Bloomberg report says biochemical pathway attractive to investors

By Kris Bevill | June 06, 2011

Private financial support for technology acceleration continues to be important, and certain technologies are becoming clear favorites for investors, according to a recent Bloomberg New Energy Finance analysis of financial investments made in biofuels projects since 2004.

According to the analysis, venture capitalists and private equity firms have provided 60 percent, or $2.7 billion, of the total private investments made in next-generation biofuels since 2004. Of those investments, biochemical conversion technologies received 66 percent of the action while thermochemical technologies received 30 percent. Sixty percent of the investments made in next-generation biofuels through public markets since 2004 have also been directed toward biochemical technologies. Additionally, the analysis noted that companies backed by a well-known strategic partner appear to receive greater interest from the public markets. The analysis noted that three of the most conspicuous public offerings in recent years have been from companies developing biochemical processes that also have prominent partners, such as oil companies or pharmaceutical firms.

 Government agencies also seem to prefer biochemical pathways. Since 2004, those technologies have received the majority of dispersed federal funds, according to Bloomberg’s analysis. Enzymatic hydrolysis projects have received 30 percent of the government’s next-gen biofuels funds, followed by acid hydrolysis projects, which received 21 percent of the dispersed funds. The analysts noted in their report, however, that while the government has announced $3.1 billion in investments to the industry since 2004, less than half of that amount has actually been received by awardees. This has negatively impacted the commercialization of next-generation biofuel technologies.  “The clear disparity between the ‘announcement’ and ‘disbursement’ of funds by the DOE and USDA - particularly of loan guarantees - illustrates the inefficacy of the government’s fractional payout scheme,” the analysis noted.

“Technologies are not achieving the covenants set by the lending agencies at the expected pace. Consequently, project developers do not have access to the totality of the funds committed to their projects. As a result, technological developments take longer, forcing projects to seek additional funding from the private sector, which has been near impossible during the financial recession of the past 30 months.” On a positive note, the analysts believe the USDA’s announcement earlier this year to provide $460 million through its loan guarantee program could help to alleviate the bottleneck, if it is able to disburse funds in a more timely fashion.

Bloomberg analysts attributed greater interest in biochemical conversion processes to the fact that those technologies can be proven at a smaller scale than other technologies, such as thermochemical processes. Further, the analysts found that enzymatic hydrolysis appears to be the most attractive biochemical process, likely because it provides the ability to use coproducts produced from the process to generate heat and power and appears to have greater energy input-output benefits when compared with other technologies. The analysts noted, however that international oil companies are particularly well-suited to invest in thermochemical processes. And while most oil companies are publicly traded, many corporate investment deals are not made public, so it is possible that a greater amount of financial support has been given to thermochemical pathways than is illustrated by the analysis.