KiOR - The Quest for Cellulosic Biofuels

In 2012, KiOR was in the process of starting biofuels production at its first plant in Columbus, Mississippi. This initial plant was to provide a commercial scale proof-of-concept of KiOR’s production technology, and the company expected to build another set of plants in Natchez, MS using “copy exact” principles. These latter plants would be three times the size of the Columbus plants, and KiOR anticipated a number of improvements in its production methodology. Among these were (1) an increase in its conversion yield, or the volume of biofuel that it could produce from an inputted ton of biomass feedstock, and (2) a decrease in input costs. KiOR biofuels earned Renewable Identification Number (RIN) credits associated with the Renewable Fuel Standard 2 (RFS2) administered by the U.S. Environmental Protection Agency (EPA). Since RINs had a market value, the RFS2 provided a subsidy to KiOR. However, it was unclear whether the credits would retain a value beyond 2022, and KiOR was in a race to realize the potential improvements in production technology and costs before RIN support vanished. This case examines the breakeven cost of the KiOR production technology, with and without cost improvements and with and without RIN support. It provides representative assumptions that students can use to analyze KiOR’s business model and its sensitivity to policy support. The case package includes an Excel workbook that can be given to students to explore sensitivity analyses around technological and RIN value uncertainties.