Big Energy Collaborations Seen to Jump-Start Emerging Biofuels Technologies

11/19/09Follow @bvbigelow

As startups developing next-generation biofuels emerge in San Diego, Boston, and elsewhere, a business model for rapidly expanding to commercial-scale operations already can be found in the biotech industry, experts said yesterday. The premise of presentations organized by Biocom, San Diego’s life sciences industry group, is that collaborations being formed between biofuel startups and big energy are comparable to the partnerships formed between biotech startups and big pharmaceutical companies.

Biofuels development partnerships will be crucial to meeting renewable fuel standards that the federal government set in the Energy Independence and Security Act of 2007. Wain Fishburn, a founding partner of the Cooley Godward law firm’s San Diego office, said the standards require the U.S. biofuels industry to increase its production fourfold—from 9 billion gallons in 2008 to 36 billion gallons in 2022. Fishburn, who introduced the speakers at the Biocom event, said the ability to meet the federal goal depends on a variety of factors, including the ability to lower the cost of biofuels to be competitive with petroleum-based crude, and the scalability of feedstock, production facilities, distribution, and related infrastructure.

But what it really comes down to, as Verenium (NASDAQ: VRNM) executive William Baum told the audience, is capital.

Baum, who became Cambridge, MA-based Verenium’s executive vice president of business development in 2007 (following the 2006 merger of San Diego’s Diversa and Cambridge’s Celunol) said the need for capital was the theme he heard “over and over again” during a recent meeting that focused on the biofuels industry. “We’ve got hundreds of biofuel companies that are trying to get to the next stage. If you don’t have a big brother with deep pockets, like a BP, Exxon, Shell, or a Chevron, it’s going to be very difficult.”

A number of partnerships already have been established between biofuels startups and major energy conglomerates, Fishburn noted. He listed the following collaborations:

—BP, the London-based global energy conglomerate, has formed two strategic partnerships with Verenium, which has been developing technology to produce cellulosic ethanol using proprietary microbes to accelerate the breakdown of non-edible, high-cellulose plant material into ethanol. Baum described the first collaboration, announced in August 2008, as a technology joint venture for IP. (BP agreed to put up $90 million to develop “low-cost, environmentally sound cellulosic ethanol production facilities in the United States.”) Through a second deal announced nine months ago, BP agreed to provide an additional $45 million and to form a joint venture with Verenium for construction of a cellulosic ethanol production plant near Tampa, FL. Baum estimates the project will cost close to $400 million, and the joint venture has sought federal loan guarantees to cover 80 percent of that pricetag.

—BP also established the Energy Biosciences Institute at U.C. Berkeley in early 2007 to head a $500 million R&D effort focused on using the tools of biotechnology to produce biofuels. BP Group Chief Executive John Browne said at the time the institute (which includes the Lawrence Berkeley National Laboratory and University of Illinois at Urbana-Champaign) is intended to create the discipline of energy biosciences and “will be unique in both its scale and its partnership between BP, academia and others in the private sector.”

—Royal Dutch Shell established a joint venture in 2007 with HR BioPetroleum, which is based in Hawaii and San Diego, to build a pilot facility for growing marine algae and producing algal oils that can, in turn, be used to make biofuels. The joint venture, called Cellana, completed construction on the Kona coast of the big island of Hawaii, and the demonstration facility is now operating, according to HR Biopetroleum CEO Edward Shonsey. But Shonsey did not disclose how much funding Shell has provided under their collaboration. He also did not tell the Biocom crowd how construction of a second, commercial-scale algae biofuels plant on Maui became a victim of the financial crisis last fall when private equity financing for the project collapsed. The project has now become a poster child in efforts to win federal funding for investments in technology startups.

—ExxonMobil agreed in July to invest at least $600 million to develop algae-based biofuels, with $300 million designated for research and development at Synthetic Genomics under a partnership with the San Diego-based company founded by genome pioneer J. Craig Venter. With ExxonMobil’s backing, the four-year-old startup has plans to build a greenhouse and biofuels test facility in San Diego to test different strains of genetically engineered algae and methods of commercial biofuels production.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

By posting a comment, you agree to our terms and conditions.