Some of the hottest renewable energy stocks which are working to fight climate change can be found in the biofuel, or biodiesel and renewable diesel, industry.
Learning about this complicated industry can be a challenge especially if you have no background in the energy sector, so I will attempt to do a complete breakdown from a beginner’s viewpoint, so that you can analyze the many biofuel, biodiesel, and other related stocks to this high potential industry.
When diving into an industry as interwoven into a large sector (energy) as biofuel, it’s important to get as granular as possible with your understanding.
Unfortunately, major conglomerates with many segments and vertical integrations such as those you’ll see in the energy sector don’t usually provide detailed breakdowns into the entirety of each segment. Even if they do, it’s not often they will provide detailed outlooks and explanations about each market—this would take hundreds of pages for a conglomerate like ExxonMobil.
And to be clear, the difference between the markets for one piece of an industry, such as natural gas, can be completely different from one like biofuel, even though the end uses are very similar (and biodiesel can even be different from biofuel!).
So to get great information about a specific industry and market within a larger one, such as the semiconductor industry among tech giants or various renewable energies among oil majors, it helps to first analyze a company that is a “pure play” in a specific market.
In other words, to get a good grasp of the biofuel industry, we will examine one of the smaller companies who are primarily focused on this market.
From there, we can backtrack to examine the bigger players when it comes to picking an investment, but the understanding and circle of competence comes from learning from as close to a pure play company that you can find, regardless of how small it is.
A company who fits this definition perfectly is one called Renewable Energy Group (ticker: $REGI). Let’s pull up the company’s latest 10-k in order to glean as much information on the industry as we can.
From the company’s first couple of sentences in their business overview:
We focus on providing cleaner, lower carbon transportation fuels. We are North America’s largest producer of advanced biofuels. We utilize a nationwide production, distribution and logistics system as part of an integrated value chain model designed to convert natural fats, oils and greases into advanced biofuels.
I’ve bolded what I thought to be a key sentence in there, and will start our base of knowledge into our biodiesel industry map.
The Basics of the Biofuel Industry: Key Definitions
Before we completely dive into the extensive 10-k, let me set the table with a few simple, yet key and distinct definitions that we’ll come across during this industry breakdown.
First, biofuels and biodiesels.