Biofuels’ High Hurdle: The Commercialization Challenge
The “Valley of Death” — that sketchy period between when a startup settles on a technical approach and delivers a product to market — needn’t crush an early-stage biofuels business, say officers at three companies that are making that journey now.
In many new business niches, the main concern for a startup is on keeping ahead of the competition. And while there is certainly a competitive nature to the R&D efforts under way in biofuels labs large and small, the actual potential market is wide open, says Jim Imbler, president and CEO of ZeaChem. “This is a huge space where many players can participate and win.”
That’s in part because the government wants success as badly as the developers do. In fact, the latest version of the Renewable Fuel Standard (RFS) — proposed by the Environmental Protection Agency in May and just recently approved — calls for production and use of cellulosic biofuels starting in 2010, growing to 16 billion gallons by 2022 (more than 10 percent of the transportation fuel pool).
To achieve that high hurdle, would-be biofuels vendors must nurture their technologies through the most difficult stage of getting to market: demonstration and fielding. It’s a critical phase where good ideas born in the lab can be obliterated by the competitive realities of launching viable business enterprises. Imbler, along with Qteros Senior Vice President and Chief Technology Officer Kevin Gray and Verenium Executive Vice President William Baum, talked about successful approaches to market during a breakout panel, “Meeting the Challenges of Commercializing Cellulosic Ethanol,” at the recent BIO Pacific Rim Summit on Industrial Biotechnology and Bioenergy in Honolulu.
Number 1: Decide where you’re going to play and look for ways to squeeze out costs.
For Qteros of Marlborough, Mass., the sweet spot is in developing a tool to speed conversion processing for ethanol. “We’re a technology company — we don’t intend to be a build, own and operate company,” says Gray. “We’re focusing only on the bioethanol conversion processing step, period” and perfecting an enzyme that it can license to fuel producers.
Qteros is developing Q Microbe, based on a clostridium microorganism found near the Quabbin Reservoir in Belchertown, Mass., to consolidate the processes of separating sugars from biomass and fermentation. So far, the enzyme has shown the ability to reduce bioprocessing costs by 40 percent, through decreased capital and process outlays.
Number 2: Get money wherever you can.
Because these technologies are so new and there’s no direct payback to show on paper, traditional loan vehicles to fund and build demonstration plants aren’t readily available. Instead, says Imbler, biofuel startups must bring in a lot of participants as investors to reduce risk along the value chain.
What that means essentially, he says, is that companies must “never turn down a dollar. I’ve heard very few people say, ‘Gee, we raised too much money.’ ” Look hard at every proposition, and figure out how to make it work, he says.
ZeaChem has a third-generation gasification process that uses a methane-eating organism to produce ethanol, which it developed at its research lab in Menlo Park, Calif. The Lakewood, Colo., company is currently building a demonstration plant in Boardman, Ore., that’s slated to come online this year.
“You have to figure out how to get the first couple or three plants built” to demonstrate economic viability, Imbler says. Once a company does that, funding becomes less iffy because the risk factors are off the table. It’s then possible to tap a wide range of financial sources, he says, such as grants, financial incentives, traditional venture capital and subsidies.
Number 3: Form alliances to bring in needed business and operations skill sets.
“We have actually been able to accelerate everything we’ve done because we’ve had good partners,” says Verenium’s Baum. For instance, it partnered with BP to form Vercipia Biofuels, which this year will break ground in Highland, Fla., on its first commercial-scale production plant — with a goal of producing 36 million gallons of cellulosic ethanol by 2012. It already has a successful demo plant running in Jennings, La.
Baum and Imbler point out that such partnerships provide operational skills that might be lacking in a start-up organization. They also create additional financial opportunities: Vercipia is taking advantage of a Florida Farm to Fuel grant, and it was the first cellulosic project selected under the U.S. Energy Department’s Title XVII loan guarantee program for innovative technology.
Another driver for forming alliances and partnerships is to make sure that your product, wherever it falls in the overall biofuels process, aligns with producers, says Gray. Qteros realizes that its organism must be able to fit into an ethanol producer’s process. By forming those alliances early, “we’re not working in a vacuum” or “creating something that a producer wouldn’t want to use.”
Number 4: Keep your vision clear and simple.
“Simplicity does matter,” says Baum. Verenium relies on a first-generation technology that works, he says. After hydrolyzing energy sugar cane, it uses off-the-shelf technologies similar to those created for paper-pulping plants and then a gen-1 enzyme mixture to distill cellulosic ethanol. “If someone has a better enzyme cocktail that we can use, then we will use that cocktail,” Baum says.
Imbler agrees that survival hinges on a clear vision and a streamlined technology approach. Integrating many new technologies during the demo and initial commercialization phases adds additional layers of complexity that multiply the risk factors, threatening a business’ ability to make it from R&D to commercialization, he says.
“Remember,” Imbler says, “it’s not the first guy that wins in this business; it’s the first guy that makes money.”