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The Advanced Biofuel and Biochemical Overview June 2012 Presentation Transcript

  • 1. Silicon Valley Bank Cleantech PracticeThe Advanced Biofuel andBiochemical OverviewJune 2012
  • 2. Table of Contents I. Introduction III. The Importance of Biofuels/Biochemicals (Cont.) I. Biofuel/Biochemicals Outlook – Macro Observations 3 V. Liquid Demand Growth from Non-OECD Countries 36 II. Biofuel/Biochemicals Outlook – Micro Observations 4 VI. Biofuels for Transportation 38 III. The Cleantech Ecosystem 5 VII. Increasing Marginal Cost of Production 39 IV. Market Snapshot: Global Ethanol Production 6 VIII. Oil Market Price and Saudi Breakeven Threshold 42 V. Market Snapshot: Global Biodiesel Production 7 IX. U.S. Renewable Fuel Standards 43 Market Snapshot: Ethanol and Biodiesel Production X. Biofuel Blending Mandates by Country 46 VI. 8 Landscape in the U.S. VII. Market Snapshot: Global Biochemical Production 9 XI. Cellulosic Ethanol Pricing Model 47 II. Biofuels/Biochemicals Overview IV. Biofuel/Biochemicals Landscape I. What are Biofuels/Biochemicals? 11 I. Advanced Biofuel and Biochemicals Value Chain 49 II. Types of Biofuels 15 V. Where Are They in Development? III. Biofuel Feedstocks 16 I. Investments in Biofuels/Biochemicals 52 IV. Comparative Yields 18 II. Global Players – Milestone Update 54 V. Petroleum Replacement Overview 21 III. Biofuel/Biochemical IPOs in Pipeline 56 VI. Conversion Technologies 22 IV. Strategic Partnerships 57 V. Projects to Watch in 2012–2013 58 III. The Importance of Biofuels/Biochemicals VI. Appendix 61 I. Compelling Market Opportunity 28 VII. Selected Due Diligence Questions 69 II. Drivers of Biofuels/Biochemicals Growth 29 VIII. Silicon Valley Bank Cleantech Team 70 III. Liquid Demand Statistics 32 IV. Energy Market Growth 34 The Biofuels and Biochem Industry 2
  • 3. Biofuel/Biochemicals Outlook – Macro ObservationsOBSERVATIONS• Multiple very large and growing markets — Total markets will top $1+ trillion. Beyond the well-known fossil-fuel replacement markets is growing demand for non-fuel products like food supplements, personal care products, and packaging.• Positive supply/demand dynamics around crude — The fundamental underlying demand is exacerbated by oil exporting countries‘ economic reliance on oil revenue. Meanwhile, the cost of crude production continues to increase. Biofuels/biochemicals will play an increasingly important role to fill that need.• Demand drivers – mandates and markets — Mandate: Primarily for fuels, government mandated goals proliferate with varying degrees of adherence and enforcement. Subsidies of all types remain important in attracting capital and shifts in policy could alter business plan direction between fuels or chemicals. — Markets: Growing economic justifications are intersecting with other market demand factors. For example, the U..S Navy‘s goal of 50% energy consumption from alternative sources by 2020 or the Air Force‘s initiative to acquire 50% of aviation fuel from alternative blends by 2016 are policy influencers that also have purchasing power.• The role of strategic corporate investors — Always important, corporates from a variety of industries (and led by big energy, chemicals/materials, and consumer products) have become critical parties in the development and scale-up of the sector. Taking multiple forms of straight investment, joint venture, and collaboration, investors search for innovation, growth, and information.• Commodity markets — Fuels in particular are ultimately commodities. Without policy enhancements, the impact of commodity cycles will continue to challenge scaling of new technologies.• Business life cycle — While the underlying trends and fundamentals may be inexorable, development of the industry and market dynamics is a very long term process and investment cycle. TABLE OF CONTENTS The Biofuels and Biochem Industry 3
  • 4. Biofuel/Biochemicals Outlook – Micro ObservationsOBSERVATIONS• Platform technologies — Venture investors and companies favor platforms where multiple markets can be addressed. Single product fuel companies like ethanol are challenged. The platform companies may ultimately seek to enter fuel markets but may opt to defer that step in order to access higher margin, less commoditized markets first.• Feedstock flexibility — Access to multiple feedstock types and sources is critical to scaling facilities, particularly in margin constrained markets where supply and logistics can have great impact.• The scale-up conundrum — Given the capital required to achieve economies, and the fact that most investors want both scale and capital efficiency, the choice between build/own and licensing is becoming acute. To truly reach scale requires enormous financing. The conundrum is how to get licensees without experience at scale. And what scale is necessary to attract the right investors? Does the project need to demonstrate revenue scale, cash flow positive, or just output?• Understand the value chain — In addition to sources and location of feedstock, proximity to off take and associated logistical costs are important for certain markets like ethanol. In concert with the scale-up conundrum above, are these links in the value chain of a size to support large facilities? Additionally, to attract investors companies must demonstrate the ability to reduce costs of collection, distillation, and extraction through operational or technological advances.• Milestone sensitivity — At these development stages, sensitivity around scale-up milestones is palpable. Whether due to supply or technical aspects, such delays in any project are not unusual but there seems to be heightened sensitivity here that often results in further delays or hurdles to funding.• Financing strategy — Financing strategies, with minimal reliance on government support, must be devised at the outset. Today this likely means earlier and more active role from strategic investors which may limit some flexibility. It also means determining the license/own decision. IPOs really are not exits but financing events much like that seen in the biotech sector. Some combination of strategic investor with access to public markets may be necessary to complete the demo and first commercial funding challenge. TABLE OF CONTENTS The Biofuels and Biochem Industry 4
  • 5. The Cleantech Ecosystem Materials and Manufacturing Materials & Manufacturing Recycling & Energy Energy Energy Agriculture, Air & Energy Storage Waste Generation Efficiency Infrastructure Water Management • Alternative fuels • Batteries • Building materials • Smart Grid • Waste to energy • Agriculture • Biomass • Fuel Cells • Lighting Hardware • Waste • Air • Solar / Thermal • Utility Scale grid • Demand response • Smart meters repurposing • Water • Wind storage systems • Transmission • Hydro • Energy Management • Improved and • Improved power • Reduced • Reduction in • Economic in • Organic economical reliability operating costs wastage nature - well- pesticides / Application Benefits source of • Intermittency • Lower • Reduce outage run recycling fertilizers energy Management maintenance frequency / programs cost • Water • Less pressure • Increased costs duration less to operate purification on non- cycles/longer • Extended • Reduce than waste • Water renewable storage equipment lives distribution loss collection and remediation resources (oil landfilling • Efficiency • Purification and gas) • Management • Energy security • Grid/ Off Grid Residential End User Commercial Industrial Utilities, Government and Others TABLE OF CONTENTS The Biofuels and Biochem Industry 5
  • 6. Market Snapshot: Global Ethanol ProductionTop Five Countries (2010) Ethanol Production (millions of gallons/year) 1 The Global Renewable Fuels Alliance (GRFA) forecasts ethanol production to hit 88.7 billion litres in 2011Source: 1NREL (National Renewable Energy Laboratory) Data Book, 2011.Note: Gallons to Liters conversion ratio at 1:3.78. TABLE OF CONTENTS The Biofuels and Biochem Industry 6
  • 7. Market Snapshot: Global Biodiesel ProductionTop Five Countries (2010) Biodiesel Production (millions of gallons) 1Source: 1NREL (National Renewable Energy Laboratory) Data Book, 2011.Note: Gallons to Liters conversion ratio at 1:3.78. TABLE OF CONTENTS The Biofuels and Biochem Industry 7
  • 8. Market Snapshot: Ethanol and Biodiesel Production Landscape in the U.S.U.S. Ethanol Production1 U.S. Alternative Fueling Stations2 • Corn ethanol production continues to expand rapidly in the U.S. Between 2000 and 2010, production increased nearly 8x • Ethanol production grew nearly 19% in 2010 to reach 13,000 million gallons per year • Ethanol has steadily increased its percentage of the overall gasoline pool, and was 9.4% in 2010 • In 2010, there were 1,424,878 ethanol (E85) fueled vehicles on the road in the U.S and 7,149 alternative fueling stations in the U.S. • Biodiesel has expanded from a relatively small production base in 2000, to a total U.S. production of 315 million gallons in 2010. However, biodiesel is still a small percentage of the alternative fuel pool in the U.S., as over 40x more ethanol was produced in 2010 • Biodiesel production in the U.S. in 2010 is 63x what it was in 2001Source: 1,2NREL (National Renewable Energy Laboratory) Data Book, 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 8
  • 9. Market Snapshot: Global Biochemical ProductionOverview of Biochemicals Specialty Biochemicals Name Characteristics Uses Adhesives Liquid or semi-liquid compound that bonds items together Paper products, labeling, packaging, plastic bags, Polymers via drying, heat or pressure stamps, lamination Consumer Lubricants and Products and Additives Cationic Surfactants Organic compound consisting of phospholipids and Soaps, detergents, shampoos, toothpastes Coatings proteins with positively charged heads that lower the surface tension between liquids and other surfaces Geraniol Clear to pale yellow that is insoluble in water Commonly used in perfumes or fruit flavoring Industrial Lubricants Oil-based compound that reduces friction between moving Used in operation of manufacturing, mining and 4.6 MM 4.0 MM 73.0 MM surfaces transportation equipment and more tonnes/yr tonnes/yr tonnes/yr Linalool Naturally occurring alcohol found in flowers and spice Scents for perfumes and cleaning agents, insecticides, plants used to make Vitamin E Nonionic Surfactant Organic compound consisting of phospholipids and Lower the surface tension of liquids or between liquids • Specialty • Base oils Building blocks for proteins with non-charged heads and another surface surfactants • Fuel additives • Specialty O2 Scavenger Compounds that inhibit oxidation or other molecules Used to prevent the corrosion metal by oxygen • Soy petrolatum polymideds, Plasticizer Additives that increase the workability, flexibility and Used for plastics, concrete and dry wall • Performance polyols, polyesters fluidity of a substance allowing for easier changing of waxes • Epoxies and shape • Candles polyurethanes Specialty Emollients Lipids that attract water and retain moisture Used in lotions and make-ups to prevent dry skin • Coatings and Squalane Saturated form of squalene making it less susceptible to Used in personal care products such as moisturizers cross linkers oxidation• Like the biofuels industry, the biochemical industry uses bioprocesses and biomass to replace petroleum as the important building block for a number of products including plastics, lubricants, waxes and cosmetics.• According to the American Chemistry Council dated July 2011, the market size of the global chemical industry (Basic Chemicals, Intermediate Chemicals, Finished Chemical Products)1 was approximately $3.0 trillion as of July 2011• Specialty chemicals compete more on desired effect than cost and as a result present less price‐sensitive, higher ASP markets for renewable chemical firms to target• In the U.S. ~200,000 barrels of oil per day are required to fulfill demand for plastic packagingSource: Elevance Renewable Sciences Filings.Note: 1Basic Chemicals include Butadiene, Propylene, Ethylene, Benzene; Intermediate Chemicals include Butanediol, Acrylic acid, Ethlyene glycol; Finished Products include BR, PBT, SBR, Polyacrylics, PE, PET, Nylon-6. TABLE OF CONTENTS The Biofuels and Biochem Industry 9
  • 10. Biofuels/Biochemicals Overview TABLE OF CONTENTS The Biofuels and Biochem Industry 10
  • 11. What are Biofuels/Biochemicals? – Summary• The Biofuels and Biochemicals industry refers to the set of companies focused on developing fuels and chemicals from Biomass rather than from fossil fuels• In 2010, approximately 700 million barrels of biofuels were produced globally. Over 45% of this was corn‐based ethanol in the U.S. and >25% produced was sugarcane‐based ethanol in Brazil• Biofuels/ Biochemicals are distinguished as either first , second or third generation. Focus is more on second generation and beyond as first generation is a mature technology — Corn and sugarcane will continue to be the most abundant feedstock for biofuels and biochemicals in the near term — Companies utilizing food‐competitive feedstock (e.g., corn, soy, wheat) face higher price volatility and potential for societal push‐back — Cellulosic feedstock does not face the ―food‐vs.‐fuel‖ argument but requires more specialized and expensive enzymes that are yet to be completely commercialized — Waste is a unique feedstock and companies that can successfully convert the biomass to fuels and chemicals will benefit significantly — ―Energy‐dedicated‖ crops are emerging and will be vital to the growth of cellulosic biofuel and biochemical production — Algae offer the highest oil yields of any biofuel feedstock, but challenges around cost have created challenges for commercial use• Due to the importance of feedstock to the overall value chain, several companies are developing business models and technologies focused on the ―upstream‖ segment of the value chain• Numerous conversion technologies exist each with distinct advantages and disadvantages• The United States and Brazil currently produce and consume the vast proportion of global biofuels due to size of ethanol industries, and is expected to remain the most important countries for biofuel production/consumption in the near‐term• Biofuel and Biochemical companies are aiming to compete in large established markets in fuels and specialty chemicals TABLE OF CONTENTS The Biofuels and Biochem Industry 11
  • 12. What are Biofuels/Biochemicals?• A biofuel/ biochemical is a product made from biomass – organic material with stored chemical energy. While traditional Biofuels/Biochemicals can be made from plant materials such as sugarcane, corn, wheat, vegetable oils, biomass1 constitutes an agriculture residues, grass, wood and algae. important part of the• Biofuels/Biochemicals currently comprise only a small part of today‘s global energy consumption. Liquid energy mix, so far biofuels accounted for a modest 2.7% of global road-transport fuels in 2010 and only 0.6% of the global modern biomass2 use final energy consumption. However, by 2030, this is forecast to increase to 9%, equivalent to 6.5 million makes up only a small barrels of oil a day. share of total global energy consumption• Renewable energy overall (bio-energy,hydro, solar, etc) represented 16.0% of total energy demand in 2010.Renewable Energy Share of Global Final Energy Consumption, 2010 Wind/Solar/Biomass/Geothermal Power Generation 0.7% Nuclear 2.8% Transport Biofuels 0.6% Biomass/Solar/Geothermal/ Hot Water/Heating 1.5% Several economical, Renewable 16.2% political, technological, Fossil and environmental Fuels 81% 16.2% factors will drive growth in the Biofuels/ Chemicals industry Hydropower 3.4% Traditional Biomass 10%Source: Renewables 2011, Global Status Report.Note: 1Traditional biomass means unprocessed biomass, including agricultural waste, forest products waste, collected fuel wood, and animal dung, that is burned in stoves or furnaces to provide heat energy for cooking, heating, and agricultural and industrial processing, typically in rural areas.2Modern bioenergy comprises biofuels for transport, and processed biomass for heat and electricity production. TABLE OF CONTENTS The Biofuels and Biochem Industry 12
  • 13. Biofuels/Biochemicals Growth RatesGlobal Average Annual Growth Rates of Renewable Energy Capacity and Biofuels Production, 2005–2010 Biodiesel production 38% 7% In 2010, approximately Ethanol production 23% Year-end 2005-2010 17% (5-year Period) 700 million barrels of 16% Solar hot water/heating 16% biofuels were produced. 2010 3% Over 45% of this was Hyderopower 3% corn‐based ethanol in Geothermal power 4% 3% the U.S. and >25% 25% produced was Concentrating Solar Thermal Power 77% sugarcane‐based Wind Power 27% 25% ethanol in Brazil Solar PV(grid -connected only) 60% 81% 49% Solar PV 72%• Global energy consumption rebounded strongly in 2010 after an overall downturn in 2009, with annual growth of 5.4%. Renewable energy, which had no downturn in 2009, continued its strong growth in 2010 as well.• During the period from the end of 2005 through 2010, total global capacity of many renewable energy technologies – including solar photovoltaic (PV), wind concentrating solar power (CSP), solar water heating systems, and biofuels – grew at average rates ranging from around 15% to nearly 50% annually.• Solar PV increased the fastest of all renewables technologies during this period, followed by biodiesel and wind. For solar power technologies, growth accelerated during 2010 relative to the previous four years.• At the same time, growth in total capacity of wind power held steady in 2010, and the growth rates of biofuels have declined in recent years, although ethanol was up again in 2010.• Hydropower, biomass power and heat, and geothermal heat and power are growing at more ordinary rates of 3–9% per year, making them more comparable with global growth rates for fossil fuels (1–4%, although higher in some developing countries). In several countries, however, the growth in these renewable technologies far exceeds the global average.Source: 1Renewables 2011, Global Status Report. TABLE OF CONTENTS The Biofuels and Biochem Industry 13
  • 14. Main Feedstock Sources Crops used for Biofuels/BiochemicalsFeedstock is typically the largest component of biofuel &biochemical production cost. Feedstock cost is estimated torepresent >30%‐50% of the operating costs of most projects.The main sources of biofuels are:1. Oil-seed crops: Oil –seed crops include soybean, rapeseed and sunflower. These go through a process called ―transesterification‖ and the oils of these oilseeds are converted into methyl esters. Methyl esters are liquid fuel that can either be blended with petro-diesel or used as pure biodiesel.2. Grains, cereals and starches: These come from corn, wheat, sugar cane, sugar beet and cassava, which undergo a fermentation process Biofuel Vehicle and Pumps to produce bio-ethanol.3. Non oilseed crops: Oil from the Jatropha fruit shows most promise. The fruit is poisonous, so it is not affected by the ―food-or-fuel‖ tug of war; and it grows well on arid soils which means it does not need felling of forests. It is very resilient and needs less fertilizer and it can be developed into plantations like any oilseed crop.4. Organic waste: Waste cooking oil, animal manure and household waste. Waste cooking oils can be converted into biodiesel while the rest are converted to biogas methane.5. Cellulosic materials: These are grasses, crop waste, municipal waste and wood chips that are converted to ethanol. The conversion process is more complex than the two process aforementioned. There is also the option of converting these to gases such as methane or hydrogen for vehicle use or to power generators.Source: Broker Research and websites. TABLE OF CONTENTS The Biofuels and Biochem Industry 14
  • 15. Types of BiofuelsBiofuels/Biochemicals aredistinguished as either first, secondor third generation.Most of the Biofuels today come fromcorn-based ethanol and sugar-based First generation: Commercially produced using conventional technology. The basic feedstock are seeds, grains, or whole plantsethanol. from crops such as corn, sugar cane, rapeseed, wheat, sunflower seeds or oil palm. These plants were originally selected as food or fodder and most are still mainly used to feed people. The most common first-generation biofuels are bioethanol (currently over 80% of liquid biofuels production by energy content), followed by biodiesel, vegetable oil, and biogas.The current debate over biofuels/biochemicals produced from food Second generation: Produced from a variety of non-food sources. These include waste biomass,crops has pinned a lot of hope on the stalks of wheat, corn stover, wood, and special energy or biomass crops (e.g. Miscanthus). Second-generation biofuels/biochemicals use biomass to liquid (BTL) technology, by"2nd-generation processes" thermochemical conversion (mainly to produce biodiesel) or fermentation (e.g. to produceproduced from crop and forest cellulosic ethanol). Many second-generation biofuels/biochemicals are under development such as biohydrogen, biomethanol, Fischer-Tropsch diesel, biohydrogen diesel, and mixed alcohols.residues and from non-food energycrops. The commercial-scale production costs of 2nd-generation biofuels have been estimated by the IEA to be in the range of US $0.80 - 1.00/liter of gasoline equivalent (lge) [US $3.02-$3.79 per gallon] for ethanol and at least US $1.00/liter [$3.79 per gallon] of diesel equivalent for syntheticSecond generation conversion diesel. This range broadly relates to gasoline or diesel wholesale prices (measured in USD /lge)technologies are key to progress and when the crude oil price is between US $100-130 /bbl . (However, many companies within SVB‘s universe are estimating crude oil parity without subsidy of between US$60 -80/bbl or $1.50 tosustainability. $2.00/gal at scale). Third generation: Algae fuel, also called oilgae, is a biofuel/biochemical from algae and addressed as a third-generation petroleum replacement. Algae is a feedstock from aquatic cultivation for production of triglycerides (from algal oil) to produce petroleum replacement products. The processing technology is basically the same as for biodiesel from second- generation feedstock. Other third-generation biofuels include alcohols like bio-propanol or bio- butanol, which due to lack of production experience are usually not considered to be relevant as fuels on the market before 2050.Source: UNEP Assessing Biofuels Report. Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 15
  • 16. First Generation Feedstocks Sugar cane has been used to produce bioethanol in Brazil since the 1970s. It is a perennial plant that needs few inputs, such as fertilizers, and has long root systems that can store carbon in the soil. It has a good net Greenhouse Gases (GHG) balance (up to 90% reduction in GHGs from ethanol produced from sugar cane, compared with conventional gasoline). Sugar Cane is one of the most heavily utilized feedstock for biofuels production and the highly developed infrastructure of the sugarcane industry in Brazil will continue to make the country a hot‐spot for Biofuel/BioChemical firms. According to the U.S. Department of Energy, Brazilian Sugarcane is not only the most abundant, but the cheapest available feedstock for ethanol production. Brazilian sugarcane offers several economic advantages to corn, which in the Unites States is the principal ethanol crop. Sugarcane produces around 15 dry tons per acre per year yielding roughly 600 gallons of ethanol per acre. Corn is a cereal grain that was domesticated in Central America. Corn can be used as a feedstock to make biobutanol and bioethanol. Corn is the most abundant crop grown in the U.S. and the backbone of the current U.S. Biofuel industry. Approximately 80 million acres of land in the U.S. are dedicated to growing corn, and the U.S. accounts for ~20% of global corn exports. For 2010, the USDA estimates the national corn crop to yield 154.3 bushel/acre, which corresponds to a dry weight of ~3.7 t/acre. Currently, one bushel of corn produces around 2.75 gallons of ethanol equating to 400 to 500 gallons per acre. Corn yields have experienced a long term general uptrend from 70 bushels/acre in 1970 to the current yield as a result of enhanced seed research and development following the mapping of the corn genome. Corn ears are widely used as a feedstock for first‐generation ethanol, but corn stover, the above‐ground portion of the plant that is left in the field after harvest, is increasingly being utilized for second generation ethanol production. Wheat is a grass that is cultivated worldwide. Wheat grain is used to make flour for breads, biscuits, pasta and couscous; and for fermentation to make beer, alcohol or vodka. Wheat can be used as a feedstock to make bioethanol, and it has few sustainability issues. Wheat can also be used to make biobutanol. Sweet sorghum is one of the many varieties of sorghum which have a high sugar content. Sweet sorghum will thrive better under drier and warmer conditions than many other crops and is grown primarily for forage, silage, and syrup production. Sorghum has a very limited breeding history and as a result there has not been the same degree of testing for yield improvements through genetic optimization as in other major biofuel feedstocks such as corn and sugarcane. While sorghum isn‘t as well‐suited as sugarcane for the production of refined sugar, it has value for ethanol, and its high lignocellulosic biomass content opens up the potential for use in the production of additional biofuels. Soybeans are a class of legumes native to East Asia. The crop is primarily harvested as a food source due to its exceptionally high protein content (~40% of dry weight). In addition to their protein, soybeans are also valued for their oil content which accounts for ~20% of the dry weight of the beans. According to the USDA, approximately 17% of soy oil is used in industrial products. These products include biodiesel, inks, paints, plasticizers and waxes, among many others. China is the world‘s largest producer of soybeans oil with more than 10M tons in 2010. Global production of soy oil exceeded 41 million metric tonnes (90 billion pounds) in the 2010/2011 season. Rapeseed is a yellow flowering plant of the mustard family that produces a seed which yields ~40% oil. It naturally contains 45+% euracic acid which is mildly toxic to humans. Rapeseed is often grown as a high‐protein animal feed and also used in lubricants, soaps, and plastics manufacturing. According to the USDA, approximately 30% of rapeseed oil is used in industrial products. In Europe, Rapeseed has become a preferred feedstock for biofuels as it has higher oil yields per unit of land than other crops including soy beans, which only contain ~18‐20% oil. According to the Agricultural Marketing Resource Center, worldwide production was 61million tons in 2011 with China and India being the largest producers at 14.7 million and 7.3 million tons respectively. The European Union accounted for 23 million tons of rapeseed output.Source: Clean Tech Energy Report by Robert Baird. Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 16
  • 17. Second and Third Generation Feedstocks Switchgrass is a perennial warm season grass native to North America. It can grow to heights of almost nine feet and an established stand has a lifespan of up to 10 years. One of its defining characteristics is its large, underground root system which can weigh as much as 6-8 tons per acre, making the plant particularly adept at accumulating carbon dioxide .The energy efficiency of producing ethanol from switchgrass is estimated to be much higher than corn with an energy input to output rate of 1:4 vs. 1:1.3. As reported by the USDA, various switchgrass crops yield 5-9.4 tons per acre. Camelina is an annual flowering plant and member of the mustard family, regarded for its oil properties. It typically stands 1‐3 feet tall, is heavily branched, and produces small seeds high in oil content. It is able to grow effectively on land of marginal quality, needs minimal water input, and can withstand cold climates. Because of its high oil‐yield of 35‐38% (~2x that of soybeans), it is specifically being studied for use in biodiesel applications. Miscanthus is a tall perennial grass closely related to sugar cane. Though native to the tropical and subtropical climates of Africa and Southeast Asia, it is also being grown by at least 10 countries in Europe explicitly for use as an energy feedstock. It has entered into favor due to its high expected commercial yields of 12-13 BDT/acre (as reported by Mendel Biotechnology in LA and MS) with low moisture content in the range of 15‐20% if harvested in late winter or spring. Waste is a unique feedstock since it can often generate additional revenue from tip‐fees, but its heterogeneous characteristic makes it difficult to convert to biofuels and chemicals. Municipal Solid Waste (MSW) and Commercial & Industrial (C&I) waste are two waste streams that several companies in the industry are working to convert into fuels and chemicals. According to Pike Research, the market research and consulting firm that provides in-depth analysis of global clean technology markets, the global market for thermal and biological waste-to-energy technologies is set to reach at least $6.2 billion in 2012 and grow to $29.2 billion by 2022. Jatropha is a genus covering ~150 types of plants, shrubs, and trees which produce seeds with oil content of up to 40%. Making it even more attractive as a feedstock is its ability to grow on poor quality land and its resistance to drought and pests. It is native to South America and typically only grows in tropical or subtropical environments. One drawback of Jatropha is that it also contains toxic matter which necessitates it be carefully processed before use in production. It is estimated that Jatropha nuts are capable of providing up to 2,270 liters of biodiesel per hectare, and the plant is currently the subject of several trials for use in biodiesel applications including a collaborative effort between Archer Daniels Midland, Bayer CropScience AG, and Daimler AG. Southern pine presents a rich biomass source in the Southeastern portion of the U.S. These trees typically reach heights of 60‐120 feet (depending on species) and are characterized by their rounded tops, long needles, and rapid growth rates. According to the DOE, there are roughly 200 million tons of no-merchantable forest material alone and total forestland in the US is estimated to be 750 million acres. Algae offer the highest oil yields of any biofuel feedstock, but issues around capital cost have created challenges for commercial use: Algae are simple‐celled organisms capable of creating complex organic compounds from inorganic molecules through photosynthetic pathways. Interest in using algae as a feedstock for biofuel production has increased rapidly and more than 30 U.S. based firms are now working to commercialize such technology. Algae offer attractive yields estimated to be upward of 4,000 to 5,000 gallons per acre. The DOE considers open pond algal configurations to have the most promise estimating 2012 fuel costs to be $9.28/ gal with a roadmap to $2.27/ gal.Source: Clean tech Energy Report by Robert Baird, June 2011. Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 17
  • 18. Comparative YieldsEnergy density refers to the amount Energy Density for Biofuels per Unit of Required Land for Various Feedstock 1of energy stored in a given system orregion of space per unit volume Crop Required Fuel Fuel Energy Fuel Energy Crop Yield (kg raw/kg Produced Density per HectareAmong all the edible oils used for Crop (tons/hectare) fuel) (tons/hectare) (MJ/kg3) (GJ/hectare4)manufacturing biodiesel, palm oil is Oil Rapeseed 3.0 4.7 0.64 43.7 28.0also the most efficient in terms of Pyrolysis / wood 10.0 2.0 5.0 25.0 125.0land use, pricing and availability Wheat 2.6 6.2 0.43 35.0 15.0Algae offer the highest oil yields of Corn 4.2 3.9 1.1 35.0 37.0any biofuel feedstock, but issues Sugarcane 61.8 18.9 3.3 35.0 115.0around cost have created challengesfor commercial use Sugarbeet 60.0 18.9 3.2 35.0 11.0 Wood Chips 10.0 8.6 1.2 35.0 41.0 Wheat Straw 1.9 7.9 0.25 35.0 9.0 Comparison of Yields for Typical Oil Crops2 Crop: Soybean Camelina Sunflower Jatropha Oil Palm Algae Oil Yield: 1,000- 2.6 6.2 0.43 35.0 15.0 (g/acre/yr) 6,500Source: 1Global Change Biology, 2Robert Baird Biomass Almanac July 2011.Note: 3,4MJ & GJ: Megajoules and Gigajoules (derived unit of energy or work in the International System of Units, equal to the energy expended (or work done) in applying forcethrough a distance). TABLE OF CONTENTS The Biofuels and Biochem Industry 18
  • 19. Comparative Advantages and Disadvantages of Feedstock Corn Sweet Sorghum Sugarcane Soybean Oil Rapeseed Oil Pine Oil  Ethanol industry  Annual crop – short  Cheapest available crop  Good oil content makes it  Seeds have very high oil  High energy density and P experienced with using growth cycle (90‐120+ (non‐cellulosic) for suitable for biodiesel content by volume at saturated fat content O corn as a feedstock days) allows for multiple ethanol production production ~40% S  Corn stover offers cuts (2‐3) to be made in  Does not have to be  Can be used as an I potential for use in a given year transitioned from a animal feed as well as in T cellulosic fuel  Low water requirements complex carbohydrate to lubricants and plastics applications and adaptable to wide a simple sugar prior to manufacturing I variety of environments fermentation V  Less residual waste  Does not compete as a E biomass from harvesting food source S  Use for corn in biofuels  Lower sugar yields  Due to harvest timelines,  Competes as a food  Shares significant  Burning of peatland to stokes the ―food vs. fuel‖ compared to sugarcane average mills only source demand with Canola oil clear room for new I argument  Yields mixed sugars as operate an average of  Oil content lower than which could add to price plantations leading to S  Subject to commodity opposed to pure sucrose, ~185 days per year many competing crops volatility significant deforestation pricing volatility making it less conducive  Requires high quality used as targets for and GHG emissions S  High quality land required for production of refined land and significant water biofuels U as well as significant sugars and fertilizer inputs  Production of biodiesel E water and fertilizer needs  Vegetative propagation from soybean oil results S can lead to overcrowding in a net energy loss of ~30%Source: Robert Baird Biomass Almanac July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 19
  • 20. Comparative Advantages and Disadvantages of Feedstock (con’t) Switchgrass Camelina Miscanthus Municipal Solid Waste Jatropha Southern Pine  Reliable biomass yields  Can be grown on  Reliable biomass yields  Can generate a  Can be grown on low  Shuttering of paper & P due its propensity for marginal lands, in cold  Capable of relatively high significant revenue quality land processing mills in U.S. accumulating CO2 climates, and with stream from tip‐fees  Naturally resistant to have led to a growth O yields today  Higher energy content minimal water  Continuously generated drought and pests – surplus S  Can be grown effectively than corn for ethanol  Short crop that can be without fertilizers – less – no need for agriculture though yields shown to  Wood waste offers an I production rotated with wheat and spending be significantly higher inexpensive source of leaching T when irrigated biomass  Wide adaptability and  High oil yields of 35‐38%  Collection and hauling I capable of growth in dry logistics and  Does not compete as a  Trees have longer V climates infrastructure is in place food source as it is growth cycles than other E  ESelf‐seeding, requiring non‐edible energy crops S no replanting after harvesting  Additional research  Additional time/research  Limited adoption thus far  Heterogeneous  Contains toxic matter  Collection processes for required before needed before in North America characteristic makes which must be separated residual wood waste still I commercially viable commercially viable conversion difficult before used in production need development  Studies have found it S dries up soil more than  Often requires  Still requires significant  Rising demand for pulp S other crops which can gasification which can yield improvements globally could provide U reduce surface water carry high CAPEX before economically upward pricing pressures supplies requirements viable at commercial  Cannot be utilized as E scale feedstock by S non‐cellulosic conversion technologiesSource: Robert Baird Biomass Almanac July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 20
  • 21. Petroleum Replacement Overview Market Size Customers Alkylate/ Drop-in Refiners $485 billion Polygas Gasoline/Alkylate Propionic Poly- Automative/ Propanol Propylene Packaging Consumer C3 propylene Products $110 billion Chemical Companies Acrylics Super-Absorbents Acetic Cellulosic Rayon/Filters Anhydride Acetate Consumer Products VAM EVA Paint/Adhesives Paint Companies $180 billionConversion ChemicalTechnology Poly-ethylene Packaging Companies Acetic Ethylene glycol PET Ethanol Ethylene C2 Linear a- olefins Jet/Diesel $245 billion Airlines/Dod Acetic Refiners Sales Gasoline Blending $60 billion Refiners Alkylate Drop-in Gasoline Butyric Butanol Butene C4 $1 billion Consumer Products Rubber/Plastics Source: ZeaChem,, Inc.. TABLE OF CONTENTS The Biofuels and Biochem Industry 21
  • 22. Conversion Technologies – Fermentation and Fluid Catalytic Cracking Fermentation Fluid Catalytic Cracking Definition: Fermentation is the process by which bacteria such Definition: Fluid Catalytic Cracking (FCC) is a proven process as yeast, convert simple sugars to alcohol and carbon dioxide in the petroleum industry used to convert crude oil into higher through their metabolic pathways. The most common input for value products such as gasoline and naptha. FCC reactions fermentation in the United States is corn, but in warmer climates occur at extremely high temperatures (up to 1,000+ F°) and sugarcane or sugar beet are the principal types of feedstock. use fine, powdery catalysts capable of flowing likely a liquid Resulting alcohols such as ethanol and butanol can be utilized which break the bonds of long‐chain hydrocarbons into smaller as blendstock with gasoline or in the case of butanol, can act as carbon‐based molecules. FCC technology is applied to organic a gallon for gallon replacement sources of carbon such as woody biomass to convert the TECHNOLOGY cellulosic content into usable hydrocarbons with equivalence to Feedstock: Simple sugars – corn and sugarcane are most crude oils – this process is referred to as Biomass Fluid commonly used today in the production of ethanol Catalytic Cracking (BFCC). FCC was first commercialized in Output : Alcohols including ethanol and butanol, and distiller‘s 1942, and is presently used to refine ~1/3 of the U.S.s‘ total grains annual crude volume Feedstock: Feedstock agnostic – can utilize cellulosic biomass Output: Biocrude, gases  Ability to genetically modify metabolic pathways of  Commercially proven technology in the petroleum industry organisms to yield different carbon molecule outputs  Can process low‐cost cellulosic biomass (ethanol, butanol) POSITIVES  Process already demonstrated at commercial scale via first‐generation ethanol production  Common outputs such as ethanol / butanol have existing markets in both fuels and chemicals  Costly to develop/purchase enzymes to break down  High capital costs for facilities cellulosic materials to make simple sugars available for  Proven for petroleum but limited to demonstration testing for ISSUES fermentation biomass  First‐generation feedstock susceptible to commodity price volatilitySource: Robert Baird, Clean Tech report July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 22
  • 23. Conversion Technologies – Anaerobic Digestion and Gasification Anaerobic Digestion Gasification Definition: Anaerobic digestion is the process by which Definition: Gasification is a process by which carbon‐based bacteria decompose wet organic matter in the absence of materials such as coal, petroleum coke, and biomass are oxygen. The result is a byproduct known as biogas which separated into their molecular components by a combination of consists of ~60% methane and ~40% carbon dioxide. Biogas heat and steam, forming a gaseous compound known as can then be combusted in the presence of oxygen to generate synthesis gas or syngas as it is commonly called energy. Effectively any feedstock can be converted to biogas via digestion including human and animal wastes, crop Feedstock flexibility: Feedstock flexible including use of TECHNOLOGY residues, industrial byproducts, and municipal solid waste. municipal solid waste Anaerobic digestion is the same process that created natural gas reserves found throughout the world today Output: Syngas which has the capacity to be used in a variety of applications including the production of transportation fuels, Feedstock: Starches, celluloses, municipal solid waste, food electricity, and heat. Other byproducts include sulphur and slag greases, animal waste, and sewage Output: Biogas  Commercially proven technology  Input flexibility allows costs to be reduced through lower cost  Can be used to process wet organic matter feedstock  Resulting materials can be processed into valuable fertilizer  Energy conversion ratio potentially higher than competing POSITIVES  Utilization of methane to produce biogas reduces impact of technologies because biomass‐to‐liquid (BTL) gasification can convert all of the cellulosic material into transportation GHG emissions from landfill gas fuels  Low capital and costs and potential for low operating cost  Lower emission levels than traditional power production  Slower process than many alternatives  Gas quality suffers from irregularity due to challenges in  Cannot be used to convert lignin removing tar content– energy density ~50% of natural gas ISSUES  Accumulates heavy metals and contaminants in the  High capital and operating costs – this could be reduced in resulting sludge future by co‐location next to feedstock sources  Gas clean‐up has disrupted projects in the pastSource: Robert Baird, Clean Tech report July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 23
  • 24. Conversion Technologies – Pyrolysis and Transesterification Pyrolysis Transesterification Definition: Pyrolysis is the process by which organic materials Definition: Transesterification is the process by which a are decomposed by the application of intense heat in the triglyceride is chemically reacted with an alcohol to create absence of oxygen to form gaseous vapors which when cooled biodiesel and glycerin. While there are a few variants, the form charcoal and/or bio‐oil can potentially be used as a direct predominance of biodiesel is created through base catalyzed fuel substitute or an input for the manufacture of transportation transterification because of its high conversion yields and fuels comparatively low pressure and temperature requirement. TECHNOLOGY Transesterification is necessary because vegetable oils/animal Feedstock: Capable of using a wide variety of feedstock fats cannot be used directly to run in combustion engines including agriculture crops, solid waste, and woody biomass because of their high levels of viscosity (currently most common) Feedstock: Soybean oil, palm oil, jatropha oil, rapeseed oil, Output: Bio‐oil (energy density of ~16.6 megajoules/liter) which animal fats, food grease, etc. must be processed further before it can be utilized as a transportation fuel. It also yields syngas and biochar Outputs: Biodiesel and glycerol  Flexibility of feedstock diversifies risk related to feedstock  Results in lower‐viscosity biodiesel allowing it to replace supply/demand pressures petroleum in diesel engines  Marketable biochar output provides secondary revenue  Glycerin byproduct can be sold to generate secondary stream from production revenue stream POSITIVES  Low cost and high availability of methanol and sodium hydroxide reduces input costs  Relatively low reaction temperature of 60 degrees C keeps utility costs down  Potentially corrosive characteristics requiring specialized  Requires separation/recovery of base catalyst / glycerin from components in fuel systems to adequately house it solution ISSUES  Viscosity increases during storage meaning it must be used  Free fatty acid and water contamination can result in more frequently than traditional fossil fuels negative reactionsSource: Robert Baird, Clean Tech report July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 24
  • 25. Conversion Technologies – Syngas Fermentation Syngas Fermentation Definition: Syngas Fermentation is the process by which gasification breaks the carbon bonds in the feedstock and converts the organic matter into synthesis gas. The syngas is sent to bioreactor where microorganisms directly convert the syngas to a fuels and/or chemicals TECHNOLOGY Feedstock: Capable of using a wide variety carbon containing feedstocks including agricultural crops, solid waste, woody biomass and fossil fuels such as coal and natural gas Output: Ethanol, 2.3-BDO, Acetic Acid, Acetone, Propanol, Butanol, MEK, Isoprene, Acrylic Acid, Butadiene, Succinic Acid  Process does not rely on expensive enzymes or pretreatment chemicals thus operating costs should be lower than non-gasification based technology POSITIVES  Ability to convert nearly all feedstock into energy with minimal by-products. Microorganisms are able to produce only one fuel/chemical under low temperature and pressure  Imperative to keep the right nutrient and chemical balance in order to keep the microorganisms alive and productive. Any contaminants could spread quickly through the bioreactor ISSUES  Reliability and Continuous Operations: Since the organisms live off the energy contained in the synthesis gas, it is critical that they continue to be through a well operating system designSource: Coskata Inc, LanzaTech Inc, Advanced Biofuels USA “Syngas Fermentation, The Third Pathway for Cellulosic Ethanol. TABLE OF CONTENTS The Biofuels and Biochem Industry 25
  • 26. The Importance of Biofuels/Biochemicals TABLE OF CONTENTS The Biofuels and Biochem Industry 26
  • 27. Biofuels/Biochemicals Growth – Summary• The sector has received increasing attention from both public and private investors due to several growth drivers including the desire for energy independence, the increasing demand for liquid fuels for transportation especially in emerging markets, technological advances across the industry‘s value chain and environmental concerns (Green house gas (GHG) emissions). The most important driver, however, spurring investment in the industry is the continued volatility and high price of crude oil.• Biofuels/Biochemicals constitute a 3% share in the total global chemicals & fuels market in 2010 and is expected to touch 17% in 2025.• As ―easy― conventional oil resources continue to decline and more expensive nonconventional liquid sources make up the difference, biofuels/ biochemicals will play an increasing role in diversifying the liquid energy landscape.• Liquids demand is growing mainly driven by rapidly-growing non- Organization for Economic Co-operation and Development (OECD) economies and will be met by supply growth from Organization of the Petroleum Exporting Countries (OPEC) and the Americas. China (+8 million barrels per day), India (+3.5 million barrels per day), and the Middle East (+4 million barrels per day) account for nearly all of the net global increases.• Liquid biofuels accounted for a modest 2.7% of global road-transport fuels in 2010 , but will play an expanded role of meeting liquid demand.• OPEC‘s critical position in the oil market grows given its oil reserve position while the Americas also play an expanding role by utilization of new recovery technologies in tight oil formations and Canadian oil sands.• Exporting oil producing nations, ―petro-states‖, rely heavily on oil revenues to support their economies (50-90% of GDP). Oil price decreases can cause major deficits, budget cuts, considerable social turmoil, and political change creating an incentive for petro states to keep production in line with demand.• Government legislation is driving the adoption of renewable fuels — In February 2010, the US Environmental Protection Agency (EPA) submitted its final rule for Renewable Fuels Standard 2 (RFS-2), setting forth volume targets of 36 billion gallons of renewable fuels produced in the U.S. by 2022 with 21 billion being advanced biofuels. — The EU is targeting 10% of transport energy from renewables by 2020, counting both sustainable biofuels and electric vehicles. TABLE OF CONTENTS The Biofuels and Biochem Industry 27
  • 28. Compelling Market OpportunityOpportunities for bioproducts will Bio Based Market Opportunitynot only be fuels based but focusedon the whole barrel. The gasolinemarket accounts for about 45% of Bio Based Market 1.5 approx.$1.4 trillionthe barrel of crude while there aremany different chemicals inside a Fuels (Bio) Chemicals (Bio) Trillions of Dollars (U.S.)barrel of oil.A 42-U.S. gallon barrel of crude 1.0equates to about 45 gallons ofpetroleum products which includes CAGR(as a % of the total barrel) motor 16%gasoline (45%), distillate fuel oil 0.5(29%), jet fuel (9.4%) petroleumcoke (5.5%), still gas (4.4%). Bio Based Market $148 billion 0.0 2010 2025 Total Chemicals & Fuels Market $5.0 trillion $8.0 trillion Bio-based Share 3.0% 17%Source: Renmatix, International Energy Outlook 2009, Industrial biotechnology analysis 2010, Arthur D. Little – ICIS; World Energy Outlook 2009, International Energy Agency2010; USDA Biobased Product Projections 2008; US Energy Information Administration. TABLE OF CONTENTS The Biofuels and Biochem Industry 28
  • 29. Drivers of Biofuels/Biochemicals GrowthThe rising cost of oil will create an Crude Oil Monthly spot prices ($ per barrel)1incentive for producers ofpetroleum‐derived products to seek $160.0 The volatility and price increases of oil are $140.0 the most significant drivers in the growth ofrenewable alternatives that provide the Biofuel/Biochemical Industry: The $120.0greater stability in pricing. $100.0 increasing demand for petroleum products, supply shocks, and other factors have led to $80.0 volatile and high oil prices over the pastStrong public sentiment for the U.S. $60.0 decade. In January 2000, European Brent $40.0 Crude spot prices were below $24/barrelto reduce its dependence on foreign before peaking at over $140/barrel in 2008. $20.0petroleum reserves is thus one of the $0.0 After some price relief in the midst of the global economic downturn, Brent Crude ismajor drivers of the renewable fuel ~$97/barrel currently, representing a CAGR ofindustry. ~13.5% from 2000‐2011.U.S. oil imports drop due to risingdomestic output & improved Net Imports of Oil2transport efficiency; EU imports toovertake those of U.S. around 2015 Million barrels/day Biofuels and Biochemicals help reduce U.S.and China expected to be the largest 14.0 dependence on foreign oil: U.S. reliance on 2000 2010 2035 foreign imports has increased significantlyimporter by 2020. 12.0 since the mid‐1980‘s. It can be argued that as 10.0 the world‘s current economic superpower and the largest consumer of petroleum, the U.S. 8.0 will continue to command a reliable oil supply 6.0 from producing nations. However, with the emergence of rapidly growing and 4.0 industrializing economies in China and India, 2.0 the global supply of oil may be spread increasingly thin putting additional upward 0.0 pressure on energy prices China India EU U.S. JapanSource: 1Bloomberg, 2World Energy Outlook 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 29
  • 30. Drivers of Biofuels/Biochemicals Growth (con’t)By 2035, the EIA projects that Vehicles per 1000 people in Selected Markets1transportation sector will account for 80073% of all liquid fuels consumption. 700 Increase in transportation applications driving 2010 2035 growth in liquid fuels consumption: The Energy 600Key drivers of transportation growth Information Administration (EIA) projects that U.S. 500 consumption of liquid fuels will increase from 19.1 millioninclude population expansion and 400 barrels per day in 2009 to more than 21.9 million gallonsrising real disposable income which 300 per day by 2035. The increase is expected to be driven 200 almost entirely by an increase in the use of liquid fuels forleads to more frequent travel . transportation applications which is forecasted to grow 100 0 from 13.6 million barrels per day in 2009 to 16.1 million barrels per day by 2035 .The global passenger vehicle fleet United European China India Middle East States Uniondoubles to 1.7 billion in 2035; mostcars are sold outside the OECD by Commodity Food Price Index vs. CPI22020, making non-OECD policies key Cellulosic biofuel technologies unlock non‐food feedstock and reduce input cost volatility: Cellulose (corn 400.0to global oil demand. stover, switchgrass, miscanthus, woodchips etc) is not used 350.0 for food and can be grown in all parts of the world. The entire Million 300.0 barrels/day 250.0 plant can be used when producing cellulosic products. While 200.0The development and subsequent the U.S. is the world‘s largest producer of the crop, corn 150.0 100.0scale‐up of cellulosic technologies competes as a food source and is subject to significantly 50.0 more price volatility than residual waste biomass. Over the 0.0offers a clear advantage to reducing past decade the value of the IMF‘s Commodity Food Priceprice volatility of biofuel feedstock Index increased at a CAGR of 8.7% annually. This is ~3.6x faster than the rate of inflation as measured by the Commodity Food Price Index CPIand will play major role in driving Consumer Price Index which had a CAGR of 2.4% annuallydown the costs of renewable over the same period. From 2000 to 2011, the maximum 12- Relative Prices of Wood, Sugar, Soy Oil, month price increase was 18% for pine woodchips versusfuels/chemicals. 50% for corn, 46% for sugar and 51% for West Texas Corn, Nat Gas and Crude Oil Since 20003 Intermediate crude according to average quarterly data from 500 450 Timber Mart-South, the USDA and the EIA. 400 Index (Q1 2000=100) Million barrels/day 350 300 250 200 150 100 50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 World raw sugar (No.11, spot) Corn (No.2 yellow, Chicago spot)Source: 1World Energy Outlook 2011, 2Bloomberg, 3EIA, DOE, Timber Mart-South. US Nat Gas Industrial Price WTI Crude (Spot, FOB Cushing, OK)Note: OECD- Organization for Economic Co-operation and Development. Pine Pulpwood (Delivered AL) TABLE OF CONTENTS The Biofuels and Biochem Industry 30
  • 31. Drivers of Biofuels/Biochemicals Growth (con’t)While in the near term proven Biofuels in Transportation1reserves are expected to increase 2010 2035with new exploration efforts andtechnological developments that Biofuels: 2.7% Biofuels: 9.0% Petroleum is a finite resource and substitutes must be found: Petroleum isincrease certainty of quantity, in the naturally formed by the anaerobic decay oflong term, new sources of energy organic matter in the presence of intense heat and pressure which is thought to occur overmust be discovered to satisfy global hundreds of thousands or even millions ofenergy demands. years. With such a long formation cycle, the earth is not capable of regenerating its reserves of oil at the same rate to whichLifecycle GHG emissions are the humanity draws upon them for energy use.aggregate quantity of GHGs related Other fuels: Other fuels: 97.3% 91.0%to the full fuel cycle, including allstages of fuel and feedstockproduction and distribution, from Biofuel Lifecycle GHG Impact Relative to Gasoline2feedstock generation and extractionthrough distribution and delivery and 160.0% Environmental concerns, particularly with 134% regard to global warming driving adoptionuse of the finished fuel. The lifecycle 120.0% 105% 100% 104% of ―cleaner and greener‖ alternatives: The 82% 82% 74% 74%GHG emissions of the renewable fuel 80.0% EIA projects that CO2 emissions from the combustion of liquid fuels will grow by ~28%are compared to the lifecycle GHG 40.0% 20% -24% -16% from 2007 to 2035. China is the largest 0.0%emissions for gasoline or diesel. contributor to the rising pollution levels with -40.0% CO2 emissions growth estimated to be 2.9% Corn Stover Ethanol Soy-based Biodiesel Gasoline Waste Grease Biodiesel Corn Ethanol (Biomass Dry Corn Ethanol (Biomass Dry Corn Ethanol(Nat. gas dry Switchgrass Ethanol Sugarcane Ethanol Corn Ethanol(Best Case Corn Ethanol (Coal dry annually driven by its rapidly expanding Nat.gas dry mill) demand for liquid fuels in its industrial and Mill with CHP) transportation sectors. The U.S., however, is mill) mill) expected to remain the world‘s largest polluter Mill) with ~2.6 billion metric tons of emission in 2035. A wider push to renewable fuel sources is viewed as a major step towards reversing the pattern of global warming.Source: 1BP Website, 2EPA.Note: GHG - Greenhouse Gas. TABLE OF CONTENTS The Biofuels and Biochem Industry 31
  • 32. Liquid Demand StatisticsLiquids demand growth from non- Total Liquids Consumption by Region1OECD countries will be met by Million tones of oil equivalentsupply growth from OPEC and the (MTOE)Americas 5000.0 188.0 of which 153.2 116.8 biofuels 4500.0 90.0Liquids demand growth is driven by 59.3 19.9non-OECD transport while OECD 4000.0 9.2demand falls across all sectors 8.5 3500.0 7.1Overall consumption growth will be 3000.0constrained by stronger crude oil 2500.0prices seen in recent years,technological advances, a range of 2000.0new policies, and the continued, 1500.0gradual reduction of non-OECDsubsidies 1000.0 500.0 0.0 1990 1995 2000 2005 2010 2015 2020 2025 2030 Total Liquids Consumption 3,148 3,271 3,571 3,908 4,028 4,166 4,378 4,562 4,719 (MTOE) North America South & Central America Europe & Eurasia Middle East Africa Asia PacificSource: 1BP Energy Outlook 2030: January 2012.Note: OECD- Organization for Economic Co-operation and Development.Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 32
  • 33. Liquid Supply StatisticsRising supply to meet expected Total Liquids Production by Region1demand growth should comeprimarily from OPEC, where output is Million tones of oil equivalent (MTOE)projected to rise by nearly 12 Mb/d. 5000.0 188.0 of which 153.2The largest increments of new OPEC 116.8 biofuels 4500.0 90.0supply will come from NGLs2, as well 19.9 59.3as conventional crude in Iraq and 4000.0 9.2Saudi Arabia 8.5 3500.0 7.1OPEC’s critical position in the oil 3000.0market grows while the Americas 2500.0also play an expanding role 2000.0Non-OPEC supply will continue torise, growing by 5 Mb/d, due to 1500.0strong growth in the Americas from 1000.0U.S. and Brazilian biofuels, Canadian 500.0oil sands, Brazilian deepwater, andU.S. shale oil, offsetting continued 0.0declines in a number of mature 1990 1995 2000 2005 2010 2015 2020 2025 2030provinces Total Oil Production 3,172 3,284 3,612 3,907 3,914 4,089 4,263 4,398 4,512 (MTOE) North America South & Central America Europe & Eurasia Middle East Africa Asia PacificSource: 1BP Energy Outlook 2030: January 2012, 2Natural Gas Liquids.Note: OPEC- Organization of the Petroleum Exporting Countries. Mb/d – Million Barrels per Day.Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 33
  • 34. Energy Market GrowthBoom, bust, or both, global demand Total Energy Production by Fuel Type 2010 vs. 20301for energy looks set to increase by at Million tones of oil equivalent (MTOE)least 50% over the next 20 years 5,000.0(CY2030), driven by population 2030growth and rapid industrialization in 4,000.0 2010developing economies. Global supply 3,000.0of fossil fuels is already 2,000.0consolidating, with 70% of the 1,000.0world’s oil now sourced from just sixcountries and 50% of natural gas 0.0 Oil Natural Gas Coal Nuclear Energy Hydroelectricity Biofuels Renewablesproduced in just threeBy 2040, oil and natural gas will bethe world’s top two energy sources, Total Energy Consumption by Fuel Type 2010 vs. 20302accounting for about 60% of global Million tones of oil equivalent (MTOE)demand, compared to about 55%today. Gas is the fastest growing 5,000.0 2030major fuel source over this period, 2010 4,000.0growing at 1.6% per year from 2010 3,000.0to 2040. Investments and new 2,000.0technologies, applied over manyyears and across multiple regions, 1,000.0will enable energy supplies to grow 0.0and diversify Oil Natural Gas Coal Nuclear Energy Hydroelectricity Biofuels RenewablesSource: 1,2BP Energy Outlook 2030: January 2012. TABLE OF CONTENTS The Biofuels and Biochem Industry 34
  • 35. Energy Market Growth (con’t) Total Energy Consumption by Region1 Shares of Energy Sources in World Primary Energy Demand2 Million tones of oil equivalent (MTOE) 30,000.0 50% 25,000.0 40% 20,000.0 30% 15,000.0 10,000.0 20% 5,000.0 10% 0.0 0% OECD Non-OECD European Union Europe Former Soviet Union US China Total energy consumption will increase from 12,002.4 mtoe in 2010 to 16,631.6 MTOE Oil Coal Gas in 2030. Global energy demand is expected to increase by one-third from 2010 to 2035, Biomass & waste Nuclear Other Renewables Hydro TotalChina & India accounting for 50% of the growth 20303 with Growth of Energy Consumption to Total Growth of Energy Consumption to 20303 Billion tones of oil By Sector & Region Billion tones of oil By Sector & Fuel equivalent (BTOE) Final Energy Use equivalent (BTOE) Final Energy Use 2.0 2.5 1.5 2.0 1.0 1.5 0.5 1.0 0.0 -0.5 0.5 Transport Industry Other 0.0 Transport Industry Other China & India OECD Middle East ROW Coal Oil Biofuels Gas ElectricitySource: 1,3BP Energy Outlook 2030: January 2012, 2World Energy Outlook 2011.Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 35
  • 36. Liquid Demand Growth from Non-OECD CountriesCrude Oil is expected to be the Demand and Supply by Regionslowest-growing fuel over the next 20years. Global liquids demand (oil,biofuels, and other liquids)nonetheless is likely to rise by16Mb/d, exceeding 103Mb/d by 2030according to BP’s 2012 EnergyOutlook.Growth in demand comes exclusivelyfrom rapidly-growing non-OECDeconomies. China (+8Mb/d), India(+3.5Mb/d), and the Middle East(+4Mb/d) account for nearly all of thenet global increases.Source: BP 2012 Energy Outlook 2030.Non-OECD: Countries that are not included in the Organization for Economic Cooperation and Development (OECD). OECD is an international organization helping governmentstackle the economic, social and governance challenges of a globalized economy. Its membership comprises about 34 member countries. With active relationships with some 70other countries, non-governmental organizations (NGOs) and civil society, it has a global reach. Members include many of the world’s most advanced countries but also emergingcountries like Mexico, Chile and Turkey. Mb/d – Million Barrels per day. TABLE OF CONTENTS The Biofuels and Biochem Industry 36
  • 37. Biofuels’ Expanded Role in Meeting Liquid DemandGlobal liquids supply growth will match Liquids Supply and Growth Estimatesexpected growth of demand with OPECaccounting for 70% of incrementalsupply; the group’s market share willapproach 45% in 2030, a level notreached since the 1970’sFour-fifths of oil consumed in non-OECDAsia comes from imports in 2035,compared with just over half in 2010.Globally, reliance grows on a relativelysmall number of producers, mainly in theMENA region, with oil shipped alongvulnerable supply routes. In aggregate,the increase in production from thisregion is over 90% of the required growthin world oil outputSupply from the Americas will alsoexpand, by 8Mb/d, as advances in drillingtechnologies unlock additional resourcesin the Canadian oil sands (2.2+Mb/d),Brazilian deepwater (+2Mb/d, and UStight oil basins (+2.2Mb/d). In addition,the US and Brazil contribute over half oftotal biofuels production growth (of+3.5Mb/d) expected by 2030Source: BP 2012 Energy Outlook 2030.Note: MENA – Middle East Northern Africa; Mb/d – million barrels per day; OPEC – Organization of the Petroleum Exporting Countries. TABLE OF CONTENTS The Biofuels and Biochem Industry 37
  • 38. Biofuels for Transportation• Demand for liquid transport fuels is expected to increase by 2 million Ethanol and Biodiesel Production, 2000–20101 barrels per day over the next two decades and nearly 40% of the growth Billion liters will be supplied by biofuels, the first time that non-fossil fuels will be the major source of supply growth. 100.0 90.0 86.0• Liquid biofuels make a small but growing contribution to fuel usage 80.0 Ethanol Biodiesel 66.0 73.0 worldwide. 70.0 — Provided about 2.7% of global road transport fuels in 2010 60.0 — Accounted for higher shares in some countries (e.g., 4% in the U.S.) 50.0 52.0 and regions (3% in the EU) and provided a very large contribution in 40.0 39.0 Brazil, where ethanol from sugar cane accounted for 41.5% of light 30.0 24.0 17.0 19.0 29.0 31.0 16.0 19.0 duty transport fuel during 2010 20.0 21.0 3.7 6.6 10.0 17.0 0.8 1.0 1.4 1.9 2.4 11.0• The U.S. was the world‘s largest producer of biofuels, followed by Brazil 0.0 and the EU. Despite continued increases in production, growth rates for 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 biodiesel slowed again in 2010, whereas ethanol production growth World ethanol production for transport fuel tripled between 2000 and 2007 from 17 picked up new momentum. billion liters to more than 52 billion liters, while biodiesel expanded eleven-fold from less than 1 billion liters to almost 11 billion liters• In 2010, global production of fuel ethanol reached an estimated 86 billion liters, an increase of 17% over 2009 — The U.S. and Brazil accounted for 88% of ethanol production in 2010, with the U.S. alone producing 57% of the world‘s total — Long the world‘s leading ethanol exporter, Brazil continued to lose international market share to the U.S, particularly in its traditional markets in Europe — Adverse weather conditions hampered global harvesting of sugar cane, pushing up prices. As a result, U.S. corn-based ethanol became relatively cheaper in international markets (although it was subsidized, unlike Brazilian ethanol)• Global biodiesel production increased 7.5% in 2010, to nearly 19 billion liters, a five-year average (end-2005 through 2010) growth of 38% — Biodiesel production is far less concentrated than ethanol, with the top 10 countries accounting for just under 75% of total production in 2010 — Germany remains the world‘s top biodiesel producer at 2.9 billion liters in 2010, followed by Brazil, Argentina, France, and the U.S. — The EU remained the center of biodiesel production, but due to increased competition with relatively cheap imports, growth in the region continued to slow. The diversity of players in the advanced biofuels industry continued to increase with the participation of young, rapidly growing firms, major aviation companies, and traditional oil companiesSource: 1F.O. Licht (world-renowned renewable fuels research agency).Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 38
  • 39. Increasing Marginal Cost of ProductionAdvanced biofuel and chemical Total Production Costs ($/Bbl)companies are projecting crude oil parityun-subsidized at $60-$80/ barrel at scale1.The cost of bringing oil to market rises asoil companies are forced to turn to moredifficult and costly sources to replacelost capacity and meet rising demand.Oil Shale, better known as ―tight oil‖, isexpected to continue to increasedomestic oil production. Well costsalone have doubled in the last 5 years to$8-10MM per well with steep reservoirdecline curves (<5yrs) requiring morewells drilled each year to sustain existingproduction.The U.S. EIA projects world oilproduction to grow 1.0% per year from2008 to 2035 reaching 112.2 mbpd in2035. Total non-conventional resourcesand specifically biofuels are projected tomake up 13.1mbpd and 4.7mbdp, Conventional oil: Crude oil that is produced by a well drilled into a geologic formation in which the reservoir and fluid characteristics permi t the oilrespectively. and natural gas to readily flow to the wellbore. Non-conventional liquid sources: include biofuels, gas-to-liquids, coal-to-liquids, and unconventional petroleum products (extra-heavy oils, oil shale, and bitumen) but do not include compressed natural gas (CNG), liquefied natural gas (LNG), or hydrogen.Source: Booz Allen Hamilton analysis based on information from IEA, DOE and interviews with super-majors.1Vinod Khosla 1/27/11 “What Matters in Biofuels & where are we?”, Company estimates, SVB estimates.Note: EOR - Enhanced Oil Recovery is a generic term for techniques for increasing the amount of crude oil that can be extracted from an oil field, GtL – Gas to Liquids, CtL – Coalto Liquids, FSU – Former Soviet Union. TABLE OF CONTENTS The Biofuels and Biochem Industry 39
  • 40. Cost of Production AnalysisConversion yields for cellulosic Biofuel/Biochemical Cost of Production Ethanol Operating Margins2production can range from 70 gal/ BDT to Price in U.S. Dollars a Gallon160 gal/BDT depending on technology Corn Cost of Productionand feedstock1. Corn $ Bushel ("Bu") $5.00 Ethanol Conversion (gal/Bu) 2.8xDespite favorable projected conversion Assumed Corn Ethanol $ $1.79yields, advanced fuels/chemicals willneed to show economies of scale in Cellulosic Cost of Productionregards to operating and capital costs. Biomass $ Bone Dry Ton ("BDT") $55.00 Conversion (gal/BDT) 100.0xCorn prices have risen in the past few Assumed Cellulosic Fuel/Chemical $ $0.55years further increasing the cost ofethanol. According to the IMF, a Corn vs Biomass Delta 3.3xcombination of low inventories, volatileweather, rising China demand and Corn vs. Biomass Deltaincreased corn use in biofuels raises theprospect of further corn price spikes over $ Bu2012-2013. $4.50 $5.00 $5.50 $6.00 $6.50 $7.00 $7.50 $50 3.2x 3.6x 3.9x 4.3x 4.7x 5.0x 5.4xThe USDA estimates CBOT corn prices to $55 2.9x 3.3x 3.6x 3.9x 4.2x 4.6x 4.9xaverage around $5.00/ bushel out to 2022. $60 2.7x 3.0x 3.3x 3.6x 3.9x 4.2x 4.5x $ $65 2.5x 2.8x 3.0x 3.3x 3.6x 3.9x 4.1x BDTAnalyst predict energy crops (such as $70 2.3x 2.6x 2.8x 3.1x 3.3x 3.6x 3.8x $75 2.2x 2.4x 2.6x 2.9x 3.1x 3.3x 3.6xtimber) are poised to drop in price, which $80 2.0x 2.2x 2.5x 2.7x 2.9x 3.1x 3.4xare in the $50-$65/ton range in the US, as 1) Current price of corn is $6.95 Bu; Prices have ranged from $2.00 to $7.00/ Bu over the last 10 years; Source: USDA.biomass crops, agronomy and logistics 2) According to Timber Mart South, Timber prices over the last 10 years have ranged from $40.00-$60.00 a BDT delivered depending on cutecosystem evolve, more competition and quality.develops and yields per acre improve.Source: 1Estimates based on private and publicly announced projects, 2International Monetary Fund 2011 World Economic Outlook.Note: Bone Dry Ton (“BDT”). TABLE OF CONTENTS The Biofuels and Biochem Industry 40
  • 41. Gasoline Price InfluencersHigh crude oil prices are the most Petroleum Gasoline Conversion2 Sensitivityimportant long-term demand growthdriver for substitutes (drop-ins) such as WTI Price BBL $90.00 Oil Price Refined Gasoline*biomass derived gasoline and ethanol. WTI Price gal (42x) $2.14 Refining Margina 16.0% $100.00 $2.76Researchers at Iowa State found that US Refined Gasoline before Transportation Costs and $110.00 $3.04ethanol production reduced wholesale Taxes $2.49gasoline prices by an average of $1.09 $120.00 $3.31 National Average Taxesb $0.49per gallon in 2011 amounting to over Refined Gasoline before Transportation Costs $2.97 $130.00 $3.59$143.0 billion in consumer savings. aNational average wholesale gasoline prices / WTI crude oil since 2000 as $140.00 $3.87Essentially, gasoline in 2011 could have reported by EIA bJanuary 2012 American Petroleum Institute - taxes vary by state.topped out at over $6 a gallon1. Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil *before transportation cost and taxes. Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. Crude Oil vs. World GDP vs. U.S. GDP3 Crude Oil vs. Gasoline vs. Ethanol4 $160.0 6.0% $250.0 $7.0 $140.0 4.0% $6.0 $200.0 $120.0 $5.0 2.0% $100.0 $150.0 $4.0 $80.0 0.0% $100.0 $3.0 $60.0 -2.0% $2.0 $40.0 $50.0 $1.0 -4.0% $20.0 $0.0 $0.0 $0.0 -6.0% 2008 2009 2015 2020 2025 2030 2035 Imported Crude Oil Ethanol Wholesale Price Motor Gasoline Crude Oil World GDP US GDPSource: 1Iowa State University Working Paper, 2SVB estimates, 3Bloomberg, 4The Annual Energy Outlook 2011 prepared by the U.S. Energy Information Administration (EIA), TABLE OF CONTENTS The Biofuels and Biochem Industry 41
  • 42. Oil Market Price and Saudi Breakeven ThresholdPrices are expected to reach USD 200 per barrel by 2030 but fall well below Saudi Arabia’s breakeven price, threateningoil market stabilityIn the Middle East, oil exports account for Oil Market Price and Saudi Breakeven Thresholda substantial portion of GDP growth for USD per barrel (nominal)the region’s key economies. For example,Saudi Arabia relies on oil revenue for 350fully 80% of their budget. A sharp decline There are two possible responses if Saudi breakeven is farin world oil prices from their peak in mid- above market priceJuly 2008 had a significant impact on the 300 • Saudi debt increases massively, threatening fiscal stabilityregion in 2009. • Saudi spending is severely cut, threatening political stability Both options could be cataclysmic for global oil markets andSince then, oil prices have continued to 250 economiesrise—in part because of the recoveringdemand for liquids but also as a result of 200the political unrest that began withprotests in the African countries ofTunisia and Egypt and then spread to 150Libya and to the Middle Eastern countriesBahrain, Yemen, Iran, and Syria. 100For oil-importing countries, an oil pricecollapse is a boon for consumers.However for oil exporting countries 50(―petro-states‖), it is a crisis as oilrevenues support their economy. 0 2002 2005 2010 2015 2020 2025 2030 Historical EIA reference Saudi Arabia breakeven price Source: U.S. Energy Information Agency, Annual Energy Outlook 2012 Early Release; Jadwa Investment, 2011; “The Quest,” by Daniel Yergin. TABLE OF CONTENTS The Biofuels and Biochem Industry 42
  • 43. U.S. Renewable Fuel Standards (RFS)The Renewable Fuel Standard (RFS, U.S. – Renewable Fuel Standards (RFS)also referred to as RFS-1) is a History Activityprovision of the US Energy Policy Act(EPA) of 2005 that mandated 7.5 2005 Under the Energy Independence and Security Act (EISA) of 2007, the RFS • RFS program was created program was expanded in several key ways:billion gallons of renewable fuels under the Energy Policy • Expansion of the RFS program to include diesel, in addition to gasolineproduction by 2012. Act (EPA) of 2005 • EISA increased the volume of renewable fuel required to be blended into • Went in to effect in transportation fuel from 9 billion gallons in 2008 to 36 billion gallons by 2022 September 2007 • Established new categories of renewable fuel, and set separate volume • Also called the RFS-1 requirements for each one program • EISA required EPA to apply lifecycle greenhouse gas performance threshold standards to ensure that each category of renewable fuel emits fewer greenhouse gases than the petroleum fuel it replaces 2010 RFS-2 lays the foundation for achieving significant reductions of greenhouse gas • RFS-2 final rule emissions from the use of renewable fuels, for reducing imported petroleum, and submission encouraging the development and expansion of the nations renewable fuels sector • In February 2010, the EPA submitted its final rule for RFS-2, its revision to the previous renewable fuel standards (RFS-1) • The ruling set forth volume targets of 36 billion gallons of renewable fuels produced in the U.S. by 2022 with 21 billion being advanced biofuels (non‐ corn based ethanol) In order to qualify for eligibility under RFS-2, the various categories of biofuels must meet specified Greenhouse Gas (GHG) reduction thresholds • These targets are not just a function of the gases emitted during burning, but apply to the entire lifecycle of the fuel including feedstock production, distribution, and end‐use • The EPA estimates that by 2022, the RFS will reduce GHG emissions by up to 138 million metric tons Cellulosic biofuels and Biomass‐based diesel both fall under the overarching umbrella of advanced biofuels which is essentially anything other than corn ethanol. Renewable fuels in turn cover the entire scope of fuels derived from renewable sources which in turn encompasses advanced biofuelsSource: www.epa.gov. TABLE OF CONTENTS The Biofuels and Biochem Industry 43
  • 44. U.S. Renewable Fuel Standards (RFS) (con’t) Summary of EPA Biofuel Definitions1 Renewable fuel Fuel produced from renewable biomass; Includes conventional biofuel which is predominately ethanol derived from corn starch Advanced Biofuel Any type of renewable fuel other than ethanol from corn starch Cellulosic Biofuel Fuel derived from cellulose, hemicelluloses, or lignin Biomass-based Diesel Includes both biodiesel (esters) as well as non-ester diesel; Does not cover biomass co-processed with petroleum RFS-2 Biofuel Volume Standards2 Billions of Renewable Cellulosic Biomass Based Advanced Gallons Fuel Biofuel Diesel Biofuel 2008 9.0 n/a n/a n/a Due to the lack of any commercial cellulosic facilities in the U.S., the EPA conducts an annual 2009 11.1 n/a 0.5 0.6 review of total cellulosic capacity to evaluate the 2010 13.0 <0.1 0.7 1.0 feasibility of its production targets and subsequently makes adjustments. In December 2011 14.0 <0.1 0.8 1.4 2011, the EPA set cellulosic volumes for 2012 at 2012 15.2 <0.1 (8.65 million gallon) 1.0 2.0 8.65 million gallons. Significant progress must be made in facilitating the scale‐up of cellulosic 2013 16.6 1.0 (a)3 2.8 technologies in order for the U.S. to meet the 2022 2014 18.2 1.8 (a) 3.8 cellulosic fuels production target of 16 billion gallons. 2015 20.5 3.0 (a) 5.5 2016 22.3 4.3 (a) 7.3 2017 24.0 5.5 (a) 9.0 2018 26.0 7.0 (a) 11.0 In February 2010, the EPA submitted its final rule 2019 28.0 8.5 (a) 13.0 for RFS-2, setting forth volume targets of 36 billion gallons of renewable fuels produced in the 2020 30.0 10.5 (a) 15.0 U.S. by 2022 with 21 billion being advanced 2021 33.0 13.5 (a) 18.0 biofuels. 2022 36.0 16.0 (a) 21.0 2023+ (b)4 (b) (b) (b)Source: 1Pew Center on Climate Change, Robert W. Baird, 2EPA, 3(a) to be determined by EPA at a later date (not less than 1.0 billion gallons), 4(b) to be determined by EPA at a later date. TABLE OF CONTENTS The Biofuels and Biochem Industry 44
  • 45. U.S. Renewable Identification Number (RIN)Renewable Identification Number (RIN) is RIN credits were created by the EPA as part of the Renewable Fuel Standard (RFS) to track U.S.s‘ progress towarda renewable fuel credit. A RIN credit is a reaching the energy independence goals established by the U.S. Congress. RIN credits are the currency used byserial number assigned to each gallon of obligated parties to certify compliance they are meeting mandated renewable fuel volumes. All gasoline produced forrenewable fuel as it is introduced into U.S. consumption must contain either adequate renewable fuel in the blend or the equivalent in RIN credits. EPAU.S. commerce regulations require that the RIN be tracked throughout each link in the supply chain, as title is transferred from one party to the next. RINs are assigned and travel with renewable fuel until the point in time where the biofuel is blendedRINs essentially act as credits for with petroleum products to produce gasoline. Once the renewable fuel is in the gasoline, the RIN is separated and is―obligated parties‖ to meet requirements then eligible to trade as an environmental credit.under the RFS. An obligated party is anycompany that provides a finished Factors Influencing Price of RIN Creditsgasoline or diesel fuel product to theretail marketplace • The cost to transport ethanol and other bio fuels plays a key role in the Transportation Cost overall RIN valueThe EPA assigned RIN values torenewable fuels based on both energy • The mandated level of renewable fuel (the Renewable Fuel Standard) for the RFS Mandatecontent in relation to ethanol as well as specific year establishes the demand and drives pricerenewable characteristics. As a result, • The physical properties of bio fuels, such as octane, vapor pressure, etc., Blend Propertiesone gallon of one fuel is not necessarily compared with that of petroleum products is a considerationequivalent in terms of the RINs it • The price of bio fuels compared with the price of petroleum products is a factorgenerates in relation to another. Corn Petroleum Product Prices in the RIN valueethanol serves as the base and has a RINvalue of 1.0 on a per-gallon basis. • RINs purchased and then retired as a mechanism to support a sustainability Sustainability Purchases initiative result in higher overall RIN pricesBiomass-based diesel, however, has RINvalue of 1.5, due to its higher energy • The year end deadline and the overall readiness by industry can result in lastcontent and improved carbon footprint Year-end Deadlines hour panic and a resulting price increase. RIN prices have seen a dramatic increase from when the RFS program originally started in September 2007Source: www.epa.gov, www.rinbroker.com. TABLE OF CONTENTS The Biofuels and Biochem Industry 45
  • 46. Biofuels Blending Mandates by Country U.K. U.S. India Italy Netherlands B3.25 National biofuels blending B10 and E10 as of 2008; B20 4% for 2011; Renewable fuel share 4% mandate of 13.95 billion and E20 by 2017 4.5% for 2012; gallons (53 billion liters) for Mandate 2011 and 36 billion gallons 5% by 2014 (136 billion liters) annually by 2022 Belgium Brazil Canada China Germany As of mid-2009, all registered B5 by 2013; E20–E25 currently National: E5 by 2010 and B2 E10 in nine provinces Biofuels share of 6.75% by fossil fuel companies in by 2012 2010 and 7.25% by 2012; Belgium must incorporate 4% Provincial: E5 and B3 biodiesel 4.4%; ethanol 2.8% of biofuels in fossil fuels that currently, and B5 by 2012 in increasing to 3.6% by 2015 Mandate are made available in the British Columbia; E5 and B2 Belgian market in Alberta; E7.5 in Saskatchewan; E8.5 and B2 in Manitoba; E5 in Ontario Spain Argentina Thailand Columbia Biofuels share of 6.2% E5 and B5 B3 and E10 B7; B20 by 2012; E8 by 2010 currently; 6.5% for 2012; biodiesel 6% currently, Mandate increasing to 7% by 2012Source: Renewables 2011 Global Status Report.Note: “E“ denotes ethanol, “B“ denotes biodiesel; “E5“ is a blend of 5% ethanol and 95% regular gasoline. Where no target date is provided, the mandate is already in place. Listshows binding obligations on fuel suppliers; there are other countries with future indicative targets that are not shown here, example - Chile has voluntary guidelines for E5 andB5. Bolivia has an indicative mandate under the 2005 Biodiesel Act. Ecuador has instituted an E5 pilot program in the province of Guadalajara. South Africa has proposedmandates of B2 and E8 by 2013. Mozambique has an approved but unspecified blend mandate. TABLE OF CONTENTS The Biofuels and Biochem Industry 46
  • 47. Cellulosic Ethanol Pricing ModelThe compliance value of cellulosic Cellulose Ethanol Price in RFS2ethanol will be determined by the RFSadministrative rules and enforcementmechanisms. A key EPA-enforcedcompliance mechanism for cellulosicethanol is the cellulosic waiver credit(CWC).Obligated Parties under RFS (such asrefiners) must purchase a CWC and agallon of another renewable fuel to theextent they have failed to produce orpurchase mandated volumes of cellulosicbiofuels.The per gallon value of the CWC isdetermined by a statutory formula to bethe greater of $0.25 or $3.00 less thewholesale price of gasoline (adjusted forinflation since 2008).Fundamentally, the CWC mechanismprovides the industry with a valuable As the graph depicts, the higher the price of oil the less tax refiners (obligated parties) are required to pay. Above $130/bbl crude oil, the refiner starts to benefit from the price of advanced ethanol comparedsource of price support given its inverse to gasolinerelationship with crude oil.Source: 2011 Biotechnology Industry Organization (“BIO”) ; “ The Value Proposition for Cellulosic and Advanced Biofuels Under the Federal Renewable Fuel Standard. TABLE OF CONTENTS The Biofuels and Biochem Industry 47
  • 48. Biofuels/Biochemicals Landscape TABLE OF CONTENTS The Biofuels and Biochem Industry 48
  • 49. Advanced Biofuel and Biochemicals Value Chain Gas-Phase Seeds/Crops Feedstock Syngas Sugar Fermentation Thermo Pyrolysis Genetics Providers Fermentation chemical Marketing, Refining Consumer Solar to Fuel Chemical Transesterfication Distribution and (Obligated Retailing Product precursors Companies Blending Parties) Companies Diamond Green Diesel Upstream Midstream Downstream Venture BackedSource: SVB and Bloomberg New Energy Finance. TABLE OF CONTENTS The Biofuels and Biochem Industry 49
  • 50. Key Players –Where Are They in Development? TABLE OF CONTENTS The Biofuels and Biochem Industry 50
  • 51. Where Are They in Development? – Summary• Public and private financing activity within the Biofuels and Biochemicals industry has increased significantly over the last two years and the momentum is expected to continue.• In addition to significant investment in private companies by private equity, venture capital investors, and strategic investors, there have been six IPOs within the industry, over the last two years: Codexis (CDXS )in April 2010; Amyris (AMRS) in September 2010, Gevo (GEVO) in February 2011, Solazyme (SZYM) in May 2011, and Kior (KIOR) in June 2011, and Renewable energy group (REG) in Jan 2012.• The success of those who have gone public (i.e. meeting or exceeding development milestones) will be vital for continued investment in the industry• IPOs currently on file focus predominately on the chemical markets given the higher valued end products.• In 2011, biofuels and biomaterials companies raised a total of $1.04 billion across 53 venture capital deals, a slight increase over 2010‘s $964 million.• Many of the major integrated oil companies, including BP, Chevron, Petrobras, Statoil, Shell, Total, Valero, have made early investments or entered into partnership positions in biofuels/biochemical companies.• The biofuel/biochemical industry itself is still in its early growth stage, and the value chain has yet to be fully defined and constructed. With such fragmentation in the value chain, the market looks prime for deep pocketed strategics and corporates to capitalize on inefficiencies.• Based on a reference capacity of 50 million U.S. gallons, it is expected that 1,300 Biorefineries requiring between $325-650 billion in capital will be needed to meet existing international targets. TABLE OF CONTENTS The Biofuels and Biochem Industry 51
  • 52. Investments in Biofuels/Biochemicals2011 Sector Share by Amount1 2011 Number of VC Deals by Sector2 $630 million 7% 0 20 40 60 80 100 120 140 160 180 $1.82 Energy Efficiency 153 Billion 20% Solar 114 Transportation 62 $520 million 6% $1.46 Materials 55 Billion 16% Biofuels & Biomaterials 53 $630 million 7% $1.24 Energy Storage 53 Billion 14% $1.04 Other 50 $1.01Billion 11% Billion 11% Water & Wastewater 42 Recycling & Waste 40 Solar Energy Efficiency Transportation Biofuels & Biomaterials Smart Grid 31 Energy Storage Materials Recycling & Waste Other Wind 29 Wind Water & Wastewater Smart Grid Air & Environment Air & Environment 27 Agriculture Agriculture 18Global Cleantech VC Investment in Biofuels and Biomaterials3 2011 HIGHLIGHTS $1200.0 80.0 • In 2011, biofuels and biomaterials companies raised a total of 71 70.0 $1000.0 $1.04 billion across 53 deals, a slight increase over 2010‘s $964 60.0 Number of Deals 54 54 53 $800.0 50 $993 50.0 million. Millions $969 49 $964 • $966 $1,041 $600.0 40.0 Several notable companies in the sector priced or filed for IPO in 30.0 $543 $400.0 2011, including venture-backed Solazyme, Gevo, KiOR. 20.0 $200.0 10.0 • Waste-to-energy technologies played a big role in the sector; $0.0 0.0 corporations like Waste Management were more willing to invest 2006 2007 2008 2009 2010 2011 in 2011.Source: 1,2,3Cleantech Group’s i3 Platform. TABLE OF CONTENTS The Biofuels and Biochem Industry 52
  • 53. Crop Development Phases Leading up to Market Launch• Advances in seed technologies are vital to cost reductions and the development of ―energy dedicated‖ crops. Increasing crop productivity, is essential to the reduction of feedstock costs. — Since the 1930‘s, advancements in genetics have resulted in significant improvements to crop yields — New biotechnologies capable of more targeted trait improvements including disease resistance, and biomass accumulation will be major drivers of the next leg of yield growth as well as the development of crops exclusively dedicated to the production of renewable fuels/chemicals Pre-launch (Duration 12-36 months) Gene/Trait Identification (Duration 24-48 months) Probability of Success: 90% Probability of Success: 5% # of Candidates: 1 # of Candidates: 10,000+ Activities Activities • Regulatory submission • High-throughput screening • Seed bulk-up • Model crop testing • Pre-marketing Advanced Development (Duration 12-24 months) Proof of Concept (Duration 12-24 months) Probability of Success: 75% Probability of Success: 25% # of Candidates: <5 # of Candidates: 1,000+ Activities Activities • Trait integration • Gene optimization • Field testing • Crop transformation • Regulatory data generation Early Development (Duration 12-24 months) Probability of Success: 50% # of Candidates: 10+ Activities • Trait development • Pre-regulatory data • Large scale transformationSource: Monsanto and Robert Baird Biomass Almanac July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 53
  • 54. Global Players – Milestone Update 2011 2012 Ongoing • First renewable product sale and • Complete construction of Sao Martinho • New off-take agreements finishing operations online (1Q) Plant (Target 2Q target - could be • New supply agreements for feedstock • Biomin contract manufacturing online pushed to 2013)Amyris produces specialty chemical access (2Q) • Parasio facility complete (Target 2H12) • New partners announced for bolt-onand fuel products through its • Antibiotics S.A. and Tate & Lyle • First product sales under take-off with facilitiesproprietary technology platform which contract manufacturing online (3Q) Proctor & Gamble (Target 4Q) • Conversion of Letter of Intent (LOI‘s) foruses genetic engineering to modify the • Closing of U.S. Ventures JV (Target • Analyst project farnesene sales of 7 both feedstock supply and product off-metabolic pathways by which 3Q) million liters and 51 million liters in 2012 take to signed contactsorganisms process sugars • Announcement of first Novivi and 2013, respectively • Introduction of new products (C-10, customer (Target 4Q) C-5, molecules) • First Lubricant sale (Target 4Q) • 20K liter scale-up of cellulase • Extend Shell R&D agreement which • Commercial CodeXyme production enzymes(Complete) expires in November 2012 • First–gen ethanol commercialization • 150K liter scale-up with Logen • 10MT bagasse pilot with Chemtex • Demonstration-scale detergent alcohol (Complete) • First–gen ethanol pilot with Raizen productionBiotechnology company focusing on • Launch CodeXymes (Complete) • Cellulosic ethanol pilot • Cellulosic ethanol demonstrationthe development of catalytic enzymes to • Achieve Shell technical milestones (Target 2014) • 650L detergent alcohol pilotoptimize industrial processes (Complete) • First 60,000MT detergent alcohol • Provide commercial samples of • First-gen ethanol agreement with CodeXyme to chemicals industry facility online (Target 2015) Raizen (Complete) • Begin Luverne plant retrofit (Complete) • First sales from Luverne plant (Target • First sales of advanced biofuels • First JV with ethanol plant- Redfield 1H12), currently shipping product to • Production using cellulosic feedstockGevo is focused on the development of (Complete) Sasol. • 58 million gallons of annual isobutanolfuel and petrochemical alternatives • Convert first LOIs to signed contacts • Add new plants via JV or acquisition sales (Target 2015) (Complete) (Target 1H12)using isobutanol through its proprietary • Full-year profitability (Estimated 2014) • Begin retrofits at Redfield (Complete) • Commercial sales from Redfield JVGevo Integrated Fermentation plant (Target 2H12)Technology • 50K ton production facility in • Complete construction of 200,000-ton • NA Tongchuan (Complete) Tongchuan Phase 2 (4Q)China Integrated Energy is a leading • Production scheduled to commence atnon-state-owned company in China Tongchuan Phase 2 plant (3Q)engaged in wholesale distribution of • Upgrade Chongqing production linefinished oil and heavy oil products, (2Q)production and sale of biodiesel, andoperation of retail gas stationsSource: Company reports and Robert Baird Biomass Almanac July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 54
  • 55. Global Players – Milestone Update (con’t) 2011 2012 OngoingKiOR is an alternative fuels company • Construction of Columbus plant • 500 BDT1 / day Columbus plant online • First material product sales from (Complete) (Target 2H12) Columbusthat uses Fluid Catalytic Cracking • Break ground on 1,500 BDT / day • Complete construction of Newton planttechnology, commonly deployed in the Newton plant (Target 2H11) (Target 2H13)petroleum industry, to convert non‐food • Break ground on third plant (Targetbiomass to renewable crude. Its "drop- 2H13)in‖ biocrude can be refined into Ongoinggasoline and/or diesel using current • Sign feedstock agreements for Newtonrefineries and transported using • Additional off-take agreements for firstexisting infrastructure clusterSolazyme uses microalgae to convert • Manufacturing partnership for fuels • DOE biorefinery online • 100K MT fuels & chemicals facility • 300 MT facility online under Roquette • Begin construction on 100K MT plant operationalabundant plant sugars into oils. The JV (Complete) • 5,000 KMT facility at Roquette JV • EBITDA positive in fuels and chemicalscompany’s technology platform allows by year-end • New products as part of Algenist line • Launch of algalin flourit to tailor its oils to meet the required (Complete) • Begin construction on 50K MT facilityspecifications of its end markets and its • Announcement of JV with Bunge under Roquette JVproducts are ―drop‐in‖ oil (framework signed in 3Q11 - official formation in 1H12)alternatives, meaning they arecompatible with existing infrastructurefor refining, finishing, and distribution Ongoing • Conversion of LOI‘s into firm contractsRenewable Energy Group is the largest • Acquired SoyMor cooperative and • Upgrade the Albert Lea plant to run on • New capacity online through ‘15 SoyMor Biodiesel crude and high free fatty acid oils andproducer of biodiesel in the U.S. fats over the next 12+ months • Renewable Energy is the largestAs a fully integrated producer, domestic producer of biodiesel with ~ • Has three plants with a nameplate 15% market share in ‗11 capacity of 135M GPY. ManagementRenewable Energy’s estimates it will cost ~$130-140M tocapabilities include feedstock complete construction on all three plants, with current plans calling foracquisition, facility construction 75M GPY of capacity on line in H2/13,management, facility with the remaining 60M GPY of capacity online in H1/15operations and biodiesel marketingSource: Company reports.Note: 1One bone dry ton (BDT) is a volume of wood chips (or other bulk material) that would weigh one ton (2000 pounds, or 0.9072 metric tons) if all the moisturecontent is removed. TABLE OF CONTENTS The Biofuels and Biochem Industry 55
  • 56. Selected Biofuel/Biochemical IPOs in the Pipeline Business Description Investment Highlights • Produces renewable succinic acid from • Has signed a JV agreement with Mitsui for construction of a commercial plant in Sarnia, Ontario with construction to begin in 2012 and initial agricultural feedstock using an organism production in 2013 developed by and exclusively licensed • Signed supply agreements in place for more than 84,000MT of bio-succinic acid and its derivatives over the next five years (BioAmber‘s from the U.S. Department of Energy process requires 50% less sugar to produce a pound of succinic acid than a pound of ethanol) PROPOSED OFFERING: $150 MILLION • Modifies the metabolic pathways of • Process reduces capital costs of BDO plants. Genomatica estimates that its processes will allow for the construction and operation of a organisms to produce intermediate and commercial-scale BDO facility at 30%-60% of the costs a plant using incumbent petroleum-based routes basic chemicals from renewable feedstock • Partnered with M&G‘s Chemtex to produce BDO from cellulosic biomass • First two target products will be bio-BDO1 • Partnership strategy for scale-up - Genomatica‘s first commercial-scale production plant will be a 35 million lb/year facility owned and PROPOSED OFFERING: and butadiene operated by Novamont with operations targeted for year-end 2012 $100 MILLION • Developed an anaerobic fermentation • Agreements with process technology and engineering firms could help facilitate adoption of biosuccinic process platform to produce drop-in chemicals • Off-take agreements in place to meet substantially all production from first phase of Louisiana plant from renewable feedstock • Constructing a 30 million lb succinic acid plant in Louisiana with start-up slated for 1Q13, and intentions to expand the plant‘s capacity to 170 million lbs by 1Q14 PROPOSED OFFERING: $125 MILLION • Uses olefin metathesis to produce • First facility full-funded and under construction – in process of retrofitting second plant specialty chemicals and materials from • Cost advantages over incumbent processes to allow operation without subsidies or green premium renewable oils addressing three principal • Metathesis technology capable of creating specialty chemicals with unique characteristics markets - Consumer Ingredients & Intermediates, Engineered Polymers & PROPOSED OFFERING: Coatings and Lubricants, Fuels & $100 MILLION Additives • Developer of seeds for energy crops used • Commercialized seed products offer attractive cost structure as feedstock in the production of • Focused on the Brazilian opportunity alternative fuels • Collaborations with industry participants to drive adoption PROPOSED OFFERING: • Sweet sorghum has been the company‘s $100 MILLION first commercial-scale product IPO CLOSED FEB 2012 • Utilizes a multi-step gasification and • Gasification technology is feedstock agnostic, reducing input costs – proprietary organisms also offer cost advantages over chemical fermentation process to produce ethanol alternatives and other chemicals from biomass, • Based on its demonstration plant, Coskata estimates it could be a leader in the industry in terms of conversion efficiency agricultural residues, natural gas, and • Flagship, Coskata‘s first commercial plant, will produce fuel-grade ethanol municipal waste PROPOSED OFFERING: N.A.Source: Robert Baird Biomass Almanac December 2011.Note: 1BDO – Butanediol, a chemical used to make everything from the plastics in consumer electronics to cars. TABLE OF CONTENTS The Biofuels and Biochem Industry 56
  • 57. StrategicPartnerships2010 and 2011 were years that ( Cosan JV)showed a bevy of blue chippartners that have a desire toenter the sector (P&G, Total,Shell, etc.). Many of the major oilcompanies, including BP,Chevron, Petrobras, Statoil,Shell, Total, Valero, have madeearly investments or entered intopartnership positions in biofuelscompanies.Source: Company Reports. TABLE OF CONTENTS The Biofuels and Biochem Industry 57
  • 58. Projects to Watch in 2012-13 – U.S. Diamond Green Diesel Florida Minnesota Mississippi Louisiana Florida Iowa Year >> 2012 2012 2012 2012 2013 2013Capacity (Mg/y)>> 8 16 12 137 36 6 Feedstock >> MSW, ag waste Corn starch Wood Animal residue Mixed Cellulosic Mixed Cellulosic Technology >> Syngas Fermentation Fermentation Pyrolysis Hydrotreating Enzymatic hydrolysis Enzymatic hydrolysis Product(s) >> Ethanol Isobutanol Diesel, jet Diesel, jet Ethanol Ethanol Iowa Kansas Iowa Mississippi South Dakota California Year >> 2013 2013 2013 2013 2013 2013 Capacity (Mg/y)>> 25 25 25 6 37 2 Feedstock >> Mixed Cellulosic Mixed Cellulosic Mixed Cellulosic Mixed Veggie Oil Corn Starch Miscanthus Technology >> Enzymatic hydrolysis Enzymatic hydrolysis Enzymatic hydrolysis Olefin Metathesis Fermentation Biomass Fractionation Product(s) >> Ethanol Ethanol Ethanol Specialty Chemicals Isobutanol Gasoline Nevada Florida Michigan Alabama New Mexico Year >> 2013 2013 2013 2013 2013 Capacity (Mg/y)>> 10 2 20 16 18 Feedstock >> MSW Sugar Wood Wood CO2, Water Technology >> Thermocatalytic Fermentation Consolidate Bioprocess Syngas Fermentation Helioconversion Product(s) >> Ethanol Diesel, fatty alcohols Ethanol Ethanol Ethanol, dieselSource: Biofuels Digest, Broker Research, Company SEC filings.Note: Mg/y- million gallons per year. TABLE OF CONTENTS The Biofuels and Biochem Industry 58
  • 59. Projects to Watch in 2012-13 – Non-U.S. COFCO Crescentino Cassano Spin Hei Long Jian Shanghai Year >> Year >> 2012 2012 2013 2013Capacity (Mg/y)>> Capacity (Mg/y)>> 13 10 15 33 Feedstock >> Feedstock >> Ag waste Mixed Cellulosic Mixed Cellulosic Industrial Waste Gas Technology >> Technology >> Fermentation Yeast Fermentation Enzymatic hydrolysis Syngas Fermentation Product(s) >> Product(s) >> Ethanol Succinic acid Ethanol Ethanol Alberta Paraiso Year >> 2012 Year >> 2012Capacity (Mg/y)>> 10 Capacity (Mg/y)>> 13.2 Feedstock >> MSW Feedstock >> Sugar Cane Juice Technology >> Thermocatalytic Technology >> Sugar Fermentation Product(s) >> Ethanol Product(s) >> Biofene Lestrem Year >> 2012Capacity (Mg/y)>> 2 Feedstock >> Sugar Technology >> Algal fermentation Product(s) >> Renewable oils TABLE OF CONTENTS The Biofuels and Biochem Industry 59
  • 60. 1300+ Projected Biorefineries by 2025Based on a reference capacity of 50 Projected Biorefineries by Countrymillion US gallons, it is expected that1,300 Biorefineries will be needed to 40meet existing international targets. 60 40 60Given the complexities and U.S.specialized nature associated with Brazilfirst of its kind technology, advanced 135 EUbiofuel and chemical facilities Indiacurrently have a capital costs 3 to 5 700times greater than conventional corn 130 Chinaand sugarcane facilities which cost Other EMEAaround $2/gal of capacity. With Other Asia-Pacificmaturity, it is expected that the costs 200 Other Americaswill normalize. Capital Requirement Capital Cost # of Biorefineries 1,300 Capital Cost/gal Total Capital Cost ($B) Capital Cost/gal $10.00 $5.00 $325 Avg Capacity (mgy) 50 $7.50 $488 $10.00 $650 Total Capital Cost ($B) $650 *before transportation cost and taxes.Source: Biofuels Digest : “Biofuels mandates around the world” July 2011. SVB estimates. TABLE OF CONTENTS The Biofuels and Biochem Industry 60
  • 61. Appendix TABLE OF CONTENTS The Biofuels and Biochem Industry 61
  • 62. Conversion Technologies Detail – FermentationDefinition: Fermentation is the process by which bacteria such as yeast, convert simple sugars to alcohol and carbon dioxide through their metabolic pathways. The mostcommon input for fermentation in the United States is corn, but in warmer climates sugarcane or sugar beet are the principal types of feedstock. Resulting alcohols such asethanol and butanol can be utilized as blendstock with gasoline or in the case of butanol, can act as a gallon for gallon replacement.Feedstock: Simple sugars – corn and sugarcane are most commonly used today in the production of ethanol.Output : Alcohols including ethanol and butanol, and distiller‘s grains.Ethanol Production – The Dry Mill Process Storage Grain Hammer Mill To atmosphere or recovery facility Carbon Di-oxide Grain Molecular Receiving Sieve Fuel Ethanol Storage Ethanol Jet Cooker Cook / Slurry Tank Liquefaction Ethanol Distillatio Tanks Fermentation n Centrifuge Grain Recovery Denaturant Wet Solids Distillers Grains Dried Grain Drying Distillers Grains Liquids Evaporation Syrup Tank SystemSource: Broker Research. TABLE OF CONTENTS The Biofuels and Biochem Industry 62
  • 63. Conversion Technologies Detail – Fluid Catalytic CrackingDefinition: Fluid Catalytic Cracking (FCC) is a proven process in the petroleum industry used to convert crude oil into higher value products such as gasoline and naptha. FCCreactions occur at extremely high temperatures (up to 1,000+ F°) and use fine, powdery catalysts capable of flowing likely a liquid which break the bonds of long‐chainhydrocarbons into smaller carbon‐based molecules. FCC technology is applied to organic sources of carbon such as woody biomass to convert the cellulosic content into usablehydrocarbons with equivalence to crude oils – this process is referred to as Biomass Fluid Catalytic Cracking (BFCC). FCC was first commercialized in 1942, and is presentlyused to refine ~1/3 of the U.S.s‘ total annual crude volume.Feedstock: Feedstock agnostic – can utilize cellulosic biomassOutput: Biocrude, gasesFluid Catalytic Cracking ProcessSource: KiOR (founded by Khosla Ventures and a select group of scientists) and Robert Baird Research. TABLE OF CONTENTS The Biofuels and Biochem Industry 63
  • 64. Conversion Technologies Detail – Anaerobic DigestionDefinition: Anaerobic digestion is the process by which bacteria decompose wet organic matter in the absence of oxygen. The result is a byproduct known as biogas whichconsists of ~60% methane and ~40% carbon dioxide. Biogas can then be combusted in the presence of oxygen to generate energy. Effectively any feedstock can be convertedto biogas via digestion including human and animal wastes, crop residues, industrial byproducts, and municipal solid waste. Anaerobic digestion is the same process that creatednatural gas reserves found throughout the world today.Feedstock: Starches, celluloses, municipal solid waste, food greases, animal waste, and sewageOutput: BiogasAnaerobic Digester Mechanism Plants Heat Recovery Engine Generator Electricity Hot Water Biogas Anaerobic Manure Digester Auxiliary Use Liquid EffluentSource: KiOR (founded by Khosla Ventures and a select group of scientists) and Robert Baird Research. TABLE OF CONTENTS The Biofuels and Biochem Industry 64
  • 65. Conversion Technologies Detail – GasificationDefinition: Gasification is a process by which carbon‐based materials such as coal, petroleum coke, and biomass are separated into their molecular components by acombination of heat and steam, forming a gaseous compound known as synthesis gas or syngas as it is commonly called.Feedstock flexibility: Feedstock flexible including use of municipal solid wasteOutput: Syngas which has the capacity to be used in a variety of applications including the production of transportation fuels, electricity, and heat. Other byproducts includesulphur and slag.Gasification Plasma Product Options Fermentation Gas Cooling Syngas Clean-up GasificationSource: AlterNRG (owns the industry leading plasma gasification company, Westinghouse Plasma Corporation, that provides clean and renewable energy solutions from a varietyof low-value inputs such as waste and biomass). TABLE OF CONTENTS The Biofuels and Biochem Industry 65
  • 66. Conversion Technologies Details – PyrolysisDefinition: Pyrolysis is the process by which organic materials are decomposed by the application of intense heat in the absence of oxygen to form gaseous vapors which whencooled form charcoal and/or bio‐oil can potentially be used as a direct fuel substitute or an input for the manufacture of transportation fuels.Feedstock: Capable of using a wide variety of feedstock including agriculture crops, solid waste, and woody biomass (currently most common)Output: Bio‐oil (energy density of ~16.6MJ/liter) which must be processed further before it can be utilized as a transportation fuel. It also yields syngas and biochar.Pyrolysis ProcessSource: Biomass Technology Group (www.btgworld.com). TABLE OF CONTENTS The Biofuels and Biochem Industry 66
  • 67. Conversion Technologies Detail – TransesterificationDefinition: Transesterification is the process by which a triglyceride is chemically reacted with an alcohol to create biodiesel and glycerin. While there are a few variants, thepredominance of biodiesel is created through base catalyzed transterification because of its high conversion yields and comparatively low pressure and temperaturerequirements.Transesterification is necessary because vegetable oils/animal fats cannot be used directly to run in combustion engines because of their high levels of viscosity.Feedstock: Soybean oil, palm oil, jatropha oil, rapeseed oil, animal fats, food grease, etc.Outputs: Biodiesel and glycerolTransesterifcation Process O Biodiesel CH2O C R CH2OH O O CH O C R CH3OH OH R 3CH3O C CH OH O Esters Catalyst CH2O C R CH2OH Alcohol Glycerol GlycerideSource: Energy Systems Research Unit - University of Strathclyde. TABLE OF CONTENTS The Biofuels and Biochem Industry 67
  • 68. Conversion Technologies Detail – Syngas FermentationDefinition: Syngas Fermentation is the process by which gasification breaks the carbon bonds in the feedstock and converts the organic matter into synthesis gas. The syngas issent to bioreactor where microorganisms directly convert the syngas to a fuels and/or chemicals.Feedstock: Capable of using a wide variety carbon containing feedstocks including agricultural crops, solid waste, woody biomass and fossil fuels such as coal and natural gas.Output: Ethanol, 2.3-BDO, Acetic Acid, Acetone, Propanol, Butanol, MEK, Isoprene, Acrylic Acid, Butadiene, Succinic AcidSyngas Fermentation ProcessSource: Coskata, Inc. TABLE OF CONTENTS The Biofuels and Biochem Industry 68
  • 69. Selected Due Diligence Questions • Any feedstock agreements or LOI’s?Feedstock Cost, Availability • What has the Company proven with what feedstock at what level?and Flexibility • Feedstock logistics (inventory, pricing volatility, yield per acre)? • Do they have feedstock study; What is the feedstock cost they are assuming? • Other than feedstock, what does their process rely on (i.e. water, natural gas, chemical additives, nutrients, catalyst, electricity)?Production Cost • What are their current yields (i.e. how many gallons per ton of biomass, cost per lb); How close to theoretical and what needs to be done to get to ideal yields? • At what scale has the Company proven their technology. How confident can we be on process and cost estimates? • Has the Company tested their end product with a third party and does it meet standards (such as ASTM)?Scale-up Ability • Are the products fungible with existing infrastructure or will new infrastructure need to be implemented to support product deployment? • What makes them unique to its peers?Business Plan • Business model – build and operate or license? • Are they planning to vertically integrate or partner with strategics? Do they have any corporate relationships? • How many end products do they produce through the process? Are they planning on monetizing all the end products? Any byproducts?Value Flexibility • Can they supply the market at prices competitive with traditional energy sources?of End Products • Are the markets they are aiming for big enough and who are the market leaders? • Any off take agreements or LOI’s? • What is the amount and timing of the financing needed to get to commercial scale? • What levels of government support are included in the financing plan?Financing • What level of engineering design have they conducted to estimate fund uses? • If building a project, what are the expected sources and uses? TABLE OF CONTENTS The Biofuels and Biochem Industry 69
  • 70. Silicon Valley Bank Cleantech TeamMatt Maloney Matt Maloney is Head of Silicon Valley Bank‘s national Cleantech Practice. He has over 20 years of experience investing in andHead of Cleantech lending to the technology industry. Prior to joining Silicon Valley Bank in 2002, Maloney co-founded Enflexion Capital, a specialty debt provider for alternative communications companies. From 1989 to 2000, Maloney held several business development andPractice senior management positions in GATX Capital‘s Technology Services group that grew from zero to more than $500 million during hisSilicon Valley Bank tenure. Among other roles, he developed, structured and managed numerous technology investment joint ventures, spearheadedmmaloney@svb.com strategic acquisitions and founded the company‘s Telecom Investments group. Prior work experience includes investment banking and money center commercial banking. Maloney earned a bachelor‘s degree from Guilford College and a master‘s of business administration from Kellogg Graduate School of Management.Quentin Falconer As National Cleantech Coordinator, Quentin Falconer leads the business development efforts for the cleantech industry at Silicon Valley Bank. Formerly an engineer with Bechtel Corporation, Falconer began his commercial banking career in 1990 and has beenNational Cleantech with Silicon Valley Bank since 1999 working with emerging and mid-stage technology companies. He provides and overseesCoordinator commercial and merchant banking, investment management and global treasury services for his portfolio of clients.Silicon Valley Bank Falconer sits on the Advisory Council for the Berkeley Entrepreneurs Forum and is a member of Financial Executives International.Northern California He earned bachelor‘s degrees in mechanical engineering and music from Tufts University and a master‘s of business administrationqfalconer@svb.com from UC Berkeley‘s Haas School of Business. He is also a Chartered Financial Analyst (CFA).Frank Amoroso Frank Amoroso is a senior relationship manager with Silicon Valley Bank. In this role, Amoroso is responsible for Cleantech business development in the Northwest, Southwest and Midwest regions of the United States. Amoroso has twenty years of bankingSenior Relationship experience with Silicon Valley Bank, working with emerging technology, bioscience and cleantech companies nationwide. AmorosoManager joined Silicon Valley Bank in 1992 to handle financial analysis and loan underwriting for clients on the East Coast, in the PacificSilicon Valley Bank Northwest, and in California. He helped found SVB‘s Colorado office in 1996, and was named the Central Division CleantechRocky Mountain U.S. Coordinator for the company‘s nationwide Cleantech Practice in 2006.famoroso@svb.com Prior to his current position, Amoroso was responsible for new business development and ongoing portfolio management of early stage, hightech, bioscience, and cleantech companies in Colorado. Amoroso holds a bachelor‘s degree in finance from Santa Clara University.Bret Turner Bret Turner is a relationship manager in Silicon Valley Bank‘s Cleantech Practice and is SVB‘s National Petroleum Replacement Expert. In these roles, Turner is mainly focused on project-related financings, advancing clients from demonstration scale to firstRelationship Manager commercial. Turner has been with Silicon Valley Bank since 2007 working with emerging and mid-stage technology , life science,Silicon Valley Bank and cleantech companies in Colorado. Prior to joining SVB, Turner worked as a research analyst for Sterne, Agee, and Leach withRocky Mountain U.S. published research reports on exploration and production companies in the oil and gas industry. Prior to that, Turner worked for abturner@svb.com private equity firm in New Orleans investing in numerous companies in the oil and gas, shipping, transportation and gaming industries. Turner started his career as a sales trader in Credit Suisse First Boston‘s stock lending and prime brokerage practices in London. Professional security certifications held include Series 7, 86, and 87. Turner earned a bachelor‘s degree in business and a master‘s in finance from Louisiana State University. TABLE OF CONTENTS
  • 71. Silicon Valley Bank Headquarters3003 Tasman DriveSanta Clara, California 95054408.654.7400svb.comThis material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-partysources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. Theinformation should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specificprofessional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose ofany investment or to engage in any other transaction.©2012 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve System. SVB>, SVB>Find a way, SVB Financial Group, and SiliconValley Bank are registered trademarks. B-12-12170 Rev. 07-02-12