KiOR - The Quest for Cellulosic Biofuels

KiOR - The Quest for Cellulosic Biofuels

Stefan Reichelstein, Sara Rosenthal, Anshuman Sahoo
2013|Case No.E427| Length 12 pgs.

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.

Learning Objective

The case requires students to study KiOR production economics and understand the RFS2. The assignment questions require students to build discounted cash flow (DCF) statements under various assumptions about the company’s production economics. Support is provided in this note for extending the concept of levelized product costs (LPC) from its usual application to estimate the levelized cost of electricity (LCOE) generation to the derivation of KiOR fuel LPCs (Appendix I). This extension is not required for the successful use of the case, but it allows students to draw analogies between the electricity generation and transportation fuel production industries.

This material is available for download by current Stanford GSB students, faculty, and staff, as well as Stanford GSB alumni. For inquiries, contact the Case Writing Office.