First published in Quoted Cleantech, December 2010

Biofuels and biofuel feedstock companies have, at best, a mixed record on London’s Alternative Investment Market, but the sector has been one of the better performers in the Sigma AIM Cleantech index. Over the past year it has risen by around one-fifth – although this rise can be partly attributed to the extent to which these companies had fallen previously.

AIM-quoted KBC Advanced Technologies is an adviser and consultancy to refining businesses. Although KBC’s main focus is oil refineries, it does take an interest in biofuels. Stephen George, senior refining analyst at KBC, attended the World Refining Association’s Biofuels 2010 conference in Amsterdam and reported on it in a note to clients.

According to George, the conference “presented an optimistic industry with considerable prospects for the decade ahead”. A presentation by the International Energy Agency (IEA) indicated that governments are ready to invest $6 billion in developing second generation biofuels, while KBC expects global biofuels output to double over the next decade to five million barrels per day.

Production of second-generation biofuels is complicated and capital intensive, and the market needs long term certainty to make their production viable.

KBC believes that, at the current state of technology, the industry cannot survive without subsidies and legislative support. If this type of backing is not available, biofuels production will move to areas which can provide the cheapest feedstocks.  

George notes that early stage investors are increasingly on the sidelines, with larger companies stepping up to back technologies. For example, a number of the businesses presenting at the conference were backed by Royal Dutch Shell. George adds that the rate of technological development since the previous conference has been significant and “production has moved off the lab bench, with demonstration-scale technology now in operation”. However, a great deal of further development remains to be done.

European Renewable Energy Directives are attempting to reduce pollution by championing the use of biofuels and other renewable energy sources. The target is that such renewable energy sources should make up at least 10% of the energy used in the transport sector. However, obtaining the necessary feedstock could present a problem in achieving this target.   

One of the complications of the EU policies is the lack of standards for sustainability certification. According to the EU Directive, each Member State can adopt its own certification methodology, leading to worries that individual countries could use different methodologies in order to erect trade barriers with other countries.

Some countries, including the UK, want to see a clarification of the details before tying the hands of companies in the sector. Another danger is that support could be given to crops which do not comply with the certification standards when they are finally published.

Although sustainability criteria are supposed to come into force on 5 December, the EU has not yet certified any methodology. This means that “obligated parties” will have to self-certify that their fuels are lifecycle sustainable.  Four countries within the EU have not yet even published their National Renewable Energy Action Plans!

Legendary Investments, a tiny investment company quoted on AIM, has announced that it has been granted an option to acquire up to 40% of Bosques Energicos EBE SA de CV. Mexico-based Bosques Energicos is developing pongamia pinnata trees, the seeds of which can be crushed to produce biodiesel with the remaining oil cake being used as fertiliser. The attraction of pongamia pinnata, which has a low water requirement, is that it can be grown on degraded, marginal or saline land, which means it is not using land that could easily be used for food production.

Madagascar-focused GEM BioFuels, which develops jatropha plantations, is an example of a small AIM company that has found it difficult to progress because of a lack of cash. The shares returned from suspension last month and GEM is seeking a further £2 million.

As biofuels technology develops more feedstocks will be required. However, these AIM feedstock companies remain speculative because of both their lack of cash and uncertainty about their ability to attract further investment.

 

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