The federal Budget’s announcement of $22.7 billion for A Future Made in Australia, still leaves us with a valley of death funding gap for first-of-a-kind (FOAK) manufacturing facilities, particularly for sectors outside of the government’s focus on critical minerals and clean energy industries. We can bridge this valley with fast, flexible government packages for synthetic biology and similar new industries.
Biomanufacturing is estimated to be worth trillions, builds on Australia’s comparative strengths (great tech, agriculture feedstocks, clean and green) and will help achieve Australia’s net zero targets. Australia is home to leading biomanufacturing technology such as Samsara Eco, which infinitely recycles plastics using plastic-eating super enzymes, and Cauldron Molecules, precision fermenters brewing cost effective, sustainable, alternate food, feed, fibre and fuel.
Australia is a strong performer in knowledge creation (9th of 31 OECD countries) but relatively poor at innovation output (commercialisation) (30th of 132 in WIPO Global Innovation Index) with notably low ranks for high tech manufacturing (50th) and production and export complexity (90th). Biomanufacturing could help turn that around but the valley of death for a FOAK is a known challenge.
CSIRO projects that the biomanufacturing sector has the potential to generate 50,000 new jobs by 2040 but already the more mature companies have relocated offshore. The bottleneck to this industry in Australia is financing for FOAK. Capital projects larger than US$20 million for a FOAK facility are not serviced by either venture capital or project finance, so FOAK funding requires public and private partnering.
Government equity may crowd out commercial investors. Government grants alone cannot fund capital intensive projects, which means government-debt is a critical financer. Australia’s government-funded debt providers are more accustomed to ‘new’ industries like renewable energy where long-term energy offtake is easier to guarantee and enable loan funding, this isn’t as easy in biomanufacturing more broadly.
Opportunity & Solution
Fast, flexible models for FOAKs could ensure Australia doesn’t lose out on capturing the value of its IP this time around.
Given our relatively small economy industry policies compared to those of other countries (America’s $605b), Australia can’t compete on scale. As the Deputy Chair of Australia’s Productivity Commission, Alex Robson, said ‘we do not have the fiscal resources (to compete with bigger economies) and it would be “like bringing a slingshot to a tank battle”.
The US’s Inflation Reduction Act, bipartisan CHIPS Act, and the recent executive order on bio-manufacturing has turbocharged investment and growth across a host of advanced manufacturing and climate tech sectors in the US. In other new industries that China sought to take a global leadership position on, they offered incentives worth a staggering 30-40 per cent of total cost of fabrication ownership (project build plus 10 years of operation).
In his keynote at the Climate Investor Forum this year, the National Reconstruction Fund Corporation (NRFC) Chair Martijn Wilder indicated that NRFC and Australian government investment must get comfortable with risk and NRFC will explore models that have been applied successfully overseas.
Australia should look at overseas examples and replicate its signals and incentives. While China’s scale of investment isn’t feasible for Australia, China’s incentive packaging provides insights, for example, their ownership of the fabrications’ assets with lease back arrangements to the manufacturer.
Germany succeeded in commercialising its wind turbine technology through incentives like Germany’s Federal Ministry for Research and Technology’s (BMFT) guaranteed offtake. They provided a power purchase agreement which offered 10-12 years of energy purchasing from wind farm development companies for the first 250 MW installed. The rate paid for the electricity was much higher than the commercial rate and was based on the level needed to encourage wind farm development using German-made turbines.
Germany didn’t need more power – this was an investment in greening the grid, the orderly phase out of coal and nuclear power and, most importantly, to encourage a domestic German manufacturing industry. This incentive system was somewhat disguised as an instrument of research rather than its true identity of market support. Andrew Garrad CBE, founder of wind turbine consulting company Garrad Hassan, and later President of GL Garrad Hassan with 1,000 staff in 29 countries, commented:
“The BMFT approach, which protected the German industry from foreign competition at the very early stages of development, was echoed in Denmark but not in the UK. The UK, German and Danish technologies were similar at the time, but the lack of national protection at this sensitive juncture, allowed the UK industry to fail whereas the Danish and German industries have continued and now dominate the western markets”.
Coming back to Australia’s potential global leadership in biomanufacturing, opportunities like precision fermentation and even partial guaranteed offtake could unlock debt when packaged with other government incentives. While owning fermenters and leasing back to manufacturers may not be top of mind for government, a massive fermenter shortage is predicted as these industries grow with BCG estimating an additional 30 million tonnes of bioreactor (fermenters) capacity is needed by 2035 to meet demand, so asset value could be very healthy and, in fact, appreciating.
Australia is poised to be a biomanufacturing leader, if the government can deliver fast funding models for first-of-a-kind facilities. Government packages that include debt, rebates, grants and other options like subsidised input costs (energy), leasing of assets or partial guarantees on offtake, could be the solution.
Australia has an opportunity to play a world leading role in a trillion dollar biomanufacturing industry but it’s a race to scale. We need biomanufacturing facilities built fast or we will lose out to the bigger capital firepower of other developed nations.
Camilla Roberts is the CEO of Scale Impact, a venture capital form that secures government funding for high growth scale-ups in Australia and abroad, in order to accelerate and scale their beneficial impacts.
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