Some of my confrères in the alternative energy business will tell you that the high oil price is a great thing for the industry. Of course, they're largely right. If the oil price had instead fallen from $10 per barrel to $2 today from 1999, I doubt this and many other websites would exist. No question, higher oil prices do mean people do tend to look more closely at what the alternatives are and whether they can save money using them. Although we should not overlook completely that the oil business is even more motivated to keep drilling because in the face of excess demand and limited supply, the margins have never been higher.

Yet there's another much darker consequence of unaffordable energy - increased criminal temptation and activity. Which brings me the most novel alternative energy story of the week. Apparently, in the UK, the price of used cooking oil has risen 10 times in the last 5 years to £550 per tonne. That's because make your own biodiesel kits - see here - are increasingly available and making it cheap to run your vehicle on used cooking oil. Time was when restaurants couldn't even give the grease away. No more. In fact, now restaurants and fast food joints are having their used cooking oil drums stolen from them !

There just isn't enough used cooking oil to go around and to recoup the investment on your £1000 home biodiesel kit, you would presumably need quite a lot of the stuff. Added to that the reforming zeal of various green-minded middle-class campaigners railing and largely getting their way against blue collar fast food chains and you get a classic and complicated unintended consequence from oil at over $140 per barrel - increased waste and CO2 emissions !

I've just finished going through this free report on China's renewable energy programme just released on Renewable Energy World, which is dated January 2008. Apart from the odd bit of Chinglish, it's very good. Here are what I consider to be the highlights;

1. China will have to invest a staggering $263 billion by 2020 to meet its renewable energy targets. As there is a planned 170 GW of additional hydropower capacity which costs, conservatively, approx $1.2 billion per gigawatt then that leaves about $59 billion for solar, wind and biopower.
   

2. Wind - In 2009 China will become the world’s largest producer of wind turbines. In  2009 and 2010, Chinese  wind turbine manufacturers---Jin Feng (Golden Wind) and Hua Rui---will start to export. So deflation  in the cost of  these machines is finally in sight. This is big news.
   

3. Biofuels - China has approximately 212 m hectares of wasteland which could be cultivated for biofuel producing crops. Leaving aside the questionable benefits of biofuels, modern China likes to think big so don't think they won't try.
   

4. Solar PV - China only has 15 MW of it. The solar emphasis continues to be solar thermal in China and the cheapest solar thermal unit costs just $150. When will they start exporting them?
   

All of this for me is leading to one point - the next big wave in alternative energy  (after biofuels, solar, etc. ) ought to be Chinese alternative energy companies. There's also the added bonus that Chinese stock markets were down as much as 50% until a few days ago and oil is now at $118 a barrel. Chinese alternative energy companies - i.e. the ones who are investing in China have a lot of work to do. Finally, don't discount the very good chance by the end of the year that China's currency - the Renminbi - will float and appreciate upwards. That will alleviate the buying power of China's rural poor currently faced with record food prices. Of course, such a course of action will be denied right up until after the event, but no Chinese government wants to face down a new peasant revolt.

A very good piece here by Ambrose Evans-Pritchard, who explores some of the controversies around biofuels and food production, and then, more relevantly to us, cites Goldman Sachs as having come up with these figures for each kind of biofuel, for a barrel of oil equivalent. As he said;

Goldman Sachs says the cost of ethanol from corn is $81 a barrel (oil equivalent), with wheat at $145 and soybeans $232. It is built on subsidy. New technology may open the way for the use of non-edible grain stalks to make ethanol, but for now the only biofuel crop that genuinely pays its way is sugar cane ($35).

These are valuable new figures because earlier ones have become distorted by the decline of the dollar, and the rise in commodity prices, particularly inputs like feedstocks for biofuels. But the overall picture is very clear. With oil at over $100 a barrel, Brazilian ethanol producers - which is based on sugarcane - should be well in the money for some time to come. The American Mid West corn ethanol boom meanwhile looks to be on shaky ground (as if most of you didn't already know) without high tensions in the Middle East. The EU wheat story is what you might expect of European farmers seeking subsidies and whoever is producing soybeans for biofuels, that appears to be utterly indefensible.

Where I disagree with Ambrose is that he is mistaken to echo the idea that biofuels need replace rainforest in Brazil. The reality is that there is a great deal of land in Brazil that is not rainforest, which could go a long way to meeting the world's demand for biofuels at an affordable price and at a very low environmental cost. To be precise, currently, Brazil only devotes 5.3m hectares of land to sugarcane production but could easily expand into 320m hectares of genuinely arable land - i.e. not rainforest. 

Far, far better the world grows its biofuel in Brazil, than in the MidWest, Europe or Malaysia.

With that in mind, here are some Brazilian ethanol companies (and listed stocks) you may be interested in;

Acucar Guarani

Brasil Ecodiesel

Clean Energy Brazil

Cosan SA

Sao Martinho

I don't think anyone saw this coming. Because of tax and regulatory incentives, it has always been difficult to find a totally straightforward relationship between the price of oil and alternative energy stocks. Yet no one ever really disputed that, say, if oil prices had remained low - at $10 a barrel as they were in 1999 - there's no way we could have had the boom in alternative energy investment of recent years.

However, over the last few weeks, they have clearly been heading in the opposite direction. Oil is reaching new highs - $111 and the Wilder Hill Clean Energy Index which closed at 206.77 yesterday, is a long way off it's 2007 Boxing Day high of 297.05.

Obviously, there are a lot of investors out there who haven't read the script !

What's happening is that commodities like oil and gold, in the face of the credit crunch, have become the new defensive investments. That strikes me as pretty risky, but it seems to be working for those investors, for now.

And still there is no let up in sight to the alternative energy boom. Figures out earlier this week from Clean Edge make this clear - in 2007, a 40% increase in revenue growth for solar photovoltaics, wind, biofuels, and fuel cells to $77.3 billion. And the projections for 2017 are;

• Biofuels sales will grow to $81.1 billion by 2017 - a 319% increase
  


• Wind power (new installation capital costs) will grow to $83.4 billion in 2017 - a 277% increase
  


• Solar photovoltaics (including modules, system components, and installation) will grow to $74 billion by 2017 - a 365% increase
  


• The fuel cell and distributed hydrogen market will grow to $16 billion over the next decade - a 1066% increase
  

All projections far into the future have a habit of being wrong of course, but Clean Edge has the only annual and projected figures in town. And let's be honest, most of us would be very happy with half these growth rates. It's also worth noting that in the last few years, alt. e. growth rates have actually been faster than anticipated. If there's anything I'm overtly sceptical about in these projections, it would have to be the fuel cell industry which has been the future for a long time. I still don't see a big breakthrough in sight.

It would be interesting to start seeing some figures though on the growth in energy storage technologies, particularly those in the category of hybrid electric vehicles.

I've been watching the D1 Oils story unfold over the last week. To sum up, the company is suffering from;

i) Negative sentiment in general concerning the marginal effect of biofuels to reduce carbon and the negative environmental consequences of growing crops for fuel at the expense of say, virgin tropical rainforest. Clearly, it's not fair for D1 to be bracketed with other biofuels, because unlike other biofuel producers, D1 Oils' crop is jatropha and can grow just about anywhere, even wasteland at very low environmental cost.

ii) As I just mentioned in my newsletter (have you signed up yet? You should, it's free !) D1 is struggling to compete with US importers of Biodiesel who have been able to exploit a double subsidy through a regulatory loophole. This loophole will be closed by the beginning of next year under the terms of the new US Energy Act - so theoretically, isn't there light at the end of the tunnel?

iii) A highly adverse reaction to plans to cut the workforce by 30% announced last week.

iv) Yesterday's resignation by Karl Watkin - followed by his stormy remarks attacking the City - that's what I call ill-advised - where's the upside of laying into a community who may be helpful to you in the future and have already helped you until now?

And so, just moments ago, I gather from Reuters, that Karl Watkin may be preparing a buyout bid. to take advantage of a record-low share price and a global commodity boom.

Definitely a stock to watch - let's see what happens . . .

Writing my latest newsletter yesterday (have you signed up yet? You should, it's free!) I was quite taken by how two Australian stocks, Australian Renewable Fuels and Australian Biodiesel Group have clearly not had the same upside - far from it - from a new government in Australia as most of the other alternative energy stocks down under. This is to do with unfavourable changes to Australia's biodiesel tax credit program as well as the more mundane causes like a rise in feedstock costs etc.

Today though I read with some alarm that German biodiesel subsidies are on the way out as of 1st January this year. As this very informative article said, ". . . a consequence of these setbacks is the decline in shares of German biofuel refineries like Verbio, BDI Biodiesel and Biopetrol. These were promising companies until recently, and now face million-dollar losses."

This is a big deal not least because a very large chunk of the global biodiesel market - not unlike solar - is in Germany.

Still, for all the gloom and doom about the biofuels bust, whether ethanol in the Midwest or rapeseed produced biodiesel in Germany (although not in Brazil, more later), I keep thinking about this great piece I devoured this morning in the Daily Telegraph by Tom Stevenson. One of his bullet points toward the end was;

". . . government biofuels targets mean that within 15 years 12pc of the world's agricultural land will be needed for transport against just 2pc today. Farmers, food manufacturers, fertiliser makers and anyone involved in booosting crop yields and improving  the efficiency of irrigation stand to gain"

So in the long run, biofuels are still very much destined for tremendous growth - a sixfold increase in 15 years. The point here is all that really matters is where you source them from. Germany is and will remain a high-cost country.

European and American Farmers are on a hiding to nothing if they think they can compete with Brazilian farmers like these !
Brazil and other developing nations, with vast untapped hectares of land and low cost workforces are certainly not going to have any trouble producing low-cost biofuels - unless Western governments continue to hand out huge subsidies to their own. And Germany, one suspects, quite apart from the environmental arguments, has already taken a view that this is a battle they can't win.

Not quite yet or for a good few years. . . at least that's the conclusion I've drawn from this must-read interview - as published by Ethanol Statistics today - a tour de force of the state of cellulosic bioethanol - with Emmanuel Petiot of Denmark's Novozymes, pretty much the investor's only cellulosic biofuel play available on world markets today.

For those of you who aren't familiar with the argument for cellulosic ethanol, it goes like this;

First generation ethanol is all about growing starch or sugar-based food crops like corn and sugarcane and converting a small fraction of the plant into ethanol. This is very wasteful, from an input, output perspective, but still the lowest cost method. With genetically engineered enzymes, potentially all plant biomass, not just parts of food crops but even wood residues, could be converted into bioethanol. At a stroke, second generation cellulosic bioethanol could overcome the food v. fuel crisis stoking inflation today, by massively increasing the amount of useful biomass that could be converted into fuel. That's the promise of second generation biofuel technology and Novozymes is leading the charge.

I don't think Ethanol Statistics (a very good site) will mind if I summarize some of what I think are the key points from the interview;

The falling cost of enzymes: Mr. Petiot says. “Between 2000 and 2004 we have reduced the cost of enzymes in lab scale by 30 fold, including a 6 fold reduction directly derived from the specific activity of our enzymes".

How far cost have to fall: " . . . currently, total production costs are between 3 and 4 dollar per gallon" and to match first generation ethanol, that will have to fall to about $1 per gallon

When we will see cellulosic bioethanol: " . . . I don’t think there will be a clear winner in cellulosic technology in four years time. However, I do think that, within this time line, several plants will produce ethanol from ligno-cellulosic feedstock, from agricultural residues, wood residues and probably a few from industrial waste".

So there you go. The big picture is that progress is continuing apace, but no miracle discovery will be commercially available in the coming years. But if anyone can do it, my view is that Novozymes , with a 50% market share in the enzymes currently used in ethanol production - will be first.

China Biodiesel, in a disturbing echo of Biofuels Corporation's basic inability to deliver plant on schedule, has just announced that in the second half of 2007, turnover will be affected by the consequence of delays in building the extension to the plant in Longyan and the delay in completing the new plant in Xiamen.

I don't want to comment (because I don't know) about all the capital sources of China Biodiesel's expansion plans. But the big picture is that if we are moving into a global credit crunch, or at least a period of tighter money, one might want to take a hard look at all alternative energy companies that are engaging in an investment-led rather than organic expansion.

When credit is cheap, some companies are wont to invest and expand like crazy. Other companies are however more sanguine and take a longer view of the business cycle, choosing to expand out of profits. So which of these approaches works best?

Both and none of them - it's just that no strategy works continuously forever. The econosphere is a constantly evolving race without a finish, fuelled by the shifting sands of the capital markets. In other words, what works well today may not do so tomorrow and even lose money the day after.

And I have a sneaking suspicion that the progress in electrical transport just might in a few years, leave biofuels high and dry.

When starting this blog, I knew it would happen eventually; a listed alternative energy company would fail and have to be taken off the stockmarket and of course off AEI.

Tomorrow, Biofuels Corp will have its trading facility cancelled on the AIM market of the London Stock Exchange, effective from 07:00. Henceforth, the company will be trading under the name of Earls Nook Limited.

So here are my post-mortem thoughts on Biofuels Corp, which as you'll see from the 1 year chart, has lost a lot of money for its investors.

1. The company name was wrong - you can't brand yourself with a generic term, especially when their core business was biodiesel, a small part of the global biofuel industry. Imagine calling microsoft the software company.

2. I have severe doubts about companies going public without a business up and running in place already. Biofuels Corp was a development company. Couldn't they have seen a VC instead?

Venture Capitalists are active managers and owners, sometimes taking a seat on the board, in exchange for a sizeable chunk of equity, proffering valuable management advice and firing when need be. Fund Managers and retail investors who provide capital on the public market are manifestly not in this category. In reality, the IPO comes as the crowning glory, the final stage or the exit for a company, not as the seed capital.

3. The idea behind Biofuels Corp in principle was sound - Europe has high biofuel targets in place, and most of the contribution will probably be met by biodiesel as the relevant feedstock crops grow better there.

So au revoir Biofuels Corp - for AEI, you were the first, but you won't be the last to go . . .

Biofuels Corp soared 46 pct on Friday after confirming that it has reached agreement to roll over its banking facilities, dealers said.

At a guess, I would say this has to be one of the top 5 most volatile stocks in the AEI universe. It is down however a staggering 90% plus a year ago, so an awful lot of people must have lost wardrobes of shirts on this stock. And takeover talk by Biopetrol Industries AG, seems to have subsided.With it's paltry capitalisation of around $10 million, it finds itself below the radar of most fund managers with liquidity concerns. If and only if it was able to recover a little bit, the turnaround might well be quite stunning.