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Biofuel companies at the crossroad

Biofuel has narrowed its cost and performance gap to petroleum with help from academic labs and venture partners – but how will it become competitive?

According to Lux Research, a final and significantly more daunting hurdle now confronts biofuel developers: Competing on scale with the multi-trillion dollar petroleum industry.

Clearing that hurdle will take enormous injections of cash, engineering support, and help in developing biofuel distribution channels – all resources that corporate partners are better equipped to provide.

Developers and corporations that hope to own a share of the biofuels market over the long run will need to form smart partnerships today, according to the latest report from Lux Research.

The report, titled Aligning Contribution: Partnering Strategies in Biofuels and Biochemicals, analyses criteria by which developers and corporations measure prospective partnerships, based on 30 in-depth confidential interviews with biofuel developers and prospective corporate buyers. It provides parties on either side of the biofuel table with guidance on how to proceed.

“Developers cannot hope to commercialise their technologies without buyers, and buyers will not have access to innovations without tech developers,” says Samhitha Udupa, a Research Associate at Lux Research, and the report's lead author.

“But there’s often a disconnect on how to value innovations. Developers believe their product flexibility, unit cost projections, and company’s maturity are key to driving value, while corporations find these factors unimportant.”

The report identifies four different partnership models, including:

  1. Symbiosis: This partnership occurs when biofuel technology developers bring and share (to a practical degree) a demonstrably superior innovation to the partnership while corporations contribute heavily to synergistic applications, and tout their partner to others in the field.
  2. Predator/prey: In this relationship, a hopeful biofuel developer aims to vertically integrate for added value, while a predatory corporation injects a little cash and reaps the public benefits of ties to the developer.
  3. Parasite/host: Here, biofuel developers take the corporation’s name and money, but hand over little more than patents, drawing resources out of the corporation while returning little value.
  4. Peaceful coexistence: In this outcome, biofuel developers and corporations employ a “wait and see” attitude with each other, as both sides see the relationship as little more than an exchange of goods.

“Achieving scale – on the order of $100 million per biofuel plant – is a significant impediment to the success – and even the survival of technology developers,” says Udupa.

“As more developers approach this stage in their development, it will be harder for them all to survive, and harder for prospective buyers to distinguish the potential winners.”

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