Colorado-based Gevo makes isobutanol, a second-generation biofuel that it says has a number of advantages over ethanol and biodiesel, including higher efficiency and the ability to be transported through existing pipelines. But the company’s proprietary technology produces and separates isobutanol using a fermentation process that still needs food crops like corn, wheat, sugar cane or sugar beets as a feedstock.
With the promise of cellulosic ethanol — biofuel from non-food sources — still a distant vision, Gevo is hoping investors will see the $150 million initial public offering it announced this month as a smart bet that provides a bridge to the future.
It’s banking on a business model that involves retrofitting existing ethanol plants, which it says can cut the time and capital required to get a production facility running.
“The technology they have is promising,” as is their plan to build upon existing facilities, Tammy Klein, assistant vice president of Hart Energy Consulting, told SolveClimate News. But ultimately, she said, the company’s decision to file for an IPO probably has more to do with tight credit markets and a lack of access to capital during the economic downturn than the strength of the biofuels sector as a whole.
“Raising capital is an issue,” Klein said. “That’s why Gevo is doing this.”
Among biofuel companies, Gevo isn’t alone in the push to go public.
Days before Gevo’s announcement, algae-to-fuel company PetroAlgae filed for a $200 million IPO. In April of this year, Codexis, which makes biocatalysts to create biofuels and chemicals and is one of Gevo’s main competitors, went public. Hoping for a $100 million IPO, the Silicon Valley-based company brought in $78 million. In the same month, Amyris, which also creates synthetic organisms to produce fuel and chemicals, filed for a $100 million IPO.
For Gevo—which tallied $660,000 in revenue and $19.9 million in losses in 2009—and its brethren, success may be a matter of riding out an initially tough market, according to a 2009 report by market research and consulting firm Pike Research.
“In the near term, the biofuels market looks like a train wreck,” Pike’s managing director Clint Wheelock said in a statement when the report was released. “The economics of ethanol and biodiesel are not yet competitive with petro fuels, and governments have pulled back some of their support.
"However, in the 10 to 15 year timeframe, the outlook remains very positive. The long-term commitment of national governments to foster robust biofuels markets remains solid, and technological advances and economies of scale will dramatically improve the economics of biofuels versus petroleum.”
In the United States, one part of that government commitment is an alternative fuels requirement passed in 2007 that calls for 13 billion gallons of liquid transportation fuels sold in 2010 to come from alternative sources, including biofuels, a mandate that grows to 36 billion gallons by 2022. Of this amount, a minimum of 21 billion gallons must be advanced biofuels.
In early 2010, the Obama administration laid out a strategy of government action intended to support the biofuels industry in meeting alternative fuel targets, which included backing drop-in fuels like Gevo’s, as well as technologies that make use of the nation’s current ethanol infrastructure.
In its filing with the U.S. Securities and Exchange Commission, Gevo said its isobutanol could have applications in about 40 percent of the global petrochemicals markets, and serve as a drop-in replacement for petroleum-based materials.
Key to the company’s technology platform though, and the thing that will minimize the amount of capital needed to produce its isobutanol, is its compatibility with current ethanol production facilities. That means it can develop facilities by retrofitting existing ethanol refineries rather than embarking upon costly new construction processes, making it more cost-competitive with petroleum-derived products, according to the company.
“We also believe that the raw materials produced from our isobutanol will be drop-in products, which means that customers will be able to replace petroleum-derived raw materials with isobutanol-derived raw materials without modification to their equipment or production processes,” Gevo wrote in its S-1 filing.
“In addition, the final products produced from our isobutanol-based raw materials will be chemically identical to those produced from petroleum-based raw materials, except that they will contain carbon from renewable sources. We believe that at every step of the value chain, renewable products that are chemically identical to incumbent petrochemical products will have lower market adoption hurdles, as the infrastructure and applications already exist.”
Because Gevo is in a quiet period as a result of filing for an IPO, the company was not able to comment directly to SolveClimate News.
Long Road to Profitability
Still, for Gevo and other biofuel companies the road to commercialization—and then on to profitability—could be a long one. In August, the company, which launched its first demonstration project in 2009, also announced that it had acquired an ethanol production facility in Minnesota from Agri-Energy, which it plans to retrofit to begin producing isobutanol in early 2012.
“We are a development stage company and, to date, our revenues have been extremely limited and we have not generated any revenues from the sale of isobutanol,” the company wrote.
“Furthermore, we expect to spend significant amounts on further development of our technology, acquiring or otherwise gaining access to ethanol plants and retrofitting them for isobutanol production, marketing and general and administrative expenses associated with our planned growth and management of operations as a public company. As a result, even if our revenues increase substantially, we expect that our expenses will exceed revenues for the foreseeable future.”
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