Future of cellulosic ethanol remains uncertain

by Mark Steil, Minnesota Public Radio

Worthington, Minn. — idea of a biofuel made from a cellulosic material was one of the stars of both the Bush and Obama administration’s energy programs, but the future of cellulosic ethanol is in doubt.

Cellulosic ethanol is made from corn stalks, wood chips and other biomass, and by this time, it was widely expected there would be large scale plants producing it. But that hasn’t happened because lenders won’t touch cellulosic ethanol.

Many people still believe in the once-bright promise of cellulosic ethanol.

“Cellulosic ethanol presents a tremendous opportunity for our nation,” said Jeff Broin, CEO of Sioux Falls-based ethanol producer, POET. “Congress has set a target of 16 billion gallons of cellulosic ethanol by 2022. This is a lofty goal, but it is achievable.”

POET is the nation’s largest ethanol producer. The Sioux Falls ethanol company has plans to build a cellulosic plant in northwest Iowa, but the start date keeps getting pushed back. Originally, POET officials said cellulosic ethanol production would start in 2009. Then it was 2010, then 2011. Now Broin said it will be 2012 at the earliest.

“With cellulosic ethanol, we’ve seen no shortage of skepticism lately,” Broin told the National Press Club. “That skepticism has been fueled by some companies’ lack of success and the industry’s inability to scale up to meet government projected timelines.”

High corn prices and low prices for the biofuel drove several large ethanol producers into bankruptcy over the past 18 months.

Corn cob ethanol 

Broin and others in the industry are urging the federal government to raise the amount of ethanol it allows to be blended into gasoline. The current standard is 10 percent, but Broin and others want that increased to 15 percent. Broin said that would boost ethanol sales, and increase the odds that cellulosic operations would be profitable.

But beyond the E-15 issue as it is known, there’s a more basic hurdle for the cellulosic industry to clear.

“You just can’t get the financing,” said Arnold Klann, who runs California-based BlueFire Ethanol, which is also planning to build a cellulosic plant.

“Besides BlueFire there’s quite a few other companies as you’re well aware that are all trying to build their first plants,” Klann said. “And each one has different barriers, but fundamentally the least common denominator in all those barriers, whether they’re technical or whatever, is the financing.”

Klann said banks consider cellulosic plants too risky. There are small, pilot cellulosic plants operating but nothing on an industrial scale. Klann said lenders aren’t willing to finance them because they’re not sure a large facility will work.

(read the entire article)

Our Take:
Ethanol from cellulose rather than starch can be done. The only way it can be done though is to produce it side-by-side with corn-based ethanol. Corn ethanol plants are the only players in the market with the experience (some of our farmer-owned plant managers have been at it for more than two decades), and the savvy. With the right market conditions, they are also the ones likely to have the ability and the appetite to take the risk with that much capital. But they will need help.

 

Cellulose ethanol is not a question of the science. It is being done at the POET demonstration plant in Scotland, SD (corn cobs), and the DuPont Danisco/University of Tennessee/ Genera LLC demonstration plant in Vonore, Tennessee (Switch Grass).

 

The delay of the Emmetsberg plant is a disappointment, but don’t count cellulose ethanol out yet.

 

Earlier this year, POET officials spoke publicly about the Emmetsberg project, which has received $100 million in government funding (about a quarter of the cost), and noted that their research and development work to date has resulted in a process that can make ethanol for about $2.35 a gallon, and the company has a goal of $2 cost per gallon. That’s still higher than the cost of producing corn-based ethanol.

 

Here’s what has to happen to allow the gates to open on cellulose ethanol development. The EPA waiver for E15 will create a market large enough, with enough revenue for corn ethanol plants to capitalize projects like Emmetsberg, which sit at the front end of a corn ethanol plant and utilize the cobs.

 

As the NPR piece points out, the first commercial cellulose plant will be a special case, and therefore banks, still smarting from the housing bubble and the disintegration of the financial markets, will never be the first into the pool.

 

If the government were to step up in the role of financier for the first project, that would mean providing about half of the necessary funds, and perhaps guaranteeing the private investment of POET or whoever can manage to bring the first commercial ethanol plant on line.

 

This approach will require patience—the banks will want to see a number of successful years before they participate.

 

Those who recall the early days of farmer-owned ethanol plants in Minnesota, in the early 1990s, farmers at first found a reluctance among financiers to provide debt financing. Two things really made bank participation possible in Minnesota—the ten percent ethanol requirement and a producer credit program that paid 20 cents per gallon for the first 15 million gallons of production (a maximum of $3 million per year)—that guaranteed cash flow was critical.

 

If advocates for the next generation of biofuels want to get the job done, this is what they need to do—create a required minimum blend, and a cash flow guaranteed based on actual gallons of fuel produced.

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