A fundamental mismatch exists between clean energy projects and venture capital funds.  This conclusion, in a Harvard Business School working paper “Venture Capital Investment in the Clean Energy Sector” by Shikhar Ghosh and Ramana Nanda, emphasized investor expectations of extraordinary financial returns from successful projects in order to balance out numerous failed projects.  The problem with energy projects is that they can take decades to succeed, require enormous capital resources and, in the case of liquid biofuels, compete in an efficient commodity market (i.e. oil).  This working paper was published in 2010 and cited by David Rotman in Technology Review.

In 2011, Forisk and the Schiamberg Group published a study – Transportation Fuels from Wood: Investment and Market Implications – that evaluated 36 cellulosic biofuel projects and estimated commercialization timelines for 12 technology approaches in the United States.  Projects producing drop-in fuels appeared to have superior potential for investors and timber markets.   While we found major technical hurdles that would likely disrupt commercialization, we identified promising projects and strategies including, for example, gasification technology (for diesel and/or jet fuel) and catalytic fast pyrolysis.

Now, in 2012, recent announcements reaffirm the relevance and implications of these previous studies:

• U.S. cellulosic producers will massively miss EPA projections and mandates dictated by the 2007 Renewable Fuel Standard.  As noted by Mike Orcutt in “U.S. Will be Hard-Pressed to Meet its Biofuel Mandate” (May 9, 2012), “Congress [in 2007] vastly overestimated the government’s ability to create a market for cellulosic biofuels.”
• Biofuel projects continue to retool.  Forisk’s 2011 study emphasized the advantages to investors from firms with flexible end product strategies focused on drop-in fuels and other chemical products.  Amyris, a firm that applies synthetic biology technology to produce alternatives to conventional chemical and petroleum products, announced in their Q1 2012 earnings call that they are getting out of the biofuels business.  Rather, the firm will focus on higher-valued products, such as skin moisturizer.

“Transportation Fuels from Wood” is now available at 60% off the original publication price.  For more information, please click here.