In today’s renewable energy markets, ideas abound but implementation doesn’t come easily without money, and scaling up is expensive and time-consuming.
Investors and partners can make the transition simpler for research and development companies, especially if those partners bring years of experience, good reputations and industry expertise. Texas-based Terrabon LLC seems to have found the right partners to help commercialize its waste-to-biofuel technology: Waste Management Inc. and Valero Energy Corp. Both are prominent in their industries. Valero is North America’s largest petroleum refiner and marketer, with 16 refineries and seven ethanol plants. Waste Management is a leader in providing environmentally friendly waste disposal systems, including 367 collection operations, 16 waste-to-energy plants and 111 landfill gas projects, among others.
“The biggest impact is that we are now the first fully integrated biofuels company with upstream and downstream partners that have a North American footprint,” says Terrabon CEO Gary Luce. “This technology allows those two industries to link up and better use their sustainable model of converting organic waste to produce biofuels.” Waste Management acts as the upstream partner, securing waste feedstock for the system while Valero serves as the downstream partner, helping to distribute and sell the biofuel.
The Process
Terrabon licensed its MixAlco technology from Texas A&M in 1995. “We’ve added a whole bunch of [intellectual property] to the original license over that time,” Luce says. “It wasn’t all ready to go then. They were just beginning to research.” The process converts waste material such as municipal solid waste (MSW), sewage sludge, forest product residues and energy crops into chemicals and secondary alcohols. Those elements can be further refined to renewable gasoline through the traditional petrochemical refining process.
Terrabon is also working on commercializing its other two processes: Advanced Vapor-Compression Evaporation (AdVE), which desalinates brackish and salt water to create potable water; and SoluPro, which converts protein-bearing waste material into animal feed or commercial adhesives. “These other two technologies actually birthed out of the biofuels process,” Luce says. Waste Management and Valero have invested in the entire company, meaning their dollars will go toward commercialization of those technologies, too. “MixAlco is their primary interest, but they have access to all the technologies,” Luce says.
The MixAlco process consists of a lime pretreatment followed by fermentation by microorganisms, producing a mixture of carboxylic acids, such as acetic, propionic or butyric acids. Calcium carbonate is added to neutralize the acids and form their corresponding carboxylate salts, such as calcium acetate, propionate and butyrate, according to Terrabon. The next step can produce either ketones or carboxylic acids. The salts can be dewatered, concentrated, dried and thermally converted to ketones such as acetone, which can be hydrogenated to produce secondary alcohols such as isopropanol, propanol and butanol; or the carboxylic acids can be recovered from the fermentation solution by reacting with tertiary amines to form tertiary amine carboxylates and calcium carbonate that are then cracked to regenerate the tertiary amine and produce the carboxylic acids. The tertiary amine and calcium carbonate are recycled within the process, so no chemicals are consumed, according to Terrabon. The resulting carboxylic acids such as the ketones, can be hydrogenated to form primary alcohols such as ethanol. Those primary or secondary alcohols can then be oligomerized to produce gasoline, diesel or jet fuel, according to the company.
The product is a drop-in fuel, similar to others on the market and ready to be blended for use, Luce says. “You can blend it and stick it in a pipeline and move it on down the existing infrastructure,” he says. “It doesn’t have issues that other oxygenated fuels like ethanol have where you have to splash blend it right before you go to the retail station because of water and corrosion issues.”
The Partnership
Strategic partnerships similar to this one provide a winning scenario for all involved, according to John Eustermann, a partner with law firm Stoel Rives LLP. “It’s a brilliant approach,” he says. An upstream/downstream model is a goal for most companies. “You want to bring in a strategic investor,” he says. “Not just an investor. Not only are they bringing their checkbook, but they’re bringing other intellectual capital to the table that will assist Terrabon in ramping up its model. That’s what you want to look for when you’re a young company.”
Investors need to bring something above and beyond the dollar sign to maximize the benefit to companies in which they invest, Eustermann adds. “You don’t want to be an investment vehicle where the third party is simply looking for a return,” he says. “They’ve got to bring a little something extra to the table.”
Securing Strategic Investors
Rick Kment, biofuels industry analyst for DTN, agrees and thinks strategic investing trends will grow in the coming months. “You need to focus on companies that share the same core competency or are in the same industry,” he says, adding that both Waste Management and Valero have significant ties to Terrabon’s core focus areas. “I think we will see a significant move in the industry to magnify and utilize the strengths of each company.”
In the past few years, companies have focused more on sustainability and trying to survive in difficult financial times, Kment says. “This is probably the first wave of investments from industries moving out of the scaling-back mode.” Investment expectations also have changed during financial setbacks, he adds. “The overall devaluation of a lot of these companies has brought asking prices for investments lower than they were two years ago,” he says.
“When you look at the overall percentage of investment that these large companies are putting into small companies, I think it’s a small scope compared to their overall size,” Kment adds. “But at the same time, it really is a shot in the arm for some of these development companies that are able to access and gain the partnership.”
Waste Management and Valero benefit from the partnership in that they are positioning themselves to have access to the product and be part of the industry without having to start from scratch building an idea, Kment adds. Smaller companies penetrate the market and large companies can save time and money by investing in those already-developed technologies, Eustermann adds. “It’s a portal of entry into that space that they may otherwise not have been attracted to,” he says. It’s not uncommon for large companies to invest in smaller ones, he adds, but the upstream/downstream model is not easily achieved.
Valero has made two investments in the company, the first in April, but has not disclosed the amounts, according to Bill Day, executive director of media relations for Valero. “We’ve done some investments in cellulosic ethanol; we’ve done some investments with biodiesel,” he says. “This one is more of a synthetic gasoline so it gives us some diversity.” Valero has invested in Qteros, a company that uses a microbe to produce cellulosic ethanol; Solix, which produces biodiesel from algae; and Zeachem, another cellulosic ethanol developer, Day says. Terrabon’s Texas location was also a contributing factor in Valero’s decision to invest, Day says, as Valero also calls the state home. “We’re very interested in what the next generation of fuels will be in this country,” he says. “We realize that renewable fuels are going to have a place in that so our investment in companies like Terrabon moves it forward.”
Waste Management announced in August that it would invest in Terrabon, also, which brings benefits to the other partners. “Anything that helps Terrabon advance its technology and produce the fuels is going to help our investment payoff,” Day says. “We’re glad Waste Management has become part of the team, as well.”
In fact, the announcement that Valero would invest in Terrabon helped attract attention from Waste Management and eventually spurred an investment and partnership, according to Tim Cesarek, managing director of organic growth for Waste Management. The company would not disclose the amount it invested but the transaction fits well into the company’s goal to double its renewable energy portfolio, he said. “We believe we have a core capability in and around the logistics of collection, hauling and recycling of waste materials,” Cesarek says in explaining what the company brings to the partnership. The industry giant has also recently invested in S4 Energy Solutions and its plasma gasification technology that converts MSW into synthetic gas. “Frankly, we see S4 as being complementary to Terrabon,” Cesarek says. Terrabon represents the company’s first investment in a direct conversion from organics to gasoline, he says. Waste Management is also working on a conversion of landfill gas to fuels and chemicals.
“The beauty of the partnership is we bring waste on an efficient basis to the venture, Valero brings the ability to market the product and Terrabon brings the technology to convert the waste to the product,” he says. “It’s a pretty nice opportunity.”
The Right Fit
With so many research and development companies on the cusp of commercialization, it seems a daunting task just to get noticed. “I think part of it was we were at a lot of technical conferences that they also attended and I think we just found the fit,” Luce says. “We finally built a management team around us.”
Eustermann says some companies attract attention through public relations campaigns, whereas others just have a solid technology that gains attention on its own. Those proven technologies start to appear more in the mainstream media, where they can acquire third-party investors to help advance them, he adds. “There’s a lot of capital out there being deployed in the waste-to-energy space,” he says. “If your idea is good enough, money will find you.”
“A lot of it has to do with networking,” Kment adds. “A lot of it has to do with compatible technologies.”
The Next Step
Construction on a MixAlco demonstration plant will begin in 2010 on Valero’s property in Port Arthur, Texas. It will consume 55 dry tons of waste per day and will be built next to Valero’s existing petroleum refinery. In addition, the three partners are working to pinpoint other locations that would provide wins for all of them, according to Luce.
Terrabon has two revenue models. One is build-to-operate and the other is to license to developers who pass the review process so they can build and operate their own systems, according to Luce. Terrabon’s target customers are refiners and chemical producers. “One of the reasons we’re building and operating on the MixAlco is that right now we’re the natural owners because we’ve been with the technology for so long,” he says. “Once the technology gets out into the market and people understand it, we’ll probably step back and do our primary focus, which is to license the technology.” Terrabon is in a position to best demonstrate the technology, he adds, while maintaining quality control and credibility. “That’s one of the reasons we’ve partnered with Waste Management and Valero: to go out and deploy this technology together and then show how it can be successful and then other people can come in behind us,” Luce says.
The same revenue models will be used for AdVE and SoluPro, but commercialization will be slower. An AdVE demonstration plant is being constructed in Laredo, Texas, and expected to be operational in the first quarter of 2010, Luce says. SoluPro doesn’t have a large market and time milestones developed by Texas A&M are several years out. “So it’s not at the top of our list right now,” Luce says.
The alignment of the three companies to commercialize Terrabon’s technologies is a natural convergence, Eustermann says, and not at all a surprise. “No one is ever going to say we have too much energy and I think everyone agrees that we have too much waste,” he says. “You can see in this instance, it’s really a nice deal for all of them.”
© 2009 BBI International Media
