¦INNOVATION biomass gasification systems in 2008-’09 idled their equipment and switched back to the cheaper option. During the conference at the University of Minnesota, researchers proposed a new strategy for ethanol producers to use renewable resources such as corn stover to power their facilities and still profit. They believe that by partnering with entities that have an appetite for short-term losses, ethanol producers can afford to gasify enough corn stover to power their plants and be electricity producers as well.
Wind as an Example University of Minnesota extension production economist Doug Tiffany is part of a group of renewable energy researchers who analyzed technologies to gasify biomass for steam and electricity generation at ethanol plants. They identified technologies and possible feedstock options fairly quickly, including corn stover, syrup and distillers grains. Many ethanol plants already have power islands that house the power generation units for the facility that could be updated to also produce electricity for sale back to the grid. But the researchers soon found the difficult part of this concept would be to make the improved power island an economic benefit for the ethanol plant. They also needed to find a way to finance the construction of these new islands. They found their inspiration in the wind. Wind power projects are notoriously expensive to construct and require years of operation to repay the investment. Therefore, those projects require hefty investments up front from parties who have an appetite for tax losses. Power island projects using stover at ethanol plants are expected to experience similar situations regarding up-front capital and sustained losses. Because ethanol plants generally are smaller companies with a group of owners who cannot utilize long-term paper losses, Tiffany suggests modeling corn stover power islands after wind projects by bringing in partners who take on the losses and also have the experience and capability
to handle the day-to-day business of power supply contracts. The power island can be siphoned off from the ethanol plant and function as its own entity, allowing the plant to use waste heat produced from the gasification of biomass to power its operations, but protecting its owners from the inherent first few years of loss. “Here’s a distinct business and it would have some opportunities for depreciation and use of provisions in the tax code and might be in a better position to negotiate with power companies than an ethanol plant itself,” Tiffany explains. “It may be attractive to investors and it may be more attractive to bankers if they’re dealing with investors who own the power island. And it may be a very good deal for the ethanol plants themselves, especially if they’re rewarded for ethanol that uses steam that came from biomass or electricity that came from biomass.” Major electric companies are an obvious choice to partner with for such a project. Companies such as Florida Power & Light Co. and Xcel Energy Inc. have invested in wind projects and have enough passive income from other operations that can be shielded from taxes by showing losses on renewable energy projects, such as wind. Oftentimes, these companies participate in wind projects by taking a 99 percent share of the valuation of equipment and earnings for the first 10 years, which are the years of largest losses, according to Tiffany. After the first decade, majority ownership flips back to the landowners. Aside from the tax benefits, power companies may be interested in partnering to produce this form of renewable energy as a way to meet environmental standards. Energy policy in the U.S. is currently fragmented. Some states have initiated renewable energy standards and many expect that a future nationwide energy standard will include requirements for renewable energy generation. Also, companies currently investing in renewable energy stand to benefit from the positive publicity of being an early adopter of this technology. Additionally, ethanol plant power islands serve
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