Biofuels

Although often grouped as a renewable energy, as a potential sustainable investment, here we will separate biofuel. Renewable energy technologies we will consider as low-carbon renewable electricity generation.

Biofuels as a category are solid, gas or liquid fuels which are derived from biomass and are an alternative to combustible fossil fuels such as petrol, gas and oil. The most common sources are oil producing plants, where the oil is refined and crops high in sugar or starch from which ethanol can be extracted. Low-grade timber or timber bi-products are also popular biofuels and recycled cooking oil is commonly processed to produce biodiesel.

Biofuels are considered to be the long-term replacement to these fossil fuels, both due to finite reserves and as a low-carbon alternative. Biofuels cannot claim to be carbon neutral per se as energy is used in their production, and there are emissions. However, they are more carbon efficient than fossil fuels, with a report commissioned by the UK government stating that biofuels are 50%-60% more carbon efficient.

Conventional diesels are now regularly made up of a hybrid of standard diesel and biodiesel, with the ratio going up to 30% biodiesel. By law, all diesel sold in the UK will contain a minimum 5% biodiesel ratio by 2013.

Increasing prices of fossil fuels as well as political initiatives have buoyed the biofuels sector and increased awareness of it as a potentially lucrative sustainable investment. This is reflected in the performance of the share price of major firms involved in the production on biofuels as well as research and development in the area.

Shares in Gevo, a US based advanced biofuels company reached a record high on the NASDAQ at the beginning of the second quarter of 2011. Amyris, Butamax and Fulcrum Bioenergy are other prominent examples of major players in the industry facing an exciting next couple of years, which is reflecting in their share prices and attraction of sustainable investment capital.

Acquisition transactions also displayed sustainable investment capital and registered 52% growth over 2009. These figures were posted as a part of Bloomberg New Energy Finance's industry report. The 2010 report also showed that the biofuels sector was in third place in the renewable energies sector in terms of attracting venture capital, behind solar and wind electricity generation. The high levels of capital investment reflect market faith in biofuels as an attractive sustainable investment with long term future.

As well as attracting investment from large institutional investors of venture capital, investment vehicles providing private investors with modest entry level investment opportunities are also opening up.

The main criticism aimed at the biofuels industry is a questioning of its credentials as a truly sustainable investment. This is based upon criticism that biomass used in biofuels competes for the same agricultural land used in food production. This has been said to be a cause of inflation in food prices, particularly in developing countries. Another criticism is disputed scientific opinion with regards to how much energy is used in the production of biofuels compared to the energy produced from them, raising concerns of energy efficiency.

Much of the concerns raised as to whether biofuels are a truly sustainable investment should be answered as second and third generation biofuels are developed. These more advanced biofuels should answer concerns by their increased efficiency and moving away from foodstuffs being the raw ingredient and using raw ingredients grown on high-quality agricultural land.