BP’s jatropha interest continues to wane

BP looks to be moving further away from its involvement in the biodiesel crop jatropha. Its joint venture into jatropha planting with D1 Oils, a UK company which has interests in a quarter of the world’s jatropha crops, is set to be diminished as the two companies failed to find new investors in the project.

The move will not come as a huge surprise to anyone who has followed BP’s recent moves in renewables. The two companies agreed to rein in the expansion plans of the D1-BP Fuel Crops planting joint venture earlier this year, and D1 sought an outside investor in the project. But today D1 told markets there was “an insufficient level of interest from potential investors”.

BP meanwhile is cutting back its investments in other key solar projects, and its total spending on renewables will fall from $1.4bn last year to $500m – $1bn this year.

BP is maintaining that nothing has been decided, but D1 is fairly clear:

Talks underway with BP to dissolve Jatropha joint venture to bring planting and plant science operations together under full D1 control

D1 has previously carried out its planting efforts within the BP joint venture, separate from the science and agronomy aspects of its business. It now plans to integrate those two parts. And the company will need to return fundraising by the end of next year — although its loss reduced in the year to December 2008, it only has enough cash to last until late 2010.

D1′s chief executive Ben Good said BP would retain some interest in D1, but the joint venture would be taken over by his company.

“The direction of travel is that it is BP’s shareholding in the JV vehicle falls, replaced by something else that gives them an interest in the upside to the business downstream.”

Despite the benefits of not competing with food crops, jatropha has had little good press lately. A recent Dutch study found it required more water than other biofuel crops, and there have long been concerns about its suitability for cultivation – ironically, one of the plant’s strengths was its ability to grow in marginal lands.

D1 for its part is focusing on improving the profitability of its crops: it plans to use the meal remaining after oil is extracted for high value livestock feed. But the company is hoping that by next year, it will see some benefits of re-integrating its businesses.

Good was optimistic: the first half of 2009 has not been a difficult time to raise money for anything. And if nothing else, its existing crops, which take five years to mature, will be much closure to yielding income by late next year.

But what about waning support for biofuels in general? Amid concerns about the sustainability of biofuels, Germany last week decided to cut its biodiesel targets. Small says support is still strong in the UK and Europe, and that in any case the company is exposed to a variety of markets, including countries where its crops grow in the developing world, which spreads the political risk.

Update: We had the name of D1 Oils’ chief executive wrong in the original version of this post. It is in fact Ben Good and not Ben Small – apologies, Mr Good!

Related links:

BP reins in D1 alternative energy plans (FT, 04/02/09)

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