How to make $250M in cellulosic biofuels with an investment under $6M

Source: By Jim Lane, Biofuels Digest • Posted: Wednesday, May 4, 2016

The economics for cellulosic fuels are becoming more and more compelling.

Consider the example of Aemetis, which will deploy Edeniq’s Pathway technology at its 60 million gallon per year ethanol production facility located in Keyes, California by Q4 2016.

Here’s the bottom line for that technology play. Cellulosic fiber makes up approximately 10% of the corn kernel and cannot be converted into ethanol during the typical production process. By utilizing Edeniq’s Pathway technologies, including specialized enzymes and the Cellunator equipment, Aemetis says it can potentially increase revenues by $10 million at the company’s California production facility.

$10 million?! How are they doing that? Isn’t this commodity ethanol with roughly 4.2 million gallons of additional revenue from the added production capacity. Worth something like $6 million in revenue and not much profit in there?

Ah, grasshopper. Consider the opportunities in incentives. Aemetis reports that it will be able to monetize the Low Carbon Fuel Standard (LCFS), federal tax credit and advanced biofuels D3 Renewable Identification Numbers (RINs), which gives Aemetis approximately $3 per gallon in additional revenue.

What’s the value in a D3 cellulosic ethanol RIN, right now?

Our friends at Progressive Fuels Limited have the answers:

2016 D6 price: $0.7450
2016 D3 price: $1.7567
Difference: $1.0117

Worth noting that this difference is more than the $1.01 per gallon cellulosic incentive, a tax credit that is hugely valued, sought-after, and fought over.

What’s the value in a corn ethanol or cellulosic ethanol credit under the California Low Carbon Fuel Standard right now?

That’s a good question. No company has yet completed a pathway registration for cellulosic ethanol delivered into California, so far as we have discovered, and CARB is not reporting on one.

But here’s some indicative math. CARB projects that a cellulosic fuel with a carbon intensity of 20 would generate an LCFS credit of 65 cents per gallon, while a corn ethanol gallon with a carbon intensity of 80 would generate a 15 cent credit, based on today’s LCFS credit price of $116 per metric ton of emissions. The Aemetis plant is right at that 80 carbo intensity figure with its current production.

Put those together, what’s the added revenue?

So, you could easily add that $0.65 in extra value to a cellulosic fuel from the LCFS, plus the $1.01 in federal tax credits and the $1.75 from the RIN.

Consider 1.5 million gallons of cellulosic fuels and 2.7 million added gallons of corn ethanol.

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So, we see even more revenue than Aemetis does, based on Edeniq’s public statements on yield improvement and revenue change.


What’s the change to the bottom line?

We have this from Edeniq, based on a 120 million gallon facility. We’ll assume the CAPEX for the system is the same but that the added enzyme and maintenance costs are halved, giving us a net installation cost of $5.8M and an additional $1.15M in cost changes.

Let’s amortize the installation capex over 10 years. That gives us an annual cost of $1.695M and a net bottom line contribution of $10.21M.

What’s the change in the value of a public company with that kind of bump in earnings? The NASDAQ price/earnings ratio right now averages out to 25.75.

So, there’s an implied added company value of $262M. And that’s how you spend $5.8 million and realize $262 million, using your knowledge of cellulosic fuels.

Now, for some time we’ve said that the major players in ethanol pick up nickels in parking lots when no one is looking. In this case, you could paper a 27,800,000 square foot with dollar bills in terms of the value created here. That’s roughly a one square mile parking lot, and it would take you 31 years to pick them all up.