Irrational Exuberance? Biofuels Study, Part One

A global industry is emerging around the production, processing and distribution of biofuels (bioethanol and biodiesel). Key factors affecting the growing momentum surrounding the biofuels market include:

• Increased global energy demand.
• Energy security.
• Rising oil and gas costs.
• Government targets and policies.
• Environmental concerns, resulting in the demand for sustainable, cleaner fuels.

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Accenture’s research and understanding of the biofuels market provide our clients with an added perspective to understand the array of incentives available and the dynamics of an evolving global market. Our first study Irrational Exuberance?: An Assessment of How the Burgeoning Biofuels Market Can Enable High Performance—A Supply Perspective examined the biofuels supply market (including feedstocks and regulations).

In the Accenture study, 20 countries were mapped with respect to the maturity of their domestic biofuels industry and the level of international activity. A comparative analysis of the 20 countries shows that although these countries are moving at different speeds and taking slightly different paths, they are all working toward the creation of a global supply market.

The future success or failure of companies competing in the biofuels supply industry will be determined by how effectively they respond to several key issues. These include:

• The need to sustainably scale feedstock supply, related storage and transportation concerns, thereby lowering production costs and increasing feedstock yields per acre.
• The continued pressure from governments, particularly in high-demand countries such as the United States, China, India and the European Union, to achieve energy security through diversification of their energy sources and increasing domestic production.
• Policy considerations favoring support of agriculture in almost all countries.
• The emergence of regulations encouraging biofuels use as a means of reducing CO2 emissions.

With these issues in mind, our research has enabled Accenture to identify seven capabilities that market participants will need to master to achieve high performance in the emerging and evolving biofuels sector. These are:

• An effective nonmarket strategy—navigating the mix of regulation, tariffs and incentives, and managing consumer perception.
• Superior investment evaluation—choosing the right mix of investments and the amount and type of capital to invest, and understanding when to consider mergers and acquisitions.
• Partnering—finding and keeping the right partners to share risks and access markets, skills and financing.
• Supply chain—aligning and optimizing the cross-border feedstock and biofuel supply chains.
• Customer/contract management—managing portfolios of bilateral long- and medium-term contracts.
• Trading and risk management—using the financial markets to manage risks and surplus/shortfalls in contract positions.
• Portfolio of investments in various technologies—using diversification to manage the uncertainty of which technologies will prevail.

Supply, however, is just one aspect of the biofuels market. With vertical integration and collaboration across the value chain as key trends, organizations seeking high performance also need to tackle trends addressing demand, scale markets and technology. Accenture will explore these topics in our second biofuels study: Biofuels’ time of transition: Achieving High Performance in a World of Increasing Fuel Diversity.