The new company has pinned its sights on the twin goals of using renewable fuels to achieve results on the climate change front. Virgin Fuels is the investment vehicle for Branson’s effort to catalyze consumers, industry and government to tackle global warming by allocating $3 billion of profits from Virgin’s airline and train businesses over the next 10 years for climate change initiatives. Aircraft are currently responsible for just 3% of carbon emissions in the European Union, but the figure is rising fast. Forecasts for the UK alone suggest that carbon dioxide (CO2) emissions from aviation could account for as much as 25% of the UK’s total contribution to global warming by 2030 (JFI Nov.13,p1).

In a wide-ranging interview with JFI in London, Virgin Fuels Chief Executive Shai Weiss described its mandate: “This is not a philanthropic organization. Our priority is to do good through good invest­ments. The operative word for our investment strategy is ‘renewable’.” He said the firm is looking to make investments across the value chain and across geographic boundaries to build a diversified portfolio of renewable energy projects.

Eventual use of jet fuel made from biomass is just one subset of a broad effort to spur commercial develop­ments for all kinds of renewable fuels. These range from solar to wind to hydropower as well as alternative trans­port fuels made from biomass such as ethanol, butanol and other fuels that may not yet exist. Jet fuel produced from coal using the Fischer-Tropsch process does not currently fall under its rubric, since it is not renewable by definition and produces CO2 in the manufacturing process.

The firm plans to play an important role in gaining approval from relevant bodies for commercial use of jet fuel made from biomass or other renewable substances, with a view to speeding up the process for testing and authorization. It expects the approval process to take three to five years. Sophie Johnson, a member of the Virgin Fuels investment team, recently attended a meeting of the newly-named Commercial Aviation Alternative Fuels Initiative. That joint industry-government group in the US is assessing all aspects of alternative fuels for aviation (JFI Nov.13,p1).

Harnessing new technologies is a cornerstone of its business plan. Working cooperatively with oil firms, ven­ture capitalists, governments, airlines and other entities is another key tenet. Weiss says its European headquar­ters provides an important advantage in that govern­ments in the UK and across Europe are ahead of the curve on influencing energy consumption patterns through taxation and subsidies. But he points out that the US is catching up, especially after President George W. Bush highlighted America’s “addiction to oil” in his 2006 State of the Union address.

This fall, Virgin Fuels made its inaugural investment in Cilion. That California-based firm, funded by Silicon Valley entrepreneur Vinod Khosla, Yucaipa Companies and Western Milling, is taking advan­tage of the state’s progressive environmental policies to build ethanol plants. The first plant will come on line late next year in California’s Central Valley. Through a joint ven­ture with Irish firm Bioverda, a division of NTR, it is invest­ing in corn to ethanol plants in the US Midwest. It plans to make further capital outlays in coming months.

Investment criteria are focused on two fronts: expan­sion equity and funding research and development of new technologies. The former is aimed at leveraging proven technologies to expand capacity in the US and Europe and build new plants in Latin America and Africa, among other ventures under consideration. At the same time, Virgin Fuels recognizes that technical innovations will play a key role in determining the global energy future. It is looking to invest in early-stage technology by funding research and development companies that hope to make sig­nificant breakthroughs. Jet fuel from biomass would fall under this category, with Virgin looking to team up with venture capitalists and other firms doing research in this area.

Work is already well underway in the US under the auspices of the Departments of Defense and Energy and in Europe by private firms to explore the feasibility of using jet fuel pro­duced from biomass for commercial and military aviation (JFI May 8,p1). While it is now actively seeking investment opportunities in the US, it is also looking closely at projects in Brazil, which slashed its petroleum needs through widespread use of ethanol. Renewable energy projects in Africa, Europe and Asia — in particular China and India — would come next. Virgin Fuels as an entity is still a work in progress: It now has nine full-time employees and aims to put together a “brain trust of the brightest people” to build up its staff. It plans to open a US office next year, most likely on the West Coast, and eventually have outposts in Africa and South America.

As to the many challenges it will face in weaning the airline industry — and its sister companies Virgin Atlantic, Virgin Blue and soon-to-be launched Virgin America — away from petroleum-based jet fuel, Weiss says that,

“Virgin Fuels is in the renewables business for the long haul, ready to tackle any and all of the logistical, technical and commercial challenges we will face along the way.”

The business plan is predicated on oil prices remaining relatively high and volatile going forward, irrespective of whether peak oil theorists are proved correct. As Weiss puts it:

“We’re new, we’re passionate, we are not encumbered by oil industry prejudices. Our major asset is Richard Branson and the brand he has built into a multibillion-dollar commercial empire.”

Unlike existing enterprises in entertainment, air and rail transport and mobile phones that reinvented the business model in established sectors, Virgin is getting into alternative fuels at the outset, with the potential to influence how the industry develops in coming months and years.

Special Reprint of JFI. Reproduced with permission from Energy Intelligence Group, 2006. www.energyintel.com © Copyright 2006 EIG, Inc.