I should start by pointing out I’m not Cleantech Group’s biofuels analyst (my colleague Stephen Marcus in London has that well-deserved title).  Nor do I claim to have deep expertise in biofuels.  My focus is on energy storage and energy efficiency.

But recent developments have led me to pay more attention to biofuels.  The most obvious development is an oil price climbing past $100 a barrel.  By conventional wisdom – about which we should always be skeptical – we are still in the early stages of an economic recovery.  As that recovery strengthens, we typically see upward pressure on the price of oil.  Given that we are “starting” at $100, it seems there is at least the potential for very high oil prices.  And this is to say nothing of potential effects from ongoing political turmoil in the Middle East.

The difficulty for oil companies (or cleantech investors, for that matter) is making investment decisions today about companies, technologies, and refining capacity that will not be fully realized for years.  While few are on record betting on continued high prices, investors are making predictions with their wallets.  Witness recent biofuels deals by major oil companies (here or here).   Anecdotally, an acquaintence at a biofuels company mentioned that his company was investing in two major refining facilities in the U.S. because current prices give them “margin for error” even if their projections of future prices are wrong.

Why should anyone believe this new wave of investment will not end in failed companies and empty wallets circa 2009?  One reason to be optimistic is growing interest in using biofuel companies’ core technology for different end-uses, like consumer products.  In fact, a client who is the head of a major fabric care business unit at one of the world’s largest consumer products companies expressed a deep interest in biofuels because detergent is, of course, largely based on petroleum-related chemicals.  Biofuels companies help consumer product companies produce a range of chemicals by reducing or eliminating petroleum inputs.

Consumer product companies are betting that biofuel companies can find and refine continuous supplies of switchgrass, corn, algae, etc. at stable – albeit often higher – prices.  Oil, on the other hand, is subject to geopolitical uncertainty and price shocks, traveling to developed countries primarily en route from the Middle East.  Interestingly, being environmentally responsible doesn’t appear to be a key motivator for these investment decisions; the emphasis is on guaranteeing a secure supply and a stable price.

So we’re unlikely to go back to the future (circa 2006-2008), where pipe dreams of rapid worldwide adoption of cheap biofuels motivated investment.  Instead, we’re entering a more sober and mature era where large corporates fuel the growth of the biofuel industry as part of a broader risk management and supply chain strategy, not in order to be green.  While it may be less exciting than “Biofuels 1.0″, the current approach is likely to be longer-lasting than the earlier version.