Since our last feature articles on the topic, "The Electrification of Personal Transportation" in the December 2009 issue and "Investing in Efficient Transportation" in the September 2010 issue, much has happened in the electric vehicle space and it is time for us to review the field and publish our next investment recommendation.

At the end of 2010, for all practical purposes, there was only one hybrid electric vehicle (the Toyota Prius) and one all-electric vehicle (the Tesla Roadster) in full production. Since then, just about every automobile manufacturer in the world offers several hybrid models, plug-in hybrids are finally becoming a reality and there are dozens of pure electric vehicles nearing mass production.

The bulk of the growth in oil demand will come from commercial transportation - mostly trucks, but also airplanes, ships and trains. A recent study by ExxonMobil projects that global energy demand for transportation will rise by nearly 45% from 2010-2040 and yet, "global demand for fuel for personal vehicles will soon peak and then begin to decline." "The proliferation of hybrid and other advanced vehicles - along with improvements to conventional-vehicle efficiency - will result in flattening demand for personal transportation, even as the number of personal vehicles in the world doubles."

Their study shows hybrids and other advanced vehicles to account for nearly 50% of light duty vehicles on the road by 2040, up from about 1% today, and 65% of new car sales.

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by Rona Fried, Ph.D., Contributing Editor

A new era in aviation began in November 2011 when the first commercial flights ran partially on biofuels. Continental flew the first commercial flight on a blend of algae-based fuels, and Alaska Airline Group flew 75 commercial passenger flights in the U.S. powered partly by used cooking oil-based jet fuel.

Airline executives see huge potential for using these fuels - all they need is a reliable supply at a reasonable price. Airbus estimates that by 2030 airlines may source 30% of their fuel from plant-derived oils.

Alaska Air Group CEO Bill Ayer comments: "Commercial airplanes are equipped and ready for biofuels. They will enable us to fly cleaner, foster job growth in a new industry, and can insulate airlines from the volatile price swings of conventional fossil fuel to help make air travel more economical. What we need is an adequate, affordable and sustainable supply. To the biofuels industry, we say: If you build it, we will buy it."

And that's what the nascent green chemicals industry is gearing up for. Last August, President Obama announced a $510 million public-private partnership to produce advanced drop-in aviation and marine biofuels.

When Continental flew from Houston to Chicago on algae-based fuel, it used Solazyme (SZYM) Solajet fuel - a combination of 40% algae fuel (algae oil refined into jet fuel) and 60% petroleum-based jet fuel.

United Airlines, which owns Continental and is the world's largest airline, signed a letter of intent with Solazyme to purchase 20 million gallons of algae-based jet fuel a year, starting in 2014.

In May 2011, Solazyme became the first algae-to-fuels company to list on a major public exchange. Solazyme's IPO followed the success of other green chemical IPOs in 2010: Codexis, Inc. (CDXS), Amyris, Inc. (AMRS) which we briefly held in the Green Portfolio last year, and early 2011: Gevo, Inc. (GEVO) and FutureFuel Corp. (FF).

Gevo won the first contract to supply the US Air Force with biojet fuel, to begin meeting its commitment for US-based airplanes to fly on 50% alternative fuels by 2016. Shipments begin this year.

The Solazyme IPO was followed by KiOR, Inc. (KIOR) in June 2011 and two more so far in 2012: Renewable Energy Group (REGI) and Ceres, Inc. (CERE), which markets seeds for energy crops. Eight other similar companies plan to go public this year, including Elevance Renewable Sciences, Fulcrum Bioenergy, Mascoma and Myriant.

For a complete list of green IPOs filed during 2011, see "Green IPO Resurgence" in the February 2012 issue of The Green Investor.

These are just some of the companies developing green jet fuels, you can find more information on RenewableJetFuels.org

Eyes on Fuels, Chemicals First

Although aviation fuels are tremendously exciting, they won't drive revenues for these companies in the short run. The same processes to make fuel can make substitutes for a wide range of petroleum-based chemicals, from cosmetics to foods.

Chemical markets are extremely large ($3 trillion a year according to the American Chemistry Council) and are ripe for petroleum substitutes that can reduce greenhouse gas emissions, toxic byproducts, and lack of biodegradability. Chemicals enable production of about 95% of manufactured products in the U.S. Right now, the majority are made from oil, natural gas and coal.

The global market for bio-based green chemicals currently stands at about $170 billion (chemicals, materials and fuels) and will grow to more than $500 billion by 2020, according to McKinsey.

Let's take a closer look at two of the companies, Gevo and Solayzme.

Gevo (GEVO)

Gevo, which saves money by converting existing ethanol plants into biorefineries, is ramping up commercial production of fuel and chemicals from isobutanol this year.

Isobutanol is a key building block in the production of chemicals and fuels, which Gevo makes from a variety of plant-based fermentable sugars like corn, wheat and barley. In the longer term, Gevo plans to derive isobutanol from agricultural waste and other biomass. Traditionally made from petroleum-based sources, isobutanol or its derivatives serve as a chemical solvent used to make paints, coatings, plastics, lubricants and synthetic rubbers - Gevo's initial markets.

It's also working with Coca-Cola to develop fully plant-based soda bottles. And oil giant Total, which holds a strategic stake in Gevo, plans to buy its isobutanol for use as a biofuel.

Solazyme (SZYM)

San Francisco-based Solazyme is developing specialty oils across an even wider range of industries. Algae can substitute for petroleum in chemicals, fuels, nutrition, and personal care.

Although algae oil has been widely lauded for its potential as a renewable feedstock, separating the oil from algae has proven to be difficult and expensive. Solazyme's solution is to grow algae in closed, indoor tanks where it ferments by feeding on sugar rather than using lots of land required for photosynthesis. This makes algae competitively priced with petroleum products, while also yielding byproducts derived from algae's protein and fiber. Importantly, Solazyme can generate commercial volumes in just several days.

Initially, Solazyme is targeting the nutrition market - offering alternatives to eggs, butter and oils - and the cosmetics market, with anti-aging products, a key growth area. Since the launch of its Algenist skin care line in 2011, Solazyme has generated about $3.5 million in sales, estimates Canaccord Genuity.

Although the companies we've talked about are all development stage and thus risky companies, they're worth keeping a strong eye on.

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Rona Fried, Ph.D. is CEO of SustainableBusiness.com, which published Progressive Investor for eight years before merging with The Green Investor in November 2010.

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by Garrett Beauvais, Contributing Editor

The U.S. energy efficiency market is diverse and fragmented with literally thousands of companies that provide all types of services ranging from simple home weatherization, such as installing energy saving windows and attic insulation, to large engineering firms that help developers and contractors design, construct, and retrofit buildings and systems to minimize energy use, waste, and emissions, or that help utility companies update and retrofit entire energy production and delivery systems. In this issue of The Green Investor, we are focusing on firms that work on both public and private sector commercial-scale projects as well as those that consult with utilities to help them deliver power to their customers more efficiently.

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