bio-bean: can cappuccinos challenge fossil fuels?

This post explores the potential challenges facing bio-bean, a UK-based startup looking to exploit the opportunity climate change presents for alternative energy companies to prosper.

Hear ‘coffee shop waste’, and your mind wanders to empty Styrofoam cups. One innovative UK company, however, has focused instead on wasted coffee grounds as a promising source of fuel, substituting for harmful fossil fuels. Bio-bean, founded in 2013 by a student in London, uses a patented technology to extract oil from coffee beans and convert the remains of coffee ground to biomass fueling offices and homes. Bio-bean is taking advantage of the opportunity climate change presents as governments and other bodies seek to fund and support alternative energy sources. So far bio-bean has gained real traction, gaining support from the Mayor of London[1] and winning numerous large financial grants.

Exhibit 1: How bio-bean works

bio-bean

Two key questions exist, though: can bio-bean scale sustainably to represent a non-trivial reduction in fossil fuel emissions? And: as sourcing alternative energy solutions climbs up business and regulatory agendas, will competitors emerge, dwarfing or even extinguishing bio-bean?

Bio-bean’s model depends on collecting coffee waste from shops and factories around the UK. The company processes 50,000 tonnes of waste annually, representing the leftover grounds from one in ten cups consumed in the UK[2]. By the CEO’s own admission, the current effort represents a ‘drop in the ocean’[3] in terms of its contribution to limiting climate change, estimating that the energy produced only powers the equivalent 15,000 UK homes. So the team plan to scale the operation further, within the UK and also to countries in Northern Europe and the USA, all of which consume (and waste) more coffee. This poses a serious challenge for the business’ operating model, even just within the UK. For example, bio-bean charges a low collection fee and no gate fee to incentivize companies to give over their waste. This is persuasive at the moment, as waste-givers can realize up to 75% in cost savings[4], but to have a bigger impact, bio-bean needs to collect more coffee waste, and to do so it will have to maintain these very low prices for its collaborators. Simultaneously, bio-bean’s cost base will likely need to increase; the company doesn’t currently own its waste vehicles, often uses ad-hoc solutions such as trash bags and dumpsters as needed, and its premises are a small part of an incubator’s facility. Achieving greater volume – and therefore, crucially, a greater provision of alternative energy – will require considerable investment in infrastructure. Bio-bean may find itself in the precarious situation of trading off profitability vs. real environmental impact.

Competition is the other risk bio-bean should have front-of-mind. Biomass subsidies are common in many countries[5], including the US, Germany and Italy, making this an attractive space. Competition could take several different forms. Players could emerge in economies with greater coffee waste that use slightly different technology, or even different waste, to the same effect, and therefore limit bio-bean’s success in its new target markets. There are already examples of such companies, like Coffee Coals, which has been converting waste coffee to create coals for barbecues in the USA[6]. That said, that these companies exist is no immediate indication of their ability to threaten bio-bean’s business. Arguably more threateningly, many existing large companies could choose to utilize their own waste for energy rather than outsource to bio-bean or an equivalent. We already see evidence of this trend starting: McDonald’s reuses much of its own cooking oil waste and, more pertinently, Starbucks is converting 400 million pounds of coffee grounds annually into bioplastics, detergents and biodiesel[7]. As investors, regulators and consumers exert more pressure to operate in an environmentally friendly way, what’s to stop these corporate titans or others converting much more waste to biofuel and leveraging their massive resources to eliminate the need for a small player like bio-bean?

A large-scale commitment of these big companies to a step-change in utilization of their waste would be great news for the environment, but not so much for bio-bean as it currently operates. This illustrates the fundamental tension within its business model: it was set up to mitigate some of the causes of climate change, but the more climate change gains in political and commercial significance, demanding scale and expansion from the business, the less well-placed it is to deliver. The team are taking steps to address these risks by working to license their technology for many different kinds of biofuels to sell to waste producers looking to process waste; I would recommend that these efforts, and building lasting cost-efficient relationships with these producers, remain a strategic priority. Additionally, it will be important for bio-bean to focus on cementing partnerships with governments and other regulators across geographies to ensure its voice is heard and it continues to receive funding. Hopefully, if it pursues the right partnerships, bio-bean can benefit rather than suffer from growth in the field.

(799 words excl. footnotes)

[1] ‘I’ll power buses with coffee grounds’, Evening Standard UK, 2014: http://www.standard.co.uk/news/london/i-ll-power-buses-with-coffee-grounds-says-winner-of-400000-eco-prize-9732907.html

[2] Bio-bean website, 2016: http://www.bio-bean.com/about-us/

[3] ‘How coffee can power more than your daily wakeup’, Bloomberg, 2014

[4] ‘The BEAN Machine’, MRW, 2014: https://www.mrw.co.uk/the-bean-machine/8663726.article

[5] ‘Carbon Emissions and the Taxpayer’, Financial Times, 2013, http://blogs.ft.com/the-world/files/2016/07/GR262Xcarbon_tax_modern_energy_SR_CHART.png, cited in ‘Climate Change in 2016: Implications for Business’, Harvard Business School, 2016

[6] ‘The many ways in which coffee waste was diverted in 2015′, Daily Coffee News, 2016: http://dailycoffeenews.com/2015/12/29/the-many-ways-in-which-coffee-waste-was-diverted-in-2015/

[7] ‘Coffee grounds converted to biomass pellets’, Environmental Leader, 2014: http://www.environmentalleader.com/2014/02/14/coffee-grounds-converted-to-biomass-pellets/

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2 thoughts on “bio-bean: can cappuccinos challenge fossil fuels?

  1. I think your post highlights the central challenge of start-ups that emerge in this space: scale and impact are (often) conversely related. You are correct to highlight that corporate titans like Starbucks are likely to continue to develop their own programs for waste recycling so that they can continue to manage the supply chain (and their reputation). However, bio-bean could be hugely helpful to smaller coffee shops that do not benefit from economies of scale (I’m thinking of all the random coffee shops in NYC or other big cities). Many of these smaller players may not consider environmentally-friendly disposal of grounds do to lack of scale, minimal reputation risk, or high cost but the aggregate impact of collecting from all these places could be quite large (especially as the movement for counter culture coffee continues to grow).

  2. Really interesting post! To be honest, I had never thought about the coffee grounds as a large source of waste generated by coffee. I wonder if once the technology is more developed, if people might be able to make use of the coffee grounds in their home… Currently, the most environmentally conscious people I know compost their coffee grounds, but it would be even better if they could reuse the coffee grounds to provide some sort of small fuel, like maybe powering their coffee maker!

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