Thursday, August 25, 2011

America's Bio Fund reported:

On 16 August President Obama announced that the U.S. Departments of Agriculture, Energy and Navy will invest up to $510 million by 2014 in partnership with the private sector to produce advanced “drop-in” aviation and maritime biofuels for military and commercial use.

Private equity underwriters (PEU's) love Uncle Sam's premium priced business, but cheap capital drives them crazy.

The plan envisages the three federal departments to invest a total of up to $510 million, which will require substantial cost sharing from private industry, with projected matching funds of least one to one.

Lining up are the usual suspects:

Wall Street's big money boys, the Carlyle Group and Goldman Sachs, have already begun discreetly investing in biofuel production in the U.S.

This explains government's prominent role in the upcoming Clean Energy Summit, as reported by Economic Policy Journal.  Here's why private equity is interested:

The small amounts produced thus far of drop-in biofuels, the majority of which have gone to both civilian airlines and the Department of Defense for evaluation and testing have been labeled “designer” fuels, as their prices are multiples per gallon higher than traditional fossil fuel, which depending on the feedstock, have ranged between $65 and $100 per gallon.
PEU's can sense a cash trough. Navy Secretary Ray Mabus said this week

“While it’s not a competitive rate yet, simply because it’s not a big enough market, we believe that if you do create this market, which we are capable of doing, the price will be competitive with petroleum.”

Finance it and they will come. At least that's the DoD's take:

“We used the Defense Production Act, which says that if you have an industry which is vital to national security that is not existent in the United States, that the government can step in and partner with private business in order to get that sort of business up and running,” Mabus said.

The Navy, Agriculture and Energy departments are contributing about $500 million in “already-existing money,” Mabus said, to purchase materials from businesses that can help to establish the new industry. Among those potential purchases are contract proposals for 450,000 gallons of biofuels for Navy research and development. It will be one of the largest biofuel purchases made in the United States.

Navy Secretary Mabus knows PEU's