Fueling the Renewable Revolution

Written by: Nicole Hatlen, VP Agribusiness and Capital Markets

Today, we maintain 22 ethanol lending relationships— seven as the lead lender and 15 participations—resulting in 56 ethanol plants. Our current ethanol portfolio consists of commitments exceeding $360 million.

When it comes to output, the projects we finance produce over 4.2 billion gallons of ethanol per year. When compared to an industry capacity of approximately 17.7 billion gallons, AgCountry finances roughly a quarter of all ethanol production capacity in the United States.

Ethanol is not the only renewable fuel in AgCountry’s portfolio. We are also active in the growing renewable diesel industry, maintaining four lending relationships with a peak commitment of $148.9 million. Renewable diesel is a growing industry with numerous projects in various stages of planning and development.

Constructing a new plant to produce renewable energy requires a lot of resources. Based on our experience, some ethanol projects can cost anywhere between $30 to $100 million or more. When it comes to renewable diesel, the estimated cost can reach as much as $400 million or more per project.

Growing environmental concerns of climate change and our carbon footprint have led to a focus on renewable energy. Agriculture and renewable fuels play an important role in reducing greenhouse emissions. The team at AgCountry Farm Credit Services is playing an important role in these sectors by providing financing to renewable fuel industries like biofuel (ethanol) and renewable diesel.

AgCountry made its first ethanol loan in 2002 with an $18.4 million AgCountry-led loan for a Greenfield construction project along with six other lenders. This plant was the beginning of a long history of AgCountry supporting the renewable energy industry.

With such a large financial commitment, it takes multiple lenders, investors, and others to make it happen. We proudly work with other Farm Credit associations, commercial banks, and equity investors to provide the financing necessary while managing the financial risk among many institutions.

There are currently no new ethanol plants under construction. Many ethanol plants are considering innovative technologies to increase efficiencies and reduce their carbon footprint. It is estimated that there are over 18 renewable diesel plants under construction or in various stages of development at the time of this writing.

Ethanol is a renewable biofuel that is typically made from corn or sorghum. Approximately 98% of gasoline sold in the U.S. is blended with 10% ethanol, which burns cleaner and cooler than oil. Many gas stations are beginning to offer a 15% blend, called E15 or unleaded 88, giving drivers a lower-cost option at the pumps. As expected to grow to 35 billion gallons by 2050. Both ethanol and renewable diesel have a pathway to be used in SAF. This massive change in the airline and energy industry leaves significant opportunities for renewable fuels. The expected growth in renewable fuels is being driven by several factors that include:

1. The Renewable Fuel Standard (RFS) adding additional mandates for biofuels.

2. The Inflation Reduction Act (IRA) expanding funding opportunities with various tax credits.

3. Increased commitments by private and public entities to move toward zero emissions. The federal goal is to cut U.S. greenhouse gas emissions in half by 2030 and be net zero by 2050.

a price saving to consumers, E15 runs 10 cents less per gallon on average than E10. All vehicles 2001 or newer are E15 approved by the Environmental Protection Agency (EPA). This represents nine out of ten cars on the road today.

Soybean oil ranks third behind animal fats and corn oil for the lowest carbon intensity score as a feedstock for diesel blends. The renewable diesel industry is currently producing around 1 billion gallons per year. However, construction has started on retrofitting existing refineries to produce over 3 billion gallons per year, and announcements have been made to build up to 5 billion gallons per year. Renewable diesel is a drop-in fuel, which can replace diesel made from fossil fuels with no blending required like biodiesel.

The popularity of renewable fuels is just beginning to take off. With a focus on carbon reduction, airlines are planning significant reductions by 2030 with a goal of being carbon neutral by 2050. The Sustainable Aviation Fuel (SAF) market today is 15 million gallons and is

As more governments focus on environmental issues, additional rules and regulations are being created. On the state level, California and Oregon have mandated reductions in greenhouse gas emissions from the transportation sector. These low carbon fuel standard (LCFS) frameworks set annual carbon intensity (CI) standards, which reduce over time for gasoline, diesel, and the fuels that replace them.

To calculate the CI of greenhouse gas emissions associated with renewable fuels, all steps of production, transporting, and consuming a fuel, known as the complete life cycle of that fuel, need to be considered. The financial value of achieving a lower CI rating can be significant. With the value of credits continuing to increase, more ethanol producers are likely to explore shipping their products to California and other states, which have implemented LCFS frameworks.

One key to the success of both ethanol and renewable diesel depends on future legislation and regulation. As the federal government continues to find ways to grow this part of the agricultural economy, AgCountry firmly believes policies rooted in voluntary, science, and incentive-based principles will spur growth in the agriculture industry and renewable fuels space.

The financial support of AgCountry and the Farm Credit System is vital in making significant strides toward a sustainable future. Reducing carbon emissions and support for renewable fuels are goals that can be achieved with the help of partnerships among agriculture industries, financial institutions, and other key players in the industry. AgCountry has been a proven leader in collaborations with other lenders in providing the necessary financing to make these projects possible. While our lawmakers grapple with policies to accommodate an evolving market landscape, there are still ways each one of us can make an impact on the renewable fuel industry today, such as choosing to fill up at the pump using ethanol-blended fuel or renewable diesel.