Renewable Energy Group Inc. (REGI) went public this week in what was the first big-name biofuel IPO of 2012. The biodiesel firm's public offering was billed as a litmus test for the market, which might not be as hot as REGI expected. The company raised $72 million in its IPO, less than the $124 million it was shooting for according to its S-1.

REGI sold 7.2 million shares at $10.00 a piece after offering 7.3 million at $13.00 to $15.00. Yesterday the firm's stock jumped up to $10.29 at one point. It's since dipped back to $10 even. Still, as the first IPO in the U.S. this year, it's already outperforming last year's offerings. According to Bloomberg, stocks that debuted in 2011 lost an average of 4.2 percent as of Wednesday.

REGI, based out of Ames, Iowa, is the biggest biodiesel producer in the United States. It's an interesting case for biofuel IPOs because, as compared to a number of firms who filed S-1 forms last year, it's a large company with a lot of revenues. The midpoint of REGI's IPO price range values the company at $401 million, compared to revenue of $557 million in the first nine months of 2011.

That's a huge difference from the past set of biofuel firms to go public. Advanced biofuel firms like Amyris, Codexis, Gevo, and Kior all have smaller revenues and a long way to go before becoming profitable. They've also lost momentum since going public: Gevo's stock has dropped about 58 percent since its offering in February 2011, while Amyris has dropped about 34 percent since going public in September 2010.

Meanwhile, REGI was cash flow-positive by the fourth quarter of 2010, and accounts for a huge portion of U.S. biodiesel production. Profitability has been helped by Congress last year reinstating a $1-per-gallon blender tax credit. REGI also switched to using animal fats for up to 90 percent of its feedstock in 2009 after soybean oil prices doubled.

With a number of other firms waiting in the wings to see if IPO conditions are right, the big question is how REGI's IPO performance reflects on the biodiesel market. There are two ways of looking at it. First, with a giant producer like REGI missing its targets while the stock prices of next-generation firms have dropped, it's easy to take a negative outlook on biodiesel. REGI's case also highlights the fact that, at its essence, first-generation biofuel producers are squarely in the commodities business. Because REGI has shifted away from the established, albeit expensive, soybean market into animal fats, cooking oil and inedible corn oil, the firm has a more difficult time making long-term contracts at fixed prices. Profitability at REGI relies on being able to hedge effectively.

On the other hand, the biodiesel market continues to grow, helped by the 1 billion gallon federal mandate handed down for 2012. REGI is growing rapidly, and the infusion of cash from its IPO is at least partially slated to help increase its production capacity.

REGI's offering does highlight the fact that, despite the promise of low- and zero-cost feedstocks, it's going to be some time until next-generation biofuels catch up.