December 2009 Ethanol Producer Magazine

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ETHANOL PRODUCER MAGAZINE

December 2009

contents

vol. 15 no. 12

features 48 INDUSTRY Putting it Back Together As the industry begins to rebuild after its bust, plant ownership could also be reshaping itself. How much consolidation should we expect in 2010 and what types of companies will lead the acquisitions?

–By Kris Bevill 58 CONSTRUCTION The Road Ahead New construction of corn-based ethanol production facilities has been at a standstill since August 2008. Does this signal the end of an era?

–By Craig A. Johnson 66 CORN Corn Repeats the Feat Record yields per acre equaled the increased demand for ethanol this fall, proving again how one industry directly affects the other.

The relationship between the two has also led to the introduction of new complexities to the corn market, including crude oil prices and ethanol blend restrictions.

–By Susanne Retka Schill

72 FEEDSTOCK Exploring Cellulosic Feedstock Options EPM investigates feedstock options currently available and in development in five portions of the U.S. –By Anna Austin

80 FINANCE A Flood of Funding In the absence of traditional forms of financing, a variety of federal funding options may assist ethanol producers in moving their projects forward.

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ETHANOL PRODUCER MAGAZINE

–By Erin Voegele

December 2009

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contents contributions

departments

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86 FINANCE IRS May Lengthen Depreciation Schedule for Ethanol Plants— But Relief is Possible A proposed Internal Revenue Service rule could lengthen the term of depreciation on first- and second-generation ethanol plants. The rule could negatively impact some ethanol producers.

–By Adam Thimmesch and Lisa Pugh

9 Advertiser Index 12 The Way I See It Show Us the Money

By Mike Bryan 16 Business & People 20 Commodities 22 View From the Hill From the Capitol to Copenhagen

By Bob Dinneen 23 RFA Update

90 TECHNOLOGY Marine Terminal Selects Advanced Tank Coatings New methods for sealing storage tank walls can be used to improve efficiency and protect capital investments for the long-term.

–By Alan Burton

90 94 TRENDS Ethanol Production Trends 2010 A look at emerging market trends that can be utilized to improve an ethanol producer’s bottom line.

–By Doug Haugh

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26 BIObytes 28 Industry News 40 Drive ILUC: The Biggest Threat to Ethanol and Agriculture

By Tom Buis 42 Taking Stalk Corn Supply Prospects for U.S. Ethanol Production

By Daniel O’Brien 44 Legal Perspective FIPP May Streamline DOE Loan Guarantee Awards

By Gregory J. Lynch and Melissa M. Turczyn 46 eBIO Insider Can the EU Make the Switch to Biofuels 2.0?

By Robert Vierhout 98 Events Calendar 100 Marketplace

Ethanol Producer Magazine: (USPS No. 023-974) December 2009, Vol. 15, Issue 12. Ethanol Producer Magazine is published monthly. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offices. POSTMASTER: Send address changes to Ethanol Producer Magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.

ETHANOL PRODUCER MAGAZINE

December 2009

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93 2010 International BIOMASS Conference & Expo 55 2010 International Fuel Ethanol Workshop & Expo 56 2010 RETECH Renewable Energy Technology Conference & Exhibition 43 Afton Chemical Corp.

60 Agra Industries Inc. 47 American Railcar Industries Inc.

24 & 25 Hydro-Klean Inc. 4 ICM Inc. 14 & 15 Inbicon 34 Indeck Power Equipment Co. 70 Interstates Co. 52 Intersystems 2 Lallemand Ethanol Technology 61 Louis Dreyfus 8 MAC Equipment

45 Anhydro Inc. 74 BBI Engineering & Consulting 71 BetaTec Hop Products Inc.

75 Martrex Inc. 107 Mettler Toledo

78 Biomass Magazine

62 Nalco Co.

88 Brock Grain Systems

63 Natural Resource Group Inc.

31 Brown, Winick, Graves, Gross, Baskerville & Schoenebaum, P.L.C.

82 Natwick Associates Appraisal Services

30 Buckman Laboratories Inc. 10 Burns & McDonnell 68 Centrisys Corp.

6 Novozymes 83 Peters Machine 41 PhibroChem

92 Cereal Process Technologies 36 Check-All Valve Mfg. Co. 69 Christianson & Associates, PLLP 57 CHS Renewable Fuels 54 Crown Iron Works Co. Inc. 97 & 106 ethanol-jobs.com 99 Ethanol Producer Magazine 91 ETS Laboratories 32 Fagen Inc.

108 POET, LLC 77 R&R Contracting Inc. 65 Renewable Fuels Association 35 Resonant BioSciences 87 Rev Tech LC 19 Robinson Fans Inc. 85 Roskamp Champion/CPM 95 Salco Products Inc. 76 Speedling Inc.

33 FCStone, LLC

50 Sulzer Process Pumps

3 Fermentis

79 Verenium

37 Flottweg Separation Technology 13 Gavilon

96 Vogelbusch USA Inc. 84 Wabash Power Equipment Co.

51 GEA Barr-Rosin Inc. 64 Genencor速 - A Danisco Division

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38 Nexen Marketing USA Inc.

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39 Watson-Marlow Pumps Group 53 WINBCO

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HOW TO REACH US

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EDITORIAL

PUBLISHING & SALES

Kris Bevill Editor kbevill@bbiinternational.com

Joe Bryan CEO jbryan@bbiinternational.com

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Mike Bryan Chairman mbryan@bbiinternational.com

e-mail to kbevill@bbiinternational.com.

Letters should include the writer’s full name, address and telephone number, and may be edited for purposes of clarity and space.

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ETHANOL PRODUCER MAGAZINE

December 2009

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The Way I See It Show Us the Money Financing will be the hot topic in the ethanol industry in 2010. If just one reason were pinpointed for the inability of producers to meet the 2010 cellulosic biofuel mandates, it would be lack of financing. The technology is available but producers’ ability to get bank loans or federal grants to make the technological capability a commercial reality has been elusive. It has been frustrating, but fortunately, the situation is finally getting the attention of government leaders.

During an October U.S. House of Representatives subcommittee hearing, cellulosic ethanol producers pointed out many errors in the USDA and U.S. DOE loan guarantee programs. I sat in on previous Capitol Hill hearings so I know this is not the first time our nation’s leaders have heard these funding complaints, yet nothing has changed. The reality is, Congress needs to work quickly to make these loan guarantee programs relatable to biofuels projects before the private sector gets completely scared off. The chances of securing private financing for a previously unproven biofuels technology project, even if the technology is brilliant, are zero, as any of the many struggling producers will tell you. Banks are simply unwilling to offer their support during these continuing difficult economic conditions. A government grant could help, but the programs first need to be restructured.

As Associate Editor Erin Voegele points out in her article, “A Flood of Funding,” on page 80 many of the government funding programs are oversubscribed as well as extremely difficult to navigate without a team of experts on staff to guide producers through the process. And there is no point in applying for government funding unless the project is capable of being financed without it, which means producers need to get banks on board with their projects.

It is also possible that the financial difficulties facing many producers will spur an increase in consolidation during 2010. The question of what types of consolidation, however, remains to be answered. Editor Kris Bevill addresses this topic in her article, “Putting it Back Together” and concludes that while consolidation is not necessarily a bad thing, we are

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seeing a trend forming that has unknown consequences. Large corporations new to the industry are taking control of the majority of the production capacity and while this could lead to otherwise nearly impossible expansions, the smaller producers could begin to be squeezed out of the equation.

Of course, this would all be moot if the U.S. EPA fails to recognize the need for an increased allowable rate of ethanol blending. I am confident that the administrator will rule in ethanol’s favor, however, and the USDA has made it clear that it supports an increase to E15. Still, producers need to continue vigilance in making it clear that they can support an increased demand for their product.

All difficulties aside, though, conditions are ripe for the industry’s return to the bountiful production we’ve experienced in the past. Margins have steadily improved throughout the second half of 2009, idle facilities have returned to production and a few banks are beginning to test the lending waters again. Ethanol producers are no strangers to hard work, and next year will be another test, but if this industry has proven only one thing in the past 10 years it’s that we can weather any storm.

That’s the way I see it.

Mike Bryan Chairman mbryan@bbiinternational.com

ETHANOL PRODUCER MAGAZINE

December 2009

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Business&People Ethanol Industry Briefs

Enzyme developer Genencor, a division of Danisco A/S, has completed a $52 million project to expand its Cedar Rapids, Iowa, enzyme manufacturing plant and add a grain processing application center to the facility. Genencor said the 20,000-square-foot Grain Processing Applied Innovation was installed to allow its customers to work on solutions to realworld challenges.

KL Energy Corp. has appointed two research scientists to its team. Lisette Tenlep has extensive experience in pre-treatment strategies for cellulosic ethanol, including the development of new methods for biomass using supercritical fluids, microwave irradiation and ionic liquids. Qin Zhang specializes in fermentation science and has extensive experience in cellulose production and recovery as well as fermentation piloting and scale-up.

In addition, the company has agreed to proceed with a long-term off-take agreement with Fair Energy for its second-generation cellulosic ethanol in the U.S. and Europe.

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California-based process technology provider EdeniQ Inc. has partnered with E Energy Adams LLC to install its three-step yield enhancement technology at the company’s Nebraska production facility.

E Energy Adams CEO Carl Sitzmann said the company installed EdeniQ’s technology because of its potential to assist in achieving and maintaining healthy margins.

EdeniQ has also formed a technology agreement with Brazilian producer Comanche Clean Energy, marking its entry into the Brazilian market as well as the sugarcane-to-ethanol process.

Green Plains Trade Group LLC, a subsidiary of Green Plains Renewable Energy Inc., has agreed to provide third-party ethanol marketing services for Lincolnway Energy LLC’s 55 MMgy production facility in Nevada, Iowa. With the addition of the Lincolnway plant, GPRE now provides ethanol marketing services to four third-party producers with a combined operating capacity of 360 MMgy. GPRE also recently unveiled its algae production project at its Shenandoah, Iowa, ethanol production plant.

BioProcessAlgae LLC is a joint venture between GPRE, water

filtration group Clarcor Inc. and others and was created to commercialize advanced photobioreactor technologies for the growing and harvesting of algal biomass.

Syngenta Biotechnology Inc. was ranked as the 20th top biotechnology and pharmaceutical employer of 2009 by Science magazine. The ranking is the result of research done to determine which companies have the best reputations as employers. This was the first year Syngenta has ranked in the Top 20; 575 companies were considered.

Syngenta is headquartered in Research Triangle Park, N.C., and has biotech facilities in the U.S. and China. More than 400 people are employed at the North Carolina facility, with more than 60 percent of its current employees hired in the past five years.

Global investment bank DeutscheBankandCzarnikow Group, the world’s leading independent sugar market services company, have formed an alliance to offer sugar-based ethanol products and services to their combined client base. The objective of the alliance is to blend financial and intellectual capital and use the skills of both parties

to offer clients a structured approach to price risk management and funding.

The Missouri Renewable Fuels Association (MoRFA) has appointed Ryland Utlaut as its 2009-’10 president.

Utlaut was a founding board member of MidMissouri Energy Inc., a 40 Utlaut MMgy ethanol production plant in Malta Bend, Mo. He currently serves as the plant’s president and general manager. Utlaut replaces Golden Triangle Energy Co-op Inc. chairman Gene Millard as president of MoRFA. Other elected officers for 2009-’10 include: David Vogt of Poet Biorefining-Laddonia as vice president, Dave Durham of Show Me Ethanol LLC as secretary and George Quinn of LifeLine Foods Inc. as treasurer.

Construction began in September on a $10 million advanced energy research facility at the Edmonton Waste Management Centre in Edmonton, Alberta. The facility, which is being jointly developed by the City of Edmonton and government of Alberta, will be located adjacent to Enerkem Inc.’s proposed

ETHANOL PRODUCER MAGAZINE • December 2009

Sponsored by

10 MMgy waste-to-ethanol plant and the City of Edmonton’s municipal waste processing facility. Research at the new facility will focus on the conversion of various types of waste into renewable fuels and chemicals.

Construction is expected to be complete within the first quarter of 2010.

Municipal solid waste (MSW)-to-ethanol technology provider Masada Resource Group LLC has partnered with entrepreneur Robert H. J. Lee to build MSW-toethanol production facilities throughout Asia, Denmark and France.

Donald Watkins, CEO of Masada, said Lee brings broad international experience and a clear vision of how to turn Asia’s waste streams into ethanol to the partnership. Masada believes China alone can provide enough MSW to supply 690 of the company’s ethanol production facilities.

Colorado-based Gevo Inc. recently announced the formation of Gevo Development LLC, which will develop a fleet of biorefineries that employ Gevo’s retrofit package. Gevo’s technology focuses on retrofitting existing ethanol plants to produce biobutanol. According to Gevo spokesman Jack

Huttner, Gevo Development is working to procure a facility and has begun the process of raising money to finance the company’s first commercial-scale retrofit.

The company also recently announced it has completed retrofitting ICM Inc.’s 1 MMgy demonstration-scale facility in St. Joseph, Mo. The plant began producing biobutanol in late September.

Cambridge, Mass.-based Joule Biotechnologies Inc. recently elected Graham Allison to its board of directors. Allison is the Douglas Dillon professor and director of the Belfer Center for Allison Science and International Affairs at Harvard University’s John F. Kennedy School of Government. He has served as assistant secretary of defense in the first Clinton administration and as a special advisor to the secretary of defense under President Ronald Reagan. Allison’s background in the energy sector includes serving as director of the Getty Oil Co. and Belco Oil and Gas, a member of the advisory boards of Hydro-Quebec and the International Energy Corp., and executive director of the International Atomic Energy Agency’s Commission of Eminent Persons.

ETHANOL PRODUCER MAGAZINE • December 2009

In September Mansfield Oil Co. announced the addition of Heron Lake BioEnergy LLC to C&N Companies’ portfolio of ethanol marketing partnerships. According to Douglas Haugh, Mansfield Oil’s executive vice president, the partnership with Heron Lake BioEnergy marks the first new plant relationship since Mansfield Oil acquired C&N in July.

Heron Lake BioEnergy’s facility has a production capacity of 50 MMgy and produces 160,000 tons of DDGS annually.

Massachusetts-based Qteros and Israel-based Applied CleanTech have entered into a joint development project to produce cellulosic ethanol.

ACT’s technology focuses on producing Recyllose, a recycled solids-based cellulosic feedstock manufactured from municipal wastewater. Qteros has developed a cellulosic conversion technology based on the naturally occurring QMicrobe. Initial work on the joint project has focused on improving how the two technologies work tougher.

To date, research has shown that Qteros technology can produce 120 to 135 gallons of ethanol per ton of Recyllose processed. The joint project is funded in part through a grant awarded by the Binational Industrial Research and Development Foundation.

Suncor Energy Inc. is resuming the expansion of its St. Clair Ethanol Plant, located near Sarnia, Ontario.

The project seeks to double the plant’s capacity from 200 million liters per year (53 MMgy) to 400 million liters per year.

The estimated $120 million project was initially announced in mid-2007 with the expansion officially beginning in mid2008. The project was later put on hold. According to Suncor, the expansion is expected to be complete in late 2010 or early 2011.

On Nov. 16, Thomas C. Dorr began serving as the president and CEO of the U.S. Grains Council. Dorr was formerly employed as the undersecretary of rural development at the USDA, where he led programs to expand rural infrastructure, including electric, broadband and water services, rural entrepreneurial efforts and rural housing. In addition to spending seven years at the USDA, Dorr also spent 29 years as the president of a family farm and agribusiness company in Iowa. Dorr succeeds Ken Hobbie, who served as USGC’s president and CEO for the past 19 years.

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Business&People Ethanol Industry Briefs

VereniumCorp.recently announced the addition of Carey A. Buckles as vice president of biofuels operations. In this position, Buckles will have full site operations responsibility for the Jennings, La.-based pilot plant and demonstration facilities. Prior to joining Verenium, Buckles served as director of manufacturing and engineering at NatureWorks LLC, a sustainable plastics company that is wholly owned by Cargill Inc. In addition, he has served as the lactic acid plant production leader at NatureWorks and has held various positions at Dow Chemical Inc.

A partnering between Colorado-based PureVision Technology Inc., a renewable technology developer, and Australian microbiology company Microbiogen means PureVision’s fractionation technology can produce biofuel and protein products simultaneously in biorefineries, according to the company. PureVision’s patented fractionation process separates cellulosic biomass into three streams inside one pressurized reaction chamber, according to the company. The fractionation pro18

cess can produce Mibcrobiogen’s nongenetically modified yeast organism, which will be utilized in the fermentation process, and also has the ability to clean the waste stream generated by it.

Murphy Oil Corp. has announced its acquisition of a 110 MMgy ethanol plant in Hankinson, N.D. The plant, formerly owned by VeraSun Energy Corp., was purchased for $92 million. The purchase will be financed primarily through non-recourse debt offered via the sellers. Murphy Oil intends to use the corn-based ethanol it produces to blend in its own fuel. The site was chosen for its proximity to feedstock and rail service. The plant began grinding corn October 21.

The U.S. DOE has increased funding for one of Poet LLC’s existing grants by $6.85 million. This is the first of two funding increases from the DOE to help establish a market for corn cobs. The second, expected next year, is estimated to provide an additional $13.15 million. The additional funds will be used to develop the feedstock infrastructure for cellulosic ethanol production.

Poet will work with equipment manufacturers to help speed the process of getting cob-harvesting technology into fields near its Emmetsburg, Iowa, facility and

Sponsored by

will incentivize early adopters of cob harvesting.

White Energy Inc.’s 110 MMgy Plainview Bioenergy ethanol production plant, located in Plainview, Texas, began grinding corn Oct. 12 after several months of not producing. The plant uses a combination of corn and milo as feedstock for the facility and typically operates on a 10 percent to 30 percent blend of milo with corn. White Energy filed for Chapter 11 bankruptcy in May, along with its subsidiaries in Plainview and Hereford, Texas, and Russell, Kan.

to-energy. The Alternative and Renewable Energy Group serves the green energy industry and focuses on clients seeking to expand the technological and commercial possibilities of alternative and renewable energy. The firm intends to provide effective, innovative and timely advice to its clients.

The Renewable Fuels Association has elected officers and members to its board of directors for 2010. Chris Standlee, executive vice president of Abengoa Bioenergy, was re-elected chairman of the board for a third term. Nate Kimpel was re-elected as treasurer. Bob Dinneen was also re-elected as president of the association, a post he has held since 2001.

Archer Daniels Midland Co. announced its board of directors elected three new corporate officers. Michael Baroni was elected vice president and will be responsible for all commercial activity, operations and production for the company’s corn processing business unit. Domingo Lastra has been elected vice president and will oversee ADM’s South American operations. Joseph Taets was elected vice president and will be responsible for ADM Grain Company within the agricultural services business unit. EP

Kutak Rock LLP has formalized a practice group dedicated exclusively to alternative and renewable energy matters, including wind, solar, biomass, geothermal, battery technology, biofuels, energy grid and waste-

SHARE YOUR INDUSTRY BRIEFS To be included in Business & People, send information (including photos and logos if available) to: Industry Briefs, Ethanol Producer Magazine, 4650 38th Ave. S. Suite 160, Fargo, ND 58104. You may also fax information to (701) 373-0638, or e-mail it to kbevill@bbiinternational.com. Please include your name and telephone number in all correspondence.

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COMMODITIES REPORT

Natural Gas Report

By Brad Smith, U.S. Energy Services Inc.

Volatility will continue in 2010 Oct. 23—Changes underway in the developing natural gas supply will result in significant volatility. It’s a very rare event that natural gas for winter is at a 40 cent discount to summer and this only occurs when supply is high. Exploration and production (E&P) companies that have invested in horizontal drilling technology have tapped vast shale reserves, producing higher volumes of natural gas at lower costs. With reduced costs of production, E&P’s have continued to invest in shale gas even with the fall in prices. Shale gas currently accounts for about 8 percent of production and continues to grow. The ability for shale gas to provide marginal production at lower costs going forward is significant.

The experts’ outlook for natural gas is divided, pointing to significant volatility in 2010.

One side foresees a supply reduction based on cuts in conventional rigs that will surpass gains in shale or unconventional drilling

which leads them to place summer 2010 natural gas at a premium to this winter. The other side points to all-time record storage levels and believes production will not be drastically cut. They also believe current prices are too high relative to coal. Natural gas prices in 2009 were heavily reliant on coal displacement in the power sector to provide one of the few bright spots for natural gas demand. This may virtually disappear in 2010.

Based on disparate market views, businesses can expect significant price movement in 2010. While price spikes on weather this winter are likely, overall prices should be subdued by overwhelming levels of gas in storage and relatively weak demand. The inflection point and most likely timing of possible price increases are after the first quarter of 2010. EP Brad Smith, price risk manager, can be contacted at bsmith@ usenergyservices.com.

Corn Report

By Jason Sagebiel, FCStone

Poor harvest conditions cause market fluctuations Oct. 21—Wet weather has caused just concern over a delayed soybean and corn harvest. Damp conditions are keeping corn from drying down and have allowed the cash corn market to remain firm during a normal seasonal decline. The December corn market made a low of $3.02 on Sept. 8 and by Oct. 21 had already tested the $4.03 plus level. Prospects of yield loss due to weather and overall inflation/speculative dollars have flowed into the overall commodity market. With crude oil trading at more than $80 per barrel, a weak U.S. dollar and profitable ethanol crush margins, the market is compelled to stay buoyed.

The USDA’s October supply/demand estimates showed reduced planted acres, thus impacting harvested acres. However, the yield was increased from 161.9 bushels per acre to 164.2 bushels per acre and this number is now being debated as early frost hampered development. Overall, the demand figure was practically unchanged. Ethanol demand is still expected to utilize 4.2 billion bushels. The end result is corn carry-out increased to 1.67 billion bushels, up from the previous estimate of 1.64 billion bushels.

Caveats to consider in 2010 will be South American soy crop prospects, the U.S. dollar, and inflation. Outside market influences will have a heavy hand in how the speculative dollars will react to the commodity markets. The price of crude, gold, copper, sugar

20

and agricultural/industrials goods will also have an influence on the grains market. On a positive note, sugar values are impeding Brazil ethanol profitability thus indirectly aiding the U.S. ethanol market place. EP

ETHANOL PRODUCER MAGAZINE • December 2009

COMMODITIES REPORT

DDGS Report

($/gallon as of Oct. 23)

RACK

REGION

SPOT

West Coast

2.195

2.06

Midwest

2.095

2.22

East Coast

2.205

2.41

By Sean Broderick, CHS Inc.

Market rallies in response to tight supply Oct. 23—As we approach November, the distillers dried grains (DDG) market is rallying with everything else. With old crop corn in short supply, many plants do not have enough stock to run at capacity, and are being forced to throttle back production. The resulting decreased DDG supply is going to tighten things up on top of the increasing demand seen in October.

Normally, the end of October can be pretty weak, as harvest pressure pushes on most prices, but clearly that is not the case this year.

As China ramped up its demand for DDGS and containers were the most competitive manner of shipping it, plants near container yards saw the first of the buying. But as DDG supply and transloading capacity became short, exporters began to look

Regional Ethanol Prices

at the West Coast as an additional place to get product loaded.

Barge bids in the Gulf of Mexico have come up dramatically, to compete with container rates. Mississippi River freight is off by 25 percent from its late summer highs and grain facilities that are on the river now have time to do the occasional barge because of the rain and lack of grain movement. So now ethanol plants that are not on the River have economic incentives to load barges.

There are some hazards going ahead. In the export market, the classification of DDGs as a hazardous material is an ongoing issue for bulk vessels. Regionally, high toxin amounts will create issues for feeders, particularly for the hogs and poultry, and plants will need to be very careful about buying corn. EP

SOURCE: DTN

Regional Gasoline Prices ($/gallon as of Oct. 23)

REGION

SPOT

RACK

West Coast

2.005

2.1738

Midwest

2.1186

2.1212

East Coast

2.0716

2.280 SOURCE: DTN

DDGS Prices ($/ton) LOCATION

OCT. 2009

SEPT. 2009

OCT. 2008

Minnesota

110

85

130

California*

165

135

172

Chicago

130

100

125

Buffalo, N.Y.

150

112

150

Central Florida

155

120

150

*Central Valley

SOURCE: CHS Inc.

Corn Futures Prices DATE

(Dec. corn, $/bushel)

HIGH

LOW

CLOSE

4.13 1/2

3.95

3.97 1/4

Sept. 23, 2009

3.37

3.19

3.30 1/4

Oct. 23, 2008

5.61

5.51

Oct. 23, 2009

5.60 1/4 SOURCE: FCStone

Ethanol Report

By Rick Kment, DTN Biofuels Analyst

Weak dollar supports energy prices Oct. 23—Sharp gains over the past three weeks have been seen through both the gasoline and ethanol markets as additional strong buying support has stepped back into the market. Most of this support has been driven by non-commercial or speculative buying activity in the market due to a continued weak U.S. dollar. This has made commodity markets a safe haven for investors, which in turn has creased a surge in prices. In general, ethanol prices have posted a 50-centper-gallon gain from one month ago, which is a significant move especially now that the seasonal trend of the market is to move lower. Current ethanol and gasoline prices are at the highest level of 2009, with prices reaching

and surpassing levels seen in October 2008.

The continued soggy weather through much of the Corn Belt has severely limited overall corn harvest, and not allowed for much of the corn to dry down to normal levels. This has not only created uncertainty about how much corn is actually available for harvest, but will also limit the quality of corn, and may create a very tight supply for ethanol producers over the next several months. The sharp rally in corn prices has helped to push ethanol prices significantly higher over the past several weeks. The lack of available corn may keep ethanol prices elevated through the remainder of the year. EP

ETHANOL PRODUCER MAGAZINE • December 2009

Cash Sorghum Prices ($/bushel) OCT. 22, 2009 SEPT. 17, 2009 OCT. 17, 2008 Superior, Neb. Beatrice, Neb. Sublette, Kan. Salina, Kan. Triangle, Texas Gulf, Texas

3.19 3.44 3.24 3.56 3.46 4.36

2.71 2.69 2.52 3.07 2.59 3.64

3.08 3.03 3.19 3.23 3.15 4.03 SOURCE: Sorghum Synergies

Natural Gas Prices

($/MMBtu)

OCT. 2009

SEPT. 2009

OCT. 2008

NYMEX

3.73

2.843

7.472

N. Ventura

3.85

2.60

6.45

Calif. Border

3.80

2.69

5.51

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production Output July 2009

728,000

June 2009

694,000

July 2008

614,000

(barrels/day)

SOURCE: U.S. Energy Information Administration

21

VIEW FROM THE HILL

From the Capitol to Copenhagen The climate is changing; literally—in terms of extreme weather events, and figuratively—in terms of how biofuels are viewed in the larger effort to address climate concerns. Many of you are aware of the climate change legislation being discussed in Washington, but of equal concern is the conversation underway globally.

In December, carbon reduction, energy sourcing, and sustainability will take center stage in Copenhagen, Denmark. As the United Nations convenes, global talks aimed at reducing greenhouse gas (GHG) emissions from every nation, the biofuels industry should be turning an especially keen ear.

The transportation sector is responsible for 25 percent of the world’s GHG emissions. With 3 billion cars expected soon on global roadways, the demand for transportation fuels will only increase.

Currently, the world demands 86 million barrels of oil daily, much of it destined for the fuel tanks of vehicles.

The International Energy Agency estimates that six times the current amount of Saudi Arabia’s oil production needs to be discovered by 2030 to meet the predicted 64 million barrels per day increase in demand.

Unabated, such growth in demand for petroleum will only exacerbate the climate problems already being caused by our slavish dependence on oil. Ethanol, biodiesel and other biofuel technologies can and must play a role in changing our climate’s course. In the U.S., the GHG benefits of ethanol use are well-known and welldocumented. The 9 billion gallons of domestic ethanol produced and consumed last year had the effect of removing 2.1 million cars from the road. Further, the U.S. EPA determined in its proposed rulemaking for the renewable fuel standard that ethanol reduced GHG emissions by 60 percent when equally compared to gasoline.

Globally, the story is equally promising but less well-

recognized. The IEA reported last February that GHG emissions from global ethanol production would more than double between 1995 levels and those predicted in 2015. Supporting the EPA’s findings, Natural Resources Canada determined that global grain ethanol production on a life-cyle basis will reduce GHG emissions by 60 percent by 2015.

The promise held by evolving technologies is cause for optimism. Advancements in current starch ethanol technologies and the commercialization of advanced ethanol technologies have the potential to further reduce emissions and improve the carbon footprint of transportation fuels worldwide.

Capitalizing on the promise of these emerging technologies will not be easy. Entrenched interests and those pushing ideologically utopian agendas are desperate to maintain the status quo—some for the sake of the bottom line and others in pursuit of the perfect in spite of the good. Far-fetched theories such as international indirect land use change threaten to stop the growth of current ethanol industries and prevent new technologies from entering the market.

It is widely believed that no global framework for reducing GHG emissions will be unanimously agreed to in Copenhagen. This expected inaction should not be confused with a lack of urgency to ensure biofuels are part of the discussion. Through the Global Renewable Fuels Alliance, the RFA will be actively engaging the world on the importance of biofuels and their essential role in reducing climate change. We will be refuting unfounded analysis, extolling the growing climate benefits of biofuels, and underscoring the sheer unsustainability of the status quo.

The climate is indeed changing. How our industry responds to both the literal and figurative changes will determine our future success.

Bob Dinneen President and CEO Renewable Fuels Association 22

ETHANOL PRODUCER MAGAZINE • December 2009

RFA UPDATE

w w w. e t h a n o l R FA . o r g

RFA Addresses DOE Loan Guarantee Issues RFA President and CEO Bob Dinneen recently wrote a letter to U.S. DOE Secretary of Energy Steven Chu to express the organization’s concern about the operation and direction of the DOE’s loan guarantee program. “As an advocate for ethanol from all feedstocks and technologies, the RFA is greatly troubled that so few cellulosic ethanol biorefineries are qualifying for DOE loan guarantees, and believe there are systemic issues with DOE’s evaluation of these emerging technologies that must be addressed immediately if we are to meet the targets for advanced biofuels production and use established by the Energy Independence and Security Act of 2007,” the letter stated.

A fundamental flaw of the program is that the DOE is weighing applications of emerging technology projects such as cellulosic ethanol using the same criteria as mature technology projects, wrote Dinneen. “The challenges facing next generation advanced biofuels are simply much different than those of the renewable power sector. For example, the renewable electricity market has a guaranteed rate-base into which to sell their product. Thus, it is inappropriate to evaluate these very different technologies and markets using the same criteria. DOE must recognize the unique challenges of emerging biofuel technologies and establish criteria appropriate to them.

The RFA recommends the DOE revise its loan guarantee program to reflect the needs of emerging biofuel technology companies by addressing issues, including: Off-Take Agreements. DOE should eliminate the off-take agreement requirement for emerging biofuels projects.

Data Requirements. Applicants are required to have financial and operational data at the commercial-scale level. The DOE should recognize that, by definition, emerging technologies may not have “commercial scale” data and adjust their expectations accordingly.

Equity and Debt. The DOE appears to be requiring higher levels of equity from emerging technology companies than for projects with mature technology. This seems

ETHANOL PRODUCER MAGAZINE • December 2009

to turn the intent of the loan guarantee program on its head.

Congress established the DOE loan guarantee program to facilitate technological innovations that would not meet the private sector financing requirements. The DOE should revise its equity and debt requirements to reflect the needs of emerging technologies and be consistent with the intent of Congress.

Hours of Operation. The DOE has taken issue with cellulosic biomass projects over the lack of 1,000 hours of operation at pilot facilities to prove the technology that will be included in the cellulosic processing facility. The RFA is not asking DOE to waive the 1,000-hour requirement; however, we believe the DOE should consider allowing emerging technology companies to meet the 1,000-hour requirement by the time the Part II application is submitted (three months after the Part I application is due).

Reapplication. The RFA would recommend allowing a review of applications that have been declined to determine what fixes can be made to correct deficiencies in the applications.

Funding. The transfer of $2 billion from the Title XVII loan guarantee program to the U.S. Department of Transportation for the “Cash for Clunkers” program resulted in the elimination of the $500 million set aside for the loan guarantee program for cellulosic biomass facilities. We strongly encourage the administration to replace the $2 billion borrowed, at the first possible opportunity.

The bottom line is, unless changes are made to the DOE’s loan guarantee program, few if any cellulosic biomass projects will be built to help meet the advanced biofuels targets set forth in the 36 billion gallon renewable fuels standard, and the administration’s goal to create green jobs and increase the production of domestic, renewable sources of energy will be lost. We encourage the DOE to provide all of the assistance for emerging technologies as Congress intended and welcome the opportunity to meet with DOE staff to discuss our concerns.

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BIObytes Ethanol News Briefs

Kentucky sets biofuel production goals Kentucky has developed a 21-member executive task force to facilitate the development of a statewide sustainable biomass and biofuels industry. The task force has established a goal of producing 775 million gallons of biofuels by 2025, which would satisfy 12 percent of the state’s transportation fuel demand.

Frank Moore, director of biofuels at the state’s department

of energy development and independence, said approximately 10 million tons of biomass would be required for biofuel production in 2025, most of which could be supplied by switchgrass and other native grasses as well as forest management. Moore said reclaimed strip mines in the eastern portion of the state can also be explored as potential productive sources of biomass.

Cassava is a shrub-like perennial plant that is native to South America and thrives in poor soils.

Columbian group commits to cassava-to-ethanol Representatives of Columbia-based Grupo GPC presented a commitment to produce renewable energy in Columbia at the Clinton Global Initiative Fifth Annual Meeting in September. GPC intends to use marginal lands in Columbia to grow inedible cassava varieties for conversion into ethanol.

“Our cassava bioethanol plants will create thousands of new jobs in an area of Columbia heavily affected by the country’s half century of violence, and at the same time develop alternative sources of energy and reduce our country’s dependence on petroleum,”

said Frank Kanayet, CPC’s executive chairman.

Development of an industrial pilot-scale facility is currently underway. Development of the first commercial-scale facility will begin in 2010. Two additional commercial-scale plants will begin development in 2011 and 2012. Each commercial plant is expected to have a production capacity of 350,000 liters (92,460 gallons) per day and require the cultivation of 21,000 hectares (51,892 acres) of cassava. The project is expected to generate 3,000 direct jobs and 5,000 indirect jobs.

UL tests new blender pump hose Growth Energy and Veyance Technologies Inc. have partnered to gain approval for a liquid fuel hose capable of dispensing ethanol from blender pumps.

Veyance Technologies is the exclusive manufacturer of Goodyear Engineered Products. In addition to industrial hose, Veyance markets Goodyear-branded air springs, automotive belts and 26

hoses, power transmission products, conveyor belts and services, hydraulic hose, rubber track and molded products.

Underwriters Laboratory is currently undergoing the costly process of approving the hose.

Financing is being provided by Growth Energy. Final certification and approval of the hose is expected by spring 2010.

The portion of the U.S. EPA’s proposed rule for the RFS2 would require ethanol producers to track and verify the origins of their feedstock, a nearly impossible task according to members of the ethanol industry.

Proposed feedstock tracking rule raises costs, international issues A study commissioned by the National Corn Growers Association found that the U.S. EPA’s proposed rule for the second stage of the renewable fuel standard (RFS2) would likely result in increased costs for ethanol producers.

The requirement for producers to track the origins of their plant’s feedstocks would be especially costly for producers, according to the study, because it would require hiring additional employees and/ or installing verification software.

Caribbean producers have also expressed concerns related to the feedstock tracking requirements. The Caribbean Basin Ethanol Producers Group filed a comment with the EPA stating that if the rule is finalized as proposed it would shut down the Caribbean dehydration industry because it is impossible to verify what type of land each load of ethanol was derived from.

The EPA is scheduled to issue its final rule on RFS2 by Dec. 1, although it will likely delay its rule until late-2010.

ETHANOL PRODUCER MAGAZINE • December 2009

Timothy Rials is director of research and development and Kelly Tiller is director of external operations for the UT Office of Bioenergy Programs housed within the UT Institute of Agriculture.

Several research projects housed within the University of Tennessee’s Institute of Agriculture have been awarded federal appropriations for fiscal year 2010. Among the projects is an ongoing effort

by UT AgResearch to study bioenergy production and carbon sequestration. The project was awarded $1 million, which will be used to contribute to researchers’ efforts to understand carbon sequestration in energy crops and to develop feedstock for

biofuel production. Of particular interest to researchers is the development of technology for the production, harvesting and transportation of switchgrass.

A pilot-scale switchgrass-to-ethanol production facility under construction in Vonore, Tenn., is expected to begin production by the end of the year. The project is a joint venture between UT and Dupont/Danisco Cellulosic Ethanol.

BYOethanol campaign unveiled at NACS show

SD increases ethanol usage in state vehicles

Gas station owners looking for information about ethanol now have a new resource in the “Blend Your Own Ethanol” campaign. Officially launched at the National Association of Convenience Stores show in Las Vegas, the nation’s largest gathering of petroleum marketers, the marketing campaign is a joint effort between the Renewable Fuels Association and the Ameri-

South Dakota plans to increase ethanol use in the state’s fleet by installing ethanol fuel tanks at three Department of Transportation regional yards. Although nearly 40 percent of the state’s 3,395 government vehicles are flexible fuel vehicles, E85 Gov. Mike Rounds fuels a state vehicle has only been available at S.D. with E85 at a news conference to announce commercial retail stations. the addition of three ethanol tanks at state The addition of the fueling sites. tanks at the Rapid City, Pierre and Sioux Falls DOT E85. For the next six months, regional yards is expected to the tanks will dispense a midlevel increase E85 utilization from blend, likely E30. South Dakota’s 32,640 gallons per year to ap- Fleet and Travel Office will monproximately 250,000 gallons per itor the use of ethanol-blended fuels and their performance. At year.

The fuel tanks will also dis- the end of the year, the most efpense midlevel ethanol blends. ficient blend of ethanol will be For the first six months of op- the fuel routinely distributed at eration, the tanks will dispense the DOT regional yards.

can Coalition for Ethanol.

“The BYOethanol campaign is a petroleum marketer’s one-stop shop for expertise and information about ethanolblended fuel and blender pumps,” said Ron Lamberty, vice president of market development for ACE. Features of the campaign include a new Blending Fuels magazine and an informational website, www.byoethanol.com.

Pennsylvania project uses mine lands for biofuel crops A Penn State University project seeks to determine if abandoned and active mine lands can be reclaimed and used to grow biofuel crops such as switchgrass and other warm-season grass species.

Pennsylvania has about 180,000 acres of abandoned mine land, plus active mine land, that is not currently being used for food, feed or fiber. The proj-

ect will evaluate the effectiveness of soil amendments, determine whether the land can support biomass crops, and if the crops are cost effective.

The project includes evaluating the use of excess manure from livestock operations and paper mill sludge as reclamation techniques and evaluating sustained production potential and management requirements.

ETHANOL PRODUCER MAGAZINE • December 2009

27

PHOTO: BARRY BRUCE, S.D. DEPARTMENT OF TRANSPORTATION

PHOTO: UT INSTITUTE OF AGRICULTURE

Tennessee researchers receive federal aid

PHOTO: NOELLE TURPEN

Firefighters receive hands-on training extinguishing large ethanol fires at a daylong training session hosted by Kansas Ethanol LLC.

First responders receive live ethanol burn training More than 300 first responders attended a daylong ethanol fire training session hosted by Kansas Ethanol LLC on Oct. 9. The plant constructed four 27-foot diameter pits for the event which were each filled with 600 gallons of ethanol and ignited for firefighters to practice extinguishing with various types of methods. It was the largest-ever live ethanol burn to be hosted by a private facility.

Kansas Ethanol safety manager Jennifer Dellar said that a conversation between the plant’s general manager, Mike Chisam, and her about furthering the facility’s stellar safety record led to the initial idea to provide a training opportunity for local firefighters.

The invitation list soon grew to include any fire department willing to attend. “We have three firefighters on our staff and two of the three didn’t realize that ethanol burned clear,” Dellar said. “That got me thinking that there must be a lot of other people out there who are uneducated about [ethanol], so we opened it up and it blossomed from there.”

Fire departments from throughout Kansas, as well as Missouri, Ohio, Michigan and Texas attended the event. Highway patrol members, railroad officials, petroleum 28

representatives and ethanol plant personnel from neighboring production facilities also attended. TransCAER arranged for the use of a Burlington Northern Santa Fe railcar and locomotive at the facility for additional first response training opportunities. Poet LLC and ICM Inc. sponsored lunch for attendees.

Chisam said organizing the event required a great deal of effort by Kansas Ethanol staff, but the long-term impacts will be worth it. “Our local firefighters now have firsthand knowledge of extinguishing an ethanol fire, the equipment that is necessary to do so, and the difficulties that may be encountered,” he said. “On a larger scale, firefighters from across the country have now witnessed an ethanol fire and seen various products demonstrated that can be utilized for extinguishment. In addition, we believe that only positive things can come from forging a close, positive relationship with the law enforcement and firefighting agencies that service and protect our communities.”

Dellar said safety concerns and space limitations could be contributing factors which have prevented other ethanol facilities from holding similar-sized events. “Our

plant is set up differently than some of the others,” she said, adding that Kansas Ethanol sits on an 80-acre parcel of land compared to 10 acres to 20 acres, which is a common size of land for ethanol plants.

Feedback from attendees was excellent, according to Dellar, and many have requested the training be made an annual event. She said the plant will consider the possibility of hosting a similar event in the future. “I know Kansas Ethanol will be reaping positive benefits from this for months,” she said.

“It was a step for us to take safety to the next level and part of that was to include the local community.”

Kansas Ethanol had a reputation for having a high level of safety compliance prior to the fire training event. In its first 16 months of operation, no Occupational Safety and Health Agency accidents or losttime accidents were reported, which resulted in OSHA’s early acceptance of the plant into its Safety and Health Award Program. Dellar said Kansas Ethanol was accepted into the program more quickly than any other ethanol plant.

—Kris Bevill

ETHANOL PRODUCER MAGAZINE • December 2009

A new proposal by the U.S. EPA would require many ethanol producers to obtain permits for greenhouse gas emissions and to report their facilities’ compliance efforts.

Producers face strict GHG regulations The U.S. EPA’s proposed rule to regulate greenhouse gas (GHG) emissions from industrial facilities would include at least 84 ethanol producers, according to the EPA. The Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule would require all industrial facilities that emit at least 25,000 tons of carbon dioxide equivalent annually from stationary combustion sources to obtain construction and operating permits to cover the emissions.

Emitters would also be subjected to biannual self-compliance reports.

The EPA estimates that its proposed threshold would require approximately 14,000 major sources to comply with the rule. The vast majority of participants already participate in the permitting process through the Clean Air Act but an estimated 400 facilities, including some ethanol plants, would be new participants in the program.

Howard Gebhart, environmental compliance section manager at Air Resource Specialists Inc., said his company’s early estimates show that nearly all ethanol facilities would become regulated entities. “Based on the numbers we’ve calculated, I think it’s

likely that plants even as small as 40 or 50 MMgy are probably going to be over the 25,000 ton threshold for CO2 emissions,” he said, adding that a typical 100 MMgy natural gas-fired ethanol production plant produces about 80,000 tons of CO2 annually from fuel combustion alone. Gebhart estimated compliance cost for an ethanol plant subject to Title V to be between $10,000 and $25,000 annually.

According to Gebhart, the new regulations wouldn’t necessarily reduce emissions levels at facilities and would be an added burden for facilities that have to apply for new permits and comply with self-reporting procedures twice each year. “It may entice people to try to make reductions, particularly if they are close to the threshold. But if you’re a 100 MMgy plant, the numbers that I’ve seen suggest that you’re so far over the threshold you’re not going to achieve those reductions in GHG emissions overnight,” he said.

For ethanol plants not currently regulated by Title V, new rules would mean slower permitting processes and more burdensome regulations, according to Gebhart. “Plants won’t be able to make changes as quickly as

ETHANOL PRODUCER MAGAZINE • December 2009

they’re used to because they won’t be able to do it with just a state permit,” he said. New facilities will also be heavily regulated and will be subject to a pre-construction program designed to control pollution, but which would also slow down the construction process.

In addition to the EPA’s proposed regulatory rule, the agency recently finalized its GHG reporting program, which includes the same 25,000 ton-per-year threshold for carbon dioxide equivalent, becomes effective Jan. 1. At that time, facilities will be required to begin collecting data on emissions levels. Facilities must then report the data to the EPA beginning March 31, 2011. Reporters will be required to present total annual GHG emissions as an aggregate as well as separate emissions data for each source and supply category as identified by the EPA. In addition, certain activity data, including fuel use and feedstock inputs, used to generate the emissions information would need to be reported.

—Kris Bevill

29

PHOTO: ANNA AUSTIN, BBI INTERNATIONAL

Coskata unveils semi-commercial facility

Coskata Inc.’s semi-commercial cellulosic ethanol production facility near Pittsburgh processes 3,000 wet tons of biomass daily.

Coskata Inc., along with strategic investor General Motors Corp. and plasma gasification veteran Alter NRG, officially unveiled its semi-commercial cellulosic ethanol facility near Madison, Pa., in October. Though slightly behind schedule, CEO Bill Roe insisted that “slow and steady wins the race” and he attributed the company’s progress to its hybrid approach towards cellulosic ethanol—a combination of biochemical and thermochemical technologies—and the significance of it being truly feedstock flexible.

Coskata’s process technology is capable of converting multiple feedstocks, including woody biomass, agricultural waste, energy crops and construction/industrial wastes, into synthesis gas. The syngas is cleaned, cooled and passed through a conversion process, during which it undergoes bacterial fermentation using Coskata’s proprietary microorganisms.

“They have a singular purpose, and that is to ingest CO2 and hydrogen and exhale ethanol,” Roe said. “We’ve made them into super athletes in the course of our technology development. They perform not like they do in nature, but like we need them to in an industrial process; we’ve done lots of microbiological work and strain management development.”

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ETHANOL PRODUCER MAGAZINE • December 2009

The $25 million semi-commercial plant is co-located with a pilotplant gasifier owned and operated by Calgary, Alberta’s, Alter NRG Corp, which has been perfecting its technology for several decades.

Among the many technology advancements made since the commissioning of Coskata’s pilot plant in Warrenville, Ill., Roe said water consumption reduction is significant. “It’s not something that gets a lot of play, but we’re very interested and concerned,” he said.

“At our first commercial plant, we will have reduced the total water consumption to 1.3 gallons per gallon of ethanol produced, far below anything right now, and we think that’s going to be a very important parameter in the future.”

Now that “Project Lighthouse” is complete, Roe said a site in the southeastern U.S. has been selected for the company’s first commercial-scale facility, and Coskata will soon begin working with licensee companies. “We’ve chosen to be a technology provider, rather than an operating company,” he said.

Engineering and design for the commercial plant began in November 2008, Roe said, and a feedstock study was completed in June.

“Now, we’re revisiting the design work and basing it on what we’re learning from the commissioning from this (Madison) facility,” he said. “We’ll put a final polish on the design work at the end of this year so we’re ready to go to the [engineering, procurement and construction phase] in 2010, with projected start-up in late 2012.”

Despite the efforts of the many companies striving for cellulosic ethanol, Roe said the U.S. will likely miss the first few renewable fuel standard targets. “We can say the goals that were put out there needed to be aggressive goals, because they were meant to spawn action,” Roe said. “Also, it’s partially true the credit crunch and drying up of the markets was a factor; you can’t get money for projects, particularly first-of-a-kind technologies. They’re not lending like they once did or will eventually, but you can’t hang everything on that,” he said. “A lot of us in this space have been slower to bring our technologies forward than what was originally thought or promised.

Those combined—weak credit markets, slower development of the technology—form a perfect confluence of a shortage—anyone who says there won’t be is dreaming.”

Roe added that companies like Coskata and a few others, can fill the gap and eventually fall in line with the targets, provided they have some access to project financing. “I’m optimistic,” he said. “I think the credit markets are starting to thaw and there will be financing for projects with proven technology platforms. Yes, there are hurdles to jump, but they are jumpable now and it looks a lot better to me now than it did a year ago.”

—Anna Austin

PHOTO: GENERAL MOTORS CORP.

EPA proposes vehicle emissions reduction program

Under the EPA’s proposed GHG reduction rule, flexible fuel vehicles such as this 2010 Chevrolet Malibu would receive credit towards meeting the standard based on actual E85 use beginning with model year 2016.

On Sept. 28 the U.S. EPA and National Highway Traffic Safety Administration published their proposed rulemaking to establish light-duty vehicle greenhouse gas (GHG) emission standards and corporate average fuel economy (CAFE) standards in the Federal Register. In the rulemaking, the EPA proposes that certain GHG emission standards be implemented under the Clean Air Act, while the NHTSA proposes new CAFE standards be implemented under the Energy Policy and Conservation Act. When finalized, the proposed rule will likely impact the flexible fuel vehicle (FFV) industry by eventually requiring FFV manufacturers to demonstrate actual use of alternative fuels in order to earn credit toward meeting GHG reduction standards.

The CAFE program provides incentives for automobile manufacturers to produce FFVs and dedicated alternative fuel vehicles.

Dedicated alternative fuel vehicles are capable of operating only an alternative fuel, such as compressed natural gas, but not conventional fuel. Most FFVs are designed to operate on E85 and gasoline.

Under the CAFE program, the production of FFVs provides credits toward meeting the required standards. However, the EPCA incrementally phases out these credits through model year (MY) 2019, after which they are no longer available to help demonstrate CAFE compliance. Credits for dedicated alternative fuel vehicles, however, are not phased out.

For its GHG reduction program, EPA is proposing to allow FFV credits to be generated in the same way as they are generated under the CAFE program for MY 2012 through MY 2015. After this time, FFV credits would only be allowed when the vehicle manufacturer can demonstrate that alternative fuel is actually being used in the FFVs. Under the EPCA, the availability of the FFV credit is not based on actual use of alternative fuel, such as E85. Rather, it is assumed that a FFV operates 50 percent of the time on alternative fuel and 50 percent of the time on conventional fuel. Emissions for the vehicle are computed using an equation established in the EPCA that results in a carbon dioxide emission value that is lower than the actual emissions level. The EPA is proposing to use the EPCA-sourced equation to establish credits for the GHG reduction program through MY 2015. Starting with MY 2016, the vehicle manufacturer would be required to demonstrate how much alternative fuel is actually being used by an FFV in order to gain extra credits towards meeting the required standard. In addition, alternative fuel would be used in emissions testing for FFVs.

ETHANOL PRODUCER MAGAZINE • December 2009

In the proposed rulemaking, the EPA cites several options that could be used to allow vehicle manufacturers to demonstrate use of alternative fuel. One option would be a top-down method based on national E85 usage levels. Under this approach, national E85 sales volumes and national FFV sales would be used to prorate E85 use based on manufacturers’ sales volumes and FFVs already in use. The EPA would use its emission inventory MOVES model to analyze vehicle miles travelled by year for all FFVs and use vehicles miles traveled ratios and E85 sales to assign E85 usage to each vehicle. These figures would be adjusted to reflect new data on an annual basis.

According to supporting information in the proposed rule, the ability to generate GHG credits through the demonstration of alternative fuel use would provide an incentive for using the fuel. In addition, the EPA stated there is currently little incentive for vehicle manufacturers to optimize FFVs for alternative fuel use. However, this program could incent car makers to optimize FFV engines and calibration to provide additional carbon dioxide reductions.

The proposed rule is open for public comments until Nov. 27.

While nearly 3,000 comments had been posted to the docket by late October, the Big Three U.S. automakers had yet to comment.

—Erin Voegele

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Report: venture capitalists not interested in ethanol

A report recently competed by Lux Research shows that venture capitalists’ interest in funding ethanol projects has passed its peak and investment in corn ethanol is over.

According to a report recently completed by Lux Research, venture capitalists’ (VCs) interest in funding cellulosic ethanol projects has already passed its peak. Furthermore, the results of the report, titled “Funding Exits for Biofuels and Biomaterials Investors,” show that VC investment in corn ethanol is essentially over.

To complete the research, Samhitha Udupa, the report’s lead author, said her team built a database of institutional VC funding rounds in non-medical biotech startups from 1998 through 2008. The team identified 286 transactions conducted by 170 companies in 27 countries. In addition, Udupa said the team gleaned information from publically announced VC transactions from the PricewaterhouseCoopers MoneyTree survey, Capital IQ, various trade publications, press releases and other secondary sources. “We completed the resulting data set with unannounced transactions sourced from our network,” she continued. “In addition, we drew on 49 primary interviews with developers and investors in the space.” Udupa said her team believes the resulting database represents between 90 percent and 95 percent of the VC investments in the non-medical biotech space during the period evaluated.

The study demonstrates that venture funding for agricultural and industrial biotechnology gained considerable momentum over the past 10 years, increasing from approximately $47 million in 1998 to $1.2 billion last year. However, while investment soared during this time, only nine of the 170 VC-backed companies identified by the team have seen successful exits to date. A successful exit occurs when a VC-backed company is acquired by another entity or completes an initial public offering.

According to Udupa, 20 of the 170 companies studied by her team were first-generation ethanol companies. The team did not break these down further into corn-based and sugarcane-based ethanol producers. Among these 20 companies, Udupa said only two have seen successful exits; VeraSun Energy Corp., which completed an IPO, and Celunol Corp., which merged with Diversa Corp.

Several predictions are made in the report regarding future investment in biofuels. This includes findings that investments in corn ethanol projects are essentially over. “Interest in cellulosic ethanol has passed its peak as well,” Udupa said. This prediction seems to be demonstrated by current quarterly data included in PricewaterhouseCoopers MoneyTree report. The report showed that only one cellulosic ethanol company, Cello Energy, had received VC funding during the second quarter of 2009.

However, Udupa also noted that some investment in cel-

lulosic ethanol will continue, largely due to the renewable fuel mandates that were established by the Energy Independence and Security Act of 2007. Although VC interest in cellulosic ethanol is expected to decrease, Udupa said the report predicts that investments in biodiesel technologies are on the rise.

“There has also been a noticeable shift in attention to biofuel companies that can produce more than just one product using the same overall process,” she said, offering examples that include Amyris Biotechnologies and Solazyme Inc. “Such companies can hedge against the volatility of oil prices, which ultimately determine the true competitiveness of their biobased fuels against their petroleum-derived counterparts.”

Udupa said that overall, the report is designed to dig below the surface of agricultural and industrial biotechnology in order to reveal more nuanced patterns of VC investment in genetically modified food and energy, pest resistance, biomaterials, chemicals, industrial enzymes, and first- and next-generation bioenergy.

“VC investments in non-medical biotech have been driven almost entirely by biofuels,” she said. “But VCs have been too distracted by high oil prices, had too few real guideposts, and been too smitten by the enthusiasm of politicians and a few lead investors to make a sober diagnosis in the field—new thinking is needed.”

—Erin Voegele

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Distillers dried grains could soon be used as a source of food for humans as well as animals, due to research conducted at South Dakota State University.

South Dakota State University food science graduate student, Sowmya Arra, has developed a process whereby distillers dried grains (DDGs) can be processed into a low-cost flour rich in fiber and protein. The ethanol coproduct has the potential to fight hunger by serving as a sustainable source of protein for developing countries.

Working in collaboration with mentors and advisers Padu Krishnan and Kurt Rosentrater, Arra’s work earned her international recognition when she received first place in the graduate research poster competition at the Institute of Food Technologists Conference, held in Anaheim, Calif., in June. Arra was one of 50 graduate students presenting posters in the product development category at the conference, which drew researchers and technologists from more than 80 countries.

Arra had to create a process of heating, vacuum chamber treatment, grinding and sterilization resulting in a product more wholesome than flour. Post-processed DDGs closely resemble wheat flour, and could be used as a flour substitute, according to Arra.

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Since 1958 West Des Moines, Iowa USA ETHANOL PRODUCER MAGAZINE • December 2009

“By making the ingredient as bland, color-neutral and nutrientenriched as possible, we can offer a product that may have international feeding applications,” Arra said. She is a native of Hyderabad, India, and hopes to see her food-grade DDGs marketed to Third World countries for low-cost bread products that could help fight world hunger.

After completing her advanced degree, Arra hopes to work in research and development for the food industry. She received her bachelor’s degree in microbiology and genetics from Osmania University, Hyderabad, and is currently working toward her master’s degree in food science at SDSU. Arra’s research, collaborated with the North Central Agricultural Research Laboratory in Brookings, received funding support through efforts by Agricultural Research Service engineer Kurt Rosentrater.

Additional funding was provided by the SDSU Agricultural Experiment Station, the South Dakota Wheat Commission and the South Dakota Corn Utilization Council.

Research such as Arra’s could help alleviate severe conditions in countries facing droughts such as the one experienced this year in China’s major corn producing regions. The drought will result in fewer bushels of corn per acre harvested this year, causing corn prices to climb and a substantial increase in the need for distillers dried grains with solubles (DDGS) from the U.S., according to the U.S. Grains Council.

ETHANOL PRODUCER MAGAZINE • December 2009

Members of the Grains Council recently completed their yearly tour of China’s corn-growing regions, and determined that the drought will result in lowered yields per bushel in 2009. “The drought really affected parts of China’s major corn producing regions, especially in western parts of Jilan and Liaoning provinces and eastern parts of Inner Mongolia province,” Cary Sifferath, USGC’s senior director in China said. USGC members evaluated 300 corn fields in northeastern provinces of China and estimated the national corn yield for 2009 to be approximately 79 bushels per acre, compared to 88.5 bushels per acre predicted by the Chinese government in 2008.

Sifferath said the Chinese government’s cap on production acreage means an increase in corn acreage to up production levels would have to equal a decrease in acreage for another crop. China does not appear to plan to import corn and prices for its own corn have become very expensive, which leads to an increased market for U.S. DDGS, he said.

As a result, the USGC expects the U.S. to export up to 300,000 tons of DDGS to China this year—18 times the amount exported to China in 2008. According to Sifferath, the substantial increase in exports to China has been experienced over a short amount of time and he expects increases to continue due to sustained high corn prices in China.

—Craig A. Johnson

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Studies find subsidies favor petroleum

A recently conducted study shows that in the past seven years, the petroleum industry has received $72 billion in subsidy payments while the corn ethanol industry has received $5 billion.

Two recent reports highlight the challenges facing the biofuels industry. The first study, conducted by the Environmental Law Institute in partnership with the Woodrow Wilson International Center for Scholars, “Estimating U.S. Government Subsidies to Energy Sources: 20022008,” offers a comparison of federal subsidies provided to fossil fuels and renewable sources of energy from fiscal year 2002 through fiscal year 2008.

The study concluded that during the seven-year period, approximately $72 billion in subsidies were provided to benefit the fossil fuels industry, while only $29 billion in subsidies were provided for renewable sources of energy. Less than 25 percent of the renewable energy subsidies specifically benefitted corn-based ethanol.

Of the $28.9 billion in subsidies that supported renewable energy, $11.6 billion went to the Volumetric Ethanol Excise Tax Credit and approximately $5 billion went to corn subsidies. Other major areas of renewable energy subsidies included $5.2 billion for the Renewable Electricity Production Credit, $259 million for the Renewable Energy Investment Credit, and $200 million for the Five-Year Modified Accel-

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erated Cost Recovery System Period for Solar, Wind, Biomass and Ocean Thermal.

Only $198 million was used to support the Alcohol Fuel Blender Credit, which can be taken in lieu of the VEETC, and $182 was attributable to the Biodiesel Blenders Credit and Biodiesel Excise Credit.

An additional $165 million in subsidies supported the deduction for clean fuel vehicles and refueling property in relation to biofuels, and $39 million supported the credit for clean fuel vehicles and refueling property for biofuels. Rounding out the $28.9 billion in subsidies was $85 million for clean renewable energy bond holders and $1 million supporting special depreciation for cellulosic plant property.

A second study, titled “Potential Effects and Challenges for Required Increases in Production and Use,” was compiled by the U.S. Government Accountability Office at the request of Sens. Barbara Boxer, D-Calif., and Susan M. Collins, R-Maine.

The report studies the effects of increased biofuels production on agriculture, the environment and greenhouse gas (GHG) emissions, as well as examines federal support for domestic biofuels production and key challenges in meeting the renewable fuel standard (RFS). To complete the report, the GAO reviewed a variety of scientific studies, interviewed experts and agency officials and visited U.S. DOE and USDA laboratories.

In its report, the GAO also makes several suggestions as to how

biofuel policy can be improved. The office encouraged Congress to consider requiring the U.S. EPA to develop a strategy for assessing lifecycle environmental effects of increased biofuels production beyond the effects of GHG emissions. According to the report, this could include evaluating the effects of increased biofuel production on water, air and soil quality. The report also recommends that the EPA, DOE and USDA develop a coordinated approach for addressing uncertainties in lifecycle GHG analysis and give priority to research and development initiatives that address the blend wall issue.

The GAO also encouraged lawmakers to consider whether revisions should be made to the VEETC, which was originally established to help spur the growth of the ethanol industry. According to the report, this credit may no longer be needed because unless crude oil prices rise significantly, it is unlikely the tax credit will stimulate ethanol consumption beyond levels specified by the RFS. In addition, the report claims that the U.S. corn ethanol industry is mature and production levels already near the RFS limit of 15 billion gallons per year.

The GAO states that the VEETC’s annual cost to the U.S. Treasury in forgone revenues could increase from $4 billion in 2008 to $6.75 billion in 2015 for conventional corn ethanol.

—Erin Voegele

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DRIVE Buis

ILUC: The Biggest Threat to Ethanol and Agriculture

By Tom Buis pponents have tried every trick in the book to undermine ethanol and other biofuels—everything from Big Food’s multi-million-dollar public relations blitz to perpetrate the “food versus fuel” myth to lies about engine damage. But none of that compares to the threat posed to ethanol by international indirect land use change (ILUC).

This growing threat is not new, but both agriculture and ethanol producers must respond forcefully and effectively if we are to stop it. ILUC would take away the sovereignty of American farmers and the domestic renewable fuels industry. It would put foreign producers and foreign government policy in charge of U.S. farming by restricting decisions and the ability of U.S. farmers to grow our own food, fiber and fuel.

ILUC is based on a flawed and untested concept, but it is a genuine threat. It was slipped into the 2007 Energy Independence and Security Act under the cover of night and without Congressional debate but, nevertheless, it is now a part of legislation and must be addressed. At the heart of the ILUC scheme is the notion that U.S. biofuels, including ethanol, should be assessed with higher carbon counts and greenhouse gas emissions than are actually produced by their production and combustion. If it doesn’t sound accurate and scientific, that’s because it isn’t.

ILUC proponents suggest that whenever U.S. farmers grow crops for biofuels they are indirectly forcing farmers in other nations to make up for lost exports, which results in them plowing under forests to grow more crops domestically. Anyone who knows agriculture or is cognizant of markets or agriculture and trade policies knows this makes no sense. In fact, data has proven the opposite—the rate of Amazonian deforestation has dropped while U.S. ethanol production has increased at the same time.

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The truth is we could halt biofuels production in the U.S. entirely, but it would not prevent ongoing deforestation in developing countries. Michigan State University professor Bruce Dale has laid out the genuine reasons for deforestation in countries such as Brazil: urban sprawl, cotton and tobacco planting, and timber harvesting.

Growth Energy is opposed to deforestation but we do not believe American biofuels should pay the price of poor forest management practices in other nations. Biofuels such as corn ethanol and cellulosic ethanol are crucial if the United States is ever going to break its addiction to fossil fuels, which we know are heavy in carbon output and are vulnerable to price manipulation by speculators and price spikes due to shortages and terrorist threats. We must have public policies that increase the amount of biofuels used as a transportation fuel in the United States.

Growth Energy is working hard to persuade Congress that it must take action to strip ILUC from law. We have seen some initial success. Rep. Collin Peterson, D-Minn., chairman of the house agriculture committee, inserted a provision in the House-passed climate change legislation that would bar the U.S. EPA from enforcing ILUC until a multi-year study is completed by the National Academy of Sciences. But we can’t stop there. Growth Energy is looking to the Senate for final action on this threat to America’s renewable fuels and America’s farmers. And we are willing to work with any group or individual that shares the vision of an America that is less reliant on dirty, foreign oil by utilizing ethanol to improve our nation’s economy, environment and national security.

Tom Buis is the CEO of Growth Energy. Reach him at TBuis@GrowthEnergy.org or (402) 932-0567.

ETHANOL PRODUCER MAGAZINE • December 2009

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TAKING STALK

Corn Supply Prospects for US Ethanol Production

By Daniel O’Brien he October World Agricultural Supply and Demand Estimates report projected that the 2009 U.S. corn crop would be 13.02 billion bushels.

Combined with 1.67 billion bushels of beginning stocks and a small amount of imports, total U.S. corn supplies for the 2009-’10 marketing year were projected to be 14.70 billion bushels. If realized, this will be the largest amount of U.S. corn supplies on record.

Since the 1973-’74 marketing year, corn use for livestock feed has been the largest source of U.S. corn demand and use. Domestic feed and residual use is projected to average 43.7 percent of total U.S. corn use through the 2009-’10 marketing year. Prospects for livestock feed use in the U.S. have moderated recently as livestock and poultry producers are struggling with weak product demand and large supplies.

Exports have also been a major source of demand over time for U.S. corn, averaging 17 percent of total U.S. corn use over the past three marketing years. Because of the variable and uncertain nature of corn exports, and the prevailing view that corn exports affect corn supply-demand balances annually as a “wild card” at the margin, exports have been an important causal source of price variability in the U.S. corn market since at least 1973. The United States plays a dominant role in corn export markets, providing approximately 65 percent of total world corn exports during the 2009-’10 marketing year. Although U.S. corn export prospects have improved in 2009-’10, there is likely limited potential for further dramatic increases in corn exports in the near term.

During the past three marketing years, the amount of corn used for ethanol production has increased from 24 percent to 32 percent. Non-ethanol demand for corn use has also steadily increased. Total use of U.S. corn over time, however, has been relatively more stable than ending stocks. Also, ending stocks-to-use ratios are typically used as a measure of the relative scarcity of corn supplies in comparison to use, and generally have been inversely related to corn market price levels over time. Overall, there

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seems to be adequate supplies of corn available in the U.S. to meet ethanol demand for the 2009-’10 marketing year.

Longer-Term Corn Supply Prospects The Economic Research Service has developed a set of baseline supply/demand projections for U.S. feedgrains for 2009-’10. Projections call for ethanol-based corn use to steadily increase from 4.2 billion bushels to 5.05 billion bushels from the 2009-’10 through 2018-’19 corn marketing years. This analysis generally omits annual weather and associated production variation, assuming steady increases in U.S. corn production and various categories of corn use.

By updating the original analysis with information from the October 2009 WASDE report, the impact of key factors on the tightness of U.S. corn supplies over time can be determined. At 100 percent of the U.S. corn export projection in the study, U.S. corn stocks-to-use will remain steady to slightly increasing through the 2018-’19 corn marketing year. However, if U.S. corn exports increase by a greater rate over time than assumed in the ERS study, U.S. corn ending stocks-to-use will be seriously affected. Increases in these export projections between 5 percent and 10 percent cause projected U.S. corn stocks-to-use to fall as low as 4 percent from current levels of 12.8 percent. High U.S. corn prices would likely result in response to such tight domestic stocks-to-use scenarios.

A number of important assumptions have been made in deriving this analysis. However, the critical issue is that, in the long run, the availability of corn for ethanol production is directly dependent on developments in other segments of the corn supply/demand complex. In turn, these other sources of corn use are dependent on the broader set of domestic and foreign economic influences affecting the agricultural markets in general.

Daniel O’Brien is an extension agricultural economist at Kansas State University. Reach him at dobrien@k-state. edu or (785) 462-6281.

ETHANOL PRODUCER MAGAZINE • December 2009

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LEGAL PERSPECTIVE Lynch

Turczyn

FIPP May Streamline DOE Loan Guarantee Awards

By Gregory J. Lynch and Melissa M. Turczyn he implementation process for the U.S. DOE loan guarantee program has long been criticized as slow, expensive and inefficient. The DOE has been attempting to address these concerns, and the recent announcement of its long-awaited Financial Institution Partnership Program is a step in the right direction. Although the terms of this announcement do not apply to leading-edge biofuels projects under the DOE loan guarantee program, the formal introduction of the FIPP has the goal of streamlining the DOE loan guarantee process and helping to restart the lending markets for conventional renewable energy technologies by providing partial loan guarantees used to finance commercially accepted renewable energy systems.

Further, the principles under the FIPP may be applicable to future DOE loan guarantee solicitations.

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Types of Projects The Oct. 7, solicitation that introduced the FIPP only applies to commercial technology, renewable energy generation projects and not to manufacturing, transmission or leading-edge biofuels projects. The following non exclusive list of potential types of eligible projects may be applicable to ethanol producers who are seeking large-scale replacement of natural gas or coal with renewable energy generation: • Closed-loop biomass facility • Open-loop biomass facility • Landfill gas facility The DOE has indicated that a future DOE FIPP solicitation is expected to afford opportunities for the submission of additional loan guarantee applications in support of commercial renewable manufacturing projects.

Financial Institution Partnership Program The FIPP is intended to make the loan guarantee process more efficient by the DOE relying on lead lenders who

44

satisfy the DOE’s underwriting criteria for much of the underlying credit analysis of eligible projects. Each loan guarantee will be expected to have a lead lender who has experience being a lead lender or underwriter in large commercial projects or energy-related projects. The lead lender will act as the administrative agent for the obligation and will service the obligation.

Under the FIPP, financial institutions will apply directly to the DOE for a loan guarantee and the DOE is expected to review each application with a primary focus on confirmation of the lender’s internal underwriting and credit analysis.

The maximum debt financing allowed under the FIPP is 80 percent of the total project costs and the DOE will provide a full faith and credit guarantee up to 80 percent of the principal amount of the debt. Participating financial institutions will share in the risk associated with each loan under the FIPP on a pari passu basis with the DOE, as they will be expected to fund and retain all or a substantial portion of the debt. Each financial institution participating in the FIPP will be required to execute a loan agreement and guarantee agreement which will contain certain transfer restrictions on the debt.

We hope the introduction of the FIPP will expedite the granting of DOE loan guarantees for commercial renewable energy generation projects. More importantly for ethanol producers, we hope that the FIPP and other policies adopted by the DOE will be applied to future solicitations for manufacturing and leading-edge biofuels projects.

Gregory J. Lynch is the co-chair of the renewable energy team and Melissa M. Turczyn is a member of the renewable energy team at Michael Best & Friedrich LLP, a full-service law firm serving the renewable energy industry. Reach Lynch at (608) 283-2240, gjlynch@michaelbest.com or http://twitter. com/Renewable_Energ. Reach Turczyn at (608) 257-7484 or mmturczyn@michaelbest.com.

ETHANOL PRODUCER MAGAZINE • December 2009

eBIO INSIDER Vierhout

Can the EU Make the Switch to Biofuels 2.0?

A

few months ago, I gave a speech at a biofuels conference on the EU’s participation in financing and developing pilot-scale and demonstration-scale next-generation production plants.

My presentation was rather short because there is not much to tell. It seems that, in terms of public and private investments, the EU is light-years behind the U.S. With the Energy Independence and Security Act in force, the U.S. is spending hundreds of millions of dollars annually to promote what I refer to as Biofuels 2.0. The blender’s tax credit, the Biomass Crop Assistance Program, the bioenergy program and funding from the Recovery Act also contribute to one common goal: commercializing Biofuels 2.0 by 2012. We do not know yet if it will happen, but the vast amount of concrete support offered through these incentives make it more likely. The present picture in the EU, however, is somewhat different.

There are approximately 20 lignocellulose projects in development or under construction in the U.S. By contrast, there are five or six such projects in the EU and none are very ambitious in production volume. Some are financed by the EU under the research and development framework program, others by individual EU member states or even as the result of a combination of public-private investments. There are three demonstration-scale cellulosic ethanol plants operating, with a total installed production capacity of 25 MMly. I have often wondered why there is an enormous gap between the U.S. and the EU when it comes to next-generation biofuel production. Why is it so difficult for the EU to get its act together? The urgency and political calls for Biofuel 2.0 were identical in both regions. In the EU, however,

46

this was not translated into swift policy action, whereas the U.S. put its money where its mouth was. The EU has a lot of targets and makes a lot of noise, but the U.S. has concrete mechanisms, deliverables and action.

To make Biofuels 2.0 a less risky investment and to force technological breakthroughs, Europe needs to increase public funding for pilot and demo plants and form a yearly mandatory target for second-generation biofuel use. Forming an annual consumption target will take a few years, but I expect it to be completed by 2012. The U.S. is possibly overambitious by setting a target for 2010. More realistic is a target beginning in 2015. By then it should be possible for Biofuels 2.0 to be produced in high volumes at a low price.

Additional R&D funding is a less-distant reality. The European Commission recently declared it would set aside money to promote low carbon technologies. Obviously, this is not just about biofuels but also biomass-based combined heat and power systems. Regardless, to have more public and eventually private money flowing into low-carbon technologies is an important start. I hope it will also result in greater coherency of public programs between member states. We don’t have to look far to find a successful example of public and private money delivering the goods: the European wind energy industry is widely recognized as the world’s leader and it was kick-started by successful EU R&D programs. I hope the powers that be will replicate for the European biofuels industry what they did for wind.

Robert Vierhout is the secretary-general of eBIO, the European Bioethanol Fuel Association. Reach him at vierhout@ebio.org.

ETHANOL PRODUCER MAGAZINE • December 2009

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INDUSTRY

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ETHANOL PRODUCER MAGAZINE

December 2009

INDUSTRY

P TT ING U IT BACK TOGETHER As the industry begins to re-build after its bust, plant ownership could be evolving into a new shape. How much consolidation should we expect in 2010 and what types of companies will lead the acquisitions?

By Kris Bevill

ETHANOL PRODUCER MAGAZINE

December 2009

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INDUSTRY

I

f the state of the ethanol industry in 2009 leading into 2010 had to be summed up in two words, they might be “recovery” and “consolidation.” The painful shake-out of 2008 followed by a difficult economic period has left only the strong standing, but those remaining are gearing up for greater production in 2010 and possible expansions to take on more facilities.

That’s an easy prediction to make.

More difficult to forecast, however, is what form of company will emerge as the most able to survive in a commodity/energy hybrid industry.

Who’s Who According to EPM’s plant list, 184 U.S. plants are currently producing ethanol. For the purpose of this article, EPM separated its list of active producers into two categories: corporations and cooperatives. Some plants were obvious fits for a single category—Archer Daniels Midland Co., for instance, or Central Minnesota Ethanol Co-op. Others blur the lines between small, locally owned operations and large, publicly traded companies and were placed in either category for a number of reasons.

For example, Poet LLC prides itself

EPM estimates that only about one-third of the U.S. ethanol facilities currently producing ethanol operate as co-ops. The remaining ethanol plants are run by large companies and/or are publicly traded. This could be an indicator of the future of ownership in the ethanol industry.

in having up to 49 percent local ownership at each of its 26 production facilities. Because it is such a large producer, however, it has financing and distribution opportunities that small co-ops do not. Therefore, Poet was classified as a corporation. Generally, plants that were categorized as cooperatives are either true co-ops or fit the description of being small, locally owned and operated facilities that own a total of no more than two plants. Multi-location companies with greater access to capital were deemed corporations.

Based on these criteria, EPM estimates that only about one-third of the U.S. ethanol facilities currently producing ethanol operate as co-ops.

The remaining ethanol plants are

run by large companies and/or are publicly traded. This could be an indicator of the future of ownership in the ethanol industry. As some of the smaller producers succumbed to funding difficulties and tight operating margins, large companies with access to adequate capital have stepped in to purchase most of them, however, there are also instances of regional co-ops banding together to purchase facilities by combining their equity. A brief look at some of the more notorious acquisitions of 2009 serves as a snapshot of the larger acquisition picture.

Taking Over VeraSun Energy Corp.’s bankruptcy filing and consequential sale

INDUSTRY

2009 Plant Acquisitions Examining what types of companies purchased former VeraSun Energy Corp. production facilities in 2009 could indicate the shift in control by ownership the industry should expect in 2010.

Purchasing company

Plant capacity

Plant location

Valero Renewable Fuels LLC

110 MMgy

Welcome, Minn.

110 MMgy

Charles City, Iowa

110 MMgy

Hartley, Iowa

100 MMgy

Albion, Neb.

120 MMgy

Aurora, S.D.

110 MMgy

Fort Dodge, Iowa

100 MMgy

Albert City, Iowa

Murphy Oil Corp.

110 MMgy

Hankinson, N.D.

Carbon Green BioEnergy

50 MMgy

Lake Odessa, Mich.

Green Plains Renewable Energy Inc.

100 MMgy

Central City, Neb.

45 MMgy

Ord., Neb.

Guardian Energy LLC

110 MMgy

Janesville, Minn.

Central Farmers Co-op.

110 MMgy

Marion, S.D.

of its production facilities provided ample opportunities for companies to add to their ethanol portfolios or to get into the game.

Power shifts have already taken place as a result of the redistribution of a significant portion of U.S. production capacity. Valero Renewable Fuels made international news in the spring when it purchased seven VeraSun facilities, making it the first petroleum blender to own and operate ethanol production facilities. Its parent company, Valero Energy Corp., is a Fortune 500 firm could easily afford to enter the ethanol production market, so it’s easy to imagine how a local co-op interested in one of the plants wouldn’t stand a chance at the negotiating table. As a result of its acquisition, Valero controls 760 million gallons of the nation’s ethanol production capacity.

Green Plains Renewable Energy Inc. also made a strategic move to purchase former VeraSun facilities and acquired plants in Central City and Ord, Neb., in May. Like Valero, the acquisitions provided the company entrance into the Top 5 list of producers. In

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INDUSTRY

'The idea that you can work together to accomplish more is the co-op way. The co-op model works really well for those of us who are true co-ops. We were formed to process our members’ corn. That was really our goal.'

Randall Doyal, Guardian Energy LLC

its annual report for investors, GPRE stated specifically that bankruptcies and plant closures were to be viewed as opportunities for company growth and could affect the pace of industry consolidation.

Co-ops were smaller players in the redistribution of VeraSun’s properties, but managed to acquire a few of the facilities. Central Farmers Co-op in South Dakota reclaimed the Marion, S.D., production facility it had established in 2008. Guard-

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ian Energy LLC, a collaboration of six locally owned ethanol companies (four of them co-ops), purchased the never-operated Janesville, Minn., facility and began operating the plant in late October. The purchase was made by combining funds from all six of the companies' members.

A Difference of Philosophies Randall Doyal, president of Guardian Energy, says the Janesville plant was in a good location and had

good rail access, which made it an attractive property even though its production capabilities hadn’t been proven. Doyal is also the CEO of Al-Corn Clean Fuel, a co-op which is located less than 50 miles from Janesville. The plant's proximity to the other facilities owned by Guardian Energy members was attractive to Doyal, who doesn’t deny that location played significantly into their decision to purchase it. "For some of us, this was a defensive move rather than an offensive move,” he says. “We'd like to have somebody [in Janesville] that we can work with rather than somebody we can't. We saw this as an opportunity to help move that idea down the field, where we could have someone that we could cooperate with rather than someone outside of our group."

The Guardian Energy group, which is composed of mainly cooperatives, is not technically a co-op itself, but operates under the cooperative

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INDUSTRY

philosophy, says Doyal. “The idea that you can work together to accomplish more is the co-op way,” he explains.

“The co-op model works really well for those of us who are true co-ops.

We were formed to process our members’ corn. That was really our goal.

The guys who set it up were trying to create their own local market and that's what they did."

Developing a market for local corn farmers may have been the initial goal of the ethanol industry, but it didn’t take long for profit-driven corporations to realize a good investment. For some, the goal is not about local corn markets at all, but about the bottom line.

Becker says GPRE’s business is focused on risk management, and that requires cash. “To really effectively manage risk, you need to have a balance sheet, you need to have the ability to raise cash,” he says. “You need to have a balance sheet that is strong enough to manage the risk.”

ETHANOL PRODUCER MAGAZINE

Publicly traded companies simply have more access to cash than locally owned cooperatives, which has proven to be both the rise and demise of facilities throughout the industry. Becker says liquidity and the ability to raise capital through the public markets is the main advantage corporations have over co-ops. And access to capital could prove to be the reason the industry experiences more mergers and acquisitions of smaller producers by large companies in 2010. “Because we have a public currency, when we’re looking for acquisitions we can oftentimes use our stock to do that,” Becker explains. “Three years ago you could go public, [but] today there really is no path to public liquidity in cornbased ethanol. So if a plant has a bunch of owners but is not public, your exit is to either sell for cash or sell for stock and continue to stay in the game. You can often do that by merging with a company like

December 2009

[GPRE] for a stock-for-stock transaction. Then you have the ability to monetize your investment.”

That may be true, but for companies such as Guardian Energy, monetizing investments is not necessarily the top priority. Doyal says the exit strategy for locally owned companies is different. “We’re not looking to make a fortune and get out,” he says. “We care about what we’re doing and who we’re doing it with.

[Share value] is really not what farmer-owned or locally owned facilities are all about. We’re about trying to return to good, constant, steady value over years and not being a flash in the pan.”

Whether it’s a “mom and pop” co-op or a large, publicly traded corporation, the ups and downs of operating a successful ethanol production company boil down to who is at the helm of the operation, as evidenced multiple times recently. As Becker says, “I’ve worked for co-ops, I’ve

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INDUSTRY

As long as you understand processing and refining [and] as long as you understand trading and risk management, you have a great opportunity to succeed and be successful in this industry.

Todd Becker, Green Plains Renewable Energy Inc.

FRACTIONATION

•

EXTRACTION

•

worked for publics and I’ve worked for privates, and my philosophy has always been the same: it’s a commodity risk business and you’ve got to set yourself up so that you never have an event that will take you down because of a pricing decision that you made.

This is an agriculture/energy business.

It’s a hybrid. So as long as you understand processing and refining [and] as long as you understand trading and risk management, you have a great op-

OIL PROCESSING

•

DEMO FACILITY

portunity to succeed and be successful in this industry.”

Consolidation Continues Doyal sees long-term staying power for the co-op model of business, partially due to the willingness of individual cooperatives to work together. “Because we're working together and helping each other out, if one of us screws up we tell the others what we did that was wrong so they don't make the same mistake,” he says. “On top of that, if you hit a homerun you let people know how you did that.

I think we gained a lot from our experiences and our association that makes us much stronger not only individually but especially as we work together."

Doyal has no doubt there will be consolidation in the long-term.

"We prefer to see that happen as individual plants finding ways to join forces and work together rather than some corporate giant snarfing them up," he says. Becker says GPRE is done with its acquisitions for now, but the company is not done growing and he agrees that the industry will experience more consolidation in 2010.

“There are a lot of independent players, and I think consolidation comes when they have the ability to get a good value for their asset and get liquidity for their investors,” he says. “That's key, because a lot of people invested in ethanol because they wanted to get a return on their investment.

They didn't want to be in it forever. Some people have a longer timeline than others, but everybody thinks about the path to liquidity." EP Kris Bevill is the editor of Ethanol Producer Magazine. Reach her at (701) 373-8044 or kbevill@ bbiinternational.com.

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CONSTRUCTION

The Road Ahead Since August 2008, no new corn-fed ethanol plants have begun construction. Does this signal the end of an era?

Story and Photos by Craig A. Johnson

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CONSTRUCTION

“N

ew ethanol plant construction” is fast becoming an oxymoron, like “genuine imitation” and “definite maybe.” Based on the incredible pace of growth across the ethanol industry in 2006 and 2007, the recent decline in new plant construction is unsurprising.

Evidence of the drop-off in demand for new corn-ethanol projects can be seen by looking at the workloads of some of the industry’s leading build firms. Fagen Inc., known to many as the pre-eminent ethanol plant builder, at one time had teams working on more than 40 sites at the height of the ethanol industry build out. Today, the company is constructing a single plant, which it plans to complete by the end of the year. The 2010 corn-ethanol project calendar at Fagen is empty.

The flat-lining of new ethanol plant construction, as one builder described it, is not due to irresponsible management, poorly thought out business models or the failure to recognize risk. Rather, the ethanol industry is facing myriad challenges, not the least of which is a struggling economy. Add to that the volatile energy and commodities markets in 2008, the complete collapse of lending and the 10 percent blend wall, and it is not hard to see why no one wants to build a new corn ethanol plant.

The Big Boom In 2005 and 2006, an average of four and one-half groundbreakings at ethanol plants occurred every month, according to EPM’s plant construction lists. Across the Midwest, speculators and investors worked feverishly to find the best sites on which to place their plants. The frenzy to build was so great that at the 2007 International Fuel Ethanol Workshop & Expo, latecomers to the industry were requesting personal introductions to the most in-demand engineering teams and suppliers in order to better their chances at securing a construction contract.

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Year

Number of Corn-based Ethanol Production Projects to Begin Construction

2002

5

2003

10

2004

11

2005

27

2006

41

2007

40

2008

9

2009

0

SOURCE: EPM PLANT CONSTRUCTION LISTS

Between 2006 and 2007, construction commenced at about 40 ethanol plants per year. In 2008, the number dropped to nine, and no plants have begun construction in 2009.

The boom period of new-only construction began roughly in June 2005.

New plant construction went from one or two start-ups each month to a total of 24 new plants beginning construction in the second half of 2005.

With only a few hiccups, this trend was maintained through 2006 and into the first half of 2007. Of the 184 producing ethanol plants currently operating in the U.S., about 100 were built during this 24-month span.

However, by mid-2007, some members of the industry were already contemplating that the boom was over and the ethanol construction phase was nearing an end. After July 2007, as the earliest effects of the looming recession were being felt, new construction projects dropped to numbers that would have been normal in 2003 or 2004. But compared to the amazing expansion that was seen between 2005 and 2007, the number of new projects in the pipeline seemed dismal. In 2008, companies

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began constructing new plants in only four months of the year. The final three new construction projects were announced in August 2008.

This steep decline in new projects was reflected in layoffs at some of the nation’s largest design/build firms. In 2008, ICM Inc. let go more than 175 employees. At the time of the layoffs, Dave Vander Griend, president and CEO of ICM, blamed the economic crisis, rather than a lack of demand, for his company’s decision to downsize. “Our customers continue to face difficult challenges in obtaining the working capital they need to finance the design and construction of biorefineries,” he said. “Although we continue to have strong interest from customers for new projects, simply put, the Wall Street crisis prevents them from proceeding at present.”

Looking at the big picture, ICM still sees a role for new construction, but it will take time. “We believe market conditions will improve,” Vander Griend says, “but it will take time for investor confidence to recover.”

'We’re optimistic that conditions will return and that the industry will become more efficient at running their facilities. That’s the mode everyone is in right now, which doesn’t leave a lot of opportunities for Fagen Inc.' Matt Sederstrom, Fagen Inc.

2010 Construction Outlook Matt Sederstrom, vice president of marketing and project development for Fagen Inc. believes there is still potential for growth in some areas. “We think there’ll be more [corn-based ethanol plants] built. There are good spots that need great plants. And we’re ready to build great plants in those good spots.” But good spots are not going to be easy to come by. The conventional wisdom today is that most of the best sites are gone, with only second- and third-tier sites available to those looking to build.

A company spokesman at one of the design/build firms admits, “We’re all struggling on the new construction side of things.” He went on to say that many industry observers are looking for the next generation of ethanol plants to begin building but there are significant challenges. “Cellulosic technologies are not economical at commercial scale, yet. I don’t think [this industry] can sit on its hands until problems with the science are worked out.”

Conventional wisdom is that it will be five to 10 years before second-generation ethanol production is in full swing.

This timeline could represent a dilemma for builders who

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CONSTRUCTION

to 15 percent, there would be significant incentives to build again in the ethanol industry. Sederstrom believes, among other issues, this could provide a substantial inducement to build. “We’re looking forward to the return of construction levels like we’ve seen, pending the return of a positive lending environment.”

If there is new construction in the ethanol industry moving forward, Fagen wants to be a part of it, but right now the picture isn’t so clear. “If there are opportunities for construction we’re going to take part in that,” Sederstrom says.

A Path Forward

“Under-construction” signs like this were common across the Midwest between 2005 and 2007 when the ethanol boom was in full swing. Now unfinished projects, such as this Nexsun Ethanol LLC site at Ulysses, Kan., remain in a holding pattern while companies labor to raise money.

have hitched their wagons to the ethanol industry. If new corn-based ethanol projects are stalled out, what will construction firms do in the meantime?

Fagen remains optimistic about the eventual correction in the economics of ethanol. According to Sederstrom, “We’re optimistic that conditions will return and

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that the industry will become more efficient at running their facilities. That’s the mode everyone is in right now, which doesn’t leave a lot of opportunities for Fagen Inc.” Sederstrom says Fagen does not currently make its business in retrofitting existing ethanol plants. If, however, the ethanol blend rate in fuel is increased

Some builders don’t see much of a future for corn ethanol plants in the next few years. When asked if first-generation ethanol plant construction had flat-lined, one builder’s answer was a simple, “Yep.” Another source predicts that the number of new plants built will be less than five.

“A few plants will be built in the next few years, but it’s going to be one or two, not a dozen.” Another builder blames the economy for the current situation and says it is the reason for the complete halt on construction as a whole.

One solution for ethanol plant constructors may be in the emerging field of biomass utilization and optimization. According to an ethanol plant builder who

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CONSTRUCTION

Fagen, one of the most well-known builders in the industry, has constructed more than 75 plants, including the Aberdeen Energy LLC at Mina, S.D., plant, shown here in June 2007. The company is currently working on only one corn-ethanol project.

declined to be identified for this article, “We’re going to see a lot of construction in the biofuels industry that is not ethanol. We’re trying to shift our focus to other renewable opportunities.” He went on to say, “We’re not seeing a lot of new large-scale ethanol projects that are ready for construction.”

Builders are actively looking for opportunities to move into the realm of the next generation of ethanol plants. According to one source, “There’s a lot of testing and proving that’s going into scaling up [cellulosic] designs.” The feeling is, if there are plants to be built, then drawing off their experience, ethanol plant build-

ers want to be a part of this new growth.

For now, all eyes are on Washington D.C. and the blend wall.

If E15 is approved and mandated, there could be an uptick in construction, but some see this is a bit of a phantom as well. According to one source, “E15 doesn’t mean we’ll have to build another 50 plants to make all that ethanol. A lot of plants are able to produce at 10 percent or more above their nameplate, and some, like a Poet (LLC) or Valero (Energy Corp.), may go after those gains in efficiency.”

According to the source, if a company such as Poet, which already produces roughly 1.45 billion gallons of ethanol annually, built a plant or two, it would help increase their overall nameplate capacity.

But increasing production by 10 percent across the board would have the same effect as building a 150 MMgy facility without the headaches of site selection, permitting and construction costs. Simply put, there is an incentive to do more with less. EP Craig A. Johnson is the contributions editor of Ethanol Producer Magazine. Reach him at (701) 738-4946 or cjohnson@bbiinternational.com.

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CORN

Once again, the corn crop recouped from bad weather to deliver a record corn yield per acre and the second largest crop ever recorded.

Story and Photos by Susanne Retka Schill

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CORN

C

orn is king of American crops.

It is grown on more acres than any other crop in the U.S at just over 86 million. In an impressive recovery from late planting and a cool summer, corn supplies are forecast to be sufficient for all users, perhaps more than ample, depending on the impact of the midOctober killing frost. Some analysts said the crop was mature enough that a killing frost wouldn’t affect total supplies. Others said the frosts could hurt final yields.

The push and pull of corn market factors helped it recover from the typical pre-harvest September low rather quickly in view of the forecasted big supply, with December 2009 corn futures increasing from September’s lows by about 65 cents per bushel by mid-October. “For corn, the ethanol industry has experienced a substantial economic recovery,” says Darrel Good, University of Illinois corn marketing specialist. “The economics of blending ethanol are very favorable, increasing the demand for and price of ethanol. Even with higher corn prices, ethanol production has moved solidly back into the black. The USDA did not increase the forecast of corn use for ethanol during the current marketing year, but many analysts believe there is potential for use to exceed the projection of 4.2 billion bushels.” By comparison, the USDA’s preliminary figure of corn used in the 2008-

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’09 marketing year was 3.7 billion bushels when it closed Aug. 31.

Other sectors of the corn market are balancing each other out, according to Good. “The USDA did lower the projection of 2009-’10 marketing year corn exports by 50 million bushels, but increased the feed and residual component by 50 million bushels,” he says. “The year-over-year increase of 169 million bushels in feed and residual use appears generous in the face of declining livestock numbers and a large increase in distillers grain production, even with reduction in feed use of other grains,” he continues. “Still, year-ending stocks of 1.67 billion bushels are not large and could be less if the crop is smaller and ethanol use larger than projected.”

Even though USDA backed off its projections for corn exports in the October report compared to the previous month, exports are likely to keep pace with the levels of recent years. China will once again figure into export news, with the Oct. 9 World Agriculture Supply and Demand Estimates projecting China’s corn production to be down due to unusual heat and dryness hampering corn pollination. “Global demand is strong and global production is projected down,” says Erick Erickson, USGC special assistant for planning, evaluation and projects for the U.S. Grains Council. “This leaves U.S. farmers in a competitive position consider-

With relatively flat trends in the traditional markets, it is all the more important that ethanol has come on the scene and grown in its corn usage as corn yields continue to trend upwards.

ing USDA projects a near record corn crop of 13 billion bushels.” Erickson adds while corn exports are projected 50 million bushels lower, the estimated 2.1 billion bushels for the current marketing year is still greater than last year’s 1.8 billion bushels.

Demonstrating New Price Relationships The projections for a 13.02 billion bushels corn crop, based on conditions around the first of October, reflect the potential for a record U.S. average corn yield of 164.2 bushels per acre. With carry-in supplies from the previous year, that puts

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CORN

ETHANOL PRODUCER MAGAZINE

Index of Monthly Crude Oil, Gasoline, Corn, and Ethanol Prices

7 6 5

SOURCE: IOWA STATE UNIVERSITY AG MARKETING RESOURCE CENTER

8

Index, Jan. 2002 = 1

the U.S. corn supply at 14.7 billion bushels for the current marketing year.

In pre-ethanol days, those sorts of numbers sent the markets into a dive. Just five years ago, the then-record 160.4 bushel-per-acre yield that produced an 11.8 billion bushel crop sent the average U.S. farm price to $2.08. It stayed at $2 per bushel for the next marketing year, 2005-’06. At those prices, the Farm Program’s countercyclical payments kicked in, subsidizing U.S. corn farmers with a 30 cent-per-bushel payment for the 2004-’05 crop and 35 cents per bushel the following year. That was the last year corn prices were low enough to trigger the counter-cyclical payments. “Rapid growth in corn processing for fuel ethanol has dramatically transformed Midwest cropbased agriculture in the past few years,” says Bob Wisner, energy economist with the Ag Marketing Resource Center at Iowa State University. “It has transformed Midwest agriculture from a sector that experienced excess production capacity, low prices and government income supports to a growth sector with frequent periods of tight supplies even with good crop yields.”

It’s been two years since corn began to follow the energy markets more closely.

Since late 2007, the corn price index has followed changes in the ethanol price as the share of ethanol use has grown. In the 2007-’08 marketing year (which runs Sept.

Crude Oil Gasoline Corn Ethanol

4 3 2 1 0

Prices of corn, crude oil, ethanol and gasoline are indexed to January 2002. The chart shows changes in commodity prices in comparable units since the base month. An index of 2 indicates prices have doubled. Bob Wisner, energy economist at the Iowa State University Ag Marketing Resource Center, developed the index from data compiled by the Energy Information Agency, the USDA and the Nebraska Ethanol Board.

1 to Aug. 31), ethanol accounted for about one-quarter of the total demand of U.S. corn versus 19 percent and 14 percent, respectively, in the previous two years. Ethanol use is now projected to be one-third of corn production and, according to Wisner, some projections show it becoming the top corn market, using more than the feed sector, and could possibly reach 50 percent

December 2009

of total corn use in the years ahead under some scenarios.

Increased ethanol use has, in turn, introduced new complexities to the corn market. Not only are the corn supply and livestock feeding trends to be considered, but also the price of crude oil and the ethanol mandates and blend restrictions. Mid-2008 saw a highly unusual confluence of factors

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CORN

that combined to drive commodity markets to record highs: a weather scare in the Corn Belt, a poor world wheat crop, and high crude oil markets. Months later, the course changed. It’s highly unusual for all such market drivers to move up and down in tandem like that, says Pat Westhoff, program director with the Food and Agricultural Policy Research Institute at the University of Missouri. The way some factors pushed prices higher this fall, offset by others pushing lower, is far more common.

Corn market watchers are building the new relationships into their analyses and determe the limits to corn markets following energy. In late 2008, as the markets trended downward, analysts correctly predicted that corn would follow ethanol and petroleum prices downward until crude oil dropped below $50 a barrel, when the relationship would weaken. “The mandated ethanol markets tend to provide a floor in ethanol demand,” Westhoff says. Furthermore, he suggests the mandated volumes will also serve as a floor to ethanol prices whenever a future tight corn market drives up corn prices due to a poor crop in the U.S. or overseas.

This year’s total corn supply of 14.7 billion bushels is about 2 billion bushels larger than the 2006 supply Westhoff points out, and ethanol use this year is projected to match that growth at 2 billion bushels

The average U.S. corn yield could reach 164.2 bushels per acre this year, a level that earlier predictions didn't expect until 2015.

higher than three years ago. “We see continued growth,” Westhoff says, “but it’s much, much slower growth than we’ve seen in the past several years. We’ve increased ethanol use of corn by 2 billion bushels in three years; we don’t expect to go much over that the next 10 years.” FAPRI has projected the impact of that growth on corn prices over the next 10 years as well, which Westhoff says shows the average projected price no

higher than the past two years. The season average farm price for corn in 2007-’08 was $4.20, and $4.06 in 2008-’09. “That’s as high as we get in our baseline projections up to 2019,” he says. “That’s an average price, so in a given year it could be higher.”

Bushels for All Long-term, the question arises of whether the corn market can keep up with

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the demand from all sectors. The National Corn Growers Association points out that demand for corn in the livestock and poultry sector has been relatively flat in the past 10 years and raw field corn fed to livestock is expected to decline slightly as more corn is displaced by distillers grains.

Growth in the amount of corn used for human food processing also has been flat, and corn exports have trended up only slightly, although exports of distillers grains have increased. With relatively flat trends in the traditional markets, it is all the more important that ethanol has come on the scene and grown in its corn usage as corn yields continue to trend upwards. In 2008, the NCGA pointed out that with average corn yields increasing at a rate of 3 bushels per year, by 2015 average corn yield could reach 165 bushels per acre. This year’s yield is likely to come in just under that. The NCGA’s “15x’15x15” vision introduced three years ago called for a 15 billion bushel corn crop by 2015 to provide for 15 billion gallons of ethanol production. The ethanol goal would make up 10 percent of the gasoline market and use 5 billion bushels of corn. The remaining 10 billion bushels is more than the combined demand for the food, feed and exports in recent years.

Ethanol advocates point to such numbers and this year’s record corn yields and crop numbers to defend corn ethanol. Renewable Fuels Association President and CEO Bob Dinneen pointed out in a news release following a USDA crop report this fall that yield growth alone will provide the additional corn needed by the ethanol industry in 2009 and 2010.

“Not a single additional acre of corn is needed over last year’s level to meet the industry’s additive feedstock demand.”

After another crop report, Growth Energy published a news release quoting CEO Tom Buis: “There’s a mountain of corn out there — plenty of grain to meet demand for food and fuel. Ethanol opponents would have you believe that using corn for ethanol forces up prices for food. We have a surplus of corn, so

ETHANOL PRODUCER MAGAZINE

where is the drop in food prices? Opponents to renewable ethanol would have you believe global food demand forces indirect land use changes when an acre of corn in the U.S. goes to ethanol instead of food. Yet we’re growing more corn out of fewer total acres,” Buis said. “The data speaks for itself.

The crop numbers undermine the arguments our opponents make against producing ethanol.”

Brian Jennings, executive vice president of the American Coalition for Ethanol, even suggested the ethanol industry could

December 2009

make an argument that the renewable fuels standard mandates for corn ethanol be increased because corn growers historically overproduce and will continue to do so because of better farming practices and scientific advancements. EP Susanne Retka Schill is an assistant editor at BBI International. Reach her at sretkaschill@ bbiinternational.com or (701) 738-4922.

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FEEDSTOCK

Exploring Cellulosic Producing ethanol from a type of feedstock common in one region of the U.S. may not be feasible in another region. EPM investigates feedstock options currently available and in development in five portions of the U.S.

By Anna Austin

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Feedstock Options

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ong before commercial production of corn-based ethanol, it was known that growing corn isn’t effective or even possible in all regions of the country. Furthermore, transporting corn long distances to ethanol plant locations is not economical. Thanks to emerging second-generation technologies and advancements in agriculture and plant science, however, more alternative feedstock options will soon make ethanol production possible areas of the U.S where it was previously not feasible.

For several years, groups at the U.S. EPA and the U.S. DOE’s National Renewable Energy Laboratory have been working on tools to accurately recognize and quantify which types of feedstocks are plentiful, available, or have growth potential in particular regions of the country. Recently, the EPA and NREL released a Web-based, interactive geospatial application that allows users to view quantities of biomass resources in a specified area within the U.S.— including residues from crops, forests, and primary and secondary mills and urban

wood waste, among others. This doesn’t account for feedstock already spoken for or being utilized, so further assessments would be needed for any new venture or feedstock transitions. It does, however, give users an idea of what kinds of feedstocks are plentiful in a specific region of the U.S. Additionally, the EPA has released a state-by-state assessment for cellulosic biomass resources, which estimates the current cellulosic biomass available in dry tons in each state, and also predicts what each state’s cellulosic ethanol production could be by 2012.

Universities are developing or improving strains of biomass from switchgrass, miscanthus and alfalfa. Others are testing how the crops will grow in certain regions of the U.S. as well as how their yields and overall potential as a biofuel feedstock can be improved. In 2009, the USDA selected seven projects to receive a collective $6.3 million for biomass genomics research, five of which were universities.

Although corn is the old reliable in the Midwest, crop residue and perennial grasses

such as switchgrass are making headway as cellulosic ethanol feedstock forerunners.

Midwest Perennial grasses/ crop residue Switchgrass is a fast-growing, highly adaptable perennial grass that can easily be grown on marginal cropland, which is abundant in the Midwest, and much research is being done to maximize its performance and yields. So far, lowland varieties have the highest yields, but are more susceptible to cold injury in the northern U.S. The USDA-Agriculture Research Service in Lincoln, Neb., is funding research focused on winter survival in switchgrass populations and individual plants specifically selected for greater yields, which will involve studying molecular events occurring in the crowns and rhizomes during two growing seasons and winters.

Project investigator Guatam Sarath says research is scheduled to begin next spring.

“We’ve established some fields for this specific work, but actual data collection won’t start until green-up next year,” Sarath says.

FEEDSTOCK

A report by the Coalition of Northeastern Governors Policy Research Center Inc. indicated that the 11 states in the Northeast could produce 2.73 billion gallons of ethanol per year using available cellulosic feedstocks, namely wood waste, mill residues and corn stover.

sity officially dedicated a combination farm and bioprocessing facility to research the production of biomass and bioproducts.

Research will include feedstock production; harvesting, transportation and storage of feedstocks; and land use changes arising from harvesting corn stover and other residues.

Southeast Wood residues/woody biomass A 10-year study in North Dakota aims to determine what types of grasses can sustain the state’s soil and climate conditions and yield the most biomass, and to evaluate production, carbon sequestration, economics and longevity of perennial forages in western and central North Dakota.

Entities involved in the project include the North Dakota State University Central Grasslands Resource Extension Center, the North Dakota Game and Fish Department, and the state’s commerce department and Department of Agribusiness and Applied Economics. Researchers hope that by in-

creasing yields and harvesting biannually, growing the grasses will become an economical option.

Being the nation’s agriculture belt, it isn’t surprising that a recent study by the NREL found that when taking into account crop residue left for soil protection and animal feed and bedding, there is close to 600,000 dry tons of crop residues available for other uses on an annual basis just in Iowa, Minnesota and Illinois.

Many projects are still investigating the effects of utilizing crop residue for fuel applications. In September, Iowa State Univer-

Many projects in the Southeast plan to utilize fast-growing woody biomass, which is highly abundant and accessible in that region partially because of its long-distance transportation costs. According to NREL, transporting forest-derived biomass can cost between 20 cents and 60 cents per dry ton per mile.

According to the Georgia Forestry Association, Georgia has 23.8 million acres of commercial forest land, more than any other state. Cellulosic ethanol developer Range Fuels Inc. will bring its first commercialscale facility online next year in Soperton,

FEEDSTOCK

Ga., and will utilize wood waste and residue from nearby timber operations. Patrick Wright, competitive analysis director of Range Fuels, says phase one of the Soperton plant is scheduled to begin production in the second quarter of 2010, running at a rate of less than 10 MMgy of cellulosic biofuels annually.

Another company planning a wood-toethanol project in the Southeast is Coskata Inc., although it’s semi-commercial scale cellulosic ethanol plant is located near Madison, Pa. An exact location for the plant hasn’t been disclosed, but Coskata CEO Bill Roe says the Southeast region has been selected because it is rich with woody biomass, much of which is available due to downturns in the housing and pulp and paper market markets.

Besides wood-derived biomass, perennial grasses such as switchgrass and miscanthus are also promising feedstock options for the Southeast, says Anelia Milbrandt, NREL senior resource analyst, and developer of the EPA/NREL biopower mapping application.

Northeast Wood residues/ fast-growing woody biomass A report by the Coalition of Northeastern Governors Policy Research Center Inc. indicated that the 11 states in the

Northeast could produce 2.73 billion gallons of ethanol per year using available cellulosic feedstocks, namely wood waste, mill residues and corn stover.

Wood residues/woody biomass is in high abundance, especially in Pennsylvania, which boasts 17 million acres of forestland.

The Northeast Regional Biomass Program estimates that more than 7 million tons of forest residues are available annually as a biomass resource, and more than 5 million tons of primary mill waste.

Though no commercial-scale cellulosic ethanol projects are planned for the region, a few semi-commercial or demonstration scale plants are in the works or are completed — including Coskata’s, and Mascoma Corp.'s facility in Rome, N.Y., both of which utilize wood chips as a feedstock.

Though woody biomass is plentiful in the region, some groups are concerned with proper harvesting of the material, including Pennsylvania’s Department of Conservation and Natural Resources, which last year released a 50-page document containing guidelines for harvesting woody biomass for alternative energy sources.

Willow and poplar trees, which grow faster than other trees and grow well in cold-weather states, are also promising cellulosic feedstock options in the Northeast, according to Mildbrandt.

Southwest Algae/municipal solid waste The Southwest is certainly viewed as a place to grow algae, though generally speaking, all southern states (with warmer, wetter climates) are suitable for algae farming, Milbrandt says.

Utah-based Genifuel, which is partnered with the DOE’s Pacific Northwest National Laboratory, is working toward growing aquatic biomass in what the company has labeled Genifarms, or outdoor ponds. CEO Jim Oyler says Genifuel’s aquatic species can grow anywhere, in any climate, but to achieve the best and cheapest growth, consideration of cost-related economics is critical when choosing where to grow the biomass. “You’d actually like a warm, humid climate with relatively easy access to water supplies, so it probably is not optimum to grow aquatic biomass in the Northern U.S. or Canada; it’s more optimum in the Southern U.S.,” he says.

BlueFire Ethanol Inc. project is taking advantage of one of California’s largest biomass resources—municipal solid waste—through a DOE-funded project in Lancaster.

The company has completed a 20-month licensing process and is currently awaiting the final financing needed to break ground on its fully permitted facility, which will use post-sorted cellulosic wastes di-

FEEDSTOCK

verted from southern California landfills to produce approximately 3.9 MMgy of ethanol.

According to the DOE, there are currently hundreds of landfills in the Southwest without renewable energy projects.

Northwest Fast-growing woody biomass/wood residuals Fast-growing woody biomass, particularly hybrid poplar trees, is a focus in the Northwest. Poplar’s quick water transpiration rates make the rainy Northwest an ideal place to grow plantations, especially in Washington and Oregon.

The Oregon Department of Energy says there are more than 34,000 acres of hybrid poplar trees growing on plantations in Oregon. According to research performed at Washington State University, a 950-acre poplar field could yield 1 million gallons of ethanol per year.

Colorado-based Zeachem is currently constructing a DOE-funded 1.5 MMgy cellulosic ethanol demonstration facility in Boardman, Ore., using poplar trees and wood chips as a feedstock. The company has an agreement with GreenWood Resources, which operates a 23,000-acre poplar tree farm near Boardman, for the supply of poplar feedstock.

Woody biomass/residuals are also an attractive option in the Northwest.

The DOE estimates about 9.8 million dry tons of woody biomass is available annually in Oregon alone. According to a Washington State University study, Washington has an annual production of more than 18 million tons of underutilized wood waste biomass.

next 5 to10 years, with perennial grasses/ fast growing woody crops coming online during that period.”

Milbrandt says she expects wood residues (forest and primary mill) to continue to be the primary biomass sources in the Northwest, Northeast and Southeast over the next 5-10 years, combining with fast growing woody crops coming online in the Northwest and Northeast and a mixture of perennial grasses and fast-growing woody crops in the Southeast. “Generally, I expect crop and wood residues to continue to be

the main cellulosic ethanol feedstock in the near future, and dedicated energy crops and algae developing in a long term,” she says.

Regarding the hurdles in developing regional cellulosic biomass markets, Milbrandt says reliability of feedstock supply and lack of policy drivers will be among the main challenges. EP Anna Austin is an associate editor at BBI International. Reach her at (701) 738-4968 or aaustin@bbiinternational.com.

Feedstock Forecast “It’s hard to say what the ‘big’ ethanol feedstock will be,” Milbrandt says.

“At a national level, crop residues have been dominant over the last 10 years and are expected to hold their place. Regionally, I expect them to continue to be the main feedstock in the Midwest over the

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A Flood of Funding

Although it seems that the American economy may be on the road to recovery, lending markets are still tight. In the absence of traditional forms of financing, a variety of federal funding options may assist ethanol producers in moving their projects forward.

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December 2009

81

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n many ways, 2009 was a year in which unprecedented federal funding began to flow into all sectors of the U.S. economy.

And, while a great deal of attention was focused on the funding initiatives included in the American Recovery and Reinvestment Act, 2009 also marked the commencement of the energy provisions of the 2008 Farm Bill.

In early May, President Barack Obama directed the USDA to expedite the biofuels provisions included under the energy title of the 2008 Farm Bill.

While the USDA did meet its 30-day directive and began to award funding under some of these programs during the second half of the year, the bulk of the funding assigned will be awarded over the next several fiscal years.

Although a wide variety of these funding programs are applicable to those in the ethanol industry, many are oversubscribed. For this reason, it is important that potential applicants effectively match their project to the appropriate source of funding and work diligently to complete the application process in order to increase the chance of receiving an award.

Getting the Right People Involved John Eustermann and Debra Frimerman, attorneys with Stoel Rives LLP, who have extensive experience with federal funding, programs, advise their clients to bring in third-party experts during the initial stages of the application process for federal grant and loan guarantee programs.

“Obviously, as lawyers, we like [our clients] to contact us early when considering a project,” Frimerman says. When a client first approaches her with a project for which he or she wants to seek federal funding Frimerman says she is able to provide that client with a list of federal funding programs for which they may be eligible.

Law firms such as Stoel Rives are also able to help clients assess staffing needs in order to determine whether they have the ability, expertise and man-

power needed to complete an application in-house, or if it is more appropriate to bring in a third-party consultant or grant writer. “I think getting Debra Frimerman the right people in- attorney, volved early makes Stoel Rives LLP sense,” Frimerman says. “It doesn’t make it any more expensive. In fact, it may save you money.” Involving the correct people from the beginning makes it less likely that a potential applicant wastes time John Eustermann and money apply- attorney, ing for a program Stoel Rives LLP that cannot be used to fund a project.

Eustermann agrees that a certain amount of expertise is helpful in navigating the application process. One significant benefit of adding experts to your application team is that these professionals often have an open line of communication with those who are administering the federal funding programs. “We talk to those people–and try to talk to them regularly,” Eustermann continues. This regular communication makes it easier to more accurately gauge which types of projects are likely to be awarded funding under a particular funding program.

In addition to legal expertise, it may also be appropriate to bring in a grant writer to assist with data compilation. “A lot of times, when you are working to develop a project, it can be a bit disruptive to pull people out of your staff to have them work on applying for a new grant,” Eustermann says. This is especially true of small start-up companies, where those staff members may already be working on vital off-take or action agreements. Meeting with a third party to lay out expectations and cost estimates is a good move for anyone

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It is important that potential applicants effectively match their project to the appropriate source of funding and work diligently to complete the application process in order to increase the chance of receiving an award.

looking to apply for a federal funding program, Eustermann says. “Then you can make a solid business decision as to whether you are going to employ those folks to assist you,” he continues.

“It’s also nice to have an objective third party to help ask questions– sometimes the tough questions–and help that dialog to get the right information into the application,” Frimerman says. These third-party individuals can often be better at assessing exactly how a particular project fits the requirements of the program and how the different elements of that project should be presented in the application.

Grants Versus Loan Guarantees The energy provisions of the 2008 Farm Bill include both loan guarantee programs and competitive grant programs. According to Eustermann and Frimerman, there can be different considerations that need to be made during the application process for each type of funding program.

From a grant perspective, you need to evaluate the likelihood of being awarded that grant, Eustermann says. Although grant funding generally does not need to be paid back, the application process can often be time-consuming and expensive. PoETHANOL PRODUCER MAGAZINE

tential applicants really need to look at their proposed project to see if it’s a good fit for a specific program before beginning the application process, he continues.

One way to do this is to look at prior solicitations for a particular program and what types of projects resulted in a funding award. In the event funds are being awarded for the first time under a new program, it can also be possible to search for similar programs that existed in the past.

“You can try to do a sort of applesto-apples analysis to find out if you are even eligible,” Eustermann says.

“If so, then it’s also a matter of doing a cost/benefit analysis of the costs associated for applying for a grant relative to the benefits of the grant–if you get it.” This includes asking yourself if it’s necessary to get the grant, or if you are just applying to ease cash flow burdens. “You need to make sure that as you layer up financing on your project, that you can justify why each layer is involved,” Eustermann adds.

“People also need to look at where they are in their project, what they need, what’s really feasible, and be realistic about whether they fit into [a specific] program,” Frimerman says.

“A lot of these programs have been very oversubscribed.” This makes it even more important that applicants are realistic about how their project fits into a funding program, and if it’s worth the time and expense to apply.

In the arena of loan guarantee programs, Eustermann says that most of his assistance has been in the form of preliminary work, such as reviewing application materials. “Essentially, evaluating what we think of [a client] applying as part of a mix to their overall strategy in bringing a project online.”

When considering applying for a loan guarantee program, or any sort of federal funding, Eustermann says it’s important that potential applicants understand that a project needs to “pencil out” any sort of loan guarantee or grant. This means the applicant

December 2009

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2008 Farm Bill Programs Title IX of the 2008 Farm Bill included a variety of energy provisions that can benefit those in the ethanol industry, as well as their feedstock suppliers. While many of these programs began to award funding in 2009, the bulk of the funding is currently scheduled to be distributed over the next several years.

The Biorefinery Assistance Program is designed to provide loan guarantees for the development, construction and retrofitting of commercial-scale biorefineries as well as for grants to help pay for the development and construction costs of demonstration-scale biorefineries. According to Bill Hagy, USDA’s special assistant and director of renewable energy policy, the program is intended to provide loan guarantee programs that support first-of-its-kind, viable, commercial-scale technologies. Unlike other federal loan guarantee programs, the technology does not have to be proven on a commercial scale. It does, however, have to be piloted and demonstrated over a period of time in order to show viability at a commercial scale. According to information provided by the USDA, the program provides $75 million in fiscal year (FY) 2009 and $245 million in FY 2010 for commercial-scale biorefinery loan guarantees. The Farm Bill also authorizes $150 million per year starting in FY 2009 continuing through FY 2012 for both demonstration- and commercial-scale biorefineries.

The Repowering Assistance program provides payments to biorefineries that existed prior to the passage of the 2008 Farm Bill to replace fossil fuels used to provide heat or power for the facility with biomass sources of power. The bill provides $35 million in funding for FY 2009 that will remain until the funds are exhausted. The bill also authorized additional funding of $15 million per year, from FY 2009 through FY 2012. According to Hagy, $20 million of the $35 million will be awarded through a notice of funding availability that was issued in 2009. The program is a competitive grant program and has received a great deal of interest.

The Rural Energy for America Program is an expansion of an existing program. The program consists of grants, loan guarantees and a combination of the two types of funding that can be used by rural small businesses to conduct energy audits, feasibility studies and make energy efficiency improvements.

Hagy says some ethanol facilities have received financing through this program.

Eligible applicants must be considered a small business under the Small Business Administration’s definition and must be lo-

cated in an area that meets the statutory definition of a rural area. The bill provides $55 million for FY 2009, $60 million for FY 2010 and $70 million for FYs 2011 and 2012. The bill also authorized additional funds of $25 million per year from FY 2009 through 2012.

The Biomass Research and Development Initiative provides competitive grants, contracts and financial assistance to entities to carry out research, development and demonstration activities for biofuels and biobased products. The program is administered jointly by the USDA and U.S. DOE. The program was provided with $20 million in FY 2009; $28 million in FY 2010; $30 million in FY 2011 and $40 million in FY 2012. There is also a funding authorization of $35 million per year from FY 2009 through 2012. According to Hagy, there is a huge need and demand for the program, which makes it very over-subscribed. Approximately 900 entities submitted applications in 2009, however, only about 20 applicants will receive awards.

The Biomass Crop Assistance Program isn’t directly applicable to ethanol producers, but their feedstock suppliers may benefit from the program. BCAP provides support to farmers to establish and produce crops for conversion into bioenergy or biofuels. This includes help with collection, harvest, storage and transportation of eligible materials for use in a biomass conversion facility. In order to be eligible, feedstock suppliers must have a contract in place with a bioconversion facility. Funding has already begun to be awarded for the collection, transportation and storage of eligible feedstocks. The second portion of the program, aimed at offsetting the costs of cultivating biomass crops, is currently in the process of being implemented.

The Forest Biomass for Energy Program authorizes the U.S. Forest Service to conduct a comprehensive research and development program to use forest biomass for energy. Although private entities are eligible to compete for funds, Hagy says no funding has been appropriated to the program to date.

The Bioenergy Program for Advanced Biofuels also provides payments to eligible agricultural producers to support an expanding production of advanced biofuels. The bill provides $55 million in FYs 2009 and 2010, $85 million in FY 2011, and $105 million in FY 2012.

An additional $25 million per year from FY 2009 through 2012 are also available for the program.

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needs to estimate whether a proposed project will be profitable, even in the absence of federal funding. “I think it’s important for clients to run several scenarios; one without any sort of incentives … and then several other scenarios that lay out, based on probability, if they are awarded a grant, loan guarantee or whatnot,” he continues. He stresses that it is not a wise idea to create a project model that banks on getting any form of federal funding.

Frimerman notes that part of the criteria of loan guarantee programs is that the project must be expected to be profitable enough to pay back the loan.

“The loan guarantee isn’t free money from the government,” she says. “They are making it financeable.”

In a loan guarantee program, the federal government is essentially cosigning a loan. “The guarantee certainly makes the [financer] and the project more comfortable, but overall, it doesn’t necessarily change the metric so much,” Eustermann says. “In simple terms, the project has to pencil. It has got to be a workable model, like you would have worked it 10 years ago, or like you would work it 10 years in the future.”

Although there are many potential benefits of a loan guarantee program, including the likelihood that the borrower can secure a lower interest rate, there may also be more restrictions that must be met when compared to traditional forms of financing. These potential benefits and challenges must be considered before the application process begins.

Application Mistakes Frimerman says that a common application mistake she sees is when entities try to pursue funding before they are really ready. “People have been–and are–eager to apply for these programs right now,” she says. “However, they may just not be ready for the loan guarantee. You need to be ready to go get financing, just like you would be ready to get debt financing from a bank.” Al-

though many people may be eager to meet submission deadlines, they may not have a project that is developed to the point it would qualify. “It’s better, I think, to wait to be ready for that, and make one good go at it as opposed to going through all the expense and time required to complete an application when you really just need to wait a bit longer.”

“It’s not like there are a ton of banks out there that are lending money at this point,” Eustermann says. “So, [potential applicants] tend to get a little bit out over their skis … and want to start work on the application when they may not be fully ready.” This can be problematic because it will be much more difficult to find a primary lender that agrees to provide a loan for the project, and that lender needs to be onboard before the application is filed.

Frimerman also says she commonly sees confusion over application deadlines for the 2008 Farm Bill energy programs. “One thing people are getting confused about is that there needs to be an open solicitation to apply,” she says.

However, the deadlines also tend to be rather tight. “People need to keep their eyes out, because they are quick deadlines,” Frimerman says. “If somebody knows that they want to apply for a program, they should look at last year’s solicitation and try to gather the necessary materials so they can be ready.”

To do it right, Eustermann cautions that compiling the paperwork and necessary materials takes a minimum of about 100 hours of work. It’s also a good idea to study instructions that were included in a prior solicitation and compile your data and information accordingly, he says. Although there may be minor changes in application requirements year-to-year, the basic information required of applicants is likely to be similar. EP Erin Voegele is an Ethanol Producer Magazine associate editor. Reach her at evoegele@bbiinternational.com or (701) 373-8040.

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December 2009

85

FINANCE. BY ADAM THIMMESCH AND LISA PUGH Contribution

IRS May Lengthen Depreciation Schedule for Ethanol Plants—But Relief is Possible The Internal Revenue Service may rule that taxpayers lengthen the term of depreciation on first-and second-generation ethanol plants, and understanding the proposal will be key for the industry.

T

he Internal Revenue Service issued a proposed revenue ruling earlier this year under which taxpayers will be required to depreciate ethanol plant property over seven years, rather than five.

This change will have a negative financial impact on ethanol producers that do not place their plants in service prior to the effective date of the final revenue ruling—which, as of today, is unknown.

Producers who build cellulosic biomass ethanol plants however, maybe able to take advantage of a federal bo-

nus depreciation allowance that would mitigate the financial impact of the IRS’ proposal.

The financial impact of this bonus depreciation allowance is materially greater than the impact of the lengthened depreciation schedule. Producers eligible for the bonus-depreciation allowance should continue to focus on ensuring that they qualify for that benefit.

Requirements

Lisa Pugh partner, Faegre & Benson LLP

Adam Thimmesch associate, Faegre & Benson LLP

On Aug. 24, the IRS issued Notice 2009-64, which provides a proposed rev-

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

86

ETHANOL PRODUCER MAGAZINE

December 2009

Table 1

Post revenue ruling depreciation schedules ($75M plant, 5% Discount Rate, Mid-Year Convention, 40% Tax Rate) 5- Year Schedule

7-year Schedule

Year 1

$15,000,000

$10,717,500

Year 2

$24,000,000

$18,367,500

Year 3

$14,400,000

$13,117,500

Year 4

$8,640,000

$9,367,500

Year 5

$8,640,000

$6,697,500

Year 6

$4,320,000

$6,690,000

Year 7

$0

$6,697,500

Year 8

$0

$3,345,000

Total Depreciation $75,000,000

$75,000,000

Present Value of Deductions $68,874,907

$66,327,162

Present Value of Tax Benefit $27,549,963 Net Loss

$26,530,865

$ 1,019,098 (3.7%)

enue ruling regarding the depreciation of ethanol plants. Under this proposed ruling, the IRS would require taxpayers to depreciate tangible property used in converting corn to fuel grade ethanol over seven years.

The IRS has indicated this ruling will be prospective only—and will apply only to ethanol plants placed in

ETHANOL PRODUCER MAGAZINE

service after the final revenue ruling is published. Comments on the proposed ruling were accepted by the IRS until Nov. 23. The date of the final revenue ruling is unknown.

Depreciable Life of Ethanol Plants Extended Historically, producers have depreciated ethanol plant assets over five years. This ruling would thus extend the life of those assets and generally reduce yearly deductions granted to taxpayers. This could have a significant financial impact on producers whose ethanol plants are not placed in service prior to the effective date of the final revenue ruling. (Under terms of the proposed revenue ruling, producers currently depreciating ethanol plant property over five years will not be affected.)

This lengthened depreciation schedule will have a very real impact on producers that place ethanol plants in service after the proposed revenue ruling is finalized. For a $75 million facility, this would cost a producer over $1 million in present dollars (assuming

December 2009

Table 2

Pre-revenue ruling depreciation schedule Five- Year Schedule

Year 1

$45,000,000

Year 2

$12,000,000

Year 3

$7,200,000

Year 4

$4,320,000

Year 5

$4,320,000

Year 6

$2,160,000

Year 7

$0

Year 8

$0

Total Depreciation

$75,000,000

Present Value of Deductions

$71,937,453

Present Value of Tax Benefit

$28,774,981

Net Loss $509,549 (1.77%)

a 5 percent discount rate and a 40 percent tax rate). See Table 1, (all illustrations assume double-declining balance and mid-year conventions). This loss represents a 3.7 percent reduction in the tax benefits realized from the depreciation deductions. (At a 3 percent discount rate, producers would see a 2.3 percent reduction in tax benefits.

At a 7 percent discount rate, this re-

87

FINANCE. duction would climb to 4.97 percent.)

Producers should be aware of this potential negative financial impact and adjust their construction timelines or financial projections accordingly.

Special Considerations for Cellulosic Ethanol Producers The IRS’ proposed revenue ruling is specifically directed toward “the depreciation of tangible assets that are used in converting corn to fuel grade ethanol.” It is thus not technically di-

rected at ethanol plants that use cellulosic biomass materials rather than corn. It appears reasonable to assume, however, that the IRS will apply this ruling equally to those plants as well.

The proposed ruling is based on the IRS’ classification of the ethanol plant property as property “used in the conversion of refuse or other solid waste or biomass to heat or to a solid, liquid, or gaseous fuel.” This classification appears to encompass ethanol produced from cellulosic biomass to the same ex-

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New IRS Rules Q&A Q: Who do the new rules affect?

A: Producers who are currently constructing, or considering constructing, an ethanol plant.

Q: What do the new rules do?

A: The proposed revenue ruling lengthens the recovery period for ethanol-plant property, which reduces the value of the available depreciation deductions.

Q: How can producers limit the financial impact of these new rules?

A: Producers who place their facilities in service before the effective date of the ruling will not be impacted by the lengthened depreciation period. In addition, producers who qualify for the 50 percent bonus depreciation allowed for certain cellulosic ethanol plants placed in service prior to Jan. 1, 2013, can significantly mitigate the financial impact of this revenue ruling. fb.us.4371957.04

tent that it encompasses ethanol produced from corn. Cellulosic biomass plants, however, may not face the full brunt of this change due to federal bonus depreciation that may be available for those plants.

The potential negative financial impact of the proposed ruling may be mitigated for cellulosic biomass ethanol plants placed in service prior to Jan. 1, 2013. In 2006, Congress adopted a bonus-depreciation provision under which producers who place such plants in service prior to Jan. 1, 2013, may be allowed to depreciate the plant 50 percent in the first year if the property was acquired by purchase after Dec. 20, 2006, (and no written binding contract for the acquisition of that property was in effect on or before that date). This bonus depreciation is granted in addition to the normal depreciation allowed in the first year.

This bonus-depreciation provision significantly frontloads the depreciaETHANOL PRODUCER MAGAZINE

December 2009

Bonus Depreciation Allowed

No Bonus Depreciation Allowed

Bonus Depreciation Allowed

No Bonus Depreciation Allowed

$42,858,750 $9,183,750 $6,558,750 $4,683,750 $3,348,750 $3,345,000 $3,348,750 $1,672,500

$10,717,500 $18,367,500 $13,117,500 $9,367,500 $6,697,500 $6,690,000 $6,697,500 $3,345,000

$45,000,000 $12,000,000 $7,200,000 $4,320,000 $4,320,000 $2,160,000 $0 $0 $0 $0

$15,000,000 $24,000,000 $14,400,000 $8,640,000 $8,640,000 $4,320,000

$75,000,000

$75,000,000

lion facility would be more than $1.7 million, which is more than three times the $509,549 cost (shown in Table 2,) of moving to the seven-year depreciation schedule from the five-year schedule and is more than 6 percent of the tax benefit that would have been realized if the facility had qualified for the bonus depreciation (again, assuming a 5 percent discount rate). Under the five-year depreciation schedule, the cost to a producer of failing to qualify for the bonus depreciation would have been “only” 4.3 percent. The proposed revenue ruling thus increases the cost of failing to qualify for the bonus depreciation by roughly 40 percent (from 4.3 percent to 6 percent). On a $75 million facility, this represents a loss of more than $500,000.

$71,937,453

$68,874,906.62

What Can Producers Do?

$28,774,981

$27,549,963

Table 3

Depreciation schedules with and without bonus allowances (for plants in service prior to Jan. 1, 2013)

7-Year Schedule

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

5-Year Schedule

Total Depreciation $75,000,000 $75,000,000 Present Value of Deductions $70,663,581 $66,327,162 Present Value of Tax Benefit $28,265,432 $26,530,865 Net Loss

$1,734,567 (6%)

$1,225,018 (4.3%)

tion allowances and thus mitigates the effect of depreciating the remainder of the plant over the new, extended period. The effect is to reduce the cost of moving from the five-year depreciation schedule to the seven-year depreciation schedule by 50 percent. (Because 50 percent of the cost is depreciation in the first year, the time-value effect of the elongated depreciation schedule is reduced by half.) The net loss on the hypothetical $75 million facility is thus reduced to $509,549. Table 2 illustrates this effect.

Producers who have already factored the bonus-depreciation allowance into financial projections for a project will take no small comfort in the allowance’s mitigating effect on the cost of the extended depreciation schedule. As Table 2 shows, the proposed revenue ruling still imposes a 1.77 percent loss of the anticipated tax benefits from the depreciation deductions. Even at a 3 percent discount rate (rather than the 5 percent rate used above), the extendETHANOL PRODUCER MAGAZINE

ed depreciation schedule will cause a 1.13 percent loss of tax benefits—or $329,344 on a $75 million facility.

The cost of losing bonus depreciation outweighs the cost of an extended depreciation schedule.

Unfortunately, the mitigating effect of the bonus-depreciation provision is temporary. The current provision applies only to facilities placed in service prior to Jan. 1, 2013. After that date, producers would be required to use the seven-year depreciation schedule without the offsetting effect of the bonus depreciation (unless, of course, Congress extends the bonus-depreciation provision or implements a new program with similar results).

Given the great benefit of the bonus-depreciation allowance, it should not be surprising that the costs to a producer of failing to qualifying for that benefit outweigh the costs of the proposed revenue ruling. As Table 3 shows, the cost of losing the bonusdepreciation allowance on a $75 mil-

December 2009

Producers who are currently constructing, or considering constructing, an ethanol plant will be affected by the IRS’s proposed revenue ruling.

To mitigate or control the costs of this proposed ruling, producers should consider adding or modifying timing incentives to their construction contracts to ensure facilities are placed in service prior to the relevant dates (either before the effective date of the final ruling, if possible, or before the bonus depreciation allowance expires, if applicable). The increased cost of failure to meet these dates may warrant adjustment of any incentive already offered.

Producers should also focus on the availability of the bonus-depreciation allowance and consider lobbying—or joining industry groups that to lobby—Congress to extend or expand this provision. EP Lisa Pugh is a partner with international law firm Faegre & Benson LLP as a member of its tax practice. Reach her at LPugh@ faegre.com.

Adam Thimmesch is an associate with international law firm Faegre & Benson LLP as a member of its tax practice. Reach him at AThimmesch@faegre.com.

89

TECHNOLOGY. BY ALAN BURTON Contribution

Marine Terminal Selects Advanced Tank Coatings A state-of-the-art tank storage farm will utilize advanced tank coating technology to keep its expansion project on the fast-track. In the process, efficiency will improve and capital investments will be protected long term.

I

n 2007, a two-year, multi-million dollar marine terminal expansion project at the Port of Wilmington, Del., was launched in an effort to provide more than 1 million barrels of additional storage space for gasoline and ethanol products used by one of the terminal’s long-time lease customers.

The marine terminal already had the capability of storing and distributing heating oil, ultra-low sulfur diesel, heavy fuel oil and marine diesel oil. However, to accom-

modate the lease customer’s storage needs for gasoline and ethanol fuels, three of the existing tanks at the facility would have to be converted from heating oil to gasoline and ethanol service. This required that specially formulated tank linings be installed to handle the new fuels, while also meeting local Department of Environmental Protection and U.S. EPA requirements. The expansion project would also include the construction of 11 new tanks with related terminal infrastructure, the upgrade of an existing truck

rack to handle the new fuel products, and the installation of a marine vapor combustor to an existing dock that will allow the terminal to transfer gasoline and blendstock to and from barges and ships. Marine terminal workers will combine the gasoline and ethanol fuels as they load the lease customer’s trucks, creating an E10 fuel blend.

During the project’s bid process, representatives from International Paint Protective Coatings were invited to make a presentation to the project’s owners and en-

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

90

ETHANOL PRODUCER MAGAZINE

December 2009

gineering staff to introduce two innovative coating technologies, which were developed for the construction and maintenance of tanks in oil and gas environments―and specially designed to help speed construction schedules, minimize environmental impact and extend maintenance life cycles.

The first coating technology presented was Interplate 937, a heat-resistant, zincrich, preconstruction primer that allows the coating to be spray-applied to blasted steel in a controlled fabrication shop environment prior to field construction. This highly durable primer can withstand temperatures of up to 1,472 degrees Fahrenheit and provides excellent abrasion-resistance during speed-welding and cutting, with minimal output of zinc salts. Water soluble zinc salts can be especially troublesome, because as the moisture vapor ions penetrate the coating, they are drawn to the soluble salts and form into a water molecule. As this process repeats itself, a water blister develops and the top coats become blistered or completely detached from the steel beneath.

The terminal’s owners were especially interested in this coating option not only because of its advanced corrosion protection properties, but also because it would

significantly reduce the time and labor costs associated with full open blasting and priming of the tanks onsite, while helping to prevent unnecessary damage from overspray to the new cars being unloaded from ships at the Port of Wilmington and stored near the marine terminal’s fence line.

The second technology presented was a mildew-resistant version of Interthane 990UHS, a low volatile organic compound (VOC), acrylic polyurethane topcoat specially formulated for steel tanks that store ethanol, as well as pipes and other exposed steel structures in highly corrosive oil and gas environments. The process of producing ethanol from corn includes the use of micro-organisms or “bugs,” in the form of yeasts and molds. These bugs eventually turn into the unsightly black mildew that commonly appears on ethanol tanks.

Using the patented mildew-resistant technology will not only help maintain a clean white appearance on the tanks, but its excellent gloss retention capabilities will help terminal owners extend the cleaning and maintenance cycle of the tanks and piping long-term.

These unique, time- and cost-saving technologies finally convinced the owners

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and project engineers to specify the coatings for the marine terminal expansion project. Application of the preconstruction primer began at the plate fabricator’s facility in February 2008, using the Redi-Plate system., a fabrication process ensures each plate is prepared and coated to the highest industry standards, meeting ISO 9001 “best practice” manufacturing plant procedures.

After all contaminants such as chlorides, oil, grease and other foreign matter were removed from the large steel plates; they were abrasive cleaned according to the joint Near-White Blast Cleaning specification of The Society of Protective Coatings and National Association of Corrosion Engineers (SSPC SP 10 / NACE No. 2), in order to produce a sharp, dense surface profile of 1.5 mils to 2.5 mils. The surface profile was carefully measured using the ASTM D 4417 test method and then preheated to 110 F to detect any major steel defects.

The preconstruction primer was applied by computer-controlled spray application equipment to ensure a closed, dry film thickness of 0.6 mils to 0.8 mils. Dry film thickness was continuously monitored and verified using polyester plastic control panels, which are temporarily attached to

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TECHNOLOGY. the plate during processing. The completed plate was visually inspected for any surface anomalies and then marked with a batch number to ensure traceability.

This unique fabrication process, in tandem with the performance capability of the preconstruction primer, can provide up to six months of protection against corrosion due to weather exposure, as well as any physical damage to the coated steel plates during transportation to the construction site.

After the steel plates were primed and formed to design specification, they were shipped to the marine terminal for erection by the general contractor. Paint crews then roll-applied Interseal 670 HS, a low VOC, high build, high solids surface tolerant epoxy coating to provide additional corrosion protection for the new tanks. Unlike most epoxy coatings that cannot cure in temperatures lower than 50 F, this versatile

intermediate maintenance coating has excellent wetting properties and is formulated for rapid cure in temperatures as low as 23 F, thereby allowing construction schedules to stay on track during seasonal weather changes. Another advantage of Interseal 670 is that it does not require that an accelerator be added to the coating to achieve the low-temperature cure capability, thus eliminating the risk of yellowing and embrittleing commonly experienced with accelerator additives. The final step in the exterior tank coating system was the roll-application of the mildew-resistant polyurethane.

The interiors of the 11 new tanks and three converted ethanol tanks were sprayapplied with Interline 984, a solvent-free corrosion-resistant, epoxy phenolic-based lining. This heavy-duty, 100 percent solids lining is capable of being used as either a single-coat unreinforced system, or in conjunction with fiberglass to form a glass-

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92

reinforced laminate system. The lining is specially formulated with fast-acting chemical-resistant properties, which help extend the maintenance schedule for re-coating. In addition, the coated interiors can be rapidly returned to service in as little as 24 hours, thereby significantly reducing production downtime.

More than 9,000 gallons of paint will be used to coat the interior and exteriors of the new and existing tanks, terminal piping, vapor combustion unit and fire suppression foam system. Another 1,000 gallons will be used to coat 150,000 square-feet of piping for the new marine dock facility and truck loading rack.

By using the innovative tank coatings system for the expansion project, marine terminal owners were able to net significant savings in labor costs through automated surface preparation and shop application of the primer prior to construction. Not only did this put them ahead of their construction schedule, but it will add years of additional savings in maintenance costs by including the low-temperature, rapid-cure epoxy intermediate coating and mildewresistant polyurethane topcoat to the mix.

The expansion project is slated for completion in late 2009, making it the most modern gasoline distribution facility in the Philadelphia area.

As the oil and gas industry continues to expand its production, storage and distribution capabilities, owners will increasingly look to their supplier relationships for new technology solutions that help them protect their capital investments, control construction costs, and extend the maintenance lifecycle of existing assets. EP Alan Burton is the RUSA Oil & Gas Market Manager at International Paint Protective Coatings. Reach him at www.alan.burton@ akzonobel.com.

ETHANOL PRODUCER MAGAZINE

December 2009

TRENDS. BY DOUG HAUGH Contribution

Ethanol Production Trends 2010 The ethanol industry has weathered a stormy 2009 and is looking forward to a little more sunshine in 2010. Analyzing leading market trends today may help producers improve their bottom line next year.

L

ooking ahead, 2010 poses many challenges for the ethanol industry. The past few years have been volatile, to say the least, yet this industry has endured. In order to insure profitability and raise overall productivity, here are a few things those in the ethanol industry should consider.

Lower Your Carbon Footprint All ethanol production is no longer created equal. Several states have rules on the books to require a lower carbon fuel standard (LCFS) than the national renewable fuels standard.

California going from E5.7 to E10 on Jan. 1, represents a market of 1.2 billion gallons of

To move with ethanol that requires that market, in a lower carbon fuel 2010 we’ll see more standard than other plants: states.

Move from California won’t distillers dried be alone in setting grains to wet distougher limits, and Doug Haugh tillers grains (saving like so many trends executive vice in emissions and president and CIO, one-third of the cost) sustainable business Mansfield Oil Replace practices, what starts natural gas with rein California inevitably washes east to the rest newable biomass. (Biomass is of us. Nor is the U.S. alone; carbon neutral—natural gas is Canada is seeing similar moves not.)

Overall, this will produce with British Columbia working on lower carbon fuel legisla- greater energy per Btu contion with updates expected in sumed, and result in a reduced the next few months. All this carbon footprint.

Farmer-owned Siouxland indicates the door is wide open to new markets for plants that Energy and Livestock Coopcan produce to a more carbon erative in Sioux Center, Iowa, is a case in point. What started efficient standard.

out as a 15 MMgy plant grew, and now produces at 70 MMgy. The plant never included a dryer, which from a carbon footprint position, means sustainable plant production that will see value either from qualifying for more renewable identification numbers (RINs) or selling at a premium into LCFS markets, or perhaps both.

“A lot of Midwestern farmers resorted to drying beans last harvest because it was so wet in the Midwest,” says Bernie Punt, general manager of SELC. To take grain moisture down for a dry distillery, Midwest farmers saw costs hover around 70 cents per bushel. Punt’s facility has a bunker about the size of three football fields and processes corn from local farmers

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

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ETHANOL PRODUCER MAGAZINE

December 2009

at high moisture, which saves almost onethird the processing cost, he says.

Cleaner Fuel Facilities Cash In Destilmex S.A. de C.V., a Mexican ethanol facility owned and operated by Zucarmex S.A. de C.V., in Navolato, Sinaloa, is among the trend-setting businesses positioning themselves to be clean fuel facilities.

Normal fuel facilities get one RIN per gallon of ethanol. But reducing a company’s dependence on fossil fuels, will facilitate generating more than one RIN per gallon of ethanol, thanks to its “clean fuel facility” status with the EPA. To achieve this standard, last fall Destilmex tore out its fossil fuel boiler and put in a fluid bed boiler.

“If you are certified by the EPA as a clean fuel plant, the payback can be fast and furious at two RINs per gallon,” says Jon Bjornstad, president of C&N, Ethanol Marketing Corp. marketer representing more than 15 plants and 650 MMgy of ethanol and biodiesel production. To illustrate his point, in 2009, RINs averaged 10 cents per gallon. Forty million gallons times 10 cents per gallon times 2, equals $8 million in value that will be reflected in the premium price the product receives in the market.

Deepen Ties to Local Community Becoming more local means more money for most plants, which immediately saves in a host of significant costs, including transportation.

This strategy has paid big dividends for the SELC. According to Punt, “We’re a very local plant. We have higher grain yields, have livestock close by and use livestock waste for fertilizer—it all works together and we extract maximum value for everyone.”

According to Bjornstad, “If you can develop the local market for your distillers grains, haul them to the feedlot and feed the animals, and not have to dry them, then your plant can sell the largest coproduct for significantly more margin. If you can also integrate that with a nearby market for manure as a boiler feedstock, even better. Auditors are going to look at the whole picture for each plant, and see how each facility fits into its landscape to figure out the total carbon picture.”

Smart producers, he says, are localizing and thus improving their carbon balance, an equation that depends on all inputs as well as outputs for a plant.

Increased Coproduction Extracting maximum value from coproducts is another trend that will reach new

heights in 2010, especially with the pending implementation of the second stage of the renewable fuel standard (RFS2), that creates a carve-out for biodiesel. This should generate a more stable market for this fuel product, which can be produced from corn oil extracted at ethanol plants.

Popular choices for complementary biorefining include biodiesel, dried distillers grains with solubles, gluten feed, gluten meal, corn oil, and soybean oil meal with high protein content.

Those familiar with the development of the oil industry can see parallels between the early challenges the oil industry faced and those the ethanol industry is facing today. Initially, oil refineries were built to refine lamp oil, extracting kerosene from crude oil to supply this single market. It was a struggle to figure out what to do with the rest of the products. In some markets, it was so bad that the refiners would run gasoline into the rivers at night to get rid of the “byproduct.” Obviously, the car came along and solved that problem, but this provides some perspective to consider how much things can change from where they start out. This is just one extreme example that evolving a new industry takes some time and that the markets for each of the resulting coproducts will take time to evolve as well.

TRENDS. Now an oil refinery uses every molecule from that barrel of crude oil. In the same way, 2010 will see single purpose installations in ethanol rapidly evolve into more sustainable plants that reach for pharmaceutical precursors, higher value livestock feeds, and extracted oils.

For example, Central Indiana Ethanol LLC in Marion, Ind., extracts corn oil and sells it to both feed markets and as biodiesel feedstock. “Poultry producers like the orange color given to the eggs by corn oil,” Bjornstad says. “It’s also a lot more lucrative to the plant not to have a valuable coproduct leave as a lower value product or an uncaptured waste stream.”

Tighten Integration With Fuel Supply Chain Listing RINs on an invoice is perhaps the most popular method in place today to pass RIN value to customers, but this practice will not meet EPA requirements in 2010. The EPA’s Moderated Tracking System will be enacted after the final RFS2 rule comes out later in 2010. When MTS activates, EPA will no longer accept spreadsheets or RINs incorporated in invoices as a means to report RIN transactions.

This evolving regulatory need is only part of the story. Customers and marketers need electronic bills of lading complete

with electronically generated unique 38-digit RINs in real time as product enters the fuel supply chain. Refiners and ethanol buyers depend on enterprise resource planning (ERP) systems to eliminate manual labor cost and avoid data entry errors. The fuel industry has spent billions to automate its processes, ethanol now has to step up and plug in to that automated supply chain.

“Our industry doesn’t yet have sufficient systems to conduct itself in a digital environment,” Bjornstad says. “Refinery customers demand that accountability, so in 2010, a greater focus on digital systems is going to separate the men from the boys when it comes to marketing ethanol. What we’re doing with our plants is generating a temperature corrected electronic bill of lading and a RIN live with our terminal automation system that mirrors the systems in use today at major petroleum terminals.

This system is networked and immediately updates our tracking system for our plants with their EPA-ready RIN reports, and then allows us to send the report right to our customers ERP systems in formats that can be easily downloaded directly into those systems so the customer has no labor or costs on their end.”

Integrating more tightly with the fuels supply chain also means focusing on other needs of refineries—such as reducing third-

party risk. When Aventine Renewable Energy Inc. and VeraSun Energy Corp. declared bankruptcy, the contracts they had with refiners were canceled at tremendous cost.

Refiners demand and depend on the reliability and security of their supply. “Refiners are now more aware of that risk,” Bjornstad says. “That risk is going to come to an end.” There are two ways it can end— refineries can purchase their own ethanol plants, like Valero did, or create relationships with ethanol marketers that have the technical capabilities as well as the financial strengths to be a true partner.”

Bob Ferguson, general manager for Heron Lake BioEnergy LLC, recently inked a three-year relationship with C&N. “We reviewed several potential ethanol marketing companies and we are pleased to have selected C&N. Their transparent approach gives us the ability to manage and forecast our costs and margins. Their access to a nationwide market consisting of refiners and blenders gives us great confidence in their ability to secure the best customers for our product.” EP Doug Haugh is executive vice president and CIO of Mansfield Oil. Reach him at dhaugh@ mansfieldoil.com

VOGELBUSCH The Bioprocess Company

Designing state-of-the-art ethanol plants in the U.S. for over 30 years

We Make Biotechnology Work Vogelbusch USA, Inc. • 1810 Snake River Road • Katy, TX 77449 • (713) 461-7374 • office@vbusa.com www.vogelbusch.com 96

ETHANOL PRODUCER MAGAZINE

December 2009

EVENTS CALENDAR

Cleantech Forum XXV December 2-3, 2009

7th European Motor Biofuels Forum December 16-17, 2009

December 2-3, 2009 Beijing Entrepreneurs, investors, corporations, policymakers and economic development agencies will gather to explore the latest developments in climate change, energy independence and resource scarcity driving markets for clean technologies.

Paris, France Representatives from the manufacturing, science and technology, and government sectors will discuss all aspects of biofuels. http://www.biofuels2009.eu/

http://cleantech.com/cleantechforum/beijing09/ index.cfm

Dec

A Biofuels Overview December 7-9, 2009 Oxford, England Presentations will include new process technologies and feedstocks, specifications, performance, environmental aspects and second-generation biofuels. Current and future challenges faced by automobile manufacturers, oil and additive industries will also be addressed. Emphasis will be placed on the practicalities of biofuels and their contribution to mitigating global warming. h t t p : / / w w w. o x f o r d p r i n c e t o n . c o m / s e a r c h /coursedetails.asp?ID=367&PLP=BF0

98

Jan

Pacific West BIOMASS Conference & Expo January 11-13, 2010 Hyatt Regency Sacramento, Calif.

Hosted by BBI International, the event will focus exclusively on biomass utilization in California, Oregon, Washington, Idaho and Nevada. Topics of discussion will include biomass-derived electricity, industrial heat and power, and advanced biofuels.

(701) 746-8385 http://pacificwest.biomassconference.com/ema/ DisplayPage.aspx?pageId=About

ETHANOL PRODUCER MAGAZINE

December 2009

EPM MARKETPLACE Ag Products & Services

Martrex,Inc. 952-933-5000 Ext 18

www.martrexinc.com

Hybrid Corn Pioneer Hi-Bred International, Inc. 800-247-6803 www.pioneer.com

Associations/Organizations EPPIC Environmental Index 334-277-1364 www.eppicenv.com

Trade

Cleaning Dryer Systems Hydro-Klean, Inc. 515-283-0500 Seneca Companies 800-369-5500

www.hydro-klean.com www.senecaco.com

Ductwork

API Credit Exchange 202-682-8192

www.api.org/ace

Chemicals www.lactrol.com

Anti-Microbial

Hydro-Klean, Inc. 515-283-0500 Seneca Companies 800-369-5500

Bio-Cide International.Inc 405-329-5556

PhibroChem 800-223-0434

www.hydro-klean.com

Emergency Spill Response

PhibroChem 800-223-0434

Ferm Solutions 859-402-8707

Hydro-Klean, Inc. 515-283-0500

www.bio-cide.com

www.ferm-solutions.com www.lactrol.com

www.hydro-klean.com www.senecaco.com

Evaporators Hydro-Klean, Inc. 515-283-0500

www.hydro-klean.com

Fans

Resonant BioSciences, LLC. 866-933-0408 www.puremash.com

Hydro-Klean, Inc. 515-283-0500

Enzymes

Filter Media

Genencor 585-256-5249

BWF America, Inc. 800-733-2043

www.hydro-klean.com

Plate-Frame

Novozymes 919-494-3101

www.genencor.com www.novozymes.com

Hydro-Klean, Inc. 515-283-0500

Water Treatment

Heat Exchanger

Buckman Laboratories, Inc. 901-278-0330 www.buckman.com

Hydro-Klean, Inc. 515-283-0500

Yeast

Seneca Companies 800-369-5500

Ferm Solutions 859-402-8707

www.ferm-solutions.com

Hydro-Blasting

Fermentis-Division of SI Lesaffre 800-558-7279 www.fermentis.com

Hydro-Klean, Inc. 515-283-0500

Hydro-Klean, Inc. 515-283-0500

Railcar Spill Response www.hydro-klean.com

Hydro-Klean, Inc. 515-283-0500

www.hydro-klean.com

Railcars www.hydro-klean.com www.senecacos.com

Hydro-Klean, Inc. 515-283-0500

www.hydro-klean.com

Reach your customers

www.hydro-klean.com

Scrubbers Hydro-Klean, Inc. 515-283-0500

Premium Plant Services, Inc. 218-929-2166 www.premiumplantservices.com

Stabilized Liquid Yeast, Thermosacc,® Superstart™

www.hydro-klean.com

www.bwf-america.com

www.hydro-klean.com

Smoke Stack Hydro-Klean, Inc. 515-283-0500

www.hydro-klean.com

Tank Cleaning Equipment Gamajet Cleaning Systems Inc 877-GAMAJET www.gamajet.com

Your Solution. Advertise Today.

EPM MARKETPLACE

Spraying Systems Co. 630-665-5000

www.spray.com

Lallemand Ethanol Technology 800-583-6484 www.ethanoltech.com 100

ETHANOL PRODUCER MAGAZINE

December 2009

EPM MARKETPLACE Tank Cleaning Services Hydro-Klean, Inc. 515-283-0500 Seneca Companies 800-369-5500

Insulation

Railroad Tracks R & R Contracting, Inc. 800-872-5975

www.hydro-klean.com

Railworks 913-888-4091

www.senecaco.com

Construction

Stack

Buildings-Custom

HOFFMANN,INC. 563-263-4733

HOFFMANN,INC. 563-263-4733

www.rrcontracting.net www.railworks.com

www.hoffmanninc.com

Tanks

www.hoffmanninc.com

ATEC Steel 620-856-3488

Buildings-Modular

www.atecsteel.com

Agra Industries, Inc. 715-536-9584 Caldwell Tanks 502-964-3361

Petrochem Insulation 707-644-7455

www.agraind.com www.caldwelltanks.com

WINBCO Tank Company 641-683-1855 www.petrocheminc.com

Management

www.winbco.com

Consulting Central Energy Plant

Marcus Construction Company 800-367-3424 www.marcusconstruction.com

Mechanical

Lipten 800-860-0790

www.lipten.com

Environmental Air Resource Specialists,Inc. 970-484-7941 www.air-resource.com Aquaterra Environmental Solutions, Inc. 877-913-8200 www.aquaterra-env.com ICM, Inc. 877-456-8588

www.icminc.com

Natural Resource Group, LLC. 612-347-6789 www.nrg-llc.com Pinnacle Engineering Inc. 507-280-5966

Plant Construction Agra Industries, Inc. 715-536-9584

www.agraind.com

Concrete Silos HOFFMANN,INC. 563-263-4733

www.senecaco.com

Feasibility Studies Harris Group Inc. 206-494-9422

www.agraind.com

www.harrisgroup.com

Management Services

Andy J.Egan Co. 616-791-9952

www.andyegan.com

HOFFMANN,INC. 563-263-4733

www.hoffmanninc.com

VAL-FAB Inc. 877-482-5322

Seneca Companies 800-369-5500

Weaver Boos Consultants 888-645-5240 www.weaverboos.com

www.hoffmanninc.com

Fabrication Agra Industries, Inc. 715-536-9584

www.pineng.com

www.valfab.com

ETHANOL PRODUCER MAGAZINE

Lipten 800-860-0790 Reimer Welding Inc. 218-773-0886

December 2009

Greenway Consulting,LLC 320-589-3085 www.greenwayconsulting.net www.lipten.com www.reimerwelding.com

Plant Optimization Granatus Consulting, Inc. 218-773-0005 www.granatusinc.com 101

EPM MARKETPLACE Harris Group Inc. 206-494-9422 ICM, Inc. 877-456-8588

www.harrisgroup.com www.icminc.com

Lipten 800-860-0790

www.lipten.com

Project Development Harris Group Inc. 206-494-9422

Equipment & Services

Combustion Equipment

Agitation Equipment

Eclipse.Inc. 815-637-7213

ProQuip, Inc. 330-468-1850

www.proquipinc.com

www.eclipsenet.com

Computer Software Encore Business Solutions 204-989-4330 www.encorebusiness.com

Air Pollution/Odor Control Ceco Abatement Systems, Inc. 630-493-0624 www.cecoenviro.com/Abatement

www.harrisgroup.com

Education

Analytical Instruments Gusmer Enterprises, Inc. 847-277-9785 www.gusmerbiorefining.com

Iowa Lakes Community College 800-242-5108 www.iowalakes.edu

Employment

Perten Instruments, Inc. 801-936-8165

www.perten.com

Blowers & Fans

Recruiting McDermott & Bull-Energy Practice 415-722-8966 www.mbsearch.net SearchPath of Chicago 815-261-4403 www.searchpath.com/chicago

Robinson Fans, Inc. 724-452-6121

www.robinsonfans.com

Boiler Systems Hurst Boiler & Welding Co., Inc. 800-666-6414 www.hurstboiler.com

Engineering Biomass Energy Lipten 800-860-0790

www.lipten.com

Design/Build Agra Industries, Inc. 715-536-9584

www.agraind.com

Alaqua Inc.

dbc SMARTsoftware, Inc. 770-427-7633 www.dbcsmartsoftware.com

Control Systems ICM, Inc. 877-456-8588

www.alaquainc.com

www.icminc.com

Revere Control Systems 800-536-2525 www.reverecontrol.com

www.hoffmanninc.com

Conveyors–Drag

Process Design

Intersystems 800-228-1483

www.icminc.com

www.intersystems.net

Conveyors–Mechanical

Process Engineering Associates, LLC 865-220-8722 www.processengr.com Vogelbusch USA, Inc. 713-461-7374

Integrated business management system for purchase/sales contracting, risk management, plant production and material usage data collection, and automated receiving and loadout.

© 2009 John Deere Agri Services, Inc.

7004 Boulevard East, Ste.28A Guttenberg, NJ 07093 USA Tel: 201.758.1577 Fax: 201.758.1522 info@Alaquainc.com

ICM, Inc. 877-456-8588

Ethanol Efficiency.

800.518.0472 JohnDeereAgriServices.com

Evaporators, Crystallizers, Distillation, Columns, Solvent Recovery, Heat-Exchangers, Process Engineering

HOFFMANN,INC. 563-263-4733

You produce fuel.

We fuel your success.

Superior Industries 320-589-2406

www.superior-ind.com

www.vogelbusch.com U.S. Tsubaki 847-459-9500

Boilers-Reboilers

www.ustsubaki.com

Wabash Power Equipment CO. 847-541-5600 www.wabashpower.com 102

ETHANOL PRODUCER MAGAZINE

December 2009

EPM MARKETPLACE Conveyorsâ&#x20AC;&#x201C;Pneumatic

Insulator

MAC Equipment, Inc. 816-891-9300 www.macequipment.com

Cooling Towers Delta Cooling Towers, Inc. 800-BUY-DELTA www.deltacooling.com

Corn Oil Recovery ICM, Inc. 877-456-8588

www.icminc.com

Continuous Emissions Monitoring Systems Easiest installation, operation and maintenance Meet or exceeds EPA requirements NOx, O2, CO, SO2 and others Turnkey systems for under $100,000.00 P.O. Box 9271, Columbus, Oh 43209 866-682-6771 sales@monitortechcorp.us

Fermentation Monitoring

SRS Engineering Corporation 800-497-5841 www.srsbiodiesel.com SRS Engineering Corpration 951-526-2239 www.srsbiodiesel.com

www.etslabs.com

Fermentors

Aeroglide Corporation 919-851-2000

www.aeroglide.com

Littleford Day, Inc. 859-525-7600

www.littleford.com

www.atecsteel.com

Barr-Rosin,Inc 630-659-3980

www.barr-rosin.com

www.winbco.com

Filtration Equipment Fluid Engineering 814-453-5014

FLAMEX Inc. 336-299-2933

Barr-Rosin,Inc. 630-659-3980

www.barr-rosin.com

ICM, Inc. 877-456-8588

www.icminc.com

Ronning Engineering Company, Inc. 913-239-8118 www.ronningengineering.com

www.fluideng.com

flamex@sparkdetection.com

Buhler Inc. 763-847-9900

www.buhlergroup.com/us

Cereal Process Technologies 217-779-2595 www.cerealprocess.com Crown Iron Works 651-639-8900

www.crowniron.com

ICM, Inc. 877-456-8588

ICM, Inc. 877-456-8588

MOR Technology, LLC 618-522-8324 www.mortechnology.com

HOFFMANN,INC. 563-263-4733

www.icminc.com

Grain Handling & Storage

Ductwork www.hoffmanninc.com

Agra Industries, Inc. 715-536-9584

www.agraind.com

Dust Control Systems

McC, Inc. 763-477-4774 www.mccormickconstruction.com

MAC Equipment, Inc. 816-891-9300 www.macequipment.com

Heat Exchangers

Emission Monitoring Systems

Munters - Des Champs Products 540-291-1111 www.deschamps.com

MonitorTech Corp.

866-682-6771

Instrumentation

www.monitortechgrp.com

Perten Instruments, Inc. 801-936-8165 ETHANOL PRODUCER MAGAZINE

SGS North America Inc. 281-479-7170 www.sgs.com/alternativefuels

CHATA Biosystems

December 2009

Phenomenex 310-212-0555

customerservice@chatasolutions.com

www.phenomenex.com

Make your quality control work for you!

Specializing in ear Infrared Analysis

Dryers-Rotary Steam Tube www.icminc.com

www.perten.com

Laboratory-Testing Services

Fractionation-Corn

Dryers-Rotary Drum

Perten Instruments, Inc. 801-936-8165

877-246-2428

Fire Suppression

Dryers-Ring

Laboratory-Equipment

Laboratory-Supplies

ATEC Steel 620-856-3488 WINBCO Tank Company 641-683-1855

Dryers-Fluid Bed

Miller Insulation Co., INC 701-297-8813 www.millerinsulation.com

Laboratory-Outsourcing

ETS Laboratories 707-963-4806

Distillation Equipment

Industrial Construction & Engineering 636-970-1650 www.ic-e.cc

Develop accurate, rapid measurement systems to characterize raw materials and co-products.

Match customer needs, improve process efficiency, and improve inventory management.

Measure moisture and nutrient levels, ethanol yield, cellulose, and more!

Value Added Agriculture Program www.iavaap.org 515-294-8519

Midwest Laboratories, Inc. 402-829-9877 www.midwestlabs.com Trilogy Analytical Laboratory 636-239-1521 www.trilogylab.com

www.perten.com

103

EPM MARKETPLACE Robert-James Sales, Inc. 800-666-0088

Loading Equipment Carbis, Inc. 800-845-2387

www.carbis.net

SafeRack 866-761-7225

www.saferack.com

Robert-James Sales, Inc. 800-666-0088

Pipe-Flanges

Jouleâ&#x20AC;&#x2122; Industrial Contractors bbosher@jouleinc.com www.jouleinc.com

Robert-James Sales, Inc. 800-666-0088

Mechanical Solutions, LLC 515-332-7035

Pressure Vessels

Mapcon Technologies, Inc. 800-922-4336

www.icminc.com www.mapcon.com

Structural Fabrication Agra Industries, Inc. 715-536-9584

Tanks ATEC Steel 620-856-3488

www.winbco.com

Harris Group Inc. 206-494-9422

www.harrisgroup.com

CPM/Roskamp Champion 800-366-2563 www.cpmroskamp.com

Pumps

Millwright

PeopleFlo Manufacturing 847-929-4774

Moisture Analyzers Perten Instruments, Inc. 801-936-8165

www.browntank-mn.com

Federal Equipment Company 800-652-2466 www.fedequip.com

www.peopleflo.com

QA Test Products www.perten.com

Perten Instruments, Inc. 801-936-8165

Resource Recovery

Molecular Sieves

Eco-Tec, Inc. 905-427-0077

ICM, Inc. 877-456-8588

www.icminc.com

Vaperma, Inc. 418-839-6989

www.vaperma.com

www.perten.com

www.eco-tec.com

Scales-Software John Deere Agri Services 800-518-0472 www.johndeereagriservices.com

Motors

Scales-Truck

Trico TCWind, Incorporated 320-693-6200 www.tricotcwind.com

Weigh-Tec Inc. 1-800-461-4153

Paint & Protective Coatings

Seals

Mongan / Bockman 260-748-7655 www.monganbockman.com

Aesseal Inc. 865-531-0192

Parts & Services

Separation Equipment

ICM, Inc. 877-456-8588

Puritan Magnetics, Inc. 248-628-3808 www.puritanmagnetics.com

www.icminc.com

www.isco-pipe.com

Paragon Trailer Sales 800-471-8769

www.paragontrailer.com

WINBCO Tank Company 641-683-1855

www.winbco.com

www.truck-scales.com Westmor Industries 320-589-2100

ww.westmor.biz

www.aesseal.com

Reach your customers Your Solution. Advertise Today.

EPM MARKETPLACE

Size Reduction-Shredders

Pipe

104

www.agraind.com

Valley Equipment Co. Inc. 423-753-3541 www.valleyequipment.com

Sartorius Mechatronies-Omnimark 800-835-3211 www.sartorius-omnimark.com

ISCO Industries 800-345-4726

www.atecsteel.com

Agra Industries, Inc. 715-536-9584 Brown Tank LLC 651-747-0100

Process Control

VFTechnical Services, LLC 423-794-6747 www.vftechserv.com

www.agraind.com

www.agraind.com

www.rjsales.com

Mills-Hammer

Agra Industries, Inc. 715-536-9584

www.laidig.com

www.rjsales.com

WINBCO Tank Company 641-683-1855

Maintenance Software ICM, Inc. 877-456-8588

Laidig Systems, Inc. 574-256-0204

Pipe-Fittings

Maintenance Services

www.mecsol.com

Storage-DDGS www.rjsales.com

DuraTech Industries / Haybuster 701-252-4601 www.haybuster.com ETHANOL PRODUCER MAGAZINE

December 2009

EPM MARKETPLACE Thermal Oxidizers

Used Equipment

Ethanol Production Existing Producers Louis Dreyfus Commodities 402-844-2680 LDCommodities.com POET LLC 605-965-2200

PROVEN RELIABILITY

www.poetenergy.com

Finance Accounting

for VOC, CO & PM ABATEMENT

Christianson & Associates PLLP 320-235-5937 www.christiansoncpa.com Eide Bailly LLC 605-977-2703

EISENMANN Corporation Crystal Lake, Illinois

www.eidebailly.com

Appraisals

815.455.4100 es.info@eisenmann.com

Natwick Associates Appraisal Services 800-279-4757 www.natwick.com

Due Diligence Harris Group Inc. 206-494-9422

www.harrisgroup.com

Insurance ERI Solutions, Inc. 316-927-4294

erisolutions.com

Mergers & Acquisitions Pro-Environmental, Inc. 909-989-3010

www.pro-env.com

Valves Check-All Valve Mfg. Co. 515-224-2301

EPM MARKETPLACE

www.checkall.com

North American Safety Valve 800-800-8882

www.nasvi.com

Wastewater Treatment Services With all contact information placed in one convenient location, Ethanol Producer Magazine not only con-

Biothane Corporation 856-541-3500x501 Hydro-Klean, Inc. 515-283-0500

www.biothane.com www.hydro-klean.com

tains top editorial content but also a useful directory in each publication. Whether a first-time adver-

ICM, Inc. 877-456-8588

www.icminc.com

UEM, Inc. 561-385-7515

www.uemgroup.com

Kent Group, Inc. 715-358-7528

www.kentgroupinc.com

Moglia Advisors 847-884-8282

www.mogliaadvisors.com

Risk Management R.J. Oâ&#x20AC;&#x2122;Brien 800-621-0757

www.rjobrien.com

Software-Accounting Encore Business Solutions 204-989-4330 www.encorebusiness.com

Software-Commodity John Deere Agri Services 800-518-0472 www.johndeereagriservices.com

tiser wanting to raise awareness of your business or a frequent display advertiser looking for added exposure, EPM Marketplace is the perfect solution.

ETHANOL PRODUCER MAGAZINE

Water Treatment

Legal Services

Aquatech International Corporation 724-746-5300 www.aquatech.com

Attorneys BrownWinick Law Firm 515-242-2400 www.biofuellawyers.com

Yield Enhancement EdneiQ, Inc. 310-592-4158

December 2009

www.EdeniQ.com

Faegre & Benson, LLP 612-766-6930

www.faegre.com

105

EPM MARKETPLACE

Fuel Ethanol CHS Renewable Fuels 651-355-6271

www.chsinc.com

Gavilon 402-595-5678

www.gavilon.com

Miscellaneous www.maascompanies.com

Nelson Ink Promotional Products 218-222-3831 www.nelsonink.com

Research & Development Dynamometer Testing Roush Industries 734-779-7736

www.roush.com

Transportation Marine Evolution Markets, Inc. 914-323-0259

www.evomarkets.com

Rail Ameritrack RailRoad Contractors, Inc. 765-659-2111 www.ameritrackrailroad.com

Railcar Moving Shuttlewagon, Inc. 816-767-0300

www.shuttlewagon.com

Railcar Parts Salco Products, Inc. 630-783-2570

www.salcoproducts.com

Terminals & DSP ERS Rail Transload 205-322-8312

www.ersrail.net

Utilities Utility Integrys Energy Services 608-235-2547 www.integrysenergy.com

bs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.c

www.cgb.com

www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jo

106

ETHANOL PRODUCER MAGAZINE

om

CGB Feed Ingredients 985-867-3554

s.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.c

Distillers Grains

ob

om www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-j

Marketing

Maas Companies 507-424-2640

EPM MARKETPLACE

December 2009

THE INDEX FINGER.

YOUR GO-TO FOR TITRATION. The One Click Ethanol Analyzer. Now, anyone in the lab can start an analysis with one simple click.

STEP 1: POINT FINGER

Titration Excellence from METTLER TOLEDO offers solutions that make your daily ethanol analyses as easy as One Click. Tasks such as calibrations, sample analyses and sample series can be assigned to Hot Keys so daily routines are intuitive to the first time user, enabling your lab to meet many ASTM ethanol standards: Chloride content Acid Number Sulfate content Water Content by Karl Fischer Fact is, Titration Excellence offers more innovative features than any other titrator on the market. But, in the end, One Click Titrationâ&#x201E;˘ is all youâ&#x20AC;&#x2122;ll care about. Because it does everything your finger tells it to do.

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