Investing in Alternative Ethanol Fuels
Bill Warner Wednesday, December 03, 2008
What is happening to the ethanol business in the US? What did we get for the increase in grocery prices? Not much except for a higher cost of living and no corn. Ask anyone in the restaurant business what they think. Well, private equity investors aren’t too happy either. VeraSun is bankrupt, Aventine Renewables is trading at less than $2 per share and Hawkeye Holdings wasn’t even able to price its IPO. There continue to be reports that a gallon of ethanol takes more power to produce than it actually creates. Now with lower oil prices, the price of gasoline is hard to beat. Could it be that ethanol is not the right way to go?
Private Equity Bailing Out of Ethanol
Ugh, this is not what the “clean fuel” guys want to hear. Basic economics doesn’t seem to matter to them as they pursue their misguided view of the right alternative to reducing our dependence on foreign oil. This whole movement has been characterized by “firing now” and “aiming later.” Drilling for oil now and exploiting our natural gas potential is probably the best route to a practical approach to reducing our dependence while investing in sensible energy alternatives and maintaining some semblance of economic stability.
The private equity folks seem to see it that way too. For example, the Paladin Capital Group is leading the formation of a new ethanol production and infrastructure platform, called Vital Renewable Energy (VREC). They are assembling hundreds of millions with other participants being Leaf Clean Energy Company, Petercam Asset Management and PCG Clean Energy & Technology Fund.
Ethanol Investment Moves South
The interesting thing about this is that they are avoiding two major problems with this industry: the United States market and using corn as the basis for production. Instead, the company will focus exclusively on the Brazilian market, which is almost entirely based on sugarcane. Other private equity firms are poised to follow this same model.
The Brazilian ethanol market is booming, due to both the cost-effectiveness of sugarcane and a national adoption of ethanol as the power source of choice. No such commitment has ever been made in the US. Ninety percent of new cars sold in Brazil are flex-fuel, and new plants keep popping up to satisfy demand. VREC will focus on building new production plants, which
Filed Under: Angel Investment, International Business
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
