Biomedical Engineering Reference
In-Depth Information
Initially, the biofuels sector was following the business model set by the biotech
and software industries. These industries operate on the investment/capital-lite
potentially very high revenues model. A highly successful example of this is
Google, which went public in 2004 with only $25MM of total external funding
and generating $3.2B in revenues in its first year. Although this is an extreme
example for even the software industry, this type of revenues/investment ratio is
completely outside the realm of possible for the biofuels industry. Investments in
R&D to develop the technology plus the required capital to build and operate a pilot
plant to demonstrate the technology will easily run into the $100 s of millions to get
the technology to a commercially viable state. Estimates for a pioneer commercial
plant are around $500MM or higher so the total investment to get to a commercial
state could be around $1B to produce a commodity product that will compete with
well-established first-generation ethanol and conventional gasoline. The time
period required to go from R&D stage to commercial production can easily be
10 plus years, which also serves as an impediment. Granted government R&D
funding or incentives can be leveraged to offset some of the costs as well as help on
the revenue side, still the promise of biotech or software industry types of returns on
investment simply is not realistic.
The cellulosic ethanol industry needs to abandon this unrealistic model, which
has led to overhyping and overpromising, and endorse a more realistic business
model based on sustainable value production over the long term. Given the large
amounts of resources and time required to develop the technology to commercial-
ization, the industry will need to pool assets either by strategic alliances or
consolidation to form strong players with the required resources and strong business
positions to be successful. The many small players with weak business plans, poor
strategic and intellectual property (IP) positions, and incomplete assets and capa-
bilities are plaguing the industry with too many failures and few to any major
commercial successes. This is giving the industry a black eye with the investment
community, government policy makers, as well as the fuel industries with a
reputation of being long on promises and short on delivery.
To focus on sustainable value production, the biofuels industry needs to reduce
costs and risk and focus on ways to increase revenue over both the near and long
terms. Pooling expertise, IP, and capital through consolidation and/or strategic
alliances can reduce risks. Since the industry grew out of R&D roots, there is too
much focus and redundancies in R&D to develop unique processes for unit oper-
ations such as pretreatment in biochemical conversion that in reality has minimal
impact on overall costs and yields and ultimately business position. Research and
development resources would be better spent on ways to increase revenue by
creating higher value products that can be sold into chemical, materials, or other
higher value markets to maximize potential for commercial success. The industry
also needs to look into innovative ways to reduce time to market since failure to
deliver on past commitments is adversely impacting the industry.
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