What is your take on the current funding outlook for bio-chemicals and bio-fuels?

A lot of the companies that have gotten funding over the past several years are now coming close to the end of their venture funding cycle. Individual investments are getting larger, and these companies are entering into C and D rounds, and IPO’s. It’s important to note that this trend is true for the larger group as well and an uneven distribution has emerged. The herd is now comprised of companies in these later funding rounds, and that would make it pretty difficult to get into the space now as a new tech company looking for seed funding. I’d say the peak of venture funding is probably past.

When do you think we’ll see a new round of start-ups, if at all?   

This generation of companies is pretty solidly backed already. As I said, it would be really tough to break into the space at this point. The bio-based economy is still a new space, but it is at the point now where partnerships develop into joint ventures and acquisitions. A good example of this is DuPont’s acquisition of Danisco (the joint venture that pre-dated that deal was Dupont Danisco Cellulosic Ethanol LLC). That’s not to say that no other companies will ever be able to get into it again, but you’re definitely not going to see a big crowd of newcomers rushing into the space. One notable exception is Reluceo, a start-up founded by the same people who founded Segetis.

Cellulosic ethanol seemed to cool off a little bit, but it looks like it’s heating up again. What is the significance of cellulosic ethanol’s resurgence?

I think those are two different trends. There’s ethanol, and then there’s cellulosic.

By itself, the “ethanol as a fuel” trend is definitely going away, and it won’t be long before it’s gone for good. It will still be viable for maybe 5 more years or so, but its lifecycle is in decline:  mostly as a result of blending issues.  But using ethanol to make materials like polyethylene, that’s looking pretty attractive – major chemical companies like Braskem and Dow are working on that.

The cellulosic trend is rising quickly. In the short term, corn ethanol is going to lose its political supports: the regulations and subsidies which help make it the dominant feedstock for biofuels. Cellulosic will definitely gain from that shortfall and make up for that loss. In the long term, the technologies based on enzymes and microorganisms that convert cellulosic sugars will begin to scale-up (BioConomy 7/29/11), and we’ll move on to the drop-in fuels and chemicals they produce. At that point, we’ll move away from ethanol fuels altogether. Ethanol is an imperfect substitute for fuel, and as drop-in alternatives become viable, it will be pushed out completely.

Does that mean that first generation feedstocks (corn and cane) will eventually be entirely replaced by cellulosic and other next-generation feedstocks? 

Sugar prices are going through the roof right now, and that’s having an effect on Brazilian ethanol production (BioConomy 8/10/11). First-generation feedstocks aren’t going away; cellulosic simply provides another source of sugar. You’ll use more cellulosic in the Southeast, where you’ve got a lot of wood; but in Iowa you’ll still make ethanol with sugar sourced from corn, in addition to what you get from the stover (and also because we can’t eat that much corn!).The development of cellulosic and the other next generation feedstocks will make the upstream biobased value chain flexible so it can deal with variables like geography and volatile commodity price, which is why it’s a strong alternative to petroleum.

The other part of the equation is being able to mirror the downstream flexibility of the petroleum industry. Companies like Gevo are enabling downstream flexibility, so biorefineries will be able to make multiple products from multiple feedstocks.

Speaking of Gevo, what is your take on plant retrofitting schemes?  

Retrofits are a good idea because you don’t have to break new ground. You can either retrofit an ethanol plant so that it can take in cellulosic materials, instead of just corn and cane, or you can retrofit the back-end as the demand for ethanol continues to change and as other chemicals emerge. It won’t happen in that order in every place necessarily, but a retrofit still makes sense for almost anything. Most sources of biomass already have a processing plant nearby: even if you’re not working with corn and cane, there are for example pulp and paper mills which can be retrofitted to create cellulosic ethanol and other materials.

Considering the high cost of converting biomass to sugars, is it possible that in the future we’ll see a business model in which companies focus entirely upon on converting biomass to sugars, and then supplying those sugars to chemical and fuel manufacturers?  What is the likelihood of that development?

There isn’t a high likelihood that such a business model would develop, in which a company is solely focused on converting biomass to sugars and shipping them to end-users. It’s a question of economies of scale. The technologies you need to convert sugars into other materials operate well at a small scale and they’re relatively portable. They don’t require the large scale and high utilization that is needed in the processing and refining technology involved in petrochemicals.

Biomass is very diffuse. It’s spread out, and therefore it has a low density in terms of value. That low density persists even after you’ve converted the biomass to sugars, so shipping it wouldn’t be cost effective. Also, as I said before, most sources of biomass are located near facilities that process it into sugars. So what you’d have would be relatively small sites that process the biomass to sugars, and then use the small-scale technologies for converting those sugars into chemicals, which would then be distributed locally. There’s no global answer to that question.

We’re seeing lots of tolling agreements, like the deal between KiOR and Catchlight. What are your thoughts? What is the predominant business model you’re seeing these days?

Catchlight is really unique.  It’s a joint venture between two large companies from two consolidated industries, and they’re able to leverage their size and market dominance to solve some of the big problems the cellulosic world is dealing with. Weyerhaeuser has a large amount of forestry under management, and Chevron has the large-scale capacity to refine and distribute the fuel that Catchlight could produce using KiOR’s technology.  You might see similarly sized companies from similarly consolidated industries that have a lot of biomass coming through their business, and would like to create value from a sidestream of that biomass.

However, because of the relatively small number of companies with that kind of dominance, I don’t think you can make a trend out of that. For the most part, because biomass itself is very distributed, you have a very fragmented industry, which is going to result in a lot of local arrangements.

Codexis made a recent announcement regarding their successful commercial scale up of their enzyme manufacturing. Will we start to see process engineering firms entering the space, and what will they bring to the table? 

Scale up isn’t a trivial matter. As these technologies begin to mature and scale up from pilot to commercial, you start to run into different challenges. Start-ups are used to dealing with issues on the level of, for example, genetic engineering: really getting the technology to function as a viable product in the lab. As you start to scale up, things like maintaining an optimal temperature during the production process so that your technology remains viable are items that must be addressed. Start-ups don’t have experience with things on that level, so there is an opportunity here for process engineering firms. They’d be entering at just the right time.

In the long term, will we see enzymatic, magic bug, catalytic, or thermo-chemical technologies achieve dominance?

There’s definitely a place for all those technologies. They all fit different niches: some are more optimally suited for different types of biomass, and produce different outputs. There’s gasification, pyrolysis, enzymatic hydrolysis, acid hydrolysis, ionic liquids… the list is pretty long and varied.  Converting biomass to fuels and chemicals is a highly complex process, with a lot of local variation.  That makes it unlikely that there will ever be  one universally accepted and used technology, particularly where there are economic barriers around the spread of that technology, such as patents and licensing, not to mention the technical barriers. You won’t see a homogenization any time soon.

To conclude, speaking of technological variety, have you heard about DARPA’s initiative called Living Foundries? What is your take? 

An important step in the maturation of any technology is the presence of a unified concept. Take the Microsoft Office Suite, for example. Word, PowerPoint, Excel, Access, and Outlook: it all works as a package. 20 years ago, though, they were products which were sold separately. What catalyzed their rapid and widespread adoption was the development of the suite of tools, which made the tools easier to use together, and also allowed for better results as far as collaboration is concerned. In industrial biotechnology right now, you have genetic engineers talking to oil and gas specialists, and they’re all talking with engineering companies…it’s kind of a mess in terms of communication and collaboration. Somebody coming in to establish some de facto standards and structures would be really useful, because that would eliminate a lot of the complexities and accelerate the consolidation of the end-to-end concept, and make it easier for the majority to start effectively collaborating and implementing all these technologies.  It would de-risk the field a lot, as well as finding some things that nobody’s willing to go into today, just because it’s too risky and poorly understood.

*Here are some numbers that back that up:

• Ethanol consumed about 32.4 percent of corn use in 2009/10.  Additionally, corn-based ethanol production exceeds 9 percent of annual gasoline consumption (via the USDA).
• About 12% of the U.S.corn crop ends up in foods that are either consumed directly (e.g. corn chips) or indirectly (e.g. high fructose corn syrup). It also has a wide array of industrial uses including ethanol, a popular oxygenate in cleaner burning auto fuels (via the EPA).