7 Ways To Play The Advanced Biofuel Revolution

by: Kevin Quon

While it is unlikely that the future beyond oil will be dominated by a single platform of green energy, what is becoming increasingly clear is that advanced biofuels have a significant role to play. Advanced biofuels, also known as second generation biofuels, are most commonly defined as fuels derived from non-food feedstocks. Yet still tarnished from the first generation failures of the corn-to-ethanol era, advanced biofuels have continued to lag the market amid their early phase development and large amount of investor skepticism when it comes to being able to reach production at a commercial scale.

Yet one of the primary catalysts that continues to secure a biofuel future lies in the trillions of dollars of infrastructure that is already in place for liquid fuels. Failure to develop sustainable biofuels would require vast capital investment in order to accommodate a novel replacement technology. As a result, whether it be in mobile transportation or energy generation, biofuels are sure to stick around for some time to come.

The following public companies offer the most ideal means of partaking in the advanced biofuel revolution. While much progress is being accomplished in private companies across the world, these public companies offer a glance at the wide range of technologies that companies are using to address the budding industry. So diverse is the role of each of these companies that it would be near errant to believe that they could even be considered as competitors. For the most part, many of these companies will even be assisting each other in order to optimize their own technology's commercial use.

Investors with this naive concept that one company's technological success could spell the end to another have already failed to conceptualize the supply and demand forces of the markets they pursue. To further complicate the issue, many of these companies have even found it more ideal to place biofuel production on the back burner in exchange for more profitable avenues when it comes to commercializing their technology. Nevertheless, these companies stand on the frontlines of development for an industry that is beginning to plant its roots.

Name Mkt. Cap. Biofuel Role Output
Solazyme (SZYM) $883 Million Producer Triglyceride Oils and New Tailored Oils
Amyris (AMRS) $291 Million Producer Renewable Diesel, Jet Fuel, Chemicals
Gevo (GEVO) $240 Million Producer Isobutanol (drop-in chemicals and drop-in fuels)
KiOR (KIOR) $1.38 Billion Producer "Drop-in" Gasoline, Diesel, and Fuel Oil Blendstocks
Renewable Energy Group (REGI) $298 Million Producer Biodiesel
Ceres (CERE) $375 Million Supporter Energy Crop Optimizer
Codexis (CDXS) $132 Million Supporter Enhanced Cellulosic Sugar Extraction; Yield Optimizer

Name Process & Advantage
SZYM Uses a dark fermentation process on genetically modified algae. Its oils serve as replicated substitutes for those derived from petroleum, animal fats and plant oils. Company can create new markets through its tailored oil segment.
AMRS Uses genetically engineered microbes (ie. yeast) in order to create petroleum replacements with regard to fuels and chemicals.
GEVO Uses a yeast biocatalyst technology that allows for a ethanol plant to be converted into an isobutanol plant. Isobutanole can be used to create drop-in chemicals and drop-in fuels.
KIOR Uses a fluid catalytic cracking technology on wood waste products. Its simple technology allows for cost-effective production and proven scale-up.
REGI Uses a transesterfication process in order to create biofuel. The company is the largest biodiesel producer in the nation and uses cheaper feedstock. The company is profitable and has multiple operating biorefineries.
CERE Uses bioengineering to genetically modify seeds in order to increase yield and lower costs for dedicated bioenergy crops. Will be necessary to make bioenergy more scalable, economical and sustainable over time.
CDXS Uses enhanced enzymes in order to extract a higher yield of sugar from cellulosic sources. Will be a useful technology in order scale up cellulosic biofuel production.

Some thoughts to consider:

  1. Solazyme's flexibility may allow it the largest addressable market of those mentioned. Its technology platform allows it significant research advantages in a very new terrain. With oil tailoring capabilities, the company may be able to corner existing markets or even create new ones by evolving the products of existing industries.
  2. Amyris recently had a major setback when it had difficulty scaling up its technology. As a result it delayed its cellulosic biofuel production. Nevertheless, despite the poor performance, the company recently saw its insider ownership fortify. This latest round included former investor reinvestments along with a noteworthy initial position from a prince from Quatar.
  3. Despite using first generation technology, Renewable Energy Group uses low-cost feedstocks that give it a comparable advantage over traditional biofuel producers. This includes the use of inedible animal fat, used cooking oil, and inedible corn oil, etc. As the largest volume producer of biodiesel in the United States, the company is heavily exploiting the rising cost of RINs which allowed the company to sell its fuel at $5.20/gallon in the last quarter.

Disclosure: I am long AMRS, SZYM, CDXS, REGI.