Biofuels- quo vadis?

There has been a fair amount of hype in the biofuels arena over the last year or two. There were large project announcements on sugar/ corn based ethanol and cellulosic ethanol projects saw more activity beyond the blue print phase. Entrepreneurs also announced a slew of algae based culture for biofuel production. The hype was pretty thick until oil prices slid in late 2008, when a lot of projects started being shelved due to lower oil prices.

So where are we today? Are biofuels programs still going strong? Is the economic platform strong enough to weather the price deflation and volatility of these days? Has the credit crunch affected project financing?

These questions can be answered to a large part by the goverment policies and intervention. Regulatory & energy policies will affect much of the development of this field in the near future. The EU already has a strong set of incentives and program extensions for biofuels development and deployment at the retail end. The US has mandated that by 2022 7% of transportation gasoline come from cellulosic ethanol. The expectation is that the Obama administration will funnel more dollars on R&D in this area. Pure play biofuel companies such as Amyris are already moving along the path to commercialization in anticipation of these incentives.

The market for transportation biofuels is likely to be pretty large. Sandia Labs just released a report this week that found plant and forestry waste and dedicated energy crops could sustainably replace nearly a third of gasoline use in the US by the year 2030.

With those kinds of forecasts, its no wonder there has a steady drip of new venture investments in biofuels. Last year VCs , including a lot of marquee names like Vinod Khosla, funded biofuels startups to the tune of $680 million. Now even the majors are expanding their role. The Wall Street Journal reported yesterday that BP will be developing the world's biggest cellulosic biofuels plant in Florida through its partner Verenium.

The coming months will give a better picture on the investment climate for biofuels projects. The overall trend though is looking positive for the bio fuels industry.