R-Squared Energy Blog

Pure Energy

Aventine, Verenium on the Ropes

Reality is starting to catch up with prospective cellulosic ethanol producers. I felt like this was bound to happen, but the poor economy is making it happen faster than I expected. I expected some plants to be built, and then they would bleed red ink for a while before declaring bankruptcy. But many are running into trouble before breaking ground on a plant:

Time Running Out For Aventine

Late Monday, Aventine Renewable Energy Holdings (nyse: AVR – news – people ) announced it didn’t expect to have enough capital to cover an upcoming $15.0 million interest payment due April 1 on an outstanding senior unsecured 10.0% fixed-rate note or to pay $24.4 million due to its engineering and construction contractor, Kiewit Energy. It also said it may need to seek Chapter 11 bankruptcy protection if it cannot raise the cash.

Aventine was also delisted this week from the New York Stock Exchange:

NYSE delisting ethanol producer Aventine

The NYSE said the Pekin, Ill.-based company’s market cap fell below its required $15 million level for 30 consecutive days. The exchange recently relaxed the rule from $25 million because of market volatility and decline.

While “Aventine has had a cellulosic project underway since 1990“, I don’t believe they had announced a facility. Verenium, on the other hand, had been in the news for an announced $300-million cellulosic ethanol plant in Florida. The only problem is, they need $300 million:

Auditor questions Verenium’s ability to continue

An outside auditor for Verenium Corp. said in a filing Monday that the advanced biofuels company may have to “curtail or cease operations” if it cannot raise additional capital. Verenium, in an Ernst & Young audit opinion included in a year-end report filed with the Securities and Exchange Commission on Monday, said its operating plan and existing working capital deficit raises doubt about its ability to continue.

“We continue to experience losses from operations, and we may not be able to fund our operations and continue as a going concern,” Verenium said in the filing. The company said it will need additional capital to fund operations, including about $300 million to complete its commercial cellulosic ethanol plant with BP.

In a related story, I am announcing my plans to build the world’s largest algal biodiesel plant in Texas. But I will need someone to loan me $800 million so I can build the 20 barrel per day facility.

As I noted in an essay last month, capital costs for the proposed Verenium facility are quite high relative to comparable corn ethanol plants which are themselves struggling to survive. I speculated that Verenium would be not be able to make cost-competitive ethanol, and would only survive via mandate. Looks like even that may have been too optimistic.

In the long run, though, I stand by my assessment that conventional cellulosic ethanol will never be viable. I just wonder how many tax dollars we will throw at the problem before it is widely recognized.

March 26, 2009 Posted by | Aventine, bankruptcy, cellulosic ethanol, Verenium | 50 Comments

Update on CWT IPO

A couple of months ago, in response to a story that Changing World Technologies was going to file an IPO to help commercialize their TPD technology, I reposted my story:

TDP: The Next Big Thing

Turns out they decided against the IPO. Bankruptcy seemed the better option:

Renewable Environmental Solutions owner closes plant in Missouri, files for bankruptcy

Changing World Technologies Inc., based in West Hempstead, N.Y., filed for Chapter 11 protection Wednesday in the U.S. Bankruptcy Court for the Southern District of New York.

In a news release, the company, which owns the Renewable Environmental Solutions plant in Carthage, said it was trying to reorganize its business and find new financing “to fund its operations going forward and to move ahead with its expansion strategy.”

The company said in filings with the Securities and Exchange Commission that it had lost $18.8 million for the nine months ending Sept. 30 and had an accumulated deficit of $117.8 million.

They have had a long fall from the cover of Discover magazine, where they were going to be the solution to the world’s energy problems. Let’s review some of the quotes from that initial article, and then consider the fact that the company never made a dime:

“This is a solution to three of the biggest problems facing mankind,” says Brian Appel, chairman and CEO of Changing World Technologies, the company that built this pilot plant and has just completed its first industrial-size installation in Missouri. “This process can deal with the world’s waste. It can supplement our dwindling supplies of oil. And it can slow down global warming.”

Pardon me, says a reporter, shivering in the frigid dawn, but that sounds too good to be true. “Everybody says that,” says Appel. “The potential is unbelievable,” says Michael Roberts, a senior chemical engineer for the Gas Technology Institute, an energy research group. “You’re not only cleaning up waste; you’re talking about distributed generation of oil all over the world.”

“This is not an incremental change. This is a big, new step,” agrees Alf Andreassen, a venture capitalist with the Paladin Capital Group and a former Bell Laboratories director. “We will be able to make oil for $8 to $12 a barrel,” says Paul Baskis, the inventor of the process. “We are going to be able to switch to a carbohydrate economy.”

And it will be profitable, promises Appel. “We’ve done so much testing in Philadelphia, we already know the costs,” he says. “This is our first-out plant, and we estimate we’ll make oil at $15 a barrel. In three to five years, we’ll drop that to $10, the same as a medium-size oil exploration and production company. And it will get cheaper from there.”

CWT and their TDP promises are the poster child for the strategy of “overhype your technology to pull in investors, and hope the technological problems are resolved.” They had endorsements from lots of people, and a gushing article in Discover. But reporters and investors didn’t ask the right questions, and they didn’t do their due diligence, and the result was a lot of dollars flushed down the toilet.

The sad thing is, history is repeating itself right now with most of these cellulosic ethanol and algal biodiesel companies. They all have a great story to tell, they are all going to solve the world’s energy problems, and the majority of them will be bankrupt inside of 5 years.

March 13, 2009 Posted by | bankruptcy, Changing World Technologies, Thermal Depolymerization | 87 Comments