Not All Chemicals Are Created Equal™

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This is very good news: On April 24th the Master Limited Partnerships (MLP) Parity Act was reintroduced in both the U.S. Senate and House of Representatives. It gets better. The House and Senate bills are currently identical. Two, more pro-MLP supporters in both houses have signed on to support the bill. This means, at long last, a bipartisan bill to level the playing field will, when passed, give investors in renewable energy projects access to a decades-old corporate structure with a tax advantage now available only to investors in fossil fuel-based energy projects.

To give legislative credit where it is due, as reported by The Pew Charitable Trusts, Sen. Chris Coons (D-DE) introduced the bipartisan bill with original co-sponsors Jerry Moran (R-KS), Lisa Murkowski (R-AK), and Debbie Stabenow (D-MI). Congressmen Ted Poe (R-TX), Mike Thompson (D-CA), Peter Welch (D-VT), Chris Gibson (R-NY), and Cory Gardner (R-CO) co-sponsored companion legislation in the House.
Senator Coons for his part offers the following, compelling overview of the bill’s paramount timeliness and fairness:

By statute, MLPs have only been available to investors in energy portfolios for oil, natural gas, coal extraction, and pipeline projects. These projects get access to capital at a lower cost and are more liquid than traditional financing approaches to energy projects, making them highly effective at attracting private investment. Investors in renewable energy projects, however, have been explicitly prevented from forming MLPs, starving a growing portion of America’s domestic energy sector of the capital it needs to build and grow.

The Master Limited Partnerships Parity Act is a straightforward, powerful tweak to the federal tax code that could unleash significant private capital into the energy market.

The legislation, which is just over 600 words long, would level the playing field between traditional and new energy businesses by helping energy-generation and transmission companies form master limited partnerships, which combine the funding advantages of corporations and the tax advantages of partnerships.

By allowing additional forms of energy development to access this market tool, we can go beyond political rhetoric and start delivering an all-of-the-above energy strategy.

For an excellent, detailed, overview of this news, as well as information about legislative next steps, please check out The Hill’s April 24th report by Zack Colman entitled, Lawmakers float renewable energy finance bill.

Lastly, for a more detailed technical explanation of MLPs, here is a link to the Investopedia breakdown.

This Wednesday, May 1st in Beverly Hills, California, Myriant CEO Stephen J. Gatto will be a featured panelist at the Milken Institute’s Global Conference. He and four other industry-leading panelists will speak to the topic: For Renewable Energy, a Painful Transition to Maturity.

More specifically, Mr. Gatto’s remarks at the event will focus on how the renewable chemicals space differs from renewable fuel, and why biochemicals will be successful where renewable fuels may not have been. Among other things, Mr. Gatto will note that today, there are nearly 2,000 companies in the United States that either manufacture or distribute nearly 20,000 bio-based products. Moreover, Myriant’s analysis indicates that, in the United States, bio-based chemicals offer tremendous economic and socio-political advantages including reducing dependence on imported oil, curbing emissions of greenhouse gases, and opening up new opportunities for farmers and rural communities. To that point, according to USDA projections, bio-refineries, like Myriant’s, that process renewable resources, have the potential to create 700,000 jobs and $88 billion in economic activity across rural America over the next handful of years.

This is an important global event. The Milken Institute is a nonpartisan economic think tank that produces rigorous, independent economic research—and maximizes its impact by convening global leaders from the worlds of business, fi¬nance, policy, academia, and philanthropy seeking to foster collaboration between public and private sectors to transform ideas into action.

Guest blogger Doug Williams writing for Venture Beat presents a compelling review of investment and expectation errors associated with the biofuels industry in recent years. It is an important piece for us from the standpoint that the bio-based chemicals industry, while different, is often associated with the same risk/reward equation as biofuels. Nothing could be further from reality and Mr. Williams, who is the author of “Advancing Fuels: A Review of the Challenges Facing the Advanced Biofuels Industry” confirms this all-important difference.

In his post, entitled What investors got wrong in advanced biofuels, he bookends his review of biofuels problems with this high-contrast assessment of the bio-based chemicals industry: An encouraging comparable is the emerging bio-based chemicals industry. In this industry you see stronger involvement among strategic investors than traditional VC-backed startups, indicating a better alignment of risk for these investments. Since the market is different, the existing technology pathways may be sufficient to reach commercial operations at more reasonable costs…

In our case, at least, that’s absolutely correct. Thank you Mr. Williams.

The following comes from a recent posting by David C. Constable, Ph.D., and ACS GCI Director, writing for Green Chemistry: The Nexus Blog. It’s about a recent presentation made by Myriant CEO Steve Gatto as a guest of the Global Environmental Facility (GEF), which is an organization started by the United Nations Development Program, the UN Environment Program, and the World Bank.

In his Message from the Director, Dr. Constable writes in part: I was particularly struck by a presentation made by the CEO of Myriant, Steve Gatto. Steve, gave an outstanding presentation of Myriant’s vision for developing succinic acid from bio-based feedstocks. Perhaps the reason I resonated with his story is that he is making the “drop into place” approach to market entry work… What sets Myriant apart in a potentially risky market is that unlike many feedstocks from petroleum, they can produce succinic acid for less than it can be produced from petroleum, and it’s a C-4 chemistry ready for diversification into many different chemicals and potential products. As a matter of fact, Myriant is in the happy place of having excess demand for a product. In addition, its life cycle profile is considerably more beneficial, and it is made from sorghum or other plants–plants that are not competing for an end use as food.

At a Senate Energy and Natural Resources Committee hearing on Tuesday, April 9, 2013, convened to consider the nomination of Dr. Ernest Moniz to be the Secretary of Energy, some very positive news was made by the candidate in response to a question about financing clean energy and related solutions. This from a summary of the meeting’s proceedings:

U. S. Senator Maria Cantwell (Dem.-Washington) asked about renewable energy as part of the portfolio and about financing clean energy solutions. Dr. Moniz said he is interested in different approaches, such as extension of master-limited partnerships (MLPs) and real estate investment trusts (REITs) to clean energy.

With specific focus on MLPs especially, this is drawing widespread support, not the least of which is coming from Myriant, the New England Clean Energy Council (NECEC) and others already mobilizing a campaign to further influence Congress to finally act on this opportunity. Here’s why, as explained by NECEC in its letter, with signatories from our industry, to House and Senate members:

An MLP is a “publicly traded partnership” that holds energy or other specified assets. MLPs are traded on public stock exchanges so that small and institutional investors can buy and sell them at any time. Similar to how mutual funds allow investors to make small investments in diversified stock portfolios, MLPs allow investors to take direct stakes in energy projects. MLPs have helped build much of our modern oil and gas infrastructure, most recently fueling the shale revolution in oil and gas. In 2012 alone, MLPs raised over $23 billion of new capital for eligible projects. Supplementing dozens of other tax incentives along various stages of the oil, gas, and coal energy supply chains, MLPs have provided a stable and efficient source of capital, but only to the energy sectors that are currently eligible…

MLP treatment can take the clean energy industry from relying on a small base of investors demanding high rates of return to a broader and deeper investment pool that MLPs have created for the fossil fuel industry.

REITs, much more familiar, are important too, of course, because they share the same liquidity and small investor profile. Here, from is an excerpted definition of REIT:

Dr. Moniz is to be applauded for his vision in this regard. It may at long last signal the adoption of financing policies and options that put renewables at parity with the long-enjoyed special benefits granted to petroleum-based operations. We at Myriant look forward to his confirmation, and his advocacy for a sensible set of financing initiatives that can accelerate America’s renewables position in the world.