Biofuels is a core focus area for us, driving our work in biofuels M&A and fundraising for biofuels projects, as we see substantial industrial logic in a renewable fuel that is a drop-in substitute for fossil fuels. Unlike electric vehicles or hydrogen fuel-cell vehicles, biofuels like hydrotreated vegetable oil (HVO) or biodiesel allow the customer to switch immediately to a renewable energy source without purchasing a new vehicle or retrofitting an existing vehicle. This substantially lowers the barriers to adoption of low-carbon fuels, as the biofuels customer does not have to spend anything on replacing its existing equipment. So the market for biofuels does not need to be established: most vehicles with internal combustion engines can start to run on biofuels immediately.

In many ways biofuels projects are simply a variation on existing refining operations. Instead of crude oil, the feedstock is vegetable oil, or waste fats or in some cases cellulosic biomass like timber waste or wheat stubble. All of these feedstocks exist in most countries, although there can be constraints on local availability in some cases, or in the case of vegetable oil, competition with demand from human consumption can keep feedstock prices high.

In our advice on M&A for biofuels projects or fundraising for biofuels projects, we consider carefully the market dynamics surrounding the relevant project, including the refining and/or distribution margins, the relevant market, and the availability and cost of feedstock. For a greenfield project, standard structures for project finance can be employed, although lenders will be concerned to know whether the project will receive a tolling revenue for providing a refining service, or will be exposed to merchant price risk on the produced biofuels. For M&A transactions on existing biofuels projects, historical financials and margins achieved will be at the heart of any economic analysis.