chemistry equipment

Advanced Biofuels Cushioned Against Oil’s Crash


By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer


Oil prices are cratering to levels unimaginable just months ago and major ethanol producers are idling their plants. Although this is bad news for all types of fuels, renewable and fossil alike, there is a silver lining for advanced biofuels. These sources qualify for a broad set of renewable credits, diversifying their revenue streams and providing a layer of protection against the price destruction occurring in the fuels marketplace.

What’s an advanced biofuel? It’s a fuel produced using wastes or agricultural byproducts, such as the corn stalk instead of the kernel. (The kernel produces traditional ethanol, which directly competes with food-crops for land and farmer attention.) Potential feedstocks for advanced biofuel projects include household trash (known as ‘municipal solid waste’), leftover woody biomass material after logging operations (known as ‘slash’), and the shells from almond orchards.

These feedstocks are currently either landfilled, plowed under, or (depending on local regulations and the desire to follow them) burned. But in the United States, their use in biofuels production is incentivized through a variety of state and federal credit programs. The federal system, known as the Renewable Fuel Standard (RFS), primarily supports the entire domestic ethanol industry with ethanol-blend targets for the nation’s fuel supply.  Less known is that the program also supports more advanced biofuels development. The RFS authors envisioned that corn-based ethanol would be a temporary bridge to an advanced biofuels future, and created multiple credits, known as Renewable Identification Numbers (RINs), to differentiate between the various feedstocks used to produce a biofuel. These RINs trade on open markets and their prices fluctuate based on the demand from ‘obligated parties’ (those required to buy RINs to demonstrate compliance with the statutory requirement).

One type of RIN is targeted at cellulosic fuels: the ‘D3’. This RIN has unique characteristics that make it more valuable that other RINs under the RFS. It is essentially a wild card: the RFS is a ‘nested’ compliance structure and the D3 RIN also counts as a ‘D5’ or ‘D6’. As a result, in times of oversupply, D3 prices are shielded from falling below the prices of these other RINs. Another unique feature of the D3 is the cellulosic waiver credit (CWC). The value of the CWC is set by the EPA annually, based on the price of gasoline in the Unites States. As gasoline prices fall, the value of the CWC goes up (albeit on a time-lag). In times of undersupply in the D3 market (not true at the moment), this built-in hedge means advanced biofuels projects are protected from oil price drops.


overview of multiple aisles in grocery store

Getting the Kinks Out

The End of Partially Hydrogenated Oils

By Shawn Lee, Scientist


Right now, there’s a lot missing in grocery stores: toilet paper, bottled water, hand sanitizer, and… partially hydrogenated oils (PHOs). PHOs are popular with manufacturers of processed foods in need of a cheap butter alternative, or as preservatives to extend the shelf life of foods. However, since January 1, 2020, in the US you can no longer sell any foodstuff with PHOs as a major ingredient.

I became interested in food chemistry back in high school, where I investigated Kosher/Halal anti-foaming agents for maple syrup manufacturing in western Massachusetts. Niche as that was, I learned that, when dealing with commercial products, a technical analysis is always matched with an economic analysis, especially when an industry is seeking change. This realization led me to New Energy Risk, where I support the technoeconomic due diligence of our clients and pipeline. The types of analyses I did in the food industry were very similar to the energy technology analyses I work on at New Energy Risk.

Our clients need to stay abreast of industry regulations, which can immediately affect their feedstocks, off takers, and/or paths to commercialization. So it’s important for us to monitor old and new regulations, and to consider case studies that teach us how the businesses we work with might need to adapt, both commercially and technologically. Here’s one such example of policy change driving new technology implementation (or rather, old technology in new places); in this post, I’ll explain PHOs, how industry delayed their ban, and which replacement ingredients will be used going forward. It’s an interesting tale with lessons that spread beyond the breadbasket.

The Chemistry Behind Buttery Spreads

Partial hydrogenation is one of the most popular ways to control the freezing point of an oil, so it is spreadable like margarine: not too solid, but not too liquid either.

All oils, including vegetable oils, have three fatty acids linked to a glycerol, a simple compound that is colorless and odorless. These fatty acids are mostly long chains of carbon, which if fully saturated with hydrogen (i.e. lacking double bonds), can lay down flat on each other so that they are “unkinked.” This shape allows these fully hydrogenated fats to become solid at a lower temperature. Case in point, butter is fully hydrogenated, and at room temperature, butter is solid. But vegetable oil is not fully hydrogenated, so it appears “kinked,” and at room temperature, vegetable oil is liquid.

Vegetable Oil: Liquid, Kinked

Most vegetable oils have kinks: double bonds that change the direction of the chain, keeping the oil molecules from stacking nicely and making them liquid at room temperature. To make them solid, you can add enough hydrogen to straighten out all those kinks, but that would result in a solid block of fat. Instead, food manufacturers add less hydrogen to do a partial hydrogenation, which straightens out only some of those kinks, resulting in a consistently spreadable product, or a PHO.

Unfortunately, in real life nothing is perfect, and in practice, chemical partial hydrogenation turns some of an oil’s double bonds from “cis” to “trans,” which are different molecular formations. You may have heard of trans fatty acids or “trans fats” before; these are PHOs with slightly crooked double bonds.

Double bond in the cis configuration:

Regulation and Industry

These trans fats have been correlated with increased LDL cholesterol, which has in turn been correlated with heart disease, the leading cause of death in the US according to the Center for Disease Control (in the times before COVID-19, anyway). Once these correlations were discovered, food regulations could mandate an end to the use of trans fats (and PHOs by extension) to avoid a further public health crisis. The US Food and Drug Administration (FDA) finally began taking action in 2015, concluding that PHOs were no longer Generally Recognized as Safe (GRAS).

But then on June 17, 2015, Industry complained about the regulations. Some claimed that PHOs are safe as minor constituents in coloring and flavoring additives, baking spray, and pie pan linings. The Grocery Manufacturers Association (GMA) cited two studies that relied on a model of animal metabolism… even though human data were available. It argued that trans-fat exposure against mortality risk should be modeled on an S-shaped curve as opposed to a linear curve, so that at low concentrations there would be almost no health effect. Unfortunately, these studies had poor-quality data at low exposure rates, and in some cases counted data twice. The FDA decided that the GMA finding — that PHOs are not necessarily bad for you at low levels — was unsupported. After failing to provide an environmental review, and given several other technical deficiencies, the FDA decided that PHOs as minor additives will still be banned and the petition was denied in its entirety.

However, the FDA did give the GMA an extension to figure out what could serve as a replacement for minor constituent PHOs. That extension expired on June 18, 2019, the last day it was legal to purposefully add PHOs into any foodstuff made in the US. Manufacturers and retailers then had six months to get products with PHOs as a major constituent through the supply chain, but by now, those products should mostly be gone from shelves. Since Jan 1, 2020, those products can no longer be sold, though minor additive- containing products may legally remain on the US shelves until 2021.

Alternative Technologies

Fortunately for food manufacturers, there are two primary alternatives that give us most of the benefits of partial hydrogenation without the health risks.

Fractional distillation: Natural oils are a mixture of different molecules with different melting points. You can separate these molecules by boiling off the mixture bit by bit (since the molecules will boil off at different temperatures, in a similar order to their freezing points).Then you can tailor your mix of oils and fats so in the aggregate they are a mix of solid and liquid around room temperature. Combine that mix with a small amount of surfactant to keep them from re-separating, and you’ll have a healthier replacement for PHOs.

Fractional distillation, so you can separate the oils by boiling point,

Interesterification: Alternatively, if the starting oil has lots of unsaturated fatty acids on one molecule, one can spread them more evenly amongst oil mixtures, so that fewer of the molecules are perfectly flat, and fewer are completely kinked. This will reduce the differences between the freezing points of the oil constituents, so they’ll be easier to keep from separating.

In renewable diesels, this same interesterification of vegetable oils with methyl acetate, a relatively small molecule, shrinks the average size of the molecules and decreases its viscosity, allowing it to be used in a conventional diesel engine.

Redistributing the double bonds (kinks) more evenly through the molecules,

Industry on Board

These regulations have been phased in over time; thus far we’ve seen no major hiccups in the removal of major constituent PHOs from the food supply chain, and this regulation has helped spur a number of new PHO substitutes without trans fats. These additives tend to be tailored to their use while reducing the LDL levels associated with conventional PHOs. In the long term, we could see a reduction in heart attacks and strokes in the US.

This is an example of regulation encouraging industry to adopt new technologies for the greater good. These are innovation opportunities for food chemical manufacturers, and the industrial agricultural companies that supply the ingredients they need. In the long term, as potential health results are realized across the population, we’ll also observe if/how buttery spread capital markets shift and consumer demands change. Which reminds us that regulation is one way to grease the wheels of invention.


protest sign with Greta Thunberg and earth photos

Coronavirus Won’t Change Minds on Climate Change

In the absence of forceful government action, activists must stay on the front line.


By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer

As the global population is ravaged by the novel coronavirus sweeping across countries and continents, those searching for a silver lining have begun to suggest that the painful lessons of the current COVID-19 crisis may help change hearts and minds in the fight to curb climate change. The argument goes like this: If the parallels between the coronavirus crisis and the climate crisis can be properly explained to populations and their leaders, they will collectively see the need for action.

While I hate to add pessimism to an already trying time, I don’t count on that happening. The global response to the climate crisis, so woefully inadequate to address the scale of the problem, is not driven by a lack of understanding of the risks and realities of climate change. Even under the Trump administration, NASA’s climate change website touts the consensus of 97% of scientists that human-caused climate change is real. A full two-thirds of the American public believe the federal government is doing too little to combat the climate crisis. Leaders already know the threat we face, but largely fail to act anyways.

Instead, one enduring lesson of COVID-19 is how, in the face of near universal scientific opinion, political leaders routinely ignore expert advice and choose a path of maximum risk until significant damage has been done. Whether driven by advice from false authorities, fears of upsetting the status quo, or outright denial of the severity of the crisis, leaders around the world have repeatedly underplayed this crisis and failed to take definitive action to stem the onslaught. Even days ago, over 30 million people in the United States were free to congregate and actively continued the spread of the infection, even as deaths from the virus skyrocketed and hospitals in hard-hit areas set up tents to care for the patient surge. Faced with clear and imminent damage to communities and economies, some leaders still fail to act.

Others, however, do act: COVID-19 again demonstrated that action to stem a crisis can come from surprising sources. On the west coast of the United States, tech companies readily understood the science and implemented large-scale work-from-home policies a week or more before local governments followed (nevertheless as relative early adopters). As Washington D.C. argued about the severity of the crisis, the National Basketball Association, of all entities, showed true leadership by suspending its season, sparking a mass cancellation of high-density events from concerts to conferences.

This pattern is familiar to those on the front lines of the climate fight. In recent years, significant progress has been made in the private sector by focusing on so-called ESG (environmental, social, and governance) policies at major corporations. Major insurance providers and financiers now refuse to work with the coal industry, major private equity groups are backing off fossil fuel investments, and Microsoft is leading its industry by pledging significant carbon mitigation programs for its businesses. Progress is made in the absence of forceful government action.

With politicians now talking about further stimulus to recharge economies damaged by the COVID-19 pandemic, those fighting for the climate should stay in the fray and continue to work to secure programs and funding for a greener future. But absent an immediate, direct, relatable threat to our health and our economy, nobody should assume a sudden change-of-heart among the climate change deniers in Congress and the White House. On the climate front at least, it’s still business as usual: Politicians won’t be saving us; rather it’s our collective action that will bridge us to the future.


fracking protestors

Troubles in the Fracking Industry Are Nothing to Celebrate

For those fighting climate change, the damage that American frackers are experiencing should be sobering.


By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer

With oil prices plunging from over $60/bbl to $30/bbl and lower in a matter of weeks, mid-sized American oil producers reliant on fracking have been identified as likely casualties from the sudden upheaval. The prospect of failures in the space is causing celebration among those opposed to fracking, with some trumpeting the end of an environmentally damaging process. The excitement is misguided: the failure of fracking companies in the current environment will portend increased difficulty stemming the climate crisis.

Hydraulic fracturing, or ‘fracking,’ is an oil and gas extraction technique that came in to heavy use in the United States around 2007. The process involves drilling long, horizontal wells deep underground in shale deposits, and then pumping high pressure water and chemicals to fracture the rock, increase permeability, and extract valuable hydrocarbons. Fracking was the key driver in pushing the U.S. to again become the largest oil producing country in the world over the last decade.

The technique has also been assailed as environmentally destructive. Poor control at some locations has been blamed for allowing drilling fluids to contaminate local water supplies. Earthquakes in Oklahoma dramatically increased after fracking became widespread. And leakage from fracking wells has been identified as a likely source of the increase in the atmosphere of the potent greenhouse gas methane since 2008.

But despite the environmental costs of fracking, the current situation is not one to celebrate. The underlying driver leading to pain at fracking companies is cheap fossil fuels, which will lead to more use of climate-driving fossil fuels and undermine efforts to decarbonize large swaths of the global economy. Saudi Arabia is now looking to pump over 12 million barrels of oil a day in April, an increase of 20% over January. Although global demand is currently constrained with the COVID-19 pandemic, cheap oil will surely lead to a rebound in demand and undercut competing alternatives, including biofuels and electric vehicles.

The situation is shedding light on a long-known truth in the energy world: prices are not driven by an efficient market based on supply and demand. Instead, the Saudis have longed dictated global prices, artificially limiting supply to hold a higher price. With a reported production cost of $2.80/bbl, the Saudis make considerable profit by constraining production. But as the last few weeks show, the Saudis also have the power to dramatically undercut competitors with little to no warning.

For those fighting climate change, the damage that American frackers are experiencing should be sobering: Saudi Arabia’s ability to suddenly flood the global market with cheap oil and undermine market-based efforts to supplant fossil fuels is an existential risk. If American frackers can’t compete with Saudi oil in an open market, greener alternatives surely won’t either.


oil rig and wind turbine

Renewables Poised to Clean Up from Oil’s Price Spill

The oil market has changed dramatically in the last three weeks but renewables are financial safe bets

By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer

Saudi Arabia abruptly altered its oil production strategy in early March and began to flood the market with cheap oil. Financial markets worldwide hemorrhaged value at the prospect of a protracted and painful price war, and American oil firms immediately cut back spending and dividend payments as the price for their primary product halved. As of last week, WTI Crude (a pricing benchmark tied to US supply) was barely north of $20/bbl, prices not seen since 2002.

This sudden tumult represents an opportunity for the renewable energy sector. At first glance, this may sound counterintuitive. After all, oil prices seem largely unrelated to the prospects of wind, solar, and other renewables in the electricity generation sector, because in the United States the primary fossil source of electricity is natural gas. Natural gas prices have been largely uncorrelated with the price of oil since 2007, when large-scale domestic shale-gas production began to come online (see chart). In other parts of the world, coal drives electricity generation, which is similarly decoupled. Virtually nobody uses oil as a primary electricity source, except in certain very specific locations, such as Hawaii, where the demands of unique geography and supply logistics align to make oil the best bet for power production.

Data from US Energy Information Administration (

Oil’s link to renewables instead comes through competition in the financing marketplace. As new projects are developed and financing is sought, the infrastructure funds that provide capital to enable these developments naturally prefer projects that promise the most attractive financial returns. With relatively high prices over the last decade and unmatched value as a transportation fuel, oil exploration has beaten out renewable project development on the financial metrics time after time.

The oil shocks over the last weeks could dramatically alter that calculus. Revenues for potential oil projects have suddenly dropped by over 50%, and futures contracts currently show only a modest improvement in prices by year’s end. The market is already pricing in the expectation that oil prices remain below $40/bbl for the foreseeable future, a dramatic change from the $55+/bbl that has been the norm for the last few years.

Even if prices do recover, the sudden volatility will still weigh on the minds of project investors. Oil markets haven’t resembled a purely competitive market since the mid 1960s, and since that time, prices have been regularly impacted by sudden and unforeseen changes in supply by OPEC producers, primarily Saudi Arabia. The rise in shale-oil in the US in the last decade has effectively put a cap on prices and provided a counterweight to OPEC’s pricing power. But the muscle being flexed now shows that the OPEC nations and Russia still maintain substantial influence over the fate of American oil producers. This ‘stroke of the pen’ risk, now that it has again bared its head, may be unlikely to be forgotten in the near future.

Renewables, by contrast, have no supply risk whatsoever, and are primarily exposed to fluctuations in the price of electricity. Insomuch as this relates to the price of natural gas, investors in the US will take comfort knowing gas is essentially a local market, with US prices driven by supply and demand within North America; there is little ability to arbitrage against global markets due to limited export capacity. Therefore, as oil prices come down, project financiers should start to turn more of their attention to the new safe bets that offer more durable returns: wind, solar, and the like.

This isn’t to say that renewables don’t face headwinds in the current environment. Cheap oil also competes with renewables in the transportation sector. Electric Vehicles will be less competitive with their gasoline-powered cousins as the price for gasoline at the pump drops, lowering demand for new grid capacity and forcing renewables to wait for retirements of current assets. The price for natural gas in the US is dropping as well, driven primarily by the sudden decrease in demand due to the shuttering of entire industries. These drops make fossil power from natural gas more competitive with their renewable counterparts.

Futures markets, however, are currently pricing in a full rebound of natural gas prices by year’s end, with the futures contract for Henry Hub for December 2020 currently priced above market levels at the end of 2019. This suggests that the drop in prices of natural gas will be temporary, and investors making long-term bets do not view the current situation as durable. Further, natural gas prices are just one component of the price paid by utilities to power producers, and so a drop in natural gas prices doesn’t necessarily imply a similar fall in the rates negotiated in new power purchase agreements. So the drop in natural gas prices evident in the market now looks to be temporary, and unlikely to dramatically alter the widespread conclusion that renewables are now the cheapest power source to build.

Altogether, the oil market has changed dramatically in the last weeks, in ways unforseen just a few short months ago. But despite the headlines and worrying drops across financial markets, opportunity lies in these disruptions. Renewables are well positioned to capitalize.


beakers with liquid and corn ears in background

Farm or Fossil: The Battle for the RFS Rages On

There is a war being waged between farmers and oilmen impacting everything from the price of corn to the price you pay for gas at the pump.

By Brentan Alexander, PhD, Chief Science Officer & Chief Commercial Officer

For those of us following biofuels, there was an interesting bit of news last week that barely registered in the press outside of Houston and Des Moines: A U.S. Court of Appeals in Denver handed down a
ruling forcing the U.S. Environmental Protection Agency (EPA) to re-examine three small-refinery exemptions granted for the 2016 compliance year within the Renewable Fuel Standard (RFS) regulation. You’d be forgiven for thinking that this ruling impacts something esoteric with limited impact on your daily life. Few Americans know about the RFS at the heart of this court battle, but there is a war being waged over this law between farmers and oilmen. It’s an intraparty slugfest pitting longtime allies against each other and impacting everything from the price of corn to the price you pay for gas at the pump.

Some background: The RFS was adopted in the mid 2000s, with the price of oil spiking and unrest in the Middle East causing concerns at home about domestic energy security. The name of the legislation enshrining the standard in law, the Energy Independence and Security Act of 2007, left little doubt to the motivations behind the policy: The law was written to jumpstart domestic biofuels production to help lessen America’s addiction on foreign oil. Signed by an oil state Republican, the law passed with just eight ‘no’ votes in the Senate. Republicans and Democrats alike cheered as this comprehensive program to support renewable biofuels became the law of the land.

U.S. farmers, primarily in midwestern states with a history of voting red, cheered as well. The program set mandates for the production of multiple biofuels, but primarily focused on ethanol and biodiesel, which are made from corn. Although more expensive per unit of energy than their fossil brethren, these fuels were literally home-grown, and the RFS supported their use by mandating blend volumes of biofuels in the U.S. fuel supply. With this mandate to refiners in place, corn prices surged, investments flowed to midwestern states, and an entire economy built around ethanol production was born. U.S. ethanol production rose from 1.63 billion gallons in 2000 to 13.5 billion gallons in 2010 and continued to grow from there as the U.S. Department of Energy (DOE) increased the blending mandate every year through 2018.

The program, however, was disliked by the oil companies, as it required building the infrastructure necessary to incorporate this new feedstock into their products. This new feedstock was also generally more expensive, raising prices for downstream consumers. To help lessen the blow, the RFS included some carvouts for the oil and gas industry. In particular, small refiners, concerned about their ability to afford necessary plant upgrades to compete with larger competitors under the mandate, were provided a pathway to secure waivers to the mandate. As drafted, the legislation required the DOE to account for the volumes lost from these waivers when setting annual targets, effectively shifting the obligations from the little guys to the big guys. Few waivers were granted, and large oil and gas companies, despite continued lobbying against the program, generally fell in line and followed the program requirements.

And then came President Trump. Unaware of the delicate politics involved, the Trump Administration immediately upon arrival began undermining the program. The number of waivers granted skyrocketed from under 10 to over 30 in two years. Large refineries, never intended to be excluded from the program, were given waivers as well. And the DOE, when setting its mandates, ignored the missing gallons, effectively reducing demand for biofuels by billions of gallons with the stroke of a pen.

The Trump Administration is generally unconcerned about public blowback to its various deregulation activities, but in this case their actions didn’t just #OwnTheLibs, they triggered midwestern Republicans by undermining a significant portion of their economy. Chuck Grassley (R-IA) noted that the EPA “screwed us.” The powerful farmer’s lobby unloaded on members of Congress and administration officials alike. 

Quite accidentally, Trump found himself under attack from his right flank. A full blown crisis was born, no environmentalist lobby needed. Looking to find a compromise with Big Ag and Big Oil, the Administration spent the fall providing promises to both sides and promptly undermining their own efforts. Trump promised farmers at least 15 billion gallons of ethanol mandates for 2020, much to farmers’ relief. Oil groups complained bitterly about Trump reneging on his deregulation promises. When the EPA released the associated rule, it failed to live up to the hype; agricultural groups were incensed as farmers spoke openly of betrayal and deceit

Which brings us to the news of last week from a quiet courthouse in Colorado. In its ruling, the Court of Appeals found that the language of the RFS required waivers to be granted only as an extension of waivers granted prior to 2010. Such an interpretation could have profound impacts on the waivers granted under Trump, most of which had no precedent before his time in office. If upheld on appeal (and given this ruling came from an appeals court, it would seem the remaining path for re-review is limited), this decision would open the door to widespread invalidation of the waivers granted under Trump. Such a decision would be highly impactful because it would solidify the foundations of the RFS program, severely curtailing the ability of the White House to undermine the program, and would ultimately be a big win for Big Ag. 

It’s just the latest battle in this ongoing war. With billions of dollars and federal elections at stake, expect more shots to be fired. Get your (pop)corn ready.



airplane being fueled

Sustainable Aviation Fuels: Ready for Takeoff

Major Airlines are Committing to Sustainable Aviation Fuels, but Could be Doing Much More

By Brentan Alexander, PhD, Chief Science Officer & Chief Commercial Officer


The last five years have been busy ones in the sustainable aviation fuel (SAF) industry: Major airlines are making investments in SAF projects designed to lower greenhouse gas emissions. United put up $30M to invest in biofuels pioneer and NER client Fulcrum BioEnergy, Delta committed to purchase 10M gallons of renewable jet fuel annually from Gevo on top of $2M invested elsewhere, Southwest signed up for 3M gallons per year from Red Rock Biofuels, and Qantas announced AU$50M over the next 10 years to jumpstart the SAF industry as a whole.

Why the interest? They see the writing on the wall: With aviation representing over 12% of global transport CO2 emissions, and growing each year, flyers are reporting that climate concerns are leading  them to fly less, take years off from flying, or stop flying altogether.  Examples abound, like the climate activist Greta Thunberg who publicly opted to take a boat to the UN rather than fly. Without action, airlines will see their customers flee, governments intervene, or both.

SAFs, which are less carbon intensive than their petroleum-based counterparts, represent a promising solution for the airlines. How? They utilize next-generation technologies, literally turning wastes, including household trash and agricultural byproducts, into renewable transport fuels. These fuels, on a full lifecycle basis, emit a small fraction of the CO2 as compared to fossil-derived fuels, significantly reducing the carbon footprint of the flying public.

The investments so far from the airlines are a step in the right direction, but reducing airline emissions will take a significantly larger commitment. $30M from United to support Fulcrum is good, but Fulcrum’s next plant will take an order of magnitude more capital to build, and the 33M gallons of fuel it will produce annually is just 0.2% of the 18B gallons of fuels U.S. airlines consumed in 2018. Delta’s 10M gallon commitment to Gevo is a similar fraction of a percent of overall demand. Airlines surely don’t (and shouldn’t) need to be the sole financing source for all the capital necessary to help SAFs reach scale, but a serious increase of investment would multiply the number of projects coming to market and start making a real dent. 

Airlines should be stepping up because it’s also smart business. Direct investment in SAFs is a natural hedge against fuel costs. As fuel prices rise, producers sell SAFs to the airlines and simultaneously generate revenue for the airlines as investors, offsetting those increasing costs. And purchase agreement promises are low-risk offerings: If SAF projects fail to deliver, the airline has no obligation or exposure, but if they succeed, airlines get low-impact fuels (likely at a discount to the market), and a PR heyday.  Fliers also want it: I recently shared the stage at VERGE 2019 with Sean Newsum, director of environmental strategy for Boeing, who spoke about the Fortune 500 customers whose employees fly many millions of miles annually but would love to fly on SAFs to reduce their organization’s carbon footprint (of which business travel is typically the largest contributor). 

These SAF investments also turn out to work. Long-term jet fuel purchase contracts from strategic partners like Delta and Southwest are instrumental in convincing other capital providers to invest in the construction of next-generation SAF projects, which in turn allows the projects to scale up and better serve the aviation industry (and others). Direct equity investments, as with United and Fulcrum, are even more impactful in moving projects forward, and strategic partnerships further validate new businesses and models to traditional financiers. 

It’s significantly more impactful than the other path airlines have chosen: purchased offsets to counteract their emissions. From JetBlue to Air France, airlines worldwide are tripping over each other to announce full carbon-offsetting for their flights. These offsets, however, have a troubled relationship with actual impact. Offsets are a dereliction of duty that do little to address the underlying emissions issue, and are therefore unlikely to placate activists and governments looking to limit overall emissions. To truly address emissions head on, airlines should continue to grow the investments and commitments they have started to make in SAFs.

SAF investments by airlines represent a significant vote of confidence in next-generation technology, which directly reduces the carbon intensity of the industry, no offsets needed. Pie in the sky? Perhaps. But the industry best placed to reach for the stars is the one that lives life at 30,000 feet.



Erin Lynch headshot

Interview: Erin Lynch, President of Beecher Carlson’s Global Energy Practice

We are inspired by people who are passionate about technology that solves pressing global challenges. Scaling and commercializing those solutions requires serious knowledge, courage, perseverance, and support systems like those who work in the insurance industry. In this interview series, our chief actuary, Sherry Huang, talks with friends of NER whose work makes a difference, and whose journeys will inspire you, too.

This interview has been lightly edited for clarity.

Beecher Carlson is a large account risk management insurance broker. Erin Lynch is the president of their Global Energy Practice, leading a team of experienced brokers and risk management specialists. I first met Erin at a client visit and was impressed by her professionalism and down-to-earth demeanor. I wanted to learn more about what it takes to be a successful insurance broker and practice leader, and her view on how diversity and inclusion helps Beecher build a successful team.

Erin Lynch [Photo credit: Beecher Carlson]

Erin, let’s start with how you got to where you are today. Tell us more about your journey to become an insurance broker and leader in the energy insurance space.

I started my career as a sports journalist, having studied journalism at the University of Oregon. I pursued sports journalism because it combines my passion for sports and writing. A few years after my career as a broadcast journalist, I started looking for a new opportunity that didn’t involve getting up at 3:00 in the morning. A friend of mine introduced me to a senior leader at the local Willis Towers Watson office. I interviewed and was given the opportunity to become a producer. That senior leader was my earliest mentor in the insurance industry – he encouraged me to specialize and to look beyond the regional market. After a year and a half, that Willis office closed and I joined Beecher Carlson. At Beecher, I aligned myself with the west coast energy practice, became more technical, and created a niche expertise for myself. The senior leadership at Beecher Carlson has been incredibly supportive, and I was fortunate to have the opportunity to develop and lead our energy practice and work with a team of brilliant colleagues.

For an audience unfamiliar with the broker’s role in the insurance industry, can you describe what you do? What's the best and worst part of your job? 

Brokers handle both traditional insurance policy transactions as well as provide risk-advisory services. Over the years, the risk-advisory consultative service portion has become a significant part of our business. We partner with clients to identify, quantify, mitigate, and transfer risk. Some of our work involves diligence and helping renewable projects get built.

The best part of my job is working with a bright, dedicated team and having a supportive executive team. We have a common motivation to serve clients in this changing environment. The double-edged sword of my job is that I am on an airplane all the time.

Beecher Carlson’s energy practice has grown over the years and has a diverse team in terms of capability, backgrounds, and gender. How have you seen the role of women change in the industry during your tenure? Are there any unique advantages or challenges to being a woman insurance broker in the energy space? 

In my tenure in the industry, I have observed the tide shifting towards a more diverse set of candidates entering and excelling in the industry. I remember when I first moved from journalism to insurance, I was surprised to find how few women were on the senior team. I am especially grateful for Beecher’s CEO and executive team for creating an incredibly inclusive environment. I think men and women bring different strengths and perspectives and having a diverse team challenges us to be more successful. In addition to our experience in the energy market space, I like to think our diverse team is also attractive to our buyers.

As a woman leader, I can easily relate to and appreciate the challenges of being a young mom and a professional, having experienced that journey myself. It’s a priority for me to build long-term partnerships with my teammates and create a flexible, supportive environment.

But we still have a lot of work to do. I am part of the Young Presidents’ Organization and in our regional chapter only 10% of the participants are women. I am involved in various forums to brainstorm ideas on how to support more women leaders.

On a more personal note, are you still passionate about sports? What is your favorite weekend activity?

I am passionate about the outdoors; with my free time I love to go hiking, running, golfing or camping with my family. Every year, a group of girlfriends and I hike a new section of the Pacific Crest Trail.


Thank you, Erin!



popsicle melting in sun

Dark Thoughts: Solar is Useless for Ice Cream Lovers

NER’s CSO & CCO, Brentan Alexander, reflects on northern California’s “Public Safety Power Shutoffs” occurring this fire season. Because, you heard that right, California now has a fire season.


The most surprising thing about this power outage is how loud it is. As I write this, Pacific Gas and Electric Company (PG&E) has temporarily turned off the power to as many as 3 million people across northern California, and the sound of countless consumer-grade gasoline generators is echoing throughout the valley. You’ve likely heard about PG&E’s actions since it made international headlines (to offer just a sample from The Guardian, The Economist, and Financial Times). The effect is being acutely felt by the NER team; we all live within the PG&E service territory. 

For myself, that means I’m on hour 30 without a utility hookup. My garage door is stuck, laundry is piling up, and I’m reminding myself not to open the freezer by applying tape to the handle with the words ‘DO NOT OPEN’ scribbled in sharpie. It’s a failing strategy: I’ve accidentally peeked inside twice. But I’m not in the dark. Outside, my 15-year old Toyota Prius with 150,000 miles is happily running a small DC-AC inverter, kicking on the engine as needed to keep the battery topped up, and providing the house with lights, a few working outlets, and power for the internet.

It’s an absurd situation, but one I’m reasonably well equipped to understand and handle. Working in the insurance industry where I think often about risk makes me wonder if these shut offs are really helping reduce fire risk, or just reducing PG&E’s exposure. On the one hand, the vast majority of large fires in California over the last few years have been caused by utility equipment (burning over a half-million acres since 2000). De-energizing lines surely reduces the risk of utility-sparked fires dramatically. And yet, there are now a large number of generators in operation, each manually filled from gas canisters. How many of these systems are properly wired to the house and up to code? (My Macgyver Prius generator sure isn’t.) A common solution to a lack of electric lights is also to literally light fires, albeit small controlled ones (ok: candles). Surely the uptick in candle usage increases the risk of an accidental fire. And then there’s the separate issues of deaths caused by offline medical equipment, or the loss of phone power to report other local emergencies. I have yet to see a detailed analysis of this risk tradeoff. Perhaps it’s good to trade the risk of (A) remotely started fires in rugged terrain from large power lines with (B) fires started in populated areas (where they’re more likely, perhaps, to be caught early and extinguished?). I do not know the answers. All that is certain is that this action lowers financial risk for PG&E, on the backs of financial losses (e.g. spoiled food, lost business) of their customers. 

I brought this risk tradeoff question up with a neighbor, and he quickly pivoted to a different but related point: how much reliable electricity is taken for granted and how little the average person knows about how it works and how it’s delivered. He was primarily talking about his frustrations with his solar system. Across my neighborhood, countless homes have gleaming panels on the roofs, some coupled with shiny battery packs mounted on the side of the house. All of these houses currently lack power. My neighbor simply didn’t know that solar is useless without a working electric grid, and for the folks with batteries, I doubt those owners understood that most of their inverters were not designed to island during a blackout. For my neighbor, I could sense his exasperation that this panel on his roof, which can generate electricity, somehow can’t power his home. A discussion on alternating vs. direct current, load matching, and frequency regulation was met with a blank stare and shake of the head. 

My hunch is that this experience will lead more people who currently lack solar to seek to install it (especially with the imminent step-down in the investment tax credit). I wonder how many of those installs will be done with the latest generation hardware (enabling the house-sized nanogrid), and how many installs will instead be the usual setup that only allows for power when PG&E keeps the street energized. 

That leads me to another question: these household systems have been built around a particular financial story; will it hold up? The utility death-spiral, wherein more and more consumers put solar on their roofs and therefore lower utility revenuesall without lower O&M costs to maintain miles and miles of utility lineshas been explained in exhaustive detail for nearly a decade. But the sudden bankruptcy of PG&E raises the distinct possibility that the current rate structure will be reshaped to ensure the financial viability of the utility while funding the repair and replacement of the ageing and failing infrastructure causing this whole mess. The more the utility bill shifts to distribution charges instead of use charges, the less the home-solar array will payoff.

For now, there are just questions and accusations. Should I point my finger at PG&E, climate change, or the inverse condemnation doctrine? (A recent article by Micheal Shellenberger broke this down well.) Does it even matter? None of that blame is going to get someone to replace my lost pint of rocky road.



wood and plastic bear piggy bank

Fattening Your Loan Life Coverage Ratio


By Matt Lucas, PhD; NER's Managing Director, Business Development


I’m a huge fan of the US Park Service’s Fat Bear Week, which features some huge bears. The bears have been fattening up all summer and fall for their long winter hibernation. This is the opposite of fat shaming—fatter is better. But truth be told, if they get too fat it’s harder for them to do, well, bear things.

You may not have jumped to the same analog as me, but hear me out: Debt is to project finance as fat is to bears. When you’re building a new facility, as many of New Energy Risk’s clients are, you’ll want some debt. Quite a lot in fact. But too much debt makes the project unwieldy. An over-leveraged project won’t be nearly as healthy looking to your cap table as the fattest of the fat bears.

We know that raising money is hard. Raising equity is especially challenging: equity is in the most junior position to receive cash flows, and equity fundraising is a more linear, incremental process than raising debt. In contrast, raising debt via a public bond offering can raise vastly more capital with similar effort.  And maybe most importantly, debt has a lower cost of capital! It’s no wonder that project developers try to minimize the equity they have to raise in order to accelerate their execution timeline and improve financial returns for their existing equity investors. However, this approach can lead to projects that have too much debt instead. So how do you know what’s the right amount of debt? (You want a fat bear, not a fat bear that can’t climb!) The answer is in your loan life coverage ratio.


What’s a Loan Life Coverage Ratio (LLCR)?

An LLCR is a metric that relates available cash to debt service to the cost of the debt service. A higher number is more favorable and means your project can get fatter on debt without drawbacks, reducing the amount of equity otherwise required. A handy equation:

LLCR = [ (net present value of cash available for debt services over the life of the debt) + reserves] divided by (present value of debt)

  • Cash available for debt service (CFADS) is your revenue minus operating expenses (including taxes but not including depreciation).
  • The denominator of the LLCR is the present value of your debt.
  • The interest rate of your debt is the discount rate used for calculating the net present value in the numerator.

A project with a LLCR equal to 1.0 is break-even: all its free cash pays its debt service. A ratio higher than 1.0 means there’s more than enough free cash flow to meet debt service.

You might have heard about a related metric, the debt service coverage ratio (DSCR). The DSCR is similar to the LLCR but is calculated on a quarterly or annual basis, so it’s a snapshot in time. In contrast, the LLCR is an average over the lifetime of the debt. For projects with lumpy free cash flows due to seasonality or infrequent-but-expensive maintenance costs, the LLCR is a more generous metric because it smooths out the cash flows.


Why the LLCR Matters

Debt lenders will use the LLCR to gauge the riskiness of your project. Of course, merely breaking even is not a compelling financial result, so the LLCR needs to significantly exceed 1.0.  Below are some typical minimum LLCRs used by lenders for different projects in various industries:

Example of Debt Lending Situation Typical Minimum LLCR
Infrastructure backed by investment-grade rated government entity 1.25
Power plant whose offtake buyer is creditworthy 1.4
Oil & gas industry 1.4
Metal & mining industry 1.4
Infrastructure with merchant risk 1.75
Power plant selling on merchant market 2.0
New Energy Risk’s experience of projects that get funded and reach financial close 1.7

The table makes it clear that projects with merchant risk—those that lack contracts to sell their production to a creditworthy entity—require significantly higher LLCRs.

At New Energy Risk, our experience is that deals with LLCRs of at least 1.7 are those that get investment. That higher ratio gives the debt lender confidence that even if the project technologically under-performs, or the value of the production decreases, the project will still be able to pay its debt service and make it through the long winter (whether hibernating or not).


What Can I Do If My Project’s LLCR Is Too Low?

Uh oh, your bear of a project got too fat on debt! What can you do to restore your photogenic and investment-worthy proportions?

  1. Consider New Energy Risk: We can help! New Energy Risk’s insurance products can enable debt funding where it was not previously possible or reduce the cost of debt. In both cases, NER’s help with coverage reduces your cost of debt and increases your LLCR.
  2. Reduce your cost of debt by financing in a major currency: Debt is typically cheaper when it’s denominated in major currencies, so if your project is capitalized in a minor currency, you could try denominating your project’s feedstock and production in a major currency instead.
  3. Reduce your cost of debt with government assistance: In the US, the federal government will provide loan guarantees for certain types of innovative capital projects. At New Energy Risk, we have worked with projects pursuing such guarantees from the US Department of Energy and US Department of Agriculture.
  4. Adjust your cap table to increase the relative percentage of equity: If the total project cost remains fixed, then reducing the portion of the cost capitalized as debt will reduce your debt service and increase your LLCR.
  5. Reduce project capital costs: If you can simplify your project to reduce its capital cost without reducing revenue, that will raise your LLCR. For example, you might find that a captive, on-site system for over-the-fence procurement can shift costs from capital to operating expenses and save money on a levelized basis.
  6. Reduce operating expenses: If you can reduce operating expenses while holding revenues constant, that will increase free cash flow and increase your LLCR. Maybe the project can be situated in a lower-cost location. Maybe automation can reduce on-site labor costs. You might also try to contract your feedstock costs for a fixed or capped price to reduce the risk of escalating operating expenses.
  7. Contract your revenues: Lenders will discount your revenue if they feel it’s uncertain. Selling your production to an investment-grade entity for a fixed price or on a take-or-pay basis will help assure you get more fully credited for all your revenues.


So fatten your bear of a project with debt, but not too much; keep the LLCR in mind! Have questions about your own LLCR or project finance? Reach out to us at [email protected]. We’re here and happy to help. (Although we don’t accept salmon for payment, sorry.)