Greentech Media

Biofuels have had a hard year, in spite of strong support from President Bush, who in January proposed a fuels standard to require 35 billion gallons of renewable fuels in 2017 -- five times the current target -- and a Congress that turned that into 36 billion gallons by 2020, with 20 billion of those gallons coming from nonfood crops (see Bush Backs Alternative Fuels and President Signs Energy Bill).

First, there were the tortillas. In January, tens of thousands of workers and farmers protested a spike in tortilla prices in Mexico. While industry insiders said the spike was due to futures trading, not a corn shortage, the event heated concerns that ethanol was competing with food. The Earth Policy Institute in March released a report claiming that ethanol ate up about 16 percent of the grain harvest in 2006 and projecting that number would grow to nearly a third by 2008.

Startups turned to nonfood technologies, working on ways to develop algae for biodiesel, to make biofuels more cost-effective and to make fuel from pollution (see Salty Fuel, Oil From Slime, Startups Seek Funding At Cleantech Forum, Chevron Seeks Slime and PetroSun to Churn Out 180M Gallons of Oil From Algae; Growing Biofuel Crops, Biofuels Get Financing Downpour, Range Fuels Breaks Ground on First Commercial Cellulosic Ethanol Plant, Targeted Growth Gets $22.3M, Diversa Buys Celunol for $182.45M and Cutting Biodiesel Costs with Camelina; Fuel From Thin Air, Turning Coal's CO2 into Biomass and Spinning Pollution into Liquid Gold).

Biofuels startups saw a downpour of financing as venture capitalists took on part of the role of project financiers (see Imperium Raises $214M, Biofuels Get Financing Downpour, Are Biofuels Pushing VCs Into A New Role? and VCs Take Risk on Project Finance).

But aside from hitting biofuel companies' reputations, high corn and vegetable oil prices also ended up hurting their wallets. As prices for those feedstocks grew, prices for biofuels fell as the demand failed to keep pace with skyrocketing growth in production. Companies saw their margins get squeezed and their share prices fall (see Ethanol Margins Suffer, Ethanol's Tough Times Continue and Ethanol Stocks Keep Falling). And analysts wondered if the hard times for these companies would dampen enthusiasm for next-generation technologies as well.

In response to the hard times, a number of biofuel companies canceled proposed plants (see Ethanol Margins Suffer, Biofuels Get Funding as an Ethanol Plant Gets Canceled, E3 Plant Craps Out, Another Ethanol Plant Gets Canceled and Biofuel Forecast Buoys a Bit). Some ethanol companies, such as VeraSun Energy Corp. (NYSE: VSE), appear to have settled on an acquisition strategy (see VeraSun to Buy Better Margins).

Xethanol Corp. (AMEX: XNL) in December announced it was diversifying into other renewable sectors, including wind power, solar power, energy storage, energy infrastructure, energy efficiency, waste recycling, agricultural processes and biomass gasification for electricity production. And Imperium Renewables ousted its CEO, former Microsoft manager Martin Tobias, last week (see Imperium CEO Leaves Amid Biofuel Profit Pressures).