BP, Verenium to tackle next-gen biofuels

The list of cellulosic ethanol team-ups continues to grow, with London's BP (NYSE: BP) announcing that it will invest $90 million in a new partnership with Cambridge, Mass.-based Verenium (Nasdaq: VRNM), marking at least the fifth big-name, next-generation biofuel partnership announced this year.

BP will not be taking a stake in Verenium. The two companies have formed a 50-50 owned company that will license existing intellectual property from each firm and will own jointly-developed intellectual property in cellulosic ethanol production.

Sue Ellerbusch, president of BP Biofuels North America, said in a conference call that her company had been looking for a partner to advance the development of cellulosic ethanol for quite a while.

"They've got an aggressive vision for the future that aligns with our view that non-food sources, such as energy crops, are critical to the future of advanced biofuels," said Ellerbusch, who pointed out that Verenium has already demonstrated its technology through a pilot plant and demonstration plant.

"And their enzymatic technology fits with our belief that biological fermentation is the proper approach to going forward."

Verenium started the commissioning phase at its 1.4 million gallon per year demonstration-scale facility in Jennings, La., in May (see Verenium starts up demonstration cellulosic facility). The plant uses specialty enzymes to convert non-food biomass into ethanol.

Wilmington, Del.-based DuPont (NYSE: DD) and Copenhagen, Denmark's Danisco formed their own cellulosic ethanol supergroup recently, pairing up the No. 3 chemical maker in the U.S. and one of the world's largest producers of food ingredients (see Another cellulosic powerhouse formed).

That venture integrates technologies from DuPont with technology from Genencor, Danisco's Rochester, N.Y.-based biotechnology unit.

Detroit's General Motors (NYSE: GM) has also been busy in cellulosic ethanol, making two separate investments in the next generation biofuel this year, in Boston-based Mascoma and in Warrenville, Ill.-based Coskata.

The automaker said in May that it put an undisclosed amount of cash into Mascoma (see GM takes stake in Mascoma). Mascoma raised $61 million in that third round of funding, with another deep pocketed investor, Houston's Marathon Oil (NYSE: MRO), putting $10 million into the round.

GM made an undisclosed investment in Coskata earlier in the year, calling the investment "significant" at the time (see Khosla-backed Coskata, EcoMotors come out of stealth).

In January, another car company made its move, with Stuttgart, Germany-based Daimler (NYSE: DAI) partnering with Decatur, Ill.'s Archer Daniels Midland (NYSE: ADM) and Monheim am Rhein, Germany-based Bayer CropScience, a unit of Bayer (OTC: BAYRY), to research the use of of jatropha as a feedstock for biodiesel production (see Daimler, ADM, Bayer to look at jatropha).

Carlos Riva, president and CEO of Verenium, said his company started the process for finding a partner last year. "This hasn't been a reaction at all, but more a reaction to the opportunity set that we see before us."

"We've been very vocal on this for a long time that the nature of the opportunity before us is one that makes the most sense to approach in a partnership or a consortium. It's a massive opportunity."

He said the market for cellulosic ethanol is estimated to grow to between $60 million and $80 million per year in the U.S. by the year 2022.

Most of the work under the BP-Verenium partnership will be done in San Diego, where Verenium has a large research facility.

BP has already put an initial $24.5 million into the partnership, with another $20.5 million to be paid in two installments over the next 12 months, for access to Verenium's technology platform, production facilities, and scientific knowledge and expertise.

BP will also invest $2.5 million per month over 18 months to co-fund Verenium's various scientific and technical initiatives within the cellulosic ethanol field.

Beyond this initial phase, the companies plan to start work on forming a joint venture for the deployment of the technologies from the partnership into commercial-scale facilities. BP and Verenium said that next phase would include incremental financial terms for co-funding the venture.

"Our intent is to begin negotiations as soon as a few of us get some sleep," said Ellerbusch. "And start down the path of trying to structure up an approach that we could use to create a joint venture company that could begin to run, operate, build, design, etc., these facilities."

BP and Verenium said the primary and initial focus will be on facilities in the U.S., but that there is the potential for opportunities in other regions.

"For the first round it's very likely to be in the southwestern U.S.," said Riva. "That's where the bulk of our work has been to date."

The companies said the technologies under the partnership could also be licensable to third-party commercial projects.