INSIDE: SHALE TRANSFORMS NATURAL GAS MARKET may 2011
Beginning Feedstock Improvements Promise Greater Yields Page 54
Plants Look to Alternative Energy for Process Heat Page 44
Seeking Energy Efficiencies in the Ethanol Process Page 60
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THE NEW INDUSTRIAL REVOLUTION
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We don’t want to help you make “alternative” fuel. We want your sustainable biofuel to be the mainstream choice. That’s why we develop enzymes that make biofuel an obvious solution.
may issue 2011 VOL. 17 ISSUE 5
Maps, Abstracts, Energy Savings and Oxymorons By Susanne Retka Schill
10 The Way I See It
Does Increased Pitch Herald
Demise of Ethanol Critics? By Mike Bryan
11 Events Calendar
12 View From the Hill
Knocking Natural Gas Off Its Throne
Ethanol producers develop projects to reduce power needs and use alternative energy in the plant. By Holly Jessen
Driving to Real Ethanol
Policy Transformation By bob dinneen
Answering the Call
By tom buis
Start at the Beginning
Modified corn and switchgrass promise yield improvements and other efficiencies. By Kris Bevill
16 Europe Calling
Improvement Hot Spots
Fine tuning the process yields energy cost reductions. By Kris Bevill
Introduction—A Drama not to be Repeated By Rob Vierhout
18 Taking Stalk
Is More Really Less? Over-
fertilizing can degrade quality By morgan gallagher
20 Business Matters
Upcoming Conferences & Trade Shows
See you in Court,
err … Arbitration? By matthew H. McKinney
22 Business Briefs 26 Commodities Report 30 Distilled 79 Marketplace FINANCE
USDA revised its rules; application deadline nears By Todd Alexander and Chadron Edwards
New technologies revolutionize natural gas recovery and market. By Michael Trakhtenberg
Loan Guarantees and Great Expectations
Shale Play Transforms Natural Gas Economics
Carbon Dioxide Apps Key in Ethanol Project Developments
All ethanol ventures should take a fresh look at CO2 as a great opportunity. By Sam Rushing
Ethanol Producer Magazine: (USPS No. 023-974) May 2011, Vol. 17, Issue 5. 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.
4 | Ethanol Producer Magazine | may 2011
82 Ad Index
We’ve been busy at Ethanol Producer Magazine.
Maps, Abstracts, Energy Savings and Oxymorons Susanne Retka Schill, Editor firstname.lastname@example.org
For industry news.
With this issue, you’ll find the Spring Ethanol Plant Map, a project that had us calling a long list to update information and verify proposed projects. It never fails that, shortly after the deadline, we get a call or announcement that makes the list instantly out-of-date. For existing plants, we continually update the list found on the “Ethanol Plant” tab at www.ethanolproducer.com. With the map project complete, the EPM team dove into helping review speaker abstracts for the upcoming International Fuel Ethanol Workshop & Expo, to be held June 27 to 30 in Indianapolis. It’s truly a shame we don’t have room for every one of those abstracts to be presented, but as it is, nearly 130 speakers will be featured in all sessions. Watch for more details on the 2011 FEW in the weeks ahead. In this issue, we take a look at a big cost center for ethanol production—energy. Associate Editor Kris Bevill writes about feedstock modifications in corn and switchgrass that increase efficiency, not only in yield, but energy use as well. She also reports on energy saving hot spots in plants—areas where energy improvements yield nice returns. Associate Editor Holly Jessen talks with pioneers looking at using biomass for process heat through anaerobic digestion, gasification and direct combustion. It seems wise for the ethanol industry to continue to reduce fossil fuel usage, even while natural gas prices are substantially lower than when some of these projects were initiated. Contributing writer Michael Trakhtenberg explains the impact of technology improvements in recovering natural gas from shale resources. And, commodities page columnist Casey Whelan covers recent developments in the natural gas market. On a lighter note—As writers, we become word nerds. Holly found a good one this month. The word dockage developed because farmers were docked for the extra material in their grain—weeds, chaff, broken seeds. With a new biomass boiler installed in Unity, Saskatchewan, farmers are getting paid for their dockage. That turns the word dockage into an oxymoron—it’s no longer an undesirable thing, but something with value for both sides. That’s the power of green energy. It takes something that was previously thought of as valueless and turns it into a natural resource.
Follow Us: twitter.com/EthanolMagazine
contributors Matthew McKinney is an attorney with BrownWinick, a Des Moines, Iowa-based law firm serving the renewable fuels industry, who focuses his practice primarily in the areas of commercial and civil litigation, which includes but is not limited to, complex-litigation, intracorporate disputes and derivative actions.
6 | Ethanol Producer Magazine | may 2011
clarification Michael Trakhtenberg works in business development with Houston-based CenterPoint Energy, which operates an extensive natural gas network in the eastern and midcontinent regions.
Poet LLC’s $230 million cellulosic ethanol project in Iowa, which was featured in a March article titled “The Core of Advancement,” will be funded by matching and other grants and Poet’s investments.
EDITORIAL EDITOR Susanne Retka Schill email@example.com ASSOCIATE EDITORS Holly Jessen firstname.lastname@example.org Kris Bevill email@example.com COPY EDITOR Jan Tellmann firstname.lastname@example.org
ART ART DIRECTOR Jaci Satterlund email@example.com GRAPHIC DESIGNER Erica Marquis firstname.lastname@example.org
PUBLISHING CHAIRMAN Mike Bryan email@example.com CEO Joe Bryan firstname.lastname@example.org VICE PRESIDENT Tom Bryan email@example.com
SALES VICE PRESIDENT, SALES & MARKETING Matthew Spoor firstname.lastname@example.org EXECUTIVE ACCOUNT MANAGER Howard Brockhouse email@example.com SENIOR ACCOUNT MANAGER Jeremy Hanson firstname.lastname@example.org ACCOUNT MANAGERS Chip Shereck email@example.com Marty Steen firstname.lastname@example.org Bob Brown email@example.com Andrea Anderson firstname.lastname@example.org Dave Austin email@example.com CIRCULATION MANAGER Jessica Beaudry firstname.lastname@example.org SUBSCRIBER ACQUISITION MANAGER Jason Smith email@example.com ADVERTISING COORDINATOR Marla DeFoe firstname.lastname@example.org Senior Marketing Manager John Nelson email@example.com
EDITORIAL BOARD Mike Jerke Jeremy Wilhelm Commonwealth Agri-Energy LLC Mick Henderson Corn Plus LLLP Keith Kor Golden Grain Energy LLC Walter Wendland Chippewa Valley Ethanol Co. LLLP Cilion Inc.
Neal Jakel Illinois River Energy LLC Bert Farrish Lifeline Foods LLC Eric Mosebey Lincolnland Agri-Energy LLC Steve Roe Little Sioux Corn Processors LP Bernie Punt Siouxland Energy & Livestock Co-op
Customer Service Please call 1-866-746-8385 or email us at firstname.lastname@example.org. Subscriptions to Ethanol Producer Magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States, Canada and Mexico. To subscribe, visit www.EthanolProducer.com or you can send your mailing address and payment (checks made out to BBI International) to: Ethanol Producer Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to (701) 746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at (701) 746-8385 or email@example.com. Advertising Ethanol Producer Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Ethanol Producer Magazine advertising opportunities, please contact us at (701) 746-8385 or firstname.lastname@example.org. Letters to the Editor We welcome letters to the editor. Send to Ethanol Producer Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or e-mail to email@example.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.
Please recycle this magazine and remove inserts or samples before recycling TM
COPYRIGHT ÂŠ 2011 by BBI International
may 2011 | Ethanol Producer Magazine | 7
Power your old ethanol plant with New Ethanol production.
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the way i see it
Does Increased Pitch Herald Demise of Ethanol Critics? By Mike Bryan There appears to be no place for complacency in the defense of ethanol, given the tenacity of those opposed to the industry. After nearly 30 years of constant growth and enormous contributions to our environment, the rural economy and our nation’s energy security, the attacks on ethanol continue. Two examples: Transparent attacks such as legislation to stop the subsidies for fuel ethanol, while continuing with subsidies for Big Oil, by Sen. Tom Coburn, R-Okla., and claims that ethanol is driving up the cost of food to consumers from the grocery industry, which has steadfastly refused to lower prices when commodity prices came down. These transparent actions don’t reflect reality, rather they shout self interest and last-ditch efforts. I suppose there’s a certain pride that can be taken in the fact that the more successful ethanol is, the more vigorously the opposition screams and the more outlandish the allegations become. In desperation, opponents rail on at an increasingly fevered pitch, thereby heralding their impending defeat. In truth, the future of ethanol has never been stronger. Ethanol blends represent an ever-increasing percentage of our nation’s liquid energy needs and
10 | Ethanol Producer Magazine | may 2011
the thought of legislatively destroying such a vital industry built on the backs of the American farmer could never get the broad-based support of Congress. Ethanol producers are willing to sit at the table and discuss ways to work with Congress to lessen the economic impact of its subsidies. It must, however come at an equal price to the oil industry in reducing subsidies paid to them. There can be no compromise on that issue. For the oil industry to make tens of billions of dollars in domestic profits by sending hundreds of billions of dollars to foreign countries
To me, gasoline should be held up to renewable energy and made to meet those standards, not vice versa. The commitment to renewable energy ebbs and flows, based on the price of oil and the resulting price of gasoline. It’s difficult to build and sustain an industry based on a moving target. Legislation that would hurt domestic energy production should never see the light of day. It should be dead on arrival to the floor of Congress. As long as we keep entertaining transparently biased legislative efforts, such as that introduced by Sen. Coburn,
and then getting more billions of taxpayer dollars in subsidies, while pointing its finger at ethanol subsidies, is ludicrous, to say the least. No one has ever said that ethanol is a perfect fuel, or that it will totally replace gasoline. Rather it is a transitional fuel, a fuel that will help take us from our near total dependence on fossil fuels to a new era of cleaner burning, domestically produced fuels. How long that transition will take depends on how committed America is to maintaining and growing its domestic sources of energy. There are those who lash out against wind, solar, biodiesel and ethanol on the basis that they are not competitive with gasoline. I have never understood why we would use an environmentally harmful, imported product as a standard for comparison for cleaner-burning, domestically produced energy sources.
it will only serve to encourage such silly, counterproductive initiatives. Let’s focus on building and refining new forms of energy, not perpetuating the past. That’s the way I see it.
Author: Mike Bryan Chairman, BBI International firstname.lastname@example.org
International Fuel Ethanol Workshop & Expo June 27-30, 2011 Indiana Convention Center | Indianapolis, Indiana The FEW is the largest, longest-running ethanol conference in the world. Focused on production of grain and cellulosic ethanol, operational efficiencies, plant management, energy use and near-term research and development, the FEW will attract 2,500 attendees. (866) 746-8385 | www.fuelethanolworkshop.com
BBI Seeks Applicants for Kathy Bryan Memorial Scholarships Each year, BBI International, organizer of the International Fuel Ethanol Workshop & Expo and publisher of Ethanol Producer Magazine, awards scholarships to young people planning a course of study that might lead to a career in the ethanol industry or contribute to stronger rural communities. Last year, the scholarship program was refashTo Apply: ioned to honor Kathy Bryan, co-founder of the FEW Submit a completed and former president of BBI International. Bryan was application form and a known champion for ethanol since the 1980s and letters of recommendation held a positive vision for stronger rural communities, online. Look for the a prosperous agriculture and environmental stewardscholarship links at www. ship. FuelEthanolWorkshop. With her vision in mind, the 2011 Kathy Bryan com. Memorial Scholarship program will be offered, as it was last year, to employees of any ethanol plant in Deadline: June 3 the U. S. or a member of the employee’s immediate Scholarship awards will family. be paid directly to the There was a tremendous turnout of applicants admissions office of the last year—115 young people, representing 52 differwinner’s designated ent ethanol plants across the country. Two scholarcollege, university or ships were awarded. Mary Krull, the daughter of Peter technical school for fall Krull, a plant manager at Valero Renewables-Albert 2011. City, Iowa, and Nicholas Ballard, the son of Kim Ballard, a process operator at Big River Resources LLC, Galva, Ill., each received a $2,000 scholarship, which went directly to their schools. Fundraising to support the scholarship program is planned again this year, giving industry participants a chance purchase mugs with Indy-style racing flags on them, highlighting the location of this year’s FEW and the industry’s partnership with NASCAR. All proceeds will go to the scholarship fund.
International Biorefining Conference & Trade Show September 14-16, 2011 Hilton Americas – Houston | Houston, Texas The International Biorefining Conference & Trade Show brings together agricultural, forestry, waste, and petrochemical professionals to explore the value-added opportunities awaiting them and their organizations within the quickly maturing biorefining industry. Speaker abstracts are being accepted online. (866) 746-8385 | www.biorefiningconference.com
Northeast Biomass Conference & Trade Show October 11-13, 2011 Westin Place Hotel | Pittsburgh, Pennsylvania With an exclusive focus on biomass utilization in the Northeast—from Maryland to Maine—the Northeast Biomass Conference & Trade Show will connect current and future producers of biomass-derived electricity, industrial heat and power, and advanced biofuels, with waste generators, aggregators, growers, municipal leaders, utilities, technology providers, equipment manufacturers, investors and policymakers. Speaker abstracts are being accepted online. (866) 746-8385 | www.biomassconference.com/ northeast
Algae Biomass Summit October 25-27, 2011 Hyatt Regency Minneapolis | Minneapolis, Minnesota Organized by the Algae Biomass Organization and coproduced by BBI International, this event brings current and future producers of biobased products and energy together with algae crop growers, municipal leaders, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop—the world’s premier educational and networking junction for all algae industries. (866) 746-8385 | www.algaebiomasssummit.org may 2011 | Ethanol Producer Magazine | 11
view from the hill
Driving to Real Ethanol Policy Transformation By Bob Dinneen
About this time every year, the news media is filled with stories about the impending rise in gasoline prices that leads the summer driving season. It is as predictable as the tides. This year will no doubt see the same rise, but it will build on the already dramatic run-up in the price of oil and gas at the pump we have seen already this year. Events around the world have created frenzy in the international oil markets that have some predicting record oil prices this summer. The result could be gas prices not imagined by Americansâ€”even when gas averaged $4 per gallon just a couple of years ago. While those in the oil industry and their allies on Capitol Hill complain and lament our investment in domestic ethanol production, the impact it is having on American gas prices is very real. And without it, the pain at the pump would be unbearable. Economists from the likes of the U.S. DOE, Iowa State University and Merrill Lynch have examined the impact of increased ethanol blending on consumer gas prices and concluded it has has generally reduced the price of gasoline by 15-50 cents per gallon. For the average American driver, thatâ€™s an annual savings of $120 to $400 dollars. These savings result not only from the fact that ethanol has been 50 cents to $1 per gallon cheaper than
12 | Ethanol Producer Magazine | may 2011
gasoline at the wholesale level for the past several years, but also from the fact that replacing 13 billion gallons of gasoline reduces aggregate oil demand and, thus, exerts downward pressure on gasoline prices across the supply chain. It also doesnâ€™t account for the 45-cent tax credit available to small businesses such as independent gasoline marketers who receive the majority of the tax credit. All things being equal, the application of the tax credit alone reduces the cost of gasoline production with ethanol and makes all E10 blends at least 4.5 cents cheaper than straight gasoline. Such a dynamic provides the backdrop for important discussions about the future of ethanol policy. The ethanol industry itself has worked in good faith with each other and lawmakers to transition and transform current policies to reflect budget concerns yet ensure the continued growth and evolution of the industry. Such a plan must include three critical elements. First, there needs to be recognition that volatility in the oil markets is a real and present danger to biofuel investment and the American economy. Any plan to transform current ethanol policy must recognize these market economics. One approach being discussed is a variable tax credit based on the price of oil. Keep in mind the idea behind such an incentive, like the current version, is to drive demand. At $100 oil, for example, a tax incentive is likely not needed to drive new demand. We are just two years removed from $39 oil, however, and at that price, marketers will seek to maximize petroleum use making such an incentive critical. A variable incentive would provide a fiscally responsible backstop to
the oil price volatility that would protect taxpayers and the investments in the industry. Second, investments must be made to put more flex-fuel vehicles (FFVs) on the road and more ethanol fueling infrastructure in the ground. A mix of consumer tax incentives and mandates on the sale of FFVs would go a long way toward putting more Americans behind the wheel of such a vehicle. Likewise, a similar mix of policies would be quite effective for installing the roughly 60,000 blender pumps it would take to achieve the goals of the renewable fuels standard. Third, policies that accelerate the construction and deployment of commercialscale advanced ethanol biorefineries and technologies are essential. The majority of the renewable fuels standard and ethanol demand above E10 blends must come from cellulosic and advanced sources of ethanol. Implementing policies, such as properly functioning loan guarantee programs that accelerate commercialization will provide many advanced ethanol companies with that final push they need to cross the finish line. Transforming ethanol policies will not be easy. Vested interests seek to thwart our efforts at every turn and the appearance of division within the industry itself is causing even our most ardent champions on Capitol Hill discomfort. As I said in the State of the Industry address in Phoenix, we must focus on what the right ideas are and care less about whose idea is right. There is simply too much at stake. Author: Bob Dinneen President and CEO of the Renewable Fuels Association (202) 289-3835
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Answering the Call By Tom Buis
In a landmark address laying out his proposal to end our nation’s reliance on foreign energy, President Obama called for an increase in the production of American ethanol. In his speech, delivered at Georgetown University in March, the president rightly identified ethanol as a way to set our country on a path toward a clean energy future. The president deserves credit for identifying American agriculture’s role in the production of corn ethanol today and commercially viable cellulosic ethanol in the future. Today, America’s grain ethanol producers are leading the way toward ethanol that can be derived from a variety of biomass feedstocks. If there is one word that describes the ethanol industry it is innovation. To meet the challenges and opportunities outlined by the president, we must expand our ingenuity to give American consumers the choice between clean and affordable ethanol, and fossil fuels, like gasoline, that are getting dirtier, riskier and costlier to extract. Today’s ethanol plants are using cutting-edge
14 | Ethanol Producer Magazine | may 2011
innovation to reduce water use and increase energy efficiencies. By doing so, the ethanol industry can reduce harmful emissions while providing a near-term solution to high gas prices by lowering costs at the gas pump and participating in our nation’s long-term energy strategy. The president’s plan includes proposals to reduce market barriers to increased biofuel use—goals Growth Energy has long championed and are a key part of our efforts to give motorists access to an alternative to foreign oil. Increasing the number of flex-fuel pumps at gas stations and flex-fuel vehicles on the road will give consumers an opportunity to choose their fuel— instead of having that choice made for them. By removing the barriers that prevent access to renewable energy produced right here in America, we can replace more of the oil we import from the Middle East, lower fuel prices and keep more dollars in the pockets of everyday Americans. A study by the National Renewable Energy Laboratory, in conjunction with McKinsey & Co., shows that ethanol keeps U.S. retail gasoline prices about 17 cents per gallon lower. That provides annual savings of $115 per driver. Increasing the production of domestic, renewable ethanol also
reduces the power that foreign nations can exert over our economy. Every gallon of clean burning ethanol that we produce in this country decreases the demand for foreign oil and strengthens our national security. Securing our energy future will take careful thought and patience as we craft the policies we need in Washington, D.C. In the meantime, our nation’s ethanol industry demonstrates every day that this country has the talent, ability and ingenuity to answer the economic, energy and environmental challenges we face. America’s ethanol producers are ready to help lead the way. Author: Tom Buis CEO, Growth Energy (202)545-4000 email@example.com
For more information, visit www.fermentis.com or email firstname.lastname@example.org
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Germany’s E10 Introduction—A Drama not to be Repeated By Robert Vierhout
As we all know, the American ethanol industry is fighting for a bigger market share by tearing down the blend wall. In Europe we
are now facing similar problems, though we are 5 percentage points behind. We are trying to go from E5 to E10, and it’s not an easy ride in all places. In early 2009, France was the first to introduce E10 fuel, once it was allowed in the EU. All BP filling stations offered the new fuel almost overnight. There were no problems reported with cars or fuel prices. Pumps were clearly labelled, customers were helped to choose the right fuel for their car, and the French law contained a list of cars that could not run on E10. The market share of E10 in France is now 17.6 percent. Not a humungous number, but it is growing every year. In Germany we see a totally different picture. Plans to introduce E10 in Germany at the same time as France were put in the freezer because it turned out that too many older models would not be E10 compatible. Ironically, most of those were imported brands from France and Italy. German manufacturers welcomed E10 as an easy solution to reduce CO2 emissions of their traditionally big and heavy cars. A newly elected government decided, however, to allow E10 in the market to fulfill mandatory biofuel targets and avoid se-
16 | Ethanol Producer Magazine | may 2011
vere financial penalties for noncompliance. If the EU wants to decarbonize transport, E10 is indispensable at the start. This put Big Oil into the uncomfortable situation of now being reliant on biofuels, which they had been discrediting at every possible occasion—a true love-hate relationship. In February, E10 fuel became available. Although selling several cents cheaper than E5, almost nobody wanted it. The reason: Oil companies had labelled the pumps with warning signs: “This fuel contains up to 10 percent ethanol and can harm your car; for more information, ask inside.” Unfortunately, E10 pump owners were not allowed to give advice due to warranty issues. Consequently, consumers got scared that E10 could damage their car. Sales of E10 plummeted and a shortage of E5 fuel was the result. A very aggressive media campaign started, accusing the government and the mineral oil industry of irresponsible behaviour. Anti-biofuel opponents saw a window of opportunity to give a new impetus to the discussion about the environmental and ethical merits of biofuels. The debate became very emotional with headlines in big German dailies against E10. My favourite: On one page, all the so-called biofuels facts, like clearing rain forest in the Amazon, growing corn for German biofuels, pushing food and fuel prices. On the following page came full coverage of the war in Libya, with the collateral effect of increasing oil prices. At the same time, “impartial” surveys indicated that over 40 percent of consumers were not filling up with E10 because they believed it was not environmentally sound. For just 20 percent, the real concern was possible engine failure. In this
respect the French differ greatly: Almost 80 percent have a favourable position towards E10. So what went wrong in Germany? This question hovered over the March 8 summit, urgently called by the German government to settle the unrest. The government did not give in to the media pressure, well aware that there is no real alternative to decarbonize transport. It promised better and more information. The oil industry committed to better informing consumers, realizing the E10 brouhaha, which was probably part of their strategy to discredit biofuels and eventually get rid of the biofuel mandates, backfired. I don’t envy Big Oil’s E10 marketing managers now tasked to advertise the product. After years of stressing all possible downsides of biofuels, they now need to find a credible story why their new product is a must-have. The E10 drama is a wake-up call for the European ethanol industry. Relying on the oil industry’s will to bring our product to the customers will not do the trick—especially if there is a (badly) hidden agenda. The European ethanol industry needs to focus on drivers—so far a neglected target group. A difficult task? Probably. Unfamiliar, to say the least. The good news is fuel ethanol can creep out of its niche in the EU, where until now it could be neglected, to become a mature player that matters. Negative experiences are part of growing up, but we learn better from mistakes. Author: Robert Vierhout Secretary-general, ePURE Vierhout@epure.org
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Is More Really Less? Overfertilizing can degrade quality By Morgan Gallagher
Plant lignin content remains a major hurdle for the cellulosic ethanol industry. Pretreatment of
feedstock to remove or break down lignin so that enzymes can access the cellulose is the most costly and slowest step in the process of making cellulosic ethanol. In our research at Rice University and Michigan State University, we have found that managing the amount of nitrogen (N) fertilizer applied to a crop, may be another way to improve feedstock quality and potentially speed up the conversion process. Rather than look at only the total mass yield of either the corn grain or the crop residue, we took a different approach. We measured the mass yield of key biochemicals such as carbohydrate, protein, lignin or lipids, analyzing the change in the corn grain or corn crop residue depending on the amount of N fertilizer applied. This approach would allow farmers to fine-tune their agricultural management techniques to produce a crop optimized for specific purchasers. If corn grain is intended for food use, N fertilizer would be applied to maximize the protein yield. On the other hand, if grain is being sold to be used to make corn grain ethanol, farmers would want to maximize the amount of carbohydrate in the grain. Farmers choosing to sell part of the crop residues for cellulosic ethanol would want to maximize the carbohydrate yield while minimizing the lignin yield. We looked at the biochemical yields
18 | Ethanol Producer Magazine | may 2011
of corn grown under seven N fertilizer rates ranging from 0 to 202 kilograms per hectare (0 to 180 pounds N per acre) at the Kellogg Biological Station-Long Term Ecological Research site in southwest Michigan. In the corn grain, we found that both carbohydrate and protein stocks increased with fertilizer between 67 to 101 kg per ha until these yields plateaued. In other words, adding fertilizer at higher rates higher gave no additional return in carbohydrate or protein yields. In the crop residue, both carbohydrate and lignin yields increased, but at different rates. Carbohydrate yields increased by 21 percent, from the lowest to the highest fertilizer rates, while lignin increased by 40 percent. This implies that fertilizing at higher rates will produce a poorer quality cellulosic ethanol feedstock Farmers will always grow corn crops with the grain as the primary commodity. Harvesting part of the crop residue may become a secondary commodity, if soils can tolerate the loss of some residue. Our results show that farmers can use less N fertilizer, between 67 to 101 kg per ha, at our Michigan field site to maximize their grain yields, whether they sell the grain to be used for food or fuel, and still produce a corn crop residue that is a better quality with more carbohydrates, less lignin, than if they had applied higher fertilizer rates. Even if farmers decide not to sell their residues and leave them in the field to improve soil quality for the next yearâ€™s crop, lower fertilizer rates are still beneficial. Crop residues grown at lower fertilizer rates have biochemical compositions that
are harder for microbes and bacteria to decompose than if they had been grown at higher fertilizer rates. Lower fertilizer rates therefore produce a crop residue that has a higher potential to sequester carbon in the soils. In other words, the crop residue grown at lower fertilizer rates is less likely to be decomposed, which would release that carbon to the atmosphere as carbon dioxide. Knowing the appropriate amount of N fertilizer that will maximize crop biochemical yields depending on their intended use has several benefits. First, it allows farmers to be more precise in their fertilizer applications and thereby save money on their fertilizer purchases. Second, not overfertilizing their fields will reduce environmental impacts such as nitrate leaching into groundwater and emissions of greenhouse gases. Third, the ability to produce better quality feedstocks for the biofuel industry may save companies time and money in the conversion process. Understanding how N fertilizer impacts specific biochemicals, such as carbohydrates, lignin and protein, can not only help farmers save money and reduce environmental impacts, but can also help the industries that they support by allowing farmers to produce better quality crops while maintaining their yields. Author: Morgan Gallagher Postdoctoral Researcher, Rice University/Michigan State University (713) 348-4114 email@example.com
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See you in Court, err… Arbitration? By Matthew H. McKinney
Determining how to resolve a business dispute is an important consideration for any business. For instance, will the business litigate the dispute in open court, before a judge at the local courthouse? Or, will the business prefer to resolve its dispute through alternative dispute resolution (ADR), behind closed doors, before a carefully selected arbitrator? The answers to these and other questions can substantially affect the outcome of the dispute, including the cost, confidentiality and time required to resolve the dispute. ADR provides businesses with various options for resolving disputes, two of which are mediation and arbitration. In general, mediation is a private, nonbinding form of dispute resolution. A mediator is a person who works to resolve the parties’ dispute by building a mutually agreeable outcome. Generally, a mediator will build to a resolution by utilizing shuttle diplomacy. In practice, mediation often begins by separating parties into separate rooms. After the mediator is educated as to the parties’ strengths and weaknesses in the case, the mediator will shuttle between rooms working to develop an agreeable resolution. Arbitration is a second form of dispute resolution that, depending upon the existence of a possible agreement, can either be binding or nonbinding. In arbitration, and similar to litigation, parties
20 | Ethanol Producer Magazine | may 2011
present their case to an independent third party. The third-party is referred to as the arbitrator, or in some circumstances, a panel of arbitrators. An arbitrator or panel will hear the case, consider the law, and ultimately render a judgment, much like a judge. ADR is frequently touted as providing several advantages over litigation. One regularly cited advantage is that the overall costs associated with proceeding by ADR are often lower than the costs of resolving a dispute through litigation. Additionally, as compared to litigation, procedural rules applied during an ADR proceeding are generally more flexible and often controlled by the parties—advantages that can simplify the proceedings as well as lower costs. Further, unlike litigation, in ADR, the parties often choose a neutral third party to resolve their dispute. This latter advantage can prove to be especially valuable in highly technical cases where the parties can carefully select an arbitrator with an appropriate degree of expertise in the relevant field of law (in litigation, the parties cannot select their judge). ADR is also chosen by parties that are seeking to limit disclosure of private or sensitive information. Unlike litigation, ADR proceedings are generally not open to the public and the parties’ filings are not subject to public disclosure. As a result, ADR is often used as a means of seeking resolution of a dispute without
compromising sensitive information or airing out the business’ dirty laundry. Several additional advantages are also regularly cited. While ADR may have several advantages, they can come at a cost. For example, in arbitration, a prevailing party may not be entitled to recover its attorneys’ fees and costs, whereas if the same claims were pursed in litigation, the prevailing party may be entitled to recover them. Further, unlike litigation, parties are generally required to pay arbitrators for their time and facilities, an extra upfront cost to resolving a dispute. Additionally, a party’s ability to appeal an arbitration award is severely limited and, as a result, an erroneous arbitration award cannot be easily overturned through appeal. Finally, discovery (the ability for a party to discover facts in a dispute, whether through written discovery, depositions or subpoena) may be more restricted or completely eliminated in ADR proceedings. Laws governing ADR can vary from state to state. If you are interested in utilizing ADR or simply have questions, you may want to consider consulting a licensed attorney. Author: Matthew McKinney Attorney, BrownWinick (515) 242-2468 email@example.com
business briefs People, Partnerships & Deals
Christina FitzGerald joined Baisch Engineering Inc. as its business development and marketing manager. She has 13 years of marketing experience in the architectural/engineering/constr uction industry. Based in Kaukauna, Wis., Baisch EngineerCertified Marketer Christina FitzGerald ing provides services will oversee Baisch nationally and interEngineering’s business development and nationally, including marketing. process, mechanical, civil, structural, architectural, electrical, instrumentation and process control and project administration services. Joe Sparano joined the board of directors of BlueFire Renewables Inc. Sparano completed a 15-month term this spring as executive advisor to the chairman the Western States Petroleum Association, where he also served as president. He was also president of Tesoro Petroleum’s West Coast Regional Business Unit. He serves on the board of CVR Energy Inc., a midcontinent U.S. independent petroleum refiner and marketer. He has served as chairman and CEO of Long Beach-based Pacific Refining Co. and in executive positions with Exxon, Ultramar, Union Pacific Resources/Champlin and Mercury Air Group. He also served as a consultant for TransCanada Pipelines’ Executive Management, and has been president of his own consulting firm. Carlos Riva has retired as CEO, director and president of Verenium Corp., effective the end of March. James Levine, was promoted to president and CEO. He previously held positions as executive vice president and chief financial officer. Jeffrey Black moved up to chief financial officer from his position as chief accounting offi22 | Ethanol Producer Magazine | may 2011
cer and Janet Roemer will continue as chief operating officer. Verenium also announced progress in its debt reduction plan, through the repurchase of $28.4 million of convertible notes in a series of privately negotiated transactions, leaving an aggregate of $46.3 million in principal outstanding. The company has repurchased $49.4 million in convertible notes since September. "We are very pleased to have completed these repurchases, and believe this is another important step in creating a capital structure that supports the continued growth and success of Verenium as we focus on building the next leading industrial enzymes company," Black said. "We believe that we have now reduced our debt to a more appropriate level for the company given our size and stage of development." Bill Richardson, former Governor of New Mexico and past DOE Secretary in the Clinton administration, has joined the international advisory board of Abengoa. He joins eight others on the advisory board, which includes Nobel Prize winner in chemistry, Mario Molina, and past chief economist for the World Bank, Nicholas Stern, among others. Based in Spain, Abengoa is the sixth-largest bioGovernor on Board Bill Richardson joins fuels producer in the Abengoa’s international U.S. and expects to advisory board. begin construction of its first commercial cellulosic ethanol plant in the U.S. at Hugoton, Kan., this summer. Enerkem Inc. appointed Jean-François Normand as vice president, project management. Prior to joining Enerkem, Normand was a director at Voith Hydro (previously Voith Siemens Hydro Power Generation), where he managed multiple
hydroelectric projects and also launched its Canadian construction and field service department. Previously, he worked at Bombardier as director for its transportation industrial division in Germany and also worked in its Aerospace division, where he oversaw strategic and operations improvement initiatives. He also held positions at General Electric in the hydropower generation sector, where he was involved in field services, site management, commissioning and quality management. Alvin W. Nienow has joined The Merrick Consultancy, the management, technical and operations consulting division of Merrick & Co. With over 40 years of experience in research and application of advanced mixing systems, at Merrick he will focus on bioprocessing for the manufacture of renewable fuels and chemicals. He served as a professor of biochemical engineering at the University of Stirring Expertise Alvin Nienow’s work Birmingham, UK. has focused on the His is a fellow of process design and scale-up of stirred the Royal Academy bioreactors. of Engineering, a fellow of the Institute of Chemical Engineers, a member of the American Institute of Chemical Engineers and an honorary member of the Czech Society of Chemical Engineering. Jeff Lautt was named president of Poet LLC., He has been with Poet since 2005, serving most recently as executive vice president of corporate operations. Company founder Jeff Broin will remain CEO and chairman of the board. “Over his six-year career at Poet, Jeff Lautt has continually taken on more and more of the daily operations of the company,” Broin said.
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“With more of the day-to-day operations in his hands, I can invest more of my time in planning the future of Poet and work on issues critical to the ethanol industry. Many of the challenges Poet faces are shared by the entire ethanol industry. As co-chairman of Poet President Jeff Lautt is Poet’s new Growth Energy, I president, moving up also look forward to from executive vice president of corporate working with othoperations. ers in the industry to face those challenges head-on.” Poet also announced that two of its plants in South Dakota reached a half-billion-gallon milestone this winter. The 79 MMgy Poet Biorefining-Big Stone plant started up in 2002 and the 110 MMgy Poet BiorefiningChancellor started up in 2003. According to the Argonne National Laboratory, one gallon of ethanol reduces CO2 emissions by 6.41 pounds. Therefore, the combined ethanol produced by the two plants over their lifespans has reduced carbon emissions by 3.2 million tons. Bob Walsh has joined ZeaChem Inc. as chief commercial officer. He brings decades of experience in both petroleum and biorefining to the executive team. Most recently, Walsh served as CEO and director of Aurora Biofuels in Alameda, Calif., which he joined after holding executive roles with LS9 and Royal Dutch Shell. Walsh spent 25 years with Shell in manufacturDrive to ing, supply, trading Commercialize and strategic planning Bob Walsh is brining decades of direct roles in both the U.S. industry experience and and Europe. Walsh relationships to his new role at ZeaChem. will lead ZeaChem’s
drive to commercialize a robust portfolio of biobased fuels and chemicals from cellulosic feedstocks. ZeaChem’s 250,000 gallon-per-year biorefinery in Boardman, Ore, broke ground in June, 2010, and is expected to come online later this year. LanzaTech received New Zealand’s NZBio 2011 company of the year award and its co-founder and chief scientist Sean Simpson won the 2011 young biotechnologist of the year award. The New Zealand biotech company has developed a microbe to ferment waste industrial gases into ethanol, running a pilot plant at the Glenbrook Steel Mill near Aukland for more than two years. It is now working with Baosteel in China, Posco in Korea and IndianOil to produce commercial levels of ethanol. Dyadic International Inc. has introduced an advanced biofuel enzyme, trademarked AlternaFuel CMAX. The company recently completed its scale-up of the new enzyme derived from its patented C1 platform technology, which is effective in converting multiple forms of biomass into fermentable sugars for cellulosic ethanol production. Delphi announced its originalequipment fuel products are compatible with E15. This includes approximately 166 SKUs covering 32 million vehicles from 2001 to the current model year, which the company says can accept up to 20 percent ethanol. Key drivers in developing green technologies to consumers as a strategic focus are increased vehicle performance, better fuel economy and maintaining emissions regulations for all fuel types.
Delphi has a long history developing ethanol-friendly components for original equipment manufacturers. In the U.S, Delphi has supplied E85-compatible technology to more than two million vehicles and has delivered E15 compatible fuel pumps to General Motors since 1992. Delphi’s gasoline fuel injection systems sold worldwide have been upgraded to deliver 100,000-mile-plus durability on E25. Novozymes received the gold ranking as top performer in the Dow Jones Sustainability Indexes for the second time in two years. The investment group Sustainable Asset management published its 2011 Sustainability Yearbook on behalf of the Dow Jones Sustainability Indexes. The best-performing companies across all sectors receive a SAM Gold rating award. The Dow Jones Sustainability Indexes are widely recognized, measuring sustainability performance over the past 11 years within more than 20 areas across economic, social, and environmental dimensions. Novozymes achieved the rank of sector leader in nine of those years, in addition to the gold ranking in the past two. CHS Inc. is investing $26 million to enhance its refined fuels supply infrastructure in the northern plains. The company will undertake nearly a dozen projects in the next three years to expand storage capacity at its terminals, improve and expand truck loading facilities, and streamline loading systems. CHS is planning to incorporate a more efficient ethanol blending system in improvements at both its Minot, N.D., and Glendive, Mont., facilities. may 2011 | Ethanol Producer Magazine | 23
ODVA has launched a new energy initiative, in cooperation with major suppliers including Cisco Systems, Rockwell Automation and Schneider Electric, to develop a comprehensive approach to the optimization of energy usage for the industrial consumer that is scalable, open and inclusive for both users and suppliers. ODVA’s energy approach will simplify the ability to understand energy consumption and enable control methodologies to optimize energy usage from the plant floor to the grid. Although understanding energy consumption is critical to truly optimizing plant-wide operations, production planners have not had all the necessary tools. ODVA said it seeks to change this situation by fostering best practices in energy resource allocation, including visibility of energy data throughout the layers of the production information systems. As the first action in its energy initiative, ODVA has formed a special interest group to develop specification enhancements for energy applications utilizing the Common Industrial Protocol, another one of its initiatives. VAC-U-MAX has introduced its 1020 portable vacuum cleaner to the ethanol industry. The industrial vacuum is capable of removing three to five tons per hour of explosive powders. The positive displacement pump, or rotary lobe, is available with a 10- or 15-horsepower motor, and the unit includes a high efficiency filter contributing to a better respiratory environment for workers. Terrabon Inc. announced it has exceeded its target yield threshold of 70 gallons of renewable cellulosic gasoline from one dry ton of waste feedstock at its demonstration facility in Bryan, Texas. Terrabon’s Mix24 | Ethanol Producer Magazine | may 2011
Alco process begins by treating feedstock with lime to enhance its digestibility, then fermenting with a mixed-culture of microorganisms to produce carboxylic acids. Calcium carbonate is added to the fermentation to neutralize the acids to form corresponding carboxylate salts, which are then dewatered, concentrated, dried and thermally converted to ketones. The ketones are then hydrogenated to alcohols that can be refined into renewable gasoline, diesel or jet fuel blendstocks. The company says the cellulosic gasoline product is a drop-in fuel that looks similar to cracked gasoline and can be a subcomponent of RBOB, which could then be blended with ethanol. SuGanit Systems Inc. received a $2 million grant from Ohio Third Frontier to establish a cellulosic ethanol pilot plant in Toledo, Ohio. The Reston, Va.-based startup company plans to have the pilot plant set up by the end of summer and have it operating by the end of 2011. It received $1 million from the same group a year ago to aid in its collaboration with the University of Toledo developing a conversion process using an ionic liquid pretreatment that allows the use of unmodified yeast to convert glucose and zylose to ethanol. Martin Engineering announced plans to open a business unit in Pune, India in 2011. The company has been active in the India market since 2004, establishing a presence through its licensee, Thejo, to distribute and support select bulk material handling technologies. Already incorporated in India, Martin Engineering completed a detailed market study and entry strategy in 2010, finding huge potential in further developing its business there. Founded in 1944, Martin Engineering makes bulk materials handling cleaner, safer and more productive. The
firm is headquartered in Neponset, Ill., with operations in Brazil, China, France, Germany, Indonesia, Mexico, South Africa, Turkey, and the UK. A team of researchers led by South Dakota State University plant geneticist Jose Gonzalez concluded research partially funded by the USDA and the U.S. DOE to sequence genes in prairie cordgrass. Like switchgrass, prairie cordgrass begins growing as soon as snow melts in the spring and continues to grow until the end of the growing season. Unlike switchgrass, which prefers higher-quality land conditions, cordgrass grows very well on marginal lands and in soils that contain high amounts of salts. Butamax Advanced Biofuels LLC, a DuPont-BP collaboration, has issued a patent infringement complaint against Englewood, Colo.-based Gevo Inc. According to Butamax, its patented biobutanol technology encompasses biocatalysts developed to produce isobutanol and provides protection for Butamax and its pioneering work in this field. Butamax has filed an extensive patent portfolio for its proprietary technology across the biofuels value chain, including biocatalyst, bioprocess and fuels. Gevo issued a rebuttal statement saying its Integrated Fermentation Technology is a fundamentally different approach than the one described in the Butamax patent allegedly violated. Brazil’s largest energy firms have established a joint venture—Logum Logisitca S.A.— to construct a dedicated ethanol transport system to link the main ethanol -producing regions of the country with each other and with port terminals. Petrobras, Cosan S.A. and Copersucar S.A.— the largest company in Latin America, the world’s fifth largest ethanol producer, and
Brazil’s largest sugar, ethanol and bioenergy company, respectively—each hold a 20 percent stake in the venture. Other stakeholders include two transportation and logistics firms as well as a Brazilian construction firm. The $3.6 billion multimodal ethanol logistics system will integrate existing waterway transport systems with dedicated ethanol pipelines and be capable of transporting 5.5 billion gallons of ethanol annually over approximately 807 miles. BP is acquiring majority control of the Brazilian ethanol and sugar producer Companhia Nacional de Açúcar e Álcool. When CNAA's assets are fully developed, this is expected to increase BP’s overall Brazilian production capacity to around 1.4 billion liters of ethanol per year (380 MMgy). BP has agreed to pay approximately $680 million to acquire 83 percent of the shares of CNAA and to refinance 100 percent of CNAA's existing long-term debt. After the acquisition, which is subject to regulatory approval and agreed closing conditions, BP will become the operator of two producing ethanol mills, located in Goiás and Minas Gerais states. A third CNAA mill is currently under development in Minas Gerais. Rockwell Automation has a new support program for older or discontinued Rockwell Automation products. The Lifecycle Service Agreement is part of its comprehensive Lifecycle Management Services, designed to identify, mitigate and reduce automation obsolescence risk. Three unique services are designed to provide “intensive care” for obsolete automation products. Reserved Repair customers are provided repairs even when maintenance resources or spare parts are constrained or are unavailable to the general public. Remote Support for Discontinued Product provides un-
Water for Haiti A reverse osmosis unit from a Michigan ethanol plant was redesigned to lower output, reducing cost of operation and materials, while still produced 6,000 gallons of clean drinking water every two hours.
U.S. Water Services led an effort to provide cleaning drinking water to Cite Soleil, Haiti, residents still recovering from a devastating earthquake in January 2010. The Global Ethanol plant in Riga, Mich., which became a part of Green Plains Renewable Energy Inc. in October, donated an existing reverse osmosis unit worth $132,000 to the project. U.S. Water Services took the lead providing engineering drawings for the water treatment system the site would need, as well as refurbishing the unit. Dow Chemical provided additional support donating a supply of membranes the unit would require. limited Web support for any obsolete or discontinued Rockwell Automation products included in the contract. On-Site Support for Discontinued Product provides annual preventive maintenance services, migration and conversion-planning support. The Lifecycle Service Agreement contract is part of the holistic Lifecycle Management Services offerings, which also includes an Installed Base Evaluation to help identify and pinpoint areas where product obsolescence occurs, as well as provide migration-planning support. Spraying Systems Co. is offering a new TankJet 360 Fluid Driven Tank Cleaner equipped with a dual- or triple-nozzle hub and high-impact, solid stream nozzles that rotate 360 degrees in horizontal and vertical planes. The rotation creates a crisscrossing
pattern to thoroughly clean tanks up to 100 feet in diameter and remove the stickiest of residues. In addition, high-impact cleaning results in shorter cycle times so tanks are returned to service more quickly. The units are customizable to the user’s operation and suitable for use in high-concentration chemical recirculation cleaning or low pressure, high-volume cleaning. All units are built to order.
Share your industry briefs To be included in Business Briefs, send information (including photos and logos if available) to: Business Briefs, Ethanol Producer Magazine, 308 Second Ave. N., Suite 304, Grand Forks ND 58203. You may also fax information to (701) 7468385, or e-mail it to firstname.lastname@example.org. Please include your name and telephone number in all correspondence.
commodities Natural Gas Report
Natural gas volatility decreases April 4—Over the past two years, natural gas prices have ranged from $2.50 to $5.80 per million Btu (MMBtu). That has tightened over the past year to $3.29 to $4.74 per MMBtu. Moreover, there hasn’t been a discernable price trend. Instead, the market has traded at an average price of $4.24 per MMBtu with a decreasing level of volatility. This trend is somewhat curious given the strength and volatility of other commodities such as oil and corn. What is different about natural gas, and why are pricing patterns different? There are two primary factors that set natural gas apart. First, natural gas is domestic, with both supply and demand constrained to the U.S. and Canada. In contrast, over 50 percent of U.S. oil requirements are met
By Casey Whelan
with imported oil from areas with significant geopolitical risk. In the corn market, with increasing wealth in countries such as India and China, demand for corn as a feedstock to produce protein has increased dramatically, and affordability has increased with a relatively weak U.S. dollar. Secondly, natural gas production is generally increasing each month while actual demand is still somewhat lagging potential demand with a sluggish recovery. Thus, the supply/demand balance supports price moderation. Finally, recent studies indicate companies can develop shale
resources profitably at a price somewhat over $4 per MMBtu due to technology advances. There is limited concern that drilling will drop dramatically causing rationing of limited supply based on price.
Corn sees exciting, fast gait since mid-March April 4—The corn market collapsed following Japan’s earthquake, shortly after news surfaced that China was in the market sparking buying interst. Another shocker came
26 | Ethanol Producer Magazine | may 2011
with the quarterly stocks report, indicating corn usage greater than expected. Corn stocks were down 15 percent from March 2010 to 6.52 billion bushels, showing December to February use at 3.53 billion bushels compared to 3.21 billion bushels last year. That puts U.S. carryout at an estimated 535 million bushels—a very tight 4 percent carry-outto-use ratio. The prospective planting report met market expectations at 92.2 million acres, up from 88.2 million acres a year ago and second largest historically behind 2007’s 93.5 million acres. Planned acres are up
BY JASON SAGEBIEL
in the Dakotas, Iowa, Kansas, Nebraska and Ohio. The planting season will be filled with anticipation and volatility. This new marketing year cannot afford any delay in corn plantings. In the meantime, the market will seek a price that rations corn demand. Through March, ethanol and livestock margins were still profitable. Inflation talk domestically and globally may curtail some future demand of raw commodities, counterbalanced by the weak U.S. dollar. Corn price action had no problems testing the levels of 2008 with highs in early April at $7.65 per bushel. The market will react on any of the above type of burdens and will take no issue with reaching for $8 plus per bushel. Remember, a 4 percent carry-out-touse ratio leaves the market very tight and very concerned.
Regional Ethanol Prices Front Month Futures (AC) $2.719 REGION
$3.033 SOURCE: DTN
Regional Gasoline Prices
DDGS buyers watch corn market in disbelief BY SEAN BRODERICK April 4—As we continue to digest the old crop stocks ramifications in the March 31 report, volatility dominates the CBOT futures. Although DDGS is trending with corn, distillers grains couldn’t keep pace with a nearly $1 per bushel move. Buyers have been slow to pay for the cash products, partly out of shock, but more out of disbelief. Many expected the report to be more negative. In the days leading up to the report, many domestic buyers booked a portion of their feed needs anywhere from two to six months out. For a group that had been hand to mouth for more than six months, this was a radical departure. Prices had not changed much in the pre-
vious month—the dip was a good buying opportunity. In exports, Canada and Mexico have been very steady buyers. There is Asian business in the Chicago container market, but little bulk business in the Gulf. Barge prices reflect that bulk business is suffering, whether from the Chinese anti-dumping case or the Korean buying pattern not yet recovered from its hoof and mouth disease issue. Indeed, Uruguay, which has not been seen in the market for a while, was a featured buyer last week! Looking ahead, corn will obviously lead the DDGS market, and spring and summer prices will be more volatile than normal.
Front Month Futures Price (RBOB) $3.2018 REGION
$3.143 SOURCE: DTN
DDGS Prices ($/ton) May 2011
may 2010 90
140 SOURCE: CHS Inc.
Corn Futures Prices Date
April 4, 2011 March 4, 2011 April 5, 2010
(May Futures, $/bushel)
Cash Sorghum Prices ($/bushel) LOCATION
Tight corn supplies spark ethanol buying interest BY RICK KMENT April 4—Ethanol and gasoline prices have surged higher through March, remaining incredibly firm based on both increased expected demand for gasoline, as well as sharply higher corn prices creating feverish buying activity in the ethanol market. Since the second week of March, RBOB gasoline prices increased more than 40 cents per gallon, driving prices to the highest level since 2008. Added to gasoline futures pushing over $3 per gallon, consumers are adopting more cautious driving patterns. Yet, tight supplies and overall increasing demand along summer seasonal patterns, as well as Middle East oil concerns, have kept the market aggressively bullish. Commercial demand is just part of the equation;
increased interest in commodities by investors is helping to solidify recent gains. Ethanol futures posted sharp gains following corn. Corn futures rallied to historic highs through the first week in April, gaining more than $1 per bushel in less than a week on the concern that even elevated planted acres will still not curb surging demand and tight stocks. This pushed ethanol futures over 45 cents higher in the previous three weeks, based on the increased cost of production due to corn price levels. Even though ethanol markets closely follow the corn market, the surge in gasoline prices and ethanol prices trading at a 50-cent discount to the gasoline market is helping to spark increased blending activity.
apr 1, 2011
feb 24, 2011
mar 25, 2010
SOURCE: Sorghum Synergies
Natural Gas Prices LOCATION
apr 1, 2011
Mar 1, 2011
Apr 1, 2010
SOURCE: U.S. Energy Services Inc.
U.S. Ethanol Production
SOURCE: U.S. Energy Information Administration
may 2011 | Ethanol Producer Magazine | 27
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Ethanol News & Trends
The Push Out
Ethanol consumption is up, petroleum imports are down—is it sustainable? If ethanol were delivered with a marketing slogan at the pump, rather than a legal warning, a good choice might be: “Now displacing even more foreign oil!” It’s been the industry’s rallying cry for years. For many producers, it’s their mantra for staying in the business. They want to be a part of a domestic energy industry that helps to reduce the nation’s dependence on foreign oil. But is ethanol really displacing foreign oil? The proof is in the pudding, as the old saying goes, and the numbers are adding up in ethanol’s favor, despite the opposition’s continued unfounded claims to the opposite. According to data compiled by U.S. DOE Energy Information Administration, the U.S. ethanol industry produced 13.23 billion gallons of ethanol in 2010, up from 10.75 billion gallons the year before. Of the total amount of ethanol produced in the U.S. last year, approximately 397 million gallons were exported, leaving about 13 billion gallons to be consumed by American vehicles. This total still represents less than 10 percent of the 138 billion gallons of fuel consumed by gas-powered U.S. vehicles last
year, but it deserves to be noted that ethanol use has grown, and continues to grow. In 2001, 1.7 billion gallons of ethanol were used in the U.S. According to EIA estimates, 14 billion gallons of ethanol will be consumed in 2012. Petroleum imports, meanwhile, are declining. The Renewable Fuels Association says ethanol production in 2010 reduced the nation’s demand for imported oil by 445 million barrels. “That is more oil than we import from Saudi Arabia each year,” RFA President Bob Dinneen says. “At a time of increased energy uncertainty and volatility, domestic ethanol production from a growing array of feedstocks is helping create the kind of economic and energy opportunities this country will need to regain control over our energy future.” Sander Cohan, a principal specializing in alternative fuels at energy markets research and consulting firm Energy Security Analysis Inc., tracks petroleum imports and domestic ethanol consumption for his firm’s petroleum clients and notes that imports have been down during the first few months of 2011
while ethanol consumption has increased. But he hesitates to link the two. “There is evidence that [petroleum] is getting pushed out,” he says. “Ethanol blending has gone through the roof since the blending margins started opening up in mid-March,” he said in early April. “Imports have been pretty low, especially in the last two months. Whether or not they’re directly correlated remains to be seen.” He notes that because the ethanol industry is still relatively young, it’s difficult at this point to predict seasonal demand. So while it is good news that more ethanol is being consumed and fewer gallons of oil are being imported, the question now is: How much can ethanol consumption grow? Cohan believes logistics is a key factor in answering that question. “Ethanol blending is just over 9 percent of total gasoline demand,” he says. “We’re starting to approach the E10 limit, which is the infrastructural limit. The trick for ethanol for that last 0.9 percent is going to be getting the ethanol to the pump.” In testimony delivered March 30 to the U.S. Senate agriculture committee, EIA Administrator Richard
Petroleum Trade: Imports
Crude Oil and Petroleum Products
(Million barrels per day) Total, 1973-2010
2009 2010 2011
Petroleum Products 0
Data compiled by the U.S. DOE Energy Information Administration shows declining demand for petroleum imports. Source: U.S. DOE ENERGY INFORMATION ADMINISTRATION
30 | Ethanol Producer Magazine | may 2011
Fuel Ethanol Consumption Per Year
Fuel Ethanol Production
(In thousand barrels)
(In million gallons per year)
350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 00 01 02 03 20 20 04 20 20 20
00 01 02 03 20 20 04 20 20 20
Ethanol production and consumption have grown at nearly identical rates in the past decade. The EIA expects that trend to continue this year at a somewhat slower pace due to market constraints. Source: U.S. DOE ENERGY INFORMATION ADMINISTRATION
Newell said the agency expects slow growth in the ethanol industry over the next two years, due partially to the E10 blend wall. Concerns over potential misfueling and infrastructure limitations will result in a slow market penetration of E15, and E85 use is not expected to grow significantly, he said. A few important factors are expected to continue to work in ethanol’s favor, however.
Cohan says increasing blending requirements under the renewable fuel standard will continue to drive ethanol consumption. He also expects discretionary blending to continue, even if the blenders credit is eliminated, due to high gas prices. “Even though ethanol prices are relatively high, gas is still higher, so there is reason to blend ethanol,” he says. To that effect, Newell
130,000 metric tons in December to 229,000 metric tons in January. China announced its anti-dumping investigation the end of 2010. In just three years, U.S. exports to China went from zero to a whopping 3.1 million metric tons. That put the country on the top of the list of export destinations, followed by Mexico and Canada. To rule against the U.S., China must show evidence that DDGS have been dumped on the Chinese market at prices lower than what other buyers pay, injuring Chinese interests. The decision is expected by the end of 2011, with the possibility of a six-month extension. China has a strong and dynamic economy
Exports to China drop, but increase dramatically to Mexico As expected, China’s anti-dumping investigation into U.S. DDGS slowed exports to the country in January. A surge in exports to other areas made up the difference, however. Total DDGS exports were at 714,000 metric tons, virtually identical to the 713,600 metric tons exported the previous month, according to government data released in March. China, the top export market in 2010, exported 129,000 metric tons, down 30 percent. On the other hand, exports to Mexico surged 76 percent, jumping from
said in March that the EIA expects world oil markets to continue to tighten through 2012, which will likely translate into oil prices averaging slightly more than $100 per barrel for the next two years. The EIA’s shortterm energy outlook, released on March 8, predicts retail gasoline will average $3.56 per gallon this year, an increase of 77 cents per gallon over the 2010 average. —Kris Bevill
that recently passed up Japan as the second largest economy in the world, says Rebecca Bratter, U.S. Grains Council director of trade development. As countries grow and industrialize their ag sector, such as hog or dairy industries, more protein inputs, such as DDGS or corn are needed. From USGC’s point of view, the increases are part of the normal course of trade. “Things changed very fast for China,” she said, “and I think going from a net exporter to a net importer of any product is going to involve a period of adjustment and I think that’s the phase we’re in right now.” —Holly Jessen
may 2011 | Ethanol Producer Magazine | 31
Points of Interest Plant map shows industry growth, change Each spring, the staff at Ethanol Producer Magazine takes a close look at the industry, as it prepares the spring wall map enclosed with this issue. We were pleased this spring to work with the University of North Dakota’s Department of Earth System Science and Policy to add new contextual features to the map and improve plant location accuracy. We now count 211 ethanol plants in the U.S., both operating and idled, adding up to 14.31 billion gallons of annual capacity. Many producers routinely offer updates to their capacities as they squeeze more ethanol out of their plants. That is an average capacity of 67 MMgy, compared to spring 2005 when there were 92 operational plants on the list, totaling 3.85 billion gallons and averaging 42 MMgy. We also show three conventional plants under construction, although they may not really count—all three, two Aventine Renewable Energy Inc. plants in Aurora, Neb., and Mount Vernon, Ind., (which announced completion of commisisoning after our deadline) and the former Panda Hereford Ethanol LP in Texas, were under construction at the end of the build-out boom when work was suspended in tough economic times. Compare that to spring of 2007 when we showed 57 plants under construction. Total existing capacity of the 121 operating and idled plants that spring was 5.9 billion gallons. Of the 24 proposed
plants on this spring’s map using a sugar/starch platform, half expect to use corn, some in conjunction with other feedstocks, while other proposed projects are looking at sweet sorghum, sugarcane and small grains. Change in the corn ethanol industry now is occurring in acquisitions and mergers. Hawkeye Energy Holdings LLC once was a regular in the Top 10 list. It has been replaced by Flint Hills Resources LP, which completed the acquisition of Hawkeye’s four plants this winter. We show Flint Hills as the fifth largest producer in volume, bumping Abengoa Bioenergy Corp. to number six. When Poet LLC bought the 90 MMgy plant at Cloverdale, Ind., this past year, it stepped back up to the No. 1 spot, easing Archer Daniels Midland Co. into second place. Valero Renewable Fuels LLC maintains its spot in third place and Green Plains Renewable Energy Inc. in fourth. The real action is turning to cellulosic ethanol development, reflected in the decision to include those plants on the map beginning
In comments filed with the EPA, Growth Energy gave one example of the report’s technical inaccuracies. “Line 97 in Chapter 3 states ‘…the percentage of corn acreage dedicated to ethanol could rise.’ Although the economics of corn production are enhanced by ethanol, a corn crop is typically not planted for the primary purpose of ethanol production,” the group stated. The Renewable Fuels Association took issue with the report’s failure to include a baseline petroleum comparison for environmental im-
First triennial biofuels report being drafted for Congress The U.S. EPA is in the process of preparing its first triennial report to Congress on biofuels, as required in the Energy Independence and Security Act of 2007. An initial draft released in late February drew harsh criticism from ethanol groups, who said the draft went too far in assuming worst-case scenarios and, in some instances, simply wasn’t technically accurate. 32 | Ethanol Producer Magazine | may 2011
in spring 2010. This spring, we have 38 plants on our list, with seven completed plants meeting our minimum capacity requirement of 0.25 MMgy. Completed plants have a total capacity of 18.8 MMgy. Another six plants are under construction, representing 52.8 MMgy and 25 are proposed, which, if all were completed, would add 839.2 MMgy of cellulosic ethanol capacity. The cellulosic space is tough to map, though. Some very viable contenders aren’t on the list because their existing demonstration plants are below the threshold, or because they haven’t named a location. One can’t put a dot on a map without a location. We expect this part of the map to grow, and are already discussing how we will track hybrids, once corn producers begin adding cellulosic modules. — Susanne Retka Schill
pacts and said the report should be significantly revised before it is presented to Congress. The EPA held a peer review meeting on March 14 to review the draft, but none of the panel members, all of whom were selected by the EPA, were representatives of the biofuels industry. Industry members familiar with the draft say the report will only serve to reinforce ill-conceived notions about biofuels in comparison to fossil fuels. The final report is due to Congress midyear and will be used to influence future biofuels policy. —Kris Bevill
With $3.5 million in financing secured from Third Eye Capital Corp., a 55 MMgy ethanol plant in Keyes, Calif., is ready to restart after standing idle for nearly two years. The company’s aim is to begin producing ethanol in April. “We expect that the plant will follow a typical ramp-up timeline and should reach full capacity by mid-summer,” says Andy Foster, president and chief operating officer of AE Biofuels Inc.’s advanced biofuels division. AE Advanced Fuels Keyes Inc., a wholly-owned subsidiary of AE Biofuels, previously received $4.5 million for the repair and retrofit of the facility, which was largely complete in late March. AE Keyes has a lease agreement with Cilion Inc. to operate the plant. “A significant amount of work has taken place to retrofit the plant in order to correct some initial process design issues (valve
replacement and repiping),” Foster says. “To date, AE Advanced Fuels has spent over $4 million on repairs and retrofit.” The company intends to restart the plant using corn as the Restarting Production By late March, AE Advanced Fuels had hired 40 new employees feedstock and to work at this 55 MMgy ethanol plant in California. scale up its testing process for its next-generation technology as corn stover, corn cobs and wheat straw.” in the second half of the year. “As our pro- The company is also in discussion with other cess has always anticipated integrating the California ethanol producers “who have incellulosic technology at existing corn etha- dicated a strong interest in testing and evennol plants, corn feedstock will continue to tually deploying our proprietary technology be utilized,” he says. “Additional non-corn at their plants.” —Holly Jessen feedstocks may include crop wastes such
Photo: AE Advanced keys
AE Advanced Fuels plant gets needed financing
Putting a Face on Ethanol More than 60 people from 16 states joined the American Coalition for Ethanol for its “Biofuels Beltway March”—the organization’s third annual fly-in to Capitol Hill. “There has never been a more urgent time to bring grassroots ethanol voices to Capitol Hill, and ACE is pleased to organize this timely fly-in,” says Brian Jennings, executive vice president of ACE. “ACE members will put a human face on why the U.S. needs to support American ethanol.” The group had 160 meetings with members of U.S. Congress or their staff, educating legislators from 43 states about ethanol. The goal was to show the proven benefits of ethanol and promote fuel choice through installation of blender pumps and increased numbers of flex-fuel vehicles. The group also planned to talk about reforming the Volumetric Ethanol Excise Tax Credit rather than repealing it. The meetings reached nearly half the
freshman members of Congress and more than half of those that voted against E15 or blender pumps. “We are not preaching to the choir,” he says. “We’re putting boots on the ground to meet one-on-one with people who need to learn the facts about ethanol, and we planned to make a real impact in these two days.” The group also heard from special guests USDA Under Secretary for Rural Development Dallas Tonsager, Sen. Amy Klobuchar, D-Minn., Sen. John Thune, R-S.D., part of the GOP leadership and member of the Senator Finance Committee which has jurisdiction over ethanol tax issues. Also joining the group was Wisconsin Bio Industry Alliance member Bob Schauf, a board member and farmer from Western Wisconsin. “We are glad we had the opportunity to speak with members of Congress about this issue,” he says. “It was important that they heard di-
PHOTO: AMERICAN COALITION FOR ETHANOL
60 people hold 160 meetings in DC fly-in
Biofuels in the Beltway Ethanol advocates Jeff Sandborn, Michigan, Wesley Spurlock, Texas, and Darrin Ihnen, South Dakota pause in front of the U.S. Capitol during the third annual ACE “Biofuels Beltway March.”
rectly about how crucial ethanol is to the nation’s agricultural economy and energy security.” —Holly Jessen may 2011 | Ethanol Producer Magazine | 33
Hot New Feedstock? The concept of converting alcohol or soda pop waste to ethanol has been generating buzz lately. There’s just something about it that causes people to sit up and take notice. It’s not a new idea. The Merrick/Coors 3 MMgy ethanol plant in Golden, Colo., has been producing ethanol from waste beer since 1996, says Steve Wagner, vice president. In addition, two plants owned by Parallel Products in Rancho Cucamonga, Calif., and Louisville, Ky., produce a combined 10 MMgy from beverage waste such as alcoholic beverages, juice and pop. There are several sources of waste in beer manufacturing that can be used as an ethanol feedstock, Wagner tells EPM. One is from the yeast generated in the beer production process—as it is dried, the yeast condensate contains about 13 percent ethanol. Some waste occurs during the packaging process—any beer that spills when filling bottles can go into ethanol production. Finally, there’s aged discards or reclaimed beer that didn’t pass taste tests, he says, adding that all beer makers have similar waste streams. “Like Bill Coors used to say, ‘A waste stream is just a revenue stream that hasn’t been taken advantage of ’,” he says. Waste beverage-to-ethanol production is a big emerging market right now and there is room for expansion, Wagner tells EPM. Waste-derived ethanol is considered an advanced biofuel by the U.S. EPA and the renewable fuels standard calls for increasing amounts of advanced and cellulosic biofuels through 2022 while the corn ethanol requirement is limited to 15 billion gallons, he points out. That creates opportunities for obligated parties looking to fulfill those requirements. In fact, Wagner is actively working on a project to build another ethanol plant in upstate New York. The proposed plant would produce ethanol from a variety of waste or food-derived feedstocks, such as pop. Like 34 | Ethanol Producer Magazine | may 2011
the existing beverage waste ethanol plants, the facility will be small, perhaps 2 to 3 MMgy. A waste feedstock typically costs companies money to dispose of, Wagner says. Using it for ethanol production can mean that the company disposing of it can reduce their disposal costs and the ethanol production company gets a feedstock plus a tipping fee for receiving it. Another possible model is a partnership to share profits between the company disposing of the waste product and the ethanol plant. Danielle BellPop Power Danielle Bellmer, an Oklahoma State University professor, watches as a mer, an Oklahoma student works on a research project to turn pop to ethanol. State University professor, has studied turning waste pop into converts to about 6 to 7 percent alcohol. “It ethanol and found it’s not that difficult. She doesn’t get much easier than that, really,” started the process in 2009 when she was said the associate professor of biosystems contacted by a recycling company looking engineering in the food and agricultural for an alternate way to get rid of waste pop. products research center. The company adjusts the pH level of the The catch is that ethanol production waste product and sends it to a local waste- from waste beverages wouldn’t likely be ecwater treatment plant, which can be costly, onomically viable if the feedstock had to be since such facilities only accept limited quan- transported long distances. Ideally, this type tities. of plant would be located nearby or even Bellmer and her students added a ni- co-located with a bottling plant. “What’s trogen source and a common dry yeast to great about it is that people can relate to it,” the waste pop. In three to 10 days it had she says. “We are turning waste into fuel.” fermented into ethanol. The 12 to 13 per- —Holly Jessen cent sugar found in one two liter of pop
PHOTO: TODD JOHNSON
There’s room for expansion in beverage waste-to-ethanol production
Illinois River Energy plans to extract zein protein from corn Plans are under way to construct a commercial-scale zein protein production facility next to the 110 MMgy Illinois River Energy plant located near Rochelle, Ill. Prairie Gold Inc., a Bloomington, Ill.,-based technology developer, and Itasca, Ill.,-based GTL Resources USA Inc., the owner/operator of Illinois River Energy, are collaborating to develop Prairie Gold’s proprietary zein extraction process and to produce high purity zein samples for potential end-use customers at their pilot-scale zein plant in Rochelle. A detailed engineering study is currently being conducted to determine equipment sizing and other cost requirements necessary to scale the pilot plant to a commercial-scale facility capable of producing several million pounds of zein annually. The permitting planning process has also commenced, according to GTL CEO Richard Ruebe. Prairie Gold President Philip Shane says a groundbreaking for the planned facility could be held toward the end of this year. Zein is a natural, corn-based polymer with a wide variety of applications in multiple industries. Because of its wide range of uses, the product commands a high market price of about $18 per pound, according to Shane. But despite the potential for a solid revenue stream there are currently few producers exploring zein production. Shane says there are only two companies he is aware of in the zein production industry—Freeman Industries LLC, a Massachusetts-based wet corn mill company, and Poet LLC. Each of the three technologies uses slightly different methods to extract zein from the corn. Prairie Gold’s technology is unique in that it uses virgin corn flour and extracts the zein protein prior to treating the corn with heat or chemicals, resulting in a higher-quality product, according to the company. Ruebe says the commercial plant at Illinois River Energy will be the first of its kind to use this type of process. Ruebe declined to disclose anticipated capital costs for the construction of the fa-
cility or for production costs, but says GTL and Prairie Gold are full partners and will share the costs at undisclosed percentages. Prairie Gold is contributing the technology to the collaboration, while GTL will provide the manufacturing, engineering, construction and production expertise. The collaboration agreement identifies Illinois River Energy as the first commercial plant, but Ruebe says the possibility remains for others to become zein producers using Prairie Gold’s technology. For now, though, GTL holds exclusivity rights to use the technology. “As the market expands beyond what our plant at Illinois River Energy can do, yes there will be an opportunity for other plants to adopt this technology,” he says. “But it’s the intent of the collaboration agreement for Prairie Gold and GTL to work together to produce a substantial amount of zein protein.” GTL’s involvement in zein production is indicative of a growing interest among ethanol producers to diversify their revenue streams in order to remain profitable. Ruebe says his company is also exploring various other coproduct options, including front-end corn oil extraction. “GTL’s intent is to grow from its base ethanol plant into a suite of biorefinery products,” he says. “Zein protein is one high-value product that’s essentially embedded in the corn, and this proprietary technique releases it for commercialization. It’s our intent to do other types of diversified expansions from our ethanol plant. Hopefully, this is the first successful adoption of that growth and expansion strategy.” But while the industry is coming to terms with the need to produce a fleet of products, the lack of financing opportunities dampens any possibility of a widespread expansion soon. GTL has been able to finance its project primarily through overseas equity investors. The company trades as “GTL” on the Alternative Investment Market of the London Stock Exchange and Ruebe says GTL’s UK investors believe in the company’s strat-
Powerful Powder Prairie Gold Inc.’s patented zein protein production technology extracts the zein from corn kernels prior to treatment for ethanol production, resulting in a more pure product, according to Prairie Gold President Philip Shane. The finished product, dubbed Amazein, can be used as an ingredient in various industries for everything from food production to biodegradable plastics. PHOTO: PRAIRIE GOLD INC.
egy and support the diversification project. The company has also fostered relationships forged with U.S. banks since 2006 when the ethanol plant was first built and has received support from various state agencies. “The Illinois Finance Authority, the Illinois Department of Commerce and Economic Development, the Governor’s Enterprise Zone planners, Rochelle’s Economic Development team, our friends within Illinois Corn Grower Associations, and several specialists from the University of Illinois community have all been instrumental in supporting and advancing the company’s growth initiatives since the ethanol plant’s inception,” Ruebe says. “We have the good fortune of being associated with quite an elite business development group.” —Kris Bevill may 2011 | Ethanol Producer Magazine | 35
Biogas from Syrup
Ethanol byproduct targeted for bio-power production The ethanol plant might not have come to fruition but the bio-power concept is still moving forward thanks to Houston, Texas,based Natural Chem Holdings LLC. Construction was never completed on Renova Energy Idaho LLC, a 20 MMgy ethanol plant in Heyburn, Idaho. The plant’s planned anaerobic digester, on the other hand, will be completed and upgraded to produce biogas using syrup from ethanol production, as well as cheese waste streams. Originally, the ethanol plant planned to produce 3 megawatts to power the facility. Natural Chem will sell its power to the grid. “It’s definitely an interesting concept,” says CEO Bob Salazar. “After studying it and bringing biogas expertise on to our management team, we did feel that this is a golden opportunity to take waste streams from the local industries or very low byproduct streams and convert them into higher value biogas, bio-power.” The company spent $2.4 million to purchase the digester and land at auction and hopes to start construction on the digester by late summer. An additional $12 million will be spent to add a biogas purification system
to produce the pipeline specification biomethane and install a short-distance pipeline to the local natural gas grid. The company wants to produce bioliquefied natural gas and biopower for export to California. Repurposing Natural Chem Holdings LLC purchased the site of a “Our game plan would be to partially constructed ethanol plant in Heyburn, Idaho. The company was interested in the underground tank farm and an anaerobic digester. triple capacity over the next two to three years,” he says, adding that biogas re- now is that we would buy ethanol from Pacific duces greenhouse gas emissions by up to 150 and do some blending and offer all grades of percent compared to regular natural gas. gasoline on a blended basis to the local marIn addition, the company will utilize an ket,” he says. underground tank farm at Heyburn to deIf the concept of producing biogas from velop an Eco-Fuels Terminal for blending syrup proves itself in Heyburn the company gasoline and diesel, both with and without is interested in taking the idea to other areas ethanol or biodiesel. The site currently has 17 with three to four nearby ethanol plants. For underground tanks with piping and the com- example, one area of interest is the Texas Panpany plans to add above-ground facilities such handle, the location of several large dry-mill as truck receiving and loading, as well as com- ethanol plants, where Natural Chem could puterized systems for 24/7 operations. build a digester to consume syrup from the The Pacific Ethanol Magic Valley LLC plants. “We would then seek to commercialize ethanol plant in Burley, Idaho, is located less this concept on a much broader scale, maybe than 10 minutes away from the anaerobic di- taking it to 20 or 30 additional ethanol plants gester. The proximity makes it an ideal source in the future,” he said. —Holly Jessen for syrup as well as ethanol. “The idea right
E10 still on in Germany
a lot of misinformation has been circulating, including a widespread rumor that the introduction of E10 would be halted. Rob Vierhout, secretary general of ePURE, the industry association representing European ethanol producers, agreed with his assessment. “Consumers have simply not had sufficient information,” he said. “This has been exacerbated by misinformation from those who are opposed to biofuels.” In order for a “successful and userfriendly” introduction of E10, the groups that met at the fuel summit agreed on a list of responsibilities moving forward. For example,
Opposition circulates rumors, misinformation about biofuel Despite the fact that E10 is being used successfully as a transportation fuel in the U.S., France and Sweden, its introduction in Germany has been difficult. In early March German Economy Minister Rainer Bruederle called a fuel summit, during which it was announced that the country would proceed with the roll-out of E10. The root of the problem is consumer confusion, according to Lutz Guderjahn, board member of CropEnergies, a European ethanol producer. There was a failure to inform customers about E10 in advance and 36 | Ethanol Producer Magazine | may 2011
it was determined that since gas stations are where consumers have access to the fuel, the oil companies must immediately offer information to its customers about what vehicles are compatible with the fuel. In addition, it was stated that the oil industry and automobile sector would continue to ramp up promotions of Super E10 to the public as well as creating an E10 website. Other responsibilities were passed out to manufacturers, the German Federation for Motor Trades, as well as the agricultural and biofuel industries. “E10 makes an important contribution to environmental and climate protection and resource conservation and energy security,” according to a document developed during the fuel summit. —Holly Jessen
Commercial Conversion Cellulosic ethanol technology that began being developed in 2006 is on its way to becoming commercial, following the final approval of $20.5 million in cost sharing from the U.S. DOE. Last April, the DOE released $2.8 million of the award to EdeniQ Inc. and Logos Technologies Inc. to design and engineer its trademarked Corn-to-Cellulosic Migration pilot plant at EdeniQ’s headquarters in Visalia, Calif., located about 45 miles southeast of Fresno. In February, the agency approved the remaining $17.7 million, signaling the companies’ success in meeting the design and engineering goals, and paving the way for the completion of engineering and construction of the plant. The total cost of the project is $25.5 million, of which EdeniQ has agreed to provide 20 percent. Funds from the DOE were made available through its Integrated Biorefinery Program. EdeniQ has been operating a pilot facility at its headquarters since 2008. It will now be retrofitted for its CCM technology, which consists of a proprietary pre-treatment step known as the Cellunator, which mechanically breaks down multiple types of biomass, followed by enzymatic hydrolysis to convert the biomass to sugars and fermentation to convert the sugars to ethanol. Planned feedstocks include corn stover initially, followed by woody biomass and switchgrass. When commercialized, the tech-
nology can be applied to traditional corn ethanol plants in one of two ways: as a bolt-on addition to the corn ethanol stream, or as a total retrofit. “The Corn-to-Cellulosic Migration technologies add tremendous value to our already robust corn ethanol industry by allowing them to incrementally add on cellulosic ethanol production and take a leadership role in this exploding biofuels market space,” says EdeniQ CEO Brian Thome. The retrofit of EdeniQ’s pilot plant is scheduled to be complete by the end of the year, with commissioning planned to commence in 2012. By 2013, the company expects to commercialize its technology. The timing fits for corn ethanol producers who are increasingly becoming interested in diversifying their processes to produce various products. Dan Derr, project manager for Logos, which is handling the project management, engineering support and project life cycle analysis for the CCM project, says this technology “most certainly” meets the federal government’s renewed call for renewable fuels production. The process results in a coproduct similar to distillers grains, but also generates electricity, which makes it very interesting to private investors seeking to get a piece of the renewable energy industry. Perhaps more importantly, it could also allow corn ethanol producers a way to include cellulosic ethanol in their revenue streams. EdeniQ officials say
EdeniQ Inc.’s Corn-to-Cellulosic Migration technology can be added to an existing corn ethanol facility or used to completely retrofit the plant to produce cellulosic ethanol, animal feed and electricity.
PHOTO: EDENIQ INC.
EdeniQ, Logos Technologies engineer corn-to-cellulosic technology.
EdeniQ Inc.’s pilot-scale ethanol production facility in Visalia, Calif., will be retrofitted with its trademarked Corn-to-Cellulosic Migration technology.
their early conversations with corn ethanol producers have shown that many are interested in the possibilities their technology has to offer. “Many have said they are very interested in developing the capability to add on the capacity to convert stover and other biomass into ethanol to diversify their risk and increase the scope of their operations,” says Peter Kilner, vice president of business development. The main focus of EdeniQ officials now centers on developing proprietary yeasts and enzymes. Tom Griffin, vice president of technology at EdeniQ, says the company is employing a combination of externally developed and internally developed enzymes. “The approach is to look for and get rights to key enzymes that come from a range of organisms,” he says. “We’ve taken these enzymes and incorporated them into organisms that can do other things, particularly to make ethanol but not only that.” The company’s most notable collaboration so far has been with the USDA Forest Service’s Forest Products Laboratory, which has produced promising advancements regarding the C5 yeast. “We have very exciting leads in terms of our yeasts and enzymes that are being applied to our CCM project,” Griffin says. “We believe they will prove to be superior in terms of their throughput and robustness and ultimately, cost. But equally, and maybe even more so in terms of our uniqueness, is the way we are bringing our pretreatment technologies to the platform as well and integrating these with our yeasts and enzymes.” —Kris Bevill
ILLUSTRATION: EDENIQ INC.
may 2011 | Ethanol Producer Magazine | 37
Fostering a Friendship
are developing jet fuels from sugarcane and interest from the U.S. in those fuels could in turn result in an elimination of the ethanol import tariff. “Even avid supporters of heavy subsidies and steep tariffs that prevent Brazilian ethanol from entering the U.S. market competitively are now openly discussing what happens next, both in terms of technologies and policy,” he says. “Without admitting it, they’re in fact recognizing that the current situation can’t last much longer because it works against everyone’s best interests.”
Will the US, Brazil working agreement on aviation biofuels bring an end to tariffs? In March, President Barack Obama travelled to Brazil to meet with the country’s new president, Dilma Rousseff, and discuss a continued strategic partnership between the two nations to increase Brazil’s use of clean energy, including biofuels. During the visit, the pair announced an expanded memorandum of understanding to advance the development of aviation biofuels. Marcos Jank, president and CEO of Brazil’s sugarcane industry association (UNICA) says several companies
Adding to the Mix
to the facility before restarting and anticipates making a series of additional investments in the future to develop the plant into a biorefinery complex, capable of producing a variety of products. Cargill currently operates a 195 MMgy ethanol plant in Blair, Neb., and a 35 MMgy plant in Eddyville, Iowa. “We see an opportunity in Fort Dodge to replicate
Cargill eyes diversification at newly acquired Iowa ethanol plant Cargill Inc. recently announced it has acquired the former Tate & Lyle ethanol plant at Fort Dodge, Iowa, for $57 million, and plans to restart the 115 MMgy facility within 18 to 24 months. The wet mill ethanol plant was reportedly never fully completed. Cargill says it plans to make efficiency modifications
Jose Sergio Gabrielli de Azevedo, president and CEO of integrated energy firm Petrobras, a partner on several cellulosic ethanol projects including one with U.S.-based KL Energy Corp., says the attention being given by Obama to the relationship with Brazil is positive for the energy sector. “The U.S. government is now starting to consider the strategic value of this relationship among businesses, one which is currently only taking place on a commercial, market basis,” he recently stated. “New channels and mechanisms are needed to assess and facilitate this relationship.” —Kris Bevill
the success we have had at our Blair and Eddyville biorefinery campuses,” says Alan Willits, president of Cargill Corn Milling North America. “When completed, Fort Dodge will be a world-class biorefinery campus that will produce ethanol and other biobased products. We will achieve energy and operational efficiency while respecting the environment and natural resources, as we have in Blair and Eddyville.” —Kris Bevill
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Engineering students optimize snowmobiles for ethanol blends Out of 17 snowmobiles participating in a 100-mile endurance test using a 28.7 percent blend of ethanol, only three made it to the finish line without being disqualified. The winner of the Gage Products award for best fuel economy was a team of students from Clarkson University in Potsdam, N.Y, who achieved 21.68 miles per gallon (mpg) fuel economy. Thirteen universities from the U.S. and Canada participated in this year’s annual Society of Automotive Engineers Clean Snowmobile Challenge. The event was held March 7-12 at Michigan Technological University in Houghton, Mich. A team from the University of Wisconsin-Platteville captured second place in the fuel economy contest, with 17 mpg and the University of Idaho in Moscow took third place with 16.95 mpg. The catch was that the competitors didn’t know exactly what ethanol blend would be used the day of the competition, says Andrew Desrosiers, a student from the winning team and a dual major in mechanical and aeronautical engineering at Clarkson. The blend could be anywhere between E20 to
E29. “The sled has to be able to run on any range,” he says. Ironically, the winning team had trouble even finding ethanol to conduct testing before the competition. Located in northern New York, the fuel isn’t easily accessible and the cost was Winning Strategy Students from Clarkson University pose with their prohibitive to have it shipped re-engineered snowmobile, which won best fuel economy in the Society of Automotive Engineers Clean Snowmobile Challenge. to the school, says Robert Davis, director of student engineering projects at Clarkson. Fortunately, control system was also calibrated for optimal they found a sealed pail of E85 left over air/fuel mixture. Besides the fuel economy award, the from a previous project and used a weighted average to blend the fuel, Desrosiers says. Clarkson team placed first overall in the Unsure what blend they’d be fueled up with at internal combustion class, as well as winning the competition the team decided to optimize awards for best performance, best ride, quietest the engine for E25— in the middle of the snowmobile, most practical, best value and possible range. “The simple design tends to best handling. “The SAE Clean Snowmobile Challenge is a great way for college students to do pretty well,” he says. The team used a piggy-back system that apply classroom knowledge to the real-world ran in parallel to the snowmobile’s stock fuel challenges they will face in the future,” says injectors. It increased the voltage signal to the Dan Finkiewicz, president and chairman of injectors, allowing them to stay open longer Gage Products Company. —Holly Jessen and allow more fuel to the engine. The engine
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PHOTO: MICHIGAN TECHNOLOGICAL UNIVERSITY
‘Realistic first step’
would switch its entire fleet in the next few years. The National Clean Fleets Partnership’s five charter members, including AT&T, FedEx, PepsiCo, UPS and Verizon, plan to deploy more than 200,000 advanced technology vehicles and displace more than 7 million gallons of petroleum annually. Although flex-fuel vehicles (FFVs) burning E85 aren’t the only clean fuels technology mentioned by the president, it is on the list. Horton, like others, strongly believes that ethanol is the most realistic industry to reduce petroleum use now and in the future. That’s true for public and private fleets too. “When you look at the options available to federal agencies, by far the most cost-effective choice, on the vehicle side, is a flex-fuel vehicle,” he says. The catch-22 is that while FFVs are available, the fuel isn’t available in enough areas. In 2009, E85 was only available at 1 percent
Ethanol infrastructure to fuel FFVs needed for success of Obama’s plan Early April brought positive news from the White House. President Obama announced a goal to cut petroleum imports by one third by 2025. To get there, Obama said the U.S. would increase responsible domestic oil and gas development, improve fuel efficiency and invest in cleaner fuels including ethanol. Matt Horton, CEO of Propel Fuels Inc., was pleased with Obama’s announcement. It’s easy to promise big numbers, he tells EPM, but results mean more. “I think that it’s a realistic first step,” he says. Private and government fleets are leading the way by switching to alternative fuels or electric power. In recent years the federal government has doubled the number of clean energy vehicles in its fleet and Obama said it
40 | Ethanol Producer Magazine | may 2011
of fueling stations in the U.S., according to a Government Accountability Office report. The bottom line is that more ethanol fueling infrastructure needs to be installed. If all FFVs used E85, the ethanol industry could sell an additional 5 billion gallons of ethanol—making a significant dent in the petroleum imports needed, Horton says. There is a federal tax credit program that covers 30 percent of the cost to install pumps at retail stations but it doesn’t go far enough and expires at the end of the year, Horton says. Propel proposes that the tax credit be extended long term and cover 50 percent or up to $100,000 per station, providing needed incentive for build out. “The key to both fleet usage of the fuels and meeting President Obama’s goals is infrastructure,” he says. “We’ve got the vehicles today for high blend ethanol, we just need more incentive to build out the infrastructure and we’ll be there.” —Holly Jessen
E15 â€˜sells itselfâ€™
ducing emissions. It promotes a domestically produced fuel that creates jobs, and helps the U.S. reduce its dependence on foreign oil. Itâ€™s good for U.S. farmers. â€œIâ€™m from the Midwest,â€? the Kansas native says. â€œIâ€™ve seen the impact that itâ€™s made throughout the Midwest.â€? The renewable fuel is certainly getting a lot of exposure at NASCAR events. At the races, the American Ethanol logo is everywhere, from green flags in the stands and on the track to green circles around each and every race carâ€™s fuel cap. â€œEvery race is won on green E15 American ethanol,â€? Bowyer says, adding that NASCAR reaches millions of fans, both at the racetrack and on television. Before NASCAR started using E15 many people didnâ€™t know the fuel could be used in race cars. Those vehicles travel about 500 miles per race at 9,800 RPMs using a 15 percent blend of ethanol. That sends a strong
NASCAR driver finds it easy to promote American Ethanol When NASCARâ€™s â€œengine guysâ€? reported that E15 resulted in increased horsepower, thatâ€™s all it took to convince race car drivers like Clint Bowyer. â€œThis is language that a race car driver wants to hear,â€? he told EPM. Bowyer, a driver with Richard Childress Racing, is an official spokesman for American Ethanol, a group of 100 entities promoting ethanol at NASCAR racetracks. A second spokesperson is Kenny Wallace, a driver for RAB Racing with Brack Maggard. American Ethanol, which includes groups such as Growth Energy and the National Corn Growers Association, announced a six-year partnership with NASCAR starting this year. The benefits of using E15 at NASCAR races are many, Bowyer says. It helps make racing more environmentally friendly by re-
Branded Racing Clint Bowyer stands next to his No. 33 Cheerios Hamburger Helper Chevrolet.
message about the renewable fuel. â€œIt can certainly stand daily driving on todayâ€™s roads,â€? he says. While participating in ethanol promotional events both on and off track, Bowyer shares this message with race car fans. Itâ€™s a job he considers easy. â€œEthanol kind of sells itself,â€? he says. â€œIt really is a great product to be involved with.â€? â€”Holly Jessen
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may 2011 | Ethanol Producer Magazine | 41
Dockage Power Chaff from cleaned grain will be used to power a biomass boiler at a Canadian ethanol plant when natural gas prices are high. PHOTO: DAN FESER
44 | Ethanol Producer Magazine | may 2011
Its Throne With an eye toward both energy costs and environmental concerns, ethanol producers are embarking on innovative energy projects By Holly Jessen
Although natural gas is king of power generation at ethanol plants, thereâ€™s increasing interest in renewable energy technologies that could help ethanol plants someday produce a domestically grown fuel without using fossil fuels. Four ethanol plants, for example, are working to reduce fossil fuel use through innovationâ€”a plant in western Canada, one in Minnesota and two in Wisconsin. Whether producing power from a biomass boiler, gasifier or anaerobic digester, or installing heat exchangers to utilize waste heat, itâ€™s all about reducing the amount of natural gas used per gallon of ethanol produced.
may 2011 | Ethanol Producer Magazine | 45
Second only to feedstock costs, energy costs can have a major impact on an ethanol plant’s bottom line. In 2010, energy expenses made up 9 percent of total costs at an ethanol plant, including electricity, according to Christianson & Associates in its Biofuels Benchmarking Annual Report. Energy can also be a volatile expense for ethanol producers. Through 2009-’10 the industry average cost for energy ranged from 15 to 21 cents per gallon of ethanol produced, according to Christianson & Associates. Energy prices were an even bigger piece of the pie in 2008, when natural gas prices dramatically shot up. According to U.S. Energy Information Administration records, commercial natural gas prices hit $11.99 per million Btu (MMBtu) in 2008, before dropping to $9.66 MMBtu in 2009 and $9.04 MMBtu last year. Natural gas prices aren’t likely to get anywhere near the highs of 2008 for decades, according to the EIA. The agency predicts a slight increase in prices this year followed by a slow but fairly steady decline until 2014. After that, natural gas prices are expected to slowly
climb, crossing the $10 mark in 2027 and reaching $11.10 MMBtu by 2035. EPM talked to several ethanol producers who are skeptical, however. The CEO of North West Bio-Energy Ltd. in Unity, Saskatchewan, is preparing for higher-thanexpected prices. “Our impression of the world is that, over time, natural gas prices will go up, the way all energy prices are going up,” says Jason Skinner. Vincent Copa, a process engineer at Minnesota’s Chippewa Valley Ethanol Co. LLLP, also thinks it’s possible that natural gas prices could climb higher than predicted. Since natural gas is a relatively inexpensive fuel today, it’s likely to be tapped by more and more users in the future, he says. That demand would push the price up. Then there are the environmental motivations for pursuing alternative forms of energy for process heat at an ethanol plant. In the future, plants that install advanced technologies may have an edge, depending on the direction the U.S. goes with its energy policies. United Ethanol LLC in Milton, Wis., has its eye on the possibility
that the U.S. EPA could someday qualify its fuel as an advanced biofuel because the cornto-ethanol plant installed new, more efficient technologies and reduced its greenhouse gas emissions, says Alan Jentz, vice president of grain operations and risk management. More near term, some ethanol producers are looking to California, where low-carbon ethanol could command a premium price. That state is also moving toward sustainability requirements that would push for advanced technologies, such as biomass power generation, and where California goes, other states are likely to follow, Copa says. On the other hand, if there aren’t economic reasons for transitioning an ethanol plant to more environmentally friendly technologies, ethanol producers won’t be able to do it simply because it’s green. An ethanol plant is a business and, more than the color green, its owners are concerned with the black and red on financial reports. “Our shareholders care about the bottom line and if being green’s not going to pay, we can’t afford to make that kind of a PR move,” Copa says.
Power in Chaff N
Biomass Feed Feed screws direct chaff into a biomass boiler, which was installed for power generation at North West Bio-Energy. The system will be ready to use this summer and will be fired up when natural gas prices are higher than the cost of biomass. PHOTO: DAN FESER
46 | Ethanol Producer Magazine | may 2011
orth West Bio-Energy, a 25 MMly ethanol plant in Unity, Saskatchewan, is well situated for feedstock delivery. It’s colocated with the company’s grain terminal, which handles about 425,000 metric tons of commodities annually—including the feed wheat it uses to make ethanol. Another co-location perk is a ready feedstock for the ethanol plant’s newly installed biomass boiler. Chaff, previously a problem for the grain terminal, will be burned to replace some or all of its natural gas use, depending on prices. The company spent $1.5 million, without the aid of grants or other assistance, to install a firebox unit with a reciprocating grate to burn biomass for power generation, Skinner tells EPM. With natural gas prices relatively low right now, the company isn’t in a big rush to get the project wrapped up, he says. The boiler installation took place over about two years and likely won’t be ready for full use
until sometime this summer. “We’re setting this system up so, if we see times when natural gas prices go up quite a bit, then we would be able to use biomass as an alternative fuel,” he says. In late March, North West Bio-Energy was paying about $3.50 per gigajoule (GJ) for natural gas—but the company has seen prices as high as $12 per GJ in the past. The cost of chaff is estimated at $2.50 per GJ, which could mean some real savings for the plant if natural gas prices increase, something the company fully expects to happen. “The neat part about the biomass that’s available in our part of the world is that the price tends not to go up to the same extent—so it’s a more stable cost,” he says. In Canada, grain is cleaned before it is exported. The company pays the farmer for the grain, with the weight of the dockage— weed seeds, broken kernels and chaff— deducted, although not always. “Currently, we pay the farmer $10 per metric ton for the dockage because we are able to sell things like
broken seeds to offset this cost,” he says. “We use the payment for dockage as a competitive tool to buy grain.” Unlike broken seeds, chaff has little to no value today. A nearby feed mill sometimes buys the chaff, but in the summer months there’s no market at all. In addition, it’s so light it’s difficult to transport. “It’s a problem getting rid of the material,” Skinner says. The solution is the biomass boiler. The company will actually start encouraging farmers to leave more dockage in their grain by increasing payments, he says. The dust and chaff collected from wheat, barley, canola and peas can then be used as a fuel to offset natural gas use. This is going to require a mindset change for farmers, who don’t want to pay freight to have it hauled to the grain terminal, for one. “As a rule, farmers have grown up wanting the least amount of chaff in the grain, so they try to keep it very clean,” he says. “But we’re trying to do the opposite thing.” If natural gas prices go up, however, burning chaff in the biomass boiler won’t
just save the ethanol plant money. “We’re a shareholder-owned company so a lot of the farmers in our region own our company,” he says. “Being able to buy their chaff or their dockage from them when they bring it to the elevator would give them another revenue stream coming off their land.” The company estimates that if farmers leave between 5 to 7 percent dockage in their grain, it would provide enough chaff to power the ethanol plant all year. In that scenario the company would up its dockage payments to $50 a metric ton. “That’s a real win-win for us and our shareholder farmer customers,” he says. The plant will have the flexibility to switch between biomass and natural gas, depending on availability and price. Over time, Skinner believes the biomass boiler will pay for itself. And, although Canada is further behind than the U.S. on the push to make ethanol plants more environmentally friendly, he believes the project will also benefit the plant in that arena.
It’s a Gas A
Biomass Gas Chippewa Valley Ethanol Co. LLLP in Benson, Minn., completed construction on its gasifier in 2008, when natural gas prices were high. PHOTO: CVEC
lthough the gasifier at CVEC hasn’t operated for about a year, that doesn’t mean the Benson, Minn., ethanol plant has abandoned the project. In fact, the company is hard at work obtaining Minnesota Pollution Control Agency permits for additional types of biomass to use in the gasifier, should natural gas prices go up and it become economical again, Copa says. CVEC’s gasifier was completed in spring 2008, in the midst of the high natural gas prices that prompted the project. It can provide 90 percent of the ethanol plant’s power needs by burning primarily waste wood chips and corn cobs. A gasifier thermally breaks down dry biomass at the molecular level in temperatures greater than 1,500 degrees, producing carbon monoxide and hydrogen, Copa explains. An air-blown system, like the one at CVEC, produces gas containing 150 Btu per cubic foot because the gas is diluted with nitrogen from the air. In comparison, an oxygen-blown system produces gas with about 600 Btu per cu ft. Pipeline-quality natural gas has an energy may 2011 | Ethanol Producer Magazine | 47
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content of 1,000 Btu per cu ft. In an aerobic digester, bacteria breaks down wet biomass emitting methane (natural gas), CO2 and water, and has an energy content of 600 Btu per cu ft. CVEC’s gasifier can use a variety of feedstocks, such as sunflower hulls, as experimental feedstocks, as long as they are only used in limited quantities for short periods of time, he says. The company received permit approval for wood chips for normal production use in its gasifier when it was constructed, and is now working through the permitting process to use corn cobs and glycerin from biodiesel production. As part of the permitting process, the company has conducted emissions testing for wood chips and corn cobs. Both feedstocks have acceptable emissions characteristics, much lower than the emissions from coal and similar to or lower than natural gas emissions. Carbon monoxide or other volatile organic compound emissions are slightly lower, and dioxins, furans and mercury—the sort of emissions that really scare pollution control agencies—are virtually nondetectable. On the other hand, as expected, levels
of nitrogen oxides (NOx) were slightly higher than natural gas NOx emissions. In the future, Copa hopes the MPCA won’t require emissions testing for each new type of biomass. “We were able to show that the expected emission characteristics are about the same for each biomass that we tested,” he says. “Hopefully, after we test a couple more types of biomass they’ll get the hint.” Carbon is a big buzz word right now. CVEC’s gasifier participates in the carbon cycle by combusting carbon that living plants pulled from the air, unlike natural gas. “That carbon has been sequestered in the ground for millions of years, so burning it is a net addition to what’s already in the atmosphere,” Copa says. As much as CVEC is convinced that the gasifier is environmentally the right decision, the company won’t run it again unless natural gas prices go up enough to make it a good idea economically. At current prices, CVEC could find reliable supplies of biomass at about $6.50 per MMBtu, or about $60 to $65 a ton. With natural gas prices today, biomass would be competitive at about $5 MMBtu, but just barely, he says. At that rate, the company
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Cob Collection Area farmers provide corn cobs, which, along with wood chips, are the main feedstocks for the ethanol plant’s gasifier.
would have to watch its biomass prices really carefully to make even a tiny dent in the payoff of the investment. Barriers like these won’t completely stop CVEC from working on projects such as the gasifier, however. The company, which is also known for producing alcohol that goes into Shakers Vodka and industrial uses, is always working on innovative things, Copa says. In the past some have
complained about some of those side projects, claiming that it was more effort than it was worth for the small amount of income it brought the company. However, it was those products that brought CVEC through difficult financial times in 2008, when other ethanol plants didn’t make it, he adds.
Good Digestion Waste to Power Plan An anaerobic digester will utilize thin stillage for power generation at United Ethanol. PHOTO: UNITED ETHANOL
t United Ethanol, installing an anaerobic digester is about reducing the plant’s carbon footprint while, at the same time, increasing ethanol production through increased efficiency. “It’s a way to extract more value out of our inputs, the corn, and make the plant greener and more energy efficient,” says Dave Cramer, president and CEO of United Ethanol. The 50 MMgy year ethanol plant planned to break ground on the $6.75 million project in April and hopes to have it completed by the end of 2011, Jentz tells EPM. To assist in installing the digester, the company received a $2.25 million lowinterest loan from Wisconsin’s Energy
Program, which is funded through the American Recovery and Reinvestment Act of 2009. The air permit for the project was approved in early March. United Ethanol is working with Eisenmann Corp., which will install its Biogas-TS system at the plant. It will utilize a portion of the plant’s thin stillage to create methane in the digester and ultimately reduce the plant’s natural gas use by up to 25 percent, Jentz says. Current estimates show the project should have about a four-year payback. The major elements of the system include three 1 million gallon digesters and a biogas-fired boiler to augment the two existing natural
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Artist Rendering Eisenmann plans call for three one-million-gallon digesters to supply biogas for power at United Ethanol.
gas-fired boilers, says Howard Hohl, sales manager for Eisenmann. Using the thin stillage for power generation will have several efficiency perks for United Ethanol. Primarily, it will reduce the amount of nonfermentables produced at the plant, help cut back on evaporator bottlenecks and alleviate water balance issues. Thin stillage contains very fine solids, proteins and other organic materials that are digestible, Hohl says, but not fermentable. By using it for power generation, the overall organic load of the plant’s backset will be reduced by 95 percent. Reducing nonfermentables will, in turn, reduce the load on the driers, which means reduced energy requirements for producing dried distillers grains, Jentz adds. United Ethanol also recently added corn-oil extraction at the plant, another technology that helps reduce energy use. Some anaerobic digesters utilize thick stillage or syrup, which contains from 32 to 35 percent solids, Hohl adds. Thin stillage, which United Ethanol will use, contains only about 10 percent solids. “Either one of those methods could work,” he says. “We will potentially augment the digester with syrup to maintain our solids at a
certain level, to ensure that we get the right amount of biogas generation.” Using thick stillage or syrup for biogas production results in additional coproducts and waste streams. The solids, or sludge, produced must be disposed of, recycled or sold into the fertilizer market. Biogas production from thin stillage, however, results in a closed-loop system with no blowdown or loss of solids. “It all goes back to the plant,” Hohl says. Eisenmann can guarantee two things about the anaerobic digester: First, it will reduce natural gas use and the plant’s carbon footprint. Second, the company expects the ethanol plant will see a 2 to 2.5 percent increase in ethanol production, because the system will reduce recycling of nonfermentable solids. There are likely to be other benefits to the system as well, but since this will be the first full-scale installation of an anaerobic digester for Eisenmann, the company isn’t revealing details yet. “There are a number of other soft benefits that we expect United will gain with this installation and we’ll share those with you as the project progresses,” Hohl says.
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Waste Not Reclaiming Heat Ace Ethanol and CEVC, ethanol plants in Wisconsin and Minnesota, received low-interest loans to install heat exchangers to reclaim waste heat for process heat and steam. PHOTO: ACE ETHANOL
iomass utilization isn’t the only strategy to reduce natural gas consumption at an ethanol plant. Ace Ethanol LLC and CVEC are two examples of ethanol plants installing heat exchange equipment for waste heat recovery. By utilizing waste heat from the regenerative thermal oxidizer (RTO) for process heat and steam, heat exchange equipment can help lower the amount of natural gas used per gallon of ethanol produced, says Neal Kemmet, general manager of Ace. Ace received a $270,000 grant from Focus on Energy, Wisconsin’s energy efficiency and renewable energy initiative,
plus a $595,000 low-interest loan from Wisconsin’s Department of Commerce Energy Program. CVEC received a 500,000 low-interest loan from a similar program in Minnesota. Both ethanol plants were awarded the money in 2010 and plan to complete the installation projects this spring. An RTO is a pollution control device that cleans the emissions from grain drying by heating it up from about 300 degrees to 1,650 degrees, Kemmet explains. Although most of that heat is reused in the system, the RTO still exhausts vapor at 350 degrees. Installing heat exchangers will capture that
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PHOTO: ACE ETHANOL
heat. “There’s a lot of hot, moist air, so we’re going to cool that hot, moist air from 350 degrees down to about 220 degrees,” he says. The reclaimed heat will be used for process heat, reducing the amount of natural gas needed to power the plant. Ace estimates the $1 million heat exchange project will reduce its natural gas use by 3.5 percent. “Even with the reduced natural gas cost, the project is still expected to have a payback that is right about three years,” he says. CVEC is still adding up the total cost of its project, Copa tells EPM, but he calls it a multi-million dollar project with an acceptable payback of about two to three years.
Awaiting Installation Heat exchange equipment sits on the ground at Ace Ethanol, ready for installation.
52 | Ethanol Producer Magazine | may 2011
Author: Holly Jessen Associate Editor of Ethanol Producer Magazine (701) 738-4946 firstname.lastname@example.org
More Innovators Other ethanol producers are working to reduce their consumption of fossil fuels. Some notable projects include: • Didion Ethanol LLC, a 50 MMgy plant in Courtland, Wis., received $5.5 million in U.S. DOE funding to cut back its energy use. The $11 million project, which kicked off in 2010, has the goal of reducing energy use by 25 percent while producing 5 percent more ethanol from the same amount of corn. • Lincolnway Energy LLC was awarded $1.9 million in USDA funding in 2010 to help the company modify a coal-fired boiler to burn biomass. The 50 MMgy ethanol plant in Nevada, Iowa, qualified for the funding through the USDA's Repowering Assistance Program, set up by the 2008 Farm Bill to encourage the use of biomass as a replacement fuel source for fossil fuels.
• Archer Daniels Midland Co. completed construction in 2010 at two dry-mill ethanol plants in Columbus, Neb., and Cedar Rapids, Iowa. Both plants are co-located with existing wet mill ethanol plants as well as new cogeneration facilities that use steam to power turbines to generate electricity and reduce energy costs. The power facility supplements the existing gas-fired boiler, Beth Chandler, company spokesperson, tells EPM. It burns low-sulfur, high-moisture coal and up to 20 percent biomass. "The coal-fired cogeneration facility provides a cost advantage when natural gas prices are significantly higher," Chandler said. • Poet LLC is one of 25 ethanol producers that submitted information to the California Air Resources Board in an effort to reduce the carbon intensity rating of its fuel. One of the modified pathways it presented was utilization of waste heat from electrical
generation. Another pathway utilized more than 26 percent energy from landfill gas, waste wood, field waste and thin stillage, with the remainder coming from electricity and natural gas. The highest percentage of alternative power came from a pathway in which the primary process fuel was 88 percent biogas. • Corn Plus LLLP, a 49 MMgy ethanol plant located near Winnebago, Minn., was recognized last spring as an “Energy Champion” by the DOE. To qualify, Corn Plus achieved more than 250,000 Btu, or more than 15 percent, energy savings. The ethanol plant can burn its DDG syrup in its first-of-itskind fluidized bed system, and in 2011 the company will receive about $12 million through the federal Alternative Fuel Mixture Tax Credit. In addition, the company installed two wind turbines in 2007, which can generate up to 30 percent of the plant’s electrical needs.
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Corn and switchgrass have been modifed to become more efficient feedstocks. By Kris Bevill
54 | Ethanol Producer Magazine | may 2011
Beginning Corn is corn, right? Not necessarily. The first corn seed bred specifically for ethanol production finally received full deregulation from the USDA in February and is ready for the market. Its creator, Syngenta Seeds Inc., expects it to revolutionize corn-based ethanol production. David Morgan, president of Syngenta Seeds, refers to the seed, named Enogen, as a breakthrough product. “The adoption of Enogen grain by U.S. ethanol producers can unleash a cascade of efficiency and environmental benefits industry wide,” he says. “[It] provides ethanol producers a proven means to create more value per gallon while offering targeted corn growers an opportunity to cultivate a premium specialty crop in a contracted, closed production system.” Enogen is the first genetically modified corn of its type to enter the market, but it’s not exactly a new product. In 2006, EPM reported that Syngenta hoped to release the product to growers in 2007. In fact, the U.S. Food and Drug Administration approved the product as being safe for food and feed in 2007 but the company needed the USDA to deregulate it before it could become a true
option for growers. That didn’t happen as quickly as expected. David Witherspoon, head of renewable fuels at Syngenta, says lawsuits filed in 2007 and 2008 against the USDA regarding its deregulation of genetically modified alfalfa and sugar beets dramatically slowed the deregulation process for Enogen. “The whole process of approving products moving through the USDA system basically came to a standstill,” he says. Witherspoon credits the federal government’s “science-based approval system” and USDA cooperation for finally granting Syngenta’s deregulation request.
So how does Enogen affect the efficiency of an ethanol plant? It begins with enzymes. Enogen corn has been engineered to include the alpha amylase enzyme—one of two enzymes required for ethanol production—directly into the grain. Ethanol plants typically use liquid alpha amylase and gluco amylase in their production process. Enogen entirely eliminates the need for liquid alpha amylase. Syngenta says this makes starch conversion far more efficient due to its specific effect on viscosity. “The more efficient the starch conversion,
may 2011 | Ethanol Producer Magazine | 55
Ready to Plant Syngenta’s amylase-containing corn was developed and ready for market in 2007 but the deregulation process took much longer than expected and wasn’t completed until early this year. The company expects only 5,000 acres of the strain to be planted in 2011.
the more efficient the conversion is to ethanol,” the company states. The use of Enogen impacts a plant’s water and fossil fuel requirements, reducing the plant’s carbon footprint by a full 10 percent, according to Syngenta. Testing completed at four ethanol plants showed that by using Enogen, a 100 MMgy plant could reduce water usage by 450,000 gallons, electricity by 1.3 million kilowatt hours and natural gas by 244 billion Btu. Witherspoon says it’s this combination of savings that will make it possible for ethanol producers to pay growers a premium price for the specialized corn. “If this was just a replacement for an alpha amylase, there wouldn’t be enough money for the ethanol plant to pay the grower and improve the bottom line,” he says. “But because this particular enzyme helps get more ethanol production, reduces the amount of water, electricity, natural gas, and because it works on broad pH and temperature changes (reducing the need to purchase sulfuric acid and ammonia to modify pH levels), the savings they’ll get is more than what they’ll need to pay the grower.” Syngenta initially hoped to see 15,000 56 | Ethanol Producer Magazine | may 2011
acres of cropland in Kansas and Nebraska planted with Enogen this growing season. But due to the lateness of the USDA’s deregulation approval, those numbers are likely to be much lower. “If we’d gotten approval prior to Feb. 1, I think we could have been in the 15,000 range,” Witherspoon said in late March. “Right now, I think we’ll be closer to the 5,000acre range. There’ll still be a few acres that will move a little bit, but it’s just too close to planting time. Farmers already have their farm planned, so we just can’t get the acres. We’re very happy we got [Enogen] deregulated, but we wish we could have gotten it deregulated four to six weeks earlier.” Between 10 and 20 percent of the corn used at an ethanol plant will need to be Enogen corn in order for the plant to realize its efficiency benefits. Witherspoon says the acres planted this year will be used to introduce potential customers to the feedstock, with the intent of acquiring three to five new customers by fall for next season. Kansas and Nebraska are the first target areas, but Syngenta plans to quickly expand the growing area to the heart of ethanol production, including Iowa,
the ethanol plant for which many of them are members.” In March, Syngenta was in the process of establishing an advisory council to educate both growers and ethanol producers about Enogen. Syngenta will also council ethanol plants on how to properly use the corn in order to receive the efficiency benefits and advise them as to what equipment may be required for longterm use of the product. Witherspoon says a grain bin may need to be added at some plants to use for blending the Enogen with non-amylase corn, but some plants already have storage on-site that can be used for that purpose. No additional equipment is necessary inside the plant.
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Growing Better Grass
At The Samuel Roberts Noble Foundation, researchers are focused on commercializing and improving the switchgrass varieties designed for cellulosic ethanol. In February, researchers announced they had successfully modified a strain of switchgrass to produce more sugars than other strains, resulting in fewer enzyme requirements as well as higher yields of
PHOTO: OAK RIDGE NATIONAL LABORATORY
South Dakota and southwest Minnesota. “The reason we started where we did is we initially had to grow the crop regulated and we grew as many as 11,000 acres one year,” Witherspoon says. “You need to have isolation to meet the government requirements, so we had to go out West.” While the seed has been deemed as safe for food and feed, its benefits would be lost on any industry other than ethanol and Syngenta’s risk mitigation efforts include a closely monitored closed-loop growerto-ethanol plant system for the corn. Ethanol plants will contract growers to supply Enogen and Witherspoon expects the majority of Enogen corn to be grown within a 20-mile radius of the contracted plant for several reasons. “It’s hard to grow any specialty-type grain and haul it 60 or 70 or 80 miles,” he says. “And it doesn’t make sense. That ethanol plant already has very loyal customers that support that plant. Many of them are partial owners of the plant. We designed our program to work with those local growers. It makes a really nice situation in that they’re growing a specialty product, getting paid by the ethanol plant to grow it, and then it benefits
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Breakthrough Research by the U.S. DOE’s Oak Ridge National Laboratory’s Jonathan Mielenz confirmed that The Samuel Roberts Noble Foundation has developed a strain of switchgrass that produces about 33 percent more ethanol than conventional switchgrass. may 2011 | Ethanol Producer Magazine | 57
PHOTO: THE SAMUEL ROBERTS NOBLE FOUNDATION
Switchgrass Lite Zeng Yu Wang, left, leads a research team at The Samuel Roberts Noble Foundation focused on improving the efficiency of switchgrass as a cellulosic ethanol feedstock. Richard Dixon, right, director of the foundation’s plant biology division, says the findings from this research could also apply to other cellulosic feedstocks.
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ethanol. This long-term project addresses and reduces the amount of lignin produced by the plant, thus making conversion to ethanol much easier. Richard Dixon, plant biology division director at the Noble Foundation, says the research that led to this discovery was originally focused on modifying forage crops, such as alfalfa, to make them more easily digestible for ruminant animals. About three years ago, the team realized that reducing levels of lignin in the cell walls of these plants would also improve the ability to extract sugars from the cell walls for biofuel production. “We basically have been translating the technology that has been developed for forage crops into bioenergy crops,” he says. “The trick is that switchgrass is not that easy to genetically transform, so this has been a long project. It takes about a year and a half to get the plants back after you start to do the genetic transformation.” The transgenic version of switchgrass developed at The Noble Foundation
was developed by a team led by Zeng Yu Wang, who chose to decrease the cellular component gene in Alamo switchgrass. This change resulted in a one-eighth decrease in the amount of lignin within the plant. That small change had a big impact on the ethanol conversion process. “The transgenic lines require lower temperature preprocessing and only onequarter to one-third the level of enzymes for equivalent ethanol fermentation compared to the unmodified switchgrass,” Wang says. “This significantly lowers the cost of biofuels and biochemicals from this switchgrass.” The higher yielding crop will also require onethird fewer acres of land than other varieties of switchgrass, consequently reducing herbicide, land management, transportation and storage requirements, he says. Because lignin serves to strengthen plant cell walls and act as a barrier to protect against such things as disease and insects, it would be expected that reduced amounts of lignin would cause issues related to plant strength
and disease. The research conducted at the Noble Foundation has proved otherwise, however. Field trial data has been generated for six years on alfalfa that has been engineered in exactly the same way as the new switchgrass variety. None of the alfalfa plants have displayed negative agronomic impacts and the lignin-modified version of alfalfa is currently being commercialized, Dixon says. “We’ve generated lignin-modified plants now using seven or eight different genes to target the lignin pathway and never have we seen plants that are more susceptible [to diseases or insects,]” he says. So far, the modified switchgrass has been grown only in greenhouses. Testing has also currently been at the lab-scale, with the U.S. DOE’s Oak Ridge National Laboratory serving as the ethanol producer. That could change in 2012, at least on the growing side of things. California-based Ceres Inc. is the Noble Foundation’s commercial partner and Dixon says, “We have a fast track for getting these plants in the field now.” Commercial-
size plots are expected to be planted next year. While the findings so far have been significant, Dixon foresees even greater discoveries as the project continues. Wang’s team continues to further reduce the lignin content of the plant while maintaining its agronomic performance. Researchers recently discovered a gene that could be modified to increase the amount of biomass in the stem of a plant, Dixon says. If they are successful at adding that gene into a switchgrass strain that also has reduced lignin concentrations, they just might develop the ideal feedstock. Dixon says the research being conducted on switchgrass could also be applied to other cellulosic feedstocks, including poplar and other energy grasses. Author: Kris Bevill Associate Editor, Ethanol Producer Magazine (701) 540-6846 firstname.lastname@example.org
may 2011 | Ethanol Producer Magazine | 59
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By Kris Bevill
In the ethanol industry, efficiency equals money.
Tight margins make efficiency improvements key to ethanol plant profitability
As producers struggle with tight margins and shrinking market growth opportunities, every bushel of high-priced corn that enters the facility needs to be used to its maximum potential. Likewise, every piece of equipment, every step of the production process, should be optimized for producers to realize their maximum profits. In some cases, efficiency improvements make the difference between a successful plant and one that’s barely breaking even. “My customers have the mindset that for sustainability they need to become low-cost producers, because we have reached the blend wall,” says John Kwik, principal of Dominion Energy LLC, an engineering firm specializing in energy recycling and other process improvements for biofuels facilities. “Making additional ethanol at this point doesn’t really make sense because it’s going to be hard to sell. What makes sense is to become a low-cost producer. One way to do that is to reduce your energy costs.” Reducing those costs through energy efficiency improvement projects ranges wildly depending on the scope of the project, starting anywhere from around $30,000 and running all the way into the millions for some of the major technological changes. Greg Loest, principal and coowner of South Dakota-based engineering firm IntegroEnergy Group Inc., finds that his customers are most willing to explore projects with price tags of $1 million or less, as long as the return on investment is reasonable, because they understand the long-term benefit of making those improvements. “[Plant managers] are becoming very aware that they have to continue to improve their process in order to remain competitive,” he says.
may 2011 | Ethanol Producer Magazine | 61
Areas for Improvement
Loest and his partner, IntegroEnergy co-owner and principal Daniel Sonnek, pay special attention to the water balance of an ethanol facility when they conduct energy audits because it is often a source of excess energy use—energy that would otherwise not be needed. Loest points out that some of the smallest fixes, such as replacing pump seals, can make a noticeable impact on the plant’s bottom line. “Every pound of water that we bring into the facility is a pound that we have to remove,” he says. “Every plant we’ve gone into has had multiple blown pump seals which can leak anywhere from a half a gallon a minute to more than a gallon a minute of water into the process,” he says. That excess water can quickly rack up an energy bill that could fairly simply be avoided. Kwik is currently advising eight plants on ways to improve their efficiency and yields, he says. The going concern at these plants is their cooling systems. “All of the plants are running above their nameplate capacity and have
taxed their cooling systems,” he says. “Also, a lot of plants have reached the capacity of their boilers, so they can no longer get any additional steam.” One way around this issue is to implement projects to remove steam usage from the plant. Kwik says there are various means for reducing cooling demands and steam usage but they can be costly, ranging from $200,000 to around $300,000. “They’re not cheap projects by any means, but they’re good projects to do at the plant,” he says. He declined to divulge details of the projects in order to protect the firm’s intellectual property. Likewise, Loest says IntegroEnergy possesses several proprietary, patent-pending processes that can significantly improve a plant’s operations. His firm has rolled out a few of these changes at two mid-size ethanol plants and has proven that the modifications are successful at recovering energy and increasing yields. He declined to provide details but says the plants are 40 to 50 MMgy facilities and have been recovering an extra 1,300
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to 1,500 gallons of 200-proof ethanol per day since installing IntegroEnergy’s improvements. There are various other target areas for improvement within an ethanol plant’s process, from heat exchangers to distillers grains drying methods, and nearly all are focused on reducing energy input. “Thermal energy is approximately 19 percent of your operating costs,” Kwik says. “So if you can take a chunk out of your energy costs, you can see a nice return on your profit. If you can save a penny a gallon on energy, that’s a penny-per-gallon profit.” Some of Kwik’s current projects include transitioning 14 percent of the energy load away from a plant’s cooling tower by increasing the cooling capabilities of the fermenters. Additional cooling capabilities to fermenters at another plant are designed to reduce the amount of overheating during the summer months, he says. Another project involves improving the cooling system for distillers dried grains (DDGs), which reduces energy as well
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as increases yield. “Some plants have a problem with cooling the DDGs,” Kwik explains. “So what they do is overdry the DDGs. When you overdry it, you reduce the yield. If you can properly cool it, you can dry it to a higher moisture and therefore sell more product and have additional yield.” Modifications to the beer mash heat exchangers are a wellknown energy recovery improvement, Loest says. Pushing up the temperature of the beer mash will result in a significant savings on the cooling tower as well as energy within the plant.
Big Changes, Big Price Tags
The most feasible efficiency projects have payback periods of no longer than three years. “No one’s interested in a 10-year payback,” Kwik says. “At some point, you get to a level of diminishing returns where it doesn’t make sense to go any further. Then what you need to look for is a technology shift.” Back-end fractionation is probably the most talked about technology shift for increased efficiency, but its cost makes it an unlikely candidate for widespread use in the near future. Kwik says he’s currently working with one plant that is able to afford the approximately $20 million price tag. Airless drying is another huge technology shift, with a corresponding huge price tag. For about $20 million, plants can install a system that uses super-heated steam to dry the product and excess steam energy to run the rest of the plant. “You literally cut the energy costs of the plant almost in half,” Kwik says. “It’s very expensive and not a short payback, but it’s a big technology shift.” It’s possible that these technologies will become more commonplace in the next decade when, as Kwik says, plants have tackled all of the “low-hanging fruit” projects and need to evaluate more long-term, expensive upgrades. One thing Kwik, Loest and a growing number of industry members agree on is that ethanol plants will need to diversify and produce a greater number of products in order to remain profitable. “That’s the direction these plants need to be looking at—making coproducts that are worth more than the corn,” Kwik says. “That way you build a natural hedge against corn pricing. With DDGs, as corn moves, you get a negative impact because DDGs don’t move as much as corn and you’re being hurt.” Loest sees advanced chemical production being incorporated into more ethanol plants as a future revenue source simply because the starch is more valuable as a feedstock for advanced chemical production than it is for ethanol.
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Benefits of Outsiders
Third-party engineering firms such as IntegroEnergy and Dominion Energy have developed their proprietary improvement processes through years of experience gained in the corn wet milling and biofuels industries. Unlike in-house engineers, who may have intimate knowledge of only their particular plant’s design, thirdparty consultants are familiar with all styles of plants. “By using an outside source that has experience in multiple industries, multiple ethanol facilities and technologies, you bring a more diverse look and probably can identify opportunities that maybe someone who’s may 2011 | Ethanol Producer Magazine | 63
only worked at the plant cannot see or doesn’t have the experience to identify,” Kwik says. Third-party engineering services aren’t cheap, but their costs are minimal in the big picture and their experience enables them to offer solutions that could very well lead to a significant savings for the plant. For example, Loest tells of an experience his firm had with an ethanol plant that was “headed down the path of making a $6 million mistake.” The plant’s management had determined, through a conversation with an equipment vendor, that certain equipment should be installed in order to improve the plant’s efficiency. Prior to following through with the project, however, IntegroEnergy was consulted as an independent reviewer to evaluate the plan. “In reviewing the data and the information, while the system made sense, the plant could have made $50,000 in changes and saved the same amount of money instead of blowing $6 million,” Loest says, adding that he’s not shy about telling plant owners what needs to be done to improve their facility. “We don’t
64 | Ethanol Producer Magazine | may 2011
mince words,” he says. “Our best interests are for the plant and the industry.” The wet milling industry serves as an example for many of the current suggested improvements at ethanol dry mills and both Kwik and Loest have extensive backgrounds in that industry. Kwik points out that airless drying is a technique that was first used in the wet milling industry. Loest says the wet mill strategy of producing as many products as possible, with ethanol not necessarily as the main product, is one that will likely be adapted to ethanol dry mills in the future. He foresees joint ventures becoming more commonplace, where various chemical or cellulosic facilities co-locate with dry mills in order to utilize their existing infrastructure and feedstock supply.
Finding Money to Make Money
Financial constraints continue to be an issue for many producers seeking to make improvements to their facilities, but there are plants finding ways around this hurdle and many believe that efficiency improvements
are on the list of “must-haves” if they wish to continue to operate profitably. Loest says many of the older paid-off ethanol plants have more access to cash flow, and therefore, can more easily afford improvement projects. Facilities that were finished during the 2007’08 timeframe are hampered by the cost of efficiency improvement projects because they need to finance the bill. Regardless of the financial situation, efficiency will only become more critical to profit margin as time goes on. “Coming from the wet milling world, we chased the tenth of a cent per bushel type items,” Loest says. Ethanol producers didn’t have to worry about those tiny measures when margins were good, but that’s no longer the case. “It’s a mentality shift for the dry milling industry because it is very young,” he says. “The ethanol industry will get there, it’s just going to take a little bit of time.” Author: Kris Bevill Associate Editor, Ethanol Producer Magazine (701) 540-6846 email@example.com
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Loan Guarantees and Great Expectations Revisions to the USDA Section 9003 Biorefinery Assistance Program create opportunities By Todd Alexander and Chadron Edwards
With the 2011 Federal Budget still under debate in Congress and amidst a landscape of uncertainty (and the occasional wild speculation) regarding the future of most Federal loan guarantee programs, on March 11 the USDA released a notice of funds availability (NOFA) for approximately $463 million in
new guaranteed loans under its Section 9003 Biorefinery Assistance Program. This NOFA offers successful applicants guarantees for loans up to $250 million to support the development of commercialscale biorefineries in the U.S. With only one round of competition in 2011, the USDA expects to fund four or five projects. Applications are due by May 10. Only the 9003
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). 66 | Ethanol Producer Magazine | may 2011
Program, among several federal programs, exclusively supports large-scale production of advanced biofuels using first-of-a-kind technology. The 9003 Program was funded by allocations of $75 million in fiscal year 2009 and $245 million in fiscal year 2010. While the programâ€™s enabling legislation allows discretionary funding, none has been allocated. Funds for the latest NOFA are from residual amounts not awarded under previous solicitations. To date, the 9003 Program has issued a conditional commitment for an $80 mil-
lion loan guarantee to Range Fuels for a thermochemical cellulosic biorefinery in Soperton, Ga., (which closed on March 3, 2010) and a $54.4 million loan guarantee to Sapphire Energy for an algal oil facility in Columbus, N.M. on Dec. 4, 2009. Expectations are running higher for 2011. On Jan. 20, the USDA announced conditional commitments for loan guarantees for three projects. The largest, at $250 million, went to Coskata for a woody biomass facility in Alabama. The other two went to INEOS Bio and Enerkem, for $75 million and $80 million, respectively. The INEOS Bio facility in Florida plans to use vegetative waste (including locally abundant citrus waste), while the Enerkem facility in Mississippi plans to use municipal solid waste.
Recent Program Changes
Under the 9003 Program, lenders, rather than borrowers, apply for loan guarantees. For many borrowers, this creates a chicken-and-egg problem, with lenders uninterested in investing time and money into projects without the prospect of a loan guarantee, and the USDA requiring lender participation to apply for loan guarantees. This and several other concerns were voiced during a comment period for proposed new 9003 Program regulations published April 16, 2010. Comments did not fall on deaf ears, and the USDA promulgated revised interim regulations on Feb. 14, removing several barriers to participation. Previously, the maximum amount of a loan guarantee was 80 percent of the value of loans up to $80 million, decreasing thereafter, with a maximum guarantee of 60 percent for loans in excess of $125 million. Under the new regulations, guarantees of up to 90 percent are available for those under $125
million, provided that three requirements are met: equity is at least 40 percent; feedstock and off-take contracts for terms of at least one year are in place; and the ratio of total discounted collateral value to the total loan request exceeds 1.5 to 1. Under both the old and new regulations, loans cannot exceed 80 percent of total eligible project costs, which include the purchase and installation of (most) equipment, construction or retrofitting, permit and license fees, working capital, land acquisition and financing costs, excluding guarantee and renewal fees. The previous citizenship requirement has been removed, and the rural location requirement relaxed to mandate projects be located in U.S. states or territories. Unlike most other U.S. federal loan guarantee programs, the 9003 Program is designed exclusively for biorefineries. The USDA has delineated several criteria for project eligibility based on feedstocks, output and production. The revised regulations clarify that certain types of organic municipal solid waste are eligible feedstocks.
The USDA has emphasized that its policy is to have a program that is “technologically, geographically and feedstock neutral.” While the USDA declined to mirror its definition of “advanced biofuels” with the U.S. EPA’s renewable fuels standard, RFS compliance will now earn points under the revised scoring criteria. The requirement that 70 percent of the revenues be from sales of advanced biofuels was lowered to require
USDA Scoring Criteria
Section 9003 Biorefinery Assistance Program 2011 Regulations Maximum Points
Criteria Establishment of a market (less than 50 percent commitment) for feedstocks, marketing agreements for the advanced biofuel, and byproducts and the project produces an advanced biofuel that meets an applicable renewable fuel standard (if one or two of the market requirements are met, 5 points; if the advanced biofuel does not meet an applicable renewable fuel standard, 0 points).
The area that will supply the feedstock will be not be located in an area with similar advanced biofuel facilities.
Use of a feedstock not previously used in the commercial production of advanced biofuels.
Plans to work with producer associations or cooperatives for 60 percent of feedstock, biofuel, and byproduct value (if over 30 percent but less than 60 percent, 3 points).
Level of financial participation of the borrower, computed based on a debt-to-tangible net worth ratio, equal to or less than 2.5 to 1 (if equal to or less than 3 to 1 but greater than 2.5 to 1, 8 points; if the project uses other federal direct funding, 10 point deduction).
Adoption of a process with a positive impact on resource conservation, public health, and the environment (if the project uses a feedstock that can be used for human or animal consumption, 5 point deduction).
Will not have any economically significant negative impacts on existing plants or facilities that use similar feedstocks (if feedstock is wood pellets, 0 points).
Located in a rural area and creates jobs with an average wage that exceeds the county median.
Level of local ownership greater than 50 percent (if over 20 percent but less than 50 percent, 3 points).
Can be replicated nationally (if regionally only, 5 points).
Uses a technology, system, or process that is not currently operating in the advanced biofuel market as of Oct. 1 of the fiscal year for which funding is available.
Bonus points for applications that promote partnerships and other activities as identified by the USDA (cannot raise a project’s score over 100 points).
may 2011 | Ethanol Producer Magazine | 67
a majority of production be in the form of advanced biofuels. Previously, measurement based on revenues would have been skewed by the high value of bio-based chemicals, rendering facilities ineligible if over 30 percent of their income came from nonfuel sales. The new regulations will allow projects to increase their production of high-value
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products, as long as the majority of production measured in Btu content (or, if no Btu content is established, volume) is advanced biofuels. In the new regulations, the USDA clarified that the production of electricity from advanced biofuels may be part of an eligible project. Sales of this electricity to producer
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associations and cooperatives are treated the same as sales of advanced biofuels in the scoring criteria. The new regulations state that both the guaranteed and unguaranteed portions of loans must be secured by a first lien, but that the USDA will consider subordinate positions on inventory and accounts payable in certain situations. The program will also extend to guarantees of bonds in limited circumstances where lenders of record serve as bond trustees. The loan term requirement has been relaxed by removing an 80 percent of useful life requirement and allowing loan terms for the shorter of the entire useful life of the project, or 20 years. Changes were made to mitigate concerns regarding lead lender risk, most notably the change in the minimum retention requirement from 50 percent of the unguaranteed portion of the loan (which could total up to 20 percent of the total loan amount) to 7.5 percent of the total Comments Heeded loan amount. The The USDA responded maximum interest to comments about its Biorefinery Assistance rate for unguaran- Program with multiple teed portions of changes, writes Todd Alexander, partner with loans was changed Chadbourne & Parke. to be no more than 5 percent (rather than the previous 1 percent) higher than the rate applicable to the guaranteed portion. A number of fee calculations were changed as well.
Tips for Success
68 | Ethanol Producer Magazine | may 2011
The USDA has emphasized that its policy is to have a program that is “technologically, geographically and feedstock neutral.” In the scoring criteria, a total of 40 points are directly linked to technology: use of new feedstocks (15 points); positive impact on resource conserva-
tion, public health, and the environment (10 points); replicability (10 points); and use of a technology, system, or process that is not currently operating in the advanced biofuel market (5 points). This emphasis on new technology should come as no surprise: one of the main purposes of the 9003 Program is to finance first-of-akind projects, with the goal of proving their commercial viability. Examining the most recent three loan guarantee recipients, Short Timeframe Applications to the each uses a different USDA loan guarantee low- or negative-cost are due by May 10, says Chadron feedstock. AdditionEdwards, associate ally, each of these with Chadbourne & Parke. projects previously demonstrated their technology in smaller-scale facilities. Scoring criteria for the use of new feedstocksâ€”one of the most heavily weighted single pointsâ€”is based on use in a commercial facility. Previous use on a smaller, non-commercial scale would not cause a loss of points and, based on previous loan guarantee recipients, may be a key factor to successfully securing a loan guarantee, as the focus on the program is to mitigate scale-up, rather than technology, risk. In addition to feedstock diversity among projects, feedstock diversity within individual projects may also be a major positive factor for applicants. In January, Secretary of Agriculture Tom Vilsack noted that one of the reasons that the INEOS Bio project was selected for a loan guarantee was â€œthe combination of the feedstocks which allowed us to test a wider variety of feedstocks.â€? While direct funding from federal government is not included in calculations of equity (and leads to scoring criteria losses), the regulations do not exclude direct funding from state, local or foreign government sources. The elimination of
the citizenship requirement for borrowers opens up a wide variety of options for international equity and other potential funding contributions (although it also opens the program up to competition from international sponsors). The change to require that the majority of production consists of advanced biofuels and the clarification that costs associated with electricity generation are eligible project costs will help projects attract equity partners, as both of these changes will make higher, more profitable, and more consistent sources of project income accessible to projects competing for loan guarantees. The clarification that municipal solid waste projects are eligible for loan guarantees and the removal of the rural area requirement will allow more waste-
to-biofuels projects to pursue loan guarantees. Because the $129 million in funding for most recent NOFA likely represents all of the residual amounts left over from 2009 and 2010 appropriations the question of the continuation of the 9003 Program in the short term will rest on future discretionary federal budget allocations. Unless further funding is provided to the program, or unless awards granted in the current round of funding do not use all of the previous allocations, this will be the final NOFA for the 9003 Program. Authors: Todd Alexander, Partner Chadron Edwards, Associate Chadbourne & Parke LLP (212) 408-5100 firstname.lastname@example.org, email@example.com
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