NEW YORK (TheStreet) -- Every school kid knows that cows eat grass.Their digestion systems are able to turn the cellulose in grass into simple sugars, just as your digestion system does with the starch in that doughnut you had on the way into the office. Noubar Afeyan's Midori Renewables says it has developed a proprietary biocatalyst that can do what the cow does efficiently. The "rate limit" for biofuels is this ability to turn cellulose into sugar, which can then be turned into alcohol, he said. If any biomass can become sugar for just pennies per pound, it will transform the business, Afeyan added. KiOR ( KIOR) also bases its business on a biocatalyst, which in its case can be used at high temperature to turn biomass into oil and natural gas liquids. In the first seven months of this year it turned pine pellets into nearly 360,000 gallons of gasoline, diesel and fuel oil using its catalyst, at a plant in Columbus, Miss. This was just one-fourth of its production target, which sent the stock tumbling, but Raymond James analyst Pavel Molchanov, who is usually quite bearish, called this a buying opportunity. "The business model remains valid," he told RenewableEnergyWorld . Efficient biocatalysts are the holy grail of the biofuels industry. What Biofuelsdigest calls "Planet Houston" won't show interest in biofuels until it can produce useful refinery inputs at $2.40/gallon, well below the cost of regular gasoline. Kior thinks it can get its costs down to $2.25/gallon with an improved facility in Natchez, Miss. Afeyan won't speculate on the cost of his energy, being focused on the cost of producing the sugar that creates the energy. But the "performance was compelling," he said, and his catalyst is non-toxic, delivering sugar at just one-third the price of other solutions. He expects Midori to have further announcements in a few weeks. As indicated above, our body produces biocatalysts naturally, called protein enzymes, and such enzymes are at the heart of all sorts of natural chemical transformations, including the brewing of beer. What's new is the application of genetic engineering to produce custom catalysts that can be patented, and the scale on which their producers wish to work.
Better catalysts aren't the only route to cheaper biofuels. Evogene, an Israeli company, has used genetics to produce a line of castor beans that can grow during Brazil's dry season, when fields are otherwise fallow, and says the pressed oil can be used directly for fuel, according to Biofuels-news.com. Biofuels-News.com. Afeyan thinks it will take several years, but biofuels could eventually deliver nearly 10% of our energy needs. Doesn't sound like a lot, but in the oilpatch supply and demand are finely balanced. Getting 10% of supplies from technologies that cost under $2.50/gallon could have a profound impact on prices. Afeyan thinks the growth of new middle class economies in places like India, Brazil, and Africa will offset this new supply, but shale oil has already produced a relative energy glut in the United States, with natural gas prices that remain below $4/mcf and a "spread" between our oil prices and world prices that remains in place despite a rush to export. There are many forms of renewable energy, and the costs of all of them decline all the time. Whether solar energy, wind energy, and biofuels are currently cheaper than fossil fuel competition is an open question. Fact is, they're getting cheaper, and more plentiful. The cost of efficiency, doing more with less, is even lower. What happens in the oilpatch when owners of reserves start to think that what's in the ground is worth less than what they are currently pumping? It's inconceivable, but as we've seen throughout economic history what seems inconceivable has a habit of coming to pass. At the time of publication the author had no position in any of the stocks mentioned. Follow @DanaBlankenhor This article was written by an independent contributor, separate from TheStreet's regular news coverage.