Renewable Energy Has a Tough Road Ahead as Crude Prices Fall


The price of crude has fallen considerably since the start of the year, which has in turn made the summer driving season more palatable for the millions of Americans who fill up their gas tanks before heading off on vacation. So it might seem like a fairly inopportune time for renewable energy companies to try and get a foothold in the fuel industry. But that hasn't slowed down the largest publicly traded biofuel maker, KiOR (KIOR). The renewable energy company just celebrated the first anniversary of its IPO and is hard at work building three plants that will turn pine trees into "renewable crude." Their CEO, Fred Cannon, sat down with Breakout's Jeff Macke to outline why his company is succeeding and how they can compete in a marketplace still dominated by fossil fuel companies; even one's dabbling in renewable energy on the side.

Cannon says one key factor to their success in the face of competition is the federal government, specifically the Energy Independence and Security Act. He says it will give his company "support no matter what the price of crude does" for the next ten years. That, he contends is one reason KiOR can co-exist, at least for now, with the Exxon's (XOM) of the world.

Another key to finding market share is the price of a gallon of KiOR's fuel. The product is unlike ethanol and other renewable fuels you may have heard of. It can be put right into a car's gas tank and functions like conventional gasoline in the country's existing automotive fleet.

Cannon says that once their plants are up and running they can produce a gallon of this fuel for $1.80, and it doesn't stop there. One upside he notes is growth potential in yield. In other words, as technology is refined he expects KiOR to produce even more fuel from the same amount of biomass (the pine trees) driving the price down to as low as $1.30 a gallon. Assuming KiOR can get that all to market it may prove to be a game changer.

"Structurally what's going to drive the price of crude in the long term," says Cannon, "is what does it cost to develop new fuels…In four years KiOR's come from basically an idea to putting gas and diesel into the market."

What do you think? Is KiOR the next big thing or will it simply be too difficult to play alongside the well established fuel companies who dominate the market? Let us know on our Facebook page.

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