Ethanol Maker Goes Public

Can this be the start of an IPO market in renewable energy?

Shares of VeraSun Energy, the second-largest producer of ethanol in the United States, are climbing rapidly after its initial public offering and have increased by nearly a third in value.

The company's stock was trading at about $30 a share at about 10 a.m. PDT on Wednesday. The company sold 18.25 million shares for $23 a share in its IPO. The $23 price was higher than earlier expectations. Initially, VeraSun planned to sell only 17.25 million shares for $18 to $20 a share. On June 9, it then expanded the number of shares it planned to sell and increased the anticipated offering price to a $21-to-$22 range.

The South Dakota-based company produces ethanol, an alcohol that can be used as a fuel additive or serve as the primary fuel in some cars, out of corn. The company has a current output of 230 million gallons per year. Facilities on the drawing board will allow the company to increase output to 340 million gallons per year by August 2007 and 560 million gallons per year by the first quarter of 2008.

In the first quarter of 2006, the company garnered $109.9 million in revenue but only $2.7 million in net income.

... Ethanol also needs to be improved. Currently, most ethanol in the United States is made of corn, while in Brazil, it comes from sugar cane. Unfortunately, processing either material into usable fuel is not very efficient.

Researchers right now are looking at ways to produce ethanol out of superweeds and other plants that can fertilize themselves, consume less water and produce more energy per kilogram.

The stock did well on its first day, on rather light volume. The income for Q1-2006 was paltry, and the technology still energy inefficient. Hopefully, cellulosic ethanol becomes a commercial reality in the near future. For a primer on Ethanol, check out Vinod Khosla's presentation at the Googleplex.