure. Solena’s feedstock is municipal waste that does not compete with crops or use water.

The advantages of Solena’s biomass-to-liquid (BTL) solution include:

• Reduced greenhouse gas emissions. Carbon emissions are recognized as a detriment to the environment and, when emitted at the upper levels of the troposphere via jet fuel exhaust, are more harmful as a greenhouse gas. The overall equivalent carbon dioxide reduction as a result of a Solena BTL facility producing sustainable energy is approximately 2.4 million tonnes per year.

• Reduced landfilling of waste. Solena facilities can utilize post-recycled urban waste normally destined for landfill as feedstock. Landfilling presents several problems including: the pollution of surface and underground (aquifers) water resources due to toxic substances leaching from the waste, and methane emissions from the decomposing waste, which contribute significantly to greenhouse gas effect and are 20 times more potent than carbon dioxide;

• Increase in air quality at airports and harbors/ports. Sustainable fuels generated through the Fischer-Tropsch process burn cleaner than crude-based jet fuels, resulting in lower levels of emissions with no sulfur oxides, minimum particulate matter, and lower nitrogen oxides levels during take-off at local airports and docking at harbors and ports.

• Non-competing biofuels. Crop-based biofuels are believed to produce harmful side-effects such as creating inflationary price pressures on basic food supplies and/or the use of otherwise arable land. Furthermore, the nature of crop-based fuels dictates that the facilities be located far from the end user of the finished biofuel product. By utilizing urban, agricultural, and forestry wastes near the fuel’s point of use, Solena hope to eliminate many of the disadvantages associated with first-generation/crop-based fuel and minimize the emissions footprint associated with transporting it.

Solena is investing over $300 million to build a waste-to-biofuels plant in East London, close to London City Airport and the venue of the 2012 Olympic Summer Games. British Airways has entered a purchase agreement with Solena and will

buy all of the plant’s 16 million gallons of biofuel annually for up to 10 years in an effort to cut its carbon emissions under the cap-and trade system operating in the European Union.

Biofuel production from waste should begin in mid-2015. However, knowing the United Kingdom I would not be surprised if the permission and construction time will take longer. The biofuel, with a carbon footprint 95% lower than con­ventional airline fuels, will be blended with jet fuel. The amount produced will be about 2% of British Airways’ annual fuel consumption.

Solena is negotiating with London’s four biggest waste management companies to obtain feedstock for the plant. Solena will take plastics, paper, and food leftovers that would otherwise go to landfill. It saves the waste companies from paying taxes on trash. The company will use about 1500 tonnes of waste a day and, in addition to creating biofuel, the plant will generate about 40 MW of electricity. Half of that will be used to run the plant and the other half exported to the power grid. Solena is developing a similar project with Qantas.

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